COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT 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

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   EUROPEAN COMMISSION  Brussels, 5.5.2021  SWD(2021) 100 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  Accompanying the COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT 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) 99 final}  
 
 
Executive summary sheet (max. 2 pages) 

Impact assessment accompanying the draft regulation on foreign subsidies  

A. Need for action 

What is the problem and why is it a problem at EU level?  

The EU has committed itself to being one of the most open economies in the world in terms of trade policy. At the 
same  time,  some  of  its  trading  partners’  industrial  policies  involve  granting  subsidies  that  give  beneficiaries  a 
competitive advantage in accessing or strengthening their presence in the EU economy. Such subsidies can distort 
the internal market and undermine the level playing field in three areas: (i) the acquisition of companies; (ii) public 
procurement procedures; and (iii) other market situations. While it is already possible to observe such distortions, 
the impact of foreign subsidies on the internal market is likely to grow. In addition, the current economic crisis is 
likely to lead to a higher number of subsidised investments in the EU. 

The main cause of the problem is the existence of distortive foreign subsidies based on the industrial strategies of 
certain  non-EU  countries  and  the  absence  of  any  regulatory  mechanism  to  prevent  or  remedy  their  distortive 
effects. While the granting of support by Member State authorities is subject to EU State aid control, there is no 
control  of  the  impact  of  foreign  subsidies  on  the  internal  market,  thereby  putting  the  EU  industry  at  a 
disadvantage when competing with undertakings that receive foreign subsidies.  

What should be achieved? 

The objective is to restore the level playing field on the EU internal market by identifying and removing distortions 
caused  by  foreign  subsidies  in  the  context  of  acquisitions,  public  procurement  procedures  and  general  market 
situations. 

What is the added value of action at EU level (subsidiarity)?  

Distortions caused by foreign subsidies often affect several Member States and therefore have an EU dimension. 
In addition, the EU has exclusive competence in the area of State aid and trade defence instruments.  

B. Solutions 

What are the various options to achieve the objectives? Is there a preferred option or not?  

The impact assessment report (IAR) sets out four options: 1) baseline, including adapting international trade rules; 
2) issuing guidance on existing legislation; 3) adapting existing EU rules; and 4) developing a new legal instrument. 
For option 4, the IAR proposes sub-options for various design parameters: (i) competence level: Commission only 
or with Member States; (ii) investigative approach: ex officio, notification with different thresholds or combining 
ex officio and notification; (iii) threshold for distortive subsidies: low or high; (iv) assessment criteria; (v) balancing 
test (yes or no); and (vi) redressive measures. 

The preferred policy option is option 4, with a notification obligation for large acquisitions and public procurement 
cases, and an ex officio system for small cases and other market situations.  

What are different stakeholders’ views? Who supports which option?  

EU stakeholders expressed general support for legislative action to tackle the distortive impact of foreign subsidies 
(option 4). Some non-EU stakeholders were concerned that a new instrument on foreign subsidies could have a 
chilling effect on foreign direct investment (FDI). 

C. Impacts of the preferred option 

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What are the benefits of the preferred option (if any, otherwise of main ones)? 

The  preferred  option  would  restore  the  level  playing  field  for  all  economic  operators  and  prevent  innovative 
non-subsidised  competitors  from  being  crowded  out,  leaving  consumers  with  less  choice.  It  could  also  partially 
tackle  the  issue  of  companies  delocalising  to  non-EU  countries  potentially  with  lower  environmental  standards, 
resulting in job losses in the EU. 

What are the costs of the preferred option (if any, otherwise of main ones)? 

The main costs are increased compliance costs for the affected businesses as a result of the new procedural rules. 
Undertakings that receive a foreign financial contribution in the context of a large merger or public procurement 
procedure will be required to submit notifications and comply with information requests. As transactions are also 
notifiable  under  other  existing  rules  (EU  Merger  Regulation,  FDI),  the  incremental  costs  are  likely  to  be  less 
significant. 

What are the impacts on SMEs and competitiveness?  

The preferred option involves a low administrative burden for small and medium-sized enterprises (SMEs), as they 
will  not  be  subject  to  the  notification  obligation,  which  uses  high  thresholds  for  acquisitions  and  public 
procurement.  In  addition,  a  high  threshold  for  distortive  subsidies  should  benefit  SMEs,  as  their  subsidised 
investments may fall below the threshold and therefore not be investigated. 

Will there be significant impacts on national budgets and administrations?  

The burden on the Commission for implementing this initiative is low compared to the benefits for the economy. 
As the Commission would be the sole enforcer, national authorities would not have major costs. 

Will there be other significant impacts?  

The  preferred  option  may  lead  to  a  drop  in  foreign  direct  investment  in  the  EU  in  the  short  term.  This may  be 
offset by a more level playing field and healthy competition among non-subsidised companies in the medium to 
long term. 

Proportionality?  

The  preferred  option  would  be  proportionate  in  view  of  the  significant  impact  of  foreign  subsidies  on  the  EU 
internal market. The targeted investigative tool and proportionate remedies would restore the level playing field 
while imposing low compliance costs on the companies concerned. 

D. Follow-up 

When will the policy be reviewed?  

The  Commission  will  review  the  indicators  periodically  and  evaluate  the  impacts  of  the  legislative  act  on  an 
ongoing basis.  

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