UK's game-changing court decision unlocks door to deeper ties

31 August 2017 10:00am
Big Ben with blue sky behind

29 August 2017. By Matthew Holehouse.

The UK's paper on dispute resolution after Brexit published last week, is a fork in the road.

The government's red line to date of escaping the jurisdiction of the EU Court of Justice, including any court operating in "parallel" with its rulings, had set the UK on course for a shallow trade agreement with the bloc, with limited cooperation in security.

But the country's latest ideas for a dispute arbiter that is competent to handle questions of EU law could ease negotiations with Brussels.

The plans also open the door to greater integration with the EU after Brexit. And businesses' wish lists — from testing drugs to maintaining a cross-border electricity market — could be back on the table.

A breakthrough moment?

The UK paper suggests building a new arbitration court out of tried-and-tested mechanisms and legal principles used to oversee Norway, Iceland and Liechtenstein's participation in the EU's single market and Schengen travel zone.

Like the EFTA Court, the UK's tribunal would respect the "autonomy" of the EU legal system and ensure a "uniform" interpretation of its law. 

This respects the EU Court of Justice's red line: that European law can't be interpreted in a divergent way if it is applied outside the bloc's borders. 

This is a tough concession for the British government and those who campaigned to leave the EU to swallow, having previously vowed to break free of EU judges' orbit.

But abandoning this stance is a prerequisite to deliver the government's vision of constructing a new trading relationship based on existing elements of EU legislation.

The UK's White Paper on Brexit published in February said a deal with the EU "may take in elements of current single market arrangements in certain areas as it makes no sense to start again from scratch when the UK and the remaining member states have adhered to the same rules for so many years."

Hope for businesses

At least in theory, many businesses' wish lists on access to the EU markets look more achievable.

According to a separate position paper, the UK wants to become an independent signatory to the Lugano Convention, which governs the enforcement and jurisdiction of cross-border legal cases. This is an important step to preserve London's lucrative legal industry and provide legal certainty for businesses and individuals.

The UK also wants to preserve its access to the EU's joint electricity market, which creates a unified wholesale market between Ireland and Northern Ireland, and pipelines in gas and electricity from Great Britain. Again, these are governed by EU regulation and subject to the rule of the EU courts.

Then there are EU regulatory agencies. Earlier this year, UK ministers said they were planning to adopt a distant relationship with bodies such as the European Chemicals' Agency and the European Medicines' Agency — citing as problematic the role of the EU's top court in governing these agencies.

That position appears to have changed. Ministers are now talking of maintaining close ties with the bloc's drug regulator. Last week's paper notes that where the EU and third countries enjoy "close cooperation with EU agencies" on the basis of EU law, they need a court mechanism that follows the Court of Justice's precedents.

Carmaker Nissan has said it needs current EU rules on bloc-wide safety approvals to be replicated in a free trade agreement.

Keidanren, the Japanese business lobby, wants the UK to remain in the Single Euro Payments Area, which has been the subject of multiple Court of Justice rulings involving banks, mobile phone operators and gambling companies.
Political question

Whether businesses and the UK get what they want will depend on the politics of the negotiations. 

The EU itself has political considerations to keep in mind: Would allowing the UK to pick which programs it wishes to be part of after Brexit undermine the bloc's single market? How much access can the EU grant a state that rejects the principle of free movement of labor? And how much access can the bloc grant the UK while preventing other member states from leaving?  

These questions could militate against a deep trade relationship with the UK in the near future.

But opting for a dispute arbiter that can handle EU law questions could pave the way for cooperation in subsequent decades, once politics on both sides of the channel permit.

Brexit Special Report