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EU legislators strike deal on foreign subsidies distorting the internal market

Jul 1, 2022 ,

Brussels, 30 June 2022

The Council and the European Parliament today reached a provisional political agreement on the regulation on foreign subsidies distorting the internal market.

The French Presidency of the Council of the European Union was built on the principle of economic sovereignty. Economic sovereignty depends on two key principles: investment and protection. The agreement reached on this new instrument will make it possible to combat unfair competition from countries that grant massive subsidies to their industry. This is a major step towards protecting our economic interests.

Bruno Le Maire, French Minister for the Economy, Finance and Industrial and Digital Sovereignty

The regulation aims to remedy 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 examine any economic activity benefiting from a subsidy granted by a non-EU country on the internal market. In doing so, the regulation aims to restore fair competition between all undertakings — both European and non-European — operating in the internal market.

Investigation of financial contributions

The Commission will be empowered to investigate the financial contributions granted by the public authorities of a non-EU country to undertakings engaging in an economic activity in the EU by means of three tools:

  • two prior authorisation tools — to ensure a level playing field for the largest mergers and bids in large-scale public procurement ;
  • a general market investigation tool to investigate all other market situations and lower-value mergers and public procurement procedures.

The co-legislators have decided to maintain the notification thresholds proposed by the Commission for mergers and public procurement procedures:

  • EUR 500 million for mergers;
  • EUR 250 million for public procurement procedures.

The Commission will be empowered to investigate subsidies granted up to five years before the entry into force of the regulation and distorting the internal market after its entry into force.

Governance

In order to ensure uniform application of the regulation throughout the EU, the Commission will be exclusively competent to enforce the regulation. During this centralised implementation, member states will be kept regularly informed and will be involved, through the advisory procedure, in decisions adopted under the regulation.

If an undertaking fails to comply with the obligation to notify a subsidised concentration or a financial contribution in the context of public procurement procedures meeting the thresholds set, the Commission will be able to impose fines and examine the transaction as if it had been notified.

Assessment of the effect of foreign subsidies

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.

If the negative effects outweigh the positive effects, the Commission will be empowered to impose redressive measures or to accept commitments from the undertakings concerned that remedy the distortion.

Next steps

The provisional agreement reached today is subject to approval by the Council and the European Parliament. On the Council’s side, the provisional political agreement is subject to approval by the Permanent Representatives Committee (Coreper), before going through the formal steps of the adoption procedure.

The regulation will enter into force on the 20th day following that of its publication in the Official Journal of the European Union.

Background

At present, subsidies granted by member states are subject to state aid controls, but there is no EU instrument to control subsidies granted by non-EU 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 ensure a level playing field for all undertakings operating in the single market which receive support from an EU member state or from a non-EU country.

More information for subsribers:

EU-Parliament: Agreement on foreign subsidies: ensuring equal competition in the EU 

  • Overall aim is to ensure equal playing field on internal market
  • If subsidies are distortive, redressive measures can be applied
  • EP negotiators made tool more effective and transparent

Parliament and Council negotiators agreed on Thursday on new tools ensuring that foreign subsidies granted by non-EU countries to companies do not distort the internal market.

The new draft regulation will enable the Commission to investigate subsidies granted by non-EU public authorities to companies operating in the EU. If it finds that the subsidies are distortive, it can apply redressive measures and avoid that, for instance, subsidised firms outbid EU competitors in public procurement procedures or benefit from low-cost financing.

More effective tool

To enhance the effectiveness of EU action, EP negotiators made sure that state-owned companies – which often receive subsidies – are explicitly included in the scope of the regulation. MEPs also shortened the period available for the Commission to investigate potentially distortive foreign subsidies in public procurement. In addition, member states, companies and other interested parties will be able to approach the Commission with information on potential distortive subsidies.

Guidelines and consultation

MEPs fought for more legal certainty and transparency of the process. As a result, the Commission will have to issue guidelines on how it assesses the distortive nature of foreign subsidies and judges a subsidy’s market distorting effect against its potential benefits. They also ensured that companies can consult the Commission to verify if they need to disclose the subsidies received.

Preserve openness, strive for multilateral solutions

To maintain the openness of the EU and promote dialogue, MEPs insisted in allowing the Commission to engage with non-EU countries that have repeatedly been granting distortive subsidies. Negotiators emphasize that the EU’s overall aim is to improve multilateral rules on subsidies. MEPs successfully argued that once multilateral rules render the new tool redundant, it can be scrapped.

MEPs also introduced an annual reporting obligation for the Commission.

Finally, negotiators defined more precisely the concept of distortive foreign subsidies and widened the tool kit for redressive measures.

Quote

“Our agreement enables us to remedy foreign subsidies that are distorting competition. This is not a matter of protectionism, but of fairness: we need all operators on the internal market to compete under similar conditions. Together with the international procurement instrument, this regulation is a vital part of our expanding toolbox. At the same time, we will also step up our efforts to improve the multilateral rules on subsidies. A detailed review clause, which was a key demand from the Parliament, will also allow us to adapt the instrument in due time,” said Chair Bernd Lange (S&D, DE), who led the Parliament negotiating team.

“While the aim of this instrument is to put an end to the regulatory free-for-all pitting European companies against subsidized foreign companies in the internal market, the European Parliament has sharpened its multilateral outlook. Thanks to the introduction of a third country dialogue the Commission can now not only fight the consequences of distortive subsidies in the EU, but can also seek to address its root causes in third countries,” Rapporteur Christophe Hansen (EPP, LU) said.

Next steps

The compromise agreement now has to be approved by the Parliament and the Council. That process starts with a vote in the Committee on International Trade.

Background

The EU is a particularly open economy: it is one of the world’s largest trading blocs with 16% of global trade, and in 2021, it received USD 138 billion in foreign direct 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.

Further information

 

Press remarks by Executive Vice-President Vestager for the political agreement on the Foreign Subsidies Regulation

Brussels, 30 June 2022

Less than 14 months ago, we presented the Commission’s proposal for a Foreign Subsidy Regulation to address distortions caused by foreign subsidies in the EU Single Market. Regulation. I am proud of how fast an agreement with Parliament and Council on the final text of the Regulation was found  – this is a great success.

 

This Regulation is the living example of how Europe works together to deliver ground-breaking legislative improvements in record time. And I would like to thank all of Commission, Parliament and Council colleagues for their efforts.

This is a milestone in ensuring our Single Market remains open and fair. The political agreement reached today sends an important signal to everyone who wants to our trading partners and companies around the world: you are welcome to do business in the EU; all companies active in the Single Market will be treated equally to ensure fair play.

But of course, more work lies ahead. The Regulation will need to be complemented by implementing rules and the Commission will need to be equipped to effectively enforce it. With this in mind, we expect that the Regulation should start to apply as of mid-2023.

The Foreign Subsidies Regulation is a very important and timely addition to our toolbox. It will help us close the regulatory gap whereby subsidies granted by non-EU governments currently go largely unchecked. To make sure that each company has a fair chance to compete in the Single market, we have had since 60 years strict rules on aid that Member States are allowed to grant. But until now, we had no similar rules for subsidies granted by non-EU countries meaning that companies were able to use financial support from abroad to get an unfair advantage in the EU.

Over the years we have seen that this has become a reality, a very concrete issue that European businesses face. And it is not just European companies that suffer by the effects of these foreign subsidies, but all companies that compete in the EU Single Market.

There have been intense trilogue discussions on numerous aspects of the proposal, such as the level of thresholds or the delegation of powers to the Commission. But, at the end of the day, what really counts is that today we have reached a political agreement on a tool that maintains a balance between an effective and flexible instrument, while limiting the administrative burden that comes with it.

I think we have reached a very good compromise today. We have all shared a common goal of simplifying the procedures as much as possible, tying all the loose ends and keeping the instrument effective. And we did just that.

Today Europe is just as open to foreign investments as it was yesterday, but it is certainly more fair.

So, thank you all very much for the good cooperation.

Source – EU Commission

 

EU-Abgeordneter Caspary (CDU) zum Trilog-Ergebnis “binnenmarktverzerrende ausländische Subventionen”

Vertreter von Europaparlament, Mitgliedstaaten und EU-Kommission haben sich heute Abend auf Maßnahmen gegen binnenmarktverzerrende ausländische Subventionen geeinigt. Hierzu erklärt Daniel Caspary (CDU), Vorsitzender der CDU/CSU-Gruppe und Mitglied im Ausschuss für Internationalen Handel:

„Im Umgang mit staatlichen Subventionen hat Europa jahrelang einen blinden Fleck gehabt, der zu einer massiven Gesetzgebungslücke geführt hat. Während für Unternehmen aus dem Binnenmarkt strikte Regeln für staatliche Beihilfen gelten, galt dies bislang nicht für Unternehmen aus Drittstaaten, die innerhalb der EU Betriebe übernehmen oder an europäischen öffentlichen Ausschreibungen teilnehmen. Mit der heutigen Einigung wird diese Lücke geschlossen und der unfairen Praxis zuungunsten europäischer Unternehmen ein Riegel vorgeschoben. Wer auf dem europäischen Binnenmarkt Geschäfte machen will, muss sich an die Regeln halten. Unsere Wettbewerbs- und Beihilferegeln gelten künftig für alle Wettbewerber am Markt.

Das Instrument gegen marktverzerrende drittstaatliche Subventionen ist neben dem Instrument über das öffentliche Beschaffungswesen (IPI) ein weiterer Baustein in der Modernisierung unseres handelspolitischen Instrumentariums. In der zweiten Jahreshälfte wollen wir es um das Instrument zur Bekämpfung von Zwangsmaßnahmen ergänzen. All dies zeigt: Europa ist gewappnet für das rauer werdende globale Handelsklima.“

Quelle – CDU (per e-Mail)

 

Business Europe: Important step forward: EU agreement against distortive foreign subsidies

Brussels, 30 June 2022

The European institutions have reached a compromise on the proposed foreign subsidies instrument. BusinessEurope welcomes the agreement and hopes for an efficient and effective implementation of the regulation to ensure a level playing field in the Single Market for all economic operators.

BusinessEurope Director General Markus J. Beyrer said:

“Today’s deal is key to fill existing regulatory gaps in addressing the activity of companies in the European Union that benefit from distortive foreign subsidies. We now need to make sure that the regulation is implemented in a way that effectively addresses the most distortive foreign subsidies while minimising the administrative burden on companies and public administrations. For this, the companies will need a detailed guidance on the different aspects of the regulation.”

Beyrer added: “Today’s compromise reflects many of the recommendations the European business community brought forward in its reaction to the European Commission’s legislative proposal. We are confident the new instrument will effectively address market distortions in the Single Market while providing legal certainty to economic operators. Going forward, the EU should also address distortive foreign subsidies in the context of EU funding for projects in third countries. This is essential for making the Global Gateway a success.”

In its reaction to the European Commission’s legislative proposal on distortive foreign subsidies, BusinessEurope had emphasised that the instrument should focus on major subsidies leading to significant distortions of the level playing field, and should be closely aligned with relevant EU legislation. At the same time, BusinessEurope stressed that the EU must remain open to trade and foreign investment, which are critically important to our economic prosperity.

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