Sean Ibbetson, Stephen Smith, Noel Watson-Doig, Sarah Blair
With the passing of four months since the UK woke on 24 June to the realisation that it was embarking on a path to exit the European Union, some shapes are beginning to emerge from the summer fog of uncertainty. We now have a new leader of the Conservative Party and with it a new Prime Minister and Cabinet. Key Brexiteers such as David Davis, Liam Fox and of course Boris Johnson have taken up positions in important ministries focussing on Brexit. Whilst the Government remains coy as to both its initial negotiating position and expectations of the final outcome, the Conservative party conference marked the high water mark (at least to date) of a route map towards a so-called ‘hard exit’ from the EU that would see the UK striking out on its own outside the single market. At the time of writing, legal challenges are under way as to the form of the UK’s notification under Article 50 to trigger the start of its exit negotiations. Despite this, the Prime Minister has now clarified that notification will be made by the end of March 2017.
Despite these first teetering steps along the exit road and a degree of hardening in the rhetoric of the Government towards a ‘hard Brexit’ if this is necessary to ensure control over immigration, there is still considerable debate over which of the paths ahead will ultimately prove most beneficial to determine the UK’s post-EU relationship. In this article, we look at how EU law is implemented in the UK today and how that might change under three different ‘models’ that have been discussed to date:
- The ‘Norway’ model;
- The ‘Swiss’ model’; and
- The ‘Canada’ model.
Implementing EU legislation
EU legislation is set out either in Directives or in Regulations. Directives are ‘not directly effective’ and so each EU Member States is required to adopt its own implementing legislation. In the UK, EU Directives have typically been implemented through secondary legislation, which itself is implemented pursuant to section 2(2) of the European Communities Act 1972 (the “ECA”). Meanwhile Regulations have ‘direct effect’ and hence apply directly to each Member State without the need for further national implementing legislation.
At its most extreme, a UK exit from the EU followed by the repeal of the ECA with no transitional arrangements would have the following immediate consequences from the date of departure:
- All EU Regulations would cease to apply in the UK;
- All UK secondary legislation created under the ECA would be repealed at the same time as the repeal of the ECA; and
- Any primary UK legislation giving effect to EU law (for example sections of the Competition Act 1998 or the Communications Act 2002) would continue in force until expressly repealed by Parliament.
This would plainly result in a very sub-optimal outcome with significant negative implications for legal certainty. Whilst most EU law would cease to apply overnight (giving rise to the potential for a legal and enforcement void in numerous areas), other areas might continue to be subject to EU law until expressly repealed which could itself give rise to disadvantageous asymmetric outcomes. To address this, the Government has announced a ‘Great Repeal Bill’ which, if enacted by Parliament, will come into effect the day of Brexit and would incorporate all existing EU legislation (including Regulations) into UK law. Whilst the ECA would be repealed, the Great Repeal Bill will have saving provisions to ensure the continued validity of relevant secondary legislation.
The Norway model is short-hand for the UK exiting the EU, but remaining a member of the European Economic Area (EEA). The EEA currently consists of 28 EU Member States plus three of the four European Free Trade Association (EFTA) states (Norway, Iceland and Liechtenstein). The fourth member of EFTA is Switzerland, but Switzerland is not a member of the EEA (see below).
EFTA was formed in 1960 as an alternative to the European Union (then called the European Economic Community). There were seven founding members: Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the UK. Only Norway and Switzerland remain members today, with the other five founding members all having subsequently joined the EU.
The EEA was formed in 1994 by six of the then seven EFTA states (Austria, Finland, Iceland, Liechtenstein, Norway and Sweden) and the then 12 EU Member States (Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain and the UK). Subsequent Member States have all acceded to the EEA on their accession to the EU.
The EEA is not a customs union and also excludes common agriculture and fisheries policies, common trade policy, common foreign and security policy, justice and home affairs, harmonised taxation and the economic and monetary union aspects of the EU. The objective of the EEA is to extend the single internal market of the EU and as such all relevant EU legislation applies to the participating EFTA states. This includes the four freedoms (goods, capital, services and persons) and mirrors the competition and state aid rules of the EU.
EU legislation is incorporated into the EEA Agreement by unanimous decision of the EU Joint Committee – a body comprising of representatives from every EEA state. In brief, once adopted into EU law, the EEA EFTA States (and observers from Switzerland and the EFTA Surveillance Authority, see below) consider its relevance to the EEA Agreement and whether any adaptations are required. Once they have arrived at a common position, they draft a Joint Committee Decision and pass it on to the Commission to consider the timing of adoption. The EEA EFTA States then meet with the EU in the EEA Joint Committee and must unanimously agree to incorporate the EU legislation by amending the applicable annex to the EEA Agreement. To effect implementation in the EEA EFTA States, Regulations and Directives must then be transposed into national legislation, except in Lichtenstein where Regulations are directly applicable. This process means that there is often some considerable time delay between the adoption of legislation in the EU and incorporation into the EEA Agreement.
The functions of the European Commission and the Court of Justice are carried out by the EFTA Surveillance Authority and the EFTA Court as regards the participating EFTA states. The EFTA Surveillance Authority, based in Brussels, oversees the implementation of legislation and ensure that the EEA EFTA Member States meet their obligations under the EEA Agreement and are able to initiate or investigate possible infringements. The EFTA Court, based in Luxembourg, hears and decides disputes concerning implementation, application or interpretation of an EEA rule brought by the ESA against an EEA EFTA State and can provide advisory opinions to the courts on matters of interpretation.
The vast majority of existing European legislation which is of most relevance to those operating in the digital and copyright space has been incorporated into the EEA Agreement, and therefore is mirrored in the laws of the EEA member states.
By way of example, the eCommerce Directive (2000/31/EC), the InfoSoc Directive (2001/29/EC) and the Software Directive (2009/24/EC) have all been incorporated into the EEA Agreement and subsequently transposed into the laws of each EEA member state. The more recently passed Directive on Collective Management of Copyright (2014/26/EU) is currently being considered by the EU and EFTA states for inclusion in the EEA Agreement.
Despite the above advantages as regards legal certainty and protection of the status quo for the vast majority of existing EU laws, the fact that membership of the EEA requires continued contributions to the EU budget and acceptance of the ‘four freedoms’ (including free movement of people) means that the EEA may not be the Government’s destination of choice.
As an EFTA Member outside the EEA, Switzerland’s relationship with the EU is governed by a series of bilateral treaties between it and the EU. The effect of this is to make Switzerland a ‘virtual member’ of the EEA whereby it only has partial access to the single market for goods but not services and must make contributions to the EU budget and (in effect) adopt EU legislation in relation to goods. Switzerland does not have access to the EU single market for financial services, so Swiss finance companies often need to set-up EU subsidiaries to take advantage of the EU single market in services.
As regards the UK, it is highly unlikely that the UK would simply adopt the ‘Swiss model’, but would rather seek to negotiate its own bilateral agreement with the EU. It is difficult to see the advantages to the UK of doing so whilst also a member of EFTA and the Swiss model itself reinforces the potential for alternative bilateral treaties to deliver access to the single market outside the EEA.
Conversely, given that Switzerland has now negotiated over 200 trade treaties with the EU since agreeing to the initial proposals in 1999 (in force from 2002), there may be relatively limited appetite from the EU to begin a similar exercise with the UK. The EU has said that there will be no further bespoke single market treaties. This is likely to mean that in future non EU countries (such as Switzerland and the UK) will have no option but to adopt EU proposals without further negotiation.
Whatever the Brexit outcome, a UK outside the EEA would need to negotiate bilaterally and implement its own legislation to ensure consistency and reciprocity with those EU proposals it wished to retain.
The Canadian model is an example of an individually negotiated bilateral treaty with a third country in exchange for access to the single market. The Comprehensive Economic and Trade Agreement (CETA) took seven years to negotiate and still requires approval and ratification by the European Parliament and all the current 28 EU Member States.
CETA provides Canada with access to the single market without all of the obligations that come with the Swiss and Norway models, such as contributing to the EU budget. The agreement removes trade tariffs in respect of industrial goods and many customs duties on agricultural products have also been substantially eliminated, excluding certain “sensitive” food products such as eggs and chicken. However, Canadian exporters will be required to prove that goods were made in Canada in accordance with EU rules of origin, which may pose an additional hidden cost.
The agreement was negotiated on a ‘negative list’ basis meaning that unless specifically excluded, service markets are liberalised. CETA improves access to financial services, telecommunications, energy and maritime transport amongst others. Mutual recognition of certain professions, for example architecture and engineering, is also included. Public services such as healthcare and education, audio-visual services and some air services are excluded.
As with the Swiss model, it is unlikely that the UK would simply adopt the Canada Model, not least because access to the single market in respect of services may be important (although again, recent commentary has cast some doubt on this). Consequently, any attempt to draw on aspects of CETA would likely be supplemented and amended to reflect both the UK’s historic position as an EU Member State and its desire to seek wider access to the single market across both goods and services.
Wherever the UK’s ultimate destination post-Brexit, it will be essential to conclude lengthy and detailed transitional arrangements to ensure that UK and EU businesses does not face an economic and regulatory cliff-edge. This is partly the driving force behind the Great Repeal Bill, but as discussed here, that may not be enough on its own. It is therefore possible that one of the above models, perhaps continued membership of the EEA, might become acceptable at least as an interim solution. Whatever the final deal agreed between the EU and UK it will ultimately require ratification by all 28 Member States, which itself is a cause for further uncertainty. Indeed, this has been illustrated by the recent rejection of the EU and Canada deal by the Belgian regional Walloon parliament. While this may not be fatal by itself, it reveals the complexities that any bespoke future trade deal will face in seeking ratification, even following successful negotiation.