Publication - Strategy/plan

After Brexit: The UK Internal Market Act and devolution

Published: 8 Mar 2021

Devolution has benefitted Scotland hugely, allowing decisions that matter to people in Scotland to be taken here. Developments since the Brexit vote put this at risk - culminating in the UK Internal Market Act, which directly constrains devolution. This paper explains why and the choice we now face.

After Brexit: The UK Internal Market Act and devolution
Annex A: International examples of multi-level state market management

Annex A: International examples of multi-level state market management

Measures to manage market oversight and ensure regulatory coherence are a common feature in most devolved or federal states, and the UK Government is correct when it argues that mutual recognition and non-discrimination are well understood principles that are applied in many other countries' internal market arrangements.[48]

However, as this paper has considered, the Internal Market Act fails to address the constitutional and economic imbalances that are specific to the UK: unless these are acknowledged, the comparisons between the UK and other multi-level states' arrangements are invalid. As the examples below demonstrate, sub-state units in other devolved and federal states are able to a far greater degree to balance market access principles with other policy considerations, and enjoy justiciable rights and protections that offer safeguards against the kinds of unilateral and arbitrary imposition of rules that the Internal Market Act contains.

Canada[49]

Canada is a decentralized federation in which the two main levels of government -federal and provincial - enjoy exclusive legislative authority in areas specified by the constitution. The operation of the internal market is largely the outcome of individual federal and provincial legislative decisions. Following the signing of the North American Free trade Agreement (NAFTA) in 1994, "governments saw the need to further develop the internal market, having recognized that many barriers to the free movement of products, labour and capital existed, most of them due to government actions."

The 1994 Agreement on Internal Trade (AIT) created a framework for the internal market including the free movement of goods and services, mutual recognition of regulations and open procurement policies and included a dispute resolution mechanism. It was superseded when the Canada Free Trade Agreement (CFTA) was agreed in 2017.

The CFTA is intended to promote free trade in goods, services, labour and capital markets. It establishes processes for provinces to agree to either common regulations or mutual recognition and is intended to establish fair and open procurement policies. Federal and provincial governments are allowed to specify a list of exemptions to which the CFTA will not apply. This list can be reduced but not added to in the future. The CFTA was agreed on a voluntary, cooperative basis and there "was no sense that the federal government was imposing its will on the provinces."[50] Canadian provinces have powers to regulate labour, capital and product markets within their jurisdictions and all do so independently.

The CFTA recognizes the right of provinces to legislate in areas of provincial jurisdiction provided inter-provincial transactions are not unduly limited and non- residents are not discriminated against. More specifically, it protects the ability of provincial governments to legislate and regulate to achieve legitimate public policy objectives, such as protection of public health, social services, safety, consumer protection, cultural diversity, the environment and workers' rights. Language regulations and public services are exempt from the agreement. Provinces also have limited powers to exempt certain goods from the Harmonised Sales Tax which combines a single federal tax rate with provincial rates on the sale of goods.

Switzerland

The Swiss Confederation has powers to enact "any federal law necessary to create a unified Swiss economic area" but has not used them. In the absence of such, private economic activities are regulated by cantonal law or municipal legislation. The federal government cannot undermine federal arrangements so attempts to provide for an internal market must leave space for different legislation at a local level. The internal market has been created through inter-cantonal agreements, promotion of mutual recognition of market access rights and top-down federal harmonisation in specific sectors. Cantons must comply with inter-cantonal agreements or federal laws which override contradictory cantonal or municipal law.

The Swiss Constitution states that the Confederation must allow cantons "all possible discretion to organise their own affairs and shall take account of cantonal particularities". Whenever the Confederation exercises its legislative competences, the cantons have a constitutionally guaranteed right to participation; they must be informed and consulted whenever their interests are affected.

Spain

The Law on the Guarantee of Market Unity[51] was passed in 2013 but remains controversial. The law introduced principle similar to those in the UK Act – mutual recognition, non-discrimination, freedom of establishment of business and circulation of goods. It also establishes a market oversight commission.

From the outset, some of Spain's autonomous communities objected to the provisions, which they saw as primarily political rather than economic in character. Catalonia in particular objected to the extraterritorial application of laws that interfered in policy areas of devolved responsibility.

The Spanish Constitutional Court, in its Judgment 79/2017 dated 22 June 2017, declared unconstitutional, among others, articles 19 and 20 of Law 20/2013 of the Market Unity Law. Both articles regulated the principle of national effectiveness, according to which,

"the relevant authority must assume the full validity of that established by the authority of origin both in terms of requirements for access to the activity as well as the circulation of goods. This recognition cannot be conditioned on the existence of any equivalence."

In the words of the Constitutional Court, this principle involves forcing an autonomous community to accept a plurality of foreign policies within its territory, which clashes with the ability to develop its own public policies within the areas of its competence. It also allows the application of provisions adopted by a representative body in which the citizens of the territory in question are not represented.

Catalonia was able to do this because the Spanish Constitution affords justiciable rights and protections to Spain's 17 autonomous communities, providing balance and correction to any overly intrusive market unity measures. No such protections exist in the UK.


Contact

Email: Eilidh.Macdonald@gov.scot