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The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.
The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.

Bruges Group Blog

Spearheading the intellectual battle against the EU. And for new thinking in international affairs.

Independent Trade arbitration is a right, so why is the EU flouting it?

Felixstowe Felixstowe

As negotiations began the week of an EU summit on the 15th October, there was talk of the EU pressing their chief negotiator Michel Barnier to insist on tough enforcement rules for any UK trade deal. This came as a result of their shock to the Internal Market Bill, yet while any dispute resolution mechanism is normal for any trade deal, the words 'autonomous' and 'rapid' used to describe such EU proposals speaks to dangerous and discriminatory waters for the UK.

The FT reports that the German government was spooked by the PM's bill after Rt Hon Brandon Lewis MP stated that it would only break the law in a 'very specific way'. As a result, they are leaning toward the hardliner countries led by Macron; demanding that they have the right to take measures even before a dispute settlement panel has ruled. This would include "cross-retaliation" against different sectors of the UK economy in response to any action that they see as hostile. This opportunistic mercantilism has not only been manufactured as a punishment waiting in the shadows for the UK, but it is inconsistent with the terms of past EU trade deals and could be further encroachment to UK sovereignty through ECJ judgement and oversight.

Dispute settlement is an integral part of our globalised world; In part to solve issues but overall its function is to stop a return to damaging tit for tat tariffs seen during the early 20th century. It doesn't just serve to protect customers from paying higher prices but helps provide development and investment through certainty and confidence in the rule of law and that cooler heads will prevail through proper arbitration. However, in spite of these proven and established anti-protectionist conventions, the EU leaders seem to regard them differently, in particular when signed bilateral EU trade deals are compared with these EU-led developments on the future EU-UK.

To illustrate, the EU-Canada trade deal lays out in intricate detail the fair and universal EU dispute mechanism - nearly identical to their other bilateral agreements. This includes a panel hearing, that can't have any of each Party's nationals on it, that takes into account past decisions of the WTO, and has an agreed 45-day period from the start to simply respond to the other Party's claim. All of which happens on the understanding of no pre-emptive actions taken by either side. A calm, orderly and modern method to respond to a supposed break in the agreement, something which the EU seems intent on not extending to the UK.

The proposed hardliner stance to take actions even before any resolution panel is formed, let alone ruled on any dispute, undermines the qualities of the system set up under the principles of the WTO. The demands erode the promotion of friction-less trade, harkening back to a time gone by of maximised exports and minimised imports of 17th century trade theory. One can think that the negative effects will only be felt by the UK, but the bloc, especially the exporters of the Netherlands, Belgium and Denmark, will suffer the same negative effects from any trade infractions. Moreover, these proposed measures reek of unjust treatment in comparison to the standard use of no action without prevention in EU trade deals and opens up more questions about fair governance of the deal.

The exact governance of any trade agreement is yet to be negotiated, as it's another major sticking point. But if these developments for 'autonomous' measures and based on past behaviour then the insistence on the ECJ as arbitrator shouldn't shock anyone. The Withdrawal Agreement (WA) already allows ECJ case law to have supremacy over UK law in Article 4(5), as seen below, the EU will most likely insist that the ECJ should also have governance over the trade deal as well. Effectively producing one sides bias rulings, since the UK has no ability to nominate judges onto the court, leaving the Commission and ultimately the leaders of the EU with the main sway of power over any trade disputes.

WA Article 4(5): '…the United Kingdom's judicial and administrative authorities shall have due regard to relevant case law of the Court of Justice of the European Union handed down after the end of the transition period.'

This will lead to a situation where the UK has no retort to hostile trade actions, no ability to influence the interpretation of the treaty and ultimately no influence on rulings on any trade disputes stemming from a UK-EU trade deal.

After the push for 'autonomous' measures came to light, David Frost repeated that Britain is willing to discuss commitments on state aid policy that would go further than usual in normal agreements. These new proposed measures from the EU go in the opposite direction of his statement if taken seriously and not just seen as more sabre rattling in order for us to relent on other sticking points. Probable or not the dangers stemming from these 'autonomous' measures stand either way.

Yet after the leaders of the EU bowed to Macron's demand over fishing rights, a deal looks far less likely. Despite the fallout from no-deal affecting French fisheries worse than under a deal, Macron seems content on scuppering progress as to not lose face in the eyes of his own voters. Right now, both sides cannot afford to lose months of negotiations in such a short time over hollow and unrealistic pledges. Despite the Internal Market Bill, Britain has showed it's commitment to finding a deal and been reasonable with it's demands but still caution is needed for these next two weeks - now is not the time to for either side to gamble away this opportunity. 

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