Dispute resolution in a future EU / UK trade “deal”: what are the likely costs of avoiding indefinite European Court of Justice jurisdiction?

In most commercial negotiations, discussions about dispute resolution procedures are usually left until last. The parties don’t like to poison negotiations by talking about how they resolve disputes before they even reach agreement. But the future resolution of disputes in any eventual EU/UK agreement has exercised both sides already in the embryonic negotiations. This is because the over-arching and centralising judgements of the ECJ were an influential factor that led to Brexit – at least amongst the chattering element of the sceptical majority. Any long term role for the ECJ or its case law in any future EU /UK trade agreement will not go down well with this vocal element. But as we shall see, assuaging its concerns will not be cost free- nor can it be made to be so.

Assuming post Brexit and after any transitional agreement has run its course, that a mutually satisfactory free trade or association agreement covering goods and services is agreed with the EU and all remaining Member States ( a “ mixed “ or shared competence external trade agreement requires unanimity) and further assume that the European Parliament, at least, has given its approval, how might disputes be resolved? And just as important, who would be able to invoke those procedures? Would it just be states or would companies and individuals be able to assert rights and obtain effective ( which means swift) remedies in court as well?

One solution – the EEA solution (essentially two separate supranational courts but one EU law which can be invoked in national proceedings by private parties) has been explicitly ruled out by the UK. Apart from objections to the pre–eminence of EU law in such a framework, this is because the EEA agreement does not allow restriction on free movement of persons . Another solution – the Swiss one – which sets up a committee and has no court (and of necessity allows no role for third parties) has been rejected as a model already by the EU (and is unloved by the Swiss too)

This leaves broadly two options, neither of which are entirely attractive . The first is the Ukrainian model which has been advanced by some influential commentators because the agreement allows restrictions on free movement of persons. Though it does not cover services, it could do so in the case of the UK which (unlike the Ukraine) has a well developed service sector . However, dispute resolution in the EU’s agreement with the Ukraine is unsatisfactory from the sceptical UK perspective . EU law is accepted pretty much lock stock and barrel by the Ukraine and the relatively speedy state- to -state arbitration and mediation procedures( from which private parties are logically excluded)are subject to a final and binding interpretative judgement of the … ECJ (see Article 322- incidentally a sore point with Russia which regards it as indicative of a transfer of sovereignty and effective EU membership by the back door).

This leaves WTO dispute resolution. But WTO procedures are far from being a get out of jail card- any more than are its substantive provisions on trade itself . The most important feature of the WTO is that private parties have no role in its enforcement as it reflects the wishes of all signatories that its rights and obligations do not form part of their internal legal order in the way that the EU Treaties have done since 1964 ( as a result of ECJ case law incidentally and not the original design of the Treaty of Rome).

The absence of “ direct effect” within the national laws of the states who are parties to the WTO could matter a great deal. In the years ahead, suppose a small UK exporter of furniture is told by French customs that it must get its goods cleared in Poitiers and not Calais[1]. If this happened now, it could invoke EU free movement rules and obtain an interim injunction locally . The same remedies would be available currently for a UK importer faced with a similarly obstructive attitude on the part of UK Customs .In the WTO scenario, no such effective and swift remedies would be available. Instead, the exporter would entirely be in the hands of its home state who it would have to lobby to take up the case at WTO level . In practice, big companies have the capacity to do this sort of lobbying; small and medium size companies usually are not so well resourced – and of course it is precisely these companies who the government wants to encourage to export more. Ruling out any role for third parties by adopting the WTO approach to dispute resolution therefore comes at a price that cannot be avoided. There is a loss of legal security for traders – particularly small and medium sized ones who need every incentive to export.

This does not look like today’s problem on the face of it; however the fact that it is on both side’s radar at this early stage is a testament to the difficulty of resolving it. For the time being, the more immediate question is who will have jurisdiction over the mooted transitional agreement which may last a long time [2]. The EU has been very clear that it must be the ECJ; for some, this requirement for a transitional agreement (and the precedent it would undoubtedly create for the long term agreement) is likely to prove as contentious as the agreement itself – though it is not clear that the public at large cares as much about this jurisdictional aspect of matters as other issues. Someone is therefore going to be disappointed at the end of the long process of negotiation ; the only question is whether commercial interests will be sacrificed or political ones.

Stephen Hornsby [3]

[1] the French government actually took such a measure in 1982 to impede exports of Japanese electrical goods . Poitiers had one customs official at the time  ; clearance took four to five months. One year later the Japanese government, rather than invoke GATT dispute resolution procedures, agreed to limit exports to France.

[2] whoever ultimately has jurisdiction would in all probability be applying EU derived law as there is no English law body of decisions on what constitutes an unjustifiable barrier to trade just to take one example.

[3] Stephen Hornsby was an official of what was then the European Economic  Community in the 1980’s prior to entering private practice and can be contacted for Brexit related enquiries at shornsby@gdlaw.co.uk.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.