State aid regulation has become a term of art, familiar now to anyone following the UK/EU negotiations on the future relationship. What was a previously relatively unknown regime has been pushed into the public eye and the limelight as one of the key bargaining positions between the UK and EU.

The current position is that the UK will leave the European Union's single market and customs union structures on 31 December 2020. In the absence of an 'ambitious and comprehensive' Free Trade Agreement between the UK and EU - without the level playing field commitments on state aid sought by the EU - the UK would not continue to be subject to the current EU state aid (or subsidy to business) regime after that time.

The UK Government has just signalled its current intention (9 September 2020) that it, instead, intends to follow the basic World Trade Organisation's General Agreement on Tariffs and Trade (GATT) provisions on (1) anti dumping and (2) subsidies and countervailing duties - in relation to goods only. The UK Government has also stated that a UK-specific subsidy control regime could be introduced shortly following consultation.

The GATT regime essentially identifies 2 classes of subsidy; Prohibited and Actionable. Prohibited subsidies are those that require recipients of state financial intervention to meet certain export targets, or to use domestic goods instead of imported goods. Prohibited subsidies must be immediately withdrawn following a decision by the WTO. Actionable subsidies require "the complaining country to show that the subsidy has an adverse effect on its interests", and if this is not the case, the subsidy is permitted.

This is a fast moving area. Whether the UK agrees to, in fact, adopt some or all of the EU state aid regime (or a dynamically aligned similar regime) as part of a compromise position in the UK/EU FTA negotiations remains to be seen. It will also depend on the extent to which the UK agrees a 'pay to play' regime for access to, for example, FP9 or other EU grant funding streams.

At this stage, the potential for a lighter touch state aid regime removing much of the single market-specific regulation in the current EU regime may be attractive to UK plc and to those seeking public sector financial intervention. We are, for example, aware of projects being delayed until 2021 on the basis of the promised relaxation of the existing rules.

Whatever the outcome of the current negotiations, there will need to be a functioning, effective anti-subsidy regime in the UK. Anti-subsidy controls which go beyond the WTO norms are commonplace in many other free trade agreements (and, for example, the new UK-Japan FTA goes further than GATT in prohibiting certain types of state financial assistance to business). The effect of moving to the GATT or other lighter touch rules on subsidy control could well see a significant increase in intra-state disputes - for example, at the WTO, or through a country taking counter measures against a UK subsidy.

UK to follow World Trade Organisation (WTO) subsidy rules and other international commitments, replacing the EU state aid laws, from January 1

https://www.gov.uk/government/news/government-sets-out-plans-for-new-approach-to-subsidy-control