UK–EU future relationship: dispute resolution

For detail on how disputes will be managed under the UK–EU Trade and Cooperation Agreement, please read our analysis of the deal.

What is dispute resolution and why does it matter?

Dispute resolution (also known as dispute settlement) is the process for resolving disagreements about the meaning of international treaties.

The process for upholding the domestic rule of law is well established. At home, parliament makes laws. The courts apply, interpret and enforce them. When there is ambiguity over what the law means and a dispute arises, the matter finds its way to a courtroom and the judge takes a view.

This is more complex at the international level. Since states are sovereign, there is no higher power (like a government) that can enforce the law against them. For greater certainty, however, states often choose to create institutional mechanisms in the treaties they sign to allow them to be applied, interpreted and enforced if they are to be worth making. However, upholding the rule of law internationally is more complex, as treaties cut across different legal jurisdictions.

For example, a treaty can:

• create its own court to hear disputes
• set up a mechanism for dispute resolution, like a system for arbitration, that does not involve a court
• provide for disputes to be resolved some existing international court for application and interpretation, such as the International Court of Justice (ICJ)

Modern trade treaties also often include a system of investor-state dispute settlement. This has been controversial recently, as it can allow investors from one party to sue the government of the other party if it takes some action that reduces the value of their investments. Such systems are separate from the system of state-to-state dispute resolution that this explainer focuses on.

Why are people talking about dispute resolution?

The Withdrawal Agreement provides for a particular mechanism of dispute resolution. In addition, both EU and UK negotiating objectives set out proposals for systems of dispute resolution under the future relationship agreement.

One of the most controversial aspects of dispute resolution in a UK–EU context is the role of the European Court of Justice (ECJ). The EU will not let non-EU institutions set or interpret EU law for member states. In that case, any mechanism for resolving disputes should refer the ruling to the ECJ for interpretation. The Political Declaration agreed between the UK and the EU accepts this principle.

Why would there be disputes post-Brexit?

Exit disputes

The UK and the EU have implemented the Withdrawal Agreement which set out the terms of the UK’s exit. Disputes arising under the agreement are to be resolved in the first place by consultations in the UK–EU joint committee. If those consultations are unsuccessful after three months, the dispute goes to an arbitration panel.

The UK and EU must each nominate 10 legal experts to form the ‘pool’ of potential panellists. They must jointly nominate five legal experts to serve as potential chairs. When a dispute arises, the UK and EU each select two panellists from the pool. Those four panellists then elect a chair from that pool. The parties must comply with the panel’s ruling within a reasonable period of time. If the offending party fails to do so, it can be required to pay a financial penalty or to suffer the suspension of some other part of the agreement.

The ECJ retains its exclusive jurisdiction over issues of EU law. If a dispute arises concerning an issue of EU law, the panel is required to submit it to the ECJ for interpretation.

UK–EU trade disputes

If the UK government concludes a comprehensive free trade agreement (FTA) with the EU within the transition period, that agreement will set out a way to resolve trade disputes. The EU’s negotiating directives propose a system similar to that under the Withdrawal Agreement, with independent arbitration panels. As under the Withdrawal Agreement, issues of EU law must be referred to the ECJ.

The UK’s mandate is less detailed on the subject, but proposes that governance arrangements including, "if necessary, dispute resolution’ should be ‘appropriate to a relationship of sovereign equals, drawn from existing Free Trade Agreements, such as those the EU has with Japan and Canada". The EU’s trade agreement with Japan has a very similar system of arbitration to that set up by the Withdrawal Agreement. The UK mandate also suggests that this system should not apply to the chapters of the agreement dealing with level playing field issues such as labour and environment standards. It also strongly rejects any role for the ECJ – but this may have as much to do with its rejection of a substantive role for EU law in the future relationship as with its views on procedural dispute settlement provisions.

Other free trade agreements

Beyond the EU, the UK will seek to sign trade agreements with other countries such as the United States. These trade agreements are likely to have their own dispute settlement provisions, which will probably look similar to those found in conventional EU FTAs or in the Withdrawal Agreement. For example, the US–Australia Free Trade Agreement provides for disputes to be arbitrated by a panel of three experts, one selected by each party and a chair chosen jointly. Where a party fails to comply with the finding of a panel, the other party is entitled to request monetary compensation or to suspend part of the agreement.

What are the options for dispute resolution?

The European Court of Justice (ECJ)

Legal disputes within the EU are typically resolved in national courts and, if substantive issues of EU law arise, ultimately in the ECJ.

The European Commission’s negotiating guidelines say that the ECJ should have jurisdiction in such disputes where an interpretation of EU law could be an issue.

The government’s position is that the mechanism for dispute resolution is “appropriate to a relationship of sovereign equals”. This would seem to preclude the further involvement of the ECJ. However, from the EU’s perspective, there could still be issues in which the jurisdiction of the ECJ might arise. For example, state aid is an area where the EU might insist that the UK incorporate EU law – which would then require the ECJ to interpret.

The International Court of Justice (ICJ)

Some reports suggest that the Withdrawal Agreement could be enforced by the International Court of Justice (ICJ). In theory, the ICJ can enforce any treaty. However, the ICJ is an unlikely forum for dispute resolution in this case, as only states can raise claims at the court. EU institutions would not be able to do so.

The Court of Justice of the European Free Trade Associations States (EFTA Court)

The EFTA Court was created in 1994 to enforce the European Economic Area Agreement (EEA Agreement).

Under the EEA agreement, Norway, Liechtenstein and Iceland adopt most EU legislation concerning the operation of the single market. That means the EFTA Court, rather than the ECJ, interprets EU law for those countries, although it is obliged to take account of the case law of the ECJ.

The court presently enforces only the EEA treaty, but it could theoretically enforce another treaty, such as the UK’s future FTA with the EU. Given that the UK is not seeking a relationship with the EU nearly as close as the EEA, however, this currently seems unlikely.

New body

The UK and EU could set up a new court or arbitration panel to settle disputes. This could involve some combination of UK judges and European judges. The system for dispute resolution for Canada and the EU is along these lines, and both the UK and the EU have suggested such a mechanism for the future UK–EU FTA.