Brexit update: UK internal market, WTO subsidy rules

Brexit and the Rule of Law

The proposed UK Internal Market Bill, which was published on 9th September 2020, breaks new ground with the admission by the UK Government that with the Bill the UK may be breaking international law, albeit in a “very limited and specific way” (as confirmed by Brandon Lewis MP, the UK Government Northern Ireland Secretary, in the House of Commons on 8th September 2020).

The relevant alleged breach concerns provisions of the Ireland / Northern Ireland Protocol to the UK-EU Withdrawal Agreement relating to the completion of customs declaration forms on the export of goods from Northern Ireland to Great Britain (and possibly vice versa), particularly in the event of no post-transition period relationship deal being agreed between the UK and the EU. Other provisions in the Bill enabling the UK Government to block the application of the EU’s subsidies and competition rules in respect of Northern Ireland trade might also contravene the Ireland/Northern Ireland Protocol and thus constitute a breach of international law.

The argument is that such breaches would contravene Article 4 of the UK- EU Withdrawal Agreement, which purports to establish the primacy of that Agreement over inconsistent provisions of domestic law, and would therefore contravene the Vienna Convention on the Law of Treaties 1969, which is binding between the parties.

It has been argued that there is a get-out provision in Article 62 of the Vienna Convention, which permits termination or suspension of a Treaty in the event of a “fundamental change of circumstances” which was not foreseen by the parties at the time of conclusion of the Treaty. However, even the UK Government is not seeking to invoke this argument at the present time since the prospects of there being no post-transition period relationship deal between the UK and the EU were, it could be said, entirely foreseeable at the time that UK-EU Withdrawal Agreement was agreed in late 2019/ early 2020.

One wonders if there will be Court challenges of any sort to the current proposals.

Brexit and Wider Aspects of the UK Internal Market

On 16th July 2020, the UK Government published the UK Internal Market White Paper which contained proposals for ensuring that trade and services could be conducted without legal barriers across the UK following the repatriation of powers to the UK Government and to the UK Devolved Administrations at the end of the transition period.

The concern was to ensure not only that trade could be conducted seamlessly between Northern Ireland and the rest of the UK (notwithstanding the legal structures set up by the Ireland/ Northern Ireland Protocol to the Withdrawal Agreement as an apparently inevitable consequence remaining within the EU regime for trade purposes so as to continue to permit open borders between Ireland and Northern Ireland in line with the “Good Friday” Agreement) but also between all the four nations of the UK – England, Scotland, Wales and Northern Ireland.

There was not much of a suggestion at the time of the White Paper that the follow-up UK Internal Market Bill could, if enacted, breach international law (as laid down by the Ireland/Northern Ireland Protocol)  – and that is the element of the Bill which has stirred so much public controversy. It is important, therefore, not to overlook the wider aspects and other substantive provisions of the Bill.

In summary, the Bill includes:-

* Market access provisions enabling goods and services which satisfy relevant regulatory requirements in one nation of the UK to be traded and/provided in other territories of the UK;

* Non–discrimination provisions which enable goods and services to be traded and/or provided throughout the UK;

* Provisions for obtaining independent advice on and ensuring monitoring of the UK Internal Market;

* Provisions for the authorisation of UK Government financial assistance in connection with economic development, infrastructure, culture, sport and educational or training activities and exchanges throughout the UK; and

* Provisions giving the UK Government control over the regulation of the grant of distortive or harmful subsidies by making such regulation a reserved or excepted matter  – though one may query whether this proposal is at the expense of the current powers of the UK Devolved Administrations or whether this proposal is purely clarificatory.

Brexit in this context should perhaps be seen as the trigger for addressing  fundamental concerns affecting the life and interrelationships of the United Kingdom and its constituent nations going forward –  somewhat revolutionary issues to consider for a country more given to gradual evolution (apart from the Irish question) in recent centuries.

Brexit and the WTO Rules on Subsidies

On 9th September 2020, in a press announcement, the UK Government Department for Business, Energy and Industrial Strategy (BEIS) confirmed that after the UK-EU transition period the UK would follow the World Trade Organisation (WTO) rules on state and public subsidies to private sector organisations.

On 10th September 2020, at the end of the 8th round of negotiations between the UK and the EU for a new post-transition period relationship, the EU acknowledged that the UK had committed itself to follow the WTO rules on subsidies following the end of the UK – EU transition period but indicated that that this commitment had fallen short of the UK’s  corresponding obligations under the UK – EU Political Declaration and was, therefore, not good enough.

In its press announcement of the 9th September 2020, in confirming that the UK would comply with WTO subsidy rules, BEIS had described those WTO subsidy rules as being rules which ban relevant subsidies that are dependent on either how much a company exports or on the use of domestic goods over imports. For all other relevant subsidies, BEIS  stated that the WTO rules provide a mechanism to resolve disputes between countries. In the same press announcement, BEIS had also indicated that, in addition to complying with the WTO subsidy rules, the UK would comply with any international obligations to which it submitted under future free trade agreements.

These are all fairly forthright commitments, or at least statements of intent, and the way forward may be for the EU to indicate in more detail in what ways it thinks that those commitments fall short of the more generalised language of the (legally non-binding) Political Declaration under the heading of the “level playing field for open and fair competition”. It may be that in reality the UK and the EU are not very far apart on this issue.

 

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David Glass

Specialist in Business & Corporate, Commercial Contracts
& Insolvency & Corporate Recovery

E: [email protected]
T: +44 (0)845 257 9449