Brussels launches first post-Brexit vote state aid probe into UK

The European Commission has launched its first full competition investigation into the UK since the Brexit vote, demonstrating that it still intends to hold Britain to account for breaking EU rules.

The subject of the probe is relatively obscure — whether a Portsmouth cargo handling company received illegal state support — but the action highlights the bigger legal and political questions that will arise as Britain negotiates its divorce with the union.

Acting on a complaint from a British rival, the commission investigators are looking at the financial support offered by Portsmouth City Council to MMD Shipping Service, a cargo company that it owns.

The case turns on allegations of soft loans, sweetheart crane leases and secret guarantees for a bank overdraft.

The commission said its probe will test “whether these measures provided MMD with an unfair advantage over its competitors, in breach of EU state aid rules.”

But the most significant part of the case may be that it is being launched at all.

For the commission, this is one example of how Britain remains a full member of the EU, with all the rights and legal obligations that entails, at least until it seeks to leave the bloc by invoking Article 50, the EU’s formal divorce clause.

That means it will still be expected to follow EU rules. In practice, London and Brussels are both taking a pragmatic approach to enforcement. But the Portsmouth probe shows that Brussels has not suspended its normal policing activities.

“Any delicate investigations will of course be closely scrutinised before they are started,” said Alfonso Lamadrid, a senior associate at the Brussels law firm Garrigues. “But this decision confirms the commission’s business-as-usual policy.”

The handling of the case also sheds light on some of the tricky legal questions potentially facing companies during Britain’s Brexit transition.

State aid probes have no deadline and can take several years to complete, meaning the decision could arrive after Brexit is complete. Even if Brussels acts quickly — while Britain remains an EU member — it will still be up to UK authorities to decide to act on any EU order to recover illegal support.

Much depends on the post-Brexit arrangements on competition. In some areas — such as antitrust — Brussels would still have powers to confront UK companies for past misconduct within the EU. Some legal experts also believe it is likely that some form of EU-UK state aid control regime will emerge from talks.

“There is a difference between what happens in the antitrust area and in state aid. Even after Britain leaves the EU, the commission could run antitrust cases in the future regarding conduct affecting the EEA territory. The commission would still have jurisdiction over the companies, even if they are UK companies,” said Mr Lamadrid.

“State aid is different. The commission would in principle not have jurisdiction over former member states. Even if it took a decision it would not have legal effect. But this assumes there is a disorderly exit. It is pretty inconceivable that an agreement to control state aid is not part of the post-Brexit arrangements.”