On June 17, 2020, in response to calls from the European
Council1 and certain Member States,2 the European Commission published a White Paper setting out its proposals for a comprehensive set of new tools to tackle the potentially competition-distorting effects of foreign subsidies on the level playing field of the EU internal market. These tools also aim to address existing gaps in EU competition, public procurement, and trade defence rules regarding foreign subsidies.
1. Rationale of the Commission's Initiative
The rationale of the Commission's initiative is twofold:
— First, the White Paper seeks to address the undue competitive advantage that certain companies may obtain from subsidies granted by third-country governments. By leveraging their privileged position, the beneficiary undertakings may unfairly alter the balance of the playing field, either when they operate in the EU market or when they seek to enter it. This concern is especially pronounced in certain sectors: the White Paper mentions aluminium production and semiconductors as possible examples. The Commission is also concerned that, in their domestic legal systems, non-EU State-owned or State-backed companies may be subject to less stringent competition rules and may not be faced with the extensive monitoring and reporting obligations that bind their EU counterparts. Above all, foreign businesses may be allowed access to State subsidies in their jurisdictions without any form of control or limitation. Competition in the internal market may also be distorted by the fact that, due to EU State aid rules, European investors may have to finance their acquisitions with less readily available or more expensive private resources. The Commission's concerns are more pronounced in the current context of the COVID-19 health crisis where strategic EU companies are particularly vulnerable due to volatility or undervaluation on the stock markets.
— Second, the Commission aims to fill perceived gaps in the EU's regulatory arsenal concerning foreign subsidies under State aid, merger control, antitrust, trade defence and public procurement rules. Indeed, EU State aid rules only apply to public support granted by EU Member States, not to subsidies granted by non-EU authorities, even where such foreign subsidies distort competition in the internal market. Moreover, in a growing number of instances, foreign subsidies appear to have facilitated the acquisition of EU companies, distorted the investment decisions, market operations, or pricing policies of their beneficiaries, or distorted bidding in public procurement, to the detriment of non-subsidized companies. Current EU merger and antitrust rules do not allow the Commission to intervene on the ground that an economic operator has benefitted from foreign subsidies. Likewise, existing trade defence rules only relate to exports of goods (as opposed to services) from third countries,3 while the existing tool for control of foreign direct investment ("FDI")4 allows the Commission to address some, but by no means all, distortions caused by foreign subsidies.
2. Notion of "Foreign Subsidy" and the De Minimis Rule
The White Paper defines a " foreign subsidy" as "a financial contribution by a government or any public body of a non-EU State, which confers a benefit to a recipient in the EU and which is limited, in law or in fact, to an individual undertaking or industry or to a group of undertakings or industries."5 This definition covers any form of foreign subsidy,6 irrespective of whether it is granted to: (i) an undertaking established in the EU; (ii) an undertaking established in a third country, where the subsidy is used by a related party established in the EU; or (iii) an undertaking established in a third country, where the subsidy is used to facilitate the acquisition of an EU undertaking or to participate in public procurement procedures.
1 See Conclusions of the meeting of March 21-22, 2019.
2 See the joint letter by France, Germany, Italy and Poland to Competition Commissioner Margrethe Vestager of February 4,
2020 (available at https://g8fip1kplyr33r3krz5b97d1-wpengine.netdna-ssl.com/wp-content/uploads/2020/02/Letter-toVestager.pdf), and the Netherlands' Non-paper - Strengthening the level playing field on the internal market (available at https://www.permanentrepresentations.nl/documents/publications/2019/12/09/non-paper-on-level-playing-field).
3 See Regulation (EU) 2016/1037 of the European
Parliament and of the Council on protection against subsidised imports from countries not members of the European Union (i.e., the anti-subsidy regulation, allowing the EU to react to unfair competition where products have been manufactured with the support of non-EU funding).
4 See Regulation (EU) 2019/452 of the European Parliament and of the Council of March 19, 2019, establishing a framework for the screening of foreign direct investments into the Union (the " FDI Screening Regulation"). The Regulation encourages Member States to set up FDI screening systems and coordinate their review, and empowers the Commission to issue non-binding opinions on individual cases; See https://www.clearytradewatch.com/2020/04/europeancommission-urges-member-States-to-protect-suppliers-ofessential-products-from-foreign-takeovers/m and https://www.clearytradewatch.com/2019/02/new-eu-wideforeign-direct-investment-screening-system-approved/
5 The definition of "foreign subsidy" provided in Annex 1 of the White Paper is modelled on the definition of "subsidy" in the EU anti-subsidy regulation (see footnote 3) and in the EU Regulation on safeguarding competition in the air transport sector (Regulation 2019/712 of the European Parliament and of the Council of April 17, 2019)
6 The relevant financial contribution may consist of: a transfer of funds not made at market conditions (capital injections, grants, loans, loan guarantees, setting off of operating losses, compensation for financial burdens imposed by public authorities); foregone or uncollected public revenue, such as debt forgiveness or rescheduling, preferential tax treatment or fiscal incentives such as tax credits; or the supply or purchase of goods or services at preferential terms
Originally published 24 June, 2020
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