UK agreed to stricter state aid rules in trade deal with Japan than it is offering in Brexit talks with the EU

The trade deal was hailed a success by the government’s key negotiator in the talks, international trade secretary Liz Truss, when she announced an agreement had been struck on Friday.

But legal professionals say the deal ties Britain into tougher state aid rules than the ones they are proposing in Brexit talks with the EU, the FT reports.

The agreement stops governments in Japan and the UK from indefinitely guaranteeing ailing companies with bail-outs or without a clear restructuring plan.

On the other hand, London has demanded free reign over state aid rules when the Brexit transition period ends, subject to World Trade Organization rules.

Downing Street is pushing for a replica of the deal given to Canada whereby both sides must give notice about state aid hand-outs. The EU has repeatedly said the proposal is unacceptable.

A government spokesman said: ‘The UK offer to the EU is based on the arrangements agreed between Canada and the EU.

‘The UK-Japan agreement contains similar commitments, including on transparency about subsidies awarded and consultations over any concerns about those subsidies which may affect the other party.’

The UK’s concession to Japan has raised eyebrows in Westminster, a source close to the matter has told the paper.

Chief UK Brexit negotiator, David Frost, is said to have raised alarm over the trade secretary’s decision to give away more to Japan on level playing field issues than what is being proposed to Brussels.

But those close to Truss have dismissed concerns saying the state aid provision in the deal with Japan was ‘just a standard clause in any free trade agreement’ and the idea the UK had ‘given too much away’ was ‘rubbish’.

But legal professionals are not convinced and say the provisions could seriously undermine talks with Brussels.

George Peretz, a barrister at the Monckton legal chambers in London, told the FT: ‘The provisions on state aid in the EU-Japan FTA create some quite hard-edged commitments not to provide open-ended government support to companies.

‘If the UK-Japan FTA (Free Trade Agreement) replicates those provisions, the UK will need to legislate to ensure that British public bodies do not contravene them. That could well compromise the UK’s negotiating position with the EU, where it has not offered anything like that level of commitment.’

Others have said the subsidy rules in the Japan deal were still weak compared with the detailed and invasive EU state aid regime.

James Webber, a partner at the law firm Shearman & Sterling, said: ‘It’s a concession of sorts by the UK, but if this is where the negotiations end up, it will be much closer to the UK’s view of the world than the EU’s.’

A government spokesperson said: ‘In all our trade negotiations, including with the EU and with Japan, we consistently make proposals which provide for open and fair competition, on the basis of high standards, in a way which is appropriate to a modern free trade agreement between sovereign and autonomous equals.’