Regulation On The Control Of Foreign Subsidies Enters Into Force

• Published date: 26 July 2023
• Subject Matter: Corporate/Commercial Law, Antitrust/Competition Law, Government, Public Sector, M&A/Private Equity, Corporate and Company Law, Antitrust, EU Competition , Government Contracts, Procurement & PPP
• Law Firm: Havel & Partners s.r.o.
• Author: Mr Robert Neruda, Petr Kadlec and Jakub Kocm'nek

The EU regulation on the control of foreign subsidies enters into force. The Regulation is intended to provide the EU with a tool to protect the internal market from subsidies provided by third countries. The Regulation gives the European Commission the power to review, on its own initiative, subsidies granted, and creates a new notification obligation in the case of concentrations and participations in public procurement.

Ensuring compliance with the Regulation will impose onerous requirements for monitoring transactions with third countries and undertakings controlled by third countries. Even the undertakings established in the EU will have to start monitoring those transactions.

Regulation EU/2022/2560 on foreign subsidies distorting the internal market (the "Regulation") enters into force on 12 July 2023. The Regulation aims to bridge the gap between the very strict regime of state aid control within the EU and the weak control of subsidies by third countries (i.e. non-EU countries). This form of aid also affects the level of competition in the common market. Subsidies in international trade are regulated by World Trade Organisation rules, but these controls only apply to trade in goods. The EU has therefore adopted a unilateral instrument allowing it to regulate subsidies that have an impact on its internal market.

It should be noted that the control is not limited to third country undertakings. Even companies established in the EU will have to monitor all their transactions with third countries or with undertakings controlled by third countries. Undertakings will have to monitor not only subsidies and other benefits received from third countries, but also all purchases and sales of goods or services in relation to third countries and/or entities controlled by third countries.

What is a foreign subsidy

A subsidy is a financial contribution provided directly or indirectly (e.g. through a state-controlled company) by a third country, which (while provided only to certain undertakings or industries) confers a benefit on an undertaking operating in the EU internal market. Unlike state aid provided within the EU, foreign subsidies are not prohibited per se, nor is there any obligation to seek authorisation from the European Commission (the "Commission") before providing them.

Control by the Commission

Although not subject to prior authorisation, subsidies may become subject to ex-post review by the Commission. If the Commission finds that a subsidy distorts the internal market, it may impose redressive measures on the recipient, or accept the recipient's commitments to remedy...