Where next for EU Industrial Policy? European Commission’s IAA draft sparks criticism from all sides in European Parliament

Europe’s industrial base is under growing pressure from high energy costs, weaker investment, supply chain disruption and intensifying global competition. At the same time, China’s scale, technological capabilities and cost position have changed the competitive environment in several strategic sectors. The Industrial Accelerator Act (IAA) is the European Commission’s (Commission) proposed response: a framework intended to expand industrial capacity, support decarbonization and strengthen strategic value chains in the EU.

Marking a significant course correction in EU economic policy, the proposal combines procurement measures, public support and faster permitting with a new approval regime for foreign investments in strategic manufacturing. We examined the Commission’s original proposal in an earlier article (see here). This update looks at developments since then, focusing on the draft report prepared by the co-rapporteurs of three Parliament committees, the Council Presidency’s second compromise text, newly tabled amendments from liberal lawmakers, and the sharply divided stakeholder response.

The Commission’s original proposal

Under the Commission proposal, the new foreign investment regime would apply only where all three scope conditions were met:

• The investment value would exceed €100m;
• The investment would concern manufacturing in one of four sectors: battery technologies; electric vehicles and components for their electrification and digitalization; solar photovoltaic technologies; or the extraction, processing and recycling of critical raw materials;
• The investor’s beneficial owner would be from a third country that accounted for more than 40% of global manufacturing capacity in the relevant sector, and the investment would confer at least 30% of the shares, voting rights or ownership of the relevant EU asset. 

While country-neutral in form, China appears to be the only country likely to meet the 40% threshold initially.

A covered investment would have to be notified to the competent national investment authority and could not close before approval. Approval would depend on meeting at least four of six conditions: a 49% cap on the foreign stake; a joint venture with an EU partner; licensing intellectual property and know-how to the EU target; annual EU research and development spending equal to at least 1% of the target’s gross revenue; an EU-based workforce of at least 50%; and a strategy aimed at sourcing 30% of inputs from the EU. Investors covered by relevant EU economic partnership or free trade agreements would generally be exempt, although conditions could be imposed on subsidiary investments where necessary to prevent circumvention. 

This would be a new industrial policy test. It would apply alongside national investment screening under the EU Foreign Direct Investment Screening Regulation (FDI Screening Regulation), merger control and the Foreign Subsidies Regulation (FSR). 

Parliament committee draft: a broader and stricter approach

On 8 September 2026, the co-rapporteurs of the Parliament’s committees on international trade, industry and the internal market published a joint draft report containing 199 proposed amendments. The key amendments include:

• Wider scope. The amendments would lower the investment threshold from €100m to €50m and the shareholding, voting-rights or asset-ownership threshold from 30% to 10%. They would also bring foreign investors’ subsidiaries within the regime where the parent meets the 40% global-capacity test, even if based in a country covered by an EU trade agreement.
• Stricter conditions. Every covered investment would have to satisfy all six approval conditions. The EU workforce requirement would rise from 50% to 60%, - accompanied by requirements on working conditions, wages and collective agreements. If the investor’s home country imposed local-sourcing requirements, at least 50% of inputs for products placed on the EU market would have to come from the EU.
• A stronger Commission role. The Commission would have to issue a written opinion on every notification. It could review investments worth more than €500m on its own initiative, rather than only those above €1bn. For investments in critical raw materials involving EU funding, it could require the national authority to prohibit the transaction.
• Earlier application and possible expansion. The foreign investment regime would apply six months after entry into force rather than 12. A new provision would extend three conditions (ownership, workforce and EU sourcing) to a wider list of net-zero technologies, allowing authorities to prohibit investments on economic-security grounds. The draft would also open the door to extending the regime to digital technologies, AI, quantum technologies and semiconductors, which were excluded in the Commission’s proposal.

No consensus in Parliament: growing resistance and competing amendments

The co-rapporteurs’ draft report does not reflect a parliamentary consensus, neither by the committees nor by Parliament. On 6 October 2026, German FDP MEPs within the Renew Europe group tabled another package of 53 amendments aimed at rolling back regulatory overreach. Their proposals directly target bureaucratic duplication by exempting transactions already reviewed under the FDI Screening Regulation from the IAA regime and prohibiting duplicate information requests across merger control and FSR. To preserve commercial incentives, the amendments would also raise the foreign ownership ceiling from 49% to 50%, eliminate ongoing post-closing reporting obligations for investors, and strip the Commission of delegated powers to expand the regime to new sectors.

These proposals may change during committee consideration and any subsequent plenary vote. This is especially the case as political opposition has hardened further, with some lawmakers now arguing that the IAA should be cancelled altogether. Critics within the EP warn that rigid “Made in Europe” local-content rules and protectionist barriers will provoke trade retaliation and scare off the international capital essential for Europe’s green transition. As such, Parliament’s direction on the foreign investment chapter remains deeply divided and far from certain.

Council Presidency compromise: the same structure with more flexibility

The Council Presidency’s second compromise text, circulated to Member State delegations on 2 September 2026, is also a negotiating document and not the Council’s final position. It would retain the Commission proposal’s main scope tests: an investment value above €100m; a third country accounting for more than 40% of global manufacturing capacity in the relevant sector; a 30% ownership or control threshold; and the same four sectors of batteries, electric vehicles, solar photovoltaic technologies and critical raw materials. Material proposals include: 

• Conditions. An EU workforce of at least 50% would be mandatory. The investor would then choose three of the five other conditions. Training commitments would accompany the workforce condition, and a five-year workforce-maintenance obligation would apply where public funding was involved.
• Scope and procedure. Portfolio investments, services and certain intra-group restructurings would fall outside the regime. Subsidiaries linked to free trade agreement or customs union partners would generally be exempt from the conditions at notification, subject to safeguards against circumvention. Investors would report on compliance every two years, and an investment authority could waive the conditions after ten years of continued compliance. The authority could be the same body that already conducts national investment screening.

Business divided: unworkable red tape or an essential industrial shield?

Corporate reactions are sharply divided between groups warning against unworkable restrictions and EU firms demanding a tighter industrial shield. Several business associations reject the Commission’s design as overly prescriptive. AmCham EU describes the ex-ante commitments as uniquely restrictive without a transaction-specific finding of harm. The Turkish business association warns that fixed rules on ownership, labour, intellectual property and sourcing ignore commercial and technological realities.

Individual companies echo these concerns, warning e.g. against extending the regime to further sectors. Others propose an exemption where an investment serves the EU’s net-zero objectives and could not proceed without foreign capital.

Yet other European companies support even stricter intervention, e.g. favouring a mandatory joint venture in which an EU partner must hold a majority stake for large foreign investments, arguing this is essential to retain advanced know-how, technology and industrial value creation within Europe.

China: discriminatory and unlawful

China’s Ministry of Commerce argues that the formally country-neutral 40% capacity test is targeted at Chinese investors in practice. It calls for deleting the core scope provision and conditions on IP licensing and EU sourcing, arguing they breach WTO obligations. The China Chamber of International Commerce adds that equity caps and mandatory joint ventures discriminate against established investors and amount to forced technology transfer. They suggest risk-based reviews, transparency on the 40% methodology and grandfathering rules.

A fourth regime: companies and Member States question the architecture

A further criticism concerns procedure rather than the policy objective. The IAA regime would sit alongside national investment screening under the FDI Screening Regulation, merger control and FSR. AmCham EU warns that a fourth transaction-review regime could lead to incompatible remedies and stretch authorities that are still implementing or reforming the existing regimes. Several Member State delegations raise similar concerns. Germany, Italy, Belgium and the Netherlands favour procedural coordination, including a single contact point and common information submission, while keeping the substantive tests separate. Luxembourg questions the need for another foreign investment layer and favours higher thresholds, a narrower scope, a single notification and mutual recognition.

What happens next

Committee votes are expected first, followed by Parliament’s first reading in plenary, which is indicatively scheduled for 14 December 2026. Trilogue negotiations between Parliament, the Council and the Commission are expected to follow thereafter.

The EU will have to make a fundamental choice about the direction of its economic policy. It must decide how far access to strategic sectors should depend on commitments concerning ownership, technology, employment and local sourcing, and how to balance those requirements with the aim of attracting foreign investment.

The negotiations will also determine whether the IAA remains a targeted instrument for a limited group of investments or becomes the basis for a broader system of industrial conditionality. The Commission proposal, the Parliament committee draft, the Council Presidency’s compromise text and the stakeholder responses reflect different views on where that balance should lie.

The final text will therefore do more than settle individual thresholds and approval conditions. It may shape the EU’s approach to foreign investment in strategic industries for years to come, as well as the relationship among openness, economic security and industrial policy.

To discuss the potential implications of the IAA for your business or receive updates as the legislative process develops, please get in touch with any of the authors or reach out to your Freshfields contact.