This post examines two developments relating to the European Union’s (EU) implementation of its Foreign Subsidies Regulation (FSR). First is China’s findings that the EU discriminated against Chinese firms in undertaking three in-depth investigations under the FSR. The second development is the EU’s call for public input on FSR guidelines to be issued in January 2026. The discussion begins with a brief overview of the FSR and its application to date to public procurement in the EU. (The post does not examine the FSR’s application to mergers and acquisitions.)
The FSR is intended to ensure that recipients of subsidies from a non-EU country do not gain an unfair advantage in EU procurement with bids below market prices or below cost. The regulation requires firms participating in large EU public tenders (€250 million or more) to notify financial contributions that they have received from foreign governments. If after a preliminary review of the notifications, the EU believes foreign subsidies have given a firm participating in a public procurement an unfair advantage, the Commission initiates an in-depth investigation. Upon a finding that there are “sufficient indications” a bidder received a foreign subsidy that distorted the internal market, the Commission can prohibit the award of a contract to the subsidized bidder.
Since FSR implementation began in July 2023, the EU has received more than 1100 filings in public procurements. From these filings, the European Commission has initiated three in-depth investigations—all against Chinese firms—based upon “sufficient indications” that their bids in EU procurements benefited from foreign subsidies. In each case, the Chinese firm withdrew from the procurement before the Commission completed its investigation. It closed the cases and did not adopt any definitive substantive decision.
China’s FSR Report: China’s Ministry of Commerce (MOFCOM) launched an investigation in July 2024, to determine whether the EU’s application of the FSR was discriminating against Chinese enterprises and restricting their market access. The Ministry concluded in a January 2025 decision that the EU’s practices under the FSR targeting Chinese enterprises constitute trade and investment barriers under Article 3 of China’s Rules on Trade and Investment Barrier Investigations. It found that the FSR created obstacles for Chinese products, services, and investments entering the EU market and harmed their competitiveness. It cited specific practices, including selective enforcement (exclusively targeting Chinese enterprises for in-depth investigations), ambiguity in defining subsidies, excessive administrative burdens, lack of transparency, excessive enforcement measures, flawed and subjective market distortion assessments, and reversal of burden of proof. Under its Rules, MOFCOM could seek bilateral consultations with the EU, invoke a multilateral dispute settlement mechanism, or take other measures to rebalance its market access. It is unclear what actions MOFCOM may take.
An international law firm has pointed out that “MOFCOM’s decision encapsulates the various procedural and substantive concerns that could be raised by parties seeking to challenge FSR enforcement.” It further observed that MOFCOM’s determination is unlikely to deter the Commission from investigating Chinese subsidies “but may put additional pressure on [it] to ensure its investigative practices and decisions are well-founded and proportionate.”
EU Prepares for FSR Guidelines: On March 5, the European Commission launched a call for public comments on guidelines relating to the implementation of the FSR, which it is required to issue in January 2026. It is seeking input on topics to be included in the guidelines, specifically:
— how to determine when a foreign subsidy distorts the internal market
— how to apply the balancing test to distortive foreign subsidies in order to assess whether a foreign subsidy’s positive effects outweigh its distortive effects
— the assessment of a distortion in a public procurement, such as the meaning of an “unduly advantageous” tender and the need for a link between the foreign subsidy and the tender
— the power to request prior notification of foreign financial contributions received in public procurement for which notification is not required (that fall below the notification thresholds)
The Guidelines are intended to contribute to legal certainty, transparency and predictability in the Commission’s enforcement of the FSR. In addition to these issues, businesses could comment on other aspects of the FSR for EU consideration in other reviews of the regulation. Comments can be submitted on the EU’s “Have your say” portal until April 2, 2025. The Commission is also conducting a consultation with member states and selected stakeholders.
This post examines two developments relating to the European Union’s (EU) implementation of its Foreign Subsidies Regulation (FSR). First is China’s findings that the EU discriminated against Chinese firms in undertaking three in-depth investigations under the FSR. The second development is the EU’s call for public input on FSR guidelines to be issued in January 2026. The discussion begins with a brief overview of the FSR and its application to date to public procurement in the EU. (The post does not examine the FSR’s application to mergers and acquisitions.)
The FSR is intended to ensure that recipients of subsidies from a non-EU country do not gain an unfair advantage in EU procurement with bids below market prices or below cost. The regulation requires firms participating in large EU public tenders (€250 million or more) to notify financial contributions that they have received from foreign governments. If after a preliminary review of the notifications, the EU believes foreign subsidies have given a firm participating in a public procurement an unfair advantage, the Commission initiates an in-depth investigation. Upon a finding that there are “sufficient indications” a bidder received a foreign subsidy that distorted the internal market, the Commission can prohibit the award of a contract to the subsidized bidder.
Since FSR implementation began in July 2023, the EU has received more than 1100 filings in public procurements. From these filings, the European Commission has initiated three in-depth investigations—all against Chinese firms—based upon “sufficient indications” that their bids in EU procurements benefited from foreign subsidies. In each case, the Chinese firm withdrew from the procurement before the Commission completed its investigation. It closed the cases and did not adopt any definitive substantive decision.
China’s FSR Report: China’s Ministry of Commerce (MOFCOM) launched an investigation in July 2024, to determine whether the EU’s application of the FSR was discriminating against Chinese enterprises and restricting their market access. The Ministry concluded in a January 2025 decision that the EU’s practices under the FSR targeting Chinese enterprises constitute trade and investment barriers under Article 3 of China’s Rules on Trade and Investment Barrier Investigations. It found that the FSR created obstacles for Chinese products, services, and investments entering the EU market and harmed their competitiveness. It cited specific practices, including selective enforcement (exclusively targeting Chinese enterprises for in-depth investigations), ambiguity in defining subsidies, excessive administrative burdens, lack of transparency, excessive enforcement measures, flawed and subjective market distortion assessments, and reversal of burden of proof. Under its Rules, MOFCOM could seek bilateral consultations with the EU, invoke a multilateral dispute settlement mechanism, or take other measures to rebalance its market access. It is unclear what actions MOFCOM may take.
An international law firm has pointed out that “MOFCOM’s decision encapsulates the various procedural and substantive concerns that could be raised by parties seeking to challenge FSR enforcement.” It further observed that MOFCOM's determination is unlikely to deter the Commission from investigating Chinese subsidies "but may put additional pressure on [it] to ensure its investigative practices and decisions are well-founded and proportionate."
EU Prepares for FSR Guidelines: On March 5, the European Commission launched a call for public comments on guidelines relating to the implementation of the FSR, which it is required to issue in January 2026. It is seeking input on topics to be included in the guidelines, specifically:
-- how to determine when a foreign subsidy distorts the internal market
-- how to apply the balancing test to distortive foreign subsidies in order to assess whether a foreign subsidy’s positive effects outweigh its distortive effects
-- the assessment of a distortion in a public procurement, such as the meaning of an “unduly advantageous” tender and the need for a link between the foreign subsidy and the tender
-- the power to request prior notification of foreign financial contributions received in public procurement for which notification is not required (that fall below the notification thresholds)
The Guidelines are intended to contribute to legal certainty, transparency and predictability in the Commission's enforcement of the FSR. In addition to these issues, businesses could comment on other aspects of the FSR for EU consideration in other reviews of the regulation. Comments can be submitted on the EU’s “Have your say” portal until April 2, 2025. The Commission is also conducting a consultation with member states and selected stakeholders.
