The UK government was explicitly warned in January that Boris Johnson’s Brexit divorce deal would leave Brussels able to claim jurisdiction over “large amounts” of UK state aid policy after the end of the transition period, documents seen by the Financial Times have revealed.
A 10-page official briefing document shows the civil service issued clear warnings that Mr Johnson’s deal to avoid the return of a trade border in Ireland would impact not just subsidy decisions relating to Northern Ireland but could also “reach back” into the rest of the UK.
The briefing document, marked “official sensitive”, shows that ministers were told about the onerous state aid provisions within the withdrawal agreement relating to Northern Ireland, which they moved to legally override with the internal market bill. The move brought EU-UK trade talks to a standstill, with the EU issuing an ultimatum to the government to withdraw its legislation by the end of the month.
Mr Johnson on Friday told Tory MPs that the controversial clauses in the internal market bill, were “necessary to stop a foreign power from breaking up our country”.
“What we need to do is clear up what I think is a serious anomaly in the protocol and put a safety net under it. What we can’t have is the threat of a border down the Irish Sea and the threat of the breakup of the United Kingdom.”
January’s civil service briefing document emerged after Downing Street this week moved to justify overriding sections of the withdrawal agreement that relate to Northern Ireland, with Mr Johnson’s spokesperson saying the withdrawal agreement had been “agreed at pace in the most challenging possible political circumstances”.
Depending on how the scope of Article 10 is interpreted, there is a risk that aid granted in the rest of the UK will be caught by the EU State Aid rules in certain circumstances
Mr Johnson’s spokesperson said on Friday that the government did not comment on leaked documents but said “some of the provisions in the protocol” were “broad-brush” and “explicitly left to be sorted out in further discussions between UK and EU”.
The spokesman added: “We expect these issues to be agreed in good faith, with the solution respecting the integrity of both the UK and EU.”
Under the Northern Ireland protocol, which was agreed to enable Brexit without creating a hard border on the island of Ireland, the UK agreed the region would follow EU state aid law for any matter that affected goods trade.
However, civil servants warned ministers in the January briefing document that Article 10 of the Northern Irish protocol that covered state aid could give the EU power over state aid to UK companies operating outside Northern Ireland.
“Depending on how the scope of Article 10 is interpreted, there is a risk that aid granted in the rest of the UK will be caught by the EU State Aid rules in certain circumstances,” states the document, which also formed the basis of advice given to David Frost, the UK’s Brexit negotiator.
According to a person familiar with the matter, the content of the civil service briefing document was shared with ministers at least a week before Mr Johnson’s deal was signed into UK law on January 23 this year.
The document further states that civil servants had received a “ministerial mandate to limit ‘reach-back’” from the Northern Ireland protocol into UK policy. This indicated ministers were also aware of the state aid issue as the deal was being concluded.
The document further warned that the European Commission was expected to adopt “a wide interpretation” of Article 10 allowing Brussels to “claim jurisdiction over a large amount of GB aid” regardless of the terms of any future EU-UK free trade agreement.
Mr Johnson has consistently said the EU is making unreasonable demands on the issue of state aid, despite the government’s internal advice warning the bloc would retain influence via the withdrawal agreement.
In a speech in February, the prime minister said, “There is no need for a free trade agreement to involve accepting EU rules on competition policy, subsidies, social protection, the environment, or anything similar any more than the EU should be obliged to accept UK rules.”
The paper warned ministers that the test of “effect on trade” set out in the protocol in practice set “a very low bar” for the commission to argue that it had jurisdiction.
For example, UK-wide measures adopted by the government after Brexit — such as a tax rebate for manufacturers — could fall within the scope of Brussels oversight.
Similarly, a decision to subsidise British companies servicing Northern Ireland clients might fall within the scope of the agreement, or granting aid to any company in Great Britain exporting to Northern Ireland or with a subsidiary in the region.
The paper is clear that the Northern Ireland protocol would have a serious impact on the coming EU-UK free trade agreement negotiations and the amount of freedom on state aid that such a deal would hand the British government.
“We do need to bear in mind the interaction with the FTA negotiation. It could limit the EU’s willingness to even discuss a less aligned regime as ‘reach-back’ would mean that the rules would apply anyway,” the document concludes.
It is disingenuous in the extreme to now turn around and say the deal was ‘agreed in haste’ and therefore needs to be unilaterally reinterpreted
The scale of this potential “reach-back” has outraged leading Brexiters who in recent months have been calling for Mr Johnson to repudiate the entire withdrawal agreement because it impinges so far on British sovereignty.
But senior EU officials say that the terms of the so-called Northern Ireland “frontstop” that required goods entering the region from Great Britain to follow the EU customs code and state aid rules were made “crystal clear” at the time.
EU observers say the UK’s decision to seek an increasingly basic free trade agreement — throwing into stark relief the extent to which Northern Ireland is being left in the EU’s orbit — cannot be an excuse to rewrite the Northern Ireland protocol.
David O’Sullivan, a former EU ambassador to the US who has also served as the EU’s top trade official, said it was “disingenuous in the extreme” for Mr Johnson’s government to say that the speed of the “all-weather” agreement somehow justified the government’s move to unilaterally overwrite the terms of the withdrawal agreement.
“Negotiating a duty and quota-free FTA would eliminate some paperwork and the vexed issue of tariffs for goods entering Northern Ireland, but the fundamentals of the architecture, including border checks and state aid were never dependent on an agreeing an FTA.
“It is disingenuous in the extreme to now turn around and say the deal was ‘agreed in haste’ and therefore needs to be unilaterally reinterpreted.”