ECONOMY

UK proposal to rewrite section of Brexit deal wins lawyers’ backing

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Prominent EU legal experts have backed the British government’s demand to rewrite a controversial section of the Brexit withdrawal agreement that gives Brussels potentially sweeping powers over UK state-aid decisions. 

The intervention by George Peretz QC of Monckton Chambers and James Webber of Shearman & Sterling supports arguments made in July by Cabinet Office minister Lord David Frost that article 10 of the Northern Ireland protocol was now “redundant” and should be removed.

Expunging article 10 has long been a target of Brexiters in the Conservative party because it requires the UK government to refer any state-subsidy decision that might have an impact on goods trade between Northern Ireland and the EU for approval to the European Commission.

Frost demanded its removal alongside other sweeping proposed changes to the Northern Ireland protocol, which outlines post-Brexit trading arrangements for the region and took effect in January.

These provisions have caused major tensions between the UK and the EU, contributed to the ousting of Arlene Foster as Northern Ireland’s first minister in April and were among factors blamed for rioting in the region at Easter.

Under the terms of the Northern Ireland protocol, all goods entering the region from Great Britain must follow EU rules and regulations, creating a border in the Irish Sea that Frost has repeatedly declared is “unsustainable” in its current form.

The UK’s proposed overhaul of the protocol — contained in a government command paper published in July — has been the subject of talks between the two sides this summer.

Officials said there had been little progress and that deadlines were looming over whether to extend a series of grace periods that ease the impact of Brexit red tape on Northern Irish businesses and are due to expire in October.

One person on the UK side of the talks said they were reasonably optimistic about the chances of an extension given the risk of repercussions in Northern Ireland.

“We are hopeful [the EU] do recognise the importance of not aggravating this situation,” added this person. “But it remains to be seen whether they are willing to engage seriously on article 10 or not.”

But in an intervention that will come as a boost to the British government, Peretz and Webber said the UK request to rewrite article 10 was reasonable.

“Whatever view may be taken by the EU of the UK government’s general stance towards the protocol either in the command paper or more widely, its specific proposals on article 10 should, in our view, be considered seriously,” they wrote in a paper to be published on Thursday.

The wide scope of article 10 means that a UK government state-subsidy decision that was aimed at the broad economy, such as a tax break, would need referral to Brussels because of its potential impact on a British business supplying goods to Northern Ireland that might subsequently end up in the EU. 

Peretz and Webber said this was a major impingement on British sovereignty since it subjects such decisions, which could include general UK tax changes, “to prior supervision by a foreign power and oversight by a foreign court”.

In a sign of the potential reach of article 10, it has already been cited in UK courts in a case where British Sugar argued that a government decision to cut tariffs on some sugar cane imports amounted to an unfair subsidy against the rival beet industry.

In the command paper, the UK government argued the provisions of article 10 were “redundant in their current form” because policy had evolved dramatically since the Northern Ireland protocol was agreed in October 2019.

At the time, Brussels had expressed deep concerns about potential trade distortions and the risk to a so-called level playing field that might occur once the UK government was freed from the constraints of EU membership and the bloc’s state-aid policy.

But last December the UK and the EU signed a trade and co-operation agreement that laid down core principles on subsidies, and the British government further fleshed out its thinking in its subsidy control bill.

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Peretz and Webber suggested it would be possible to add to the UK subsidy regime provisions that would require British bodies to apply EU principles to grants likely to impact trade between Northern Ireland and the bloc, or provide for enhanced scrutiny of such arrangements.

This could provide “significant additional comfort” to Brussels that state-subsidy decisions were not distorting trade between the EU and UK, they added.

A UK government official said: “As Webber and Peretz suggest, now the UK and EU have hammered out common principles of subsidy control in the [trade and co-operation agreement], it makes sense to revisit article 10 to ensure common rules across the UK which align with the broader agreed UK-EU relationship.”

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