EU Launches 'Legal Proceedings' Over UK 'Intermarket' Bill As Brexit Talks Enter Final Round
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EU Launches 'Legal Proceedings' Over UK 'Intermarket' Bill As Brexit Talks Enter Final Round Tyler Durden Thu, 10/01/2020 - 06:39

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:

Good morning,

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.

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.

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:

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.

It proposes:

  • 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.


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