The Foreign Subsidy Regulation starts to bite

On 3 April, the European Commission launched two in-depth investigations under the Foreign Subsidies Regulation (FSR) which enables the Commission to address distortions caused by foreign subsidies, and thereby allows the EU to ensure a level playing field for all companies operating in the internal market while remaining open to trade and investment. In recent years, foreign subsidies appear to have distorted the EU's internal market, including by providing their recipients with an unfair advantage to acquire companies or obtain public procurement contracts in the EU to the detriment of fair competition. The FSR addresses such distortions and closes a regulatory gap. It gives the EU new tools to effectively tackle foreign subsidies that cause distortions and undermine the level playing field in the internal market which is based on a competitive social market economy.

These two investigations relate to the potentially market distortive role of foreign subsidies given to bidders in a public procurement procedure. They were launched following notifications submitted by on the one hand the Enevo Group including Longi Solar Technologie GmbH, and on the other hand Shanghai Electric UK Co. Ltd. and Shanghai Electric Hong Kong International Engineering Co. Ltd. The relevant public procedure was launched by a Romanian contracting authority (Societatea Parc Fotovoltaic Rovinari Est S.A.) for the design, construction and operation of a photovoltaic park in Romania. 

Following its preliminary review, the Commission considered it justified to open an in-depth investigation for two bidders, since there are sufficient indications that both have been granted foreign subsidies that distort the internal market.

This follows the first in-depth investigation that was launched in February against Chinese train maker CRRC Qingdao Sifang Locomotive Co. Ltd., a subsidiary of CRRC Corporation (CRRC) which was participating in an EU tender by the Bulgarian Ministry of Transport and Communications. CRRC is the state-owned rolling stock manufacturer. It is the world's largest rolling stock manufacturer in terms of revenue. Rolling stock manufacturers produce the locomotives and carriages used by railway operators, as well as subways, trams and other railway vehicles. Following the announcement of the investigation CRRC withdrew its bid this was hailed by the EC as a success in maintaining a competitive market. 

Procedural background

The Foreign Subsidies Regulation (FSR) started to apply on 12 July 2023. 

The FSR introduces three procedures:

• Two notification-based procedures to (i) investigate concentrations as well as (ii) bids in public procurement procedures involving financial contributions granted by non-EU governments. The notification obligations apply to economic operators since 12 October 2023.
• An ex officio procedure to investigate all other market situations, where the Commission can start a review on its own initiative.

According to the Foreign Subsidies Regulation, companies are obliged to notify their public procurement tenders in the EU when the estimated value of the contract exceeds €250 million, and when the company was granted at least €4 million in foreign financial contributions from at least one third country in the three years prior to notification.

During the two in-depth investigations opened in April, the Commission will further assess the alleged foreign subsidies and obtain all the information required to establish whether they may have allowed the companies to submit an unduly advantageous offer in reply to a tender. Such an offer could cause other companies participating in the public procurement procedure to potentially lose sales opportunities.   

In line with the provisions of the Foreign Subsidies Regulation, at the end of its in-depth investigation the Commission may (i) accept commitments proposed by the company if they fully and effectively remedy the distortion, (ii) prohibit the award of the contract, or (iii) issue a no-objection decision.

Both consortia submitted a complete notification on 4 March 2024. The Commission now has 110 working days as of that date to take a decision. The opening of an in-depth investigation does not prejudge the outcome of the investigation.