UK Brexit Bulletin: Friday September 11

The Government has published the Internal Market Bill which reneges on parts of the Northern Ireland protocol within the Withdrawal Agreement

• The Bill would transfer powers to regulate issues such as food standards, air quality and environmental policy, previously held by the EU, to the devolved administrations of the four UK nations. It will also seek to harmonize standards across England, Wales, Scotland and Northern Ireland after the end of the Brexit transition period on 31 December.

• It will also set up a new body – the Office for the Internal Market – to ensure that standards adopted in different parts of the UK do not undermine cross-border trade.

• The plan is designed to prevent new barriers to trade between the four nations of the UK, but also to avoid conflict with the multiple international trade deals rolling over as the UK leaves the EU, or with any new trade agreements the UK might strike.

• However, the Bill explicitly states that it will override parts of the Brexit Withdrawal Agreement dealing with Northern Ireland and state aid. It does this in three ways:

o    Firstly it allows the UK to unilaterally scrap the requirement for Northern Ireland businesses to fill in export declarations when moving goods to Great Britain (a decision meant to be taken by the Joint UK-EU Committee on the withdrawal agreement).

o    Secondly, it allows UK ministers to unilaterally decide which goods moving from Great Britain to Northern Ireland are deemed ‘at risk’ of crossing the border into the Republic of Ireland and therefore need to be subject to customs checks (again decisions meant to be taken by the Joint UK-EU Committee).

o    Thirdly it removes the obligation for the UK Government to notify the EU about state aid decisions in Great Britain that may affect Northern Ireland (although the UK still accepts that EU state aid laws will still apply to goods in Northern Ireland specifically).

• The UK has stressed that these measures would only come into effect if there is a no deal or if the Joint UK-EU Committee haven’t reached an agreement on the implementation of the Northern Ireland protocol by 31 December.

• The Northern Ireland Protocol set out that Northern Ireland would officially be part of the UK’s customs territory but that it would still have to follow some of the EU customs code. The details of exactly what goods between GB and Northern Ireland are to be checked was meant to be determined by the Joint UK-EU Committee. However with a few months to go before 31 December, the Government feared the EU could demand full customs checks on all goods crossing between Great Britain and Northern Ireland — crippling trade within the UK.

• There remains uncertainty whether such measures were necessary as there are provisions within the protocol itself that allow the UK (or the EU) to “unilaterally take appropriate safeguard measures” should either think “serious economic, societal or environmental difficulties” or a “diversion of trade” will result from the new rules.

• The Bill will be fast-tracked through Parliament next week and there is likely to be a rebellion from dozens of Tory backbenchers, though with a large majority the Government would still expect to have the numbers to pass the legislation in the Commons.

• It will face more opposition in the House of Lords, which could drag the process out, withholding consent for the legislation. Though Peers are traditionally reluctant to employ such tactics against an elected Government, the fact the Bill explicitly states it will break international law and that the passing of the Withdrawal Act was in the Conservative manifesto, the Lords will feel more entitled to rebel.

The European Union has given the UK three weeks to drop plans to renege on parts of the Withdrawal Agreement or face legal remedies” to “address” the violations

• The warning came after emergency talks between Cabinet Office Minister Michael Gove and European Commission Vice President Maroš Šefčovič over the Internal Market Bill.

• After the talks the EU called for the UK to “withdraw these measures from the draft Bill in the shortest time possible and in any case by the end of the month”. Šefčovič also effectively threatened legal actions should the measures not be removed.

• Under the terms of the Withdrawal Treaty, the European Court of Justice (ECJ) or an independent and binding arbitration process can impose fines on the UK with further sanctions to follow if the Government refuses to pay penalties or comply with rulings.

• If the UK ignored these rulings the EU could technically take the UK to the international court in the Hague, but this has no real powers of enforcement on a sovereign nation.

• Despite the threat of legal action, the EU has not ended the Free Trade negotiations with the UK (which are separate from the Joint UK-EU Committee negotiations over the Withdrawal Agreement), over fears of playing into Boris Johnson’s hands.

• However, in the event of the Bill being made into law, and of legal action proving ineffective, the EU is reportedly considering financial, agricultural and trade sanctions against the UK which could include restricting access to the City of London.

• Meanwhile an advisor to US Presidential Candidate Joe Biden’ and US House Speaker Nancy Pelosi have warned the UK that if it breaks its Brexit pact with the EU over the Irish border “there is no chance” of a UK-US trade deal

The eighth round of UK-EU Free-trade negotiations have concluded in London with little progress

• EU Chief Negotiator Michel Barnier accused the UK “refusing to include indispensable guarantees of fair competition in our future agreement, while requesting free access to our market. We are still missing important guarantees on non-regression from social, environmental, labour and climate standards.”

• In particular, Barnier claimed that there were still “many uncertainties” about the UK’s new food standards regime and went as far as to threaten to ban all imports of UK produce into the EU from 1 January. Before this it was expected the UK could continue agricultural exports to the EU, regardless of whether the two sides struck a trade agreement as standards are aligned at present.

• The UK has denied that they were holding back details about their future phytosanitary or plant health regime.

• On the contentious issue of state aid the UK published a broad outline of its intentions. Details of its state aid regime will not be published before 2021, which had been a key demand of the EU. Instead, the UK would remove “redundant” EU state aid rules and revert to following World Trade Organisation rules.

• The default position in WTO rules is that subsidies are generally allowed unless another country can prove harm from them. EU rules consider subsidies to be generally illegal except in certain limited circumstances. In EU law, governments must get permission before granting state aid. At the WTO, cases can be brought only after the event and disputes can drag on for years. WTO rules also apply only to goods, while EU rules apply to services, which make up the majority of UK exports to the EU.

• There are other important differences. WTO rules rely on state-to-state enforcement, while under EU rules there are remedies available to businesses and individuals as well. Under EU rules, a business also has to repay illegal state aid. There is no such mechanism to remove anti-competitive effects under WTO rules.

• However there was one hint of compromise from the UK, notwithstanding this WTO-based regime, the UK will “adhere to any international obligations on subsidies agreed under future free trade agreements”

Other Brexit news

• The UK and Japan have struck a trade deal, the UK’s first major post-Brexit trade deal. It is based on the EU-Japan trade agreement but with stronger tariff reductions for UK pork and beef exports, and lower tariffs for food and drink products, such as Stilton cheese. The deal also provides more generous quotas for malt and reduced tariffs for car and rail parts. The deal also provides for services, including a ban on data localisation, and promises better market access for UK financial services firms by streamlining the licence application process for Japanese operations.

• The Department for Environment, Food and Rural Affairs is giving companies more time to provide data on the chemicals that they place on the market after Brexit takes full effect. Under the previous guidelines, businesses had to provide basic information — such as a company’s name, the substances it has registered and the quantities it produces or imports — within 120 days. The full suite of data, including details of toxicity testing, would need to be submitted within two years.

• EU ambassadors have agreed on a proposal that will allow France to negotiate a new treaty with the UK to govern the Channel Tunnel, while maintaining the current set of safety rules. The European Parliament still needs to sign off on the proposals.

• Trade Secretary Liz Truss has spoken with chief negotiators from all 11 nations of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. She discussed the UK’s accession to the CPTPP.

• The Foreign, Commonwealth & Development Office has updated its website to enshrine the post-Brexit EU travel restrictions. From 1 January 2021, UK citizens may only travel visa-free to Schengen area countries for fewer than 90 days at a time. If, in any 180-day period, they choose to stay longer, they must apply for a visa.

• The UK and Switzerland have agreed to tighten collaboration in their financial sectors. This will include restoring traders’ ability to work on stock markets in London and Bern unencumbered by EU rules, as soon as the UK leaves the EU transition period.

• The Government has said it does not object to the Court of Justice of the EU retaining oversight of the UK’s involvement in EU budget schemes. The Government has stressed multiple times that post-Brexit Britain must not be bound by the EU court’s rulings. However, Chief Secretary to the Treasury Steve Barclay said the court’s oversight of the UK’s participation in a future EU program would not breach that red line, on the basis it would have no direct impact on the UK’s national laws.

• Treasury minister John Glen has said the UK will match the ambition of the EU Sustainable Finance Action Plan. The prospect of the UK going further than the EU in drawing up standards for sustainable finance raises the prospect of “gold plating,” something UK has done in other areas of regulation such as bank capital requirements in order to bolster its own credentials.
• The Government has launched a new communications campaign to help EU businesses get ready to trade with the UK after the end of the transition period.