What is happening to State Aid? Does the Japanese trade deal tell us anything?

State aid has been an area of concern for public bodies and recipients of government grants for some time, but it is currently set to come to an end in its present form. This is because it is an EU legal concept, and as part of the ending of the transition period  it will cease to have effect in the UK after 31 December 2020. There are caveats to this where aid has been granted prior to that date, and also where aid may affect trade with Northern Ireland.

The government has made it clear it does not wish to just import the same rules into UK law, and the government’s very public formal position is that as form 1 January 2021 the UK will merely comply with its obligations under the World Trade Organisation (WTO) subsidy control mechanism. Whether this is a negotiating stance rather than something that will actually happen remains to be seen, but given it is official policy we need to consider it as possible. The WTO rules provide for a significantly different sort of anti-subsidy regime. The rules operate only at governmental level and only relate to trade in goods rather than services.

The government has also stated that this is subject to any agreements it may reach in trade deals with the EU or other countries. At present there is no trade deal with the EU, and state subsidies appear to be a sticking point. However even if no deal is reached with the EU, deals are already starting to be done elsewhere including the recent deal with Japan. This does include some obligations on the UK government which go beyond WTO rules:

• It applies to trade in services, as well as goods
• It contains an obligation to take reasonable measures to secure the observance of the obligations by sub- central levels of government.

However the key obligations (over and above the requirements of the WTO which are preserved) only relate to a limited range of subsidies:

• Subsidies including unlimited public guarantees, and
• Subsidies to bailout insolvent or ailing companies.

In any event there must be reasonably clear effect on trade between the two countries. There are also express exclusions for education and the provision of services on behalf of the state.

This is clearly more limited than the current regime.

Separate to the question of the interim position post-31^st December, the longer term position looks to be a new UK anti-subsidy regime which to be consulted on next year, which may also include provisions to prevent subsidy competitions between sub central government bodies. The details or even principles of that are not yet known but could well, for example, move public infrastructure and public services, as well as education outside any subsidy control regime. As with all other aspects of the future of state aid regime, however, that remain speculation.

It is I am afraid still “Watch this space…”