The European Union is preparing to introduce landmark legislation that would give preference to European-made products and services in public procurement, marking a significant shift in the bloc’s industrial policy as governments worldwide increasingly favour domestic companies in response to mounting geopolitical tensions.
Following the summer recess, the European Commission is expected to present a regulation in September that would prioritise goods and services produced within the European Union in public purchasing. The proposal represents one of the bloc’s most far-reaching initiatives to support European industry through procurement policy. Although previous measures, including the recent Industrial Acceleration Act, have sought to strengthen European manufacturers, the new regulation would deepen that approach by embedding preference for EU-based companies into public contracting.
The initiative reflects a broader international trend in which governments are increasingly using public procurement as a strategic economic tool to strengthen domestic manufacturing and shield national companies from foreign competition. Similar policies have already been adopted by countries including Canada and Australia, while the United States, China and India have long pursued procurement frameworks favouring domestic industries.
The growing emphasis on protectionist measures has been driven by an evolving geopolitical environment in which the United States and China are competing across multiple strategic sectors, including technology, critical raw materials, trade and military capability. As global economic rivalry intensifies, other economies are seeking to strengthen their own industrial bases to remain competitive.
Countries have adopted a range of mechanisms to promote domestic suppliers. Australia introduced a 10% price loading on foreign bids several years ago, while the United States has steadily increased domestic content requirements for defence procurement. Under current plans, 75% of components used in US defence equipment are expected to be manufactured domestically by 2029. Some countries also define national companies according to factors such as the location of their tax headquarters or the stock exchange on which they are listed.
The European proposal, first reported by EL PAÍS, would particularly favour EU companies in sectors regarded as critical, including energy, healthcare, water, transport and industries with potential dual civil and military applications, such as shipbuilding and railway equipment.
Ignacio García-Bercero, a researcher at the Bruegel institute and former senior European Commission trade official, said the proposal represents a significant departure for the European Union. He noted that, before recent industrial policy initiatives, neither public procurement rules nor subsidy programmes generally required production to take place within the EU. He added that previous legislation was largely based on reciprocity, allowing restrictions only when third countries limited access to European suppliers.
China has been one such case. As Beijing is not a signatory to the World Trade Organization’s Agreement on Government Procurement, the European Commission launched an investigation in April 2024 after identifying indications that European companies were being discriminated against in Chinese public tenders for medical equipment. The investigation confirmed those concerns, prompting action by Brussels.
The Organisation for Economic Co-operation and Development (OECD), in a report published in May, said the balance between free trade and growing protectionist pressures is reshaping public procurement policies worldwide. While procurement has traditionally balanced international competition with national priorities, the organisation said recent developments point towards increasing protectionism.
The scale of public procurement explains its growing importance as an economic policy instrument. According to the draft regulation prepared by the European Commission, procurement by public authorities across all levels of government within the EU represents around 15% of the bloc’s gross domestic product, or approximately €3.2 trillion. The OECD estimates the figure at around 13%, but both assessments underline the sector’s significance in advancing strategic policy objectives.
Economist Judith Arnal, who recently published a study on the issue with the Centre for European Policy Studies (CEPS), said that since 2022 the European Union has progressively linked access to public contracts and related European funding to criteria concerning origin, ownership and production within the Union, reflecting an increasingly challenging international environment.
Despite the anticipated benefits, researchers also warn of potential drawbacks. Bernard Hoekman, Director of Global Economics at the European University Institute, said the principal risk is higher costs for major infrastructure projects, where Chinese firms currently enjoy a significant cost advantage. However, he suggested the practical impact may be limited because most contracts are already awarded to domestic companies. He added that the issue could become more significant if restrictions are extended to Chinese-owned companies operating within the European Union.
García-Bercero also warned that the measures could increase the costs of Europe’s climate transition and weaken the international competitiveness of European industries. More fundamentally, he expressed concern that such policies could signal that the EU is prepared to overlook its international obligations, raising questions about reciprocity and the treatment of trading partners.
He argued that the European Union should continue strengthening free trade agreements negotiated on the basis of reciprocity while maintaining a firm approach towards countries whose policies diverge from international commitments. He cited the United States’ increasingly protectionist policies and China’s growing dominance in key parts of global value chains, while stressing that any European response should remain, as far as possible, within the framework permitted by the World Trade Organization.
Arnal similarly noted that international studies suggest protectionist procurement policies can increase costs by between 15% and 50%. She advocates moving away from a strict “made in Europe” approach, which structurally excludes third-country participation, towards a “made with Europe” model that allows international participation subject to operational safeguards. According to Arnal, the available evidence indicates that such an approach can achieve the same security and resilience objectives while reducing legal, economic and administrative costs.
