Listen to this final “Brexit Musing” episode with John Bruton, the former Irish Prime Minister (Taoiseach) and former EU Ambassador to the United States who will share his wisdom on what Brexit means and his thoughts moving forward with regard to not only the UK and EU, but also the U.S.
Category: Trade Agreement
The Trade and Cooperation Agreement between the EU and the UK is an exercise in damage limitation. The UK will face numerous obstacles because of its decision to leave the EU, including leaving the Customs Union and Single Market.
But it was in nobody’s interest to add to these obstacles. That was the spirit in which the EU approached the negotiation.
The Agreement may run to 1256 pages, but it boils down to some fairly simple and sensible ideas.
While no longer a member of the EU, the UK still wants to do business with the EU, and the EU members want to do business with it.
So, for the future, there needs to be a system for ensuring that there are no surprises, or unfair trading , that would disrupt mutually beneficial business. That is essentially what the Agreement is all about.
While the UK was a member of the EU, that goal was achieved by having a common set of business rules, made democratically and together, and interpreted in a consistent way by the European Court of Justice (ECJ). These rules could be enforced in national courts. In other words the goal of predictable and fair business conditions between the UK and its fellow EU members was achieved directly by common action.
Under the new Agreement, the same goal will be pursued, but indirectly.
Common rules, made and interpreted in common, will be replaced, as far as trade between the EU and the UK is concerned, by understandings set out in the Agreement, which will be interpreted by arbitrators appointed under the Agreement.
These understandings will have legal force, but will generally only be enforceable under the procedures set out in the Agreement, rather than directly in national courts.
While the EU and the UK will each be free to determine their own policies on the environment, social and working conditions, and subsidy controls, Article 9.4 of the Agreement allows for “rebalancing” measures to be taken by the other side if it feels its own businesses are being put at a disadvantage. This is supposed to restore the level in the level playing field.
The Agreement contains principles, now to be enshrined in international law through the Agreement, that are shared by the EU and the UK. These cover environmental, social and subsidy issues. Arbitration Tribunals to be set up under the Agreement will interpret these agreed principles in specific cases. They will have a legal, but also a political, task.
Most of the text of the Agreement is taken up with procedures for resolving disputes.
Matters, currently resolved in national courts under EU law, will have to be resolved at inter state level between the UK and the EU, rather than in the national courts. This is inherently more cumbersome.
Sometimes the issue will be settled by political agreement in one of the myriad of committees set up under the Agreement.
ARBITRATION…. THE CORE IDEA
If the issue cannot be settled in this way, it will go the arbitration.
So, instead of the interpretation being done by Judges of the ECJ, they will be done by an Arbitration Tribunal set up under the Agreement.
An Arbitration Tribunal will consist of three people. There will be lists of qualified arbitrators from which the three may be chosen, one by the UK and one by the EU and the Chair of the Tribunal will be someone who is not from EU or the UK.
I think this idea that the chair must come from outside either the EU or UK may prove difficult. It will not always be easy to find suitable chairs who are not either British or EU citizens, especially as the work will have to be done at short notice and under tight time limits.
To qualify for appointment, an arbitrator will have to have “demonstrated expertise in law and international trade” . They will all have to be people “whose independence is beyond doubt”. They will serve in their individual capacities, and not take instructions from anyone. They will have to be people who would qualify to be judges in their home countries.
I suspect there will be a lot of intense haggling over the composition of particular Arbitration Tribunals. The nationality of the arbitrators and their past records will be scrutinised by the governments most affected by the issues in dispute.
There are detailed provisions in the Agreement to prevent stalling by either the EU, or the UK, in appointing Arbitrators. Once established, the Tribunals will have to deliver their ruling within 130 days . Within 30 days after that, the affected party will have to say how they will comply with the ruling.
This entire structure of dispute resolution will be presided over by a Partnership Council to be chaired jointly, by a UK Minister and an EU Commissioner. It will be assisted by over 20 specialised committees and a number of Working Groups, all of which are listed in Title III of the Agreement.
EVEN MORE MEETINGS THAN BEFORE!
I expect that there will, in the future, be even more EU related meetings for UK officials than in the past. But the dynamic will be different.
Instead of being able to build alliances on particular topics with other EU member states, the UK will in future find itself alone in the room with the European Commission.
The Commission side will have instructions, negotiated in advance with the 27 member states, so there will be a high degree of rigidity in the process.
As the EU member state most affected by relations between the UK and the EU, this will be a particular challenge for Ireland. Irish officials in Brussels and will have to stay on top of all that is going on in the various EU/UK committees. Cultivating an understanding with the Commission officials serving on these committees will be a priority.
No longer in the EU, the UK will, notwithstanding the provisions of the Agreement, encounter significant extra bureaucracy and uncertainty in doing business with the EU.
PARTING COMPANY GRADUALLY
This will lead to a gradual divergence between the UK and all its European neighbours, including Ireland. That, in turn, will have cultural and political effects.
The UK, and the EU states including Ireland will, so to speak, be mixing in different company .They will increasingly be seeing the world from diverging angles of vision. Issues that were previously depoliticised will become more political.
Eventually, this may affect the way the UK sees its physical and military security. NATO is already under strain, and Brexit creates a new fault line within NATO.
While Ireland is not in NATO, we live in a part of the world which has sheltered under the NATO umbrella, and we are deeply interconnected with NATO’s biggest member, the US.
Brexit may be over and done with, but the forces which led to it…identity politics and suspicion of foreigners….have not gone away.
The UK government will shortly begin the negotiation of a free trade agreement with the European Union. The deal Leo Varadkar made with Boris Johnson, on the location of border controls, will be vital in keeping the UK close to the EU.
Before the negotiations start, the EU will have worked out a detailed negotiating mandate, drawing on its experience of previous international trade agreement into which it has entered, of which there are many.
Once finalised, the EU mandate will become public, making any departure from its terms difficult.
This is especially important if, as is likely, the final agreement has to be approved by the national parliaments of each of the 27 member states. If the eventual agreement goes beyond a bare bones trade agreement covering goods, and includes services as well, ratification by all national parliament will be likely to be required.
On the UK side, it is assumed that similar work is now under way. But the task for the UK is bigger than that of the EU.
The UK also needs to negotiate replacement agreements with all the other countries, with which it now has agreements as an EU member, but which will lapse once the UK leaves the EU.
In addition, the UK will also be hoping to negotiate an agreement with the US.
The demands of the other countries, with which the UK will be negotiating trade agreements later, will not necessarily be compatible with what the EU will want in its agreement with the UK. Chlorinated chicken from the US is a case in point.
The UK will probably have to conclude it deal with the EU first, because of the very tight timelines that the UK has chosen to impose on itself in the Withdrawal Agreement. The UK may find itself having to make concessions to the EU at the expense of other potential future trade partners. Alternatively, the UK may gamble on getting a better deal from the US or someone else, and thus sacrifice markets in the EU, in favour of a yet to be agreed deal with the US, or someone else. In this, agriculture will be a key battleground, with vital Irish interests at stake.
It will be high stakes poker played against a tight deadline. Until the negotiations are under way, it will not be clear exactly where all the difficult choices, may be.
The Agreement that the EU has with Canada is a model that may be followed. This Agreement provides for free trade in most goods, but not services. It has detailed chapters, accompanied by principles and dispute settlement mechanisms, on issues as diverse as technical barriers to trade, dumping, subsidies, public contracts, state enterprises, competition policy, intellectual property, environmental standards, telecoms, water quality, fisheries and agriculture.
As an EU member, the UK has settled understandings on all these matters with its 27 EU partners. Tt the end of this month, that will change.
Outside the EU, the UK will have the freedom, unilaterally, to depart from its present EU based standards, and make its own rules. Boris Johnson has said this is the “whole point” of Brexit.
The EU has no way of knowing what changes this, or a future, UK government might make in social, environmental, or product rules. Political assurances from the present UK government will be of little value. The EU side will demand legally binding assurances that will tie the UK down, no matter who is in power in Westminster. All sorts of hypothetical situations will have to be anticipated. Appropriate penalties will have to be agreed in principle.
Both sides will need to make new rules from time to time, as new challenges emerge.
As an EU member, the UK has had a democratic say in new EU rules. Outside the EU, the UK will have to rely on diplomacy, rather than democracy, to protect its interests.
If the EU/ Canada Agreement is a guide, a multiplicity permanent committees of EU and UK officials will have to be set up, on a permanent basis, the iron out disputes if standards diverge. Arbitrators and judges will be needed.
“Taking back control” will not turn out to be as clean, or as simple, as Brexiteers expected.
A huge challenge will be that of ensuring there is a “level playing field” between UK and EU firms, doing business in one another’s markets. If either side changes its labour, social or environmental standards in future, in a way that reduces costs for its firms , there are liable to be complaints that the playing field is no longer level. The playing field will not be level if the value of sterling is kept artificially low, or if the UK allows the importation of cheap inputs, that the EU had banned.
Level Playing field issues, like these, arise in every trade negotiation, especially between close neighbours. For instance, the US has recently insisted on changes the Mexican labour rules to protect US car makers from Mexican competition. It has complained about Chinese currency policy.
Permanent adjudication mechanisms will be needed established to decide if the playing field has, in fact, been skewed unfairly. Issues that are now ironed out informally in the EU Council of Ministers, or inside the Commission, may, in future, become the subject of high profile disputes. This will mean more uncertainty for business and may inhibit investment. Many of these disputes may involve Ireland.
The best hope of reducing disputes is if UK policy stays close to EU policy. The more UK rules diverge from EU rules, the more severe will have to be the controls that the UK will have to impose , within the UK itself but across the Irish Sea, on goods entering Northern Ireland, which might eventually enter the EU Single Market through Ireland. The UK will want to avoid this. The UK government will have a strong political incentive to minimize the scale of these barriers within the UK .
So thanks to Leo Varadkar’s deal with Boris Johnson in the Wirral, the UK will have a strong incentive to adopt standards close to, the same as, those of the EU. That will be the ONLY way to avoid trade barriers within the UK. If so, Leo Varadkar will have earned an important place in European history.