Guidance

Guidance on the scope and application of Article 10 of the Windsor Framework

Updated 9 June 2023

1. This document provides updated guidance about the practical application of Article 10 of the Windsor Framework to the EU-UK Withdrawal Agreement (hereafter “the Framework”, “Article 10”, “Article 10(1)” or “Article 10(2)” as appropriate) and is published by the Secretary of State for the purposes of section 48 of the United Kingdom Internal Market Act 2020. All public authorities in the UK with functions relating to the implementation of Article 10, including functions involving the provision of financial assistance or other subsidies, must have regard to this guidance when exercising such functions. The guidance replaces guidance previously published on Article 10. Sections 1 – 5 and 7 relate to the practical application of Article 10(1) of the Windsor Framework and Section 6 relates to the practical application of Article 10(2).

2. The guidance is intended to help public authorities to make a risk assessment, before granting a subsidy either individually or via a scheme, about whether this is outside the scope of the Framework. The guidance suggests ways in which this may be done to enable public authorities to grant subsidies with greater confidence.

3. The guidance only concerns subsidy measures that constitute State aid for the purposes of Article 10^{[footnote 1]}. Accordingly, the first question that public authorities should consider when they are giving a subsidy is whether a particular subsidy measure is a State aid that falls within scope of Article 10(1) and for this purpose all of the State aid tests must be met. Most public spending in the UK falls outside of State aid rules entirely, such as social security, support for the NHS and higher education, and the building of general infrastructure, such as public roads or flood defences.

Section 1 - Summary

1. The arrangements agreed in the Framework, to avoid a hard border on the island of Ireland, include obligations with respect to State aid at Article 10. The UK has given effect to these commitments in domestic law under section 7A of the European Union (Withdrawal) Act 2018.

2. Article 10(1) provides that EU State aid rules will continue to apply to the UK in respect of measures which affect trade in goods or the electricity market (hereafter referred to as “goods”) between NI and the European Union (“EU”). This means that, for the substantial majority of subsidies in Great Britain (“GB”), Article 10(1) is unlikely to be engaged. It is important to note that Article 10(1) does not directly apply to subsidies for services and such subsidies will need to comply with the UK’s subsidy control regime. The circumstances in which subsidies for services may exceptionally be within scope of Article 10(1) as a result of indirect benefit to trade in goods are set out in section 4 “Application of Article 10(1) to Services (“servitisation”)” below.

3. Article 10(1) therefore applies to a very limited range of subsidies and subsidy schemes in the UK. It applies EU State aid rules to measures affecting trade in goods between NI and the EU. The purpose of Article 10(1) is to ensure that risks to the EU Single Market in NI are managed, while respecting NI’s integral place in the UK’s internal market. It is not intended to be of broader application: the Trade and Cooperation Agreement (“TCA”) incorporates the mechanisms which ensure a level playing field for subsidies between the UK and the EU. For subsidy granters in the UK, the vast majority of measures will only need to comply with the UK’s domestic subsidy regime^{[footnote 2]}, which should also ensure that subsidies should comply with the TCA requirements. For all but the largest subsidies in sensitive sectors (which will always need more bespoke international trade analysis), this should also provide confidence for the purposes of Article 374 TCA (Remedial Measures), the World Trade Organization (“WTO”) Agreement on Subsidies and Countervailing Measures (“ASCM”)^{[footnote 3]}, and any subsidy control commitments agreed in other Free Trade Agreements.

4. The UK Government and the European Commission (the “Commission”) have reached a common understanding on the scope and application of Article 10(1) and issued a Joint Declaration on the application of Article 10(1) of the Framework setting out this agreed position. That Joint Declaration can be used to interpret Article 10(1) and can be found in the annex to this guidance. It is intended to give subsidy granters and beneficiaries clarity and confidence that the vast majority of UK measures will be subject to the UK’s domestic subsidy regime.

5. The Joint Declaration sets out the limited circumstances in which subsidies granted in the UK may be within scope of Article 10(1). It makes clear that the simple placing of goods on the NI market by a beneficiary of a subsidy is not, in and of itself, enough to cause an effect on trade between NI and the EU. For a subsidy to be considered to have a genuine and direct link to NI, and for this to have an effect on the trade between NI and the EU that is subject to the Framework, that subsidy needs to have real foreseeable effects on that trade. The relevant real foreseeable effects should be material, and not merely hypothetical to be in scope of Article 10(1).

6. This statutory guidance explains how to apply the Joint Declaration in practice^{[footnote 4]}. It will give public authorities and enterprises receiving subsidies greater confidence about the limited circumstances in which Article 10(1) applies and how to manage this. By ensuring that the narrow scope of Article 10(1) is understood, this guidance increases confidence for enterprises in receipt of a subsidy and makes clear the steps they may need to take if Article 10(1) is not to apply.

This guidance is not intended to be exhaustive, nor is it an authoritative statement of the law. If you are a public authority developing a measure which you consider may engage Article 10(1) after applying this guidance, you must contact the DBT Subsidy Control team to discuss next steps.

Section 2 - Application of Article 10(1) in Northern Ireland

1. Article 10(1) will normally apply to subsidies granted to goods trading beneficiaries located in NI, where this constitutes a State aid. This is because subsidies to enterprises that are located in NI are likely to meet the need, as set out in the Joint Declaration, for there to be a genuine and direct link to NI with real foreseeable effects on NI-EU trade and therefore engage Article 10(1).

2. In these circumstances, public authorities need to comply with EU State aid rules. This could be by applying the General Block Exemption Regulation (“GBER”) ^{[footnote 5]}, applying the De Minimis rules^{[footnote 6]} or obtaining approval from the Commission before granting the aid, including under any Temporary Framework adopted by the EU to expedite approvals, such as the Temporary Crisis and Transition Framework of 2023. Public authorities should also consider whether support may be provided on a no-aid basis, such as through the provision of commercial loan guarantees, or making support available on a non-selective basis. In addition, the State aid rules will not apply if the enterprise only trades locally. The Government explains “trading locally” in its guidance on the UK’s subsidy control regime as “where the enterprise is operating in an inherently local market without competition and there is no evidence of any potential market entry.”^{[footnote 7]}

3. The starting point for determining whether a beneficiary of a subsidy is located in NI is to identify where the legal entity receiving the subsidy directly from the public authority is established. An enterprise incorporated and registered in NI will be regarded as located in NI for this purpose and an enterprise incorporated and registered in England and Wales or Scotland will be regarded as located in GB.

4. However it may, in a limited number of cases, also be necessary to consider the purpose for which the financial assistance is given. If it can be demonstrated that a subsidy given to an enterprise in GB is designed (as a specific condition) to channel the economic benefit of the subsidy to the enterprise’s (or its subsidiaries’) market operations in NI (for example where a grant is given to a GB enterprise in order to build a factory in NI) it may be considered to be to a beneficiary that is located in NI. It is considered that the circumstances where subsidies would be so designed are limited. Also see section 3b on the passing on of an economic benefit where the beneficiary is located in GB if there is a material effect on NI-EU trade.

Section 3 Application of Article 10(1) to a beneficiary located in GB

1. For subsidies granted to a beneficiary located in GB the presumption is that Article 10(1) will not apply unless it can be demonstrated that there is a genuine and direct link to NI with effects on NI-EU trade which must be real, foreseeable and material, and not merely hypothetical. Further, it must be demonstrated that the benefit passes through to NI.

2. This section sets out firstly how subsidy granters should assess whether there is a material effect and secondly, if the materiality thresholds are established, how subsidy granters should assess if the benefit is passed through to NI. When a subsidy falls below one of these thresholds, a subsidy granter can generally be confident that it is unlikely there is a material effect on NI-EU trade and thus should be outside the scope of Article 10(1)^{[footnote 8]}.

Section 3a - Materiality thresholds for subsidies granted to beneficiaries in GB

1. Whether a subsidy measure is likely to be sufficiently “material” to indicate the presence of genuine and direct link to NI, based on real foreseeable effects, will depend on several factors. These include the size of the subsidy and the size and market presence of the beneficiary in NI. These factors should be considered sequentially, and the following sets out how this will work in practice, with thresholds provided to give additional confidence to public authorities in considering whether subsidies are likely to have a material effect.

Size of enterprise /subsidy

1. Subsidies of the same size are likely to have different effects when granted to large enterprises or SMEs.

2. We have established thresholds for subsidies, which vary depending on the size of the beneficiary, in Streamlined Routes made under the Subsidy Control Act 2022. While these routes are designed for the purpose of the UK’s subsidy control regime, the Government believes that subsidies falling within these thresholds are very unlikely to engage Article 10. Subsidies for up to £3m per project, per participant are considered not to be distortive for SMEs under the Research Development and Innovation Route.

3. Subsidies to SMEs are less likely to cause distortions than subsidies to large companies in general. The Government therefore believes that it is likely that most subsidies of up to £3m for Small or Medium Sized Enterprises (“SMEs”)^{[footnote 9]} in GB will not have real, foreseeable and material effects on trade between NI and the EU which would constitute a genuine and direct link to NI.

4. For large enterprises in GB, the Government considers that a threshold higher than £3m will be appropriate. For subsidies to large enterprises, and consistent with the UK’s domestic subsidy regime, schemes and individual awards which meet the monetary threshold of £10m for mandatory referral to the Subsidy Advice Unit in the Competitions & Markets Authority would be capable of meeting this threshold based both on the scale of the enterprise and the amount of the subsidy. The Government therefore believes that subsidies of up to £10m for large companies will be unlikely to have real, foreseeable and material effects on trade between NI and the EU which would constitute a genuine and direct link to NI and it can be presumed that Article 10 does not apply.

Market presence

1. Where a subsidy is of sufficient size (having regard to the scale of the recipient beneficiary (as set out above)), that it might in principle be capable of having a material effect, it will still need to be demonstrated that the effect is genuinely material in relation to NI-EU trade to engage Article 10.

2. The Government’s view is that even where a subsidy of a size meeting the thresholds above is provided to an enterprise in GB, which then simply places goods on the NI market alongside other markets, or only sells goods passively into the NI market, then this subsidy is unlikely to be in scope of Article 10(1).

3. For example, the fact that a large bicycle manufacturer in the West Midlands receives a subsidy of over £10m for research and development and that some of these bicycles are sold at market value in NI does not in and of itself establish that the subsidy falls within Article 10(1).

4. Therefore, it is important to consider what an enterprise’s market share is in NI, or what it will be in NI as a result of granting a subsidy. A significant NI market share for the sector might suggest, if the other thresholds in this guidance are met, that there is a material effect. And equally where a beneficiary puts small amounts of goods on the NI market or has and will continue to have a low market share in NI, any subsidy will be highly unlikely to have a material effect. The Government considers that there is likely to be no material effect in most cases if a beneficiary’s share of the relevant goods market will be less than 10% following the granting of a subsidy.

5. Only the most sophisticated of beneficiaries are likely to have more detailed market information, commensurate with the increased possibility of a material effect on NI-EU trade. In practice market presence is more likely to be of relevance to large companies than SMEs.

Section 3b - Passing of an economic benefit

1. In some instances, application of the above thresholds may suggest that Article 10(1) is likely to be engaged by the granting of a subsidy to an enterprise in GB, for example where the subsidy is a large one, received by large enterprises with a significant presence on the NI market.

2. However, in these cases, Article 10(1) will still not be engaged unless it can be demonstrated that the economic benefit of any subsidy to a GB enterprise would be wholly or partially passed on to the beneficiaries’ activities in NI or through the relevant goods placed on the market in NI. Accordingly, there may be steps that subsidy beneficiaries can take to avoid such passing on of the benefit and so avoid the application of EU State aid rules under Article 10(1). Indicative steps are set out below but what may be needed will be case dependent and further guidance should be sought from the DBT Subsidy Control team.

3. It is unlikely that there will be a pass through of economic benefit if the relevant goods are being sold in NI at market price or similar market conditions.

4. Larger enterprises, with a significant presence in NI, may also use methods such as transfer pricing, separate accounting, separation of entities or a combination of these methods to ensure that a subsidy granted in GB does not indirectly benefit goods activities in NI. Such steps should always be commensurate with the scale of risk that a subsidy could have a material effect, and not discourage existing NI and GB trade.

Section 4 - Application of Article 10(1) to services (“servitisation”)

1. As the Framework only applies to subsidies that affect NI-EU trade in goods, in principle subsidies granted to service providers, including service providers located in NI, will not be subject to EU State aid rules.

2. In such cases, the mere fact that goods enterprises are benefitting from an overall increase in the outputs of a service provider which has received a subsidy is not sufficient to establish that Article 10 applies. There are only limited circumstances in which subsidies to a services provider could distort competition or affect trade in relation to goods between NI and the EU. This may arise if the subsidy is designed in such a way as to channel its benefit towards identifiable enterprises or groups of enterprises that engage in trade in goods. This is sometimes referred to as ‘servitisation’.

3. When designing a subsidy scheme for a service provider, public authorities should examine the form of the service provision in order to establish whether the subsidy is likely to be channelled towards identifiable enterprises engaging in NI-EU trade in goods, for example, a subsidy to a logistics enterprise with tailored services to a NI goods producing client.

Section 5 - Considerations for tax measures

1. Tax subsidies will ordinarily be awarded under schemes. Tax subsidies are put in place through legislation that sets out ahead of time the conditions to be met for the relevant relief or exemption. Enterprises claiming a relief may then be required to ‘self-assess’ their eligibility before claiming the relevant relief or exemption. This may require additional guidance that is specific to the tax subsidy scheme under consideration.

Section 6 - Application of Article 10(2) to agri-fish measures

1. Article 10(2) provides that support for the production of, and trade in, agricultural, fisheries and aquacultural products in NI need only apply EU State aid rules above annual caps. The UK-EU Joint Committee has reached a binding Decision as to the limits that apply in this regard^{[footnote 10]}. The cap is up to a total of £382.2 million per annum for agriculture, and up to a total of £16.93m over five years for fisheries, with a maximum spend of £4.01m annually for fisheries (provided that the spending does not fall within the prohibited categories set out in the Joint Committee’s Decision on the limits that apply).

2. Furthermore, for domestic support relating to agriculture, 83% of this exempted 10(2) limit must comply with the provisions of Annex 2 to the WTO Agreement on Agriculture, also known as ‘Green Box’. To be Green Box compliant, the support needs to be considered non trade-distorting.

3. Beyond the Article 10(2) caps, public authorities will need to ensure that they have legal cover in place to provide further support under EU State aid rules.

4. Further guidance is available from Defra ([email protected]) and DAERA ([email protected])

Section 7 - Managing the application of the Framework

1. The sections above provide a guide as to the potential application of Article 10(1) (outside agri-fish measures) and the analysis that subsidy granters may need to undertake. It is important when there is a question over the application of Article 10(1) that an assessment is made of whether the subsidy is likely to have real, foreseeable and material effects on trade in goods between NI and the EU and that public authorities consider practical steps to manage how subsidies are granted. The table below suggests how subsidy granters might manage the application of the Framework in some areas where it might be engaged.

Measure in potential scope	Management
UK-wide measures if NI goods enterprises benefit.	Article 10(1) will normally apply in respect of benefits to the NI enterprises to the extent that they constitute State aid (see section 2). For those NI enterprises, GBER and De Minimis may be used to provide support without the need for an individual approval from the Commission. A public authority will need to apply the materiality thresholds in respect of subsidies to GB enterprises.
Subsidy to an enterprise in NI that trades in goods with the EU.	Normally in scope of Article 10(1) to the extent that it constitutes State aid (see Section 2). De Minimis and GBER may also be used to provide support without the need for an individual approval from the Commission.
Subsidy to an enterprise in GB.	In the majority of cases, this will not be in scope of Article 10(1) because there would not generally be a material effect on trade between NI and the EU from the subsidy. The subsidy granter would need to apply the materiality thresholds, for example subsidy size and market presence, to check whether Article 10(1) is engaged. Even if these factors are met it must be further demonstrated that the economic benefit of the subsidy would be wholly or partially passed on in the price of goods or to an enterprise in NI, for the measure to be in scope of Article 10. It remains unlikely that there will be a pass through of benefit if the relevant goods are being sold in NI at market price, or similar conditions. Where a GB enterprise has market operations (such as a subsidiary) in NI and where it can be demonstrated that a subsidy given to the GB enterprise GB is in fact designed (as a specific condition) to channel the economic benefit of the subsidy to the enterprise’s market operations in NI (for example where a grant is given to a GB enterprise in order to build a factory in NI), it may be considered to be a subsidy to an enterprise that is located in Northern Ireland (see box above)
Subsidies for service providers.	The presumption is that subsidies for services providers are out of scope unless the benefit of the subsidy is channelled towards identifiable goods enterprises located in NI or to goods enterprises located in GB where there is a material effect. This may occur, for example, in relation to a subsidy to an NI logistics enterprise with tailored services to an NI goods client.

1. In those limited circumstances where we have concluded that subsidies are in scope of Article 10, the following requirements will apply:

• notification and stand-still obligations in respect of relevant new subsidies i.e., a measure in scope needs to be provided under GBER or be individually notified to and approved by the European Commission.

• any reporting obligations in respect of relevant subsidy measures i.e., such as reporting of individual aid under the EU’s transparency obligation and the annual reporting exercise for State aid schemes; and

• the application of any State aid decision adopted by the Commission addressed to the UK i.e., the conditions for aid set out in an approval letter need to be complied with.

Annex:

JOINT DECLARATION OF THE UNION AND THE UNITED KINGDOM IN THE JOINT COMMITTEE ESTABLISHED BY THE AGREEMENT ON THE WITHDRAWAL OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND FROM THE EUROPEAN UNION AND THE EUROPEAN ATOMIC ENERGY COMMUNITY

of 24 March 2023

on the application of Article 10(1) of the Windsor Framework

The provisions of the EU-UK Trade and Cooperation Agreement govern the subsidy control obligations between the United Kingdom and the Union generally and ensure a level playing field between the United Kingdom and the Union.

Article 10(1) of the Framework on Ireland/Northern Ireland (the “Framework”) exists separately from those provisions. The Framework reflects both Northern Ireland’s unique access to the EU Single Market and its integral place in the United Kingdom’s internal market. In this context, Article 10(1) of the Framework should be understood as only relevant for trade in goods or on the electricity market (hereafter referred to as goods) between Northern Ireland and the Union which is subject to the Framework.

On 17 December 2020, the EU released the following unilateral declaration in the Joint Committee established under Article 164 of the Withdrawal Agreement: “When applying Article 107 TFEU to situations referred to in Art. 10(1) of the Framework, the European Commission will have due regard to Northern Ireland’s integral place in the United Kingdom’s internal market. The European Union underlines that, in any event, an effect on trade between Northern Ireland and the Union which is subject to this Framework cannot be merely hypothetical, presumed, or without a genuine and direct link to Northern Ireland. It must be established why the measure is liable to have such an effect on trade between Northern Ireland and the Union, based on the real foreseeable effects of the measure.”

This Joint Declaration on the application of Article 10(1) of the Framework builds upon the EU Unilateral Declaration, affirming Northern Ireland’s place in the United Kingdom’s internal market, and at the same time ensuring that the EU Single Market is protected. It clarifies the conditions of application of Article 10(1) of the Framework setting out the particular circumstances in which it is likely to be engaged when subsidies are granted in the United Kingdom, and can be used to interpret that provision.

For a measure to be considered to have a genuine and direct link to Northern Ireland and thus to have an effect on the trade between Northern Ireland and the Union that is subject to the Framework, that measure needs to have real foreseeable effects on that trade. The relevant real foreseeable effects should be material, and not merely hypothetical or presumed.

For measures granted to any beneficiary that is located in Great Britain, factors relevant to materiality may include the size of the undertaking, the size of the subsidy, and the market presence of the undertaking in the relevant market in Northern Ireland. While the mere placement of goods on the Northern Ireland market is not sufficient, on its own, to represent a direct and genuine link engaging Article 10(1) of the Framework, measures that are granted to beneficiaries located in Northern Ireland are more likely to have material effects.

For measures granted to any beneficiary that is located in Great Britain that have a material effect, it must be further demonstrated that the economic benefit of the subsidy would be wholly or partially passed on to an undertaking in Northern Ireland, or through the relevant goods placed on the market in Northern Ireland, for example through selling below market price, for there to be a direct and genuine link engaging Article 10(1) of the Framework.

The European Commission and the United Kingdom will set out in their respective guidance the circumstances in which Article 10(1) will apply, providing further detail to enable both granters and businesses across the United Kingdom to operate with greater certainty.

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1. That is, it must be granted by the State or through State resources, it must favour certain undertakings or the production of certain goods, it must distort or threaten to distort competition and for the purposes of Article 10 it must affect trade between Northern Ireland and the EU. The European Commission provides guidance in its Notice on the notion of State aid - https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A52016XC0719%2805%29 ↩

2. Statutory Guidance on the UK’s domestic subsidy control regime - https://www.gov.uk/government/publications/uk-subsidy-control-statutory-guidance ↩

3. WTO Guidance - https://www.wto.org/english/res_e/publications_e/ai17_e/subsidies_e.htm ↩

4. The Joint Declaration is on the application of Article 10(1), and is the focus of this guidance, referred to as Article 10, but the application of Article 10(2) to agri-fish measures is also covered. ↩

5. https://competition-policy.ec.europa.eu/state-aid/legislation/regulations_en#general-block-exemption-regulation ↩

6. https://competition-policy.ec.europa.eu/state-aid/legislation/regulations_en#de-minimis-regulation ↩

7. Section 2.20 of the statutory guidance - https://www.gov.uk/government/publications/uk-subsidy-control-statutory-guidance ↩

8. This guidance and these presumptions are without prejudice to Public Authorities taking such additional steps as they deem appropriate to assure themselves there is no material effect. ↩

9. Public authorities should apply the definition of SME contained in the Companies Act 2006. Small companies are defined in section 382. Medium sized companies are defined in section 465. ↩

10. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/946277/Decision_of_the_Withdrawal_Agreement_Joint_Committee_on_agricultural_subsidies.pdf ↩