EU Foreign Subsidy Regulations: One Year Later

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The Impact of Foreign Subsidies Regulation (FSR) on European Market


It has been a year since the Foreign Subsidies Regulation (FSR) came into effect on July 12, 2023, giving the European Commission (EC) the authority to investigate financial contributions from non-EU governments to companies operating in the European Union. The FSR aims to address any distortive effects caused by these subsidies.

Implementation of FSR

The EC wasted no time in utilizing this new investigative tool to rectify distortions resulting from foreign subsidies on the internal market. To learn more about the EC’s actions, refer to our previous article here.

Future Outlook

Expectations suggest that FSR-based controls will be reinforced in the years ahead due to increasing national protectionism. For instance, the Inflation Reduction Act (IRA) from the USA, enacted in 2022, could subject US companies to FSR obligations and heightened investigations by the EC.

Private Equity and Merger Control

Private equity firms are also under scrutiny under the FSR. Sovereign Wealth Funds (SWFs), especially those from the Middle East, are on the EC’s radar. Recently, the EC initiated an investigation into a telecom deal involving a UAE buyer suspected of receiving distorting subsidies.

Compliance Measures

Given the broad interpretation of foreign financial contributions (FFCs) by the EC, PE firms should carefully monitor FFCs to ensure compliance with notification thresholds. It is crucial to quantify FFCs and assess if notifications are necessary.

Fund Exemptions

The FSR provides certain exemptions for funds and PE firms. Notably, Form FS-CO outlines conditions where disclosure of FFCs granted to other funds managed by the same investment company may not be required.

Preparation and Engagement

Considering the challenges in collecting required information, engaging in pre-notification discussions with the EC can streamline the process. This approach can aid in negotiating waivers and preparing for the review of FFCs.

Impact of IRA on Public Procurement

The IRA could impact bids in public procurement procedures involving financial contributions by non-EU governments. Companies operating in the EU that have benefited from FFCs under the IRA may face notification requirements when participating in European tenders.

Concerns and Considerations

The IRA raises concerns regarding its compatibility with World Trade Organization rules and potential adverse effects on companies outside the US. Additionally, the EC may impose countervailing measures under the EU’s Anti-Subsidy Regulation in certain situations.

Read More of this Story at – 2024-06-11 13:20:22

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