Update on the Foreign Subsidies Regulation (“FSR”): First dawn raid by the European Commission at a Chinese manufacturer of security equipment

On Tuesday, 23 April 2024, the European Commission carried out the first unannounced inspections as part of an ex officio investigation under the FSR on suspicion of foreign subsidies that could distort the internal market. According to a press release from the European Commission, several business premises of a security equipment manufacturer in the European Union were searched.

The company in question is the Chinese state-owned company Nuctech, which manufactures surveillance technology and security equipment, and whose business premises in Rotterdam (Netherlands) and Warsaw (Poland) were searched. According to various press reports, IT equipment, mobile phones, documents and other data were seized during the search. The European Commission officials were accompanied by officials from the national competition authorities.

Nuctech is a manufacturer of surveillance technology and security equipment and produces baggage security scanners for airports and seaports, among other things. According to publicly available sources, Nuctech is wholly owned by the Chinese state and has been listed by the US as a company that acts contrary to US national security interests. Collaboration with Nuctech has also been seen as controversial in the European Union in the past.

According to Article 10 (1) (b) and Article 14 of the FSR, the European Commission may conduct inspections of undertakings within the European Union as part of a preliminary investigation in case of indications of foreign subsidies distorting the internal market and, in this context, seize or request documents or access other information. When doing so, the European Commission usually cooperates with officials from the Member States, in this case with officials from the Dutch and Polish authorities. In addition, the European Commission has the option under Article 15 of the FSR to conduct inspections even outside the European Union.

In its official statement, the Chinese Chamber of Commerce expressed serious concern about the unannounced inspection of the European subsidiaries of a Chinese company. This first dawn raid follows a series of in-depth investigations by the European Commission under the FSR’s public procurement tool, all of which have targeted Chinese companies so far, as well as an initial ex officio investigation into Chinese wind turbine manufacturers (see our articles of 19 February 2024 and 11 April 2024). This is the second ex officio investigation, i.e., an investigation in which the European Commission acts on its own initiative, and the first dawn raid under the FSR. In addition to these investigations based on the FSR, the European Commission has launched other investigations into China, such as an anti-subsidy investigation in the area of electric vehicles and, more recently, investigations under the International Procurement Instrument for medical devices.

Outlook

The European Commission’s most recent measure clearly shows that it is already making use of the full range of tools available under the FSR soon after the regulation came into force. In addition to the in-depth investigations carried out to date based on the public procurement tool, the European Commission is apparently already prepared to initiate ex officio investigations and, in cases of sufficient indications of foreign subsidies, to carry out on-site dawn raids at companies. Further ex officio investigations are likely to follow.

It is telling (although unsurprising) that the European Commission’s reviews and investigations have so far been focussed exclusively on Chinese companies. This tallies with the European Union’s other commercial and political measures. China is therefore likely to continue to be in the focus of the implementation of the FSR in the future. Recent developments show that the European Commission’s FSR-based investigations are gaining momentum. It is therefore even more important for companies to keep a close eye on developments in connection with the still recent FSR.

If you have any questions on the FSR, Noerr’s team of experienced experts in the FSR, EU State aid law and merger control will be happy to assist you. You can also subscribe here to receive all our news alerts about the FSR.