Guest Post: “The EU Gives Foreign Subsidies Its Best Shot”: One Take on White Paper on Levelling the Playing Field as Regards Foreign Subsidies

This is a guest post by Professor Andrea Biondi and Michael Bowsher QC, King’s College London, Professor Christopher Yukins, George Washington University Dr Luca Rubini University of Birmingham and PhD candidate Gabriele Carovano, King’s College London.

On 17^th June 2020, the EU Commission published a White Paper on levelling the playing field as regards foreign subsidies. Foreign subsidies are defined as subsidies granted by non-EU governments to companies active or established in the EU internal market. Annex I include a definition of foreign subsidy which largely mimics WTO language but also include interesting additions coming from EU state aid law: ‘Foreign subsidies’ would cover both the goods and services sector and would fall under a future new EU legislation only insofar as they ‘directly or indirectly cause distortions within the internal market’ – reads the Annex. A public consultation, soliciting feedback and comments from the wider public, closed on 24^th September 2020. The authors of this post, academics and practitioners specialising in EU competition, state aid, public procurement and trade law, responded to the consultation.  Our evidence is reproduced below.

The White paper proposes interesting solutions to what is perceived as a ‘regulatory gap’: current EU law – be it State aid, competition, merger, public procurement, trade defence, investment screening – and international law – in particular WTO subsidy laws – would not address the distorting effects of these foreign subsidies (or, with another jargon, ‘transnational subsidies’), the main obstacle being one of territoriality: you cannot control other governments’ spending.

The informed reader will be immediately able to place this initiative within the broader discussion about the deficiencies of the global rule book on subsidies and SOEs. The topic has been addressed already in the literature. For example, investment subsidies were the subject of a brief piece (Hufbauer, Moll, Rubini, 2008) co-written by one of the respondents to the White Paper which interestingly included many of the points and solutions now presented and already proposed a multilateral compact as an alternative to unilateral action. Perhaps, the added value of the White Paper initiative, which is certainly visionary and is a robust affirmation of EU leadership in trade policy, will not only be to lead to a new EU instrument to tackle subsidisation but rather to have formally introduced new practical and legal thinking into what is clearly a gap in the law. What remains to be seen is whether a unilateral action, even by one of the trade super-power, is the most efficient way to address these problems or whether multilateral or plurilateral action is the best way to go.

Before outlining our submission, a short summary of the main tenets of White Paper may be useful.

The White paper sets out a comprehensive framework divided up in four difference modules: Module 1 represents the general instrument to capture distortive effects of foreign subsidies. It provides for a general market scrutiny administered by a supervisory authority, which could be a national authority of the EU Member States or the EU Commission. An investigation would focus on information that a company in the EU benefit is from a foreign subsidy distorting the internal market. If the investigation concludes with a positive determination, a wider array of remedies is proposed, from structural and behavioural remedies to redressive payments. The investigation would also enable the supervisory authority to consider any redeeming feature of the subsidy under a ‘EU interest test’ and eventually green light the measure. Module 2 is intended to be a specialist module tackling the distortions caused by foreign subsidies facilitating the acquisition of EU companies. This module wants to ensure that foreign subsidies do not confer any direct or indirect unfair advantage to recipients acquiring EU targets. A system of pre-notification of intended bids which would fall above a given threshold is provided with a standstill obligation pending the scrutiny. If the Commission finds that the subsidy has facilitated the acquisition and distorts the internal market, it could either accept commitments by the notifying party which would remedy the distortion or, as a last resort, prohibit the acquisition. The above mentioned ‘EU interest test’ would apply also here. Module 3 is a specialist module to regulate foreign subsidies in the context of EU public procurement procedures. The concern is that foreign subsidies may enable bidders to gain an unfair advantage, for example by submitting bids below market price or even below cost, allowing then to obtain contracts that otherwise would not have obtained. Module 3 provides for a mechanism where bidders would have to notify the contracting authority of financial contributions received from non-EU countries. An assessment of whether there is a foreign subsidy and whether this has made the procedure unfair would follow. The penalty would be exclusion from the procedure. The White Paper finally includes a Module 4 to deal with foreign subsidies in the context of EU funding. The concern and procedure closely mirror that of module 3.

Here’s below our submission in the form of a questionnaire as required by the European Commission (a bit more extended than the original: being there constrained by a 100-character limit per answer we had to cut quite a lot).

* * *

Questions relating to the three Modules – General questions

1. Do you think there is a need for new legal instruments to address distortions of the internal market arising from subsidies granted by non-EU authorities (‘foreign subsidies’)? Please explain and also add examples of past distortions arising from foreign subsidies.

Yes. We welcome the initiative of the European Commission as it correctly identifies both a gap in the EU regulatory framework and the need for coordination of existing rules and provisions. Quite importantly, it also highlights the inadequacy of international provisions on these matters. In this sense, the White Paper could become a benchmark not only for the EU internal market but for international trade and economic law as well. As for the substance, although we agree that distortions to the EU internal market may be real, they are still far from being ‘measured’ as reliance may be found only in previous Commission trade remedy investigations (see, e.g., Chinese Tyres from 2018, CVDs on imports of glass fibre fabrics from Egypt, June 2020) or on limited national experience (Bundeslkartellamt: Vosslo Locomotives/CRRC Zhuzhou Locomotives, April 2020). In other words, there is a need to clarify the nature and type of the distortions the White Paper wants to tackle and how the ‘harm’ they produce is to be assessed. It is also essential to ensure the internal coherence between the various modules as well as other areas of EU and international law.  A clear answer to these questions is essential for a system of control, which is sound, legitimate and non-arbitrary.

2. Do you think the framework presented in the White Paper adequately addresses the distortions caused by foreign subsidies in the internal market?

The White Paper purports to level the playing field as regards foreign subsidies. ‘Level playing field’ is a wide notion and the White Paper lists a long series of areas of EU law affected by foreign subsidies. It will, however, be crucial to identify with precision these areas, the specific provisions affected and to match them with the distortions to eliminate. This will also facilitate the use of a proper (or several) Treaty legal basis for a future legislative initiative and so to firmly ground the proposed instrument within EU existing competences. The actual content and models proposed are also based on a mix of trade, competition, public procurement, state aid and trade law notions, concepts and provisions that will once again require clarification and further specification. For instance, the notion of foreign subsidy is based on elements based on the WTO ASCM definition but then it expands it further by borrowing several concepts of EU state aid law (e.g. distortion of competition criteria) creating several hermeneutic challenges. The Public Procurement module seems also rather disconnected from the other two.

As the White Paper clearly encroaches with international trade law, one important concern is that full compliance with EU international obligations should be guaranteed. It will, in particular, be crucial to ensure the full respect of Article 32.1 ASCM, which prohibits Members to take any ‘specific action against a subsidy of another Member’, ‘except in accordance with the provisions of GATT 1994, as interpreted by this Agreement’, or which is permitted anyway by ‘other relevant provisions of GATT 1994, where appropriate’.

Module 1 [General module]

1. Do you consider that Module 1 appropriately addresses distortions of the internal market through foreign subsidies when granted to undertakings in the EU?

The scope of Module 1 is comprehensive. The legal framework (categories and criteria of assessment) consolidates elements coming from various sources, both internal and external to the EU: from EU State aid law to the subsidy chapters in the most recent PTAs negotiated by the EU, from multilateral trade law (see the expired presumptions in Article 6.1 WTO ASCM) to more recent subsidy initiatives (see the draft rules of the ‘Trilateral’ Initiative: January 2020). Although the EU law blueprint is very evident, this consolidation of internal and external sources interestingly points to the emergence of ‘elements’ of a ‘common’ trade policy on subsidies and clearly facilitates treating similar cases in a coherent and even-handed way, which is something to be commended for. At the same time, we envisage potential problems of coordination with other more specific modules and with those same sources of EU and international law the White Paper intentionally builds on.

2. Do you agree with the procedural set-up presented in the White Paper, i.e., 2-step investigation procedure, the fact-finding tools of the competent authority, etc.? (See section 4.1.5. of the White Paper)

Yes. Once again, the hybrid nature of the White Paper framework may create some difficulties. State aid control is obviously based on an ex ante assessment whilst the model proposed is an ex post fact available model used in trade investigations. This is understandable as notifications in international trade have not been very successful but such a possibility should not be entirely excluded and other powers such as sector enquiry may also be provided for.

3. Do you agree with the substantive assessment criteria (section 4.1.3) and the list of redressive measures (section 4.1.6) presented in the White Paper?

Two main concerns could be flagged out: first, the indicators are economically sound but the White Paper does not mention the methodology and standard of assessment that will be used. The proposed instrument needs include a ‘shift from indicators to methodology’. Secondly, several of the substantive assessment criteria are open to very divergent interpretations depending on what canons are employed. For instance, the expression ‘effect on trade’ and ‘distortion on competition’ in EU State aid law is broadly interpreted whilst the interpretation under like the standards in WTO subsidy law is very strict. Either alternative would arguably result in too many false positives or false negatives. As in particular for redressive payments measures, it would be advisable to clarify the nature of these payments as such a clarification would be useful as to avoid too many divergent categorizations (administrative – penal) under national law.

4. Do you consider it useful to include an EU interest test for public policy objectives (section 4.1.4) and what should, in your view, be included as criteria in this test?

Yes, a EU interest test seems necessary as to avoid transforming the foreign subsidies defence into national protectionist policies. State aid and free movement law provides for abundant practice on how to exercise a balancing interest with the preservation of fair competition. Although there are differences between foreign subsidies and the usual scenario of in-jurisdiction subsidisation, what is first of all essential is that foreign subsidies are eligible to all compatibility grounds currently provided under internal EU State aid law. In other words, this refers to a scenario where the subsidy would receive the green light had it been granted by a EU Member State. This similar – if not identical – treatment would go a long way into ensuring non-discrimination of foreign subsidies. This regulatory approach is also in line with many PTAs recently negotiated by the EU, which increasingly consider the public policy goals of subsidies. A very interesting, and open-ended example, can be found in the EU – Japan which, solving a difficult controversy in trade circles, makes the ‘general exceptions’ of GATT Article XX applicable to subsidies. In this respect, the Commission should determine whether certain legitimate public policy objectives, which would not normally be covered by current EU State aid rules, should nonetheless be taken into consideration. This goes beyond the scenario of a subsidy that would have been justified had it been granted by an EU Member State and may include measures of support contributing to public goods that are not as yet fully protected under internal EU State aid law. This would render the proposed instrument dynamically balanced, facilitate its politically acceptability by other countries and even constitute an incentive for upgrading EU State aid law accordingly. Furthermore, as Module 1 aims to prevent ‘distortions of the internal market’, it would be essential to clarify the possible interconnections with free movements derogations, a much wider remit than state aid compatibility grounds. It would be of course paramount to reaffirm that such a balancing test needs to operate within the full respect of constitutional principles of the EU legal order and international law such as proportionality and non-discrimination.

5. Do you think that Module 1 should also cover subsidised acquisitions (e.g. the ones below the threshold set under Module 2)? (Section 4.1.2)

It is obvious that the design of each module is strictly related to that of the others.  Still, as Module 2 is of exclusive competence of the Commission, it is reasonable for Module 1 to cover subsidised acquisitions. Firstly, this would ensure that ‘under-threshold Module 2 scenarios’ or situations where Module 2 notification duties were violated could not go unsanctioned, as national authorities would still be entitled to intervene. Generally, coordination between the different enforcement authorities will be the key and referral mechanisms, from MS to the Commission and vice versa, depending on which is the subject ‘better-placed’ to act in a specific case and in accordance with the EU principle of subsidiarity, could be envisaged.  Similarly, it would also seem appropriate providing the Commission with the power to intervene into national proceedings to ensure uniformity, consistency, and avoid divergent applications of Module 1 provisions.

6. Do you think there should be a minimum (de minimis) threshold for the investigation of foreign subsidies under Module 1 and if so, do you agree with the way it is presented in the White Paper (section 4.1.3)?

De Minimis thresholds are necessary as not to overburden an already complicated structure. Apart from making the De Minimis Regulation applicable it may be necessary to think if other thresholds such the ones applicable for instance to loans and guarantees may be also be applicable. It is notable that the GBER Regulation is never mentioned in the White Paper. It may be useful to think how such an instrument could be applicable in this context.

7. Do you agree that the enforcement responsibility under Module 1 should be shared between the Commission and Member States (section 4.1.7)?

The White Paper is in reality creating a whole new framework on how to control subsides, notoriously a very sensitive area of regulation. We would favour to attribute to the Commission a central role.  National authorities have still very limited expertise on state aid control so a process of decentralization should preserve the Commission ‘primus-inter pares’ position within the new network. For instance, it could be provided that (i) the Commission may advocate decision-making competence from national authorities by initiating its own proceeding on the same matter; (ii) differently from NAs, the Commission would be the only one that can adopt inapplicability decisions; (iii) the NAs should not decide in a manner contrary to Commission decisions (iv) nor can give ‘decisions which would conflict with a decision contemplated by the Commission in proceedings it has initiated’; (v) the NAs should  inform the Commission both before commencing the first formal investigative measure and at least 30 days before the adoption of an infringement decision.

Module 2 [Foreign-subsidised acquisitions]

1. Do you consider that Module 2 appropriately addresses distortions of the internal market through foreign subsidies that facilitate the acquisition of undertakings established in the EU (EU targets)?

Module 2 is intended to address a specific case of distortions caused by foreign subsidies that in the past has been treated erratically under merger laws (for example: RJB Mining; Scottish Power/Iberdrola). The presence of a specific track of control is welcomed since it would enable to focus on the specific distortions under examination from a centralized EU perspective. Given the similarity of the distorting impact, and above all the possible simultaneity of a merger control procedure, it is of the essence that the two possible procedures (Module 2, Merger control) are kept as aligned as possible in every possible respect (procedure, timing, assessment). This would significantly facilitate the scrutiny of what essentially is (part of) the same transaction to the ultimate benefit of efficiency and legal certainty.

2. Do you agree with the procedural set-up for Module 2, i.e. ex ante obligatory notification system, 2-step investigation procedure, the fact-finding tools of the competent authority, etc.? (See section 4.2.5 of the White Paper)

The procedural set-up for Module 2 seems appropriate considering that it strongly resembles the procedural set-up existing for EU merger control. It bears repeating that the assessment of the procedural design of Module 2 be harmonised also with the design of the other modules.  Despite the above, three concerns remain. First, it is essential fully co-ordinating Module 2 with EU merger control rules. For example, it would be inconvenient if, after the introduction of Module 2 regime, the same transaction would be assessed at national level for competition purposes and at EU level for Module 2 purposes. This could be prevented through a definition of the thresholds and the introduction of referral mechanisms from MS to the Commission to allow that just one authority is in charge. Secondly, to avoid excessive delays it seems unwise leaving the ‘standstill period’ running unlimited. Module 2 investigations could face deadlines similar to those of merger control procedures. Thirdly, it seems appropriate to enable the Commission to make decisions on the basis of the facts available similarly to what happens in Modules 1. 

3. Do you agree with the scope of Module 2 (section 4.2.2) in terms of?

	Yes	No	Other
Definition of acquisition	X
Definition and thresholds of the EU target (4.2.2.3)			X
Definition of potentially subsidised acquisition	X

Please explain.

The scope of Module 2 generally speaking seems ‘fit for purpose’. This is particularly true regarding the definition of ‘acquisition’ as, by borrowing the concept from the EU merger control rules, the White Paper takes a non-formalistic approach and broadens it.

As regards thresholds, please provide your views on appropriate thresholds.

The designing of the appropriate thresholds under Module 2 is directly influenced by both (i) whether also Module 1 covers ‘subsidised acquisition’, (ii) whether the enforcement of Module 2 is of exclusive competence of the Commission. Whether these two circumstances occur, it seems reasonable that Module 2 thresholds are not excessively comprehensive so as to cover all possibly problematic subsidised acquisitions. Contrarily, since the ‘less problematic’ subsidised acquisitions could also be caught under Module 1, it may be better to design Module 2 thresholds in a way that the Commission vets only those transactions which are most likely to be problematic.

Concerning the thresholds defining the concept of ‘EU target’, a pure quantitative threshold based on companies’ turnover may not be the most appropriate solution. Whether only such metric happened to be used, there is a risk that Module 2 will not be able to catch acquisitions of nascent start-ups, which may detain high valuable technologies but small or no-existing turnovers at the moment of the acquisition. It follows that it seems reasonable if the Commission considers both qualitative and quantitative metrics to identify relevant EU target. The two-threshold metrics should not be complementary but alternative, i.e. not required to co-exist simultaneously. Meeting just one threshold (either the qualitative or the quantitative one) should be deemed sufficient to trigger Module 2 if the White Paper wants to ensure that the acquisitions of nascent competitors holding key or strategic technologies do not pass under the Module 2’s radar.  Similarly combining two types of quantitative thresholds, i.e. those based on turnover and those set up with reference to the transactions’ value may not be so effective.  Finally, it would be essential co-ordinating Module 2 thresholds with those existing under EU merger control rules to avoid confusion, inefficiencies, waste of public resources, and disproportionate cost for businesses. 

4. Do you consider that Module 2 should include a notification obligation for all acquisitions of EU targets or only for potentially subsidised acquisitions (section 4.2.2.2)?

We agree with the White Paper that only potentially subsidised acquisitions (i.e. those when the acquirer has received a financial contribution within the requisite period) should be subject to notifications. A broader duty would go beyond the objectives of the White Paper. 

5. Do you agree with the substantive assessment criteriaunder Module 2 (section 4.2.3) and the list of redressive measures (section 4.2.6) presented in the White Paper?

The framework of assessment of possible distortions is still rather vague. The simple grant of a subsidy to the acquirer should not mean anything. What is necessary it to prove that, through that subsidy, the acquirer has been facilitated in the acquisition and this has distorted the level playing field in the internal market. Each step needs to be fully defined and elaborated. As indicated for Module 1, we also call for the full clarification of the methodology that will be used in the assessment to make sense of the various indicators. We would finally express our concern in the use of too strict presumptions such as the ones perhaps hinted at for subsidies directly facilitating foreign acquisitions. Whatever procedural devices are used, the harm to the level playing field needs to be substantiated to the requisite level. Given the proximity, remedies should approximate those of merger control, unless there are clearly substantiated reasons to deviate to achieve the specific goals of the White Paper. A key guideline is to ensure, to the maximum extent possible, that cross-border (subsidised) acquisitions are treated similarly to internal-to-the EU only (subsidised) acquisitions.

6. Do you consider it useful to include an EU interest test for public policy objectives (section 4.2.4) and what should, in your view, be included as criteria in this test?

See Reply to Q4 under Module 1. Further, given the differences existing between Module 2 and State Aid law, one may wonder up to what extent state aid and free movement case law is applicable with respect to the ‘EU interest test’ under Module 2.

7. Do you agree that the enforcement responsibility under Module 2 should be for the Commission (section 4.2.7)?

As long as Module 1 also covers ‘subsidised acquisition’, it seems reasonable that Module 2 is of exclusive competence of the Commission. However, considering the interrelations existing between Module 1, 2, and other fields of EU law, such as EU merger control rules, it is important that the Commission constantly co-ordinates and co-operates with the other national supervisory authorities for the enforcement of Module 2 powers and involves them in its decision-making process. Such co-operation, while facilitating enhanced investigation assistance, it will also broaden the discussions and sponsor diversity to ensure experimentation and innovation of solutions. 

Module 3 [Public procurement]

1. Do you think there is a need to address specifically distortions caused by foreign subsidies in the specific context of public procurement procedures?

No.  While foreign subsidies may distort the market regarding undertakings (Module 1) and the acquisition of undertakings (Module 2), foreign subsidies in public procurement markets in effect reduce the costs of public services – and so should be separately assessed.  Distortions that may be caused by foreign subsidies (displacing higher-cost local producers, for example) are regularly resolved through sustainability measures allowed by the European procurement directives.  For example, Article 76 of Directive 2014/24/EU provides that Member States, in awarding social services contracts, “shall ensure that contracting authorities may take into account the need to ensure quality, continuity, accessibility, affordability, availability and comprehensiveness of the services, the specific needs of different categories of users, including disadvantaged and vulnerable groups, the involvement and empowerment of users and innovation. Member States may also provide that the choice of the service provider shall be made on the basis of the tender presenting the best price-quality ratio, taking into account quality and sustainability criteria for social services.”  The framework proposed under the White Paper may risk to displace the legislative regime contemplated by the existing procurement directives, and thus up-end the careful policy decisions that are reflected in those directives. 

2. Do you think the framework proposed for public procurement in the White Paper appropriately addresses the distortions caused by foreign subsidies in public procurement procedures?

No.  Module 3 would exclude – disqualify – vendors from public procurements in the European Union, on the grounds that the vendors have received a subsidy from a foreign government.   In practical terms the proposal would revise the European Union’s procurement directives by adding an additional ground for exclusion – foreign subsidy – without a normal legislative process.  In doing so, the proposal could raise costs for Member States, impair competition in procurement markets across the European Union, open the door to strategic interference by competitors, delay and disrupt ongoing procurements, deprive Member States of best value in their public procurements, and undermine Europe’s relations with key trading partners’ internationally.

In a number of ways, the proposal would impair competition in the European Union’s procurement markets.  The proposal would discourage innovative, low-cost vendors – the engines of competition – by punishing them for offering low prices, entangling them in an administrative process which could taint them in both European and worldwide markets, and potentially by forcing them to disclose proprietary information. This goes far beyond current European Union procurement directives, which take a much more measured approach to “abnormally low” bids – and which already allow Member States to protect themselves from low bids that raise performance risks.

Competitors’ Strategic Manipulation:  The proposal would require vendors to represent that they had not received a foreign subsidy, and allow competitors to challenge those representations – though the proposal acknowledges that, given the legal and factual uncertainties involved, the vendors’ representations are very likely to contain error.  This will open the door to “strategic whistleblowing” by competitors seeking to force low-price competitors from the market.

Delay and Disruption:  Competitors’ strategic actions could, by the terms of the Commission’s proposals, delay procurement for months while procuring agencies and the Commission assessed the competitors’ claims of foreign subsidies – and those delays could be extended in a second round of disruption, as the affected parties brought bid challenges (as the proposal itself anticipates).

Increasing Member States’ Costs of Procurement:  The proposal appears to presume (p. 30) that bids significantly below market price or below vendor cost are driven by foreign subsidies, and that the proffering firms should be excluded – potentially for a term of years.  By forcing Member States to exclude those vendors, the Commission’s proposal would almost certainly increase the costs of public procurement.  Other nations do not take a similar approach.  In the U.S. federal market, for example, low bids are presumptively accepted unless they pose performance risk – a protection is already in place under the European Union’s directives provisions regarding “abnormally low bids.” (E.g., Directive 2014/24/EU, art. 69.) Further as a leading commentator on trade and procurement has noted, if a challenged low-price bidder was the apparent awardee in a public procurement, the proposed regime would in effect encourage the procuring agency to bypass that bidder, to avoid the delay and disruption caused by the review demanded by the Commission’s proposal.  As a result, the proposal could in effect deprive the procuring government of best value.

Finally, the proposal would defer to the European Union’s obligations under free trade agreements, but assumes – incorrectly – that those obligations are well-defined under instruments such as the WTO Government Procurement Agreement.  They are not.  For example, the United States covers tens of billions of dollars in preferences by a single sentence in the GPA annexes, which states that the United States’ obligations do not extend to “any set aside on behalf of a small- or minority-owned business.”  If the European Commission and Member States, in implementing the proposed measures, read that reservation narrowly and excluded U.S. vendors because other procurement preferences were considered government subsidies not reserved under the GPA, trade relations with the United States and other important trading partners could be badly disrupted.

3. Do you consider the foreseen interplay between the contracting authorities and the supervisory authorities adequate e.g. as regards determination of whether the foreign subsidy distorts the relevant public procurement procedure?

Yes.  As described, the existing framework would leave first responsibility to assess potential subsidies in the hands of the contracting authorities – which are in the best position to interrogate vendors regarding alleged foreign subsidies.

4. Do you think other issues should be addressed in the context of public procurement and foreign subsidies than those contained in this White Paper?

No.  Public procurement involves a complex interplay of social, political and practical goals, all of which must be met within pressing deadlines because of continuing public needs.  Module 3 would establish a framework for review which could delay and disrupt public procurements for months – perhaps years.  A better solution would be to afford Member States the flexibility needed to ensure that public procurement can meet the Member States’ broader social, environmental and economic goals --- to ensure, in other words, that procurement in the Member States can be driven by sustainability.  The goal should not be to quash foreign subsidies, but to accommodate disparate domestic ends in public procurement.

An example shows the disruptive impact that the proposed framework could have on trade relations, and on public procurement in general in the European Union.  The proposed framework would punish any "foreign subsidies granted to an undertaking established in a third country where such a subsidy is used to . . . participate in public procurement procedures," and would define subsidy to include any "compensation for financial burdens imposed by public authorities."  In the United States, under Section 3610 of the CARES Act, Public Law No. 116-136, the U.S. government is poised to distribute tens of billions of dollars to contractors for employee time lost due to "stay-at-home" orders issued by state governors during the pandemic -- quite definitely compensation for burdens imposed by public authorities.  These payments are intended, in part, to preserve the U.S. government's industrial base, as many of its contractors provide specialized goods and services.  The "subsidies" are being used by contractors to survive the current recession and participate in public procurement procedures, including in the European Union, where the U.S. companies provide vitally needed competition and innovation -- much as Airbus and BAE (both European companies) have brought enormously important competition and innovation to the U.S. public procurement markets.  But under the Commission's proposed framework, these "subsidies" could disqualify thousands of U.S. vendors receiving assistance under Section 3610.  Unsurprisingly, these "subsidies" were not reserved by the United States under the WTO revised Government Procurement Agreement (the "subsidies" could not have been foreseen when that agreement took effect in 2014).  Were the Commission's proposed framework enacted, therefore, EU procuring entities (abetted by aggressive European competitors) could point to these "subsidies" to disqualify U.S.-based vendors (or effectively disqualify U.S. vendors, by entangling them in protracted investigations under the proposed framework).  As this example shows, the proposed framework is ill-suited to address a highly regulated public procurement market in which governments and their vendors have complex, and often overlapping, economic relationships.  The better course is to allow competition in those public procurement markets to be governed by the EU's procurement directives, and by the international trade agreements entered into by the European Union -- which has been the European Union's established practice for decades. 

 

Interplay between Modules 1, 2 and 3

1. Do you consider that

	Yes	No	Other
a. Module 1 should operate as stand-alone module		X
b. Module 2 should operate as stand-alone module		X
c. Module 3 should operate as stand-alone module			X
d. Modules 1, 2 and 3 should be combined and operate together?			X

Please explain.

 

We have expressed our serious concerns about the usefulness of Module 3. That said, once again for the reasons expressed above, we believe Module 1 and 2 should be combined and operate together.

 

Module 4 [Questions relating to foreign subsidies in the context of EU funding]

1. Do you think there is a need for any additional measures to address potential distortions of the internal market arising from subsidies granted by non-EU authorities in the specific context of EU funding?

We don’t have any particular comment. 

2. Do you think the framework for EU funding presented in the White Paper appropriately addresses the potential distortions caused by foreign subsidies in this context? 

We don’t have any particular comment.