European Commission proposes novel measures to tackle foreign subsidies distorting the EU market

On 5 May 2021, the European Commission (Commission) issued its proposal for a Regulation on foreign subsidies distorting the EU market. This follows on from the Commission's White Paper issued in June 2020 (see our blog post here) and the extensive public consultation that ensued.

The primary objective of this initiative is to close the perceived regulatory gap whereby subsidies granted by EU Member States (to mainly EU based businesses) are subject to the rigorous EU State aid regime, while subsidies by third countries (benefiting foreign operators active in the EU) are currently unregulated and this, it is claimed, leads to distortions on the EU market (raising the concern that EU businesses are effectively disadvantaged).

The proposal is intended to give the Commission new powers to tackle these possible distortive effects. In general, the Commission will be able to carry out investigations of foreign subsidies (such as grants, interest-free loans or unlimited guarantees). Once their existence and distortive effects have been established, the Commission will have a number of redressive measures at its disposal (or may accept the beneficiaries' commitments in certain circumstances).

The proposed legislation envisions three key instruments:

• A wide-ranging ("ex officio") power to investigate all instances of distortive foreign subsidies:
  • This broad category is heavily inspired by the EU State aid regime in terms of procedure.
  • Foreign subsidies of less than €5 million (over any consecutive period of three fiscal years) are said to be "unlikely" to be distortive, thus providing for a de facto de minimis threshold.
• Notification-based tool for subsidised acquisitions:
  • The notification requirement will be triggered where the EU turnover of the company to be acquired (or of at least one of the merging parties) is €500 million or more and the aggregate amount of the foreign financial contribution is at least €50 million (over the three calendar years prior to notification).
  • The Commission's investigation will have similar procedural features and will run to a large extent parallel to the current EU merger control regime.
• Notification-based tool for subsidised procurement bids:
  • Procurement bids involving a foreign financial contribution will need to be notified where the value of the procurement is €250 million or more (which is a relatively high threshold).

With respect to the two notification-based tools, the acquirer or bidder will therefore have to notify ex-ante any financial contribution received from a non-EU government in relation to acquisitions or public procurements meeting the thresholds. Pending the Commission's review, the acquisition in question cannot be completed and the investigated bidder cannot be awarded the contract.

It should be noted that the Commission has taken account of some of the comments received in relation to the White Paper by including provisions which explicitly seek to prevent overlap with other EU instruments and conflict with the WTO Agreement on Subsidies and Countervailing Measures (although the practical application of these provisions might not be straightforward).

In the coming days, we will follow up with a more detailed analysis of the Commission's proposal which you will be able to access on our blog here.

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