On 5 May 2021, the European Commission adopted a proposal for a Regulation on foreign subsidies distorting the internal market. The legislative proposal follows the publication of a White Paper in June 2020 and an extensive consultation process with stakeholders.
In recent years, foreign subsidies appear to have distorted the EU’s internal market, including by providing their recipients with an unfair advantage to acquire companies or obtain public procurement contracts in the EU to the detriment of fair competition.
The proposed Regulation addresses such distortions and closes a regulatory gap, whereby subsidies granted by non-EU governments go currently unchecked, while subsidies granted by Member States are subject to close scrutiny. It proposes new tools to effectively tackle foreign subsidies that cause distortions and undermine the level playing field in the internal market.
Under the proposed Regulation, the Commission will have the power to investigate financial contributions granted by non-EU governments to companies active in the EU. If the Commission finds that such financial contributions constitute distortive subsidies, it can impose measures to redress their distortive effects.
The Regulation proposes the introduction of three tools:
- A notification-based tool to investigate concentrations involving a financial contribution by a non-EU government, where the EU turnover of the company to be acquired (or of at least one of the merging parties) is equal or higher than €500 million and the foreign financial contribution is at least €50 million;
- A notification-based tool to investigate bids in public procurements involving a financial contribution by a non-EU government, where the estimated value of the procurement is equal or higher than €250 million; and
- A general tool to investigate all other market situations, and smaller concentrations and public procurement procedures, which the Commission can start on its own initiative (ex-officio) and may request ad-hoc notifications.
With respect to the two notification based tools, the acquirer (or merging parties) or bidder will have to notify ex-ante any financial contribution received from a non-EU government in relation to concentrations or public procurements meeting the thresholds. Pending the Commission’s review, the concentration in question cannot be completed and the investigated bidder cannot be awarded the contract.
The general market investigation tool would enable the Commission to start investigations on its own initiative (ex-officio) or request ad-hoc notifications. This would cover other types of market situations, such as greenfield investments or concentrations and public procurements below the thresholds.
If the Commission establishes that a foreign subsidy exists and that it is distortive, it will, where warranted, balance the distortion with the possible positive effects of the subsidy to determine appropriate redressive measures or to accept commitments.
With respect to the redressive measures and commitments, the proposed Regulation includes a range of structural or behavioural remedies, such as the divestment of certain assets or providing access to infrastructure. In case of notified transactions, the Commission will also have the power to prohibit the subsidised concentration or the award of the public procurement contract to the subsidised bidder.
The European Parliament and the Council will now discuss the Commission's proposal in an ordinary legislative procedure with a view to adopting a final text of the Regulation. Once adopted, the Regulation will be directly applicable across the EU.
White paper on foreign subsidies
On 17 June 2020, the Commission adopted a White paper on foreign subsidies, which launched a public debate on the topic of distortive foreign subsidies.
The adoption of the White Paper started a 14-week public consultation, which finished on 23 September 2020. The Commission has received 150 contributions: 17 from public authorities of Member States; 24 from third country stakeholders and governments; around 100 submissions from business and industry associations and individual companies; and the remainder from law firms, academic institutions, trade unions, NGOs and individual citizens.
Inception impact assessment
Between October 2020 and January 2021, the Commission gathered feedback in a targeted way from business and industry groups active in sectors that appear to be affected by foreign subsidies as well as expert groups, public authorities, representatives of SMEs, consumers as well as third-country stakeholders.
Regulatory Scrutiny Board
On 3 March 2021, the Regulatory Scrutiny Board issued a positive opinion on the Impact Assessment report accompanying the proposal.