A key outstanding issue between the EU and the UK in the negotiations on the future partnership agreement is the implementation of a level playing field for competition. The resolution of this issue will likely affect the shape of any future domestic subsidy regime in the UK.

The starting point for any discussion on a “level playing field” is the 2019 Political Declaration, which essentially requires the parties to commit to a set of “common high standards”, including on State aid/subsidy control, aimed at ensuring open and fair competition between them.

Recent statements and the draft texts of each party for the future partnership agreement show, however, that there is a wide gap between the EU and UK positions on this issue. The key areas of tension appear to be:

(i) which standards should be used as a reference point for the parties’ commitments to each other in this area? Is it a commitment to apply an equivalent of the EU rules (with an independent State aid authority to enforce those rules) or more general commitments in relation to subsidies that are used in certain other FTA’s?

(ii) how should disputes about the application of the commitments be resolved, i.e. the agreement’s dispute resolution mechanism or a consultation mechanism only (with no arrangements to police the application of this consultation mechanism)?

The outcome of the negotiations will likely affect the shape of any future domestic State aid/subsidy control regime in the UK. If the UK moves away from the EU model towards a more light-touch regime without an independent authority to apply and enforce the regime (e.g. based on the WTO regime), this would presumably reduce the administrative burden on, and therefore benefit, aid-granting authorities and aid beneficiaries. However, companies that want to complain about potentially distortive aid measures are unlikely to welcome such a regime.

Given the many other challenges that authorities and businesses face in the wake of the global COVID-19 pandemic, a pragmatic, transparent and coordinated approach that avoids legal uncertainty is, however, ”a must have” for all stakeholders.

A more detailed update on this topic is available on our Horizon scanning page (link below).