Distortions caused by foreign subsidies in the Single Market New Regulation proposal Positions of the Council and the European Parliament

A new major step for an important project which perfectly illustrates the will of the Commission and the French Presidency to regain European economic sovereignty.



On 5 May 2021, the European Commission proposed a draft regulation on foreign subsidies distorting the internal market.  The regulation aims to address the distortions created by subsidies granted by third countries to companies operating in the EU’s internal market.

More specifically, the text establishes a comprehensive framework for the Commission to examine any economic activity benefiting from a third country subsidy in the internal market and aims at regulating subsidies granted by third countries to the Union in the context of large mergers and large public procurements.



While the participation of European companies in public procurement is subject to state aid rules, no similar provisions existed until now for subsidies granted by third countries.

The new regulation gives the Commission the power to investigate and control foreign subsidies that facilitate the acquisition of European companies or participation in European public procurement procedures. In this sense, the text aims to ensure a level playing field for all companies operating in the internal market.

The procedure for examining foreign subsidies includes a preliminary examination and an in-depth investigation. The Commission will have to assess whether the financial contribution granted constitutes a foreign subsidy within the meaning of the regulation and whether it distorts the single market or not. If so, it will balance the effects of the subsidy and impose remedial measures when the effects of the subsidy are primarily negative.

To this extend, the Commission has proposed three tools:

– a notification tool to review mergers involving a financial contribution from a third country, where the EU turnover of the target company is EUR 500 million or more and the foreign financial contribution amounts to at least EUR 50 million ;

– a notification tool to examine bids submitted in the context of public procurement involving a contribution from a third country, when the estimated value of the contract is equal to or greater than €250 million

– a tool to review all other market situations and lower value mergers and public procurement. The Commission will be able to launch these reviews on its own initiative and request ad hoc notifications.


Council and Parliament positions

One year later, on May 4, 2022, the Parliament and the Council of the EU agreed on a negotiating mandate with the Commission to find an agreement on the final version of this new regulation.

Drawing a parallel with the European framework on state aid control, the Council and Parliament positions emphasize the importance of a balancing test to assess the effects of a foreign subsidy on the internal market. The Council’s position specifies the criteria and procedures for implementing this test. In particular, it reduces to 5 years the period of retrospection allowing the Commission to investigate subsidies granted before the entry into force of the regulation and generating distortions on the internal market after its entry into force.

In addition, the Council and the Parliament provide in their respective position for greater transparency regarding the information to be provided to the Member States in the implementation of the regulation by the Commission and require the latter to publish guidelines.

Finally, the Council proposes to raise the thresholds for the two notification tools to 600 million euros for mergers and  300 million euros for public procurement procedures.


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