One Lump or Two? Sugar, State Aid & Subsidies and the UK/EU Trade Regime

In a ruling issued by the High Court in London on 24 February 2022 in proceedings brought by British Sugar, Foxton J provided valuable legal clarity on two very important issues relating to the State Aid and subsidy control rules which have applied in the UK since the end of the Brexit transition period.

These two issues are, first, do the State Aid rules applying under the Northern Ireland Protocol apply to UK measures that do not directly relate to Northern Ireland and, second, what are the domestic legal effects of the anti-subsidy rules in the EU/UK Trade and Cooperation Agreement (the TCA)?

The proceedings brought by British Sugar concerned a measure taken under the UK Taxation (Cross-border) Trade Act 2018 to provide for an autonomous tariff quota (ATQ) for raw cane sugar. British Sugar contended that the ATQ (which it saw as providing an unfair advantage to its competitor Tate & Lyle) amounted to unlawful State Aid in terms of Article 107 of the EU Treaty (as applied by the NI Protocol) and/or a violation of the anti-subsidy rules in the TCA.

State Aid, the NI Protocol and indirect effects

The effect of Article 10 and Annex 5 to the NI?Protocol is to make Article 107 of the Treaty on the?Functioning of the European Union (Article 107) applicable to the UK “in respect of?measures which affect that trade between Northern Ireland and the Union which is?subject to this Protocol”.

One of the key issues which Foxton J had to resolve in this case was whether the effects on NI-EU trade caused by the ATQ were sufficient to trigger the application of Article 107 under the NI Protocol. As he noted, that effect was, "indirect, involves at best very small volumes and is?premised on the unproven assertion that the ATQ is liable to lead to the displacement?of EU refined sugar from Northern Ireland".

Foxton J held that the 'effect' on NI-EU trade envisaged by the NI Protocol had to be interpreted in light of the EU Unilateral Declaration made in relation to the NI Protocol. This included the following statement: "The European Union underlines that, in any event, an effect on trade?between Northern Ireland and the Union which is subject to this Protocol?cannot be merely hypothetical, presumed, or without a genuine and 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 real foreseeable effects of the measure”.

In ruling that the (indirect) effects of the ATQ on NI-EU trade were not sufficient to trigger application of Article 107 as so understood, Foxton J observed that to do otherwise, "would be to permit a barely discernible tail to wag a very large dog. I?am satisfied that the EU Unilateral Declaration was intended to prevent precisely this?kind of argument".

Enforcing the anti-subsidy rules in the TCA

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

There has been a question, however, as to whether s.29 of the European Union (Future Relationship) Act 2020 essentially reverses that position and makes those rules enforceable in the UK courts. Section 29 provides, "Existing domestic law has effect on and after [31.12.20] with such modifications as are required for the purposes of implementing in that law the [TCA] [...] so far as [it] is not otherwise so implemented and so far as such implementation is necessary for the purposes of complying with the international obligations of the United Kingdom under the [TCA]".

The UK has still to implement the TCA subsidy control rules in domestic law. A Bill (the Subsidy Control Bill) to achieve that is still to receive Royal Assent. This has left open the question of whether, and if so how, the 'modification of domestic law' requirement imposed by s.29 would operate to allow for enforcement of the TCA rules in the interim.

As it turns out, Foxton J found that the subsidy control rules did not apply on the facts to the ATQ. However, it is striking that at no point in his judgment does he appear to entertain any doubt that he would have been able to use s.29 to enforce those rules and provide a remedy to British Sugar if they has been breached.