The government’s new state aid proposals are the worst of all worlds

The European Union state aid rules are a keystone of the EU single market: by setting limits, enforced by the Commission, on the ability to subsidise domestic industries, they make it possible for member states fully to open their markets to each other’s goods and services, confident that their own producers will not face unfairly subsidised competition from producers elsewhere in the EU.

Last year, I wrote an article for Prospect which discussed the quiet consensus that the UK would retain these rules after Brexit. That quiet consensus was apparently shattered on Friday, when the Conservatives produced a paper in which they promised to get rid of the state aid rules and replace them with a new system based on World Trade Organisation anti-subsidy rules, which they claimed would allow the government “greater discretion” and provide “certainty” to investors.

On the right, the Institute of Economic Affairs, whose main criticism of the state aid rules is that they permit too much subsidy, immediately responded by denouncing the proposals as “support for cronyism.” And on the left, many “Lexiters” welcomed the proposals on the basis that, despite their own general inability to point to any actual Labour policy that would be frustrated by the state aid rules, they see them as a neoliberal plot to stop the interventionist plans of a socialist government.

But both sides may have made a mistake in taking too seriously the headline promise to scrap EU state aid rules. The reality is that the proposals are an incoherent mess.

The first issue is that the proposal is based on WTO anti-subsidy rules. There are two serious problems with those rules as a substitute for retaining the EU state aid regime.

– Far from bringing greater clarity, as promised, a switch to WTO anti-subsidy rules as the basis for a domestic system would introduce much greater uncertainty. There are areas of uncertainty in EU state aid law (as there are in much of English common law). But when I have to advise on what is a state aid, I have volumes of case-law to help me (just as, in the common law, I have volumes of case law to help me advise on what “negligence” means). In contrast, there is very little case-law on the equivalent WTO concept of subsidy (largely because WTO litigation is always state-to-state, and states are generally unwilling, for obvious reasons, to try to push the boundaries of what counts as a subsidy). Much though lawyers like me might benefit from extensive re-litigating of issues long settled in the current state aid regime, I cannot recommend the change as a means of increasing certainty.

– Further, peering through the uncertainty, the best guess is that changing from EU state aid rules to a regime modelled on the WTO concept of a subsidy would make little difference to what is prohibited. The basic texts and principles of the EU and WTO rules are very similar, including a wide approach to what counts as an aid or subsidy, including tax breaks, free use of government facilities that are normally paid for, and so on. So it is entirely possible—and in fact likely—that, after a lot of time and money is spent on working out what the new regime means, it turns out to be much the same as the old one.

The Conservatives do have a point when they say that the current system frequently involves some delay, as non-exempt state aid has to be notified to and cleared by the European Commission before it can lawfully be implemented, and there can then be further delays and uncertainty if the Commission’s decision is appealed. But the Conservatives’ claims are over-stated: the Commission approves genuinely urgent cases such as rescue aid very quickly—and anyway, in a post-Brexit state aid regime run domestically by UK institutions and courts, delays in approving state aid measures would be under UK control. And any control system, no matter how well-designed, has to give time for a proper hearing of those whose interests are affected by a subsidy proposal—the recipient, its competitors and others. If it doesn’t, good points are missed and you get unfair and bad decisions, with further delay when the courts end up having to sort out the mess.

The central weakness in the proposals, though, emerges when you notice how coy the Conservatives are about explaining why we should keep any anti-subsidy rules after Brexit: after all, if we are no longer in the single market, why do we need one of its keystones?

Part of the answer is to provide a discipline for all parts of government in the UK—and particularly the devolved governments with their wide spending and tax powers—from subsidies that have knock-on effects elsewhere in the UK. It is easier to rely on a rules-based system, with an independent arbiter, to control what the Scottish government can hand out to favoured sectors than it would be to rely on UK ministers issuing orders from Westminster.

But the heart of the answer (which the proposals simply ignore) is that the EU has made it clear that it will insist on retention of state aid controls as a condition of doing any trade deal with the UK (a point I explored in more detail here).

The EU’s determination to make sure that the UK stays within the state aid framework is shown by the startling provisions in Article 10 of the new Northern Ireland protocol to the current Withdrawal Agreement, accepted by the Johnson government without apparent demure (or perhaps without even realising, in the rush, what it had agreed to). That Article keeps the United Kingdom fully bound by the EU state aid rules—including enforcement by the Commission and Court of Justice of the EU—to the extent that any UK measure is a state aid that affects trade between Northern Ireland and the EU. That means that any general UK tax measure extending to Northern Ireland that favours a particular sector will almost certainly be subject to prior approval by the Commission, subject only to an appeal to the Court of Justice. But the control goes further: any UK government measure that affects Northern Ireland—for example a grant to an English company with significant Northern Ireland operations—may well, because of Article 10, fall under the Commission’s powers.

So there are two fundamental problems with the Conservatives’ approach.

– First, returning to the claimed objective of increasing clarity and simplicity, one has to wonder how operating two parallel systems (the new system in all cases, state aid where Northern Ireland is in issue) can be described as clear or simple. On the contrary, it looks like a sure recipe for complexity and muddle.

– Second, and perhaps most importantly, it creates a major road block in the way of the Conservatives’ already unrealistic promise to reach and ratify a final relationship agreement with the EU by 31st December 2020. Rather than offer to maintain the EU state aid rules, it looks as if the Conservatives plan to try to sell to the EU a new, unclear and untested system. That is not going, to put it gently, to be an easy sell: it will, with the most favourable winds, take time. And the Conservatives’ commitment not to extend the transition period means that time is precisely what they will not have.

So, the Conservatives’ plans for apparently major change in the UK’s controls on subsidies risk getting the worst of all worlds: making the task of negotiating a deal with the EU much more difficult, reducing clarity and business certainty, and not actually changing very much at the end of the day. When they realise that, and in the face of likely hostility from the EU, the best guess is that these proposals will be quietly dropped. But in the meantime they may well have achieved their immediate object of appealing to left-wing Brexiteers and erstwhile Labour voters who (usually for bad reasons) object to the state aid rules on principle and who regard getting rid of them as one of the important aspects of Brexit.

This article first appeared in Prospect Magazine. An edited version was also published in The Telegraph.

Fisheries after Brexit

Two years ago, I helped organise and chaired an evening conference at the British Institute of International and Comparative Law on the subject of the legal consequences of Brexit for the fishing industry. Since that conference was rated a great success, BIICL decided to repeat the experience on 19 November at the offices of public international law firm Volterra Fietta, which kindly hosted the event, as BIICL’s premises in Russell Square are currently undergoing major renovation. This time, the speakers were just as eloquent as two years ago and the interventions from the floor were just as interesting and informative. What is more, thanks to BIICL’s event promotion team nearly fifty people participated.

As is well-known, a high proportion of British fishermen are ardent Brexiters. Readers will recall the flotilla of fishing boats organised by Fishing for Leave, which sailed up the Thames with the then leader of UKIP to urge Parliament to take back control of British waters, shortly before the referendum of June 2016. As one would expect, FfL has lost none of its ardour in the meantime, as a glance at its website (here) will confirm.

Yet there is a two-fold problem. First, if there is one economic activity which is strictly regulated by international law, it is fisheries. If the UK were to exclude all or most foreign fishing vessels from its waters, British fishermen would receive the same treatment from the countries concerned. Many fishermen in a number of neighbouring countries, including France, the Netherlands and Denmark, stand to lose their livelihoods. For the same reason, the UK would no doubt find it extremely difficult, if not impossible, to join the regional fisheries management organisations (RFMOs) which control many sections of the Atlantic and other waters. Second, the overwhelming majority of the fish caught by British boats are sold to the EU27. If the UK takes a hard line on fishing rights within its waters, the EU will not offer any tariff concessions and EU tariffs on some stocks are high.

The four speaker’s slides are available on BIICL’s webpage (here), so what follows is an overview of the salient points.

Eoin Fannon, a former Irish civil servant who is an expert on maritime law, began by setting out the key relevant provisions of international law, notably those of the UN Convention on the Law of the Sea (UNCLOS). He then focused on the disputed fishing rights around Rockall, which is claimed by the UK, but this claim is disputed by Denmark (for the Faroes), Ireland and Norway. This was a “test case” of the international law problems which could arise.

The next speaker was Thomas van Rijn, a former Director in the Legal Service of the European Commission who had devoted some sixteen years to the Common Fisheries Policy. Building on the talk by Eoin Fannon, he described the main international and EU treaties which will come into play, including UNCLOS (focusing on some of the provisions not mentioned so far) and the treaties establishing various RFMOs as well as the revised Withdrawal Agreement (here) and the revised Political Declaration on future relations between the EU and the UK (here). That declaration states in particular that the Parties “should cooperate bilaterally and internationally to ensure fishing at sustainable levels, promote resource conservation, and foster a clean, healthy and productive marine environment”. It also states that “the Parties should cooperate on the development of measures for the conservation, rational management and regulation of fisheries, in a non-discriminatory manner”. Finally, Thomas described some of the steps which the EU will take in 2020 if the Withdrawal Agreement comes into force.

Next, Jill Wakefield of Warwick University spoke on two separate topics: trade and environmental protection. On trade, she described the new regulations for export to the EU, the import tariffs which the EU imposes on the main stocks and the problem of EU standards, which may be an even more formidable hurdle for UK fish than tariffs. The particularly severe impacts for the small-scale sector reliant on export to the EU were raised. In discussing the relevant provisions of the Withdrawal Agreement and its Protocol on Ireland/ Northern Ireland, she mentioned that the Council’s guidelines for a future trade agreement with the UK (here) contain the following important statement: “In the overall context of the FTA, existing reciprocal access to fishing waters and resources should be maintained …”

On the environment, Jill exposed the weakness of the current EU regime due to the fact that the Common Fisheries Policy prevails over the Marine Strategy Framework Directive, the environmental pillar of the Integrated Maritime Policy. The result is that the goal of the CFP remains maximum sustainable yield. As to the UK, although section 16 of the European Union (Withdrawal) Act 2018 requires the environmental principles enshrined in EU law to be maintained and although EU environmental law is due to remain in force provisionally by virtue of the same Act, there were grounds for serious concern that these provisions would be weakened after a short time. For instance, the fact that the now defunct Environment Bill, which was before Parliament earlier this year and which applies to England alone, only contains a passing reference to the marine environment is scarcely encouraging.

Finally, Helen McLachlan of WWF UK, the only member of the panel who is a marine biologist and not a lawyer, took the floor. As the chair of the fisheries work of Greener UK (a group of 13 major environmental organisations, with a combined public membership of over 8 million united in the belief that leaving the EU is a pivotal moment to restore and enhance the UK’s environment), she is well placed to discuss the Fisheries Bill. She demonstrated how the Bill, which was before Parliament earlier this year and failed to reach the statute book, fell well short of the measures advocated by Greener UK on several counts; and she described the Bill as so regressive that it would have failed to ensure sustainable fisheries.

Given the immense importance of Scotland in this sector (which accounted for 57% of UK landings by value and 64% of UK landings by tonnage in 2017), we needed a voice from north of the border; and Helen ticks that box as well. She stated that, without a UK Fisheries Act, the devolved administrations will be in limbo as regards the powers which they will enjoy after Brexit. Before its untimely demise, the Fisheries Bill had provided for the four administrations to subscribe to a joint statement setting out the means whereby they would realise the aims of the Bill.

She concluded with a number of slides explaining the gravity of the environmental damage currently being inflicted on the oceans. One slide referred to a report published this year according to which fishing is the human activity with the greatest impact on ocean health.

The audience was notable not only for its impressive expertise in the field and its remarkable collective memory spanning several decades, but also for its professional diversity. In addition to legal practitioners, academics and civil servants (mainly from Defra, but also from other Government departments), the fishing industry itself was very well represented in the room. This led to an unusually lively and stimulating debate, in which the civil servants naturally did not take part.

These problems stand on the cusp of two crises: the uncertainties over Brexit and the environmental emergency. Not only on the panel but also amongst those who intervened from the audience, there appeared to be a consensus on both points. Many “dark thoughts” (as one attendee put it) were expressed, as further problems were raised.

According to one member of the audience, the fishermen were being led to believe that a significant proportion of their catch after Brexit need not be subject to UK quotas – a policy which the EU would never accept, which would make a fisheries agreement between the parties extremely unlikely. Another attendee referred to the passage in the Political Declaration according to which the Parties would use their best endeavours to conclude and ratify a fisheries agreement by 1 July 2020 so as to ensure continuity, if the Withdrawal Agreement comes into force but expires at the end of 2020. In his view, the chances of meeting this deadline were very slim or even non-existent.

Other points raised by the audience included discussion on: the advantages and disadvantages for the UK in negotiating quota as an independent state; the continuing obligation to ensure resource sustainability under international law; the nature of the public resource of fish and possibilities in the defunct Fisheries Bill for reform of fishing opportunities allocation; provision for the small-scale fleet; whether EU product standards will impact the UK more forcefully as a third country and whether these standards will impede or prevent export to the EU.

Towards the end of the conference, I also ventured a brief intervention, predicting that, despite its protestations to the contrary, in the worst-case scenario – where either there is a no-deal Brexit or the Withdrawal Agreement does come into force, but we subsequently fall over the proverbial cliff edge – the EU might after all be prepared to conclude a number of agreements relating to the specific sectors where there is the greatest urgency. This would certainly include security, but fisheries is also an obvious candidate for such exceptional treatment. One thing is clear, though: the EU will insist on having common rules on governance (essentially dispute resolution) so as to avoid falling into the same trap as it has with Switzerland, which has concluded some 130 separate agreements with the EU over the years without any kind of common institutional framework.

Let me end with an afterthought: only one State in Western European is likely to be an ally of the UK in its relations with the EU, and that country is Switzerland. But presumably not when it comes to fisheries.

BIICL has asked me to specify that this post does not represent their views.

Supreme Court: prorogation unlawful

The case before the Supreme Court will not determine whether the UK should remain in or leave the EU, or the terms on which it should leave. It is not about the competing arguments about Brexit. It is a case about the Constitution of the United Kingdom. Much of it is unwritten, but it exists. It is the same whatever a person’s views are on Brexit. This is a case about the Rule of Law. It concerns principles of fundamental importance in a Constitutional Democracy.

The United Kingdom operates through Parliament, the Executive and the Courts. The advice on prorogation , and the Order in Council resulting from it, produced for a period, an empty Parliament. Parliament questions the Executive, holding it to account, considers whether to pass legislation and to approve statutory instruments. A driver needs time to react and stop. Parliament needs adequate time to consider and react to current events, and especially so when parliamentary time is not readily yielded by the Government.

Power corrupts and absolute power corrupts absolutely. The Rule of Law in a constitutional democracy requires a functioning Parliament. Where Parliament has no ability to perform its functions for a period the Government is unchecked. What happens during that period may be irreversible. If a Government is in fact the only body holding itself to account during that period, it has absolute power.

The case before the Supreme Court had three issues: (A) Could the court review judicially advice on prorogation by the Prime Minister and the Order in Council? Were there standards which could and would be applied by the Court in a judicial review? (B) What were the facts? (C) What remedy could and should be granted?

Issue (A)

The Government argued that prorogation necessarily involved a “political decision” unsuitable for Judicial Review. The Court could not intrude into the political arena and examine matters to be determined by politicians. Gina Miller argued that where the motive behind prorogation, or its practical effect, was to prevent Parliament discharging its functions, there had to be justification for this. What was to stop the Government proroguing Parliament again after 17th October? The justification could not be that Parliament might disagree with the Executive and exercise its constitutional functions. It had to be a justification both of its timing and length.

The Government argued that it had left sufficient time to Parliament to react to Brexit developments after 17th October, the date of a meeting of EU leaders. This argued that prorogation would not cause irreversible consequences. A week is a long period in politics. Judging the risks resulting from an empty Chamber of irreparable consequences, does not answer whether Parliament could be prevented lawfully from discharging its functions for that period. If Parliament could sit and decide what it wishes to do as events unfolded, then matters are not left in the sole hands of the Executive. It is Parliament which holds to account the Executive, and not the Executive which has the right to control Parliament.

The words “political decision” might cover any decision taken for political reasons. Many decisions are affected by political considerations. But the fact that a decision is “political” does not immunise it from judicial review. The Government may wish to purchase houses under statutory compulsory purchase powers to build a hospital, so that its MP has a better chance of being re-elected. This would be a “political decision” ripe for judicial review as an improper use of statutory powers. By “political decision” the Government argued that a decision taken to bring about its political aims was not reviewable because those aims were themselves a matter of political judgment and could not be reviewed by the court. It had the power to prorogue to achieve its political aims. It argued that prorogation was to allow for the Party Conferences, and to prepare for a Queen’s speech to set out those aims.

The Queen’s role is not that of an arbiter between rival political views. It is not right for the Queen to be given the burden of involvement in politics, or deciding what is lawful. There are many judicial precedents at the highest levels for exercises of the Royal Perogative powers being reviewed by a court. The Government argued that Parliament would have to be recalled to approve funds for the standing army. This did not address the possible consequences in a Constitutional Democracy of allowing the Executive power to suspend Parliament without proper justification.

To allow the Executive the power to disable Parliament from exercising its functions for a limited period chosen by the Executive opens the door to the suspension of Constitutional Democracy. If the exercise of the power were not reviewable by a court, the Government could take for itself for a period of its own choosing, absolute power.

Issue (B)

Facts are decided by evidence. The timing and length of prorogation had to be justified by the evidence considered as a whole including what is said and what is not said. In this case there was a partially redacted memorandum written by a Government assistant, and a short note from the Prime Minister approving it. It is expected practice on judicial review that the decision maker provides an affidavit setting out the reasons for the decision. No affidavit was made. The absence of an affidavit was itself evidence to be taken into account. The relevant facts include the context in which a decision is taken. That included the Bills going through Parliament which would be lost through prorogation, what was the position on statutory instruments being considered for the Brexit process, the imminence of a possible no deal Brexit and whether the stated aims of prorogation required the particular period for prorogation chosen by the Government.

Issue (C)

Gina Miller argued that the remedy should be limited to a declaration that the advice had been unlawful, leaving events to unfold and a decision to be taken on the lawfulness of the Order in Council to be deferred. This limited submission was in the context that the courts do not interfere with proceedings in Parliament, for example what Parliament should debate, and what votes it should take. The contrary argument is that for the purpose of deciding the court’s power to intervene, the Order was a prelude to proceedings in Parliament and not proceedings themselves. That course would have involved adjourning the appeal brought by the Government from the order made by the Inner House of the Court of Session quashing the Order in Counsel.

The questions from the Supreme Court raised whether a definitive urgent answer was needed to provide certainty and avoid argument about what should be done.

The Decision

It is said that what is sovereign is only “the Queen in Parliament”, and not the House of Commons on its own. This makes the point a Bill has to be passed by both Houses and receive Royal Assent, before it becomes law. The words understate the functions of the House of Commons.

The decision to declare unlawful and void both the advice and the Order in Council, will be read by students politicians and judges from all over the world for many years into the future, as a precedent on a fundamental Constitutional issue, to be afforded the respect due to an unanimous reserved decision of a Bench of 11 Supreme Court Justices, reached after arguments of the highest quality, on the Rule of Law.

Professor Carl Baudenbacher: EEA on the table again?

Photo: @EFTAsecretariat

One hour after Theresa May’s resignation on 24 May 2019, Former EFTA Court President Prof. Dr. Dr. h.c. Carl Baudenbacher from Monckton Chambers spoke on Brexit and the EEA at the meeting of the European Economic and Social Committee marking the 25th anniversary of the European Economic Area. Baudenbacher stressed that there was a new ball game. He called the EEA a valid option for the UK, especially as both Iceland and Norway had expressed a positive opinion about British membership. Prejudices such as the EEA/EFTA States are mere rule takers have little to do with reality. Baudenbacher concluded with the statement that there was an opportunity to establish a second structure in Europe, consisting of the UK, the current EEA/EFTA States Iceland, Liechtenstein and Norway and the fourth EFTA State Switzerland. The five states are banking on free trade and open markets and are fundamentally averse to mercantilist tendencies.

To view Professor Baudenbacher’s presentation slides please click here.

Legislating the Byzantine way: the Brexit Procurement SIs

Towards the end of last year, the Cabinet Office published a draft statutory instrument, the Public Procurement (Amendment etc.) (EU Exit) Regulations 2019 (“the first SI”), which was then laid before Parliament pursuant to Schedule 7 of the European Union (Withdrawal) Act 2018 (“the Act”). On 11th February 2019, a second SI ((The Public Procurement (Amendment etc.) (EU Exit) (No. 2) Regulations 2019) (“the second SI”)) was laid before Parliament, which makes a number of corrections to the first SI.

Together, the SIs will modify various Procurement Regulations, including the Public Contracts Regulations 2015 (SI 2015/102), the Utilities Contracts Regulations 2016 (SI 2016/274) and the Concession Contracts Regulations 2016 (SI 2016/273), for the event of the UK’s departure from the EU.

The Cabinet Office has recently produced a helpful Procurement Policy Note (available here), which summarises succinctly the effects in both ‘deal’ and ‘no deal’ Brexit scenarios. There are, however, a number of questions arising out the draft SIs, which are not easy reads.

(1) Are there conflicts between the Act and the Regulations?

First, the definition of “the Retained Treaties” in Regulation 5(2)(g) of the first SI has the potential to create interesting knock-on consequences. That phrase, as defined in the first SI, is limited to those matters of retained EU law which are retained only by section 4 of the Act. That section, in turn, is confined to those matters which flowed into domestic law via section 2(1) of the European Communities Act 1972. The concept of “retained EU law”, however, is wider in the Act. Section 6(7) of the Act defines “retained EU law” as matters which forms part of domestic law under sections 2, 3, 4 and 6 of the Act. There is a risk, therefore, that the more limited expression in the SI (only referring to one section of the Act) leads to gaps.

This possible use of section 4 as a limiting-device is particularly evident in Regulation 5(57) of the first SI, which modifies Regulation 89 of the Public Contracts Regulations 2015. The first SI substitutes “enforceable EU obligation” in the PCR 2015 with “retained EU obligation that is enforceable by virtue of section 4 of [the Act]”. This appears to reduce the currently-enforceable obligations of EU law: presumably the drafters of the Act thought that section 4 alone was insufficient to copy all EU obligations and case law existing prior to exit day, hence the need for sections 2, 3 and 6 also. It is unclear whether reference to only section 4 is an intentional restriction by the drafters of the first SI in the procurement sphere, or whether the SI is compatible with the Act in this regard (e.g. the deficiency-correction purposes listed in section 8 of the Act, as to which see below).

(2) Do the regulations make other substantive changes – is that permissible?

Second, the first SI alters various substantive provisions, including those relating to abnormally low tenders and state aid. This is achieved by various instances to “omit “EU law”” and “to the extent that they are compatible with EU law”, and more express provisions such as Regulation 5(46) which removes certain references to state aid in the abnormally low tender provisions, e.g. Regulation 69 of the Public Contracts Regulations 2015. Another potential example (for which I am grateful to Albert Sanchez-Graells for discussing with me) is that found in Regulation 5(29) of the first SI, which omits Regulation 39 PCR 15 (procurement involving contracting authorities from other member states). It is arguable that this creates a legal lacuna, as transnational collaborative procurements would not be regulated. It is possible that this could have substantive effects in some areas, such as some cross-border collaborations of NHS commercial solutions through the European Health Public Procurement Association.

The second SI also extends rights of action to some economic operators beyond the scope of GPA coverage (Regulation 2(3)(c)), though how significant this will be in practice is unknown.

It is not, clear, however, whether these changes to the underlying substantive requirements are compatible with the deficiency-correcting power in section 8 of the Act. Sub-paragraphs (2) and (3) of that section list exhaustive instances where a deficiency arises. The policy intention behind the Act at least appeared to be a retention of the substance of EU law without alternation unless that substance was inherently linked to an (EU) internal market concept or EU institutions. The SI, however, appears capable of being read as altering content which could, conceptually at least, function on the domestic level. It is possible, therefore, that some aspects of the SI go beyond the scope of the deficiency-correcting power and could be susceptible to judicial review.

(3) Postponed amendments – are they ultra vires?

Third, Regulations 6, 8, 10 and 21 only come into force 18 months after the day on which exit day falls: Reg. 1(3) of the first SI, as amended by Reg. 2(2) of the second SI. These Regulations appear to provide economic operators from a party to the WTO’s Government Procurement Agreement (“the GPA”) continued rights and access for a period of 18 months at which point certain duties (such as those found in regulations 25, 68 and 90 in the PCR 2015) will end.

The deficiency-correcting powers in section 8(1) of the Act – under which the SI has been made – only exist where failures or deficiencies can be said to be “arising from the withdrawal of the United Kingdom from the EU”. It is, prima facie, difficult to understand how this competence to correct such deficiencies can occur only 18 months after exit day (as defined in the Act), such that it is only appropriate to use that purported power to trigger substantive changes at that point. Do such issues truly arise as a result from withdrawal if they only need altering 18 months later? If not, the Regulations are susceptible to judicial review on the grounds set out by Lord Neuberger in R (Public Law Project) v Lord Chancellor [2016] UKSC 39.

Perhaps the key to understanding this lies in the UK’s imminent accession to the GPA in its own right and possible differences in the UK’s and EU’s GPA schedules. Assuming that accession does occur more or less as expected, and assuming that these Regulations ever enter into force at all, does the need to modify domestic law nevertheless still not result from that (re)-joining of the GPA, rather than the UK’s withdrawal from the EU? The logical place to find statutory power for the making of procurement regulations implementing the GPA or, indeed, procurement provisions under FTAs would be in trade legislation. But with the Trade Bill stuck in Parliament, it is not clear where that will be found. Perhaps the legislator hopes that a broader reading of the phrase “arising from” in section 8(1) of the Act will suffice, such that the ‘looser’ sense of Brexit resulting in the UK having (at its election) to re-join the GPA will suffice.

That all said, perhaps the queries surrounding these postponed amendments will never arise. Given that the GPA Parties have accepted the UK’s independent membership of the GPA for a post-Brexit world, it is possible that these Regulations will never enter into force.

Final comments

The detail of this blog post may well become academic within the space of 72 hours if “no-deal” is taken off the table by Parliament. The issues which it raises about legislating by such statutory instruments, however, are nevertheless of longer-term constitutional interest. The byzantine structure of the SIs is not at all easy to navigate. Coupled with the fact that the legislative foundation of some of the proposed amendments is questionable, this is particularly problematic, not least for potential claimants or the poor parliamentary draftsman tasked with editing the underlying substantive Regulations. Whilst there may well be perfectly reasonable answers to some of the queries raised in this blog, the very complexity of the legislation is itself problematic.

The author, Jack Williams, is grateful for comments on a draft of this blog by Michael Bowsher QC and Dr Albert Sanchez Graells.

Does Wightman mean that Miller was decided incorrectly?

The Court of Justice of the European Union has today in C-621/18 Wightman held that an Article 50 notice is unilaterally revocable, subject to specified conditions. (For a summary, see here .) It will be recalled that the Supreme Court in Miller [2017] UKSC 5 assumed, on an invitation from the parties, that Article 50 was unilaterally irrevocable. Does that mean that Miller was wrongly decided?

In my view, the answer to this is an emphatic “no”. This follows for three reasons.

First, the Supreme Court did not decide that Article 50 was unilaterally irrevocable. It merely stated that it was “content to proceed on the basis” that Article 50 was not unilaterally revocable, but “without expressing any view of our own” on the point: see para. 26. It would therefore be wrong to claim that Miller is directly contradicted by the CJEU’s judgment in Wightman on the meaning of Article 50.

Second, the reasoning and result in Miller does not, in any event, depend upon the assumption which the Supreme Court (and, indeed, Divisional Court) made. That is, in my view, both the reasoning and result in Miller survive even if Article 50 were unilaterally revocable (as the CJEU has today found). Indeed, the Secretary of State in Miller himself accepted this: “it is the Secretary of State’s case that, even if this common ground [that Article 50 is irrevocable] is mistaken, it would make no difference to the outcome of these proceedings” (para. 26 of Miller).

Why is this the case?

The majority judgment in Miller reveals that challenges to the use of purported prerogative powers can take one of four forms (what I have elsewhere called the ‘the four E’s’): first, an examination of whether a prerogative power exists; second, assuming one does exist, the extent of that prerogative power (ie whether it is of a sufficient nature and scope to extend to the relevant circumstances and intended usage envisaged by the executive); third, an examination of whether any such prerogative power has been excluded by a statute or statutory provision (whether expressly or by necessary implication); and fourth, assuming that a sufficient prerogative exists and has not been excluded by primary legislation, an examination of the exercise of that prerogative on grounds of, for example, irrationality, procedural impropriety or disproportionality.

The important point for present purposes is the second category of control concerning a prerogative’s extent. In Miller, after establishing that a relevant prerogative power, the foreign relations treaty prerogative, existed, the Supreme Court moved on to examine the extent of that prerogative power. The Court explored the delimitations of prerogative powers generally, and the foreign relations treaty prerogative specifically, in determining that such executive powers cannot affect domestic law or, separately, domestic rights, and cannot frustrate the purpose of a statutory provision by effectively emptying it of content. The foreign relations treaty prerogative simply does not extend to such circumstances whereby there would be domestic effects. The clue is in the name.

The question therefore became whether the prospective use of a purported prerogative power – here to trigger the Article 50 process – could have any of these three effects, namely: (i) affecting domestic law; (ii) affecting domestic rights; or (iii) frustrating statutory intent. If the answer is “yes”, then the prerogative does not extend to such circumstances and cannot be used due to its inherent nature and scope.

The effect of the Article 50 scheme is that, if nothing else happens, a notifying member state loses that membership – and all entailing benefits – at the end of the two-year period. The Court found that triggering Article 50 has the default effect that domestic law and rights would be affected, if not lost, contrary to Parliament’s intention as expressed in Acts, such as the European Communities Act 1972. This blog is not the place to examine the factual and legal reasons for why the Court found that each of these three effects was made out (see here for further discussion). It is enough for present purposes to note that the default effect – not inevitable effect – of sending the Article 50 Notice would, without anything more, include at least one of the three consequences.

That default, rather than inevitable, effect is sufficient to prohibit the use of the prerogative for two reasons. First, as the foreign relations prerogative cannot by its nature have such effects, the logical possibility – indeed, default consequence – of such attempted usage means that it could not be employed in the first place. The Prime Minister simply did not have the competence to use the prerogative. Second, Parliament cannot be pre-empted or forced to act in order to save its statutes (the highest source of law domestically) on account of executive action. The triggering of Article 50 sets in motion a series of events which, without more, would result – without Parliamentary authorisation – in statutes being made defunct on the Supreme Court’s analysis. Again, the foreign relations treaty prerogative cannot be used to have this effect. With neither a prerogative power nor a pre-existing statutory power enabling it to act, the consequence was that the Government had to seek fresh statutory authorisation from the ‘constitutionally senior partner’, Parliament, before a Minister could notify the European Council of the UK’s intention to leave the EU pursuant to Article 50.

Third, the assumption was prudent as a matter of constitutional adjudication. A question of competence to trigger a process cannot be answered by the courts once it has already been actioned and/or had (irreversible) effects; the logical possibility, known in advance, is enough as a matter of law to prevent the prerogative’s use. In order to answer that competence question, the Court has to ground its analysis in how it is actually envisaged that the prerogative in question is to be used. Here, the Government’s position was (and is) that “as a matter of firm policy, once given a notification will not in fact be withdrawn” (counsel for the Secretary of State during the hearing before the Divisional Court at p.64 of the transcript, 17 October 2016). Accordingly, the Court was being told that if the Government could notify by virtue of a prerogative power, it would not revoke that notification. Effectively, the default effects would become the inevitable effects. That firm policy decision remains despite the outcome in Wightman.

In summary, therefore, Miller remains good law (with consequences beyond only the situation of Brexit, as I explain here ). Neither the result, nor the reasoning, is invalidated in any way. Whilst it obviously assisted the claimants in Miller that the Government conceded the Article 50 revocability question (because it brought to life the effects in domestic law), the core thread survives: the foreign relations treaty prerogative could not have been used to trigger the Article 50 process, regardless of the revocability of any notification, due to its default effects.

Jack Williams was junior counsel for one of the interested parties in R (Miller and Dos Santos) v Secretary of State for Exiting the European Union [2017] UKSC 5 at both Divisional and Supreme court levels. He is co-editor (with Professors Mark Elliott and Alison Young) of the UK Constitution after Miller: Brexit and Beyond (Hart Publishing, 2018).

Wightman AG opinion

In his opinion today, the Advocate General at the CJEU has made clear that Brexit is not a one-way cul-de-sac with no prospect of turning back. Even at the point where the withdrawal agreement has been negotiated, the UK can take stock and reflect during a “cooling off period” that continues for the two year period in Article 50, right up to the point where the withdrawal agreement is concluded by mutual agreement on both sides.

The opinion is important since it breaks the “Sophie’s choice” between approving the deal and leaving the EU without a deal. Both options present insurmountable compromises for the UK in terms of economic disruption to its trade in goods and services and loss of individual rights for its citizens. As the AG indicates, if his opinion is followed, the eventual ruling from the CJEU and Court of Session will open up a “third way” for MPs in Westminster to take the initiative of unilaterally revoking the UK’s decision to withdraw from the European Union. Interestingly, he even goes so far to say that if there is a democratic change which reverses the decision to withdraw, deprives it of its effect or removes its constitutional basis, the State “can and must” notify that change to the Council.

Importantly, in interpreting the scope of Article 50 TEU in the light of the aims of the Treaties and international law, the AG has come down firmly in favour of unilateral revocation rather than subjecting the State’s change of mind to additional hurdles, such as obtaining the unanimous consent of all 27 Member States in the European Council. He regards unilateral revocation as key to respecting the sovereign will of a State to change its mind in line with its constitutional requirements, respecting democracy and preserving rather than destroying the fundamental rights of citizens in the UK and other Member States.

In his view, the right to revoke should be subject to a few simple formalities:

(i) a formal notice of revocation setting out the reasons for the change of heart;

(ii) exercised in accordance with the national constitutional requirements (be that another election, referendum or parliamentary meaningful vote as the case may be);

(iii) within the two year negotiating period in Article 50 – i.e. before 29 March 2019 or before a withdrawal agreement is concluded by both sides (whichever is the earliest); and

(iv) in good faith and in line with the State’s duty of sincere cooperation under the Treaty. That means that it cannot be misused for tactical negotiating advantage or abused for ulterior purposes.

Conversely, the AG rejected the Council and the Commission’s arguments that they should be allowed to impose a check on potential abuse by insisting on unanimous consent. In that scenario, a single Member State would effectively be allowed to veto the UK’s continued membership of the EU and it would empower the European Council to expel a Member State against its will.

In terms of the effects of revocation, the AG is clear that the departing State maintains all of its rights and privileges right up to the point of departure envisaged by Article 50. If a notice of revocation is served before that time limit expires, those rights continue and the status quo ante is restored. Although there may be “collateral damage” in the sense of financial repercussions for the EU institutions and other Member States resulting from the negotiation process and related practical steps, that should not be a bar to revocation. In any event the costs of proceeding with withdrawal would far exceed the minimal costs generated by the revocation.

State Aid and The Withdrawal Agreement: Key Points

The UK Government’s intention to maintain the EU State aid rules has been clear for some time.  I briefly discussed the reasons why it has taken that view – and done so without significant opposition – in a piece I wrote here.  The intention to hold onto the State aid rules was strong enough for the Government to commit to maintaining them even on a “no deal” Brexit.  But we now have a deal, subject to the vagaries of UK politics (which I shall not attempt to predict).  What has it got to say about State aid?

There are really three sets of issues here.  The first is what might be called the planned withdrawal period – the transition period and the arrangements for handling cases that straddle the end of the transition period.  The second is the management of State aid under the “backstop”, that is to say the Ireland/Northern Ireland Protocol which it is hoped will never be operational but which will come into force if no final agreement is reached before the end of transition.  And the third is the political declaration that sets out the outline of the final relationship.

Transition

The transition regime is brutally simple: the UK remains a Member State for all purposes save those associated with having any say in legislation or decision-taking: Article 127(1) simply provides that all EU law continues to have effect in the UK.  So there will be no change in the State aid rules at all during the transition period, save that the UK will lose its vote in any State aid legislation or decision-making by the Council.

The transition period, however, will have a definite end (though what that will be has not been decided).  What happens to ongoing procedures at the end of transition?  The answer is to be found in Article 92, which provides that the Commission will remain competent to resolve any State aid investigation that has been allocated a case number by the end of transition.  The Commission will then proceed as normal either to raise no objections, find no aid, or start a formal investigation (Article 92(5)).

Further, Article 93 provides that the Commission will remain competent to initiate new State aid procedures for up to four years after transition end.  These will presumably only relate to aid granted before the end of transition (aid granted after transition end not being a matter falling under EU rules, subject to the backstop), and hence will be investigations of unlawful aid or misuse of aid.

The Commission decisions that result from these investigations will be binding “on and in” the UK: so private parties as well as the UK itself will be bound: Article 95.

One issue not dealt with is how the Commission will approach an aid notified before the end of transition but which will cover a period extending to after the end of transition.  To the extent that the measure is to be implemented after the end of transition, it will presumably fall outside the Commission’s jurisdiction.  But a measure implemented before the end of transition might well have many of its effects on competition (and many of its benefits in terms of the aim of the measure) after the end of transition.  It is not clear, at least to me, quite how the Commission is supposed to deal with such post-transition effects: but for what it is worth, it seems to me that the Commission could only properly take into account effects occurring before the end of transition (not least because the measure could be withdrawn and re-implemented the day after transition, at which point the Commission would have no jurisdiction over it.

Backstop

The existence of strong State aid provisions in the backstop should come as no surprise.  The backstop involves a customs union between the whole UK and the EU.  In a customs union, the EU is deprived of its ability to apply countervailing measures to subsidised imports.  So an inevitable quid pro quo of a customs union is bound to be cast iron guarantees that unacceptable subsidies will not be granted to UK businesses exporting to the EU.

There are two aspects to the backstop: rules that apply in Northern Ireland (more accurately, to measures affecting trade between Northern Ireland and the EU) and rules that apply to Great Britain (more accurately, to measures affecting trade between Great Britain and the EU).

As for Northern Ireland, Article 12 of the Protocol states that the State aid provisions set out in Annex 8 shall apply “to the United Kingdom … in respect of measures that affect that trade between the part of the territory of the United Kingdom to which [the Union Customs Code] applies by virtue of Article 6(2) of this Protocol and the EU which is subject to this Protocol.”

That less than luminously clear provision needs unpacking. “The territory of the United Kingdom to which [the Union Customs Code] applies by virtue of Article 6(2) of this Protocol” is Northern Ireland, excluding its territorial waters.  And the “trade … which is subject to this Protocol” is goods trade, subject to the “holding provision” for fisheries products set out in Article 6(1), fifth paragraph.  Annex 8 to the Protocol sets out (I think) all relevant State aid legislation.

The net effect is that the UK remains subject to the EU State aid rules (including enforcement by the Commission and the Court of Justice) in relation to measures that affect trade in goods as between Northern Ireland and the EU.  That provision is evidently likely to cover many measures taken by the devolved administration in Northern Ireland.  But it is also important to appreciate that that provision could well include any UK Government measure that extended to Northern Ireland such as, for example, a tax break.  It even appears to bring in measures that do not extend as such to Northern Ireland, but (for example) benefited UK businesses that also produce goods in Northern Ireland.

Meanwhile, further State aid provisions apply to measures affecting trade in goods between Great Britain and the EU (technically, trade to which Article 1 of Annex 2 applies).  Part Four of Annex 4 sets them out.  The key point is that Annex 8 to the Protocol – which, as I have said, consists of all EU State aid law – applies to the United Kingdom: Article 7(1).

But two features of this “GB regime” stand out and distinguish it from the “Northern Ireland regime” described above.

First, there is a general carve out for all UK agricultural support up to a maximum to be set by EU/UK agreement through the Joint Committee – Articles 7(2) and 8.  Failing agreement, however, the carve-out is to be suspended (Article 8, last paragraph), which would appear to put the UK in a less than powerful negotiating position.

Second, and of more general interest, the powers of the Commission are to be exercised by the UK independent authority set out in Article 9 – which will be the Competition and Markets Authority (CMA).

Article 9 of Annex 4 then sets out what powers the CMA is to have.  It is to be operationally independent and to have guarantees of independence.  More startlingly, it is to have “powers and functions equivalent to those of the [Commission] acting under [EU State aid law]”.  And its decisions are to produce in the UK “the same legal effects as those which comparable decisions of the [Commission] acting under [EU] State aid law … produce within the [EU] and its Member States.”

This is strong stuff.  The Commission has powers to declare Acts of Parliament that confer State aid to be unlawful: and where that happens, they are of no effect.  The CMA is, it appears, to have equivalent powers with the same legal effects.  That would appear to give the CMA, which performs its functions on behalf of the Crown, the power to declare an Act of Parliament to be unlawful as inconsistent with the State aid rules set out in Article 8.  This is, to put it mildly, a considerable constitutional innovation: a critic might go so far as to say that the CMA is to have the power to declare Acts of Parliament to be of no effect that it took a revolution and a Dutch invasion to remove from the hands of the Stuart Kings.  On the other hand, of course, the Commission has (since 1973) had these powers as part of the UK’s membership of the EU: and these provisions could be seen as simply “bringing home” those powers.

Article 11 requires the UK Courts to enforce the standstill provisions in Article 108(3) TFEU, to review the CMA’s decisions, to enforce those decisions and penalise non-compliance, and to award damages for breach of Article 108(3).

The CMA is, however, not left to “get on with it” subject to the scrutiny of the UK courts.  Article 10 requires it to liaise closely with the Commission: and it is required to send the Commission drafts of all decisions, and then take “utmost account” of the Commission’s opinion (which is to be given three months to opine, which will have the effect of slowing down State aid approvals during the backstop period).  Finally, under Articles 13 and 14, the EU is to have power to take “appropriate remedial measures” if it considers that the UK’s application of the GB State aid regime “threatens to seriously undermine the conditions of competition between [the UK and the EU]”.  The Commission will therefore retain significant powers to step in if it feels that the CMA is being insufficiently robust in preventing unacceptable State aid.

The backstop provisions are in many ways startling: but of course it is hoped that they will never be needed because the final relationship will resolve the Irish border problem.  So we should look at what the final relationship has to say about State aid.

Final relationship

Paragraph 79 of the political declaration says: –

The future relationship must ensure open and fair competition. Provisions to ensure this should cover state aid, competition, … and relevant tax matters, building on the level playing field arrangements provided for in the Withdrawal Agreement and commensurate with the overall economic relationship. The Parties should consider the precise nature of commitments in relevant areas, having regard to the scope and depth of the future relationship. These commitments should combine appropriate and relevant Union and international standards, adequate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement as part of the future relationship.

This is not particularly enlightening.  However, the reference to “building on the level playing field arrangements provided for in the Withdrawal Agreement” does seem to indicate that the backstop model may serve as a starting point for discussion of the State aid provisions of the future relationship, though plenty of room is left for a looser relationship (as would seem appropriate if the future relationship excludes a customs union and is a form of “Canada plus”).

Conclusion

 At the time of writing, predicting the fate of the withdrawal agreement is similar to predicting the fate of a small sailing ship about to be hit by a hurricane: its survival looks open to serious doubt, but is by no means out of the question.  Possible alternative outcomes appear to include a referendum including an option to remain in the EU, application to join EFTA/EEA, or “no deal”.  What does, however, seems to be tolerably clear is that the State aid rules will, in one form or another, continue to apply to the UK.