{"id":1221,"date":"2020-12-30T18:08:25","date_gmt":"2020-12-30T18:08:25","guid":{"rendered":"https:\/\/uksala.org\/?p=1221"},"modified":"2020-12-30T18:08:26","modified_gmt":"2020-12-30T18:08:26","slug":"the-subsidy-control-provisions-of-the-uk-eu-trade-and-cooperation-agreement-a-framework-for-a-new-uk-domestic-subsidy-regime-by-george-peretz-qc","status":"publish","type":"post","link":"https:\/\/uksala.org\/the-subsidy-control-provisions-of-the-uk-eu-trade-and-cooperation-agreement-a-framework-for-a-new-uk-domestic-subsidy-regime-by-george-peretz-qc\/","title":{"rendered":"The subsidy control provisions of the UK-EU trade and cooperation agreement: a framework for a new UK domestic subsidy regime – by George Peretz QC"},"content":{"rendered":"\n

The provisions of the (draft) UK-EU Trade and Cooperation Agreement<\/a> (the \u201cAgreement<\/strong>\u201d) that govern subsidy control (Title XI, Chapter three, starting at page 184) are unprecedented in comparison with other free trade agreements.  They impose significant constraints on UK policy towards public subsidies.<\/p>\n\n\n\n

What \u201csubsidies\u201d are caught by the Agreement?<\/strong><\/p>\n\n\n\n

As to scope, the definition of \u201csubsidy\u201d in Article 3.1 of the Agreement essentially parallels the definition of \u201cState aid\u201d in EU law.  Thus, it covers: public grants, loans, and guarantees; forgoing revenue otherwise due (e.g. tax waivers or debt write-offs); and the provision of goods or services or the purchase of goods and services, such as agreeing to purchase services at an overvalue or only in order to assist an operator. The provision of general infrastructure is not in terms excluded \u2013 as it is under Article 1.1(a)(1)(iii) of the WTO Agreement of Subsidies and Countervailing Measures \u2013 perhaps because it was considered that the provision of general infrastructure would not be a specific advantage, just as it is not a selective advantage under EU State aid law. <\/p>\n\n\n\n

A subsidy must also confer an advantage and be \u201cspecific\u201d (a term derived from WTO subsidy law but which, both there and here, means much the same as \u201cselective\u201d in EU law). The assistance must also have actual or potential effects on trade and investment between the parties: whether that threshold is much higher than the notoriously low threshold that similar words have created in EU State aid law remains to be seen (it may be noted that Article 3 refers elsewhere to \u201cmaterial\u201d effects on trade, perhaps suggesting that the omission of \u201cmaterial\u201d at this point is deliberate). <\/p>\n\n\n\n

Tax measures can be subsidies.  Article 2(a) attempts to limit the application of the concept of \u201csubsidy\u201d to tax measures by setting out circumstances in which a general tax measure will not be considered \u201cspecific\u201d.  These broadly mirror existing case-law of the ECJ in EU law: a tax measure will not be a subsidy unless some economic actors pay less tax than they would in comparison with a \u201cnormal\u201d tax regime (the often-criticised \u201creference framework\u201d concept in EU law); those economic actors must be treated more advantageously than those in a \u201ccomparable position\u201d from the point of view of the objective and features of the tax regime; and favourable treatment is not a subsidy if it is justified by features such as the need to fight tax evasion, tax neutrality, the progressive or redistributive nature of a tax or its link to ability to pay (all of which mirrors current ECJ case-law on the nature and logic of the tax system).  So the subsidy provisions are more or less as likely to apply to tax measures as are EU rules on State aid (either to tax rulings, such as the Apple<\/em> case (Cases T\u2011778\/16 and T\u2011892\/16<\/a>), or to general tax measures that operate in favour of particular operators, such as the recent UK case <\/a>on the tax treatment of certain controlled foreign companies).<\/p>\n\n\n\n

Article 3.2 of the Agreement limits the scope of what counts as a \u201csubsidy\u201d.  Again, much of this mirrors EU State aid rules.  Subsidies to compensate damage caused by natural disasters or other exceptional non-economic occurrences (such as pandemics) are largely excluded from the rules on subsidies \u2013 but State aid falling in that category has to be cleared by the Commission under Article 107(2) of the Treaty on the Functioning of the EU, so, again, there is little change from the State aid position.  The exclusion of subsidies targeted at consumers also mirrors EU State aid law, as does the de minimis<\/em> provision (set, at SDR 325,000, or ~EUR 380,000, over three years, at about twice as high as the EU de minimis<\/em> threshold of EUR 200,000 over three years). <\/p>\n\n\n\n

There are, however, two significant departures from EU State aid law.  Subsidies to the audio-visual sector are entirely excluded,  so the rules do not apply to the funding of the BBC or to support for the film industry.  And the provisions of the agreement that prohibit subsidies or require remedial measures do not apply to subsidies granted on a temporary basis to respond to a national or global economic emergency, though such subsidies must be targeted, proportionate and effective.<\/p>\n\n\n\n

Article 3.3 of the Agreement again rings bells for State aid lawyers by excluding from the rules subsidies granted to providers of services of \u201cpublic economic interest\u201d (cf \u201cgeneral economic interest\u201d in EU law) if application of the rules would obstruct them in performing their tasks: Article 3.3.2 requires the avoidance of over-compensation and cross-subsidy, while Article 3.3.4 fixes a higher de minimis<\/em> threshold for such subsidies.  Again, all familiar to State aid practitioners.<\/p>\n\n\n\n

What rules apply to subsidies caught by the Agreement?<\/strong><\/p>\n\n\n\n

Articles 3.4.2 and 3.5 of the Agreement provide that certain types of subsidies must be prevented by the parties, if they are such as to have an actual or potential \u201cmaterial\u201d effect on trade or investment between the parties.  They are:<\/p>\n\n\n\n