Quelling the flames or fighting fire with fire? The EU’s two approaches to foreign subsidies
At the base of the EU State aid regime is the principle that Member States cannot grant subsidies to their companies unless authorized by the European Commission. Subsidies are frowned upon by the EU Treaties since they may distort the internal market and create disparities between the Member States with more financial resources and the ones with less. There are also many economic arguments against the use of subsidies, which are usually not considered an efficient policy choice. A new example of this deep-rooted European scepticism towards subsidies is Regulation 2022/2560 on foreign subsidies distorting the internal market (Foreign Subsidies Regulation or FSR). This new tool extends the principles and EU State aid to the subsidies granted by third countries. This policy initiative took its first steps in 2020, while the fires of international subsidization started to grow, amidst trade tensions and the economic crisis caused by Covid, and the ideal ‘firefighter’, the WTO, was unable to act. To face the crisis and perceived inadequacy of the current WTO framework, the EU decided to create a new, ‘autonomous’, tool to address the problem. The FSR joins a trade policy toolbox that also features other ‘defensive’ instruments, i.e. instruments that aim to restore the level playing field by countering the distortion or the injury caused by foreign subsidies. Nonetheless, in the last years, the EU has also been considering, and developing, new ‘offensive’ tools to make it easier to grant State aid or, more limitedly, subsidies funded by EU resources. In other words, fighting ‘fire with fire’. This choice may appear in contrast with the EU’s aversion towards subsidization. To understand if this two-prong strategy is coherent and effective, we should examine more closely this composite toolbox of defensive and offensive tools.
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CELIS Institute Blog
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Creation 16.04.2024
Last edited 17.04.2024
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