Official Report: Minutes of Evidence

The Chairperson (Ms Ferguson): Alan Ramsey is the director of the trade, innovation and priority sectors division in the Department for the Economy. Whenever you are ready, Alan, feel free to present to the Committee.

Mr Alan Ramsey (Department for the Economy): Thank you, Chair. The accelerator act is an interesting one. I will make a short statement.

COM/2026/100 is an EU proposal to establish a framework of measures for the acceleration of industrial capacity and decarbonisation in strategic sectors and amending regulations (EU) 2018/1724, (EU) 2024/1735 and, of most relevance to the Committee, (EU) 2024/3110.

You will all know the proposal as the EU industrial accelerator act. Although its direct relevance to Northern Ireland relates to placing construction products on the market, which is a reserved matter, we have engaged with the Department for Business and Trade in Whitehall, which is responsible for the explanatory memorandum. I am happy to provide oral evidence today. I might not be able to speak to every detail of the construction product regulation, but I will try my best.

If the Committee would find it helpful, I am happy to give a brief overview of the Commission proposal before focusing on the area of direct relevance under the Windsor framework, which, as I said, is the EU construction products regulation. Or I can just cut to the chase and go straight to the construction products regulation.

The Chairperson (Ms Ferguson): That would be useful.

Mr Ramsey: OK. The EU Commission has pitched its industrial accelerator act as a road map for transforming the EU into a "self-sufficient industrial powerhouse" — its words — and targets three strategic sectors: energy-intensive industries, including steel, aluminium, cement and chemicals; net zero technologies, including wind, solar, batteries and hydrogen; and automotive supply chains. The headline target is to have industrial manufacturing account for 20% of EU GDP by 2035 from a baseline of around 14% in 2024. That is an ambitious target: the longer-term trend in EU industrial manufacturing has been one of decline since about 1990, when it represented around 20% of EU GDP. In effect, the EU is trying to get back to the 1990 level. It currently sits at about 14%.

The act's mechanism is straightforward. Where public money is involved, which means procurement contracts, subsidies or state aid, a minimum share of the goods must be made in Europe and meet specified low-carbon requirements. For example, the proposed minimum threshold for electric vehicles is to have 70% of their components made in the EU. Sector-specific quotas will apply for steel, aluminium, cement and clean technologies. Requirements for chemicals are expected to be established in a separate framework.

Importantly, the act does not limit "made in Europe" to EU member states. It extends eligibility to a broader group of what the proposal terms "trusted partners" via two legal routes. The first is existing EU free trade agreements; the second is membership of the World Trade Organisation's (WTO) government procurement agreement. The UK, therefore, has two legal routes to gain trusted partner status, because it is a member of the WTO government procurement agreement and has a free trade agreement with the EU via the EU-UK Trade and Cooperation Agreement (TCA). However, as I understand it, the Commission must still make an active decision on whether the UK's procurement market is sufficiently open on reciprocal terms, meaning that inclusion remains as much a subjective decision as a legal one.

Even formal inclusion as a trusted partner, however, is not the end of the story. The act's scope will be refined through subsequent delegated acts and technical regulations rather than primary legislation. That is really important, because it means that exceptions, carve-outs and eligibility criteria can be redrawn by officials in European technical committees. Nor have the content calculation methodologies and eligibility criteria at individual product and component level been confirmed by the Commission at this stage. For example, while the Commission has signalled that the minimum EU origin content requirement for EVs is 70%, it has not outlined the formula that it will use to calculate that threshold. The formula that ends up in law will probably be as important as whether or not the UK, or any potential trusted partner, is included in the regime.

In addition to those two strands, the act sets out proposals for the simplification of permitting procedures for industrial projects and, controversially, a number of conditions on foreign direct investment above €100 million in strategic sectors.

Hopefully, members have received their written briefing pack on the regulation's application in Northern Ireland under the Windsor framework, including the Department's initial assessment of its impact, which is informed by the UK Government's explanatory memorandum (EM).

In summary, while it is an understatement to say that the proposed regulation is broad in scope and intent, amendments to the 2024 construction products regulation are its principal relevance for Northern Ireland at this stage. The Committee will be aware that the regulation for placing or making available construction products on the market is a reserved matter, with market surveillance, inspection and enforcement being the responsibility of district councils in Northern Ireland. The EU construction products regulation applies in Northern Ireland for the subset of products that it covers via annex 2 of the protocol, specifically regulation (EU) 2024/3110, which is under heading 2 of annex 2. For clarity, regulation (EU) 2024/3110 repealed regulation (EU) No 305/2011, which is the regulation listed in annex 2.

The proposal will align construction products placed on the EU market with the new low-carbon and EU-origin objectives under the industrial accelerator act. That enables the subset of construction products covered by the construction products regulation 2024 to be subject to additional sustainability, performance and information-labelling requirements, where they are relevant to public procurement or public-support measures under the act. However, the details of those additional requirements are not set out at this stage. As I suggested earlier, that will come through in future delegated acts.

No wider product changes are introduced to the to the construction products regulation at this stage beyond enabling that alignment. In their explanatory memorandum, the UK Government confirm their intention to retain consistency UK-wide with the EU construction products regime and that they will engage with industry to assess marketing and labelling requirements as they come through those delegated acts. The overall approach is an intention to retain consistency for domestic market and trade purposes.

I hope that that has been helpful. I am happy to take any questions.

Mr Martin: Thank you, Alan. You probably heard us being a bit critical of DAERA earlier. I thought that your evidence was really clear and really strong, so well done on that.

I want to take you to the Government EM, which you may have. I will let you flick to it. I want to pick on a couple of themes that you mentioned in your evidence to see whether I can get a little more understanding around it. I refer to point 3 of the EM from the Department for Business and Trade. For the benefit of anyone watching, it says:

You can make your best efforts to answer my first question. What are "security of supply concerns"? Have you any idea what the Government are talking about in that regard?

Mr Ramsey: I guess that that is to be defined, as is much of the stuff in this proposal. To hazard a guess, I think that a lot of this is about strategic sectors and about China, with the desire to protect European industries, particularly net zero technologies, where the European Commission and member states feel under considerable threat, for want of a better word, from some of the technologies and practices that are coming from China.

Mr Martin: That is fine. That leads me seamlessly to point 6. Alan and I have not had a conversation beforehand, and we are not sending each other messages on WhatsApp. That point is about FDI. I was not going to mention China, but, clearly, that is the target here. For clarity, point 6 states:

That sounds like a chunky amount to me. I am trying to think off the top of my head what home country could hold 40% of global manufacturing capacity. I assume that the Government are talking about China. The EM then goes on to state:

And so on. What is your understanding of point 6, and what is the EM talking about in that regard?

Mr Ramsey: My personal position is that the FDI aspect is probably the most controversial, alongside the first strand, which is about EU origin, and that is developing the strategic sector. The FDI part is directed almost entirely towards China. The Commission, perhaps, has not been entirely upfront about that. However, if you read any of the relevant material, that is exactly what it is about for most member states. China is the only country that meets some of those criteria.

Mr Martin: I have some sympathy. My concern is about what is coming, but we do not know what that is. That is a common theme for the Committee when we look at these things; we are not actually sure. In particular, I go back to paragraph 3 of the memorandum, which highlights the:

My concern is about the impact of that on manufacturing in the United Kingdom of Great Britain and Northern Ireland. As far as I am concerned, there is no clarity in this. When you read this, you know what they are talking about when it comes to some of the strategic aims. I have some sympathy for that because, ultimately, we have to compete in a global market and there are certain global players who have near monopolies on some of these things and have a significant advantage when it comes to technologies and how to get them. Perhaps, that is not something for the Committee to decide; nevertheless, that is the case.

I agree with the evidence. I have concerns about some of this, although I understand the greater strategic aim. However, there is plenty here for us to keep an eye on. Thank you, Alan.

Dr Aiken: My first question is about the EM. Under the heading "Policy and Legal Implications", paragraph 19d sets out "Foreign Direct Investment (FDI) conditionalities". It states:

Why might that be directed at China? Aerospace is a huge strategic sector. Boeing and the United States hold more than 40% of the aviation industry, so it is not just directed at China. It is potentially directed at the United States and, by implication, very clearly directed at us, because that is an important part of our sector. Whatever the reason, we need to keep a very careful eye on this.

I want to go down into the weeds a bit. We have talked to the construction industry about the likely implications. One of the industry's concerns is that goods entering Northern Ireland will need to have a conformité Européene (CE) marking instead of the UK conformity assessed (UKCA) marking. If they have both, that is fine. However, they believe that they will not be able to go for public procurement contracts if they have UKCA product markings only.

They also think that all relevant products will now require data records for their digital product passport. They need to be able to prove that they can meet that requirement. There are real concerns about additional costs as well. The concern is that the UK and EU have not yet aligned in this particular area. We will have to have lower carbon requirements in Northern Ireland for doing public procurement than the rest of our nation does in GB. That is also a concern. We are already seeing that this is not just divergence; it is a 90-degree turn.

My other concern is that public bodies in Northern Ireland must apply minimum environmental criteria for procurement when considering building projects. That is really going to push up the costs of projects such as the A5. We are already feeding lawyers, and now we are going to feed a whole bunch of other people. Those are significant issues that the Committee needs to keep an eye on. It is strange that people do not think that this is necessarily a serious matter, when it is quite the opposite.

I echo what Peter said: that was good evidence.

Mr Ramsey: Thank you.

Dr Aiken: I wanted to acknowledge that. Well done.

The Chairperson (Ms Ferguson): Do any other members wish to add anything?

Mr Martin: Thank you for your indulgence, Chair. I want to pick up on the theme that my colleague mentioned. At paragraph 5 of the EM, His Majesty's Government state that:

It is referring to the important R&D aspect of battery cells, solar PV cells, wind turbine parts and vehicles. That is an expanding area that China is already starting to dominate. That is exactly the sort of thing that the UK should be doing. It should be developing cutting-edge research, not following slightly cheaper and inferior Chinese content. My fear — I am not asking you to comment on this; it is not your paper, so it would be hard for you to do so — is the line:

If UK bidders did not get a derogation, would that be a concern?

Mr Ramsey: It would. That is where there is so much uncertainty. At present, because we have the free trade agreement, where Government procurement signed up to compliance and all the rest of it, there is a working assumption that we will not require derogations.

It feels to me, however, that there is a lot of scope in the proposal as drafted. These are only the early stages. It has to go through the entire process with the European Parliament and the Council of Europe etc, so it could all change significantly. At the minute, however, there is just not 100% lockdown certainty that the UK, or any other third country, is considered a trusted partner. That is probably quite unsatisfactory, but that is where it is at the minute.

Mr Martin: I understand that term "expected". However if, for whatever reason — it is not clear in the proposal and there is stuff still to come — there were issues regarding point 3 about reciprocity or security of supply, or if the EU just decided that it will be just EU countries that get the "Made in EU" label without the Union-origin aspect, that would be devastating for the United Kingdom's work in that area, which is really important.

Mr Ramsey: I assume that if there is any political goodwill in the UK-EU reset discussions, that will be in the mix —

Mr Martin: I would say so, yes.

Mr Ramsey: — and you would expect that a favourable outcome is being sought.

Dr Aiken: People would have noticed when we were talking about EV cars on the radio this morning that we were also talking about the significant investment that China is making in the Nissan plant in Sunderland to increase what is seen to be the UK content in EV, and the mega-battery facility in Wiltshire is being built with considerable Chinese investment. Those are significant issues that we need to be wary of because we cannot find ourselves unable to buy vehicles from the rest of our nation because of an EU regulation.

Mr Ramsey: The Nissan plant is a huge supplier into the EU, so there must be massive concerns about whether that supply chain will be retained.

On your earlier point, Steve, about the solar panels and so on driving up costs, I totally agree. There will now be a presumption in procurement through this law that member states will have to account for a certain percentage of those items coming from EU production rather than the cheaper Chinese stuff. Some of the percentages are quite low, but they could be up to 10%, 15% or 20% on a project.

Dr Aiken: That could mean a considerable increase in cost. The other thing is the chill effect that it might have on procurement. People who are looking at the regulations, even though they are probably not fully aware of what they mean, are not going to try to acquire things from the cheapest source; they are going to make sure that they have the highest EU content possible, and that will have a divergence effect.

The Chairperson (Ms Ferguson): Thank you, members, and thank you, Alan. That was a comprehensive session. You highlighted key areas and raised concerns, so thank you for your presentation this morning.