The Commission welcomes the political agreement reached today between the European Parliament and EU Member States on the Foreign Subsidies Regulation (‘FSR’). The FSR is an important addition to the EU toolbox to address distortions caused by foreign subsidies and ensure a level playing field for all companies operating in the EU Single Market.
The Foreign Subsidies Regulation, covering concentrations, public procurement procedures and all other market situations, will close a regulatory gap in the Single Market. So far, the lack of rules allowed subsidies granted by non-EU governments to go largely unchecked, while subsidies granted by Member States are subject to close scrutiny. The FSR complements the EU’s international efforts to modernise subsidy rules in the World Trade Organization.
Under the FSR, the Commission will have the power to investigate financial contributions granted by public authorities of a non-EU country which benefit companies engaging in an economic activity in the EU in order to redress their distortive effects. The Commission will be able to do so through three new tools: two notification-based tools and a general market investigation tool.
More specifically, the Regulation sets out an obligation for companies to notify:
Concentrations where the acquired company, one of the merging parties or the joint venture generates an EU turnover of at least €500 million and the transaction involves a foreign financial contribution of at least €50 million;
Tenders in public procurements procedures, where the estimated contract value is at least €250 million and the bid involves a foreign financial contribution of at least €4 million per third country].
Such a concentration cannot be completed and an investigated bidder cannot be awarded the contract until cleared by the Commission. The Commission can impose fines on companies that breach this obligation, which may reach up to 10 % of their aggregated turnover. Finally, the Commission can prohibit a subsidised concentration or the award of a public procurement contract to the subsidised bidder.
At the same time, the FSR empowers the Commission to investigate, on its own initiative, all other market situations and to request an ad-hoc notification for smaller concentrations and public procurement procedures, if it suspects that a distortive foreign subsidy may be involved.
The FSR grants the Commission ample powers to gather the information necessary for its investigation including: (i) sending information requests to companies, (ii) conducting fact-finding missions and inspections; and (iii) launching market investigations into specific sectors or types of subsidies. The Commission may also rely on market information submitted by Member States, by any natural or legal person or an association.
If the Commission finds that a foreign subsidy exists and that it distorts the Single Market, it may, where needed, conduct a balancing test to take into account the positive effects of the subsidy. If the negative effects, deriving from the distortions in the Single Market, outweigh the positive ones, the Commission may impose structural or non-structural redressive measures on companies to remedy the distortion, or accept them as commitments (e.g. the divestment of certain assets or the prohibition of a certain market behaviour).
Members of the College said:
Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “Our commitment to protect the level playing field in Europe is expressed in the speed at which this agreement was reached. This new regulation will ensure fair terms for all market players. The Single Market remains open to undistorted trade and investment. We welcome business in the EU, treating all companies equally by ensuring fair terms for all market players.”
Executive Vice-President Valdis Dombrovskis, responsible for An Economy that Works for People and for Trade, said: “The Single Market is open to all those who play fair, whether from the EU or not. This new tool will ensure that foreign subsidies which distort competition in the Single Market have no place in the EU. It complements our efforts to foster competition in international trade that supports our capacity to grow and innovate.”
Commissioner for the Internal Market Thierry Breton said: ”We have reached a milestone in ensuring that we have a true level playing-field. The EU procurement market corresponds to around 14% of our GDP. It is not acceptable that it is distorted by foreign subsidies to the detriment of the competitive firms that play by the rules. This innovative tool will fill a legal gap and entrust us with new means to promote equal treatment and fair competition in the Single Market.”
Next Steps
The Regulation will enter into force once it is formally adopted by the Council and the Parliament and published in the Official Journal. The Regulation will become directly applicable across the EU 6 months after entry into force.
The notification obligations will start to apply 9 months after entry into force.
Background
In its Conclusions of 21 and 22 March 2019, the European Council asked the Commission to identify new tools to address distortive effects of foreign subsidies on the Single Market.
In its February 2020 report on competition policy, the European Parliament called on the Commission to explore the option to add a pillar to EU competition law that gives the Commission appropriate investigative tools in cases where a company is deemed to have engaged in distortionary behaviour due to government subsidies.
To explore the issue, launch a public debate and propose possible solutions, on 17 June 2020, the Commission adopted a White Paper on levelling the playing field as regards foreign subsidies.
On 5 May 2021, the Commission adopted a proposal for a Regulation on foreign subsidies distorting the Single Market.
Source: Cyprus News Agency