Over the past few weeks, various posts have appeared on this blog relating to the issue of transnational subsidization. These posts have focused on one specific aspect of the problem – the extent to which the EU could countervail imports from one country (Egypt), where they are subsidized by a third country (China). This conversation has been taking place in the broader context of China’s Belt and Road initiative, which includes support for Chinese enterprises operating in third countries.
The EU, in a 17 June White Paper, (https://ec.europa.eu/competition/international/overview/foreign_subsidies_white_paper.pdf), has now moved to address another aspect of this issue: where foreign subsidies provided directly or indirectly to an entity established in the EU (presumably, EU subsidiaries of a foreign company) distort competition within the EU market. The concerns identified by the White Paper relate principally to situations where subsidies are used to acquire EU firms or to compete unfairly in EU public procurements. The White paper points out that the EU state aids regime does not cover foreign subsidies to EU-established entities, and that anti-subsidy actions only apply where there are subsidized imports of goods.
The White Paper is only the first step in a process that might or might not ultimately result in legislation. Indeed, it launches a public consultation of the topic. That said, the proposals being floated are significant. For example, entities intending to acquire EU companies or participate in EU public procurements would be required to notify a “competent supervisory authority” ex ante if they had received foreign financial contributions in the past three years. If the authority finds that the subsidies have distorted the EU market (whether by facilitating the acquisition or distorting the procurement), the consequences could be severe, including prohibiting the acquisition, requiring asset divestment or excluding the entity from current and future procurements. More generally, the EU could require “redressive payments” to the EU or member States.
This White Paper moves the subsidy issue far beyond the traditional focus on trade distortions and into the arenas of investment and public procurement. In this respect, it reflects an increasingly complex global reality, as multinational entities challenge one another on each others’ home turf. The EU initiative will likely resonate in the United States, where complaints that Chinese companies are buying up US companies and unfairly winning procurements in areas from telecoms to transport equipment are widespread. It will be interesting to watch this issue unfold.
