Gergely Polner, a partner at Hanbury Strategy, and Phillip Souta, the Advocate’s editor, discuss the legal basis for a future UK-EU trade agreement.
The European Commission issued a draft negotiating mandate for the next stage of the negotiations with the UK on 3 February 2020, for adoption by the Council. The proposed “substantive” legal basis for the negotiation is Article 217 of the Treaty on the Functioning of the European Union which is the basis for an Association Agreement. Additionally, the mandate also refers to Article 218(3) and (4) TFEU, which sets out how the EU negotiates agreements with third countries. While this may sound like a technical detail, the legal base has huge implications for both the content and implementation of the future relationship agreement. What is the evolving thinking in Brussels?
In addition to the widely discussed ‘Level Playing Field’ issue, the EU has a few other key objectives that are underappreciated. First, to build an overarching governance structure in order to avoid a Swiss-style series of agreements. Second, to maintain unity among the EU27 by guaranteeing unanimity in decision-making. Third, to make sure that the agreement can be implemented seamlessly on 1 January 2021. Fourth, to include in the agreement all areas that cannot be managed by “no deal” contingency measures.
In order to achieve this, the EU is structuring the future relationship agreement as an Association Agreement, but is bending over backwards to keep it an EU-only agreement. It will make ratification and implementation much easier. While this is legally possible, it has never happened before. All Association Agreements have been mixed agreements in the past, but for the first time, the EU is planning to adopt its mandate for the future relationship talks as an EU-only Association Agreement.
Of course, it is the content of the final agreement that will define whether it is mixed or not. It will be very difficult, close to impossible, to include aviation and foreign and security policy in the final agreement and keep it an EU-only agreement. Instead of a deal on aviation this year, the EU could apply “no deal” contingency measures on air transport to continue allowing flights. Also, we doubt that EU Member States would allow foreign and security policy to be included in an EU-only agreement, we are not likely to see agreement here either.
It is interesting to note that, as a general rule, the Commission usually tries to avoid defining a substantive legal base at the beginning of the talks and waits until the end to see what is the best legal base for the final content (‘the content defines the legal base’). The Council on the other hand tends to insist that a substantive legal base is set out in the mandate at the beginning of the talks, to make sure that the Commission doesn’t have an unlimited mandate.
The alternative to using Article 217 would be to rely on Article 207, which for example underpins the EU-Canada and EU-Singapore agreements. The Article 217 treaty base provides scope for a deeper and more comprehensive relationship and more alignment to EU rules, which is likely to be the reason it is the EU’s opening position. It is worth noting that either treaty base could underpin a mixed agreement.
Of course, using Article 217 creates a number of problems. Let’s look at the four key objectives, as listed above, in more detail and analyse how they could be achieved under Article 217.
First, the EU want to create an overarching governance and dispute settlement system, which covers all elements of the EU-UK relationship. This is deemed necessary to avoid a Switzerland-like situation of too many disconnected agreements. This overarching governance system needs to incorporate a wide range of sectoral agreements, like a Free Trade Agreement, an air transport agreement, an agreement on social security coordination and potentially even investment protection.
Some of these areas are under shared EU and national competence (like air transport or social security coordination), while again others are under exclusive national competence (like social security provision). There are again others, like foreign and security policy, where the EU Member States would never allow an EU-only agreement to be concluded.
In normal EU practice, including such a wide list of sectors in an agreement would render it an Association Agreement under Article 217. Such an Association Agreement would require unanimous agreement by all Member States in the Council. Until now it was general practice that an Association Agreement would also be a mixed agreement requiring ratification by national parliaments. The only precedent for an EU-only Association Agreement was the agreement with Kosovo, where this was a legal necessity considering that five Member States continue to not recognise Kosovo. While the EU-only parts of such an agreement can be put into provisional application after ratification by the Council, the whole agreement would have to go through national ratification and if any national parliament were to vote it down, the whole thing would fall. This is a real risk. Just think of the case when the Walloon Parliament voted against the EU-Canada Agreement, which even today hasn’t been ratified by all the Member States (e.g. the Italian Parliament hasn’t yet ratified it and the Five Star Movement keeps threatening to vote against it).
The second problem is therefore how to ensure that this Association Agreement doesn’t require ratification by national parliaments and can be implemented immediately in its entirety. From a legal perspective, this requires using Article 217 as a substantive legal base but at the same time keeping the agreement as an EU-only agreement. This is possible under the EU Treaties, depending on the final contents of the agreement, as was seen in the EU-Kosovo Association Agreement.
The third problem, which is linked to the second, is how to make sure that even the EU-only part of the agreement requires the unanimous consent of all Member States in the Council. This is important in order to reassure Member States that nothing will be passed against their interest and nobody will be left behind. By applying Article 217 as a legal base, there is no way the requirement for unanimity can be circumvented.
Fourth, how to include areas of shared competence in the talks (like aviation or foreign policy or social security coordination) without creating a precedent for future talks. This is not something that the Member States would ever want to repeat again.
So the question is how to be creative with the legal base of the future relationship agreement to allow for all four objectives above to be met at the same time.
What is the solution? EU lawyers think they have found a way to solve this problem. The Council Legal Service considers that it is actually possible to include areas of shared competency in the Association Agreement (like transport services or social security coordination) while aligning their content in a way that the final agreement will remain an EU-only agreement. While we doubt that air transport would be included in the final agreement, other shared competence areas will be. Even in areas that border on exclusive national competence (like social security coordination), the EU27 are likely to accept an EU-only agreement.
The issues that will be impossible to squeeze into this framework are those that fall exclusively into national competence, like investor-state dispute settlement. This will also mean that the Bilateral Investment Treaties (BITs) that the UK currently has with many other EU Member States, and which should be terminated according to a recent judgment by the ECJ, can probably remain in force after the transition period has ended. This is significant as these contain very advantageous provisions for investors and it will create an incentive to continue holding investments in these Member States via the UK. There is significant pressure from the Member States on the UK to terminate these agreements.
What does this mean in practice? Essentially, the EU is adopting a mandate for a comprehensive Association Agreement with the UK and is planning to ratify and apply it in its entirety by 1 January 2021. Whether the UK agrees to such a comprehensive deal is of course another question, but a major procedural headache could thus be removed on the EU side.
We understand that not all Member States are perfectly convinced that this approach is the right one. Their concerns focus on potential legal challenges, on the precedent it creates and on the desire to stop the UK from relying on its BITs with EU Member States in the future. There may be some pushback from national parliaments, as well.
We think that the approach above is probably going to be accepted. We expect the debate to be continued behind the scenes by EU ambassadors. However, the issue is probably too complex to be escalated to the level of ministers, who are unlikely to be able to have a meaningful debate on it.
Gergely Polner is a Partner at Hanbury Strategy and a an EU official on a career break and Phillip Souta is editor of the European Advocate and a barrister at Clifford Chance.