European Preference risks raising costs and weakening competitiveness
The debate on European Preference in the EU’s proposed Industrial Accelerator Act (IAA) has largely focused on resilience and reducing strategic dependencies. A new report from the Confederation of Swedish Enterprise finds that these objectives may come with significant trade-offs in terms of costs, competition and long-term competitiveness.
Based on an analysis by Copenhagen Economics, the report shows that restricting sourcing choices could substantially increase costs in sectors such as solar PV, batteries, wind power and electric buses. Estimated cost increases range from 10-20 per cent for solar PV to 30-40 per cent for batteries and electric buses. At the same time, the report highlights wider effects that are harder to quantify, including reduced competition, lower supply-chain flexibility, weaker innovation incentives and a risk of directing investment towards compliance rather than value creation.
– The report provides important new evidence on the direct costs of European Preference, with substantial cost increases expected in several sectors. But competitiveness is about much more than costs alone. Reduced competition, less flexible supply chains, lower innovation and weaker productivity growth could ultimately have an even greater impact on Europe’s long-term competitiveness, said Stefan Sagebro, author of the report.
If European Preference remains part of the final legislation, it should be narrowly targeted, evidence-based and proportionate.
While there is broad agreement on the diagnosis and on the need for policy action to strengthen Europe’s industrial resilience, the analysis suggests that European Preference is not the right remedy, particularly given the potentially significant costs it may impose on businesses and competitiveness. The report concludes that European Preference should not be introduced as part of the IAA or future legislative initiatives. However, as the issue remains part of the ongoing negotiations, it also presents a number of recommendations to minimise unnecessary costs and negative impacts on business competitiveness.
– If European Preference remains part of the final legislation, it should be narrowly targeted, evidence-based and proportionate. Policymakers should focus on clearly demonstrated high-risk dependencies, maintain openness towards trusted partners and ensure framework conditions for companies that are globally competitive and predictable, said Fredrik Sjögren, co-author of the report.
Recommendations
Apply European Preference only where there is clear evidence of a strategic high-risk dependency.
Limit European Preference to clearly identifiable products and avoid unnecessary complexity.
Avoid duplication and overlap with existing regulatory frameworks.
Maintain broad partner-country coverage and safeguard openness towards trusted partners.
Approach reciprocity requirements with caution and in their broader trade-policy context.
Ensure legal certainty, transparency and predictable framework conditions.
Regularly assess the economic effects of European Preference.
