Food System

Foreign Subsidies Regulation, new EU controls and measures on third country financial contributions

July 23, 2023

103

Foreign Subsidies Regulation (EU) No 2022/2560, effective July 12, 2023, introduces a regime of control over financial contributions from third countries if they are ‘potentially capable‘ of ‘distorting‘ the internal market.

The extreme breadth (or vagueness) of the concepts and margins of arbitrariness entrusted to the European Commission to impose deadly sanctions against companies receiving support from non-EU entities deserve attention, even in agribusiness systems.

Table of Contents

1) Scope of application

The regulation applies to ‘foreign subsidies granted to an enterprise, including a public enterprise directly or indirectly controlled by the state, that carries out an economic activity in the domestic market‘ (FSR, Article 1). This includes grants to enterprises that:

– acquire control or merge with enterprises established in the EU,

– participate in public procurement procedures in the EU.

2) Investment from non-EU countries, indeed ‘foreign subsidies‘

Investments arriving from non-EU countries are qualified as ‘foreign subsidies‘ when ‘a third country directly or indirectly provides a financial contribution that confers an advantage to an enterprise engaged ineconomic activity in the domestic market and that is limited in law and in fact to one or more enterprises or one or more sectors‘ (FSR, Article 3).

‘Financial contribution‘ is a notion that in turn includes transfers of funds or liabilities, waiver of revenue otherwise due, and the provision or purchase of goods or services. But it can be extended at will to include any ‘support measure‘ suitable for conferring the advantage referred to in the general notion.

The ‘foreign subsidy‘ subject to the new regime can come from central governments and public authorities at all levels of a non-EU country, as well as from public and private enterprises owned by non-EU countries, ‘taking into account such elements as the characteristics of the entity in question and the legal and economic environment of the country in which the entity operates, including the role of the administration in the economy‘.

3) ‘Distortions‘ of the domestic market.

‘Distortion of the internal market‘ occurs, according to the European legislature, when ‘a foreign subsidy is such that it is likely to improve the competitive position of an enterprise in the internal market and, in so doing, the foreign subsidy has an actual or potential negative impact on competition in the internal market‘ (FSR, Article 4).

‘Categories of foreign subsidies most likely to distort the domestic market‘ include aid to enterprises in crisis, otherwise destined to go out of business (FSR, Article 5). Saving jobs from third countries and/or companies controlled by them is therefore considered a danger by the European legislature.

4) Evaluation, commitments, remedial measures

The assessment on the existence of an actual or potential ‘distortion‘ relies on coarse indicators such as the purpose and amount of the subsidy, its nature, and the market position of the beneficiary company. ‘Foreign subsidies‘ measuring less than € 1.3 mln/y would have ‘unlikely‘ distorting effects. Without excluding anything in the infinite arbitrariness given to the European Commission, which can at the same time consider:

– the positive effects on the development of the subsidized economic activity in question in the domestic market,

– ‘broader positive effects in relation to relevant policy objectives, particularly those of the Union‘ (FSR, Article 6).

The European Commission may accept voluntary commitments from beneficiary enterprises or ‘impose redressive measureswiththe aim of remedying the distortion in the domestic market caused, actually or potentially, by a foreign subsidy.’ Commitments and measures including:

– the provision of access, on fair, reasonable and non-discriminatory terms, to infrastructure, including research facilities, production capacity or essential infrastructure, unless such access is already provided for in Union legislation,

– The reduction of capacity or market presence, including through temporary restriction of business activity,

– Abstention from certain investments,

– Licensing on fair, reasonable and non-discriminatory terms for activities acquired or developed with the help of foreign grants,

– The publication of research and development results,

– The disposal of certain assets,

– The imposition on enterprises of the dissolution of the concentration concerned,

– The repayment of the foreign grant, including an appropriate interest rate,

– The imposition on the enterprises concerned of the adaptation of their governance structure (FSR, Article 7).

5) Control system

The control system is based on the Commission’s powers of investigation and notifications by both companies-in the case of mergers-and contracting stations (in the case of public contracts).

The European executive has autonomous powers of investigation-as well as decision-making-on the basis of incoming information from any source, public or private, regarding hypothetical EU market-distorting foreign subsidies.

Ex officio examination on foreign subsidies to enterprises participating in public contracts can only take place after they have been awarded and cannot lead to their cancellation or termination (FSR, Article 9).

6) Concentrations, foreign subsidies notification procedure.

Mergers-defined in line with Merger Regulation (EC) No 139/2004, with slight differences on joint ventures (2)-are subject to prior notification requirements if:

(a) at least one of the merging firms, the acquired firm or the joint venture is established in the EU and generates an aggregate turnover of at least €500 million, and

(b) the enterprises concerned have received total aggregate financial contributions exceeding 50 million euros, from third countries, in the previous three years (FSR, Art. 20.3).

Merger transactions that exceed the thresholds must be notified after the conclusion of the relevant agreements (even before their subscriptions, to anticipate the timing) but always before the closing.

6.1) Iter

The examination of concentration operations has two stages:

– within 25 working days of receipt of a complete notification (net of stop-and-go imposed by requests for information suspending this deadline), the Commission decides whether or not to initiate the

– in-depth investigation, to be carried out within 90 working days subject to extensions that may also be requested by the parties (e.g., with a view to submitting commitments to remedy critical issues identified in Phase 1).

Concentration cannot be completed and instead must be suspended(standstill) until phase 1 and, where appropriate, phase 2 are completed.

7) Public procurement, foreign subsidies notification procedure.

Prior notification is also required in the area of public procurement-where ‘foreign subsidies enabling an economic operator to submit an unduly advantageous bid in relation to the works, supplies or services in question‘-when:

(a) the estimated value of the contract is at least 250 million euros, and

(b) the enterprise has received financial contributions of at least 4 million euros per third country in the three years prior to the notification (FSR, Art. 27).

In such cases, the notification must accompany the bid. In multi-stage procedures, the notification should be submitted with both the application and the bid.

7.1) Iter

In public procurement cases, the Foreign Subsidies Regulation requires the Commission to examine ‘without undue delay the contents of the notification received.’ That is, 20 working days from full notification, extendable by 10 in justified cases, for phase 1. With decision to close the in-depth investigation, if initiated, within the 110 working days of receipt of the notification.

The decision must be made–in both cases of foreign subsidy analysis on mergers and government procurement–within 18 months of the start of the in-depth investigation, ‘to the extent possible. And it may include the imposition of remedial measures, the green light for commitments that thus take on binding force, rather than the prohibition of a merger or contract award.

8) Draconian sanctions

Draconian penalties are set out in the Foreign Subsidies Regulation for the various instances of:

– failure to notify a concentration, closure of unauthorized(gun jumping) or prohibited concentrations, circumvention of notification requirements. Up to 10 percent of the aggregate turnover (or of the individual) enterprises concerned,

– Provision of inaccurate or misleading information, by intent or negligence, failure or violation of notification requirements in public procurement. Up to 1 percent of the aggregate turnover (or of the individual) enterprises concerned

9) Interim Conclusions

The European legislature put together the control tools already provided in EU regulations on State aids and Mergers to cover any possible aid from non-EU countries. In addition, it should be noted, a:

– European system for monitoring foreign direct investment in ‘strategic’ economic sectors, (3) and

– existing international agreements (i.e. WTO Subsidies Agreement). (4)

European institutions – who in the name of ‘democracy’ have killed the Old Continent’s economy and insist on supplying weapons of mass destruction destined for their neighbors (5) – now reserve to the Commission the absolute power to decide whether and which non-EU country will be allowed to save which company in which EU country, based on:

– declared admixture of political power and administrative power,

– very generic criteria to be shaped precisely to suit ‘political interests, including those of the Union‘ (see supra, para. 4).

The European executive, in the name of the above political interests, can also approve non-EU state aid that distorts competition in the EU market on public procurement. Is this, perhaps, laying the groundwork for a total colonization of Europe? Wasn’t it enough to blow up the bridges and gas pipelines with Russia, which thus enabled the reindustrialization of Europe after saving it from Nazism with the highest toll of military and civilian heroes? In whose name, pray tell?

Dario Dongo

Notes

(1) Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32022R2560&qid=1690411361481#

(2) Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32004R0139&qid=1690471192234

(3) Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32019R0452&qid=1690471273372

(4) Uruguay Round of Multilateral Trade Negotiations (1986- 1994) – Annex 1 – Annex 1A – Agreement on Subsidies and Countervailing Measures (WTO-GATT 1994), as ratified with 94/800/EC Council Decision

(5) Dario Dongo. Ukrainian agriculture, the West’s ‘aid’. GIFT (Great Italian Food Trade). 19.6.23