Happy birthday, Foreign Subsidies Regulation! You took effect on 12 July 2023 and provided your guardian, the European Commission, with new powers to ensure a level playing field within the EU’s internal market. It may now investigate distortive effects of foreign subsidies in contexts such as company acquisitions and public tenders.The European Commission has embraced its new child and has so far used its tools more eagerly and broadly than many would have expected. These are the main Foreign Subsidies Regulation enforcement actions and trends so far:

Effects on M&A Transactions

Companies need to notify acquisitions, mergers and joint ventures to the European Commission when the target company/joint venture achieves an EU-wide turnover of at least EUR 500 million and the parties were granted at least EUR 50 million in combined financial contributions from non-EU countries in the previous three years. Financial contributions in this context not only include state guarantees, equity contributions or loans but also tax benefits, project grants and revenues from sales to state entities.

Notification obligations started on 12 October 2023. Since then, the Foreign Subsidies Regulation has been applied to more deals than initially assumed. In the first 100 days alone, the Commission engaged in pre-notification discussions for 53 transactions, of which 14 were then formally notified. Out of those transactions, many were subject to parallel assessment under the EU Merger Regulation, some to parallel assessment under national merger control procedures in the EU and roughly half also to parallel assessment under foreign direct investment screening in the EU.

The Commission has so far found sufficient indications of distortive foreign subsidies in one case. In June 2024, it opened an in-depth investigation of the planned acquisition by Emirates Telecommunications Group Company PJSC of Eastern European telecommunication operator PPF Telecom Group B.V. Emirates Telecommunications Group Company PJSC is a telecommunication operator based in Abu Dhabi and has allegedly received unlimited guarantees, loans and further financial contributions from the United Arab Emirates. The investigation is still ongoing.

Effects on Public Tenders 

New ex-ante notification obligations also apply to public procurement procedures that exceed certain thresholds. Again, the tool aims at identifying and controlling direct or indirect financial contributions by non-EU countries that are limited to one or more companies or industries, and thus confer the beneficiaries an unfair competitive advantage in the EU market. If the European Commission finds such distortive effects caused by the foreign subsidies, it may issue structural and behavioral remedies.

The Commission has already opened several in-depth investigations into public tenders:

  • In February 2024, the Commission opened an in-depth investigation following the notification of a bid by Chinese state-owned company CRRC Qingdao Sifang Locomotive Co. Ltd. for providing and maintaining electric trains in Bulgaria.
  • In April 2024, the Commission opened in-depth investigations following two notifications of bidding consortia for the construction and operation of a solar plant in Romania. One consortium included a German subsidiary of LONGi Green Energy Technology Co. Ltd, which is listed on the Hong Kong Stock Exchange. The other consortium included Shanghai Electric UK Co. Ltd. and Shanghai Electric Hong Kong International Engineering Co. Ltd., both ultimately controlled by the P.R. China.

The Commission didn’t need to take a final decision as each bidder withdrew its offer.

Dawn Raids

The European Commission may as well start investigations on its own initiative: It may request notifications for smaller M&A deals and public procurement procedures, and it may also conduct dawn raids. During dawn raids, the Commission may examine all digital and physical company records, take copies thereof, seal business premises, and ask staff members for explanations on facts or documents relating to the subject matter of the inspection.

The Commission made first use of the latter option in April 2024: It carried out an unannounced inspection at the Dutch and Polish offices of the Chinese state-owned company Nuctech. The Commission claims that Nuctech may have received foreign subsidies that could distort the internal market at the expense of other security equipment companies. Nuctech is currently challenging the Commission’s actions before the EU’s General Court.

Early Enforcement Trends

The European Commission is using its new tools under the Foreign Subsidies Regulation very actively and extensively. Some priorities are already becoming apparent: while the Commission’s focus on Chinese companies had been anticipated from the start, the heightened scrutiny for state-owned Arab companies is a more recent trend. Still, the regulatory burden of the Foreign Subsidies Regulation is also felt by businesses based in the EU, the US, the UK or Switzerland when planning and implementing M&A deals.

Energy, transportation, telecommunication and security equipment are so far the sectors in the spotlight of the Commission’s actions. However, we expect the Commission to extend its investigations to further sectors – like other services for critical infrastructure – in the coming years.

Practical Advice for Businesses

Companies operating in these sectors and receiving financial contributions from non-EU countries should be particularly aware of the risk of investigations and prepare for them. For them, it is advisable to make themselves familiar with the European Commission’s dawn raid procedures. Notably, these rules may differ significantly from those applicable to investigations by national authorities in other contexts.

More generally, when preparing large M&A deals or offers for public tenders, the potential notification requirements need to be considered. First experiences show that, for example, the pre-notification discussions with the Commission for company acquisitions can be quite lengthy and can include several requests for information. The implementation of internal reporting systems to continuously gather information on all forms of financial contributions from non-EU governments helps in preparing for such scenarios.

Companies should also watch out for sectoral market investigations – a tool that the Commission has not used so far but will likely use in the mid-term.

Written By Christoph Heinrich and Dr. Cathleen Laitenberger (ADVANT Beiten), Manuela Becchimanzi and Francesco Mazzocchi (ADVANT NCTM)