Some ‘Brexiteers’ have made claims about how EU State aid rules have prevented the UK from making key economic policy interventions, such as the attempt to save its steel sector. Indeed, some elements of UK central and local government consider the status quo to be too invasive generally.
Given that exit negotiations are expected to last at least a couple of years following a vote to leave on 23rd June (the UK serving notice to leave sets off a two-year timetable), there can be no short-term fix and importantly, the enforceable law will still be the same the day after a vote to leave.
But what about the longer term – could there be a solution that gives those arguing for greater UK control over trade and domestic investment decisions what they’re looking for?
There are a number of possibilities, depending in part on the nature of the UK’s new relationship with the EU. If we follow a similar approach to, say, Norway or Switzerland, then the result will be a simple transfer of EU State aid rules to the European Free Trade Association (EFTA) or European Economic Area (EEA). This largely means ‘business as usual’ as far as State aid regulation is concerned.
These options have the advantage of simplicity; they have existed for a long time and allow members to participate in a large part of the EU's internal market without being obliged to participate in all other EU policy areas. They do, however, come at the price of still paying for membership and having to accept free movement of persons.
A popular option advocated by the ‘Leave’ camp is for the UK to rely on World Trade Organisation (WTO) membership as the foundation of its trading relationships with the EU and other countries. This is perhaps the minimalist default option. The WTO has its own set universal set of minimum standards and trading rules, including measures regarding the deployment of subsidies. Compliance with such rules is generally built into the EU legal framework.
What this means in practice is that some forms of subsidy are outlawed to the extent that, post-Brexit, if the UK would cease to regulate subsidies at all (because EU law is no longer effective), it could find itself on the receiving end of unpleasant WTO dispute settlement proceedings and/or trade defence measures (akin to anti-dumping duties) brought by other countries. This would result in trade sanctions.
Alternatively, the UK may well attempt to negotiate its own new free trade agreement with the EU (along the lines of the agreement with Canada that is yet to be ratified), in an attempt to provide for better market access than under basic WTO rules. However, this would not necessarily mean the elimination of tariffs or quotas and would almost certainly entail commitments on State aid.
What is perhaps most significant is the fact that the UK has long been one of Europe’s strongest advocates of the merits of a strong Competition Law regime. State aid is a central pillar of this, alongside merger control and prevention of cartels and abuse of dominant positions. To remove one of the central pillars risks thoroughly damaging the level playing field that the law exists to protect.
In the absence of a European State aid regime it is difficult to conceive that the UK would not introduce a domestic version, probably to be enforced by the Competition and Markets Authority along with other elements of Competition Law.
What we can conclude from the above scenarios is that, assuming we want to keep our current key trading partners, a post-Brexit UK would almost certainly still want and need to apply a disciplined State aid law in some form. It may be possible to engineer some concessions in the margins, but we expect the main principles will stay with us in much the same form for the foreseeable future.
To do otherwise could lead to a fundamental hole in the competition framework that ensures a level playing field in the UK generally, as well as trade sanctions and/or difficulties in negotiating beneficial trade agreements with other countries, including the EU.
Jonathan Branton is Head of EU/Competition at business law firm DWF
