Developments in EU Industrial Policy and Implications for Japan
―　The Importance of “Missions” in Industrial Policy and Lessons for Competing with China ―

Despite leading global decarbonization efforts, Europe faces manufacturing stagnation and the threat of industrial hollowing-out due to persistently high energy costs and fierce competition from Chinese firms. In response, the EU is rapidly advancing a new industrial policy agenda based on the Draghi Report. In the Competitiveness Compass presented in 2025, the European Commission identified three transformational imperatives necessary to improve competitiveness: closing the innovation gap with the US and China, a joint roadmap for decarbonization and competitiveness, and reducing excessive dependencies and increasing security. Through the Clean Industrial Deal (CID), it then outlined a policy of enhancing industrial competitiveness while advancing decarbonization by providing financial support for low-carbon and net-zero technologies. By establishing an Industrial Decarbonization Bank and leveraging InvestEU, the CID aims to stimulate private capital while limiting pressure on public finances, accelerating efforts to simultaneously solve societal challenges and achieve economic growth.

The proposed Industrial Accelerator Act (IAA), a central component of the CID, sets out major institutional reforms that go beyond mere financial support. It consists of three pillars: accelerating administrative permitting procedures, a longtime barrier to decarbonization efforts; creating lead markets using public procurement requirements that prioritize low-carbon and/or EU-origin (“Made in EU”) products; and imposing conditions on inward foreign direct investment (FDI) to encourage the accumulation of technology within the region. The IAA reflects a particular awareness of Chinese firms offering low-cost, subsidized products or seeking to turn Europe into an assembly base, and aims to build autonomous supply chains by nurturing companies capable of competing with them.

The EU’s approach offers valuable lessons for Japan, which faces similar challenges including financial constraints and competition from China. First, the primary objective of industrial policy should not simply be to promote specific industries. Public and private investment should instead be guided by clear “missions” such as decarbonization and economic security. Second, policy sustainability should be underpinned by emphasizing institutional reforms, such as faster permitting and market creation through public procurement, rather than excessive reliance on subsidies. Third, it is crucial to balance strategic autonomy and competitiveness by avoiding excessive protectionism that favors domestic interests and pursuing cooperation with like-minded countries. These institutional frameworks are likely to serve as a useful model for Japan's future policy efforts.

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