CN05 - UK High Court issues first judgment on application of State rules

On 24 February 2022, the UK High Court issued the first judgment on the interpretation of EU State aid rules under the Northern Ireland Protocol and the new UK subsidies regime (the "Judgment"). 

Key takeaways

• After Brexit, UK measures (including tariff measures) can still be subject to EU State aid rules under the Northern Ireland Protocol if they have an effect on trade between Northern Ireland and the EU. According to the High Court, this requires to show a "genuine and direct effect" on trade.
• A finding of State aid requires to show that a (tariff) measure is "selective". Similarly, for a (tariff) measure to qualify as a "subsidy" under the UK subsidy control regime, it must be "specific". This is not the case where a tariff measure does not differentiate between companies in a comparable position.
• WTO case-law can be relevant for the interpretation of the subsidies provisions under the TCA.

Background

As part of the new UK tariff regime post-Brexit, the UK government introduced an autonomous tariff quota (ATQ), allowing tariff free imports of a given quantity of raw cane sugar for refining on a first-come first-served basis (the "Decision"). Tariffs after exhaustion of the quota were £28/100kg, save where other preferential tariff regimes applied.

British Sugar (BS), the only beet sugar producer in the UK, brought a judicial review claim against the Decision, alleging that the ATQ (i) constituted an unlawful State aid to Tate & Lyle Sugars (TLS) within the meaning of the Northern Ireland (NI) Protocol; and (ii) amounted to a subsidy prohibited by the EU/UK Trade and Cooperation Agreement (TCA). TLS, which competes with BS on the downstream market for refined sugar, is the only substantial raw cane sugar refiner in the UK.

Judgment

The High Court dismissed both grounds, finding that the ATQ did not constitute unlawful State aid and was not a subsidy.

Ground 1 - No State aid

The High Court found that the ATQ was not "selective". It noted that there was nothing in the terms or design of the ATQ that could lead to a conclusion of selectivity. Moreover, BS was unable to show that there was a discrimination between companies in a comparable position: (i) BS is not in a comparable position to TLS because it does not pay any tariff on its raw material (sugar beet), and (ii) any other importer of raw cane sugar would face the same regime as TLS.

That finding of no selectivity was enough to conclude that the ATQ did not amount to a State aid under EU law. The Judgment also addressed two issues specific to the NI Protocol: 

• It held that tariff measures adopted by the UK government are capable in principle of falling within Article 10 of the NI Protocol and the EU State aid regime.
• It ruled that the jurisdictional requirement of an effect on trade between NI and the EU was not met. In this respect, in the light of the content of the EU Political Declaration on the NI Protocol, the High Court noted that the relevant test is whether there is a "genuine and direct" effect on trade between NI and the EU. In the present case, there was no evidence of such effect since the effect is indirect (there is no sugar refined in NI and no trade in raw cane sugar between the NI and the EU) and very small volumes of refined sugar were involved.

Ground 2 - No subsidy

THE HIGH COURT FOUND THAT THE ATQ WAS NOT "SPECIFIC" (AND THEREFORE NOT A "SUBSIDY") WITHIN THE MEANING OF THE TCA FOR REASONS SIMILAR TO THOSE SUPPORTING ITS CONCLUSION OF NO SELECTIVITY. 

Comment

The Judgment, which is subject to appeal, is significant as it is the first UK judgment considering the State aid provisions of the NI Protocol (including the threshold of an effect on trade between NI and the EU) and the TCA provisions on subsidy control. As regards the interpretation of the TCA provisions on subsidy control, it is worth flagging that these are partially inherited from WTO rules and that WTO case-law may therefore be relevant. 

With thanks to Jessica Bracker of Ashurst for her contribution.