Update on the Foreign Subsidies Regulation ("FSR"): European Commission launches first ex officio investigation into wind turbine sector

On Tuesday, 9 April 2024, Margrethe Vestager, the European Commissioner for Competition, announced in a speech at Princeton University in the US that the European Commission had launched its first ex officio investigation under the Foreign Subsidies Regulation (“FSR”). According to Vestager, the ex officio investigation focuses on Chinese suppliers of wind turbines and relates to the expansion of wind farms in Spain, Greece, France, Romania and Bulgaria. Vestager has not yet revealed any further details of the investigation.

However, she placed the investigation in a broader political context. According to Vestager, the EU could not afford to repeat its experience in the solar panel industry (where fewer than 3% of the solar panels installed in the EU are produced in Europe) with electric vehicles, wind turbines or computer chips. The European Commission will therefore make use of all available tools, she said. Nevertheless, a systematic approach had to be developed beyond individual cases, Vestager added.

First ex officio investigation by the European Commission

What is special about the procedure now initiated is that this is the first ex officio investigation by the European Commission under the FSR, which has applied since July 2023. In such an ex officio investigation, the European Commission acts on its own initiative based on tipoffs from the market or other information and then investigates at its own discretion whether distortive subsidies from third countries have been granted to companies in a particular industry. Last autumn, the European Commission announced in its European Wind Power Action Plan (Communication on the state of the wind power industry) its intention to possibly take action against foreign subsidies in the wind energy sector under the FSR. It is now putting this announcement into practice with its first ex officio investigation. It therefore remains to be seen what concrete results the investigation will produce.

As the background, the FSR provides three different tools for the European Commission to investigate potentially distortive foreign subsidies (described in detail in our article of 17 January 2024). There is (1) the “M&A transaction tool”, which requires certain M&A transactions to be notified to the European Commission. There is also (2) the “public procurement tool”, which requires the notification of certain bids in public procurement procedures. Finally, (3) the FSR also allows the European Commission to initiate ex officio investigations, regardless of whether certain thresholds are met or a notification obligation exists.

Several in-depth investigations already underway into Chinese companies using the public procurement tool under the FSR

Vestager’s announcement is one of a series of recently launched in-depth investigations (sometimes also referred to as a “phase 2 investigation”) by the European Commission under the FSR’s public procurement tool. These in-depth investigations were all initiated following notifications from Chinese companies regarding their bids in public procurement procedures:

• The first in-depth investigation under the FSR was launched in February, using the public procurement tool, into CRRC Qingdao Sifang Locomotive (“CRRC”), a subsidiary of the Chinese state-owned enterprise CRRC Corporation Limited, which had participated in a public procurement procedure in Bulgaria (see also our article of 19 February 2024). It has been public knowledge since 26 March 2024 that CRRC withdrew from the procurement procedure after the in-depth investigation was initiated, after which the European Commission closed its investigation.

• Just last week, on 3 April 2024, the European Commission also announced it had launched in-depth investigations using the public procurement tool into two bidding consortia with Chinese involvement. The first investigation is aimed at a consortium consisting of LONGi Solar Technologie GmbH (a subsidiary of LONGi Green Energy Technology Co., Ltd., which is listed on the Hong Kong stock exchange) and the Romanian ENEVO Group. The second investigation is aimed at a consortium consisting of Shanghai Electric UK Co. Ltd. and Shanghai Electric Hong Kong International Engineering Co. Ltd. (both subsidiaries of the Chinese state-owned company Shanghai Electric Group Co. Ltd.). The background to this is the submission of notifications by each of the bidding consortia in a Romanian public procurement procedure for the design, construction and operation of a photovoltaic park, which both consortia had participated in.

Outlook

The European Commission is already making active use of its tools under the FSR after only a short time. Especially in view of Margrethe Vestager’s statement, it is clear that the European Commission’s investigations must be viewed in a direct political context and that further ex officio investigations are not unlikely. It is not surprising that the European Commission is targeting Chinese companies first. Right from the start of the legislative process, distortions of competition due to subsidies from China were cited as one of the main reasons the FSR was needed. However, it can be assumed that the European Commission will also actively utilise its powers under the FSR in the case of potentially distortive subsidies from other third countries.

Companies, too, should keep a close eye on the developments relating to the still-new FSR, since tipoffs and complaints from the market in particular can trigger ex officio investigations. The launch of the first ex officio investigation makes it clear that the European Commission has the will to respond to complaints from the market in addition to the human resources that are now available (see also our article from 13 February 2024). In the future, companies can therefore try to draw attention to distortions of competition in their sector caused by subsidies from third countries by lodging complaints with the European Commission. If properly prepared, such a complaint may well have the potential to initiate an ex officio investigation by the European Commission – at least that is what the latest developments indicate.

If you have any further questions about the FSR, our team of experienced specialists in the field of the FSR, EU State aid law and merger control will be happy to assist you. You can also subscribe to our news alerts about the FSR here.