European Commission’s White Paper on Levelling the Playing Field as regards Foreign Subsidies
Key Takeaway: The EU (and Member States) may be given new, far-reaching powers to tackle the perceived harmful effects of third-country subsidies benefitting businesses operating in the EU. Remedies could be imposed limiting participation in all sectors of the internal market, including prohibiting businesses from making subsidised acquisitions and participating in public procurement in the EU.
On 17 June 2020, the European Commission (the “Commission”) published a White Paper on how to respond to third countries giving subsidies to companies active in the EU (“foreign subsidies”). In an effort to level the playing field, the Commission proposes new tools to address what it perceives as unfair competition from foreign players in the EU’s internal market. The Commission considers that existing tools, in the areas of notably trade defence, competition law and public procurement, are insufficient to avoid distortions resulting from foreign subsidies. The proposed new tool box fits within the EU’s new policy of “open strategic autonomy”. It signals a more pro-active approach on the part of the EU in responding to unfair and abusive practices distorting the EU internal market and undermining the level playing field.
The envisaged new investigatory and enforcement powers of the Commission and authorities at Member State level could impact all third countries directly or indirectly giving financial support to economic operators in the EU, and affect all beneficiaries of such support in the EU across all economic sectors.
The White Paper defines a “foreign subsidy” as a financial contribution by a government or any public body of a non-EU country (including a private body entrusted or directed by a non-EU country’s government) which confers a benefit on a recipient and which – reflecting a requirement of selectivity – is limited to an industry, individual company or group of companies. Under the White Paper’s proposal, a foreign subsidy would cover: (i) foreign subsidies granted directly to companies established in the EU; (ii) foreign subsidies granted to a company established in a third country where those subsidies are used by a related party established in the EU; and (iii) foreign subsidies granted to a company established in a third country where those subsidies are used to facilitate an acquisition of an EU undertaking or participate in public procurement procedures. In essence, any undertaking directly or indirectly benefitting from subsidies of non-EU origin and seeking to access or otherwise operate in the EU market is likely to be affected by the proposed new “toolbox”. Its implications for many clients are therefore potentially far-reaching.
The new “toolbox” is organised around three so-called “modules” addressing: (i) distortive effects caused by foreign subsidies in general; (ii) distortions caused by foreign subsidies facilitating the acquisition of EU companies; and (iii) harmful effects of foreign subsidies on access to EU public procurement and EU funding. Each of these modules envisages that the Commission and possibly authorities at Member State level would be given far-reaching powers in investigating and making a determination of the impact of foreign subsidies on the right to operate in the internal market.
Please download the below memorandum to find out more about the European Commission’s White Paper on levelling the playing field as regards foreign subsidies.