Wednesday, 26 July 2017

EFTA EEA is a destination, not a transition

Is EFTA EEA suitable as an interim of transitional solution ?

The idea of using EFTA EEA as a post-Brexit transitional or interim arrangement pre-supposes we can seamlessly leave the EU and adopt EFTA EEA membership to retain Single Market membership.

During the EU Referendum campaign, I believed the UK could simply reverse the process followed when Austria, Sweden and Finland switched from EFTA EEA membership to EU membership in 1995 - seamlessly maintaining their single market membership. The EEA agreement was not even amended to reflect their change of status until 2003.

Unfortunately, it seems this view is wrong.

1) The UK is a party to the EEA agreement by virtue of its EU membership. When the UK leaves the EU it will lose access to all third party trade agreements negotiated by the EU - including the EEA agreement. This is the position taken on legal advice by the UK government as well as by the EU. The UK would have to apply to rejoin EFTA EEA.

2) Some had argued that the "velvet divorce" of Czechoslovakia provides grounds for "presumption of continuity" for the UK to retain access to the EU's third country trade agreements, quoting the Vienna Convention on Succession of States. As much as we may think of the EU as being a super-state, it is not yet recognoised as such in international law. Britain is leaving a Customs Union - we will not be a successor state, the velvet divorce precedent does not apply.

3) When Austria, Sweden and Finland switched from EFTA EEA to EU membership, it was their EU accession treaty which confirmed the change of status, including how their payments and other obligations would change as a result. These accession treaties required a unanimous ratification process.

4) The EU has made clear that the UK is unable to negotiate with any third parties until the Article 50 process has completed. So EFTA membership, which requires unanimous agreement of all EFTA states, cannot be agreed during Article 50.

5) Similarly, the EU has stated that a future UK-EU trading relationship cannot be agreed during Article 50 - be it EEA or bespoke FTA.

6) Re-joining EEA will require a unanimous ratification process because it covers areas not deemed exclusive competence of the EU - leading to the the possibility of a Wallonia veto (as happened with ratification of CETA). This is not a quick process.

Some argue that the EU could be more flexible in allowing the UK to join EFTA EEA, waiving the restrictions of Article 50 and requirement for unanimous ratification. But the EU is characteristically legalistic, regularly proclaims how it is a rules-based organisation and would surely be reluctant to set a precedent for Britain. The EU did boast of breaking its treaties when the Euro crisis first unfolded, so it will break its own rules when it is an urgent matter of self-preservation. Accommodating a British entry into EFTA EEA during Article 50 would either suggest the EU's hand is a lot weaker than they claim - or I'd be very suspicious as to their motives.

But dont just take my word for it. Peter North, (the junior member of the Flexcit family business), now recognises this reality and confirms what I had concluded last autumn:

Ironically, Flexcit's initial proposition back in 2014 was that the 2 year deadline of Article 50 meant that an off-the-shelf interim solution was needed - namely EFTA EEA. Now we have team Flexcit arguing we need 5 years to join EFTA EEA - suggesting we will need the EU to grant the UK a transitional period (by essentially extending current membership of the Single Market and potentially customs union) before we can even get to EFTA EEA.

This all confirms what a lot of people have said for a long time (and I took a while to see) - those proposing an EFTA EEA solution are proposing it as a destination - not an interim or transition.

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