We were delighted to co-host a seminar with Oxera Consulting LLP at our Brussels office on the EU's new Foreign Subsidies Regulation ("FSR"), which will become applicable later this year.
The event took place over the course of an afternoon with a distinguished line-up of expert speakers and panellists, comprising senior officials from the European Commission including the Head of the Commission's FSR Task Force, as well as from private practice and industry.
A full recording of the event can be viewed by clicking on the video. Particular areas of discussion and highlights are set out below.
The breadth of the concept of "foreign financial contribution" and consequently, the FSR's notification obligations
The notion of a "foreign financial contribution" under the FSR is very broad and essentially covers any transfer of financial resources from or directed by foreign public authorities. This includes, for example, the payment by public authorities for goods and services provided, as well as the receipt of such goods and services from public authorities in exchange for remuneration, even if the price is in line with normal market rates and therefore there is no real "benefit" in economic terms. As the FSR's notification obligations are based in part on the level of "foreign financial contribution", the breadth of this concept could pose significant difficulties for companies.
While it was explained that companies will now need to gather information of a kind that they have not had to collect to-date, the practical difficulties were also acknowledged. The Commission will be seeking to make the FSR more operational by limiting the scope of the information required in notifications, including using de minimis amounts for financial contributions and only requiring information in relation to certain types of potential subsidies. Companies should also look to see whether there is any information gathering under existing processes, including under accounting principles, that could be leveraged for the purposes of monitoring under the FSR.
How the Commission will undertake its substantive assessment under the FSR, including the existence of a "subsidy", "distortion" and "balancing" positive and negative effects
While the need for further clarity from the Commission was recognised, the Commission does not yet have all the answers and will only be able to provide guidance once they have accumulated more practice under the FSR. The first step will be the publication of initial guidance based on the Commission's experience in the first year of the FSR's application.
In the meantime, one guiding principle for the Commission is that EU State aid law practice should be the relevant benchmark, so far as possible. There is significant experience in this area and applying EU State aid law principles will also help avoid possible discrimination between the treatment of foreign subsidies and subsidies granted by EU Member States.
Interplay between the FSR and the EU Merger Regulation ("EUMR")
Given their respective turnover thresholds, there will be parallel proceedings in relation to the same concentration under both the FSR and the EUMR. The Commission has sought to align these to the maximum extent possible, including in relation to process and timing. The substantive focus for the two instruments will be different, however. They will be looking at the same transaction, but from different angles, with the FSR assessing in particular, potential distortions to the acquisition process caused by foreign subsidies.
The remedies will need to correspond to the distortion. Prohibiting a concentration is the most extreme remedy but might be appropriate in circumstances where the foreign subsidy played an instrumental role in the acquisition.
The Commission's use of its "ex-officio" function
While there is no formal complaint procedure as such, Commission investigations outside the notification tools may largely be based on submissions and information provided by market operators and the Commission is already open to hearing from companies affected by foreign subsidies. The Commission has discretion in relation to opening investigations and will consider whether there are sufficient indications of a subsidy that distorts competition.
The existence of a domestic subsidy control regime in a foreign country and the approval of a subsidy thereunder does not preclude the application of the FSR since these regimes look at different things. Domestic subsidy control regimes usually focus on the effects of subsidies on their national market, whereas the FSR is concerned with distortions on the EU's internal market. The Commission may also consider whether the subsidy control rules are properly applied.
Interaction between the FSR and existing international trade rules in relation to subsidies
The FSR must be applied by the Commission consistently with the EU's international obligations and in recognition of this, the FSR excludes the carrying out of an investigation or the taking of any measures that would be contrary to the international obligations of the EU. This will prevent any discriminatory treatment of foreign companies and also the taking of any measures that would amount to a specific action against a subsidy within the meaning of the WTO Agreement on Subsidies and Countervailing Measures ("WTO SCM").
It is clear that this exclusion only affects subsidies in relation to goods, not services, but its precise scope as regards goods can be debated. Subsidies granted to recipients that are outside the territory of the granting authority (so-called "extraterritorial subsidies") could be within the scope of the FSR.
In any event, the notification obligations are triggered where all "foreign financial contributions" reach the relevant thresholds even if the foreign financial contributions could be considered as subsidies within the scope of the WTO SCM.
The speakers and panellists at the event were as follows:
- Ben Smulders, Deputy-Director General at the European Commission responsible for State Aid
- Denis Redonnet, Deputy-Director General and Chief Trade Enforcement Officer at the European Commission
- Christof Schoser, Head of the European Commission's FSR Task Force
- Ianis Girgenson, Group General Counsel, United Group
- Jonathan Nguyen, Head of Unit for Public Affairs, UNIFE
- Lode Van Den Hende, partner at HSF and head of our State Aid and Subsidy Control practice
- Sir Philip Lowe, partner at Oxera
- Eric White, consultant at HSF and former senior member of the European Commission's Legal Service
- Nicole Robins, partner at Oxera
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