A Note on the Foreign Subsidies Regulation: Economic Evidence in Assessing Foreign Subsidies
What is the FSR and what makes it unique?
The EU’s Foreign Subsidies Regulation (FSR) empowers the European Commission (EC) to scrutinise financial support granted by non-EU public authorities to undertakings active in the EU internal market.1 The regime became fully applicable in July 2023. In January 2026, the EC published the first FSR guidelines, providing clarifications on its application.
To classify as a “foreign subsidy,” a foreign financial contribution (FFC) must (i) confer a benefit not obtainable on market terms, and (ii) be specific to one or more undertakings or industries.2
Where the relevant thresholds are met, undertakings must notify the EC of certain concentrations involving an EU-established party and participation in large public tender procedures.
The notification obligation is broad. FFCs include not only grants, loans, and guarantees, but also revenue foregone (such as tax measures) and commercial transactions with state-owned enterprises (SOE) on non-market terms, ensuring comprehensive disclosure.
Following notification, the EC conducts a preliminary review to determine, on a case-by-case basis, whether to initiate an in-depth investigation.3
That investigation follows a two-step assessment: first, whether the foreign subsidy is liable to improve the undertaking’s competitive position in the internal market, and second, whether such improvement actually or potentially distorts competition.
Where both conditions are met, the EC may accept commitments proposed by the parties during the in-depth investigation. Article 5 of the regulation lists subsidies that are most likely to distort competition. In these cases, the negative effects are presumed, and the burden of proof is on the parties to rebut that presumption, if they wish to do so.4
Where the EC identifies a potential distortion of competition, the undertaking may rely on the balancing test outlined in Article 6 to show that the foreign subsidy’s positive effects outweigh that distortion, including by addressing market failures or advancing wider EU policy objectives.
Notably, the FSR guidelines indicate that the foreign subsidy does not need to be the sole cause of the competitive distortion, nor must the EC quantify the precise impact. The standard requires only that the effect be “appreciable” rather than of “serious nature,” and the EC is not obliged to conduct a detailed market analysis. In contrast, the balancing test requires rigorous economic and financial analysis to meet the high evidentiary burden the EC requires. Also, there is no de minimis exception based on market share or competitive significance once the notification thresholds are met.
This note focuses on the impact of the FSR on concentrations.
Sources:
1 While State aid granted by EU Member States has long been subject to Commission control, comparable support from third countries previously escaped review.
2 Regulation recitals 13-14 and Article 3(1).
3 For concentrations, this decision must be taken within 25 working days of complete notification. For public procurement, the deadline is 20 working days (extendable by 10 working days upon request).
4 Article 5 lists the following five: (i) subsidies to ailing undertakings without viable restructuring; (ii) unlimited guarantees; (iii) non-OECD-compliant export financing; (iv) subsidies directly facilitating the notified concentration; and (v) subsidies enabling an unduly advantageous tender. Undertakings benefiting from these categories face near-automatic in-depth investigation and the burden of proof is reversed onto them.
