Protecting Against the Effects of the Extraterritorial Application of Third Country Legislation (Amendment) (EU Exit) Regulations 2019 - Motion to Approve

Part of the debate – in the House of Lords at 9:02 pm on 26 March 2019.

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Photo of Baroness Fairhead Baroness Fairhead The Minister of State, Department for International Trade 9:02, 26 March 2019

My Lords, EU Council regulation 2271/96, which protects,

“against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom”,

is commonly known as the EU blocking regulation. It seeks to protect UK and EU businesses from the harmful effects of the extraterritorial application of legislation adopted by another country.

Extraterritorial application of legislation refers to a situation where a country has enacted certain laws, regulations and other legislative instruments which purport to regulate activities of natural and legal persons outside its jurisdiction who are not its citizens or legal persons incorporated in that jurisdiction. This could, for example, result in penalties against a UK citizen for carrying out activities in the UK which 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 this can have on legitimate trade. In fact, the UK’s opposition to such actions predates the blocking regulation. We have had regulations on our statute book since 1980.

The blocking regulation seeks to protect UK businesses in two key ways. First, Article 4 of that regulation 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, its Article 6 enables businesses to seek damages through the courts in any member states, should they be negatively impacted by the application of extraterritorial legislation in scope of the regulation.

Of course, there may be occasions where compliance with third-country sanctions regimes is necessary. Where these instances arise, the EU has the power to issue authorisations for businesses to comply with third-party sanctions regimes. Such compliance can include seeking permission from a third country to continue doing business with countries affected by that third country’s sanctions, such as approaching OFAC for a licence to continue operating in Iran. This form of compliance preserves and increases trade, although without such authorisation it is technically illegal under the blocking regulation. For this reason, compliance authorisations may need to be issued by Her Majesty’s Government after Brexit. Currently, requests for such authorisations are considered by the EU Commission 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.

This SI amends the blocking regulation and the implementing regulation as retained in UK law, using powers under Section 8 of, and paragraph 21(b) of Schedule 7 to, the EU withdrawal Act 2018, and fixes it for the UK-only context. It ensures that the UK statute book on leaving day remains equivalent to that on the day before we leave. The SI, generally speaking, transfers the functions of the European Commission to the Secretary of State, as would be expected of SIs made under the EU withdrawal Act 2018. For instance, once the SI enters into force, UK businesses will be able to apply to the Secretary of State for permission to comply with extraterritorial sanctions, and the Secretary of State will be able to grant this permission if he or she judges the application to be consistent with the criteria set out in legislation.

Currently, the Commission defines the scope of the blocking regulation—which specific pieces of legislation it applies to—through tertiary legislation amending and updating the annexe to the blocking regulation. The SI transfers this power to the Secretary of State through the mechanism of laying of a negative SI. As we leave the EU we must ensure that we continue to protect UK businesses from the effect of extraterritorial legislation. We firmly believe that our operators should be able to continue legitimate trade free from the harmful effects of the extraterritoriality that we consider illegal under international law. This statutory instrument is a key part of this policy stance and is particularly relevant given our foreign and trade policy stances on Cuba and Iran. I welcome the opportunity for scrutiny of it and I look forward to hearing the contributions of noble Lords.