New trade defence tool to protect EU firms from distortive foreign subsidies

(Credit: Unsplash)

This article is brought to you in association with the European Parliament.


The Committee on International Trade backed a proposal designed to counteract market-distorting foreign subsidies granted to companies operating in the EU.

The draft law, as adopted by the Committee on International Trade by 42 votes unanimously, gives the EU Commission the power to investigate and counteract market-distorting foreign subsidies granted to companies set to acquire EU businesses or take part in EU public procurement.

The goal of the new tool is to ensure fair competition among firms active on the EU market; while EU countries have to abide by state aid rules, there is no comparable regime in place for support granted by non-EU countries.

Commission to investigate and redress distortions

MEPs agreed that the Commission must be able to investigate and mitigate the effects of such support that can take the form of foreign capital injections, loans, fiscal incentives, tax exemptions and debt forgiveness.

In addition, the committee adopted amendments to make the tool more effective and improve legal certainty.

Lower thresholds

The committee lowered the thresholds above which companies would be obliged to inform the Commission about their foreign subsidies, extending the scope of the new rules to a larger number of acquisitions, mergers and public procurements.

Cutting red tape

MEPs also reduced red tape for companies by, for instance, shortening the period the Commission has to investigate foreign subsidies to companies. In addition, they call on the Commission to put forward guidelines on how to assess foreign subsidies and balance their market-distorting effects against their potential wider benefits.

More access for stakeholders

Finally, MEPs ensured that EU countries and companies can inform the Commission confidentially about potentially distortive subsidies, and that firms can consult the Commission informally on whether they need to notify it about their subsidies.

Quote

“Jean-Claude Juncker stated in 2018 that “Europe is open but not for the taking”. For that to be the case, it is about time we plugged the longstanding regulatory gap between the rigorous state aid control that European companies in the Single Market are subject to, and foreign companies that can compete in it while receiving distortive subsidies from foreign governments. Re-establishing fair competition on the EU’s Single Market is not only important for companies, but also to restore the faith of all Europeans in the virtues of global trade”, said Rapporteur Christophe Hansen (EPP, LU).

Next steps

Parliament is expected to vote on its position in plenary in early May. The adopted report will serve as the mandate for negotiations with the Council to agree on the final version of the new regulation for it to enter into force.

Background

With the EU market open to foreign investment, there has been a growing number of instances in which foreign subsidies seem to have facilitated the acquisition of EU undertakings, influenced investment decisions or distorted trade in services, to the detriment of fair competition. The new tool seeks to address these distortions until an effective multilateral solution to the problem is found.

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