Fri. May 20th, 2022

4 May 2022

To ensure a level playing field for all companies operating in the internal market, member states today agreed a negotiating mandate for the regulation on foreign subsidies distorting the internal market.

The regulation aims to address the distortions created by subsidies granted by non-EU countries to companies operating in the EU’s single market. It establishes a comprehensive framework for the Commission to investigate any economic activity benefiting from a third-country subsidy on the internal market and to set up a specific framework for subsidies granted by third countries in the context of large concentrations and large public procurement procedures.

Balancing test

As is the case under the EU state aid control framework, if the Commission finds that a foreign subsidy exists and that it distorts competition, it will perform a balancing test. This is a tool to assess the balance between the positive and negative effects of a foreign subsidy.

The Council text clarifies the criteria and procedures for applying this test, including through the publication of guidance.

Governance

The regulation will be implemented exclusively by the Commission. The Council text specifies that during this centralised implementation by the Commission, member states will be kept regularly informed and will be involved, through the advisory procedure, in decisions adopted under the regulation. It also introduces an alert mechanism allowing member states to flag up suspected distortive subsidies.

Public procurement

To make the provisions on public procurement more effective and more transparent, the Council text clarifies the procedures applicable to the various existing procedures and stipulates that the Commission should publish guidance on the implementation of the regulation in the context of public procurement procedures.

The Council text shortens the deadlines for investigations to ensure that implementation of the regulation does not slow down public procurement procedures.

Thresholds and deadlines

The regulation proposes three tools which the Commission can use to investigate financial contributions from non-EU governments: two notification-based tools – to investigate large concentrations and bids in large public procurement procedures – and a general market investigation tool.

The Council text raises the notification thresholds to:

  • €600 million for mergers
  • €300 million for bids in public procurement procedures

The Council mandate shortens to five years the period during which the Commission can retrospectively investigate subsidies granted before the regulation enters into force which create distortions on the internal market after it has entered into force.

The Council text limits the Commission’s scope to change the procedural thresholds and deadlines: the Commission would only be able to increase notification thresholds and shorten deadlines.

Next steps

Today’s mandate was approved by the Council’s Permanent Representative’s Committee (Coreper), so the Council can start negotiations with the European Parliament as soon as the European Parliament has agreed its position.

Background

Currently, subsidies granted by member states are subject to state aid controls, but there is no EU instrument to control subsidies granted by third countries. This undermines the level playing field.

To address this, the European Commission tabled the proposal for a regulation on foreign subsidies distorting the internal market on 5 May 2021. It serves as a tool to level the playing field for all companies operating in the single market that receive support from an EU member state or from a third country.

 


New tool to protect internal market against distortive foreign subsidies

  • Foreign state support must not distort fair competition on the internal market
  • Parliament makes the instrument more effective and reduces uncertainty for firms
  • Negotiations with member states on final form of regulation set to start on 5 May

Parliament set its negotiating position on legislation designed to counteract market-distorting foreign subsidies granted to companies operating in the EU.

The new tool gives the EU Commission the power to investigate and counteract market-distorting foreign subsidies granted to companies set to acquire EU businesses or take part in EU public procurement.

The goal is to ensure fair competition among firms active on the EU market by establishing equality of opportunity; while EU countries have to abide by state aid rules, so far there has been no comparable regime in place for support granted by non-EU countries.

With 627 votes for, eight against and 11 abstentions, Parliament agreed on Wednesday that the Commission must be able to investigate and mitigate the effects of such support that can take the form of foreign capital injections, loans, fiscal incentives, tax exemptions and debt forgiveness.

Wider scope, less red tape

In its negotiating position, Parliament extended the scope of the new rules to a larger number of acquisitions, mergers and public procurements by lowering value thresholds that set in motion the obligation to inform the Commission about subsidies.

MEPs also reduced red tape for companies by, for instance, shortening the period the Commission has to investigate foreign subsidies given to companies.

More transparency and legal certainty for companies

To make the process more transparent, Parliament calls on the Commission to put forward guidelines on how it assesses foreign subsidies and balances market-distorting effects against potential wider benefits.

Finally, MEPs ensured that EU countries and companies can inform the Commission confidentially about potentially distortive subsidies, and that firms can consult the Commission informally on whether they need to notify it about their subsidies.

Quote

“With this Regulation we can finally end the longstanding regulatory free-for-all that pits European companies, subject to rigorous state aid control, against foreign companies that can benefit from distortive foreign subsidies on the internal market. From now on, the same rules will apply to everyone. Our aim is to let fair competition rule, and to give impetus to the global fight against distortive industrial subsidy schemes,” Rapporteur Christophe Hansen (EPP, LU) said.

Next steps

The adopted text serves as the mandate for negotiations to agree on the final version of the new regulation. The first such negotiation with the Council is set to take place on Thursday 5 May.

Background

With the EU market open to foreign investment, there has been a growing number of instances in which foreign subsidies seem to have facilitated the acquisition of EU undertakings, influenced investment decisions or distorted trade in services, to the detriment of fair competition. The new tool seeks to address these distortions until an effective multilateral solution to the problem is found.


Renew Europe: New rules against unfair foreign subsidies on the internal market

Renew Europe believes that international trade and investment is key to the EU’s prosperity. For this to happen, fair competition must be guaranteed outside the EU but also within the internal market. Renew Europe therefore welcomes the large support today by the European Parliament of the intensively negotiated package that the international trade committee together with the economic and monetary affairs and the internal market committees have found in order to provide yet another tool in the Union’s trade toolbox to complement our trade agreements.

This is a strong mandate that the European Parliament brings to the negotiation table with the Council and the Commission.

The EU has strong rules for European state aids but these rules do not cover subsidies given by foreign governments to companies that operate on the internal market. In such cases, fair competition within the internal market can easily be distorted, for instance by state-owned companies. That is why it is crucial to also have in place rules that ensure that foreign subsidies do not create distortions, as this harms the competitiveness of our companies, including our SMEs.

While we fully support efforts to find multilateral rules on foreign subsidies, we believe that Commission must be able to investigate and counteract foreign subsidies that distort the market. If there would be any positive effects of such subsidies these have to be clearly linked to the internal market. It is furthermore important that there is a contact point for Member States, companies and EU social partners to channel important information to the Commission. For Renew Europe, an early review is key to ensure the effectiveness of current thresholds and scope.

Catharina Rinzema (Netherlands, VVD), Renew Europe shadow rapporteur on the file, declared: “Today, I am asking for new rules to ensure fair competition. In my view, the same rules should apply to everybody on the internal market. I cannot justify why companies that receive money from a foreign government can create unfair situations on our market. This is an unacceptable situation that we want to change. We will work on a real level-playing field.”