The European Commission ("Commission") has recently embarked on a series of significant investigations under the Foreign Subsidies Regulation ("FSR") – a pivotal, novel EU tool designed to tackle distortions in the internal market stemming from foreign subsidies. These developments highlight the Commission's political willingness to protect European businesses against subsidized competition by Chinese companies.
The Commission's investigations rely on a variety of tools available under the FSR:
- On 16 February 2024, the Commission used the FSR procurement tool to open the first-ever Phase 2 investigation in the context of public procurement in the railway sector in Bulgaria. This investigation was terminated, due to the withdrawal of the Chinese tenderer and the subsequent Bulgarian decision to cancel the bid.
- On 3 April 2024, the Commission opened two additional Phase 2 investigations related to tenders for solar photovoltaic solutions. The Commission's intervention in these cases reportedly led to the withdrawal of Chinese tenderers from the procurement procedures, significantly impacting the market dynamics.
- On 9 April 2024, the Commission continued its intervention in the green energy sector (in addition to the abovementioned investigations concerning solar panels, the Commission has also recently opened an anti-subsidy investigation against EVs from China) by initiating its first-ever ex officio case, targeting the supply of wind turbines for wind park projects in different Member States (Spain, Greece, France, Romania and Bulgaria) (see Van Bael & Bellis Client Alert of 22 April 2024).
- On 23 April 2024, the Commission surprised the FSR community when dawn raids of subsidiaries in the Netherlands and Poland of a Chinese supplier of security equipment components marked the opening of the second ex officio The Commission's aggressive tactics raised eyebrows, since it would appear doubtful that the Commission could find meaningful evidence on Chinese distortive foreign subsidies at the EU subsidiaries – as most of the relevant information about those support schemes would presumably reside in China. A request for information followed by an inspection in China (a well-established practice in the trade defence context) may thus have been a more effective way to gather evidence and receive more comprehensive explanations of the different subsidy schemes – without getting directly confrontational with a foreign government.
In addition, the Commission has also activated the International Procurement Instrument ("IPI", see Van Bael & Bellis Client Alerts of 30 June 2022, and 30 April 2024), a tool established a few years ago to promote reciprocity of access to procurement markets and ensure EU companies' participation in procurements abroad (including in China). The Commission opened an IPI investigation concerning procurement procedures of medical devices in China where European device makers are allegedly excluded. Depending on the outcome of the investigation – and of discussions with the Chinese government – the Commission is empowered to take proportionate measures seeking to open up Chinese medical device procurement markets. In particular, the Commission could limit access for five years to public procurement procedures in the EU to businesses, goods or services originating in China – by either introducing a score adjustment on tenderers from that country, or excluding them directly.
These developments – and especially the news about an FSR dawn raid – send a strong signal that the Commission is committed to pro-actively using the investigative (and potentially decision-making) powers under the FSR and other trade-related instruments.
Questions remain, however, about the practical impact of these investigations. For instance, the medical device IPI investigation targets a sector where Chinese manufacturers are not present in Europe – raising doubts about incentives for the Chinese government to open up Chinese procurement markets to EU competitors. In addition, the two in-depth investigations under the FSR procurement tool led to the withdrawal of Chinese bidders. While for some this may mean greater "fairness", it also means higher costs for European taxpayers, reduced access to competitive products, and potentially less investment in Europe. It may well be that the Commission is in this for the long game, hoping that a continued use of the full arsenal of tools may eventually lead to broader negotiations with China about market access and subsidies.
Notwithstanding the above, it is worth emphasising that these developments do not provide total comfort to non-Chinese players active in the EU. Indeed, although the Commission's current focus is evidently on China, only targeting one country may raise discrimination concerns under WTO law. Therefore, it is not inconceivable that – once the "Chinese wave" of investigations has passed – the Commission will launch at least some investigations into distortions caused by subsidies granted by other countries.
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