Is it possible to create a "level playing field" post brexit?

| Insight

The UK does not want to have constraints on their discretion to award subsidies paralleled to member states of the EU/EFTA. In the Brexit negotiations the EU 27 has consistently demanded a parallel system for the control of subsidies in the future relationship between the EU and the UK. This is viewed as essential to protect the remaining EU member states from regulatory competition from the UK in what should remain an internal market.

The state aid regulation is posing great difficulties in the final Brexit negotiations. The challenge of finding common ground is linked to the notion of creating «a level playing field» post Brexit. This aim requires i.a. parallel regimes both in the field of competition law and in the field of state aid law. Yet it is the state aid regime that creates the most fundamental obstacles in the negotiations. The topic of state aid is also important for an EFTA state such as Norway being part of the internal market through membership in EFTA and through the EEA Agreement. To date there are no significant differences in the state aid regime between the EU and the EEA (absent sectors outside the EEA Agreement, such as agriculture, fisheries etc. which are, in particular fisheries, crucial to the Brexit negotiations).

A key difference in the Brexit negotiations between competition law and state aid regulation concern the extent to which the law limits governmental discretional power. The state aid regime entails a rather strong limitation on national discretion to award subsidies and the like in the interest of society. Competition law on the other hand concerns primarily the interaction between undertakings and not as such governmental discretional power (with the exception of ‘State compulsion’, where undertakings relies on national anti-competitive rules as a defense).

The EU regulation on state aid is increasingly seen as quite an achievement in European cross-border relations. Instead of relaxing the rules they are growing both more efficient and more coordinated. The state aid regime is integration by law with competent and forceful institutional control. Add to this that state aid control is exclusively supra-national. No other international agreement is comparable. Through the state aid regime states have actually given up on their sovereignty to decide for themselves on the allocation of public means to motivate private entities in the interest of the society.  Ultimately, it is for the Court of Justice in the EU and the EFTA Court in the EEA (related to EFTA states) to have the ‘final word’ and decide on the application of the state aid regulation and to decide what is in the interest of the community.

In the Brexit negotiations the EU 27 has consistently demanded a parallel system for the control of subsidies in the future relationship between the EU and the UK. This is viewed as essential to protect the remaining EU member states from regulatory competition from the UK in what should remain an internal market. The UK, on the other hand, refuses to be bound by both the substantive and the institutional control of the state aid regime in the new trade agreement. Post Brexit the UK does not want to have constraints on their discretion to award subsidies paralleled to member states of the EU/EFTA.  As a sovereign nation the UK refuses to have its domestic policy on subsidies constrained by Article 107(1) TFEU or Article 61(1) EEA.

The positions seem quite far apart, yet the deadline is approaching fast. Issues of sovereignty are always of interest and in particular for a state such as Norway being part of the internal market without a membership of the Union. We aim to follow the Brexit negotiations closely till the end.