Companies from outside the European Union that benefit from state support face financial penalties for undercutting homegrown rivals and could potentially be banned from making acquisitions in the bloc under a set of suggestions due to be unveiled next week.
The European Commission will lay out options to counteract forms of state subsidy including tax breaks, capital injections by governments, debt relief and preferential financing terms.
The penalties, according to a draft of the document seen by Bloomberg, may include restricting access to the EU market or forcing companies to divest parts of their business. The aim is to ensure a level-playing field between European firms and foreign competitors.
"State-owned enterprises may pursue business strategies which are driven not only by commercial considerations but also by broader political objectives and which are supported by public funding not available to privately-owned companies," the commission's document says.
The move adds to signs of increasing protectionism in Europe amid the steepest recession in almost a century. EU governments have been debating the "repatriation" of supply chains after the pandemic exposed the region's vulnerability to disruptions while France and Germany say the bloc should reclaim its "strategic autonomy" by allowing the creation of companies big enough to compete with the US and China.
The commission cites "an increasing number of incidences in which foreign subsidies appear to have facilitated the acquisition of EU undertakings", pointing to aluminium, steel, semiconductors, shipbuilding and the car sector, as "prone to foreign subsidies which provide their beneficiaries with a competitive advantage". Such subsidies can be zero-interest loans, zero-tax agreements or dedicated state funding which might be "problematic" under EU state-aid rules.
Companies could be forced to make "redressive payments", repay the subsidy to their home state or sell off units or assets.
The EU's competition commissioner Margrethe Vestager has come under intense pressure from French and German politicians and businesses to take action on China's challenge.
Governments are alarmed at the prospect of European companies being bought by firms with unlimited credit lines or being forced out of business because rivals can afford to sell below cost.
Sunday Indo Business