Why State Aid Has Become a Stumbling Block in Brexit

In theory, the system of free trade driving the world economy is supposed to provide a “level playing field” for all. In practice, countries have long complained that rivals unfairly dish out aid in the form of state-backed subsidies to boost favored companies -- often as they themselves do the same. State aid has become a key sticking point in the U.K.’s protracted talks on shaping its future relationship with the European Union, which tightly controls state subsidies within its borders. With additional pressure from the pandemic forcing governments to mount huge rescue efforts for their economies, the fragile set of rules that aim to keep state support in check is under threat.

It’s government support to key manufacturers or industries, typically in the form of cheap loans, tax breaks, contracts or direct subsidies. The idea is to give homegrown corporations an edge over outside competitors to create jobs, drive exports and fuel economic growth. Sometimes the state acquires partial ownership. Though aid can be modest, it attracts attention when it lasts for decades or drives the deliberate creation of dominant firms celebrated as “national champions.”