News Update EU
22 January 2021
The EU-UK Trade and Cooperation Agreement ("TCA") introduces a new framework for State aid, antitrust, merger control and trade in goods and services. Although the TCA's purpose is to ensure a level playing field for fair trade and competition, the new rules clearly distinguish the EU internal market from the UK market. These new rules are likely to give rise to many questions of interpretation and disputes. The TCA has a separate dispute settlement mechanism. The role of the European Court of Justice ("ECJ") is limited, and it will no longer ensure the uniform interpretation of the rules for businesses. Therefore, we will have to wait to see the TCA's actual impact on the level playing field for businesses. We provide an overview below of the TCA's key features on State aid, antitrust, merger control and trade in goods and services.
State aidSubsidy control system
The EU State aid control regime has been replaced by a system of subsidy control between the EU and UK. This regime ensures that the granting of subsidies respects several principles in both the UK and the EU. While these principles are closely related to the EU State aid control system, they are not identical. The main features of the subsidy control system are:
- Scope of control: subsidies or other forms of financial assistance from the state such as direct grants, loans or other economic advantages in whatever form granted to one or more specific businesses which affect trade or investments between the UK and the EU.
- Exception for de minimis aid: amounts below the de minimis threshold of 325,000 Special Drawing Rights over any period of three fiscal years are excluded from the control system.
- Exception for certain policy areas: aid to the audio-visual sector, the agriculture sector and the fisheries sector are excluded from the general system.
- No prior notification obligation: but aid must comply with seven principles ensuring, amongst others, that aid is only granted for specific public policy objectives, such as the remedy of market failures or to address an equity rationale, and that the aid is proportionate and appropriate.
- Recovery obligation for illegal aid: aid granted in violation of the applicable principles must be recovered, except aid that is granted based on an Act of the UK Parliament, an act of the European Parliament and an act of the Council of the European Union, or of an act of the Council of the European Union. The TCA specifies that the UK must introduce a new remedy of recovery in its domestic legal system which would be available at the end of a successful judicial review, and that no beneficiary would be able to raise a legitimate expectation to resist such recovery.
- Emergency aid: in line with Article 107(2) TFEU, the TCA permits temporary aid to respond to a national or global economic emergency, or to compensate the damage caused by natural disasters or other exceptional non-economic occurrences provided the aid is targeted, proportionate and effective.
- Prohibited aid and aid subject to conditions: the following types of aid are prohibited or subject to specific conditions: unlimited guarantees, rescue aid without credible restructuring plans, export aid, aid contingent on using domestic goods over imported goods and aid to air carriers to operate routes that fall outside public service obligations.
- Aid in large cross-border or international cooperation projects: may only be granted if the project has a wider benefit and relevance through spill over effects.
- Aid for energy and environment: may only be granted if it is aimed at delivering a secure, affordable and sustainable energy system and a well-functioning and competitive energy market or if it is aimed at increasing the level of environmental protection compared to the level that would be achieved without the aid.
- Regional aid: the EU and the UK have agreed a Joint Declaration on a non-binding Subsidy Control Policies that provides guidance for aid aimed at addressing regional disadvantage and aid for transport, and research and development.
- Establishment of an operationally independent authority or body responsible for the subsidy control: the UK will assign this role to the Competition and Markets Authority ("CMA"). In the EU this role will continue to be fulfilled by the European Commission (the "Commission").
- Consultations on subsidy control: the CMA and the Commission may request each other for information and explanation on how the principles have been respected with regard to a specific subsidy. If they disagree on whether the applicable principles have been fulfilled, and this disagreement cannot be solved through bilateral information sharing, the complaining party may request a consultation with the Trade Specialised Committee on the Level Playing Field for Open and Fair Competition and Sustainable Development. If the consultation does not result in a mutual agreed resolution, the EU and the UK may establish an arbitration tribunal (see next bullet point).
- Dispute settlement through arbitration: the TCA establishes a general dispute-settlement procedure which provides for the possibility to establish an arbitration tribunal. However, the TCA excludes the jurisdiction of the arbitration tribunal for:
- Individual subsidies, including whether these subsidies have respected the applicable principles – except the principles applicable to unlimited guarantees, rescue and restructuring, export subsidies and subsidies contingent on using domestic content.
- Whether recovery remedies have been correctly applied.
- Remedial measures: In cases in which one of the parties considers that a specific subsidy has a serious risk of causing a significant negative effect on trade or investment, that party may deliver a written request for information regarding the relevant subsidy to the other party. If that does not result in a mutually acceptable solution, the requesting party may unilaterally take remedial measures. The notified party may request the establishment of an arbitration tribunal to decide on the remedial measure.
- Judicial review: the TCA provides that the EU and UK must ensure that their courts or tribunals can: (i) review subsidy decisions by authorities or the independent authority or body; (ii) review any other decisions by the independent authority or body including failure to act; (iii), impose remedies and; (iv) hear claims. The EU and the UK shall have the right to intervene. Note that for disputes between the EU and the UK on the interpretation and application of the TCA, the above-mentioned dispute-settlement procedure is exclusively applicable.
- Ongoing State aid investigations: as from 1 January 2021, the Commission no longer has the power to investigate and take decisions on potential State aid measures granted by the UK. However, pursuant to the earlier concluded withdrawal agreement, the European Commission remains competent to continue any ongoing procedure concerning State aid granted by the UK. The Commission also remains competent to initiate new administrative proceedings concerning State aid granted by the United Kingdom before the end of the transition period, if these proceedings are started within four years of the end of the transition period.
- ECJ Case law: while the ECJ has no jurisdiction under the TCA, because the TCA retains the major principles of State aid law, ECJ case law will likely play an important role in interpreting and applying the subsidy control mechanism.
Antitrust / merger controlSince Brexit, the EU competition rules no longer apply in the UK. The CMA is the only competent authority for UK antitrust and merger cases. Decisions taken by the Commission before 31 December 2020 continue to be binding in the UK. The Commission also remains competent to enforce and monitor those decisions in the UK. The CMA and Commission agreed to continue to cooperate and communicate with each other about parallel procedures.
As EU competition law does not apply in the UK, the CMA and UK courts are in principle no longer bound by ECJ judgments or EU principles. However, significant parts of the EU competition law framework have been retained, as they have been incorporated into the UK legal system. This means that the CMA, including the UK courts, will likely largely rely on pre-Brexit EU principles and ECJ case law – and may also choose to rely on EU precedents originating after Brexit.
Cartels / abuse of dominance
- Investigations initiated by the Commission up to and including 31 December 2020 continue to be reviewed by the Commission after Brexit.
- Conduct that has effects both in the UK and the EU markets may be subject to parallel investigations by the Commission and the CMA.
- The EU block exemptions and the relevant guidelines are incorporated into UK law and therefore continue to apply in the UK. Minor changes are implemented to reflect the current situation (for example replacing references to ‘internal market’ with ‘UK’).
- The Commission’s ‘one-stop-shop’ jurisdiction for merger control notifications no longer excludes UK filing. Merger filings exceeding UK and EU thresholds must be notified to both the Commission and the CMA. This entails that material divergences may occur in the reviews and the outcomes. Consequently, the Commission may prohibit or impose commitments on a merger, even where it has been unconditionally cleared by the CMA, or vice versa.
Trade in goods and services
- Trade in goods: the TCA aims at preserving the flow of trade. To this end, it provides for zero tariffs and zero quotas on all goods that comply with the rules of origin (i.e. the EU rules for EU-origin goods and the UK rules for UK-origin goods). The TCA provides several rules to determine a product's origin, which are essentially based on the proportion of a product's components. There is no mutual recognition of conformity standards meaning that products must undergo conformity assessments before they may be placed on the EU or UK market. There are simplified arrangements for some sectors (for example wine, chemicals, motor vehicles and parts, medicinal products and organic products).
- Trade in services: trade in services is subject to the principles of national treatment and non-discrimination meaning that service suppliers providing services in the EU or the UK may not be treated less favourably than local operators in areas covered by the TCA and vice versa. For financial services, UK firms can no longer exercise EU passporting rights to provide services in the EU and EU firms can no longer passport into the UK.