So we are finally getting there. The EU and UK delegations are ready to get into the final stages of what promise to be an intense, frantic, tense last month of negotiation, thirty days within which a comprehensive trade and security agreement should be eventually be agreed. Despite the clock ticking faster and faster, the two camps recently signalled that significant progress has been made in several areas and that an agreed legal text is in sight.
Still one of the biggest stumbling blocks is the concern expressed by the EU that the UK could use its new regulatory freedom to undercut EU businesses or to use the official jargon, the maintenance of a “level playing field’ (les distorsions du commerce et les avantages concurrentiels injustifiés). The ‘insurance policy’ was identified by the EU on the full adoption by UK of state aid rules and the creation of an independent anti-state aid watchdog modelled on the European Commission. The Johnson Government’s only concession was to commit to a mere reciprocal notification of possible subsidies (not even aids…) every two years. To make things worse, the recent UK Internal Market Bill, a rather curious piece of draft legislation, which borrows heavily from some ‘classics’ of EU law such as the principle of non-discrimination and that of mutual recognition, is attempting to re-define Northern Ireland’s place in the UK’s internal market and customs territory by simply conferring to the Government the power to set aside unilaterally provisions in the Northern Ireland Protocol agreed with the EU. In particular, it allows Ministers to ignore those provisions in the Protocol that make state aid rules applicable to the United Kingdom ‘in respect of measures which affect that trade between Northern Ireland and the EU’. The Bill candidly confers to the Government those powers ‘notwithstanding any relevant international or domestic law with which they may be incompatible or inconsistent’ (Clause 47 (1)).
State aid has then gradually became a microcosm of the implications of Brexit as it concerns the two main dimensions of the process of the UK withdrawal from the EU: first, the question of the regulatory options available to the UK in a post-Brexit economy in terms of public spending control; second, apart from political posture, what space for compromise may still exist to successfully negotiate and ratify a EU–UK Free Trade Agreement.
As far as the domestic dimension, leaving the EU, means that the UK is at liberty to decide its future regulatory model for State aid control. Actually, the first question would be weather to regulate it all, as the decision could be left to market forces alone. Still not only the several UK support measures to assist a wide range of businesses hit by Covid 19 - duly notified to the European Commission - reaffirmed the necessity of state interventions but those measures also highlighted the importance of rules on the transparency and accountability of spending decisions as to ensure fairness and solidarity. Thus the UK would still be on time to create (or at least to promise) an independent agency – perhaps even without the same comprehensive powers enjoyed by the Commission – that could provide a forum where to balance the different interest and to guarantee the transparency of aid measures. One of the most challenging tasks for a possible new agency would be to start building criteria on how to assess whether a certain measure, despite being classified as aid, could still be deemed to be beneficial because it pursues an aim for the ‘common good’. In the EU, this task is carried out by the Commission, which uses the ‘common European interest’ as a benchmark. In contrast, the new authority will need to gradually build a UK-wide ‘common interest’, something in a very centralized state such as the UK, not so straightforward. The sheer dislike towards state aid rules is also a bit hard to understand as the UK has no economic net gain in undermining a system, which as a EU Member State it has shaped so heavily, with a very British insistence on transparency of support measures and on an efficient allocation of resources. A state aid control that, incidentally, is currently under pressure because of the impact of COVID 19 on national economies and the many calls for more flexibility in the application of its rules.
As for the EU-UK dimension, as the principle of level playing field is an elusive legal concept anyway, there may be still room for some compromise. The EU mandate expressly refers in terms of state aid control both to the need to use international standards and EU law as reference point. It further states that an agreement on Level Playing Field provisions should rely on “appropriate and relevant” EU and international standards. This seems reasonable as on the one side international standards such as those contained for instance in WTO law are applicable both in the EU and the UK and on other the EU state aid rules have been shaped and fully applied by the UK for over forty years. Both sets of standards can and should be appropriately taken as a reference point. It would, however, be unrealistic to imagine an entire transplant of each and every EU rule to a country, the UK, outside the single market; equally the UK cannot be expected to apply a very divergent subsides regime compared to the one that the UK will apply to rest of the world. The question would be then to find some possible ‘landing zones’ or some kind of equilibrium. Those zones should be identified with reference to substance that is to say what rules should be applicable and in terms of enforcement, how to ensure that the system works.
Further, certain rules of EU state aid law, which make very good sense in the context of a single market, would need to be reassessed in the context of a bi-lateral trade relationship. For instance, one of the traditional criticisms of EU state aid rules is that the Treaty criterion of effect on trade is too easily satisfied. The Court of Justice case law indeed consistently held that there is no threshold or percentage below which it may be considered that trade between Member States is not affected, but this case law simply makes it clear that an obstacle to trade within a single market does not cease to be an obstacle because of the scale of its effects or by the fact that the measure in question applies to only part of the national territory. Such logic would not apply, in the context of the EU-UK partnership; the potential effect on trade should necessarily require a higher evidential threshold. A delicate question would still be that of how to guarantee the enforcement of the future state aid/subsidies control system. In line with the WA, a consultation process through a Joint Committee and an effective dispute settlement should be ensured and made actionable by both parties. Although this is an issue that goes beyond state aid as it affects the entire negotiation, fresh discussion on the kind of ADR mechanism to be adopted should be promoted. The possibility of a binding arbitration ruling should be re-considered by the UK although the involvement of the European Court of Justice via a compulsory preliminary reference as required by the EU should not be considered as inevitability.
In short time is certainly running out, but there may still a chance to level it up!
Professor Andrea Biondi is a Professor of EU law at King’s College London and Academic Associate at 39 Essex Chambers.