Ensuring a level playing field in the Single Market and closing existing regulatory gaps were the Commission’s declared goal when presenting the proposed Regulation on foreign subsidies, which are distorting the Single Market. A political compromise between Council and EU Parliament has now been reached. The initial assessment has been mixed.
The fact that the European institutions (Parliament, Council, Commission) have recognised the problematic nature of financial contributions by non-EU governments to companies engaging in an economic activity in the EU, has to be regarded as positive. Hence, the present Regulation is a right step towards a “level playing field“ for all companies being active in the EU Single Market. With regard to non-EU governments, there are currently virtually no checks in respect of subsidies granted to companies engaging in an economic activity in the EU. This makes competing on an equal footing more challenging, which has a negative impact on European companies and employees.
Corner stones of Regulation and assessment
The Regulation on foreign subsidies in particular concerns subsidised concentration and the award of public procurement contracts to subsidised bidders. On reaching specific threshold values in these areas, notification and investigation obligations have to be met in advance. For all other market situations and sectors below these threshold values, provided the subsidies are relevant to the Single Market, subsequent investigations have been provided for.
Notification thresholds for notification and investigation obligations are very high
Due to the high threshold values, unfortunately only very large cases are being investigated in advance. Foreign concentrations are only then subject to a notification obligation and ex-ante investigation by the EU Commission, when the turnover of the target company in the previous year has exceeded 500 million Euro, and the participating companies have received foreign subsidies of more than 50 million Euro in the last three years prior to the notification. In respect of public procurement contracts and franchises, an ex-ante notification and investigation obligation is only then required when the contract value exceeds 250 million Euro and when in addition foreign subsidies of at least 4 million Euro per third country have been granted within the last 3 years prior to the notification.
Implementation lies exclusively with the EU Commission – Investigation criteria is limited to competition aspect
The implementation of the Regulation lies exclusively with the Commission, which has comprehensive powers, such as sending information requests to companies, conducting fact-finding missions and inspections and launching market investigations into certain sectors. The Commission may also rely on market information submitted by Member States, by any natural or legal persons or association.
The fines imposed by the Commission on breaching these obligations may be up to 10 % of a company’s aggravated turnover and finally, the Commission can approve a subsidised concentration or the award of a public procurement contract to the subsidised bidder subject to certain conditions (e.g. repayment obligation, disposal of certain assets, reduction of capacities, foregoing certain investments); alternatively, it can prohibit the subsidised concentration or the award of a public procurement contract in procurement procedures.
However, from AK’s point of view, the fact that the Commission’s investigation criterion exclusively concerns the competition aspect by foreign subsidised companies, is falling short of what is required. Employment and supply security aspects, technological independence as well as industrial policy objectives of the bidder, as requested by AK, are not proven investigation factors.
Foreign subsidies limited to “financial contributions”
The Commission exclusively investigates financial contributions to companies by non-EU governments. However, competitive distortion can also exist when third countries are not taking action against minimum standard violations (e.g. failing to comply with international minimum labour standards and environmental standards). A broader definition of “foreign subsidies” as requested by the employees’ side, has not been taken up in the political process.
Is the glass now half full or half empty?
In view of the fact that until now foreign subsidies had been unchecked in respect of competition, the Regulation is an important milestone towards a fairer level playing field in the Single Market. Unfortunately, the Regulation cannot meet the expectations created at the start of the process, on the one hand because due to the high threshold values only a few large cases are subject to an ex-ante investigation, and on the other hand, because important aspects, such as non-financial subsidies remain excluded and the investigation criterion only focusses on the presence of market distortion. The question whether the glass is now half full or half empty can only be answered in practice, in particular whether it will be possible to prevent likely bypasses. To achieve this, the Commission needs to speedily prepare guidelines and provide clarifications.
AK EUROPA: Regulation on foreign subsidies distorting the internal market
European Commission: Foreign Subsidies – Commission welcomes political agreement on Regulation on distortive foreign subsidies