Lines in the sand

With ‘Brexit done’, the Withdrawal Agreement and the Trade and Cooperation Agreement now govern the ‘divorce settlement’ between the EU and the UK. Cormac Little assesses the lines in the sand.

Brexit has finally happened.

The UK left both the EU and the European Atomic Energy Community (‘Euratom’) on 31 January 2020. The terms of this departure are governed by the Agreement on the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the EU and Euratom.

After the Withdrawal Agreement was ratified, the parties entered a transition period where, although the UK was no longer represented in the workings of the EU institutions/agencies, EU law continued to apply in full.

In the run-up to the 31 December 2020 deadline, the EU task force and the UK negotiating team engaged regarding the scope of the future relationship between both jurisdictions, bearing in mind the UK’s decision to leave the EU’s single market/customs union.

The decision to leave the former means that EU principles of free movement no longer apply in the UK.

After various real and imagined crises, the parties eventually agreed a Trade and Cooperation Agreement (TCA) on 24 December 2020.

Together, the Withdrawal Agreement and the TCA now govern the economic and other aspects of the relationship between the EU and the UK.

The primary purpose of the Withdrawal Agreement is to offer legal certainty, given that EU law no longer applies in the UK.

The agreement seeks to protect the rights of residence and other rights of both the over three million EU citizens residing in the UK, and the more than one million UK citizens living in the EU, while ensuring that both the EU and the UK abide by any financial commitments made while the latter was a member state.

The agreement also contains various implementation measures and dispute-settlement mechanisms.

An example of the former is the establishment of a joint committee comprising representatives of both sides.

Cognisant of the significant risks of the potential impact of Brexit for the political and economic situation on this island, the Withdrawal Agreement also contains a protocol on Ireland/Northern Ireland (NI Protocol). Including its various other protocols and annexes, the Withdrawal Agreement runs to 177 pages.

The TCA creates a free-trade area with no tariffs or quotas on the importation/exportation of goods between the EU and the UK.

That said, mindful of the need to ensure that the UK does not enjoy the same benefits outside the EU as it did when it was a member state, the TCA does create new trade barriers and obstacles to free movement.

To mitigate these risks, the TCA establishes various cooperation mechanisms, while ensuring a level playing field for fair competition. The TCA does not apply to any trade in goods between the EU and Northern Ireland. This activity is governed by the NI Protocol.

In addition to the import/export of goods, the TCA covers other sectors, such as services, transport, fisheries and public procurement. Like the Withdrawal Agreement, the TCA contains dispute-resolution provisions.

Including its various protocols and annexes, the TCA is a mammoth document, coming in at nearly 1,500 pages.

Direct effect of the WA

Given the importance of legal certainty, most notably for its citizens residing in the UK, the EU was keen to ensure the justiciability of the Withdrawal Agreement. Accordingly, article 4(1) of the agreement stipulates that its provisions, meeting the conditions for direct effect, may be relied upon in proceedings before the UK courts, as well as in the national courts of each EU member state.

Indeed, article 4(2) requires the UK courts to set aside any domestic measure (including primary legislation) that infringes the agreement. In other words, the Withdrawal Agreement has a similar status to EU law and, thus, the doctrine of supremacy applies.

In addition, article 4(3) obliges the parties to interpret the Withdrawal Agreement in accordance with the general principles of EU law. For example, the agreement must be interpreted in a manner consistent with the Charter of Fundamental Rights of the EU.

In such litigation, the UK must, under articles 4(4-5), follow the case law of the EU courts up to 31 December 2020, while paying due regard to such precedent after that date.

Taken together, the UK must be careful to avoid any risk of infringing the agreement; otherwise, the relevant domestic legislation (or other national measure) may be challenged.

Indeed, one can certainly envisage a situation where an EU citizen (or his/her family), whose rights to live, work or study in the UK might have been undermined, would seek redress before the UK courts.

Finally, in the event of a dispute between the EU and the UK regarding the Withdrawal Agreement, articles 167 to 181 contain the relevant settlement provisions.

If the dispute is not resolved by the Joint Committee, it may be referred to binding arbitration. Any issues of EU law must be referred to the EU’s Court of Justice.

NI Protocol

The main aim of the NI Protocol, which entered into force on 1 January 2021, is to protect the 1998 Good Friday (Belfast) Agreement, while safeguarding the integrity of the EU’s single market.

In order to avoid a hard border on this island, Northern Ireland remains aligned to certain EU single-market provisions regarding goods, so-called sanitary and phytosanitary requirements for the protection of human/animal and plant health, and state aid.

In terms of people, article 3 of the protocol provides for the continuation of the Ireland/UK Common Travel Area, whereas, in terms of goods, article 4 provides that Northern Ireland is part of the UK customs territory.

Indeed, article 4 also stipulates that Northern Ireland may benefit from any further trade agreements the UK may conclude with third countries, provided that such treaties do not prejudice the application of the NI Protocol.

Under article 5(1), EU customs duties will apply to any goods imported into Northern Ireland if such products are at risk of subsequently being exported to the EU. However, no EU customs duties will apply to goods entering Northern Ireland from Great Britain that are not at risk of entering the EU’s single market.

Under article 5(2), a good will not be deemed to be such a risk where it is not subject to commercial processing in Northern Ireland, while fulfilling the criteria set down by the Joint Committee. In this regard, the Joint Committee considers various factors, such as final destination, nature, value, and use of the relevant good.

Article 10 provides that EU state-aid law will continue to apply to any measure that affects trade between the EU and Northern Ireland. Article 12 provides that any checks and controls on goods coming into Northern Ireland will be carried out by UK customs officials (under the supervision of EU representatives).

Border posts will ensure that the necessary sanitary and phytosanitary tests are done. Article 16 allows both the EU and the UK to implement unilateral safeguarding measures in instances of trade diversions or material economic, societal or environmental difficulties.

Any such action should be limited to what is strictly necessary in both scope and duration. Finally, both parties may respond by adopting appropriate rebalancing measures.

The TCA

Part Two, Title I of the TCA provides for no tariffs or quotas on the trade of goods between the EU and Great Britain.

In order for goods to qualify for the terms of the TCA, three key criteria must be met, specifically:

1. Rules of origin are applicable,
2. Customs regime of the importing party will apply (however, the TCA does limit the amount that may be charged for customs services provided),
3. All imports into the EU must meet EU standards. The TCA also allows for the adoption of trade-defence mechanisms, including specific measures to protect farmers against major deviations in the price of produce.

Part Two, Title II of the TCA provides for a significant level of open trading in services and investments going beyond the provisions of the World Trade Organisation’s General Agreement on Trade in Services (GATS).

The TCA, like the GATS, applies to a broad range of sectors, such as professional, IT and financial services, as well as investment in sectors other than services including agriculture, manufacturing and fisheries.

There are several exceptions to this trade liberalisation, including public services, services of general interest, certain transport services, and audio-visual services.

Since 1 January 2021, UK service providers no longer benefit from the ‘passporting’ concept that allows certain service providers to use an authorisation obtained in one EU member state to sell its products across the EU without having to obtain a permit/approval in each member state in which the firm seeks to operate.

Accordingly, UK service providers wishing to trade in the EU may need to establish themselves in an EU member state.

The TCA also contains non-discrimination provisions that entitle service suppliers or investors from the EU to be treated no less favourably than UK operators within the UK, and vice versa.

Level playing field

Given the geographical proximity and economic interdependence of the EU and the UK, Part Two, Title XI of the TCA contains various commitments to ensure that there is a level playing field for open and fair competition, while contributing to sustainable development.

In other words, the TCA seeks to prevent trade distortions caused by the lowering of standards in the following general sectors: employment, subsidy control, unfair tax practices, social protection, and environment/climate change.

In addition, specific measures will be applied in key sectors, such as aviation, energy and financial services. The TCA provides that potential infringements may be challenged in the UK courts or in the national courts of an EU member state.

If the alleged breach of the level playing field is upheld, the courts are empowered to order the beneficiaries to pay back the illegal subsidy.

In addition, disputes between the EU and the UK regarding the level playing field may be submitted to arbitration.

Finally, both the UK and the EU may take unilateral remedial measures (for example, the reintroduction of tariffs or quotas) where the other party grants a subsidy that materially undermines trade or investment.

Dispute resolution

Part Six of the TCA contains provisions designed to resolve disputes that may arise between the EU and the UK on the interpretation or implementation of their commitments under the TCA. This is a wide-ranging mechanism that covers disputes arising in trade, the level playing field, plus social security, energy, transport and fisheries.

Law enforcement and judicial cooperation have separate dispute-resolution mechanisms. Initially, in the instance of a dispute, there is a good-faith obligation to attempt to resolve it. If this is unsuccessful, an independent arbitration tribunal is established, at the request of the complaining party.

The EU and the UK jointly choose the three arbitrators, who must deliver a binding ruling within a set timeframe.

Overall assessment

The TCA represents probably the first free-trade agreement to create rather than reduce or eliminate trade barriers. However, this was unavoidable due to the UK Government’s approach to negotiations with the EU, based on its interpretation of the result of the June 2016 referendum.

As we have already seen, certain provisions of the TCA/Withdrawal Agreement, including the NI Protocol, have given rise to major controversy.

There is no doubt that this trend will continue, with the minutiae of both agreements likely to be criticised by politicians, renegotiated by public servants, and interpreted by judges for years to come.

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