Empowering the Forgotten: Competitors’ Rights and Remedies under the Foreign Subsidies Regulation

The Foreign Subsidies Regulation (FSR) is a new instrument adopted to protect the internal market from the distortive effects of public intervention. While the FSR resembles existing competition and trade tools, it differs notably in how it addresses complaints from competitors. Indeed, the FSR lacks a formal complaint mechanism, granting the European Commission broad discretion in deciding when and how to act based on third-party information. Thus, a 2023 complaint from LaLiga alleging foreign subsidies in the sports sector resulted in no formal response from the Commission. 

Moreover, enforcement under the FSR remains uncertain due to the Regulation's lack of specified remedies for third parties seeking redress before national courts. Consequently, remedies available to competitors for FSR violations will inevitably be determined through the case law of EU courts based on general principles and existing legal instruments. The present analysis aims to concisely outline competitors' potential rights and the remedies before the Commission and national courts, ultimately clarifying their standing under the FSR. A more comprehensive examination of this topic is provided in Review of European Litigation, Issue 3/2024, A. Carpi, “Charting the Path: Administrative and Judicial Remedies Available to Third Parties Under the Foreign Subsidies Regulation”. 

I. Administrative proceedings: A Right to Obtain the Opening of an FSR Investigation? 

The central question regarding the role of competitors in FSR proceedings is whether the information provided by complainants – if sufficiently substantiated – may oblige the Commission to open a preliminary review or whether the Commission enjoys absolute discretion in this regard. The FSR does not provide any complaint mechanism and does not even mention the notion of “interested party” or “complainant”. However, the case law on competitors’ rights in similar EU proceedings – particularly in antitrust, State aid and trade law – has shown that such rights can be inferred from an interpretation of EU legislation which takes into account the boundaries of the Commission’s discretion and the respect of general principles.  

    Investigations under the FSR and the Role of Competitors 

The investigation procedure under the FSR consists of two main stages: a preliminary review and an in-depth investigation. The preliminary review is conducted based on information provided by Member States, natural or legal persons and associations or notifications received under the merger and public procurement tools. The Commission “shall seek all the information it considers necessary to assess, on a preliminary basis, whether the financial contribution under examination constitutes a foreign subsidy and whether it distorts the internal market” (Art. 10(1)).  

If the Commission considers that sufficient elements indicate that a foreign subsidy distorting the internal market exists, it shall initiate an in-depth investigation by adopting a decision and, under Article 10(3)(d), it shall “publish a notice in the Official Journal of the European Union inviting the submission of views in writing”. At this stage, competitors are allowed to submit their comments and further information.  

Even though no formal complaint mechanism is provided, it is namely clear that the Regulation acknowledges the role of competitors in the implementation of the FSR by granting a right to provide information to the Commission, as well as the possibility to submit comments after the preliminary review.  

    FSR Procedural Rights in Context: Balancing Formalism and Effective Enforcement 

A strictly formalistic approach to the aforementioned provisions may suggest that a right to compel the opening of a preliminary review cannot be inferred from the Regulation. Indeed, in EU administrative law, neither primary nor secondary legislation grant complainants a general right to compel an institution to issue a decision on alleged infringements of EU law (T-Mobile Austria, para. 69). Thus, in the Sytraval case, the Court of Justice of the EU (“CJEU” or “Court”) ruled that the Commission is not even required to justify its decision to discontinue the investigation of a complaint, although the extent of its duty to provide reasons depends “on the circumstances of each case” (para. 59). 

However, an examination of the case law in related competition and trade law proceedings reveals that certain procedural rights for competitors can be inferred from the Commission's monopoly over the enforcement of specific tools or from the constraints imposed on its discretion. For instance, the Automec II judgment established that “the Commission cannot be required to give a decision [in response to a complaint] unless the subject matter of the complaint falls within its exclusive purview” (para. 75, emphasis added). Moreover, in the  FEDIOL case, concerning anti-dumping investigations, the Court recognized the complainants’ legitimate interest in prompting the Commission to initiate an investigation, even in the absence of a specific right under secondary legislation. In particular, the Court grounded its reasoning in the “principles that lie behind” (current) Articles 19(1) TEU and 263 TFEU (para. 29), which allow complainants to seek judicial review to determine whether the Commission has respected their procedural rights, committed manifest errors in its assessment, failed to consider essential matters indicating the existence of subsidization, or otherwise misused its powers (para. 30). 

The FSR does not seem to grant the Commission absolute discretion in selecting which subsidies to investigate based on enforcement priorities. Instead, Article 10(1) states that “where the Commission considers that the information referred to in Article 9 [including complaints] indicates the possibility that a foreign subsidy distorting the internal market exists, the Commission shall” initiate a preliminary review (emphasis added). This wording seems to impose an obligation on the Commission to open a preliminary review if it has sufficient information suggesting the “possible” existence of a foreign subsidy. 

Following this initial phase, the Commission must assess, on a preliminary basis, whether the financial contribution in question constitutes a foreign subsidy distorting the internal market. Although the FSR does not explicitly grant complainants the right to trigger a preliminary review, a textual interpretation of this provision indicates that the Commission’s pre-investigation assessment involves a “pre-prima facie” standard, rather than an “opportunity” test. This means that the standard of information required to prompt the Commission to start an investigation could be relatively low; such information would only need to suggest that the existence of a distorting subsidy could be preliminarily confirmed after further review. 

The analysis of the Commission’s discretion under the FSR highlights different avenues for reviewing its decisions not to open a preliminary review. The principle of good administration imposes on the Commission a duty to inform complainants about its decision to open or not a preliminary review, which is normally done through a letter. Under Article 263 TFEU, complainants may appeal decisions communicated through letters, as such actions target the underlying decision not to act (Athinaïki Techniki, para. 31). Concerning the locus standi of complainants, the Court might reach the same conclusions as in Cook, and find that the action is admissible where they seek to safeguard the right to submit their views in writing under Article 10(3)(d) after the preliminary review. Conversely, if the appeal concerns the substance of the decision, the stricter Plaumann test for direct and individual concern may apply. Alternatively, if the Commission does not take any step in handling the complaint, and third parties deem that the information provided is sufficient, they may resort to an action for failure to act under Article 265 TFEU. 

Criticism may be directed at this reconstruction of the locus standi of competitors, given that the FSR does not define the notion of “interested parties”. Consequently, the right to submit views under Article 10(3)(d) would be open to anyone, potentially precluding an analogical application of the procedural guarantees established in Cook and Matra within the State aid domain. It is also true, however, that Recital 9 suggests that the Regulation should be interpreted in alignment with related EU legislation, such as State aid and merger control. This alignment could lead the Court to infer the notion of "interested parties" from these domains. After all, the competitive position of rivals under the FSR is no different from that of competitors in State aid proceedings. This interpretation also aligns with the Court's settled case law, according to which every EU law provision must be understood within its broader context and interpreted in light of the provisions of EU law as a whole (Illumina, para. 127). Thus, in his Order in Nuctech, the President of the General Court considered that, in the context of an FSR investigation, the case law concerning Article 20 of Regulation 1/2003 and the qualified effects doctrine could be transposed to Article 14 FSR due to the “equivalence” of the two provisions (para. 35). 

Eventually, this in pari materia approach has also led the Court to extend procedural guarantees provided for complainants in other areas of EU law. This was demonstrated – in the context of State aid law – in Athinaïki Techniki, where the Court established a new “right to be associated with the procedure” for complainants in State aid proceedings (para. 38). This extension occurred despite the fact that, until then, such a right had only been granted to the beneficiaries of the aid, and more significantly, to complainants in antitrust proceedings under Regulation 1/2003. This implies that the Court could also consider other related areas of EU law where such procedural rights are more defined, such as in State aid and merger proceedings, which are expressly mentioned in Recital 9 FSR.  

While this interpretation seems consistent with the approach adopted in similar domains, the CJEU may also opt for a more formalistic approach, in line with T-Mobile Austria and Sytraval , holding that, in the absence of specific provisions in primary or secondary legislation, no procedural rights may be derived. However, such an approach would not be desirable both in legal and policy terms in light of the limited discretion the Commission seems to enjoy in its FSR assessment and the crucial role competitors are expected to play for the FSR effective enforcement.  

II. Old Principles, New Directions: Navigating the Private Enforcement of the FSR  

The FSR does not provide specific rules on its enforcement before national courts. The only indirect reference to private enforcement is found in Recital 56, which states that “[i]n the context of judicial remedies relating to the application of this Regulation concerning in particular public procurement procedures, a national court or tribunal” has the right—and, where required by Article 267 TFEU, the obligation—to request a preliminary ruling to the Court of Justice. However, this provision merely reiterates what is already established under primary law. It does not clarify whether or which FSR provisions can be directly invoked before national courts, nor does it offer guidance on coordinating such national proceedings with parallel Commission investigations. 

Nevertheless, as demonstrated in other areas of EU law, direct effect enables private parties to invoke breaches of EU law before national courts, while the principles of primacy and sincere cooperation ensure coordination between the enforcement powers of the Commission and national courts. These principles should apply, mutatis mutandis, within the FSR framework and should govern situations where national remedies intersect with the Commission’s investigative powers. 

    Assessing the Direct Effect of FSR Provisions: Legal Principles and Practical Applications  

Article 288 TFEU provides that regulations are “directly applicable in all Member States”. According to the Court’s established case law, this means that “by their very nature and their place in the system of sources of EU law, regulations confer rights on individuals which national courts are obligated to protect” (Muñoz, para. 27). However, the provisions conferring rights to individuals must be clear, precise, and unconditional. Therefore, where EU institutions or Member States retain discretion in adopting implementing measures, individuals cannot invoke those provisions before national courts (Leonesio, para. 6). It shall namely be examined how this legal framework apply to the FSR merger control (1) and public procurement (2) tools, as well as the ex officio and ad hoc notification instruments (3). 

    1. Merger Tool 

Articles 24(1) and 24(7) establish clear, precise and unconditional obligations, notably prohibiting the implementation of notifiable concentrations before notification and invalidating transactions completed in violation of this rule unless subsequently cleared by the Commission. 

In such cases, the national court will not assess the compatibility of the foreign subsidies with the internal market, which is an exclusive competence of the Commission, but it will rather consider whether the foreign contributions reached the thresholds provided at Article 20(3)(b), whether the undertaking failed to notify and, if that is the case, take any step that may appear necessary to nullify the effects of the breach (AG Jacobs’ Opinion, FNCEPA, para. 27) . 

To this end, national courts cannot simply stay the proceedings and wait for the Commission’s decision but will have to address the consequences of the infringement with the instruments provided by national law subject to the principles of equivalence and effectiveness (CELF, para. 32). Such remedies could include invalidating the transaction, awarding damages, or issuing orders to compel notification. Competitors can also seek remedies such as cease-and-desist orders if they can substantiate claims with adequate evidence, with the evidentiary standard determined by national rules.  

    2. Public Procurement Tool 

Concerning the public procurement tool, an undertaking that benefits from financial contributions reaching the prescribed thresholds “shall notify” the contracting authority, which then forwards the notification to the Commission in compliance with Article 29(2). However, the failure of an alleged beneficiary to comply with the notification obligation under Article 29 does not automatically invalidate the bid. Instead, the process grants a margin of discretion to the contracting authority. 

Article 29(3) stipulates that when the notification or declaration is missing from a tender or request to participate, the contracting authority “may request” the economic operators involved to submit the relevant document within ten working days. However this margin of discretion is left to the contracting authority only when the alleged beneficiary of foreign subsides would not, in any case, adjudicate the tender. A different interpretation, granting unlimited discretion to the contracting authority, would be unreasonable and would undermine the effectiveness of FSR enforcement. Therefore, when the breach of the notification obligation may lead the alleged beneficiary to adjudicate the tender, the contracting authority must require the relevant documentation under Article 29(3). It follows that a failure to comply with the notification obligation constitutes a breach of EU law which could justify an action before national courts.  

Concerning the specific remedies available to competitors, the so-called Remedies Directive should apply. The procedure is namely regulated by national law transposing the directive. Thus, to initiate proceedings, third parties will need to demonstrate to have an “interest in obtaining a particular contract” in the meaning of Article 1 of the Directive. Even though national law defines the precise requirements to have locus standi before national courts, the notion of interest cannot be interpreted in a restrictive manner (Fritsch, Chiari & Partner, para. 31).  

Therefore, in case of FSR breaches, in the absence of an adequate redress, competitors will be able resort to the remedies provided by national legislation transposing the Remedies Directive, including interim measures, orders addressed to the contracting authority and claim for damages.  

    3. Ex Officio Tool and Ad Hoc Notification Requests  

The ex officio tool does not confer any rights upon private parties that may be invoked before national courts, due to the absence of direct effects of its provisions. However, third parties may seek redress in cases where there is non-compliance with the Commission's remedial decisions, providing an alternative avenue for upholding procedural standards under the FSR (AG Trstenjak’s Opinion, Carp, para. 58). 

The ad hoc notification tool serves as an alternative mechanism and can be used alongside the ex officio tool. Non-compliance with ad hoc notification requests has consequences equivalent to violations of the notification obligations outlined in Articles 24(7) and 29(1) FSR. Specifically, Articles 21(5) and 29(8) stipulate that, following a notification request, a concentration or financial contribution related to a public procurement procedure will be treated as if it meets the notification thresholds set out in Articles 24(7) and 29(1). 

The source of the notification obligation—whether from a Commission decision or a regulation—does not affect its enforceability in private actions. As long as the Commission’s decisions (even in the form of ad hoc notification requests) are clear, precise, and unconditional, they may have direct effect and serve as a legal basis for private enforcement actions.  

III. Primacy, Procedural Autonomy and Sincere Cooperation: The Interplay between the FSR Private and Public Enforcement 

The interaction between private enforcement and Commission investigations under the FSR reflects most of the principles applicable to State aid law, such as procedural autonomy, equivalence, effectiveness, and sincere cooperation. National courts play a critical role in addressing procedural breaches, particularly in the public procurement context.  

Thus, the Commission decision to open an in-depth investigation in the context of the FSR will oblige national courts to treat the contested measure as a subsidy and to avoid adopting remedies that could contradict the Commission’s findings (Deutsche Lufthansa, para. 41). Similarly, the decision of a national court – even after becoming res judicata – cannot bind the Commission’s assessment and, if the Commission’s decision diverges from the national court’s judgment, the former will normally prevail (Lucchini, para. 63). 

Moreover, in the context of public procurement, public and private enforcement appear to complement each other. Indeed, national courts may intervene in the pre-contractual phase by requiring contracting authorities to seek missing notifications, enabling Commission investigations, while in post-award scenarios during the Remedies Directive's standstill period, national courts offer remedies like interim measures that may be more effective than those available through Commission proceedings.  

Additionally, private enforcement offers remedies to third parties that are unavailable through the public enforcement path, such as the ability to claim damages or even to obtain the production of certain documents by third parties, which could prove to be crucial to tackle the information asymmetries underlying the FSR (Laboratoires Boiron, para. 57). Thus, by establishing a system that leverages the diverse remedies available at both national and EU levels, enforcement efforts can become more effective, ensuring a comprehensive approach to addressing FSR violations while safeguarding the rights of all parties involved. 

Conclusions 

While it appears that the Commission enjoys a significant discretion in setting enforcement priorities, a textual, systematic and in pari materia interpretation of certain FSR provisions suggests that merit-based assessments may be required during pre-investigation phase. This could have important implications for the complainants’ ability to challenge Commission decisions.  

From a broader perspective, the absence of a complaint mechanism in the FSR does not seem an anomaly but rather a reflection of a wider approach the Commission appears to be adopting. This trend is also evident, for instance, in the framework of the Digital Markets Act, which similarly omits a formal complaint mechanism, and in the proposed reforms to Regulation 1/2003. Nonetheless, procedural guarantees for complainants are crucial to ensuring accountability and fostering third-party cooperation, given their pivotal role in identifying foreign subsidies. Furthermore, integrating public and private enforcement mechanisms could strengthen the regulation’s effectiveness by protecting third-party rights and promoting robust implementation. 

The adoption of the FSR appears to be only the starting point, with aspects not explicitly addressed in the Regulation likely to be clarified through additional guidelines and case law from national and EU courts. Although the direct transposition of rules from similar regulatory frameworks is not automatic due to the FSR's hybrid nature, it is anticipated that, as in the area of State aid, the CJEU will play a crucial role in shaping the boundaries of the Commission's discretion and defining the procedural rights of competitors within the FSR framework. 

 

* The views expressed are purely personal and do not reflect those of Cleary Gottlieb Steen & Hamilton LLP.