The proposed EU regulation on foreign subsidies is an important step in countering unfair subsidies. However, EU lawmakers will want to think twice to make sure the rules do not deter legitimate foreign direct investment that is key to Europe’s economic recovery and future competitiveness.After concerns about state-owned companies undermining European competitors, the European Commission introduced Proposed regulation on foreign subsidies In the middle of 2021.
However, some economists warned The proposal, as it stands, presents “significant risks” to business investment in Europe. In an effort to create equal opportunity, the proposal Add Uncertainty and more red tape that could eventually “discourage externally backed bidders from participating in EU procurement,” meaning that public authorities “miss out the best value contracts for public funds.”
European Industry Roundtable Moreover, he warned that the instrument should not “make inward investments less attractive or induce third countries to adopt reciprocal rules that would be detrimental to European investments abroad.”Legislators in the European Parliament and EU member states are currently analyzing and developing their positions on the proposal. It is vital to Europe’s economic recovery that they get this regulation right.
Policy makers should aim for better balanced and less burdensome regulation to avoid situations in which firms halt their investments due to onerous requirements placed upon them.
There are many areas in which the current text of regulation is uncertain and imposes disproportionate burdens on companies. For example, a suggested audit period of ten years is a long time to keep records on file, especially since not all sectors are required to keep detailed files for ten years. Ten years is a long time to have the ability to consider an acquisition. If there are concerns they can and should be addressed during the acquisition process.
Another issue in the motion is the overly general rules as to what could lead to an investigation by the committee. Here a framework should be established so that companies can clearly understand when and whether an investigation will take place.
Moreover, the definitions of support and distortion are very loose. The proposal defines financial contributions as a subsidy if they are made by a non-EU government directly or by a non-EU government indirectly through private and public entities. This definition goes beyond the WTO’s Agreement on Subsidies and Countervailing Measures and the EU’s state aid rules. It is clear that the tightening of these tariffs will determine the cases in which real support is granted and bring them into line with the frameworks of the World Trade Organization and the European Union.
The proposal, as it stands, will eventually require the company to investigate its subcontractors and other suppliers to see if they have received subsidies. It is impractical and nearly impossible for a company to know whether any of its suppliers or any subcontractors have received benefits that would give rise to notification under these rules. EU lawmakers need to tighten these rules to make them more business-friendly.
Two years into the pandemic, Europe is in dire need of foreign investment to ensure its economic recovery. European leaders are particularly keen on attracting private investment into strategic sectors hit by supply chain disruptions and to boost Europe’s competitiveness through investment in research and development. As governments begin to pay off generous recovery subsidies, they will want to obtain competitive bids for their public tenders.
Hopefully, EU lawmakers will ensure that this well-intentioned proposal does not inadvertently create a wall of bureaucracy forcing foreign investors to look elsewhere.
Inma Pérez Ruiz is a colleague at the CCIA