EU’s new regulations to affect Indian exports

European Union (EU), the world’s largest trading bloc, has recently launched a regulation prohibiting foreign subsidies that distort competition. The new rules on subsidies may hurt India’s exports to the European Union.

Under the newly issued Foreign Subsidies Regulations (FSR), the European Commission (executive arm of the EU) may investigate cases where foreign subsidies pervert the competition within the EU.

The Global Trade Research Initiative (GTRI), a New Delhi-based think tank, in its report, stated that in cases where the European Commission (EC) finds that a foreign subsidy is distorting competition, it can impose various remedies. The remedial measures by EC may include fines of up to 10% of the company’s annual aggregated turnover, requiring the company to repay the foreign subsidy if competition distortion is confirmed, or banning the company from participating in public procurement. 

The new regulation covers financial contributions from non-EU governments to companies operating in or exporting to the EU’s market. These contributions include direct grants, interest-free or low-interest loans, tax incentives, state-funded research and development, provision of goods or services at below-market prices, and provision of land or buildings at below-market prices.

The new regulations came into effect on 12 July. As per the proposed FSR, the companies must start notifying the details of relevant transactions on foreign subsidies starting 12 October.

India exported goods worth over US$74.8 billion to EU countries in 2022-23. 

Mr Ajay Srivastava, founder of Global Trade Research Initiative, informed that under the new regulations, the European Commission can now investigate products if they have received any incentives like Production-Linked Incentives, Faster Adoption and Manufacturing of Electric Vehicles (FAME) or export benefits in India.

The European Commission is currently investigating the PLI scheme. If the European Commission finds the PLI scheme is violating WTO rules, it could impose sanctions or fines, he added.