From Brexit to Eternity: The institutional landscape under the EU-UK Trade and Cooperation Agreement

The Trade and Cooperation Agreement (TCA) reached by the European Union and the United Kingdom has been met with relief, as it moved the two parties away from the precipice of a no-deal Brexit. It provides for a comprehensive trade deal and includes substantial provisions on cooperation on a wide range of policy fields, contrary to the UK’s original proposal. Importantly, the Agreement forms ‘the basis for a broad relationship between the Parties’ (Article COMPROV.1).

The European Commission has chosen Article 217 TFEU as the legal basis for the conclusion of the Agreement, believing that the TCA only covers areas under EU competence; therefore, ratification by member states’ parliaments is not required. Article 217 refers to so-called Association Agreements, such as the EU-Ukraine Agreement, whereas Free Trade Agreements (FTA) such as the EU-Canada CETA are usually adopted under Article 207 TFEU. The choice of legal basis might have been a practical necessity, in light of a looming no-deal Brexit. Still, the Agreement’s EU-only nature, and the institutional architecture it introduces, question the UK’s claim of the TCA being a ‘Canada-style’ deal, and draws attention to an emerging new association between the EU and UK, which can easily ‘integrate’ future –‘supplementing’– agreements (Article COMPROV.2).

Given that the current iteration of the TCA is, by virtue of its flexibility, but a starting point, we argue that its true legacy lies with the institutional landscape it establishes. Firstly, we consider the new governance ecosystem and the extent to which it is to shape the post-Brexit dynamic between the EU and the UK. Secondly, we assess the robustness of the TCA’s dispute settlement mechanism. Ultimately, we highlight the way in which this new structure of political, legal and regulatory cooperation sets the scene for future negotiations which will define EU-UK relations.

A New Governance Ecosystem

The post-Brexit EU-UK relations remain significantly institutionalised, as the TCA is underpinned by a new ecosystem of governance. The Agreement sets up a new Partnership Council, comprised of ministerial-level representatives of the EU, through the European Commission, and the UK (Article INST.1). It shall have a wide range of powers, including powers to amend the substantive provisions of the TCA itself, and will be supported administratively by the Secretariat, consisting of EU and UK civil servants (Annex INST, Rule 2).

The TCA also establishes a range of Committees (Article INST.2) and Working Groups (Article INST.3) to oversee the implementation of particular areas of the Agreement. Moreover, a limited degree of parliamentary cooperation is encouraged through a Parliamentary Partnership Assembly (Article INST.5). The exact composition and function of those bodies are yet to be agreed, though this will be defining for the democratic legitimacy and transparency of the TCA’s governance.

Additionally, limited engagement with the civil society is envisioned via the Civil Society Forum, which is to facilitate ‘independent civil society organisations’ to conduct a ‘dialogue on the implementation’ of the TCA provisions relating to trade, transport and fisheries (Article INST.8).

The pressing question is whether this institutional set-up favours any of the two parties. At first glance, the TCA ecosystem does not seem much different to what the UK has known in the past, since it arguably mirrors the EU institutions. The Partnership Council reflects the Council of the EU, where ministers reach executive decisions collectively. The Secretariat is reminiscent of the Commission, particularly in the earlier days of European integration, where its main scope was administrative and entailed civil servants supporting ministers and carrying out delegated tasks.

Nevertheless, the emergence of this new institutional landscape does signify an important change for the UK: it solidifies the weakening of its position vis-à-vis the EU, as was first seen in the Article 50 negotiations. The Partnership Council and Committees will be the first permanent European fora in which the UK will be facing not 27 individual states (as member states themselves are not party to the TCA), but a united bloc represented by the Commission. This marks a dramatic departure from the days of the UK’s membership to the EU, where it was able to achieve opt-outs and shape EU policies on the basis of its comparative leverage, often in a fragmented framework. Within the new institutional arrangements, the UK may find it difficult to secure an equivalent degree of flexibility on matters governed by the TCA.

This dynamic is reinforced by the limited role reserved by the TCA for the parties’ legislatures domestically. Thus far, UK Parliamentary Committees have been engaging in ex post political reviews of decisions reached by the Withdrawal Agreement Joint Committee. If more substantial ex ante accountability mechanisms are not introduced for Partnership Council decisions, participating ministers may find it politically easier to succumb to the economic realities represented by the new 1-vs-27 dynamic.

A New Mechanism for Dispute Settlement

In line with ‘sovereignist’ domestic promises made by the UK government, the TCA is grounded on public international law rather than EU law, marking a foundational shift in the parties’ relationship (Article COMPROV.13). Therefore, the Court of Justice of the EU (CJEU) has no role in settling disputes arising from the Agreement, with the exception of matters pertaining to the UK’s continued participation in EU programmes, such as Horizon Europe and Copernicus (Article UNPRO.4.4). The CJEU, however, still has a say over the application of the Northern Ireland Protocol under the 2019 Withdrawal Agreement.

Under the TCA, potential disputes should firstly be attempted to be resolved amicably between the parties, through a process of political consultations (Article INST.13). If unsuccessful, either party can request the establishment of an arbitration tribunal (Article INST.14), consisting of non-affiliated arbitrators (Article INST.16). Issues related to competition, state aid/subsidies and law enforcement are excluded from the scope of arbitration proceedings. If a party fails to comply with an arbitration ruling, the other can suspend some obligations, which must be proportionate (Article INST.24(4)-(5)). Importantly, some cross-retaliation is allowed, for instance between trade and the level playing field (Article INST.24(6)).

Overall, the Agreement establishes a robust mechanism of horizontal dispute settlement. The tribunal must deliver its ruling within 130 days after it was established (Article INST.20), which indicates that arbitration is intended to be a readily available option to parties. However, it remains to be seen whether the parties will make constructive use of it or if tensions will be expressed through tit-for-tat proceedings. The cross-retaliation mechanism could increase such a risk, although it was probably intended to provide an incentive for compliance.

Nevertheless, despite the extensive arbitration provisions, the TCA expresses a strong preference in favour of political consultations before resorting to arbitration. Indeed, in important areas, consultations are the only available option. Moreover, rather than creating a fully-fledged appellate mechanism for arbitration rulings, such as in Article 8.28 of the CETA, this Agreement allows parties to merely pursue compliance with the original ruling (Article INST.21) although disagreements on its adequacy can be referred to arbitration (Article INST.23). This could be seen as a manifestation of the parties’ intention to limit the power of independent arbitration vis-à-vis the Partnership Council.

Both consultations and arbitration proceedings, as designed, have the capacity of undermining the ostensibly absolute grounding of the TCA on international, rather than EU, law. Although there is no ‘obligation’ to make interpretations ‘in accordance with the domestic law of either Party’ (Article COMPROV.13(2)), it can be expected that EU law will still be relevant in the context of Partnership Council decisions, insofar as it limits what the EU can agree to, such as on fundamental rights or non-discrimination between member states. A continued relevance of EU law is likely to be encountered in arbitration, too. For instance, arbitrators may choose to interpret the Agreement’s state aid provisions (termed ‘subsidy control’) by considering EU law notions, as the EU has developed rich case law from which they can draw. More substantively, the TCA, though not part of EU law, sets a framework for the UK’s own subsidy control regime which ‘fundamentally resembles’ or has a ‘striking […] similarity’ to EU state aid law. This seems unlikely to be overlooked by arbitrators, and may de facto tint dispute settlement with at least a faint EU law colour.

Negotiating the future: rebalancing and reviewing the TCA

Beyond the elaborate governance ecosystem and dispute settlement procedures, the TCA recognises that important questions remain unanswered and provides a framework for them to be negotiated, and ultimately, reached.

Firstly, provisions on financial services (Articles SERVIN.5.37-5.44) are thin, even by traditional FTA standards; unlike in the CETA, there is not even a Committee on financial services. This governance gap either anticipates an equivalence decision on UK financial services which can be taken by the EU unilaterally, or a more substantial EU-UK supplementing agreement which is to be negotiated. Similar action, regarding the UK’s data protection system, is also expected. Due to the central role of regulators in both financial services and data privacy, any future agreements would require a closer regulatory dialogue between EU and UK authorities.

Secondly, the TCA firmly integrates regulatory monitoring within enforcement mechanisms. In particular, a rebalancing mechanism has been agreed, whereby either party ‘may take appropriate rebalancing measures’, such as the introduction of tariffs, to account for a divergence of standards by the other party, where that ‘impact[s] trade or investment’ between the parties (Article 9.4). Such standards relate to labour, social and environmental protection. The rebalancing mechanism, therefore, offers an economic disincentive against a drastic divergence of standards and, in any case, establishes a need for intimate mutual regulatory monitoring as a matter of enforcement. In doing so, it adds a novel dimension to the practice of regulatory cooperation. This may even take the form of a periodic regulatory-enforcement review as either party ‘may request, no sooner than four years after the entry into force of [the TCA], a review’ of the Agreement’s trade provisions (Article 9.4(4)).

The TCA also allows for the termination of the law enforcement and judicial cooperation provisions ‘on account of the [UK or an EU member state] having denounced the European Convention of Human Rights [ECHR]’ (Article LAW.OTHER.136), while Article LAW.GEN.3 emphasises the importance of adherence to the ECHR and fundamental rights as well as ‘giving effect to [them] domestically’. Therefore, a close observation by the EU into the UK’s domestic enforcement of ECHR rights seems to be envisaged.

Lastly, Article FINPROV.3 mandates parties (‘shall’) to ‘jointly review the implementation of this Agreement and supplementing agreements and any matters related thereto five years after the entry into force of this Agreement and every five years thereafter’. Given this dramatic review clause, it is likely that the entire ecosystem could structure its implementation assessments into five-year cycles. Such cycles match both the five-year terms of European Union institutions, but also, roughly, the UK’s electoral cycles. Ultimately, this reveals that the long-term legacy of the TCA lies more with the institutional framework it establishes than with the substantive terms of trade it introduces. The TCA institutions are not merely a mechanism of enforcement of the Agreement’s text, but also a forum to streamline the negotiations to come – a flexible governance system for the entire EU-UK relationship.

Towards an ever closer EU-UK partnership?

The institutional landscape established by the TCA is not in itself novel, as it replicates aspects of traditional FTAs, such as the CETA or the EU-Japan Economic Partnership Agreement. However, in light of its substantive provisions, it seems that the TCA governance ecosystem and the dispute settlement mechanisms call for a hybrid form of enforcement and regulatory assessments which will ultimately determine, at least every five years, whether the EU and the UK will reconverge or diverge further. Such a framework is inherently flexible, and the EU-UK relationship will largely be defined by the modus operandi of the Partnership Council as well as potential supplementing agreements. Still, the institutionalisation of the new dynamic between the EU and the UK may already offer some hints as to which direction the new partnership may go in the future.