It is generally agreed that the UK’s departure from the EU will involve the conclusion of not one but of at least two agreements between the UK on the one hand and the EU alone or together with the Member States on the other. First, there is the Withdrawal Agreement based on Article 50(2) TEU (see here), which by definition will concern the conditions of the UK’s exit from the EU. Second, there will be the treaty or treaties relating to the future relations between the parties. For ease of reference, I will call this the Trade Agreement, even though it is unlikely to cover trade alone, and it may take the form of several agreements.

Considerable mystery surrounds the dividing line between the two.

What is clear is that the Withdrawal Agreement will contain transitional provisions relating inter alia to transactions and operations under way on the date of departure.   For instance, what will happen to unfinished infrastructure projects financed by the Structural Funds? What about budgetary contributions? And what about cases pending before the Court of Justice of the EU? In addition, the acquired rights of British nationals residents in other Member States and vice versa should be laid down in the Withdrawal Agreement (not just as regards rights of residence and employment, but also social security and health coverage and the recognition of diplomas), as should the conditions of departure of the senior British members of the EU institutions and bodies and the relocation of the EU bodies currently established in the UK.

What else might the Withdrawal Agreement lawfully contain? It will be tempting – at least for the UK – to squeeze some other matters into that agreement, because according to Article 50(2) it will be concluded by the Council acting by a qualified majority and it should enter into force well before the Trade Agreement.

In any case, it would make no sense to conclude the Withdrawal Agreement without having a clear idea of the content of the Trade Agreement, or at least its general outlines. That is why Article 50(2) specifically provides that the Withdrawal Agreement shall “take account of the framework” of the “future relationship” between the departing State and the EU.

In April of this year, the House of Lords Select Committee on the European Union published a report entitled “The Process of Withdrawing from the European Union”, which was based on expert evidence given by Sir David Edward, a former British judge of the Court of Justice of the EU, and Emeritus Professor Derrick Wyatt of Oxford University.

Sir David took the view that “the German language version of Article 50 made plain that ‘the structure of future relations will have already have been established at the point when withdrawal takes place’”. Professor Wyatt agreed, adding that the two agreements would have to be negotiated in parallel (see here).

Leaving aside the question as to whether there is a discrepancy between the German and English versions on this point (and not everyone would necessarily agree that there is one), it seems clear that the broad thrust (“structure”) of the Trade Agreement will have to be clear before the Withdrawal Agreement can be finalised. Key points will no doubt include such issues as whether the Trade Agreement will cover the free movement of persons and passporting of British financial services, and whether it will include flanking policies such as consumer and environmental protection.

Does that mean that the last details of the Trade Agreement will have to be worked out before the Withdrawal Agreement can even be signed? If so, it would almost certainly follow that the latter treaty would have to be delayed for some years, as the Trade Agreement would no doubt take longer to negotiate.

In any case, a radically different view was expressed by Commissioner Cecilia Malmström in a recent interview with the BBC. She claimed that the UK would first have to leave the UK before it could negotiate a Trade Agreement (see here).  On this interpretation of the Treaties, there would be no question of negotiating the two agreements simultaneously. The inevitable consequence would be that for several years trade in goods and services between the UK and the EU would not be covered by any treaty other than the WTO.

However, the legal basis for the Commissioner’s position is not clear, and it may be hard to square with the wording of Article 50(2). Her position appears to be derived from the statement made after the informal meeting of the 27 Heads of State and Government held on 29 June 2016 (see here).   According to paragraph 4 of that statement, the Trade Agreement “will be concluded with the UK as a third country”. In other words, the agreement cannot be concluded until the UK has left the EU – but that does not in itself preclude the parties from negotiating it, or at least commencing the negotiations, prior to the UK’s departure.

In any case, it seems very much as though there is likely to be a gap between the UK’s exit from the EU and the entry into force of the Trade Agreement.

The EEA Agreement, often described as the ‘Norwegian model’ extends the Single Market to Norway, Liechtenstein and Iceland. The EEA Agreement naturally includes competition, State aid and public procurement provisions. This Monckton Brexit Blog post introduces EEA competition law and considers what the EEA Agreement has achieved since its signature in 1992.

To view the blog post written by Michael-James Clifton please click here.

Monckton Chambers, as a leading set in the field, presented a seminar titled “Procurement Futures: what lies ahead for procurement law? What will be the effects on future plans and challenges?”, on the 13th July.

The speakers included Ewan West, Valentina Sloane, Ben Rayment, Michael Bowsher QC, George Peretz QC, Thomas Sebastian and Azeem Suterwalla.

To download the presentation slides please click here.

Written by Alistair Lindsay & Alison Berridge

In our second post on the implications of Brexit for merger control, we ask whether a new relationship with Europe might prompt amendment to merger control rules in the UK.

New jurisdictional thresholds?

As described in our earlier post , the most significant changes to the merger control landscape occur if the UK opts to leave not only the EU but also the EEA.  In that case the “one stop shop” principle giving the European Commission exclusive jurisdiction over larger transactions no longer applies.  This in turn is likely to lead to a significant increase in the CMA’s workload, to include many more large international deals.

This change may put pressure on certain distinctive features of the CMA’s jurisdictional rules.  Businesses planning large international acquisitions are used to dealing with multiple merger filings.  But they expect to know unequivocally whether a filing is needed.  The UK’s jurisdictional rules on the other hand are not designed with certainty in mind.  The share of supply test requires a level of analysis of overlapping supplies or purchases.  And applying the material influence test is an art all of its own, not uncommonly involving the examination of voting records or the potential for certain shareholders to wield special influence (as in BSkyB/ITV).

The UK may come under pressure to move to a more easily applicable turnover based test, consistent with the recommended practices of the International Competition Network, and or a clear “control” threshold.  This would reduce the burden on business but at the same time increase the risk of type two errors, i.e. failures to intervene in mergers that in fact harm consumers.  Examples of the kinds of cases that might fall outside such a regime include Ryanair/Aer Lingus (examined under the material influence rules) and Linergy/Ulster Farm (target having low turnover).

A mandatory regime?

There may also be questions over the current voluntary notification system.  A voluntary system relies on effective intelligence to identify problematic mergers that are not notified.  Only if parties feel there is a real risk of discovery will they voluntarily incur the costs and risks of filing.  The CMA has enhanced its intelligence function in recent years and the result is widely believed to be highly effective.

However if the CMA’s remit extended to a much larger number of international mergers, the burden on the intelligence unit would increase.  It may benefit from information received from countries operating a mandatory system, such as Germany, but would nevertheless need to carry out some investigation to assess the potential impact on the UK.  It is possible that these new burdens might start to tip the balance in favour of a mandatory system, with the corresponding costs to business.  An analysis of the costs and benefits of a mandatory regime (albeit absent any Brexit related change in case mix) can be found in the Government’s 2011 consultation on reforms to the merger regime .

Return to a public interest test?

Finally, the new Prime Minister has already signalled  a willingness to prevent takeovers of UK companies in important sectors, such as AstraZeneca in the pharmaceuticals industry, from foreign takeovers.

This is in part an opportunity created by Brexit and in part not.

On the one hand, leaving the EEA would make it easier to implement such a policy.  Currently, where the Commission has jurisdiction over the competition analysis, Member States may take their own action to protect national interests (such as public security), but the interests protected must be recognised as “legitimate”, either under existing EU legislation or by decision of the Commission.  Leaving the EEA would free the UK from these constraints.

On the other hand, it is not certain that the above regime would have prevented the UK from protecting AstraZeneca.  The deal collapsed before the Commission expressed a view.

Moreover, in cases falling outside the Commission’s jurisdiction, the UK currently has a free hand to protect whatever interests its chooses.  Yet its own rules also limit public interest interventions to a narrow category of cases, closely mirroring those found in European legislation (although the categories can be expanded).  Alex Chisholm, the then Chief Executive of the CMA, analysed the evolution of and reasons for this approach in his 2014 Fordham speech, available here .  Any new protectionism would therefore reverse decades of industrial policy, developed in parallel with – but independently of – Europe.

Whether and when any of these changes might be implemented is a matter for speculation.  Merger control will need to take its place in the lengthy queue of national laws requiring amendment following Brexit.  New trade deals agreed with Europe or elsewhere may limit the Government’s scope to make changes, particularly any attempt to restrict foreign takeovers.  We will post further updates as the position develops.

 

 

 

Once the UK withdraws from the EU, claimants will no longer have a direct cause of action based on Articles 101 and 102 TFEU nor will they be able to assert a breach of statutory duty under s.2(1) ECA 1972.  Similarly, it does not seem likely that ss. 47A(6)(c), 58A and 60 CA98, which refer to the binding nature of Commission infringement decisions, will survive.  Those provisions will, most likely, be repealed as a direct consequence of withdrawal.

The statutory cause of action based on the Chapter I and II prohibitions in the CA98 will continue to apply, under s.47A CA98, but only in respect of trade within the UK.  The scope of damages claims are likely to become more parochial, limited to national, regional or local commercial practices.

So how can competition damages claims for EU cartels continue to be brought in the UK?  Claimants would not be able to invoke Articles 101 and 102 TFEU directly in damages claims and would not have an automatic right to “follow-on” damages. It may be argued that infringement findings in a Commission decision should be regarded as ‘foreign’ law relating to public policy which the English courts should not readily apply or enforce. Even if an English Court were willing to have regard to such findings, they would only count as “foreign law” with the status of one piece of factual evidence that the court would have to weigh alongside other evidence.

That risk could be mitigated by statutory provisions to the contrary or if the UK entered into a trade agreement with the EU, which specifically provided for the application of EU competition rules in cases where common trade between the UK and the EU is affected.[1]

Alternatively, if the UK were to join the EEA, then a substitute enactment to s.2(1) ECA 1972 could incorporate the provisions of the EEA Agreement, including Articles 53 and 54 EEA, although they would not have direct effect in the same way as provisions of the EU Treaties.  The EFTA Court has recognised the public policy in encouraging private enforcement as a means of ensuring the effectiveness of competition law and has followed Courage,[2] Manfredi[3] and Donau Chemie[4] in its case law.[5]

The implications of these complexities on the jurisdiction of the English Courts is discussed in a recent article by Anneli Howard published by Jordans in the Brexit edition of the Competition Law Journal available here.

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[1]  See, for example, Article 35 of the EU/South Africa Trade, Development and Cooperation Agreement (1999) OJ L 311/03.

[2] Case C-453/99 Courage Ltd v Crehan [2001] E.C.R. I – 6297

[3] Case C-295/04 Vincenzo Manfredi v Lloyd Adriatico Assicurazioni SpA [2006] E.C.R. I – 6619

[4] Case C-536-11 Bundeswettbewerbsbehörde v Donau Chemie AG and others, EU:C:2013:366.

[5] Case E-14/11 DB Schenker v EFTA Surveillance Authority (‘DB Schenker I’) [2012] EFTA Ct. Rep. 1178, paras 132 and 189.

Just when we thought we almost had it all…..

Is there a risk that BREXIT could threaten to steal the English Courts pre-eminent international jurisdiction for large scale commercial disputes?

After the UK’s withdrawal from the EU, whether on full exit or the EEA-type model, the Recast Brussels Regulation (“RBR”)[1] will no longer be directly applicable in the UK. If the UK becomes a remote outlier, which is not subject to the EU’s private international law rules, then we can expect more jurisdictional challenges and concurrent proceedings, increasing litigation cost and uncertainty. Importantly, the attractiveness of a UK judgment (despite its high quality) will be diminished if it cannot be easily recognised and enforced in 31 different countries across the EU and EEA.

It will therefore be imperative to have some jurisdictional arrangements in place.  Absent some agreement to observe the RBR provisions in the UK, the UK could ratify the 2009 Lugano Convention, either as an EFTA State or a third state, along with Iceland, Norway, Liechtenstein and Switzerland.  That would provide certainty with ongoing jurisdiction before the English Courts through the domicile of an anchor defendant with the ability to bring in related third parties. It would also provide for courts to stay proceedings or decline jurisdiction for lis alibi pendens and related proceedings as well as the recognition and enforcement of English judgments in 31 States.[2]

Failing that, the UK could have to reinvigorate its signature of the old Brussels Convention or resort to the Hague Convention on Choice of Court Agreements 2005 (akin to the position in the US and Singapore). Conceivably the UK could return to the heady days of the old common law of conflicts. Although esoteric, there could be advantages to that. Arguably, the old doctrine of ‘forum conveniens’ may provide a broader range of connecting factors justifying the assumption of jurisdiction by the English Courts and recourse to anti-suit injunctions could rise again. In the competition damages field, if the English Courts could circumvent the next five years of uncertainty and preliminary references regarding the interpretation and application of the Damages Directive, we would have the benefit not just of the ‘English torpedo’ but also the ‘English supersonic jet’, resulting in faster, procedurally efficient and pragmatic outcomes for litigants.

Once the transitional period expires, we may experience some turbulence in international litigation for some time with increased legal uncertainty, multiplicity of proceedings and jurisdictional challenges. The current surge in competition litigation and the fledgling development of collective consumer actions depends on the oxygen and momentum provided by litigation funders. Their commitment is reliant on legal certainty, procedural efficiency and volume of traffic.  That makes it all the more imperative for the UK to have a clear vision of procedural reforms and jurisdictional rules,  in place immediately on its departure from the EU, to secure the English Courts’ reputation as an international centre of judicial excellence.

This blog forms part of a wider discussion on the impact of Brexit for competition law damages in a recent article by Anneli Howard, published by Jordans in the Brexit edition of the Competition Law Journal.

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[1] Regulation 1215/2012 of the European Parliament and the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) (2012) OJ L 351/1.

[2] There would be some disadvantages as the new provisions in the RBR dealing with jurisdiction clauses, Italian torpedoes and related proceedings in third party States would not apply.

How should practitioners plan for the uncertain period ahead? What happens to the application of EU Law between now and the enactment of the act of Parliament that will be required to repeal the European Communities Act , as well as to implement into domestic law any successor deal with the EU?

Whatever the long term future relationship between the UK and the EU, there would be a transitional period before any final arrangements were entered into. The period of negotiation could be lengthy , but there are no precedents for what is about to happen. On the one hand, an EEA relationship with the EU would be easier to negotiate with the EU but the UK would still have to negotiate direct with the non-EU EEA states . Could that be achieved within two years, from a standing start? On the other hand, if the replacement relationship with the EU was a bespoke set of arrangements, it is inconceivable that the negotiations could be concluded within two years.

In the short term, it might not matter in the strict sense, since the existing rules of EU Law would continue to apply in such a period. The UK could not repeal the European Communities Act or domestic secondary legislation implementing EU obligations until its exit pursuant to Article 50 of the TEU had become legally effective, although the two acts are likely to be coterminous to avoid a legal vacuum . If the UK were to do otherwise, it would be in breach of EU Law and Public International Law.

The doctrine of direct effect of directives would continue to apply, as would the direct applicability of EU regulations. The courts would also be obliged to continue to apply the ordinary rules of construction under which they are likely to strive to apply domestic rules consistently with EU Law. Cases before the courts in Luxembourg would continue to proceed. The courts’ rulings would continue to have effect . But, during the transitional period, while a full member of the EU, our political influence would lessen dramatically in respect of influencing the content of new legislation.

It is less clear what might happen in respect of legal relationships that are predicated on the applicability of EU Law where those relationships straddle the boundary between a pre-exit and post-exit world. An example might be consumer rights which derive from EU Law, such as those which arise from the Denied Boarding Regulation (Regulation (EC) 261/2004), which has direct applicability. The regulation provides airline passengers with rights to remedies for excessive delays to a flight and, in the short term , these consumer rights would be unaffected. But, while the EU legal framework would continue to have effect in a transitional phase, a significant problem for the consumer and the practitioner would be legal uncertainty for a post-Brexit future, not least in circumstances where the Regulation has hitherto generated considerable controversy.

How should lawyers assess future legal risk in an environment where no one knows what the long term UK settlement will involve? Is there a possibility that a lawyer’s understanding of rights, obligations , liabilities or expectations flowing from EU Law , which arise in a transitional period prior to exit but which are intended to outlast exit from the EU and to outlast repeal of the European Communities Act 1972 , might be undermined ?

In some cases, contractual arrangements or administrative arrangements with public bodies might be expressly agreed between relevant parties to clarify the understanding of both parties as to the possibility of different types of future longer term, post-Brexit relationships with the EU. In other cases, there are general provisions of section 16 of the Interpretation Act 1978 which might apply:

“General savings.

(1) Without prejudice to section 15, where an Act repeals an enactment, the repeal does not, unless the contrary intention appears…

(b) affect the previous operation of the enactment repealed or anything duly done or suffered under that enactment;

(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under that enactment…”

Much clearly depends on the outcome of the negotiations and of the content of the repealing legislation. But it would be wise to make sure that the Government’s policy makers understand the risks of legal uncertainty for businesses, individuals and their lawyers, so that express provision can be made in the repealing legislation, if only for clarity’s sake.

 

The EEA Agreement, often described as the ‘Norwegian model’ extends the Single Market to Norway, Liechtenstein and Iceland. This Monckton Brexit Blog post provides insights into the fundamental principles of EEA law and their role in achieving a level playing field across the Single Market.

To view the blog post written by Michael-James Clifton please click here.

In a blog on this site earlier this week, George Peretz QC discussed various possibilities for the State aid regime after Brexit. That piece, available here, has now been updated to include a discussion of the position of Switzerland.

IMPLICATIONS OF BREXIT FOR STATE AID: (1) THE “ICELAND TO TURKEY” OPTIONS

As an area that has been a key EU competence, Brexit can be expected to have a considerable impact on competition policy. That point applies in spades in the area of State aid, which is entirely based on the EU Treaties and which is centrally enforced by the European Commission. As a matter of law, as soon as the United Kingdom ceases to be party to the Treaty on the Functioning of the EU, State aid law simply vanishes.

Or does it?

Over the next couple of weeks, David Unterhalter SC and I will blog about State aid post-Brexit. In this piece, I will cover State aid control in Europe outside the EU – in what Michael Gove, during the referendum campaign, described as the “free trade zone stretching from Iceland to Turkey that all European nations have access to, regardless of whether they are in or out of the euro or EU” – a zone in which he promised the UK would stay. In a second piece, David will explain WTO anti-subsidisation rules.

The obvious unknown element in thinking about the post-Brexit future of the State aid rules in the United Kingdom is the attitude the UK Government will take to those rules. In general, the United Kingdom has been strongly supportive of the State aid rules: and no UK Government since that of Mrs Thatcher has been in favour of State support to business in the absence of a good case for market failure. The United Kingdom has an excellent record of compliance with the State aid rules. Further, the consensus of responses to the Coalition Government’s review of the balance of competence between the EU and UK was that: –

3.27 … there was broad agreement in principle on the current balance of competence on State aid, but some expressed concern about its limits, about real or apparent extension of EU competence into areas of domestic policy, and about the way State aid controls are exercised.

On the other hand, during the referendum campaign the Leave campaign argued, in relation to the problems affecting Tata Steel, that out of the EU the United Kingdom would have a free hand to grant subsidies on energy costs to support the steel industry. It may perhaps be pointed out that some of those making that argument were not generally known for their support for interference with the free market: but it should also be noted that the current leader of the Labour Party (though in favour of remaining in the EU) stated that “There are certainly problems about EU state aid rules, which need reform.” And the present author is aware that a number of Ministers in the present Government have seen the application of the State aid rules as an obstacle to projects that they wish to promote. And, finally, the comment at the end of the paragraph quoted above refers to business concerns that the State aid rules can be taken too far, particularly in the area of taxation (with, perhaps, the current tax ruling cases such as Starbucks and Fiat in mind).

So it cannot be certain that the new Prime Minister – who it now seems certain will be Mrs Theresa May – would necessarily want to accept continuation of the State aid rules. However, although this risks straying into political matters, the present writer considers that the new Prime Minister – given that she will be from a party that generally believes in the free market – is likely to regard accepting control on State aid as a relatively easy “give” in negotiations with the EU. A further point is support of the “give” is that the State aid rules serve the useful purpose, within the United Kingdom, of controlling the ability of the devolved Governments – and in future, city regions exercising devolved powers – to grant State aid and of preventing ultimately futile “subsidy races” between different parts of the United Kingdom seeking to attract investment.

Moreover, a quick glance at the various arrangements between non-EU European states (from Iceland to Turkey) and the EU shows that State aid control is likely to be a sine qua non of any agreement that can be described as providing access to the single market.

To start with Iceland. Iceland, along with Norway and Liechtenstein, is party, as an EFTA State, to the EEA Agreement with the EU. Article 61 of the EEA Agreement provides that: –

61. Save as otherwise provided in this Agreement, any aid granted by EC Member States, EFTA States or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Contracting Parties, be incompatible with the functioning of this Agreement.

2. The following shall be compatible with the functioning of this Agreement:

(a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;

(b) aid to make good the damage caused by natural disasters or exceptional occurrences;

(c) aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division.

3. The following may be considered to be compatible with the functioning of this Agreement:

(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment;

(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of an EC Member State or an EFTA State;

(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;

(d) such other categories of aid as may be specified by the EEA Joint Committee in accordance with Part VII.

Resemblances between that provision and Article 107 TFEU – the TFEU provision on State aid – are entirely intentional: the provisions are more or less mirror images of each other. The only difference that cannot be described as “mutatis mutandis” is the absence, in Article 61(3) EEA of an equivalent to Article 107(3)(d) TFEU, dealing with culture and heritage conservations (which was originally inserted into the EU State aid rules by the Treaty of Maastricht in 1993). However, even there, the EFTA Surveillance Authority (“ESA”) has stated that it “acknowledges that state aid measures may be approved on cultural grounds on the basis of Article 61(3)(c) of the EEA Agreement“¹.

Moreover, it is clear from the decisional practice of the ESA and the jurisprudence of the EFTA Court that Article 61 EEA is to be read in precisely the same way as Article 107 TFEU: and the EFTA Court will have regard to the jurisprudence of the CJEU in relation to such questions as what is an “undertaking”² and as to selectivity in tax measures³.

In fact, the only real difference is that, in the EEA/EFTA States, State aid to the fisheries sector is dealt with in a separate regime (in Article 4 of Protocol 9 to the EEA) which requires the abolition of State aid to the fisheries sector but which is not subject to the enforcement powers of the ESA.

Subject to that fishy caveat, the enforcement powers of the ESA in the EEA State aid system are effectively the same as those of the Commission in the EU system. The mechanism is, however, a bit more complex. So, Article 62 EEA requires “constant review” of existing and planned measures in the EEA to ensure compatibility with Article 61, a task which in the EEA/EFTA States is allocated to the ESA. The ESA then has, under Article 5 of the Surveillance and Court Agreement (“SCA”), the general duty to ensure the compliance of the EEA/EFTA States with their duties under the EEA Agreement, and Article 24 SCA then enumerates compliance with the State aid rules as an aspect of that duty and points to Protocol 3 SCA. That Protocol effectively incorporates the equivalent provisions to Article 108 TFEU: it provides for the duty to notify new aid (Article 2), and an obligation not to put that aid into effect before clearance by the ESA (Article 3). Other provisions of Protocol 3 SCA reproduce the main provisions of Council Regulation 659/1999 (the EU procedural regulation) as originally enacted providing, in particular, for recovery orders, suspension injunctions, limitation periods and information-gathering powers. It is not yet clear whether the amendments to that Regulation (now consolidated into Council Regulation 1589/2015) will be adopted.

If the UK joined EFTA and successfully applied to become party to the EEA, therefore, little would change in the United Kingdom in relation to State aid apart from some re-labelling and the replacement of the Commission and ECJ by the ESA and EFTA Court. There might even be some advantage in terms of speed, given that the EFTA Court is able at the moment to hear appeals much more quickly than the General Court (and to the relief of monolingual Brits, operates in English – one reason for its relative speed).

However, for various reasons the Government may decide that the EEA is not an option for the United Kingdom. What is the position in relation to other agreements entered into between the EU and other European countries?

Mr Gove’s speech also referred to Turkey, at the opposite end of Europe to Iceland. The key point to make about Turkey, in the current context, is that the 2007 Accession Partnership agreement between the EU and Turkey requires Turkey to adopt State aid rules and to set up an internal enforcement mechanism for them. Indeed, that obligation dates back to the 1995 Customs Union agreement with Turkey. Turkey’s compliance with those requirements has, to date, been less than entirely satisfactory4. But the obligation is clear. Similar obligations are included in accession partnership agreements with Macedonia, Albania, Montenegro, Serbia, and Bosnia and Herzegovina.

Finally, there is the position of Switzerland. Switzerland is not party to the EEA Agreement, but has a series of bilateral agreements with the EU. Of those, the ones that mention State aid are, the 1972 Free Trade Agreement and the 1999 Agreement on Air Transport. The 1972 FTA contains, at Article 23(1)(iii), a general prohibition on “any public aid which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods.” The present writer understands that this provision has not been applied in Switzerland and that as a matter of Swiss law it is of limited application. The 1999 Air Transport Agreement is more thorough in its reference to familiar concepts of EU State aid law, containing at Article 13 a provision that closely reflects Article 107 TFEU: however, although specific provision is made in relation to enforcement of the Articles reflecting Articles 101 and 102 TFEU (the general prohibitions on anti-competitive agreements and abuse of dominant position) by the European Commission and the Swiss authorities, no enforcement mechanism for Article 13 is provided other than, at Article 14, a general requirement to keep measures falling within Article 13 under review. The present writer also understands that Swiss law contains general prohibitions on public subsidies that fail to meet conditions of economic efficiency and a general requirement that Swiss government bodies respect competitive neutrality: but he also understands that these are not often invoked before the Swiss courts.

In the present writer’s view, the 1999 Agreement with Switzerland, and the agreements with accession states, are a more reliable guide to the EU’s likely position on State aid than the 1972 Agreement. So it is likely that any preferential trade agreement with the EU would involve the UK’s acceptance of at least an internal mechanism for controlling State aid – and the EU is likely to insist on some form of enforcement mechanism. There would, however, be a number of practical and constitutional issues to be resolved in setting up such a mechanism. It would be possible to have an Act of Parliament binding all devolved administrations and public bodies not to grant State aid, and providing for enforcement by, say the Competition and Markets Authority. But serious issues would arise where State aid arose as the result of primary UK legislation, particularly in the field of tax: the idea that the CMA could hold that UK tax legislation was invalid to the extent that it granted State aid and that it could order recovery against taxpayers benefiting from a tax break granted by statute would be, to put it mildly, a constitutional innovation. Moreover, there might well be some resistance to the idea that the CMA should apply ECJ/EFTA Court jurisprudence into which the United Kingdom would have no continuing input: it is one thing for States on their way in to the EU, or EFTA States, to accept such a condition, but quite another for the condition to be accepted by a former EU/EEA Member State on the way out.

Nonetheless, as argued above, the United Kingdom is likely to find that the EU insists on a State aid provision in any agreement going beyond the WTO framework and that this is a relatively easy “give”. The likelihood of the “give” is reinforced by the point that, as David will explain in his forthcoming piece, even the “WTO option” also contains obligations that bear some resemblance to State aid rules.

 

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1 See §87 of its Decision on the financing of the Harpa concert hall in Reykjavik.

2 See, e.g., Case E-5/07 Private Barnehagers v ESA (which referred, inter alia, to CJEU case-law on what is a “service” under free movement of services provisions).

3 See e.g. Joined Cases E-17/10 and 6/11 Liechtenstein and VTM Fund Management v ESA, at §§74-75.

4 Turkey 2015 report accompanying the EU Enlargement Strategy Communication, SWD(2015) 216 final, bottom of page 33.