In an interview with BBC Newsnight (here), Cecilia Malmstrom, the EU Commissioner for Trade argues that the EU-27 cannot (or more likely, will not) negotiate a trade deal (whatever its form) with the UK until the UK has left the EU. Ms Malmstrom did not offer any legal basis for this view, but it is worthwhile examining the issue in a little more detail.
As everyone is now aware, Article 50 of the Lisbon Treaty provides a process by which a Member State can withdraw from the EU. It does not set out any formal process by which that withdrawing Member State will conduct its future relationship with the EU, but contains in paragraph 2 the following wording:
A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.
The highlighted wording does not tell us that the future arrangement can or must be completed at the same time as the withdrawal discussions, but directly contradicts Ms Malmstrom’s assertion that the two discussions are required to be sequential, and not concurrent. We do accept that there is an argument that the withdrawing Member State cannot conclude a trade agreement without having left the EU, but this can be achieved by having the two signing ceremonies on the same day, with the withdrawal agreement being signed immediately before the trade agreement. Moreover, the two-year Article 50 negotiation period could be extended either immediately at the commencement of Article 50, or periodically, so as to facilitate parallel negotiations. Indeed, the EU frequently operates on the basis of such time extensions. For example it extended the temporary Iran sanctions relief several times during the JCPOA negotiations, so as to ensure that there was no temporary void between the temporary deal and the finalised agreement. To be clear, we do not see any legal reason why a trade negotiation cannot be negotiated at the same time as the withdrawal discussions. There is a question as to what the word “framework” means. In our view, this term has no specific legal meaning, and so can be taken to be whatever the withdrawing Member State and the EU-27 agree it means. Indeed, any of the elements of Article 50 can be settled, even varied, if whatever the withdrawing Member State and the EU-27 agree.
Ms Malmstrom points out the effect of requiring sequential discussions: the EU-27 and UK would have to revert to trade relations governed only by the WTO. This of course is a position that would be worse for both sides than they currently have inside the EU, and are likely to have under any new trade arrangement. Tariffs would have to be re-imposed on trade between the two, and service trade would revert to the GATS concessions. Given that the Treaty does not require this outcome, and indeed implies the opposite, it can only be assumed that Ms. Malmstrom is setting out a negotiating tactic to put pressure on the UK.
Notwithstanding the absurdity of appearing to require this mutually disadvantageous position to occur, there is an important wrinkle in relation to the WTO position. While the UK is a founding Contracting Party of the WTO, it does not currently have its own Schedules of Concessions (tariffs) or Commitments (services), and so unless the UK, presumably in conjunction with the EU-27 and 161+ WTO CPs has determined how to separate out these Schedules, it would be difficult (but not impossible) for the UK and the EU-27 to revert to WTO trade with each other. Third countries that currently trade with the EU may also take issue with respect to EU’s current WTO concessions, as they are premised on the UK being a part of them. In order to be able to separate out these Schedules, the EU-27 and UK will need to cooperate. If the EU-27 refuses to cooperate on this issue while the Article 50 withdrawal discussions are in place, then Ms. Malstrom’s suggestion that WTO treatment begins once the UK withdraws does not appear to be possible as a practical matter.
While the EU-27 will have their own positions to protect, it does not seem sensible to force the parties to trade on WTO terms unless strictly necessary. Further, Article 50 appears to anticipate that the future trading relations between the withdrawing party and the EU will (or at least should) be discussed in the Article 50 process.