The uneven playing field: How to deal with foreign subsidies when assessing mergers?

It is sometimes argued that the European Commission should take into greater consideration foreign subsidies when assessing mergers under the EU Merger Regulation. However, the Commission’s decision-making practice confirms that foreign subsidies may be relevant for the assessment of mergers but only under strict conditions. First, sufficient evidence should be put forward to prove the existence of the said subsidies. Second, subsidized competitors must have the ability and incentive to successfully engage in deep-pocket predation. This relatively high standard of proof explains why foreign subsidies have not yet played any decisive role in practice. Yet, these conditions are consistent with the economic literature and lowering this standard may lead to type I and type II errors. Accordingly, to fully address the distortions arising from foreign subsidies, it seems preferable to introduce a new dedicated tool than to lower the standard of proof applicable in the field of merger control.

1. Foreign subsidies [1] have always attracted concerns as they may distort competition to the detriment of European companies. These concerns have grown over the years with the increasing number of subsidies worldwide. In this regard, Figure 1 provides an overview of the number of newly implemented subsidies between 2008 and 2020: [2] Figure 1. Number of newly implemented subsidy measures (worldwide) by year 2. As shown in Table 1, certain countries like China heavily rely on subsidies to support their domestic companies: [3] Table 1. Subsidy amounts reported to the WTO based on 2019 notifications by the EU’s five main trading partners 3. These subsidies, which usually form part of broader plans from the Chinese government (e.g., Made in China 2025, the Belt and Road Initiative),

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Thibault Sire, The uneven playing field: How to deal with foreign subsidies when assessing mergers?, February 2022, Concurrences N° 1-2022, Art. N° 105256, pp. 54-62

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