New Regulation on foreign subsidies – the Council and the EP has reached an agreement

On 30 June, the Council and the European Parliament reached a provisional political agreement on a new Foreign Subsidies Regulation, based on a proposal by the Commission of 5 May 2021.

The EU is a relatively open economy. In 2021, it received approx. EUR 134 billion in foreign direct investment. Whilst subsidies from EU Member States are subject to the EU State aid rules, there has so far not been any EU instrument to control third country subsidies. The new regulation aims at preventing subsidies granted by non-EU Member States from distorting competition between undertakings operating in the internal market.

In particular, the Regulation will entail e.g. the following:

  • The Commission will be exclusively competentto investigate financial contributions granted by public authorities of a non-EU country to undertakings engaging in an economic activity in the EU. This will cover subsidies granted up to five years before the entry into force of the new Regulation.
  • Prior authorization from the Commission will be required for the largest mergers (from EUR 500 million), as well as for bids in large-scale public procurement awards (from EUR 250 million). The Commission will also have a general market investigation tool to investigate all other market situations and lower-value mergers and public procurement procedures.
  • In its review, the Commission will use a balancing test, i.e. an assessment ofthe balance between the positive and negative effects of a foreign subsidy. The Commission will issue guidelines on how it assesses the distortive nature of a foreign subsidy as well as its potential benefits.
  • Should an undertaking fail to notify a subsidised concentration or a financial contribution in the context of public procurement procedures meeting the thresholds set, the Commission will be able to impose finesand examine the transaction as if it had been notified.
  • Member States will be kept informed and will be involved through an advisory procedure in decisions adopted under the new Regulation.

The provisional agreement is subject to approval by the Council and the European Parliament. On the Parliament’s side, there is to be a vote in the Committee on International Trade, before the vote in the Plenary. With regard to the Council, the agreement must be approved by the Permanent Representatives Committee (Coreper) before being put before the Ministers. After approval, the regulation will enter into force on the 20th day following that of its publication in the Official Journal of the European Union.

Please see the provisional agreement, the press releases of the Council and the Parliament, as well as the proposal by the Commission.