Does Covid-19 provide the UK with a basis for denouncing the Northern Ireland Protocol?

In a recent blog post for Global Vision, Professor David Collins argued that the Covid-19 crisis provides a basis in international law for the United Kingdom to withdraw from the Ireland/Northern Ireland Protocol (“the Protocol”), which forms part of the Withdrawal Agreement between the United Kingdom and the EU (“the WA”).

There are two premises for Professor Collins’ argument, both of which are correct.  The first is that the Covid-19 crisis is likely to require large grants of notifiable State aid (i.e. aid falling outside existing block exemptions).  The second is that under Articles 10 and 12 of the Protocol, the full panoply of EU State aid law – including the requirement to notify to the Commission, the duty on national courts to provide effective remedies for unlawful (non-notified) State aid, and the powers of the Commission to order repayment of unlawful aid – applies to the United Kingdom after the end of transition in relation to measures that have a potential effect on trade in goods between Northern Ireland and the EU.

As Professor Collins rightly points out, it is likely that, because of the low threshold set by the “effect on trade” test, Article 10 will catch any UK measures of the scale required to deal with the Covid-19 crisis.  (Concerns about the scope of Article 10 have also been expressed by the House of Lords EU Committee, which stated in April that “It is troubling that no one we heard from thought that the UK Government had a clear understanding of what state aid provisions it had signed up to in the Protocol”).

On the basis of those correct premises Professor Collins then argues that the United Kingdom could withdraw from the Protocol on the basis of Article 62 of the Vienna Convention on the Law of Treaties (“VCLT”), which allows a party to a treaty to withdraw from it, subject to certain conditions, on the basis of a “fundamental change in circumstances” which could not have been foreseen by the parties.  The claim is that the United Kingdom could not have foreseen that the Covid-19 crisis would require huge amounts of notifiable State aid falling within Article 10 and therefore subject to approval by the Commission.

One initial difficulty with that claim is that Articles 1, 3, and 5 of the VCLT make it clear that the VCLT does not apply to a treaty between a State and an international organisation such as the EU.  Nonetheless, it is fair to observe that Article 62 is usually regarded as codifying a customary rule of international law applicable to all treaties: see the judgment of the International Court of Justice (“ICJ”) in Fisheries Jurisdiction at §36, and see also the Court of Justice of the EU’s (“CJEU”) judgment in Case C-162/96 Racke at §53.

However, it is also important to bear in mind that the rule expressed in Article 62 is, in the words of the CJEU at §§49-50 of Racke “an exception to the pacta sunt servanda principle, which constitutes a fundamental principle of any legal order and, in particular, the international legal order. Applied to international law, that principle requires that every treaty be binding upon the parties to it and be performed by them in good faith (see Article 26 of the [VCLT]).  The importance of that principle has been further underlined by the [ICJ], which has held that ‘the stability of treaty relations requires that the plea of fundamental change of circumstances be applied only in exceptional cases’.”

The CJEU was there referring to the ICJ’s 1997 judgment in Gabčíkovo-Nagymaros Project between the Republic of Hungary and the Slovak Republic. That case concerned a treaty between the Czechoslovak Socialist Republic and the Hungarian People’s Republic entered into in 1977 relating to extensive works on the Danube.  By the time of the ICJ judgment, Czechoslovakia had dissolved and both Hungary and Slovakia had transformed not just their names but their economic and political systems beyond anything remotely foreseeable in 1977, with major implications for the profitability of the project.  Further, ecological and environmental knowledge had greatly developed over that period.  Nonetheless, the ICJ at §104 rejected Hungary’s attempt to rely on the Article 62 principle, holding: (a) that even a major a change in profitability was not enough to amount to a fundamental change radically transforming the parties’ obligations; (b) that developments in environmental knowledge were not unforeseeable; (c) that in any event the treaty contained mechanisms to accommodate change and which made it possible for the parties to take account of such developments and to apply them when implementing relevant treaty provisions; and (d) that as an overarching point (picked up by the CJEU in Racke) “the stability of treaty relations requires that the plea of fundamental change of circumstances be applied only in exceptional cases.”

That all means that the barrier facing an attempt by the United Kingdom to rely on the Article 62 principle is a very high one.  In my view, it could not plausibly be overcome.

First, the United Kingdom’s obligations under the WA (of which the Protocol is but part) have to be seen as a whole.  Article 10 is but a fraction of the United Kingdom’s obligations under the WA.  It is not plausible that the fact that Article 10 will apply to more State aid measures than the UK Government could have predicted in January 2020 would need to be implemented is in itself, in the context of a wide-ranging and complex treaty covering many UK obligations, sufficient to amount to a radical transformation in those obligations.  Indeed, it is notable that Professor Collins confines his claim to a claim that the United Kingdom could withdraw from the Protocol alone: but the Protocol is itself expressed to be an “integral part” of the WA (see Article 182), and it is not at all clear on what basis the United Kingdom could renounce the Protocol while leaving the rest of the WA (many of whose provisions benefit the United Kingdom) untouched.

Second, even the claim that the Covid-19 crisis entails a radical transformation in the United Kingdom’s obligations under Article 10 needs to be examined carefully.  Such a claim might be plausible if the effect of Article 10 would be to preclude the United Kingdom from taking essential measures to support businesses affected by the crisis. But the facts are that since the crisis started the UK Government, under the EU State aid regime during the transitional period, has been able to implement huge amounts of State aid with the approval of the Commission – and it is plain from a cursory scrutiny of Commission decisions during the crisis that all Member States have been permitted to grant very large amounts of aid going in some cases well beyond what the United Kingdom has yet chosen to do.

It is also critical to remember here that EU control of State aid is control under law: so, for example, Article 107(2) TFEU requires clearance of aid that compensates businesses for losses caused by a natural disaster such as Covid-19; and even where aid goes beyond that, the Commission has (broadly speaking) to balance the public policy benefits of the aid against its distortive effects and is also required to apply a consistent policy framework to all Member States (including, for these purposes, the United Kingdom).  Against that background, it is hard to see how the fact that the United Kingdom is (because of Covid-19) more likely to need clearance of large amounts of State aid than would have been predicted in January 2020 amounts to a radical change in UK obligations (the fact that large amounts of aid would be likely to need such clearance being clear, as Professor Collins himself asserts, from the text of Article 10).

A further point is that, though Covid-19 can be regarded as unforeseeable, the possibility of economic or natural crises requiring large amounts of aid cannot be described as unforeseeable (indeed, three such events have occurred in the last two decades – the 2008 financial crash, and 9/11 and the Icelandic volcano eruption, both of which required large support for the aviation sector).  From that, the conclusion follows that the State aid regime imposed by Article 10 is (to pick up on the language of the ICJ in Gabčíkovo-Nagymaros)well capable of accommodating change and makes it possible for the parties to take account of such developments and to apply them when implementing relevant treaty provisions.

Professor Collins’ suggestion that the Covid-19 crisis provides any basis for the United Kingdom to resile from the Protocol is therefore in my view hopeless. It would also suffer from the practical difficulty that the UK Government could not run the argument without in effect conceding the interpretation of Article 10 that it has to date been reluctant to concede.

Nonetheless, his blog does serve the useful function of increasing public awareness of what the current UK Government agreed in Article 10. It is hard to see that Article 10 produces a satisfactory result, particularly if the UK Government wants to operate a different type of domestic anti-subsidy regime: as Lady Bracknell might have said, to have one anti-subsidy regime may be a necessary misfortune, but to have two running in parallel looks like carelessness.  Re-negotiation of Article 10 should therefore be a priority: and is a realistic objective if the UK Government is prepared to enter into binding commitments to an effective anti-subsidy regime that protects the EU’s interests while giving the United Kingdom the flexibility to avoid some of the problems of the EU regime.

 

George Peretz QC

(copy of a post on http://www.eurelationslaw.com)

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