Introduction

On 12/01/2023 the Foreign Subsidies Regulation (FSR) officially entered into force. The FSR is designed to address distortions caused by foreign subsidies, allowing the European Union to maintain open trade and investment while ensuring fair competition for all companies operating within the Single Market. The FSR was proposed by the European Commission in May 2021 and was swiftly adopted by the European Parliament and Council in June 2022

Scope of the FSR

The FSR applies to all economic activities within the European Union, including concentrations (such as mergers and acquisitions), public procurement procedures, and all other market situations. The regulation grants the European Commission the authority to investigate financial contributions provided by non-EU countries to companies engaging in economic activities within the EU, and to rectify any distortive effects that may arise as a result.

The FSR comprises of three primary tools, which will be implemented and enforced by the European Commission. These include:

• A requirement for companies to notify the Commission of concentrations involving a financial contribution by a non-EU government, where the acquired company, one of the merging parties, or the joint venture generates an EU turnover of at least €500 million, and the foreign financial contribution involved is at least €50 million.
• A requirement for companies to notify the Commission of participation in public procurement procedures, where the estimated contract value is at least €250 million and the foreign financial contribution involved is at least €4 million per non-EU country. The Commission may prohibit the award of contracts in such procedures to companies benefiting from distortive subsidies.
• For all other market situations, the Commission may initiate investigations on its own initiative if it suspects that distortive foreign subsidies may be involved. This includes the possibility to request ad-hoc notifications for public procurement procedures and smaller concentrations.

Investigative powers of the Commission

The Foreign Subsidies Regulation (FSR) empowers the European Commission with a comprehensive set of investigative powers to gather the necessary information to determine the existence and impact of foreign subsidies on the Single Market. These powers include:

• The ability to send information requests to companies;
• The ability to conduct fact-finding missions both within and outside the European Union;
• The ability to launch market investigations into specific sectors or types of subsidies.
• The ability to rely on market information submitted by companies, Member States, or any natural or legal person or association.

If the Commission determines that a foreign subsidy exists and distorts the Single Market, it may evaluate the negative effects of the subsidy in terms of distortion against the positive effects of the subsidy on the development of the subsidized economic activity. If the negative effects outweigh the positive ones, the Commission may impose structural or non-structural measures on companies, or accept commitments from companies, to remedy the distortion. These measures may include divestment of certain assets or prohibition of a certain market conduct.

What happens next

The FSR will take effect in six months, on July 12th, 2023. As of this date, the European Commission will have the authority to initiate investigations on its own initiative. The obligation for companies to provide notifications to the Commission will become effective on October 12th, 2023.