UK Prime Minister May was the first foreign leader to visit US President Trump, thereby underlining the “special relationship” between the UK and the USA. One of the aims of the visit was to kick-start negotiations for a trade deal between the UK and the USA.
After her American visit, PM May flew directly to Turkey to meet the Turkish President Erdogan. Again, one of the reported aims of this visit was to assess the possibility of a trade deal between the UK and Turkey. Moreover, the UK plans to negotiate trade deals with many other countries, ranging from India, Australia and New Zealand.
However, while the UK has many plans for trade negotiations, it is important not to forget the existing legal obstacles which may constrain, or at least slow down, the push towards new trade deals. The first obstacle is that the UK is still a member of the EU. This means that the UK is still bound by all existing and applicable EU law until it formally leaves the bloc.
As is well known, the EU has had exclusive competence to negotiate trade deals for many decades and, since the Treaty of Lisbon entered into force in December 2009, the EU has also been responsible for agreements related to foreign direct investment (FDI). The European Commission (EC) and the other EU institutions interpret the exclusive FDI-competence as encompassing all investment related matters, including investor-state dispute settlement (ISDS) provisions. However, the exact scope of this competence is now before the Court of Justice of the EU (CJEU) to be authoritatively determined.
Whatever the outcome of that will be, it should be noted that, according to Regulation 1219/2012, EU member states have the power to start negotiations for new investment treaties, subject to prior notification to and authorisation by the EC.
Following such notification and submission of the relevant documents, the EC shall make the notification and, if requested, the documents, available to the other member states subject to a confidentiality obligation. The authorisation may be accompanied with the requirement to include or remove from the negotiations’ agenda certain treaty clauses, with a view to ensure compliance with EU law and investment policy.
The time limit for taking the decision is 90 days from the notification or receipt of additional information, if requested by the EC. The EC shall not authorise the opening of formal negotiations, if it concludes that such negotiations would:
- Conflict with EU law except for incompatibilities arising from the allocation of competences between the EU and member states.
- Be superfluous, because the EC has submitted or has decided to submit a recommendation to open negotiations with the third country concerned pursuant to Article 218(3), Treaty on the Functioning of the European Union (TFEU).
- Be inconsistent with the EU’s principles and objectives for external action (Chapter 1 of Title V of the Treaty on European Union).
- Constitute a serious obstacle to the negotiation or conclusion of bilateral investment treaties (BITs) with third countries by the EU.
Before signing the final version, the investment treaty must be approved by the EC based upon the above criteria and the EC’s requirement of communicating its authorisation to open formal negotiations. The 90-day time limit is also applicable to the rendering of the decision on authorisation to sign and conclude the BIT.
Accordingly, the UK would have to request that the EC authorises each investment treaty it wishes to negotiate. For example, now that the Transatlantic Trade and Investment Partnership (TTIP) negotiations between the EU and the USA have been frozen, and in anticipation of the UK triggering Article 50, the EC should have no reason not to grant authorisation to the UK so that it may negotiate trade deals with the US. Of course, the question arises: what would happen if the EC refused to grant authorisation and the UK nevertheless started to negotiate with the USA? The only option for the EC would be to bring the UK before the CJEU. However, a decision of the CJEU would take about two years, at which point the UK might have already left the EU. It therefore does not seem to be a tool that would effectively discourage the UK.
In this context, it should also be recalled that the Friendship Navigation and Commerce (FCN) Treaty of 1952 between the USA and the UK is still in force and applicable. Hence, this treaty, which predates the UK’s accession to the EU in 1972, could be a good starting point for the negotiations. In addition, some of the draft TTIP negotiation texts could easily be copied and pasted into a UK-US BIT or free trade agreement.
So, in short, there are a few legal obstacles for the UK. However, there is already a good basis upon which to successfully conclude negotiations with the USA fairly quickly. In any case, it is likely to be much quicker and more successful than the failed TTIP negotiations.
There are therefore many opportunities for the UK to conclude good trade deals and investment treaties without being hampered by the EU institutions and a protracted ratification process in all other member states (as was the case with Wallonia in relation to the EU-Canada Comprehensive Economic and Trade Agreement (CETA)). Additionally, after Brexit, the UK will be able to maintain its existing 100 BITs, which continue to guarantee legal certainty and investment protection to UK investors investing abroad, and to foreign investors investing in the UK.
This post was first published on the Practical Law Arbitration blog.