It's Thierry Breton's World

And we're all just living in it

Programming note: MFN has temporarily switched to a Tuesday release date because my second child will be arriving on Thursday … meaning it is unlikely I will be in a fit state to write something on Friday morning.

One of the most annoying things about writing a trade newsletter is that the FT’s Alan Beattie exists and often writes about the thing you were going to write about, better than you would write about it, before you get the chance to write about it.

On that note, if you have an FT subscription and would like to read Alan’s take on the EU’s recent foreign subsidies regulation investigation, here’s the link.

If you’re happy to settle for second-tier trade commentary, then please read on …

On 4 April, the European Commission opened two in-depth investigations under the Foreign Subsidies Regulation in the solar photovoltaic sector:

Today, the Commission launched two in-depth investigations under the Foreign Subsidies Regulation. The investigations relate to the potentially market distortive role of foreign subsidies given to bidders in a public procurement procedure. The Commission will assess whether the economic operators concerned did benefit from an unfair advantage to win public contracts in the EU.

The investigations launched today follow notifications submitted by on the one hand the ENEVO Group including LONGi Solar Technologie GmbH, and on the other hand Shanghai Electric UK Co. Ltd. and Shanghai Electric Hong Kong International Engineering Co. Ltd. The relevant public procedure was launched by a Romanian contracting authority (Societatea PARC FOTOVOLTAIC ROVINARI EST S.A.) for the design, construction and operation of a photovoltaic park in Romania, with an installed power of 454.97 MW*. This project is partially financed by the EU Modernisation Fund.

You will note that both of the two firms are China-linked.

To recap, the foreign subsidies regulation is a new weapon in the EU anti-China/Trump arsenal, and should not be confused with with a normal anti-subsidy trade defence investigation.

Whereas a normal anti-subsidy investigation involves the EU investigating subsidies granted to foreign manufacturers of, say, electric vehicles, which are then exported to the EU, the foreign subsidies regulation allows the European Commission to investigate distortive subsidies granted to companies operating with the EU.

The foreign subsidies regulation is split into three strands:

1. A notification-based procedure to investigate concentrations involving financial contributions granted by non-EU governments, where the acquired company, one of the merging parties or the joint venture generates an EU turnover of at least €500 million and the parties were granted foreign financial contributions of more than €50 million in the last three years;

2. A notification-based procedure to investigate bids in public procurement procedures involving financial contributions by non-EU governments, where the estimated contract value is at least €250 million and the bid involves a foreign financial contribution of at least €4 million per third country in the last three years; and

3. An ex officio procedure to investigate all other market situations, where the Commission can start a review on its own initiative.

Prior to the regulation’s entry into force, quite a lot of the trade chat was about number 3, the ex officio powers.

These grant the Commission carte blanche to pretty much go after anyone they want. In practice, this hasn’t amounted, so far, to much more than (amusingly) La Liga trying to convince the Commission to start an investigation into Qatari-owned Paris San German:

LALIGA has filed a complaint alleging that PSG has received foreign subsidies from the State of Qatar, which has allowed it to improve its competitive position, thus generating significant distortions in several national and EU markets.

Specifically, as outlined in the complaint, PSG obtains resources on non-market terms which distort several closely related markets, allowing PSG to use those foreign subsidies to sign top players and coaches well above its potential in a normal market situation. It is also able to secure sponsorship income which does not correspond to market values. This enables them to boost their sporting performance, as well as affecting the ability of rival clubs to recruit.

This improved sporting position then enables PSG to increase its competitive position in markets related to sporting competitions (e.g. those for the audiovisual marketing of competitions or the sponsorship market), thereby artificially increasing the club's value within said markets.

Instead, all of the action has been in pillar 2, foreign subsidies in respect of public procurement bids.

Prior to last week’s solar investigation, the first-ever deep dive was in relation to a public procurement procedure launched by Bulgaria's Ministry of Transport and Communications, relating to the provision of several electric “push-pull” trains as well as related maintenance and staff training services. Again, the bidder was China-linked, and ultimately the bidder pulled out before the investigation concluded.

So why procurement? Why not M&A and ex officio headhunting, as everyone expected?

The answer, to my mind, is quite simple, procurement is the responsibility of DG Grow [emphasis added]:

The Directorate-General for Competition (DG COMP) is responsible for enforcing the FSR as regards concentrations and to start ex officio procedures to tackle the distortions on the internal market caused by foreign subsidies outside public procurement procedures. In case of questions, an email can be sent to DG COMP's Foreign Subsidies Registry functional email address: comp-fsr-registry@ec.europa.eu

The Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (DG GROW) is responsible for enforcing the FSR as regards financial contributions in public procurement procedures and to start ex officio procedures to tackle the distortive effects of foreign subsidies in public procurement procedures. In case of questions regarding the application of the FSR on public procurement procedures, an email can be sent to DG GROW's functional email: grow-fsr-pp-notifications@ec.europa.eu

And you know who is in charge of DG Grow?

The main man himself:

Case closed.

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