Thursday

16th Jul 2020

EU plans tougher checks on foreign takeovers

  • EU commission vice-president Margrethe Vestager said "controlling subsidies from European governments is not enough" (Photo: European Commission)

The EU Commission on Wednesday (17 June) announced plans to impose tougher checks on foreign subsidies to protect European companies from unfair competition and foreign takeovers.

The move comes as the EU is seeking "strategic autonomy" from China and the US, while defending its own economic interests.

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The commission adopted a so-called "white paper", which launches a public consultation for rules to be adopted next year.

EU state aid rules guard the internal market from unfair competition due to subsidies by member state governments.

Now the EU executive wants to expand that to foreign investments, as it battles to offset the dire economic consequences of the coronavirus pandemic, and wants to assert its place in a more hostile global trading environment.

"Controlling subsidies from European governments is not enough," commission vice-president Margarethe Vestager told reporters.

"When it comes to foreign subsidies we have absolutely no control and no transparency," the Danish politician added.

"The current geopolitical context, and the general economic development, is the most difficult in recent history. Openness to trade and investment and the rules-based multilateral order are being challenged," Vestager said.

Foreign subsidies can create fair competition within the single market in several ways, the commission said, for instance through subsidies to companies already in the EU, by helping companies to buy-up European businesses, to help foreign companies to outbid rivals in public tenders.

The EU state aid rules, which have currently been temporary relaxed to allow government to help European companies, are not capable to address these distortions.

The commission plans for itself, or national authorities, to take action if a company gets a foreign subsidy that harms the single market by making companies de-invest certain assets or share the benefits the subsidy, by giving access to its research results or infrastructure to other companies.

In case of an acquisition of stakes in EU companies beyond a certain threshold of subsidies, European authorities can review the investment, and if regulators find distortions, as a last resort, they could block a "harmful" merger.

In public procurements, the EU aims to make sure that foreign subsidies don't help bidders to gain unfair advantages.

It wants competitors to notify the authorities of financial contributions received from non-EU countries, and could, after a probe, exclude the company from the procurement.

A similar procedure would apply if there is a possibility of EU budget funds being channelled to companies enjoying foreign subsidies.

The EU and its member countries are worried that foreign powers, such as China and its state-owned companies will take advantage of the economic downturn and buy up European firms.

The commission said that "there is a growing number of instances in which foreign subsidies seem to have facilitated the acquisition of EU companies", distorted investment decisions and pricing policies and distorted bidding in public procurement.

There have also been growing calls in the EU to protect local industries and repatriate some manufacturing and supply chains to the continent in the wake of the coronavirus pandemic.

The commission said the EU welcomes investment, but rules have to be respected.

"Everybody is welcome, but everybody [needs to] play by the rules," industry commissioner Thierry Breton said.

"These tools are for everyone," Vestager said, in response to a question on China - adding the EU wants reciprocity and level playing field.

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