The referendum held on 23 June 2016 constitutes the starting point of a process that may eventually result in the exit of the United Kingdom ("UK") from the European Union ("EU").
The formal exit process requires that the UK first invoke Article 50 of the Treaty on European Union ("TEU"). Immediately following this, negotiations will start on the terms of the UK's withdrawal from the EU. Once the UK has left the EU, a separate agreement governing the post-Brexit relationship will need to be concluded between the UK and the EU. Different scenarios with vastly different outcomes are being considered, ranging from simple WTO membership over a CETA-style2 free trade agreement ("FTA") to a fully-fledged customs union.
The negotiations between the UK and the EU, both pre- and post-Brexit, will have important consequences for the EU's existing FTAs.
Will the EU's existing FTAs apply to the UK after Brexit?
Under public international law, the EU's FTAs with third countries will no longer apply to the UK after Brexit, since the UK will be unable to rely on existing customary international law on state succession to treaties.
First, the UK's exit from the EU is not legally a case of state succession. Indeed, rather than a state the EU is a sui generis international organization based on a number of treaties among sovereign states.
Second, the 1978 Vienna Convention on Succession of States in Respect of Treaties ("Convention"), often cited by supporters of the state succession theory, does not apply to the effects of a succession of states in respect of international agreements concluded between states and other subjects of international law. Since the EU is not a state, the agreements concluded between the EU and third countries, such as its FTAs, do not fall under the scope of the Convention. It should moreover be noted that the UK is not a party to the Convention.
Third, the legal provisions of the EU's FTAs often provide guidance on their territorial application. As an example, Article 15.5 of the Korea-EU FTA states that the agreement shall apply "to the territories in which the Treaty on European Union and the Treaty on the Functioning of the European Union are applied and under the conditions laid down in those Treaties". Since Brexit necessarily implies that the EU Treaties no longer apply to the UK, the latter would also no longer fall under the territorial scope of application of the Korea-EU FTA and other FTAs with similar provisions.
The default rule therefore seems to be that the EU's existing FTAs will no longer apply to the UK upon its withdrawal from the EU.
Can the UK negotiate its own FTAs with Non-EU countries?
From a legal point of view, as long as the UK has not officially withdrawn from the EU, it does not have the power to launch trade negotiations with third countries or the EU. Article 3 of the TEU clearly lists the "common commercial policy" among the exclusive competences of the EU, and Article 207 of the Treaty on the Functioning of the European Union ("TFEU") defines the framework for implementing the common commercial policy. Upon accession to the EU, the UK thus ceded its sovereignty in this particular domain to the EU.
If the UK were formally to launch trade talks with a third country before its withdrawal from the EU, the European Commission could technically open an infringement procedure pursuant to Article 258 of the TFEU. In fact, as the negotiation of an FTA between the UK and a third country would run counter to the objectives pursued by the EU in the context of its Common Commercial Policy, the UK would be in violation of Article 4(3) of the TEU, which requires member states to "refrain from any measure which could jeopardise the attainment of the Union's objectives". Similar infringement procedures could also be triggered by other EU member states.
Provided the UK only conducts informal, exploratory talks with potential trading partners, the probability of the European Commission effectively launching an infringement procedure against the UK appears to be very slim. Indeed, such informal talks are unlikely to result in the signing of an FTA before the UK's withdrawal from the EU.
Apart from the legal obstacles, it is also unlikely that trading partners would agree to enter into substantive negotiations with the UK before the terms of the UK's post-Brexit relationship with the EU are known. Indeed, the value of the concessions the UK is willing to offer in the context of such negotiations will at least partly depend on whether access to the UK also guarantees access to the EU's single market under the terms of the agreement between the UK and the EU.
Is it possible to transform the EU's existing FTAs into trilateral agreements?
Technically speaking, it would be feasible to transform the EU's existing FTAs into "trilateral" agreements, including the UK as a separate party thereto. In order to so do, it would suffice for the UK to negotiate its (re-)accession to the existing FTAs as a third party.
The concrete realization of such a "trilateralisation" is, however, far from automatic. Pursuant to Article 35 of the Vienna Convention on the Law of Treaties, a third State is only bound by a provision of a treaty if the parties to the treaty so decide and the third State expressly accepts that obligation in writing. As such, the accession by the UK to the EU's existing FTAs would require renegotiation of each FTA's provisions. Moreover, the renegotiated FTAs would need to go once again through the conclusion and ratification process which in the case of mixed agreements is particularly cumbersome, as demonstrated by the recent CETA saga.
What happens to current EU FTA negotiations?
At present, the EU is negotiating FTAs with a number of important trading partners such as the United States, Japan, India and Australia. Brexit is likely to reduce the benefit of the concessions obtained from the EU during negotiations. The EU's trading partners may therefore wish to obtain additional concessions from the EU or, alternatively, a guarantee that they will maintain access to the UK market after Brexit.
Although the UK, as an EU member state, is closely associated with the negotiation process, there is no indication that the UK is insisting on the inclusion of transition or late accession clauses in the text of such new FTAs. For instance, no declarations or interpretative notes providing clarifications on the consequences of the UK's withdrawal from the EU were included in CETA.
It might, however, be advantageous for all parties concerned to include in newly negotiated FTAs transparent rules on the consequences of the UK's withdrawal from the agreement and to provide for the conditions governing the UK's (re-)accession to the agreement.3 For instance, it could be stipulated that the agreement will continue to apply to the territory of the UK for a certain number of years after Brexit. This would provide the UK with the necessary time to negotiate its own agreement or (re-)accession to the existing agreement.
Until the withdrawal agreement enters into force, the EU's FTAs continue to apply to the UK. After that date, the UK will no longer benefit from the preferential trade agreements concluded by the EU.
It is unclear, however, under which conditions the UK will be able to (re-)accede to such treaties as a third party after Brexit. While the EU's FTAs could, technically, be transformed into trilateral agreements, the UK could also choose to conclude its own FTAs with its trading partners. The latter option is, however, complicated by the fact that legally the UK is prevented from negotiating with third countries until it has left the EU. Also, third countries may be hesitant to start negotiations until the post-Brexit relationship between the EU and the UK has been clarified.
For those FTAs that the EU is currently negotiating, the UK and the EU could include in such agreements a number of provisions on transitional arrangements and the modalities that would govern the re-accession of the UK after Brexit. Such clauses would at least provide a measure of clarity which is now sorely missing.
- Co-Managing Partner, Van Bael & Bellis, Brussels.
- Comprehensive Economic and Trade Agreement (“CETA”) between the EU and Canada.
- In this respect, it is worth looking at the evolution of the rules governing the late accession of third countries to existing FTAs. For instance, the Trans-Pacific Partnership (TPP), whose negotiations have recently been concluded, was intentionally construed with a view to further extending its membership to other interested third parties. It introduces a specific and detailed discipline with regard to the accession of countries among the original signatories.