European Commission launches first in-depth investigation under the Foreign Subsidies Regulation

Last Friday, 16 February 2024, the European Commission (“Commission”) announced that it had launched its first in-depth investigation (“Phase 2 investigation”) of a foreign subsidy potentially distorting the internal market under the Foreign Subsidies Regulation (“FSR”).

The investigation relates to a public procurement procedure by the Bulgarian Ministry of Transport and Communications for 20 electronic “push-pull” trains and their maintenance with a contract valued at EUR 610 million. CRRC Qingdao Sifang Locomotive (“CRRC”), a subsidiary of the Chinese state-owned company CRRC Corporation Limited, had submitted a tender in the public procurement procedure.

The background to this is the notification obligation under the FSR that has been in place since 12 October 2023. Under certain conditions, companies must notify the Commission of their participation in public procurement procedures for investigation if they receive financial contributions from one or more non-EU countries (“public procurement tool”). Companies must submit a notification at the same time as they submit a tender or a request to participate in a public procurement procedure. The notification must contain information on foreign financial contributions in the last three years. If companies fail to submit a notification or it is incomplete, they may be rejected from the public procurement procedure.

In the case of CRRC, the Commission had first carried out a preliminary review. Subsequently, it found sufficient indications that the company had received a foreign subsidy that distorts the internal market. This may have allowed CRRC to participate with an unduly advantageous tender in the public procurement procedure of the Bulgarian authority. Therefore, as part of its Phase 2 investigation, the Commission will now carry out a more in-depth investigation into the foreign subsidy in question.

Generally, the Commission has 110 working days in total (i.e. until 2 July 2024) to conduct its investigation. This period may be extended once in duly justified exceptional cases. At the end of its Phase 2 investigation, the Commission may (i) issue a no objection decision, (ii) a decision with commitments or (iii) prohibit the award of the contract to CRRC altogether.

In addition to this public procurement tool, the FSR gives the Commission two other tools for investigating foreign subsidies: the M&A transaction and the ex officio investigation tools. You can find an overview of all the tools created in our previous article here.

The opening of the first Phase 2 investigation in a public procurement procedure under the FSR represents a pioneering step for the Commission. Publication of its decision at the conclusion of its in-depth investigation is heavily anticipated. The decision will for the first time provide information as to when the Commission considers the requirements for launching an in-depth investigation to be satisfied. It will also provide insights into the criteria the Commission will use to investigate distortions in the internal market. Further findings may also be obtained for the balancing test between an identified distortion of the internal market and any positive effects of the subsidy.

If you have any further questions on the FSR, our Noerr team of experienced experts in the fields of FSR, EU State aid law and merger control will be happy to assist you. Please click here if you would like to receive all our News Alerts on the FSR.