The Industrial Accelerator Act: A New EU FDI Control Regime for Strategic Sectors

The European Commission has proposed one of the most significant expansions of EU investment control in recent years. The proposed IAA forms a central pillar of the EU’s Clean Industrial Deal and reflects a strategic pivot from the bloc’s traditionally liberal approach to foreign investment towards a more interventionist industrial policy.

The IAA is a wide-ranging instrument that addresses multiple dimensions of EU industrial policy, including “Made in Europe” local content requirements for public procurement, so-called "Industrial Acceleration Zones," and low-carbon product labelling. Among its most consequential elements are novel FDI control provisions that stand to have a major impact on M&A transactions. These provisions may require certain large-scale foreign investments in strategic green technology and critical raw materials sectors to comply with ownership caps, joint venture requirements, and technology transfer obligations.

The FDI provisions in the IAA are distinct from and additional to the revised EU FDI Screening Regulation, which establishes minimum requirements for national-level FDI screening across Member States on security and public order grounds. The IAA regime is instead framed as an industrial policy and economic security instrument, aimed to ensure that foreign investment in strategic sectors delivers tangible benefits – including technology transfer, local employment, and supply chain resilience – to the European economy.

While the Commission aims to expedite the adoption of the IAA as much as possible, the proposal will need to go through the ordinary legislative procedure (involving the European Parliament and the Council of the EU which either of which may still request significant amendments) and may therefore take several months.

Strategic Context

The IAA’s FDI provisions are best understood against the backdrop of Europe’s growing concerns about its declining manufacturing base and strategic dependencies in green technology supply chains. The European Commission has identified a set of structural vulnerabilities, e.g., the EU’s share of global industry gross value added has declined significantly in recent decades; more than 80% of certain global critical manufacturing capacities – notably battery and solar component production – are now concentrated in third countries.

The Commission has set an explicit target for the IAA: EU manufacturing should account for at least 20% of the Union’s gross value added by 2035. This target signals the scale of the Commission’s ambition and shows the distance between aspiration and current reality.

Significantly, the new FDI provisions also respond to concerns that large volumes of EU state aid have flowed to non-European manufacturers. Since 2021, the European Commission has approved approximately €2 billion in state aid for Asian battery manufacturers operating in Europe, with further subsidies reportedly under consideration for Chinese players. The IAA is intended to ensure that, going forward, foreign investments qualifying for public support or regulatory benefits deliver genuine local value creation.

National FDI Control Framework and Decision-Making Powers

The FDI regime within the IAA would not create a centralised EU-level approval authority. Instead, the IAA would require each Member State to designate or establish a competent EU Member State authority responsible for reviewing qualifying investments and applying the conditionalities regime within its territory.

At first instance, the designated national authority of the Member State in which the investment is located (or, in the case of greenfield projects, in which the new entity is to be established) would be responsible for conducting the review, engaging with the investor, and determining which conditionalities are to be imposed. The national authority would be required to apply the criteria and conditionality framework set out in the IAA and its implementing delegated acts, meaning that while implementation is national, the substantive standard would be harmonised at the EU level. Moreover, if an investment is notified in several Member States, the competent Member State authorities would need to co-ordinate the review of the notified investment and agree on conditions imposed on the investment.

Notwithstanding this national framework, the proposal builds in a layer of EU-level oversight. The Commission would be able to issue an opinion to the reviewing national authorities on whether a notified investment is subject to FDI control, whether it fulfils the conditions for approval and whether reviewing authorities should approve the investment.  Where the Commission’s view would be that the investment does not fulfil the relevant conditions, the reviewing authorities would have an obligation to assess the notification in greater detail.  The reviewing authorities would also need to justify in their decisions how they took into account the Commission’s opinion. The Commission would have a final say on conditions to be imposed where competent national authorities in reviewing Member States disagree.

In contrast to some previous drafts, the Commission is also envisaged to have the power to carry out its own assessment of notified investments and to require reviewing authorities to apply, or not to apply, some or all conditionalities. The Commission can carry out its assessment on its own initiative where the investment has the potential to significantly impact added value creation in the EU or where the value of the investment exceeds € 1 billion, or at the request of the reviewing authority or an authority of another Member State where the investment has a significant impact.Scope of the IAA FDI Regime

Investment Threshold

The IAA FDI regime would apply to foreign investments that exceed €100 million (taking into account any previous investments in the same target) in designated emerging strategic sectors relating to industrial manufacturing activities in the EU and that amount to ‘control’ (defined as at least 30% of share capital/voting rights/ownership).

Sectors in Scope

The proposal identifies several “emerging strategic sectors” to which the regime would apply. These include:

• Battery technologies and its value chain for battery energy storage systems
• Solar photovoltaic technologies
• Pure electric vehicles (EVs), off-vehicle charging hybrid electric vehicles and fuel-cell electric vehicles (including components related to electrification and digitalisation)
• Extraction, processing and recycling of critical raw materials

The sectoral scope is notably narrower than the broader FDI screening framework, which covers a wide range of sectors touching on security and public order. However, the Commission is envisaged to have the power to expand the list through delegated acts that require less involvement from the European Parliament and the Council of the EU (although they retain the power to object any act within two months). Digital technologies, artificial intelligence (AI), quantum technologies and semiconductors are excluded from this power.

Geographic Scope: The 40% Manufacturing Capacity Threshold

In a key evolution from earlier drafts, the proposed provisions do not apply to all non-EU investors. Instead, the regime is now limited to investors from countries that control more than 40% of global manufacturing capacity in the relevant strategic sector.

This represents a significant narrowing compared to earlier leaked drafts, which would have applied the controls to all trading partners that do not have a free trade agreement with the EU. The revision is understood to have been made in response to intense lobbying from allied countries who objected to being treated in the same way as geopolitical competitors. The revised draft also proposes a mechanism for the Commission to designate certain third countries as “equivalent” to EU producers for public procurement purposes, provided they meet security and sustainability criteria, with the Commission retaining the power to revoke equivalent status.

In practice, the 40% threshold is widely understood to be principally calibrated to capture Chinese investors, given China’s position in global manufacturing of batteries, solar panels, EVs, and related critical minerals processing.

Conditions Imposed on the In-Scope Investments

The proposal imposes a suite of conditions on qualifying investments that collectively represent a significant departure from the EU’s traditional approach to inbound investment. The principal requirements are described below, with the notified investments generally expected to meet at least four out of six requirements.

• Ownership Cap. The IAA sets a 49% cap on foreign participation in entities undertaking manufacturing activities in the strategic sectors identified above. This effectively mandates that European investors must hold a majority stake – and, therefore control – in any investment vehicle operating in these sectors. The cap applies to equity ownership and, by extension, is expected to constrain the foreign investors’ governance and decision-making rights.
• Mandatory Joint Ventures. Foreign investors are required to establish joint ventures with European partners. This requirement goes beyond simply limiting ownership: it creates a structural obligation for foreign investors to integrate with European counterparts, ensuring that European partners participate directly in the management, governance, and economic upside of the investment.
• Technology Transfer and IP Sharing. In-scope investments are subject to technology transfer commitments, including licensing agreements and provisions for joint IP ownership. The draft references both industrial and operational know-how, suggesting that the obligations extend beyond formal patent licensing to encompass manufacturing processes, equipment operation, and scale-up expertise. Industry advocates have urged that foreign investors be required to demonstrate technology transfer capacity before investment approval is granted.
• Local R&D Investment. The proposal requires in-scope investors to commit to local R&D investment equivalent to 1% of gross annual revenues generated by the target, as applied in proportion to the foreign investor's share of control. This requirement is designed to ensure that strategic technology development occurs on European soil and contributes to the local innovation ecosystem.
• Local Workforce and Input Obligations. At least 50% of the workforce must be European nationals (this requirement needing to be met for the notified investment to be approved), and at least 30% of inputs used in final products must be manufactured within the EU. These requirements reinforce the broader “Made in Europe” framework and are intended to prevent foreign investors from establishing purely assembly-type operations that import most of their value chain.

Non-Compliance with the FDI Regime

The IAA proposes a mandatory pre-investment notification and approval framework, meaning that a qualifying investment could not be implemented prior to obtaining the requisite clearance, or where conditionalities are imposed prior to formally accepting and committing to those conditions. Completion of a transaction in breach of this standstill obligation, or material non-compliance with conditionalities imposed as a consequence of approval, would engage enforcement consequences. Failure to notify could lead to a penalty of at least 5% of the average daily aggregate revenues generated by the investor group. Penalties for other forms of non-compliance – such as failure to comply with conditions – would be left to the discretion of the Member States.

Political Dynamics and Legislative Outlook

The IAA has been the subject of significant political debate within the EU. A coalition of Northern European and Baltic states — Finland, Sweden, Estonia, Latvia, and Lithuania, joined by the Netherlands — has cautioned that the “Made in Europe” requirements risk adding unnecessary regulatory complexity and undermining EU competitiveness. France, by contrast, has pushed for stringent local content and investment conditions to protect and revive its industrial base, particularly in clean technology, steel, automotive, and chemicals.

Externally, several key trading partners have raised concerns. The United Kingdom, Japan, and Canada have all lobbied for the regime to distinguish between allied countries and geopolitical competitors. The narrowing of the investor origin test from a broad “no-FTA” criterion to the 40% manufacturing capacity threshold is understood to be a direct response to these representations.

The IAA remains subject to the ordinary legislative procedure and will require adoption by both the European Parliament and the Council of the EU. The text is expected to evolve materially during this process, and the final shape of the FDI provisions in particular – including the precise ownership cap percentages, the definition of “strategic sectors,” and the calibration of the manufacturing capacity threshold – will be the subject of extensive negotiation.

Practical Implications for Investors

The IAA FDI provisions, if adopted in their current form, would have far-reaching implications for investment planning:

• Transaction structuring. The 49% ownership cap and mandatory JV requirement would necessitate fundamental changes to how investors structure investments in the EU’s green technology sectors. Investors would need to identify and negotiate with European JV partners, allocate governance rights within the cap constraints, and design IP and technology sharing arrangements that satisfy the IAA’s transfer obligations.
• Due diligence. Investors would need to assess whether their home country triggers the 40% manufacturing capacity threshold in the relevant sector, which may require detailed analysis of global market share data. The Commission is expected to publish guidance on how the threshold will be calculated and applied.
• Multi-regime filing strategy. Given the interaction between the IAA, the revised FDI Screening Regulation, and the Foreign Subsidies Regulation, investors would need a coordinated filing and approval strategy across multiple regulatory tracks. Timing, sequencing, and the management of conditionality across these regimes will be critical.
• Monitoring the legislative process. Given that the text remains in draft form and is subject to the ordinary legislative procedure, key parameters – including the precise ownership cap, the sectoral scope, and the manufacturing capacity threshold – may change. Investors targeting the   sectors in question should closely monitor the IAA legislative process.