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Brexit and EU law – How does the European Union (EU) enter into trading agreements with third countries? It’s mainly about competence

Brexit is now bringing into sharper focus the way in which nations and economic blocs seek to negotiate international trade agreements. Ireland’s role in those negotiations is defined by reference to and subject to its obligations of membership of the EU. The future of the UK’s post-Brexit trading relationship in particular with the EU (but also with many other countries) remains uncertain.

Depending on what that future arrangement finally looks like, the UK’s post-Brexit trading relationship with the EU might be, for example, membership of the European Economic Area, based on a series of bilateral agreements with the EU (as with Switzerland in the context of its membership of the European Free Trade Agreement), a customs union with the EU (as with Turkey), membership of the World Trade Organisation (WTO) or a specific free trade agreement (such as the Comprehensive Economic and Trade Agreement between the EU and Canada). This note assesses some of the legal aspects of the EU’s trade policy in the context of Brexit.

EU trade policy has been developing since the creation of the common market in 1958. When Ireland became a member of the European Economic Community (EEC) in 1973, it joined the customs union of the EEC. Since then, Irish trade policy has been governed by EU trade policy. However, the precise parameters of the EU’s competence to agree trade policy for its Member States has evolved over a number of years into:

  • exclusive competence (areas in which the EU alone is able to legislate and adopt binding acts – Member States are able to do so themselves only if empowered by the EU to implement these acts):
  • shared competence with the Member States (where the EU and Member States are able to legislate and adopt legally binding acts – Member States exercise their own competence where the EU does not exercise, or has decided not to exercise, its own competence); and
  • supporting competence (where the EU can only intervene to support, coordinate or complement the action of Member States).

This somewhat complex construct may become an important factor in the way in which the UK’s post-Brexit relationship is negotiated and eventually agreed with the EU and its Member States.

Since 1957, the EEC, which later evolved into the EU, has had competence over international trade in goods and has exercised this exclusive competence through its international trade policy, the Common Commercial Policy (CCP). The CCP has expanded beyond goods to cover international trade and investment. A customs union, a common customs tariff and common import and export regimes for goods were central to the scope of this EU competence but the precise scope of the EU’s exclusive competence in trade matters was disputed from time-to-time by Member States. In a series of judgments dating back to the 1970s, the (now) Court of Justice (COJ) was instrumental in defining the scope of the CCP. There were important developments in this regard in the 1990s (and which coincided with the creation of the WTO and its expansion beyond an international trading system based on goods to areas such as services and intellectual property (IP) rights). The extent of the EU’s exclusive competence was then developed by the Treaty of Amsterdam (1997), the Treaty of Nice (2001) and most recently by the Treaty of Lisbon (2009).

The Treaty of Lisbon (as reflected in Article 207 of the Treaty on the Functioning of the European Union (TFEU)) sets out the institutional processes for agreement in the relevant trade areas (e.g. as between the Council of the EU, the European Commission and the European Parliament) and sets out the current state of EU competence in the areas of trade and investment. It has expanded the scope of competence in some areas of trade and investment and clarified it in others. The EU is exclusively competent for all services (apart from transport which is an area of shared competence) and trade-related aspects of IP. However there may still be some argument as to the precise meaning and scope of “services” and “IP”.

One significant extension of the CCP is through the inclusion of foreign direct investment under Article 207 TFEU though there remain potential issues as to its precise delimitation.

Article 207 TFEU also sets out the limits of EU competence. For example, the exercise by the EU of its competence should not harmonise legislative or regulatory provisions of Member States where the TFEU prohibits this (e.g. immigration, health, and education and vocational training).

The EU exercises its competence through the CCP by way of agreements (i.e.  bilateral and multilateral) between the EU and third countries as well as by way of internal EU legislation. However, agreement on competence between the EU and Member States in areas such as investment (e.g. the delimitation of exclusive and shared competence) and the maritime sector (e.g. issues of shared competence) may be the subject of future debate.

In summary, the Lisbon Treaty clarified the balance of competences (particularly in trade and investment) as well as the exercise of such competences in these areas. There remain areas of clarification and delimitation which may yet have an impact on the negotiation of the EU’s eventual trade relationship with the UK post-Brexit. These and other EU trade issues will be explored in a later article on this topic.

by Alan McCarthy

Compliments of A&L Goodbody – a member of the EACCNY