On Wednesday 17 June, the European Commission is preparing to begin a debate on how to analyse competition from subsidiaries of non-Member State groups within the single market and, possibly, how to counter cases of unfair competition in order to ensure a level playing field for all economic operators.
This project, which is part of President Ursula von der Leyen’s work programme, aims to rebalance the EU’s trade relations with certain trading partners. Promising to be always open to international trade, but less naïve, the EU intends to defend its single market while using its own turf to promote reciprocity with its partners.
The appetite for this work was sharpened by the crisis generated by the Covid-19 pandemic. For many observers, therefore, this project should, in general, be welcomed by the Member States - proof, perhaps, that it is too late.
The draft White Paper on which the consultation will be based, a copy of which has been obtained by EUROPE, identifies several possible scenarios. Although the Covid-19 pandemic forced the European legislature to loosen the rules on the granting of State aid, the regulatory framework does not cover State aid granted by non-Member States to national companies operating in the European Union. Despite a lack of reliable data, the Commission notes an increase in the number of cases where the granting of public aid by foreign powers has facilitated the acquisition of European companies.
A non-European company is also entitled to participate in public procurement contracts launched by contracting authorities in the EU and may, if it benefits from aid or privileged financing conditions, submit tenders at prices that thwart competition. In its White Paper, the Commission mentions several sectors that are directly concerned, including construction, railways, medical devices, and the pharmaceutical industry. It notes that half of the funding allocated through Cohesion Policy - almost €200 billion in total in the EU - is allocated through competitive tendering at the national and regional level.
In addition to trade defence instruments, the EU has instruments to respond to such a situation, such as the Regulation allowing for screening of foreign direct investments, applicable from September, to prevent strategic European companies from coming under the control of groups based outside the EU (see EUROPE 12481/18). On the other hand, despite a French attempt to relaunch discussions in the EU Council, the instrument aimed at instilling more reciprocity in the public procurement markets of non-Member States is in limbo.
A new legal framework composed of three modules
The new legal framework proposed by the Commission in this White Paper is structured in three modules.
The first module is a ‘catch-all’ instrument to capture foreign subsidies that have distorted the single market. It would allow national supervisory authorities to intervene ex officio on the basis of any information indicating the award of a foreign grant to a beneficiary active in the EU (a grant threshold could be set at €200,000 over three years).
If, after an in-depth investigation, the disruptive role of foreign subsidies was confirmed, the authority could impose redressive measures on the relevant company, such as the divestment of certain assets, the prohibition of certain investments, and the publication of R&D results.
The second, narrower module requires companies to notify subsidised acquisitions in cases of acquisitions of EU target companies (direct or indirect takeovers or 35% of shares or voting rights, the Commission suggests). If appropriate, an in-depth investigation could lead either to the distortion being remedied or to the acquisition being prohibited.
The second pillar of this instrument on subsidies is probably the most innovative. As a direct result of the health crisis, it would provide the ability to prohibit takeovers and to look more closely at mergers. The fear of predatory takeovers of European companies weakened by the economic crisis has taken shape quickly.
Finally, the Commission also envisages specific measures in the context of public procurement, with a multi-level notification system. It should be noted that, in such cases, the procedures for awarding a public contract would not be suspended if the winning parties are not receiving foreign support.
The devil will undoubtedly be in the details: transparency, definitions, and subsidy thresholds will surely be the subject of controversy between Member States.
See the draft White Paper: https://bit.ly/2BgR59W (Original version in French by Mathieu Bion and Hermine Donceel)