Europe wants to save its industry. It still can’t agree how.

BRUSSELS — Volkswagen’s plan to cut up to 100,000 jobs and close four factories in Germany is exactly the kind of industrial crisis Brussels says it wants to avert.

But EU countries and lawmakers are still arguing over how to respond.

By the end of this year, European leaders want to complete work on a landmark bill, the Industrial Accelerator Act, which would channel billions in public procurement spending to European companies with the goal of helping them withstand an onslaught of cheap exports from China.

“The latest news from Germany shows the urgency to act decisively to protect our markets from unfair practices from our global competitors,” EU industry chief Stéphane Séjourné told POLITICO, calling the IAA a “decisive” tool. 

The bill’s main provision, a Made in Europe preference, would favor locally made goods. Its supporters say it’s high time for the EU to defend its industry, but others want to hit the brakes on what they see as a protectionist measure. 

Critics find the proposal risks turning into a legal maze for companies and driving up prices for EU-made products, while potentially shutting out friendly trading partners such as Canada, the U.K. or Japan.

“What is happening at Volkswagen is alarming, but it is not an isolated case. It is the consequence of years of European naivety while our global competitors pursued clear and aggressive industrial strategies,” said French liberal lawmaker Christophe Grudler, one of the three leaders on the file in the European Parliament.

Negotiations involving EU countries and lawmakers are only now getting underway after the European Commission presented its proposal with a three-month delay in March. Officials privately acknowledge that time is already running short to secure a compromise by the end of the year, as prescribed by the EU’s One Europe, One Market roadmap.

Who's to be trusted

The toughest challenge ahead is agreeing on which countries should be included on a list of “trusted partners,” whose products will be likened to European ones in some areas of public procurement and funding.

The debate broadly pits free-trade skeptics — spearheaded by France — against export-oriented economies led by Germany, the Netherlands and the Nordics. 

“With Made in Europe and a strong IAA, we could have absorbed the shock for Volkswagen and its employees,” Pierre Jouvet, the top Socialist lawmaker on the file, told POLITICO. 

Jouvet is an advocate for a narrow list of trusted partners to be carefully selected under an “opt-in” mechanism. Such calls met strong pushback from the Commission’s powerful trade department, where chief negotiator Maroš Šefčovič is leading a drive to broaden — and not narrow — the EU’s trade relationships.

Séjourné’s industrial policy drive is motivated by the conviction that the EU’s historic commitment to free trade is failing — with Brussels struggling to come up with a coherent response to the existential threat posed by a Chinese bilateral trade surplus that is running at €1 billion a day.

“We also need to use all our existing trade instruments now, and not just contemplate new ones,” said Séjourné. 

Additional measures in the works include requiring companies to diversify their sources of critical inputs away from China, as well as likely investigations into plug-in hybrid vehicles, chemicals and machine tools.

Yet even new trade weapons may prove useless if governments remain unwilling to use them. The Anti-Coercion Instrument — the bloc’s trade “bazooka” — already allows the EU to mount a sweeping response to economic coercion. It has never been fired.

“The IAA is only one side of the coin. The Commission must also step up to protect the European market through a stronger and effective trade defense strategy,” said Kathleen Van Brempt, a Belgian Socialist who is the lead lawmaker on the IAA in the parliament’s trade committee.

Will it work?

A creeping question is whether the IAA, despite its expansive ambitions, will have a decisive impact when it finally enters into force.

Businesses have broadly welcomed the Made in Europe idea but view its potential application as too narrow to prevent entire supply chains from being swept off the continent.

“Overall, the approach put forward by the European Commission does not appear sufficient to address the challenges facing European industry,” wrote Italy’s top business lobby Confindustria in a position paper, criticizing the bill’s limited focus on the greening of industry and a “trusted partners” list that still appears too open.

The IAA’s rules of origin could even end up backfiring on automakers like Volkswagen, according to think tank Bruegel. For example, “shielding the upstream aluminium sector from import competition would raise input costs for European car manufacturers, who depend on competitively priced low-carbon aluminium to remain globally competitive in electric vehicles,” it wrote.

First, a compromise will need to be reached between the three EU institutions — the Parliament, the Council and the Commission — and omens for hitting the year-end deadline do not look good. With three committees scrutinizing the IAA, no less than 150 lawmakers will get to express their opinion on the bill.

Meanwhile, in the first half of the year, the Cyprus Council presidency only managed to come up with a compromise text on parts of the 100-page bill — punting debate on the controversial Made in Europe provision to the Irish presidency that begins Wednesday.

But Ireland’s Minister for Enterprise, Tourism and Employment Peter Burke is ready for the challenge: “It is a very aggressive roadmap, there is no doubt of that, but in Ireland we are very strong in getting compromises,” he told POLITICO.

Aude van den Hove contributed reporting.