Is it possible for the United Kingdom to negotiate a trade agreement with the EU, FTAs with third countries and its new legal status within the WTO while being part of the EU?
The UK government has created two new departments, the Department of International Trade and the Department for Exiting the European Union (EU) as it prepares to negotiate its withdrawal from the EU and start new trade negotiations with non-EU countries (third countries). One (or both) of these departments would also be negotiating the UK’s potential new trade agreement with the EU and its accession to the WTO as an independent member. It appears that the UK position is that all these trade negotiations can take place while it is still a full member of the EU. The question then is whether the UK would be in breach of EU law if it negotiated trade matters with third countries and a new status in the WTO. An additional question is whether the UK can negotiate a trade agreement with the EU while still being a member of the EU?
First question: Can the UK negotiate trade agreements with third countries?
The Treaty on the Functioning of the European Union (TFEU) confers exclusive competence on external trade and foreign direct investment matters (Common Commercial Policy, known as “CCP”) to the European Union. Article 3(1)(e) of the TFEU expressly stipulates that the CCP falls within the exclusive competence of the EU. The purpose of this provision is to prevent Member States from jeopardising the EU’s trade policy. A separate tariff deal would, for example, invariably affect the functioning of the customs union. This means that the EU has exclusive competence to negotiate and conclude trade agreements with third countries and, as a result, the UK is prevented from entering into trade agreements while still being a member of the EU.
But what happens if a Member State (the UK in this case) triggers Article 50 of the TFEU? Would Article 50, which officially initiates the process of withdrawal from membership to the EU, authorise the UK to conclude its own trade negotiations? Article 50(3) of the TFEU provides:
The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.
It is thus clear that Article 50 does not provide for an exception to the observance by Member States of Article 3(1) of the TFEU. The UK would have to apply the CCP and avoid undermining it as long as it remains a member of the EU. This means that under Article 50(3) the UK could only conclude its own trade agreements after the withdrawal agreement or two years after the exit notification.
While it seems clear under EU law that the UK cannot conclude any trade deal with a third country while being a member of the EU, this does not mean that the UK is legally prevented from entering into trade talks or negotiations with third countries during the period between the notification under Article 50 and the formal exit. Nothing in Article 3(1) and Article 50 of the TFEU prevents a member state in the process of exiting the EU (and as a consequence the CCP) from engaging in trade negotiations with third countries as long they do not materialise in legal commitments. Trade negotiations by the UK with a third country under the umbrella of Article 50 would not, in principle, be “jeopardising” the CCP of the EU, since trade discussions do not translate into international obligations. Only legal commitments by the UK with other states could undermine the EU’s trade policy.
Second question: Can the UK negotiate its new WTO membership terms while being a member of the EU?
At the outset, it is important to point out that the negotiation process in the WTO will be completely different from any trade negotiation with third countries. Given the fact that the UK is a founding member of GATT and of the WTO, the objective of the negotiation would only be the re-establishment of the UK as an independent member of the WTO, not an accession to the organisation. As a member of the WTO the UK has rights but they are not entirely independent rights. The UK, as a member of the EU, has its rights and commitments wrapped up with those of the EU. Since the commitments of the UK are combined with the EU, the negotiation in the WTO would require a simultaneous negotiation between the EU and the UK with all WTO members. This negotiation, in my opinion, would be an area covered by Article 50(2) of the TFEU. Article 50(2) provides for the parties (i.e. the EU and the UK) to negotiate and conclude an agreement setting out the arrangements and formalities of the UK withdrawal and the UK’s future relationship with the EU. Given the fact that both the UK and the EU would have to disentangle their independent membership commitments in the WTO as a result of the UK’s exit from the EU, the WTO negotiation process would, in my opinion, form part of the “arrangements” of the UK withdrawal under Article 50(2). The UK, therefore, would not be in breach of either Article 3 or Article 50 of the TFEU if it conducted its negotiations in the WTO while being a member of the EU.
Third question: Can the UK negotiate a trade agreement with the EU while being a member of the EU?
According to the EU’s Trade Commissioner, Cecilia Malmström, the answer is no. In a recent interview she said, “There are actually two negotiations. First you exit, and then you negotiate the new relationship, whatever that is.” Her position seems to favour a strict interpretation of Article 50. This interpretation may be supported by the fact that a formal trade deal between the UK and the EU would be in conflict with the EU rules and practice in the negotiation and conclusion of trade agreements. Moreover, a formal trade negotiation between the UK and the EU would raise questions of conflict of interest. Under the EU institutional framework related to the making of trade agreements, the UK forms part of the EU decision-making process. The UK is a member of the Council of the European Union which sets directives for the negotiation of trade agreements. It also adopts (after the European Parliament has given its consent) trade agreements. The UK would also have access to confidential information of the EU in its negotiation with the UK. In principle, this would jeopardise the EU’s negotiating position vis-à-vis the UK.
But in my opinion nothing in Article 50 prevents the EU from initiating formal trade negotiations with the UK during the withdrawal process. Article 50 (2) provides in the relevant part that
A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.
This formulation requires the EU to conclude a withdrawal agreement with the UK, taking into account the framework of the trading relationship between the withdrawal Member State and the EU. What could be included in the “framework” is unclear but it seems to me that the spirit of Article 50 envisages the adoption of an instrument setting out the new rules which would govern the bilateral trade relations between the UK and the EU, including the technical aspects of a future trade agreement which could only be concluded once the UK has formally exited the EU.
In relation to the conflict of interest issue, this should not be considered an insurmountable obstacle to the opening of trade negotiations between the UK and the EU. In fact, Article 50(4) sets out the voting rules for the EU on the question of the UK’s exit. And specific rules on confidential information arising out of the negotiations could also be dealt with by the European Council in the “guidelines” referred to in Article 50(2).
As a final point, although Article 50 raises challenging questions of law in relation to the mechanics and what can and cannot be negotiated during the withdrawal process, the successful negotiation of a trade agreement between the UK and the EU will depend to a great extent upon the political will of both sides. This is always the case in international trade negotiations, and the UK and EU trade deal would not be an exception.