State aid is defined as an advantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities. Therefore, subsidies granted to individuals or general measures open to all enterprises are not covered by this prohibition and do not constitute State aid (examples include general taxation measures or employment legislation). (The European Commission)
Many of a business’s most important decisions are influenced by law as it relates to state aid. So, with that in mind, we take this opportunity to ask what, if any, will be the impact of Brexit on state aid law?
Not many people are aware that state aid rules impact across pretty much the full spectrum of corporate, commercial and business activities in Europe, but with the UK’s decision to undertake Brexit, state aid law has inevitably fallen into sharp relief.
Of course, with Article 50 yet to be invoked and the UK’s post-Brexit arrangements still to be negotiated, there is no clear indication yet what the future of state aid law in the UK will look like.
However, most experts predict with reasonable confidence that the UK will be able to negotiate a free trade agreement ensuring it is able to trade with the EU as part of a single market despite no longer being a member of the EU.
The UK would not be alone in this situation. Iceland, Switzerland, Norway and Liechtenstein are all non-EU members who manage to integrate successfully with the rest of Europe as members of the European Free Trade Association (EFTA). Furthermore, if the UK also joins the European Economic Area (of those countries listed only Switzerland is not an EEA member) it will ensure effective state aid law that is almost indistinguishable from that which applies to EU member states.
However, in the event that the UK finds itself facing an intransigent EU unwilling to negotiate a successful free trade agreement it will have to fall back on the rules laid down by the World Trade Organization.
State aid is a notoriously grey area. Commercial lawyers could spend more time than is useful arguing over which measures constitute unfair advantage – for example, regarding some grants and subsidies – and that which contributes usefully to a stronger EU economy, so-called “compatible aid”.
It will be a difficult balancing act to achieve. For example, a European Commission report found that state aid increases manufacturing employment by around 7% in regions where it is granted, but being able to convince the EU that Brexit Britain’s state aids are compatible may be more difficult than when we were part of Europe.
If the UK negotiates a post-Brexit free trade agreement with the rest of the EU, the state aid framework will depend heavily on the details of the free trade agreement:
Although nothing can be certain at this time it seems that the impact of Brexit on state aid law will be minimal – although companies and commercial lawyers may have to make some changes to their commercial law considerations.
