The Trade and Cooperation Agreement between the EU and the UK was signed on 24 December 2020 (Agreement) and runs to over 1,200 pages. In this article, Dorit McCann outlines the key provisions on competition law and State Aid contained in the Agreement.
Competition Law and State Aid
Title XI of the Trade Section of the Agreement deals with "level playing field" commitments that have been included in the Agreement to prevent either party seeking a competitive edge in various regulatory areas. These level playing field provisions were a major stumbling block in the trade negotiations, mainly because the EU was concerned that the UK could make its exports more competitive through de-regulation. The Agreement represents a compromise which allows the parties to operate independent regulatory regimes and to take measures to protect their industries if significant divergences emerge.
This article focuses on the provisions relating to competition policy, subsidy control and State-owned enterprises, enterprises granted special rights or privileges and designated monopolies. Other provisions relate to taxation, labour & social standards and environment & climate.
What are the provisions on competition law?
The Agreement includes commitments to maintain and enforce competition law, ie to effectively address (subject to exemptions in pursuit of legitimate public policy objectives):
- agreements, decisions and concerted practices which have as their object or effect the prevention, restriction or distortion of competition;
- abuse by one or more economic actors of a dominant position; and
- mergers or acquisitions (or, in the EU, "concentrations"), between economic actors which may have significant anticompetitive effects.
The Agreement also requires the UK and the EU to maintain an independent competition authority, and to provide for co-operation, co-ordination and information exchange between competition authorities. It is worth noting that competition law is not within the scope of the Agreement's dispute settlement or enforcement mechanisms (see below).
What was agreed in relation to subsidy control?
The Agreement contains extensive provisions on subsidy control that go beyond those in the WTO rules. The provisions broadly reflect existing State aid policy and prohibit various types of subsidies which have or could have a material effect on trade or investment between the parties. There are exceptions for various types of subsidy, including subsidies to respond to a national or global economic emergency (no doubt with the Covid-19 pandemic in mind), agricultural and fishery subsidies, subsidies to the audiovisual sector and subsidies below a de minimis threshold.
The Agreement requires subsidies to be consistent with specified principles and requires the UK to establish an independent authority (which the UK has previously indicated will be the Competition and Markets Authority) to oversee its subsidy control regime. The parties must encourage their authorities or bodies overseeing subsidy controls to co-operate with each other and to provide for effective enforcement by the courts. The UK must give its courts the power to review subsidy decisions and to grant remedies, including to suspend, prohibit or require an action to be taken, to award damages and to recover a subsidy from a beneficiary.
There are also requirements for transparency and consultations between the parties. Each party must publish details of subsidies within six months of the granting of the subsidy (or for tax measures, within one year from the date the tax declaration is due). Information must also be provided within 28 days to interested parties that have communicated that they may apply for a review by a court or tribunal of the grant of a subsidy or any relevant decision by the granting authority.
What happens if a party is in breach of the subsidy provisions?
The Agreement contains tools and mechanisms for the enforcement of the level playing field commitments, namely:
- guarantees for domestic enforcement, including the control of subsidies by domestic authorities and courts, and a role for an independent authority or body, and appropriate administrative and judicial proceedings in the areas related to labour & social standards and environment & climate. Courts will be empowered to order beneficiaries to pay back the subsidy if the courts found, for instance, that the assessment principles were not correctly applied to that subsidy;
- bespoke dispute settlement mechanisms which allows for disputes on the interpretation and application of the subsidy provisions of the Agreement. The other party can request that an arbitration panel be established to consider the matter and failure to comply with an arbitration panel's ruling gives rise to a further right to take remedial action. However, the mechanism cannot be used to challenge individual subsidies or domestic mechanisms to recover unlawful subsidies;
- unilateral remedial measures to react quickly where a subsidy creates a significant negative effect on trade or investment between the EU and the UK. These unilateral measures are permitted where a subsidy decision causes, or runs a serious risk of causing, a significant negative effect on trade and investment between the parties. The assessment must be based on facts and the negative effects must be clearly predictable. Any remedial action must be limited to what is strictly necessary and proportionate to remedy the significant negative effect.
In addition, the Agreement provides for a rebalancing mechanism which allows the parties to increase tariffs on the other party's goods as a result of "significant divergences" between the parties in the areas of labour and social, environmental or climate protection or subsidy control, where such divergences materially impact trade or investment between the parties. This mechanism is important to allow the parties to address any future regulatory divergence and thus to maintain open and fair competition.
The Agreement also allows each party, at regular intervals and if rebalancing measures have been taken frequently or for more than 12 months, to seek a review of the trade and trade-related parts of the Agreement. This gives the parties the option to renegotiate or amend parts of the Agreement.
What about State-owned enterprises, enterprises granted special rights or privileges and designated monopolies?
The Agreement provides that State-owned enterprises, enterprises granted special rights or privileges and designated monopolies must act in accordance with commercial considerations when engaging in commercial activities, that they do not discriminate against the goods, services or entities of the other party, and that they are independent from the enterprises that they regulate. In addition, the parties commit to ensure that regulatory bodies are independent from the enterprises they regulate and act impartially and to apply laws and regulations to covered entities in a consistent and non-discriminatory manner.
It is worth noting that entities covered by these provisions do not include:
- entities when acting as procuring entities;
- any service supplied in the exercise of governmental authority;
- if, in any one of the three previous years, the annual revenue derived from the commercial activities of the enterprise or monopoly concerned was below a de minimis level.
Competition law is strongly embedded in UK law and enforced by the Competition and Markets Authority and the courts. It is unlikely that any significant changes will occur in the short to medium term.
It remains to be seen how the UK will implement the new subsidy rules in the Agreement and how rigorously they will be enforced. It is interesting to note that the Agreement makes no reference to the Protocol on Ireland/Northern Ireland which provides that the EU State aid rules apply to the UK in relation to measures that have an actual or potential effect on trade in goods between Northern Ireland and the EU. This is likely to be the most problematic area with the potential to cause significant tension.
For more information or to discuss any Brexit related issues impacting your business, please get in touch with Dorit McCann (EU, Competition & Procurement), Maureen Daly (IP and Data Protection) or Emer Moriarty Crowley, Damian Maloney, Shaun O'Shea (Corporate and Commercial), Barry Cahir (Litigation and Insolvency), Sandra Masterson Power (Employment), or you usual Beauchamps contact.