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Vague and vaguer: the Conservatives' roadmap for state aid and public procurement post-Brexit

Nick Pimlott
06/12/2019

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United Kingdom

A brand new state aid regime enabling rapid intervention to support industries in trouble, a public procurement policy that promotes the local economy, and a "Buy British" rule

A brand new state aid regime enabling rapid intervention to support industries in trouble, a public procurement policy that promotes the local economy, and a "Buy British" rule for public bodies when buying food: Boris Johnson's Brexit Roadmap announced on 22 November 2019 is the latest salvo in the Conservatives' efforts to win the votes of Labour Leavers in the upcoming General Election.

That state aid and procurement policy should be considered to be vote-winning, election issues at all is remarkable, but do these promises stack up and are they achievable?

State aid

On state aid, the Conservatives criticise the "notoriously vague" EU state aid rules which require state aid to be approved by the EU institutions to be lawful. (This is not true in all cases - there are well-known tools for the state to fund industry without the need to pre-notify the European Commission such as the General Block Exemption Regulation for state aid and the Market Economy Operator Principle – but the general point that the EU rules generally prohibit state aid unless and until it is approved is correct).

Singled out for criticism (and the only criticism advanced) is the 50-day period it took to obtain clearance from the European Commission for support to the UK steel industry in 2015.

In place of the "vague" EU rules, the Conservatives propose, if elected with a majority on 12 December, to introduce from January 2021 a new state aid regime based on WTO commitments on restricting harmful subsidies.

The new regime will abandon the EU's general prohibition on state aid and introduce a "permissive" approach based on the unexplained concept of "the UK's needs", allowing Governments to have greater discretion over whether or not aid is appropriate. Extremely rapid decisions will be possible and there will be a clear role for a Government body to help manage the system with a transparent decision-making process.

This is not, the Roadmap emphasises, a system that is intended to bail out failure but one that allows immediate action to support industries that are struggling due to events outside their control.

If elected on 12 December, Johnson's Conservatives will face (at least) two immediate obstacles to implementing such a policy.

First, robust state aid controls are likely to form an important part of a future trading relationship between the UK and the EU and a negotiating red-line for the EU. The Political Declaration on the framework for the future relationship agreed by the Johnson Government in October 2019 envisages that "the Parties should uphold the common high standards applicable in the Union and the United Kingdom at the end of the transition period in the areas of state aid, competition...The Parties should in particular maintain a robust and comprehensive framework for competition and state aid control that prevents undue distortion of trade and competition".

Whilst Conservatives would no doubt argue that this does not in terms commit the UK to adopting the EU state aid rules in their entirety (and it is only the Political Declaration, not a binding treaty), the reference to upholding the common high standards applicable at the end of the transition is a clear indication of the intent of the EU that the UK should broadly adopt EU state aid law.

Second, the EU/UK Withdrawal Agreement agreed in October 2019, which once ratified will be a binding treaty, provides for the ongoing applicability of EU state aid law in Northern Ireland. Article 10 of the Protocol on Northern Ireland provides:

"The provisions of Union law listed in Annex 5 to this Protocol [i.e. the EU state aid rules] shall apply to the United Kingdom, including with regard to measures supporting the production of and trade in agricultural products in Northern Ireland, in respect of measures which affect that trade between Northern Ireland and the Union which is subject to this Protocol."

Under the Conservatives' proposed new approach, state aid measures that are applicable to the entire United Kingdom would therefore be subject to two state aid regimes: the UK regime in so far as they relate to Great Britain and the EU regime in relation to Northern Ireland.

Further, it is not only measures that are directly applicable in Northern Ireland or on a UK-wide basis that fall within Article 10. That Article applies the EU state rules to the entire United Kingdom "in respect of measures which affect that trade between Northern Ireland and the Union which is subject to this Protocol". This concept of "effect on trade", the wording of which mirrors threshold for the application of EU state aid law, is likely to be very low bar, catching measures that have a direct or indirect, actual or potential effect. For example, a state aid measure applicable to manufacturers in, say, one region of England could be caught if those companies sell their products to Northern Ireland.

This already complex position will be made doubly so if a Conservative Government introduces state aid rules for the UK excluding Northern Ireland that depart materially from the EU rules.

Public procurement and "Buy British"

On public procurement, the Conservatives promise to replace the "very complex" EU public procurement regulations with new laws that are (i) simpler and cheaper, and (ii) geared towards supporting local business and promoting British business.

The new system will follow principles that are to be found "in all sensible public procurement systems as set out by Professor Sue Arrowsmith [a noted academic in the field of procurement]: Value for money, Integrity, Accountability, Equal opportunities and equal treatment, Fair treatment of providers, Effective implementation of industrial, social and environmental objectives, Opening up of markets, Efficiency".

Which, as it happens, are exactly the principles on which the EU procurement rules are based!

In addition, the Conservatives want to make sure that contracts are put out to tender in a way that promotes their local economies. The new system will be based on the WTO's Government Procurement Agreement which the UK has applied to join in its own right.   Simpler and speedier dispute mechanisms are also promised.

In relation to agricultural products, the Conservatives intend to introduce an explicit obligation on public bodies to "buy British" produce as much as possible while getting best value, continuing to provide high quality meals and not increasing prices.

There is a sense of smoke and mirrors here. If the UK accedes to the Government Procurement Agreement under the WTO, as it has applied to do, it will be subject in public procurement to a non-discrimination rule in relation to economic operators from all signatory states, which include all Member States of the EU.  Further, the GPA itself, though less prescriptive in procedural terms than the EU rules, nevertheless requires procurements to be run in accordance with the same principles as the EU rules - equal treatment, transparency, non-discrimination – and requires a remedies regime. It is in our experience ensuring compliance with those principles that drives the cost of procurement processes (a particular Conservative/Brexiter bugbear) as much as compliance with the black-letter law of the regulations.

Support for British agricultural products through a "Buy British" policy for public bodies would not, however, be impossible under the GPA. Unlike the EU procurement rules which cover all sectors of the economy with very limited exceptions (such as certain types of national security contracts), parties to the GPA may limit the scope of their commitments to open up national procurement markets.   So, the UK could in theory exclude agricultural produce procurement for the purposes of its GPA coverage commitments.  The price for this would likely be loss of access to procurement markets in the EU and in other GPA states for UK agricultural producers.

Further, the Political Declaration agreed in October 2019 takes a much broader view of mutual procurement commitments in a future trade agreement between the UK and the EU.   It states that:

"Noting the United Kingdom's intention to accede to the WTO Government Procurement Agreement (GPA), the Parties should provide for mutual opportunities in the Parties' respective public procurement markets beyond their commitments under the GPA in areas of mutual interest, without prejudice to their domestic rules to protect their essential security interests".

In addition, the Parties indicate their intention to "commit to standards based on those of the GPA ensuring transparency of market opportunities, public procurement rules, procedures and practices. Building on these standards, the Parties should address the risk of arbitrary behaviour when awarding contracts, and make available remedies and review procedures, including before judicial authorities."

Conclusions

The Conservatives' proposals for a more British-focussed state aid and public procurement regime post-Brexit are likely to come rapidly into conflict with the desire of the EU to maintain a level playing field and the UK's other international obligations.

In the case of state aid, the added complication of the Northern Ireland protocol makes it hard to see how a workable (and not "vague") regime could be devised that materially departs from the EU rules.  

In procurement, there may be more room for divergence. Ultimately the GPA procurement regime is built on a series of reciprocal commitments to open public procurement markets to competition from economic operators in signatory countries. If the UK wished to limit the scope of its commitments under the GPA (notwithstanding what is currently in the Political Declaration), it could do that, but the price would be loss of access to public procurement markets in signatory countries for UK-based suppliers in excluded sectors.  But, sadly, the trade-offs that will come with Brexit do not make for snappy election soundbites!

Tags: state aidpublic procurementBrexit

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