82: Post-brexit subsidy regime: help?
As discussed last time, from 1 January 2021 (end of transition), the UK (although, in practice, Great Britain) has a new subsidy regime.
In summary, this comprises:
- the World Trade Organisation’s (WTO) subsidy rules, primarily the Agreement on Subsidies and Countervailing Measures (ASCM) (trade in industrial goods) and the Agreement on Agriculture (AoA) (trade in food and other agricultural products), and
- the subsidy-related commitments in specific Free Trade Agreements (FTAs) with other countries.
The most important of these FTAs – given existing trade flows and economic ties is the agreement reached between the UK and EU, known as the Trade and Cooperation Agreement (TCA) (which we reviewed here). This is because the WTO provisions apply only to trade in goods while the TCA subsidy provisions ‘recreate’ much of EU state aid law and so apply more widely and impose a higher degree of constraint than exists under the WTO rules (or other FTAs).
Domestic effect through EUFRA, s.29: Independence vanished in the haze?
Most importantly, the subsidy provisions in TCA, Chapter 3, Title XI of the TCA (subsidy control) have domestic application by virtue of the EUFRA, s.29(1), which provides that existing UK law (ie UK law as at 1 January 2021) has effect:
‘… with such modifications as are required for the purposes of implementing [the TCA] … so far as the agreement concerned is not otherwise so implemented and so far as such implementation is necessary for the purposes of complying with the international obligations of the United Kingdom under the agreement.’
This means that, where necessary to give effect to the TCA, s.29 incorporates the content of the TCA directly into domestic law and gives it direct effect as part of that domestic law. Existing domestic law is therefore modified by the TCA through s.29. There is no time limit on the operation of this provision and, in theory, it could operate for the foreseeable future (much like s.2(1) ECA 1972) as a ‘conduit’ by which the TCA is given domestic application.
But, more likely, this situation will be temporary: s.29(2) provides that sub-s. (1) is subject to any provision made (so under EUFRA or through or under another Act) for the purposes of implementing the TCA. So, if specific domestic legislation is passed later, then s.29(1) would no longer operate to modify domestic law. It seems likely that the government will specifically legislate (whether under s.29(2) or otherwise) to reduce the application of s.29(1) as it rolls out its post-Brexit policies more generally.
EUFRA, s.29 means that the UK has complied with article 3.4(3) which provides:
‘… each party shall ensure that the obligations in paras. 1 and 2 are implemented in its law in such a manner that the legality of an individual subsidy shall be determined by the principles …’
It is not clear if the EU intends also to take steps to incorporate those principles into EU law, or if it considers that its existing State aid regime makes it compatible already. The latter seems more likely.
Six Principles: Changed in oh so many ways?
Article 3.4 of the TCA provides six key principles which the granting of any subsidy must respect. By virtue of s.29 EUFRA, these principles have domestic effect and should be complied with by an awarding body.
The ‘six principles’ are:
- subsidies pursue a specific public policy objective to remedy an identified market failure or to address an equity rationale such as social difficulties or distributional concerns (the objective);
- subsidies are proportionate and limited to what is necessary to achieve the objective;
- subsidies are designed to bring about a change of economic behaviour of the beneficiary that is conducive to achieving the objective and that would not be achieved in the absence of subsidies being provided;
- subsidies should not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy;
- subsidies are an appropriate policy instrument to achieve a public policy objective and that objective cannot be achieved through other less distortive means; and
- subsidies’ positive contributions to achieving the objective outweigh any negative effects, in particular the negative effects on trade or investment between the Parties.
These ‘principles’ are effectively the EU state aid rules with the terms renamed. That means that significant judgment and discretion should be applied by a public authority, and that concepts like proportionality should continue to apply.
It is not clear to what extent State aid jurisprudence, for example considerations of subsidiarity and proportionality can, or will, be ‘read across’ to the application of these principles in the domestic context. The ‘safety nets’ of block exemptions (save as provided under the TCA) and ex ante notification to the Commission have been removed, and it remains to be seen whether the courts will consider the GBER as a ‘floor’ in assessing what is lawful on the basis that it is not distortive.
Transparency and Remedies: Won’t you please help me?
Two elements of the TCA will be of particular relevant to awarding bodies: transparency requirements and remedies.
Article 3.7(1) imposes an obligation to publish within 6 months of the grant of the subsidy:
- the legal basis, policy objective and purpose of the subsidy;
- name of the recipient when available;
- date of grant of subsidy, duration and any other time limits attached to the subsidy; and
- the amount of the subsidy or amount budgeted for the subsidy.
BEIS are setting up a national register (but haven’t yet done so) so public authorities may wish to have policy of publicising awards themselves in advance of that appearing in order to ensure compliance.
Article 3.7(5) provides that if an interested party (anyone whose interest might be affected by the granting of a subsidy) requests subsidy information with a view to a potential claim then the authority will provide it within 28 days of written request, subject to any proportionate restrictions which pursue a legitimate objective, such as commercial sensitivity, confidentiality or legal privilege. The information referred to shall be provided to the interested party for the purposes of enabling it to make an informed decision as to whether to make a claim or to understand and properly identify the issues in dispute in the proposed claim. This is a powerful information right, and marks a change for the current situation, where a lack of access to material information at an early stage can prove a barrier to challenge.
Second, Article 3.11 requires the UK to provide a means of recovery of unlawful subsidies. To date, there is no legislative provision providing for this so, in order to give effect to s.29, the courts will need to do so through the exercise of their public law functions, ie injunctive quashing and recovery relief. Awarding bodies should therefore comply with normal public law requirements rationality, reasonableness, transparency and so on in making subsidies. There may be a need to provide a new damages remedy (given the requirements of article 3.10), applicable if an unlawful subsidy by a public body causes competitive loss and damage, and in order to provide an effective remedy.
‘Now my life has changed in oh so many ways, my independence seems to vanish in the haze … Help me if you can’ (The Beatles, Help!)
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