EU REFERENDUM SPECIAL: A relationship study

Evanna Fruithof sets the context to the referendum debate with a retrospective and prospective analysis of the UK-EU relationship

In January 1973, with the entry into force of the European Communities Act 1972, the UK became a member of the European Economic Community (EEC), which has evolved into the European Union (EU). 

As with any international agreement, Treaty-based or otherwise, the sovereign state that enters it is free to change its mind at any time – a repeal of the Act would have that effect. The current debate is thus not a ‘once in a generation’ opportunity. But the UK electorate is asked to vote on continuing EU membership on 23 June, so let’s examine some of the issues. I should say at the outset that the views expressed herein are personal, though not self-interested.

Why have we moved from EEC to EU?

The backbone of what, since 1993, has been known as the internal market, is the Four Freedoms: the free movement of goods; of persons; of capital; and the right of establishment and freedom to provide services. Title IV Treaty on the Functioning of the EU (TFEU) lays down the rules governing the exercise of each of these, bar goods. The free movement of persons is limited to those in, or actively seeking, employment, providing services on an occasional or permanent basis, or seeking to set up a company in another member state. While anticipating that their families will follow, it does not provide for the ‘free for all’ sometimes implied. Most member states, for example, pay unemployment benefit only to those who have contributed to that state’s social security coffers, and then for a limited period. Several member states, at the time of the last major EU enlargement (which the UK supported), imposed on these new EU citizens temporary restrictions on free movement rights on their territories. The UK did not.

A natural by-product of the Four Freedoms is that people spend time in, or dealing with, other member states. What happens when things go wrong? What law governs the divorce of a couple from different member states, arrangements for their children and allocation of property? What are the rights of a teenage football fan caught up in an incident abroad and finding himself in a foreign police station? How does the prosecution access evidence abroad or the antecedents of a non-UK EU national on trial in Britain? What if a product or service ordered online from another member state is faulty? What are the entitlements, and limitation periods, for a person injured in a road traffic accident while on holiday in another member state? Would the adoption of a non-EU child or the marriage of a gay couple be recognised across the EU? Pre-existing private international law would have resolved much of this, but given the sheer growth of such intra-EU activity, and the fact that EU member states believe they should enjoy between them a greater degree of mutual trust than with outside states, the EU acquis has gradually expanded to answer, or try to answer, such questions, more simply and quickly than before. In many cases, conventions that used to govern such areas have been superseded by EU law and rescinded by member states.

What type of laws are we talking about?

In the fight against cross-border crime, the emphasis has gradually shifted away from mutual legal assistance towards judicial cooperation in criminal matters at EU level, based on the principle of mutual recognition, originally a UK idea. A practical example is the replacement of the complex system of bi-lateral extradition by the European Arrest Warrant (EAW) – not a perfect instrument, but one proving quick and effective in thousands of cases. The EAW is complemented by the new European Investigation Order, providing for a similar exchange of evidence. There are measures for the transfer of prisoners to their home country; for the exchange of data on previous convictions; for the mutual recognition of penalties. None of these change substantive criminal law, except and insofar as some measures set down minimum standards, eg, for the rights of the defence and of victims. But they facilitate the work of investigating and prosecuting authorities in cross-border cases and, at a frustratingly slower pace, improve defence rights.

On the civil side, EU measures can simplify and give effect to private international law principles between member states. An increasing number of EU procedural law measures are also in place, designed to help pursue cross-border claims more quickly and easily, such as the newly revised European Small Claims Procedure, the related European Order for Payment Procedure, and new Alternative Dispute and Online Dispute resolution systems. In the context of the Digital Single Market, the EU wants to simplify the rules governing online distance sales of goods and contracts for the sale of digital content, and harmonise insolvency rules, to prevent insolvency and give honest but bankrupt entrepreneurs a second chance across the EU. These are good examples of the influence of English law underlying much EU law. The EU leans towards minimum harmonisation, or targeted maximum harmonisation, and the Bar has expressed itself supportive of both, in appropriate cases.

These developments complement the more traditional EU internal market-type areas of law providing necessary structure to the market place, such as antitrust rules, employment protection, IP, company law, consumer protection and product safety. One hears accusations of EU heavy-handedness in regulatory areas, such as food safety or health and safety at work, but, as often as not, the underlying EU measure is a directive, binding only as to the outcome, but leaving it to the member states to decide how it is achieved. The UK has been known to ‘gold-plate’ such EU legislation in its domestic implementing legislation.

Moreover, the principles of direct effect and the supremacy of EU law, as interpreted by the Court of Justice of the EU when called upon to do so, apply only within the scope of EU law, and not in the many areas of pure national competence.

What else is the EU doing?

On the global stage, the EU has or is currently negotiating trade deals with several third countries, arrangements for the exchange and processing of data; and other security related issues. Terrorism and non-EU migration also top the EU’s agenda, however slow progress may be. It is also trying to future-proof its legislation, eg, examining the legal implications of the ‘internet of things’ such as liability for injury caused by driverless cars. The UK would need to deal with these issues alone, or within a complex network of trade deals and alliances, were it to withdraw from the EU.

The UK’s current relationship with the EU

The UK enjoys several concessions that differentiate its EU membership from that of other member states, including its rebate on payments to the EU budget; opt-outs from the Euro and the Schengen border-free area; and, of particular interest to the Bar and its clients, its right to choose which justice and home affairs arrangements it joins.

To this list can now be added the New Settlement for the UK in the EU, unanimously supported by the European Council in February, which falls away automatically if the UK chooses to leave. Experts suggest that the reforms have either improved or at least clarified the UK’s position in the sensitive areas of economic governance, sovereignty and social benefits and free movement. In the area of competitiveness, I would add that the Decision is in effect a restatement and endorsement of the trend of existing EU policy, eg, under its Competitiveness agenda, Better Regulation Agenda; REFIT (the Regulatory Fitness and Performance Programme); the Commission’s pared down work programmes for 2015 and 2016; and the Single Market and Digital Single Market Strategies. While it can be argued that this element of the deal is meaningless, it can equally be said that the UK and EU ambitions in these important areas are aligned.

Thus, the UK already has a flexible membership status that gives it full access to the internal market, and a seat at the negotiating table where all decisions are taken. No-one claims the EU is perfect, but as a member, the UK is well placed to lead on continuing efforts for reform and efficiencies. If it leaves the EU now but changes its mind later, it would have to rejoin on the same terms as everyone else.

What would a UK withdrawal from the EU look like?

The likelihood is that the UK would formally notify the EU of its intention to withdraw, in accordance with Art 50 of the Treaty on European Union (TEU), promptly after a vote to leave on 23 June. It would then find itself involved in three sets of negotiations: on the terms of the withdrawal itself; the continuing UK-EU relationship, including in particular, access to the internal market; and trading arrangements with non-EU trade partners. From the UK’s perspective, the ideal would be to conduct all three negotiations in parallel, and try to achieve as a single state the benefits it enjoyed in its trading relationships as part of the EU. In practice, however, other member states and the 140+ members of the World Trade Organisation are likely to want to see the final terms of the preceding element before agreeing their own.

There is thus a serious risk that the two-year period for the withdrawal negotiations envisaged by Art 50 would need to be extended, and that the UK could endure a period with no particular trading arrangements in place, within or outside the EU. Negotiations would be further hampered by the imbalance in the parties at the table: available figures suggest that the UK is significantly more reliant on exports to the EU, both in terms of finished products and their component parts, than the rest of the EU is reliant on exports to the UK. (Some 44% of UK exports go to the EU. Taken as a share of the economy, only 3.1% of GDP among the other 27 member states is linked to exports to the UK, while 12.6% of UK GDP is linked to exports to the EU (Eurostat, November 2015).) Unless and until preferential access was agreed with the EU as part of the exit negotiations, UK-based manufacturers would face banded tariffs when exporting to the EU, and might be forced under WTO rules to impose tariffs on imports (see generally: HMG’s report, The process for withdrawing from the EU, February 2016, CM9216, and The UK and the EU: Benefits, Misconceptions and Alternatives). For similar reasons, it is not obvious why non-EU trading partners would agree to give the UK alone the same terms as it had enjoyed as part of the world’s largest trading bloc.

In terms of pricing therefore, UK goods would risk becoming less competitive. But there are other aspects – for example, you’ll hear that a UK outside the EU would be released from the constraints of the EU’s state aid rules, allowing it to decide for itself whether to shore up a failing industry. But is supporting industries that have run their course good for the long term health of an economy?

The UK – EU relationship post a withdrawal

There are three existing models for the UK’s possible future relationship with the EU post-withdrawal. In summary:

  • The European Economic Area (EEA) – Iceland, Lichtenstein and Norway have access to the internal market as EEA states, but in return must implement all internal market rules, without any say in their negotiation. They also contribute significantly towards the EU budget, and are obliged to accept persons migrating from EU states in exercise of EU free movement rights.
  • Bilateral agreements (under EFTA membership) – Switzerland, though an EFTA state, is not part of the EEA Agreement. Instead it has over 120 bilateral agreements with the EU that give access to the internal market for goods, but not most services. Switzerland also contributes to the EU budget. The network of agreements is complex and sometimes incoherent, and relations have become increasingly strained, leading many to suggest that the EU would not be open to replicating this model.
  • Free Trade Area – a single bilateral free trade arrangement, akin to that with Canada. The EU is a party to many such trade agreements but they tend not to give equivalent access to the internal market, as under EU or EEA arrangements; nor do they circumvent non-tariff barriers, nor cover all services.

In all foreseeable scenarios, the process would be lengthy and its outcome uncertain. Lawyers may thrive in the short term, but it is certainly arguable that the longer term picture is less rosy. UK inward investment could suffer from uncertainty about trading terms with the EU, applicable employment laws or intellectual property protection, or the EU’s competition analysis when the UK is the critical market. In the criminal field, with the UK no longer party to the EAW, EU member states might refuse to extradite their nationals to the UK. EU member state courts could refuse to recognise English judgments if the Brussels I Regulation no longer compels them to do so. Following on from that, can the UK’s status as the world’s dispute resolution venue of choice be taken for granted if a judgment delivered in England and Wales is no longer automatically recognised and enforceable throughout the EU? Moreover, depending on the nature of the access to the internal market agreed post-withdrawal, UK lawyers providing their services in other member states on an occasional or permanent basis might find their freedom to do so restricted. That said, the uncertainty surrounding their status if negotiations take longer than two years would surely be undermining in any event, regardless of eventual outcome. These and many other issues would have to be examined and as necessary, renegotiated, against the backdrop outlined above. There are also many trans-national challenges for which a pan-European approach is needed, including protecting the environment and fighting organised crime, trafficking, and terrorism.

Conclusion

One thing that all sides of the referendum debate agree on is the need for the UK to emerge a strong trading nation, both of goods and services. If it remains in the EU, it will benefit from membership of the world’s largest trading bloc, on the most flexible terms available. If it leaves, it faces at minimum, several years of economic and legal uncertainty, during which, from a position of relative weakness, it will need to negotiate preferential market access with the EU and other would-be trading partners. ●

Contributor Evanna Fruithof is consultant director of the Bar Council’s Brussels Office.

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Evanna Fruithof

Evanna practised at the Bar in London until 1990, then spent two years with the European Commission. She worked at Freshfields and as deputy director of an EU thinktank. She established the Bar Council’s Brussels Representation in 1999 and has served as its consultant director ever since.