Subsidy control: guidance

Determining if a subsidy

In general terms, and for the purposes of our international commitments, a subsidy is a measure which:

• is given by a public authority at any level – central, devolved, local government or a public body
• makes a contribution (this could be a financial or an in-kind contribution) to an enterprise, conferring an economic advantage that is not available on commercial terms (examples of a contribution are grants, loans at below market rate, a loan guarantee at below market rate or allowing a company to use publicly owned office space rent free)
• affects competition or investment within the United Kingdom (please note, a measure could have a relevant effect on competition and investment in the UK even where the market covers a very small geographical area or where the amount of financial assistance is very low)
• affects international trade (this can be trade with any World Trade Organisation (WTO) member or, more specifically, between the UK and a country with whom it has a Free Trade Agreement. Please note that you are not being asked whether the subsidy could harm trade but merely whether there could be some sort of effect)

International obligations

If the measure meets the definition of a subsidy:

• consider which international obligations need to be met
• is the subsidy supporting production of goods or services
• the WTO Agreement on Subsidies and Countervailing Measures (ASCM) which applies to subsidies in the fish and aquaculture sectors and is most likely to be of relevance to subsidies in sensitive sectors such as aerospace, steel or automotive. If looking to make an award to these sectors, please refer to the section “World Trade Organisation rules” for further detail
• the WTO Agreement on Agriculture (AoA) which applies to subsidies in the primary agriculture sector. If looking to make an award to these sectors, please refer to the section “WTO rules” for further detail.
• consider any relevant Free Trade Agreements (FTAs) the UK has agreed (including the TCA)
• granting authorities also need to consider the implications of Article 10 of the Northern Ireland Protocol. The Protocol sets out that the EU State aid rules will apply in certain, limited cases where this is relevant to trade between Northern Ireland and the EU

It is extremely important to establish, at the earliest possible stage, whether your project or policy proposal constitutes a subsidy.

If it does, you must ensure it is taken forward in compliance with the UK Subsidy Control rules and requirements laid out in the Act, WTO and any other FTA. They may require notification, or they may fit with an existing scheme or Streamlined Route.

Commercial Market Operator Principle

As stated above, subsidy is where a public authority provides support to an enterprise that gives them an economic advantage, where equivalent support could not have been obtained on commercial terms. This means that  financial assistance which could reasonably be considered to have been given on the same terms as it could have been obtained on the market, will not confer an economic advantage and is unlikely to be a subsidy. This is known as the Commercial Market Operator (CMO) Principle.

Funding provided in accordance with the CMO Principle is not subject to the subsidy control regulations. However, public authorities must obtain sufficient evidence to show that their decision to use the CMO Principle is in line with market terms; meaning it will not be considered more favourable than those that might be reasonably available on the market. For the purposes of the CMO principle, it is only a public authority’s commercial objectives that are relevant for the assessment. Any public policy objectives should not be included when assessing whether the financial assistance in question confers an economic advantage, on the basis that such objectives would not be applicable to private operators in the relevant market.

Further information can be found within the Statutory Guidance for the UK Subsidy Control Regime.