Introducing the TCA
The EU-UK Trade and Cooperation Agreement (widely referred to as the "TCA"), implemented in the UK via the European Union (Future Relationship) Act 2020, entered into force on 1 January 2021. It will apply between the UK and the EU on a provisional basis until the European Parliament provides its consent.
The TCA was agreed on Christmas Eve 2020 and governs the UK's and the EU's intended new partnership. State-to-State arbitration is the primary forum of dispute resolution in the TCA, a welcome development in light of its intended objective to establish an "effective and efficient" dispute avoidance and settlement mechanism1.
The dispute settlement process was a sensitive part of the TCA negotiation and given that the Court of Justice of the EU ("CJEU") has ended up with no role in this process2 (a point the UK was insistent on), it represents a significant concession on the part of the EU.
Below, adopting a Q&A style, we take you on a whistle-stop tour of the important dispute settlement provisions at part six of the TCA.
Whistle-stop tour of dispute settlement provisions
1. How will disputes be resolved between the UK and the EU in relation to the application and interpretation of the TCA?
The dispute settlement provisions are outlined at Part 6 of the TCA and they are best read in conjunction with a separate annex3 which sets out the specific procedural rules under this ad-hoc arbitration. It is an exclusive mechanism meaning that neither the EU and UK courts have jurisdiction to resolve disputes under the TCA4. However, if a dispute arises regarding a measure that is allegedly in breach of an obligation under the TCA and of a substantially equivalent obligation under another international agreement to which both parties are party, including the WTO Agreement, the complaining party shall select the forum in which to settle the dispute.5
There is a two stage process for seeking to settle a dispute under the TCA and any supplementing agreement: Consultation then Arbitration6. This is followed by a compliance phase and then a review phase.
Before looking at this process in more detail, let's consider the nature of the TCA and the scope of this inter-State mechanism.
2. What law(s) or principles govern the interpretation of the TCA?
The TCA is an international treaty and its interpretation is governed only by principles of international law (and not by the domestic law of either party (EU law or UK law))7.
3. Are there many types of disputes which have been excluded from the general inter-State mechanism?
Yes, there is a sizeable list of provisions which fall outside the scope of the general inter-State mechanism outlined in Title 1, Part 6 8. According to this list, ten specific areas fall outside of Title 1 and these can either be resolved by the "Partnership Council", a political body made up of both EU and UK representatives tasked with overseeing the implementation of the TCA, or are subject to alternative arrangements.
This means that inter-State arbitration is not the sole dispute resolution process under the TCA - rather there is a complex web of dispute settlement processes. To give you a flavour, disputes in some areas of the 'level playing field' (like environment and labour standards) have to follow a procedure before a Panel of Experts. By contrast, the so-called rebalancing mechanisms to address divergence in future policies have their own accelerated arbitration timetable.
It will therefore be important for the TCA to be carefully reviewed by lawyers when a dispute arises to ensure that precisely the right dispute settlement mechanism is employed.
Turning back now to the specificities of the dispute resolution mechanism.
4. What are the two main stages to settling a dispute?
Stage 1: Consultation9
- The UK and the EU (the "parties", "complaining party" or "responding party", as applicable) are obliged to enter into consultations in good faith with the aim of reaching a mutually agreed solution.
- The consultation is deemed concluded within 30 days of the date of the delivery of the written request to the responding party, unless the parties agree to continue the consultation.
- However, if the matter is one of urgency (for example, the dispute relates to perishable goods or seasonal goods or services) this period is reduced to 20 days.
- The responding party is obliged to reply no later than 10 days after the delivery date of the request.
- The consultation, and all information deployed during it, are confidential and without prejudice to the parties' rights in any further proceedings.
Stage 2: Arbitration10
- Recourse to arbitration is permissible in all of these four scenarios:
- The responding party does not reply within the 10-day period mentioned above;
- The consultations are not held within the above-mentioned time-frames;
- The consultations are concluded without finding a mutually agreed solution; or
- The parties agree not to have consultations (meaning that the parties can opt to go straight to arbitration if they wish).
- Arbitration is commenced by a written request which:
- identifies the measure at issue; and
- explains how the measure breached the relevant provisions in a manner sufficient to present the legal basis for the complaint clearly.
5. So focusing on arbitration, what does the TCA say about the appointment of the tribunal?
Tribunals will compose of three independent arbitrators11 one of whom shall sit as the Chairperson. Each arbitrator is to have expertise in law and international trade (including on specific matters covered under the TCA12) and the Chairperson must also have experience in dispute settlement procedures13. The TCA also specifies that all arbitrators shall "possess the qualifications required for appointment to high judicial office in their respective countries or who are jurisconsults of recognised competence14."
The parties have a short timeframe (10 days after delivery of the request for the establishment of the tribunal) within which to agree on the composition of the tribunal15, failing which each party shall appoint an arbitrator from a sub-list established under the TCA. We understand this list has not yet been compiled by the Partnership Council which has until the end of June 2021 to do so. There will be one sub-list for each party and another for chairpersons (non-nationals of either party), with five candidates on each list16.
The co-chair of the Partnership Council from the complaining party will select an arbitrator by lot from the relevant sub-list if:
- a party fails to appoint a candidate from the sub-list or
- the parties cannot agree on the chairperson17.
6. How long will it take for a tribunal to issue its ruling?
Under the TCA, the tribunal has up to 160 days (after the date of its constitution) to issue a final ruling18. It may either be a unanimous or a majority decision and dissenting (or concurring) opinions will be not available19.
However prior to a final ruling, the tribunal is expected to deliver an interim report within 100 days of its formation (or 130 days at most) enabling the parties to submit a written request to review precise aspects of the report and comment on any such request made by the other party. If no such request is made, the interim report becomes the final ruling of the tribunal20.
If the tribunal decides that the proceedings concern "matters of urgency" (not defined in the TCA), the above time periods are halved21.
7. Are tribunal rulings binding? Are they publicly available?
The decisions of the arbitral tribunal are binding22 on the EU and UK and they shall be made publicly available by the parties (subject to the protection of confidential information which, we assume, means the parties will redact the decision accordingly)23.
8. Are there any limits on a tribunal's role under the TCA?
Yes there are. It is worth noting that the TCA has included a series of limitations to the scope of the decisions that an arbitral tribunal may take. For instance, the decisions "shall not create any rights or obligations with respect to natural or legal persons"24 Other limitations include:
- Tribunal decisions cannot add to or diminish the parties' rights and obligations under the TCA25.
- The tribunal has no jurisdiction to ascertain the legality of a measure alleged to breach the TCA under the party's domestic law26.
- The tribunal's finding will not bind either party's domestic courts (or tribunals) regarding the meaning to be attributed to that party's domestic law27.
It is yet to be seen the practicability of such limitations and how an arbitral tribunal will be able to fully comply with its mission while obeying such limitations.
9. Does the TCA include specific procedural rules regulating the arbitration?
Yes it does. These are laid down in ANNEX-INST: RULES OF PROCEDURE FOR DISPUTE SETTLEMENT ("Rules of Procedure"). They include rules relating to (amongst others) the language of the arbitration (which shall be English), confidentiality, arbitrator appointments, arbitrator remuneration, replacement arbitrators, hearings and submissions.
Noteworthy is Rule 23 of the Rules of Procedure which confirms that, subject to party agreement otherwise, the hearing shall be held in London if the complaining party is the EU and in Brussels if the complaining party is the UK.
Other points of procedure can also be found within Part 6 itself, for example in relation to the terms of reference of the tribunal28.
Arbitrators are also expected to adhere to a 'Code of Conduct for Arbitrators' set out at ANNEX-INST: CODE OF CONDUCT FOR ARBITRATORS, which includes provisions relating to their disclosure and confidentiality obligations.
10. What happens after a tribunal renders its decision?
The parties enter into the Compliance stage (Stage 3) and Review stage (Stage 4). The underlying principle is to avoid unilateral measures and sanctions based on breaches of the TCA. The mechanism is as follows:
Stage 3: Compliance
- If the tribunal finds that the respondent party has breached the TCA, that party shall take the "necessary measures" to comply immediately with the ruling so as to bring itself in compliance with the TCA.It must notify the complaining party within 30 days of the ruling of the measures it has taken or envisages taking29.
- In the latter case, where immediate compliance is not possible, it must also specify, and seek to agree with the complaining party, a reasonable time period for compliance30.
- The TCA provides further details about the tribunal's involvement if the parties are unable to agree a reasonable time period31.
- After the respondent party has reported its compliance measures, if the complaining party has a complaint about the existence of, or consistency of, any such measure it can ask the (same) tribunal to make a decision on the matter, which has to be delivered within 45 days of such request32.
- If the tribunal finds that such measure is non-existent or inconsistent with the TCA (or the respondent party fails to deliver a compliance notice or provides one saying that compliance is impossible) then the complaining party has access to two temporary remedies33 (which are mutually exclusive), namely:
- Temporary compensation; or
- Suspension of obligations.
- Essentially, the complaining party can either request temporary compensation from the respondent party or tell it that it intends to suspend the application of its obligations (for example, by beginning to impose tariffs, quotas or other retaliatory measures). The TCA sets out many conditions if a party wishes to suspend its obligations including lists of obligations not capable of suspension. It also makes it clear that the suspension of obligations shall not exceed the level equivalent to the nullification or impairment caused by the violation34.
Stage 4: Review
- Under the review process, parties review the new compliance measure taken by the respondent party after the complaining party adopted its temporary remedy.
- If the parties are still unable to agree on compliance, the complaining party can request another decision from the (same) tribunal within the timeframes set out in the TCA35.
- If the tribunal finds the measure complies with the TCA, the temporary remedy shall be terminated. If not, the temporary remedy shall be adjusted by the tribunal accordingly36.This means, for example, that the suspension of obligations may last for a long period (and not necessarily be so "temporary" in nature) if the responding party's strategy is one of continuous non-compliance.
11. Can the arbitration proceeding be "put on hold" at all?
Yes, both parties can together request the tribunal to suspend its work for an agreed timeframe of no longer than 12 months ("suspension period")37. However, if the suspension period lapses without the parties asking the tribunal to resume its work, the tribunal will no longer have authority and the arbitration shall be terminated.
12. Can the dispute still be settled by mutual agreement during the arbitral process?
Yes the parties can reach a mutually agreed solution at any time and if the arbitration is underway, upon notifying the chairperson, the arbitration shall then be terminated38.
However, the solution (which may be adopted by means of a decision of the Partnership Council) will be made publicly available (save for information designated as confidential)39.
13. Given that this is a State-to-State mechanism, does this mean that individuals and legal entities have no standing under the TCA?
Yes, correct. Legal and natural persons in the UK or EU have no standing under the TCA and therefore they would have to undertake lobbying efforts in order to persuade the UK or the EU to bring a case. However, the tribunal is entitled to accept amicus curiae submissions from private parties provided they are "independent from the governments" of the UK or EU and subject to the specific rules outlined in the TCA40.
Finally, the TCA is very clear on this point: tribunal rulings "shall not create any rights or obligations with respect to natural or legal persons41."
We envisage that many questions and legal issues will arise from the new intra-State mechanism in due course. Currently, it is too early to tell how well this procedure will work in practice and whether or not it will achieve its stated objective (an "effective and efficient" mechanism). The fact that, for example, we may not get agreed lists of arbitrators until the middle of 2021 indicates that it could be some time before we can properly assess this.
While the procedure for constituting the tribunal may be complex, having an independent arbitration tribunal as the decision-maker in relation to most (but not all) areas of the TCA is certainly a welcome starting point. However, the lack of separate dissenting or concurring opinions of arbitrators is not so welcome from the perspective of arbitrators' accountability.
What's more, while the arbitration is ad hoc (traditionally known to be more burdensome to administer than institutional arbitration), the framework is structured and detailed which provides hope that disputes will tread a smooth, efficient path rather than a bumpy, inefficient one. The absence of a supporting Secretariat means that the support for arbitrators to render decisions, often on highly complex legal issues, will be very limited. That said, the TCA leaves open the possibility for the parties to appoint a "registry" – an external body to provide administrative support for the proceedings – either on an ad-hoc basis or perhaps more permanently, if the Partnership Council decides to amend the Rules of Procedure in this regard42.
Interestingly, the TCA will be reviewed by the parties every five years and there are other review mechanisms in specialist areas, providing ample opportunity for the TCA to evolve and develop over the next decade or two. We will provide frequent updates on the TCA as new developments unfold.
6 This combination of consultation and arbitration is common in many other EU free trade agreements, although some of them also allow recourse to mediation (for example if trade and investment is adversely affected).