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All well that ends well? After more than four years since the Brexit vote and just one week before the end of the Withdrawal Agreement between the United Kingdom and the European Union, both parties have reached a last-minute agreement on the future of trade and cooperation between them: the EU-UK Trade and Cooperation Agreement. This Agreement provisionally enters into force on 1 January 2021 and sets the ground rules for the new partnership between the UK and the EU.

With hundreds of new provisions regulating trade, transport, fisheries, law enforcement and more also came a new dispute settlement mechanism. An important promise of the Brexiteers had been that the UK would no longer be bound by the decisions of the Court of Justice of the European Union. The EU and the UK had to find an alternative – the logical solution: inter-state arbitration.

In this article, we take a closer look at the new dispute resolution procedure, especially how the three stages of dispute resolution work: “Consultation & Arbitration”, “Compliance”, and “Review”.

Before we come to that: Not all disputes under the Agreement are eligible for arbitration. There are a number of provisions[1] that do not fall under the “covered provisions” whose violation may be claimed in arbitration. These provisions include e.g. those on anti-dumping, return of cultural property, and cooperation on health and cyber security. In these cases, a party can only refer a dispute to the Partnership Council, a body comprising of representative of both the UK and the EU.[2] In contrast to inter-state arbitration, solutions in the Partnership Council require mutual consent[3], which adversely affects its importance as dispute resolution forum.

For disputes that concern the covered provisions, the inter-state arbitration path is open, at which we now take a closer look.

Overview of the New EU-UK Dispute Settlement Mechanism

UK-EU Agreement Dispute Settlement overview

For a detailed flowchart, please click here.

Stage 1: Consultations & Arbitration

The first step for the complaining party[4] (“Claimant”) is to seek consultations with the respondent party (“Respondent”). Consultations are confidential[5] and to be held in good faith.[6] To ensure that the Respondent cannot drag out the consultations, the Agreement provides for a time limit of 30 days.[7] If the parties have not reached an agreement within that time limit, the Claimant may initiate arbitration proceedings in accordance with Article INST.14.

Arbitration under the Agreement is to be conducted by a three-member tribunal.[8] Potential arbitrators need to – inter alia – “[demonstrate] expertise in law and international trade”; the chairperson needs to be experienced in “dispute settlement procedures”.[9] The establishment of the arbitral tribunal is characterized by strict time limits and a lottery procedure in case the Respondent refuses to participate in the establishment procedure: the Claimant’s co-chair of the Partnership Council selects an arbitrator by lot from a pre-established list of arbitrators.[10] The oral hearing is to take place in London or Brussels, i.e. in the territory of the respondent party.[11]

Within 130 days of the establishment of the arbitral tribunal, the tribunal must deliver its initial decision, the so-called “interim report”.[12] Following the interim report, the parties have 14 days to request the tribunal to review specific aspects of that decision; the other party may comment on the other party’s request within only 6 days.[13] If there is no request to review the interim report, the interim report becomes the tribunal’s final decision (“ruling”).[14] If there is at least one request to review the interim report, the tribunal is tasked to deliver this ruling within only 10 days.[15]

These time limits are already strict and ensure a quick dispute resolution. Still, – similar to expedited procedure in commercial arbitration – the tribunal can decide that a matter is urgent, in which case the time limits for issuing the interim report and the ruling are reduced by half.[16]

The deliberations of the arbitral tribunal are confidential, arbitrators are not allowed to disclose separate opinions.[17] The tribunal’s decisions, though, are to be made publicly available.[18]

Stage 2: Compliance

After the tribunal has delivered its ruling, the second stage of the dispute settlement mechanism begins: the compliance stage.

In case the tribunal has found there to be a breach of an obligation under the Agreement, the Respondent has to “take the necessary measures to comply immediately with the ruling of the arbitration tribunal in order to bring itself in compliance with the covered provisions.”[19] Generally, the Respondent party has 30 days to inform the complaining party of the measures which it has taken or intends to take.[20]

Following the notification about the measures taken to comply, if the Claimant still has at least one complaint – be it about the existence or the consistency of a measure –, the Claimant can request a decision of the arbitral tribunal on this matter.[21] This decision is taken by the same arbitral tribunal which initially decided the dispute.

If the tribunal agrees with the Claimant that the measures taken by the Respondent are non-existent or inconsistent, the Claimant can now make use of the Agreement’s temporary remedies.[22] The Claimant can either (i) request “temporary compensation” from the Respondent or (ii) notify the Respondent of its intention to “suspend the application of obligations”.[23] The latter means that the Claimant may e.g. impose tariffs or quotas. However, the Claimant is not allowed to suspend obligations outside the overed provisions, least of all obligations under other agreements. Both remedies are mutually exclusive.

Stage 3: Review

Irrespective of the remedy in effect, its termination is determined in stage 3 of the dispute resolution mechanism: the review procedure.[24]

The review procedure begins with a notification of the Respondent, stating which new measures it has taken to comply with the initial ruling of the arbitral tribunal and the covered provisions.[25] If the parties are still in dispute about the Respondent’s compliance, the Claimant can request another decision by the arbitral tribunal on the matter.

Depending on the outcome of that decision, the dispute is either finally resolved or continues – the same as the temporary remedies – as the Respondent is still in breach of an obligation under the Agreement. In case of the latter, the tribunal may adjust the level of the suspension or compensation.[26]

Conclusion

The EU and the UK have drafted a massive 1246-page Agreement. It remains to be seen how well the 24-page[27] inter-state arbitration procedure performs in practice.

Although the Agreement often refers to the temporary nature of the remedies, it is doubtful whether some remedies may not become long-term remedies if a Respondent is unwilling to take appropriate measures. In this case, it will be the responsibility of – and at the same time a challenge for – the arbitral tribunal to adjust the level of the remedy.

A silver lining is the fact that it is not possible for a Respondent to “buy itself out” of its obligations as a Claimant can always choose the remedy of suspension of obligations.

The new dispute settlement mechanism will, no doubt, raise many questions and legal issues in the future.

 

[1] Article INST.10(2).

[2] The Partnership Council is co-chaired by a Member of the European Commission and a representative of the Government of the United Kingdom (Article INST.1(2)).

[3] Article INST.4(2).

[4] The term “Party” is not defined in the Agreement. The wording of the Agreement prima facie suggests that only the EU and the UK can be party to a dispute. It remains unclear though whether a Member State of the EU could initiate arbitration against the UK or even one of the its constituent countries – or vice versa.

[5] Article INST.13(8).

[6] Article INST.13(1).

[7] Article INST.13(4).

[8] Article INST.15(1).

[9] Article INST.16(1)(a).

[10] Article INST.15(3), (4).

[11] Annex INST: Rules of Procedure for Dispute Settlement (23).

[12] Article INST.20(1).

[13] Article INST.20(2).

[14] Article INST.20(3).

[15] Article INST.20(4).

[16] Article INST.19(2).

[17] Article INST.29(1).

[18] Article INST.29(5); Annex INST: Rules of Procedure for Dispute Settlement (34).

[19] Article INST.21(1).

[20] Article INST.21(2), 22(2).

[21] Article INST.23(2).

[22] Article INST.24(1)(c). The respondent party’s failure to notify the complaining party of any measures as well as a notification that compliance is impossible have the same effect, Article INST.24(1)(a), (b).

[23] Article INST.24(1), (2).

[24] Alternative, the remedy ends under any of the conditions stipulated in Article INST.24(13).

[25] Article INST.25(1).

[26] Article INST.25(2).

[27] This includes Part Six: Title I: Dispute Settlement, Annex Inst: Rules of Procedure for Dispute Settlement, and Annex Inst: Code of Conduct for Arbitrators.