What does Brexit mean for international trade agreements?

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.

Does the UK really enjoy absolute discretion as to when to trigger the Article 50 procedure?

It seems that everyone is talking about Article 50 of the Treaty on European Union (TEU) – the procedure by which a Member State can actually leave the EU. One key political and diplomatic issue is when Article 50 should be triggered. Many domestic politicians appear to take the view that it is entirely a matter for the UK to decide, but this view does not appear to be shared by any of the key players in the other Member States and the EU institutions who have expressed their views on the appropriate timing. Here I want to look at the legal question that lies behind those issues – namely who gets to decide when Article 50 should be triggered?

Among Remainers, there is a widespread view that, despite the outcome of the referendum, Brexit can be prevented.  Legally, that view seems quite sound. But for present purposes let us suppose that that option is ruled out for political reasons. On this basis, what are the next steps?

As is well known, Article 50 lays down the procedure for a Member State to withdraw from the EU.  In so far as is material, this provision reads:

  1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
  2. A Member State which decides to withdraw shall notify the European Council of its intention.
  3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

By lodging the notification provided for in Article 50(2) (“the notification”), the departing State triggers the withdrawal process.  Nothing in this provision requires that the notification be effected in writing; so the Prime Minister must avoid inadvertently making an oral notification, or appearing to do so.

Within the UK, the prevailing view – voiced by the Prime Minister, among others – is that the timing of its notification is entirely a matter for the UK itself.  On this view, it can wait one month, 3 months, 6 months or until 2017, 2018 or indeed as long as it likes.

This reading of Article 50 is attractive to Remainers and Leavers alike.  Many Remainers believe that, the longer notification is delayed, the greater the chance is that the Brexit will not come to pass.  Meanwhile, Leavers tend to see this as part of the UK’s sovereign power to act as it wishes.

However, this view is plainly not shared by the other 28 players (the 27 Member States and the EU itself, represented by the Commission).  The day after the referendum, the President of the Commission initially called on the UK to lodge its notification within days of the referendum.  Chancellor Merkel took a more relaxed view, accepting that the UK could enjoy a few months to take this step.  Now the 28 appear to have agreed that the notification must be lodged in September or October, when David Cameron’s successor has taken office.  While they may agree to a further extension, there appears no likelihood that they will accept an unlimited postponement (and I repeat that I am assuming for the moment that Brexit will go ahead).

Another crucial development occurred on 29 June at the informal summit held without the UK.  As President Tusk has subsequently confirmed, it was decided there that there will be no negotiations of any kind with the UK until it lodges its notification.

Which view is correct?

In my view, the answer is to be found in two provisions:

  • Article 4(3) TEU, which imposes a duty of sincere cooperation on the Member States of the EU and its institutions in their dealings with one another; and
  • Article 26 of the Vienna Convention on the Law of Treaties, according to which parties to treaties must act in good faith.

From both these provisions, it follows that, if a party to the EU Treaties gives every sign of being on the brink of denouncing them without actually doing so, it is incumbent on that party to clarify its position within a reasonable time so as to put an end to the uncertainty.

We cannot overlook the fact that the referendum has created monumental uncertainties of an economic, political, legal and constitutional nature for the 28 as well as for the UK.

Literally hundreds of examples could be given, but let me take just two.

First, while the UK continues to be a full member of the EU until it actually leaves, this creates enormous difficulties.  For instance, can the UK vote against a legislative proposal which requires a unanimous vote in the Council of Ministers?  As a matter of law, the answer appears to be “yes”; but that is hardly very satisfactory for the 28 in respect of legislation which may have little if any application before the UK leaves.  And similar issues arise in the other institutitions of the EU.

Second, what of the Structural Funds?  Should the Commission implement a decision which it has already taken to pay the first instalment of a subsidy for the construction of (say) a bridge in the UK, knowing that the subsequent installments (or even completion of the project) will not be due until after the UK can be expected to have left the EU?

Consequently, the 28 have a real and pressing interest in bringing these uncertainties to an end.

Furthermore, the view that the UK does not enjoy unfettered discretion in this regard is corroborated by Article 50(3). What is the point of having the two-year cut-off date if the departing Member State can defer triggering the procedure as long as it likes?

On this view, the UK should lodge its notification within a reasonable time. According to Article 50(1), it must comply with its own constitutional requirements (whatever they are, and that is not clear).

What the UK cannot do, however, is to behave as though it is no longer bound by EU law before lodging its notification. The most radical idea, proposed not long ago by at least one leading Brexiteer, is to repeal with immediate effect section 2 of the European Communities Act 1972, which provides that EU law is fully effective and applicable within the UK. Quite apart from anything else, that would probably amount to a systemic breach of the rule of law such as to empower the EU to impose sanctions on the UK pursuant to Article 7 TEU. This is an issue to which I shall return in a future post.

Even without taking such an extreme step, the UK would not be acting in good faith if it were to act as if it regarded itself as not bound by the EU Treaties (although minor infringements would be a different matter, since no Member State has a completely clean bill of health).   This would also mean that the UK will have to continue to implement and apply new legislation such as the recent package on data protection.

What are the practical consequences of this analysis?

If the UK were to drag its feet conceivably for too long without showing that this is necessary to satisfy its own constitutional requirements, the EU might set what it considers to be a reasonable deadline for the UK’s notification to be lodged – quite apart from the possibility of the Commission bringing infringement proceedings for breach of Article 4(3) TEU. Should the UK fail to comply without good reason, the EU could conceivably deem the 2-year period to have begun on the specified date.

Whether the EU would be able to take effective steps to exclude the UK at the end of that period is unclear. In any case, the more the UK delays without good reason in lodging its notification, the fewer concessions the EU can be expected to make in the ensuing negotiations.

The question might be: would the UK want to find out?


What does Brexit herald for UK Expats?

The current position

In a 1993 case before the European Court of Justice (ECJ) (Konstantinidis v Stadt Altensteig) the then Advocate General to the European Court of Justice – the distinguished English lawyer Sir Francis Jacobs QC – said that any citizen of one EU country exercising his free movement rights in another EU country “is entitled to say ‘civis europeus sum’ and to invoke that status in order to oppose any violation of his fundamental rights”. That statement may sound high-faluting and of little practical importance. But it makes the point that while the UK is in the EU, UK citizens who move to (say) France, or buy property in France, have a status in France which is quite different in legal terms from the status of, say, a Russian citizen. EU nationals in the EU have the right, which a Russian does not have, to invoke a panoply of EU law rights, and to complain to the European Commission, the courts of the country concerned, and ultimately the ECJ if those rights are not respected. Mr Konstantinidis was a Greek citizen who wanted his Greek name transliterated into the Roman alphabet in a way that reflected how his name was pronounced. That is probably not something that UK citizens are ever likely to be concerned about.  But take a much more recent and relevant case. Mr de Ruyter was a Dutch citizen who was entitled to social security and health benefits in Holland. He had in income from assets in France. The French Government imposed social security contributions from him on that income. Mr de Ruyter went to the French courts: he said that making him pay social security contributions when he got no social security benefit from France was contrary to the right he had as an EU citizen to equal treatment. The ECJ ruled in his favour: France was not entitled to impose those contributions on EU nationals who lived outside France and had no right to French social security. That case has been directly relevant to any UK citizen who lives in the UK but owns a house in France from which they get a rental income. France is now under an EU law obligation to pay back the social security contributions it imposed.

Very importantly, a Russian owning property in France cannot say “civis europeus sum“: and as a matter of EU law he can still be made to pay social security contributions. At the end of the day, his rights are for France to decide as it wants and neither the ECJ nor the European Commission can protect him. The basic EU principle is that EU citizens have to be treated equally to a home country national when they live in or own property in another EU Member State. Like all principles there is then a lot of detail, but the key features of their rights are:

  • the right to buy property (with a couple of specific exceptions in the EU Treaties, EU States cannot, as Switzerland does, declare parts of the country out of bounds to purchasers from the EU);
  • the right to set up a business;
  • the right to live in the country as long as they like without having to apply for long term resident status or citizenship (a relief if, for example, their French or Spanish is not good)
  • the right to take any job without having to get a “Green Card”;
  • the right in most cases to have their professional qualifications recognised;
  • the right not to be deported without a proper reason;
  • the right to vote for their local maire, alcalde or Bürgermeister.

Another important issue is rights to healthcare. This is a bit complicated, because there is a tension between the principle that EU citizens should be treated the same way when in another EU state as citizens of that state and the understandable concern that citizens of poorer countries with a struggling health service should not be able to head off to richer countries and get treated there at the expense of those countries. The EU legislation – Regulation 883/2004 – is therefore a bit of a compromise. But the basic points are:

  • EU citizens visiting another Member State, and their family, have the right to any medical treatment they need while they are there, on the same terms as a home country national. The host State pays for that (just as the UK will currently pay to treat a Frenchman who breaks his leg in the Lake District).
  • If an EU citizen works or runs a business in another State, they and their family again get treated in the host State on the same terms as a host State citizen: the host State pays (as they will be probably be paying taxes and contributions to the host State).
  • If an EU citizen has an old age pension from his home State, they and their family get treated in the host State on the same terms as a host State citizen: but this time it is the home State that pays.
  • A citizen living in one Member State can travel to another Member State for the purpose of getting treatment and the home state has to pay: but the citizen has to get the permission of their home State first (the home State can refuse if the citizen would not get that treatment at home, though it can’t refuse the citizen would have to wait longer for treatment than medically advisable).

What will now happen post Brexit?

The honest answer is that there are simply no guarantees. Some or all of these rights could be preserved. But it all depends on the final outcome of the post-Brexit deal. If the UK were to get a similar deal to that of Norway then nothing much would change. For the purposes of free movement Norway, as an EEA Member State, is for most purposes in the EU. It imports all the EU’s rules. However, it should be noted that free movement rights for non-economically active citizens (e.g. the retired) are lower than for the EU.

Or the UK might try to enter bilateral deals with countries like France on the basis that French immigration is not as troubling as Bulgarian. But it is unlikely that France would (or even could under EU law) do any such deal. So it is certainly possible that after Brexit all UK citizens’ EU law rights vanish, and their status in, say, France becomes the same as that of a Russian.

It is unlikely that there will be mass deportations or deprivations of property: the European Convention on Human Rights, and States’ own constitutions, would be likely to stop that. It is also true that many third country nationals live and work happily in other EU countries. But non-EU citizens have no automatic right to work, run a business and so on without the say-so of the government concerned. And it is likely to be difficult to get that say-so if UK citizens are seeking jobs that locals can do (e.g. working in a bar) or planning self-employment and therefore having no support from an employer. Rich UK citizens (like rich Russians) will usually be welcome, but a retired teacher hoping to retire to a small house in France on the back of the sale of their house in the UK may find it trickier, particularly if the UK starts imposing the sort of income conditions on French people who want to live in the UK as it currently does for migrants from India. Unless a Norway-type deal is entered into, UK citizens will also find that they have to join the non-EEA queue at the airports, will be subject to a 90-day stay limit, and will need to be prepared to answer questions each time they go to the continent about how long they will be there and how they are going to support themselves. Some commentators have suggested that the Vienna Convention on the Law of Treaties will help.

The relevant provision is Article 70 of that Convention, which protects rights and obligations “created through the execution of the treaty prior to its termination“.

The first point to make is that because the EU Treaties make express provision for withdrawal (Article 50) it is highly unlikely that the Vienna Convention applies. Further, it is not clear that the “rights” extend to individuals’ rights rather than the rights of the State. Finally, even if they apply to individuals, it is very unclear what those words mean. They would probably stop France from confiscating a house bought previously – although the French constitution and the European Convention on Human Rights would probably prevent that anyway. But it is hard to see that those words would give UK citizens any continuing right to be treated as an EU citizen in the years after Brexit, when it came to matters such as the rights I’ve been discussing above. Further, it would be for the courts and lawmakers of each Member State to interpret and apply this rule: neither the European Commission nor the ECJ would be there to help. So the claim that the Vienna Convention offers any solid protection to expat Brits is unclear. And no-one claims that anything in the Vienna Convention could help Brits who at the time of Brexit merely plan to live or work in another EU State but have not yet done so.

UK citizens living in other EU States therefore have good reason to feel concerned by the referendum outcome. As in so many other areas, their position post-Brexit will be shaped by the specifics of any deal entered into by the EU and the UK.

Where can you go with your cartel claim after Brexit?

London is often a jurisdiction of choice for claimants seeking the private enforcement of competition law for a number of reasons.  There is a well developed pool of legal, economic and financial/technical advisers.  The English courts have favourable rules on limitation and disclosure and a reputation for consistency and effectiveness in dealing with large and complex claims.  A number of judges have significant experience in trying such cases.  A network of claims funders and insurers provide financial support.

Competition cases, particularly damages actions relating to price fixing cartels, are often international in scope. EU rules on choice of court and law provide a predictable system that is well understood by lawyers and their clients in terms of where to sue and enables judgments in one member state to be automatically recognised and enforced across the single market.  Will Brexit mean that claimants are forced to seek remedies elsewhere?  The answer is not necessarily….

In the first place cartels that are likely to be the subject of Commission decisions are likely for quite some years to relate to the period while the UK was a member of the EU and therefore would not necessarily remove rights of those harmed by such cartels (including the right to bring any claims arising therefrom in the English courts).  For example so far in 2016 the Commission has issued a decision in relation to a cartel that ended in 2010.  Cartel decisions for the next two years will be covering cartels that occurred long before the date of any Brexit. We’ll be covering the issues around the status of Commission decisions in the UK post-Brexit in another post.

Secondly, if the Brussels Regulation no longer applies what impact will this have?  The UK could join arrangements between the EU and EEA/EFTA states (Lugano Convention).  The UK is still a signatory of the Brussels Convention which only is displaced due to membership of the EU.

If an EEA solution is adopted the rules will remain largely similar to the EU rules which currently apply.  Other fallbacks for a period at least could be the Brussels Convention and/or some more bespoke solution on these important but technical issues.  The common law and domestic legislation contains sophisticated conflicts rules which can still play a useful a role as they do now in such claims as the ultimate default set of rules in relation to third countries.  None of this necessarily means that litigants will be unable or unwilling to avail themselves of the English courts and the advantages they are perceived to have.

The jurisdictional basis of such claims are likely to be in the shorter term on the basis of EU law causes of action accrued during membership of the EU when such law was also English law (subject to whatever transitional arrangements are established).  In the longer term they may be based on EU law (even if technically ‘foreign’ law at this stage) in parallel with claims under the Competition Act 1998 for the UK aspects of any pan-european cartel. Such parallel UK claims may be standalone or follow on. Given that leniency applicants to the Commission  in pan-European cartels will also make leniency applications in third countries, which post Brexit would include the UK, parallel UK and EU decisions finding infringements in relation to the same cartel and binding as a matter of EU and UK law respectively is a possibility.

The position on choice of court and law and the ability to obtain efficient recognition and enforcement of judgments are all matters of key concern to businesses and consumers.  These important technical issues are ones to which this blog will be returning in the coming months.

Brexit – opportunities and challenges seminar – slides available

“The result of the referendum raises significant uncertainties about the future development of a wide range of areas of the law. That uncertainty is in itself an important factor for clients. At Monckton Chambers we have given a great deal of thought to how a vote for Brexit might pan out, and we look forward to working with our clients to address both the opportunities and challenges of Brexit.” Tim Ward QC, joint Head of Monckton Chambers.

Monckton Chambers, as a leading set in the field, presented a ‘pop-up seminar’ on the implications of the Brexit decision, on the 30th June, attracting over 200 delegates.

The speakers included Michael Bowsher QC, Philip Moser QC, Gerry Facenna QC, Piers Gardner and Anneli Howard, chaired by Tim Ward QC.

To download the presentation slides please click here.

A podcast of the event will be available in the near future.