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European Union’s Foreign Subsidies Regulation

European Union’s Foreign Subsidies Regulation:

The Foreign Subsidies Regulation (FSR) of the European Union (EU) is likely to hit India’s exports, the Global Trade Research Initiative (GTRI), a New Delhi-based think tank, recently said in a report.

  • The European Union’s FSR entered into force on 12 January 2023.
  • Combating distortions of competition on the EU internal market caused by foreign subsidies.
  • It will allow EU to investigate financial contributions granted by non-EU governments to companies active in the EU, and prohibit the award of public contracts to a company that has unduly profited from foreign subsidies.
  • It imposes mandatory notification and approval requirements for acquisitions of significant EU businesses and large EU public tenders, and gives the European Commission (EC) extensive powers to launch ex officio investigations.
  • The EC is the sole enforcer of the FSR.
  • In cases where the European Commission finds that a foreign subsidy is distorting competition, it can impose various remedies, including
    • fines of up to 10% of the company’s annual aggregated turnover;
    • requiring the company to repay the foreign subsidy if competition distortion is confirmed;
    • banning the company from participating in public procurement;

Foreign Financial Contributions under the FSR:

  • FSR covers financial contribution from non-EU governments to firms operating in/exporting to EU’s market.
  • Such a contribution may be distortive where it confers a benefit not normally available on the market to a company in the EU, and that benefit is specific to one or more companies or industries as opposed to all companies or all companies active in a particular industry.