FSR becomes applicable today (12 July 2023)

European Commission may use general (ex officio) tool   

First and foremost, 12 July 2023 is the date on which what is known as the general or ex officio tool becomes fully operational. This tool allows the European Commission (EC) to investigate any situation where it is suspected that a foreign subsidy is distorting the internal market. It means that the EC may launch investigations into foreign subsidies on its own initiative. Now that the FSR is applicable, the EC may also take action in response to complaints from third parties (usually competitors of the relevant subsidised businesses) and EU Member States. As there is no formal complaint procedure under the FSR, complaints could be (and were already being) filed before the regulation became applicable. However, the EC could not proceed with investigations until now.

The scope of the general tool is wide. The EC may look into any situation where a business competing within the EU has been granted a subsidy from a third country that gives it an unfair advantage over competitors. The general tool can also be used to review transactions and public contracts which have already been concluded or awarded. The EC may also review subsidies granted after 12 July 2018 if they are still having a distortive effect on the internal market today. 

Now that the EC can use the general tool, it has a full range of investigative instruments at its disposal. In particular, the EC can request information and conduct inspections (dawn raids). If necessary, it may also impose interim measures. However, the provisions requiring Members States to provide active assistance during the EC's dawn raids and investigations in general will not become applicable until 12 January 2024. This may make it more difficult for the EC to conduct inspections over the next six months.

M&A and public procurement tools partially applicable

In terms of transactions, the FSR's M&A tool applies to contracts signed or public bids announced on or after today (12 July 2023). Accordingly, the regulation’s public procurement tool is relevant to procurement procedures initiated on or after 12 July 2023. Both tools allow the EC to investigate subsidies granted within the last three years (on or after 12 July 2020).

However, under the FSR, the M&A and public procurement notification obligation will not become applicable until 12 October 2023, although this only applies to the provisions on submitting notifications. Provisions defining a notifiable concentration, a notifiable foreign financial contribution in a public procurement procedure or the standstill obligation are applicable as of 12 July 2023. As confirmed by the EC, for M&A this effectively means that transactions signed on or after 12 July 2023 temporarily fall within the scope of the FSR, unless they are concluded before 12 October 2023. If a transaction meets the notification thresholds (see our previous Legal Insight), this gives rise to a notifiable concentration. Such transactions must be approved before they can be implemented. However, the parties may not submit a notification until 12 October 2023.

As a result, unless the parties to transactions signed on or after 12 July 2023 are able to conclude the transaction before 12 October 2023, they will remain in "limbo" until this date. Only then they will be allowed to notify the transaction. However, the EC is inviting parties to engage in pre-notification consultations in the meantime.

Implementing regulation

In light of the obligation stemming from the FSR, the EC has also just adopted an implementing regulation, which clarifies aspects such as notification forms, the oral statements procedure, calculation of time limits and access to file procedures. The EC reworked the implementing regulation on the basis of extensive and largely critical feedback from stakeholders (including us – see here), which it received after publishing a draft implementing regulation in February 2023. The final implementing regulation addresses the most pressing concerns for businesses, in particular giving a clear picture of what information is required for notifications. Most importantly, the implementing regulation requires information on financial contributions exceeding EUR 1 million, and with the exception of the categories most likely to be distortive, only if the aggregate amount of contributions from one country in last three years exceeded EUR 45 million. The implementing regulation also completely exempts certain categories of financial contributions unlikely to be distortive from the notification obligation, such as provision of goods or services on market terms.

Conclusion

Today – 12 July 2023 – undoubtedly marks a new era in terms of the EU's capacity to tackle distortive subsidies. The EC now has the investigative tools it needs to deal with distortive subsidies from non-EU countries. There will now be a three-month "trial" phase before the EC starts accepting M&A and public procurement notifications on 12 October 2023. Parties concerned are encouraged to start familiarising themselves with the implementing regulation and other information available on the EC's website now so that they are ready to make a formal submission on 12 October 2023.