Ministers drawing up plans for new court to rule on trade disputes with EU after Brexit

Theresa May and European Commission President Jean-Claude Juncker
Theresa May and European Commission President Jean-Claude Juncker Credit: AP

Ministers are drawing up plans for a new court to rule on trade disputes with the EU after Brexit, in order to end an impasse with Brussels over the role of the European Court of Justice, The Sunday Telegraph can disclose.

Senior figures are examining existing courts and arbitration panels that oversee free trade agreements around the world.

One idea that has found favour in Whitehall is a model under which the UK and EU would have an equal number of judges presiding over a tribunal, with an additional, independent judge having a casting vote - a set-up currently used by South America's Mercosur trade bloc.

The system would be intended to satisfy Conservative Eurosceptics who insist that the ECJ must have no role after Britain leaves the EU, with leading Brexiteers, including Michael Gove, having campaigned for Leave partly on the basis of ending the jurisdiction of European judges.

The disclosure comes after the European Council insisted that the "competence" of the ECJ must continue throughout the two-year transition period from 2019, prompting outrage from leading Brexiteers, who said accepting the demand would mean "delaying Brexit until 2021".

The row spilled over into the Conservative Party yesterday after Philip Hammond, the Chancellor, appeared to accept that the ECJ's jurisdiction would continue.

Iain Duncan Smith, the former Tory leader, accused the Chancellor of "undermining the Prime Minister's negotiations with the EU."

Under one proposal for post-2021 arrangements to govern a free trade agreement, a "voluntary referral" could be made to the ECJ for a decision on a dispute over trade rules that are "identical in substance to corresponding EU rules" - but the referral would only be made with the agreement of the UK and the EU.

In this month's "phase one" deal, the Government agreed that the Supreme Court would be open to make voluntary referrals to the ECJ for eight years after Brexit on cases involving EU citizens.

EU officials are also understood to be working on plans for a new court to oversee a free trade agreement, although they are using the European Free Trade Association's (EFTA) court as a model. 

Eurosceptics say the EFTA court, which oversees trade between the EU and Iceland, Liechtenstein, Norway and Switzerland, is subservient to the ECJ because it has to take its existing rulings into account.

A government source described a new court as the "most likely" solution to an impasse that will otherwise occur over oversight of a trade deal, when phase two of the Brexit talks begin.

"The way the wind is blowing is we're attempting to ensure a comprehensive, tariff-free free trade agreement, and we understand its impractical to not give some thought to judicial mechanisms to police that," the source said.

"Once we've moved to what David Davis calls Canada plus, plus, plus, we are going to have to have a bespoke and unique mechanism for dispute resolution and that may well be to take the best of international experience. It may well be a new court system."

The source added that a new court, possibly including an equal number of British and European judges in addition to an independent judge appointed by both parties, was being seen as a "sensible compromise".

Separately Charles Grant, director of the Centre for European Reform, who holds regular talks in Brussels, said he understood that EU and German officials were considering "a new British-EU court with British judges and EU judges, to rule on disputes between the British and the EU."

He added: "I can confirm that Brussels officials and Germany officials as well have considered very closely the idea of the EFTA court as a possible model for moving forward."

A position paper published by the Department for Exiting the European Union in August pointed out that "many international agreements, particularly those focused on trade and economic cooperation, feature arbitration models as a stage of dispute resolution."

It added: "The wide adoption of arbitration panels as the dispute resolution mechanism for international trade disputes, principally through the World Trade Organisation, shows such a model can provide important reassurance to businesses and industry."

Sources pointed out that the plans being drawn up were consistent with Theresa May's September speech in Florence in which she said she was "confident" that negotiators would find an "appropriate mechanism for resolving disputes".

"It is, of course, vital that any agreement reached – its specific terms and the principles on which it is based – are interpreted in the same way by the European Union and the United Kingdom and we want to discuss how we do that," she said.

"This could not mean the European Court of Justice – or indeed UK courts - being the arbiter of disputes about the implementation of the agreement between the UK and the EU however."

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