State aid

What does the Trade Agreement say?

• As part of the ‘Level Playing Field’ the agreement includes provisions relating to subsidies/state aid.
• The first part contains a set of principles which both sides’ subsidy control regimes should respect and which are designed to ensure subsidies do not have a material effect on trade or investment between the parties.
• In line with other FTAs, the agreement also contains certain prohibitions on unlimited state guarantees, export subsidies and requirements for rescue and restructuring plans.
• There are also various articles which lay down the provisions for transparency and consultation between the parties over subsidies.
• As part of the agreement each Party shall establish or maintain an operationally independent authority or body with an appropriate role in its subsidy control regime. That body should have guarantees of independence and act impartially. This will be the European Commission for the EU; the UK has not yet announced which body will fulfil this requirement on the UK side.
• The courts and tribunals of each Party must be able to review the subsidy decisions of the independent body. Each Party will have the right to intervene with permission of the relevant court.
• Either Party can take remedial measures (i.e. apply tariffs) if it considers a subsidy given by the other causes, or there is a serious risk that it will cause, a significant negative effect on trade or investment between the Parties. This decision must be based on facts and not merely on allegation, conjecture or remote possibility. It must be restricted to what is strictly necessary and proportionate in order to remedy the significant negative effect caused.
• The other Party can challenge the remedial measures at an arbitration panel, if it believes the measures were not strictly necessary or proportionate based on the criteria set out above.
  

How does this compare to what was expected?

• The outcome is broadly as expected, finding a middle ground between the opening positions of the UK and the EU. The UK originally sought to base the TCA subsidy provisions on WTO subsidy control provisions and then on precedents in other FTAs. The EU originally sought alignment from the UK with the EU’s state aid rules and regime.
• That said, the process set out is complex, novel and untested. As such, how it works in practice will not be entirely clear until it has been tested.
• Additionally, it doesn’t alone provide a clear picture of the UK’s post-Brexit subsidy regime. That will be determined and published in due course. So far, the UK Government has simply set out its international obligations in relation to state aid/subsidies.
  

What are the actions for business?

• Familiarise yourself with how the UK Government plans to comply with its international obligations, including those in the TCA. If you receive or expect to receive large subsidies or state aid at some point, consider how that might interact with these obligations.
• Be aware of the transparency and reporting obligations relating to particular types or amounts of state aid. This could impact the timeline for disbursement.
• Monitor the developments of the UK’s own state aid/subsidy control regime over the coming year.
• If you operate any part of your business in Northern Ireland, you need to adhere to the specific rules under the Northern Ireland Protocol. This sees Northern Ireland essentially stay in the EU’s customs union and single market for goods, which means that in relevant areas (where there is in effect on trade between NI and the EU) EU state aid rules may still apply as will jurisdiction of the European Court of Justice.
• As part of the agreement reached on the implementation of the Protocol, the EU made a unilateral declaration setting out that an effect on trade between Northern Ireland and the Union which is subject to this Protocol cannot be merely hypothetical, presumed, or without a genuine and direct link to Northern Ireland.
• However, the EU has since published a notice to stakeholders which seems to take a much wider interpretation of the instances in which support could be caught by the EU state aid rules. It includes the example, “Incentives to the financial services industry that would allow manufacturers or electricity companies engaged in trade between Northern Ireland and the Union to access cheaper credit, thus gaining an advantage over their trading partners.”
  

To discuss specific support with your Brexit preparations based on this latest development contact: Deloitte Brexit Insights.