INTRODUCTION

Since the Brexit vote, the relationship between the EU and the UK has been rocky at best. Almost a year after the signature of the EU-UK Trade and Cooperation Agreement ('TCA'), a number of issues remain on the table. While the TCA covers substantial domains of cooperation, it left open important questions on the movement of persons and goods between the EU and the UK, (currently, the UK is dealing with a number of supply chain issues), as well as on the scope of investment protections.. This article discusses how these issues relate to Brexit, and analyses some of the legal issues pending between the EU and the UK.

GOODS

The TCA effectively imposes zero-tariff, no-quota trade of all goods traded between the EU and the UK (that comply with the rules of origin). This was good news for exporters and importers in both territories. However, tariffs and quotas are not the only possible trade barriers.

Countries can also impose customs checks at the border. The stringency of these checks depends on the rules agreed upon between the two countries. This can include checks on technical barriers like packaging, sanitary or phytosanitary measures (e.g. physical checks on live animals and plants), etc.

These customs checks have led to some disagreement between the EU and the UK since Brexit. Currently, there is an asymmetry in the implementation of customs checks. EU customs are checking goods coming from Great Britain (i.e. England, Scotland and Wales) like any third country goods. This means that, for instance, eggs exported from Manchester to Brussels are subject to full customs checks as required by EU law. However, the UK has not implemented full customs checks yet. Recently, the Government delayed customs checks further: full customs declarations and controls, as well as paperwork and checks for EU farm products will now only be implemented on the 1^st of January 2022. Moreover, physical checks on food and animal goods as well as safety and security declarations will only be implemented on the 1^st of July 2022.[1] This means that those same eggs exported from Lyon to Liverpool, are currently not yet subjected to full customs checks on arrival.

This asymmetry has angered UK exporters, who feel unfairly treated compared to their EU counterparts. The UK's Food and Drink Federation stated that “The repeated failure to implement full UK border controls on EU imports (…) actually helps the UK’s competitors. The asymmetric nature of border controls facing exports and imports distorts the market and places many UK producers at a competitive disadvantage with EU producers.”[2]

Furthermore, the complex situation of Northern Ireland is set out in the Northern Ireland Protocol. To honour the Good Friday Agreement,[3] this Protocol to the TCA has not installed a land border between Northern Ireland and Ireland. Because Northern Ireland is part of the UK customs territory, [4] however, and Ireland is an EU Member State, the question of where the EU's outside border should be has been difficult from the beginning of the Brexit negotiations.

The current solution is that Northern Ireland follows certain EU rules on goods (e.g. the EU Customs Code, agriculture legislation, state aid rules, etc.), and Northern Ireland and Ireland form a "common-sanitary epidemiological area".[5] To the extent that these EU rules apply, Northern Ireland is thus treated as part of the EU customs area. Therefore, no customs checks take place on transactions of goods between Northern Ireland and the EU.

However, different rules apply to goods transiting from Great Britain to the EU via Northern Ireland (and vice versa). In that case, customs in Northern Ireland should perform customs checks on goods moving from Great Britain to Northern Ireland. However, many of these checks have still not been installed. The UK has unilaterally and indefinitely extended the 'grace period' in which these checks are not necessary, to the evident displeasure of the EU. This has led to occasional flare-ups like the 'sausage wars' in June 2021, and a solution is still in the works.[6] UK Government Ministers asked for a renegotiation of the Northern Ireland Protocol in July 2021 (which was promptly rejected by the European Commission)[7] and the Commission proposed a first package of measures to ease trade passing via Northern Ireland on the 13^th of October.[8]

The customs requirements for exporting from Great Britain to the EU (outside of the island of Ireland) can be found in the EU's Access2Markets portal.[9] The same source offers detailed, up-to-date information on exporting from an EU Member State to Great Britain. More detailed information on exporting goods from Great Britain to the EU via Northern Ireland can be found on the UK Government's Northern Ireland Guidance.[10]

PERSONS/SERVICES

Reports of gas stations without petrol and empty supermarket shelves tip off that the UK is currently dealing with some supply chain issues. These are for no small part due to a shortage of workers. The haulage, hospitality and food and drink sectors have been hit particularly hard by staff shortages, but the issue is widespread.

Brexit is generally seen as at least one of the causes of the labour shortage: the new UK rules have caused many EU workers to return to their home countries, and made it harder to persuade them to come back.[11] Here, we discuss the TCA and the UK's new migration laws.

First, the TCA sets out some rules on migration, notably for 1) short-term business visitors, 2) intra-company transferees, 3) contractual service suppliers and 4) independent professionals. These rules are not comprehensive, and largely set out general obligations (e.g. a prohibition on a quota for contractual service suppliers).[12]

However, the TCA did not change that Brexit effectively meant the end of the freedom of movement between the EU and the UK, including for EU citizens working in the UK.[13] From the 1^st of December 2020, the UK implemented a new, "points-based" immigration system. This system imposes additional demands on EU citizens wanting to work in the UK: they must speak English, be paid a certain salary, or alternatively have 'trading points' (like a PhD, or a job in a shortage occupation).[14] EU citizens living in the UK by 31^st of December 2020 are able to apply for settlement, but without guarantee of approval.

These new rules are real barriers for EU workers wanting to work in the UK. A 2019 report has found that 99% of season agricultural workers in the UK are from the EU "in roles that cannot realistically be filled by the domestic workforce".[15] A wine producer reports that their seasonal workers "are unable to work in the UK due to the exit from the EU, with one third of the applicants they received not having the right to work in the UK."[16] Another survey shows that "27% of agriculture and horticulture businesses would scale back operations or productivity if their company did not have access to (non-UK) EU nationals."[17] In the haulage sector, Britain's Road Haulage Association has also stated that the country is some 100 000 drivers short, currently.[18] The UK Government states that the labour shortage will serve to increase wages in low-paid jobs and has so far issued 300 visas for lorry drivers overseas. However, Boris Johnson announced on 5 October 2021 that up until then only 127 foreign lorry drivers had applied.[19]

INVESTMENT

Post-Brexit, the UK also had to rethink its strategy with respect to foreign investment protection with European Member States. Prior to entering into the TCA, the UK had concluded bilateral investment treaties ("BITs") with 12 separate European Member States[20]. Those treaties, the majority of which were signed in the 90's, offered what are known as "standard" foreign investment protections, such as protections ensuring investors fair and equitable treatment, full protection and security, non-discriminatory treatment, and protections against direct or indirect expropriation of foreign investment by the host State. 

While the TCA does include an investment chapter[21] with investment protections for EU companies investing in the UK, and vice versa, a close review of the provisions reveals their limited nature when compared to traditional investment protections included in the BITs concluded between the UK and European Member States.

In particular, the TCA outlines a national treatment and more favourable nation provision ("MFN clause")[22] (both subject to limitations[23]), a prohibition for state parties to impose limitations on market access[24], and other prohibitions of obstacles such as nationality restrictions for senior personnel[25]. However, the TCA does not offer protections against expropriation or measures tantamount to expropriation, fair and equitable treatment, full protection and security, and an observance of undertaking clause (also known as an "umbrella clause").

What is more, the TCA expressly excludes from the ambit of its protections certain category of investors, such as shell companies with "no substantive business operation" or those who do not create "lasting economic links"[26] with the host state, as well as certain category of sectors, such as air transportation or related services (with limited exceptions), audio-visual services, and measures regarding public procurement and government subsidies or grants including government-supported loans, guarantees and insurance.[27]

It is also notable that investment protections are subject to the state's right to regulate to achieve a wide range of legitimate policy objectives such as "protection of public health; social services; public education; safety; the environment, include climate change; public morals; social or consumer protection; privacy and data protection or the promotion and protection of cultural diversity." (Article SERVIN 1.1.2).

Finally, and perhaps what is the most striking step back from usual protections granted to foreign investors, the TCA does not provide for investor-state dispute resolution of investment disputes. Investors are expressly precluded from importing investor-state dispute settlement mechanisms from other international agreements through the MFN clause.[28] Foreign investors do not therefore have any direct right of action or remedies under the TCA. Disputes are to be resolved through state-to-state dispute settlement procedures only.[29] The dispute clause of the TCA contrasts with other trade agreements recently concluded by the EU, namely the EU-Singapore, EU-Mexico and EU-Vietnam and EU-Canada (CETA) trade agreements which all provide for investor-state dispute settlement mechanisms. Notably, the TCA also excludes recourse to domestic courts or the Court of Justice of the European Union.

Interestingly, it seems the TCA coexists with investment protections from other agreements between the EU Member States and the UK. In particular, article FINPROV 2 expressly provides that the TCA is applicable "without any prejudice to any earlier bilateral agreement" between the UK and EU members states and the parties "reaffirm their obligations to implement any such Agreement". This is in stark contrast with the CETA or the EU-Vietnam and EU-Singapore trade agreements, which expressly terminated existing BITs between EU Member States and the other State.

The TCA also provides that the UK and the State Members may "conclude other bilateral agreements between them" in the future and that those will constitute "an integral part of the overall bilateral relations" (Article COMPROV-2). However, the TCA specifies that the dispute settlement mechanisms provided in the TCA will apply to any such 'supplementing agreement' (Article INST.11).[30]

As of the date of the publication of this article, out of the 12 BITs signed between the UK and EU Member States, 6 have been terminated[31], including 5 in the past year (namely, the UK-Poland BIT[32], the UK-Malta BIT[33], the UK-Romania BIT[34] , the UK-Slovakia BIT[35], the UK-Czech Republic[36], the UK-Lithuania BIT.[37]It is expected that the remaining 6 BITs (with Hungary, Latvia, Estonia, Bulgaria, Slovenia and Croatia) will also be terminated.[38]

This wave of BIT termination follows the UK's Declaration of 15 January 2019 (at a time when the UK was still a member of the EU) that it would terminate its bilateral investment treaties with other European Member States in the wake of the now infamous decision of the Court of Justice of the European Union ("CJEU") in Achmea.[39] In Achmea, the CJEU confirmed that arbitration clauses under BITs concluded between two EU Member States (known as "intra-EU BITs") were incompatible with European Union law. After Achmea, the European Commission started infringement proceedings against the UK calling it to terminate its BITs with European Member States.[40]  

Arguably, the restrictive investment protections arising out of the TCA, coupled with the wave of termination by the UK of BITs with other European Members states (BITs that offered more comprehensive substantive and procedural investment protections), may have a double negative impact: not only may it hinder the attractiveness of the UK as a host state to European investments, it may also push UK investors away from investing in European Member States. 

Notwithstanding the above, in what seems to be quite an unexpected turn of events, the UK may in fact also benefit from the combined effect of the recent CJEU decisions banning the possibility for an European investor to bring an investment treaty claim against another European Member State (on the basis of an intra-EU BIT[41], or a multilateral treaty such as the Energy Charter Treaty[42], or on the basis of an ad hoc arbitration agreement[43]) and Brexit.

Since the UK has left the European Union, disputes between a EU investor and the UK, or a UK investor and a EU Member State may be brought under the Energy Charter Treaty or a BIT in an attempt to escape the ban imposed by the Achmea and the Komstroy decisions. There may indeed be an inclination from European investors to restructure their companies in the UK so they can benefit from investment protections arising out of the Energy Charter Treaty, and other applicable bilateral investment treaties offering more advantageous foreign investment protections than the TCA.  The UK may also become an attractive jurisdiction post-Brexit for enforcement of intra-EU BIT awards, and especially ICSID awards as confirmed by a recent UK Supreme Court decision.[44]

All in all, the net outcome of Brexit has created significant uncertainty and confusion for foreign investors on both sides of the Channel, for UK investors seeking to invest in European Union, and for European investors seeking to invest in the UK.