In this post, Peter Oliver (Visiting Professor, Université Libre de Bruxelles) examines the exception clauses to the rules on free movement of goods in the Internal Market Bill.
This contribution follows on from the recent post by Jan Zglinski and focuses on the exception clauses to the rules on free movement of goods in the Internal Market Bill as regards trade between England, Scotland and Wales. In view of its unique position under the Ireland/ Northern Ireland Protocol to the Withdrawal Agreement, Northern Ireland cannot be considered here.
Legislation governing these issues is necessary to ensure legal certainty for the future, given that up to now a very high proportion of standards relating to goods have been laid down by EU law. One of the issues considered here is to what extent the relevant clauses of the Bill would dispel such uncertainty.
Analysis of the Relevant Provisions
According to clause 1(2) of the Bill, the “market access principles” are mutual recognition (clauses 2 – 4) and non-discrimination (clauses 5 – 9); (references are to the version of the Bill introduced in the House of Lords on 30 September). Perhaps surprisingly, to some extent these categories (though not the terminology) reflect the case law of the Court of Justice of the EU (“CJEU”) on Article 34 of the Treaty on the Functioning of the European Union (“TFEU”), which prohibits non-tariff barriers to imports between the Member States subject to the exceptions discussed below.
By virtue of clause 3, mutual recognition would apply primarily to what are known in the EU jargon as “product-bound” requirements (those relating to the inherent characteristics of products and their presentation, including the packaging and labelling). As stated in clause 2, mutual recognition would in principle require each of the four UK nations (“the nations”) to allow the marketing of goods produced in, or imported into, one of the other nations (e.g. England), so long as those goods can be lawfully sold in the latter nation. Thus, if chickens dipped in chlorine were to be produced in England or imported there from the US and could lawfully be sold in England, the other nations would have no right to impede the marketing of those chickens on their territory, subject to the exceptions discussed below.
According to clause 6, non-discrimination relates to matters not covered by clause 3, including “the circumstances or manner in which goods are sold (such as where, when, by whom, to whom, or the price or other terms on which they may be sold)” (clause 6(3)(a)). Under the CJEU’s well known judgment in Keck , these are styled measures relating to “selling arrangements”. In turn, non-discrimination is divided into direct and indirect discrimination (clauses 7 and 8 respectively), concepts which also derive from EU law.
As Jan Zglinski pointed out, the most striking aspect of the provisions of the Bill regarding trade in goods is that the grounds on which any of the above restrictions on trade may be justified are extremely limited. In this regard, the Bill is fundamentally at variance with the statement of the Secretary of State in the Government’s White Paper of July 2020 that the UK’s “exceptionally high standards” for goods would be maintained.
The current version of the Bill contains two sets of exception clauses. First, by virtue of clause 8(6)(a) read with clause 8(1)(d), indirect discrimination is lawful if it is necessary for (a) “the protection of the life or health of humans, animals or plants” and/or (b) “the protection of public safety or security”. The Bill contains no definition of the term “public safety”, the only one which is not to be found in Article 36 TFEU (discussed below); but it must at the very least cover accident prevention. Second, schedule 1 to the Bill, read with clause 10, contains a series of piecemeal exceptions to the market access principle.
Paragraph 1 of the schedule lays down an exception to all the market access rules, but it is only applicable if five conditions are met. In summary, the exception only applies to measures reasonably aimed at preventing the “movement of a pest or disease”. That term is defined by para 1(8) to mean “any organism or agent that is liable to cause a disease or other harm to the health of humans, animals or plants”. Since “agent” is not defined, one can only speculate whether it would cover harmful substances such as tobacco.
Paragraph 2 of the schedule lays down a specific exception to the mutual recognition principle for “unsafe food or feed”. As to the meaning of “food”, it incorporates by reference Article 2 of EU Regulation 178/2002, which includes drink but not tobacco. Paragraph 2(8) incorporates by reference the definition of “unsafe food” in Article 14 of that Regulation. According to that definition, food is “unsafe” inter alia if it is “injurious to health” in the short or long term. Similarly, in determining whether “food” is “unsafe”, regard must be had to its “probable cumulative toxic effect”.
On the other hand, account must also be taken of the “normal conditions of use” by consumers. To complicate matters further, Article 14(1) of the Regulation provides: “Food shall not be placed on the market if it is unsafe.” This is not part of the definition, but it suggests that food is only to be regarded “unsafe” in extreme cases. No doubt, it would follow from these provisions that (for instance) cakes containing nuts would not be “unsafe” for the purposes of Article 14, even though they might be lethal for people with a severe nut allergy: to ban the sale of such cakes altogether would be manifestly disproportionate, as adequate labelling requirements would suffice.
Under the Bill, the consequences of “food” being unsafe are quite different: provided that the other four conditions set out in paragraph 2 of schedule 1 are fulfilled, any measure covered by the mutual recognition principle is saved. By virtue of clause 3, that includes labelling requirements. In this context, the term “unsafe food” cannot be construed so narrowly as to cover only products which as so dangerous as to justify their complete withdrawal from the market. On this basis, legislation requiring cakes to be sold with labelling indicating their ingredients (including nuts) would no doubt be justified.
Accordingly, alcoholic drinks must be regarded as “unsafe” for these purposes. Thus, if Scotland were to impose labelling requirements for the sale of such drinks, that measure would be covered by this exception, as long as it can be “reasonably justified as necessary” to prevent “a serious threat to the health of humans or animals’ in Scotland in accordance with paragraph 2.
Paragraph 5(1) of the schedule lays down an exception to the prohibition in clause 7 on direct discrimination in so far as the measure in issue “can reasonably be justified as a response to a public health emergency”. A “public health emergency” is defined in paragraph 5(2) to mean “an event or a situation that is reasonably considered to pose an extraordinary threat to human health” in the nation receiving the goods. Plainly, this includes the current pandemic, but the fact remains that this exception is extremely limited in scope.
The following paragraphs of schedule 1 contain specific exceptions relating to chemicals, fertilisers and pesticides and taxation respectively. As to the latter, paragraph 11 reads as follows: “The United Kingdom market access principles do not apply to (and sections 2(3) and 5(3) do not affect the operation of) any legislation so far as it imposes, or relates to the imposition of, any tax, rate, duty or similar charge.”
Two glaring problems arise with respect to these exceptions as currently drafted.
The first is that the exceptions are littered with anomalies. In particular, the relationship between clause 8 and schedule 1 is unclear. Furthermore, why does clause 8 apply only with regard to indirect discrimination, and not to mutual recognition or direct discrimination? And why does paragraph 1 of schedule 1 lay down an exception to all the market access rules, whereas the exception in paragraph 2 only applies to mutual recognition and paragraph 5 relates exclusively to direct discrimination? Logically, all the exceptions should apply to the entire panoply of market access rules, although of course – in accordance with the principle of proportionality – the more stringent a restriction on trade is, the less likely it is to be justified. It is to be hoped that these anomalies will be removed in the course of the legislative process.
The second manifest problem is that these exceptions are extremely limited and in particular, apart from clause 8 (which only relates to indirect discrimination), they fall far short of a general public health exception such as is found in Article 36 TFEU.
Let us take just two examples. As already mentioned, it is by no means clear that tobacco control measures are covered (apart from clause 8); and measures designed to ensure the adequate supply of medicines or medical supplies (e.g. protective clothing for health workers) are certainty not caught by these exceptions in the absence of a public health emergency (again apart from clause 8). Countless other examples could be given.
What is more, the Bill lacks any reference to other crucial matters of public interest, including consumer protection and (with the sole exception of fertilisers and pesticides, but not chemicals) environmental protection. Indeed, even public safety or public security are not guaranteed except with respect to indirect discrimination under clause 8!
A further matter of concern is that the Secretary of State would have sweeping powers to amend the exception clauses (clauses 8(7) and 10(2)). Of course, this would enable him to broaden the exceptions, but equally he would be entitled to restrict them. Thus, supposing that the Scottish Act on minimum unit pricing is compatible with the Bill (which is almost certainly the case, as explained below), the Secretary of State would have the power to reverse that situation. The adoption of regulations under these provisions would be subject to the affirmative parliamentary procedure, but that will not be widely regarded as a satisfactory safeguard.
Incidentally, by virtue of clauses 3(8) and 6(5), the Secretary of State enjoys the same powers with regard to the provisions laying down the market access principles (i.e. the prohibitions on restrictive measures). The same procedure must be followed – with the additional “safeguard” that he would also have to consult the devolved administrations. Again, there is an anomaly: why is no such consultation required as regards the exception clauses, even though they are equally important for the devolved administrations?
A Comparative View
In any case, the limited scope of the exceptions enshrined in the Bill, especially as regards public health, stands in stark contrast to the broad and varied exceptions applied in many other federal or quasi-federal jurisdictions and in the WTO.
Since this Bill draws heavily on EU law, it is appropriate to take it as our starting-point. EU law recognises a very wide range of public policy exceptions to Article 34 TFEU. The exception clause is to be found in Article 36 TFEU which lists inter alia the following grounds of justification: public morality, public policy, public security, the protection of health and life of humans, animals and plants and intellectual property. Despite the numerous amendments made to the EU Treaties over the years, the text of this provision is identical to that of Article 36 of the original Treaty of Rome which established the European Economic Community in 1958. It is also noteworthy that this text is modelled on Article XX of the GATT ( (although GATT has now been superseded by the WTO, what is now known as GATT 1947 is appended to the latter treaty).
Furthermore, whilst the Court has construed “public policy” very narrowly, it has added a long list of judge-made exceptions, including consumer protection, environmental protection, the improvement of working conditions, accident prevention and the protection of regional culture.
Ever since its very first ruling on the public health exception in Article 36 in De Peijper, the Court has consistently stressed that this exception “ranks first” amongst all the grounds of justification – and rightly so ! What is more, all aspects of public health protection are covered.
For the sake of completeness, it should be emphasised that it by no means suffices for a Member State to claim that a restriction on free movement of goods falls within one of the recognised grounds of justification. On the contrary, the CJEU applies a very robust standard of scrutiny: the Member State concerned bears the burden of proving that a contested measure is appropriate and is no more restrictive than necessary to achieve that objective. Moreover, direct discrimination against goods from other Member States is only admissible in highly exceptional circumstances.
In addition, it is highly instructive to consider the survey conducted for the Scottish Parliament regarding other federal Constitutions. As is clear from the report on the US, the several States in that country “retain the police power, namely, the authority to legislate for the health, safety, welfare, and morals of their residents”, subject to the prohibition on imposing discriminatory or unduly burdensome restrictions on “out of State” goods. The Canadian provinces enjoy far broader powers, although of course they may not impose undue restrictions on goods from other provinces. As to Switzerland, the situation is broadly similar.
Finally, as we noticed in paragraph 20 above, Article XX of GATT, which is still in force, lays down a very broad range of exceptions to the prohibition on trade restrictions enshrined in that treaty.
Of course, the comparative survey set out here does not purport to be exhaustive, but it covers the most obvious jurisdictions and may therefore be regarded as representative. Having said that, the United Kingdom is not on any view a federal State; and it is indisputable that the Member States of the EU, the American States, the Canadian Provinces and the Swiss Cantons enjoy far broader powers than the devolved administrations of the UK. Nevertheless, the fact remains that, if enacted in its present form, the Bill would go well beyond prohibiting protectionism or arbitrary discrimination, thereby permitting substantial encroachments on devolved powers where the devolved administrations choose to have higher standards than England. (Conceivably, the converse situation could also arise: one of the devolved administrations might enact legislation which is less rigorous than that applicable in England.)
What is more, in all these cases, the rights of the Member States or regional entities (as the case may be) are entrenched by treaties or written Constitutions. In the United Kingdom, only relative entrenchment is possible. Nevertheless, such boundless and momentous powers as the Secretary of State would enjoy under the Bill to amend the relevant provisions should at the very least be reserved for primary legislation.
Possible Future Litigation
Leaving aside the possibility that the Scottish Government might challenge the future Internal Market Act itself in the courts, the provisions discussed above are likely to give rise to at least two types of litigation, assuming that they find their way into the Act.
First, it is likely that the use by the Secretary of State of his powers to amend the exceptions to the market access principles is likely to give rise to a considerable amount of litigation – not least because of their open-ended nature. Such measures would of course be open to challenge whether they broadened the exception clauses or narrowed them.
Among the various grounds of judicial review, legitimate expectation is likely to play an important role. Two cases concerning the current regime in Hungary (which is proud to call itself “illiberal”) are of particular relevance. In Vékony v Hungary, the owner of a grocery had been deprived, along with tens of thousands of others, of his licence to sell tobacco at very short notice in favour of a concessionaire who was no doubt politically well connected; the precipitate nature of the measure was one of the reasons why the ECtHR held that the applicant’s property rights had been breached. By the same token, in Berlington Hungary, the CJEU in effect ruled that a very similar reform of the gambling industry constituted a restriction on the free provision of services under Article 56 TFEU, which was almost certainly not justified for the same reason. But similar situations can also occur quite innocently. Thus in Radlberger, the CJEU held that a German decree introducing a reform of the packaging laws for environmental reasons fell foul of Article 34 TFEU because it gave traders insufficient time to adapt to the new rules.
Second, English, Scottish and Welsh measures will also be open to challenge – and, if the Bill is enacted as currently worded, the legal uncertainty will be such that a large amount of litigation can be expected. One can only hope that the drafting will be greatly improved in the course of the legislative procedure.
At least it seems clear that the Alcohol (Minimum Pricing) (Scotland) Act 2012 would be upheld under the current provisions of the Bill. As mentioned above, rules on pricing are covered by the non-discrimination principle (clause 6(3)(a)). It is extremely hard to imagine how a convincing case could be made for the proposition that the minimum pricing scheme constitutes direct discrimination. Accordingly, if it is discriminatory at all, minimum unit pricing must be regarded as indirect discrimination, and is therefore saved by clause 8. Having said that, as already mentioned, there would be nothing to stop the Secretary of State from moving the goal posts …
It would certainly be unfortunate if Scotland’s minimum unit pricing scheme were dragged through the courts a second time, following the protracted proceedings based on an alleged breach of Article 34 TFEU involving a preliminary ruling of the CJEU and culminating in a judgment of the Supreme Court. Presumably because of its lack of experience of such litigation, the Scottish Government failed to provide a clear message as to the purpose of the Act. This led Advocate General Bot to criticise what he regarded as the ambiguity created by the Scottish Government, which in his view made the measure much harder to justify. Probably for the same reason, the CJEU’s judgment was less favourable to the legislation than might have been expected. Only after the preliminary ruling did the Inner House of the Court of Session re-assess the evidence, and on that basis both that court and the Supreme Court upheld the Act.
No doubt, the Scottish Government has been more cautious about its communications policy since then, and the other devolved administrations have presumably taken note as well.
Conclusion
In short, as currently worded, the Bill provides for large-scale deregulation at the expense of the devolved administrations and their citizens. The very limited and piecemeal nature of the public health exceptions is a matter of particularly grave concern, since the protection of human life and health is undoubtedly the most important public interest of all. A general public health exception covering the whole gamut of restrictions on market access is essential.
Precisely the same applies to other crucial matters including accident prevention (which is in reality a form of public health protection), public safety and public security as well as consumer and environmental protection.
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