A consultation on measures to limit the impact of non-EU subsidies was launched with the publication of a White Paper by the European Commission on 17 June 2020. The consultation will run until 23 September 2020 and the EU is looking at the preparation of draft legislation on the issue in 2021.

The European Commission is concerned that subsidies from foreign governments may be distorting investment decisions, market operations or pricing policies of the companies that benefit from those subsidies. The non-EU subsidies may also facilitate acquisitions of EU companies by the foreign companies receiving the subsidies or may distort the bidding in public procurement procedures.

Impact of EU State Aid and Trade Defence Rules

The EU has State Aid rules to deal with subsidies by EU member states that may cause trade distortions, but subsidies granted by non-EU governments fall outside the scope of the State Aid rules.

The EU’s trade defence rules only cover exports of goods from third countries and do not therefore cover all the distortions resulting from foreign subsidies granted by non-EU countries. The EU therefore considers that there is a regulatory gap in relation to foreign subsidies in some areas.

White Paper

The White Paper sets out three modules to address the distortions. The modules cover the single market generally; acquisitions of EU companies; and EU public procurement procedures. The Commission would coordinate its actions with the governments of EU member states to ensure that enforcement of the rules is effective.

Module 1 proposes that a general market scrutiny instrument should be established to look at the market situations where foreign subsidies can lead to distortions in the single market. The supervisory authority (the European Commission or the national authority in a member state) would act, if a company in the EU is benefiting from a foreign subsidy, by imposing measures to remedy the distortive impact. If it considered the subsidised activity or investment to have a positive impact outweighing the distortion it might choose not to pursue the investigation.

Module 2 looks at foreign subsidies facilitating the acquisition of EU companies, either by linking a subsidy to an acquisition or by increasing the financial strength of the acquiring company. Companies receiving non-EU financial support would be required to notify their acquisitions of EU companies above a specified threshold. The European Commission would be the supervisory authority and could ask for commitments from the acquiring company to remedy the distortion or, as a last resort, prohibit the acquisition.

Module 3 examines harmful effects of foreign subsidies on EU public procurement procedures. The proposal is that bidders would be required to notify the contracting authority of financial contributions received from non-EU countries. If this were considered to make the procurement procedure unfair the bidder would be excluded from the procedure.

The paper also looks at foreign subsidies in relation to applications for EU financial support and proposes options to prevent the unfair advantage.