The Risks of the UK Breaking International Law

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A lot of the media coverage of the Internal Markets Bill has focused on the controversy of the story more than the underlying issues. This is particularly true of the coverage outside the UK.

This is probably because it’s a complicated legal technicality that has potential ramifications that are much more interesting to discuss.

But attention-grabbing headlines aren’t all that helpful. Especially when trying to understand what happened, what could happen, and most importantly, how it could affect the markets.

Why Would the UK so Obviously Break International Law?

This is where political rhetoric overtakes legal technicalities.

In a nutshell, there was an unbalance in the first withdrawal agreement over the Northern Ireland issue.

At the time, the UK government had a slim majority in Parliament. Therefore, it depended on votes from Northern Irish MPs.

Practically speaking, the withdrawal agreement allowed EU products to enter the UK without any controls. However, UK products couldn’t go to the EU without controls.

In effect, it allowed a roundabout application of EU laws in the UK.

The Internal Markets Bill intends to apply the same standard to all countries in the UK. If the standards in the UK and the EU are the same, in theory, there is no problem.

The EU argues that giving the UK government the authority to potentially change regulations in Northern Ireland would be a violation of the withdrawal agreement.

The UK acknowledges that if they change regulations, it would be a violation of the law. However, they insist that they can’t allow one of the constituent countries to have laws written by a foreign power.

So, the Hard Border?

The fear is that without equal regulation of products on both sides of the Irish border, one side or the other would impose customs checks.

Not allowing free movement across the border would be a violation of the Good Friday Agreement. This was the agreement that brought an end to violence in Northern Ireland.

Because the relationships between all the involved countries have become political, opposition leaders in the US are weighing in. Presidential candidate Joe Biden threatened to halt a potential free trade agreement with the UK should a hard border be implemented.

Meanwhile, many MPs in the UK were unhappy with the potential consequences and voted against the first reading of the bill.

Yesterday the government entered into an agreement. This agreement would require parliament to vote on any regulatory change that would cause a violation of the agreement with the EU.

This essentially kicked the can down the road to a hypothetical scenario when EU and UK regulations differ.

So, the Markets?

The Bill creates extra tension between the UK and the EU at a critical juncture. And it certainly heightens the risk of a no-deal Brexit.

Not surprisingly, the markets don’t particularly like that prospect. Furthermore, the EU and the UK don’t agree on whether the mere passage of the bill, in fact, violates international law.

Its passage would likely prompt an unprecedented, lengthy legal battle. And, depending on who wins the election in the US this year, it will postpone a much anticipated free trade agreement with the world’s largest economy.

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