The EU Foreign Subsidies Regulation: Implications for Public Procurement and Some Collateral Damage

Abstract

The European Union has erected a significant new barrier to foreign competitors that seek to compete in EU Member State public procurements. In the European Union there are uniform rules (known as “State aid” rules) on subsidies for all Member States, which are intended to ensure that competition in the internal market is not distorted by government subsidies. To counter (perceived) disadvantages of EU firms when competing with competitors from non-EU countries not subject to the EU “State aid” regime, the EU has adopted the Foreign Subsidies Regulation (FSR), which entered into force in January 2023 and will go into full effect in October 2023. The FSR poses significant challenges for firms from outside the EU (such as the U.S. or China) that hope to compete in procurement procedures, or engage in mergers and acquisitions (M&A) involving the EU. This article focuses on the FSR’s requirements for vendors from abroad that will compete in EU Member States for covered procurements, including defense procurements. As the discussion reflects, vendors that intend to compete in EU Member State procurements should prepare for the FSR’s requirements regarding government support, or risk being excluded or sanctioned by the European Commission.

JEL Classification: F13, H57