Brexit: Could there be a legal challenge to trade negotiations?

Sometimes the stream of  Brexit hysteria in the Daily Express yields the odd interesting nugget. Last week the paper reported that the European Commission wants to “torpedo” the Brexit negotiations by putting “a legal lock on discussions about the UK’s access to the single market, meaning that the issue cannot be brought up during the negotiations.”

The source of this story is Ryan Heath’s Politico column, in which he reports on a conversation with “a senior Commission source”:

There may be a few months where the parties are not really talking to each other. [If] the U.K. says we want to discuss tariffs and the [location of] the European Banking Authority and the space program, and what happens to [Britain’s European Commissioner Julian] King … [the EU’s Brexit negotiator Michel] Barnier will have a simple answer: ‘This is not in my mandate to negotiate with you.’

Barnier will not be legally allowed to negotiate on trade, on customs, on whether the U.K. can still participate in the Horizon 2020 research program.

In other words, there will be a legal barrier to discussing trade. The only negotiations allowed will be those about the separation agreement.

There is nothing here that the EU trade commissioner hasn’t already said. Last summer, Cecilia Malmstrom insisted that, under EU law, the EU can only negotiate trade agreements with third countries. Therefore the UK must become a third country before it can talk trade with the EU. In other words, it must leave the EU before it can do a trade deal.

She hasn’t changed her tune on this since. If the Express’s Nick Gutteridge had read one of his own articles from earlier this year, he would have found this quote from Ms Malmstrom (my emphasis):

First of all they have to formally invoke the Article 50, the letter of divorce. Then the European Council will discuss that and based on that they will give a mandate to the Commission to negotiate.

Then, if they do leave as the prime minister has said the internal market and also probably the customs union, there will have to be all the exit procedures and then there will be a trade agreement between us and the United Kingdom which would be negotiated after they have left.

When she says a deal can be negotiated in two years, she’s talking 2021, not 2019.

She said it again earlier this month:

If she is right, the triggering of Article 50 next week will take us straight to trading under WTO rules two years from now.

Luis González García of Matrix Chambers thinks she’s over-egging it though:

Can the UK negotiate a trade agreement with the EU while being a member of the EU?

According to the EU’s Trade Commissioner, Cecilia Malmström, the answer is no. In a recent interview she said, “There are actually two negotiations. First you exit, and then you negotiate the new relationship, whatever that is.” Her position seems to favour a strict interpretation of Article 50. This interpretation may be supported by the fact that a formal trade deal between the UK and the EU would be in conflict with the EU rules and practice in the negotiation and conclusion of trade agreements.

But in my opinion nothing in Article 50 prevents the EU from initiating formal trade negotiations with the UK during the withdrawal process. Article 50 (2) provides in the relevant part that

A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.

This formulation requires the EU to conclude a withdrawal agreement with the UK, taking into account the framework of the trading relationship between the withdrawal Member State and the EU. What could be included in the “framework” is unclear but it seems to me that the spirit of Article 50 envisages the adoption of an instrument setting out the new rules which would govern the bilateral trade relations between the UK and the EU, including the technical aspects of a future trade agreement which could only be concluded once the UK has formally exited the EU.

This paper from Sussex University comes to a similar conclusion:

Article 50(2) TEU addresses the content of the withdrawal agreement. It is open-ended, stating that ‘the Union shall negotiate and conclude an agreement with [the UK], setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.’ This does not preclude trade talks forming part of the Article 50 TEU withdrawal agreement or taking place in parallel. In practice, as Article 50 TEU has never been implemented before, legal debates about whether the UK faces restrictions in pursuing trade talks are highly politicised.

In other words, there’s a bit of posturing going on here and the law isn’t really clear.

The European Parliament’s committee on constitutional affairs seems to agree, arguing that, in practice, it is very difficult to disentangle the two agreements:

The treaty provision establishing that the withdrawal treaty will be concluded in a manner “taking account” of the future relationship is also a challenge in several aspects. This implies that the content of that future relationship should be known not only at the time of the signature of the withdrawal agreement but, ideally, from start of the negotiations. The greater the level of understanding on the future relationship, the easier drafting the withdrawal agreement will be.

What seems desirable is that the withdrawing state has a clear projection of the future relationship when negotiating the withdrawal agreement, and that both agreements are negotiated in parallel. Ideally, when the rights and obligations deriving from the Treaties for the UK and its citizens extinguish, as agreed in the withdrawal agreement, the transitional provisions and/or the new partnership provide for a clear legal framework so there is as little legal vacuum as possible.

As does Steve Peers, professor of EU law at Essex University:

Since the UK is going to be in a different situation, it could be argued the normal rules can’t really apply and the UK should be able to have informal trade negotiations that could be enforced from the day it leaves.

All very sensible. It’s in all countries’ interests to reach some sort of trade deal after Brexit so why would anyone want to put a legal block on trade negotiations?

The trouble is, common sense seems to be in pretty short supply at the moment and we don’t really know what the law says because none of it has been tested. As the BBC’s fact-check concluded:

Under current EU rules, EU countries cannot make separate trade deals with individual member states or non-EU countries. However, there is no legal precedent for a country to leave the EU and renegotiate a trade agreement with the bloc. Legal experts say the UK could argue its official status has changed once it invokes Article 50, but this is largely hypothetical at the moment.

There are all sorts of competing interests in the other 27 countries. Any one of them could bring a legal challenge if they thought there might be some advantage to be gained by holding up the trade negotiations. Even if they were not successful, what would happen to the timing of the negotiations? Would it be like a rugby game where the clock stops or would the 2-years keep running down while the court case was heard?

In normal times we would assume that someone somewhere in Whitehall was looking at this, discussing it behind the scenes with EU lawyers and making a contingency plan. But when a senior government minister can come before a Commons select committee and revel in his government’s ignorance and lack of preparation, these are clearly not normal times.

There is a great quote on one of those demotivational slides which is a warning to anyone about to embark upon a major change:

When the winds of change blow hard enough, the most trivial of things can become deadly projectiles.

This may be one of those trivial things. Let’s hope it never gets much of a wind behind it.


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25 Responses to Brexit: Could there be a legal challenge to trade negotiations?

  1. Gary Taylor says:

    You haven’t produced much (anything?) that shows a legal basis as to why trade negations cant be conducted in parallel. What you have shown though is a clear political basis, grounded in the notion that “the UK should be no better off as a consequence of leaving the EU” (forget where I saw that quote from EU).
    What spiteful, petty, bad faith operators are we dealing with here? Hardly a great advert for prospective members to their club (or to existing members even).

    • Mick says:

      If just following normal legal procedure doesn’t fit in with brexiteers’ shambolic planning strategy, I think you should be looking at who created this mess rather than throwing blame around like confetti in the general direction of the largest trading block in the world. Why any country, especially one already granted special privileges, should think they are above the law and should want to be outside said block beggars belief.

    • bill40 says:

      Yes, the EU is terrified of making unpopular decisions, just ask Greece.

      • Gary Taylor says:

        Indeed. Proof positive that EU membership is not a one way bet on progress.

      • Blissex says:

        «the EU is terrified of making unpopular decisions, just ask Greece.»

        Indeed: the UK government vetoed the lending or spending of even a penny of EU money to help Greece.
        That was extremely popular in the EU, with the press saluting the Prime Minister as the defender of UK’s cash from wasteful help for the worthless greeks.

  2. martinned says:

    The logic would be that a framework under art. 50 TEU cannot, by logic of “same words mean same thing, different words mean different thing” mean the same thing as a trade deal under art. 207 TFEU. And outside of art. 50 TEU, there is no legal basis for the Commission to be given a mandate to negetiate a trade deal with anyone. So for the Commission to be given such a negotiating mandate anyway would be ultra vires art. 207 TFEU and art. 218 TFEU on the part of the Council, and for the Commission to negotiate without a mandate would be ultra vires those same articles on the part of the Commission. Either way, any deal negotiated in violation of the Treaty rules could be challenged before the ECJ prior to Brexit taking effect under art. 218(11) TFEU.

    Personally, I agree with prof. Peers that they’ll fudge it somehow, but I’d give even odds on the chances that someone will take the ultimate Brexit deal to the ECJ. And what they will do is anybody’s guess. (It’s been 10 years since Lisbon and the EU has still not joined the ECHR.)

    • Blissex says:

      «And outside of art. 50 TEU, there is no legal basis for the Commission to be given a mandate to negetiate a trade deal with anyone»

      In particular TEU art. 50 does not empower any *permanent* exit deal, only a temporary deal, as membership must end at the end of the notice period (extended or not). But also there are two important detailts:

      * TEU art. 50 empowers the *EU Council of heads of government*, not the EU Commission, to appoint an exit negotiatior and to set negotiation policy for the temporary exit deal, and to vote on the temporary deal, if any.
      * Deals can be *negotiated* by the EU commission, but they can only be *ratified* by the EU Council, and usually they must be ratified by each member state, as most deal contain details that exceed the authorities given to the EU Council by TEU/TFEU on trade.

      «they’ll fudge it somehow»

      They cannot/should not/too risky, therefore overall the title of this post makes very little sense: because of the extreme sensitivity of EU member countries to “loss of sovereignty” all collective EU decisions are subject to the strictest interpretation of delegated powers.
      Therefore the EU Council’s exit negotiator or the EU commission or the EU Council itself will be extremely careful to do nothing that even remotely might be regarded as being beyond what is enabled by the EU treaties, or even testing those boundaries.
      Especially in the case of negotiations with England where english eurosceptics have largely motivated their campaign with the wish to remove the national humiliation of having England be “just a member” subjugated to the EU and to decisions made by “unaccountable, undemocratic” foreigners plotting abroad to turn the EU into a «dictatorial superstate».

      «I’d give even odds on the chances that someone will take the ultimate Brexit deal to the ECJ»

      If the EU27 governments and the UK reach any kind of deal, especialy a permanent one, short of hard, full exit into third party+WTO status,k by pushing the boundaries of TEU article 50, it seems very likely to me that the full-clean exit english campaigners like the well funded ones in the “Leave means Leave” group will probably challenge that as being “ultra vires”.

      • Blissex says:

        «membership must end at the end of the notice period (extended or not).»

        There is another interesting if probably theoretical detail: if the leaving country and the other members agree unanimously to an extension of the 2 year notice period, that extension can have any agreed duration whatsoever, even 999 years, and in my reading there is no way for it to be shortened once agreed, because there is no mechanism in TEU art. 50 for giving notice of termination of an extension of notice, only of regular membership.
        I can imagine that extreme “Leavers” will lose their sleep over that :-).

  3. Jim says:

    Why do you keep taking anything that spokesmen and women for the EU take as Gospel? We are in a geo-political treaty negotiation scenario, of course they’re going to say ‘You can’t do X, Y and Z, because the rules say you can’t’, they’re hardly going to bend over backwards to help from the off.

    And we all know the rules mean nothing to the EU, they bend them and ignore them exactly as they please when they want to, and they’ll mean nothing in these negotiations either, once they start. At the moment its all just PR hot air, designed to try and shore up the respective positions.

    This is a political negotiation, whatever the parties decide they wish to happen will be made legal afterwards, rather than the other way around. Stop pretending otherwise.

  4. Dipper says:

    Matt Ridley has some interesting thoughts on trade negotiations here http://www.rationaloptimist.com/blog/brexit-and-free-trade-agreements/

    His conclusions are two-fold. There is a kind of Parkinsons Law about negotiations, so that the people you hire to negotiate on your behalf have a vested interest in making the process as lengthy, tortuous and difficult as possible. Secondly the supposed cliff edge is nothing of the sort.

    The situation here is compounded by the fact that the UK is negotiating with an organisation that has an ongoing internal power struggle between the European Commission and the member states. Either side could try to scupper a successful negotiation simply to gain advantage over the other European side.

    I think there are grounds for going for a quick exit on WTO rules and commencing negotiation in short order on a Free Trade Agreement. This will get the incentives right.

    • Gulliver says:

      The original Matt Ridley column in The Times, which your link expands upon, is the object of an official IPSO compliant from Dr Richard North of eureferendum on the grounds of its inaccuracy with intention to mislead. Indeed The Times article was comprehensively debunked on North’s blog: –

      http://www.eureferendum.com/blogview.aspx?blogno=86407

      And on the subject of Viscount Ridley, when recalling how the 2008 financial crash affected his then Bank, Northern Rock he said: –

      “We were all taken by surprise by that. There was almost nobody who saw it coming. Those who did were not in the right place to warn everyone else”

      I suspect Viscount Ridley may be “taken by surprise” again on the impact WTO rules will have on the British economy.

      • Dipper says:

        So we have a disagreement. Who to side with? It isn’t clear. For instance Dr North points out that these super-quick trade deals included lots of regulations and rules negotiated over many years prior to Tony Abbott hurrying things up. What neither of us knows is how important those bits were to the final agreement. Were they the essential building blocks? Or just waste paper at the end?

        My own experience implementing financial regulations in large financial institutions has been that a lot depends on the regulator. Some will delay and delay until all t’s are crossed and i’s dotted. Others implement on a date and enable variance to the letter whilst full conformance is achieved. And if you ask a Lawyer for a definitive view on what will happen when new rules are introduced they invariably say “This is untested. The judge may think this, or the judge may think that. It is up to you to make an assessment of legal risk and make a business decision. Here’s my bill.”

        And so to the UK leaving the EU and facing the possibility of WTO rules. How will the WTO react?

        I looked up the WTO website and it is quite clear that the “primary purpose is to open trade for the benefit of all” and “The WTO provides a forum for negotiating agreements aimed at reducing obstacles to international trade and ensuring a level playing field for all, thus contributing to economic growth and development.”

        So there we have it. The settled democratic will of the British people as expressed in a referendum and in parliament is to leave the EU. We wish to trade more openly with the rest of the world. It is hard to see why any organisation would not support that. The EU is on distinctly dodgy democratic ground when it says they must ensure we suffer for it. And the WTO would not be acting consistently with its own principles if it were to prevent trade between willing nations.

        There are leaders and there are advisers. The Remain side seem to have a lot of advisers trying to lead. But as my old MD liked to say, sometimes you need to ask permission a little less and ask forgiveness a little more. And sometimes Leaders just have to front up and call peoples bluff.

        • Gulliver says:

          Yes a disagreement, nice way of putting it.

          You may be interested to learn that the initial complaint made direct to The Times about Viscount Ridley’s article was rejected because, citing the ‘authority’ of Wikipedia, they could not find any Trade deals with the USA, China or India. The USA alone has, I believe, 22 separate trade deals with the EU that have little to do with the WTO. Rather than looking at Wiki, had they consulted the EU database they may have got a more definitive answer.

          The formal IPSO complaint can be seen here and you may find it interesting with respect to your reference about waste paper –

          http://www.eureferendum.com/documents/TimesIPSO001.pdf

          The thrust of the argument is not that we cannot trade under WTO rules, nor that we cannot make trade deals. The argument is that trading under WTO rules alone (the No Deal option) would cause considerable damage to the UK economy and that negotiating trade deals takes a long time, considerably longer than 2 years.
          You are correct to say that “the settled democratic will of the British people as expressed in a referendum and in parliament is to leave the EU” and I don’t believe Dr North (one of the original Leaver campaigners as it happens) is saying any different. The point of contention is the nature of how we leave, and whether we leave in such a way that mitigates the damage to the UK economy.

          People like Viscount Ridley, Dan Hannan and, worryingly, ministers charged with negotiating leave seem to believe that trade deals are quickly and easily struck (the evidence of past trade deals seems to dispute this) and that WTO is a viable fall-back position if they are not. I believe these people are either misinformed or misleading the public. Take your pick.

          • Dipper says:

            so lots of consultants, trade negotiators and lawyers say unless you employ their very expensive services you are doomed to fail.

            I think it would take two willing parties about a day to put together a trade deal by simply cutting and pasting large chunks of existing trade deals.

            Funnily enough the pm programme recently had an interview with advisors to Gordon Brown about his failure to call an election. One said that the lesson was there are always people who can tell you about why you shouldn’t do something, about the risks involved, why doing nothing was the safe option, and in Gordon Brown’s case he shouldn’t have listened to them but should have gone with his instinct. Quite.

          • Dipper says:

            Free Trade Agreements – here’s one I did earlier.

            for meat products between UK and another similar nation e.g. Canada.

            1. Meat that meets requirements in either country can be exported to the other and sold with no tariffs.
            2. Either side may query the documentation and status of imported meat with the other countries regulatory body and expect to see similar investigations and punitive actions as would be done to infringements in the domestic country.
            3. Transportation to meet transportation standards of the importing country.
            4. Any disputes to go to the WTO and dealt with under the WTO dispute settlements process.

            That should work day 1?

          • Gary Taylor says:

            So whats for lunch?

  5. bill40 says:

    To borrow an expression, framework means framework. The framework in this case is our immediate trading agreement once the article 50 negotiations are completed. An example of that framework would br remaining in the single market and/or customs union or choosing to remain in EFTA or Norway/Switzerland model. In the event of choosing none of the above the only available option is WTO rules, ie, the cliff edge.

    It could well be from there that we could arrange trade deals with other trading blocks and countries, including the EU that leaves us in an overall better position than where we started. There is, however, no evidence that this will be so, it’s a leap of faith.

    That’s why brexit will never happen.

  6. MJW says:

    In realpolitik terms it boils down to 2 problems.

    Firstly, at member level there is politics vs economics, it makes economic sense to do most mutually beneficial trade deal, allowing for some opportunistic horse trading. But the political element is the need for UK to get worse deal to signal illusion of EU strength precisely because EU is on such weak ground at present (whether anyone buys the illusion is almost irrelevant).

    Secondly, there is the client agent problem. For the professional apparatus of the EU Brexit is an existential challenge to the money go round that must be punished, it’s narrow interests are clearly different from the national members it theoretically represents. Key leaders of member states need to remind the leaders of EU apparatus they exist in a largely patronage based hierarchy, and that patronage is in the gift of the member states. So the key member states need to lean on their clients in the EU apparatus to make sure national interests take precedence over more venal instincts.

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  8. Blissex says:

    «”Legal experts say the UK could argue its official status has changed once it invokes Article 50″»

    The UK government can argue anything but nothing in TEU article 50, or any other article, says that membership status changes at any time before the end of the notice period.

    «An example of that framework would br remaining in the single market and/or customs union or choosing to remain in EFTA or Norway/Switzerland model. In the event of choosing none of the above»

    That is not in the unilateral power of the UK government to choose, or for the EU exit negotiator or the EU Commission etc. to agree if the UK government proposes it. All those “deals” require new treaties to be ratified unanimously by all member countries on all sides.

    «the only available option is WTO rules, ie, the cliff edge. »

    The expressions «taking into account the framework for its future relationship» simply means «taking into account the status of third party the country will gain after exit including the effect of whatever non-EU treaties the third party country will have at that point». Those treaties are basically the various WTO general agreements.

    Put in yet another away «framework for its future relationship» means “that it will have lost membership and become a third party”, which is exactly what “Leave” is all about.

  9. Blissex says:

    «If she is right, the triggering of Article 50 next week will take us straight to trading under WTO rules two years from now.»
    «there’s a bit of posturing going on here and the law isn’t really clear»

    As I argued in a previous comment the EU institutions cannot give in this case even the faintest impression that they are willing to push the boundaries of what the EU treaties empower them to do, so the need to take a very conservative interpretation of those cases where «the law isn’t really clear».

    As to this I suspect that the UK government has already gone in the past 9 months through that discussion, because something very important has changed:

    uk.news.yahoo.com/five-things-we-learned-about-brexit-during-question-time-083614578.html
    «There will be no ‘half in, half out’ measures – Mr Davis said Britain had voted to leave the EU and that meant no access to the single market by paying contributions to the EU. He said that while initially saying the Government would consider it, the Prime Minister later told him it would not happen.»

    Now what could have changed the position of the PM to simply give up, not even try to ask, to maintain access to the Single Market? My guess is:

    * The only aspect of trade that the UK government really cares about is trade in financial services, that is the profits of their sponsors in the City. They semi-correctly assume that trade in goods can be sorted out some way or another, but correctly realize that trade in services is a far more difficult topic.

    * The UK government has realized that there is no way the EU27 countries will give full access to the Single Market/EEA to any financial services business based outside the EU and regulated and monitored outside the EU, especially if they are from the City and thus would likely dominate EU financial markets without being subject to EU27 governments regulation and monitoring.

    * If there is no chance of full access to the Single Market/EEA for the City, then for the UK government it is not worth being in the Single Market/EEA even transitionally, just for trade in goods, given that doing so also involves freedom of movement of labour and capital and regional fund contributions.

    I find significant that Dr. North’s blog, even if he seems to me an extreme/fanatical “Leaver” who I think supports the statement «I despise and loathe the EU, virtually everything about it and its dictatorial superstate destination», contains a lot of discussions in great detail of issues related to trade in goods but not that much about trade in financial services, which are far more important politically and perhaps economically.

    • Blissex says:

      «the EU institutions cannot give in this case even the faintest impression that they are willing to push the boundaries of what the EU treaties empower them to do«

      Indeed:

      https://www.theguardian.com/politics/2017/mar/29/first-eu-response-to-article-50-takes-tough-line-on-transitional-deal
      «A withdrawal agreement, covering financial liabilities, citizens’ rights and the border in Ireland, will need to be accepted by a qualified majority of 72% of the EU’s remaining 27 member states, representing 65% of the population. The agreement would then need to be approved by the European parliament, voting by a simple majority.
      Barnier has said that any free trade deal, to be struck after the UK leaves, would be a “mixed agreement” requiring ratification by the national parliaments of the 27 states, plus consent by the European parliament.»

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