The EU Foreign Subsidies Regulation: Leveling the Playing Field in Global Competition

Introduction: Europe’s Industrial Policy Meets Global Competition

In an era of globalization, foreign companies often receive state subsidies that distort competition in the EU’s internal market. Unlike EU-based firms—subject to strict state aid rules under Articles 107–109 TFEU—foreign competitors could benefit from non-EU subsidies with little scrutiny.

To address this imbalance, the EU adopted the Foreign Subsidies Regulation (FSR), in force since July 2023. It equips the European Commission with new powers to investigate and remedy distortions caused by foreign subsidies in acquisitions, mergers, and public procurement.

The FSR is a cornerstone of the EU’s new strategic autonomy agenda—part of a broader industrial policy shift toward resilience, fairness, and global competitiveness.

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Why the FSR Was Needed

The EU has long prided itself on an open market. But several concerns drove the need for new rules:

Unequal playing field: EU companies must comply with state aid control, while foreign firms could benefit from unchecked subsidies.

Strategic acquisitions: Subsidized foreign firms buying EU technology or infrastructure raised fears of losing strategic assets.

Public procurement risks: Subsidized bidders could undercut EU rivals in major infrastructure or defense projects.

Geopolitical shifts: With China, the U.S., and others investing heavily in industrial policy, the EU sought tools to protect its industries and reduce dependency.

The FSR fills this regulatory gap by complementing antitrust, trade defense, and investment screening rules.

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Key Provisions of the Foreign Subsidies Regulation

The FSR introduces three main tools of enforcement:

1. Merger Control

Companies must notify the Commission if:

Acquisitions or mergers involve EU turnover above €500m, and

Foreign subsidies received exceed €50m in the previous three years.

The Commission can block or impose conditions on deals if subsidies distort competition.

2. Public Procurement Review

Bidders must notify subsidies if:

The contract value exceeds €250m, and

Subsidies from outside the EU exceed €4m per non-EU country.

If distortive subsidies are found, the Commission can exclude the bidder.

3. Ex-Officio Investigations

The Commission may launch investigations into any market activity if there are indications of distortive foreign subsidies, regardless of thresholds.

This wide discretion ensures flexibility to tackle unforeseen distortions.

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What Counts as a Distortive Subsidy?

The FSR defines a foreign subsidy as any financial contribution by a non-EU government that confers a selective benefit to a company active in the EU.

Examples include:

Direct grants, loans, or tax breaks,

Export financing at below-market rates,

Preferential state-backed financing for acquisitions,

State guarantees or ownership advantages.

Not all subsidies are automatically distortive. The Commission applies a balancing test, weighing negative effects (market distortion, crowding out EU rivals) against positives (innovation, climate goals, job creation).

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Procedural Safeguards and Powers

The Commission has extensive investigatory powers under the FSR:

Requests for information,

Dawn raids, even outside the EU (with consent of the company’s home state),

Interim measures during ongoing reviews.

If distortions are confirmed, the Commission may:

Block transactions,

Impose redressive measures (e.g., repay subsidies, divest assets, reduce capacity),

Accept commitments from companies to mitigate concerns.

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Implications for Businesses

For EU Companies

Gains a more level playing field against subsidized foreign rivals,

But may face delays in procurement or M&A processes if foreign partners are involved.

For Foreign Companies

Must prepare for detailed disclosures of subsidies,

May need to restructure deals or procurement strategies,

Could face reputational risks if subsidies are challenged.

For Global Markets

The FSR may push non-EU governments to:

Increase transparency of subsidies,

Negotiate bilateral agreements with the EU on fair competition.

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Relationship With Other EU Tools

The FSR complements existing instruments:

EU Merger Regulation (competition law),

Foreign Direct Investment (FDI) Screening Regulation,

Trade defense instruments (anti-dumping, anti-subsidy tariffs),

EU State Aid regime, which governs intra-EU subsidies.

Together, they form a comprehensive framework for fair competition and strategic resilience.

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Criticism and Challenges

Bureaucratic burden: Companies fear complex reporting obligations and longer deal timelines, especially in cross-border mergers.

Legal uncertainty: The definition of “distortion” is broad, and Commission discretion is high.

Global tensions: Some countries view the FSR as protectionist, risking retaliation.

SME concerns: While thresholds are high, smaller suppliers in big procurement chains may still face indirect obligations.

Still, the FSR is widely seen as a necessary defense tool in a world of state-backed industrial competition.

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Conclusion: Europe’s Bold Step in Industrial Law

The Foreign Subsidies Regulation is a milestone in EU law—bridging the gap between competition policy, trade defense, and industrial strategy. It signals that Europe will remain open, but not naïve, in global markets.

For companies, the message is clear: foreign subsidies must now withstand legal scrutiny in Brussels. For policymakers, the FSR is part of a broader European industrial awakening, alongside the Green Deal, Chips Act, and Net-Zero Industry Act.

In a world of subsidy races and industrial rivalry, the EU is asserting its own model: one where fair competition and sovereignty go hand in hand.