Free trade v freedom of association? The EU/South Korea free trade agreement and the panel report on the EU challenge to South Korean labour law

 

 

Steve Peers, Professor of Law, University of Essex

Has international trade liberalisation, in the form of the World Trade Organisation and free trade agreements between its Members, aided economic growth generally, or rather increased gaps between the rich and poor? Should the pursuit of freer trade take into account concerns about labour standards (and parallel concerns about environmental protection) – and if so, how?

Concerns along these lines have become increasingly prevalent in debates over trade policy, leading in some countries to reluctance to negotiate new free trade deals or demands to renegotiate existing treaties. For its part, the EU has moved towards more assertively applying the provisions relating to trade, labour and the environment in its free trade agreements. 

The EU’s enforcement strategy has recently had its first concrete outcome, in the form of the first panel ruling concerning labour standards under an EU free trade agreement. This concerned freedom of association under the EU/South Korea free trade deal. Note that the EU is recently more active in enforcing other aspects of its bilateral FTAs too: see the recent panel ruling in a dispute brought by the EU against Ukraine (regarding a Ukrainian export ban on wood). Dispute settlement proceedings against South Africa (regarding poultry) and Algeria (regarding import restrictions) are also underway.

This blog post summarises the relevant law in the free trade agreement and its interpretation by the panel, then comments on the ruling in the context of the broader debate about the relationship between trade and labour standards. Finally, I discuss how the ruling might be relevant by analogy to disputes about trade and the environment, to the controversial new EU/China investment agreement and to EU/UK disputes under the new post-Brexit trade deal (see further my summary of that deal and discussion of dispute settlement and human rights, as well as Markus Gehring’s analysis of the environmental rules in the deal).

 

The trade and sustainable development provisions of the free trade agreement

The term ‘level playing field’ is commonly used to refer to these issues (and some other issues) in the recent UK/EU treaty, but the phrase ‘trade and sustainable development’ is used in the EU/S Korea treaty (and more commonly by trade lawyers generally). The EU/S Korea rules are similar to those in a number of other recent FTAs with the EU, and so the panel report may well be relevant by analogy to potential disputes between the EU and (some) other non-EU countries. They are also broadly similar to the recently agreed EU/China investment agreement (not yet in force). However, as discussed further below, the ‘Brexit deal’ provisions go further.

Also, it should be noted that ‘trade and labour’ rules are not unique to agreements with the EU. For instance, free trade agreements with the US contain some provisions on the issue. Indeed, as also discussed below, the panel report distinguishes itself from the ruling in a case between the US and Guatemala.

Chapter 13 of the FTA, the ‘trade and sustainable development’ Chapter, first defines its ‘context and objectives’: the parties ‘reaffirm their commitments to promoting the development of international trade in such a way as to contribute to the objective of sustainable development’ (Article 13.1.1). They ‘recognise that economic development, social development and environmental protection are interdependent and mutually reinforcing components of sustainable development’ (Article 13.1.2). Also, they ‘recognise that it is not their intention in this Chapter to harmonise the labour or environment standards of the Parties, but to strengthen their trade relations and cooperation in ways that promote sustainable development’.

The scope of the Chapter is then defined (Article 13.2.1):

Except as otherwise provided in this Chapter, this Chapter applies to measures adopted or maintained by the Parties affecting trade-related aspects of labour and environmental issues in the context of Articles 13.1.1 and 13.1.2.

Having linked trade with sustainable development, Article 13.2.2 then pushes back:

The Parties stress that environmental and labour standards should not be used for protectionist trade purposes. The Parties note that their comparative advantage should in no way be called into question.

The mixed message continues in Article 13.3, titled ‘right to regulate’, which first refers to ‘the right of each Party to establish its own levels of environmental and labour protection, and to adopt or modify accordingly its relevant laws and policies’, but then qualifies that immediately by stating that ‘each Party shall seek to ensure that those laws and policies provide for and encourage high levels of environmental and labour protection, consistent with the internationally recognised standards or agreements referred to in Articles 13.4 and 13.5, and shall strive to continue to improve those laws and policies.’

What are those international standards exactly? Article 13.4 defines the international labour standards:

1. The Parties recognise the value of international cooperation and agreements on employment and labour affairs as a response of the international community to economic, employment and social challenges and opportunities resulting from globalisation. They commit to consulting and cooperating as appropriate on trade-related labour and employment issues of mutual interest. 

2. The Parties reaffirm the commitment, under the 2006 Ministerial Declaration of the UN Economic and Social Council on Full Employment and Decent Work, to recognising full and productive employment and decent work for all as a key element of sustainable development for all countries and as a priority objective of international cooperation and to promoting the development of international trade in a way that is conducive to full and productive employment and decent work for all, including men, women and young people.

3. The Parties, in accordance with the obligations deriving from membership of the ILO and the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up, adopted by the International Labour Conference at its 86th Session in 1998, commit to respecting, promoting and realising, in their laws and practices, the principles concerning the fundamental rights, namely:

(a) freedom of association and the effective recognition of the right to collective bargaining;

(b) the elimination of all forms of forced or compulsory labour;

(c) the effective abolition of child labour; and

(d) the elimination of discrimination in respect of employment and occupation.

The Parties reaffirm the commitment to effectively implementing the ILO Conventions that Korea and the Member States of the European Union have ratified respectively. The Parties will make continued and sustained efforts towards ratifying the fundamental ILO Conventions as well as the other Conventions that are classified as ‘up-to-date’ by the ILO.

Article 13.5 then defines international environmental standards. I’ve discussed the application of this ruling to them by analogy separately below.

Article 13.6 is a general statement about the links between trade and sustainable development. Article 13.7 then sets out a rule about ‘upholding levels of protection’, ie reducing standards or failing to enforce domestic labour law.

Skipping over a number of general provisions, the Chapter ends with rules on dispute settlement. Article 13.14 first calls for consultation between the parties on a ‘matter…arising under’ the Chapter. If these do not lead to a settlement within 90 days, a party can call for a panel of experts to be set up (Article 13.15). The panel is to make recommendations, and the parties ‘shall make their best efforts to accommodate advice or recommendations of the Panel of Experts on the implementation of this Chapter.’ This replaces the main dispute settlement system of the FTA, which is switched off for any ‘matter arising under’ this chapter (Article 13.16).

The panel report

The EU’s argument was based on two separate parts of Article 13.4.3 of the FTA, which was set out in full above. First, South Korea’s domestic labour law had not fully complied with ILO obligations as regards freedom of association. Second, South Korea had not made sufficient efforts towards ratifying core ILO treaties. 

Rules of interpretation

The report starts out by asserting that the level playing field provisions must be interpreted in accordance with the normal rules of interpretation of international law, in Articles 31 and 32 of the Vienna Convention of the Law of Treaties (VCLT). This followed from the obligation in the FTA for dispute settlement arbitrators to apply those rules; and the panel of experts was acting in lieu of arbitration.

Jurisdiction

Next, the panel turned to its jurisdiction to hear the case. Jurisdiction can be a dry technical issue, but here the dispute went to the core of the trade/labour nexus.  South Korea argued that the dispute was not ‘a matter arising under’ the Chapter, so could not be subject to dispute settlement at all, because Article 13.2.1 limited the Chapter to measures by a party ‘affecting trade-related aspects of labour and environmental issues’ (emphasis added). There was no direct impact on trade here, therefore no matter could arise under the Chapter.

If this argument had been accepted, it would have ended not only this particular dispute but also (if the ruling had been taken as a precedent) potentially many other disputes under this and other EU FTAs (as well as the EU/China investment treaty).  However, the panel did not accept it. It pointed instead to the words at the start of Article 13.2.1: ‘Except as otherwise provided in this Chapter…’, which indicated that there were exceptions to the rule that the Chapter only related to trade-related aspects. Article 13.4.3 was one of those exceptions. This was confirmed by the broad references to ILO obligations, the ‘fundamental rights’ aspects of those obligations, the reference to the abolition of ‘all’ compulsory labour, and the impossibility of ratifying ILO Conventions only as regards a limited category of workers. It was further confirmed by a contrario comparison with Article 13.4.1 and 13.4.2, which refer to trade (as to Articles 13.7 to 13.9), and by interpreting the scope of the Chapter in light of the broad context and objectives set out in Article 13.1 and the preamble to the FTA.

South Korea also argued that the EU aimed to harmonise the labour law of the parties, in breach of Article 13.2.2. The panel did not accept this either. Harmonisation meant ‘alignment of actual standards such as minimum rates of pay, maximum hours of work, or access to job security procedures’ as distinct from ‘fundamental principles and rights and core labour standards’, which ‘do not require harmonisation of domestic labour laws or outcomes’. The proof of this was that ‘many of the member States which have ratified the relevant Conventions both comply with their international obligations and maintain disparate systems of industrial relations, with very different substantive outcomes in terms of levels of economic development’. The panel also noted that the domestic right to regulate in Article 13.3 was subject to the obligation to uphold core standards.

Likewise, the panel rejected the argument that the EU aimed at protectionism, referring to ILO research that asserts no link between competitiveness and raising labour standards. With respect, a better argument here might be that the EU was not arguing for a protectionist measure (ie trade retaliation), if only because of the limits on remedies set out in the FTA itself. If there is no link between lower labour standards and trade, why does this Chapter often make that link in the first place? The panel’s interpretation is a hostage to fortune because it might make it harder for the EU to bring a claim in a different case relating to reduction or non-enforcement of labour standards, where it would have to show an effect on trade or investment to win the case.

On that point, next, the panel rejected any comparison with the ruling in the US/Guatemala dispute, because the rule in the FTA in question was a requirement that a party ‘shall not fail to effectively enforce its labour laws, through a sustained or recurring course of action or inaction, in a manner affecting trade between the Parties…’. While this was nearly identical to Article 13.7.1 of the EU/S Korea FTA (‘(a) Party shall not fail to effectively enforce its environmental and labour laws, through a sustained or recurring course of action or inaction, in a manner affecting trade or investment between the Parties’ – though note the extension to include environmental law, and an effect on investment), the EU was not alleging a breach of Article 13.7, ie a failure to enforce South Korea’s labour law. It was  instead alleging a breach of the separate obligation for that domestic labour law to meet minimum standards. More broadly, the context of the two treaties is different: the US/Central America/Dominican Republic treaty ‘does not have the same contextual setting of sustainable development as the EU-Korea FTA, nor does it refer to the range of multilateral and international agreements and declarations which the Parties have included in the EU-Korea FTA’.

Substance: domestic labour law

The panel then turned to the EU’s arguments about South Korean labour law, which were fourfold: a narrow definition of ‘workers’ who can join trade unions (excluding self-employed or dismissed or unemployed workers); the definition of ‘trade union’ as excluding bodies who admit persons excluded from the category of ‘worker’ as members; the requirement that only members can be trade union officials; and the discretionary registration of trade unions.

It started with looking at the different elements of Article 13.4.3. As regards the requirement to act ‘in accordance with the obligations deriving from membership of the ILO’, the panel found that it included the obligation to ensure freedom of association, even where (like South Korea) a country had not signed up to specific treaties on that issue. Moreover, the rulings of the ILO’s Committee on Freedom of Association could be taken into account.

As for ‘the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up’, the panel decided that the EU was not claiming that it was legally binding as such. What was legally binding between the parties was Article 13.4.3, taken as a whole.

Next, the panel considered the legal strength of the term ‘commit to’. Here the panel rejected South Korea’s argument that this wording was purely aspirational, ruling instead that ‘this represents a legally binding obligation of commitment to respecting, promoting and realising the obligations arising from membership of the ILO and the 1998 ILO Declaration in relation to the principles concerning the fundamental rights’.

It then turned to those specific terms. ‘Respecting’ meant a ‘negative obligation not to injure, harm, insult, interfere with or interrupt freedom of association’. ‘Promoting’ meant a ‘positive obligation on States, which in human rights statements on the content of the freedom of association means that States should ensure third parties do not disrupt workers engaging in their right to freedom of association’. Also, ‘States should create a ‘climate’ in which the civil rights of workers and employers allow them to freely exercise their rights to freedom of association’. As for ‘realising’, this meant ‘a binding requirement involving a commitment to realising the principles concerning the fundamental right of freedom of association’ as distinct from ‘a binding requirement that a Party comply with the terms of Conventions’ as such – which was the subject of a separate complaint, considered below.

Finally, ‘the principles concerning the fundamental rights’ did not mean that there was no legally binding obligation, and the panel was unconvinced by the South Korean argument that these principles were not sufficiently clear.  It did, however, hint that the freedom of association principles were clearer than the others referred to (forced labour, child labour and discrimination), raising the prospect that a case concerning those principles might face an extra hurdle to be successful.

Applying these principles to the EU’s specific complaints, first of all South Korea had wrongly excluded self-employed or dismissed or unemployed workers from joining trade unions. On the first point it noted that this issue arose under some EU Member States’ law too – noting that this might be an issue for discussion between the parties going forward. On dismissed workers, it noted in particular that there were insufficient safeguards against being dismissed for trade union-related activity.

Next, the panel concluded that South Korea had wrongly defined ‘trade unions’ as excluding bodies who admit persons excluded from the category of ‘worker’ as members, noting in particular that some trade unions had been deregistered because their members had been dismissed. Needless to say, this gives employers considerable power over not only individual employees but also entire trade unions by threatening dismissal of a union member. It also ruled against the national law requirement that only union members can be trade union officials, on the basis that ti was up to union members to choose who to represent them.

On the other hand, the panel ruled against the EU complaint regarding the discretionary registration of trade unions, holding that the evidence was contradictory and it was not sufficiently certain that the complaint was well-founded.

Substance: ratification of ILO Conventions

As a reminder, treaty provides that South Korea ‘will make continued and sustained efforts towards ratifying the fundamental ILO Conventions as well as the other Conventions that are classified as “up-to-date” by the ILO’. The EU argument related only to the ‘fundamental’ Conventions.

The panel started out by noting that of the eight ‘fundamental’ ILO Conventions, South Korea had yet to ratify four: two on forced labour and two on trade unions. The first issue here was the legal strength of the word ‘will’: the panel rejected South Korea’s argument that it was not really binding, holding that it ‘establishes a binding legal obligation’.

But a legal obligation to do what exactly? Here the panel rejected both South Korea’s argument that the status quo was sufficient, and the EU’s argument that progress towards ratification must continue ‘without interruption’. There was no concrete requirement or target date, and the parties had ‘leeway’ in achieving the objectives. This was an obligation of effort, not result.

Was there sufficient effort then? The panel ruled that it was sufficient that the South Korean government had tabled bills before Parliament in 2019 to ratify three of the treaties concerned. As for the other treaty, concerning prison labour, the panel accepted South Korea’s argument that changes to penal law take time. (One might note that they take very little time when a State responds to a terrorist bomb or other outrage). Overall, while expressing mild disappointment, the panel did not think that South Korea had breached its obligation to make effort towards ratifying the Conventions.

What happens when and if these treaties are ratified? That’s a hypothetical issue, and the panel was not called upon to address it. But it should be recalled that Article 13.4.3 also provides for a ‘commitment to effectively implementing the ILO Conventions that Korea and the Member States of the European Union have ratified respectively’. This would apply already, of course, to ILO Conventions which both sides have ratified. Logically much of the panel’s analysis would apply by analogy to this provision: it falls within its jurisdiction; there is no requirement to show a link to trade or investment; and the word ‘commitment’ entails a legally binding obligation. But here the wording is stronger than the obligation to make ‘efforts towards ratifying’ treaties: ‘effectively implementing’ them arguably suggests rather an obligation of result, going beyond halting and partial ‘efforts’ to do so.   

 

Comments

The EU has won some significant victories here, as regards: jurisdiction; the legal effect of some vague quasi-soft law terms; the absence of a requirement for a trade or investment impact; the references to some ILO Conventions; and the use of ILO ‘soft law’. All of this sends a signal to other non-EU countries, should the EU seek to invoke the relevant provisions (where they exist) in other FTAs or the EU/China investment treaty. Of course, the obligations also apply to the EU – as the panel points out at several places – although labour unions and environmental groups would likely be happy to see the EU held to account as well.

The EU has been successful also on some key points of criticism of domestic labour law. The panel’s close attention to the effect of labour law rules in practice – ie as a means to decertify trade unions simply by firing a member – is significant. On the point where the EU failed to table enough evidence to convince the panel, that is a pointer for how such disputes might be litigated in future.

The EU will likely be disappointed by the panel’s approach to ILO Conventions, where it held that they created a legal obligation but applied a relatively low threshold to assessing South Korea’s compliance with the obligation to move towards ratifying them. As noted above, some aspects of its reasoning (as regards the prison labour Convention, and the ‘disguised protectionism’ point) are particularly unconvincing, with great respect. This sends a converse message to non-EU countries: that a delay of nearly a decade in ratifying such Conventions, including extra tardiness in ratifying one important Convention, is acceptable. However, it should be noted that as discussed above, the obligations to implement ILO Conventions after ratification, while not discussed by this panel report, are arguably stronger.

Of course, the EU’s partial success in its action is inevitably limited by the lack of any further remedies to enforce the panel ruling. It might be possible that the process has some effect on domestic political opinion in the other party, perhaps helping to persuade the government to move faster on the relevant issues. However, considerations like these are only relevant where there is a form of democracy in the other party – so they are hardly relevant in the context of the EU/China investment agreement.  

The context of the panel ruling includes the gradual development of the EU’s own trade policy. A revision of internal EU law on trade remedies (which does not apply to investment treaties) is about to be formally adopted, and will be accompanied by a statement from the Commission, including the following commitment to enforcement of sustainable development provisions in the EU’s FTAs:

In deploying the enhanced enforcement system [regarding alleged breaches of trade agreements], the Commission will pay equal attention to alleged breaches of the trade and sustainable development provisions of EU trade agreements as to alleged breaches of market access systems. The processing of alleged breaches of trade and sustainable provisions will be fully integrated into the system. The Commission will prioritise those cases which are particularly serious in terms of their effect on workers or the environment in a trade context, which have systemic importance and which are legally sound.  

In the same context, the panel ruling is comparable to the 2017 CJEU judgment on the EU’s legal competence to agree the EU/Singapore free trade agreement, which decided (at paras 139 to 167) that the ‘sustainable development’ provisions fell within the scope of the EU’s common commercial (ie trade) policy. Having said that, it is striking that the CJEU took a different view from the panel as to whether lower labour standards might have an effect on trade, ruling that the sustainable development provisions:

are such as to have direct and immediate effects on trade between the European Union and the Republic of Singapore since they reduce the risk of major disparities between the costs of producing goods and supplying services in the European Union, on the one hand, and Singapore, on the other, and thus contribute to the participation of EU entrepreneurs and entrepreneurs of the Republic of Singapore in free trade on an equal footing (para 159).

There’s a context beyond the EU as well: while the new US President will not be tweeting angrily in the middle of the night about trade issues, the Biden administration is nevertheless lukewarm about further trade liberalisation. Whether this means ruling out trade deals entirely, or insisting on more account being taken of labour and environmental standards in such deals, remains to be seen.  

More broadly, concern in wealthier countries about opening up (or retaining) free trade without more enforceable labour and environmental standards may have reached a tipping point. One might draw comparisons with the EU’s own moves to adopt more labour and environmental law in the context of completing the internal market. Free trade’s hardcore advocates have long resisted making a strong link between trade and labour or environmental standards. They may now face a choice not necessarily between socialism or barbarism, but at least between legalism or nativism.

 

Application to environmental law

As noted above, some parts of the panel ruling are relevant to environmental disputes by analogy – in particular to the equivalent provisions on multilateral environmental treaties in Article 13.5:

2. The Parties reaffirm their commitments to the effective implementation in their laws and practices of the multilateral environmental agreements to which they are party.

3. The Parties reaffirm their commitment to reaching the ultimate objective of the United Nations Framework Convention on Climate Change and its Kyoto Protocol. They commit to cooperating on the development of the future international climate change framework in accordance with the Bali Action Plan.

First of all, interpretation in accordance with the VCLT is equally relevant to environmental issues. The panel’s analysis of jurisdiction applies also to environmental disputes by analogy:  Articles 13.5.2 and 13.5.3 are equally exceptions to the rule that the Chapter only covers trade-related aspects of the environment, given that there is no reference to trade only here.

As with the labour provisions, one can interpret the scope of those rules a contrario by comparison with Article 13.5.1 (which does mention trade) and Articles 13.7 to 13.9, and in light of the broad context of Article 13.1 and the preamble. The indivisibility of ILO Conventions applies equally to environmental treaties. The limited scope of the ban on harmonisation of law, the distinction between the right to regulate and the obligation to uphold core standards, and the absence of a requirement to show an effect on trade applies equally to the clause on multilateral environmental treaties.

By analogy with the panel ruling, the words ‘commit’ and ‘commitment’ as regards environmental treaties – appearing three times here – denote a legally binding obligation. A commitment to cooperation is arguably too vague to define in concrete terms; but on the other hand, a ‘commitment to reaching the ultimate objective’ of a treaty is a stronger obligation than ‘continued and sustained efforts towards ratifying’ the ILO Conventions at issue in part of the labour dispute.

The strongest obligation here may be the obligation ‘to the effective implementation in their laws and practices of the multilateral environmental agreements to which they are party’. This closely parallels the commitment in the labour provisions ‘to effectively implementing the ILO Conventions that Korea and the Member States of the European Union have ratified respectively’ – discussed further above.

Just as the panel report may be relevant by analogy to the labour provisions in other EU FTAs and the EU/China investment treaty, this extension of its reasoning could be relevant to the environmental provisions of those FTAs and the EU/China treaty too.

Application to the EU/China investment treaty

Comparing the EU/S Korea FTA with the EU/China investment treaty, the latter (understandably) refers only to investment aspects throughout, rather than trade also. However, it does not limit its scope in the same way as the EU/S Korea treaty, so South Korea’s jurisdictional objections (which were unsuccessful anyway) would not be applicable. The two treaties have a similar clause on their context, and comparable provisions on environmental treaties.

As regards labour standards, the non-regression and non-enforcement clauses are similar to the EU/S Korea treaty. The provision on ILO standards and domestic law, and ratification of ILO Conventions, provides:

1. Each Party, in accordance with its obligations assumed as a member of the International Labor Organization (“ILO”), and its commitments under the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up, shall respect, promote and realize, in good faith and in accordance with the ILO Constitution, the principles concerning the fundamental rights which are the subject of the fundamental ILO Conventions.

2. Each Party is, in accordance with the commitments of the members of the ILO and the 2019 ILO Centenary Declaration for the Future of Work, committed to effectively implement the ILO Conventions it has ratified and work towards the ratification of the ILO fundamental Conventions. In particular, in this regard, each Party shall make continued and sustained efforts on its own initiative to pursue ratification of the fundamental ILO Conventions No 29 and 105, if it has not yet ratified them. The Parties will also consider the ratification of the other Conventions that are classified as "up to date" by the ILO.

It is notable that this wording leaves out the list of fundamental rights in question, thereby omitting to mention forced labour explicitly. However, it is nevertheless covered by the general reference to ILO principles, in light of the panel interpretation.

The wording is basically similar to the clause in the EU/S Korea treaty which the panel interpreted, and so should logically be interpreted the same way, particularly in light of the use of the stronger word ‘shall’ at two points. Remember that the panel interpreted the word ‘committed’ (here referring to effective application of ILO Conventions once ratified) as legally binding.

As with the EU/S Korea FTA, the weak message on ratification of ILO Conventions (in this case, two forced labour Conventions) is arguably compensated for by the stronger wording on the domestic implementation of ILO principles. But this is subject to the important caveat above – that the recent panel ruling suggests that freedom of association principles might be easier to identify than the other ILO principles being referred to. The particular risk here is that the crucial issue of forced labour could not be effectively addressed. Whether this is sufficient will likely be subject to much debate in the near future. 

Finally, the dispute settlement system is essentially the same as for the EU/S Korea FTA, although the parties merely ‘discuss measures’ following any panel ruling.

Application to the EU/UK treaty

Comparing the EU/S Korea FTA with the EU/UK deal (chapter 8 of the ‘level playing field’ rules), the list of international measures includes some later measures in the latter treaty, but the references to integrating sustainable development into the EU/UK relationship are shorter. Conversely, the EU/UK treaty makes more references to transparency. The wording relating to ILO Conventions is only slightly different, bringing together the rules on promoting and effectively implementing such Conventions: ‘each Party commits to respecting, promoting and effectively implementing the internationally recognised core labour standards, as defined in the fundamental ILO Conventions’.

But there are additional commitments to: implementing the parts of the Council of Europe Social Charter that each party has signed up to; promoting the ILO Decent Work Agenda; protecting the social dialogue; and cooperating in multilateral fora on ‘trade-related’ labour issues.  There is a much longer list of environmental obligations as compared to the EU/S Korea FTA.  

Crucially, there is no general clause limiting the scope to ‘trade-related’ matters; such wording appears only in a handful of provisions of chapter 8. There is no rule against harmonisation or protectionism either.  So the various jurisdictional objections raised by South Korea could not so easily be made; and in any event, this panel report’s rejection of such arguments might well serve as a precedent. The panel’s findings that terms like ‘will’ and ‘commitment’ contain are legally stronger than one might think could also be relevant by analogy.

However, one similarity between the UK/EU and UK/S Korea treaties is crucial: the relevant provisions are both subject to a relatively limited form of dispute settlement, consisting of consultation followed by expert panels. No trade remedies can result, even if the panel finds a breach of the treaty. On the weak legal effect of a panel report, the EU/UK treaty is even blunter than the ‘best efforts’ clause in the EU/Korea treaty: ‘the Parties share the understanding that if the Panel makes recommendations in its report, the responding Party does not need to follow these recommendations in ensuring conformity with the Agreement.’

Conversely, though, the references to upholding domestic legal standards – ie the cases similar to US/Guatemala, not EU/S Korea – are removed from the ‘fluffy’ sustainable development chapter, being placed instead in separate chapters in the UK/EU treaty, where trade retaliation can apply.  It is worth comparing the substantive test in full. First of all, the EU/UK treaty provides:

A Party shall not weaken or reduce, in a manner affecting trade or investment between the Parties, its labour and social levels of protection below the levels in place at the end of the transition period, including by failing to effectively enforce its law and standards.

(There’s an identical provision for environmental law). The EU/S Korea treaty provides:

1. A Party shall not fail to effectively enforce its environmental and labour laws, through a sustained or recurring course of action or inaction, in a manner affecting trade or investment between the Parties.

2. A Party shall not weaken or reduce the environmental or labour protections afforded in its laws to encourage trade or investment, by waiving or otherwise derogating from, or offering to waive or otherwise derogate from, its laws, regulations or standards, in a manner affecting trade or investment between the Parties.

Note that there are two rules in the EU/S Korea treaty – non-enforcement and non-regression – which are in effect merged in the EU/UK treaty. In the EU/S Korea treaty, non-enforcement is subject to two different thresholds: not only ‘in a manner affecting trade or investment’ but also ‘sustained or recurring course of action or inaction’. As for non-regression, it is also subject to the ‘manner affecting trade or investment’ test, but also a requirement that the reduction in standards must take the form of a waiver of a derogation of its laws ‘to encourage trade or investment’.

By comparison, while the EU/UK treaty also contains a threshold of ‘in a manner affecting trade or investment between the Parties’, it does not contain the requirement that any non-enforcement must take the form of a ‘sustained or recurring course of action or inaction’. Nor does it require that a reduction in standards take the form of a waiver of a derogation of its laws ‘to encourage trade or investment’. Any reduction of standards will do, not just a waiver or derogation of them, although unlike under the EU/S Korea treaty, the time period to judge the reduction of standards is fixed at a particular date: the end of the transition period. On the face of it, there is no scope for a dynamic interpretation, ie a reduction of standards in 2025 from a higher level which was legislated in 2022 would not fall within the scope of the EU/UK clause, unless that drop in standards went so far as to drop also below the level at the end of 2020.

However, a development like that might fall within the scope of the ‘rebalancing’ clause in the EU/UK treaty, which concerns future developments, and is also subject to potential trade retaliation.  Here there is a different threshold: the rule applies where ‘material impacts on trade or investment between the Parties are arising as a result of significant divergences between the Parties’ as regards labour, environment or subsidy laws.

Finally, just for fun: it’s a moot point now, but can we make any analogies between the EU/S Korea panel’s interpretation of the obligation to move toward ratification of the ILO treaties and the provision in the withdrawal agreement about negotiating a future relationship treaty? Here’s that text:

The Union and the United Kingdom shall use their best endeavours, in good faith and in full respect of their respective legal orders, to take the necessary steps to negotiate expeditiously the agreements governing their future relationship referred to in the Political Declaration of 17 October 2019 and to conduct the relevant procedures for the ratification or conclusion of those agreements, with a view to ensuring that those agreements apply, to the extent possible, as from the end of the transition period.

The wording is far from identical. But in general, remember that the panel report found an obligation of effort, not result, which was moreover not very strict. So the panel report is far from helpful to those who claimed that the EU was in breach of the clause for being ‘mean’ to the UK by not agreeing with the UK’s negotiation position. (Nor would it help anyone making an argument the other way around).  And suffice it to say that while the panel made extensive reference to primary and secondary literature, it did not find that any legal obligations derived from power point slides or tweets from EU officials.

Barnard & Peers: chapter 9; chapter 24; chapter 27; chapter 20; chapter 22

Analysis 5 of the Brexit Deal: Environment and Climate Provisions

 

 

Markus W. Gehring, University of Cambridge; J.S.D. (Yale), LL.M. (Yale), Dr jur. (Hamburg), MA (Cantab). This short piece shares thoughts with the Marios Tokas and Markus W. Gehring, Briefing 4: The UK’s Draft Position - Exploring the basis for negotiation with the EU, CISDL Legal Brief 2020

 

Introduction

 

With the beginning of the new year, the relationship between the UK and the EU was fundamentally reset as the Brexit transition period ended and the new EU-UK Trade and Cooperation Agreement (TCA) came provisionally into force. This blog post looks at the provisions of the TCA on environment and climate change, following on from four earlier analyses on this blog, on: an overview of the TCA; the social security provisions; human rights; and dispute settlement. (Updated April 28 2021 to refer also to the final Article numbering of the TCA).

 

This new agreement is not just the first ‘less free trade’ agreement, but also contains a number of important innovations that are not normally found in free trade agreements (FTAs). This paper offers an initial, tentative review of the TCA and compares it with the UK and EU draft agreement texts on matters relating to the environment, particularly climate change.

 

It is worth noting that the TCA leaves the (limited) climate cooperation in the Withdrawal Agreement untouched. The Withdrawal Agreement recognised the need for close climate cooperation, particularly in the Ireland/Northern Ireland Protocol (Backstop) and includes a carbon price as an important element. However, it does not mandate the full participation of Northern Ireland in the EU Emissions Trading System outside the energy sector.

 

Despite the Political Declaration mandating no more than a discussion about climate cooperation, “both Parties could choose to safeguard strong climate legislation within a side agreement or a chapter of a new UK-EU trade deal.” As we indicated in 2019, much inspiration could be drawn from existing FTAs through ‘[a] combination of the most robust provisions – that ensure full compliance with the Paris Agreement and the highest level of ambition”, which could have the “potential to blaze a trail for deep climate cooperation in future free trade agreements, potentially for all Paris Agreement Parties around the world.” (Markus Gehring and Freedom-Kai Phillips, ‘Legal Options for Post-Brexit Climate Change and Energy Provisions in a Future UK-EU Trade Agreement’ (European Climate Foundation Paper, 2019)) The resulting set of TCA provisions is innovative in that it constitutes the “first trade agreement to make the climate crisis a ‘make-or-break issue” (See my comments to The Independent)

 

Preambles

 

Environmental protection and climate change feature prominently in the TCA Preamble. While the text of the preamble is similar to that of other EU FTAs, the TCA is the first EU FTA to immediately elevate climate change as an essential element of the agreement:

 

“REAFFIRMING their commitment to democratic principles, to the rule of law, to human rights, to countering proliferation of weapons of mass destruction and to the fight against climate change, which constitute essential elements of this and supplementing agreements”

 

Due to its prominence in the preambular text, reneging on climate commitments by either party could lead to a material breach of the treaty and a subsequent suspension or termination. Notably, the three dimensions of sustainable development, namely the economic, social, and environmental dimensions, as underlined in the preamble are resonant of both the EU treaties and previous FTAs. The second relevant preambular paragraph is a new addition and uses language agreed to in the Withdrawal Agreement Political Declaration, underlining high levels of environmental protection and climate change ambition as priorities, while ensuring a level playing field for “open and fair competition and sustainable development”. Preambular language has proven to be a significant element of trade agreements, particularly in light of the WTO DSB in the US-Shrimp dispute, where preambular language was used to add colour and shading to their interpretation of Art. XX GATT.

 

Material Breach

 

Article 764 (previously COMPROV.5) declares the fight against climate change as a one of the bases for cooperation alongside democracy, the rule of law, human rights and the non-proliferation of WMDs. Further, Article 771 (previously COMPROV.12) affirms that Article 764(1) (previously COMPROV.5(1)) is an essential element of the partnership established by the TCA as well as “any supplementing agreement.”

 

In the May 2020 EU Draft, the collective goal of combating climate change was elevated to a guiding principle, informing the operation of the entire treaty and was consequently placed at its beginning. This strongly worded provision, with mandatory language, was left almost unchanged in the TCA; the only slight change incorporated the gender-neutral language of “human-caused” climate change, as opposed to “man-made climate change” found in the EU draft, with no difference to its material meaning.

 

The language is one of the strongest found in any trade agreement, declaring that “climate change represents an existential threat to humanity”, requiring each Party to “respect the Paris Agreement and the process set up by the UNFCCC and refrain from acts or omissions that would materially defeat the object and purpose of the Paris Agreement.” Both trading partners also commit to be advocates of the fight against climate change in international fora.

 

Essential elements are important when determining suspension or termination of a treaty in international law. The TCA contains also Article 772 (previously INST.35) on the fulfilment of obligations described as “essential elements”: a provision that displaces in part the customary principles contained in the Vienna Convention on the Law of Treaties. It allows either party to suspend or terminate the TCA or any subsequent agreement in whole or in part after a specific process which mandates consultations and qualifies the invocation of a breach of an essential element. The provision singles out the Paris Agreement and helpfully clarifies that “an act or omission which materially defeats the object and purpose of the Paris Agreement shall always be considered as a serious and substantial failure for the purposes of this Article” meaning that it makes it somewhat easier to invoke the provisions when the object and purpose of the Paris Agreement is breached.  The TCA has thus become the first instance in which climate change is an essential element of a trade treaty. While the issue might be seen as essential for association agreements leading to EU Membership, this could potentially be the first agreement, provisionally in force, to contain climate change as an essential element, that is, a make-or-break issue.

 

Level playing field

 

Under ‘Title XI: Level Playing Field for Open and Fair Competition and Sustainable Development’, environment, climate change, and sustainable development more broadly, play a key role. The title is a slight misnomer as the obligations in these fields consist of non-regression obligations rather than any form of dynamic alignment, or indeed level playing field. The TCA, however, contains a quasi-unilateral set of measures that the Parties could adopt if divergence in these fields becomes too great in terms of ‘rebalancing measures’, subject to dispute settlement provisions.

 

Three different chapters of the level playing field title are relevant: the non-regression rules (chapter 7), the rebalancing rules (chapter 9), and the sustainability rules (chapter 8).

 

Environment and climate (Chapter 7)

 

This chapter groups some of the provisions on climate change and emission trading that the EU had proposed, subject to consultation, a panel of experts and, more importantly, a Panel of experts for non-regression areas.

 

It delineates the areas of law that determine the “environmental levels of protection”, to include laws in the majority of the most significant areas of current EU legislation such as industrial emissions, air quality, nature and biodiversity conservation, waste management, marine and aquatic environment, chemicals, agricultural environmental impacts. Non-EU laws are only included if they are ‘common’ to the Member States meaning that not the highest level found in any of the Member States will be used but rather the UK would have to prove that a Member State law is common which might be very difficult to prove in the expert or arbitration process.  

 

There is a separate definition of the “climate level of protection”, somewhat controversially defined in part as the reduction and removal of greenhouse gases emissions: “for the Union, the 40 % economy-wide 2030 target, including the Union’s system of carbon pricing [and] for the United Kingdom, the UK’s economy-wide share of this 2030 target, including the United Kingdom’s system of carbon pricing.” In law, that means a 37% reduction by 2030 based on 2005 levels for the UK.

 

Neither of these definitions reflects the new ambitions agreed within the EU of 55% reduction, nor do they align with the announced 68% reduction from 1990 levels for the UK. Evidently, this leaves some room for discretion for both trading partners with regard to their 2030 targets. Unfortunately, the 2050 objective is currently described in Art. 355(3) (previously 1.1.3) of Title XXI (Level Playing Field) as just an ambition: “Each Party reaffirms its ambition of achieving economy-wide climate neutrality by 2050”. The climate change definition also includes “the phase-out of ozone depleting substances”.

 

Article 391(2) (previously 7.2.2) contains one of the strictest formulations of a non-regression provision by adopting mandatory language prohibiting the weakening or reduction of levels of environmental or climate protection as defined in Art. 390(1) (previously 7.1) “below the levels that are in place at the end of the transition period”, including “by failing to effectively enforce its environmental law or climate level of protection”, with the sole caveat that this regression shall not occur “in a manner affecting trade or investment.”

 

In my view this is a strong provision, despite the nominal caveat, as WTO panels have repeatedly interpreted “affecting trade” in the GATT and GATS as having an economic impact without any qualitative level beyond de minimis, for example in cases like China – Publications and Audiovisual Products:

 

“The word 'affecting' covers not only measures which directly regulate or govern the sale of domestic and imported like products, but also measures which create incentives or disincentives with respect to the sale, offering for sale, purchase, and use of an imported product 'affect' those activities.” Panel Report, China – Publications and Audiovisual Products, para. 7.1450.

 

 

or EC – Bananas III:

 

“[t]he ordinary meaning of the word 'affecting' implies a measure that has 'an effect on', which indicates a broad scope of application. This interpretation is further reinforced by the conclusions of previous panels that the term "affecting" in the context of Article III of the GATT is wider in scope than such terms as 'regulating' or 'governing'.217 (emphasis added, footnote omitted).” Appellate Body report, EC — Bananas III, para. 220.

 

Art. 392 (previously 7.3) obligates both parties to “have in place an effective system of carbon pricing” and suggests that they give serious thought on linking their respective carbon pricing systems to preserve the system’s integrity and possibly increase its effectiveness. It is worth highlighting that both sides are now committed to a carbon price for “from electricity generation, heat generation, industry and aviation.” This commitment could support the ICAO CORSIA implementation or indeed domestic carbon pricing of aviation between both parties. It does not include shipping but then the EU discussions on expansion of the ETS to shipping are still ongoing but could start in 2023.

 

In keeping with the aim of not wanting to be bound by EU law, the parties agreed to be bound instead by “the internationally recognised environmental principles” (Article 393): principles to which they are committed through various multilateral environmental agreements: Particularly, “(a) the principle that environmental protection should be integrated into the making of policies, including through impact assessments; (b) the principle of preventative action to avert environmental damage; (c) the precautionary approach referred to in Article 356(2) (previously 1.2(2) [Right to regulate, precautionary approach and scientific and technical information]); (d) the principle that environmental damage should as a priority be rectified at source; and (e) the polluter pays principle.” The final provision could be interpreted as a stronger formulation of the TFEU’s “polluter pays” formulation, which simply states that the “polluter should pay”. 

 

Non-regression obligations include enforcement of environmental laws, including the obligation of each Party to ensure that “domestic authorities competent to enforce the relevant law with regard to environment and climate give due consideration to alleged violations of such law that come to their attention” and that “those authorities shall have adequate and effective remedies available to them, including injunctive relief as well as proportionate and dissuasive sanctions, if appropriate; and national administrative or judicial proceedings are available to natural and legal persons with a sufficient interest to bring actions against violations of such law and to seek effective remedies including injunctive relief, and that the proceedings are not prohibitively costly and are conducted in a fair, equitable and transparent way.” (Article 394, previously 7.5) These commitments are similar to the boarder Aarhus Convention access to justice obligations but include injunctive relief, costs and include the administrative not just the judicial process. The previous proposals about the independence of the Office for the Environment in the EU draft text was also dropped.

 

The enforcement of level playing field provisions follows a special panel process. The special rule on dispute settlement (Article 396, previously 7.7) highlights that in place of the general dispute settlement rules, Articles 408-410 (previously 9.1 to 9.3) of the level playing field provisions apply, which still includes the possibility of trade retaliation if the non-regression rule is breached.

 

Rebalancing

 

What makes these provisions particularly significant is the inclusion of the level playing field provisions, now called “Article 411 (previously 9.4): Rebalancing”. While both parties recognise that each Party has the right to determine its own “future policies and priorities with respect to labour and social, environmental or climate protection, or with respect to subsidy control, in a manner consistent with each Party’s international commitments, including those under this Agreement,” they also acknowledge that “significant divergences in these areas can be capable of impacting trade or investment between the Parties in a manner that changes the circumstances that have formed the basis for the conclusion of this Agreement”, as similarly stated in the Political Declaration.

 

If “material impacts on trade or investment are arising as a result of significant divergences between the Parties”, Art. 411(2) (previously 9.4.2) gives each Party the right to take rebalancing measures that are strictly necessary and proportionate to address such a situation.  Even though this instrument is predominantly relevant for future divergence and does not considerably affect the non-regression obligations, it ensures that if one Parties goes further than the other it could adopt “rebalancing” measures in the future. While these would be automatic, they are reviewable by an arbitration process. It should be highlighted that “material impacts” should be seen as a relatively high barrier, meaning that every future divergence will not necessarily qualify for rebalancing measures. On the other hand, and given that there is an arbitration process available, any significant departure in the fields of labour and social, environmental or climate protection, or with respect to subsidy control could, in the future, qualify for “rebalancing measures.”

 

Environment and Sustainable Development (Chapter 8)

 

Unlike chapter 7 of the LPF provisions or the rebalancing rules, this Chapter is not subject to normal dispute settlement. It should be noted, however, that it is subject to both consultation and the well-known EU ‘panel of experts’ process, which several other EU FTAs have introduced. Generally, we should not underestimate the latter in its ability to shine a light on environmental shortcomings, as it can be quite important in practical terms.

The trade and environment provisions in the TCA in Chapter 8 are extensive. While the UK draft text was essentially not used, its influence is evident in the formulation of the provision on forests where present and future generations are mentioned:

 

“Article 403 (previously 8.7): Trade and forests

 

1. The Parties recognise the importance of conservation and sustainable forest management for providing environmental functions and economic and social opportunities for present and future generations, and the role of trade in pursuing that objective.“

 

The provisions which integrate the sustainable development goals into the objectives of the “Chapter 8 on Sustainable Development” follows the EU Draft closely in its provisions on forests, biodiversity and climate change. A blackline reveals that the parties of the TCA weakened the language compared to the EU draft text by introducing in the provision of 8.5 on “Trade and Climate Change”:

 

Similarly, the provision on trade and biodiversity was changed, employing less binding and more optional language.

 

 

A dedicated provision in the main agreement, recognizing the importance of climate change, was derived from Art 2.42 of the EU Draft, as well as paragraphs 18, 75, and 76 of the Political Declaration, to a lesser extent. Like many other EU FTAs, the EU Draft would have committed both parties to “effectively implement the United Nations Framework Conventions on Climate Change, and the Paris Agreement of 2015 adopted thereunder.” This content can be traced to the EU-Japan Agreement, which was the first FTA to contain a comprehensive commitment to implementing the Paris Agreement. Under EU-Japan, each party commits to work together to realise UNFCCC aims, take steps to meet the objectives of the Paris Agreement, and promote trade as a means of reducing greenhouse gas (GHG) emissions and achieving climate-resilient development. Similarly, the EU Draft provision also envisioned a transition to a low GHG economy and climate resilient development. In addition, the Draft employed innovative language, extending climate commitments to encompass EU-UK cooperation on:

 

“Trade-related aspects of climate change policies and measures bilaterally, regionally and in international fora, as appropriate, including in the UNFCCC, the WTO, the Montreal Protocol on Substances that Deplete the Ozone Layer, the International Maritime Organisation (IMO) and the International Civil Aviation organization (ICAO)” (Art. 2.42 para. 3 EU Draft).

 

Article 403(3) (previously 8.5.3) does not mandate cooperation as such but now obligates the Parties to ‘work together to strengthen their cooperation’; but all EU proposed fora for climate cooperation were included in the TCA.

 

Conclusions

 

In sum, TCA contains the most far-reaching commitments toward sustainable development beyond broad facilitation and cooperation provisions, going considerably further than the more recent EU FTAs. The combination of elevating climate change to an essential element of the treaty, strong non-regression provisions and future balancing measures mean that in this field the TCA is trailblazing.

Barnard & Peers: chapter 22, chapter 26

Photo credit: MichealisScientists, via Wikimedia Commons

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. (The blog post was also updated on April 29 2021 to refer also to the final Article numbers of the TCA)

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 734 (ex-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 735 (ex-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) Article 32(1) to (6) and Article 36 (ex-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 12 (ex-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) Article 355(1), (2) and (4) (ex-paragraphs 1, 2 and 4 of Article LPFS.1.1 [Principles and objectives]) Article 356(1) and (3) (ex-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  of Title XI of Heading One of Part Two [Competition policy], Articles 371 and 372 (ex-LPFS.3.9 [Independent authority or body and cooperation] and LPFS.3.10 [Courts and tribunals] of Chapter 2 [Subsidy control]), Chapter 5 of Title XI of Heading One of Part Two [Taxation - Level Playing Field] , and Article 411(4) to (9) (ex-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 782 (ex-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 736 (ex-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 was actually Annex TBT-2, not TBT-X, in the previous numbering). 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 736 (ex-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 737 (ex-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 739 (ex-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 738 (ex-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 4 [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 739 (ex-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 738(3), (4) or (5) (ex-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 740 (ex-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 752 (ex-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 752 (ex-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 752 (ex-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 48 (ex-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 48.

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 760 (ex-INST.34B), discussed below.

Article 741 (ex-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 4 [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 49 (ex-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 742 (ex-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 743 (ex-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 735 (ex-INST.10 [Scope]) and to issue a ruling in accordance with Article 745 (ex-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 744 (ex-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 745 (ex-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 745 (ex-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 742, 743 and 753 (ex-INST.17 [Functions of the arbitration tribunal], INST.18 [Terms of reference], INST.28 [Replacement of arbitrators]) and Article 754 (ex-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 760 (ex-INST 34B), discussed below.

 

Chapter 3: Compliance

Article 746 (ex-INST.21): Compliance measures

1. If, in its ruling referred to in Article 745(4) (ex-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 747 (ex-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 745(4) (ex-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 745(4). 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 745(4) 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 748 (ex-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 745(4) (ex-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 749 (ex-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 745(4) (ex-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 746 (ex-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 748 (ex-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 745(4) (ex-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 745(4) 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 745(4) 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 735 (ex-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 756 (ex-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 750 (ex-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 751 (ex-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 48 (ex-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 752 (ex-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 740 (ex-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 753 (ex-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 740 (ex-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 754 (ex-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.

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

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

7 (ex-6). The information submitted by the Parties to the arbitration tribunal shall be treated in accordance with the confidentiality rules laid down in Annex 48 (ex-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 5: 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 755 (ex-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 756 (ex-INST.31): Mutually agreed solution

1. The Parties may at any time reach a mutually agreed solution with respect to any dispute referred to in Article 735 (ex-INST.10 [Scope]).

2. 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.

3. 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.

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

5. 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 757 (ex-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 758 (ex-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 Annex 48 (ex-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 759 (ex-INST.34A): Annexes

1. Dispute settlement procedures set out in this Title shall be governed by the rules of procedure set out in Annex 48 (ex-ANNEX INST-X [Rules of Procedure]) and conducted in accordance with Annex 49 (ex-ANNEX INST-X [Code of Conduct]).

2. The Partnership Council may amend Annexes 48 and 49. .

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 760 (ex-INST.34B): Special procedures for remedial measures and rebalancing

1. For the purposes of Article 374 and Article 411(2) and (3) (ex-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 740 (ex-INST.15 [Establishment of an arbitration tribunal]) and Annex  48 (ex-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 752 (ex-INST.27 [Lists of arbitrators]). The co-chair 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 48 shall take place within 2 days from the establishment of the arbitration tribunal.

3. By derogation from Rule 11 of Annex 48 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 745 (ex-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 Article 374(10 or point (c) or Article 411(3) (ex-(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 748(2) (ex-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 761 (ex-INST.34C): Suspension of obligations for the purposes of Article 374(12), Article 501(5) and Article 506(7) (ex-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 762 (ex-INST.34D): Conditions for rebalancing, remedial, compensatory and safeguard measures

Where a Party takes a measure under Articles 374, Article 411, Article 469, Article 501, Article 506 or Article 773 (ex-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 735 (ex-INST.10 [Scope]) and shall comply, mutatis mutandis, with the conditions set out in Article 749(3) (ex-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 355(2) (ex-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 760 (ex-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 Article 355(3) (ex-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 408, ex-9.1, of the LPF provisions). Then there is a special panel of experts (Article 409, ex-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 739(1), Article 740 and Articles 753 to 758, as well as Annexes 48 and 49 (ex-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 410, ex-9.3, of the LPF provisions):

2. For the purposes of such disputes, in addition to the Articles listed in Article 409(19) (ex-9.2(19) [Panel of experts]), Article 749 and 750 (ex-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 735 (ex-INST.10) (unlike the similar limit relating to social security disputes), but is instead set out in Article 375(2) (ex-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  Article 366(1) (ex-paragraph 1 of Article 3.4 [Principles]), other than with regard to the conditions set out in Article 367(2), Article 367(3), (4) and (5), Article 367(8) to (11) and Article 367(12) (ex-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 373 (ex-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 374, ex-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 374). 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 411, ex-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 760, ex-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 501, ex-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 500(5) (ex-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 21 (ex-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 739 (ex-INST.14 [Arbitration procedure] of Title I [Dispute settlement] of Part Six), without having recourse to consultations in accordance with Article 738 (ex-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 744 (ex-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 761 (ex-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 761, ex-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 506, ex-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 21 (ex-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 21; 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 761, ex-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