Two remarks about the UK's breach of the Northern Ireland Protocol this week stand out.

In the first, British Prime Minister Boris Johnson tells the House of Commons that the Internal Market Bill is a "legal safety net to protect our country against extreme or irrational interpretations of the Protocol".

In the second, Downing Street briefs that the Withdrawal Agreement containing the Protocol was "agreed at pace in the most challenging possible political circumstances".

Taken together, the remarks portray a UK government being railroaded into a treaty, with the result that the EU would deliberately weaken the Union through some unforeseen ("extreme" or "irrational") interpretation of the Protocol. 

The British government has always loathed what it signed up to. Boris Johnson and others lost no time in denying the Protocol’s implications, to the exasperation of the partners with whom he had just signed the treaty.

What this week’s Internal Market Bill does (and what the Finance Bill is expected to do) is neuter the things London hates: tariffs applying to goods moving from Great Britain to Northern Ireland, exit summary declarations for goods moving from Northern Ireland to GB, and the application of EU state aid rules.

There are other obligations London hates: the chore of building EU Border Control Posts (BCPs) at Northern ports to carry out checks on live animals, animal-derived products, and food coming in from GB.

Brussels is now waiting to see if the Agriculture Bill will try to swot aside those obligations as well. Already the BBC has reported that Northern Ireland’s Agriculture Minister Edwin Poots wants to suspend work on BCPs because the Internal Market Bill means all bets are off.

We had invested a lot to try to work with the UK to get a solution that was agreeable to both sides. Now to have a gun put to your head doesn't feel that great.

The EU accepts the obligations of the Protocol are difficult. The Withdrawal Agreement created the Joint Committee so that both sides could work together to manage how sensitive issues were handled.

From the word go, the UK portrayed the Joint Committee as a place where they could keep negotiating the Protocol. London said it aimed "to negotiate with the European Union additional flexibilities and sensible practical measures across all aspects of the Protocol..." (according to the New Decade, New Approach paper which enabled the restoration of the Assembly).

Not so, said the EU. The Joint Committee is there to implement what has already been negotiated.

The Joint Committee (and its specialised subcommittee) did have discretion to look for flexibilities so long as they were compatible with the legal framework. Indeed, workstreams were under way to look at, for example, how consignments for supermarkets could be handled, and what might be done to ease the burden of exit summary declarations. 

One source close to this work said: "It’s why this whole move [by the UK] has been so personally upsetting. We had invested a lot to try to work with the UK to get a solution that was agreeable to both sides. Now to have a gun put to your head doesn’t feel that great."

At one point, facial recognition for sheep was being considered along Northern Ireland border

One element of the Protocol which is not within the remit of the Joint Committee is state aid.

What has taken many in London unawares is that when the Protocol provides for EU state aid rules to apply in Northern Ireland, there can also be a reach-across to the rest of the UK.

In other words, if a future UK government subsidises a large corporation that has subsidiaries in Northern Ireland, then it too is "caught" by EU state aid rules.

Did Boris Johnson and his team fully understand this? Did the EU try to hide it?

The Irish border did, indeed, take most people by surprise. As a result, the Brexit process got bogged down in three years of cantankerous arguments about border technology, exemptions from EU law, drones, and other wizardry, as London struggled to reconcile Brexit with Ireland’s geography and history.

(At one point, the UK government’s Technical Alternative Arrangements Advisory Group was exploring facial recognition for sheep.)

State aid was never in lights during the tortuous forging of Theresa May’s "backstop". Nor did it grab any headlines when Boris Johnson came to town and negotiated the so-called "frontstop".

It is a complex subject, written about in specialised journals by academics and lawyers. But state aid goes to the heart of how the EU has evolved the single market. It generates a huge body of ECJ case law, and only the ECJ can adjudicate on it. The European Commission takes it extremely seriously, as Ireland and Apple will attest.

Remember, the backstop was an insurance policy to keep the Irish border open, one that would kick in only if a free trade agreement wasn't concluded on time, and only if that free trade agreement did not envisage close alignment on customs and regulatory systems between the EU and UK.

Despite the lack of media attention, in reality state aid was a very hot potato from the start. The EU made it clear that, if Northern Ireland was to remain within the orbit of the single market then EU state aid rules would apply, and they would have a reach-across effect on the rest of the UK.

In the very first version of the Protocol, back in February 2018, Article 9 spelled out that EU state aid law would apply in the North because it would be trading as if it were part of the single market. The way Article 9 was drafted ensured that this was not territorially limited to Northern Ireland. London knew this.

One source close to the negotiations at the time said the Commission couldn’t have limited it to Northern Ireland if it wanted to.

"It’s simply the logic of state aid," says the source. "You have to bind an entity, which is the government and all government organs, that give out state aid. It’s not about where the aid goes. It’s about who gives it."

In the same way, if Italy decided to provide aid to a Russian company and that company then traded into the EU’s single market, then the Italian government would be liable to a state aid investigation.

Former British Prime Minister Theresa May proposed a backstop affecting the whole of the UK

Of course, Theresa May rejected the February 2018 draft – including the first version of the backstop – outright. No British prime minister would accept it, she said, as it required a customs border in the Irish Sea.

To get around this, Theresa May proposed a different kind of backstop.

Remember, the backstop was an insurance policy to keep the Irish border open, one that would kick in only if a free trade agreement wasn’t concluded on time, and only if that free trade agreement did not envisage close alignment on customs and regulatory systems between the EU and UK.

What Theresa May proposed was that the backstop would bind not just Northern Ireland to the EU’s customs union, but the rest of the UK as well. That way, if the backstop was ever needed (and hopefully it wouldn’t be) there would be no customs differential, so no customs border in the Irish Sea.

It was a complex idea, and the European Commission was not entirely enthusiastic. However, as the negotiations intensified, the EU agreed to the UK-wide customs union idea.

But there was a catch. Since the UK would have access to the EU’s single market and customs union before a free trade deal had been concluded, member states insisted the UK would have to sign up to a level playing field so that British companies could not undercut their European competitors. The level playing field included accepting the EU’s state aid rules.

That left a complicated situation: two parallel state aid arrangements. Northern Ireland had one arrangement for complying with EU state aid law, and the rest of the UK had another.

"They were a bit different," recalls one official, "but they interacted in certain ways. Because the Northern Ireland-specific bit didn’t change, there was already and always that reach-back into GB."

This was known by Theresa May and her team, and it was agreed by Theresa May and her team. But not without a fight.

Senior officials say that UK negotiators fought hard to keep this reach-across out. London argued that it bound the UK as a whole in too many ways.

Both sides wrangled over the issue especially when it came to banks. Michel Barnier’s team raised the question of fiscal aid to the financial sector: if the UK gave support to a bank in London that subsidised loans to companies that traded in, or through Northern Ireland, that aid would, in principle, be subject to EU state aid rules.

The UK Treasury got involved and made their concerns known. 

This all happened below the surface. Everyone was fixated on the backstop, the border, the UK-wide customs union, the infamous Chequers paper, the ructions between Theresa May, the DUP and the European Research Group (ERG). 

Boris Johnson had regarded the Irish border as a cunning plot to overturn Brexit.

But the battle over state aid went all the way to the top. "It was a very, very conscious decision to agree to it in the end, all the way up to the highest level," said one source. "It was a considered decision to sign up to this. They were fully and totally aware of all the implications."

In the end, according to well-placed sources, the UK had to accept that the Commission was not going to budge. State aid was too sacred an issue.

However, it cannot be stressed enough that the UK would only have been bound in this way if the backstop ever came into effect. Theresa May’s government convinced itself and anyone who would listen that the backstop would never be necessary.

It was also her government’s ambition that an entirely new state aid regime would be negotiated with the EU in the future relationship talks, and the EU, according to officials, shared that ambition. In that sense, she may have decided that the state aid reach-across was not a bridge worth dying for.

In the event, Theresa May’s Withdrawal Agreement was rejected in the House of Commons on three occasions and she was consigned to history.

Then it was Boris Johnson’s turn.

Johnson had regarded the Irish border as a cunning plot to overturn Brexit. When he became prime minister in July 2019, he made it clear that the customs border should be pushed back to the island of Ireland, but sweetened by technology and other efficiencies.

When his new negotiator David Frost resumed talks in September 2019, the UK team proposed that if the customs border was indeed back at the land frontier, then the UK would be administering Northern Ireland customs on its side of the border.

Frost argued that, as there would be no integration between the North and the single market, there was no need for the North to be under the EU’s state aid regime, and certainly no reach-across to GB.

However, the EU made it clear there could be no customs border on the island of Ireland.

Then came the momentous meeting between Johnson and then taoiseach Leo Varadkar at Thornton Manor near Liverpool.

By that stage the Protocol was "landing" back where it started: with a customs and regulatory border at points of entry into Northern Ireland from Great Britain.

From then on, according to senior sources, Boris Johnson and his team made no attempt to get rid of the state aid clauses, including the reach-across part.

Indeed, in all of the draft texts presented by the UK side during the negotiations in September/October 2019, not one included a recommendation that the state aid implications in the revised Protocol be dropped or amended.

When it was discussed, it was only in the context of the rebates that companies in Northern Ireland would get if EU tariffs were applied on goods that were ultimately not at risk of crossing the border into the single market.

Signature of Boris Johnson on the Withdrawal Agreement between UK and the Eu

This part of the Protocol, Article 5(6), was symbolically important for the UK as it allowed them to demonstrate that, in a significant amount of cases, tariffs would not apply. However, EU sources insist it was entirely predicated on (and even proves) the underlying existence of EU state aid rules.

Did Boris Johnson and his team fully understand what they were signing up to?

It was a rushed negotiation in the end. There were only 10 days between the Thornton Manor meeting between Boris Johnson and Leo Varadkar and the final breakthrough on October 16 last year.

But Thornton Manor only dealt with the movement of goods and the customs implications, and the counter-balancing issue of consent.

The state aid issue (and many others) had long since been closed. Ultimately, there was little or no change in the EU’s insistence on state aid rules applying both to Northern Ireland and to the rest of the UK via the Protocol, in certain circumstances, going all the way back to February 2018.

According to sources closely involved throughout that period, nothing was hidden, and Boris Johnson and his team were fully cognisant of all the state aid implications (and, indeed, the details around tariffs and exit summary declarations).

"At the level of negotiator, they had their state aid experts here," said one source, "they had their legal people here. We discussed this very openly.

"We were never in the business of trying to hide the legal effect of what we proposed. They understood that perfectly. And the UK has 40 plus years of experience in dealing with EU state aid law."

Indeed, the EU spelled out in bold the state aid obligations under Theresa May's Withdrawal Agreement. On 14 November 2018, the European Commission published a fact sheet on the just-concluded treaty. It stated: "The United Kingdom has committed to apply EU state aid rules, in a way that is dynamically aligned to the development of those rules in the EU.

"For aid granted by the UK that affects trade between Northern Ireland and the EU, the Commission will continue to enforce State aid rules directly as part of the backstop solution. The Court of Justice of the EU also remains competent in this respect."

So why did Downing Street detonate the Protocol at the most sensitive point of the future relationship negotiations? Why too did Johnson decide to use the most toxic issue that had bedevilled the divorce (Ireland) and is still bedevilling the future relationship (state aid)?

A simple explanation is that London has decided that the talks are going nowhere and wanted to provoke the EU into terminating the process.

It was claimed that pro-Brexit Attorney General Suella Braverman could find legal ways around the Protocol

It could simultaneously be true that the UK never intended to follow the letter or spirit of the Protocol, as per Boris Johnson’s famous declaration that customs declarations should be thrown in the bin, and as per Tim Shipman’s report in the Sunday Times on 23 February that Downing Street had brought Suella Braverman in as a Brexiteer Attorney General in order to find legal ways around the Protocol’s obligations.

Another suggestion is that Downing Street is trying to shake off its obligations in case there is no deal in a few weeks' time (in which case the full range of tariffs and other non-trade barriers will apply in the Irish Sea on January 1).

Or in case the Joint Committee fails to reach agreement on which goods are "at risk" of crossing the border and will thereby attract tariffs (under the Withdrawal Agreement, the default is, if the Committee can’t reach agreement, that all goods will be deemed at risk).

However, one explanation is that London is making a desperate bid to break open the biggest sticking point in the talks, that of state aid.

Simply put, the EU wants a legally robust state aid rule book which will prevent either side from rigging the game through subsidies that might give certain sectors a competitive advantage.

By contrast, the UK has elevated state aid autonomy to an issue of pure national sovereignty. But if London has already surrendered the principle of state aid applying in the UK as a whole through the backdoor of the Protocol, it weakens that negotiating position.

Clause 43 of the Internal Market Bill gives the Secretary of State power to scrap EU state aid rules not just in Northern Ireland, but also via the reach-across effect to the rest of the UK.

"Number 10 seems to have belatedly realised that holding out for full independence on state aid in any EU trade deal would be hugely undermined by the 'oven ready deal’ Boris Johnson signed last October,"  said Paul McGrade, a former Foreign Office and European Commission official and a senior counsel at Lexington consultancy.

By throwing out far-reaching parts of the Protocol without warning, the bar for the EU to trust the UK has been placed dizzyingly high.

"The Withdrawal Agreement makes clear that EU State aid law binds the UK in perpetuity, in respect of anything which ‘affects’ trade between Northern Ireland and the EU. That bar is set very low by established EU law… Number 10 may simply have decided to show that they are willing to close off that large state aid loophole, the better to threaten no deal in EU talks."

Another theory is that London is deliberately using the Protocol as a wedge to open up the entire state aid issue in the hope that they can hammer out a last-minute grand bargain: delete the state aid reach-across, and even some other Protocol irritations, and we can discuss what you’re proposing on the broader state aid relationship.

"If there’s no agreement on state aid," mused one EU official close to the negotiations, "it might be a too-clever-by-half strategy.

"You tell the chief negotiator, look, we will deny it if you discuss it any further, but do you think there is a case for having a single state aid system [for the EU and UK] which is wider, but which means we overwrite the state aid element of the Withdrawal Agreement?"

It seems implausible, not least because trust lies at the heart of the EU’s negotiating position. The UK approach has been "trust us", not just on state aid but on many of the key future relationship topics, like food safety, animal health, data protection and so on.

By throwing out far-reaching parts of the Protocol without warning, the bar for the EU to trust the UK has been placed dizzyingly high.