The EU’s “Buy European” Agenda: What U.S. and Other Non-EU Investors Need to Know

A rapidly developing “Buy European” policy agenda is reshaping the EU’s legislative landscape. The EU is enacting a framework of laws designed to turn its significant purchasing and funding power into an industrial policy tool, driven by economic security considerations arising from geopolitical tensions that have exposed the EU’s dependencies and declining competitiveness in international markets and the need to build the EU’s industrial base and capabilities for the future. Increasingly, proposed and enacted legislation seeks to favour EU suppliers across sectors including defence, digital infrastructure, critical raw materials, automotive, clean tech and energy-intensive industries.

These proposed measures go well beyond traditional public procurement rules. If implemented, they will impose conditions on ownership, supply-chain composition and product origin that have direct implications for corporates and private equity sponsors and their portfolio companies operating in or selling into the EU. Proposals for major future EU funding programs introduce a strategic shift in allowing preference for EU firms to the exclusion of non-EU entities. This alert maps the key developments and outlines practical steps for U.S. and other non-EU investors.

Key Takeaways

Whether a supplier or product is “European” is more complex than bidder nationality or place of manufacture. Access to EU procurement and funding increasingly depends on where components originate and, in some cases. who controls the business. The scope and conditions for “EU-equivalent status” vary significantly between instruments, and in some cases equivalence can be narrowed or removed.

Legislative proposals are broad and proliferating. Preference measures already cover defence, utilities, medical devices and net-zero technologies. Proposed legislation would extend mandatory origin quotas to steel, cement, aluminium, automotive and clean-tech sectors, with a cross-sector overhaul of EU procurement rules also tabled. The biggest EU funding program and rules governing national funding increasingly include EU preference rules.  

U.S investors face a complicated equivalence position: while the U.S. is a WTO Government Procurement Agreement member (which does not cover support schemes), it does not have a free trade agreement with the EU, and the U.S.’s own preference instruments will be scrutinised for their impact on required reciprocal treatment.

Some proposed measures are in tension with WTO rules. Defence preferences are sheltered by WTO security exceptions, but civilian-sector origin quotas and subsidy conditionality which do not respect existing trade obligations may face challenge from trading partners. How far to extend EU-equivalence, which is significant for compliance with trading arrangements, is politically contentious within the EU and not yet settled for various proposed laws.

Due diligence should take account of these developments now. Product origin profiles, supply-chain dependencies, cloud arrangements and co-investor identity can each affect procurement eligibility and FDI screening outcomes. Corporate ownership and governance structures are relevant to eligibility in some instruments. These should be mapped to understand where future revenue streams may be affected.

Regulatory risk should be factored into investment decisions on entry and the impact on the buyer pool on exit. Beyond European preference measures, post-acquisition plans that reduce EU production capacity or transfer IP outside the EU may attract scrutiny under FDI screening. Measures creating EU advantage are being required to remedy foreign subsidy concerns. Regulatory factors may also constrain buyer pools at exit.

The policy agenda: the geopolitics driving European preference

The EU has, for several decades, championed the global trading system and open procurement. It was very critical of the U.S. Buy American Act and has been consistently vocal on Chinese state purchasing and subsidies to industry: enacting the EU Foreign Subsidies Regulation in direct response disruptions to the level playing field for competition within the EU caused by businesses benefitting from non-EU subsidies. However, non-discrimination as a point of European principle is rapidly changing and several converging geopolitical forces have driven this. COVID-19 and then Russia’s invasion of Ukraine exposed significant supply-chain dependencies (the latter in defence and energy), laying bare how reliance on a single supplier of critical inputs could become a strategic vulnerability overnight. Simultaneously, the U.S. Inflation Reduction Act and multiple tariff increases on European goods have demonstrated that the EU’s closest ally was prepared to discriminate against European suppliers and products. Chinese state-subsidised overcapacity in steel, electric vehicles and solar panels continued to flow into EU markets, undercutting European producers. And whereas the WTO as a forum for pursuing trade disputes, and negotiation of reciprocal access arrangements under Free Trade Agreements, had been the EU’s modus operandi for underwriting the EU’s open procurement stance, this has had to change as the WTO disputes mechanism has become increasingly paralysed.

These forces converged in the Commission’s Competitiveness Compass, published in January 2025, which reframed EU industrial policy around the concept of “strategic dependencies” and the aim to protect existing, and build new, industrial capabilities using the leverage of EU buying and funding power. President von der Leyen’s September 2025 State of the Union address went further, committing to “Made in Europe” criteria in public procurement, a first for a Commission president. The legislative response has been swift (and broader than just procurement, pushing for European preference in EU and national funding): one in eight proposals under the current mandate contains hard European preference mechanisms (origin quotas, procurement restrictions and “Made in EU” conditionality) and the biggest EU funding programme (the European Competitiveness Fund) enables EU preference in individual programmes.

Legislative initiatives and areas of impact

The EU’s preference agenda now spans multiple sectors alongside some horizontal initiatives of universal application and is advancing through both adopted legislation and ambitious legislative proposals. The pace of development is striking: several of these instruments have moved from proposal to adoption within a single legislative cycle. The principal instruments are:

• The European Defence Industry Programme (“EDIP”) and Security Action for Europe (“SAFE”), both adopted, impose strict eligibility conditions: establishment, management and infrastructure must be located in the EU/EEA. Components originating outside qualifying countries are capped at 35% of end-product cost (with EDIP applying a stricter 65% origin requirement to a narrower list of qualifying countries comprising EU and EEA-EFTA states only). Design authority over the product must sit within the EU. A Defence Procurement Directive recast is expected in Q3 2026.
• The Industrial Accelerator Act (“IAA”), proposed in March 2026 and currently in the legislative process, would introduce mandatory “Union origin” and low-carbon quotas for public procurement in steel, cement, aluminium, automotive and net-zero technologies. It would also impose new foreign investment conditions on investments exceeding €100 million in certain strategic sectors.
• The main framework on state aid for clean energy (CISAF) encourages Member States to include European preference criteria to decide who may benefit from national funding.
• Digital. The Cloud and AI Development Act (“CADA”) establishes a four-tier cloud sovereignty framework. The highest tiers require EU ownership, control and independence from extraterritorial data-access obligations. The Chips Act 2.0 introduces procurement preferences for EU-located production.
• Health. The Critical Medicines Act requires contracting authorities to favour EU-based manufacturing for essential medicines and bans the use of lowest-price-only award criteria in pharmaceutical procurement, reflecting concerns about the EU’s dependence on non-EU active pharmaceutical ingredient production.
• Horizontal measures. The Public Procurement Act, proposed this month, would end origin neutral procurement: it enables bids to be rejected, in certain strategic sectors (including energy, water, transport, postal services, and gas and oil extraction), where less than 50% of content is European.

Who is “European”? Eligibility tests across the key instruments

There is no universal approach to whether an entity or the content of a product is “European”. Eligibility criteria vary by instrument and sector, and investors should not assume that a single corporate structure will satisfy all requirements.

The criteria can be grouped into two broad categories:

Product origin. Product origin is generally determined under EU customs rules of origin, which look to the country of last substantial transformation. This means that a product assembled in the EU from imported components may still qualify as EU-origin, depending on the degree of processing. The IAA extends “Made in EU” equivalence for procurement purposes to countries with a free trade agreement (“FTA”), customs union or Government Procurement Agreement (“GPA”) membership, but critically, not for subsidy or support schemes, where the U.S. and China are both excluded (the GPA does not extend to support schemes). The U.S. faces a particularly complicated equivalence position: while it is a GPA member (which may provide access for procurement purposes), it does not have an FTA with the EU, and has its own U.S. preference instruments. Reciprocity of treatment is key in a number of the “EU equivalence” provisions so the various ways in which US schemes are open to EU firms will be closely scrutinised for reciprocal treatment.

Corporate identity. In the defence and digital sectors, the tests go well beyond product origin to encompass corporate ownership and governance. SAFE and EDIP require establishment, executive management and infrastructure in qualifying territories; entities must not be “controlled” by non-associated third countries. “Control” is assessed holistically — EU incorporation alone will not satisfy the test if the parent company is non-EU and retains decision-making authority over the subsidiary. Under CADA, the highest sovereignty tiers require independence from third-country legal jurisdiction and EU ownership, meaning that U.S. cloud providers subject to the CLOUD Act may not qualify for the most sensitive government and critical-infrastructure contracts. Geopolitical alignment also matters: access to SAFE funding requires country-specific agreements rather than general trade commitments. Canada has secured such an agreement; the U.S. has not.

Impacts on investors

Inward investment and the FDI regime

The revised FDI Screening Regulation (which Member States are currently implementing into national law) now requires all 27 Member States to operate investment screening regimes covering acquisitions in sensitive sectors, including military and dual-use goods, semiconductors, AI, critical raw materials and digital infrastructure. All national regimes must look through corporate chains to the ultimate beneficial owner and controller. Member States retain call-in powers for at least 15 months post-closing, creating a material tail risk for transactions that were not notified at the time of completion.

The IAA would introduce a parallel FDI regime. Investments exceeding €100 million in batteries, EVs, solar PV and critical raw materials from countries holding more than 40% of global manufacturing capacity (a threshold currently expected to be met only by China) would be subject to mandatory conditions. These include a 49% ownership cap for the non-EU investor, a joint venture requirement with EU partners, IP licensing obligations and a minimum 50% EU workforce requirement. For investments exceeding €1 billion, the Commission would be empowered to take decisions directly, bypassing national screening authorities.

Importantly, the application of these regimes is not limited to Chinese investors. The Dutch government recently blocked a U.S. acquisition of a cloud services provider, citing concerns about exposure to the CLOUD Act and extraterritorial data-access obligations. U.S. investors have faced significant remedy obligations on their investments in, for example, France. These screening regimes operate cumulatively alongside EU merger control and the Foreign Subsidies Regulation (“FSR”).

Procurement, cloud and supply chain requirements

EU-incorporated companies can now be excluded from tender processes based on product origin, even where their management and bidding vehicles are fully EU-based. This represents a significant shift: historically, establishment in the EU was sufficient to participate in most public tenders. The key thresholds and enforcement actions include:

• EDIP and SAFE impose a 65% EU-origin content requirement for defence procurement, and design authority must sit in the EU.
• Existing utilities procurement rules permit rejection of bids where more than 50% of products originate from non-covered countries.
• The IAA would introduce mandatory origin quotas. For example, it would require EVs to be assembled in the EU with 70% EU-origin components, and aluminium requires 25% EU-origin content.
• The International Procurement Instrument (“IPI”) was deployed for the first time in June 2025, restricting Chinese medical device bidders from certain EU procurement.
• Under the FSR, the Commission issued its first final procurement-related decision in April 2026, granting clearance on condition that a Chinese subcontractor was replaced with an EU business.
• Under CADA, U.S. hyperscalers may not meet the highest sovereignty tiers due to CLOUD Act exposure.
• The proposed Public Procurement Act would introduce quality-weighted award criteria (quality must account for at least 30% of the weighting) with a 50% European content threshold in strategic sectors, further tightening the competitive landscape for non-EU supply chains.

Legality of European preference under trade law

The EU’s preference measures sit in tension with its WTO obligations. The Government Procurement Act (“GPA”) prohibits domestic content requirements in covered procurement and requires national treatment for GPA parties. The IAA’s mandatory origin quotas are a classic “local-content” measure. To mitigate this, the proposed IAA treats products from GPA and FTA partners as equivalent to Union origin for procurement purposes, but this equivalence does not extend to subsidies and support schemes, from which GPA parties (including the US) are excluded. The support-scheme provisions are particularly exposed: analogous measures in other jurisdictions have been ruled to be violations of WTO obligations.

Defence procurement is on firmer ground for the EU, as it falls outside the GPA and is sheltered by the security exceptions in the GPA and the GATT. However, the proposed Public Procurement Act envisages broader economic-security restrictions which may not be justified under those same exceptions, which relate more narrowly to military goods and public order.  

Practical measures for investors

• Enhance the scope of due diligence on the way into an investment: Assess portfolio company vulnerability to emerging preference measures, particularly in technology, defence, critical minerals and clean energy. Identify which legislative instruments are most likely to affect each business; consider the proportion of business that is exposed to government customers or relies on EU public tenders and model the impact on revenue pipeline to build in caution around forecast win rates.
• Map product origin and supply chains: Identify non-EU manufacturing dependencies (especially for China, for example, minerals, chips, telecoms equipment) and the jurisdictions from which critical components are sourced. Consider EU-origin alternatives where cost gaps are manageable and assess whether restructuring production or assembly operations could strengthen eligibility.
• Review cloud and data arrangements: Assess whether cloud providers can satisfy EU ownership and control requirements under frameworks such as CADA. Where existing arrangements may not meet the highest sovereignty tiers, consider alternative EU-based providers or hybrid architectures.
• Consider investment structures: Assess whether ownership, governance or co-investor arrangements could affect procurement eligibility or trigger FDI screening obligations. In some sectors, partnering with European investors or establishing independent EU-governed subsidiaries may offer strategic advantages.
• Test business plans against regulatory commitments: Plans that reduce EU production capacity, relocate operations or transfer IP outside the EU may attract scrutiny under FDI screening or be inconsistent with conditions attached to public subsidies or procurement eligibility.
• Consider scope for challenge to measures under trade laws: Civilian-sector origin quotas and support-scheme conditionality carry materially higher legal risk for the EU given tension with trade law requirements.
• Incorporate regulatory risk into exit planning: FDI screening, foreign subsidies rules and preference measures may constrain future buyer pools or require specific conditions to be satisfied before a transaction can close. Early assessment of these risks can minimise execution risk and preserve optionality at exit.

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