Europe is moving to block foreign governments from distorting its internal market by unfairly subsidizing takeovers of—or investments in—European companies.
The European Union already has strict rules to stop its own member states from harming competition by subsidizing specific companies at the expense of their competitors. The European Commission signaled last year that it was considering doing the same for subsidies from foreign governments, and on Wednesday it formally made that proposal.
“Openness of the single market is our biggest asset. But openness requires fairness,” said Margrethe Vestager, an executive vice president of the European Commission as well as its competition commissioner, in a press conference. “It is all the more important to ensure a level playing field in these challenging times, to support the recovery of the EU economy.”
As is usual when it proposes new rules, the Commission insists it is neutral, not targeting any particular country or industrial sector. However, Vestager and the Commission have previously warned about the threat of Chinese takeovers, especially with the pandemic making some European businesses more vulnerable.
The Commission’s proposal also comes a day after it admitted its big investment deal with China was on ice, because of likely human-rights–related pushback from the European Parliament.
Notify or else
The subsidies the Commission is targeting could take different forms, it said, including everything from direct financial grants to unlimited state guarantees and below-cost financing.
Under the EU’s executive body’s proposal, the acquirer or bidder would have to notify the Commission whenever a non-EU government is planning to make a financial contribution of at least €50 million ($60 million) regarding a European company with turnover of €500 million or more.
If a foreign government is putting money into an EU public procurement bid worth at least €250 million, the Commission would also have to be notified. In smaller cases, the Commission would also be able to launch an investigation on its own prerogative.
The notifications would freeze the takeover or investment until the Commission gives the all-clear, or demands commitments such as the divestment of certain assets.
But if the acquirer or bidder doesn’t notify the Commission when it ought to, it could end up with a fine of up to 10% of its annual revenues. This, Vestager said, would discourage companies from keeping the source of their funding secret.
The Commission’s proposal will now go through the usual EU legislative process, involving scrutiny and voting by the European Parliament and the Council of the EU, which represents national governments.
Industrial strategy
The foreign-subsidies proposal wasn’t the Commission’s only significant move on Wednesday. It also updated its industrial strategy—which is barely a year old—to reflect lessons from the pandemic.
As part of that revision, the Commission said it will introduce a mechanism to make sure people, goods, and services can keep flowing freely across the EU’s internal borders when future crises occur. It will also promote the digitalization of product inspections and “provide measures to address solvency risks affecting SMEs [small or medium-size businesses].”
Then there’s the supply chain issue, which has been an extremely hot topic during the pandemic.
The Commission said it will work on diversifying international supply chains. It is also reviewing areas in which the EU is overly dependent on other parts of the world, including pharmaceutical ingredients, batteries, raw materials, semiconductors, hydrogen, and cloud-computing services.
“The EU and its trading partners gain resilience from world markets being open and integrated in global value chains, which help to absorb shocks and drive the recovery,” the body said in a statement.
“The pandemic showed that disruptions in global value chains could affect specific essential products and inputs, such as medical supplies, that are particularly critical for society and the EU economy. One of the key lessons of the crisis is to get a better grasp of Europe’s current and possible future strategic dependencies.”
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