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Hard Brexit? Soft Brexit? The single market, and why ‘article 127’ may be the new ‘article 50’…

Strong supporters of the ‘Leave’ campaign talk about a ‘hard brexit’.

Those supporters of the ‘Remain’ campaign who have accepted the referendum result talk about a ‘soft brexit’.

The difference, fundamentally, comes down to one thing – in both scenarios, the UK leaves the European Union but only in a ‘hard’ exit does the UK also leave the single market.

The ‘single market’ is a trading group of European countries, covering the EU members, Iceland, Liechtenstein, Norway (known as the ‘European Economic Area’) and Switzerland, which have four ‘freedoms’ at its centre:

 - the free movement of goods

 - the free movement of capital

 - the freedom to provide services

 - the free movement of people

The first of these freedoms was highlighted in a famous court case - French blackcurrant liqueur had an alcohol content of 15% to 20%, whereas German law required all liqueurs to have an alcohol content of 25% or more. As a result, the French liqueur couldn’t be sold in Germany. The EU court said that the German law prevented the free movement of goods (ie. the French liqueur), and hence was illegal.

So, is a ‘soft brexit’ even possible? Can the UK withdraw from the EU but remain part of the EU’s single market?

The media has been full of reports of ‘Article 50’, the provision that entitles the UK to give two years’ notice to leave the European Union. There are legal battles going on to determine how the UK can give notice but it is widely-accepted that once notice has been given, the UK will leave the EU two years later.

The media has been rather quieter on ‘Article 127’, the provision that entitles the UK to give one year’s notice to leave the European Economic Area.

The question now being considered is whether giving notice under Article 50 will cause the UK to leave the European Economic Area, or whether the UK also has to give notice under Article 127. The Government are certain of their position – that leaving the EU under Article 50 will automatically cause the UK to leave the European Economic Area, and hence the single market. However, there is a growing body of legal opinion that believes the Government is wrong, and that the UK could find itself outside the EU, but still within the European Economic Area if it doesn’t separately give notice under Article 127 … and therefore the UK could still be part of the single market after Brexit.

It is likely that Article 127 will also be the subject of a court case in the near future.

The Government has already indicated that it wants to curb immigration, and therefore appears unwilling to accept the free movement of people … and because these ‘freedoms’ do not come as a pick-and-mix, it is likely that the Government will not be able to secure the free movement of goods and services (which it does appear to be in favour of). It’s all or nothing.

Except … the Conservative Party’s vice chairman’s chief of staff was recently photographed carrying a memo that suggested the Government were looking to “have cake and eat it”. We wonder whether this is what the Government is really considering – leaving the EU under Article 50 but keeping the UK in the single market by not giving notice under Article 127, and trying to negotiate a ground-breaking relaxation of one of the four ‘freedoms’. We can’t see that the EU will be very receptive to this but maybe, just maybe, there is a third option – a ‘firm brexit’ that is neither soft nor hard, where the UK is part of a single market that has been shaped just for it.

Stranger things have happened…

 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.