EEA could be good model for dispute resolution post Brexit

by Alan Dashwood | 07.02.2017

Chapter 2 of the government’s recent White Paper, The United Kingdom’s exit from and new partnership with the European Union, acknowledges that provision will have to be made for dispute resolution in the agreement (or agreements) underpinning post-exit relations between the UK and the EU. Any such arrangements must, it is stressed, “respect UK sovereignty, protect the role of our courts and maximise legal certainty, including for businesses, consumers, workers and other citizens”.

Various existing dispute resolution mechanisms are outlined in chapter 2 of the White Paper and more fully described in Annex A. These normally entail the establishment of a “joint committee” comprising representatives of the parties to the agreement in question, within which, initially at least, an effort must be made to resolve any dispute by means of political/diplomatic consultations.

If such an approach fails, the more developed mechanisms provide for the dispute to be referred to an arbitration panel, the rulings of which may be binding. The sanction for failure by the “losing” party to comply with such a ruling may be to give the other party a right to suspend obligations under the agreement, or to compensation. The main dispute resolution mechanism under the EU/Canada Comprehensive Economic and Trade Agreement (CETA), which receives considerable attention in Annex A, is of this type.

While a dispute resolution system inspired by one of the models considered in the White Paper would fulfil the government’s first two aims of respecting the sovereignty of the UK and protecting the role of UK courts, it would clearly be less well adapted to the third aim of ensuring legal certainty for the benefit of businesses and individuals. There is too much scope for prevarication and for political deal-making, and this will matter more, the closer the relationship that the UK is able to negotiate with the EU.

Why not the EEA model?

It is a pity, therefore, that the White Paper says nothing about the dispute resolution mechanisms of the EEA Agreement, which still provide an instructive model, even if the government has set its face against the UK’s joining the European Economic Area (EEA).

The hallmark of the EEA’s institutional system is its so-called “two-pillar” structure. Compliance by the EU member states with the EEA Agreement is ensured by EU institutions, the European Commission and the Court of Justice of the EU (CJEU); while compliance by the three EFTA States belonging to the EEA – Norway, Iceland and Liechtenstein – is ensured by parallel institutions, the EFTA Surveillance Authority (ESA) and the EFTA Court.

Besides its jurisdiction in proceedings brought by the ESA against EFTA members to enforce their obligations under the Agreement, the EFTA Court can give preliminary rulings on the interpretation of EEA rules at the request of national courts (though even supreme courts are under no obligation to seek such guidance); and it has power to review the validity of decisions of the ESA on competition matters.

There is, in addition, provision under Article 111 of the EEA Agreement for any matter in dispute concerning the interpretation or application of the Agreement to be brought before the EEA Joint Committee, which consists of representatives of the EU and EFTA. This could eventually result in the taking of safeguard measures, or in the partial suspension of the Agreement, if a settlement cannot be reached. However, so successful has surveillance under the two-pillar system been in avoiding disputes, that the Article 111 mechanism has never had to be resorted to.

Consideration should be given to the possibility for the UK, without formally becoming a member of the EEA, to “borrow” the ESA and the EFTA Court for the purposes of its future partnership with the EU. This could be achieved quite simply (though the consent of the EFTA States concerned would, of course, be needed) by giving those institutions power to apply the agreement(s) establishing the new EU/UK partnership, and adding a UK member to each of them in any case where such power fell to be exercised. The technical feasibility of such a solution has been recognised by no less an authority than Carl Baudenbacher, president of the EFTA Court, in a lecture that he gave under the auspices of King’s College, London in October 2016.

It is important to be clear that the ESA and the EFTA Court are very different institutions from their EU counterparts, the EU Commission and the CJEU. Their focus is economic, rather than political, and they are not driven by the same integrationist ideology. Nor, it can confidently be predicted, would the EFTA Court insist on the automatic direct effect and primacy of the rules contained in the EU/UK partnership agreement(s), any more than it has done with respect to the rules of the EEA Agreement. It would be for the UK to ensure the application of the rules, in order to comply with its international obligations.

A solution along the lines suggested here would, therefore, be consistent with the aims of respecting UK sovereignty and preserving the role of UK courts, while greatly strengthening legal certainty. It would also improve the chances of securing from the EU the kind of ambitious partnership package which, reading between the lines of the White Paper, the Government (rightly and wisely) appears to favour.

Edited by Hugo Dixon