Regulatory Proposal on an Instrument to Combat Distortive Subsidies by Third Countries Go back »

2021-05-05 | All chapters

The European Commission published a regulatory proposal for an instrument to tackle distortive foreign subsidies. The instrument, which will be fully implemented by the European Commission, consists of three modules:

• An ex-ante notification-based tool for concentrations (that is, mergers and acquisitions (M&A) or joint ventures (JVs) with entities from non-EU countries) of European companies with a minimum turnover of EUR500 and where the foreign financial contribution is at least EUR50 million in the past three years. If after notification a preliminary and then in-depth investigation are needed, the M&A or JV process may be halted for a set period until the a decision is reached. If the Commission concludes there are distortive subsidies in this concentration, it may impose redressive measures that could include, among others, the dissolution of the JV or the cancellation of the M&A in question. As in the general tool, fines and penalties for non-compliance may also be imposed.

• An ex-ante notification-based tool covering public procurement (including EU funding through shared management) where the estimated value of the procurement is EUR250 million. In this case, bidders would have the obligation of notifying the contracting authority of subsidies received in the past three years, and this information would then be passed on to the Commission. As with the tool for concentrations, pending the Commission’s review, the investigated bidder cannot be awarded the contract, though evaluation of tender processes may continue.

• A general tool allowing the Commission to launch on its own initiative investigations of both mergers and acquisitions and procurement bids below the above-mentioned thresholds. In these cases the Commission would have the right to request ad hoc notification from relevant entities, as well as to conduct relevant preliminary and in-depth investigations, with the possibility of carrying out inspections within and outside the EU (in the case of the latter with previous consent from the entity and the third country). The Commission would also be able to impose interim measures in the process of investigating, and to seek redressive measures in the form of  commitments from the entities if it decides these subsidies do affect negatively the Single Market. The Commission may also impose fines and penalty payments in cases of non-compliance or non-cooperation.

As next steps, the Commission will submit this proposal to the Member States and the European Parliament for consideration. In addition, the proposal will be open for an 8-week public consultation. Please find more information on the proposal for this new instrument here.

Key takeaways

The European Chamber provided feedback to the public consultation on the White Paper and is pleased to note that a number of its recommendations have been taken into consideration (e.g. on the importance of having comprehensive and detailed definition of ‘subsidy’, as well as the need for clear parameters for notification of subsidies and defined timeframes for the processes – particularly those that involve the halting of bid awards or M&As). The establishment of the Commission as the sole enforcer also simplifies matters in terms of coordination and eliminates the need for an intermediate ‘EU interest test’, as it is automatically incorporated in the Commission’s considerations. In addition, a solution has been found to the question of tackling distortive subsidies in the context of EU funding by including procurement through shared management in the notification tool for public procurement and by opening the door to a potential review of the Financial Directive in the case of EU funding through direct management. Finally, the fact that there is an option to conduct, where necessary and with appropriate consent, an investigation in third countries is positive.

One of the key issues flagged by the European Chamber was the difficulty of getting the relevant information on potentially distortive subsidies. The notification-based tools address this issue by imposing an obligation on stakeholders to notify ex-ante relevant subsidies in the past three years. The general tool, however, relies on an ex-post investigation by the Commission and ad hoc notification requirements. While a number of parameters that identify what is considered a distortive subsidy have been set – thus narrowing the scope, with regards to market investigation the document only states that ‘Where the information available substantiates a reasonable suspicion that foreign subsidies in a particular sector, for a particular type of economic activity or based on a particular subsidy instrument may distort the internal market, the Commission may conduct a market investigation into the particular sector, the particular type of economic activity or into the use of the subsidy instrument concerned.’ In any case, the role of stakeholders like industry in the sharing of information will continue to be relevant.