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New legal challenge to Brexit

05.12.2016 |EU law, competition and regulation, International Trade & Commodities

Philippe Ruttley

Philippe Ruttley Head of EU and Competition Law

A new challenge has emerged against the UK Government’s plans for Brexit. “British Influence”, a lobby group campaigning for UK access to the European Union (EU) single market, has addressed a formal request to the British Government (“HMG”) to clarify its position on whether the UK’s withdrawal from the EU will, in HMG’s view, also involve withdrawal from the European Economic Area (EEA), which is an agreement between the EU Member States and three member states of the European Free Trade Association (EFTA), namely Norway, Iceland and Liechtenstein, giving them access to the EU single market.

What is the EEA?

The EEA arrangements recognise equal rights and obligations within the EU single market for citizens and economic operators in the EEA. It also covers cooperation in other important areas such as research and development, education, social policy, the environment, consumer protection, tourism, and culture, collectively known as “flanking and horizontal” policies. All EEA states accept the four freedoms of the EU – namely free movement of goods, services, persons and capital. All EU states are automatically members of the EEA Agreement and any new state becoming a member of the EU also becomes a party to the EEA Agreement (pursuant to Article 128 of the EEA Agreement). However, the three EEA states are not parties to the following EU internal and external policies unless they specifically opt-in; these are:

•  The Common Agriculture and Fisheries Policies (although the Agreement contains provisions on various aspects of trade in agricultural and fish products) – Norway has opted out of fisheries policies, for example;

•  The EU Customs Union;

•  The EU external Common Trade Policy;

•  The EU Common Foreign and Security Policy;

•  Justice and Home Affairs, although the UK Government has already indicated it would wish to continue participating in police and judicial cooperation for security reasons; and

•  The EU Monetary Union (i.e. the Euro).
 

Implications for business of the UK remaining in the EEA

Should the UK remain a party to the EEA Agreement, this would remove a large degree of uncertainty that currently exists over so-called “passporting” rights for UK companies operating in the EU single market. For example, retaining access to the EU single market via the EEA would preserve for UK airlines their ability to use current air services rules and agreements on access to the EU single market and to benefit from bilateral Air Services Agreement with non-EU countries like the USA. Regulation 1008/2008 on “common rules for the operation of air services” in the EU applies to the EEA states, for example. Should the UK leave the EU but remain in the EEA, this would therefore remove the uncertainties over continued air operating rights under Brexit that have raised great concern in the UK civil aviation industry. The same process would be likely to apply to insurance, banking and other sectors requiring “passporting” rights to continue accessing the EU single market.
 

The grounds of challenge to Brexit based on the EEA agreement

Article 127 of the EEA Agreement provides that “Each Contracting Party may withdraw from this Agreement provided it gives at least twelve months' notice in writing to the other Contracting Parties.” Article 50 of the EU Treaty does not cover EEA issues and therefore the two treaties exist in parallel. Whether exiting the EU Treaty automatically involves exiting the EEA Agreement is not a question covered by either treaty. The court with jurisdiction over EU Member States’ status and implementation of their EEA obligations is the Court of Justice of the European Union (CJEU).
 
British Influence has announced that it will make an application for judicial review of HMG’s interpretation of the UK’s EEA obligations to the High Court. This would then constitute a second legal challenge to the Brexit process additional to the current application before the UK Supreme Court on the Government’s use of executive (or “prerogative”) powers to trigger the process of EU withdrawal under Article 50 of the EU treaty. This new challenge is solely based on the constitutional arrangements of the EEA Agreement and therefore it is highly probable that any UK court seized of this dispute will make a “Reference” to the Court of Justice of the EU (CJEU) for an interpretation ruling under Article 267 of the Treaty on the Functioning of the European Union (a mechanism devised to ensure uniformity of interpretation throughout the Union). Even with an expedited hearing, a Reference is unlikely to be heard and the interpretative questions answered by the CJEU in less than 12 months, especially as in a case of such importance, most if not all the 31 EU/EEA States will wish to participate in this case, (as well as the institutions of the EEA and EU). 
 

Potential impact of the challenge to Brexit based on the EEA agreement

This further challenge may therefore delay the launch of any withdrawal negotiations from the EU by the UK beyond the Government’s self-selected deadline of March 2017. Should dealing with the legal challenges under Article 50 EU and Article 127 EEA Agreement delay the start of Brexit negotiations until early 2018, the UK’s withdrawal would coincide with the next UK general election (scheduled for 7 May 2020 under the Fixed-Terms Parliament Act 2011) and the UK’s negotiations for EU and EEA exit would be likely to be a central issue in that general election. 

We will provide readers with further updates as this new challenge to Brexit develops.

Article authors:

Philippe Ruttley

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