Brexit, State Aid and Subsidy Control with a focus on the Energy Sector_presentation at the second FCP Annual Conference, 20-21 October, Florence

1. © Allen & Overy 2017
Brexit, State Aid and Subsidy
Control with a focus on the Energy
Sector
Leigh Hancher
October 20, 2017

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Structure of Presentation
– - What type of regime might apply within the UK once it leaves the
EU?
– - What type of regime might apply between the UK and the EU
after Brexit?
– - What type of regime will apply to control alleged subsidies after
Brexit if no replacement regime is agreed by March 2019?

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What type of regime might apply within the UK?
– Would the UK be obliged to have an ‘internal regime’?
– Are there any useful precedents for state aid rules within a federally or
confederally organised system?
– EU (Withdrawal) Bill provides that Art 107(1) and 108(3) can form part
of ‘retained EU law”.
– Enforcement issues – notification/clearance?
– Political sensitivities for devolved nations

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What type of regime might apply between the UK and
the EU after Brexit
– Might have to distinguish between short (transitonal) and longer term
– ‘Norway’ model in transitional phase (up to 2022?)
– Long term ‘model’ may be dictated by ‘red lines’, e.g., role if any of
the CJEU -> alternative dispute settlement forum
– Bilateral (parallel) agreements, e.g, Switzerland essentially replicate
EU state aid rules but difficulty to enforce
– Association agreements – substantive rules similar; procedural
differences

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What type of regime might apply between the UK and
the EU after Brexit/2
– FTAs - numerous ‘models’ available depending in part on degree of
market access :
– CETA opts for a 'light touch' to State aid control - distinguishes
between “subsidies”, defined as government support related to trade in
goods, and “government support related to trade in services”.
Obligations regarding information and consultation
[art.7.3.1]
The responding party shall endeavour either to “eliminate” its support
measures or to 'minimise any adverse effects'. Such consultation
obliges governments to justify or modify specific state aids. No further
sanctioning envisaged : art 7.3 excluded from CETA DSM

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Potential models – WTO+
– EU/Korea and EU/Singapore FTAs contain more concrete rules:
– EU/Korea: WTO + approach, i.e extended list of prohibited subsidies
(for goods not services) to include unlimited guarantees and rescue
aid without credible restructuring plan
– EU/Singapore FTA adds the same two additional categories of
subsidies to the prohibited list, [ caveat – such subsidies may be
permitted if the subsidising party can demonstrate lack of harm to the
other party] . Applies to both goods and services.
– Contains a commitment in principle not to grant other subsidies if they
would affect the trade of the other party unless they would satisfy
criteria based on the compatibility criteria applied in the EU state aid
rules.

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Potential models – enforcement
– EU/ Korea
– Reporting obligations
–obliges the parties to report annually the total amount, types and
sectoral distribution of subsidies.
– Parties have to provide further information on any subsidy upon
request.
– DSM
–A party that considers that the other party has infringed the agreement
can launch a consultation on the contentious matter, which would be
referred to an arbitration panel if the consultation does not lead to a
satisfactory outcome. The decision of the panel is binding and
enforceable with commercial sanctions.

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WTO rules as default?
– In event of no agreement WTO rules apply between EU and UK as a
‘third country’.
– Scope of rules:
– Definition of ‘subsidy’ not dissimilar in scope but more precision in
terminology
– Current ASCM applies to goods only
–No specific rules on compatibility
– Applicability of the general exceptions under Art XX of the GATT with
respect to subsidies covered by the ASCM is still an open question

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WTO Subsidies/2
– Article 3 - prohibited subsidies (also known as red light subsidies)
for which there is no need to prove adverse effect – they are per se
incompatible – i.e., export subsidies and subsidies contingent on the
use of domestic over imported goods (local content or import
substitution subsidies).
– Article 5 - Actionable (or yellow light) subsidies may be challenged if
they cause adverse effects, such as injury to a domestic industry of
another Member, or an impairment of the benefits of a tariff concession
or, represent a serious prejudice to the interest of another member .
Originally Article 8.1 provided for several categories of non-actionable
(or green light) subsidies, including regional and environmental
subsidies

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WTO as default ?
No ex ante notification/clearance before the implementation of the
measure
So obvious advantage from the UK’s perspective is that it would be for
the UK Government to take a view as to whether or not a proposed
subsidy measure would be consistent with WTO rules
. As these rules are generally less stringent than the EU State aid rules,
the UK might be able to provide higher levels of State funding to the UK
industry under the WTO model (Nissan support? Steel in Wales?)
– WTO anti-subsidy rules are prospective – there are no retrospective or
retroactive remedies in the WTO system
– Enforcement is multilateral or unilateral

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WTO as default?
– EU AS and AD regimes should also be taken into account
– Applicable to 3rd countries
– AD and AS investigations and financial sanctions often combined – e.g.,
Chinese Solar Panels
– Note modernisation of EU trade defence measures may allow
complainants to mobilise their use more effectively in future?
– Revisions to Regulation on competition in air transport as an sign of the
future?
– recent proposal addresses concerns that while air carriers operating
within the EU are subject to state aid control, air carriers from third
countries may benefit from subsidies and unfair competitive
advantages. Far reaching revision proposed

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Questions?
These are presentation slides only. The information within these slides does not
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