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24 June 2020 / news

European Commission Proposes Rules on Foreign Subsidies

On 17 June 2020, the European Commission (the ‘Commission’) published a so-called White Paper dealing with the alleged distortive effects caused by foreign (non-EU) subsidies in the EU Single Market. Accelerated by the economic crisis due to the COVID-19 pandemic, the White Paper proposes three sets of rules that may restrict or even reverse economic activities of non-EU companies that have received some form of state aid in their home countries.

The White Paper proposes three ‘Modules’ of instruments that may be introduced in order to address potential distortive effects of subsidies from non-EU countries.

  • Module 1 proposes the establishment of a general market scrutiny instrument, to capture all possible market situations in which foreign subsidies may cause distortions in the EU Single Market. Under this Module, the supervisory authority, which would be a national authority or the Commission, could act upon any indication or information that a company in the EU benefits from a foreign subsidy. If the existence of a foreign subsidy is established, the authority would then impose measures to remedy the allegedly distortive impact, such as redressive payments and structural or behavioural remedies. However, it could also consider that the subsidised activity or investment has a positive impact, which outweighs the distortion, and not pursue the investigation further (the ‘EU Interest Test’).
  • Under Module 2, companies benefitting from financial support of a non-EU government would need to notify their acquisitions of EU companies, above a given threshold, to the competent supervisory authority. The Commission proposes that it will be the competent supervisory authority itself in this respect. There would be a prohibition on closing transactions prior to the Commission’s decision. Should the Commission find that the acquisition is facilitated by the foreign subsidy and distorts the EU Single Market, it could either accept commitments by the notifying party that effectively remedy the distortion or, as a last resort, it could prohibit the acquisition except in case the transaction would be found to be in the EU interest.
  • Module 3 of the White Paper proposes a mechanism where bidders in public tenders would have to notify the contracting authority of financial contributions received from non-EU countries. The competent contracting and supervisory authorities would then assess whether there is a foreign subsidy and whether it made the procurement procedure unfair. In this case, the bidder would be excluded from the relevant tender.

The White Paper is now open for a public consultation until 23 September 2020.

Although the aim to safeguard the existence of a level playing field is in itself laudable, we believe that introducing and shaping the proposed instruments should be done with great care.

In particular, we observe that the application of the ‘EU interest test’ as currently phrased could easily result in arbitrariness and even in the discrimination of companies. The White Paper does not make clear in detail how it should be assessed whether (the effect of) a foreign subsidy would be in the EU interest or not. In this respect, the White Paper only makes general references to the creation of jobs, climate neutrality, the environment, digital transformation, security and public safety and order, as well as to the ‘degree of distortion’ achieved by the subsidiary. In addition, in case not the Commission but national authorities would be the supervisory authorities, these criteria could be applied differently in various countries which could actually move the EU away from a level playing field rather than keeping that level playing field in place. We would there

fore advocate that more objective, measurable and non-discriminatory criteria for the assessment of the EU interest test be formulated.In the interest of its many clients that may be affected by the regulatory package proposed by the Commission, Loyens & Loeff intends to continue to closely monitor and cover the developments in the months to come. Our first follow-up action in this respect will be a more in-depth coverage on the rules the White Paper proposes with respect to public procurement. You may expect this news item in the next few days.

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