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It’s a British explosion: Boris Johnson is shaking the foundations of the Brexit treaty. Behind this is also the interventionist economic strategy of the Prime Minister. Even the elite of the Conservative Party are horrified.
Celebration of Brexit in London on January 31, 2020: the aftermath of leaving the EU continues.
Boris Johnson does remarkable things. In just two days, the British Prime Minister turned against him not only the EU but also two predecessors from the ranks of the Conservative Party. Former heads of government Theresa May and John Major are clearly warning of a violation of the Brexit treaty and therefore international law that Johnson is planning. A third predecessor, the late Margaret Thatcher, would also find clear words. The Iron Lady’s discontent is likely to apply to what Johnson is trying to achieve by breaking the law: the freedom to use state aid to unrestrictedly promote those sectors of the economy for which he wants to create competitive advantages. .
Conservative principles are being abandoned
Rarely has Thatcher’s Conservative Party, traditionally a party of the market and the rule of law, seen a departure from its core values like the one promoted by Johnson. Her government presented a legislative proposal on Wednesday that regulates its powers when it comes to interfering with the domestic economic and business outlook. Despite Brexit completed, Britain will remain a member of the EU internal market until the end of the year, and there are currently many competitions in Brussels. London takes them to the Thames, where they will need them from January. In doing so, the government is planning something that not only has a minister in parliament openly called a violation of international law, but is also blatantly outlined in the legal text.
It is the most important international treaty London has concluded in decades: the EU exit agreement. Brussels is angry. The EU has torpedoed the talks on a free trade agreement, which are in a decisive phase. They continued in London on Thursday. This free trade agreement must be applied from the end of the year if it is to avoid at least tariffs and quotas in trade between Great Britain and the mainland once the British island leaves the domestic market. But the new market law opens the wound that was most painful in the long Brexit drama and finally seemed to heal: Northern Ireland’s future trade regime.
Border controls between the Republic of Ireland and Northern Ireland, which is part of the United Kingdom, could jeopardize the peace process on the island. Therefore, according to the exit treaty, Northern Ireland should leave the EU internal market and the EU customs union, but continue to apply its rules. These include, for example, the amount of import duties, prescribed product standards or the conditions under which Northern Irish companies can receive state aid. Otherwise, goods that are imported or manufactured in Northern Ireland have an unfair advantage if they are then exported to Ireland and the “real” EU home market.
Johnson was never honest about the Northern Ireland solution
The solution eliminates the need for land border controls, but creates a customs border in the Irish Sea, in trade between Great Britain and Northern Ireland and therefore within the UK. For the hardliners of Brexit, this regime, which is unique in the world, has indigestible disadvantages, which the Johnson government partly abolished and partly denied; instead, the prime minister was celebrated as a brilliant negotiator who made the impossible possible. For example, imports to Northern Ireland from the British Isles are often subject to the EU’s external tariff, which is only refunded if the goods remain in Northern Ireland. And for goods in transit from Northern Ireland to the UK, companies are required to complete export documents. This is what is required by the EU Customs Code, which would apply in Northern Ireland.
This is the first breach of the EU Withdrawal Treaty and with it the first breach of international law: with the new law, London wants to reserve the right to exempt companies from completing export declarations. More serious, however, is the second breach: the exit agreement states that EU rules on state aid apply not only to companies in Northern Ireland, but also to their suppliers in Great Britain. This is understandable, because otherwise Northern Ireland companies could gain an unfair advantage in the EU internal market through support on the British island.
The new UK Market Act allows this state aid rule to be overridden. Anything that gives a business an edge it wouldn’t get in the marketplace, for example government grants, cheap loans, or tax breaks, can be considered help. Boris Johnson does not want to be deprived of the opportunity to promote companies in Britain without hindrance. That fits into their strategy of supporting industries and regions with specific interventions, such as the tech sector or the North of England.
Redheads for state aid
For the EU, it is an affront that Johnson wants to rewrite the Northern Ireland solution, and rightly so, because Brussels is likely to win an international legal battle. But even in stalled free trade talks, state aid is a central point of discussion. The other point is fishing, but there are opportunities to get closer. But when it comes to harmonizing competition rules, which include state aid, the gap is very deep. Johnson doesn’t want to have his hands tied here. The EU, on the other hand, fears that London wants to take advantage of the easy access of British products to the EU market and promote national companies in a way that would be prohibited in the EU; therefore, Brussels insists on strict regulations.
The British government added even more fuel to the fire on Wednesday. He presented details of the state aid to be applied in the UK in the future. Brussels had always asked London to provide specific details on this so that free trade talks could move forward. What followed, however, was more of a declaration of intent, and not a useful one: Britain announced that it would regulate aid in accordance with the principles of the World Trade Organization (WTO) from the turn of the year and, therefore, therefore without any influence from Brussels.
Tremendous collateral damage
In London and Brussels, experts doubt that London has given careful thought to the breach of the law in the new economic law. If it is a means of pressure in the fight for the trade agreement, it has deeply irritated the EU. If state aid is forced at all costs, the collateral damage is enormous. The reliability of the government and the reputation of the British rule of law would be damaged in ways that seemed unthinkable. From the US, where there is an influential Irish lobby, there are already significant voices that, in such circumstances, rule out a trade agreement between London and Washington.
However, according to experts, economic law is strangely unprofessional (it only consists of 54 pages). It remains to be seen whether, despite its technical shortcomings, it will pass through Parliament unimpeded, especially through the meticulous House of Lords. That in turn suggests seeing the law really only as a lever in the fight for the free trade agreement, with the message that London itself will shake the foundations of the old agreements if Brussels does not give in. Or maybe it’s damage control for national reasons to alleviate the downsides of the Northern Ireland solution. In any case, Brexit poker is back and the UK stakes have increased enormously.
You can contact Benjamin Triebe, Business Correspondent for the UK and Ireland Twitter Consequences.
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