Made-in-EU Car Pact: Asian Countries Criticize Merz and Macron

TVS News AI, editorially supervised, presents Made-in-EU Car Pact: Asian Countries Criticize Merz and Macron.

On Friday, Merz concluded his Asia trip in Seoul. There, the chancellor appeared “a little surprised” by the sharp criticism from Asian trading partners of the planned European “Made in EU” rules for cars. Only two weeks earlier, he had agreed with Macron at the EU summit in Brussels on a significant tightening of the rules for the automotive industry.

This creates a concrete political dilemma: Berlin and Paris want to safeguard European production and employment through the subsidy rules. Japan, South Korea and Singapore fear that the European Union is shutting out foreign competition. Merz promised to bring their objections to Brussels, enable German companies to succeed in Asia and, for now, defend the agreement with Macron unchanged.

70 Percent European Value Creation Will Determine Future Subsidy Eligibility

The new subsidy rule

The agreement ties state subsidies such as purchase bonuses to a vehicle’s European origins in the future. This applies to cars assembled in Europe whose components consist of at least 70 percent European value creation.

The pact therefore goes beyond a simple assembly requirement. The decisive factor is how much value is created within Europe. This is the specific mechanism the EU wants to use to direct public funding. At the same time, the threshold creates a clear distinction: Vehicles produced in Asia can still qualify for EU purchase bonuses if they meet the requirements for European production and value creation.

Why the United Kingdom Is Treated Differently

An exception is planned for the United Kingdom. In return, London must align its trade-protection and investment rules with EU standards. The aim is to prevent Chinese manufacturers from gaining access to EU subsidies through the United Kingdom. Immediately after the German-French agreement on October 16, Toyota had already called for this special arrangement to be extended to other close trading partners such as Japan and Turkey.

The rule, initially limited to the automotive sector, therefore forms the core of the dispute. The exception for the United Kingdom requires alignment with EU rules, while Japan, South Korea and Singapore would be excluded from EU subsidies unless they meet the European production and value-creation requirements.

Toyota, Takaichi and Lee Made the Resistance Concrete

Japan raises concerns about discrimination

Resistance from Japan was foreseeable before Merz’s trip. On Tuesday, before the chancellor arrived in Tokyo, Japan’s economy minister explicitly warned the German delegation against discrimination against Japanese electric cars. On Wednesday, Prime Minister Sanae Takaichi personally raised her concerns with Merz about the Industrial Accelerator Act, the European legislative proposal to strengthen industry.

South Korea demands the same treatment as EU member states

On Thursday, Merz met South Korean President Lee Jae-myung in Seoul. Following the talks, Lee said he had explicitly asked the chancellor for support to ensure that South Korea would be treated in exactly the same way as European Union member states under the planned EU law.

The demands therefore concern not only subsidies for individual vehicles, but also how the EU treats its trading partners. For Japan, Toyota’s involvement and the extension of the United Kingdom’s special arrangement provide a concrete point of reference. South Korea, by contrast, is demanding equal treatment with EU member states.

The EU has concluded comprehensive free-trade agreements with all three countries — Japan, South Korea and Singapore. At the same time, Merz wants to work more closely with these partners. The source cites the protectionist trade policy of US President Donald Trump and China’s growing economic power as reasons.

Open Competition Rules Instead of European Protectionism

Merz’s response to the criticism

Merz directly acknowledged the Asian objection. Heads of state and government had expressed significant concerns that Europeans could trigger a new wave of protectionism and shut their markets against foreign competitors.

“I contradicted them everywhere and tried to dispel these concerns as well,” the chancellor said. He also stressed: “We have to remain open, we have to have competition.” According to Merz, open competition is a prerequisite for German companies to continue selling their products successfully in Asia.

Merz is thus representing two positions at once. He justifies the European subsidy logic with jobs in Europe, while also warning against blocking access to foreign markets through protectionist rules. The strongest argument against his position comes from the criticism in Asia: Favoring European value creation can trigger precisely the protectionism that Japan, South Korea and Singapore fear.

A global trade approach

In Singapore on Tuesday, Merz proposed a global alliance of like-minded countries. Europeans should interlink their existing trade agreements more closely and pursue a large interregional trade agreement in the long term. The proposal aims to promote rules-based trade, while the new “Made in EU” rules within Europe are intended to limit deviations by these trading partners.

Merz promised the Asian partners that he would raise their objections in further EU negotiations. As early as Wednesday in Tokyo, he made clear that the European preference initially applies only to the automotive industry and public procurement. The Industrial Accelerator Act provides for similar rules in other industrial sectors. The Berlin government is therefore pressing for equal treatment of partner countries. For example, heat pumps from Asia should qualify for European purchase bonuses.

Merz Takes the Dispute to the European Council

The next decision

Merz announced that he would address the criticism at the next European Council meeting. “I take it seriously and I will take it with me,” he said after his Asia trip. It is therefore clear that the objections are not intended to remain bilateral, but will move to the European level of negotiations.

Merz explicitly left open on Friday whether he consequently wants to relax the rules agreed with Macron. He announced no change to the German-French position. Macron’s conditions for stricter “Made in EU” rules had previously been offset by further easing of the combustion-engine phaseout. A relaxation would therefore affect not only the Asian objection, but also the foundation of the agreement with France.

In practical terms, the situation remains tight: The subsidy criteria are firmly established, the exception for the United Kingdom is linked to alignment with EU rules, and Japan, South Korea and Singapore are demanding access or equal treatment. Merz has acknowledged the political conflict and announced that he will continue to pursue it. However, the available information does not document any agreement with Macron on a possible relaxation. The original report by Handelsblatt describes the situation among those involved.