Op-ed: Competition policy gets strategic

Merger and subsidy control can ensure Europe’s industrial independence

As Europe rushes to shore up its sovereignty in a deglobalising world, the effects will ripple across most of the industrial economy as regulators target the full extent of supply chains for defence and critical infrastructure.

Much has been written about rare earths, but even materials as common as stainless steel are now being regulated with an eye to strategic autonomy. Much of the action will take place in an area where the European Commission has a great deal of power: merger control.

In February last year, mining giant Anglo-American announced that it was selling its Brazilian ferronickel business for half a billion dollars to the Chinese-Australian miner MMG. In November, the Commission opened a phase two merger control investigation – meaning there’s a significant chance it could block the deal.

Ferronickel is a critical input for the manufacture of stainless steel, which in turn is used in everything from weapons systems to chemical plants. The fear is that MMG could divert sales away from EU customers if things get hairy; even an offer to enter into binding, decades-long supply agreements with EU companies wasn’t enough to calm the Berlaymont.

“Ferronickel is a key input for European producers to manufacture high-quality, low-emission stainless steel at competitive prices, which is critical for many sectors,” Commissioner Teresa Ribera said when opening the in-depth probe. “Our investigation aims to verify whether this concentration could jeopardise continued and reliable access in Europe”.

Moving the goalposts

That dynamic is new: Merger control experts I speak to say that this deal would have sailed through in phase one before Vladimir Putin decided that a full-scale invasion of Ukraine was a good way to spend his declining years.

Back when we thought globalisation was an unstoppable civilising force, merger control focused primarily on whether a deal would significantly impede competition in Europe in terms of price, output, choice and innovation in overlapping or vertically linked markets.

In basic industrial inputs like metals and steelmaking alloys, concerns would often centre on price effects, consolidation and potential unilateral or coordinated effects. Strategic supply security was not a central enforcement driver on its own.

More change is likely on the way. Sometime in Spring, the Commission is expected to update its merger control guidelines because “transformational changes” have altered competitive dynamics. Officials are walking a tightrope. For years they have been taught that competition enforcement should be pure of heart and focus on economics.

The geopolitics are also tricky. On the one hand, the Commission talks about the need to consider resilience when looking at mergers, foreign investments and the like; on the other, it refuses to single out jurisdictions that threaten Europe’s resilience. That was awkward when it was just China. Add the US into the mix and it becomes almost unbearable.

Practically, this pulls merger control – kicking and screaming – closer to industrial policy. In a rearmament context, that matters because defence markets and supply chains (think electronics, propulsion, space, cyber, sensors, secure communications) often have narrow supplier bases, long qualification cycles, state-shaped demand and strategic vulnerabilities that do not show up neatly in consumer price effects.

Foreign subsidy restrictions

Beyond merger control, the Commission’s competition department DG COMP also has the power to restrict unfair competition from abroad. The Foreign Subsidies Regulation, introduced in 2023 and updated with new guidelines this month, restricts foreign public money in much the same way as state aid rules work within the Single Market.

So if you’re a state backed Chinese company and you want to access EU public procurement markets, or a Middle Eastern sovereign wealth fund looking to buy up German chemicals businesses, the FSR will stop you using your chequebook to muscle out European competitors.

Both of these examples have actually happened: China’s state railway company is being investigated for its role in the construction of a railway line in Lisbon, and Abu Dhabi’s state oil company had to guarantee it would let other EU companies use chemical producer Covestro’s IP in order to be allowed to buy it.

The quid pro quo is explicit. If your state money distorts the internal market, but you can convince the Commission that there are wider policy benefits to letting you do so, it can let the deal go through anyway. This is known as the “balancing test”. And the FSR itself requires the Commission to focus on strategic and sensitive industries.

The relevance to resilience planning is straightforward and obvious. Resilience depends on procurement and industrial scaling, industrial scaling depends on capital, capital can be state-backed, and state-backed capital can buy market position quickly. The FSR lets the Commission say: “We want investment, but not investment that distorts competition through subsidy strategies that create dependency or hollow out domestic capability.”

FDI screening still in play

If merger control and the FSR are about market structure and distortions, foreign direct investment screening is explicitly about security and public order. In reality, a transaction can raise all three concerns simultaneously.

In December, national governments in the EU Council reached an agreement with the European Parliament to improve FDI screening, as part of initiatives announced in the Commission’s 2024 economic security package. The 2019 Regulation it replaced was deliberately modest. It created an information-sharing mechanism, non-binding Commission opinions and near-total deference to Member States.

While the new agreement stops short of mandating screening for all investments, it establishes a de facto obligation to screen transactions in a defined list of sensitive areas (defence, dual-use, critical infrastructure, advanced technologies, critical inputs), as well as supply-chain chokepoints: components, materials, software, and enabling services.

Europe’s rearmament push has mostly been discussed in the language of budgets, production lines, joint procurement and “security of supply”. But the EU’s resilience planning is also being built through the regulatory architecture the Commission knows best. Resilience planning is not only about spending more. It is about controlling vulnerability: ownership, subsidies, dependencies and bottlenecks. Merger control, the FSR and FDI screening are becoming the EU’s administrative toolkit for that control.

The convergence between competition and defence priorities matters because it changes what counts as “risk” in transactions. The question is no longer just whether a deal raises prices or reduces output. It is increasingly whether it shifts control over critical capabilities, supply chains, data or industrial capacity in ways that make Europe dependent on actors whose interests are not, or might not be, aligned with its own.

Peter Beckett is the founder of ClearanceWire, which tracks merger control risks, and a partner at the public affairs agency Three Six One.