The European Commission published Guidelines on its enforcement of the Foreign Subsidies Regulation (FSR) on January 9, 2026. They apply to foreign subsidies that distort the internal market in public procurement and mergers and acquisitions within the European Union (EU). The Guidelines clarified three key concepts: (i) how the Commission analyzes market distortions caused by subsidies from third countries; (ii) how it balances those distortions against any positive effects of a foreign subsidy (“balancing test”); and (iii) how the Commission may use its so-called “call-in powers” to request notifications when the procurement is below the FSR notification thresholds. The Guidelines also establish a new “safe harbor” for low-level activity. They will be welcomed by the business community as application of the FSR has generated considerable criticism and uncertainty since it was implemented in July 2023. This post examines the major elements of the Guidelines as they relate to public procurement.

The Guidelines were issued in response to a mandate in the FSR (Article 46) that the Commission adopt guidelines clarifying the criteria for determining the existence of a distortion, the application of the balancing test, and the application of call-in powers by January 12, 2026. 

The main elements of the FSR Guidelines are outlined below:

Assessment of distortions: The FSR (Article 27) defines distortive subsidies in public procurement as foreign subsidies that enable a supplier “to submit a tender that is unduly advantageous.” When the Commission has information that a supplier participating in an EU procurement has received a foreign subsidy that may affect the terms of the tender, it will assess the subsidy’s potential distortions in three steps. 

First, it will examine whether the supplier may have used the foreign subsidy to offer a more advantageous bid such as by reducing the price, increasing the quality, or offering better delivery, payment, or other terms. If so, it will assess whether the submitted bid is unduly advantageous by comparing it with the other submitted bids in the procurement, the contracting authority’s estimates, or to terms that would have been submitted without the foreign subsidies. When subsidies cover a substantial portion of the estimated value of a contract, the tender is more likely to be scrutinized.

If the Commission finds that the bid is unduly advantageous, it will assess, as its third step, the actual or potential negative effect of the subsidized tender on the procurement in question and whether the advantage arises to an appreciable extent from the foreign subsidy or can be justified by other factors. The Guidelines clarify that foreign subsidies can distort competition in a procurement by allowing the subsidized supplier to be awarded the contract as well as by that supplier deterring participation by other bidders or influencing negotiations on the terms of the contract.

Balancing test: When the Commission has identified a foreign subsidy with a potential distortive effect on competition in an EU procurement, the FSR requires it to balance the subsidy’s negative and positive effects. The Guidelines explain how the Commission will weigh the negative effects of a distortive foreign subsidy against any possible positive effects. In the balancing, it will only consider positive effects that are specific to the foreign subsidy under assessment. It will also consider the severity of the distortion and whether the positive effects can be achieved without the distortion. If the Commission finds that the positive effects outweigh the negative ones, it will not object to the presence of foreign subsidies. However, if they do not, it may accept commitments from, or impose redressive measures, on the subsidized supplier. The Guidelines illustrate how the Commission intends to carry out the balancing test.

Use of call-in mechanism: Under the FSR, the Commission has wide discretion on whether to require prior notification of bids that do not meet the mandatory FSR thresholds. For example, it may conduct an ex-ante review when it suspects a participant in an EU procurement has benefited from foreign subsidies in the three years preceding the submission of a tender or request to participate in a procurement. In such cases, it may request the supplier to provide a notification of third-country financial contributions for that period, even if the estimated value of the procurement is below the notification threshold. 

To determine whether an ex-ante review is warranted, the Commission considers factors such as the competitive impact of the public procurement, whether it concerns a strategic economic activity, and the possibility of a distortion. The Guidelines include new safe harbors that exempt suppliers from a call-in in low-value procurements, when subsidies are below €4 million, and when subsidies address extraordinary circumstances. Any call-in must be made before contracts are awarded.

A more extensive analysis can be found here.

FSR Report: The FSR requires the Commission to report to the European Parliament and the Council, by July 14, 2026, on its implementation and enforcement of the Regulation. If appropriate, the Commission could also submit proposed modifications of the FSR.

Jean Heilman Grier

January 31, 2026