In response the European Commission (EC) has drawn up proposals, which will be revealed on June 17, to protect the single market and key industries.
In an interview European Competition Commissioner Margrethe Vestager warned European companies were struggling to compete on a level playing field because of state backed foreign firms.
A draft of the EC proposals said: “There is an increasing number of incidences in which foreign subsidies appear to have facilitated the acquisition of EU undertakings, influenced other investment decisions or have distorted the market behaviour of their beneficiaries.”
A number of vulnerable industries are listed, including shipbuilding, steel and aluminium production and the automotive sector.
Under the new rules’ companies from outside the EU which want to buy stakes beyond a certain size in EU companies will have to inform the EC whether they have received at least ten million euros of state aide or more in the pasts three years.
This rule will apply to any company seeking to buy a stake of more than 35 percent in an EU firm which has a turnover of at least 100 million euros per year.
Foreign companies which have received more than ten million euros in state aid could be forced to sell assets if they want to complete any deal.
Should they fail to do so the deal could be vetoed by the EC or fines levied on the company in question.
READ MORE: EU confirms Boris Johnson will NOT apply for extension
The EU is seeking to protect European companies from state backed foreign competition
Industries including shipbuilding, steel production and car making will be protected
The draft proposals also suggest any foreign state aided company should be banned from three years for taking part in public procurement tenders if they are judged to have benefitted from unfair competition.
There are growing concerns in Brussels that foreign state backed companies are able to undermine European rivals and gain influence over key infrastructure.
The European Single Market, which the EU aims to protect, comprises the 27 EU member states, Norway, Switzerland, Iceland and Liechtenstein.
The UK is also a member until the end of the year when the Brexit transition period is completed.
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Inside the European Parliament building
Under the terms of the single market free movement of goods, capital, services and people are guaranteed within its territory.
Boris Johnson’s Government has pledged free movement of people from Europe to the UK will end when the Brexit transition period finishes.
On Friday the UK formally confirmed it will not seek an extension to the transition period.
Key EU leaders had previously suggested they would support such an extension, during which the UK would continue paying into the EU budget and obeying many EU laws.
Many European companies have been badly hit by the coronavirus outbreak
The European Parliament building in Strasbourg
However cabinet office minister Michael Gove said: “The moment for an extension has now passed.”
On Twitter he added: “I formally confirmed the UK will not extend the transition period & the moment for extension has now passed.
“On January 1, 2021, we will take back control and regain our political & economic independence.”
The first ministers of both Scotland and Wales had written to Mr Johnson demanding the Brexit transition period is extended beyond December.
Also on Friday the Government confirmed full import controls on EU goods will not be introduced immediately, as had been the plan, when the implementation period is over.
The Government has confirmed it will not seek a Brexit transition extension
Mr Gove said due to the hit from the coronavirus epidemic businesses would be given “time to adjust”.
In response to the UK announcement Michel Barnier, the EU’s lead Brexit negotiator, said the bloc had “always been open to an extension”.