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The Latest Brexit Controversy: UK Government’s Internal Market Bill

  • United Kingdom
  • Brexit
  • Competition, EU and Trade - Brexit

18-09-2020

On Wednesday 9 September 2020 the UK Government’s new Internal Market Bill (the “Bill”) was introduced to the House of Commons, causing controversy both inside the country as well as in the EU. The Bill allows the Government to override parts of the Withdrawal Agreement with the EU and waive the UK’s obligations to allow for the EU Customs Union rules to apply in Northern Ireland at the end of the Brexit transition period (i.e. from January 2021).

Clearing the first hurdle in Parliament, the Bill was passed by the House of Commons on 14 September. The EU has threatened legal action against the UK Government over what it calls an "extremely serious" violation of the Withdrawal Agreement.

Background

The Withdrawal Agreement’s Protocol on Northern Ireland was designed to avoid a hard border on the island of Ireland.

Under the Protocol, the EU’s Union Customs Code rules would apply to trade between Northern Ireland and the Republic of Ireland, and there would be no tariffs or restrictions on the flow of goods. Accordingly, after the end of the transition period, Northern Ireland will continue to enforce the EU's customs rules and follow its rules on product standards.

However, in order to preserve the integrity of the EU’s Single Market, the Protocol provides that, while Northern Ireland will remain part of the customs territory of the UK, some customs checks and controls would need to apply to goods moving from Great Britain to Northern Ireland. For goods deemed “at risk” of being moved into the EU, the EU tariff would be applied. The definition of goods “at risk”, which is yet to be agreed, should determine the volume of Great Britain-Northern Ireland trade where customs checks are required.

The controversy of the new Bill stems from the fact that it allows the UK to disapply or modify a section of the Northern Ireland Protocol which sets out the terms under which the territory's customs controls and trade arrangements are to be governed after the expiry of the transition period.

The Government’s stated intention behind the Bill is to “preserve the status quo of seamless internal trade” between different parts of the UK, and prevent the creation of new barriers by ensuring a common regulatory framework across each of the four nations that will see standards and regulations set in one part of the country recognised in another. The Government said it needs to have a legal safety net if trade talks with the EU fail, in order to ensure there is no economic or regulatory border between Northern Ireland and the rest of the UK.

What is in the Bill?

Some of the key elements of the Bill are set out below.

1. Impact on the Northern Ireland Protocol

The Bill contains provisions which allow the UK Government to override the Northern Ireland Protocol and grant Government ministers the power to determine rules on State aid and the movement of goods between Great Britain and Northern Ireland.

  • Clause 40 places an obligation on the UK Government and devolved administrations to consider Northern Ireland’s place in the UK Internal Market when implementing the Northern Ireland Protocol.
  • Clause 41 generally prevents any Government from introducing new checks or processes on goods moving between Northern Ireland and Great Britain.
  • Clause 42 gives UK ministers the power to disapply or modify exit summary declarations (and any other exit procedures) for goods moving between Northern Ireland and Great Britain and, in doing so, to disregard domestic laws or international obligations, including any under the Northern Ireland Protocol.
  • Clause 43 gives ministers the powers to make regulations to determine how State aid rules are applied, including in a way that modifies the Protocol itself or is incompatible with international law.

2. Mutual Recognition and Non-Discrimination

Under the proposed mutual recognition and non-discrimination rules, any goods which are legally sold in one part of the UK can also be sold the other parts of the UK. This means that any requirements which one part of the UK imposes on a product before it can be sold will by default not apply to products moving from other parts of the UK. In addition, any regulation imposed by one part of the UK which imposes discriminatory rules (i.e. rules which make it “more difficult, or less attractive, to sell or buy the goods or do anything in connection with their sale”) would be ‘of no effect’, meaning that a person can refuse to comply with it and then use the principle of non-discrimination as a defence if challenged.

3. Financial Assistance

The Bill aims to replace the system of EU structural and investment funds through a number of provisions which will allow the Government to administer financial assistance in the form of grants, loans, guarantees and indemnities across a variety of policy areas, including infrastructure, economic development, cultural activities, sport and education.

4. Reporting, advising and monitoring functions

The Bill also sets out new monitoring responsibilities in relation to the Internal Market for the Competition and Markets Authority, which will be exercised through a new Office for the Internal Market (“OIM”).The OIM will be responsible for monitoring and preparing reports on the operation of the UK Internal Market, as well as providing advice on the introduction of new regulatory provisions.

The OIM will also gain information-gathering and enforcement powers for the purposes of carrying out these new roles – these include the power to request documents from a person by giving written notice, and the power to administer financial penalties to any person who fails to comply with such a written notice without reasonable excuse.

Comment

Trade negotiations between the UK and the EU have been deadlocked for weeks, with both sides expressing frustration at the perceived unwillingness of the other side to offer concessions. The negotiators are trying to show strength by not wavering in their demands and not shying away from controversies: only last week, the Government said that, instead of agreeing to level playing field commitments on State aid, the UK will, at least initially, follow the basic subsidy rules of the World Trade Organisation after the end of the Brexit transition period. Whether the UK, in fact, agrees to adopt some or all of the EU’s State aid regime as part of last-minute negotiations remains to be seen. If the position stays as it is, in the future, or at least until such time as a UK-specific subsidy control regime is implemented (following consultation), public sector financial assistance will not be restricted in the same way.

The Bill is seen by many as another provocation to force the EU to compromise. The UK Government said that the Bill is needed to preserve national interests if no agreement on future trade relations with the EU is reached.

In a surprising admission during a parliamentary debate, Northern Ireland minister Brandon Lewis said the Bill's provisions amount to a violation of international law "in a limited and specific way." Following a meeting of the Joint Committee tasked with addressing any differences in interpretation of the Withdrawal Agreement, EU Commissioner Maroš Šefčovič gave the UK until the end of September to drop the Bill or face legal action.

The introduction of the Bill could also potentially harm the UK’s negotiations with other allies and partners, as breaking international law is unlikely to inspire confidence in the UK’s ability to strike airtight trade deals. Most notably, the US House Speaker Nancy Pelosi warned that breaching the Withdrawal Agreement would jeopardize the UK’s chances of negotiating a trade deal with the US.

At the moment, the next round of EU-UK trade negotiations is still planned to take place this week. However, any progress is likely to be conditional on finding a solution to this political crisis. In the meantime, both UK and EU businesses face continued uncertainty over the trading arrangements post-Brexit.