White Paper on foreign subsidies in the EU Market

White Paper on foreign subsidies in the EU Market

Author: Špela Remec

On 17 June 2020 the European Commission adopted the White Paper on foreign subsidies in the Single Market. Subsidies granted by non-EU governments to their companies active on the EU market can distort the competition on the EU market, but fall outside EU State aid control. The purpose of the initiative is therefore to create a level playing field, protecting EU companies including European champions from state-backed non-EU companies.

The White Paper will, together with feedback from the public consultation, serve as a basis for appropriate legislative proposals to regulate the effects of non-EU subsidies on the EU market. The Commission plans that the relevant legislation should be adopted in 2021.

In the White Paper the Commission emphasizes primarily the following issues in respect of effects caused by foreign subsidies on the EU market:

  • EU state-aid rules apply only to EU companies, while non-EU companies are not limited by such rules.
  • If an EU company is controlled by a non-EU company or government, it can take advantage of foreign subsidies also in respect of its business activities on the EU market. This represents an unfair advantage as compared to companies controlled by EU companies or governments limited by EU state-aid rules.
  • Companies subsidized by non-EU countries may offer lower prices in EU public procurement procedures compared to those bidders which are limited by EU state-aid rules.

The Commission wishes to address the above issues through new legislation on regulation of foreign subsidies which shall be composed of a combination of the following three modules:

  • Module 1 (a general market scrutiny instrument): This module includes a possibility for the supervising authorities (on the EU or national level) to initiate investigations in case of any indication or information that a company in the EU benefits from a foreign subsidy, and impose appropriate measures if such indication is confirmed. The measures would be aimed at remedying the distortive impact, and would include redressive payments, structural and behavioural remedies. The threshold of foreign subsidies triggering the measures is foreseen to be EUR 200,000 or more in the last three years.
  • Module 2 (acquisitions of EU companies): A mandatory notification of acquisitions is foreseen if an acquirer has received financial support by a non-EU country and the annual turnover of the such acquirer’s target exceeds EUR 100 million or the relevant target’s assets are likely to generate a significant EU turnover in the future. Completion of such transactions would not be permitted before the review is completed. If the review established that the acquisition was enabled by a foreign subsidy and that the closing of the transaction would effectively distort the Single Market, it would be possible to prohibit the acquisition or request certain commitments from the notifying party aimed at remedying the distortion.
  • Module 3 (EU public procurement procedures): Upon submission of the bid, the bidders would have to notify the contracting authority of financial contributions which they or their consortium partners, subcontractors or suppliers received from non-EU countries in the last three years prior to the relevant public procurement procedure. If the investigation of the competent national authority would conclude that a foreign subsidy was involved which distorted the public procurement procedure, the bidder could be, among others, excluded from the relevant procurement procedure and potentially also prohibited from participating in future procurement procedures for a period of three years.

If adopted, the measures foreseen in the proposed modules will undoubtedly prolong and raise the costs of acquisitions of EU companies by investors from non-EU countries and investors financed by non-EU countries, aggravate business activities of non-EU companies on the EU market, including participation in public procurements, and increase the workload of the supervising authorities.

The Commission’s public consultation regarding the relevant issues remains open to all interested participants until 23 September 2020.