Scanning for Foreign Subsidies: Retracing the Steps of the Nuctech Case as the Commission Moves to the In-Depth Investigation Phase

The Commission moved its ex officio investigation into the Chinese manufacturer of security equipment Nuctech to the in-depth phase. Nuctech had tried to stop the inspection by the Commission by requesting an interim measure from the Court of Justice of the EU, but the Court dismissed its request. The blog post retraces the evolution of the Nuctech case from the Commission’s “dawn raid” to the order of the Court and the opening of the second phase of the FSR procedure.

When it comes to the EU Foreign Subsidies Regulation (FSR), the Nuctech case has been breaking ground in many respects. Back in April 2024, the European Commission carried out its first ‘dawn raids’ at the European premises of the Chinese manufacturer of security scanners and devices. The company pushed back and asked the EU General Court for a suspension of the inspections. The General Court denied Nuctech’s request in August 2024 and its decision was confirmed on appeal by the Court of Justice in March 2025. Finally, on 11 December 2025, the Commission announced that the investigation would move to the in-depth phase, marking DG COMP’s first ex officio procedure, and third overall, to move to the second phase.

This latest development makes it timely to retrace the previous developments of the Nuctech case and discuss its relevance. Or perhaps it is due to the fact that, during the holidays, many of us are travelling by plane, being scanned by Nuctech devices at the security checkpoints of our airports... Joking aside, the Commission’s investigation indicates that the FSR is starting to show its regulatory potential.

The previous episodes of the Nuctech story

The first high-profile ex officio investigation by DG COMP

First of all, the investigation into Nuctech’s subsidiaries was started under the general ex officio procedure. While the other two specialised procedures for concentrations and public procurement start after the Commission has received a notification from the undertakings (the Commission can also request the notification if the companies fail to do so) and must end before the conclusion of the transaction or tender process, the Commission has broad discretion on how to exercise its ex officio powers. As explained in Article 9 FSR, the enforcer “may on its own initiative examine information from any source”, including Member States, a natural or legal person or an association, regarding alleged foreign subsidies distorting the internal market. While private parties cannot trigger an FSR review as formal complainants, they can still participate informally, and perhaps substantially, in the FSR process, as explained in detail by Lena Hornkohl. The Commission can start an ex officio review thanks to the information provided by third parties, and it makes sure to involve them at the later stages of the investigation. If we read the first FSR in-depth decision in e&/PPF Telecom Group, we see that e&’s competitors were often consulted by the Commission during the whole procedure (a short analysis of the decision is available here).

After having received some information (we do not know from which source), the Commission decided to open a preliminary review into Nuctech. Article 10(1) states that “where the Commission considers that the information (…) indicates the possibility that a foreign subsidy distorting the internal market exists, the Commission shall seek all the information it considers necessary to assess, on a preliminary basis” if the financial contribution under examination constitutes a distortive foreign subsidy, possibly by requesting information and conducting “inspections within and outside the Union”. These inspections are usually unannounced, as happens in competition enforcement, hence the nickname of “dawn raids”. To summarise, the FSR makes the Commission exclusively competent for enforcement and grants it extensive investigative powers (Articles 10, 13, 14 and 15).

The Commission’s inspection powers and the “dawn raid” at Nuctech (April 2024)

As part of its preliminary review, the Commission inspected Nuctech’s premises in Poland and the Netherlands in April 2024, with the assistance of the respective national competition authorities. The Commission did not disclose Nuctech’s identity when it announced the inspection, but the press was able to identify the company thanks to the latter’s own statement, alongside that of the Chinese Chamber of Commerce to the EU.

Article 14 FSR regulates inspections within the EU and empowers the Commission to enter the premises, have access to all books and records, ask questions of employees, and seal the objects of the inspection for the necessary time. Member States are informed in advance and their officials can assist the Commission, if either so requires.

If the company does not cooperate, the consequences foreseen by Articles 16 and 17 apply. The first provision allows the Commission to decide on the case “on the basis of the facts available”, if the undertaking does not cooperate, with the possibility that this results in a less favourable outcome. The second provision enables the Commission to impose fines or periodic penalties if the company misleads the Commission or hinders the inspection, intentionally or not; fines can reach up to 1% of the aggregate turnover of the previous year; periodic penalties may go up to 5% of average daily turnover and are calculated for each day of delay, until the undertaking submits to the inspection.

While inspecting Nuctech, the Commission sought access to the content of employees’ and officers’ mailboxes, but Nuctech refused this request, claiming that the data was stored on servers belonging to its parent company in China and that it could not provide it without violating Chinese law. The Commission was not satisfied with Nuctech’s justification and urged the company to make the mailboxes available. Ultimately, Nuctech applied to the General Court for the annulment of the Commission decision forming the basis of the inspection and the suspension of the same decision and its operation, as an interim measure based on Articles 278 and 279 TFEU. The ultimate goal of an interim measure is to ensure the full effectiveness of the final decision.

The order of the General Court on the interim measure (EU:T:2024:564, August 2024)

Existence of a prima facie case

Since Nuctech was requesting an interim measure from the General Court, it had to demonstrate, under Article 156 of its Rules of Procedure, (1) the existence of a prima facie case, or fumus boni juris, and (2) that the measure is urgent and necessary to avoid “serious and irreparable harm to the applicant’s interests”, which would otherwise be caused by implementing the decision before the Court decides on the annulment (para. 15). To build its prima facie case, Nuctech argued that the Commission’s inspection and, specifically, the request to access the mailboxes of its Chinese employees, whose data was stored on servers located in China, were unlawful on the basis of five pleas in law (paras 19–27):

• the Commission, by investigating territories and individuals outside EU jurisdiction, was violating international and European law; additionally, Article 14(2)(b) FSR allows the Commission to examine or request only documents accessible to the company under inspection;

• if Nuctech were to comply with the Commission’s request, it would violate Chinese law, specifically the Law on Safeguarding State Secrets, the Data Security Law, and the Personal Information Protection Law. Nuctech claimed that such a violation would risk exposing the company and its employees to severe administrative sanctions, including pecuniary penalties, business suspension or licence revocation, as well as criminal sanctions on individuals;

• the inspection violated its right to inviolability of business premises and privacy;

• the decision to conduct an inspection was arbitrary, as the Commission did not have sufficient evidence to suspect the presence of a subsidy under Article 3 FSR;

• finally, the contested decision did not adequately state its reasons and violated its rights of defence.

As noted by the Commission, and agreed by the General Court, Nuctech merely stated the third, fourth and fifth pleas, which was not sufficient to establish the prima facie case (paras 28–33). The second plea was also asserted “in an extremely laconic manner”, making it impossible for the judge to assess if the plea has any prima facie basis (para 46).

The first plea was also insufficient to demonstrate the fumus boni juris. The Court observed that EU competition law allows the Commission to inspect the European premises of undertakings active in the Single Market, but incorporated abroad, referring to the case law in Intel v Commission (EU:C:2017:632): “the application of EU law to the conduct of undertakings is legitimate, regardless of where it takes place, in so far as that conduct has foreseeable, immediate and substantial effects in the European Union” (para. 39). The General Court’s hermeneutics here strengthen the expectation that practitioners could rely on the established practices and precedents of competition law to argue their FSR cases. The General Court continued that, without the investigative powers granted by Article 13 FSR, the Commission could not assess whether a conduct by a foreign company would violate EU law or produce substantial effects in the Single Market, such as an FSR distortion, and this would lead companies to move their data to foreign servers to shield themselves from investigations (paras 40–41).

The risk of serious and irreparable harm

The General Court also had to decide on the requirement of urgency of the interim measure, as serious and irreparable harm could affect the company while it waits for the main proceedings to conclude. Nuctech contended that the inspection and the risk of violating Chinese law would expose it to such harm, both reputational and financial. Regarding the reputational damage, the Commission observed that it was Nuctech itself that disclosed the inspection to the press, and that the annulment of the decision in the main proceedings provides sufficient reparation for non-material harm, in line with established case law (paras 60 and 61). Financial damage is irreparable for the purposes of an interim measure only in extraordinary cases, e.g. when the company risks disappearing from the market. Normally, this damage is reparable and the action for damages under Articles 268 and 340 TFEU is its natural pathway for compensation (paras 63–68). The same logic applies to the pecuniary sanctions provided for by the Chinese laws referred to by Nuctech.

Regarding the possible criminal sanctions under Chinese law, the Commission argued that these are foreseen only when the data to be produced is a State secret, and Nuctech did not demonstrate that this was the case, nor that it had taken the necessary steps to receive authorisation from the Chinese authorities to submit the data in compliance with Chinese law. The General Court agreed with the Commission (paras 69–75). It is worth remembering that the Commission can also conduct inspections outside the Union under Article 15, but that requires the cooperation of the third country.

Interests at stake and decision

Finally, the General Court reflected on the interests in conflict in the case and how to balance them. On the one hand was Nuctech’s interest to avoid any risk of legal liability in China; on the other was “the public interest in preserving the effectiveness of EU law” (para. 78). Since Nuctech, both through its European subsidiaries and its Chinese parent company, has chosen to enter the European internal market, it has intentionally submitted to its rules, such as the FSR (para. 80). Additionally, if Nuctech could take advantage of the fact that it stores data on servers abroad, or that the laws of a third country took precedence over European ones, this would give it (and other companies controlled by foreign entities) a “competitive and procedural advantage” over companies controlled by EU entities (para. 85). In light of all the above, the General Court dismissed Nuctech’s application.

The Court of Justice’s order on Nuctech’s appeal (EU:C:2025:205, March 2025)

Nuctech appealed the order of the General Court to the Court of Justice (hereinafter, “the Court”), without success. The Court confirmed the decision and, by extension, the traditional high threshold for obtaining interim relief. Nuctech argued that the lower court had made some errors of law in assessing the prima facie case, urgency and weighing the interests at stake. The Court started with its examination of the second condition for obtaining an interim measure, the presence of urgency (paras 30–47).

First, the Court maintained that damage of a purely financial nature, in general, is not seen as irreparable, as it can be compensated later. Nuctech argued that it might suffer the following types of damage:

• Administrative sanctions of a financial nature imposed by the Chinese authorities: according to Nuctech, the damage would be both financial and reputational. Yet, the Court found that the undertaking did not demonstrate that the fines would imperil its financial viability;

• Administrative sanctions of a non-financial nature, such as business suspension or licence revocation: while these sanctions are more severe, the Court found that Nuctech had not provided information showing that the damage from these would be serious and irreparable with an action for damages;

• Criminal penalties on individuals under the Chinese Law on Safeguarding State Secrets: the Court concluded that, again, Nuctech was not able to demonstrate an error in the General Court’s assessment in this regard. Nuctech did not demonstrate that the electronic correspondence at issue actually contained State secrets or that it had taken the necessary steps to obtain the required authorisation for its disclosure.

In conclusion, the Court held that Nuctech had not demonstrated that the condition relating to urgency was satisfied. The claims of serious and irreparable damage from Chinese penalties were insufficiently substantiated with concrete evidence. Since the conditions for interim measures are cumulative, the failure to demonstrate urgency resulted in the dismissal of the appeal. It was therefore not necessary to examine the other grounds of appeal (prima facie case and weighing up of interests; paras 57–59).

The decision to open the in-depth investigation (December 2025)

With its request for an interim measure rejected, Nuctech had no alternative but to comply with the Commission’s requests, or face a fine or periodic penalty. From what we know at the moment of writing this blog post, the preliminary review continued and the Commission was able to gather sufficient indications that Nuctech has received a distortive foreign subsidy, to the point that it deemed it appropriate to move the investigation to the in-depth phase. This phase shift is marked by a decision of the Commission, which will be published in the Official Journal and will provide some initial insights on the Commission’s preliminary reconstruction of the subsidy and its distortive effects. Looking at the previous, equivalent, decisions in e&/PPF Telecom Group and ADNOC/Covestro, publication in the Official Journal usually follows the press release about two weeks later.

Nuctech’s position appeared to have changed after the unsuccessful legal challenge, as shown by its conciliatory statement after the announcement of the in-depth investigation and its willingness to cooperate in the investigation. On the other hand, the Chinese Chamber of Commerce remains highly critical of the Commission, also because, in the same month, the European enforcer “dawn-raided” Temu’s premises in Ireland. As shown by the final decisions in e&/PPF Telecom Group and ADNOC/Covestro, cooperating with the Commission and offering commitments can be an expedient way to close the FSR procedure with an overall favourable outcome, and both companies were able to conclude their acquisitions. Chinese companies may shift to this approach to speed up the procedures involving them, while the Chinese Government and Chamber of Commerce can keep up the political pressure on the Commission.

Conclusion

The opening salvo in the Nuctech court case does not constitute a doctrinal shift when it comes to interim measures, nor does it provide further insights into the interpretation of the FSR in particular, but it reminds us of the utility of connecting the new Regulation with the established competition case law. Foreign companies active in the European internal market are subject to the Commission’s inspections in the same manner as undertakings controlled by a European entity. At the same time, the implementation of the FSR may place companies in a tough position, especially when compliance with EU investigative measures risks triggering violations of foreign laws that deter that same compliance. Future cases involving companies in similar positions, but able to provide more concrete evidence of harm, after the lesson of the first “decision on the FSR” by the Court, will be particularly instructive in testing the resilience and adaptability of the current procedural framework.

The Commission could indeed use FSR investigations as a way to look into the subsidy policies of third countries even without their cooperation, an ersatz solution to the transparency issue of WTO subsidy law. The different position of Nuctech at the opening of the in-depth investigation may signal that foreign undertakings may have accepted that it is more convenient to accept the FSR and collaborate, rather than challenge it. It remains to be seen which decision the Commission will adopt in the end, and if Nuctech will challenge that one as well. For sure, the FSR remains a source of tension with Beijing, underscoring the broader diplomatic sensitivities and legal uncertainties surrounding EU competition enforcement in an increasingly multipolar regulatory order.