What does Brexit mean for international trade agreements?

06 Jul 2016

Following Brexit, the UK will have to renegotiate a whole host of trade agreements with third countries. This process will require considerable time and energy and give rise to formidable legal and practical challenges.

The UK is currently bound by trade agreements concluded by the EU alone (such as the Agreements with South Africa on trade in wine, with Israel on government procurement, or with Australia on mutual recognition in relation to conformity assessment). They only bind the UK as a matter of EU law. The UK is not a party to these agreements. In legal terms, once it left the EU, the UK would have to negotiate afresh its trade relations with third countries which are currently parties to such agreements.

Some trade agreements are part of broader treaties in which the UK is a party (along with the EU and the other Member States). Such agreements are known as mixed. A case in point is the Free Trade Agreement with South Korea. In legal terms, the application of mixed agreements to the UK following Brexit will not be automatic.

Most of mixed agreements will have to be renegotiated as they are, in essence, of a bilateral character. They are concluded ‘of the one part’ by the EU and its Member States and, ‘of the other part’, by South Korea (to name but one example), and refer to the UK in its status as a Member State of the EU. A number of them also include a clause which confines their territorial application to the territories in which the TEU and TFEU apply. It follows that, once the UK left the EU and lost its status as a Member State, it would also cease to be a party to the Agreement.

It has been argued that, instead of renegotiating substantive provisions of trade agreements, the UK would simply agree with third countries a ‘rolling over’ of the provisions of the existing agreements. Trade treaties, however, are the outcome of long and complex negotiations and of package deals and compromises reached in a very specific policy context. Once the UK relied on the good will of a third country to extend these deals to a completely new context, it could not be certain that the latter party would resist the temptation to unravel specific aspects of the deal. It is difficult to envisage, for instance, the automatic rolling over of an existing trade agreement concluded by the EU without adjusting the quotas already applicable to trade between the UK and the third country concerned. The rolling over of existing trade agreements, therefore, would involve renegotiation of at least some of their provisions.

The problems of renegotiating trade agreements

Renegotiating trade agreements is bound to be a long and complex process. The UK has not negotiated trade agreements for over 40 years. This is because the competence in this area has been transferred to the EU. Whilst there is no doubt that British diplomats and civil servants are highly skilled, this is a muscle that they have not flexed for a very long time. Sir Simon Fraser, former permanent secretary at the Foreign Office, said last month that Britain had only 20 ‘active hands-on’ trade negotiators.

There is an increasing tendency in international treaty-making for big package deals, aiming to reach the highest possible degree of liberalization in areas such as services and investment, to cover intellectual property rights and competition, and to include provisions on labour and environmental standards. Such big deals require big markets to support them and take longer to negotiate. A case in point is the Comprehensive Economic and Trade Agreement between the EU and Canada: negotiations started in 2009 and the agreement is not yet in force. Long negotiations, however, are not confined to the EU: the trade agreement between Canada and South Korea took 14 rounds of negotiation over 9 years to conclude.

When can the UK negotiate international trade agreements?

During the negotiations of a settlement with the EU under Article 50 TEU, the UK would be prevented, under EU law, to negotiate separate trade agreements with third countries. This is because the UK would still be an EU Member State during this period and, as such, it would have no competence to negotiate trade deals with third countries. Even if, in legal terms, a pragmatic solution were found enabling the UK to negotiate informally with third countries during the Article 50 TEU period, it would require the good will of the EU institutions. The UK would also find it profoundly challenging to negotiate with third countries whilst engaging with complex negotiations with the EU.

The range and scope of existing international treaties binding the UK under EU law are considerable. Brexit, therefore, will have profound implications for this area and will raise serious and complex legal issues.