Foreign Subsidies Regulation Investigation Opened by the Commission

The European Commission has launched its first in-depth investigation into a public procurement procedure under the Foreign Subsidies Regulation. Dorit McCann, Head of Public Procurement, reviews the reasoning and background to the investigation.

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The European Commission has launched an in-depth investigation into a public procurement procedure to examine potential market distortions of foreign subsidies. This is the first in-depth investigation under the Foreign Subsidies Regulation (FSR) which came into effect on 12 July 2023.

The Commission will assess whether foreign subsidies allowed CRRC Qingdao Sifang Locomotive Co Ltd (CCRC), a Chinese state-owned train manufacturer, to submit an unduly advantageous offer in reply to a tender for electric trains in Bulgaria.

The Foreign Subsidies Regulation

The FSR gives the Commission the power to investigate financial contributions granted by non-EU countries to companies engaging in an economic activity in the EU and to redress any distortive effects. We have previously summarised the rules in our article on the FSR.

The FSR introduced a notification requirement from 12 October 2023 for bidders in a public procurement procedure where:

1. The contract has an estimated value of at least €250m and, where the procedure is divided into lots, where the total value of the lots for which the bidder is bidding is at least €125m, and
2. The aggregate foreign financial contributions received by the bidder, including its parent and certain subsidiaries, and by the main sub-contractors/suppliers were at least €4m per non-EU country in the 3 years prior to the notification

In addition, the Commission has the power to start investigations on its own initiative if it suspects that foreign subsidies may be involved in an economic activity.

The investigation

The Commission launched an investigation following a notification by CRRC, a subsidiary of the Chinese state-owned train manufacturer CRRC Corporation, regarding a public procurement procedure. The Ministry of Transport and Communications in Bulgaria launched the procedure to invite tenders for the provision of electric trains and maintenance, and staff training services. The Commission, following an initial review, opened an in-depth investigation on the basis that there were significant indications that CRRC had been granted a foreign subsidy that distorts the internal market.

The Commission will assess the alleged foreign subsidies and ultimately determine whether these subsidies may have facilitated CRRC to submit an unduly advantageous offer in reply to the tender.

At the end of the investigation, the Commission can:

• Accept commitments proposed by the company if they fully and effectively remedy the distortion
• Prohibit the award of the contract, or
• Issue a no-objection decision

Comment

The Commission’s final decision, once adopted, will be published in the Official Journal of the European Union. As this is the first in-depth investigation of the potentially market distortive role of subsidies under the FSR, it will be interesting to see how the Commission will approach the case.

It is important that contracting authorities build the additional regulatory requirements of the FRS into procurement timelines and that bidders track and record the foreign financial contributions they receive from non-EU countries.

For any queries on the FSR and its application, please reach out to a member of our Procurement team.

People also ask

Why was the Foreign Subsidies Regulation introduced?

The Foreign Subsidies Regulation enables the European Commission to tackle distortions caused by foreign subsidies. It was introduced to ensure a level playing field for all companies operating in the EU.

Does the Foreign Subsidies Regulation apply to all public procurement processes?

The Foreign Subsidies Regulation only applies to public procurement procedures where the contract has an estimated value of at least €250m and, where the procedure is divided into lots, where the total value of the lots for which the bidder is bidding is at least €125m.

When does the Foreign Subsidies Regulation come into force?

The Foreign Subsidies Regulation entered into force on 12 July 2023. The notification requirement for bidders in a public procurement procedure applies since 12 October 2023.

The content of this article is provided for information purposes only and does not constitute legal or other advice.