Chamber and committees

Written submission from Professor Stephen Weatherill

Written submission from Professor Stephen Weatherill, Emeritus Jacques Delors Professor of European Law, University of Oxford, for the UK Internal Market Inquiry, 23 November 2021

Designing an internal market: asking the questions 

The United Kingdom Internal Act 2020 addresses a problem caused by Brexit. The release of the UK from the blanket of common rules which are imposed on EU Member States and which applied throughout the UK opens up the possibility that divergent regulatory choices made by the four constituent elements of the UK may cause obstacles to intra-UK trade in goods and services. So leaving the EU's internal market sharpens awareness of the need to decide on the shape of the UK's internal market. The 2020 Act is exactly that decision.

The design of any internal market requires that a choice be made between the competing claims of unimpeded trade (served by excluding the application of rules which cause such impediment) and local regulatory autonomy (served by permitting the application of rules even where they cause such impediment). And, a second order issue, such design requires choices about which institutions shall be empowered to interpret and apply the rules.

Both the EU and the UK internal markets are built on rules which seek to promote unimpeded trade, but neither sets aside completely the virtue of protecting local regulatory autonomy. But the EU's internal market is designed to favour the claims of local regulatory autonomy over the claims of unimpeded trade significantly more than is the UK's internal market. And, the second order issue, the EU scheme is heavily influenced by decades of judicial interpretation of the sparely written provisions of the Treaty, whereas the UK Act is based on tightly drawn and relatively precise legislative provisions which do not envisage a dynamic role for judicial or administrative interpretation.

So, in short, the fundamental question which animates the design of the EU and the UK internal markets is the same - how far to restrict the regulatory autonomy of the constituent elements in order to promote unimpeded trade? But the answer given is different. In the UK the restriction of autonomy is greater than in the EU.

Designing an internal market: answering the questions 

Both EU and UK internal market law are both structured around two distinct questions. First, is there a barrier to trade within the internal market caused by a rule applied by one of the constituent elements? Second, if so, is that rule justified? If it is not justified, it may not be applied to goods and services arriving from another of the constituent elements. If it is justified, its application is permitted notwithstanding the impediment to trade within the internal market caused by it (and attention then turns to the political process to determine whether some other way may be found to promote trade while also attending to the concerns which justified intervention in the market by the regulating constituent element, most obviously the adoption of common rules dealing with the matter throughout the entire internal market). 

On question one, EU and UK law are largely (but not entirely) the same. The 'market access' principles under the UK Act closely resemble EU free movement law. On question two, they are not the same. Both systems envisage that justification for trade-restrictive rules is permitted, but EU rules permitting justification are significantly more generous than UK rules. That is important in itself. It means that respect for local regulatory autonomy is stronger in the EU than it is in the UK. But it also has implications for the turn to the political process, because it means that in the UK there is less need than in the EU to make that turn because, given the narrower scope envisaged to justify rules, unimpeded trade is more likely already to have been achieved in its internal market by requiring the setting aside of obstacles to intra-UK trade.

What this means in concrete terms

In the EU …

Imagine Ruritania, a Member State of the EU, prohibits the marketing of single-use plastics. First question, is there a barrier to trade within the EU internal market? Yes: consider the exclusion the rule causes to such goods made in another Member State which has no such prohibition. Second question, is the prohibition justified? It would likely need to be litigated to explore the detail, but plausibly so, because the Court of Justice has long accepted that environmental protection is a recognized justification for rules which obstruct cross-border trade in the EU internal market. (And in consequence there is an impetus to seek common solutions through the political process, eg harmonized EU rules governing single-use plastics).

Imagine Ruritania, a Member State of the EU, prohibits the sale of (defined) fatty foods on premises open to minors in order to protect young people from the risk of obesity caused by their consumption. First question, is there a barrier to trade within the EU internal market? Probably not, provided the prohibition does not grant an advantage to locally produced Ruritanian foods. Imported foods are not kept out of the Ruritanian market, rather the way in which they are sold is limited - but so is the way in which all foods are sold. 

Imagine Ruritania, a Member State of the EU, prohibits the sale of (defined) fatty foods unless they are labelled to warn of the risk of obesity caused by their consumption. First question, is there a barrier to trade within the EU internal market? Yes: consider the exclusion the rule causes to such goods made in another Member State which has no such prohibition. Second question, is the prohibition justified? It would likely need to be litigated to explore the detail, but plausibly so, because the Court of Justice has long accepted that public health protection, broadly understood to cover much more than contagious disease or contaminated food, is a recognized justification for rules which obstruct cross-border trade in the EU internal market. (And in consequence there is an impetus to seek common solutions through the political process, eg harmonized EU rules governing suppression of obesity).

In the UK ….

Imagine Scotland prohibits the marketing of single-use plastics. First question, is there a barrier to trade within the UK internal market? Yes: consider the exclusion the rule causes to such goods made in (most probably, most obviously) England which has no such prohibition. Second question, is the prohibition justified? No. The UK Internal Market Act recognizes justifications for such obstructive measures which are rooted in the need to control the movement of pests, disease or unsafe food or feed or to address a public health emergency, and there are also exceptions foreseen in particular limited contexts in the case of chemicals, fertilisers, and pesticides and more broadly for taxation, but it does not recognize any room to justify measures based on their contribution to environmental protection. The rules may be applied to Scottish producers but not to goods sourced outside Scotland where the rules are different. (And in consequence there is no impetus to seek common solutions through the political process, eg harmonized UK rules governing single-use plastics).

Imagine Scotland prohibits the sale of (defined) fatty foods on premises open to minors in order to protect young people from the risk of obesity caused by their consumption. First question, is there a barrier to trade within the UK internal market? Probably not, provided the prohibition does not grant an advantage to locally produced Scottish foods. Imported foods are not kept out of the Scottish market, rather the way in which they are sold is limited - but so is the way in which all foods are sold. 

Imagine Scotland prohibits the sale of (defined) fatty foods unless they are labelled to warn of the risk of obesity caused by their consumption. First question, is there a barrier to trade within the UK internal market? Yes: consider the exclusion the rule causes to such goods made in (most probably, most obviously) England which has no such prohibition. Second question, is the prohibition justified? No. The UK Internal Market Act recognizes justifications for such obstructive measures which are rooted in the need to control the movement of pests, disease or unsafe food or feed or to address a public health emergency, and there are also exceptions foreseen in particular limited contexts in the case of chemicals, fertilisers, and pesticides and more broadly for taxation, but it does not recognize any room to justify measures based on their contribution to broader notions of public health policy. The rules may be applied to Scottish producers but not to goods sourced outside Scotland where the rules are different. (And in consequence there is no impetus to seek common solutions through the political process, eg harmonized UK rules addressing the risk of obesity).

Drawing the lessons

The lesson is that EU and UK internal market law run in close alignment in deciding whether a measure amounts to a restriction on trade within the internal market. Both preserve the regulatory autonomy of constituent elements in circumstances where there is no demonstrated hindrance to trade between the constituent elements but rather merely hindrance to trading freedom within the regulating constituent element. So Scotland, like Ruritania, may put age limits on permitted access to retail premises. But EU and UK internal market law diverge in deciding whether, once an obstacle to trade of the required type is shown to exist, it may be justified. The UK internal market is much less receptive to justification than is the EU internal market. So Ruritania, but not Scotland, may call on environmental protection and public health protection to justify its regulatory preferences. 

There is, moreover, no scope to appeal to the judiciary in the UK to draw inspiration from the EU model and to interpret the 2020 Act in a manner that is more generous to Scottish (and Welsh) regulatory autonomy than the text permits. The Act is the legislative settlement: available justifications are drawn (narrowly). There is room to alter the Act's design, but only through the political process. It is provided in section 10 (for goods) and section 18 (for services) that a Minister may by the adoption of secondary legislation grant force to agreed common frameworks, which might conceivably cover an agreement to set aside the market access principles in favour of an acceptance that diversity in regulatory choice shall prevail and that intra-UK trade restrictions will be tolerated. But there is no obligation on the UK government to agree a common framework and the political appeal of a common framework in London is not evident, given the deregulatory taste of the UK government directed at internal practice and also its eagerness to be able to offer access on as unrestricted terms as possible to the entire UK market as an inducement to third countries interested in concluding trade deals (a matter reserved to the UK government). In the absence of any such agreement, the market access principles bite without any modification. Moreover the Internal Market Act itself provides that it is not open to the devolved administrations to legislate in a way that contradicts it. Therefore the priority established by the Act makes plain that stricter rules preferred by one part of the UK must be set aside in so far as they contradict one of the market access principles, unless they fall within one of the currently applicable and very narrow exceptions or justifications. 

What does this mean?

It means that the UK Internal Market Act 2020 contains a structural bias in favour of market access, and against local regulatory culture.

A regulator within the UK assessing the virtue of a legislative intervention into goods or services markets knows that if what is planned is (i) a measure subject to the Act’s market access principles, (ii) not within a defined exception and ineligible to claim justification and (iii) likely to be undercut by products or services arriving from another part of the UK where such intervention does not exist, then the likely consequence is that such an initiative will place a burden on local traders which will not be shouldered by others elsewhere. And mitigation achieved through the political negotiation of common frameworks is unlikely to come to the rescue.

Assume a legislative act of the Scottish Parliament causes an obstacle to trade within the UK in the manner envisaged by the Act. By far the most likely situation to arise is one in which a product or service originating in England may not be sold in Scotland where the rules are different and more restrictive. Assume the matter does not fall within one of the very limited justifications recognized by the Act. The result is that the Scottish measure may be applied to goods/ services produced in Scotland but not to those sourced from England. The measure is not unlawful but it is inapplicable to goods/ services coming from outside Scotland.

That calls into question the worth of introducing such a Scottish rule. Its policy objectives are not likely to be met, given that it will be undermined by non-compliant imports from England. It will add costs to Scottish producers that will not be faced by their English competitors. It may induce traders to shift production from Scotland to England in search of lower costs, with no diminution in access to Scottish markets. There arises an obvious chilling effect on new regulatory initiatives. So in form the 2020 Act does not deprive the Scottish Parliament of regulatory power, but in substance it does. Rules made in Scotland no longer apply to all traders active in Scotland.

Precisely because it entertains a narrower understanding of permitted justification for trade-restrictive measures, the UK internal market is built on a more aggressively deregulatory foundation than the EU's. The design of the UK internal market shows far more disrespect for the regulatory autonomy of the constituent elements than does the EU's.

In similar vein, it shows the limitation of a Scottish preference to pursue persisting alignment with EU rules. Where Scottish rules mimic EU rules but where English producers operate according to lower standards, the UK Internal Market Act prevents the application of those rules to imports from England, unless exceptionally they address one of the matters recognized as allowing room for justification by the Act. 

The further that England moves away from EU standards, the sharper this problem will become - and that trajectory of moving away seems politically likely.

The Act’s scheme makes it likely and normal that the constituent element of the UK with the lowest level of regulation – which may be no regulation at all – sets the weather for the other constituent elements. For reasons of economic size and political preference that probably means the weather will be English.

A word about Northern Ireland

The Protocol on Ireland and Northern Ireland, which is attached to the EU-UK Withdrawal Agreement, does not cover services, so the UK Internal Market Act applies to the provision of services in and to Northern Ireland in the same way as it applies to the rest of the United Kingdom. But the regulation of goods in Northern Ireland is fundamentally different from the regulation of goods in England, Scotland and Wales. Northern Ireland is locked by the Protocol into a dense network of alignment with EU rules and procedures, including supervision by the Court of Justice. This has been agreed in order to ensure that the border on the island of Ireland may remain soft. It entails that the border between GB and NI must be hardened. In important respects, then, Northern Ireland remains part of the EU internal market, rather than the part of the UK internal market, and in areas covered by the Protocol the UK Internal Market Act 2020 is in reality a GB Internal Market Act. The terms of the UK’s withdrawal from the EU therefore include a direct partition of its internal market into two blocs, Northern Ireland and Great Britain.

Goods which do not comply with EU rules must be kept out of Northern Ireland. The consequence is checks on GB - NI trade. The further that GB diverges from EU standards, the more important the checks. But goods which do not comply with Scottish rules cannot be kept out of Scotland (unless one of the narrow justifications under the Act applies). Scotland may choose to follow the EU regulatory model to which Northern Ireland is bound, but the consequences for trade in goods within the UK internal market are not the same. Those in Northern Ireland who would wish for full participation in the UK internal market are left disappointed, while those in Scotland and Wales who would wish to prioritise local variation over full participation in the UK internal market as shaped by the Act are left disappointed. The political friction is real. What sort of 'United' Kingdom is this?