Johnson’s administration plans to rewrite EU subsidy rules but its proposals are a muddleby George Peretz / December 3, 2019 / Leave a comment
The European Union state aid rules are a keystone of the EU single market: by setting limits, enforced by the Commission, on the ability to subsidise domestic industries, they make it possible for member states fully to open their markets to each other’s goods and services, confident that their own producers will not face unfairly subsidised competition from producers elsewhere in the EU.
Last year, I wrote an article for Prospect which discussed the quiet consensus that the UK would retain these rules after Brexit. That quiet consensus was apparently shattered on Friday, when the Conservatives produced a paper in which they promised to get rid of the state aid rules and replace them with a new system based on World Trade Organisation anti-subsidy rules, which they claimed would allow the government “greater discretion” and provide “certainty” to investors.
On the right, the Institute of Economic Affairs, whose main criticism of the state aid rules is that they permit too much subsidy, immediately responded by denouncing the proposals as “support for cronyism.” And on the left, many “Lexiters” welcomed the proposals on the basis that, despite their own general inability to point to any actual Labour policy that would be frustrated by the state aid rules, they see them as a neoliberal plot to stop the interventionist plans of a socialist government.
But both sides may have made a mistake in taking too seriously the headline promise to scrap EU state aid rules. The reality is that the proposals are an incoherent mess.
The first issue is that the proposal is based on WTO anti-subsidy rules. There are two serious problems with those rules as a substitute for retaining the EU state aid regime.
– Far from bringing greater clarity, as promised, a switch to WTO anti-subsidy rules as the basis for a domestic system would introduce much greater uncertainty. There are areas of uncertainty in EU state aid law (as there are in much of English common law). But when I have to advise on what is a state aid, I have volumes of case-law to help me (just as, in the common law, I have volumes of case law to help me advise on what “negligence” means). In contrast, there is very little case-law on the equivalent WTO concept of subsidy…