EU Issues Decision in First Full Foreign Subsidy Investigation

The European Commission has – for the first time – adopted a final decision in an investigation of foreign subsidies in an EU public procurement under the Foreign Subsidies Regulation (FSR). In its investigation of the awarding of a contract for the construction and design of the ‘Violet’ metro line in Lisbon, Portugal, the commission determined that a Chinese subcontractor in a consortium participating in the procurement had received foreign subsidies that would distort the procurement. On April 20, the EU executive authorized Metropolitano de Lisboa, the procuring entity, to proceed with the awarding of the contract for the subway line since the Chinese firm’s withdrawal from the consortium had removed the distortion concerns. This post considers the scope and significance of the decision.

The EU executive’s decision followed its investigation into an FSR notification submitted by a consortium led by Mota-Engil, which partnered with subcontractors, including Portugal CRRC Tangshan Rolling Stock Unipessoal, a Chinese firm. This consortium was participating in a procurement for a new subway line, commenced in April 2025 by Metropolitano de Lisboa, the underground railway company of Lisbon.

The commission had launched its in-depth investigation in November 2025 into CRRC Portugal’s participation, based on a foreign subsidies notification submitted by the Mota-Engil consortium. That led to preliminary indications that Portugal CRRC may have received foreign subsidies that distorted the procurement procedure. (It was the first time the commission examined subsidies received by a main contractor in a consortium, rather than its members.) The investigation confirmed that the subsidies had enabled the consortium to submit an unduly advantageous tender, giving it an unfair competitive edge over other bidders participating in the tender. The Mota-Engil-led consortium, reportedly, submitted the lowest bid of €598.8 million in the procurement.

In its decision, the commission accepted commitments by the consortium to replace Portugal CRRC with a Polish rolling stock manufacturer – Pojazdy Szynowe PESA Bydgoszcz Spółka Akcyjna (‘PESA’), which it confirmed had not received any subsidies. That action removed the distortion of competition in the internal market and provided the basis for the commission to approve the consortium’s participation in the procurement. As a result, Metropolitano de Lisboa could proceed with an assessment of whether the consortium’s bid with the new subcontractor complies with the requirements in the tender documents.

One of the issues in the investigation was the lack of EU access to all of the Chinese entity’s financial information. Portugal CRRC contended that it could not answer many of the commission’s questions because it could not share information that would break China’s laws on data transfers and sharing state secrets. Thus, the commission took its decision based on the “facts available” – a legal provision allowing regulators to source information by other means when a party does not cooperate or provides insufficient information. The South China Morning Post reported that Portugal CRRC’s foreign subsidies included grants to the CRRC group, tax benefits (including cuts from 25% to 15% for some CRRC subsidiaries), pre-tax deductions, preferential loans and bonds, and the award of “non-transparent public procurement tenders.”

According to Borderlex, Portugal CRRC made an early offer to withdraw from the consortium. However, the commission continued the investigation to prevent the Chinese firm from re-entering the consortium or joining another one in the future. Without a formal commission decision, Portugal CRRC could have reentered the procurement as a subcontractor.

This is the fourth FSR investigation that has targeted Chinese companies. In the first three investigations, the Chinese firm withdrew from the procurement before a decision was issued and the commission terminated the inquiry.

The China Chamber of Commerce to the EU (CCCEU) expressed “strong opposition and serious concern” over the decision (as it has with other FSR actions). It contended that the Chinese entity participated in the consortium solely as a subcontractor, with a contract value accounting for less than 10% of the overall value of the project, which it asserted was significantly below the thresholds generally considered indicative of material influence under subcontracting rules. It further contended that the commission had not sufficiently explained the basis for classifying the subcontractor as “critical” and “the causal link and proportionality between such classification and the redressive measures imposed.”

The CCCEU more broadly criticized the excessive discretion of the commission and the lack of clear, consistent, and predictable standards, which it asserted could “effectively restrict the participation of Chinese enterprises in EU public procurement.” It urged the EU “to promptly rectify relevant practices and ensure that the implementation of the FSR strictly adheres to the principles of proportionality, non-discrimination, due process, and regulatory transparency.”

The FSR, implemented in 2023, requires companies to notify the Commission when participating in large public procurements (at least €250 million) and participants, including their main subcontractors and suppliers, have received aggregate foreign financial contributions of at least €4 million per third country over the preceding three years.

The commission decision will be published in the Official Journal of the European Union.

Jean Heilman Grier

April 23, 2026