The UK-EU Trade and Co-operation Agreement (TCA) contains the most comprehensive set of international obligations in relation to subsidies of all the UK’s Free Trade Agreements (FTAs). The provisions of the TCA are also contained in the Subsidy Control Act. However, there are particular considerations in relation to the scope of the agreement of which public authorities should be aware, and public authorities should be aware that both the UK and the EU have a right to consult on subsidies given in each other’s jurisdictions. Finally, there is also the potential for remedial measures to be applied against the either Party by the other if there is evidence that a subsidy causes, or there is a serious risk that it will cause, a significant negative effect on trade or investment between the UK and EU. Definition and scope The Subsidy Control Act fully incorporates the definition of a subsidy in the TCA. For information on whether your measure constitutes a subsidy, as defined by the TCA, please refer to the statutory guidance for the Subsidy Control Act. The TCA subsidies chapter only applies to subsidies over the value of 325,000 Special Drawing Rights, which is an IMF unit, [footnote 8] per beneficiary over a three-year period (Article 364). This threshold is set higher, at 750,000 Special Drawing Rights, for Services of Public Economic interest (Article 365). The scope and exemptions of the TCA are set out in Article 364. It is therefore important to note that the subsidies awarded as Minimal Financial Assistance (MFA) fall out of scope of the TCA. This is also the case for subsidies awarded as SPEI assistance under the Act. As the SPEI threshold is higher in the TCA than under the Subsidy Control Act, subsidies awarded as SPEI assistance under the Act will fall out of scope of the TCA. There are therefore no additional requirements for public authorities awarding MFA or SPEI assistance. Certain kinds of subsidies are also exempt from the provisions of the TCA. These are as follows:
certain agricultural subsidies, subsidies related to trade in fish and fish products which are covered by the WTO Agreement on Agriculture, and subsidies for audio-visual services are excluded from the provisions of the subsidies chapter. Please note, however, that these sectors are covered by the Subsidy Control Act, with separate obligations not included in the Act provided for in the WTO Agreement on Agriculture.
subsidies for natural disasters or other exceptional non-economic occurrences are subject to the transparency provisions and consultations provisions, but are outside the provisions on prohibited subsidies and subsidies that are subject to conditions, assessment against principles and remedial measures;
temporary subsidies to address the effects of a national or global economic emergency are allowed as long as they are targeted and proportionate. They must follow the principles and the transparency provisions. However, they are exempt from remedial measures and from the provisions under prohibited subsidies.
Consultation Under the terms of the TCA, both the UK and EU have the right to consult the other on any subsidy awarded within the other’s jurisdictions if they consider that there is clear evidence that a proposed subsidy could have a negative effect on trade or investment between the Parties. Public authorities should therefore be aware that even if they have completed a principles assessment and determined that their subsidy complies with the principles of the Subsidy Control Act, including that the benefits of the subsidy outweigh any potential negative effects on trade or investment between the UK and EU, under the terms of the TCA the EU still has the right to ask the UK for evidence that the principles have been respected for that subsidy. Crucially, this applies to any subsidy within scope of the TCA, including those that have received a positive report from the Subsidy Advice Unit. These consultations take place between the UK Government and the European Commission. In a case where the Commission asks for information about a subsidy awarded in the UK, the UK Government will refer initially to the information provided on the transparency database and then liaise with the relevant public authority to provide the Commission with the necessary information. If it is found that the principles have not been followed, the public authority may need to modify their subsidy. Enforcement, Dispute Settlement and Remedial Measures The TCA gives the EU and UK mechanisms to ensure each other’s compliance with the subsidy provisions in the agreement. The dispute settlement mechanism applies to the Parties’ subsidy control regimes as a whole, and whether these regimes ensure that the rules agreed in the TCA regarding the principles, prohibited subsidies and subsidies subject to conditions are complied with (Article 375). However, how these elements have been applied by a public authority on an individual award of a subsidy is not subject to the dispute settlement mechanism, except in relation to prohibited subsidies and certain subsidies subject to conditions (Article 367). Otherwise, individual subsidies and subsidy schemes may only be subject to the remedial measures provisions. The UK and the EU have agreed a reciprocal mechanism that allows either side to take rapid unilateral action (or “remedial measures”) where a subsidy granted by the other Party is causing, or there is a serious risk that it will cause, a significant negative effect on trade or investment between the Parties (Article 374). These measures can be challenged using an accelerated arbitration procedure and there is the possibility of suspension of obligations under the agreement or compensation if a Party has used these measures in a manner that is significantly inconsistent with the requirements of proportionality and necessity. However, it must be noted that the imposition of remedial measures would never be the first resort. Both Parties must first consult each other and seek to find a mutually acceptable solution to the harmful subsidy. If it is not possible to find a solution at this stage, the requesting Party must notify the other of the measures it intends to take to enable the Parties to again to try to find a mutually acceptable solution. The requesting Party is also required to show evidence of the existence of a significant negative effect and must also wait between each step to allow the other Party to respond and provide the necessary information. As emphasised in Section 3, the imposition of remedial measures is therefore unlikely in most cases and is most likely to occur in cases involving large subsidies awarded in sensitive sectors, and/or to enterprises operating at scale on international markets. Public authorities concerned about triggering a dispute under the TCA should contact DBT to discuss the matter further (for contact details, see Section 7).