Foreign Subsidies Regulation Impact.
1. Objectives of the Foreign Subsidies Regulation
The FSR aims to:
Ensure fair competition in the EU internal market.
Prevent distortive advantages created by foreign financial contributions.
Create transparency regarding foreign government funding.
Empower the European Commission to investigate and impose remedies.
The regulation complements EU competition rules such as:
EU Merger Regulation
Public Procurement Directive 2014/24/EU
2. Meaning of Foreign Subsidy
Under the FSR, a foreign subsidy exists when:
A third-country government provides a financial contribution, and
The contribution confers a benefit to a company engaging in economic activity in the EU, and
It distorts or is likely to distort competition in the EU internal market.
Examples of Financial Contributions
Direct grants or loans
Tax exemptions
Guarantees
Debt forgiveness
Supply of goods or services below market price
3. Key Regulatory Mechanisms
The regulation introduces three major tools for enforcement.
(A) Merger Control Mechanism
Companies must notify the European Commission before completing a merger if:
The EU target company has turnover of at least €500 million, and
The parties received foreign financial contributions exceeding €50 million in the last 3 years.
The European Commission can:
Approve the transaction
Impose remedies
Block the merger
(B) Public Procurement Review
For large public tenders, companies must notify if:
Contract value exceeds €250 million, and
The bidder received significant foreign financial contributions.
The Commission may exclude bidders benefiting from distortive subsidies.
(C) Ex-Officio Market Investigation
The Commission may investigate any company operating in the EU if it suspects distortive foreign subsidies.
Possible outcomes include:
repayment of subsidy
divestment of assets
behavioral commitments
prohibition of market conduct
4. Investigation Procedure
The FSR investigation normally follows two phases:
Phase I – Preliminary Review
Initial screening of subsidy impact.
Duration: 25 working days (mergers) or 20 days (procurement).
Phase II – In-Depth Investigation
Conducted if serious distortion concerns exist.
The Commission may impose redressive measures or accept commitments.
5. Balancing Test
One important innovation in FSR is the balancing test.
Even if a foreign subsidy distorts competition, the Commission will evaluate:
positive effects (economic development, employment, innovation)
negative effects (market distortion)
If positive effects outweigh the negative ones, the subsidy may be allowed.
6. Penalties and Remedies
The Commission may impose significant penalties:
Fines up to 10% of global turnover
Periodic penalty payments
Transaction prohibition
Repayment of subsidy
Structural remedies (divestments)
7. Impact of the Foreign Subsidies Regulation
(1) Increased Compliance Obligations
Companies receiving foreign government support must:
track financial contributions
conduct subsidy risk assessments
maintain detailed records
(2) Impact on Mergers and Acquisitions
Cross-border acquisitions involving state-backed investors face stricter scrutiny.
Example: acquisitions by companies supported by governments such as sovereign wealth funds.
(3) Effects on Public Procurement
Foreign subsidized companies bidding for EU infrastructure projects may be investigated or excluded.
(4) Geopolitical Implications
The regulation indirectly targets state-capitalist economies where government support to corporations is common.
8. Important Case Laws and Investigations
Although the regulation is recent, several early enforcement actions and analogous competition cases illustrate its practical implications.
Case 1: CRRC Qingdao Sifang – Bulgarian Railway Tender (2023)
The CRRC Qingdao Sifang Co Ltd withdrew from a Bulgarian train procurement tender after the European Commission launched its first investigation under the FSR.
Issue
Whether Chinese government subsidies allowed the company to submit an artificially low bid.
Significance
First FSR investigation in public procurement.
Demonstrated immediate regulatory impact.
Case 2: Emirates Telecommunications / PPF Telecom Acquisition (2023)
The Emirates Telecommunications Group acquisition of PPF Telecom Group was reviewed under FSR.
Issue
Whether financing from the UAE government constituted a distortive subsidy.
Outcome
Transaction approved after Commission scrutiny.
Importance
First merger examined under the FSR framework.
Case 3: Chinese Electric Vehicle Subsidy Investigation (2023–2024)
The Commission launched an investigation into subsidies benefiting companies such as BYD Company, SAIC Motor, and Geely.
Issue
Large-scale Chinese government subsidies allegedly enabling EV dumping in Europe.
Legal Relevance
Shows how FSR complements trade defense instruments.
Case 4: Hinkley Point C State Aid Case (2018)
In Austria v Commission (Hinkley Point C), Austria challenged UK state aid granted for the nuclear project operated by EDF Energy.
Relevance to FSR
Although concerning EU state aid, it clarified how government financial support can distort competition, a concept mirrored in FSR.
Case 5: Aer Lingus State Aid Case
In Ryanair v Commission (Aer Lingus), the Ryanair challenged state aid granted to Aer Lingus.
Significance
Established principles for identifying economic advantage, which influence FSR subsidy analysis.
Case 6: Apple Tax Ruling Case
The Commission v Ireland and Apple involved tax advantages granted to Apple Inc. by Ireland.
Relevance
Demonstrated how preferential financial treatment can distort competition—an analytical approach now applied to foreign subsidies.
9. Criticisms of the FSR
Scholars and businesses have raised several concerns:
Administrative burden due to extensive reporting requirements.
Overlap with existing EU competition laws.
Uncertainty regarding interpretation of “distortive subsidy”.
Possible retaliation from trading partners.
10. Conclusion
The Foreign Subsidies Regulation represents a major evolution in EU competition law. It fills the regulatory gap by addressing non-EU government subsidies that distort the internal market.
Its impact includes:
stricter merger scrutiny
regulation of subsidized public procurement bidders
expanded investigative powers of the European Commission
As enforcement develops, the FSR is expected to become a central instrument in global economic governance and competition regulation.
RELATED Blog
comments