Monday, 7 January 2019

Corbyn's opposition to Brexit is vindicated by the EU state aid rules

Jonathan Ford in The FT

Some six years ago, British minicab company, Addison Lee took Transport for London on a journey through the law courts that ended up in 2015 at the European Court of Justice. At issue was a rule that allows only black cabs to use London’s bus lanes. 

Hardly an EU matter you might think, worrying about transport policy in Britain’s capital. But think again. The minicab company argued not only that the rule infringed its freedom to provide services; it was also illegal state aid. Letting black cabs use a bus lane was, in effect, selective support for a specific participant in the wider taxi trade. 

Admittedly the argument did not prevail in Luxembourg and London’s bus lanes remain limited to buses and traditional taxis. But while the ECJ failed to deem the policy state assistance, it did not entirely rebut the principle. 

The justices recognised that TfL’s policy could affect trade between member states because it potentially made it harder for European-owned minicabs to penetrate the market. The definitional ratchet of unfair state aid turned gently another notch. 

“It illustrates how the definition of state aid has expanded over the years,” says James Webber, an antitrust partner at the law firm Shearman & Sterling. “Originally designed to contain industrial subsidy competition, state aid is now much wider than commonly assumed, covering many public spending decisions such as infrastructure investment and tax changes which could be seen to benefit a specific region, sector or even just to incentivise desirable corporate behaviour.” 

Quite right too, you might say. Unfettered subsidy competition is not only wasteful; it is ultimately pointless, for any advantage is lost if it descends into a free-for-all. Which is why it was so uncontentious when Theresa May conceded early in Brexit negotiations that the UK would stick with EU state-aid rules. But in practice what has been signed up to is far from uncontentious. The prime minister’s agreement has contrived to put the UK into a uniquely disadvantageous place, forced to follow the EU’s state-aid rules but not protected by them in return. 

The mischief lies in the so-called Irish backstop, which would leave the whole of the UK still subject to single market regulation in state aid even though the country was formally outside the EU. As a consequence, Britain will continue to apply not only those substantive state-aid rules that existed at exit, but any new ones too. 

The rules are only part of any state-aid decision. What really matters is the discretionary power possessed by the commission to approve or disapprove — sometimes with conditions — any plans member states propose which trigger state-aid concerns. That is inevitably a political process. The UK’s Hinkley Point nuclear project was generously state-aided. But the commission blessed it because two big member states — Britain and France (which was supplying the technology) — had the clout to ram it through. 

While that clout disappears along with Britain’s representation in Brussels at Brexit, UK interests are in theory protected because the discretionary power passes from the EU to the Competition and Markets Authority. But really it does not. In practice the UK regulator will have to get the European Commission’s sign-off, and the final arbiter will be the ECJ. And that is just in Great Britain. In Northern Ireland, the commission will remain in total control of the whole process itself. 

Its discretion may not be used in Britain’s favour. Not only will the UK no longer have insider clout, but it will also be seen as a strategic competitor. Just last week, the foreign secretary Jeremy Hunt was in Singapore, talking admiringly about its economic model, which extends fiscal support to favoured industries. It remains to be seen how keen the commission will be to sign off fiscal measures designed to enhance UK competitiveness and offset any exit bumps. 

Worse, Britain’s anomalous backstop status may mean that while it cannot protect its own industries, it will be defenceless against EU states dangling subsidies to encourage British companies to relocate. State aid in the EU is not problematic if it attracts jobs to the union from non-EEA countries. European goodwill is the only backstop here. 

There is no certainty too that this will be unravelled in any trade deal. Given the permanence of the backstop, the EU has no incentive to offer Britain more favourable terms than the ones in the withdrawal agreement. 

 The deal would unwittingly lock Britain into a regulatory iron maiden of Brussels’ manufacture. As with such contraptions, extraction once inserted may prove harder than clambering in.

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