23 October 2020

A ‘third way’ can break the Brexit governance impasse

By Pieter Cleppe & MJ Clifton

As the Brexit negotiations near their conclusion, a key element still to be decided is what happens in future disputes between the two sides. This is known as ‘governance’ – and it will be far more important in determining the shape of the new UK-EU relationship than arguments over fishing rights.

Broadly, there are three options.

The minimal governance option

The first is to have minimal governance, without an arbiter or secretariat monitoring the implementation of treaty arrangements, which is the case for the current EU-Swiss relationship. This one is an obvious non-starter. While over-governed agreements are bureaucratic and expensive to run, under-governed ones are slow to resolve disputes and lead to a real lack of certainty for business. Indeed, that’s precisely why the EU and Switzerland have made so little progress on opening up their trade since the 1990s, when their deals were agreed.

A bilateral framework?

The second option is to agree governance through a bilateral framework. This is currently the preferred option for the British government, which wants future arrangements to reflect its view of the UK and EU as “sovereign equals”. However, there are a number of ways this could be done. The EU reportedly wants a “robust” dispute mechanism allowing for swift legal action, which would include suspending chunks of the whole deal. This reflects the EU’s desire to protect what it calls the “autonomy of the EU legal order”.

It’s the EU’s top court, the European Court of Justice, which determines what is understood by ‘autonomy’, and its judgments set the limit as to what Brussels can agree. It would be very hard for EU negotiators to agree to any arrangement whereby UK courts would be trusted to interpret aspects of EU law, as this would probably be struck down by the judges in Luxembourg.

To know what kind of governance arrangement the EU will want to agree with the UK, we need only look at its recent negotiations with Switzerland. Here, Brussels proposed the same kind of governance that oversees its agreements with Ukraine, Moldova and Georgia, with an ‘arbitral tribunal’ obliged to defer to the European Court of Justice if EU law or treaty law based on EU law is ‘implied’. Bear in mind that this is not like traditional international arbitration, as it would require Switzerland to submit itself to the ECJ, making its courts even less sovereign than the judiciaries of EU member states.

Unsurprisingly, that proposal has attracted fierce criticism in Switzerland, including from Prof Carl Baudenbacher, the former president of the EFTA Court who considered that it did “not represent any improvement” in terms of sovereignty compared to the “pure ECJ model” rejected by the Swiss government in 2017. Former Swiss president Johann Schneider-Ammann warned last month that it “endangers Switzerland’s sovereignty”. And just a few weeks ago the country’s trade unions and employer federations issued a joint letter describing the EU’s proposed framework as “clinically dead”.

It’s therefore hard to see how a similar ‘Ukraine-style’ arbitration arrangement could ever be reconciled with the UK’s desire to “run [its] own affairs”, as UK negotiator Lord Frost put it to a Brussels audience in February. Nonetheless, a ‘Ukraine-style’ arbitral tribunal is provided for in both the Withdrawal Agreement, and the non-binding Political Declaration.

Let’s keep in mind that it’s not even in the gift of the EU to offer something akin to a traditional arbitration arrangement – whereby each side nominates arbitrators to a panel whose decision is binding on both – as this would be very likely to violate the EU Treaties, according to the ECJ.

Either way, the time to find a solution is running out as the clock ticks down to the New Year’s Eve deadline.

The ‘docking’ option

That’s why the UK should reconsider a third option, which would respect both the ‘autonomy of the EU legal order’ and the UK’s sovereignty.

This would be a ‘multilateral’ approach, with the UK ‘ docking’ to the EFTA Court and the EFTA Surveillance Authority. ‘Docking’ provides multilateral governance for a bilateral agreement.  Essentially, the EFTA Surveillance Authority and the EFTA Court would monitor compliance with the UK-EU agreements, and act as a judicial forum to resolve disputes. As a country that is ‘docking’ it would nominate a College Member to the Surveillance Authority as well as EFTA Court Judges.

It would not necessarily mean the UK joining the European Free Trade Association (EFTA), which comprises Iceland, Lichtenstein, Norway and Switzerland. The EFTA Court and the EFTA Surveillance Authority serve as ‘governance’ institutions for the three EFTA countries that are also a member of the single market or European Economic Area (EEA) – Iceland, Liechtenstein, and Norway.

Broadly speaking, where there are difficulties in applying European law in the EU, this is addressed by the European Commission and the ECJ. Whereas where there are difficulties in applying European law in Iceland, Liechtenstein and Norway, this is addressed by the EFTA Surveillance Authority and the EFTA Court. Each side of the agreement basically has its own multilateral institutions. Mutual trust is further strengthened by a variety of administrative practices and legal principles and – last but not least – by a judicial dialogue between the EFTA Court and the ECJ.

What’s more, the role of the EFTA Court interpreting European law has been signed off by the ECJ in the past. EU negotiator Michel Barnier has also raised docking as an option for the UK in one of his “slides”, while the EU has proposed it to Switzerland in the past, so the EU side should be fine with it.

The problems arise on the UK side. In March 2018, Suella Braverman, then Parliamentary Under-Secretary of State at DExEU, stated that “the UK Government are not in favour of docking with the EFTA Court, to put it simply and directly”.

It’s worth looking at her key arguments, which in our view should be reconsidered.

First, Braverman suggested that the EFTA Court’s decisions “do not legally bind the EU, and decisions between the EFTA states and the EU are not resolved by the EFTA Court”. Yet we need only look at the seminal Icesave case – concerning whether the Icelandic government had to guarantee savings in a defunct bank – for an example of an EFTA Court decision going against the European Commission. It’s a good example of where a non-EU court was trusted by the ECJ to settle a dispute on European law which had serious financial consequences for EU member states.

Of course, the ECJ’s trust will only remain to the extent the EFTA Court does not violate that mutual trust. In that regard, Braverman also argued against “docking” with the EFTA Surveillance Authority and EFTA Court because they are required to “pay due account to the ECJ”. Yet, if these non-EU institutions are trusted to govern the EU-UK deal – as they are to interpret other European law – it makes sense for them to do so in a manner that is compatible with the ECJ.

This is not about the UK submitting itself to aspects of EU law. Rather, it’s about ensuring that in areas where the UK agrees to follow European law there aren’t contradictory interpretations. Say the UK wanted to follow EU chemical rules in order to maintain access to the EU chemicals market, it surely wouldn’t want uncertainty about the interpretation of such complex technical regulations.

A ‘fax democracy’?

Opponents may point out that we risk ending up a “fax democracy” like Norway – obliged to adhere to EU rules without getting to vote on them. This would also miss the point. Norway’s position arises from being an EEA member, whereas the UK would not need to join the EEA if it ‘docked’ in the way we’ve set out.

As Dr Elizabeth Howell has argued in an extensive paper, under the ‘docking’ scenario the UK “would also not have to adopt the full EEA acquis”. The UK may agree to adopt only very small parts of European law or even none at all, but the EFTA Court and EFTA Surveillance Authority could still be tasked with governing the EU-UK deal – and all in a way that meets the ECJ’s concern for the “autonomy of the EU legal order”.

Sooner rather than later the consequences of a ‘Ukraine-style’ arbitral tribunal will become apparent. Alternatives need to be considered. What could be better than the ‘governance’ solution based on the one has worked well for three non-EU member states in their relationship with the EU for the past 25 years, has been cleared by the European Court of Justice, suggested by the EU as an option, and would leave UK sovereignty intact?

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Michael-James Clifton is a barrister (England & Wales, and Ireland) and Chef de Cabinet in the Chambers of Judge Bernd Hammermann, EFTA Court.

Pieter Cleppe is a Brussels-based policy analyst, acting as a research fellow for the think tank Property Rights Alliance.

The views contained in this piece are presented in the context of academic debate, are strictly personal to the authors, and do not represent those of the EFTA Court. Any errors are attributable to the authors alone.