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Staying in the EU Single Market after exit

Part 2: Harmonised interpretation and supranational enforcement

Having required the EEA States to adopt identical laws to those within the EU over this vast range of matters representing about three-quarters of EU laws (see Part 1), the EEA Agreement contains mechanisms to ensure that those laws are applied and are interpreted identically within the EEA States to within the EU. This necessarily entails a mechanism for the EEA States to follow the interpretation of EU laws by the ECJ.

Instead of making the EEA states directly subject to the ECJ, the EEA Agreement sets up a special court called the EFTA Court. This should more accurately be called the Court for the EFTA Members of the EEA, since it is established under the EEA Agreement and not under the EFTA Convention, and it has no jurisdiction in relation to the fourth EFTA State, Switzerland.

The EEA Agreement calls for “homogeneity” in the interpretation of EU treaty provisions and legislation, and the corresponding EEA provisions and legislation.  However, the way in which this homogeneity is achieved is in practice a one-way street: as Dr Carl Baudenbacher, President of the EFTA Court explained (Presentation to the Prime Minister of Norway, 2 July 2015):
“Basic rule: EFTA Court follows ECJ, as far as case law is available.”
As Dr Baudenbacher explained in another article on The EFTA Court Fifteen Years On:
“the drafters of the EEA Agreement formulated homogeneity rules which essentially bind the EFTA Court to follow relevant ECJ case law. On the other hand, there is no written provision which would oblige the ECJ to take into account relevant EFTA Court case law.”
The ECJ will occasionally cite and follow EFTA Court cases where it has ruled on an issue the ECJ has not previously addressed and the ruling is compatible with its own philosophy.  But the ECJ has no compunction in effectively over-ruling the EFTA Court where that court has expressed opinions inimical to the ECJ’s own views about the development of EU law.

One striking example was a case to do with so-called “exhaustion” of trade mark rights.  This sounds highly technical but is economically very important, because it concerns the circumstances in which trade mark owners are entitled to use their trade marks to prevent the importation of their own genuine goods into a country.  If the law allows them to do this, it enables brand owners to maintain price differentials - often very large - and charge consumers in some countries much higher prices than the prices at which the same goods are available on world markets.

The EFTA Court dealt with this problem in Case E-2/97 Mag Instrument Inc. v California Trading Company Norway [1997] EFTA Ct. Rep. 129.  It concluded that the EU’s Trade Mark Directive as replicated under the EEA Agreement did not prevent Norway from maintaining a rule of “international exhaustion”, i.e. allowing genuine goods which had been placed on the market in other countries to be imported into Norway in spite of the trade mark owner’s wishes, so restricting the ability of the trade mark owner to overcharge consumers in Norway in comparison with consumers in other countries.

However, when the ECJ tackled this problem in a later case, Case C-355/96 Silhouette International Schmied v Hartlauer Handelsgesellschaft [1998] ECR I-4799, it reached the opposite conclusion. It ruled that the Trade Mark Directive required EU Member States not to apply a rule of “international exhaustion”, but only to apply that rule to goods put on the market inside the internal market with the trade mark owner’s consent.  This case and a series of subsequent ECJ cases have given multinational companies which own trade marks the effective ability charge very much higher prices for their goods when sold to European consumers than when sold elsewhere in the world.

The EFTA Court came back to deal with this question in Joined Cases E-9/07 and E-10/07 L’Oreal Norge AS v Per Aarskog AS (8 July 2008). Noting that the ECJ had reached the opposite conclusion to its own earlier decision in the Maglite case, the EFTA Court reversed its position, saying:
“29 Neither [EEA provision on homogeneity of interpretation] explicitly addresses the situation where the EFTA Court has ruled on an issue first and the ECJ has subsequently come to a different conclusion. However, the consequences for the internal market within the EEA are the same in that situation as in a situation where the ECJ has ruled on an issue first and the EFTA Court subsequently were to come to a different conclusion. This calls for an interpretation of EEA law in line with new case law of the ECJ regardless of whether the EFTA Court has previously ruled on the question.” (Emphasis added)
Thus, the total subservience of the EFTA Court to the ECJ is clearly established. Further, the actual result of this case has important implications for the ability of the UK to conduct an international trade policy independently of the EU if it were to stay in the Single Market, as we explain in Part 5: Single Market and International Trade.

Apart from the EFTA Court itself, there are other mechanisms to ensure compliance by the EEA States with the EU-originated rules.  The EFTA Surveillance Authority oversees the implementation of the EEA Agreement within those States and has a similar right to bring actions against States which do not comply with the rules as the EU Commission has to bring EU Member States before the ECJ for breaches of the EU Treaties or EU legislation.  In addition, there is a similar system under which the courts of the EEA States make “preliminary references” to the EFTA Court for rulings on EEA law.

There is one difference, but which in the end is more of form than of end result. The EEA Agreement, unlike the EU Treaties, is not “directly effective”.  This means that the courts of the EEA States are not obliged to apply it directly to the parties in front of them, although they are required to follow it and EFTA Court rulings when interpreting national measures which implement EEA rules.  However, Protocol 35 to the EEA Agreement “On the Implementation of EEA Rules” states as follows:
"Sole Article

For cases of possible conflicts between implemented EEA rules and other statutory provisions, the EFTA States undertake to introduce, if necessary, a statutory provision to the effect that EEA rules prevail in these cases."
This requires the EEA States effectively to replicate the ECJ’s doctrine of the primacy of EU law internally under their own national legal systems. In the case of the UK, this would require us to continue to have a provision similar to subsections 2(1) and 2(4) of the European Communities Act 1972 which require courts automatically to disapply UK laws, including Acts of Parliament, where they conflict with EU law.  So, if we remain within the internal market after exit, we would be obliged to continue to have a rule in our law that our courts should strike down Acts of Parliament which conflict with any of the many and varied internal  market rules to which we would still be subject.

It is very hard to see in what sense we could be said to have gained any measure of control over our own laws after leaving the EU.  In fact, as explained in the next section, we would have even less control over our laws, because we would be required to implement EU laws adopted in the future without having the right to vote on them.

Next: Part 3: Requirement to adopt future EU laws