Draft Protecting Against the Effects of The Extraterritorial Application of Third Country Legislation (Amendment) (EU Exit) Regulations 2019

George Hollingbery Excerpts

Monday 1st April 2019 General Committees

[The Minister for Trade Policy (George Hollingbery)]

I beg to move,

That the Committee has considered the draft Protecting against the Effects of the Extraterritorial Application of Third Country Legislation (Amendment) (EU Exit) Regulations 2019.

The existing EU regulation that we are seeking to transition, No. 2271/96, is commonly known as the EU blocking regulation. As its formal name suggests, it is designed to protect UK and EU businesses from the harmful effects of the extraterritorial application of legislation adopted by another country. That refers to a situation in which a country has enacted certain laws, regulations and other legislative instruments that purport to regulate activities of natural and legal persons outside its jurisdiction who are not its citizens and who are not legal persons incorporated in that jurisdiction. It could, for example, result in penalties against a UK citizen for carrying out activities in the UK that we consider to be fully legitimate under our law. The UK and EU have long opposed the extraterritorial effect of sanctions legislation on our businesses and the dissuasive impact that that can have on legitimate trade.

The blocking regulation is designed to protect UK businesses in two key ways. First, article 4 guarantees that courts in EU member states will not recognise or allow the enforcement of judgments against EU businesses for fines that they incur in a third country for breaching sanctions with extraterritorial effect. Secondly, article 6 enables businesses to seek damages through the courts in any member state should they be negatively impacted by the application of extraterritorial legislation within the scope of the blocking regulation.

There may be occasions on which compliance with third-country sanctions regimes is necessary—in the interests of businesses and our wider Government policy to continue to trade with Iran, Cuba and Libya. Where those instances occur, the EU has the power to issue authorisations for businesses to comply with third-party sanctions regimes. How is that done? The EU considers requests for compliance authorisations in accordance with the process and criteria set out in Commission implementing regulation 2018/1101 of 3 August 2018, referred to as the implementing regulation.

Using powers under section 8 of, and paragraph 21(b) of schedule 7 to, the European Union (Withdrawal) Act 2018, this draft SI amends the blocking regulation and the implementing regulation as retained in UK law and fixes them for the UK-only context. Generally speaking, the draft SI transfers the functions of the European Commission to the Secretary of State, as would be expected of all SIs made under the EU withdrawal Act. For instance, once this draft SI enters into force, UK businesses will be able to apply to the Secretary of State for permission to comply with US extraterritorial sanctions and the Secretary of State will be able to grant that permission, according to whether they judge the applications to be consistent with criteria set out in legislation. Such criteria include considering whether, if an authorisation were denied, a company would face significant economic losses that might threaten its viability or pose a serious risk of bankruptcy, or whether it would lose access to essential inputs or resources.

Currently, the Commission defines the scope of the blocking regulation—that is, which specific pieces of legislation it applies to—through tertiary legislation amending and updating the annex to the blocking regulation. The draft SI transfers that power to the Secretary of State through the mechanism of the laying of an SI under the negative procedure.

As we leave the EU, we must ensure that we continue to protect UK businesses from the effect of extraterritorial legislation. Our opposition to extraterritorial legislation is of long standing and predates the blocking regulation. The UK has had legislation making that evident on the statute book since 1980; I am referring to the Protection of Trading Interests Act 1980. We firmly believe that our operators should be able to continue legitimate trade free from the harmful effects of the extraterritoriality that we consider to be illegal under international law. These draft regulations are a key part of that policy stance and are particularly relevant given our foreign and trade policy stances on Cuba and Iran.

I welcome the opportunity for full scrutiny of this draft statutory instrument and look forward to hearing colleagues’ contributions.

--- Later in debate ---

[The Chair]

I do not think the Minister minds.

[George Hollingbery]

Oh, I do.

[Bill Esterson]

As the Secretary of State is not here, we will settle for the Minister. Can he clarify whether it is the Department’s intention that persons must have been resident for a continuous six-month period or is the 183-day test to be applied?

These are serious and complex matters and I welcome the opportunity to debate them today. As the United Kingdom seeks to be a stronger voice in defence of the rules-based system that underpins global trade and international relations, it is important not only that such legislation is in place, but that the Government address the matters raised in this debate and put their policy intention on the record.

[George Hollingbery]

As a small matter of fact, the Burton-Helms Act is not back on the register, but 17 April is just around the corner, so I absolutely take the point made by the hon. Member for Sefton Central. That is why Cuba is included on the list.

The hon. Gentleman asked a number of questions. I was asked to confirm whether the Government have any intention of deleting from or adding to the list, and the answer is no. I have had no conversations to that effect that I am aware of, and my officials advise that that is the case as far as they, too, are aware. He asked whether there was any Government assessment of the potential effect on UK companies of any such claims coming forward. The answer is that it is impossible to know without knowing how many claims would come forward, when they would come forward, to whom and on what issues. Therefore, it is impossible to make that sort of estimate.

However, I cannot think it would necessarily change any policy decisions, certainly in this regard. This draft instrument is designed to demonstrate to the United States that we do not respect the extraterritoriality of its legislation. That is the principal issue we face; I do not think that doing that assessment would have changed our mind about that, and in any event I cannot see how we would calculate it.

[Bill Esterson]

I am sure it is not an easy thing to do, but presumably some assessment must have been carried out when the EU originally brought in the blocking regulations. Of course, we are staying consistent with that approach, but presumably there is some sense of intent on the part of the United States Government, or of companies in the United States, that would inform the decision and why it is so important that these regulations are transferred.

[George Hollingbery]

One could argue about this for hours. Quite straightforwardly, we have not done such an assessment. The regulations are there, for example, in addition to the penalties and fines that the hon. Gentleman is talking about, to ensure that the United States or United States-based companies cannot sue UK companies in UK courts. I do not know how one would assess the level of return and/or cost that that might represent.

To my mind, this is about a base principle: we do not recognise the extraterritorial power of the US regulations, and we are therefore legislating to ensure that British companies do not have to comply with them in our courts or indeed elsewhere. I am not at all aware that any cost analysis was done when the measure was previously put in place, but I do not believe we would add much to the mix by doing another one for a UK context, particularly given that it has been in place for the best part of 20 years. It is what it is; it has been in place for 20 years, and we are seeking today to transfer it into a UK context.

The hon. Gentleman asked about notification and the amount of time within which it is expected that people will tell the Government. The answer is 30 days. He also asked whether I have had any conversations with the United States trade representative, Bob Lighthizer, and others. In a personal context, I can answer that I have never had such conversations, nor am I aware of any other such conversations having taken place with others.

We will publish a list of those who have been authorised and what they have been authorised for. The EU does not currently publish such a list, so we believe that will be a useful piece of information and that it will apply transparency to our suggested arrangements. We went over the issue of legal cost to jurisdictions and other member states. Plainly, there is no equivalent item for ensuring that the member state in which that person lives is notified to the Commission, because that person is living in the United Kingdom as a citizen, so I cannot see why that section is required.

I will speak quickly about enforcement. The Department for International Trade does not carry an investigation directorate. If we found that a complaint merited further investigation, we would pass the details on to the police and they are entirely entitled to investigate it. If companies feel that they have been disadvantaged by other people complying with the extraterritorial legislation of the United States, they are entitled, if they wish, to bring an action against that company in civil courts. That is provided for.

Finally, I thank the hon. Gentleman for his pointer towards the drafting errors in draft regulations 3(8)(c) and 3(8)(d). I have no particular knowledge of that, but I have no doubt that the lawyers will look at it carefully.

[Bill Esterson]

I asked the Minister about the transfer of the current scrutiny arrangements. The specific institutions of the EU that scrutinise the operation of the regulations in the EU have not been replicated in the UK; they have just been taken on by the Secretary of State. On the issue of the immediacy of reporting to Parliament, the requirement for the EU to report immediately is not replicated in the proposed regulations.

[George Hollingbery]

It is the UK Government’s intention to publish, as I have described, in every instance. We have not yet determined the exact method for that, or the period in which it will be done, but I can say that the Opposition and others have my absolute commitment that those names will be published along with what those names or companies are allowed to do.

Question put and agreed to.