Friday, September 30, 2022

Where Brexit meets the Peace Palace

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By Steven van Hoogstraten, Former Director, Carnegie Foundation.

Not many people will know that the Peace Palace may one day have a role to play in the relations between the 27 EU member states and the UK. The City of The Hague is not normally associated with the European Union – other than issues related to Europol and Eurojust. The connection I refer to is laid down in the so-called Withdrawal Agreement, which was finally ratified by the UK Parliament and led to the UK’s formal exit from the EU as of January 31st, 2020. 

At present, all attention understandably is turned towards the establishment of a new Trade Agreement, which should be negotiated and concluded before the 31st of December, 2020. This date is the end of the Transition Period. Both sides have published their initial positions, and rather complicated talks are to be anticipated. In order to allow free trade without quotas and tariffs, the EU seeks to follow the existing EU legislation framework as much as possible. On the contrary, the UK is endeavouring to move away from this EU straight jacket as soon as they can. The UK is opting for a Canadian style CETA agreement, with less stringent conditions for matters such as state aid and protection for workers, the environment or animal treatment. In short: less UK engagement with a level playing field. 

The UK feels, as a logical matter of principle, that it should not continue to be governed by EU rules it has so far adhered to; and the EU is absolutely right in saying that matters are least complicated if the present schemes of regulation being shared by two sides can run on. Only that approach will guarantee a more or less frictionless trade. We will have to see how that develops. I am afraid that the UK wants to make a point of showing its political independence by moving away from everything which is so called “dictated” from Brussels; and that will no doubt slow down the talks. 

Now let us look at the terms of the Withdrawal Agreement for a moment, and where the Peace Palace comes in.  All questions which may arise under the Withdrawal Agreement have to be submitted to a Joint Committee, which can take binding decisions for the parties. If that common approach does not solve the issues at hand, a dispute settlement procedure is established, such as an international arbitration procedure. This arbitration procedure provides for a panel of 5 members which can produce a legally binding decision. If necessary, this can be done by a majority vote and very importantly, without any dissenting opinions allowed to be shown. This procedure between EU and the UK will be governed by the Permanent Court of Arbitration (PCA) in the Peace Palace.

The two parties have to engage in consultations within the Joint Committee for a period of three months, and are free to submit their dispute to the procedure of arbitration afterwards. All of this can be read in article 167 and the following articles of the Withdrawal Agreement (Official Journal EU, 2019/C 384 of 12.11.2019). Incidentally, where the conflict involves the correct interpretation or application of an EU Directive or Regulation, the arbiters are bound to submit the matter to the European Court of Justice, and take the decision of the ECJ as a binding form of guidance. 

As the Withdrawal Agreement is full of substantive provisions and references to EU law, it is certainly not to be excluded that a final solution through arbitration for some future dispute will be sought by either the EU or the UK. One might think about the correct interpretation of the EU citizens’ rights to work and live in the UK, the proper functioning of border controls with and within the UK, the nature and extent of financial obligations and the like. All these matters could first be debated in the Joint Committee and, in the case of failing a solution, be decided as a next step by arbitration under the umbrella of the PCA in the Peace Palace. 

Turning back now to the trade negotiations ahead, a similar situation is to be expected. Any free trade agreement will have to contain provisions for the governance of the partnership; and as part of that governance, a clause is needed for the settlement of disputes. The Negotiating Guidelines adopted by the European Council on February 25th, 2020 are very specific on this point. Not so surprisingly, these Guidelines repeat the basic elements of the procedure under the Withdrawal Agreement, but without mentioning the institutions involved. It is just the principle of arbitration which is laid down.  The European guidelines state “the governing body may, where applicable, agree to refer the dispute to an independent arbitration panel at any time …where the governing body has not arrived at a mutually satisfactory solution within a defined period of time” (para 158 of the guidelines).

The UK negotiating approach (under the title “The Future Relationship with the EU”, February 2020) heads largely in the same direction. The overall vision of the UK is to aim for a relationship based on friendly cooperation between sovereign equals, with both sides respecting each other’s legal autonomy. According to the UK document, the Agreement should include provisions for the governance arrangements that are appropriate to a relationship of sovereign equals, drawn from existing Free Trade Agreements; such as those the EU has with Japan and Canada.

The governance should be based on a Joint Committee to support the smooth functioning of the Agreement and provide mechanisms for dialogue and if necessary, dispute resolution. However, the UK does not see any role for the Court of Justice of the EU in the dispute resolution mechanism. This attitude is notably different from the approach taken in the Withdrawal Agreement, and I personally wonder if the UK will be able to walk away from this precedent. 

As a concluding remark, I would like to note that the Brexit process has led to a foothold in The Hague, with the Permanent Court of Arbitration in a very important position under the Withdrawal Agreement.  Whether this role will be extended under the new Trade Agreement is clearly a matter for the future. However, I would not be surprised if the (second) mechanism for dispute settlement would again be brought under the umbrella of the Permanent Court of Arbitration in the Peace Palace, in the slipstream of the agreed position so far. That would be definitively good for the profile of The Hague, a city of international law. 

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Photography by Roy Strik.

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