Brexit and the EU - Canada Comprehensive Economic and Trade Agreement: Implications for the European Union, the United Kingdom and Canada

Brexit and the EU - Canada Comprehensive Economic and Trade Agreement: Implications for the European Union, the United Kingdom and Canada

This memorandum has been prepared in the context of the United Kingdom (UK) providing notice to withdraw from the European Union (EU), known as Brexit, and the implications of this on the provisional application of the EU – Canada Comprehensive Economic and Trade Agreement (CETA) , and on the United Kingdom (UK) negotiating and concluding new Free Trade Agreements (FTAs). Most recently, the EU and Canada have signed the CETA and the Parties to the CETA have agreed to provisionally apply parts of the Agreement in the future. This memorandum therefore examines whether the provisional application of the CETA will continue to apply to the UK after it withdraws from the EU. This memorandum also identifies the constraints on the UK in negotiating and concluding future FTAs with third countries from an European Union law and Word Trade Organization (WTO) law perspective. We define third country as a country other than an EU Member State. Authors: Ana Poienaru, Stefanija Savic, and Morgan McCabe


 OVERVIEW

  • This memorandum is a non-confidential summary of a confidential memorandum prepared for a Beneficiary in the International Trade and Investment Law Practicum course taught by Professor Debra P. Steger in the Fall 2016 semester at University of Ottawa, Faculty of Law. Ana Poienaru, Stefanija Savic, and Morgan McCabe were the student team who researched and prepared the original memorandum for the Beneficiary in the course. Ana Poienaru and Stefanija Savic prepared this summary.
  • This memorandum has been prepared in the context of the United Kingdom (UK) providing notice to withdraw from the European Union (EU), known as Brexit, and the implications of this on the provisional application of the EU – Canada Comprehensive Economic and Trade Agreement (CETA)[1], and on the United Kingdom (UK) negotiating and concluding new Free Trade Agreements (FTAs). Most recently, the EU and Canada have signed the CETA and the Parties to the CETA have agreed to provisionally apply parts of the Agreement in the future.
  • This memorandum therefore examines whether the provisional application of the CETA will continue to apply to the UK after it withdraws from the EU. This memorandum also identifies the constraints on the UK in negotiating and concluding future FTAs with third countries from an European Union law and Word Trade Organization (WTO) law perspective. We define third country as a country other than an EU Member State.
  • In the first section of the memorandum, we examine whether the provisional application of the CETA will continue to apply to the UK after it withdraws from the EU. To make this determination, we examine the scope of the provisional application of the CETA in relation to the UK. This means that the term “Parties” in the CETA has to be interpreted in light of the provisional application set out in the CETA. Based on this, we conclude that “Parties” in the context of the provisional application are the EU and Canada, because only matters falling under the EU’s exclusive competence are provisionally applied. This means that the provisional application of the CETA will apply to the UK until it withdraws from the EU, for matters falling under EU exclusive competence. The provisional application will, however, not extend to the UK after it withdraws from the EU, because EU law will no longer apply to the UK.
  • In the second and third sections of this memorandum, we look at the constraints on the UK in negotiating FTAs. In making our analysis, we address the key issues in relation to negotiating and concluding FTAs between the UK and third countries under EU law and WTO law.
  • Under EU law, the UK must withdraw from the EU before it can negotiate and conclude FTAs with third countries. This is because as a Member of the EU, the UK lacks the competence to negotiate FTAs. Under EU law, the negotiation of FTAs is part of the EU exclusive competence under the common commercial policy (CCP). An examination of Article 50 of the Treaty of the European Union[2] (TEU) leads to the conclusion that the UK will cease to be a Member of the EU on one of the following three dates: (1) on the date of entry into force of the withdrawal agreement, (2) falling that, two years after the notification to withdraw, or (3) at a later date than (2) if the European Council and the UK both agree to extend the period of negotiation. Based on this analysis, we determine that once the UK withdraws from the EU, it will again have the competence to negotiate and conclude FTAs with third countries, because the EU’s exclusive competence in the area of CCP will cease to apply to the UK.
  • Under WTO law, the UK must be a customs territory in order to conclude FTAs. Though Article I of the General Agreement on Tariffs and Trade 1994 (GATT 1994) prohibits WTO Members from contravening the Most Favoured Nation (MFN) obligation,[3] Article XXIV of the GATT 1994 provides a justification for Members that would contravene the MFN obligation by concluding a FTA or forming a customs union (CU).[4] However, Article XXIV also sets out that only customs territories are able to conclude FTAs or form CUs under WTO law.[5] Since we determine that the UK is not currently a customs territory, it will not be able to conclude a new FTA until it becomes one. To become a customs territory, the UK will need to submit its own draft schedules to the WTO in accordance with procedures set out in GATT 1994[6] and General Agreement on Trade in Services (GATS). This includes an obligation to negotiate an outcome that will be agreed to by other WTO Members by consensus.[7] Although the length of this process is impossible to predict with certainty, we conclude that the UK will not be able to conclude FTAs with third countries until this process is complete. 

 

The full report can be accessed and downloaded here: https://app.box.com/s/q1ttuhduxderc622j5ld0qfzj2raqj66