Brexit and trade agreements – What is the legal basis for the negotiations by the EU with the UK?
When the EU and UK diplomats eventually begin talks on the post-Brexit trading relationship, the structure and possibly outcome of those talks will, at least in part, be affected by the legal basis on which the EU negotiates trade agreements with third countries. While Ireland will seek to actively engage with the EU institutions to outline issues directly affecting Ireland (such as the impact of Brexit on Ireland/Northern Ireland issues), the EU will take control of the negotiations on the post-Brexit trading relationship with the UK.
1. What is the legal basis for the EU to negotiate trade agreements?
The EU organises trade relations with countries outside the EU through its trade policy. Trade policy is an exclusive power of the EU. Article 3(1)(e) of the Treaty on the Functioning of the European Union (TFEU) provides that the EU has exclusive competence in relation to the common commercial policy. The scope of this exclusive competence (developed over time since 1957 by a series of revisions to the EU Treaties and by way of case-law from the Court of Justice (COJ)), is mainly set out in Article 207 TFEU. This exclusive competence is not limited to trade in goods, but also includes trade in services, trade-related aspects of intellectual property and foreign direct investment. Article 207 TFEU provides that:
"1. The common commercial policy shall be based on uniform principles, particularly with regard to changes in tariff rates, the conclusion of tariff and trade agreements relating to trade in goods and services, and the commercial aspects of intellectual property, foreign direct investment, the achievement of uniformity in measures of liberalisation, export policy and measures to protect trade such as those to be taken in the event of dumping or subsidies. The common commercial policy shall be conducted in the context of the principles and objectives of the Union's external action.
2. The European Parliament and the Council, acting by means of regulations in accordance with the ordinary legislative procedure, shall adopt the measures defining the framework for implementing the common commercial policy.
3. Where agreements with one or more third countries or international organisations need to be negotiated and concluded, Article 218 shall apply, subject to the special provisions of this Article. The Commission shall make recommendations to the Council, which shall authorise it to open the necessary negotiations. The Council and the Commission shall be responsible for ensuring that the agreements negotiated are compatible with internal Union policies and rules.
The Commission shall conduct these negotiations in consultation with a special committee appointed by the Council to assist the Commission in this task and within the framework of such directives as the Council may issue to it. The Commission shall report regularly to the special committee and to the European Parliament on the progress of negotiations."
For the negotiation and conclusion of these trade agreements, the Council of the EU (Council (and which represents the Member States' governments)) acts by a qualified majority.
From 1 November 2014 a new procedure for qualified majority voting began to apply in the Council. Under this procedure, when the Council votes on a proposal by the Commission, a qualified majority is reached if: (i) 55% of Member States vote in favour (essentially 16 out of 28); and (ii) the proposal is supported by Member States representing at least 65% of the total EU population. This procedure is also known as the 'double majority' rule.
For the negotiation and conclusion of agreements in trade in services and the commercial aspects of intellectual property, as well as foreign direct investment, the Council acts unanimously where such agreements include provisions for which unanimity is required for the adoption of internal EU rules. The Council also acts unanimously for the negotiation and conclusion of agreements:
(a) in the field of trade in cultural and audiovisual services, where these agreements risk prejudicing the Union's cultural and linguistic diversity; and
(b) in the field of trade in social, education and health services, where these agreements risk seriously disturbing the national organisation of such services and prejudicing the responsibility of Member States to deliver them.
The sole exception to the EU’s exclusive competence over trade in services is in the field of transport, which is an area of shared competence. The negotiation and conclusion of international agreements in the field of transport is therefore subject to separate rules under the TFEU (see Title VI and Article 218 TFEU).
The exercise of the competences conferred by Article 207 regarding the CCP does not affect the delimitation of competences between the EU and the Member States, and does not lead to harmonisation of legislative or regulatory provisions of the Member States in so far as the Treaties exclude such harmonisation.
In this regard, Article 216 of the TFEU provides that the EU may conclude an agreement with a third country where the Treaties so provide or where the conclusion of an agreement is necessary in order to achieve, within the framework of the EU's policies, one of the objectives referred to in the Treaties, or is provided for in a legally binding Union act or is likely to affect common rules or alter their scope.
Agreements concluded by the EU are binding upon the institutions of the Union and on its Member States.
Therefore, it is the EU, and not individual Member States (such as Ireland), that negotiates international trade agreements. The Commission negotiates with a third party trading partner on behalf of the whole EU in cooperation with the Council and the European Parliament. Ultimately the Council and the European Parliament approve any trade agreement.
Currently the EU: (i) has a Customs Union (with Turkey, Andorra, Monaco and San Marino); (ii) is party to the European Economic Area (with Norway, Liechtenstein and Iceland); and (iii) has a number of trade agreements with countries such as Switzerland and South Korea. The EU is currently seeking to negotiate a trade agreement with the US (though there are a number of political hurdles in relation to this proposed agreement) and has an agreement waiting for final ratification with Canada (i.e. the Comprehensive Economic and Trade Agreement).
2. What are the formal procedures for such negotiations?
Under Article 218 TFEU (and without prejudice to the specific provisions set-out under Article 207 TFEU above), agreements between the EU and third countries (or international organisations) are negotiated and concluded in accordance with the following general procedures:
- The Council authorises the opening of negotiations, adopts negotiating directives, authorises the signing of agreements and concludes them;
- The Commission (or the High Representative of the Union for Foreign Affairs and Security Policy where the agreement relates mainly to the common foreign and security policy), submits recommendations to the Council, which adopts a decision authorising the start of negotiations and, depending on the subject of the agreement envisaged, nominates the Union negotiator or the head of the Union's negotiating team;
- The Council may address directives to the negotiator and designate a special committee in consultation with which the negotiations must be conducted; and
- The Council, on a proposal by the negotiator, adopts a decision authorising the signing of the agreement and, if necessary, its provisional application before entry into force.
Then, the Council adopts the decision concluding the agreement (except with regard to the Common Foreign and Security Policy (CFSP)) after obtaining the consent of the European Parliament for: (i) association agreements; (ii) agreement on EU accession to the European Convention for the Protection of Human Rights and Fundamental Freedoms; (iii) agreements establishing a specific institutional framework by organising cooperation procedures; (iv) agreements with important budgetary implications for the EU; and (v) agreements covering fields to which either the ordinary legislative procedure applies, or the special legislative procedure where consent by the European Parliament is required. The European Parliament and the Council may, in an urgent situation, agree upon a time-limit for consent.
The Council also adopts the decision concluding the agreement (except with regard to the CFSP) in other cases after consulting the European Parliament. The European Parliament delivers its opinion within a time-limit which the Council may set depending on the urgency of the matter. In the absence of an opinion within that time-limit, the Council may then act.
The Council acts by a qualified majority throughout the procedure. However, it acts unanimously when the agreement covers a field for which unanimity is required for the adoption of an EU act as well as for association agreements (for more details see Part 1 of this series of articles). The European Parliament is informed at all stages of the procedure. A Member State, the European Parliament, the Council or the Commission may obtain the opinion of the COJ as to whether an agreement envisaged is compatible with the EU Treaties. Where the opinion of the COJ is adverse, the agreement envisaged cannot enter into force unless it is amended or the EU Treaties are revised.
3. How does the EU prepare for negotiations?
The Commission, the Council and the European Parliament are in contact about trade policy including any plans to negotiate a trade deal with a certain country or region. In early stages of a discussion about launching trade negotiations, the Commission holds a public consultation on the content and options for any free trade agreement and conducts an assessment of the impact of any such deal on the EU and on the other country.
The Commission may begin an informal dialogue with the third party concerned on the content of a future negotiation (i.e. a scoping exercise). This can cover the range and depth of topics that will be negotiated and assesses if the parties have similar interests to reach a successful conclusion to the discussions.
The Commission requests formal authorisation from the Council to begin negotiations. These are known the "negotiating directives" referred to above under Article 218 TFEU and they outline the general objectives to be achieved. The Commission request is shared with the European Parliament. The Council adopts the negotiating directives and then authorises the Commission to negotiate on behalf of the EU.
4. Relevance of the World Trade Organisation (WTO) framework
Free trade agreements grant certain privileged access to the markets of the countries concerned and they are an exemption to the first principle in the WTO of granting equal treatment to all trade partners. Therefore, the rules for free trade agreements are set out in the WTO, specifically in Article XXIV of the General Agreement on Tariffs and Trade and Article V of the General Agreement on Trade in Services. This is relevant for the content of the tariff aspect of the negotiations, for example, as the rules state that "substantially all trade" must be liberalised. Free trade agreements are also required to be notified to the WTO.
The negotiating teams are led by a Chief Negotiator and include experts covering the topics under negotiation. The Commission (i.e. DG Trade) leads the negotiations and draws on expertise from across the Commission. A negotiation round may cover all the topics under negotiation or it focus on a limited number of them.
The Chief Negotiators set up different negotiation rounds, normally alternating between the EU and in other party's country. The duration of negotiations depends on the pace of negotiations and the Commission has stated that it can range from 2-3 years to much longer. The Chief Negotiators are in regular contact and may meet outside formal negotiation rounds. At key moments in the negotiations, the Trade Minister of the country concerned and the EU Trade Commissioner will meet.
6. Types of Agreements
The titles of the free trade agreements vary according to the partners' preferences (e.g. CETA for Canada). Some trade agreements are part of broader political cooperation agreements, where trade is one of several topics covered: e.g., the Association Agreement with Central America. If the EU already has an overall agreement framework for political cooperation with the country concerned, it is more likely that the free trade agreement will be a stand-alone agreement. Typically, a free trade agreement contains chapters on each topic and has a number of annexes. These include the schedule of tariff liberalisation tariff-line by tariff-line, sectoral agreements and Protocols.
7. Sharing information within the EU
After each negotiation round and at other key points in the negotiations the Council and the European Parliament are informed about the state of play. Discussion takes place regularly with Council and with the European Parliament at working level, but it may also be raised periodically at Ministers' level or in plenary debates. The draft texts of the negotiations are not made public during the negotiations. Even when certain chapters (or topics) are "closed", the negotiation is not over until everything is agreed. When negotiations reach the stage of technical finalisation, the European Parliament and the Council are informed. Finalised texts are sent to the Member States and to the European Parliament. At this stage the legal input into the texts begins in earnest and is where lawyers review the negotiated texts. The Commission has said that this exercise can take from 3 to 9 months.
8. Conclusion of negotiations
When negotiations are technically concluded and the legal input (or "scrubbing") is complete, the chief negotiators of both parties initial the English text of the proposed agreement. The Council and the European Parliament are informed once the agreement is initialled and they are provided with the text. After initialling, the Commission can decide to publish the text with a disclaimer that it is not yet binding as a matter of international law. The agreement is translated into all official languages of the EU. The other party also ensures translation into their national language, for example if the text was negotiated in English.
The Council decides on the signature and conclusion of the agreement following a proposal of the Commission.
The Council also has the texts legally reviewed and following internal debate, gives the authorisation to sign the agreement. Sometimes agreements are accompanied by legislative proposals needed to help implement the agreements, which must also be adopted by the Council and the European Parliament. The agreement is formally signed by the two parties. The Presidency designates a person to sign (often the European Commissioner for trade) on behalf of the EU. Where the agreement covers topics that are the responsibility of the Member States (and not shared at EU level), all Member States need to sign as well.
(iii) Approval and ratification
After signature by both sides, the Council transmits the agreement together with the draft decision to conclude to the European Parliament for consent. Once it receives the texts, the European Parliament gives its consent after the necessary preparation at committee level. Once the European Parliament completes its internal review (e.g. involving the Committee for International Trade), the European Parliament votes in plenary session to consent. Where the agreement contains provisions that fall under Member State responsibility (i.e. a "mixed agreement"), individual Member States must ratify the agreement as well as the EU according to their national ratification procedures. After consent of the European Parliament and ratification by Member States, the Council adopts the final Decision to conclude the agreement and the agreement is published in the Official Journal.
For further information please contact Alan McCarthy or a member of our EU, Competition & Procurement Team.
Date Published: 12 September 2016