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(BRUSSELS) – The European Union’s Foreign Subsidies Regulation entered into force Thursday, a new set of rules which addresses the distortions caused by foreign subsidies and ensures fair and open EU markets.
This new set of rules for addressing distortions caused by foreign subsidies will allow the EU to remain open to trade and investment, while ensuring a level playing field for all companies operating in the Single Market.
“This new regulation will enable us to tackle distortive support from third countries, to the benefit of competition and for a level playing field in the Single Market,” said EC vice-president Margrethe Vestager.
“The EU procurement market, accounting for over 14% of our GDP, is a strong economic tool. It is also an important geopolitical lever. It is not acceptable that it is distorted by foreign subsidies to the detriment of the competitive firms that play by the rules,” said Thierry Breton, Commissioner for Internal Market.
The FSR applies to all economic activities in the EU: it covers concentrations (mergers and acquisitions), public procurement procedures and all other market situations. The new rules give the Commission the power to investigate financial contributions granted by non-EU countries to companies engaging in an economic activity in the EU and redress, if needed, their distortive effects.
The FSR consists of three tools, which are to be enforced by the Commission:
- An obligation for companies to notify to the Commission concentrations involving a financial contribution by a non-EU government where (i) the acquired company, one of the merging parties or the joint venture generates an EU turnover of at least 500 million and (ii) the foreign financial contribution involved is at least 50 million;
- An obligation for companies to notify to the Commission participation in public procurement procedures, where (i) the estimated contract value is at least 250 million and (ii) the foreign financial contribution involved is at least 4 million per non-EU country; the Commission may prohibit award of contracts in such procedures to companies benefiting from distortive subsidies.
- For all other market situations, the Commission can start investigations on its own initiative (ex-officio) if it suspects that distortive foreign subsidies may be involved. This includes the possibility to request ad-hoc notifications for public procurement procedures and smaller concentrations.
A notified concentration cannot be completed and an investigated bidder cannot be awarded the public procurement contract while under investigation by the Commission. In case of breach of this obligation, the Commission can impose fines, which may reach up to 10% of the company’s annual aggregated turnover. The Commission can also prohibit the completion of a subsidised concentration or the award of a public procurement contract to a subsidised bidder.
The FSR grants the Commission a wide range of investigative powers to gather the necessary information, including: (i) sending information requests to companies; (ii) conducting fact-finding missions within and outside the Union; and (iii) launching market investigations into specific sectors or types of subsidies. The Commission may also rely on market information submitted by companies, by Member States, or by any natural or legal person or association.
If the Commission finds that a foreign subsidy exists and distorts the Single Market, it may balance the negative effects in terms of the distortion with the positive effects of the subsidy on the development of the subsidised economic activity. If the negative effects outweigh the positive ones, the Commission may impose structural or non-structural redressive measures on companies, or accept them as commitments, to remedy the distortion (e.g. divestment of certain assets or prohibition of a certain market conduct).
As a general rule, subsidies below 4 million over three years are considered ‘unlikely’ to be distortive while subsidies below the EU State aid ‘de minimis’ thresholds are considered non-distortive.
In the context of notifiable concentrations and public procurement procedures, the Commission can look at foreign subsidies granted up to three years before the transaction. However, the Regulation does not apply to concentrations concluded and public procurements initiated before 12 July 2023.
In all other situations, the Commission can look at subsidies granted 10 years in the past. However, the Regulation only applies to subsidies granted in the five years prior to 12 July 2023 where such subsidies distort the Single Market after the start of application.
Foreign Subsidies Regulation - guide
