Brussels, 22 July 2021 - On 20 July 2021, the China Chamber of Commerce to the EU (CCCEU) provided its feedback to the European Commission’s proposal for a Regulation on foreign subsidies distorting the internal market (COM (2021) 223 final), which was unveiled on 5 May 2021.

In September 2020, the CCCEU participated in the public consultation on the EU White Paper on distortive foreign subsidies. We are now pleased to see that some the comments we made back then were taken into consideration by the European Commission and are reflected, either fully or partly, in the proposal for the draft Regulation – in particular those related to the thresholds triggering the investigation, to the balancing test, to the right of defence, and to redressive measures, among others.

On the other hand, in our feedback to the draft Regulation on 20 July, we address some issues which remained unsolved. In particular, we would like to caution the EU institutions with regard to the increasing obstacles and barriers that this draft Regulation will pose to foreign companies, including our members, which are operating in the EU and/or participating in concentration transactions and in public tenders in the EU Single Market.

After settling in the EU and contributing to the EU’s economic growth for many years, the CCCEU’s members would appreciate that the European market could remain open, competitive and fair. “We also support the EU’s initiative to ensure the level playing field in the EU internal market, because it is beneficial for the market itself”, said Mr. Xu Haifeng, Chairman of CCCEU. “However, any policy tools introduced and adopted by the EU institutions shall also ensure legal certainty for the business community, and openness and fairness in the market. They should avoid having a discriminatory impact on foreign companies, or leading to new distortions by offering privileges to EU locally owned companies, for instance in acquisition transactions or procurement processes.”

In the feedback presented on 20 July 2021, we elaborate on the specific problems embedded in the draft Regulation, while groping them in two sections.  Firstly, we find that the draft Regulation fails to provide legal certainty to the companies which might be affected by this new legislation, because many key concepts and legal standards/thresholds remain ambiguous. For instance, it is not clear which entities could be considered subsidy granting bodies, because private entities are included too, if “their actions can be attributed to a third country”, but there are no further details with regard to this this “attribution” test. As such, the draft Regulation leaves too much discretion for interpretation. In addition, the exemption threshold of 5 million euros, below which a foreign subsidy is deemed unlikely to distort EU internal market, is still too low in our view, and does not take into account the particularities of each sector, or the type of transaction which financial contributions are linked to.

In parallel, the non-exhaustive list of subsidy indicators does not provide companies with clear information to assess whether they are receiving subsidies or not. We also believe that a sufficient long transition period shall be provided for the business community to adapt to the new rules, which in turn should not be applied retrospectively up to 10 years as suggested in the draft, as this would violate the legal principle of non-retroactivity.

Secondly, the Regulation Proposal might place foreign companies in competitive disadvantages vis-à-vis EU locally owned companies. We believe that the draft Regulation should extend the existing EU State Aid rules to guarantee non-discrimination between European and foreign companies. For instance, in with regard to the notifiable foreign subsidies in public procurement procedures, the draft Regulation should include a de minimis threshold, which would ensure that foreign bidder do not have to provide more documents and meet more tiresome procedures.

We also believe that the current proposal possibly underestimates the administrative burdens that non-EU companies will need to handle, in particular with respect to the notification obligations: EU companies are not subject to similar obligations regarding the State aid they received within the EU, at least not at similar scale. Understanding the burden our Members will face, we recommend reconsidering the scope of reporting for notification purpose and limiting the burden to the one borne by EU companies.

Lastly, the lengthy investigations and uncertainty about the outcome create dissuasive effects against the interests of foreign companies. The long duration of the investigation does not fit with the fast-running transactions in today’s economy life, and it risks jeopardizing some urgent public contracting needs: it is highly likely that the other transaction parties or contracting entities will favour EU local companies over foreign companies, and foreign companies are likely to be placed in a disadvantageous position in mergers or public procurement procedures, both prior to and throughout the contracting process. Overall, these unintended effects would have repercussions also for the EU business environment.

These are the most salient issues we pointed out in our feedback. Our full and detailed position, in which we elaborate on all the issues at stake, is publicly available on the relevant page of the European Commission’s website. We hope that these views can be beneficial for the discussion around the role of foreign companies in the EU market, and for sound and considerate policymaking on the side of the EU institutions.

The China Chamber of Commerce to the EU (CCCEU) is a non-governmental organisation founded in Brussels in 2018 by Chinese invested corporations based in Europe. The CCCEU speaks on behalf of about 1,000 Chinese enterprises in the EU. Its mission is to promote China-EU economic cooperation, to increase the mutual understanding and dialogue between China and the EU, and to bridge the existing gaps and explore ways to enhance collaboration of Chinese businesses in Europe.