On March 6, 2023, the China Chamber of Commerce to the EU (CCCEU) expressed its deep concerns over the European Commission's draft of the implementation of the Foreign Subsidies Regulation (FSR) in a public consultation.

In its written feedback, the chamber said the FSR, adopted last December despite strong opposition of various stakeholders, poses multiple challenges, including the market openness of the EU towards foreign investments, the sound justification for any new and separate legal framework in addition to the existing mechanisms, the legal certainty that the new instrument could provide, the disproportional burdens the new instrument would impose, and most importantly, the potential discriminatory implementation of new instrument towards Chinese businesses, which in turn distorts the level playing field.

The CCCEU considers that the draft FSR Implementing Regulation ("IR"), along with its two annexes, published by the Commission on 6 February 2023, exacerbates its concerns because plenty of uncertainties remain relating to the FSR's application in the near future and the administrative burdens set out in the draft IR become disproportionately onerous.

The CCCEU stated that the draft IR provides little practical guidance on key concepts and thresholds that underpin the regulations, such as the term "financial contribution," and lacks calculation methodology, resulting in significant legal uncertainties.

The CCCEU also believes that economic transactions with state-owned enterprises on market terms basis should not be automatically attributed to third-country governments and do not constitute notifiable financial contributions.

Furthermore, CCCEU members believe that the information they must compile under the draft IR is massive, and the administrative burden is unbalanced and disproportionate, because the notifiable financial contributions remain too broad and inconsistent in the notification forms, while a declaration of no notifiable financial contribution is practically meaningless.

To reduce the red tape, the CCCEU proposed that the rules focus on the entity and undertaking directly involved in the transaction, while subsidiaries and holding companies of those entities should be excluded from the scope of notifying parties. "Where the reporting of information relating to them is absolutely necessary, the notification forms shall limit the scope of associated entities and of the notifiable financial contributions to those that would most likely be involved with the transaction concerned," the chamber noted.

On the balancing test, the CCCEU believes that positive effects such as active participation of non-EU companies in bringing consumer welfare, innovation on the EU internal market, positive effects to local stakeholders in the case of local manufacturing, and those on achieving environmental policy objectives should be considered.

The chamber also outlined recommendations for the Commission to increase transparency and safeguard the right of defence, calling for an earlier release of guidelines or clarifications relating to distortion assessment and the balancing test.

The CCCEU has up to 80 members, including 21 chambers of commerce. In total, it represents some 1,000 Chinese companies operating in the EU.

The chamber's written response to the commission's consultation on the draft IR can be found here.