Could the UK stay in the single market after leaving the EU? The planned case on Article 127 EEA

Steve Peers

Might the UK stay in the single market, even if it leaves the EU? This is the issue to be raised by planned litigation relating to the UK’s position in the European Economic Area (EEA) – a zone set up by a treaty between the EU, its Member States, and Norway, Iceland, and Liechtenstein, which extends EU single market rules to the latter three States. It raises issues of both international and domestic law; but first, it would be useful to explain the EEA further.

The EEA

The EEA treaty was originally signed in 1991, adjusted in 1992, and come into force at the start of 1994. The aim was to extend the EU’s internal market (known as the ‘single market’ in UK political debates) to the countries which were part of the European Free Trade Area (EFTA). In the event, three of those countries decided to join the EU from 1995 (Sweden, Austria and Finland), and Switzerland decided not to sign up after all, relying on a separate network of treaties with the EU.

Some believe that the EEA is the same as the EU, but there are many differences. The EEA does not include the EU’s common trade policy, and indeed EFTA states have signed separate trade deals with non-EU countries. It also does not include EU policies on tax, justice and home affairs, foreign policy, agriculture, the single currency and fisheries, although EFTA states have signed separate agreements with the EU on aspects of these issues. In particular, while all EFTA states have signed up to the EU’s Schengen system for the abolition of internal border controls, that is a separate issue from the EEA (indeed, the treaties to become Schengen associates were signed later than the EEA).

The EEA does include applying EU laws on the free movement of goods, services, capital and people, along with the freedom of establishment.  However, EFTA states can apply an emergency safeguard to limit free movement, including the free movement of people. The EEA also involves participation in most of the EU laws concerns labour and environment, as well as competition and state aids. EFTA states make contributions to participate in EU programmes and to assist the development of poorer EU countries; but the money does not go into the EU budget and the EFTA countries have more control over how it is spent.

As regards institutions, the EFTA states have no role in EU institutions, but rather the EEA has its own bodies, where EFTA states are consulted on draft EU laws, but do not have a vote on the EU decision-making process. They are expected to apply new EU laws within the scope of the EEA (which, as noted already, does not extend to many areas of EU law-making), but they can in principle reject them, subject to the possibility of EU retaliation. They are not directly subject to the EU court, but instead take part in an EFTA Court, which usually follows the EU court’s case law – although note that some EFTA Court judgments are not binding.

Some argue that the UK should stay part of the EEA on at least an interim basis after leaving the EU, while negotiating a longer-term agreement. The basic arguments for this position are set out here; see also the EUreferendum site. One thing is clear: staying in the EEA was not on the referendum ballot paper. While comments by some on the Remain side or Leave side suggested that a vote on EU membership was also a vote on single market membership, that is not what voters actually voted on.

How to leave the EEA?

Leaving the EEA has two dimensions: international law and national law. Internationally, the only explicit way to leave the EEA is by invoking Article 127 of the EEA treaty, which says that any party can leave with at least 12 months’ notice. There is no explicit requirement to name the date of departure when giving the notice, so arguably the UK could specify the date of departure as the same date it leaves the EU. Therefore, as long as the UK gives notice to quit the EEA at least twelve months before Brexit Day, it could align leaving the EEA with leaving the EU.

What if the UK doesn’t give that notice? In that case, although Article 127 is the only explicit way to leave the EEA, some argue that that the UK would leave the EEA automatically when it leaves the EU. Why? Firstly, because the clause on territorial scope (Article 126) refers to the EU and EFTA states, but not to any other countries. Also, many of the substantive legal rules refer to the EU and EFTA states. Article 2(c) defines the contracting states as regards the EU and its Member States, and allocates responsibility as between them, but does not mention EFTA states.

If this analysis is correct, the UK could still rejoin the EEA after (or at the same time) as leaving the EU. In that case, Article 128 says the UK would have to join EFTA and apply to rejoin the EEA, subject to EU and EFTA states’ agreement, because only EU and EFTA states can join up to the EEA. (Article 128 isn’t, by itself, a good basis for arguing that the UK would have to leave the EEA if it leaves the EU, because it only addresses which countries may join the EEA in future, not which countries are members now and whether they might retain membership or implicitly lose it if they leave the EU or EFTA. It might, however, be referred to reinforce a conclusion based on Article 126 or other provisions).

So does the UK implicitly lose EEA membership if it leaves the EU? The answer isn’t clear, because the drafters of the EEA treaty never considered this possibility. On the one hand, the presence of an explicit clause on leaving presumes that states cannot implicitly cease to be EEA members. On the other hand, the substantive provisions and the clauses on territorial scope imply that leaving the EU is incompatible with being part of the EEA – unless the country concerned joins EFTA. That raises the question of how this would work: arguably there would be a ‘fundamental change of circumstances’ under Article 62 of the Vienna Convention on the Law of Treaties. (Note that the latter clause can’t be used as a quick route to leave the EU, since it only applies where a change was ‘not foreseen’ by the parties; but the prospect of a state deciding to leave the EU clearly was foreseen by the parties to the EU Treaties, since Article 50 TEU refers to it).  Or the other parties to the EEA could argue that the UK had committed a ‘material breach’ of the EEA by ceasing to be an EU Member State (if the UK does not join EFTA), and terminating application to the UK under Article 60 of the Vienna Convention.

The issue is arguably relevant by analogy to many other treaties which the UK signed up to as part of the EU, in particular trade agreements. Does the UK retain its status under the EU’s free trade deals with Korea, Canada and many other countries automatically on Brexit Day, or does it lose that status and have to negotiate a separate treaty? (Arguably, the international law principle of continuity of treaties could play a role here; and the legal issue also arises of whether the UK can start negotiating replacement treaties, if it has to, before Brexit Day).  

National law aspects

The termination of the UK’s EEA membership raises different issues as a matter of national law – which perhaps is the purpose of the planned litigation. If the UK government gives notice under Article 127, or asserts that it will implicitly cease being a party to the EEA on Brexit Day, does Parliament have to give its approval?

If the government is legally obliged (as a matter of international law) to give notice of leaving the EEA separately from the Brexit process, then the case is arguably analogous with the Miller case recently decided by the High Court, and now on appeal to the UK Supreme Court.  That case raises the question of whether the UK government’s royal prerogative extends to the termination of the UK’s EU membership, or whether Parliament must approve such use of the prerogative because leaving the EU would terminate rights conferred by an Act of Parliament. Since EEA membership is referred to in the European Communities Act, and extends many (though not all) of the same rights conferred by the EU Treaties, the answer to this question which the Supreme Court ultimately gives in the Miller judgment should logically apply by analogy to the EEA.

Therefore, in this scenario, if Parliament is obliged to approve withdrawal from the EU, it is also obliged to approve withdrawal from the EEA. And since EEA membership was not on the referendum ballot paper, the force of the political argument that Parliament ought to follow the view of the majority of those voting that the UK should leave the EU is not as strong. There will undoubtedly be a political argument that the referendum vote should apply by analogy – since to some extent the issues raised often by the Leave side as regards EU membership (migration of EU citizens, contribution to the EU, control over law-making) apply also to the EEA. But, as noted already, there are possible counter-arguments: the free movement safeguard clause in the EEA, the different nature of budget contributions, and the more limited scope of the EEA compared to EU law. Participation in the EEA could also, as some Leavers have suggested, be limited in time: an interim status pending negotiation of a longer-term framework for UK/EU relations.

On the other hand, if there is no distinct legal obligation to notify departure from the EEA, because its application to the UK will necessarily cease when the UK leaves the EU, then any Parliamentary vote to approve invoking Article 50 should logically encompass also the end of EEA membership, and the legal challenge relating to the EEA may find it harder to succeed. Or if the UK government succeeds in its appeal in Miller, it would be hard to convince a court that leaving the EEA raises distinct questions from leaving the EU.

In any event, any fresh litigation on the EEA could provide an opportunity to argue about whether an Article 50 notice is revocable – and it might be argued that that issue, and/or the issues about termination of EEA status as a matter of international law, should be referred to the ECJ to decide.

See also blog posts by:

Christian Dadomo and Noelle Quenivet

Francis Davey

David Allen Green

Jolyon Maugham QC

UK Civil Servant

Michael O’Connor

Meme: Steve Peers

Barnard & Peers: chapter 25, chapter 27