Guidance

Guidance on the UK’s international subsidy control commitments

Updated 9 June 2023

Section 1: Overview

This guidance draws together information on the UK’s international commitments relating to subsidies. These commitments continue to apply to subsidies granted in the UK alongside the new domestic subsidy control regime established by the Subsidy Control Act 2022, which has been in force since 4 January 2023.

It should be noted that the vast majority of subsidies awarded in the UK are unlikely to raise concerns under our international commitments. The risk of challenge is likely to be small apart from subsidies to sensitive sectors operating at scale on international markets. This guidance is therefore most relevant to public authorities awarding these kinds of subsidies.

For public authorities awarding subsidies, following the requirements of the new domestic regime should contribute to meeting the UK’s international commitments. Nevertheless, public authorities need to be fully aware of these commitments and the potential impacts of non-compliance. In particular, public authorities need to be aware of these commitments where there is credible risk of their proposed subsidy triggering a dispute or unilateral measures through the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (ASCM), other WTO agreements, the UK-EU Trade and Co-operation Agreement (TCA) or one of the UK’s other free trade agreements (FTAs).

Public authorities must also have regard to this guidance where the Subsidy Control Act 2022 does not apply, for example because the subsidy is made under Article 138 of the Withdrawal Agreement or in an Act of Parliament. This guidance focuses exclusively on the international rules public authorities need to be aware of. This guidance does not cover the UK’s commitments arising under Article 10 of the Windsor Framework. Separate statutory guidance on the Subsidy Control Act is available.

Section 2: Description of the UK’s international subsidy commitments

The UK has a number of international obligations in relation to subsidies^{[footnote 1]}:

• there are also commitments on subsidies arising from the UK’s continued membership of the World Trade Organization (WTO). These are primarily set out in the Agreement on Subsidies and Countervailing Measures (ASCM) and the Agreement on Agriculture (AoA). ^{[footnote 2]}. Further commitments are contained in the General Agreement on Tariffs and Trade (GATT), the Agreement on Trade-Related Investment Measures (TRIMs) and the General Agreement on Trade in Services (GATS) ^{[footnote 3] [footnote 4]}. These are not new commitments – the UK was subject to the WTO rules when it was a Member State of the EU.

• the UK-EU Trade and Cooperation Agreement (TCA) is a Free Trade Agreement (FTA) containing a chapter on subsidies which is aimed at ensuring the granting of subsidies does not have a detrimental effect on trade and investment between the UK and the EU. The requirements of the TCA, including the six TCA subsidy control principles are incorporated into the UK’s Subsidy Control Act. The Subsidy Control Act also adds a further principle that subsidies should be designed to achieve their specific policy objective while minimising any negative effects on competition and investment within the UK. The Act also sets up the Subsidy Advice Unit (SAU) in line with our commitment, made in the TCA, to establish an independent body with an appropriate role.

Whilst compliance with the Subsidy Control Act should result in compliance with the TCA, public authorities should be aware of the specific requirement under the TCA of ensuring that the negative effects on trade and investment between the UK and EU of a subsidy are outweighed by the positive effects of the subsidy. If the EU considers there is clear evidence that a subsidy has or could have a negative effect on trade or investment between the UK and EU, it may request a consultation to explain how the principles have been met. If, following consultation, the EU considers there to be a serious risk of significant negative effect on trade or investment, it may ultimately instigate remedial measures against the UK.

• the UK also has specific obligations arising under Article 10 of the Windsor Framework where a subsidy has an effect on trade in goods or wholesale electricity between Northern Ireland and the EU. Public authorities must have regard to guidance on Article 10 of the Windsor Framework, which is published by the Secretary of State under section 48 of the United Kingdom Internal Market Act 2020

• the UK has also signed further Free Trade Agreements (FTAs) with other countries and some of these agreements contain provisions on subsidies. Future FTAs that the UK agrees with trade partners may likewise include obligations relating to subsidies

Public authorities need to determine whether their subsidy is in scope of one of the UK’s international obligations, and if so, ensure that their subsidy complies with the relevant agreements. This is in addition to assessing whether the proposed subsidy falls within scope of domestic law obligations relevant to subsidy control and, where relevant, assessing compliance with EU State aid rules applicable under Article 10 of the Windsor Framework.

Section 3 Awarding a subsidy

This section outlines the factors that public authorities should consider when assessing the compliance of their subsidy under the terms of the WTO ASCM, other relevant WTO agreements, the TCA, or other FTAs. However, public authorities should note that in practice the risk of disputes under these agreements is likely to be small apart from subsidies to sensitive sectors operating at scale on international markets.

In order to assess the risk of non-compliance, and of thereby potentially triggering a dispute, public authorities should consult the indicative list of important factors below. Whilst there is no pre-defined mixture of these factors that would guarantee a dispute to be triggered, the more of these characteristics that apply to a proposed subsidy, the greater the likelihood of a dispute. Other factors not listed here may also be relevant for individual public authorities according to the subsidy in question.

The WTO ASCM specifies subsidies that are prohibited or actionable. For a successful claim against an actionable subsidy, a WTO member must demonstrate that their interests in either their own or a third market have been harmed by the adverse effects of the subsidy. Notably, characteristics of the domestic subsidy could also violate other provisions of the WTO Agreements relating to national treatment such as the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), and the Agreement on Trade-Related Investment Measures (TRIMs). These other claims could either be made concurrently with or instead of an ASCM violation (see Section 4). Furthermore, under the TCA, the UK and the EU have agreed a reciprocal mechanism that allows either side to take rapid unilateral action (or “remedial measures”) where a subsidy granted by the other Party is causing, or there is a serious risk that it will cause, a significant negative effect on trade or investment between the Parties (see Section 5).

However, it is important to note that trade disputes are never entered into lightly and as such public authorities should adopt a proportionate approach when assessing the risk of their subsidy triggering a dispute. The level of analysis required to satisfy a public authority that there are no, or minimal appreciable risks will need to be decided on a case-by-case basis, as will the decision as to whether they should contact the Department for Business and Trade (DBT) to discuss the matter further (for contact details, see Section 7). Where appropriate, analytical and legal professionals should be consulted as part of these considerations.

Indicative list of important factors to consider when assessing compliance with our international obligations

a) Value of the subsidy

High value subsidies are more likely to raise concerns. Lower value subsidies are unlikely to carry an appreciable risk of WTO action given the resources required to bring a claim and the political context surrounding WTO disputes. However, there is no legal exemption from challenge through the WTO for low value subsidies. High value subsidies are also more likely to raise concerns through the TCA or other FTAs.

b) Historically sensitive sectors

There are a small number of ‘historically sensitive’ sectors which have previously been the focus of WTO action. If a subsidy is targeted at these sectors this is likely to increase the risk of a dispute through the WTO or elsewhere. Examples of these sectors include steel, automotive and aerospace.

c) International competitors

If enterprises within the sector at which the subsidy is targeted usually compete with companies from outside the UK this will increase the risk of a dispute. This applies to all sectors of the economy and not just ‘historically sensitive’ sectors. Public authorities should consider both the number of international competitors but also the size of those firms and the importance to their country’s economy.

d) Impact on trade

Public authorities should consider whether the subsidy they are proposing may impact the sales volumes, prices or profits of international producers of similar goods, in the UK or foreign markets. If a subsidy impacts international producers in this way it will increase the risk of a dispute. In the case of the TCA, impact on investment should also be considered.

Next steps after assessing the subsidy for compliance with our international commitments

If, after conducting an internal risk assessment, a public authority believes the subsidy they are proposing carries a credible risk of a trade partner invoking action through one of our international agreements, they should contact Department for Business and Trade (for contact details, see Section 7).

Section 4: World Trade Organization (WTO) agreements

This section explains the obligations contained in the WTO agreements. Even if a subsidy is compliant with the UK domestic subsidy control requirements and the TCA, they could still be challenged under the UK’s WTO ASCM and other (chiefly, GATT) commitments. A WTO assessment should therefore still be made. However, as with the TCA and other FTAs, in practice the risk of disputes through the WTO is likely to be small apart from subsidies to sensitive sectors operating at scale in international markets. Examples of these sectors include steel, automotive and aerospace.

For more detailed information on the WTO ASCM and other relevant provisions, please contact DBT (for contact details, see Section 7).

WTO Agreement on Subsidies & Countervailing Measures (ASCM)

The WTO ASCM came into force in 1995 and sets a framework for how subsidies given by WTO members interact with international trade and competition^{[footnote 5]}. The terms of this agreement only apply in relation to trade in goods.

Prohibited subsidies under the ASCM

Article 3 of the ASCM sets out two categories of subsidies which WTO members are prohibited from awarding, given their conflict with WTO norms of encouraging liberalised trade and presumed negative trade impact. These are subsidies contingent upon export performance in relation to goods, and subsidies contingent on the recipient using domestic rather than imported goods. There is a dispute resolution process that can be triggered if there are concerns that a particular subsidy given within the territory of a WTO member is prohibited by the ASCM.

However, public authorities should note that the Subsidy Control Act includes these prohibitions, extended to services as well as goods, and also includes further prohibitions. Compliance with the Subsidy Control Act on prohibited subsidies should therefore ensure compliance with the prohibitions contained in the ASCM.

Subsidies that are potentially actionable under the ASCM

All subsidies that are not prohibited are potentially ‘actionable’ under the ASCM, even where they fall under the MFA or SPEI thresholds as defined by the Subsidy Control Act. Other WTO members can dispute their award if they can demonstrate the subsidy causes adverse effects on another member’s interests^{[footnote 6]}. In practice, a subsidy is likely to be considered to cause injury or ‘serious prejudice’ if it leads to market displacement, price undercutting, or significant price suppression, price depression or lost sales in the UK or foreign markets. When considering the likelihood of a subsidy triggering a dispute under the WTO ASCM, please refer to Section 3.

When designing a subsidy public authorities should, as far as possible and in a proportionate manner, consider the impact their subsidy could have on other WTO members’ trade interests.

Any assessment should be proportionate to the subsidy being awarded. Public authorities should note that many subsidies are unlikely to exhibit the characteristics that would normally concern a trade partner.

Other relevant WTO provisions: National Treatment obligations (GATT, GATS & TRIMs Agreement)

As stated above, components of subsidies can contravene WTO rules beyond the subsidy-specific disciplines of the ASCM. As part of the designing of the subsidy, the below should be considered.

While the Subsidy Control Act, ASCM, TCA and other FTAs contain obligations on prohibited subsidies that are contingent on the use of domestic goods over imported goods, public authorities should be aware that the UK’s national treatment obligations in the General Agreement on Tariffs and Trade (GATT), General Agreement on Trade in Services (GATS), and the Agreement on Trade-Related Investment Measures (TRIMs) go further than these obligations and should also be taken into account.

These additional obligations apply to subsidies with explicit domestic content requirements, or which are contingent on use of domestic goods as services. They also extend to subsidies that seek to incentivise the use of domestic content through non-binding requirements. Subsidies incentivising the use of domestic content may violate Article III:4 of the GATT if the subsidy involves goods, or Article XVII of the GATS if the subsidy relates to services sectors where the UK has made a commitment to providing national treatment.

Public authorities also should be aware of GATT national treatment obligations when providing subsidies that take the form of forgoing revenue that is otherwise due (e.g., a tax break). Subsidies of this nature should be available for all products or to all producers regardless of an origin to avoid violating Article III:4 GATT. Public authorities should note that the GATT permits the provision of other forms of subsidy (e.g., direct grants) exclusively to UK producers.

Routes for WTO members to challenge UK subsidies

Where a WTO member has concerns about a subsidy granted by another member, there are two main routes to challenge. The complaining WTO member may either enter formal dispute settlement proceedings citing breaches of the ASCM and/or GATT, for example, or if the subsidy is a potentially ‘actionable subsidy’, the member may alternatively seek to impose countervailing duties under the ASCM.

The first route enables a complaining WTO member to challenge the subsidy and/or components of it by requesting consultations with the member who is applying the subsidy to negotiate a mutually acceptable solution. If this is unsuccessful, then the dispute can be referred to a dispute settlement panel formed through the WTO’s Dispute Settlement Body. The panel can make a legally binding recommendation.

If the subsidy is found to be an actionable subsidy within the meaning of the ASCM, the subsidising member is required to withdraw the disputed subsidy or remove the adverse effects it causes. For other claims, the subsidising member is usually required to remove the WTO-violating components of the measure.

If these recommendations are not fulfilled, the WTO can authorise the complaining member to impose countermeasures if the measure is an actionable subsidy under the ASCM, or ‘retaliate’ for other violations. Any countermeasures must be commensurate with the degree and nature of the adverse effects determined to exist, prospective in nature (and therefore not take account of circumstances prior to the ruling) and can include tariffs on products and sectors different to those subject to the original subsidy.

The second route to challenge is available under the ASCM if the measure is considered as potentially being an actionable subsidy. The WTO member may launch its own investigation into the subsidy and produce evidence of the harm caused to their domestic industry. Following this investigation, the member can impose ‘countervailing duties’ but usually only on imports of the item whose production has been subsidised and limited to offsetting the continuing harm to the domestic industry caused by the offending subsidy. The imposition of countervailing measures can be challenged through the establishment of a WTO dispute settlement panel.

Transparency commitments under the ASCM

Within the ASCM there is an obligation on WTO members to notify subsidies for goods which builds upon a similar obligation contained in the WTO General Agreement on Tariffs and Trade (GATT).

WTO members are required to notify all subsidies that are directed to specific enterprises as well as all actions taken against another member. These can range from the initiation of an anti-subsidy investigation through to the imposition of countervailing measures as well as any relevant domestic legislation. The WTO also requires notification of any subsidy that directly or indirectly affects trade. Subsidy notifications are reviewed at regular meetings of the WTO Committee on Subsidies and Countervailing Measures, where members may, among other things, raise another member’s failure to submit a notification or ask questions about another member’s subsidy programmes.

From 2023 onwards, the UK government must provide a full subsidy notification to the WTO by 30 June of every odd-numbered year. DBT are responsible for reporting under the ASCM to the WTO, whilst DEFRA is responsible for reporting under the obligations of the Agreement on Agriculture (AoA). The subsidy control transparency database should provide DBT and DEFRA with much of the information they need to discharge the UK’s bi-annual WTO reporting obligation, thus minimising the burdens on public authorities.

WTO Agreement on Agriculture (AoA)

The AoA came into effect in 1995 and details the obligations in relation to agricultural subsidies. As a founding member of the WTO, the UK is a signatory to the AoA. Domestic support given to producers of most agricultural (and some forestry and horticultural) products falls within scope of the AoA.

Classifications of support under the AoA

• green box support is support which is considered to be non-trade-distorting.

• blue box support is support considered trade-distorting (because it is coupled to levels of production) but with limited impacts because it is coupled to limited levels of production.

• amber box support is support which is considered to be potentially trade distorting.

Domestic support within the scope of the AoA is treated differently depending on whether it is considered trade distorting or not and the different classifications are set out in the box above. Only support that is classified as trade-distorting (‘amber box’ support) is subject to limits, but all support given in favour of agricultural producers within the scope of the AoA must be recorded and notified to the WTO. UK regulations^{[footnote 7]} made under the powers in the Agriculture Act 2020 set out the processes for classifying and notifying domestic support that falls within scope of the AoA, as well as limits for each part of the UK on amber box support.

Green box and blue box support is not subject to limits under the AoA. Permitted support that does not meet the green box or blue box requirements is by default amber box and is subject to limits at the national level. For transparency, all (green, blue, and amber box) domestic support awarded to agricultural producers in the UK must be notified to the WTO on an annual basis. In addition to the annual notification obligations, modifications of any existing measures or introduction of new measures in the exempt categories must also be notified to the WTO. Domestic regulations and non-legislative agreements have been put in place to ensure UK-wide compliance with these obligations.

Section 5: UK-EU Trade and Co-operation Agreement

The UK-EU Trade and Co-operation Agreement (TCA) contains the most comprehensive set of international obligations in relation to subsidies of all the UK’s Free Trade Agreements (FTAs). The provisions of the TCA are also contained in the Subsidy Control Act. However, there are particular considerations in relation to the scope of the agreement of which public authorities should be aware, and public authorities should be aware that both the UK and the EU have a right to consult on subsidies given in each other’s jurisdictions. Finally, there is also the potential for remedial measures to be applied against the either Party by the other if there is evidence that a subsidy causes, or there is a serious risk that it will cause, a significant negative effect on trade or investment between the UK and EU.

Definition and scope

The Subsidy Control Act fully incorporates the definition of a subsidy in the TCA. For information on whether your measure constitutes a subsidy, as defined by the TCA, please refer to the statutory guidance for the Subsidy Control Act.

The TCA subsidies chapter only applies to subsidies over the value of 325,000 Special Drawing Rights, which is an IMF unit, ^{[footnote 8]} per beneficiary over a three-year period (Article 364). This threshold is set higher, at 750,000 Special Drawing Rights, for Services of Public Economic interest (Article 365). The scope and exemptions of the TCA are set out in Article 364. It is therefore important to note that the subsidies awarded as Minimal Financial Assistance (MFA) fall out of scope of the TCA. This is also the case for subsidies awarded as SPEI assistance under the Act. As the SPEI threshold is higher in the TCA than under the Subsidy Control Act, subsidies awarded as SPEI assistance under the Act will fall out of scope of the TCA. There are therefore no additional requirements for public authorities awarding MFA or SPEI assistance.

Certain kinds of subsidies are also exempt from the provisions of the TCA. These are as follows:

• certain agricultural subsidies, subsidies related to trade in fish and fish products which are covered by the WTO Agreement on Agriculture, and subsidies for audio-visual services are excluded from the provisions of the subsidies chapter. Please note, however, that these sectors are covered by the Subsidy Control Act, with separate obligations not included in the Act provided for in the WTO Agreement on Agriculture.

• subsidies for natural disasters or other exceptional non-economic occurrences are subject to the transparency provisions and consultations provisions, but are outside the provisions on prohibited subsidies and subsidies that are subject to conditions, assessment against principles and remedial measures;

• temporary subsidies to address the effects of a national or global economic emergency are allowed as long as they are targeted and proportionate. They must follow the principles and the transparency provisions. However, they are exempt from remedial measures and from the provisions under prohibited subsidies.

Consultation

Under the terms of the TCA, both the UK and EU have the right to consult the other on any subsidy awarded within the other’s jurisdictions if they consider that there is clear evidence that a proposed subsidy could have a negative effect on trade or investment between the Parties. Public authorities should therefore be aware that even if they have completed a principles assessment and determined that their subsidy complies with the principles of the Subsidy Control Act, including that the benefits of the subsidy outweigh any potential negative effects on trade or investment between the UK and EU, under the terms of the TCA the EU still has the right to ask the UK for evidence that the principles have been respected for that subsidy. Crucially, this applies to any subsidy within scope of the TCA, including those that have received a positive report from the Subsidy Advice Unit.

These consultations take place between the UK Government and the European Commission. In a case where the Commission asks for information about a subsidy awarded in the UK, the UK Government will refer initially to the information provided on the transparency database and then liaise with the relevant public authority to provide the Commission with the necessary information. If it is found that the principles have not been followed, the public authority may need to modify their subsidy.

Enforcement, Dispute Settlement and Remedial Measures

The TCA gives the EU and UK mechanisms to ensure each other’s compliance with the subsidy provisions in the agreement.

The dispute settlement mechanism applies to the Parties’ subsidy control regimes as a whole, and whether these regimes ensure that the rules agreed in the TCA regarding the principles, prohibited subsidies and subsidies subject to conditions are complied with (Article 375). However, how these elements have been applied by a public authority on an individual award of a subsidy is not subject to the dispute settlement mechanism, except in relation to prohibited subsidies and certain subsidies subject to conditions (Article 367). Otherwise, individual subsidies and subsidy schemes may only be subject to the remedial measures provisions.

The UK and the EU have agreed a reciprocal mechanism that allows either side to take rapid unilateral action (or “remedial measures”) where a subsidy granted by the other Party is causing, or there is a serious risk that it will cause, a significant negative effect on trade or investment between the Parties (Article 374). These measures can be challenged using an accelerated arbitration procedure and there is the possibility of suspension of obligations under the agreement or compensation if a Party has used these measures in a manner that is significantly inconsistent with the requirements of proportionality and necessity.

However, it must be noted that the imposition of remedial measures would never be the first resort. Both Parties must first consult each other and seek to find a mutually acceptable solution to the harmful subsidy. If it is not possible to find a solution at this stage, the requesting Party must notify the other of the measures it intends to take to enable the Parties to again to try to find a mutually acceptable solution. The requesting Party is also required to show evidence of the existence of a significant negative effect and must also wait between each step to allow the other Party to respond and provide the necessary information. As emphasised in Section 3, the imposition of remedial measures is therefore unlikely in most cases and is most likely to occur in cases involving large subsidies awarded in sensitive sectors, and/or to enterprises operating at scale on international markets. Public authorities concerned about triggering a dispute under the TCA should contact DBT to discuss the matter further (for contact details, see Section 7).

Section 6: Free Trade Agreements (FTAs)

Some of our other Free Trade Agreements contain provisions on subsidies, which seek to prevent any harm caused by subsidies to the trade between the Parties to the agreement. FTA provisions apply concurrently with the UK’s WTO obligations and most agreements build upon or reaffirm those obligations. When considering whether a proposed subsidy is captured by the commitments in an FTA, it is important to begin by recognising that both Parties should minimise any potential disruptive effects of subsidies on trade between the two Parties.

Subsidies provisions in FTAs often include commitments on transparency, including the regular notification of subsidies. If a Party feels that bilateral trade has been harmed by a subsidy, they can seek consultations with the other Party to address their concerns. In some FTAs, the outcomes of consultations are subject to the dispute settlement mechanism of the FTA.

However, it is important to stress that no existing FTA contains provisions as comprehensive as those contained within the Subsidy Control Act. The likelihood of a subsidy that complies with the Subsidy Control Act triggering a dispute under the terms of an FTA is therefore very low. Public Authorities should have regard to the information in Section 3 when awarding a subsidy to assess the likelihood of triggering a dispute. If, however, the Public Authority has determined that there is a credible risk of triggering a dispute under the terms of an FTA, they should contact DBT.

Contacts for further advice

• UK Subsidy Control team [email protected]

• DEFRA Subsidy Control team: [email protected]

• DfE Subsidy Control Advice (Northern Ireland): [email protected]

• DAERA State Aid Unit (Northern Ireland – Agriculture) [email protected]

• Subsidy Control Division (Scotland): [email protected]

• Subsidy Control Team (Wales): [email protected]

• DIT WTO team: [email protected]

• DEFRA WTO team: [email protected]

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1. The material in this guidance sets out subsidy-related provisions in international agreements. The detail outlined is without prejudice to any wider, overarching provisions or ‘exemptions’ contained in those agreements ↩

2. The AoA sets out obligations and limits on some types of subsidies (domestic support) given to producers of most agricultural (and some horticultural and forestry) products. ↩

3. For instance, if a public body were to apply a trade-related investment measure (in the form of local content requirement), as a condition for the receipt of a subsidy, that measure would also be a violation of Article 2 the TRIMs Agreement ↩

4. The UK is also bound by National Treatment obligations in relation to services subsidies under the GATS. GATS Article II (Most Favoured Nation treatment) applies to services subsidies where they are measures by Members that affect trade in services as defined by Article I (Scope and Definition). Moreover, in sectors, sub-sectors, and/or modes of supply in which a Member has scheduled a GATS commitment, Article XVII (National Treatment) disciplines also apply to subsidy practices. Subsidies must be granted on a national treatment basis unless limitations have been specifically inscribed in the UK’s schedule of commitments ↩

5. Further information on the ASCM can be found in the relevant WTO Analytical Index which includes article-by-article guides on the interpretation and application of WTO agreements: https://www.wto.org/english/res_e/publications_e/ai17_e/subsidies_e.htm ↩

6. The WTO member challenging the subsidy needs to demonstrate actual adverse effects would be caused by the subsidy rather than just the subsidy having potential to have such an impact ↩

7. The World Trade Organization Agreement on Agriculture (Domestic Support) Regulations 2020 ↩

8. Special drawing rights (SDR) are supplementary international reserve assets defined and maintained by the International Monetary Fund (IMF) ↩