Brussels: Adoption process for new EU rules to tackle foreign subsidies enters final stage

Exactly one year after the European Commission (EC) presented its original proposal on 5 May 2021 outlining new rules to tackle distortive foreign subsidies, the European Parliament (EP) and Council have adopted their respective positions on the legislation. This marks the start of the final stage of the adoption process, also known as the inter-institutional “trilogue” negotiations.

To recall, in January 2022, Bird & Bird reported how MEPs were fine-tuning of the proposed new measures. These new rules are aimed at levelling the playing field, where third-country companies benefit from subsidies which are not subject to the same “rigorous scrutiny” applied to subsidies given by EU Member States.[1] This can lead to unfair advantages and a reduction in competition whereby other businesses operate under more favourable conditions and receive more support from their home government. As such, this legislation aims to tackle this inequality.

Negotiating Mandates

On 4 May 2022, the EP adopted its position on the EC’s proposal. The EP’s vote for the legislation comprised 627 votes in favour, 8 against and 11 abstentions. After the vote, Rapporteur Christophe Hansen (EPP, LU) said: “With this Regulation we can finally end the longstanding regulatory free-for-all that pits European companies, subject to rigorous state aid control, against foreign companies that can benefit from distortive foreign subsidies on the internal market. From now on, the same rules will apply to everyone. Our aim is to let fair competition rule, and to give impetus to the global fight against distortive industrial subsidy schemes.”

On the same day as the EP’s vote, the Council of the EU – made up of Ministers from the 27 EU Member States – also announced that it had agreed its negotiating mandate for the regulation.

Developments

While the co-legislators have diverging positions on some points concerning the exact scope of the regulation that will need to be resolved in the trilogue discussions, the positions taken by the EC and the Council show that lawmakers and national governments already agree on several substantial changes to the EC’s original text. These amendments include: the need for joint ventures to be fully based in the EU in order to be subject to notification obligations; the limiting of investigation deadlines on public tenders; and the need for guidance in several aspects of the law that leave room for interpretation. The latter includes the “balancing test” which would assess whether the positive effects of a foreign subsidy outweigh the negatives.

We have included below a comparative overview of positions taken by all three institutions on some of the main sticking points to be resolved in the trilogues:

Next steps

The EP and Council’s positions do not call for a major overhaul of the EC’s original proposal. With EU governments and lawmakers already standing on common ground, we expect the final negotiations to move quickly. The timeline for an agreement on a final text will depend on the pace of negotiations. However, there is political motivation for the new rules to be approved quickly and possibly still before the summer recess.

For more information please contact Hein Hobbelen, Samuel Berneman, Francine Cunningham and Chloe Birkett

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[1] MEP Christophe Hansen (EPP, Luxembourg), the rapporteur for this initiative.