Study On The WTO Compliance Of Subsidy Rules Of M&A Review In EU Foreign Subsidies Regulation

Against the backdrop of the pandemic,subsidies have become more commonly granted,and legislations and enforcements regulating them have increased.The completion of EU’s Regulation on Foreign Subsidies Distorting the Internal Market(the “Regulation”)marks the expansion of subsidy rules in the EU M&A review,reflecting the fact that it is not satisfied with the existing framework of international law on subsidy rules.Although the new Regulation has not been put into practice,it is foreseeable that it will greatly increase the negotiation costs and risks of Chinese enterprises in M&A activities in Europe,and prevent Chinese enterprises from investing in Europe.Verifying the applicability of the WTO Agreements,by placing the new Regulation under the EU’s international law obligations,the paper goes on analyzing the contents of the Regulation.It is concluded that the new Regulation relating to M&A review are not in line with EU’s obligations under international law,and that the new Regulation is suspected of erecting an investment barrier.The first chapter,as a background explanation,analyzes the expansion trend of subsidy rules in EU’s M&A review marked by the adoption of the Regulation.One of the reasons of the legislation is that the existing international trade subsidy disciplines have been questioned,leading to a need for new norms.In addition,the EU finds that its subsidy rules,especially in the field of M&A review,are insufficient.Thus,its subsidy rules need to be improved.In this respect,the Regulation concerning investment subsidy comes into being under the dual “legal gaps”.Moreover,investment subsidies are less discussed than trade subsidies,and it is necessary to define them in the legal context and distinguish them from each other.Chapters Ⅱ and Ⅲ focus on analyzing whether the relevant rules of the EU on investment subsidies are consistent with its obligations under the WTO framework.“Investment subsidies” can be also regulated in the existing WTO Agreements on Subsidies and Countervailing Measures(“SCM Agreement”)and the General Agreement on Trade in Services(“GATS”).Firstly,the applicability of the GATS and the SCM Agreement to investment subsidies is analyzed.On that basis,the rules of the EU on the regulation of M&A-related subsidies by its member states and third countries are compared and looked into to conclude that they are not in line with the national treatment obligations,as well as most-favored-nation treatment under the GATS and the obligations under Articles 17.1 and 32.1 of the SCM Agreement.Therefore,since rules under the new Regulation are not compliant in the sense of international law,its future enforcement measures against China and other third countries may be deemed as the result of abuse of regulatory power.Chapter Ⅳ responds to the EU’s intention behind the new Regulation as explained in Chapter I,standing on China’s position.It analyses the possibility for the Chinese government to resort to the WTO dispute resolution mechanism when enterprises face the risk under the Regulation in future M&A process in Europe.Measures taken by the EU Commission under the Regulation fall within the scope of the WTO dispute settlement mechanism.China’s interests can be largely protected if she learns from the successful experience of past complaints and takes into account the burden of proof of the complaining party,as well as the review criteria of the dispute settlement mechanism.