By Jack Mintz, January 9, 2023
Last month, the European Union passed legislation that could begin to curb the wasteful global subsidy war for private investment. Starting this year, foreign companies could be barred from winning public contracts or acquiring EU companies if they have benefited from subsidies worth more than 50 million euros over a three-year period.
Although much hay was made about curbing heavily subsidized Chinese state-owned enterprises in the EU, they only account for two per cent of merger transactions. The greatest impact will be felt by U.S. and U.K. companies, which were involved in almost three-fifths of acquisitions in the EU as of 2021. Canadian companies will feel the effect, too, as about a quarter of our foreign direct investment flows to EU countries.
This is not the first time the EU has put pressure on governments that subsidize their industries. Since 2009, it has disallowed “state aid” by its member countries if subsidies and tax breaks thwart competition and distort trade. The new rules now being applied to non-EU companies are consistent with that approach.