Just when the UK Government thought it was coming out of an area of turbulence with all things EU related, the Europeans strike back.
Things were going splendidly: the European Union (Withdrawal Agreement) Bill had passed through the Commons with a “stonking” majority. Only the House of Lords to go and Brexit will be achieved by 31 January 2020.
Then the consequences of the Flybe affair hit the fan. Flybe is a British, regional airline and is in financial difficulty (again). The UK Government backed an emergency rescue plan which involved a tax break for the airline i.e. a temporary exemption from Air Passenger Duty.
Good old fashioned state interventionism? Yes, but legally problematic in today’s world of competitive markets. Lest we forget, the UK remains an EU member state until 31 January and, even then, the Johnson Government has committed itself to follow the organisation’s rules until December 2020.
Arguably, by backing Flybe’s rescue plan, the UK Government has given the company a form of State Aid (or subsidy). In terms of Article 107 of the Treaty on the Functioning of the European Union (TFEU) this is potentially unlawful. Such support is also a potential breach of Articles 101 and 102 of the Treaty (the competition provisions). The UK Government, of course, disputes these interpretations of its actions.
It’s not just other British airlines that will object to this support (British Airways has already done so), Michael O’Leary, CEO of Ireland’s Ryanair has entered the fray by declaring that he will launch a legal challenge. In essence, what the UK Government is doing is a distortion of the Single European Market; the intervention has more than just national ramifications.
Even the World Trade Organisation (of which the UK is a member) forbids the provision of State Aid in terms of its Agreement on Subsidies and Countervailing Measures.
There is a wider (and harder) lesson for the UK Government to learn: if it wants this country to have some sort of continued access to EU markets, it will have to play by EU rules. The UK, despite Prime Minister Johnson’s ongoing bluster, is the weaker party in the negotiations which will lead to a trade deal with the EU. It is very unlikely that the EU will allow the UK to gain a competitive advantage by ignoring the rules of the Single Market. Norway, which is not an EU member but which enjoys some access to European markets, could probably give the UK Prime Minister some sound advice on this matter:
Ironically, taking back control (one of the Brexit campaign’s mantras) has never seemed so hollow. On 31 January 2020, be in no doubt, the UK will lose its status as a rule maker and become a rule taker.
Expect the European Commission to investigate the intervention by the UK Government and enforcement action for breach of EU rules in terms of Article 267 TFEU to follow. Welcome to Global Britain!
Here, in the United Kingdom, the Brexit saga seems to be drawing to the end of stage 1 i.e. ratification of the withdrawal agreement that the EU and British Government of Boris Johnson have negotiated. The European Union (Withdrawal Agreement) Bill is likely to pass through the House of Lords this week or early next week.
Meanwhile in the rest of the EU, business seems to be going on fairly normally and, it was with some relief this week that I read about a forthcoming decision of the Court of Justice concerning the operation of the Single European Market – and not about Brexit.
The Republic of Hungary, a fellow EU member state – for the present time anyway, may be on course to lose this case which, at its heart, addresses the free movement of capital. Essentially, Hungarian law may well be incompatible with the operation of the Single European Market and, as well we know, EU Law enjoys primacy over domestic law:
Case 26/62 Van Gend en Loos v Nederlandse Administratie der Belastingen  ECR 1
Case 6/64 Costa v ENEL  ECR 585, 593
HP Bulmer Ltd & Anor v J. Bollinger SA & Ors  EWCA Civ 14
Case 148/78 Pubblico Ministero v Ratti (1979) ECR 1629
Defrenne v Sabena  ECR 455,  ICR 547,  1 All ER 122
C-106/77 Simmenthal  ECR 629
C-106/89 Marleasing  ECR I-7321
In 2017, Hungary passed a law which compelled non governmental organisations (NGOs) to declare their sources of funding to the Government (this information would then be available via a publicly accessible website). If a group received funding from a foreign individual or organisation above the value of 500,000 Hungarian Forints (or €1500 euros), this had to be made public. Furthermore, groups finding themselves in receipt of such funding had to declare themselves as ‘organisations in receipt of support from abroad’ on their websites and in their official communications.
The measure became popularly known in Hungary as the ‘Stop Soros’ Law – a reference to the antipathy of the Government of Hungary towards George Soros, the Hungarian-American billionaire. Soros is an energetic supporter of liberal social values which are often at complete odds with the right wing and ultra conservative views of the Hungarian Government.
A link to a story about the background to the Law can be found on the Reuters’ website below:
Advocate General Campos Sánchez-Bordona has just issued an Opinion about the legality of Hungarian law in this respect. The controversial Hungarian Prime Minister, Viktor Orbán, has long been hostile to groups in civil society who are opposed to his Government’s aims and objectives and which receive funding from abroad.
According to the Advocate General, Hungarian law potentially breaches the free movement provisions of the Single European Market in relation to capital – as well as data protection, freedom of association and privacy rules contained in the European Charter of Fundamental Rights (see Case C-78/18 European Commission v Hungary).
A link to the Advocate General’s Opinion can be found below:
This Opinion is not the end of the matter because it is always worth remembering that the Court of Justice may not approve it when it makes its decision on the matter. As the Advocate General currently sees things, Hungarian law disproprotionately discriminates against those individuals and organisations who are not Hungarian. It is a barrier to the legitimate, free flow of capital across the borders of EU member states.
The Single Market (or Project 1992) came into existence on 1 January 1993. The Project saw the 12 member states of what was then the European Communities (the Coal and Steel Community, Euratom and the EEC collectively) implement ambitious plans to ensure frictionless trade. It was said that British businesses would find it as easy to sell goods or to provide services in Madrid as they presently were able to do so in Manchester.
The Single Market was based on 4 fundamental principles:
Free movement of persons
Free movement of goods
Free movement of services
Free movement of capital
Over the years, a huge amount of case law has built up around free movement of persons, goods and services, but it is rarer to see a decision of the Court of Justice regarding free movement of capital or money. Yet, free movement of capital is an essential corollary to the smooth operation of the Single Market.
How, for example, would consumers of goods and services in one member state pay for these if legitimate or honest money cannot flow back and forth across borders? Please note that I am not advocating the removal of all barriers to free movement – I am all too aware of the necessity to combat the money laundering activities of organised crime. Anyone who has read Misha Glenny’s excellent and terrifying book, McMafia: Seriously Organised Crime (2017: Vintage), will appreciate the real challenges that free movement of capital represents for law enforcement agencies across the EU.
Put simply, the 3 more prominent freedoms of the Single Market would grind to a halt if money was subject to all sorts of unrealistic barriers e.g. member states being able to impose very restrictive limits on the amount of money citizens could move in and out of the country. With the globalisation of financial services, many of us will either have forgotten these types of restrictions – or never experienced them.
When speaking to younger people, it often strikes me that many of them, who do travel regularly to Europe, have any real concept about things like tariff barriers, currency restrictions or passport controls. Brexit (and all its ramifications) may well be something of a wake -up call.
Admittedly, the original founding Treaty of the European Economic Community or the EEC (the Treaty of Rome) did envisage free movement of capital.
One of the first cases that I remember from my studies in EEC Law was Case 286/82 Luisi and Carbone v Ministero del Tesoro  ECR -00377. At that time, Italy operated currency restrictions which meant that its citizens were limited to the amount of money that they could take out of the country. Luisi and Carbone were both fined by the authorities for taking more money out of the country than they were permitted under current domestic law. They argued that Italian law was in breach of the Treaty of Rome because it prevented them from going to another member state in order to receive services (and to pay for these). The Court of Justice was of the view that the restrictions imposed by Italy were unduly excessive.
In the 21st Century, we often forget that restrictions on movements of people, goods, services and capital were very common place. It is the direct influence of the European Single Market that consigned many of these barriers to trade to the status of historical curiosities.