Commission to protect EU market from ‘unfair’ foreign subsidies

In a draft policy paper, the European Commission proposes new powers:

(i) to take action against competitive harm arising out of the presence of state-subsidised foreign companies on EU markets; and

(ii) to monitor and potentially prevent certain take-overs of EU companies by state-subsidised foreign companies.

The European Commission is expected to publish this "White Paper" next week.  This will contain more detail on what the Commission is proposing.  It is already understood that the proposal will cover the following:

• The term "state subsidy" is likely to cover: zero-interest loans, unlimited state guarantees, zero-tax agreements and other direct state funding.

• The Commission would be able to impose (i) structural remedies such as prohibition or divestments (in the case of acquisitions) or requirements to reduce capacity or reduce market presence and/or (ii) behavioural remedies such as limits on investments, the obligation to grant other companies access to infrastructure or to technology (on fair, reasonable and non-discriminatory conditions).  Also, if state subsidies mean that a foreign company can set its prices aggressively lower, the Commission may have the power to intervene in that price-setting policy.  Foreign companies caught by the rules may also need to publish their R&D results.

• The Commission would be able to block subsidised acquisitions or order the unwinding if the transaction has already been implemented. Therefore, the Commission would have the power to review transactions which would include an obligation to notify, a standstill obligation under penalty of fines and even the ability to force unwinding.  This is similar to what is already the case under the existing EU merger control rules, but this would be a separate, parallel process, based on a different factual assessment.

The notification obligation would be triggered if certain thresholds are exceeded. These thresholds could be quantitative (based on turnover or on the amount of subsidies received) and/or qualitative (e.g. to prevent killer-acquisitions).

• The Commission would be able to impose fines and periodic penalty payments in case of non-compliance with remedies or with the notification obligation.

The detail of what the Commission will ultimately propose will become clearer next week. A White Paper is not law, but rather a proposal for legislation. If adopted, it may have a significant impact on business in general and on the timing and costs of transactions and investments. The Commission's proposal would catch the activities of any non-EU (or EEA) companies which receive some sort of subsidy from their home state.  This could include UK companies post-Brexit. Indeed, EU negotiators have repeatedly expressed their concerns about UK state aid 'unfairly' affecting the EU internal market.