The European Commission recently published a White paper setting out its proposals for measures to address the impact of subsidies from non-EU countries on trade within the EU.
For EU Member States the use of such subsidies is already controlled by the EU State aid rules. However, these rules do not apply to non-EU governments which in the absence of any separate agreement will, from the end of the Transition Period, include the UK.
The White paper identifies three specific areas of concern:
- Subsides that distort the single market generally - Here the proposal is to establish a general “market scrutiny” instrument that would enable either the Commission or a national authority to take measures to remedy distortions of competition in the internal market that are caused when a company that is established (or, possibly, active) in the EU is benefiting from a foreign subsidy. It would also enable the relevant authority to decide not to intervene in circumstances where the positive impact of the subsidised activity outweighs its distortive impact.
- Subsidies to facilitate the acquisition of EU companies - The proposal is to introduce a new and additional form of mandatory merger notification obligation that would apply to acquirors of EU companies that are benefiting from financial support from a non-EU government.
- Subsidies to firms participating in public procurement procedures - The Commission is proposing a system under which bidders would have to notify contracting authorities of financial support received from non-EU countries and contracting authorities would have the power to exclude the bidder if it considered that the subsidy make the procurement procedure unfair. In addition, the EU would like to use a similar mechanism to address measures that may distort the process of applications for EU funding.
As currently described these measures appear broad and potentially complex in their operation. The definition of “subsidy” that is proposed in the White paper extends to a “financial contribution …which confers a benefit to a recipient and which is limited, in law or in fact, to an individual undertaking or industry or to a group of undertakings or industries”. This is not the same wording that is used in the EU State aid rules, but its scope nonetheless is broad; the White paper specifies that it could encompass not only direct provisions of funding but also financial support in the form of preferential tax treatment or other fiscal incentives, and the provision or purchase of goods or services. This may prove hard to apply in the context of measures introduced by non-EU Governments who do not have domestic restrictions on State subsidies and where financial flows may not be transparent. Issues may also arise where measures are targeted at an industry or sector, not necessarily the specific entity that is active within the EU.
At this stage these are relatively high level proposals of the Commission. The White paper is open for consultation until 23 September following which the Commission intends to present a draft legislative proposal in 2021. This proposal will then be scrutinised by the other EU institutions.
To what extent the rules that the EU ultimately adopts will impact the UK, as a non-EU country, will likely depend on, or be influenced by, the outcome of the on-going EU-UK negotiations on their future relationship (see section 6.8 of the White Paper, which discusses the link between bilateral trade agreements and the proposals, and my blog post on A brand new subsidy regime for the UK).
For a more detailed update on the EC's White Paper, see a recent briefing by my colleagues, Lisa Wright, Poppy Smith and Josephine Rabinowitz, available here.
Executive Vice-President Margrethe Vestager, in charge of competition policy and responsible for the cluster Europe Fit for the Digital Age, said: “Europe's economy is open and closely interlinked to the rest of the world. If this is to remain a strength, we must stay vigilant. That is why we need the right tools to ensure that foreign subsidies do not distort our market, just as we do with national subsidies. Today's White Paper launches an important discussion on how to address effects caused by foreign subsidies. The Single Market is key to Europe's prosperity and it only works well if there is a level playing field.”