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Theories of Harm in the Implementation of the Foreign Subsidies Regulation

Adina Claici, Peter Davis, Gerhard Dijkstra


Keywords: FSR, Foreign Subsidies, theory of harm, competition distortion

In this paper, we consider the economic analysis that will be required in foreign subsidy reviews. We believe that the regime is right to adopt a case-by-case approach and that the European Commission’s analysis should be structured using well-defined theories of harm since doing so will (i) help focus the Commission’s analyses on what matters; and (ii) help reduce the risk of potentially significant error costs associated with over- or under-enforcement. The Foreign Subsidies Regulation (FSR) refers to a potential, non-exhaustive list of ‘indicators’ which it proposes to use to determine whether the foreign subsidy would distort the internal market. In this paper we provide an initial exploration of the proper role for said indicators by considering four potential theories of harm that foreign subsidies could trigger. Not all indicators will be relevant for all theories of harm, and, more generally, we illustrate the potential for theories of harm to distinguish the indicators that are relevant from those that are not. We also discuss (i) empirical evidence relating to the prevalence of foreign subsidies in different sectors of the EU economy and (ii) the importance of theories of harm for structuring evidence collection with the potential challenges and solutions when applying economic analysis to consider causality (whether the foreign subsidy distorted competition), and the magnitude – if any – of a foreign subsidy’s effects on market outcomes.
Keywords: FSR; Foreign Subsidies; theory of harm; competition distortion

Adina Claici is Managing Director at the Berkeley Research Group (BRG) in Brussels. Peter Davis is Principal and Co-Leader: European Antitrust & Competition and Gerhard Dijkstra is Senior Associate at The Brattle Group in London. The views and opinions expressed in this publication are solely those of the individual authors, who are responsible for the content, and do not represent the opinions or views of BRG or Brattle, or their other employees and affiliates and clients. The information provided in the publication is not intended to and does not render legal, accounting, tax, or other professional advice or services, and no client relationship is established with BRG or Brattle by making any information available in this publication, or from you transmitting an email or other message to us. None of the information contained herein should be used as a substitute for consultation with competent advisors. In Section III of this paper, we use Global Trade Alert data on foreign subsidies. Global Trade Alert data is collected by a team led by Professor Simon Evenett of the St. Gallen Endowment for Prosperity Through Trade. We thank two anonymous referees for their helpful comments.


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