Derrick Wyatt writes that the Trade and Cooperation Agreement (TCA) which came into force between the UK and the EU on 1st January 2021 is described as a “hard” Brexit because some politicians had argued that a “soft” Brexit was possible. A soft Brexit would have meant continued participation by the UK in a customs union with the EU, and/or in the single market. Neither of these options could have been implemented in a way which would meet the needs of both the UK and the EU, and a soft Brexit was never going to happen. The TCA is a significant event, for all its inevitable shortcomings. It signals that the period when Brexit dominated the relationship between the EU and the UK is over. The UK’s largest opposition party has ruled out seeking to renegotiate the agreement if it comes to power in 2024, and it has ruled out rejoining the EU. In economic terms, the TCA is similar to trade agreements between the EU and countries such as Canada and Japan, with a number of additional features taking account of the close proximity and specific mutual interests of the EU and the UK. These features include trade relations like road haulage, energy, aviation, and digital trade, but also cover cooperation with Europol and Eurojust, and potential participation by the UK in various EU programmes. The TCA provides the basis for a viable and evolving relationship between the UK and the EU, even if it cannot begin to match the advantages of EU Membership. The TCA establishes a partnership which describes as “essential elements” the upholding of democracy, human rights and the rule of law, and cooperation in combating climate change, and countering the proliferation of weapons of mass destruction. These are key commitments, serious breach of which by one party could lead to termination or suspension of the TCA by the other. The EU and the UK aim to cooperate in international forums on global issues such as peace and security, financial stability, and free and fair trade and investment. The UK will not be slow to play its part, and will wish to put behind it its recent ill-judged threat to break its commitments to the EU on Northern Ireland. The UK’s engagement with Europe is driven as much by geography, values and necessity as by the inclinations of any particular government or the contents of any particular treaty relationship. The same goes for the EU’s engagement with the UK. The President of the European Commission has said that Europe can now leave Brexit behind and look to the future. That is the mood of the UK Government too. It is time to move on. Perhaps a close non-union will prove to be sustainable than the UK’s often half-hearted membership of the EU.
This second part of a two-part article for FIDE examines in more detail three topics initially discussed in summary in Part I:
- why a soft Brexit could not provide a viable alternative to EU Membership,
- some aspects of the new Trade and Cooperation Agreement
- what comes next for the UK in its relations with the EU
The treatment of issues is selective, given the scope and complexity of the TCA. This article flags up and explains some issues from a UK point of view (e.g., the impact of the TCA on Northern Ireland or Scotland), but it offers an EU perspective too, and is written for all those who are curious about the TCA, and the new relationship it foreshadows for the EU and the UK.
A soft Brexit was always more problematic than its advocates would admit
In the aftermath of the UK referendum on Brexit in 2016, a number of remain-supporting politicians from across the political spectrum argued for a “soft” Brexit, involving continued UK participation in the EU customs union and/or the single market. These politicians rightly appreciated the potential damage Brexit would do to the UK economy, but seriously underestimated the difficulty of negotiating a workable customs union with the EU, as well as the political disadvantages to the UK of continued participation in the single market on the Norway (and Iceland and Liechtenstein) model.
A customs union between a non-EU country and the EU only works well as a short-term expedient, Turkey has discovered
If a non-EU country enters into a customs union with the EU, the result is distinctly one-sided, as Turkey’s partial customs union with the EU demonstrates (the customs union is partial because it does not apply to trade in agricultural products). Turkey commits to applying the same tariffs and quotas on industrial goods as the EU does to imports from non-EU countries. So far, so good. But while Turkey is bound by the EU’s agreements with third countries, it is not entitled to the benefits of those agreements, unless it manages to negotiate parallel trade agreements of its own with those countries. This doesn’t always happen. Since a country with a trade agreement with the EU gets tariff and quota free access to the Turkish market anyway, Turkey has little left to bargain with to procure its own free trade agreement with that country. In addition, Turkey has no say in the terms of any trade agreements that the EU negotiates with third countries, and might find itself bound to grant trade concessions it would not have wished to offer had it been negotiating for itself.
Turkey’s customs union made sense as a temporary strategy designed to pave the way for Turkish membership of the EU. As a long-term proposition, the customs union is not working well for Turkey, and for some years it has been selectively non- compliant and imposed tariffs on some products imported from the EU.
The Turkish experience tells us that a customs union with the EU might make sense in the short-term, for a country hoping to join the EU, but would not make sense on a long-term basis.
The UK’s Labour Party proposed a permanent customs union with the EU which would avoid the shortcomings of the Turkish model
Labour’s proposal in 2019 that the UK enter into a permanent customs union with the EU showed awareness of the defects in a customs union on the Turkish model. Turkey is bound by the EU’s trade agreements, but is not party to them and cannot insist on tariff-free access to the markets of the EU’s trading partners. Labour proposed a solution which would avoid the shortcomings of the Turkish model – if such a solution could ever be agreed.
The Labour Party’s proposed solutions – the UK would benefit from joint UK-EU trade deals, and have a say in their negotiation
In public statements, Labour indicated that the permanent customs union it would seek with the EU if it came to power would allow the UK “a say” in EU trade negotiations with third countries. In its 2019 manifesto, Labour referred to a “permanent and comprehensive UK-wide customs union” with the EU, which would allow the UK to “benefit” from “joint UK-EU trade deals”.
The EU would never have agreed to the UK having a say in the negotiation and conclusion of trade agreements after the UK had left the EU
The sort of customs union envisaged by Labour would never have been achievable in practice. For there to be “joint UK-EU trade deals” with third countries, and for the UK to “have a say” in the negotiation of such deals, the UK and the EU would have had to enter into an ambitious and unprecedented pact.
For the UK to enjoy the benefit of EU trade agreements, the EU and the UK would have to agree that the EU would represent the UK in trade negotiations, and that the parties to the resulting agreement would be the EU, the Member States (if the agreement were “mixed”), the UK, and the third country concerned. This would guarantee that the UK would secure the benefit of each agreement negotiated by the EU after entry into force of the customs union between the UK and the EU. But there would have to be much more.
The UK would have to be given a say in the negotiation and conclusion of trade agreements. That would mean giving the UK a vote of some sort, at least as a last resort, when the negotiating mandate for the Commission is agreed by the Council, and at the close of negotiations, when the Council agrees to sign an agreement which has been negotiated.
It might be said that the UK could be given, instead of a vote, the right to exclude itself from the text of the agreement in question, if it did not approve of the final text of the agreement. But this would not be a solution. It would leave the UK bound by the agreement, under the terms of its customs union with the EU, but unable to take advantage of the terms of that agreement in its trade with the third country concerned.
No UK Government would ever agree to being bound by trade agreements negotiated on its behalf by the EU unless it had a genuine say in the negotiation and conclusion of those agreements. Nor would the EU ever agree to negotiating trade agreements on behalf of the UK, if that meant giving the UK a say in negotiating and concluding those agreements, and in effect making the UK a sort of associate Member of the EU. That would be precisely the sort of “cherry-picking”, and claim to UK exceptionalism, that the EU has always rejected. The option of a permanent customs union with the EU, along the lines envisaged by the Labour Party in 2019, was never a practical option for the UK or for the EU.
The UK’s Labour Party has ruled out renegotiating the TCA and rejoining the EU
The Labour Party is the main opposition to the UK’s governing Conservative Party, led by Prime Minister Boris Johnson. It is the only UK political party apart from the Conservatives which could possibly form a government after the general election due to be held in 2024. The Labour Party voted in support of the TCA, on the ground that the only alternative was a no-deal, on 30th December 2020. On 10th January 2021 Labour’s leader, Sir Keir Starmer, confirmed that a future Labour Government would neither seek to renegotiate the TCA, nor to rejoin the EU.
Soft Brexit via the “Norway” option – participation in the EU single market without EU Membership?
UK politicians from across the political spectrum argued that the UK should adopt an economic relationship with the EU similar to that of Norway. Norway is one of three EFTA States (Norway, Iceland and Liechtenstein) which have an agreement with the EU whereby they participate in the EU single market, apply EU single market legislation, and make significant financial contributions to EU projects. These EFTA States have no say in the making of EU single market legislation, but are free to make their own trade agreements, since they are not part of the EU customs union. Since they are not part of the customs union, there are border formalities and checks on trade between the EFTA countries and EU countries, and rules of origin also apply in trade between them. This option was never supported by the UK’s Labour Party which has been the UK’s largest opposition party since the Brexit referendum in 2016.
The Norway model would have economic advantages for the UK, but…
A Norway option for the UK would have economic advantages, including tariff and quota free trade in goods, mutual recognition of qualifications, including legal qualifications, and continued “passporting” of financial services providers wishing to operate in EU countries via branches, on the basis of capitalisation and prudential supervision in the UK. The UK would also be free to pursue an independent trade policy, subject to making sure its deals didn’t cut across EU Single Market rules on product specifications and safety standards.
The Norway Model would feel like EU Membership
A Norway model for the UK would not have been straightforward for the UK, and would have required considerable modification to meet UK needs and likely EU demands. The Norway model would also seem to many people in the UK as being much the same as EU Membership, except that the UK would have no say in the making of the EU rules which would be binding on the UK.
The model would not have been straightforward, because membership of the EU Single Market for Norway, Iceland and Liechtenstein, does not apply to trade in agricultural and fisheries products. That aspect of the model would not have worked for the UK, because the UK exports most of the fish caught by its fishing fleets to the EU, and the EU is an important export market for British farmers.
The EU would have no doubt have demanded UK continued membership of the common agricultural policy, and the common fisheries policy. The EU would have also aimed in negotiations to maintain a British financial contribution to the EU budget, (or directly to EU projects, as in the Norway model). It is difficult to know precisely where such negotiations would have ended up, but the outcome would have looked very much like continued EU membership to most UK politicians, and to the UK public.
The free movement of people would have continued to apply under any likely variation of the Norway model negotiated by the UK and the EU after Brexit. Yet the free movement of people had featured prominently in the Brexit debate which preceded the referendum, and placing UK controls on immigration from the EU after Brexit had clearly been a priority for many of those who voted leave.
The Norway model would hand over a degree of control of the UK economy to the EU which no UK Government would agree to
There would have been – and would be in the future – serious political disadvantages for the UK in embracing a Norway model. EU Single Market legislation covers subject matter of considerable economic and political importance, from consumer and environmental protection (including rules combating climate change), to energy markets, and the regulatory framework for financial service providers such as banks, insurance companies, asset managers, and hedge funds. As one of the EU’s largest Member States, the UK exercised considerable influence over the making of such legislation prior to Brexit. As a non-Member State, participating in the Single Market under the Norway model, the UK would have no say at all in such legislation, and important policy choices affecting the interests of UK businesses, their employees, consumers, and the population at large would be made for the UK by the EU.
Financial services are of huge importance in the UK and the manner of their regulation is of great interest to UK Governments. Banks and insurance companies pay more tax than the whole of UK manufacturing industry put together. It is difficult to imagine any UK Government handing over the regulation of the City of London to the Governments of the City’s main European competitors.
More generally, it is difficult to imagine the UK agreeing to the EU exercising the wide-ranging and unaccountable regulatory control over the whole UK economy which the Norway model would allow. The Norway model works for Norway (and for Iceland and Liechtenstein), but it would not work for a G7 country with heightened sensitivities about its self-governance.
The UK’s Scottish National Party would see arrangements on the Norway model very differently. It has advocated continued single market membership for Scotland, despite Brexit, via a mechanism which would be likely in practice to create some sort of customs border between Scotland and England (though the SNP deny any such border would be necessary). The SNP’s policy is to seek independence for Scotland, and for an independent Scotland to join the EU.
Some key features of the EU-UK Trade and Cooperation Agreement (TCA)
Entry into force
Agreement in principle was reached on 24th December 2020. The Council agreed that the TCA be signed on 29th December 2020, and be given provisional effect from 1st January 2021 until 28th February 2021, or until ratification following approval by the European Parliament and conclusion by the Council, whichever comes first.
Core values of the EU/UK partnership which are “essential elements” of it and include upholding democracy and the rule of law
From the point of view of EU law the TCA creates a “special relationship” with a “neighbouring” country which should be characterised by “close and peaceful relations based on cooperation” (Article 8 of the Treaty on European Union) though this is unlikely to have practical significance for the UK.
The economic partnership which the TCA establishes has some core obligations not all of which are linked to economics and trade. They are described as “essential elements” and comprise the upholding of democracy, human rights and the rule of law, and cooperation in combating climate change, and countering the proliferation of weapons of mass destruction. These values are to be promoted in international forums and through cooperation with third countries. They are key commitments and serious breach can lead to suspension or termination of the TCA in whole or in part by the other (see further below as regards termination of the TCA).
Trade in goods
All exports of goods from the UK to the EU will be tariff-free and quota-free, but the UK’s departure from the EU customs union means that there will be new customs formalities and checks to comply with, as well as rules of origin. The latter determine whether a product is sufficiently “British” to qualify for tariff-free access to the EU.
Origin rules can cause problems where the value of UK-sourced parts and processes in a UK-made product are outweighed by the value of non-UK-sourced inputs, though a rule called “bilateral accumulation” ensures that non-UK-originating inputs which originate in the EU count as UK-originating inputs. These rules might cause some problems for some UK car manufacturers. The TCA requires that a UK-originating motor vehicle contain no more than 45% by value of UK-originating inputs. The bilateral accumulation rule avoids problems where UK manufacturers process EU components, but not so where there is reliance on parts imported from Japan or Turkey. Some adjustments may be needed if all UK manufacturers are to take full advantage of the new trading rules.
The new customs rules and rules of origin are likely to cause some disruption to business practices and supply chains which have developed over decades in a customs union where frictionless trade between the UK and the EU has been the norm. In the UK there is the added complication of a de facto customs border between the rest of the UK and Northern Ireland. These problems are part of the cost of Brexit and businesses in the UK and the EU have no choice but to adjust.
Even a hypothetical soft Brexit on the Norway model would not have saved the UK and the EU from the trade frictions of customs checks and formalities, and having to comply with rules of origin. Only remaining in a customs union with the EU could have done that, and I have explained above why a customs union in a form which would have suited both the EU and the UK was not achievable.
The Canada-style provisions on supply of services guarantee non-discriminatory treatment of UK service providers in the EU, but in the absence of EU recognition of UK regulatory supervision, service providers face the prospect of complying with double regulation – once with the regulations at home, and once with the regulations in the Member State where the service is provided.
For UK financial services providers this is less advantageous than the “passporting” they enjoyed until the end of the transitional period, allowing them to carry on business in the EU on the basis of capitalisation and prudential supervision in the UK, without the need for complying with duplicate requirements when they carried on business in other Member States. Only a trade deal on the Norway model would have guaranteed retention of “passporting”, and I have explained above why that option would not work for the UK.
The loss of passporting by financial service providers was foreseen by the industry and has resulted in some financial services activities and a considerable volume of financial assets being transferred from the UK to the EU. One City trader was reported as saying that the TCA was rather like a “no-deal” for the UK financial services industry.
There is also movement from the EU to the UK. More than a thousand EU based banks, insurance, asset managers, etc., were reported to have plans to set up offices in the UK to provide services to their UK clients. By October 2019 more than 1,400 EU-based firms had applied to the UK Financial Conduct Authority for temporary permissions to operate in the UK after 1st January 2021.
The European Commission may on a discretionary basis recognise elements of UK regulatory supervision of certain financial services as equivalent to EU supervision. This would facilitate cross border service provision in some cases, but equivalence regimes are not comprehensive – in particular capital requirements for most wholesale and retail banking services are not covered. The equivalence regimes as a whole fall short of passporting but would be a lot better than relying solely on the services provisions of the new trade agreement.
The Commission’s decisions on recognition – and withdrawing recognition – are unilateral and political, so the UK should stay the best of friends with the EU if it wants favourable outcomes. That said, both the UK and the EU have said they hope to reach a memorandum of understanding on regulatory cooperation before March 2021. Regardless of the EU’s position, the UK took some equivalence decisions in favour of EU based financial services operators in November 2020.
There is no automatic recognition of professional qualifications but there is respect for acquired rights and a framework for the future
The TCA does not provide for the automatic recognition of professional qualifications of doctors, architects, accountants, etc., so EU and UK nationals seeking to provide professional services in the UK or the EU will now have to comply with the requirements of the UK or the Member State where they wish to provide services or to work. This is without prejudice to the rights of EU and UK nationals whose professional qualifications have been recognised in the UK or a Member State under EU rules prior to 31 December 2020. Such rights are preserved under the Withdrawal Agreement.
Lawyers are treated somewhat more favourably, as regards providing legal advice under their home professional title, but they are only entitled to advise on the law covered by their home professional qualification, and on public international law, and they will no longer enjoy the right to appear before the courts of the UK or Member States, as was previously the case. This general position is subject to two qualifications, however. The first is that the TCA contains a number of reservations under the national laws of Member States which may limit the exercise of the general right to practise under the agreement. The second is that the TCA does not rule out more generous entitlement under national law.
EU and UK lawyers will no longer be able to provide advice on EU law to clients in the UK or EU, unless the national law of a relevant Member State permits this. Nor will UK lawyers be able to represent clients before the EU courts, unless that lawyer is authorised to practise before the courts of an EEA Member State (EU Member States plus Norway, Iceland and Liechtenstein) since this is a requirement of the Statute of the CJEU. In order to continue practice of this kind, many UK lawyers have acquired an Irish legal qualification and a professional base in Ireland.
That is not the end of the story, however. The UK and the EU have agreed a framework for the recognition of qualifications between the Parties which is based on the EU’s recent free trade agreements, with some improvements and flexibility.
Short stay for business or pleasure and emergency health care under the EHIC card and its successor
The EU and UK note in the TCA that they both currently allow short-stay visa-free travel for their respective nationals but they make no commitment that this will continue. The UK agrees to treat nationals of all Member States in the same way. Short stays for various business purposes are allowed, where the purpose is to set up a place of business it is agreed that a work permit will not be required. The time allowed for business visits is up to 90 days in any six-month period. The Protocol on Social Security will ensure that necessary healthcare provisions, similar to those provided by the European Health Insurance Card (EHIC) scheme, will continue to apply. This means that individuals who are temporarily staying in another country, for example a UK national who is in an EU Member State for a holiday, will have their necessary healthcare needs met for the period of their stay.
One of the most contentious elements in the negotiations was the treatment of fishing opportunities, with the UK Government being committed to restoring UK fishing waters to UK control, while EU coastal States wished to retain access for their fishing fleets to those same waters. At the same time, the UK Government was committed to securing continued access of UK fishery products to the EU market, since most of the catch in UK waters is exported to the EU. In the event the TCA provided for a significant increase in quota for UK fishers in UK waters, equal to 25% of the current value of the EU catch in UK waters. This will increase the catch taken in UK waters by UK vessels to about two thirds of the total catch in those waters, phased in over 5 years.
Special significance of fishing and other elements in the TCA for Scotland and for the debate on Scottish independence
It is likely that the deal on fishing will benefit the Scottish fishing industry most of all. Scotland accounts for about 6% of the UK population but over 60% of the UK’s total fishing catch, reflecting Scotland’s share of the UK Exclusive Economic Zone. The provisions in the trade deal on fishing quotas will bring a bonus to Scottish fishers, though early reactions been complaints that the bonus is too small, and the transition too long.
The TCA and the debate on Scottish independence
The extra quota for Scottish fishers will play into the debate on Scottish independence, as well the terms of the agreement in general.
The Scottish National Party has condemned the UK Government for allowing the exclusion of seed potatoes from the agreement by refusing to commit to future alignment with EU standards. This affects a significant Scottish export to the EU.
Scottish unionists will no doubt argue that the extra fishing quota gained in negotiations will have to be handed back if Scotland becomes independent and rejoins the EU, and Boris Johnson made this very point in the UK Parliament when he introduced legislation to give effect to the new agreement on 30th December 2020. The new trade agreement is likely to fuel calls for Scottish independence and for an opportunity for an independent Scotland to (re)join the EU.
Canada plus plus?
Quite apart from fishing, the TCA goes above and beyond its Canada model in a number of ways, in particular as regards aviation, road haulage, digital trade, energy and climate change, and level playing field guarantees. There is also provision for continued cooperation between the UK, Europol and Eurojust, and opportunities for continued UK participation in several EU programmes covering scientific research, environmental monitoring, Euratom research and training, the fusion test facility ITER, and access to the EU’s satellite surveillance and tracking services.
The provisions on digital trade are something of an innovation for the EU. They aim to address unjustified barriers to trade enabled by electronic means and to ensure an open, secure and trustworthy online environment for businesses and consumers. Subject to exceptions, neither party shall require prior authorisation of the provision of a service by electronic means solely on the ground that the service is provided online, and shall not adopt or maintain any other requirement having an equivalent effect. The provisions help to facilitate the cross-border flow of data by prohibiting requirements to store or process data in a certain location. The TCA confirms strong data protection commitments by both the UK and the EU, protecting consumers and helping to promote trust in the digital economy.
Dispute settlement and the Partnership Council
There are provisions for the avoidance and settlement of disputes which involve consultations and binding arbitration, and an institutional framework in the form of the Partnership Council, comprising representatives of the EU and the UK. The Council may meet in different configurations depending on the subject matter under discussion. It oversees the implementation of the TCA, and of any supplementing agreement. Its work is augmented by a number of specialist committees.
Keeping the planes flying
UK airlines that are majority owned and controlled by UK and/ or EU nationals at the end of December 2020 may continue to operate air transport services between the UK and the EU. EU airlines that are majority owned and controlled by EU nationals may also continue to operate air transport services between the UK and the EU. For these purposes nationals of Norway, Iceland, Liechtenstein and Switzerland are treated in the same way as EU nationals. There are further provisions including cooperation on aviation safety, security and air traffic management.
Ensuring a level playing field
The TCA contains a number of specific level playing field commitments on competition, labour and social protection, environmental standards, and subsidy control, and a general enforcement mechanism applicable to all these except for competition.
Specific level playing field requirements
Competition in electricity and natural-gas markets and generally
For electricity and natural-gas markets there is a competition requirement that the regulatory frameworks be “non-discriminatory as regards rules, fees and treatment”. For competition generally there is a requirement to maintain a system of competition law which effectively addresses certain specified anticompetitive business practices, with implementation through independent authorities. These arrangements are not subject to the dispute settlement provisions of the agreement which include binding arbitration.
Labour and social protection
There is a non-regression pledge on specific aspects of labour and social protection (such as fundamental rights at work) and the parties agree to enforcing relevant rules through inspections etc. Apart from the general enforcement mechanism (below) dispute settlement is through consultation and the use of panels of experts.
Environmental protection, carbon pricing and the Paris Agreement
There is also non-regression pledge on environmental protection, and a guarantee on carbon pricing. EU and UK administrative authorities will enforce these requirements, and apart from the general enforcement mechanism (below) dispute settlement is through consultation and the use of panels of experts. The EU and UK also commit to effectively implementing both the United Nations Framework Convention on Climate Change, and the Paris Agreement. Apart from the general enforcement mechanism (below) dispute settlement is through consultation and the use of panels of experts. However, an act or omission which defeats the object and purpose of the Paris Agreement constitutes a basis for terminating or suspending the TCA under the “essential elements” termination clause referred to below.
Both the EU and the UK commit to keeping in place an effective system of subsidy control. Independent authorities on each side shall play “an appropriate role” in subsidy control, and their decisions shall be subject to judicial review. Recovery of subsidies must be possible in certain cases in proceedings before a court or tribunal. The EU or the UK may object to an individual subsidy if it causes or presents a serious risk of a significant negative effect on trade or investment between them. Their assessment of the existence of a subsidy and of a significant negative effect on trade or investment shall be based on reliable evidence and not merely on conjecture or remote possibility. Strictly proportionate unilateral measures may be taken but are subject to binding arbitration.
Tariffs to enforce level playing field requirements but only if impacts on trade or investment are proven
There is a general enforcement mechanism for the level playing field commitments on labour, social and environmental standards, and subsidy control. If in these areas material impacts on trade or investment are arising as a result of significant divergences between the UK and the EU, either Party may take strictly proportional rebalancing measures (such as tariffs) to address the situation. Such action must be based on reliable evidence and not merely on conjecturer or remote possibility. The fact that the rebalancing action must be evidence based indicates that a practical economic analysis based on facts must take place to establish whether or not there are material impacts, and whether or not any action, such as tariffs, are in fact strictly proportional. The taking of such measures is subject to binding arbitration.
Reviewing the operation of the TCA
Either party to the agreement can call for a review of the operation of its trade provisions after 4 years. The parties may agree that other headings be added to the review. A review can be triggered by either party before the expiry of that period if it considers that rebalancing measures have been taken frequently by either or both parties or if a measure that has a material impact on trade or investment between the parties has been applied for a period of 12 months. Such a review may lead to modification of the agreement. There is a further provision for five-year review of the agreement as a whole (below).
Unilateral safeguard measures under the TCA and any supplementing agreement
The UK and the EU may take appropriate and strictly proportionate unilateral safeguard measures in the event that serious economic, societal or environmental difficulties arise and are likely to persist. There is an almost identical provision in the Northern Ireland Protocol except that the TCA version also refers to difficulties in relation to fishing activities and their dependent communities. If safeguard measures by one party cause an imbalance between rights and obligations under the agreement the other party may take strictly proportionate rebalancing measures. Priority shall be given to measures which will least disturb the functioning of the agreement. All such measures are subject to consultation and binding arbitration.
Could the transfer of fishing quota under the TCA be the subject of unilateral safeguard measures?
It is worthy of note that safeguard measures could be applied if serious difficulties arise for fishing activities and their dependent communities. Could either party take safeguard measures to interfere with the transfer of fishing quota in UK waters from the EU side to the UK side under the TCA? The answer is surely no. The safeguard provision offers some relaxation of obligations under the agreement, but it does not authorise a party to do something which it would not be entitled to do even in the absence of the agreement. In any event, subsidies to those engaged in fishing activities would interfere less with the functioning of the agreement than interfering with the transfer of fishing quotas for UK waters. If necessary, the subsidy control provisions of the TCA could be suspended to allow payments to those engaged in fishing activities and their dependent communities.
It follows that the EU side could not suspend or reduce the transfer of quota because in the absence of the agreement the EU side would lack any legal authority to grant fishing opportunities to EU fishers for UK waters. Nor could the UK act unilaterally to reduce quota to EU fishers. Even if the UK might have this authority if the TCA did not exist, its action would be disproportionate as a safeguard measure since appropriate subsidies would provide an adequate response to the difficulties which had arisen, and the TCA rules on subsidy control could if necessary be suspended.
Cooperation on cross-border threats to health and cyber security
The EU and the UK pledge cooperation on the steps to be taken by the UK and the EU in the event of a “serious cross-border threat to health”. This provision is no surprise given that negotiations on the trade agreement took place during a global pandemic, and it acts as a substitute for the UK of safeguards that apply between EU Member States under the Treaty on the Functioning of the European Union. Cooperation may include exchange of information, the seeking of technical solutions, and cooperation within relevant international forums.
There is also a pledge to cooperate on cyber security, and cooperation includes exchanges of information, sharing best practices, and cooperation in relevant international bodies and forums.
Global cooperation and coordination of position in UN, World Bank, G7 etc
The TCA does not cover foreign policy, external security and defence, but does provide for cooperation on subject matter such as combating money-laundering, and the financing of terrorism. It foreshadows further agreements between the UK and the EU, and global cooperation on a range of issues including peace and security, climate change, financial stability and free and fair trade and investment, with cooperation to include coordination of position within forums such as the UN, the World Bank, G7 etc.
There are three protocols to the TCA, on administrative cooperation and combating VAT fraud, on mutual administrative assistance in customs matters, and on social security coordination.
The TCA refers to the EU and the UK making other bilateral agreements which shall constitute supplementing agreements to the TCA unless otherwise stated. Two supplementing agreements have been made to date. One is a Nuclear Cooperation Agreement. The other is an Agreement on Security Procedures for Exchanging and Protecting Classified Information, which will supplement the Trade and Cooperation Agreement and facilitate the voluntary exchange of classified information.
Five yearly reviews of the TCA
The parties shall jointly review the implementation of the agreement and supplementing agreements and any related matters related five years after the entry into force of the TCA and every five years thereafter. This provision overlaps with the provision for reviews set out above in the context of rebalancing measures, which may take place on a 4-yearly basis, or whenever the conditions for review are satisfied. The reviews cover the heading on trade, but may be extended to cover other headings if the parties agree.
It is not unusual for trade agreements to contain review clauses for specific subject in the agreement, and for the agreement as a whole. The EU-Japan Agreement has a provision for 10-yearly review, without prejudice to the provisions for review in specific chapters of the agreement.
Termination and suspension of the TCA
Termination by notice
Either part may terminate the agreement by giving 12 months’ notice. This compares with the 6 months’ notice of termination required under the EU-Canada and EU-Japan trade agreements.
Termination or suspension of the TCA for breach of “essential elements” of the partnership
The EU/UK partnership has “essential elements” which involve upholding democracy, human rights and the rule of law, and cooperation in combating climate change, and countering the proliferation of weapons of mass destruction. Action in support of these aims shall be taken in the form of promotion in international forums and cooperation with third countries.
If either party considers that there has been “a serious and substantial failure” by the other party to fulfil its obligations as regards essential elements of the partnership, it may decide to terminate or suspend the operation of the TCA or any supplementing agreement in whole or in part.
There is clarification as to what “a serious and substantial failure” means in respect of the essential elements of the partnership. It would have to be a failure of an exceptional sort that “threatens peace and security or that has international repercussions”. For the avoidance of doubt, the TCA states that “an act or omission which materially defeats the object and purpose of the Paris Agreement shall always be considered as a serious and substantial failure for the purposes of this Article”.
For Northern Ireland the Withdrawal Agreement is as important as the TCA
For Northern Ireland, its Protocol to the Withdrawal Agreement ensures that it remains in the EU customs union, while at the same time remaining nominally in the UK’s customs territory. This arrangement ensures that Northern Ireland enjoys the benefits of the EU customs union as regards goods imported into Northern Ireland from Ireland.
Northern Ireland also enjoys the benefits of UK trade agreements negotiated with non-EU countries, as regards goods brought into Northern Ireland under those agreements which are consumed in Northern Ireland rather than transported into Ireland and the rest of the EU.
The price of this split-personality customs status is what is in substance but not in name a customs border between the rest of the UK and Northern Ireland. This involves customs checks and declarations on trade between the rest of the UK and Northern Ireland. The UK authorities in Northern Ireland will impose customs duties at the EU rate on goods brought into Northern Ireland from outside the EU, where those goods are at risk of transit to Ireland and the rest of the EU. This will include goods brought into Northern Ireland from the rest of the UK, unless the goods are produced in the rest of the UK, and covered by the new trade agreement between the UK and the EU.
For Northern Ireland, its Protocol to the Withdrawal Agreement remains as important as the new trade agreement, and Northern Ireland will retain a kind of partial membership of the EU. This probably suits the majority of the Northern Ireland population, which prefers a border in the Irish Sea to a border on the island of Ireland, though it does not suit Ulster unionist politicians – Ulster Unionist MPs in the UK Parliament voted against approval both of the Withdrawal Agreement and the new Trade and Cooperation Agreement.
Northern Ireland’s special status under the Protocol is subject to periodic confirmation by the Northern Ireland Assembly, with an initial opportunity for confirmation arising two months from the end of the four-year period after 31st December 2020.
The TCA is no match in economic terms for EU membership
The whole of the agreement cannot begin to match in economic terms the advantages to the UK of being a Member of the European Union. But once the attractive – but impossible in practice – option of a soft Brexit is removed from the equation, the future for the UK after the Brexit referendum vote was always going to look something like this.
What next for the UK in its relations with the EU?
Leaving aside specific issues such as agreeing a memorandum of understanding on regulatory cooperation in respect of financial services, and putting in place a durable data adequacy arrangement for the UK after the expiry of the six months’ grace period in the TCA, there is the question of the UK’s broader political relationship with the EU.
An inevitable consequence of Brexit is some reset by the UK of economic and political relationships with the EU and the rest of the world. It is difficult to forecast the forms this reset will take, and in the strengthening of new trading relationships around the world, there may be some change of emphasis in political relationships too, e.g., if the UK joins the Comprehensive and Progressive Agreement for a Trans-Pacific Partnership (parties include Australia, Canada, Japan, New Zealand and Singapore). The UK has recently announced plans to increase political links with India, and to discuss a future free trade agreement with that country. Yet the Johnson Government should not be tempted to make its quest for “Global Britain” a pretext for acting as if the UK’s links with Europe no longer matter.
The UK needs good political relationships with the EU and the USA in the years after Brexit, but it is the UK which will have to make most of the running, not least in the short term, where the threats of the Johnson Government to break its commitments in the Northern Ireland Protocol have undermined trust in the UK both across Europe, and in the Biden camp in the US.
Geography dictates that the Johnson Government and its successors should work hard to rebuild a close political relationship with the EU. That won’t be as easy as before, without the platform of day-to-day engagement with EU leaders, ministers and officials that EU membership provided.
The UK Government will want as good a relationship as it can with the new Biden administration in the US, which should be a strong administration since it controls both houses of Congress. The UK no longer has the helpful prop of being an important player in the world’s most dominant trading bloc, but it has recently committed to increasing defence spending, which will help. As will the need for the UK and the US to cooperate on climate change in advance of the COP 26 Conference to be hosted by the UK in November 2021 in Glasgow.
The UK’s commitment on defence spending will also help in mending fences with EU countries, for whom the UK is an important defence partner, though the UK has declined, at this stage at any rate, to negotiate a foreign policy and defence deal with the EU. This is partly because the UK genuinely does not see eye to eye on some aspects of foreign policy with the EU. Not least on China.
To a greater extent and with more conviction than the Merkel administration in Germany, the Johnson Government has been critical of the Chinese Government over Hong Kong, and on human rights generally, and it has resisted reliance on Huawei in the development of 5G, because of Huawei’s potential manipulation by the Chinese Government.
The agreement in principle between the EU Commission and China on an EU-China investment agreement signals what to many is an overly conciliatory approach to China on the part of the EU. The agreement has yet to be approved by the Council or the European Parliament. It is unlikely the UK would have supported this agreement had it remained in the EU.
The Commission’s action on the EU-China agreement is deeply unwelcome to the Biden administration. Nor is it without its detractors within the EU and its institutions. The UK’s Financial Times reports the chairman of the European Parliament’s delegation on China as saying: “We’ve allowed China to drive a huge wedge between the US and Europe.” At time of writing influential MEP Guy Verhofstadt was warning that the European Parliament might not ratify the EU/China pact.
The Johnson line on China will chime more favourably in Biden’s Washington than will that of Angela Merkel and the EU, and it makes sense for the EU and the UK to go their own way on this particular issue. Close allies don’t have to agree on everything.
As Boris Johnson announced the trade deal which had been reached, he emphasised that although the UK has left the EU it will “remain culturally, emotionally, historically, strategically and geologically attached to Europe, not least through the four million EU nationals who have requested to settle in the UK over the last four years and who make an enormous contribution to our country and to our lives.” He later added that the UK would be best friend and ally that the EU could have. One of his most senior ministers Michael Gove has said that the deal would give the UK the chance to develop a new pattern of friendly co-operation and a “special relationship” with the EU, “between sovereign equals” (presumably more in a conceptual than physical sense). The Johnson Government seems to accept that its ambitions for a “Global Britain” can be reconciled with a close relationship with the EU, now that the latter relationship is one of inter-governmental cooperation rather than pooled sovereignty, and based on international law, rather than EU law.
A strong political relationship with the EU will be based on the same pillars as a strong political relationship with the USA: close cooperation on internal and external security, on combating climate change, and on support for the rules-based international order and multilateral organisations.
The TCA sets out an agenda in this regard for future relations between the EU and the UK. The EU and the UK pledge to contribute to countering the proliferation of weapons of mass destruction, and to cooperation at the bilateral, regional and international levels to prevent and combat acts of terrorism in all its forms. They also commit to cooperating wherever possible on a range of “current and emerging global issues of common interest” including peace and security, climate change, public health and consumer protection, environmental protection, digitalisation, financial stability and free and fair trade and investment. This cooperation includes seeking to coordinate EU and UK positions in multilateral organisations and forums in which the Parties participate, such as the United Nations, the Group of Seven (G-7) and the Group of Twenty (G-20), the Organisation for Economic Co-operation and Development, the International Monetary Fund, the World Bank and the World Trade Organization. This wide-ranging pledge of global cooperation goes further than the wording to be found in recent strategic partnership agreements with Canada and Japan. The pledge will not in itself bring about a close economic and political relationship between the UK and the EU but it does read like an offer on both sides to make such a relationship possible. If it is, then perhaps a close non-union will prove to be more sustainable than the UK’s often half-hearted membership of the EU.
Derrick Wyatt QC
Emeritus Professor of Law, Oxford University, Member of the International Academic Council of Fide