Stephen Booth: The Internal Market Bill has certainly got the EU’s attention. What will its impact on negotiations be?

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

It is often said that Brexit is low on the list of the EU’s priorities. That national capitals have not been fully engaged in a process which they have delegated to Michel Barnier and the European Commission. The introduction of the Government’s Internal Market Bill has certainly got the EU’s attention.

The events of the last two weeks have upped the ante, but the two sides continue to talk and a deal between the UK and the EU is still possible, if the political appetite is there.

As I noted in my previous column, the negotiations over a new UK-EU free trade agreement have been locked in a stalemate over fishing and state aid for weeks, and a compromise can only be unlocked by high-level political intervention.

At the same time, a parallel, and up to now seemingly boring, process has been underway to implement the Withdrawal Agreement and the Northern Ireland Protocol. It has long been clear that the UK and the EU have significant disagreements to resolve in the Joint Committee, the forum established under the Withdrawal Agreement empowered to iron out the practical details of the Protocol’s implementation.

In its May 2020 Command Paper on the subject, the UK identified its practical concerns. For example, under the Protocol, Northern Ireland is subject to the Union’s Customs Code, which requires exit summary declarations for goods leaving the area to which the rules apply. However, the UK’s view is that export or exit summary declarations should not be required for NI to GB trade (since Article 6 of the Protocol states that nothing in the Protocol should prevent NI businesses from having “unfettered access” to the rest of the UK).

Removing this requirement should not be particularly controversial, since Northern Ireland will remain in the UK’s customs territory (as stipulated in Article 4 of the Protocol) and therefore any risk of complaints about the arrangements in terms of international obligations should rest with the UK, rather than the EU.

Another, more significant issue is the status of goods travelling from GB to NI deemed to be “at risk” of entering the EU (and therefore subject to EU tariffs). The Joint Committee is tasked with defining which goods are “at risk” and therefore broadening the scope of goods that would not be subject to tariffs. However, the default is that goods are “at risk”, unless the Joint Committee agrees otherwise.

The powers taken in the Internal Market Bill are advertised as an “insurance policy” to be used in the event of failure to address the UK’s concerns about the Protocol (which include the state aid provisions as well as exit summary declarations) via agreement within the Joint Committee and/or via a free trade agreement. There are reports that the Government plans to use the forthcoming Finance Bill to give itself similar powers with regard to tariffs.

Leaving aside the legalities and the domestic politics for a moment, why might the UK have decided to initiate a row with Brussels now and pre-empt the Joint Committee process? Of course, we cannot divine the precise motivation. Perhaps no deal is now seen as an inevitable, or at least probable, outcome by some in Government? But the logic of the negotiations offers another plausible rationale.

Implementation of the Northern Ireland Protocol and the wider free trade negotiations are theoretically on distinct tracks. While the Withdrawal Agreement committed both parties to seek to negotiate a free trade agreement in good faith, the Protocol comes into effect at the end of the transition period irrespective of any UK-EU trade agreement.

However, it is clear from the way the negotiations have been structured (at the strong insistence of Brussels) that the trade negotiation and the practical functioning of the Protocol are linked, and this gives the EU leverage over the trade negotiations. Since EU negotiators are not obliged to reach compromises in the Joint Committee on the issues causing the UK concern, they are able to hold the process up in order to apply pressure to the UK in the wider trade negotiation. Just because the EU is within its rights to do so, does not mean it should.

What the Government is doing, for better or worse, is to suggest to the EU that its leverage is not quite as strong as it would like to think. Ultimately, under the Protocol it is UK officials and agencies who will be tasked with enforcing EU rules. Realistically speaking, how plausible is it that the UK would do so zealously in a scenario where not only have the UK and the EU failed to reach a trade agreement, but the EU is also insisting on its maximalist interpretation of the Protocol?

The UK might have made this point more subtly if it had made clear that any measures it takes in the future would be strictly consistent with Article 16 of the Protocol, which allows either party to take unilaterally “appropriate safeguards” if the application of the Protocol leads to “serious economic, societal or environmental difficulties”, and its pre-existing commitments under the Good Friday Agreement.

Equally, it should also be noted that the UK is not declining to implement other important aspects of the Protocol. Indeed, as Michael Gove noted in closing Monday’s debate and Brandon Lewis repeated in committee evidence yesterday morning, the UK is erecting border-inspection posts for sanitary and phytosanitary (SPS) checks on goods entering Northern Ireland, which in an ideal world it would not have to and despite the opposition of the DUP.

Ultimately, what this row demonstrates is that a negotiated settlement on the Protocol and the wider trade issues should be preferable for both sides compared to an acrimonious breakdown in the UK-EU relationship. Indeed, the UK legislation introduced this week would be redundant if compromises can be reached.

A Protocol that is politically sustainable is in the EU’s interests. Equally, a UK-EU trade agreement would not remove all of the irritations thrown up by the Protocol but it could certainly help to smooth over some of the important issues. If there are no tariffs between the UK and the EU, there is less risk to the EU of goods entering the Single Market at a lower tariff. If the EU and UK reach agreements on SPS, like the EU has with New Zealand, then paperwork could be simplified. Equally, establishing a UK domestic subsidy regime, recognised by the EU in a free trade agreement, would help prevent the “reach back” of the state aid provisions in the Protocol that are also of concern to the UK.

Only time will tell if this episode is the beginning of the path to a deal or the point when things turned sour.

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Author: Stephen Booth


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