WHITE PAPER on levelling the playing field as regards foreign subsidies
Date: 2020-06-17
Institutions: Directorate-General for Competition, European Commission
Subjects: EU competition policy, State aid, foreign aid, foreign capital, foreign investment, public procurement, restriction on competition, single market, supervisory body, third country

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 17.6.2020  COM(2020) 253 final  WHITE PAPER on levelling the playing field as regards foreign subsidies  
 
 
WHITE PAPER 

on levelling the playing field as regards foreign subsidies 

Table of Contents 

1 

2 

2.1 

2.2 

3 

3.1 

3.2 

3.3 

3.4 

4 

Introduction ................................................................................................................... 4 

Problem definition ........................................................................................................ 6 

Foreign subsidies risk distorting the EU internal market ............................................. 6 

Overview of cases involving foreign subsidies ............................................................ 8 

Gap analysis .................................................................................................................. 9 

EU competition rules .................................................................................................... 9 

EU trade policy ............................................................................................................. 9 

Public procurement ..................................................................................................... 10 

EU funding .................................................................................................................. 12 

Framework to address distortions caused by foreign subsidies in the internal 
market generally and in the specific cases of acquisitions and public 
procurement ................................................................................................................ 13 

4.1 

General instrument to capture foreign subsidies (Module 1) ..................................... 13 

4.1.1  Basic features .............................................................................................................. 13 

4.1.2 

Scope of Module 1 ...................................................................................................... 14 

4.1.3  Assessment of distortions in the internal market ........................................................ 15 

4.1.4 

EU interest test ............................................................................................................ 17 

4.1.5 

Procedure .................................................................................................................... 17 

4.1.6  Redressive measures ................................................................................................... 19 

4.1.7 

Supervisory authorities ............................................................................................... 21 

4.2 

Foreign subsidies facilitating the acquisition of EU targets (Module 2) .................... 22 

4.2.1  Basic features .............................................................................................................. 22 

4.2.2 

Scope of Module 2 ...................................................................................................... 23 

4.2.3  Assessment of distortions related to subsidised acquisitions ..................................... 26 

4.2.4 

EU interest test ............................................................................................................ 27 

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4.2.5 

Procedure .................................................................................................................... 27 

4.2.6  Redressive measures ................................................................................................... 29 

4.2.7 

Supervisory authorities ............................................................................................... 29 

4.3 

Foreign subsidies in public procurement (Module 3) ................................................. 30 

4.3.1 

Introduction ................................................................................................................. 30 

4.3.2  Distortions by foreign subsidies in the context of public procurement 

procedures ................................................................................................................... 30 

4.3.3 

Procedure .................................................................................................................... 31 

4.3.4 

Foreign subsidies in procurement pursuant to intergovernmental agreements........... 34 

5 

5.1 

5.2 

Foreign subsidies in the context of EU funding ......................................................... 35 

Problem definition ...................................................................................................... 35 

Framework and measures to fill the gap ..................................................................... 36 

5.2.1  Direct management ..................................................................................................... 36 

5.2.2 

Shared management .................................................................................................... 38 

5.2.3 

Indirect management .................................................................................................. 39 

6 

6.1 

6.2 

6.3 

6.4 

6.5 

6.6 

6.7 

6.8 

6.9 

Interplay with other EU and international instruments ............................................... 40 

EU Merger Regulation ................................................................................................ 40 

EU antitrust rules ........................................................................................................ 41 

EU State aid rules ....................................................................................................... 41 

EU public procurement rules ...................................................................................... 41 

The WTO Agreement on Subsidies and Countervailing Measures ............................ 41 

Trade defence instruments – protection against subsidised imports .......................... 42 

FDI Screening Regulation .......................................................................................... 42 

Bilateral trade agreements .......................................................................................... 43 

The Agreement on Government Procurement and procurement chapters in 
FTAs ........................................................................................................................... 44 

6.10 

Sectorial rules: safeguarding competition in air and maritime transport .................... 44 

7 

Public Consultation ..................................................................................................... 45 

ANNEX I: DEFINITION OF FOREIGN SUBSIDY ............................................................... 46 

ANNEX II: QUESTIONNAIRE............................................................................................... 48 

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1 

INTRODUCTION 

Openness to trade and investment underpins Europe’s prosperity and competitiveness. Trade 
accounts for almost  35% of the EU’s GDP. 35 million European jobs  are linked to  exports. 
The  EU  is  the  world’s  main  provider  and  the  top  global  destination  of  foreign  direct 
investment1 with 16 million European jobs linked to it.  

A strong, open and competitive single market enables EU companies to operate and compete 
globally. On 10 March 2020, the European Commission presented a New Industrial Strategy 
for Europe which mapped out a clear path for Europe to allow our industry to lead the green 
and  digital  transitions  based  on  competition,  open  markets,  world-leading  research  and 
technologies and a strong single market. 

To  reap  the  full  benefits  of  global  trade,  Europe  will  pursue  a  model  of  open  strategic 
autonomy.  This  will  mean  shaping  the  new  system  of  global  economic  governance  and 
developing mutually beneficial bilateral relations, while protecting ourselves from unfair and 
abusive practices.  

Openness to trade and investment is part of the economy’s resilience, but it must go hand in 
hand  with  fairness  and  predictable  rules.  The  current  global  economic  environment  is  the 
most  difficult  in  recent  memory.  Trade  openness  based  on  a  level  playing  field  is  being 
challenged,  as  is  the  objective  of  seeking  mutually  beneficial  trade  relations.  This  is 
exemplified  by  state  sponsored  unfair  trading  practices,  which  disregard  market  forces  and 
abuse  existing  international  rules,  with  a  view  to  building  up  dominance  across  various 
sectors of economic activity. Such unfair practices typically include shielding industries from 
competition through selective market opening, licensing and other investment restrictions, as 
well as providing subsidies which undermine the level playing field to both state-owned and 
private sector companies. The distortive economic effects of such practices are relevant in any 
affected sector, whether strategic or otherwise.  

In today’s intertwined global economy, foreign subsidies can however distort the EU internal 
market and undermine the level playing field. There is an increasing number of incidences in 
which  foreign  subsidies  appear  to  have  facilitated  the  acquisition  of  EU  undertakings, 
influenced  other  investment  decisions  or  have  distorted  the  market  behaviour  of  their 
beneficiaries. Within the EU, the single market and its rule book ensure a level playing field 
for all Member States, economic operators and consumers so they can benefit from the scale 
and opportunities of the EU economy.  

The single market rule book also includes rules on public procurement in order to ensure that 
undertakings  benefit  from  fair  access  to  public  contracts,  and  that  contracting  authorities 
benefit from fair competition. 

1 Foreign direct investment stocks held in the rest of the world by investors resident in the EU amounted to EUR 
8,750 billion at the end of 2018. Meanwhile, foreign direct investment stocks held by third-country investors in 
the EU amounted to EUR 7,197 billion at the end of 2018.   
https://ec.europa.eu/trade/policy/accessing-markets/investment/ 

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Competition rules have been part of the EU internal market from the beginning. Notably, EU 
State  aid  rules  ensure  that  subsidies  by  public  authorities  are  compatible  with  the  internal 
market.  Many  foreign  subsidies  would  be  problematic  if  they  were  granted  by  EU  Member 
States and assessed under EU State aid rules. EU State aid rules however apply only to public 
support granted by EU Member States.  In contrast,  subsidies granted by non-EU authorities 
fall outside EU State aid control.  

Moreover,  the  limited  degree  of  openness  of  the  domestic  market  of  third  countries  may 
further distort the market. Where a beneficiary faces no or limited competition in its domestic 
market, it could leverage its privileged position in other markets, thereby enjoying an undue 
advantage  over  others.  Foreign  subsidies  originating  in  States  where  access  to  markets  is 
closed or restricted may be even more likely to cause distortions. 

In the current context of the COVID-19 crisis, EU Member States grant significant amounts 
of  State  aid  to  support  individual  undertakings  and  the  EU  economy  as  a  whole.  It  is  a 
situation in which State aid is an indispensable means at the disposal of public authorities to 
stabilise  the  economy  and  accelerate  research  in  the  coronavirus.  At  the  same  time,  public 
support continues to be subject to EU State aid control also in the current situation, ensuring 
for  example  its  proportionality  and  minimising  the  potentially  distortive  effect  on 
competition. Moreover, the current assessment framework is temporary and limited in scope 
to  crisis  measures.  The  current  situation  illustrates  the  importance  of  preserving  the  level 
playing field within the internal market, even in exceptional economic circumstances.  

This White Paper intends to launch a broad discussion with Member States, other European 
institutions,  all  stakeholders,  including  industry,  social  partners,  civil  society  organisations, 
researchers, the public in general and any other interested party on the best way to effectively 
address  the  challenges  identified.  The  results  of  the  consultation  on  the  White  Paper  will 
prepare the ground for choosing the most appropriate way to  address the distortions created 
by foreign subsidies, including appropriate proposals for legal instruments. 

The White Paper first outlines the rationale for addressing foreign subsidies, including typical 
examples of foreign subsidies that appear to undermine the level playing field in the internal 
market. The White Paper then presents an analysis of the existing legal instruments to address 
foreign  subsidies  and  discusses  the  question  of  a  regulatory  gap.  Subsequently,  the  White 
Paper  sets  out  preliminary  substantive  and  procedural  orientations  for  legal  instruments  to 
address the regulatory gap in relation to:  

  Foreign subsidies distorting the internal market regarding 

o 

the general market operation of economic operators active in the EU;  

o  acquisitions of EU undertakings;  

o  public procurement procedures;  

  Foreign subsidies in the context of access to EU funding. 

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2 

PROBLEM DEFINITION 

2.1 

Foreign subsidies risk distorting the EU internal market 

EU  State  aid  rules  help  to  preserve  a  level  playing  field  in  the  internal  market  among 
undertakings with regard to subsidies provided by EU Member States. However, there are no 
such rules for subsidies that non-EU authorities grant to undertakings operating in the internal 
market.  This  situation  may  include  circumstances  where  the  benefitting  undertakings  are 
owned or ultimately controlled by a non-EU company or a foreign government.  

There is limited information on the actual amount of foreign subsidies being granted. This is 
mainly  due  to  a  lack  of  transparency  and  low  compliance2  with  the  obligation  to  notify 
the  Agreement  on  Subsidies  and  Countervailing  Measures  (SCM 
subsidies  under 
Agreement3). Some reports by the Organisation for Economic Co-operation and Development 
(OECD)  indicate  however  that  government  interventions  appear  widespread  in  certain 
sectors.4  

The EU economy is open to foreign investment. This is reflected by recent economic data. In 
2016, 3% of European companies were owned or controlled by non-EU investors representing 
35% of total assets and around 16 million jobs.5 More recently, there has been an increase in 
investment also from third countries other than from traditional investors such as the United 
States and Canada. Investment by state-owned enterprises has grown rapidly over the last few 
years, as has the presence of "offshore investors".  

The level of foreign direct investment (FDI) to the EU, its composition and the top recipient 
Member States are not a constant and keep changing. The scale of the impact of the COVID-
19 pandemic on the level of FDI inflows and the origins of FDI to the EU remains to be seen.  

Greater openness to foreign investment has come with opportunities for the EU economy but 
also with increased risks, such as foreign subsidisation, which needs to be controlled to avoid 
undermining  competitiveness  and  the  level  playing  field  in  the  EU  market.  Concerns  about 
subsidisation may also be exacerbated where public undertakings are not subject to the same 
rules  as  private  undertakings,  and  where  financial  relations  between  the  state  and  its 
undertakings are not transparent. The Treaty is neutral as regards public or private ownership 
of  undertakings.  Both  public  and  private  undertakings  are  subject  to  competition  rules.  In 

2 A recent background note prepared by the WTO Secretariat (G/SCM/W/546/Rev.10) notes that between 1995 
and  2017  the  number  of  members  that  have  failed  to  make  a  notification  rose  sharply.  As  on  April  2019,  77 
WTO  members  had  not  yet  submitted  subsidy  notifications  for  2017,  62  members  have  still  not  submitted 
subsidy notifications for 2015. See also: https://www.wto.org/english/news_e/news19_e/scm_30apr19_e.htm 
3  WTO  Agreement  on  Subsidies  and  Countervailing  Measures  Apr.  15,  1994,  Marrakesh  Agreement 
Establishing the World Trade Organization, Annex 1A, 1869 U.N.T.S. 14. [Not reproduced in I.L.M.]. 
4 The OECD estimated that in the aluminium sector total government support for firms studied reached between 
USD  20-70  billion  over  the  2013-17  period  (depending  on  how  financial  support  is  estimated).  See: 
https://www.oecd-ilibrary.org/docserver/c82911ab-
en.pdf?expires=1587470829&id=id&accname=guest&checksum=CA92281E81EB5ECE7D5F87CED76198CF . 
Furthermore, the OECD estimated that, for a sample of 21 large semiconductor firms, total government support  
exceeded USD 50 billion over the period 2014-18: 
http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=TAD/TC(2019)9/FINAL&docLangua
ge=En 
5 Based on a sample and as described in https://trade.ec.europa.eu/doclib/docs/2019/march/tradoc_157724.pdf  

6 

 
 
                                                 
addition, under the Transparency Directive,6 Member States are obliged to be transparent on 
the financial relations between them and their public undertakings in  addition to  complying 
with the transparency requirements under EU State aid rules.7  

As  in  the  case  of  State  aid  granted  by  EU  Member  States,  foreign  subsidies  can  distort 
competition in the internal market and result in an uneven playing field in which less efficient 
operators  grow  and  increase  market  share  at  the  expense  of  more  efficient  operators.  In  a 
similar manner, foreign subsidies may also result in costly and often wasteful emulation and 
lead  to  subsidy  races  between  public  authorities.  Furthermore,  the  lack  of  transparency  and 
reciprocity  in  accessing  third-country  markets  are  additional  factors  that  tend  to  exacerbate 
such harmful effects.  

In  addition  to  the  general  concerns  about  foreign  subsidies  provided  to  undertakings  in  the 
EU, there is a specific concern about foreign subsidies in the contexts of the acquisition of EU 
targets and of public procurement.  

As  regards  acquisitions  the  price  that  acquirers  are  willing  to  pay  typically  reflects  the 
efficiency gains or increase in revenues they can obtain by acquiring the asset. However, the 
subsidy  may  allow  the  subsidised  acquirer  to  pay  a  higher  price  to  acquire  the  asset  than  it 
would otherwise have paid, and can thus distort the valuation of EU assets. Foreign subsidies 
therefore  may  lead  to  excessive  purchase  prices  (outbidding)  and  at  the  same  time  prevent 
non-subsidised acquirers from achieving efficiency gains or accessing key technologies.  

Foreign  subsidies  therefore  may  lead  to  an  inefficient  overall  allocation  of  resources  and, 
more particularly, a loss of competitiveness and innovation potential of companies that do not 
receive such subsidies. In some cases, the granting of foreign subsidies can also be driven by 
a strategic objective to establish a strong presence in the EU or to promote an acquisition and 
later transfer technologies to other production sites, possibly outside of the EU. There is thus a 
specific need to ensure a level playing field for the acquisitions of EU targets. This can ensure 
that  all  companies  compete  on  equal  footing  to  acquire  key  assets  and  stay  at  the 
technological frontier, while preserving the benefits that international competition and inward 
foreign direct investments deliver.  

The EU procurement markets are largely open to third country bidders. EU-wide publication 
of  tenders  ensures  transparency  and  creates  market  opportunities  for  EU  and  non-EU 
companies  alike. However, EU companies do not  always  compete on an  equal  footing with 
companies  benefiting  from  foreign  subsidies.  Subsidised  companies  may  be  able  to  make 
more  advantageous  offers,  thus  either  discouraging  non-subsidised  companies  from 
participating in  the  first  place or winning contracts  to  the detriment of non-subsidised more 

6 Commission Directive 2006/111/EC of 16 November 2006 on the transparency of financial relations between 
Member States and public undertakings as well as on financial transparency within certain undertakings, OJ L 
318, 17.11.2006, p. 17. 
7 Detailed transparency has been one of the key principles of the State aid reform programme in the  
Communication on State aid modernisation: 
https://ec.europa.eu/competition/state_aid/modernisation/index_en.html  

7 

 
 
                                                 
efficient  companies.8  It  is  therefore  important  to  ensure  that  recipients  of  foreign  subsidies 
bidding for public contracts in the EU compete on an equal footing.  

Many public buyers, mindful of their budgets, have an incentive to award contracts to bidders 
offering low prices regardless of whether those prices are facilitated by foreign subsidies. This 
may  be the case not  only  for  contracts  awarded  on the basis of price, but  also  for contracts 
awarded  on  the  basis  of  the  best  price-quality-ratio,  as  quality  criteria  rarely  compensate 
important differences in prices, such as those that may be enabled by foreign subsidies.  

The same distortive effect can occur when companies benefitting from foreign subsidies seek 
access to funding from the EU budget. 

2.2 

Overview of cases involving foreign subsidies  

There  could  be  several  objectives  which  non-EU  authorities  pursue  by  granting  foreign 
subsidies,  not  necessarily  entirely  of  economic  nature,  and  also  different  ways  in  which  a 
subsidy may be provided to an undertaking in the EU. A few examples are provided below. 

First,  undertakings  may  receive  subsidies  to  promote  their  existing  activities  in  the  EU. 
Foreign states may give subsidies (e.g. grants) or provide cheaper financing to an undertaking 
in  the EU (e.g. a subsidiary located in  the EU). Foreign states  may  also  give a subsidy to  a 
parent  company  located  outside  the  EU  (e.g.  corporate  tax  regimes  providing  selective 
incentives), which then in turn finances the subsidiary located in the EU through intragroup 
transactions. An undertaking in the EU may also receive financing at preferential terms from 
foreign  banks  directly  upon  instruction  of  foreign  states.  Furthermore,  third  countries  might 
have cooperation arrangements with EU local authorities or EU development banks, and may 
thus channel foreign subsidies through these authorities or banks to undertakings in the EU.9  

In some cases, foreign subsidies are granted with the express objective of enabling companies 
to submit bids for public contracts, at prices that are below market price or even below cost, 
directly “underbidding” to the detriment of competing non-subsidised undertakings. Subsidies 
may  also  generally  facilitate  aggressive  market  conduct.  Such  behaviour,  not  driven  by 
normal commercial considerations, may be driven by strategic goals, in order to get a foothold 
in strategically important markets or regions, or to get privileged access to critical and major 
infrastructure, including infrastructure governed by the rules of Directive 2014/25/EU. 

Finally, foreign subsidies can also facilitate acquisitions to help non-EU companies expand in 
the EU. Non-EU authorities may seek to steer acquisitions by offering preferential financing, 
loan guarantees and other means of reducing capital costs. Such measures may directly aim at 
supporting the outward investment of undertakings by granting dedicated tax rebates (income 
tax reductions) or financing from government supported investment funds or intermediaries.10 
All these different possible benefits can have a significant impact on the premiums offered for 
acquisitions. A substantial number of foreign direct investments takes place through offshore 

8 A wide lack of information in the Tender Electronic Daily (TED) files makes it difficult to collect reliable and 
relevant public procurement data in the EU. 
9  Some  financing  or  cooperation  agreements  may  be  signed  with  EU  development  banks  which  may  then  be 
involved in the implementation of providing financing to companies in the EU. 
10 See e.g. the Sino-CEEF fund (EUR 10 billion), an investment fund especially created for investments in the 
EU. 

8 

 
 
                                                 
financial  centres  which  may  offer  special  tax  conditions.  Notably,  10.9%11  of  the  foreign 
investors controlling EU companies are established in such offshore financial centres.  

3 

GAP ANALYSIS 

There  are  certain  EU  and  international  instruments  that  should  be  taken  into  account  when 
considering how to address the distortions caused by foreign subsidies on the internal market. 
While  these  international  and  EU  rules  address  these  distortions  to  a  certain  extent,  the 
following gap analysis demonstrates that the issue so far has not been exhaustively addressed 
by  any  of  the  existing  instruments.  In  particular,  where  foreign  subsidies  take  the  form  of 
financial  flows  facilitating  acquisitions  of  EU  undertakings  or  where  they  support  the 
operation of an undertaking in the EU, there appears to be a regulatory gap. The same applies 
where  foreign  subsidies  distort  public  procurement  procedures  or  where  foreign  subsidies 
provide a benefit when it comes to access to EU financial support. This White Paper therefore 
sets  out  possible  features  of  such  new  tools  to  address  the  existing  regulatory  gap  and  to 
ensure a level playing field in the internal market.  

At the same time, there may be overlaps between such new tools and existing rules. Section 6 
explains those overlaps more in detail and how such new tools would interact with current EU 
and international rules. 

3.1 

EU competition rules 

The EU's merger and antitrust rules allow the Commission to intervene where concentrations 
or companies' market practices distort competition in the internal market. Neither EU antitrust 
rules nor EU merger control specifically take into account whether an economic operator may 
have  benefited  from  foreign  subsidies  (even  if  in  principle  it  could  form  part  of  the 
assessment)  and  they  do  not  allow  the  Commission  (or  Member  States)  to  intervene  and 
decide solely or even mainly on this basis.  

EU  State  aid  rules  apply  where  financial  support  granted  by  EU  Member  States  to 
undertakings  distorts  or  threatens  to  distort  competition  in  the  internal  market.  However, 
financial support granted by non-EU authorities to undertakings in the EU, either directly or 
through their parent companies outside the EU is not covered by EU State aid rules.12  

3.2 

EU trade policy 

In  the  area  of  trade  policy,  the  EU  has  some  instruments  at  its  disposal  to  restore  a  level-
playing  field  for  trade  in  goods  and  investments:  at  multilateral  level,  the  WTO  SCM 
Agreement, at bilateral level free trade agreements, and unilateral measures such as the trade 
defence  instruments.  These  instruments  allow  the  EU  to  react  to  unfair  competition  where 

11 Source : EC-JRC Foreign Ownership database and 
https://trade.ec.europa.eu/doclib/docs/2019/march/tradoc_157724.pdf.  
12 A new instrument on foreign subsidies would not affect the current rules on antitrust and mergers. In the case 
of parallel procedures under the FDI Screening Regulation, Merger rules and/or any new legal instrument, those 
instruments will include a mechanism to address any overlap and ensure that procedures are efficient.  

9 

 
 
                                                 
products  have  been  manufactured  with  the  support  of  non-EU  funding  (anti-subsidy).13  The 
measures to counteract the unfair practices usually take the form of extra import duty for the 
subsidisation received by the overseas competitors to eliminate the injury.  

These  instruments,  however,  have  their  limitations  and  do  not  allow  to  address  all  foreign 
subsidies affecting the internal market. The EU anti-dumping and anti-subsidy rules apply to 
the import of goods into the EU. They however do not cover trade in services, investment or 
other financial flows in relation to the establishment and operation of undertakings in the EU.  

The Regulation establishing a framework for the screening of foreign direct investments into 
the EU (FDI Screening Regulation)14 constitutes an important tool to address risks to security 
or public order brought by foreign investments that target the EU’s or Member States’ critical 
assets. However, the scope of application of the FDI Screening Regulation is to determine the 
likely  impact  of  foreign  direct  investment  on  security  and  public  order  by  considering  its 
effects,  amongst  others,  on critical  infrastructure, critical  technologies, critical  inputs, and it 
does not specifically tackle the issue of distortions caused by foreign subsidies. 

On the international level, the EU can bring litigation against a WTO Member for breaches of 
the SCM Agreement, in  particular when a WTO Member grants  subsidies, prohibited under 
that  Agreement,  or  subsidies  that  cause  adverse  effects  to  its  interests,  and  have  the  matter 
adjudicated  by  a  WTO  panel.  However,  the  scope  of  application  of  the  SCM  Agreement  is 
also limited to trade in goods. The WTO GATS contains an inbuilt mandate to develop rules 
for subsidies in the area of trade in services, but thus far, no such rules have been developed. 

3.3 

Public procurement 

The  existing  EU  legal  framework  in  the  field  of  public  procurement  does  not  specifically 
address  distortions  to  the  EU  procurement  markets  caused  by  foreign  subsidies.  As  single 
market  instruments,  the EU  Public  Procurement Directives  do  not  set  out  any  specific  rules 
regarding  the  participation  of  economic  operators  benefitting  from  foreign  subsidies. 
Contracting authorities enjoy a wide margin of discretion both in the design of a public tender 
procedure  as  well  as  in  the  evaluation  of  tenders  submitted  in  the  procedure.  In  addition, 
contracting authorities are not legally required to investigate the existence of foreign subsidies 
when  evaluating  offers  and  no  specific  legal  consequences  are  attached  to  the  existence  of 
foreign subsidies causing a distortion.  

The EU has committed itself under several international agreements (such as the Agreement 
on  Government  Procurement  and  bilateral  Free  Trade  Agreements  with  Procurement 
Chapters) to grant access to its public procurement market to the goods, services and suppliers 
of several third countries. Accordingly, the Public Procurement Directives provide, for public 
buyers  in  the  EU,  the  obligation  to  accord  to  the  works,  supplies,  services  and  economic 
operators of the signatories to those agreements treatment that is no less favourable than the 

13  Regulation  (EU)  2016/1036  of  the  European  Parliament  and  of  the  Council  of  8  June  2016  on  protection 
against  dumped  imports  from  countries  not  members  of  the  European  Union,  OJ  L  176,  30.6.2016,  p.  21. 
Regulation  (EU)  2016/1037  of  the  European  Parliament  and  of  the  Council  on  protection  against  subsidised 
imports from countries not members of the European Union, OJ L 176, 30.6.2016, p. 55. 
14 Regulation (EU) 2019/452 of the European Parliament and of the  Council of 19 March 2019 establishing a 
framework for the screening of foreign direct investments into the Union, OJ L 79I , 21.3.2019, p. 1. 

10 

 
 
                                                 
treatment accorded to the works, supplies, services and economic operators of the EU, in so 
far as the procurement in question is covered by these agreements. 

Beyond that obligation, economic operators from third countries, which have not entered into 
any agreement with the EU providing for the opening of their public procurement market or 
whose goods, services or works, do not have secured access to procurement procedures in the 
EU  and  may  be  excluded.15  In  practice,  decisions  to  exclude  third-country  bidders  without 
secured access could be justified by the receipt of foreign subsidies, but in the current legal 
framework there is no such link. 

Public buyers may consider the existence of foreign subsidies when evaluating risks in terms 
of  contract  performance  and  execution.  More  specifically,  public  buyers  may  consider  the 
reliance  on  subsidies  when  assessing  the  overall  financial  viability  of  an  offer.  For  this 
assessment, Article 69 of Directive 2014/24/EU16 provides the contracting authorities with the 
possibility  to  reject  offers  they  consider  to  be  abnormally  low  in  situations  where  the 
explanations and evidence supplied by the bidder do not sufficiently account for the low price 
offered. Where, as part of that assessment, it can be established that a bidder has obtained EU 
State aid incompatible with the TFEU, enabling it to make a low offer, the tender may – under 
additional conditions - be rejected on that ground alone17. In contrast, Article 69 of Directive 
2014/24/EU contains no corresponding provision for foreign subsidies that enable bidders to 
submit  low  offers.  If  the  grant  of  foreign  subsidies  can  be  considered  in  the  overall 
assessment, and the public buyers ultimately decide to reject an offer as abnormally low, such 
a  rejection  needs  to  be  justified  by  demonstrating  that  the  foreign  subsidies  impede  the 
viability of the offer and the bidder’s capacity to execute the contract at the (abnormally low) 
price offered.18 

Public  buyers  in  the  EU  are  also  encouraged  to  require  high  environmental  and  social 
standards in their procurement and to ensure that EU and third country bidders are held to the 
same standards. In fact, they can use technical specifications, exclusion, selection and award 
criteria  as  well  as  define  contract  performance  clauses  that  ensure  the  respect  of  high 
standards19. While such requirements might in practice help creating a level playing field they 
are not designed to address the potential distorting effect of foreign subsidies in general, and 
even less so  for subsidised entities established in  the EU as those are already subject  to  the 
same rules as their non-subsidised peers. 

In practice public buyers do not have the information necessary to investigate whether bidders 
benefit  from  foreign  subsidies  or  to  assess  to  what  extent  the  subsidies  have  the  effect  of 
causing  distortions  in  procurement  markets.  Public  buyers  may  also  have  a  short-term 

15  Communication  of  the  European  Commission,  “Guidance  on  the  participation  of  third-country  bidders  and 
goods  in  the  EU  procurement  market”,  C(2019)  5494  final,  p.  6.  This  does  not  apply  to  subsidised  EU 
subsidiaries of excluded third country bidders. 
16  Directive  2014/24/EU  of  the  European  Parliament  and  of  the  Council  of  26  February  2014  on  public 
procurement and repealing Directive 2004/18/EC, OJ L 94, 28.3.2014, p. 65. 
17 Article 69(4) of Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on 
public procurement and repealing Directive 2004/18/EC, OJ L 94, 28.3.2014, p. 65.  
18  For  guidance,  see  Communication  of  the  European  Commission  "Guidance  on  the  participation  of  third-
country bidders and goods in the EU procurement market" C(2019) 5494 final, section 2. 
19  Communication  of  the  European  Commission,  ‘Guidance  on  the  participation  of  third-country  bidders  and 
goods in the EU procurement market’, C(2019)5494 final, chapter 3. 

11 

 
 
                                                 
economic incentive to  award contracts  to  such bidders, even if the low prices offered  result 
from the existence of foreign subsidies.  

Finally,  the  main  objective  of  the  International  Procurement  Instrument  (IPI)20  is  to 
incentivise trading partners to negotiate with the EU the opening of their procurement markets 
for EU businesses. Provided the IPI will be adopted in its current form, it  aims at improving 
access to public procurement markets outside the EU, but it will not tackle distortions of the 
procurement  processes  in  the  internal  market  arising  from  foreign  subsidies  granted  to 
undertakings participating in EU procurement markets.21  

The  existing  rules  in  the  field  of  EU  public  procurement  are  not  sufficient  to  address  and 
remedy the distortions caused by foreign subsidies. Hence, where foreign subsidies facilitate 
and  distort  the  bidding  in  an  EU  public  procurement  procedure,  there  appears  to  be  a 
regulatory gap.  

3.4 

EU funding 

Access to EU financial support is subject to the rules established by the Financial Regulation 
(‘Financial Regulation’, or ‘FR’).22 Agreements with third countries govern the access to EU 
funding  for  third-country  entities.  Those  rules  are  complemented  by  regulations  established 
for the EU spending programmes and funds.  

All  these  rules  contain  provisions  aimed  at  protecting  the  level  playing  field.  For  instance, 
they do so by establishing measures to reduce the impact of abnormally low bids.23  

However, none of these rules currently takes into account the existence of foreign subsidies 
and  their  impact  on  the  ability  of  a  company,  irrespective  of  its  place  of  establishment,  to 
access EU funding on the basis of such subsidies. 

With regard to shared management, the gap analysis in section 3.3 and the considerations on 
EU public procurement rules in this paper are highly relevant also for EU funding, as Member 
States apply these rules to EU funded projects implemented through shared management. 

20  Amended  proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  on  the  access  of  third-
country  goods  and  services  to  the  Union's  internal  market  in  public  procurement  and  procedures  supporting 
negotiations  on  access  of  Union  goods  and  services  to  the  public  procurement  markets  of  third  countries, 
COM(2016) 34 final, 29 January 2016. This proposal is being discussed in the Council. 
21 Following the call by the Commission and the European Council in March 2019 to resume the discussions, the 
co-legislators  are  currently  engaged  in  constructive  discussions  on  IPI,  on  the  basis  of  the  2016  amended 
legislative proposal of the Commission. 
22 Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the 
financial rules applicable to the general budget of the Union, amending Regulations (EU) No 1296/2013, (EU) 
No  1301/2013,  (EU)  No 1303/2013,  (EU)  No 1304/2013, (EU)  No  1309/2013,  (EU)  No  1316/2013,  (EU) No 
223/2014,  (EU)  No  283/2014,  and  Decision  No  541/2014/EU  and  repealing  Regulation  (EU,  Euratom)  No 
966/2012, OJ L 193, 30.7.2018, p. 1. 
23  See  Point  23,  Annex  I  to  the  Financial  Regulation.  For  examining  abnormally  low  bids,  the  contracting 
authority  may  take  into  consideration  bidder  observations  relating  to  the  possibility  of  the  tenderer  obtaining 
State  aid  in  compliance  with  applicable  rules.  The  contracting  authority  may  exclude  a  tender  offer  that  is 
abnormally low for the reason that the tenderer has obtained State aid if the tenderer is unable to prove, within a 
sufficient time limit fixed by the contracting authority, that the aid in question was compatible with the internal 
market within the meaning of Article 107 TFEU. 

12 

 
 
                                                 
4 

FRAMEWORK  TO  ADDRESS  DISTORTIONS  CAUSED  BY  FOREIGN  SUBSIDIES  IN  THE 
INTERNAL MARKET GENERALLY AND IN THE SPECIFIC CASES OF ACQUISITIONS AND 
PUBLIC PROCUREMENT  

As the gap analysis has shown, the EU already has certain tools to address the distortions that 
foreign subsidies may cause in the internal market, in particular where foreign subsidies are 
provided  for  the  import  of  goods.  However,  it  also  emerges  from  the  gap  analysis  and 
problem definition that the existing tools need to be complemented to specifically address and 
remedy  distortions  in  the  EU  internal  market  arising  from  subsidies  granted  by  non-EU 
authorities. In this Section, the White Paper therefore puts forward for discussion a framework 
that could address, on the one hand, the distortions caused by foreign subsidies provided to an 
economic operator in the EU market (Module 1) and, on the other hand, the distortions caused 
by  foreign  subsidies  in  the  context  of  acquisitions  of  EU  targets  (Module  2)  and  of  public 
procurement (Module 3). In all Modules, it is the origin of the subsidy, namely granted by a 
third country, which is the decisive trigger. The Modules can either be applied alternatively 
on a stand-alone basis, or in combination.  

In the following, the respective Modules are explained in more detail, starting with setting out 
the  basic  features  of  each  Module  and  their  respective  scope  of  application,  the  possible 
criteria that could  guide the assessment of the competent supervisory authority to determine 
the  existence  of  a  foreign  subsidy  distorting  the  internal  market,  the  procedure  and  the 
possible redressive measures.  

For the purposes of this White Paper, the term ‘foreign subsidy’ is defined in Annex I.  

4.1 

General instrument to capture foreign subsidies (Module 1) 

4.1.1 

Basic features 

Module  1  is  intended  as  a  general  instrument  to  address  foreign  subsidies  that  cause 
distortions  in  the  internal  market  and  are  provided  to  a  beneficiary  that  is  established  or,  in 
some instances, active in the EU.24 

Under this Module, the competent supervisory authorities (the Commission and the relevant 
Member  State  authorities  that  will  exercise  their  respective  enforcement  powers  under  a 
shared  system  of  review  to  avoid  duplications)  may  act  upon  any  elements  it  considers 
relevant  indicating  the  granting  of  a  foreign  subsidy  to  a  beneficiary  active  in  the  EU. 
Information could e.g. stem from market operators or Member States. A case would start with 
a  preliminary  review  to  examine  whether  there  is  a  foreign  subsidy  that  may  distort  the 
internal  market.  If  there  is  no  concern  at  the  end  of  the  preliminary  review,  because  either 
there is no foreign subsidy, or there are no indications of a distortion in the internal market, or 
the case is not a priority, the competent supervisory authority would close the case.  

If there is evidence tending to show that a foreign subsidy may distort the proper functioning 
of  the  internal  market,  an  in-depth  investigation  would  follow,  during  which  the  competent 

24 Foreign subsidies provided for goods and agricultural products imported into the EU fall under the EU trade 
defence instrument and would thus not be covered by Module 1.  

13 

 
 
                                                 
supervisory  authority  would  need  to  confirm  its  preliminary  finding  that  there  is  a  foreign 
subsidy that distorts the internal market.  

At  the  end  of  that  in-depth  investigation,  if  confirmed  that  the  proper  functioning  of  the 
internal market may have been or may be distorted through the foreign subsidy, the competent 
supervisory  authority  would  have  the  possibility  of  imposing  measures  to  redress  those 
distortions in the internal market (‘redressive measures’). In contrast, the investigation would 
be closed if the existence of a foreign subsidy is not confirmed, if there is no indication of a 
distortion, or if, after a balancing exercise, the possible distortion that the subsidy may bring 
is mitigated by the positive impact that the supported economic activity or investment might 
have within the EU or on a public policy interest recognised by the EU.  

4.1.2 

Scope of Module 1  

4.1.2.1  General considerations  

Module 1 has a broad material scope and would allow to address distortive foreign subsidies 
in  all  market  situations.25  This  means  that  Module  1  would  also  include  the  possibility  to 
review acquisitions  facilitated by  foreign subsidies and/or market  behaviour by a subsidised 
bidder in public procurement.   

4.1.2.2  Foreign subsidies benefitting an undertaking in the EU 

The purpose of Module 1 is to address distortions caused by foreign subsidies in the EU. For 
this purpose, Module 1 would apply to undertakings established in the EU that benefit from 
foreign  subsidies.  Separately,  it  could  be  considered  that  Module  1  also  covers  certain 
undertakings otherwise active in the EU that benefit from foreign subsidies. The two options 
are  considered  below.  In  both  options,  the  competent  authorities  would  only  have  the 
possibility to take action if the subsidy causes distortions in the internal market. 

  Undertakings established in the EU 

A  foreign  subsidy  would  be  covered  under  the  present  option  if  it  provides  a  benefit  to  an 
undertaking26 established in the EU. An undertaking is considered established in the EU if one 
of its entities is established in the EU. Where the subsidy is  granted to an entity established 
outside  the  EU,  it  would  need  to  be  established  to  what  extent  the  benefit  of  the  foreign 
subsidy can be allocated to the entity established in the EU, having regard to relevant criteria 

25  “In  all  market  situations”  refers  to  undertakings  in  the  EU,  irrespective  of  whether  the  subsidy  benefits  the 
production  of  goods,  services  or  investments  in  the  EU.  It  is  however  suggested  to  exclude  foreign  subsidies 
provided for goods an agricultural products imported into the EU, which fall in the scope of the EU Anti-subsidy 
Regulation, from Module 1.  
26  The  Court  of  Justice  has  consistently  defined  undertakings  as  entities  engaged  in  an  economic  activity  and 
held that several separate legal entities may be considered to form one economic unit, which is then considered 
to be the relevant undertaking. In this respect, the Court of Justice considers the existence of a controlling share 
and  other  functional,  economic  and  organic  links  to  be  relevant.  Judgment  of  the  Court  of  Justice  of  12 
September 2000, Pavlov and Others, Joined Cases C-180/98 to C-184/98, ECLI:EU:C:2000:428, paragraph 74; 
Judgment of the Court of Justice of 10 January 2006, Cassa di Risparmio di Firenze SpA and Others, C-222/04, 
ECLI:EU:C:2006:8, paragraphs 107, 112. 

14 

 
 
                                                 
such  as  the  purpose  and  conditions  attached  to  the  foreign  subsidy  or  the  actual  use  of  the 
funds (as evidenced e.g. through the accounts of the undertaking in question).  

  Undertakings active in the EU 

Consideration  should  be  given  to  the  possibility  of  applying  Module  1  not  only  to  the 
undertakings established in the EU, but also, to certain undertakings that benefit from foreign 
subsidies and are otherwise active in the EU, such as when an undertaking established outside 
the EU seeks to acquire an EU target. 

4.1.2.3  Date from which the granting of a subsidy is made  

A  foreign  subsidy  would  be  considered  to  fall  under  Module  1  from  the  moment  the 
beneficiary has an entitlement to receive the subsidy. The actual payment of the subsidy is not 
a necessary condition  for bringing a subsidy within the scope of Module 1. The payment  is 
however relevant when determining the adequate remedy as will be discussed below.  

4.1.3 

Assessment of distortions in the internal market  

Once  the  existence  of  a  foreign  subsidy  is  established,  the  competent  supervisory  authority 
assesses  whether  such  subsidy  causes  a  distortion  in  the  internal  market.  Both  actual  and 
potential  distortions  are  considered.  Certain  categories  of  foreign  subsidies  would  be 
considered to most likely cause distortions in the internal market. All other foreign subsidies 
would  require  a  more  detailed  assessment  according  to  indicators  that  help  to  determine 
whether a foreign subsidy actually or potentially causes a distortion of the proper functioning 
of the internal market. In any event, the concerned undertaking may also show that the foreign 
subsidy  in  question  is  not  capable  of  distorting  the  internal  market  in  the  specific 
circumstances of the case.  

Generally,  it  is  suggested  that  foreign  subsidies  below  a  certain  threshold  are  deemed 
unproblematic  as  they  are  unlikely  to  cause  distortions  of  the  proper  functioning  of  the 
internal market. Foreign subsidies up to that threshold should be presumed to not be able to 
distort the correct functioning of the internal market. The threshold could be set at an amount 
of EUR 200 000 granted over a consecutive period of three  years. This amount would align 
with the de minimis threshold laid down in EU State aid rules.27 

4.1.3.1  Categories of foreign subsidies considered likely to distort the internal market 

Certain  categories  of  foreign  subsidies,  like  certain  types  of  State  aid,  are  likely  to  create 
distortions in the internal market because of their nature and form. These categories of foreign 
subsidies  could  be  found  to  create  distortions  in  the  internal  market,  and  could  include  the 
following: 

  Subsidies in  the form  of export financing, unless  the export financing is  provided in 

line with the OECD Arrangement on officially supported export credits. 

27 Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 
of the Treaty on the Functioning of the European Union to de minimis aid, OJ L 352, 24.12.2013, p. 1. 

15 

 
 
                                                 
  Subsidies (such as debt forgiveness) to ailing undertakings, i.e. undertakings unable to 
obtain  long-term  financing  or  investment  from  independent  commercial  sources, 
unless there is a restructuring plan leading to the long-term viability of the beneficiary 
and including a significant own contribution by the beneficiary.28 Subsidies granted to 
remedy  a  serious  national  or  global  disturbance  of  the  economy  do  not  fall  in  this 
category,  if  they  are  limited  in  time  and  proportionate  to  remedy  the  respective 
disturbance. 

  Subsidies whereby a government guarantees debts or liabilities of certain undertakings 
without any limitation as to the amount of those debts and liabilities or the duration of 
such guarantee. 

  Operating subsidies in the form of tax reliefs, outside general measures. 

  Foreign subsidies directly facilitating an acquisition. 

4.1.3.2  Assessment of all other foreign subsidies according to indicators 

Foreign  subsidies  not  falling  under  any  of  the  categories  outlined  above  may  still  cause 
distortions in the internal market. Such foreign subsidies may allow less efficient operators to 
grow  and  increase  market  share  in  the  internal  market  at  the  expense  of  more  efficient 
operators that do not receive such subsidies. Operators receiving foreign subsidies may also 
be  able  to  produce  more  cheaply  and  ultimately  offer  their  products  and  services  on  the 
internal  market  at  lower  prices  to  the  detriment  of  competitors  that  do  not  receive  such 
subsidies. Foreign subsidies may also allow their beneficiaries to outbid other operators that 
may  be  more  efficient  when  it  comes  to  the  purchase  of  goods  or  the  acquisition  of 
undertakings.  

In such cases outside the pre-set categories of distortive subsidies, foreign subsidies have to 
be  examined  in  more  detail  to  assess  whether  they  would  actually  or  potentially  distort  the 
level playing field in the internal market.  

The  general  lack  of  transparency  about  foreign  subsidies  and  the  complexity  of  the 
commercial reality make it difficult to unequivocally identify or even quantify the impact of 
specific  foreign  subsidies  on  the  internal  market.  To  determine  such  impact,  it  appears 
therefore necessary to use a collection of indicators related to the subsidies and the relevant 
market  situation.  A  non-exhaustive  list  of  relevant  indicators  could  include  the  following 
criteria:  

  The  relative  size  of  the  subsidy  in  question:  the  higher  the  amount  of  a  subsidy  in 
relative terms, the more likely it is to have a negative impact on the internal market; 
e.g. for an investment subsidy, the size of the subsidy may be compared to the size of 
the investment.  

  The situation of the beneficiary: e.g. the larger a beneficiary, the more likely that the 
to  small  and  medium-sized 

subsidy  causes  distortions.  Generally,  subsidies 

28 If the beneficiary operates in a sector or industry in overcapacity, it is unlikely that a restructuring plan leads to 
long-term viability of the beneficiary. 

16 

 
 
                                                 
undertakings may be considered less likely to cause distortions.29 The more production 
capacity of the beneficiary is unutilised, the more likely a subsidy causes distortions.  

  The situation on the market concerned: e.g. subsidies to beneficiaries active in markets 
with  structural  excess  capacity  are  more  likely  to  cause  distortions  than  others. 
Subsidies  to  beneficiaries  active  in  markets  with  a  high  degree  of  concentration  are 
more likely to cause distortions than others. Likewise, subsidies in fast growing high 
tech markets may be more likely to cause distortions.  

  The market conduct in question, e.g. outbidding in acquisitions or distortive bidding in 

procurement procedures.  

  The  level  of  activity  in  the  internal  market  of  the  beneficiary:  subsidies  granted  to 
undertakings  with  limited  activity  in  the  internal  market  are  less  likely  to  cause 
distortions in the internal market.  

Furthermore, consideration will also be given to the possibility that the competent supervisory 
authority could take into account whether the beneficiary has privileged access to its domestic 
market  (through  measures  equivalent  to  special  or  exclusive  rights)  leading  to  an  artificial 
competitive  advantage  that  could  be  leveraged  in  the  EU  internal  market  and  thereby 
exacerbates the distortive effect of any subsidy. 

4.1.4 

EU interest test  

Once it is established that a foreign subsidy is capable of distorting the internal market, and 
where there is evidence of a possible positive impact that the supported economic activity or 
investment might have within the EU or on public policy interests recognised by the EU, the 
distortion should be weighed up against such possible positive impact.  

In this assessment, the EU’s public policy objectives, such as creating jobs, achieving climate 
neutrality  and  protecting  the  environment,  digital  transformation,  security,  public  order  and 
public  safety  and  resilience,  would  be  taken  into  account.  When  balancing  these 
considerations against the distortion, the degree of distortion would play a role. Moreover, the 
balancing needs to be based on an appreciation of the various interests, including the need to 
protect consumers’ interest. If on balance, the distortion on the internal market caused by the 
foreign  subsidy  is  sufficiently  mitigated  by  the  positive  impact  of  the  supported  economic 
activity or investment, the ongoing investigation would not need to be pursued further. 

4.1.5 

Procedure 

It  is  suggested  that  the  procedure  in  Module  1  consists  of  a  two-step  system,  namely  a 
preliminary review of a possible distortion on the internal market arising from the existence of 
a foreign subsidy and an in-depth investigation.  

29 For a distinction between small, medium and large undertakings, see Annex I of the Commission Regulation 
(EU)  No  651/2014  of  17 June  2014  declaring  certain  categories  of  aid  compatible  with  the  internal  market  in 
application of Articles 107 and 108 of the Treaty, OJ L 187 26.6.2014, p. 1. 

17 

 
 
                                                 
The  competent  supervisory  authority  may  under  this  Module  be  faced  with  difficulties  in 
obtaining the necessary information in particular because the authorities granting the foreign 
subsidies are located outside the EU and so may be the entities through which the subsidies 
might be channelled.  

In  this  regard,  adequate  investigative  tools  and  the  possibility  of  seeking  information  from 
market players in the form of market information will be crucial for allowing the competent 
supervisory authority to act.  

In addition, both during the preliminary review and the in-depth investigation, there would be 
mechanisms available to gather the relevant information. The competent supervisory authority 
could impose fines and periodic penalty payments for failure to timely supply the information 
requested or for supplying incomplete, incorrect or misleading information. If the information 
is not provided despite such sanctions, it would have the possibility to make decisions on the 
basis of the facts available, similar to the procedure under the EU trade defence instruments 
and State aid. Furthermore, the competent supervisory authority could have the possibility to 
make fact finding visits at the EU premises of the alleged beneficiary of a foreign subsidy, as 
well as in third countries, if the third country agrees. 

4.1.5.1  Preliminary review of a possible foreign subsidy 

The objective of the preliminary review is to examine whether there is a foreign subsidy to an 
undertaking  established,  or  in  certain  cases  active  in  the  EU  that  may  distort  the  internal 
market.  

If  the  competent  supervisory  authority  –  at  the  end  of  the  preliminary  review  –  has  the 
suspicion that there is a foreign subsidy that may distort the internal market, it may start an in-
depth  investigation  to  confirm  its  preliminary  view  that  there  is  a  foreign  subsidy  which  is 
capable of distorting the proper functioning of the internal market. The competent supervisory 
authority  will  inform  the  undertaking  concerned,  the  third  country  allegedly  granting  the 
subsidy, and the case being, the Commission, as well as the competent supervisory authorities 
of the other Member States of the launch of an in-depth investigation. 

If there is no concern at the end of the preliminary review, either because there is no foreign 
subsidy,  or  because  there  are  no  indications  of  a  distortion  in  the  internal  market,  the 
preliminary review is closed, and the undertaking concerned as well as the Commission and 
all EU Member States are informed thereof. 

4.1.5.2  In-depth investigation of a foreign subsidy 

During  the  in-depth  investigation,  interested  parties  are  invited  to  present  their  views  in 
writing  and  submit  information  on  the  existence  of  a  foreign  subsidy  and  its  potential 
distortive effect in the internal market.  

If  the  undertaking  concerned  does  not  supply  the  information  requested  by  the  competent 
supervisory  authority,  or  otherwise  does  not  cooperate  to  the  best  of  its  abilities,  the 
competent supervisory authority can take a decision on the basis of the facts available. At the 
end of the in-depth investigation, the competent supervisory authority adopts a decision:  

18 

 
 
 

 

If it finds a foreign subsidy creating a distortion, the competent supervisory authority 
imposes redressive measures on the undertaking in question (“decision with redressive 
measures”).  

If it finds a foreign subsidy creating a distortion, and the undertaking concerned offers 
commitments,  which  the  competent  supervisory  authority  deems  appropriate  and 
sufficient  to  mitigate  the  distortion,  it  binds  the  undertaking  by  decision  to  these 
commitments (“decision with commitments”). 

If there is no foreign subsidy, or if there are no indications of possible or actual distortions in 
the  internal  market  on  a  scale  justifying  intervention,  it  closes  the  case,  and  informs  the 
undertaking concerned and the interested parties that took part in the proceeding, as well as all 
Member  States  and  the  Commission,  if  the  Commission  is  not  the  competent  supervisory 
authority.  If  the  Commission  as  competent  supervisory  authority  finds  that  a  distortion  is 
mitigated by the positive impact  of the supported economic activity or investment,  it closes 
the case by the same token.  

4.1.6 

Redressive measures 

Redressive  measures  could  be  imposed  to  remedy  the  distortions  caused  by  the  foreign 
subsidy. Under EU State aid rules, State aid granted and not in line with EU State aid rules 
has to be reimbursed with interest to the Member State that granted it. This principle applied 
to  the  situation  of  foreign  subsidies  would  mean  that  the  financial  benefit  of  such  subsidies 
should be eliminated through redressive payments to the third country. In the case of foreign 
subsidies,  however,  it  may  be  difficult  in  practice  to  establish  that  the  foreign  subsidy  is 
actually and irreversibly paid back to the third country.   

It may therefore be necessary to consider giving the competent supervisory authority a variety 
of  alternative  redressive  measures.  These  could  range  from  structural  remedies  and 
behavioural  measures  to  redressive  payments  to  the  EU  or  the  Member  States.  When 
determining the appropriate redressive measures, the specific features of the foreign subsidy 
and  its  distortive  effect  on  the  internal  market  would  have  to  be  taken  into  account.  If  for 
example  a  foreign  subsidy  facilitated  an  acquisition,  structural  remedies  might  be  more 
appropriate than redressive payments.  

Possible  redressive  measures,  in  the  event  that  redressive  payments  to  the  third  country  are 
not suitable or feasible, include the following:  

  Divestment of certain assets, reducing capacity or market presence, which might limit 
possible  distortions  in  the  internal  market,  in  particular  linked  to  foreign  subsidies 
which are specifically granted for promoting activities in the internal market, drawing 
inspiration for example from the Rescue and Restructuring guidelines;30  

  Prohibition  of  certain  investments;  this  might  in  particular  be  relevant  if  a  foreign 

subsidy was granted for a specific investment; 

30 Communication from the Commission  - Guidelines on State aid for rescuing and restructuring non-financial 
undertakings in difficulty, OJ C 249, 31.7.2014, p. 1. 

19 

 
 
                                                 
  Prohibition of the subsidised acquisition;  

  Third  party  access,  for  example  to  mobility  apps  for  providers  of  transportation 
services or drawing inspiration from the EU Guidelines for the application of State aid 
rules in relation to the rapid deployment of broadband networks;31  

  Licensing  on  fair,  reasonable  and  non-discriminatory  (FRAND)  terms.  If  e.g.  an 
undertaking  receives  subsidies  and  obtains  telecom  frequencies  or  provide  access  to 
networks  using  such  frequencies,  the  undertaking  could  be  obliged  to  licence  those 
frequencies to other undertakings;  

  Prohibition of a specific market conduct linked to the foreign subsidy;  

  Publication  of  certain  R&D  results,  in  a  way  that  allows  other  undertakings  to 
reproduce them, for instance drawing inspiration from the requirements for important 
projects of common European interest32, or set out in the Block Exemption Regulation 
651/2014;33 

  Redressive payments to the EU or to Member States. 

As  the  lack  of  transparency  generally  is  a  crucial  issue,  and  in  particular  as  regards  the 
financial  relations  between 
third  countries  and  public  undertakings,  reporting  and 
transparency obligations for the future would apply in any case in which redressive measures 
are imposed. Such reporting and transparency obligations could e.g. draw inspiration from the 
Transparency  Directive  2006/111/EC.  Improved  transparency  can  contribute  to  avoiding 
distortions in the future.  

The  undertaking  concerned  may  also  offer  commitments  to  mitigate  the  distortion.  If  the 
competent supervisory authority considers those commitments sufficient, it could make them 
binding on the undertaking.  

If  an  undertaking  does  not  comply  with  the  redressive  measures  imposed  by  the  competent 
supervisory  authority  or  with  the  commitments  made  binding  upon  it,  the  competent 
supervisory  authority  could,  as  a  sanction  for  non-compliance,  impose  fines  and  periodic 
penalty payments. 

The powers of the competent supervisory authorities to impose redressive measures would be 
subject to a limitation period of ten years, beginning on the day on which a subsidy is granted. 
Any  action  taken  by  the  competent  supervisory  authority  with  regard  to  a  foreign  subsidy 
would interrupt the limitation period. After each interruption, the limitation period would start 
to run afresh.  

31 Communication from the Commission - EU Guidelines for the application of State aid rules in relation to the 
rapid deployment of broadband networks, OJ C 25, 26.01.2013, p. 1. 
32 Communication from the Commission — Criteria for the analysis of the compatibility with the internal market 
of State aid to promote the execution of important projects of common European interest, OJ C 188, 20.6.2014, 
p. 4. 
33 Commission Regulation (EU) 651/2014 of 17 June 2014 declaring certain categories of aid compatible with 
the internal market in application of Articles 107 and 108 of the Treaty, OJ L 187, 26.6.2014, p. 1, last amended 
through Commission Regulation (EU) 2017/1084 of 14 June 2017, OJ L 156, 20.6.2017, p. 1. 

20 

 
 
                                                 
4.1.7 

Supervisory authorities 

It  is  suggested  that  both  the  Commission  and  Member  States  designate  supervisory 
authorities.  Coordination  mechanisms  would  be  provided  between  the  Commission  and  the 
competent  national  supervisory  authority  to  ensure  coherence  and  effectiveness  of  their 
respective  enforcement  actions.  For  a  system  such  as  that  described  in  this  module,  shared 
competences  among  multiple  enforcers  provides  the  best  assurance  that  the  most  distortive 
foreign  subsidies  are  detected  and  effectively  dealt  with.  Indeed,  this  would  allow  both  the 
Commission  and  Member  States  to  make  use  of  their  respective  strengths  to  ensure  that 
distortions caused by foreign subsidies are properly scrutinised within the EU.  

Member  States  can  draw  from  their  direct  knowledge  of  the  operation  of  their  domestic 
markets.  However, in  certain  circumstances, foreign subsidies may have  an impact  on more 
than  one  Member  State.  In  such  cases,  the  Commission  would  be  better  placed  to  enforce 
Module 1, so  as to  ensure a coherent  application of the rules across the  EU, building on its 
experience in applying trade defence instruments as well as State aid rules. 

Each  national  supervisory  authority  would  be  empowered  to  enforce  Module  1  in  its 
jurisdiction, defined as the territory of the respective Member State. The Commission would 
be  competent  for  any  foreign  subsidy  benefitting  an  undertaking  in  the  EU,  irrespective  of 
whether it concerns the territory of one or more than one EU Member State. The Commission 
would  also  be  exclusively  competent  to  apply  the  EU  interest  test.  Member  States  may 
provide  input  at  the  Commission’s  request,  or  at  their  own  initiative.  The  Commission  and 
Member  States  retain  discretion,  however,  in  deciding  whether  to  investigate  an  individual 
case of a potentially distortive foreign subsidy. 

This means that a foreign subsidy can be investigated by  

  one single national supervisory authority; or 

  several national supervisory authorities acting in parallel (if a foreign subsidy benefits 

economic activities in more than one Member State); or 

 

the Commission.  

Cooperation and coordination mechanism 

A system of shared enforcement would require effective cooperation mechanisms among the 
multiple enforcers. Cooperation between the Commission and national supervisory authorities 
could work similarly to the existing cooperation in antitrust, as set out in Regulation 1/2003.34 
This  would  be  combined  with  a  coordination  mechanism  between  Member  States  and  the 
Commission  that  allows  for  coherence  and  coordination  in  relation  to  the  existence  of  a 
subsidy where necessary. More specifically with regard to the existence of a subsidy, national 
supervisory authorities would coordinate with the Commission during the preliminary review 
and the ensuing in depth investigation in order to ensure coherence in the implementation of 
the subsidy discipline. 

34 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition 
laid down in Articles 81 and 82 of the Treaty, OJ L 1, 4.1.2003, p. 1. 

21 

 
 
                                                 
It  is  suggested  that  as  long  as  the  Commission  does  not  start  an  in-depth  investigation,  the 
national supervisory authorities remain empowered to continue their cases. However, as soon 
as the Commission would start an in-depth investigation of a foreign subsidy, it would obtain 
the exclusive power  for  it, and national  supervisory  authorities would need to  suspend their 
cases. The national supervisory authorities could only continue their cases if the Commission 
closes its in-depth investigation administratively.  

In  order  to  ensure  efficient  enforcement,  national  supervisory  authorities  could  ask  the 
Commission  to  initiate  a  case;  the  latter  would  retain  the  power  to  accept  or  reject  such  a 
request.  It  may also  be  desirable to  transfer a  case from  one or several  national  supervisory 
authorities  to  the  Commission  or  vice  versa.  In  particular,  where  two  or  more  national 
supervisory authorities pursue a case concerning the same foreign subsidy35, the Commission 
seems  better  placed  to  deal  with  the  case.  Such  transfer  could  happen  as  long  as  a  case  is 
pending, and only if both the requesting and the requested authority agree. 

The Commission and national supervisory authorities would also inform each other at the start 
of a preliminary review, as well as at the start of an in-depth investigation. They could share 
relevant  documents  with  each  other,  including  confidential  information.  During  an  in-depth 
investigation,  the  acting  national  supervisory  authority  has  to  seek  the  opinion  of  the 
Commission  on  whether  the  EU  interest  test  is  met.  The  Member  State  is  bound  to  the 
Commission’s view. Prior to adopting a decision with redressive measures or a decision with 
commitments  following  an  in-depth  investigation,  the  acting  national  supervisory  authority 
consults  the  Commission  and  informs  all  other  national  supervisory  authorities.  In  turn,  the 
Commission involves national supervisory authorities in its decision making by giving them 
the possibility to issue an opinion on a draft decision (following an in-depth investigation). If 
the  Commission  or  the  national  supervisory  authorities  have  no  concerns  as  regards  the 
distortion of competition caused by a foreign subsidy and thus close a case, they inform each 
other.  Such  closure  will  not  affect  the  competence  of  any  of  the  supervisory  authorities  to 
continue or open the same case and come to a different conclusion. In this context, national 
supervisory  authorities  should  ensure  that  their  conclusion  is  reached  in  close  cooperation 
with the Commission. 

4.2 

Foreign subsidies facilitating the acquisition of EU targets (Module 2) 

4.2.1 

Basic features 

Module  2  is  intended  to  specifically  address  distortions  caused  by  foreign  subsidies 
facilitating the acquisition of EU targets (as defined below in section 4.2.2.1). In short, it aims 
to  ensure  that  foreign  subsidies  do  not  give  an  unfair  advantage  to  their  recipients  when 
acquiring (stakes in) other undertakings and it is therefore narrower in scope than Module 1. 

Foreign  subsidies  may  give  rise  to  a  distortion  of  the  internal  market  by  facilitating  the 
acquisition  of  EU  targets.  This  could  happen  either  (1)  directly  by  providing  a  subsidy 
explicitly  linked  to  a  given  acquisition  to  an  undertaking  or  (2)  indirectly  by  de  facto 
increasing the financial strength of the acquirer, which in turn would facilitate an acquisition. 

35 E.g. if subsidy is granted to a parent company outside the EU, which has subsidiaries in Austria and Germany, 
in principle, both subsidiaries could have benefitted. 

22 

 
 
                                                 
Under  this  Module,  the  competent  supervisory  authority  would  ex  ante  review  planned 
acquisitions involving possible foreign subsidies under a compulsory notification mechanism. 
The  review  process  would  happen  in  two  steps:  a  preliminary  review  phase  and,  where 
relevant, an in-depth investigation. 

If  the  competent  supervisory  authority  has,  on  the  basis  of  a  preliminary  review,  sufficient 
evidence  that  the  acquiring  company  benefits  from  foreign  subsidies  facilitating  the 
acquisition,  it  would  be  able  to  launch  an  in-depth  investigation.  If  there  are  no  sufficient 
elements  justifying  the  initiation  of  the  investigation  in  relation  to  the  acquisition,  the 
competent supervisory authority would not act further and close the case administratively. 

If, at the end of the in-depth investigation, the competent supervisory authority finds that an 
acquisition is  facilitated  by foreign subsidies and distorts  the internal  market,  it would have 
the following two possibilities: accept commitments by the notifying party which effectively 
remedy the distortion; or, as a last resort, prohibit the acquisition. 

To ensure effective implementation, the competent supervisory authority would also have the 
right to ex officio review an acquisition which should have been notified by the acquirer but 
was not, including after it is completed. This review could ultimately result in the prohibition 
of the acquisition or, if it is already completed, in its unwinding. 

4.2.2 

Scope of Module 2 

The purpose of Module 2 is to address distortions caused by foreign subsidies facilitating the 
acquisition of EU targets. 

Section 4.2.2.1 defines  the concepts  of ‘acquisition’, ‘EU target’ and ‘potentially  subsidised 
acquisitions’ for the purpose of Module 2. Section 4.2.2.2 describes the two potential triggers 
for the compulsory prior notification. Finally, section 4.2.2.3 presents thresholds intended to 
tailor the scope of Module 2 to the most problematic acquisitions. 

4.2.2.1  Definitions 

Acquisition 

For the purpose of this Module, an 'acquisition' would be defined as the: 

  Acquisition – directly or indirectly – of control of an undertaking,36 or the 

  Acquisition – directly or indirectly – of at least [a specific percentage] % of the shares 

or voting rights or otherwise of “material influence” in an undertaking.37  

36 Guidance on the notion of “control” can be found in the Commission Consolidated Jurisdictional Notice under 
Council  Regulation  (EC)  No  139/2004  on  the  control  of  concentrations  between  undertakings,  OJ  C 95, 
16.4.2008, p. 1. 
37  The  purpose  of  this  second  option  is  to  cover  the  acquisition  of  participations,  which  may  confer  material 
influence  over  a  firm,  without  having  to  conclude  on  the  existence  of  control.  However,  it  would  have  to  be 
ensured to properly define “material influence” to avoid confusion about the need to notify. In that regard, there 
may be a number of “precautionary” notifications by firms wishing to have legal certainty. 

23 

 
 
                                                 
Module  2  therefore  includes  the  acquisition  of  significant  but  possibly  non-controlling 
minority rights or shareholdings. 

EU target 

It is proposed to define as ‘EU target’ any undertaking established in the EU and meeting a 
certain turnover threshold in the EU, but other criteria could also be considered (see  section 
4.2.2.3). 

Potentially subsidised acquisition 

Potentially subsidised acquisitions would be defined as planned acquisitions of an EU target 
where  a  party  has  received  a  financial  contribution  by  any  third  country  government  (as 
detailed in the definition of foreign subsidies in the Annex I). 

It is proposed to limit the relevant period for having received such a financial contribution to 
the last [three] calendar years prior to the notification and financial contributions granted after 
notification and up until one year following the closing of the acquisition in case the financial 
contribution is granted later. An example of the latter situation is a situation where there is a 
political commitment to provide such a financial contribution in the coming months. 

4.2.2.2  Ex ante notification obligation 

The  notification  requirement  would  cover  potentially  subsidised  acquisitions,  i.e.  where  a 
notifying party has received a financial contribution by any third-country authority in the past 
three years or expects such contribution in the coming year (as defined above). 

The  notifications  would  therefore  focus  on  the  potentially  problematic  acquisitions,  namely 
where a financial contribution from a third-country authority facilitates an acquisition. 

At  the  same  time,  limiting  the  scope  of  the  notification  obligation  to  potentially  subsidised 
acquisitions would rely on a degree of self-assessment by undertakings. They would need to 
determine  to  what  extent  they  have  received  financial  contributions  from  third-country 
authorities in order to know if they need to notify an acquisition. This would carry the risk of 
error  or  circumvention  to  the  extent  that  undertakings  may  not  be  aware  of  such  public 
support or willing to disclose it. 

However,  in  contrast  to  the  definition  of  ‘foreign  subsidy’,  the  notion  of  ‘financial 
contribution’ from third-country authorities (provided in Annex I as part of the definition of 
foreign subsidies) should be more objective and less controversial as it leaves the judgement 
of whether the contribution qualifies as subsidy open. The definition is also aligned with other 
commonly used concepts which also refer to financial contributions (for instance under WTO 
rules and EU State aid rules). It seems therefore reasonable to assume that the parties would 
be  aware  if  they  have  received  any  form  of  financial  contribution  from  a  third-country 
authority in the last three years (or would do so in the coming year). 

Moreover, the competent supervisory authority would have strict (and thus deterrent) tools to 
deal  with  cases  where  acquirers  would  fail  to  notify  notifiable  acquisitions.  In  particular, 
acquirers  failing  to  notify  would  risk  significant  fines  and  the  obligation  to  unwind  the 
transaction. 

24 

 
 
4.2.2.3  Thresholds 

The  framework  described  above  may  include  thresholds  to  better  target  the  potentially 
problematic  cases  of  subsidised  acquisitions.  The  actual  value  of  such  thresholds  would 
depend in particular on the options chosen regarding the EU target, the trigger for notification 
and the appropriate competent supervisory authorities (section 4.2.7). 

First, the EU target - any undertaking established in the EU – could be defined by reference to 
various  thresholds  to  ensure  that  all  acquisitions  of  interest  are  caught  (i.e.  a  transaction 
satisfying any of the thresholds would be examined):  

  a  qualitative  threshold  referring  to  all  assets  likely  to  generate  a  significant  EU 
turnover in the future38 and/or a quantitative threshold set with reference to the value 
of the transaction,  

  a quantitative threshold based on turnover, which could be set at for example EUR 100 
million, but other values, thresholds or alternative approaches could also be envisaged. 
In general terms, a lower turnover threshold widens the scope of any new instrument 
and  risks  covering  a  higher  number  of  small,  potentially  less  relevant  acquisitions. 
Conversely, a higher turnover threshold reduces  the administrative burden of  a prior 
notification system but may no longer cover potentially relevant acquisitions.  

Whatever  threshold  is  chosen  will  have  to  meet  the  balance  between  effectiveness  and 
efficiency. 

Second,  the  trigger  of  potentially  subsidised  acquisitions  could  be  limited  to  acquisitions 
facilitated  by  a  certain  volume  of  financial  contribution  from  third-country  authorities.  This 
could for instance be the case where the total amount of financial contribution received by the 
acquiring  undertaking  in  the  three  calendar  years  prior  to  the  notification  is  in  excess  of  a 
certain  amount  or  of  a  given  percentage  of  the  acquisition  price.  Being  a  triggering  event, 
these criteria need to be clearly defined.39 

Finally, the value of each of these thresholds is likely to depend on the supervisory authority 
entrusted with the implementation of Module 2. The thresholds mentioned above could apply 
if  the  Commission  were  exclusively  competent  to  implement  Module  2.  However,  lower 
thresholds may be more appropriate in the case where competence would be shared with or 
exclusive to Member States (see section 4.2.7), as a reflection of the smaller sizes of Member 
State economies compared with the overall EU economy. 

38  This  could  be  set  having  regard  to  the  interest  in  examining  transactions  affecting  companies  with  critical 
assets or with low turnover but high growth or technology development prospects, which may be of particular 
economic or strategic interest. 
39 As above, the purpose of this threshold of financial contribution would be to adapt the scope of the instrument. 
In  particular,  a  lower  financial  contribution  threshold  would  ensure  that  the  scope  of  the  instrument  is 
sufficiently  broad  to  cover  all  possibly  problematic  subsidised  acquisitions.  Conversely,  a  higher  financial 
contribution threshold for Module 2 would ensure that the administrative burden of a prior notification system is 
limited to those few potentially subsidised acquisitions which would be most likely to be problematic. 

25 

 
 
                                                 
In addition to the above quantitative thresholds, certain qualitative criteria might be added to 
allow  better  balance  between  capturing  potential  distortions  and  limiting  the  burden  on  the 
companies and supervisory authorities.  

4.2.3 

Assessment of distortions related to subsidised acquisitions 

Subsidised  acquisitions  may  distort  the  level  playing  field  with  regard  to  investment 
opportunities in  the internal  market.  An example of such a distortion is  the possibility for  a 
subsidised  acquirer  to  outbid  competitors  for  the  acquisition  of  an  undertaking.  Such 
outbidding  distorts  the  allocation  of  capital  and  undermines  the  possible  benefits  of  the 
acquisition for example in terms of efficiency gains. 

The  legal  standard  under  which  the  competent  supervisory  authority  would  assess  the 
acquisition  would  be  the  distortion  of  the  internal  market  through  the  facilitation  of  an 
acquisition  by  foreign  subsidies.  In  other  words,  a  competent  supervisory  authority  would 
need  to  show  that  an  acquisition  would  be  facilitated  by  a  foreign  subsidy  as  well  as  the 
resulting distortion of the internal market. 

Foreign subsidies may facilitate an  acquisition either directly or de  facto.  Subsidies  directly 
facilitating  the  acquisition  are  subsidies  provided  for  the  acquisition  (where  the  link  to  the 
acquisition  can  be  established).  In  view  of  the  serious  harm  they  cause  to  the  level  playing 
field  for  investments,  foreign  subsidies  directly  facilitating  acquisitions  would  normally  be 
considered to distort the internal market. 

A  de  facto  facilitation  would  arise  in  cases  where  foreign  subsidies  reinforce  the  financial 
strength  of  the  acquirer.  In  case  of  de  facto  facilitation,  subsidised  acquisitions  have  to  be 
examined in more detail to assess whether they actually or potentially distort the level playing 
field in the internal market.  

The  general  lack of transparency  about  foreign subsidies and the complexity  of commercial 
reality may make it difficult to unequivocally identify the distortion due to specific subsidised 
acquisitions. To determine such distortion, it appears therefore necessary to use a collection of 
indicators  related  to  the  subsidised  acquisition  and  the  relevant  market  situation.  A  non-
exhaustive list of relevant indicators could include the following criteria: 

  The  relative  size  of  the  subsidy  in  question:  the  higher  the  amount  of  a  subsidy  in 
relative terms, the more likely it is to have a negative impact on the internal market. 

  The situation of the beneficiary: e.g. the larger the EU target or the acquirer, the more 
likely  that  the  subsidised  acquisition  is  distortive.  Similarly,  the  more  production 
capacity  of  the  EU  target  or  the  acquirer  is  unutilised,  the  more  likely  a  subsidised 
acquisition creates distortions. 

  The  situation  on  the  market(s)  concerned:  e.g.  subsidised  acquisitions  where  the  EU 
target  is  active  in  markets  with  structural  excess  capacity  are  more  likely  to  cause 
distortions than others. Similarly, subsidised acquisitions where the EU target is active 
in  markets  with  a  high  degree  of  concentration  are  more  likely  to  cause  distortions 
than others. Likewise, subsidies in fast growing high tech markets may be more likely 
to cause distortions. The existence of competing offers is one aspect of the assessment 

26 

 
 
of  whether  there  is  distortion  in  the  internal  market,  without  in  itself  being 
determinative.  

  The  level  of  activity  in  the  internal  market  of  the  parties  concerned:  subsidised 
acquisitions  where  the  parties,  notably  the  target  company,  have  limited activities  in 
the internal market in comparison with their global activities are less likely to distort 
the internal market. 

Furthermore, consideration will also be given to the possibility that the competent supervisory 
authority could take into account whether the beneficiary has privileged access to its domestic 
market  (through  measures  equivalent  to  special  or  exclusive  rights)  leading  to  an  artificial 
competitive  advantage  that  could  be  leveraged  in  the  EU  internal  market  and  thereby 
exacerbates  the  distortive  effect  of  any  subsidy.  If  the  competent  supervisory  authority 
establishes that an acquisition has directly or de facto been facilitated by foreign subsidies and 
distorted  the  internal  market,  it  may  impose  redressive  measures  as  explained  below  (see 
section 4.2.6). 

4.2.4 

EU interest test 

As under Module 1, the established distortion would be balanced against the positive impact 
that the investment might have within the EU or on public policy interests recognised by the 
EU (see section 4.1.4). 

4.2.5 

Procedure 

Module 2 establishes a two-step notification system. 

In a first step, acquirers would be obliged to file a short information notice with the competent 
supervisory  authority.  This  notice  would  contain  the  basic  information  needed  for  the 
competent supervisory authority to identify possibly problematic operations involving foreign 
subsidies. This could for instance include, for each of the acquiring and target undertakings, 
some or all of the below elements: 

legal information, including ownership and governance; 
information on financing; 
turnover information for the last three years (in the EU and worldwide); 

 
 
 
  description of the business (in the EU and worldwide); 
 
  main sources of overall financing of the acquirer; 
 

financing of the transaction; 

financial contributions from third-country authorities received for the purpose of the 
transaction; 

  any financial contribution from third-country authorities received in the past three 

 

years; 
information on alternative prospective acquirers of the target in the last three years, 
including any bid that has been received as part of the sale process of the target. 

A brief summary of the proposed acquisition could be published for stakeholders to comment 
upon within a set timeline. 

27 

 
 
In  the  context  of  a  prior  notification  system,  there  would  be  a  so-called  standstill  period: 
acquirers would not be able to close the transaction for [x] working days after receipt of the 
complete notification by the competent supervisory authority. To preserve the integrity of the 
investigation and prior notification system, the standstill period could be extended as needed 
to the extent the parties would not provide accurate information in a timely manner. 

During  that  time,  the  competent  supervisory  authority  would  review  the  information  and 
could decide, in a second step, to open an in-depth investigation, if it had sufficient evidence 
tending  to  show  that  the  acquiring  company  could  have  benefitted  from  foreign  subsidies 
facilitating the acquisition. 

If  the  competent  supervisory  authority  does  not  open  an  in-depth  investigation,  the  parties 
would be allowed to close the transaction at the end of the initial post-notification standstill 
period,  without  prejudice  to  other  legal  obligations  (such  as  EU  merger  control  or  FDI 
screening,  if  applicable).  Moreover,  at  the  duly  justified  request  of  the  acquirer,  the  initial 
standstill  period  could  be  waived  –  or  the  acquirer  allowed  to  close  the  transaction  without 
having to wait for the end of the period – by the competent supervisory authority. 

If  the  competent  supervisory  authority  opens  an  in-depth  investigation,  the  standstill  period 
would be prolonged: the parties would not be able to close the transaction until [x] working 
days after receipt of complete information by the competent supervisory authority. As in the 
preliminary phase, the standstill period could be extended as needed to preserve the integrity 
of the investigation and prior notification system. 

Following the in-depth investigation, three outcomes would be possible: 

  Firstly, the competent supervisory authority could conclude that there is no distortion 

(through facilitation of an acquisition) and decide not to object to an acquisition. 

  Secondly,  the  competent  supervisory  authority  could  adopt  a  conditional  clearance 
decision  making  the  commitments  offered  by  the  acquirer  legally  binding.  Such 
remedies  would need to  effectively  remedy the distortion arising from  the facilitated 
acquisition. 

  Thirdly,  the  competent  supervisory  authority  could  adopt  a  decision  prohibiting  the 
proposed transaction, if it finds that foreign subsidies facilitate the acquisition and give 
rise to a distortion of the internal market that cannot be remedied with commitments. 

In order to ensure the effectiveness of the compulsory prior notification system and to avoid 
circumvention,  the  competent  supervisory  authority  could,  if  the  acquirer  does  not  notify  a 
notifiable acquisition, open an ex officio investigation of an acquisition falling in the scope of 
Module 2. 

The competent supervisory authority could also start an administrative procedure for violation 
of procedural rules, for instance if there are indications that the parties’ submissions included 
misleading or incomplete information, if there are indications that binding commitments were 
not correctly implemented or in case a transaction was not notified, but should have been. The 
sanctions for a procedural infringement should have a deterrent effect.40  

40  These  fines  are  penalties  for  procedural  infringements  and  their  amount  may  thus  exceed  the  determined 
amount of subsidisation. 

28 

 
 
                                                 
The  procedure  would  therefore  establish  the  necessary  mechanisms  to  gather  the  relevant 
information, in the form of strict sanctions for supplying incomplete or incorrect information, 
and  the  standstill  obligation  preventing  the  acquisition  from  being  implemented  before  the 
Commission makes a decision. 

4.2.6 

Redressive measures 

The acquirer may offer adequate commitments to remedy the distortions caused by the foreign 
subsidies, which the competent supervisory authority would make binding on the acquirer in 
its decision if it considers them effective. 

In this respect,  section 4.1.6 on the redressive measures under Module 1  would in  principle 
apply mutatis mutandis. There may however be some differences between the two modules in 
this respect. Redressive payments and transparency obligations may in practice be less likely 
to  be  effective  redressive  measures  under  Module  2.  For  that  reason,  the  focus  of 
commitments is likely to be on structural remedies. 

4.2.7 

Supervisory authorities 

The  present  section  considers  the  institutional  framework  to  address  the  impact  of  foreign 
subsidies in the internal market. It is discussed to what extent the competences may be placed 
at EU level or at Member State level or shared between the two levels. 

An  ex  ante  enforcement  system  for  acquisitions  based  on  notifications,  is  more  complex  to 
share across multiple enforcers than systems such as the one set up under Module 1, notably 
due  to  significant  time  constraints.  It  would  require  to  set  up  multiple  administrative 
mechanisms to deal with notifications in short deadlines, to define appropriate thresholds for 
each enforcer and to establish complex referral systems to operate when the thresholds do not 
lead  to  appropriate  case  allocation.  Consistency  among  enforcers  may  also  become  more 
difficult to achieve.  

In  view  of  the  above,  it  is  suggested  that  the  Commission  could  be  made  exclusively 
responsible for enforcing Module 2 with prior notification of acquisitions. Such a centralised 
system at EU level would lead to lower overall enforcement costs, both for public authorities 
and  companies,  and  increased  legal  certainty.  Notably,  such  a  system  would  ensure  a  one-
stop-shop control across the EU for acquisitions above certain thresholds and avoid that for a 
single  subsidised  acquisition  companies  may  have  to  deal  with  several  Member  State 
authorities at the same time. It would also avoid that Member States would need to reproduce 
27  similar  centralised  ex  ante  administrative  settings,  in  particular  when  there  is  not  yet 
sufficient  experience  to  determine  how  many  acquisitions  would  prove  to  be  negatively 
affected  by  foreign  subsidies.  Member  States  would  be  involved  through  an  information 
mechanism at the start and during the Commission procedure and would be consulted on final 
decisions, following in-depth investigations. 

If  Module  2  is  combined  with  Module  1  Member  States  could  in  any  case  examine 
acquisitions  ex officio,  even below the thresholds set  up in Module 2, ensuring an effective 
system  of  foreign  subsidy  control  with  overall  limited  administrative  public  enforcement 
costs. 

29 

 
 
4.3 

Foreign subsidies in public procurement (Module 3) 

4.3.1 

Introduction 

The establishment of a single market for public procurement is one of the key achievements 
of  the  internal  market.  EU-wide  publication  of  tenders  ensures  transparency  and  creates 
market opportunities for EU and non-EU companies alike. The EU public procurement rules 
safeguard  fair  conditions  for  all  economic  operators  competing  for  projects  in  the  EU 
procurement market, and ensure a level playing field for the access to public contracts.  

In  the  public  procurement  procedure,  award  criteria,  for  example  social  or  environmental 
criteria,  technical  specifications  and/or  contract  performance  conditions  can  contribute  to 
ensuring a level playing field.  

The public procurement framework relies on other EU instruments to counter any distortion 
of  competition  and  maintain  the  level  playing  field  in  practice.  So,  for  example,  State  aid 
control  ensures  that  bidders  do  not  benefit  from  State  aid  that  is  incompatible  with  the  EU 
internal market and that might distort competition in a specific procurement procedure.  

This  module,  to  be  implemented  by  an  appropriate  legal  instrument  (see  section  4.3.3.3), 
ensures that foreign subsidies can be addressed in individual public procurement procedures. 
EU  public  buyers  would  be  required  to  exclude  from  public  procurement  procedures  those 
economic  operators  that  have  received  distortive  foreign  subsidies.  This  new  ground  for 
exclusion could apply both to the procedure in question but may also lead to exclusion from 
subsequent  procurement  procedures,  provided  that  certain  conditions  are  met.  The  scope  of 
this  ground  for  exclusion  will  be  defined  in  the  light  of  the  EU’s  international  obligations 
under the WTO Government Procurement Agreement (GPA) and various bilateral agreements 
providing for access to the EU procurement market.  

4.3.2  Distortions by foreign subsidies in the context of public procurement procedures 

A review specifically dedicated to distortions in public procurement would aim at preserving 
the  level  playing  field  in  that  specific  area.  Therefore,  while  the  existence  of  the  foreign 
subsidy (the existence of the financial contribution and benefit) would be determined pursuant 
to the same principles as those described in Annex I to this paper, the absence or presence of 
the  effect  of  the  foreign  subsidy  would  be  assessed  in  relation  to  a  specific  procurement 
procedure. It is necessary to determine whether the foreign subsidy facilitates the participation 
in the public procurement procedure, i.e. whether it enables the economic operator benefitting 
from  the  subsidy  to  participate  in  the  procedure,  to  the  detriment  of  unsubsidised 
undertakings.  Thus,  foreign  subsidies  in  procurement  may  give  rise  to  a  distortion  of  the 
procurement procedure either directly, by explicitly making a link between the subsidy and a 
given  procurement  project  or  indirectly,  by  de  facto  increasing  the  financial  strength  of  the 
recipient. Where this enables the recipient to submit an offer that would otherwise – without 
the  subsidy  –  be  economically  less  sustainable,  especially  in  case  of  bidding  significantly 
below market price or below cost, a distortion may be presumed. In other cases, the distortion 
may be examined according to the principles and criteria outlined in section 4.1.3 to the extent 

30 

 
 
they  are  relevant  and  capable  of  demonstrating  that  the  foreign  subsidy  facilitates  the 
participation in the public procurement procedure.41  

4.3.3 

Procedure 

4.3.3.1  Initiation of the procedure 

Economic operators participating in public procurement procedures, would have to notify to 
the  contracting  authority  when  submitting  their  bid  whether  they,  including  any  of  their 
consortium  members,  or  subcontractors  and  suppliers  have  received  a  financial  contribution 
within the meaning of Annex  I within the last three  years preceding  the  participation in  the 
procedure  and  whether  such  a  financial  contribution  is  expected  to  be  received  during  the 
execution of the contract. 

In  order  to  address  only  those  foreign  subsidies  in  public  procurement  that  might  cause 
distortions  of  the  procurement  procedure,  and  to  limit  the  administrative  burden  for  public 
buyers  and  the  competent  supervisory  authorities,  thresholds  and  additional  conditions  for 
notifications could be introduced, e.g.:   

  The relevant subsidy period could be limited, e.g. to a period of [three] calendar years 
prior  to  the  date  of  the  notification  and  including  the  year  following  the  expected 
completion of the contract.  

  Notification  could  be  required  only  above  a  certain  foreign  financial  contribution 

value.  

  A threshold could be defined that is higher than the thresholds for the application of 

the Public Procurement Directives. 

The purpose of introducing those conditions and thresholds would be to focus the instrument 
on the most relevant cases. In general terms, a lower notification threshold and the absence of 
the  conditions  listed  above  would  widen  the  scope  of  the  instrument  and  risk  covering  a 
higher  number  of  potentially  less  relevant  participations  in  public  procurement  procedures. 
Conversely, a higher notification threshold including the conditions listed above reduces the 
administrative  burden  of  a  prior  notification  system  but  may  no  longer  cover  all  potentially 
relevant procedures. For subsidised bidding in public procurement procedures falling outside 
the scope of Module 3, the possibility remains to address this conduct under Module 1 to the 
extent that it causes distortions in the internal market. 

In  general,  the  notification  should  contain  the  necessary  information  to  assess  whether  the 
economic operator benefits from foreign subsidies in the procurement procedure. A complete 
notification will have to contain at least the following elements: 

 

legal  information,  including  ownership  and  governance  of  the  tenderer,  any 
consortium  member  and  those  subcontractors  and  suppliers  having  received  foreign 
financial contributions; 

  main sources of overall financing of the tender; 
 

total amount of foreign financial contributions received in the past 3 years; 

41  In  order  to  ensure  a  uniform  practice  of  assessment  of  distortion  by  the  contracting  authorities,  a  uniform 
methodology/guidance to the contracting authorities is envisaged.  

31 

 
 
                                                 
 

 

foreign financial contributions received specifically for the purpose of participation in 
the public procurement procedure; 
foreign financial contributions that will be received during the expected execution of 
the contract. 

Having  examined  the  completeness  of  the  notification,  the  contracting  authority  would 
transmit the notification to the competent supervisory authority (see below section 4.3.3.2), to 
investigate  the  information  and  assess  the  existence  of  a  foreign  subsidy.  For  transparency 
reasons the notifications would be published.  

Strict and deterrent tools should be put in place to deal with cases where economic operators 
fail to comply with the notification obligation or where they submit incorrect information. In 
particular,  failure  to  comply  with  the  notification  obligation  could  be  sanctioned  by  the 
contracting authority with significant fines and in extremis an exclusion from the procurement 
procedure or a termination of an ongoing contract.  

A  prior  notification  obligation  in  case  of  subsidised  participations  in  public  procurement 
procedures would require a degree of self-assessment by economic operators. They will need 
to determine to what extent they are beneficiaries of foreign financial contributions in order to 
ascertain whether there is a requirement to notify the submission of the bid, which involves a 
financial  contribution.  Such  a  self-assessment  carries  a  significant  risk  of  error  and  of 
deliberate circumvention by economic operators, as they may not be aware of the existence of 
a financial contribution or unwilling to disclose their existence to the contracting authorities. 

Third parties and competitors are therefore entitled to inform the contracting authority that a 
notification  should  have  been  made  in  the  procedure.  These  submissions  have  to  be 
substantiated and provide prima facie evidence for the necessity of notification. 

4.3.3.2  Investigation by the competent supervisory authority and interplay with the ongoing 

procurement procedure 

It is suggested similar to Module 1 that both the Commission and the national authorities are 
granted  powers  and  that  the  system  also  provides  for  coordination  in  order  to  ensure 
coherence. Cooperation  between the Commission  and national  supervisory  authorities could 
work similarly to the existing cooperation in antitrust pursuant to Regulation 1/2003.42 

Upon receipt of a complete notification, the contracting authority transmits the notification to 
the competent supervisory authority at Member State level to investigate the information and 
assess the existence of a foreign subsidy. It may also alert the national supervisory authority 
in situations where it has sufficiently plausible indications that a tenderer received a foreign 
subsidy which it did not notify.  

The investigation will be in 2 steps with a preliminary review and an in-depth investigation. 
In a preliminary review, the national supervisory authority will seek to obtain the necessary 
information  about  the  existence  of  a  foreign  subsidy  and  the  conditions  upon  which  it  has 
been granted. If, in the context of the preliminary review, the national supervisory authority 

42 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition 
laid down in Articles 81 and 82 of the Treaty, OJ L 1, 4.1.2003, p. 1. 

32 

 
 
                                                 
concludes  that  no  foreign  subsidy  exists,  it  informs  the  contracting  authority  of  this 
conclusion  and  that  it  does  not  intend  to  start  an  in-depth  investigation.  If,  however,  the 
national  supervisory  authority  concludes  in  the  preliminary  review  phase  that  a  foreign 
subsidy  may  exist,  it  opens  an  in-depth  investigation  to  confirm  the  existence  of  a  foreign 
subsidy.  In  both  cases,  the  national  supervisory  authority  informs  the  Commission,  the 
contracting authority as well as all the competent supervisory authorities of the other Member 
States thereof through a summary notice. 

At the end of the in-depth procedure, the national supervisory authority can either arrive to the 
conclusion that there is no foreign subsidy in the procurement procedure or it can decide that 
a  foreign  subsidy  exists  (see  section  4.3.3.3).  However,  in  both  cases  and  prior  to 
communicating this conclusion to the contracting authority, the national supervisory authority 
informs  the  Commission  on  a  draft  decision,  thus  ensuring  that  the  national  authority’s 
decision is reached in close cooperation with the Commission. 

The review has to ensure that public procurement procedures are delayed as little as possible. 
Therefore, strict time limits would be introduced, such as a maximum of [15] working days 
for the preliminary review by the national supervisory authority and [no more than 3 months] 
for  an  in-depth  review.  If  the  Commission,  when  informed  on  the  final  decision,  disagrees 
with the assessment of the national supervisory authority, the deadline for the in-depth review 
is extended. 

During the investigation, the contracting authority is barred from awarding the contract to the 
investigated economic operator43. Otherwise the procurement procedure is pursued. This has 
the following consequences:  

  Upon  notification  and  its  transmission  to  the  competent  supervisory  authority  the 

 

contracting authority should pursue the evaluation of the offers.  
It can establish the economic operator to whom the contract would be awarded on the 
basis of the evaluation not taking into account a possible distorting foreign subsidy. 
  Should  this  economic  operator  not  be  an  economic  operator  under  investigation,  the 
contracting authority can award the contract and conclude the procurement procedure. 
In this case it informs the competent supervisory authority. 

  Should the economic operator to whom the contract is to be awarded be an economic 
operator  under  investigation,  the  procurement  procedure  will  have  to  be  suspended 
until  the  competent  supervisory  authority  has  conducted  its  review  of  the  foreign 
subsidy and transmitted its opinion to the contracting authority.  

4.3.3.3  Redressive measures  

If the supervisory authority in its review confirms that the economic operator has received a 
foreign subsidy, the contracting authority would determine whether that subsidy has distorted 

43  It  could  be  envisaged  to  lift  the  suspension  under  specific,  clearly  defined  circumstances,  allowing  the 
contracting authority to continue the procurement procedure despite the ongoing review. Special circumstances 
could  be  linked,  in  particular,  to  situations  of  urgency  or  to  financial  risks  linked  to  necessary  funding  for  a 
project. In such cases, the interests of the investigation will have to be weighed against the risks associated with 
potential consequences, financial or otherwise, caused by the delays in the procedure. Guidelines could be issued 
detailing clear rules for lifting the suspension. 

33 

 
 
                                                 
the  public  procurement  procedure.  If  so,  it  will  exclude  this  economic  operator  from  the 
ongoing procurement procedure. 

It  may  also  be  envisaged  to  introduce  an  exclusion  of  such  economic  operator  from  future 
procurement  procedures  for  a  maximum  of  [3]  years.  During  that  period,  the  economic 
operator  will  have  the  opportunity  demonstrate  that  it  no  longer  benefits  from  a  distortive 
foreign subsidy when participating in a public procurement procedure and in this case it can 
participate in future procurement procedures. 

More specifically: 

 

If the supervisory authority reaches the conclusion that there is no foreign subsidy in 
the  procurement  procedure,  it  will  communicate  this  conclusion  to  the  contracting 
authority  by  decision.  In  this  case,  the  economic  operator  concerned  will  not  be 
excluded from the public procurement procedure by the contracting authority (unless 
the  contracting  authority  finds  another  ground  for  exclusion,  different  from  the 
existence  of  a  distortive  foreign  subsidy,  under  the  EU  public  procurement 
legislation).  

  On the other hand, if the supervisory  authority reaches the conclusion that  there is  a 
foreign  subsidy,  it  will  communicate  this  conclusion  to  the  contracting  authority, 
which then determines, on the basis of a uniform methodology,44 whether that subsidy 
has  distorted  the  public  procurement  procedure  and,  if  so,  imposes  redressive 
measures  on  the  subsidised  operator.  The  redressive  measures  for  procurement 
procedures consist of the exclusion of the subsidised bidder from the ongoing public 
procurement  procedure  and  potentially  also  the  exclusion  of  the  subsidised  bidder 
from future public procurement procedures before that authority for a certain time.  

The  introduction  of  this  exclusion  ground  aims  at  ensuring  a  level  playing  field  between 
tenderers  profiting  from  State  aid  and  those  profiting  from  foreign  subsidies.  The  current 
public procurement framework does not contain a specific exclusion ground for the recipients 
of State aid incompatible with EU rules.45 In order to ensure a non-discriminatory and equal 
treatment the effects of this exclusion ground for undertakings subject to State aid procedures 
will have to be considered. 

The decision would be subject to remedies. 

4.3.4 

Foreign subsidies in procurement pursuant to intergovernmental agreements 

Certain  procurements,  especially  for  large  infrastructure  projects,  might  be  organised  under 
intergovernmental  agreements  with  countries  that  are  not  subject  to  the  EU  procurement 
regime. Tender procedures under such agreements are exempted from EU public procurement 

44  Such  a  methodology  could  be  set  out  in  guidance  designed  to  ensure  a  uniform  practice  of  assessment  of 
distortion throughout the EU. 
45 As noted in section 3.3, the current EU rules are limited to the possibility of rejection of an abnormally low 
tender in situations where the low price is due to State aid. 

34 

 
 
 
                                                 
legislation  under  the  conditions  laid  down  in  Article  9  of  Directive  2014/24/EU.46  The 
intergovernmental agreement must be intended for the joint implementation or exploitation of 
a  project  by  their  signatories,  and  the  procurement  regime  of  the  agreement  has  to  be 
compatible with the EU Treaty. As for procurements covered by the procurement directives, 
there is no specific scrutiny of foreign subsidies and their distortive effect on the procurement 
under  such  agreements.  To  ensure  a  level  playing  field  also  for  procurements  under  such 
agreements it is advisable to apply the suggested approach also to procurements under those 
agreements.  Due  to  the  specific  nature  of  such  agreements,  the  competent  supervisory 
authority in these cases should be the Commission.  

5 

 FOREIGN SUBSIDIES IN THE CONTEXT OF EU FUNDING 

5.1 

Problem definition 

Economic operators should compete for EU financial support on an equal footing across the 
different  Union  instruments  (concerning  internal  and  external  policies)  and  implementation 
modes. EU funding should  not  contribute to  favour companies that  have received distorting 
foreign subsidies vis-à-vis other companies. 

Under shared management, some Member States and tenderers have brought to the attention 
of  the  Commission  particularly  low-price  offers  submitted  by  non-EU  companies  in 
procurement procedures. The issues raised in the context of public procurement procedures as 
outlined in sections 3.3 and 4.3 are also relevant in shared management. 

The  appropriate  means  to  address  the  possible  distortion  of  the  level  playing  field  for  EU 
funding  through  foreign  subsidies  in  award  processes  needs  to  be  carefully  assessed 
depending on the specific nature of the instrument  and of the underlying costs compared to 
the expected impact of the measures.  

In the field of procurement, the contracting authority seeks offers for goods and services from 
economic operators on the market. Foreign subsidies favouring certain bidders may distort the 
procurement process. Beyond the actual award, if affected by foreign subsidies, any funding 
disbursed  through  procurement  might  distort  competition  and  undermine  the  level  playing 
field in the internal market. 

Economic operators established in the EU that are owned or ultimately controlled by a  non-
EU  company  or  a  foreign  government  are  entitled  to  participate  in  EU  funding  procedures 
(unless they are in an exclusion situation). Undertakings established outside the EU also have 
the  right  to  participate  in  the  procurement  procedures  launched  by  the  EU  Institutions  if  an 
agreement with that third country in the field of public procurement grants them the right to 
do so.  

In  both  scenarios,  due  to  foreign  subsidies,  those  economic  operators  may  either  submit  an 
abnormally  low  bid  or  have  the  possibility  anyway  to  underbid  other  bidders,  thereby 

46 And Article 20 of Directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014 
on  procurement  by  entities  operating  in  the  water,  energy,  transport  and  postal  services  sectors  and  repealing 
Directive 2004/17/EC, OJ L 94, 28.3.2014, p. 243. 

35 

 
 
                                                 
obstructing  opportunities  for  competitors.  The  risk  that  foreign  subsidies  may  distort 
procurement processes, therefore, is present irrespective of the place of establishment of the 
economic operator.  

In contrast to procurement, in grant award procedures the Union contributes to a project or a 
programme  that  implements  the  Union  policy  objectives.  These  activities  generally  concern 
support  to  NGOs,  public  or  quasi-public  authorities,  basic  research  and  development 
activities,  etc.  via  a  contribution  designed  to  partially  reimburse  costs  incurred  by  entities 
active  in  non-market  or  pre-market  activities.  For  EU  funds  implemented  under  indirect 
management  the  EU  entrusts  the  budget  implementation  to  a  variety  of  partners,  amongst 
which  are  third  country  public  law  bodies  and  international  organizations  including 
international  finance  institutions.  While  the  objective  should  be  that  all  means  of 
disbursement of Union funds should be subject to equivalent measures to avoid the distortive 
effects  of  foreign  subsidies,  some  entrusted  entities  are  subject  to  certain  governance 
constraints and may therefore be unable to fully implement EU-specific policies.  

Therefore,  at  this  stage  the  outline  of  possible  measures  is  most  developed  as  regards 
procurement,  where  the  issue  of  effects  on  fair  competition  is  most  acute  and  where 
considerable  common  ground  exists  with  general  procurement  considerations  (Module  3 
above). 

Stakeholders  are  also  invited  to  comment  on  how  the  considerations  relating  to  foreign 
subsidies as provided for in this White Paper could potentially be addressed as regards grants 
(in any management mode) or indirect management.   

5.2 

Framework and measures to fill the gap 

5.2.1  Direct management 

5.2.1.1  Procurement 

The  rules  on  access  to  procurement  set  out  in  the  Financial  Regulation  apply  to  all  the  EU 
Institutions implementing the EU budget.47  

Where the multilateral Agreement on Government Procurement (‘GPA’) concluded within the 
World  Trade  Organization  applies,  a  procurement  procedure  will  be  open  to  the  economic 
operators established in the countries that have ratified said agreement, under the conditions 
laid  out  therein.  The  GPA  grants  access  to  certain  procurement  procedures  launched  by  the 
Commission, the European External Action Service and the Council on their own account.  

Entities  established  in  certain  third  countries  may  be  granted  access  to  EU  funding  through 
special  or  bilateral  agreements.48  Economic  operators  established  in  the  countries  under  the 
European Economic Agreement (EEA) benefit from full access to EU procurement.  

47  These  rules  are  also  reflected  in  the  model  tender  specifications  published  on  budgweb  to  be  used  by  all 
Commission services. 
48 Pursuant to Article 176(1) of the Financial Regulation, ‘participation in procurement procedures shall be open 
on  equal  terms  to  all  natural  and  legal  persons  within  the  scope  of  the  Treaties  and  to  all  natural  and  legal 
persons  established  in  a  third  country  which  has  a  special  agreement  with  the  Union  in  the  field  of  public 

36 

 
 
                                                 
 
The  EU  budget  should  be  spent  in  accordance  with  the  principle  of  sound  financial 
management:  each economic operator should have the possibility to  make the best  offer for 
the EU budget and compete for EU funding on an equal footing.  

For EU procurement in direct management, the Financial Regulation provides that the same 
standards as those imposed on contracting authorities covered by the Procurement Directives 
apply.  A  legal  instrument  adopted  to  specifically  address  the  issue  of  distortive  foreign 
subsidies would also be mirrored for procurements by EU institutions or be replicated in the 
Financial  Regulation.  Some  deviations  to  the  above  (e.g.  regarding  rules  on  nationality  and 
origin) apply to procurement in EU external action. 

The issue of foreign subsidies should be addressed by adapting the exclusion grounds within 
the revised legal  framework applicable to  the EU  Institutions.  As a consequence, a tenderer 
having  received  distortive  foreign  subsidies  should  be  excluded  from  ongoing  and  future 
procurement procedures for a certain period of time. A system of prior notification obligation 
should  be  implemented  for  specific  type  of  contracts  (e.g.  above  certain  thresholds  or  in 
specific sectors – see below). When submitting their bid,  all tenderers would  have to  notify 
along  with  their  offer,  whether  they,  including  any  consortia  members,  subcontractors  or 
suppliers, have received a financial contribution within the meaning of Annex I within the last 
three  years  preceding  the  participation  in  the  procedure  and  whether  such  a  financial 
contribution is expected to be received during the execution of the contract. As a general rule, 
the  procedural  steps  should  be  appropriately  adapted  to  those  foreseen  for  procurement  by 
national contracting authorities in section 4.3 above.  

Where  a  foreign  subsidy  is  found  to  exists,  it  will  then  be  assessed  whether  the  foreign 
subsidy distorts the procurement procedure, in which case the tenderer is excluded from the 
procedure. 

in 

Furthermore, 
the  case  of  substantial  expenditure,  high-tech,  capital-intensive  or 
fast-growing markets, contracting authorities may conduct preliminary market consultations. 
The tool is already provided for by the Financial Regulation49 and should be used to collect 
information  about  the markets  and its key players. That  would in turn allow the contracting 
authority to  tailor the procedure and prevent  potential distortions that foreign subsidies may 
bring about. 

5.2.1.2  Grants 

Grants are direct financial contributions from the EU budget awarded to a third party engaged 
in activities that serve Union policies. 

Depending on the nature of the programme, rules for grants usually contain conditions for the 
participation of third country entities. For example, eligibility for funding is regularly subject 
to  establishment  in  an  EEA/EFTA  country  or  in  a  country  that  has  concluded  a  specific 
agreement with the EU. 

procurement  under  the  conditions  laid  down  in  such  an  agreement.  It  shall  also  be  open  to  international 
organisations’. 
49 See Article 166(1) of the Financial Regulation. 

37 

 
 
                                                                                                                                                         
Thus, applicants established in the EU and in third countries, where applicable, compete for 
grants.  

Issues  stemming  from  foreign  subsidies  may  be  tackled  through  the  exclusion  criteria  in  a 
manner  consistent  with  what  is  provided  for  procurement  under  section  5.2.1.1.  When 
submitting their proposal, applicants should notify the granting authority if they have received 
a  foreign  subsidy.  Thresholds  similar  to  those  under  consideration  in  section  4.3.3.1  could 
apply50.  

The  authorising  officer  in  charge  of  the  procedure  should  transmit  the  notification  to  the 
supervisory authority to assess the existence of a foreign subsidy. Procedural time-limits will 
be  necessary  to  ensure  the  efficiency  of  the  process.  In  case  the  supervisory  authority  has 
issued  a  decision  on  the  existence  of  a  distorting  foreign  subsidy,  the  question  whether  the 
foreign subsidy distorts or is likely to distort the grant procedure would need to be addressed.  

By way of example, at the moment of their application for a EU grant, applicants submitting 
budgets with costs should declare whether they have received a financial contribution within 
the  meaning  of  Annex  I  in  the  previous  three  years  preceding  the  participation  in  the 
procedure  and  whether  such  a  financial  contribution  is  expected  to  be  received  during  the 
execution of the contract. Where a foreign subsidy is found to exist, it will then be assessed 
whether  the  foreign  subsidy  distorts  the  award  procedure,  in  which  case  the  applicant  is 
excluded from the procedure.   

Adaptations  to  the  system  outlined  above  could  be  considered  for  scenarios  affecting  grant 
awards, such as to research consortia with a majority of EU participants. 

5.2.2 

Shared management 

5.2.2.1  Procurement 

Under  shared  management,  the  responsibility  for  the  implementation  of  the  EU  budget  is 
shared between the Commission and the Member States.  

The  biggest  funds  are  currently  the  funds  for  the  common  agriculture  policy  (European 
Agricultural Guarantee Fund and European Agricultural Fund for Rural Development51) and 
the European Structural and Investment Funds (‘ESI Funds’). 

The ESI Funds are the key investment tool of the EU, with some EUR 350 billion available 
for the period 2014-2020 under Cohesion Policy (from the European Regional Development 
Fund  ‘ERDF’,  the  Cohesion  Fund  and  the  European  Social  Fund)  to  support  economic 
catching up and competitiveness in a social, inclusive and environmentally-friendly way.  

The  use  of  the  ESI  Funds  in  the  current  programming  period  is  governed  by  the  Common 
Provisions  Regulation52  (‘CPR’)  and  related  Fund-specific  regulations.  Similar  programmes 

50  The  below  conditions  are  applied  mutatis  mutandis  from  the  procurement  section  in  the  White  Paper. 
However, grants are subject to the co-financing principle, which require financial contributions from third parties 
in a number of cases. In such cases, subsidies need to be assessed taking into account this specific requirement in 
the award procedure. 
51 EAFRD is a part of ESI Funds. 

38 

 
 
                                                 
are foreseen for the next Multi-annual Financial Framework period 2021-27; in addition, the 
European  recovery  from  the  economic  crisis  provoked  by  the  COVID-19  pandemic  will  be 
supported  by  new  programmes  funded  from  Next  Generation  EU  and  subject  to  shared 
management (the Recovery and Resilience Facility, and REACT EU).53 

Under shared management, the participation of companies profiting from foreign subsidies to 
projects co-financed e.g. by the ERDF or the Cohesion Fund, mostly comes up in the context 
of public procurement procedures, where a public authority which is the beneficiary of the EU 
funding  launches  a  tender  e.g.  for  a  major  infrastructure  investment.  Such  procedures  are 
subject to Member States public procurement rules implementing the Directive 2014/24/EU. 
Around  half  of  the  cohesion  policy  Funds,  representing  more  than  EUR  200  billion  (with 
national co-financing) in the current financing period, are deployed by national and regional 
authorities via public procurement procedures. 

The issues raised in the context of such public procurement procedures conducted by national 
authorities are those outlined in sections 3.3 and 4.3 and the measures put in place to address 
foreign  subsidies  under  the  generally  applicable  public  procurement  rules  should  equally 
apply to prevent that EU funding deployed through procurement contributes to distortions in 
the internal market. 

5.2.2.2  Grants 

The  same  principles  as  in  section  5.2.1.2  would  apply  mutatis  mutandis  to  grants  awarded 
under shared management. 

5.2.3 

Indirect management 

For  EU  funds  implemented  under  indirect  management  the  EU  entrusts  the  budget 
implementation  to  various  Implementing  Partners,  amongst  which  are  third  country  public 
law  bodies  and  international  organizations  including  international  finance  institutions, 
provided  that  they  ensure  a  verified  equivalent  level  of  protection  of  the  EU  budget.  An 
increasing amount of EU funding is distributed via budgetary guarantees to mobilise private 
investment  (e.g.  EFSI,  InvestEU,  EFSD).  The  recovery  package  further  enhances  these 
instruments and, under InvestEU, proposes to invest in key value chains crucial for Europe’s 
future  resilience  and  strategic  autonomy.  Relevant  governance  bodies  and  secondary 
legislation will set any necessary requirements relating to the control of intermediaries (funds, 
special purpose vehicles and others), in full respect of the legal framework. Such requirements 
could potentially include the issues related to the receipt of foreign subsidies. 

There is strong interest to ensure that when it comes to external funding (outside of the EU) 
the  rules  of  international  financial  institutions  that  implement  projects  supported  by  the  EU 

52 Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying 
down  common  provisions  on  the  European  Regional  Development  Fund,  the  European  Social  Fund,  the 
Cohesion  Fund,  the  European  Agricultural  Fund  for  Rural  Development  and  the  European  Maritime  and 
Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European 
Social  Fund,  the  Cohesion  Fund  and  the  European  Maritime  and  Fisheries  Fund  and  repealing  Council 
Regulation (EC) No 1083/2006, OJ L 347, 20.12.2013, p. 320. 
53  Cf.  Commission  Communication  ‘Europe's  moment:  Repair  and  Prepare  for  the  Next  Generation’, 
https://ec.europa.eu/commission/presscorner/detail/en/ip_20_940. 

39 

 
 
                                                                                                                                                         
budget,  like  EIB  or  EBRD,  mirror  the  approach  to  foreign  subsidies  outlined  in  this  White 
Paper. 

In cases where implementing partners benefit from EU financial support, they could be called 
to  enhance  their  procurement  policies  in  order  to  deal  with  abnormally  low  bids,  that  may 
result from foreign subsidies and to regularly report to the European Commission on how they 
address  in practice such  cases.  In parallel  to the  public consultation  triggered  by  this  White 
Paper,  the  Commission  will  enter  into  dialogue  with  such  partners  to  this  effect.  The 
implementation  of  EU  policy  objectives  by  some  entrusted  entities  may  require  specific 
arrangements given their governance constraints. 

6 

INTERPLAY WITH OTHER EU AND INTERNATIONAL INSTRUMENTS  

As described in the gap analysis, existing EU and international instruments, on the one hand, 
and  the  new  measures  on  foreign  subsidies,  on  the  other,  may  overlap.  It  is  therefore 
important to determine the relation and interaction between the different instruments.  

The legal basis of any proposal for legal instruments on foreign subsidies will depend on their 
purpose and specific content. Any new instrument would in any event be subject to the  full 
respect of the Treaties (in particular compliance with fundamental Treaty freedoms, such as 
the freedom of establishment where the undertaking is established in the EU – Articles 49 and 
54  TFEU  –  and  the  free  movement  of  capital  between  Member  States  and  third  countries, 
protected by Article 63 TFEU). It will also comply with the EU’s international obligations (in 
particular, those contained in the WTO General Agreement on Trade in Services (GATS), the 
WTO  Government  Procurement  Agreement  (GPA),  the  WTO  Agreement  on  Subsidies  and 
Countervailing  Measures  (ASCM)  and  the  free  trade  agreements  (FTAs)  concluded  by  the 
European Union with a large number of countries. 

6.1 

EU Merger Regulation 

The EU has  a system of merger control enshrined in  Council Regulation  139/2004,54 which 
sets up a system of prior notification and approval for changes of control over undertakings 
above  certain  EU  turnover  thresholds.  Concentrations  are  declared  compatible  with  the 
internal market only to the extent that they do not significantly impede effective competition. 
While subsidies may be taken into account when assessing for instance the financial strength 
of  the  merged  entity  relative  to  its  rivals,  the  focus  of  the  analysis  of  the  significant 
impediment to effective competition is on the structure of competition in a given market, not 
on  the  existence  or  effects  of  foreign  subsidies  as  such.  A  new  instrument  would  therefore 
with its different objective complement the Merger Regulation.  If a given acquisition has to 
be notified under both such a new instrument and the Merger Regulation, the notification and 
possible assessment would be dealt with in parallel, but separately from each other under the 
respective instruments. 

54  Council  Regulation  (EC)  No  139/2004  of  20  January  2004  on  the  control  of  concentrations  between 
undertakings, OJ L 24, 29.1.2004, p. 1. 

40 

 
 
                                                 
6.2 

EU antitrust rules 

The  EU  has  a  system  of  antitrust  rules  enshrined  in  Articles  101  and  102  TFEU,  which 
prohibits  concerted  practices  of  undertakings  having  the  object  or  effect  of  distorting 
competition in the internal market, as well as abuses of dominant positions. Exceptions may 
be  granted  to  the  prohibition  of  concerted  practices  when,  under  certain  conditions,  they 
contribute to improving the production or distribution of goods or to promoting technical or 
economic progress. While antitrust rules address all types of anticompetitive market conduct 
they do not take into account whether the market conduct is related to subsidies either granted 
by  a  Member  State  or  by  a  non-EU  government.  A  new  instrument  would  therefore 
complement current EU antitrust rules with a specific focus on distortions caused by foreign 
subsidies.55  

6.3 

EU State aid rules 

The  EU  has  a  system  of  State  aid  control  enshrined  in  Articles  107  and  108  TFEU  which 
applies  when  financial  support  is  granted  by  an  EU  Member  State  to  an  undertaking  or  a 
group of undertakings which leads to the existence of an advantage distorting competition and 
affecting trade between Member States. A new instrument would therefore be separate from 
the EU State aid rules as it would only apply if the financial support in the form of a subsidy 
is granted by non-EU countries. 

6.4 

EU public procurement rules 

The existing EU public procurement framework does not contain specific rules regarding the 
participation  of  economic  operators  benefitting  from  foreign  subsidies.  This  White  Paper 
proposes a specific module relative to distortions in public procurement. The aim is a targeted 
legal  instrument  that  ensures  a  level  playing  field  within  the  internal  market.  With  this 
specific aim, it complements the existing EU public procurement framework. 

A legal instrument would introduce the possibility of an exclusion of subsidised bidders from 
an ongoing public procurement procedure. For this purpose, a new statutory exclusion ground 
would  be  introduced,  complementing  the  exclusion  grounds  enumerated  in  the  procurement 
Directives.  Exclusion  by  the  contracting  authority  would  be  subject  to  review  under  the 
national rules, in accordance with the provisions of the Remedies Directives 89/665/EEC and 
92/13/EEC.56  

6.5 

The WTO Agreement on Subsidies and Countervailing Measures 

The definition of a subsidy according to the SCM Agreement by and large coincides with the 
definition  of  a  subsidy  set  out  in  the  annex  and  which  could  be  incorporated  in  a  new 
instrument.  One  exception  is  a  financial  contribution  in  the  form  of  a  purchase  of  services. 
However, the SCM Agreement only covers subsidised imports of goods from third countries. 

55  A  new  instrument  on  foreign  subsidies  would  be  without  prejudice  to  the  current  rules  on  antitrust  and 
mergers. 
56 Directive 2007/66/EC of the European Parliament and of the Council of 11 December 2007 amending Council 
Directives  89/665/EEC  and  92/13/EEC  with  regard  to  improving  the  effectiveness  of  review  procedures 
concerning the award of public contracts, OJ L 335, 20.12.2007, p. 31. 

41 

 
 
                                                 
It  therefore  does  not  apply  to  subsidies  related  to  trade  in  services  and  in  relation  to  the 
establishment and operation of undertakings in the EU which are backed by foreign subsidies 
and which do not entail any trade in goods.  

6.6 

Trade defence instruments – protection against subsidised imports 

EU legislation on subsidies and countervailing measures is based on the rules provided for in 
the SCM Agreement. In the event that goods are imported into the EU, and there is sufficient 
evidence  tending  to  show  that  they  benefit  from  foreign  countervailable  subsidies,  it  is 
possible to launch an anti-subsidy investigation.57  

As  a  general  rule,  investigations  are  triggered  by  a  complaint  lodged  by  the  EU  industry 
producing  the  same  product  as  the  one  imported  into  the  EU.  In  special  circumstances  the 
Commission  has  however  also  the  option  to  launch  an  investigation  ex  officio.58  The 
investigation will determine (i) the existence of subsidies benefiting the imports from a third 
country; (ii) actual injury or threat thereof to a EU industry competing with the imports (iii) a 
causal  link  between  the  subsidised  imports  and  the  injury;  and  (iv)  whether  the  adoption  of 
remedial  measures  is  in  the  interest  of  the  EU.  If  the  above  conditions  are  met,  the 
Commission  imposes  countervailing  measures,  normally  at  the  level  of  the  amount  of 
subsidisation established for imports. 

The  appropriate  proposals  for  legal  instruments,  which  will  be  drawn  up  in  line  with  the 
obligations stemming from the SCM Agreement, and in particular its Article 32(1), would be 
complementary to the EU trade defence instruments. The EU Anti-subsidy Regulation allows 
the  EU  to  act  against  subsidised  imports  of  goods  from  a  third  country  but  not  against 
subsidies  related  to  trade  in  services  and  in  relation  to  the  establishment  and  operation  of 
companies in the EU which are backed by foreign subsidies and which do not entail any trade 
in  goods.  In  contrast,  a  new  instrument  would  cover  the  subsidisation  of  an  undertakings 
causing  distortions  within  the  internal  market.  The  Commission  could,  however,  use  the 
experience  gained  in  a  trade  defence  case  in  order  to  guide  its  assessment,  for  instance, 
whether a foreign subsidy exists in the context of such a new instrument.  

6.7 

FDI Screening Regulation 

The FDI Screening Regulation applies to any foreign direct investment into the EU likely to 
affect security or public order. An investigation is either triggered through a notification by a 
Member  State  that  a  foreign  direct  investment  is  undergoing  screening  under  a  national 
screening mechanism, or by the Commission or a Member State making an ex officio request 
for information in relation to a foreign direct investment not undergoing screening. 

The  assessment  should  aim  at  determining  whether  a  foreign  direct  investment  is  likely  to 
affect security or public order. The FDI Screening Regulation outlines a non-exhaustive list of 
factors that may be considered, such as the potential effects on critical infrastructure, critical 
technologies,  supply  of  critical  inputs,  access  to  sensitive  information,  and  the  freedom  and 

57  Regulation  (EU)  2016/1037  of  the  European  Parliament  and  of  the  Council  of  8  June  2016  on  protection 
against subsidised imports from countries not members of the European Union, OJ L 176, 30.6.2016, p. 55. 
58 Although this does not happen in practice as the evidence in relation to injury caused to a domestic industry in 
the Union is usually not available to the Commission. 

42 

 
 
                                                 
pluralism  of  the  media.  It  is  also  possible  to  take  additional  elements  into  account,  such  as 
whether  the  investor  is  directly  or  indirectly  controlled  by  a  foreign  government,  previous 
involvement of the investor in activities affecting security or public order in a Member State, 
or  the  serious  risk  that  the  foreign  investor  engages  in  illegal  or  criminal  activities.  The 
assessment  whether  an  investor  is  controlled  by  a  foreign  government  may  be  based  on  a 
variety  of  indicators,  one  of  them  being  the  fact  that  the  investor  benefited  of  significant 
funding. However, this is only one of the possible indicators to take into account and is not 
tantamount to introducing a control of foreign subsidies under the FDI Screening Regulation 
as the appropriate proposal for legal instruments would do.  

Such a new legal regime would be complementary to the FDI Screening Regulation. Firstly, 
while the FDI Screening Regulation allows for the assessment of threats to security and public 
order, any new instrument assesses the potential distortions in the internal market. Secondly, 
while the FDI Screening Regulation focuses on critical assets, such as critical infrastructure, 
critical technologies or supply of critical inputs (which is the consequence of the Regulation's 
focus  on  investments  likely  to  affect  security  or  public  order),  a  new  instrument  would  in 
principle not be limited to those. Thirdly, while the FDI Screening Regulation targets all types 
of foreign direct investment, the trigger of any new instrument is foreign subsidies which may 
or may not be linked to an investment. 

An overlap with Module 2 (and possibly Module 1) may exist if a foreign direct investment 
constitutes  an  acquisition  that  is  facilitated  by  a  foreign  subsidy  and  raises  concerns  with 
regard  to  security  and  public  order.  This  may  lead  to  parallel  procedures  where  a  foreign-
backed acquisition is notified to the relevant public authorities under both an FDI screening 
mechanism and under a  new instrument  relative to  foreign subsidies. The application of the 
FDI Screening Regulation and a new instrument in parallel would be independent, as they aim 
at different objectives. 

6.8 

Bilateral trade agreements 

The EU has various free trade agreements (FTAs) in place. They range from trade agreements 
that  mainly  aim  at  removing  or  limiting  tariffs  for  goods  to  custom  union  agreements  and 
even  to  agreements  that  provide  wide  access  to  the  internal  market.  In  the  context  of 
enlargement,  the  EU  has  concluded  Stabilisation  and  Association  Agreements.  In  its 
international  agreements,  the  EU  broadly  applies  two  different  approaches  to  subsidies:  the 
“WTO+  approach”  (SCM  Agreement  with  an  additional  prohibition  of  the  most  harmful 
subsidies,  transparency  obligations  and  bilateral  consultation)  and  the  “State  aid  approach” 
(rules similar to the EU State aid rules). 

In  both  approaches,  and  depending  on  the  respective  agreement,  overlaps  with  a  new 
instrument are possible. The "WTO+ approach" in principle allows to capture subsidies with a 
negative  effect  on  trade  and  investment  between  the  contracting  parties.  A  subsidy  falling 
under  one  of  the  agreements  with  a  WTO+  approach  could  therefore  in  principle  also  fall 
under a new instrument (e.g. foreign state grants subsidy to domestic company; with the help 
of this subsidy, the foreign company acquires an EU target; the subsidy would in principle be 
covered by both, the trade agreement and a new instrument). Also in the "State aid approach", 
such  overlaps  are  possible,  as  the  respective  agreements  allow  to  capture  State  aid  with  an 
effect  on  trade  between  the  two  contracting  parties  (e.g.  foreign  state  grants  State  aid  to 
foreign service provider; the foreign service provider also has an establishment in the EU; the 

43 

 
 
State aid would in principle be covered by both, the trade agreement and a new instrument). 
In  the  case  of  such  overlaps,  if  during  any  action  under  a  new  instrument  it  appears  more 
appropriate  to  address  the  distortion  created  by  the  foreign  subsidy  under  the  dispute 
settlement or consultation provisions of the respective trade agreement, the action under such 
a  new  instrument  could  be  suspended.  The  action  could  be  resumed  to  impose  redressive 
measures or adopt commitments in two alternative scenarios: (1) the dispute settlement under 
the  trade  agreement  has  been  concluded  and  has  led  to  the  finding  that  there  is  an 
infringement, but the infringing party does not take corrective actions; (2) within 12 months 
from the suspension of the action, the distortion caused by the foreign subsidy has not been 
eliminated.   

6.9 

The  Agreement  on  Government  Procurement  and  procurement  chapters  in 
FTAs 

The  Agreement  on  Government  Procurement  (GPA)  concluded  in  the  World  Trade 
Organization  (WTO)  framework  allows  operators  from  the  19  other  participating  WTO 
partners to bid for certain public contracts in the EU, and EU companies to bid for contracts 
of  19  other  WTO  partners.  In  addition  several  FTAs  contain  specific  procurement  chapters. 
The  GPA  and  government  procurement  chapters  of  FTAs  do  not  automatically  apply  to  all 
government  procurement of the parties. Coverage schedules determine which public entities 
have  to  comply  with  the  rules  of  the  agreements  and  to  which  extent  their  procurement  is 
open to participation of economic operators of the other GPA parties and FTA partners. Only 
procurements  exceeding  the  specified  threshold  values  indicated  in  each  party’s  coverage 
schedules,  are  covered.  The  exclusion  of  bidders  under  the  proposed  instrument  on 
procurement  will  have  to  ensure  compatibility  with  the  EU’s  commitments  for  covered 
procurement, esp. Art. VIII of the GPA and similar FTA provisions. 

6.10 

Sectorial rules: safeguarding competition in air and maritime transport59 

Regulation  2019/712  allows the Commission  to  conduct  investigations and adopt  redressive 
measures  if  it  finds  practices  that  distort  competition  through  discrimination  or  through 
subsidies between EU air carriers and third-country air carriers and that cause, or threaten to 
cause, injury to EU air carriers.  

The investigation is triggered when there is prima facie evidence of the existence of a practice 
distorting competition, causing an injury or threat of injury to EU carriers. The determination 
of “injury” involves the examination of (i) the situation of the EU air carriers concerned; and 
(ii) the general situation on the affected air transport services markets. 

It  is  suggested  to  exclude  situations  falling  within  the  scope  of  application  of  Regulation 
2019/712 from the scope of any new instrument. 

59 In  terms of sectorial rules,  Regulation (EU) 2016/1035 of  the European Parliament and  of the  Council of 8 
June 2016 on protection against injurious pricing of vessels, OJ L 176, 30.6.2016, p. 1, allows action to be taken 
by  the  Union  against  any  injuriously  priced  vessels  whose  sale  at  less  than  normal  value  causes  injury  to  the 
Union industry. While this Regulation has formally entered into force, it has never been applied as its application 
is conditional on the ratification of the OECD Shipbuilding Agreement by the US. 

44 

 
 
                                                 
Regulation 4057/8660 allows the Commission to conduct an investigation and adopt redressive 
measures  if  it  finds  practices  that  distort  competition  in  maritime  transport  through  non-
commercial advantages granted to third country ship owners by a non-EU state. 

The investigation is triggered either by a complaint or when a Member State is in possession 
of  evidence  both  of  unfair  pricing  practices  and  of  injury  resulting  therefrom.  The 
examination  of  injury  covers  the  pricing  offered  by  competitors  of  EU  ship  owners  and  the 
effect of this pricing analysed through different economic indicators.  

It  is  suggested  to  exclude  situations  falling  within  the  scope  of  application  of  Regulation 
4057/86 from the scope of any new instrument. 

7 

PUBLIC CONSULTATION  

The Commission invites for comments on the proposals set out in the White Paper through an 
open  public  consultation  available  at  https://ec.europa.eu/info/consultations_en.  For  the 
purpose of structuring the submissions from stakeholders, Annex II includes a questionnaire 
that stakeholders are invited to respond. 

The consultation is open for comments until 23 September 2020. It is standard practice for the 
Commission to publish submissions received in response to a public consultation. However, it 
is  possible  to  request  that  submissions,  or  parts  thereof,  remain  confidential.  Should  this  be 
the  case,  please  indicate  clearly  on  the  front  page  of  your  submission  that  it  should  not  be 
made public and also send a non-confidential version of your submission to the Commission 
for publication. 

60 Council Regulation No 4057/86 of 22 December 1986 on unfair pricing practices in maritime transport, OJ L 
378, 31.12.1986, p. 14. 

45 

 
 
                                                 
ANNEX I: DEFINITION OF FOREIGN SUBSIDY 

For the purposes of this White Paper, a “foreign subsidy” refers to a financial contribution by 
a government or any public body of a non-EU State,61 which confers a benefit to a recipient62 
and which is limited, in law or in fact, to an individual undertaking or industry or to a group 
of undertakings or industries. 

Foreign subsidies would fall under any new legal instrument only insofar as they directly or 
indirectly cause distortions within the internal market. Thus, the current definition covers (i) 
foreign subsidies granted directly to undertakings established in the EU; (ii) foreign subsidies 
granted  to  an  undertaking  established  in  a  third  country  where  such  subsidy  is  used  by  a 
related  party  established  in  the  EU;  and  (iii)  foreign  subsidies  granted  to  an  undertaking 
established in  a third country where such a subsidy is  used to  facilitate an acquisition of an 
EU undertaking or participate in public procurement procedures.  

The financial contribution can take various forms. For example, it can consist in 

-  the  transfer  of  funds  or  liabilities  (capital  injections,  grants,  loans,  loan  guarantees,  fiscal 
incentives,  setting  off  of  operating  losses,  compensation  for  financial  burdens  imposed  by 
public authorities, debt forgiveness or rescheduling);  

-  foregone  or  not  collected  public  revenue,  such  as  preferential  tax  treatment  or  fiscal 
incentives such as tax credits; 

- the provision of goods or services or the purchase of goods and services.   

In  determining  whether  a  financial  contribution  confers  a  benefit  to  an  undertaking  or 
industry, depending on the form of the financial contribution, the following should be taken 
into account: usual investment practice of private investors, rates for financing obtainable on 
the market63, the adequate remuneration for a given good or service.  If there are no directly 
comparable  benchmarks  available,  adjustments  of  existing  benchmarks64  are  possible  or 
market conditions can be established based on generally accepted assessment methods.65 For 
the  purposes  of  this  White  Paper  it  is  presumed  that  foreign  subsidies  below  a  threshold  of 
EUR 200.000 to an undertaking over a period of three  years do not create distortions in the 
internal market. 

61  According  to  this  definition,  a  private  body  entrusted  with  functions  normally  vested  in  the  government  or 
directed by the non-EU government can also grant a “foreign subsidy”. 
62 The recipient may be an undertaking established in the EU or in a third country.. 
63  Financing  provided  to  a  EU  undertaking  in  EUR  should  be  compared  to  benchmarks  on  the  EU  market 
relevant  for financing in EUR Financing provided to an undertaking in a third country  should be compared to 
appropriate benchmarks on that market. 
64  For  example:  if  there  is  an  existing  benchmark  available  for  financing  which  has  a  shorter  maturity,  this 
existing benchmark can be still used as a starting point while adjusting for the maturity of the loan. 
65 Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning 
of the European Union, OJ C 262, 19.7.2016, p. 1. 

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The suggested notion of "foreign subsidies" builds on the subsidy definition set out in the EU 
Anti-subsidy  Regulation66  and  in  the  EU  Regulation  on  safeguarding  competition  in  the  air 
transport sector67. Those definitions also rely on the subsidy definition set out in the relevant 
WTO rules, in particular in the SCM Agreement, while acknowledging that a subsidy can be 
granted directly or indirectly to an undertaking active in the EU. The main difference is that a 
foreign subsidy is a financial contribution benefitting directly or indirectly an undertaking in 
the EU, offering goods or services, or engaging in investments, whereas subsidies under the 
two  Regulations  and  the  SCM  Agreement  are  normally  granted  to  beneficiaries  outside  the 
EU. 

The definition also allows the Commission to draw from findings in trade defence instruments 
under the EU Anti-subsidy Regulation and the EU Regulation on safeguarding competition in 
the air transport (for details, see section 6, interplay with other EU instruments). 

66  Regulation  2016/1037  of  the  European  Parliament  and  of  the  Council  of  8  June  2016  on  protection  against 
subsidised imports from countries not members of the European Union, OJ L 176, 30.6.2016, p. 55. 
67  Regulation  2019/712  of  the  European  Parliament  and  of  the  Council  of  17  April  2019  on  safeguarding 
competition in air transport, and repealing Regulation (EC) No 868/2004, OJ L 123, 10.5.2019, p. 4. 

47 

 
 
                                                 
ANNEX II: QUESTIONNAIRE 

The  below  questions  should  be  answered  through  the  dedicated  public  consultation  on  this 
White Paper on the EU survey website. 

Introduction 

1.  Please introduce yourself and explain your interest and motivation to participate in this 

public consultation. 

Questions relating to the three Modules  

General questions 

1.  Do  you  think  there  is  a  need  for  new  legal  instruments  to  address  distortions  of  the 
internal  market  arising  from  subsidies  granted  by  non-EU  authorities  (‘foreign 
subsidies’)?  Please  explain  and  also  add  examples  of  past  distortions  arising  from 
foreign subsidies. 

2.  Do  you  think  the  framework  presented  in  the  White  Paper  adequately  addresses  the 

distortions caused by foreign subsidies in the internal market? Please explain. 

Module 1 

1.  Do you consider that Module 1 appropriately addresses distortions of the internal 

market through foreign subsidies when granted to undertakings in the EU? 

2.  Do you agree with the procedural set-up presented in the White Paper, i.e., 2-step 

investigation procedure, the fact-finding tools of the competent authority, etc.? (See 
section 4.1.5. of the White Paper) 

3.  Do you agree with the substantive assessment criteria (section 4.1.3) and the list of 

redressive measures (section 4.1.6) presented in the White Paper? 

4.  Do you consider it useful to include an EU interest test for public policy objectives 
(section 4.1.4) and what should, in your view, be included as criteria in this test? 
5.  Do you think that Module 1 should also cover subsidised acquisitions (e.g. the ones 

below the threshold set under Module 2)? (section 4.1.2) 

6.  Do you think there should be a minimum (de minimis) threshold for the investigation 

of foreign subsidies under Module 1 and if so, do you agree with the way it is 
presented in the White Paper (section 4.1.3)?  

7.  Do you agree that the enforcement responsibility under Module 1 should be shared 

between the Commission and Member States (section 4.1.7)?  

Module 2 

1.  Do  you  consider  that  Module  2  appropriately  addresses  distortions  of  the  internal 
market  through  foreign  subsidies  that  facilitate  the  acquisition  of  undertakings 
established in the EU (EU targets)? 

2.  Do  you  agree  with  the  procedural  set-up  for  Module  2,  i.e.  ex  ante  obligatory 
notification  system,  2-step  investigation  procedure,  the  fact-finding  tools  of  the 
competent authority, etc. (See section 4.2.5 of the White Paper) 

48 

 
 
3.  Do you agree with the scope of Module 2 (section 4.2.2) in terms of  

  definition of acquisition  
  definition and thresholds of the EU target (4.2.2.3)  
  definition of potentially subsidised acquisition 

As regards thresholds, please provide your views on appropriate thresholds. 

4.  Do  you  consider  that  Module  2  should  include  a  notification  obligation  for  all 
acquisitions  of  EU  targets  or  only  for  potentially  subsidised  acquisitions  (section 
4.2.2.2)? 

5.  Do you agree with the substantive assessment criteria under Module 2 (section 4.2.3) 

and the list of redressive measures (section 4.2.6) presented in the White Paper? 
6.  Do you consider it useful to include an EU interest test for public policy objectives 
(section 4.2.4) and what should, in your view, be included as criteria in this test? 

7.  Do  you  agree  that  the  enforcement  responsibility  under  Module  2  should  be  for  the 

Commission (section 4.2.7)? 

Module 3  

1.  Do you think there is a need to address specifically distortions caused by foreign 

subsidies in the specific context of public procurement procedures? Please explain. 

2.  Do you think the framework proposed for public procurement in the White Paper 
appropriately addresses the distortions caused by foreign subsidies in public 
procurement procedures? Please explain. 

3.  Do you consider the foreseen interplay between the contracting authorities and the 

supervisory authorities adequate e.g. as regards determination of whether the foreign 
subsidy distorts the relevant public procurement procedure? 

4.  Do you think other issues should be addressed in the context of public procurement 

and foreign subsidies than those contained in this White Paper? 

Interplay between Modules 1, 2 and 3 

1.  Do you consider that  

a.  Module 1 should operate as stand-alone module; 
b.  Module 2 should operate as stand-alone module; 
c.  Module 3 should operate as stand-alone module; 
d.  Modules 1, 2 and 3 should be combined and operate together?  

Questions relating to foreign subsidies in the context of EU funding  

1.  Do you think there is a need for any additional measures to address potential 

distortions of the internal market arising from subsidies granted by non-EU authorities 
in the specific context of EU funding? Please explain. 

2.  Do you think the framework for EU funding presented in the White Paper 

appropriately addresses the potential distortions caused by foreign subsidies in this 
context? Please explain. 

49