Foreign subsidies distorting the internal market: provisional political agreement between the Council and the European Parliament

The Council and the European Parliament today reached a provisional political agreement on the regulation on foreign subsidies distorting the internal market.


The French presidency of the Council of the European Union was built on the principle of economic sovereignty. Economic sovereignty is based on two key principles: investment and protection. The agreement concluded on this new instrument will make it possible to fight against unfair competition from countries which grant massive subsidies to their industry. This is a major step towards protecting our economic interests.

Bruno Le Maire, French Minister of Economy, Finance and Industrial and Digital Sovereignty

The regulation aims to address the distortions created by subsidies granted by third countries to companies operating in the EU single market. It establishes an overall framework allowing the Commission to examine any economic activity benefiting from a subsidy granted by a third country on the internal market. In doing so, the regulation aims to restore fair competition between all companies — European and non-European — operating in the internal market.

Survey of Financial Contributions

The Commission will be empowered to investigate financial contributions made by the public authorities of a third country to companies carrying out an economic activity in the EU through three tools:

  • two pre-clearance tools — to ensure a level playing field for the largest mergers and bids in large-scale public markets;
  • a general market investigation tool to investigate all other market situations and lesser value mergers and public procurement proceedings.

The co-legislators have decided to maintain the notification thresholds proposed by the Commission for mergers and public procurement procedures:

  • 500 million euros for mergers;
  • 250 million euros for public procurement procedures.

The Commission will be empowered to investigate subsidies granted up to five years before the entry into force of the regulation and distorting the internal market after its entry into force.

Governance

In order to ensure a uniform application of the Regulation throughout the EU, the Commission will exclusively competent to enforce the rules. During this centralized implementation, the Member States will be kept regularly informed and will be associated, through the advisory procedure, with the decisions adopted under the Regulation.

If a company fails to comply with the obligation to notify a subsidized concentration or a financial contribution in the context of public procurement procedures respecting the set thresholds, the Commission may impose fines and review the transaction as if it had been notified.

Assessment of the effect of foreign subsidies

As is the case under the EU’s state aid control framework, if the Commission finds that a foreign subsidy exists and distorts competition, it will carry out a balancing test. This is a tool for assess the balance between positive and negative effects of a foreign subsidy.

If the negative effects outweigh the positive effects, the Commission will be empowered to impose corrective measures or to accept undertakings from the undertakings concerned which remedy the distortion.

Next steps

The provisional agreement reached today is subject to the approval of the Council and the European Parliament. On the Council side, the provisional political agreement is subject to the approval of the Permanent Representatives Committee (Coreper), before going through the formal stages of the adoption procedure.

The regulation will enter into force on the 20th day following that of its publication in the Official Journal of the European Union.

Background

At present, subsidies granted by Member States are subject to state aid controls, but there is no EU instrument to control subsidies granted by non-EU countries. This undermines the level playing field.

To remedy this, the European Commission tabled on May 5, 2021 the proposal for a regulation on foreign subsidies distorting the internal market. It serves as a tool to ensure a level playing field for all businesses operating in the single market that receive support from an EU Member State or a non-EU country.

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