Antitrust

S H E A R M A N & S T E R L I N G L L P | 1 3 3 deal, gives the CMA the function of being the UK state aid enforcement authority, in place of the European Commission," and do not materially alter the substance of the EU framework. The Regulations also require that the CMA adopt existing EU guidelines as statements of policy, to be published prior to the U.K.'s departure. Minimal changes to existing guidance is intended to ensure that such guidelines are understood by stakeholders and operable from the exit date. The Regulations are currently awaiting Parliamentary approval and are not yet in force they would not be needed except in a "no deal" outcome as, under the Draft Withdrawal Agreement, the U.K. would enter the transition period upon departure and the EC would retain jurisdiction. CONSEQUENCES OF THE 'BACKSTOP' AGREEMENT Assuming the Draft Withdrawal Agreement is ratified and the U.K. leaves under its terms, the most interesting implications for State aid arise from the Irish backstop. Either because it comes into force directly or because of the way its presence colors the future relationship. In the backstop scenario, the U.K. and the EU will be a "single customs territory," which is comprised of an EU customs territory and a U.K. customs territory. EU law (including in respect of State aid) will apply to the U.K. "in respect of measures that affect that trade between [NI] and the [EU]" such that, while the backstop is in place, the EC and European Courts will retain competence to decide State aid in cases that affect trade between NI and the EU, in accordance with EU law. In addition, and concurrently, the CMA will have competence to decide State aid cases in respect of those measures granted by the U.K. that affect trade within the U.K. customs territory (i.e., including between NI and Great Britain), also in accordance with EU law. This is significant because under the EU rules the EC/European Courts take a very expansionist approach as to what "affects trade between Member States." In particular, it is established that there is no requirement to demonstrate actual effects. Rather measures need only be capable of affecting trade between Member States, and the effect need not be significant. As a result, this part of the test usually receives only a cursory examination before being deemed satisfied, particularly in respect of measures concerning liberalized markets with cross-border trade. This approach played a major part in expanding the EC's jurisdiction in State aid into policy choices the Member States might reasonably have thought would be for them. This concept creates a concern for companies that operate from the U.K. across the EU. Under the backstop, the U.K. and the EU will be a "single customs territory." If the EC (supported by the European Courts) continues to take a broad interpretation to measures that affect trade across borders, it would mean that a U.K. aid measure relating to a business in Great Britain would require approval not only by the CMA, but also by the EC on the basis that the measure affects trade within the single customs territory. Under the backstop, the balance of procedural rights very strongly favors the EC. The EC is under an obligation only to "ensure that the United Kingdom 1. Article 6(1), Protocol on NI. 2. As contained in Annex 8 to the Protocol. 3. Article 12(1), Protocol on NI. 4. Article 7(1), Annex 4 to the Protocol on NI. 5. Article 12(3), Protocol on NI. 6. Article 10(3), Annex 4 to the draft Withdrawal Agreement. 7. Article 10(4), Annex 4 to the Draft Withdrawal Agreement. 8. Article 10(4), Annex 4 to the Draft Withdrawal Agreement. 9. Political Declaration, para. 79. is kept fully and regularly informed of the progress and outcome of the examination of that measure." 5 While the CMA's decision in any such case will be without prejudice to the EC's decision, meaning the EC would effectively have the final say on all U.K. government aid measures. The CMA is also required to exchange views and information with the EC on a case-by-case basis in respect of procedures it initiates, giving the EC the opportunity to comment in such cases. 6 The CMA will also consult the EC on all draft decisions and give the EC up to three months to communicate its opinion, and will not adopt any decision until it has received the opinion and taken it into account. 7 The EC can stop the clock on this three-month period in order to request additional information to the extent required to formulate its opinion. 8 It is likely that in practice the CMA will be so closely supervised by the EC as to exclude independent decision making or differential views on the treatment of evidence. Aside from the additional burden that this would place on companies during a dual review process, it could result in challenging situations where the EC opposes aid that the CMA could approve. As such, decisions are inextricably tied to policy considerations and priorities, it is easy to see how the system is likely to result in political conflict. Given that the U.K. is not permitted to leave the backstop without the agreement of the EU, and the future relationship is anticipated as "building on the level playing field arrangements provided for in the Withdrawal Agreement," the likelihood of the U.K. having a differentiated State aid regime (even procedurally or though operation of discretion) is low.

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