MEPS fine-tune proposed new rules on foreign subsidies to fill a ‘regulatory gap’ disadvantaging EU companies

With the aim of creating a more level playing field for EU companies, the European Parliament’s International Trade Committee (“INTA”) published on 17 December 2021, a Draft Report on the EU Proposal for a Regulation on distortive foreign subsidies. MEP Christophe Hansen (EPP, Luxembourg), who is the rapporteur for this initiative, expressed support for the overall aim and design of the proposal. He noted that the Regulation addressed a “longstanding regulatory gap that puts European companies at a competitive disadvantage” compared to companies benefitting from foreign subsidies that are not subject to the same “rigorous scrutiny” applied to subsidies given by EU Member States. In Europe, such Member State subsidies are subject to EU State aid rules. This Draft Report marks an important step in the progress of the Regulation through the Parliament.

Background

As previously reported, the European Commission published a ‘White Paper on levelling the playing field as regards foreign subsidies’ in June 2020 which considered how the EU could address market distortion caused by subsidies granted by non-EU authorities to undertakings established in the Union. The adoption of the White Paper started a 14-week public consultation, which ended on 23 September 2020. Most of the replies to the consultation showed a strong support across the EU in favour of introducing measures to regulate foreign subsidies in the Union. A summary of the consultation results was published by the Commission and is available here.

Proposed Regulation

In light of this public feedback and in an effort to “level the playing field”, the Commission presented a proposal for a Regulation on foreign subsidies distorting the internal market on 5 May 2021. The draft Regulation proposed the introduction of a three-tiered investigation tool:

  • Merger control: a notification-based tool for investigating concentrations that involve a financial contribution by a non-EU government, in which the turnover of the EU target undertaking exceeds €500 million, and the foreign contributions exceed €50 million over the three years prior to notification;
  • Public procurement procedures: a notification-based tool for investigating bids in public tenders by non-EU public authorities where the contract is valued at greater than €250 million; and
  • Other foreign subsidies: an ex-officio investigative tool for all other market situations, and for concentrations and public procurement procedures that fall below the existing thresholds.

The Commission’s powers under the proposed Regulation are extensive and, if adopted in its current form, could significantly impact how non-EU companies operate or invest in the EU. As the sole enforcer of the Regulation, the Commission would have the power to impose a wide range of both structural and behavioural remedies on undertakings to correct any actual or potential distortion caused by the subsidy. These include, for example, the divestment of certain assets, providing access to infrastructure, and reducing capacity or market presence. In addition, the Commission would have the power to impose fines for procedural breaches (up to 1% of the company’s aggregate global turnover) and fines for breaches of Commission decisions or obligations under the Regulation (up to 10% of global turnover).

INTA’s Draft Report

As already noted, INTA’s Draft Report expressed support for the Regulation proposal. However, the rapporteur proposed a number of amendments, including:

  • A mechanism for stakeholders and Member States to provide the Commission with information that could lead to a potential investigation;
  • The potential to revise the thresholds for each investigative tool;
  • The inclusion of abuse of a dominant position in a foreign company’s home-market in the definition of a financial contribution for the purposes of the Regulation;
  • A requirement for known future subsidies to be notified to the Commission;
  • An obligation for the Commission to publish guidelines on the application of the balancing provision in assessing subsidies under Article 5 of the Regulation;
  • A clarification that foreign subsidies provided by third countries, which operate a subsidy control mechanism equivalent to the Union’s, are unlikely to be distortive;
  • The possibility for companies to approach the Commission for pre-notification consultations to establish whether notification requirements are met;
  • A reduction by 50% of the time-limits proposed in the procedural rules applicable to the preliminary review and the in-depth investigation of notified financial contributions in public procurement procedures, i.e., from 60 days to 30 days for carrying out a preliminary review and from 200 days to 100 days for the adoption of a decision closing the in-depth investigation;
  • Power for the Commission to make fact-finding visits at the Union premises of the undertaking, or, subject to agreement by the third country concerned, at the premises of the undertaking in the third country;
  • Where the Commission decides to impose redressive measures on an undertaking to remedy any distortion caused by a foreign subsidy in the internal market, it should prioritise behavioural over structural remedies where possible; and
  • The possibility for the Commission to engage on behalf of the Union in third country dialogue, where a third country runs “persistent and systemic distortive schemes”.

Next steps

The European Parliament’s Committee on International Trade will discuss the Draft Report and the Opinion Reports of the other relevant committees, most importantly the Economic and Monetary Affairs Committee (“ECON”) which has “exclusive competence on concentrations” and the Internal Market and Consumer Protection (“IMCO”) Committee which has shared competence on other specific Articles of the Regulation. and.

After political discussion and debate about the proposed amendments, the lead committee (INTA) will vote on the Draft Report. Once approved, the Draft Report will be sent forward for a plenary vote and, if adopted, it will become the Parliament’s mandate for negotiations with Council on its respective text (Council Position). Inter-institutional (‘trilogue’) negotiations to reach a final agreement are expected to take place in later in 2022.

For more information please contact Hein HobbelenSamuel BernemanFrancine Cunningham and Andrea Whelton

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