State Aid Post-Brexit: What Can UK Learn from Serbia’s Experience?

Serbia

State Aid Post-Brexit: What Can UK Learn from Serbia’s Experience?

Soon, the UK and Serbia will be in a similar position towards the EU: they will both be out of the bloc, but under a strong influence of EU legislation, including in the area of State aid. Despite all the differences between Serbia and the UK one can think of, the Balkan country’s experience may be interesting to consider in light of the design of the UK’s State aid system post-Brexit.

Serbia and the EU: a long story

Following 2000, each Serbian government has been emphasizing EU membership as one of the country’s priorities. Similar statements could be heard from the EU as well, though without concrete commitment about when Serbia could actually join the bloc. From the side of the EU, the discourse most often used with respect to Serbia is that ‘Serbia has a future in the EU’ or that ‘Serbia has a European perspective’.

At the moment, Serbia is a candidate country, with a set of agreements governing its relationship with the EU. The most important one is the EU-Serbia Stabilization and Association Agreement (“SAA“), signed in 2008 and in force since 2013. In parallel with the SAA, the parties also signed an Interim Trade Agreement (“ITA“), which governed the relationship between the parties before the SAA entered into force.

Despite these pre-accession agreements being in place, it is not clear when Serbia will actually join the EU. It has been mentioned that this could happen in 2025, but more in the sense that it will not happen before that. Let’s see.

State aid provisions in Serbia’s agreements with the EU

Both the ITA and the SAA contain a State aid provision, which, in essence, prohibits any State aid which distorts competition and may affect trade between the EU and Serbia. Such aid must be assessed in accordance with the relevant EU acquis by an operationally independent authority, which Serbia had to establish under the agreement.

That ‘operationally independent’ authority is the Serbian Commission for the Control of State (“State Aid Commission“), which has been in operation since 2010. The watchdog has seen quite a workload over the years – for instance, during 2017 the State Aid Commission assessed and approved State aid worth approx. EUR 370 million.

As for the substantive State aid rules, Serbia largely follows the EU model and has transposed into its legal system much of acquis in that area. This means that, regardless whether there is an effect on trade between the EU and Serbia, State assistance is to be effectively examined based on the relevant EU rules.

EU: The UK out, Serbia in (eventually)

The UK’s exit from the EU is more certain than Serbia’s accession, but, in any case, there will be at least a period of a few years where Serbia and the UK will be in a similar position towards the EU – being outside the bloc, but under a strong influence of its State aid regime. Which is why some of Serbia’s lessons may prove to be useful for the UK.

Lesson no. 1: Give the State aid watchdog adequate independence

From what has been announced so far, it would appear that, in the UK post-Brexit, State aid issues will be dealt with by the Competition and Markets Authority (“CMA“). This way, the powers of an existing competition watchdog would be extended to the State aid sphere.

Unlike the proposed UK system of one competition authority, in Serbia we have two competition watchdogs. The first one is the Commission for Protection of Competition (“Competition Commission“), which deals with ‘traditional’ competition spheres – antitrust and merger control. The other one is the mentioned State Aid Commission, whose name implies the limitations of its powers. So, how has this dual setup worked so far?

To start with, the two bodies are different in nature, in that the Competition Commission is more independent than the State Aid Commission: while the members of the Competition Commission are appointed by the Parliament, the members of the State Aid Commission are appointed by the Government. And since most State aid is granted by various Government ministries, the guarantees of independence which are in place for the Competition Commission seem even more justified for a State aid enforcer.

Based on this, the first lesson from Serbia could be: when creating a national State aid body, make sure its independence is guaranteed. Like a few other bodies, a State aid authority will be going after the decisions of the Government and should be insulated from any kind of pressure or influence by that same Government. By opting for the CMA, the UK seems to have ticked the box on this one.

Lesson no. 2: One watchdog for all competition matters is probably a good idea

This depends on the situation, but generally, having one single competition watchdog, which also has State aid competencies, seems to reduce unnecessary duplication of work.

True, the analysis performed in antitrust/merger cases is not completely the same as State aid analysis, but both are governed by the same principles. For this reason, an existing competition watchdog with a past track record in antitrust and merger control would surely be more equipped to deal with State aid issues than a completely new body. This appears to apply fully to the CMA.

Now we’re at it, should Serbia then opt for a single competition watchdog as well? This would not be unheard of in the Balkans – for instance, just a few months ago, Montenegro decided to abolish its separate State aid body and transfer State aid powers to the country’s competition authority. Further, Macedonia (FYROM) has had such a system for several years already. However, I personally don’t see Serbia following the same path any time soon.

To start with, the Serbian Competition Commission is not that much interested in expanding its powers to the State aid sphere and nobody in the government seems to be pushing for it either. So, I would bet that, at least for the foreseeable future, Serbia’s institutional setup with respect to competition enforcement will not change.

Lesson no. 3: A national State aid system may be difficult to sell domestically, as it is more likely to protect foreign than local companies

Naturally, a national government is more likely to afford State aid to local companies, which in turn means that it is more likely that the aggrieved parties will more likely be foreign companies put at a competitive disadvantage by the State assistance. For that reason, it may be difficult politically to justify the existence of a body whose work would primarily be benefiting foreign capital.

This is not so much of an issue in the EU, where State aid enforcement is supranational, at an EU level. Such a system makes a lot of sense, as a supranational body can be expected to be much less influenced by any particular government or public opinion than would be the case with a national body. That is why, at least in my opinion, State aid enforcement is much more suitable for supranational bodies such as the European Commission than for national bodies, be it the CMA or the Serbian State aid authority.

Lesson no. 4: Whether you like State aid control or not, you will probably need to have it if you want a trade deal with the EU

Apart from governing other aspects of Serbia’s pre-accession status, the EU-Serbia SAA is also a trade agreement, covering almost all goods and services. And having such a trade deal with the EU would probably not be possible without the described State aid provision in the SAA, as the EU is unlikely to accept that its companies be put at a competitive disadvantage by possible State aid actions of a non-member State.

From that perspective, if the UK wants to have a trade deal with the EU post-Brexit, it is difficult to see how that could happen without the UK adopting a State aid control mechanism based on the EU model. And while it remains to be seen how exactly the UK’s State aid enforcement will look like in the future, I would not be surprised if it would come to down to something like what we have in Serbia: local substantive rules copied from the EU, plus a State aid provision in the trade deal with the EU.

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I am aware that the idea of the UK adopting a State aid approach in existence in countries with an association agreement with the EU is not completely new, as it has been, inter alia, discussed in a House of Lords report on Brexit implications on competition and State aid. Nevertheless, I hope that in this text I’ve shed some additional light on how such State aid enforcement looks in reality and how the UK could learn from it.

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