On 5 May 2021, the European Commission adopted a Proposal for a Regulation on foreign subsidies distorting the internal market. The legislative proposal follows the publication of a White Paper in June 2020 and an extensive consultation process of stakeholders in September 2020.
The proposed Regulation is intended to close a regulatory gap whereby subsidies granted by non-EU governments currently fly under the radar while subsidies granted by Member States are subject to close scrutiny. According to the Commission, this different treatment of foreign subsidies distorts the internal market, among other things by providing their recipients with an unfair advantage to acquire companies or to win public procurement contracts in the European Union.
Under the proposed Regulation, the Commission will be able to investigate a wide-range of aid measures granted by non-EU governments to companies active in the Union (e.g. interest-free loans, preferential tax treatment, capital injections and grants), and redress distortive effects if necessary.
To this end, the European Commission is adding three new tools to its toolbox:
- first, the proposal includes an ex-ante notification-based tool to investigate concentrations involving a financial contribution granted by non-EU governments, where the EU turnover of the target company (or of at least one of the merging parties) is equal to or higher than EUR 500 million, and the foreign financial contribution is at least EUR 50 million;
- second, another ex-ante notification-based tool is foreseen to investigate bids in public procurement involving a financial contribution by a non-EU government, where the estimated value of the procurement is equal to or higher than EUR 250 million;
- third, the European Commission will have a general ex-officio tool to investigate all other market situations as well as smaller concentration and public procurement procedures, which it can start at its own initiative, and may request ad-hoc notifications.
If the European Commission establishes that a distortive foreign subsidy exists, it will, where necessary, balance the distortion with the possible positive effects of the subsidy to determine the most appropriate redressive measures, or to accept commitments offered by the company.
With regard to the redressive measures and commitments, the proposal offers a range of well-known structural or behavioural remedies, such as the divestment of certain assets or providing access to infrastructure. The Commission will also have the power to prohibit the subsidised concentration or the award of the procurement contract to the subsidised bidder.
The proposal will now be discussed by the European Parliament and the Member States in the context of the ordinary legislative procedure, with a view to adopting a final text of the Regulation.
Please contact Pierre de Bandt, Peter Teerlinck or Jeroen Dewispelaere for further information about this proposal and/or for general legal advice relating to State aid law or public procurement.