During the Brexit negotiations, a key sticking point was State Aid and what this would look like post Brexit. Initially, the EU wanted the UK's State Aid rules to align with and adopt the rules of the EU. This was because the EU was concerned that the UK government would use their own rules as a competitive advantage, with the use of subsidies for UK companies which could leave EU companies disadvantaged and possibly harm EU trade.
However, the UK successfully negotiated with the EU that a new subsidy scheme would be set up in the UK. This therefore meant that the UK would not adopt the EU State Aid rules. Before agreement had been reached, the UK had decided it was to revoke the State Aid laws rather than retain and enact them into UK domestic law. Had the UK done this, we would instead have followed the Word Trade Organisation (WTO) Anti-subsidy and Countervailing Measures Agreement.
New subsidy scheme and enforcement
As a result of this new UK subsidy scheme, a domestic enforcement body will be set up to oversee this. It will determine whether the granting of a subsidy would distort trade and competition. The exact details of how and what the new subsidy scheme and the enforcement body will look like are yet to be revealed. However, there is no prohibition on the system being developed whereby the body would only investigate whether there has been unfair competition when evidence is provided which shows this and can be done after the granting of the subsidy. The EU State Aid rules provide that an assessment be made on the proposed subsidy prior to it being given.
The EU will also require to set up its own independent body to oversee State Aid. No set limits have been agreed as to how much State Aid will be classed as being problematic and it will instead be reviewed and resolved on a case-by-case basis should any disputes arise.
The UK has agreed that this new scheme will have to respect the key principles of the EU State Aid rules and follow common principles. If either the UK or the EU can provide evidence that there has been a failure to uphold these core principles, then either the UK or the EU can adopt remedial measures to resolve the issue. It was also agreed that both the UK and the EU must be transparent about the subsidies being handed out to businesses to ensure there are not unfair advantages.
The EU will not ratify the agreement until January due to the last-minute nature of agreement being reached. However, the deal will take effect from 11pm on 31 December with both the UK and EU in agreement about its terms. We should soon receive further details on the new UK subsidy scheme and what the enforcement body will look like.
Get in touch - we're here to help
If you would like to discuss the implications of the new subsidy scheme for your organisation, please get in touch with Jill Fryer.