Key takeaways
- The EU's foreign subsidies regulation (FSR) imposes strict rules on multinational companies and foreign investors in Europe, targeting foreign subsidies’ M&A and market activities, including the bidding for public contracts in the EU. The new FSR rules complement existing EU antitrust (merger control), foreign direct investment (FDI) and trade defence tools.
- Over the past six months, the EU Commission (EC) started four probes into Chinese wind turbine suppliers and into Romanian and Bulgarian bids for solar PVs and electric trains, scrutinized far more M&A deals than originally anticipated, and it carried out its very first dawn raids under the FSR in the security equipment sector just this week. A newly established unit (Directorate K) within Directorate-General for Competition with three separate units composed of senior officials with a track record in state aid enforcement is exclusively dedicated to enforcing the new FSR rules in the EU.
- These initiatives underscore the FSR’s importance for defending the EU’s strategic industries, including energy, semiconductors, security equipment and electric vehicles, etc.). Multinationals and foreign investors must therefore take FSR enforcement seriously and not believe the myth about the EC’s limited resources. While current enforcement appears to focus on activities supported by Chinese subsidies, the new FSR rules target all foreign (non-EU) subsidies having potentially distortive effects on the EU’s internal market, in particular in strategic industry sectors. The EU wields extensive powers for investigations, unannounced inspections, fines and periodic payments or taking interim measures.
- Extensive record-keeping is a must for all international businesses operating in the EU to ensure that all foreign (non-EU) financial contributions are properly monitored and tracked, and to avoid delays and other implications for their M&A investments, participation in public tenders and other operations in strategic sectors within the EU.
EC launches first ex-officio FSR investigation into Chinese wind turbine suppliers: On 9 April 2024, the EU Commission announced that it is launching its very first ex-officio investigation against Chinese suppliers of wind turbines concerning wind park development projects in Spain, Greece, France, Romania and Bulgaria. This announcement responds to the rapid market expansion by Chinese wind turbine manufacturers pushing to win new orders in Europe. According to public statements by European wind turbine manufacturers1, Chinese wind turbine suppliers are offering much lower prices in Europe than their European counterparts, “up to 50% lower prices than Europe-made turbines” and “incredibly generous financing terms with up to 3 years deferred payment”.2 Initially, the EC will investigate, including through requests for information (RFIs) and possibly unannounced inspections, whether an in-depth (so-called Phase II) investigation is warranted and, if so, it would then have an 18-month deadline to adopt a decision. If the EC’s initial concerns are confirmed, the EC has the power to impose redressive measures (or binding commitments) for foreign subsidies, which may include structural or behavioural measures, such as divestment of assets, reduction of capacity or market presence (including by means of temporary restriction on commercial activity), granting access to infrastructure and/or repayment of the foreign subsidy (including interest). The launch of the investigation is an integral part of the EC’s European Wind Power Action Plan presented in October 2023, which seeks to strengthen Europe’s industry and the EU’s energy security. Besides its investigation powers under the new FSR, the EU is monitoring the developments in the market and is ready to make full use of its other trade defence tools to defend the EU’s interests.
Three in-depth investigations launched against bidders in public tenders: Since October 2023, the FSR obliges companies to notify their public procurement tenders in the EU when the estimated value of the contract exceeds €250 million, and when the company was granted at least €4 million in foreign financial contributions from at least one third country in the three years prior to notification. Since then, the EC has opened three in-depth investigations related to the potentially market-distorting effects of foreign subsidies granted to three bidders in public tenders within the solar photovoltaics and electric train sectors: