Fit For Purpose, But Not Frictionless: The European Commission Delivers Its First Verdict On The Foreign Subsidies Regulation

Overview

On 14 July 2026, the European Commission published the first review of the Foreign Subsidies Regulation (Regulation (EU) 2022/2560) (the FSR), delivered to the European Parliament and the Council under Article 52(2) FSR. The headline is reassuring for the Commission and, on balance, for the market, with the FSR judged “fit for purpose” – working well in practice, without requiring structural changes – after three years of enforcement.

The more consequential message for practitioners sits beneath that verdict. The Commission conceded that the regime imposes real administrative burden, and it has committed to a package of targeted simplifications to the procedural framework, with draft text due this autumn and adoption expected in 2027. In short, the review is a vote of confidence in the instrument, not a free pass on its cost.

For a tool that only became fully operational in October 2023, the review is also the clearest picture yet of how the Commission actually enforces the FSR, and of where it intends to concentrate its firepower next. Below we set out what the FSR does, what the first review found, why it matters as a precedent for the Commission’s enforcement posture, and what businesses with EU exposure should do now.

In depth

What the FSR is and how the Commission reviews subsidies

The FSR was conceived as a horizontal instrument designed to close a structural gap in the EU rulebook. It complements existing merger, antitrust, State aid, public procurement, and trade rules to address distortions caused by subsidies granted by non-EU governments. It is enforced exclusively by the Commission, with DG Competition responsible for concentrations and the general ex officio mechanism, and DG GROW responsible for public procurement. It entered into force on 13 January 2023, became applicable from 13 July 2023, and the ex ante notification obligations took effect from 13 October 2023.

The Commission wields three enforcement procedures:

• A suspensory ex ante notification for concentrations where an EU-established target, merging party, or joint venture generates at least €500 million in EU turnover and the parties received more than €50 million in foreign financial contributions (FFCs) over the preceding three years
• A suspensory ex ante notification for public procurement procedures with an estimated contract value of at least €250 million (or €125 million per lot) where the bidder and its main subcontractors or suppliers received at least €4 million in FFCs per third country over the preceding three years. Below that FFC level, a declaration is still required.
• An ex officio procedure that lets the Commission investigate any other market situation on its own initiative, free of notification thresholds. Overlaying the two notification regimes, Commission’s “call-in” power allows it to demand notification of below-threshold deals and tenders where it suspects distortive subsidies.

The Commission’s review of the regime was mandated by Article 52(2) FSR, which requires the Commission to assess how it implements and enforces the rules every three years. It rested on a combination of a public consultation questionnaire, a call for evidence, targeted stakeholder and Member State interviews, an independent FSR Review Study by an external contractor, and the Commission’s own internal analysis of its enforcement practice. In total, the Commission assessed 103 contributions from the two consultations alongside the external study.

What the first review found: A high-volume, low-intervention regime

The most striking finding is the sheer volume of activity relative to the number of genuine problem cases. Under the concentration chapter, the Commission received around 100 notifications per year, reaching 273 formal notifications by 31 May 2026, and closed roughly 99% of preliminary reviews without opening an in-depth investigation. That vastly exceeds the 30 to 40 notifications per year projected in the original impact assessment. Under the public procurement chapter, the numbers are larger still: 5,150 submissions across 863 procedures by the same date, comprising 4,293 declarations, 733 notifications, and 124 pre-notifications. The picture is a regime that captures a great deal and intervenes rarely, which is precisely what fuels the burden debate.

Three concentration cases reached in-depth review and now anchor the Commission’s decisional practice:

• In e&/PPF Telecom (Case FS.100011), the acquisition of PPF’s telecoms operations by the UAE-based operator e& turned on an unlimited state guarantee, grants, and loans. The parties committed to removing the guarantee by amending e&’s articles of association and to hold-separate obligations between e& and the target’s EU activities.
• In ADNOC/Covestro (Case FS.100156), conditionally approved on 14 November 2025, the Commission found an unlimited guarantee to ADNOC and a capital increase to Covestro that distorted both the acquisition process and post-acquisition activities. The parties agreed to amend ADNOC’s articles of association and to license certain Covestro patents to market participants.
• In JD.com/CECONOMY (Case FS.100253), the Commission opened an in-depth investigation on 28 May 2026 into the acquisition of the German electronics retailer, citing preferential financing, tax incentives and grants attributable to China; that investigation remains ongoing.

On the procurement side, four in-depth investigations were opened, one ending in a conditional decision and three closed after the operators withdrew. The withdrawals are themselves a finding: they involved the Chinese state-owned CRRC in a Bulgarian rolling-stock tender and the Shanghai Electric and LONGi consortia in a Romanian photovoltaic park, each exiting once scrutiny began. The one conditional clearance concerned the Violet Line of the Lisbon Metro, where the commitment was to replace the subsidized subcontractor. The Commission reads these exits as evidence of a deterrent effect that fosters fairer competition without a full investigation running its course. The Commission also declared two tenders irregular for incomplete filings – a Polish tunnel project and a French IT tender – with both bidders excluded, and reports that filing compliance in large tenders fell to 45% in late 2025, prompting a renewed awareness drive aimed at contracting authorities.

The ex officio track produced the review’s most aggressive enforcement. The Commission has two ongoing in-depth ex officio investigations: Nuctech, concerning threat-detection equipment, which opened on 11 December 2025; and Goldwind, concerning wind turbines, which opened on 3 February 2026. The suspected subsidies in both take the familiar form of Chinese grants, preferential tax measures and preferential financing. Nuctech is where the Commission first deployed its inspection power, carrying out unannounced inspections (dawn raids) at Nuctech’s premises in the Netherlands and Poland and seeking access to email accounts stored on servers in China. Nuctech’s challenge to the inspection decision failed in interim relief before both the General Court and the Court of Justice – though the main annulment action (Case T-284/24) remains pending before the General Court – and Goldwind has since brought its own annulment action against a request for information (Case T-335/26), which is still pending.

Notably, across the entire review period, the Commission never exercised its concentration call-in power under Article 21(5) FSR, although in November 2025 it issued its first procurement call-in – a request for prior notification in two Croatian motorway tenders – which ended with the non-compliant bidder’s exclusion.

Why the review matters as a precedent

The review is significant less for any single legal holding than for what it reveals about enforcement priorities and method.

The first signal is targeting. The Commission’s substantive concerns cluster around a recognizable profile: state-controlled or state-linked acquirers, unlimited state guarantees, and preferential financing from a small number of third countries, with China and the Gulf states featuring prominently across both the concentration and ex officio dockets. The recurring appearance of similar companies and FFC types has allowed the Commission to build a sector-based knowledge base, which it now uses to prioritize.

The second signal is methodological rigor under information constraints. Where notifying parties supplied incomplete information, the Commission repeatedly reconstructed ownership structures and intra-group flows, relied on the “single economic unit” concept borrowed from State aid and competition law, and applied the “best evidence available” approach under Article 16 FSR. Claims of subsidiary autonomy or ring-fencing were not accepted absent hard evidence. The unmistakable message is that the burden of demonstrating market terms and commercial independence sits squarely with the undertaking.

The third signal is a deliberate calibration between deterrence and restraint. The Commission has shown it will use its most intrusive tools, including dawn raids and cross-border requests, and defend them successfully in court. Yet it has closed the overwhelming majority of cases at preliminary review, met its statutory deadlines, and has yet to call in a single below-threshold concentration, while its sole procurement call-in to date ended in the bidder’s exclusion. That restraint is the counterpoint to the FSR Guidelines published in January 2026, which framed call-in as a targeted rather than routine tool. The first review is consistent with that posture: a broad enforcement perimeter, exercised selectively.

What the review changes: Targeted simplification, not structural reform

The Commission accepts that the regime is burdensome even where it clears cases. Stakeholders singled out the breadth of the FFC concept, with 72% rating its wide scope a significant challenge, the low FFC thresholds, tight procedural deadlines, and the cumulative weight of parallel procedures and information requests. Uncertainty over the below-threshold call-in power was also flagged as affecting transaction planning, notwithstanding its legitimate aim.

As Executive Vice-President Teresa Ribera put it, “Europe remains open to investment, but openness requires fair competition.” Rather than reopen the Regulation, the Commission proposes to work within it, with draft adjustments due in autumn 2026, and adoption targeted for 2027:

• Under the concentration chapter, the Commission may increase the turnover notification threshold by delegated act, introduce a simplified notification for specific cases or FFCs, moderately raise the reporting thresholds per individual FFC and per third country, and add exemptions for FFCs not in the categories most likely to distort the internal market.
• Under the public procurement chapter, it plans to simplify the notification and declaration forms, revise the waiver framework, clarify and limit the reporting of lower-risk FFCs, and clarify the parties’ access-to-file rights, including the handling of confidential information. Tellingly, the Commission has decided not to move the €250 million procurement jurisdictional threshold, which it can flex by up to 20% in either direction, concluding that stakeholder feedback does not point in a clear direction.

It is worth noting the wider context the review confirms: three years on, the EU remains largely alone in operating a comprehensive ex ante subsidy-control regime, with third-country systems evolving only gradually. For internationally active groups, the FSR is therefore not converging toward a global norm any time soon – it is a standalone compliance obligation that must be managed on its own terms.

What should companies do now?

The practical takeaways follow directly from the review. Anyone subject to FSR notification and review obligations should:

• Map FFCs early and thoroughly. The Commission’s practice of reconstructing group structures and treating contributions to parents and sister companies as potentially relevant means that under-scoping remains the single most common and costly error.
• Build the market-terms and ring-fencing evidence before you need it, because unsupported assertions of commercial autonomy are routinely rejected and can render a notification incomplete.
• Treat state guarantees and state-linked financing as red flags. Unlimited guarantees have twice driven remedies at the concentration stage, and their removal via changes to articles of association is now an established Commission ask.
• Plan for timing and deterrence risk in procurement. The review shows the Commission is willing to let the mere opening of an investigation flush a subsidized bidder out of a tender, so bidders and contracting authorities should factor FSR contingency into procurement timetables.
• Expect intrusive fact-finding. The Nuctech dawn raids, and their survival on appeal, confirm that ex officio targets in strategic sectors should be inspection-ready, including on cross-border data access.
• Engage with the autumn consultation. The coming draft adjustments will reshape thresholds, forms, exemptions and waivers, and stakeholders will have a genuine window to influence the detail before 2027.

Bottom line

The first FSR review is best read as consolidation rather than course correction. The Commission has confirmed that the instrument works, that it will keep using every tool the Regulation grants it, and that the answer to burden is smarter procedure, not a lighter touch on substance.

The proposed simplifications, higher thresholds, streamlined forms, additional exemptions, and clearer waivers should relieve some of the volume pressure that a 5,000-plus submission procurement docket has exposed. But the enforcement signal is unmistakable: State-backed acquirers, unlimited guarantees, and preferential financing from a handful of third countries remain squarely in the Commission’s sights, and the FSR applies to any company active in the EU that receives financial contributions from non-EU states, wherever it is headquartered.

As we noted when the Commission carried out its first dawn raid, compliance with the FSR should be a crucial point of attention for any business operating in the EU, and this first review only sharpens that point.

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