Irish Centre for European Law at Trinity College, Dublin, 10 May 2017

Prof. Dr. jur. Dr. rer. pol. h.c. Carl Baudenbacher President of the EFTA Court University of St. Gallen HSG The EFTA Court - an all-ireland Solution for Brexit? Irish Centre for European Law at Trinity College, Dublin, 10 May 2017 A. Introduction The day the UK leaves the EU, it leaves the customs union; it leaves the single market; it is no longer subject to the surveillance of the Commission and the jurisdiction of the ECJ. HM Government s official position has so far been to go for a hard, or clean Brexit, i.e. to leave not only the EU, but also the single market. But what about the Scots, the Welsh, the City of London, industry, the 48%? What about the harmony and the soft border between the Republic of Ireland and Northern Ireland? Is it possible to leave the EU but to stay in the single market? Is it possible for a non-eu State to let its citizens and economic operators participate in the single market? Is it possible for this to include passporting rights for financial operators? Yes it is. B. The options I. Joining the EEA Agreement on the EFTA side Britain could apply for EEA membership on the EFTA side. The actors of the EEA/EFTA States (currently Iceland, Liechtenstein and Norway) have access to the single market. The EEA Agreement is based on a two pillar structure with an EU pillar and an EFTA pillar. EU and EEA/EFTA have their own surveillance authorities and their own courts. The UK and Ireland are currently EEA States in the EU pillar. As regards passporting rights see E-4/10, E-6/10 and E-7/10 The Principality of Liechtenstein, REASSUR Aktiengesellschaft and Swisscom RE v EFTA Surveillance Authority [2011] EFTA Ct. Rep. 16; Joined Cases E-15/15 and E-16/15 Hagedorn v Vienna-Life Page 1 of 9

Lebensversicherung AG and Armbruster v Swiss Life (Liechtenstein) AG, judgment of 10 May 2016, not yet reported. The EEA is not a customs union: sovereignty in foreign trade (as with regard to agriculture, fisheries, taxation, currency) is with the EEA/EFTA States. The latter have the right to conclude FTAs with third countries. They may do that as part of EFTA (i.e. including Switzerland) or individually. II. Docking to the EEA/EFTA institutions Britain could also try to negotiate bespoke agreements with the EU and as regards surveillance and judicial control to dock to the EEA/EFTA institutions, the EFTA Surveillance Authority ( ESA ) and the EFTA Court. In British cases, a British College Member would be part of ESA and a British judge would sit on the EFTA Court. Given the estimated number of British cases, such a solution would mean a strong British presence at the EFTA Court. Docking was proposed by the EU to Switzerland in 2013. It was rejected by the Swiss Government out of ignorance. The contention of the Economist of 2 March 2017 that [j]oining the EFTA court, as its president has urged, would break the spirit of Mrs May s pledge to quit ECJ jurisdiction, is divorced from reality. III. The EFTA Court as a transitional solution? The NON PAPER ON KEY ELEMENTS LIKELY TO FEATURE IN THE DRAFT NEGOTIATING DIRECTIVES of April 2017 which was prepared for the Commission claims that for the transitional period the jurisdiction of ECJ should be maintained. But the question arises whether the ECJ would be acceptable for the UK from the perspective of impartiality. The NON PAPER seems to acknowledge that. It states in paragraph 32: For the application and interpretation of provisions of the Agreement other than those relating to Union law, an alternative dispute settlement should only be envisaged if it offers equivalent guarantees of independence and impartiality to the Court of Justice of the European Union. (Emphasis added.) C. Dispute resolution after Brexit I. Rejection of the ECJ PM s Lancaster House and Philadelphia speeches. Fear of foreign judges, is irrational, like in Switzerland. Historically, the foreign judges formula in Switzerland was just a jurisdictional rule. Brexit White Paper (Annex A) proposes various arbitral mechanisms for dispute resolution. Page 2 of 9

- CETA, - EU - CH bilateral agreements (there is no arbitration mechanism), - NAFTA, - Mercosur, - NZ South Korea FTA, - WTO. Still, according to its White Paper, the British Government wants as much market access for goods and services as possible. However, the question is whether a deeply integrated market can work without a common court. British industry is used to having access to a court of law. Firms also need protection against their own government. British economist Simon Evenett of St. Gallen University has found in a recent study that there are hundreds of cases of discrimination against Swiss companies which remain unsanctioned under the bilateral agreements Switzerland EU. II. Problems of arbitration What does arbitration mean? Ad hoc arbitration or a permanent, court-like body? In arbitration, standing is limited to States. Business operators depend on the grace of their government (diplomatic protection, ancien regime ). Would the ECJ swallow an arbitration model? Cf. Article 218(11) TFEU; cf. Article 111(4) EEA. We are not talking about TTIP. III. Market access for Non-EU-States only with a surveillance and court mechanism Few are familiar with the EU Council conclusions regarding the EFTA States of 2008, 2010, 2012, 2014, 2016/2017. According to those statements, countries from non-eu States can only have market access with a surveillance and court mechanism. Iceland, Liechtenstein and Norway fulfil these conditions; they have ESA and the EFTA Court. Switzerland for its part is linked to EU by a network of bilateral sectoral agreements without surveillance and court. Since 2008, no new market access agreement has been concluded between Switzerland and EU. The EU has even started to refuse to have existing agreements updated. It is hard to imagine that the surveillance and court requirement will not apply to a far-reaching bespoke UK-EU agreement after Brexit which grants the UK as much market access as possible. Page 3 of 9

IV. How much freedom does the EFTA Court have? 1. Law on the books According to the written rules, the EFTA Court shall follow or take into account ECJ case law. The case law in the EEA shall develop in a homogeneous way (securing a level playing field). There is no such explicit (behavioural) obligation on the ECJ. 2. Law in action (a) General In reality, the EFTA Court has to tackle novel legal questions on most cases ( going firstconstellation ). In 2014, the then ECJ President Vassilios Skouris described the relationship between the two courts as symbiotic and marked by mutual respect and dialogue which has allowed the flow of information in both directions. Former Commission Director-General and WTO Appellate Body Chairman Claus Ehlermann speaks of healthy (regulatory) competition. The EFTA Court has so far dealt with 285 cases, 208 of them contested. This has led to 233 references by Advocates General, the General Court and the ECJ to EFTA Court case law in 126 cases. (b) Recent examples of dialogue Legal situation of a trust (Opinion of Advocate General Kokott in Trustees of the P Panayi Accumulation & Maintenance Settlements, C-646/15, EU:C:2016:1000). Access to the case file (Opinion of Advocate General Bobek in Commission v. Breyer, C-213/15 P, EU:C:2016:994 ). Website as a durable medium (Opinion of Advocate General Bobek in BAWAG, C-375/15, EU:C:2016:695 and Judgment in BAWAG PSK Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse AG v Verein für Konsumenteninformation, C-375/15, EU:C:2017:38). State aid (Opinion of Advocate General Kokott in Congregación de Escuelas Pías Provincia Betania, C-74/16, EU:C:2017:135 ). Page 4 of 9

(c) If there is relevant ECJ case law Even if there is ECJ case law, the fact remains that the EFTA Court is not a court of lower instance; it is an independent court of law (E-28/15 Jabbi v The Norwegian Government, judgment of 26 July 2016, not yet reported). The EFTA Court will not wilfully deviate from ECJ case law. But homogeneity cannot be considered as a snapshot in time, it is a process-oriented concept. A mature court has selfconfidence. One must also not overlook that there is a third court in the game, the European Court of Human Rights ( ECtHR ). The ECtHR deals with economic law questions on a regular basis. In 11 cases the EFTA Court has referred 18 times to ECtHR case law (for the first time in 1998). In one case the ECtHR has referred to the EFTA Court s case law (Ališić and Others v. Bosnia and Herzegovina, Croatia, Serbia, Slovenia and The former Yugoslav Republic of Macedonia, Application no. 60642/08, paragraphs 70-73, 94, 118). Finally, EFTA Court judgments can hardly be challenged on the political level. It would be very difficult for the EU to open dispute settlement proceedings if it disliked a well-reasoned judgment. The classic example is E-16/11 EFTA Surveilance Authority v Iceland Icesave I [2013] EFTA Ct. Rep. 4. 3. Own institutions are an advantage Judging is not an exact science. Britain (as Norway, Iceland, Liechtenstein) would always have an own actor on the bench (due to the size of the EFTA institutions). Even under the one-sided current homogeneity rules, and as a court of three small countries, the EFTA Court has managed to uphold classical EFTA values (see below). V. EFTA pillar less onerous than EU pillar The procedural framework of the EFTA pillar leaves the EEA/EFTA States and their courts more sovereignty. Direct effect and primacy only occur after implementation of a legal act in the domestic legal order. There is an obligation of result in that regard, but it is difficult to enforce. The EFTA Court has, however, recognised State liability (E-9/97 Sveinbjörnsdóttir [1998] EFTA Ct. Rep. 95). No penalty payments may be imposed in case of non-compliance with an infringement judgment. There is no written obligation of courts of last resort to make a reference to the EFTA Court (E-18/11 Irish Bank [2012] EFTA Ct. Rep. 592: More partner-like relationship ). And Page 5 of 9

preliminary rulings are not formally binding. There are, however, the duty of loyalty and the principle of reciprocity, and there is the right to a fair trial under Article 6 ECHR. The first President of the EFTA Surveillance Authority, Knut Almestad, has concluded that the EEA Agreement is tilted in favour of the EFTA States. VI. The EFTA Court s profile 1. Some landmark cases E-4/97 Norwegian Bankers' Association [1999] EFTA Ct. Rep. 1 - full judicial review in State aid cases. E-15/10 Posten Norge [2012] EFTA Ct. Rep. 246 - full judicial review in competition law cases. E-14/11 DB Schenker I [2012] EFTA Ct. Rep. 1178 - broad public access to documents. E-8/00 LO [2002] EFTA Ct. Rep. 114 and E-14/15 Holship, judgment of 19 April 2016, not yet reported - collective bargaining/industrial action and fundamental freedoms/competition law; negative freedom of association; effects-based approach. E-8/13 Abelia [2014] EFTA Ct. Rep. 638 - right of audience of in-house counsel to be assessed on a case by case basis. E-16/11 Icesave I [2013] EFTA Ct. Rep. 4 - Liability of banks, not of taxpayers; avoiding moral hazard. E-4/09 Inconsult [2009-2010] EFTA Ct. Rep. 86 - consumers can be expected to download or print out a document from the website of a financial services provider. E-5/15 Matja Kumba [2015] EFTA Ct. Rep. 674 - fact-based, flexible interpretation of the Working Time Directive. Order of the President in E-18/14 Wow air [2014] EFTA Ct. Rep. 1304 - accelerated preliminary reference procedure; fostering competition between air carriers. E-15/15 and 16/15 Vienna Life and Swiss Life, judgment of 10 May 2016, not yet reported - trade in used [ second-hand ] life assurance policies is not consumer business. E-29/15 Sorpa, judgment of 22 September 2016, not yet reported - municipal body capable of abuse of dominance, companies in the group of the dominant company may be trading partners. E-3/16 Ski Taxi judgment of 22 December 2016, not yet reported - only conduct whose harmful nature is easily identifiable in the light of experience and economics should be regarded as a restriction by object. Page 6 of 9

E-5/16 Vigeland, judgment of 6 April 2017, not yet reported - copyright is an incentive to contribute to the enrichment of society; registration as a trade mark after the expiry of copyright is not in itself unlawful; but it could be contrary to accepted principles of morality where artworks form part of a nation s cultural heritage or act as an emblem of sovereignty. 2. Judicial style A small court cannot decree, it must justify its judgments if it wants to gain acceptance. There is, moreover, no advocate general at the EFTA Court. And there is no written obligation on supreme courts to refer and no written obligation on national courts in general to follow. The EFTA Court aims at making a virtue out of necessity. It deals with all the arguments and gives comprehensive, but succinct reasons. The style has an impact on content. 3. Underlying social model (image of man) Traditional EFTA values are the belief in liberalism, free trade and market orientation as well as in self-responsibility. The EFTA Court does not carry a French rucksack. As regards the relevance of economics, John Temple Lang has written: In general one has the clear impression that the EFTA Court deals more readily with economic issues than either the General Court or the European Court of Justice. Fact- and effect-based approach instead of presumptions and fictions (see with regard to competition law Baudenbacher, Shortcuts in Competition Law, 19 th Burrell lecture, 6 March 2017). No grand vision; pragmatism; the man on the Clapham omnibus. This thinking would become even more relevant in case of British membership. D. Other neuralgic points I. Free movement of persons Free movement of person in EEA law is not as far-reaching as in EU law, but still quite extensive. The question arises whether the EU will be able to stick to this freedom, whether the dogma can be uphold. Economists point to negative consequences of the free movement of persons: brain drain from weaker to stronger economies in the EU; wage pressure in the stronger economies; the rise of far right parties (see also the American presidential election); aggravation of the situation in the Eurozone. Page 7 of 9

The paper of the Brussels-based think tank Bruegel recommends that the EU should make a concession to the British in this point. It argues that while the other three fundamental freedoms are economically motivated, the rationale of the free movement of persons is a political one. II. Voting right 1. General The EEA/EFTA States have a co-determination right when it comes to new EU legislation which will be incorporated into the EEA Agreement. On the expert level, where the course is set in many cases, they are on equal footing with the EU States. But the current EEA/EFTA States do not make sufficient use of this right. They prefer to complain about the lack of a voting right and they underline this by using petulant language. Politicians speak of a faxocracy, and they claim that there is no rule making for them, but only rule taking. Against this criticism, it is argued that a lot of EU/EEA legislation is based on global regulation and there are other advantages of EEA/EFTA membership. One cannot compare apples and oranges. In 1989, the Commission President Jacques Delors offered the EFTA States a more structured partnership with common decision-making and administrative institutions. In 1990, Delors took this pledge back without further ado. Most of the then seven EFTA States were not really interested in obtaining a voting right because their goal was to join the EU. The Bruegel think tank proposes that the EU makes a concession. What one must bear in mind is that Norwegian elites don t sell the EEA Agreement. They overemphasize the downsides and underplay the advantages. Norwegian elites want to join the EU whereas Britain wants to leave. 2. EU should have an interest in maintaining input of the common law Examples: Financial services law Competition law Self-understanding and independence of judges The legal origins theory argues that institutions depend on political factors, in particular on the dominant beliefs in France and England on the roles of the Crown/Government, Parliament, Judges and individuals in society. In 2000, Professor Paul G. Mahoney of the University of Virginia wrote that: Page 8 of 9

The English common law developed as it did because landed gentry and merchants wanted a system of law that would provide protection for property and contractual rights and limit the Crown s ability to interfere in markets. The French civil law developed as it did because the revolutionaries and Napoléon wanted to disable judges from interfering with government economic policies. Civil law is more comfortable with a centralized and activist government than common law. Efficient financial markets have developed under the common law. Others have shown that there is a correlation between flexible labour law, diffuse ownership in corporations and radical innovation - as opposed to incremental innovation (Professor Massimiliano Vatiero of the Università della Svizzera Italiana). According to the definition of Joseph Schumpeter, radical innovations create major disruptive changes, whereas incremental innovations continuously advance the process of change. III. Payments That a Non EU-State which participates in the Single Market makes regional cohesion payments is reasonable (even Switzerland pays). The EEA/EFTA States pay too, but not into the EU budget. They have their own organisation and their own projects. Former British Prime Minister Margaret Thatcher observed that cohesion payments boost the broader economy by strengthening weaker regions, and enabling those who live there to purchase goods from areas with a stronger economy. It is worthy of note that in 2004, Norway, without being obliged, decided to create an additional programme, the so-called Norway Grants. E. Conclusions The current EFTA States are reluctant to take the initiative when it comes to the question of whether they should offer Britain EFTA and/or EEA membership or a similar model. That is understandable. If the UK wants that solution, it must grab the bull by the horns. The EU has never excluded an EEA or EEA-like solution. In any case, the UK would first have to join EFTA, then the EEA. There is room for a second structure in Europe. If a new name is deemed to be necessary (for example European Economic Partnership Agreement), that can easily be found. The common denominator between the EU and such a group would be the single market. The UK must eventually find reasonable interlocutors on the EU side. And it must alleviate the fears of the current EFTA States. Hard Brexit would be hard for all. Page 9 of 9