The case of the unclear clarification: statement by the Joint Committee on the Ireland/Northern Ireland Protocol

In this post, George Peretz Q.C. of Monckton Chambers assesses the “clarification” in the statement on 8 December 2020 by the Joint Commitment on the Ireland / Northern Ireland Protocol regarding state aid matters. (NB This post was edited and updated on 11 December to reflect the fact that on 10 December 2020, the text of the clarification was released in the form of a unilateral declaration.)

In a statement issued on 8 December, the co-chairs of the Joint Committee on the Ireland/Northern Ireland Protocol announced that agreement had been reached in principle on outstanding issues, and that the current UK government would withdraw the controversial clauses of the Internal Market Bill that would have given the UK government power to breach the terms of the Protocol by removing or modifying the effect of key provisions of the Protocol in UK domestic law.

In relation to Article 10 of the Protocol – the provision that deals with State aid – the statement records that the Joint Committee has reached an “agreement in principle” as to the exemption of agricultural and fish subsidies from the scope of Article 10 (a matter where the Joint Committee has power to determine maximum permitted amounts of subsidy under Article 10(2) and Annex 6). 

More importantly for most businesses, however, the statement also recorded that “agreement in principle” has been reached on “a clarification on the application of State aid under the terms of the Protocol”. 

On 10 December, the text of that clarification was released.  It is in the form of a “unilateral declaration” by the EU side of the Joint Committee, which is “noted” by the UK side.

The background here is the now well-understood point – sometimes referred to as “reach back” – that the terms of Article 10 catch any UK aid measure (including measures by the UK government or public authority in Great Britain) that “affects” goods trade between Northern Ireland and the EU.  Since, in EU law, an aid measure can be shown to “affect” trade even if the effect is modest, not quantified by any robust economic evidence, or indirect, it is apparent that UK aid measures that are either general measures across the UK (such as tax measures or Covid-19 grants) or specific measures benefitting GB companies with Northern Ireland operations or Northern Ireland services businesses where all or some of that benefit was likely to be passed on to goods suppliers, could well be caught by Article 10.  Since Article 10 is incorporated into UK law and has direct effect (see Article 4 of the Withdrawal Agreement and section 7A of the EU Withdrawal Act) it will be unlawful – even after the end of transition and even in the absence of any FTA with the EU – for a UK government or any other UK public authority to implement a measure that is caught by Article 10 unless it either has been notified to and cleared by the European Commission or is exempt in accordance with applicable exemptions under the EU State aid rules.

How does the “clarification” assist?  The answer is “not really”, for two reasons.  First, the clarification is of limited legal force; and, second, it is anodyne, and says little of any interest.

Limited legal force

The first reason why the clarification does not assist is that (apart from the agriculture provision in paragraph 2) the Joint Committee has no role in setting the boundaries to Article 10.  Rather, the power to apply and interpret Article 10 is given to the EU institutions and, ultimately, to the Court of Justice of the EU.  Article 12(4) of the Protocol provides, first, that the EU institutions (i.e., here, the Commission) have all the powers over the United Kingdom in relation to Article 10 as they have over Member States under Articles 107-108 TFEU. In particular, the Commission has powers to find that aid has been granted under Article 10 and to order repayment of unnotified aid or clearance or prohibition of notified aid.  But, importantly, that paragraph goes on to provide that the Court of Justice of the EU has the same jurisdiction in relation to Article 10 as it has in relation to Articles 107-108 in a Member State: that is to say, it (or the General Court) can hear and decide appeals from the Commission about decisions to find, or not to find, State aid.  Moreover, cases about the Protocol can reach the Court of Justice in a way that has nothing to do with the Commission: the Court has powers, under Article 267 TFEU – which is specifically mentioned in Article 12(4) – to give preliminary rulings on all questions of interpretation of Article 10 when UK courts ask it to (and any final court of appeal will be required to ask unless the question does not need to be answered or the answer is obvious). 

So the effect of Article 12(4) is that the decision as to what Article 10 means is for the Court of Justice, not for the Commission or the UK, or for the Joint Committee. If, in future, the Commission applies the clarification and decides that a measure does not fall under Article 10, that is not the end of the matter.  A dissatisfied party could appeal to the General Court of the EU on the ground that the clarification is not what Article 10 actually means. Or it could take the point before a UK court, seeking a request for a ruling from the Court of Justice. Either way, the matter gets to the Court of Justice.

The Court of Justice might pay attention to the “clarification”. It might not. That is a matter for it. But what it says is law. The “clarification” is not law.

One possible avenue for the United Kingdom, if the Court of Justice uphald an interpretation of Article 10 that the United Kingdom though was inconsistent with the clarification, would be to raise the matter in the dispute settlement mechanism provided for by Title III of Part Six of the Withdrawal Agreement, arguing that the Court of Justice had misinterpreted Article 10 by finding an “effect” where there is in fact in law no “effect”. 

The problem there is that, under Article 174 of the Withdrawal Agreement, questions of interpretation of “concepts of EU law” are for the Court of Justice to resolve. So the invocation of the dispute settlement mechanism appears to lead straight back to the Court of Justice.

But that assumes that the questions at issue are “concepts of EU law”. Is that assumption right?

The problem with the answer “no” is that the key Article 10 concept (“measures which affect that trade”) picks up on the “affects trade between Member States” concept in Article 107 TFEU.   Moreover, the idea that “affects trade” is a “concept of EU law” is strengthened by the fact that the Court of Justice is given power in Article 12 to interpret it: a fact that makes more sense if the concept is one of EU law.

Further, the proposition that it is not a concept of EU law would give rise to the obvious risk that the result of the arbitration could differ from the result arrived at by the Court of Justice, even though Article 12 gives jurisdiction to the Court of Justice.

In my view, therefore, the dispute settlement mechanism would not assist the United Kingdom in those circumstances: like Alice in “Alice Through the Looking Glass”, the attempt to head for a point in the distance just leads it back to precisely where it started: namely, that what Article 10 means, and what it applies to, are for the courts, and ultimately the Court of Justice, to decide.

The effect of all this is that the “clarification” is of doubtful legal force: at most, it expresses the view of the EU side of the Joint Committee and hence the view of the Commission.  But it has no greater legal status; and since the Commission does not hold the keys to the Court of Justice, the Commission could not stop its view being overturned by the Court. 

Limited content

The second problem is that even if the clarification had legal force, it adds nothing of substance.

The document contains three propositions.  The first proposition is that “the European Commission will have due regard to Northern Ireland’s integral place in the United Kingdom’s internal market”.  It is unclear what the impact of that proposition is supposed to be, other than to repeat for form’s sake the general assertion in the Protocol that Northern Ireland remains part of the UK internal market – an assertion that runs counter to what the Protocol actually does, which is to place Northern Ireland into the EU single market for goods and into its customs union for all practical purposes save a carve-out under Article 5.  Indeed, to the extent that the Commission is promising to believe, despite the actual provisions of the Protocol, that Northern Ireland is an integral part of the UK internal market, then that belief is in practice likely to make it more ready to find reach-back: other things being equal, it would appear to be easier to conclude that an aid granted in Great Britain has an potential effect on trade in goods between Northern Ireland and the EU if you manage to make yourself believe that Northern Ireland and Great Britain are part of the same internal market than it would be if you don’t make that effort.

The second proposition is that “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.”  One way of testing whether a pronouncement such as that tells you anything interesting or significant is to ask yourself whether anyone would ever have claimed the opposite.  Since it is inconceivable that the Commission would ever have stated that it had found the effect test met on the basis of a hypothetical or presumed effect, or one that had a pretend or indirect link to Northern Ireland, the second proposition is in fact content-free.

The third proposition is that “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.”  Again, that pronouncement needs to be tested for significance against the likelihood that the Commission would ever have said anything else.  In fact, the “liable to have such an effect” (which is, be it noted, very different from a test that requires actual effects to be proved) comes straight from Court of Justice case law: see, for example, Case C-518/13 Eventech (the well-known case about whether allowing black cabs but not minicabs to use bus lanes in London was a State aid) at §65, where the Court stated that “it is necessary, not to establish that the aid has a real effect on trade between Member States …, but only to examine whether that aid is liable to affect such trade …”.  The Court went on to remind everyone that the mere fact that the recipient of an aid does not itself engage in trade between Member States, or is small, or that the aid extended only to a limited area (London), does not displace the possibility of there being an effect on trade, and left it for the national court to decide whether the test was met in that case.

It is therefore hard to see that anything in the content of the clarification will assist the UK Government in resisting “reach back” claims, either by the Commission or by third parties.

Conclusion

That leaves the current government with a serious political problem: it will at some point have to explain to bemused voters why, after the end of transition and possibly after a “no deal” end of transition, it is still busily sending off aid measures (such as tax or Covid relief) to the Commission for clearance or being told by UK courts that it cannot give certain kinds of subsidies to certain operators unless and until it does so.  Moreover, if it does decide to (or agrees to) implement a UK system of subsidy control that is significantly different from the EU model, it will end up operating two subsidy regimes either in parallel or divided by an unclear and contestable line.  Having one subsidy regime is a good idea: having two will lead to all sorts of problems. 

Sympathy for the current government’s predicament should, however, be kept in check.  The potential for “reach back” was obvious at the outset, and was doubtless explained to it at the time it concluded the Withdrawal Agreement.  Moreover, having signed it, the current government could have used 2020 to adopt a strategy to persuade the EU to agree to remove Article 10 from the Protocol: a strategy that would have involved developing the Conservative Party’s promise during the election campaign that it would introduce a UK subsidy control regime  into a coherent set of proposals for a robust and enforceable regime, and then pointing out to the EU that the existence of such a regime made Article 10 unnecessary.  That would have been a more sensible and constructive use of its time and energy than pursuing the objectionable, and now fortunately abandoned, proposals in the UK Internal Market Bill to break the agreement that it signed just over a year ago. 

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