New protections against non-member state subsidies


Subsidies by non-EU members can distort competition in the internal market. In contrast to subsidies granted by member states, thus far there is no EU instrument for controlling comparable subsidies by non-member states. A new EU regulation is set to change this and thus make an important contribution to the strategic autonomy of the Union.

Companies in the EU have been and continue to be exposed in many ways to unfair practices by non-member states and certain companies supported by them. This happens in particular when competitors receive interest-free loans, unlimited state guarantees, tax exemptions or reductions from non-member states. To ensure fair and free competition and an open internal market, the EU adopted the Regulation on Foreign Subsidies Distorting the Internal Market on 14 December 2022. It applies from 12 July 2023, with prior (notification) obligations applying from 23 October 2023. Special provisions are also standardised for some formal regulations.

This act complements trade policy instruments related to the EU’s anti-subsidy legislation, which is limited to damages caused by the import of goods that have benefited from a non-member state subsidy. The new regulation takes a similar stance to the regulation on the review of foreign direct investment. In addition, the Commission has announced its intention to make the multilateral framework for subsidies even more effective. This shows a closer integration of state aid, merger-, and public procurement law.

The new regulation applies to all sectors of the economy, with special rules for the defence and security sectors. The regulations differentiate between three areas where distortive subsidies occur: concentrations (mainly mergers), procurement procedures and other market situations. Enforcement is carried out by the European Commission rather than by member states, similarly to state aid control. The Commission acts either ex officio or in response to a notification. The Commission has also been given wide-ranging powers for further implementation, in particular regarding the determination of procedural details and the adjustment of threshold values.

Three instruments are standardised in the new regulation for the examination of foreign financial contributions:

  • Two prior authorisation tools to ensure a level playing field for the largest concentrations and bids in large-scale public procurement.
  • A general market investigation tool to investigate all other market situations and lower-value concentrations and public procurement procedures.

The regulations are modelled on the regulation prohibiting (member) state aid. However, unlike the latter, it does not provide for a general ban on non-member state aid, only where the subsidy would result in the distortion of the internal market. These impacts will be measured by indicators, some of which are listed in the regulation as examples. Positive impact must also be taken into account in the assessment. The Commission has announced definitions of what constitutes distortion which should help with the interpretation of this regulation. Advantages attributable to a subsidy will be calculated based on “reference values” which will cover the sum of subsidies over the last three years.

Notification threshold values apply in the two core areas of concentrations and public procurement. For concentrations, this applies if one of the companies involved has a turnover of at least 500 million EUR in the EU and at least 50 million EUR of foreign financial contribution. For public procurement procedures, the threshold value equates to the value of the contract, starting at 250 million EUR. Such thresholds are intended to limit the mechanism to large transactions and to spare SMEs. Overall, SMEs benefit from this system, as it tends to protect competitive companies exposed to large competitors supported by distortive subsidies.

The Commission can investigate if a company does not comply with notification or reporting obligations. Similarly to the case in antitrust law, the Commission can impose fines and decide on interim measures. As with (member) state aid procedures, a preliminary examination must first be carried out and a further “detailed examination” in certain cases – in addition, there is also a simplified procedure. The Commission may also examine ex post facto, i.e. after a concentration has already taken place or a contract has been awarded. Furthermore, the Commission may examine non-member state subsidies granted up to five years before the entry into force of the regulation causing distortions in the internal market after its entry into force.

If the assessment shows that the negative impacts outweigh the positive, the Commission will impose structural and non-structural redressive measures, including the repayment of the non-member state subsidy. It may also accept commitments from the undertakings concerned to remedy the distortions caused. Similarly to merger control, it can require divestment, the granting of a licence or access to the infrastructure in question. The Commission can also impose information obligations on participation in future concentrations or award procedures. The most serious intervention is the prohibition and reversal of the concentration or the prohibition of the award.

To round off the Commission’s catalogue of competences, it is granted responsibilities typical of competition authorities, such as the ability to conduct market investigations or a “dialogue” with the relevant non-member state, as in trade policy. As with EU competition law, legal protection from the Commission’s acts is available through the European Union Courts (first the General Court, then the Court of Justice). It will be years before any meaningful case law emerges, if only due to the usual length of proceedings. However, considerable effects on large concentrations and contract award procedures, including delays due to the Commission’s review processes, can be expected sooner.