European Commission to Expand Oversight of Foreign Subsidies

Investments in the European Union subsidized by non-EU governments prompt calls for new rules on subsidies.

The European Commission is expected to issue a White Paper on an Instrument on Foreign Subsidies on June 17, as anticipated in its 2020 work program. The Commission's White Paper will address the perception that foreign subsidies facilitate unfair acquisitions of European companies and distort their beneficiaries' pricing policies in the European Union ("EU"). 

The EU already has several tools to combat subsidies that, in its view, distort markets. For example, the EU restricts Member States from providing selective financial support to private companies. However, State aid rules do not and cannot address subsidies by governments outside the EU. Anti-subsidy investigations target exports into the EU from third countries. 

Additionally, beginning October 11, 2020, pursuant to new EU regulations on foreign direct investmentssubsidies received by a foreign investor will be relevant to assessing whether an investment impacts security or public order. Any merger notification to the EU must also describe "any financial or other support received from public authorities."

The Commission's White Paper will propose new regulatory tools to expand its reach over both investments and potentially any activities in the EU by companies benefiting from subsidies granted by governments outside the EU. Expected new powers include a compulsory notification system that would authorize the Commission to review proposed acquisitions that involve subsidies. The Commission also is likely to propose investigative and remedial powers for it or Member States to assess whether foreign subsidies cause distortions in the EU internal market.

The White Paper is understood to focus on primarily Chinese investments and acquisitions in Europe. However, the instrument will be far-reaching and could impact any non-EU company investing or operating in the EU that receives subsidies in its home jurisdiction. 

When issued, the White Paper will launch a public consultation prior to preparing legislative initiatives for submission to the European Parliament and EU Council in 2021.

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