Britain must be clear on the rules
The painstakingly negotiated Northern Ireland Protocol was the linchpin of the Brexit deal signed by Britain and the European Union last year. So Tuesday’s statement from a British minister that his government is ready to break international law “in a very specific and limited way” to change that agreement will echo for a long time, and not just in Britain.
It resonates in the same way that White House counsellor Kellyanne Conway’s casual assertion of “alternative facts” did back in 2017. It upends our notion of the existing order of things. In this instance, the way Boris Johnson’s administration regards the rule of law.
As of writing this, we’ve not seen the wording of the Government’s proposed legislation to circumvent parts of the EU Withdrawal Agreement. But legislating to contravene the Brexit treaty’s terms, as Northern Ireland minister Brandon Lewis acknowledged the Government intends to do, is no mere technicality.
Johnson dislikes the Protocol — which he signed up for, remember — because it means his government has to abide by EU state-aid rules on trade between the bloc and Northern Ireland. In our hyper-connected world, that could apply to almost anything. It could mean that support given to a Nissan plant in the North of England is ruled out because cars produced there could cross into Ireland. The Prime Minister either only belatedly recognised what he sees as a trap door, or figured he could fix it later.
However the realisation dawned, the issue of state aid is totemic because it sits at the intersection of Johnson’s plans for rebalancing the British economy — which will involve investment in struggling industrial regions — and his rationale for leaving the EU in the first place. For Brexiters, applying state-aid rules designed in Brussels defeats the purpose of leaving the bloc.
The problem has been percolating for a while. Last year, Johnson declared that Britain would adopt its own state-aid regime. In February 2020, a free market think-tank, Politeia, published a paper warning of the dangers in the Protocol and urging the Government to take “quick legislative action” to end the obligation to notify the European Commission of state aid. Had the pandemic not descended, the argument might have broken out months ago.
Johnson’s championing of state aid is an odd hill for a Tory to fight on, even if it is explained by the need to keep the party’s new voters in the North of England on board. Mainstream Conservatives, such as former party leader and Foreign Secretary William Hague, are troubled by the change in philosophy. They don’t mind wresting free from Brussels rules, but worry this is cover for a new era of French-style dirigisme.
For decades, the British protested when European governments doled out subsidies or other aid to industries. Conservatives were scathing about states mollycoddling industry and argued that the market was better at picking winners. Indeed, Britain was instrumental in shaping the EU’s state-aid policy, and assisted its industry far less than Germany and France did theirs.
I would still argue that it is not in Britain’s interest to abandon that Tory orthodoxy in favour of unrestrained subsidies. Propping up failing sectors would damage Britain’s competitiveness. Still, there’s evidence to support the view from Downing Street that targeted and limited state inducements can support innovation, as has been the case in Singapore and Israel. It can also help ensure that skills and infrastructure are more evenly distributed across a country.
Johnson exaggerates the constraints imposed by the EU state-aid rules. The regime is far from perfect — it can be arbitrary and it accords Brussels enormous powers. But most EU countries are adept at getting any assistance approved. Automatic approvals applied to nearly 95 per cent of state aid last year. As the pandemic unfolded this year, the EU quickly signed off on a raft of government help to industry.
The quality of the EU regime is beside the point, however. Britain is no longer a member and — naturally enough — doesn’t want to be bound by the bloc. But Britain needs to articulate what rules it wants to apply, both to comply with its good faith promise to the EU to trade fairly, and to let British companies and industries know what will be allowed. A scattershot approach is likely to be wasteful and distort investment decisions, a danger that ought to concern the British taxpayer as much as Brussels.
The EU is hardly blameless in this standoff. The chief Brexit negotiator, Michel Barnier, demanded initially that Britain simply translates the existing EU state-aid regime into British law and then keep it aligned with the EU over time. That was clearly a non-starter for the British, and over the summer Barnier softened his position. Brussels has also been shortsighted, and petty, in projecting a zero-sum view in which any British success is somehow Europe’s loss. Sure, distortions to competition must be countered, but trade agreements happen because both sides usually win. A more productive, innovative Britain would be good for Europe, too.
There is no reason why Britain shouldn’t be allowed to build its own set of state-aid rules that establishes an equivalency with the EU, and includes some kind of dispute-settlement mechanism. Britain may even incorporate the EU’s “balancing” concept, where negative effects on competition are balanced against other goals such as regional development and reducing climate impact.
This dispute would be an unfortunate way for the UK-EU trade deal to die. If it really does lead Johnson to break a treaty obligation, the damage would be incalculable.
• Therese Raphael is a columnist for Bloomberg Opinion. She was editorial page editor of the Wall Street Journal Europe
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