Brexit Update – State Aid

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Although the rapid spread of COVID-19 has launched the UK into uncertain and unprecedented times, the UK’s future relationship with the EU is still being actively negotiated.

The European Commission published a draft “Agreement on the New Partnership with the United Kingdom” (the Agreement) on 18 March 2020. The Agreement sets out terms on which the UK may trade with the Union once the withdrawal period has concluded. This article explores the draft provisions on which the Commission has suggested the UK and the EU (together “the Parties”) approach State aid.

General Objectives

The draft Agreement sets out the Parties’ objectives in working towards a “Level Playing Field and Sustainability”. Specific goals and objectives include:

  • The Parties working together to find ways to trade that are fair, competitive and consistent with sustainable development.
  • The Parties affirming their understanding that their economic partnership will only be beneficial if they work together to ensure that trade is not distorted, that unfair competitive advantages are avoided, and sustainable development principles are upheld and respected.
  • The Parties committing to the maintenance of high standards in relation to State aid, State-owned enterprises, competition, taxation, social and labour protection and environmental protection.
  • The Parties committing to a long-lasting and robust partnership which takes advantage of the geographical proximity, the economic interdependence, the economic inter-connectedness, and the shared biosphere of the UK and the EU.

State Aid Controls

Draft State aid controls which will apply following the withdrawal period are set out in Chapter 2, Title III of the Agreement. The General Provisions set out that in order to protect parts of the competition frameworks already in place and prevent distortions of trade, the UK must “give effect to various EU State aid instruments” which will impact trade between the UK and the EU. The draft Agreement states that a list of such EU State aid instruments can be found in an annex (“the Annex”), but this annex is not yet populated. As we await the Commission’s decision regarding which EU State aid instruments the UK shall give effect to, it is not possible to judge the entire scope of the State aid controls accurately.

The draft Agreement does however offer insight into how the EU and the UK will co-operate and communicate around issues concerning State aid. The following points are set out in the draft Agreement:

  • New acts or provisions in the area of State aid control: If the EU is adopting a new state aid control (which is outside the scope of the Annex), it will inform the UK via the “Specialised Committee on the Level Playing Field and Sustainability”. Either party is able to request that the Committee host a meeting within six weeks of the EU informing the UK of the new control. At the meeting, various views on the implications of the new control will be discussed. If the Parties agree, the new control can be added to the Annex. Otherwise, negotiations can continue.
  • Relevant authority: The UK must establish an independent authority (the “Relevant Authority”), which will act in an impartial manner to decipher whether the UK is acting in accordance with the State aid rules set out in the Agreement. As previously indicated by the UK Government in April 2019, the role of the Relevant Authority will be undertaken by the Competition and Markets Authority who will act in a similar capacity to the European Commission and will have powers to enforce the Agreement’s rules should the UK deviate from them.
  • Cooperation: The Parties agree to co-operate and communicate in order to adequately survey State aid in the UK and the EU. The Commission and the Relevant Authority can, amongst other things:
    • Exchange information and views on the acts listed in the Annex which relates to the implementation, application and interpretation of these acts,
    • Provide information and views on individual State aid cases which will impact competitive trade, and
    • Consult on all draft decisions which are intended to be adopted and which will impact trade.
  • Courts and tribunals of the UK: The UK will ensure that its courts and/or tribunals are competent to review and enforce compliance by the UK of the terms of the Agreement and of the controls listed in the Annex. Courts and/or tribunals in the UK must also be able to decide on actions for the Relevant Authority if it fails to act in time and be able to decide and award private damages. If a point of interpretation arises during a hearing before a UK court, the Parties accept that the UK can request that the Court of Justice of the European Union provide a preliminary ruling which will be binding on courts within the UK. The Commission and interested parties will have standing in respect of State aid cases and the Commission retains the right to intervene in such cases ongoing within the UK.
  • Request for information: If one of the Parties considers that the other is greatly risking fair competition through its use of State aid, that Party can request the following information about the aid, which must be provided within 30 days of the request:
    • The legal basis and policy objective or purpose of the aid,
    • The name of the recipient of the aid, if possible,
    • The dates and duration of the aid and any other time limits attached to it,
    • The eligibility requirements of the aid,
    • The appropriateness and the form of the aid,
    • The incentive effect of the aid,
    • The total amount or the annual amount budgeted for the aid and its proportionality to the objective, and
    • Any other information permitting an assessment of the distortive effects of the aid.
  • Consultations: If the EU believes that the UK is risking trade becoming distorted or competition becoming unfair through its actions, the Parties can consult with a Specialised Committee in an attempt to find an approach to State aid in the UK that is agreed between both Parties. The Committee will meet within 30 days of the matter being raised to them.
  • Interim measures: Interim measures can be taken by the EU in certain circumstances, provided the UK are properly notified. These circumstances include (but are not limited to):
    • Where the EU believes the UK is jeopardising trade, but a consultation was not held,
    • Where the EU believes the UK is risking trade and a consultation was held but the Parties did not agree a solution within 30 days of the Committee meeting.

More information will be provided by the Commission in due course. If you have any queries about the impact of Brexit on state aid in the meantime, please contact Sharpe Pritchard’s Corporate team: pcollins@sharpepritchard.co.uk or rprater@sharpepritchard.co.uk.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any of the issues raised in this [article][blog], please contact us today by telephone or email  enquiries@sharpepritchard.co.uk.

 

Posted in Brexit, Latest news and blog, Peter Collins, Robert Prater, State Aid and Competition.