‘Buy European’ plans could create legal uncertainty and supply chain challenges

The Commission’s plans to use public procurement to strengthen domestic manufacturing and reduce strategic dependencies could reshape competition for billions of euros of public contracts. Yet despite growing political support for a more interventionist industrial policy, significant questions remain on the proposals’ compatibility with international trade rules, their likely effectiveness and the future position for suppliers outside of the EU, for instance the UK.

The debate reflects a broader shift in European policymaking. For decades, EU procurement rules have focused primarily on market openness, non-discrimination and securing value through competition.

The Commission’s proposed new Public Procurement Act and Industrial Accelerator Act (IAA) would retain those principles, but expressly incorporate considerations traditionally associated with industrial strategy and national security, including resilience, security of supply and economic security.

The proposals have emerged against a backdrop of mounting concern over the competitiveness of European industry and dependence on overseas supply chains in strategically important sectors.

According to the Commission, manufacturing accounted for 14.3% of EU gross domestic product (GDP) in 2024, compared with 17.4% in 2000. The proposed IAA sets a target of restoring manufacturing’s share of the economy to at least 20% by 2035.

Policymakers argue that the pressure is particularly visible in a number of strategic industries that are central to Europe’s economic future as well as its green transition. In energy-intensive sectors such as steel, aluminium, chemicals and cement, production has fallen significantly since 2021 as energy and production cost gaps with other regions have widened and imports have increased.

At the same time, the Commission has highlighted growing concerns over Europe’s dependence on overseas suppliers in vital clean technology sectors. China is estimated to account for around 85% of global battery production capacity and 95% of production across parts of the solar manufacturing supply chain, from wafers to cells.

European wind turbine manufacturers are also facing growing competition from lower-priced imports, while heat pumps remain reliant on non-EU components.

In the automotive industry, suppliers are contending with falling margins, the costs associated with the transition to electric vehicles and substantial job losses across the sector. The concern is that without intervention, Europe risks financing its green transition while the industrial base required to deliver it increasingly shifts elsewhere.

The Commission also views the issue through the lens of economic security and strategic resilience. Concerns about concentrated supply chains, dependence on a limited number of overseas producers and the risk of future disruptions have moved to the centre of procurement policy discussions.

As a result, public procurement is increasingly being viewed not simply as a purchasing mechanism but as an economic policy tool capable of supporting domestic industrial capacity, diversifying supply chains and reducing strategic dependencies in sectors considered critical to Europe’s long-term economic and technical sovereignty.

Not a straightforward “Buy European” obligation

The proposed Public Procurement Act would give contracting authorities a range of tools allowing them to favour EU-origin suppliers and products. Authorities could limit participation to EU and “covered” operators, impose origin requirements, favour qualifying bids during evaluation or, in some circumstances, reject tenders with insufficient EU or covered content.

The proposed IAA implements some of those elements.

More specifically, the IAA would introduce sector-specific origin requirements across industries viewed by the Commission as strategically important. For example, infrastructure projects could be required to use minimum proportions of EU origin construction materials, and electric vehicles procured under public contracts could face detailed European content requirements.

What distinguishes the proposals from previous procurement reforms is the explicit link between public spending and industrial policy objectives.

The Commission’s concern is not solely the competitiveness of European manufacturers today but whether the EU risks losing production capabilities that may prove strategically important in the future.

World Trade Organization compliance questions

Perhaps the most contentious aspect of the proposals is whether they can withstand scrutiny under international trade rules.

The Commission has sought to reduce risk by extending equivalent treatment to suppliers from trande partners that are signatories to the World Trade Organization (WTO) plurilaterial Government Procurement Agreement (GPA).

This international agreement requires participating countries to give suppliers from other GPA member countries access to certain public procurement opportunities on a non-discriminatory basis. Both the proposed Public Procurement Act and IAA are designed around the principle that suppliers benefiting from international procurement commitments should generally continue to receive this non-discriminatory treatment.

The difficulty arises where that treatment is suspended.

The proposed legislation would allow the Commission to restrict access where it considers action necessary to address dependencies or security-of-supply concerns. While policymakers increasingly regard those issues as matters of economic security, it remains unclear whether a WTO panel, or appellate body, would necessarily accept such reasoning.

GPA exceptions relating to security interests have historically been interpreted narrowly and do not expressly extend to broader industrial policy objectives such as strengthening competitiveness or reducing economic dependence on specific countries.

This creates potential tension at the heart of the proposals.

The Commission is attempting to use public procurement to achieve wider strategic objectives while simultaneously remaining within rules designed to prevent discriminatory procurement practices. Whether both objectives can be achieved alongside one another may ultimately be tested through dispute settlement proceedings or trading partner challenges.

Both the US and China have already voiced concerns about the direction of travel, albeit from very different perspectives. China has characterised the measures as discriminatory, and the US has questioned whether some provisions are consistent with international commitments.

The central legal question may be whether measures aimed at strengthening competitiveness and reducing economic dependency can properly be characterised as security measures for the purposes of WTO exceptions.

What about UK suppliers?

The UK government has been lobbying Brussels heavily to ensure suppliers are not excluded from strategic procurement opportunities.

The final proposals appear to reflect at least some of those concerns, with products from countries covered by the WTO GPA and certain trade agreements benefiting from 'deemed EU-origin' status. This means that countries such as the UK and Japan should generally receive equivalent treatment to EU-origin products.

That concession is significant given the degree of integration that still exists between UK and EU supply chains in sectors ranging from advanced manufacturing to clean technologies. However, the position is far from settled.

The Commission would retain powers to withdraw that equivalent treatment where a third country is judged not to provide reciprocal access to EU suppliers or where exclusion is considered necessary to address strategic dependencies to protect security of supply.

For UK businesses, this creates a new layer of uncertainty.

The challenge of implementation

European preference requirements may help create predictable demand for domestic manufacturers and encourage investment in production capacity. However, procurement policy cannot in itself recreate industrial capacity that has been lost over many years, particularly in sectors where overseas competitors benefit from substantial scale, lower costs and extensive state support.

There is also an unavoidable cost question. Higher prices may be viewed as the acceptable cost of greater resilience, but public authorities remain under pressure to deliver value for money.

The proposals themselves acknowledge this tension by allowing requirements to be waived where suitable supply is unavailable or where compliance would result in disproportionate costs.

The central question facing legislators may not be whether Europe should pursue greater strategic autonomy, but how far procurement law should be used to achieve it. As negotiations continue on the drafting of the new law, the debate is likely to focus less on the principle of strengthening European resilience and more on where the line should be drawn between legitimate economic security measures and protectionism.