European Commission's efforts to counter unfair market practices by the PRC
Context
The European Commission has taken action in the past several weeks to tackle the PRC’s unfair market practices. It has launched a series of initiatives using its trade defense toolbox, including the Foreign Subsidy Regulation (FSR) and International Procurement Instrument (IPI). It has also launched an anti-subsidy investigation into electric vehicles.
Foreign Subsidies Regulation (FSR).
The EU Foreign Subsidies Regulation is a set of rules introduced by the European Union (EU) to regulate foreign subsidies that may distort the EU’s internal market. By addressing the potential distortive effects of foreign subsidies on competition, it aims to ensure a level playing field for businesses operating within the EU.
The following investigations have been initiated under the FSR:
1. CRRC Qingdao Sifang Locomotive Co., Ltd., a subsidiary of CRRC Corporation, a Chinese state-owned train manufacturer (locomotives).
2. ENEVO Group (solar)
3. LONGi Solar Technologie GmbH, (solar)
4. Shanghai Electric UK Co. Ltd. and Shanghai Electric Hong Kong International Engineering Co. Ltd. (solar)
5. Nuctech (security scanning)
6. Wind Turbines (investigation started)
The pace and assertiveness with which the Commission has deployed the relatively new FSR and its exclusive use to date against PRC firms operating in strategic sectors are notable. Public statements and private comments by Commission officials about the regulation have broadcast their intent to use the new tool, but the inspections signal an escalation. The FSR empowers the Commission to conduct inspections during its investigations, but the text does not appear to include language requiring officials to provide advance notice.
Bulgarian Train Tender
On February 16, 2024, The Commission launched an FSR investigation into CRRC Qingdao Sifang Locomotive Co., Ltd., a subsidiary of CRRC Corporation, a Chinese state-owned train manufacturer. It concerns a public procurement procedure launched by Bulgaria’s Ministry of Transport and Communications, relating to the provision of several electric “push-pull” trains and related maintenance and staff training services.
CRRC Qingdao Sifang submitted a bid in January on a tender by Bulgaria’s Ministry of Transport and Communications for electric rail and tram locomotives, rolling stock, and associated parts. The Chinese firm under-bid its Spanish competitor by nearly half. In its review of the bid under the FSR rules, the Commission found evidence that CRRC Qingdao Sifang and its parent had received €1.7 billion ($1.8 billion) in foreign financial contributions, prompting Commission officials to launch the first-ever in-depth investigation under the FSR. If the investigation found sufficient evidence that the foreign financial support distorted competition in the EU’s internal market, the Commission could have blocked the awarding of the contract.
On March 27, CRRC Qingdao Sifang Locomotive Co withdrew from the €610 million ($660 million) public procurement tender in Bulgaria, according to an official Commission statement.
Solar Energy Park in Romania
On April 3, 2024, the European Commission launched an in-depth investigation under the FSR for the second time. The companies it is investigating are the ENEVO Group and LONGi Solar Technologie GmbH consortium and the Shanghai Electric UK Co. Ltd. and Shanghai Electric Hong Kong International Engineering Co. Ltd. consortium, both participating in a Romanian public tender process.
The investigations follow mandatory FSR notifications submitted by two consortia bidding to construct and operate a 110-MW photovoltaic park, valued at €375 ($400) million. The FSR requires companies to notify public procurement tenders in the EU when the estimated value of the contract exceeds €250 ($270) million and when the company was granted at least €4 ($4.3) million in foreign financial contributions from a third country in the preceding three years.
The first consortium consists of Romania-based engineering firm ENEVO Group and LONGi Solar Technology GmbH, a German subsidiary of LONGi Green Energy Technology Co., Ltd, listed in Hong Kong. The second consortium is composed of Shanghai Electric UK Co. Ltd. and Shanghai Electric Hong Kong International Engineering Co. Ltd. Both companies are owned by PRC SOE Shanghai Electric Group Co. Ltd, which itself is controlled by the Shanghai State-Owned Industry Supervision and Management Committee.
Under FSR rules, the Commission has 110 working days from the date the notifications were submitted (in other words, by mid-August) to complete its investigations and decide on a course of action, which may include blocking the transactions. The Directorate General for Internal Market, Industry, Entrepreneurship, and SMEs (DG GROW) has responsibility for FSR investigations involving public procurement tenders.
Nuctech
In a first, the Commission used the powers conferred to it by the FSR to carry out unannounced inspections at the offices of Nuctech on Tuesday April 23. The inspections in Rotterdam and Warsaw were conducted with the help of local competition authorities. Nuctech confirmed the raid and declared that it would cooperate with the Commission and is committed to defending its reputation as a fully independent and self-supporting economic operator.
Under the FSR, the Commission can initiate an investigation on its own initiative if information indicates the possibility that a foreign subsidy distorting the market exists. After an investigation has been opened, the Commission conducts an in-depth investigation to determine whether its initial analysis was correct. Unannounced inspections are a preliminary investigative step into suspected distortive foreign subsidies; however, no investigation has formally been opened yet. This will depend on the information the Commission gathered on Tuesday morning.
European media has intensely covered the raid, which has also reported on data security threats linked to scanners. The China Chamber of Commerce to the EU issued a statement voicing “serious concern” over the “unjustifiable” inspections and the PRC Ministry of Foreign Affairs on April 24 urged “relevant parties to stop making groundless accusations and slandering China,” language often used to dismiss complaints against PRC non-market economic activities.
Wind Turbines
On April 9, 2024, the Commission announced that it would launch an inquiry into Chinese suppliers of wind turbines under the FSR. DG COMP will initially investigate unfair trade practices in Bulgaria, France, Greece, Romania, and Spain. Announcing the new inquiry, Commissioner Vestager said that the large excess capacities of subsidized Chinese wind turbines “is not only dangerous for our competitiveness. It also jeopardizes our economic security.” She added that the EU must not repeat its mistakes in losing its solar manufacturing industry.
International Procurement Instrument:
The International Procurement Instrument (IPI) is a mechanism the European Union (EU) uses to promote reciprocity and openness in public procurement. It is designed to ensure that EU businesses have access to public procurement markets in third countries on a similar basis as those countries’ businesses have in the EU market.
Medical devices
On April 24, 2024, the Commission initiated it first investigation under the International Procurement Instrument (IPI). It was launched in response to measures and practices in the Chinese procurement market for medical devices that discriminate unfairly against European companies and products.
Evidence gathered by the Commission indicates that China’s procurement market for medical devices has gradually become more closed for European and foreign firms and products made in the EU. This is due to measures introduced by China that unfairly differentiate between local and foreign companies and locally produced and imported medical devices.
The Commission will now invite the Chinese authorities to submit their views, provide relevant information, and open a consultation with an aim to eliminate the discriminatory measures.
The investigation and consultations will be concluded within a nine-month period, which the Commission may extend by five months in justified cases. Once the investigation and the consultations are concluded, the Commission will make publicly available a report setting out its main findings and proposed course of action. The report will be presented to the European Parliament and Council.
If the Commission decides there is discrimination, it can take measures to hinder China’s access to its markets.
The EU Chamber of Commerce in China said a lack of fair access to China’s public medical device procurement market had been a problem since Beijing launched import-substitution industrial policies in the sector in 2015.
Anti-Subsidy Investigation:
An anti-subsidy investigation, also known as a countervailing duty investigation, is a specific type of trade remedy action taken by a country or trading bloc to address subsidies provided by foreign governments to their domestic industries. These subsidies could be in the form of financial assistance, tax breaks, or other support that gives the recipient an unfair advantage in international trade.
The purpose of an anti-subsidy investigation is to determine whether the subsidies are causing harm to domestic industries in the importing country by distorting competition or causing material injury to domestic producers.
If the investigation finds evidence of unfair subsidization and resulting harm to domestic industries, the importing country may impose countervailing duties on the subsidized imports to offset the subsidy’s effects and restore fair competition.
While both concepts involve addressing the impact of foreign subsidies, an anti-subsidy investigation is a specific trade remedy measure focused on countering unfair subsidization in international trade, whereas the EU Foreign Subsidies Regulation is a broader regulatory framework aimed at addressing distortions caused by foreign subsidies within the EU’s internal market.
Electric vehicles
On October 4, 2023, the Commission launched an anti-subsidy investigation into the imports of battery electric vehicles (EV) from the PRC.
The investigation will first determine whether EV value chains in the PRC benefit from illegal subsidization and whether this subsidization causes or threatens to cause economic injury to EU BEV producers. Should both prove true, the investigation will examine measures’ likely consequences and impact on importers, users, and consumers of electric vehicles in the EU. Based on the investigation’s findings, the Commission will establish whether it is in the EU’s interest to remedy the effects of the unfair trade practices by imposing anti-subsidy duties on imports of battery electric vehicles from the PRC.
Compiled by CSEU on April 25, 2024.
For additional information, please contact Jim Curtis (Jim.Curtis@trade.gov) or Kiliane Huyghebaert (Kiliane.Huyghebaert@trade.gov)