Hanspeter Tschäni: European Court of Justice and bilateral agreements: Did the EU grant the UK a better deal than the Swiss and Ukraine?

After the conclusion of a Trade and Cooperation Agreement between the European Union (EU) and the United Kingdom (UK), several commentators and politicians in Switzerland have argued that the UK negotiators achieved a better result than their Swiss colleagues by preventing the European Court of Justice (ECJ) from playing a role in the dispute settlement mechanism in its agreement. By accepting such a role in its draft of an Institutional Agreement (InstA), Switzerland would have settled for a model designed for countries like Ukraine on the periphery of Europe. The critics complain that this model gives the ECJ an inordinate influence in disputes by requiring an arbitration panel to submit to it questions for interpretation that contain a notion of EU law for a binding ruling.

In this note it is suggested that there are several problems with this line of argumentation. On the one hand, it does not take into account the substantially different content of the Swiss and UK agreements. On the other hand, it seems to imply that the motive of the EU was to use its superior negotiating power to impose a procedure on weaker countries, which is entirely to the EU’s advantage and pays no respect to the sovereign rights of such countries. It also implies that, by agreeing to such a model, Switzerland puts itself on the same level as such countries and agrees to a violation of its sovereign rights. Finally, it seems to indicate that the UK had used its substantial negotiating power in turn to convince the EU to step back from a similar request.

Contrary to this line of arguments, this note suggests that there other reasons why the ECJ plays a role in two of these agreements and not in the third, and that these reasons are of a legal, rather than a political nature. It is argued here that the decisive criterion for an inclusion of the ECJ is whether such agreements contain EU legal provisions (acquis communautaire) forming part of the joint rights and obligations of the contracting parties, in particular provisions enabling economic operators of a contracting partner to participate in the EU internal market. In order to ensure that these provisions are interpreted in a uniform way and that all the participants in the internal market have the same rights and obligations, an institution like the ECJ is necessary. To test this hypothesis, a closer look at the three agreements is necessary.

The EU-Ukraine Association Agreement has two sets of provisions for handling disputes: one for disputes in all of the agreement and another for matters  listed in only one Title (Title IV, „Trade and trade-related matters“).  While the former stipulates that conflicts are to be dealt with in a diplomatic way in the Association Council, the latter offers as a last step the possibility of an arbitration procedure. In that case, an arbitration panel must refer an issue to the ECJ for a binding ruling if „a dispute raises a question of interpretation of a provision of EU law“. In the same article (322) it is specified that the dispute must relate to the provisions on „regulatory approximation“ contained in the main chapters falling in the category of „trade and trade-related matters“, ranging from TBTs, SPS, customs and trade facilitation to public procurement and to competition, including state aid. In these chapters numerous EU directives and regulations are listed which serve as a reference for Ukraine to approximate its laws or to incorporate them into its own legal system. It is evident that these matters also form part of the core of the EU internal market. A precondition for participating in that market is to either incorporate the corresponding EU legislation or to approximate its own laws to the respective acquis communautaire.

The situation is different when it comes to the EU-UK Trade and Cooperation Agreement that was just negotiated. Nowhere in that agreement are EU law and legal provisions to be found that would form part of the joint rights and obligations.  Rather, even under the heading of „cooperation“ wordings such as „where it is in their mutual interest and without prejudice to the autonomy of their own respective decision-making and legal orders“ (TBT Art. 11) are the rule. The emphasis is on WTO rules, and several WTO agreements are incorporated into and made part of the EU-UK agreement. Likewise, dispute settlement provisions follow the classic (WTO) approach but without any reference to the ECJ.

Those who argue that only the UK’s substantial negotiating power was capable of convincing the EU from abandoning its request for a similar role of the ECJ as in the Ukraine agreement might point to the Revised Political Declaration of October 2019 where such a role was included. However, in the Declaration it was also stated that the parties were aiming at „parameters of an ambitious, broad, deep and flexible partnership across trade and economic coperation with a comprehensive and balanced Free Trade Agreement at its core“. The resulting agreement certainly does not live up to these high standards. One can safely presume that the limited range and depth of cooperation of the issues covered and the absence of EU provisions in the agreement made it easy for the EU not to insist on a mention of the ECJ. Further evidence for this presumption can be found in the (Brexit) Withdrawal Agreement between the EU and the UK, and the Revised Protocol on Ireland and Northern Ireland, which forms part of that agreement. Both agreements contain numerous references to EU directives, regulations and other provisions  and the ECJ is given an important role in their interpretation and in disputes, including in the case of an arbitration procedure.

The draft text of the InstA between Switzerland and the EU provides for the possibility of initiating an arbitration procedure if diplomatic ways of resolving a difference of opinion between the parties do not succeed. If that difference or a part therof concerns a provision or a term of EU law („des notions de droit de l’Union Européenne“ or „unionsrechtliche Begriffe“ in the inofficial German version) and if the interpretation of that provision or term is relevant for the case at hand and necessary for resolving the dispute, the arbitration panel is required to turn to the ECJ for an interpretation. The ruling of the European court is binding for the panel. In assessing the potential consequences of this provision, it needs to be kept in mind that the InstA is applicable only to those bilateral agreements that permit Swiss producers and economic operators to participate in one way or another in the internal market.[1] All these agreements contain, albeit in different forms, EU acquis.

On the basis of the evidence cited above, we can thus conclude that the dispute settlement provisions in the three agreements are consistent with our hypothesis and point to a regular EU practice vis-à-vis partner countries: to the degree that EU law or provisions form part of the rights and obligations of the parties in an agreement, they must be interpreted in a uniform way. An obligation to refer such cases to the ECJ as part of the dispute settlement mechanism in such agreements and to make the ruling of that court binding on the parties ensures that this is the case. Conversely, if there is no reference to EU law and no participation of economic operators in the EU internal market is foreseen, as in the agreement with the UK,  the EU does not need to insist on such a provision. In the light of this conclusion, it is also evident that a comparison between the Swiss and UK agreements that concentrates on the role of the ECJ does not make any sense. The agreements are too different regarding the depth of cooperation with the EU, and the UK Trade and Cooperation Agreement does not contain any EU law and provisions. Furthermore, it should be clear to anyone who has been involved in negotiations that picking out one convenient aspect from a complex agreement without regard to the context in which this aspect has been negotiated and agreed will not be taken seriously.

This conclusion does not mean that the dispute settlement procedure in the InstA was the only one open to the Swiss negotiators nor that the details of the procedure chosen are perfect. With regard to the former, it has been argued that Switzerland could have „docked“ itself to the EEA system (the EFTA Court and the EFTA Surveillance Authority) instead of agreeing to the solution that is now before us. It is correct that from a legal point of view this would have been a possibility. However, it is not the objectiv of this note to discuss the reasons that might have prompted the Federal Council not to pursue this path nor to speculate about the potential advantages or disadvantages of joining the EEA institutions. With regard to the details of the dispute settlement procedure, a closer look reveals several shortcomings which are not found in the agreements the Ukraine and the UK concluded with the EU. One of them is the fact that no separate list of independent experts is foreseen for the chair of the panel that could be resorted to in case no agreement is found between the arbitrators designated by the parties. This could lead to the situation that there are two nationals of one party in the panel – hardly conducive for accepting a binding ruling. Another shortcoming is that one party – in all likelihood the EU –  could set in motion rebalancing measures and that such measures could only after a lengthy consultation period be examined for their appropriateness by an arbitration panel. However, it is not on these shortcomings that the opponents concentrate on when they reproach the Swiss negotiators for having been less skillful than their UK colleagues.

[1] (1) Free movement of  people; (2) Air traffic; (3) Transport on rail and street; (4) Mutual recognition of confirmity assessments; (5) Trade of agricultural products

This text orginally appeared on the LinkedIn feed of Hanspeter Tschäni.

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