New "level playing field" powers for the Commission?

In a white paper due to be published on June 17, the Commission will propose new powers for reviewing foreign subsidies. A twin track is proposed: the first a power to enable the EU or member state authorities to address "distortive foreign subsidies" in the EU internal market with rectification powers if distortions are found; the second a compulsory notification requirement to the European Commission who, it is proposed, will have the power to review takeovers enabled by foreign subsidies and require remedies or to block the transaction.

Some of the proposals find their genesis in a Dutch paper which followed in the wake of the Siemens/Alstom case, blocked by the Commission in February last year: a deal promulgated by the French and German companies as a counterpoint to the strength of China's CRRC: the largest rail manufacturer in the world.

Other of the proposals represent a response to concerns laid out in the Commission's 2019 EU-China Strategic Outlook which outlined a long list of concerns in relation to Chinese state capitalism ranging from lack of mutual access to Chinese markets, subsidies to both State and privately owned enterprises, the favouring of domestic enterprises in the protection and enforcement of IP rights; localisation requirements including in relation to data and closed procurement markets. The Commission has a multi-pronged strategy for addressing these concerns, including reform of the WTO in relation to subsidies and forced technology transfers; an EU China bilateral investment agreement to address access issues and adoption of the International Procurement Instrument.

However it is on subsidies that the White Paper will cut new cloth in international law terms. The current weaponry available to the EU does not stretch to subsidies given abroad which permit takeovers in the EU or distort the EU's internal market. Competition law is non discriminatory and does not permit authorities to look behind the companies in question to consider distortive effects of State funding (although attempts have been made in recent times in merger reviews to amalgamate, for turnover purposes, all Chinese state entities in the same sector, as in the Hinkley Point C transaction where all SOE's in the energy sector were amalgamated for jurisdictional purposes); state aid tools relate to grants of aid by EU Governments only; and WTO rules limit the scope of EU trade defence instruments (anti-dumping policy, anti-subsidy policy and safeguards). In particular anti-subsidy rules apply only to public financial contributions to specific industries or firms producting or exporting goods and not to state ownership per se.

The concerns are not new. However the pandemic has amplified calls for the issues to be dealt with. Ironically of course the proposal comes at a time when EU member states and all advanced economies have poured unprecedented amounts of Goverment aid and fiscal stimulus packages into their economies. Keeping these subsidies intellectually distinct from ‘unfair’ state sponsored distortions will be challenging. For now, all eyes are on the White Paper on the 17th as the Commission attempts to break new ground internationally.