The Economic and Regulatory Implications of EU Membership: A Focus on Goods and Services, Summaries of Law

Download The Economic and Regulatory Implications of EU Membership: A Focus on Goods and Services and more Summaries Law in PDF only on Docsity! Free movement of goods and services Brexit Seminar Series, 30 October 2015, All Souls College Conveners: Sir Jeremy Lever and Dr. Jeremias Prassl Speakers:  Rain Newton-Smith, Director of Economics, CBI  Professor Stephen Weatherill, Jacques Delors Professor of European Law  Edward Pitt, Chair, Law Society EU Committee Rapporteur, Dr. Eirik Bjorge The meeting was opened by Jeremias Prassl. The discussion began by highlighting that the UK’s membership of the EU is going to one of the biggest issues for the UK economy. The EU is not perfect; there are a number of ways in which it can work better for everyone. On balance, however, the economic benefits of EU membership outweigh the disadvantages. There is a debate as to the degree of regulation in the United Kingdom; one question is, will businesses have more freedom if the UK leaves? One needs to remember that, according to the OECD, within the G7, the United Kingdom is amongst the least regulated countries. The EU should, however, work better for businesses by, first, completing the digital single market. Progress on this could make it easier for consumers to travel between countries on the same mobile phone package; to shop online in any EU country confident that one is getting the same deal as other consumers; and also lead to a simple common set of regulation around labelling to marketing to reach Europe’s 500 million consumers. Secondly, it should be more outward looking: trade deals like CITA and TTIP provide plenty of opportunities for UK business. TTIP could boost UK growth by 0.35% or £10 billion a year in the long run (EC). The EU–South Korea FTA in 2011 has been very successful and is a good example. Third, the EU needs to become more competitive; the regulating needs to be reduced. There’s more that can be done to improve innovation and infrastructure. 10% more households on high-speed broadband could generate up to 1.5% GDP growth and create 20 million jobs by 2020. Harmonization of policy paves the way for companies to grow. There have been signs of progress. The digital single market strategy, for example, is promising. UK trade and exports have been the missing link in the UK’s recovery. According to some recent research by Delta Economics, the number of products in which the UK has a comparative advantage is likely to decrease over the next ten years so the UK, needs to look for opportunities in a broader range of markets, including emerging markets. It is not either–or; the EU is a gateway to emerging markets in addition to being the gateway to Europe. The UK has a comparative advantages in fields such as pharmaceuticals. The point is, too, that the UK needs to look outwards in order to drive innovation and exports; this can be done through the EU. Stephen Weatherill began by making the point that the EU is in one sense made up of two pillars: negative and positive rules. The former stands for free movement provisions disabling domestic regulation that breaches EU law; the latter type of rules are the rules put in place by the EU to displace the laws of the Member States. Legally, the internal market is an ambiguous concept. 26 TFEU defines internal market as area ‘without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties’. But how much of that should be done through negative law, and how much should be done through common rule making? All internal markets have to ask that question: what is the correct balance between deregulation and reregulation. We would assume there was a common market in the USA, Canada, Germany, the EU; however, they do not all look the same. The balance is different in the various systems. In the EU the Court is highly influential in this regard. It contributes to the internal market becoming dynamic. The landmark case in this connection is Cassis de Dijon, where, famously, the Court ruled on German technical standards on German black currant liqueur. Germany demanded that this liqueur have more alcohol than was permitted under the French rules. The Court could have said that there was no discrimination, that this was only an example of diverse regulation. Germany could, The basic EU principles on free movement of goods and services are now well understood. It is, however, good to remind ourselves of the huge impact over the last 42 years of these basic EU provisions, in particular, the directly enforceable provisions, such as what is now Article 30 TFEU, which prohibits customs duties on imports and exports, and Article 34 which prohibits quantitive restrictions (quotas) on imports and measures of equivalent effect. Similarly, Article 56 TFEU allows service providers, in principle, to provide services unrestricted to customers in other EU member states. Articles 28–37 TFEU provide for a customs union so that: there is a common tariff on goods coming in from outside; goods from third countries can circulate freely once inside the EU; there can be no customs duties or quotas on goods moving between states; member states may not enact domestic legislation (such as an internal tax or a product standard) which has the same economic effect as a duty or quota. The system is underpinned by the competition rules, which prevent private undertakings protecting their national markets. Further the State Aid rules prevent member states from protecting national industries with financial support. He agued that were the UK to withdraw from the EU that in any Association Agreement these basic provisions will be preserved; so it may be that as respects trade goods trade between the UK and EU states will continue unhampered by tariffs or quotas. However, what could change is that the UK would have less control over the terms on which such goods are sold – consumer protection, product standards, and so, as we will see in some examples below. Freedom to provide services is covered by Articles 56–62 TFEU. In practice there is no neat distinction between the provision of services and the right of establishment set out in Articles 49–55 TFEU. Freedom to provide services and the right to establish have needed considerable harmonisation measures, in those service sectors which are regulated in each member state. There is a long list of measures to harmonise, and then give mutual recognition to, qualifications for architects, doctors, dentists and so on. As I show below, lawyers have been lucky, that our training standards and qualifications have not been harmonised! In any withdrawal negotiations there may have to be detailed agreement on each profession or qualification to see whether UK or EU member states qualifications are still mutually recognised. The Court of Justice of the European Union did some excellent work in the seventies and eighties when it firmed up on what is meant by “measures of equivalent effect” to customs duties and quotas thereby allowing challenges to national legislation which, while on the face of it was not a customs duty or a quota, in practice impeded Imports from other European countries. The Court also greatly speeded up market integration by holding that some Treaty articles are directly enforceable by individuals or undertakings. At the risk of saying the obvious, withdrawal could mean, depending on the terms of any revised Association Treaty, that British businesses would lose the ability to effectively challenge protectionist legislation, which, while not on its face a quota or customs duty, had the same economic effect. The old association agreements, with Spain and Portugal for example, in force before those countries joined the EU, could not be directly enforced by individuals or undertakings. The British legal profession, in particular that of solicitors, has enjoyed very great benefits from membership of the EU, especially resulting from the direct applicability of what was Article 52, EEC Treaty, now Article 49 TFEU. This meant that: In few member states is the giving of legal advice a prerogative of nationally qualified lawyers. Anyone can advise on the law and help negotiate commercial or property contracts. In 1973 a solicitor could go to another European country and practice and advise on the law under his home title; we needed no residence or work permit. This is what many solicitors and barristers did from 1973 onwards, establishing offices in first Paris, Brussels and Amsterdam and later in Frankfurt, Madrid and elsewhere in the EU. Those offices were then a platform which helped London based law firms export English law, efficiently enforced by the English courts, to other centres, such as Hong Kong, Singapore and the Middle East. The Law Society has just published a report—“the EU and the Legal Sector” which tries to assess the economic impact of EU membership on the Legal Services Sector. The implications of leaving the EU (and recalibrating the UK’s relationship with the EU as a member of the EEA or something similar) differ: For those law firms who depend on and are fed by the financial services industry, their fortunes will follow whatever the effect of withdrawal is on the financial services industry. Assessing the economic value to the UK of EU related legal services is difficult, but crude estimates put legal services at 1.6% of the UK economy, generating an export surplus of £3.1 billion. The numbers may be rough and ready, but the views of London based commercial finance sector lawyers are almost universally opposed to the UK leaving the EU as they see legal work reducing; To the extent that English law, as efficiently enforced by the English courts, is a choice of law for major international commercial contracts not specifically in the financial sector, the effect of withdrawal is perhaps more nuanced. Some commercial entities may see English law and English courts, free from the EU, as a better forum than a country which is a full member of the EU. This is the advantage which, for example, Switzerland has as a choice of law and choice of forum for commercial contracts and disputes. However, the majority view seems to be that English law’s real attraction as the law of choice for major commercial contracts is that the UK is part of the EU mutual recognition system on jurisdiction and enforcement. The third area I wish to talk about is the areas where, in the event of withdrawal, the United Kingdom would have greater policy independence in the provision of goods and services. Or, to put it more practically, not in black and white terms of “in or out”, what are the specific areas of national economic regulation which might be in any re-negotiation. The focus and the debate on immigration and the protection of the economy of non-Eurozone countries has rather put in the shade some other important areas where withdrawal from the EU or, as I would prefer to put it, loosening of the arrangements with the EU, could confer some significant advantages in determining national policy. I think it is also important to move in the EU debate from generality (immigration, UK financial services) or iconic issues (working time directive) to be specific as to areas relating to the cross-border provision of goods and services where perceived EU overreach do cause government frustration and public irritation and such overreach may restrict the UK government’s ability to innovate in regulation. So what are the areas where EU competence might be refined? I set out below a list of examples. You will no doubt have others: airlines, whereas the Indian Government was able to do the same in reverse at Delhi and Mumbai. Is it essential that national policy on allowing access to UK airports should be regulated at EU level? There are several areas of the British economy where the industry regulates its sector (under threat that if it does not do the job properly the Government will do it but probably more inefficiently!). The tradition of self regulation seems stronger in the UK than in some other EU member states. A good example is the advertising industry which is self-regulated by the Advertising Standards Authority and the Committee of Advertising Practice. The drinks industry also has a self denying advertising code enforced by the Portman Group. Another example is the ecological labelling of foods or fish products by, for example, the Fair Trade Foundation or the Marine Stewardship Council. Both these latter bodies are under pressure, in particular from Germany, to be swept into a Government controlled system of quality labelling. Funding of what are really national projects or projects of a social nature (education, transport, health, energy supply and housing). For example, is the EU’s intervention under the state aid rules into the cost of disposing of spent nuclear fuel right? Do the EU state aid rules unduly constrain national policy in the funding of primary and secondary re-education? There seems to be an awareness that local authorities and central government may often be too cautious in applying the State Aid rules. Excessive bureaucratic caution and risk aversion means sight of public benefit purpose is lost. “State Aid might apply, we can’t act” is a safe position, but leads to failure to fund social projects of significant public benefit value with no real potential impact on the European free market. Very rarely is economic analysis utilised by central government or local authority administrators, despite competition law (of which the state aid rules are part) being essentially an economic discipline. Instead assumptions are made by administrative officials remote from the realities of service delivery. Far too often the only exception to the prohibition on State Aids is said to be funding at below the general de minimis limit of €200k over a three year period, without any attempt to utilise the higher €500k which can apply for social projects. Worse, far too often no consideration is given to whether the State Aid rules are actually engaged and instead public sector grants are wrongly assumed automatically to “be State Aid”. This is especially relevant to social projects which will typically not be operating in a competitive market, or in a market that is not fully functional by reference to public benefit requirements, or in a market which is (actually or potentially) operative across European boundaries. The issue is not the legal status of an organisation, but whether it is operating in a European competitive market which could be anti-competitively distorted by State subsidy. Most markets are, in principle, deemed to be potentially open to non- UK entrants, even when that is really only true in theory. This is a particularly live issue under the EU’s digital agenda. The issue is whether it is essential, for the single market to work, that detailed rules be laid down to apply EU wide as to the terms on which products are sold digitally – both physical products which are sold on line, and non-physical products, such as the copyrighted content, which are released on line. The EU Commission’s proposal to have a Common European Sales Law (CESL) for consumers throws the issue into sharp relief. The proposal is (or was) for a complete ‘standalone’ European contract law system. Do we need to have a uniform EU system for this? Is not mutual recognition of the seller’s terms and complaints procedures, subject to minimum EU wide standards, enough? In the Law Society’s balance of competences response on competition and consumer policy, the Society in general supports the policy that there should be minimum harmonisation in the area of consumer protection. In other words it is for the national governments to determine the appropriate level of consumer protection on the basis that each member state’s customers should be able to rely on the protection which is granted by the laws of the seller’s state - “full faith and credit” being given to another member state’s system of consumer protection. A related question needs to be asked whether the so called Brussels and Rome Regulations, which in effect say that a consumer can always go to his or her national court to enforce his or her national consumer rights are in fact protectionist in economic effect because they mean that some sellers simply do not sell into other European countries for fear of some unexpected draconian claim from an upset customer. The free movement of both goods and services, including copyrighted works, is inextricably bound up with the IP rights attaching to them. This is not the place to explore the impact of EU withdrawal, but my sense is that broadly in the event of withdrawal the UK would continue to apply the web of IP protections which have developed EU wide over the last fifty years, and longer, for patents, copyrights, database rights, trade marks and so on. After several pages explaining the EU and wider system of IP protection, the Law Society’s Report says, laconically: “It is unlikely that re-negotiations would have any bearing on intellectual property law”. If that is right, withdrawal would not impede UK manufacturers from selling their patented products into the EU. I simply add here that data protection, it seems to me, is something which has to be regulated EU wide – and negotiated by the EU with third countries such as the United States. Do the EU rules unduly constrain national policies aiming at a social and economic purpose or furthering social enterprise? Are local authorities in this area too restricted? There are other areas where the scope of EU competence may need looking at again. I see that next week Fisheries and Agriculture is your BREXIT topic. We forget now that under the Wilson Government, when we had our last referendum on EU membership, a main theme in the debate was whether we should lose access to cheap New Zealand lamb, butter and cheese. Food Processing Standards may need to be set to a European level so that food products can flow freely within the EU. However, does fisheries policy (quotas on catches) need to be coordinated EU wide, rather than on a regional basis? Have you spoken to Yorkshire cattle farmers, angered at the closure of small abattoirs which means it is now more difficult to sell small lots of cattle, while now have to be driven a great distance to a large abattoir? Large mergers are cleared at EU level. However do member states have sufficient control over mergers which may have a significant impact on their economy? For example, the recent offer by Pfizer for AstraZeneca threw into relief whether the UK needed to be able to protect itself from mergers which seriously risk allowing advanced research in the pharmaceutical sector to move abroad. Subsidiarity at the moment is a political concept, which gives member states the right to challenge EU proposals. The concept has no real legal teeth. The public might be reassured if there was a clearer statement of the principles of subsidiarity and as to the hurdles which EU institutions have to cross before they can propose or