Invention is the mother of “necessity”: the Northern Ireland Protocol Bill

In this post, George Peretz Q.C. of Monckton Chambers discusses the Northern Ireland Protocol Bill. The Ireland/Northern Ireland Protocol was at the heart of the Withdrawal Agreement negotiated with the EU in 2019 and was, as required by that agreement, incorporated into UK law. It has important tax implications, especially in the areas of VAT,
customs duties and state aid. The Northern Ireland Protocol Bill would remove most of the Protocol from UK law, despite the UK’s treaty obligation. The government claims that the principle of ‘necessity’ gives a legal basis for that action in international law, but its argument is unconvincing. The Bill is likely to run into considerable opposition in Parliament, especially in the House of Lords. And if passed it would threaten a trade war with the EU with major implications.

The Protocol

Anyone remembering the 2019 General Election is likely to have an image in their mind of the current Prime Minister talking about the “great” and “oven-ready” withdrawal deal (the Withdrawal Agreement: “WA”) that he had negotiated with the EU and wanted voters to endorse.  An integral part of the WA was the Ireland/Northern Ireland Protocol (“the Protocol”).

Though the Protocol says that it keeps Northern Ireland in the UK customs territory and UK internal market, what it actually does is very different.  In particular, in areas of interest to tax practitioners:

• it applies the EU Union Customs Code to all movements of goods from Great Britain to Northern Ireland, with a limited exception for goods from any tariffs if they could be shown to be destined for Northern Ireland (Article 5);

• it keeps Northern Ireland in the EU VAT area and subject to EU VAT Directives relating to goods (Article 8); and

• it applies EU State aid law to all UK measures, including selective tax exemptions and waivers, that have a real or potential effect on EU/Northern Ireland trade in goods (Article 10).

In those areas, it also maintains the institutional apparatus of EU law in those areas: in particular it retains the role of the Commission and of the Court of Justice of the EU (“CJEU”) (Article 12).

The potential effect of the Protocol in terms of checks and costs to businesses seeking to move goods from Great Britain to Northern Ireland was explored in government papers at the time, including the published impact assessment for the Bill that became the EU (Withdrawal Agreement) Act 2020 (“the 2020 Act”).

The Protocol in UK law

Article 4(2) of the WA requires the WA (including the Protocol) to have direct effect and supremacy in UK law.  That is achieved by section 7A of the EU Withdrawal Act 2018 (“the 2018 Act”), as inserted by the 2020 Act.  Article 5 of the WA goes on to require the parties to take “all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising from [the WA] and …to refrain from any measures which could jeopardise the attainment of the objectives of [the WA]”.

Developments since the Protocol was agreed

As has been widely reported, the Protocol has caused problems and costs for Northern Ireland businesses importing goods from Great Britain, especially in the area of agri-food and medicines.  In the latter case, recent changes made by the EU to its law as applied to Northern Ireland have essentially solved the problems, but in the agri-food sector there have been various problems, albeit mitigated temporarily by a series of “grace periods” during which some of the requirements of EU law have been waived.   In the 2022 Assembly election, a large majority of seats was won by parties that broadly support the Protocol (though want some changes to its operation), and a number of business organisations in Northern Ireland have pointed out the advantages to Northern Ireland business of being able to export to the EU without checks or tariffs: but the Unionist parties, and some businesses in Northern Ireland, oppose it.  The Democratic Unionist Party has taken the position that it will not allow the devolved institutions of Northern Ireland to re-start until the Protocol is removed.

The current government has also complained about the complexities and constraints on UK-wide policy-making entailed by the Protocol.  In the tax field, of particular note is the 2022 spring statement, which complained that a 5% reduction in VAT on energy saving materials could not be extended to Northern Ireland.  However, although the Chancellor of the Exchequer claimed that the government would “be raising [that issue] with the Commission as a matter of urgency”, and although Article 8 of the Protocol, which deals with VAT, allows for the EU/UK Joint Committee on the Protocol a wide power to adopt measures for the proper application of the Protocol, it does not appear that any step was ever taken to pursue that route.  Complaints have been made that Article 10 has an impact on general UK tax measures and other subsidies: though, again, the government has not, as far as anyone knows, tried to obtain Commission clearance for any such measure, as it would be able to do. 

More generally, and outside the area of tax, the government has found that the Protocol has complicated its regulatory policy-making across the board – especially in those areas where it has managed to locate realistic possibilities of significantly diverging from EU law. 

Against that background, the current government has now proposed a Bill that gives it wide and vague powers to (in effect) remove the Protocol from UK law notwithstanding Article 4 of the WA.

The Bill

The Bill provides that most of the core elements of the Protocol – including the provisions relating to customs, VAT, State aid, and the jurisdiction of the CJEU – become “excluded provision” and thus will no longer have legal effect in the United Kingdom, expressly amending section 7A of the 2018 Act to that effect.   

The Bill gives Ministers extraordinarily wide powers to legislate.  Ministers can add or remove provisions of the Protocol from the list of “excluded provision”.  They can legislate so as to make any provision they consider appropriate in connection with the Protocol, including amending any legislation.  In two particularly startling provisions, clause 18 gives Ministers power to engage in any conduct in relation to the Protocol that they consider appropriate (what might be termed a “Louis XIV” clause) and clause 19 gives them carte blanche to implement any replacement of the Protocol without a further Act of Parliament. 

There is no doubt that if implemented the Bill would mean that the United Kingdom would not be complying with Articles 4 and 5 of the WA. 

The defence of “necessity”

The Bill goes well beyond earlier proposals in late 2020 (Part 5 of the Internal Market Bill) to breach Article 4 of the WA (proposals that were voted down by the House of Lords and then abandoned).  Those provisions only allowed Ministers to derogate from Article 10 and certain customs provisions of the Protocol. 

The government admitted that those proposals would breach international law in a “specific and limited way”.  Perhaps learning from that experience, the government decided this time to argue that what it is proposing – though much more far-reaching than its 2020 proposals – is nonetheless consistent with international law.  There are reports that it found some difficulty in finding external lawyers who would support such an argument.  Nonetheless, in a “legal position” issued along with the Bill, the current Attorney General has felt herself able to argue that the defence of “necessity” applies.

The defence of “necessity” is an exception to the fundamental rule of international law that states are to abide in good faith by the terms of treaties that they have signed: Pacta sunt servanda, as the heading to Article 26 of the Vienna Convention on the Law of Treaties puts it.

As the International Court of Justice explained in the 1997 Gabčikovo-Nagymaros Project case, the defence of necessity arises only if (in particular) it is “the only means of safeguarding an essential interest of the State against a grave and imminent peril” (an objective standard that the State has to prove is met).  And it went on to say that: “the mere apprehension of a possible ‘peril’ could not suffice in that respect. … the ‘peril’ constituting the state of necessity has at the same time to be ‘grave’ and ‘imminent’. ‘Imminence’ is synonymous with ‘immediacy’ or ‘proximity’ and goes far beyond the concept of ‘possibility.’”   Further, the defence cannot apply “if the State in question has contributed to the occurrence of the state of necessity”. 

Against that background, and to put it at its lowest, the Attorney General’s legal position is unconvincing.  It starts off with the claim that “[i]t is clear that the Protocol is without prejudice to the Belfast (Good Friday) Agreement”: but fails to deal with the point that at Article 1(3) of the Protocol the UK government agreed that the Protocol was not just consistent with the Good Friday Agreement but was “necessary to … protect [that] Agreement in all its dimensions” (emphasis added).  It refers to “the strain that the arrangements under the Protocol are placing on institutions in Northern Ireland, and more generally on socio-political conditions” but fails to explain why that strain is a “grave and imminent peril”, or what (given that the Bill is opposed by a majority of recently-elected Assembly members) is the basis of “the Government’s assessment that these measures will alleviate the imbalance and socio-political tensions without causing further issues elsewhere in the Northern Ireland community”. 

The Attorney General does not explain on what basis she has concluded that removing the VAT, State aid, or CJEU jurisdiction provisions is “necessary” to avoid “imminent and grave peril” (a task that would be difficult given that the government has not tried to use the means within the terms of the Protocol for agreeing VAT changes or subsidies that it wanted to make, and given that the CJEU has not decided any case under the Protocol).  Nor, despite a passing reference to Article 16 (a provision within the Protocol that allows for safeguard measures to be taken in cases where necessary to deal with societal problems) does the legal position explain why that Article could not be used to resolve the “imminent and grave peril”.    

The Attorney General also asserts that “the UK has not contributed to the situation of necessity relied upon” without tackling the obvious problem that, when the government ratified the WA, the problems to which she draws attention were all predicted by Whitehall, and that the opposition of the Unionist parties was well-known: note that in Nagymaros, at the time of signing the treaty at issue, Hungary failed in its necessity defence because it was “not unaware” that the situation it later tried to rely on would arise if it signed, thereby contributing to that situation. 

The future of the Bill

The political uncertainty surrounding the Johnson government makes it hard to predict the course of the Bill.  It is likely to get a rough ride in the House of Lords both because the government’s legal position is unlikely to convince many, or indeed any, of the distinguished lawyers who are in that House, and because of the astonishingly wide powers being taken by Ministers.  Moreover, some supporters of the Bill are backing it on the basis that it is a negotiating tactic and will be dropped when the EU “backs down”: it is not clear what they will do when the EU does not back down.

As to how the EU will respond, the EU has power to bring legal proceedings against the UK for breach of the Protocol before the CJEU or before the arbitration procedure set out in the WA.  More immediately, it could either give one year’s notice to terminate the Trade and Cooperation Agreement (“TCA”) or nine months’ notice to terminate the trade parts of it (Articles 779 and 521 TCA, respectively) – steps that would have an immediate and substantial economic impact on the UK.  Rather more likely are targeted tariffs under Article 506(1)(b): the EU has long experience of targeting tariffs on politically sensitive sectors, so expect sectors such as Scotch whisky or cars produced in “red wall” seats to be the focus of attention.

Short of the Bill being withdrawn (perhaps after being defeated in the House of Lords) it is not easy to see a way out of the impasse.  There is a strong case for revising parts of the Protocol (and those who have had to advise on VAT, customs, or subsidy issues in Northern Ireland will know the complexities).  But all the solutions involve, in the end, trust and goodwill between the parties – things that are in short supply after the current government’s threats to breach treaty obligations that it entered into less than three years ago and with such threadbare legal justification.

First published in the Tax Journal, Issue 1582, 8 July 2022.

Share this post on social media: