‘Ending the free-for-all’: MEPs back rules to curb access for subsidised foreign companies

European lawmakers on Thursday approved new rules to reduce acquisitions of companies or bids for public contracts by subsidised foreign companies.

The Foreign Subsidies Regulation was primarily aimed at curbing Chinese subsidised companies’ ability to buy European firms or outbid them for EU government contracts but comes at a period of heightened trade tensions between the bloc and the US.  

It will enable the Commission to investigate subsidies granted by non-EU public authorities — such as zero-interest loans, below-cost financing, preferential tax treatment or direct state grants —  to companies operating in the EU and take measures if these are found to be distorting the single market.

“This is an important piece of legislation. It is much needed as an addition to our toolbox to make sure businesses have a level playing field, that they compete on their ideas, on their innovation,” Competition Commissioner Margrethe Vestager told MEPs in Brussels prior to the vote.

Parliament rapporteur, Luxembourg MEP Christophe Hanssen (EPP), said: “Today we move one step closer to finally ending the free-for-all that has been pitting European companies, subject to stringent subsidy control, against foreign competitors with unfettered access to foreign largesse.”

He also argued that “it’s difficult to imagine that the sale of strategic stakes in companies as important such as the port of Hamburg could happen without the Commission looking more closely at where the funds are coming from.”

Companies will need to let the EU’s executive know about planned mergers and acquisitions if one of the parties involved has an EU turnover of at least €500 million and there is a foreign financial contribution of at least €50 million.

The European Commission will also investigate tenders in public procurements if the value of a procurement is at least €250 million.

European companies tempted by US subsidies

American companies could also fall foul of the new legislation as Brussels and Washington tussle over the US’ Inflation Reduction Act (IRA) which aims to boost green investment and curb inflation.

EU commissioners have said the legislation is potentially discriminatory against European companies, which are being hit hard by inflation and skyrocketing energy prices due in large part to Russia’s illegal war in Ukraine.

Signed into law over the summer, the IRA includes important subsidies for US-based manufacturers of electric cars, batteries and renewable energy products and consumers who buy such American-made products.

A joint Task Force has been formed to enable negotiations between Brussels and Washington with the EU angling for its companies to be granted similar access to the US market as that of Canadian or Mexican firms.

But the bloc has also warned that it could take its case to the World Trade Organisation (WTO) if talks fail.

European Council President Charles Michel told MEPs on Wednesday that “we are already seeing, for instance, the first incentives for our companies to relocate their factories, notably across the Atlantic.”

“So we must closely coordinate our national policies and have also agreed to mobilise all appropriate financial tools at national and European level to maintain a level playing field within our Union,” he added.

French President Emmanuel Macron has called for a “Buy European Act like the Americans”, with his Finance Minister Bruno Le Maire, also calling for a “coordinated, united and strong response” to the US law.

“Some large foreign companies that wanted to set up in Europe are now hesitating between European and American sites,” he said earlier this week.