Under all three of the Foreign Subsidies Regulation (FSR) tools, which were analysed in our previous post, the European Commission (EC) will assess the potential negative impact of the specific foreign subsidies under investigation on the EU’s internal market. This includes weighing them against any possible positive impact they may have within the EU, or in the context of a public policy interest recognized by the EU, such as environmental benefits or the creation of jobs within the EU. If the negative distortions outweigh the positive impact, the EC may impose redressive measures to remedy the situation, ranging from structural remedies (divestment of assets, unwinding of a concentration) to behavioural remedies (third-party access obligations, licensing on fair, reasonable, and non-discriminatory terms, repayment of a foreign subsidy, etc.). Investigated businesses can offer commitments to address the EC’s concerns regarding the distortive foreign subsidies, which, if accepted by the EC, become legally binding. Non-compliance with such commitments can lead to fines or periodic penalty payments.

The timeline for a notification of a concentration under the FSR is deliberately aligned with the timeline under EU Merger Control rules. This means that the EC has 25 working days to review a notifiable transaction and an additional 90 working days (extendable by 15 working days in case commitments are offered) if it decides to open an in-depth investigation into the transaction. Intriguingly, the EC is not obligated to issue a decision under the first phase of the investigation. Therefore, if the EC does not open an in-depth investigation, a party can consider its concentration cleared under the FSR after the lapse of 25 working days from the EC’s receipt of a complete notification.

Notifications of participation in public procurement tenders are subject to a different timeline, which accounts for the involvement of a separate contracting authority handling the public procurement process. When submitting a tender or a request to participate in a public procurement procedure, bidders are required to notify the notifiable FFCs it received first to the relevant contracting authority or declare that they have not received any notifiable FFCs. Upon receipt of either the notification or the declaration, the contracting authority must forward them to the EC without delay, which will then have 20 working days (extendable by 10 working days) to decide whether to open an in-depth investigation from the date it receives a complete notification. If it opens an in-depth investigation, it must issue a decision within 110 working days after receipt of the complete notification (extendable by 20 working days).

Failure to notify either a notifiable concentration or a notifiable public procurement bid can lead to significant fines of up to 10 per cent of a company’s aggregate worldwide turnover. In addition, the EC has the power to prohibit the concentration or the award of the tendered contract if it finds that the notifying party in each case benefited from a distortive foreign subsidy.

There is no fixed timeline for an ex officio investigation. While the EC is bound to endeavour to adopt a decision within 18 months of opening an in-depth investigation, this is not a hard deadline, and investigations are likely to be drawn out.

The figure below summarises the relevant timelines.

Figure 1: FSR timelines (figures are in working days)

For more information on the FSR and to find out how your business can navigate its way through this new regulatory tool, please check Reed Smith’s Roadmap to the Foreign Subsidies Regulation.