European Commission takes action: Bulgarian rolling-stock tender will test new Foreign Subsidies Regulation | In Principle

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European Commission takes action: Bulgarian rolling-stock tender will test new Foreign Subsidies Regulation

The EU’s Foreign Subsidies Regulation entered into force in July 2023. The first case in which the European Commission will decide what impact non-EU financial support has on the EU procurement market involves a Chinese bidder for a public contract in Bulgaria.

To protect the level playing field, Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market introduces new notification obligations for companies receiving subsidies from third countries from which they may gain an unfair competitive advantage. Previously, the impact of state aid on competition was examined only in relation to companies from EU member states. The Foreign Subsidies Regulation empowers the European Commission to investigate (also ex officio) whether subsidies granted to a company from a third country cause distortions of competition in the European market. If so, the Commission may not only impose an obligation on such a company to implement redressive measures, but may also ban a planned transaction in the EU, in particular the award of a public contract to such a contractor.

We write in detail about the new regulation in the article “EU tenders: Foreign subsidies must not distort competition.” Generally, the regulation and the rules it implements do not raise questions of interpretation. Of course, companies from third countries perceive the regulation as an impediment to accessing European public procurement, as it imposes additional obligations on them. But it does not violate the principle of equal treatment of contractors in accessing procurement procedures, as similar obligations to examine state aid are imposed on European contractors, albeit under different provisions and at a different stage. In this sense, the new regulation embodies the principle of equal treatment, which, as stated by the Court of Justice in cases such as Fabricom, C-21/03 and C-34/03, should be understood to mean that comparable situations (here, obtaining subsidies by a bidder for a public procurement) shall not be treated differently.

The market is keen to observe the practical effects of the European Commission’s first investigations and their real impact on ongoing public procurement proceedings.

On 16 February 2024, the Commission launched a review procedure of the public procurement proceedings conducted by Bulgaria’s Ministry of Transport and Communication for supply of modern electric “push-pull” trains along with the necessary maintenance and training services. The estimated value of the procurement is EUR 610 million, above the threshold set by the regulation at EUR 250 million. A third-country bidder, China’s CRRC Qingdao Sifang Locomotive Co., a subsidiary of global rolling stock manufacturing giant CRRC Corporation, reported during the proceedings that it had obtained financial support in the amount of at least EUR 4 million over the past three years.

Now the Commission is thoroughly investigating the case and will decide whether this financial support from a third country—most likely China—gives the Chinese bidder an unfair competitive advantage.

The Commission’s initiative under the regulation seeks to close a regulatory loophole that has so far failed to counter the distortion foreign subsidies have caused in competitive access to European public procurement.

Significantly, initiation of the Commission’s investigation into the impact of a foreign subsidy on competition in the single market suspends the procurement procedure, by operation of law. Therefore, the purchase of rolling stock by the Bulgarian ministry will be significantly delayed, as the Commission has until 2 July 2024 to rule on the case. Only then will it be known whether the Chinese company may bid for the contract, or possibly under certain conditions.

Mirella Lechna-Marchewka, attorney-at-law, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners