1. In her Special Address at the 2023 World Economic Forum in Davos, [1] President von der Leyen reiterated the need to take action to stay competitive in comparison with incentives offered by third countries, and to counter the risk of relocations prompted by foreign subsidies. Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market [2] must be considered in this context. The political objective is to offset unfair practices from third countries, without calling into question the principle of an open economy and the positive effects of foreign investment in Europe. [3]
2. Despite the politically sensitive nature of the proposal, the Commission has received strong political support, illustrated in particular by the unusual speed with which the debates in the European Parliament and the Council were concluded. The Commission adopted its proposal on 5 May 2021, and a political agreement was reached on 30 June 2022. [4]
3. The consensual approach is also reflected in the fact that the co-legislators largely endorsed the approach of the Commission. Most amendments to the proposal only aim to clarify certain concepts or improve the legal wording of the text. However, a limited number of changes introduced during the negotiations deserve more attention. The purpose of this publication is not to revisit all the provisions of the text—the subject of a previous publication [5] —but rather to present the most significative amendments.
I. Objectives and scope
4. The general objective of the regulation mentioned in Article 1 remains the same: the purpose is “to contribute to the proper functioning of the internal market by establishing a harmonised framework to address distortions caused, directly or indirectly, by foreign subsidies.” However, two additional elements introduced by the co-legislators might have an impact on the analysis of the subsidies.
5. Firstly, the co-legislators have extended the provisions of Article 1 by adding that the purpose of the regulation is “ensuring a level playing field.” While the level playing field objective is inherent in the Commission’s proposal, the introduction of the concept in Article 1 is not insignificant and might influence the analysis of the distortions in the internal market. The Commission has a long practice regarding the analysis of distortions caused notably by State aid. In this domain, the practice is to examine the distortions caused by the aid in the Member State concerned, without taking into account any aid granted by other Member States. In general, the existence of State aid cannot justify the granting of new aid. [6] However, if the objective of the regulation is to ensure a “level playing field with European companies,” it will be difficult, in the context of the analysis of foreign subsidies, to ignore the existence of State aid granted to European companies. Consideration of such aid should, of course, be limited to compatible aid. For such aid, the analysis of the distortions of competition has already been carried out by the Commission, which has judged that the positive effects outweigh the negative effects. It would therefore be difficult to argue that any similar subsidy granted by a third country causes unacceptable distortions of the internal market. In the same vein, a third country can grant a subsidy in the form of a tax reduction to a company active in a Member State in which the level of taxation is low. If the subsidy has the effect of bringing the level of taxation of the company of the third country to the same level as that applied by the Member State, it seems difficult to argue that the level playing field is not respected.
6. Secondly, the text finalised by the co-legislators specifies that the objective is to capture not only the distortions in the internal market caused “directly” by third-country subsidies, but also the distortions caused “indirectly” by those subsidies. The notion of distortion caused “indirectly” by a subsidy is not defined, and delimiting its contours will constitute a complex exercise. However, as mentioned in the new Recital 9 introduced by the co-legislators, the concept can be interpreted in particular in light of Community practice in the field of State aid. [7]
The existence of indirect distortions has been assessed by the Commission, notably in its Guidelines on State aid to airports and airlines. [8] These guidelines specify that the existence of State aid to an airport does not imply the existence of aid to airlines using this airport, only if aid to an airport is compatible and if strict conditions apply to the airlines. Otherwise, aid to the airport may lead to indirect distortions at airline level. Similarly, when analysing the distortions of competition caused by State aid granted to an airport operator, the Commission does not limit itself to the examination of distortions of competition between airports, but also takes into account indirect distortions in adjacent markets, in particular in the tourism sector. [9]
The same reasoning could apply to foreign subsidies. By way of example, a port operator active in a Member State could benefit from foreign subsidies. In such a case, the analysis of the distortions could be conducted not only at the level of the port operator, but also at the level of port users.
The new Article 46 introduced by the co-legislators requires the Commission to adopt guidelines on the application of the criteria for determining the existence of a distortion. These guidelines could provide useful clarification on this aspect.
II. A de minimis threshold revised downwards
7. The Commission initially proposed that a foreign subsidy is unlikely to distort the internal market if its total amount is below EUR 5 million over any consecutive period of three fiscal years. [10]
The co-legislators adopted a stricter approach by lowering this threshold to EUR 4 million per period of three years. [11] In addition, the text finalised by the co-legislators specifies that in any event, foreign subsidies that do not exceed the amount of de minimis aid retained in Regulation 1407/2013 [12] are not considered to affect the internal market. [13] For the time being, this amount of de minimis aid is limited for the majority of sectors to EUR 200,000 per period of three years. However, on 15 November 2022, the Commission launched a public consultation on the revision of the regulation and proposed to increase the de minimis amount to EUR 275,000 per period of three years. [14]
The regulation therefore establishes a double threshold: a first threshold of EUR \ 200,000 below which the aid does not affect the internal market, and a second threshold of EUR 4 million below which the subsidies are “unlikely” to affect the internal market. This approach calls for two remarks.
Firstly, the system is complex but does not prevent the Commission from examining subsidies between EUR 200,000 and EUR 4 million. In such a case, the demonstration of the negative effects on the internal market will require a strong motivation but cannot be excluded. [15] This could notably happen in the event of a multiplication of foreign subsidies between EUR 200,000 and EUR 4 million.
Secondly, the difference in approach between the de minimis threshold applicable to state aid to EU undertakings and the threshold for foreign subsidies remains significant. High intervention thresholds for foreign subsidies are probably justified by administrative contingencies but not in terms of distortion of competition.
III. The balancing test: The obligation to consider positive effects in relation to different policy objectives
8. The Commission’s proposal provided that “[t]he Commission shall, where warranted, balance the negative effects of a foreign subsidy in terms of distortion on the internal market with positive effects on the development of the relevant economic activity.” [16]
The text finalised by the co-legislators broadens the scope of the analysis by requiring consideration of “other positive effects of the foreign subsidy such as the broader positive effects in relation to the relevant policy objectives, in particular those of the Union.” [17] The analysis criteria thus go far beyond the economic effects of the subsidy to take into account the broader implications for the various policies of the Union. Various policies like common commercial policy or development cooperation might be taken into consideration. This is a substantial modification of the analysis, but not a novelty regarding unfair practices from third countries. A similar approach already exists in the field of unfair pricing practices in maritime transport. Article 12 of Regulation 4057/86 [18] provides: “In deciding on the redressive duties, the Council shall also take due account of the external trade policy considerations as well as the port interests and the shipping policy considerations of the Member States concerned.” The main difference is, of course, that the analysis concerning foreign subsidies and the policy considerations will be realised by the Commission and not by the Council.
IV. Inspection outside the Union
9. The rules of procedure proposed by the Commission draw heavily on existing antitrust rules, both as regards requests for information and inspections in business premises.
As regards inspections outside the Union, Article 13 of the Commission proposal provided that the companies in question and the third country concerned had given their agreement. [19] The text finalised by the co-legislators modifies the approach by only requiring the agreement of the third country concerned. The new Article 15 specifies that “[t]he Commission may also ask the undertaking or association of undertakings to give its consent to the inspection.” As a result, the Commission is no longer legally bound to seek agreement from the company in question.
However, the conduct of the investigations without the company’s agreement might be complex. Indeed, Article 15 of the regulation refers to Article 14(3), which mentions that “[t]he undertaking or association of undertakings shall submit to inspections ordered by decision of the Commission.” In practice, the undertaking nevertheless retains the possibility to oppose the inspection.
Such an opposition might occur if an investigation is conducted in a Member State. In such a case, Article 14(6) specifies that “[w]here officials or other accompanying persons authorised by the Commission find that an undertaking or association of undertakings opposes an inspection within the meaning of this article, the Member State in the territory of which the inspection takes place shall provide them with the necessary assistance and shall request, where appropriate, the assistance of the police or of an equivalent enforcement authority so as to enable them to conduct their inspection.” However, Article 14(6) does not apply to investigations conducted in a third country.
Where confronted with opposition from an undertaking located in a third country, the Commission might require the assistance of the authorities of the third country in question, which may not necessarily be provided. Even if it does not formally oppose an inspection on its territory, a third country may not be able to provide police assistance for legal or political reasons. In such a case, the Commission will have no choice but to adopt a decision on the basis of available information.
V. Conclusion
10. The adoption of Regulation 2022/2560 illustrates a new EU approach as regards competition policy. Whilst competition must be preserved to guarantee the competitiveness of the EU industry, it is now better understood and taken into account that certain practices from third countries are not acceptable. This is again recently illustrated by the announcement of the modification of the Temporary Crisis Framework and the possibility to authorised matching aid to enable Member States to match the subsidies offered by third countries. [20]
The implementation of this new policy remains a challenge, not only as regards administrative issues resulting from notifications, but also for substance, in particular the obligation to take into account different policies, including trade policy.
