Political theater has long been a defining feature of the negotiations between the UK and EU, whether over the initial withdrawal treaty that created a year-long transition period allowing the two sides time to negotiate a comprehensive UK-EU trade agreement. Given that political considerations will always be paramount for both London and Brussels, the two sides must pull off a difficult balancing act if an agreement is to be reached: They must both appear to be taking a hard line, and each side must be able to sell the narrative that they extracted concessions from the other.
This is why the talks under former PM Theresa May were often so infuriating, with neither side giving an inch until the British people in effect approved Brexit for a second time when they sent the Tories back to the Commons with a reinvigorated majority, under the leadership of PM Boris Johnson.
Well, the political brinksmanship between the two belligerents entered a new phase on Thursday when European Commission President Ursula von der Leyen initiated legal action against the UK over the Intermarket Bill, just as Brussels promised.
To express its objections to the Intermarket Bill, the EU is sending a "letter of formal notice" to London notifying BoJo's government that it's on the verge of violating an international treaty, and that Brussels would activate the dispute-resolution mechanism outlined in the withdrawal agreement. Von der Leyen offered a terse statement on the matter Thursday morning. Here's the transcript:
As you know, we had invited our British friends to remove the problematic parts of their draft Internal Market Bill by the end of September.
This draft Bill is – by its very nature – a breach of the obligation of good faith
laid down in the Withdrawal Agreement (Article 5).
Moreover, if adopted as is, it will be in full contradiction to the Protocol on Ireland / Northern Ireland.
The deadline lapsed yesterday.
The problematic provisions have not been removed.
Therefore, this morning, the Commission has decided to send a letter of formal notice to the UK government.
This is the first step in an infringement procedure.
The letter invites the UK government to send its observations within a month.
The Commission will continue to work hard towards a full and timely implementation of the Withdrawal Agreement.
We stand by our commitments.
And here's the video.
EU Commission has begun legal action against the UK over the Internal Market Bill, President Ursula von der Leyen confirms— BBC Politics (@BBCPolitics) October 1, 2020
The UK has a month to respondhttps://t.co/RDAlWQSFAw pic.twitter.com/xP6OfLf7zi
Of course, the dispute resolution mechanism is a slow process, and with trade talks entering their ninth and final round this week, it's clear BoJo is hoping to run out the clock to try and exert maximum pressure on the EU as his government seeks concessions on fisheries, and other matters. The government in London responded to the letter, saying it would respond in "due course".
Tellingly, the spat over the Intermarket bill, which passed its final reading with zero 'no' votes from Tory MPs (even as former PM May denounced the measure as a violation of international law that undermined international trust in the UK) has not stopped negotiations, which are set to conclude on Friday. A crucial UK-EU summit is scheduled for mid-October, during which a trade deal is hoped to be finalized.
Oh no, an infringement procedure, now THAT is definitely going to change things and make the Gove-Cummings gov’t shake in their boots MUAHAHAHA— Seb-Alex (@SebAlexT) October 1, 2020
And what is that I hear about the EU stopping their trade negotiations with us? Oh, yeah, crickets. https://t.co/9DwVleGOS5
But if we've learned anything from the last three years of talks, it's that the "final" summit is never really the end, as talks will inevitably burn down to the wire.
Bloomberg explains how the dispute-resolution mechanisms in the withdrawal treaty are supposed to work: The UK has agreed that for treaty obligations breached before the end of the transition period, it is still subject to rulings by the European Court of Justice for another four years. But the UK could simply ignore any adverse rulings or financial penalties, though that would be a clear treaty violation. Additionally, the Withdrawal Agreement provides for a five-member arbitration panel to rule on matters of non-compliance, and if the UK refuses to pay up, Brussels can unilaterally suspend the withdrawal agreement, setting the "hard Brexit" in motion.
Here's a more comprehensive explanation from a professor of EU law:
Commission: letter of formal notice sent to UK re the internal market bill and the withdrawal agreement. Invites the UK to reply within a month.— Steve Peers (@StevePeers) October 1, 2020
An explanation of the legal process - thread
The Commission is using the infringement procedure, which applies if Member States allegedly breach EU law. It applies to UK too for now, due to Art 131 of the withdrawal agreement, which gives CJEU its usual jurisdiction during the transition period, including over the agreement— Steve Peers (@StevePeers) October 1, 2020
Starting the infringement process doesn't establish by itself that UK has broken the law. It contains several pre-litigation phases. After the one month expires, the next phase is a reasoned opinion to the UK. Usually two months to reply to that, but the Commission can shorten.— Steve Peers (@StevePeers) October 1, 2020
After that deadline expires, Commission can go to CJEU and ask for a ruling on the point. The legal position is assessed as of the deadline to reply to the reasoned opinion. Commission can ask for interim measures - ie an order for UK to not pass/suspend parts of the law.— Steve Peers (@StevePeers) October 1, 2020
The Commission can also ask the CJEU to fast track its case, so to decide in a few months rather than the usual 12-18 months. Art 86 of the withdrawal agreement says that the case will not 'time out' due to the end of the transition period.— Steve Peers (@StevePeers) October 1, 2020
*IF* the Court rules in the Commission's favour it's binding on the UK at international level. But the bill, if passed, purports to block any impact of CJEU rulings at domestic level. Someone might try to litigate in UK courts on that.— Steve Peers (@StevePeers) October 1, 2020
If the UK ignores the Court's ruling the usual process is to go back to the CJEU and ask it to impose fines. But it's not clear if the withdrawal agreement allows for this route post-transition period. Instead Commission could use arbitration under the withdrawal agreement.— Steve Peers (@StevePeers) October 1, 2020
If an arbitration ruling goes against the UK, and is ignored by the end of the period to comply with it, then fines or suspension of part of the agreement (not the citizens' rights part) could result.— Steve Peers (@StevePeers) October 1, 2020
But ultimately this may be political theatre on the EU side, to match the UK. There are lots of 'off ramps' in an infringement proceeding - most of these cases are settled before they ever reach the CJEU. Possible for case to be dropped if the bill is amended as part of a deal.— Steve Peers (@StevePeers) October 1, 2020
There might also be a political impact, ie no trade talks (but note the EU has not left the talks) or no ratification, or no unilateral measures such as on data protection or financial equivalence.— Steve Peers (@StevePeers) October 1, 2020
nb if Brexit bros say this must go to an international court - Art 168 of the withdrawal agreement says that the dispute settlement rules in the agreement are exclusive, ie no other process can be used.— Steve Peers (@StevePeers) October 1, 2020
BoJo has repeatedly argued that the Intermarket bill is a defense mechanism to prevent the re-emergence of a hard border on the island of Ireland by effectively overriding some of the commitments made by the UK in the withdrawal treaty - specifically, the Northern Ireland "provision" - better known as the Irish backstop. The backstop was intended to coerce London into striking a deal by risking the return of inter-UK trade barriers, specifically, a barrier between Northern Ireland and the rest of Great Britain in the Irish Sea.
Here's more on the Intermarket Bill from the BBC:
The bill sets out rules for the operation of the UK internal market - trade between England, Scotland, Wales and Northern Ireland - after the end of the Brexit transition period in January.
- No new checks on goods moving from Northern Ireland to Great Britain
- Giving UK ministers powers to modify or "disapply" rules relating to the movement of goods that will come into force from 1 January if the UK and EU are unable to reach an alternative agreement through a trade deal
- Powers to override previously agreed obligations on state aid - government support for businesses
As traders brace for the flurry of Brexit headlines, the pound sunk Thursday morning, falling 0.7% against the dollar and pushing the greenback higher to the chagrin of US equity bulls.