The European Union norm to limit damages from foreign subsidies is already in force

The regulation of the European Union to limit distortions caused by foreign subsidies came into force this Thursday, with the idea that the EU remains open to trade and investment while guaranteeing a level playing field for all companies.

The regulation was proposed by the Commission in May 2021 and approved by the European Parliament and the Council in record time, in June 2022, the Community Executive highlighted in a statement.

The new rules will apply to all economic activities in the EU, from mergers and acquisitions to public procurement procedures, he explained.

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The Commission will be empowered to investigate financial contributions granted by non-EU countries to companies carrying out an economic activity in the EU and correct, if necessary, their distorting effects.

Specifically, Brussels will have three tools to meet this objective.

The first is that companies will have to notify the EC of concentrations involving a financial contribution from a non-EU government where the acquired company, one of the parties to the concentration or the joint venture generates a turnover in the EU of at least 500 million euros.

Also when the foreign financial contribution involved is at least 50 million euros.

The second is the obligation for companies to notify the Commission of their participation in public procurement procedures when the estimated value of the contract is at least €250 million, and also when the foreign financial contribution involved is at least €4 million. euros per country not belonging to the Union.

The Commission may prohibit the award of contracts in such procedures to companies that benefit from subsidies that distort competition.

Third and last, for all other market situations, the EC may initiate investigations on its own initiative if it suspects that it may be distorting foreign subsidies.

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This includes the ability to request notifications for public procurement procedures and smaller concentrations.

In short, a notified concentration cannot be completed and an investigated bidder cannot award a public contract while it is being investigated by the Commission.

In case of non-compliance, the Commission may impose fines of up to 10% of the company’s aggregate annual turnover.

The Commission may also prohibit the conduct of a subsidized concentration or the award of a public contract to a subsidized bidder.

If the EC detects a foreign subsidy that distorts the single market and whose negative effects outweigh the positive ones, it may impose structural or non-structural corrective measures on companies, or accept them as commitments to remedy the distortion (for example, divestment of certain assets or prohibition of certain market conduct).

With its entry into force, the new regulation will begin to be applied in the Member States in six months, starting next July 12, the date from which the Commission may initiate ex officio investigations.

The notification obligation for companies will be effective as of next October 12.

Source: EFE