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26th Sep 2021

Commission drafts new rules targeting foreign state aid

  • EU Commission vice-president Margarethe Vestager said the bloc wants every company that operates in Europe to respect the house rules (Photo: European Commission)

The EU Commission proposed new rules on Wednesday (5 May) to prevent companies which receive foreign subsidies from buying up other firms or participating in public tenders, if the non-EU state aid distorts competition.

The proposal comes as the EU is seeking to better control Chinese forays into the European economy - although the proposal does not mention China by name - and wants to assert its "strategic autonomy" from China and the US.

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"We want every company that operates in Europe, no matter where it comes from, to respect our house rules. And one of our oldest rule is that we have that we don't allow subsidies which harm fair competition," commission vice-president Margarethe Vestager told reporters.

The commission aims to replicate existing EU state-aid rules, which already guard the internal market against unfair competition due to illegal subsidies by member state governments.

Until now, however, companies had been free to use their own foreign subsidies to buy up businesses in Europe, or to undercut competitors in public tenders because they get financial support from foreign countries.

Under the proposed rules, companies that generate at least €500m of revenue in Europe and received more than €50m of support from a foreign state in the last three years will need the EU's approval for the acquisition or mergers.

Companies that bid in public procurements involving a financial contribution by a non-EU government, where the estimated value of the procurement is €250m or more, will also have to seek approval.

Foreign subsidies could mean zero-interest loans, unlimited guarantees, compensation, preferential tax treatment, tax credits, or direct grants.

Companies seeking acquisitions or public bids will have to notify the bloc if they had received large subsidies - but the commission would also have the power to launch investigations on its own.

If a harmful foreign subsidy is uncovered, the EU executive could demand the company remedy the damage, and if the firm is not willing then the commission can block transactions or bids.

It could also make companies sell-off parts of firms, or give fair access to subsidies infrastructure, such as ports or airports, in order to pay back the subsidy, or impose fines up to 10 percent of the company's turnover.

"We want to protect fair competition, this is not about this sector or that sector, that kind of foreign investor or this kind of foreign investor," Vestager added.

"Europe is open for business, but come and do it in a fair and transparent manner," she added.

The commission has emphasised that the move is not against foreign investment, but it is an effort to level out competition within the EU, where member states themselves cannot use unfair state aid.

"Foreign investment is not an automatic signal for a distortive effect," said an EU official.

The proposed new rules will have to be discussed by member states to come into force.

Also in an effort to cut its dependency on Chinese and other foreign suppliers, the commission on Wednesday unveiled plans to look into how to deal with raw materials, batteries, pharmaceutical ingredients, semiconductors, hydrogen, and cloud-computing services.

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