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The Trust Deficit and the Internal Market Bill: Challenges for a Post-Brexit Dispute Resolution Regime Between the EU and the UK

Rishi Gulati (Dublin City University)

It is trite to say that the presence of an independent and impartial dispute resolution system that can amicably resolve international disputes is necessary to maintain international peace and security. In fact, the development of a relatively robust international adjudicative framework since the 1990s is one of the most remarkable developments in international law. However, whether or not the EU and the UK take full advantage of the various options available to resolve their disputes as far as their post-Brexit relationship is concerned remains to be seen. If this opportunity is not taken, both parties, their businesses, and citizens, will lose out. Based on recent developments, the signs are unfortunately ominous.

The first significant dispute between the EU and the UK has already occurred. On 9 September 2020, the UK government introduced the Internal Market Bill in the House of Commons. This Bill empowers UK Ministers to breach aspects of the Withdrawal Agreement’s Northern Ireland protocol, a binding international treaty ratified by the EU and UK, on state aid and customs duties (see here, here, and here). The Internal Market Bill, presently being considered by the House of Lords, according to the UK’s secretary of state for Northern Ireland himself, breaches international law in a “specific and limited” way. UK’s former Prime Ministers have denounced the Internal Market Bill for it gravely damages the UK’s international reputation (see here and here).

After the UK refused to withdraw the contentious provisions from the Internal Market Bill, as expected, the EU commenced an infringement procedure against the UK on 1 October 2020. This is a procedure before the Court of Justice of the European Union (CJEU) who has jurisdiction over disputes arising out of the Withdrawal Agreement. The EU contends that the UK has breached Article 5 of the Withdrawal Agreement, which provides for a duty of good faith, requiring both parties to take all appropriate measures to ensure the fulfilment of the obligations arising from the Withdrawal Agreement. If the EU succeeds to establish a breach of the Withdrawal agreement in the infringement procedure, the UK would incur penalties for breaching international law.

This dispute might be, in the near future, perhaps the last dispute between the EU and the UK for which an agreed-upon dispute resolution mechanism exists. Although it is likely that the proceedings will take several months and might even become irrelevant if both parties are able to negotiate a free trade agreement (FTA), this infringement procedure symbolizes a willingness – at least on the part of the EU – to refer to a judicial mode of dispute resolution. Whether the EU will be able to uphold this approach in the future remains to be seen.

Once the transition phase is over and the United Kingdom has left the European Union in earnest at the end of 2020, the landscape of how disputes are resolved between the UK and the EU will radically shift. If this shift is not carefully and sensibly managed, trade, investment and commerce between the UK and EU will seriously suffer. There is an urgent need to build a stable and robust mechanism to resolve post-Brexit disputes between the EU and the UK given the even greater trust deficit that now exists.

However, the EU and the UK do not share a common approach to dispute resolution. This will make it difficult to agree on a mode of dispute resolution for disputes arising from future agreements. Let me point out three divergences.

First, the EU and the UK have somewhat diverging preferences as to the general form of dispute resolution. International disputes may be adjudicated by permanent courts, or arbitral tribunals. The EU now tends to prefer resolving international disputes before permanent courts whose independence and impartiality is constitutionally enshrined (see here). The UK’s position is unclear, albeit an arbitral mechanism seems to be the preferred approach (see here). Admittedly, it is possible that common ground could be found on this issue as both sides do not seem to be overly rigid.

Second, and most controversially, the EU and the UK disagree on the role the CJEU ought to play in the future. For the UK, one of the central arguments in support of Brexit advanced by its proponents was to ensure that the jurisdiction of the CJEU over the UK was completely removed. Assuming arbitration is chosen as the forum of choice in any FTA, for the EU, potentially allowing arbitral panels to make determinations on issues of EU law which may arise between the UK and the EU post Brexit would be squarely contrary to the jurisprudence of the CJEU on the autonomy of EU law  (see CJEU Opinion 2/13 and Achmea; see however CETA case).

Third, relying on existing international courts to solve disputes between the EU and the UK also might not be an option – although the UK seems to think it is. The UK continually says that a fall-back option is to rely on WTO rules should an FTA with the EU become unachievable. Concerning dispute resolution in this context, it bears pointing out that the Appellate Body of the WTO, which is charged with resolving international trade disputes, is now dysfunctional (see here), albeit some effort is being made to come up with bandage solutions (see here). So, relying on the WTO for performing a dispute resolution role may not be the best idea at this point in time.

Both on procedure and substance, significant differences remain on how the EU and UK will resolve disputes into the future. The situation has been considerably worsened due to the trust deficit created by the saga triggered by the Internal Market Bill. It is unlikely that the EU would be ready to compromise much in terms of how a post-Brexit dispute resolution regime with the UK looks like. And with the UK’s position on the role of the CJEU also seemingly rigid, the signs are ominous.

Rishi Gulati is an Assistant Professor in Law at Dublin City University

Image credit: Flickr No 10 Downing Street. Boris Johnson Leaving No 10 for Conservative Party Conference