The future of Trade: Abandon EU state aid rules and embrace free trade

The Government’s misgivings surrounding the “poison pill” Withdrawal Agreement and its concerns regarding Britain’s continued subjugation to the European Union’s state aid rules are justified.

Media commentary surrounding the issue is ill-informed and ridden with inaccuracies. Just last week Sky News’ Economics Editor, Ed Conway, wrote about how EU requirements offered UK policymakers, particularly Conservatives, a convenient excuse to bat away businesses and their begging bowls. Far from it.

The term ‘state aid’ has entirely different interpretations depending on which side of the Channel you’re on. In the UK, the EU’s state aid restrictions are commonly portrayed as introducing limitations on bail outs and subsidies when, in fact, they do no such thing.

State aid in an EU context is a wide-ranging tool that grants the European Commission discretionary approval powers over UK corporate fiscal policy, industrial policy, energy security, infrastructure and R&D spending and many other areas. These provisions allow the European Commission to continue its involvement with UK policy formation as if we had remained a member state – except now without any of the political influence or participation in the Commission we once had.

This was recently put into context by a detailed report from the Centre for Brexit Policy. Imagine the Government wanted to support the Nissan car plant in Sunderland or the Jaguar Land Rover factory in Coventry by awarding a subsidy for the development of battery powered electric vehicles. That support might theoretically affect trade under the terms of the Protocol – for example by enabling Nissan or Jaguar to compete within the Northern Irish market more effectively, thereby potentially displacing cars that might otherwise have been imported from Germany into Northern Ireland. In this scenario, and under the existing terms, the Commission would be entitled to be notified of that intention and to either prevent the subsidy entirely or require changes to protect the interests of EU competitors.

Were we to refuse to notify them then the subsidy could be stopped by the Commission or by a competitor bringing the case before the English courts, which would be compelled to uphold the terms of the agreement. The Commission, however, would be under no equivalent obligation to consider the effects on us of such subsidies made elsewhere in the European Union. In fact, under the terms of the protocol the EU is put in a stronger position to use counter measures.

‘This wide interpretation of state aid applied by the EU could extend to tax breaks, regional support, even infrastructure development and research support. This thin end of the wedge Withdrawal Treaty,  provides the EU the leverage to interfere in our internal, sovereign affairs by attacking anything that happens in Great Britain that could be interpreted as impacting on the Northern Ireland market and economy. It leaves us with only two choices, to give up Northern Ireland – clearly the game plan of the Republic – or to block the Withdrawal Treaty.

Were we to refuse to notify them then the subsidy could be stopped by the Commission via action in the ECJ,  or by a competitor bringing the case before the UK courts, which would be compelled to uphold the terms of the agreement, absent UK legislation to the contrary. The Commission, however, would be under no equivalent obligation to consider the effects on us of such subsidies made elsewhere in the European Union. In fact, under the terms of the protocol the EU is put in a stronger position to use counter measures.

What is even more perverse is that EU member states, most notably France and Germany, are able to benefit from exemptions to state aid rules that are exclusive to them.

Germany, for example, has its own state sponsored development bank, KfW Bank, which regularly injects over €30 billion pa worth loans into the German economy, and in addition now Corona Virus loans,  at favourable rates and free from state aid rules,  because the bank was set up prior to the Treaty of Rome.

France, similarly, has its own state development bank, BPI, which has injected around €100 billion to support the country’s businesses in the grips of the pandemic and provides favourable loans in normal times. France and Germany also enjoy the benefits of state sponsored Chambers of Commerce that help to drive demand for exports overseas.

‘The French government is also permitted to take golden shareholdings in public companies thus protecting them from overseas acquisition and supervisory boards in Germany mean strategically important businesses are also protected from mergers and acquisitions by foreign companies.

‘Furthermore, Germany also benefits from EU cohesion funds that underwrite German exports, particularly to southern European countries. It enjoys the advantage of an artificial currency underwritten by a non sovereign bank, the ECB, itself carrying bundles of bad corporate, bank and government debt, all underwritten by ratings flattered by the backstop of the City of London.

Compounding these issues are the realities of the post-Corona economy, both Britain and the world faces. The way out of this economic maelstrom lies not in increasing protectionism, but in free trade and in private enterprise, but the EU is a protectionist construct and is playing a mercantilist game.

Despite all of this, the EU remains committed to denying the UK the right to trade freely even within its own borders. The EU state aid rules are designed to ensure the dice are loaded in its favour. The house always wins. We endured that game for half-a-century. We can’t afford to anymore. It’s time for fair aid and fair trade.

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