EU to Restrict Bidding by Subsidized Companies from July... Concerns Over Spillover Effects in Han

'Yeokoe Bojogeum Regulation' Enforced... Effective from July

[Asia Economy Reporter Haeyoung Kwon] In the future, companies receiving government subsidies are expected to find it increasingly difficult to participate in mergers and acquisitions (M&A) or public procurement within the European Union (EU). Although this measure is interpreted as targeting China, which nurtures its domestic companies with massive subsidies, there are concerns that administrative costs for Korean companies trying to enter the European market will also increase.

The EU Commission announced on the 12th (local time) that the "Foreign Subsidies Regulation" has come into effect and will be enforced starting this July.

According to the Foreign Subsidies Regulation, whose draft was released in early May 2021, non-EU companies receiving excessive subsidies from governments or public institutions that participate in M&A or public procurement within the EU will be considered engaging in "unfair competition" and will be regulated accordingly.

Under the new regulation, non-EU companies that have received subsidies of 50 million euros (approximately 67 billion KRW) or more and acquire an EU company with sales of at least 500 million euros must report this to the Commission. Companies receiving subsidies of at least 4 million euros from non-EU member countries must also report when participating in EU public procurement bids exceeding 250 million euros. The EU Commission may initiate ex officio investigations from July if it suspects distorted third-country subsidies are involved.

The reporting obligation will be imposed from October, and companies failing to report may face fines of up to 10% of their total annual turnover, the Commission explained. Sanctions such as prohibition of M&A contract conclusion and restrictions on participation in public procurement may also be imposed.

The Commission plans to prepare a draft of detailed implementation rules regarding reporting methods, deadlines, and access to confidential information related to M&A and public procurement within the next few weeks. After a four-week public consultation, it intends to finalize detailed implementation plans around mid-year.

Through the Foreign Subsidies Regulation that came into effect on this day, the EU Commission aims to protect domestic companies subject to stricter standards than foreign ones. It also intends to prevent indiscriminate market entry backed by government subsidies that distort market competition. This is widely interpreted as a measure targeting China, which nurtures its domestic companies with massive subsidies to enhance global competitiveness.

The Korean industrial sector is also expected to be affected by the enforcement of the EU Foreign Subsidies Regulation. Above all, the scope of subsidies is broad, as all financial support provided by governments and public institutions to individual companies is effectively considered a subsidy. Korean companies investing in M&A of EU domestic companies or participating in public procurement bids may have reporting obligations. In this regard, the Korea International Trade Association submitted a joint statement expressing industry concerns to the EU Commission last February together with business organizations from the United States and Japan.

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