Multinationals Slam New EU Foreign-Subsidy Law’s Reporting Rules

The new foreign-subsidy rules, which are set to take effect later this year, will give regulators new tools to bar companies from making certain acquisitions or winning large public contracts if they previously benefited from government aid that the commission believes was distortive. 

That means companies will need to track many dealings with foreign governments that competition lawyers say could include public contracts, utility bills and even social security benefits paid to employees.

“Companies currently do not have systems in place to monitor these interactions,” the letter said. Unless the plan changes, it said important merger and acquisition transactions could be disrupted, “and public tender procedures may come to a standstill or suffer a significant reduction in the number of competitive bids that are submitted.”

The letter was signed by 21 companies, more than half of which are based in EU countries. Companies that added their names include San Jose, Calif.-based

Cisco Systems Inc.,

German chemical company

BASF SE,

Japan’s

Panasonic Holdings Corp.

and U.K.-based AstraZeneca PLC. Siemens AG and

Bayer AG

, both based in Germany, also signed on.

The commission said it is reviewing feedback it received during a public consultation before finalizing a regulation that will detail how the new rules will be implemented. The final regulation, due in the second quarter of 2023, aims to give companies legal certainty on their rights and obligations and will clarify the information required from them, a spokeswoman said.

Beginning in October, companies that want to complete certain mergers or acquisitions, or bid on certain public contracts, will have to provide information about their past financial interactions with foreign governments. According to draft guidance from the commission, companies will have to report that information for a range of transactions so the commission can determine whether the subsidies were distortive and judge their net effect on the European market.

The foreign subsidy rules are part of a broader effort by the EU to protect its economic interests. Lawmakers separately reached a political agreement early Tuesday on a new tool to address economic coercion, which could make it easier for the bloc to retaliate against countries that try to use trade or investment restrictions as a pressure tactic.

Lawmakers who support the foreign subsidy have said they are aimed at creating a more equal playing field between European businesses and some of their heavily subsidized competitors. Those include Chinese state-backed companies, which often get cheap loans and other government benefits.

But competition lawyers and some multinational companies say the rules will have a significant impact on them, even if their only financial interactions with governments involve basic day-to-day operations such as paying a utility bill.

EU Executive Vice President

Margrethe Vestager

said recently that the commission would aim to keep red tape to a minimum and target the kinds of subsidies the bloc finds most concerning.

“We intend to focus on major distortions,” Ms. Vestager said earlier this month. “It is a priority in the implementation that we ensure that the compliance burden, particularly on smaller entities, is kept as low as possible.”

The companies that signed the letter said the information the commission expects them to report is “enormous and disproportionate” and goes far beyond what is required for any other regulatory review. “It is practically impossible to implement the FSR as currently proposed,” their letter said.

Some industry groups in the EU have said they support the new rules because they hope they can help businesses that have been harmed by subsidies from outside the bloc.

BusinessEurope, a lobby group, said the foreign subsidy rules have the potential to level the playing field for businesses in Europe. But the group said more clarity is needed on how the EU will keep the administrative burden for companies and public authorities as low as possible.

Jay Modrall, an antitrust lawyer with law firm Norton Rose Fulbright, said multinational companies will have to set up complex new systems or modify the systems they have to comply with the new rules because they don’t already track the information the commission is requesting.

While the regulation is meant to help European companies, he said, multinationals that are based in the EU “are as likely as non-European multinationals to enter into transactions requiring notification—if not more so.”

Write to Kim Mackrael at [email protected]

The new foreign-subsidy rules, which are set to take effect later this year, will give regulators new tools to bar companies from making certain acquisitions or winning large public contracts if they previously benefited from government aid that the commission believes was distortive. 

That means companies will need to track many dealings with foreign governments that competition lawyers say could include public contracts, utility bills and even social security benefits paid to employees.

“Companies currently do not have systems in place to monitor these interactions,” the letter said. Unless the plan changes, it said important merger and acquisition transactions could be disrupted, “and public tender procedures may come to a standstill or suffer a significant reduction in the number of competitive bids that are submitted.”

The letter was signed by 21 companies, more than half of which are based in EU countries. Companies that added their names include San Jose, Calif.-based

Cisco Systems Inc.,

German chemical company

BASF SE,

Japan’s

Panasonic Holdings Corp.

and U.K.-based AstraZeneca PLC. Siemens AG and

Bayer AG

, both based in Germany, also signed on.

The commission said it is reviewing feedback it received during a public consultation before finalizing a regulation that will detail how the new rules will be implemented. The final regulation, due in the second quarter of 2023, aims to give companies legal certainty on their rights and obligations and will clarify the information required from them, a spokeswoman said.

Beginning in October, companies that want to complete certain mergers or acquisitions, or bid on certain public contracts, will have to provide information about their past financial interactions with foreign governments. According to draft guidance from the commission, companies will have to report that information for a range of transactions so the commission can determine whether the subsidies were distortive and judge their net effect on the European market.

The foreign subsidy rules are part of a broader effort by the EU to protect its economic interests. Lawmakers separately reached a political agreement early Tuesday on a new tool to address economic coercion, which could make it easier for the bloc to retaliate against countries that try to use trade or investment restrictions as a pressure tactic.

Lawmakers who support the foreign subsidy have said they are aimed at creating a more equal playing field between European businesses and some of their heavily subsidized competitors. Those include Chinese state-backed companies, which often get cheap loans and other government benefits.

But competition lawyers and some multinational companies say the rules will have a significant impact on them, even if their only financial interactions with governments involve basic day-to-day operations such as paying a utility bill.

EU Executive Vice President

Margrethe Vestager

said recently that the commission would aim to keep red tape to a minimum and target the kinds of subsidies the bloc finds most concerning.

“We intend to focus on major distortions,” Ms. Vestager said earlier this month. “It is a priority in the implementation that we ensure that the compliance burden, particularly on smaller entities, is kept as low as possible.”

The companies that signed the letter said the information the commission expects them to report is “enormous and disproportionate” and goes far beyond what is required for any other regulatory review. “It is practically impossible to implement the FSR as currently proposed,” their letter said.

Some industry groups in the EU have said they support the new rules because they hope they can help businesses that have been harmed by subsidies from outside the bloc.

BusinessEurope, a lobby group, said the foreign subsidy rules have the potential to level the playing field for businesses in Europe. But the group said more clarity is needed on how the EU will keep the administrative burden for companies and public authorities as low as possible.

Jay Modrall, an antitrust lawyer with law firm Norton Rose Fulbright, said multinational companies will have to set up complex new systems or modify the systems they have to comply with the new rules because they don’t already track the information the commission is requesting.

While the regulation is meant to help European companies, he said, multinationals that are based in the EU “are as likely as non-European multinationals to enter into transactions requiring notification—if not more so.”

Write to Kim Mackrael at [email protected]