- European governments are unable to provide financial support to companies if this aid undermines fair competition.
- However, these rules have not been applied to foreign subsidies and the commission wants to change that.
- The proposal will now be discussed by European lawmakers and member states before becoming law.
LONDON — The European Union wants to restrict foreign companies that receive government subsidies from engaging in its market, potentially causing repercussions for Chinese-backed firms in particular.
The European Commission, the executive arm of the EU, proposed on Wednesday three new tools to enable it to have the power to investigate financial contributions given by public authorities from non-EU nations. This would happen when the recipient firm tries to participate in the European market.
"We want every company that operates in Europe no matter where it comes from to respect our house rules," European competition chief, Margrethe Vestager, said during a press conference.
The European Union does not allow European governments to provide financial support to companies if this aid undermines fair competition. However, the rules have left foreign subsidies off the hook for decades and the commission wants to change that.
"Companies have been free to use foreign subsidies to buy up business here in Europe. Some have been able to undercut their competitors in public tenders not because they are more efficient, but because they get financial support from foreign countries and that's not fair towards those companies who don't get that kind of subsides," Vestager also said.
State influence has often been discussed in the EU, but the ongoing pandemic has made the issue even more pressing as many businesses are struggling for cash. In addition, there's been a growing concern over Chinese firms who have been particularly active in the European market in the wake of the 2011 debt crisis.
In 2016, Chinese tech giant Tencent bought a majority stake in Finnish mobile games maker Supercell, and Midea, a Chinese electrical appliance manufacturer, bought German robotics firm Kuka.
Under the new proposal, the Brussels-based institution wants to check contributions where the EU-based turnover of the firm being acquired is at least 500 million euros ($600 million) and the foreign subsidy is at least 50 million euros. The commission also wants to investigate bids in public procurement processes, where the estimated value is 250 million euros or higher.
Thus, firms that have received foreign support and are looking at taking over European companies will have to disclose how much they received and get the approval from the commission before going ahead with the deal. Failure to disclose the information may result in fines and a review of the transactions.
In addition, the commission also wants to be able to start its own investigations when it suspects that a foreign subsidy has been granted but not divulged.
The proposal will now be discussed by European lawmakers and member states before becoming law.
Dutch State Secretary Mona Keijzer said in emailed remarks: "We want to continue doing business with countries and companies from outside the EU. That has always given us economic advantages and jobs. But this is only possible if that market is fair and not distorted by companies that enjoy unfair competitive advantages due to their home situation."
Reinhard Bütikofer, a lawmaker at the European Parliament, welcomed the commission's proposal and said: "Past negligence in enforcing competitive neutrality vis-à-vis China has contributed to the fact that European industrial policy must now defend its own interests all the more resolutely in order to secure Europe's industrial future."