Commission bolsters toolbox against disruptive foreign subsidies  

European Commission executive vice-president for Competition, Margrethe Vestager.

Companies subsidised by foreign governments will have to win EU authorities’ green light to acquire European firms or to bid in public procurements, according to a European Commission proposal published on Wednesday (5 May).

The proposal comes after a series of recent takeovers of European companies and assets by Chinese firms sparked concerns in a number of European capitals.

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Until now, the Commission has worked to ensure that state aid given by member states did not distort the EU’s internal market. But EU officials said that Europe was missing a tool to control subsidies provided by foreign governments, which potentially could affect fair competition.

“Openness of the single market is our biggest asset. But openness requires fairness,” said Commission executive vice-president for Competition, Margrethe Vestager. 

The EU executive’s new competition pillar will primarily cover acquisitions and public procurement  contracts.

Companies will have to give notification of acquisitions if one of the companies involved has a EU turnover of at least €500 million and the foreign subsidy amounts to €50 million or more.

This is a “reasonable” threshold, explained Vestager.

The Commission could also investigate bids in public procurements if the third country’s financial contribution to one of the bidders surpasses €250 million. 

If necessary, the Commission could investigate ex-officio any other acquisition or public procurement, or any other market situation, or request ad-hoc notifications.

The new powers represent the most substantial reinforcement of the EU policy toolbox in years to ensure a level playing field in the internal market.

But the new instruments will be used only in a “proportionate way”, a Commission official said.

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An EU official explained that equal treatment vis à vis European companies will be ensured by following the same approach when the Commission looks into state aid for European companies.

The Commission added that the EU will remain open to foreign investment, including from sovereign wealth funds. In 2019, the stock of foreign direct investments was worth more than €7 trillion.

Remedies and fines

If the Commission concludes that a foreign subsidy exists and distort fair competition, it would address the negative effects by requiring balancing measures or accepting commitments from the companies to remedy the impact.

Remedies could include the repayment of the foreign subsidy, the divestment of certain assets, the reduction of capacity or market presence, giving access to a certain infrastructure or the prohibition of a certain market behaviour, the Commission explained.

An EU official said that the goal of the remedies is not to have punitive measures but “to promote undistorted market behaviour”.

But if a company does not notify a subsidised acquisition or foreign subsidies in a public tender, the Commission could impose a fine of up to 10% of annual turnover.

“The increased activity of companies in the European Union benefitting from distortive foreign subsidies has exposed several regulatory gaps not addressed by existing EU instruments. We’ve repeatedly pointed to this problem,” said Markus Beyrer, BusinessEurope director general.

Vestager hoped that member states and the European Parliament would “feel the urgency” of having such instrument in place and will adopt the proposal soon, so the Commission can start using it “as soon as possible”.

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The European Parliament approved on Thursday (14 February) the proposal to screen foreign investment at EU level, clearing the path for closer monitoring of third country companies willing to invest in EU’s critical sectors.

[Edited by Benjamin Fox]

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