Single Market Without Customs Union
If the UK remains part of the single market, but not the customs union. it would retain the freedom to make trade agreements in relation to goods worldwide. Accordingly, it could have an independent trade policy in this regard.
In this case, the UK, could in principle, retain full membership of the EU market in services including for financial services. UK citizens and UK domiciled companies could retain the very powerful EU Treaty rights and the EU legislation rights to challenge and invalidate rules and practices in other EU (and EEA states) which constitute barriers to trade.
Under this model, the UK would retain full freedom is to provide services sell goods, invest, and establish businesses throughout the European Union/EEA area. However full freedom of movement of person would also apply, which is contrary to one of the principal perceived reasons for Brexit.
Ready Models Available
Strictly speaking, the EEA countries are all EU states together with tree EFTA states Norway Leytonstone and Iceland. References below to the EEA states refer to those three non-EU EEA states.
In principle and if acceptable to its members, the UK might join EFTA and accede to the EEA agreement. No substantial negotiation of the relationship with the EU would be required. There exists a ready-made very well-established template namely membership of the European Economic Area. At present, three of the four EFTA countries, Norway, Iceland and Leichenstein are members of the EEA.
It is not clear whether these other countries would wish to have the UK as a member as they are significantly smaller in scale and UK would predominate. Norway and Iceland wish to have a relationship which preserves their independence in respect of their agricultural and fisheries while effectively being members of the European Union for most other purposes. The Norwegian electorate twice rejected membership of the European Communities and later the European Union.
EFTA also includes Switzerland. Switzerland’s rejected membership of the EEA so has a unique stand-alone relationship with the European Union reflected in over 100 ad hoc separate agreements, similar in many respects to that of the EEA, involving membership of significant parts of the single market, but no customs union.
The position would approximate that which applies at present in respect of Gibraltar. In contrast to the position with the Isle of Man and the Channel Islands, Gibraltar is part of the EU single market but not part of the EU customs territory. Accordingly, Gibraltar residents and businesses are entitled to provide financial services as part of the European Economic Area.
Notwithstanding that they are not only members of the EEA but also members of the Schengen area, the EEA countries are not a party to a customs union with the EU. The arrangement appeals to Norway Iceland and Liechtenstein from their particular perspectives in maintaining independent fisheries and agricultural policy.
Despite its superficial attraction, there would be significant disadvantages in this arrangement. Even though goods standards would be harmonised, the absence of a customs union would mean that customs declarations are required at the frontier on the movement of goods in an out of the EFTA EEA countries to the EU. Accordingly, significant frictions in trade would still arise.
There is an EEA (EFTA 3 + EU) Joint Committee which provides for some input for EEA states into the making of EU legislation. It provides for a preliminary exchange of views in considering draft legislation. Some take the view that this may be more powerful in some cases than the position of member states within the EU legislative framework in which there is weighted voting in most cases.
Although EEA countries are consulted at early stages of legislative proposals they have very little input into the making of laws within the single market. Accordingly, a huge swathe of the laws is effectively prescribed by the European Union. The EFTA EEA members are obliged to translate these rules into their domestic law in order to maintain single market access. It was said to be lawmaking ‘by fax’.
An EEA state may make a reservation in respect of specific EU legislation. Where this occurs the parties are obliged to work in good faith towards an agreement. Where the matter cannot be resolved, it may lead to the EEA State being excluded in respect of that sector.
There is an EFTA court which issues non-binding decisions. National courts refer cases to it and may decide the case based on the EFTA court’s judgement. The EFTA Court is based in Luxembourg. It adheres closely to the opinions and rulings of the Court of Justice of the European Union. Although, in theory, the EEA member state is not obliged to implement the ruling, in practice, if it does not do so it will be excluded from that area of EU EEA cooperation.