Skip Navigation

EU Launched First In-Depth Investigation Into a Foreign Subsidiary, Relating to a Public Procurement Undertaken in Bulgaria, Against a Chinese State-Owned Company


On February 16, 2024, the European Commission (the “EC”) announced that it launched its first in-depth investigation into a public procurement undertaken in Bulgaria, involving CRRC Qingdao Sifang Locomotive Co., Ltd. (“QSL”), a subsidiary of the Chinese state-owned CRRC Corporation Limited (“CRRC”), under the Foreign Subsidies Regulation (the “FSR”) (i.e., Regulation (EU) 2022/2560). CRRC is the largest state-owned railroad car and equipment manufacturer in China. However, on March 26, the EC announced that it was closing its in-depth investigation as QSL had withdrawn its bid.

This was the very first in-depth investigation under the FSR launched by the EC. Therefore, any Korean company seeking entry into the European Union (the “EU”) market through an M&A or a public procurement should voluntarily inspect its history of government subsidies received and monitor the progress of the relevant cases.


Overview of FSR

The FSR entered into force on January 12, 2023 and applies since July 12, 2023. As of this date, the EC can start ex officio investigations. Since October 12, 2023, the notification obligation for concentrations and public procurements above certain thresholds applies.

The FSR aims to investigate any government subsidies provided to non-EU companies operating in the EU and take action against any potential distortion of fair competition in the relevant market caused by such subsidies. If the EC finds that the government subsidy at issue is distortive in nature and provides an unfair advantage based on its specificity and targeted benefits, it can (i) prohibit the underlying contracts that the recipient non-EU company enters into with an EU entity, (ii) impose remedies to rectify the distortive effect, or (iii) accept the non-EU company’s commitments by weighing the adverse effect of the subsidy on the EU market against the positive effect of the relevant non-EU company’s transaction and activities in the EU market.


Details of In-Depth Investigation Against CRRC

In accordance with the FSR, whenever a contracting entity within the EU enters into a public procurement contract with a procurement price exceeding EUR 250 million and has received financial contributions of at least EUR 4 million from a third country in the past three years from the bidding date, the contracting company is obligated to notify the EC about the received financial contributions.

In this case, QSL submitted a bid for a public procurement project worth EUR 610 million, launched by Bulgaria’s Ministry of Transport and Communications. The procurement relates to the provision of twenty “push-pull” trains and related maintenance and staff training services over a 15-year period. CRRC is known to have bid EUR 300 million for the entire project. On January 22, 2024, QSL notified the EC of its receipt of foreign subsidies regarding the Bulgarian procurement project.

Based on its preliminary review of QSL’s notification, the EC declared that there was sufficient evidence to suggest that QSL had received foreign subsidies that distort market competition within the EU and moved to launch an in-depth investigation. The procurement contract with the Bulgarian government was suspended until the completion of the in-depth investigation. Upon completion of the investigation, the EC could (i) allow QSL to resume the Bulgarian procurement project under certain commitments that would fully and effectively remedy the distortion, (ii) prohibit the award of the contract to QSL, or (iii) issue a no-objection decision, allowing QSL to resume the project without any conditions.

The EC had 110 working days to complete its investigation starting from the date of QSL’s notification. Therefore, the EC was expected to make its final decision before July 2, 2024, as QSL submitted its notification on January 22, 2024. However, on 26 March, the EC announced that it was closing its in-depth investigation as QSL had withdrawn its bid.

To mark the 100th day of implementing the FSR, the EC disclosed statistics related to its new legal tool. According to the EC, since the initial imposition of the notification obligation in October, it has received approximately 50 notifications related to M&A transactions and about 100 notifications related to public procurement transactions. In order to facilitate the review of these notifications and the enforcement of the FSR, the EC plans to (i) expand the responsible division within its ranks (i.e., from seven people to forty), and (ii) to install the “Directorate K” within the Department of Competition (the “DG COMP”) to oversee the entire enforcement process. In light of the higher-than-anticipated influx of notifications, the EC has announced its intention to expand its enforcement capabilities to address these challenges. As a result, the regulatory scheme under the FSR is expected to become more robust in the future.

Moreover, apart from the suspension of a deal during an investigation or the prohibition of a deal as a result of an investigation, the opening of an investigation itself can be a burden for companies, as in the abovementioned case, and may lead to a decision to withdraw from a deal or bidding. Commenting on the case, Thierry Breton, the EU’s Commissioner for the Internal Market, said, “In just a few weeks, our first investigation under the Foreign Subsidies Regulation has already yielded results. We will continue to take all necessary measures to preserve Europe’s economic security and competitiveness.”

Accordingly, any non-EU business planning to engage in business combination transactions or participate in public procurement tenders in the EU should perform an internal audit to collate and tabulate the subsidies that it received from Korea or other governments worldwide, and keep track of the investigations in progress and the enforcement examples of the detailed rules within the FSR. Moreover, under the FSR, even those transactions not meeting the pre-closing notification obligations can be called in by the EC ex officio. Therefore, companies’ investment strategies and schedules need to take into account the possibility of an investigation by the EC under the FSR, in order to prevent any delays in the planned closing date or bidding dates resulting from FSR notifications or investigations.


[Korean Version]