EU Flexes Muscles with New Hybrid Instrument Targeting Foreign Subsidies

By James Killick & Peter Citron1

 

On May 5, 2021, the European Commission (“Commission”) issued a proposal for a far-reaching Regulation to tackle foreign subsidies. This is a key element of the European Commission’s updated industrial strategy, which was published on the same day. The proposal aims to close a perceived regulatory gap whereby subsidies granted by EU Member State are closely scrutinized while subsidies granted by non-EU governments currently go largely unchecked.

The proposal creates a new hybrid tool derived from existing antitrust and trade instruments, which, if adopted, will increase the regulatory risk for companies operating or investing in the EU with backing from non-EU States.

Going forward, it may be the case that, prior to closing transactions, merging parties may have to file notifications under new EU foreign subsidy mandatory procedures, as well as under “regular” merger control at EU or national level, and pursuant to national FDI regimes.

In addition to transactions, the instrument targets any kind of subsidised commercial activity affecting EU markets, including bidding for public contracts.

 

Why the New Tool?

The Commission has concerns that subsidies granted by non-EU governments (“foreign subsidies”) may distort competition within the EU but, unlike subsidies granted by EU Member States, foreign subsidies are escaping its control because it believes that there is an enforcement gap in its current toolbox.

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