EU Tries to Bind U.K. With Strict State Aid, Tax Standards

The European Commission wants to bind the U.K. to strict state-aid and tax rules in the post-Brexit era, calling for the EU to be handed special rapid-response powers if it thinks Britain unfairly upends fair competition.

The European Union should “have the possibility to apply autonomous interim measures to react quickly to disruptions of the equal conditions of competition,” the commission said a draft negotiating mandate for a deal between the U.K. and the now 27-nation EU. The Brussels-based authority didn’t spell out what potential sanctions might be.

In a bid to avoid unfair competition from a potentially more interventionist British government, the commission also calls for its curbs on government funding for industry, known as state aid, to be applied in the U.K., according to the document.

While the U.K. has traditionally been reluctant to subsidize national champions or bail out non-financial companies in trouble, Prime Minister Boris Johnson has shown he’s less shy of state involvement than his predecessors. His government has voiced support for stricken airline Flybe and said it would take troubled Northern Rail franchise back into state ownership.

Any spats with European nations should be tackled via dispute settlement with the EU’s Court of Justice having the final word over how the law should be interpreted. The U.K. has already said it will enforce state-aid law with its antitrust regulator, the Competition and Markets Authority.

“The Brits have a strong culture of competition,” EU antitrust chief Margrethe Vestager told reporters in The Hague. “When it comes to the value chain, you see a lot of integration in many, many sectors“ and a close relationship is “also in the interest of British companies.”

Likely Fight

The U.K. is likely to fight any place for the EU courts in a future agreement. Removing the U.K. from the authority of the EU courts was a strong plank of Johnson’s Leave campaign

The EU said it’s planning to extend rules aimed at China’s state-owned companies to the U.K., threatening potential limits on government firms “to ensure that they do not distort competition or create barriers to trade and investment.”

The commission is also asking the U.K. to stick to international and EU efforts to crack down on corporate taxation which might curb Britain’s ability to offer attractive fiscal conditions to global businesses.

The document, released on Monday, sets out the EU’s starting position for negotiating on future relations with the U.K. It is still unclear what the final rules will be.