Following Brexit and the eventual transition period that is supposed to last until 31 December 2020, UK will not be bound by EU State aid rules anymore. The UK Government might consider appropriate to subsidise its industry in order to alleviate any negative effects deriving from Brexit. But what will be the applicable legal regime in such situation?
Apparently during the implementation period (most likely to last as of March 2019 until the end of 2020) the status-quo will not change much since “the UK will continue to apply the EU State aid rules and that the Commission would be responsible, as now, for approving and monitoring aid”. Thus the status-quo and the enforcer do not change within this period.
If the “hard Brexit” scenario (i.e. UK leaving the EU without having agreed a free trade deal with the EU) occurs, UK will be bound by WTO rules on subsidies. At the same time, since the UK will not be part of the EU Club anymore, it will represent a third country and therefore its exports to the EU might undergo anti-subsidy probes and be subject to countervailing measures in case the investigation reveals that undue advantages were granted to the UK Industry undermining the EU Industry. Of course, any anti-subsidy probe will have to be carried out bearing in mind the fact that it could eventually be scrutinised under WTO anti-subsidy rules. Another aspect one should bear in mind is the fact that any subsidies that the UK Government might grant to its industry will only be scrutinised by the EU trade defence watchdog if such goods reach the EU market. The EU Industry could also make use in such scenarios of the WTO dispute settlement mechanism. However, one should bear in mind the fact that any EU company that sees itself affected as a result of the subsidies granted by the UK Government will have to convince the EU to commence the dispute settlement proceedings. However, the EU is not very prone on initiating dispute settlement cases and usually seeks other ways to find a solution like informal negotiations which can be very lengthy.
Recently, the UK Government has made public its intention of setting up a domestic State aid regime to be handled by the Competition and Markets Authority (CMA). In what concerns the substance, the envisaged UK State aid rules will mirror the provisions of those of the EU since according to Government sources “the EU State aid rules will be transposed under the European Union (Withdrawal) Bill”. However, it is a long way to go since the functioning principles of the UK domestic State aid regime will have to be inserted in the leaving terms of the EU. The negotiations will yield probably a two-pronged hurdle: the fight for supremacy and/or competence between the EU and the UK and an internal competence issue. Therefore, it will be difficult for the UK to accept to make the newly created UK State aid system dependent on EU rules and their future interpretation post-implementation period. Furthermore, there will be a problem of competence and hierarchy between the UK Government and the CMA since the latter is meant to be an independent body ordering the former not to spend public money or not to give tax concessions.
The above topic is of the utmost importance since there were rumours that post-Brexit the UK car-manufacturers will receive subsidies to offset any tariffs they might have to pay as a result of the fact that UK will have left the bloc without securing a free-trade deal.