Brexit and ‘mexit’? The legal dimension of the EU Single Market and Brexit

brexit-doorA few weeks ago the High Court ruled in favour of the role of the UK Parliament in the process of triggering Article 50 TEU. Some newspapers reacted with fury, like the Daily Mail branding the judges as the ‘Enemies of the People’. These reactions constitute an unprecedented attack on the independence of the judiciary, which according to MPs and other commentators undermines the rule of law. These are the latest developments in a series of tumultuous events surrounding the Brexit decision, which have important ramifications for the EU and for the UK.

In the Brexit debate the ‘good old’ EU Single Market is a crucial and returning theme. The proponents of Brexit seem to wish to stay in the Single Market. But it appears that this group is increasingly divided: Brexiteers in favour of a ‘hard Brexit’, who would see the UK merely trading under the WTO rules, and Brexiteers favouring a ‘softer Brexit’, wishing to stay more connected to the EU, e.g. within the context of the Agreement on the European Economic Area (EEA) or by having access to the Single Market in some other form. They might even unite forces with the Remain camp, to let the UK at least remain part of the Single Market.

But this approach may not correspond to the EU’s point of view. Could the UK indeed still enjoy the benefits of the EU without having to share the ‘burden’ of membership, as Boris Johnson had claimed, which is also referred to as the ‘cake philosophy’? In the words of Donald Tusk, the president of the European Council, there are no cakes on the table but there will be salt and vinegar instead. The only real alternative to a ‘hard Brexit’ or clean break from the EU is, according to him, to remain a full member of the bloc.

A revisit to the Single Market and the rules that constitute its fundament seems therefore appropriate. For that matter, the legal heart of the European Union still consists to a large extent of the rules on the internal market, based on prohibitive rules that are firmly anchored in the Treaty and elaborated in EU legislation. In the Brexit discussions, two issues are particularly relevant. The first revolves around the way in which the Single Market must be defined or should be perceived. An emphasis on free trade and the economic benefits that it entails for the UK, pictures the internal market as a narrowly defined, market-based and purely economic project. The question is whether this image of the internal market is in fact not misleading. The second issue revolves around the question of whether it would, from a ‘legal coherence perspective’ be possible to make individual package deals with the EU, thereby leaving out the free movement of persons and particularly the free movement of workers.

Regarding the first issue, the EU Single Market does not only comprise the four ‘economic’ freedoms, it also entails EU rules on competition, and on socio-economic and flanking policies, including environmental and consumer protection rules, it has severe implications for migration policy and is based on the fundamental principles of equality and solidarity.

The expansive character of EU internal market law entails that hardly any area of socio-economic life escapes from the scope of application of EU internal market law. At the same time the economic effects of the EU Single Market rules are softened by the Court and the EU legislator, whilst recognizing the importance of public interests, fundamental rights of citizens, typically national values, ethical issues, the interests of weak consumers or the protection of a regional language. The EU legislator can further these interests through the harmonization of national laws using its broad internal market powers. Consumer, environmental, energy, media, data protection, or even health policies have to a more or lesser extent been regulated at EU level within the context of the internal market. A soft Brexit thus means that the UK would have to adhere to these policies as well.

When it comes to social policies, it is true that the decoupling of the economic and social spheres, as famously framed by Fritz Sharpf, has led to major institutional impediments at EU level to pursue a more social Europe. And this has made it hard, if not sometimes impossible, to provide at the level of the EU for an equilibrium between conflicting market-making and market-correcting policies. But this does not mean as some would claim that the EU internal market is per se biased by a more neo-liberal conception of the market. The emphasis has since long shifted to one which recognizes the need to accommodate a wide range of public interests. For that matter, without the UK as promoter of free trade, sometimes at the expense of social and flanking policies, Europe has a better chance to develop social policies.

With regard to the second issue, according to Article 26 TFEU the internal market does not only comprise the free movement of goods, services and capital but also the free movement of persons. It is true that the individual or personal connection in the field of goods is less visible. And the free movement of persons and services has always been an area of greater sensitivity than the free movement of goods, considering the security and welfare issues that are at issue. Furthermore, the fundamental rights of human dignity and individual personality are more implicit in ‘persons’ than in ‘goods’.

But the free movement of goods cannot be easily separated from the other freedoms. The customs union covering all trade in goods, which is the essential foundational stone of the EU and the EU Single Market, providing for an optimum division of labour throughout the EU, had already made an indirect contribution to the development of the inter-state movement of persons, services and capital. Furthermore, in a unified commercial area for goods and services, there is an increasing demand for labour and capital, production factors which cannot be left out in a market that, according to the CJEU, brings about conditions as close as possible to a genuine internal market (Case 15/81, Gaston Schul).

The case law of the Court shows that the Treaty provisions on free movement have been interpreted and applied in an increasingly similar fashion. The famous Dassonville judgment on Article 34 TFEU (goods) has constituted a source of inspiration and the starting point for the development of a coherent set of case law on the four freedoms. And as Niamh Nic Shuibhne put forward, sustaining coherence between the four freedoms in the case law should be considered as a vital constitutional responsibility of the European Court of Justice. It would therefore not only be difficult to imagine that the free movement of (economically active) persons would take a very different path in EU internal market law, but it would, from a legal perspective, also be undesirable.

There are various other reasons that plead in favour of this coherent and more integrated approach. Developments of new trade patterns and the digitalization of the market and economies make it, for instance, increasingly difficult to draw clear demarcation lines between the freedoms. This does not mean that there is no room for differentiation. Within the context of Directive 2004/38 (Citizenship Directive), a distinction is made between categories of citizens. Further distinctions between persons, like workers, job seekers, dependent persons or economically inactive persons could be made with the inevitable result that less fortunate citizens would lose even more protection granted by EU law. The question is whether this is desirable?

Of course, from a political point of view, if there is a willingness on the part of the EU and the UK to strike separate deals on goods, services and capital only, thereby leaving out persons, the deal may nevertheless go through. The likelihood of this remains questionable, also considering Donald Tusk’s speech (13 October 2016) in which he made clear that there can be no Single Market à la carte, thus without the free movement of persons. But also this statement is political.

In conclusion, at least from a legal perspective a clear separation between the four freedoms is undesirable, as it would jeopardize legal coherence and the unity of the market. And separating EU Single Market law from other policies would undermine the broader economic conception that underlies the EU Single Market, preventing it to turn into a neo-liberal, narrowly defined project. There appears to be a paradox. Eurosceptic parties calling upon their voters, wish to abide by a more narrowly defined European economic agenda, where citizens only have narrowly defined economic rights, though companies have broad access to foreign markets. This would push the analogy with a neoliberal free market much further, as national policies will still be made subordinate to the functioning of the market, and thus put their voters, who are often in a more vulnerable position, in an even more vulnerable position.