European Economic Area: UK Membership

Stephen Kinnock Excerpts

Monday 6th November 2017 Commons Chamber

[Stephen Kinnock (Aberavon) (Lab)]

I beg to move,

That this House believes that for the UK to withdraw from the European Economic Area (EEA) it will have to trigger Article 127 of the EEA Agreement; calls on the Government to provide time for a debate and decision on a substantive motion on the UK’s continued membership of the EEA; and further calls on the Government to undertake to abide by the outcome of that decision.

I thank the Backbench Business Committee for granting today’s debate, and I thank right hon. and hon. Members on both sides of the House for supporting the application for it. In particular, I thank my hon. Friend the Member for Lewisham East (Heidi Alexander) and the right hon. Member for Broxtowe (Anna Soubry) for co-sponsoring the motion.

If the referendum result was indeed a vote to take back control, this House must surely have its say on that critical issue. I rise to commend the motion to the House, because all options both for the transition and for the comprehensive trade and partnership deals must be on the table. I first want to set the debate in context by outlining what the European economic area is and what it is not. I will then explain how EEA membership can square the circle between market access, sovereignty and control. I will also illustrate how EEA membership offers a sensible and workable transition out of the European Union—a bridge, rather than the potentially catastrophic cliff edge of exiting on World Trade Organisation terms.

First, what is the EEA? Simply put, it is an internal market between the EU28 and Norway, Iceland and Liechtenstein. It was set up in 1993 to allow the participation of non-EU states in the single market. However, the EEA internal market excludes single market features such as fisheries and agriculture, and it does not entail membership of the customs union. That means that EEA members are able to negotiate trade deals with third countries, either bilaterally or through the European Free Trade Association. That is how Iceland became the first European country to strike a bilateral trade deal with China in 2011.

It is through EFTA membership, in conjunction with the EEA, that unfettered trade in goods is achieved. EEA-EFTA membership could therefore provide a solid basis on which to sustain frictionless trade between the UK and the Republic of Ireland post-Brexit.

[Sir Edward Leigh (Gainsborough) (Con)]

The hon. Gentleman just talked about a “catastrophic cliff edge”. Clearly, it is in the interests of our country that we have a free trade deal, but will he put that in context? Exports in 2016 accounted for 28% of our GDP and EU exports for 12.6%. Last month, the World Bank published a study showing that in the event of no deal and WTO rules, British trade with the EU might fall by 2%. That is 2% of 12.6%, or a quarter of 1% of our overall GDP. Therefore, when he talks about a catastrophic cliff edge, let him put it in context.

[Stephen Kinnock]

I thank the hon. Gentleman for his intervention. May I suggest that he takes a trip to the port of Dover? The Brexit Select Committee, of which I have the honour of being a member, visited it recently and we were told that an additional two minutes of processing time on the 10,000 heavy goods vehicles that go through the port would result in a 13 mile tailback. A WTO Brexit, we were told, would add a lot more than two minutes. We therefore have to look at this debate in the context of the institutional capacity of our country to cope with a WTO Brexit, which is critical.

[Mr Jim Cunningham (Coventry South) (Lab)]

The west midlands relies a lot on exports to the EU. We have Jaguar Land Rover and a lot of other companies. If we do not get it right on this issue, it will affect them pretty badly.

[Stephen Kinnock]

I agree absolutely with my hon. Friend. On the automotive sector, we know that a WTO-based Brexit would add 10% to the cost of every car we export to the EU. What is more, given the complex, integrated supply chains the automotive industry relies on, there would be tariff and non-tariff barriers on every component that crosses the border. The result would indeed be catastrophic.

[Robert Neill (Bromley and Chislehurst) (Con)]

rose—

[Stephen Timms (East Ham) (Lab)]

rose—

[Stephen Kinnock]

I will take one more intervention from my right hon. Friend, but I will take an intervention from the hon. Member for Bromley and Chislehurst (Robert Neill) later.

[Stephen Timms]

Has my hon. Friend seen the recent forecast that a WTO-based Brexit would cost the UK economy 75,000 jobs in the financial services sector alone? Is he not absolutely right to talk about the grave dangers that that would pose to the British economy?

[Stephen Kinnock]

I agree that the financial services sector is critical to this debate, because passporting is required. There would be no passporting arrangements in a WTO deal, so the impact would be catastrophic. We must remember that the financial services sector is not just about the City of London; it supports 1 million jobs across the entire United Kingdom—in Edinburgh, Leeds and so on.

[Dr Sarah Wollaston (Totnes) (Con)]

Does the hon. Gentleman agree that this is not simply about lorries queuing? For example, it is also about shell fisheries. There would be lobsters sitting for days in tanks that would be unsellable at the other end.

[Stephen Kinnock]

Indeed, during our trip to Dover, we were informed about the impact in terms of rotting food and vegetables on the border. There are practical, tangible impacts that we must bear in mind when it comes to a no-deal Brexit.

The head of the EFTA court, Carl Baudenbacher, has been a vocal advocate of the UK’s joining EFTA permanently or at least as a short-term docking measure —an idea that the president of the European Court of Justice, Koen Lenaerts, similarly advocated over the summer. EEA-EFTA membership is emphatically not the same as membership of the single market or the customs union. The EEA is an internal market that is conjoined with most of the EU’s single market, but it is nevertheless a stand-alone structure with its own legal, regulatory, governance and institutional frameworks.

[Sir William Cash (Stone) (Con)]

Does the hon. Gentleman accept that according to the president of the EFTA court, to whom he has just referred, that court follows the judgments of the European Court of Justice almost exclusively?

[Stephen Kinnock]

The EFTA court exists as a sovereign body. It of course takes some of its guidance from the European Court of Justice. Nevertheless, were the UK to have judges on the EFTA court body, it would clearly have extra clout and the ability to exercise its sovereign right to interpret the guidelines that come from the ECJ in such a way that suits the membership of EEA and EFTA.

[Robert Neill]

Is not the critical issue that many courts may choose to follow decisions of those with similar jurisdictions? Our courts have historically done that, but with the decisions of common law courts. The EFTA court, however, is institutionally separate from the ECJ and therefore not subject to its direct jurisdiction—is that not the important distinction?

[Stephen Kinnock]

The hon. Gentleman hits the nail on the head. I would add that EU member states are required to refer rulings to the ECJ, whereas EEA-EFTA states are not required to refer rulings to the EFTA court. This is a vital distinction, because it has significant implications for the functioning of the two markets. The EU single market is predicated on the treaty of the European Union, with its commitment to ever closer union. The EEA, however, is governed by the EEA agreement, article 1 of which states that the aim of the EEA is to:

“promote a continuous and balanced strengthening of trade and economic relations between the Contracting Parties”.

The fundamental differences between the founding mission of the EU and the founding mission of the EEA mean that for the EU the four freedoms are indivisible, whereas for the EEA they are negotiable. This, in turn, means that the EEA membership would allow a post-Brexit Britain to square the circle between market access and sovereignty when it comes to that most thorny of issues, the free movement of labour.

[Michael Tomlinson (Mid Dorset and North Poole) (Con)]

I always enjoy listening to the hon. Gentleman’s arguments and I have the pleasure of serving on the European Scrutiny Committee with him. Is not one difficulty with his argument that, under this model, we would have to follow all the rules—the rules of the single market and, as he says, the rules of freedom of movement—without having a say or an input into how those rules are made? Is there not a risk that that will not fulfil the wish of the British people?

[Stephen Kinnock]

I thank the hon. Gentleman for his intervention, but I am afraid he has misinterpreted how the EEA functions. The EEA joint committee sits with Commission officials, and officials of the European Parliament and the European Council in comitology, which provides the EEA joint committee with the ability to shape EU legislation, regulations and directives. I will come on to this later in my speech, but the idea that the EEA means rule-taker rather than rule-maker is incorrect.

As an EEA member, the UK could unilaterally suspend the free movement of labour by triggering article 112 of the EEA agreement, which allows for an emergency brake on any of the four freedoms on the basis of economic, environmental or societal difficulties. There is legal precedent for this. Upon entering the EEA in 1993, Liechtenstein triggered articles 112 and 113 of the EEA agreement, thus suspending the free movement of labour and ultimately agreeing a protocol that enabled the introduction of a quota-based immigration system.

The manner and form of economic or societal difficulties facing the UK would of course be different, but the fact is that the legal precedent has been set so there is no reason why the UK should not be allowed to follow suit. Having pulled that emergency brake, we would then, as per article 113, enter into deliberations with other contracting parties through the EEA joint committee to negotiate a lasting solution. In the case of Liechtenstein, this took the form of industry-by-industry quotas.

[Mr David Jones (Clwyd West) (Con)]

Is the hon. Gentleman really comparing Liechtenstein, a small mountain state in central Europe, which, frankly, could get full up rather quickly, with the United Kingdom, which is a much larger state and in which there is already a significant problem of migration?

[Stephen Kinnock]

It is patently ridiculous to make that sort of comparison. This is not about comparisons, but legal precedent. I would also argue that the United Kingdom has significantly more political and diplomatic clout than such a state, so the logic of the right hon. Gentleman’s argument does not follow.

[James Cartlidge (South Suffolk) (Con)]

The hon. Gentleman is making a very strong case—I was basically going to say the same thing—but if we are to draw a comparison with Liechtenstein, surely it is this: if such a tiny country could achieve what it did, we must have a realistic chance of doing the same.

[Stephen Kinnock]

The hon. Gentleman has hit the nail on the head, and I have nothing to add; he is absolutely right.

Liechtenstein is not the only legal precedent. Article 112 safeguard measures were also invoked in 1992 by no fewer than four of the then seven EFTA members—Austria, Iceland, Switzerland and Liechtenstein—which all cited the need to protect real estate, capital and labour markets. To recap: the four freedoms operate in an instrumental, as opposed to a fundamental, manner within the EEA, meaning that EEA membership offers a unique opportunity to combine market access, frictionless trade and reformed free movement of labour.

[Geraint Davies (Swansea West) (Lab/Co-op)]

Will my hon. Friend clarify something? Am I not right in saying that, currently under EU law, some restrictions that could be imposed are not imposed—namely, if someone has not worked for three months, they can be excluded from a country? Thousands of people are thrown out of other countries in the EU, but Britain simply chooses not to do so.

[Stephen Kinnock]

I think my hon. Friend’s point touches on what sort of reforms to the free movement of labour we think we need. Opinion is divided. In terms of the upstream reform, the argument is in favour of a quota-based system; downstream reform would be based on registration, but perhaps that is for another debate. My point is that EEA membership enables a lot more flexibility over both an emergency brake and the use of industry-by-industry quotas.

I turn now to the vexed question of ECJ jurisdiction. Here the position is relatively simple, as EEA-EFTA members are not subject to ECJ jurisdiction. The EEA is administered by the EFTA arbitration court and the EEA joint committee, and disputes are managed by the EFTA surveillance authority. These bodies adjudicate only on matters relating to the EEA internal market and any violations of its principles and have far less clout than the ECJ. Moreover, while EU member states’ courts must refer legal issues to the ECJ, EEA states are not obliged to refer them to the EFTA court.

The EEA model is sometimes criticised because EEA members are cast as rule-takers as opposed to rule-makers, but that criticism does not stand up to scrutiny. EEA members have the right to participate in the drawing up of EU legislation by the EU Commission, and the EEA joint committee determines which EU laws and directives are deemed relevant for the EEA and whether any adaptation is necessary, so EEA membership would in fact provide the UK with a seat at the table when EU regulations and directives are being shaped.

Clearly EEA membership is one step removed from the heart of decision making in Brussels, but the reality of the referendum result is that our influence in Brussels and across the European capitals has, and will inevitably be, diminished. The only valid question now is how to maximise democratic control and influence while minimising economic damage. I contend that an EEA-EFTA-based transition deal would clearly achieve those ends. The stakes are high.

[Stephen Timms]

I am listening with great interest to my hon. Friend’s argument. Will he confirm whether I have understood him correctly? Would the way forward he is advocating require the UK to rejoin EFTA? Is that his proposition?

[Stephen Kinnock]

There are a variety of views on this. Carl Baudenbacher, the head of the EFTA arbitration court, has said that he would favour a docking system and an interim arrangement that puts British judges on the EFTA arbitration court in preparation for finalising a deal—in a sense, a bridging into EFTA. I would advocate joining EFTA as part of moving into the EEA.

[Mr David Jones]

Will the hon. Gentleman give way?

[Stephen Kinnock]

I will make some progress.

Carolyn Fairbairn of the CBI said only yesterday:

“We remain extremely worried and the clock carries on ticking down”.

As a result, she said, more

“and more firms are triggering their contingency plans to move jobs or change investment plans.”

Reality has finally bitten, even in the minds of some of the most deluded Brexiteers, that it was always a fantasy to think it would be possible to complete the divorce and the final trade deals in parallel. A solid cross-party consensus on the need for a transition deal has therefore emerged, as was made clear in the Prime Minister’s Florence speech. All parties in the House also agree that we must leave the EU by walking over a bridge rather than by jumping off a cliff, and the EU has welcomed the fact that the Government have finally started to show some signs that they understand the realpolitik of the negotiations.

Given that an off-the-shelf transition deal is inevitable, it is clear to me that EEA-EFTA is the only viable option. The EEA and EFTA are well-established and well-understood arrangements that offer the clarity, stability and predictability that the British economy so desperately needs in these turbulent times. Transferring from the EU to the EEA and EFTA would allow us to balance sovereignty and market access. Crucially, such a transition deal would buy us time for negotiate the final comprehensive trade and strategic partnership deal that will shape the terms of the UK’s relationship with the EU for decades to come, while also allowing us to enter into independent trade negotiations with third countries because we would be outside the customs union.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

Is my hon. Friend’s point not all the more pertinent and timely in the light of the visit of the United States trade representative, Wilbur Ross? He certainly seems to be implying that a US-UK trade deal would take significantly longer than the 19 or 24 months to which the Government are clearly hoping to secure agreement for a transition deal.

[Stephen Kinnock]

I think that there is unanimity, almost, on the issue of the timing. I would add that the benefit of EFTA is that it is not a customs union but a free trade area, thus enabling us to connect with the vital single EU market but also to strike third-country deals with countries including, potentially, the United States.

[John Stevenson (Carlisle) (Con)]

Does the hon. Gentleman agree that if the United Kingdom became part of EFTA, that could in many respects turbocharge EFTA and make it a far more appealing organisation in respect of trade deals?

[Stephen Kinnock]

That is an excellent point. I think that the current EFTA members recognise the clout that they would potentially have through the addition of a 60-million-person consumer market to their current market, which is a great deal smaller. As we know, global trade negotiations are all about leverage and clout.

[Mr Mark Harper (Forest of Dean) (Con)]

Will the hon. Gentleman give way?

[Stephen Kinnock]

I will make some progress.

It is clear that the issues we are debating today go to the very heart of what the Brexit process is about. This debate is about the future of the people whom we in the House were elected to represent. It is about their jobs, their livelihoods and their communities, and it is about the definition of our national interest and of our country’s place in the world. Yet the Government claim that a separate debate and decision on membership of the EEA are not necessary. Not necessary? How can it possibly be argued that matters of such deep political, economic and constitutional significance should not be the subject of proper deliberation? How can it possibly be argued that the House should be sidelined and neutered, simply because the Government are terrified of proper scrutiny? Is that really what people voted for when they voted to “take back control”?

While the political case for a separate debate and decision on our membership of the EEA is unanswerable, the legal position is hotly contested. The Government argue that on exiting the EU we will automatically exit the EEA, pointing to article 26 of the EEA agreement, which states that EEA members must be EU or EFTA members as well. However, it can equally be contended that the UK is an independent contracting party to the EEA agreement, being one of the founding sovereign state signatories to that agreement, and that exit from the EEA therefore requires the triggering of article 127. I am not alone in that view, which is shared by eminent academics such as Professor George Yarrow and QCs such as Charles Marquand.

It should also be noted that a conclusive decision in this House that UK membership of the EEA is not wholly contingent upon EU membership would greatly strengthen our negotiating hand, as the EU would be unable to force the UK out of the single market. Some will argue that this question should be settled in court, but a case in February of this year was dismissed as premature, as the Government had yet to state their position on the EEA membership, and it was still possible at that time for the triggering of article 127 to be wrapped up with the triggering of article 50.

On this issue, as with so much where the Government and Brexit are concerned, we now find ourselves in a hiatus—drifting, rudderless, floating around in a mist of ambiguity and indecision. It is therefore more important than ever that this House shows some leadership. It is on the Floor of this place, not in the courtroom, that we should be deciding these matters. It is we who are sovereign.

On 23 June 2016, the British people voted to leave the treaty on European Union; the EEA agreement was not on the ballot paper. There is no referendum mandate for leaving the EEA; and if it had been the intention of this House that leaving the EEA be bundled in with leaving the EU, why did this House not put that in the original statute, either in the European Union Referendum Act 2015 or the article 50 Act?

The people have not spoken, nor have they had the opportunity to speak on EEA membership. It is therefore the job of Parliament to speak, and to debate the matter on their behalf. Moreover, the Miller case established legal and political precedent for parliamentary authorisation of withdrawal from any international treaty that confers rights and obligations that have been transferred into UK law. The EEA agreement clearly confers such treaty rights into domestic law, so if we take the conclusions of the Miller case to their logical conclusion, Parliament must have the right to debate and decide.

I am truly proud of the fact that I campaigned passionately for remain, and I will believe until my dying day that the vote to leave the EU was the greatest act of national collective harm in modern political history. However, I am also a democrat, and fully accept and respect the result of the referendum. The question therefore is not whether we must leave the EU, but how we should leave. That, fundamentally, is what this debate is about.

As elected representatives of the people, and as patriots, our moral duty is twofold: we must act to ensure that the Government negotiate a deal that both protects jobs, livelihoods and the national interest, and that respects and enables greater sovereignty and control. Those who are driven by nationalism, separatism, dogma and ideology are not capable of securing such a deal, for their only goal is to burn every bridge they see and return to a bygone age of splendid isolation, and those who are driven by a desire to rerun the referendum are similarly incapable of moving to the centre ground, which is the only place where pragmatic solutions can be found. For we know that compromise is a sign of strength, not weakness. We know that a country can either have frictionless trade or independence, but it cannot have both. We know that “Rule Britannia” rhetoric provides the sugar rush of an easy soundbite, but it does not put bread on the table.

All of which means that we must have a Brexit deal that puts jobs first. We must have a Brexit deal that keeps our economy as close as possible to the 500 million consumers that are right on our doorstep. And we must have a Brexit deal that holds our deeply divided country together, by delivering to the greatest extent possible on the perfectly legitimate need to reform free movement of labour.

A transition deal that is based on EEA and EFTA membership will deliver a Brexit that protects jobs, livelihoods and the national interest. That is why it is vital that this House is given the opportunity to debate, and decide on, whether article 127 of the EEA agreement should be triggered.

I commend this motion to the House.

[Several hon. Members rose—]

--- Later in debate ---

[Stephen Kinnock]

This has been an excellent debate and I thank Members from all parts of the House for their contributions, although the Minister’s winding-up speech was deeply disappointing.

We live in a deeply divided country: city versus town, young versus old, graduate versus non-graduate. The referendum did not create those divides, but it certainly gave them voice. An EEA-based Brexit is one that could reunite our divided country: it is a Brexit that provides the basis for avoiding a hard Irish border; it is a Brexit that offers the opportunity for reform of free movement of labour; it is a Brexit that maximises access to the single market; it is a Brexit that removes us from ECJ jurisdiction; it is a Brexit that enables us to strike independent trade deals with third countries; and it is a Brexit that provides the certainty and predictability that our country so desperately needs in these turbulent times.

The clock is ticking and the stakes could not be higher. There is no mandate for leaving the European economic area. It was not on the ballot paper in June 2016 and the result of the 8 June election this year was the final nail in the coffin, surely, for a hard Brexit. A debate and decision on a substantive motion on EEA membership are therefore urgent and desperately needed. I commend the motion to the House.

Question put and agreed to.

Resolved,

That this House believes that for the UK to withdraw from the European Economic Area (EEA) it will have to trigger Article 127 of the EEA Agreement; calls on the Government to provide time for a debate and decision on a substantive motion on the UK’s continued membership of the EEA; and further calls on the Government to undertake to abide by the outcome of that decision.

[Sir William Cash (Stone) (Con)]

On a point of order, Madam Deputy Speaker. My right hon. Friend the Member for Broxtowe (Anna Soubry), I think somewhat inadvertently, made a reference to my interest in EFTA and the model of jurisdiction. What I actually said on 4 July 2017 was by reference to the jurisdiction of the European Court and the EFTA court, exploring whether we could find a viable and proper way to achieve jurisdiction in relation to the issues under consideration. I think my right hon. Friend and I agree that I was perhaps slightly misinterpreted, but I do not want to press the point any more than that. I just want to get it on the record that I was not referring to EFTA as such, but merely to the jurisdictional opportunities it might offer.