Not only would Single Market membership require that we continue to keep most of the existing corpus of EU law as part of our law indefinitely, and follow the evolving interpretation of that law by the ECJ, it would also require us to apply into our law all new Regulations and Directives relating to Single Market matters, which covers (as we have seen in 5.1) about three-quarters of EU laws.
The mechanism by which this is done is under Article 102 of the EEA Agreement, which states:
1. In order to guarantee the legal security and the homogeneity of the EEA, the EEA Joint Committee shall take a decision concerning an amendment of an Annex to this Agreement as closely as possible to the adoption by the Community of the corresponding new Community legislation with a view to permitting a simultaneous application of the latter as well as of the amendments of the Annexes to the Agreement. To this end, the Community shall, whenever adopting a legislative act on an issue which is governed by this Agreement, as soon as possible inform the other Contracting Parties in the EEA Joint Committee.”
The amendment to the Annex to the EEA Agreement will typically take the form of an insertion of a reference to the EU Directive or Regulation concerned, so making it compulsory for the EEA States to implement it under their own laws. The EEA Joint Committee has to operate by agreement between the EU on the one hand and the EEA States on the other, so it is possible for one or more EEA States to withhold their consent to the requisite amendment to the Annex. However, if they do so, under Article 102(5), the “affected part” of the Annex becomes suspended. This results in the effective suspension of the future rights of individuals and economic operators to obtain market access under the affected parts of the EEA Agreement, although Article 102(6) states that it shall not affect rights and obligations that they have already acquired.
Because of the serious adverse consequences and huge pressure that the EU brings to bear if any of the EEA States do not implement an EU Directive, the theoretical power to block the application of EU legislation by withholding consent in the EEA Joint Committee has virtually never been used. In 2011, Norway blocked the implementation of the EU’s Third Postal Directive, but in 2013 changed its position and agreed to implement it.
The consequences of being obliged to accept future changes to EU legislation without being able to vote on them would be very serious indeed for the United Kingdom. The area of financial services provides a particularly stark warning. There has been continuous pressure over the last decade for the adoption of EU rules and regulations in the financial services area which are damaging to the interests of the City as a global financial centre. Examples include the bankers’ bonus cap and the power of the EU regulatory authorities to impose short-selling bans, both of which were imposed on the UK under QMV powers and where UK legal challenges were rejected by the ECJ. (For more details see our detailed paper on Financial Services and Eurozone Governance) Other examples are the attempt to introduce a hugely damaging Financial Transactions Tax, and an attempt to require clearing of euro-denominated instruments to take place within the euro currency area. Both of these have been defeated or at least stalled for now, but there is continuing pressure to introduce them.
While the UK is an EU member state, it has some ability to prevent or at least slow down these damaging regulatory attacks on the City. It is often possible to marshall a blocking minority to oppose or at least tone down the worst aspects of these measures. However, if we were to remain in the Single Market after exit, we would have absolutely no power to prevent these damaging measures being voted in as part of EU law and we would then have to apply them under our own law. For example, if the EU adopts legislation banning the clearing of euro-denominated instruments outside the Eurozone, we would then be obliged to implement that ban under our own law.
This is of course a major issue under the proposed “transition period” arrangements, when the EU institutions will be able to impose measures on us when we will have no vote. Permanent single market membership would make this vassal status permanent.
By contrast, if we are outside the Single Market then we can allow the continued clearing in London of euro-denominated instruments and have no obligation to comply with restrictions imposed by EU law. The clearing of euro instruments can carry on in London, just as US dollar and yen instruments are cleared there. If the EU attempted to legislate extraterritorially to interfere with the London market, there are various instruments which the UK will have available to it as an independent state untied to the Single Market, including powers under the Protection of Trading Interests Act 1980. That legislation was originally passed to counter the attempted extra-territorial application of US anti-trust laws but could be used against extra-territorial attempts by the EU to interfere in the operation of London markets.
- Requirement to continue to allow Free Movement of Persons
The provisions of the EEA Agreement on the free movement of persons are quite clear. Article 28 of the EEA Agreement on free movement of workers is identical to Article 45 of the Treaty on the Functioning of the European Union (TFEU), and imposes the same requirement to admit any EU national who comes to the UK to take up a job. In addition, the Annexes of the EEA Agreement incorporate the EU Directives which confer wider rights, including the right to come to the UK to look for work without already having a job, and rights relating to equal treatment in social security, pensions, and other matters. Essentially, only the political rights to vote in European Parliament and local government elections are restricted to EU as distinct from EEA citizens.