On 28 November 2022, the EU Council gave its final approval to the new Regulation on foreign subsidies distorting the EU internal market and is due to apply by mid-2023. The new Regulation is part of the EU industrial strategy aiming to create "a model of open strategic autonomy" by, among others, avoiding unfair and abusive practices in the EU internal market:
"The new measures will empower the EU to investigate and prevent the unfair practices supported by some non-EU countries. This will allow the EU to ensure fair competition and level playing field for all companies". (Jozef Síkela, Czech Minister for Industry and Trade)
Companies would be well advised to identify whether they benefited from foreign subsidies in the past.
If they do not run this exercise, competitors may do it for them as ex-post controls are an option available in the Regulation.
Wide Scope of the EU Regulation
Based on the publicly available draft regulation, the new Regulation applies to all foreign subsidies granted to an undertaking engaged in an economic activity in the EU internal market, regardless of its place of incorporation (in the EU or in a third country).
Assessment of foreign subsidies and possible distortions
- Existence of a foreign subsidy
The EU Commission must establish the existence of a foreign subsidy based on the following cumulative conditions :
- Existence of a financial contribution: it includes any support measure (funds, special or exclusive rights, transfer of liquidities, etc.) ;
- Provided by a third country : a government, public authority, a private or public entity whose actions can be attributed to the third country ;
- Existence of a benefit: a financial contribution that could not have been obtained under normal market conditions;
- Limited to one or more undertakings or industries; and
- Engaged in an economic activity in the EU: it applies to all EU and foreign entities operating in the EU internal market.
- Distortion of the EU internal market
Foreign subsidies may be harmful when they are liable to improve the competitive position of an undertaking in the EU internal market, which, in turn, actually or potentially, adversely affects competition in the EU internal market.
Three particular situations arise in that respect:
1) Per se distorting foreign subsidies: some foreign subsidies are considered likely to create distortions due to their very nature:
- foreign subsidies granted to an undertaking likely to go out of business in the short or medium term;
- unlimited guarantees to undertaking's debts or liabilities;
- export financing measure that does not comply with the OECD rules on export credits;
- foreign subsidies directly facilitating a concentration; and
- foreign subsidies allowing an undertaking to submit an unduly advantageous tender based on of which the undertaking could be awarded the relevant contract.
2) De minimis rule : the new Regulation sets a de minimis threshold over the last three years for :
- Subsidies unlikely to be distortive if they did not exceed EUR 4 million;
- Non-distortive subsidies if they did not exceed EUR 200 000, except for companies in the land transport sector, where the limit is EUR 100 000, per third country.
3) Specific assessment : based on the amount of the subsidy, its purpose, conditions, use, situation of the undertaking, market or sector concerned.
Download: The Council Adopts The EU Regulation To Control Distortive Foreign Subsidies
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
