Unless an FTA is concluded with the EU before the end of the year, under the ratified Withdrawal Agreement, the revised Irish Protocol will come into effect from 1 Jan 2021. This would have significantly adverse implications for the UK for a number of reasons, perhaps the most important of which is in relation to State Aid, which could remain under the EU’s jurisdiction throughout the UK indefinitely.
State Aid, also known as subsidies, broadly covers any advantages granted by public authorities to organisations that could potentially distort competition. Accordingly, the laws which govern when State Aid can be used are a vital aspect of any country’s economic planning across many sectors. Having these controlled by the EU in perpetuity is simply unacceptable because it negates the very purpose of Brexit – sovereignty over laws.
[The Northern Ireland Protocol] potentially represents a severe and ongoing restriction on the capacity of the UK government to support its economy.
While it appears at first glance that, via the Protocol, that the EU will retain control only over State Aid laws as applied in Northern Ireland, in fact the EU (and by extension the ECJ which will ultimately interpret the scope and application of these rules) could have a say on State Aid throughout the entire UK. This is because Article 10(1) of the Protocol, which covers State Aid, applies “to the United Kingdom” not only to Northern Ireland. The limitation on the scope of application of Article 10(2) is not by reference to the geographical location of aid recipients, but solely by reference to whether the aid, wherever it is given, may “affect” trade under the Protocol. This potentially represents a severe and ongoing restriction on the capacity of the UK government to support its economy. This encroachment on UK sovereignty may have been underappreciated at the time. It is no wonder that some commentators have observed that the revised Protocol was more favourable to the EU.
Given that the Protocol will apply if it is not replaced by an FTA (progress on which has been limited so far), it is important that the UK government consider other options. Specifically it should again consider withdrawing from the Protocol.
The Vienna Convention on the Law of Treaties (VCLT) sets out when states can lawfully withdraw from international treaties. Some may recall that the VCLT was examined by a number of international legal experts in early 2019 in relation to the previous iteration of the Irish Protocol. Some experts had suggested that one way to withdraw from the Protocol would be via Article 62 of the VCLT which requires that there has been a “fundamental change in circumstances” since the treaty was signed, allowing parties to escape their legal obligations under the instrument.
Several prominent international lawyers rightly pointed out at the time that Article 62 of the VCLT would almost certainly be inapplicable to the Protocol because this provision requires that the change in circumstances is not only severe, but also unforeseen. These experts had argued, quite rightly, that this argument could not be used by the UK to escape obligations in relation to the Protocol because was nothing unforeseen about the Irish Backstop arrangements – indeed there was reasonably strong understanding, at least in government, of precisely what they would entail. Article 62 sets a high threshold – it can only apply to truly momentous, historic changes.
The situation today is starkly different from 2019, rendering the possibility of relying on Article 62 of the VCLT to escape the onerous rules on State Aid contained in the Protocol significantly stronger. This is because a fundamental change of circumstances, indeed a transformative one, has now arisen and it was unforeseen, in fact painfully so.
That situation is the Covid-19 epidemic and its aftermath. By all accounts, the Covid-19 epidemic is the most severe public health crisis in a generation, if not longer. The UK has fallen into an economic recession that is poised to become among the very worst in its history. The EU has also fared badly in Covid, if perhaps not quite as badly as the UK, which is expected to suffer a double figure decline in GDP in the coming years. It is no understatement to declare that the world, and certainly the UK, has changed utterly.
Most importantly when considering State Aid and the Protocol, the Covid-19 epidemic has necessitated a massive state intervention, most glaringly in the form of the furlough scheme, but other programmes, including not only investment in healthcare, but also assistance for universities and property owners in the form of tax rebates. The bill is already though have exceeded £100 billion by some accounts. Many more sectors are expected to receive state support in the future, including the airlines (as they have already in Germany) as well as the hospitality sector.
In light of the Covid-19 crisis which has so profoundly transformed so many aspects of our lives and for which government intervention is so central to the “new normal,” it is quite rational to argue that the commitments the UK made in the revised Protocol of October 2019 should no longer apply. The justification for withdrawal from the Protocol would be that the UK would never have agreed to surrender its capacity to use State Aid to the EU’s determination had it known that its economy would be engulfed in the worst economic crisis in 300 years.
If an FTA cannot be concluded before the end of the year, the UK must urgently contemplate withdrawing from the revised Irish Protocol or else the EU will be left in control of a wide segment of government policy, a situation which would clearly conflict with the purpose of the UK’s departure from the EU in the first place. International law may have the solution and Covid-19 has supplied the context.
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