- The European Commission (“Commission“) published a White Paper proposing to create three new review mechanisms aimed at addressing the potential distortive effects caused by foreign subsidies in the Single market generally; in acquisitions of EU companies; and during EU public procurement procedures.
- A public consultation is now open until 23 September 2020 during which stakeholders can provide their views on the options set out in the White Paper.
- The new mechanisms would apply to all non-EU companies benefitting from non-EU subsidies.
- New filing obligations would apply if non-EU subsidies might have a distortive effect on competition on the EU market.
- A public consultation will be open until 23 September 2020 and will help the Commission to prepare for appropriate legislative proposals in this area. The Commission has tentatively projected draft legislation based on this proposal for 2021.
- At this stage, it is important for non-EU companies to be aware of this proposal, and the fact that in future the Commission and national authorities may also scrutinize deals not just with respect to merger control and foreign direct investment, but also look at state support.
- Companies that may potentially be affected by these proposals, also have the opportunity to submit their views on the Commission’s proposals.
A White Paper was published by the Commission on 17 June, which sets out in more detail how the Commission and potentially national authorities will assess and potentially impose measures in order to limit the competitive impact of foreign companies in the EU, that have received government subsidies.
Under this proposal, the Commission and national authorities will be able to assess the role of subsidies granted by non-EU governments and their impact on competition in the EEA, and possibly impose ‘redressive measures’ in order to resolve these concerns.
The rationale of this new mechanism is based on a concern that foreign subsidies may have facilitated the acquisition of EU companies or distorted the investment decisions, market operations or pricing policies of their beneficiaries, or distorted bidding in public procurement to the detriment of non-subsidized companies in a growing number of instances.
The concern the Commission has is that the use of subsidies in this way is currently not caught by EU State aid rules, nor by the existing trade defense rules, which relate only to export of goods from third countries and thus do not address all distortions caused by foreign subsidies granted by non-EU countries.
The aim behind the proposed new instrument is to complement existing tools (trade defense, merger control) and fill the perceived regulatory gap. The rules will apply equally to subsidies granted by all non-EU countries and will not be discriminatory towards any country, but we would anticipate that greater focus is paid towards non-market economies.
The White Paper proposes three ‘Modules,’ which would be complementary to each other, and are aimed at addressing the distortive effects caused by foreign subsidies:
- In the Single market generally (Module 1).
- In acquisitions of EU companies (Module 2).
- During EU public procurement procedures (Module 3).
Each of the Modules would be complementary and could be enforced by the Commission and Member States’ designated supervisory authorities. Coordination mechanisms would be provided between the Commission and the competent national authorities in order to ensure coherence and effectiveness of their respective enforcement actions.
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This White Paper is part of a response to concerns that Chinese companies are using State support to win business in Europe, while EU companies do not benefit from such financial support, although the White Paper itself does not expressly refer to Chinese companies, and these measures (if implemented) will apply equally to all non-EU companies.
In March 2019, the European Commission’s White Paper called for achieving a more balanced and reciprocal trade and investment relationship between the EU and China, noting that Chinese champions benefit from a shield that protect them from competition which includes inter alia State financial support.
These new developments are happening in times where there are political concerns over Chinese companies taking over European businesses already weakened by the COVID-19 crisis. On 4 June 2020, the European People’s Party (EPP) urged on temporary ban on foreign takeovers in a letter addressed to Margrethe Vestager. The letter targeted Chinese companies in particular, stating: “We have no choice but to counter forcefully unfair competition and hostile behavior from foreign state-owned firms from China, which try to acquire European companies in order to take control of key technologies, infrastructure and expertise”.
This decision to publish the White Paper also follows on from the Chinese government’s decision to allow a World Trade Organization dispute, which was aimed at requiring the European Union to recognize it as a market economy in trade investigations, to lapse on June 15.