The EU-UK TCA is here, and it has extensive provisions on subsidies. It is fair to say, I think, that these are the most detailed rules on subsidies to be found in any FTA negotiated to date, which is not surprising, given that they replace the EU’s state aid regime for the UK.
I have been wrestling to understand the subsidy enforcement aspects of the TCA. I have probably misunderstood these rules, which are horrifically complex, but it seems to me that five distinct tools are available to address subsidy issues affecting trade and investment between the Parties.
The first tool involves domestic procedures. Each Party must have “an effective system of is subsidy control” that ensures that the granting of a subsidy respects a set of “principles” (Art. 3.4.1), i.e., the substantive disciplines. These principles must be implemented into domestic law “such that the legality of an individual subsidy will be determined by the principles” (Art. 3.4.3). Each Party must create an “independent authority or body” to oversee its subsidy control regime (Art. 3.9.1). Decisions by a granting authority and by the “independent authority or body” are subject to judicial review under the domestic law (Art. 3.10). This is a private right of action, including possibilities for damages and “recovery” (i.e., repayment), although a Party can intervene in the proceedings (Article 3.10.2).
The second tool is “remedial measures” (Art. 3.12). This is a state-to-state tool. A Party may request consultations regarding a subsidy that “it considers causes, or there is a serious risk that it will cause, a significant negative effect on trade or investment between the Parties” (Art. 3.12.1). In the absence of an agreed solution, the Party may after 60 days “unilaterally take appropriate remedial measures” (Art. 3.12.3), which must be restricted to what is “necessary and proportionate” to remedy the significant negative effect (Art. 3.12.5). The subsidizing Party can challenge the determination of significant negative effect, and the necessity and proportionality of the remedial measures (Art. 3.12.8) before an arbitration tribunal, and can suspend concessions if the remedial measures are found to be inconsistent with TCA and are not withdrawn.
The third tool is the WTO Agreement, including most notably anti-subsidy (CV) measures. Again, a private remedy. The continued use of CV measures between the Parties is specifically authorized by the TCA (Goods Art. 17.1). The only real constraint (beyond WTO requirements, of course) is what appears to be a prohibition on double remedies: a Party must, when determining the level of a “remedial measure” on a product, “take into account” countervailing (and anti-dumping) measures applied or maintained on that product (Art. 3.12.14).
The fourth tool is “rebalancing”, which Simon has already posted about. State-to-state. This remedy is available for labour and social, environmental or climate protection issues, in addition to subsidy control. Under Article 9.4, If “material impacts on trade or investment” between the Parties arise as a result of “significant divergences” between the Parties, either Party may take appropriate rebalancing measures to address the situation. Such measures are restricted in scope and duration to what is strictly necessary and proportionate to remedy the situation. Like remedial measures, rebalancing is subject to arbitration to confirm that “material impacts” have occurred and that the measures are necessary and proportionate, and a Party can take countermeasures if the arbitration tribunal rules against the rebalancing measures and they are not withdrawn (Art. 9.4.3). A Party cannot simultaneously use remedial and rebalancing measures to remedy an impact caused by the same subsidy (Art. 3.12.15).
The fifth tool is the general dispute settlement mechanism of TCA. The subsidy control chapter is subject to dispute settlement, but with significant limitations. It does not apply to obligations in respect to the independent body or authority, nor to those regarding judicial review (Art. 3.12.1). Nor does it apply to “an individual subsidy”, except those that breach the TCA’s equivalent to prohibitions (unlimited state guarantees, rescue and restructuring subsidies, export and local content subsidies). It thus seems to be more for review of systemic implementation of the subsidy control requirements (and even that with limitations), than a forum for litigation regarding the consistency of individual subsidies with the TCA.
A few closing observations:
The TCA contains detailed specific rules governing the grant of subsidies, but enforcement of these rules is assigned principally to domestic mechanisms within the Parties, and only in a limited fashion to TCA dispute settlement.
At the same time, the TCA allows potentially significant unilateral actions where subsidies have “significant negative” (remedial measures) or “material” (rebalancing) effects on trade or investment, irrespective of whether or those subsidies comply with the specific subsidy disciplines in the TCA.
It will be very interesting to see how often these tools are used, and which ones. If the domestic procedures prove to be effective, the system could work well. If not, and there is extensive use of unilateral tools, the possibility for very significant disruptions in EU-UK trade in both goods and services is substantial.
