COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the Proposal for a Regulation of the European Parliament and of the Council on foreign subsidies distorting the internal market
Date: 2021-05-05
Institutions: Directorate-General for Competition, European Commission
Subjects: EU competition policy, foreign aid, foreign capital, foreign investment, market supervision, public procurement, restriction on competition, single market, third country

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 5.5.2021  SWD(2021) 99 final  COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT  Accompanying the Proposal for a Regulation of the European Parliament and of the Council on foreign subsidies distorting the internal market {COM(2021) 223 final} - {SEC(2021) 182 final} - {SWD(2021) 100 final}  
 
 
Table of contents 

1 

2 

INTRODUCTION: POLITICAL AND LEGAL CONTEXT ............................................................... 4 

PROBLEM DEFINITION .................................................................................................................... 7 

2.1  Scope ................................................................................................................. 7 
2.2  Problem 1: Distortions in acquisitions ............................................................ 10 
2.3  Problem 2: Distortions in public procurement ................................................ 17 
2.4  Problem 3: Other market distortions ............................................................... 21 
2.5  What are the problem drivers? ........................................................................ 29 
2.6  How will the problem evolve? ........................................................................ 34 

3  WHY SHOULD THE EU ACT? ........................................................................................................ 36 

3.1  Legal basis ....................................................................................................... 36 
3.2  Subsidiarity: Necessity of EU action ............................................................... 36 
3.3  Subsidiarity: Added value of EU action .......................................................... 37 

4 

OBJECTIVES: WHAT IS TO BE ACHIEVED? ............................................................................... 37 

4.1  General objectives ........................................................................................... 37 
4.2  Specific objectives ........................................................................................... 37 

5  WHAT ARE THE AVAILABLE POLICY OPTIONS? .................................................................... 38 

5.1  What is the baseline from which options are assessed? .................................. 38 
5.2  Options considered but discarded at an early stage ......................................... 40 
5.3  Option to be further assessed ........................................................................... 43 

6  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? ........................................................... 49 

6.1  Problem 1 - distortions in acquisitions ............................................................ 50 
6.2  Problem 2 - distortions in public procurement ................................................ 59 
6.3  Problem 3 - other market distortions ............................................................... 63 

7 

HOW DO THE OPTIONS COMPARE? ............................................................................................ 67 

7.1  Problem 1 - distortions in acquisitions ............................................................ 68 
7.2  Problem 2 - distortions in public procurement ................................................ 70 
7.3  Problem 3 - other market distortions ............................................................... 72 

8 

9 

PREFERRED OPTION ...................................................................................................................... 74 

HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? .................................. 76 

ANNEX 1. 

PROCEDURAL INFORMATION ..................................................................................... 78 

ANNEX 2. 

STAKEHOLDER CONSULTATION SYNOPSIS REPORT ........................................... 81 

ANNEX 3.  WHO IS AFFECTED AND HOW? ................................................................................... 84 

ANNEX 4. 

SUPPORTING DATA AND ANALYSIS FOR THE PROBLEM DEFINITION............. 87 

ANNEX 5. 

SUPPORTING  DATA  AND  ANALYSIS  FOR  THE  ASSESSMENT  OF  THE 
IMPACTS ......................................................................................................................................... 102 

ANNEX 6. 

COMPLETE SUMMARY OF THE CONSULTATION ACTIVITIES .......................... 105 

I 

 
 
 
Glossary 

Term or acronym 

Meaning or definition 

AD 

AS 

DG 

DG COMP 

DG GROW 

DG TAXUD 

DG TRADE 

EEA 

EFTA 

ESIA 

EU28  

EUMR 

FCO 

FDI 

FTA 

FTE 

GATT 

GATS 

GDP 

GPA 

GTA 

IPCEI 

IPI 

MAST 

NCAs 

NTMs 

OECD 

RAG 

RDI 

Anti-dumping 

Anti-subsidy 

Directorate-General 

Directorate-General for Competition 

Directorate-General for Internal Market, Industry, Entrepreneurship 
and SMEs 

Directorate-General for Taxation and Customs Union 

Directorate-General for Trade 

European Economic Area 

European Free Trade Association 

European Semiconductor Industry Association 

EU27 countries + UK 

EU Merger Regulation 

German Federal Cartel Office 

Foreign Direct Investment 

Free Trade Agreement 

Full-time equivalent (employee) 

General Agreement on Tariffs and Trade 

General Agreement on Trade in Services 

Gross Domestic Product 

WTO Government Procurement Agreement 

Global Trade Alert 

Important Project of Common European interest 

International Procurement Instrument 

Multi-Agency Support Team 

National competition authorities 

Non-tariff measures 

Organisation for Economic Co-operation and Development 

Regional aid guidelines 

Research, Development and Innovation 

II 

 
 
Term or acronym 

Meaning or definition 

SCM 

SMEs 

SOEs 

TDI 

TED 

TEU 

TFEU 

UNCTAD 

WTO 

WTO Agreement on Subsidies and Countervailing Measures 

Small and medium-sized enterprises 

State-owned enterprises 

Trade defence instrument 

Tenders Electronic Daily 

Treaty on European Union 

Treaty on the Functioning of the European Union 

United Nations Conference on Trade and Development 

World Trade Organization 

III 

 
 
1 

INTRODUCTION: POLITICAL AND LEGAL CONTEXT 

The European Union (EU) is closely intertwined with the global economy. With trade in goods 
and services amounting to EUR 5 984 billion in 20191, the EU is the world’s largest trading block 
ahead of the United States of America (EUR 4 985 billion) and China (EUR 4 749 billion). As 
such,  the  EU  accounts  for  16.4%  of  overall  global  trade.  The  EU  is  also  the  world’s  leading 
provider  and  destination  of  foreign  direct  investment  (FDI)  with  outward  stocks  at  EUR  8 990 
billion and inward stocks at EUR 7 138 billion in 2019. According to data by UNCTAD, in 2019, 
the EU accounted for 25% of global inward stocks and 32% of global outward FDI stocks2. 

Trade  is  an  important  element  of  the  EU  economy,  making  up  almost  35%  of  the  EU’s  Gross 
Domestic  Product  (GDP)  with  35  million  European  jobs  dependent  on  exports.  The  flow  of 
products, services and capital into and out of the EU contribute to the EU’s growth by enhancing 
its  competitiveness,  creating  jobs,  innovation  and  opening  up  new  export  markets3.  Trade  is 
particularly important for Small and Medium Enterprises (SMEs), which represent 85% of all EU 
exporters. Openness to trade and investment is an important building block of the resilience of 
the economy and will contribute to the recovery from the COVID-19 crisis. 

As a destination of one third of the world’s investment stocks, in 2017 the EU28 was home to 
roughly 100 000 companies owned by foreign entities4, which employed an estimated 9 million 
people  in  the  EU28.  Based  on  the  Eurostat  FATS  statistics,  these  companies  had  a  combined 
turnover of more than EUR 4 trillion and produced an added value of EUR 917 billion. Overall, 
16 million jobs in the EU depend on foreign direct investment5. Bringing such benefits to the EU 
economy, foreign investments are a welcome source of jobs, growth, and competitiveness.  

A strong, open and competitive single market enables both European and foreign companies to 
operate  and  compete  globally.  To  meet  these  objectives,  on  10  March  2020,  the  European 
Commission presented a New Industrial Strategy for Europe6, which mapped out a path for the 
EU  to  allow  its  industry  to  lead  the  green  and  digital  transitions  based  on  competition,  open 
markets, world-leading research and technologies and a strong single market. The EU is pursuing 
a model of open strategic autonomy7 by shaping the system of global economic governance and 
developing mutually beneficial bilateral relations, while protecting the EU internal market from 
unfair and abusive practices.  

1 DG Trade Statistical Guide, August 2020, excluding intra-EU trade. 
 https://trade.ec.europa.eu/doclib/docs/2013/may/tradoc_151348.pdf  
2 UNCTAD, Division on Investment and Enterprise, World Investment Report 2020, Statistical Annex. 
http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/World_Investment_Report.aspx 
3  Report  from  the  Commission  on  the  Implementation  of  the  Trade  Policy  Strategy  Trade  for  All:  Delivering  a 
Progressive Trade Policy to Harness Globalisation. COM(2017) 491 final. 
4 Eurostat, Foreign AffiliaTes Statistics (FATS), Foreign control of enterprises by economic activity and a selection of 
controlling  countries  (from  2008  onwards)  [fats_g1a_08].  The  100.000  figure  includes  the  UK  as  part  of  EU28. 
Preliminary  data  shows  that  this figure  is  not  likely  to  change  significantly  for  EU27.  In 2018,  an  estimated  84.000 
enterprises in the EU27 were owned by  foreign  entities (excluding the UK),  while in 2015-2017, there  were around 
18.000 UK-owned enterprises in other EU27 countries. 
5 Commission Staff Working Document: on Foreign Direct Investment in the EU, SWD(2019) 108 final. Following up 
on the Commission Communication "Welcoming Foreign Direct Investment while Protecting Essential Interests" of 13 
September 2017. 
6 Communication from the Commission, “A New Industrial Strategy  for Europe”, COM(2020) 102 final, 10.3.2020. 
See  also  the  Communication  from  the  Commission,  “The  European  economic  and  financial  system:  fostering 
openness, strength and resilience”, COM(2021) 32, 19.1.2021. 
7 Communication from the Commission, “Europe's moment: Repair and Prepare for the Next Generation”, COM(2020) 
456  final,  27.5.2020.  See  also  the  Communication  from  the  Commission,  “The  European  economic  and  financial 
system: fostering openness, strength and resilience”, COM(2021) 32, 19.1.2021. 

4 

 
 
                                                      
As will be illustrated in this report, in recent years foreign subsidies appear to have had in some 
instances  a  distortive  impact  on  EU’s  internal  market  creating  an  uneven  playing  field  for 
companies  that  compete  in  the  EU  internal  market.  While  to  date  there  is  a  general  lack  of 
reliable data on subsidies granted by third countries, there is an increasing number of incidences 
in which foreign subsidies seem to have facilitated the acquisition of EU undertakings, influenced 
other investment decisions, distorted the trade in services or otherwise influenced the behaviour 
of their beneficiaries in the EU market, to the detriment of fair competition.  

In this context, foreign subsidies can take different forms. They can for example be granted in the 
form  of  zero-interest  loans,  unlimited  State  guarantees,  zero-tax  agreements  or  dedicated  State 
funding.  Many  of  such  foreign  subsidies  would  be  problematic  if  they  were  granted  by  EU 
Member States and assessed under EU State aid rules. 

Some EU trading partners have been actively pursuing industrial  policies with the declared aim 
of  achieving  global  leadership  in  key  industrial  sectors.  For  example,  the  Chinese  industrial 
strategy  “Made  in  China  2025”8  aims  to  make  the  country  an  industrial  leader  by  providing 
favourable conditions for growth to a number of industrial and hi-tech sectors such as robotics, 
electric  vehicles,  medical  equipment,  aerospace,  maritime  and  railways9.  Studies  indicate  that 
public financial support is an important part of this strategy and that Chinese direct and indirect 
subsidies  to  State  owned  enterprises  (SOEs)  have  amounted  to  1.3  –  1.6%  of  annual  GDP  in 
recent  years,  with  the  total  subsidy  figure  in  fact  likely  being  higher  as  private  firms  receive 
about a third of total direct subsidies (2018)10. 

These  are  just  some  examples  to  illustrate  broader  policy  trends  such  as  national  industrial 
strategies  to  create  global  champions  and  unilateralism.  Since  2017,  the  EU  has  been  actively 
engaged in trilateral talks with the US and Japan to improve multilateral cooperation in a number 
of key areas. There is a particular recognition of the need to strengthen existing WTO rules on 
industrial  subsidies.  The  scope  of  the  cooperation  includes  a  strategy  to  address:  “non-market 
policies  and  practices,  market-oriented  conditions,  industrial  subsidies  and  state-owned 
enterprises, forced technology transfer policies and practices, WTO reform and digital trade and 
e-commerce.”11  The  three  Trade  Ministers  agreed  in  January  202012  on  ways  to  strengthen 
existing  WTO  rules  on  industrial  subsidies  In  June  2018,  the  European  Council  gave  the 
Commission a mandate “to pursue WTO modernisation in pursuit of the objectives of making the 
WTO  more  relevant  and  adaptive  to  a  changing  world,  and  strengthening  the  WTO's 
effectiveness.”13  

Considering  the  challenge  to  find  a  multilateral  solution  to  subsidies  within  a  reasonable  time-
frame, the Commission committed, as part of the New Industrial Strategy for Europe, to explore 
how  best to  strengthen the  EU’s  anti-subsidies’  mechanisms  and  tools.14  On  17  June  2020, the 

for 

Papers 

industrial 

countries.  MERICS 

8 State Council of the People’s Republic of China, Notice on issuing and distributing “Made in China 2025”, “中国制
造2025”. 19 May 2015.  
9  Mercator  Institute  for  China  Studies  (MERICS).  Made  in  China 2025:  The  making  of  a  high-tech  superpower  and 
consequences 
2016. 
https://merics.org/sites/default/files/2020-04/Made%20in%20China%202025.pdf 
10 Business Europe. The EU and China: Addressing the Systemic Challenge. A comprehensive EU strategy to 
rebalance the relationship with China. January 2020. 
https://www.businesseurope.eu/sites/buseur/files/media/reports_and_studies/2020-01-16_the_eu_and_china_-
_addressing_the_systemic_challenge_-_full_paper.pdf 
11 Joint Statement of the Trilateral Meeting of the Trade Ministers of the European Union, Japan and the United States, 
Washington, D.C., 9 January 2019. 
12 Joint Statement of the Trilateral Meeting of the Trade Ministers of Japan, the United States and the European Union , 
Washington, D.C., 14 January. 
13 European Commission, Concept Paper: WTO modernisation. September 2018.  
14 A New Industrial Strategy for Europe, COM(2020) 102 final , 10.3.2020.  

on  China  No.2.  December 

5 

 
 
                                                      
Commission adopted a White Paper on foreign subsidies15 to explore the issue, launch a public 
debate and propose possible solutions. The White Paper, and in more detail, section 2.5 of this 
report, describes a legislative gap in EU trade, competition and public procurement rules, which 
effectively  prevents  the  EU  from  taking  action  against  certain  distortions  caused  by  foreign 
subsidies including distortions caused by subsidies to finance acquisitions or procurement bids. 
The  White  Paper  notes  that  while  the  granting  of  support  by  EU  Member  State  authorities  is 
subject to EU State aid control, no comparable regime is in place for support granted by third-
country authorities. This puts industry active in the EU and not receiving foreign subsidies at a 
disadvantage vis-à-vis beneficiaries of foreign subsidies.  

Recently,  several  suggestions  for  action  have  been  brought  forward  aimed  at  addressing  the 
possible  distortions  from  foreign  subsidies.  The  Netherlands  have  suggested  to  target 
undertakings receiving foreign subsidies or having an unregulated dominant position in a third-
country market, in order to prevent potentially disruptive behaviour.16 France, Germany, Italy and 
Poland have called for an adaptation of the Union’s competition rules, notably to take account of 
the  possible  distortions  created  by  foreign  State  support  and  protected  markets.17  The  German 
Monopolies  Commission  has  proposed  a  third-country  State  aid  instrument  to  address  the 
negative effects of non-EU subsidies on the internal market.18  

The issue of subsidies has also been brought forward by the co-legislators at several occasions. In 
the Council conclusions of 11 September 202019, the EU Council stated that it “looks forward, in 
that  respect,  to  discussing  the  White  Paper  on  levelling  the  playing  field  as  regards  foreign 
subsidies”.  This  Council  position  was  later  endorsed  by  the  Special  European  Council  in  its 
conclusions  of  1-2  October  202020,  which called  for, inter  alia,  “further instruments to address 
the distortive effects of foreign subsidies in the Single Market”. 

The European Parliament, in its February 2020 report on competition policy21, also called on the 
Commission  to  “investigate  the  option  to  add  a  pillar  to  EU  competition  law  that  gives  the 
Commission  appropriate  investigative  tools  in  cases  where  a  company  is  deemed  to  have 
engaged  in  distortionary  behaviour  due  to  government  subsidies  or  to  have  made  excessive 
profits based on a dominant market position in its home country”. In a joint letter to Executive 
Vice-Presidents Vestager and Dombrovskis and Commissioner Breton22, a group of 41 Members 
of  the  European  Parliament  have  expressed  a  strong  support  for  an  instrument  to  tackle 
“companies from third countries that have received substantial state support.”  

15 White Paper on levelling the playing field as regards foreign subsidies, COM(2020) 253 final, 17.6.2020. 
16 https://www.permanentrepresentations.nl/documents/publications/2019/12/09/non-paper-on-level-playing-field. 
17 https://g8fip1kplyr33r3krz5b97d1-wpengine.netdna-ssl.com/wp-content/uploads/2020/02/Letter-to-Vestager.pdf 
18 Biennial Report XXIII of the Monopolies Commission (“Competition 2020”) 
https://www.monopolkommission.de/images/HG23/Main_Report_XXIII_Chinese_state_capitalism.pdf  
19 Council of the European Union. Conclusions on a deepened Single Market for a strong recovery and a competitive, 
sustainable Europe. 11 September 2020. https://www.consilium.europa.eu/media/45641/council-conclusions-on-a-
deepened-single-market-for-a-strong-recovery-and-a-competitive-sustainable-europa.pdf  
20 European Council. Special meeting of the European Council (1 and 2 October 2020) 
– Conclusions. 2 October 2020. https://www.consilium.europa.eu/media/45910/021020-euco-final-conclusions.pdf  
21 European Parliament. Report on competition policy – annual report 2019. A9-0022/2020. 25.2.2020. 
https://www.europarl.europa.eu/doceo/document/A-9-2020-0022_EN.pdf  
22 Letter to EU telecom and trade ministers and to European Commissioners Thierry Breton, Margrethe Vestager and 
Valdis Dombrovskis. 14.10.2020.  
https://reinhardbuetikofer.eu/2020/10/14/letter-to-eu-telecom-and-trade-ministers-and-to-european-commissioners-
thierry-breton-margrethe-vestager-and-valdis-dombrovskis/ 

6 

 
 
                                                      
Finally, a recent report of the European Court of Auditors23 finds that certain subsidies granted by 
the Chinese state, if granted by an EU Member State, would constitute State aid and notes that 
this “difference in treatment can distort competition in the EU’s internal market”.  

2  PROBLEM DEFINITION 

2.1  Scope 

Foreign subsidies are support measures provided by non-EU governments to undertakings active 
in the EU that can take various forms such as capital injections, grants, loans, guarantees and 
foregone public revenue in the form of preferential tax treatments. Foreign subsidies may confer 
an unfair advantage to their beneficiaries and upset the level playing field between companies in 
the internal market.24 

Foreign subsidies, as defined above, and State aid, i.e. subsidies granted by EU Member States as 
defined in Article 107 TFEU, are very similar concepts. This similarity in the definitions reflects 
the analogous economic impact of both types of subsidies on the market. Indeed,  the distortions 
caused by subsidies are in principle the same regardless of whether they are granted by a Member 
State or by a third country: if there is a market, subsidies will distort competition. 

However,  EU  State  aid  control  provides  clear  and  strict  rules  for  determining  when  subsidies 
granted  by  Member  States  are  compatible  with  the  internal  market  i.e.  may  be  allowed.    In 
particular,  State  aid has to  be  proportionate  to the  objective  pursued.  As  a  result,  EU  State  aid 
rules  minimise  the  competitive  distortions  and  therefore  also  of  negative  spill  over  effects  into 
third-country markets. Moreover, State aid granted explicitly to promote exports is in principle 
prohibited  under  EU  State  aid  rules.  Additionally,  State  aid  is  subject  to  specific  transparency 
requirements.  

Other  jurisdictions  do  not  have  similar  control  mechanisms  for  the  subsidies  they  grant.  As 
described in Section 2.5 and in Annex 4, those foreign subsidies are also not subject to the same 
transparency  criteria  as  State  aid.  Consequently,  the  risk  of  negative  spill  over  effects  from 
distortive foreign subsidies into other markets, including the EU internal market, are much higher 
than  in  case  of  EU  State  aid.  This  leads  to  an  uneven  playing  field  between  undertakings 
operating in the EU that receive foreign subsidies and those that receive no support or compatible 
State aid. On the other hand, foreign subsidies may have been designed to contribute to the policy 
objectives of the countries that grant them. Such policy objectives, e.g. environmental protection, 
may in some cases coincide with those pursued by the EU. Furthermore, foreign subsidies may 
well only affect the domestic market of the third country concerned without spilling over into the 
EU internal market. Consequently, a foreign subsidy would only be problematic in the EU if it 
has caused, or is likely to cause, distortions in the internal market.  

When determining whether a foreign subsidy is problematic, it is relevant to consider a number 
of  conditions  (or  ‘indicators’),  such  as  the  type  of  market  conduct,  the  size  and  nature  of  the 
subsidy concerned as well as the characteristics of affected market(s). Certain types of activities 
by subsidised companies, including different types of investments, can have a harmful impact on 
competition  in  the  internal  market,  e.g.  foreign  subsidies  to  facilitate  acquisitions  or  bids  in 
public  procurement  tenders.  Such  acquisitions  risk  entailing  the  expansion  of  less  efficient 
companies at the expense of more efficient non-subsidised ones.  

23 European Court of Auditors. The EU’s reponse to China’s state-driven investment strategy, Review 03, 2020. 
https://www.eca.europa.eu/Lists/ECADocuments/RW20_03/RW_EU_response_to_China_EN.pdf 
24 This brief definition effectively summarises the detailed definition of foreign subsidies provided in Annex I to the 
White Paper on levelling the playing field as regards foreign subsidies, COM(2020) 253 final, 17.6.2020. 

7 

 
 
                                                      
Distortions  of  competition  in  the  internal  market  can  also  result  from  participation  in  public 
procurement procedures by bidders that have received foreign subsidies enabling them to submit 
bids  that  are  economically  more  advantageous  compared  to  those  made  by  non-subsidised 
competitors.  Subsidised  bidding  can  ultimately  lead  to  the  crowding  out  of  more  efficient 
unsubsidised competitors that are not able to compete on an equal footing, thereby missing out on 
business opportunities and losing market shares.  Due to the size of certain procurement markets 
and  the  fact  that  already  a  few  contract  awards  can  give  successful  subsidised  bidders 
considerable  economic  advantages  over  their  competitors,  this  practice  can  be  considered 
harmful. 

Beyond specific types of activities, the size of the subsidy granted to companies needs to be taken 
into account when determining whether a foreign subsidy is problematic, since excessively large 
subsidies can be particularly distortive for competition. Likewise, the nature of the subsidy has an 
influence on how distortive it can be. Based on the EU’s experience with enforcing EU State aid 
rules, an operating subsidy is more likely to cause distortions than an investment subsidy, which 
indicates that the former can be considered more problematic in the case of foreign subsidies as 
well.  

Lastly,  foreign  subsidies  can  be  especially  problematic  if  they  are  granted  to  companies  that 
operate in markets that already suffer from low levels of competition. For example, subsidies can 
exacerbate the malfunctioning of markets with high entry barriers and significant economies of 
scale. Subsidisation can further cement market concentration, thereby leading to increased profit 
margins and higher prices. Thus, if foreign subsidies are granted to companies that already enjoy 
a considerable market share in sectors with low levels of competition in the internal market, their 
impact is likely to be particularly harmful. 

In view of the above, the problem examined in this report is centred on the distortions caused by 
some foreign subsidies in the EU internal market. On the basis of the data in sections 2.2 to 2.4, 
these distortions fall in three categories: 

  Distortions in the acquisition25 of EU undertakings,  
  Distortions in the area of EU public procurement, and 
  Other market distortions 

Most submissions to the public consultation on the White Paper and the targeted consultation26 
confirmed the concerns that some foreign subsidies distort the internal market. 

Most Member State authorities, with the exception of three who requested more information on 
distortions, supported the problem definition as described by the Commission in the White Paper. 
A large majority of Member States also agreed that foreign subsidies may have a distortive effect 
in general market situations (i.e. beyond acquisitions and public tenders). 

As far as other EU stakeholders are concerned, almost all27 agree that foreign subsidies cause or 
could  cause  distortions  in  the  internal  market.  Some  stakeholders28  put  forward  examples  of 

25 The EU Merger Regulation uses the term ‘concentration’ while the present document refers to the more commonly 
used term ‘acquisition’ 
26 See for the individual contributions here: 
https://ec.europa.eu/competition/international/overview/foreign_subsidies.html and for the summaries see Annex 6 to 
this report. 
27  This  includes  the numerous  industry  associations,  business  associations,  companies,  NGOs  and  research  institutes 
that  replied  to  the  public  consultation.  See  e.g.  the  contributions  of  IW,  Institut  der  deutschen  Wirtschaft,  European 
Aluminium, 
here:  
Publics 
nationale 
https://ec.europa.eu/competition/international/overview/foreign_subsidies.html 

Fédération 

available 

(FNTP), 

Travaux 

des 

8 

 
 
 
                                                      
cases, especially of distortions in acquisitions or public procurement procedures, which will be 
addressed further in this report. Others29, however, specify that it is difficult to provide concrete 
examples of cases where such distortions have materialised since reliable information on foreign 
subsidies is difficult to obtain. 

Non-EU stakeholders were generally more critical of the existence of a problem and the need to 
act.30  On  the  other  hand,  there  are  also  some  non-EU  stakeholders31  recognising  that  foreign 
subsidies may indeed create distortions on the EU internal market.  

As will be described in more detail in sections 2.2 to 2.4, various stakeholders pointed to issues in 
specific  economic  sectors:  steel  and  aluminium  sector,  aviation,  railways  (especially  in  the 
context of public procurement for infrastructure), oil and gas, and semiconductors. More specific 
stakeholder  feedback  will  be  referred  to  below  in  the  context  of  the  individual  examples  of 
sectors and case studies.  

Prior  to  discussing  each  problem,  it  has  to  be  emphasised  that  data  on  foreign  subsidies  are 
currently not systematically collected  – neither in the EU nor in third countries. This has to do 
with the fact that in most third countries there is a lack of transparency for subsidies granted by 
public authorities. In the absence of regulation, there are few incentives for companies or public 
authorities alike to make subsidies more transparent. 

As  highlighted  in  the  introduction,  the  only  international  organisation  which  tracks  certain 
subsidies (for trade in goods) is the WTO, but also in this case the data is not complete because 
WTO  Members  do  not  always  comply  with  the  notification  obligation.  Several  other 
organisations  have  attempted  to  track  subsidies  outside  of  the  EU.  At  the  national  level,  Good 
Jobs First, a US NGO, has for instances created an overview of subsidy schemes and individual 
subsidies in the United States (at both the state and federal level).  

At the global level, the Global Trade Alert (GTA) attempts to track subsidies more systematically 
across countries – the data contain subsidy schemes and individual awards but do not measure the 
impact  of  such  subsidies.  The  IMF  has  carried  out  research  on  subsidies  especially  regarding 
subsidies  granted  as  a  reaction  to  the  Covid-19  pandemic.  As  will  be  explained  in  more  detail 
under problem 3, additional databases exist that track subsidies as part of broader categories (e.g., 
data collected by World Bank on state expenditure). In addition to the limited availability of data, 
there are significant methodological challenges when it comes to the definition of subsidies. In 
any event, even if there were an effective system to track subsidies in third countries, there would 
be a need to establish their potential link to the internal market.  

As  regards  information  on  distortions  caused  by  subsidies,  several  OECD  studies32  have 
attempted to quantify market and sector specific distortions. In a report on government distortions 

28  See,  among  others,  the  submissions  of  Aegis  Europe,  Académie  de  l'Air  et  de  l'Espace,  European  Construction 
Industry Federation (FIEC), accessible here :  
https://ec.europa.eu/competition/international/overview/foreign_subsidies.html 
29 See e.g. the contribution of Andrea Biondi of King’s College London, available here:  
https://ec.europa.eu/competition/international/overview/foreign_subsidies.html 
30 See, among others, an anonymous submission to the public consultation or the submission of the China Chamber of 
Commerce to the EU. 
31 See e.g. the contributions of (UK-based) European Competition Lawyers Forum (ECLF) or Information Technology 
and Innovation Foundation available here:  
https://ec.europa.eu/competition/international/overview/foreign_subsidies.html 
32 OECD, “Measuring distortions in international markets: The semiconductor value chain”, OECD Trade Policy 
Papers, No. 234, OECD Publishing, 2019, Paris. OECD, “Measuring distortions in international markets: the 
aluminium value chain”, OECD Trade Policy Papers, No. 218, OECD Publishing, Paris. OECD, Subsidies in the steel 
sector: A stocktaking note, 2017, DSTI/SC(2017)11. 

9 

 
 
                                                                                                                                                              
in  the  semiconductors  industry,  the  OECD  finds  that  investment  incentives,  in  particular 
preferential  tax  treatment  in  non-EU  countries,  distort  trade  and  competition  in  the  relevant 
markets and might lead to a diversion of investments to less efficient locations.  

To sum up, there is evidence of the existence and impact of foreign subsidies, but it is sketchy 
and scattered across countries and sectors. To address these shortcomings, the Commission has 
compiled  several  case  studies  for  each  of  the  three  problem  areas.  The  case  studies  show  that 
non-EU  companies  with  significant  links  to  the  internal  market  have  received  financial 
contributions from non-EU public authorities, for example through loans not granted on market 
terms.  The  case  studies  illustrate  that  foreign  subsidies  can  be  traced  back  for  instance  by 
analysing  annual  reports  of  publicly  listed  companies  which  sometimes  list  the  financial 
contributions they receive from public authorities. In other cases, specific legislative acts passed 
in  third  countries,  which  institute  subsidy  schemes  or  individual  payments,  can  point  towards 
subsidisation. However, these case studies have limitations. In order to confirm that the identified 
financial  contributions  have  indeed  conferred  a  benefit  on  the  beneficiaries  and  distorted  the 
internal market, a more detailed investigation based on more advanced investigative tools would 
be necessary.  

2.2  Problem 1: Distortions in acquisitions 

This  subsection  will  describe  the  market  distortions  caused  by  foreign  subsidies  in  cases  when 
they  facilitate  the  acquisition  of  EU  companies  (‘subsidised  acquisition’).  The  findings  of  this 
section  can  also  partially  be  applied  to  the  other  two  problems.  The  discussion  below 
differentiates  between  short  and  long  run  effects  of  subsidised  acquisitions  (and  investments 
more broadly) on producers and consumers in the internal market. The discussion first focuses on 
effects on producers before proceeding with effects on consumers.  

At  first  glance,  it  seems  that  some  market  players  active  in  the  internal  market  benefit  from 
foreign  subsidies.  According  to  some  studies33,  one  potential  short-run  consequence  of 
subsidisation  is  that  subsidised  companies  may  overpay  for  their  acquisitions  (‘acquisition 
premiums’). Therefore,  it logically  follows that sellers  of  companies in the internal  market  can 
benefit financially from inflated purchase prices. However, potentially more efficient competitors 
of  the  subsidised  acquiring  company  would  be  crowded  out  from  the  acquisition  process.  As 
highlighted  by  Hufbauer  and  co-authors34,  this  has  to  do  with  the  ‘soft’  budget  constraint  of 
public  authorities  that  subsidise  companies  investing  abroad:  public  authorities  can  provide 
funding  to  companies  below  market  rates  or  directly  support  an  acquisition  through  equity 
participation. In contrast, non-subsidised companies face ‘harder’ budget constraints when they 
try  to  raise  funds  to  finance  acquisitions.35  This  crowding  out  effect  is  likely  to  outweigh  any 
benefits for producers associated with reaping acquisitions premiums, i.e., the negative impact of 
foreign  subsidies  on  companies  in  the  internal  market  is  more  significant  than  any  positive 
effects.  

33  Hufbauer,  Gary,  Thomas  Moll, and  Luca  Rubini.  "Investment  subsidies  for  cross-border  M&A:  trends  and  policy 
implications." United States Council Foundation, Occasional Paper 2 (2008), p. 9. 
For  evidence  on  higher  acquisition  premiums:  Guo,  Wenxin,  Joseph  A.  Clougherty,  and  Tomaso  Duso.  "Why  are 
Chinese  MNEs  not  financially  competitive  in  cross-border  acquisitions?  The  role  of  state  ownership."  Long  Range 
Planning  49,  no.  5  (2016):  614-631.  The  sample  of  this  paper  mostly  relies  on  acquisition  cases  from  Australia  and 
Canada. Other studies have not found systematic acquisition premiums when analysing Chinese overseas acquisitions: 
Fuest,  Clemens,  Felix  Hugger,  Samina  Sultan,  and  Jing  Xing.  What  Drives  Chinese  Overseas  M&A  Investment? 
Evidence from Micro Data. No. 33. EconPol Working Paper, 2019. 
34  Hufbauer,  Gary,  Thomas  Moll, and  Luca  Rubini.  "Investment  subsidies  for  cross-border  M&A:  trends  and  policy 
implications." United States Council Foundation, Occasional Paper 2 (2008), p. 9. 
35 Ibid.  

10 

 
 
                                                      
Whilst one might argue that the negative effect of overbidding might be limited in the short run, 
it  can  seriously  harm  the  functioning  of  the  internal  market  in  the  long  run.  For  example, 
overbidding  can  also  deter  non-subsidised  companies  from  engaging  in  acquisitions  more 
generally,  which  would  limit  their  opportunities  to  grow  in  scale  through  acquisitions.  The 
existence of this problem in the internal market has been confirmed by a recent publication36 that 
points  out  that  the  EU  FDI  screening  regulation  does  not  address  the  problem  of  subsidised 
acquisitions, which according to the author gives subsidised companies from third countries an 
unfair advantage. As described above, the paper also points to the issue of distorted acquisition 
prices  that  can  occur  as  a  result  of  subsidised  acquisitions.  Germany,  France,  and  Italy  had 
pointed out this problem during the negotiation process of the EU FDI Regulation.37 In a similar 
vein, several studies38 have pointed out that in the long run, subsidised acquisitions can lead to an 
expansion of less efficient subsidised companies at the expense of more efficient non-subsidised 
ones.  

Subsidised  acquisitions  may  also  help  companies  to  gain  easier  access  to  cutting-edge 
technologies.  Some  analysts  have  attributed  the  strategic  use  of  subsidised  acquisitions  to  the 
Chinese  government  which,  as  part  of  the  Made  in  China  strategy,  encourages  and  supports 
Chinese  investments  abroad  in  the  high-growth  technology  sector.39  In  general,  the  relevant 
literature  suggests  that  subsidies  granted  by  countries  to  encourage  foreign  investment  abroad, 
especially in so-called “developmental” states, are likely to be widespread and focus on specific 
firms and sectors as well as specific host countries.40  In addition, studies have established that an 
uneven  playing  field  due  to  subsidisation  may  ultimately  lead  to  increasing  market 
concentration41,  which  increases  risks  for  anticompetitive  outcomes  such  as  increased  margins 
and  higher  prices.42  This  problem  is  further  exacerbated  by  an  uncontested  position  of  some 
companies in their home markets.  

The latter point already indicates the potential long-run effect of foreign-subsidised acquisitions 
(and investments more broadly) on consumers. In the short run, though, foreign subsidies could 
be  seen  as  beneficial  for  consumers,  as  the  subsidised  company’s  increased  financial  strength 
could  allow  it  to  offer  cheaper  prices  for  relevant  goods  or  services  than  its  non-subsidised 
competitors. This effect has been documented by a recent merger control decision of the German 
Bundeskartellamt (Federal Cartel Office, FCO) which is detailed in the case study boxes below 
(Example 2, Problem 1). In a nutshell, the decision points out that in the short run low pricing 
strategies are ‘inherently competitive’ and therefore benefit consumers.43 But in order to improve 
competition  and  foster  innovation,  such  low  pricing  strategies  would  need  to  be  grounded  on 
comparative cost advantages of the company  concerned vis-à-vis its competitors  – if, however, 

36 Bismuth, Régis. "Screening the Commission’s Regulation Proposal Establishing a Framework for Screening FDI 
into the EU." European Investment Law and Arbitration Review Online 3, no. 1 (2018), p. 48. 
37 Ibid, p. 58. 
38  E.g.,  Schwartz,  Gerd,  and  Benedict  Clements.  "Government  subsidies."  Journal  of  Economic  Surveys  13,  no.  2 
(1999): 129-130. 
39  Felbermayr,  Gabriel,  Moritz  Goldbeck,  and  Alexander-Nikolai  Sandkamp.  "Feindliche  Übernahme?  Chinas 
Auslandsinvestitionen unter der Lupe." ifo Schnelldienst 72, no. 08 (2019): p. 32.  
40 Florian Becker-Ritterspach, Maria L. Allen, Knut Lange and Matthew M. C. Allen, UNCTAD, “Home-country 
measures to support outward foreign direct investment: variation and consequences”, 
https://unctad.org/system/files/official-document/diaeia2019d1a3_en.pdf  
41 Chinese state capitalism: A challenge for the European market economy”, German Monopolies Commission, July 
2019, p. 17. 
42 Hovenkamp, Herbert, and Fiona M. Scott Morton. "Framing the Chicago School of antitrust analysis." U of Penn, 
Inst for Law & Econ Research Paper 19-44 (2020), p. 16. 
43 Bundeskartellamt (B4-115/19) English Case Summary of 27 April 2020, p. 6. 

11 

 
 
                                                      
the low pricing strategies are a result of systematic subsidisation, they can distort competition and 
lead to serious market distortions in the long run.44  

In practice, both EU and non-EU companies operating in the internal market  without receiving 
subsidies  risk  being  crowded  out  by  non-EU  subsidised  investments.  As  indicated  above,  by 
tilting  the  level  playing  field,  subsidies  contribute  to  the  consolidation  of  markets  and  thereby 
allow  beneficiaries  to  more  easily  attain  dominant  positions,  especially  in  markets  with  high 
economies  of  scale  and  relevant  entry  barriers.  After  having  attained  a  dominant  position, 
subsidised  companies  can  use  their  financial  strength  to  engage  in  predatory  pricing  (or 
‘dumping’) which further consolidates their position and pushes non-subsidised competitors out 
of  the  market.45  This  might  eventually  negatively  affect  consumers  –  provided  subsidised 
companies used their dominant position to increase prices.46 Altogether, in the long run, foreign 
subsidies are thus likely to have a negative impact on both producers and consumers alike in the 
internal market.  

It seems reasonable to assume that low pricing strategies could also be leveraged during public 
procurement  procedures  to  undercut  rival  bidders  or  as  part  of  general  market  distortions.  In 
contrast  to  greenfield  investments,  which  often  require  years  before  they  become  operational, 
subsidised acquisitions allow companies to gain a foothold in the internal market more swiftly, 
which is why subsidised acquisitions can be deemed to be particularly harmful. 

A  subsidies-induced  distortion  of competition  might  have  further  knock-on  effects  or ‘indirect’ 
effects on other policy areas. For example, subsidised companies might shift production facilities 
abroad after having acquired companies in the internal market, which could affect labour markets 
in the EU. 

Outside of the EU, the idea of regulating the harmful impact of subsidised acquisitions has been 
discussed in a paper which has been submitted to the US-China Economic and Security Review 
Commission.  The  paper  highlights  that  subsidised  acquisitions  can  have  adverse  consequences 
for non-subsidised companies in the relevant market.47 Furthermore, the paper identifies several 
examples of foreign subsidised acquisitions of US targets, thereby demonstrating that subsidised 
acquisitions may not only affect the EU internal market.48 There is currently a discussion in the 
US  on  whether  rules  on  foreign-subsidised  acquisitions  should  be  adopted.  The  US-China 
Economic and Security Review Commission recommended Congress to adopt a foreign subsidy 
review in its 2020 Report to Congress.49 

Case studies 

The following case studies illustrate how foreign subsidies may have distorted the acquisition of 
EU  companies.  It  should  be  noted  that  without  appropriate  investigative  tools,  it  cannot  be 
determined with certainty to what extent the various financial contributions can be qualified as 
subsidies and whether these funds were used to facilitate the acquisitions of the EU undertakings 

44 Ibid.  
45 Forsyth, Peter, and Cathal Guiomard. "The economic approach to subsidies for foreign airlines." Journal of Air 
Transport Management 74 (2019): 47-53. 
46 Ibid. 
47 Hufbauer, Gary, Thomas Moll, and Luca Rubini. "Investment subsidies for cross-border M&A: trends and policy 
implications." United States Council Foundation, Occasional Paper 2 (2008), p. 1.  
48 Hufbauer and co-authors refer to (attempted) acquisitions from China National Overseas Oil Corporation (CNOOC), 
Korean-based Doosan Infracore, and Dubai Ports World in the US. CNOOC’s bid also provides evidence of attempted 
outbidding of private investors, as Unocal, the target of CNOOC’s bid, had already accepted Chevron’s lower offer. 
CNOOC’s bid ultimately failed due to an intervention to stop the acquisition from the Chinese side (see pp. 3-4, supra 
note 101).  
49 https://www.uscc.gov/sites/default/files/2020-12/2020_Annual_Report_to_Congress.pdf 

12 

 
 
                                                      
concerned. The case studies, however, give a clear indication of the potential of foreign subsidies 
to distort the internal market through subsidised acquisitions.   

These case studies also show that potentially subsidised acquisitions are not confined to specific 
sectors.  Some  sectors,  however,  seem  to  be  particularly  affected.  Among  these  are  the  steel, 
aluminium and semiconductor sectors, which have also been analysed in-depth by the OECD50 
and pointed out by respondents to the public consultation.  

Example 1, Problem 1: CNCC/Pirelli 

In 2015, China National Chemical Corporation (ChemChina) acquired Pirelli, via its subsidiary - the China 
National Tyre and Rubber Company (CNRC).  

In 2018 the European Commission stated in the final decision of an anti-subsidy investigation51 that CNRC 
had benefited from several interventions by the Chinese State as the company did not have sufficient own 
funds to finance the acquisition. The most relevant support measures are listed below: 

* CNRC received a grant of RMB 500m (around EUR 66m) from the Central SASAC (State-owned Assets 
Supervision and Administration Commission of the State Council) to promote global production capacity 
cooperation under the Belt and Road Initiative (BRI). 

* CNRC received an EUR 800m preferential loan from a bank consortium, including China Development 
Bank (state-owned), EXIM Bank (subordinated to the State Council) and China Construction Bank (state-
owned). The loan agreement mentions as purpose of the loan the acquisition of Pirelli.  

* CNRC also received a RMB 17m (approx. EUR 2.13m) refund of the interest paid on the loan mentioned 
above. This refund was granted by the Ministry of Finance for the acquisition of Pirelli's stock rights, as 
part of the key projects of 2015 special funds for the development of foreign trade. 

*  The  Government  of  China  also  participated  in  the  acquisition  of  the  stake  in  Pirelli  by  providing  an 
equity participation worth EUR 533m via Silk Road Fund (SRF), a government investment fund that is part 
of  the  Belt  and  Road  Initiative.  The  investment  of  SRF  corresponded  exactly  to  the  amount  that  was 
needed by CNRC to gain an absolute majority ownership in the Pirelli Group (65% versus 48.75% without 
SRF). 

As there was no suitable EU instrument, no further investigation of the potential subsidy or its impact took 
place.  

Example 2, Problem 1: CRRC/Vossloh Locomotives 

Vossloh is a leading rail technology company focussed on rail infrastructure with sales of EUR 916 million 
and approx. 3,786 employees.52  

Vossloh attempted to sell its business unit locomotives since 2014 and did not invest in new technologies 
since  then.53  The  business  unit  locomotives  (Vossloh  Locomotives)  consists  of  the  manufacturing  of 
shunting locomotives and is the market leader in Europe: Vossloh’s market shares amounted to 40-50% in 

50 OECD, “Measuring distortions in international markets: The semiconductor value chain”, OECD Trade 
Policy Papers, No. 234, OECD Publishing, 2019, Paris. OECD, “Measuring distortions in international 
markets: the aluminium value chain”, OECD Trade Policy Papers, No. 218, OECD Publishing, Paris. 
OECD, Subsidies in the steel sector: A stocktaking note, 2017, DSTI/SC(2017)11.  
51 See European Commission Implementing Regulation 2018/1690. 
52 https://www.vossloh.com/en/company/vossloh-at-a-glance/ 
53 Bundeskartellamt (B4-115/19) English Case Summary of 27 April 2020, p. 1. 
https://www.bundeskartellamt.de/SharedDocs/Entscheidung/EN/Fallberichte/Fusionskontrolle/2020/B4-
115-19.pdf?__blob=publicationFile&v=5 

13 

 
 
 
 
                                                      
past  years.54  Shunting  locomotives  are  used  by  railway  undertakings  and  industrial  operators  to  load 
wagons  in  e.g.  major  industrial  installations.  In  some  cases,  shunting  locomotives  are  also  used  on  the 
public rail network, for example to transport wagons from one site to another.55 

CRRC Zhuzhou Locomotives (the acquirer) is a subsidiary of CRRC Corporation (CRRC). CRRC is listed 
and is 51 % owned by the Chinese State. CRRC is the world’s largest manufacturer of rolling stock.56 

CRRC benefits from Chinese government subsidies. For example, the company openly reports subsidies of 
around EUR 75 million in its 2018 annual report.57 It also receives significant financing from state-owned 
banks (while no details are known on the actual terms).58 The merger decision of the German competition 
authority states that CRRC was using favourable prices to expand its position on foreign markets based on 
orders for shunting locomotives from several railway companies in the EU.59  

On 26 August 2019, Vossloh signed the contract to sell its locomotives business unit to CRRC Zhuzhou 
Locomotive. The agreed purchase price is confidential. By decision of 27 April 2020, the German Federal 
Cartel Office (FCO) cleared the acquisition unconditionally.60  

The FCO notes that “as a state-owned company subsidised in the context of two important strategic plans 
of China – namely “Made in China 2025” and “Belt and Road Initiative”  – CRRC’s access to financial 
resources  is  exceptional.”61  It  further  notes:  “CRRC  indeed  enjoys  advantages  due  to  receiving  state 
subsidies” and “for the assessment of CRRC’s scope of action, the fact that granting a loan in China is an 
important  instrument  to  provide  financial  resources  to  state-owned  companies  is  also  significant.  The 
Chinese  banking  sector  is  characterised  by  a  large  share  of  state-owned  banks,  which  are  used 
strategically  to  achieve  the  goals  set  by  state  planning  by,  for  example,  financing  state-owned  (sister) 
companies regardless of their financial situation and the associated credit risk with loans at interests rates 
that are not in line with the market.”  

In spite of these favourable financial conditions for CRRC, the FCO could not directly take into account in 
the assessment of the acquisition to what extent support from the Chinese authorities was instrumental in 
acquiring  Vossloh’s  business,  nor  whether  any  such  subsidies  would  support  Vossloh’s  locomotive 
business  in  the  future.  Such  considerations  are  outside  the  mandate  of  the  competitive  assessment  of 
acquisitions which is focused on the probability of the merger leading to a dominant position.  

Nonetheless,  the  FCO  hinted  at  the  potential  influence  of  foreign  subsidies  on  the  future  business  of  the 
acquired company:  

“Against this background, CRRC has extensive possibilities for implementing low-price strategies. Based 
on CRRC’s previous behaviour in foreign markets and also internal documents, it can be concluded that 
CRRC  strategically  uses  low  prices  in  order  to  expand  its  market  position  in  foreign  markets.  This  is 
indicated,  for  one  thing,  by  the  ordered  shunters  CRRC  sold  to  DB  and  the  Hungarian  RCH,  and,  for 
another,  by  individual  locomotive  and  railcar  contracts  concluded  in  other  European  countries.  In 
addition,  over  the  past  years  CRRC  has  won  numerous  important  tender  procedures  relating  to  metro 
trains in the USA by offering particularly low prices.”62  

Annex 4, Section 1 contains four additional case studies in which there are indications that the 
acquirers  of  EU  targets  may  have  received  foreign  subsidies  facilitating  these  acquisitions.  In 

54 Ibid, p. 7. 
55 Ibid, p. 2.  
56 Ibid, p. 1. 
57 Ibid, p. 6. 
58 Ibid, p. 6. 
59 Ibid, pp. 6-7. 
60 Ibid, pp.7-9. 
61 Ibid, p. 6.  
62 Ibid, p. 7. 

14 

 
 
                                                      
these examples, the acquirers benefited from equity injections, grants or loans by public bodies 
that may qualify as subsidies.  

General context of foreign subsidisation of acquisitions  

Due  to  the  general  lack  of  reliable  data  on  subsidies  in  many  third  countries,  this  section  uses 
alternative  methods  to  indicate  the  potential  amount  and  origin  of  foreign  subsidies.  Notably, 
whilst  foreign  subsidies  do  not  necessarily  go  hand  in  hand  with  foreign  ownership  of  the 
beneficiaries, this section uses foreign ownership as a proxy to indicate which beneficiaries may 
potentially  benefit  from  foreign  subsidies.  Such  a  proxy  has  also  been  proposed  by  other 
reports.63  Other  proxies  such  as  acquisition  premiums  paid  by  acquiring  companies  could  in 
principle  be  used,  but  would  require  in-depth  knowledge  of  the  specific  cases  and  the  relevant 
markets, which are not available in the absence of an investigative tool.  

There are detailed data about the total value and the numbers of non-EU acquisitions by country 
of origin.64 When ranked by value, the US, the UK and Switzerland account for the majority of 
third country acquisitions in the EU. A similar pattern emerges when the number of acquisitions 
is considered (see Figure 1 and Table 1 below). Following the US, UK and Switzerland, Chinese 
acquirers  have  gained  in  importance.  As  regards  the  latter,  recent  research  from  the  Rhodium 
Group and the Mercator Institute for China Studies finds that the value of Chinese acquisitions 
was between 2000 and 2010 on average well below one billion EUR per year.65 In the meantime, 
China  has  become  the  fourth  biggest  acquirer  of  EU  undertakings,  with  acquisition  values 
peaking  at  almost  EUR  20  billion  in  2016.66  67  Chinese  FDI  into  the  EU  is  largely  driven  by 
acquisitions,  which  account  for  95  per  cent  of  Chinese  FDI  in  the  EU.68  ‘Direct  government 
financing’  is  a  particularly  important  feature  of  Chinese  overseas  acquisitions  as  noted  by  a 
recent study from the Rhodium Group, the Mercator Institute and the Bertelsmann Foundation.69  

63 This appears to be the case for Chinese SOEs but also Chinese private companies that are meant to safeguard 
China’s competitiveness in key sectors and serve as a main driver of China’s economic growth (“Chinese state 
capitalism: A challenge for the European market economy”, German Monopolies Commission, July 2019, p. 8). 
64 See Figure 5 and Table 14 in Section 5 of Annex 4.  
65 Kratz, Agatha, Mikko Huotari, Thilo Hanemann, and Rebecca Arcesati. "CHINESE FDI IN EUROPE: 2019 
UPDATE." (2020), p. 9.  
66 Ibid. 
67 Values for FDI per year might differ between datasets. The reported figures from the JRC are an under-valuation of 
the true total amount of FDI. 
68 Kratz, Agatha, Mikko Huotari, Thilo Hanemann, and Rebecca Arcesati. "CHINESE FDI IN EUROPE: 2019 
UPDATE." (2020), p. 9. 
69  Huotari,  Mikko,  and  Agatha  Kratz.  Beyond  Investment  Screening:  Expanding  Europe's  Toolbox  to  Address 
Economic Risks from Chinese State Capitalism. Bertelsmann Stiftung, 2019. For more information on China’s state-
led investment strategy, see also: European Court of Auditors, The EU’s response to China’s state-driven investment 
strategy, Review No 03 2020. 

15 

 
 
                                                      
Figure 1. Number of foreign investment deals in Europe by country of origin, 30 per cent threshold 

s
l
a
e
d
f
o
r
e
b
m
u
n

4000

3500

3000

2500

2000

1500

1000

500

0

2013

2014

2015

2016

2017

2018

2019

2020*

US

UK

CH

CN+HK

JP

NO

KY

CA

RU

RoW

Source:  JRC  elaboration  on  Bureau  van  Dijk  data.  Data  extraction:  06/11/2020.  The  following  countries  are  shown:  United  States 
(US), United Kingdom (UK), Switzerland (CH), China and Hong Kong (CN+HK), Japan (JP), Norway (NO), Cayman (KY), Canada 
(CA), Russia (RU). Rest of the world (RoW) which excludes the countries previously listed. Notes: Data display the total observed 
number  of  announced  and  completed  investment  deals  (≥30%  of  capital  stakes)  done  by  investors  with  an  ultimate  owner  outside 
EU27. (*) 2020 includes observations between January and end of September. 

Table 1. Number of foreign acquisitions of equity holdings in European companies 

Equity 
holdings  

2013 

2014 

2015 

2016 

2017 

2018 

2019 

2020* 

>10% 

2897 

3507 

3551 

3476 

3438 

3751 

3370 

1906 

>25% 

2735 

3319 

3421 

3327 

3272 

3630 

3267 

1837 

>30% 

2727 

3301 

3405 

3314 

3255 

3613 

3254 

1830 

>40% 

2694 

3267 

3384 

3286 

3232 

3586 

3231 

1823 

>50% 

2677 

3234 

3343 

3263 

3200 

3562 

3203 

1817 

Source: JRC elaboration on Bureau van Dijk data. Data extraction: 06/11/2020. Data by year and threshold of the acquisition.  Note: 
cells  display  the  total  number  of  foreign  acquisitions  of  equity  holdings  higher  than  the  threshold  indicated  in  the  first  column. 
European companies refers to EU27. (*) 2020 includes values between January and September.  

The  above  figure  illustrate  the  overall  number  of  foreign  acquisitions  (both  per  equity  holding 
and per country of origin). However, the figures on investments from non-EU acquirers do not 
include information on foreign subsidies. Therefore, the figures give only an indication as to the 
ranking  of  trading  partners  of  the  EU  with  regard  to  non-EU  acquisitions  (‘foreign  investment 
deals’) but this ranking does not indicate the importance of a given trading partner as a grantor of 
foreign subsidies. The data illustrates nevertheless which third countries are potentially relevant 
to examine the possible existence of foreign subsidies. Table 1 above on equity holdings shows 
the  overall  numbers  of  non-EU  acquisitions  under  different  quantitative  thresholds  for  equity 
holdings (Table 14 on values of acquisitions per equity holding can be found in Annex 5). Most 
acquisitions (beyond a 10% shareholding) consist of the acquisition of a stake of at least 50% of 

16 

 
 
 
 
 
 
the target company.70 In practice, a 30% threshold for equity holdings would be most closely in 
line with acquisitions aimed at achieving control of a certain target company.  

In  general,  only  a  fraction  of  foreign  acquisitions  meet  the  thresholds  of  the  EU  Merger 
Regulation  and  are  thus  notified  to  the  Commission  (between  73-190  deals  with  a  non-EU 
acquirer per year71). Smaller acquisitions are notified to national competition authorities (NCAs) 
under national merger laws, whilst some cases do not require notification at all.  

Without reporting obligations or a subsidy control mechanism in place, it is difficult to establish 
the  overall  magnitude  of  the  problem  of  subsidised  acquisitions.  However,  given  the  trends  in 
foreign investment and foreign acquisitions in the EU (see section 5 in Annex 4) combined with 
the growing number of subsidy measures around the world (see section 7 in Annex 4), there are 
strong indications that foreign subsidies continue to have an impact on the internal market (which 
is likely to increase) as also illustrated by the above case examples. 

2.3  Problem 2: Distortions in public procurement  

This subsection will outline distortions that may occur when foreign subsidies are either granted 
with the express objective to, or are used to, enable or facilitate the participation of bidders in EU 
procurement procedures.  

The  EU’s  single  market  in  government  purchases  constitutes  a fundamental  pillar  of  economic 
integration in the Internal Market. Public procurement accounts for over 14 % of GDP in the EU 
or around 2.1 trillion. It provides important business opportunities for economic operators from 
the EU and from third countries. The market is well-regulated at EU and national level to ensure 
compliance  with  three  key  principles:  equal  treatment,  non-discrimination  and  transparency. 
These principles aim to achieve a procurement market that is competitive, open, and maximises 
value  for  money  for  the  public  sector  and  ultimately,  the  taxpayer.  Well-functioning  and 
integrated  public  procurement  markets  are  essential  for  ensuring  productive  spending  and 
investment of public money. To prevent efficiency losses, it is key to ensure fair competition in 
the internal market between companies without discrimination. 

When  assessing  the  impact  of  participation  by  subsidised  bidders  in  public  procurement,  it  is 
necessary to examine the short-term and long-term effects. 

Contract  awards  to  subsidised  bidders  in  procurement  may  lead  to  short-term  advantages  for  a 
number of reasons. Opening up procurement market to the highest possible number of interested 
parties,  including  subsidised  bidders,  will  lead  to  a  favourable  increase  of  the  number  of  bids 
submitted,  to  a  decrease  in  tender  prices  offered  and  to  increase  the  competitive  pressure  on 
incumbent bidders to be more cost-efficient. Lower bids are as a matter of principle advantageous 
to  the  contracting  authorities  from  an  economic  point  of  view,  regardless  of  how  they  come 
about. This is true in particular where public buyers select the winning bidder simply on the basis 
of the lowest bid price rather than on the basis of the best price-quality ratio. In the short term, 
lower prices offered by subsidised bidders benefit public buyers who have to spend less public 
resources. Furthermore, opening up markets to bidders that are able to offer lower prices can also 
increase the competitive pressure on incumbent bidders to be more cost-efficient.    

However, such short term positive effects have to be weighed against adverse consequences, both 
short  and  long  term,  that  result  from  the  participation  by  subsidised  bidders  in  EU  public 
procurement  procedures.  By  choosing  the  best  value  option  presented  in  a  subsidised  bid,  a 

70 Likewise, the different participation thresholds between 10 and 50 percent do not have a major impact on the 
importance of the various trading partners. 
71 For more detail about the EU merger data, see the section on the impacts of the policy options.  

17 

 
 
                                                      
public  buyer  will  not  necessarily  achieve  value  for  money.  Where  subsidised  low  prices  are 
obtained at the cost of quality and innovation, and ultimately lead to crowding out of innovative 
companies,  they  can  be  an  indicator  of  a  reduction  of  the  level  of  competition  in  procurement 
markets.   

Similarly  to  adverse  consequences  for  competition  in  acquisitions,  participation  by  subsidised 
bidders  in  public  procurement  procedures  can  lead  to  short-term  negative  effects  for  non-
subsidised companies that are competing for the same contracts.   

The most damaging consequence is the case when a non-subsidised bidder otherwise offering the 
most  economically  advantageous  bid  is  not  awarded  a  public  contract  only  due  to  the 
participation of a competitor benefitting from a distortive foreign subsidy, which wins. This is a 
direct loss of resources and business for the non-subsidised bidder in a specific procedure, as a 
direct  result  of  the  undue  advantage  stemming  from  the  subsidisation.  In  the  long  term,  such 
losses of specific contracts may lead to situations where unsubsidised competitors are not able to 
compete  for  contracts  at  all  on  an  equal  footing,  thus  systematically  missing  out  on  business 
opportunities and losing revenue on a lasting basis. The ensuing uneven playing field may over 
time discourage unsubsidised bidders from competing.  

the  operation  and  exploitation  of 

As  in  the  case  of  acquisitions,  where  subsidies  can  be  tools  used  by  foreign  governments  to 
pursue  strategic  goals  and  to  extend  their  economic  influence  abroad,  bidding  by  subsidised 
undertakings  for  specific  contracts  can  be  part  of  a  wider  strategy  of  the  subsidising  country. 
Strategic interests play a role in particular when bidding for public concession contracts having as 
their  object 
railways, 
telecommunications  and  utilities).  Such  strategic  bidding  practices  may  raise  concerns  with 
regard to long-term foreign control over public infrastructure, in particular with regard to natural 
monopolies. As regards the impact of foreign subsidies on the level playing field, such concerns 
can  be  taken  into  account  as  a  factor,  among  others,  in  the  overall  assessment  of  the  market 
situation. Foreign subsidies are therefore problematic not only because they lead to inefficiencies 
and distortions of the level playing field in the internal market, but because they may result in the 
foreign control of public infrastructure.   

infrastructures 

large 

(e.g. 

In addition, any participation of subsidised bidders in a public procurement, even if the result is 
not  winning  a  contract,  has  inherent  disadvantages  for  the  functioning  of  the  internal  market. 
Every public procurement is a test of the market, and as such needs to send realistic signals about 
all of its aspects. Foreign subsidies create unrealistic and false perceptions, whether about prices 
of  material,  about  the  price  of  quality  and  technology,  about  salaries,  about  the  number  of 
companies active in a market, delivery routes and time etc.  

Moreover,  instead  of  lowering  prices  for  public  buyers,  subsidised  bidding  can  lead  to  higher 
prices and reduce the efficiency as serious competitors leave the market. A perceived short-term 
‘gain’  for  the  public  purse  contributes  to  a  general  market  failure  harming  public  investors  as 
much as private. 

Finally, where foreign subsidies in a winning bid are returned or otherwise forfeited after contract 
award,  they  can  jeopardise  the  proper  execution  of  the  awarded  public  contract  and  lead  to 
subsequent increases in prices through contract amendments. 

Concern  over  the  existence  of  subsidies  and  unfair  practices  and  their  harmful  effect  on  the 
internal  market  was  strongly  voiced  by  a  significant  number  of  contributors  to  the  public 
consultation  on  the  White  Paper.  In  a  number  of  submissions,  contributors  to  the  public 
consultation, such as the ones from the maritime equipment sector, have outlined that in recent 
years,  European  public  procurement  contracts  have  been  awarded  to  economic  operators  from 
third countries such as South Korea and China that may have benefited from state-backed finance 

18 

 
 
and government support provided to domestic technology industries. Notably, stakeholders have 
reported that this is the case in the railway supply, maritime technology and construction sectors. 
Stakeholders  have  pointed  out  that  for  specific  third  countries,  these  sectors  are  considered  of 
strategic importance, and that behaviours which they see as indicating the existence of export-led 
government strategies enable their domestic companies (often state-owned) to compete globally 
with prices that distort competition. 

Example 1, Problem 2: Infrastructure Project - construction 

As stakeholders have indicated, foreign subsidies may be 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.  Specific  concerns 
have been raised in cases where EU Funding is given for the project concerned. 

A  few  years  ago,  a  contracting  authority  awarded  a  major  construction  contract  closing  a  gap  in  the 
country’s  transport  network  to  a  consortium  led  by  a  non-EU  company.  The  offer,  while  above  the 
contracting  authority’s  proposed  project  budget,  was  nearly  20%  lower  than  the  next-lowest  bid.  The 
company structure might indicate that the offer may have relied on state financing.  

Example 2, Problem 2: Infrastructure projects – supply 

Over the past years, a state-owned non EU supplier of essential transport equipment has won a number of 
high value tender procedures in the EU. They offered particularly low prices. The company is considered 
the world market leader in its sector. According to its own disclosure in stock exchange filings, it receives 
substantial government subsidies.  

 Within the last 12 months, a consortium led by this company was awarded a public contract for the supply 
of a substantial number of equipment for local transport in a MS. The contract has an estimated value of 
EUR between 150 and 200 million EUR. A year before, the company has been awarded a contract valued 
at EUR over 50 million EUR to supply equipment for local transport in another MS, and at a similar time 
another  consortium  led  by  the  company  was  selected  to  supply  equipment  for  suburban  and  regional 
services for a value up to almost 1 billion EUR, having offered a price that was 25% lower than that of 
competitors. 

As  mentioned  under  2.2  the  German  competition  authority  has  stated  that  specific  companies  use 
favourable prices to expand their position on foreign markets. Participation in public procurements is one 
way of achieving this aim. Contracting authorities like competition authorities, see above 2.2, cannot take 
into  account  in  their  assessment  to  what  extent  foreign  subsidies  were  instrumental  in  winning  the 
contract, and have had a distortive effect.   

Example 3, Problem 2 Infrastructure project – local transport  

In 2019, a regional council awarded a contract for works/supplies on a transportation network to a state-
owned non-EU company for a value of several tens of millions of EUR. The winning bid was 40% lower 
than the next-lowest offer from competitors. 

The  above  examples  are  given  to  demonstrate  the  potentially  distortive  effects  of  foreign 
subsidies  and  state-sponsored  bidding  practices.  These  practices  may  be  driven  by  long-term 
strategic goals, or in order to gain direct access to important markets or regions. In some cases, 
foreign subsidies are likely 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 

19 

 
 
 
 
 
 
 
 
 
 
 
“underbidding”  to  the  detriment  of  competing  non-subsidised  undertakings.  A  response  to  the 
public consultation on the White Paper mentioned such an example72.  

The examples provided above describe the problems linked with foreign subsidies.  

As for acquisitions, also for public procurement no specific data are available on the prevalence 
of subsidised bidding so that alternative methods to indicate the existence of foreign subsidies in 
public procurement have to be used. While foreign subsidies may be granted to any company, as 
mentioned under 2.2, the only available data in procurement is the share of contracts won by non-
EU companies. Data in the database of Tenders Electronic Daily (TED)73 are only available for 
successful bidders, not for all bidders, and these data only report the country of registration of the 
bidding company, not their ownership. A study covering cross-border procurement in the years 
2009  to  201574  also  investigated  so-called  indirect  cross-border,  i.e.  awards  to  foreign  owned 
subsidiaries.  This  study  determined  that  3.0  %  of  contracts  in  the  EU  were  directly  awarded 
cross-border, and 20.4 % were awarded indirectly. Of the 3.0 % of direct cross-border awards, 
78.6 % of all contracts were awarded to EU companies. This share has, however, been decreasing 
over the reporting period from 87.4 % in 2009 to 73.6 % in 2015. In fact, there were nearly twice 
as  many  direct  cross-border  awards  in  2015  than  in  2009.  The  share  of  non  EU  companies  in 
indirect  cross-border  awards  amounted  to  39.7  %  over  the  period  from  2009  to  2015.  Specific 
investigations for contract awards above EUR 250 million recorded in the TED database between 
2015  and  201775  have  shown  that  21  of  the  435  awardees76  or  4.8%  had  an  ultimate  owner 
outside the EU. No reliable data is available on foreign participation in the supply chain and as 
subcontractors. A 2011 study77, on the basis of a pan-European survey, estimated the share for 
intra- and extra-EU cross-border participation of subcontractors, wholesaler, and distributors78 at 
12.9 % of the total procurement79. 

Overall, the available data show that the share of cross-border awards to non EU companies is 
increasing over time. This increase shows the openness of the EU market in general, and the EU 
procurement market in particular. Increasing openness, along with the general trend of increases 
in  subsidies  globally  as  explained  under  point  2.2,  underlines  the  need  to  have  and  maintain  a 
level playing field in the EU procurement market for all economic operators.  

for 

the 

the 

Union 

service 

European 

advertisement 

the  European  Commission,  Brussels, 

72 See the contribution of Dutch Province of Overijssel, available here: 
https://ec.europa.eu/competition/international/overview/foreign_subsidies.html 
73 TED (Tenders Electronic Daily) is the online version of the 'Supplement to the Official Journal' of the EU. TED is an 
contracts. 
of 
online 
(https://ted.europa.eu/TED/main/HomePage.do) 
74 VVA, LE and JIIP (2017), “Measurement of impact of cross-border penetration in public procurement”, Final report 
for 
https://op.europa.eu/en/publication-detail/-
available 
/publication/5c148423-39e2-11e7-a08e-01aa75ed71a1 
75 More recent data are not yet fully available for analysis. 
76 Several contracts have been awarded to multiple companies. 
77 European Commission, DG Internal Market and Services, Cross-border procurement above EU thresholds  – Final 
Report  (March  2011),  available  here:  https://op.europa.eu/en/publication-detail/-/publication/0e081ac5-8929-458d-
b078-a20676009324  
78 At the same time, indirect cross-border procurement through ‘affiliates’ accounted only for 13.4 % of the value of 
procurement.  
79 It did not distinguish between value and number of contract awards. 

public 

here: 

of 

20 

 
 
 
                                                      
The special case of EU-funding 
Most  of  the  EU  budget  –  about  80%  –  is  implemented  under  shared  management:  Member  States 
distribute the funds and manage the expenses in compliance with the applicable EU and national law. A 
large  part  of  funding  under  shared  management  is  awarded  through  public  procurement  procedures.  It 
follows  that  any  future  Union  measure(s)  addressing  the  distorting  effects  foreign  subsidies  in  public 
procurement  will  apply  to  the  EU  budget  expenditure  under  shared  management  through  public 
procurement.  

The  direct management of EU funds is subject to the EU’s Financial Regulation. The Commission  may 
explore the possibility to propose to the co-legislators amendments to the Financial Regulation to take into 
account the impact of foreign subsidies. This is not part of the present impact assessment report. 
As regards EU funds implemented through indirect management, the Commission may liaise directly with 
the International Financial Institutions charged with their implementation. 

2.4  Problem 3: Other market distortions 

Apart from the specific cases of foreign subsidies facilitating acquisitions of EU companies and 
distorting public procurement procedures, there are indications that foreign subsidies can distort 
the internal market in other ways – e.g., through greenfield or other investments.  

As  indicated  in  the  section  on  Problem  1,  the  economic  literature  cites  a  number  of  negative 
effects that subsidies may generally have on the market.80 Subsidies may for example lead to an 
inefficient overall allocation of resources81 and cause growth differentials between subsidised and 
non-subsidised  undertakings.  In  terms  of  the  concrete  impact  of  foreign  subsidies  on  the  EU 
internal  market,  the  section  on  Problem  1  pointed  out  that  subsidised  companies  may  build  up 
market  power  through  low  prices  by  driving  competitors  out  of  the  market  or  preventing  them 
from entering.82 Such market power could then, in the long term, lead to abuse, for instance by 
allowing  the  subsidised  company  to  increase  its  prices  (this  strategy  easier  to  impose  if 
competitors  have  been  already  weakened).  Hence,  in the  long  term,  undertakings  not receiving 
third country subsidies would become less competitive which negatively affects the EU’s overall 
economic  competitiveness.83  These  considerations  hold  both  for  subsidised  acquisitions  and 
subsidised  greenfield investment.  Last but not least, foreign  subsidies  may  also  result in  costly 
and  often  wasteful  emulation  and  lead  to  subsidy  races,84  further  deepening  the  above 
inefficiencies  and  distortions.  A  lack  of  transparency  about  subsidies  aggravates  the  distortive 
effects  of  subsidies  as  it  leaves  competitors  unaware  of  their  influence  on  market  prices  and 
production volumes and therefore undermines their own business decisions.85 

Two types of general market distortions deserve particular attention in the context of this section, 
namely foreign subsidies that are granted to incentivise the delocalisation of companies active in 
the internal market as well as subsidised private tenders. Regarding the former, foreign subsidies 

80 It should be noted that in the EU context, such distortions may be reduced, e.g. by subsidies granted in competitive 
processes. Moreover, such subsidies may be proportional and contribute to EU public policy objectives, and hence be 
considered compatible State aid. See e.g. the 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. 4–12 
81 Gurwinder Singh, “Subsidies in the Context of the WTO’s Free Trade System  - A Legal and Economic Analysis” 
(2017), p. 23. 
82 The CRRC/ Vossloh decision of the German FCO quoted above points in this direction.  
83 “Chinese state capitalism: A challenge for the European market economy”, German Monopolies Commission, July 
2019, p. 17. 
84  David  Spector,  “State  Aids:  Economic  Analysis  and  Practice  in  the  European  Union”,  Chapter 7  in  “Competition 
Policy in the EU: Fifty Years on from the Treaty of Rome” by Xavier Vives. 
85 Md. Rezaul Karim,  “Transparency is the Most Important Governance Issue in the WTO Subsidy  Control”, SSRN 
Electronic Journal, January 2014 

21 

 
 
 
 
                                                      
may be granted to a parent company located outside the EU (e.g., through selective corporate tax 
measure)86, which in turn finances a subsidiary located in the EU through intragroup transactions. 
In other words, companies can divert their existing investments away from the internal market to 
third  countries  in  order  to  benefit  from  selective  corporate  measures  which  in  return  increases 
their financial strength and improves their competitive position in the internal market. In practice 
this means that such foreign subsidies can cause a distortion of the internal market. Apart from 
distorting competition, foreign subsidies facilitating the delocalisation of companies active in the 
internal market can have indirect effects on the EU labour market. A key indicator to determine 
the social impact of delocalisation is to calculate the job losses that followed the delocalisation of 
a specific company. Such an analysis also needs to factor in job losses of relevant suppliers of the 
delocalising company.87 Further knock-on effects on aggregate consumer demand as result of job 
losses or decline in real wages may also be considered.88 Lastly, delocalisation may lead to a loss 
of  tax  revenues  and  in  the  long  run  to  a  ‘race  to  the  bottom’  in  corporate  taxation  between 
countries, though current research does not yield clear-cut results in that regard.89 

In addition to the issue of public tenders, which were presented in Problem 2, private tenders may 
give subsidised companies an opportunity to gain market share by undercutting their competitors 
through  below-cost  pricing  (see  Example  1,  Problem  3).  Whilst  in  the  short  term  below-cost 
pricing  may  benefit  the  company  organising  the  tender  and  potentially  also  consumers,  it  can 
have  negative  effects  in  the  long  term  on  consumers  and  producers  alike.90  More  specifically, 
subsidised bidding proves to be particularly harmful for non-subsidised bidders, as they are cut 
off from relevant opportunities to grow. In the long term, below-cost pricing can therefore create 
lock-in effects which means that unsubsidised companies might have to leave the market at hand. 
This could enable subsidised companies to attain a dominant position which could be leveraged 
to raise prices.  

Respondents to the public consultation on the White Paper have brought forward some potential 
instances  of  distortive  foreign  subsidies.  They  concern,  inter  alia,  greenfield  investments  from 
third  countries  in  the  internal  market91.  An  industry  association  stipulated  that  third  countries 
might  subsidise  EU  airlines,  such  as  through  the  granting  of  non-arms-length  loans,  artificially 
keeping  them  alive  to  feed  into  third-country  airlines’  hubs  and  networks,  with  a  clearly 
distortive effect in the EU aviation market.92 Another stakeholder pointed to possible distortions 
through the EU activities of aluminium companies receiving foreign subsidies.93 In this context 
not only distortive subsidised acquisitions were mentioned, but also a contract of a non-EU-based 
subsidiary  of  a  non-EU  aluminium  producer,  which  according  to  the  OECD  report94  receives 
foreign subsidies, to upgrade an aluminium facility in the EU. The aluminium sector is described 
in more detail in Annex 4. 

86 Some examples are given in Annex 4 point 3. 
87 Małuszyńska, Ewa. "Delocalisation of Enterprises: Qualitative and Quantitative Effects on the Labour Market." In: 
Relocation of Economic Activity, pp. 163-181. Springer, Cham, 2019, p. 173. 
88 Ibid. 
89 See for example Drezner, Daniel W. "The race to the bottom hypothesis: An empirical and theoretical review." The 
Fletcher School, Tufts University (2006). 
90 E.g., for a contribution on 5G networks, see BIGS Policy Paper (2020), The Hidden Costs of Untrusted Vendors in 
5G Networks, p. 40. https://www.bigs-potsdam.org/app/uploads/2021/02/Policy-Paper-No.8_V3.pdf 
91  See,  among  others, 
https://ec.europa.eu/competition/international/overview/foreign_subsidies.html  
92 See the contribution of the Airline coordination platform, available here: 
https://ec.europa.eu/competition/international/overview/foreign_subsidies.html  
93 See the contribution of European Aluminium, available here: 
https://ec.europa.eu/competition/international/overview/foreign_subsidies.html.  
94 OECD (2019), "Measuring distortions in international markets: the aluminium value chain", OECD Trade Policy 
Papers, No. 218, OECD Publishing, Paris, https://doi.org/10.1787/c82911ab-en. 

the  Union  of  Entrepreneurs  and  Employers,  available  here: 

the  contribution  of 

22 

 
 
                                                      
In  the  EU  context,  State  aid  granted  by  Member  States  may  also  lead  to  a  misallocation  of 
resources  towards  certain  economic  activities  or  types  of  firms.  Moreover,  there  is  a  risk  of 
competitive distortions between Member States to attract undertakings to their territory (‘subsidy 
races’).  That  is  why  Member  States  must  notify  planned  aid  measures  to  the  Commission  for 
validation and must also recover incompatible State aid. The very rationale for controlling State 
aid at EU level is its potentially negative effect on the EU internal market.95  

Case studies 

Several examples below illustrate how foreign subsidies may distort the internal market beyond 
acquisitions or public procurement procedures. As with the previous examples, it should be noted 
that  these  examples  are  only  indicative  because  there  is  so  far  no  mechanism  and  no  legal 
framework  to  unambiguously  identify  the  existence  and  precise  impact  of  foreign  subsidies  on 
the internal market.  

Example 1, Problem 3 

In a recent (private) tender procedure, an EU telecom operator chose Company A to provide equipment for 
its network. Company  A’s deal  with the EU telecom company concerns the provision of certain telecom 
infrastructure including the relevant software96.  

According to confidential information provided by industry officials, Company A underbid a competitor by 
60 per cent in the above-mentioned (private) tender – a price that allegedly does not even cover the costs of 
the provided equipment. Company A is suspected to have received considerable government support from 
Country X in the form of subsidies over many years. Current research indicates that subsidies, alongside 
other  measures  from  which  Company  A  benefitted  in  the  past,  have  in  fact  had  a  negative  impact  on 
innovation in the respective telecom sector as a whole.  

Example 2, Problem 3 

Company B is a non-EU Country Y state-owned vertically integrated energy group. The group comprises 
hundreds of enterprises.  

Company  B  and  its  subsidiaries  are  active  in  the  EU  internal  market.  Company  B’s  website  lists 
cooperation with various EU Member States. Company B’s subsidiary 1, one of the world’s largest input 
suppliers  in  the  field  of  energy,  has  contracts  with  several  power  plants  in  various  Member  States. 
Company  B’s  subsidiary  2  constructs  power  plants.  It  is  also  the  general  contractor  for  one  of  the  on-
going projects in the EU.   

Country  Y  has  provided  subsidies  to  Company  B  and  its  subsidiaries  in  the  past  years.  Two  published 
government  decisions  refer  to  several  subsidies.  According  to  Global  Trade  Alert,  Country  Y  provided 
another subsidy to Company B in the form of a property contribution to develop the industry concerned. 
In December 2018, Company B’s subsidiary 1 received subsidies to cover 70% of its expenses related to 
the registration of intellectual property items in external markets. The 2014 annual report of Company B’s 
subsidiary  2  does  not  report  subsidies  but  notes  that  Country  Y  supported  its  projects  in  international 
markets. The report adds that this increases the Company's competitive strength in the global market.   

In  a  recent  report,  the  German  Monopolies  Commission  noted  that  depending  on  the  type  of 
subsidy,  a  subsidy  may  lead  to  a  reduction  in  the  variable  costs  and  therefore  directly  impact 

95 loannis Ganoulis and Reiner Martin, “State Aid Control in the European Union - Rationale, Stylised Facts and  
Determining Factors”, INTERECONOMICS, November/December 2001, p. 289-297 
96 If the provision of equipment only concerned the sale of goods, then the tender could be covered by trade defence 
instruments. However, given the ‘servicification’ of manufacturing, i.e., the use of software to operate complex modern 
hardware, it could be that the tender also involved the sale of services. For the a discussion about the integration of 
services trade in goods trade, see: https://trade.ec.europa.eu/doclib/docs/2017/july/tradoc_155844.pdf 

23 

 
 
 
 
                                                      
prices with an effect on competitors and consumers. An investment grant, on the other hand, may 
have more medium-  to long-term effects on market entries or exits. The impact of a subsidy is 
furthermore  dependent  on  whether  it  is  a  one-off  or  a  recurrent  support  measure,  and  how 
selectively it is granted.97 In this context, an industry association pointed in its submission to the 
public consultation to potentially subsidised gas prices on the third country market, which allows 
the local gas users to expand their operations in the EU to the detriment of competitors.98  

A  Dutch  report  argues  that  non-regulated  state  support  and  market  power  in  a  third  country 
market enable local undertakings to achieve cost advantages and surplus profits that in turn may 
allow  them  to  build  up  market  power  on  the  EU  internal  market  at  the  expense  of  other 
undertakings.99  Such  behaviour,  not  driven  by  commercial  considerations,  may  be  driven  by 
strategic goals in order to get a foothold in strategically important markets or regions100, or to get 
privileged  access  to  critical  and  major  infrastructure.  In  terms  of  impact  on  the  EU  internal 
market,  the  anticompetitive  behaviour  based  on  subsidies  may  drive  competitors  out  of  the 
market  or  prevent them  from  entering  the  market,  reducing  their competitiveness  and affecting 
the innovative capacity of the EU economy. 

As discussed above, several submissions to the public consultation on the White Paper and the 
targeted consultation pointed to specific sectors characterised by distortive foreign subsidies. The 
sectors  mentioned  included:  steel,  aluminium  aviation,  oil  and  gas  and  semiconductors.101 
Moreover, the OECD has carried out several sector studies to examine the amount and distortive 
effects  of  subsidies.  The  sectors  investigated  are  semiconductors,  steel,  and  aluminium.  These 
studies are described in detail in Annex 4. In addition to the OECD studies and the examples of 
transactions that contained potentially distortive subsidies mentioned in Annex 4, the European 
Semiconductor  Industry  Association  (ESIA)  confirmed  in  the  targeted  consultation  that foreign 
subsidies in the semiconductor sector tend to provide significant benefits to their recipients and 
can lead to subsequent distortions in the market. 

General information on foreign subsidies 

According to a WTO report on subsidies issued in 2006102, data on the use of subsidies are scarce 
and difficult to compare across countries and sectors because of methodological differences and 
data  gaps.103  There  are  no  more  recent  studies  on  subsidies  covering  all  sectors.  Data  from 
various sources is available, but not necessarily on subsidies.104  

the 

too 

See 

high. 

contribution 

97  “Chinese  state  capitalism:  A  challenge  for  the  European  market  economy”,  German  Monopolies 
Commission, July 2019, p. 16 
98 As brought forward by among others Fertilizers Europe, gas dual pricing in Russia and North Africa (i.e. 
gas commodity price for national industry below the export price) has encouraged significant market share 
growth  of  foreign  undertakings  in  the  EU.  The  definition  of  "material  injury'  under  Trade  defence 
instruments does not address unfair competitive practice with the current 6% return on sales target being 
here: 
set 
https://ec.europa.eu/competition/international/overview/foreign_subsidies.html. 
99 Netherlands, Non-paper – Strengthening the level playing field on the internal market (9 December 
2019), see www.permanentrepresentations.nl/documents/publications/2019/12/09/non-paper-on-level-
playing-field  
100 Please also see in this context the example 4, Problem 3 in Annex 4, Section 3 
101 https://ec.europa.eu/competition/international/overview/foreign_subsidies.html 
102 World Trade Report 2006, Exploring the Links Between Subsidies, Trade and the WTO; this report 
analysed amongst others how much countries subsidise according to different data sources. 
103 Ibid, see pp. 45 and 114. 
104 See e.g. World bank development indicators, 
https://databank.worldbank.org/reports.aspx?source=world-development-indicators , which include 

Fertilizers 

available 

Europe, 

of 

24 

 
 
                                                      
 
The  information  presented  in  the  figure  below  shows  that  the  number  of  subsidy  measures 
implemented worldwide has in the recent years been increasing steadily.  

Figure 2. Number of newly implemented subsidy measures (worldwide) per year 

900

800

700

600

500

400

300

200

100

0

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source: Global Trade Alert (GTA)105 

The  subsidy  measures  covered  here  are  both  subsidy  schemes  and  individual  subsidy  grants 
outside schemes.106  

To identify foreign subsidy measures that may affect the EU, this impact assessment examines in 
more detail the EU’s five main trading partners in terms of imports107. These are (in decreasing 
importance):  China,  USA,  UK,  Russia  and  Switzerland.  Three  of  these  countries  (USA, 
Switzerland and China) are also the main partners in terms of greenfield FDI108 into the EU109. 

information on “subsidies and other transfers”, which covers however also grants to international 
organisations, social security, social assistance benefits as well as employer social benefits; see also the 
OECD corona policy response tracker. https://www.oecd.org/coronavirus/en/   
Information is sorted by country, and there is a section “fiscal measures” (not “subsidies” strictu sensu). 
105  GTA  provides  information  on  state  interventions  taken  since  November  2008  that  are likely  to  affect 
foreign commerce. It includes state interventions affecting trade in goods and services, foreign investment 
and  labour  force  migration.  For  the  classification  of  the  measures  analysed,  GTA  uses  the  taxonomy 
established  by  the  UNCTAD  Multi-Agency  Support  Team  (MAST).  This  classification,  the  so-called 
MAST chapters, provides a clear and concise definition of non-tariff measures (NTMs) and is the standard 
classification for NTMs in goods. The MAST chapter of interest in the context of this report is the Chapter 
L  -  Subsidies  group.  Only  measures  currently  in  force  have  been  taken  into  account.  Source: 
https://www.globaltradealert.org/  
106 Please note that this section presents general information on subsidies across all possible purposes (including in 
particular subsidised acquisitions and procurement). 
107 EU’s 5 biggest trading partners as far as imports are concerned in 2019 were China, USA, UK, Russia and 
Switzerland. https://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_122530.pdf  
108  Greenfield  FDI  is  a  type  of  investment  in  which  a  parent  company  creates  a  subsidiary  in  a  different  country, 
building its operations from the ground up. 
109 EU’s 5 main partners in greenfield FDI are: USA, Switzerland, Japan, China and India. 
Source : https://ec.europa.eu/assets/epsc/files/EPSC%20-
%20The%20State%20of%20Investment%20in%20Europe%20and%20the%20World.pdf  

25 

 
 
 
                                                                                                                                                              
However, it should be noted that greenfield FDI by the UK has also been steadily increasing and 
grew by 37.5% in the period 2015-2017.110 

When looking in  more detail at the EU’s five main trading partners, based on the reporting by 
GTA,111 the US seem to have the highest number of subsidy measures in place112. However, this 
is not necessarily indicative of the value of subsidies because the data in the table below refers 
only to the number of measures without specifying the subsidy amount per measure. Moreover, 
the specific foreign subsidies may not always be considered distortive. 

Table 2. Number of subsidy measures currently in place in EU’s five main trading partners113 

Country 
China 
USA 
United Kingdom114 
Russia 
Switzerland 

Grand Total 

Number of subsidy  
measures in place 

205 
999 
104 
414 
2 

1724 

In  terms  of  trends,  subsidies  display  a  relatively  flat  or  slightly  upward  trend  if  measured  as 
percentage of total State expenditure, as can be seen in the below figure.  

Figure 3. Subsidies and other transfers in selected G20 economies (as % of total expenditure) 115 

80%

70%

60%

50%

40%

30%

20%

10%

0%

Argentina
Australia
Brazil
Canada
India
Indonesia
Japan
Mexico
Russia
Saudi Arabia
South Africa
Turkey
UK
US
World

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

9
0
0
2

0
1
0
2

1
1
0
2

2
1
0
2

3
1
0
2

4
1
0
2

5
1
0
2

6
1
0
2

7
1
0
2

8
1
0
2

9
1
0
2

Source: World Bank; data for China and Korea not available; EU countries excluded. 

110 UK was still an EU Member State at that point in time. 
111 Source: https://www.globaltradealert.org/ 
112 This covers both subsidy schemes and individual subsidy grants outside schemes. 
113 All the figures in the below table were taken from Global Trade Alert: https://www.globaltradealert.org/ 
114 During the period covered, the UK measures were subject to EU State Aid control. 
115 The World Bank definition of subsidies and transfers includes social benefits and other transfers that would not be 
regarded as subsidies under different definitions (e.g. used by the SCM Agreement or in the White paper on foreign 
subsidies) 

26 

 
 
 
 
                                                      
This  being  said,  since  the  year  2000,  subsidies  and  other  transfers116  have  been  an  important 
element of economic policy for governments around the world. Countries such as Brazil, Canada, 
India,  Japan,  Mexico  or  South  Africa  have  even  seen  an  increase  over  the  past  two  decades 
expressed as percentage of their expenses. The share of subsidies as percent of expenses of other 
major EU trading partner such as the US or the UK has remained relatively stable. 

It  is  difficult  to  obtain  data  on  the  total  amount  of  foreign  subsidies  affecting  the  EU  internal 
market. Some country-specific data is available on subsidy schemes in the United States via the 
Good  Jobs  First  Subsidy  Tracker,  including  the  amount  of  subsidies  granted  to  specific 
companies.117 However, this data cannot be used to clearly identify foreign subsidies that have an 
effect  on  the  internal  market.  Table  8  below  shows  the  publicly  available  information  on  the 
subsidies granted by the EU’s main trading partners for the production of export goods that were 
notified  to  the  WTO  in  the  period  2017-2018.  It  should  be  kept  in  mind,  though,  that  this 
information  concerns  only  subsidy  schemes,  not  individual  subsidy  grants  outside  schemes. 
Consequently,  it  likely  underestimates  the  total  amount  of  subsidies.  Moreover,  for  many 
measures  notified  to  the  WTO  the  budget  and/or  the  expenditure  were  not  yet  known  at  the 
moment of the notification, and are hence not included in the total subsidy amount. Finally, some 
subsidies may have been omitted in the WTO notification.  

Table 3. Subsidy amounts reported to the WTO based on 2019 notifications by EU’s 5 main trading partners118 

In million Euros119 

China 

USA 

UK 

Russia 

Switzerland 

2017 

380,132.7 

14,932.8 

919.7 

3,959.52 

515.0 

2018 

520,012.9 

17,008.4 

888.1 

3,803.94 

697.4 

As  briefly  mentioned  above,  there  is  a  lack  of  transparency  and  low  compliance  with  the 
obligation  to  notify  subsidies  under  the  WTO  Agreement  on  Subsidies  and  Countervailing 
Measures  (SCM  Agreement)120.  Less  than  half  of  the  WTO  Members  complied  with  the 
notification obligation in 2019121. Moreover, the information included in the notifications is not 

116 The World Bank definition includes social benefits and other transfers that would not be regarded as foreign 
subsidies under other definitions (e.g. used by the SCM Agreement or in the White paper on foreign subsidies). 
117 https://www.goodjobsfirst.org/subsidy-tracker. Next to the subsidy tracker, some research papers criticise the lack 
of effectiveness of some US subsidy schemes, most prominently the economic development programmes by US states 
to attract new companies. See: Mitchell, Matthew D., Michael Farren, Jeremy Horpedahl, and Olivia Gonzalez. "The 
Economics of a Targeted Economic Development Subsidy." Mercatus Research Paper (2020). 

118 Source: https://docsonline.wto.org/dol2fe/Pages/FE_Search/FE_S_S003.aspx  
119 Recalculated to Euros on the basis of the average ECB exchange rates for the years 2017 and 2018: 
https://www.ecb.europa.eu/stats/policy_and_exchange_rates/euro_reference_exchange_rates/html/index.en.html  
Moreover, amounts of certain subsidies were averaged in case of longer-term schemes. Specific agricultural subsidies 
(which in the EU are granted under the CAP and would not be considered State aid) and subsidies granted to individual 
consumers are not taken into account in the table. Additionally, amounts of subsidies granted at national level in China 
and subsidies given at the regional/State level in the USA are rarely reported and thus not included in the table.  
120  Article  25.1  of  the  SCM  Agreement  requires  that  all  Members  submit  a  full  notification  of  all  specific  subsidies 
every three years, with updates in the intervening years. SCM Agreement applies only to subsidies that are specifically 
provided  to  an  enterprise  or  industry  or  group  of  enterprises  or  industries.  It  should  be  noted  that  the  notification 
obligation extends to all specific subsidies related to goods, in any sector (including agriculture), and provided by any 
level of government.  
121 As indicated by the Chair of WTO’s Committee on Subsidies and Countervailing Measures (SCM) at a meeting on 
27  October  2020,  only  81  (out  of  164)  WTO  Members  complied  with  this  obligation  in  2019.  Source: 
(https://www.wto.org/english/news_e/news20_e/scm_27oct20_e.htm). 

27 

 
 
 
 
                                                      
uniform  across  WTO  members.  Additionally,  WTO  members  do  not  appear  to  declare  in  their 
notifications all the subsidies they grant. This is, among others, evidenced by the fact that in the 
period 2014-2019 USA counter-notified Chinese subsidies four times122.  

While the present report focuses on other ways than the import of goods to investigate the impact 
of foreign subsidies on the internal market, the SCM Agreement may nonetheless be a valuable 
source  of  information  about  the  general  subsidy  policy  of  third  countries.  The  most  common 
types of foreign subsidies reported under the SCM Agreement are as follows123:  

 

 

 

foregone  or  not  collected  public  revenue,  such  as  preferential  tax  treatment  or  fiscal 
incentives such as tax credits; 
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);  
the provision of goods or services or the purchase of goods and services.   

These types of subsidies are largely confirmed by the information from GTA in the figure below. 
This  being  said,  the  transfer  of  funds  and  liabilities  appears  to  be  more  prevalent  according  to 
GTA. 

Figure 4. Subsidy measures in place124  by type according to GTA 

1800

1600

1400

1200

1000

800

600

400

200

0

For  an  indication  of  third  countries  granting  distortive  subsidies  and  of  sectors  concerned,  the 
countervailing  subsidy  cases  started  by  the  Commission  in  the  period  2010-2020  may  be 

122 USA counter notifications to WTO of Chinese subsidies are present on the WTO website: 
https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S001.aspx 
123 This overview is based on the types of subsidies covered by the countervailing measure cases initiated by the EU in 
the  period  2010-2020.  According  to  the  overview  prepared  by  DG  TRADE,  52%  of  cases  concerned  government 
revenue  foregone,  34%  concerned  direct  transfer  of  funds,  and  13%  government  provision  or  purchase  of  goods. 
Source: https://trade.ec.europa.eu/doclib/html/157607.htm  
124 This covers both subsidy schemes and individual subsidy grants outside schemes 

28 

 
 
 
 
                                                      
illustrative. The  overview enclosed  in  Annex  4  shows  that  the  five  countries  against  which the 
Commission  opened  most  countervailing  subsidy  cases  in  the  period  2010-2020  were:  China, 
India, Turkey, USA, and Indonesia. As mentioned previously, China and the USA are amongst 
the top-5 trading partners of the EU and, according to WTO notification data, seem to be granting 
substantial amounts of subsidies to their industries.  

In  terms  of  sectors,  the  main  sectors  affected  by  countervailing  subsidy  cases,  as  presented  in 
Annex  4,  are the  following:  iron and  steel, electronics,  glass  fibre  products and  biodiesel. This 
seems to confirm stakeholder views expressed in the public consultation about the prevalence of 
distortive foreign subsidies in the sectors of, among others, steel and semiconductors. 

2.5  What are the problem drivers? 

The main root cause of the problem is the existence of foreign subsidies, causing distortions in 
the EU internal market, in the absence of any regulatory mechanism to prevent or remedy such 
distortions. Subsidies are typically part of broader industrial strategies of third countries. While 
the  existing  EU  tool  box  includes  some  rules  to  deal  with  foreign  subsidies  in  certain  market 
circumstances, these rules are not sufficient, leaving a ‘regulatory gap’. In other words, there are 
foreign subsidies that are not captured by any of the existing legal instruments and can therefore 
impact the EU internal market.  

Countries  have  the  right  to  develop  and  implement  their  own  industrial  policies  including  the 
granting of subsidies. Subsidies as part of these industrial strategies may however distort markets 
in other countries. There is a particular risk of distortions when there is no regulatory mechanism 
to  control them.  For illustration  purposes,  Annex  4, Section  9 includes the  example  of the  role 
that subsidies play in China’s industrial policy with potential spill-over effects in foreign markets 
including the EU internal market.  

While the role of potentially distortive subsidies in the industrial policy of third countries is the 
very  source  of  the  problem,  its  actual  impact  ultimately  depends  on  whether  there  are  control 
mechanisms  to  prevent  distortions  in  the  EU  internal  market.  Below,  an  overview  is  given  of 
existing EU and international instruments in the area of competition, trade, public procurement 
and in certain sector specific legislation. The analysis demonstrates the existing regulatory gap to 
address the distortions in the EU internal market caused by foreign subsidies.  

As  regards  EU  competition  rules,  the  EU  merger  and  antitrust  rules  aim  to  prevent  significant 
distortions  of  competition  due  to  mergers  and  acquisitions  that  would  create  a  ‘significant 
impediment to effective competition’ or due to anticompetitive practices of undertakings. They 
do not specifically take into account whether an undertaking’s conduct, for instance in the form 
of anti-competitive pricing125 results from or was facilitated by foreign subsidies. In the area of 
merger  control,  a  concentration  is  only  declared  incompatible  with  the  common  market  if  it 
significantly  impedes  effective  competition,  in  line  with  the  underlying  objective  of  merger 
control  to  protect  the  market  structure.  The  merger  control  rules  therefore  do  not  take  into 
account which means are employed to bring about changes in the market structure, i.e. whether 
an acquisition is facilitated by foreign subsidies or not. Last but not least, EU State Aid rules only 
apply to financial support granted by EU Member States and aim to ensure that EU government 
interventions do not distort competition and intra-Community trade. No such control mechanism 
exists as regards subsidies granted by third countries which puts EU industry at a disadvantage in 
competition vis-à-vis undertakings receiving foreign subsidies.  

125 See above, section 2.1.1. 

29 

 
 
                                                      
In the area of trade policy, the WTO SCM Agreement as well as the trade defence instruments 
(TDIs) allow the EU to react to unfair competition in terms of injurious imports of goods which 
are  unfairly  priced  below  their  normal  value  (anti-dumping  instrument)  or  subsidised  (anti-
subsidy instrument). These instruments, however, have their limitations.  

The EU anti-dumping126 and anti-subsidy rules127 apply to the import of goods and do not cover 
services, investment or other financial flows in relation to undertakings operating in the EU. In 
addition  to  the  limitation  on  goods,  the  EU’s  anti-subsidy  rules  in  principle  only  apply  to 
subsidies  to  companies  in  the  granting  (third  country)  jurisdiction  while  addressing  subsidies 
supporting  companies  in  a  third  country  market  (i.e.  the  EU  internal  market)  remains 
exceptional.128 As regards the EU’s anti-dumping rules, unfair price practices of a third country 
exporter (dumping) are not always problematic in terms of competition129 and are not necessarily 
the types of distortions a new EU instrument on foreign subsidies aims to address. Furthermore, 
the FDI Screening Regulation130 allows Member States to screen foreign investments, which are 
likely to have an impact on a Member State’s security and public order by considering its effects 
on  critical  assets  and  infrastructure.  The  Regulation,  however,  does  not  specifically  tackle  the 
issue of distortions caused by foreign subsidies on the internal market.  

At  the  international  level,  the  EU  can  bring  litigation  against  a  WTO  Member  before  a  WTO 
panel  for  breaches  of  the  SCM  Agreement.  However,  the  scope  of  application  of  the  SCM 
Agreement  is  also  limited  to  trade  in  goods.  Subsidies  are  not  excluded  from  the  scope  of 
application  of  the  WTO  General  Agreement  on  Trade  in  Services  (GATS).  In  fact,  GATS 
includes an inbuilt mandate to further negotiate disciplines for services subsidies.  

As  regards  bilateral  Free  Trade  Agreements  (FTAs),  there  are  large  differences  as  regards  the 
provisions on subsidies. Most FTAs focus on transparency and consultations in case of distortive 
subsidies. Some include provisions prohibiting subsidies considered particularly harmful (such as 
unlimited  guarantees).  Agreements  signed  with  some  neighbouring  countries  include  the 
commitment to put in place a subsidy control system inspired by EU State Aid rules. Although 
the  scope of those  agreements is to address subsidies  that  affect trade  between the  EU  and  the 
respective  third  country,  jurisdictions  that  have  in  place  such  subsidy  control  systems  are 
expected to be better placed to identify and address subsidies that distort the EU internal market. 
If there was a case under an FTA of a potentially distortive foreign subsidy impacting the EU, the 
Commission could have the choice to open the case under the FTA or take separate legal action 
for example under a possible new legal instrument. For instance, even if the Commission decides 
to  initiate  proceedings  under  the  FTA,  the  Commission  could  take  separate  legal  action  if  the 
trading partner does not take corrective action or stalls the procedure.  

126 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. 
127 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. 
128 Commission Implementing Regulation (EU) 2020/379 of 5 March 2020 imposing a provisional countervailing duty 
on  imports  of  continuous  filament  glass  fibre  products  originating  in  Egypt,  OJ  L  69  of  6  March  2020,  p.  14  and 
Commission  Implement  Regulation  (EU)  2020/870  of  24  June  2020  imposing  a  definitive  countervailing  duty  and 
definitively  collecting  the  provisional  countervailing  duty  imposed  on  imports  of  continuous  filament  glass  fibre 
products originating in Egypt, and levying the definitive countervailing duty on the registered imports of continuous 
filament glass fibre products originating in Egypt, OJ L 201 of 25 June 2020, p. 10. 
129 Price differentiation between different countries may be simply an expression of different demand elasticities in the 
countries of export and import. In addition, the importing country may also benefit from low import prices, provided 
the  low  prices  are  not  an  expression  of  a  predatory  pricing  strategy  (“Chinese  state  capitalism:  A  challenge  for  the 
European market economy”, German Monopolies Commission, July 2019, p. 32) 
130 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 791, 21.3.2019, p. 1. 

30 

 
 
                                                      
The Agreement on the European Economic Area (EEA) brings together the EU Member States 
and  the  three  European  Free  Trade  Association  (EFTA)  States  —  Iceland,  Liechtenstein  and 
Norway — into a single market. EFTA has in place a State aid control system based on EU State 
Aid rules, with an independent supranational State aid control authority. As a result, the system is 
in practice well placed to prevent EFTA States from granting subsidies that would distort the EU 
internal market.  

In the following, two recent Bilateral Agreements are described and analysed in more detail, the 
EU-UK  Trade  and  Cooperation  Agreement  and  the  EU-China  Comprehensive  Agreement  on 
Investment.  

EU – UK Trade and Cooperation Agreement 

The  EU-UK  Trade  and  Cooperation  Agreement  (TCA),  agreed  by  the  EU  and  the  UK  on  24 December 
2020131 and, pending European Parliament consent, provisionally applicable since 1 January 2021 (until 28 
February 2021), sets out preferential arrangements in areas such as trade in goods and in certain services. It 
is  underpinned  by  provisions  ensuring  a  level  playing  field  (provisions  on  environmental  protection  and 
climate, competition, subsidies, labour, etc.).  

The TCA thus mainly applies to trade in goods by providing for zero tariffs and zero quotas on all goods 
that comply with the appropriate rules of origin. As regards free trade in services, the TCA limits the fees 
that  customs  may  charge  for  services  rendered  and  includes  several  modern  disciplines  that  go  beyond 
standard  WTO  commitments.  In  addition,  rules  applicable  to  individual  subsidies  are  prescribed  by  the 
TCA but these are only enforced domestically by each Party (Art. 3.4.3). The arbitration tribunal under the 
dispute  settlement  mechanism  of  the  TCA  does  not  have  jurisdiction  over  individual  subsidies  (Art. 
3.13.2(a)). 

In  principle,  all  subsidies  fulfilling  the  conditions  of  the  subsidies  chapter  (chapter  3  of  the  TCA)  are 
covered by the TCA. Specific exceptions exist as regards agriculture, fisheries and the audio-visual sector.  
However,  even  if  a  remedial  measure  is  taken  under  the  TCA  because  a  subsidy  causes  a  significant 
negative effect on trade or investment between the parties (Article 3.12), the TCA may fail to remove the 
distortive impact of the foreign subsidy on the EU internal market. 

EU-China Comprehensive Agreement on Investment 
On  30  December  2020132,  the  EU  and  China  reached  an  agreement  in  principle  on  the  Comprehensive 
Agreement  on  Investment  (CAI).  The  CAI  seeks  to  improve  market  access  conditions  for  European 
companies  by  eliminating  discriminatory  laws  and  practices  that  prevent  them  from  competing  in  the 
Chinese market on an equal basis with Chinese companies and companies from other third countries. As 
such, the CAI has a different objective – creating a level playing field for investors on the Chinese market 
– than a possible EU instrument to address distortive foreign subsidies on the EU market and may rather be 
seen as complementary. 

In  relation  to  subsidies,  it  contains  a  provision  imposing  transparency  obligations  as  regards  subsidies 
related to certain service sectors, thus complementing transparency requirements as set out in the existing 
multilateral  rules  on  subsidies  related  to  goods.  A  specific  consultation  procedure  will  apply  requiring 
either side to engage in consultations in order to provide additional information on any subsidies that could 
have a negative effect on the investment interests of the other party and to seek to address such negative 
effects. However, the CAI does not set out an effective mechanism (i.e. it excludes State-to-State dispute 
settlement) to address and remedy the distortive impact that Chinese subsidies may have on the EU internal 
market. Thus, separate  legal action on foreign subsidies could provide for more effective tools to fill the 
gap  left  open  by  the  CAI,  and  FTAs  more  generally,  in  terms  of  effectively  remedying  the  distortions 
caused by foreign subsidies. The CAI and a possible new instrument on foreign subsidies would therefore 
be complementary and mutually reinforcing each other. 

131 Press release: https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2531  
132 Press release: https://ec.europa.eu/commission/presscorner/detail/en/IP_20_2541  

31 

 
 
 
                                                      
As regards public procurement, the existing EU legal framework133 aims at ensuring compliance 
with the principles of the Treaty on the Functioning of the European Union (TFEU). In particular, 
this  includes  the  principles  of  free  movement  of  goods,  freedom  of  establishment  and  the 
freedom to provide services, as well as the principles deriving therefrom, such as equal treatment, 
non-discrimination,  mutual  recognition,  proportionality  and  transparency.  However,  it  does  not 
specifically  address  distortions  to  the  EU  procurement  markets  caused  by  foreign  subsidies. 
While  Directives  2014/24/EU134  and  2014/25/EU135  allow  contracting  authorities  to  reject 
abnormally low offers if it can be established that a bidder has obtained incompatible State aid, 
the  Directive  does  not  contain  any  corresponding  provision  for  foreign  subsidies.  In  addition, 
while  the  grant  of  foreign  subsidies  can  be  considered  in  the  overall  assessment  of  a  bid,  any 
rejection  of  an  offer  as  abnormally  low  needs  to  be justified  by  demonstrating  that  the  foreign 
subsidy impedes the viability of the offer and the bidder’s capacity to execute the contract at the 
(abnormally  low)  price  offered.136  However,  contracting  authorities  enjoy  a  wide  margin  of 
discretion and are not legally required (and are probably not able) to investigate the existence of 
foreign  subsidies  when  evaluating  offers,  and  the  Public  Procurement  Directives  foresee  no 
dedicated  redress  measures  against  distortive  foreign  subsidies.  The  International  Procurement 
Instrument (IPI)137 aims to incentivise trading partners to negotiate with the EU the opening of 
their  procurement  markets  for  EU  business.  Once  adopted,  it  would  enforce  the  principle  of 
balanced reciprocal market access for EU business to third countries’ procurement markets but it 
will  not  tackle  distortions  caused  by  foreign  subsidies  within  the  EU.  The  lack  of  such  rules 
damages  competition  in  the  internal  market  in  specific  procedures  and  has  long  term  harmful 
effects for economic operators as well as public authorities as described above under 2.3. In some 
cases  the  problem  may  be  exacerbated  by  the  fact  that  contracting  authorities  may  feel  an 
incentive to accept the lowest bids. 

Inter-governmental  agreements  (IGAs)  are  concluded  to  facilitate  investment.  They  may  cover 
organising procurements intended for joint implementation or exploitation of a project, especially 
in large infrastructure. Such procurements are exempted from EU public procurement legislation 
provided the conditions laid down in Article 9 of Directive 2014/24/EU are fulfilled138, though 
they always have to be compatible with the EU Treaties. Distortive effects of foreign subsidies 
are not specifically scrutinised under such agreements. Therefore, a level playing field should be 
ensured within the proposed framework also for procurements under such agreements, especially 
due to their size and economic importance. 

Finally,  there  are  a  number  of  sectoral  rules  which  allow  the  EU  to  act  to  protect  the  internal 
market  in  the  specific  sectors.  Regulation  (EU)  2019/712  on  safeguarding  competition  in  air 
transport outlines the investigative powers of the Commission and the redressive measures it may 

133 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.  
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 
Directive 2014/23/EU of the European Parliament and of the Council of 26 February 2014 on the award of concession 
contracts OJ L 94 28.3.2014, p. 1 
134 Article 69(4) of Directive 2014/24/EU  
135 Article 84(4) of Directive 2014/25/EU 
136 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. 
137 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.  
138  This  includes  a  provision  that  all  such  agreements  must  be  communicated  to  the  Commission,  indicating  a  clear 
need for EU-wide scrutiny. 

32 

 
 
                                                      
impose relating to practices which distort competition between EU and non-EU air carriers, and 
which cause, or threaten to cause, injury to EU air carriers. As such, Regulation (EU) 2019/712 
covers discriminatory treatment adopted by a third country or subsidies granted by a third country 
government to the detriment of EU air carriers. To date, Regulation (EU) 2019/712 has not been 
applied, mainly because the investigation pursuant to Regulation 2019/712 can only be triggered 
by a complaint, i.e. in the absence of a complaint the Commission cannot investigate under this 
Regulation.  

As regards the interplay between Regulation (EU) 2019/712 and a possible new legal instrument 
on foreign subsidies, the former as lex specialis takes precedence as regards situations and actors 
that fall within its scope. However, as the scope of application of the Regulation is limited to air 
carriers, a possible legal instrument on foreign subsidies could apply to other actors active in the 
aviation sector (such as ground handling). Similarly, Regulation (EU) 2019/712 does not apply to 
acquisitions and public procurement procedures.  

Regulation  2016/1035  on  protection  against  injurious  pricing  of  vessels  allows  the  EU  to  act 
against the sale of vessels that are sold at less than normal value and therefore cause injury to the 
Union industry. However, 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 South Korea and the US. Regulation (EEC) No 4057/86 of 22 December 1986 concerns unfair 
pricing practices in maritime transport but since its 35 years of existence, it has been used only 
once. This is because inter alia, it has therefore proven difficult to show that the conditions (e.g. 
the existence of dumping prices) under the Regulation are fulfilled. Therefore, in practice foreign 
subsidies are not captured by this Regulation.. 

A secondary root cause of the problem is the lack of transparency and data on foreign subsidies. 
Transparency is an essential governance element of subsidy control. It promotes compliance at all 
levels  of  government.  It  also  offers  the  general  public  an  overview  of  the  expenditure  of  tax 
money thereby nudging the recipient of the subsidy into compliant behaviour, and to ultimately 
provide  for  better  accountability  of  public  spending.  Furthermore,  it  allows  undertakings  to 
examine whether subsidies granted to competitors are in compliance with existing rules.139 This is 
also why EU State aid rules include detailed transparency requirements.140 In addition, Member 
States are obliged under the Transparency Directive141 to be transparent on the financial relations 
between the State and public undertakings. 

In  terms  of  international  subsidy  policy,  information  is  needed  to  better  understand  the  impact 
that subsidies might have on international trade in goods,142 and more generally on international 
trade and investment. Peer pressure between governments can also have a nudging effect towards 
more subsidy discipline. 

As  explained  in  Annex  4, Section 7,  despite  transparency  obligations in international  rules  and 
other  international  efforts,  comparable  data  on  subsidies  are  difficult to  find.  In  the  absence  of 

139 Lillerud, K. The National Transparency Registers in Action, European State Aid Law Quarterly 2019 
pp. 239 – 248; see also Vincent Verouden and Philipp Werner, EU State aid Control: Law and Economics (Kluwer 
Law International 2016), 247. 
140 These require Member States to publish all state aid awards above €500,000 on a dedicated website (see 2014 
Communication on transparency and the General Block Exemption Regulation, OJ C 198, 27.6.2014, p. 30-34). 
Transparency extends also to fiscal aid, with specific rules ensuring that tax confidentiality is preserved. Moreover, 
complementary information on all authorized State aid in the EU  , including information in relation to the 
transparency requirement, can be found in the database of competition cases: ISEF registry of the European 
Commission: https://ec.europa.eu/competition/elojade/isef/  
141 Directive 2006/111/EC. 
142 Communication from the European Union to the WTO negotiating group on rules, improving disciplines on 
subsidies notification, TN/RL/GEN/188. 

33 

 
 
                                                      
information  on  subsidies,  it  is  difficult  to  analyse  to  what  extent  trade  and  competition  are 
influenced  by  subsidies,  and  it  is  more  difficult  to  develop  rules  on  subsidies  in  international 
negotiations,  such  as  in  EU  trade  agreements.  In  addition,  there  is  less  peer  pressure  among 
governments, from competing undertakings or from the public to diminish distortive subsidies.  

2.6  How will the problem evolve? 

The  problem  definition  in  sections  2.2,  2.3  and  2.4  described  the  issue  of  distortive  foreign 
subsidies  in  the  context  of  acquisitions,  public  procurement  and  other  market  situations.  The 
following  section  describes  how  the  problem  will  likely  evolve  in  the  future  and  why  it  is 
becoming more pressing.  

Third countries continue to use industrial policies, which include large volumes of subsidies.  

Figure 2 in the previous section shows an upward trend in subsidy measures globally over the last 
decade. This increase has been consistently observed well before the pandemic, but is likely to 
accelerate  as  a  result.  Figure  5  in the  same  section  illustrates that  subsidies and  other transfers 
have been an important element of economic policy in the last decades for countries around the 
world, which is also likely to continue into the future. Almost all countries have seen an increase 
of subsidies and transfers after the 2008-2009 financial crisis, which is manifested in the global 
increase  from  29.4%  of  expenses  in  2006  to  32.9%  in  2011.  This  increase  persisted  in  the 
following  decade  as  the  share  of  subsidies  on  a  global  scale  did  not  go  back  to  the  pre-2008 
levels. Using the Global Trade Alert (GTA) data, Evenet and Baldwin (2020) have shown that 
32.7%  of  discriminatory  trade  policy  interventions  from  2009,  including  various  types  of 
subsidies, were still in place in 2020143.  

Post-COVID economic crisis will lead to higher levels of subsidisation around the world 

According  to  the  World  Bank,  global  GDP  is  estimated  to  decrease  by  4.3%  in  2020  with  a 
projected growth of 4% and 3.8% in 2021 and 2022 respectively. By comparison, the 2008-2009 
financial  crisis  slowed  down  global  GDP  growth  to  1.8%  in  2008  and  led  to  a  drop  of  -1.7% 
global  GDP  in  2009144.  The  same  World  Bank  report  also  estimates  that  the  fiscal  stimulus  in 
2020  (based  on  a  sample  of  61  countries)  has  been  more  than  double  compared  to  the  fiscal 
response to the 2008-2009 crisis. As after the 2008-2009 crisis, there is a risk that a part of such 
incentives remain in place and continue to distort trade and investment flows in the coming years. 

Based on the GTA data, Evenett and Fritz (2020) calculate that in the first ten months of 2020, 
G20 countries put in place 1.371 policy interventions, 1067 of which have harmed their trading 
partners145.  670  of  these  measures  are  considered  trade-distortive  subsidies,  which  includes  98 
export incentives and support to firms in foreign markets and 581 non-export-related subsidies.  

Trade in services is expected to continue growing faster than trade in goods 

As described in the problem definition section of this report, trade in services is not covered by 
the  existing  trade  defence  instruments.  It  is  therefore  more  threatened  by  possible  distortions 
caused  by  subsidies.  According  to  the  2019  World  Trade  Report,  global  trade  in  services  has 

143 Evenett, S. J. and Baldwin, R. Revitalising Multilateralism: Pragmatic Ideas for the New WTO Director-General. 
CEPR, 2020. https://voxeu.org/content/revitalising-multilateralism-pragmatic-ideas-new-wto-director-general  
144 World Bank. Global Economic Prospects. January 2021. https://www.worldbank.org/en/publication/global-
economic-prospects 
145 Evenett, S.J. and Fritz, J. Collateral Damage: Cross-Border Fallout from Pandemic Policy Overdrive. The 26th 
Global Trade Alert Report. CEPR, 2020. https://voxeu.org/article/cross-border-fallout-pandemic-policy-overdrive 

34 

 
 
                                                      
been  growing  faster  than  trade  in  goods  in  2005-2017  and  the  share  of  services  in  the  global 
output has been projected to further increase from 74% in 2018 to 82-84% in 2040146.  

The  COVID  crisis  has  provided  an  impulse  for  digitalisation  of  some  services,  but  also  had  a 
negative impact due to various travel restrictions, which have limited transport and tourism, two 
areas  with  a large  share in  the  services  sector. The World  Bank  projects a  9.5%  contraction of 
total global trade in 2020, comparable to the 2008-2009 financial crisis, followed by an average 
growth of 5.1% in 2021-2022147. Despite this slowdown, international trade in services is set to 
grow by 31% between 2019 and 2025 by some estimates.148  

The deflated valuation of EU companies may lead to a higher number of acquisitions  

The mergers and acquisitions (M&A) activity in Europe is closely linked to the economic cycle. 
In recent years, the number and total value of transactions have been growing since their lowest 
recorded levels in 2009149. While the number of transactions peaked in 2015, the total value only 
reached  its  highest  level  in  2018.  This  means  that  the  average  transaction  value  has  increased 
over the decade, which corresponds to the number of notifications to the Commission, which also 
peaked in 2018150. 

Due to the deflated value of some EU companies as a result of the COVID crisis, a similar wave 
of acquisitions may ensue. According to a survey of leading euro-area companies on the impacts 
of the COVID crisis, more than 50% of respondents expect to see an increase in concentration of 
their markets151. Due to the disruptions to the global production chains, some companies are also 
considering  diversifying  or  localising  parts  of  their  supply  chains.  UNCTAD  estimates  a  40% 
drop  in  FDI  in  2020  with  a  further  decrease  in  2021  and  signs  of  recovery  in  2022,  noting, 
however, that investment activity by digital companies has actually increased152. 

Large  parts  of  the  fiscal  stimulus  of  the  EU  and  Member  States  will  be  spent  through  public 
procurement 

Public investment will play a key role in the recovery of the European economy from the crisis 
due to COVID-19. The major part of it will be implemented through public procurement. With 
significant fiscal stimulus put in place by Member States and an EU recovery budget of EUR 1.8 
trillion (Multiannual Financial Framework of EUR 1.074 million for the next seven years + Next 
Generation  EU  of  EUR  750  million),  public  procurement  contracts  will  present  an  attractive 
business  opportunity  for  both  EU  and  foreign(-owned)  companies.  They  are  likely  to  grow  in 
importance beyond their pre-COVID 19 share of around 14% of EU GDP153. 

The combination of these factors increases the likelihood that foreign subsidies may be used to 
distort the EU internal market in the future, in particular as regards subsidised acquisitions and 
public procurement. 

146 WTO. World Trade Report 2019. The future of services trade. Available from: 
https://www.wto.org/english/res_e/booksp_e/00_wtr19_e.pdf 
147 World Bank. Global Economic Prospects. January 2021. p. 10.  
148 The Western Union Company. The Global Services Trade Revolutions: Fuelling post-pandemic economic recovery 
and growth, 2020. https://business.westernunion.com/en-gb/p/cmp/2020/the-global-trade-services-revolution 
149 https://intrawelt.com/en/mergers-acquisitions-pandemic-north-america-and-europe/ 
150 https://ec.europa.eu/competition/mergers/statistics.pdf 
151 Maqui, E. and Morris, R. The long-term effects of the pandemic: insights from a survey of leading companies. ECB 
Economic Bulletin, 8/2020. https://www.ecb.europa.eu/pub/economic-
bulletin/focus/2021/html/ecb.ebbox202008_06~bad87fcf9b.en.html 
152 UNCTAD. Impact of the COVID-19 Pandemic on Trade and Development. Transitioning to a new normal. 2020. 
p. 17. Available from: https://unctad.org/system/files/official-document/osg2020d1_en.pdf 
153 European Council Conclusions of 1-2 October 2020. p. 2. https://data.consilium.europa.eu/doc/document/ST-
12802-2020-INIT/en/pdf 

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3  WHY SHOULD THE EU ACT? 

3.1  Legal basis 

A possible legal basis for EU interventions is Article 207 of the Treaty on the Functioning of the 
European Union (“TFEU”), possibly combined with Article 114 TFEU. 

Article  207  TFEU  provides  for  the  adoption  of  measures  defining  the  framework  for 
implementing the common commercial policy. The scope of the common commercial policy is 
defined  in  Article  207(1)  TFEU,  which  refers  inter  alia,  to  trade  in  services,  foreign  direct 
investment and measures to protect trade in the event of subsidies.  The initiative is about foreign 
subsidies  and  their  distortive  impact  on  the  internal  market,  including  in  situations  where  a 
subsidised company plans to acquire an EU target or participate in an EU procurement. Other EU 
instruments  dealing  with  foreign  subsidies  (namely  the  EU  anti-subsidy  Regulation)  or  with 
foreign investment (namely the FDI Screening Regulation) were based on Article 207(2) TFEU.  

Article  114 TFEU  is  about  the  approximation  of laws,  and  could  be  a  suitable additional legal 
basis given the internal market dimension of the initiative. Article 114 provides for the adoption 
of measures which have as their object the establishment or functioning of the internal market. 
While the initiative is indeed about foreign subsidies distorting the internal market, to date there 
are  no  national  rules  dealing  with  foreign  subsidies.  However,  several  Member  States154  have 
indicated that they see a need to address the distortions caused by foreign subsidies. Therefore, in 
the absence of EU action, some Member States may decide to put in place national legislation. 
Consequently, it would be more efficient to put in place a uniform EU-wide solution to address 
distortive foreign subsidies that applies across the entire internal market. Therefore, Article 114 
TFEU could also be a suitable additional legal basis given for the initiative.   

3.2  Subsidiarity: Necessity of EU action 

Article 5(3) of the Treaty on European Union (TEU) provides that  the principle of subsidiarity 
applies in areas which do not fall within its exclusive competence of the European Union. Article 
3(1)(e) of the TFEU provides that the EU shall have exclusive competence in the area of common 
commercial  policy.  The  possible  legal  basis  (Article  207(2)  TFEU)  falls  into  this  category  of 
exclusive  competence.  While  legally  speaking,  the  question  of  subsidiarity  does  not  arise  with 
respect to Article 207 TFEU, it would arise with respect to Article 114 TFEU.  

In any event, there seems to be a need for action at EU level. Subsidies cause distortions on the 
internal market including in the context of acquisitions of EU targets and of public procurement. 
The situation is comparable to State aid granted by EU Member States, which by its very nature 
has  effects  on  more  than  one  Member  State.  Likewise  distortions  caused  by  foreign  subsidies 
may have a Union dimension comprising one or more Member States, so that foreign subsidies 
can best be tackled through legislative action at the EU level.  

Finally,  pursuant  to  Article  3(1)(e)  TFEU,  the  EU  is  exclusively  competent  for  trade  defence 
instruments,  including  the  EU  anti-subsidy  Regulation,  which  are  also  based  on  Article  207(2) 
TFEU. The same is true for legislation on State aid. According to Article 3(1)(b) TFEU, the EU 
shall  have  exclusive  competence  in  the  area  of  "the  establishing  of  the  competition  rules 
necessary for the functioning of the internal market". The EU has thus experience in legislating 
on subsidies as well as on State aid, and it is therefore more effective if the EU, and not Member 
States, legislates also on foreign subsidies. 

154  Among others The Netherlands, France, Germany, Poland and Italy.  

36 

 
 
                                                      
3.3  Subsidiarity: Added value of EU action 

There  seems  to  be  an  added  value  of  EU  action.  Notably,  the  objectives  and  added  value  of  a 
control  of  foreign  subsidies  can  be  compared  to  those  of  the  existing  State  aid  control  i.e.  to 
ensure  effective  competition  and  a  level  playing  field  in the internal  market. The  compatibility 
criteria  in  State  aid  ensure  that  the  amount  of  aid  is  kept  to  the  minimum  necessary  and 
proportionate  to  achieving  an  objective  of  common  interest.  Member  States  are  therefore 
prevented from spending excessive and thus distortive amounts of State aid or from entering into 
‘subsidy races’ with each other. The publicly available information on Member States’ support 
also fosters market discipline.155 Such benefits could not be achieved at Member State level.  

Moreover, having a Regulation at EU level allows potential beneficiaries of foreign subsidies to 
know ex ante the rules that the competent supervisory authority will use to assess the existence of 
and possible distortions caused by foreign subsidies. This guarantees predictability and increases 
the legal certainty of the system across different Member States.  

4  OBJECTIVES: WHAT IS TO BE ACHIEVED? 

4.1  General objectives 

The general objective of this initiative is to restore the level playing field on the internal market 
so that it is not distorted by foreign subsidies.  

4.2  Specific objectives 

This initiative has two specific objectives. 

1. 

Identify the most distortive subsidies: This specific objective addresses on the one hand the 
root cause that there is a general lack of information about subsidies at international level 
and on the second hand that there are no criteria and procedures to assess the potential 
distortion of the EU internal market caused by foreign subsidies. 

2.  Remove the distortions caused by foreign subsidies: This objective addresses the root cause 
that there are no tools to remove distortions caused by foreign subsidies once identified. 

The table below illustrates the intervention logic, that is, the main relations between the problem, 
the driver and the objectives. 

155 Commission Staff Working Document: Fitness Check of the 2012 State aid modernisation package, railways 
guidelines and short-term export credit insurance, SWD(2020) 257 final. 

37 

 
 
 
                                                      
Table 4. Intervention logic 

Problem/ Driver 

Objective 

Problem 
Foreign subsidies are distorting the internal market 

General objective 
Restore the level playing field 

Secondary root cause:  
Insufficient transparency 

Specific objective 1 
Identify the most distortive foreign subsidies 

Main root cause:  
Regulatory gap which fails to counter distortions 
caused subsidies that are part of the industrial policy 
of third countries 

Specific objective 2 
Remove the distortions caused by foreign subsidies 

5  WHAT ARE THE AVAILABLE POLICY OPTIONS? 

This report considers four types of policy options to address the three problems. The four types of 
policy options are as follows:  

  Option 1: do nothing;  
  Option 2: develop guidance;  
  Option 3: change existing EU rules;  
  Option 4: develop a new legal instrument. 

The Inception impact assessment report proposed a fifth policy option, which entailed changing 
international  rules.  This  report  no  longer  presents  such  fifth  option  and  instead  includes  its 
substantive elements in the baseline scenario, as the Commission will in any event pursue such 
policy  initiative,  namely  to  aim  to  promote  the  development  of  international  rules  to  address 
negative impacts of subsidies. 

5.1  What is the baseline from which options are assessed? 

To date, there are several areas with rules in place allowing to address certain aspects of foreign 
subsidies across the three problems described in Section 2 of this report.  

In particular, there are international rules on subsidies, namely the GATT and the WTO SCM 
Agreement. These rules allow the EU to bring litigation against a WTO Member before a WTO 
panel for breaches of the SCM Agreement. They also set out the possibility to take countervailing 
measures against the subsidising WTO member. However, the scope of application of the SCM 
Agreement is limited to trade in goods. While the GATS includes an inbuilt mandate to further 
negotiate disciplines on service subsidies, as well as the possibility to subject subsidies to non-
discrimination obligations, the GATS – unlike the GATT and the SCM Agreement -  does not set 
out  the  possibility  to  countervail  subsidies.  The  EU  is  aiming  to  increase  international 
transparency  on  subsidies  to  goods.156  It  is  more  generally  calling  for  new  rules  on  industrial 
subsidies (i.e. subsidies to goods) as essential to counter negative effects of heavy subsidisation 
on  international  trade,  as  outlined  in  the  Commission’s  Communication  on  the  trade  policy 
review.157 It is also considering new international rules on State owned enterprises, focusing on 

156 See e.g. JOB/GC/204. 
157 Communication from the Commission on the Trade Policy Review - An Open, Sustainable and Assertive Trade 
Policy. COM(2021) 66 final. Page 21. 

38 

 
 
 
 
                                                      
the behaviour of SOEs in their commercial activities, in line with the disciplines already agreed 
in several bilateral free trade and investment agreements. There is a GATS mandate to develop 
disciplines on service subsidies, but this is not actively pursued by WTO Members at this stage. 
While reforming WTO is one of the EU’s priorities, it has to be borne in mind that any changes 
to  WTO  rules  have  to  be  negotiated  at  the  level  of  the  WTO,  with  the  timeline  and  prospects 
dependent on achieving consensus among WTO Members. The success of reform depends on the 
commitment  of  WTO  Members  and  would  in  any  event  only  partially  address  the  identified 
regulatory  gap.  Even  revised  multilateral  rules  would  not  cover  services,  investment  or  other 
financial  flows  in  relation  to  the  establishment  and  operation  of  undertakings  in  the  EU.  The 
EU’s endeavours to reform the WTO agenda are therefore complementary to any of the options 
discussed  below.  This  was  also  confirmed  in  the  feedback  received  on  the  Inception  Impact 
Assessment.158 A third of the contributors indicated that they consider the reform of international 
rules complementary to legislative action at EU level, but not realistic in the near future. 

The  EU’s  bilateral  FTAs  normally  cover  goods,  services  and  investment.  They  generally 
prohibit  the  most  harmful  types  of  subsidies  (such  as  unlimited  guarantees),  and  include 
transparency and consultation clauses. However, comprehensive bilateral trade agreements exist 
only  with  a  limited  number  of  third  countries.  Agreements  with  some  neighbouring  countries 
include the commitment to put in place a subsidy control inspired by State aid rules, but normally 
do not provide for timely solutions to address distortive subsidies.159 FTAs also contain a chapter 
covering countervailing duty provisions, which restate the WTO rights and obligations including 
those  in  the  ASCM,  and  contain  some  WTO-plus  provisions.  However,  those  chapters  do  not 
cover  services  and  investments.  The  EU  is  continuing  to  negotiate  FTAs,  and  could  aim  to 
develop  more  comprehensive  provisions  on  subsidies  in  future  bilateral  trade  agreements.  This 
was  also  proposed  in  the  feedback  received  on  the  Inception  Impact  Assessment.  At  the  same 
time, it is considered unrealistic to change the subsidy provisions of existing agreements. In any 
event, even for new agreements, any changes to the current approach would have to be accepted 
by the respective negotiating partners, and their impact would be limited to bilateral relations. 

The EU anti-subsidy rules160 are based on the SCM Agreement and thus apply to injury caused 
by  the  import  of  subsidised  goods.  They  do  not  cover  services,  investment  or  other  financial 
flows in relation to the establishment and operation of undertakings in the EU. In addition to the 
limitation to goods, the EU’s anti-subsidy rules apply in principle only to subsidies provided to 
companies  in  the  granting  (third  country)  jurisdiction.  These  features  of  the  EU  anti-subsidy 
Regulation could be changed only if the SCM Agreement were to be changed. 

The Treaty includes provisions on  State aid granted by EU Member States. These rules do not 
cover subsidies granted by non-EU countries. They therefore do not allow to control and remove 
distortions caused by foreign subsidies. Already to date, however, foreign subsidies could – to a 
limited  extent  –  be  taken  into  account  when  assessing  the  compatibility  of  aid  granted  by  a 
Member State. Indeed, the Research, Development and Innovation (RDI) Framework161 and the 
IPCEI Communication162 include a ‘matching aid’ clause, which provides for the possibility of 
granting  higher  aid  intensities  to  match  the  aid  amount  received  for  similar  projects  by 
competitors  located  outside  of  the  EU.  Foreign  subsidies  can  in  principle  also  be  taken  into 

158 https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12621-Trade-investment-addressing-
distortions-caused-by-foreign-subsidies/feedback?p_id=8607947.  
159 For details, see section 2.5 above. 
160 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. 
161 Communication from the Commission: Framework for State aid for research and development and innovation, OJ C 
198, 27.6.2014, p. 1. 
162 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. 

39 

 
 
                                                      
account when assessing the proportionality of investment aid under the Regional aid guidelines 
(RAG).163  The  use  of  these  provisions  would  allow  the  Member  State  concerned  to  give  more 
State aid to counter harmful foreign subsidies.  

EU  antitrust  rules  apply  to  anticompetitive  behaviour  of  undertakings  emanating  from 
agreements  between undertakings or from market dominance. Whether an undertaking receives 
financial support is irrelevant for the assessment whether an agreement with another undertaking 
distorts  competition.  Likewise,  market  dominance  as  such  is  not  forbidden  but  only 
anticompetitive  behaviour  (abuse)  resulting  from  market  dominance.  Subsidies  allowing  an 
undertaking to become dominant therefore do not as such lead to a violation of EU antitrust rules. 
Nor  can  a  foreign  subsidy  facilitating  anticompetitive  behaviour  of  a  non-dominant  firm  be 
addressed under existing rules. 

As regards specifically problem 1, there are two sets of relevant existing rules, namely the  EU 
Merger  Regulation  (EUMR)  and  the  EU  Foreign  Direct  Investment  (FDI)  Screening 
Regulation.164  Under  the  EUMR,  undertakings  have  to  notify  to  the  Commission  relevant 
‘concentrations’  with  an  EU  dimension  prior  to  their  implementation.165  The  Commission  then 
assesses  whether  the  concentration  is  detrimental  to  competition  i.e.  whether  it  causes  a 
‘significant impediment to effective competition’. This test is not designed to take into account 
possible foreign subsidies involved in concentrations. In practice, foreign subsides are therefore 
unlikely to play a role, let alone decisive in the assessment of concentrations under the EUMR.  

The  EU FDI  Screening  Regulation  allows  EU Member  States  to  take  mitigating  measures  on 
certain  third-country  investments  on  grounds  of  security  or  public  order.  The  Regulation 
considers  subsidies  only  to  determine  the  extent  to  which  a  foreign  investor  is  under  state 
influence but does not allow to investigate economic distortions caused by foreign subsidies.  

As  regards  specifically  problem  2,  the  relevant  existing  rules  are  the  Public  Procurement 
Directives  (Directives  2014/23/EU,  2014/24/EU,  2014/25/EU  and  2009/81/EC),  which  do  not 
address foreign subsidies. Contracting authorities do not investigate distortions caused by foreign 
subsidies.166  The  provisions  in  the  Directives  on  abnormally  low  tenders,  Art.  69  of  Directive 
24/2014/EU  and  Art. 84  of  Directive  25/2014/EU,  stipulate  that  contracting  authorities  should 
assess  whether  the  tenderer  is  able  to  correctly  carry  out  the  contract  at  the  price  offered, 
irrespective  of  whether  the  (low)  price  level  is  due  to  the  existence  of  a  foreign  subsidy.  A 
foreign subsidy may in fact make the offer more viable.  

The  plurilateral  WTO  Government  Procurement  Agreement  (GPA)  does  not  address  the 
question of  foreign  subsidies. The existing  provision on  abnormally  low  tenders  merely  allows 
procuring entities to verify with the supplier that it satisfies the conditions for participation and is 
capable  of  fulfilling  the  terms  of  the  contract. The  GPA  might  be  reviewed  to include  specific 
rules to deal with distortive foreign subsidies; however, this is currently not being pursued. 

5.2  Options considered but discarded at an early stage 

Options  2  and  3  below  propose  issuing  guidance  or  amending  EU  State  Aid  rules  (to  address 
problem  3),  the  EU  Merger  Regulation  (to  specifically  address  problem  1)  and  the  Public 

163 Guidelines on regional State aid for 2014-2020, OJ C 209, 23.7.2013, p. 1, prolonged until end 2021, see OJ C 224, 
8.7.2020, p. 2. 
164 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 791, 21.3.2019, p. 1. 
165 The EUMR uses the term ‘concentration’ while the present document refers to the more commonly used term 
‘acquisition’.  
166 They also do not investigate distortions caused by state aid. 

40 

 
 
                                                      
Procurement Directives (to specifically address problem 2). Furthermore, below the list of other 
set of rules that were not found suitable to examine in detail under options 2 and 3:  

  The  EU  anti-subsidy  Regulation  is  based  on  the  SCM  Agreement,  which  is  limited  to 
subsidies  to  goods  imported  in  the  EU.  Without  changing  international  rules,  neither 
developing guidance to nor adapting the EU anti-subsidy Regulation would allow to fully 
address the three problems. None of the respondents providing feedback on the Inception 
Impact  Assessment  considered  guidance  or  changing  the  EU  anti-subsidy  Regulation  a 
suitable option. Some respondents called however for a better implementation of existing 
legislation. 

  Antitrust  rules  focus  on  anticompetitive  behaviour  of  undertakings,  either  due  to 
agreements  between  undertakings  or  market  dominance  and  therefore  have  a  different 
objective.  These  rules  require  to  a  large  degree  that  undertakings  assess  themselves 
whether  their  behaviour  is  in  line  with  the  rules.  This  seems  difficult  to  envisage  if 
distortions  on  the  internal  market  are  caused  by  foreign  subsidies,  given  that  no 
experience exists to date in the absence of rules. Therefore, neither guidance nor adapting 
the  existing  rules  is  considered  further  in  the  following.  None  of  the  respondents 
providing  feedback  on  the  Inception  Impact  Assessment  considered  guidance  or 
changing antitrust rules as an option.  

  As regards the EU FDI Screening Regulation, its scope is limited to public security and 
order in line with GATS. Guidance or changes to the FDI Regulation are therefore not 
further  considered,  as  this  would  allow  to  address  distortive  subsidies  only  for  a  small 
number  of  concentrations.  Only  one  respondent  providing  feedback  on  the  Inception 
Impact Assessment considered guidance to the EU FDI Screening Regulation a suitable 
option to address foreign subsidies. 

Option 2 

As  pointed  out  in  the  baseline,  some  State  aid  provisions  allow  to  take  into  account  foreign 
subsidies  in  the  assessment  of  State  aid.  Foreign  subsidies  are  explicitly  mentioned  in  the 
matching aid clause under the RDI Framework and the IPCEI Communication. They could also 
be  taken  into  account  in  the  proportionality  assessment  under  the  RAG.  Neither  of  these 
provisions has however been used to date. Option 2 thus proposes to provide guidance to make it 
easier for Member States to show that there was a foreign subsidy when invoking the matching 
aid clause, or in the proportionality assessment under RAG.  If there was a foreign subsidy, the 
matching aid clause as well as the RAG allow EU Member States to provide a higher amount of 
State aid than in the absence of a foreign subsidy. This option would be particularly targeted to 
address problem 3. This option would however apply only to a small subset of cases involving 
foreign  subsidies,  and  it  would  only  indirectly  redress  distortions  caused  by  foreign  subsidies. 
Only  one  respondent  providing  feedback  on  the  Inception  Impact  Assessment  considered 
guidance  on  State  aid  rules  a  suitable  option  to  address  the  problem.  Furthermore,  this  option 
risks triggering a subsidy race with third countries or even inside the EU, causing wasteful public 
support, and causing even more distortions on the internal market. Providing guidance on State 
aid rules is therefore discarded as it is likely to be ineffective.  

To  specifically  address  problem  1,  option  2  considers  developing  guidance  on  collecting 
information on foreign subsidies in merger cases under the  EUMR. Already to date, companies 
have in principle to provide information on financial support according to the notification form, 
which could be used more extensively to systematically collect information on foreign subsidies. 
While  this  solution  may  contribute  to  gathering  better  data  on  foreign  subsidies  over  time,  the 
information collected could not be used to effectively address foreign subsidies when assessing 

41 

 
 
 
 
concentrations.  Only  one  respondent  providing  feedback  on  the  Inception  Impact  Assessment 
considered  guidance  on  merger  rules  a  suitable  option  to  address  the  problem.  To  address  the 
potential impact of foreign subsidies on the internal market, the legal test set out in the EUMR 
would  need  to  be  changed.  It  currently  focuses  on  the  significant  impediment  of  effective 
competition,  and  does  not  allow  to  specifically  take  into  account  foreign  subsidies.  Providing 
guidance for the EUMR is therefore discarded as ineffective. 

To specifically address problem 2, option 2 considers developing guidance on the application of 
the existing rules in the Public Procurement Directives without changing them. The provisions 
on  abnormally  low  tenders  in  the  Directives,  Art.  69  of  Directive  2014/24/EU  and  Art  84  of 
Directive 2014/25/EU, are the only provisions currently allowing to address foreign subsidies in 
public  procurement,  albeit  in  a  very  limited  and  indirect  way.  As  the  Public  Procurement 
Directives  do  not  address  foreign  subsidies,  guidance  could  not  propose  criteria  on  how  a 
contracting authority should assess the distortive effect of foreign subsidies and reject a tenderer 
on the sole ground that it received foreign subsidies. None of the respondents providing feedback 
on the Inception Impact Assessment considered guidance on the Public Procurement rules as an 
adequate option to sufficiently address the regulatory gap in the existing framework. 

In conclusion, Option 2 i.e. issuing guidance on EU State Aid rules, the EU Merger Regulation or 
the Public Procurement Directives would not be effective. 

Option 3  

As pointed out in the baseline, State aid rules only apply to aid granted by EU Member States. 
Changing  the  Treaty  to  extend  State  aid  control  to  subsidies  granted  by  non-EU  States  is  not 
considered  a  realistic  option  as  Treaty  changes  for  this  purpose  are  generally  considered 
politically unrealistic. An important element of the State aid rules set out in the Treaty is also that 
they prevent EU Member States from putting an aid measure into effect until the Commission has 
found  it  compatible  with the  internal  market.  The Treaty  does  not  have  such  binding  effect  on 
non-EU States. The only possibility that could be considered in option 3 is therefore to adapt EU 
State  aid  rules  in  a  way  that  a  Member  State  could  grant  compensatory  State  aid  to  an  EU 
undertakings if its competitor receives foreign subsidies. This would mean that the possibilities 
similar  to  the  matching  aid  clause  provided  for  in  the  RDI  Framework  and  the  IPCEI 
Communication, as well as to the proportionality assessment under RAG would be extended to 
all  State  aid  rules.  None  of  the  respondents  providing  feedback  on  the  Inception  Impact 
assessment considered changing State aid rules a suitable option. While changing State aid rules 
to allow for more State aid may be more effective than Option 2 due to its legally binding nature, 
it  has  the  same  downsides  as  option  2,  even  exacerbated  by  the  fact  that  option  3  would  go 
beyond  the  current  possibilities  of  matching  aid  set  out  in  the  RDI  Framework,  the  IPCEI 
Communication and RAG. Option 3 does not allow to directly address the distortion caused by a 
foreign  subsidy,  and  even  risks  causing  new  distortions.  It  might  ultimately  lead  to  harmful 
subsidy  races.  Amending  EU  State  aid  rules  is  therefore  discarded  because  considered 
ineffective. 

To  specifically  address  problem  1,  option  3  considers  changing  the  EUMR  and  including  an 
additional  assessment  standard,  allowing  it  to  take  into  account  distortions  caused  by  foreign 
subsidies in the context of concentrations. It is the purpose of the EUMR to investigate whether a 
concentration  distorts  competition  by  giving  rise  to  a  “significant  impediment  to  effective 
competition” (SIEC). A very different question is whether the concentration process as such was 
distorted. That latter question is however the most relevant if foreign subsidies are granted in the 
context  of  a  concentration.  Including  an  assessment  of  foreign  subsidies  in  the  EUMR  would 
therefore  fundamentally  alter  the  legal  test  and  introduce  considerations  that  are  alien  to  the 
current assessment approach. In addition, including an assessment of foreign subsidies would risk 
overburdening the review process and rendering it less clear. None of the respondents providing 

42 

 
 
feedback on the Inception Impact Assessment considered changing the EUMR a suitable option 
to address the problem. Including any consideration of foreign subsidies in the EUMR would at a 
minimum  blur  the  purpose  of  the  legislation  as  two  different  assessment  standards  would  be 
included.  Their  interplay  and  respective  importance  would  be  unclear.  This  option  would 
therefore  risk  weakening  both  the  EUMR  and  undermine  the  effectiveness  of  the  control  of 
foreign subsidies. Amending the EUMR is therefore discarded because considered ineffective.  

To specifically  address  problem  2,  option  3  would  propose to  amend the  Public  Procurement 
Directives. Under this option, new provisions would be introduced in the Directives enabling or 
obliging  contracting  authorities  to  address  foreign  subsidies  in  specific  public  procurement 
procedures.  The  new  provisions  would  set  out  how  (procedure  and  criteria)  contracting 
authorities  assess  whether  a  tender  involves  a  foreign  subsidy,  under  which  conditions  this 
foreign  subsidy  distorts  the  public  procurement  procedure,  and  would  include  redressive 
measures  such  as  the  rejection  of  tenders  from  the  public  procurement  procedure.  Under  the 
Directives, the contracting authorities at Member State level are the responsible authorities, and 
amendments of the Directives would have to follow largely this regulatory logic. Setting out the 
methodology for assessing foreign subsidies (and the balancing test, to be applied in an EU-wide 
manner)  would  not  be  appropriate  in  the  Directives  and  would  require  the  adoption  of  a 
horizontal instrument. Such an amendment would also leave the implementation to a great extent 
in the hand of the contracting authorities that are not equipped for that task. Most stakeholders 
favour  legislative  action  at  EU  level.  Commenting  on  the  Inception  Impact  Assessment,  five 
respondents  (out  of  23)  –  i.e.  one  Member  State  and  four  other  stakeholders  –  specifically 
indicated favouring changing the PP Directives. 

In conclusion, all three possibilities contemplated under option 3 are either politically unfeasible 
(changes to the EU Treaty) or ineffective. 

5.3  Option to be further assessed 

Option  4  considers  developing  new  legislation  to  address  the  distortions  of  the  internal  market 
caused by foreign subsidies.  

This reflects the necessity to have effective tools in place to deal with distortions in the internal 
market  and  ensure  a  level  playing  field.  Indeed,  increasing  the  EU’s  capacity  to  pursue  its 
interests and enforce its rights, including autonomously where needed, was set out as one of the 
objectives of the EU’s new trade policy167. Assertiveness and rules-based cooperation form a key 
component of the model of Open Strategic Autonomy that the EU is pursuing.  

New  legislation  was  also  the  preferred  option  of  more  than  half  of  the  respondents  providing 
feedback to the Inception Impact assessment.  

In such legislation, a supervisory authority would investigate whether foreign subsidies granted 
to  undertakings  active  in  the  internal  market  distort  the  internal  market  and,  if  so,  may  adopt 
redressive  measures.  The  relevant  counterpart  would  be  the  undertaking  receiving  a  foreign 
subsidy,  and  not  the  public  authority  granting  it.  This  is  different  from  EU  State  aid  control, 
where the relevant counterpart is the EU Member State granting the State aid. This is because the 
EU Treaty defines as counterpart the EU Member States, and the Commission is empowered by 
the Treaty to order Member States to alter or recover incompatible aid. This is not the case  for 
third countries.  

167 Communication from the Commission on the Trade Policy Review - An Open, Sustainable and Assertive Trade 
Policy. COM(2021) 66 final. 

43 

 
 
                                                      
Hence,  while  new  legislation  to  address  distortive  foreign  subsidies  would  emulate  to  a  large 
extent State aid rules, there would also be differences between the two. Against this backdrop, the 
design parameters for drawing up a new instrument on foreign subsidies are as follows:  

 
 
 
 
 

the competence level i.e. which level of government would enforce the legislation;  
the investigative approach, including possible notification thresholds;  
the assessment criteria to determine distortive foreign subsidies;  
the balancing test to take into account possible positive impacts of foreign subsidies and;  
the redressive measures to remedy the negative effects of distortive foreign subsidies. 

The White Paper proposed as preferred option a new legal  instrument based on three modules. 
Each  module  had  a  different  scope:  Module  1  for  addressing  general  distortions,  module  2  for 
addressing  distortions  in  large  acquisitions  and  module  3  for  distortions  in  large  public 
procurement  procedures.  Each  module  consisted  of  a  different  configuration  of  the  design 
parameters presented above. 

The options presented in this section of the impact assessment refer to the options for each design 
parameter.  The  combination  of  options  of  these  parameters  into  policy  packages  (or  modules) 
will  be  described  and  compared  in  section  7  of  this  report.  Section  8  of  this  report  will  then 
present  the  preferred  policy  packages  (or  modules)  and  will  explain  the  differences  with  those 
presented in the white paper.  

The options under each design parameter are presented below. Differences with the White paper -
at the level of design parameters- will be also explained below. 

5.3.1  Design parameter (a): Competence level  

There are two possible options, which were also outlined in the White Paper:  

a1) Only the Commission to enforce the legislation;  

a2) Shared enforcement competence between the Commission and Member States.  

The enforcement of the new instrument could either rest exclusively with the Commission or be 
shared  between  the  Commission  and  Member  States’  authorities.  If  the  Commission  were 
exclusively  competent,  Member  States  could  nonetheless  be  involved  in  the  decision-making 
process  through  an  Advisory  Committee.  This  Committee  would  be  consulted  on  any  decision 
adopted under the new legal instrument and the Commission would take utmost account of the 
opinions issued by the Committee. In a shared system of enforcement, national authorities could 
investigate foreign subsidies in their own countries, while the Commission would focus on EU-
wide  impacts  but  would  also  be  free  to  also  investigate  national  cases.  Exclusive  Commission 
enforcement power would mirror the system of enforcement for trade policy and State aid rules.  

In response to the White Paper, many Member States and most stakeholders argued in favour of 
exclusive  Commission  enforcement.  There  were  however  also  a  few  Member  States  that 
favoured shared enforcement.  

5.3.2  Design parameter (b): Investigative approach  

In  terms  of  investigative  approach,  and  as  also  presented  in  the  White  Paper,  there  are  five 
options: 

Option b1 (Ex officio): The supervisory authority can act upon market information submitted for 
example  by  competitors  and  upon  its  own  market  investigations,  sector  studies  (i.e.  by  the 
OECD), or trade distortion reports. An ex officio system is less burdensome for the undertakings 

44 

 
 
receiving  foreign  subsidies  (compared  to  a  notification  system  as  explained  below).  It  puts  the 
burden  to  collect  the  relevant  facts  and  information  on  the  supervisory  authority,  which  would 
however need to have effective tools to gather information. The supervisory authority should be 
able  to  ask  undertakings  and  business  associations  to  supply  the  relevant  information  and  may 
have  the  possibility  to  impose  sanctions  or  assess  on  the  basis  of  the  facts  available  if 
undertakings  refuse  to  submit  complete  and  accurate  information.  It  should  also  have  the 
possibility to inspect company premises. If it is not possible to gather all necessary information, 
the supervisory authority could decide on the basis of the facts available. 

Options  based  on  a  notification  system:  Undertakings  would  be  required  to  notify  foreign 
financial  contributions  to  the  supervisory  authority.  Such  a  notification  requirement  would  be 
linked  to  financial  contributions  in  the  context  of  certain  transactions,  namely  acquisitions  and 
public  procurement  procedures.  Like  under  option  b1  (ex  officio),  the  supervisory  authority 
would  have  deterrent  sanctions  at  its  disposal  if  undertakings  refuse  to  submit  complete  and 
accurate information. In addition, a failure to notify could result in fines and penalty payments, 
but would also trigger the corresponding procedure, which would have a suspensive effect on the 
transaction and could result in the prohibition of an acquisition or a prohibition of award in the 
case of public procurement. 

The  notification  requirement  would  only  apply  if  certain  threshold  are  met,  to  avoid  an  overly 
high  administrative  burden.  Setting  the  notification  threshold(s)  implies  a  trade-off  between 
administrative burden and general effectiveness of the instrument.  

As regards those thresholds, there are different options: 

Option  b2  (no  thresholds),  implying  that  every  transaction  or  financial  contribution  must  be 
notified;  

Option b3 (moderate thresholds), implying that substantial amounts of financial contribution/ 
important transactions must be notified;  

Option  b4  (high  thresholds),  implying  that  only  very  high  amounts  of  financial  contribution/ 
very  important  transactions  must  be  notified.  The  final  option,  option  b5,  would  combine  ex-
officio  with  notification.  In  particular,  a  notification  for  the  highest  financial  contributions  or 
most important transactions and an ex-officio review for other cases. 

Section  6  of  this  report  introduces  several  scenarios  as  regards  quantitative  thresholds, 
categorised  as  moderate  and  high.  Section  6  then  estimates  the  number  of  cases  that  would  be 
caught  under  each  scenario  and  in  Section  7,  different  quantitative  thresholds  are  compared  as 
regards effectiveness and efficiency which then leads to choosing the preferred threshold level. 

During the consultation on the White Paper, views on the investigative approach were mixed, but 
overall,  stakeholders  favoured  combining  an  ex  officio  approach  with  notification  of  financial 
contributions for certain types of transactions. 

As regards the thresholds for notification, most stakeholders considered quantitative thresholds as 
most suitable, while some others also suggested qualitative thresholds. There was no consensus 
on the right level of the threshold. 

Given the high thresholds used for notification in option 4, cases notified would account for only 
a  small  part  of  all  cases  dealt  with  under  existing  instruments  such  as  EU  merger  control  and 
public procurement rules. In the few cases where there would be an overlap, procedural synergies 
could be ensured in practice, to the extent possible. For instance, the timelines of parallel reviews 
under  different instruments  (notably  under the  new  instrument  and  the  EU  Merger  Regulation) 
could  be  aligned,  thereby  avoiding  unnecessary  delays  or  legal  uncertainty.  Similarly,  the  type 
and format of the information to be provided in notifications under different instruments could be 

45 

 
 
aligned  as  much  as  possible,  enabling  businesses  to  simply  replicate  documents  and  amend  or 
complement  them  only  in  a  limited  way  for  each  specific  notification.  By  contrast,  existing 
instruments prohibit the use of information provided under one procedure for procedures under 
different  legal  instruments.  It  would  thus  not  be  possible  to  use  a  notification  under  the  EU 
Merger  Regulation  to  exempt  an  undertaking  from  providing  the  same  information  under  a 
possible new legal instrument.  

In  that  regard,  business  transactions  already  today  often  face  scrutiny  under  several  regulatory 
regimes  globally  (notably  parallel  merger  control  in  several  jurisdictions,  as  well  as  FDI 
screening).  A  new  legal  instrument  would  only  be  one  addition.  Undertakings  and  public 
authorities  thus  have  significant  experience  in  dealing  with  such  parallel  reviews  and  seeking 
alignment,  which  in  the  case  of  a  new  instrument  will  be  facilitated  by  the  Commission  also 
handling EU merger control. 

As  regards  the  interaction  between  a  possible  new  instrument  and  specific  public  procurement 
procedures,  it  is  envisaged  that  the  instrument  would  be  designed  in  such  a  way  as  to  have 
minimum, if any, impact on the ongoing procurement procedure. Under mandatory notification, 
the  investigation  of  the  foreign  subsidy  would  be  carried  out  in  parallel  with  the  evaluation  of 
tenders. The deadlines for concluding the investigation would be in line with the time needed for 
the  typical  evaluation  to  be  finalised.  The  contracting  authority  would  be  able  to  award  the 
contract to a non-subsidised bidder if it proposes the best tender, and would only have to wait for 
the outcome of the investigation if the subsidised bidder would be set to win the contract. In any 
case,  they  would  be  free  to  award  the  contract  to  the  best  bid  should  the  deadline  for  the 
investigation lapse without a decision. Under ex-officio, such investigations would usually take 
place only after award, and thus have no impact on the outcome of the procurement procedure, 
and would focus on correcting the damage to the internal market through the use of fines. 

5.3.3  Design  parameter  (c):  Thresholds  below  which,  subsidies  are  unlikely  to  be 

distortive168  

In  addition  to  a  notification  threshold  for  financial  contributions  in  the  context  of  certain 
transactions, the White Paper suggested also a general threshold below which, foreign subsidies 
could be presumed not to distort the internal market.  

Two options are considered for the new instrument: 

c1) EUR 200 000 

c2) EUR 5 million 

The new instrument could include a threshold below which foreign subsidies would be presumed 
not to distort the internal market. This threshold could be either set at EUR 200 000, i.e. at the 
same level as in EU State aid rules, or at a substantially higher level, notably, EUR 5 million over 
a  consecutive  period  of  three  years.  The  White  Paper  suggested  to  set  the  amount  at  EUR 
200 000. 

The  main  argument  for  setting  a  higher  threshold  than  under  EU  State  aid  rules  is  that  large 
categories of EU State aid are exempted from scrutiny by block exemptions and other secondary 
legislation. In the EU, only about 5% of the aid granted needs to be submitted to the Commission 
for clearance. Section 6 of this report shows that a threshold of EUR 5 million would capture at 
least five per cent of the highest aid amounts in the EU. Section 6 also analyses the relevance of 

168 In the White Paper, this term was referred to as de minimis 

46 

 
 
                                                      
such  threshold  in  the  context  of  foreign  subsidies.  In  response  to  the  White  Paper,  some 
respondents  argued  for  a  substantially  higher  threshold  given  that  foreign  subsidies  are  not 
subject to block exemptions. However, other respondents considered EUR 200 000 appropriate. 

5.3.4  Design parameter (d): Assessment criteria 

The White Paper suggested a combination of categories of foreign subsidies considered likely to 
distort the internal market. These categories were broadly based on those of prohibited State aid. 
Foreign  subsidies  outside  these  categories  would  require  a  more  detailed  assessment  based  on 
indicators that help to determine whether the subsidy distorts the internal market. 

The new instrument would pursue the approach outlined in the White Paper, and further refine it.  

Under the new legal instrument, a foreign subsidy would distort the internal market if it improves 
the  competitive  position  of  its  recipient,  and  thereby  distorts  competition.  Such  a  distortive 
foreign subsidy would cause negative impacts on the recipient’s competitors or more broadly on 
market functioning. The distortive effect does in principle not depend on whether the subsidy was 
granted  by  a  Member  State  (State  aid)  or  by  a  third  country  (foreign  subsidy).  However,  for  a 
foreign subsidy, it would be necessary to establish whether it has an impact in the EU internal 
market or just in the domestic market of the third country granting it.  

Subsidies  which  are  usually  considered  distortive  include  those  which  directly  facilitate 
concentrations,  which  are  given  to  an  ailing  undertaking  without  a  restructuring  plan,  export 
subsidies or unlimited guarantees.  

Beyond  these  categories,  the  following  indicators  would  help  establishing  whether  a  subsidy 
results in negative impacts:  

 
 

 

the size of the subsidy, as very large subsidies can be particularly distortive;  
the nature of the subsidy, as operating subsidies are more likely to distort than subsidies 
promoting investments;  
the  characteristics  of  the  affected  market,  for  instance  subsidies  granted  to  companies 
that already enjoy a considerable market share in sectors with low levels of competition 
in the internal market, are likely to have a harmful  impact. 

Finally,  the  possible  distortion  on  the  internal  market  caused  by  a  given  subsidy  could  be 
balanced  with  the  positive  effects  on  the  development  of  the  relevant  economic  activity,  as 
outlined in 5.3.5 below.  

5.3.5  Design parameter (e): Balancing test 

The  White  Paper  suggested  that  the  EU’s  policy  objectives  would  be  taken  into  account  when 
assessing whether a distortive foreign subsidy has a positive impact. The distortion caused would 
be balanced against the possible positive impact of the subsidised economic activity. 

There are two options as regards the new instrument: 

e1) No balancing test 

e2) Balancing test 

The balancing test would allow balancing the distortion caused by the foreign subsidy with the 
positive  effects  on  the  development  of  the  relevant  economic  activity  where  warranted.  As 
regards the implementation, and inspired in EU State Aid rules, the Commission would take the 
balancing  between  the  negative  and  the  positive  effects  into  account  when  determining  the 

47 

 
 
appropriate  redressive  measures  and  on  the  nature  and  level  of  those  redressive  measures.  For 
instance, if the distortion is fully outweighed by the positive effects, the Commission may abstain 
from imposing redressive measures.  

While the  White  Paper referred to “EU  public  policy  objectives”,  it is now  suggested to rather 
refer to a balancing between negative and positive effects to better align the instrument with EU 
State aid rules. Therefore, it is proposed to refer to the test as “Balancing test” instead of “EU 
interest test”. 

In response to the White Paper stakeholders were generally supportive of including a balancing 
test  and  some  asked  for  more  explanations.  Moreover,  some  respondents  argued  that  the 
application of a balancing test should not prevent the imposition of redressive measures.  

It should be noted that the balancing test would always work in the advantage of the recipient of 
foreign subsidies. It could not lead to the imposition of redressive measures for subsidies that are 
not  found  to  be  distortive.  The  application  of  the  balancing  test  would  rely  on  information 
provided  by  the  undertaking,  possibly  also  by  public  authorities.  In  any  case,  the  Commission 
would be bound by the principle of proportionality, further limiting discretion. 

5.3.6  Design parameter (f): Redressive measures 

The  new  instrument  could  include  a  ‘toolbox’  of  redressive  measures,  which  builds  on  the 
measures  used  in  State  aid.  As  this  toolbox  could  address  in  principle  all  potential  distortions 
caused by subsidies, there is no need to decide on alternative redressive measures. However, as 
for  State  aid  control  the  supervisory  authority  would  have  to  decide  on  a  case-by-case  basis, 
which specific redressive measures to use to redress the distortion caused by a specific foreign 
subsidy. 

In  any  event,  it  would  first  need  to  be  investigated  if  and  how  a  foreign  subsidy  distorts  the 
internal market. Depending on this case-specific assessment of the distortion and the application 
of the balancing test, it could be envisaged to impose a reimbursement of the distortive foreign 
subsidy.  In  other  cases,  it  could  be  more  appropriate  and  effective,  to  directly  redress  the 
identified distortion with a behavioural or structural remedy adapted to the specific situation. This 
approach  is  in  line  with  State  aid  control,  for  example,  with  the  remedial  measures  under  the 
Rescue and Restructuring Guidelines169, in the financial sectoral guidelines170 or under the Covid-
19 Temporary Framework171.  

In  the  replies  to  the  consultation  on  the  White  Paper  various  stakeholders  commented  on  the 
redressive measures mentioned therein. Several Member State authorities for example indicated 
that  a  redressive  payment  may  not  be  an  effective  remedy  as  it  would  be  difficult  to  monitor. 
Some  other  stakeholders  stressed  that  strong  and  effective  redressive  measures  coupled  with 
sanctions  for  non-compliance  would  be  necessary.  In  contrast,  some  voiced  concern  that 
redressive  payments  to  foreign  or  EU  states  may  lead  to  political  tension  and  that  it  may  be 
difficult to establish if the subsidy was effectively paid back in a third country.  

169  Communication  from  the  Commission  —  Guidelines  on  State  aid  for  rescuing  and  restructuring  non-financial 
undertakings in difficulty, OJ C 249, 31.7.2014, p. 1–28 
170  Communication  from  the  Commission  on  the  application,  from  1 August  2013  ,  of  State  aid  rules  to  support 
measures  in  favour  of  banks  in  the  context  of  the  financial  crisis  (  ‘Banking  Communication’  )  Text  with  EEA 
relevance, OJ C 216, 30.7.2013, p. 1–15  
171 Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak as adopted 
on 19 March 2020 (C(2020) 1863) and its amendments C(2020) 2215 of 3 April 2020, C(2020) 3156 of 8 May 2020, 
C(2020)  4509  of  29  June  2020,  C(2020)  7127  of  13  October  2020,  and  C(2021)  564  of  28  January  2021  are  those 
published in the Official Journal of the European Union 

48 

 
 
 
                                                      
Taking into account these views redressive measures envisaged in the new instrument could be as 
follows:  

-  Behavioural  measures,  including  third  party  access,  reducing  capacity  or  market  presence, 
refraining  from  certain  investments,  licensing  on  fair,  reasonable  and  non-discriminatory 
(FRAND)  terms  of  assets  developed  or  acquired  with  subsidies,  prohibition  of  a  specific 
market  conduct,  publication  of  R&D  results,  transparency  in  accordance  with  Directive 
2006/111/EC,  prohibition  to  award  the  public  contract  to  the  undertaking  concerned  in  an 
ongoing public procurement; 
Structural measures: divestment of certain assets, prohibition of an acquisition, unwinding of 
an acquisition; 

- 

-  Redressive payment to the third country concerned. 

In  terms  of  enforcement,  the  EU  has  jurisdiction  over  companies  active  on  the  EU  internal 
market. Consequently, the competent supervisory authority would be able to impose investigative 
and  redressive  measures  on  such  companies,  irrespective  of  their  ownership  or  place  of 
establishment.  The  situation  would  hence  be  similar  to  the  enforcement  of  prohibitions, 
commitments and fines in the area of antitrust and merger control. 

Below the summary table showing the design parameters and the options. 

Table 5. Summary table design parameters in option 4 

Design parameter 
a) Competence level 

b) Investigative 
approach 

c) Thresholds unlikely to 
distort 
d) Assessment criteria 
e) Balancing test 

f) Redressive measures 

Options to be considered 
a1) Commission 
only 
b1) Ex-officio 

a2) Shared competence between the Commission and 
Member States 
b2) 
Notification 
with no 
thresholds 

b4) 
Notification 
with high 
thresholds 

b3) 
Notification 
with 
moderate 
thresholds 

b5) 
Combination 
of ex-officio 
and 
notification 
with moderate 
or high 
thresholds 

c2) EUR 5 million 

c1) EUR 
200 000 
stemming from EU State Aid rules 
e1) No 
balancing test 
Toolbox stemming from EU State Aid rules 

e2) Balancing test 

6  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? 

This chapter assesses the impact of a new instrument and, where relevant, of the policy options as 
regards  its  main  design  parameters,  against  the  baseline  scenario  and  for  each  of  the  three 
problems identified. 

49 

 
 
 
 
6.1  Problem 1 - distortions in acquisitions 

Economic impacts 

Public authorities 

The new instrument would require more resources for public authorities compared to the baseline 
scenario  regardless  of  which  sub-options  for  the  design  parameters  are  considered.  Public 
authorities would have to identify, assess and remedy distortive foreign subsidies. However, as 
mentioned  in  Section  5.3,  the  types  of  subsidies  considered  to  be  likely  distortive  would  be 
similar to those considered under State aid and international trade rules.172 Moreover, indicators 
for assessing distortions would build on the ones used in State aid control. To the extent public 
authorities  are  already  familiar  with  State  aid  control  and  trade  defence  rules,  the  additional 
administrative burden on them resulting from the assessment of foreign subsidies would be more 
limited. 

As regards the impact of the options for the investigative approach, State aid control uses both 
ex officio and notification procedures similar to the two types of procedures that could be used 
for  scrutinising  foreign  subsidies.  Merger  control  typically  uses  notification  procedures  for 
acquisitions.  As  the  administrative  tasks  in  relation  to  the  control  of  State  aid,  mergers  and 
foreign  subsidies  are  likely  to  be  comparable,  this  report  builds  to  a  large  extent  on  the 
experience in the State aid and merger areas. Options b1 to b5 – on the design parameter related 
to the investigative approach – would influence particularly the number of cases and therefore the 
impact  on  the  resources  of  public  authorities.  Due  to  the  lack  of  transparency  on  foreign 
subsidies, it is not possible to precisely estimate the number of acquisitions potentially facilitated 
by foreign subsidies. Instead, this report takes as a starting point the total number of acquisitions 
of EU undertakings by third country undertakings. In other words, foreign ownership is taken as 
a proxy to identify the number of potentially subsidised acquisitions. 

  Option b1 (Ex officio approach): If there are no ex ante notifications, the public authority 
could rely on market intelligence to identify potentially distortive foreign subsidies in the 
context of acquisitions. As a result, the supervisory authority would open cases based on 
the  human  resources  it  has  available  for  such  investigative  tool.  In  general,  it  is  likely 
that  fewer  acquisitions  would  be  investigated  than  in  a  notification  system  because  the 
information  would  be  less  readily  available.  An  ex  officio  investigation  of  subsidised 
acquisitions  may  also  have  the  drawback  that  an  acquisition  is  completed  before  the 
investigation is finalised. Such an approach may therefore undermine legal certainty for 
the  merging  parties.173  The  redressive  measures  would  therefore  need  to  cover  the 
situation  that  some  acquisitions  might  already  be  completed  at  the  start  of  an 
investigation,  which  means  that  for  example  behavioural  measures  may  be  easier  to 
implement.  Lastly,  it  should  also  be  taken  into  account  that  even  the  acquisition  of 
relatively small EU targets may distort the internal market and would not be captured by 
a notification system with moderate or high thresholds.174  

172 See e.g. Joint Statement of the Trilateral Meeting of the Trade Ministers of Japan,  the United States and the 
European Union of 14 January 2020, available here:   
https://trade.ec.europa.eu/doclib/docs/2020/january/tradoc_158567.pdf 
173 For a discussion see: https://www.concurrences.com/en/conferences/ex-post-review-of-merger-control-decisions-
pros-and-cons-en-  
174  Some  of  these  deals  have  been  referred  to  as  ‘killer  acquisitions’.  A  killer  acquisition  occurs  when  incumbent 
undertakings acquire innovative start-ups to eliminate future competition by absorbing or discontinuing their projects. 
Cunningham, Colleen, Florian Ederer, and Song Ma. "Killer acquisitions." Journal of Political Economy, forthcoming.  

50 

 
 
 
                                                      
  Option  b2  (Notification  with  no  turnover  threshold):  As  illustrated  by  the  JRC  data 
compiled in Table 17 of Annex 5, a full notification approach for all non-EU acquisitions 
(option b2) could result in hundreds or even thousands of notifications. Bringing all non-
EU acquisitions to the attention of public authorities, this option would facilitate action 
by  these  authorities  to  fill  the  current  gap  in  addressing  distortive  foreign  subsidies. 
However,  considering  that  many  of  these  cases  would  in  fact  be  unlikely  to  involve 
distortive foreign subsidies, requiring such a large number of notifications would appear 
excessive,  and  a  disproportionate  burden  on  public  authorities  (and  businesses).175In 
order to come to a more realistic number of the acquisitions that are most likely to benefit 
from distortive foreign subsidies, and thus warrant notification, this section first uses the 
Commission’s internal data on notifications under the EUMR (option b3, detailed in the 
paragraph  below).176  Further  data  on  global  turnover  thresholds  from  the  JRC  can  be 
found in Annex 5, Section 1.  

  Option b3 (Notification with moderate EU turnover threshold): The Commission receives 
350-400 notifications per year under the EUMR. Among these, 89 cases involve one or 
several  non-EU  acquirer(s)177  of  an  undertaking  established  in  the  EU  (based  on  2019 
figures).  This  figure  should  be  seen  as  a  minimum  value  because  it  does  not  take  into 
account  transactions  among  undertakings  from  outside  the  EU  (but  notified  under  the 
EUMR because of their activities in the EU – this is referred to as scenario 1 below). If 
such acquisitions between undertakings from outside the EU are taken into account, the 
overall  number  of  cases  rises  to  155  (scenario  2,  including  acquisitions  between 
undertakings  from  different  non-EU  countries)  and  186  (scenario  3,  including  also 
acquisitions between undertakings from the same non-EU country). Based on the years 
2015 to 2019,178 the potential number of notifications would vary for scenario 1 between 
73  and  89,  for  scenario  2  between  131  and  157  and  for  scenario  3  between  155  and 
190.These three scenarios illustrate that even with the EUMR thresholds, the supervisory 
authorities would likely be faced with numerous notifications, of which many may in fact 
not involve distortive foreign subsidies. Thus, option b4, which is detailed below, aims at 
reducing the number of cases. 

  Option b4 (Notification with high EU turnover threshold): First, the EU merger data is 
used to assess how a higher EU turnover threshold (EUR 500 million EUR) would affect 
the  number  of  potential  notifications.179  Such  a  ‘scenario  4’  (see  Figure  8  in  Annex  5) 
illustrates that in the years from 2015 and 2019 between 26 and 38 EU undertakings with 

175 The proposed thresholds for distortive subsidies would likely limit this, but their impact cannot be quantified at this 
stage given the lack of sufficient available information on foreign subsidies.  
176 The EU merger data divides each notification into several components corresponding to each party of a case. For 
example,  most  cases  include  one  acquiring  and  one  target  company.  For  the  purpose  of  this  section,  acquirers  from 
non-EU countries have been identified. Moreover, each case is allocated to a specific category based on the country of 
origin of each of the parties. For example, if a US company buys a company from an EU Member State, the case is 
coded as a ‘cross border EU-non EU’ case. If a case includes multiple parties which renders the decision to allocate it 
to  a  single  category  difficult,  the  case  is  classified  based  on  which  companies  played  the  biggest  role  in  a  specific 
acquisition.  
177 The EU merger database covers the years 2015-2019 when the UK and its overseas territories were still members of 
the EU. To estimate the number of non-EU acquirers including the UK, the underlying data has been recoded.  
178 See Figure 7 in Annex 5.  
179 The merger data includes turnover values for each company that is part of an acquisition. The above figure includes 
all  companies  in  the  EU  from  2015-2019  that  were  targets  of  foreign  acquisitions.  In  the  vast  majority  of  EU 
notifications, there is only one target company per case (as well as one acquiring company). Hence, the above numbers 
approximate the overall number of cases/ notifications in which a foreign undertaking acquired an EU undertaking. It is 
likely that the above number slightly underestimates the numbers of potential cases, since undertakings from non-EU 
countries can also be subject to EU thresholds. The above figure only includes acquisitions of EU undertakings that 
have triggered relevant thresholds of Article 1(2) EUMR.  

51 

 
 
 
 
                                                      
an  EU  turnover  of  more  than  EUR  500  million  were  acquired  by  third  country 
undertakings (32 cases in 2019, 33 cases on average between 2015 and 2019). Using data 
provided by the JRC yields a similar number of cases for 2019.180 Such a higher turnover 
threshold would therefore about halve the number of potential notifications compared to 
scenario  1  and  focus  the  notification  requirement  on  the  largest  and  potentially  most 
distortive cases, thereby facilitating action by public authorities. This would alleviate the 
administrative  burden  on  public  authorities  and  undertakings.  Notably,  this  scenario 
would de facto exclude SMEs from the notification obligation.  

Second,  in  order  to  further  reduce  the  administrative  burden  and  focus  on  the  relevant 
acquisitions,  a  threshold  for  foreign  financial  contributions  may  be  considered.  Such  a 
threshold  would  consist  in  a  minimum  amount  of  EUR  50  million  of  foreign  financial 
contributions  provided  during  the  three  years  prior  to  the  notification.  This  amount 
corresponds  to  10  per  cent  of  the  above-mentioned  turnover  under  scenario  4  and  can 
therefore be considered to risk distorting the acquisition process sufficiently to require ex 
ante notification. With such threshold, the number of notifiable acquisitions is likely to 
decrease.  However,  given  the  lack  of  available  information  on  foreign  financial 
contributions, it is not possible to precisely quantify this decrease.  

  Option b5 (Combined notification – ex officio approach): In view of the more systematic 
but more burdensome nature of a notification system and a ‘lighter’ ex officio system, it 
appears  reasonable  to  strike  a  balance  between  the  two.  Combining  an  ex  ante 
notification system for the largest and potentially most distortive subsidised acquisitions 
with  an  ex  officio  approach  for  smaller  acquisitions  would  allow  the  supervisory 
authority to receive relevant information for the potentially most distortive cases whilst 
retaining enough discretion to pursue relevant smaller cases on its own initiative. 

The paragraphs above have examined the expected number of cases for each of the options under 
the  investigative  approach  design  parameter.  The  estimated  resulting  resource  implications  for 
dealing with those cases are detailed below.  

  Option  b1  (Ex  officio  approach):  In  order  to  estimate  the  resources  and  administrative 
burden  for  option  b1  (ex  officio  work  for  subsidised  acquisitions),181  reference  can  be 
made  to  the  work  of  a  DG  COMP  unit  of  20  FTEs  whose  casework  is  based  almost 
exclusively on ex officio case handling. The work of the unit deals with a new area of 
competition enforcement exclusively based on ex officio cases. In terms of type of work, 
it is therefore comparable to ex officio work as would be carried out under problems 1 
and  3.  The  unit’s  work  consists  of  identifying  possible  cases,  mostly  through  public 
reporting  or  through  information  received  from  the  Member  States,  collecting  the 
necessary  information  to  conduct  an  assessment  and  shaping  the  cases.  Especially  the 
task of collecting information is time-consuming, as public authorities and companies are 
often  not  forthcoming  in  providing  the  information  and  the  relationship  is  contentious 
(different  to  notifications  where  companies  are  interested  in  having  their  transactions 
cleared  quickly).  Information  is  also  often  only  available  in  companies  outside  the  EU 
(mainly 3rd country head offices). Therefore, companies often claim that they do not have 
the requested information. In addition, the investigated cases concern complex company 
structures,  require  a  detailed  assessment  of  intragroup  transactions  and  concern  high 

180 See Annex 5Annex 5, Section 1. Since the JRC data contains global turnover and not EU turnover, the threshold of 
EUR 500 million EU turnover is proxied by using EUR 1 billion global turnover. In the JRC data the figures for 2018 
are significantly different from those for 2017 and 2019, and seem less representative. 
181 This goes for both problem 1 and problem 3, as will be also mentioned later on in this report. 

52 

 
 
 
 
                                                      
amounts of funding which render the assessment difficult and time consuming. All these 
characteristics are most likely to play also a role for ex officio cases under problem 1. 

Once a sufficient amount of information is collected, the preparatory case shaping also 
requires  extensive  discussions  within  the  Commission  as  the  cases  are  new  and  the 
approach needs to be tested thoroughly. As formal investigations in ex officio cases are 
started  usually  only  if  there  is  a  serious  concern  about  incompatible  business  practices 
and typically end with the adoption of a final negative decision, a large part of the unit’s 
work is spent on appeal procedures before the Union courts. So far, all negative decisions 
in this area have been appealed. Moreover, in some cases, the phase from identifying a 
potential  case  to  opening  a  formal  investigation  procedure  took  over  2  years.  The  ex 
officio cases that would be pursued under problem 1 would most likely involve a similar 
type  and  amount  of  case work:  time-consuming  information  collection  and  preparatory 
work, investigations requiring a detailed assessment of complex structures and follow-up 
litigation.  In  terms  of  horizontal  work  and  given  that  this  concerns  a  new  enforcement 
system, advocacy would also require resources. Consequently, the resource need for the 
preferred combined notification – ex officio approach would amount to approximately 60 
FTEs (40+20). 

  Options b2, b3 and b4: As the notification requirement focuses on the largest and likely 
most  distortive  acquisitions,  it  is  assumed  that  the  average  workload  per  case  is  rather 
high.  Based  on  DG  COMP  workload  data  for  comparable  ‘heavy’  procedures,  it  is 
estimated  that  for  instance  option  b4,  which  involves  an  average  number  of  33 
notifications  of  large  potentially  subsidised  acquisitions  per  year,  would  require 
resources of the order of 40 full-time equivalents (FTE).  

More generally, as regards options b2, b3 and b4 on suitable notification thresholds, the public 
consultation on the White Paper revealed a large variety of views. Many stakeholders agreed with 
the threshold that was originally proposed (EU turnover of EUR 100 million of the EU target). 
Several  also  called  for  combining  it  with  a  qualitative  threshold  for  transactions  below  the 
threshold. This view was expressed by research institutions182 and business representatives183. In 
some  instances,  lower  thresholds  were  proposed.184  Some  law  firms  expressed  preference  for 
clear-cut  quantitative  thresholds,185  some  for  alignment  with  the  EUMR186  as  was  the  case  for 
several Member States.187 Some stakeholders also advocated for a dual threshold consisting of an 
EU  turnover  of  EUR  100  million  and  a  sufficiently  high  amount  of  foreign  financial 
contribution.188 

Administrative burden on companies 

The development of a new EU legal instrument would likely increase the administrative burden 
on undertakings compared with the baseline scenario because undertakings would need to notify 
or at least monitor the foreign financial contributions that they receive. The considerations are to 
a large extent similar to the above ones on the administrative burden on public authorities. 

As regards the impact of the options for the investigative approach:  

182 Such as the German Economic Institute, Information Technology and Innovation Foundation, King's College 
London. 
183 Such as SEA Europe, European Aluminium, Eurometaux, ArcellorMittal, UNIFE, AEGIS, EURATEX, EUCCC. 
184 e.g., European Panel Federation – EUR 50 million, AFEP – lower sector-based thresholds 
185 e.g., DLA Piper, Allen & Overy LLP 
186 e.g., International Bar Association, Enel SpA 
187 e.g., CZ, DK, FI 
188 e.g., Business Europe, NCTM 

53 

 
 
 
 
                                                      
Option b1 (ex-officio): A system that relies on ex officio investigations (option b1) may reduce 
the  overall  administrative  burden  as  undertakings  would  not  be  obliged  to  notify.  However,  it 
may also reduce legal certainty for undertakings somewhat because they may not always be sure 
whether  financial  contributions  from  third  countries  actually  qualify  as  distortive  foreign 
subsidies. 

Options  b2  to  b4:  An  ex  ante  notification  system  for  acquisitions  (options  b2  to  b4)  increases 
legal certainty for companies but is also likely to increase their administrative burden. In terms of 
number of cases, the previous section on public authorities gave an estimate which would apply 
vice versa to undertakings.  In terms of cost per notification, limited information is available as 
the  stakeholders  consulted  indicated  that  this  will  depend  on  the  exact  requirements.  Taking 
merger notifications as a proxy, it has been estimated that the costs of filing a notification form 
(Form  CO)  ranges  from  a  low  end  of  around  EUR 50.000  –  75.000  to  a  high  end  of 
EUR 500.000,  whereas  a  ‘lighter’  transparency  system  for  minority  share  mergers  would  yield 
costs  in  the  range  of  EUR 5.000  to  EUR 50.000.189  This  being  said,  several  other  ex-ante 
notification systems  already  exist  for  acquisitions  in the  EU,  namely  under  merger  control  and 
FDI  screening.  To  the  extent  notifiable  acquisitions  under  this  option  would  also  be  notifiable 
under one or more of these other pre-existing instruments – which would likely be the case for 
the two notification systems with thresholds proposed as b3 and b4 since thresholds under merger 
control  or  FDI  screening  would  typically  be  lower  –,  the  additional  administrative  burden  to 
prepare  a  notification  would  be  appear  relatively  small  because  it  would  be  largely  limited  to 
gathering information on the foreign financial contributions received.  

As  regards  the  impact  on  Small  and  Medium  Enterprises,  options  b3  and  b4,  which  propose 
moderate  and  high  thresholds  for  the  notification  of  acquisitions,  are  unlikely  to  have  a 
significant administrative burden on SMEs because they are likely to remain under the relatively 
high notification thresholds.  

Functioning of the internal market 

A new EU legislative instrument would aim at levelling the playing field among market players 
by identifying and removing distortions caused by foreign subsidies, which ultimately improves 
the  functioning  of  the  internal  market.  To  achieve  this  objective,  the  new  instrument  would 
provide effective tools for identifying, investigating and redressing distortions caused by foreign 
subsidies.  

Empirical studies substantiate the general importance of competition law enforcement to ensure 
effective  competition  in  markets190.  A  study  which  examined  how  different  antitrust  systems 
affect  the  degree  of  competition  in  individual  countries  found  that  increasing  the  range  of 
competition instruments has a significant positive impact on the intensity of competition in the 
country's economy191. Studies also confirm the positive effects of competition on the productive 
efficiency  of  companies.  This  is  due  to  a  "between-firms"  effect,  by  which  better  companies 

189 Commission Staff Working Document, Impact Assessment Accompanying the White Paper: Towards more 
effective EU merger control. SWD(2014) 217 final. p.30. 
190 The best evidence for the effectiveness of competition law enforcement tends to be that based at the level of the 
enforcement itself. Competition authorities and academics have published a large number of ex-post studies of the 
results of enforcement actions, which were surveyed by the OECD in 2013: "Evaluation of competition enforcement 
and advocacy activities: The results of an OECD survey". 
191 Keith N. Hylton and Fei Deng, (2007) Antitrust Around the World: An Empirical Analysis of the Scope of 
Competition Laws and Their Effects 

54 

 
 
                                                      
succeed  while  the  worst  ones  fail  and  leave  the  market,  and  a  within-firm  effect  by  which 
companies in competitive environments are better managed192. 

The  above  findings  can  be  applied  by  analogy  to  distortions  caused  by  foreign  subsidies.  In 
particular,  a  legislative  instrument  to  address  distortions  caused  by  foreign  subsidies  would 
complement EU State aid control and fill the legal gap described in Section 2.5. It would ensure a 
level playing field where business decisions on prices, production, innovation and trade are based 
on efficiencies and commercial opportunities rather than ‘rent seeking’ and securing subsidies.  

With  regard  to  acquisitions,  foreign  subsidies  may  give  their  beneficiaries  an  undue  financial 
advantage  which  they  can  use  to  outbid  competitors  to  acquire  target  companies  and 
subsequently subsidise the operation of the acquired target by e.g. offering below-cost prices.193 
As a result, drawing up new rules on subsidised acquisitions could improve the functioning of the 
internal market in the long term since non-subsidised companies would no longer run the risk of 
being outbid by foreign-subsidised companies in the acquisition process.  

At  the  same  time,  addressing  distortions  caused  by  foreign  subsidies  would  help  to  restore  the 
effectiveness of price signals and market-based valuations of companies, since subsidisation can 
lead to distorted pricing of acquisitions.  

The redressive measures included in the new instrument would improve the functioning of the 
internal market. Under EU State aid control, a typical measure is the reimbursement (recovery) of 
incompatible State aid to the granting authority. If the same approach is followed in the case of 
foreign subsidies, the beneficiary of a distortive foreign subsidy should pay back the subsidy to 
the granting authority in the third country. Such repayment may however not be easy to enforce 
or  monitor  as  some  parties  involved  are  located  outside  the  EU.  Alternative  measures  for 
removing the distortion therefore appear warranted and can also be observed in other competition 
instruments.  As  regards  distortions  in  acquisitions,  an  undertaking  could  be  required  to  divest 
certain assets or to refrain from certain investments, all requirements that have been imposed in 
EU State aid cases. It can also be envisaged to prohibit an acquisition to remove the distortion 
caused by the foreign subsidy. An acquisition ban is a measure that has also been used in State 
aid control in the past e.g. in the banking restructuring cases.  

Finally,  the  impact  of  the  options  as  regards  the  competence  level  can  influence  the 
effectiveness  of  the  instrument  and  its  impact  on  the  functioning  of  the  internal  market.  In  the 
specific case of acquisitions, legal certainty and a quick assessment are essential for the parties 
concerned.  In  response  to  the  public  consultation  on  the  White  Paper,  the  large  majority  of 
stakeholders  therefore  favoured  a  one-stop-shop  at  EU  level  (option  a1)  to  assess  acquisitions 
potentially  facilitated  by  foreign  subsidies.  In  contrast,  a  decentralised  control  of  subsidised 
acquisitions  at  Member  State  level  (option  a2)  risks  leading  to  an  inconsistent  application  and 
interpretation of the legislation that has no precedent. If a foreign subsidy affects several Member 
States at the same time, there is need to coordinate action that risks delaying the assessment. At 
the  same  time,  to  draw  on  the  expertise  of  Member  State  authorities  and  develop  a  common 
approach across the EU, Member States could be involved in the decision process by means of an 
advisory committee.  

192 Arnold, J. M., Nicoletti, G., & Scarpetta, S. (2011) Regulation, Resource Reallocation and Productivity Growth. 
European Investment Bank Papers,16(1), 90-115; OECD’s project of 2013 on Supporting Investment in Knowledge 
Capital, Growth and Innovation   
193  For a discussion see a recent decision of the German competition authority: German Federal Cartel Office, Case 
Summary CRRC/Vossloh, B4-115/19, 27 April 2020, p. 10-11. 

55 

 
 
                                                      
Consumers and households 

A  new  instrument  to  address  distortive  foreign  subsidies  in  acquisitions  could  have  a  negative 
impact on consumers in the short run since it may lead to an increase in prices in the absence of 
subsidies.  However,  this  should  be  seen  as  correcting  unfair  competition  and  artificially  low 
prices. Instead, in the long run, consumers would benefit. Notably, preventing distortive foreign 
subsidies in acquisitions would spur innovation and more generally improve competition which 
ultimately benefits consumers through lower prices and better products. In the consultation on the 
White Paper and in the targeted consultation, the European Trade Union Confederation noted that 
the impact of foreign subsidies on consumers concerns not only prices. Consumers also consider 
other attributes such as product quality and labour and environmental standards. This view was 
echoed  during  the  targeted  consultation  by  the  European  Consumer  Organisation  (BEUC)  that 
also  mentioned  that  any  instrument  that  helps  to  tackle  distortive  subsidies  would  be  likely  to 
have a positive effect on consumers. On the basis of the information available it was, however, 
not  possible  to  quantify  the  order  of  magnitude  of  the  short-term  and  long-term  impact  on 
consumers. 

Trade and investment flows 

A  new  instrument  on  foreign  subsidies  may  impact  trade  and  investment  flows.  Trade  and 
investment  may  diminish  if,  for  example,  the instrument is  particularly  burdensome  for  market 
players or introduces a high degree of legal uncertainty. The risk of a new instrument having a 
negative impact is however low in view of the limited administrative burden on undertakings (see 
above section) and the clear framework it establishes. As regards investment flows, acquisitions 
from third countries are indeed particularly important. Such acquisitions account for the majority 
of FDI in the EU compared to greenfield investments. Apart from the risk due to administrative 
burden,  the  new  instrument  on  foreign  subsidies  may  in  practice  reduce  the  number  of 
acquisitions by preventing subsidised acquisitions. However, this would be the intended effect of 
the new instrument and should be outweighed by the benefits of restoring an undistorted internal 
market  and  by  facilitating  commercially  driven  acquisitions  that  were  previously  hindered.  In 
order  to estimate  the  potential  negative  impact  on  FDI,  the  impact  of  introducing  national  FDI 
screening  mechanisms  in  various  Member  States194  has  been  assessed.  This  may  serve  as  an 
appropriate proxy as the impact may be expected to be broadly comparable to the introduction of 
this policy option. Specifically, the impact has been assessed using the OECD FDI restrictiveness 
index195 and the value of inward FDI flows196. For Member States that introduced FDI screening 
mechanisms  during  the  timeframe  considered  by  the  OECD  (i.e.  1997-2017),  the  FDI 
restrictiveness  index  remained  stable.  The  introduction  of  national  screening  mechanisms  was 
therefore  not  generally  considered  as  restrictive  for  FDI.  Looking  at  the  value  of  inward  FDI 
flows  into  the  aforementioned  countries,  OECD  data  shows  that  some  decrease  in  inward  FDI 
could be observed in the year of the introduction of the screening mechanism, but in most cases, 
inward  FDI  increased  again  in  the following  year.  In  the  longer term,  the  value  of inward  FDI 
flows  has  returned  to  a  level  similar  to  one  before  the  introduction  of  FDI  screening.  The 
introduction of national screenings mechanisms therefore appears to only have reduced FDI into 
the EU only temporarily, rather than structurally. This can be explained by temporarily increased 
uncertainty and the tendency of companies to frontload certain investment decisions prior to the 

194 Source: https://trade.ec.europa.eu/doclib/docs/2019/june/tradoc_157946.pdf 
195  FDI  restrictiveness  is  an  OECD  index  gauging  the  restrictiveness  of  a  country’s  foreign  direct  investment  (FDI) 
rules  by  looking  at  four  main  types  of  restrictions:  foreign  equity  restrictions;  discriminatory  screening  or  approval 
mechanisms;  restrictions  on  key  foreign  personnel  and  operational  restrictions.  Implementation  issues  are  not 
addressed and factors such as the degree of transparency or discretion in granting approvals are not taken into account. 
The index here shows the total and nine component sectors taking values between 0 for open and 1 for closed. Source: 
https://data.oecd.org/fdi/fdi-restrictiveness.htm#indicator-chart 
196 Source: https://data.oecd.org/fdi/fdi-flows.htm#indicator-chart 

56 

 
 
                                                      
introduction of the new screening mechanisms. In view of the foregoing, while it is not possible 
to quantify the impact of the proposed instrument  with certainty, the option does not appear to 
have a substantial long-term impact on FDI flows into the EU, similarly to the introduction of the 
national screening mechanisms.  

During the public consultation on the White Paper, several non-EU stakeholders raised the issue 
that a possible new instrument on foreign subsidies could create barriers to foreign investment in 
the EU. A few Member States echoed that concern and proposed to avoid this e.g. by setting the 
threshold  for  subsidies  unlikely  to  be  distortive  (options  c1  and  c2)  and  the  notification 
thresholds  (options  b2-b4)  at  a  relatively  high  level.  Additionally,  some  EU  industry  and  legal 
associations proposed that a new legal instrument should tackle only the most distortive subsidies 
to  avoid  discouraging  FDI.  These  proposals  converge  with  the  above  considerations  about  the 
appropriate level of the threshold for subsidies unlikely to be distortive (options c1 and c2) and 
the  notification  thresholds  for  the  investigative  approach  (options  b1  to  b5),  which  would 
focus on the largest and most distortive subsidies. In any event, even stakeholders that expressed 
some concern about a potentially chilling effect of new rules on foreign subsidies on FDI in the 
EU were in favour of tackling distortions caused by foreign subsidies.197 Moreover, even certain 
non-EU stakeholders openly supported such a new tool.198  

Third countries and international relations 

Third  country  governments  may  perceive  a  new  instrument  on  foreign  subsidies  to  be 
protectionist, especially if it may lead to the prohibition or unwinding of subsidised acquisitions. 
Trade  tensions  may  ensue and third countries  may  take  measures  against  EU  undertakings  that 
receive State aid. Such measures would however not be likely to be in line with WTO rules  as 
they would be discriminatory if a third country does not have in place an equivalent system for 
the control  of  domestic subsidies.  In  any  event,  even  some  stakeholders  who  cautioned against 
such  tensions  in  their  submissions  to  the  public  consultation  were  overall  in  favour  of  a  new 
instrument on foreign subsidies in the EU.199 To counter any such concerns it needs to be ensured 
that  new  rules  on  foreign  subsidies  are  based  on principles similar  to  EU  State  aid  rules.  Such 
new instrument closes an existing legal gap and restores the level playing field across the internal 
market. Additionally, the legislation will apply in an objective and non-discriminatory manner to 
all undertakings active in the EU irrespective of their ultimate ownership (‘nationality’). At the 
same  time,  this  option  may  further  incentivise  non-EU  countries  to  have  a  State  aid  control 
system similar to the EU. Finally, this option could incentivise other countries to (re-) engage in 
negotiations to agree on international rules for subsidies, for example under the WTO.  

Social impact 

It  is  not  possible  to  estimate  the  social  impact  with  certainty.  In  the  short  term,  foreign  direct 
investors  would  need  to  acquaint  themselves  with  this  new  instrument  which  might  have  a 
limited impact on overall FDI and thus also employment. In the long-term, however, the impacts 
on employment can be expected to be positive as this option would ensure that non-subsidised, 
competitive  companies  remain  in  operation  and  are  not  crowded  out  by  subsidised  companies. 
Furthermore, it could help to tackle the issue of delocalisation of jobs to a third country following 
an acquisition subsidised by the respective third country. ESIA for example mentioned during the 
targeted consultation that distortive foreign subsidies, if not addressed, may lead to job losses in 
the EU. An example quoted in this context was the acquisition of Pirelli by ChemChina in 2015 

197 See, among others, the submissions of Italy, Confederation of Swedish Enterprise, European Competition Lawyers 
Forum and International Bar Association. 
198 See, among others, the submissions to the public consultation of the US-based Information Technology and 
Innovation Foundation, various UK-based law firms and associations and Andrea Biondi.  
199 See e.g. the Polish Union of Entrepreneurs and Employers and of AmCham. 

57 

 
 
                                                      
(see section 2.2). After the acquisition, a part of the tyre production was moved from the EU to 
China. 

As regards the impact of the options on the balancing test, the option of including a balancing 
test  (option  e1)  would  have  positive  impacts  on  the  various  policy  objectives  including  social 
ones. In general terms, under a balancing test it would be possible to weigh the distortion caused 
by a foreign subsidy against positive effects on the development of the relevant economic activity 
in the internal market. If on balance, the distortion on the internal market caused by the foreign 
subsidy is sufficiently mitigated by the positive impact of the economic activity, the investigation 
of the foreign subsidy would terminate without the need for a redressive measure. The balancing 
test corresponds to the idea of balancing positive and negative effects of State aid under EU State 
aid control.  

The concept of a balancing may be difficult to precisely define in all relevant circumstances.200 
The views of stakeholders on a balancing test were quite mixed. While it seems to be supported 
by  several  Member  States201  and  non-EU  stakeholders202,  other  EU  stakeholders  seem  more 
divided.203 However, in order to assure coherence with EU State aid rules and generally to take 
into account potentially positive impacts of foreign subsidies, it seems important to introduce a 
balancing test. To ensure a consistent interpretation and application of this concept, it would in 
any event be very important to assign this task only to one supervisory authority at EU level.204  

Environmental impact  

It  is  not  possible  to  estimate  the  environmental  impact  with  certainty.  However,  generally 
speaking,  new  legislation  may  help  to  address  potentially  negative  environmental  effects  of 
foreign  subsidies  caused  by  delocalisation  as  explained  in the  baseline  scenario.  In  this  regard, 
some respondents to the public consultation and the targeted consultation noted that undertakings 
receiving foreign subsidies may apply lower environmental standards than non-subsidised ones – 
if they are located outside the EU. A new instrument on foreign subsidies may therefore have a 
positive effect on the environment globally (and hence potentially in the EU as well).  

As  regards  the  impact  of  the  options  for  the  ‘balancing  test’,  the  option  of  including  a 
balancing  test  (option  e1),  which  could  allow  to  approve  subsidised  acquisitions  that  have 
significant positive effects, could give more weight to environmental considerations and therefore 
have a further positive impact on the environment. 

200 Indeed, during the public consultation on the White Paper, certain Member States (e.g. Poland, Czechia, 
Austria) and other stakeholders (among others various law firms) referred to this issue. 
201  See,  among  others,  the  submissions  to  the  public  consultation  of  The  Netherlands,  Sweden,  France, 
Denmark, Italy and Belgium. 
202 See, among others the submissions of the China Chamber of Commerce. 
203  Some  respondents  consider  an  EU  interest  test  to  be  relevant,  e.g.  ESF,  Confederation  of  Swedish 
Enterprise,  International  Bar  Association  and  Bundesarbeitskammer  Österreich.  On  the  contrary,  other 
contributors oppose it, e.g. ERT, Fédération nationale de travaux publics. 
204  This  view  was  also  expressed  by  stakeholders  during  the  public  consultation,  among  others  by  The 
Netherlands, European Aluminium, ESF and China Chamber of Commerce to the EU. 

58 

 
 
                                                      
6.2  Problem 2 - distortions in public procurement 

Economic impacts 

Public authorities 

A new EU legislative instrument would require more resources in the supervisory authorities as 
compared to the baseline scenario and may require more resources on the side of the contracting 
authority  regardless  of  which  sub-options  are  considered  i.e.  irrespective  of  the  investigative 
approach  and  the  threshold  for  distortive  subsidies.  Implications  in  terms  of  the  work  and 
methodology  of  the  supervisory  authorities  are  similar  here  to  Problem  1  (see  point  6.2.1  on 
public  authorities),  as  the  supervisory  authorities  would  have  to  carry  out  tasks  related  to  the 
identification, assessment and remedying of distortive foreign subsidies. Contracting authorities 
would only have a role as regards receiving and transmitting notifications  

As regards the impacts of the options for the investigative approach, in Problem 2, much like 
in Problem 1, the number of cases would be influenced by the choice of the design parameters b1 
to b5 (including the choice of responsibilities within each of the systems) . Below the estimated 
number of cases for each option: 

  Option  b1  (Ex  officio  approach):  Similarly  to  problem  1,  a  purely  ex-officio  review, 
relying  solely  on  market  intelligence,  could  not  close  this  data  gap,  and  therefore  not 
allow  protecting  the  level  playing  field  effectively.  If  public  procurement  were 
predominantly examined only after the conclusion of the respective public contracts, this 
could  undermine  legal  certainty  stemming  from  a  completed  procedure  and  signed 
contract. Overall, fewer procurements would be examined. In addition, the effectiveness 
of  some  redressive  measures  would  be  impeded,  whereas  the  preferred  redressive 
measure of prohibition of award would typically not be available. 

  Option  b2  (Notification  with  no  threshold):  Similarly  as  for  problem  1,  this  approach 
would  likely  result  in  thousands  of  notifications.    While  this  option  would  facilitate 
action to fill the current gap in addressing distortive foreign subsidies in a comprehensive 
way,  it  would  create  disproportionate  workload  and require  resources  which  would  not 
be justified by the potential positive impacts.  

  Options  b3  and  b4  (Ex  ante  notification  procedure  with  medium  and  high  notification 
thresholds): In an ‘ex ante’ system, an investigation would start with a notification to be 
submitted to the contracting authority205. For the ‘ex ante’ system, this section analyses 
the impact of different thresholds for the submission of a notification on the number of 
cases.  As  for  problem  1,  no  information  is  currently  available  on  foreign  subsidies 
received  by  tenderers  in public  procurement.  In  addition, as  outlined  in  section  2.3,  no 
information  is  available  on  tenderers  that  have  not  been  awarded  a  contract.  No 
mechanism  currently  exists  that  would  require tenderers to  submit  a  notification  for an 
investigation, e.g. into state aid received, during a procurement procedure. The only data 
set  that  allows  to  estimate  the  number  of  notifications  is  the  number  of  procurement 
procedures published in TED above the thresholds for the application of the procurement 
directives206. In the years 2015 to 2017, on average 184 169 contract notices and 178 284 

205 The contracting authority would transmit this information to the supervisory authority. Alternatively, the 
information could also be submitted directly to the supervisory authority, see below impact on companies. 
206 EUR 5 350 000 for public works contracts; EUR 139 000 for public supply and service contracts awarded by central 
government authorities, EUR 214 000 for public supply and service contracts awarded by sub-central contracting 

59 

 
 
 
 
                                                      
 
contract award notices have been published. They attract on average 4.36 bidders. Using 
the  mentioned  thresholds  of  the  procurement  directives  would  entail  a  much  wider 
application  of  the  instrument  to  procurement  than  to  acquisitions.  This  does  not  seem 
justified by any structural difference between the risks of distortions in acquisitions and 
in procurement. Like for acquisitions, it is important to have a targeted instrument that 
focusses  on  the  largest  and  potentially  most  distortive  cases.  The  number  of  potential 
cases has therefore been looked at for the threshold of the EUMR, EUR 250 million, and 
for the higher threshold of EUR 500 million, examined under 6.2.2. In view of the very 
limited data available, the estimation can only give a rough indication: For the last three 
available years 2015 to 2017, 108 contract award notices have been published for a value 
of above EUR 250 million, and 38 contract award notices for a value of over EUR 500 
million. So, per year, an average of 36 contract award notices have been published above 
EUR  250  million  and  an  average  of  just  under  13  above  EUR  500  million.  In  all  the 
contracts covered  by  the  contract  award  notices above  EUR  250  million  between  2015 
and 2017, 21 of the 435 awardees207 or 4.8 % had an ultimate owner outside the EU. The 
number  of  ‘notifications’ that  may  be  received  could  be  in  the  range  of  the  number  of 
foreign successful bidders, understood as single companies or consortia (data for which 
is collected and reported by the leading member of the consortium), but also in the range 
of the number of contract notices. For a threshold of EUR 250 million, there may be up 
to 36 cases per year, for a threshold of EUR 500 million up to 13 cases. These numbers, 
however,  are  susceptible 
to  significant  annual  variations  both  upward  and 
downward.Without the notification obligation, there is – as shown – limited information 
on  the  participation  of  foreign  and  foreign  owned  companies,  and  no  information  on 
whether any participating company receives foreign subsidies. 

  Option  b5  (Combined  notification  –  ex  officio  approach):  Similarly  to  Problem  1,  a 
combination  of  an  ex  ante  system  for  the  largest  and  potentially  most  distortive 
subsidised  procurements,  and  an  ex  officio  approach  for  smaller  procurements,  as 
outlined above, would both allow the receipt of relevant information for the potentially 
most distortive cases whilst retaining enough discretion to pursue relevant smaller cases. 

The paragraphs above have examined the expected number of cases for each of the options under 
the investigative approach design parameter. The administrative effort on the part of the authority 
charged  with  investigating  the  existence  and  distortive  effects  of  foreign  subsidies  cannot  be 
estimated in a reliable way. It will depend on the competence level, the complexity of each case, 
the  information  made  available.  No  investigations  currently  exist  in  public  procurement  that 
could serve as a basis. As a proxy, adapted to the estimates presented above the administrative 
effort  as  described  in  6.2.1  above  can  be  used  for  the  work  on  the  notification  approach.  This 
would amount roughly to 45 FTE in the case of 36 cases (threshold of EUR 250 million), and 15 
for 13 cases, if the threshold would be EUR 500 million. The current Commission workload of a 
unit  dealing  specifically  with  ex  officio  State  aid  cases  was  described  under  problem  1  (see 
section 6.1.2). The resource implications of an ex officio procedure under problem 2  would be 
similar,  resulting  in  approx.  10-15  ex  officio  cases  per  year  and  a  resource  need  of  around  20 
FTEs. Combined with the ex-ante approach this would make for a total of 35 (15+20) FTEs for a 
EUR 500 million threshold.  If the threshold is set to above EUR 250  million, 65 FTE (45+20) 
would be needed. However, in the latter case, their might be a slightly lower need of staff for the 
ex-officio approach as it would only cover procurements below EUR 250 million. 

authorities and EUR 750 000 for public service contracts for social and other specific services listed in Annex XIV. 
More information here. 
207 Contract award notices may cover several contracts awarded to different economic operators. 

60 

 
 
 
                                                                                                                                                              
As regards the impacts of the options for the competence level, if the Commission is the sole 
supervisory authority, it is not to be expected that national administrations would need additional 
resources,  as  their  role  would  be  limited  to  transmitting  information  to  the  Commission.  The 
actual  workload  for  public  administrations  depends  on  the  precise  model  chosen.  In  a  model, 
where  both  national  authorities  and  the  Commission  have  competences  and  contracting 
authorities may have to analyse the distortive effects, additional workload would fall on all those 
three  different  actors.  All  competent  authorities  would  have  to  build  expertise  and  provide  for 
sufficient human resources, entailing additional costs. Investigations and expertise might overlap 
and reduce the efficiency and effectiveness of the review.  

As regards the budgetary implications for the contracting authorities, the continued participation 
of subsidised bidders would, at least in the short term, continue to reduce the prices of awarded 
contracts.  

Administrative burden on companies 

The  new  instrument  would  increase the  administrative  burden  on  companies  as compared  with 
the baseline regardless of which sub-options are considered. 

As regards the impacts of the options for the investigative approach, options b1-b5 would all 
result in administrative burden, though b1 likely the least. Under b2-b4, companies will have to 
prepare and submit a notification form, which is not the case in b1. In terms of number of cases, 
the  previous  section  on  public  authorities  gave  an  estimate  which  would  apply  vice  versa  to 
undertakings. In terms of workload per procedure, there is no data to estimate the administrative 
burden on undertakings, also confirmed by stakeholders (see below).   

In the ambit of targeted consultations (see Annex 2), only eight stakeholders provided input on 
the specific topic of administrative burden. However, the information from those responses could 
not  help  estimate  the  amount  of  added  administrative  burden.  A  general  comment  from  the 
stakeholders  was  that  every  procedure  and  tender  is  different  and  it  is  difficult  to  estimate 
average  figures.  Moreover,  the  total  number  of  full-time  equivalents  (FTE)  devoted  to  this 
exercise  would  depend  heavily  on  whether  the  information  should  be  submitted  only  for  the 
consortia members, or also for (certain) subcontractors, and especially if the supply chain needs 
to be consulted. 

As regards the impact of the options for the threshold for distortive subsidies, and similarly to 
the  case  of  public  authorities,  a  high  threshold  for  distortive  subsidies  would  reduce  the 
administrative burden on companies.  

High notification thresholds and a high threshold for distortive subsidies, would also imply a low 
administrative burden for SMEs as they will not likely fall under the notification obligation, nor 
would their subsidised investments likely be investigated as they would fall below the threshold 
for distortive subsidies.  

As  regards  the  impact  of  the  options  for  the  competence  level,  the  administrative  burden  on 
companies should not change significantly depending on whether the supervisory authority is the 
Commission or if there is shared responsibility with the Member States. If supervisory authorities 
of  Member  States  are  involved,  however  there  may  be  a  higher  need  for  coordination  and 
guidance to align practices. 

As  regards  other  opinions  of  stakeholders,  the  response  of  the  rail  industry  indicates  a  strong 
preference  for  the  ex-ante  notification/structured  information  system  to  be  applied  only  in  the 
context  of  EU-funded  projects,  so  as  to  limit  the  burden  for  European  companies  while 
guaranteeing a strong approach when it comes to EU funds.  

61 

 
 
For more information, see point 6. 1. above. 

Functioning of the internal market 

The  new  instrument  option  would  add  another  tool  aimed  at  creating  a  level  playing  field  in 
public  procurement.  This  would  result  in  more  competitive  procurement  markets,  where 
companies compete more fairly on their merits and commercial terms and enable them to provide 
best  quality  for  the  lowest  cost  to  the  taxpayer.  Subsidies  in  the  most  important  procurements 
would no longer distort the economic operators’ incentives and market signals. This prevention 
of distortion would lead to better efficiency and thus lowering of the costs on the economy as a 
whole.  As  a result,  the  impact  of  distortive  effects  on  the  market  signals  and  investment  flows 
will  decrease  and  create  more  long-term  efficiency  in  allocation  of  capital.  The  purpose  of  the 
new  instrument  is  to  restore  the  level  playing  field,  resulting  in  reduced  participation  of  bids 
supported by distortive subsidies. In the mid and long-term it is likely the non-subsidised bidders 
will  be  more  motivated  due  to  an  improved  level  playing  field,  after  an  initial  period  of 
familiarizing  with  the  procedural  requirements of the  new  instrument.  Finally,  crowding-out  of 
non-subsidised  but  innovative  economic  operators  would  be  less,  leading  to  overall  more 
innovation in public procurement.   

As regards the impact of the options for the investigative approach, the system of mandatory 
notification, if effectively implemented, has the potential to have the highest positive impact on 
the  functioning  of  the  internal  market.  It  would  ensure  that  all  foreign  subsidies  over  the 
applicable  thresholds  are  screened,  as  all  tenders  could  potentially  wind  the  public  contract. 
Options  b2-b5,  with  the  system  of  mandatory  submission,  including  the  reporting  of  market 
information by other undertakings involved in the public procurement procedure, would have a 
positive effect in so far as market players identify and report on companies which have benefitted 
from foreign subsidies.  

As  regards  the  impact  of  the  design  parameter  on  redressive  measures,  the  different 
possibilities to remove distortions caused by a foreign subsidy would improve the functioning of 
the internal market. The same observations regarding repayment of subsidies and other possible 
measures  as  laid  out  in  the  corresponding  paragraph  under  6.1  apply.  However,  in  public 
procurement the most effective tool could be a prohibition of award of the public contract, as it is 
easily enforced and completely removes any risk of the distortion. 

Business  relations  between  potential  consortia  members,  subcontractors  and  suppliers,  which 
would be motivated to examine the level of subsidies they all receive and be more predisposed to 
cooperate with more transparent or unsubsidised economic operators, could be enhanced.  

As regards the impact of the options for the balancing test, the introduction of the balancing 
test could have positive impacts on public procurement policy aims. 

Consumers and households 

The main impact of this option is on undertakings, but there are indirect impacts on consumers, 
understood as households, as taxpayers and beneficiaries. In monetary terms, this option would 
likely  have  a  negative  impact  on  EU  citizens  and  households  in  the  short  term,  as  they  may 
benefit  from  lower  prices  of  subsidised  goods  and  services  delivered  under  public  contracts. 
However,  in  the  longer  term,  increased  competition  and  an  increased  offer  of  products  and 
services that are not subsidised would result in improved price-quality ratio through increases in 
quality.  In  addition,  such  improved  offer  will  facilitate  full  achievement  of  public  policies 
through  the  public  procurement  process,  positively  affecting  the  European  citizens.  Consumers 
do also consider other attributes such as quality, labour and environmental standards.  

62 

 
 
Third countries and international relations 

A new legislative instrument risks retaliation measures by those third countries which perceive 
the option as hampering their companies.  Companies from third countries which do not benefit 
from subsidies are however supportive of this option. Some third countries also favour the option 
which  they  see  as  a  template  to  develop  their  own  foreign  subsidy  control  instruments. 
Ultimately,  this  option  could  incentivise  other  countries  or  regions  to  have  a  State  aid  control 
system similar to the EU. This option could also incentivise third countries to seek resolution of 
issues  as  regards  subsidies  and  public  procurement  in  the  ambit  of  various  trade  agreements, 
WTO Government Procurement Agreement (GPA) or the International Procurement Instrument 
IPI, once adopted. In any case the instrument will apply in an objective and non-discriminatory 
manner  to  foreign  and  EU  companies  alike  and  thus  it  would  be  consistent  with  the  EU’s 
international obligations. 

Social impacts 

Employment  

This  option  should  eventually  have  positive  impacts  on  employment  as  explained  above  for 
problem 1, especially regarding crowding-out. In addition, no major negative impact as regards 
FDIs  is  foreseen,  as  public  procurements  are  financed  by  national  or  EU  funds,  and  are  not 
foreign  investments.  In  the  longer  term,  as  indicated  by  some  respondents  to  the  targeted 
consultation,  foreign  companies  that  have  favourable  access  to  the  EU  public  procurement 
market thanks to distortive foreign subsidies, may undermine specific social policy aims of public 
procurement.  

Environmental impacts 

EU environmental policies attract investment that green the EU’s economy regardless of whether 
companies  have  received  or  not  distortive  foreign  subsidies.  To  the  extent  that  some  of  these 
foreign subsidised companies are subject to lower environment standards than in the EU, a new 
instrument would have a positive effect on the environment.  

As  regards  the  impact  of  the  options  for  the  balancing  test,  the  sub-option  of  including  a 
balancing  test,  which  would  favour  foreign  subsidies  that  have  a  positive  effect  on  the 
development  of  the  relevant  economic  activity,  would  have  further  positive  impacts  on  the 
environment.  

Some responses from the targeted consultation suggest that the balancing test is in line with the 
EU climate neutrality goals.  

6.3  Problem 3 - other market distortions 

Economic impacts 

Public authorities 

As  for  problem  1,  a  new  EU  instrument  covering  other  market  distortions  would  require  more 
resources for public authorities as compared to the baseline scenario regardless of which design 
parameters208, are considered.  

208 These design parameters are described in chapter 5  

63 

 
 
                                                      
As regards the impact of the options for the competence level, if the Commission is the sole 
supervisory  authority,  national  administrations  would  not  need  additional  resources.  In  case  of 
shared  enforcement  competences,  the  resource  needs  would  be  split  but  might  imply  a  higher 
overall  number  of  FTEs  than  the  scenario  of  exclusive  enforcement  competence  because  of 
additional coordination needs. 

As regards the impacts of the options for the investigative approach: 

  Option  b1  (Ex  officio  procedure):  The  option  of  putting  in  place  an  ex-officio  system 
may reduce the number of cases that would be investigated. In order to give a proxy for 
the  potential  number  of  such  cases  and  related  resource  implications,  the  current 
Commission workload of a unit dealing specifically with ex officio State aid cases was 
described under problem 1 (see section 6.1). The resource implications of an ex officio 
procedure under problem 3 would be similar, resulting in approx. 10-15 ex officio cases 
per  year  and  a  resource  need  of  around  20  FTEs.  An  ex-officio  system  could  be 
complemented by a formal complaint procedure. This is likely to increase the number of 
cases and thus the resources needed by the supervisory authorities. By comparison, under 
EU  State aid control,  the Commission  deals  every  year  with  about ten ex  officio  cases 
and one hundred cases originating from complaints.209 However, even in the absence of a 
formal  complaint  procedure,  third  parties  would  be  able  to  provide  market  information 
on potentially distortive foreign subsidies to the supervisory authority, which could then 
take this up ex-officio.  

  Options b2, b3 and b4 (Ex ante notification procedure): A mandatory notification system 
would  require  supervisory  authorities  to  review  the  notifications  from  all  undertakings 
receiving  foreign  subsidies  and  potentially  affecting  the  internal  market.  As  explained 
above in the problem definition, no precise data are currently available on the numbers 
and/or amounts of foreign subsidies granted to undertakings active in the EU. However, 
with  a  mandatory  notification  system,  upon  entry  into  force  of  the  new  instrument, 
undertakings would have to notify all foreign subsidies they received within the last ten 
years.  Moreover,  each  time  a  company  operating  in  the  EU  receives  a  new  foreign 
subsidy, it would have to notify it to the supervisory authority. Around 100 000 foreign-
owned companies are active in the EU market210. Additionally, EU-owned companies – 
i.e.  around  22  million  undertakings211  –  can  potentially  receive  foreign  subsidies. 
Consequently,  even  if  only  a  small  percentage  of  all  the  companies  active  in  the  EU 

209  The  Commission  dealt  with  549  complaints  (classified  as  CP-complaints  or  FC-formal  complaints)  and  81  ex-
officio cases in the period 1 January 2015 – 27 November 2020. This represents a total of 630 cases and corresponds to 
an average of 107 cases per year. 
210 In 2017 (the last year for which full data are available), 99 300 non-financial non-EU-owned companies were active 
in the EU. Source: https://trade.ec.europa.eu/doclib/docs/2013/may/tradoc_151348.pdf   
According  to  the  ECB  database,  93  branches  of  non-EEA  based  banks  were  operating  in  the  EU-27.  Source:  
https://sdw.ecb.europa.eu/browse.do?node=9691593.  Consequently,  this  brings  the  total  number  of  –  financial  and 
non-financial – enterprises with a foreign owner approximately to 99 393 number of foreign undertakings, as it only 
considers  the number  of  non-EEA  owned  bank  branches,  and  not  branches  of  EEU,  but  non-EU-27, banks,  nor  any 
subsidiaries of non-EU-27 banks.  
211 According to the Eurostat database, in 2017 (last year were full figures are available), in total 22 234 234 non-
financial enterprises (including those with a foreign owner) were active in the EU-27. Source: 
https://ec.europa.eu/eurostat/databrowser/view/tin00145/default/table?lang=en 
According  to  the  ECB  database,  in  2017  (to  use  the  same  basis  as  the  non-financial  enterprises),  6  019  financial 
institutions were incorporated in the EU-27. In addition thereto, 93 branches of non-EEA based banks were operating 
in  the  EU-27,  thus  bringing  the  total  number  of  financial  institutions  operating  in  the  EU-27  to  6  112.  Source:  
https://sdw.ecb.europa.eu/browse.do?node=9691593 
As a result, the total number of – financial and non-financial – enterprises operating in the EU-27 in 2017, which could 
have theoretically benefitted from State aid grants, amounted to 22 240 346 undertakings.  

64 

 
 
 
                                                      
receive foreign subsidies and hence needed to notify them to the supervisory authority, 
this  would  result  in  an  extremely  high  number  of  notified  cases.  To  illustrate,  if  in  a 
given year only 1% of the foreign-owned undertakings active in the EU received a third 
country financial contribution, the number of notifications would amount to around 1 000 
per year.  

As  regards  the  impact  of  the  options  for  the  threshold  for  distortive  subsidies212,  such  a 
threshold  would  generally  reduce  the  burden  on  the  supervisory  authority.  The  higher  the 
threshold, the lower the number of subsidies that would need to be examined and hence the lower 
the resource implications.  

  Option  c1  relies  on  the  value  currently  used  in  State  aid  control,  where  there  is  a 
threshold of EUR 200 000 per beneficiary over three years. It should however be noted 
that to alleviate the administrative burden on the supervisory and granting authorities as 
well  as  on  the  beneficiaries,  State  aid  control  has  developed  a  sophisticated  system  of 
guidelines  and  block  exemptions  that  guide  the  various  stakeholders  and  attempt  to 
minimise the need to notify and assess non-distortive State aid measures. Notably, more 
than 95% of the State aid measures are block-exempted and Member States do not need 
to notify them to the Commission. It would not be possible to replicate such sophisticated 
system of guidelines and block exemptions for foreign subsidies in the absence of limited 
information  on  foreign  subsidies  and  of  any  practice  in  applying  new  legislation  on 
foreign subsidies.  

  Hence,  this  report  examines  to  what  extent  a  relatively  high  threshold  for  distortive 
subsidies  can  reduce  the  administrative  burden  on  the  supervisory  authority  and 
undertakings.  Notably,  a  relatively  high  threshold  would  allow  the  supervisory 
authorities to focus their investigations on the largest and likely most distortive subsidies. 
Commission internal data on the distribution of State aid awards suggests that option c2, 
with a threshold of EUR 5 million, would capture at least five per cent of the highest aid 
amounts (see Annex 4).213 As just mentioned, more than 95% of the aid awards in the EU 
are not notified to the Commission but are block exempted. By analogy to State aid, the 
threshold  of  EUR  5  million  for  foreign  subsidies  would  therefore  also  focus  on  a 
probably relatively small share of foreign subsidies, but capture the largest and therefore 
most distortive ones. Certain US subsidy data show that the subsidy awards to the largest 
US  undertakings  largely  exceed  EUR  200 000,  and  even  EUR  5  million214.  Even  a 
relatively  high  threshold  of  EUR  5  million  would  therefore  capture  many  potentially 
subsidies  in  third  countries.  On  this  basis,  a  threshold  of  EUR  5  million  appears 
appropriate.  

  The  public  consultation  on  the  White  Paper  revealed  a  large  variety  of  views  on  the 
question of an appropriate threshold below which subsidies are unlikely to be distortive. 
Many stakeholders agreed with the originally proposed threshold of EUR 200 000 (in the 
last three years) aligned with  EU State aid rules. This includes multiple associations215, 

212 The same findings are applicable to problems 1 and 2. 
213 Internal Commission data on State aid awards communicated to the Commission for transparency reasons discussed 
in  Annex  5  Section  2.  In  practice,  the  percentage  is  likely  to  be  higher  than  5%  as  the  underlying  data  records 
individual State aid awards, but a number of beneficiaries are likely to receive more than one aid award during three 
years which may put them above the threshold of EUR 5 million.  
214 E.g. the data from the Subsidy Tracker shows that the subsidy awards granted by the US to the top-100 companies 
are largely above USD 5 million, Source: https://www.goodjobsfirst.org/subsidy-tracker  
215 Among others EUROALLIAGES, Construction Confederation, ESF 

65 

 
 
 
 
                                                      
trade unions216 and several Member States.217 Some stakeholders expressed the view that 
this threshold may be too high218, should be sector-specific219, or that cumulative effects 
of smaller subsidies should be considered220. Some Member States consider the threshold 
to be relatively low221, a view shared by some industry representatives222 as well as some 
law firms and law societies223. 

Administrative burden on companies 

In  analogy  with  the  case  of  public  authorities,  this  option  would  increase  the  administrative 
burden on undertakings as compared with the baseline regardless of which design parameters are 
considered.  Considering  that  the  indicators  and  assessment  criteria  for  foreign  subsidies  are 
modelled after those in State aid, undertakings would have increased legal certainty, even if they 
would face a higher administrative burden.  

As regard the impact of the options for the investigative approach, compared to an ex-officio 
system (option b1), a notification system (options b2, b3 and b4) would require undertakings to 
prepare  and  submit  notification  forms  whenever  they  receive  a  foreign  subsidy.  In  terms  of 
number of notifications, the previous section on public authorities gave an estimate which would 
apply  vice  versa  to undertakings.  In  terms  of  workload  per  procedure, there is no  data  like  the 
Commission workload data to estimate the administrative burden on undertakings.  

As regard the impact of the options for a threshold for distortive subsidies, as in the case of 
public authorities, making use of a threshold below which subsidies are unlikely to be distortive 
(options  c1  and  c2)  would  reduce  the  administrative  burden  of  undertakings.  The  higher  the 
threshold,  the  lower  the  administrative  burden  as  was  shown  above  in  the  case  of  the  public 
authorities.  A  threshold  for  distortive  subsidies  of  EUR  5  million  (option  c2)  would  have  a 
beneficial effect on SMEs which due to their size are less likely to receive foreign subsidies of 
such  amounts.  At  the  same  time,  they  stand  to  benefit  from  a  more  level  playing  field  where 
market prices are not distorted by foreign subsidies. 

During  the  consultation  on  the  White  Paper,  the  inception  impact  assessment  and  the  targeted 
consultation  many  stakeholders raised the issue  of  administrative  burden  on  companies.  In  this 
context,  some  Member  States224  called for limiting  administrative  burden,  especially  on  SMEs. 
Also several EU industry and business associations, law firms, and a few non-EU stakeholders 
mentioned their concern about administrative burden225. Some industry associations cautioned in 
this  context  that  a  notification  procedure  may  increase  such  burden.  One  Member  State  and 
certain industry/business associations proposed that this could be limited by setting a sufficiently 
high threshold below which subsidies are unlikely to be distortive 226. Some industry associations 
added  that  a  complaint-based  procedure,  if  similar  to  the  one  in  TDI,  would  create  important 

216 E.g. European Trade Union Confederation, Polish Union of Entrepreneurs and Employers, Bundesarbeitskammer 
Österreich.  
217 Among others Italy and France 
218 e.g. Province of Overijssel. 
219 E.g. China Chamber of Commerce to the EU, Fédération nationale des Travaux Publics, Enel SpA, AFEP 
220 E.g. Airline Coordination Platform, EUCCC, Business Europe. 
221 Among others Czechia and Poland 
222 E.g. European Round Table for Industry, Confederation of Danish Industry, Bundesverband der Deutschen 
Industrie, Eurometaux 
223 E.g. Linklaters LLP, City of London Law Society 
224 Among others Czechia, Belgium, Denmark and Poland 
225 See among others the contributions to the public consultation of Freshfields, European Competition Lawyers forum, 
China Chamber of Commerce to the EU, American Chamber of Commerce to the EU 
226 See among others Poland’s contribution to the public consultation on the White Paper and the contribution on the 
IIA of Bundesverband der Deutschen Industrie 

66 

 
 
                                                      
costs  for  companies,  as  it  is  very  time  consuming  and  difficult  for  companies  to  prove  the 
existence and the distortions due to a foreign subsidy.227 

Functioning of the internal market 

The  impacts  section  on  Problem  1  (section6.1)  already  discussed  the  main  impacts  of  a  new 
instrument on foreign subsidies on the functioning of the internal market, notably in relation to 
the  design  parameter  ‘competence  level’  and  the  design  parameter  on  ‘effective  redressive 
measures’.  

In  addition,  subsidised  greenfield  investments  may  for  example  create  an  artificially  induced 
situation  of  over-capacity  or  below-cost  pricing  in  a  specific  market.228  A  new  instrument  on 
foreign subsidies could therefore help to restore market prices and to base investment and pricing 
decisions on commercial considerations.  

Consumers and households 

It is not possible to quantify the order of magnitude of the short-term and long-term impact on 
consumers.  This  being  said,  as  for  subsidised  acquisitions  under  problem  1,  an  instrument 
covering  other  market  distortions  could  have  a  negative  impact  on  EU  consumers  in  the  short 
term.  However,  in  the  absence  of  legislation  on  distortive  foreign  subsidies,  competitive 
undertakings risk being crowded out by undertakings receiving distortive foreign subsidies, thus 
potentially leading to higher prices for consumers.  

Trade and investment flows 

The general impact would be the same as under problem 1. As to the impact of the options for 
the investigative approach, the options encompassing a notification system (options b2, b3, b4 
and  b5)  may  have  a  more  immediate  effect  to  change  trade  and  investment  flows  as  the 
undertakings  receiving  foreign  subsidies  would  be subject  to  the  notification  obligation.  At the 
same time, an ex-officio system (option b1) would target in particular the cases of the largest and 
most  distortive  foreign  subsidies  so  that  its  impact  on  trade  and  investment  flows  may  be  less 
immediate but more focused. It is therefore difficult to conclude which effects would prevail and 
how the procedural options would impact trade and investment flows. 

Third countries and international relations 

Same as under problem 1.  

Social impacts  

Same as under problem 1. 

Environmental impacts 

Same as under problem 1. 

7  HOW DO THE OPTIONS COMPARE? 

Following the assessment of the impacts of the various options in section 6, this section presents 
for  each  problem  the  most  suitable  configuration  of  design  parameters.  Before  presenting  the 

227 See the minutes of the targeted consultation meeting with European Aluminium in Annex 6, point 3. 
228 Such claims have been made for example in relation to the steel industry and shipbuilding, as discussed in section 
2.4.  

67 

 
 
                                                      
various configurations or policy packages, the below table summarises the configuration of the 
three ‘modules’ as presented in the White Paper. The differences between the three modules and 
the ‘policy packages’ as developed in this impact assessment are also explained in this section. 

Table 6.  Summary table presenting the three modules of the White Paper 

Competence level 

Investigative approach 

Module 1 (for general 
market distortions) 
Shared between 
Commission and 
Member States 

Ex officio for general 
market distortions  

Module 2 (for acquisitions)  Module 3 (for public 

Commission 

procurement) 
Commission 

Ex ante control  
(Possibility to use 
thresholds was left open)  

Ex ante control  
(Possibility to use 
thresholds was left open) 

Thresholds 
unlikely to be distortive 

for 

subsidies 

EUR 200 000  

EUR 200 000 

EUR 200 000 

Assessment criteria 

Establish if there is a 
distortion of the internal 
market using indicators 
and categories of likely 
distortive subsidies 

Establish if there is a 
distortion of the internal 
market using indicators and 
categories of likely 
distortive subsidies 

Balancing test 

Redressive measures 

Yes, but mechanism not 
specified 
Indicative list based on 
State Aid rules 

Same as in module 1 

Same as in module 1 

7.1  Problem 1 - distortions in acquisitions 

7.1.1  Policy option packages 

Establish if there is a 
distortion of the 
procurement procedure 
either directly or indirectly. 
Presumption of a distortion 
where the subsidy enables 
submission of an offer 
would be economically 
less sustainable without the 
subsidy.  
Not specified 

Indicative list, different 
from the one in module 1 

Based on the assessment of the various impacts, the below table combines various sub-options to 
form  possible  policy  packages  to  tackle  distortions  in  acquisitions  caused  by  foreign  subsidies 
(problem 1). 

Table 7. Policy option packages for problem 1 – distortions in acquisitions 

              Policy package 
Design  
parameter 
Competence level 

Policy Package 1 
Ex officio tool with 
shared powers 
Option a2 (Shared 
between Commission 
and Member States) 

Policy Package 2 
Notification tool at EU level 

Option a1  
(Commission only) 

Policy Package 3 
Combined ex ante – ex 
officio tool at EU level 
Option a1  
(Commission only) 

Investigative approach 

option b1 (Ex officio) 

Thresholds 
unlikely to be distortive 

for 

subsidies 

Option c1  
(EUR 200 000)  

Option b4 (Ex ante control 
with notification threshold 
of EUR 500m EU turnover, 
50m financial contribution) 
Option c2  
(EUR 5m) 

Option b5 (Ex ante control 
for large acquisitions and 
ex officio for smaller ones) 

Option c2  
(EUR 5m) 

Assessment criteria 

Balancing 

As explained in Section 
5.3  
option e1 

Same as policy package 1 

Same as policy package 1 

Same as policy package 1 

Same as policy package 1 

68 

 
 
 
 
Redressive measures 

Measures listed in 
Section 5.3  

Same as policy package 1 

Same as policy package 1 

The rationale for establishing these policy packages is as follows: 

Policy  package  1  would  be  equivalent  to  using  module  1  in  the  White  Paper  to  address  the 
distortions caused by foreign subsidies. It proposes an investigative tool based purely on an ex-
officio  approach  to  detect  and  assess  distortive  foreign  subsidies  in  acquisitions  with  shared 
competences between the Commission and Member States. This procedural and institutional set-
up is similar to what currently exists for antitrust control in the EU.  

Policy package 2, would be equivalent to using module 2 as defined in the White Paper but with 
more detail than in the White Paper and also some differences. It proposes an ex-ante notification 
system using high notification thresholds to focus on the largest transactions to limit the number 
of  cases  and  hence  the  administrative  burden  on  companies  and  resource  implications  on  the 
supervisory authority. On the basis of the results of the impacts ion Section 6, it also proposes 
establishing a much higher threshold for the subsidies unlikely to be distortive (EUR 5m instead 
of EUR 200k).  

Policy  package  3  proposes  using  refined  versions  of  module  1  (for  small  acquisitions)  and 
module  2  (for  the  largest  acquisitions).  Combining  (refined)  modules  1  and  2  would  allow  the 
supervisory authority to investigate acquisition cases that fall below the notification thresholds. 
The  refinement  is  based  on  two  differences.  First,  it  is  proposed  to  use  a  high  threshold  for 
distortive subsidies (option c1) to focus on the cases most likely to cause significant distortions. 
Second, it is proposed to appoint the Commission as the only supervisory authority not only for 
the notification module but also for the ex-officio module. This was introduced on the basis of 
the results of the impacts in Section 6 and stakeholder feedback.  

7.1.2  Effectiveness 

All policy packages would be more effective than the baseline, which cannot currently address 
distortive foreign subsidies in acquisitions.  

Policy  packages  2  and  3,  which  include  a  compulsory  notification  mechanism,  would  be  more 
effective than policy package 1 for two reasons: First, for having easier access to information and 
second, for being able to redress the distortions before the acquisition is finalised. Policy package 
3  would  be  more  effective  than  2,  because  having  the  possibility  to  also  use  ex-officio  would 
allow  identifying  and  addressing  potentially  distortive  acquisitions  below  the  notification 
threshold. 

7.1.3  Coherence with other instruments and policies 

All  three  policy  packages  in  principle  address  the  existing  asymmetric  situation  that  foreign 
subsidies are not subject to State aid control. All three also stay within the remit of the regulatory 
gap identified in chapter 2 of this report. They would therefore complement existing rules and not 
overlap with them. In particular, compatibility with the EU‘s international obligations would be 
ensured. If international trade rules change in the future (see option 5), the legal framework may 
have  to  be  adapted  to  ensure  continued  coherence.  In  line  with  the  Commission’s  exclusive 
competence  for  EU  trade  defence  and  State  aid  instruments,  policy  packages  2  and  3  would 
appear  to  ensure  a  more  coherent  interpretation  and  application  of  new  legislation  than  policy 
package 1. 

69 

 
 
 
7.1.4  Efficiency 

Policy packages 1 and 2 would be less efficient than policy package 3. In terms of costs, a pure 
ex-officio system (policy package 1) would have lower costs than a notification system (policy 
package 2). But the notification obligation in policy package 2 would bring more benefits than 
policy  package  1,  as  the  supervisory  authorities  would  receive  systematic  and  structured 
information about the planned acquisitions including possible foreign subsidies. The higher costs 
of  the  notification  system  in  package  3  are  offset  by  the  benefits  to  be  certain  to  investigate 
particularly distortive cases before the acquisitions are concluded. 

Table 8. Overview of the policy option packages for problem 1 compare 

Effectiveness 

Objective 1: identifying 
distortions 
Objective 2: removing 
distortions 

Coherence with other EU policies 
Efficiency (costs vs benefits) 

Baseline 

0 

0 

0 
0 

Policy 
Package 1 
+ 

Policy Package 
2 
++ 

Policy  Package 
3 
+++ 

+ 

+ 
++ 

++ 

++ 
++ 

+++ 

++ 
+++ 

7.2  Problem 2 - distortions in public procurement 

7.2.1  Policy option packages 

After  having  examined  the  impacts  of  the  sub-options,  the report  shows  below the  most  viable 
policy packages to tackle problem 2. 

Table 9. Policy option packages for problem 2 – distortions in public procurement 

       Policy package 

Design  
parameter 

Competence level 

Investigative approach 

Policy Package 1 
Ex-officio tool addressing 
distortions in public 
procurement (PP) with shared 
powers 
Shared between Commission 
and MS 
Ex officio; information 
provided by market actors on 
their own initiative. 

Thresholds for subsidies 
unlikely to be distortive 

EUR 200 000  

Policy Package 2 
Notification tool for large 
public procurement  
procedures at EU level 

Policy Package 3  
Combined ex ante - ex 
officio tool at EU level  

Commission  

Commission 

Ex-ante control for large 
PP procedures with 
notification thresholds of 
EUR 250m or EUR 500m 
contract value 
EUR 5m 

Ex-ante control for 
specific PP procedures 
(same thresholds as in 2), 
ex officio for smaller ones 

EUR 5m 

Assessment criteria 
Balancing test 
Redressive measures 

Use of indicators  
Positive effects in option 4 
Measures listed in option 4  

Same as policy package 1 
Same as policy package 1 
Same as policy package 1 

Same as policy package 1 
Same as policy package 1 
Same as policy package 1 

The rationale for establishing these policy packages is as follows: 

Policy package 1 for problem 2 would be equivalent to module 1 in the White Paper to address 
the distortions in public procurement caused by foreign subsidies. This policy package proposes 
an investigative tool based on an ex-officio approach with shared competences. The Commission 
and the Member States would investigate ex officio distortions in public procurement in general; 
no value threshold would apply. 

70 

 
 
 
 
 
 
 
 
 
Policy package 2 would be equivalent to using module 3 as defined in the White Paper but with 
more  level  of  detail  than  in  the  white  paper  and  also  some  differences.  This  policy  package 
proposes an ex-ante  notification system for specific procurement procedures, with an exclusive 
EU  competence. To  focus on  the  most  significant  procurements and to limit the  administrative 
burden on companies and resource implications on the supervisory authority, it proposes the two 
notification thresholds, as explained in Chapter 6.  

Policy  package  3  proposes  a  combination  of  the  first  two  packages,  refining  certain  elements 
proposed  in  module  1  (for  public  contracts  of  a  smaller  contract  volume)  and  module  3  (for 
public contracts of a high contract volume) of the White Paper. This policy package a notification 
system for large procurement procedures, with a high notification threshold to capture the largest 
and  most  distortive  procedures,  combined  with  an  ex-officio  system  to  give  the  possibility  to 
investigate other procurement procedures in general. In this case, the ex officio would also be a 
Commission competence. 

7.2.2  Effectiveness  

All  Policy  packages  would  be  more  effective  than  the  baseline  which  cannot  currently  address 
distortions  caused  by  the  participation  of  subsidised  bidders  in  EU  public  procurement 
procedures.  

As regards both objective 1 (identifying the most distortive subsidies) and objective 2 (removing 
the distortions), Policy packages 2 and 3 are more effective than Policy package 1. Full reliance 
on market information under an ex officio approach (Policy package 1) risks failing to identify 
some procurement procedures involving distortive subsidies. In addition, Policy packages 2 and 3 
would allow to tackle not only distortions in public procurement in general, but also distortions in 
specific public procurement procedures with high contract values. 

Policy  package  3  would  be  the  most  effective,  as  the  participation  in  high  contract  value 
procurements  would  be  notified,  while  still  having  the  possibility  to  identify  and  assess 
participation  in  other  procurement  procedures  using  an  ex  officio  approach  In  ex  officio 
investigations, the relevant information would be made available from various sources, including 
competitors providing market sector knowledge. In addition, information could be gathered and 
accumulated on the same  undertaking participating in multiple procurements. Policy package 2 
would be less effective as it would not allow investigation of (potentially distortive) participation 
in contracts below the notification threshold. 

7.2.3  Coherence with other instruments and policies 

All three policy packages stay within the remit of the regulatory gap identified in chapter 2 of this 
report. The proposed legal instrument would not cover subject matters that are already covered 
by other legal instruments. This is true in particular as regards the existing public procurement 
framework,  which  does  not  address  foreign  subsidies  at  all.  It  is  therefore  considered  that  all 
policy packages are coherent with other instruments and policies.  

If international trade rules change in the future as it may be eventually pursued under option 5, 
the policy packages might have to be adapted to ensure coherence. As in EU trade defence and 
State aid instruments, the Commission has exclusive powers, Policy packages 2 and 3 would be 
more coherent than Policy package 1. 

7.2.4  Efficiency  

Compared  to  the  baseline,  all  policy  packages  would  require  more  resources,  both  for  the 
supervisory authority and for companies bidding in procurement procedures. 

71 

 
 
As regards the supervisory authority, the mandatory notification (policy packages 2 and 3) would 
require  significant  resources  insofar  as  all  companies  would  need  to  submit  the  relevant 
information in a notification. In comparison to that, a system where the information is collected 
ex  officio  by  the  supervisory  authority  (policy  package  1)  would  require  less  resources,  as  the 
supervisory authority would have more discretion in deciding who will be investigated based on 
the collected information. As regards companies, more companies would be affected by a system 
of  mandatory  notification  (Policy  packages  2  and  3)  than  by  an  ex  officio  system  (Policy 
package1). Consequently, for both the supervisory authority and for companies, Policy package 1 
would be less costly than Policy packages 2 and 3. 

The baseline, while being the least costly option, does not allow to tackle the problem of foreign 
subsidies in public procurement. 

While  Policy  package  1  is  less  costly  than  Policy  packages  2  and  3,  the  higher  cost  of  the 
notification system is offset by its benefits: Policy package 3 covers not only distortions in public 
procurement in general (which is the only scope of Policy package 1), but also covers distortions 
in specific public procurement procedures above the notification threshold.  

Table 10. Overview of the policy option packages for problem 2 compare 

Baseline 

Policy Package 1 

Policy Package 2 

Effectiveness 

Objective 1: 
identifying 
distortions 
Objective 2: 
removing 
distortions 

0 

0 

Coherence with other EU policies 
Efficiency (costs vs benefits) 

+ 

+ 

++ 
++ 

7.3  Problem 3 - other market distortions 

7.3.1  Policy option packages 

++ 

++ 

++ 
++ 

Policy Package 
3 
+++ 

+++ 

++ 
+++ 

Based on the assessment of the various impacts, the below table combines various sub-options to 
form two possible policy packages to tackle problem 3 i.e. distortive foreign subsidies in other 
market situations than acquisitions and procurement.  

Table 11: Policy packages for problem 3 – other market distortions 

Competence level 

Investigative approach 

Thresholds 
unlikely to be distortive 

for  subsidies 

Policy Package 1 
Comprehensive investigative tool involving 
Member States 
Option a2 (Shared between Commission and 
Member States) 
Option b1  
(Ex officio) 
Option c1  
(EUR 200 000) 

Policy Package 2 
Focused investigative tool at EU 
level 
Option a1  
(Commission only) 
Same as policy package 1 

Option c2  
(EUR 5 million) 

Assessment criteria 
Balancing test 
Redressive measures 

No sub-options. See description in Section 5.3 
Option e2 (use a balancing test) 
No sub-options. See description in Section 5.3 

Same as policy package 1 
Same as policy package 1 
Same as policy package 1 

72 

 
 
 
 
 
 
 
 
 
 
 
The rationale for establishing these policy packages is as follows: 

Policy package 1 would be identical to the module 1 as proposed in the White Paper, that is, an 
ex-officio  investigative  tool  with  shared  competences  between  the  Commission  and  Member 
States, a threshold of distortion at EUR 200 000 and using a balancing test to account for positive 
effects of the foreign subsidy. Building from the analysis in Section 6, this combination of sub-
options  would  result  in  a comprehensive  screening  tool  for  two  reasons.  First,  because  using  a 
low  threshold  of  distortion  (EUR  200 000)  could  catch  a  wide  range  of  foreign  financial 
contributions and second, because a combined level of enforcement would draw from a diverse 
pool of resources, at MS and EU levels. 

Policy package 2, would be very similar to policy package 1 except for two differences. First, the 
Commission  would  be  the  sole  supervisory  authority  and  second,  the  threshold  of  distortion 
would  be  high,  at  EUR  5  million.  The  choice  of  sub-options  aims  at  a  targeted  and  uniform 
investigative tool by setting a high distortion threshold and a single supervisory authority. 

7.3.2  Effectiveness 

Both policy packages would be more effective in contributing to the objectives than the baseline. 
Policy package 1 would score higher than policy package 2 as regards objective 1 (identifying the 
most distortive subsidies), as its comprehensive design entails less risk of missing out distortive 
foreign  subsidies.  Both  policy  packages  include  the  same  set  of  redressive  measures  and 
balancing  test  and  therefore  would  score  equally  high  as  regards  objective  2  (removing  the 
distortions).  

7.3.3  Coherence with other instruments and policies 

Both  policy  packages  would  be  more  coherent  than  the  baseline,  for  the  same  reasons  given 
under  problem  1.  As  also  explained  under  problem  1,  exclusive  Commission  powers  in  policy 
package 2 would be more coherent than shared powers in policy package 1. 

7.3.4  Efficiency 

Costs 

Both  policy  packages  entail  more  costs  than  the  baseline  as  they  require  resources  from  the 
public enforcer and increase administrative burden on the companies receiving foreign subsidies. 
Due  to  a  lower  threshold  for  distortive  subsidies  and  involvement  of  many  more  supervisory 
authorities, policy package 1 would lead to more administrative burden and more investigations 
and therefore have higher costs than policy package 2.  

Benefits 

Both  policy  packages  would  bring  significantly  more  benefits  than  the  baseline,  notably  to  the 
companies competing with those that benefit from foreign subsidies. The benefits of both policy 
packages  can  expected  to  be  similar  as  the  assessment  criteria,  redressive  measures  and  the 
balancing would be the same. 

Conclusion 

As  the  benefits  of  both  policy  options  are  comparable  but  the  costs  of  policy  package  1  are 
significantly higher than of package 2, the latter would be the most efficient. 

73 

 
 
Table 12. Overview of the policy option packages for problem 3 compare 

Baseline 

Effectiveness 

Objective 1: identifying 
distortions 
Objective 2: removing 
distortions 

Coherence with other EU policies 
Efficiency (costs vs benefits) 

0 

0 

0 
0 

8  PREFERRED OPTION 

Policy Package 1 
Comprehensive 
investigative tool 
++ 

++ 

+ 
+ 

Policy Package 2 
Focused investigative tool  

+ 

++ 

++ 
++ 

The  preferred  options  for  each  of  the  problems  can  also  be  presented  as  a  three-tiered 
investigative tool with the following components: 

  Component 1: A notification-based investigative tool for acquisitions when the turnover 
of  the  target  or  one  of  the  merging  parties  exceeds  EUR  500  million  and  the  foreign 
financial contributions EUR exceed 50 million.  

  Component  2:  A  notification-based  investigative  tool  for  bids  in  public  tenders  with  a 

contract value above either 250 or 500 million.  

  Component  3:  An  ex-officio  investigative  tool  for  all  other  market  situations  and  for 
acquisitions and public procurement procedures below the thresholds of the investigative 
tools 1 and 2. 

The  combined  tool  would  be  enforced  by  the  Commission.  Foreign  subsidies  below  EUR  5 
million would not be considered distortive. 

The preferred option largely corresponds to the approach presented in the White Paper with one 
main  exception.229  While  the  White  Paper  envisaged  a  role  for  Member  States  in  scrutinising 
public  procurement  procedures, the  preferred option proposes to  enforce  all  components  at  EU 
level.  This  approach  responds  to  widespread  stakeholder  concern  that  a  new  instrument  on 
foreign subsidies would be applied inconsistently across Member States and overburden national 
authorities.230 The preferred option also includes more details than the White Paper, notably on 
notification thresholds and the threshold for distortive subsidies. Such thresholds also respond to 
widespread  stakeholder  concerns  about  a  high  administrative  burden  and  are  in  line  with 
feedback  from  several  stakeholders  that  a  higher  threshold  for  distortive  subsidies  than  the 
initially proposed EUR 200 000 (over a three-year period) would be necessary.231  

The preferred option would allow to deal with distortions in the internal market caused by foreign 
subsidies  and  would  thus  add  to  the  EU’s  capacity  to  confront  new  challenges  and  protect 
businesses  and  citizens  from  unfair  trading  practices.  It  would  fill  the  current  legal  gap  with  a 
new legal instrument. The new instrument would therefore complement existing EU instruments 
such as merger control, foreign direct investment screening and public procurement rules. Each 
instrument would have a distinct purpose and legal standard, as is the case today.  

229 While some stakeholders raised doubts about the approach presented in the White Paper, the majority of 
EU stakeholders (both Member States and other stakeholders) and some non-EU stakeholders support the 
initiative (see contributions referenced in sections 2 and 6). 
230 See e.g. the contributions of the Netherlands, ESF and other stakeholders in Annex 2 and Annex 6. 
231 Among others Czechia, Poland, European Round Table for Industry, Confederation of Danish Industry, 
Bundesverband der Deutschen Industrie, Eurometaux.  

74 

 
 
 
 
 
 
                                                      
Moreover,  given  the  high  thresholds  used  for  notification  in  components  1  and  2  of  the  new 
instrument,  cases  notified  under  these  components  would  account  for  only  a  small  part  of  all 
cases dealt with under existing instruments such as EU  merger control and public procurement 
rules. In the few cases where there would be an overlap, procedural synergies could be ensured in 
practice,  to  the  extent  possible.  For  instance,  the  timelines  of  parallel  reviews  under  different 
instruments (notably under the new instrument and the EU Merger Regulation) could be aligned, 
thereby  avoiding  unnecessary  delays  or legal  uncertainty.  Similarly, the type  and  format  of  the 
information to be provided in notifications under different instruments could be aligned as much 
as possible, enabling businesses to simply replicate documents and amend or complement them 
only in a limited way for each specific notification. By contrast, existing instruments prohibit the 
use  of  information  provided  under  one  procedure  for  procedures  under  different  legal 
instruments. It would thus not be possible to use a notification under the EU Merger Regulation 
to exempt an undertaking from providing the same information under the new instrument.  

In  that  regard,  business  transactions  already  today  often  face  scrutiny  under  several  regulatory 
regimes  globally  (notably  parallel  merger  control  in  several  jurisdictions,  as  well  as  FDI 
screening). The new instrument would only be one addition. Undertakings and public authorities 
thus  have  significant  experience  in  dealing  with  such  parallel  reviews  and  seeking  alignment, 
which in the case of the new instrument will be facilitated by the Commission also handling EU 
merger control. 

As  regards  the  interaction  between  the  proposed  instrument  and  specific  public  procurement 
procedures,  it  is  envisaged  that  the  instrument  would  be  designed  in  such  a  way  as  to  have 
minimum, if any, impact on the ongoing procurement procedure. Under mandatory notification, 
the  investigation  of  the  foreign  subsidy  would  be  carried  out  in  parallel  with  the  evaluation  of 
tenders. The deadlines for concluding the investigation will be in line with the time needed for 
the typical evaluation to be finalised. The contracting authority will be able to award the contract 
to  a  non-subsidised  bidder  if  it  proposes  the  best  tender,  and  would  only  have  to  wait  for  the 
outcome  of  the  investigation  if  the  subsidised  bidder  would  be  set  to  win  the  contract.  In  any 
case,  they  will  be  free  to  award  the  contract  to  the  best  bid  should  the  deadline  for  the 
investigation lapse without a decision. Under ex-officio, such investigations would usually take 
place only after award, and thus have no impact on the outcome of the procurement procedure, 
and will focus on correcting the damage to the internal market through the use of fines. 

Annex 3 describes who is affected and how by the preferred option.  

The preferred option would contribute to the specific objectives as follows: 

8.1.1  Contribution  to  specific  objective  1  (identifying  the  most  distortive  foreign 

subsidies) 

For  problems  1  (acquisitions)  and  2  (public  procurement),  the  investigative  tool  comprises  a 
system of ex ante notification for the largest and potentially most distortive cases. Such ex ante 
approach ensures a systematic identification of distortive foreign subsidies in these situations of 
highest economic value. For all other market situations including smaller acquisitions and smaller 
procurement  procedures,  distortive  foreign  subsidies  would  be  identified  in  an  ex  officio 
procedure. Such ex officio approach enables the supervisory authority to focus its attention on the 
most  relevant  cases  of  distortive  foreign  subsidies.  Based  on  relevant  market  information,  the 
supervisory authority will then apply the assessment criteria described in chapter 5 of this report 
to establish the degree of the distortion. 

75 

 
 
8.1.2  Contribution to specific objective 2 (removing the distortions) 

The redressive measures described in chapter 5 are based on measures applied in EU State aid 
control to remove the distortive effect of State aid. As the potentially distortive impact of foreign 
subsidies  on  the  internal  market  must  be  considered  similar  to  that  of  State  aid,  the  State  aid 
toolbox  of  remedies  provides  in  principle  for  an  efficient  set  of  measures  to  also  remove 
distortions caused by foreign subsidies.  

There  are  only  some  nuances  to  this  general  finding.  Firstly,  the  reimbursement  of  a  foreign 
subsidy  to  its  granting  authority  in  a  third  country  may  often  not  be  effective  as  it  is  more 
difficult to monitor and enforce outside the EU. Hence, behavioural or structural remedies may 
be more effective and used more frequently. Secondly, in the case of acquisitions facilitated by 
foreign  subsidies,  the  prohibition  of  such  acquisitions  may  be  more  common  as  a  redressive 
measure than under State aid rules. The reason is that there is in principle no legal basis under EU 
rules to approve State aid granted for an acquisition. As a result, acquisitions financed by State 
aid hardly occur in the EU. 

In  conclusion,  the  preferred  option  provides  for  an  effective  toolbox  of  redressive  measures  to 
remove  the  distortion  caused  by  foreign  subsidies.  In  the  case  of  large  acquisitions  and  large 
procurement  procedures,  the  ex  ante  approach  ensures  that  the  redressive  measures  can  be 
decided  before  the  transactions  are  closed  which  gives  legal  certainty  to  the  undertakings 
concerned.  For  smaller  transactions,  the  ex-officio  procedure  would  still  allow  to  remedy  the 
distortion  ex-post.  For  instance,  the  toolbox  of  redressive  measures  includes  options  such  as 
granting  third  party-access  on  non-discriminatory  terms,  publication  of  R&D  results  or 
divestments  if  a  foreign  subsidy  is  found  to  have  distorted  a  specific  activity,  acquisition  or 
investment. 

Nature of the instrument and legal basis 

When taking EU legislative action, a choice has to be made between a Regulation or a Directive. 
A Regulation is directly applicable, and thus automatically deemed to be enshrined in Member 
State law. There is no need for implementing legislation. However, it leaves Member States very 
limited or no scope to adapt to their national specificities. A Directive is only binding as to the 
result to be achieved, which gives Member States a choice as to the form/method to achieve this 
goal. Directives can set minimum standards which do not prevent Member States from having in 
place provisions which go further. It also allows for more uniform and detailed requirements to 
be put in place where appropriate. 

The aim of the preferred policy option proposes the Commission to be sole enforcer to address in 
a  uniform  manner  across  the  EU  the  distortions  that  some  foreign  subsidies  are  causing  in  the 
internal  market.  Therefore,  it  would  not  be  suitable  to  adapt  the  rules  at  national  level.  As  a 
result,  a  Regulation  is  deemed  the  appropriate  instrument.  Chapter  3  of  this  report  has  already 
described the legal basis. 

9 

 HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? 

The  Commission  should  review  the  implementation  of  any  (legislative  or  non-legislative) 
proposal  with  regards  to  the  achievement  of  policy  objectives  identified  in  this  Impact 
Assessment.  

The indicators proposed to monitor the achievement of policy objectives identified in this Impact 
Assessment are presented below. 

76 

 
 
Table 13. Monitoring indicators 

Specific 
objectives 

Monitoring indicators 

Sources of data and/or data 
collection methods 

Identify the 
most 
distortive 
subsidies 

The yearly number of cases of 
alleged distortive foreign 
subsidies dealt with by the 
supervisory authority  

Sources of information 
-  Notifications 
-  Third party submissions of 

market information  

Data 
collected 
already? 
No 

Actors 
responsible for 
data collection 
Commission 

Share of cases of foreign 
subsidies found to be 
distortive vs. total number of 
cases  
Share of cases cleared thanks 
to the balancing test vs. total 
number of cases.  
Stakeholder perceptions of 
the impacts of the imposed 
redressive measures  

-  Ex officio cases 
-  Market investigations 
Record of all final decisions finding 
distortions caused by foreign 
subsidies.  

No 

Commission 

Record of all final decisions finding 
that positive effects outweigh the 
distortions. 
Consultation with EU stakeholders 
on their perceptions of the impacts 
of redressive measures  

No 

No 

Commission 

Commission 

Remove 
distortions 
caused by 
foreign 
subsidies 

To avoid putting any additional administrative burden on companies or Member States due to the 
collection  of  information  used  for  monitoring,  the  proposed  indicators  mainly  rely  on  internal 
Commission data sources or consultations that will be conducted by the Commission. 
The  initiative  is  foreseen  to  be  evaluated  5  years  after  entry  into  force.  The  evaluation  will 
examine in particular whether, and to what extent, the above objectives have contributed to the 
improvement  of  the  functioning  of  the  Internal  Market.  In  addition,  in  view  of  its  novelty,  the 
initiative will be subject to continuous monitoring on the part of the Commission. In the context 
of such monitoring, the Commission will pay special attention to the potential need of review of 
design parameters, such as notification thresholds. Should such a need arise, the parameters could 
potentially be modified. 

77 

 
 
 
 
 
Annex 1.  Procedural information 

Lead DG, Decide Planning/CWP references 

The  Directorate-General  (DG)  for  Competition  and  the  Directorate-General  (DG)  for  Internal 
Market, Industry, Entrepreneurship and SMEs led the preparation of this initiative and the work 
on  the  Impact  Assessment  in  the  European  Commission.  The  planning  entry  was  approved  in 
Decide  Planning  under  the  reference  PLAN/2020/8943.  It  is  included  in the  2021  Commission 
Work Programme (ref. COM(2020) 690 final) under the policy objective “A Europe fit for the 
digital age”. 

Organisation and timing 

The planned adoption date included in the Commission Work Programme adopted on 19 October 
2020 is on Q2 2021. An inter-service steering group (ISSG), was established for preparing this 
initiative  composed  of  the  following  Commission  services:  AGRI,  BUDG,  CLIMA,  CNECT, 
DEFIS,  DEVCO,  EMPL,  ENER,  ESTAT,  ECFIN,  EAC,  FISMA,  FPI,  JUST,  JRC,  MARE, 
MOVE, OLAF, REGIO, RTD, SJ, SG, TAXUD and TRADE plus the EEAS. The ISSG had five 
meetings between September 2021 and the adoption in May 2021. 

Milestones 
Publication of the White Paper 
Feedback period on the White Paper 
Publication of the inception impact assessment 
Feedback period on the inception impact assessment  6 October 2020 to 29 October 2020 
Targeted consultations 
Submission to the Regulatory Scrutiny Board 
Meeting with the Regulatory Scrutiny Board 

Dates 
17 June 2020 
17 June 2020 to 23 September 2020 
6 October 2020 

November 2020 to January 2021 
3 February 2021 
3 March 2021 

Consultation of the RSB 

RSB requested improvements 
The problem analysis should emphasise more the 
difficulties to collect information on the potential 
distortions caused by foreign subsidies (in the 
absence of a dedicated instrument) and the 
limitations of the case studies and the data. 
Moreover, the report should clarify the difference 
between potential distortions that may arise from 
subsidies granted by Member States and those 
resulting from foreign subsidies. It should also 
provide a more balanced explanation of the possible 
positive short-term effects (e.g. lower public 
procurement costs) and the negative long-term 
effects (e.g. development of dominant positions). 
The problem analysis should include the indirect 
consequences of subsidised acquisitions and 
subsidised imports from third countries. The report 
should detail the analysis of the problems in public 
procurement. It should be clearer on the risks of 
third country (co-) ownership in public natural 
monopolies, earned by subsidised bidding. 
The policy options should be redesigned to focus 
more clearly on the main choices for the policy 

Changes in the revised report 
Section 2 of the report has been changed as follows: 

1/ Description of the data available in the public 
domain and its limitations for drawing un-rebuttable 
conclusions 
2/ Clarification that the distortions caused by 
subsidies are in principle the same regardless of 
whether they are granted by a Member State or by a 
third-country 
3/ Additional detail as regards the short-term, long-
term and indirect effects of foreign subsidies for all 
three problems. 
4/ Analysis of the risks of public natural monopolies 
managed by foreign operators as a result of a 
subsidised bid  

Section 5 of the report has been changed as follows: 
1/ Early discarded options (options 2 and 3) are 

78 

 
 
 
 
Changes in the revised report 
presented and analysed separately 
2/ Two main changes as regards the presentation of 
option 4. First, identification of all the relevant 
design parameters and the sub-options under each 
parameter. Second, more level of detail of what 
option 4 and its sub-options entail. 

As a result of changing the presentation of option 4 
in section 5, the presentation of Sections 6 and 7 has 
been adapted accordingly. 

The interplay between the preferred option and 
existing instruments (EU Merger Control 
Regulation; EU FDI Regulation and EU Public 
procurement procedures) is explained in Section 8. 

The report also explains now in Section 8 (preferred 
option) how certain redressive measures of the 
proposed toolbox would be effective to address the 
distortion of transactions ex-post 

As part of the restructuring of Section 5, the design 
parameter on the ‘balancing test’ is explained in 
more detail as well as its interplay with the design 
parameter on ‘redressive measures’. 

Section 6 has been reviewed to present the positive 
and negative impacts of Option 4 in a more 
balanced way. The section now includes more 
details in the short term impacts 

The monitoring section (Section 9) includes now 
the possibility to review the design parameters of 
the preferred option, 

RSB requested improvements 
makers. The report should present self-standing 
options for the design parameters of the policy 
instrument, i.e. competence level, investigative 
approach, EU interest test and institutional 
implementation. It should explain the retained 
policy options more in detail (e.g. investigative 
powers, redressive measures and their 
enforcement). The range of explored options for 
notification and de minimis thresholds should be 
justified in terms of adequacy. They should be 
sufficiently broad to reflect positions likely to 
emerge in the legislative process. A separate section 
on discarded options should give an overview of the 
initially considered options and justify why options 
that looked promising at first view (sometimes with 
stakeholder support) were then discarded from 
further analysis. 
The report should explain how the new instrument 
would work in conjunction with existing EU 
instruments in the public procurement, merger 
control and foreign direct investment screening 
areas. It should describe how procedural synergies 
(e.g. for notifications, timelines) would be ensured 
without causing unnecessary delays or legal 
uncertainty. It should clarify the envisaged 
redressive measures, including in situations where 
the foreign subsidy distortions would be detected 
only after the implementation of the procurement or 
transaction. 
Linked to the issues detailed in the problem 
analysis, the report should explain how the 
responsible authority would apply the EU interest 
test. It should clarify how it would judge when 
foreign subsidies may overall promote or conflict 
with EU policy objectives and how this may 
influence the design of possible redressive 
measures. 
The impact analysis should present positive and 
negative effects of the policy intervention in a more 
balanced way. Particularly for the short term, it 
should assess more thoroughly the risks to 
economic activity and employment in case foreign 
direct investment declined. The analysis should also 
cover possible (short-term) adverse impacts on 
consumers and on public procurement costs. 
The monitoring and evaluations arrangements 
should reflect the novelty of this instrument and the 
potential need for timely review, including of key 
design parameters, such as notification and de 
minimis thresholds. 

Evidence, sources and quality 

The report uses several sources of information.  

79 

 
 
 
 
 
First,  reports  from  academics,  competition  authorities,  the  OECD  and  the  European  Court  of 
Auditors. All references are cited in the main text of the report. To list a few: 

  Chinese state capitalism: A challenge for the European market economy”, German 

Monopolies Commission, July 2019 

  Hufbauer, Gary, Thomas Moll, and Luca Rubini. "Investment subsidies for cross-border 
M&A:  trends  and  policy  implications."  United  States  Council  Foundation,  Occasional 
Paper 2 (2008), p. 9. 

  Various OECD reports on distortive subsidies: OECD, “Measuring distortions in 

international markets: The semiconductor value chain”, OECD Trade Policy Papers, No. 
234, OECD Publishing, 2019, Paris. OECD, “Measuring distortions in international 
markets: the aluminium value chain”, OECD Trade Policy Papers, No. 218, OECD 
Publishing, Paris. OECD, Subsidies in the steel sector: A stocktaking note, 2017, 
DSTI/SC(2017)11. 

  European Court of Auditors, The EU’s response to China’s state-driven investment 

strategy, Review No 03 2020.  

Second,  public  information  available  in  the  Decisions  of  the  European  Commission,  national 
competition authorities, press and company websites to illustrate the case studies showcasing the 
distortions caused by foreign subsidies. 

Third,  the  Commission  Services  have  used  quantitative  data  from  internal  data  on  EU  merger 
notifications and JRC data on foreign direct investment cases and processed the data from several 
specialised  databases  on  subsidies  including  [list  several  databases].  The  Commission  Services 
have  also  used  confidential  internal  Commission  data  from  several  competition  instruments  to 
estimate the resource needs. 

Finally, the report relies on the feedback from the three stages of public consultations described 
in  Annex  2  and  Annex  6  of  this  report  as  well  as  from  tens  of  conferences  and  webinars 
organised on the topic. 

80 

 
 
 
 
 
 
Annex 2.  Stakeholder consultation synopsis report 

1. 

Introduction 

The  consultation  of  the  initiative  on  addressing  distortions  caused  by  foreign  subsidies  was 
organised in several phases in order to allow all the relevant stakeholders to express their views 
on the proposal at various stages of preparation.  

  On 17 June 2020, the White Paper on foreign subsidies was adopted by the Commission, 

which launched a 14-week public consultation that finished on 23 September. 

  On  6  October  2020,  the  Commission  published  an  Inception  Impact  Assessment  (IIA) 
outlining the available policy options, their impacts, and other elements to be assessed in 
the Impact Assessment report.  
In  October  2020  –  January  2021,  the  Commission  services  organised  a  number  of 
bilateral  targeted  consultations  with  the  most  relevant  stakeholder  representatives.  The 
minutes of these bilateral discussions will be published on this website. 

 

2.  Public consultation on the White Paper (17 June – 23 September 2020) 

The  White  Paper  was  very  comprehensive  in  its  scope,  as  it  provided  for  a  forum  to  express 
views  and  ideas  on  the  problem  definition,  the  policy  options  to  address  it  (including  beyond 
those proposed in the paper), the enforcement mechanism (notification system versus ex-officio 
action), the assessment criteria, the organisational set-up, procedure and the redressive measures. 
The  questionnaire for the public consultation  can  be found  in  the  Annex  II  of  the  White  Paper 
(pp. 48-49). The replies to the public consultation on the White Paper and the full summary are 
published on this website.  

A detailed summary of the public consultation on the White paper is also available in Annex 6 to 
the IAR. 

The Commission received 150 submissions from a wide range of stakeholders:  

  17 from public authorities of Member States;  
  24 from third country stakeholders;  
  100 from business/industry associations and individual companies;  
 

and  the  remainder  from  law  firms,  academic  institutions,  trade  unions,  NGOs,  other 
public authorities and individual citizens. 

The replies received in the public consultation on the White Paper have been highly relevant for 
the drafting of the Regulation.  Almost all EU stakeholders, including Member States, welcome 
the  initiative  and  share  the  view  that  there  is  a  need  to  tackle  the  distortive  effects  of  foreign 
subsidies on the internal market. The majority agrees with the scope of the approach as outlined 
in the White Paper, but stress the need for a proportional measure in order not to stifle foreign 
investment,  a  concern  echoed  also  by  non-EU  contributions.  A  large  part  of  respondents  also 
highlighted transparency issues. 

To  remedy  the  possible  adverse  effect  on  foreign  investment  and  minimize  the  administrative 
burden on companies and public authorities, which has been pointed out by several respondents, 
the  notification  thresholds  for  Modules  2  and  3  have  been  set  relatively  high  in  order  to  only 
capture  the  potentially  most  distortive  subsidies.  Similarly,  to  increase  the  legal  certainty  for 
companies  active  in  the  EU,  it  has  been  proposed  to  increase  the  threshold  for  distortive 
subsidies, which will have a positive impact particularly on SMEs. Given the numerous requests 
for  consistency  in  the  application  of  the  instrument,  it  is  also  proposed  that  the  Commission 
retains  the  enforcement  power  while  only  a  limited  number  of  cases  will  be  subject  to  a 
notification obligation and the Commission remains able to pursue cases ex-officio. 

81 

 
 
3.  Feedback on the inception impact assessment (6 October – 29 October 2020) 

The Inception Impact Assessment (IIA) outlined the available policy options, their impacts, and 
other elements to be further assessed in the Impact Assessment report. The Commission received 
22 submissions as feedback on the Inception Impact Assessment from the following: 3 Member 
States  (4  submissions)  and  18  other  respondents  provided  their  feedback.  All  the  replies  are 
available online.  

A detailed summary of the feedback received on the IIA is available in Annex 6 to the IAR. 

Almost  all  respondents  who  provided  feedback  on  the  Inception  Impact  Assessment  support 
Option 2:  legislative action at EU level, possibly complemented by Option 3: international rule-
making.  While  an  action  at  EU  level  seems  to  be  most  favoured  approach  in  the  short  and 
medium  term,  the  international  approach  (WTO  reform  and  pursuit  of  stronger  subsidy 
commitments in future FTAs) is not a mutually exclusive solution to an EU action and will be 
further pursued in the future.  

The  feedback  on  the  IIA  confirmed  the  general  approach  of  this  Impact  Assessment  report  in 
terms of the elements that should be considered as part of the available policy options and their 
impacts. Several respondents also pointed to existing EU legislation, which could be amended to 
address  the  issue  of  foreign  subsidies.  The  corresponding  sections  of  this  Impact  Assessment 
report discuss the feasibility of this option.  

4.  Targeted consultation (November 2020 – January 2021) 

Based  on  the  information  received  in  the  public  consultation  on  White  Paper  (e.g.  level  of 
interest, relevance of information provided, examples of possible third-country subsidies, future 
relevance  of  a  possible  new  instrument),  the  targeted  consultation  aimed  to  collect  further 
information and feedback from the following stakeholder groups: 

  EU  business  associations  in  the  field  of  the  production  of  goods  and  services  most 

 

exposed or potentially exposed to foreign subsidies; 
the  legal  community  (law  firms  advising  companies  on  related  competition  and  trade 
issues);  

  Member States and their relevant national public authorities;  
 
 

relevant stakeholders from third countries; 
trade unions and consumers. 

The targeted consultation was designed to help produce concrete examples of distortive subsidies 
including their type, the sector affected, third county granting it, the type of possibly distortive 
subsidies that can be most commonly observed as well as their impacts on the company, sector or 
market.  Furthermore,  the  questions  were  aimed  to  assess  the  policy  options  proposed  in  the 
Inception  Impact  Assessment  as  well  as  other  possible  policy  options,  the  elements  of  these 
policy  options  that  should  be  considered  in  the  Impact  Assessment,  the  impacts  of  the  various 
policy options proposed including economic, social, environmental and impacts on administrative 
burden.  

The minutes of the bilateral meetings will be available on this website. Short summaries of these 
meetings are available in Annex 6 to the IAR. 

The feedback provided in the targeted consultation was used to provide examples of subsidies, 
including  the  type,  sector  and  concrete  distortive  effects.  These  examples  were  used  in  the 
Problem definition section of this report. The examples, which were not included in the IAR, can 
be found in the minutes of the bilateral meetings. The stakeholders also expressed their preferred 
policy options and answered which elements and types of impact should be considered as part of 

82 

 
 
the Impact Assessment report. This feedback was also taken into consideration in assessing and 
evaluating the policy options.  

5.  Conclusion 

The  feedback  received  during  all  phases  of  the  stakeholders  consultation  were  used  in  the 
drafting  of  the  legal  instrument  and  accompanying  Impact  Assessment  report.  It  has  been 
described  throughout  the  whole  report  and  in  this  section  how  the  concrete  elements  of 
stakeholder feedback were used. 

83 

 
 
 
 
 
Annex 3.  Who is affected and how? 

1.  Practical implications of the initiative 

Stakeholder group 
Public authorities 

Businesses 

Consumers 

Third country States 

Practical implications 
The  European  Commission  would  be  the  most  affected  public  authority  by  the 
preferred  option  for  all  three  problems,  as  the  Commission  would  become  the 
sole enforcer of the investigative tool. Component 1 may require about 40 FTE; 
component 2, between 15-45 FTE and component 3, 60 FTE. To a much lesser 
extent,  national  authorities  and  contracting  authorities  (for  component  2)  are 
likely  to  be  affected  by  the  preferred  option  in  the  mid  and  long  term  as  the 
European  Commission  is  likely  to  seek  establishing  coordination  mechanisms 
with national authorities to better enforce the investigative instrument. 

investigation 

in  all  other  market  situations, 

First,  businesses  potentially  benefitting  from  foreign  subsidies  would  be  the 
group of stakeholders mostly affected by the initiative. As described in chapter 6 
of  the  report,  this  may  concern  undertakings  ultimately  owned  by  both  foreign 
and EU nationals. Components 1 and 2 would require companies that exceed the 
notification  thresholds  to  submit  a  notification.  This  would  result  in  an 
administrative burden as described in chapter 6. Furthermore, if the Commission 
the 
initiates  an  ex-officio 
undertakings  concerned  would  need  to  submit  the  requested  information.  If 
undertakings are found to have benefitted from distortive foreign subsidies, they 
would be subject to redressive measures such as the repayment of the subsidy.  
Second,  undertakings  which  do  not  benefit  from  distortive  foreign  subsidies, 
would  benefit  from  the  preferred  option  because  it  would  restore  and  preserve 
the level playing field in the internal market.  
Thirdly,  the  preferred  option  would  not  affect  much  SMEs.  The  notification 
thresholds  are  likely  to  be  too  high  to  affect  them.  Furthermore,  the  high  
threshold for subsidies not deemed distortive in the preferred option  – which is 
25 times higher than the de minimis for State Aid – is also likely to be too high 
to affect most SMEs.  
Although  consumers  would  not  be  directly  affected  by  the  new  legislation,  the 
preferred options could have a slightly negative economic impact on consumers 
in  the  short  run  since  it  may  lead  to  an  increase  in  prices,  although  this  is  not 
expected  to  be  significant.  In  the  long  run,  however,  consumers  would  benefit 
from ex ante control of potentially subsidised acquisitions. Notably, a control of 
subsidised acquisitions could spur innovation since non-subsidised undertakings 
have  better  chances  to  achieve  economies  of  scale.  Moreover,  addressing 
distortive 
improve 
foreign  subsidies  also  beyond  acquisitions,  should 
competition in the internal market which ultimately benefits consumers through 
lower prices and better products. 
Public  authorities  from  third  countries  would  not  be  directly  affected  by  the 
preferred  options.  The  European  Commission  as  an  enforcer  may  however 
engage  with  them  as  regards  information  requests  or  more  generally,  in 
consultations throughout the procedure. 
In  general,  this  instrument  might  prompt  third  countries  to  increase  efforts  to 
seek  multilateral  solutions  as  well  as  to  reassess  the  use  of  subsidies  in  their 
investment policies. 

84 

 
 
 
 
 
 
2.  Summary of costs and benefits 

I. Overview of Benefits (total for all provisions) – Preferred Option 

Description 

Amount 

Direct benefits 

Comments 

Improved level playing field 
between companies 

Could not be quantified 
. 

Economic growth 

Not possible to quantify 

Indirect benefits 

Third countries incentivised 
to resolve any issues in the 
ambit of various trade 
agreements 

N/A 

The preferred option would reduce the risk 
that non-subsidised companies are crowded 
out by companies that benefit from 
distortive foreign subsidies. The benefits 
include access to technology, scaling up 
through acquisitions, more competitive and 
fair procurement markets providing realistic 
quality price ratios to the taxpayer and more 
generally, growth 

Improving competition by removing 
distortive foreign subsidies would lead to 
more efficient companies, innovation and 
more choice, and in the long-term lower 
prices for consumers 

In order to avoid unilateral measures, third 
countries will be motivated to explore 
multilateral solutions 

II. Overview of costs – Preferred option 

Citizens/Consumers  

Businesses 

Administrations 

One-off 

Recurrent 

One-off 

Recurrent 

One-off 

Recurrent 

negligible  Around 40 full 
time equivalent 
(FTE) 
employees 
excluding costs 
for 
administrative 
tasks 

none 

none 

none 

none 

negligible  Around 30 companies 

per year may be 
affected.  
Notification costs range 
between EUR 5,000 
and EUR 500,000.  
If the Commission 
would find an 
infringement, the 
company may have to 
pay back the subsidy or 
if found not effective, 
other redressive 
measures can apply. 

If the Commission 
opens an in-depth 
investigation there may 
be indirect costs linked 
to the impact that the 
legal uncertainty over 
the outcome could have 
on the business. But in 
this regard, the same 

Direct costs 

Notification 
of subsidised 
acquisitions 
(a)   

Indirect 
costs 

Not possible 
to quantify 

Not possible 
to quantify 

85 

 
 
 
 
 
Notification 
procedure 
for public 
procurement 
procedures   

Direct costs 

applies to any 
infringement instrument 
by a public authority 

none 

none 

Negligible  The costs per company 

Negligible  Relying on 

should be similar to 
those in action 1. The 
number of cases 
expected to be between 
13 and 36, depending 
on threshold. Further 
difficulty in calculation 
is the fact that number 
of cases does not equal 
number of companies as 
many tenders are 
provided in consortia. 

resource 
assessments as 
explained in 
Chapter 6, the 
Commission 
would need 
between 15 
and 45 full 
time 
employees, 
depending on 
the threshold. 

none 

none 

none 

none 

Indirect 
costs 

none 

Increased risk 
of higher 
prices in 
public 
procurement 
due to fewer 
cheap bids 
facilitated by 
foreign 
subsidies  

Direct costs  Same as 

above 

Same as 
above 

Negligible  30-45 cases per year 

Negligible  Around 60 

including other market 
situations, acquisitions 
and public procurement.  

FTEs 

Indirect 
costs 

Same as for 1  Same as for 1  Same as 

Not applicable 

for 1 

Not 
applicable 

Not applicable 

Ex-officio 
tool for all 
other market 
situations 
and 
acquisitions 
and public 
procurement 
below the 
thresholds 

86 

 
 
 
 
 
Annex 4.  Supporting data and analysis for the problem 

definition  

1.  Additional case studies illustrating the distortions caused by foreign subsidies under 

Problem 1 

Example 3, Problem 1 

In 2010, Company A, a nominally privately owned company, and Company C jointly purchased Company B 
from Company D for 1.6 billion USD. In the aftermath of the financial crisis, Company D was in a critical 
financial  condition  and  thus  decided  to  sell  Company  B.  There  were  three  other  bidders  to  acquire 
Company B.  

Company B was Company A’s most prominent acquisition. It allowed Company A to expand into the high-
end segment of the […] manufacturing market. Moreover, through Company B, Company A was able to 
acquire  cutting-edge  technology  in  the  new  energy  sector.  Company  A’s  acquisition  coincided  with  the 
strategy of the Country A government to promote the development of the new energy sector.  

To finance the acquisition of Company B, Company A received inter  alia support from public funds from 
local governments of Country A. Main funding sources of the acquisition were as follows:  

*  Company  C  provided  […]  (USD  440  million)  in  return  for  equity;  […].  Company  C  is  owned  by  the 
government of Country A. Its sole business is the investment and management of state-owned assets. 

* The Country A local Government established […] in February 2010 that provided […] to the acquisition 
(USD 147 million) in return for equity. 

*  A  branch  of  the  state-owned  Country  A  Construction  Bank  provided  loans  of  USD  200  million  to 
Company A. 

* Company A set up a […] fund that provided USD 600 million for the acquisition. 

* Company D likewise provided financing of USD 200 million to Company A. 

As  a  result  of  the  acquisition,  Company  A  received  a  51%  share  in  equity  participation  of  Company  B, 
Company C 37% and Country A local government 12%. 

The  case  of  Company  A  illustrates  that  not  only  SOEs  but also  privately  owned  companies  may  receive 
substantial  support  from  Country  A  central  and  local  governments.  The  Chief  Executive  of  Company  A 
openly  admitted  at  the  time  that  the  acquisition  of  Company  B  would  not  have  been  possible  without 
Country A government support. 

Last but not least, Company A is a major beneficiary of subsidies from the Country A government (beyond 
the  Company  B  acquisition):  e.g.,  in  2011,  half  of  Company  A’s  net  profits  came  from  subsidies,  which 
made it the biggest recipient of subsidies amongst privately owned Country A companies. 

Example 4, Problem 1 

To  acquire  control,  Company  A  offered  to  pay  a  substantial  acquisition  premium  for  Company  B. 
Company  A’s  offer  amounted  to  EUR  4.6  billion  which  allowed  Company  A  to  become  the  majority 
shareholder of Company B.  

87 

 
 
 
The  acquisition  was  also  assessed  and  eventually  approved  by  the  Commission  under  the  EU  Merger 
Regulation. Some financial details of the acquisitions are as follows: 

Financing of the acquisition (cash acquisition): EUR 4.6 billion were financed through the company’s own 
fundsand a bridge loan, then refinanced with a syndicated loan from seven banks of Country A. 

In order to refinance the previous bridge loan, Company A obtained a 5-year syndicated loan of EUR 3.7 
billion.  The  loan  interest  rate  was0.65%  (EUR 26  million)  in  addition  to  a  one-time  transaction  cost  of 
EUR 35 million.  

Example 5, Problem 1 

Company A acquired Company B for a reported amount of EUR 2.2bn. Company A is a large state-owned 
IT conglomerate which is controlled by two government departments of Country A.  

Company  B  is  active  in  the  IT  sector  with  an  annual  turnover  of  EUR  500m,  whilst  employing  3,500 
people  at  nine  production  sites  globally.The  overall  strategy  followed  by  Country  A  in  favouring  its  IT 
industry is outlined in relevant guidelines.  

National fund financing 

The  Guidelines  led  to  the  creation  of  the  Country  A’s  national  fund,  now  endowed  with  USD  29bn  to 
support  the  national  IT  industry.  From  its  inception,  the  fund  has  had  significant  interactions  with 
Company A and committed up to USD 7bn to the development of the company.  

Regional IT funds 

The relevant Industry Association estimated that, as of 2017, while the National Fund had secured already 
roughly USD 21bn in funding (compared to 29 bn in 2019 as highlighted above), provincial and municipal 
IT-related funds had raised over USD 80 bn and were well on their way to reaching USD 150bn in size.  

Below market equity and below market borrowings 

According  to  the  OECD,  in  the  period  from  2014-2018,  Company  A  received  below  market  loans  from 
Country A’s state controlled banks amounting to USD 2 2bn.  

The  Country  A’s  Development  Bank  additionally  agreed  to  provide  Company  A  with  USD  14bn  in 
financing from 2016-2020 in the context of the development of the IT industry. Other below-market loans 
also include two loans worth USD 1 bn and USD 7 bn committed  by two banks of Country A.  

Preferential tax treatment 

As  of  2019,  chip  designers  and  software  producers  will  be  exempt  from  corporate  taxes  for  two  years, 
followed by a 50% reduction during the 3 following years.  

Below market purchase of land 

Based on data provided by a government department of Country A, the OECD calculated that Company A 
purchased land for one of its foundries for USD 37.34 per m2, while the official average price for industrial 
land in similarly sized cities was of USD 112.4 per m2,.  

88 

 
 
 
 
Example 6, Problem 1  

Company  A  is  a  non-listed  private  enterprise  mainly  specialised  in  processing.  In  2018,  Company  A 
produced  about  11  million  tonnes  of  steel,  reported  revenues  for  USD  X  billion  and  profits  for  USD  Y 
billion. Company A is based in a specific region in Country A that receives government  support. As such, 
it is eligible for support under a support plan of a local government of Country A, enabling it to shift the 
production abroad and curb overcapacity in the Country A. In particular, the latest implementation plan 
establishes  that  undertakings  from  the  above  mentioned  province  should  reach  out  to  the  central 
government’s relevant departments in order to transfer their production capacity abroad. 

In 2019, Company B was placed into compulsory liquidation after it failed to secure government funding 
to continue its operations. In 2020, Company A completed the acquisition of Company B, with a deal that 
is  estimated  to  have  cost  USD  Z  million.  Company  A  pledged  to  spend  USD  W  billion  to  modernize 
Company B’s plants and businesses.  

In  view  of  the  above,  it  appears  that  due  to  the  potentially  subsidised  acquisition  of  Company  B, 
Company A may have shifted its steel overcapacity abroad. 

2. Additional case study and tables illustrating distortions under Problem 2 

Example 4, Problem 2 

Over a year ago, the government of an EU Member State awarded a contract for an energy facility to a 
consortium led by a majority state-owned petroleum company and a majority state-owned shipbuilding 
company. Both had benefitted from substantial government subsidies from a third country. The public 
tender contract was valued at EUR 500 million. The project is co-financed by a grant from the European 
Union, with additional financial support from International Financial Institutions. 

3. Additional case studies illustrating distortions under Problem 3 

Example 3, Problem 3 

The case of Company C may illustrate the application of selective tax relief by Country Z resulting in a 
financial advantage to Company C, which operates in EU.  

Company C is a supplier of products for major manufacturers within the EU. It generates almost half of 
its sales in Europe. Its 2018 annual report refers to increasing corporate taxes as a potential risk for its 
business.  

Country Z tax laws allow it to fully exempt newly founded companies or companies that move to Country 
Z from corporate profit taxes for up to 10 years. Newspaper articles indicate that Country Z agreed on 
such  a  comprehensive,  selective,  tax  deal  with  Company  C.  As  a  result,  in  late  2018,  Company  C 
announced that it would move its headquarters from an EU Member State to Country Z.A legal opinion 
commissioned by the Country Z Parliament’s Economic Commission points out that integrating state aid 
provisions  modelled  after  EU  law  in  a  potential  future  Country  Z-EU  FTA  could  undermine  Country  Z 
sovereignty to use such selective tax reliefs as a means to attract foreign companies. In this context, the 
legal opinion makes a direct reference to the selective profit tax relief granted to Company C, indicating 
that  it  is  ‘doubtful’  whether  such  schemes  could  be  classified  as  regional  aid  or  aid  for  research  and 
development.  

89 

 
 
 
 
 
 
The selective financial advantage granted by Country Z thus likely enabled Company C to increase its net 
profits.  Additionally,  some  stakeholders  during  the  targeted  consultation  mentioned  that  when 
undertakings move outside the EU, this may lead to a decrease of employment within the EU, causing a 
further distortion of the internal market. 

Example 4, Problem 3 

Company D is a  majority state-owned engineering and construction company that has benefitted from 
substantial  government  subsidies  from  Country  W.  Company  D  has  been  a  contractor  for  numerous 
projects,  also  in  the  EU.  It  has  recently  been  placed  on  the  US  Department  of  Commerce’s  Entity  List. 
This means that Company D will require specific licenses to import or transfer goods. 

Recently,  Company  D  acquired  a  controlling  stake  in  an  EU  construction  company.  This  acquisition 
effectively valued the EU company at more than double its pre-existing market capitalisation. 

Company  D  has  thus  paid  a  high  premium  to  acquire  its  stake,  thus  potentially  distorting  the  EU 
acquisition market. Through this participation Company D is also thought to pursue its strategic goal of 
expanding  its  operations  in  the  EU  and  from  there  entering  the  US  market  thus  circumventing  US 
restrictions  imposed  on  Company  D.  Such  strategy  seems  to  be  one  of  the  main  drivers  of  Country W 
(potentially subsidised) investments in the EU.  

4. Examples of sectors affected by foreign subsidies 

1. The semiconductor industry232 

The industry 

The  largest  semiconductors  vendors  are  located  in  the  US,  the  EU,  Korea  and  Japan.  Many 
outsource  the  manufacturing,  assembly  and  testing  to  other  firms  located  in  mainland  China, 
Taiwan and Singapore. Overall, the top 20 companies in the sector, all of which are located in the 
aforementioned  locations,  supply  over  80%  of  the  market,  which  was  estimated  at  USD  470 
billion in 2018.  

Subsidies 

According to the OECD study, support to the industry is granted through the following channels: 

  Grants 
  Favourable tax treatment 
  Budgetary government support 
  Support through the financial system: 

o  Below-market borrowings. This is consistent with China’s own 2014 IC Guideline, 
which instructs “domestic development banks and commercial banks to continually 
provide financial support to the integrated circuit industry.” 

o  Below-market  equity  (for  instance  by  providing  direct  funds  to  build  new 

manufacturing plants.) 

232 OECD (2019-12-12), “Measuring distortions in international markets: The semiconductor value chain”, 
OECD Trade Policy Papers, No. 234, OECD Publishing, Paris. http://dx.doi.org/10.1787/8fe4491d-en  

90 

 
 
 
 
 
                                                      
The OECD estimates the total government support for all 21 firms in OECD’s sample amounted 
to USD 50 billion over the period 2014-2018. 

Government  support  provided  through  government  budget  (in  particular  for  R&D)  and  tax 
incentives is common in the industry, with various jurisdictions competing for manufacturing and 
research  jobs.  However,  the  provision  of  below  market  equity  and  below  market  borrowings 
appears  to  be  concentrated  in  China,  where  the  government  frequently  owns  equity  in 
semiconductor companies. 

Impact of subsidies 

The OECD notes that government subsidies may have a negative effect on the industry. As can 
be seen from the figure below, below-market equity returns are more frequent and persistent for 
government-invested  firms.  Consequently,  the  OECD  study  concluded  that the effectiveness  of 
the support for semiconductors has a particular resonance for China, where support tends to be 
relatively large. 

Source:  OECD  calculations;  Number  of  years  for  which  results  indicate  below-market  equity 
returns, % of firms233 

The  OECD  analysis  shows  that  support  provided  through  the  financial  system  –  particularly 
through  the  equity  channel  –  is  a  significant  contributor  to  total  government  support  in  the 
semiconductor  value  chain.  As  with  other  forms  of  support,  below-market  equity  can  distort 
production  and  investment  decisions  by  firms,  particularly  where  it  is  tied  directly  to  the 
construction  of  new  semiconductor  fabs.  Unlike  most  other  forms  of  support,  however, 
government equity injections also expand the role of the state in the economy by increasing the 
proportion of assets that are government-owned and -controlled.  

One  important  implication  of  the  global  value  chain  in  the  semiconductor  industry  is  that  it  is 
difficult to determine the harm that might result from government support at any one point of the 
supply  chain.  With  semiconductor  firms  interconnected  through  complex  production  networks, 
the  impacts  of  any  one  measure  may  trickle  down  the  value  chain  or  instead  affect  companies 
upstream that provide crucial parts and components.  

233 The graph refers to below-market equity returns calculated using the parameter values corresponding to the middle 
estimate. Government-invested firms in the sample include (in alphabetical order): Hua Hong, JCET, Renesas, SMIC, 
STMicroelectronics, Tsinghua Unigroup, and Vanguard Semiconductor. Private firms that have not had high-enough 
returns for all five years considered are Toshiba, UMC, and two OSAT companies (Amkor and ASE).  

91 

 
 
                                                      
Potential distortions on the EU internal market 

Providing  support  through  the  financial  system,  alongside  cross-border  acquisitions  in  the 
semiconductor industry by Chinese firms, appears to have gathered pace following the creation of 
China’s  state-backed  national  semiconductor  fund  in  2014,  a  USD  23  billion  fund  with  the 
purpose  to  invest  in  the  country’s  semiconductor  industry.  This  national  fund  has  since  been 
flanked by a series of sister funds at provincial and city levels, e.g. Beijing  IC  Industry Equity 
Investment Fund. One explicit aim of the National IC Fund is “to promote industry upgrades”, 
including  through  “mergers  and  regroupings”,  in  the  context  of  broader  efforts  to  “encourage 
domestic  integrated  circuit  companies  to  strengthen  international  cooperation,  integrate 
international resources, and open up international markets.”  

In this context, a specific transactions involving EU target companies, which may have distorted 
the Internal Market, was discussed in more detail under problem 1. 

2. The aluminium sector  

The industry 

The aluminium sector has seen major changes over the last 15 years, notably the rise of China as 
the leading producer by a wide margin in most segments of the value chain. This unprecedented 
increase  in  output  has  fuelled  concerns  about  excess  capacity  in  the  sector  that  is  depressing 
global aluminium prices and threatening the viability of producers worldwide.  

According to the OECD report, the 17 largest firms operating along the aluminium value chain 
are located in China, India, Russia, Bahrein, US, Australia and Norway. Together they make up 
more than half of global smelting capacity. 

Subsidies 

The OECD estimates that the total government support for all 17 firms in the sample amounted 
up  to  USD  70  billion  in  the  period  2013-2017,  depending  on  how  financial  support  (i.e. 
concessional  loans)  is  estimated.  Although  all  17  firms  received  some  form  of  support,  it  is 
highly concentrated. The top 5 recipients receive 85% of all support, most of it at the smelting 
stage  of  the  value  chain.  While  government  support  is  common  all  along  the  value  chain,  it  is 
especially large in China and the Gulf countries, even under the conservative assumptions used in 
the OECD report. 

There are also important differences in the nature and scale of support received. Chinese firms 
obtained  all  of  their  support  from  Chinese  authorities,  notably  financial  subsidies,  which 
overwhelmingly  benefitted  Chinese  producers. Together  with  energy  and  input  subsidies,  these 
measures accounted for the vast majority of all support in China. By contrast, most other firms in 
the  study  tend  to  be  multinationals  that  obtained  support  in  the  different  places  in  which  they 
operate  (e.g.  Australia,  Brazil,  Canada,  and  countries  of  the  Gulf  Cooperation  Council), 
predominantly in the form of nonfinancial support (e.g. energy subsidies) and in lesser amounts. 
For all firms, support for R&D and labour was relatively minor. 

Impact of subsidies 

The OECD notes that looking at the value chain reveals that subsidies upstream confer significant 
support  to  downstream  activities.  Direct  support  at  the  smelting  stage  is  important,  but  trade 
measures also matter. China’s export taxes on primary aluminium, as well as its incomplete VAT 
rebates on exports of certain aluminium products, have served to discourage exports of primary 
aluminium  and  encourage  production  (and  export)  of  semiproducts  and  fabricated  articles  of 

92 

 
 
aluminium. Access to cheap inputs has enabled Chinese producers of semis to expand production 
and compete in global markets at lower cost. 

While governments participate in the aluminium value chain via SOEs, state influence is at least 
as important as ownership, including because SOEs are both recipients and providers of support. 
This seems, according to the OECD, especially the case in China, where SOEs provide SOEs and 
private producers alike with below-market-cost inputs and loans.  

Overall,  the  OECD  concludes  that  non-market  forces,  and  government  support  in  particular, 
appear  to  explain  some  of  the  increases  in  capacity  in  the  aluminium  sector  in  recent  years. 
Excess capacity thus appears to be a genuine concern in aluminium, and one with implications 
for global competition and the design of trade rules. 

Potential distortions on the EU internal market 

According to European Aluminium, one of the consequences of China’s subsidised expansion of 
aluminium production combined with lower growth of China’s internal demand has been the big 
increase of Chinese exports to the EU. These exports, allegedly in some cases at unjustifiably low 
prices,  have  more  than  doubled  in  recent  years.  Additionally,  likely  also  backed  by  subsidies, 
Chinese companies have begun acquiring domestic EU production capacity and participating in 
other ways on the EU internal market. In this context, the example of Chinalco’s general contract 
for the upgrade project of the electrolytic aluminium plant in Portovesme has been mentioned. 

3. The steel sector 

The industry 

The  steel  industry  is  characterised  by  overcapacity  which  is  exacerbated  by  subsidisation  from 
third countries. Since steel serves as an input product for various other industries, distortions in 
this industry can have spillover effects into other industries as well.  

Subsidies 

Several OECD reports attempt to conceptualise and quantify subsidies in the steel sector. One of 
the  OECD  reports  particularly  focuses  on  China234,  identifying  2923  distinct  subsidy  schemes, 
though not all of them include information on the amount of subsidies involved.235 On aggregate, 
the OECD can identify subsidies awarded by Chinese public authorities amounting to more than 
30 billion USD since 2008.236  

Impact of subsidies 

Subsidies exacerbate existing distortions which stem from overcapacity. In this regard, the OECD 
first  highlights  that  public  authorities  can  promote  capacity  expansion  through  subsidies,  for 
example  by  directly  providing  support  to  investments  in  steelmaking  facilities.237  Second,  the 

234 Another report from the OECD, albeit less detailed and less up to date, focuses on subsidisation in 
several countries, namely Algeria, Brazil, Canada, India, Indonesia, Kazakhstan, Kenya, Korea, Russia, 
South Africa, Taiwan, Turkey, United States, and Vietnam. See Here: OECD, DSTI/SU/SC(2015)2/REV1, 
Public financial support to new investments in the global steel industry: 
work in progress. 
235 OECD, DSTI/SC(2020)11, Steel subsidies and government support measures: a progress report, p. 36., 
2020. 
236 Ibid, p. 38.  
237 OECD, DSTI/SC(2017)11, Subsidies in the steel sector: A stocktaking note, p. 3, 2017. 

93 

 
 
                                                      
OECD also emphasises that subsidies can provide a safety net for beneficiaries, thus effectively 
reducing their risk of having to exit the market.238  

Potential distortions on the EU internal market 

Though subsidised steel imports can and have been addressed in trade defence investigations239, 
subsidised steel companies increasingly try to circumvent those rules (which only apply to trade 
in goods) via greenfield investments and acquisitions.240 

According  to  EUROFER,  subsidised  companies  can  offer  better  prices  than  competitors. 
Likewise,  EUROFER  notes  that  subsidised  companies  can  undercut  rival  bidders  in  public 
procurement  tenders.  Lastly,  according  to  EUROFER,  subsidised  companies  can  also  sustain 
loss-making periods better than non-subsidised ones, which is particularly relevant for the steel, 
i.e., an industry facing low margins and high production costs.  

5. Figures and tables supporting the analysis on the general context of subsidies in the field 
of acquisitions (Problem 1) 

Figure 5. Value of foreign investments deals in Europe (in billion EUR) by country of origin, 30 per cent threshold 

250

200

150

100

50

0

2013

2014

2015

2016

2017

2018

2019

2020*

US

UK

CH

CN+HK

KY

IL

CA

JP

RoW

Source:  JRC  elaboration  on  Bureau  van  Dijk  data.  Data  extraction:  06/11/2020.  The  following  countries  are  shown:  United  States 
(US), United Kingdom (UK), Switzerland (CH), China and Hong Kong (CN+HK), Cayman Islands (KY), Canada (CA), Israel (IL), 
Japan  (JP),  Russia  (RU),  Rest  of  the  world  (RoW)  which  excludes  the  countries  previously  listed.  Notes:  Data  display  the  total 
observed value of transactions for announced and completed investment deals (above 30% of the capital of the target company) done 
by investors with an ultimate owner outside EU27. (*)2020 includes observations between January and end of September.  

238 Ibid. 
239 E.g., see Implementing Regulation 2020/1408 imposing a definitive anti-dumping duty and definitively 
collecting the provisional duty imposed on imports of certain hot rolled stainless steel sheets and coils 
originating in Indonesia, the People’s Republic of China and Taiwan. 
240 OECD, DSTI/SC(2020)7/REV1, Cross-border investment by state enterprises, p. 37, 2020.  

94 

 
 
 
 
                                                      
Table 14. Value of foreign acquisitions of equity holdings in European companies 

Equity 
holding 

2013 

2014 

2015 

2016 

2017 

2018 

2019 

2020* 

>10% 

92.47 

84.70 

196.85 

122.39 

151.62 

221.67 

175.66 

72.32 

>25% 

82.34 

73.02 

191.58 

114.84 

141.46 

219.80 

170.31 

67.19 

>30% 

82.31 

72.45 

191.10 

114.43 

141.33 

219.49 

169.93 

66.37 

>40% 

78.38 

71.17 

190.73 

113.42 

137.82 

218.88 

166.49 

66.32 

>50% 

77.77 

69.94 

186.46 

113.30 

136.52 

216.89 

163.21 

64.19 

Source: JRC elaboration on Bureau van Dijk data. Data extraction: 06/11/2020. Data by year and threshold of the acquisition. Values 
in billion Euro. 

Note: cells display the total available values of foreign acquisitions of equity holdings higher than the threshold indicated in the first 
column. European companies refers to EU27. (*) 2020 includes values between January and September.  

6. Figures and tables supporting the general context of subsidies under problem 2 

Chapter 2.3: 

Chapter 2.3: 

95 

 
 
 
 
 
Chapter 6.2.2: 

Distribution of high-value contracts among sectors (2015 to 2017)241: 

250mil euros<>500mil euros 

44% 

26% 

13% 

14% 

3% 

Construction

IT

Energy

Transport, equipment, auxiliary

Others

241 These data are based on an estimation using CPV-codes, the classification of procurements. They are not the same 
as NACE. 

96 

 
 
 
 
 
 
                                                      
>500mil euros 

32% 

31% 

13% 

24% 

Construction

Energy

Transport, equipment, auxiliary

Others

7. Figures and tables supporting the general context of subsidies under problem 3 

2. Countries and sectors concerned by countervailing subsidy cases started by the EU  

Table 15. Number of countervailing subsidy cases per country concerned 

1 

2 

1 

2 

2 

2 

2 

4 

3 
1 

1    

1    

Country 
Argentina 
Egypt 
India 
Indonesia 
Israel 
Malaysia 
Oman 
P.R. China 
Pakistan 
Saudi Arabia    
Turkey 
USA 
Vietnam 
Canada 
Grand Total 

2010  2011  2012  2013  2014  2015  2016  2017  2018  2019  2020  Grand Total 
2 
2 
23 
3 
1 
2 
1 
24 
1 
1 
6 
5 
1 
2 
74 

1 
1 
8 

2 
2 
1 

1 
9 

1 
1 

3 
1 

2 
1 

2 
1 

10 

2 

2 

1 

2 

1 

1 

5 

3 

4 

5 

1 

1 

1 

9 

1 

5 

8 

3 

8 

1 

2 

1 

3 

5 

4 

In addition to the foregoing, the sectors affected by the countervailing subsidy cases started by 
the Commission are presented in the table below.  

97 

 
 
 
 
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
Table 16. Number of countervailing subsidy cases by sector 

It  should  be  noted  that  there  may  be  sectors  that  are  strongly  distorted  by  subsidies,  but  about 
which the EU industry never lodged complaints, e.g. for fear of retaliation or because there has so 
far been a limited impact on trade in goods. Moreover, in order to capture the full extent of the 
distortions,  several  anti-dumping  measures  have  been  imposed  by  the  Commission,  often  in 
parallel with countervailing subsidy cases.  

8. Trade in Services 

Subsidisation of trade in services has been a pressing issue for decades with numerous attempts at 
the international level to find a solution. In particular, the GATS provides a mandate to develop 
rules for subsidies in this area, but to date, no such rules have been developed. Trade in services 
is therefore more prone to distortions as there no countervailing measures available as there are 
for trade in goods. 

The import of services into the EU through all 4 modes of supply (as defined in GATS)242 has 
been growing over the past decade (see  Figure 6). In 2017, around 2.1 billion EUR of services 
were imported into the EU27 compared to 1.7 billion EUR of imported goods243. Around 57% of 
these  services  were  supplied  through  commercial  presence  of  foreign-owned  companies,  32% 
were  provided  by  means  of  cross-border  supply  and  the  remaining  services  were  supplied  by 
consumption abroad (7%) and presence of natural persons (4%). In terms of sectors, business and 
trade-related  services  make  up  the  largest  part  of  these  imports,  followed  by  insurance  and 
financial services, telecommunications and information services and transport.  

It  is  argued  that  the  current  four  modes  of  supply  do  not  fully  reflect  the  existing  means  of 
providing  services  and  that  a  Mode  5  should  be  considered  for  services  contents  embodied  in 
manufactured  goods,  which  can  include  R&D,  design,  engineering,  energy,  etc.  Antimiani  and 
Cernat  (2017)  estimate  that  the  global  GDP  gains  from  liberalizing  mode  5  services  at  the 
multilateral level could reach up to 300 billion EUR.244 The combination of these factors is likely 
to lead to a continued growth of trade in services in the mid and long-term. 

242 See for details on the methodology: 
https://trade.ec.europa.eu/doclib/docs/2016/december/tradoc_155119.pdf 
243 Eurostat. Service statistics by modes of supply. Data extracted in March 2020. 
https://ec.europa.eu/eurostat/statistics-explained/index.php/Services_trade_statistics_by_modes_of_supply 
244 Antimiani, A., Cernat, L. Liberalising global trade in mode 5 services: How much is it worth? DG 
TRADE. July 2017. https://trade.ec.europa.eu/doclib/docs/2017/july/tradoc_155844.pdf 

98 

SectorsChemical and allied6%Biodiesel9%Glass fibre products11%Electronics16%Iron and Steel37%Wood and Paper5%Solar glass8%Other9%Total100% 
 
 
                                                      
Figure 6. Imports of services into EU28* by mode of supply (Bn €). Source: WTO, DG TRADE245

2500

2000

1500

1000

500

Mode 4 - Presence of
natural persons

Mode 3 - Commercial
presence

Mode 2 - Consumption
abroad

Mode 1 - Cross border

0
2010

2011

2012

2013

2014

2015

2016

2017

9. Illustration of the role of the role of subsidies in a third country industrial policy. 

China’s industrial policy 

China’s  use  of  state  subsidies  is  the  most  researched  among  the  largest  trading  partners  of  the  EU.  A 
recent report246 of the German Monopolies Commission notes the extensive direct or indirect subsidies 
selectively granted to individual Chinese companies or industries by the Chinese State for industrial policy 
purposes.  The report  notes that these state support  measures in China  lead to cost  advantages  for the 
benefitting Chinese companies or to additional financial resources. The report adds that while distortions 
may occur in the Chinese market first, they may also impact the EU internal market. The report further 
notes that Chinese companies which have high levels of financial resources might have the incentive to 
build  up  market  power  on  the  EU  internal  market  by  gaining  market  share  with  low  prices  that  are 
subsidised  by  the  Chinese  State  or  by  surplus  profits  in  their  home  market,  for  example  due  to  an 
unregulated dominant position. 

Mercator’s 2016 report ‘Made in China 2025’247 examined China’s industrial policy and more specifically, 
China’s  policy  in  the  high  technology  sector.  Chinese  industrial  policy  includes  large  government  funds 
and subsidies and the ability to channel them into priority areas. The Advanced Manufacturing Fund for 
example amounted to 20 billion CNY (2.7 billion EUR) in 2016.   

In  addition,  the  government  has  also  provided  substantial  sums  for  the  development  of  smart 
manufacturing technologies. Among them are the China National Integrated Circuit Industry Investment 
Fund (National IC Fund) and the Emerging Industries Investment Fund with capital of 139 billion CNY (19 
billion EUR) and 40 billion CNY (5.4 billion EUR) respectively. In the specific example of robots, many local 
governments support  the purchase of robots  with subsidies of between 15 and 30 per cent  of the sale 
price. In some cases, subsidies for producers and users add up to 100 per cent. The state’s subsidy glut 

245 includes the UK while data for the whole period is not available for EU27 
246  “Chinese  state  capitalism:  A  challenge  for  the  European  market  economy”,  German  Monopolies 
Commission, July 2019 
247  “Made  in  China  2025:  The  making  of  a  high-tech  superpower  and  consequences  for  industrial 
countries”;  Jost  Wübbeke,  Mirjam  Meissner,  Max  J.  Zenglein,  Jaqueline  Ives,  Björn  Conrad;  Mercator 
Institute for Chinese studies; December 2016 

99 

 
 
 
 
                                                      
has  led  to  a  tremendous  increase  in  the  number  of  Chinese  robot  companies.  More  than  800  Chinese 
robot  companies  are  registered  in  China,  approximately  half  of  them  in  2015.  The  majority  of  these 
companies  have  not  yet  reached  the  stage  of  mass  production.  Many  of  them  just  serve  as  vehicles  to 
receive government subsidies and do not make any profit. 

Chinese  sovereign  investment  funds  and  governmental  investment  management  companies  play  an 
increasing  role  in  high-tech  FDI.  While  these  funds  and  their  management  often  present  themselves  as 
private  undertakings,  the  State  is  active  through  a  network  of  ownership  and  funding  structures.  The 
State  Council  and  local  governments  primarily  use  these  funds  to  channel  subsidies  to  Chinese 
undertakings in a more efficient manner, pursuing overarching national policy goals at the same time. In 
particular, these funds are becoming increasingly active with regard to investment in overseas markets. 
Examples of such funds and investment vehicles are the National IC Fund (first and second editions), the 
China  Investment  Corporation  and  its  subordinate  funds.  One  example  of  an  investment  by  a  Chinese 
state-owned  investment  corporation  is  the  acquisition  of  the  radio  frequency  power  business  of  Dutch 
semiconductor  enterprise  NXP  by  JAC  Capital  Ltd.,  of  which  an  investment  vehicle  of  the  State  Council 
owns  51  per  cent.  The  China  Investment  Corporation  also  contributed  USD  550  million  to  the  Asia-
Germany  Industrial  Promotion  Capital  (AGIC),  a  private  Chinese-owned  investment  fund  based  in 
Germany targeting investment in European Industry companies. 

10. Further analysis on the lack of transparency as a driver to the problem 

WTO rules and sector specific efforts  

According to the SCM Agreement all WTO members are obliged to notify any subsidy granted 
or maintained in their territory to the WTO secretariat, which publishes this information on the 
WTO website. However, the level of compliance by WTO members has deteriorated significantly 
in recent years.248 As regards service subsidies, no similar notification obligation is set out in the 
GATS, which includes however in its Article XV a provision on the exchange of information on 
subsidies related to trade in services for the purpose of further negotiations. Little information has 
however been exchanged recently.249 

Efforts  are  made  in  various  fora  to  gather  information  on  subsidies  or  government  support  in 
specific sectors, such as in the Global Forum on Steel Excess Capacity (GFSEC), an international 
platform to discuss and find collective solutions to the challenge of excess capacity and enhance 
market functioning in the steel sector.250 The OECD has recently published reports on distortions 
in international markets on both the semiconductor and the aluminium value chain, also pointing 
to  distortions  through  subsidies.251  It  also  undertakes  work  on  subsidies  and  other  support 
measures in other sectors.252  

248 Further details on the notification obligation are set out above in section 2.5.3. 
249 P. SAUVÉ, M. SOPRANA, “Disciplining Service Sector Subsidies: Where do we stand, and where can 
we (realistically) go?”, Journal of International Economic Law, Volume 21, Issue 3, September 2018, 
p.599 [610]. 
250 See http://steelforum.org/ 
251 OECD, Measuring distortions in international markets: The semiconductor value chain, OECD trade 
policy paper, 2019, https://www.oecd-ilibrary.org/trade/measuring-distortions-in-international-
markets_8fe4491d-en; OECD Measuring distortions in international markets: The aluminium value chain, 
OECD trade policy paper, 2019, https://read.oecd-ilibrary.org/trade/measuring-distortions-in-international-
markets-the-aluminium-value-chain_c82911ab-en#page1 . 
252 E.g. shipbuilding: http://www.oecd.org/sti/ind/shipbuilding.htm; Gourdon, K. (2019), "An analysis of 
market-distorting factors in shipbuilding: The role of government interventions", OECD Science, 
Technology and Industry Policy Papers, No. 67, OECD Publishing, Paris.  

100 

 
 
                                                      
Lack of suitable data 

While sector specific efforts as regards transparency on subsidies are made in different fora, there 
is lack of information in other sectors, such as aviation.253 Generally, according to a WTO report 
on  subsidies  issued in  2006,254  data  on  the  use of subsidies  are  scarce and difficult  to  compare 
across countries and sectors because of methodological differences and data gaps.255 There are no 
more recent studies on subsidies covering all sectors. Data from various sources is available, but 
not necessarily on subsidies.256  

253 See Commission staff working document, impact assessment, accompanying the  
proposal for a  REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on 
safeguarding competition in air transport, repealing Regulation (EC) N° 868/200, WD(2017) 182 final, pp. 
42, 43. 
254 World Trade Report 2006, Exploring the Links Between Subsidies, Trade and the WTO; this report 
analysed amongst others how much countries subsidise according to different data sources. 
255 See pp. 45, 114 of the report. 
256 See e.g. World bank development indicators, 
https://databank.worldbank.org/reports.aspx?source=world-development-indicators , which include 
information on “subsidies and other transfers”, which covers however also grants to international 
organisations, social security, social assistance benefits as well as employer social benefits; see also the 
OECD corona policy response tracker. https://www.oecd.org/coronavirus/en/   
Information is sorted by country, and there is a section “fiscal measures” (not “subsidies” strictu sensu). 

101 

 
 
 
 
                                                      
Annex 5.  Supporting data and analysis for the assessment of 

the impacts 

1. Problem 1 (acquisitions) – Supporting analysis on the impact on the public authorities257 

The  JRC  data  shown  in  Table  17  provides  the  number  of  foreign  acquisitions  for  different 
thresholds  of  global  turnover  of  the  acquired  EU  undertaking.  The  EU  merger  data  which  is 
illustrated  in  Figure  6  offers  an  approximation  of  the  proposed  EU  turnover  threshold  since 
notification under the EUMR primarily relies on an EU-wide turnover of EUR 250 million (of at 
least  two  merging  parties  to  a  case).  Figure  7 relies  on  EU-wide  turnover  of  at  least  EUR  500 
million. The below figures give a more detailed overview of the estimated notifications received 
under  Problem  1  (in  particular  Figure  7)  as  discussed  in  the  section  on  impacts  of  a  new 
instrument for Problem 1.  

Table 17. Total and foreign acquisitions by global turnover threshold 

257 Please note that, because the JRC data contains turnover information for the target only for part of the 
identified acquisitions (49.5% in 2017, 44.1% in 2018 and 33.1% in 2019), the numbers contained in the 
JRC dataset – summarised in  Table 17 – need to be multiplied (respectively by 2, 2.27 and 3) to reach a 
number likely to reflect reality. 

102 

Target turnoverTotal all casesTotal non-EUUSUKCN+HKJPCHRUNo min/all casesAt least 250m1074411136341At least 500m5621682000At least 1bn2911550000No min/all casesAt least 250m1368613248832At least 500m87627167422At least 1bn55403124412No min/all casesAt least 250m11781151213813At least 500m5940544801At least 1bn32192024012338520181997981237219675620191 21056715313231158114201722701112241283996076 
 
 
 
                                                      
Figure 7. Non-EU acquisitions of EU undertakings based on three different scenarios 

Figure  8:  Scenario  4,  number  of  EU  undertakings  acquired  by  non-EU  undertakings  (above  500  million  EUR  EU 
turnover for EU undertakings) 

2. Problem 3 (other market distortions) – Figures concerning notifications of State aid 

The  Commission  has  analysed  the  distribution  of  State  aid  awards  that  Member  States  have 
communicated for transparency reasons258. 

More than 95% of the State aid measures fall under the General Block Exemption Regulation and 
are therefore exempted from notification to the Commission.259 Awards below EUR 500,000 are 

258 The dataset described hereafter and presented in the table concerns information on all awards reported 
to the Commission from the entry into force of the Transparency obligations (1 July 2016) to end of May 
2020, when the last dataset was received from Member States. 

103 

 
 
 
 
                                                      
in  principle  exempted  from  transparency  obligations260,  but  some  Member  States  report  them 
nonetheless to the Commission as this is easier than to limit the reporting to larger amounts and 
miss possible accumulation of aid amounts.  

In spite of the voluntary nature of the reporting of aid awards below EUR 500,000, almost half of 
the  reported  aid  awards  are  below  EUR  500,000.  In  approx.  75%  of  the  cases  the  State  aid 
awarded  remained  below  EUR  1  million,  and  95%  below  EUR  5  million.  It  should  be  noted, 
though, that SMEs receive a big part of EU State aid, which can be one of the explanations of the 
low average amount per award. Moreover, Member States may also often grant amounts below 
the GBER limits in order to avoid notifications of State aid to the Commission. 

Table 18. Ranges of reported State aid awards 

State aid amount range 

< €500,000 
€500,000 - €1,000,000 
€1,000,000 - €2,500,000 
€2,500,000 - €5,000,000 
€5,000,000 - €10,000,000 
€10,000,000 - €25,000,000 
€25,000,000 - €50,000,000 
€50,000,000 - €100,000,000 
> €100,000,000 
Total 

Percentage of aid awards 
45.75% 
28.44% 
14.59% 
5.75% 
2.87% 
1.94% 
0.48% 
0.09% 
0.10% 
100% 

259  Commission  Staff  Working  Document:  Fitness  Check  of  the  2012  State  aid  modernisation  package, 
railways guidelines and short-term export credit insurance, SWD(2020) 257 final.  
260 As such, it is not possible to make a meaningful comparison with the EUR 200 000 threshold initially 
evoked in the White Paper.  

104 

 
 
 
 
                                                                                                                                                              
Annex 6.  Complete summary of the consultation activities 

1. 

Public consultation on the White Paper (17 June – 23 September 2020) 

General 

The Commission received 150 submissions to the public consultation:  

- 
- 
- 

- 

17 from public authorities of Member State; 
24 submissions from third country stakeholders and governments; 
around  100  submissions  from  business  and  industry  associations  and  individual 
companies;  
the  remainder  from  law  firms,  academic  institutions,  trade  unions,  NGOs,  other  public 
authorities and individual citizens. 

Submission by type of contributor 

Academic/research institution 
Business association 
Company/business organisation 
EU citizen 
Non-EU citizen 
Non-governmental organisation (NGO) 
Other 
Public authority 
Trade union 
Grand Total 

2 
52 
52 
5 
1 
3 
12 
19 
4 
150 

Submissions by country of origin 

Austria 
Belgium 
Canada 
China 
Czechia 
Denmark 
Finland 
France 
Germany 
Hungary 
Ireland 
Italy 
Latvia 
Lithuania 
Luxembourg 
Grand Total 

6  Malta 

35  Mozambique 
2  Netherlands 
4  Norway 
2  Poland 
4  Portugal 
4  Romania 

13  Serbia 
19  Singapore 

1  South Korea 
1  Spain 
8  Sweden 
1  United Arab Emirates 
1  United Kingdom 
3  United States 

150 

2 
1 
5 
1 
6 
2 
1 
2 
2 
1 
7 
5 
1 
7 
3 

Member State contributions 

Almost  all  Member  States  are  generally  in  favour  of  legislative  action  to  tackle  the  distortive 
impact of foreign subsidies, with some nuances in the degree of support and alignment, though.  

105 

 
 
 
 
 
 
 
Individual Member States ask for more evidence or support the White Paper as a basis for further 
discussions, but are not yet convinced about the need for a new instrument. 

A  large  number  of  Member  States  agree  with  the  proposed  material  scope  of  the  legislative 
action. Individual Member States consider that the subsidy definition may not cover certain cases 
of fiscal support or that lower labour law or environmental protection standards in third countries 
should also be considered equivalent to subsidies. 

A  number  of  Member  States  point  to  difficulties  with  detecting  foreign  subsidies,  in  particular 
when it comes to state-owned enterprises. 

Member States generally agree with the proposed redressive measures, which they often see as a 
non-exhaustive list. However, they make various comments, among other on the ineffectiveness 
of redressive payments / the reimbursement of the subsidy, structural remedies being seen as too 
far-reaching  or  having  to  be  used  with  caution,  asking  for  an  indication  if  and  how  redressive 
measures can be appealed. 

Several  Member  States  refer  to  potential  negative  impacts  on  Foreign  Direct  Investment, 
administrative  burden  and  stress  that  the  new  instrument  should  not  be  stricter  than  EU 
competition/State aid law. The majority of Member States highlight the importance of coherence 
with  other  instruments,  in  particular  with  the  EU  Merger  Regulation,  the  Public  Procurement 
Directives,  the  planned  International  Procurement  Instrument,  the  Foreign  Direct  Investment 
screening Regulation and Trade Defence Instruments. 

Certain  Member  States  advocate  that  foreign  subsidies  should  be  taken  into  account  in  the 
context of EU funding and are overall in favour of legislative action. The Member States focused 
their reply on shared management and submitted few individual and diverse observations. 

Other EU stakeholders’ contributions 

Almost all contributors welcome the initiative and consider that there is a real need for the new 
tool. Many point to sector specific issues or indicate industry sectors which they see as heavily 
subsidised  by  foreign  governments.  A  large  number  of  respondents  also  highlight  that 
transparency is one of the big issues that needs to be tackled in a new instrument. 

Several respondents call for the intervention to be targeted and proportionate in order not to stifle 
foreign investment. Various submissions highlight the necessity to coordinate the new instrument 
with  the  existing  ones  (Public  Procurement  Directive,  Merger  Regulation,  IPI,  TDI,  FDI 
screening).  A  number  of  respondents  also  consider  that  a  thorough  impact  assessment  is 
necessary to prepare a legislative proposal. 

As regards the overall scope of a new instrument, the majority of the respondents generally agree, 
but provide various comments and precisions. Various business contributors emphasise that key 
concepts (foreign subsidies, distortion, redressive measures, EU interest) need to be more clearly 
defined and that the assessment criteria need to be specified. Some suggest that the Commission 
should publish guidelines. 

Many  contributors  support  a  broad  definition  of  subsidies  and  applying  the  tool  to  businesses 
active  (not  just  established)  in  the  EU.  They  often  mention  among  others  protected  domestic 
markets  (but  also  domestic  subsidy  assessment  frameworks),  negative  presumptions  for  State-
owned Enterprises and lower standards than in the EU as an element to consider. 

Several contributors suggest an exclusive or at least very prominent coordination/supervisory role 
for  the  Commission,  to  ensure  consistent  practice.  Many  contributors  also  suggest  the 
introduction of a complaint procedure. 

A  few  associations  call  for  a  sector-specific  approach,  e.g.  based  on  the  revision  of  existing 
sector-specific Regulations.  

106 

 
 
Non-EU contributions 

As  a  general  rule,  while  acknowledging  the  possibility  that  foreign  subsidies  might  distort  the 
internal EU market, the contributions submitted by third country-based respondents are generally 
critical of any form of regulation on top of the existing rules.  

Most contributions from third countries advocate no new regulation or as little as possible. In that 
regard,  the  contributions  vary  in  their  openness  to  a  new  instrument  or  whether  a  particular 
country  should  be  exempted  from  its  application.  Subsequently,  only  some  contributions  deal 
with the substance of the White Paper. 

As  far  as  these  remaining  submissions  are  concerned,  several  respondents  indicate  that  the 
proposed  instrument  creates  overlaps  and  could  be  built  into  existing  rules.  Indeed,  some 
contributors state that the instrument is not necessary. Others suggest integrating Modules 2 into 
merger  control,  Module  3  in  the  Public  Procurement  Directives  and  EU  Funding  in  the  EU 
Financial Regulation or alternatively incorporating Modules 2 and 3 under Module 1. 

Several  respondents  also  question  whether  the  new  instrument  would  not  violate  international 
obligations by imposing a different standard on foreign companies compared to EU companies, 
and criticise additional administrative burden. 

Module 1 

Member State contributions 

Member  States  generally  agree  on  the  proposed  2-step  approach  for  Module  1,  but  some  raise 
questions as to the potential delays that it may cause. 

Individual Member States consider that Module 1 is sufficient to address all situations including 
acquisitions and public procurement. 

Some Member States raise the difficulty of gathering information. 

As to the substantive criteria, individual Member States point out that the size of the undertaking 
is not always an adequate criterion or that categories of subsidies likely to be distortive need to be 
detailed further. 

Individual  Member  States  favour  adding  a  specific  redressive  measure  for  public  procurement, 
i.e.  excluding  a  subsidised  company  from  Public  Procurement  procedures  and  doubt  that 
reimbursement  of  the  subsidy  is  an  effective  remedy.  Another  one,  on  the  contrary,  views 
redressive payments as the best remedy. 

In  relation  to  enforcement,  some  Member  States  argue  that  sharing  responsibilities  between 
Member States and the Commission should e.g. be based on thresholds. Others ask for the sole 
enforcement of this module by the Commission. 

The EU interest test is supported by several Member States. Certain criteria are brought forward 
or are particularly stressed in this context, such as: 

(i) 
(ii) 
(iii) 

Effects on innovation, sustainability, competitiveness of EU economy; 
quality, production in EU and jobs in EU; 
public  order  and  public  security  and  resilience,  climate  impact,  environmental 
impact.  

Other Member States state that the test should be based on clear and objective criteria and better 
defined  or  that  the  definition  of  strategic  Union  interest  used  in  the  context  of  IPCEI  projects 
should be considered.  

Several  Member  States  agree  with  the  de  minimis  threshold  aligned  with  State  aid  rules  as 
proposed in the  White  Paper.  Individual  Member  States  argue  that  the  de  minimis threshold in 
Module  1  should  be  aligned  with  the  one  under  Module  3  or,  that  the  proposed  €200  000  is 

107 

 
 
relatively low and should be set higher because (i) it may discourage Foreign Direct Investment; 
(ii)  enforcement  should  focus  on  the  most  distortive  subsidies  or  (iii)  in  view  of  the 
administrative burden. Individual Member States ask to determine the threshold only after an in-
depth market analysis and not to set it so high as to miss problematic cases. 

Other EU stakeholders’ contributions 

A large majority of contributors consider that Module 1 adequately addresses distortions caused 
by foreign subsidies. A large proportion considers that Module 1 should apply also to companies 
“active in the EU” and that it should allow for complaints.  

In  terms  of  assessment,  some  contributors  indicate  that  more  detail/guidance  is  needed,  others 
advise against using an exhaustive list of substantive criteria and yet others suggest adding a few 
criteria  to  cover  several  market  issues,  subsidy-specific  issues  and  the  effects  on  the  market. 
Certain  contributors  indicate  that  assessment  under  Module  1  should  be  aligned  with  the 
assessment under EU State aid rules. Some respondents highlight that the burden of proof should 
be reversed when it comes to the distortion caused by subsidies in sectors with overcapacity or 
when it comes to the existence of a subsidy (in particular for State-owned enterprises).  

The  respondents  generally  view  favorably  the  proposed  redressive  measures,  but  indicate  that 
they  should  be  clarified,  among  others  in  relation  to  their  duration  and  in  terms  of  respect  of 
fundamental  rights of those  concerned.  Several respondents  call  for  strong  redressive  measures 
and sanctions for non-compliance. In contrast, a few others voiced the concerns that redressive 
payments to foreign or EU states may lead to political tension and/or that it may be difficult to 
establish if the subsidy was effectively paid back in a third country.  

Certain respondents suggest to allow voluntary notification for legal certainty or propose a State 
aid Compliance certification that would be required for non-EU State-owned Enterprises before 
allowing them to be active and operate in the EU. 

The majority of contributors consider that the Commission should be exclusively responsible for 
the enforcement of Module 1. In case of shared enforcement responsibilities, they advocate for 
strong leadership by the Commission. 

The views on the necessity of a de minimis threshold are mixed. Some respondents agree with a 
threshold  in  line  with  the  one  under  State  aid  rules,  some  consider  that  it  should  be  higher  or 
there should be no threshold at all, others yet believe that the threshold should be lower or sector-
based and set following an impact assessment. 

Views  on  whether  Module  1  should  also  cover  subsidised  acquisitions  which  are  outside  the 
scope of Module 2 vary. 

The views on whether there should be an EU interest are varied. Some respondents consider an 
EU  interest  test  to  be  relevant,  but  are  in  favour  of  applying  it  narrowly.  Some  point  in  this 
context to the balancing test under EU State aid law or the interest test that is undertaken as part 
of Trade Defence Instruments. They also mention the need for clarity as to when  and how it is 
applied, and stress that its application should not result in absence of redressive measures. Other 
contributors either do not see the need for an EU interest test or oppose it, because of the political 
dimension and/or discretion it would bring into the assessment.  

Non-EU contributions 

Most contributions from third countries advocate no new regulation or as little as possible. 

A number of respondents raise the issue that the subsidy definition is too broad and vague, the 
concept  of  distortion  unclear  and  that  it  leaves  too  much  discretion  to  the  authorities.  In  this 
context, some point out that there should not be any presumption about State-owned Enterprises 
and caution against a reversed burden of proof. Moreover, they plead for assessment at the level 
of  undertaking,  not  group  and  are  in  favour  of  (higher)  de  minimis  thresholds.  Individual 

108 

 
 
respondents argue that in Module 3, the bidder might not know whether the suppliers/contractors 
have been subsidised.  

As  to  the  procedure,  some  contributors  propose  that  the  investigation  should  only  be  initiated 
upon a written complaint with sufficient evidence.  

Several contributors are critical of redressive payments to the Commission or Member States, as 
there would be no legal basis, or stress that redressive measures should not discriminate against 
non-EU companies. 

Several  contributors  are in  favour  of  an  EU  interest  test  to  balance  the  distortion  with  positive 
impacts some investments may have. Criteria for such a test should be clear and as measureable 
as possible. It is proposed that a potential benchmark could be the compatibility assessment under 
EU state aid rules.  

Module 2: 

Member State contributions 

General need and scope of module 2 

Most Member States support Module 2. Others are more cautious and support it, but indicate that 
duration of the procedure and administrative burden should be considered.  

Some  Member  States  oppose  the  introduction  of  Module  2,  for  fear  of  creating  overlaps  with 
Merger control and Foreign Direct Investment screening, in view of the administrative burden, or 
because they favour dealing with acquisitions under Module 1. 

Individual Member States propose that the definition of acquisition under Module 2 should be the 
same  as  under  the  Merger  Regulation  or  raise  questions  in  relation  to  potentially  subsidised 
acquisitions, as they may  not always distort the internal market and involve self-assessment by 
the  undertakings.  Some  Member  States  raise  the  question  of  appeal  and/or  review  of  negative 
decisions under Module 2. 

Competent authority 

Several Member States oppose to the Commission being the sole competent authority and want 
shared enforcement powers also for Module 2.  

Notification requirement 

As  concerns  the  notification  requirement,  Member  States  propose  a  variety  of  criteria.  Several 
Member  States consider  that  only  subsidised  acquisitions  should  be  notified  and  some  of  them 
plead for only having quantitative criteria for notification. 

Individual  Member  States  question  whether  turnover  thresholds  and  notification  obligation 
contribute  to  the  effectiveness  and  proportionality  of  the  proposed  instrument  or  state  that  the 
proposed  turnover  thresholds  for  Module  2  are  quite  high.  While  this  limits  the  administrative 
burden  on  the  Commission,  it  means  that  very  few  investments  in,  and  acquisitions  of,  for 
example, innovative start-ups and scale-ups would fall within the scope of this module. It could 
also be argued that the notification obligation places too high an administrative burden on both 
market  operators  and  supervisory  authorities.  In  their  view,  the  Commission  could  launch 
investigations into specific investments and acquisitions on its own initiative.   

Individual Member States generally support the proposed thresholds but ask for special attention 
for innovative  and  specialised  companies that  are  still  in  the  scale-up  phase  or that are  smaller 
(SMEs) and hence more prone to being taken over, or they state that EU target thresholds should 
not be too high if that would mean that we miss certain problematic cases. 

Other Member States consider that all acquisitions should be notified. Among those, individual 
Member States propose that the follow-up procedure should only apply where foreign subsidies 

109 

 
 
exceed  a  certain threshold and  the  EU  target  is active  in  sectors  that do  not  fall  under  Foreign 
Direct Investment Screening Regulation.  

Other points 

Some  Member  States  request  further  discussion  on  the  subject,  potentially  underpinned  by 
studies. 

Several Member States specifically advocate the use of EU interest also under Module 2. 

Other EU stakeholders’ contributions 

A large majority of contributors is supportive of Module 2 in terms of scope and procedural set-
up.  A minority of respondents, on the other hand, cautions that Module 2 should not be applied 
too broadly, e.g. in relation to the concept of de facto facilitation or certain types of investments 
(e.g. portfolio or passive financial investments). Some respondents indicate that there  are some 
ambiguities in terms of procedure, assessment criteria and definitions. Several contributions call 
for alignment of Module 2 with the EU Merger Regulation, e.g. in relation to legal deadlines. 

In  terms  of  notification  criteria,  most  respondents  consider  that  only  subsidised  acquisitions 
should be notified under Module 2. Most respondents also agree with quantitative thresholds, but 
without consensus on the right level of the threshold. Some respondents propose to introduce a 
qualitative  threshold  in  parallel  to  examine  smaller  transactions  of  a  strategic  nature.  Others 
propose to use the impact assessment to calibrate Module 2. 

The majority of contributors agree with exclusive Commission power for this Module. 

Non-EU contributions 

Most contributions from third countries advocate no new regulation or as little as possible. 

Individual contributors indicate that if Module 2 is established, only  State-owned Enterprises or 
previously distortive companies should be required to notify. 

Several contributors are critical of redressive payments to the Commission or Member States, as 
there would be no legal basis, or stress that redressive measures should not discriminate against 
non-EU companies. 

Module 3 

Member State contributions 

The  majority  of  Member  States  who  replied  agree  with  legal  action  in  the  area  of  public 
procurement but not necessarily with the proposed framework of module 3. These Member States 
consider  that  the  White  Paper  rightly  identifies  the  problem  (risks  associated  with  the 
participation in public procurement procedures by subsidised bidders) and agree broadly with the 
gap analysis. Several Member States are opposed or sceptical about the need for a dedicated legal 
instrument  to  tackle  the  distortive  effects  of  foreign  subsidies  in  public  procurement.  Some  of 
these Member States disagree with the premise in the White Paper that foreign subsidies have a 
negative effect on public procurement. Others  consider that the issue could be addressed, or at 
least partially addressed, by recurring to the existing rules on abnormally low tenders in the PP 
Directives: either by issuing  guidance on existing rules or by a  modification of these rules and 
integrating  some  of  the  features  of  Module  3  (e.g.  notification  obligation,  review  procedure, 
adding an exclusion ground).  

Sharing of enforcement powers 

A  majority  of  Member  States  expressed  their  concern  about  the  proposals  in  the  WP  on  the 
sharing of responsibilities between contracting authorities and supervisory authorities with regard 
to  the  assessment  of  distortions  caused  by  foreign  subsidies.  Member  States broadly  agree that 
contracting authorities should not be responsible for assessing whether a foreign subsidy distorts 

110 

 
 
the public procurement procedure, and that this task should instead be incumbent on the national 
supervisory authority or the Commission. A number of reasons are presented for this view: lack 
of capacity (contracting authorities lack the necessary expertise, information and manpower, and 
to  assess  distortions  would  unduly  increase  the  already  heavy  administrative  burden),  lack  of 
impartiality  (contracting  authorities  may  be  susceptible  to  award  tenders  to  subsidised  bidders 
offering  low  prices)  and  lack  of  efficiency  (if  contracting  authorities  are  ill-equipped  for  the 
assessment  of  foreign  subsidies,  this  will  negatively  impact  the  procedure  and  accessibility  of 
procurement markets).  

In  addition,  some  Member  States express  the  view  that the  Commission  should have  exclusive 
powers  for  assessing  whether  a  foreign  subsidy  is  distortive,  in  the  interest  of  consistency  and 
legal certainty.   

Other points 

Furthermore,  a  number  of issues  are  raised  in relation  to  Module  3,  by  both Member  States  in 
favour and against the proposal: 

(i) 

(ii) 

Some Member States are concerned that a separate Module 3 addressing distortions 
of a single public procurement procedure risks being administratively heavy;  
some  Member  States  indicate  that  the  relationship  between  Module  3,  the  Public 
Procurement  Directives  and  the  International  Procurement  Instrument  should  be 
clarified; 
some Member States ask whether the proposal cannot be implemented by adapting 
the Public Procurement Directives, in particular the rules on abnormally low tenders; 
(iv)  Member  States  welcome  the  strict  deadlines  for  public  procurement  procedures 

(iii) 

foreseen in the White Paper but raise doubts whether they are realistic in practice;  
exact  criteria  and  guidance  for  an  in-depth  investigation  should  be  worked  out  in 
detail; 
need  for  uniform  methodology  to  decrease  the  risk  of  diverging  decisions  if  a 
subsidised entity participates in Public Procurement in several Member States; 
some Member States are critical as to the termination of closed contracts; 
issues with reliability of information received or lack of information on subsidies.  

(v) 

(vi) 

(vii) 
(viii) 

Individual Member States state that the EU interest test should also apply in Module 3. 

Other EU stakeholders’ contributions 

Not all of the other contributors address public procurement specifically in their reply. Of those 
that do, a large part generally agree with the gap analysis in the White Paper and support legal 
action to tackle distortions caused by foreign subsidies in public procurement. A vast majority of 
business  respondents  stress  that  a  new  instrument  must  not  lead  to  additional  administrative 
burden on bidders and must not cause delays to public procurement procedures. The majority of 
respondents also argues that competent supervisory authority should be responsible for the whole 
investigation  and  contracting  authorities  should  only  enforce  redressive  measures  in  the 
respective tender procedure.  

A number of respondents are also sceptical about the need for a dedicated instrument in the field 
of public procurement, arguing that current rules (Public Procurement Directives, particularly on 
abnormally low bids) could be used or adapted to tackle the issue of foreign subsidies.  

Regarding practicalities, some contributors propose that an ex-ante notification obligation should 
only  apply  to  main/first-rank  suppliers  of  tenderers.  As  regards  competence  sharing,  there  is  a 
clear call by businesses for the Commission to have a strong coordination/guiding role in order to 
guarantee  a  uniform  assessment  methodology.  Most  contributors  agree  that  contracting 
authorities are unable to make the assessment of a distortion, for the same reasons as those given 
by Member States. Several contributors argue that, consequently, this assessment should be done 

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by the national supervisory authority, possibly in cooperation with the Commission. Some also 
suggest the Commission should be able to overrule Member States supervisory authorities and to 
take  on  cases  where  it  deems  the  participation  of  subsidised  bidders  to  be  particularly 
problematic.  Furthermore,  as  regards  procedure,  some  respondents  argue  in  favour  of  a 
complaints-based  system:  instead  of  an  ex-ante-notification  obligation  foreseen  in  the  White 
Paper,  investigations  into  distortive  foreign  subsidies  would  only  be  launched  in  the  standstill 
period  prior  to the final award  decision if  complainants inform  the  supervisory  authority  about 
potential distortions caused by foreign subsidies.  

Some  contributors  suggest  introducing  foreign  subsidies  as  an  (additional)  ground  for  appeal 
against the winning bid in the existing interval before the contract is actually signed. This would 
thus cause no further delay, and build on existing practice and procedures. 

Non-EU contributions 

Non-EU contributors in general do not specifically address public procurement. 

Interplay between modules 

Member State contributions 

Member States have diverse views as regards the interplay between the proposed modules. 

Several Member States consider that each module should operate on a stand-alone basis, rather 
than  as  one  single  instrument  for  all  three  modules.  Some  others  argue  only  for  Module  1  to 
operate on a stand-alone basis. Others yet see Module 1 as back up for subsidised acquisitions, 
either  under  thresholds  if  there  is  an  effect  on  the  internal  market,  or  in  strictly  defined  cases 
only. Some Member States indicate that it would be desirable to coordinate the use of Modules 1 
and 3.  

Several Member States support grouping all three Modules together in one instrument. 

Individual Member States suggest addressing foreign subsidies in public procurement under the 
Public Procurement Directives or do not agree with Modules 2 and 3. 

Individual  Member  States  point  out  that  the  relationship  between  Modules  and  with  existing 
instruments should be better defined.  

Other EU stakeholders’ contributions 

The views about the interplay between different Modules are very diverse.  

Some  contributors  consider  that  Modules  1,  2  and  3  should  operate  together,  but  that  it  is 
important  to  clarify  the  complementarity  of  Module  1  with  the  other  two  Modules.  Some 
consider that only Module 1 should apply. Some other respondents support all three Modules, but 
to be applied separately. 

Certain  contributors  agree  that  Module  1  is  used  for  subsidised  acquisitions  not  covered  by 
Module 2, while others specifically state that Module 1 should not cover acquisitions at all. Some 
contributors  also  stress  that  Module  1  should  function  as  a  “safety  net”  for  cases  that  are  not 
treated Module 3. 

Some respondents indicate that the application of one module to a given subsidy does not rule out 
the application of another module, while others take the opposite view. 

Non-EU contributions 

Individual respondents suggest integrating Modules 2 into merger control, Module 3 in the Public 
Procurement  Directives  and  EU  Funding  in  the  EU  Financial  Regulation  or  alternatively 
incorporating Modules 2 and 3 under Module 1. 

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Interplay with other existing instruments 

Some  respondents  (all  categories  taken  together)  mention  the  necessity  of  creating  a  coherent 
legal  framework  taking  into  account  Public  Procurement  Directives,  International  Procurement 
Instrument, EU Merger Regulation, EU State aid rules, Trade Defence Instruments and  Foreign 
Direct Investment screening. Some also warn of potential overlaps. A few suggest the possibility 
to expand Foreign Direct Investment screening rather than implementing the new tool. 

EU Funding 

Nearly all respondents who replied on this issue support action on foreign subsidies in access to 
EU funding.  

Member State contributions 

Individual Member States are concerned that the solution proposed in the White Paper for shared 
management might make tenders more burdensome and delay their award. Within that context, 
some refer to their observations to Module 3.  

Some Member States call for an ‘EU interest test’ to assess whether certain companies that have 
received foreign subsidies can receive EU funding. 

Few Member States add no specific comments to the solutions proposed or submit that further 
steps might be considered based on an in-depth analysis of the issue, also in relation to financial 
instruments.  

Individual  Member  States  note  respectively  that  (i)  the  EU  funding  section  does  not  consider 
subsidies/tenders  in  the  context  of  EUROPAID,  (ii)  foreign  companies  should  not  be  treated 
more strictly than European companies, (iii) social, labour, innovation-related and environmental 
criteria may play a role for the award of EU funding under shared management. 

Other EU stakeholders’ contributions 

The  contributors  agree  overall  with  the  approach  proposed  for  EU  funding.  Most  of  them 
advocate for more reciprocity, stating that foreign companies should not receive EU funding if 
their procurement markets are not open to European companies. Some also ask for a wider use of 
the  Most  Economically  Advantageous  Tender  criteria  across  the  board,  to  take  into  account 
qualitative,  technical  and  other  aspects  to  award  funding,  instead  of  recurring  to  the  cheapest 
bid/lower cost.  

As  regards  direct  management,  the  contributors  call  on  the  Commission  to  identify  the  EU 
funding to be affected by the proposed solution, to set out clear measures and to take into account 
some  strategic  sectors,  such  as  research  (Horizon)  and  transport  (Connecting  Europe).  Some 
respondents explicitly ask for the possibility to rearrange consortia applying for EU funding, in 
case a member was to be found in receipt of distorting foreign subsidies. Some also requested to 
establish  a  system  based  on  notifications  from  applicants/bidders  coupled  with  ex  officio 
investigative  powers  of the  Commission. The  majority  agree  that  undertakings having  received 
distortive foreign subsidies should not access EU funding for a number of years. 

As regards shared management, the contributors consider that national contracting authorities and 
bidders should not have an excessive burden and the Commission should be the only supervisory 
authority for distorting foreign subsidies – or be in charge for projects worth more than EUR 50 
million.  

As regards indirect management, the contributors advocate for foreign entities and international 
financial institutions to align their standards to those of the Union. Some asked the Union to stop 
blending  funds  or  to  attribute  funds  to  other  institutions,  in  case  those  are  not  able  to  apply 
measures similar to those proposed in the White Paper. 

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Non-EU contributions 

The non-EU contributors oppose the measures set out in the White Paper. 

2. 

Feedback on the inception impact assessment (6– 29 October 2020) 

Feedback from national Member State authorities 

The authorities of all three Member States favour Option 2 as presented in the Inception Impact 
Assessment  –  taking  legislative  action  at  EU  level  –  as  the  way  forward.  One  specifically 
indicated that their preference would be to embed new provisions in existing rules, while another 
mentioned that  such  legislative  action  could  consist of  a  new  Regulation  for Modules  1  and 2, 
and a modification of existing rules on Public Procurement. 

Two  Member  States  indicate  that  they  view  Option  3  (international  rule  making)  as 
complementary  to  Option  2.  The  third  Member  State  stated  that  Option  2  should  be  combined 
with Option 1 (non-regulatory approach), but that they also support Option 3. 

Two  Member  States  indicate  several  issues  to  carefully  consider  in  the  Impact  Assessment, 
among others: administrative burden and the interplay with other legislation. One also indicates 
that new legislation and definitions should be sufficiently precise. 

Two Member States consider that the legal basis for a new legal instrument should be Article 114 
TFEU.  One  of  them  specified  that  in  case  the  initiative  were  split  up  in  several  proposals,  the 
choice of the instrument would depend on the legal basis. 

Feedback from other contributors 

Almost all contributors favour Option 2 presented in the Inception Impact Assessment, i.e. taking 
legislative action at EU level. One contributor specifically indicates that this should take form of 
new  legislation.  Four  others  indicate  that  it  should  be  a  combination  of  new  legislation  and 
amending  existing  rules.  In  this  respect  they  mostly  point  to  strengthening  the  rules  for 
abnormally  low  tenders  (Article  84,  Directive  2014/25  and  Article  69,  Directive  2014/24),  but 
also mention the review and refit of State Aid guidelines and potential sector-specific situations. 

One contributor argues that the nature of the maritime technology sector and its current state call 
for the urgent adoption of a sector-specific solution. This could be done through a major overhaul 
of existing EU tools (e.g. EU Regulation 2016/1035) based on elements from the White Paper’s 
Module 1, but adapted to the specificities of the industry, and/or tailor-made measures within a 
new EU tool that provide for effective remedies. 

Two  other  submissions  specifically  mention  the  aviation  industry.  They  argue  that  Regulation 
(EC) 1008/2008 is not applicable to many of the cases described in the impact assessment. The 
yet untried Regulation (EU) 2019/712 addresses the competitive distortion caused by subsidies to 
third-country  carriers,  not  to  EU  carriers  and  is,  therefore,  also  not  applicable  to  the  cases 
contemplated  by  the  consultation.  Consequently,  they  advocate  legislative  action  at  EU  level 
(Option  2)  that  complements  the  existing  EU  acquis  (e.g.  aforementioned  Regulation  (EC) 
1008/2008 and Regulation (EU) 2019/712). 

In terms of legal basis, three of the respondents specifically state that the new measures should be 
based on Article 207 TFEU. They indicate that, while there must be a role for Member States in 
enforcing  the  new  discipline,  a  common  centralised  approach  towards  both  investigations  and 
redressive  measures under the  EU's  common  commercial  policy  is  essential.  Additionally,  four 
contributors indicate that the Commission should have the sole responsibility for the enforcement 
of any new legislation.  

Several contributors indicate that the Impact Assessment should focus, among others, on:  

-  The interaction with other legal instruments; 
-  Types of foreign subsidies covered and definition of distortions; 

114 

 
 
-  The notification thresholds and resulting administrative burden; 
-  Redressive measures and sanctions; 
-  EU interest test. 

Approximately a third of contributors indicate that they see Option 3 (international rule making) 
as complementary to Option 2 (legislative action at EU level). They indicate, however, that they 
do not consider Option 3 on its own as a viable route. While in the long term the strengthening of 
international  rules  can  ensure  a  level playing  field,  this  option  faces  many  obstacles  and  is  not 
realistic in the near future. 

On the other hand, one contributor believes that efforts to tackle illegal foreign subsidies should 
be  first  and  foremost  made  at  the  WTO  or  bilateral  level.  Therefore,  they  are  in  principle 
supportive  of  Option  3  on  “addressing  foreign  subsidies  through  international  rule-making”. 
However,  they  also  mention  that  they  can  support  Option  2  (legislative  action  at  EU  level) 
provided, among others, that a new instrument does not collude with existing legislation and does 
not create red tape for EU companies. 

Some  respondents  see  Option  1  (non-regulatory  approach)  as  complementary  to  Option  2 
(legislative action at EU level), especially when it concerns providing guidance to the Member 
States and contracting authorities in the field of public procurement. However, they consider that 
Option 1 on its own would not be sufficient. 

One contributor considers that there is no need to establish a separate new tool to regulate foreign 
subsidies. They argue that the legal instruments proposed under the White Paper may discourage 
foreign investments into EU, thus causing negative impact on the EU in the economic, social and 
environmental  aspects.  If  it  is  indeed  necessary  to  establish  separate  rules,  they  consider  that 
Option 1 (non-regulatory approach) should be followed. In such case, developing guidance based 
on existing EU rules would, in their view, be the most suitable and efficient option.  

Finally, one contributor did not provide feedback on the Inception Impact Assessment itself, but 
rather on the content of the White Paper. They support the objectives of the Modules proposed in 
the  Commission’s  White  Paper.  However,  they  consider that  certain  adjustments  are  needed as 
regards  the  design  and  interaction  of  the  various  Modules  with  each  other  and  in  relation  to 
existing  legislation.  They  also  indicate  that  the  administrative  burden  on  businesses  must  be 
reasonable. 

3. 

Targeted consultation (November 2020 – January 2021) 

The minutes of the bilateral meetings will be available on this website. 

Date 

Stakeholder name 

Stakeholder group 

7/12/2020 

European Steel Association (EUROFER) 

Business association 

Steel  sector  is  affected  by  subsidies  from  China  and  India,  but  also  Indonesia,  Turkey  and 
Russia.  Other  countries  (e.g.  those  targeted  by  Chinese  investments),  may  start  distorting  the 
EU market as well (Vietnam or the MENA countries). Excess capacity and all types of subsidies 
in  the  sector  are  problematic,  also  in  procurement  tenders  (e.g.  in  BRI  signatory  countries). 
Ideal solution are stronger rules at WTO and EU level. 

15/12/2020 

Eurometaux 

Business association 

Copper sector is most affected by localized prices in China, in the aluminium sector the most 
predominant  are  Chinese  preferential  loans  and  subsidy  for  energy  and  inputs.  Subsidies 
impacts global metal/scrap prices, which complicates access to raw metals. They favour a new 
EU  instrument  and  improved  enforcement  of  existing  rules.  They  support  Modules  1  and  2, 
their customers are impacted in procurement (Module 3). It may be useful to reverse the burden 

115 

 
 
 
 
of proof on subsidised companies.  

1/12/2020 

European Aluminium 

Business association 

Subsidies in the aluminium sector mainly stem from China, there may be similar cases in the 
Gulf Countries, but not of the same scale.  The subsidies are given to a company at the very 
beginning of the value chain (primary aluminium producers) that pass on the benefits to 
companies down the chain (producers of semi-fabricated products), who import into the EU at 
lower prices. China also exports final products like trains, taking market shares from EU 
companies. This is difficult to address under existing trade rules. Chinese carbon footprint is 
also three times higher than of EU production. 

26/11/2020 

Airline coordination platform (ACP) 

Business association 

Countries  most  prone  to  subsidies  in  the  sector  are  those  with  state-owned  airlines  such  as 
China,  UAE,  Qatar,  Russia  (cargo).  Currently,  there  are  two  legislations  that  address  unfair 
competition  and  control  in  EU  carriers  (Regulation  (EC)  1008/2008  and  Regulation  (EU) 
712/2019). The most relevant subsidy-induced effects are distortions in pricing and expanding 
operation  in  the  EU  to  the  detriment  of  EU  air  carriers.  On  a  short  term,  restrictions  might 
reduce  consumer  choice,  however,  foreign  subsidies  in  the  long  term  might  lead  to  reduced 
competition among EU carriers. 

3/12/2020 

Association des Constructeurs Européens d'Automobiles (ACEA)  Business association 

ACEA presented recent developments in the sector of electric busses, from vehicles originated 
from third countries. ACEA referred to the overall system with subsidies for manufacturers to 
produce  buses  and  operating  subsidies  for  operators,  via  also  discounts  on  the  purchase  of 
electricity. Installation and operation of electric charging infrastructure may also be provided by 
third  country  governments.  Third  countries  may  benefit  from  economies  of  scale  due  to  huge 
domestic markets and production capacity much bigger than the EU. ACEA expressed concerns 
that with the large numbers of e-buses forecasted in the EU, but limited content requirements, 
the  situation  will  not  improve  and  e-buses  might  risk  replicating  the  collapse  of  the  EU 
photovoltaic sector. 

26/11/2020 

Association of the European Rail Supply Industry (UNIFE) 

Business association 

UNIFE  observed  that  the  most  predominant  types  of  subsidies  are  tax  deductions,  grants  and 
export  finance  supports.  As  regards  non-EU  countries  granting  subsidies,  UNIFE  gave  as 
examples  China  (CRRC,  CRSC,  CCC)  and  South  Korea  (support  of  train  builders,  through 
development programmes, KRRI). UNIFE stressed that China is not the only source of concern, 
and that the Commission should be aware of other cases and other countries. UNIFE underlined 
that in addition to the types of subsidies discussed and listed in the presentation, there are other 
forms  of  “hidden”  subsidies.  In  the  rail  sector,  it  is  apparent  that  the  strong  concentration  of 
domestic players on the Chinese market creates a significant price advantage for these operators 
when  they  enter  foreign  markets  or  export.  Domestic  dominance  should  therefore  also  be 
considered  as  a  criterion  in  the  legal  instrument  for  the  assessment  of  distortions.  UNIFE 
pointed out that any quantification of distortive effects is very difficult, especially with regard to 
public procurement, as the real effects of contract awards can often only be fully appreciated in 
the long term.  

3/12/2020 

European Association of Shipyards and Maritime Equipment 
Manufacturers (SEA Europe) 

Business association 

Foreign  subsidies  enable  foreign  shipyards  to  engage  in  predatory  pricing,  in  the  last  decade, 
European yards have lost entire ship market segments. Subsidies can be below-market financing 
from  state  banks,  low-interest  loans  and  bonds,  preferential  guarantees,  debt  forgiveness,  etc., 
but also non-monetary support to adjacent industries (e.g., steel, oil, electricity and real estate) 

116 

 
 
 
 
 
 
 
or loans to non-creditworthy or insolvent enterprises without a restructuring plan.  SEA Europe 
favours EU legislative action, shipbuilding is not covered by TDI instruments, maritime sector 
favours a sector-specific solution. 

23/11/2020 

European Semiconductor Industry Association (ESIA) 

Business association 

The semiconductor industry is capital intensive. Public support exists in various jurisdictions to 
offset some costs related to carrying out research and development or establishing / expanding 
facilities,  etc.  Outside  the  EU,  governments  tend  to  grant  significant  benefits.  The  new 
instrument  can  have  positive  effects  on  the  functioning  of  the  internal  market,  competition, 
sustainable  economic  growth  and  productivity  and  help  SMEs,  provided  it  does  not  unduly 
increase the administrative burden.  

7/12/2020 

European Union Chamber of Commerce in China (EUCCC) 

Business association 

Subsidization is a high priority  for EUCCC along  with  market access,  non-discrimination and 
transparency  on  authorization  and  licensing  in  China.  Many  EU  companies  do  not  oppose 
subsidies as long as they have equal access to them, some benefit from subsidies through their 
partners.  Subsidies  in  China  are  provided  at  various  levels  and  in  various  forms  (entry, 
production,  investment,  procurement).  SOEs  often  offer  prices  below  variable  costs.  Vertical 
integration,  mergers  and  acquisitions  in  China  and  aid  to  ‘zombie  companies’  are  also  very 
problematic. The proposal should not threaten EU open economy and it needs to be considered 
how it will affect EU companies who benefit from subsidies in China. 

3/12/2020 

American Chamber of Commerce to the EU (AmChamEU) 

Third country stakeholder 

AmCham  EU  acknowledges  the  regulatory  gap  and  tentatively  supports  the  initiative,  but 
companies  must  not  be  unduly  affected  –  especially  if  they  come  from  countries  transparent 
about subsidies, such as the US. Distortive effects of subsidies in certain jurisdictions present a 
global challenge. A WTO solution is desirable and the EU should take a proactive approach in 
reforming the WTO. Subsidies which would be allowed under EU State aid rules should also be 
allowed under the foreign subsidy instrument. AmCham EU favours the Commission as the sole 
competent  authority  for  the  whole  instrument.  AmCham  EU  is  concerned  about  the 
administrative burden on companies. The instrument may create a risk of loss of innovation. 

30/11/2020 

China Chamber of Commerce to the EU (CCCEU) 

Third country stakeholder 

CCCEU  members  are  concerned  about  the  market  openness  in  the  EU  towards  foreign 
investments,  justification  for  a  new  and  separate  legal  instruments,  legal  certainty  and 
disproportional  burden,  which  would  hinder  their  activities  or  unnecessarily  increase 
transitional  costs.  WTO  rules  and  FTAs  allow  the  formulation  of  instruments  compliant  with 
EU  international  obligations.  New  rules  should  avoid  creating  overlaps  or  conflicting  legal 
norms, the existing system is appropriate. The scope should be based on objective criteria and 
appropriate,  the  burden  of  proof  should  not  be  reversed.  A  new  instrument  will  increase 
administrative burden and may discourage foreign companies from investing in the EU. 

4/12/2020 

The European Consumer Organisation (BEUC) 

Consumer organisation  

As  an  example,  BEUC  mentioned  subsidies  granted  to  Chinese  e-commerce  companies  for 
postal services.  Products manufactured by subsidised companies can be cheaper because they 
are lower quality,  which is not beneficial for consumers. Distortive subsidies  might  help third 
country  suppliers  to  gain  an  advantage  over  EU  suppliers.  FTAs  could  enhance  cooperation 
(e.g.  exchange  information  on  subsidies),  a  solution  at  WTO  level  may  be  problematic  as  the 
EU would be bound by dispute settlement. 

30/11/2020 

European Trade Union Confederation (ETUC) 

Trade union 

117 

 
 
 
 
 
 
 
ETUC  recognizes  the  regulatory  gap  and  need  for  new  legislation.  Environmental  and  social 
impacts  seem  to  be  downplayed  and  need  to  be  taken  seriously.  Outsourcing  negative 
externalities is a form of subsidy (e.g. unsustainable working conditions against human rights or 
social  dumping),  which  is  particularly  relevant  for  mergers  and  international  public 
procurement.  Need  to  assess  the  impact  on  jobs,  pandemic  has  shown  that  we  need  re-
localization  and  not  delocalization  of  services  and  of  the  production  of  goods  on  European 
territory.  Important  to  assess  broader  ‘consumer  interest’  (e.g.  sustainability  aspects),  EU 
interest should have qualitative criteria. 

2/12/2020 

BusinessEurope 

Business association 

While other countries (e.g. Russia or Gulf Countries) also provide subsidies, China is the most 
prominent  example.  Subsidies  are  often  granted  through  complex,  non-transparent  investment 
structures  and  vehicles  (e.g.  semiconductor  industry).  It  has  become  more  difficult  for  EU 
companies  to  win  in  public  procurement  procedures,  as  the  Chinese  competitors  bid 
unreasonably  low  prices.  Sectors  most  prone  to  distortions  are  the  technologically  advanced 
ones, like telecom, healthcare etc. The new instrument should be proportional, WTO compliant 
and non-discriminatory.  

13/11/2019 

Meeting of the International Subsidy Policy Group (ISPG) 

Public authorities 

On 13 November 2020, the European Commission discussed the White Paper and outcome of 
the public consultation  with Member States as part of the ISPG. It also presented the targeted 
consultation  strategy  to  Member  States.  Most  Member  States  showed  their  support  for  the 
initiative  on  foreign  subsidies.  Modules  1  and  2  were  generally  supported  by  most  Member 
States.  Some  Member  States  raised  some  doubts  regarding  the  viability  of  Module  3.  This 
Module is found to be more complex and potentially raises concerns when it comes to effective 
enforcement. Member States also asked questions about the timeline of the initiative and about 
the interplay of the potential instrument with international obligations.  

30/11/2020 

Stakeholder Expert Group on Public Procurement (SEGPP) 

Expert group 

The  participants  in  the  Stakeholder  Expert  Group  on  Public  Procurement  expressed  differing 
views concerning the necessity of a legal instrument addressing the distortive effects of foreign 
subsidies in public procurement.  Some supported the idea, in relation to major projects, and to 
specific  sectors. Others pointed to high compliance costs  and favoured a combination  of light 
regulatory  measures  and  guidance.  The  members  of  the  group  also  provided  diverse  answers 
concerning the potential compliance costs in relation to notification obligations and the follow-
up to an investigation process. For the former, an additional full time equivalent (FTE) depends 
on the required procedural steps, and respondents declared that this may take on average 4 FTE. 
For  the  latter,  the  respondents  agreed  that  this  would  require  professionally  trained  experts, 
extending the administrative burden from 1 to 4 FTE, depending the complexity and number of 
tenders. 

16/12/2020 

Government Experts Group on Public Procurement 

Expert group 

The  members  of  the  Commission’s  “Government  Experts  Group  on  Public  Procurement” 
(EXPP) acknowledged the importance to ensure a level playing field, addressing the distortive 
impacts of foreign subsidies in the internal market. It was also suggested by the members that 
any new provisions should be proportionate as regards compliance costs, and new rules should 
be  coherent  with  international  obligations.  Regarding  the  compliance  costs,  in  relation  to 
notification  measures  and  the  follow-up  to  an  investigation  process,  the  feedback  received 
differs  significantly,  depending  on  the  different  types  and  the  complexity  of  public  contracts. 
For  the  former,  estimations  vary,  with  an  average  between  1  to  4  FTE.  Some  members  also 
expressed  concern  about  the  potential  additional  burden  that  the  treatment  of  provided  data 
would add to the workload. Concerning the latter aspect, a majority expressed the opinion that 
contracting  authorities  do  not  have  the  necessary  expertise,  skills  and  capacity  to  assess  the 

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relevant information. They estimated that an average of 2 to 3 FTE may be required. 

15/12/2020 

SME representatives (EUROCHAMBRES and  Business Europe)  SME representatives 

Business Europe welcomed the Commission’s work on an instrument  addressing the distortive 
impacts of foreign subsidies in the internal market. The importance of public procurement for 
its  members  was  stressed,  however  without  a  concrete  opinion  on  potential  thresholds  for  its 
application.  Regarding  potential  compliance  costs  relating  to  notification  measures  and  the 
follow-up  to  an  investigation  process,  the  feedback  received  was  limited.  The  answers  given 
vary for the former to 2 working days and for the latter to 3 working days. 

11/01/2021 

Ministry of Housing and Transport (Denmark) 

Public authority 

The Ministry expressed a positive opinion on the Commission’s White Paper and the initiative 
for a new legal instrument to address the distortive impact of foreign subsidies in the internal 
market. Concerning the potential compliance costs in relation to notification measures and the 
follow-up to an investigation process, the authority was not able to provide estimations 
regarding these aspects. 

22/01/2021 

Red Eléctrica de España (Spain) 
EirGrid plc (Ireland) 
Réseau de Transport d'Électricité (France) 

Public authority 

The participants expressed a positive view on the Commission’s efforts to address the distortive 
impact of foreign subsidies. The main concerns of the participants related with potential delays 
that any new mechanism may have in the procurement process, as well as that EU commitments 
at  international  level  are  respected.  Concerning  the  potential  compliance  costs,  specific 
estimations  were  not  provided  due  to  the  complexity  and  variety  of  different  procurements. 
However the impacts will rest in the actions and processes relating with the investigation phase, 
rather than from solely the notification obligations. 

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