Assessment of the Foreign Subsidies Regulation’s First Year of Application

Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market (Foreign Subsidies Regulation – FSR) has recently completed its first year of enforcement. The FSR is an innovative yet controversial instrument, and this article explores its essence, the tools it introduces and the challenges encountered during its early implementation.

The FSR aims to address the distortions in the EU's internal market caused by subsidies originating from non-EU countries. While the EU has long restricted state aid by its member states, no equivalent mechanism addressed subsidies granted by foreign governments. The FSR was created to counter the competitive disadvantages due to such foreign interventions, particularly in sectors where state-subsidised foreign players have significant market presence.

The FSR employs three main mechanisms to tackle foreign subsidies.

The FSR uses a funnel-like approach, casting a wide net to capture the most foreign financial contributions. The collected data is analysed to determine if these contributions qualify as subsidies and cause distortions in the EU market. The Commission has wide powers of appreciation and investigation in the context of the FSR.

Distorted subsidies may trigger corrective actions, including prohibitions on mergers, exclusion from tenders or imposed remedies.

Despite the absence of official figures from the EU Commission, it is understood that the following occurred in the FSR’s first year:

In the first conditional clearance decision under the FSR, the EU Commission investigated the acquisition of parts of PPF Telecom Group by Emirates Telecommunications Group Company PJSC (e&), a state-controlled entity from the United Arab Emirates. The investigation was initiated in June 2024 and revealed that e& had received foreign subsidies, including an unlimited state guarantee and favourable loans from UAE-controlled banks, which could potentially distort competition within the EU internal market. To address these concerns, the EU Commission granted conditional approval on 24 September 2024, requiring remedies such as the removal of the state-backed guarantees and restrictions on financial flows to ensure fair competition.

In February 2024, the EU Commission opened an investigation against a Chinese state-owned train manufacturer, CRRC Qingdao Sifang Locomotive Co., Ltd., which participated in a public procurement tender in Bulgaria, to assess whether CRRC had received foreign subsidies that enabled it to submit advantageous bids. Subsequently, CRRC voluntarily withdrew from the EUR610 million public train tender, leading to the termination of the investigation without a final decision.

Similarly, in April 2024, the EU Commission initiated investigations into two Chinese bidders involved in a solar power project in Romania, aiming to determine if these companies had benefited from foreign subsidies that could distort the internal market. Both bidders eventually withdrew their tenders.

On 9 April 2024, the EU Commission launched its first ex officio investigation, focusing on Chinese wind turbine suppliers involved in wind farm projects across Spain, Greece, France, Romania and Bulgaria. The investigation aims to assess whether these suppliers have received foreign subsidies that could distort competition within the EU's internal market.

On 23 April 2024, the EU Commission conducted “dawn raids” at the Dutch and Polish offices of Nuctech, a Chinese manufacturer of security scanning equipment. The purpose was to investigate whether Nuctech had benefited from foreign subsidies, potentially distorting the internal market. Nuctech challenged the EU Commission's investigation, citing data privacy concerns and arguing that complying with the EU Commission's requests would violate Chinese law. However, in August 2024, the General Court (T-284/24) upheld the EU Commission's authority to conduct such inspections, affirming its right to access information even if stored on servers outside the EU.

The implementation of the FSR has posed several challenges, essentially due to the extensive disclosure of financial data, even for minor subsidies, which increases the costs and complexity of compliance for companies. The FSR overlaps with other regulations, such as regarding merger control and foreign direct investment, which further complicates the regulatory clearance process and leads to prolonged timelines and possible jurisdictional conflicts. In addition, the decision-making process has been criticised for its opacity, with only one public decision published despite numerous cases being reviewed.

The FSR, although formally neutral, has also drawn concerns about geopolitical bias, particularly due to its focus on Chinese companies.

To mitigate these challenges, the FSR could introduce simplified procedures and standardised reporting formats identifying precisely the information requested.

The FSR represents a significant effort to protect the EU’s internal market from distortive foreign subsidies.

Its first year showcased important achievements, including increased scrutiny and regulatory interventions. However, the challenges of compliance and transparency may still require further guidance from the EU Commission.