Aflevering 1

The Foreign Subsidies Regulation (FSR) introduces a new power and tool for the European Commission (Commission) to assess concentrations and is often considered as State aid rules for third countries. Under the FSR, the Commission can assess certain concentrations but also public procurement bids for undue interference from foreign governments and public bodies which have granted foreign financial contributions to the merging or tendering parties. The rationale being that this way the Commission can ensure a level playing field for all parties in Europe. The question remains, however, whether this is a codification of a ‘Europe first’ policy, or whether it is truly the levelling of a skewed playing field.

Interview with DG Comp’s Eddy De Smijter on the Foreign Subsidies Regulation

The Foreign Subsidies Regulation (FSR) introduces new rules that aim to protect the EU internal market against distortions of competition that can result from subsidies granted to companies by third (i.e. non-EU) countries. For this purpose, the FSR requires certain concentrations and public procurement bids to be notified with the European Commission (Commission). In addition, the FSR empowers the Commission to open ex officio investigations into certain foreign subsidies. In this contribution, we consider the background and essential characteristics of the FSR.

The EU Foreign Subsidies Regulation introduced a mandatory and suspensory notification obligation for certain M&A transactions (effective as of 12 October 2023), thereby adding a third wheel of regulatory reviews, in addition to merger control and FDI reviews. The Foreign Subsidies Regulation aims to tackle the distortive effects of subsidies granted by non-EU countries on the internal market. However, this has come at the expense of undertakings active in the EU being swamped by duties to collect extensive information on foreign financial contributions in order to comply with the Regulation. This article explores the practical difficulties undertakings face when applying the EU Foreign Subsidies Regulation in the context of M&A transactions.

The Foreign Subsidies Regulation aims at preventing distortions of competition for large volume procurement projects caused by foreign subsidies directly or indirectly facilitating unduly advantageous tenders. It provides for new exclusive tools which empower the Commission to review notified financial contributions in relation to procurement procedures organised in the Member States. The Commission can intervene in these procedures by requiring redressive measures or commitments from tenderers, or ultimately by prohibiting the award of the contract. Despite the objective of levelling the playing field for European tenderers, in practice these new tools may cause a significant burden for both tenderers and contracting authorities. They can also cause substantial delays in the award of the contract and thus the delivery of governmental projects.

A key concept of the Foreign Subsidies Regulation (FSR) is the “foreign subsidy”. In this article, the questions will be answered what can be considered a “subsidy” and what a notifiable foreign “financial contribution”. From a substantive point of view, these concepts align with both the concept of state aid and concepts in the EU Basic Anti-Subsidy Regulation. Also the procedural part of notification is analysed. This diverges from state aid law, since any foreign financial contribution has to taken into account for notification purposes, even when not constituting a specific benefit. This is also the case when a financial contribution is at market value and complies with the market economy operator principle.

Third countries are not bound by the EU state aid rules. To ensure a level playing field, the EU legislature enacted the Foreign Subsidies Regulation (FSR). A key concept of this regulation is the “foreign subsidy”. In this article, the concept of what is “foreign” is analysed. The concept of “third country” is explored, also in relation to universal recognition in cases of for example Taiwan and Kosovo. Furthermore, some other specific third countries will be dealt with, such as the EEA EFTA countries and the UK, to which state aid and subsidy control regimes already apply. The state aid rules do, conversely, not apply to Overseas Countries and Territories (OCT), even though they are part of Member States. This raises the question as to whether OCT subsidies are also foreign. This will answer the question whether undertakings have to take financial contributions from those specific third countries and OCT into account in practice.