UK-EU subsidy control - “Persistent and fundamental differences” remain
Last month The Economist’s Europe columnist, the eponymous Charlemagne, characterised the state of EU-UK relations as consisting of allegations of hypocrisy, even malevolence, zipping between London and Brussels “like a grumpy Eurostar”.
A report published on 9 April by MPs of the European Scrutiny Select Committee of the House of Commons makes it clear that relations between Brussels and London remain firmly submerged under the Channel, like The Economist’s metaphorical Eurostar.
The Select Committee’s report, published prior to the recent upswing in civil unrest in the Province caused, some observers asert, by the operation of the Northern Ireland Protocol (Article 10) which creates a customs barrier in the Irish Sea to avoid having to site hard border infrastructure on the intra-Irish land border, describes an unsettling picture of “persistent and fundamental differences” remaining between the EU and the UK on one of the fundamental cornerstones of the Trade and Cooperation Agreement: subsidy control.
Republic of Ireland (green) | Northern Ireland (red)
Northern Ireland remaining, as it does, within the Single Market for goods, is subject to the undiluted force of the European Treaty [TFEU] State Aid, or subsidy control, provisions, whilst the remainder of Great Britain (which excludes Northern Ireland) is in the process of introducing a looser domestic form of subsidy control mechanisms, firmly and irrecoverably outside those of the European Union, international obligations to the World Trade Organisation notwithstanding.
However, Article 10 also says the UK as a whole should follow EU rules if a UK-wide subsidy could have an impact on trade in goods between Northern Ireland and the European Union, giving rise to significant concerns that significant sectors of the UK economy could come under the jurisdiction of the EU’s state aid regime, as opposed to the UK’s lighter touch domestic subsidy control mechanisms.
Despite the EU and the UK having reached agreement in December 2020’s Trade and Cooperation Agreement that the EU’s State Aid regime would only apply if a UK subsidy would have "real and foreseeable" impact on NI-EU trade, the gulf remains with both sides issuing guidance on the interpretation of Article 10 seemingly at complete odds to one another. This lead Members of Parliament to conclude that:
“….it is worrying that the extent to which such rules will continue to be binding on the UK under Article 10 of the protocol are still interpreted very differently by the [United Kingdom] government and the European Commission.”
Far from being an arcane legal dispute over differing interpretations of an international treaty, this disparity in interpretation has ‘real world’ consequences with the fear that companies may be discouraged to take perfectly legitimate UK state subsides for fear they could be later found to breach EU State Aid rules, and be forced by the Courts to repay them (with interest).
Ultimately, in the opinion of both this author and the Select Committee, the boundaries of Article 10 will only become clearer through time and legal action, whether it be through the UK or European Courts. The losers in the meantime will be those - on both sides of the Irish Sea - who will be forced to navigate the choppy waters of Article 10’s with two sets of, contradictory, guidance.
Arfon Consulting’s staff have over a decade’s worth of experience in advising public authorities in both the UK and the EU on the application, scope and analysis of State Aid and subsidy control mechanisms. Please contact us using the details below for an initial 30-minute no-obligation discussion.
