It is meant to save Europe's auto industry from China's unfair trade practices. The European Union's Industrial Accelerator Act (IAA) , proposed in March, seeks to upgrade European car factories and only subsidize vehicles produced in Europe.
Yet, the EU's "Made in Europe" plan is causing deep concern among other allied carmaking nations — such as Turkey, Morocco, Japan and South Korea — all of them deeply embedded in European supply chains.
After months of deadlock over the IAA's potential impact on their own vehicle production, Germany and France earlier this month reached a key compromise that would allow suppliers from non-EU members like the United Kingdom and Norway to qualify for "European origin" status.
Other key players in the automotive sector, however, will be excluded — including Turkey, which has enjoyed seamless access to the EU market since the mid-1990s.
While the proposals still face major legislative hurdles in Brussels before becoming law, Ayhan Zeytinoglu, chairman of the Economic Development Foundation (IKV), thinks the Franco-German framework could be devastating for Turkey's auto sector.
"73% of Turkey’s total automotive exports go to the EU," Zeytinoglu told DW. "If we encounter a 'Made in Europe' barrier in the EU market, this will cause great damage to our trade with the EU and to our exports."
Excluding Turkey would also harm European automaking rather than strengthen competitiveness against China, he added.
Turkey's auto exporters association OIB calculated that the country's automotive exports to the EU totaled $30.1 billion (€26.8 billion) last year.
The IAA requires that 70% of the total value of a vehicle's components — excluding the battery — should be made in Europe.
However, the initial proposal only applies to battery-electric vehicles (EVs), plug-in hybrids and fuel-cell models, which last year made up just 27% of all new EU car registrations.
Tommaso Pardi, director of the international automotive research network GERPISA and a senior researcher at the French National Center for Scientific Research (CNRS), notes that the 70% target is remarkably generous.
"If you take an average European-made electric car and take away the battery, you would find that around 83% [of parts] come from Europe," Pardi told DW.
Under the revised German-French plan, some self-charging hybrids and petrol and diesel vehicles could still be sold after 2035 and would also be affected by the "Made in Europe" rules.
These cars contain a much lower proportion of European parts. Most of Turkey's nearly 800,000 vehicle exports to the EU last year would fall under this much larger umbrella.
Another key reason for excluding Turkey is that Chinese automakers are expanding their presence there, hoping to gain back-door access to the EU market, but face major roadblocks.
They include SWM Motors, whose factory in the northwestern city of Eskisehir closed within a year because the cars produced didn't meet EU safety standards.
BYD's plans to open a $1 billion plant in Manisa — a large industrial hub near the Aegean coast — have been put on hold.
Morocco, meanwhile, has received Chinese investments worth more than €10 billion ($11 billion) since the COVID-19 pandemic, according to consultancy AlixPartners, much of it in batteries and auto parts.
For France, the North African nation plays a similar role to China for Germany's auto sector — a low-cost production hub that helps French carmakers stay competitive. Budget-friendly French models would likely become more expensive if Morocco were excluded.
Japanese carmakers, which build several of their models in European factories, could also lose out. Cars imported from Japan would not qualify for EU subsidies, while models built in France, Portugal and Eastern Europe would benefit only if enough of their parts come from Europe.
South Korean automakers, meanwhile, could also be hurt. Hyundai and Kia build cars in the Czech Republic and Slovakia, but also ship models from Asia, which would not qualify. Korean battery plants in Poland and Hungary, however, would count as European.
Pardi notes how European car giants are actively lobbying to water down the IAA to protect their high profit margins.
"They want to limit the IAA to retain the biggest scope to still source from abroad, particularly from China," he said.
EU-based automakers warn that higher parts costs would put them at an even bigger disadvantage against Chinese rivals, while European battery supply is unlikely to meet demand anytime soon.
Ankara is also lobbying Brussels to be included in the "Made in Europe" scheme, while automakers are seeking a compromise that would allow Turkey to join at a later stage.
Pardi said this would be "only for European companies that are based there [Turkey and Morocco] ... while excluding all recent investments involving Chinese capital [in those countries]."
European auto-parts suppliers are, however, on the opposite side of the argument, calling for further strengthening of IAA. They warn that up to 650,000 auto jobs in the region could be lost by 2035 without better protection for their members.
"A lost industrial job is very hard to win back, and the damage reaches well beyond large suppliers," Benjamin Krieger, Secretary General of the European Association of Automotive Suppliers (CLEPA), told DW.
Krieger thinks the IAA helps European industry to level the playing field against unfair competition from China, adding: "We must stop the bleeding."
With broad public support for measures that ensure that EU public funding "benefits value creation in Europe," CLEPA's Krieger thinks allies like Turkey, Morocco, South Korea and Japan may not lose out if they meet the EU's criteria.
"The EU should offer access to the IAA through an opt-in mechanism with objective criteria: regulatory alignment, social and environmental standards, no market distortion, respect for the rule of law and reciprocity, backed by anti-circumvention measures. Partners that meet them are welcome," he said.
