EU Member States' Subsidies to Attract Local Investment Under Scrutiny of EU Commission

- Subsidies are approved after EU Commission's in-depth investigation on the upper limit ratio of subsidies for each region, distortion of competition, and incentive effects...

Since 2011, only 36% of subsidies have been approved after in-depth investigations -

As the EU Commission is investigating the violation of competition law regarding subsidies provided to companies by EU member states to attract investment, Korean companies planning to invest in the EU on the premise of receiving subsidies are required to pay close attention.

According to a report titled “EU Regional Investment Subsidy and Cautionary Factors for Korean Companies” issued by the Brussels Branch of the Korea International Trade Association (Chairman: Kim Young-ju) on December 22^nd, the EU allows member states to subsidize certain enterprises in order to attract investment for economic development and employment in underdeveloped regions.

The member states must report to the EU Commission in advance if the amount of subsidies they intend to pay exceeds the reporting standard amount and the EU Commission conducts an in-depth scrutiny and decides whether to approve it or not on the basis of compliance with the upper limit ratio of subsidies for each region, distortion of competition such as relocation or closure of production facilities in other regions of the EU due to subsidies, and incentive effects.

The report said, "Since 2011, only 36 percent of subsidies have been approved after in-depth investigations," and advised, “In particular, the EU Commission is strictly examining the effect of incentives for large corporations, so documents that promise subsidies for each country of investment candidates, cost-benefit analysis data between investment candidates, and evidence of internal investment decision date must be prepared before the investment decision date.”

The report continued to state, “The EU is currently discussing expanding subsidies to attract private investment related to the Green Deal and digital policy, and the revised bill containing the contents will be implemented from January of 2022,” and added, “In order for Korean companies to use this as a strategic opportunity, it is necessary to clearly understand the subsidy regulations and thoroughly prepare for in-depth investigations.”

Kang No-kyung, a project manager at Brussels branch of the Korea International Trade Association, said, “Since the subject of the EU Commission's investigation is its member states, Korean companies need to engage in investigations with close cooperation with the member states.”