ttttIn the past three decades, the European Union has answered a single question in the same way: how much foreign investment do you want? The more, the better, Brussels responded. The European project was built on a profoundly liberal conviction, and therefore trade openness, the free movement of capital, and international economic integration were considered positive forces by definition. If a Chinese, American, or Japanese company wanted to build a factory in Europe, the priority was to attract it. Here, the origin of the capital mattered little because the focus was on the volume of investment, employment and growth.
Yet, the latest moves on the geopolitical chessboard are pushing Europe to rethink this strategy. The proposal for the Industrial Accelerator Act (IAA), introduced by the European Commission within the framework of its new economic security agenda, probably represents the most ambitious step yet taken by Brussels to redefine the relationship between Europe and foreign investment. This regulation, in a bold move, intends to use access to the European market to shape the behavior of foreign investors and compel them to produce added value within the Union.
The turn toward economic security
The shift in Europe did not arrive suddenly. As early as the pandemic, the consequences of member states depending on third countries for essential goods began to be visible. Subsequently, the Russian invasion of Ukraine exposed the risks stemming from energy dependencies. Added to this is the intensification of the US–China rivalry, which has shown that technology, industry and supply chains have become tools of geopolitical power that Europe does not control as much as it would like.
“Today, more and more policymakers believe that certain dependencies can become strategic vulnerabilities”
Those same Europeans who once assumed that globalization would generate mutually beneficial interdependencies have come to realize that the reality is different. Today, more and more policymakers believe that certain dependencies can become strategic vulnerabilities.
Fortunately, this shift in perspective is reaching multiple fronts: from the Chips Act to the Critical Raw Materials Act, through export controls or the new instruments of trade defense. In this sense, the IAA is the latest manifestation of a much broader trend. Brussels, with economic efficiency still in mind, is also incorporating resilience, strategic autonomy, and economic security into the equation.
The new European filter on large investments
The key novelty of the IAA is that it introduces a logic different from the current European regime for screening foreign investments. Until now, the debate revolved mainly around national security: critical infrastructure, sensitive technologies, or potential risks to public order.
The Commission now proposes something different. The new mechanism would affect only large investments—those exceeding €100 million—originating from countries that concentrate more than 40% of global manufacturing capacity in certain strategic sectors, such as batteries, electric vehicles, solar technologies, or critical raw materials.
“The Commission itself explains that it intends to avoid that the Union becomes a mere assembly space”
In other words, Brussels fears that Europe could attract investments that create visible economic activity but little real added value. Although a factory may generate jobs and products on European soil, dependencies may be reproduced in the technology employed or in the production decisions taken far from European capitals. The Commission itself explains that it intends to prevent the Union from becoming a mere assembly space, with scant technological retention and vulnerable supply chains.
For all this, affected investors would have to meet a series of conditions to obtain authorization. These requirements include, among others, the involvement of European partners, technology transfer, investment in research and development within the Union, a significant presence of European workers, or the strengthening of local suppliers. The strategy aims to secure better technology, greater industrial capacities, and, above all, tighter control over critical parts of value chains.
China, the implicit target of the proposal
Although the text does not state it explicitly, the proposal is very much mindful of China. The sectors selected by the Commission precisely match those in which Chinese firms have established dominant positions worldwide: batteries, electric vehicles, panels for solar energy, and processing of critical raw materials.
Brussels, which criticized the technology transfer requirements, the obligatory joint ventures, and other conditions imposed by Beijing on foreign companies seeking access to the Chinese market, wants to do something similar. Now Europe begins to experiment with instruments that pursue similar objectives, albeit with a much more limited scope and under a different legal architecture.
The European aim is not to close its market or discriminate against certain countries. Rather, what is proposed is to ensure that certain investments genuinely contribute to strengthening European industry. However, from Beijing’s perspective, it will likely be seen as a new step in Europe’s growing de-risking strategy (de-risking).
The arguments in favor
Advocates of this approach argue that Europe is simply adjusting to a new international reality. The United States uses massive subsidies to lure industrial production, while China has conditioned access to its market for decades. In addition, Japan, South Korea, and other countries have historically protected sectors deemed strategic. Europe would be, according to this view, the last great economic power to abandon an overly naive conception of globalization.
“European voices contend that a common European policy will strengthen the negotiating position of member states against large multinational corporations”
The Commission contends that the new rules will foster greater technology transfer, strengthen European supply chains, boost research and development, and contribute to creating more resilient and better-integrated jobs within the European industrial fabric. Moreover, its supporters argue that a common European policy will reinforce the negotiating leverage of member states against large international multinationals.
Consequently, instead of competing with one another to offer the most favorable conditions, European governments could act from a more coordinated stance.
The risks of the new strategy
Nevertheless, the project also raises important questions.
The first is economic. The Commission itself acknowledges that some investments could be diverted to other regions and that certain investors might consider the new regulatory obligations too costly. Europe already competes with the United States for attracting industrial capital, and also with Asia. Adding extra procedures, compliance requirements, and monitoring obligations could reinforce the perception that investing in Europe is becoming increasingly complex.
The second risk is bureaucratic. Although Brussels insists that the mechanism will affect only a limited number of operations, the proposal creates new national authorities, notification procedures, continuous supervision systems, and coordination mechanisms between member states and the European Commission.
“Economic history shows that restrictions rarely stay unilateral for long”
The third risk is geopolitical. If Europe begins to impose increasingly strict conditions on certain foreign investors, other countries could respond by imposing equivalent measures against European companies. Economic history shows that restrictions rarely stay unilateral for long.
The conflict between Brussels and the Member States
All told, the most interesting battle is likely not a duel between Brussels and Beijing. It will be waged within the Union itself. A large number of governments have built their development strategies around attracting foreign investment. Countries such as Hungary, Slovakia, Poland, or the Czech Republic have aggressively competed to attract international industrial projects. Spain has followed a similar path in sectors like batteries, electric cars, or renewables.
From Madrid, a large foreign investment is seen as an economic victory. Yet from Brussels, more and more, the question is different: what portion of that investment actually stays in Europe? This difference in emphasis could become a growing source of political tension.
While the Commission seeks to maximize the European value added, many national governments still prioritize local employment, immediate economic activity and the capture of projects over those of other member states.
“At heart, the debate over foreign investment is also a debate about who decides European industrial policy”
The logic of European economic security and the logic of competition among member states do not always coincide. In fact, one of the Commission’s explicit justifications for pushing this harmonized framework is to avoid the so-called forum shopping: the possibility that investors choose the member state with the fewest regulatory demands. Ultimately, the debate over foreign investment is also a debate about who shapes European industrial policy.
A new European doctrine
Europe must not close its doors to foreign investment because that would be a mistake. The Twenty-Seven need investment, innovation, and access to global value chains. The European economy remains heavily dependent on international trade and on global economic integration.
At the same time, it is not sustainable that technologies and critical industrial capabilities and essential supply chains depend almost exclusively on external actors. That is why the Union is moving toward a new economic doctrine. De facto, it is a form of conditioned openness, because Europe will remain open to foreign investment, but increasingly will demand more from those who want to access its market.
Foreign investment without conditions is ending, but one must ask whether Brussels will succeed in finding the balance where, while preserving its industrial sovereignty, it remains attractive to investors.
