EU Referendum

Brexit: Dougan on Liechtenstein


Updated: see this post here

Just a few days ago (5 July), Monnet professor Michael Dougan was addressing the Treasury Select Committee, offering his views on our so-called Liechtenstein solution.

He'd heard the suggestion, he told the Committee, that Article 112 of the EEA Agreement could provide the basis for "somehow exempting the UK from its obligations if we joined the EEA, as regards free movement". He was not especially enthusiastic about the idea. "To be honest", he said, "I'll give my honest opinion, about this, the idea, to be honest" …
… that we enter in to international negotiations with 30 odd countries for an agreement where it is absolutely clear as day that full free movement of persons is an integral part of that agreement, that must be respected in full, and then we secure the national agreements and ratifications of 30-odd countries, and we then try and rely on a provision which is intended for emergency use in exceptional situations, relating to very specific criteria, so as to fully or even partially exempt ourselves from those types of obligations would do nothing for our international credibility – do nothing for this country on the international stage.
"Article 112", he went on, "is an emergency safeguard provision for highly specific situations. It comes with obligations as well as opportunities". Thus, in his view: "The idea that we would use it to somehow exempt ourselves from the normal regime of free movement of persons, wholly or partially, that applies under the EEA is … if I'm going to be cruel, I'd say armchair lawyers' argument really".

It is not difficult to guess who he is talking about, but I've not been called an "armchair lawyer" before. I've had "armchair general", but that was from critics who disagreed with my stance over Snatch Land Rovers. They didn't get much support from Chilcot.

Actually, "armchair lawyer" is the wrong term - it's meaningless. Most lawyers work from armchairs. He would have been better off calling me a "barrack-room lawyer". That's the more usual insult.

But if he's got this wrong, Dougan has got a lot more wrong besides. For a start, Article 112 – as part of the EEA Agreement - is most emphatically not an "emergency" provision. The rules for its use, set out in Article 113, state that it cannot normally be used without first giving at least one month's notice. Only in "exceptional circumstances" can immediate action be taken, and then only to the extent "strictly necessary to remedy the situation".

Something which normally requires a month's notice before implementation cannot be considered to be dealing with emergencies. Then, logically, any provision which has within it an "emergency clause", for use only in exceptional circumstances, cannot in itself be an emergency measure.

Nor - to address the next of Dougan's assertions - is its use confined to "highly specific situations". The criteria are, in fact, extraordinarily broadly defined. To trigger the Article, the Contracting Party can choose from a menu of, "serious economic, societal or environmental difficulties", of a sectorial (sic) or regional nature, which are "liable to persist".

So broad-brush is the Article that, in 1992, when the EEA Agreement was signed – as the Final Act - it was invoked by no less than four (then) Efta members. Three of them, Austria, Iceland and Switzerland, cited the need to protect real estate, capital and labour markets, while Switzerland also demanded protection from excessive immigration.

The Government of Liechtenstein invoked Article 112 in respect of capital inflows, concerns about access of the resident population to real estate, and "an extraordinary increase in the number of nationals from the EC Member States or the other Efta States, or in the total number of jobs in the economy, both in comparison with the number of the resident population".

However, the use of Article 112 hasn't been confined to just these four countries – or indeed any specific Member State. On 15 December 1995, via Regulation No 2907/95, the European Commission itself invoked the Article on its own account, making trade in salmon of Norwegian origin conditional upon observance of a floor price.

The point about safeguard measures generally is that, far from being rare and exceptional, they are commonly found in trade agreements, so often as to be virtually a standard provision.

They can be found in the draft agreement with Australia and New Zealand and in the EU trade agreement with Moldavia. For another example, we can look to 1993, when Hungary signed up to an Association Agreement with the EU. Alongside, that, Council Regulation No 3491/93 of 13 December 1993 detailed the procedures for applying safeguard measures.

There is even a safeguard clause in the much-vaunted EU-Korea free trade agreement, although it should not be said that such clauses are peculiar to the EU. The United States commonly resorts to safeguard measures in its trade agreements, including so-called "snapback" tariffs. The facility to suspend parts of a treaty is entirely normal and expected.

As to the current safeguard measures in the EEA agreement, these are remarkably similar to the arrangements in Council Regulation (EEC) No 2840/72 of 19 December 1972, setting out the Agreement between the European Economic Community and the Swiss Confederation. Quite possibly, the EEA text is based on these provisions.

Furthermore, the application of Article 112 is entirely dynamic. In the Accession Treaty for Croatia, Article 37 allows for a response, over a three-year transitional period, to "difficulties arise which are serious and liable to persist in any sector of the economy or which could bring about serious deterioration in the economic situation of a given area". The accession instrument to the EEA then allows for the application of Article 112 to this provision. Similar extensions are found in other accession treaties.

Returning to the current situation, Dougan accepts that there are "adaptations" to freedom of movement in the EEA Agreement, but he would have us believe that they apply to Liechtenstein only because of its "nature, and the size and the territorial aspects".

However, as one can see by reference to the 1994 Protocol adjusting the EEA Agreement, the original opt-out from freedom of movement provision, implemented under Protocol 15, applied to both Switzerland and Liechtenstein. Had Switzerland not failed to ratify the Agreement, the likelihood is that both countries would currently enjoy exemption from freedom of movement.

The reference to Protocol 15 reminds us that, in the first instance, Liechtenstein did not invoke Article 112 and nor, currently, does it rely on this Article. As we point out in our narrative, it had negotiated an amendment to the EEA Agreement via Annex VIII, cross-linked to Annex V.

The point we sought to make was that the Community, far from treating freedom of movement as "non-negotiable", was eminently flexible when it came to applying the rules to Efta/EEA states.

Furthermore, Liechtenstein is not the only country to enjoy exemptions from one or other of the four freedoms. When Iceland first joined the EEA, it notified its intent to invoke the Article in order to protect its real estate market. This it did, casting the net much wider in Act No 34/1991 on "Investment by Non-residents in Business Enterprises", as amended by Act No. 121 of 27 December 1993 and Act No. 46 of 22 May 1996.

Built into this Act, in Article 12, is the provision that allows the Minister of Commerce to block a particular foreign investment if he "considers it threatens national security, public order, public safety or public health or in the event of serious economic, social or environmental difficulties in particular economic sectors or particular areas which are likely to be of a lasting nature".

In the case of the investment of a resident in a member state of the European Economic Area, it states, "the provisions of Articles 112 and 113 of the Agreement on the European Economic Area shall be observed".

Dougan has it that, if we try and rely on a provision "which is intended for emergency use in exceptional situations, relating to very specific criteria", this "would do nothing for our international credibility – do nothing for this country on the international stage".

The reality, though, is that Article 112 and its related Article 113 are wholly unexceptional parts of the EEA Agreement. There are those who seek to cast their use as somehow "bending the rules" – and that is certainly an inference that Dougan would allow. But the Articles are the rules - or part of them - and the UK would be perfectly entitled to rely on them, as indeed has the European Commission.

Even then, Dougan lays it on thick with our membership of the EEA, implying that we might have to rejoin, whence we "enter in to international negotiations with 30 odd countries for an agreement where it is absolutely clear as day that full free movement of persons is an integral part of that agreement, that must be respected in full, and then we secure the national agreements and ratifications of 30-odd countries".

He fails, though, to mention that we are already members of the EEA. And when Austria, Finland and Sweden switched from EEA membership to full EU membership, their EEA membership continued without any action being taken to recognise their change of status. This can hardly be an oversight as the Accession Treaties have multiple references to EEA transitional provisions.

If a formal recognition of the change of status is required, as the UK moves from an EU member of the EEA to an Efta member – assuming that we are accepted into Efta – we think this could be given by the EEA Council, acting either by majority or consensus. There is no negotiation, no 30-odd countries having to agree and no ratifications. The UK simply remains a member of the EEA, and slides across to become an Efta member rather than an EU member.

As an Efta member, the UK is then entitled unilaterally to invoke Article 112, this being entirely in accordance with the provisions of the Agreement. Even the Schuman Foundation acknowledges this, in an entirely matter-of-fact way.

Finally, though, although we assert that, in all respects, Article 112 is a perfectly legitimate tool, we would not expect the UK to rely on it, any more than Liechtenstein does. At the most, we might use it as leverage to broker a permanent amendment to the EEA Agreement, the negotiating forum in this event being the EEA Council.

Given the precedent of Liechtenstein and the inherent flexibility of the Agreement, we would certainly expect – by whatever means – to negotiate a "sectoral adaptation" to apply to the UK, allowing us a greater degree of control over immigration from EEA members. Dougan's pessimism is not warranted. It is it sustained by the facts.