30 July 2019

Brexit: Judicial imperialism or a court of our own?

By Carl Baudenbacher

Boris Johnson has less than 100 days to find a way out of the Brexit conundrum. In the current situation there are only two options left: No deal or EEA on the EFTA side. No deal would entail considerable economic and political imponderables. The EEA, on the other hand, is tried and tested, and it can be developed. Most importantly: the EU has offered Britain the EEA/EFTA solution.

The direction for the UK’s long-term relationship with the EU is laid down in the Political Declaration (“PD”). Compared to what is envisaged there, the EEA offers many advantages, in particular concerning surveillance and dispute resolution. The PD’s approach to these problems is based on the current Withdrawal Agreement (“WA”), which the House of Commons rejected three times.

In case of a dispute, the EU and the UK may request the establishment of an “arbitration panel” consisting of two representatives of each party and an umpire. In reality, this panel is, however, not the master of procedure because all meaningful disputes would have to be referred to the ECJ for a binding ruling. Since the Commission could unilaterally invoke its own court, it would also become the UK’s de facto watchdog. Britain would be much worse off than before Brexit in terms of sovereignty. At the end of the day this is also a question of self-respect.

The Ukraine model was developed in the years 2013 and 2014 to introduce the three post-Soviet states of Georgia, Moldova and Ukraine to democratic, constitutional and market-economy structures with the ultimate goal of EU membership. Meanwhile, the EU is determined to make Ukraine the general standard for non-EEA neighbours, no matter whether they want to join, leave or stay outside. There is talk that it will also be imposed on the Southern Mediterranean countries Morocco, Tunisia, Egypt and Jordan.

This is mutatis mutandis reminiscent of China’s situation in the second half of the 19th and the first half of the 20th century. The major Western powers had their own extraterritorial courts on Chinese soil which applied Western laws.

Initially, their jurisdiction was limited to their subjects, but over time they also judged cases which should have been governed by local law and decided by local courts. Such treaties were called “unequal treaties” by the Chinese. The Ukrainian model differs from those courts, but it still looks like a new form of judicial imperialism.

The decisive benefit of the EEA is that the EFTA States have their own institutions, the EFTA Surveillance Authority (“ESA”) and the EFTA Court. The EFTA Court is closer to English common law than the ECJ. That would be accentuated by the presence of a British judge. The EFTA Court’s case law is market-orientated and its relationship with national supreme courts is partner-like. Market-orientation does not mean anti-social, but anti-protectionist. In competition law, procurement law, IP law, tax law or food law, it has opted for solutions which ensure effective handling of scarce resources.

The EFTA Court does reach divergent conclusions from the ECJ on a comparable set of facts. In Icesave, it ruled that in a systemic crisis, an EEA State (in this case Iceland) is not liable for its banks debts. Norway won in a conflict with the EU over fishing for the lucrative, fantastic-tasting snow crabs of Svalbard. And Liechtenstein obtained confirmation that a Liechtenstein trust may invoke the fundamental freedoms of the EEA. The ECJ followed the latter judgment in a British case.

The rules on free movement of people are part of EEA law, but they are more flexible than in the EU. And most importantly, their enforcement is not in the hands of the Commission and the ECJ, but in the hands of ESA and the EFTA Court.

Membership of EEA/EFTA guarantees access to the single market, which is essential above all (but not only) for the City of London. That a change from the EU pillar (where the UK is now) to the EFTA pillar would make the UK a “rule-taker” is grossly exaggerated, for four reasons: (1) As the example of Norway shows, in areas of vital interest it is possible to exert great influence on EU legislation without formal voting rights, in some cases more than the EU States. (2) A large part of EU regulation is based on global law. (3) The UK was bypassed when the measures to stabilise the euro after the financial crisis were taken. (4) Its sheer size and the fact that it has a strong army with nuclear weapons lend weight to the UK’s voice.

EEA/EFTA membership would have two more advantages: (1) The Irish problem could be resolved step by step in light of the experience of the Swedish-Norwegian border. (2) Swiss EEA supporters would be given a boost. The Swiss Government has also declared its intention to accept the Ukraine mechanism. It is just as unsuitable for Switzerland as it is for the UK. Although the Government (like the May cabinet) has denigrated the EEA with unfounded allegations, 45% of voters see it positively. An EFTA pillar of five would be a significant player in Europe.

According to the EU, the UK must conclude a Withdrawal Agreement if it wants an “orderly Brexit”. The question remains though, what does this actually mean?

So far, the EU has refused to re-negotiate the current WA. (The EU is, in a different context. also pursuing this policy towards Switzerland.) However, this position was taken on the assumption that the final treaty was not the EEA Agreement. If the UK were to choose the EEA as a long-term form of integration, the question would be whether a different WA close to the EEA would be possible.

But even if that were not the case, it would not be the end of the road. What counts is the content of the permanent agreement.

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Carl Baudenbacher is the former president of the EFTA Court