Guidance

Guidance on the UK’s international subsidy control commitments

Updated 24 June 2021

Section 1: Overview

This guidance draws together information on the provision of subsidies in the UK from 1 January 2021. The EU State aid rules, which were developed and adopted to support the EU ‘Single Market’, no longer apply to subsidies granted in the UK. The only exception is aid within scope of the Withdrawal Agreement, specifically Article 10 of the Northern Ireland Protocol, and Article 138 in relation to aid for ongoing EU programmes and activities within the UK’s share of the previous Multiannual Financial Framework (2014 – 2020). This guidance is therefore designed to help public authorities understand the UK’s international commitments on subsidy control, in advance of the development of the UK’s own subsidy control regime, following the government’s consultation which closed on 31 March 2021. All public authorities should read this guidance and assure themselves they understand the UK’s commitments and comply with their obligations in relation to the award of subsidies from 1 January 2021.

The overview below summarises the key steps public authorities should take when awarding subsidies after 1 January 2021. However public authorities should also refer to the detail of our commitments as set out in the chapters covering the World Trade Organisation’s Agreement on Subsidies and Countervailing Measures (ASCM), the UK-EU Trade and Co-operation Agreement, and the Northern Ireland Protocol. And where the guidance does not address a specific subsidy scenario, public authorities can also request advice from the Department for Business, Energy and Industrial Strategy (BEIS), Department for International Trade (DIT) and Department for Environment, Food and Rural Affairs (DEFRA) if required, and the Subsidy Control teams in the devolved administrations.

Contacts for further advice

• UK Subsidy Control team subsidycontrol@beis.gov.uk
• Defra Subsidy Control team: nick.howard@environment-agency.gov.uk
• DfE Subsidy Control Advice (Northern Ireland): subsidycontrol@economy-ni.gov.uk
• DAERA State Aid Unit (Northern Ireland – Agriculture) stateaid@daera-ni.gov.uk
• Subsidy Control Division (Scotland): subsidycontrol@gov.scot
• Subsidy Control Team (Wales): State.Aid@gov.wales
• DIT WTO team: wtocommitteeinbox@trade.gov.uk
• Defra WTO team: wto.team@defra.gov.uk

The guidance is addressed to public authorities, but potential subsidy recipients may also wish to read this guidance to understand existing and new obligations placed on public authorities and how it affects them.

Key steps public authorities should take when awarding subsidies

Step 1: Are you giving a subsidy and if so, what international obligations apply?

In general terms, and for the purposes of our international commitments, a subsidy is a measure which:

• is given by a public authority. This can be at any level – central, devolved, regional or local government or a public body;
• makes a contribution (this could be a financial or an in kind contribution) to an enterprise, conferring an economic advantage that is not available on market terms. Examples of a contribution are grants, loans at below market rate, or a loan guarantee at below market rate or allowing a company to use publicly owned office space rent free. An enterprise is anyone who puts goods or services on a market. An enterprise could be a government department or a charity if they are acting commercially; and
• affects international trade. This can be trade with any World Trade Organisation member or, more specifically, between the UK and a country with whom it has a Free Trade Agreement. For example, if the subsidy is going towards a good or a service which is traded between the UK and the EU this could affect trade between the EU and the UK. Please note that you are not being asked whether the subsidy could harm trade but merely whether there could be some sort of effect. Subsidies to truly local companies or a small tourist attraction are unlikely to be caught as this is unlikely to affect international trade.

All of these tests must be met for a measure to be a subsidy. If the measure meets the definition of a subsidy, then you should consider which international obligations apply. Not all measures will be subsidies that are in scope of international agreements. Subsidies for services are outside the scope of the World Trade Organisation (WTO) Agreement on Subsidies and Countervailing Measures (ASCM). The WTO ASCM is most likely to be of relevance to subsidies in sensitive sectors such as aerospace, steel or automotive. Attention also needs to be given to the Free Trade Agreements (FTAs) the UK has agreed, notably the UK-EU Trade and Cooperation Agreement (TCA), which has its own exemptions and does not cover some small amounts of financial assistance. These contain important obligations which must be met, where applicable. Note however that neither for the WTO or the TCA is there an approval process by an independent body before a subsidy may be granted. Please consult Section 5 of the technical guidance for more information on the TCA, and Section 6 for details on the WTO ASCM.

Public authorities also need to consider the implications of Article 10 of the Northern Ireland Protocol. The Protocol sets out that the EU State aid rules will apply in certain, limited cases where this is relevant to trade between Northern Ireland and the EU. Please consult Section 6 of the guidance for more information on the Northern Ireland Protocol.

Step 2: Is the proposed measure a prohibited subsidy?

The WTO ASCM contains two categories of prohibited subsidies, which may not be given in any circumstances:

• subsidies dependent on export performance – for example giving a subsidy to a widget manufacturer linked to exporting a certain tonnage of widgets to another country
• subsidies contingent on the use of domestic content – for example stating that the beneficiary must use 50% UK manufactured widgets in their product

These are not new obligations. The UK, as a member of the WTO, has been following the WTO ASCM rules since 1994. Therefore, any existing subsidies for goods should already be designed to be compliant with these obligations.

In addition, several FTAs – including the TCA – expand the above prohibitions to cover services and include additional prohibitions. These include a ban on giving:

• unlimited State guarantees
• restructuring subsidy if the beneficiary does not have a valid plan in place to return the company to viability

The UK-EU TCA includes some additional conditions for subsidies given to air carriers, energy/environment and large cross border or international projects. These are not prohibitions but conditions which must be met.

Step 3: If you are within scope of the TCA, you must ensure that the subsidy meets the terms of the principles

The UK-EU TCA sets out principles which all subsidies of more than 325,000 Special Drawing Rights (SDR) given to a single beneficiary over three years. Special Drawing Rights are an IMF unit and 325,000 SDR is currently approximately £332,000. Any subsidies below this amount are out of scope of the TCA’s obligation to apply the principles. Further detail is set out in Section 5.

The only exceptions are subsidies to compensate for natural disasters, subsidies for agriculture and fisheries and subsidies for audio visual goods and services. If in scope, you must consider these principles in the design and granting of subsidies on a case-by-case basis. Failure to do so could leave a public authority open to judicial review in the UK.

The principles in Article 366 are that:

• subsidies should pursue a specific public policy objective to remedy an identified market failure or to address an equity rationale such as social difficulties or distributional concerns (“the objective”)
• subsidies should be proportionate and limited to what is necessary to achieve the objective.
• subsidies should be designed to bring about a change of economic behaviour of the beneficiary that is conducive to achieving the objective and that would not be achieved in the absence of subsidies being provided.
• subsidies should not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy.
• subsidies should be an appropriate policy instrument to achieve a public policy objective and that objective cannot be achieved through other less distortive means.
• subsidies’ positive contributions to achieving the objective should outweigh any negative effects, in particular the negative effects on trade or investment between the Parties.

It is important to note that all the principles should be met. Public authorities should use the template in the Annex of the guidance to record their consideration of the principles. They may be required to provide this to the UK government if asked as part of the consultation or remedial measures processes in the UK-EU TCA or if they are subject to judicial review in the UK courts.

For the avoidance of doubt, public authorities can still pay out subsidies under previously approved schemes as these will be in line with the principles. This includes subsidies related to COVID-19 that have previously been given under the State aid Temporary Framework. Public authorities should keep these schemes under review and apply the principles to any changes made to these schemes.

Step 4: Assess the likelihood of triggering a dispute or unilateral remedies under WTO ASCM rules and other FTAs.

This is where consideration needs to be given as to whether the subsidy could harm international trade or investment rather than merely affect it. The bar for WTO action is high and is only likely to affect large subsidies in sensitive sectors. Subsidies in these sectors may also be relevant under the other FTAs – especially the UK-EU TCA.

When thinking about this, in addition to the sector, public authorities should consider:

• value of the subsidy and the intervention rate: very substantial subsidies (for example, £hundreds of millions) are more likely to attract attention than small subsidies. The same is true for high intervention rates (for example, 70% of project costs)
• international competitors: how many competitors are there? How easy is it to enter this market internationally? Are there only one or two competitors in the market who are likely to have concerns about any amount of subsidy?
• impact on trade: does this subsidy make it less likely that competitors can enter the UK market? Does it make it more likely that the beneficiary (or beneficiaries) can undercut in other markets? Does it make it more likely that the beneficiaries can win orders in markets abroad?

Public authorities should take a proportionate view when considering whether a subsidy could trigger action. Small sums to small companies are unlikely to do so. In the event that you think that you may be granting a subsidy that is at high risk, please contact the DIT WTO SCM or BEIS Subsidy Control team as appropriate.

Step 5: Record the award of the subsidy

BEIS maintains a transparency database for public authorities to record information on relevant subsidies. This is beneficial not only for providing transparency in a domestic context but will also help deliver compliance with our international reporting requirements. It is therefore very important that subsidies are recorded in a timely way. View the database.

Section 2: Description of the UK’s international subsidy commitments

The UK has several international obligations in relation to subsidies^{[footnote 1]}:

• the UK-EU Trade and Cooperation Agreement (TCA) contains a chapter on subsidies which is aimed at ensuring that the granting of subsidies does not have a detrimental effect on trade between the Parties. The chapter ensures that each Party will have in place its own independent system of subsidy control and that neither Party is bound to follow the rules of the other. This agreement will be of most relevance to public authorities that are granting subsidies. It includes some broad principles against which public authorities should make an assessment when they grant subsidies that are in scope of the TCA. Unlike the EU State aid regime, there is no requirement for approval from an independent body to be secured before a subsidy can be granted. Further information including FAQs is provided in Section 5 for managing subsidies that are in scope of the TCA. Annex 2 contains a short form to help public authorities assess compliance for when subsidies are in scope
• there are also commitments on subsidies arising from the UK’s continued membership of the World Trade Organisation (WTO). These are primarily set out in the Agreement on Subsidies and Countervailing Measures (ASCM) as well as the Agreement on Trade-Related Investment Measures (TRIMS)^{[footnote 2]}, the General Agreement on Trade in Services (GATS)^{[footnote 3]} and the Agreement on Agriculture (AoA)^{[footnote 4]} . These are not new commitments – the UK was subject to the WTO rules when it was a Member State of the EU
• the UK has also signed Free Trade Agreements (FTAs) with other countries and some of these agreements contain provisions on subsidies^{[footnote 5]}. Future FTAs that the UK agrees with trade partners may likewise include obligations relating to subsidies
• the Northern Ireland Protocol states that EU State aid rules will apply in certain, limited circumstances to aid that affects trade in goods and electricity between Northern Ireland and the EU. Subsidies are only within scope of the State aid rules in the Protocol where there is a ‘genuine and direct’ link to Northern Ireland, and a ‘real foreseeable’ impact on trade between Northern Ireland and EU^{[footnote 6]}. Public authorities should consult Section 6 of this guidance, which is published by the Secretary of State under section 48 of the United Kingdom Internal Market Act 2020.
• there are other limited circumstances in the UK-EU Withdrawal Agreement where State aid rules continue to be relevant^{[footnote 7]}

From 1 January 2021 public authorities will need to determine whether their subsidy carries any appreciable risk of triggering a dispute with a trade partner under the terms of the TCA, the WTO ASCM rules or the UK’s other FTAs. This is in addition to assessing whether the proposed subsidy falls within scope of domestic law obligations relevant to subsidy control. There is no change to the WTO ASCM assessment public authorities need to make, which was also necessary when the UK was a Member State of the EU.

Public authorities who are considering giving subsidies in scope of the UK-EU TCA subsidies chapter must comply with these obligations from 1 January 2021. They should also consider whether their subsidy carries any appreciable risk of triggering a dispute with a trade partner under the terms of the WTO ASCM rules or the UK’s other FTAs. The subsidy specific elements of the UK-EU Withdrawal Agreement – notably Article 10 of the Northern Ireland Protocol – are incorporated in UK law through the European Union (Withdrawal Agreement) Act 2020. Further information on the Northern Ireland Protocol can be found at Section 6.

The UK government has consulted on how best to design a bespoke approach to subsidy control that works for the UK economy and will subject to the outcome of the consultation, which closed on 31 March, bring forward primary legislation to establish in domestic law a system of subsidy control which works throughout the UK and ensures effective implementation of our international obligations. The government will respond to the consultation in due course.

Section 3 Awarding a subsidy

This section of the guidance focuses on helping public authorities to understand how they can award subsidies that are compliant with the WTO ASCM rules and the TCA and other FTAs.

In addition, public authorities must continue to award subsidies in line within any relevant legislation and consult where necessary the relevant guidance on general spending controls, value for money, and appropriate use of public money. For example, ‘Green Book’^{[footnote 8]} and ‘Managing Public Money’^{[footnote 9]} documents and supplementary guidance which are mostly relevant for public authorities in England.

With respect to ensuring they are compliant with the UK’s international subsidy obligations; public authorities should consult and follow the ‘five step’ process outlined below. The ‘five steps’ have been designed to help public authorities award subsidies within the UK’s international obligations and relevant domestic law.

1. Determine whether a measure is a subsidy and what international obligations are relevant.

2. Evaluate whether the measure is a prohibited subsidy.

3. If you are in scope of the UK-EU Trade and Cooperation Agreement, assess the subsidy against the principles.

4. Assess the likelihood of triggering a dispute under WTO ASCM rules and other FTAs.

5. Record the award of the subsidy.

Step 1: Determine whether a measure is a subsidy and what international obligations are relevant.

The definition of a subsidy differs subtly between the UK’s international agreements. The WTO ASCM sets out a baseline definition, with FTAs (most notably the TCA) building on this definition in different ways. For the limited measures in scope of the Northern Ireland Protocol, the relevant definition is the one utilised by EU State aid rules.

However, in simple terms, there are four key characteristics of a support measure that are likely to indicate that it would be considered a subsidy, which all need to be met:

• a subsidy must constitute a financial (or in kind) contribution such as a grant, loan or guarantee
• in addition, the financial contribution must be provided by a ‘public authority’, including, but not limited to, central, devolved, regional or local government
• thirdly, the award of the subsidy must also confer a benefit on the recipient in the sense of an economic advantage that is not available on market terms
• finally, the subsidy must cause a distortion in or harm to competition, trade or investment^{[footnote 10]}

Further information on the exact definition of a subsidy within each agreement can be found in the relevant sections in this guidance. Once public authorities have identified what international agreements, they may be in scope of they should consult the relevant section in the guidance to learn more about the specific definitions for each agreement. Public authorities can then make a final assessment on what agreements they are in scope of based on this additional detail. If the proposed measure does not have any of these characteristics, then it is unlikely to be considered a subsidy.

Decision tree: what international agreements could be relevant to your proposed measure?

Decision tree: what international agreements could be relevant to your proposed measure?

As set out in Section 2, one of the key issues a public authority needs to understand for the purposes of the WTO ASCM is whether the subsidy supports ‘goods-based’ or ‘service-based’ activity. The WTO ASCM only applies to trade in ‘goods’ and as such challenges under the ‘actionable subsidy’ route cannot be used when the subsidy is given to a ‘service’^{[footnote 11]}. Where public authorities are subsidising a ‘service’ they should, however, continue to assess their obligations under the terms of FTAs that extend their provisions to services, in particular the UK-EU TCA.

To determine whether the subsidy is being given to a ‘good’ or a ‘service’, public authorities should assess whether the product in question is in scope of the General Agreement on Tariffs and Trade (and therefore a ‘good’) or the General Agreement on Trade in Services (and is therefore a ‘service’).

Whilst it is not a definitive rule, and there are grey areas due to issues such as servitisation^{[footnote 12]}, making such an assessment is likely to provide public authorities with a strong indication on what ‘label’ is attached to the subsidy. If a public authority is unclear on whether their subsidy is supporting a ‘goods-’ or a ‘service-based’ activity, and are otherwise concerned about compliance with international agreements, they should contact subsidycontrol@beis.gov.uk. Please find further information on examples of FTAs that extend their provisions to services at Annex 1.

Step 2: Evaluate whether the measure is a prohibited subsidy or subject to conditions

All public authorities have a responsibility to ensure that they are compliant with the relevant domestic provisions implementing the UK’s international obligations. As set out in Section 5 and Section 6, the UK has commitments under WTO ASCM rules, the UK-EU TCA, and some FTAs, that it should not award certain types of subsides (referred to as “prohibited subsidies”) or award them subject to certain conditions.

Accordingly, public authorities should assess whether their proposed subsidy could be considered prohibited under the WTO ASCM or under relevant FTAs.

Article 3 of the ASCM sets out two categories of subsidies which WTO members are prohibited from awarding, given their impact on trade. Firstly, public authorities should not provide subsidies where the award is dependent upon export performance^{[footnote 13]}. This would include subsidies that are linked to exported quantities, assistance to establish or operate a distribution network, and other current expenditure directly linked to exporting. Secondly, the ASCM prohibits subsidies which make the award of the subsidy contingent on the recipient using domestic rather than imported goods^{[footnote 14]}. This would include subsidies that are provided to a manufacturer with the condition that domestically produced components are used.

In addition to the ASCM prohibited subsidies, several FTAs (including the UK-EU TCA) prohibit two additional types of subsidies in so far as they materially impact trade (or in the case of UK-EU TCA, trade and investment) between the UK and the other country/Party:

a. Subsidies in the form of unlimited state guarantees

b. Subsidies for restructuring an ailing or insolvent enterprise without a credible plan being in place to return the enterprise to viability (including specific rules for subsidies to restructure banks, credit institutions and insurance companies).

The UK-EU TCA also sets out a small number of subsidies which are subject to conditions. Subsidy givers must follow the conditions when designing and awarding these subsidies. These relate to subsidies granted to air carriers, subsidies to energy and the environment, and subsidies granted in the context of large cross border or international cooperation projects. Public authorities should consult Article 367 [Prohibited subsidies and subsidies subject to conditions] of the UK-EU TCA for further information.

Step 3: If you are in scope of the UK-EU TCA, assess the subsidy against the principles.

Action

Public authorities in scope of the UK-EU TCA must consult and consider the below information when designing and awarding a subsidy.

Principles

The UK-EU TCA contains principles with a view to ensuring that subsidies are not granted where they have or could have a “material effect” on investment or trade between the Parties.

This means that public authorities must follow and apply the principles on a case-by-case basis to individual subsidies, subject to exemptions (the principles and the exemptions are set out in Section 5). This is not the same as the notification and approval process in the EU State aid regime and should not be onerous to complete before a subsidy is awarded as part of public authorities’ other due diligence processes, such as making an assessment against Managing Public Money.

All subsidies are within the scope of these principles apart from those that are exempted, including those that are not deemed to impact UK-EU trade such as the carve out in the agreement for Small Amounts of Funding Exemption (see Section 5). And consideration should be given to whether a subsidy is likely to have an impact on trade and investment between the UK and the EU; small subsidies that are purely local in nature may not be in scope of the TCA. For public authorities whose subsidy is in scope of the TCA, a template is included at Annex 2 to record how they have complied with the principles in designing their subsidy. It is recommended that public authorities complete this as a matter of best practice and retain this for their records. This type of information could be requested by the EU (as part of the consultations process or remedial measures process agreed in the TCA) or by an interested party considering a domestic challenge.

Enforcement and the role of courts

The TCA requires both parties to establish or maintain an independent body with an appropriate role in their respective subsidy systems, while retaining full discretion over any functions that body may have. The government has consulted on the role and functions of an independent body in its consultation which closed on 31 March 2021.

The TCA also includes provisions on the role of domestic courts in reviewing domestic subsidy decisions by way of judicial review. Public authorities should be mindful of the possibility that some complainants will challenge subsidy awards by reference to the principles and their effect in domestic law by virtue of provisions in the European Union (Future Relationship) Act 2020. The UK and EU have also agreed that, in certain circumstances, domestic courts should have the power to order the recovery of subsidies that have been improperly granted under domestic law (for example, a subsidy that was in scope of, but did not comply with the principles). This may be done through established UK processes for judicial review with recovery of subsidies only being a remedy, provided that the successful judicial review was commenced within the strict time periods specified in the TCA (Please see Section 4 for details).

Step 4: Assess the likelihood of triggering a dispute or unilateral remedies under the TCA, WTO ASCM rules and other FTAs

In this context, public authorities should assess the subsidy against the WTO ASCM rules and other UK FTAs regardless of whether their measure is in scope of, and compliant with, the terms of the UK-EU TCA. However, as previously noted, in practice the risk of disputes under the WTO ASCM and other FTAs is likely to be small apart from subsidies to sensitive sectors operating at scale in international markets. And in relation to the TCA following the principles may mitigate the risk of the TCA dispute procedure being triggered leading to remedial measures being applied to the UK under the mechanism set out below.

Under the TCA, the UK and the EU have agreed a reciprocal mechanism that allows either side to take rapid unilateral action (or “remedial measures”) where a subsidy granted by the other Party is causing, or there is a serious risk that it will cause, a significant negative effect on trade or investment between the Parties. The UK will be able to challenge the EU subsidies granted at the supranational level (for example, funding given by EU institutions), and subsidies granted by EU Member States where these harm the UK. These measures can be challenged using an accelerated arbitration procedure and there is the possibility of compensation if a Party has used these measures in a significantly unnecessary or disproportionate manner.

It should be noted that even where a public authority has assured itself of the compatibility of the subsidy with the terms of the TCA a trade partner can raise concerns about a subsidy the UK has given through the WTO actionable subsidy route or, where available the terms of another FTA.

Where a public authority has deemed itself out of scope of the TCA but is within scope of the WTO ASCM or another FTA, they should also consider the below material. Each subsidy carries its own individual risk, so the possibility of a subsidy triggering WTO action must be assessed on a case-by-case basis and past disputes should not be considered a reliable guide to what subsidies may concern other WTO members.

Under the WTO actionable subsidy provisions, members can dispute the award of a subsidy if they can demonstrate the subsidy causes actual adverse effects on their interests. As set out in Section 6, any subsidy which is not prohibited could potentially be actionable and subject to challenge by another WTO member if the subsidy causes injury to their domestic industry or ‘serious prejudice’ to their interests. There are specific factors that are likely to increase the risk of a subsidy being challenged through WTO or FTA routes where available.

Public authorities are encouraged to consult the checklist below to help guide their assessment of potential WTO ASCM and FTA risks. The ‘checklist’ sets out several issues which may make a subsidy more likely to be challenged by another country if they can prove it causes adverse effects (or significant negative effect) on their interests and those of their domestic firms. The more items on the checklist that apply to a public authority’s proposed subsidy, the more likely that the measure presents a potential risk.

a) Value of the subsidy

If the subsidy is of high value, then it is more likely to raise concerns with another WTO member or an FTA trading partner. For example, any subsidies that fall below the value threshold of 325k SDR to be registered on the UK’s transparency database are unlikely to carry any appreciable risk of WTO or FTA action. This is not a ‘legal exemption’ and WTO members are still entitled to challenge these subsidies if they can prove harm, even if the actual risk is considered very low. However, even above this threshold, many subsidies will not carry any considerable WTO risks but of course, the higher the value of the subsidy, the more the risk potentially increases. In addition, as outlined in Section 5, the TCA and other FTAs include value thresholds where subsidies below that amount are exempt from certain obligations and this could be used as a guide on the magnitude of subsidies that may cause concern where there are no value thresholds.

b) Historically sensitive sectors

There are a small number of ‘historically sensitive’ sectors which have previously been the focus of WTO action. If a subsidy is targeted at these sectors this is likely to increase the risk of trade partners deciding to start a dispute. Examples of these sectors include steel, automotive and aerospace. Action taken under the terms of an FTA are rare, with countries preferring to use the WTO, but this does not mean the risk of an FTA should be ignored.

c) International competitors

If enterprises within the sector that the subsidy is targeted at usually compete with companies from outside the UK this will increase the risk of WTO or FTA action. This applies to all sectors of the economy and not just ‘historically sensitive’ sectors. Public authorities should consider both the number of international competitors but also the size of those firms and the importance to their country’s economy.

d) Impact on trade

Public authorities should consider whether the subsidy they are proposing may impact the sales volume, prices or profits of international producers of similar goods, in the UK or foreign markets. If a subsidy impacts international producers in this way this will raise the risk of WTO or FTA action. In the case of the UK-EU TCA, impact on investment should also be considered.

There are no pre-defined mixtures of these characteristic of a subsidy that would guarantee a trade partner would or would not act under WTO ASCM rules or, where available to them, FTA terms. Each subsidy carries its own risk of potentially triggering WTO or FTA action. The more of these characteristics that apply to a proposed subsidy the greater the likelihood is that a trade partner could decide to take action against the subsidy.

Public authorities should adopt a proportionate approach when it comes to conducting analysis to determine WTO and FTA risk. The level of analysis required to satisfy a public authority that there are no, or minimal, appreciable WTO risks will need to be decided on a case-by-case basis, as will the decision as to whether they should contact BEIS to discuss the matter further. Where available, analytical and legal professionals should be consulted as part of these considerations.

If, after conducting an internal risk assessment, a public authority believes the subsidy they are proposing carries a credible risk of a trade partner invoking action through WTO ASCM rules or under FTA terms they should contact Department for International Trade.

Step 5: Record the award of the subsidy

BEIS maintains a transparency database where public authorities should register information on the subsidies they award. This is beneficial not only for providing transparency in a domestic context but will also help deliver compliance with our international reporting requirements with regards to the UK-EU TCA, WTO ASCM and other FTAs.

For example, the UK-EU TCA states that information on relevant subsidies should be made transparent by being made publicly available, on an official website or a public database, within 6 months^{[footnote 15]} of granting a subsidy. The information, which will be collected via the transparency database, covers:

• the legal basis and policy objective or purpose of the subsidy;
• the name of the recipient of the subsidy when available;
• the date of the grant of the subsidy, the duration of the subsidy and any other time limits attached to the subsidy; and
• the amount of the subsidy or the amount budgeted for the subsidy

In addition, under the TCA terms interested parties can request an explanation of how a subsidy respects the principles within 28 days of a request being made in writing. Interested parties include the beneficiary, competitors of the beneficiary and relevant trade associations.

Agricultural subsidies

The process set out above is for industrial subsidies. If a proposed measure is within scope of the World Trade Organisation Agreement on Agriculture (Domestic Support) 2020 (AoA), then the WTO Regulations apply (see Section 6). This covers subsidies given to producers of most agricultural, and some forestry and horticulture, products. The Regulations set out the process for deciding the classification of the support, and recording and categorising subsidies, for the purposes of the AoA. For further information, please contact DEFRA at wto.team@defra.gov.uk.

Section 4: UK-EU Trade and Co-operation Agreement and other FTAs

Alongside the UK’s commitments on subsidies under the WTO, the UK has made agreements with trading partners which contain provisions on subsidies, including as part of the UK’s ‘trade agreement continuity’ programme^{[footnote 16]}. Further information on the content of a selection of these agreements can be found at Annex 1. On 24 December 2020, the UK and EU announced an agreement had been reached on the UK-EU Trade and Cooperation Agreement (TCA)^{[footnote 17]}.

This section focuses on the UK-EU TCA and should be followed once it has been determined that a subsidy may be in scope of this agreement using the guidance and decision tree set out in Section 3 above.

Definition and scope

The subsidies chapter within the UK-EU TCA provides the definition of a subsidy for the purpose of the chapter that is bespoke to the Agreement. This definition set out in Article 363 builds upon the WTO ASCM and draws in elements that are common to the EU State aid rules. It states there will be a subsidy where:

i. there is financial assistance arising from resources of the Parties (followed by a non-exhaustive list); ii. which confers an economic advantage on one or more economic actors;
iii. which is specific insofar as it benefits certain economic actors over others in relation to the production of certain goods or services; and iv. has or could have an effect on trade or investment between the UK and the EU.

The phrase “economic actor” relates to an entity or group of entities engaged in an economic activity by offering goods or services on the market; it is similar in meaning to the WTO ASCM term “enterprise” and the EU term “undertaking”. There are detailed provisions to assess whether a tax measure (if it comprises financial assistance under the first limb of the definition) is “specific” for the purposes of the UK-EU TCA. The fourth element requires that the subsidy has, or could have, an effect on trade or investment between the UK and EU; this is relevant only to the definition of a subsidy (i.e., whether the subsidy chapter applies), the requirement to be transparent about the subsidy, and relevant thresholds.

In common with other FTAs, the TCA has ‘value’ thresholds whereby the subsidy chapter does not apply to certain subsidies based on the value of the subsidy or do not apply to subsidies value at below a certain amount. The UK-EU TCA subsidies chapter only applies to subsidies over the value of 325,000 Special Drawing Rights, which is an IMF unit, per beneficiary over a three-year period (TCA Article 364), (“Small Amounts of Funding Exemption”); this threshold is set higher, at 750,000 Special Drawing Rights, for Services of Public Economic interest (Article 365)^{[footnote 18]}. The scope and exemptions of the TCA are set out in Article 364.

It is also common for subsidy chapters to have agreed areas that are exempt. Annex 1 sets out where continuity agreements and other FTAs have ‘exemptions’. The UK-EU TCA includes the following exceptions:

• certain agricultural subsidies, and subsidies related to trade in fish and fish products which are covered by the WTO Agreement on Agriculture, and subsidies for audio-visual services are excluded from the provisions of the subsidies chapter;
• subsidies for natural disasters or other exceptional non-economic occurrences are subject to the transparency provisions and consultations provisions, but are outside the provisions on prohibited subsidies/subsidies subject to conditions, principles and remedial measures;
• temporary subsidies to address the effects of a national or global economic emergency are allowed as long as they are targeted and proportionate. They must follow the principles and the transparency provisions. However, they are exempt from remedial measures and from the provisions under prohibited subsidies.

These provisions in the UK-EU TCA are relevant for Covid-19 related subsidies. Covid-19 schemes in operation before the 1 January 2021 will already be compliant and will not need to be amended. Going forward, subsidies that provide compensation for actual costs incurred because of Covid-19 are provided for under Article 364(1) (to compensate the damage caused by natural disasters or other exceptional non-economic occurrences). These are subject to the provisions on transparency and consultations but are not subject to the provisions on prohibited subsidies, principles and remedial measures. Subsidies that provide support to industry are provided for under Article 364 (3) temporary subsidies to respond to a national or global economic emergency) if they are targeted, proportionate and effective. They must follow the principles and the transparency provisions. However, they are exempt from remedial measures and from the provisions under Article 367 (prohibited subsidies and subsidies subject to conditions). Covid-19 related subsidies in Northern Ireland will continue to follow the terms of the Temporary Framework to the extent that they are within scope of the Northern Ireland Protocol.

Action

Public authorities are encouraged to refer to the text of the TCA and where necessary, contact subsidycontrol@beis.gov.uk if they need further advice on whether their measure is within scope of the relevant subsidy chapter.

Awarding a subsidy in scope of the TCA - application of the principles

The TCA contains principles in Article 366 with a view to ensuring that subsidies are not granted where they have or could have a “material effect” on investment or trade between the Parties. This means that public authorities must follow and apply the principles on a case-by-case basis to individual subsidies, subject to exemptions.

The principles to be respected are as follows:

a) subsidies pursue a specific public policy objective to remedy an identified market failure or to address an equity rationale such as social difficulties or distributional concerns (“the objective”);

b) subsidies are proportionate and limited to what is necessary to achieve the objective;

c) subsidies are designed to bring about a change of economic behaviour of the beneficiary that is conducive to achieving the objective and that would not be achieved in the absence of subsidies being provided;

d) subsidies should not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy;

e) subsidies are an appropriate policy instrument to achieve a public policy objective and that objective cannot be achieved through other less distortive means;

f) subsidies’ positive contributions to achieving the objective outweigh any negative effects, in particular the negative effects on trade or investment between the Parties.

For subsidies that are in in scope of the principles, a template is included at Annex 2 for public authorities to record how they have complied with the principles in designing their subsidy. It is highly recommended that public authorities complete this as a matter of best practice and retain this for their records. This type of information could be requested by the EU (as part of the consultations process or remedial measures process agreed in the TCA) or by an interested party considering a domestic challenge.

The UK-EU TCA includes a separate joint declaration that provides non-binding guidance on additional sectors which either side may take into consideration in their respective systems of subsidy control. These relate to: subsidies for the development of disadvantaged areas (regional aid); subsidies for transport (airports, roads and ports); monetary policy, and subsidies for research and development.

Subsidies of Public Economic Interest (SPEIs) – which are subsidies provided to deliver public services such as the Post Office network - must meet the terms of the principles^{[footnote 19]} if their value is over 750,000 Special Drawing Rights, and the terms of Article 365 of the TCA covering SPEIs. SPEI are public services whose end user are private citizens, which the market would not normally provide or not to the extent required. Article 365 sets out conditions for such subsidies, including that compensation is limited to what is necessary to cover all or part of the costs incurred in the discharge of the public interest task, taking into account the relevant receipts and a reasonable profit for discharging that task. Public authorities must ensure that any subsidy for SPEI is not used to cross-subsidise the beneficiary’s commercial activities. The SPEI task must be assigned in advance in a transparent manner.

Prohibited Subsidies

Public authorities should pay particular attention to the set of FTAs which include obligations related to additional categories of prohibited subsidies. In these instances, the UK has agreed with a trade partner to go beyond the two categories of prohibited subsidies contained within the WTO ASCM. Where they exist the categories of additional prohibitions can be broadly defined as:

• ‘unlimited guarantees’ – these are subsidies where public authorities cover debts or liabilities of enterprise without any limitation (including amount and duration).
• ‘rescue without a credible restructuring plan’ – these are subsidies to an ‘insolvent or ailing enterprise’ without establishing a credible restructuring plan to bring the enterprise back to long-term viability within a reasonable time period.

The UK-EU TCA mirrors several the prohibitions above and in the WTO ASCM rules (the latter extended to cover services as well as goods). There are also more detailed provisions on export subsidies and rescue and restructuring (including in the case of banks, credit institutions and insurance companies). The UK-EU TCA also sets out a small number of subsidies which are subject to conditions. These relate to subsidies granted to air carriers, subsidies to energy and the environment and subsidies granted in the context of large cross border or international cooperation projects. Public authorities should consult Article 367 (Prohibited subsidies and subsidies subject to conditions) of the UK-EU TCA for further information and should contact subsidycontrol@beis.gov.uk if they believe their proposed subsidy could fall within scope of these prohibitions.

Transparency

A frequent component of FTAs is to include, in addition to the commitments under the WTO ASCM rules, subsidy specific transparency commitments, and public authorities are directed towards Article 369 of the TCA which will be relevant for most subsidy grantors. They commit the parties to report information on subsidies to the other party. The commitments may go further than the ASCM transparency requirements in terms of timing, details or sector. For example, where an FTA has expanded the definition of a subsidy to cover services, then these need to be included as part of the transparency commitments.

These FTA reporting commitments normally need to be fulfilled on a recurring basis (the frequency of reporting varies between agreements but is normally either every 1 or 2 years). These conditions can either be met through directly reporting to the trade partner or, in some instances, the obligation can be met through the publication of the subsidies on a publicly accessible transparency database. The transparency database being developed by BEIS will meet the majority of these requirements. Public authorities should be mindful that there are some international reporting requirements that will not be captured by the transparency database and subsidy information may need to be provided separately in the unlikely event that it is required by an FTA.

Article 369 of the TCA states that information on relevant subsidies should be made transparent by being made publicly available, on an official website or a public database, within 6 months^{[footnote 20]} of granting a subsidy. The information, which will be collected via the transparency database, includes:

• the legal basis and policy objective or purpose of the subsidy;
• the name of the recipient of the subsidy when available;
• the date of the grant of the subsidy, the duration of the subsidy and any other time limits attached to the subsidy; and
• the amount of the subsidy or the amount budgeted for the subsidy

In addition, interested parties can request an explanation of how a subsidy respects the principles within 28 days of a request being made in writing. Interested parties include the beneficiary, competitors of the beneficiary and relevant trade associations.

Consultation

Alongside transparency commitments, many FTAs contain obligations that provide for consultation between parties about particular schemes or individual subsidies, and in the case of the TCA this may be requested for subsidies that have not yet been provided. These consultations, where requested, will take place at an international level between the UK government and the trading partner in question. The results of these consultations are not typically binding although there are obligations to provide information about the subsidy in question if requested and often obligations to make attempts to find mutual resolution.

There is the possibility that a trade partner may wish to discuss with the UK a particular scheme or subsidy that has been awarded by a public authority. In these instances, the UK government will refer initially to the information provided on the transparency database and then liaise with the relevant public authority to provide the trading partner with the necessary information (for example, information on how the subsidy complies with UK-EU TCA principles, which public authorities are highly recommended to record on the template at Annex 2 and retain for their records). In the situation where a trade partner contacts the UK government about a particular subsidy then contact will be made with the relevant public authority.

Enforcement, Dispute Settlement and Remedial Measures

In addition to potentially actionable subsidies under the WTO, FTAs have mechanisms to ensure compliance with the subsidy provisions in each agreement. In general, these take the form of dispute resolution for specific provisions. This means that the UK, or the relevant trade partner, can use the agreement’s dispute resolution process to raise an issue if one partner believes the other is failing to meet their obligations. In the case of the TCA, whether the system of subsidy control ensures the principles, prohibited subsidies and subsidies subject to conditions are applied is subject to the Agreement’s dispute settlement mechanism. However, how these elements have been applied by a public authority on an individual award of a subsidy is not subject to the dispute settlement mechanism.

TCA Article 371 requires both parties to establish or maintain an independent body with an appropriate role in their respective subsidy systems, while retaining full discretion over any functions that body may have. Read details of the government’s consultation on the domestic subsidy regime, which concluded on 31 March 2021.

The Agreement also includes provisions in Article 372 on the role of domestic courts in reviewing domestic subsidy decisions by way of judicial review which may be bought by interested parties. This means any natural or legal person, economic actor or association of economic actors whose interest might be affected by the granting of a subsidy, in particular the beneficiary, economic actors competing with the beneficiary or relevant trade associations (Article 369). The UK government will legislate in the Subsidy Control Bill to give clarity on the role of the courts in subsidy cases (including as regards recovery of subsidies) but public authorities should be mindful of the possibility that some complainants will challenge subsidy awards by reference to the principles and their effect in domestic law by virtue of provisions in the European Union (Future Relationship) Act 2020. The UK and EU have also agreed that, in certain circumstances, domestic courts should have the power to order the recovery of subsidies that have been improperly granted under domestic law (for example, a subsidy that was in scope of, but did not comply with the principles). Recovery could follow from a successful judicial review of the decision to grant the subsidy, provided that the judicial review was commenced within the time period specified in the TCA. This is one month from the date that information in Article 369(1) and (2) is “made available” on the transparency database or other public site. This is extended by a month if the interested party requests the fuller information set out in Article 369(5)(b).

The UK and the EU have agreed a reciprocal mechanism that allows either side to take rapid unilateral action (or “remedial measures”) where a subsidy granted by the other Party is causing, or there is a serious risk that it will cause, a significant negative effect on trade or investment between the Parties. These measures can be challenged using an accelerated arbitration procedure and there is the possibility of compensation if a Party has used these measures in a manner that is neither proportionate nor strictly necessary. This is set out in Article 374.

Rebalancing Measures, set out in Article 411 may be applied where significant divergences in the subsidy control regime have had a material impact on trade or investment between the UK and the EU.

UK-EU Trade and Cooperation Agreement frequently asked questions

Article 363 Definitions

How should public authorities determine when a group of companies constitutes a single economic actor?

A company with subsidiaries or branches should be regarded as a single economic actor, and the level of subsidy should be assessed at group level, unless the subsidiaries are effectively autonomous of the group and cannot rely on it for resources/financing.

In relation to what is meant by a ‘subsidy’, Article 363 (1) (b) suggests that a ‘subsidy’ means financial assistance which arises from the resources of the Parties that is used to provide goods or services, or to purchase goods or services. However, if the goods or services are provided or purchased at a market rate, is this still a ‘subsidy’?

If financial assistance is provided on a commercial basis, or goods or services that are required by the state are purchased at a market rate then there will be no subsidy.

Under Article 363 (2)(c) can a measure be considered non-specific if the exemption is justified by ‘objective criteria’?

A measure may be justified as non-specific if it is available to all enterprises who are in the same legal and factual position on the same terms. This provision is designed to provide clarity on how levy schemes can be designed to fall outside the scope of the TCA.

Article 364: Scope and exceptions

Does Article 364 (3) provide cover for Covid measures?

Subsidies granted to respond to Covid can be granted under Article 364(3) where they meet the relevant conditions, for example, that they are temporary. Such subsidies are excluded from the commitments on prohibited subsidies and subsidies subject to conditions. Furthermore, they cannot result in retaliatory measures.

Existing Covid-19 schemes that were approved under the EU State aid rules can continue, though note that public authorities are no longer bound to follow the limits set out in the EU State aid rules. When public authorities implement new schemes and subsidies, or amend an existing scheme, which could not be done under the terms of EU State aid rules, then an assessment will need to be made against the principles set out in Article 366 This is so that the public authority can satisfy itself of TCA compliance.

Note that only measures that compensate for actual damage caused by a natural disaster or other exception non-economic occurrences are exempt from the application of the principles per Article 364(1), as opposed to general business support to deal with the impact of such occurrences.

In relation to the Small Amounts of Funding Exemption below 325,000 Special Drawing Rights (SDR), how do public authorities determine the Sterling equivalent amount?

Public authorities should use the International Monetary Fund SDR convertor

Support below this level is not subject to compliance with the principles under the TCA agreement.

On what basis is the 3-year limit to be calculated – consecutive fiscal years or rolling 3 x 365 days?

Small Amounts of Funding of less than 325,000 SDR are calculated over a three-year consecutive fiscal period.

How long will public authorities need to keep records on those subsidies under the threshold for De Minimis and Small Amounts of Funding Exemption?

Public authorities must keep records of De Minimis aid granted in the ten years prior to the end of the transition period. The approach for the Small Amounts of Funding Exemption will be determined in the Subsidy Control Bill .

Does any de minimis aid provided to a company in Northern Ireland that has GB ‘partners’ or ‘links’ to GB companies count towards the 325,000 Special Drawing Rights (SDR) ceiling of a beneficiary / single economic actor? (and vice versa)

De Minimis aid and support under the Small Amounts of Funding Exemption need to be cumulated and not exceed the applicable thresholds i.e., De Minimis for aid that is in scope of the NI Protocol, and support under the Small Amounts of Funding Exemption under the TCA. Where De Minimis aid is granted, this would count towards the Small Amounts of Funding Exemption threshold where companies in receipt of support are a single economic actor. The question of whether aid is in scope of the NI Protocol, needs to be tested in line with Chapter 7 of this guidance.

It should also be noted that any De Minimis Aid and support under the Small Amounts of Funding Exemption will also count towards the limit of 750,000 SDR that can be granted outside the TCA for Small Amounts of Funding for Services of Public Economic Interest (SPEI).

What is meant by ‘supranational’ level subsidies?

Supranational subsidies include those provided by EU institutions from centrally-managed EU resources (which are not imputable to Member States and therefore constitute State aid under the EU’s State aid regime).

From 1 January 2021, are public authorities allowed to provide subsidies in scope of the TCA to companies that are not located in the UK’s Assisted Areas map?

Yes. The government is consulting on its approach to subsidies for the development of disadvantaged or deprived areas or regions, but under the TCA subsidies may be granted as long as the principles are met. These areas are not defined, there is no equivalent of the assisted areas map as there is for EU Regional aid, and there are no set limits on the amount of subsidy which may be provided, either as an absolute amount or as a percentage of investment costs. Public authorities should also take note of the UK-EU Declarations of 24 December 2020^{[footnote 21]} which include a non-binding declaration on subsidy control policies. This provides guidance on subsidies for the development of disadvantaged areas, which states that when determining the amount of subsidy, the following may be considered:

• the socio-economic situation of the disadvantaged area
• the size of the beneficiary
• the size of the investment project

The declaration also provides guidance on the beneficiary’s contribution, which must be substantial. Moreover, the subsidy should not have, as its main purpose or effect, to incentivise movement of the beneficiary from one Party to the other.

Article 366: Principles

What are examples of specific public policy objectives to remedy identified market failures?

Examples might include the failure of the market without subsidy to meet climate goals, deliver business finance to SMEs, or to meet the UK’s objective to increase broadband coverage.

What is meant by ‘equity rationale’ such as social difficulties or distributional concerns?

Equity objectives arise where a subsidy granter seeks to reduce inequalities. This provides a basis on which subsidies may be provided to support levelling up and ensure that disadvantaged groups or regions have increased economic opportunity. This could be through support for example for a particular disadvantaged region or for wage subsidies to incentivise companies to hire the long term unemployed. Another example would be where the state steps in to support public services at the level that is required for citizens, such as rural public transport, where the market fails to do so on a commercial basis.

Rescue subsidies to avoid serious local difficulties arising may also serve an equity rationale, though note that such subsidies need to follow an additional set of conditions in the TCA for rescue and restructuring (Article 367).

Is a record of compliance with the principles required for every individual subsidy under a scheme or is it intended to be completed at “scheme” level?

It should be sufficient to do a thorough compliance check with the principles at scheme level. It will, however, be important to ensure that all beneficiaries and subsidy awards are then completely within the terms of the scheme.

Article 367 Prohibited subsidies and subsidies subject to conditions

What constitutes a reasonable time in the context of a restructuring plan for a company to be restored to viability?

This will depend on the size of the company and the sector it is involved in and how extensive any restructuring needs to be. For advice on a particular case, then public authorities should contact BEIS Subsidy Control Team at subsidycontrol@beis.gov.uk.

What is meant by a small and medium-sized enterprise (SME)?

Granting authorities should apply the definition of SME contained in the Companies Act 2006.

Small companies are defined in section 382.

Medium sized companies are defined in section 465.

What is meant by ‘significant funds’ in the context of companies needing to make a contribution to the cost of restructuring?

Public authorities should assess what constitutes significant funds on a case-by-case basis. For advice on a particular case, then public authorities should contact BEIS Subsidy Control Team subsidycontrol@beis.gov.uk.

What is meant by social hardship and severe market failure?

Public authorities should assess what is classed as social hardship and severe market failure on a case-by-case basis. For advice on a particular case, then public authorities should contact BEIS Subsidy Control Team subsidycontrol@beis.gov.uk.

Article 369 Transparency

Where will the details of TCA subsidies be recorded?

A UK database is available and information on subsidy awards must be uploaded onto it within 6 months of the award being made.

Public authorities that require access to the database should contact BEIS Subsidy Control Team subsidycontrol@beis.gov.uk.

Does the requirement to upload subsidy information apply at scheme level or per award?

Details of schemes and awards above the values set out below need to be uploaded.

Currently, each subsidy award of £500,000 or more that is provided under a scheme must be entered onto the database. A subsidy award of less than £500,000 under a scheme must also be entered if it would cumulate with other awards for the same costs to an amount of £500,000 or over for a single recipient.

Ad hoc subsidy awards provided on an individual, one off basis outside schemes must be declared if the award would result in the recipient having received more than 325,000 SDR of non-scheme subsidies or de minimis State aid in the preceding three years.

Compensation above 15 million SDR for services of public economic interest must also be declared on the database.

Will details of all grants awarded after 31 December 2020 but provided under schemes previously set up under the Temporary Framework be required to be published?

Details of schemes that were live as at 01/01/2021 have been extracted from the EU’s electronic notification system (SANI) system and uploaded onto the new database by BEIS.

Do subsidies below 325,000 SDR have to be uploaded to the database?

Subsidies below 325,000 SDR over three years are exempt from the transparency obligations under the TCA, they do not need to be uploaded.

Article 371: Independent authority or body and cooperation

When and how will the UK establish or maintain an operationally independent authority or body?

Under the terms of the TCA, an independent authority will have an ‘appropriate role’ in the UK. Our options on the role of the independent body remain open. The exact role, function and powers of the independent body is being considered as part of the wider consultation on the new domestic subsidy control regime.

Article 372: Courts and tribunals

How is an interested party defined for the purposes of the TCA?

The TCA defines an interested party as any natural or legal person, economic actor, or association of economic actors whose interest might be affected by the granting of a subsidy. This could include the beneficiary, competitors of the beneficiary and relevant trade associations.

Article 373: Recovery

Has the TCA changed the period within which a challenge must be brought against aid awards made in the EU (i.e., by the Commission, Member States, or competitors in the European Union)?

No, the TCA has not changed the substance or procedure of the EU State aid regime. Interested parties will still be able to complain to the European Commission if they believe there has been unlawful aid granted in the EU (or for aid in scope of the NI Protocol).

How can public authorities manage the risk of recovery of subsidies?

As previously noted, recovery is a time limited remedy and only applies where subsidies do not follow the TCA principles. Therefore, public authorities should ensure that the subsidy meets the principles, making an assessment using the form provided in the annex to this guidance, which should evidence how the principles are met, and they should also upload the required subsidy information promptly on the UK subsidy database, to minimise the risk of recovery for any potential beneficiaries.

Section 5: World Trade Organisation agreements

This section explains the obligations contained in the WTO agreements. Even if a subsidy is compliant with the UK’s commitments with the EU they could still be challenged under the UK’s WTO ASCM (and FTA subsidy commitments) and therefore a WTO assessment should still be made.

WTO Agreement on Subsidies & Countervailing Measures (ASCM)

The WTO ASCM came into force in 1995 and sets a framework for how subsidies given by WTO members interact with international trade and competition^{[footnote 22]}. The terms of this agreement only apply in relation to trade in goods.

For the purposes of the WTO ASCM a subsidy is defined as a financial contribution^{[footnote 23]} provided by a public authority^{[footnote 24]} – which includes, but is not limited to, central, devolved, regional and local government – that provides a benefit to the recipient^{[footnote 25]}.

Examples of financial contributions include but are not limited to:

a) the direct transfer of funds from a public authority to an organisation through measures such as a grant or loan;

b) the potential direct transfer of funds or liabilities, for example through a loan guarantee, between a public authority and the recipient;

c) a public authority forgoing revenue otherwise due from an enterprise. This could be in the form of financial incentives such as tax credits;

d) where a public authority provides a good or service to an enterprise (apart from those considered general infrastructure), or purchases goods^{[footnote 26]} ;

e) where a public authority uses a funding mechanism or private entity to undertake one or more of the above functions in a way which is no different to the public authority conducting the activity which would normally be vested in the government (or other state entity) and the practice, in no real sense, differs from practices normally followed by governments.

Any support must provide the recipient with a benefit in order to be considered a subsidy, i.e., the recipient becomes ‘better off’ as a result of the financial contribution. In general, a ‘benefit’ exists if the recipient is advantaged in what they could have received from the market (in the absence of the subsidy). The existence of a benefit is determined by the situation of the recipient, rather than the cost to the public authority. For example, if the financial contribution is in the form of:

a) a grant – does the award of the grant provide a recipient with funds that it otherwise would not have had access to?

b) a loan or equity investment – are the terms of that loan or investment more favourable than the recipient could have received from a commercial lender or investor?

c) a loan guarantee – are the repayment terms more favourable to the recipient than it otherwise would have been able to receive without a public authority guaranteeing the loan?

d) provision of a goods or services – is the provision of a good or service by a public authority being provided at a cost which is below that the recipient could be expected to pay if they obtained the good or service from another provider?

However, in order for a subsidy to be subject to challenge under the WTO ASCM rules^{[footnote 27]} it must be ‘specific’^{[footnote 28]} . This means that a subsidy has been, in fact or in law, targeted at one of the following by a public authority:

• a particular enterprise or enterprises; or
• a particular sector or industry; or
• a particular region^{[footnote 29]} .

Article 2.1(b) of the ASCM states that certain subsidies are not deemed specific if they set out objective criteria or conditions^{[footnote 30]} governing the eligibility for, and the amount of, the subsidy. This is subject to providing that eligibility is automatic, the criteria or conditions are strictly adhered to and the criteria or conditions are clearly spelt out in an official document. In addition, the ASCM states that “the setting or change of generally applicable tax rates by all levels of government entitled to do so shall not be deemed to be a specific subsidy”.

Public authorities should be aware that a subsidy may be specific ‘in fact’ even if upon initial analysis it does not seem to meet the criteria. A subsidy that appears open to all enterprises, sectors and regions could still be considered specific if:

a) a subsidy programme is used by a limited number of enterprises, b) there is predominant use by certain enterprises, c) disproportionately large amounts of subsidy have been granted to certain enterprises, or d) the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy suggests targeting in fact.

Public authorities should note that it is the activity that an organisation is engaged in, not its intentions, that define whether any support provided could be considered a subsidy. For example, non-profit organisations, charities, and public bodies can receive support that is defined as a subsidy if they are engaged in certain activities, such as the competitive provisions of goods and services. Support to these types of organisation when they are not engaged in such activities is not considered a subsidy. As such, support to individuals through the social security system is not a subsidy and neither is support given to publicly funded healthcare or school-age education.

WTO ASCM rules do not explicitly define an enterprise, industry, sector or region but WTO case law does set out more information on these concepts^{[footnote 31]}. If public authorities remain unsure if their subsidy is being given to an enterprise, industry sector or region they should contact subsidycontrol@beis.gov.uk.

The diagram below gives a simple view of how a subsidy is defined under WTO ASCM rules and whether it is ‘specific’.

Figure A: definition of a subsidy.

WTO Agreement on Agriculture (AoA)

Subsidies given to producers of most agricultural, and some forestry and horticulture, products fall within the scope of the WTO AoA. Such subsidies, often referred to as ‘domestic support’ are excluded from the WTO ASCM and often exempted from FTA subsidy chapters.

Whilst the AoA does not provide a specific definition of a subsidy, the definitions in the ASCM should be read across to the AoA where possible. The AoA defines what is in scope of the Agreement by specifying the product coverage. Financial support given to producers of the products listed in Annex 1 of the Agreement is within scope. If producers of any of these products are eligible for the support, then the support is likely to be within scope of the AoA, and related commitments in the agreement, as well as in scope of the UK’s relevant secondary legislation^{[footnote 32]}.

The design and implementation of agricultural support schemes is devolved with DEFRA being the lead Department in England. For further information on the AoA, and reporting and notification requirements under the AoA, please contact DEFRA WTO Policy Team: wto.team@defra.gov.uk. If your organisation is based in Northern Ireland, Scotland, or Wales, please contact the equivalent department in the relevant Devolved Administration.

The ASCM prohibits the granting of two types of subsidies, while most other subsides are, in principle, permitted but potentially “actionable” if another WTO Member State can evidence that they cause harm. The agreement contains processes to deal with the situation where a WTO member grants a prohibited subsidy and where disputes relating to potentially actionable subsidies between trading partners arise. It also has provisions on the use of countervailing measures which are primarily tariffs used to offset the damage subsidies can cause.

Unlike EU State aid rules, there is no obligation to notify subsidies to a body for approval before giving the subsidy^{[footnote 33]}. The ASCM used to have categories of “non-actionable” subsidy which would always be safe from challenge, but these no longer exist. Therefore, it is not possible to provide a full guarantee against the risk of potential challenge from another WTO state. This should not, however, necessarily stop public authorities proceeding to award their subsidies.

Instead, the key issues to consider under ASCM are:

a. whether your subsidy falls into the “prohibited” category;

b. accepting that ‘specific’ subsidies are potentially “actionable”, assess (as far as possible) the adverse effects of the subsidy on other WTO members and their potential appetite to bring a challenge against the UK on the basis of the subsidy

Prohibited subsidies under the ASCM

Article 3 of the ASCM sets out two categories of subsidies which WTO members are prohibited from awarding, given their impact on trade.

Firstly, public authorities should not provide subsidies where the award is dependent upon export performance^{[footnote 34]}. An example could be a subsidy that is conditional on a company increasing its exports by 5%. Annex 1 of the ASCM includes a number of illustrative examples of what constitutes an ‘export subsidy’. This would include, for example, tax breaks on exported products that are more favourable than those offered to similar domestically consumed products^{[footnote 35]}. Secondly, the ASCM prohibits subsidies which make the award of the subsidy contingent on the recipient using domestic rather than imported goods^{[footnote 36]}.

There is a dispute resolution process that can be triggered if there are concerns that a particular subsidy given within the territory of a WTO member is prohibited by the ASCM.

Subsidies that are potentially actionable under the ASCM

Other types of subsidies, as long as they are “specific”, are potentially “actionable” under the ASCM. Although they are not prohibited, other WTO members can dispute their award if they can demonstrate the subsidy causes adverse effects on another member’s interests^{[footnote 37]}. In practice, a subsidy is likely to be considered to cause injury or ‘serious prejudice’ if it leads to market displacement, price undercutting, or significant price suppression, price depression or lost sales in the UK or foreign markets.

When designing a subsidy, public authorities should consult the relevant Articles of the ASCM and, as far as possible and in a proportionate manner, consider the impact their subsidy could have on other WTO members’ trade interests.

Any assessment should be proportionate to the subsidy being awarded. Public authorities should note that many subsidies are unlikely to exhibit the characteristics that would normally concern a trade partner.

Where a WTO member has concerns about a subsidy granted by another member, the ASCM sets out the actions that can be taken by the country concerned. There are two main routes to challenge a potentially ‘actionable subsidy’^{[footnote 38]}.

One route is for the potentially impacted WTO member to discuss the issue directly with the member whose subsidy is causing concern. The aim is to negotiate a mutually acceptable resolution. If this is unsuccessful, then the dispute can be referred to an arbitration panel formed through the WTO’s Dispute Settlement Body. The panel can make a legally binding recommendation to the subsidising member to withdraw the disputed subsidy or remove the adverse effects it causes. If this recommendation is ignored or not fully fulfilled, the WTO can authorise the complaining member to impose countermeasures. Any countermeasures must be commensurate with the degree and nature of the adverse effects determined to exist and can include tariffs on products and sectors different to those subject to the original subsidy. With a functioning WTO Appellate Body, the recommendations of the panel and subsequent action can be appealed.

The alternative route is for the WTO member to launch its own investigation into the subsidy and produce evidence of the harm caused to their domestic industry. Following this investigation, the member can impose ‘countervailing duties’ but only on imports of the item whose production has been subsidised and limited to offsetting the harm caused by the offending subsidy. The imposition of countervailing measures can be appealed through the establishment of an arbitration panel and then, if functioning, the WTO Appellate Body.

Transparency commitments under the ASCM

Within the ASCM there is an obligation on WTO members to notify subsidies for goods which builds upon a similar obligation contained in the WTO General Agreement on Tariffs and Trade (GATT).

WTO members are required to notify all subsidies that are directed to specific enterprises as well as all actions taken against another member. These can range from the initiation of an anti-subsidy investigation through to the imposition of countervailing measures as well as any relevant domestic legislation. The WTO also requires notification of any subsidy that directly or indirectly causes trade effects. Subsidy notifications are reviewed at regular meetings of the WTO Committee on Subsidies and Countervailing Measures, where members may, among other things, raise another member’s failure to submit a notification or ask questions about another member’s subsidy programmes.

In 2021 and beyond, the UK government will need to provide a full subsidy notification to the WTO by 30 June of every odd-numbered year. DIT are responsible for reporting under the ASCM to the WTO, whilst DEFRA is responsible for reporting under the obligations of the AoA.

WTO Agreement on Agriculture (AoA)

The AoA came into effect in 1995 and details the obligations in relation to agricultural subsidies. As a founding member of the WTO, the UK is a signatory to the AoA. Domestic support given to producers of most agricultural (and some forestry and horticultural) products falls within scope of the AoA.

Classifications of support under the AoA

• Green box support is support which is considered to be non-trade-distorting.
• blue box support is support considered trade-distorting (because it is coupled to levels of production) but with limited impacts because it is coupled to limited levels of production.
• amber box support is support which is considered to be potentially trade distorting.

Domestic support within the scope of the AoA is treated differently depending on whether it is considered trade distorting or not, and the different classifications are set out in the box above. Only support that is classified as trade-distorting (‘amber box’ support) is subject to limits, but all support given in favour of agricultural producers within the scope of the AoA must be recorded and notified to the WTO. UK regulations^{[footnote 39]} made under the powers in the Agriculture Act 2020 set out the processes for classifying and notifying domestic support that falls within scope of the AoA, as well as limits for each part of the UK on amber box support.

Green box and blue box support are exempt from the reduction commitment and is not subject to limits under the AoA. Permitted support that does not meet the green box or blue box requirements is by default amber box and is subject to limits. This limit applies to the UK as a whole. For transparency, all (green, blue, and amber box) domestic support awarded to agricultural producers in the UK must be notified to the WTO on an annual basis. Domestic regulations and non-legislative agreements have been put in place to ensure UK-wide compliance with these obligations.

Section 6: Northern Ireland Protocol

Summary

As set out in previous sections, from 1 January 2021 the government will follow the World Trade Organisation rules for subsidy control and any related commitments the government has agreed in Free Trade Agreements. In addition, the arrangements agreed in the Northern Ireland Protocol (NI Protocol) to the Withdrawal Agreement, to avoid a hard border on the island of Ireland, include obligations with respect to State aid at Article 10. The UK has given effect to these commitments in domestic law under section 7A of the European Union (Withdrawal) Act 2018.

Article 10 of the NI Protocol provides that EU State aid rules will continue to apply to the UK in respect of measures which affect trade in goods and electricity between NI and the EU. This means that for the substantial majority of subsidies in Great Britain the Protocol will not be engaged It is important to note that Article 10 does not directly apply to services so NI will enjoy new freedoms to provide subsidies for services, subject to the UK’s own independent subsidy control regime.

This section is guidance about the practical application of Article 10 of the NI Protocol and is published by the Secretary of State for the purposes of section 48 of the United Kingdom Internal Market Act 2020. All public authorities in the UK with functions relating to the implementation of Article 10, such as providing financial assistance or other subsidies, must have regard to this guidance when exercising such functions.

The State aid provisions of Article 10 will, in practice, primarily apply to aid for manufacturers and sellers of goods located in NI that trade with the EU. In certain limited circumstances, these provisions may also apply to aid measures granted in the rest of the UK, if these could have an effect on trade between Northern Ireland and the EU. Such aid will need to be granted in compliance with EU State aid rules.

Article 10 of the Protocol has been subject to specific further consideration as part of the work of the UK-EU Joint Committee overseeing the implementation of the Protocol. This was in line with the UK government’s view, expressed in its policy statement of 17 September 2020, that there should be protections to avoid any “insistence that the EU’s state aid provisions should apply in GB in circumstances when there is no link or only a trivial one to commercial operations taking place in NI”.

This concern has now been addressed through declarations in the Joint Committee, which have legal force in interpreting the Protocol. The EU’s declaration states that:

When applying Art. 107 TFEU to situations referred to in Art. 10(1) of the Protocol, the European Union will have due regard to Northern Ireland’s integral place in the United Kingdom internal market. The European Union underlines that, in any event, an effect on trade between Northern Ireland and the Union which is subject to this Protocol cannot merely be hypothetical, presumed or without a genuine, direct link to Northern Ireland. It must be established why the measure is liable to have such an effect on trade between Northern Ireland and the Union, based on the real foreseeable effects of the measure.

In practical terms, this declaration means that subsidies granted in Great Britain are only in scope of Article 10 where there is a clear benefit from and a genuine, direct link between the subsidy and companies in Northern Ireland.

This guidance is intended to help public authorities reach a view on whether the NI Protocol applies to subsidies granted in Northern Ireland and the rest of the UK. However, public authorities will need to decide, before granting any aid either individually or via a scheme, whether the aid is outside the scope of the Protocol. The guidance suggests a number of ways in which this may be done.

However, this guidance cannot provide legal certainty or address every potential circumstance a public authority may encounter. Therefore, if there is any doubt about whether the NI Protocol applies, advice should be sought from the BEIS or DEFRA Subsidy Control teams, for industrial and agricultural measures respectively. The UK will only notify measures to the Commission when public authorities and the relevant Department’s Subsidy Control team agree that this is legally required. This approach should be taken both to notifications that need to be approved by the Commission, and those which are made pursuant to Block Exemption Regulations.

This section of the guidance only concerns measures that constitute a State aid. Those measures that do not constitute a State aid do not need to be considered for the purposes of Article 10 of the NI Protocol. Accordingly, the first question that public authorities should consider is whether they are giving a State aid before consideration of whether a particular measure falls within scope of Article 10. Most public spending in the UK falls outside State aid rules entirely, such as social security, support for the NHS and Higher Education, and the building of general infrastructure, such as public roads or flood defences.

The European Commission’s interpretation of EU case law on what does and does not constitute State aid is set out in its Notice on the Notion of Aid. It is important to note however that the notion of aid, for the purposes of Article 10, is to be understood differently, taking into account the Joint Committee declaration. Therefore, in relation to subsidy measures outside Northern Ireland, these will only have an effect on trade between Northern Ireland and the EU, and hence constitute State aid within the meaning of Article 10, if there is a genuine, direct link to Northern Ireland (see the ‘Application of Article 10 beyond Northern Ireland’ heading below).

Application of Article 10 in Northern Ireland

Aid for goods and electricity

Article 10 will apply to aid granted to manufacturers of goods located in Northern Ireland, where this could affect trade between Northern Ireland and the EU. In these circumstances, public authorities should take the steps they would have done before 1 January 2021 to comply with State aid rules. This could be either using de minimis rules, or a General Block Exemption, or seeking approval from the Commission before granting the aid (similar rules and exemptions are also available for agriculture and fisheries as expanded under the next heading). Public authorities are also encouraged to consider whether support may be provided on a no-aid basis, such as through the provision of commercial loan guarantees, or making support available on a non-selective basis. Furthermore, subsidies that have a purely local effect do not constitute State aid.

Article 10 will also apply to aid measures in respect of wholesale electricity markets insofar as they apply to the generation, transmission, distribution, and supply of electricity, trading in wholesale electricity or cross-border exchanges in electricity.

Aid for agriculture and fisheries

Once a public authority has determined that it is providing aid relating to agriculture or fisheries, consideration must be given as to whether it is also in scope of Article 10 of the NI Protocol.

This is important as Article 10(2) of the protocol provides for an exemption for aid to agriculture and fisheries – within certain limits – to EU State aid rules which would otherwise be applied. The UK is responsible for monitoring and reporting on compliance with the NI Protocol, including use of the exemption for agriculture and fisheries subsidies. As such, public authorities should contact the Northern Ireland’s Department of Agriculture, Environment and Rural Affairs (DAERA) if they believe that spending may relate to agriculture and fisheries, and that spending falls within scope of Article 10 of the NI Protocol.

Article 10(2) sets out that EU State aid rules will not apply in respect to measures taken by the UK to support the production of, and trade in, agricultural and fisheries products in Northern Ireland. The UK-EU Joint Committee has reached a binding Decision as to the limits that apply in this regard^{[footnote 40]}. This exemption applies to spend up to a total of £382.2 million per annum for agriculture, and up to a total of £16.93m over five years for fisheries, with a maximum spend of £4.01m annually (provided that the spending does not fall within the prohibited categories set out in the Joint Committee’s Decision on the limits that apply). Furthermore, for domestic support relating to agriculture, 83% of this exempted 10(2) limit must comply with the provisions of Annex 2 to the WTO AoA, also known as ‘Green Box’. To be Green Box compliant, the support needs to be considered non trade-distorting.

Beyond the 10(2) limit, EU State aid rules as detailed in Article 10(1) and Annex 5, will apply. This means that public authorities will need to be aware of EU State aid rules and the relevant notification processes. Even under Article 10(1), public authorities spending money on agriculture and fisheries will be able to utilise certain measures to give state aid lawfully such as de minimis limits and general, agricultural, and fisheries block exemptions.

Any public authority seeking to provide aid relating to agriculture or fisheries which is within scope of Article 10 of the NI Protocol should consult DAERA, both to confirm whether a full exemption may apply under Article 10(2) or a limited exemption applies under Article 10(1), and so that reporting can take place in compliance with the NI Protocol.

Aid for services

As the Protocol only applies to aid that affects NI-EU trade in goods and electricity, then in principle aid that is granted to service providers, should not be covered. NI will therefore enjoy greater flexibilities for its service industries under domestic subsidy arrangements than is the case under the EU State aid rules. However, subsidies for services will still need to follow the requirements under our other FTAs including the UK-EU TCA, where applicable.

There may, however, be certain extremely limited circumstances in which subsidies to a services provider could still distort competition or affect trade of a particular good between Northern Ireland and the EU^{[footnote 41]} . This may arise where a company provides services that are specifically tailored to the needs of a particular company or a sector that manufactures or trades in goods. This is referred to as the ‘servitisation’ of goods. When designing a subsidy scheme for a service provider, public authorities should examine the form of the service provision in order to establish whether it is likely to be in scope of Article 10 of the Protocol.

Public authorities giving capital investment support to companies that produce both goods and services also need to consider the implications of Article 10. General training aid and support for research and development may, for example, offset costs related to both goods and services. However, public authorities should seek to establish through due diligence whether the costs that are being offset are in respect of goods or services, and where possible to separate these out, as only the aid for goods should be in scope of Article 10.

Undertakings in difficulty

In applying the ‘undertaking in difficulty’ test for aid that is within scope of Article 10 to determine whether a recipient is eligible for support, public authorities should note that accounts will need to be examined at the level of the parent company. This includes where aid is granted to a NI company, but the parent company is in Great Britain.

Application of Article 10 beyond Northern Ireland

The NI Protocol will principally be of relevance to aid granted in Northern Ireland. However, UK public authorities that grant subsidies should consider the extent to which these could affect trade between Northern Ireland and the EU, and therefore whether Article 10 could apply to aid.

It will be important for public authorities to carefully consider whether subsidies granted are in scope of Article 10 in light of this guidance. The starting assumption for subsidies granted to recipients outside of Northern Ireland should be that the NI Protocol does not apply. This is bolstered by the EU Unilateral Declaration in the Joint Committee, which has legal force in interpreting the Protocol. This underlines the need for a “genuine and direct” link between the aid and the effect on NI-EU trade; and makes clear that this has to be the “real foreseeable” effect of the measure.

To determine whether Article 10 applies, it will be necessary to assess each case on its individual facts to establish whether the subsidy could affect trade in goods between NI and the EU. For example, to the extent that a UK-wide measure benefits NI companies, or a subsidy is given to a company in GB with a subsidiary or branch in NI (without appropriate separation between those entities), it is likely to fall within the scope of Article 10. Even where these conditions are met, however, it may be possible through scheme design, or separate accounting to ensure that such subsidies do not engage Article 10.

It may also be necessary to assess the factual circumstances where a subsidy is given to a company in GB which produces goods exported to NI. While Article 10 is highly unlikely to apply, subsidies that have the effect of channelling advantages to one or a select group of enterprises in Northern Ireland may need to be considered further. Secondary economic effects, such as a general increase in economic output, do not constitute State aid and are therefore outside of Article 10. Therefore, where a subsidy is provided, and a company then simply places goods on the NI market alongside other markets then this subsidy will not be in scope of Article 10. Please contact subsidycontrol@beis.gov.uk for further advice if necessary.

As noted above, there should be a very strong assumption that aid to services cannot be relevant to Article 10. Servitisation will usually be a secondary effect, and it is only where there is a direct foreseeable link between the subsidy of a service, and the production of goods affecting trade between NI and the EU that consideration needs to be given as to whether the subsidy is aid in scope of Article 10. Making the distinction between subsidies that could be caught and a secondary effect, which will not be caught, can be difficult and will turn on the individual facts of the case, for example the amount of aid, its purpose, and the contractual and selling arrangements of the recipient, but public authorities should seek advice from subsidycontrol@beis.gov.uk.

Managing the application of the NI Protocol

The above provides a general guide as to the potential application of Article 10. It is important to undertake a robust assessment in each case as to whether aid falls within scope of the Protocol or not and consider practical steps to manage how subsidies are granted. The table below suggests how public authorities might manage the application of the Protocol in some areas where it might be engaged.

Measure in potential scope	Management
UK-wide measures if NI manufacturing companies benefit.	Schemes operating UK wide may be designed in a way that ring-fences aid to GB, without engaging Article 10. Only the NI element of the scheme would then need to be notified
Subsidy to a company in GB with a subsidiary in NI trading in goods/energy	Maintenance of separate accounts for GB and NI would provide confidence that the subsidy provided for investment in GB cannot cross subsidise commercial goods operations in NI that affect trade with the EU. Article 10 might apply if a company in GB is able to directly cross subsidise commercial operations in NI.
Subsidy to a company in GB simply producing goods that are exported to NI.	There is a presumption that this is out of scope because there would need to be a genuine and direct link between the aid and the effect on trade between NI and the EU. Where a subsidy is provided, and a company then simply places goods on the NI market alongside other markets then then this subsidy will not be in scope of Article 10. goods
Servitisation of goods, where a subsidy for a service contributes to a lower price for a good caught by Article 10, for example, a subsidy to a GB logistics firm with tailored services to a NI client.	If there is no real direct foreseeable link between subsidy for a service and effect on trade in goods, between NI and the EU, i.e., the service is not dedicated to the production or trade of goods, Article 10 should not apply.

In those limited circumstances where aid measures are in scope of Article 10, the following requirements will apply:

• notification and stand-still obligations in respect of relevant new aid;
• any reporting obligations in respect of relevant aid measures; and
• any decision adopted by the Commission addressed to the UK.

Seeking advice and managing notifications

Public authorities should contact subsidycontrol@beis.gov.uk or the DEFRA Subsidy Control team if they are planning a subsidy measure which they consider may fall within scope of Article 10. The teams can provide a view on whether Article 10 applies, and where that is the case advise on what is needed to comply. Any notifications of aid to the Commission must be made via the BEIS or DEFRA Subsidy Control team, which must agree that they are legally required.

Section 7: Updates and further information

The content of this document will be reviewed on a regular basis to ensure it remains up to date. The accuracy of the guidance, however, with respect to its coverage of the UK’s international subsidy commitments cannot be guaranteed at all times. For example, Section 5 and Section 6 may not instantly be updated to fully capture all the relevant obligations where agreements are updated or interpreted through WTO case law, or new FTAs are entered into with subsidy provisions.

Please contact subsidycontrol@beis.gov.uk if you have any queries or feedback in relation to this guidance. The Department for Business, Energy and Industrial Strategy, Department for International Trade or Department for Environment, Food and Rural Affairs are not able to provide advice to public authorities on the design of their subsidy outside of reviewing compliance with the UK’s international commitments and related domestic law obligations.

1. The material in this guidance sets out subsidy-related provisions in international agreements. The detail outlined is without prejudice to any wider, overarching provisions or ‘exemptions’ contained in those agreements.↩

2. For instance, if a public body were to apply a trade-related investment measure (in the form of local content requirement), as a condition for the receipt of a subsidy, that measure would also be a violation of Article 2 the TRIMs Agreement.↩

3. The UK is also bound by National Treatment obligations in relation to services subsidies under the GATS. GATS Article II (Most Favoured Nation treatment) applies to services subsidies where they are measures by Members that affect trade in services as defined by Article I (Scope and Definition). Moreover, in sectors, sub-sectors, and/or modes of supply in which a Member has scheduled a GATS commitment, Article XVII (National Treatment) disciplines also apply to subsidy practices. Subsidies must be granted on a national treatment basis unless limitations have been specifically inscribed in the UK’s schedule of commitments.↩

4. The AoA sets out obligations and limits on some types of subsidies (domestic support) given to producers of most agricultural (and some horticultural and forestry) products.↩

5. These can be found at https://www.gov.uk/guidance/uk-trade-agreements-with-non-eu-countries↩

6. https://www.gov.uk/government/publications/the-northern-ireland-protocol↩

7. See footnote 1.↩

8. The Green Book: appraisal and evaluation in central government↩

9. Managing Public Money↩

10. Strictly speaking, harm is not an element of the definition of subsidy in the WTO ASCM but subsidies must be harmful before they are actionable by other States↩

11. There may be cases where the benefit of the subsidy is “passed through” to an enterprise supplying goods.↩

12. Servitisation is the term used to describe the trend of an increasing overlap, and link between, the sale of ‘goods’ and ‘services’. For example, a company may sell a physical good as part of a ‘bundle’ with an ongoing maintenance package (which would be considered a ‘service’).↩

13. “subsidies contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance”. It is worth noting that the concept of ‘contingency’ is broader than just ‘conditionality’. A subsidy which induces greater exportation than would otherwise be the case may be found to be de facto contingent on export performance, even where the subsidy is not directly conditioned on exports.↩

14. “subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods”.↩

15. For subsidies in the form of tax measures, the information shall be made public within one year from the date the tax declaration is due and the information required on the amount may be provided as a range.↩

16. Further information about ‘continuity’ agreements can be found at https://www.gov.uk/guidance/uk-trade-agreements-with-non-eu-countries.↩

17. https://www.gov.uk/government/publications/agreements-reached-between-the-united-kingdom-of-great-britain-and-northern-ireland-and-the-european-union↩

18. Special drawing rights (SDR) are supplementary international reserve assets defined and maintained by the International Monetary Fund (IMF).↩

19. Insofar as the application of the principles in Article 364 does not obstruct the performance in law or fact of the particular task assigned to the economic actor concerned.↩

20. For subsidies in the form of tax measures, the information shall be made public within one year from the date the tax declaration is due, and the information required on the amount may be provided as a range.↩

21. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948105/EU-UK_Declarations_24.12.2020.pdf↩

22. Further information on the ASCM can be found in the relevant WTO Analytical Index which includes article-by-article guides on the interpretation and application of WTO agreements: https://www.wto.org/english/res_e/publications_e/ai17_e/subsidies_e.htm↩

23. This includes income and/or price support and the contribution can be ‘in kind’.↩

24. An organisation is considered a public authority (or public body under ASCM terminology) if it is controlled by the government (or other public bodies), or where it performs governmental functions, whether or not a statute or a legal instrument confers governmental authority on such a body. For example, this includes an agency or organisation acting on behalf of the government.↩

25. Footnote 1 of the ASCM gives effect to a particular “carve out” from the definition of a subsidy related to duties or taxes on exported products.↩

26. This would only be considered a subsidy where the renumeration for the good or service was not in line with prevailing market conditions (for example, if a public authority purchases a good at a much higher value than other organisations are offering the same or similar good or service for). Note that government purchases of goods and services may also be also within scope of the UK’s commitments under the Government Procurement Agreement and domestic procurement rules.↩

27. Subsidies contingent upon export performance or on the use of domestic over imported goods are deemed specific under WTO ASCM rules and are prohibited (see Section 6 for more information).↩

28. Public authorities should consult Section 5 to understand how the UK-EU TCA builds upon the concept of ‘specificity’.↩

29. Regional specificity is where a subsidy targets producers in specified parts of a member’s territory.↩

30. Objective criteria or conditions are defined in the ASCM as neutral, which do not favour certain enterprises over others, and which are economic in nature and horizontal in application, such as number of employees or size of enterprise.↩

31. The WTO analytical index sets out article-by-article guides of each WTO agreement. The entry on subsidies sets out how wider WTO case law on these concepts is applied to the ASCM. https://www.wto.org/english/res_e/publications_e/ai17_e/subsidies_e.htm↩

32. World Trade Organisation Agreement on Agriculture (Domestic Support) Regulations 2020↩

33. This is without prejudice to the requirement for public authorities to register their subsidies on the UK’s transparency database. This does not constitute an ‘approval’ mechanism and it is not necessary to register the subsidy on the database prior to the award of a subsidy.↩

34. “subsidies contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance”. It is worth noting that the concept of ‘contingency’ is broader than just ‘conditionality’. A subsidy which induces greater exportation than would otherwise be the case may be found to be de facto contingent on export performance, even where the subsidy is not directly conditioned on exports.↩

35. Annex I also includes certain carve-outs from the prohibition on export subsidies (for example, footnote 59 and the second paragraph of item (k), Annex I to the ASCM).↩

36. “subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods”.↩

37. The WTO member challenging the subsidy needs to demonstrate actual adverse effects would be caused by the subsidy rather than just the subsidy having potential to have such an impact.↩

38. At the time of writing, however, the WTO Appellate Body is currently not functional as it does not have the necessary number of judges to be quorate. The Appellate Body is the final destination for all WTO disputes and, as such, its non-functioning limits the extent to which a WTO Member could rely on the WTO’s Dispute Settlement Body to resolve a dispute.↩

39. The World Trade Organisation Agreement on Agriculture (Domestic Support) Regulations 2020.↩

40. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/946277/Decision_of_the_Withdrawal_Agreement_Joint_Committee_on_agricultural_subsidies.pdf.↩

41. The EU State aid rules apply to subsidies whether directed at recipients trading in goods or services. Therefore, the legislation and case law has not had to set out the circumstances in which the granting of aid to a services provider nevertheless potentially threatens to distort competition or affect trade of particular goods between Member States.↩