Goods in the Internal Market Bill: The Emperor’s New Clothes?

In this post, Jan Zglinski (Assistant Professor at the LSE) discusses the UK Internal Market Bill’s provisions on goods, and explores their similarities and differences with the current EU internal market rules.

When the UK government published the Internal Market Bill, the document immediately sparked considerable and, in this age of political polarisation, unusually consensual outrage. The first wave of criticisms focused on the fact that the Bill violates international law by deviating from provisions of the Withdrawal Agreement, an allegation confirmed by cabinet minister Lewis before the House of Commons. While, in the short term, the most pressing question is what consequences this breach will trigger (will it be legally challenged by the European Commission? Will it irreparably damage the negotiation process with the EU?), the Bill also brings about a series of constitutional and institutional changes that will mark the UK long after the dust over Brexit has settled. In this blog post, I explore the new rules on goods and shed light on the many similarities, as well as some crucial differences, with existing EU free movement law in this area.

Old Friends: Cassis, Keck and Proportionality

Building on what had been sketched out in the White Paper (see posts by Alfred Artley and Harry Gillow), the Bill lays down a goods regime for the UK that rests on two principles: mutual recognition and non-discrimination. Both have, contrary to other provisions in the Bill, direct effect. The former entails that a product which has been lawfully produced or imported into one part of the UK can be sold in any other part. Product bans aside, it applies, in particular, to rules relating to “characteristics of the goods” or any matter connected with their presentation (including packaging and labelling) and production.

The latter, the principle of non-discrimination, prohibits direct and indirect discrimination against products coming from other parts of the UK, especially in relation to “the circumstances or manner in which goods are sold (such as when, by whom, to whom, or the terms on which they may be sold)”. While directly discriminatory measures cannot be justified, indirectly discriminatory laws must “reasonably be considered a necessary means of achieving a legitimate aim”, a category restricted to the protection of the life or health of humans, animals or plants and public safety or security.

Those familiar with EU free movement law will feel a slightly odd déjà-vu when reading through these provisions. The parallels are striking. The Bill is filled with principles, doctrines, and even direct quotations from the case law of the Court of Justice of the European Union (CJEU). It contains all the main elements of the EU rules on the free movement of goods and adopts them, with some modifications, internally for the UK. Mutual recognition, for example, is a principle that was established by the CJEU in the Cassis de Dijon ruling. (The term itself has been coined by the European Commission in a communication advertising the judgment.) It creates the rebuttable – an issue to which I shall return – presumption that goods legally produced in one Member State can be sold anywhere in the EU and applies to requirements relating to composition, presentation, labelling and packaging. By contrast, as the European Court decided in Keck, rules on so-called “selling arrangements” or the circumstances in which a good can be sold (“to where, when, by whom, or how”, as a member of the Commission’s legal service once put it) are governed by the principle of non-discrimination. Restrictions on cross-border trade can be justified as long as they pursue a legitimate aim and are necessary and proportionate to achieve this aim.

Taking Back Control

That the Internal Market Bill draws so heavily on EU free movement law is surprising for at least two reasons. The first and perhaps most immediately apparent one is symbolic. Brexit advocates may legitimately wonder whether this is really what “taking back control” was about: copying, at times verbatim, rulings of the European Court of Justice and making them the backbone of the UK’s new internal market? A more inspired and, indeed, independent approach was certainly possible, perhaps even warranted.

But there is a deeper, substantive question to be asked. Why did the government follow the structure of EU free movement law so closely? In the White Paper, the government had announced that it would, when drafting the Bill, take inspiration from countries like Australia and Switzerland. Canada and the United States of America could, as a recent Scottish Parliament inquiry shows, have been further valuable reference points. Each of these states has chosen to organise their internal market in a slightly different manner, relying on different rules and principles. While some have opted for decentralised models based on anti-protectionism, others have embraced a more expansive, centralised approach. Transposing the solutions adopted by these countries, or variations of them, would appear much closer to home. After all, they have, just like the UK, a (quasi-)federal or composite structure, look back at a long common history, have a well-established national market, are marked by a fair degree of socio-cultural homogeneity and, in the case of Canada and Australia, even share a common legal heritage with Britain.

That the UK would choose to model its internal market on the EU instead is, at the very least, curious. The EU is a comparatively young organisation with a sui generis constitutional architecture, whose 27 Member States display a considerable amount of political, socio-economic and religious diversity. Its free movement principles are the result of a specific market, unique institutional dynamics, and a decades-long process of learning and adjusting. The CJEU established the principle of mutual recognition in the late-1970s as the European political process was unable, or rather unwilling, to enact common rules for goods, thus putting the internal market project at risk. It later excluded non-discriminatory “selling arrangements” from judicial review because it realised that traders were abusing its generous interpretation of Art. 34 TFEU, with damaging consequences for Member State autonomy. This is not to say that these are not good principles. But it raises the question to what extent they are a good fit for the UK.

Mutual Recognition: Conditional or Absolute?

Perhaps more consequential than the similarities, however, are the ways in which the Internal Market Bill differs from the EU rules. The most significant deviation is that the Bill turns mutual recognition into an (almost) absolute principle. In EU free movement law, traders can rely on the presumption that goods legally produced in one Member State can, in principle, be sold in the whole of the EU. But this presumption is qualified. Other Member States can rebut it by demonstrating that legitimate reasons exist for not allowing the marketing of the product, e.g. in order to protect consumer welfare or public policy, as long as the restriction is proportionate. This solution, known as conditional mutual recognition, was a concession which the Court granted national governments when first establishing the principle. It acknowledges that not all regulation is bad – or, to put it differently, that markets sometimes produce undesirable outcomes which need to be corrected – and that there can be legitimate variations in protective standards among the Member States.

The Internal Market Bill keeps the first element of this model (mutual recognition) while dispensing with the second (possibility to justify restrictions). Instead, it lays down an extremely narrow set of “exclusions” which are essentially limited to measures aimed at preventing the movement of diseases and unsafe food, provided the public health risk is “serious”. Why this choice in favour of quasi-absolute mutual recognition? The motivating idea here may be that regulatory standards are more uniform in Britain than across the EU and that, therefore, there will be a greater level of trust among the constituent countries of the UK. (The initial reactions of Scottish, Welsh and Northern Irish MPs seem to suggest otherwise.) Perhaps the Bill’s drafters also tried to remedy a practical problem with conditional mutual recognition, namely that traders need to judicially challenge restrictive laws, a significant burden in terms of money and time, without being guaranteed success as legislatures will always try to justify their action. Absolute mutual recognition makes this endeavour easier and more promising. A final possibility appears plausible: it could be that the Bill deliberately puts forward a different idea of the market, one marked by as little regulation as possible. Already in its conditional variant, mutual recognition has strong – many argue, too strong – de-regulatory effects. These would be further magnified under an absolute model.

Interestingly, there are also differences between the Bill and EU internal market law when it comes to the principle of non-discrimination. Direct discrimination is, contrary to European law, completely prohibited. Again, the rationale behind this is probably that there is a greater level of homogeneity within the UK, rendering explicit unequal treatment between traders or products unnecessary (and particularly offensive). Moreover, in relation to indirect discrimination, the Bill sets out an exhaustive list of justification grounds, of which there are only two: protection of the life or health of humans, animals or plants and public safety/security. Both adjustments will improve market access for traders, yet it remains seen to what extent they will prove sustainable. As the EU experience shows, there can be situations in which it makes sense to distinguish based on the origin of a product, for instance when trying to ensure that waste is disposed of at source. That the regulation of goods can be boiled down to public health and safety is perhaps even more illusory. Legislatures choose to restrict certain commercial practices for a variety of reasons, such as trying to protect consumers, commercial fairness and industrial property. The Bill will either lead to an invalidating of wide parts of local legislation that pursue such objectives or force UK courts to engage in a creative reading of the justification grounds provided.

The New UK Internal Market: Judicialization and Centralization

It would be a mistake to think that these are mere doctrinal tweaks. If there is one lesson to be learned from EU law, it is that every choice regarding the scope, depth and enforcement of free movement rights tends to have constitutional and institutional knock-on effects. Two consequences are to be expected.

First, the UK internal market will, as a result of the Bill, become more judicialised. Strong rights and direct effect are a powerful combination. Local laws will risk being overturned in court by clever litigants who will not only have the incentive to challenge unwanted regulatory measures but often also the means to do so. Measures such as the Scottish legislation on alcohol minimum pricing might, with a bit of luck and persuasion, be found to constitute rules on market circumstances and only have to pass the discrimination test (which they might fail, though, due to their possibly more detrimental effect on beverages from other parts of the UK). Restrictions on single-use plastics, genetically modified organisms or the controversial chlorinated chicken, would, by contrast, amount to clear product requirements and, as such, be prima facie prohibited. It is worthwhile mentioning in this regard that some of the most successful lawyers litigating goods cases before the CJEU have been from the UK; they will certainly be happy to apply their experience domestically.

Therefore, courts will, even more than today, be in the limelight and much will depend on the approach they will adopt. How broadly will they interpret the Bill’s provisions? What intensity of scrutiny will they apply? And how sympathetic will they be to Scottish, Welsh or Northern Irish arguments about the necessity and proportionality of their laws? An external factor, outside their control, is to what extent the government’s attempt at limiting judicial power will be successful. The exclusion of judicial review of ministerial regulations in the Bill, as well as initiatives like the independent review of the judicial review process launched in July, could be early symptoms of broader changes to come.

The Bill’s second consequence will be a greater centralisation within the UK. Part of this will be achieved through the aforementioned judicial invalidating of local legislation that breaches the principles of mutual recognition or non-discrimination (something which European lawyers call “negative integration”). Part of it will result from the transfer of the legislative competences hitherto exercised by the EU, some of which will not go to Scotland, Wales and Northern Ireland but to Westminster (“positive integration”). The former, it bears emphasising, will go beyond the scope of the latter. In addition, the Competition and Markets Authority will, through a number of soft powers it is granted in the Bill, push forward a national market agenda. This, of course, is bad news for devolution.

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