Clifford Chance

The EU General Court has published the main arguments of Nuctech's actions against the European Commission's first ever dawn raid under the FSR, including inter alia the unlawful request to provide information located outside the EU and the infringement of Chinese law.

The European Commission ("EC") has carried out unannounced inspections on 23 April 2024 under the EU Foreign Subsidies Regulation ("FSR") at the Warsaw (Poland) and Rotterdam (the Netherlands) premises of the (indirectly) state-owned Chinese security equipment firm Nuctech which manufactures body and baggage scanners for airports and ports. The dawn raid was based on (alleged) indications that Nuctech may have received foreign subsidies that could distort the internal market. It was the first unannounced inspection under the FSR and the second ex officio investigation initiated by the EC (the first ex officio investigation was initiated on 9 April 2024 in the wind turbine sector, without dawn raids being conducted).

Nuctech appealed this inspection on 29 May 2024 to the EU General Court ("General Court"). The company claims that the General Court shall annul the underlying decision of the EC of 16 April 2024 to initiate the dawn raid as well as any subsequent acts or request by the EC, including the information request concerning data stored outside the EU, namely in China.

The appeal at the General Court marks the first time that judges will review the application of the FSR, including the EC's powers to conduct dawn raids and companies' obligation to hand over details of the state support received.

Nuctech's action of annulment is based on five pleas in law:

• First, the EC unlawfully requests Nuctech to provide information located outside the EU.
• Second, complying with the decision would force Nuctech to violate Chinese law, including criminal law.
• Third, the decision infringes Nuctech's rights under the Charter of Fundamental Rights of the EU.
• Fourth, the decision is arbitrary due to insufficient evidence of foreign subsidies distorting the internal market.
• Fifth, it fails to comply with legal, in particular procedural obligations (including the EC's obligation to state reasons and the right of defence of Nuctech).

While most of Nuctech's arguments are typical procedural claims in connection with investigations by the EC (including in antitrust proceedings), in particular the second aspect is very FSR-specific and of more fundamental importance.

In this respect, the Chinese government or the Chinese Chamber of Commerce at the EU could theoretically attempt to intervene in the case based on the argument that it affects its national law and economic interests. The deadline to request such intervention will expire in the course of August 2024.

In conclusion, the General Court's decision will not only give the very first insights into its interpretation of the EC's powers under the ex officio tool of the FSR but will also be of particular interest for companies' general obligation to disclose information on foreign financial contributions under the M&A and public procurement review regime, in particular as it comes to information located in or referring to China or other non-EU countries. A decision of the General Court is not expected to be available before 2025.