Brussels moves to control takeovers of EU companies by foreign governments

Commissioner Vestager said that "openness requires fairness".
Commissioner Vestager said that "openness requires fairness". Copyright Yves Herman/AP
Copyright Yves Herman/AP
By Jorge Liboreiro
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The European Commission has proposed a new law to investigate the activity of companies that receive subsides from non-EU governments.


The European Commission wants to have a greater say on the acquisitions and subsidies made by foreign governments inside the EU's single market.

The move comes as countries like China and India extend their economic reach in the bloc, take over European companies and distort competition through generous use of state aid.

Around 3% of European companies are owned or controlled by non-EU investors, according to a 2016 analysis. However, this small percentage represents entities controlling more than 35% of total assets and responsible for 16 million jobs.

For the last 60 years, the European Union has had strong rules in place to scrutinise state aid but they only apply to financial contributions granted by EU governments. This presents an opportunity for non-EU countries to freely enter the single market and inject subsidies, such as zero-interest loans, unlimited guarantees, preferential tax treatments and direct grants.

As a result, the companies that benefit from these special arrangements enjoy a stronger position to acquire European firms and win public contracts in calls for tenders. The EU's public procurement market is one of the largest in the world, worth over €2.4 trillion.

The Commission believes this advantageous position and lack of surveillance leads to unfair competition and undermines the single market's integrity.

"Europe is a trade and investment superpower. In 2019, more than 7 trillion euros of foreign direct investments flowed into the EU. Openness of the single market is our biggest asset. But openness requires fairness," said Commission Executive Vice-President Margrethe Vestager, who is in charge of competition policy.

Vestager's team monitors and green-lights state aid programmes proposed by member states, which have significantly intensified during the coronavirus pandemic.

For example, earlier this month, the Commission approved a €400 million Danish aid scheme to support production of renewable energy. The competition departments also surveys takeovers and merges. In 2019, Vestager vetoed Siemens' high-profile bid to acquire Alstom, a deal that was supposed to create a European rail champion.

Until now, the executive lacked similar powers to oversee the activities of non-EU governments. The Commission is moving decisively to close this loophole and has put forward a new regulation to empower itself.

According to Vestager, the regulation will make the EU the first trading bloc with tools against harmful subsides coming from both inside and outside its own market. The law will apply to every economic sector and examine state aid coming from all non-EU countries.

Market surveillance, paybacks and fines

The 65-page-low draft regulation envisions a Commission with the power to actively investigate state aid schemes of non-EU countries that benefit companies doing business inside the bloc.

The proposed regulation introduces three different tools to investigate cases where financial contributions from foreign countries are involved:

  • Investigations into acquisitions and mergers. The company's turnover inside the EU must be €500 million or more, while the foreign subsidy must be at least €50 million.
  • Investigations of bids in public procurement. The value of the public contract must be €250 million or more.
  • Investigations into all other market situations, including smaller public contracts and acquisitions that fall below the aforementioned thresholds.

The first two investigations will be launched when the Commission receives a notification from the acquirer or the bidder. Until the executive completes its review, the business deal can't go ahead. The third tool will be used by the Commission on its own initiative when it suspects a foreign subsidy may be involved in the transaction.

If the investigation indicates that the foreign subsidy has the potential to distort competition, the Commission will have a diverse range of corrective measures at its disposal, such as the repayment of the foreign subsidy, the divestment of selected assets or the reduction of market presence.

The Commission will also be entitled to prohibit an acquisition or the public contract that a subsided company is attempting to secure.

Companies that fail to notify Brussels about the involvement of a foreign subsidy could be slapped with fines of up to 10% of their annual turnover.

As it is the case for state aid of EU governments, the enforcement of the new rules will lie exclusively with the Commission to ensure its uniform application.


From 'traditional' to new foreign investors

The draft law will now have to be discussed by the national ministers in the Council and by Members of the European Parliament before it becomes enforceable.

"Massive foreign subsidies may distort the single market & lead to unfair competition, for example when it comes to public procurement. Good that the Commission is finally taking action!" said MEP Anna Cavazzini, who chairs the parliament's committee on Internal Market (IMCO).

The regulation follows a call from EU leaders in March 2019, when they asked the Commission to identify "new tools to address the distortive effects of foreign subsidies on the single market". This led to the publication of a white paper last year, which laid the groundwork for the new law.

The Commission is determined to maintain the bloc's reputation of open space for business but, as non-Western countries grow and increase their purchasing power, it is wary that more and more EU firms will end up falling in the hands of non-EU owners.

Foreign ownership of EU companies has continued to rise over the last 10 years. Between 1,500 to 2,000 foreign investors come to the bloc every year.


Using competition law as a means to curb the trend gives Brussels a chance to remain open while promoting fair and predictable rules for all economic actors, regardless of their origin.

So-called "traditional" investors, such as the United States, Switzerland, Norway, Canada, Australia and Japan, still dominate the acquisition market in the European Union, although in recent years, new investors like China and India have deepened their reach.

China, Hong Kong and Macao own around 10% of all the EU companies controlled by non-EU actors. The United States and Canada take up 30% of them.

"While state-owned companies represent only a small proportion of foreign acquisitions, their share in the number of acquisitions and their assets have grown rapidly over the latest years. Russia, China and the United Arab Emirates stand out in this respect," the Commission said in a 2019 paper.

Foreign ownership can be found in virtually all sectors of the bloc's economy, but it is particularly pronounced in areas like oil refining, pharmaceuticals, electronic and optical products, insurance and electrical equipment.

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