Friday, 8 January 2021

Analysis 4 of the Brexit deal: Dispute settlement and the EU/UK Trade and Cooperation Agreement


 


Professor Steve Peers, University of Essex

Introduction and overview

A key part of the ‘Brexit deal’ – officially known as the EU/UK Trade and Cooperation Agreement (TCA) – is the issue of dispute settlement. This blog post is a detailed annotation of the treaty’s dispute settlement rules. I have also provided this summary of the blog post at the outset.

This blog post is the fourth in the series of analyses of the TCA – following on from my overview of the TCA, Professor Tamara Hervey’s analysis of the social security provisions, and my analysis of the links between the TCA and human rights. (Update: a later blog post covers environment and climate change)

As a reminder, the TCA is a separate treaty from the withdrawal agreement, which continues to apply between the UK and the EU. The withdrawal agreement has its own rules on dispute settlement, which I discussed in a detailed annotation here. I have used them as a point of comparison for the TCA dispute settlement rules. (As we’ll see, there’s also a link between the two treaties: a failure to comply with a ruling relating to the withdrawal agreement can lead to retaliation under the TCA).

Like the withdrawal agreement dispute settlement rules, the TCA rules have the same basic structure as WTO dispute settlement. I’ve explored that comparison in more detail in the blog post on withdrawal agreement dispute settlement, but the basic idea is that if the parties have a complaint, they first of all enter into consultations. If the consultations don’t lead to agreement, either side can trigger arbitration. If the arbitrators rule that one side has breached the agreement, in principle that side has to comply with the ruling within a reasonable period. If it doesn’t comply by the deadline, the winning side can invoke proportionate retaliation against the losing side by withdrawing benefits under the agreement. If the losing side later complies with the ruling, the winning side has to stop suspending those benefits. If there’s a dispute about whether the losing side has fully complied with the ruling, or whether the retaliation by the winning side was proportionate, or what is a reasonable time to comply with the ruling, the arbitrators can decide that too.

Unlike the WTO system, there’s no appeal body under either the withdrawal agreement or the TCA (this is the part of the WTO system that’s been blocked by Trump; the EU and several other WTO Members – apparently not including the UK yet – have devised a ‘work-around’ the Trump block, and it remains to be seen if the incoming Biden administration continues Trump’s approach).

One key point of difference between the withdrawal agreement and TCA as regards dispute settlement is the role of the CJEU. In the withdrawal agreement, the CJEU had its usual jurisdiction regarding the UK during the transition period. Now that period has ended, the dispute settlement rules start to apply, but the CJEU still retains some limited jurisdiction. Moreover, dispute settlement and the CJEU are linked – because the dispute settlement arbitrators have to ask the CJEU questions about the interpretation of EU law in the event that a dispute which reaches them concerns a ‘concept or provision’ of EU law.

The TCA, on the other hand, provides for CJEU jurisdiction only as regards UK participation in EU programmes – and that’s it. The TCA arbitrators don’t need to ask the CJEU any questions about EU law, because there’s no other direct reference to EU law in the TCA. (It is, however, possible that the CJEU will be involved with disputes concerning the TCA on the EU side – but its rulings won’t bind the UK, except as regards participation in EU programmes).

 A second key point of difference is the complexity of the main dispute settlement system. Leaving aside the overlap with CJEU jurisdiction and links to the CJEU, the withdrawal agreement provides for a single dispute settlement system with no variations or exclusions. The TCA, on the other hand, provides for multiple variations upon the dispute settlement system and exclusions from its scope – including some entirely different forms of dispute settlement for certain issues.

Some of these special rules are set out in the text of the dispute settlement rules, annotated in this blog post, and some of them appear separately in the TCA. For the latter, I have added two additional annexes which examine the details of those rules – which concern the ‘level playing field’ and fisheries. I have not examined the separate dispute settlement rules on criminal law, because they provide for a purely political form of dispute settlement, with no recourse to arbitration.

In practice, on the one hand, the EU prefers to avoid formally using dispute settlement systems set up under its FTAs with non-EU countries; but on the other hand, it makes frequent use of the WTO dispute settlement system, as both ‘plaintiff’ and ‘defendant’. It remains to be seen whether the EU/UK relationship resembles the informal political dispute settlement process that characterises EU FTAs, or the more litigious environment that exemplifies the EU’s WTO membership.  Lawyers (and law professors) might salivate at the prospect of the latter, but international relations specialists might argue that the former is more stable – pointing to the Trump saga by way of example. 

 

Annex I: the general dispute settlement rules

PART SIX: DISPUTE SETTLEMENT AND HORIZONTAL PROVISIONS

 TITLE I: DISPUTE SETTLEMENT

Chapter 1: General provisions

Article INST.9: Objective

The objective of this Title is to establish an effective and efficient mechanism for avoiding and settling disputes between the Parties concerning the interpretation and application of this Agreement and supplementing agreements, with a view to reaching, where possible, a mutually agreed solution.

Note: this is similar, but not quite identical, to the purpose of the withdrawal agreement dispute settlement provisions (see Article 167 of that agreement).

Article INST.10: Scope

1. This Title applies, subject to paragraphs 2, 3, 4 and 5, to disputes between the Parties concerning the interpretation and application of the provisions of this Agreement or of any supplementing agreement (“covered provisions”).

2. The covered provisions shall include all provisions of this Agreement and of any supplementing agreement with the exception of:

(a) paragraphs 1 to 6 of Article GOODS.17 [Trade remedies] and Article GOODS.21 [Cultural property] of Title I of Heading One Part Two;

(b) Annex TBT-X [Medicinal products];

(c) Title VII [Small and medium sized enterprises] of Heading one of Part Two;

(d) Title X [Good regulatory practices and regulatory cooperation] of Heading One of Part Two;

(e) paragraphs 1, 2 and 4 of Article LPFS.1.1 [Principles and objectives] and paragraphs 1 and 3 of Article LPFS.1.2 [Right to regulate, precautionary approach and scientific and technical information] of Chapter 1 [General provisions], Chapter 2 [Competition policy], Articles LPFS.3.9 [Independent authority or body and cooperation] and LPFS.3.10 [Courts and tribunals] of Chapter 2 [Subsidy control]; and Chapter 5 [Taxation] of Title XI [Level playing field for open and fair competition and sustainable development] of Heading One of Part Two, and paragraphs 4 to 9 of Article LPFS.9.4 [Rebalancing] of Chapter 9 [Horizontal and institutional provisions] of Title XI [Level playing field for open and fair competition and sustainable development] of Heading One of Part Two;

(f) Part Three [Law enforcement and judicial cooperation in criminal matters], including when applying in relation to situations governed by other provisions of this Agreement;

(g) Part Four [Thematic cooperation];

(h) Title II [Basis for cooperation] of Part Six [Dispute settlement and horizontal provisions];

(i) Article FINPROV.10A [Interim provision for transmission of personal data to the United Kingdom] of Part Seven; and

(j) the Agreement on security procedures for exchanging and protecting classified information; 

3. The Partnership Council may be seized by a Party with a view to resolving a dispute with respect to obligations arising from the provisions referred to in paragraph 2.

4. Article INST.11 [Exclusivity] shall apply to the provisions referred to in paragraph 2.

5. Notwithstanding paragraphs 1 and 2, this Title shall not apply with respect to disputes concerning the interpretation and application of the provisions of the Protocol on Social Security Coordination or its annexes in individual cases.

Note: there is no equivalent provision in the withdrawal agreement, as it has a single set of dispute settlement provisions (leaving aside the overlap with the CJEU’s remaining jurisdiction in that agreement).

The first exclusion relates to the bulk of the provision on trade remedies – ie anti-dumping law, anti-subsidy rules and economic safeguards, where there is a cross-reference to WTO law (so WTO dispute settlement would be available instead). However, note that the TCA also has its own rules on two of these issues (subsidies and safeguards), which are subject to TCA dispute settlement, albeit with some different rules in the case of subsidies.

It also excludes the provisions on cultural goods from dispute settlement. Note that these rules only apply to cultural goods taken after 1993 – so would not, for instance, apply to the Parthenon marbles. There is no alternative dispute settlement process here.

The second exclusion concerns the annex on medical products (which is actually Annex TBT-2, not TBT-X). There is no alternative dispute settlement process there.

The third exclusion concerns the rather vague rules on small and medium-sized business in the trade heading. There is no alternative dispute settlement process here either.

The fourth exclusion concerns the somewhat more concrete title on regulatory cooperation, which also forms part of the trade heading. Again, there is no alternative dispute settlement process.

The fifth exclusion concerns various aspects of the level playing field (LPF) rules: some introductory rules, competition law, some parts of the subsidies rules, taxation, and the ‘future review’ part of the rebalancing clause on future divergences on labour, environmental and subsidies law. This means that the rest of the dispute settlement clauses apply in principle to the LPF clauses – but note that there are variations from the normal dispute settlement rules for those LPF issues either in the dispute settlement part of the treaty or in the LPF part of the treaty, discussed below and in Annex II. For the LPF issues excluded entirely from the dispute settlement rules, there is no alternative dispute settlement process.

The sixth exclusion is the whole of part Three of the agreement, on criminal law. This Part has its own dispute settlement rules, which are essentially political. 

The seventh exclusion is the whole of part Four of the agreement, on health security and ‘cyber’ issues. It does not have its own dispute settlement rules.

The eighth exclusion is the list of issues on which the EU/UK relationship is based. However, the process for addressing some of the issues concerned – described as ‘essential elements’ of the relationship – is not excluded from the dispute settlement rules.

The ninth exclusion is the short-term transition period – lasting only a maximum of six months – in which EU data protection law still applies to the UK while the EU Commission considers adopting an ‘adequacy decision’.

Finally, the tenth exclusion relates to the separate UK/EU treaty on the exchange of classified information, which provides for settlement of disputes via consultations (Article 18). There is no express reference to the separate UK/Euratom treaty: note that it has its own simplified form of dispute settlement, including possible recourse to arbitration (Article 21).

Note that political dispute settlement is still possible as regards these excluded issues (para 3). Moreover, the parties cannot settle their disputes about these excluded provisions in any other dispute settlement system outside the scope of the TCA (para 4): they are limited to discussing these disputes in the Partnership Council or using the alternative dispute settlement rules that exist in the treaty itself (regarding criminal law, for instance).

A different form of exclusion applies as regards social security (para 5). The social security rules as such are not outside the scope of dispute settlement; but the dispute settlement system cannot be used to resolve ‘individual cases’. 

Note that, as discussed below, it is not possible to retaliate for a breach of (for instance) the trade provisions as regards any of the areas excluded from the scope of the dispute settlement rules.

Article INST.11: Exclusivity

The Parties undertake not to submit a dispute between them regarding the interpretation or application of provisions of this Agreement or of any supplementing agreement to a mechanism of settlement other than those provided for in this Agreement.

Note: the wording is slightly different, but this is essentially the same rule as found in Article 168 of the withdrawal agreement.

Article INST.12: Choice of forum in case of a substantially equivalent obligation under another international agreement

1. If a dispute arises regarding a measure allegedly in breach of an obligation under this Agreement or any supplementing agreement and of a substantially equivalent obligation under another international agreement to which both Parties are party, including the WTO Agreement, the Party seeking redress shall select the forum in which to settle the dispute.

2. Once a Party has selected the forum and initiated dispute settlement procedures either under this Title or under another international agreement, that Party shall not initiate such procedures under the other international agreement with respect to the particular measure referred to in paragraph 1, unless the forum selected first fails to make findings for procedural or jurisdictional reasons.

3. For the purposes of this Article:

(a) dispute settlement procedures under this Title are deemed to be initiated by a Party's request for the establishment of an arbitration tribunal under Article INST.14 [Arbitration procedures];

(b) dispute settlement procedures under the WTO Agreement are deemed to be initiated by a Party’s request for the establishment of a panel under Article 6 of the Understanding on Rules and Procedure Governing the Settlement of Disputes of the WTO; and

(c) dispute settlement procedures under any other agreement are deemed to be initiated if they are initiated in accordance with the relevant provisions of that agreement.

4. Without prejudice to paragraph 2, nothing in this Agreement or any supplementing agreement shall preclude a Party from suspending obligations authorised by the Dispute Settlement Body of the WTO or authorised under the dispute settlement procedures of another international agreement to which the Parties are party. The WTO Agreement or any other international agreement between the Parties shall not be invoked to preclude a Party from suspending obligations under this Title.

Note: there is no equivalent provision in the withdrawal agreement, and it is not explicit whether this provision applies to disputes which might fall within the scope of both the withdrawal agreement and the TCA (relating to goods trade or State aid as regards the earlier treaty’s Northern Ireland protocol, for instance). At first sight, the withdrawal agreement is ‘another international agreement to which both Parties are party’. However, since there is a link anyway between the withdrawal agreement dispute settlement system and retaliation on the basis of the TCA, as discussed further below, the distinction may not matter that much in practice.

Para 1 gives the party seeking a remedy the option of which dispute settlement system to use in the event of overlapping arguments under multiple treaties. To avoid infringing the exclusivity clause, a party which invoked a system other than the TCA would have to take care that it explicitly makes its arguments in that other dispute settlement system without referring to the TCA. The WTO is expressly envisaged as one example of an overlapping system, but the wording is not exhaustive (‘including’). The most obvious example of an overlapping argument would be cases where the trade in goods provisions of the TCA expressly incorporate a WTO provision.

Para 2 prevents the complaining party from bringing multiple proceedings under different systems: once it has made its choice of forum, it must stick with it. That party can, however, bring a multiple complaint if the first forum it chose refuses to rule on the merits of its complaints. Para 3 defines how this rule applies. Presumably this prevents not only multiple proceedings brought roughly simultaneously, but also an attempt to bring a complaint to Forum B after Forum A has rejected the essentially identical complaint on the merits.

Para 4 means that the existence of the TCA does not stand in the way of either side suspending its obligations after using the WTO dispute settlement process or another treaty (such as the replacement agreement for the WTO appellate body – if the UK joins the EU as a party to it). This is equally true in reverse: the WTO dispute settlement process does not stand in the way of either side suspending its obligations pursuant to the TCA dispute settlement rules.

 

Chapter 2: Procedure

Article INST.13: Consultations

1. If a Party (“the complaining Party”) considers that the other Party (“the respondent Party”) has breached an obligation under this Agreement or under any supplementing agreement, the Parties shall endeavour to resolve the matter by entering into consultations in good faith, with the aim of reaching a mutually agreed solution.

2. The complaining Party may seek consultations by means of a written request delivered to the respondent Party. The complaining Party shall specify in its written request the reasons for the request, including the identification of the measures at issue and the legal basis for the request, and the covered provisions it considers applicable.

3. The respondent Party shall reply to the request promptly, and in any case no later than 10 days after the date of its delivery. Consultations shall be held within 30 days of the date of delivery of the request in person or by any other means of communication agreed by the Parties. If held in person, consultations shall take place in the territory of the respondent Party, unless the Parties agree otherwise.

4. The consultations shall be deemed concluded within 30 days of the date of delivery of the request, unless the Parties agree to continue consultations.

5. Consultations on matters of urgency, including those regarding perishable goods or seasonal goods or services, shall be held within 20 days of the date of delivery of the request. The consultations shall be deemed concluded within those 20 days unless the Parties agree to continue consultations.

6. Each Party shall provide sufficient factual information to allow a complete examination of the measure at issue, including an examination of how that measure could affect the application of this Agreement or any supplementing agreement. Each Party shall endeavour to ensure the participation of personnel of their competent authorities who have expertise in the matter subject to the consultations.

7. For any dispute concerning an area other than Titles I to VII, Chapter four [Energy and raw materials] of Title VIII, Titles IX to XII of Heading One or Heading Six of Part Two, at the request of the complaining Party, the consultations referred to in paragraph 3 of this Article shall be held in the framework of a Specialised Committee or of the Partnership Council. The Specialised Committee may at any time decide to refer the matter to the Partnership Council. The Partnership Council may also seize itself of the matter. The Specialised Committee, or, as the case may be, the Partnership Council, may resolve the dispute by a decision. The time periods referred to in paragraph 3 of this Article shall apply. The venue of meetings shall be governed by the rules of procedure of the Specialised Committee or, as the case may be, the Partnership Council.

8. Consultations, and in particular all information designated as confidential and positions taken by the Parties during consultations, shall be confidential, and shall be without prejudice to the rights of either Party in any further proceedings.

Note: para 1 is very similar to Article 169 of the withdrawal agreement. The following paras are, however, far more detailed than the withdrawal agreement. The time period for consultations (deemed to be concluded after 30 days, or 20 days in urgent cases, unless the Parties agree to continue them) is shorter than under Article 170 of the withdrawal agreement, which provides for three months of talks before arbitration can be triggered unilaterally.

Article INST.14: Arbitration procedure

1. The complaining Party may request the establishment of an arbitration tribunal if:

(a) the respondent Party does not respond to the request for consultations within 10 days of the date of its delivery;

(b) consultations are not held within the time periods referred to in Article INST.13(3), (4) or (5) [Consultations];

(c) the Parties agree not to have consultations; or

(d) consultations have been concluded without a mutually agreed solution having been reached.

2. The request for the establishment of the arbitration tribunal shall be made by means of a written request delivered to the respondent Party. In its request, the complaining Party shall explicitly identify the measure at issue and explain how that measure constitutes a breach of the covered provisions in a manner sufficient to present the legal basis for the complaint clearly.

Note: as noted above, the time frames for triggering arbitration (ie, the cross-references in para 1) are shorter than the three months under the withdrawal agreement. Para 2 is similar, but not identical, to part of Article 170(1) of the withdrawal agreement. One difference (which cuts across the whole TCA dispute settlement process) is that the TCA, unlike the withdrawal agreement, makes no provision for the logistical support of the Permanent Court of Arbitration in the Hague.

Article INST.15: Establishment of an arbitration tribunal

1. An arbitration tribunal shall be composed of three arbitrators.

2. No later than 10 days after the date of delivery of the request for the establishment of an arbitration tribunal, the Parties shall consult with a view to agreeing on the composition of the arbitration tribunal.

3. If the Parties do not agree on the composition of the arbitration tribunal within the time period provided for in paragraph 2, each Party shall appoint an arbitrator from the sub-list for that Party established pursuant to Article INST.27 [Lists of arbitrators] no later than five days after the expiry of the time period provided for in paragraph 2 of this Article. If a Party fails to appoint an arbitrator from its sub-list within that time period, the co-chair of the Partnership Council from the complaining Party shall select, no later than five days after the expiry of that time period, an arbitrator by lot from the sub-list of the Party that has failed to appoint an arbitrator. The co-chair of the Partnership Council from the complaining Party may delegate such selection by lot of the arbitrator.

4. If the Parties do not agree on the chairperson of the arbitration tribunal within the time period provided for in paragraph 2 of this Article, the co-chair of the Partnership Council from the complaining Party shall select, no later than five days after the expiry of that time period, the chairperson of the arbitration tribunal by lot from the sub-list of chairpersons established pursuant to Article INST.27 [Lists of arbitrators]. The co-chair of the Partnership Council from the complaining Party may delegate such selection by lot of the chairperson of the arbitration tribunal.

5. Should any of the lists provided for in Article INST.27 [Lists of arbitrators] not be established or not contain sufficient names at the time a selection is made pursuant to paragraphs 3 or 4 of this Article, the arbitrators shall be selected by lot from the individuals who have been formally proposed by one Party or both Parties in accordance with Annex INST-X [Rules of procedure].

6. The date of establishment of the arbitration tribunal shall be the date on which the last of the three arbitrators has notified to the Parties the acceptance of his or her appointment in accordance with Annex INST-X [Rules of procedure].

Note: Three arbitrators will serve on a TCA arbitration tribunal, compared to five under the withdrawal agreement (para 1, compared to Article 171(3) of the withdrawal agreement). The withdrawal agreement provides for a panel to be set up within 15 days (Article 171(4) of the withdrawal agreement), rather than consultation within 10 days under the TCA (para 2). The TCA then provides for a process of setting up the tribunal quickly if the parties don’t agree on its members (paras 3 and 4). Under the TCA, the default if the list of arbitrators has not yet been decided is to take names from the proposed list by one or both parties (para 5). It is not clear what happens if one party tries to frustrate the process by not proposing any candidates: does this block the arbitration process because there must always be a member from each party, or does the arbitration go ahead with a second member from the other party? That prospect would certainly be a deterrent to trying to block the process.

Note that the default under the withdrawal agreement is to involve the Permanent Court of Arbitration in selecting the arbitrators, if the parties cannot agree or do not suggest arbitrators (Article 171(5) to (9) of the withdrawal agreement). In practice, the list of arbitrators for that agreement has now been adopted by a Joint Committee decision.

There are fast-track rules derogating from this clause in certain cases: see Article INST.34B, discussed below.

Article INST.16: Requirements for arbitrators

1. All arbitrators shall:

(a) have demonstrated expertise in law and international trade, including on specific matters covered by Titles I to VII, Chapter four [Energy and raw materials] of Title VIII, Titles IX to XII of Heading One [Trade] of Part Two or Heading Six [Other provisions] of Part Two, or in law and any other matter covered by this Agreement or by any supplementing agreement and, in the case of a chairperson, also have experience in dispute settlement procedures;

(b) not be affiliated with or take instructions from either Party;

(c) serve in their individual capacities and not take instructions from any organisation or government with regard to matters related to the dispute; and

(d) comply with Annex INST-X [Code of Conduct].]

2. All arbitrators shall be persons whose independence is beyond doubt, who possess the qualifications required for appointment to high judicial office in their respective countries or who are jurisconsults of recognised competence.

3. In view of the subject-matter of a particular dispute, the Parties may agree to derogate from the requirements listed in point (a) of paragraph 1.

Note: this Article is similar, but not identical to, Article 171(2) of the withdrawal agreement, which referred more generally to expertise in EU law and public international law. See also Article 181(1) of the withdrawal agreement, on requirements for independence.

Article INST.17: Functions of the arbitration tribunal

The arbitration tribunal:

(a) shall make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of, and conformity of the measures at issue with, the covered provisions;

(b) shall set out, in its decisions and rulings, the findings of facts and law and the rationale behind any findings that it makes; and

(c) should consult regularly with the Parties and provide adequate opportunities for the development of a mutually agreed solution.

Article INST.18: Terms of reference

1. Unless the Parties agree otherwise no later than five days after the date of the establishment of the arbitration tribunal, the terms of reference of the arbitration tribunal shall be:

"to examine, in the light of the relevant covered provisions of this Agreement or of a supplementing agreement, the matter referred to in the request for the establishment of the arbitration tribunal, to decide on the conformity of the measure at issue with the provisions referred to in Article INST.10 [Scope] and to issue a ruling in accordance with Article INST.20 [Ruling of the arbitration tribunal]".

2. If the Parties agree on terms of reference other than those referred to in paragraph 1, they shall notify the agreed terms of reference to the arbitration tribunal within the time period referred to in paragraph 1.

Article INST.19: Urgent proceedings

1. If a Party so requests, the arbitration tribunal shall decide, no later than 10 days after the date of its establishment, whether the case concerns matters of urgency.

2. In cases of urgency, the applicable time periods set out in Article INST.20 [Ruling of the Arbitration Tribunal] shall be half the time prescribed therein.

Note: this compares to Article 173 of the withdrawal agreement, in which the usual deadline of 12 months for a ruling is cut to 6 months for urgent cases. Under the TCA, the final deadline of 160 days is cut to 80 days for urgent cases. The tribunal has 10 days to decide on whether the case is urgent (the withdrawal agreement provides for 15 days for this). 

 Article INST.20: Ruling of the arbitration tribunal

1. The arbitration tribunal shall deliver an interim report to the Parties within 100 days after the date of establishment of the arbitration tribunal. If the arbitration tribunal considers that this deadline cannot be met, the chairperson of the arbitration tribunal shall notify the Parties in writing, stating the reasons for the delay and the date on which the arbitration tribunal plans to deliver its interim report. The arbitration tribunal shall not deliver its interim report later than 130 days after the date of establishment of the arbitration tribunal under any circumstances.

2. Each Party may deliver to the arbitration tribunal a written request to review precise aspects of the interim report within 14 days of its delivery. A Party may comment on the other Party's request within six days of the delivery of the request.

3. If no written request to review precise aspects of the interim report is delivered within the time period referred to in paragraph 2, the interim report shall become the ruling of the arbitration tribunal.

4. The arbitration tribunal shall deliver its ruling to the Parties within 130 days of the date of establishment of the arbitration tribunal. When the arbitration tribunal considers that that deadline cannot be met, its chairperson shall notify the Parties in writing, stating the reasons for the delay and the date on which the arbitration tribunal plans to deliver its ruling. The arbitration tribunal shall not deliver its ruling later than 160 days after the date of establishment of the arbitration tribunal under any circumstances.

5. The ruling shall include a discussion of any written request by the Parties on the interim report and clearly address the comments of the Parties.

6. For greater certainty, a ‘ruling’ or ‘rulings’ as referred to in Articles INST.17 [Functions of the arbitration tribunal], INST.18 [Terms of reference], INST.28 [Replacement of arbitrators] and Article INST.29(1), (3), (4) and (6) [Arbitration tribunal rulings and decisions] shall be understood to refer also to the interim report of the arbitration tribunal.

Note: as noted above, this compares to Article 173 of the withdrawal agreement, which has a usual deadline of 12 months for a ruling. Under the TCA, the final deadline is 160 days. Unlike the withdrawal agreement, the TCA process includes circulation of an interim ruling which the parties can comment on.

There are fast-track rules derogating from this clause in certain cases: see Article INST 34B, discussed below.

 

Chapter 3: Compliance

Article INST.21: Compliance measures

1. If, in its ruling referred to in Article INST.20(1) [Ruling of the arbitration tribunal], the arbitration tribunal finds that the respondent Party has breached an obligation under this Agreement or under any supplementing agreement, that Party shall take the necessary measures to comply immediately with the ruling of the arbitration tribunal in order to bring itself in compliance with the covered provisions.

2. The respondent Party, no later than 30 days after delivery of the ruling, shall deliver a notification to the complaining Party of the measures which it has taken or which it envisages to take in order to comply.

Note: this is similar to the obligation to comply with an arbitration ruling set out in Article 175 of the withdrawal agreement.

Article INST.22: Reasonable Period of Time

1. If immediate compliance is not possible, the respondent Party, no later than 30 days after delivery of the ruling referred to in Article INST.20(1) [Ruling of the arbitration tribunal], shall deliver a notification to the complaining Party of the length of the reasonable period of time it will require for compliance with the ruling referred to in Article INST.20(1) [Ruling of the arbitration tribunal]. The Parties shall endeavour to agree on the length of the reasonable period of time to comply.

2. If the Parties have not agreed on the length of the reasonable period of time, the complaining Party may, at the earliest 20 days after the delivery of the notification referred to in paragraph 1, request in writing that the original arbitration tribunal determines the length of the reasonable period of time. The arbitration tribunal shall deliver its decision to the Parties within 20 days of the date of delivery of the request.

3. The respondent Party shall deliver a written notification of its progress in complying with the ruling referred to in Article INST.20(1) [Ruling of the arbitration tribunal] to the complaining Party at least one month before the expiry of the reasonable period of time.

4. The Parties may agree to extend the reasonable period of time.

Note: this is nearly identical in substance to Article 176 of the withdrawal agreement, except the process is speeded up. The 30-day period for the losing party to indicate how long it thinks it will need to comply matches the withdrawal agreement (para 1; Article 176(1) of the withdrawal agreement). Unlike the withdrawal agreement, there is a minimum period of 20 days for the winning party to dispute the losing party’s proposed timetable (para 2; Article 176(2) of the withdrawal agreement sets a 40-day maximum). Arbitration on this issue is quicker than under the withdrawal agreement (20 days under para 2; 40 or 60 days under Article 176(2) and (3) of the withdrawal agreement). The rule on the losing party notifying how it is getting on with compliance one month before the deadline is the same in both treaties (para 3; Article 176(4) of the withdrawal agreement). Both treaties allow for joint agreement to extend the reasonable period of time (para 4; Article 176(5) of the withdrawal agreement).

Article INST.23: Compliance Review

1. The respondent Party shall, no later than the date of expiry of the reasonable period of time, deliver a notification to the complaining Party of any measure that it has taken to comply with the ruling referred to in Article INST.20(1) [Ruling of the arbitration tribunal].

2. When the Parties disagree on the existence of, or the consistency with the covered provisions of, any measure taken to comply, the complaining Party may deliver a request, which shall be in writing, to the original arbitration tribunal to decide on the matter. The request shall identify any measure at issue and explain how that measure constitutes a breach of the covered provisions in a manner sufficient to present the legal basis for the complaint clearly. The arbitration tribunal shall deliver its decision to the Parties within 45 days of the date of delivery of the request.

Note: this is essentially identical to Article 177 of the withdrawal agreement, except that the time period for arbitrators to rule on whether the losing party has complied with the ruling is 45 days under the TCA, whereas it is 90 days under the withdrawal agreement.

There are fast-track rules derogating from this clause in certain cases: see Article INST 34B, discussed below.

Article INST.24: Temporary Remedies

1. The respondent Party shall, at the request of and after consultations with the complaining Party, present an offer for temporary compensation if:

(a) the respondent Party delivers a notification to the complaining Party that it is not possible to comply with the ruling referred to in Article INST.20(1) [Ruling of the arbitration tribunal]; or

(b) the respondent Party fails to deliver a notification of any measure taken to comply within the deadline referred to in Article INST.21 [Compliance Measures] or before the date of expiry of the reasonable period of time; or

(c) the arbitration tribunal finds that no measure taken to comply exists or that the measure taken to comply is inconsistent with the covered provisions.

2. In any of the conditions referred to in points (a), (b) and (c) of paragraph 1, the complaining Party may deliver a written notification to the respondent Party that it intends to suspend the application of obligations under the covered provisions if:

(a) the complaining Party decides not to make a request under paragraph 1; or

(b) the Parties do not agree on the temporary compensation within 20 days after the expiry of the reasonable period of time or the delivery of the arbitration tribunal decision under Article INST.23 [Compliance Review] if a request under paragraph 1 is made. The notification shall specify the level of intended suspension of obligations.

3. Suspension of obligations shall be subject to the following conditions:

(a) Obligations under Heading Four [Social security coordination and visas for short-term visits]of Part Two, the Protocol on Social Security Coordination or its annexes or Part Five [Union programmes] may not be suspended under this Article;

(b) By derogation from point (a), obligations under Part Five [Union programmes] may be suspended only where the ruling referred to in Article INST.20(1) [Ruling of the arbitration tribunal] concerns the interpretation and implementation of Part Five [Union programmes];

(c) Obligations outside Part Five [Union programmes] may not be suspended where the ruling referred to in Article INST.20(1) [Ruling of the arbitration tribunal] concerns the interpretation and implementation of Part Five [Union programmes]; and

(d) Obligations under Title II [Services and Investment] of Heading One of Part Two in respect of financial services may not be suspended under this Article, unless the ruling referred to in Article INST.20(1) [Ruling of the arbitration tribunal] concerns the interpretation and application of obligations under Title II [Services and Investment] of Heading One of Part Two in respect of financial services.

4. Where a Party persists in not complying with a ruling of an arbitration panel established under an earlier agreement concluded between the Parties, the other Party may suspend obligations under the covered provisions referred to in Article INST.10 [Scope]. With the exception of the rule in point (a) of paragraph 3, all rules relating to temporary remedies in case of non-compliance and to review of any such measures shall be governed by the earlier agreement.

5. The suspension of obligations shall not exceed the level equivalent to the nullification or impairment caused by the violation.

6. If the arbitration tribunal has found the violation in Heading One [Trade] or Heading Three [Road] of Part Two, the suspension may be applied in another Title of the same Heading as that in which the tribunal has found the violation, in particular if the complaining party is of the view that such suspension is effective in inducing compliance.

7. If the arbitration tribunal has found the violation in Heading Two [Aviation]:

(a) the complaining party should first seek to suspend obligations in the same Title as that in which the arbitration tribunal has found the violation;

(b) if the complaining party considers that it is not practicable or effective to suspend obligations with respect to the same Title as that in which the tribunal has found the violation, it may seek to suspend obligations in the other Title under the same Heading.

8. If the arbitration tribunal has found the violation in Heading One [Trade], Heading Two [Aviation], Heading Three [Road] or Heading Five [Fisheries] of Part Two, and if the complaining party considers that it is not practicable or effective to suspend obligations within the same Heading as that in which the arbitration tribunal has found the violation, and that the circumstances are serious enough, it may seek to suspend obligations under other covered provisions.

9. In the case of point (b) of paragraph 7 and paragraph 8, the complaining Party shall state the reasons for its decision.

10. The complaining Party may suspend the obligations 10 days after the date of delivery of the notification referred to in paragraph 2 unless the respondent Party made a request under paragraph 11.

11. If the respondent Party considers that the notified level of suspension of obligations exceeds the level equivalent to the nullification or impairment caused by the violation or that the principles and procedures set forth in point (b) of paragraph 7, paragraph 8 or paragraph 9 have not been followed, it may deliver a written request to the original arbitration tribunal before the expiry of the 10 day period set out in paragraph 10 to decide on the matter. The arbitration tribunal shall deliver its decision on the level of the suspension of obligations to the Parties within 30 days of the date of the request. Obligations shall not be suspended until the arbitration tribunal has delivered its decision. The suspension of obligations shall be consistent with that decision.

12. The arbitration tribunal acting pursuant to paragraph 11 shall not examine the nature of the obligations to be suspended but shall determine whether the level of such suspension exceeds the level equivalent to the nullification or impairment caused by the violation. However, if the matter referred to arbitration includes a claim that the principles and procedures set forth in point (b) of paragraph 7, paragraph 8 or paragraph 9 have not been followed, the arbitration tribunal shall examine that claim. In the event the arbitration tribunal determines that those principles and procedures have not been followed, the complaining party shall apply them consistently with point (b) of paragraph 7, paragraph 8 and paragraph 9. The parties shall accept the arbitration tribunal's decision as final and shall not seek a second arbitration procedure. This paragraph shall under no circumstances delay the date as of which the complaining Party is entitled to suspend obligations under this Article.

13. The suspension of obligations or the compensation referred to in this Article shall be temporary and shall not be applied after:

(a) the Parties have reached a mutually agreed solution pursuant to Article INST.31 [Mutually agreed solution];

(b) the Parties have agreed that the measure taken to comply brings the respondent Party into compliance with the covered provisions; or

(c) any measure taken to comply which the arbitration tribunal has found to be inconsistent with the covered provisions has been withdrawn or amended so as to bring the respondent Party into compliance with those covered provisions.

Note: Unlike the withdrawal agreement (Article 178(1)), there is no prospect of imposing fines upon a losing party that has not complied with its obligation to comply with a ruling within a reasonable period of time. Instead, the only remedy, in the absence of agreed compensation (para 1), is suspension of obligations under the TCA, ie retaliation, which is also a possibility under certain circumstances under the withdrawal agreement (Article 178(2)). This difference means that the retaliation can occur more quickly under the TCA than under the withdrawal agreement.

The TCA also has more complex limits on retaliation than under the withdrawal agreement – which only prohibits retaliation as regards citizens’ rights (Article 178(2)(a)). First of all, retaliation can only take place as regards the ‘covered provisions’ of the TCA (para 2) – which means that it can only apply to the parts of the TCA covered by the main dispute settlement rules (see the definition of ‘covered provisions’ in Article INST.10, discussed above). For instance, this means that a breach of the treaty regarding trade cannot lead to suspension of the provisions regarding criminal law, because the latter are not part of the ‘covered provisions’.

Secondly, the provisions on social security and visas and on EU programmes cannot be suspended (para 3(a)). (This is, in a way, consistent with the withdrawal agreement exclusion of retaliatin on citizens’ rights, which also means that no retaliation is possible regarding social security under the withdrawal agreement).

However, participation in EU programmes can be suspended if the dispute concerns the issue of EU programmes (para 3(b)), and conversely retaliation where the dispute concerns EU programmes can only concern EU programmes (ie, not on trade) (para 3(c)). In other words, as far as retaliation is concerned, the provisions on EU programmes are self-contained.

Thirdly (and similarly), financial services obligations cannot be suspended unless the arbitration ruling concerns financial services (para 3(d)). It should, however, be recalled that the TCA has limited provisions on financial services.

Next, if there is a breach of the TCA as regards trade or road transport, retaliation can occur in another title of the same heading of the economic part of the treaty, ‘in particular if the complaining party is of the view that such suspension is effective in inducing compliance’ (para 6). This is a non-exhaustive test, and it is apparently up to the winning party to determine how to apply it. This means, for instance that a breach relating to trade in goods or the level playing field can be sanctioned by retaliation as regards services, digital trade, capital, intellectual property, public procurement, or energy (subject to some special rules on the level playing field discussed below, and some parts of the rules on trade not being ‘covered provisions’ for dispute settlement). For road transport, this means that there can be cross-retaliation between goods and passenger transport.

A similar rule applies to breaches regarding air transport (para 7): the winning party ‘should first seek’ to apply retaliation in the same title (the two titles are air transport and aviation safety), but may ‘seek’ to cross-retaliate against the other aviation title if it ‘considers that it is not practicable or effective to suspend obligations with respect to the same Title’.

Also, where the breach concerns trade, aviation, road transport or fisheries, the winning party can cross-retaliate as regards any covered provisions, ‘if the complaining party considers that it is not practicable or effective to suspend obligations within the same Heading as that in which the arbitration tribunal has found the violation, and that the circumstances are serious enough’ (para 8). Presumably the limits on cross-retaliation set out in para 3 continue to apply.

More broadly there is also a proportionality rule: ‘The suspension of obligations shall not exceed the level equivalent to the nullification or impairment caused by the violation.’ (para 5). Note that in the specific contexts of subsidies and fisheries, there are more detailed rules on this issue: see Article INST.34C, discussed below.

The retaliation then goes ahead unless the losing party objects that the proportionality rule is infringed by the severity of the retaliation, or that the ‘principles and procedures’ relating to cross-retaliation have not been followed (para 11), within ten days after the winning party’s notification of its intention to retaliate. This is similar to the possible review of proportionality of retaliation under the withdrawal agreement (Article 178(3), which also sets a ten-day deadline to object). Under both treaties, the request to review the retaliation has suspensive effect. As usual, the TCA provides for a shorter deadline for the arbitrators to rule on this than under the withdrawal agreement (30 days, compared to 60 days).

Under the TCA, the arbitrators can rule on whether the retaliation is excessive, whereas under the withdrawal agreement they rule on proportionality; it is not clear whether that actually means a different legal test. Also under the TCA, the winning party must adjust its planned retaliation if the arbitrators rule that it would be breaching the cross-retaliation rules (para 12). But note that the wording of the cross-retaliation rules includes a degree of discretion for the winning party; it is not clear whether the arbitrators will undertake a review of the exercise of this discretion. Remember that if the winning party is prevented from cross-retaliation by the arbitrators, it can always retaliate in a different way instead.

Under both the TCA and the withdrawal agreement, retaliation is ‘temporary’ until the original ruling of breach is complied with or the parties have otherwise agreed to settle the issue (para 13; compared to Article 178(5) of the withdrawal agreement). But there is no actual time limit so in practice ‘temporary’ could mean a long time.

Finally, note that para 4 provides for retaliation under the covered provisions of the TCA in the event of a breach of an ‘earlier agreement’. This can only refer to the withdrawal agreement, and indeed Article 178(2)(b) of that agreement foresaw this possibility. In practical terms, this means that breaches of the withdrawal agreement (in the event of non-compliance with arbitration rulings under that agreement within a reasonable time) can be sanctioned by imposing trade or other sanctions under the TCA – making the withdrawal agreement potentially easier to enforce indirectly (on the assumption that retaliation, or the prospect of it, has an impact on whether a party breaches the treaty, or keeps breaching it).

The details of that retaliation, and any review of it, are otherwise addressed in the withdrawal agreement – except that the rule against retaliating as regards social security and visa rules in the TCA also applies as regards breaches of the withdrawal agreement.

Fun fact: since dispute settlement rulings under the withdrawal agreement may have been based on the CJEU’s interpretation of EU law (see Article 174 of the withdrawal agreement), it is implicitly possible that a CJEU ruling could ultimately (but only in these specific circumstances) be the basis of trade or other retaliation under the TCA.

Article INST.25: Review of any measure taken to comply after the adoption of temporary remedies

1. The respondent Party shall deliver a notification to the complaining Party of any measure it has taken to comply following the suspension of obligations or following the application of temporary compensation, as the case may be. With the exception of cases under paragraph 2, the complaining Party shall terminate the suspension of obligations within 30 days from the delivery of the notification. In cases where compensation has been applied, with the exception of cases under paragraph 2, the respondent Party may terminate the application of such compensation within 30 days from the delivery of its notification that it has complied.

2. If the Parties do not reach an agreement on whether the notified measure brings the respondent Party into compliance with the covered provisions within 30 days of the date of delivery of the notification, the complaining Party shall deliver a written request to the original arbitration tribunal to decide on the matter. The arbitration tribunal shall deliver its decision to the Parties within 46 days of the date of the delivery of the request. If the arbitration tribunal finds that the measure taken to comply is in conformity with the covered provisions, the suspension of obligations or compensation, as the case may be, shall be terminated. When relevant, the level of suspension of obligations or of compensation shall be adjusted in light of the arbitration tribunal decision.

Note: This clause provides for the arbitrators to decide whether the losing party, having been subject to retaliation, has subsequently complied with its obligations. If it has, then the retaliation has to end. It is similar to Article 179 of the withdrawal agreement. The difference is, as usual, that the TCA provides for shorter time periods: 30 days (instead of 45) to request the arbitrators to review the measure taken to comply with the ruling, and 46 days (instead of 75) for the arbitrators to rule on the issue.

 

Chapter 4: Common procedural provisions

Article INST.26: Receipt of information

1. On request of a Party, or on its own initiative, the arbitration tribunal may seek from the Parties relevant information it considers necessary and appropriate. The Parties shall respond promptly and fully to any request by the arbitration tribunal for such information.

2. On request of a Party, or on its own initiative, the arbitration tribunal may seek from any source any information it considers appropriate. The arbitration tribunal may also seek the opinion of experts as it considers appropriate and subject to any terms and conditions agreed by the Parties, where applicable.

3. The arbitration tribunal shall consider amicus curiae submissions from natural persons of a Party or legal persons established in a Party in accordance with Annex INST-X [Rules of Procedure].

4. Any information obtained by the arbitration tribunal under this Article shall be made available to the Parties and the Parties may submit comments on that information to the arbitration tribunal.

Note: there is no equivalent clause in the withdrawal agreement. The TCA is potentially open to hear arguments from third parties and experts, although third parties are not parties to proceedings as such. 

Article INST.27: Lists of arbitrators

1. The Partnership Council shall, no later than 180 days after the date of entry into force of this Agreement, establish a list of individuals with expertise in specific sectors covered by this Agreement or its supplementing agreements who are willing and able to serve as members of an arbitration tribunal. The list shall comprise at least 15 persons and shall be composed of three sub-lists:

(a) one sub-list of individuals established on the basis of proposals by the Union;

(b) one sub-list of individuals established on the basis of proposals by the United Kingdom; and

(c) one sub-list of individuals who are not nationals of either Party who shall serve as chairperson to the arbitration tribunal. Each sub-list shall include at least five individuals. The Partnership Council shall ensure that the list is always maintained at this minimum number of individuals.

2. The Partnership Council may establish additional lists of individuals with expertise in specific sectors covered by this Agreement or by any supplementing agreement. Subject to the agreement of the Parties, such additional lists may be used to compose the arbitration tribunal in accordance with the procedure set out in Article INST.15(3) and (5) [Establishment of an arbitration tribunal]. Additional lists shall be composed of two sub-lists:

(a) one sub-list of individuals established on the basis of proposals by the Union; and

(b) one sub-list of individuals established on the basis of proposals by the United Kingdom.

3. The lists referred to in paragraphs 1 and 2 shall not comprise persons who are members, officials or other servants of the Union institutions, of the Government of a Member State, or of the Government of the United Kingdom.

Note: the process of appointing arbitrators is comparable to Article 171(1) of the withdrawal agreement, although under the TCA the list of arbitrators is shorter and there are possibly specialised arbitrators. The deadline for the Partnership Council to adopt the list is late June; there are no provisions for what happens if a dispute is lodged in the meantime. 

Article INST.28: Replacement of arbitrators

If during dispute settlement procedures under this Title, an arbitrator is unable to participate, withdraws, or needs to be replaced because that arbitrator does not comply with the requirements of the Code of Conduct, the procedure set out in Article INST.15 [Establishment of the arbitration tribunal] shall apply. The time period for the delivery of the ruling or decision shall be extended for the time necessary for the appointment of the new arbitrator.

Article INST.29: Arbitration tribunal decisions and rulings

1. The deliberations of the arbitration tribunal shall be kept confidential. The arbitration tribunal shall make every effort to draft rulings and take decisions by consensus. If this is not possible, the arbitration tribunal shall decide the matter by majority vote. In no case shall separate opinions of arbitrators be disclosed.

2. The decisions and rulings of the arbitration tribunal shall be binding on the Union and on the United Kingdom. They shall not create any rights or obligations with respect to natural or legal persons.

3. Decisions and rulings of the arbitration tribunal cannot add to or diminish the rights and obligations of the Parties under this Agreement or under any supplementing agreement.

4. For greater certainty, the arbitration tribunal shall have no jurisdiction to determine the legality of a measure alleged to constitute a breach of this Agreement or of any supplementing agreement, under the domestic law of a Party. No finding made by the arbitration tribunal when ruling on a dispute between the Parties shall bind the domestic courts or tribunals of either Party as to the meaning to be given to the domestic law of that Party.

4A. For greater certainty, the courts of each Party shall have no jurisdiction in the resolution of disputes between the Parties under this Agreement.

5. Each Party shall make the rulings and decisions of the arbitration tribunal publicly available, subject to the protection of confidential information.

6. The information submitted by the Parties to the arbitration tribunal shall be treated in accordance with the confidentiality rules laid down in ANNEX-INST-X [Rules of procedure].

Note: the provisions in paras 1, 2, and 6 – majority voting, no dissenting opinions, binding effect, rulings published – are very similar to Article 180 of the withdrawal agreement. However, the express statement that the rulings create no rights or obligations for individuals is new, as are the provisions in paras 3, 4 and 4A: no ‘judicial activism’ by arbitrators, no impact on domestic law or domestic courts, no jurisdiction of the parties’ courts to resolve resolution of disputes between the parties. This is a strongly ‘dualist’ approach to the dispute settlement process – binding at international level, but not in domestic law – which reflects the UK side’s approach to sovereignty (although note that the CJEU also rejects the domestic effect of WTO dispute settlement rulings within the EU legal order).

Article INST.30: Suspension and termination of the arbitration proceedings

At the request of both Parties, the arbitration tribunal shall suspend its work at any time for a period agreed by the Parties and not exceeding 12 consecutive months. The arbitration tribunal shall resume its work before the end of the suspension period at the written request of both Parties, or at the end of the suspension period at the written request of either Party. The requesting Party shall deliver a notification to the other Party accordingly. If a Party does not request the resumption of the arbitration tribunal’s work at the expiry of the suspension period, the authority of the arbitration tribunal shall lapse and the dispute settlement procedure shall be terminated. In the event of a suspension of the work of the arbitration tribunal, the relevant time periods shall be extended by the same time period for which the work of the arbitration tribunal was suspended.

Note: the strict time deadlines for arbitration can be suspended for up to 12 months if both sides agree, presumably to allow an opportunity to negotiate a diplomatic solution to a dispute instead. If the arbitrators resume their work, the clock starts ticking on the deadlines again.

Article INST.31: Mutually agreed solution

5. The Parties may at any time reach a mutually agreed solution with respect to any dispute referred to in Article INST.10 [Scope].

 6. If a mutually agreed solution is reached during panel proceedings, the Parties shall jointly notify the agreed solution to the chairperson of the arbitration tribunal. Upon such notification, the arbitration proceedings shall be terminated.

7. The solution may be adopted by means of a decision of the Partnership Council. Mutually agreed solutions shall be made publicly available. The version disclosed to the public shall not contain any information either Party has designated as confidential.

8. Each Party shall take the measures necessary to implement the mutually agreed solution within the agreed time period.

9. No later than the date of expiry of the agreed time period, the implementing Party shall inform the other Party in writing of any measures thus taken to implement the mutually agreed solution. 

Note: similarly to the previous provision, the TCA allows for a compromise settlement of a dispute. The withdrawal agreement alludes to this too, but does not go into detail on the process.

Article INST.32: Time Periods

1. All time periods laid down in this Title shall be counted in days from the day following the act to which they refer.

2. Any time period referred to in this Title may be modified by mutual agreement of the Parties.

3. The arbitration tribunal may at any time propose to the Parties to modify any time period referred to in this Title, stating the reasons for the proposal.

Note: the strict deadlines are not as strict as they first appear, as the parties have the power to amend them (if both sides agree). This is on top of the possibility to suspend the process, as discussed above.  

Article INST.34: Costs

1. Each Party shall bear its own expenses derived from the participation in the arbitration tribunal procedure.

 2. The Parties shall share jointly and equally the expenses derived from organisational matters, including the remuneration and expenses of the members of the arbitration tribunal. The remuneration of the arbitrators shall be in accordance with INST-ANNEX-X [Rules of procedure].

Note: costs are not awarded to the winning party; rather, each side bears its own costs regardless of the outcome.

Article INST.34A: Annexes

1. Dispute settlement procedures set out in this Title shall be governed by the rules of procedure set out in ANNEX INST-X [Rules of Procedure] and conducted in accordance with the ANNEX INST-X [Code of Conduct].

2. The Partnership Council may amend the ANNEXES INST-X [Rules of procedure] and INST-X [Code of conduct].

Note: the withdrawal agreement also has provisions on the rules of procedure and code of conduct for arbitration, which can likewise be amended by the Joint Committee (Articles 172 and 181 of the agreement).

 

Chapter 5: Specific arrangements for unilateral measures

Article INST.34B: Special procedures for remedial measures and rebalancing

1. For the purposes of Article 3.12 [Remedial measures] of Chapter 3 [Subsidy control] and Article 9.4(2) and (3) [Rebalancing] of Chapter 9 [Institutional provisions] of Title XI [Level playing field for open and fair competition and sustainable development] of Heading One of Part Two, this Title applies with the modifications set out in this Article.

2. By derogation from Article INST.15 [Establishment of an arbitration tribunal] and Annex INST-X [Rules of procedure for dispute settlement], if the Parties do not agree on the composition of the arbitration tribunal within two days, the co-chair of the Partnership Council from the complaining Party shall select, no later than one day after the expiry of the two-day time period, an arbitrator by lot from the sub-list of each Party and the chairperson of the arbitration tribunal by lot from the sub-list of chairpersons established pursuant to Article INST.27 [Lists of arbitrators]. The cochair of the Partnership Council from the complaining Party may delegate such selection by lot of the arbitrator or chairperson. Each individual shall confirm his or her availability to both Parties within two days from the date on which he or she was informed of his or her appointment. The organisational meeting referred to in Rule 10 of Annex INST-X [Rules of procedure for dispute settlement] shall take place within 2 days from the establishment of the arbitration tribunal.

3. By derogation from Rule 11 of Annex INST-X [Rules of procedure for dispute settlement] the complaining Party shall deliver its written submission no later than seven days after the date of establishment of the arbitration tribunal. The respondent Party shall deliver its written submission no later than seven days after the date of delivery of the written submission of the complaining Party. The arbitration tribunal shall adjust any other relevant time periods of the dispute settlement procedure as necessary to ensure the timely delivery of the report.

4. Article INST.20 [Ruling of the arbitration tribunal] does not apply and references to the ruling in this Title shall be read as references to the ruling referred to in (a) paragraph 10 of Article 3.12 [Remedial measures] of Chapter 3 [Subsidy control] of Title XI [Level playing field for open and fair competition and sustainable development]; or (b) point (c) of Article 9.4(3) [Rebalancing].

5. By derogation from Article INST.23(2) [Compliance review], the arbitration tribunal shall deliver its decision to the Parties within 30 days from the date of delivery of the request.

Note: disputes about subsidies and ‘rebalancing’ (divergences in future labour, environment or subsidies legislation) are subject to special fast-track rules. To summarise what these cross-references mean: there are two days to decide on the composition of the tribunal (rather than ten days). There are quicker rules to serve submissions (seven days rather than 20 days). The usual deadline of 160 days to deliver a ruling is cut to 30 days.  Finally, if compliance with a ruling is disputed before retaliation can be authorised, the tribunal must rule within 30 days (rather than 45 days). There are further special rules on subsidies and rebalancing, discussed in Annex II.

Article INST.34C: Suspension of obligations for the purposes of Article LPFS.3.12(12), Article FISH.9(5) and Article FISH.14(7)

1. The level of suspension of obligations shall not exceed the level equivalent to the nullification or impairment of benefits under this Agreement or under a supplementing agreement that is directly caused by the remedial measures from the date the remedial measures enter into effect until the date of the delivery of the arbitration ruling.

2. The level of suspension of obligations requested by the complaining Party and the determination of the level of suspension of obligations by the arbitration tribunal shall be based on facts demonstrating that the nullification or impairment arises directly from the application of the remedial measure and affects specific goods, service suppliers, investors or other economic actors and not merely on allegation, conjecture or remote possibility.

3. The level of nullified or impaired benefits requested by the complaining Party or determined by the arbitration tribunal:

(a) shall not include punitive damages, interest or hypothetical losses of profits or business opportunities;

(b) shall be reduced by any prior refunds of duties, indemnification of damages or other forms of compensation already received by the concerned operators or the concerned Party; and

(c) shall not include the contribution to the nullification or impairment by wilful or negligent action or omission of the concerned Party or any person or entity in relation to whom remedies are sought pursuant to the intended suspension of obligations.

Note: this provision sets out detailed rules to calculate how much damage has been suffered for the purposes of retaliation as regards fisheries and subsidies disputes. There are further special rules on subsidies and rebalancing, discussed in Annex II.

Article INST.34D: Conditions for rebalancing, remedial, compensatory and safeguard measures

Where a Party takes a measure under Article 3.12 [Remedial measures] of Chapter three [Subsidy control] or Article 9.4 [Rebalancing] of Chapter nine [Institutional provisions] of Title XI [Level playing field for open and fair competition and sustainable development] of Heading One [Trade], Article ROAD.11 [Remedial measures] of Heading Three [Road transport], Article FISH.9 [Compensatory measures in case of withdrawal or reduction of access] or Article FISH.14 [Remedial measures and  dispute resolution] of Heading Five of Part Two or Article INST.36 [Safeguards] of Title III of Part Six, that measure shall only be applied in respect of covered provisions within the meaning of Article INST.10 [Scope] and shall comply, mutatis mutandis, with the conditions set out in Article INST.24(3) [Temporary remedies].

Note: this provision clarifies that various forms of retaliation – as regards subsidies, rebalancing, road transport and fisheries (as well as economic safeguards) – can only applied to the ‘covered provisions’ within the scope of the general dispute settlement rules, and are also subject to the various limits on cross-retaliation discussed above. There are further special rules on subsidies and rebalancing, discussed in Annex II.

 

Annex II: Dispute settlement and LPF

As noted above, for some aspects of the ‘level playing field’, the usual dispute settlement rules are fully excluded (some of the general rules; competition; some of the subsidy rules; taxation).  Some LPF aspects are fully subject to the usual rules: Article 1.2(2) of the LPF rules (precautionary approach), and the rules on state-owned bodies (chapter 4). Other LPF aspects are subject to a modified version of the usual rules, as set out in Article INST.34B, discussed above. And other LPF aspects are subject to a various modified dispute settlement rules set out in the LPF provisions themselves; this will not be obvious to those who read only the dispute settlement rules. So the following sets out those special LPF rules.

One special set of LPF rules apply to:

-          Article 1.1(3) of the LPF rules, which states: “3. Each Party reaffirms its ambition of achieving economy-wide climate neutrality by 2050”;

-          the rules on labour and environmental standards in chapters 6 and 7 (including, but not only, the non-regression rule); and

-          the ‘sustainable development’ rules in chapter 8, which concern not only environmental but also some labour standards.

These special rules consist first of all of a special consultation procedure (Article 9.1 of the LPF provisions). Then there is a special panel of experts (Article 9.2 of the LPF provisions), in place of arbitrators. However, some of the dispute settlement rules are ‘switched back on’ as regards these experts, namely (para 19):

Except as otherwise provided for in this Article, Article INST.14(1) [Arbitration procedure], Article INST.29 [Arbitration tribunal decisions and rulings], Article INST.30 [Suspension and termination of the arbitration proceedings], Article INST.31 [Mutually agreed solution], Article INST.32 [Time periods], Article INST.34 [Costs], Article INST.15 [Establishment of an arbitration tribunal], or Article INST.28 [Replacement of arbitrators] as well as ANNEX INST [Rules of Procedure for Dispute Settlement] and ANNEX INST-X [Code of Conduct for Arbitrators], shall apply mutatis mutandis.

This is where disputes on the first and fourth issues listed above (on climate change and sustainable development) end. However, disputes on the labour and environmental chapters (which in practice will cross over with the climate change and sustainable development provisions) are subject to additional dispute settlement rules (Article 9.3 of the LPF provisions):

2. For the purposes of such disputes, in addition to the Articles listed in Article 9.2(19) [Panel of experts], Article INST.24 [Temporary remedies] and Article INST.25 [Review of any measure taken to comply after the adoption of temporary remedies] shall apply mutatis mutandis.

Thus, there is the possibility of retaliation where a panel report rules there is a breach of the non-regression clause, or other aspects of the labour and environment chapters. As with the usual cases of retaliation, there is also a review of whether the losing party ultimately has complied with the panel report, in which case the retaliation has to be ended.

The next special set of LPF rules applies to subsidies. The dispute settlement system cannot rule on subsidies in individual cases (except in certain circumstances), or on the recovery of subsidies in individual cases. This limit is not spelled out in Article INST.10 (unlike the similar limit relating to social security disputes), but is instead set out in Article 3.13 of the LPF provisions:

2. An arbitration tribunal shall have no jurisdiction regarding:

(a) an individual subsidy, including whether such a subsidy has respected the principles set out in paragraph 1 of Article 3.4 [Principles], other than with regard to the conditions set out in Article 3.5(2) [Unlimited state guarantees], (3) to (5) [Rescue and restructuring], (8) to (11) [Export subsidies] and (12) [Subsidies contingent upon the use of domestic content]; and

(b) whether the recovery remedy within the meaning of Article 3.11 [Recovery] has been correctly applied in any individual case.

Another set of special rules is set out in the subsidies LPF clauses (but again, is not reflected in the main dispute settlement rules). If a subsidy has allegedly caused a ‘significant negative effect on trade or investment’ (or there is a ‘serious risk’ that it may do so), the complaining party, following consultations, can retaliate without prior approval by the arbitrators (Article 3.12 of the LPF clauses). However, this retaliation can then be challenged on a fast-track basis, although the arbitrators can only examine its compatibility with some of the rules in the subsidies section (para 9, Article 3.12). This challenge must be brought within five days, and has no suspensive effect; further consultation is not necessary. There are also special rules expressly allowing ‘return retaliation’ if the arbitrators rule that the initial retaliation is in breach of the rules, but it has not been rescinded. ‘Double retaliation’ on the basis of both the subsidies and rebalancing clauses is ruled out.

Yet another set of modified dispute settlement rules applies as regards ‘rebalancing’ (divergences in future labour, environment or subsidies legislation). ‘If material impacts on trade or investment between the Parties are arising as a result of significant divergences’ in these areas, proportionate ‘rebalancing’ retaliation can be imposed (Article 9.4 of the LPF rules). The TCA provides that ‘assessment of these impacts shall be based on reliable evidence and not merely on conjecture or remote possibility.’

The intended retaliation must be notified to the other side. Consultations then take place for 14 days, rather than 30 under the usual rules. In the absence of an agreement, the rebalancing retaliation can be imposed; notice that there is no prior requirement that arbitrators find a breach of the TCA, with a reasonable time to comply, before this retaliation can take place. However, within five days the other side can ask arbitrators to rule on whether the retaliation is consistent with the TCA’s rules on rebalancing, summarised above. The arbitrators must rule within 30 days. If they rule against the retaliation, it must be discontinued; if it is not, ‘return retaliation’ is expressly possible. In addition to this, there are some additional special rules set out in Article INST.34B above, on composition of the tribunal, serving of submissions, and time periods for rulings.

Annex III: Dispute settlement and Fisheries

Dispute settlement and fisheries is subject first of all to the special rules in Article FISH.9, on compensatory measures for withdrawal of access to waters. The basic rule is set out in para 1:

1. Following a notification by a Party (“host Party”) under Article FISH.8(5)[Access to waters], the other Party (“fishing Party”) may take compensatory measures commensurate to the economic and societal impact of the change in the level and conditions of access to waters. Such impact shall be measured on the basis of reliable evidence and not merely on conjecture and remote possibility. Giving priority to those compensatory measures which will least disturb the functioning of this Agreement, the fishing Party may suspend, in whole or in part, access to its waters and the preferential tariff treatment granted to fishery products under Article GOODS.5[Prohibition and customs duties].

Note that the retaliation concerns both access to waters and tariffs on fish, and is subject to a proportionality rule. Para 2 is a rule on timing, and para 3 is a rule on arbitration:

3. After the notification of the compensatory measures in accordance with paragraph 2, the host Party may request the establishment of an arbitration tribunal pursuant to Article INST.14 [Arbitration procedure] of Title I [Dispute settlement] of Part Six, without having recourse to consultations in accordance with Article INST.13 [Consultations]. The arbitration tribunal may only review the conformity of the compensatory measures with paragraph 1. The arbitration tribunal shall treat the issue as a case of urgency for the purpose of Article INST.19 [Urgent proceedings] of Title I [Dispute settlement] of Part Six.

Note that consultations are skipped, the proceedings are urgent (see discussion above), and the arbitrators are limited to assessing whether the sanctions are consistent with the limits in para 1.

Furthermore, if the ‘fishing Party’ (most likely the EU) loses this case, the ‘host Party’ (most likely the UK) can expressly impose ‘return retaliation’ against the retaliation measures taken by the fishing Party, subject to proportionality, if the inconsistency is ‘significant’, subject to the arbitrators agreeing:

5. Following a finding against the fishing Party in the procedure referred to in paragraph 3, the host Party may request the arbitration tribunal, within 30 days from its ruling, to determine a level of suspension of obligations under this Agreement not exceeding the level equivalent to the nullification or impairment caused by the application of the compensatory measures, if it finds that the inconsistency of the compensatory measures with paragraph 1 is significant. The request shall propose a level of suspension in accordance with the principles set out in paragraph 1 and any relevant principles set out in Article INST.34C [Suspension of obligations for the purposes of LPFS.3.12(12), Article FISH.9(5) and Article FISH.14(7)]. The host Party may apply the level of suspension of obligations under this Agreement in accordance with the level of suspension determined by the arbitration tribunal, no sooner than 15 days following such ruling.

Note the cross-reference back to Article INST.34C, discussed above, which includes a specific rule on calculation of the amount of the permitted return retaliation.

Secondly, dispute settlement on fisheries is subject to a special rule in Article FISH.14, which refers to breaches of the fisheries rules in general. The complaining party may, after giving notice (para 1):

(a) suspend, in whole or in part, access to its waters and the preferential tariff treatment granted to fishery products under Article GOODS.5[Prohibition of customs duties]; and

(b) if it considers that the suspension referred to in point (a) is not commensurate to the economic and societal impact of the alleged failure, it may suspend, in whole or in part, the preferential tariff treatment of other goods under Article GOODS.5[Prohibition of customs duties]; and

(c) if it considers that the suspension referred to in points (a) and (b) is not commensurate to the economic and societal impact of the alleged failure, it may suspend, in whole or in part, obligations under Heading One [Trade] of Part Two [Economic Partnership] with the exception of Title XI [Level Playing Field for open and fair competition and sustainable development]. If Heading One [Trade] is suspended in whole, Heading Three [Road Transport] is also suspended.

There is a special rule if the dispute concerns fisheries as regards the Channel Islands or Isle of Man (para 2).

Any retaliation ‘shall be proportionate to the alleged failure by the respondent Party and the economic and societal impact thereof’ (para 3). A complaining party is obliged to enter into brief consultations (para 4), and to trigger the dispute settlement process within 14 days (para 5); the arbitrators must rule urgently. If the arbitrators rule against the complaining party’s retaliation, it must cease (para 6). Again, return retaliation is expressly allowed (para 7), subject to arbitration, with a cross-reference to the rules on calculation of damage in Article INST.34C.

Given the relative size of the fisheries industry, it is presumably unlikely (to say the least) that arbitrators would find the suspension of all of the trade and road transport provisions of the TCA was a proportionate reaction to the breach of the fisheries provisions.  

Barnard & Peers: chapter 27

Photo credit: Adrian Jack Bunsby, via Wikimedia commons

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