The EU Foreign Subsidies Regulation Enters a "Calibration Period": A Procedural Reform That Reflects the Implementation Challenges of European Strategic Autonomy

The European Commission recently published the results of the first implementation review of the Foreign Subsidies Regulation (FSR), and made clear that it will launch a public consultation this autumn on a draft of targeted procedural adjustments, with formal adoption in 2027. This is not a rewrite of the rules. But the direction it reveals says more about where European competition policy is heading than the legislation itself does.

I. First, Define It: This Is a "Calibration," Not a "Rewrite"

The review concludes that the FSR is broadly "fit for purpose." This wording is noteworthy—it means the European Commission has no intention of overturning the institutional framework, but rather locates the problems at the implementation level.

The frictions identified are concentrated in five areas:

• Data collection and reporting for Foreign Financial Contributions (FFCs) impose a relatively heavy administrative burden;
• Some investigation procedures are excessively long and complex;
• There is uncertainty regarding the Commission's exercise of its "call-in" power over below-threshold concentrations;
• The clarity of notification obligations is insufficient;
• Transparency in enforcement practice needs improvement.

This is a typical "institutional self-diagnosis": it acknowledges that the design objectives are right and that the implementation costs are real. For policy researchers, this is a sample for observing the maturity of EU regulation—the EU is moving from the stage of "creating new tools" to that of "managing new tools."

II. Which Institutional Gap Does the FSR Fill?

To understand this calibration, one must first return to the institutional origin.

EU State aid rules allow the Commission to review financial support provided by Member States to companies. But before the FSR was introduced, there was no corresponding mechanism to address subsidies granted by non-EU governments to companies operating in the internal market. In other words, there was an "equivalence gap" within the EU: the same subsidy that distorts competition would be reviewed if it came from a Member State, but might go unexamined if it came from a third country.

The FSR seeks to fill this gap, enabling the Commission to investigate and, where necessary, impose remedial measures. In January this year, the Commission published final guidance listing the types of foreign subsidies "most likely to distort the internal market"—a broad and non-exhaustive list.

From the perspective of the policy toolbox, the FSR, together with merger review, trade remedies, and foreign investment security review, forms a set of "gatekeeping" mechanisms. Its distinctive feature is that it extends the logic of competition policy to the entry point of cross-border capital flows. This also explains why it has been accompanied by controversy since its introduction—Totis Kotsonis, a competition law and public procurement expert at Pinsent Masons, also noted that one of the core issues in the debate around the regime is precisely the business community's concern about the added administrative burden.

III. Three Tensions Exposed by the Review### 1. Data Burden and Enforcement Efficiency

FFC filing requires companies to track, aggregate, and disclose across their global structures a large volume of financial dealings related to foreign governments. For multinational groups, financial sponsor transactions, and multi-layered shareholding structures, this is not simple form-filling but a data infrastructure that must be maintained over the long term.

The problem is that the cost of building this infrastructure is certain and upfront, while the distortion risk it guards against is uncertain and probabilistic. When compliance costs do not match the scale of the risk, the regime accumulates negative feedback within the business community.

2. Own-Initiative Information-Gathering Powers and Legal Certainty

If transactions below the notification thresholds can be called in at any time, companies will find it difficult to quantify their risk exposure at the early stage of a transaction. For M&A transactions, certainty is itself a pricing factor—closing conditions, timetables, break-fee arrangements, and financing costs are all built on judgments about the regulatory path.

This kind of uncertainty will not stop transactions, but it will raise transaction costs and may push some transactions toward alternative structures that are simpler but not necessarily more economically efficient.

3. Enforcement Transparency

Transparency may appear technical, but in fact it determines whether the rules can be regarded by the market as “manageable.” Companies can accept strict rules, but they find unpredictable rules hard to accept. By listing transparency as an area for improvement, the review amounts to an acknowledgment that predictability of enforcement is just as important as its strictness.

IV. M&A and Public Procurement: The Two Technical Lines Most Likely to Be Changed

The proposed adjustments are highly focused, centering on the two areas most prone to friction.

M&A (concentration) side: raise turnover notification thresholds through delegated acts; introduce the possibility of simplified notification; moderately raise FFC filing thresholds; create more exemptions for financial contributions unlikely to cause distortions.

Public procurement side: simplify and clarify forms; revise the exemption framework; clarify and limit the filing of low-risk FFCs; clarify rights and obligations regarding access to documents and confidential information.

Taken together, the direction is quite clear: shrink the regulatory perimeter and concentrate enforcement resources on cases most likely to distort competition. Higher thresholds mean fewer transactions enter the review scope; expanded exemptions mean lower risk-identification costs.

But this also opens a question worth tracking: as the regulatory perimeter shrinks, will it weaken the regime’s ability to cover “edge cases”? For the European Commission, this is a choice about resource allocation; for third-country governments and investors, it is a signal test of whether the rules are softening.

V. For Companies, Compliance Records Are Becoming Deal-Making Capability

For companies active in the EU market, the practical significance of this review lies not in changes to the provisions, but in the timing window.

Companies in the following situations should pay close attention to the autumn draft: EU-facing M&A transactions, strategic investments, financial sponsor transactions, complex group structures, entities involving state-linked financing, and high-value public procurement projects.There are three main lines of actionable practice:

First, assess FSR exposure in advance, rather than initiating screening only after a deal is announced;

Second, continuously maintain verifiable FFC records—fragmented data compiled on an ad hoc, last-minute basis often fails under time pressure;

Third, incorporate the FSR timing requirements, conditionality and data-collection elements into the design of the project’s overall timetable.

Here is a structural change that is easily overlooked: under the FSR framework, the ability to quickly and accurately present one’s own map of financial contributions is shifting from a compliance cost item to a transaction capability for companies. Those with a more solid data foundation are more proactive when it comes to deal pace.

VI. A Longer Trend: Strategic Autonomy Enters the "Implementation Phase"

The FSR is an extension of Europe's "strategic autonomy" agenda in the field of competition policy. It attempts to answer a question for which there is no ready-made answer: when an open market faces competitive influence from non-EU public funding, how should it respond?

What the first round of reviews revealed is the trilemma that this agenda inevitably encounters once it enters the implementation phase:

• keeping investment open,
• safeguarding fair competition,
• controlling regulatory burden.

These three cannot be maximized simultaneously. Article 52 of the FSR provides that the Commission must review implementation and enforcement every three years, which means the regime has a built-in self-correction mechanism. This itself deserves recognition: it acknowledges that rules need to be tested in practice, rather than designed once and for all.

But the effectiveness of the self-correction mechanism depends on whether it can absorb real feedback, rather than merely fulfilling a procedural obligation.

Watch List

Over the next 12 to 24 months, there are several trackable indicators:

• the concentration of feedback from the business community and third countries in the Autumn draft consultation;
• the actual magnitude of threshold adjustments after formal adoption in 2027;
• the frequency and degree of transparency in the use of own-initiative information-gathering powers;
• the predictability of FSR application in the public procurement field;
• whether third countries interpret the adjustments as regulatory loosening, or as "selective tightening."

The ultimate value of the FSR lies not in how broad the rules it writes, but in whether it can be used in a predictable, affordable and defensible manner. This "calibration" is the first public test of that capacity.