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The European Commission yesterday proposed a new instrument to address potential distortive effects of foreign subsidies in the Single Market. Yesterday's legislative proposal follows the adoption of the White Paper in June 2020 and an extensive consultation process with stakeholders. It aims at closing the regulatory gap in the Single Market, whereby subsidies granted by non-EU governments currently go largely unchecked, while subsidies granted by Member States are subject to close scrutiny. The new tool is designed to effectively tackle foreign subsidies that cause distortions and harm the level playing field in the Single Market in any market situation. It is also a key element to deliver on the updated EU Industrial Strategy also adopted today, by promoting a fair and competitive Single Market thereby setting the right conditions for the European industry to thrive.

Executive Vice-President Margrethe Vestager, in charge of competition policy and responsible for the cluster Europe Fit for the Digital Age, yesterday said:

“Europe is a trade and investment superpower. In 2019 the stock of foreign direct investments  was worth more than 7 trillion euros. Openness of the Single Market is our biggest asset. But openness requires fairness. For more than 60 years, we've had a system of State aid control to prevent subsidy races between our Member States. And today we are adopting a proposal to also tackle distortive subsidies granted by non-EU countries. It is all the more important to ensure a level playing field in these challenging times, to support the recovery of the EU economy.”

Executive Vice-President Valdis Dombrovskis, responsible for An Economy that Works for People and for Trade, yesterday said:

“Unfair advantages accorded through subsidies have long been a scourge of international competition. This is why we have made it a priority to clamp down on such unfair practices. They distort markets and provide competitive advantages on the basis of the support received, rather than on the quality and innovativeness of the products concerned. Today's proposal complements our international efforts in this regard. It will level the playing field within the EU and encourage positive change, while maintaining the openness that is so vital to our economic strength.”

Commissioner for the Internal Market, Thierry Breton, yesterday said:

“Our Single Market is fiercely competitive and attractive to foreign investors and companies. But being open to the world only works if everyone who is active in the Single Market, invests in Europe or bids for publicly funded projects, plays by our rules. Today we are closing a gap in our rule book to make sure that all companies compete on an equal footing and that no one can undermine the level playing field and Europe's competitiveness with distortive foreign subsidies. This will strengthen Europe's resilience.”

EU rules on competition, public procurement and trade defence instruments play an important role in ensuring fair conditions for companies operating in the Single Market.  But none of these tools applies to foreign subsidies which provide their recipients with an unfair advantage when acquiring EU companies, participating in public procurements in the EU or engaging in other commercial activities in the EU. Such foreign subsidies can take different forms, such as zero-interest loans and other below-cost financing, unlimited State guarantees, zero-tax agreements or direct financial grants.

Today's proposal is accompanied by an Impact Assessment report, which explains in detail the rationale behind the proposed Regulation and describes several situations in which foreign subsidies may cause distortions in the Single Market.

Click here for the full press release