20 May 2021

Facebook Twitter

Foreign subsidies: proposal for a regulation

On 5 May 2020, the European Commission proposed a new instrument to address the distortive effects of foreign subsidies in the Internal Market. The proposal offers a much-awaited solution to the competitive problem that companies subject to EU state aid rules face against firms that benefit from support from third States to which state aid rules do not apply.

Under the proposed Regulation, the Commission will have the power to investigate and remedy the distortions caused by the financing of companies engaging in an economic activity in the EU by public authorities from third countries. The proposal applies to any financial contributions, direct or indirect, that benefit one or several undertakings or sectors, and distort the internal market by improving the competitive position of the beneficiary.

The proposal identifies three types of situations where the Commission will ensure compliance with the foreign subsidy rules: (i) concentrations; (ii) public procurement procedures, and (iii) all other market situations involving distortive financial contributions.

To monitor these situations, the proposal provides the Commission with three tools.

It provides for two notification-based investigative tools designed for concentrations and public procurement procedures. Under the proposal, participants to a tender or public procurement procedure over EUR 250 million must notify the contracting authority of all foreign financial contributions received in the three years preceding that notification or confirm in a declaration that they have not received any foreign financial contributions in the last three years.It also includes one ex officio investigative tool for all other market situations and smaller concentrations and public procurement procedures. Under this general market investigation tool, the Commission can look back into a company’s financing in the past ten years. Based on that information, it can decide (i) that there is no foreign subsidy; (ii) that there are no indications of an actual or potential distortion on the internal market, or (iii) to initiate the in-depth investigation. Foreign subsidies of less than EUR 5 million over the last three years are deemed unlikely to distort the internal market. Above this safe harbour, the Commission will have the power to impose redressive measures or accept commitments from the companies concerned to remedy the distortion.

The Parliament and the Council will now discuss the proposal in the framework of the ordinary legislative procedure.