EU seeks to beef up its defences against foreign subsidies

European Commission vice-president for Competition, Margrethe Vestager, and commissioner for Internal Market, Thierry Breton, during the press conference on Wednesday, 17 June.

The European Commission outlined on Wednesday (17 June) new tools to address the disruption caused by subsidised foreign companies operating in the single market, including the possibility to block the acquisition of European firms.

European companies are not on an equal footing with regards to their foreign peers in the internal market, the Commission concluded in a white paper, a reflection document, presented on Wednesday.

EU firms are subject to strict state aid rules, while third-country companies can receive foreign subsidies and participate in public tenders or buy another European firm.

“There is a gap here and that needs to change”, said the Commission’s executive vice-president for Competition, Margrethe Vestager.

The set of proposals included in the white paper will complete the EU’s merger rules, the state aid rules, the foreign investment screening mechanism and the trade defence instruments, as none of them properly addressed the harmful impact of foreign subsidies on the internal market. 

The Commission initially planned the proposals for the end of 2019.

Commission to strengthen anti-subsidies measures by end of year

The European Commission will propose by the end of 2019 new measures to address the negative impact of foreign subsidies and state-owned companies, according to documents made available on Wednesday (13 March), as the EU aims for a more assertive tone towards China.

The EU executive is proposing tools to address four different scenarios. Firstly, it would act against companies which receive subsidies that “harm” the single market. 

In this case, the Commission will assess with national authorities the damage made and the potential benefits brought by the firm, for example, in terms of jobs created. Depending on the result of this balancing test, the EU executive could impose remedies to correct the harm made, either financial or structural ones. 

Secondly, the Commission plans to add another layer of scrutiny when foreign firms want to buy a European firm. If the buyer has been subsidised by a foreign government, the Commission will also intervene by proposing redress measures, or it could even block the buyout.

Public procurement

Thirdly, there will be closer scrutiny of third-country candidates participating in the EU’s public procurement, to ensure that they are not making better offers because they are receiving public support from their taxpayers.

This closer look at public tenders will also apply to firms competing for EU grants, to ensure that their bidding offer is not unfair.

Vestager said the Commission did not have “a specific country” in mind and she did not exclude the possibility that the new measures would cover cases from across the planet.

Coronavirus threatens EU-China agreement in 2020

Concluding an EU-China investment deal this year would be a “real challenge”, even more as the coronavirus will force both sides to cancel negotiation rounds, warned the EU Chamber of Commerce in China.

But China could be potentially one of the main victims. Since the 2008-2010 crisis, Chinese firms have bought a large number of assets in Europe, including energy firms in Portugal or ports in Greece. 

Chinese firms have benefited in the past from subsidies and loans with good conditions given by Beijing.

The Commissioner for Internal Market, Thierry Breton,  said that “we have had discussions with China, and questions were raised”. But he added that there could be other potential cases in the future involving Middle Eastern countries. 

Vestager insisted that the set of proposals is not against anybody in particular but a reaction to the “harm” foreign subsidies cause in the internal market. 

EU’s procurement reform faces uphill struggle

A proposal to introduce stricter criteria for foreign bidders to access Europe’s multi-billion public procurement market remains deadlocked, as a strong majority of member states remain unconvinced about the benefits of the plan.

Given the complexity of the proposal and the lukewarm reception it is likely to receive in some of the national capitals that are more open to foreign investment, the Commission launched a public consultation until 23 September so all the parties and stakeholders can give their opinion.

Following this consultation, the Commission will put forward a legislative proposal with all the details on the instruments next year.

“I do hope that we can push this and that there is a sense of fairness” in the EU, Vestager said.

Otherwise, she warned, the Union would fall into a “subsidising race” and the losers would be the taxpayers.

[Edited by Zoran Radosavljevic]

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