Foreign Subsidies Regulation dawn raids: Challenge dismissed

On 12 August 2024, the President of the General Court of the European Union (the Court) dismissed a request for an interim measure suspending dawn raids ordered by the European Commission (Commission) in terms of the Foreign Subsidies Regulation (FSR). These were the first dawn raids ever ordered by the Commission in terms of the FSR.

The FSR

The Foreign Subsidies Regulation (FSR) is a recent regulatory framework introduced by the European Union to address the potential distortive effects of foreign subsidies from non-EU Member States on competition within the EU’s internal market. The FSR grants the European Commission the authority to investigate and, if necessary, remedy subsidies granted by third countries to companies operating within the EU. The FSR seeks to level the playing field between EU and non-EU companies, ensuring that foreign subsidies do not undermine fair competition or distort market dynamics within the EU.

Background

The Commission, on its own initiative, reviewed alleged foreign subsidies received by a Chinese company with operations in the EU from the Chinese State. This company manufactures body and baggage scanners for airports and ports.

In April 2024, the Commission carried out dawn raids at the Chinese company’s premises in the Netherlands and Poland.

The Chinese company’s Dutch and Polish subsidiaries challenged the Commission’s decision to carry out dawn raids before the Court. The applicants also requested, by way of an interim measure, the suspension of the dawn raids until a final decision on the merits of the challenge.

Interim Measures

In principle, decisions of the Commission which are being contested before the Court are not suspended until a final decision on the issue. However, the Court is empowered to suspend a decision “if it considers that circumstances so require” by way of an interim measure. Such interim measures are exceptionally granted.

The applicant requesting an interim measure must show: (i) a prima facie justification in fact and in law; and (ii) urgency to avoid serious and irreparable harm to the applicant’s interests. The Court may also consider and weigh the competing interests of both sides when deciding such an application.

The Applicants Case

In brief, the applicants put forward 5 reasons to substantiate their prima facie case for the interim measure to be upheld, namely, that the Commission’s decision: (i) infringed EU and public international law because it compelled the applicants to submit documentation stored on servers located in China; (ii) and compliance therewith exposed the applicants to fines and penalties under Chinese law; (iii) infringed the applicants’ right to inviolability of business premises and to privacy; (iv) was arbitrary because there was no sufficient evidence of foreign subsidies being received; (v) failed to state reasons for the decision.

Further, the applicants argued that the request was urgent because the decision was causing reputational harm on a market with few players and because the decision might result in losing out on competitive tenders.

The Court's Decision

The Court rejected the request for the issue of an interim measure. In brief, the Court found that the applicants neither had a prima facie case nor the requisite urgency and that the Commission’s interests were to prevail over those of the applicants’.

The Court dismissed the applicants’ argument that the Commission is exceeding its territorial outreach. The Court remarked, by way of analogy, that the Commission’s powers of investigation have already successfully tried and tested in cases of competition law infringements by undertakings located outside the EU. Further, the Court held that the Commission is entitled to request information from foreign undertakings to assess whether their conduct infringes EU law and whether it is likely to produce a substantial effect on the internal market. If no such power existed, the Court argued, undertakings would be incentivised to store their data outside the EU to frustrate investigations.

The Court similarly dismissed the applicants’ argument that the Commission’s decision has caused it reputational harm. The Court said that the reputational harm, if any, already exists and a suspension will not put a stop to it. The Court noted that the Commission’s press release saying that a dawn raid was carried out under the FSR did not identify the applicants. The Court then argued that it was the applicants’ subsequent press release on the issue that linked the two.

The case will now continue on the merits of the challenge against the Commission’s decision.

Key Takeaways

It is perhaps unsurprising, given the high threshold established by case-law, that the request for the interim measure was not upheld. However, this case remains significant as it marks the first ever challenge to the Commission’s investigatory powers under the FSR. It also provides useful insight as to how the Court might deal with similar applications and similar arguments in the future.

The outcome of the case of the merits is yet to be seen and as such the Court’s decision does not prejudge the merits of the legal arguments put forward by the applicants against the Commission’s decision.