The EU Foreign Subsidies Regulation (“FSR”), which creates a new screening mechanism for non-EU subsidies granted to companies doing business and engaging in certain activities in the EU, took effect on 12 July 2023, with notification obligations starting on 12 October 2023. This post looks back at the FSR’s first six months and attempts to provide an outlook of what companies active in the EU can expect in 2024.  

Key Takeaways

Based on the reported enforcement activity of the European Commission (“Commission”) to date,[1] we see three main takeaways that businesses could expect from FSR enforcement in 2024:  

  • In the first eight weeks of the FSR’s implementation, the Commission received 38 (pre-) notifications of transactions. This number already surpasses the 30 notifications that the Commission had anticipated to receive per year. At the same time the number of Commission staff has remained very small, well below the 145 employees it initially estimated it would require to enforce the FSR. The Commission has, however, remained confident that it would be able to deal with this higher-than-expected workload; and we do not believe that companies should expect less diligent screening of their notifications. That said, the Commission could make use of the flexibility provided by certain mechanisms in the FSR Implementing Regulation (e.g., waivers) to reduce the level of detail it requires in individual notifications. We anticipate that the extent to which it uses such flexibility will very much depend on the notifying parties’ ability to convince the Commission of the transparency and robustness of a lighter notification.
  • Businesses should be aware that the Commission will not publish details of any preliminary review decision that clears a foreign subsidy. Guidance on the interpretation of key concepts contained in the FSR (e.g., the criteria used to assess the distortive potential of a foreign subsidy) is not expected before 2026. Although the Commission publishes and updates questions and answers, there will be few insights on these key issues for some time. Engagement with the Commission’s teams might offer means to bridge this information gap in the context of a particular transaction or tender.
  • Finally, the Commission has opened a number of anti-subsidy investigations into certain Chinese exports into the EU, showing that it will continue to enforce its trade instruments, (in this case the EU Anti-Subsidy Regulation), and also providing insights about its interplay with the FSR.

Background

Since 12 October 2023, any company that acquires control, forms a joint venture or merges with a company established and generating a certain level of revenues in the EU (M&A transactions) or that participates in large public procurement tenders in the EU, must submit to the Commission a notification disclosing any foreign financial contribution it has received from non-EU countries. Where the Commission determines that a foreign financial contribution constitutes a foreign subsidy that risks distorting the EU market, it can either seek remedies or prohibit the concentration or award of the public contract in its entirety (see our previous post). The FSR also empowers the Commission to investigate the operations of a company in the EU it suspects of being supported by distortive foreign subsidies.

Higher number of FSR notifications than expected

In its proposal for an FSR regulation back in 2021, the Commission expected to receive about 30 transaction and 36 public procurement bid notifications per year. It also anticipated it would conduct about 30 to 45 ex officio investigations each year. On that basis, it estimated that it would need 145 full-time staff members to enforce the FSR. This showed the Commission’s ambition with this new instrument — by comparison, around 200 civil servants work in the Commission’s Directorate General for Competition (“DG COMP”) units dedicated to State aid granted by EU countries.

While the actual number of civil servants dedicated to enforcing the FSR remains unknown, the DG COMP FSR task force in charge of reviewing M&A transaction notifications and ex officio investigations is reportedly understaffed. Even less information is available on the staffing of the FSR team within the Internal Market Directorate General in charge of public procurement notifications.

Commission officials reported in early December that, only eight weeks after the FSR M&A tool took effect, there were 38 cases on file.[2] According to the Commission, eight of these cases were formally notified, with four of them receiving clearance at the end of the statutory preliminary review period of 25 working days.[3] Extrapolated over a year, these figures would suggest a much higher volume of notified concentrations than initially expected by the Commission in its 2021 proposal.

Under the public procurement tool, five notifications were reported by the end of November 2023.[4] At first sight, this figure appears low in two respects.

  • First, over 40 public procurement procedures which met the FSR’s contract value threshold were published on the European e-tendering platform between mid-July and end-November 2023, and the deadline for submission has passed.
  • Second, under the FSR rules, it seems likely that more than one tenderer to a given public procurement procedure would have to file a notification.

However, the Commission’s estimate back in 2021 relied on a single threshold of the overall contract value, whereas the FSR contains an additional threshold for public procurement tenders divided into lots. This may reduce the instances in which tenderers would have to notify their foreign financial contributions.

Regarding the ex officio tool, very little is known; DG COMP has addressed the media to say that it has received “quite some information”, notably in relation to the football sector. The extent to which the Commission is actually investigating these complaints is unknown.

The current situation, namely limited resources and a significantly higher than anticipated volume of M&A notifications that must be treated within statutory time limits, may suggest that the Commission is likely to prioritise reviewing M&A notifications over ex officio investigations (at least in the short term).

In our view, this situation does not imply that the Commission will not diligently review notifications, as we understand that civil servants from other units of the Commission may also be involved in the enforcement of the FSR. That said, the Commission could make use of the flexibility provided by certain provisions of the Implementing Regulation, such as granting waivers from submitting certain information, to manage its review workload. We anticipate that this willingness will very much depend on the notifying parties’ ability to convince the Commission of the transparency and robustness of a lighter notification, which is likely to include a detailed overview of the transaction and the corporate, governance and financing structures of the notifying parties.

Limited guidance on the assessment of foreign subsidies

Under the FSR, the Commission has no obligation to publish the decisions in which it clears a foreign subsidy after a preliminary investigation. It only has to inform the investigated company(ies) and, in case of a public procurement, the contracting authority, that its preliminary review has closed because there is no foreign subsidy involved or there are no or insufficient indications that any foreign subsidy actually or potentially distorts the EU market. The Commission only has the obligation to publish (with adequate redactions) decisions that follow in-depth investigations (which may unconditionally clear, prohibit or clear conditionally a foreign subsidy).

The Commission’s approach will therefore only become public in relation to the (potentially) most distortive foreign subsidies. Very little information related to non-problematic cases will be publicly available. Notifying parties will therefore need to anticipate and to develop their assessment and line of arguments to persuade the Commission that foreign subsidies they received are unproblematic without the benefit of precedents to rely on.

Furthermore, the Commission is not expected to publish guidelines on certain key concepts underpinning the FSR before 2026, including how it will assess if a foreign subsidy distorts the EU market, or how it will balance the potential positive and distortive effects of a foreign subsidy to decide whether to clear it (subject to remedies as the case may be). Finally, whilst the Commission publishes and updates relevant questions and answers, these have so far covered only procedural and jurisdictional issues.

Engagement with the Commission’s teams early in the process may allow to better anticipate the direction of the Commission’s review and prepare detailed arguments to address any concerns, notably including by drawing from EU State aid law that delineates the limits of subsidies granted by EU Member States and that we expect will influence the application of the FSR.

The FSR’s interplay with trade mechanisms

The Commission has launched several anti-subsidy investigations targeting certain Chinese exports into the EU, such as Chinese electric vehicles. These investigations are based on the EU’s long-established Anti-Subsidy Regulation that implements the WTO Agreement on Subsidies and Countervailing Measures. Under this Regulation, the import of goods into the EU at a determined dumped price due to the benefit of subsidies can be subject to countervailing duties where they are found to cause a serious prejudice to the EU market. This illustrates the interplay between that instrument and the FSR, since the latter cannot apply to remedy alleged subsidies that would fall within the scope of WTO instruments. The Commission emphasised in its questions and answers (see above), that this exclusion not only applies to ex officio investigations, but also to the FSR’s concentration and public procurement tools.

Covington’s dedicated FSR team is closely following the FSR as it develops and, is well-positioned to advise clients as to how the new instrument may affect their business and to prepare for it, drawing upon its State aid, merger control and other expertise.


[1] 137th GCLC lunch talk in Brussels, 8 December 2023 – “First impressions with the application of FSR merger tool”; Politico Fairplay of 11 December 2023; Advanced EU Competition Law in Brussels, 22 November 2023 “Foreign Subsidies Regulation: What are the expectations & how to comply with them”; MLex, 23 November 2023 “Eight deals are under formal foreign-subsidy review, EU official says”.

[2] 137th GCLC lunch talk in Brussels, 8 December 2023 – “First impressions with the application of FSR merger tool”; Politico Fairplay of 11 December 2023.

[3] Idem.

[4] Advanced EU Competition Law in Brussels, 22 November 2023 “Foreign Subsidies Regulation: What are the expectations & how to comply with them”; MLex, 23 November 2023 “Eight deals are under formal foreign-subsidy review, EU official says”.

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Photo of Carole Maczkovics Carole Maczkovics

Carole Maczkovics has developed a cutting-edge expertise in State aid law, with a strong background in the economic regulation of network industries (energy and transport) and in public contracting (EU subsidies, public procurement, concessions).

Carole has a proven track record of advising public…

Carole Maczkovics has developed a cutting-edge expertise in State aid law, with a strong background in the economic regulation of network industries (energy and transport) and in public contracting (EU subsidies, public procurement, concessions).

Carole has a proven track record of advising public and private entities, which she successfully represents in administrative and judicial proceedings on complex State aid and regulatory matters before the European Commission as well as before the Belgian and European courts. She also assists clients with the application of the new EU Foreign Subsidy Regulation and UK subsidy control regime.

Carole has published many articles on State aid law and on regulated network industries, and contributes to conferences and seminars on a regular basis. She is a visiting lecturer at King’s College London and at the Brussels School of Competition on the application of regulation and competition law (including State aid) in the railway sector. Carole gives trainings on State aid law at EFE, in Paris. She has been recently appointed as Academic Director of the European State aid Law Institute (EStALI).

Photo of Laurie-Anne Grelier Laurie-Anne Grelier

Laurie-Anne Grelier assists global companies, especially Asian multinationals, with navigating complex areas of European competition law, including antitrust and cartel investigations, the clearance of mergers, the structuring of distribution, collaborative and other commercial arrangements, and issues related to abuse of dominant position. Ms.

Laurie-Anne Grelier assists global companies, especially Asian multinationals, with navigating complex areas of European competition law, including antitrust and cartel investigations, the clearance of mergers, the structuring of distribution, collaborative and other commercial arrangements, and issues related to abuse of dominant position. Ms. Grelier also assists these companies in litigation before the European Courts, as well as with state aid and trade matters.