Brexit

How EEA and EFTA can fix the Brexit mess

BY Adrian Yalland   /  7 December 2018

For many years in Eurosceptic circles leaving the EU but remaining a signatory to the European Economic Area Agreement (1994) – i.e. “staying in the single market” – was considered an entirely satisfactory way to leave the EU.

I can think of several Eurosceptic campaigns like the Bruges Group and Eurosceptic politicians like David Campbell-Bannerman MEP, who published books advocating a reversion to a pre-Maastricht, “Common Market” (which is in effect what the EEA is). Even as recently as the referendum campaign, the EFTA states were held up by leading vocal Brexiteers such as Nigel Farage as models of “free, independent and wealthy” European states outside of the EU.

While not all Eurosceptics advocated this approach, it is true that what is now known as “soft brexit” was not regarded with the hostility which it currently creates. This is because history has been reinvented so that what was once considered acceptable is now (falsely) portrayed as “Brexit in name only”. Those like Owen Patterson, David Campbell-Bannerman and Nigel Farage who once highlighted the benefits of post-Brexit single market membership, now denounce it. Those who remain consistent in advocating for the EEA are unfairly typecast as “closet remainers”.

I am a long-standing advocate of changing our relationship with Europe. I have wanted the UK to withdraw from the EU (but not from Europe) since the early 1990s. Yet I believe the greatest threat to Brexit now comes from the hubris of my own side. Brexit-supporting MPs privately concede to me the “Brextremists” led by Tory MPs Jacob Rees-Mogg and Steve Baker have damaged brexit. I believe this is because they remain unable to see not only the benefits of the EEA, but now, the necessity of the EEA.

Ignoring for a moment the disingenuous adoption of Stronger In’s disinformation about how the EEA operates, my main concern is that a botched Brexit will cause the People’s Vote lobby to morph into a well-funded “re-join” campaign, or re-join political party which against the chaos and missed-opportunity of a bad Brexit, will see the UK limping back into EU membership on far worse terms than we have now.

So, what went wrong?

The reality is Theresa May made five big mistakes.

First, without first ascertaining the options we had, Article 50 was triggered too early in an attempt to appease internal Conservative Party demands for an immediate Brexit. In terms of the national interest this was a tactical error because the country needed a period of reflection, informal soundings with the EU and the member states, and to take stock of all the options available. Instead it was rushed because the Tory right were desperate to see Brexit as “a moment” rather than “a process”.

Secondly, the UK woefully misunderstood the power imbalance in the negotiations. The UK is certainly a significant economic player, the fifth biggest economy in the world and has significant leverage in security, intelligence and financial services. But the EU is a bloc accounting for 25% of global GDP. This was never going to be a negotiation between two equal parties. The UK had the weaker hand, and played it badly.

Thirdly, because of our history with the EU, the UK sees itself as an exceptional case. But the EU is a rules-based, technocratic institution riven by internal disagreement only held together because everyone follows the same rules. There was and never could be room for “exceptions” – not even for the Brits.

The EU’s approach was always going to be based on not allowing anything to undermine the integrity of the single market by “cherrypicking”, because if the EU allowed the UK to cherrypick, others would quickly follow suit and the whole edifice would collapse. The Brexit negotiations where always going to be a subliminal message to other states toying with the idea of their own exit, which the UK falsely perceived as the UK being punished for having the temerity to leave. This was an immature response which typifies how little the UK political class understand the politics of the continent, or the pressure points the EU has, especially presently, with troubles on its southern and eastern borders and with an American president who is hostile towards the EU.

Fourthly, the EU offered the UK two broad Brexit options, one based on a fairly uncomprehensive (and unsuitable) trade deal and the second based on remaining in the EEA. Theresa May however demanded a third model, a “unique and bespoke” relationship somewhere between the two. Not only was this request repeatedly rejected, our approach in seeking this deal was built on two contradictory messages: the first being “we are your friends, do us a favour” and the second being “get stuffed, we don’t need you”. We therefore alienated the EU and the member states which ossified positions further.

May’s biggest mistake however was her now infamous “red lines” because they not only funnelled the negotiations, but created the framework for the deal we ended up with.

Taking an overview and comparing the deal being proposed by the Government with what could have been achieved by accepting the EU’s initial offer of an EEA-based Brexit, on almost every metric deemed important to Brexiteers, the EEA offers a superior model of brexit.

Of May’s original four red lines (1) ending contributions to the EU budget, (2) ending the jurisdiction of the ECJ, (3) enabling our own free trade deals, and (4) ending freedom of movement, the EEA meets the first three tests in full. The final one, freedom of movement can be met within the EEA but would require some further negotiation. In short, the EEA automatically and immediately gives us 75% of what we want with the remaining 25% potentially deliverable through future negotiations. Yet this was roundly rejected by the Prime Minister because it seems for her, Brexit is above all else about ending freedom of movement.

The biggest drawback of May’s deal (and there are many others beside) is that while we technically leave membership of the EU, the EU will until an undefined time in the future (which is certainly likely to be 2024 at the earliest but can be indefinitely) continue to impose its full legal order onto the UK. This situation was bad enough when the UK was in membership of the EU and nominally able to influence from inside. Now we will be outside the EU, with no Commissioner, no MEPs and no seat on the Council, in a state which EU law continues to have “direct effect” and is arguably illegal under Article 1, protocol 3 of the European Convention on Human Rights.

Comparing this deal to a Brexit based on the EEA, we can see how bad May’s deal is and why the EEA actually offers significant pluses over it, mainly the UK immediate repatriation of full legal supremacy and political sovereignty, genuine and legally enforceable means to influence, shape and reject new single market legislation, limits on the percentage of EU law the UK would have to follow. And the EEA ensures no net contribution to the EU budget. It also helps facilitate an easier resolution to the Northern Ireland border issue (indeed it could negate the need for the backstop in its entirety) and may even reduce both the cost of the divorce bill and migratory pressure from the EU.

This is why lawyers and academics who understand how the EEA actually works are pulling-out their hair in frustration that the most obvious and sensible means of securing a workable and viable Brexit is repeatedly misrepresented or misunderstood and rejected.

To understand why, we need a quick history lesson. The “Common Market” was the second iteration of European integration and grew out of the European Coal and Steel Community. Its objectives were to further peaceful relations between European states based on the (correct) assumption that nations who trade with each other (and to some degree become economically dependent on each other) don’t go to war with each other.

The Common Market grew through the Single European Act (1986) into the “internal market” – a borderless market based on harmonisation of standards. This was a British idea and arguably Britain’s greatest contribution to post-war Europe, and was entirely mercantile in its objectives – to facilitate free trade on the continent of Europe.

By the late 1980s however, the desire to see integration extended from economic and trade issues into ever closer “political union” meant the EC (as it was by then) needed a new “three pillar” structure: (1) the economic pillar (essentially the internal market), (2) the political pillar (the common policies) and (3) the security and foreign affairs pillar.

By 1991, the then Commission President, Jacques Delors, had decided there was also a need for a new, non-EU treaty (“an association agreement”) enabling non-EU European states to participate in the EU’s economic pillar without having to have membership of the political pillar. The target states were members of the European Free Trade Association, who in 1994 became signatories to the European Economic Area Agreement [1994] alongside the then member states of the EU and the EU itself.

The agreement established a two-pillar structure, the EU pillar and the EFTA pillar. Each pillar is a separate jurisdiction presiding over the interpretation of the same body of law – which is similar in structure to the UK where there is often one shared body of law but with different jurisdictions deciding what the law is.

The EFTA pillar established three key institutions: (1) The Joint Committee, responsible for approving new law, (2) the Surveillance Authority, responsible for ensuring compliance with the law and (3) the EFTA Court, which adjudicates on disputes involving non-EU states. Importantly, the EFTA court is only obliged to “have regard to” ECJ case law and is not in any way obliged to “follow” those decisions, thus maintaining absolutely its independence in the same way as Scottish courts are independent of English courts even when considering UK-wide legislation (such as human rights law).

The erroneous idea that this involves being a “rule taker” has developed. Aside from the independence of the EFTA court, the notion the UK would be a rule-taker in the EEA is a myth for three other reasons.

Firstly, the EU doesn’t simply draw up new rules in a vacuum and then impose them. When an EFTA state or EU member state recognises the need for new single market rules, the Commission is obliged to bring forward legislation in consultation with all the contracting parties. This is not a paper exercise but a proper, genuine consultation where the UK would (as the second or third biggest economy in Europe) be able to give huge input into the proposed law which the Commission and European Parliament are obliged to consider and respond to. This is in effect, even if not in law, a process of legislation by mutual consent. This is not passive observance, but active participation in shaping EU legislation.

After the proposal has passed through the EU legislative process, it must then be approved by the EFTA/EU joint committee, on which the UK will, if it chooses this route, have representatives. The committee may approve, reject or send back the proposal to the EU for amendments. UK participation on the joint committee will give significant legal powers over EU legislation before it comes into force via the EEA.

Secondly, the EEA has different impacts upon EU signatory states compared to EFTA signatory states. While new EU law will have automatic or “direct” effect on EU member states, it cannot have direct effect on the EFTA states because the EFTA states have preserved their own domestic legal supremacy. In order for a new single market law to have effect on the EFTA states, it must first be placed into the EFTA state’s own domestic law by that state’s own Parliament. It cannot be imposed through the EEA.

Thirdly, whilst there is certainly an obligation arising under the EEA treaty to place new rules into domestic law, there is still a right for the EFTA states to refuse to do so, as Norway has previously done with the EU’s Postal Services Directive. Whilst this causes “ructions” and creates satellite problems, this does not in any way impinge on the sovereignty of the EFTA state in question.

For these three reasons, the notion the UK would be a “rule taker” is shown to be a myth. Indeed, the UK still within the EEA framework would actually have more power to reject the EU’s regulations than it currently has as a member of the EU. If anything, UK sovereignty would, in law at least, be enhanced, not diminished, by moving from the EU pillar into the EFTA pillar.

How can it be done? How can we unpick the Gordian Knot

The EEA is, in my view and in the view of an increasing number of thinkers, lawyers and politicians, the only way to make Brexit workable. Supporters of the EEA include pragmatists on both sides of the debate. This is because it is understood the EEA need not breach May’s red lines.

It ends contributions to the EU Budget.

The UK currently pays the EU £13bn a year gross (£9bn net). The net figure is about £130 per capita per year. Once outside the EU, the UK’s obligations to make net contributions to the EU’s budget end.

However, remaining a signatory to the EEA would require the UK to cover its own costs arising from its participation in joint UK/EU schemes and pay a “market access fee” (essentially a “Single Market licence” or “permit”).

Like covering those costs arising from our participation in joint projects, this “licence” isn’t a net contribution to the EU budget either. It is in effect a charitable donation to fund economic regeneration in Europe, but not via the EU. It would, as the Norway Grants Scheme shows, be UK money spent on UK-run and managed projects (not money given to the EU which it then spends for us).

As Professor George Yarrow recently pointed out, given the disparity between the per capita GDP of Norway ($76,000) and of the UK ($39,000) we would pay considerably less than Norway pays (currently about £110) as the access fee. Furthermore, as many of the joint schemes we’d want to participate in will be covered by the “divorce bill”, it is possible our per capita payment could fall to below £50 per person, less than half of that paid by Norway.

And none of that goes to the EU as a net contribution. In fact, it could for example be spent on economic regeneration in eastern Europe, thus reducing migration pressures on the UK.

Given none of this equates to a net contribution to the EU budget, it is wholly compliant with May’s red line. It is also a proportionate sum to pay for the considerable benefits arising from being signatories of the EEA Agreement and being able to influence from within, rather than being outside the EEA but obliged to follow the rules anyway in order to trade within it.

Outside the EU, we would come under the EFTA pillar, which means we would not be under the jurisdiction of the European Court of Justice. The EFTA Court is not obliged to follow ECJ rulings, merely to consider them. It is hard to see how this situation breaches May’s red line.

We could do trade deals too. The EEA is not part of the EU’s Common Commercial Policy (or indeed any of the EU’s common policies) and so is outside the EU’s custom union. The UK would therefore be free to pursue its own trade deals as well as being able to join EFTA’s comprehensive set of trade deals with other third countries. Again, remaining in the EEA is compliant with May’s red line.

The fly in the ointment here is Northern Ireland, or more accurately, May’s red line over Northern Ireland. This gives rise to the “+” in the so-called “Norway +” model.

While the EEA would mean there is no need for the “backstop”, there will remain a residual issue over customs. There are two ways to resolve this. One way is to have a temporary customs union with the EU (which means we would temporarily be unable to pursue our own trade deals) or to have a protocol relating to the EU’s customs code which would mean we would be free to make our own trade deals.

At this moment in time the EU is likely to insist on the former, but in due course, the latter is certainly achievable. Not least because the EEA’s Surveillance Authority is of great assistance is resolving the backstop issue.

On free movement, Article 112 of the treaty gives a signatory state the unilateral right to trigger safeguarding measures which amount to a temporary halt on freedom of movement. This is the “temporary” suspension Liechtenstein triggered over a decade ago and it has resulted in a de-facto right to permanently suspend free movement and use quotas.

It is not a perfect solution. Once triggered the UK would be obliged to call a conference to seek a new arrangement which may of course come to nothing. The EU and the EFTA states may simply refuse to accept the suspension is justified which means the UK might have to un-suspend or face retaliation (albeit retaliation which must be proportionate). But what the EU cannot do is force the UK to re-open its borders. It can merely retaliate if we don’t.

The other possible scenario though is that once triggered, new measures or a new protocol may emerge which would give the UK the powers Liechtenstein has. The treaty does not in any way seek to limit the Article 112 powers: the signatory state is the sole judge of whether the criteria for triggering the safeguarding measure is met, and it can do so unilaterally.

This may not breach May’s red line, but it does blur it.

But the UK would be unwise to retreat into isolation as a result of Brexit. A global UK is a UK engaged with the continent of Europe as well as the Commonwealth, the US and Asia.

By re-joining EFTA, the UK would not only ensure its continuance in the EEA, but it would also boost EFTA’s global profile and provide a counterbalance to the EU on the continent. The prestige of the UK would receive a welcome and needed boost and the EU would feel more secure in its relationship with the UK going forward. The EFTA Court (on which the UK would have the majority of judges) would be a welcome brake on ECJ expansionism, and it would give both the EU and the UK “breathing space” to adjust to the new post-Brexit landscape.

The EEA is not a “compromise” or a plan B. It is a realistic, sensible arrangement for the UK given our 40+ years of economic integration with the EU, but our desire to have a much looser relationship with the EU going forward. It provides continuity for our supply chains, prevents the undoubted recession which leaving the EU with no deal will cause, and would in my view quickly become a model which many Remainers would live with, taking the wind out of the sails of the People’s Vote lobby (which is why they dislike the idea so much).

Most importantly, it would do what the UK voted to do in June 2016 – it would see us leave the EU. Not “in name only” but fully and properly, just in an orderly and proportionate way which avoids unnecessary disruption no deal causes.

It is by quite some way the nearest thing the UK has to a “cake and eat it Brexit” and in my experience, opposition to it from Brexiters is almost always based on the myths I have sought to explain in this article.

The best thing of course, is that unlike with May’s deal, if we do not like it we can leave at any time with twelve months’ notice under the terms of Article 127. The deal which May has proposed sees-us “locked in” until such time as the EU says we can leave.

The EEA gives us freedom, independence and economic co-operation with our existing major trading partners in contrast to May’s deal which turns us into a colony of the EU.


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