Part VII - Goods, Customs and the Single Market in the Protocol

17 The Irish Sea Customs Border

Anna Jerzewska

17.1 Introduction

This chapter provides an overview of how the Irish Sea customs border established under the Protocol functions in practice and what impact this new border has on companies trading between Great Britain (GB) and Northern Ireland.¹ Given the ‘unique circumstances on the island of Ireland’,² the border dividing Ireland and the UK was always going to be unlike any other border. The Irish Sea border, established under the Protocol, is a result of an imperfect compromise – an attempt to consolidate a range of requirements which, to a large extent, were contradictory.

17.2 Dilemmas

The need to respect the 1998 Agreement meant that introduction of a hard border with infrastructure and border checks between Northern Ireland and Ireland was impossible. The border needed to be as invisible and frictionless as possible. While various proposals were being put forward, in 2019 the Alternative Arrangements Commission³ was charged by the UK government with exploring the moving of border formalities away from the border. Unsurprisingly, the proposed solutions proved to be insufficient. At the end of the day, borders introduce friction, formalities and infrastructure. This is required in order for them to be able to fulfil their function. And, in this case, the new customs border was going to be the EU’s and the UK’s external border.

For the EU, one of the priority was protecting the EU’s internal market, ensuring that the goods entering Ireland are subject to the same rules and procedures as goods entering via any other EU border – and that meant controls. At the same time, from the UK’s perspective, there was a requirement to ensure that Northern Ireland will remain an integral part of the UK’s territory. One of the key points for the UK was the need to protect its internal market, and the integrity of its customs territory, by ensuring unfettered access from Northern Ireland to GB.

It was also clear that the ‘hardness’ of the new border would depend on the type of the future relationship between the UK and the EU. In the simplest terms, the harder the Brexit option, the harder the border would have to be. The Political Declaration published in October 2019 together with the Withdrawal Agreement (WA) confirmed what was becoming increasingly evident – that the UK would seek to sign a free trade agreement with the EU. It then became clear that, wherever the border was situated, certain formalities and processes would need to be put in place on that border. With all the above points in mind, it was going to be a highly bespoke border – there were no off-the-shelf solutions as borders like this simply do not exist.

17.3 The Protocol’s Approach

On the surface, the Protocol managed to square the circle. It introduced a border between Northern Ireland and GB, going down the Irish Sea. As described in earlier chapters, Northern Ireland stayed in the UK’s customs territory but continued applying the EU’s customs legislation as well as the EU’s Common External Tariff for goods entering Northern Ireland, unless they are for use and consumption there. It allowed Northern Ireland to remain an integral part of the UK’s customs territory and provided unfettered access for goods from Northern Ireland to GB. It also protected the EU’s internal market by introducing customs formalities for goods entering Northern Ireland. In brief, it introduced a hybrid solution that at first glance managed to square the circle.

However, that perception was possible only because the Protocol provided a high-level legal framework for the solutions and left out the practical aspects of implementation and technical details. Crucial decisions that were bound to be technically challenging and politically sensitive were delegated to the newly formed Joint Committee (JC)⁴ and postponed to a later point in time. Key aspects of customs arrangements were to be decided by the JC and, in certain areas, were also to be determined by the UK government. This had significant implications for the ability of UK and Northern Irish stakeholders to prepare for the upcoming changes: despite the fact that the text of the Protocol was published, many crucial points around the operation of the new border remained unknown until late 2020.

Practical implementation aside, the Protocol created an unprecedented outcome. As discussed in earlier chapters, it created a situation where different customs and regulatory principles were to govern two parts of, at least de jure, the same customs territory: Northern Ireland and GB. It created a situation where there is a de facto customs and regulatory border going through the territory of the UK’s customs territory. What is in place is a most unusual, asymmetric and one-sided border: asymmetric as it does not work the same way for movements in both directions; and one-sided as the customs formalities are applied on only one side of the border.

17.4 Movements from Northern Ireland to GB: Unfettered Access

According to Protocol Article 6(1), ‘nothing in this Protocol shall prevent the United Kingdom from ensuring unfettered market access for goods moving from Northern Ireland to other parts of the United Kingdom’. Goods from Northern Ireland are able to enter GB without any customs or border formalities. Only a small number of controlled goods is subject to formalities when entering GB from Northern Ireland.⁵

On the one hand, the unfettered access for goods from Northern Ireland was necessary if Northern Ireland was to stay part of the UK’s customs territory. Protocol Article 6(4) states: ‘Nothing in this Protocol shall affect the law of the United Kingdom regulating the placing on the market in other parts of the United Kingdom of goods from Northern Ireland that comply with or benefit from technical regulations, assessments, registrations, certificates, approvals or authorizations governed by provisions of Union law referred to in Annex 2 to this Protocol.’

On the other hand, goods to be placed on the market in Northern Ireland need to comply with EU regulation, while goods produced in the rest of the UK do not. If, at some point, the two sets of rules were to diverge substantially, this could pose a problem. Goods produced in Northern Ireland according to the EU’s regulations would still have unfettered access to the UK market. Would the same be the case for goods produced under the same rules in other parts of the EU? It would be difficult for the UK to argue that goods produced in the EU would need to meet UK rules to enter the UK’s market, while Northern Ireland goods would not have to meet these conditions. At the same time, Northern Ireland products can benefit from UK trade agreements with other third countries while (at least in principle) they are not eligible for preferential treatment under the EU deals.

Unfettered access to GB raises further questions. For example, what constitutes a Northern Ireland product and, more importantly, how can we verify it as such? Article 6(2) states that the Protocol aims to facilitate trade between Northern Ireland and GB ‘in accordance with applicable legislation and taking into account their respective regulatory regimes as well as the implementation thereof’. The JC is responsible for reviewing this part and ensuring that controls at the ports and airports of Northern Ireland are kept to a minimum.

According to the government’s guidance, unfettered access is granted to qualifying Northern Ireland goods.⁶ Goods arriving in Northern Ireland from the rest of the EU do not qualify for unfettered access ‘if they are moved through Northern Ireland into Great Britain for an avoidance purpose’. However, there is no mechanism to verify or enforce these rules. The guidance mentions that a long-term regime qualifying which businesses can be considered established in Northern Ireland will be determined in 2021. In June 2021, this was still to be published ‘in due course’.

In practice, with a lack of formalities and controls for goods entering GB from Northern Ireland, the issue of trans-shipment from the EU is a considerable risk, especially in cases where there is an incentive resulting from a difference in applied trade policy measures such as customs duties or anti-dumping duties. It is likely that, in addition to the new long-term qualifying regime, some form of control of which goods have unfettered access to GB from Northern Ireland will need to be introduced.

17.5 Movements from GB to Northern Ireland: Tariffs or No Tariffs?

Given that the EU’s customs legislation, the Union Customs Code (UCC), applies to Northern Ireland, goods entering Northern Ireland are, as a result, subject to certain customs and border formalities.⁷ However, the formalities have only been introduced on the side of the border that is governed by the UCC. Normally, when a good is traded internationally, there are export formalities and import formalities. An export declaration needs to be submitted to export a product from one territory and an import declaration to import it into another.

This is not the case when it comes to the Irish Sea border. Goods are not ‘exported’ from GB. After all, at least on paper, it is the same customs territory. They are, however, ‘imported’ into Northern Ireland as required by the UCC. What this means in practice is that traders importing into Northern Ireland are required to submit customs paperwork and comply with border procedures. This includes a pre-notification and a customs declaration together with any other documents and formalities that may be necessary for their particular product (eg, health certificates for goods subject to SPS controls). GB traders exporting goods to Northern Ireland are not required to submit an export declaration or to complete other formalities.

This creates a new administrative burden for Northern Ireland traders which will be explored further in the later part of this chapter. But what about tariffs? If the goods enter Northern Ireland, formally a part of the UK’s customs territory, are they subject to the EU’s Common External Tariff? Protocol Article 5(2) states: ‘No customs duties shall be payable for a good brought into Northern Ireland from another part of the United Kingdom by direct transport, notwithstanding paragraph 3, unless that good is at risk of subsequently being moved into the Union, whether by itself or forming part of another good following processing.’ In this, slightly confusing, way, the idea of goods ‘at risk’ has been introduced. Goods entering Northern Ireland are not subject to customs duties unless they are considered at risk of entering the EU market via Northern Ireland and Ireland. Protocol Article 5(2) makes it clear that goods will be considered at risk unless:

1. (i) they are not subject to further commercial processing in Northern Ireland (which indicates that goods subject to commercial processing would automatically be considered at risk), or

2. (ii) they fulfil criteria that were to be determined by the Joint Committee.

Determining the criteria for goods at risk was one of the crucial decisions that were delegated to the JC. It was also one of the elements of the Protocol that was likely to significantly impact Northern Ireland’s traders. This was perhaps the most technically difficult and at the same time the most crucial part of the implementation of the Protocol. It required the final destination of the product to be determined and declared at the time of import into Northern Ireland, which is far from the usual practice. Normally, it is the origin of the product, where it was made and processed, that is declared to customs. With the exception of certain special customs procedures that suspend customs duties, the destination of the product, once it has been imported, is of little relevance to customs authorities.

Another issue is that the final destination of products cannot be verified at the time of import. What guarantee do the customs authorities have that the product will end up in the market declared at the time of importation of the goods into Northern Ireland? What if the Northern Ireland importer was to sell the product to another local company who then decided to sell it to a company in Ireland? Can Northern Ireland importers guarantee that their products are not at risk of entering Ireland and thus the EU market?

Working out how to determine goods ‘at risk’ required an innovative approach. As described in the author’s UK Trade Policy Observatory (UKTPO) blog, there was a delicate balance to be struck between actually being able to track the goods entering the EU market and limiting the amount of additional administrative burden for businesses.⁸ The author proposed three ways of determining the final destination of the products at the time of import with a varying degree of burden for the private sector:

1. (i) by tariff line, which would entail an in-depth analysis of existing trade flows, in order to assess which goods are likely to enter the EU market, although, in the absence of available trade data on tariff line level, such analysis would be difficult to conduct;

2. (ii) by product or shipment, which would entail the importer having to submit a declaration regarding the final destination, at the time of import, similar to the current origin statement, and would require appropriate controls to be introduced to reduce any incentives to transgress; or

3. (iii) by company, which would require authorized companies to provide documentary evidence post-importation to demonstrate where the goods ended up, although, while feasible in principle, this would be more difficult for smaller companies because of the additional costs and complexities that it would involve.

The JC’s decision did not embrace any of these options entirely; rather, it used a hybrid approach. The decision of the JC on determining goods at risk was published on 17 December 2020, less than two weeks before the Irish Sea border was brought into effect.⁹ Article 2 of the Decision specified that goods would not be considered subject to commercial processing, and as such considered at risk, if the importer had an annual turnover of less than £500,000 or if the processing in Northern Ireland was for the purpose of:

1. (i) the sale of food to an end-consumer in the UK;

2. (ii) construction, where the processed goods form a permanent part of a structure that is constructed and located in Northern Ireland by the importer;

3. (iii) direct provision to the recipient of health or care services by the importer in Northern Ireland;

4. (iv) not-for-profit activities in Northern Ireland, where there is no subsequent sale of the processed good by the importer; or

5. (v) the final use of animal feed on premises located in Northern Ireland by the importer.

Article 3 further clarified that the goods would also not be considered at risk if the ‘duty payable according to the Union Common Customs Tariff is equal to zero’, or when the importer has been authorized to bring goods into Northern Ireland for sale to or final use by end-consumers in Northern Ireland. Such authorizations would be granted by the UK government.¹⁰

Returning to the earlier question, how would a Northern Ireland importer know whether their goods were subject to tariffs? The Decision of the JC was subsequently supplemented by guidance from the UK government which attempted to simplify the above conditions. It explained that goods would not be subject to tariffs based either (i) on the applicable duties or (ii) on whether the trader was authorized. Goods would not be considered ‘at risk’ based on applicable duties when the applicable EU duty was zero (including under the Trade and Cooperation Agreement (TCA)) and, if the goods were going to be further processed, provided they met additional requirements listed in the guidance.¹¹ On 15 December 2020, the UK government announced the UK Trader Scheme – a scheme for qualifying businesses to self-declare that their goods entering Northern Ireland were to remain in Northern Ireland.¹²

With only two weeks left before the Irish Sea border became operational, companies were given little time to understand what qualifying means and whether or not their products would meet the ‘not at risk’ criteria. Given the lack of sufficient time to even process the applications, companies were asked to self-certify and were given provisional authorizations until their applications could be reviewed. Companies were asked to ensure that they were eligible and had sufficient evidence to provide in the short amount of time available and without much support.

Finally, if goods do not meet any of these criteria and are still considered ‘at risk’, the Protocol provides one more option. Article 5(6) specifies that the UK may reimburse or waive the duties or ‘compensate undertakings to offset the impact’ (provided this is in accordance with the EU’s state aid rules). Towards the end of December 2020, the UK government provided the first details of this wavier scheme. Companies may claim reimbursement or waiver of duties up to a maximum of €200,000 of aid over three tax years.¹³ In order to take advantage of this option, companies are required to declare it on a customs declaration at the time of import and to submit additional paperwork. At the time of writing, it is possible to apply for the waiver only at the time of import (with retrospective claims potentially being possible at a later date). It is also currently not possible to claim duties on goods entering Northern Ireland from countries outside the UK and the EU or when a business is involved in the production of agricultural products or fishery and aquaculture.

If all of the above sounds confusing, that is because it is. What did not help was the fact that the guidance provided to simplify the legal language of the Protocol and the JC’s Decision was often written in a way that was difficult for traders to follow. For example: ‘Goods which are subject to commercial processing, where the additional requirements to declare these goods “not at risk” are not met, cannot be declared “not at risk”, and are therefore automatically “at risk”.’¹⁴ The reason behind this confusion, uncertainty and opacity seems clear: the decisions necessary to implement the Protocol were made at the very last minute. As a result, the interpretation and the guidance supporting these decisions were produced and published weeks, and sometimes only days, before the Irish Sea border was implemented. A particular piece of guidance relating to the Irish Sea border was published on 31 December 2020.¹⁵

The guidance felt rushed and unclear. Traders were given less than two weeks to familiarize themselves and adapt to new rules over the December holiday period and with only a few working days left before the end of the year. Some of the schemes and guidance documents were not available until well into 2021. At the beginning of June 2021, some elements of the guidance were still awaited.¹⁶ All this demonstrates how last-minute the delivery of this border was. In addition, the new guidance regarding the Irish Sea border was made available at the same time as the text of the TCA between the EU and the UK was published. It was difficult enough for experienced customs practitioners to keep on top of the newly published texts and guidance in the second half of December, let alone for smaller Northern Ireland companies with little or no experience in customs and international trade.

17.6 Impact on Traders

The challenges and the uncertainty faced by traders in Northern Ireland in the months around the end of the transition period were unparalleled. It was impossible for any company to be fully ready for January 2021 as rules and procedures were being worked out as days progressed, with every new import and every new issue.

But, apart from tariffs, why was adjusting to the new rules so challenging? Just how much of an inconvenience are the new customs border formalities? And, more importantly, were the difficulties and the additional burden only temporary or were these issues that traders in Northern Ireland would have to deal with well into the future?

While often referred to as ‘just a form’, customs and border formalities have significantly changed how companies trade. In the first instance, a pre-notification needs to be submitted when goods are imported into Northern Ireland. In response to increasing concerns regarding the threat of terrorism and the safety of international supply chains, many territories introduced a requirement for a safety and security pre-notification. While these forms are submitted electronically and by carriers and other logistics providers, traders are asked to provide information required for the form in advance of importation.

Traders themselves are responsible for declaring imports to customs authorities. This is done by submitting a customs declaration. A customs declaration is a way for customs authorities to collect a range of information about the traded product and the companies involved in the process. This information is used for a number of purposes including calculating tariffs, determining whether goods can benefit from reduced tariffs under a trade deal, calculating import value added tax (VAT) and applying a range of other trade policy measures. It is also used for compliance monitoring purposes.

In the majority of cases, companies do not submit customs declarations themselves. A third-party provider, such as a customs broker, shipping agent or freight forwarder, submits the declaration and liaises with customs authorities on the company’s behalf. Companies importing into Northern Ireland also have an option to use the free, government-sponsored Trader Support Service (TSS). Yet, even then, it is the company that needs to provide customs data that is submitted via a customs declaration and, more importantly, it is the company that is legally liable for the correctness of this data.

Providing and collecting customs data is the most time-consuming part of the customs process for most companies. According to the United Nations Conference on Trade and Development (UNCTAD), an average cross-border transaction involves up to 30 different parties and around 40 documents with about 200 data elements, most of which need to be re-entered into several systems.¹⁷ These figures cover other types of documentation necessary for trading goods internationally, not only customs, for example financial documentation that would enable the company to provide a financial guarantee for customs debt. However, a customs declaration itself has more than fifty data fields. Some of the data elements seem relatively straightforward, for example information about the importer or exporter. However, even such information has clear legal implications – who is liable for any debt? Furthermore, some data elements require an understanding of complex customs rules.

All products on the customs declaration need to be allocated a correct Harmonized System (HS) commodity code.¹⁸ Customs value needs to be established. This is done in accordance with strict international customs rules. Declaring goods under an incorrect commodity code or customs value might lead to an incorrect amount of duty and import VAT being collected. This might, in turn, lead to non-compliance, penalties and audits. The origin of goods needs to be determined. All this data needs to be collected, verified and entered into different systems.

A common belief is that each company has all the information necessary to complete a customs declaration easily available. This is not necessarily the case. Unless a company is importing or exporting, it would not have gone through the lengthy and difficult process of classifying its products. Furthermore, the information needed to classify, determine the value and origin of goods is often not held in the same place within the company. While this sounds simple to address, it often is not. Many companies, even larger and experienced importers and exporters, spend a considerable amount of time collecting, analysing, preparing and maintaining customs data. While there are many customs IT solutions on the market, their uptake is not very widespread; in many companies, classification and origin calculations, for example, are still done manually.

Providing customs data to the authorities, or even to a customs broker, requires ongoing work. The team needs to monitor and update the data on a continuing, or at least periodic, basis. The UK’s HM Revenue and Customs (HMRC) has assessed the amount of time required to prepare a customs declaration.¹⁹ For high-volume traders submitting their own declarations, HMRC’s research suggests that one hour, forty-five minutes is needed per declaration.²⁰ For high-volume traders using a customs broker to submit declarations, HMRC has estimated that one hour is necessary per declaration in order to prepare the needed information. This all requires additional resources, additional time and effort – and, as a result, ends up being an additional burden and cost for Northern Ireland companies that import goods from what is technically part of the same customs territory. If the Northern Ireland importer is not using the TSS service, there is also an additional cost: customs brokers charge fees for submitting import declarations on behalf of their customers.

17.7 Conclusion

The new Irish Sea border represents a profound shift in the way in which trade between GB and Northern Ireland is done. What, until January 2021, was an internal movement of goods subsequently became an actual import. The impact this will have on the volume and nature of trade between Northern Ireland and the rest of the UK, as well as on the existing supply chains, remains to be seen. In July 2021, the UK government proposed a radical renegotiation of the Protocol which, if accepted, would have resulted in many of the fundamental elements of the Protocol discussed in this chapter being changed. However, the UK’s proposals in this respect were immediately rejected by the Commission.²¹

18 Competition

Vincent JG Power SC

18.1 Introduction

The Withdrawal Agreement (WA) provided that EU competition law would continue to apply to Northern Ireland (as well as the rest of the UK) during the transition period (ie, up to and including 31 December 2020).¹ The WA (including the Protocol) was otherwise silent as to how competition law would apply in Northern Ireland (as well as the rest of the UK) in the longer term after the transition period specified in the WA had ended (what might be termed ‘full Brexit’). This was in contrast with state aid law where the Protocol legislated for the continued application post-full Brexit of EU state aid rules to the extent that trade in Northern Ireland was affected by the Protocol² after the transition period ended or, more accurately, as long as the Protocol was applicable and contained the provision on state aid.³ It was not until the Trade and Cooperation Agreement (TCA) that the EU and the UK agreed on how competition law would apply to both the EU and the UK (including Northern Ireland) post-full Brexit. This chapter examines how the TCA provides for competition law to apply and operate in this new era. It begins with an overview and then discusses various aspects of the topic including, in particular, how competition law is different in Northern Ireland after the WA and the TCA.

18.2 The TCA and Competition Law Generally

There is hardly a mention of competition in the WA;⁴ there are no substantive competition law provisions in the WA, and there is no mention at all of ‘competition’ in the Protocol. Surprisingly, perhaps, competition did not even get a mention in the ‘other areas of North–South cooperation’ enumerated in Protocol Article 11, while a topic such as ‘sport’ is included.

In contrast to the WA, the TCA has several references to competition. However, despite these mentions, the five articles in the TCA dealing specifically with competition are less radical than the thirteen articles dealing with ‘state aid’ law or, as the TCA characterizes it, ‘subsidy control’ law.⁵ These thirteen articles, though applicable to both parties, in effect require the UK to set up a new aid/subsidy regime, while the articles dealing with competition law largely reflect the pre-existing competition regimes at the EU and Northern Ireland/UK levels. There will therefore be less impact for Northern Ireland in terms of competition law than in terms of state aid/subsidy law. This is because it is still UK competition law (albeit influenced by the TCA) which applies in Northern Ireland⁶ but, by contrast, there is the possibility of two state aid/subsidy regimes in Northern Ireland comprising: (a) the EU state aid law regime (ie, an external legal regime) to Northern Ireland (due to the Protocol); and (b) a new set of rules on subsidy control (due to the TCA). While not as radical or as significant as the area of state aid/subsidy, there are some significant provisions relating to competition in Title XI of the TCA,⁷ which deals with, among other matters,⁸ the key rules relating to competition (in addition to subsidy control).

Before turning to Title XI, it is useful to recall two recitals to the TCA which are relevant to the debate on competition. The ninth recital recognizes that there is a need for ‘an ambitious, wide-ranging and balanced economic partnership to be underpinned by a level playing field for open and fair competition and sustainable development, through effective and robust frameworks for subsidies and competition and a commitment to uphold their respective high levels of protection in the areas of labour and social standards, environment, the fight against climate change, and taxation’. This therefore positions ‘competition’ with a range of unusual bed-fellows (labour and social standards, environment, as well as the fight against climate change) while traditionally in EU law, competition has been seen either in splendid isolation or in conjunction with state aid, taxation or perhaps intellectual property. The sixteenth recital to the TCA is specific. It notes that ‘cooperation and trade between the Parties in these areas should be based on fair competition in energy markets and non-discriminatory access to networks’.⁹

18.3 TCA Title XI: The ‘Level Playing Field’

Apart from those somewhat hortatory and political recitals, there is more substance in Title XI of Heading One of Part 2 of the TCA. Title XI is entitled ‘Level Playing Field for Open and Fair Competition and Sustainable Development’. This title immediately demonstrates how the traditionally pure topic of ‘competition’ has been mixed in with ‘sustainable development’. The title also demonstrates how the word ‘fair’ has been added to ‘competition’ despite EU competition law being traditionally more interested in ‘free’ competition rather than ‘fair’ competition.¹⁰

18.3.1 Competition and the ‘Level Playing Field’

Chapter 1 of the Title provides that the EU and the UK recognize that trade and investment between the EU and the UK under the TCA require conditions that ensure (a) a level playing field for open and fair competition between the parties, with the need for ‘fair’ competition becoming all the greater as divergence occurs; and (b) that trade and investment take place in a manner conducive to sustainable development.¹¹ The parties ‘affirm their common understanding that their economic relationship can only deliver benefits in a mutually satisfactory way if the commitments relating to a level playing field for open and fair competition stand the test of time, by preventing distortions of trade or investment, and by contributing to sustainable development’.¹² This mention of ‘sustainable development’ is historically unusual in the context of competition.¹³ It becomes even more unusual by virtue of the fact that each party reaffirms, in the same context of provisions relating to competition, its ambition of achieving economy-wide climate neutrality by 2050.¹⁴ The Title is, therefore, positioning competition in a far wider arena than it has ever appeared in the EU treaties. There are also references in the Title to concepts such as the environment,¹⁵ human health¹⁶ and labour conditions.¹⁷ How competition interacts with those other concepts when these provisions of the TCA are interpreted is unclear.

Significantly, the parties have decided that the purpose of Title XI is not to harmonize the standards of the EU and the UK: ‘the Parties recognise that the purpose of [the] Title is not to harmonise the standards of the Parties. The Parties are determined to maintain and improve their respective high standards in the areas covered by [the] Title.’¹⁸ This will mean that the historical convergence of competition law between the UK and Ireland brought about in the context of a shared membership of the EU over the last five decades will be replaced by divergence. Indeed, there is a built-in mechanism for divergence¹⁹ and this divergence could manifest at both EU and UK levels (eg, the Digital Markets Act and the Penrose Report/‘Hipster’ competition, respectively).

18.3.2 Competition Policy

Chapter 2 of Title XI, entitled ‘Competition Policy’, is more familiar territory to competition lawyers. The parties recognize the importance of free and undistorted competition in their trade and investment relations and acknowledge that anti-competitive business practices can distort the proper functioning of markets and undermine the benefits of trade liberalization.²⁰ To implement these principles, the parties each agree to ‘maintain’ a competition law regime which ‘effectively addresses’ the three main forms of anti-competitive behaviour: (a) anti-competitive arrangements between ‘economic actors’, decisions by associations of ‘economic actors’ and concerted practices which have as their object or effect the prevention, restriction or distortion of competition; (b) abuse by one or more ‘economic actors’ of a dominant position; and (c) for the UK, mergers or acquisitions and, for the EU, concentrations, between ‘economic actors’ which have ‘significant anticompetitive effects’.

One cannot help but think that many of these provisions in Chapter 2 are ‘old wine in new bottles’, designed to give the impression that the UK negotiators had broken free from the EU terminology and rulebook. An ‘undertaking’ in Northern Ireland, for the purposes of EU or UK competition law, will now be called, for the purposes of the TCA, an ‘economic actor’. The concept of ‘significant anticompetitive effects’, in the context of mergers, acquisitions and concentrations in Northern Ireland, is probably not much different from ‘substantial lessening of competition’ for UK competition law purposes or ‘significant impediment to effective competition’ for EU competition law purposes. These are very largely the same concepts but with new names.

The ultimate impact for Northern Ireland of Chapter 2 of the Title is that the UK must maintain in Northern Ireland (and in the rest of the UK) an effective competition law regime which addresses the three main issues of competition law (ie, anti-competitive arrangements, abuse of dominance and mergers/acquisitions/concentrations). The regime will apply irrespective of the nationality or ownership status of the economic actors involved.²¹ Of course, while the UK will address the three main issues of competition law, it does not have to address them in exactly the same way as the EU does.

18.3.3 Electricity and Gas

It is well known that, by virtue of Article 9 of the Protocol, certain provisions of the EU law relating to wholesale electricity markets²² apply to (and in) the UK in respect of Northern Ireland. There are also provisions in the TCA relating to competition in the electricity and gas markets.²³ These are specialist provisions, but some of the key principles are that: (a) with the objective of ensuring fair competition, each party must ensure that its regulatory framework for the production, generation, transmission, distribution or supply of electricity or natural gas is non-discriminatory with regard to rules, fees and treatment;²⁴ (b) each party must ensure that customers are free to choose, or switch to, the electricity or natural gas supplier of their choice within their respective retail markets in accordance with the applicable laws and regulations;²⁵ and (c) each party has the right to regulate in order to achieve legitimate public policy goals based on objective and non-discriminatory criteria.²⁶ There are also specialist provisions on the wholesale electricity and gas markets²⁷ (including rules on market abuse in those markets²⁸). The wholesale electricity provisions in the TCA should be read in conjunction with Article 9 of the Protocol, which deals with the ‘Single Electricity Market’ on the island of Ireland.

18.3.4 State-Owned Enterprises, Enterprises Granted Special Rights or Privileges and Designated Monopolies

Chapter 4 of Title XI deals with state-owned enterprises, enterprises granted special rights or privileges and designated monopolies. The chapter applies to many (but not all²⁹) so-called covered entities,³⁰ at all levels of government, engaged in commercial activities, but if a covered entity engages in both commercial and non-commercial activities, only the commercial activities are covered by the chapter. In essence, the chapter involves its own rules and the invocation of arrangements adopted by the Organisation for Economic Co-operation and Development (OECD).³¹ Moreover, the chapter has some provisions which are pertinent in the context of competition, notably Article 380, which provides for non-discriminatory treatment by the parties of covered entities and that such covered entities would ordinarily act in accordance with commercial considerations. Ultimately, the provisions are somewhat sparse and general; it is possible (but not inevitable) that they could be augmented in subsequent supplemental agreements.

18.4 Institutional Dimensions

18.4.1 Level Playing Field Committee

There exists a ‘Trade Specialised Committee on Level Playing Field for Open and Fair Competition and Sustainable Development’ to address the matters in Title XI of Heading One of Part 2 and Annex 27.³² However, there is no overarching competition agency applying to the EU and the UK (including Northern Ireland). Instead, and not surprisingly, each of the parties will continue to have its own institutional machinery relating to competition.

18.4.2 Enforcement and Co-operation on Competition Issues

At one level, there ought to be no difference in the enforcement of competition law in that there must be enforcement³³ with an operationally independent authority (or authorities) competent to enforce effectively competition law³⁴ in a transparent and non-discriminatory manner, respecting the principles of procedural fairness (including the rights of defence) irrespective of the nationality or ownership status of those subject to competition law.³⁵

The EU and the UK have agreed in the TCA that there will be co-operation between them in the field of competition law.³⁶ The parties are committed to co-operation between their respective competition authorities with regard to developments in competition policy and enforcement activities.³⁷ Both sides have agreed to endeavour to co-operate and co-ordinate, with respect to their enforcement activities concerning the same or related conduct or transactions, where doing so is possible and appropriate.³⁸ The European Commission and the competition authorities of the member states, on the one side, and the UK’s competition authority or authorities (including those relating to Northern Ireland), on the other side, may exchange information to the extent permitted by each party’s law.³⁹ To implement this objective of co-operation, the EU and the UK may (but do not have to) enter into a separate agreement on co-operation and co-ordination among the European Commission, the competition authorities of the member states and the UK’s competition authority or authorities, which may include conditions for the exchange and use of confidential information.

The TCA’s provisions on co-operation on competition are both soft and limited. There are already indications that the UK’s Competition and Markets Authority (CMA) will flex its muscles more post-full Brexit both nationally and internationally,⁴⁰ so this could be important in the context of Northern Ireland. It would be useful if there were greater co-operation among the EU, Ireland and the UK relating to competition in Northern Ireland, so one hopes that such co-operation agreements will be adopted both quickly and thoroughly.

18.4.3 Democratic Consent Mechanism

Were the democratic consent process in Article 18 of the Protocol to result in Article 10 of the Protocol ceasing to apply in Northern Ireland, then one would have a situation where the competition law provisions of the TCA would continue to apply but the rules in the TCA on state subsidies would have even greater force and relevance for Northern Ireland because the EU state aid rules would no longer apply. This would mean that the TCA would have much greater significance as far as concerns competition in Northern Ireland.

18.5 What Will Be Different?

It is trite but true that competition law in Northern Ireland post-full Brexit will not be the same as before, despite the WA and the TCA. While there will be (at least for some time) a degree of continuity in terms of EU state aid law,⁴¹ this will not necessarily be such when it comes to competition law in terms of the rules and/or the results of proceedings. While the TCA provides that the UK will have competition laws relating to anti-competitive arrangements, abuse of dominance and mergers or acquisitions, this does not mean that the rules themselves will be the same in Northern Ireland as in Ireland or any other EU member state.

The TCA obliges the parties to have effective competition laws, but it does not oblige the parties to have the same rules or outcomes. It is quite possible that the UK will adopt some policies and preferences (eg, protection of small businesses, promotion of innovation, promotion of UK industry and protection of certain interests) which will change the nature of competition law in Northern Ireland leading to further divergence between competition law in Northern Ireland and that in the EU. The TCA expressly allows some of that to occur.

Divergence between Northern Ireland and the EU (including its member states) is likely to increase rather than diminish. There will be certain policies (eg, the ‘internal or single market imperative’ which is important in EU competition law) that now have little or no relevance for Northern Ireland and the courts or competition agencies there.⁴² In so far as there is a gradual ongoing convergence of the substantive and procedural rules on competition law across the EU, the UK (including Northern Ireland) is now no longer part of that process. This means that compliance costs for undertakings (or economic actors) and associations of undertakings (or economic actors) will grow over time as they will have to comply with two different competition regimes which will no longer be in such close harmony – this could manifest itself in additional investigations at the UK level alongside the EU ones. Parallel investigations could lead to parallel appeals with different timetables, standards, approaches and outcomes.

Important adaptations in EU competition law (eg, the Modernisation Regulation,⁴³ the Damages Directive⁴⁴ and the ECN+ Directive⁴⁵) will all be largely irrelevant to the internal competition law of Northern Ireland. It will therefore become less easy, for example, to claim damages in the courts in Northern Ireland for breaches of EU competition law – but damages for breach of UK competition law remain available. Although the EU Merger Regulation (EUMR)⁴⁶ was never of enormous practical significance in Northern Ireland, there is now even less chance that Northern Irish businesses will benefit from the ‘one-stop shop’ under the EUMR whereby the European Commission (rather than the EU member state competition agencies) adjudicates on concentration control.⁴⁷

Cross-border investigations will be more complicated because the CMA in Northern Ireland will no longer be as closely aligned with the Competition and Consumer Protection Commission (CCPC) in Ireland or the European Commission at the EU level. While the CMA, the CCPC and the European Commission will continue to meet and interact through the wider International Competition Network (ICN), they will no longer all be part of the tighter European Competition Network (ECN). One particular feature of EU cross-border investigations – the Article 22 investigation – has disappeared. Article 22 of the Modernisation Regulation⁴⁸ provides for investigations to be undertaken by one EU member state’s national competition agency on behalf of, and in conjunction with, a counterparty agency in another EU member state. Such a facility is no longer ordinarily possible in regard to Northern Ireland.

Given the introduction of new rules and new concepts in the TCA, there will also be more novel and preliminary issues (eg, the new concepts in the TCA) needing to be addressed in litigation than would be the case without these new rules and concepts. The settled law relating to the comparable EU rules and concepts may be a good authority, but each new rule and concept could well be tested in the courts, leading to more delays and costs for litigants. Article 4(1) of the TCA provides that the provisions of the Agreement and any supplementing agreement shall be interpreted in good faith in accordance with their ordinary meaning in their context and in light of the object and purpose of the agreement in accordance with customary rules of interpretation of public international law, including those codified in the 1969 Vienna Convention on the Law of Treaties.⁴⁹ This means that, in so far as the TCA applies to competition in Northern Ireland, there will be a difference in approach to the way in which the EU treaties are interpreted. Interpretation matters. Interpretation of the competition provisions of the TCA will no longer have the benefit of any of the usual EU influences, which could lead to different approaches and outcomes for competition laws as contemplated by the TCA and in EU or UK law.

In one important respect, however, EU competition law will continue to apply to Northern Ireland in the way in which it does today. EU competition law will apply to trade in goods or services in Northern Ireland in so far as there is an effect on trade between EU member states in the same way as EU competition law would apply to any ‘third country’. The fact that EU competition law could still apply to (mis)conduct in Northern Ireland, and that the European Commission is able to impose fines on undertakings and associations of undertakings for breaching EU competition law, will probably come as a surprise to many in Northern Ireland. And when it applies, it will be more complex. While trade or commerce between Ireland and Northern Ireland might still trigger the application of EU competition law, for example, it will not do so as simply as it would have done before full Brexit.⁵⁰

The continuing application of EU competition law to the UK as a third country also adds yet further ‘red tape’ and complications to the plethora of new laws and regimes that now apply. Not only is the UK competition law regime applicable in Northern Ireland, but there is also EU competition law (in so far as it would apply to any third country), EU state aid law provided for in the Protocol, and now the competition and state subsidy regimes in the TCA. The TCA regimes are not independent or separate legal regimes; they are frameworks or rules by which the competition and state subsidy regimes in Northern Ireland must be designed and operated.

As a result, there will be plenty of opportunity for more complication, complexity, controversy and even, sadly, some confrontation (particularly concerning UK–EU trade). The relative absence of such disputes to date may not be an accurate basis for predicting the future. The frictions and fissures which are likely to occur could have been delayed because of the postponement of the entry into force of several trade and customs-related aspects of the Protocol, changed trading patterns by hauliers and the Covid-19 crisis. Even so, there are early indications that there is already friction due to (or, at least, blamed on) these arrangements.⁵¹

18.6 Conclusions

The WA and the Protocol are somewhat silent on the longer-term operation and application of competition law in Northern Ireland post-full Brexit – whether that be EU or UK competition law. This is in contrast with EU state aid law which the Protocol provides will apply in respect of measures which affect trade covered by the Protocol between the EU and the UK.

The case for legislating for state aid law to apply under the Protocol was strong because of the way in which Northern Ireland would have special advantages in terms of trade with the EU but still be part of the UK’s customs territory⁵² and the possible destabilizing effect of UK (or, indeed, EU member state) state aid on trade. However, one could see private (rather than state) breaches of competition law (whether relating to anti-competitive arrangements or abuse of dominance or both) having similar negative effects on trade. In practice, the negotiators of the Protocol probably feared the possibility of a damaging intervention in the marketplace by the UK in terms of state aid more than the intervention of undertakings and associations of undertakings; as a result, the Protocol addressed state aid but not competition law, except in the limited way discussed.

The broader issue of competition law needed to be addressed as part of the TCA. Undoubtedly, the TCA does this in a unique way. Traditionally, competition has been seen in EU law either in splendid isolation or in conjunction with state aid, taxation or perhaps intellectual property. The TCA, however, has positioned ‘competition’ within a range of unusual bed-fellows (including labour and social standards, the environment, and the fight against climate change). It will be interesting to see how the provisions in the TCA will eventually be interpreted in this context. Given the approach to the interpretation of the TCA⁵³ and the absence of the EU’s internal market imperative, it is possible that competition could be given a lesser role than has been the case in the past or in an EU context. Could, for example, the provisions on ‘competition’ be given less significance and importance than, say, ‘sustainable development’? The future of competition law in Northern Ireland is not only uncertain; it also looks to be very different. The historical convergence of competition law between Northern Ireland (and the rest of the UK) and the EU member states (including Ireland) brought about through shared EU membership will now be replaced by divergence to a greater or lesser extent.

19 State Aid

George Peretz QC

19.1 Introduction

The EU state aid rules date from the very earliest development of what was to become the European Union: predecessor provisions were to be found in the Treaty establishing the European Coal and Steel Community (1951),¹ and the provisions in the Treaty on the Functioning of the European Union (TFEU) are substantially unchanged from the Treaty of Rome (1957).² They have been regarded from the outset as foundational provisions: the fundamental aim of reducing barriers to trade between member states would produce politically unacceptable results if the reduction of barriers to trade exposed domestic producers in one state to the risk of being undercut by subsidized imports from another state. Since European states have tended to spend a relatively high proportion of national income, and to intervene relatively extensively in the economy, the risk of distortive subsidies of that kind has always been high.

The EU state aid rules have the following important features. The concept of ‘state aid’ is defined widely to include all forms of public financing, including reduced charges, guarantees or loans at favourable rates, tax waivers, many exemptions from tax as well as classic handouts of cash. The European Commission has wide powers to declare aid to be permitted (or ‘compatible with the internal market’) on broad public policy grounds set out in Article 107(2) and (3) TFEU. Critically, Article 108(3) TFEU prohibits member states from implementing any measure that amounts to state aid unless and until it has been notified to, and cleared by, the Commission: and aid implemented in breach of that rule is unlawful, with both the Commission and national courts having the power to order repayment of any such aid and (in the case of a national court) damages to third parties affected by the unlawful aid.

That structure gives the Commission a powerful role at the heart of the regime: it is the arbiter (subject only to judicial review by the EU courts) of what state aid is permissible. State aid not approved by it is unlawful, and it is able to order member states to recover unlawful aid, subject only to the possibility of judicial review by the General Court and the Court of Justice of the European Union (CJEU).

The severity of that regime is tempered by ‘block exemptions’ (regulations that define certain categories of aid that is automatically regarded as cleared without being notified), but the drafting of those regulations is under the Commission’s control.

19.2 Background to Protocol Article 10

Against that background, it was inevitable that the EU’s agreement to, in effect, barrier-free trade in goods between Northern Ireland and the EU would be conditional on the application of strict subsidy control rules to measures that could affect that trade. Absent such rules, it would have been possible for subsidized goods circulating in Northern Ireland to enter the EU across the legally and physically undefended Ireland–Northern Ireland border. Member states subject to the disciplines of the state aid rules were never going to accept that there could be territory effectively within the EU internal market that was not subject to those rules.

Accordingly, in the draft Withdrawal Agreement (WA) negotiated in November 2018 under the government of Prime Minister May, the draft Protocol contained, first, at Article 12, a provision in the same terms as what is now Article 10.³ For the May government, that provision was unproblematic because it had by that stage essentially decided that EU state aid rules would in any event continue to apply to the whole of the UK after Brexit; indeed, Part 4 of Annex 4 to that draft Protocol contained provisions applying to GB that would, absent other arrangements agreed before the end of the transitional period, have extended the EU state aid rules to GB, though with a UK independent authority taking the role played by the Commission in the EU, subject to various forms of oversight by the Commission.⁴

As discussed previously,⁵ the government of Prime Minister Johnson that took office in July 2019 reverted to the ‘Northern Ireland only’ arrangements that had originally been the EU’s suggested approach to the problems posed by Brexit in the island of Ireland and included in its initial public draft of February 2018.⁶ It was also clear – in state aid as elsewhere – that the UK government would not commit in a withdrawal agreement to remain under any obligations to align to EU rules, outside Northern Ireland. The EU’s insistence on maintaining what was previously Article 12 as what is now Article 10 was therefore unsurprising. What was surprising was that the Johnson government accepted the retention of that Article without, it appears, appreciating its implications for the UK as a whole.

19.3 Terms of Article 10

Like much of the Protocol, Article 10(1) does not offer a lazy reader⁷ much clue as to its meaning or purpose. It provides: ‘The provisions of Union law listed in Annex 5 to this Protocol shall apply to the United Kingdom, … in respect of measures which affect that trade between Northern Ireland and the Union which is subject to this Protocol.’ It is only when the diligent reader turns to Annex 5 that she can begin to understand what this provision is about. Annex 5 contains the whole corpus of EU state aid law, starting with the TFEU provisions and then running through EU secondary legislation (procedural rules and block exemptions) as well as ‘soft legislation’ such as Commission communications and guidance on the meaning of key concepts of state aid law and as to its policy approach to the exercise of its powers under the state aid rules.

When the diligent reader then begins to look at the text of Article 10(1), she will note that, subject to the critical final phrase of Article 10(1), its effect is to apply Annex 5 – that is, the whole corpus of EU state aid law – to ‘the United Kingdom’. Being diligent, she will also note that Article 10 does not (in contrast to, say, Protocol Article 5(3)) restrict itself to ‘the United Kingdom in respect of Northern Ireland’; she will therefore conclude, correctly, that it applies to GB as well as to Northern Ireland. Moreover, by Article 13(3) and (4), future EU legislation (including soft legislation) in the field of state aid will be imported into Annex 5 and will thus have effect in ‘the United Kingdom’.

When the diligent reader considers the matter, she will see that that result makes sense, given the EU’s concerns as set out above. Northern Ireland is closely integrated economically with GB: the Protocol itself refers to its having an ‘integral place in the United Kingdom’s internal market’.⁸ From the point of view of protecting the EU internal market, it would make little sense to limit the scope of the Article to measures taken by the devolved government of Northern Ireland or to measures benefiting businesses ‘based in’ Northern Ireland (however those might be defined).

The diligent reader will further note that Protocol Article 12(4) provides that, in relation to Article 10, all the EU’s institutions – including the Commission and the CJEU – have the same powers in relation to the UK and persons within it as they do under EU law, and that under Article 12(5) the exercise of those powers has the same legal effects in the UK (all of it) as it does in the EU (a provision translated into domestic law by section 7 A of the EU (Withdrawal) Act 2018 (EUWA 2018)). As described above, those powers are very extensive.

At that point, the diligent reader – who, let us assume, is concerned to minimize the extent to which the UK is bound by EU law after Brexit – will turn with some anxiety to the wording in the last phrase of Article 10(1) – ‘in respect of measures which affect that trade between Northern Ireland and the Union which is subject to this Protocol’ – which by this point she will have worked out is the crux of the provision.

There are three concepts in that critical phrase in Article 10(1). The first concept is that of a ‘measure’, but it fails to confine the application of EU state aid rules at all, since a ‘measure’ is simply anything to which the state aid rules may apply; it is wording used in Article 108(3) TFEU (which prohibits a member state from putting a ‘proposed measure’ that falls within the scope of the state aid rules into effect until the Commission has decided whether the measure is compatible with the internal market).

The next concept to consider (in logical order) is the concept of ‘that trade between Northern Ireland and the [EU] which is subject to this Protocol’. That raises the question of what trade between Northern Ireland and the EU is subject to the Protocol: to which the answer would appear to lie in those provisions of the Protocol that regulate trade between Northern Ireland and the EU. In that regard, one should note Article 5(3) (applying the Union customs code to Northern Ireland), Article 5(5) (applying Articles 30⁹ and 110¹⁰ TFEU and prohibiting quantitative restrictions on EU–Northern Ireland imports and exports) and Article 9 (applying EU rules on the wholesale electricity market to Northern Ireland). The upshot is that the trade that is ‘subject to the Protocol’ is trade in goods and wholesale electricity (covered by the Union customs code and Articles 30 and 110 TFEU, as well as Article 34 TFEU – the prohibition on quantitative restrictions on goods, which also covers electricity¹¹).

Finally, what does ‘affect’ mean? It is on the meaning and application of that verb that the bulk of the difficulties and tensions in Article 10 turns. But before considering it, we should look at what happened after the Protocol was concluded.

19.4 UK Government’s Conduct in Relation to Article 10 during the Transition Period

The implications of the Johnson government’s agreement to Article 10 – and in particular its potential impact on subsidy control right across the UK – were rapidly picked up by commentators with expertise in the area, including ones generally sympathetic to the Johnson government’s aims in the area of subsidy control.¹² On 3 April 2020, the Chairman of the House of Lords EU Internal Market Sub-committee, which had taken considerable evidence on the issue, wrote to the relevant minister that it was ‘troubling that no one we heard from thought that the UK Government had a clear understanding of what state aid provisions it had signed up to in the Protocol, and that the regions and devolved nations we heard from were not clear on how the Protocol might affect them’. She then asked: ‘How is the UK Government working now to ensure that the UK-wide implications of the Protocol in a state aid context are fully understood?’.¹³ The responding minister failed to grapple with the issue, confining himself to an anodyne reference to meetings of the Joint Committee (JC).¹⁴

On 9 September 2020, however, it became clear that the Johnson government had indeed taken note of the points being made. As discussed elsewhere in this book, the UK Internal Market Bill published on that day¹⁵ proposed to give ministers the power to breach the WA by making regulations that would limit the effect and scope of the Protocol in UK domestic law. At the heart of that proposal was clause 43, headed ‘Regulations about Article 10 of the Northern Ireland Protocol’. That clause would have given ministers powers to ‘interpret’ Article 10, or to ‘disapply’ or ‘modify’ its effect. These powers were not, as clause 45 made clear, to be limited by any incompatibility with international law (that is to say, including incompatibility with the UK’s obligations under the Protocol, agreed by that same government less than a year previously).

To make matters worse, from the EU’s point of view, the UK government chose to announce on the same day that it proposed to remove all EU state aid law from the scope of ‘retained EU law’ (EU law that would continue to have effect, as UK law, after the end of the transition period) and, for the moment, put nothing in its place apart from ‘guidance’, with a promise to consult later on whether anything further was appropriate.¹⁶

As related elsewhere in this book, clause 43 and other clauses involving breaches of the Protocol were rejected by the House of Lords and ultimately abandoned. But, as part of the process of that abandonment, the Johnson government negotiated with the EU, in the context of the JC, ‘unilateral declarations’ on Article 10(1).¹⁷ The EU declaration (of which a UK declaration ‘took note’) stated:

When applying Art. 107 TFEU to situations referred to in Art. 10(1) of the Protocol, the European Commission will have due regard to Northern Ireland’s integral place in the United Kingdom’s internal market. The European Union underlines that, in any event, an effect on trade between Northern Ireland and the Union which is subject to this Protocol cannot be merely hypothetical, presumed, or without a genuine and direct link to Northern Ireland. It must be established why the measure is liable to have such an effect on trade between Northern Ireland and the Union, based on the real foreseeable effects of the measure.

As will be noted, that declaration concentrated on precisely the term ‘affect/effect’ that this chapter earlier identified as the crux issue in determining the scope of Article 10. Its own effect, so far as it has any, is analysed below, but to the extent that anyone may have believed that it represented any common approach between the two sides to the question of how the crux issue of ‘effect on trade’ should be approached, any such belief could not have survived the competing guidance on that question issued over the following few weeks by the UK government and by the Commission.

Before turning to that issue, however, it is important to note that in the Trade and Cooperation Agreement (TCA), of 24 December 2020, the UK government consented, in Chapter 3 of Part 2, Title XI, to maintain in the UK after the end of transition a domestic subsidy control regime with legal force. However, that agreement left Protocol Article 10 entirely in place.

In June 2021, the UK government introduced a Subsidy Control Bill to Parliament.¹⁸ That Bill will establish a UK subsidy control regime, the essence of which is the placing of a duty on all granting authorities to grant subsidies only where they are satisfied that ‘subsidy control principles’ are complied with. Those principles are set out in Schedule 1 to the Bill and are largely drawn from the TCA, with the addition of a principle that subsidies should not distort competition or investment within the UK. The Bill will also prohibit certain kinds of subsidy – essentially those required by the TCA to be prohibited (such as export subsidies, unlimited guarantees, and aid to ailing and insolvent enterprises in the absence of a credible restructuring plan). Compliance with those prohibitions and with duty to apply the principles is secured by a transparency regime (a requirement to put details of all subsidies on a central public database), the possibility (mandatory in some cases) of referring proposed or granted subsidies to the Competition and Markets Authority for a non-binding report, and the right of interested third parties and the UK Secretary of State to challenge any granting decision in judicial review proceedings before the Competition Appeal Tribunal.

The consequence is that, after transition, the UK now has two entirely separate subsidy control regimes: at present, the one required under the TCA,¹⁹ to be replaced in due course by the regime set out in the Bill, and Protocol Article 10. The Bill provides that those two regimes are to be mutually exclusive, in that any measure that has been ‘given in accordance with Article 10’ will be excluded from the UK regime.²⁰ In practice, a large proportion of subsidy measures in Northern Ireland will fall under Article 10 and therefore will be excluded from the UK subsidy control regime, but where Article 10 does not apply (for example, in cases where subsidies benefit only services suppliers with no goods element), the UK regime will apply.

19.5 Crux Issue: Effect on Trade

The phrase ‘so far as it affects trade between Member States’ forms part of the definition of state aid in Article 107(1) TFEU. It is frequently described as a ‘low threshold’, and the point made that, in many cases, what appear to be activities of local interest only have been found to give rise to such an effect.²¹ In Eventech,²² the CJEU summarized its case law, stating that ‘for the purpose of categorising a national measure as State aid, it is necessary, not to establish that the aid has a real effect on trade between member states and that competition is actually being distorted, but only to examine whether that aid is liable to affect such trade and distort competition’.²³ It went on to state in particular that ‘when aid granted by a Member State strengthens the position of an undertaking compared with other undertakings competing in intra-Community trade, the latter must be regarded as affected by that aid’. It also pointed out that a finding of effect on trade could be made even when the beneficiary of the aid did not itself carry on any intra-Community trade, since the changed pattern of internal trade might affect the ability of suppliers from other member states to penetrate the market. And it emphasized that a finding of effect on trade could be made even if the aid was for a small amount, the beneficiary was small, or the market affected was local in character.

In its subsequent notice on the issue,²⁴ the Commission applied that approach to the critical phrase in Article 10(1). On that basis, it noted that aid to an undertaking that sells only a small part of its production in the EU may have an effect on trade.²⁵ Combining that point with the point (noted above) that where an aid strengthens the position of an undertaking compared with other undertakings competing in intra-Community trade, the latter must be regarded as affected by that aid, the Commission concludes that an aid to a company located in Great Britain may ‘notably’ meet the ‘effect’ test if that company trades with Northern Ireland. It also states that aid to a services company could indirectly meet the effect on trade test if it indirectly benefits companies engaged in trade in goods or electricity. It concludes with three examples of where the requisite effect on trade would be ‘likely’: a tax scheme granting a direct or indirect benefit to any firm trading with Northern Ireland; incentives to the financial services industry that would allow manufacturers or electricity companies engaged in trade between Northern Ireland and the EU to access cheaper credit, thus gaining an advantage over their trading partners; and aid to a manufacturer in difficulty if its goods are available for sale in Northern Ireland.

It is evident from those examples that the Commission believes that many UK measures that are focused on GB or are UK-wide would fall within Article 10(1).

In contrast, the UK government’s guidance²⁶ on the point states that ‘the starting assumption for subsidies granted to recipients outside of Northern Ireland should be that the NI Protocol does not apply’: and though it recognizes that it could apply where ‘a UK-wide measure benefits NI companies’ or a subsidy is given to a company with a subsidiary or branch in Northern Ireland, it considers that it would be ‘highly unlikely’ to apply to a company in GB that exports only to Northern Ireland. Further, the guidance also states that there is a ‘very strong assumption that aid to services cannot be relevant to Article 10’.

The root of that divergence appears to lie in the UK government’s different approach to the December 2020 Declaration from that of the EU. The UK guidance places considerable emphasis on that Declaration. In contrast, the Commission notice states both that the Declaration is ‘fully in line’ with CJEU case law on ‘effect on trade’ and that, in any event, it is without prejudice to the CJEU’s interpretation of that phrase.

In relation to that difference of view, it is worth noting that (unsurprisingly) nothing in the CJEU’s case law expressly allows for a ‘hypothetical [or] presumed’ effect on trade, or an effect based on anything other than a genuine or direct link to the putatively affected activities. Indeed, it is difficult to imagine that the Commission would ever proceed on a basis that admittedly relied on a hypothetical or presumed effect or on a non-genuine link, or that the CJEU would uphold it if it did. As the Commission notice points out, the effect has to be demonstrated, but the practical point is that the CJEU has accepted as ‘demonstration’ fairly sparse reasoning that shows only that the measure is ‘liable to’ affect, rather than that it actually has affected, such trade. It is therefore hard to see that the December 2020 Declaration adds anything to, or subtracts anything from, CJEU case law on the ‘effect on trade’ in Article 107(1) TFEU (even if the Commission had authority to bind the Court of Justice).

Behind that, however, lies a deeper issue. Is it right to assume that ‘affects … trade’ means the same thing in Protocol Article 10(1) as it does in Article 107(1) TFEU? The better view is that it does. Protocol Article 13(2)²⁷ provides that ‘the provisions of this Protocol referring to [EU] law or to concepts or provisions thereof shall in their implementation and application be interpreted in conformity with the relevant case law of the Court of Justice’: given the materially identical wording (‘affect that trade between’/‘affects trade between’) in Protocol Article 10(1) and Article 107(1) TFEU, it is hard to resist the proposition that Article 10(1) is here referring to a concept of EU law. Further, that reading of the Protocol reflects the overall approach of the Protocol in applying EU law in full to Northern Ireland in the areas of goods and electricity: it is implausible that such a foundational aspect of single market law was intended to apply in any weaker way than it does in the EU.

All this leaves granting authorities and potential recipients of aid in the UK in a difficult position, if the measure falls into one of the areas where there is divergence between the Commission’s approach and that of the UK government. Public authorities must, under section 48(4) of the UK Internal Market Act 2020, ‘have regard to’ the UK government’s guidance in exercising their functions: but that obligation would not extend to following it where the authority considers that it is legally incorrect.²⁸ A further, practical difficulty is that if the view is taken that the measure is, or is likely to be, an aid falling under Protocol Article 10(1), and is not covered by an exemption, it follows that it cannot be implemented, or can be implemented only at high risk of a court injunction or a recovery order, unless previously notified to and cleared by the Commission: but such a notification to the Commission may be made only by the UK government,²⁹ which is unlikely to do so in a case where its guidance asserts that the measure is not caught by Article 10. In many cases, the parties – and in particular the beneficiary – may well decline to proceed on that basis, or even seek to approach the Commission themselves in order to obtain its view.³⁰

19.6 How Will Disputes Be Resolved?

One factor that will go into the risk assessment in such cases is that, in practice, it is the Commission’s view that is likely to be decisive, subject only to the view of the CJEU. As observed above, the Commission retains, in relation to the UK as a whole, its full panoply of enforcement powers in relation to measures falling under Article 10, including recovery orders and orders to bring the measure to an end (whatever its domestic legal basis). Its decisions can be challenged only in the General Court/CJEU. If a dispute is raised in a national court, the national court is likely (and on final appeal is bound, subject to the ‘acte clair’ doctrine) to refer any question as to the meaning of Article 10 to the CJEU.³¹

What if the UK considered that the CJEU had misapplied Article 10 and tried to bring the matter to arbitration under Article 170 WA? Its difficulty then would be that it would – in order to avoid a reference to the CJEU under Article 174 – have to persuade the arbitration panel that what was at issue was not a ‘question of interpretation of a concept of [EU] law’: a task that would, for reasons explained above, be difficult to discharge.

19.7 Conclusion

As noted in this chapter, one paradoxical result of the way in which the Johnson government handled the negotiation of the WA and the TCA is that, despite its general lack of enthusiasm about scrutiny of its decisions by independent or judicial bodies, it has ended up with not just one subsidy control regime governing its decisions on subsidies but two (the TCA regime, to be replaced by that of the Subsidy Control Bill, and Protocol Article 10). That is not ideal from anyone’s point of view (apart from, perhaps, subsidy control lawyers’).

There are many examples of issues under the Protocol that could give rise to serious political difficulties. But since disputes over the application of state aid law can affect the legality of critical economic decisions (taxation, rescue of important businesses), the political difficulties that could be caused by differences between the EU and the UK government approaches to Article 10 could well rank among the most serious.

In its July 2021 paper,³² the UK government suggested that the subsidy control provisions in the TCA, together with the Subsidy Control Bill, ‘provide a more than sufficient basis to guarantee that there will be no significant distortion to goods trade between the UK and [the] EU, whether from Great Britain or Northern Ireland, thus making the existing provisions in Article 10 redundant in their current form’.³³ It went on to offer, on the basis that its proposed replacement for the Protocol was adopted, the possibility of ‘enhanced processes for any subsidies on a significant scale relating directly to Northern Ireland – for example enhanced referral powers or consultation procedures for subsidies within scope, to enable EU concerns to be properly and swiftly addressed’.

There is some force in the point that, since Article 10 was drafted against a background where the UK might have decided not to have any domestic subsidy control regime at all, its terms should be reconsidered now that the UK is committed to having a domestic subsidy control regime within a framework agreed with the EU.³⁴ And, as noted above, it is distinctly unsatisfactory that the UK is, as a result of Article 10, having to operate two separate subsidy control regimes with an uncertain boundary between them. It is unfortunate that the UK government does not appear to have raised that point during the negotiations leading up to the TCA – which may well be a consequence of its maintaining the position until late in those negotiations that it would not agree to commit to a robust subsidy control regime at all. But the fact that the opportunity to make a fair point was lost at that stage does not mean that the point is not a fair one now, albeit one that may well get lost in the generally combative tone of the July 2021 paper. Unless and until some such arrangement modifying or replacing Article 10 is made, there is a very real danger that it will generate a serious crisis, for example over a Commission or court finding that a politically important UK business tax measure amounted to unlawful state aid under its terms.

20 Environment and Trade

Mary Dobbs and Viviane Gravey

20.1 Introduction

As political and legal realities change, one environmental fact remains: the island of Ireland is a single biogeographical and epidemiological unit. The permeable nature of the environment, with transboundary habitats and river basins, creates the potential for positive or negative externalities by actions on either side of the border between Northern Ireland and Ireland, whether intended or accidental. Consequently, for either Northern Ireland or Ireland to achieve a high level of environmental protection requires shared objectives across the island and co-operation at all stages and levels of governance – as reflected in the 1998 Agreement.¹

The EU provided shared environmental objectives, legal frameworks and governance mechanisms. The shared (or equivalent) standards, for instance regarding sanitary and phytosanitary (SPS) measures, also facilitated the open borders between the UK and the rest of the EU. The 1998 Agreement later enhanced this and also provided for six areas of co-operation in the North–South Ministerial Council, including the environment and the closely related issue of agriculture, as well as establishing several North–South bodies, such as the Loughs Agency overseeing transboundary waters.² EU membership and the 1998 Agreement together helped facilitate open borders and promoted shared high standards and co-operative environmental governance,³ including on the island of Ireland.⁴ Brexit now changes this.

This chapter examines the implications of Brexit for environmental protection in Northern Ireland, focusing primarily on the Protocol but taking into account other developments in EU–UK relationships and internal UK developments. It outlines (i) the extent to which EU environmental law continues to apply in Northern Ireland, before considering (ii) the potential for regulatory divergence (impacting on both trade and the environment) and (iii) the impacts of border controls. Due to the significance of agriculture for the environment and of the Protocol for agri-food supply chains across the UK and Ireland, the chapter draws on policy examples from both environment and agriculture.

Overall, while some protection continues, it is typically linked to trade. This piecemeal approach leads to a fragmentation of Northern Ireland environmental rules and governance with profound implications for environmental protection. This is especially important in light of the poor environmental record on both sides of the border: neither Ireland nor Northern Ireland has historically been an environmental leader.⁵

20.2 Continued Compliance with EU Environmental Law?

Northern Ireland environmental law reflects a complex system of multilevel governance, from the international level to the local level. Prior to Brexit, this included a substantial swathe of EU and EU-derived environmental law, supported by strong EU governance mechanisms, alongside Northern Ireland-originating environmental law. However, following Brexit, the division has shifted and there are increased variations in the nature of environmental law within Northern Ireland.⁶

The UK introduced the concept of ‘retained’ EU law via the European Union (Withdrawal) Act 2018 (EUWA), whereby all secondary EU law applying up to the end of the transition period would remain in force in domestic law but be given a new legal foundation in UK law, aiming to avoid gaping holes in the UK statute book. However, changes were introduced, for example removal of references to other EU member states and EU institutions. This, on occasion, impacted significantly on the regulatory regime, for instance through affecting accountability or introducing potential conflicts of interest in the nature conservation regime.⁷ More fundamentally, EU governance regimes could not be replicated.⁸

However, the Protocol achieves something different for Northern Ireland. Article 5(4) provides for the continued application of EU law listed in Annex 2, including subsequent EU laws that amend or replace these laws.⁹ It also provides for the continued application of the EU governance mechanisms to these laws within Northern Ireland, for example the interpretative and enforcement roles of the Commission and the Court of Justice of the European Union (CJEU). As with EU law prior to Brexit, Annex 2 provisions take priority over any potential conflicting domestic law – including any new common frameworks that are intended to apply across the UK. Only if there is no conflict may the common frameworks operate in tandem with this EU law.

Annex 2 is extensive, but focused on trade (including product quality and competitiveness); therefore, environmental laws are typically included only where they impact on trade, rather than for their own sake.¹⁰ For instance, Annex 2 includes rules on vehicular emissions, pesticides, SPS issues, waste, animal health, food standards and labelling.¹¹ In contrast, laws regarding water quality, air pollution and nature conservation are largely omitted.¹² This is despite shared environmental challenges and, in some cases, such as the Water Framework Directive, even shared implementation between Ireland and Northern Ireland.¹³ Further, Annex 2 does not create any obligation to comply with the key EU environmental objectives and principles in the Treaty on the Functioning of the European Union (TFEU). However, the Protocol does provide for further laws to be added if the Joint Committee (JC) responsible for overseeing the Protocol decides that this is necessary – this power was used in December 2020, for example, to add the Single Use Plastics Directive¹⁴ to Annex 2.¹⁵

The Trade and Cooperation Agreement (TCA) built upon the Protocol, for example with provisions on co-operation on animal welfare, antimicrobial resistance and sustainable food systems, and targets of net-zero by 2050.¹⁶ The TCA’s environmental cornerstone is Title XI on the level playing field. Article 7.2 therein introduces a limited obligation of non-regression, whereby neither the EU nor the UK may lower standards overall in a manner that impacts on trade and investment; they must both generally ‘strive to increase’ their respective levels of protection. However, these obligations are limited in scope, do not mandate alignment (dynamic or otherwise), and are difficult to enforce.¹⁷ Article 9.4 also provides that where substantial divergence exists (including due to increases in protection) and impacts on trade, the party impacted may take ‘rebalancing measures’, including unilaterally imposing tariffs. This could pressure the other party to align (upwards), but the clause is very difficult to use and of limited practical value.¹⁸

Therefore, Northern Ireland’s environmental regime encompasses (a) truly domestic law; (b) retained EU law (now slightly amended, without EU governance mechanisms and with the potential for amendments domestically in the future); (c) EU law via the Protocol (with EU governance mechanisms); and (d) limited obligations (including non-regression) related to the level playing field under the TCA.¹⁹ Many regulatory measures that used to be in the third, EU law, category are now found in the second, retained EU law, category instead, with the Protocol’s Annex 2 determining the dividing line between these two categories.

20.3 Divergence and Decline?

Brexit therefore introduces the possibility of increased regulatory divergence between the EU and the UK, and also within the UK. The Protocol creates a halfway house for Northern Ireland at the intersection of two unions – at times it may be aligned to the rest of the UK, at times to the EU, and at times to neither. On the one hand, Northern Ireland must comply with EU environmental rules in Annex 2 of the Protocol, so divergence between the EU and the UK will lead to divergence between Northern Ireland and GB. On the other hand, outside Annex 2, where Northern Ireland is not bound to follow EU developments, there is a much greater risk of divergence on the island of Ireland.

This potential for divergence can arise through either action or inaction regarding standards or governance – what Jordan and Moore have called ‘regression by default’.²⁰ For instance, we have seen that ‘retained’ EU law has been adapted to function within the UK without EU membership. Amendment of ‘retained’ EU law has already enabled a first wave of ‘simplification’, with the removal of ‘review and revise’ clauses that ensure that EU environmental rules keep abreast with scientific development and are frequently evaluated.²¹ Further ‘simplification’, or deregulation, can be expected. The UK Environment Bill proposes to grant the Northern Ireland Department of Agriculture, Environment and Rural Affairs and the minister powers to amend existing Northern Ireland environmental law, including on how water quality is to be monitored and evaluated. This, together with the absence of broad commitment to dynamic alignment, means that retained EU law within Northern Ireland may simply stagnate or indeed be hollowed out, while the EU continues to develop its regimes.

As well as divergence introduced by Northern Ireland or the EU, it is possible that the UK as a whole could introduce changes. Although the environment is a devolved matter in principle, changes could be introduced by way of various mechanisms: via the common frameworks process (although very few environmental areas have been identified as requiring common frameworks);²² via changes introduced by the UK government (with or without consent from the devolved administration), as has already taken place using the power to introduce statutory instruments under EUWA 2018; or via requirements that may be imposed resulting from new free trade agreements with non-EU states. There are also potential knock-on effects resulting from the mutual recognition principle in the Internal Market Act,²³ leading to a lowest common denominator approach regarding future policy across GB. Although it does not apply directly to the Northern Ireland market, the principle applies to any goods for use or sale in GB including from Northern Ireland.²⁴ This could create a competitive disadvantage for Northern Ireland producers, thereby incentivizing for instance a lowering in standards of production methods. A further layer of complexity arises when we consider that the Scottish government took powers to keep pace with EU environmental legislation under the Scottish Continuity Act of 2021, meaning that retained EU law may also start to diverge within GB.

However, there are some limits to the divergence possible. First, Northern Ireland (and the UK in respect of Northern Ireland) must comply with the provisions listed in Annex 2 and may not lawfully diverge from these. Environmental provisions within Annex 2, however, remain quite narrow. Second, the TCA’s level playing field provisions (especially the non-regression principle and rebalancing mechanisms) may act as a disincentive to major undesirable changes and encourage some minimal upwards alignment, but remain limited in practice. Third, the UK and the EU are both signatories to numerous international environmental laws, thereby sharing common objectives and obligations.²⁵ However, international environmental law tends to be less specific, with lower standards (if any), and with weaker enforcement mechanisms than EU or national law.

Consequently, some limits on divergence exist, but they are few and far between in practice – divergence can be expected to increase over time, and this potential for divergence risks a decline in environmental protection within Northern Ireland, knock-on impacts outside Northern Ireland due to the permeable nature of the environment, and challenges to cross-border co-operation and governance. Northern Ireland has a dire history of environmental protection, no independent environmental agency (despite renewed commitments in 2020 to such an agency²⁶), limited resources, and increasing pressures due to issues such as Brexit and Covid-19, on top of an already worrying state of the environment. It is questionable whether there is sufficient political will independently to uphold a high level of environmental protection. Without the EU driving policy and EU governance mechanisms providing back-up enforcement, a decline seems likely, in time with impacts beyond Northern Ireland – such as water pollution in transboundary river basins, the degrading of transboundary loughs through dredging, and increased air pollution from burning coal or waste.

Crucially, whether environmental protection in Northern Ireland declines or improves, divergence in itself poses significant challenges for cross-border and all-island co-operation and co-ordination – thereby impacting on the operation of the 1998 Agreement. For instance, the Environment Bill enables significant changes to be introduced to water governance in Northern Ireland. This raises the question of what happens where both jurisdictions seek to protect a river’s water quality, but they are measuring different contaminants or with varying methodology or have different understandings of what counts as ‘good’ status? Divergence does not prevent co-operation, but it makes it more challenging – and, beyond the Annex 2 provisions, Northern Ireland and Ireland will no longer share governance mechanisms, including on dispute resolution. Returning to the example of transboundary waters, the challenges for co-operation are exemplified by Article 13 of the EU Water Framework Directive,²⁷ which mandates EU member states to co-ordinate with each other regarding transboundary river basins, but only to ‘endeavour’ to co-operate with third countries.²⁸

20.4 Border Controls and Environmental Impacts?

While border controls have some negative environmental impacts, for example infrastructure required for border control posts, and delays in transport affecting animal welfare, generally speaking they help enhance environmental protection, for example by facilitating compliance with international environmental obligations.²⁹ Further, they help ensure high standards of imports, protecting against diseases and invasive species, for example via SPS controls and requirements for compliance with specific product or process standards. Border controls become critical where there is regulatory divergence.

Any form of Brexit leads to increased border controls. The Protocol and the TCA help determine what controls and checks are required, as well as where they will operate. In light of the 1998 Agreement, the Protocol is intended to ensure no hard border on the island of Ireland and therefore no border control posts, with seemingly open trade between Northern Ireland and the EU. Further, Northern Ireland’s ‘integral’ place within the UK is simultaneously meant to be protected, subject to upholding the Protocol. Numerous hurdles, especially in the form of non-tariff barriers, will arise;³⁰ indeed, their impacts are already beginning to be seen,³¹ despite the TCA and efforts by the JC to alleviate matters. These vary depending on the route and direction of travel – to or from Northern Ireland, directly from/to GB, or via Ireland.

Under the Protocol, the simplest trade routes are between Northern Ireland and the EU, including Ireland. Northern Ireland goods are largely treated as EU goods and vice versa, provided they are not going beyond these jurisdictions. The limited regulatory alignment under Annex 2 facilitates this. EU member states may, however, impose measures equivalent to quantitative restrictions (including further environmental criteria) on Northern Ireland goods (exporting norms) without providing justifications.³² This encompasses requirements for instance relating to production methods or packaging.

For goods travelling from Northern Ireland to GB, although regulatory divergence between GB and Northern Ireland could lead to checks on such goods, these remain quite minimal in principle,³³ for example summary export declarations (electronic where possible) and checks to ensure compliance with the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES).³⁴ Complying with EU rules implementing CITES has been particularly problematic in relation to Lough Neagh eels (Lough Neagh is the largest wild eel fishery in Europe). Traditionally, juvenile (glass) eels are imported from England, and eel meat is then later shipped to retailers across the UK and the EU. While the Protocol protects the Lough Neagh eels fishery’s access to the EU market, it does not allow for exporting adult eels outside of the EU and thus to GB, as it goes against EU CITES rules.³⁵

Trade from GB into Northern Ireland is more challenging,³⁶ as the Northern Ireland border is effectively an external EU border. Non-tariff barriers and in particular the SPS checks on living organisms or products from these are critical.³⁷ Requirements on goods entering Northern Ireland from GB include pre-notification (TRACES), plant or animal health certificates, and entry via border control posts to facilitate inspections in a suitable venue. GB goods entering Northern Ireland must comply with EU criteria, but now without the presumption that they meet the relevant standards – instead, this must be demonstrated continuously. These requirements aim to protect the EU and Northern Ireland in the future from a potential decrease in standards or governance in GB – including through contaminated or diseased living organisms potentially brought in from other countries.

These controls and checks introduce substantial administrative burdens, costs and delays – with insufficient infrastructure or staff in Northern Ireland currently to undertake the level of checks required,³⁸ especially when the Protocol will be fully implemented.³⁹ Substantial delays raise concerns regarding perishable goods (turning to waste) and animal welfare. In April 2021, clerical errors in importation documents led to ponies being delayed at a Northern Ireland port and could have led to their return to GB (with further quarantine periods) or potentially their destruction. A Northern Ireland court ordered their release, based on considerations of animal welfare and ‘common sense’ – with the required information provided in the meantime.⁴⁰ Furthermore, the increased need for border control posts at the ports has necessitated the rapid construction of such areas, which has its own impact on the environment.

Due to limited logistical capacity, limited financial incentives, or both, some GB suppliers are no longer supplying to Northern Ireland (or to the EU)⁴¹ – with knock-on effects for downstream producers, consumers and the environment. More suppliers are expected to follow when grace periods end.⁴² With supply chains disrupted, actors downstream need to consider whether to go without or find an alternative source or good. This could provide an opportunity to rethink supply chains or purchases and source more environmentally friendly alternatives.⁴³ However, it might also incentivize longer supply chains, for example if it becomes easier and swifter to purchase items from distant EU states than GB.

20.5 Conclusion

The environment is one of six areas of co-operation for the North–South Ministerial Council, reflecting the importance of cross-border and all-island environmental governance. However, the Protocol’s and the TCA’s provisions focus on the environment only to a limited extent – in particular via Annex 2, the level playing field provisions and border controls. While these are valuable provisions, they do not equate to the level of protection provided by EU membership; divergence is likely, and border controls could also pose environmental harms.

The fragmentation of environmental law, in a jurisdiction with a long history of lack of administrative capacity and political will to act on environmental challenges, is particularly concerning. This fragmentation not only increases the workload of the administration; it also risks further politicization of environmental action, increases the likelihood of a decline in environmental governance, and makes it more complex for environmental groups to hold decision-makers accountable.

While some level of border control is necessary due to Brexit, this, along with the potential for divergence and environmental degradation, can be mitigated; technical instruments in the 1998 Agreement, the TCA, the Protocol and the Internal Market Act exist to manage divergence and facilitate co-operation. The successful use of such options depends on whether the political will exists within the UK (including Northern Ireland) and the EU (including Ireland).

21 Free Movement of Services

Gavin Barrett

21.1 Introduction

The importance of services to modern economies, including those of Ireland, Northern Ireland and the UK, can scarcely be overstated. It seems paradoxical that most attention during the negotiation of the Brexit settlement was focused squarely on trade in goods, since the economic importance of services is far greater. The Northern Ireland services sector accounts for about 75 per cent of gross added value and 80 per cent of employment. Northern Ireland exports about £6.5 billion of services: about two-thirds of these go to the UK, but approximately £1.5 billion go to the EU, with more than £1 billion of this going to Ireland. This economic dominance of services is also reflected in the broader UK context. By 2019, service industries accounted for 80 per cent of the UK’s economic output, with the UK exporting £317 billion of services to the EU and importing £217 billion worth.¹ In Ireland, too, the services industry is economically key, generating turnover of more than €217 billion. Here, too, it is by far the biggest employer, employing more than 774,000 people. From an international perspective, this is unsurprising. Services represent on average about two-thirds of the economic output in developed economies and about 70 per cent of that of the EU.²

Liberalized trade in services is more difficult to achieve than in goods, largely because trade in services is far more complex. Services exist in a variety of forms and are delivered in a variety of ways. Guaranteeing market access and establishing the principle of non-discrimination are thus not sufficient to liberalize trade in services. Instead, these elements are only the start of what is needed. As Jacobsson has observed, ‘in practice, the biggest market access barriers often take the form of various authorisation, licensing or certification requirements’.³ Mutual recognition of professional qualifications and securing the free movement of persons may also be key, depending on the services being traded.

Perhaps in consequence of this, the Single European Market in services (while still managing to be the most integrated international single market in services in the world) is less integrated than that in goods. Integration even on this more limited scale involves trust by the member states, mutual scrutiny and a certain level of harmonization.⁴

In the absence of UK government willingness to tolerate such prerequisites for integration post-Brexit, it was never likely that a high level of EU–UK co-operation concerning services would emerge from the Brexit negotiations. A serious deterioration in the conditions for EU–UK cross-border provision of services was thus foreseeable – and that is exactly what has occurred, although, as shall be seen, there are mitigating factors cushioning the impact on cross-border economic relations on the island of Ireland.

There were, however, reasons for the failure to reach a better deal on services other than UK unwillingness to countenance the kinds of trade-offs in terms of, for example, regulatory alignment and free movement of persons that were needed to create agreement on a significant deal. The attitude of the EU also had a role to play: after all, negotiations on the economic conditions of an exit from the EU are, in reality, similar to those on entry to the EU – they represent less a negotiation than an imposition of the terms that the EU deems fit. EU views about the need for linkage between market freedoms and associated wariness about the dangers of British cherry-picking and, for that matter, aversion to being seen to be rewarding Brexit likely also played a role. In addition, some reticence on the EU side (for example, in the field of financial services) can fairly be attributed to commercial rivalry. Finally, the considerable time-pressure imposed by Prime Minister Boris Johnson’s government to ‘get Brexit done’ may have complicated the cause of a more comprehensive services deal.

21.2 The Brexit Deal

Whatever the reason, in the Brexit settlement, the free movement of services is notable as a dog that didn’t bark.⁵ The Withdrawal Agreement (WA) contains relatively little on services, although it did provide for the continued application of the acquis – including the rules on services – during the transition period.⁶ The Protocol, for its part, is hugely focused on free movement of goods (an issue that has continued to dominate political controversy in the wake of its entry into force).⁷ In contrast to its position concerning goods, Northern Ireland’s place otherwise remains unequivocally aligned within the UK Single Market. Protocol Article 3 does, however, oblige the UK to ensure that the Common Travel Area (CTA) can continue to apply. This is significant regarding services in that the existence of the CTA counteracts one of the most severe restrictions on the free movement of services between the UK and Ireland as a whole, namely the restrictions on the free movement of persons.

The Trade and Cooperation Agreement (TCA) deals more extensively with services and investment,⁸ although what is left out of the TCA is as interesting as what it includes. Financial services and audio-visual services, both of major importance to the UK, are omitted, although a brief Joint Declaration⁹ does envisage a Memorandum of Understanding to establish a framework for structured regulatory co-operation on financial services. Such a memorandum was duly concluded in late March 2021.¹⁰

Even for the services covered by it, however, the TCA’s offerings have proved thin fare, offering to trans-frontier service trade providers and investors merely the usual free trade agreement (FTA) market access plus national treatment commitments. This is far removed from a single market in services.¹¹ Major service sectors such as professional and business services,¹² financial services, aviation and road haulage now face substantial new barriers (even if there was some effort to show ambition in the fields of telecommunications, digital trade and international maritime trade).¹³

Moreover, and crucially, the TCA’s offerings are subject to an impressive (and expandable¹⁴) list of European and national reservations. This factor distinguishes trade in goods from trade in services, since it means that for Northern Ireland service providers (and other UK providers) exporting into the EU, the target market has now fragmented and they have suddenly found themselves selling into a patchwork of national markets. Fundamentally differently from the case in goods (where Northern Irish goods may move freely to the EU market and goods supplied to the EU market from Great Britain meet customs and health or veterinary requirements which are valid throughout the EU), the member state in which Northern Irish services are being sold now takes on crucial significance. For small businesses, inherently less able to absorb costs as they are,¹⁵ the very fact of fragmentation constitutes a barrier, and the complexity is even greater than first meets the eye since the reservation by each member state merely creates a right: in practice, reliance may or may not be made of this right.¹⁶

The TCA has been described as ‘a comprehensive Canada-style free trade deal’.¹⁷ In some respects, the TCA actually improves on the EU–Canada Comprehensive Economic and Trade Agreement (CETA),¹⁸ but in many respects it does indeed resemble earlier FTAs agreed by the European Union. This is not necessarily indicative of much significance, however. Hence, for example, even if CETA contains the EU’s most ambitious provisions on mutual recognition of professional qualifications, it is a barely used framework, and one which stands out only because of a barren landscape at international level. Outside the ‘complex system of mutual trust and mutual spying’ that has allowed professional mutual recognition agreements to flourish within the EU,¹⁹ such agreements are almost unknown and negotiated only painfully slowly.

As regards limits on mobility of persons, the TCA establishes a mutual regime involving various categories of business visitor with varying rights to enter and reside – from (a) short-term business visitors to (b) business visitors for establishment purposes to (c) intra-corporate transferees to contractual service providers to (d) independent service providers.²⁰ Stays of varying maximum duration are permissible, depending on which category one falls into. Short-term business visitors, for example, may enter for no more than 90 days in any 180-day period. Apart from length-of-stay limits, there may also be work permit or visa requirements and even economic needs tests, depending on what national reservations have been made.²¹ The overall impact of these new restrictions can be expected to be severe: after all, business travel saw 5.6 million EU nationals visit the UK in 2019 and 4.8 million UK nationals visit the EU.²²

Securing recognition of professional qualifications has accurately been characterized as being as crucial as market access,²³ but EU-wide mutual recognition has now ended with the TCA. UK nationals are third-country nationals in the EU and now have to seek recognition for their professional qualifications through reliance on national EU member state rules.²⁴ In addition, there are limits that stem from the loss of mutual recognition of home state standards (seen in particular in the ending of passporting in the financial services sector (discussed in Section 24.4.2)). While there are ways around some of these limitations, such as, for example, establishing a business or branch within the EU which might profit from free movement rights, such remedies tend to be less open to small businesses. This is no small matter on the island of Ireland, given the dominance of small and medium-sized enterprises (SMEs) in both jurisdictions and given the fact that the EU tends to be the biggest trading bloc for them.²⁵

21.3 Moderating the Effect of the Brexit Services Deal in Ireland

At least four factors should, however, combine to moderate the impact of Brexit on service provision on the island of Ireland: (i) the fact that Ireland has made comparatively little use of reservations to the general provisions of the TCA; (ii) the fact that limitations on residence which would otherwise hamper the provision of services in Ireland from Northern Ireland will be removed because of the operation of the CTA; (iii) the fact that the similarity of professional regulations in Northern Ireland and Ireland eases the cross-border provision of services in both directions; and (iv) the fact that the Irish government is determined to limit the impact of Brexit, to the extent that it is able.

21.3.1 Reservations

Such national reservations as exist in Ireland appear primarily designed merely to facilitate existing provisions in Irish domestic law rather than to add to them.²⁶ However, Ireland does benefit from quite a few general reservations which modify the open-seeming nature of the EU’s commitments regarding services,²⁷ and both these EU-wide reservations and the complex matrix of other national reservations²⁸ will clearly detract from Northern Irish access to the services market, something that will impinge in particular on small businesses which lack the resources to invest in clarifying the rules that apply to a given EU member state market. But the Irish market will be one in which a general EU regime is likely to apply to the maximum extent.

21.3.2 Common Travel Area

Restrictions on the free movement of persons flowing from Brexit can be expected to have a damaging effect on the creative industries in particular, making the organization of Europe-wide tours for Northern Irish performers nightmarishly complex, especially for performers at the beginning of their careers who may not have the resources to address twenty-seven different sets of rules. The CTA renders possible indefinite residence by Irish nationals in the UK and vice versa, and while the existence of the CTA thus does not eliminate Brexit-related difficulties for Northern Irish performers, it means at least that they will not be encountered in service provision to customers in Ireland.²⁹ The role of the CTA in counteracting difficulties at least in these islands actually goes beyond this, particularly as regards the recognition of professional qualifications.³⁰ Thus, in the context of the British Isles and Ireland, common travel arrangements are being relied on as a basis for filling lacunae created by the failure to agree more substantive free movement of services arrangements in the TCA – and lacunae relating to not just residence arrangements but qualifications, too.

21.3.3 Similarity of Professional Regulations and Legal Structures

In the absence of an EU-wide system of recognition of professional qualifications, the UK may find itself relying across Europe on arrangements between national regulators. UK authorities should find it easier to reach agreement with Ireland on recognizing each other's professional qualifications than with other EU jurisdictions. Discussions to this end commenced between Ireland and the UK early in 2021. Pending the more comprehensive arrangements that may result, agreements have been reached concerning architects and lawyers.³¹ The similarity of national legal structures – whether for enterprises or in terms of professional structures – should facilitate and accelerate mutual recognition and the establishment of enterprises or branches in both directions so as to avoid Brexit-related difficulties. And the CTA both encourages mutual co-operation to address barriers and forms a nascent institutional framework within which such cooperation may occur.

21.3.4 Irish Government Action on Services

A further factor moderating the impact of Brexit in the services field is the clear willingness on the part of the authorities in the Republic to limit the impact of Brexit. The most obvious example is in the field of educational services, where the Irish government has undertaken to finance the continued access of Northern Irish students to the Erasmus+ programme. A similar proposal to provide Northern Ireland residents with continued access to the European Health Insurance Card was not, however, accepted by the UK.³²

21.4 The Impact of Brexit on Particular Service Sectors

21.4.1 Professional Services and Brexit

One of the areas in which Brexit can be expected to have the biggest impact on cross-border service provision in Ireland is professional and business services, which are the UK’s single biggest export, and of which the UK is the second largest exporter in the world.³³ The provision of these services has been subjected to a double-blow: restrictions on free movement of persons have now been introduced; and recognition of professional qualifications as between EU states and the UK has been withdrawn, recognition which was particularly important for regulated industries such as medicine, law, accountancy and architecture.³⁴

We have seen that the CTA can alleviate the first of these blows, insofar as the relationship between Northern Ireland and Ireland is concerned, by allowing the movement of professionals between the jurisdictions more easily than would otherwise be the case. Moreover, the possibility of Northern Irish firms establishing an undertaking or branch in the Republic and thereby avoiding restrictions should be rendered comparatively easier in any case by similarly conceived regulations, legal structures and educational and professional qualifications between the jurisdictions. We saw, too, that the second new difficulty – recognition of qualifications – is harder to deal with, but, again, the regulatory similarity between the jurisdictions should render the mutual recognition of national qualifications by the respective regulators an easier process than would otherwise be the case. The same similarity should also render it easier for regulators to agree that Northern Irish members of regulated professions can requalify with an EU (Irish) qualification without having to undergo the entire period of training again.

Such initiatives may alleviate the negative impact of the Brexit deal on Northern Irish service providers only as regards providing services to Ireland, however, not to other EU states. There is, it should be noted, a more general mechanism which foresees pan-European mutual recognition of qualifications, but the record of such clauses in other FTAs in securing change is not good. Moreover, in the event of violations of the TCA, the new state-to-state enforcement method is more cumbersome than the pre-Brexit possibility of relying on national courts and tribunals for relief. Overall, it can be expected that small firms – which might, for example, find it harder to find the resources to establish a branch office in the EU – will be hit harder in the post-Brexit scenario than larger ones.

21.4.2 Financial Services and Brexit

Financial services are an important service industry, in Ireland,³⁵ in Northern Ireland³⁶ and particularly in the UK.³⁷ Notwithstanding the importance of that industry, remarkably, the TCA represents a ‘no deal’ Brexit:³⁸ the Agreement lacks any substantive provisions regarding financial services, although it was accompanied by a Joint Declaration (and later Memorandum of Understanding) which eventually generated a structure for dialogue. There is no guarantee, however, that the dialogue thereby generated will be of much significance, and expectations appear low. Key decisions, such as on equivalence, have not been forthcoming on the EU side. Financial services thus remain in a period of uncertainty.³⁹

Post-Brexit, at least, two major issues have featured in the narrative. The first is the loss of passporting (the mutual recognition of home state financial regulations) to the UK in selling financial services into the EU market and its potential replacement with the unilateral, Commission-accorded, discretionary system of equivalence (requiring, more or less, alignment with EU rules). The EU uses this legislation-based system to manage access by third countries to its financial market.⁴⁰ Any equivalence decisions in favour of the UK are likely to be accorded slowly, and will be granted only if and when it suits the EU’s interests to grant them. A second, related issue has been the desire of the EU to see central counterparties move to the territory of the EU.⁴¹ At present, much euro-denominated clearing takes place in the UK, but this situation seems scarcely tenable in the near term, perhaps, as has been suggested, as much for market location reasons as for market efficiency ones.⁴²

The future trajectory of financial services provision in the UK thus remains uncertain, with the key question being whether the City of London will align itself to European standards or diverge.⁴³ The ultimate picture seems likely to emerge only gradually. There will clearly be no immediate bonfire of financial service regulations by the UK.⁴⁴ A gradual drift from full alignment may nonetheless set in, perhaps encouraged by the UK tiring of the wait for equivalence to be granted.⁴⁵ Mechanisms exist for avoiding post-Brexit restrictions on UK service providers. These include the establishment of an undertaking or branch in an EU jurisdiction, the replacement of UK service providers with Irish ones, and the redomiciling of investment products.

What effect has the changed situation had on the island of Ireland? Reflecting the uncertainty regarding the market trajectory, the existence of the possibility of establishing bases in the EU, and yet the countervailing need not to abandon the UK, a significant, if comparatively modest, level of businesses shifting to Dublin has been reported (although seemingly more from London than from Belfast to date),⁴⁶ accompanied by even more modest and little remarked-upon traffic in the other direction.⁴⁷ Some movement of business is also taking place in the direction of other financial centres such as the USA, which has secured an easier equivalence relationship with the EU.

21.4.3 Creative Industries and Brexit

The creative service industries, which include music and television, have been left in some cases in very considerable difficulties by Brexit, and for more than one reason. Probably the most prominent reason is the restrictions which the TCA has introduced concerning the free movement of persons, which place extraordinarily harsh restrictions on groups, particularly those seeking to build up a public profile at an early career stage by touring. The effect, except for the most well-resourced groups, has been to render touring in the EU well-nigh impossible for UK groups.⁴⁸ There is a danger of thereby stifling artistic creativity.⁴⁹ As we have seen, because of the CTA, such restrictions do not apply to UK (including Northern Irish) groups seeking to tour in Ireland. However, the Irish market is small and thus the Brexit deal’s having a deleterious effect on Northern Irish musical groups seems probable. Furthermore, the impact of potential divergences between the EU and the UK on copyright protection remains unclear.

21.4.4 Research and Education

In the research field, the UK has opted into Horizon Europe, which is likely to have positive effects for research in Ireland as well, given the close academic links between the two jurisdictions. As has already been noted, the Irish government has agreed to finance participation on the part of students in Northern Irish universities in the Erasmus+ scheme of student exchanges.

21.5 Conclusions

Overall, the TCA services deal was welcomed by UK business, although perhaps mostly because the alternative was no deal at all.⁵⁰ Post-Brexit, ‘the all-Ireland services market has shaky legal foundations’.⁵¹ Unlike the situation in goods, there is now a border on the island of Ireland, albeit an invisible one (that is, one which, unlike in the goods field, does not require border controls). It is, mercifully, a somewhat ‘soft’ border for several other reasons as well. First, the Single Market in services itself is less solid than that existing in goods. Second, this border can sometimes be avoided by establishing undertakings or branches on the other side of the border, or obtaining the relevant professional qualification needed there. Third, several factors should combine to moderate some of the damage done to the unified services market by Brexit. To some extent, Ireland may function as a stepping-stone for the access of Northern Irish (and UK) service providers to the Single Market by permitting establishment and mutual recognition of professional qualifications in an EU member state with the same legal and organizational culture and using the same language.

Not all damage can be undone in this way, however, and not every element of the all-island market in services formerly secured through UK–EU membership can be reconstituted by such means. Small enterprises in particular are badly placed to resist suffering economic hardship. Many implications of Brexit do not directly bear on the relationship between Northern Ireland and the Republic, but they have the capacity to impact that relationship indirectly by undermining prosperity in particular in Northern Ireland and in border areas. Moreover, any serious damage to the UK economy through the replacement of what was formerly a single market with a complex fragmented patchwork of individual national markets can be expected to have some ripple effects in the Irish economy.

Politically, the issue of services is less explosive than that of goods on the island of Ireland, since services do not threaten to function like a lever prising Northern Ireland away from economic and potentially political unity with the UK. Economically, however, services are of far greater significance, meaning that Brexit is of greater potential economic significance for Northern Ireland in the long term through threatening its access to an important unified European market for services, than for any direct negative consequences related to goods. The focus of political debate has remained squarely on the free market for goods, but if prospects for economic prosperity are hurt by Brexit, one suspects that this will be in no small measure due to damage Brexit inflicts on the most important economic sector both north and south of the border: the services industry.

22 Public Procurement

Catherine Donnelly SC

22.1 Introduction

Public procurement is a large sector of economic activity, estimated to account annually for spending of approximately £290 billion in the UK,¹ and some €2 trillion in the EU.² Freeing this expenditure from the constraints of the public procurement regime featured in the objectives of those advocating Brexit, with Dominic Cummings,  director of Vote Leave, an organization which campaigned for Britain’s exit from the European Union, characterizing government procurement as ‘the horror, the horror’ and criticizing the EU framework as ‘complex, slow and wasteful’ and favouring ‘large established companies with powerful political connections – true corporate looters’.³ This chapter considers the post-Brexit procurement law landscape.

While the UK procurement regime has undoubtedly changed, post-Brexit procurement remains both relatively detailed and relatively prescriptive, once the Trade and Cooperation Agreement (TCA), the position arising from the Protocol, and current UK government proposals for the future of public procurement are considered together. That said, the potential for greater flexibility in the future remains. Greater latitude clearly arises in respect of sub-threshold contracts, although increased flexibility may result in small and medium-sized enterprises (SMEs) losing important market-access opportunities. Incorporation of secondary policies – social, labour and environmental objectives – into the procurement process has previously been closely regulated by the EU due to concerns of facilitating disguised ‘economic nationalism’,⁴ and thus an opportunity for expanding their use arises post-Brexit. Early indications are that there is an interest in pursuing this opportunity.

22.2 General Framework

Post-Brexit UK public procurement is governed by three separate international agreements:

1. (1) the WA, of which the Protocol is a part;

2. (2) the TCA, in particular, Part 2, Heading One, Title VI and its associated Annex (which incorporates and supplements the framework of the World Trade Organization’s General Procurement Agreement (GPA); and

3. (3) the GPA itself, which, from 1 January 2021, the UK has been a member of in its own right.⁵

Transitional provisions facilitating legal certainty are found in the (WA),⁶ which provides that there is no change to the rules applicable to any process launched before the end of the transition period (namely, before 11.00 pm on 31 December 2020).⁷ For processes launched after this, the TCA applies, and the framework is primarily based on the provisions of the GPA,⁸ of which the EU is also a member.

The purpose of Title VI TCA is ‘to guarantee each Party’s suppliers access to increased opportunities to participate in public procurement procedures and to enhance the transparency of public procurement procedures’.⁹ However, there is a critical distinction in Title VI between ‘covered procurement’¹⁰ and treatment ‘beyond covered procurement’, with the former being subject to greater regulation in the form of incorporated GPA provisions plus supplemental TCA rules.

The GPA provisions impose extensive obligations as to how procurements are to be carried out, and, while not as detailed and prescriptive as the EU regime, nonetheless introduce significant constraints of principle on UK procuring entities post-Brexit. These constraints are then supplemented by the TCA adding additional procuring entities to those listed in GPA Annex 1 (central government entities), GPA Annex 2 (sub-central government entities) and GPA Annex 3 (other entities); additional services to those listed in GPA Annex 5; and additional rules for covered procurement. The additional procuring entities and services are listed at section B of TCA Annex 25, while the additional rules are specified in TCA Title VI itself.

22.3 Covered Procurement

22.3.1 Additional Procuring Entities

The additional procuring entities to which the TCA/GPA regime applies are contracting authorities or public undertakings that operate in the gas and heat distribution sectors and that are covered by the Utilities Contracts Regulations 2016 (UCR), as well as privately owned utilities that act as a monopoly in the gas and heat distribution sectors. However, such entities are covered only insofar as the procurement is equal to or above the following thresholds: 400,000 Special Drawing Rights (SDR) for procurement of goods and services (approximately £410,000), and 5,000,000 SDR (approximately £5,148,000) for procurement of construction services.¹¹

22.3.2 Additional Services

There is a range of additional services covered by the TCA,¹² including (by way of example only) hotel and restaurant services,¹³ food serving services,¹⁴ telecommunication-related services¹⁵ and education services,¹⁶ although coverage is subject to specific thresholds in respect of certain of these services.¹⁷ However, several services are specifically excluded from the TCA, namely human health services,¹⁸ administrative health-care services,¹⁹ and supply services of nursing and medical personnel.²⁰

22.3.3 Additional Rules

Article 277(1) TCA provides for the incorporation of certain provisions of the GPA.²¹ These address a range of issues²² including definitions (Article I GPA), scope of coverage (Article II GPA) and security and general exceptions (Article III GPA).

In the context of covered procurement, a general principle of equal treatment, that is, treatment no less favourable than that applicable to domestic goods, services and suppliers, is required in respect of goods, services and suppliers of the other party.²³ Meanwhile, the important Article IV.2 GPA provides that a party

shall not: a) treat a locally established supplier less favourably than another locally established supplier on the basis of the degree of foreign affiliation or ownership; or b) discriminate against a locally established supplier on the basis that the goods or services offered by that supplier for a particular procurement are goods or services of any other Party.

Also relevant in this regard is Article XV(1) GPA, which deals with treatment of tenders and awarding contracts, and requires procuring entities to ‘receive, open and treat all tenders under procedures that guarantee the fairness and impartiality of the procurement process, and the confidentiality of tenders’.

Several aspects of the procurement process are regulated by the GPA, including transparency, open tendering, selective tendering, prevention of conflicts of interest and corruption (Article IV.4 GPA); rules of origin (Article IV.5 GPA); offsets (Article IV.6 GPA); and customs duties (Article IV.7 GPA).

Meanwhile, Article VIII sets out detailed provision on conditions for participation, including that procuring entities must evaluate the financial capacity and the ‘commercial and technical abilities of a supplier on the basis of that supplier’s business activities both inside and outside the territory of the Party of the procuring entity’²⁴ and providing for grounds for exclusion.²⁵ Article IX addresses qualification of suppliers and imposes an obligation on each party to ensure that its procuring entities make efforts to minimize differences in their qualification procedures. Technical specifications and tender documents, time periods, negotiations, limited tendering, and electronic auctions are also addressed in detail.²⁶ In particular, technical specifications must be set out ‘in terms of performance and functional requirements, rather than design or descriptive characteristics’.²⁷

Supplemental provisions include Article 280 TCA, which provides that procuring entities shall not require suppliers to submit all or part of the supporting evidence to demonstrate satisfaction of competition requirements. Article 281 TCA provides for conditions for participation, but specifically provides that requirements for prior experience cannot ‘require that the supplier has such experience in the territory of that Party’. Article 282 TCA addresses registration systems and qualification procedures. Article 283 TCA provides for selective tendering and requires, where such tendering is used, that procuring entitles must address ‘invitations to submit a tender to a number of suppliers that is sufficient to ensure genuine competition without affecting the operational efficiency of the procurement system’.

Abnormally low prices are addressed in Article 284 TCA, and, notably, verification of pricing by reference to subsidies is expressly and specifically facilitated, which appears to reflect separate concerns related to control of state aid in the UK post-Brexit. Meanwhile, Article 285 TCA requires each party to ensure that the procuring entities may take account of environmental, labour and social considerations in procurement processes. Thus, it is compulsory for each party to ensure that a possibility of incorporation of secondary policies arises, albeit that Article 285 TCA contains no detail on how this is to be achieved.

Notices and information are also regulated and Article XVII GPA sets out provisions on communication of procurement decisions. These provisions are extensively supplemented by the TCA, including by Article 278 TCA, which makes provision for use of electronic means in procurement, requiring it to be used ‘to the widest extent practicable’, and requiring that such means be ‘non-discriminatory, [and] generally available and interoperable with the information and communication technology products in general use and [that they] shall not restrict access to the procurement procedure’. ‘Electronic publication’ is addressed in Article 279 TCA, and all notices are required to be ‘directly accessible by electronic means, free of charge, through a single point of access on the internet’.

Requirements are imposed in respect of domestic review procedures, and Article XVIII GPA requires access to timely, effective, transparent and non-discriminatory administrative or judicial review procedures. This is supplemented by Article 286 TCA, pursuant to which – and reflecting a recent concern of Court of Justice of the European Union (CJEU) case law²⁸ – where an administrative authority ‘is designated by a Party under paragraph 4 of Article XVIII of the GPA’ to undertake review, the relevant party ‘shall ensure’ that the members of the designated authority are independent, impartial and free from external influence during the term of appointment; that they are not dismissed during office unless required by provisions covering the governing body; and that the president or at least one other member of the designated authority has legal and professional qualifications equivalent to those necessary for judges, lawyers or other legal experts.

In terms of remedies, it is mandatory for each party to provide for ‘rapid interim measures to preserve the supplier’s opportunity to participate in the procurement’.²⁹ Such interim measures ‘may’ result in suspension of the procurement process or performance of the contract, and notably there is the possibility of having regard to overriding adverse consequences for the interests involved, including the public interest. Where a challenge has been submitted, it is mandatory ‘in principle’ for each party to provide for an automatic suspension, albeit that, ‘in unavoidable and duly justified circumstances, the contract can be nevertheless concluded’.³⁰ Each party ‘may’ provide a standstill period or a sufficient period to submit a challenge, which may constitute grounds for suspension of contract execution;³¹ and corrective actions ‘may include’: removal of discriminatory specifications; repetition of the procurement without changing the conditions; setting aside of a contract award decision and adoption of a new contract award decision; contract termination or declaration of ineffectiveness; adoption of other measures to remedy breach, such as an order to pay a particular sum until the breach has been effectively remedied; and compensation.³² While much of Article 286 TCA on remedies is discretionary, the following aspects are mandatory: independence of the reviewer; availability of rapid interim measures; and automatic suspension.

22.4 Beyond Covered Procurement

Procurement ‘beyond covered procurement’ includes the sub-threshold market, so it is critical for Irish, Northern Irish and GB SMEs. While the individual contract values may be relatively low in this sector, cumulatively the value of this business represents possibly as much as 20 per cent of the UK government’s annual spend of £290 billion on public procurement. The relevant provisions regulating ‘beyond covered procurement’ are found in the TCA and the Protocol.

22.4.1 The TCA

Article 287(1) TCA provides that each party must afford ‘treatment no less favourable than the most favourable treatment accorded, in like situations, to suppliers of the’ other party. There are different definitions of a ‘supplier of’ each party provided by Article 287(2) TCA. For the Union, it is ‘a legal person constituted or organised under the law of the Union or at least one of its Member States and engaged in substantive business operations’. As understood by the Union, this is equivalent to the concept of ‘effective and continuous link’ with the economy of a member state enshrined in Article 54 of the Treaty on the Functioning of the European Union (TFEU). For the UK, a legal person is an entity ‘constituted or organised under the law of the United Kingdom and engaged in substantive business operations in the territory of the United Kingdom’.

Article 288 TCA provides for national treatment of locally established suppliers, and, subject to security and general exceptions set out in GPA Article III, a measure for a party shall not result for suppliers of the other party ‘established in its territory’ in ‘treatment less favourable’ than that accorded to domestic suppliers. Simply put, this Article provides that contracting authorities in the UK must treat EU-owned suppliers established in the UK, in like situations, no less favourably than UK-owned suppliers based in the UK and vice versa. Otherwise, no principles of transparency or equal treatment appear to apply for this sector. Given that the EU Treaties no longer apply in the UK, reliance can no longer be placed on a cross-border interest to engage application of the general principles of transparency and equal treatment.³³

22.4.2 The Protocol

The Protocol creates a partial exception to this general position, and, as noted in a UK Cabinet Office Procurement Policy Note (PPN 11/20):

EU Treaty rights relating to the free movement of goods will continue to apply in Northern Ireland beyond the end of the transition period under the terms of the Northern Ireland Protocol. This means that below threshold procurements involving the provision of goods into Northern Ireland will continue to be subject to a cross-border interest test (i.e. which may be of interest to suppliers from EU Member States including the Republic of Ireland).³⁴

This is a reference to Article 7(1) of the Protocol and means that, given the general principles of equal treatment and transparency, contracts for goods which fall outside the scope of ‘covered procurement’, such as below threshold contracts, may still need to be opened up to competition, including from potential suppliers located in other EU member states.³⁵

While Article 7(1) refers only to ‘the lawfulness of placing goods on the market in Northern Ireland’, it would seem to follow from the applicability of the Treaty provisions on free movement of goods in Northern Ireland that sub-threshold contracts for goods in Ireland must also be considered to be of cross-border interest. However, this is not clear, since such contracts will not involve ‘placing goods on the market in Northern Ireland’. The implications of this approach are also not clear. For example, if a contract tendered in Ireland is correctly categorized as a works contract with works as the ‘main purpose’,³⁶ but involves an incidental element of cross-border transfer of goods to enable the works to be performed, would this be sufficient to trigger a cross-border interest on the basis of the application of Articles 34 and 36 TFEU in Northern Ireland? Article 7(1) is not precisely worded, but it is certainly not qualified by a materiality or ‘main purpose’ threshold. Resolution of such an issue would likely require a reference to the CJEU, as provided for by Article 12(4) of the Protocol.

22.4.3 SMEs

While not directly addressing procurement, it is also important to note that TCA Title VII deals specifically with SMEs. The Title is not limited to procurement and Article 295 TCA refers to the objective of enhancing ‘the ability of small and medium-sized enterprises to benefit from Heading One’ (that is, trade generally). Provision is made in this title for information sharing,³⁷ including an obligation to establish or maintain a publicly accessible website for SMEs conveying information relevant to SMEs arising from Heading One, as well as information on tariffs, customs duties, excise duties, taxes and so on. The TCA also provides for SME contact points, to ensure that the needs of SMEs are taken into account when implementing Heading One, and to consider ways to strengthen co-operation on matters of relevance to SMEs.³⁸

22.4.4 Responses

To date, the EU Commission has had little to say on procurement ‘beyond covered procurement’ other than in its ‘Questions and Answers’ issued on 24 December 2020, in which it notes: ‘[t]he Agreement further provides for non-discrimination of EU companies established in the UK (and vice versa) for small-value procurement, i.e. below the threshold of the GPA (from EUR 139,000 to EUR 438,000, depending on the contracting entity, and EUR 5,350,000 for construction services)’. This seems to imply that, subject to the Protocol, contracting authorities in the UK, Northern Ireland and the EU may ‘reserve’ or limit sub-threshold contracts to entities ‘established’ within their jurisdictions and thereby exclude all other would-be cross-border operators from tendering for such contracts. The prohibitive cost of cross-border ‘establishment’ could effectively exclude many SMEs from competing across borders for sub-threshold contracts.

The UK government seems to share this view, and its plans for this sector are set out in PPN 11/20. Subject to the Protocol and contracts in Northern Ireland involving goods, it is envisaged that procuring entities will have discretion to reserve contracts ‘beyond covered procurement’ for local suppliers, albeit that procuring entities may continue to invite and accept tenders from EU member states (including Ireland) if they consider that doing so will deliver better value for money. Interestingly, it is clear that procuring entities must consider reservation, and PPN 11/20 provides that a justification for the decision to reserve or not to reserve must be recorded in all cases. In the case of reserved contracts, contracting authorities must satisfy themselves that the tenderers have a substantive business presence in the UK and are not simply ‘brass-plate’ operations registered in the UK to circumvent the reservation policy.³⁹ The impact of these provisions on market access, in practical terms, will turn on the extent to which procuring entities decide to opt for protectionism.

22.5 Modifications, Rectifications and Dispute Resolution

There are no bespoke dispute-resolution mechanisms for TCA Title VI. Article 289 TCA provides for modifications and rectifications of market access commitments, according to the procedures for modifications set out in Article 290 TCA and for rectifications set out in Article 291 TCA. Article 293 TCA provides for amendment or rectification where there is agreement, while Article 294 TCA requires that the parties recognize the benefits that may arise from ‘cooperating in the international promotion of the mutual liberalisation of public procurement markets’ and share annual statistics on covered procurement. Where there is lack of agreement in respect of modifications and rectifications, Article 292 TCA provides that resolution can be pursued in consultations, but if agreement is not reached within sixty days, the party seeking to modify or rectify may refer the matter to dispute settlement in accordance with Title I of Part Six.

22.6 Procurement Reform in the UK

22.6.1 Amendments

Amendments have been made to the UK procurement regime by the Public Procurement (Amendment etc) (EU Exit) Regulations 2020, which mostly deal with obvious anomalies post-Brexit. For example, Regulation 73 of the Public Contracts Regulations 2016 (PCR) and equivalent provisions in the UCR and the Concession Contracts Regulations 2016 (CCR), which identify grounds of mandatory rights of termination where certain breaches of the procurement rules have occurred, no longer include the possibility of termination as a result of ‘a serious infringement of the obligations under the Treaties and the Public Contracts Directive that has been declared by the Court of Justice of the European Union in a procedure under Article 258 of TFEU’.

Another significant practical difference is that contracting authorities in the UK are now required to use Find a Tender, the new UK e-notification service replacing the Official Journal of the European Union’s Tenders Electronic Daily.⁴⁰ Regulation 84 of the PCR previously provided for the submission of certain reports to the EU Commission, and now provides for communication to the UK Cabinet Office or the relevant devolved authority. There has been a wholesale deletion of Schedule 5, which set out provisions for recognizing the qualifications of entities listed on identified trade registers within the EU member states. Regulations 89 and 90 of the PCR now also provide that duties owed to economic operators are duties owed to operators who, at the time of the procurement, were registered in a GPA state, provided always that the relevant procurement is within the scope of the GPA.

22.6.2 Green Paper: Transforming Public Procurement

In terms of future proposals, a consultation arising from the Green Paper on ‘Transforming Public Procurement’ closed for responses on 10 March 2021. In the Ministerial Foreword to that document, Lord Agnew stated that ‘[t]he end of the Transition Period provides an historic opportunity to overhaul our outdated public procurement regime’.⁴¹ However, this perhaps overstates the changes proposed and Albert Sanchez-Graells has commented that, ‘despite its Brexit-infused rhetoric of transformation’, the Green Paper not only ‘remains very closely pegged to the current regulatory baseline’ in adopting an ‘EU law+’ but pursues a deregulatory strategy ‘that will increase formal and substantial complexity and thus raise administrative burdens and compliance costs for all actors involved’.⁴²

Changes proposed in the Green Paper include, inter alia:

1. (1) replacing the separate regimes for public contracts, concessions, utilities, and defence and security with a single, uniform set of rules, supplemented by sector-specific aspects where required for effective operation or in the national interest;

2. (2) legislating to require contracting authorities to have regard to the government’s strategic priorities for public procurement in a new National Procurement Policy Statement; and

3. (3) reforming the process for challenging procurement decisions to speed up the review system and make it more accessible, refocusing redress on pre-contractual measures and capping the level of damages to reduce speculative claims.⁴³

While the outcome of the public consultation and the future of public procurement in the UK are not known at the time of writing, it is of interest that regard for secondary policies – and government strategic priorities – has been highlighted. As noted in Section 22.3.3, while there is considerable scope for incorporation of secondary policies under the EU framework, such incorporation is subject to very specific and precise constraints, depending on whether it is pursued through specifications, award criteria, contract performance conditions and so on.⁴⁴ Thus, it may be that use of procurement to pursue general government strategies will be a significant feature of the new procurement landscape post-Brexit.

22.6.3 Future Issues

At present, all of the obligations of the TCA appear to be capable of accommodation within the existing PCR, UCR and CCR, which go further than required by the TCA, and even the new provision in Article 284 TCA on verification for subsidies could arguably be achieved through application of the current provisions on abnormally low tenders. However, potentially very difficult issues will arise if amended regulations are introduced which are not fully compliant with the requirements of the TCA. The effect of the TCA in domestic law would then be brought into sharp focus. Section 29 of the European Union (Future Relationship) Act 2020 (EUFRA) may provide an answer here, insofar as it suggests that domestic law ‘has effect … with such modifications’ as are required to implement the TCA. This may mean, as is suggested by Paul Craig,⁴⁵ that the specific provisions of the TCA may be directly invocable at the instance of disappointed tenderers, creating additional burdens for procuring entities not only to comply with national implementing regulations but also to monitor their compliance with the TCA itself.

22.7 Conclusion

Overall, as can be seen, the UK will enjoy certain new flexibilities in procurement post-Brexit, of particular importance in relation to sub-threshold contracts and secondary policies. However, the TPA/GPA framework imposes significant constraints of principle, and early indications are that procurement will continue to be quite heavily regulated. Certainly, it is not at all clear that procurement post-Brexit will be any less ‘complex’ than it was considered to have been before Brexit.