Reuven S. Avi-Yonah (Michigan), Jennifer Farrell (Western University) & Domenico Imparato (Berkeley), Can the EU’s Foreign Subsidy Regulation ‘Discipline’ U.S. Subsidies?, 121 Tax Notes Int’l 837 (Feb. 2, 2026):
Recently, globalization has taken a markedly different turn in the form of renewed prominence of state intervention in the economy and a resurgence of industrial policy favoring domestic firms.
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These recent-wave industrial policy interventions increasingly take the form of intricate corporate subsidies and regulatory schemes, often structured around local content requirements or tax-refundable incentives for domestic investment. These instruments are usually engineered to be markedly less visible — thereby enhancing their ability to evade scrutiny under international trade rules. This contrasts with more traditionally conspicuous export-contingent subsidies for manufactured goods, which can easily run afoul of WTO law and can be relatively straightforward to identify and challenge.
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Historically, the WTO and its predecessor, the General Agreement on Tariffs and Trade 1947, have addressed numerous tax disputes, including those concerning corporate income tax subsidies.
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government revenue — cannot be confined to immediately targeted fiscal incentives, but may extend in practice to contracts with public bodies for the provision or acquisition of goods and services at below-market prices, or the granting of special or exclusive rights without adequate market-based remuneration. Viewed in this light, WTO panels have confirmed that the notion of a subsidy should be interpreted broadly, meaning, for once, no difficulty appears to lie in the literal formulation of the ASCM per se.
Still, there are structural limitations to relying on the customary WTO enforcement armory for countries seeking to discipline state-led corporate subsidies under international trade law. The WTO appears beset by institutional and procedural dysfunctions that increasingly undermine its capacity to serve as an international forum for disputing sophisticated, modern industrial policy interventions.
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It is within this context of inadequate subsidy regulation that, on July 12, 2023, the EU enacted Regulation 2022/2560 targeting “economic undertakings” (economic operators) engaged in economic activity in the EU that receive foreign (non-EU) subsidies. The Foreign Subsidies Regulation (FSR) is designed for enforcement by the European Commission and forms part of the EU’s “New Industrial Strategy” aimed at leveling the playing field with countries like the United States and China that subsidize their MNEs operating in the EU.
These regulations supplement the EU’s existing state aid rules by creating a distinct framework to address foreign subsidies from non-EU countries (or, to use EU terminology, “third countries”). Unlike EU state aid rules, which target selective advantages granted by EU member states and allow the commission to enforce recovery through the member state (which must then recover it from the beneficiary using national procedures), the FSR directly targets economic operators (whether public or privately owned) operating in the EU that receive foreign subsidies from non-EU countries.
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It is understandable why the EU adopted the FSR. Originally, it was aimed at limiting foreign state subsidies. But given the extent of recent U.S. actions targeting the EU and the demise of the WTO dispute resolution mechanism, the EU needs some weapons in its arsenal to be able to retaliate without harming its consumers.
The FSR is not perfect because it functions as a company-by-company tool rather than a sector-wide regulatory instrument. Still, if the goal was to design trade policy measures targeting third countries that unfairly subsidize their businesses or even block EU firms from access to their own markets, denying foreign MNEs the right to receive EU contracts or acquire EU corporations seems like a reasonable way to go.
From this angle, trade restrictions potentially arising from the FSR’s application might be seen as much a symptom as a cure of this era marked by renewed, post-globalization state intervention in economic affairs.
