The European Commission (EC) has released Draft Guidelines on the Implementation of the Foreign Subsidies Regulation (FSR Guidelines), published July 2025, clarifying how it will assess whether a non-EU financial contribution distorts the EU internal market.
Under this guideline, a distortive subsidy is defined “as one that improves an undertaking’s competitive position in the EU while harming competition”. The “balancing test,” where positive effects can counterbalance negative distortions were also addressed and procedures for M&A reviews and public procurement calls were outlined.
About the FSR
The Foreign Subsidies Regulation (FSR) became applicable in July 2023 to address market distortions caused by foreign subsidies from non-EU countries by enabling the EC to ensure a level playing field for companies by investigating and preventing unfair advantages.
Under the FSR, the Commission is allowed to review concentrations of M&A activities for distortive foreign subsidies, assess foreign financial contributions in public tenders to prevent an unduly advantageous tender, and self-initiate ex-officio reviews to investigate potential distortive subsidies.
Public consultation on the guidelines have opened and can be found here. Interested parties can provide comments on the draft guidelines until September 12, 2025 with final guidelines to be expected in January 2026.
ASEAN enterprises, particularly those that are state owned or linked, should conduct an in-depth review to develop a compliance roadmap for gathering data on financial contributions and identifying potential FSR triggers.
Key Aspects of the FSR Guidelines
Distortion of Competition:
The central criterion is whether a foreign subsidy improves an undertaking’s competitive position in the EU internal market and, in doing so, actually or potentially negatively impacts competition.
Balancing Test:
This test allows for positive effects of a subsidy (e.g., achieving specific EU policy objectives) to be weighed against its distortive effects.
M&A and Public Procurement:
The guideline provides clarity on when the EC will “call in” for review below-threshold merger or public procurement bids involving foreign financial contributions.
Case-Specific Assessment:
The assessment of a foreign subsidy’s distortive effect is case-specific and considers factors such as the subsidy’s amount and nature, beneficiary characteristics, and associated conditions.
FSR activated on a Korean company
Meanwhile, a Czech-Korean nuclear deal is under EU scrutiny, with the possible use of the FSR. The signing was suspended after a regional court granted a preliminary injunction at the request of France’s EDF, the losing bidder in the tender. In May, French European Commissioner Stephane Sejourne sent a letter to the Czech Industry and Trade Ministry – the same day EDF filed for the injunction — urging the government to halt the nuclear deal with Korea. The Brno Regional Court issued the injunction on May 6, effectively canceling the signing ceremony scheduled for the following day. In the letter, Sejourne noted the Commission has already started examining whether KHNP received any state aid that could be considered illegal under the EU Foreign Subsidy Regulation when it won the tender to build the two reactors. The Czech Republic should not sign the deal until the investigation is complete, the commissioner said.
Since 2024, the Commission has received more than 150 notifications of deals, (it had initially expected to review around 30-40 deals annually). Several cases involve Chinese companies:
1. Railways: Brussels launched its first investigation after being notified by CRRC Qingdao Sifang Locomotive Co. of its intention to bid in a public procurement tender issued by Bulgaria’s Ministry of Transport and Communications. CRRC then scrapped its plans.
2. Wind turbines: The Commission is conducting a so-called ex officio investigation into Chinese wind turbine suppliers after reports that they had won orders related to the expansion of wind farms in member states including Bulgaria, France and Greece.
3. Security inspection equipment: An unannounced inspection targeted offices of Nuctech, a Chinese state-owned company supplying security equipment, in Poland and the Netherlands. The European Court of Justice rejected legal appeals by Nuctech.
4. Electric vehicles: In March 2025, Brussels launched an inquiry into BYD, a Chinese electric vehicle maker, to investigate whether subsidies from the Chinese government for the construction of a production plant would distort competition.
However, to date, the Commission has only opened one in-depth Phase II review. The conditional decision concerned the acquisition of parts of PPF Telecom Group (“PPF”, a European telecommunications operator) by the Emirates Telecommunications Group Company (“e&”, a UAE telecoms operator controlled by the Emirates Investment Authority, a sovereign wealth fund).
