Negotiating Trade Deals Before Brexit?

Sequencing is emerging as a key question as politicians, civil servants and lawyers try to establish a framework for the negotiation of the UK’s withdrawal from and its subsequent relationship with the EU and the rest of the world. To what extent is it possible – legally as well as politically – to conduct these negotiations in parallel?

On the one hand we have views expressed, for example from within the European Commission, that withdrawal negotiations must wait until the UK has officially notified its intention to leave the EU under Article 50, that any negotiations for Britain’s future relationship with the EU must wait until the withdrawal agreement has been finalised, and that negotiations with non-EU trading partners must wait until Britain’s withdrawal actually takes effect. On the other hand, we hear David Davis, the new Minister for Exiting the European Union, state that he aims to have a whole raft of new trade agreements all-but-signed within the next two years, well before any feasible withdrawal date. The Financial Times reports that US trade officials are in preliminary talks with UK officials, and Prime Minister Theresa May has spoken with Australia’s Malcolm Turnbull about the two countries’ future trade relations.

The Leave campaigners’ post-Brexit trade strategy was unclear, with some claiming that a major reason for leaving the EU was the new generation of trade agreements, exemplified by the trade and investment agreement under negotiation between the EU and the USA (TTIP) and others seeing Brexit as an opportunity for the UK to negotiate extensive trade agreements with the rest of the world. Now of course the strategy is a matter for Theresa May’s government, and she has made her position clear: “One of the ways we will [make a success of our exit from the European Union] is by embracing the opportunities to strike free trade deals with our partners across the globe”. Although there is still a great deal of uncertainty over the UK’s future relationship with the EU (and even over whether it will eventually leave), no likely post-Brexit option will involve the UK remaining part of the EU’s customs union and common commercial (trade) policy; it will need to negotiate a whole range of new relationships, including its commitments in the WTO.

Can the UK legally start trade negotiations with non-EU countries before leaving the EU?

Trade policy is one of the Union’s longest-standing exclusive competences. It has been exclusive since the establishment of the customs union in the late 1960s and its status is now defined by the Lisbon Treaty. Where a competence is exclusive, to cite the Treaties, “only the Union may legislate and adopt legally binding acts, the Member States being able to do so themselves only if so empowered by the Union or for the implementation of Union acts”. The decision concluding a trade agreement is clearly a legally binding act, and the Treaty lays down the procedure for negotiating and concluding these agreements: they are to be negotiated by the Commission and concluded by the Council after obtaining the consent of the European Parliament (EP).

Negotiation is a formal process; it must be launched by a Council authorisation following a Commission recommendation, the Council may issue ‘directives’ to the Commission setting out the parameters of the negotiation, and the Commission will be advised by a Council-appointed committee with a formal status in the process. The launch also triggers responsibilities of the Council and Commission towards the EP which must be kept fully informed at all stages. The Member States participate through the Council and the Council’s trade policy committee. Although most trade decisions are adopted by qualified majority vote, there are some instances where unanimity is required, reflecting the desire of Member States to keep collective control over sensitive issues such as trade in cultural, audio-visual and health services. There is, however, no scope for unilateral Member State action in the negotiation and conclusion of trade agreements falling within the common commercial policy except as authorised by the Council and the core of the new generation of trade agreements, including services, is clearly within EU exclusive trade competence.

The Member States are bound by the obligation of sincere cooperation to “refrain from any measure which could jeopardise the attainment of the Union’s objectives” and this means that where EU competence is exclusive they should not engage in making even non-binding proposals, where such proposals may lead to legally binding measures which would affect EU rules. Indeed, even in cases where EU competence is not exclusive, Member States are bound not to depart from an agreed common positon in international negotiations, and once the Council has authorised the Commission to start negotiations with a third country the Member States are under a duty of close cooperation with the EU institutions “to ensure the coherence and consistency of the action and its international representation”.

If unilateral negotiation is excluded: what rules govern pre-negotiation activity, such as exploratory talks?

The position might seem analogous to the possibility of informal talks before formal notification under Article 50, but third countries are involved, and the Union’s position vis à vis those countries needs to be safeguarded. To give just one example: the EU and USA are at a delicate stage of their TTIP negotiations; given that the UK represents about 20% of US exports to the EU the prospect of a future US-UK trade deal may make TTIP seem less attractive to the USA, and at the very least weaken the EU’s negotiating position.

To understand the nature of the obligations on a Member State contemplating departure from the EU we should distinguish between (i) the period before the formal Article 50 notification, (ii) the period after notification but before the withdrawal agreement takes effect, and (iii) after withdrawal. The post-withdrawal position we can deal with quickly here: the former Member State is no longer bound by EU law as such, but will of course be bound by whatever transitional arrangements have been put in place in the withdrawal treaty, which may well also include trade policy. Before the Article 50 notification has been given, in contrast, the UK is clearly still under full Member State obligations; there is no certainty that the notification will ever be given and existing obligations cannot be weakened simply by political statements on the possibility of a future exit. During this period (in which we are today) the UK is clearly not empowered to negotiate on trade matters, and would be in breach of its obligations of sincere cooperation by engaging in informal talks about possible future negotiations, especially where this takes place in the context of ongoing EU negotiations with that trade partner.

It is undermining the EU’s unity of international representation for one Member State to sound out the possibility of a separate bilateral deal – even if it is made clear that negotiations will not begin until after withdrawal from the EU. The UK is not under any obligation to ‘hurry up’ and trigger the Article 50 procedure by notifying its intention to withdraw from the EU; but correspondingly until it does so, it must behave like a Member State and owes the Union an obligation of loyalty and cooperation.

Can the UK be party to EU trade deals as a non-member?

The period between Article 50 notification and withdrawal is more complex. Here, a change of status has taken place. Although still a Member State and under obligations of cooperation, the procedure for withdrawal will have been set in motion and a withdrawal agreement will be under negotiation. Part of this agreement will likely be designed to ensure a smooth legal transition for those international accords binding the UK by virtue of EU participation, as well as the future of so-called ‘mixed’ agreements, to which both EU and Member States are parties, in particular those where the UK is a party as an EU Member State (such as the free trade agreement with the Republic of Korea). It is in the interest of both the EU and the UK to ensure clarity in discussions with third country partners. This implies both that the future withdrawal of the UK should not be ignored in the EU’s own trade relations and that the UK will need to discuss future relations and the management of the transition with the EU’s existing (and future UK) trade partners.

Legally speaking, in the framework of the duty of sincere cooperation, I would argue that this requires the EU and UK to work together in discussions with third country partners, including the WTO, USA, Canada, Korea, the EEA partners and others, and that this should take place during the post-notification period. It would, for example, make sense for the UK and the EU together to discuss with the USA or Canada whether the UK would become a party to the TTIP or CETA in its own right alongside the EU-27. Since the UK would not be an ‘EU Member State’ party it could discuss the possibility of specific trade terms while still being part of the TTIP or CETA. It would also be possible for the EU and UK jointly to discuss with Korea what the implications of an eventual UK withdrawal would be, and whether the UK would continue as a party to the existing FTA or would wish to negotiate a new and different arrangement.

These discussions would be exploratory and not formal negotiations; in practice the UK will not be able to negotiate the details that matter in new trade agreements, especially on services, until its future relationship with the EU is clear. But they would signal to third countries that the EU and UK were working together. Such an approach would be legally defensible (a practical expression of the duty of cooperation working in a post-notification transitional context), and politically astute, since it brings the economic weight of the EU to the table alongside the UK. In such a constructive context it might even be conceivable that the Council would authorise the UK to start actual negotiations on revised trade relations before formal withdrawal.

All this would be part of an amicable and cooperative separation, in the clear interest of the UK and EU once – and if – it is agreed that withdrawal is to happen. But it depends on the UK taking a constructive stance and recognising its continuing responsibilities as a Member State, not seeking to go it alone before leaving the EU, or even before formally announcing its decision to leave. If the UK simply tries to see how much it can get away with, it will leave in a significantly worse position.