Two years since the entry into force of the FSR: just a weapon or also a shield?
Introduction
Since 12 October 2023, undertakings are required to notify concentrations and bids for tenders involving funding from non-EU states to the European Commission (“Commission”) based on the Foreign Subsidies Regulation (“FSR”). A lot has happened in the field of FSR since then. In 2024 alone, 102 concentrations were notified under the FSR and more than two-thousand notifications of public tenders were received. This is seven times more than the Commission initially anticipated.
In previous blog posts, (see blog of 8 November 2021 and blog of 18 October 2023) we have already discussed the content of the regulation itself in detail. In this blog, we discuss the most recent developments: various investigations initiated (and completed) by the commission, of which the e&/PPF Telecom Group decision offers useful insights into the FSR’s assessment framework. Based on these developments, we also discuss the possibilities for third parties to use the FSR when they experience unfair competition from foreign-subsidised undertakings.
Overview
A quick refresher: what does the FSR entail?
The aim of the FSR is to contribute to economic sovereignty, including in the geopolitical sphere, and to create a level playing field between EU and non-EU companies operating in the EU. Under the FSR, the Commission has the power to investigate non-EU subsidies granted to an undertaking that carries out economic activities in the internal market. It can do so on its own initiative (ex officio) or following a mandatory notification of a concentration or tender.
The notification requirement applies to acquisitions, mergers or the creation of joint ventures where (i) at least one of the merging parties (in the case of mergers), the target company (in the case of acquisitions), or the joint venture is established in the eu and has a total EU turnover of at least € 500 million; and (ii) all the undertakings concerned (and the groups to which they belong) have collectively received more than € 50 million in foreign financial contributions (“FFC”) during the previous three years.
FFC is understood to mean any form of transfer of financial resources from a third country (public organization or private entity whose behaviour can be attributed to the government). In order to determine whether the second threshold has been met, the conditions under which the FFCs were provided are irrelevant. Whether the FCC involves an ‘advantage’ and ‘selectivity’ only plays a role in the substantive assessment.
The impact of the FSR, and in particular the administrative burden for reporting parties and the Commission itself, has proved to be considerably greater than initially expected. In order to address the many nuances and complexities involved in applying the FSR notification thresholds, and to limit the FFC reporting obligation where possible – particularly where private equity funds are involved – the Commission has drawn up a comprehensive Q&A on procedural and jurisdictional issues. An evaluation of the FSR is currently underway. In the context thereof the Commission has asked market participants for feedback and will, among other things, examine whether there are opportunities to simplify and clarify the process.
Call-in power
In addition to the notification thresholds, the FSR also provides the Commission with the power to require pre-closing FSR notification of a concentration if it suspects that foreign subsidies have been granted to the undertakings concerned in the three years prior to the concentration (Article 21(5) FSR). The Commission’s request must be made before the concentration is implemented. This call-in power can be useful when, for example, the Commission becomes aware of a concentration through a merger control filing which, although it does not meet the FSR thresholds, appears to involve foreign subsidies.
An example of this is the acquisition of Arbonia by the Chinese undertaking Midea. During the merger control assessment, the Commission sent an FSR information request to the parties involved. Though this ultimately did not lead to a request for notification, it does demonstrate the Commission’s willingness to exercise its call-in powers where necessary.
Pursuant to Article 46 FSR, the Commission must publish guidelines (FSR-guidelines) by 12 January 2026 at the latest. These guidelines will address, amongst other things, the Commission’s power to invoke concentrations or procurement procedures and clarify certain technical concepts. In March of this year, the Commission launched a public consultation on this matter, and last summer, the Commission presented a first draft of the guidelines to the market. These guidelines indicate that the Commission believes that even concentrations well below the € 500 million EU turnover threshold can also be ‘called-in’, for example when strategic assets are involved or the buyer exhibits certain purchasing behaviour.
FSR in practice: the first completed and ongoing investigations
The Commission’s decision-making practice shows that it is focusing on sectors that are strategically important for the EU. In particular, transactions in the energy, telecoms and infrastructure sectors involving subsidies from Chine and the Gulf states are affected by FSR supervision.
The first FSR commitment decision: e&/PPF Telecom Group
On 26 April 2024, the proposed acquisition of PPF Telecom Group by e& was notified. Following an in-depth investigation, the Commission approved the acquisition on 24 September 2024, subject to conditions. The published decision provides important insight into the framework for the material assessment of internal market distortions caused by foreign subsidies.
e& is a telecommunications provider based in the United Arab Emirates (“UAE”). The UAE’s federal sovereign wealth fund, the Emirates Investment Authority (“EIA”), controls and holds a majority stake in e&. PPF Telecoms Group is a telecommunications operator active in Bulgaria, Hungary, Serbia and Slovakia. The decision states that e& benefited from (i) a loan from a consortium of banks (four state-controlled banks and one private entity), (ii) an unlimited state guarantee, (iii) direct subsidies and loans from the UAE Ministry of Finance, and (iv) a revolving credit facility from a consortium of UAE banks.
The Commission first examined whether these FFCs qualify as ‘foreign subsidies’ within the meaning of Article 3 FSR. Only the loan to e& (under (i)) was not considered a foreign subsidy as it was not considered an ‘advantage’. The next question is whether these foreign subsidies actually distorted the market (taking into account the legal presumptions in Article 5 FSR). To this end, the Commission first identified the activities concerned and thus the relevant market(s). In its assessment, the Commission distinguished between two situations: (i) distortion of competition during the acquisition process, and (ii) distortion of competition on the market (post-transaction).
To determine whether a market distortion has occurred or may occur, the Commission applies the two-step approach as set out in Article 4 FSR:
- does the foreign subsidy improve the competitive position of an undertaking in the internal market; and
- does it actually or potentially adversely affect competition in the internal market?
In the event of market distortion, the Commission balances on the one hand the positive effects of the subsidy (and the causal link between the effects and the subsidy) put forward by the merging parties and, on the other hand, the market distortion observed, in accordance with Article 6 FSR. In the present case, the Commission concluded that the foreign subsidies did not promote e&’s competitive position in the takeover process, but that e& could gain a competitive advantage after the transaction.
In order to address the Commission’s concerns, e& offered commitments at an early stage of the investigation. This enabled the Commission to take a decision without having to formalize its concerns in a Statement of Grounds. In accordance with Article 7(2) and (3) FSR, the commitments must remedy the distortion in the internal market completely, effectively and proportionately. The decision shows that the Commission has accepted several commitments, including the non-application of provisions in e&’s articles of association that deviated from bankruptcy law in the UAE (meaning that the unlimited guarantee would no longer be valid). Moreover, the parties have committed that e& (and its affiliates) may not finance any of the target’s EU companies and may only enter into transactions on market terms. The commitments are valid for a period of 10 years.
Ongoing FSR investigations
Recently, commitments were also offered in another second-phase investigation, as a result of which the Commission conditionally approved the proposed acquisition of Covestro by ADNOC on 14 November 2025. Covestro is a German undertaking that produces plastics and polymers for, among others, the automotive and construction industries. ADNOC is a state-owned oil giant from Abu Dhabi. The Commission came to the preliminary conclusion that the foreign subsidies ADNOC received from the UAE enabled an aggressive investment strategy that deterred other investors.
ADNOC has agreed to amend the unlimited state guarantee in its articles of association and to make Covestro’s patents for sustainable technologies available to third parties under transparent conditions. This brings the second in-depth concentration investigation under the FSR to an end well ahead of the March 2026 deadline.
Another investigation that has attracted a lot of attention is the ex officio investigation launched by the Commission on 23 April 2024 into Nuctech, a Chinese manufacturer of security equipment. The Commission raided Nuctech’s premises in the Netherlands and Poland and seized a large number of documents. In preliminary relief proceedings brought by Nuctech, the General Court ruled that there were no grounds to prevent the Commission from including the email correspondence obtained in its investigation. The General Court considered that EU regulators must have access to data stored outside the EU, for example on servers in China. The risk of fines and criminal charges under Chinese law for disclosing trade secrets does not justify suspending the Commission’s investigation, according to the EU judges. Nuctech’s appeal to the Court of Justice has also been rejected.
In addition to the EU court’s confirmation of a far-reaching obligation to cooperate in FSR raids, the Commission may also – in the event of lack of cooperation – conduct investigations on the basis of ‘available facts’ (Article 14(3)(b) FSR). The threat of basing an investigation on (unfavourable) information from competitors or customers will generally compel parties to cooperate.
The Commission has furthermore launched investigations into several tenders, namely:
- A public procurement procedure by the Bulgarian Ministry of Transport and Communications for the supply of 20 electric push-pull trains and related maintenance and staff training-services. A subsidiary of the state-owned CRRC Corporation is alleged to have received € 1.7 billion in foreign subsidies to win the Bulgarian tender.
- Two bids for a public contract for the development, construction and implementation of a solar park in Romania. The level of the bids submitted by Shanghai Electric and Longi Green Energy Technology (both linked to Chinese state-owned companies) compared to the bids submitted by other interested parties and to the value of the contract prompted the Commission to launch an investigation.
- Goldwind Science & Technology, a Chinese supplier of wind turbines to wind farms in Spain, Greece, France, Romania, Bulgaria and Germany, is reportedly the subject of a Commission investigation after complaints by European companies.
CRRC Corporation, Shanghai Electric and Longi Green Energy have all ultimately withdrawn from the respective tendering procedures. In response, former European Commissioner for the Internal Market, Thierry Breton, emphasized that the importance of developing renewable energy sources for Europe should not come at the expense of industrial competition and European employment.
There has been considerable criticism from China regarding the investigations conducted under the FSR. On 9 January 2025, the Chinese Ministry of Commerce (MOFCOM) published a report claiming that the Commission’s actions and investigations into Chinese companies create major trade and investment barriers. The Commission’s investigations are said to lack transparency and a time limit. The China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME) has repeatedly urged the Commission to provide clarification so that investigations are conducted fairly and transparently on the basis of clear, pre-defined criteria.
Implications and opportunities for complainants
The Commission intends to enforce the FSR rigorously. Enforcement of the FSR is mentioned simultaneously with enforcement of competition and merger rules, with the aim of ensuring economic security and reducing dependence on non-European entities.
In view of the ex officio policy and the forthcoming clarifications on the use of the Commission’s call-in power, there will be (more) opportunities for third parties (complainants) to alert the Commission of companies receiving improper subsidies from third countries. Third parties, such as competitors of a company involved in a transaction or EU tender, can signal suspected cases to the Commission. For example, following complaints from Électricité de France (EDF), the Commission asked the Czech State formal questions about its award of a contract to South Korea’s Korea Hydro & Nuclear Power to build a nuclear power plant. EDF was one of the other bidders in the procurement procedure.
Third parties can also rely on the FSR in other cases. In times of trade wars, foreign undertakings are more inclined to avoid import duties, for example by opening production facilities within the EU. A well-known example concerns Chinese manufacturers of electric cars, such as BYD, opening a factory in Hungary. These companies can enjoy a competitive advantage in the internal market without their activities triggering an FSR notification. The Commission reportedly opened an FSR investigation into BYD in March 2025 (in addition to an ongoing anti-subsidy investigation). It is expected that such ex officio investigations – whether or not based on signals from the market – will play an even more important role in the future.
Undertakings in the European Union would therefore do well to be alert to the possible presence of non-European subsidies to their competitors, especially if they notice that this may distort the competitive playing field. In such cases, it is advisable to report this to the Commission, whether on a confidential basis or not.