92.The dispute settlement provisions in the TCA are wide ranging, complex and in some respects novel. In short, where the parties are unable to agree in dispute in the Partnership Council then in most cases the Agreement provides for a period first of consultation, and then arbitration.
93.The TCA’s dispute settlement provisions differ greatly from those in the earlier Withdrawal Agreement. Notable differences include the jurisdiction of the Court of Justice of the European Union (which under the Withdrawal Agreement is retained in several discrete areas, but is more broadly excluded from the TCA, save in respect of UK participation in EU programmes). Moreover, while the Withdrawal Agreement contains fairly streamlined arbitration provisions, the TCA not only contains a dispute settlement mechanism (Part Six: Articles INST.9–34B), but also a variety of additional provisions relating to remedies on trade in goods, the Level Playing Field, law enforcement and data transmission.
94.The Government has been clear, throughout the Brexit process, that it would not contemplate a continuing role for the Court of Justice of the European Union (CJEU, but sometimes still referred to as the ECJ). We acknowledged this position in our report Dispute resolution and enforcement after Brexit, where we observed that outside the jurisdiction of the CJEU there was no “one size fits all” dispute resolution model, and that it would be necessary to agree “multiple dispute resolution procedures … post-Brexit”. We also concluded that this could mean that the UK “would only be obliged to accept the jurisdiction of the CJEU in specific and limited areas, for instance those involving direct cooperation with EU agencies, or within the field of justice and home affairs”.
95.In the absence of a defined role for the CJEU, the provisions of the TCA will be interpreted in good faith, in line with general public international law including the Vienna Convention on the Law on Treaties 1969. As noted above (see paragraph 44), this is reinforced by Article COMPROV.13(3), which states that “for greater certainty, an interpretation of this Agreement or any supplementing agreement given by the courts of either Party shall not be binding on the courts of the other Party”.
96.The Chancellor of the Duchy of Lancaster, Rt Hon Michael Gove MP, repeated the importance of the Government’s ‘red line’ on CJEU jurisdiction, and its determination to draw instead on general principles of international law, in evidence to us:
“The key thing to say by way of preface is that it was assumed by some that we would have to accept, in effect, a form of ECJ jurisdiction or suzerainty in this whole area of dispute resolution. In fact, we have something that connoisseurs of classic free trade agreements would recognise and appreciate as very much in that mould. That was our aim. We were told that it was unlikely to be achievable, but it is to Lord Frost’s credit that we got there.”
97.This view was broadly supported by Professor Hestermeyer, who said that the Government had “largely achieved” its aim of leaving the jurisdiction of the Court. But he then offered some qualifications:
“Yes, largely it has been achieved. There are several caveats, however. The first caveat is that the Withdrawal Agreement remains in force and the function of the Court of Justice under the Withdrawal Agreement remains there. The second caveat is Union programmes. If you look, for example, at UNPRO.4.4, it is clear that the Court of Justice retains functions where the UK joins Union programmes, but that is very limited and also voluntary, so that was regarded as largely unproblematic. The Government were well aware of what they were doing.”
98.In terms of potential linkage with the Withdrawal Agreement, while some of the potential areas of dispute may fall away over time, the continuing jurisdiction of the CJEU over the Protocol on Ireland/Northern Ireland may prove significant. Marie Demetriou QC suggested that particular issues might arise in respect of State aid and subsidies under Article 10 of the Protocol—an issue discussed in detail in our 2020 report The Protocol on Ireland/Northern Ireland.
99.Article INST.10 sets out the scope of the dispute resolution mechanism and exceptions to it. Article INST.11 is an exclusivity clause, like that found in the Withdrawal Agreement. It provides that the parties “undertake not to submit a dispute between them regarding the interpretation or application of provisions of this Agreement or of any supplementing agreement to a mechanism of settlement other than those provided for in this Agreement”. However, unlike the Withdrawal Agreement, this provision is subject to a proviso in Article INST.12, which provides for a “choice of forum” in cases where there is “a substantially equivalent obligation under another international agreement”. This would include the WTO Agreement. Article INST.12(2) is clear that once a party has commenced dispute settlement procedures in a forum, it should not seek to bring further multiple proceedings in other fora unless “the forum selected first fails to make findings for procedural or jurisdictional reasons”.
100.Article INST.13 sets an over-arching expectation that disagreements will normally be resolved politically, without the need to invoke formal arbitration or dispute resolution procedures:
“If a Party … considers that the other Party … has breached an obligation under this Agreement or under any supplementing agreement, the Parties shall endeavour to resolve the matter by entering into consultations in good faith, with the aim of reaching a mutually agreed solution.”
A 30-day period is allowed for these consultations, less in cases of urgency; they are subject to conditions of confidentiality, and will not prejudice the rights of either Party in subsequent proceedings.
101.Only if a dispute cannot be resolved through consultations under Article INST.13, do the Parties move on to next step, which is usually arbitration. But it is important to note that these more formal mechanisms may not be used extensively. Professor Catherine Barnard told us that, in general, in free trade agreements, the dispute resolution mechanisms were not often invoked. She noted that even under the WTO dispute settlement, just 600 or so complaints had been initiated since 1995. She continued:
“When these mechanisms are invoked, a lot of things get resolved at the consultation phase. They do not go all the way to what is called the compliance phase, where you are looking at the excitement of retaliation and cross-retaliation. I think there are only about 15 or so cases at the WTO that have gone all the way to retaliation. They are the ones we know about, but they are relatively few.”
102.The procedure to establish the arbitration panel is set out at Art INST.15, and provides for a tribunal composed of three arbitrators, selected from a list of at least 15 potential panel members, five nominated by the UK and five by the EU, and five potential chairs, not nationals of either Party, who are jointly nominated. The functions of the tribunal are set out in Article INST.17. It shall “make an objective assessment of the matter before it” and set out “its decisions and rulings, the findings of facts and law and the rationale behind any findings that it makes”. Rulings and decisions of the arbitration tribunal will be made publicly available, but its deliberations are confidential. The tribunal will make “every effort” to reach consensus, but if this is not possible it will decide the matter by majority vote. Separate opinions of arbitrators will not be disclosed.
103.The basic position under the TCA is that if the arbitrators rule that one Party has breached the agreement, in principle it has to comply with the ruling within a reasonable period. The tribunal rulings are legally binding, and if the losing Party does not comply, remedies are available, including compensation. The winning Party can also invoke proportionate retaliation by withdrawing benefits under the Agreement. If the losing Party subsequently complies with the arbitrators’ ruling, the other Party is required to stop suspending benefits under the TCA.
104.Lord Frost told us that these provisions were modelled on standard free trade agreements:
“Part 6 [of the TCA] describes the standard arbitration mechanism and processes that lead up to it, which is the normal thing you get in free trade agreements. Then it lists some areas to which that applies and areas from which it is excluded. That is the basic mechanism and it is completely standard for free trade agreements. That is relevant to most of the agreement.
105.Figure 3, reproduced by permission of the House of Commons Library, highlights the main features of the process.
106.While the general architecture is relatively straightforward, the precise procedure used will vary depending on the part of the TCA that is at stake in any particular case: there are numerous exceptions to the general principles, and a range of novel provisions which apply in specific circumstances. The differences were addressed by Lord Frost in his evidence:
“What is different? There are some areas where we have agreed that standard arbitration could be extended into, where that is not true in analogous agreements elsewhere, for example parts of aviation, some very targeted elements of fisheries and the energy elements of this agreement. Those bring in arbitration. Arbitration is carved out of quite a lot of areas, notably law enforcement in toto, important areas of fisheries and others. This is all set out in INST.10. Then, as you say, there are some tailored mechanisms, and they are notably in the level playing field area, with tailored arrangements for remedial measures on subsidies and a panel of experts on non-regression. Those were some of the most heavily discussed and negotiated bits of this agreement, as you can probably imagine.”
107.Some of the more unusual features of these exceptions to the general rule are described in further detail below.
108.The fisheries heading in Part Two of the TCA contains additional dispute resolution mechanisms. These are contained in Articles FISH.9 (Compensatory measures in case of withdrawal or reduction of access) and FISH.14 (Remedial measures and dispute resolution).
109.The first of these provisions relates to any changes in the level of access to its waters granted by one Party (the “host Party”) to the other Party (the “fishing Party”). Notification of any such changes must be given annually. Under Article FISH.9 the fishing Party may then take “compensatory measures commensurate to the economic and societal impact of the change”. Such measures could include suspending in whole, or in part, access to its waters and the preferential tariff treatment granted to fishery products—though priority should be given to those “which will least disturb the functioning of this Agreement”. If such compensatory measures are adopted, the host Party then may refer the matter to an arbitration tribunal without the need for the consultations which would normally be required under Article INST.13.
110.Article FISH.9 thus provides for arbitration even in cases where changes in access have been notified in accordance with the terms of the TCA, if they have adverse social or societal impacts. More formal dispute resolution procedures are set out in Article FISH.14. This provides for an escalating level of responses which can be applied by a Party in response to an alleged failure by the other Party to comply with the fisheries heading. This could potentially lead to application of tariffs on both fisheries and non-fisheries products (and ultimately to suspension of the entire trade and road transport provisions). However, measures should be “proportionate to the alleged failure by the respondent Party and the economic and societal impact thereof”. Moreover, the suspensions should cease if an arbitration tribunal determines that the respondent Party has not failed to comply with its obligations.
111.One of the key novel features of the TCA is found in the level playing field provisions. These are intended to ensure fair competition between the Parties in respect of subsidies; labour and social standards; environment and climate; competition; and taxation. Within this broad spectrum of policy areas, disputes relating to labour, social standards, the environment and climate would be referred to a panel of experts, nominated by the Trade Specialised Committee on the Level Playing Field. The many scenarios that could arise will be addressed in greater detail in reports by our Sub-Committees.
112.The subsidy provisions of the level playing field are covered by a set of special rules. If a subsidy has allegedly caused a “significant negative effect on trade or investment”, or there is a “serious risk” that it may do so, the complaining party, following consultations, can retaliate without prior approval by the arbitrators and different processes then flow from this.
113.The variations embodied in these provisions demonstrate that reliance on the general dispute settlement mechanism of the TCA was considered insufficient in respect of the level playing field. Moreover, underpinning the provisions on subsidy control, labour and social policy, and environment and climate change, is the possibility of so-called “rebalancing” measures, a mechanism that Marie Demetriou QC told us was “unusual”. Professor Holger Hestermeyer went further, describing it as “utterly novel and remarkable”.
114.Article 9.4 of the level playing field Title of the TCA begins by acknowledging the autonomy of the Parties, their “right of each Party to determine its future policies and priorities with respect to labour and social, environmental or climate protection, or with respect to subsidy control in a manner consistent with each Party’s international commitments”. Rebalancing measures partly offset this autonomy: they can be imposed by a Party unilaterally, if there are “significant divergences” between the Parties in respect of the level playing field that would have “material impacts on trade or investment”. Such divergences could be in either direction: if one Party were to raise standards in a particular area, and judged that this gave the other Party a competitive advantage, leading to a material impact on trade, it could in principle invoke the rebalancing mechanism. The main limitation is that the assessment of these impacts would have to be “based on reliable evidence and not merely on conjecture or remote possibility”. And the resulting measures—which could for instance include the imposition of temporary tariffs—would have to be restricted in scope and duration to what is “strictly necessary and proportionate”. They would then be subject to the approval of an independent arbitration panel within 30 days. If the panel finds there has not been a breach, the concerned Party would be obliged to withdraw any measures taken within five days of the ruling.
115.Marie Demetriou QC warned that the novelty of this provision may lead to some uncertainty:
“The rebalancing process arises if there is significant divergence in regulatory rules leading to a material impact on trade. Those words, ‘significant divergence’ and ‘material impact’, need to be given meaning by adjudicators, by the arbitral tribunal. It is a spectrum. What is meant by ‘significant’? What is meant by ‘material’? There is a spectrum of meanings.”
116.Moreover, four years after the coming into force of the TCA, if one Party considers that there have been too many breaches (or if a measure with a material impact on trade and investment has been in place for a year) it can trigger a review of the operation of the entire trade part of the agreement. The parties would also be entitled to agree that other parts of the TCA could be added to that review.
117.As Professor Holger Hestermeyer noted, the “mechanism is untested”:
“On the one hand, it is an ingenious way to resolve the problem of what happens if the two parties do not trust each other in terms of regulation. In particular, the EU thought the UK would drift away from the regulation system, but nevertheless it wants to dismantle tariff barriers entirely, which is unprecedented in EU trade agreements. On the other hand, the mechanism also risks unbalancing the whole treaty. If you read through the provision, it can result in a review if used too often and the capacity to terminate the trade part of the agreement. So what we need here is political savvy in the application.”
118.Lord Frost acknowledged the uniqueness of these provisions and indicated that they had been introduced as an alternative to an ‘equivalence’ mechanism:
“The rebalancing mechanism is special and was subject to a lot of debate and negotiation. The EU originally wanted a kind of equivalence mechanism. That became a very fraught point of the negotiating process. What we have now is something that can only apply in the case of material divergence on both sides. It is restricted to a limited number of areas, requires rapid arbitration and is reversible in case measures that are taken do not pass the arbitration test. If it is too much used, it triggers a broader renegotiation. We felt that was a reasonable balance to deal with both sides, but I do not think there is anything like it in any other treaty.”
119.Part Three of the Agreement, on law enforcement and judicial cooperation in criminal matters, includes an entirely different political dispute settlement mechanism, one designed to be exclusive, “swift, effective and efficient”, and aimed at “avoiding and settling disputes” with a view to reaching a “mutually agreed solution”.
120.If one Party complains that the other Party has breached an obligation in Part Three, it shall “endeavour to resolve the matter by entering into consultations in good faith”. Such consultations shall seek to reach a “mutually agreed solution”, with the complaining Party kicking off the process “by means of a [detailed] written request delivered to the responding Party”, which is obliged to reply “promptly” and no later than two weeks after delivery.
121.Consultations will be held regularly for a period of three months, and at “any time” the Parties may reach a “mutually agreed solution”, which may be adopted by means of a decision of the Specialised Committee on Law Enforcement and Judicial Cooperation. But if there is no “mutually agreed solution”, and the complaining Party continues to consider that the responding Party is in “serious breach of its obligations”, then it may suspend the relevant Title (or Titles) of Part Three by written notification through diplomatic channels. Further cross-retaliation, including suspending the other Titles of Part Three, is then possible.
122.As if this is not complicated enough, certain areas of Part Three, such as the suspension clause dealing with “serious and systemic deficiencies” as regards the protection of fundamental rights and/or data protection, or the retention of passenger name record data, are excluded from this method of dispute settlement and enjoy their own dispute settlement procedure.
123.In our 2018 report on Dispute resolution and enforcement after Brexit, we indicated that one of the challenges in crafting bespoke dispute resolution mechanisms would be to ensure that “any enforcement and dispute resolution established under the future relationship should be accessible to citizens and business and should be transparent”. We concluded that it would be “prejudicial to the interests of citizens and businesses if the future dispute resolution system were conducted entirely at a state-to-state level”.
124.It is plain that the TCA does little to meet these aims. Article COMPROV.16 of the TCA provides that, subject to certain exceptions set out in that Article relating to the protection of individual rights and law enforcement and judicial cooperation “with regard to the Union”, nothing in the Agreement, or any supplementing agreement, will be construed as “conferring rights or imposing obligations on persons other than those created by the Parties under public international law”, nor as “permitting this Agreement, or any supplementing agreement to be directly invoked in the domestic legal system of the Parties”. Moreover, the same Article is clear that a Party to the TCA “shall not provide for a right of action under its law against the other Party on the ground that the other Party has acted in breach of this Agreement or any supplementing agreement”.
125.This is underlined in the provisions on the arbitration mechanism itself. Article INST.29 makes plain that rulings of the arbitration tribunal do “not create any rights or obligations with respect to natural or legal persons”. And while the tribunal can rule on the compatibility of domestic measures with obligations under the TCA, Article INST.29(4A) states that for “greater certainty” the courts of each party “shall have no jurisdiction in the resolution of disputes between the Parties under this Agreement”.
126.When we questioned Lord Frost about the remedies that would be available to individuals and businesses, he contended that “they will be able to use the arrangements in the treaty, so the committee structure and then the dispute settlement mechanisms”. But he then qualified this claim:
“Those [mechanisms] are triggered by Governments, but Governments will use them when individuals and businesses think there is a problem. That comes back to the point that was raised earlier about the need to have close relationships with interest groups, industry groups and those who are aware of problems, so we can feed them rapidly into the system. One of the things we will be doing soon, as we reorganise things slightly internally, is to establish teams whose job is precisely to remain in contact, to use the mechanisms in the treaty to our country’s advantage if we believe we are being disadvantaged by decisions taken on the EU side.”
127.The danger with this approach, as we highlighted in our earlier report, is not only that individuals or SMEs would need to go through a potentially complicated process in order to raise an issue with Government, in the hope that it will then raise it with the EU, but that Government itself may deem that it is worth raising concerns only when a significant amount of money is at stake—when it affects a significant sector of the economy, say, rather than a few individuals or businesses. The absence of direct effect, or any means of individual claim, is thus likely to give rise to an adverse impact on access to justice in some cases. Professor Barnard underlined this point:
“This is a state-to-state dispute mechanism. It is absolutely standard in free trade agreements and under the WTO, but this is a significant mind shift for those who have been born and bred under EU law, who are used to notions of direct effect, supremacy and the ability to refer cases to the European Court of Justice. All that has been turned off, with the exception of the citizens’ rights provisions under the Withdrawal Agreement [and the] areas covered by the Northern Ireland Protocol.”
128.Finally, we note that the limitations upon access to justice could be particularly acute in respect of Part Three of the TCA, on law enforcement and judicial cooperation—the part of the Agreement where individual rights are most directly engaged—including in respect of the replacement extradition arrangements to be found in Title VII. Article COMPROV.16 specifically exempts these arrangements from the general presumption that the TCA does not confer any directly enforceable rights upon individuals—but does so only “with regard to the Union”. It appears therefore that citizens in the EU who are subject to UK extradition requests will be able to rely upon the criminal procedural rights contained in Part Three, such as the right “to be assisted by a lawyer”—rights modelled on those already found in directly effective EU law underpinning the European Arrest Warrant. Citizens in the UK, on the other hand, will not be able to rely upon the rights enshrined in Part Three of the TCA, even in challenging extradition requests made under that very Agreement. This position is difficult to square either with the principle that the new surrender arrangements should be based on proportionality, “taking into account the rights of the requested person”, or with other provisions describing the “Rights of the Requested person”.
129.Within the dispute resolution provisions of the TCA, the Government has broadly achieved its aim of bringing the direct jurisdiction of the Court of Justice of the European Union to an end. However, there are some caveats to this conclusion. The first is that some remaining obligations under the Withdrawal Agreement will continue to be subject to the CJEU (most notably those under the Protocol on Ireland-Northern Ireland). The second is that cooperation with the EU agencies will still be subject to the oversight of the CJEU. Finally, the indirect effect of CJEU judgments should not be underestimated, particularly in the fields of law enforcement, judicial cooperation and data exchange.
130.The ending of the direct jurisdiction of the CJEU, and the inherent breadth and complexity of the TCA, means that, as we envisaged in our 2018 report, Dispute resolution and enforcement after Brexit, it has been necessary to create a varied series of dispute resolution mechanisms to deal with the many areas of potential disagreement that could arise between the two Parties.
131.This complex architecture is necessary to deal with the unique nature of the TCA—a ‘one size fits all’ method of dispute resolution was never likely to be sufficient. Many of the mechanisms, such as arbitration, are familiar from other free trade agreements. But other mechanisms, such as the proposed ‘rebalancing’ measures, are novel, untested, and without clear precedents.
132.Only time will tell if these novel approaches are workable in practice, or if they will have a destabilising effect. There is a risk that, if the Parties do not behave pragmatically and reasonably, some of the dispute resolution mechanisms could be used to trigger a broader renegotiation of the TCA—or even, in an extreme case, to justify termination of all or part of the agreement.
133.We regret that it was not possible to find a means to protect the interests of individuals and small businesses under the TCA. The fact that the bulk of the arrangements are necessarily State-to-State means that access to justice will be restricted, and the interests of those who are unable to lobby effectively may be overlooked.
134.We therefore call on the Government, in reflecting on the domestic consultation that will be needed to support the implementation and operation of the TCA, including the establishment of the domestic advisory groups provided for in Article INST.7, to prioritise measures to mitigate this loss of access to justice. Mechanisms are needed whereby individuals and businesses (particularly SMEs) adversely affected by the operation of the Agreement can swiftly escalate issues to Government, so that the Government can then pursue them. Even in the weeks since 1 January 2021, it has been clear that quick and effective resolution of issues experienced by individuals or businesses is essential if the wider Agreement is not to be brought into disrepute.
135.More specifically, we call on the Government to set out the safeguards and procedural rights available to those citizens in the UK who may be subject to extradition requests from EU Member States under the terms of the TCA, and in particular to explain how those rights have changed from those that were available before 1 January 2021, under the terms of the European Arrest Warrant.
72 European Union Committee, (15th Report, Session 2017–19, HL Paper 130), paras 56, 178
73 There are two good-faith obligations, COMPROV.3 is that the principle that the duty of good faith applies in the performance of the agreement. COMPROV.13 is that it applies in the interpretation of the agreement. These mirror the obligations in the Vienna Convention.
76 See footnote 8 for an example.
77 . Other issues which may arise as between the Withdrawal Agreement and the TCA have been analysed by the House of Commons Library, in its paper House of Commons Library, The UK-EU Trade and Cooperation Agreement: governance and dispute settlement, Library Note, 16 February 2021, p14. Notably, Article INST.24 (4) provides that the suspension of treaty obligations covered by the Part Six dispute settlement provisions can also result from persistent non-compliance with a ruling of an arbitration panel established under “an earlier agreement” between the two parties.
78 European Union Committee, (9th Report, Session 2019–21, HL Paper 66), Chapter 9
79 Article 168 ,
84 If the complaining party has decided not to request temporary compensation, or if it has requested compensation but the two sides have not reached agreement on this within 20 days, then it can notify the responding party that it intends to suspend obligations under certain provisions of the Agreement.
85 (and referred to as “Temporary Remedies”. This can involve cross-retaliation across the trade, aviation, road transport and fisheries headings if circumstances are serious enough and suspension of provisions in the same area would not be effective sets out areas of the TCA which cannot be suspended under these provisions.
86 As noted above, numerous exceptions are set out at . Among the exceptions are Part Three of the TCA (covering law enforcement and judicial co-operation, which has its own specific mechanism, which is essentially political) as well as Part 4 (covering thematic co-operation) and the level playing field provisions in the Trade heading to Part 2 of the TCA. Other parts of the TCA not subject to the provisions include the bulk of the provision on trade remedies, cultural goods and the exchange of classified information. A helpful blogpost by Professor Stephen Peers sets these exceptions out in more detail: ‘EU Law Analysis, Analysis 4 of the Brexit deal: Dispute settlement and the EU/EK Trade and Cooperation Agreement’, (8 January 2021): [accessed 4 March 2021]
89 The Article does not specify the scale of the change required to trigger compensatory measures, but does state that it “shall be measured on the basis of reliable evidence and not merely on conjecture and remote possibility”.
92 The specific policy areas falling within the level playing field are discussed in more detail in the reports of our sub-committees, European Union Committee, Beyond Brexit: trade in services (23rd Report, Session 2019–21, HL Report 248) and European Union Committee, Beyond Brexit: trade in goods (24th Report, Session 2019–21, HL Report 249).
94 The Institute for Government has published a helpful ‘explainer’ setting out the way in which the TCA approaches issues under the level playing field in respect of each of these headings, which can be accessed at: Institute for Government, ‘UK-EU future relationship: the deal’, (January 2021): [accessed 4 March 2021]. A more detailed explanation of the operation of the procedural rules under the Level Playing Field (including expedited arbitration) is available from the House of Commons Library. The UK-EU Trade and Cooperation Agreement: governance and dispute settlement, , 16 February 2021.
99 This point is covered in more detail in the report of our Environment Sub-Committee, European Union Committee, Beyond Brexit: food, environment, energy and health (22nd Report, Session 2019–21, HL Paper 248), paras 84–88
112 These areas listed in
113 European Union Committee, (15th Report, Session 2017–19, HL Paper 130)
117 Articles 47–49 of the EU Charter of Fundamental Rights protect the following rights: the right to an effective remedy and a fair trial; the presumption of innocence and the right to a defence; and the principles of legality and proportionality of criminal offences and penalties. EU Directives cover a right to information; a right to interpretation and translation; a right to legal representation; the right to be presumed innocent; special safeguards for child suspects and accused in criminal proceedings; and the right to legal aid.