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European Commission Publishes Proposal to Counter Foreign Subsidies Distorting the Single Market

The European Commission would gain extensive new powers to counteract alleged distortive effects of foreign subsidies in the EU Single Market—combining elements from EU rules on state aid, trade defence, merger control, and public procurement—under a novel instrument set out in its proposed Regulation published on 5 May 2021.

As anticipated in our White Paper The EU "Club" Gets More Exclusive: Closing The Doors On Foreign Subsidies? (July 2020), the European Commission published a proposal on 5 May 2021 for a novel instrument that would provide it with extensive new powers to counteract alleged distortive effects of foreign subsidies in the EU Single Market. 

The proposal combines elements from EU rules on state aid, trade defence, merger control, and public procurement. It would introduce three new tools:

  • Mandatory merger notification system. In mergers and acquisitions facilitated by foreign subsidies, the acquirer would need to submit a prior notification to the Commission when:
  • The EU turnover of the EU company to be acquired, or of at least one of the EU merging parties, is at least €500 million; and
  • The foreign subsidy amounts to at least €50 million.
  • Public procurement. In public procurement procedures, bidders would be required to disclose any foreign subsidies received by submitting a prior notification to the contracting authority when:
  • The estimated value of the procurement contract is at least €250 million; and
  • Any foreign subsidies were received three years prior to the notification.
  • Ex officio review of foreign subsidies. A general tool is proposed to review foreign subsidies that would allow the Commission to investigate any market situation, including mergers and acquisitions or public procurement procedures not meeting the thresholds under the above two tools. The Commission could start such an investigation on its own initiative and would have the power to request ad hoc notifications.

 The Commission would have powers to impose interim measures, issue requests for information, conduct company inspections (in the EU and—with a company’s consent—outside the EU), enforce non-cooperation, and impose fines and periodic penalty payments.

The Commission would have exclusive competence under the proposed Regulation, with almost no role for EU Member State authorities.

The proposal (available here) must now be reviewed and adopted by the European Parliament and the EU Member States to become law.

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