Free Trade Agreement negotiations continue in the post-Brexit world, with arbitration the envisaged dispute resolution process

With the COVID-19 global health emergency dominating the news agenda and political landscape in recent times, Brexit feels like an old problem. But despite the UK cession from the EU, with the UK’s transitional period expiring at the end of the year, many of the uncertainties surrounding Brexit still need to be resolved.

With the release of the UK’s draft Comprehensive Free Trade Agreement on 19 May 2020 (the Draft FTA), following the release of the EU’s own draft Comprehensive Free Trade Agreement in March, more light has been shed on the dispute resolution mechanisms likely to be adopted by the EU and the UK to settle any potential disputes between them under the FTA in the post-Brexit era.

The dispute resolution mechanism proposed in the Draft FTA is similar to the UK Government’s vision for how disputes in the post-Brexit era should be solved as set out in the Government White Paper on “The Future Relationship Between the United Kingdom and the European Union” from September 2018, which we explored in the blog piece Resolving EU-UK disputes post-Brexit.

The dispute resolution mechanism in the Draft FTA

The dispute resolution mechanism is contained in Clause 33 of the Draft FTA and its objective is to establish an effective and efficient mechanism for settling disputes between the parties concerning the interpretation and application of the provisions of the Draft FTA with a view to reaching a mutually agreed solution.

Clause 33 can be split into two sections: (1) consultations; and (2) panel arbitration. Importantly, any panel arbitration shall only occur following attempts to engage in consultations (unless the parties agree not to enter into consultations).

Consultations

Two options are available to the parties at this stage – consultation and mediation.

A party may seek to initiate a consultation by means of a written request to the other party setting out its reasons for the request, including identification of the measure at issue and an indication of its factual and legal basis. During the consultation itself, each party shall provide sufficient information to enable a full examination of the measure at issue including how that measure could affect the operation and application of the Draft FTA. Importantly, consultations, including all information disclosed and positions taken by the parties, shall be confidential and without prejudice to the rights of either party in any further proceedings.

Alternatively, a party may at any time request the other party to enter into a mediation procedure with respect to any matter concerning a measure that adversely affects trade or investment between the parties. If the parties subsequently agree to enter into a mediation procedure it shall be initiated, conducted and terminated in accordance with the procedure set out in Annex 33-C of the Draft FTA.

Panel arbitration

As mentioned above, panel arbitration can only be initiated in circumstances following attempts to engage in consultations (unless the parties agree not to enter into consultations).

The panel shall consist of three arbitrators selected from a list of arbitrators established by a joint committee comprising representatives of both parties, with each party selecting one and seeking to agree the chairperson with the other party.

Unless the parties agree otherwise no later than 10 days after the date of the establishment of the panel, the terms of reference of the panel shall be “to examine, in light of the relevant covered provisions of this [Draft FTA], the matter referred to in the request for the establishment of the panel, to decide on the conformity of the measure at issue with the relevant covered provisions of this [Draft FTA] and to issue a report in accordance with Articles 33.18 (Interim report) and 33.19 (Final report)”.

The Draft FTA also provides that in circumstances that so require, the panel and the parties shall make every effort to accelerate proceedings to the greatest extent possible.

In the event of non-compliance with either the interim report or the final report, the parties can attempt to agree mutually satisfactory compensation or, failing that, the complaining party may have the right to suspend any concessions or other obligations owed to the other party under the Draft FTA.

As with all things Brexit, there is still a long way to go, but this is another clear signal of the role that arbitration will play in the new era of potential disputes between the UK and EU.