Brexicon: Do you know your Single Market from your EEA?

 
Pamela Buxton
Passport control at Gatwick Airport
Delve into the legal detail underpinning the soundbites (Source: Getty)

The distinction between “access to” and “membership of” the Single Market continues to feature prominently in the Brexit debate – but often interchangeably.

The same is true of the hot topic of whether leaving the EU means leaving the Single Market or the Customs Union. Some additional clarity around the terms may enhance understanding of the decisions required.

For many in the EU, the Single Market is known as the “internal market”. Its objective is to reduce the effect of borders on internal trade, so that the “four freedoms” enable goods, services, capital and people to move freely inside the external border.

Read more: London business is certain: We should stay in the Single Market

“Access” may be better understood as the ability of countries outside the Single Market to trade across that external border, whether on WTO rules or agreed terms, and “membership” as trading barrier-free within it. Ultimately, the practical distinction will depend on what new access arrangements are agreed between the UK and the EU.

How the EEA works

The Single Market is extended beyond the EU by the EEA Agreement to cover Norway, Iceland and Lichtenstein. Combined, this creates the European Economic Area (EEA).

This demonstrates that it is possible to be in the Single Market without being in the EU. Ongoing membership under EEA terms also requires the UK to rejoin European Free Trade Association (Efta), and for all members to agree.

For financial services – another particularly hot topic – it is worth highlighting that “passporting” covers all members of the EEA, so this arrangement would provide continuity of access. Talk of tariff-free trade or WTO rules offers little for financial services which need non-tariff barriers addressed.

Irrespective of the interpretation of the referendum on whether, politically, we voted to leave the Single Market along with the EU, there are things we can learn from the EEA terms that might assist with creating the UK’s future relationship.

Can the Single Market fit with Brexit?

Being in the Single Market offers many benefits sought by the UK, although EEA terms include a number of concepts that do not fit well with the 12 principles set out in the UK government’s white paper on Brexit. As negotiations progress, compromise may be needed, so there is value in understanding the EEA terms in more detail, both for evaluating potential for EEA membership, and for identifying mechanisms which may be adapted under a UK-EU agreement.

On control of laws, EEA terms require relevant EU laws to be adopted into domestic law, but do not cover all sectors (for example, agriculture or fishing), nor require adoption of laws on achieving greater political integration, so control is retained in those areas.

EEA-Efta states do not have a final vote on EU laws, but can get involved in initiating and shaping relevant legislation when much of the practical influencing is done. Although this would be less control than the UK currently has, a degree of regulatory alignment may need to be retained to secure access under a free trade agreement (or the EU’s equivalent regimes), indicating this issue may need to be addressed under any scenario.

Leaving the jurisdiction of the Court of Justice of the European Union (CJEU) has been deemed a UK “red line”, but the EU requires both surveillance and dispute resolution mechanisms in granting market access.

Under the EEA agreement, these are provided by the Efta Surveillance Authority and the Efta Court (which conducts proceedings in English). These provide potentially useful (and established) alternatives to the CJEU, as the EU had previously suggested these mechanisms for regulating its bilateral agreements with Switzerland.

The Efta Court applies principles of “homogeneity”, creating some alignment with CJEU, which may improve its potential as an acceptable solution to the EU though it could be perceived as indirect influence.

Free movement

On what is perhaps the biggest sticking point, EEA-Efta states accept free movement of people, although there is no equivalent concept of EU citizenship. Some very limited mitigation is permitted under EEA terms, so drawing on this and the concept of the “emergency brake” secured by David Cameron in February 2016 may give the UK scope to negotiate on compromises, like time for adaptation of social infrastructure.

The UK’s white paper indicates it could continue supporting projects while committing to reduce current budget contributions. Under EEA terms, payments are made to the Efta Secretariat to fund key projects, rather than into the EU budget, giving greater control and visibility over the application of funds. The basis of calculation is different, and commentators suggest it could materially reduce UK contributions.

Notably, EEA-Efta states are not restricted from entering free trade agreements (FTAs). If the UK leaves the Customs Union, it could potentially benefit from Efta’s existing FTAs and expertise, although it would not be bound to accept them.

Careful analysis of the benefits of any access route, whether based on established EEA membership terms or agreed under a free trade agreement with the flexibility to be specific to the EU-UK relationship, will ultimately need to be assessed against the compromises required to secure them.

Delving into the legal detail underpinning the soundbites can offer insight on how some of the anticipated impasses that regularly make the headlines could be resolved.

Read more: Despite Brexit: Moody's lifts the ratings on UK banks

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

Related articles