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Holyrood's Finance And Constitution Committee Launches Inquiry Into Scotland And The Uk Internal Market Post-brexit

9th January 2020

Brexit is almost agreed at Westminster but q year of negotiations will follow. However the complications we all may never have thought of are now coming up in the Scottish Parliament. How many of us have thought about the UK internal market. Well read below and think again.....

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Holyrood's Finance and Constitution Committee has launched a new inquiry into how the UK internal market might operate post-Brexit.

The UK does not have a defined internal market as it has been part of the European Union Internal Market for over 20 years.

The committee has issued a call for views to help inform its inquiry over the coming weeks.

Finance and Constitution Committee Convener Bruce Crawford MSP said:

"One of the principles of ‘common frameworks' is that they will enable the functioning of a UK internal market post-Brexit, whilst acknowledging policy differences between the respective governments.

"Post-Brexit, common frameworks are proposed in some policy areas to provide common policy and regulatory approaches between the UK and Devolved Governments.

"As the UK has been part of the European Union internal market, it hasn't had to consider how a UK internal market might operate. Our committee has therefore launched an inquiry into this important subject."

Mr Crawford added:

"The UK internal market and how it operates will impact on a wide range of Scottish organisations, including Scottish businesses, environmental and consumer organisations. Understanding what it is, and crucially, how it might be impacted by future trade deals are key issues our committee want to examine."

The Committee is asking the following questions in its calls for views:

1. What is the UK internal market?

2. How will international treaties including trade deals impact on the UK internal market?

3. What are the priorities and challenges for Scottish businesses and organisations in operating within a UK internal market?

4. What institutional structures will be required to administer and enforce the UK internal market?

5. What mechanisms should be available to challenge ‘unfair' internal market practices?

6. What will be the impact of the UK internal market on devolved powers?

7. What should be the role of the Scottish Parliament in relation to scrutinising the UK internal market?

The Committee would welcome written submissions dealing with the issues outlined above and any other relevant views in relation to a UK internal market.

The closing date for responses is Friday 28 February 2020.

Find full details on the committee's call for evidence at - https://www.parliament.scot/parliamentarybusiness/CurrentCommittees/113300.aspx

A summary of key issues arising from the discussions

Summary of discussion on the UK Internal Market - 19 June 2019

1. A key focus of discussion throughout the evidence session were the potential challenges and consequences of defining a UK Internal Market including:

a. Having a degree of coherence about the definition of the internal market could avoid having a disparate range of regulatory problems and policies that could potentially be in conflict or in tension with one another. The current approach to developing common frameworks was highlighted as potentially exacerbating this issue.

b. Whether not defining the internal market would mean that the internal market would be, by default, determined by the decisions of the UK Government or UK Parliament (such as through trade deals). And would that then lead to potential lack of clarity over when it would be acceptable for parts of the UK to diverge from the UK approach?

c. Whether, based on EU experience, defining the internal market in law could result in the courts expanding the definition and its meaning into unanticipated areas.

d. Whether putting an ill-defined definition into law would also invite challenge and in that regard having a basic set of principles agreed in advance might be a better approach (compared with a rigid legal framework). Such a principles based approach would not, however, sit alongside the current approach to frameworks (which are proposed to address internal market issues) which are being developed on a case by case basis across key policy areas.

2. Responding to questions about whether the courts would see a large number of court referrals regarding the operation of the UK internal market, witnesses suggested that, whilst in other areas of law there are no incentives to bring forward challenges, in relation to the internal market there could be. There can be significant amounts of money at stake in such cases and there will be powerful organisations (such as large UK wide businesses) for whom it may be in their interests to take court action. In addition, the process of challenging the internal market approach is likely to be entirely familiar to lawyers and their clients given their previous experience at the EU level.

3. That said, witnesses questioned whether the devolution legislation currently provides wide enough provisions for such cases to be tested especially because there are limited provisions in such legislation that relate to a general concept of the UK internal market. Whether state aid, a key component of any internal market, is a reserved or devolved function has also yet to be resolved.

4. It was suggested that testing a case could have less to do with the provisions of the devolution Acts but whether an individual could find a way to persuade a court to articulate some sort of internal market principle (for example by using the Human Rights Act 1998 to argue for the freedom to trade and run a business).

5. It was highlighted that the trade related provisions in each of the devolution Acts are not similar. Because of the asymmetric nature of devolution one potential reason for having the courts involved in deciding on internal market issues could be to provide a check and balance on any one Government acting outwith an agreed UK wide approach. An alternative to the courts could be to have an

agreed, principled framework for the internal market which would provide a set of standards against which actions of the UK Government or any of the devolved Governments could be measured.

6. It was proposed that the internal market should be seen as a process and a set of institutions rather than a definition of policy. As explained by witnesses, internal markets are ways of managing trade relationships between territories with regulatory autonomous powers. This process needs to be constantly refreshed. As such the institutional structures necessary to manage issues as they arise, such as distortions of competition, are particularly important.

7. Having a forum or structure where all the Governments are represented was put forward as one future option to manage the internal market - it was suggested that this approach would enable the internal market to be reviewed and redefined in practice and could provide an alternative to the internal market being defined by the courts. Used at EU level, this approach had meant that no

one member state could change the definition of the internal market given each member state had one vote (alongside qualified majority voting with recourse to the courts). The current constitutional set up in the UK and approach to IGR would make this EU option challenging to establish in the UK, however, as would the lack of specific Governmental representation for England (as distinct from that of the UK Government).

8. Based on EU experience, it was not necessary for the internal market approach to apply to every policy area the same. In some EU policy areas, for example, only outline principles apply and then the member state implements them how it sees fit. In those areas there is only minimum harmonisation with an agreed level playing field standard and the potential for special derogations from the rules.

9. Also highlighted was that, even with an internal market that evolves over time, there will require to be some baseline against which policy and legislative changes can be measured and which identifies the key components that should be considered when assessing whether such change is consistent with any agreed internal market approach.

10. Another aspect of the UK internal market identified in discussions was whether citizens and businesses would have the right to go to court to seek remedies where they consider they have been unfairly penalised by the internal market approach adopted (similar to the approach which exists in the EU). An important consideration is what penalties could apply in those circumstances,

for example, could Governments be required to alter their policy approach or amend legislation? If an alternative body to courts was envisaged, then to whom would it be accountable and how transparent would its consideration and decision-making processes be?

11. In considering any institutional structures, the challenge set out by witnesses was how to create independent and impartial institutions that will help manage and administer the internal market for the benefit of its constituent territories. There are two aspects to this challenge – one is that UK constitutional arrangements mean that Parliamentary sovereignty is not equal. The other is that the English economy is so much larger than those of the devolved nations that what it decides to do in regulatory terms could then have an empirical effect on the choices of the devolved nations.

12. In that regard how much divergence is permitted (especially under the terms of any relationship with Northern Ireland/Ireland and the EU) will also be a factor.

The potential for a closer relationship between Ireland/Northern Ireland and the EU compared with other parts of the UK could give rise to potentially different interpretations of the single market. It was stressed that whatever the nature of the UK's future relationship with EU there are benefits in the UK and devolved nations each developing their own thinking and domestic rules about the UK internal market.

13. Examples of how policy divergence might impact the functioning of the internal market were also discussed. For example, if the Scottish Parliament were to propose a ban on single-use plastics in Scotland then there might be two proposed choices to support a UK internal market:

a. One would be for the whole of the UK to also adopt a similar ban so there are no barriers to UK wide trade or distortions to competition. This approach would require a co-ordinated approach across the governments.

b. Another option would be that policy divergence occurs but there is a rule which governs what the ban means for English or Welsh single use plastics that enter into the Scottish market.

14. Other current policy based examples of divergence identified during discussions included the different policy approaches taken to alcohol minimum pricing, genetically modified organisms and farm subsidies.

15. It was argued that these examples are why it is important to have some principles against which to balance economic, social, environmental health and public health considerations. Under the current EU approach principles such as proportionality and subsidiarity are the mechanisms by which such policy

divergence would be measured. In relation to the challenge brought by the Scotch Whisky Association against the Scottish Government's alcohol minimum pricing policy, proportionality was one of the grounds against which the case was judged by the EU Court.

16. In terms of the impact of Brexit, the Committee heard that from the moment of the UK’s withdrawal from the EU the UK internal market may face challenges.

The main question will be whether the response provided by Parliaments across the UK consciously sets out the design and co-ordination expected in the UK internal market or whether, in the absence of that, it will for the courts to decide.

17. It was proposed that leaving the decision about the internal market for Governments to decide using IGR structures was also not sufficient and that there is a key scrutiny role for Parliament. This is because of the significant implications of internal market agreements for the decision taking and policy making roles of Governments and Parliaments. Leaving it to intergovernmental

institutions, it was suggested, could lead to a lack of transparency and loss of wider stakeholder engagement.

18. Different approaches to Parliamentary scrutiny were also considered such as the Danish approach whereby the Government goes to Parliament to seek agreement to its objectives prior to any intergovernmental discussion of the internal market. An alternative approach could be an interparliamentary forum to sit alongside, and scrutinise, the intergovernmental forum. Another approach

suggested was that, should there be intergovernmental agreement, legislation could then be proposed in all four Parliaments.

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