Foreign Subsidies Research Articles

Targeted Response from China's New Energy Vehicle Enterprises Analysis Based on Article 6 of FSR

The EU expects to reduce the carbon emissions of all new cars sold to zero by 2035, and new cars that need traditional energy will be banned from the market. This provides policy prospects for China's new energy vehicle enterprises to enter Europe, but the introduction of the Foreign Subsidy Regulation has become a new restriction. Article 6 of the FSR stipulates that the European Commission needs to balance various factors when dealing with subsidies. China's new energy vehicle enterprises can start with this article and mitigate relevant legal risks through interpretation based on the interests of the EU. China's new energy vehicle enterprises can reduce legal risks by using exception clauses, stating the rationality of prices and promoting the realization of environmental protection policy objectives of the EU based on technology.

Commission

This overview highlights the Commission’s (i) adoption of the rules implementing the Foreign Subsidies Regulation; (ii) amended package for the next generation of own resources and proposal of a new contribution based on company profits; (iii) annual report on taxation 2023; and (iv) report to the Council of the European Union on the progress on Pillar One.

The role of third parties in the enforcement of the Foreign Subsidies Regulation: complaints, participation, judicial review and private enforcement

This article analyses the role of third parties in the enforcement of the Foreign Subsidy Regulation (FSR). It focuses on competitors, customers, and suppliers – market participants directly affected by distortive foreign subsidies – as a special form of third parties. Third parties might have a vested interest in the enforcement of the FSR against subsidy beneficiaries because they could be affected by the distortive effects of foreign subsidies. Third parties may also be of value in the FSR enforcement through detection, involvement in Commission procedures, or through private enforcement measures. Consequently, the article investigates complaints, participation in Commission FSR proceedings, judicial review, and private enforcement in national courts. It draws some conclusions and comparisons with third party enforcement in other areas of EU law, notably EU State aid, competition, merger control and trade law, but it works out the unique approach for third party enforcement of the FSR. Despite the FSR’s gap-filling function, it deviates significantly from third party enforcement in other areas of EU law, as it only provides limited options for such third-party enforcement.

Foreign subsidies and financial contributions: much fine-tuning ahead

The Foreign Subsidies Regulation, which came into force on 12 January 2023, constitutes the missing piece to protecting the internal market from the distortive effects of public intervention and bridges a glaring regulatory gap. However, although tackling distortions of competition caused by non-EU countries’ public intervention has always been widely recognized as a worthy objective, the complexities and administrative burden deriving from Commission-designed tools have been broadly and harshly criticized. Even though more conceptually interesting topics are on the table, the present contribution focuses on the issue that seems to be the most controversial in the current phase: the quantity and type of information required in the notification process with regard to foreign subsidies/financial contributions received by the notifying undertaking in the previous three years. Indeed, the Commission requires all foreign financial contributions to be listed (with few exceptions) in the context of concentrations and public procurement procedures. Therefore, after a brief overview of the Foreign Subsidies Regulation, the contribution analyses the rationale and related risks of the Commission’s choice to require the notification of foreign financial contributions rather than foreign subsidies, it evaluates the possible alternative paths proposed during the public consultation and it concludes by proposing a reasonably balanced solution.

Closing the regulatory gap – answers (and new questions) from the Foreign Subsidies Regulation

This article discusses the way in which the Foreign Subsidies Regulation (FSR) attempts to close a regulatory gap left between EU State aid rules, WTO anti-subsidy rules and foreign direct investment (FDI) monitoring rules. In particular, it presents key similarities and differences in the substantive assessment undertaken by the Commission in State aid control, and that which it may be expected to apply under the FSR, from the economics perspective. While the Commission is likely to apply very similar tools to those of State aid control in order to determine whether a foreign financial contribution confers a benefit on an undertaking (i.e. the market economy operator principle), there are also a number of ways in which the assessment under the FSR may be expected to differ from State aid practice. Specifically, the FSR is likely to require a more in-depth assessment of the distortive effects of foreign subsidies. This will require a novel approach to developing and testing ‘theories of harm’, taking inspiration from State aid, trade defence and merger control. Finally, the broader scope of the ‘balancing test’ (weighing up positive and negative effects of subsidies) compared to State aid, while likely necessary to match the closer focus on distortive effects of the aid, raises new question on its application by the Commission in practice.

The Foreign Subsidies Regulation: the challenge of notifying non-selective tax expenditure

The European Union’s new Foreign Subsidies Regulation will lead to particular challenges in the tax domain. While the final version of the FSR now contains clear links to State aid, the differences are all the more noticeable. Third country tax measures that benefit group financing or equity financing warrant special attention. Repayment of foreign tax incentives to the European Commission, as a last resort measure, might come at odds with taxing prerogatives as divided under existing bilateral tax treaties. Compliance with notification obligations when engaging in public procurement or planning a merger with or acquisition of an entity active in the EU will be hardly doable. Unlike EU State aid rules (and WTO subsidy rules), notification may also involve non-selective and non-beneficial tax measures received within a group. If these have come into the FSR’s scope by intent and not by omission, then this is to be strongly reconsidered. Sustainability tax incentives aimed at greening investment have not been exempt from scrutiny. Thus, EU subsidiaries of third country parent companies and EU parents of third country subsidiaries should gather more information for the purpose of this regulation than one might expect at first sight.

The Foreign Subsidies Regulation: Calling Foul While Upping the Ante?

EU Regulation 2022/2560 on foreign subsidies distorting the internal market (the Foreign Subsidies Regulation, FSR) is a unilateral tool designed to fill a perceived regulatory gap in the existing EU and WTO rules on foreign subsidies. After a description of the new Regulation, this paper demonstrates that the FSR follows in the footsteps of a long European tradition of scepticism towards EU Member State subsidization in the internal market, but that it also arises in a context where the EU’s approach to subsidization as a tool in international trade has been more ambiguous, combining initiatives to fight government subsidies (the ‘defensive’ approach) with examples of the active use and promotion of subsidization (the ‘offensive’ approach). The paper subsequently aims to forecast how the FSR’s implementation will be affected by contextual factors, such as the perceived crisis of globalization and the crisis of the WTO, and the resurgence of industrial policy in the United States (e.g., the US Inflation Reduction Act) and in the EU itself (where various recent initiatives facilitate the granting of subsidies), as well as by factors internal to the Regulation, such as its dependence on policy choices and certain practical challenges to its application. FSR, subsidies, state aid, competition, international trade, industrial policy, WTO

The EU’s new Foreign Subsidy Regulation on collision course with the WTO

The European Union (EU) has become increasingly concerned about government-dominated economies that provide financing for companies engaging in commercial activities in the EU. The concern is that companies receiving these so-called foreign subsides gain an unfair advantage over their European competitors. With astonishing unity and speed, the EU, therefore, has created an ambitious piece of legislation, Regulation 2022/2560, commonly referred to as the Foreign Subsidies Regulation (FSR).The FSR allows the European Commission (EC) to take unilateral action against foreign subsidies that are presumed to distort the internal market. The EU’s plan represents a far-reaching change in the EU’s foreign trade policy and creates a field of tension with the World Trade Organization (WTO). Whilst there is legal uncertainty about the scope of theWTO’s Agreement on Subsidies and Countervailing Measures (SCM Agreement), some of the practices now regulated by the FSR most likely fall under the SCMAgreement which was incorporated into EU law by Regulation 2016/1037 (Anti-Subsidy Regulation).The FSR provides for a conflict rule establishing the supremacy of WTO law in such situations. However, considering the EU legislator’s interpretation of the SCM Agreement, there are considerable doubts as to whether this mechanism will effectively prevent the EC from taking unilateral action in an area that is actually subject to WTO law. In the area of overlaps, the FSR may, therefore, violate the supremacy of WTO law which would lead to the illegality of the FSR. This article addresses this risk and provides an outlook on how the EU could ensureWTO compliance by not applying the FSR if the regulated practice also falls under the SCM Agreement. Subsidy, Foreign Subsidies Regulation, Agreement on Subsidies and Countervailing Measures, SCM Agreement, Anti-Subsidy Regulation, WTO Legality, Foreign Direct Investment, 301 US Trade Act 1974

The Unilateral Turn in EU Trade and Investment Policy

As part of the European Commission’s Open Strategic Autonomy agenda, the European Union has reformed its unilateral trade and investment policy toolbox. Existing instruments have been updated (e.g., Trade Defence Instruments, the Enforcement Regulation) and new instruments have been adopted (e.g., the Foreign Subsidies Regulation, the Foreign Direct Investment Screening Regulation, the Anti-Coercion Instrument). These developments are significant: taken together, they herald a unilateral turn in the EU’s trade and investment policy. This special issue explores aspects of this unilateral turn. It combines a bird’s-eye perspective with studies of specific instruments; it brings together political science and legal methodologies; and it looks at the unilateral turn from the inside-out and from the outside-in. The special issue scratches the surface of what we consider to be a seismic change in the EU’s trade and investment policy. We hope it will trigger further debate and scholarly analysis of this important topic. In this introduction, we set the scene and introduce the six articles that are part of this special issue. unilateral turn, unilateralism, EU trade and investment policy, security, sustainability, level playing field, geopolitics, geopoliticization, economic coercion, restrictive measures, common commercial policy

The securitisation of international economic law and ‘global security’: an analysis of the EU law approach through the prism of the Common Commercial Policy

The so-called ‘securitisation’ of international economic law is largely premised and enacted on grounds of defensive security exceptions, whereby governments invoke their national security interests to depart from their international economic obligations. This article aims to contribute to the ongoing debate on the compatibility of such security-driven unilateral measures with international law and within the current system of global governance, by exploring whether legal patterns tackling essential security interests under international economic law may reach beyond State-centred national security interests to also encompass concerns arising from global security threats (such as environmental security). In doing so, this article focuses on the relevant approaches taken by the European Union (EU), particularly in the operation of the EU Common Commercial Policy (CCP) under Article 207 of the Treaty on the Functioning of the European Union. The EU enjoys broad exclusive competence in framing and implementing its trade and investment policy under the CCP, both in terms of its internal regulation and external action. In this context, security considerations are bound to arise. This article explores a series of relevant legal instruments originating from or concluded by the EU, and analyses how these incorporate security considerations and the EU’s understanding of the concept of security thereunder. After considering security under EU primary law, the article reviews the position taken by the EU as a bilateral treaty player, by reference to the Trade and Comprehensive Agreement with the United Kingdom, and as a member of the World Trade Organization, notably on the interpretation of the General Agreement on Tariffs and Trade security exceptions clause. It also looks into EU internal action on foreign direct investment screening, export control and foreign subsidies regulations, as well as the EU’s proposed ‘anti-coercion mechanism’ and its ‘global human rights sanction regime’. The analysis of the EU’s multifaceted practice shows that while global security concerns may increasingly underlie obligations to cooperate and coordination clauses, existent security-related legal patterns in bilateral and multilateral treaty practice remain ‘national security’-centred; and despite the increasing ‘enlargement’ of the scope of national security to encompass additional non-military threats, the vast array of global security threats and vulnerabilities are hardly covered by this expansion.

Impacts of U.S. countervailing duties on phosphate fertilizers

AbstractCountervailing duties are a trade policy instrument by which importing governments tax imports that are found to benefit from foreign subsidies. Thus, in effect, these duties attempt to remedy market distortions generated by foreign subsidies by further distorting market mechanisms. On March 11, 2021, the U.S. International Trade Commission issued duties ranging between 19.97% and 47.05% on Moroccan phosphate imports upon finding that Moroccan exports had been receiving unfair government subsidies. In this research, we estimate the impacts of these duties on U.S. diammonium phosphate and triple superphosphate fertilizers, as well as long‐run downstream prices of five U.S. row crops with the largest phosphate usage. Using these results, we assess the implications for gross receipts in the U.S. fertilizer industry and gross margins for American farmers. We also calculate the implied change in expenditure for agricultural end users. We find that the countervailing duties have increased U.S. phosphate fertilizer prices by approximately 34% over counterfactual levels. This corresponds to an expected downstream price response ranging from around 10% for corn, cotton, and sorghum to between 1% and 4% for soybeans and wheat. This market distortion generates a $23 billion increase in gross receipts for a concentrated domestic fertilizer industry while shrinking gross margins for American farmers by 2% and 8% and increasing agricultural user expenditures by approximately $10.84 billion.

Governing Defense Procurement: Strengthening the EU’s Defense Technological & Industrial Base

The regulatory framework concerning defense procurement has evolved considerably since the start of the millennium. In addition to the general Public Procurement Directive and the Defense Procurement Directive, the European Commission recently formulated a proposal for a Foreign Subsidies Regulation (FSR). Nonetheless, defense sector particularities continue to produce tensions in public procurement, and significant blind spots remain.In view of policy objectives to strengthen the European Defense Technological & Industrial Base (EDTIB), it is necessary to first study the current state of EU defense procurement. To that end, we perform an analysis of 14,207 EU27-tenders spanning the period 2009-2020. In addition, a case study approach investigates six tender procedures by the Belgian military, establishing material points of note.Key insights include: (1) the number of defense procurement procedures won by third country bidders is limited, (2) tenders won by non-EU27-tenderers are larger and less competitive on average, and (3) an overly strong focus on price efficiency in public procurement award procedures inhibits attaining EDTIB goals. In short, the data shows a chasm between stated policy aims of strengthening the EDTIB through positive action in public procurement, on the one hand, and public procurement practices, on the other.

Protecting the Internal Market From Subsidisation With the EU State Aid Regime and the Foreign Subsidies Regulation: Two Sides of the Same Coin?

The European Union’s (EU) internal market is a popular venue for international investments and activities by third-country entities. Once on the EU internal market, foreign companies can operate freely and enjoy the benefits of the internal market: free circulation of goods, services, establishment, and capital, complemented by competition and State aid rules to allow a level playing field with EU companies. However, in recent years, the issue of subsidisation of companies active on the EU internal market by third States and the corresponding distortions have gained novel prominence and lead to an increased discussion in practice and academia. Reports by the European Court of Auditors,1 the German Monopoly Commission (Monopolkommission),2 and several Member States3 have given examples that third-country subsidies, notably those subsidies granted by the Chinese State to State-owned enterprises (SOEs) with subsidiaries active on the EU internal market, would constitute State aid if granted by an EU Member State. Yet, State aid rules do not apply to such financial contributions granted by third States. Therefore, foreign subsidies could create an uneven playing field on the internal market: the companies receiving financial support from EU States are subject to EU State aid discipline, while companies receiving third-country subsidies are not subject to comparable State aid systems. Thus, the latter are having a noticeable advantage over EU companies for their economic activities on the EU internal market.

Council

This overview highlights the Council’s (i) agreement on the Minimum Taxation Directive; (ii) formal adoption of the Minimum Taxation Directive; (iii) work on tax matters during the Czech Presidency and suspension of the examination of DEBRA; (iv) approval of the regulation on foreign subsidies distorting the internal market; (v) approval of the conclusions on the progress of the Code of Conduct Group during the Czech Presidency; and (vi) tax priorities for the first semester of 2023, during the Swedish Presidency.

Parliament

This overview highlights the Parliament’s (i) adoption of a regulation addressing foreign subsidies distorting the internal market; and (ii) FISC Subcommittee discussion on a draft report on the Pandora Papers

글로벌 보조금 규제의 새로운 현상: 역외보조금·기후변화 보조금·환율보조금 (Latest Development in Subsidy Regulation: Foreign Subsidies, Climate Change-related Subsidies, and Currency Undervaluation Subsidies)

글로벌 보조금 규제의 새로운 현상: 역외보조금·기후변화 보조금·환율보조금 (Latest Development in Subsidy Regulation: Foreign Subsidies, Climate Change-related Subsidies, and Currency Undervaluation Subsidies)

The Role of Third Parties in the Enforcement of the Foreign Subsidies Regulation: Complaints, Participation, Judicial Review, and Private Enforcement

The Role of Third Parties in the Enforcement of the Foreign Subsidies Regulation: Complaints, Participation, Judicial Review, and Private Enforcement

The Regulation on Foreign Subsidies Distorting the Internal Market

The Regulation on Foreign Subsidies Distorting the Internal Market

A Critical Analysis of the EU’s Eclectic Foreign Subsidies Regulation: Can the Level Playing Field be Achieved?

A Critical Analysis of the EU’s Eclectic Foreign Subsidies Regulation: Can the Level Playing Field be Achieved?

Foreign subsidies regulation that distort competition – a goal too ambitious?

Foreign subsidies regulation that distort competition – a goal too ambitious?