No new rules before the end of the Brexit transition period

The UK Government has confirmed that there will be no new UK rules on subsidies in place before the end of the Brexit transition period and that it will introduce legislation that will repeal those parts of the EU State aid regime that will otherwise be grandfathered into UK law under the UK Withdrawal Act. The EU State aid rules, which are applied and enforced by the European Commission, currently still apply to the UK as part of the transitional arrangements in the EU-UK Withdrawal Agreement agreed last year. Domestic legislation is needed to avoid the prohibitions on State aid remaining in place but without a designated authority, and therefore an ability, to grant exemptions from these prohibitions.

What happens after the end of the Brexit transition period?

After the end of the transition period, the Government intends for the UK to follow WTO subsidy rules and "any international obligations on subsidies agreed under future free trade agreements". It will publish guidance on the WTO rules before the end of the year.

The Government has also promised to publish a consultation "in the coming months" on the case for a domestic subsidy regime that goes beyond the UK's international commitments – the aim of which would be to avoid distortion of the UK internal market and subsidy races between different parts of the UK. The UK Internal Market Bill, which the Government published alongside its statement on subsidy control post-transition period, reserves to the UK Parliament the exclusive ability to legislate for a subsidy control regime.

Negotiations between the UK and the EU on the future relationship agreement are on-going and the implementation of a level playing field for competition, which would require the parties to commit to a set of “common high standards”, including on State aid/subsidy control,  remains one of the key stumbling blocks to reaching a deal. The EU Member States are concerned that a wide access Free Trade Agreement, providing the UK with tariff and quota free access to the EU's market, without any commitments in this area would allow the UK to free-ride.

There is therefore scope for the Government plans on subsidy control to change depending on the outcome of this aspect of the EU-UK negotiations.

How does the WTO regime differ from the EU regime?

The WTO anti-subsidy regime, which applies to goods only, differs from the EU regime in several respects most notably in procedural respects and in terms of enforcement. The regime does not provide for exemptions from the subsidy prohibition and there is therefore no approval process or mechanism. The WTO regime provides for state-to-state enforcement or imposition of countervailing duties by the affected state only. There is no role for non-state actors such as companies that wish to complain about a subsidy measure. WTO rulings do not generally require retrospective recovery of subsidies already received.

For more on the topic of a new subsidy regime for the UK, check out our June briefing, available here. 

Isabel Taylor and Nele Dhondt