UK–EU future relationship negotiations: key flashpoints

The UK has proposed no overarching governance structure: all agreements would be legally separate with their own committee structures and (in some cases) dispute settlement mechanisms. The EU’s agreements with Switzerland are structured similarly, although they contain a ‘guillotine clause’ which allows both sides to suspend all the agreements if one of them is breached.

For the free trade agreement (FTA), the UK has proposed establishing a joint committee with 14 specialised subcommittees (covering, for example, customs, road transport) and five technical working groups.

The dispute settlement mechanism would be based on the WTO approach. Parties would enter into consultations; if consultations fail, a panel of independent arbitrators would be established. The panel’s ruling would be binding. If an offending party failed to comply, the other party could suspend trade concessions to the same value as the loss incurred.

But several chapters would not be subject to dispute settlement: 5 (trade remedies), most of 21 (subsidies), 22 (competition), 24.47 (co-operation on intellectual property), 25 (regulatory co-operation) and 29 (tax). The UK has proposed separate dispute settlement for chapters 27 (labour) and 28 (environment) which, though binding, have no enforcement provisions – if one side breached these rules, the furthest the other side could go would be to get an arbitration panel to publish a report declaring this to be the case. There would be no right to retaliate. These exclusions are in line with most EU FTAs, such as those with Canada and Japan.

The EU wants a single integrated agreement covering all areas, overseen by a partnership council at ministerial level with specialised committees for individual areas. Decisions would be binding on parties. This resembles the EU’s association agreements with countries such as Ukraine.

The dispute settlement would be based on the WTO approach. Parties would enter into consultations; if consultations failed then an arbitration tribunal (made up of independent arbitrators nominated by the UK and the EU) would be formed. The tribunal would need to refer any issues of EU law to the European Court of Justice (ECJ).  Once the tribunal had formed a view, there would be two enforcement procedures – one looking more like the ECJ (section 1) and the other looking more like the WTO (section 2). Each area of the agreement would be subject to one or the other, though the EU hasn’t yet specified which.

Section 1 procedure

The tribunal could impose a lump sum or recurring penalty payment in the case of noncompliance. If the respondent refused to pay or didn’t comply within six months, the complaining party could suspend obligations under the agreement or any supplementing agreement. The suspension should be ‘proportionate’ to the breach. This is unprecedented in EU FTAs; even the EFTA Court is unable to impose fines.

Section 2 procedure

If the offending party did not comply within a reasonable period of time, the complaining party could suspend obligations to the level equivalent to the harm caused by the breach. This is in line with EU FTAs generally.

The two sides have different views on whether the UK–EU relationship should be consolidated into a single agreement or scattered across many separate ones. The EU favours a single agreement because it would allow it to suspend unrelated bits of the agreement should the UK breach any of its terms. The UK would like to isolate individual segments of the agreement so that the whole suite does not fall away if one ceases to function.

There are also quite substantial differences over the dispute settlement mechanism. The UK proposes a fairly conventional FTA dispute settlement mechanism, based on the WTO agreements. Under this system, the ultimate outcome of a dispute, if the other party refuses to comply, is simply the suspension of concessions – usually tariff concessions – to the value of the harm done.

The EU is content with this system in some (as yet unspecified) areas of the agreement, but in others it favours a mechanism that could inflict fines on parties which refused to comply (in the way the ECJ can).

In addition, under the UK proposals, a side that won a dispute could only retaliate with trade restrictions that caused the same amount of economic harm to the exports of the other side as it had suffered as a result of that side’s breach of the agreement. This is in line with WTO practice. The EU’s proposals, on the other hand, suggest that retaliation should simply be proportionate to the “gravity” of the breach – presumably in order to deal with breaches of provisions such as those on the environment where the harm done is difficult to calculate.

Subsidies/state aid

The UK has proposed that the two sides notify each other of all subsidies introduced every two years (or by posting online). They could then request consultations where they believe a subsidy adversely affects their interest. Although the other party should give ‘full and sympathetic consideration’ to that request and to ‘endeavour to eliminate or minimise any adverse effects of the subsidy’, this provision would not be subject to dispute settlement. This resembles the subsidies text in CETA.

State aid/subsidies

The UK would need to maintain dynamic alignment with EU state aid law and would need to establish an independent authority to examine the government’s applications for state aid: compliance would be enforceable in UK courts. UK courts would refer questions of EU law to the ECJ. The EU (but not the UK) would be entitled to take unspecified ‘appropriate interim measures’ if there was a violation. This resembles the EU–Ukraine association agreement.

The UK and the EU are miles apart. The UK proposals reject all alignment with EU law, while the EU proposals – particularly as regards state aid – are based on them. The UK’s proposals on state aid are particularly loose, even by comparison with standard EU free trade agreements. It would impose no obligations more serious than a requirement to consult with the other party if the subsidies paid harmed its interests and to make best endeavours to resolve those concerns.

Competition

The UK proposes the two sides ‘take appropriate measures to proscribe anti-competitive business conduct’ and facilitate co-operation between their competition authorities, but these provisions would not be subject to dispute settlement. This also resembles CETA.

Competition

The provisions on competition would be derived from EU law (largely copied from the EU treaties) and enforceable in the courts of each party. The UK would be required to apply competition rules essentially identical to those in force in the EU. This is in line with the EEA agreement or the EU–Ukraine association agreement.

Taxation

Both sides would commit to applying international good governance standards. These provisions are not found in CETA or EU–Japan but are in some closer EU FTAs such as the association agreement with Ukraine.

Taxation

Both sides would commit to applying international good governance standards and would agree not to adopt any measure that weakens protection against tax avoidance. This is not found in any previous FTA.

Labour

Labour

The two sides would not be able to adopt any measure that weakens the level of labour and social protection at the end of the transition period. The partnership council could increase the minimum level of labour protection. This is new in EU FTAs: the EEA agreement applies EU labour law directly, while other EU FTAs such as those with Canada or Korea, only prohibit weakening labour standards so as to encourage trade and investment.

The two sides would commit to applying the multilateral environmental agreements to which they are party. They could not waive environmental standards in order to attract trade or investment. Judicial review mechanisms would need to be available to individuals to challenge infringements of environmental law. The chapter would be subject to bespoke dispute settlement mechanism, which would be binding but not enforceable. This resembles CETA.

Environment

The two sides would not be able to adopt any measure that weakens the level of environmental protection provided at the end of the transition period, and would need to apply the ‘precautionary principle’ used in EU law. This includes food safety standards. If the two sides wanted to increase the level of environmental protection, the partnership council would be able to lay down standards requiring them to do so. This is new in EU FTAs: those with Canada or Korea only prohibit weakening environmental standards so as to encourage trade and investment.

Climate change

The UK covers climate change in the separate energy agreement.

Climate change

The UK proposes that the two sides negotiate annually on access to waters, total allowable catch and quota shares. Quota shares would be based on zonal attachment.

Fishing in the other party’s waters would only be able to take place on the terms specified by that party.

While the UK proposes the two sides notify each other of fisheries management measures, they are not required to consult. The agreement would establish forums for discussion of sustainable fisheries management.

The UK proposal does not include any binding dispute settlement, although the agreement may be suspended in case of disputes with three months’ notice and denounced with two years’ notice.

The EU has proposed that the two sides grant permanent reciprocal access to each other’s waters. There would be annual negotiations on total allowable catch for shared stocks, but the fixed quota shares would be the same as the existing shares of the UK and EU27.

The two sides would need to apply the discard ban and technical fisheries conservation measures.

These provisions would be subject to dispute settlement and parties would be able to unilaterally suspend tariff concessions if they believe the other party has not complied.

Once again, the UK and the EU are very far apart on fisheries.

The UK proposal simply requires both sides to negotiate annually on access to waters, among other things. It does not prescribe any particular outcome – the annual talks could fail, in which case reciprocal access to waters would stop. The EU sees this as a threat to the sustainability of the livelihoods of their fishers. The UK’s proposed fisheries agreement  has no dispute settlement whatsoever.

The EU, on the other hand, proposes a long-term settlement for fisheries where existing EU fishers’ access to UK waters would continue indefinitely on the same terms. It includes an extremely punitive interim remedies clause allowing it to impose tariffs on fish immediately if the UK blocked its access to waters. This matters because much of the fish caught by UK fishers in UK waters is exported to the EU.

The UK wants a separate security treaty which facilitates close co-operation with the EU – both in sharing data as well as at the operational level through Europol and Eurojust.

It is seeking access to the European Criminal Records Information System (ECRIS), although no non-EU country has access to ECRIS.

The UK wants to ensure that UK liaison officers posted to Europol – as well as UK law enforcement authorities – can attend operational meetings, as well as participate in analysis projects. The UK is also seeking more a more comprehensive agreement on data flow between the UK and Europol.

The UK has asked for agreement on real-time data exchange – similar to the EU database, the Schengen Information System (II) – to be included in a treaty, although it acknowledges the EU is currently opposed to that and the detail on how this would work has been left out.

The UK proposes setting up a joint committee to oversee and review the agreement. Disputes would be resolved through consultation with the joint committee. The agreement could be suspended by either side with three months’ notice.

The EU’s offer is less expansive than the UK’s, not going into as much detail on data-sharing or operational co-operation, and mindful of the precedent set by existing co-operation with third countries outside of the Schengen area.

It makes clear that any data-sharing will be on the basis of the EU granting a data adequacy decision. It is also conditional on the UK remaining part of the European Convention on Human Rights (ECHR) and applying certain parts in UK domestic law. Parts, or all, of the security provisions in the agreement could be suspended if either of these changed.

The EU has also made no provision for the UK to have any access to EU databases – the only non-EU countries which have any access are those within the Schengen area.

Many of the areas both sides want to cover are similar: sharing criminal records; PNR; extradition; mutual legal assistance; Europol and Eurojust; DNA sharing. The UK also wants agreements on prisoner transfer and real-time data sharing (similar to SIS II).

But the details of how this co-operation would work, and the level of information the two sides would share, vary.

The UK is seeking much closer co-operation with the EU – particularly at an operational, and data-sharing level. In its white paper in February, the UK acknowledged that it was looking to go beyond third-country precedents. But the EU draft treaty rules this out, and shows very little movement from the EU’s initial position at the start of the Brexit negotiations.

Although the UK sets out how data shared in this area would be managed, it makes no mention of a data adequacy decision and also includes no commitment to the ECHR.

In his letter to Michel Barnier, David Frost specifically referenced law enforcement as an area where the UK expected the EU to move.