Trouble Ahead for post-Brexit Trade with the UK?

24 May 2018

Professor Erika Szyszczak is a Professor of Law at the University of Sussex and is a member of the UK Trade Policy Observatory.

If, and when the UK is able to agree a new trade relationship with the EU it will be negotiating within a new EU approach to conducting trade agreements. This will have consequences for the type of agreement(s) the UK is able to negotiate with the EU, as well as the replication of any trade agreements negotiated by the EU and the rest of the world before the full Brexit process is finalised.

In addition, the new EU approach to trade agreements may place new demands upon the UK in terms of the time and expertise necessary to negotiate and ratify such agreements with the EU and in the EU Member States.

This is because the EU will now decide at an early stage if it should split trade agreements according to whether they fall either within the exclusive competence of the EU or are viewed as mixed agreements which require input from the Member States and their respective parliaments to ratify.

The changes are a consequence of Opinion 2/15 of the European Court of Justice on the EU-Singapore Free Trade Agreement (EU-SFTA), delivered on 16 May 2017.

This Opinion addressed the relative competence of the EU and the Member States to negotiate and conclude trade agreements. On the facts the Court found that the EU had exclusive competence over most of the EU-SFTA, but that there was shared competence over non-direct investment and Investor-State Dispute Settlement (ISDS) and this tipped the Free Trade Agreement (FTA) into the realm of Member State involvement.

This Opinion was a significant limitation on the European Commission to exercise powers on behalf of the EU, especially in an era where the EU is forging new and sophisticated trade agreements with the rest of the world.

Article 207 TFEU states that foreign direct investment is within the exclusive competence of the EU.  The Commission had argued that the Treaty provisions on free movement of capital would be affected by the EU-SFTA and therefore the EU enjoyed exclusive competence over ISDS based upon Article 3 (2) TFEU.

The Court’s basis for a finding that the ISDS aspects of the EU-SFTA was a shared competence can be found in para 292 of the Opinion, where the Court is concerned that the use of exclusive competence powers ‘removes disputes from the jurisdiction of the courts of the Member States’.

The fact that aspects of modern and sophisticated trade agreements may be beyond the competence of the EU, requiring input from the Member States and national/regional parliaments (see paras. 244 and 292 of the Opinion) forced the Commission to re-think how such agreements should be negotiated in the future. The issue was addressed in President Juncker’s State of the European Union 2017 speech and the Commission issued a Communication, “A Balanced and Progressive Trade Policy to Harness Globalisation“.

The European Commission recommended using draft negotiating directives for FTAs covering exclusive EU competence and separate mixed investment agreements, arguing that such an approach will strengthen the EU’s position as a negotiating partner. It certainly could speed up negotiations on trade and provide some certainty on the legality of the negotiating process, so that in the future, a complicated and long-drawn-out negotiation process is not totally lost by a ruling, or Opinion, of the Court of Justice.  This new approach was adopted by the Council on 22 May 2018.

Future EU-FTAs will be decided on a case by case basis. The Council will decide whether to open negotiations and also, on a case-by-case basis, on whether the trade agreement should be split. Depending on their content, the Council accepts that most Association Agreements should be mixed agreements under EU law.

This has implications for democratic input at the national level into future EU trade agreements, which may affect the outcome of any successful negotiating position the UK is able to leverage against the formal institutions of the EU.

The Council considers that Member States’ parliaments, as well as civil society and other interested stakeholders, should be kept duly informed from the beginning of the process of preparation for negotiating future FTAs. Member States should continue to involve their parliaments and interested stakeholders appropriately, in line with their respective national procedures.

The Council reiterates the importance it attaches to addressing citizens’ concerns and expectations of trade policy and trade agreements and recognises the need to keep citizens continuously informed of the progress and contents of FTA under negotiation.

Such a transparent attitude stands in stark contrast to the secrecy surrounding current UK approaches towards trade with the EU and the rest of the world. The UK government may see trade talks with the US – or India – as sensitive and controversial with a demand for secrecy and consultation with selective stakeholders. But the UK is left in the perverse situation of attempting to “take back control” over trade issues with the UK Parliament having less scope to influence any future EU-UK trade deal. Individual stakeholders are forced to rely on applying for Freedom of Information Act requests.

In contrast, the EU sees openness and transparency as a process and tool to strengthen the legitimacy and inclusiveness of EU trade policy.

However, and for balance, it should be noted that the Council has the exclusive discretion to decide what information on trade policy and on-going negotiations it shares with the wider public.

The EU does not see this as a weakening of the power of the EU to negotiate sophisticated global trade agreements, and indeed contemplates ambitious standalone investment agreements.

In the future, a first reflection in the Council should be on the need for investment protection rules and negotiations should take place at the earliest possible stage of the scoping exercise. Any EU investment agreements should in principle be negotiated in parallel to FTAs.

Brexit has raised the awareness of global trade agreements with the popular press and, as a consequence, the wider public.

While the government of Wallonia has been a prominent player in challenging and stalling EU trade policy,  other Member States’ parliaments, in response to lobbyists, may also share an interest in requesting a greater democratic role in global trade policy.

Detractors from the EU policies will have the additional avenue of using the European Court of Justice to question not only the competence to conduct trade negotiations, but also the compatibility of such agreements with EU law and principles. An avenue which may be closed off in the future to lobbyists and interest groups, and, as Gina Miller has shown, ordinary citizens, in the UK.

 

Disclaimer:

The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.

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