Closing the regulatory gap – answers (and new questions) from the Foreign Subsidies Regulation

This article discusses the way in which the Foreign Subsidies Regulation (FSR) attempts to close a regulatory gap left between EU State aid rules, WTO anti-subsidy rules and foreign direct investment (FDI) monitoring rules. In particular, it presents key similarities and differences in the substantive assessment undertaken by the Commission in State aid control, and that which it may be expected to apply under the FSR, from the economics perspective. While the Commission is likely to apply very similar tools to those of State aid control in order to determine whether a foreign financial contribution confers a benefit on an undertaking (i.e. the market economy operator principle), there are also a number of ways in which the assessment under the FSR may be expected to differ from State aid practice. Specifically, the FSR is likely to require a more in-depth assessment of the distortive effects of foreign subsidies. This will require a novel approach to developing and testing ‘theories of harm’, taking inspiration from State aid, trade defence and merger control. Finally, the broader scope of the ‘balancing test’ (weighing up positive and negative effects of subsidies) compared to State aid, while likely necessary to match the closer focus on distortive effects of the aid, raises new question on its application by the Commission in practice.