Shifting the goalposts?

Will the Internal Market Bill breach the Withdrawal Agreement?

Artillery Row

There are three main responses to the news that the government’s Internal Market Bill, which will be published on Wednesday, aims to “clarify” aspects of the Northern Ireland Protocol, a central part of the UK’s Withdrawal Agreement with the EU.

The first is that any unilateral reinterpreting of its terms is certainly against the spirit of the negotiations that secured the UK’s exit from the EU and a unilateral re-writing of them is a breach of international treaty law. As Labour’s shadow Northern Ireland Secretary, Louise Haigh, puts it, “this would be an act of immense bad faith: one that would be viewed dimly by future trading partners and allies around the world and make it more difficult for us to hold other governments to account. It beggars belief that the Government is – yet again – playing a dangerous game in Northern Ireland and sacrificing our international standing”.

A second view, which accepts the premise that Boris Johnson is trying to welch-out of the deal is held by some Brexiteers. For them the Protocol was the Trojan Horse that would undermine Britain’s freedom in the eventuality that no free trade agreement (FTA) meant trading on WTO terms when England, Wales and Scotland leaves the EU Single Market and Customs Union on 31 December. They fear the Protocol’s potential to neuter any state aid/level-playing field advantages on the British mainland and leave open the possibility of British goods to Northern Ireland being subject to tariffs not because they were subsequently passing into the EU member state of the Republic of Ireland but because of the possibility that they were “at risk” of doing so. If the government really is trying to send back that wooden horse, then such Brexiteers think so much the better.

On Wednesday we will see in the wording of the Internal Market Bill whether it is a third view that is in fact the closest to reality. This is the line that Downing Street was pushing at great length to lobby journalists on Monday morning. It was articulated, on the record, by the prime minister’s official spokesman that “we are taking limited and reasonable steps to clarify specific elements of the Northern Ireland Protocol in domestic law to remove any ambiguity.” The steps are merely “limited clarifications” to “ensure that Northern Ireland’s businesses and procedures enjoy unfettered access to the rest of the UK.”

The body designated with resolving issues of interpretation is the EU-UK Joint Council. Established by the Withdrawal Agreement, it is headed by the European Commission’s vice president, Maroš Šefčovič, and the chancellor of the duchy of Lancaster, Michael Gove. In the Downing Street version of events, regardless of the Joint Council continuing to meet, Westminster does need to enact in primary legislation safeguards that make clear the processes by which trade will continue across the Irish Sea, given the complication that Northern Ireland is to be both in the UK’s internal market and customs arrangements and, effectively, that of the EU too. Announcing this forthcoming legislation now is not purely a negotiating tactic (the FTA’s next round of negotiations commence between Michel Barner and David Frost on Tuesday). The legislation is being introduced in parliament this week in order to provide time for enactment. As early as May this year, the government’s command paper set out that primary legislation would follow at this time, so nobody should feign surprise.

Why is it necessary? Legislation was always going to be required to distinguish how the repatriation of powers from Brussels to London and the devolved authorities in Scotland, Wales and Northern Ireland would be enacted without disturbing the smooth functioning of the UK’s internal market. But unfettered access for goods travelling from the British mainland to Northern Ireland, a lightening of the bureaucratic load on goods going in the opposite direction, and clarity on state aid rules are critical areas where the Internal Market Bill will seek to clarify the Northern Ireland Protocol in ways that are clearly intending to suit Boris Johnson’s interpretation of what he agreed last year as the price for the UK leaving the EU.

Both sides agree that because Northern Ireland will remain within the UK’s internal market and customs agreement, goods going into the Province are not subject to EU tariffs (in the event of there being no FTA agreed by 31 December) so long as the Province is their end-point. If the goods are going on from Northern Ireland across the borderless-border into the Irish Republic, then EU tariffs and standards will apply. So far, so clear.

But what about goods that are stated to have a Northern Ireland destination but which may be “at risk” of crossing the non-customs-post border into the Republic? Here, the UK would collect the EU’s tariff on the EU’s behalf and then where it could be subsequently proved that the goods went no further than Northern Ireland a rebate system would be put in place. From no perspective is this set-up optimal. Concerned that EU law (and tariffs) would have “direct effect” for such goods, the Internal Market Bill will set out that the designation will be made under (British) ministerial powers. From London, this is described as a safeguard against “unintended consequences” of the Protocol that risked paralysing in paperwork the Province’s full participation within the UK internal market.

The Province would become the Brussels tail that wagged the neutered dog of Brexit Britain.

The Internal Market Bill’s other great ambition concerns on state aid. If Britain is trading on WTO terms after 31 December, EU state aid and “level playing field” law would not apply in mainland Britain but would apply in Northern Ireland. But what about anything from mainland Britain that received government subsidy that was also bought, used or built in Northern Ireland? Brussels could stop the British government funding a wide range of economic activities in England, Wales and Scotland because of their real or possible application in Northern Ireland. The Province would therefore become the Brussels tail that wagged the neutered dog of Brexit Britain.

The government’s intended legislation seeks to remove this risk. The reporting of British state aid to the EU for adjudication on whether it breaches the rules will be the responsibility of a British minister (likely the Business minister). The minister would be bound to report UK direct state aid within Northern Ireland as this would fall under EU rules, but not subsidies spent on the mainland. The European Court of Justice would not have jurisdiction over such subsidies even if there might conceivably be some secondary benefit in Northern Ireland.

The more outspoken reactions have suggested that such measures threaten the Good Friday Agreement (to which Downing Street has been at pains to repeat its commitment). Only those looking to find an excuse could sensibly claim the peace process is endangered by greater clarity on state aid reporting requirements. But what happens if the EU inconveniently refuses to agree that what is proposed in the legislation is in line with how Brussels interprets the Withdrawal Agreement?

There would be nothing to stop a case being brought before the European Court of Justice to adjudicate on whether the British minister’s failure to report state aid created a Irish cross-border distortion. Fines could be imposed, but they would likely be at relatively trivial levels given how small a distortion could be measured on a subsidy that was not even primarily aimed at Northern Ireland.

More broadly, as the competition and constitutional lawyer, George Peretz QC, points out, the Withdrawal Agreement states that it has “direct effect” and that the courts must interpret any qualifying legislation in a way that is consistent with the Agreement. If the European Court of Justice interprets Westminster legislation as conflicting with the Agreement, then UK courts must follow the European ruling unless the Westminster legislation explicitly states that it is deliberately overruling the Agreement. Nothing we have heard so far from Downing Street suggests that the Internal Market Bill will contain instructions of this kind. Here is one piece of primary legislation that really will require the most careful scrutiny.

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