The Comprehensive Economic and Trade Agreement (CETA) that the EU has negotiated with Canada has attracted considerable publicity. Its fate is uncertain at the time of writing, as the Walloon Parliament in Belgium has voted against its signature and provisional application (the signature of CETA was scheduled originally for Thursday 27 October 2016). Its outcome notwithstanding, this episode is instructive about the legal complexities of Brexit.

What is CETA? 

CETA is one of the most comprehensive trade agreements that the EU has negotiated (the text of the agreement is available here).

Negotiations started in 2009. The Agreement introduces considerable liberalization in trade in goods, opens up public procurement in Canada at national, regional, and local level, and covers areas such as intellectual property rights and sustainable development. It also covers services, but does not liberalise financial services (and includes numerous exceptions and reservations). It covers technical standards but without introducing mutual recognition: the accredited standardisation bodies in the EU and Canada would be competent to confirm compliance with the standards of the other party, hence simplifying trade for business.

Which aspect of CETA has attracted attention? 

The approach of CETA to investment-State dispute settlement has attracted considerable attention. The Agreement provides for a permanent investment tribunal with jurisdiction to hear investor-State disputes. Companies may sue States directly before the tribunal for violations of the principle of non-discrimination, the most favoured nation treatment, the principle of favourable and equitable treatment, including denial of justice and fundamental breaches of due process, and expropriation without compensation. The tribunal is permanent and its members are appointed by the EU and Canada. The Agreement also provides for an appeal system.

The provision for a permanent investor tribunal was introduced by the EU after the text of CETA had been finalized. It illustrates a shift from the traditional investor-state dispute settlement system which is prevalent in international investor treaties and which is based on ad hoc arbitration. This system has attracted considerable attention recently. Its detractors attack the avoidance of national courts and suggest that the traditional investor-State dispute settlement system lacks transparency and undermines the regulatory authority of States. This criticism has been expressed in strong terms in the context of the negotiation of the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the United States.

CETA is a mixed agreement  – what does this mean?

The procedure governing the signature and conclusion of an international agreement negotiated by the EU depends on the content of the agreement. If the latter falls within the exclusive competence of the EU, it is signed and concluded by the EU alone (eg the agreement on trade in wine between the EU and South Africa). This procedure may make the process of negotiating, signing, and concluding treaties easier (Article 207 TFEU, for instance, provides for qualified majority in the Council for the conclusion of agreements on trade in goods, and there is no need for ratification in Member States, as the latter are not parties to such agreements).

If, on the other hand, the agreement covers areas over which the EU and the Member States share competence, it is concluded by the EU and its Member States. This is a mixed agreement. The form of this agreement has implications for its application and entry into force: the ratification in each and every Member State, in accordance with national constitutional rules, is required.

Whether an international agreement should be an EU-only or a mixed agreement is often a matter of legal controversy. This is because this issue pertains to the politically sensitive question about the division of competence in international economic relations between the EU and the Member States. The European Court of Justice is currently considering these matters in a request by the Commission on the conclusion of the Free Trade Agreement that the EU has negotiated with Singapore (the controversial issue is competence over investment policy, transport services, intellectual property, and sustainable development).

Why is the vote of the Walloon parliament relevant?

Whilst the European Commission is of the view that CETA ought to be concluded by the EU alone, Member States disagreed. In order to avoid a delay in its application (and given the pending dispute before the Court of Justice), the Commission proposed in July 2016 that CETA be signed, provisionally applied, and concluded as a mixed agreement.

It is in this context that the vote at the Walloon parliament has attracted such attention. The signing and provisional application of CETA require the agreement of, amongst the other Member States, Belgium where all six regional assemblies would have to give their approval.

The objections raised by the Walloon assembly have to do with concerns about the impact of CETA on environmental, labour, and consumer standards, as well as the establishment of the investment tribunal and the impact this might have on national regulatory autonomy.

Is this a CETA-specific problem?

The legal and practical issues outlined above are not unique to either CETA or Belgium. The Netherlands has not ratified the Association Agreement that the EU negotiated with Ukraine following a non-binding referendum on 6 April 2016. As for CETA in particular, its signature was by no means a foregone conclusion in Germany and Austria. In Germany, the Federal Constitutional Court was asked to issue an injunction against the provisional application of the Agreement. It declined in a judgment rendered on 13 October 2016 (for a summary in English, see here.

The issues raised by the CETA episode may well arise in the context of any other comprehensive economic agreement negotiated by the EU, a point that the controversy surrounding the negotiation of TTIP illustrates all too clearly.

What does this tell us about Brexit?

The problems raised by the signature of CETA illustrate the legal challenges that the UK may face in its effort to agree its future relationship with the EU. If the latter were governed by a rather basic trade agreement, confined, for instance, to traditional trade barriers in goods, the agreement could be concluded by the EU alone (it would require qualified majority in the Council and the consent of the European Parliament). If, on the other hand, the agreement had a more comprehensive scope, its conclusion would require ratification in all 27 remaining Member States, and the consent of the European Parliament.

The form of the agreement (as an EU-only or a mixed one) would be a matter of legal assessment and political expediency. As far as the former is concerned, the ruling of the Court of Justice on the EU-Singapore Agreement is expected to clarify the issue of competence in policy areas which might be covered (the hearing took place on 13 and 14 September 2016). As for the political dimension, it is recalled that the conclusion of CETA as a mixed agreement was viewed as politically necessary, even though, in legal terms, the Commission deemed the agreement within the Union’s exclusive competence.

The above legal constraints have policy and practical implications too. First, they illustrate the wide range of national concerns that would need to be addressed for the UK-EU agreement to materialize. These would have to reflect the economic, political, and policy interests of 27 Member States – and these interests may vary considerably, both between and within Member States. In the case of CETA, for instance, the Walloon assembly was against the Agreement while the Belgian Government was in favour of it.

Secondly, the legal constraints outlined above suggest that it might take longer for a comprehensive agreement on the future UK-EU relationship to be negotiated, let alone for such an agreement to enter into force. In other words, the mixed nature of such an agreement would have an impact on the practicalities of its negotiation and application. The ruling of the Court of Justice on the EU-Singapore Agreement would be important. The United Kingdom made written submissions before the Court in which it argued for the continuing competence of the Member States and against the Union’s exclusive competence. It is somewhat ironic that, were the Court to accept these arguments, yet another layer of complexity would be added to the UK-EU negotiations.

Thirdly, the legal and practical issues outlined above suggest that serious thought should be given to the application of transitional arrangements. These may be required for the period between the adoption of the withdrawal agreement and the application of the agreement on the future relationship between the UK and the EU.

The Brexit Competition Law Working Group (BCLWG), consisting of a group of eminent practitioners in competition law including Jon Turner QC, has just published an Issues Paper setting out issues for UK competition law that will need to be considered and resolved as a result of Brexit.  The paper covers mergers and market investigations, antitrust rules, and private enforcement, and looks at both areas that will have to be resolved before Brexit and issues that will need to be considered over a longer time-frame.

Comments are invited from practitioners and others by 30 November, and may be sent to contribute@bclwg.org.

In a lecture given to the Centre of European Law at King’s College, London, on 13 October, the President of the EFTA Court, Judge Baudenbacher, made a number of important observations about Brexit and possible models for the UK’s relationship with the EU and EEA. His handout is here.

Important points that he makes include: –

• He does not consider that EEA membership for the UK is automatic: the UK would have to apply to join EFTA (requiring consent from Switzerland, Norway, Iceland and Liechtenstein) as well as the EEA.
• He refers to the EU’s suggested arrangements between Switzerland and the EU under which the Swiss would take part in the EFTA Court and Surveillance Authority to the extent that they are dealing with Swiss/EU agreements: he suggests that as a possible model for the UK. 　He notes that acceptance by Switzerland of multilateral enforcement bodies is likely to be essential to future Swiss/EU arrangements.
• The UK would, he thinks, have to make financial contributions, though he notes that the EEA Member States choose the projects that they want to fund.
• He considers it to be an open question whether the UK would be happy with the “co-determination” right, but not voting right, of EEA Member States in relation to new EU law, but notes that in the 1980s Jacques Delors as Commission President offered the EFTA states a more structured partnership with common decision-making.
• On the question of whether the EFTA Court is the same (in effect) as the ECJ, he is recorded as saying this: –

In that regard, Baudenbacher referred to the fact that the EFTA Court is an independent court of law. Because of the EFTA pillar’s size, a British ESA College Member and a British judge would be involved in each case. The President of the EFTA Court also mentioned that the court system of the EFTA pillar leaves the EFTA countries more sovereignty than the court system of the EU pillar leaves the EU countries. This is reflected in the EFTA Court’s case law. Moreover, that case law is market-oriented and based on an image on man that is similar to that of the man on the Clapham omnibus. Baudenbacher foresaw that in case of British EEA membership that such reasoning would become even more relevant for his Court.

Judge Baudenbacher therefore emphasises the more “Anglo-Saxon” or “liberal” approach of the EFTA Court, its greater respect for EEA Member States’ sovereignty – and notes that the arrival of a UK judge (who would be one of four or five judges rather than one of 28 and who would sit on every case affecting the UK) might well accentuate that trend.”

The High Court is currently considering the argument that the Crown has no power to trigger Article 50 of the Treaty on European Union by use of the Royal Prerogative and without an Act of Parliament. One issue that has arisen in commentary on that case is whether it could result in a reference to the Court of Justice of the European Union (“CJEU”).

It is important to be clear about what a reference to the CJEU is and when it can be (or in some cases has to be) made.

Article 267 of the Treaty on the Functioning of the EU provides that, where a national court has to resolve a point of EU law in order to decide a case, it may refer that point of law to the CJEU for a preliminary ruling. It goes on to provide that where the national court is one from which there is no appeal (for example, in the UK, the Supreme Court), it must make such a reference – though the CJEU has also ruled that such a court need not do so where the answer to the question of EU law is clear (the “acte clair” principle).

The key point for present purposes is that the power (or duty in the case of a national supreme court) to make a reference to the CJEU arises only when the answer to the question is necessary to decide the case. If the case can be answered without resolving the point of EU law, that is what the national court must do. In short, a national court cannot use the preliminary ruling procedure to resolve a point of EU law to which it might be nice to know the answer but which is not necessary to the decision of the case before it. And there are a number of cases where the CJEU has declined to rule on a question which it thinks it is being asked as a matter of academic curiosity rather than because its answer is needed to resolve the case.

The point of EU law that has been identified as potentially requiring a reference to the CJEU is the question of whether an Article 50 notification can be withdrawn by the Member State making it before it leaves the EU. Article 50 is silent on the question, and it is hard to see that it could be regarded as “acte clair”. (For what it is worth, my view is that such a notification is reversible by the Member State concerned: the silence of Article 50 on the point is not a reliable basis for arguing the contrary, and it would, in my view, be an extraordinary result, in a Union founded on democratic values and with the aim of sharing a peaceful future – see the preamble to the EU Charter of Fundamental Rights – for a Member State that had democratically changed its mind on the question of leaving the EU then to be forced out against its will. That view is shared by a number of commentators including Sir David Edward KCMG, a former Judge of the CJEU.)

The question, however, is whether there are any circumstances in which it would be “necessary” for the High Court (or in due course the Supreme Court) to answer that question in order to decide whether Article 50 can be triggered by the Crown under the Royal Prerogative.

In my view, it is hard to see that there could be such circumstances.

At present, the claimants are proceeding on the basis that Article 50 is not reversible (or at least that it has to be assumed that it is not), and the Crown is not seeking to argue that it is. The Crown’s position may well be because in a wider context it does not suit the present Government, mindful of possible political difficulties ahead, to argue that there is room for the Article 50 process to be reversed. But, in any event, that is its position.

The fact that the parties are agreed on the point does not of course mean that the courts are bound by that. It is open to a court to decide – whatever the parties say – that a point is open to argument and that it needs to be resolved before a case can be decided. And the question of a reference to the CJEU is for the court, not the parties.

But I do not see that a CJEU reference is likely in this case. It has to be remembered that, whether or not Article 50 is reversible, there are a number of other reasons (no matter how unlikely politically) that could stop it resulting in the exit of the Member State giving the notification. The most obvious of those is a renegotiation of the Treaties during the Article 50 period. Or the other Member States could, acting unanimously, agree to postpone the date of exit far into the future.

The Claimants’ case does not therefore, in my view, depend on asserting that an Article 50 notification is irreversible. Rather, it depends on asserting that it sets in train a process that has two features: (i) unless something else happens, the Member State falls out of the Treaties two years later; and (ii) the “something else” (reaching an Article 50 agreement with a longer period; unanimous extension of the Article 50 negotiating period; renegotiation of the Treaties, or withdrawal of the Article 50 notification) is not an event over which Parliament has any legal control. (Note that if the Government is right that invoking Article 50 is a matter of the Royal Prerogative, withdrawing an Article 50 notification must also be a matter for the Prerogative and over which Parliament has no legal control – a point on which Brexiteers championing the powers of the Crown in the present case might want to reflect.) Since point (ii) does not depend on whether Article 50 is reversible, it is hard to see why the question of reversibility would have to be resolved before deciding the case. And, as I explained above, unless the point of EU law has to be resolved by a national court, the national court does not have to (and indeed should not) refer it to the CJEU.

So, as a matter of law, and subject to the general caveat that unexpected things happen in courts, I do not see that a CJEU reference is likely. It also seems to me to be highly unlikely that the Supreme Court (whose decision it would be) would want to take that step: the Supreme Court would be well aware of the political storm that would arise, and of the delay inevitably caused by a reference. Further, although those of us who have appeared before the Supreme Court may sometimes struggle to remember this, even Supreme Court judges are human: and I suspect that this is just too fascinating and important a case for them to want to leave anyone else to decide it.

Unfortunately, that will leave unresolved the important question of whether an Article 50 notification is reversible. I have set out my view that it is: but uncertainty on the point may be something with which we shall all have to live.

 

Both Christopher Muttukumaru CB (here) and I (here) have already commented on some aspects of the Great Reform Bill that has been promised by the Prime Minister in her speech to the Conservative Party conference.

This post sets out some further serious legal and policy challenges that will have to be tackled in the Bill.

These challenges arise because of the Government’s acceptance that, given the impossibility of revising all areas of our law affected by EU law before Brexit and the need to avoid a legal black hole, the substance of EU law will need to be retained post-Brexit until Parliament can get round to reviewing or amending it.  There seems to be a political consensus across the Brexit spectrum that that is the right approach in principle.

However, delivering that approach is far more difficult than it might sound.  The comparison is sometimes made to the position of former UK colonies as they achieved independence (who typically chose on independence to retain existing colonial laws until their new legislatures were able to reform them).  But the exercise is in fact far more complex than that.

To understand why that is so, it is necessary to recall some basic points about EU law.

First, the EU Treaties themselves create a range of rights and obligations affecting Government and private parties that are directly effective in, and have profound effects in, domestic law (examples include many aspects of the four freedoms, the competition rules, and so on).  But whatever Brexit means, it must mean no longer being subject to the EU Treaties.

Second, EU law requires certain remedies for breaches of EU law obligations: these include the general right to effective protection, and in particular the right to damages (eg for manifest and serious failure to implement EU law obligations and for breaches of the competition rules), the right to repayment of tax levied in breach of EU law, and the right to injunctive relief.

Third, any EU legal instrument is to be interpreted against the background of fundamental principles.  These include, among many others, principles such as non-discrimination on grounds of nationality, proportionality, achieving the single market, the prohibition of abuse of right, and (in the tax field) fiscal neutrality.   Those principles also apply to national measures, both legislative and administrative, that give effect to EU law obligations (such as legislation implementing EU directives and regulatory and administrative decisions in areas governed by EU law): and they are combined with a principle that (so far as at all possible) all national law is to be construed so as to comply with those EU obligations, and that even where it does not, private parties are entitled to assert those non-implemented obligations against the State.  Many fundamental principles of EU law are set out in the Charter of Fundamental Rights, which includes not just principles derived from the European Convention on Human Rights (in relation to which the Human Rights Act 1998 will continue to have effect) but also a number of principles drawn from the case-law of the European Court of Justice (such as the right to good administration, to take just one at random).

Fourth, much EU regulation involves a complex web of decision-making as between national and EU authorities, with decisions by EU and other Member State authorities being given effect to or recognised in national law: medicines regulation is a good example.

Against that background, it can be seen that any attempt to maintain the substance of EU law post-Brexit needs to grapple with some difficult and important questions.  These are just some.

(a) To what extent will UK courts, in interpreting the “preserved” EU law provisions, be permitted or required to follow post-Brexit decisions of the European Court of Justice on the meaning of those provisions?  On the one hand, following such later interpretations amounts to giving continued effect to decisions of the ECJ, and to do so in a situation where the UK will not have been able to argue for its preferred approach before the ECJ.  On the other hand, not following them allows divergences to grow between EU and UK law in areas where there might be much to be said for trying to maintain consistency in order to facilitate trade and to avoid UK companies with significant EU exports from the costs of having to comply with two different regimes.

(b) Will those parts of the Treaties that confer directly effective rights be preserved?  Removing them would amount to major legal change and would have knock-on implications that would require careful thinking-through; but preserving them (and in particular ones that reflect EU objectives such as non-discrimination) would seem difficult to reconcile with not being in the EU.

(c) Are the fundamental rights and principles set out in the Charter to remain part of UK law, at least in relation to the “preserved” areas of EU law?

(d) Where substantive rights and obligations are retained, to what extent will UK courts be required to interpret them consistently with EU law principles?  If they are so required, that would lead to odd results where the principle is one that sits uneasily with our no longer being in the EU.  If they are not, that will amount to a substantial but highly uncertain change in the right/obligation supposedly being preserved.  (An example here is the EU competition rules, which are interpreted against the background of the objective of completing the single market, resulting in a strict approach to restrictions of parallel imports between Member States; the world of VAT is also full of examples where the meaning of VAT provisions is significantly affected by general EU law principles.)

(e) Will national rules passed pre-Brexit to implement EU law obligations such as directives still, post-Brexit, be subject to the principle that they are required to be interpreted, if possible, so as to comply with those (no longer existing) obligations?  What happens when those EU directives are amended post-Brexit?

(f) Will remedies provided for by EU law (including remedies against the State) be retained?

(g) What is to be done about regimes that give effect to or recognise decisions of EU authorities or other Member States?

(h) What will the continuing effect be of Commission and other EU guidelines and recommendations (a key part of the administration and interpretation of many EU law regimes)?  What happens as those guidelines and recommendations develop post-Brexit?

These are only some of the issues that need to be decided.  Refusing to decide them would lead to such serious uncertainty that it is hard to see how it would be consistent with the rule of law (and on a more mundane level the uncertainty would harm vital sectors of the UK economy, such as pharmaceuticals, agriculture, telecommunications, and financial services).  But deciding them will involve complex and case-by-case analysis of the implications of the different options and, in many cases, important policy choices with a significant impact on business and private citizens.  And, as will be clear, these decisions will include decisions about whether UK citizens will continue to have the benefit of various fundamental rights and remedies that they currently enjoy as a matter of EU law.

As my earlier blog (here) pointed out, Parliament will, when it considers the Great Repeal Bill, need to consider carefully the extent to which it is prepared to allow Ministers to take such decisions and how it will scrutinise them when they do: there are profound issues here for the rule of law and for the role of Parliament in determining the basic rights and obligations of the citizen.