Europe Unveils New Foreign-Subsidy Rules

The European Union has announced new foreign-subsidy rules aimed at minimizing the burden on companies while focusing on “big fish” that distort the European market, reported The Wall Street Journal.

The new regulations, set to take effect later this year, could bar companies from making certain acquisitions or winning large public contracts if they received government aid considered distortive by regulators.

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The European Union’s competition chief, Margrethe Vestager, has emphasized that the new rules are not intended to create additional bureaucracy for companies. Rather, they will be targeted at tackling foreign subsidies that give certain businesses an unfair advantage in the European market. The EU is particularly concerned about state aid from countries outside of Europe, such as China, which has been accused of using subsidies to support its own firms and undercut rivals in foreign markets.

“We intend to focus on major distortions,” Ms. Vestager said. “It’s a priority in the implementation that we ensure that the compliance burden, particularly on smaller entities, is kept as low as possible.”

The legislation has garnered support from those who believe it’s necessary to create a level playing field for European businesses. This is due to the unfair advantage enjoyed by some heavily subsidized competitors, such as state-backed Chinese companies that receive cheap loans and government benefits.

Companies involved in certain mergers or bidding on large public contracts must report previous financial contributions from non-EU governments upon the legislation’s implementation. Failing to do so may lead to hefty fines. Some business groups and lawyers, including the U.S. Chamber of Commerce, caution that American and multinational companies may experience a significant administrative burden.