Comment

David Davis and Michel Barnier. Photo: European Union 2017

When the UK leaves the EU, the best option for the British economy would be for the UK to become a member of the EEA[1]. How could this be done ?

PROCEDURALLY

Contrary to what is sometimes said, the UK could not « remain » a member State of the EEA after Brexit, because it will automatically[2] cease to be an EEA member when leaving the EU.

Article 126(1) EEA[3] states that « The Agreement shall apply to the territories which the Treaty establishing the EEC (today the EU) is applied (…) and to the territories of Iceland, the Principality of Liechtenstein and the Kingdom of Norway ». These three States are members of EFTA and, in accordance with articles 108(1) and (2) of the EEA Agreement, have established the EFTA Surveillance Authority and the EFTA Court (« Agreement between the EFTA States on the establishment of a Surveillance Authority and a Court of Justice », below « EFTA Agreement »). Both these institutions are only competent for these three States. Their role is to ensure the fulfillment by the EEA EFTA States of their obligations under the EEA Agreement. They are not competent for Switzerland, despite this country being a member of EFTA.

Neither the EU, nor its current 28 member States, are members of EFTA. After Brexit, the UK, not being a member of EFTA, and not anymore an EU member, could not be an EEA member and could not be a candidate to become one.

Procedurally, in order to become a member of the EEA after « the (EU) Treaties shall cease to apply » to it (art 50(3) TEU), the UK would first have to present its candidacy and negotiate and conclude an accession agreement to become an EFTA member (art 56(1) of the Convention establishing the EFTA). This is because the EEA cannot apply to non EU member States, with the exception of Iceland, Liechtenstein and Norway, precisely because they are members of EFTA (art 126(1) EEA). Thus, the UK will have to negotiate an accession treaty to EFTA with the four members of this organisation: Switzerland and the three EEA EFTA members.

Once becoming an EFTA member, the UK will then have to negotiate an EEA accession treaty with the 31 entities which are members of the EEA: the EU, its 27 member States and the three EEA EFTA members. The Parties could agree to proceed to both negotiations at the same time.

Accession Treaties for EFTA and EEA cannot be signed before Brexit. Moreover, to enter into force, they would involve a ratification by all contracting parties in accordance with their own procedures (art 128(2) EEA). Experience shows that this will take time. During that time, and if a period of transition had not been agreed on the relations between the UK and the EU in the Brexit agreement (based on art 50 TEU), the rules of WTO would have to be applied to trade between the UK and the EU (« cliff edge »).

What would be the consequences for the UK to become an EEA member?

BY BECOMING A MEMBER OF THE EEA ON THE BASIS OF ITS CURRENT RULES, THE UK WOULD HAVE TO ACCEPT:

-1) As legally binding in its national law the transposition of all EU directives and regulations for the internal market, without participating in their decision « making » but only on « shaping » them (art 99 and 102-104 EEA).

-2) The four freedoms, including the free movement of persons (art 1 and 28 EEA). This would permit the UK to fully participate in the EU single market, with the current exceptions (agriculture and fisheries), while not being part of the EU Customs Union, being thus able to conclude its own bilateral trade agreements.

-3) A strict application of EU law once it would have been incorporated in EEA law and in its national law (art 104 and 108 EEA).

-4) The EEA rule according to which all decisions to be taken by the EEA Council or by the EEA Joint Committee need a common agreement of the EEA EFTA States (Iceland, Liechtenstein, Norway and thus the UK). Each of those States is able to refuse a proposed decision and, for example, to prevent the others to follow quickly EU legislation (art 90(1) and 93 EEA).

-5) An indirect but substantive participation in the EU budget (art 115-117 EEA)[4].

-6) The surveillance rôle of the independent EEA Authority (one member per EEA member State), comparable to the rôle played by the Commission vis-à-vis the member States in the EU (art 108 and 109 EEA, art 5 and 6 EFTA Agreement).

-7) The interpretation of applicable texts and the judicial control to be insured by the independent EFTA Court (one member per EEA member State), which is the pendant to the EU Court of Justice (art 31-41 EFTA Agreement), must follow its past case law and pay due account of the principles it lays down (art 3 EFTA Agreement). According to article 33 of the EFTA Agreement, « The EFTA States concerned shall take the necessary measures to comply with the judgments of the EFTA Court ».

-8) The necessary homogeneity of the internal market within the Area, which comprises the 28 EU Members and the three EEA EFTA members, which implies unavoidably that the interpretation of identical texts cannot be different than the interpretation given by the EUCJ in its case-law (art 6 and 105-112 EEA, especially 107 and 111(3), art 2 and 3 EFTA Agreement).

THE UK MIGHT TRY TO CHANGE THE EEA’S CURRENT RULES BUT IT SHOULD NOT EXPECT A POSITIVE EU REACTION

The UK might try to get a better deal by requesting a review of the eight points just mentioned:

1- On the first point, the UK would probably try to obtain more and better than the right to « decision shaping » as provided in the EEA Agreement. It might request to be formally consulted by the EU or even, according to some, a « droit de regard » before the EU institutions adopt any new legislation.

One can imagine what the answer of the EU institutions would be to such a request. It would be based on the principle of its autonomy of decision. The EU legislative authorities, the Commission which proposes new legislation and the European Parliament and the Council which adopt it, have the exclusivity of legislative powers. They cannot be obliged to formally consult other bodies than those foreseen in the EU Treaties. There will be no British nationals in those institutions. There will be no parallel pseudo-Parliament or pseudo-Council where those nationals would be seating with EU representatives[5]. The entire democratic architecture of the EU would otherwise be affected.The current EU treaties do not authorise such a possibility.

Any member State of the EU and any of its legislative Institutions « may obtain the opinion of the Court of Justice as to whether an agreement envisaged is compatible with the Treaties. Where the opinion of the Court is adverse, the agreement envisaged may not enter into force unless it is amended or the Treaties are revised. » (article 217(11 TFEU).

2- The UK knows that the principle of free movement of persons is not negotiable for the EU. However, some commentators believe that the obligations it entails are not as strict for the EEA EFTA States as for the EU States. They argue that article 112 EEA on « safeguard measures » would allow an EEA EFTA member State to unilaterally adopt measures restricting that freedom. This has never happened, maybe because article 114 provides that, if it would, any other EEA member could take « proportionate rebalancing measures ». Presently, the three current EEA EFTA members respect their obligations as fully as the EU members and even participate in Schengen.

Given the demographic specificities of the Principality of Liechtenstein, the particular rules applying to that country cannot be interpreted as a precedent for States having a much larger population.

3- It is true that, in the past, EEA EFTA States sometimes have been quite late in implementing new EU legislation. These delays have created imbalances between the obligations of economic operators in the EEA EFTA States and those of their competitors in the EU.The homogeneity of the internal market was no longer assured, albeit temporarily. Whilst there has been improvements in the recent past, it is most probable that the EU would not accept for the UK today the terms it accepted 25 years ago for the EEA : the annual reports of the Commission on the functioning of the EEA and the corresponding Conclusions of the EU Council give the answer to that question. Thus, in a 2012 review, the Commission and the European External Action Service complained about the increasing backlog in the implementation of new EU laws by the three EEA EFTA states.[6]

Switzerland is currently negotiating with the EU. What is the position of the EU? The EU Council decided, in May 2014, to mandate the Commission to launch negotiations with Switzerland on “an international agreement on an institutional framework governing bilateral relations with the Swiss Confederation”. Negotiations on the basis of that mandate, which has been leaked to the press, were ongoing in September 2017. It provides that the agreement should impose on Switzerland much stricter legal obligations than those of the EEA EFTA members. It would not only apply to the future agreements between the EU and Switzerland, but also to all existing agreements, including all those “related to the internal market”.

The mandate proposes that the Commission should monitor Switzerland’s application of the bilateral agreements. A maximum time limit should be imposed on Switzerland to implement new laws. It also says that the Commission should be given “investigatory and decision-making powers” which should “reflect” the Commission’s powers over EU member States when policing the single market. The mandate proposes that the EU Court of Justice should have jurisdiction, and that either the EU or Switzerland should be able to take cases to the Court “without the other party’s prior consent”. Decisions of the Court should be “legally binding on both parties”. The mandate proposes a procedure allowing the EU to terminate agreements if Switzerland violates them. It further says that there would be no more agreements on further Swiss access to the single market before the conclusion of the new institutional agreement.

4- The UK could request the deletion of the EEA rule according to which its current three EEA EFTA States are always obliged to express themselves with one voice in the EEA Institutions. It is not impossible that the EU would accept abandoning this rule, which has increased the delays in incorporating new EU legislation in the EEA rather than decreasing them.

5- The EU would certainly refuse any British request to participate less, proportionally, than the current financial participation of Norway[7]. On the contrary, given that the EU will lose the contribution of the UK as an EU member, the EU’s commitments to its poorer Members, the weak bargaining power of the UK, the EU would probably ask for more.

-6, 7 and 8- These points are fundamental principles on which the EU would certainly not go further than it did in the EEA Agreement. One has to remember that the first draft EEA Agreement was rejected as being contrary to the EU Treaties by the EU Court[8].

It is true that the EFTA Court has not the same powers as the EU Court, for example in principle on preliminary rulings requested by nationals Courts and Tribunals (art 34 EFTA Agreement and Protocol 34 EEA), or on deciding to impose lump payments or penalty payments on an EU member State failing to comply with one of its judgments (art 260 TFEU).

However, at the end of the day, homogeneity must prevail in the internal market (art 102 and 111-114 EEA )

Given this analysis, one cannot but confirm preceding opinions[9]according to which an EEA option would legally be possible in theory, but not politically realistic in the case of the UK after Brexit.

As for a revamped EEA seen as « an interim step » of a few years10 for the UK before becoming a third State vis-à-vis the EU, it would politically be even less realistic. Why would EEA members take the risk to open a difficult negotiation with the EU which could lead them to lose their current advantages?

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[1] The European Economic Area (EEA) was established by several agreements signed in1992. It comprises the 28 EU members and three of the four members of the European Free Trade Association (EFTA) – Iceland, Liechtenstein and Norway. The EEA allows for a large participation of these three States in the EU’s internal market. Switzerland, the 4th EFTA member, is not an EEA member: it has chosen, instead, to conclude many bilateral specific agreements with the EU.

[2] Article 127 EEA on voluntary withdrawal is necessarily directed only to EEA EFTA members, as an EU member State cannot leave the EEA without leaving the EU: see the definition of « Contracting Parties », art 2(c) EEA). See also the definition of the territories to which the EEA applies, art 126 EEA.

[3] In this paper, « EEA » designates both the Organisation itself and the Agreement on the EEA.

[4] Centre for European Reform, ‘The economic consequences of leaving the EU’, June 2014. This report points out that the financial contribution of the three EEA EFTA States to the EU was €1.79 billion for the period 2009-2014. The Norwegian contribution per head to the EU during that period was comparable to the British net contribution during the same period – just 9 per cent less. The House of Commons Research Library’s figures are comparable: for the year 2011, Norway’s per head contribution was 17 per cent less the UK’s. House of Commons Library, ‘Leaving the EU’, July 2013.

The latest EEA financial mechanism agreement with the three countries and a separate EEA deal with Norway together provide €2.8 billion for the period 2014-2021 to reduce economic and social disparities within the EEA. In 2014-2021, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia and Slovenia will benefit from the two financial instruments. (Press release from the European Parliament, 18 May 2017).

[5] See the paper published by the Brussels Bruegel think tank in August 2016: Europe after Brexit: A proposal for a continental partnership | Bruegel

http://bruegel.org/2016/08/europe-after-brexit-a-proposal-for-a-continental-partnership/

6 In its Conclusions on 16 December 2014, the Council noted:

« ...with concern the recurrent backlog and delays incurred during the entire process of incorporation of EU legislation into the EEA Agreement, as well as in the implementation and enforcement of relevant legislation in the EEA EFTA states. (By the beginning of 2014, they still had not integrated around 580 pertinent EU acts into EEA law.) In this context, the Council strongly emphasizes the need for renewed efforts in order to ensure homogeneity and legal certainty in the Area. The Council notes in particular that the questioning of the EEA relevance of EU legislation by the EEA EFTA States, the extensive use made of the possibility under the Agreement to request adaptations and exceptions, as well as delays in the clearance of constitutional requirements and in the implementation and enforcement of already adopted EEA legislation in the EEA EFTA States contribute to a fragmentation of the internal market and to asymmetric rights and obligations for economic operators. »

[7] As already mentioned, one aim of the EEA is to reduce social and economic disparities in the Area. Thus, the EEA EFTA States have contributed to European cohesion efforts through various financial mechanisms since 1994. For the period 2014 – 2021, Norway’s annual contribution to the 15 beneficiary States will be around €391 million. Norway also participates in EU programs: Horizon 2020, Erasmus+, Galileo and Copernicus: for the period 2014 – 2020, Norway’s average annual commitment is €447 million. Norway’s cooperation with the EU in the field of justice and home affairs, including Schengen, entails an annual contribution of about €6 million. Norway participates to the instrument for financial support for external borders and visa under the Internal Security Fund 2014 – 2020 for about 820 million Norwegian K. In the same period, Norway could receive co-financing from the fund to Schengen projects for approximately €14.3 million.In addition, for the period 2014 – 2020, Norway contributes around €25 million annually for our contribution in programmes under the European Territorial Cooperation.

The EEA EFTA States fund their participation in EU programmes and agencies by an amount corresponding to the relative size of their GDP compared to the GDP of the whole EEA (proportionality factor), hence on equal footing with EU member States.

[8] On 14th December 1991, the EU Court, seized on the basis of the article presently numbered 218 (11) TEU, delivered its Opinion 1/91 rejecting the first draft Agreement because of its « system of courts which conflicts (…) with the very foundations of the Community ». On 10th April 1992, its Opinion 1/92 concluded that the draft EEA Agreement as revised was compatible with EC law. It is recalled that the opinions of the EUCJ are legally binding.

[9] Jean-Claude Piris:

-5th May 2015, Fondation Schuman, Paris: « Should the UK withdraw from the EU »

http://www.robert-schuman.eu/en/doc/questions-d-europe/qe-355-en.pdf

-12th January 2016, European Centre for European Reform, London

« If the UK votes to leave: the seven alternatives to EU membership »

https://www.cer.org.uk/publications/archive/policy-brief/2016/if-uk-votes-leave-seven-alternatives-eu-membership

-13rd January 2016, Financial Times, London, oped, « Brexit is the easy bit »

10 Legally possible on the basis of article 127 EEA for the UK, as the UK would not anymore be an EU member State.