European Union: COVID-19 Key EU Developments, Policy & Regulatory Update No. 96

COMPETITION & STATE AID

Competition

Foreign Subsidies Regulation enters into force (see here)

On 12 January 2023, the Foreign Subsidies Regulation (FSR) entered into force (Regulation 2022/2560 of 14 December 2022 on foreign subsidies distorting the internal market).

The FSR affords the European Commission with extensive new powers to counteract alleged distortive effects of foreign subsidies in the EU Single Market, which have fallen outside of the existing EU State aid, merger control and antitrust framework (see also Jones Day Alert, "EU Foreign Subsidies Regulation Filings Mandatory Starting in October 2023" of December 2022,here).

In presenting the proposed FSR, to recall, the Commission argued that the COVID economic crisis had led to higher levels of subsidization worldwide. The Commission's Impact Assessment on the proposed FSR (see here) further contended that the problem of distortive foreign subsidies is becoming more pressing in the context of acquisitions, public procurement and other market situations.

Combining elements from EU rules on merger control, State aid, trade defense, and public procurement, the FSR introduces three tools applicable to all sectors of the economy and all companies active in the EU, i.e.:

• Mandatory merger notification. In mergers and acquisitions facilitated by foreign subsidies, the acquirer must submit a prior notification to the Commission when:
• • An EU turnover at least €500 million is generated by the company to be acquired, one of the merging parties, or the joint venture; and
  • the involved aggregate foreign financial contribution amounts to at least €50 million.
• Mandatory public procurement notification. Bidders in public procurement procedures must disclose any foreign subsidies received by submitting a prior notification to the Commission when:
• • the estimated contract value is at least €250 million; and
  • the bid involves a foreign financial contribution of at least €4 million per non-EU country.
• Own-initiative review of foreign subsidies. For all other market situations, the Commission can start investigations on its own initiative (ex-officio) when it suspects that a foreign subsidy may be involved, including the possibility to request ad-hoc notifications for smaller concentrations and public procurement procedures.

In the above-two notification regimes, a standstill obligation will apply pending the Commission's review, i.e., the concentration at issue cannot be completed and the investigated bidder cannot be awarded the public procurement contract. In case of failure to notify, the Commission may impose fines of up to 10% of the company's annual aggregated turnover.

Timing: The FSR will start to apply on 12 July 2023. As of this date, the Commission may launch ex-officio investigations. The notification obligation for companies will apply from 12 October 2023.

Next steps: The Commission presented a draft Implementing Regulation on 2 February 2023 in view of clarifying the applicable rules and procedures, including the notification forms for concentrations and public procurement procedures, the calculation of time limits, access to file procedures and confidentiality of information. The Implementing Regulation and notification forms will be finalized and adopted before the start of application of the FSR.

Stakeholders are invited to give feedback on the draft Implementing Regulation until 6 March 2023 via the "Have Your Say" portal.

The Commission's Q&A provides further details on the FSR (see here).