EU foreign subsidies control: consultation feedback shows broad support for new tool

The European Commission ('the Commission') has published the results of the public consultation on its June White Paper on foreign subsidies.

The policy document announces a legislative proposal for the control of companies in the EU market that benefit from foreign subsidies.

In total, 150 stakeholders from 30 countries participated, including business associations and individual companies (around 100), third-country stakeholders and governments (24), public authorities of EU member states (17), law firms, trade unions and others.

General feedback: broad support with room to improve

Almost all EU contributors welcome the initiative and consider that there is a real need for a new tool to regulate foreign subsidies in the EU internal market. Some see a potential negative effect on foreign direct investment and others question the three-module procedural set up. Unsurprisingly, non-EU contributors, both public and private, are more critical and question the need for any additional regulation in the area.

As identified in our recent blog post, the key issues generally voiced by all participants include the following:

Legal certainty/definition of key terms

Many contributors, calling for legal certainty, want the Commission to issue  guidelines. One area heavily commented on is the definition of what constitutes a foreign subsidy. EU contributors generally seem to favour a wide definition, which would allow for more cases to be assessed individually by the Commission. Some participants from EU countries even argue the definition is too narrow and may not catch certain cases of fiscal support. Non-EU contributors do not specifically deal with the definition of foreign subsidies but argue for as little regulation as possible.

Additional administrative burden/procedural issues

All stakeholders are concerned about facing additional administrative burdens especially the need to co-ordinate the proposed new instrument with other tools such as EU merger control, FDI screening, public procurement rules and the trade law regime.

In terms of enforcement, stakeholders clearly prefer for the Commission to enforce the new tool instead of individual member states.

Non-discrimination

Participants from third countries fear that the new legal instrument could result in discrimination against non-EU undertakings. And even EU contributors highlight a potential negative effect on foreign direct investment.

One area of concern is the treatment of specific sectors: some contributors argue that sector-specific rules would be needed in line with the sector-specific EU state aid rules to avoid discrimination.

Module 1: legal certainty required

Module 1 feedback includes various ideas to further define this module and provide more legal certainty.

The following are some key observations:

• Views on substantive criteria are mixed. While certain contributors argue for a more detailed list of categories of subsidies that are likely distortive, others favour a non-exhaustive list.
• The de minimis threshold of €200,000 is mostly viewed as adequate, but certain contributors argue it is either too low or too high.
• Private contributors are much more reserved about an EU interest test than EU member states. A key comment by many contributors is that a clear definition and objective criteria are needed.
• Procedurally, some member states generally favour strong leadership by the Commission instead of sharing responsibilities with the Commission.

Module 2: mandatory notification requirement should be limited to subsidised transactions

Apart from non-EU contributors, there is general support for Module 2. However, many contributors favour a notification requirement for subsidised (rather than all) transactions.

More specific comments include the following:

• Module 2 is clearly viewed as the part of the package that includes the highest procedural burden, both for member states and companies. Many contributors are questioning whether the need to notify can be further limited, eg to only subsidised transactions, certain sectors or situations where a trade defence instrument (anti-dumping, anti-subsidy) investigation could be opened.
• The proposed notification threshold of €100,000 gets mixed views. Some contributors question whether the threshold is sufficiently high to ensure efficiency and proportionality, while others think the threshold is too low to catch all material cases.
• Several contributors call for alignment with merger control investigations, especially aligning the review deadlines with the EU Merger Regulation.

Way forward: quick adoption of new legal instrument in 2021

‘Levelling the playing field’ with respect to foreign subsidies is a key priority by EC President von der Leyen. The Commission will be busy addressing the consultation feedback and turning its proposal into a legislative instrument in the next few months. The indicative date for adoption of binding new EU legislation on foreign subsidies is the second quarter of 2021.