A sweet truth for selectivity

Summary

On 24 February 2022, the High Court issued its judgment in R (on the application of British Sugar Plc) v Secretary of State for International Trade [2022] EWHC 393 (Admin). This was the first case to consider the subsidy control regime imposed by the Trade and Cooperation Agreement and a potential EU State aid claim on the basis of the application of article 10(1) of the Northern Ireland Protocol. The case concerned an application for judicial review seeking to challenge a decision to introduce a zero-duty autonomous tariff quota (“ATQ”) of 260,000 metric tonnes of raw cane sugar for refining. The High Court dismissed the entire application as it concluded that the quota did not constitute State aid contrary to the Northern Ireland Protocol, nor a subsidy for the purposes of the UK-EU Trade and Cooperation Agreement (“TCA”).

Background

In November 2020, the Secretary of State for International Trade recommended to Her Majesty’s Treasury that a decision be taken to provide for an ATQ for raw cane sugar, such that no import duty was payable on the first 260,000 metric tonnes imported for refining purposes.

In early 2021, British Sugar Plc applied for a judicial review to contend that the Secretary of State’s decision to recommend the ATQ had been unlawful on the grounds that the ATQ amounted to both (i) unlawful State aid and (ii) a subsidy under the TCA, to T&L Sugars Ltd, the only sugar refiner importing raw cane sugar into the UK of any note.

In relation to the first ground, the High Court concluded that the ATQ did not breach the EU State aid provisions as it had not been selective applying stages one and two of the three-stage test in the European Court of Justice decision of 21 December 2016 in European Commission v World Duty-Free Group SA and others [2017] 2 CMLR 22 (joined cases C-20/15 P and C-21/15 P), and had not caused the requisite effect on trade to make out the first ground of challenge.

With regards to the second ground, the High Court ruled that the ATQ had not been a subsidy for the purposes of the TCA, because it had not been specific and had not had, and would not have, an effect on trade between the EU and the UK.

Four Key Takeaways

The following issues of note arise for public authorities:

1. Be careful about the audit trail – The case cited a number of somewhat unhelpful emails including one from DIT stating “the sugar tariff will lead to a certain UK manufacturer going under [i.e. T&L]”, and “this industry is a national icon and is pro-Brexit”. While neither of these matters cost HMG the decision in this matter there is an embarrassment factor to consider and it is important when public officials consider subsidies to ensure documents reflect the balanced decision-making process which is undertaken in government. To clarify, it is not wrong to consider the impacts of subsidies on major market participants. However, exchanges which create any appearance of a subsidy being created for a private entity should be carefully considered. In this case, given HMG did not give T&L everything they were after and public consultations were undertaken it could not have been plainer HMG was considering wider issues in developing the subsidy. However, for public law reasons, it is important in all correspondence to ensure the appearance reflects the reality of impartial governmental decision making.

2. The claim was made by judicial review – While this is not a surprise this case confirms what was long understood – namely challenges on subsidy control and State aid grounds in the current regime are to be made by way of judicial review. This is on the basis that the subsidy control regime in the TCA is imposed in UK law pursuant to 29 of the European Union (Future Relationship) Act 2020. This arrangement will change when the Subsidy Control Bill becomes law – and appeals will be made to the Competition Appeal Tribunal.

3. In order for a matter to constitute State aid or a subsidy it must be selective/specific – namely, it must favour certain undertakings or the production of certain goods. This is an often forgotten about limb for State aid/subsidy control and is a vital consideration. In this regard, the court stated that they were not persuaded that a matter of general application would be selective/specific merely because there is only one undertaking in the market. The outcome was the same under its application under both EU State aid law and UK subsidy control rules. However, it is striking that in applying the TCA subsidy control rules the court does not refer to EU case law but rather WTO case law.

4. Application of the Northern Ireland Protocol – Notwithstanding Brexit, the Northern Ireland Protocol applies EU State aid laws in certain scenarios where measures affect that trade between Northern Ireland and the Union which is subject to this Protocol. HMG sought to assert that decisions to impose tariffs were not capable of being caught by the Northern Ireland Protocol. This was roundly rejected by the court. More interesting was the analysis the court undertook in considering whether there was an impact on trade between Northern Ireland and the EU. The court took account of specific facts including that there was no evidence of trade in raw cane sugar between Northern Ireland and the EU. The court stated that they sought a “genuine and direct” effect on trade. In this case, the small volumes and hypothetical impacts were not enough. For potential challengers going forwards this represents a clear benchmark that a merely hypothetical impact on trade between Northern Ireland and the EU will not be enough.

Steve Gummer is a Partner and Gonzalo Puertas is an Associate at Sharpe Pritchard LLP.

For further insight and resources on local government legal issues from Sharpe Pritchard, please visit the SharpeEdge page by clicking on the banner below.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email enquiries@sharpepritchard.co.uk