The European Union has very strict rules for granting subsidies to businesses. If an EU member state plans to provide financial assistance to a company, it needs to apply for a permit from Brussels. And only if the European Commission considers that such assistance will not interfere with free competition, it can be provided.
However, EU companies often complain that these rules give advantages to firms from other countries that receive subsidies from their governments. On May 5, the European Commission presented its views on this matter. How does Brussels intend to protect European companies and from whom?
It will not be possible to buy firms in the EU for public money
“When you let guests into your home, you certainly expect them to treat your property and furniture as carefully as you do. The same applies to the EU single market: we want every company operating in Europe, respected our rules, “said Margrethe Vestager, Executive Vice President of the European Commission, in charge of digital economy and competition.
Margaret Westager
For more than 60 years, foreign business, she added, could buy companies in the EU using subsidies received from their governments, and win tenders thanks not to more efficient proposals, but to financial support from their states.
To remedy this situation, the European Commission has proposed a draft EU regulation that would allow it to check and cancel acquisitions of firms in the European Union or the results of tenders if this undermines free competition. The regulation will still have to be approved by the EU Council and the European Parliament.
How the EU will counter unfair competition
The European Commission’s project includes three instruments. Protection against takeovers of companies in the EU using state aid is one of them. If the turnover of a European company exceeds 500 million euros, Brussels will need to be notified of the intention to buy it. The second tool concerns tenders. Participation in them will have to be reported if the volume of the contract exceeds 250 million euros. In both cases, the European Commission will be able to ban the deal if it considers that it will harm competition.
The third instrument concerns all other acquisitions or tenders that do not exceed the notification threshold. If there are suspicions, the European Commission will be able to initiate a check on its own initiative. If it sees a threat to fair competition, it will be able to cancel the deal, force the sale of part of the assets, or prohibit certain actions in the European market.
China, Russia and the United States subsidize their businesses
The European Commission emphasizes that the initiative is not directed against anyone in particular and the rules will apply to companies from all over the world. And no matter how many journalists asked Vestager what specific cases prompted the EC to make this decision, she did not name the state or companies.
Chinese government subsidizes domestic firms generously
However, if you carefully study the draft regulation and the assessment of its consequences carried out by the European Commission itself, it becomes clear who the initiative is aimed at in the first place. The draft regulation specifies the amount of subsidies that are allocated to their firms by the EU’s five largest trading partners. China – 520 billion euros, USA – 17 billion, Great Britain – 888 million, Russia – 3.8 billion, Switzerland – 697 million euros. And these are just numbers provided by the governments of these countries to the World Trade Organization. The European Commission believes that these figures are underestimated.
Russia is mentioned several times in the assessment of the European Commission. In particular, the Fertilizers Europe Association of Fertilizer Producers complained that the Russian Federation and the countries of North Africa set gas prices for domestic producers lower than for exports. This, according to the association, led to a “significant” increase in the share of foreign companies in the EU fertilizer market. European steelmakers and air cargo carriers also complained about Russian subsidies.
The EU fears takeover of its companies by firms from China
But the main focus of the European Commission is on China. The PRC government often owns stakes in semiconductor companies and either provides them with funds, for example, to build factories, or does not provide loans on market terms. The European Commission notes that Chinese firms began to actively buy up foreign companies after 2014, when a $ 23 billion fund was created in China to support semiconductor manufacturers.
German industrial robot manufacturer Kuka bought by China
Another sector is metallurgy. European companies told the European Commission that Beijing’s subsidies allowed Chinese producers of aluminum not only to export aluminum to the EU at “unjustifiably low prices”, but also to start buying up production facilities in the European Union.
The European Commission’s proposal reflects growing concerns in the EU about Chinese expansion. An important role in this was played by the takeover by Chinese companies of the German manufacturer of industrial robots Kuka and the Piraeus port, the largest in Greece.
Another instrument to ensure a level playing field for Chinese and European companies was to be an investment agreement between Brussels and Beijing. But as the deputy chairman of the European Commission Valdis Dombrovskis, who is responsible for the economy and trade, said at a joint press conference with Vestager, the ratification of this agreement has stalled. The reason he called the general context of relations with China, in particular, Beijing’s counter-sanctions against MEPs.
The agreement of the European Parliament is required for the ratification of the investment agreement.
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