The European Commission’s “Competitiveness Compass” from the State aid, foreign subsidies and antitrust law perspective

On Tuesday, 29 January 2025, the European Commission ("Commission") published its Communication “A Competitiveness Compass for the EU” (“Competitiveness Compass”). It is a central document from the new Commission since it will guide the work of the Commission in the coming five years. Following up on the recommendations by Mario Draghi and Enrico Letta in their respective reports from last year (further on this on Noerr Insights), the Commission makes competitiveness a core guiding principle. This article gives an overview of the most important practical implications of the Competitiveness Compass from the perspective of State aid law, including the EU Foreign Subsidies Regulation (“FSR”), and antitrust law – so that you know now what to look out for to be prepared for what’s to come.

Three imperatives to strengthen competitiveness

In the Competitiveness Compass, the Commission names three imperatives (or “pillars”) essential to strengthening the EU’s competitiveness in the coming years:

Pillar 1 – Closing the innovation gap

To restart the EU’s innovation cycle and close the gap to more dynamic competitors, the Commission intends to i.a. implement a dedicated EU Start-up and Scale-up Strategy, which is meant to create an environment more suitable for start-ups promoting innovation in tech sectors (such as artificial intelligence, semiconductor and quantum technologies, as well as in biotech). This follows a recommendation by Mario Draghi in his report on the EU’s competitiveness.

The Commission emphasizes that innovation and efficiency are protected by rigorous and effective enforcement of antitrust and merger regulations. Nonetheless, the Commission also recognizes that, as global competition for developing advanced technologies and breakthrough innovations intensifies, competition policy needs to keep pace. As such, it promises a fresh approach to enforcing the existing rules that should recognize and better promote common interests of the EU and its Member States as well as the competitiveness of EU companies.

This will be reflected in revised guidelines for merger assessments after a review of the Horizontal Merger Control Guidelines, ensuring that innovation, resilience and investments in specific strategic sectors are prioritized according to the EU’s economic needs. The Commission will also review the framework for technology transfers (in the form of the respective Block Exemption Regulation and accompanying Guidelines) and intends to oversee an efficient enforcement of the Digital Markets Act (“DMA”) to open up closed ecosystems as well as to promote wider use of state funding through Important Projects of Common European Interest (“IPCEI”).

Pillar 2 – A joint roadmap for decarbonisation and competitiveness

The EU aims to become a decarbonised economy by 2050. In its Clean Industrial Deal (to be published in February), the Commission intends to, among other things, outline how strategically targeted and simplified State aid can promote investments in decarbonisation, while minimizing market distortions. To advance clean technology and decarbonised manufacturing within the EU, the Clean Industrial Deal and accompanying measures are meant to strategically coordinate various policy tools.

As the Competitiveness Compass suggests, these tools will include, for instance, funding through contracts for difference as well as “auction-as-a-service” schemes (which enable Member States to additionally fund projects participating in an auction for EU funding, but for which EU funds were not sufficient). Investments in decarbonisation and regulatory reforms promoting clean tech will target sectors where EU domestic production faces pressure from international competitors benefiting from unfair advantages, subsidies or support policies that lead to structural overcapacity. To accomplish all these goals, the Commission also plans to publish a New State Aid Framework in the second quarter of 2025. Together with the Clean Industrial Deal, this new framework is supposed to allow more flexible and targeted State aid under simplified rules for companies switching to clean technologies.

Pillar 3 – Reducing dependencies and increasing security

In a tense global environment, the EU’s economic dependencies can be taken advantage of and unfair competition may threaten the Single Market. Among the defence mechanisms mentioned in the Competitiveness Compass to address these risks is a rigorous enforcement of the FSR. First taking effect in 2023, the FSR applies rules and concepts very similar to State aid law also to the control of subsidies from non-EU countries and is thus supposed to ensure a level playing field between all companies active in the EU’s Single Market. Thus, it is a primary tool for the EU to defend itself against growing dependencies and unfair competition from non-EU countries.

In the defence industry, the Commission also intends to substantially increase cooperation between Member States i.a. through Defence Projects of Common European Interest, opening the sector for additional funding from Member States.

Horizontal enablers of competitiveness

The Commission also names “horizontal enablers” that should support competitiveness across all sectors. These include the following:

• Simpler rules and faster administrative processes are needed at all levels. Accessing EU funds or obtaining administrative approvals needs to become quicker and more affordable for businesses and individuals. One example is the plan to speed up and simplify procedures for IPCEI.
• A savings and investment union and a refocused EU budget are supposed to finance competitiveness. Securing adequate public and private investment is essential to achieve the EU's goals in innovation, carbon neutrality and defence. To reach these goals, a new Competitiveness Fund is meant to generate new investments into strategic technologies (in AI, space, clean tech, biotech and other sectors critical to European competitiveness) as well as into research, innovation and IPCEIs. Strategic public funding will help leverage private investments and reduce risks (again in line with the recommendations by Mario Draghi).
• The Commission intends to introduce a new Competitiveness Coordination Tool to collaborate with Member States on shared competitiveness priorities and on projects of strategic importance and common European interest (once more echoing the recommendations in the report by Mario Draghi). This tool is intended to be supported by the new Competitiveness Fund and aims to align industrial and research policies, as well as investments, at both the EU and national levels. The Commission will first propose measures to coordinate policies (of the EU and Member States) in selected areas such as energy and transport infrastructure as well as digital infrastructure, AI applications, biotechnology and other crucial sectors such as critical medicines.

New rules and policies may create opportunities

As the reports by Mario Draghi and Enrico Letta recommended, the Commission is placing a major focus on improving the EU’s competitiveness through a variety of measures. Even if many of the intended measures are only discussed in general terms in the Competitiveness Compass, it is already clear that some major changes in various State aid and foreign subsidies as well as antitrust rules and policies can be expected over the coming months and years. Companies should keep a close eye on these changes, as they will create additional opportunities for companies to compete effectively by choosing the right strategy early on:

• A New State Aid Framework as well as new and extended IPCEIs may positively impact the availability, procedure and timelines for securing funding from Member States.
• The intended review of the Horizontal Merger Control Guidelines as well as the Technology Transfer framework may lead to additional opportunities for synergies through M&A transactions or cooperations between companies.
• Companies in various key sectors (such as digital or clean technology markets) could also take advantage of a rigorous enforcement of the DMA and the FSR to achieve a more level playing field, for example by complaining to the authorities about unfair methods or, in the case of the DMA, enforcing their claims against gatekeepers through private enforcement.

 

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