The Foreign Subsidies Regulation Closes A Regulatory Gap ' New Tools For Addressing Distortions In The Internal Market

• Published date: 30 June 2023
• Subject Matter: Government, Public Sector, Government Contracts, Procurement & PPP
• Law Firm: Borenius Attorneys Ltd
• Author: Mr Ilkka Aalto-Set'l', Asko Lindqvist and Leo Rantanen

Did you know that the Foreign Subsidies Regulation ("FSR") becomes applicable in July? The FSR will become applicable in two steps - the FSR becomes generally applicable on 12 July 2023, and on 12 October 2023 the notification obligations regarding concentrations and public procurements above certain thresholds starts to apply.

Key implications and findings of the FSR

The FSR aims to combat distortions in the internal market that are caused by subsidies granted by third countries. Until now, foreign companies may have been able to carry out acquisitions or make lofty investments in the EU with a sovereign financial backing whereas the EU Member States are bound by the State aid rules - which may result in a potentially tilted playing field between the homegrown undertakings and the others having a foreign sovereign backing.

As such, the FSR creates two new notification obligations to the European Commission, one for M&A transactions and another for large public procurement tenders. Failing to notify may lead to significant fines.

The FSR also gives the Commission ex officio investigatory powers, and a wide range of enforcement tools. Finally, the FRS has also triggered some of the national legislatures that are now creating some of the enforcement and investigatory frameworks needed for the proper functioning of the FSR.

Under the draft government bill, the Finnish Competition and Consumer Authority ("FCCA") would act as the Commission's contact point in Finland. This entails that the FCCA would also have the right to receive information from other public agencies and other contracting authorities in cases relating to foreign subsidies. Most importantly, the FCCA would be empowered to assist the Commission in investigations or conclude investigations on its behalf. The draft government bill is currently on a consultation round.

New concepts introduced

The FSR distinguishes between three key concepts: foreign subsidies, financial contributions and distortion.

1. A foreign subsidy is at hand when a third country provides, directly or indirectly, a financial contribution which confers a benefit on an undertaking engaging in an economic activity in the internal market and which is limited, in law or in fact, to one or more undertakings or industries.
2. In order to understand a foreign subsidy, one must understand what a financial contribution is. These are essentially any kinds of measures the origin of which can be traced back to a third state. It is important to...