The European Commission has launched its first review of the Foreign Subsidies Regulation (FSR), a landmark framework that came into force on 12 January 2023 and was applicable as from 12 July 2023. The FSR empowers the Commission to address distortions in the EU internal market caused by subsidies granted by non-EU governments to companies active in the EU.
The FSR introduces three procedures to allow the Commission to exercise its powers:
- a notification-based procedure for concentrations involving financial contribution granted by non-EU governments, where an acquired company, one of the merging parties or the joint venture generates an EU turnover of at least EUR 500 million, and the parties received foreign financial contributions exceeding EUR 50 million over the previous three years;
- a notification-based procedure for bids in public procurement procedures involving financial contributions by non-EU governments, where the estimated contract value is at least EUR 250 million and the bid involves a foreign financial contribution of at least EUR 4 million per third country in the last three years; and
- an ex officio procedure allowing the Commission to investigate on its own initiative all other market situations when information indicates the possibility that a foreign subsidy distorting the internal market exists.
Regarding the two notification procedures, the parties must notify the financial contributions their benefitted from to the Commission prior to concluding a concentration or to a public procurement award (in this case via the contracting authority). Pending the Commission’s review, the concentration cannot be implemented, and the bidder cannot be awarded the contract.
The FSR’s control mechanism applies to all entities engaged in economic activity within the EU, including European companies. It does not target specific sectors or countries.
Conceived to address a regulatory gap in EU State aid rules and WTO rules on subsidies, the FSR has been criticised for its administrative burdens on companies and the uncertainty generated for transactions by the vagueness of certain assessment criteria. Thresholds have led to higher number of notifications to the Commission than projected and in-depth investigations have been constrained by the limited staff in the new regulatory tool. Most of the companies targeted by the investigations are Chinese.
The recently launched public consultation marks a critical step in evaluating the effectiveness and enforcement of the FSR. To ensure a comprehensive assessment, the Commission is inviting feedback from all interested parties (e.g. companies, law firms, EU member states, and civil society) through the consultation and call for evidence that will extend to 18 November 2025.
The review report will focus on several key areas: the assessment of foreign subsidies that distort competition, the application of the balancing test (i.e. weighing positive versus negative effects), the Commission’s ability to investigate subsidies on its own initiative, notification thresholds, and the overall complexity and cost of compliance for businesses.
These elements are central in determining whether the FSR is achieving its goal of maintaining a level playing field in the EU market and ensuring a transparent and minimally burdensome regulatory process.
Following the consultation, the Commission will prepare a formal report to be presented to the European Parliament and the Council, which may also include proposals for legislative amendments and address criticisms of this recent regulatory tool.
Authors:
Tatiana Dragojevic, Junior Associate at CMS (Brussels)
Annabelle Lepièce, Partner at CMS (Brussels)
