One piece or two? Sugar, State Aid, Subsidies and the UK/EU Trade Regime – International Law


UK: One piece or two? Sugar, state aid, subsidies and the UK/EU trade regime

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In one decision issued by the High Court in London on February 24, 2022 in proceedings brought by British Sugar, Foxton J has provided valuable legal clarity on two very important issues relating to state aid and subsidy control rules which apply in the UK since the end of the Brexit transition period.

Those two questions are, firstly, do the State aid rules applicable under the Northern Ireland Protocol apply to UK measures which do not directly concern Northern Ireland and, secondly, what are the national legal effects of anti-subsidy rules in the EU/ UK Trade and Cooperation Agreement (the Agreement ATC)?

The proceedings brought by British Sugar related to a measure taken under the UK Taxation (Cross-border) Trade Act 2018 to provide for an autonomous tariff quota (ATQ) for raw cane sugar. British Sugar claimed that the ATQ (which it considered to provide an unfair advantage to its competitor Tate & Lyle) constituted unlawful state aid within the meaning of Article 107 of the EU Treaty (as applied by the Protocol NI) and/or a violation of the TCA anti-subsidy rules.

State aid, NI protocol and indirect effects

Article 10 and Annex 5 of the NI Protocol have the effect of making Article 107 of the Treaty on the Functioning of the European Union (Article 107) applicable to the United Kingdom “in respect of measures which affect the trade between Northern Ireland and the Union which is subject to this Protocol”.

One of the main questions Foxton J had to resolve in this case was whether the effects on NI-EU trade caused by the ATQ were sufficient to trigger the application of Section 107 under the NI Protocol. As he noted, this effect was “indirect, involves very small volumes at best, and is based on the unproven claim that ATQ is likely to displace EU refined sugar from Ireland North”.

Foxton J opined that the “effect” on NI-EU trade envisioned by the NI Protocol should be interpreted in light of the EU’s unilateral statement made in relation to the NI Protocol. This included the following statement: “The European Union underlines that in any event, an effect on trade between Northern Ireland and the Union which is the subject of this Protocol cannot be merely hypothetical. , alleged or without real and direct connection with Northern Ireland[…]It must be established why the measure is likely to have such an effect on trade between Northern Ireland and the Union, on the basis of the foreseeable actual effects of the measure”.

In deciding that the (indirect) effects of the ATQ on NI-EU trade were not sufficient to trigger the application of Section 107 as so understood, Foxton J observed that to do otherwise, ” it would be allowing a barely perceptible tail to wag a very large dog. I am convinced that the EU’s unilateral statement was intended precisely to prevent this kind of argument.”

Application of anti-subsidy rules in the ATT

It is unclear whether and to what extent the TCA’s anti-subsidy rules are directly enforceable in UK courts. This is because the EAT itself expressly states that its provisions (including the anti-subsidy rules and their requirements for domestic legal remedies) shall not have domestic legal effect.

It has, however, been questioned whether Section 29 of the European Union (Future Relations) Act 2020 essentially reverses this position and makes these rules enforceable in UK courts. Article 29 provides that “the internal law in force takes effect from the [31.12.20] with the modifications necessary for the purposes of the application in this law of the [TCA] […] As long as [it]is not otherwise implemented and to the extent that such implementation is necessary for the purposes of complying with the United Kingdom’s international obligations under the [TCA]”.

The UK has yet to implement the TCA grant control rules into national law. A bill (the Subsidy Control Bill) to achieve this objective has yet to receive Royal Assent. This left open the question of whether, and if so, how, the “amendment of domestic law” requirement imposed by Section 29 would operate to allow application of the TCA rules in the interim.

It turns out that Judge Foxton concluded that the subsidy control rules did not in fact apply to the TAQ. However, it is striking to note that at no time during his judgment does he seem to entertain the slightest doubt that he could have used article 29 to enforce these rules and to offer recourse to British Sugar in the event of of violation.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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