The EU-UK Trade and Cooperation Agreement: state aid rules

A post-Brexit trade deal – the Trade and Cooperation Agreement (the TCA), was finally pinned down on 24 December.

For an overview of the deal, see Brexit: what did we get for Christmas?

Part of the level playing field provisions in the TCA deal with subsidy controls. This requires both the EU and the UK to have in place “an effective system of subsidy control” meeting a set of principles such as proportionality in meeting a defined objective. These can be designed independently, but must be implemented in law in a way that allows the legality of an individual subsidy to be determined.

A change of direction

The original approach (under the previous Government) was to tweak and tailor the existing EU state aid regime in order to make it work in UK law, under the oversight of the Competition and Markets Authority. This would have imported a substantial body of EU law.

The current Government intends to take a different approach. Its revised legislation (The State Aid (Revocations and Amendments) (EU Exit) Regulations 2020 – we’ll call these the State Aid Regulations) prevents most of EU state aid law from continuing to apply in the UK as of the start of 2021.

The explanatory notes accompanying the State Aid Regulations indicate that “at the end of the transition period the UK will follow WTO rules and other international commitments. The Government will also consult on whether to go further, including whether legislation is necessary.”

A black hole?

But does this leave a hole in UK law, that makes it fall short of the requirements of the TCA?

The current approach relies on a combination of:

  • The general implementation of the TCA in the European Union (Future Relationship) Act 2020, to the extent that this is not dealt with elsewhere. This has the effect of applying in UK law anything required by the TCA unless and until more specific legislation is passed. The provisions of the TCA are quite detailed in this area.
  • Detailed guidance issued by the Department for Business, Energy & Industrial Strategy (BEIS) that sets out the obligations under the UK’s international commitments including those under the World Trade Organisation umbrella, the TCA itself, and other free trade agreements.

A database for public authorities to record information on relevant subsidies is promised.

For Northern Ireland, Article 10 of the Northern Ireland Protocol prohibits the grant of any State Aid that affects trade in goods or electricity between Northern Ireland and the EU unless it is consistent with EU block exemptions or has been notified to and cleared by the European Commission.

Arguably not a complete black hole then, although a planned future consultation process could lead to new legislation in due course. The TCA recognises this possibility in Footnote 59 – “The Parties note that the United Kingdom will implement a new system of subsidy control subsequent to the entry into force of this Agreement.”

A challenge

Not-for-profit grouping The Good Law Project kicked off a challenge in December to the implementation of the State Aid Regulations. These, argue the Good Law Project, go beyond the Government’s “tidying up” powers under the Withdrawal Act 2018. They highlight concerns raised by the House of Lords in October about “secondary legislation … being used to introduce policy changes about important issues which should more properly be the subject of primary legislation”.

Where this ends up we have yet to find out.

Points to note

  • The UK’s subsidy control (state aid) regime is currently unclear. We can expect a consultation to emerge on the shape of the UK’s regime on state subsidies, although whether legislation will follow is not a given. 
  • For the time being, public authorities will have to consider the UK’s international commitments as set out and discussed in the BEIS guidance when assessing plans to offer state support. If having done so a public body is unable to reach a conclusion the guidance invites it to contact BEIS for specific advice.
  • Organisations wishing to challenge state aid decisions are now faced with a difficult task. It seems, pending any future legislation being introduced, a challenge will involve a judicial review claim based on the provisions of the TCA, plus the guidance and legislation discussed above. What the courts will make of these claims will unfold in the coming months.

Learn more about our competition and state aid services.


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