EU And EEA Member States

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The Committee On Exiting The European Union looked at the relationship between the EU, Norway and the European Economic Area. Appearing in front of the Committee was Professor Alla Pozdnakova, University of Oslo Law Faculty; 
Ulf Sverdrup, Director, Norwegian Institute of International Affairs;  and Professor George Yarrow, Chair of the Regulatory Policy Institute, Emeritus Fellow at Hertford College, University of Oxford and visiting Professor, Newcastle University Business School. 

The Committee also got the chance to examine Professor Carl Baudenbacher, Judge on the EFTA Court.

Stephen Kinnock: I would like to move on to the subject of free movement of people and labour. It is something you hear a lot in the Brexit debate in the UK—that EFTA EEA countries are obliged to accept the European Union’s principle of free movement. Do you agree with that statement, starting with Professor Yarrow?

Professor Yarrow: It depends what you mean by freedom of movement. That is the answer I always give. There is freedom of movement under the Universal Declaration of Human Rights, which we would all tick. There is freedom of movement under the European treaty, which many of us would not tick, and there is freedom of movement under the EFTA EEA Agreement. The point is simply that what you mean by free movement depends on what you are talking about. Who is free or not to do what? There are subquestions that have to be asked.

There is a difference of interpretation in the two. There has to be, because the EEA does not cover citizenship. So, anything that involves a free movement issue where citizenship rights play any role, which, of course, the European Court of Justice does, is out of bounds for the EFTA Court. The courts are creatures of their own treaties, and the treaties are different.

I go back to a point earlier that was made. It is not just that the EEA is a sub-component of the European treaty; it also has some differences, and where the differences occur they are profound. There is a lot of commonality in the detail on the regulation, but the major one is that they have totally different objectives. An interpretation of law has to make reference back to the objectives. If you just look at the two objectives side by side, it is a big rambling set in the EU treaty, but it is a precise economic objective in the EEA treaty.

In the EU treaty, again, at that top level of objectives, you will find freedom of movement. It does not appear at the top level of objectives in the EEA treaty. It is there, but it is there in order to attain the top-level objective. It is what in the trade would be called the proximate objective or, in a wider sense, you might say that the freedom of movement provisions are the means to achieve the primary objective.

Those differences are, potentially, profound in the way the systems can develop. Of course, how things do develop depends on politics and all sorts of things, and we have a particular history of the EEA. If you actually look at it, freedom of movement means different things in the EEA. De facto, the EEA Agreement gives a national Government, if it wants to, much greater power and scope to limit free movement.

One of the conflations in the discussion is what people have a right to do under the EEA and what they have actually done. My problem, when we talk about Norway, is that we talk about what has been done, and we forget that the comparators have to be adjusted for relative powers. So, if Iceland says that it does not have much influence, the relevant comparator is Malta. They are about the same size within the European system. Malta, no doubt, does not think it is very much of an agenda-setter either. When we are looking at freedom of movement, we have to think of freedom of movement, looking forward, and how that might look in relation to things that the British Government might want to do. It is absolutely clear from the text of the treaty that there is much more scope for domestic freedom of movement under the EEA.

Ulf Sverdrup: There might be some variation, but the basic principle is that there is free movement of persons within the EEA as there is in the EU, not only in legal texts but also in reality. Sixty per cent of migrant workers from other EU countries coming into the Nordic countries have arrived in Norway. Per capita migration in the labour market in Norway is almost as high as in the UK. It has been very successful. It has been good for the Norwegian economy. It has brought in talent, competence and capacity, particularly in a period with high activity in the Norwegian economy. As the Norwegian economy is slowing down, some of these migrant workers are leaving.

Stephen Kinnock: What you are saying is very useful, but what I am trying to hone in on is this. Are the EEA countries legally obliged to accept free movement of people and labour as it is set out in the European Union’s Treaty of Lisbon, or does the EEA Agreement give EEA countries a significant option as set out in the EEA Agreement to diverge from the principle of free movement of labour and people? I am not so much interested in the economic case. I am focusing specifically here on the legal basis that the EEA Agreement gives in contrast to the European Union treaty.

Professor Pozdnakova: The important point here would be that, indeed, EEA law does not have the same concept of EU citizenship as EU law does. It should also have implications in practice. There are no fundamental statutes for EU citizens. Therefore, certain categories of cases should be excluded from this free movement of persons under EU law, but we have seen, in particular, from the EFTA Court that this gap or difference existing between EU law and EEA has somehow been reduced through the practice. The difference is there, but it remains to be seen which way it will develop.

Stephen Kinnock: I guess the consensus is that the principle is there for divergence, but how you deliver that in practice is a matter of negotiation and politics.

Professor Pozdnakova: Yes. Also, it is a matter of how the EFTA Court applies that and how national courts follow what the EFTA Court thinks.

Stephen Kinnock: The relevant articles in the EEA Agreement are 112 and 113—112, in shorthand, being described as the emergency brake. I know that this is more in the realms of speculation, but, if the UK were to go down the route of EFTA EEA as the basis for our Brexit settlement, what do you think would be a potential process for the UK to invoke articles 112 and 113? What impacts do you think that might have overall on the EFTA EEA group of countries in terms of what the response would be if the UK were to invoke articles 112 and 113?

Ulf Sverdrup: In order to get to that point, you first have to enter EFTA and then enter the EEA.

Stephen Kinnock: Yes, absolutely.

Ulf Sverdrup: Then, basically, you have to say that you are committed to take on the obligation of free movement of persons as in the agreement, and then trigger article 112 as some kind of a security measure.

Stephen Kinnock: Yes; an emergency brake.

Ulf Sverdrup: You are then back to the situation that Cameron negotiated before you had your referendum. What kind of special situation is it now where you can have some negotiations? Are there some special circumstances related to the UK labour market that enable some kind of legitimate claim to pull this security clause? So, you are all the way back to that.

That being said, we have to remember that article 112 is a security clause for some kind of exceptional situation. It is not supposed to last as some kind of permanent thing, so you have to find some kind of transition arrangement and find a solution to that problem. It would be in breach of the spirit of the agreement.

Stephen Kinnock: Moving slightly off that topic, article 127 of the EEA Agreement says that any country wishing to leave the EEA has to give one year’s notice of its wish to depart. The British Government argues that we will automatically leave the EEA when we leave the European Union, but others have argued that the EEA is a stand-alone international treaty and, therefore, in order to leave it we need, specifically, to trigger article 127 in the same way that we triggered article 50. I would be interested in the panel’s view on that. If we were to fail to trigger article 127 before 29 March this year, would we be in breach of an international treaty?

Ulf Sverdrup: There might be some others who are more expert on this, but I think this could happen with the UK saying that it has an intention to leave the EEA and then trigger article 127, 12 months before leaving the EU. It could also be that the EU notifies the others to say that one of the parties is going to leave the EU side and therefore they will also leave the EEA. It might be that it is the Commission or the member states in the EU that notify Norway that one of the parties is about to leave. Then there will be a call for a diplomatic conference to try to find out the arrangement. But, as you know, in reality, the European Union and the UK have said that the ways of dealing with the EEA will be done more or less in parallel with the ways of leaving the EU.

Professor Yarrow: Chair, in the words of Mr Davis—and this is quite important—that was then, but this is now. The guidelines given by the EU 27 have shifted position. The proposal now under, if I can use the term, the vassal-state proposal, is that existing agreements, which would include the EEA, will be rolled over through the transition period. Therefore, it appears that the status quo, on that basis, which I hope will be challenged, will still be in the EEA and still operating, but what that proposal says is that the UK will not be entitled to take part in any body set up by whatever the relevant free trade agreement is. That, to me, means that, on the EU terms, the UK cannot participate in the EFTA pillar, and all decisions for the EEA will be made by the EU authorities.
To go back to your freedom of movement question, the difference on articles 112 and 113 between the EEA and the EU treaties is control. I keep coming back to this point about power. All these things reduce to questions of power.

The EEA would give the UK, in the EFTA pillar, the unilateral right to trigger the safeguard measures, and it would also give it the unilateral right to use what I think is the more important freedom of movement provision, which is the first line of article 28(3). That is a more permanent way of dealing with freedom of movement issues. That is a tangent. In the EFTA pillar, the control and sovereignty is with the UK. If, however, we are in the EEA post 29 March next year, under the current EU proposals we will have no power whatsoever.

Stephen Kinnock: Professor, I was wondering if you could give a sense of the role that the overall objectives of the EU treaties as compared with the EEA agreement play in the way that the EFTA arbitration court interprets and acts, as contrasted with the European Court of Justice. Obviously, the overarching aim in the EU treaties is ever closer union of the peoples, whereas article 1 of the EEA agreement is far more focused on commercial engagement and the market. It is probably very much about the way in which the internal market was originally conceived in the 1980s as compared with a much deeper and closer union that has evolved since then. What role does that play in terms of influencing the mindset of the EFTA Court as contrasted with the European Court of Justice?

Professor Baudenbacher: Let me say first that the EEA Agreement is a single market agreement. It has no goal of creating an ever closer union. Political integration is basically excluded. First of all, that means that the common policies are also excluded. I want to emphasise this. Agriculture, fisheries, foreign trade, foreign policy and so on are excluded.

When we talk about fisheries, I just read the other day about the snow crab case. Snow crabs are a very expensive seafood, and EU vessels wanted to catch them in the waters around Svalbard, in the north near Spitsbergen. The EFTA Surveillance Authority said, “No, it is not possible; this is for us.” We were also very strict in saying that the catch of fish is outside the scope of the EEA Agreement.

When it comes to your question of how this impacts on the case law of the EFTA Court, first of all, the EFTA Court has been very strict in defining the outer boundaries of the agreement when it comes to agriculture and fisheries. There we did not compromise.
When it comes, for instance, to the interpretation of free movement of goods, competition law or of all sorts of secondary law, I can give you a few examples where I think we were rather market-oriented. When I say “market-oriented,” that does not mean we were antisocial—not at all. “Market-oriented” rather means that we were critical of mercantilism and of protectionism.

For instance, in the Kellogg’s Corn Flakes case we did not buy the argument by one of our Governments that they see to it that the children in school get enough iron every morning because they give them a piece of cheese fortified with iron, and once they have enough iron they must not eat Kellogg’s Corn Flakes any more. That is a paternalistic approach and we said, “No way.” The ECJ overruled its previous case law in the light of this liberal approach by the EFTA Court.

Stephen Kinnock: The ECJ overruled on the basis of advice from the EFTA Court.

Professor Baudenbacher: Yes, of use. That was in the early days. We were quoted six times in this judgment. Normally we open a bottle of champagne when they quote us, but that time we could not do it; it would have been too much.

Stephen Kinnock: You popped a cork of Kellogg’s instead.

Professor Baudenbacher: When it comes to the judicial review of competition fines, the UK is a leading country when it comes to competition law, practice and economics. The allegation of practitioners until today is that in the European Union the Commission still enjoys quite a margin of appreciation when assessing complex economic questions, whereas we said that there must be full judicial review of competition fines, because we are now talking about hundreds of millions and billions here today.

For instance, there was a famous question whether an in-house counsel should be excluded from representing his own company. Our sister court said that in-house counsel are, by definition, not always independent, and that is why they can never represent a company. We said that we have to look at the case at hand and the concrete circumstances. If the in-house counsel is independent, then it is okay. It is also a cost-saving measure and it is in the interests of fostering compliance that in-house counsel are not excluded here.

There have been other cases in which, at the end of the day, we have been rather market-oriented. Let me give you an example that concerns the United Kingdom rather directly. Last October, we were faced with the question of whether a public authority should be held liable under normal tort rules or under state liability rules if it has awarded a public contract to the wrong bidder. It often occurs that the best bidder does not get the contract but somebody else does, for any kind of reason. The question then is how high the threshold is for a lawsuit when the bidder who deserved to obtain the contract but did not get it wants to sue for damages. The ECJ came up with two conflicting judgments within two months. One Chamber said it was a simple tort law case; the other Chamber said, no, since the state is involved, it is a state liability case, which means that the firm that suffered damage would have huge difficulties in obtaining compensation.

In this situation, we said that a simple breach must be sufficient because in such a case the state does not act by state authority. It is a simple participant in commercial business. That is clearly a market orientation. The link to the United Kingdom here is that the UK Supreme Court in April of last year had exactly this question. It said, “We see these two conflicting ECJ judgments. We give interpretation to these two, and we think that the one that goes for state liability is the more convincing one.” They overruled their own case law.

This is one of the most fundamental questions of modern economic law because we are talking about huge amounts of money at stake. At the end of the day, this is not only about a non-mercantilist model; it is also about avoiding moral hazard. If a civil servant does not risk having something held against them, at the end of the day they can easily give the contract to this or to that. It is a very fundamental question.

Stephen Kinnock: You have talked a lot about this issue of the potential conflict between the ECJ and EFTA Court. You pointed out that you were quite surprised that the British Government’s paper on dispute resolution only refers to the written law and does not really refer to the continuous dialogue that a number of other eminent lawyers have talked about in terms of the relationship between the EFTA Court and the ECJ.

Obviously, you cannot speak on behalf of the British Government, but can you expand on why you think it was a missed opportunity in that dispute resolution paper not to talk more extensively outside the confines of written law?

Professor Baudenbacher: I can only guess here, but I have years of experience with the Swiss Government. I am a Liechtenstein judge, but I am a Swiss national, and I have been a professor in Switzerland for decades, so I am very familiar with the Swiss situation.

In the case of Switzerland, it was the same. It is very difficult and burdensome to read judgements and to compare them. It is much easier to have a look at the treaty and to say, “Well, there it is stated, and this is one-sided.” To analyse case law is quite a challenging thing. That would be my answer. People do not make the effort to really look into these matters. It was the same in Switzerland.

Stephen Kinnock: So you think it would be a good idea, in terms of our debate here in this country, to get a better understanding of the dynamics of the interaction between the courts. At the moment, you feel that it is insufficient and that we do not have a sufficient understanding of how it works in practice.

Professor Baudenbacher: It is a complex thing, I admit. It is not easy. You have to invest a lot of time and you have to be experienced in this. Part of my showing up here today is my preparedness to explain these matters. I am not absolutely free to speak about it, but I am outgoing as a judge and I will continue to deal with these questions. At the end of the day, there have always been two structures in Europe since 1960. Even under the OEEC in the 1950s there were these two movements: those who wanted to go for political integration—at the time, the six—and then the Brits and the Swiss, who were reluctant. They were hoping that this schism could be avoided in the 1950s.

Then the European Economic Community was set up in 1957 and started in 1958. In 1960, Great Britain took the initiative to set up EFTA with those who did not want to join the community at the time. It was the time of the inner six and the outer seven.
In one way or the other, this way of thinking in categories of free trade and the like has always been there, although most EFTA states joined the European Union in the meantime. There is always this separation between the way of thinking of those further north and those further south. It probably also has to do with the theory of legal origin, religion and the like.

Geneva is located in Switzerland. That is the place where Calvin started his reformation, which then moved over to parts of what is now the United Kingdom and also to the United States. The approach to the economy of the Swiss or the Brits, if I may now say in this general way, or the Americans, is a different one than the approach to money by people further south in Europe.