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Friday, March 31, 2023

Final approval to tackling distortive foreign subsidies on the internal market

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The Council has given its final approval to the foreign subsidies regulation. The regulation addresses distortions created by subsidies that are granted by non-EU countries to companies operating on the EU single market. It lays down the procedural rules for investigating these subsidies in the context of large concentrations and bids in large public procurement procedures.

In doing so, the regulation aims to restore fair competition between all companies operating in the internal market — both European and non-European. Following the Council’s approval today of the European Parliament’s position, the legislative act was adopted.

“The EU is the largest economy in the world. Our single market is a building bloc of economic prosperity for all citizens. 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”

Jozef Síkela, Minister for Industry and Trade of the Czech Republic.

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

Investigating financial contributions

The regulation proposes three tools for the Commission 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 have 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.

As a general rule (and subject to exceptions where applicable), 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. This is a tool 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 in order to remedy the distortion caused by the foreign subsidy.

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