Mu-hyup "Concerns Over Decline in Competitiveness of Korean Companies in European Market Due to EU Extraterritorial Subsidy Regulations"

[Asia Economy Reporter Su-yeon Woo] Recently, concerns have arisen that the competitiveness of Korean companies in the European local market may decline as the European Union (EU) is pushing for legislation to strictly regulate the entry of foreign companies benefiting from subsidies into Europe.

The Brussels branch of the Korea International Trade Association (KITA) delivered a statement of opinion from Korean companies regarding the EU's extraterritorial subsidy regulations to the EU Commission on the 21st (local time). The statement was issued in the name of the European Korean Business Association, representing about 300 Korean companies operating in Europe.

In the statement, KITA pointed out, "Korean companies, which transparently operate subsidy regulations through the Korea-EU Free Trade Agreement (FTA), should not become unintended victims," and added, "The 'Ex officio review' provision included in the bill sets the scope of investigation excessively wide, raising a high possibility of abuse of authority due to arbitrary interpretation by European government authorities."

The EU Commission announced a draft regulation on 'extraterritorial subsidies that distort the domestic market' last May and is currently undergoing a stakeholder consultation process until July 22, with final approval by the European Parliament and Council and enactment of the law forthcoming.

According to the bill, foreign companies must report subsidy details received from their home governments over the past three years and obtain prior approval from EU authorities before acquiring or merging with companies of a certain scale in Europe or participating in public procurement. Submitting false information or failing to report can result in hefty fines amounting to 1-10% of sales revenue. Notably, the EU grants strong authority under the ex officio review clause for investigations to be initiated by EU authorities in any situation suspected of subsidy-related competition distortion, even if it is not related to mergers, acquisitions, or government procurement.

In response to this legislative move, the American Chamber of Commerce to the EU (AmCham EU) and the Chinese Chamber of Commerce to the EU (CCCEU) have also opposed the bill. The American Chamber stated in a position paper, "The regulation should only apply to countries that operate subsidies opaquely," and warned, "The cost burden and delays in preparing review materials will ultimately hinder innovation in the EU market." The Chinese Chamber emphasized, "Instead of introducing new legislation, it is important to utilize existing laws such as the Foreign Direct Investment Act and Antitrust Law to facilitate smooth information exchange between the EU and member states," expressing concerns that the bill could dampen foreign investment within the EU.

Jin-na Jo, head of KITA’s Brussels branch, said, "There is a risk of abuse as our competitors may intentionally request investigations using this bill, and if our companies become subjects of review or investigation, significant time and cost will be required to prepare materials, making timely investment and bid participation very difficult," adding, "We plan to actively respond through close cooperation with our companies in the future."

This content was produced with the assistance of AI translation services.