As negotiations continue between the EU and the UK to agree a free-trade agreement, the government have published their plans for the UK Internal Market Bill. This seeks to ensure there are no additional barriers to trade across the UK, as the transition period ends on 1st January 2021, and EU rules no longer apply.
As part of the call for evidence, the CBI submitted a response, in consultation with members. Our submission made clear that the Bill should ensure that following the UK’s exit from the EU, no new barriers to trade between England, Scotland and Wales should be established, and for the legislation to work effectively in Northern Ireland, the Bill must work in lockstep with the Northern Ireland Protocol.
1. What is the UK Internal Market Bill, and why do we need it?
Following the UK’s exit from the European Union, the UK government wanted to codify the UK Internal Market to ensure that businesses did not face additional barriers to market, when EU rules no longer applied.
2. Why has the Bill sparked strong opposition?
There are two distinct aspects which have drawn criticism from across the political spectrum.
The first is in regards to the Northern Ireland Protocol. Secretary of State for Northern Ireland, Brandon Lewis, told the House of Commons on 8 September 2020, that the Bill would break international law in a “specific and limited way”. This related to the Withdrawal Agreement, and the UK government’s interpretation of the Northern Ireland Protocol. Following unease from some backbench Conservatives, the government has agreed to an amendment to the Bill which would allow MPs to vote before the government would ‘override’ the Northern Ireland Protocol – the aspect of the Bill that many see as breaking international law. The government has since clarified instances in which they would seek to use clauses in the Internal Market Bill to do this here.
The second is in regards to the existing devolution settlements in Scotland and Wales. Both the SNP administration in Edinburgh, and the Labour administration in Cardiff claim the Bill would ride “roughshod” over devolution.
3. What are the concerns relating to the Northern Ireland Protocol?
The Bill seeks to treat the UK as a single market – as it operates at present. But to achieve that, the Bill seeks to give the UK government the power to disapply or modify goods checks between Northern Ireland and Great Britain. However, those steps taken unilaterally would be in breach of the Withdrawal Agreement.
The government has argued that the need for Northern Irish firms to complete exit summary declarations to Great Britain is not compatible with the promise that the province would enjoy “unfettered access” to the UK internal market. As such, the legislation would waive or modify this requirement in the event of the failure of a negotiated outcome. On 17 September, the government published a statement on their position on the notwithstanding clauses whereby if the UK government believes the EU are in breach of its duties of good faith, the UK government would use provisions contained in the Internal Market Bill to bypass the Protocol. This includes the government’s intention that should the Joint Committee not agree on issues around GB-NI imports, there would be no imposition of tariffs.
Under the Northern Ireland Protocol as currently drafted, the Protocol binds NI to EU State Aid Rules. Some UK politicians favouring a looser relationship with the EU believe that ambiguity in the Protocol could be exploited by Brussels to interfere with subsidies for businesses in Great Britain which have only a limited link to Northern Ireland.
4. What impact would the Bill have on existing devolution settlements in Scotland and Wales?
The Bill would provide powers for Westminster to spend in devolved areas – including infrastructure spending. However, the Bill would not hinder the ability of devolved administrations to continue spending, and legislating, in those matters.
The Bill sets out that goods that can be sold in one part of the UK, can be sold in the rest of the UK – so long as the good meets requirements of at least one constituent part. There are concerns from devolved administrations in Scotland and Wales that this would in essence “overrule” devolution settlements with regards to standards.
5. What does all this mean for business?
The EU have been clear that a UK/EU FTA is contingent upon the implementation of the Protocol, and businesses in Northern Ireland have been preparing for its implementation. However, there are still gaps that businesses need further clarity on, and the CBI, along with other business organisations have written to the UK government asking for further clarification on the implementation of the Protocol.
Firms in GB have already raised concerns about the ability to place products on the NI market – particularly the pharma sector and supermarkets.
So, while the aims of the IMB could be beneficial for UK business, the impact of undermining the Withdrawal Agreement and potentially putting the UK/EU negotiations at risk is far more problematic.
Northern Irish firms have been preparing for the implementation of the Protocol – however there have been frustrations at the lack of forthcoming detail, and fears that some systems will not be in place for 1 January 2021. Many see this as a distraction, and fear it will further stall Protocol preparations.
6. What happens next?
The Bill passed its second reading in the Commons on Monday 14 September. Whilst the government won the vote with a majority of 77 votes, it is expected that further amendments to the Bill will be tabled as the Bill progresses. The Bill is also expected to face heavy scrutiny in the Lords – so despite the significant Conservative majority in the Commons, it could take a long time to pass and not without amendments.
Whilst the UK government have said they wish to seek legislative consent for this Bill in the devolved parliaments, it is unlikely to receive this consent. However, should a devolved Parliament not provide legislative consent, that does not prevent the Bill from becoming law.
The EU have warned the UK government that it will face legal action, should aspects of the Bill which override the Northern Ireland Protocol not be dropped.
7. What is the CBI doing?
The CBI has been busy engaging with negotiators on both sides of the Channel urging them to prioritise a deal, and we will continue to remain vocal on this issue ahead of October.
On no deal, the CBI will continue to be vocal, and reinforce the message that firms cannot prepare for a cliff-edge exit during the COVID-19 recovery.
As we head towards the end of the transition period, businesses can find out more about what the changes coming will mean for them through our UK Transition Hub.