The Why Behind BREXIT

August 1, 2016

Recently arriving from a vacation in the United Kingdom (UK), I had the chance to meet and talk with a plethora of folks, from all walks of life, and the common themes that surfaced for the success of the BREXIT vote seemed to lie in three areas. First, security; second, controlled borders; and third, regain sovereignty. However, in order to understand the why behind BREXIT, one must comprehend the history of the creation of European Union (EU) and its evolution.

The basic premise for the establishment of the single market in Europe was and has been to establish free trade among EU Member States (MS) in order to culminate the efforts into a single economy. In 1957 the Treaty of Rome, or the Treaty Establishing the European Economic Community (TEEEC), established the dismantling of all tariff barriers over a 12-year transitional period. In view of the economic success that freer commercial exchanges brought about, the transitory term was shortened and in July 1968 all tariffs among the European Economic Community states were abrogated, while a common tariff was established for all products coming from third countries [1] . This Treaty set out to foment four economic freedoms that it wanted to create in Europe: free movement of goods, free movement to provide services, free movement of capital and free movement of people [2ii], with1968, under the auspice of the European Custom Union, moving forward the free movement of goods.

In 1986 the Single European Act (SEA) became the first major re-write of the 1957 Treaty of Rome as a result of the lack of actual free trade, for which the MSs strived. Thus consensus was attained to establish a no later than date in finalizing the single market, which was agreed upon to be 1992 [3iii].

Progressing forward, in 1997 the Amsterdam Treaty, or the Treaty of Amsterdam amending the Treaty of the European Union, came into effect thus promulgating a focus on citizenship and the rights of individuals, and the increasing of powers for the European Parliament [iv4]. It can be appreciated that both these highlights have clearly had weight and leverage in dictating the legal rights of people to establish and work, and create directives to support a more common and barrier-less EU.

In 2007, the Treaty of Lisbon established the Treaty on the Functioning of the European Union (TFEU), by renaming the Treaty of Rome. The purpose of establishing the TFEU, resides in parts II and III of the TFEU, which focuses on “discrimination on the basis of nationality” [5v] and the free movement of goods and free movement of people, services and capital [6vi].

Thus the rational for establishing the single market, while a coherent mechanism, marked by legislative and judicial evolution in an attempt to ensure harmonization and a nested effort to promote the four economic freedoms, has come with much study, assessment, and growing pains, while attempting to provide a degree of certainty. In essence, all afore mentioned treaties and conventions colluded in order to culminate in a common unifying effort for the MSs, with the end state of enhancing a sense of economic market commonality through varying cultures, under a shared concept of European law, with decisions being centered in Brussels and MS sovereignty eroded.

The TFEU provides for three key economic freedoms which are free movement of people, free movement to provide services, freedom to establish. Article (ART) 45 of the Treaty of the TFEU, clearly delineates the spectrum of applicability of the free movement of workers between MS, from what was initially postured for only “economically active persons” [7vii]. ART 46 of the TFEU builds on ART 45, but provides for the elimination of barriers to the free movement of workers. In addition, the European Court of Justice (ECJ) interprets and utilizes as its guide Directive 2004/38, which establishes the European Union (EU) Parliamentary guidelines on the free movement of workers, in order to afford coherent rulings. The freedom of establishment, as dictated by ART 49-54 of the TFEU, is critical in defining self-employed persons, companies and firm terms of business activities and their freedoms among MS citizens of the EU [8viii]. ART 56 of the Treaty on the TFEU governs the free movement of services in addition to Directive 2005/36, which ensures that qualified professionals can practice their professions easier within the EU, outside of their national MS, limiting the bureaucracy associated with this freedom, while also implementing safeguards for public health and safety, consumer protection and the maintenance of professional standards [9ix]. Supplementing this directive, Directive 2006/124 was enacted to amend Directive 99/33 in December 2006. The directive provides a single definition of what constitutes an economic resource, defined as a service which has been provided for remuneration, which is not meant to be inferred in a restrictive manner [10x], thus ensuring previously three freedoms are intertwined in order to ensure a progressive nature.

Article (ART) 36 of the Treaty of the Functioning on the European Union, dictates that the provisions of ART 28 and 30 shall not disallow prohibitions or limitations on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such bans or limitations shall not, however, constitute a means of arbitrary discrimination or a veiled restriction on trade between member states [11xi]. These derogations are the only possible grounds for bans or limitations on the free movement of economic freedoms by the member states. In addition, the European Court of Justice (ECJ) has applied a strict interpretation of ART 36 placing the weight of the argument on the member state while also applying a test of proportionality [12xii].

Within the realm of ART 45 TFEU, Walgrave and Koch v Association Union Cycliste Internationale, the ECJ ruled that: “having regard to the objectives of the Community, the practice of sport is subject to Community law only in so far as it constitutes an economic activity within the meaning of Article 2 of the Treaty. When such activity has the character of gainful employment or remunerated service it comes more particularly within the scope, according to the case, of Articles 48 to 51 or 59 to 66 of the Treaty” [13xiii], which made clear the intentions of the Court to delineate the scope of movement of workers within the EU. In highlighting the non-vertical nature of ART 45, ECJ in Union Royale Belge des Sociétés de Football Association ASBL v Jean-Marc Bosman stated that ART 48(2) provides for the abolition of any discrimination based on nationality among workers of MS’s, focusing critically on employment, compensation, and working conditions [14xiv]. These two cases, coupled by Directive 2004/38, facilitates Union citizens and their family’s ability to move freely, with minimal formalities, in order to ensure the feasibility to work and provide services.

The proper application of scope of ART 49-54, can be exemplified in M. Reyners v Belgian State the ground was set for the ECJ to rule that “...the exceptions allowed by the first paragraph ... cannot be given a scope which would exceed the objective for which this exemption clause was inserted” [15xv] The bottom line is that it specifies and validates that natural persons (citizens of the EU) and companies owned by citizens of the community, can pursue economic activities in any member state unremittingly and steady way [16xvi] irrespective of MS nationality or the mechanism pursued for purpose of incorporation [17xvii]. The Court was clear as it defined the freedom of establishment, thus addressing companies and the venue of incorporation of such. In addition to this case and as an enhancer, in Reinhard Gebhard v. Consiglio dell’Ordine degli Avvocati e Procuratori di Milano, the ECJ ruled that citizens of the EU establishing themselves in another MS must comply with the MS’s conditions to pursue the specific activity, as long as those conditions do not impede the freedom of establishment [18xviii], making it clear that the conditions expressed “...must be applied in a non-discriminatory manner; they must be justified by imperative requirements in the general interest; they must be suitable for securing the attainment of the objective which they pursue; and they must not go beyond what is necessary in order to attain it” [19xix], ensuring a scope of limits on its applicability, and eventually burden if brought before the ECJ. Hence, the ECJ has been clear in defining and delineating the scope and applicability of ART 49, with particular emphasis mitigating prohibitive means and treatment with respect to the freedom of establishment, even taking a step further in SzegediÍtél tábla v Cartesio Oktató és Szolgáltató, where the Court understood to resolve that applicable law may be changed by emigrating companies as it pertains to national law where incorporated [20xx].

As ART 56 is concerned, in the case Van Binsbergen v Bedrijfsvereniging Metaalnijverheid, it revolved around ART 56’s enunciation that “restrictions on freedom to provide services [..] shall be prohibited in respect of nationals of Member States who are established in a State of the Community other than that of the person for whom the services are intended” [21xxi]. Thus the ECJ ruled that professional requirements are compatible with EU law, provided they are equally applicable to host state nationals, objectively justified in the public interest, and proportionate [22xxii]. Hence, the ECJ found the Dutch law necessitating representatives before tribunals to be resident in the Netherlands, as being indirectly discriminative. In addition, Manfred Säger vs. Dennemeyer & Co. Ltd, a German legislation was held “liable to prohibit or otherwise impede” [23xxiii] the service activities of the UK company. Thus the ECJ asserted that ART 56 not only serves to eliminate discrimination, but also those restrictions which are “liable to prohibit or otherwise impede” [24xxiv]. Therefore restrictions are acceptable only where justified by imperative reasons in the public interest, equally applicable to national and non-national providers insofar as the interest is not protected by rules applying in the state of origin, and must be proportionate.

Having addressed pertinent case law and jurisprudence addressing the scope and applicability of ART’s of the TFEU as it applies to the three key economic freedoms, with this the ECJ defined derogations and their applicability. As discussed in para 7, the derogations have limits. In the case of morality, in Conegate Ltd v Commissioners of Customs and Excise, the ECJ placed on the United Kingdom the burden to prove that the national measure evoked did have the effect of protecting public morality within the scope of ART 30. With this said, similar ‘adult’ products were already being sold within the United Kingdom, thus the restriction on importation from Germany of this particular ‘adult’ item could not be justified under Art. 30, by attempting to apply national sovereign laws governing morality [25xxv]. As a derogation of public policy, in which the ECJ has been intolerant towards this matter, in Cullet v Centre Leclerc, the ECJ needed to assess whether this scheme mired trans-border trading. Interesting enough the French government made the argument that this scheme provided economic certainty to the producers, and to remove it could lead to possible violence and riots [26xxvi], consequently the public policy argument revolved around ensuring law and order. The ECJ reviewed the merits of the case, but ruled that the French authorities were capable enough to provide and ensure public order. In Campus Oil Ltd v Minister for Industry and Energy, the ECJ addressed the case as a security matter, allowing the Irish government to enforce the national law (that of obligatory constraint on importers of oil), despite its restrictive effects, due primarily to what can be construed as a technicality; that is the Community lacked regulatory governance on the matter energy supplies. In these three cases we witness the ECJ’s I would dare to share and echo Peter Oliver that “the strict and rigid interpretation of Article 30 the Courts were forced to develop the dual justification of mandatory requirements available to indistinctly applicable rules” [27xxvii].

The afore analysis has provided a clear insight to the freedoms as pertains to their scope, with applicable derogations, while providing an overview of these economic freedoms pointedly illustrating, through judgments, the differences between scope and the nature of the economic freedom.

As it pertains to ‘residual sovereign rights’, having illustrated scope, nature and jurisprudence, in Van Gend en Loos v Nederlandse Administratie der Belastingen, the Netherlands Inland Revenue Administration, through its border customs entity, charged Van Gend en Loos tariffs on the import. Van Gend en Loos argued that the imposed tariff violated European Community Law (ECL), specifically addressed in ART 12 of the Treaty of Rome. It stated “Member States shall refrain from introducing between themselves any new customs duties on imports and exports or any charges having equivalent effect, and from increasing those which they already apply in their trade with each other” [28xxviii]. The Netherlands Inland Revenue Administration countered that with the reclassification of the pharmaceutical in question, it was adopted into a higher duty bracket within Dutch legal observance and thus charged accordingly. The argument was also made that ART 12 did not apply to the sovereign legal matters of the state. In this instance the MS sovereignty as applied to imposed tariffs within the confines of Dutch law. The ECJ ruled against the Member State and the tariff itself. In Amministrazione Delle Finanze v Simmenthal SpA, once again we notice MS sovereignty v EU supremacy. Here we have an importer being levied a fee for inspection of meat imports from France to Italy by the Italian State. The Italian court found in favor of Simmenthal SpA, adjudicating that the Italian Finance Ministry must repay Simmenthal SpA the taxed monies and in addition imposed an interest on monies owed. The Ministry elevated the case arguing that no Italian court can ignore and/or refuse to enforce the statutes which govern Italian law, in favor of Union law. It further argued that the two applicable statutes came into Italian Law after the Union passed applicable laws. The ECJ reviewed and ruled that it did act against the free movement of goods in accordance with TFEU 34. It further opined that “a national court which is called upon, within the limits of its jurisdiction, to apply provisions of Community law is under a duty to give full effect of those provisions, if necessary refusing its own motion to apply any conflicting provision of national legislation” [29xxix]. In essence any sovereign court’s decision which runs against that of the Union, is automatically inapplicable. Finally in Internationale Handelsgesellschaft mbH v Einfuhr- und Vorratsstelle für Getreide und Futtermittel, the applicants procured a licence to export maize from Germany, conditional under an EC regulation on providing a deposit as a guarantee that the service would be executed before the licence matured. The service was not completed on time and thus the German authorities ordered the forfeiture of a large part of the deposit. The applicants argued that the forfeiture was not applicable on the basis that it breached certain principles of German law in the Frankfurt administrative court, to include those of human rights. The ECJ reviewed the argument as it applied to ART 234. The ECJ ruled that “the law stemming from the overridden by rules of national law....[T]he validity of a Community measure or its effect within a Member State cannot be affected by allegations that it runs counter to either fundamental rights [in]...the constitution of the State or the principles of a national constitutional structure [30xxx]. Hence the ECJ held that the validity of a measure of Union law cannot be affected by allegations that it counters Member States fundamental rights or constitutional principles.

These three cases illustrate that the ECJ exercised and reminded MS of the court’s supremacy, resolving the question of MS rights v EU supremacy, while engaging as also evident in Roman Angonese v. Cassa di Risparmio di Bolzano SpA, an Italian national who was denied employment for failing to obtain a certificate of bilingualism, since his maternal tongue was German, even though he was fluent in Italian. The ECJ ruled that the employer’s actions were indirectly discriminatory, even though it was applicable across the board in Italy. On justification and proportion the ECJ understood that the certificate might be a respectable criteria, but the lack of flexibility to solely obtain the certificate in Bolzano is disproportionate [31xxxi].

Finally, as afore mentioned case law provides the necessary and fundamental legal ruling to safeguard the economic freedoms and end state of the EU, as long as MS’s continue to allow erosion of sovereignty, which is a cohesive and solid single market, free of barriers. But this is a balancing act which can be elucidated in Procureur du Roi v. Dassonville, whereby the ECJ illustrated in its ruling “all trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade are to be considered as measures having an effect equivalent to quantitative restrictions” [32xxxii] had resolved the conundrum of ‘measures having equivalent effect’. Unfortunately or fortunately for the legal functioning of the EU, the contrary transpired as case-law-based and treaty-based justifications increased in demand. Gromley very eloquently states that “it became apparent that lawyers were seeking to stretch the ambit of ‘measures having equivalent effect’ into areas where the integrationist merit was thin, to say the least, or wholly non-existent” [33xxxiii]. In addition, these afore mentioned cases, joined by the legislative culmination of the EC in the form of Directives, has clearly generated an atmosphere of progressiveness towards ensuring the free movement of economic freedoms is attainable, by predictably eroding barriers and restrictive measures, by which MS allow to have their sovereignty to be eroded, for the common good of the community, which is currently showing cracks. In the present state of affairs, and possibly as a means to enhance the cohesion of the EU, there are gaps between the MS’s, and a continual effort must executed to remove these gaps between the MS, rather than center on instruments for control. The current European economic and financial situation with the open market, may have a negative effect on the weaker economies that suffer in the augmented competitiveness of more open markets. As Dehousse states, “market integration has to be accompanied by improvements in social and economic cohesion, if it was to be politically acceptable” [34xxxiv]. As a result of this current fiscal situation, MS’s will continue to exploit derogation means and methodologies to attempt to enforce or capitalize on sovereign interests, while exploiting the Monti Report of 2010, which highlighted a lull in establishing effective rules; an enhanced attempt at protectionism by MS’s; and a lack of interest in re-generating a need to ensure an even re-emergence of the single market [35xxxv].

The UK weighed the four founding reasons for the creation of the EU, and found that in 2016, these were incompatible with the over-reach posed by the EU. The UK saw its courts and laws being regulated by a European Court of Justice, it’s Bank of England succumbing in part to the EU Central Bank, and its ability to legislate being over-ruled by the European Parliament. These directly affect the UK’s ability to govern itself independently of the other 27 MS’s, while being one of four EU MS’s (the others being France, Germany and Italy) who actually pay into the EU. Recent migratory patterns by ‘refugees’ from Syria into the EU, ISIS ability to covertly enter EU through these lines of communication, the EU’s inability to counter or prevent terrorist attacks, Libya’s enhanced posture as an ISIS ‘training camp’ and line of communication into Malta and southern EU, has generated massive security concerns among the UK. This coupled with open barriers which facilitates freedom of movement among MS’s has generated enormous effects on the economy and finances of the UK. Add to this over USD$20BB taxpayer money going to the ‘common good’ of the EU, limiting further local investment; hence BREXIT was just a matter of time. As a result of BREXIT, France (with Le Pen leading the charge), the Netherlands (pushed by Wilders), Austria (led by Hofer), and Sweden (Åkesson leading the way) are all seeking referendums to leave the EU, along the same lines as BREXIT. What started out as a common market, has evolved into an attempt to harmonize a series of MS’s under one umbrella, which never took into account variables such as enhanced terrorism, evolving markets and economies, paradigms in legalities as globalization took charge, and a shifts in human displacement. Currently across Europe, and by this I mean the populace, security and border control is a major recurring theme, which just may push France, the Netherlands, Austria and Sweden out of the EU. The jurisprudence afforded above only serves to illustrate the means by which the EU has attempted to glue the EU. The UK took the first step, who is next?

[1] Craig, P.; de Burca, G., EU Law: Text, Cases and Materials, 3rd ed., Oxford University Press, New York, 2003, p6

[2] “Treaty of Rome”, (1957), ART 3, at page p4

[3] Swann, D., The Single European Market and Beyond: A Study of the Wider Implications of the Single European Act, Routledge Press, New York, 1992, at page p33

[4] “The Treaty of Amsterdam Amending the Treaty on European Union, the Treaties Establishing the European Communities and Certain Related Acts”, (1997), ART 73i, at page 26

[5] “Consolidated Version of the Treaty on the Functioning of the European Union”, Official Journal of the European Union, (2007), ART 18, at page 56

[6] “Consolidated Version of the Treaty on the Functioning of the European Union”, Official Journal of the European Union, (2007), ART 28-62, at page 59-71

[7] Fairhurst, J., Law of the European Union, 6th ed., Pearson Longman, London, 2007, at page 412

[8] “Consolidated Version of the Treaty on the Functioning of the European Union”, Official Journal of the European Union, (2007), ART 49-54 at pages 67-69

[9] “Directive 2005/36”, Official Journal of the European Union, (2005), p22, Recital 3-7

[10] [2000] ECR I 2549, p52

[11] Barnard, C. The Substantive Law of the EU: The Four Freedoms. 3rd ed., Oxford University Press, New York, 2010, at page 178

[12] Craig, P. and De Burca, G., EU Law: Text, Cases, and Materials. 5th Ed. Oxford University Press, Oxford, 2011, at page 668

[13] [1974] ECR 1405, p4-5

[14] [1995] ECR I-4921, p2

[15] [1974] ECR 631, p43

[16] Ibid, p21

[17] “Consolidated Version of the Treaty on the Functioning of the European Union”, Official Journal of the European Union, (2007), ART 49, at page 67

[18] [1996] E.C.R. 1-4165, p39 under Judgement

[19] Ibid

[20] [2008] ECR I00735, p4 under Hereby Rules [21] ] “Consolidated Version of the Treaty on the Functioning of the European Union”, Official Journal of the European Union, (1957), ART 56, at page 70

[22] [1974] ECR 1299, p13

[23] [1991] E.C.R. 1‐4221, p12

[24] [1994] E.C.R. I‐1039, p43

[25] [1986] ECR 1007

[26] [1985] ECR 305

[27] Oliver P., “Some further reflections on the scope of articles 28-30(ex 30-36) EC”, CMLR (1999) 783 at page 796

[28] “Treaty of Rome”, (1957), ART 12, at page p8

[29] [1978] ECR 629, p26 under Decision

[30] [1970] ECR 1125, p3 under The protection of fundamental rights in the Community legal system

[31] [2000] ECR I-4139, pages 38-43

[32] [1974] E.C.R. 837

[33] Gormley, L., “Free Movement of Goods and Their Use –What Is the Use of It?”, FILJ (2011) 33(6) 1587 at page 1592

[34] Dehousse, R., Completing the Internal Market: Institutional Constrains and Challenges. In 1992: One European Market?, Nomos Publishers, Baden, 1998, at page 81

[35] Craig, P. and De Burca, G., EU Law: Text, Cases, and Materials. 5th Ed. Oxford University Press, Oxford, 2011, at pages 605-07
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