ALDEN BIESEN, Belgium — The European Union should open up more to its trade partners in public procurement and curb Chinese investment in sectors like green tech, according to a new draft of a landmark industry act obtained by POLITICO on Thursday.

Free-trade partners like the United Kingdom and Japan will breathe a sigh of relief as the draft Industrial Accelerator Act (IAA) foresees a definition of “Made in EU” that includes “trusted partners.” Brussels wants to throw up a higher barrier to investment from China by imposing a cap on foreign direct investment by countries that dominate a given global industry.

The leak of the bill came as EU leaders held a retreat at a Belgian castle to wargame ways to reverse the bloc’s industrial decline in the face of China’s export dominance and America’s tech supremacy. European Commission President Ursula von der Leyen is trying to find a balance between France’s protectionist instincts and calls for more openness led by Germany, Italy and the EU’s Nordic contingent.

Leaders played down differences as they gathered at the Alden Biesen estate, with Italian Prime Minister Giorgia Meloni saying her views on industrial strategy converged with those of German Chancellor Friedrich Merz, and brushing off suggestions the duo were trying to isolate French President Emmanuel Macron. “It is not something that we do against someone else, by excluding someone else,” she told reporters.

Leaders reached a form of consensus on areas including the concept of a European preference, where there was openness to examining what it may mean and where it may be needed, according to a person briefed on the talks. The meeting kicked off an intense month of politicking on restoring EU competitiveness and its single market project, with the IAA due out on Feb. 25 and leaders to reconvene for a full-blown summit on March 19-20.

The draft drew a swift and strong rebuke from Chinese business.

“The latest version of the Industrial Accelerator Act is likely to undermine the investment confidence of leading Chinese companies,” the Chinese Chamber of Commerce to the EU said. “Beyond the political signaling, many of the proposed measures raise serious practical concerns, including the feasibility of mandatory local partnership requirements, which in many cases may simply not be commercially or technologically viable.”

A big question mark over the industry push, which is being led by Industry Commissioner Stéphane Séjourné, is whether it can be sufficiently decisive to turn the economic tide.

“Whatever new FDI rules will be enacted will be ineffective,” said Yanmei Xie, a senior associate fellow at the Mercator Institute for China Studies. Each EU member country has a different agenda and building a united front against Chinese dominance is a near impossibility. “Whoever is the lowest denominator becomes the de facto gatekeeper.”

Trusted partners

The latest draft of the IAA, which runs to 96 pages, broadens the definition of a European preference as it would apply to public procurement and other taxpayer-funded programs in energy-intensive industries, net-zero technologies and the automotive sector. In so doing it should allay fears among friendly trading nations of a “Fortress Europe” scenario. 

The scope of Made in EU should include content originating from the EU and the European Economic Area, which spans Norway, Iceland and Liechtenstein. The draft also leaves the door open to “trusted partners” whose manufacturing “should be deemed equivalent to Union origin content.”

Earlier on Thursday, Séjourné dismissed the notion that the Made in EU push would exclude trade partners. His cabinet said there was broad support, both politically and in industry for the work of the Commission, although “opinions diverge on the conditions and modalities of its implementation.”

A broader Made in EU concept will be welcome in the U.K. after the country’s finance minister, Rachel Reeves, said on Wednesday that Britain needed to be part of the Made in EU club. “I actually support the idea of some sort of ‘Made in Europe’ or ‘Made in countries that share each other’s values,’” she told an event.

Japan, a major auto exporter, will also welcome the shift. The country “very much meets the definition of a Trusted Partner of the EU,” Patrick Keating, Honda Europe’s head of government affairs, told POLITICO. 

Getting tougher

The EU executive doubled down on its efforts to curb foreign direct investments from China in its latest draft. 

Should the current form hold, the IAA would limit investments by companies based in countries that control more than 40 percent of global manufacturing capacity across four sectors: batteries, electric vehicles, solar technologies, and the processing and recycling of critical raw materials.

“The sectors indicated — those in which Beijing is a leader — as well as the reference to the 40 percent manufacturing capacity, highlight how the increasingly clear target of these measures are Chinese foreign direct investments,”said Luca Picotti, a lawyer at Italy’s Osservatorio Golden Power.

The Commission’s proposal, which effectively mirrors Beijing’s 1980s forced joint venture policy, remains in the new draft.

Chinese automakers that could be forced to give up some of their technology to their European competitors are pushing back on that strategy. BYD CEO Stella Li has called the model “outdated.”

“It’s not efficient: We take decisions in a second, a joint venture takes months. It’s a model of the past,” she told Italian daily Corriere della Sera at the Davos World Economic Forum last month.

Governments would also be compelled under the IAA to buy more climate-friendly materials, though the scope of the requirement remains elusive in the latest draft of the upcoming industry booster. The act also proposes introducing voluntary green steel labels. 

The scale of the Commission’s intervention remains unclear in the draft, which is missing a section devoted to specific materials as well as a set of annexes, though hints are sprinkled throughout the document.

“Public procurement is a powerful lever,” von der Leyen told industry representatives at an event in Antwerp on Wednesday, noting it amounts to 15 percent of EU GDP. “This is massive financial firepower controlled by European governments. But too often, we see that our public buyers have to take the subsidized foreign products instead of the high-quality European alternatives. That is homegrown value that we are leaving on the table.” 

Aude van den Hove reported from Alden Biesen, Francesca Micheletti, Jordyn Dahl and Sebastian Starcevic from Brussels, and Zia Weise from Antwerp.