The European Commission has published draft guidelines on the implementation of the Foreign Subsidies Regulation (FSR) and is soliciting public input on them. The FSR, which came into force in July 2023, empowers the Commission to address distortions caused by foreign subsidies in public procurement and in acquisitions and other direct investments. If after an investigation, the Commission finds that a tenderer in a public procurement has received a foreign subsidy that distorts the procurement, it can prohibit the award of a contract to the subsidized bidder. This post highlights the draft guidelines as they apply to public procurement.
The European Commission launched a public consultation on draft guidelines on the implementation of the FSR (FSR Guidelines) on July 17 (and is accepting comments until September 12). It published the draft guidelines on several technical concepts in response to an FSR mandate. They include the application of the criteria for determining the existence of a distortion, the application of the balancing test, the application of the Commission’s power to request prior notifications, and the assessment of a distortion in a public procurement. The Commission plans to publish the final guidelines by January 2026.
The draft FSR Guidelines provide guidance on how the Commission determines whether a foreign financial contribution in a public procurement constitutes a foreign subsidy that distorts competition. The Commission’s assessment of a distortion focuses on whether a foreign subsidy enables a company to submit an unduly advantageous tender. It may also consider whether a subsidy improves the tenderer’s competitive position and the actual or potential negative effect of the subsidies on the public procurement.
In determining whether a foreign subsidy actually or potentially negatively affects competition, the Commission may look at the other tenders submitted in the procurement in question to assess whether the subsidized tenderer had the potential to outbid others and to be awarded the contract. Foreign subsidies that cover a substantial part of the estimated value of the contract to be awarded are more likely to distort competition in that procurement.
The draft FSR Guidelines lists ways in which a foreign subsidy may enable a supplier to offer a more advantageous tender. They include “by reducing the price, by increasing the quality or by offering better terms related to e.g. delivery and lead times, warranties and after-sales support, payment terms, service level agreements, contractual flexibility, compliance with technical specifications, risk management, innovation, social and sustainability values.” If the advantageous nature of a tender cannot plausibly be explained by factors other than the foreign subsidy, the tender may be regarded as unduly advantageous.
Another topic addressed in the draft FSR Guidelines involves the balancing test, that is an assessment by the Commission of whether the positive effects of a subsidy outweigh the negative effects of a distortion. They clarify types of positive effects on the development of the relevant subsidized economic activity in the internal market, while confirming that such effects should be specific to the foreign subsidy. The performance of the balancing test is a case-by-case assessment that takes into account the specific circumstances of the procurement. The guidelines provide guidance on the methodology that the Commission will typically apply in performing the balancing test.
To date, the Commission has initiated three in-depth investigations—all against Chinese firms. In each case, the Chinese firm withdrew from the procurement before the Commission completed its investigation. In response, China conducted an investigation of the EU’s application of the FSR, concluding in a January 2025 report that the EU’s FSR practices targeting Chinese enterprises constituted trade and investment barriers.
The European Commission has published draft guidelines on the implementation of the Foreign Subsidies Regulation (FSR) and is soliciting public input on them. The FSR, which came into force in July 2023, empowers the Commission to address distortions caused by foreign subsidies in public procurement and in acquisitions and other direct investments. If after an investigation, the Commission finds that a tenderer in a public procurement has received a foreign subsidy that distorts the procurement, it can prohibit the award of a contract to the subsidized bidder. This post highlights the draft guidelines as they apply to public procurement.
The European Commission launched a public consultation on draft guidelines on the implementation of the FSR (FSR Guidelines) on July 17 (and is accepting comments until September 12). It published the draft guidelines on several technical concepts in response to an FSR mandate. They include the application of the criteria for determining the existence of a distortion, the application of the balancing test, the application of the Commission’s power to request prior notifications, and the assessment of a distortion in a public procurement. The Commission plans to publish the final guidelines by January 2026.
The draft FSR Guidelines provide guidance on how the Commission determines whether a foreign financial contribution in a public procurement constitutes a foreign subsidy that distorts competition. The Commission's assessment of a distortion focuses on whether a foreign subsidy enables a company to submit an unduly advantageous tender. It may also consider whether a subsidy improves the tenderer’s competitive position and the actual or potential negative effect of the subsidies on the public procurement.
In determining whether a foreign subsidy actually or potentially negatively affects competition, the Commission may look at the other tenders submitted in the procurement in question to assess whether the subsidized tenderer had the potential to outbid others and to be awarded the contract. Foreign subsidies that cover a substantial part of the estimated value of the contract to be awarded are more likely to distort competition in that procurement.
The draft FSR Guidelines lists ways in which a foreign subsidy may enable a supplier to offer a more advantageous tender. They include “by reducing the price, by increasing the quality or by offering better terms related to e.g. delivery and lead times, warranties and after-sales support, payment terms, service level agreements, contractual flexibility, compliance with technical specifications, risk management, innovation, social and sustainability values.” If the advantageous nature of a tender cannot plausibly be explained by factors other than the foreign subsidy, the tender may be regarded as unduly advantageous.
Another topic addressed in the draft FSR Guidelines involves the balancing test, that is an assessment by the Commission of whether the positive effects of a subsidy outweigh the negative effects of a distortion. They clarify types of positive effects on the development of the relevant subsidized economic activity in the internal market, while confirming that such effects should be specific to the foreign subsidy. The performance of the balancing test is a case-by-case assessment that takes into account the specific circumstances of the procurement. The guidelines provide guidance on the methodology that the Commission will typically apply in performing the balancing test.
To date, the Commission has initiated three in-depth investigations—all against Chinese firms. In each case, the Chinese firm withdrew from the procurement before the Commission completed its investigation. In response, China conducted an investigation of the EU’s application of the FSR, concluding in a January 2025 report that the EU’s FSR practices targeting Chinese enterprises constituted trade and investment barriers.
