EU starts negotiations on distortive foreign subsidies regulation

The European Parliament and EU governments on Wednesday (4 May) each agreed their negotiating position on a proposal aimed at levelling the playing field for European companies facing competition from foreign companies that receive financial support in their home countries.

EU countries and lawmakers will now kick off the discussions on the proposed regulation, which targets foreign state-backed buyers of European companies.

The 27-country bloc fears Chinese firms reinforced with state funding may acquire European companies whose share prices have been dented by the COVID-19 pandemic.

The regulation could see unfairly advantaged foreign companies lose their access to European public procurement or be prevented from buying European companies.

If a foreign company received at least €50 billion in government support over the past three years, the European Commission will be empowered to investigate a proposed merger or public procurement bid involving those firms.

The Commission, which made the proposal exactly one year ago on 5 May 2021, said the measure takes aim at subsidies which harm competition.

The measure also covers bids in public tenders in order to prevent foreign subsidies used to grow market share or underbid European rivals to gain access to strategically important markets or critical infrastructure.

Commission bolsters toolbox against disruptive foreign subsidies  

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).

Both EU countries and EU lawmakers agreed on their common positions on Wednesday, ahead of the negotiations to thrash out the final details of the proposal before it can become law.

In an overwhelming vote of 627 in favour and eight against, the European Parliament on Wednesday backed the negotiating position proposed by MEP Christophe Hansen from the centre-right European People’s Party (EPP).

“With this regulation we can finally end the longstanding regulatory free-for-all that pits European companies, subject to rigorous state aid control, against foreign companies that can benefit from distortive foreign subsidies on the internal market,” the Luxembourgish MEP said in a statement.

Also on Wednesday, representatives of EU national governments in Brussels agreed on a common negotiating position, paving the way for final negotiations between the two sides.

Scope

Neither the Parliament or EU member states have a fundamental problem with the proposal.

However, they both worry about red tape and delays that might be caused by extensive Commission investigations in a merger or public procurement. That is why they both proposed shortening the timeline by which the Commission has to finish investigations into a proposed takeover bid.

The member state’s position, adopted in the EU Council of Ministers, also differs from the Parliament’s when it comes to the scope of the proposal.

While Parliament wants the EU to investigate mergers of companies with a combined turnover of €400 million, national governments would like to increase the threshold to €600 million.

On public procurement, the Parliament would like the EU to be notified when a subsidised foreign company bids for a public contract with a total value of at least €200 million. The Council put this threshold at €300 million.

One socialist lawmaker, Inmaculada Rodríguez-Piñero, called for an even lower threshold of €125 million to cover more public tenders. Her amendment did not pass, however. “Today, European companies must comply with strict rules on state aid, while non-EU competitors can benefit from foreign subsidies giving them an unfair advantage,” she said.

The Italian government, meanwhile, is worried that the regulation might go too far. Even though it supported the common position adopted in the Council, it stressed that the Commission should consult member states before determining whether a distortion exists.

EU countries also want to shorten to five years the period during which the Commission can retrospectively investigate subsidies granted before the regulation enters into force.

The Parliament and member state governments will now have to find a common position on the regulation before it can enter into force. Parliament said the first round of negotiations will take place today (5 May).

EU flirts with protectionism amid foreign takeover concerns

Some EU member states’ attempts to push for EU legislation to protect “critical infrastructure” from unwanted third-country takeovers has raised concerns of growing protectionism and economic nationalism in the bloc.

[Edited by Frédéric Simon]

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