Measures targeted at China may affect investment in the EU from the U.S. and the UK.
France’s soon-to-expire European presidency is pushing for agreement on a central plank of a new trade defence platform later this month, despite criticism from multinationals which claim the legislation will raise the bar for foreign direct investment in the eurozone too high, EU officials told MNI.
The Foreign Subsidies Tool was originally conceived as a measure to combat takeovers of EU firms and public procurement contracts by state-backed – and often Chinese – foreign entities. But since it was never going to be possible to design a specifically anti-Chinese takeover law, the scope of the draft legislation has widened to a point where companies from the U.S., Switzerland, Canada, Japan, the UK and the EU itself are going to be caught in the net.
Securing agreement on the dossier – which could happen on June 30 when the second trialogue with the EU Parliament is due to take place – would be something for Paris to add to its EU Presidency scorecard following French elections which have made it warier of tackling more controversial policy issues such as reform of EU fiscal rules, officials said. (See MNI: EU Steers Away From Big Changes To Debt Rules) France’s determination to drive the legislation through reflects its strong attachment to the EU’s Strategic Autonomy agenda as well as a tradition of protectionism, they added.
The draft law, entering a final negotiation period between member states and the European Parliament, will give the Commission new powers to investigate distortions of competition in the EU single market caused by foreign subsidies.
“People usually think of Chinese and possibly Russian companies in connection with potentially distortive foreign subsidies, and the Commission may well focus its own-initiative investigations on those jurisdictions,” said EU Anti-Trust Lawyer at Norton Rose Fulbright, Jay Modrall.
But that part of the law does not pose a problem for the vast majority of companies.
“More impactful”, he said, will be new mandatory notification and review requirements for M&A and public procurement. All multinationals engaging in significant M&A and/or public tenders in the EU will need to be able to comply from day one. To do so, they will need to collect three years’ worth of worldwide data on government financial contributions, data not currently tracked in financial reporting systems.
“That will be a huge administrative burden,” Modrall said. “I’ve heard in-house teams even at the largest multinationals, who have essentially unlimited resources, say that they don’t know how they will comply.”
The complaints of international businesses seem to be so far falling on deaf ears when it comes to EU member states and the European Parliament, given widespread resolve to turn long-running talk of strategic autonomy into a reality, but that could change, said some observers.
“I have heard that there is something of a disconnect between the presidencies, with the French about to hand over to Czechia (start of July),” said Brussels British Chamber of Commerce President Tom Parker. “The French like to dress this up as being in the strategic interest of the euro, but there is the perception of an undercurrent of French economic nationalism, while the Czechs have an aversion to that, being an open, free market, free trade member state.”
German member of the European Parliament Markus Ferber thinks a compromise, more business-friendly but still tackling the malign influence of foreign subsidies, is still possible.
“We need a regime that makes sure that Europe remains open for business and protects European businesses,” he said. ”I very much believe that such a compromise is viable. We just need to make sure that the foreign subsidies tool is not abused by those that have an anti-trade agenda anyway”.