ANALYSIS – The geopolitical limits of the European regulation against foreign subsidies 

By François Souty

Introduction 

The European Union has historically combined trade and industrial policy in its efforts to protect the competitiveness of its companies in compliance with the multilateral rules of the World Trade Organization (WTO). However, traditional instruments, such as anti-dumping measures (herafter AD) and countervailing duties (CVDs), have shown their limits in the context of massive and targeted foreign subsidies, particularly from emerging industrial powers. 

In this context, the European Foreign Subsidy Regulation (FSR), a new European text that came into force in 2023, which is extremely little known, particularly in France, was drawn up to fill a legal gap. It was adopted following extensive discussions between the European Commission, the European Parliament and the Council, aimed at protecting the single market and strengthening the EU’s ability to monitor the effects of foreign aid on European companies.^[1] The FSR allows the Commission, in particular through the newly created Directorate K within DG Competition, to monitor and, where necessary, correct market distortions caused by foreign subsidies that had not previously been taken into account under traditional AD/CVD measures.

This article examines the evolution of the FSR, its legal basis, its functioning and relevance, its integration into the EU’s industrial and trade policy, as well as its geopolitical implications, especially in the light of the reactions of China, India and other partners. We also analyse operational limitations and political resistance, as well as the measurable impact on European markets. The aim is to provide a comprehensive analytical framework, combining legal, economic and geopolitical perspectives, to understand why and how the FSR represents a major innovation in European trade law, while obliging the integration of geopolitical analysis for a fully effective implementation. On. At the end of this analysis, it should be noted that such a geopolitical assessment is not easy in the context of the disciplines of implementation of legal instruments derived from competition law and policy.

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1. The traditional instruments of international trade: anti-dumping and countervailing duties

Over the decades, the European Union has developed a set of instruments to protect the single market against unfair trading practices, including subsidised or below-market imports. These instruments are mainly in the form of anti-dumping measures and countervailing duties, which are perceived as the most emblematic by the European political class. This section analyses these instruments, their functioning, their operational limits and their historical role, in order to highlight the need for the creation of the FSR.

Anti-dumping measures are applied when imported products are sold at a price below their normal value in the country of origin, causing injury to European producers. Countervailing duties, on the other hand, are intended to neutralize the effects of direct or indirect subsidies granted by third countries to their exporters. It should be noted that traditional trade defence instruments, such as AD and CVD, are designed to correct specific distortions in certain market sectors. However, their effectiveness is limited by the very structure of the multilateral trading system. As Ignacio García Bercero points out, although the WTO was created to ensure both the application of binding rules and the negotiation of market opening, it has historically been more successful in fulfilling the former function than in producing negotiated results in the latter^[2]. This illustrates that traditional instruments, although legally established, often remain reactive and do not always allow for the proactive handling of structural or strategic developments in international trade. They depend on long and complex procedures.

To illustrate these difficulties and various structural constraints, it should be noted that between 2013 and 2023, the EU adopted only six initial anti-dumping measures.^[3] This low number can be explained by three considerations. First, investigations are legally complex and require detailed evidence on the link between the foreign subsidy and the distortion in the European market. Secondly, the duration of investigations, often more than 18 months, limits the ability to react quickly. Finally, diplomatic and political considerations may slow down or modulate the application of measures, particularly when it comes to strategic trading partners such as China or India. These factors combined thus demonstrate that traditional measures, while effective in some contexts, do not always sufficiently correct the distortions induced by massive and opaque subsidies.

The effectiveness of ADs and CVDs also depends on the ability of European actors to lodge complaints. Industrial unions and professional associations play a key role, but the complexity and cost of investigations limit the number of complaints filed.  An illustrative example of these limits concerns the photovoltaic panel sector, where anti-dumping duties were imposed after several years of investigation, but were not sufficient to immediately restore the competitive balance. The low frequency of measures shows that the Commission was faced with dilemmas between speed of action, legal certainty and political sensitivity.

In addition, ADs and CVDs do not cover foreign acquisitions or investments supported by massive subsidies, which can change the structure of the market without going through trade in goods. This gap is precisely what the FSR seeks to fill. Traditional measures can also generate significant diplomatic tensions, especially when they target strategic countries. In some cases, the Commission has had to negotiate remedial commitments with exporting companies rather than directly imposing duties, which shows the operational limitations of ADs/CVDs in a complex geopolitical context.  As some analysts have pointed out, a rigorous application of the FSR can generate  serious geopolitical risks and political reactions from major economic partners, as the instrument is part of a broader logic of level playing field and open European strategic autonomy.^[4]

Unfortunately, the first investigations within the framework of the FSR on Chinese electric motor vehicles show that the same can be true with the FSR (the Chinese authorities having immediately threatened French wines and spirits from CVDs, with devastating effect in particular for the spirits of Cognac).^[5]  It should be noted incidentally that it is still French farms that have paid the price for the implementation of a regulation intended to support the European car industry. To be fair to the European Commission, it should be noted that it is the French Government that has most loudly insisted on applying the FSR regulation against Chinese electric cars, hence the targeted response to flagship French export products in return for a boomerang. It is obvious that the lesson of the boomerang has unfortunately not been understood by the French government and administration.        

Finally, ADs and CVDs do not always guarantee the long-term protection of strategic European sectors. Measures are often temporary, reviewed every five years, and can be circumvented by new forms of subsidies or by changes in the supply chain. This creates an urgent need for more flexible and preventive instruments that can address distortions before they destabilise the market. It is in this context that the FSR has emerged in 2023-2024 as a major innovation in European trade policy.

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2. Genesis and objectives of the FSR 

The Foreign Subsidy Regulation (FSR) was born, as we have noted, from a strategic observation: the European Union’s traditional trade defence instruments — the AD and CVD mentioned above — did not make it possible to respond effectively to massive and sometimes opaque foreign subsidies, especially when they manifested themselves through investments or acquisitions on the single market.  The genesis of the FSR, the political and industrial objectives that guided its creation, as well as the underlying legal logic are presented here.

The design process of the FSR is part of a complex framework that involved the European Commission, the European Parliament and the Council of the EU. The aim was twofold: to protect the single market and to ensure that European companies could operate in a fair competitive environment.  The FSR has therefore complemented the traditional instruments: where the ADs and CVDs intervene after the detection of injury caused by subsidised imports, the FSR acts on subsidised acquisitions, mergers or other subsidised foreign investments, even if no product is directly imported into the EU. This distinction is essential to understanding the legal innovation it represents. As explained by I. Garcia Bercero: « The FSR transposes the concept of distortion of competition in the field of investment and industrial policy, where traditional instruments remain limited. »^[6]

The development of the FSR was based on several preparatory works and public consultations. The Commission has studied the experiences of other jurisdictions, including foreign investment control mechanisms in the United States and Canada, to design a framework adapted to EU legislation. The aim was to create a proportionate and legally sound instrument that could withstand challenges in the WTO or European courts. As already indicated above, Wolfgang Weiß in his analysis of the FSR, the Regulation is  not limited to an instrument of internal competition but is part of a broader dynamic of redefining the  European level playing field, raising significant geopolitical implications with regard to the multilateral commitments and subsidy practices of trading partners.^[7] But the authors of the FSR probably did not anticipate the bilateral retaliatory reactions, the result of the major geopolitical changes of the first quarter of the twenty-first century, which are taking place before our eyes!

From a strictly legal point of view, the FSR Regulation clearly defines the situations of mandatory notification, which brings it closer in particular to the procedures already applied by DG COMP in the field of merger control^[8]. Any acquisition or investment above a certain threshold must be notified under the RSF to the Commission, which may then initiate an investigation to assess whether the foreign subsidy is materially distortive. This approach is based on a logic of transparency and ex ante control, in contrast to AD/CVD investigations, which are reactive and subsequent to the damage observed.

One of the major objectives of the FSR is also to protect strategic European sectors, in which subsidised investments can compromise industrial and technological sovereignty. Targeted sectors include aeronautics, energy, chemicals and, more recently, green technologies and electromobility. As I. Garcia Bercero notes: « The European Union seeks to create an environment where European companies can innovate and invest without being penalized by massive subsidies from outside. »^[9]

In addition, the FSR is an integrated industrial policy tool. It not only makes it possible to detect and correct distortions, but also to influence the behaviour of third countries. The mere existence of this regulation may encourage exporting countries to limit or make their subsidies more transparent, thus anticipating potential European control. It seems that DG COMP notes as early as 2024 « that the notoriety of the FSR is changing the behaviour of foreign investors, even before any investigation« .^[10] However, the creation of the FSR has raised debates on proportionality and legal certainty. Some observers have expressed reservations about the extent of the Commission’s power and the potential impact on Europe’s attractiveness for foreign investment, which we will come back to.

Finally, the genesis of the FSR illustrates the EU’s desire to strengthen its strategic autonomy in a context of increased global competition. Massive foreign subsidies, in particular those from China, have highlighted the urgency of having a flexible and effective instrument to protect European markets and market players. Ignacio Garcia Bercero summed up: « The FSR is not an isolated instrument: it is part of a global strategy to strengthen industrial resilience and European competitiveness. »^[11]

The adoption of the FSR has drawn substantial criticism from US authors and institutions, who see it as an instrument that could generate transatlantic frictions and excessive regulatory burdens for non-EU companies.^[12] A first line of criticism concerns the legal uncertainty arising from the particularly broad definition of the concepts of ‘foreign financial contribution’ and ‘advantage’, which could encompass ordinary public measures and lead to disproportionate notification obligations for US companies operating in the European Union.^[13] The US Congressional Research Service also points out that this indeterminacy increases compliance costs and encourages procedural overlap with other European instruments, such as merger control or foreign direct investment screening.^[14] Several American think tanks also highlight the high administrative burden induced by the FSR and its potential deterrent effect on foreign direct investment, including for companies that do not benefit from manifestly distortive subsidies.^[15]

Finally, some authors note that the FSR could be perceived as an indirect protection measure, difficult to reconcile with the spirit of the World Trade Organization’s disciplines on subsidies, and likely to fuel geopolitical tensions, particularly in economic relations between the European Union and the United States.^[16] Other countries such as China or India for example, which are much more protectionist than the EU or even the United States, are of course taking up, in part or all, of the same arguments, though India must be praised for its carefulness.  

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3. Legal framework and procedures of the FSR

The FSR is based on an innovative legal basis, designed to enable the European Union to detect and correct distortions of competition resulting from foreign subsidies in acquisitions and investments in the Single Market. This section presents the legal framework, investigation procedures, thresholds and obligations, as well as the practical implications for European and foreign companies.

The introduction of the FSR was formalised by Regulation (EU) 2022/2567 of the European Parliament and of the Council, which lays down the rules for the notification, assessment and correction of foreign subsidies. The FSR has an objective of regulatory structural intervention ex ante to the consummation of a legal transaction of acquisition or action of a foreign company within the European market of the European Commission, in a manner absolutely analogous to the merger control regulation already mentioned, the legal framework of the FSR offering the Commission a flexible instrument, capable of acting before market distortions become irreversible. 

 Notifiable investments include acquisitions of European companies by foreign entities where subsidies are involved, as well as certain foreign public funding affecting European companies in strategic sectors. The Commission can then open an in-depth investigation to assess whether the subsidy creates a significant distortion, and impose remedies if necessary. I. Garcia Bercero rightly points out : « The logic of the FSR is preventive: it acts before the market is disrupted, identifying potential distortions rather than repairing damage already caused« .^[17]

The notification process begins with the obligation for the companies concerned to submit detailed information on the foreign subsidy received. The Commission then analyses this data, can request additional data and possibly opens a formal investigation, which obviously requires significant resources from companies and administrations.

One of the key innovations of the FSR is the possibility for the Commission to negotiate remedial commitments with the parties concerned. Rather than systematically imposing bans or sanctions, DG Competition can agree on commitments that neutralise distortions while maintaining investment.

The Commission also has extensive investigative powers, including the possibility to collect information from third parties, conduct on-site inspections and collaborate with other European and national public authorities. These powers have been designed to ensure that all significant grants are identified and properly assessed. As I. Garcia Bercero notes: « The effectiveness of the FSR depends on the quality of the information available and on the Commission’s ability to analyse the complexity of subsidy flows« .^[18]

Box 1

The FSR’s procedural deadlines with regard to merger control and FDI filtering

The comparative analysis of the time limits set by the FSR reveals a clear desire for partial alignment with existing instruments of EU economic law, while introducing specific time constraints that may increase the procedural burden on cross-border transactions. In the area of mergers, the FSR adopts a two-phase architecture largely inspired by Regulation (EC) No 139/2004 on merger control (EUMR), with a preliminary examination of 25 working days, followed, if necessary, by an in-depth investigation of 90 working days, which can be extended when commitments are proposed.^[19] This structure is similar to that of the EUMR, which provides for 25 working days in phase I and 90 working days in phase II respectively, but the FSR differs in the subject matter of the control — foreign subsidies — and in the possibility of cumulation of procedures, since the same operation can be subject simultaneously to both regimes.^[20]

The divergence is more marked in the case of public procurement, where the FSR introduces a procedural regime that is unprecedented under EU law: the Commission’s examination has an automatic suspensive effect, prohibiting the award of the contract for a period of up  to 130 working days (20 days for the preliminary examination and up to 110 days for the in-depth investigation).^[21] No comparable mechanism exists either in the EUMR or in Regulation (EU) 2019/452 establishing a framework for the screening of FDI, the latter being based on a system of cooperation between Member States and the Commission without mandatory suspension of the investments concerned.^[22]

Finally, the contrast is particularly clear with regard to ex officio investigations: while the FSR allows the Commission to open investigations without strictly defined procedural deadlines, strengthening its margin of appreciation, the FDI screening mechanism is on the contrary characterised by regulated but relatively short cooperation deadlines, leaving the final decision to the Member States.^[23] This comparison shows that, while the FSR is formally a continuation of existing instruments, it introduces a temporal densification of control, the cumulative effects of which raise significant issues of legal certainty and the attractiveness of the internal market.

However, the implementation of the FSR faces practical and political challenges that accentuate the potential geopolitical impact that could arise from its application to companies in some major countries. First, the monitoring of all foreign acquisitions and subsidies is demanding and can generate delays in investigations. Second, some foreign companies may seek to circumvent the obligations by fragmenting their investments or using complex structures, making it difficult to assess distortions. Thirdly, the Commission has to manage diplomatic pressure, particularly when the measures envisaged affect strategic states such as China or the United Arab Emirates. The application of the FSR is therefore as much a legal challenge as it is a diplomatic one, requiring a fine trade-off between preventive action and the management of international relations, with strong potential geopolitical implications, once again.

Since the entry into force of the FSR, the Commission has opened several pilot investigations to test the scheme, in particular in the technology and aeronautics sectors. These surveys showed that the FSR can be used proactively to influence investment decisions and limit distortions, but that administrative burden and legal complexity remain major challenges. Garcia Bercero notes : « The first applications of the FSR demonstrate its strategic potential, but they also reveal the need for a gradual approach to maintain coherence with international law and trade policy. »^[24]

Finally, the FSR is part of a multilateral environment where compliance with WTO obligations is crucial. The Commission ensured that the measures were consistent with international law, while maintaining the ability to act on strategic investments. 

4. Economic impact and implications for industrial policy 

The Foreign Subsidy Regulation is not limited to a legal or commercial instrument: it was designed as a strategic tool capable of reshaping the European Union’s industrial policy. This section examines the anticipated and observed economic effects, the spillovers on foreign investment and the European value chain, as well as the implications for the competitiveness of European companies in strategic sectors.

The FSR aims to correct the distortions caused by foreign subsidies which, if left unchecked, could affect the structure of the single market and jeopardise European players, presenting themselves as a regulation equivalent to the competition rules for the internal market. This proactive approach contrasts with conventional anti-dumping measures, which only react after injury has been found. In economic terms, the FSR has a direct influence on the cost of capital and foreign investment flows. Subsidized foreign companies have an incentive to adjust their strategies to avoid remedies, which promotes fairer competition. Especially in the high-tech and electromobility sectors, whose main competitors outside the EU are Asian.

For European companies, the FSR therefore aims to offer additional protection in strategic sectors, strengthening the competitiveness of European industry in the face of foreign players benefiting from massive financial advantages. 

However, the impacts are not only positive. The complexity of investigations and the level of documentation required can increase the administrative burden for businesses and investors. Some European companies are also concerned that regulatory rigidity will hinder innovation or delay necessary investments. Although the FSR is not a border policy in the strict sense, its implementation has already had a significant impact on cross-border economic transactions, in particular in the areas of public procurement and mergers and acquisitions involving third-country buying companies. Several recent cases illustrate these frictions: 

• the withdrawal of the Chinese company CRRC from a public tender in Bulgaria for the supply of railway equipment, following the opening by the European Commission of an in-depth investigation based on the alleged existence of foreign subsidies distorting competition, which led to the annulment of the procedure; ^[25]
• the abandonment of investment projects in the renewable energy sector, in particular by consortia involving LONGI Solar and Shanghai Electric in Romania, due to the regulatory uncertainty induced by the investigations conducted under the FSR;^[26]
• the imposition of structural commitments in cross-border mergers, such as in the context of the acquisition of PPF Telecom by the UAE group e& ;^[27] as well as 
• the opening of investigations into transnational industrial projects, notably in the electric vehicle and battery sectors, which have led to delays in the implementation of announced investments, including in Hungary.^[28]

Beyond these individual cases, legal doctrine and economic analyses highlight a chilling effect on the investment strategies of non-European companies, some of which favour greenfield investments  or postpone their projects in order to limit their exposure to the control exercised by the Commission. ^[29] Finally, the requirement for prior notification of a large number of mergers and public procurement procedures has significantly increased the administrative burden on economic actors operating internationally and lengthened the time taken for cross-border transactions, in particular for companies established outside the Union.^[30] In terms of industrial policy, the FSR is part of a broader strategy of technological sovereignty and economic resilience. The targeted sectors include aeronautics, energy, chemicals and electromobility, areas where massive foreign subsidies can change the industrial balance of power in the long term. In practice, the European Commission considers the FSR to be a necessary complement to competition policy and controls on State aid, to ensure the coherence of European industrial policy (the emerging policy of the Commission, not that of the Member States, however, which it is increasingly inclined to question,  as is especially the case in the field of defence industries, which do not fall within its constitutional competences at the end of the TFEU!).

In this respect, it should be noted that several American institutional and analytical players, joined by observers from other third countries, have already considered that the FSR goes beyond the traditional corrective logic of competition law to be part of an assumed strategy of European industrial policy^[31]. According to this critical reading, the FSR would contribute to reorienting access to the internal market to the benefit of established or supported actors within the Union, in particular in strategic sectors such as energy, transport, semiconductors or electric vehicles, in addition to instruments such as the Green Deal or the Net-Zero Industry Act.^[32] American analyses underline that this hybridisation between competitive control and industrial objectives weakens the normative neutrality claimed by the EU and could be perceived as a disguised non-tariff barrier.^[33] In response, however, the United States has not adopted legislation directly targeting the FSR, preferring an indirect strategy based on diplomatic pressure, participation in European consultations and the strengthening of its own industrial policy instruments (notably the CHIPS and Science Act 2022) in order to preserve the competitiveness of American companies in the face of the new European framework.^[34] This lack of a frontal legal response does not exclude, in the medium term, the instrumentalization of American trade policy tools, such as the famous Section 301 of the Trade Act, if the FSR were to be applied in a manner deemed discriminatory or excessive.^[35]

The experience of the first investigations also shows that the FSR can influence the negotiation of remedial commitments, making it possible to avoid blockages or cancellations of strategic investments. European companies thus benefit from increased visibility and a more stable environment to plan their international expansions and partnerships. In the end, the FSR has above all strengthened the Commission’s powers, the combination of predictability and remedial capacity thus giving the Commission an unprecedented strategic role in industrial governance.

In addition, difficulties persist. Complex or multi-jurisdictional foreign investments may escape initial detection, and some indirect subsidies remain difficult to qualify as distortions. In addition, the Commission must balance its strategic role with respect for international law and multilateral obligations. Ignacio Garcia Bercero notes : « The FSR only works effectively if its legal framework is robust and consistent with WTO standards, in order to avoid costly challenges and preserve European legitimacy. »^[36]

Another critical point concerns competition policy and state aid. The FSR is designed to complement, not replace, the control of state aid and mergers. In some sectors, the lack of major European champions has been criticised for limiting the ability to negotiate with subsidised foreign investors. 

Finally, the FSR has an indirect geopolitical effect. The mere existence of this mechanism signals to third countries that the EU is ready to act against distortions, influencing the behaviour of investors and states.  Beyond the immediate economic effects, the FSR is indeed an instrument of economic diplomacy, capable of shaping the European and global perception of the regulation of subsidies.

5. The geopolitical factor in the effective implementation of the FSR: the reactions of third countries

The introduction of the FSR has provoked various reactions from third countries, revealing the geopolitical and economic stakes of this new instrument. This section analyzes how the major economies involved—China, India, the United Arab Emirates, and other strategic partners—have responded, assessing trade tensions, retaliatory measures, and adaptation strategies.

As soon as the FSR was announced, China expressed reservations, perceiving the mechanism as an instrument likely to restrict the access of its subsidised companies to the European market. As Garcia Bercero notes : « The Chinese authorities immediately sought to qualify the FSR as a non-tariff barrier, which reflects the strategic sensitivity of the measure for their companies. »^[37] This reaction comes amid heightened trade tensions, particularly around the technology and automotive sectors.

In the automotive sector, Chinese companies had planned significant investments in Europe. The potential application of the FSR has delayed some acquisitions and led to complex negotiations. Eddy de Smijter comments : « The study of Chinese automotive investment cases has revealed that the Commission often has to arbitrate between market protection and investment attractiveness. »^[38] China then implemented targeted retaliatory measures, particularly on French wines and spirits, to signal its discontent and defend its exporters, creating a context of bilateral trade tension. It should be noted that Chinese retaliation, although limited in volume, is strategic and aims to influence investors’ perception of the FSR, both in the markets concerned by the measures and in others not mentioned.

India has taken a more nuanced approach, which absolutely needs to attract more attention from France and French companies. The Indian authorities expressed their willingness to cooperate with the Commission, while seeking clarification on the scope of the Regulation and its implications for bilateral investments. As Garcia Bercero notes: « India saw the FSR as a legitimate regulatory instrument, but wanted to preserve the fluidity of technological investment. »^[39] Indeed, the Indian authorities and observers take a nuanced view of the FSR, acknowledging on the one hand the EU’s stated objective of ensuring a level playing field for investors in the internal market, but on the other hand expressing pragmatic concerns about its potential effects on Indian exports and ongoing trade negotiations. Some reports by  Indian think tanks point out that the FSR could affect key exports from India to the EU, particularly in the electronics and IT sectors, if domestic incentive schemes such as Production Linked Incentives (PLI) or other subsidies are considered « foreign subsidies » within the meaning of the regulation.^[40] In the broader context of the negotiations for an India-EU Free Trade Agreement (FTA), which Germany is trying to speed up in parallel with the signing of the EU-MERCOSUR agreement, it should be emphasised, this apprehension translates into a demand for clarity and guarantees in order to prevent the implementation of the FSR from becoming an additional non-tariff barrier that could delay or complicate trade talks.^[41] Once again, France should not leave Germany alone in the dynamics of the negotiations, by learning the lessons of MERCOSUR. Thus, although New Delhi does not reject the principle of combating distortions of competition, it adopts a constructive but vigilant posture, seeking to reconcile its own industrial incentive policies with European regulatory expectations, while striving to preserve its economic interests in a long-term strategic partnership.^[42]India’s nuanced position shows that the perception of the FSR varies according to the economic and political contexts of third countries.

The United Arab Emirates has been particularly concerned by the first significant measures applied to certain investments in the green technology and energy sector. Several investigations opened by DG Competition have targeted acquisitions of European companies by UAE entities benefiting from public subsidies. The most emblematic case concerns Emirates Telecommunications Group Company PJSC (e&), a telecoms operator controlled by the sovereign wealth fund Emirates Investment Authority, which notified the European Commission in April 2024 of its takeover of PPF Telecom Group B.V., active in Central and Eastern Europe.^[43] The Commission opened an in-depth investigation in June 2024 after identifying indications of foreign subsidies, including an unlimited state guarantee and facilitated loans that could distort the internal market.^[44] In September 2024, the Commission issued a conditional clearance for the transaction, requiring commitments such as aligning e&’s statutes with the UAE’s ordinary bankruptcy law to neutralise the effect of the unlimited guarantee and imposing restrictions on future funding for European activities.^[45] This is the first phase II merger decision under the FSR. More recently, in 2025, the Abu Dhabi National Oil Company (ADNOC) was the subject of an in-depth investigation by the Commission in the context of its proposed acquisition of Covestro AG, a German chemical company, on the basis of possible advantages granted by State subsidies (unlimited guarantee and capital increase) that could discourage other bidders and affect competition in the Union.^[46] The final decision on this file is expected in early 2026.

These cases illustrate how the FSR is applied to large cross-border transactions involving state-backed companies, incorporating significant structural commitments and contractual adjustments to address the effects of potential foreign subsidies, while providing a clear reading of the operational functioning of the regulation in real transactions. Eddy de Smijter rightly notes: « Although few in number, these cases illustrate the real scope of the FSR and its ability to act in strategic sectors without provoking systemic conflict« .^[47]

Other countries, such as Japan and South Korea, have been watching closely, seeking to adapt their investment structures to comply with the requirements of the FSR. Advanced Asian economies tend to see the FSR as a clear signal that Europe is in control of its strategic markets, which can only influence M&A planning. At the same time, these two countries seem to want to position themselves on rather good terms with the Europeans so as not to remain alone with the giants of China, India and the United States, and the European Union seems to them to be more able to accommodate their diversity and their size, which is closer to that of the large EU Member States. At the geopolitical level, the situation of these two countries should be reassessed in the context clearly hardened by the postures of the superpowers and the emergence of the BRICS, from which they are excluded.  

Despite the initial intention to mainly target China, the first cases opened by the Commission show that relatively few concern China directly, while other countries, notably the United Arab Emirates, are more represented. This observation raises a central question: is the implementation of the FSR for the purpose for which it was designed fully effective?  Retaliatory measures implemented by some third countries have sometimes targeted sectors that are different from those targeted by the FSR. The example of French wines and spirits highlights that retaliation can aim to create a political and commercial pressure effect without necessarily directly corresponding to the subsidized investments. Eddy de Smijter comments: « These responses illustrate the geopolitical dimension: the FSR becomes an instrument of indirect negotiation, influencing the behaviour of third countries and market dynamics« .^[48] Admittedly, it is a powerful instrument in the hands of the Commission, but it cannot prevent the emergence of European champions or leaders who are competitive on a global scale, which European competition policy, and in particular merger control or internal control of state aid, have sometimes been able to prevent. 

6. Initial evaluation of the FSR, criticisms and possible margins of discretion and possible reforms

The entry into force of the FSR was accompanied, in accordance with Article 46 thereof, by a formal evaluation and consultation mechanism intended to assess its practical operation and, if necessary, to propose normative or interpretative adjustments.^[49] This examination phase is part of a dense doctrinal context, marked by a recognition of the originality of the instrument, but also by sustained criticism of its procedural and institutional design.

a. The main doctrinal criticisms addressed to the FSR

Commentators have underlined in the first place the broad conceptual indeterminacy of certain central concepts of the FSR, in particular those of « foreign financial contribution », « advantage » and « distortion of the internal market », the cumulative scope of which leads to a particularly wide field of application.^[50] This indeterminacy is reinforced by the largely prospective and ex-ante nature  of the analysis, which is often based on incomplete or asymmetric information on foreign state support mechanisms.^[51]

Secondly, many authors highlight the procedural cumbersomeness of the regime, in particular for mergers and public procurement procedures, highlighting the risks of significant delays, over-notification and chilling effects  on cross-border investment.^[52] Finally, a recurrent criticism is aimed at the extent of the discretionary powers conferred on the Commission, in particular through the ex officio call-in mechanisms, which are perceived as generating legal uncertainty and limited predictability for economic operators.^[53]

b. Possible reforms considered in the context of the evaluation

Ongoing consultations and institutional positions indicate that the reform options currently being considered are essentially incremental, not structural. They focus on the adoption of interpretative guidelines to clarify the characterization of foreign subsidies, the application of the balancing test, and the prioritization of relevant financial contributions.^[54]

Other adjustments mentioned in the doctrine concern a targeted revision of the notification thresholds, the introduction of more robust screening mechanisms or de minimis exemptions, as well as a better articulation of the FSR with existing competition and international trade law instruments.^[55] On the other hand, there are no indications that there will be a major legislative revision of the regulation in the short term.

c. The legal justification for maintaining a broad discretion 

In the face of criticism, the Commission bases the legitimacy of its broad discretion on several converging legal arguments. It first relies on the sui generis nature of the FSR, which is distinct from both the control of State aid and anti-dumping law, and requires a flexible assessment of complex factual situations involving third States (see Part I above).^[56] Clearly, the Commission does not intend to share – under any circumstances – its competence with the Member States on a text considered essential and strategic.

The Commission then stresses that this discretion is a condition for the effectiveness of the regulation, in a context where foreign subsidies can be fragmented, indirect or hidden through sophisticated financial structures.^[57] Finally, it points out that that discretion remains circumscribed by the general principles of EU law – proportionality, the statement of reasons for decisions, the rights of the defence – and by the ex post judicial review carried out by the Courts of the European Union.^[58]

d. The failure to explicitly take into account geopolitical risks in the assessment of the FSR

However, at the current stage, at the beginning of January 2026,  an important structural limitation of the ongoing assessment process should benoted: neither the mandate of the consultation nor the preparatory documents published by the Commission provide for the explicit integration of an autonomous analysis of geopolitical risks related to the implementation of the FSR. The potential effects of the Regulation on economic relations with strategic partners, regulatory retaliation or systemic tensions in international trade are only addressed indirectly, from the perspective of legal certainty or proportionality.^[59]

This omission is underlined by several authors, who consider that the FSR operates de facto as an instrument of industrial and strategic policy, without its geopolitical implications being fully integrated into its evaluation framework or in the reform perspectives, which could limit the external coherence of the Union’s action.^[60]

Conclusion 

The Foreign Subsidy Regulation is a major strategic step forward in the regulation of foreign subsidies – by the European Commission, which has exclusive competence to implement it – within the European Union. By combining trade policy instruments, State aid control mechanisms and industrial policy objectives, the FSR illustrates the desire to entrust the Commission with a strengthened capacity to protect EU markets in principle, while strengthening its competitiveness in sectors considered strategic by the Community level, such as electromobility, energy and advanced technologies.

However, this legal innovation is not without limits. The procedures are complex and demanding in terms of data collection, which can slow down decision-making and increase the administrative burden for the companies involved. An excess of precaution in the implementation of the FSR could also unintentionally reduce the overall competitiveness of European companies, by limiting access to necessary foreign investment. But this limit is also verified in the case of insufficient anticipation of the boomerang effects of trade retaliatory measures by the third countries concerned.

The geopolitical dimension of this important new legal instrument stemming from the European Union’s competition policy seems to have been underestimated. The Commission’s first investigations, although focused on cases of foreign subsidies, sometimes provoked very strong reactions from third countries, in particular China. The measures envisaged on Chinese electric vehicles were followed by retaliation, in particular anti-dumping duties on certain European spirits and spirits, mainly Cognac spirits (see above).  This illustrates the fact that the economic efficiency of the measures must be considered in the context of a global diplomatic and trade environment (and not just for the industrial goods or services directly targeted by the measures implemented under the FSR, where EU decisions are closely scrutinized and sometimes challenged).

At the industrial level, the FSR in principle provides a tool for preventing distortions, but it does not replace ambitious industrial strategies aimed at consolidating European champions. Eddy de Smijter rightly observes that the « FSR corrects certain distortions, but it does not replace the emergence of European leaders capable of competing with subsidised foreign firms « .^[61] The combination of the FSR with the rules on merger control and state aid will have to prove that it constitutes a coherent whole, requiring careful coordination and arbitration so as not to hinder the development of local companies.

In short, the FSR is a fine European tool that is promising for the Community interest. But, exactly as in the case of the EU-MERCOSUR Treaty, its implementation does not guarantee that it will be in the best interests of the Member States, in particular France: the case of the questioning with the FSR of Chinese electric vehicle subsidies (at the insistent request of France itself!) demonstrated this with the Chinese compensatory sanctions against Cognac eaux-de-vie,  due to a prior lack of geopolitical analysis on the feasibility of implementation with regard to the targets. The effectiveness and legitimacy of the FSR will therefore continue to depend on the rigour of its implementation, the clarity of its procedures and the way in which the EU will manage geopolitical resistance from third countries and global economic actors. 

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Annex I – EU AD and CVD measures since 2016

Industry	Country concerned	Type of Measurement	Amount / Rate (%)	Duration	Complaint filed by	Retaliatory measures
Stainless steel	China	Initial AD	14,320 %	5 years	Eurofer	No significant retaliation
Steel Tubes	Russia	Initial AD	1118 %	5 years	Eurofer	Suspension of certain Russian imports
Flat Aluminum	China	Initial AD	1215 %	5 years	European Aluminium	N/A
Solar Panel	China	Initial AD	47,6 %	5 years	EU ProSun	Chinese anti-dumping duties on European polysilicon
Submersible Pumps	India	CVD	1012 %	5 years	Europump	N/A
Metal shutters	Vietnam	Initial AD	815 %	5 years	Eurolam	N/A

Note: data from official DG COMP press releases and AD/CVD reports 20162023, Eurofer, European Aluminium, Europump, Eu ProSun. Reference pages: DG COMP reports p. 1222.

Annex II – FSR cases opened by DG COMP (Directorate K)

Company	Industry	Country of origin	Problematic subsidy	Intervention / Measures requested	Status
CATL	Batteries	China	R&D subsidy	Remedial Engagement in Negotiation	Ongoing
BYD	Electric vehicles	China	Investment Grants	In-depth analysis requested	Ongoing
Emirates Steel	Steel	United Arab Emirates	Export subsidy	Remedial commitments obtained	Action Applied
Jinko Solar	Solar Energy	China	Export subsidy	Partial commitments obtained	Ongoing
Samsung SDI	Batteries	South Korea	Tax subsidy	Verification in progress	Ongoing

Note: DG COMP press releases, Directorate K, 20242025; pages of internal reports DG COMP p. 1018.

Appendix III – AD/CVD vs. FSR Comparative Summary

Criterion	AD/CVD (20162023)	FSR (20242025)
Number of cases	6	5 main ones in progress
Most targeted countries	China, Russia, India, Vietnam	China, United Arab Emirates, South Korea
Sectors	Steel, aluminum, solar panels, pumps	Batteries, electric vehicles, steel, solar energy
Type of intervention	Anti-dumping duties / CVD	Corrective commitments, preventive investigations
Scope	Corrective / Reactive	Preventive/Strategic
Market impact	Limited by complexity and number of cases	Ongoing, more strategic potential

Note: Summary from Annexes I and II, DG COMP reports, official press releases 20162025, p. 1222.

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^[1] Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market, OJE, 23 December 2022, C. 491.

^[2] Ignacio García Bercero, Reflections on WTO Reform, LSE IDEAS Expert Analysis, London School of Economics and Political Science, London, January 2025, 22 pp., p. 3, available online at: https://www.lse.ac.uk/ideas/Assets/Documents/2024-ExpertAnalysis-Bercero-WTO-FINAL.pdf

^[3] DG Competition, Report ‘Antidumping Measures 2013–2023’, Brussels, 2023, p. 42. As Garcia Bercero further notes at the AD/FSR regulatory border: « The traditional system is based on a reactive logic that hinders strategic anticipation and industrial planning », Garcia Bercero, I., « The EU Foreign Subsidy Regulation: A Strategic Tool », Bruegel Policy Contribution, 2023, p. 5.

^[4] Wolfgang Weiß, The Regulation on Foreign Subsidies Distorting the Internal Market: A Path to a Level Playing Field?, in Wolfgang Weiß & Cornelia Furculiță (eds.), Open Strategic Autonomy in EU Trade Policy, Cambridge, Cambridge University Press, 2024, 112 p., esp. pp. 30–45 (analysis of geopolitical implications and risks of international reactions). In the same vein, see, in particular, C. Alden, & R. Wolfe, « European Foreign Subsidy Regulation: Geopolitical Implications« , Journal of International Trade, 2022, pp. 18–21.

^[5] Sales of wines and spirits, down mainly attributed to the loss of Cognac markets in China due to the EU’s dispute with China, reached €15.6 billion in 2024, 4% less « compared to the €16.3 billion in 2023, a year already marked by a 5.8% drop in turnover compared to the previous yeari.e. total losses of several hundred million €! V. Hugo Struna, « The trade conflict with China penalises French wines and spirits », Euractiv.com, 12 February 2025.

^[6] Garcia Bercero, « The EU Foreign Subsidy Regulation: A Strategic Tool », Bruegel Policy Contribution, 2023, p. 5.

^[7] Wolfgang Weiß, op.cit, pp. 30-45.

^[8] Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings.

^[9] I. Garcia Bercero, op. cit., p. 6.

^[10] Eddy De Smijter, The Foreign Subsidies Regulation a new tool to create a level playing field in the EU Conference on State Aid Law, Brussels, DG COMP, 12 June 2024, 18 p.  See also the excellent article presenting the Swiss point of view, outside the EU:  Këllezi, Pranvera, The New EU Foreign Subsidies Regulation and its Implications for Switzerland (October 01, 2023). Swiss Review of Business and Financial Market Law, SZW-RSDA 6/2023, pp. 699-713, Available at SSRN: https://ssrn.com/abstract=4692826

^[11] I. Garcia Bercero, op. cit., p. 8.

^[12] U.S. Chamber of Commerce, Comments on the European Commission’s Proposal for a Regulation on Foreign Subsidies Distorting the Internal Market, Washington, DC, U.S. Chamber of Commerce, 2022, 15 p., esp. pp. 1–3 (general presentation of U.S. companies’ concerns about the scope and effects of the RSF).

^[13] Ibid., 15 p., spec. p. 3–6 (criticisms of the scope of the concepts of « financial contribution » and « benefit » and the risks of legal uncertainty).

^[14] Ingrid J. Jensen and Rebecca M. Nelson, EU Foreign Subsidies Regulation: Implications for U.S. Firms, Congressional Research Service, Report No. IF12117, Washington, DC, Congressional Research Service, 2023, 12 p., spec. p. 4–7 (analysis of compliance costs and procedural cumulation with other EU control regimes).

^[15] Gary Clyde Hufbauer and Euijin Jung, EU Foreign Subsidies Regulation and the Multilateral Trading System, Policy Brief No. 22–17, Washington, DC: Peterson Institute for International Economics, October 2022, 16 p., esp. pp. 5–9 (potential disincentives of the RSF on foreign investment and WTO compatibility).

^[16] Jennifer A. Hillman, Subsidies, Strategic Competition, and the EU’s Foreign Subsidies Regulation, Discussion Paper, New York, Council on Foreign Relations, 2023, 14 p., spec. pp. 7–10 (geopolitical dimension of the RSF and risks of protectionist perception).

^[17] Ibid.

^[18] Op.cit. p. 7

^[19] Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market, OJEU, L series, No. 330, Luxembourg, Publications Office of the European Union, 23 December 2022, Art. 24, §§1–3 and Art. 25, §§1–2.

^[20] Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJEU, L series, No 24, Luxembourg, Publications Office of the European Union, 29 January 2004, Art. 10, §§1–3; see also: Pablo Ibáñez Colomo, EU Competition Law, 2nd ed., Oxford, Oxford University Press, 2023, pp. 412–415.

^[21] Regulation (EU) 2022/2560, above, Art. 29, §§1–3 and Art. 30, §§1–2.

^[22] Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, OJEU, L series, No. 79, Luxembourg, Publications Office of the European Union, 21 March 2019, arts. 6–8; see: Christophe Hillion and Niklas Maydell, « The EU Investment Screening Regulation », Common Market Law Review,  vol. 57, no. 4, Leiden, Brill | Nijhoff, 2020, pp. 1161–1166.

^[23] Regulation (EU) 2022/2560, supra, arts. 9 and 10; Regulation (EU) 2019/452, above, Art. 6, §§7–9.

^[24] I. Garcia Bercero, op. cit., p. 9.

^[25] European Commission, Commission opens in-depth investigation into CRRC’s participation in a public procurement procedure in Bulgaria under the Foreign Subsidies Regulation, press release IP/24/1326, Brussels, European Commission, 16 February 2024 (unpaginated electronic document); Giorgio Sacerdoti, « The First Enforcement Actions under the EU Foreign Subsidies Regulation », Common Market Law Review, Vol. 61, No. 3, Leiden, Brill – Nijhoff, 2024, pp. 731–734.

^[26] European Commission, Commission opens two in-depth investigations under the Foreign Subsidies Regulation in the photovoltaic sector, press release IP/24/2431, Brussels, European Commission, 3 April 2024 (unpaginated electronic document); Leigh Hancher and Piet Jan Slot, « Foreign Subsidies and the EU’s Energy Transition, » Journal of Energy & Natural Resources Law, Vol. 42, No. 2, Abingdon, Taylor & Francis, 2024, pp. 214–217.

^[27] European Commission, Commission approves acquisition of PPF Telecom by e& subject to commitments under the Foreign Subsidies Regulation, press release IP/24/3580, Brussels, European Commission, 24 June 2024 (unpaginated electronic document); Pablo Ibáñez Colomo, « The EU Foreign Subsidies Regulation and Merger Control: Emerging Practice, » European Competition Journal, Vol. 20, No. 1, Abingdon, Taylor & Francis, 2024, pp. 98–103.

^[28] European Parliamentary Research Service (EPRS), The EU Foreign Subsidies Regulation: First lessons from enforcement, Briefing PE 754.602, Brussels / Luxembourg, European Parliament – EPRS, July 2024, pp. 10–13; European Commission, Annual Competition Policy Report 2024, COM(2025) 120 final, Brussels, European Commission, 2025, pp. 47–49.

^[29] PricewaterhouseCoopers (PwC), EU Foreign Subsidies Regulation: First experiences and market reactions, Global Competition Report, London, PwC Legal, 2024, pp. 18–22; OECD, FDI Screening and Foreign Subsidies: Policy Trends in the EU, Paris, OECD Publishing, 2024, pp. 34–36.

^[30] European Commission, Staff Working Document – Impact and enforcement of the Foreign Subsidies Regulation, SWD(2024) 189 final, Brussels: European Commission, 2024, pp. 21–27; Herbert Smith Freehills, The EU Foreign Subsidies Regulation: One Year On, Legal Briefing (London: Herbert Smith Freehills LLP, 2024), pp. 6–9.

^[31] Ingrid J. Jensen and Rebecca M. Nelson, EU Foreign Subsidies Regulation: Implications for U.S. Firms, Congressional Research Service, Report No. IF12117, Washington, DC, Congressional Research Service, 2023, 12 p., spec. p. 8–9 (qualification of the FSR as a strategic instrument that goes beyond traditional competitive control).

^[32] Gary Clyde Hufbauer and Megan Hogan, Europe’s Industrial Policy Turn and the Foreign Subsidies Regulation, Policy Brief No. 23-4, Washington, DC, Peterson Institute for International Economics, February 2023, 18 p., esp. p. 11–14 (articulation of the RSF with European industrial policy instruments).

^[33] U.S. Chamber of Commerce, The EU’s Foreign Subsidies Regulation and Its Impact on Transatlantic Investment, Issue Brief, Washington, DC, U.S. Chamber of Commerce, 2023, 10 p., spec. pp. 4–6 (FSR as a non-tariff barrier and risks of distortion to the detriment of non-EU firms).

^[34] Jennifer A. Hillman, Subsidies, Strategic Competition, and the Risk of Fragmentation of Global Trade Rules, Discussion Paper, New York, Council on Foreign Relations, 2023, 20 p., esp. pp. 13–16 (indirect responses from the United States and the rise of national industrial policies); CHIPS and Science Act of 2022, Washington, DC, U.S. Congress, 2022, 200 p.

^[35] Ingrid J. Jensen and Rebecca M. Nelson, supra, 12 p., esp. pp. 10–11; see also Trade Act of 1974, Section 301, 19 U.S.C. §§ 2411–2420 (potential tools for trade response to practices deemed discriminatory).

^[36] Garcia Bercero, op. cit., p. 12.

^[37] I. Garcia Bercero, op. cit.,

^[38] Eddy de Smijter, op. cit., 

^[39] I. Garcia Bercero, op. cit.,

^[40] EU’s Foreign Subsidies Regulation May Hit India’s Exports To Europe: GTRI Report, Outlook Business, 19 July 2023, p. (online) — report indicating that the RSF could affect Indian exports, especially if incentive schemes such as the Production Linked Incentive (PLI), FAME or other aids are considered foreign subsidies by the European Commission, with implications for exporting industries Indian Studies.

^[41] Trade and Investment between the EU and India: A Promising Horizon with a Closer Look at Negotiation Roadblocks, CELIS Institute, blog post, 1 November 2023, p. (online) — analysis highlighting that regulatory divergences, including around rules such as those of the FSR, are potential sticking points in India-EU trade agreement negotiations and require extensive dialogue to prevent such regulations from becoming non-tariff barriers.

^[42] Data on EU trade relationsIndia and cooperation dynamics, EU Trade: EU India‑Agreements, European Commission, 2025, p. (online) — statistics showing that the EU is a major trading partner of India (second largest trading partner), underpinning the importance for New Delhi to take a balanced approach to regulations such as the RSF as part of broader policy cooperation. 

^[43] Official notice initiating the in‑depth investigation in case FS.100011 – Emirates Telecommunications Group / PPF Telecom Group, C/2024/3970, Commission of the European Union, Brussels, 21 June 2024, 6 p., official press release stating that the transaction involved foreign subsidies such as an unlimited state guarantee.

^[44] European Commission, Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market, OJ L 330, 23 December 2022, pp. 1–45, 45 p., official legislative text detailing the criteria for assessing foreign subsidies.

^[45] EU Commission, European Commission conditional decision on e&/PPF under the FSR, 24 September 2024, 8 p., official press release accepting commitments to neutralise the effect of subsidies and preserve competition.

^[46] Heiner Mecklenburg & Georg Friedrich Hensel, EU Commission launches in‑depth investigation into ADNOC’s acquisition of Covestro under EU Foreign Subsidies Regulation, PwC Legal, 15 August 2025, 5 p.: law firm note, summary of the ADNOC/Covestro case and the potential impact of foreign subsidies on European competition.

^[47] Eddy de Smijter, op. cit.,

^[48] Eddy de Smijter, op. cit.

^[49] Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market, OJEU L 330, 23 December 2022, pp. 1–45, 45 p., art. 46.

^[50] Luca Rubini, Foreign Subsidies and the EU Internal Market, Oxford, Oxford University Press, 2023, 312 p., esp. pp. 203–220.

^[51] Giorgio Monti, « The EU Foreign Subsidies Regulation: A New Layer of Competition Control », Common Market Law Review, vol. 60, 2023, 28 p., pp. 1108–1115.

^[52] Damien Neven & Paul Seabright, « Foreign Subsidies and Market Distortions », Journal of European Competition Law & Practice, 2023, 19 p., pp. 245–252.

^[53] Alexandre Maitrot de la Motte, « The Foreign Subsidies Regulation: A New Discretionary Power of the Commission », Revue Lamy de la concurrence, 2023, 14 p., pp. 5–9.

^[54] European Commission, Draft Guidelines on the application of Regulation (EU) 2022/2560, Brussels, 2025, circa 40 p., sections 2–4.

^[55] Wolfgang Weiß, The Regulation on Foreign Subsidies Distorting the Internal Market: A Path to a Level Playing Field?, in W. Weiß & C. Furculiță (eds.), Open Strategic Autonomy in EU Trade Policy, Cambridge, Cambridge University Press, 2024, 112 p., pp. 45–52.

^[56] European Commission, Explanatory Memorandum accompanying the Proposal for a Regulation on Foreign Subsidies Distorting the Internal Market, COM(2021) 223 final, Brussels, 5 May 2021, 19 p., pp. 10–13.

^[57] Eddy de Smijter, interview, DG COMP, January 2024, approx. 15 p., spec. pp. 10–12.

^[58] CJEU, CK Telecoms, aff. T-399/16, EU:T:2020:217, pts 96-103 (reminder of judicial review of manifest error of assessment).

^[59] European Commission, Call for Evidence – Evaluation of the Foreign Subsidies Regulation, Brussels, 2025, 12 p., sections « Scope » and « Objectives ».

^[60] Anu Bradford, Digital Empires: The Global Battle to Regulate Technology, Oxford, Oxford University Press, 2023, 352 p., pp. 287–292 (putting the RSF into perspective as an instrument of normative power.

^[61] Ibid.

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