European Council approves new foreign subsidies’ regulation

The European Council gave its final approval to the foreign subsidies’ regulation, which is designed to address distortions created by subsidies granted by non-EU countries to companies operating on the EU single market.

The regulation lays down procedural rules for investigating such subsidies in the context of large concentrations and bids in large public procurement procedures. It aims to restore fair competition between all companies – both EU and non-EU – operating in the internal market and serves as a tool to ensure a level playing field for all undertakings operating in the single market that receive support from either an EU member state or a non-EU country.

At present, subsidies granted by EU member states are required to comply with EU state aid rules, but there is no EU instrument to control similar subsidies granted by non-EU countries. The foreign subsidies regulation establishes a framework for the European Commission to examine any economic activity benefiting from a subsidy that is granted by a non-EU country on the internal market.

“The EU is the largest economy in the world. Our single market is a building bloc of economic prosperity for all citizens,” said Jozef Síkela, Minister of Industry & Trade of the Czech Republic. “The new measures will empower the EU to investigate and prevent the unfair practices supported by some non-EU countries. This will allow the EU to ensure fair competition and level playing field for all companies.”

The regulation provides for the Commission to have three tools to investigate financial contributions by a public authority in non-EU country:

• Two ‘prior authorisation’ tools to ensure a level playing field for the largest mergers and bids in large-scale public procurement procedures.
• A ‘general market investigation’ tool for investigating all other market situations, as well as lower-value mergers and public procurement procedures.

Companies will be required to notify the Commission of mergers and acquisitions if one of the parties involved has an EU turnover of at least €500 million and there is a foreign financial contribution of at least €50 million. For tenders in public procurement procedures, the threshold for procurement is set at least €250 million. If an undertaking fails to comply with the notification rules, the Commission will be able to impose fines and examine the transaction as if it had been notified.

Subject to applicable exceptions, the Commission will be empowered to investigate foreign subsidies granted up to five years prior to the entry into force of the regulation where such subsidies distort the internal market after the regulation’s entry into force.

As is the case under the EU state aid rules, if the Commission finds that a foreign subsidy exists and that it distorts competition, it will perform a ‘balancing test’ to assess the positive and negative effects of a foreign subsidy.

If the negative effects outweigh the positive effects, the Commission will be empowered to impose redressive measures including structural and non-structural remedies and the repayment of the foreign subsidy, or to accept commitments from the undertakings concerned to remedy the distortion caused by the foreign subsidy.

The European Commission tabled the proposal for a regulation on foreign subsidies distorting the internal market on 5 May 2021. After being signed by the President of the European Parliament and the President of the Council, the regulation will be published in EU’s Official Journal and will enter into force 20 days after publication.

Contact Us Today

Have questions or need help? Reach out directly today.

Get In Touch