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Beyond teething problems: the FSR's make-or-break year
Beyond teething problems: the FSR's make-or-break year
28 January 2026
Series
Blogs
28 January 2026
2026 is shaping up to be a pivotal year for the EU's Foreign Subsidies Regulation, which has moved beyond its teething phase and matured rapidly in 2025. Under the leadership of Commissioner Teresa Ribera, the aim was “to vigorously enforce the Foreign Subsidies Regulation” – and enforcement has matched that ambition. The EC opened several ex officio investigations (all targeting Chinese companies), launched public consultations and imposed novel remedies. At the same time, the FSR continues to create significant administrative burdens for notifying parties, even though the vast majority of cases raise no substantive concerns.
With enforcement intensifying and the first substantive court judgment on the horizon, this post highlights the themes that will shape FSR practice in 2026 – and what it means for your business.
With well over 200 M&A notifications and more than 3,000 public procurement submissions to date, the FSR is now firmly embedded in the EU regulatory landscape. The EC has responded by establishing a dedicated FSR unit for public procurement and by ramping up ex officio enforcement.
The enforcement push began in April 2024 with ex officio investigations in the wind turbine and security equipment sectors. In 2025, the pace picked up with numerous new cases. Most have related to public tenders, across sectors such as rail, solar and broader infrastructure. Under the ex officio tool, the EC is also understood to have looked into electrical vehicles, nuclear power and online marketplaces. This includes a recent dawn raid, which marks the FSR’s first foray into the digital economy and signals that scrutiny now extends beyond traditional infrastructure and manufacturing into newer, fast‑growing sectors.
The Chinese response has been sharp. The FSR has been described as a "nuclear bomb" and criticised as protectionist and discriminatory, with particular focus on the "excessive use" of investigatory tools against Chinese-owned companies. With all five ex officio investigations targeting Chinese groups, those criticisms are unlikely to ease – setting the stage for further tensions in 2026.
After a lengthy and resource‑heavy review, the EC’s conditional approval of ADNOC/Covestro shows a welcome mix of restraint and creativity in its use of remedies. Instead of the far‑reaching measures in e&/PPF – the other Phase 2 case involving a Middle Eastern buyer – where the buyer was effectively barred from funding most of the target’s EU operations and intra‑group dealings had to be strictly at market terms – the EC has opted for a more focused solution this time.
Indeed, in ADNOC/Covestro, the EC did not touch the planned EUR 1.17 billion capital injection into Covestro. It zoomed in elsewhere, with remedies focused on maintaining R&D collaborations with rivals and licensing certain sustainability-related patents.
While the FSR arms the EC with a broad remedy toolbox, ADNOC/Covestro suggests it is willing to pick more targeted tools, rather than defaulting to heavy‑handed fixes. It is too early to say whether this marks a broader shift in the EC’s approach. But this kind of restraint will be crucial if the FSR is to address genuine distortions without deterring the foreign investment the EU is trying hard to attract.
If ADNOC/Covestro demonstrated restraint and creativity, Nuctech shows the other side of the coin – the full extent of the FSR’s investigatory powers. Following a 2024 dawn raid, the company challenged the inspection decision before the EU courts. In March 2025, the CJEU dismissed the appeal on interim measures, confirming the EC’s broad authority to access data stored outside the EU. The main appeal remains pending, with judgment expected in mid‑2026.
Despite the court challenge, the EC pressed ahead and opened its first ever in-depth investigation in late 2025. The investigation casts a wide net, covering Chinese grants, tax benefits and financing measures, and alleges that the Chinese parent company has both the ability and the incentive to transfer those benefits to EU activities. The EC argues that this may have enabled Nuctech to offer lower prices in EU tenders, potentially winning contracts at competitors' expense. It also points to Nuctech’s rapid rate of patent filings as a factor underpinning its position in the EU market.
In January 2026, the EC published its long‑awaited FSR Guidelines (see our comments here). They mark clear progress, providing more detail on how the EC will assess distortions, apply the balancing test for positive effects, and handle procedural issues in both mergers and public procurement. But plenty of discretion remains. The new safe harbour call‑in threshold of EUR 4 million in subsidies creates uncertainty even for modest deals. Key concepts such as cross‑subsidisation are framed broadly, and the EC’s ability to add up subsidies across jurisdictions significantly widens the regime’s scope. Businesses now have greater clarity regarding the process, but still face real unpredictability on substance.
So what does 2026 hold for the FSR? Three critical developments will shape the trajectory: the EC's enforcement appetite, mounting pressure for reform, and the courts' assessment of the EC's investigatory reach. Here's what to watch.
Authors:
Ina Lunneryd, Marina Alcaraz Ortega, Charlotte Bombay