The Foreign Subsidies Regulation: Significant extension of EU state aid, merger control and public procurement rules

On 28 November 2022, the EU adopted the Foreign Subsidies Regulation (“FSR”), which entails a significant expansion of the scope of EU competition and public procurement law. The regulation entered into force on 12 January 2023, and most of its key provisions will start applying by 12 October 2023.

The FSR complements EU state aid rules by addressing subsidies from non-EU member states to undertakings engaged in economic activity within the EU. It thereby also complements the EU’s trade defence measures, which address third country subsidies to production located outside the EU.

For these purposes, the FSR establishes three tools:

• Ex officio review of foreign subsidies (akin to ex post state aid investigations);
• Prior notification in the context of concentrations (mergers), if thresholds for EU turnover and the size of foreign contributions are met, or the European Commission utilizes its mandate to otherwise request a notification; and
• Prior notification in the context of public procurement, if thresholds for the value of the procurement and the size of foreign contributions are met, or the European Commission utilizes its mandate to otherwise request a notification.

The review comprises an assessment of whether a foreign subsidy exists, whether it distorts competition on the internal market, and a balancing of its negative and positive effects. Based on the wording of the FSR, the substantive assessment of a foreign subsidy is likely to mirror the assessment of EU state aids, although there are still many open questions at this stage.

Depending on the outcome of the review under the FSR, the European Commission may decide to impose redressive measures. Failure to comply with redressive measures or other due procedural requirements may entail a fine in the range of 0 to 10% of the aggregated turnover of the preceding financial year of the undertaking concerned, or a penalty payment of up to 5% of the average daily aggregated turnover. In the case of concentrations, unlawful implementation of the concentration may also entail an order to dissolve the concentration.

Since the European Commission will be able to request notifications below relevant turnover and value thresholds, the potential presence of financial contributions from third country governments to an EU business will be a necessary consideration in tenders and mergers going forward. In particular, large businesses wholly or partially owned by non-EU governments have reason to assess if their financing arrangements may be deemed to involve subsidies. The rules will also provide additional means for EU businesses negatively affected by the conduct of subsidised businesses, e.g., in tenders and bids, for challenging the outcome of such proceedings.

An overview guide of the new legislation is available here.

For questions on the new rules, please contact Johan Carle, Stefan Perván Lindeborg, Fredrik Sjövall or Andreas Johansson. For the implications of the rules on public procurement, please also contact Sven Vaxenbäck and Johanna Jonsson.