"All of this would require a political culture in which compromise was prized above ideological purity and careful preparation above nationalist histrionics"

The EEA option: Saving Britain from hard Brexit (Part3)

This is the third part of three-part article. The first two parts are here and here

The weird world of the Efta court

At the heart of the Efta arrangement is the Efta court. We would sign up to its jurisdiction if we stay in the single market through the EEA agreement. But even if we leave, we might still come under its jurisdiction – perhaps as the dispute resolution system for a bilateral treaty with the EU, or to guarantee the rights of EU citizens in the UK. And even if we are technically outside of its jurisdiction altogether, recent government position papers have made it clear that the alternative institution could well be closely modelled on it. Whichever way you look at it, this obscure court is likely to play a big role in Britain's political future. And yet no-one in Britain really knows anything about it.

The Efta court is a fascinating thing. There is nothing else quite like it in the world.

The EEA agreement creates a twin legal structure for the single market. It does not technically come under EU law. Instead, it agrees to copy EU law so that Efta states have the exact same standards as EU states. It then has its own surveillance authority to check that they're abiding by those standards. If it suspects they aren't, it sends them to the Efta court.

So the European Court of Justice (ECJ) interprets the rules of the single market for EU states and the Efta court interprets the rules for the Efta states.

They are not formally equal though. The Efta court is the little brother of the ECJ. According to Article 3 (2) of the ESA/Court agreement, it must "pay due account" of the ECJ's rulings when it does business. But the ECJ does not need to take account of its rulings. The legal requirement is one way.

Or at least that's how it works on paper. In reality, the ECJ does pay due account to Efta court judgements, even though it technically doesn't have to. International courts do this all the time, looking to what others are doing and using that as the basis of their judgements. But that relationship is particularly intimate between the ECJ and the Efta court.

Because it is smaller and nimbler, the Efta court quite often ends up making decisions on things the ECJ hasn't looked at yet, setting down an interpretation of the rules which the ECJ then follows.

When you look at its rulings, it seems like it adopts a slightly more relaxed interpretation of the law than the ECJ. Take the case of the Icelandic bank Landsbanki. It had branches in the UK and Holland back when the financial crisis hit and everything went horribly wrong. It promptly collapsed.

There was an EU rule which should have prevented the worst from happening. It demanded that banks provide protections for deposits of up to 20,000 euros. Iceland did this but the crisis hit it so hard that it wasn't enough to actually protect the deposits. When the bank collapsed, the Icelandic government passed an emergency law splitting it into a good bank (with assets) and a bad bank (with liabilities). Savers in Iceland were protected, but those with accounts in the UK and Holland weren't.

It seemed as if Iceland had broken two aspects of single market rules – the first on copying over that EU rule on protecting the deposits and the second on not discriminating against people from different member states.

The case went to the Efta court. It promptly surprised observers by finding in Iceland's favour. It ruled that they had complied with the deposit rule and hadn't intended to discriminate. Many legal experts believe the ECJ would have come to a very different decision. You never know what would have really happened, of course, but the ECJ was more likely to look beyond the strict interpretation of the law and instead assess what it was trying to do. If the deposits were not protected and only citizens from certain countries were saved from the repercussions, then plainly Iceland had failed to abide by the law, even if it might have technically done so. Some believe this case exemplifies the different attitude of the Efta court – it's more hands-off, only messing with member states when it really has to. 

This is a common view, but not a universal one. Other legal analysts feel the case law isn't really all that different. But overall, most legal commentators do seem to treat the Efta court as if it has a slightly different approach to legal issues and the court itself appears to think that way too.

Court culture

This goes to the heart of a broader distinction between the Efta court and its EU counterpart: its culture. The ECJ is staffed by judges from 28 different member states, many of them with very different legal traditions. It is a frustrating melting pot of opinions and backgrounds, some of them really quite inimicable, trying to develop a settled approach. The Efta court is composed of people from a small group of countries with a similar legal history. And the cultures of those countries – both politically and legally – are united by virtue of the fact they're in the club in the first place. These are countries which have all chosen to be outside the EU but want to build a working relationship with it for mutual advantage. In other words: they are all soft Brexiters. The small size of the group and the similarity in political outlook gives the Efta court its culture – the kind of culture which is more likely to take a more relaxed approach to single market rules.

In a way, this is embedded in the DNA of the court. ECJ rulings reflect the centralised power of the EU. They are directly enforceable, rubber stamped straight onto member states. Efta court rulings are not. They are more like advisory statements to national courts and governments. They are filtered through an independent political and legal system, self-run by countries which value their independence and don't want to be part of a transnational superstructure.

This goes to the heart of what Efta offers. Sure, you still need to take EU rules and implement them, with no meaningful say in how they are arrived at. No-one can pretend the relationship isn't fundamentally submissive in that way. But there is a key distinction to the EU. You are not part of a continental governance structure. Instead, you've signed a treaty with a continental governance structure. You have a court which assesses whether you are abiding by the terms of that treaty. But nothing can overrule your national parliament or your national courts. They are fully sovereign.

Can't we all just get along?

This is a good moment to ask one of the most important questions in any discussion of political arrangements: What if we say no?

It's all very well saying that everyone's sovereign, but for the treaty to work, people need to abide by it. So what happens if we don't?

Let's say the UK joined Efta and the EEA. A few years later, the Efta surveillance authority decides the UK is failing to abide by single market rules for derivatives trading. It refers the case to the Efta court. The Efta court rules that Britain is in breach of the agreement. But Britain refuses to comply. The tabloids are up in arms, Nigel Farage is spitting all over the microphones in radio studios across the land and Downing Street says: 'You know what? Up yours.' What happens next?

The answer to this question is unexpected and revealing. There is a constitutional plot twist. According to Article 111, the matter goes to the joint committee. That's a very interesting process, because it turns a legal issue into a political one. Put simply: there is no final legal court on infractions of the rules. It basically becomes a matter for politicians.

What would these politicians do? Well, for months they would bat the issue around. There'd presumably be a lot of arm twisting. And then, once all other avenues had been pursued, there would be a tit-for-tat retaliatory trade response. Funnily enough, this is almost exactly the same system they use at the WTO, which hard Brexiters seem so keen on.

In other words, it's very hands-off. They don't impose crippling fines, or even freeze you out the agreement. They create a proportionate trade response in some other part of your economy, so in this case perhaps they'd impose restrictions on particular types of manufacturing exports. But this must be at roughly the same level as the infraction. You can't penalise a state with measures adding up to £500 million for something which only cost £10 million.

Again, this has never happened before. Wherever you look, you see an absence of conflict. Efta states don't veto laws as they come down and they typically abide by them once they're in place. Given these are the recalcitrant countries, outside the EU and fiercely protective of their independence, it seems odd there are so few conflicts. But in truth, everyone wants it to work. So they roll up their sleeves, they make compromises and they get on with it.

This is also why the Efta court and the ECJ court work hard to avoid any open conflict. They are in a conversation. They don't want to come to blows. If they did, the whole edifice would come into question.

But the conversation between the courts is not static. This is simply how it happens to be working right now. If Britain joined Efta, it could probably change. You would suddenly have a very large economy, with considerable political clout and a long history of advocating for liberalisation of services, joining a relatively out-of-the-way trade arrangement. That is likely to add a certain degree of swagger to the Efta court. The culture would adapt and with it the conversation.

Looking to the future

There are many deficiencies to Britain joining Efta and the EEA. In a way, it's the compromise agreement which pleases no-one. Remainers will still be out the EU. Leavers will still be signed up to a close relationship with it in which they must accept free movement and a lot of EU law. The set-up means you have to submit to laws you didn't formulate. And it's so complex and weird that most most members of the public – or anyone with a healthy social life – would not understand how it works. That type of uncertainty gives the tabloid press plenty of ammunition to blame Europe for everything. The can of political grievances revealed by the Brexit vote might just be kicked further down the road.

It would also take a lot of work and some time to set up. In reality, it will soon be too late to pursue. Many believe it might already be too late.

To others, however, Efta offers something different – something we haven't tried before. They argue that the fact hard Remainers and hard Leavers are appalled by it might actually be decent evidence for it being a tolerable compromise. An EEA solution accepts and acts on the Brexit vote, but without putting Britain's economic livelihood at risk.

It offers many of the things Britain says it wants. EU law would no longer be supreme. We would enter a new, looser arrangement, one in which we are free of any notion of "ever closer union", in which sovereignty is fully respected as one of the chief aims of the arrangements. Yes, we would have to abide by a treaty – but all modern free trade agreements have this form. They are treaties with adjudication bodies to ensure both sides abide by what they signed up to. If that's an intolerable concept to us, we might as well give up on signing any trade deals.

Historically, Efta could also offer Britain a leadership role in the outer fringe of Europe. In Brussels they have talked for years about creating a two-speed Europe. Now Emmanuel Macron and Angela Merkel are melding the Eurozone countries even closer together. It seems an opportune moment for a large economy like Britain to create a de-facto outer tier of European cooperation. With the increased clout and confidence British membership would bring, maybe Efta could even convince the Europeans to finally do what Delors dreamed of and share single market decision-making powers. For the time being that prospect seems a long way off, if indeed it is possible at all. But it's not so hard to image Efta and the Eurozone in the future, sharing the single market with joint decision-making powers. One Europe for federalists. One Europe for the awkward buggers.

All of this, however, would require a political culture in which compromise was prized above ideological purity and careful preparation above nationalist histrionics. For the time being, that culture seems very far away. If it is not rediscovered sometime soon, the opportunity for soft Brexit will fade away.

Ian Dunt is the editor of Politics.co.uk. His book – Brexit: What The Hell Happens Now? – is available now.

The opinions in politics.co.uk's Comment and Analysis section are those of the author and are no reflection of the views of the website or its owners.