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Staying in the EU Single Market after exit

Part 6: Can we stay in the EEA without agreement?

A number of commentators and some politicians have suggested that the UK has a choice about whether or not we remain within the EEA after we leave the EU on 30 March 2019: in other words, we can choose to stay in the EEA if we like without needing the EU to agree to it. This suggestion is based on the idea that the UK is a party to the EEA Agreement and by simply not giving notice to terminate our membership of it, we would automatically remain within the EEA (and therefore within the Single Market) from 30 March 2019 onwards.

This suggestion is however not correct and is based upon a misunderstanding of why the UK (along with all other EU Member States) are parties to the EEA Agreement along with the EU itself. That reason is so-called “mixed competence” and is explained below.

Consequences of needing agreement of EU plus 30 States to stay in EEA

As a matter of law, it would of course be possible for the UK remain a member of the EEA as a non-EU Member State by agreement. Indeed, Austria, Finland and Sweden upon joining the EU migrated in the opposite direction (with everyone’s consent) from being non-EU EEA members to becoming EU members of the EEA Agreement, with consequent revisions to the text of the EEA Agreement. However, the consent required for the EEA Agreement to be revised so that the UK would remain an EEA member after exit from the EU would be that of the EU itself, plus the consent of each of the individual EU Member States in its own right, plus the consent of each of the non-EU EEA States (Norway, Iceland and Liechtenstein), a total of 30 States. Each of these EU and non-EU EEA States would have to agree to the necessary treaty changes, and would also have to ratify those changes in accordance with its national constitutional requirements.

As is now notorious as a result of the problems with the Canada-EU free trade agreement, this would include for example the need for ratification by the Wallonia regional parliament in the case of Belgium.

This fact has two important consequences. First, it makes it very difficult indeed to envisage reaching an agreement for the UK to adhere to the EEA Agreement in modified form, for example by saying that the EEA Agreement provisions on free movement of persons (which are in substance identical to those of the EU treaties) shall be relaxed in the case of the UK. There is a strong ideological belief in many parts of the EU that the “four freedoms” of the Single Market (free movement of goods, services, persons and capital) are “indivisible”. So getting EEA membership on terms which modify or relax the rules on free movement of persons would mean somehow persuading all these States (and their national and regional parliaments) to give up on their deeply held objections to the UK “cherry picking” from the indivisible four freedoms.

It seems entirely unrealistic for the UK to achieve the necessary agreement with the EU and all these individual EU and EEA states to permit the UK to remain in the EEA but without being subject to free movement of persons. Therefore the Labour Party’s manifesto policy (see The Party Manifestos) of seeking to retain the asserted benefits of staying in the Single Market but ending free movement of persons seems quite unattainable in the real world.

The second consequence is that the need for unanimous consent and elaborate ratification rules out the use of the EEA Agreement as a sort of temporary safety refuge or transitional status in between EU membership and non-membership. Since the UK cannot unilaterally decide to stay in the EEA from 29 March 2019 when it leaves the EU, a request by the UK to be allowed to stay in the EEA would mean the UK putting itself completely over a barrel - the EU27 could then demand whatever terms they liked as  a price for allowing the UK to be a non-EU EEA member, even if it were for a limited or transitional period. Indeed, there is no reason to think that the difficulties of agreeing a limited period membership of the EEA would be any less than those of reaching a long term agreement on our post-exit relationship with the EU.

“Mixed competence” and why the UK is a party to the EEA Agreement

So, why are all the EU Member States including the UK parties to the EEA Agreement, and why does this not mean that the UK can stay in the Agreement after it exits from the EU?

The EU has its own international legal personality and is a party to the EEA Agreement. (In fact, at the time of signature, the European Economic Community (EEC) and the European Coal and Steel Community (ECSC) were both parties, since each body had a separate legal personality. These two bodies (the EEC and the ECSC) have since been rolled up into the European Union which post-Lisbon is a single body with its own legal personality, and has now taken over all the rights and obligations formerly belonging to the EEC and ECSC).

The reason why the EU Member States are also parties to the EEA Agreement is because of so-called “mixed competence”. The EU has a wide but not unlimited competence to conclude international agreements with non-member states. The core area of this competence is in the field of tariffs under the EU’s “common commercial policy” but it extends to much wider areas. However, in complex trade agreements there are some areas of policy which fall outside the EU’s competence, and therefore fall within the remaining external treaty competence of the Member States.  The recent ECJ formal Opinion on the EU-Singapore Free Trade Agreement (Op 2/15, 16 May 2017) has pushed the boundaries of the EU’s external relations powers a lot further at the expense of the Member States, but there still remain areas of Member State competence, which are beyond EU competence, within that agreement.

Since these agreements include some provisions which are outside EU competence and within remaining Member State competence, the EU Member States are added as parties to the EU’s external trade agreements, in addition to the EU itself. In this regard, the EEA Agreement is no different from the EU’s other trade agreements.  The European Community is the first listed party to the EEA Agreement (see EEA Agreement text), and listed underneath it are the EU Member States, which are described in the text as “the EC Member States”. They are then separated by the word “AND” from the non-EU states who are parties, described in the Agreement as “the EFTA States”.

The structure of the Agreement indicates that the EEC, ECSC and Member States are contracting as a bloc with the EFTA States.  Article 2(c) which defines the “Contracting Parties” makes it quite clear that the EU Member States are Contracting Parties only for the purpose of exercising their own competences according to “the respective competences of the Community and the EC Member States as they follow from the Treaty Establishing the EEC.”

Were, hypothetically, the UK to remain a party to the EEA Agreement after its exit from the EU, the above clause could no longer have any meaningful application to the UK since it would no longer be party to the EEC Treaty (since renamed the Treaty on the Functioning of the European Union or TFEU). The UK would no longer be either an “EC Member State” nor an “EFTA State” and the Agreement would therefore no longer read on to the UK.

This is not just a matter of the wording no longer matching the status of the UK. There would simply be no place for the UK within the machinery of the Agreement. The provisions of the EEA Agreement could no longer read on to the UK.

The machinery of the Agreement operates via the EEA Joint Committee. Article 93(2) of the EEA Agreement requires that “The EEA Joint Committee shall take decisions by agreement between the Community, on the one hand, and the EFTA States speaking with one voice, on the other”. So the UK would have no vote or even right to attend the EEA Joint Committee but (on the hypothetical assumption that it would remain subject to the Agreement) it would be bound by the decisions taken by the Joint Committee.

But there are further difficulties.  The obligations of the Agreement are enforced via the ECJ and the EU Commission on the EU Member States, and via the EFTA Court and the EFTA Surveillance Authority on the EFTA States. But if (testing the hypothesis again) the UK were to remain a party to the Agreement after EU exit, there would be no machinery for the common rules of the internal market to be interpreted in the UK or for the UK’s obligations to be enforced. And yet, as we have seen in Part 2: Harmonised interpretation and supranational enforcement, homogeneity of interpretation and effective enforcement of the common rules by supranational mechanisms are a fundamental feature of the EEA Agreement.

Accordingly, it is quite impossible for the EEA Agreement to function as intended by the parties at the time of signature if the UK were to remain a member of it after leaving the EU, unless of course it were to be amended with everyone’s consent to provide for the UK’s new status as a third class of non-EFTA non-EU State. Such a step would not just need formal changes, but would require substantial agreement on the mechanisms for the UK’s participation in the decision making machinery of the EEA and for oversight and judicial control of the UK’s obligations.

The whole structure of the EEA Agreement is dependent upon the UK (in common with the other EC Member States) remaining Member States while their membership of the EEA Agreement continues. The departure of the UK from EU membership represents a fundamental change of circumstances satisfying the conditions set out in Article 62(1) of the Vienna Convention on the Law of Treaties, which are:
“(a) the existence of those circumstances [i.e. EU membership by all the ‘EC Member States’] constituted an essential basis of the consent of the parties to be bound by the treaty; and

(b) the effect of the change is radically to transform the extent of obligations still to be performed under the treaty.”
It follows that if the UK were hypothetically to attempt to insist that it remained an effective member of the EEA Agreement after termination of its EU membership, the other EEA parties would be entitled to treat the EEA Agreement as no longer effective as between themselves and the UK.

In fact, it is most unlikely that it will ever reach that point. For good order, the UK should make a formal notification of withdrawal under Article 127 of the EEA Agreement to coincide with the termination date of its EU membership on 29 March 2019.  If it neglects to do so, as pointed out on 17 May 2017 by the Deputy Secretary-General of EFTA, it is likely that the EU will itself serve such a formal notice.