What is the European Union’s Foreign Subsidies Regulation (FSR)?

About Foreign Subsidies Regulation (FSR):

• The European Union’s FSR entered into force on 12 January 2023.
• Aim: Combating distortions of competition on the EU internal market caused by foreign subsidies. 
• It will allow EU to investigate financial contributions granted by non-EU governments to companies active in the EU, and prohibit the award of public contracts to a company that has unduly profited from foreign subsidies.
• It imposes mandatory notification and approval requirements for acquisitions of significant EU businesses and large EU public tenders, and gives the European Commission (EC) extensive powers to launch ex officio investigations. 
• The EC is the sole enforcer of the FSR.
• In cases where the European Commission finds that a foreign subsidy is distorting competition, it can impose various remedies, including
  • fines of up to 10% of the company’s annual aggregated turnover;
  • requiring the company to repay the foreign subsidy if competition distortion is confirmed;
  • banning the company from participating in public procurement;
• What Counts as Foreign Financial Contributions under the FSR?
  • FSR covers financial contribution from non-EU governments to firms operating in/exporting to EU’s market.
  • Such a contribution may be distortive where it confers a benefit not normally available on the market to a company in the EU, and that benefit is specific to one or more companies or industries as opposed to all companies or all companies active in a particular industry.
  • The contributions include direct grant, low-interest loan, tax incentives on goods or services at below-market prices, and provision of land or buildings at below-market prices.
  • FSR applies to transactions above a certain threshold. Companies must notify the European Commission if their transactions involving foreign subsidies exceed this threshold.
  • For mergers and acquisitions, notification is mandatory if the combined value of the merging companies’ assets exceeds €500 million, but not necessary if the value of foreign subsidies is less than €1 million.

Q1) What is the European Commission (EC)?

European Commission (EC), an institution of the European Union (EU) and its constituent entities that makes up the organization’s executive arm. The EC also has legislative functions, such as proposing new laws for the European Parliament, and judicial functions, such as finding legal solutions to business and trade issues between countries within the EU.

Source: EU’s new subsidy rule could hit India’s PLI