EU’s new subsidy rule could hit India’s PLI

livemint.com:

India’s exports to the European Union (EU) and the country’s flagship production-linked incentive (PLI) scheme could attract a higher degree of scrutiny in the EU after the world’s largest trading bloc came out with a regulation prohibiting foreign subsidies that distort competition, the Global Trade Research Initiative (GTRI), a New Delhi-based think tank, said in a report. The new Foreign Subsidies Regulation is among a series of regulatory changes by the EU that may disrupt trade, and minimizing the impact of such regulation is crucial for India as the 27-member bloc is one of its largest export markets.

India’s total exports to the EU in FY23 were worth nearly $75 billion. The regulations, which came into effect on 12 July, said companies must start notifying the details of relevant transactions on foreign subsidies starting 12 October.

In cases where the European Commission finds that a foreign subsidy is distorting competition, it can impose various remedies, including 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, GTRI warned. “FSR covers financial contribution from non-EU governments to firms operating in/exporting to EU’s market.

The contributions include direct grant, low-interest loan, tax incentives on goods or services at below-market prices, and provision of land or buildings at below-market prices," the report said. It’s worth noting that FSR applies to transactions above a certain threshold.

Companies must notify the European Commission if their transactions involving foreign subsidies exceed this threshold. For mergers and