Hot on the heels of the consultation document launched earlier in the summer (see our briefing paper of 23 July) the UK Government has now published draft legislation to give effect to the UK Internal Market in the post-Brexit environment – the UK Internal Market Bill (see also the Bill’s Explanatory Notes). Sparking immediate controversy, the Bill spells out for the first time how the UK Internal Market will work in relation to Northern Ireland having regard to the Protocol on Northern Ireland annexed to the UK’s Withdrawal Agreement with the EU.
MPs considered the Bill at Second Reading on Monday 14 September 2020. The Bill will continue its parliamentary journey over the next few weeks.
What the Bill does
The UK Internal Market Bill puts flesh on the principles outlined in the consultation document, under which the UK Internal Market will be secured by enshrining in UK law the principles of mutual recognition and non-discrimination between the four nations composing the UK. These principles are now enshrined in what is called the Market Access Commitment. Mutual recognition means that the rules governing the production and sale of goods and services in one part of the UK are recognised in the other parts of the UK and should present no barrier to the flow of goods and services between different regulatory systems. Non-discrimination means that it is not possible for one regulatory regime to introduce rules that discriminate specifically against goods and services from another. Professionals qualified in one of the four UK nations will have access the same profession in a different nation without needing to requalify. The Competition and Markets Authority (CMA) will be responsible for monitoring the internal market. State aid or subsidy control will be a reserved matter, reserved to the UK Government at Westminster, whether in relation to international trade or the UK Internal Market.
In the most controversial parts of the Bill as published the UK Government proposes to take powers to override parts of the Northern Ireland Protocol and of the Withdrawal Agreement as well as any other obligations of international law or domestic law in order to give effect to the internal market principle and the promise that there should be no new controls between Northern Ireland and Great Britain. It also explicitly overrides provisions of Article 10 of the Northern Ireland Protocol which prescribes controls and reporting obligations for state aid in Northern Ireland.
Detail of the Bill
Part 1 UK market access for goods
As the introductory Clause of Part 1 of the Bill explains, the purpose of this part is to promote the continued functioning of the internal market for goods in the UK by establishing UK market access principles, i.e. the principles of mutual recognition and non-discrimination. These principles are not to have direct legal effect except as provided for in the Bill itself. Under the mutual recognition principle goods produced in or imported into one part of the UK which can be lawfully sold there should be able to be sold in any other part of the UK free from relevant local requirements which would otherwise apply. The non-discrimination principle is defined as the principle that the sale of goods in one part of the UK should not be affected by relevant local requirements that directly or indirectly discriminate against goods that have a relevant connection with another part of the UK. “Relevant requirements” are defined as statutory requirements affecting the sale of goods. The Secretary of State will have powers to amend the definition of statutory requirements which are within the scope of both the mutual recognition principle and the non-discrimination principle. Before making amending regulations the Scottish and Welsh Ministers must be consulted as well as Northern Ireland. The Bill also provides definitions of what constitutes direct discrimination and indirect discrimination. Finally, Schedule 1 excludes the application of the market access principle in certain cases. The Secretary of State can amend the schedule and does not have to consult the devolved nations.
The free market access principles are to apply also to qualifying goods produced in or imported into Northern Ireland where they are moved to another part of the UK. The implications of this for the UK and for the Withdrawal Agreement are considered below under Part Five which deals specifically with Northern Ireland
Part 2 UK market access for services
Part 2 is quite narrow in scope. It does not regulate trade in services as such. Rather, its sole object is the regulation of service providers. It does this by limiting the application of authorisation requirements and regulatory requirements i.e. legislative requirements that a service provider must have the permission of a regulator or satisfy a legal requirement before carrying on a business or providing particular services. As in the case of goods there is a separate schedule listing services and requirements which are not covered by the Bill.
Part 3 professional qualifications and regulation
As noted above this Part of the Bill provides for “qualified UK residents” to be treated as if they had the relevant qualifications or experience required to be able to practice their profession in any other part of the UK.
Part 4 Independent advice on and monitoring of UK internal market
As noted above the sections of the Bill on free movement of goods, services and professional activities will be subject to the reporting, advisory and monitoring functions of the CMA which are conferred by the Bill. The CMA is to review any matter it considers relevant to assessing or promoting the effective operation of the UK internal market and the operations of Parts 1 to 3 of the Bill and is to provide annual reports as well as a five-yearly report. The CMA will also advise on proposed regulation provisions on request but will not have the power to propose legislation. The CMA will also be empowered to provide reports on the effect of new regulations as well as on provisions considered to have detrimental effects. The CMA is also provided with enforceable information gathering powers.
Part 5 Northern Ireland protocol
Part 5 of the Bill, sub-headed: “Northern Ireland’s place in the United Kingdom internal market and customs territory” recalls that Northern Ireland has an integral place in the UK internal market and as part of the UK customs territory and the need to facilitate the free flow of goods between Great Britain and Northern Ireland.
Clause 41 prohibits appropriate authorities from exercising their functions in a way which would result in new checks, controls or administrative processes on trade between Northern Ireland and Great Britain. This Clause is, however, subject to the rider that it does not prevent the exercise of a function if the exercise is necessary to give effect to any international obligation or arrangement. Clause 42 gives Ministers of the Crown power to disapply or modify requirements for export declarations and other export procedures whether applicable by virtue of the Northern Ireland Protocol or otherwise. In contrast to Clause 41, however, this power may be exercised in a way which would cause rights and obligations under relevant international or domestic law not to be recognised.
Becoming more specific, the ensuing Clause 43 provides for the Secretary of State to make regulations in connection with Article 10 of the Northern Ireland Protocol which deals with state aid. These regulations may provide for the interpretation of Article 10 or disapply or modify its effect. The Clause goes on to give examples of such provisions including provision for non-recovery of aid except in accordance with the regulations; for persons to have no right of action in respect of aid; the circumstances in which Article 10 is or is not to apply in relation to aid and for Article 10 not to be interpreted in accordance with the case law of the European Court or European legislation. Clause 43 would again provide for rights and obligations not to be recognised as a result of relevant international or domestic law. Finally, Clause 44 provides that only the Secretary of State has power to notify the European Commission of state aid under Article 10 of the Protocol. Clause 45 makes further provision in relation to sections 42 and 43 etc., making it explicit that regulations made under those sections are not to be regarded as unlawful on the grounds of any incompatibility or inconsistency with “relevant international or domestic law” and for European rights and obligations otherwise recognised under section 7A of the European Union (Withdrawal) Act 2018 to cease to be recognised and available in law for so far and for as long as they are incompatible or inconsistent with the provision adopted under the Bill. Relevant international or domestic law is given a very broad interpretation and includes any provision of the Northern Ireland Protocol and any other provision of the Withdrawal Agreement and any other EU law or international law as well as any provision of the European Communities Act 1972, the EU (Withdrawal) Act 2018 or any retained EU law or relevant separation agreement law as well as any other legislation convention or rule of international or domestic law whatsoever including any order, judgment or decision of the European Court or of any other court or tribunal.
Part 6 Financial assistance powers
As a means of replacing funding which presently comes from the EU, Part 6 of the Bill provides a very general power to provide financial assistance for promoting four purposes: promoting economic development in the UK; promoting infrastructure; supporting cultural activities and supporting sport. Financial assistance may take the form of grants, loans guarantees or indemnities and may be provided subject to conditions and under contract. This is a new power which is in addition to any other power to provide financial assistance.
Part 7 Final provisions
In the final Clauses of the Bill the legislation reserves subsidies policy to the Westminster government by making them reserved matters under the Scotland Act and the Government of Wales Act respectively.
Comment on the Bill
Allocation of powers / Devolution
One of the main purposes of the Bill is to allocate powers which will return to the UK from Brussels after the end of the Brexit transition period which ends on 31 December 2020. In July when the Consultation Document was issued the Scottish and Welsh Administrations strongly criticised the proposals as a centralising “power grab” which would give the last say over these powers to Westminster at the expense of the devolved nations. The devolved nations would have no say over whether or not the UK should maintain its current high standards for trade and no say in international trade negotiations. Clearly there is something in these criticisms but a lot of politics too. Certainly, the UK Government’s ostensible aim with these proposals was to avoid a situation where trade barriers would arise between the four UK nations. One can argue with the way in which this is being done and about the lack of consultation and the lack of controls but the objective is clearly sensible.
Compatibility with International Law / Rule of Law
The Clauses of the Bill on the Northern Ireland Protocol purporting to override international law and EU obligations and domestic law have been widely criticised as threatening the UK’s commitment to the rule of law. In a surprising statement, the Northern Ireland Secretary admitted that “yes, this does breach international law in a very specific and limited way”.
Clause 45 operates by preventing the Withdrawal Agreement and EU law from having “the same legal effects” in UK law as they produce in other EU member states, as required under Article 4(1) of the Withdrawal Agreement. The Commission has said that, if the Bill were to be adopted as proposed, it would be in clear breach of substantive provisions of the Northern Ireland Protocol on customs legislation and state aid (Articles 5(3), 5(4) and 10), including the direct effect of the Withdrawal Agreement (Article 4). In addition, the UK Government would be in violation of the good faith obligation in Article 5 of the Withdrawal Agreement.
Much criticism has been directed to the mere inclusion of these powers in the Bill. We agree there is force in the European Commission’s objection that the existence of these proposals is evidence of a breach of the good faith obligations which the UK entered into in the text of the Withdrawal Agreement (Article 5).
If the UK persists with this proposed legislation the EU will be within its rights to pursue the remedies provided for in the Withdrawal Agreement, i.e. the dispute settlement procedure set out in Article 167 to 181 of the Withdrawal Agreement. Firstly, the two sides must enter into consultations in the Joint Committee in good faith (Article 169) and then if no mutually agreed solution can be found after three months, either party may request establishment of an arbitration panel. Proceedings must be completed within 1 year or 6 months in urgent cases. The rulings of the arbitration panel are binding, and the parties must take “any measures necessary” to comply with them. In case of non-compliance the panel may impose a payment to be paid to the complainant and if the offending party persists in its non-compliance, the other party may suspend provisions of the agreement (but not those on citizens’ rights) or the provisions of any other agreement between the EU and the UK.
Although this would be the formal procedure for settling any dispute, in the Second Reading debate on 14 September the Prime Minister said that the UK Government is concerned that if the EU fails to reach agreement on a free trade agreement to the EU’s satisfaction, it might seek to use the Northern Ireland Protocol to exert leverage against the UK in the negotiations for a free trade agreement and even refuse to list the UK’s food and agriculture products for sale anywhere in the EU. So the Bill is to “stop any such use of the stick against this country”.
The European Commission may already be taking action as a result of the Bill, with media reports suggesting it may be holding back on a decision allowing clearing houses in London to continue clearing euro transactions for EU-based clients.
The UK Government’s formal legal position on the Bill, which correctly says in respect of domestic law that “treaty obligations only become binding to the extent they are enshrined in domestic legislation”, can take matters only so far: these Clauses raise major questions regarding respect for the rule of law and respect for international law.
The UK Government says these Clauses are included in the Bill in order to address concerns with the Withdrawal Agreement around requirements for online exit declarations in Northern Ireland to Great Britain trade; the application of EU rules on state aid to Northern Ireland; and checks and tariffs on food shipped from Great Britain for Northern Ireland’s supermarkets. The right place to address these concerns, say most commentators, is in the UK-EU Joint Committee provided for in the Withdrawal Agreement, not in a pre-emptive strike by means of domestic legislation avowedly in breach of international law.
The Bill tries to prevent the UK courts reviewing any breaches of international law, with the so-called “ouster clause” in Clause 45. However, there must be some doubt whether a UK court would accept that judicial review jurisdiction can be ousted in this way: the Clause creates a sort of challenge or dare for the judiciary. Respect for treaty obligations, pacta sunt servanda, is one of the oldest principles of customary international law, now enshrined in the Vienna Convention on the Law of Treaties 1969, which the UK has signed and ratified alongside most nations. It may be going too far to suggest, as some American politicians have, that these proposals of themselves undermine the Good Friday Agreement of 1998 which brought peace to Ireland and which itself has acquired something of the status of an inviolable agreement. However, it is hard to disagree with the European Commission statement that the EU does not accept that the aim of the Bill is to protect the Good Friday Agreement. “In fact, it is of the view that it does the opposite”.
Delegated powers
The UK Internal Bill follows the UK Government’s general approach to Brexit primary legislation, which is to leave substantial detail to secondary legislation. No less than 11 Clauses of the Bill leave to Government the responsibility for detailed implementation of certain provisions. In addition, 7 Clauses include a “Henry VIII power” where delegated powers can be used to modify primary legislation. Clauses 42 and 43 are similar to Henry VIII powers but they override inconsistent legislation rather than simply modifying it.
Commentators have raised concerns regarding the Bill’s provision for secondary legislation. It is noted that Parliament cannot have meaningful control over legislation made using delegated powers. In addition, the use of Henry VIII powers is particularly controversial as it circumvents Parliamentary scrutiny of amendment of primary legislation.
