Negotiations between the UK and EU over their post-Brexit relationship are now at risk of failing. This comes after the UK Government introduced the Internal Market Bill (IMB), the provisions of which amount to the breaking of international law, as it would enable UK ministers to implement regulations relating to state aid and customs procedures between Northern Ireland (NI) and Britain that are in breach of the UK’s obligations under the Withdrawal Agreement (WA).
After over two years of negotiations on how the UK would formally leave the EU, the Withdrawal Agreement was finally agreed and signed by PM Boris Johnson on 24 January, which he described at the time as a “fantastic moment” for the UK. Now less than nine months after the agreement was ratified, the UK Government has introduced the IMB which, if it becomes law, will directly violate the provisions in place under the WA.
The EU has criticised the introduction of this Bill stating that it constitutes an “extremely serious violation of the WA and of international law”, and has warned that if the Bill were to be introduced into UK law, it would undermine trust in the UK and put the ongoing negotiations on a post-Brexit trade relationship at risk. Furthermore, it has threatened to take legal action against the UK in the event that the Bill becomes law.
Why was the Bill introduced?
In justifying the IMB, PM Johnson accused the EU of threatening to impose a blockade in the Irish Sea that would destroy the “economic and territorial integrity of the UK”. This claim is based upon the fact that the Northern Ireland Protocol (NIP), contained within the WA, stipulates that NI would remain within the EU single market whilst staying within the UK’s customs territory, however goods entering NI from Britain would be subject to the EU’s customs code.
In the event of a ‘no-deal’ Brexit this would most likely result in tariffs being applied to goods entering NI from Britain, if they were deemed to be ‘at risk’ of entering the Republic of Ireland. Despite this arrangement not being ideal for the functioning of the UK’s internal market between its devolved nations, it is what Boris Johnson himself agreed to during that “fantastic moment” in January when he signed the WA.
The UK’s Justice Secretary Robert Buckland has also defended the Bill, arguing that it serves as the UK’s “insurance policy” which would only be used by the government if the EU and UK failed to reach a trade agreement, or if the EU acted in an “unreasonable manner”. It is unclear what exactly would constitute “unreasonable” behaviour by the EU and trigger the UK to use the powers provided by the Bill.
Controversial provisions within the Bill
The specific provisions within the Bill that are of concern to the EU relate mainly to the Withdrawal Agreement’s NIP, which is designed to prevent a hard border on the island of Ireland and protect the Good Friday Agreement (GFA). Section 41 of the Bill provides for “unfettered access to [the] UK internal market for Northern Ireland goods” and prohibits any additional checks on goods. This directly violates the trade and regulatory arrangements concerning NI within the Withdrawal Agreement.
Section 42 provides UK Ministers with the power to “disapply or modify” exit procedures, including those set out in the Protocol for goods moving between NI and Great Britain. Not only does this directly violate the NIP, the EU also considers this a violation of the principle within the WA that both sides “shall, in full mutual respect and good faith” work together to fulfil the agreement.
Under the WA’s Article 10 the UK agreed to having EU State Aid rules (which regulate government subsidies to business) applicable to subsidies to business sectors that are involved in trade between Northern Ireland and the EU. In effect, this would be likely to restrict UK Government subsidy programmes where such trade is involved. Section 43 of the bill would permit the Secretary of State of NI to ‘disapply’ or modify regulations relating to EU State Aid rules, which would amount to a breach of the WA’s Article 10.
A key point of concern to the EU is that the implementation of these measures will directly violate the Good Friday Agreement, as they would necessitate a hard border between NI and the Republic of Ireland, and threaten peace in the region.
Impact on post-Brexit relationship negotiations
After initial talks resulted in an EU ultimatum to the UK that these provisions be dropped from the Bill, which the UK ignored as the Bill passed its second reading, it appeared as though negotiations regarding the future EU-UK relationship would collapse altogether. To pass this second reading, however, Johnson was forced to make minor amendments to the Bill to appease rebel Conservative MPS, whilst also hoping to appease EU concerns. However, the EU has rebuked these amendments and reiterated its position that the legislation still violates international law. It is worth noting that the Secretary of State for NI, Brandon Lewis, had previously conceded that the IMB breaks international law, albeit in a “specific and limited way”.
Despite the apparent stalemate the EC’s President Ursula von der Leyen emphasised the EU’s commitment to the ongoing negotiations, stating that she is “convinced it [a deal] can be done. This would appear to be a somewhat optimistic view given that ‘transition period’ ends on 31st December this year, merely months away. Furthermore, there are those within the EU who are not as committed to the negotiations unless the UK removes the IMB, with Guy Verhofstadt arguing that the European Parliament would not approve any trade deal if it is not rectified by the GFA.
There is a realistic probability that the IMB will become UK law – although it is expected to face tough scrutiny in the House of Lords – and that this will in turn result in a breakdown in UK-EU trade negotiations. Should this occur it is highly likely that the UK economy will be badly hit in the short-to-medium term, with the UN forecasting that a no-deal Brexit would result in a loss of UK exports of $32 billion.
The ongoing uncertainty around whether a deal will be reached or not is itself a source of risk to the UK. UK (and EU) businesses will be attempting to prepare for any practical challenges they may face as a result of the future UK-EU relationship. The economic uncertainty about a future trading relationship is further compounded by the impact of Covid-19 and the probable economic downturn to be expected throughout the post-covid global economy.
The IMB may or may not pass through Parliament; however, two outcomes are likely. Firstly, should the IMB become law, it will greatly increase the risk of a no-deal Brexit. Secondly, even if the IMB fails to pass through Parliament, the ongoing negotiations on a post-Brexit UK-EU relationship will be strained by a further lack of trust brought about by the introduction of this Bill.
What happens next?
The IMB passed its second reading in the House of Commons by 340 votes to 263 and will undergo its third reading in the house in the week commencing 28th September 2020. It is likely that the Bill will pass this stage after which it will undergo its first reading in the House of Lords.
