With a crucial EU–UK summit approaching, London is seeking assurances that British manufacturers will not be disadvantaged by Europe’s new industrial policies. The dispute exposes a wider problem: how closely Britain must align with Brussels to preserve access to European supply chains.

Britain and the European Union are attempting to resolve an increasingly consequential dispute over European industrial policy, as proposed rules favouring domestically manufactured goods threaten to complicate the economic relationship that London has spent much of the past year trying to rebuild.

Business Secretary Jonathan Reynolds said on 27 October that the two sides were making progress towards addressing concerns surrounding the proposed Made in Europe requirements.

Speaking to Sky News, Reynolds said the governments were “finding a way through” the disagreement, although the precise terms of any compromise remain uncertain.

The negotiations come ahead of the EU–UK summit scheduled for 20 November, when Prime Minister Andy Burnham is due to meet European Commission President Ursula von der Leyen and European Council President António Costa.

For British manufacturers, the immediate issue is whether political promises of closer cooperation can prevent new economic barriers from emerging.

When industrial policy becomes trade policy

The dispute centres on the European Commission’s Industrial Accelerator Act, proposed in March.

The legislation would introduce European-origin and low-carbon requirements into public procurement and certain government support schemes covering strategic industries.

Among the sectors affected are steel, cement, aluminium, automotive manufacturing and technologies associated with the energy transition.

Brussels argues that such measures are necessary to strengthen European manufacturing and reduce dependence on overseas suppliers, particularly in industries exposed to competition from China.

The economic difficulty is that European industrial production does not stop at the EU’s external borders.

British manufacturers supply components, materials and specialist engineering services to European factories, while many UK production facilities rely on parts and technologies imported from the continent.

Automotive manufacturing illustrates the problem.

Vehicles assembled in Britain frequently contain components produced in several EU countries. Equally, European automotive manufacturers incorporate British-made parts into their own production.

If eligibility for subsidies or public contracts depends increasingly on where products and components originate, companies could face incentives to reorganise supply chains.

The question is therefore not merely whether British products can enter the European market, but whether they will qualify for the same industrial support arrangements as competing European products.

France and Germany disagree

The dispute has exposed differences among EU governments.

As EU Today reported earlier this month, France has argued for a restrictive interpretation of European origin requirements, while Germany has favoured a broader approach allowing certain trusted trading partners to participate.

Berlin’s position reflects the interests of industries whose production networks extend beyond the EU, including manufacturers operating in Britain.

According to reporting on the negotiations, France and Germany have discussed a potential compromise under which Britain might receive preferential treatment if it aligns with European tariffs on Chinese goods.

Such an arrangement would have implications extending beyond manufacturing.

It would involve coordination over trade policy towards China, an area in which Britain currently retains independent decision-making authority.

No agreement has been finalised, and any legislative compromise would require approval through the EU’s institutional procedures.

Burnham’s broader European calculation

For Burnham’s government, the industrial disagreement coincides with a wider attempt to redefine relations with Brussels.

The forthcoming summit is expected to concentrate on practical agreements covering agricultural and food trade, emissions trading and temporary mobility arrangements for young people.

A sanitary and phytosanitary agreement could reduce inspections and documentation requirements for certain food products moving between Britain and the EU.

Closer coordination between emissions trading systems could also reduce complications created by different carbon-pricing regimes.

However, these initiatives do not resolve the wider question of Britain’s relationship with the European single market.

Burnham has indicated that he intends to open a broader discussion about future options, while maintaining Labour’s existing commitments against rejoining the single market, customs union or restoring general free movement during the current parliamentary term.

Reynolds has acknowledged that repeated changes in EU policy create uncertainty for British companies operating across the Channel.

The price of industrial cooperation

The underlying difficulty is structural.

Britain seeks the benefits of close industrial integration while maintaining the independence acquired through Brexit. The EU, meanwhile, is increasingly using common industrial rules, subsidies and procurement preferences to pursue economic-security objectives.

These priorities are not necessarily incompatible, but reconciling them may require new arrangements governing regulatory alignment, product origin and relations with third countries.

As EU Today previously examined, London’s request to be treated as a trusted industrial partner has already become part of the broader political negotiations.

The November summit may establish a framework for resolving some immediate concerns.

It will not, however, eliminate the fundamental problem facing British manufacturers: future decisions taken in Brussels can materially affect their competitiveness, even though Britain no longer participates directly in making those decisions.

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The European Parliament has taken another step towards revising the European Union’s 2035 vehicle-emissions framework, after lawmakers from three major political groups agreed amendments offering manufacturers greater flexibility in meeting carbon dioxide reduction targets.

The compromise, approved on 22 October by Parliament’s Transport and Industry committees, proposes an 87.5 per cent reduction in average emissions from new passenger cars by 2035, compared with the 2021 baseline. This is less stringent than the European Commission’s proposed 90 per cent reduction and represents a further departure from the existing 100 per cent reduction in tailpipe emissions for new cars and vans.

The changes have not become law. They remain subject to parliamentary procedures and negotiations with EU governments. Nevertheless, the committee agreement shows how concerns over manufacturing competitiveness, production costs and technological choices are reshaping European climate legislation.

A fundamental revision of the 2035 framework

The original 2035 target, adopted in 2023 as part of the EU’s Fit for 55 legislation, required manufacturers to achieve a 100 per cent reduction in average tailpipe carbon dioxide emissions from new cars and vans. It effectively directed the market towards battery-electric and other zero-emission vehicles.

Manufacturers have argued that the transition is taking place under difficult commercial conditions. Competition from Chinese producers, costs of developing new platforms and batteries, and uncertainty over charging infrastructure contributed to demands for regulatory flexibility.

In December 2025, the European Commission responded with an automotive package proposing a 90 per cent reduction requirement by 2035. It would permit manufacturers to compensate for some remaining emissions using mechanisms involving low-carbon steel produced in the EU and qualifying renewable fuels.

The latest parliamentary compromise would lower the target further, to 87.5 per cent, while allowing low-carbon steel credits to count towards compliance. For light commercial vehicles, lawmakers also proposed reducing the 2035 target to 80 per cent and the 2030 target to 35 per cent.

Why low-carbon steel matters

A notable feature of the compromise is the connection between car-emissions rules and European steelmaking. Steel production is a major industrial source of carbon dioxide, and companies face investment requirements to replace conventional production processes with lower-emission alternatives.

Regulatory credits for carmakers using qualifying European low-carbon steel could create demand for cleaner industrial materials and encourage domestic investment. But emissions avoided during production are not equivalent to reductions in exhaust emissions. The accounting mechanism therefore creates a distinction between cutting tailpipe output and compensating for some remaining emissions through materials and manufacturing.

The compromise also connects vehicle rules with a broader industrial-policy debate about European-made products. As EU Today previously reported, vehicle decarbonisation has increasingly become part of the discussion about European industrial competitiveness.

Electric vehicle sales continue to increase

The debate comes despite growth in electric vehicle registrations. According to figures from the European Automobile Manufacturers’ Association, battery-electric cars represented 22.7 per cent of new EU passenger car registrations in the first nine months of 2026, against 16.1 per cent during the same period of 2025.

Approximately 1.93 million battery-electric cars were registered between January and September, with considerable growth in Germany and France. Hybrid-electric vehicles nevertheless remained the largest single powertrain category at 36.3 per cent, while petrol and diesel together represented 28.2 per cent, down from 36.9 per cent a year earlier.

The figures show that electrification is progressing, but combustion engines still account for a substantial share of sales. Manufacturers must make investment decisions across several technologies while anticipating changing legislation.

Disagreements over industrial strategy

The parliamentary compromise follows discussions between France and Germany about the relationship between car-emissions rules and measures favouring European production. Paris has emphasised domestic industrial capacity; Berlin has pressed for greater technological flexibility.

Supporters of looser standards argue that manufacturers need time to adjust investment and respond to consumer demand. Critics warn that weakening the target could delay investments in electric vehicles, batteries and charging networks by making future demand less certain.

The eventual legislation will determine not only which vehicles may be sold after 2035, but also how the EU balances emissions reduction, international competition and the position of its manufacturing industry.

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The European Commission has selected 77 industrial and technology projects across 23 European Economic Area countries to receive €3.4 billion in funding, as Brussels attempts to strengthen the continent’s manufacturing capacity and reduce dependence on imported energy and critical materials.

The funding, announced on Monday, 19 October, will come from the EU Innovation Fund, which uses revenues generated by the Emissions Trading System to support investment in technologies intended to reduce greenhouse gas emissions.

The selected projects include manufacturing facilities, renewable energy installations, advanced energy storage, critical raw materials processing and industrial carbon management. For the first time, the programme also includes a small modular nuclear reactor project and a direct air carbon capture and storage initiative.

The announcement comes amid growing concern over Europe’s industrial competitiveness, particularly as manufacturers face high energy costs, increasing competition from China and difficulties securing investment for major industrial projects.

Funding for industrial production

According to the Commission’s announcement, the 77 selected projects span energy-intensive industries, clean technology manufacturing, alternative fuels, transport and several other sectors.

Six projects concern critical raw materials, an area in which the EU has been seeking to reduce its exposure to foreign suppliers.

These investments are intended to strengthen European supply chains for technologies including batteries, renewable energy equipment and permanent magnets, which are essential components in electric motors and other industrial applications.

The funding follows renewed political pressure to expand the processing and production of strategically important materials inside Europe.

As EU Today recently reported, the European Parliament has been pressing for stronger measures to reduce dependence on China for critical raw materials used by European manufacturers.

China occupies a dominant position in several international processing and refining markets, leaving European companies exposed to supply interruptions and trade restrictions.

The Commission is seeking to support alternative production capacity through financial assistance, industrial regulation and measures designed to attract private capital.

However, the selection of projects for EU funding does not automatically mean that the proposed facilities will be built. Their implementation will still depend on financing agreements, regulatory approvals and commercial decisions.

Nuclear technology enters funding programme

The inclusion of a small modular nuclear reactor project represents a new development in the Innovation Fund’s portfolio.

Small modular reactors are designed to produce electricity or industrial heat using nuclear technology on a smaller scale than conventional nuclear power stations.

Supporters argue that modular construction could reduce certain project risks and provide stable electricity supplies for energy-intensive industries.

However, the technology faces substantial challenges involving construction costs, regulatory approval, supply chains and the transition from demonstration projects to commercial production.

The Commission published a European strategy for small modular reactors in March, outlining plans to accelerate their development and support the first operational facilities in the early 2030s.

The latest funding decision gives the technology access to a financial instrument principally associated with industrial decarbonisation and clean energy investment.

Another newly represented technology is direct air carbon capture and storage, which involves extracting carbon dioxide from the atmosphere and storing it.

Both technologies remain at comparatively early stages of commercial deployment in Europe, making their eventual costs and performance important considerations.

Emissions trading revenue finances investment

The Innovation Fund is financed through revenues from the EU Emissions Trading System, under which companies operating in covered sectors must obtain allowances for their greenhouse gas emissions.

Part of the revenue generated from auctioning allowances is reinvested into projects designed to introduce lower-emission technologies into industrial production.

The Commission estimates that the 77 newly selected projects could avoid approximately 290 million tonnes of greenhouse gas emissions during their first ten years of operation.

That figure is a projection based on the projects’ anticipated performance, rather than an achieved reduction. Actual results will depend on construction, commissioning and subsequent commercial operation.

The funding announcement also follows the publication of the EU’s broader industrial policy initiatives, which seek to increase domestic production of clean technologies and improve investment conditions for European manufacturers.

The Commission announced a separate allocation of more than €390 million to 135 environmental and climate projects under the LIFE programme on the same day. That funding is distinct from the €3.4 billion Innovation Fund selection.

Funding agreements still to be concluded

The companies and organisations behind the selected Innovation Fund projects must now complete the procedures necessary to obtain their grants.

During the Commission’s 19 October press briefing, officials indicated that project-specific grant amounts would become available when the agreements are signed, currently envisaged for the first quarter of 2027.

The final allocations and implementation conditions therefore remain subject to the grant preparation process.

For industrial companies, the principal test will be whether the European funding attracts sufficient additional investment to bring the selected technologies into commercial operation.

The results will also provide an indication of how effectively Brussels can translate its industrial policy objectives into additional European manufacturing capacity, particularly in sectors where supply chains remain concentrated outside the Union.

Image Credit: © European Union, 2024 / CC BY 4.0

Eurozone industrial production contracted for a second consecutive month in August, with Belgium recording one of the steepest declines. The latest figures expose continuing weaknesses in Europe’s manufacturing sector as governments confront high energy costs and growing international competition.

Industrial production in the eurozone fell by 0.5 per cent in August compared with July, according to figures released by Eurostat on Thursday, adding to evidence that European manufacturers are struggling to sustain a recovery amid rising energy costs and uncertain demand.

The decline followed a revised contraction of 0.3 per cent in July, while output across the wider European Union fell by 0.3 per cent in August. Compared with the same month last year, eurozone production was down 1.1 per cent, against a decline of 0.2 per cent across the EU as a whole.

Belgium recorded the largest monthly contraction among the member states covered by the release, at 5.1 per cent, followed by Ireland at 3.1 per cent and Portugal at 2 per cent.

The latest industrial production figures underline the uneven performance of Europe’s factories, with losses concentrated in some economies and sectors while others continue to expand.

Manufacturing weakness spreads unevenly

The sectoral breakdown presents a particularly revealing picture of the pressures facing European industry.

Production of intermediate goods, which include materials and components supplied to other manufacturers, declined by 0.8 per cent across the eurozone in August. Energy production fell by 0.6 per cent, while output of non-durable consumer goods contracted by 2.7 per cent.

By contrast, capital goods production increased by 0.4 per cent, indicating that activity in equipment and machinery manufacturing remained comparatively resilient.

The divergence was also pronounced between member states. Industrial production increased by 6.5 per cent in Sweden, 4.3 per cent in Estonia and 2.6 per cent in the Netherlands.

On an annual basis, Ireland recorded a 15 per cent decline, followed by Belgium at 7.1 per cent and Bulgaria at 5.4 per cent. The Netherlands, meanwhile, registered growth of 9.8 per cent compared with August 2025.

These variations make it difficult to describe Europe’s industrial position as a single, uniform downturn. National production figures reflect different industrial structures, production cycles and exposure to particular markets.

Ireland’s figures, for example, can be influenced by changes in output among large multinational enterprises, while Belgium’s manufacturing economy is particularly exposed to developments in chemicals, pharmaceuticals and energy-intensive production.

Nevertheless, the simultaneous contraction of industrial output across the eurozone reinforces concerns about the strength of the European economic recovery.

Energy prices and industrial competitiveness

The continuing disruption of global energy supplies has complicated the position of European manufacturers, particularly businesses that depend on predictable electricity and gas prices.

The Middle East conflict has increased uncertainty over energy costs and transportation, making production planning more difficult for companies operating with substantial fuel, heating or electricity requirements.

As EU Today reported earlier this week, Brussels has already moved to delay certain methane requirements for energy imports as governments seek to limit additional pressure on gas supplies.

The decision reflects a wider debate over whether the EU’s existing regulatory framework adequately accounts for the international cost disadvantages facing European industrial producers.

Chemicals, metals, fertilisers and other energy-intensive industries must compete with manufacturers operating in markets where energy costs and regulatory requirements can differ considerably.

The problem extends beyond immediate profitability. Persistently unfavourable operating costs can affect decisions about new factories, maintenance, modernisation and the location of future investment.

Those decisions may have longer-lasting economic consequences than monthly fluctuations in production.

Industrial policy under political pressure

The figures arrive as EU governments debate the future of European industrial policy, including the treatment of imported products and the conditions under which companies should qualify for public support.

Recent disagreements over proposed European-content requirements have illustrated divisions between governments seeking greater protection for EU manufacturers and those concerned that restrictive rules could increase costs or disrupt supply chains.

In a recent warning over the proposed Made in Europe framework, Mercedes-Benz chief executive Ola Källenius argued against excluding Britain from industrial arrangements intended to strengthen European production.

The debate is particularly consequential for automotive manufacturers whose supply chains extend across EU borders and into neighbouring countries.

Meanwhile, the proposed EU budget for 2028–2034 has become another focus of disagreement, with member states questioning how much funding should be devoted to industrial competitiveness, strategic technologies and energy infrastructure.

The immediate economic issue is whether European factories can recover production as energy costs remain elevated and external demand fluctuates.

Eurostat’s August figures do not establish how individual government policies have affected output, nor do they determine whether the contraction will continue. They do, however, show that industrial activity entered the autumn with limited momentum.

The next industrial production release, covering September, is scheduled for 16 November and will provide an indication of whether the late-summer weakness persisted into the final quarter of the year.

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The three co-rapporteurs, including Renew Europe’s Christophe Grudler (ITRE), outline the priorities in Parliament’s draft report on the Industrial Accelerating Act, (IAA), as they finished their draft report this week. For Liberals and Democrats, the IAA report is seen as pivotal in boosting EU competitiveness and industrial resilience as a response to mounting global insecurity. During the drafting process, MEP Grudler has ensured that European taxpayer money prioritises businesses, jobs, and innovation in the EU, marking a pivotal shift in the EU’s approach to public procurement and economic sovereignty.

Key measures include: - Raising the threshold for Made in Europe and low-carbon products in strategic sectors to 50 percent by 2036, ensuring that public funds support domestic industries and sustainability. - Expanding strategic materials to include plastic for construction, in addition to steel, aluminium, and cement. - Increasing EU content in net-zero technologies, such as wind turbines, solar panels, heat pumps, and nuclear power plants, to strengthen Europe’s industrial capacity and leadership in the green transition.

The era of unconditional openness is over. Renew Europe is pushing for true reciprocity, ensuring that European markets open only to countries that effectively do so in the same conditions. To ensure fairness and prevent loopholes, clear safeguards, including stricter definitions and component requirements that will close the door on circumvention and guarantee that public funds truly benefit European industries, are also introduced.

Christophe Grudler, co-rapporteur on behalf of the Committee on Industry, Research and Energy (ITRE), said: “It is time to put an end to a wait-and-see approach and a certain naivety. Facing fierce global competition, we must build and consolidate the value chains of our strategic sectors in Europe: from steel and aluminium to the automotive industry and clean technologies. European taxpayers’ money must be used as a lever to achieve this: to support those who produce, innovate and create jobs here, within the Union. But greater ambition must not mean greater complexity. We are proposing simple, clear and applicable rules, without unnecessary administrative burdens for businesses and local authorities. This is the ambition we are setting out in this draft report. The work begins now: I will fight to ensure that the Accelerator rises to the challenge of the current industrial emergency.”