What Is A Foreign Subsidy?

• Jurisdiction: European Union
• Law Firm: Schoenherr Attorneys at Law
• Subject Matter: Antitrust/Competition Law, International Law, Antitrust, EU Competition , International Trade & Investment
• Author: Dr. Hanno Wollman
• Published date: 16 June 2023

Regulation (EU) 2022/2560 on Foreign Subsidies (the "FSR") aims to address distortions caused by foreign subsidies in the single market. In this part of our FSR Insight Series, we explain the fundamental notion of what constitutes a "foreign subsidy" within the meaning of the FSR. You will find a basic definition in Article 3 FSR, with some further considerations in recitals 11 to 16 of the Regulation.

What does "foreign" mean?

Only interventions by third countries fall under the FSR. In this context, all countries that are not members of the European Union are considered "foreign". This includes members of the European Economic Area (i.e. Iceland, Liechtenstein and Norway) as well as the countries with which the EU has entered into specific trade agreements, such as Switzerland, the United Kingdom, the Balkan countries or Turkey. EU Member States are exempt from the FSR because state aid attributable to them is subject to the stricter rules under Articles 107 et seq. TFEU.

Interventions by a "third country" include more than just contributions by the central government of a foreign state or of public authorities at other levels. As set forth in Article 3(2)(2) FSR, interventions by public entities (particularly by state-owned companies) are also relevant, provided the actions of that entity are imputable to the third country, taking into account the characteristics of the entity and the legal and economic environment in which it operates. The European Commission (the "EC") will likely use the Stardust doctrine developed under Article 107(1) TFEU as a starting point in this assessment. By the same token, interventions by private entities are relevant under the FSR if the actions may be attributed to the third country (for instance, where a state has entrusted a private entity with specific regulatory tasks). Financial instruments provided by international organisations such as the World Bank are not attributable to any third country and are therefore not regarded as a foreign subsidy.

Criteria for a "subsidy"

To qualify as a "subsidy", an intervention must meet three cumulative conditions. First, the third country must provide, directly or indirectly, a financial contribution to the beneficiary. Second, the intervention must confer a benefit to an undertaking engaging in an economic activity in the EU internal market. Third, the benefit must be selective, i.e. it must be limited, in law or in fact, to one or more undertakings or industries (see Article...