On Wednesday 17 June the European Commission adopted a working document, or White Paper, on Foreign Subsidies in the Single Market (https://bit.ly/2Ya2zVt ). An initiative that aims above all to control Chinese financing in its internal market.
“The level playing field in the Single Market is at the heart of this initiative”, Internal Market Commissioner Thierry Breton stressed when presenting the initiative to the press.
The initiative is also intended to prevent hostile takeovers with the help of non-European public funding, fears of which have been rekindled by the Covid-19 crisis. Thus, if this initiative is non-discriminatory - in line with multilateral rules - China's shadow looms large.
“Our openness is increasingly challenged by foreign trade practices, including subsidies, which distort the level playing field for EU companies”, said Trade Commissioner Phil Hogan.
The Commission has therefore launched a consultation process with stakeholders. It has put various solutions on the table to remedy these distortions (see EUROPE 12507/1).
Subsidy hunt
The first avenue would be the development of a general instrument that would make it possible to capture all market situations where distortions would be identified. The European authorities could intervene on the basis of any information indicating the granting of a foreign subsidy (with a threshold of €200,000 over 3 years) to a company active on the European market. However, “we would not act against a subsidy that would have positive effects offsetting the damage caused to the single market”, Margrethe Vestager, Vice-President of the Commission responsible for Competition Policy, told the press. The aim is not to tackle state aid, but to apply the same principles to all subsidies, because in the EU “we have both transparency and control” over such aid, Vestager stressed. If the disruptive role of these subsidies were confirmed, ‘remedial measures’ could be imposed on the beneficiary company.
This immediately poses the question of the means required for the implementation of this approach. In the absence of a reporting system, the workload for supervisors would be enormous, a European source noted. The consultations will help to determine the key to the division of this task between European and national authorities.
Controlling investments
A second ‘module’ deals more specifically with foreign direct investment (FDI), i.e. the distortions caused by foreign subsidies facilitating the acquisition of European companies. This is based, however, on an obligation for companies to notify subsidised acquisitions (according to criteria of direct or indirect acquisition of control, 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 (see EUROPE 12507/1).
Public procurement
A third option deals with the impact of foreign subsidies on EU public procurement procedures. Some Member States may be reluctant to pinpoint a more attractive offer, but, for Ms Vestager, “if there is a cheap offer, it must be because you are more efficient than your competitors, not because of public subsidies”.
Finally, the White Paper also looks at foreign subsidies in cases of access to EU funding.
The public consultations are open until 23 September 2020 and will serve as a basis for the development of an impact assessment. The Commission’s legislative proposal is expected in the course of 2021.
Reactions
2 years ago, the Netherlands had already submitted a discussion paper on the conditions for fair competition.
The Dutch State Secretary for Economic Affairs, Mona Keijzer, was thus “glad to see the European Commission follow the Dutch approach in its plans”. In its communiqué, it notes improvements to be made, “For instance via more extensive and stricter oversight on companies that have an unregulated, dominant position in their home markets and therefore enjoy potential advantages compared to European entrepreneurs”.
Other countries have, more recently, stepped up to the plate to demand a level playing field in the European market: France, Germany, but also Italy or Poland, according to a source in the Member States.
“In principle, this takes up a demand that we had supported, namely to ensure a level playing field and fair conditions in terms of subsidies, thus welcomes a European source, “this is the beginning of a reflection and it is part of the arsenal that the EU needs to ensure fair conditions of competition”.
As for Manfred Weber, President of the EPP centre-right group in the European Parliament, he welcomed the fact that “the European Commission is finally taking this issue seriously”, while urging the institution to act as a matter of urgency. (Original version in French by Hermine Donceel)