Agreement on The European Economic Area: A Commentary 9781509922413, 9781509922420

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Preface When the Agreement on the European Economic Area was signed 25 years ago, it was accompanied by a lively academic debate. Importantly, contributions were not only written in the national languages of the EFTA States. Rather, a cross-border debate about EEA law was emerging in the English language. The comprehensive commentary published by Sven Norberg et al. in 1993 still stands out today as a token of those promising early years of EEA law literature. However, the Swiss electorate’s rejection of the Agreement and the decisions of Austria, Finland and Sweden to join the EU caused this broader academic interest in the EEA to fade rather quickly. Of course, academics from the three remaining EFTA States in the EEA – Iceland, Liechtenstein and Norway – continued to take an interest in the EEA Agreement and their home states’ rather peculiar affiliation to the EU, but most of the contributions were written in the national languages and addressed to a domestic audience. Both in Iceland and Norway, matters of EU and EEA law are increasingly integrated into the general academic debate about the different fields of national law where the EEA Agreement is of relevance (i.e. almost all). In addition, ‘EEA specific’ questions are discussed in textbooks and articles devoted to EEA law as such. Notwithstanding the fact that the number of English language contributions from Icelandic and Norwegian commentators have increased in recent years, most contributions are still written in Icelandic and Norwegian and thus largely inaccessible to an international audience. For a long time, there were essentially only two exceptions to the ‘nationalisation’ of the academic debate about EEA law. Firstly, the ‘German-Norwegian Fellowship Program in European Law’ was established already in 1994 by a group of German and Norwegian law professors, organizing biannual seminars, leading to the publication of 10 volumes on a wide variety of EEA-related matters over a time span of 20 years. The program ended in 2014, with the last volume published in 2016. Secondly, the EFTA Court and its long-serving President Carl Baudenbacher has initiated and published a number of important contributions, culminating in the Court’s 20th anniversary Festschrift ‘The EEA and the EFTA Court – Decentred Integration’ (2014) and Baudenbacher (ed.), ‘The Handbook of EEA Law’ (2016). A notable achievement with the publications originating in and around the EFTA Court is the ability to engage leading commentators from the EU-pillar of the EEA, including Judges and Advocates General from the EU courts. In this way, the EFTA Court has managed to keep alive a debate about EEA law that makes sure that key actors in the EU-pillar remain aware of the existence and peculiarities of EEA law. Despite these efforts, the international debate about EEA law remains limited, both with regard to the volume of the literature and the number of participants. Nevertheless, the EEA Agreement is not only relevant for those specialists in the EU who takes an interest in free movement to and from the participating EFTA

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States; it is relevant to a much wider audience at a time when issues of European integration (and disintegration) are hotly debated all over Europe. This book is an attempt to both deepen and broaden the literature on the EEA Agreement. The format of a German style Article-by-Article commentary makes sure that it also covers matters of EEA law which have received very little attention since the 1993 commentary by Norberg et al. This includes both important sub-fields of substantive EEA law such as environmental law, consumer protection, labour law, public procurement etc., and institutional questions revived by the ‘Brexit’ decision by UK voters in 2016 such as the procedures for leaving or joining the EEA, the conditions for implementing unilateral safeguard measures, cross-pillar dispute-resolution etc. In short, this Commentary aims at presenting, taking into account almost 25 years of practice, the entire body of EEA law as it stands today. Thus, it is not limited to the Main Part of the EEA Agreement as such; the Protocols and Annexes are also covered and so are the EEA-related agreements between the EFTA States on the institutional set-up of the EFTA-pillar. The list of contributors introduces several new voices to the debate, thus facilitating new perspectives on ‘old’ questions of EEA law and a much-needed enlargement of the small community of academics with an interest in the legal affiliation of the EFTA States to the EU’s internal market. The editors thank all contributors for the work put into the contributions. Our sincere gratitude also goes to Nomos Publishing House and, in particular, to Stefan Simonis, who, ever since our first meeting, shared our enthusiasm about this project and, with the necessary patience and support, helped us realize it. Many thanks also to Matthias Knopik, Andrea Schneider and the other people of Nomos for their highly effective support in the production of this book. Augsburg/Bergen/Oslo August 2017

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Finn Arnesen Halvard Haukeland Fredriksen Hans Petter Graver Ola Mestad Christoph Vedder

Foreword In the context of European cooperation, the Agreement on the European Economic Area is no small achievement. Since its adoption in 1992 this Agreement has been part of the development of a homogeneous and dynamic legal regime for an enhanced European free trade market, based on the law governing the internal market of the European Union. The various areas of EEA law have over the years been subjected to much scholarship and learned writings, but an updated comprehensive study covering the entire EEA Agreement had yet to appear. However, the 25th anniversary of the EEA Agreement in 2017 has now encouraged five Norwegian and German professors – having solicited contributions from 30 experts of the various fields of EU/EEA law – to elaborate, edit and publish an extensive and thorough commentary on the Main Part of the EEA Agreement and on the most important EEA-related agreements between the participating EFTA States. No doubt, this volume will serve as a most valuable source of learning, guidance and inspiration for lawyers and scholars when working with various aspects of EEA and EU law. 1.

The EEA Agreement was designed as a vehicle to promote extended European cooperation in economic and related matters. At present the parties to the Agreement are the European Union and all its 28 Member States as well as the three EFTA States – Iceland, Lichtenstein and Norway. For the EFTA States the EEA Agreement establishes basic legal links to the European Union and its internal market, thereby also implying a substantial transfer of actual sovereignty. At present, the EEA Agreement essentially amounts to a lasting alternative to EU membership, however, without any formal ties to supranational powers of EU and its institutions and agencies. To achieve this, the EEA had to be designed as a two-pillar system with an EFTA-pillar distinguishing in principle between the treaty obligations of the EFTA States and their national duties to perform these obligations by incorporating the EEA-relevant EU legal acts in their national laws. Such implementation is the key to market access and integration in the internal European market. Modelled in general on the Treaty of Rome, the Main Part of the EEA Agreement contains the provisions on the four freedoms and other key elements of the EU primary internal market law. Included in the EEA Agreement are also numerous Protocols and Annexes. At the time of the signing of the Agreement, the Annexes included nearly 2000 legal acts adopted by the EU to ‘complete’ the internal market by the early 1990 s. Since then, and consistent with the dynamic character of the EEA Agreement, the EEA Joint Committee has added several thousand new EU legal acts to the Agreement. In addition, the EEA Agreement itself is supplemented by agreements between the EFTA states establishing an independent EFTA Surveillance AuthoriVII

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ty and an independent EFTA Court. The task of these institutions is to ensure the EFTA States’ compliance with their EEA law obligations. 2.

Accession to the EEA Agreement did not in itself suffice to make EEA law part of national law in the dualistic EFTA States. This was, and still is, only to be achieved through subsequent adoption of national legislative measures amending or supplementing EEA-relevant parts of the existing regulatory regimes for economic activities. Consequently, both in Iceland and Norway, legal provisions consistent with the relevant EU legal acts have continuously been adopted to incorporate EEA law with legal effect as integrated parts of Icelandic and Norwegian law. The result is that the EEA law does not constitute any separate part of Icelandic or Norwegian law. Prior to the entry into force of the EEA Agreement in 1994, the Main Part of the Agreement was enacted in Icelandic and Norwegian law by separate statutes. At least in Norway, however, the need for further legislative actions was less than could be expected, often limited to various additions or amendments to existing legislation. One reason was that in many areas Norwegian economic law, having long been influenced by the legal systems of key European countries and later also by Community law, already was largely consistent with much of the EU secondary legislation. In the 1980 s, the Norwegian government required that developments in Community law should be duly considered in the preparation of any major national law reforms. Thus, important parts of the new statutory regimes for credit and financial institutions and insurance undertakings adopted in 1988, were in fact already modelled on relevant EC directives. Another reason for the limited need for legislative action was that major parts of the various EC legal acts could be implemented into Norwegian law by the government itself exercising existing or new regulatory powers. Many of these regulations were drafted as a mere translation of the provisions in the EU legal acts. Irrespective of legal form of the legislative measures applied to incorporating EEA law, the accession to the EEA in the early 1990 s was a formidable and challenging operation to Norway. The legal instruments required were prepared and continuously adopted in accordance with ordinary national procedures. This meant that government bills to the parliament usually were accompanied by explanatory comments relevant to the meaning and interpretation of the statutory provisions proposed. One consequence was that the problems caused by apparent differences between the EU and Norwegian statutory drafting traditions, would thereby be addressed, explained and overcome, thus facilitating also the subsequent application of imported EEA law.

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3.

During the 25 years since the EEA Agreement was signed in 1992, the European Union has constantly revised, modernised and further developed the legal regime for the internal market. Much of EU’s new secondary legislation has been elaborated and adopted in the implementation of ambitious law programmes designed to broaden and strengthen the regulatory role of legal frameworks defined at the Union level. In view of the EEA Agreement’s objective of dynamic homogeneity between EU and EEA law, the EEA relevant parts of novel EU legislation have subsequently been included in the Agreement by decisions of the EEA Joint Committee. In Norway and the other EFTA states, consequently, both the scope and the volume of EEA-conform law have increased quite significantly over the years. Equally important, the character of EU secondary law has gradually changed by means of more detailed drafting that offers less of the flexibility earlier available when incorporating EU legal acts in national law. In recent years, the EU legislator has also generally favoured directives aiming at full rather than only minimum harmonisation of the laws of Member States. Furthermore, the use of directly applicable regulations has increased significantly. In terms of content, the result is that much of the recent secondary legislation now offers comprehensive, almost exhaustive, elaborate and detailed legal regimes, leaving very limited room for national supplements or alternatives. Moreover, broadly articulated legal standards are frequently used to regulate complex matters, often supplemented by powers for the Commission to issue delegated acts setting out a great number of detailed rules. All this has significantly added to the volume and complexity of EU’s legal market order. In several areas, EU has also established Union agencies to promote, coordinate and control uniform interpretation and application of various parts of EU law in the Member States, either through recommendations and guidelines (‘soft law’) or by way of binding decisions. A recent example is the regulations establishing the “European System of Financial Supervision”, consisting of three separate authorities for the banking, insurance and securities sectors. In view of the two-pillar structure of the EEA Agreement, this development is problematic as it also implies exemptions from the principle of national enforcement of EEA law. The road to an agreed solution, consistent both with the two-pillar structure of the EEA Agreement and the national Constitutions of the EFTA States, has been long and difficult. The quite remarkable increase in the volume and detailed complexity of EEA law has resulted in an equally substantial increase of the administrative resources required merely to handle EEA law at the national level. The resources required for the implementation, application and supervision of EEA law exceed by far the resources regularly available in small countries such as Iceland and Norway (not to mention Liechtenstein). The sheer volume of EU/EEA law may

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thus have detrimental implications for the degree of compliance throughout the EEA. 4.

The main objective of the EEA Agreement is the realisation of the four freedoms within the whole of the European Economic Area, achieving thereby that the EU internal market is extended to the EFTA States. This requires homogeneous interpretation and application of the common EU/EEA rules throughout the EEA. Consequently, the principle of homogeneous interpretation of EU and EEA law has gradually been fully recognised by courts and administrative authorities of both pillars. In the EFTA States, the EU law background of the implemented EEA rules as it appears in the explanatory comments to the implementing legislative measures, is regularly regarded as clearly significant for the interpretation thereof. National courts have a particularly important role when it comes to interpretation and application of EEA law. The number of EEA-related cases brought before Norwegian courts has gradually increased over the years, and the knowledge of EEA law among judges and lawyers in general has improved accordingly. At present, we can note not only that a substantial number of EEA-decisions have been rendered by the Supreme Court, but also that an increasing number of EEA-related cases are decided by the lower courts in a way that often convinces the Supreme Court that leave to appeal is not warranted or needed. The EEA Agreement contains provisions presupposing that the EFTA States normally shall follow decisions of the EU Court of Justice when interpreting EU-conform provisions of EEA law. Consistent with the principle of homogeneity, the Supreme Court of Norway has in its judgement over the years regularly referred to and relied on the relevant decisions of the ECJ, and repeatedly stated that relevant rulings from the ECJ are to be given significant weightage by Norwegian courts when interpreting EEA law. Recently, this principle was authoritatively confirmed by the Supreme Court sitting in plenary in the case HR-2016-2554-P Holship. However, this principle does always not give readymade answers. Essentially it means that in the Supreme Court the relevant decisions of the ECJ will ordinarily be analysed and applied, or distinguished on the facts, in the same manner as the Supreme Court’s own precedents in other fields of law. This may be illustrated by two recent Supreme Court decisions relating to the 2007 Lugano Convention, modelled on the Brussels I Regulation (44/2001), the Norwegian interpretation of which during more than 20 years has regularly been based on ECJ decisions. The issue in both Rt. 2011 p. 897 Marin Alpin and Rt. 2015 p. 129 Arrow Seismic Invest was how to interpret Article 5(3) of Lugano allowing actions for damages to be brought ‘where the harmful event occurred’. In Marin Alpin, the Supreme Court, based on an extensive analysis of the ECJ’s decisions in the Cases C-71/76 Bier, C-220/88 Dumez, C-364/93 Marinari and X

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C-168/02 Kronhofer, held that an action in tort for general economic loss could only be brought in the State where the tortious act was committed, and not in the state where the person having suffered the loss had its domicile. However, four years later, in Arrow Seismic Invest, the Supreme Court, having considered the same four decisions of the ECJ, concluded that the rule therein applied by ECJ did not also cover and apply to an action in tort to recover economic damage directly resulting from the loss of a lien held in the State where the action was brought. Thus, the authority of the ECJ decisions was not in question, only their ratio decidendi in relation to the second case before the Supreme Court. Even if the Supreme Court normally will follow existing decisions of the ECJ, this does not mean that the Supreme Court always also will reach the same result as the ECJ itself would have done. Clearly, the principle of homogeneous interpretation as based on reported ECJ decisions will normally prevail. However, the situation is different if no clear ECJ precedent exists. In such a case the Supreme Court seems to be somewhat reluctant to be a “frontrunner” and preempt what would be the result of a dynamic interpretation of the EU law by ECJ, particularly if a question of principle is involved. In Rt. 2012 p. 1951 Trico Subsea the question was whether a person domiciled in a third country (Singapore) could invoke the Lugano Convention and, thus, would be entitled under its Article 2 to bring an action at the defendant’s domicile in Norway. The Supreme Court noted that these questions were relevant also in relation to the same provision in the Brussels I Regulation, and the Court held, notwithstanding certain general statements by the ECJ in Cases C-412/98 Group Josi and C-281/02 Owusu, that the questions could not be considered as squarely decided by the ECJ. In view of this, the majority in the Supreme Court concluded that it was not the task of the Supreme Court to preempt or anticipate how such questions relating to third-state rights under EU law would be resolved by ECJ in the future. Consistent with principles of treaty law relating to third-state rights, the Court instead held that the action by a plaintiff from Singapore could not be brought in Norway under Lugano Convention, but only under the rules on jurisdiction in the domestic legislation. In accordance with the principle of homogeneous interpretation of EEA law, the Supreme Court in the Holship also confirmed that Norwegian courts should give significant weightage to the interpretations of EEA law made by the EFTA Court of Justice. The EFTA Court itself will very often also rely on decisions by ECJ. However, since the EFTA Court usually issues only “advisory opinions”, Norwegian courts would consequently in particular cases have to independently decide also the questions on how to interpret or apply the EEA law. In so doing, a Norwegian court should, as stated by the Supreme Court in Holship, normally not deviate from an advisory opinion of the EFTA Court, unless warranted by special circumstances.

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5.

The law of major European states has over the years generally influenced many areas of Norwegian law as well as the national legal science. For several decades, however, the development of the new EC legal regime attracted only limited interest in Norwegian legal education and science as well as in the legal professions in general. Thus, Norwegian legal communities were generally unprepared to meeting the challenges later to follow from the elaboration and adoption of the EEA Agreement in the 1990 s and the resulting national reception of EC law. The adoption by the EC of the Single European Act of 1987 caused a change in attitude. It became apparent to the EFTA States that the envisaged completion of the EC internal market by the early 1990 s would entail significant consequences also for them, thus requiring that in the future new and serious attention be given to EC market law. When Commission President Delors followed this up in 1989 with his plan for a ‘structured partnership’ between the EC and the EFTA States, it became obvious to several members of the law faculty in Oslo that there was an urgent need for new Norwegian knowledge and expertise in EC law. Consequently, a “Centre for European Law” was quickly established to organise research and later teaching in basic EU law. As the initiative came from professors working with shipping, offshore and finance law, the Centre was organised as part of the Scandinavian Institute of Maritime Law. The Centre soon attracted many young and enthusiastic students and scholars. Even before the EEA Agreement entered in force in 1994, many studies on topics of EC/EEA law had been published, including a textbook for a new obligatory course in EEA law at the Oslo faculty. Moreover, a comprehensive treatise on EEA law, written by five of the graduate students at the Centre, was published in 1995; a revised third edition appeared in 2011. After a few years, the Centre of European law became a key institution for teaching and research in European law, and it soon also received the privilege of being an EU documentations centre. Over the years, a great number of law students have completed their master degree thesis on topics of EU/EEA law. Also, more than 20 of the graduate students at the Centre have completed their doctor degree thesis, many of whom having thereafter become professors at the Oslo faculty. During the 2000 s, professors and scholars attached to the faculties of law in Bergen and Tromsø have also become more actively engaged in teaching and research in European law and, consequently, have broadened the Norwegian expertise in EU/EEA law. Furthermore, the Centre has always endeavoured to establish and maintain good links to other European institutions and law faculties, promoting good cooperation particularly with Scandinavian, German and Dutch law faculties and scholars. In recent years, the ties with Icelandic scholars working with EEA/EU law have also been strengthened. Instrumental in these concentrated efforts to meet the need for Norwegian competence and expertise in EEA law, has been the scholarship program estabXII

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lished in 1994 by the German Ruhrgas company. Over the years, this program enabled a substantial number of the most talented masters and post-graduate students at Norwegian law faculties to carry out lengthy studies and research in European law at German law faculties. Moreover, the program has contributed significantly to renewing and strengthening the cooperation in European law and in law in general between German and Norwegian law faculties. The present book is essentially a true-born child of the German-Norwegian cooperation within the “E.ON-Ruhrgas scholarship-program”. The German colleagues editing and contributing to the book have handled the German side of this program for many years. Furthermore, most of the Norwegians editors and contributors have previously carried out studies at German law faculties within the scholarship program. The Commentary to the EEA Agreement is a great achievement, containing a detailed outline of the scope, content and condition for the integration of the three EFTA states in the EU internal market. 6.

The EEA Agreement will in years to come most probably still provide for and maintain the basic legal links between the three EFTA States and the European Union and its Member States. Even if the EEA Agreement itself does not govern all the areas of cooperation between the EU and the EFTA States, it has nevertheless served as a point of departure for further development of extended cooperation with the European Union. Important areas of cooperation outside the EEA Agreement have already been the subject of separate agreements between EFTA States and the EU. In this context, the outline in this Commentary of the scope of the EEA Agreement contributes to clarifying the borderlines between the EEA Agreement and other agreement on which EFTA States have made the European Union. Current trends in European and world politics seem to cast certain shadows of concern in relation to future development of the European Union and its internal market. In a troubled world and in view of the effects thereof for world trade and geopolitics, however, the access to and integration in the European internal market provided for the three EFTA states by the EEA Agreement, will probably be of even greater importance in the future than at present. Future challenges to be met by the European Union and its internal market will at least indirectly also be challenges also to be faced by the EFTA states, however not on a stand-alone basis, but as a part of the European side. Potential problems related to key issues such as a Brexit event and new economic policies developed by the present US administration, will require collective responses. Shifts in politics and public sentiment in any of the EU member states may also create Union and EEA problems. At present, however, uncertainties prevail. The character of challenges which may have to be met by EU and EEA, cannot yet be ascertained. Future events may, of course, require some adjustment also in the EEA Agreement. NevertheXIII

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less, unless the developments should constitute an actual threat to the European Union itself, it is unlikely that the continued existence of the EEA Agreement may be threatened by events outside the control of the EFTA states themselves. The great importance of the EEA Agreement has continuously been fully recognised by all Norwegian governments during the 25 years after its adoption. Erling Selvig

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List of authors Editors

Finn Arnesen, Professor dr. juris (Oslo), Director of the Centre for European Law, University of Oslo (1997-2002 and 2012-): Introduction, Preamble, Arts. 1, 2, 17-20, 119, 126 and 129 EEA, Preamble and Art. 1 SCA. Halvard Haukeland Fredriksen, Professor Dr. iur. (Göttingen), Ph.D. (Bergen), University of Bergen: Introduction, Report “EEA law beyond the text of the Main Part of the Agreement”, Preamble, Arts. 1, 2, 105-107 and 110-114 EEA, Preamble and Art. 1 SCA, Agreement on a Standing Committee. Hans Petter Graver, Professor dr. juris (Oslo), Dr. h.c. (University of Helsinki), Dr. h.c. (University of Heidelberg), Dean of the Faculty of Law, University of Oslo (2008-2015): Introduction. Ola Mestad, Professor dr. juris (Oslo), University of Oslo, ad hoc Judge at the EFTA Court since 2006, former Director of the Centre for European Law, University of Oslo (2006-2007), Director of the Scandinavian Institute of Maritime Law (2017-): Introduction. Christoph Vedder, Professor em. Dr. iur. (Göttingen), formerly Chair for Public Law, Public International Law and European Law as well as Sports Law, Jean Monnet Professor ad personam, University of Augsburg: Introduction, Report “The EEA in the Union’s Legal Order”. Authors

Tarjei Bekkedal, Professor Ph.D. (Oslo), Centre for European law, University of Oslo: Art. 59 EEA. Per Andreas Bjørgan, Advocate, Partner Lund & Co law firm, former Director of the Competition and State Aid Directorate and Deputy Director of the Legal department of the EFTA Surveillance Authority: Arts. 4-26 SCA. Henrik Bull, dr. juris (Oslo), Justice, Supreme Court of Norway; Legal Adviser in the Norwegian Ministry of Justice, involved in the negotiations on the EEA Agreement; Director of the Centre for European Law, University of Oslo 2002-2005, Judge of the EFTA Court 2006-2010: Arts. 21-26, 40-45 and 124 EEA. Per Christiansen, dr. juris (Oslo), Judge at the EFTA Court; former Chancellor, Ministry of Foreign Affairs, and Director General, Ministry of Finance; Registrar of the EFTA Court; Professor, University of Tromsø: Art. 46 EEA, Arts. 115-117 EEA, Arts. 27-41 SCA. Marthe Kristine Fjeld Dystland, cand. jur. (University of Oslo), LL.M. (Europa-Institut, University of Saarbrücken), Legal secretary at the EFTA Court, XXV

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on leave from the Legislation Department, Norwegian Ministry of Justice and Public Security: Art. 7, Arts. 97-104 EEA, Arts. 27-41 SCA. Margrét Einarsdóttir, Associate Professor, Reykjavik University, Advisor for the Steering Group set up under the Prime Minister’s Office in Iceland to address the execution of the EEA Agreement from 2014; Director of the European Law Institute, Reykjavik University 2010-2013: General Report on Iceland. Ólafur Jóhannes Einarsson, M.Jur. (Oxon), M.Phil. (Oxon), advocate at BBA law firm, Reykjavik; Ad-hoc College Member, EFTA Surveillance Authority; former Director of the Internal Market Affairs Directorate, EFTA Surveillance Authority: Arts. 30-33, 35-39 and 110 EEA. Ingvald Falch, Justice, Supreme Court of Norway since September 2015, formerly at the Office of the Norwegian Attorney General (Civil Affairs); former partner in the law firm Schjødt: Art. 4 EEA. Fredrik Bøckman Finstad, Deputy Director General, Legislation Department, Norwegian Ministry of Justice and Public Security; formerly justice and home affairs counsellor at the Mission of Norway to the EU and member of the government-appointed committee analysing the agreements between the EU and Norway (NOU 2012: 2): General Report on Norway, Arts. 7, 99-104 EEA. Karin Fløistad, Ph.D. (European University Institute, Florence), Partner Simonsen Vogt Wiig law firm; chair of the Norwegian Competition Appeals Tribunal: Arts. 28, 29 EEA. Christian Franklin, Professor Ph.D. (Bergen), University of Bergen, Head of the Research Group for Competition and Market law; Barrister (Gray’s Inn), board member of the Norwegian Association for European Law; joint manager of the Bergen Centre for Competition Law and Economics (Beccle): Art. 3 EEA, Art. 2 SCA. Christian Frommelt, Ph.D. (ETH Zurich), research fellow at the Liechtenstein Institute (Bendern), Director for Brexit Studies at the Ministry of Foreign Affairs of Liechtenstein: General Report on Liechtenstein. Ronny Gjendemsjø, Associate Professor Ph.D. (Bergen), University of Bergen, Co-director of the Bergen Centre for Competition Law and Economics (Beccle), member of the Norwegian Competition Appeals Tribunal: Arts. 53-58 and 60 EEA. Simen Hammersvik, Advocate, Senior Associate, Schjødt law firm, Oslo, Norway: Art. 65(1) EEA. Ragnhildur Helgadóttir, Professor, S.J.D. (Virginia), Dean of the School of Law, Reykjavik University. chairperson of the Negotiation Team on Justice and Home Affairs and member of negotiation committee for Iceland’s application for membership of the EU, 2009-2013: General Report on Iceland. XXVI

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Martin Hennig, Postdoc; Ph.D. (Tromsø), The Arctic University of Norway: Arts. 14 and 15, 47-52, 76 EEA. Christophe Hillion, Professor Dr., Universities of Leiden and Göteborg; Swedish Institute for European Policy Studies (Stockholm) and Norwegian Institute of International Affairs (Oslo): Arts. 118, 127, 128 EEA. Jóhanna Jónsdóttir, Dr., Advisor at the Icelandic Ministry for Foreign Affairs, affiliated Senior Researcher at the Icelandic Institute of International Affairs: Arts. 78-88 EEA, Agreement on a Standing Committee of the EFTA States. Christian Jordal, Deputy Director, Competition and State Aid Directorate, EFTA Surveillance Authority: Arts. 61-64 EEA. Berte-Elen R. Konow, Professor dr. juris (Bergen), University of Bergen, member of the Working Group preparing DCFR IV B Lease of Goods, member of editorial board of Restatement of Nordic Contract Law, Vice Dean for Research at the Faculty of Law (2013-2017): Art. 72 EEA. Gjermund Mathisen, Dr., LL.M. (Heidelberg), Ph.D. (Bergen), Director, Competition and State Aid Directorate, EFTA Surveillance Authority, former Legal Secretary at the EFTA Court, former Legal Officer at the EFTA Surveillance Authority: Arts. 61-64 EEA. Peter-Christian Müller-Graff, Professor Dr. habil., Dr. h.c. mult., Chair for Private Law, Commercial Law, Company Law, Economic Law, European Law and Comparative Law, Director of the Institute for German and European Corporate Law and Economic Law, Honorary Jean Monnet Professor, University of Heidelberg, Co-Editor of the Skriftserie for Tysk-Norsk Rett: Arts. 34, 77 EEA. Jonas W. Myhre, Scandinavian Institute of Maritime Law, Supreme Court Advocate (until 2012); guest researcher at the Centre for European Law, UiO, Partner in the law firm Hjort (1971-2001), cand. iur. (1963, University of Oslo), MCL 1966 (University of Illinois, USA): Art. 16 EEA. Ernst Nordtveit, Professor dr. juris (Bergen), University of Bergen, former Dean of the Law School, former Head of the Research Group of Natural Resources, member of the National Ethical Committee for Natural Science and Technology, Ministry of Education and Research; Member of the Norwegian Academy of Science, Committee on Climate, Environment and Natural Resources Use (2015-): Arts. 73-75 EEA. Håvard Ormberg, Research fellow, University of Bergen, Bergen Centre for Competition Law and Economics (Beccle), former Officer of EFTA Surveillance Authority, Competition and State Aid Directorate: Arts. 120-123 EEA. Gunnar Thor Pétursson, Professor, Ph.D. (Lund), Reykjavik University, Director of the Internal Market Affairs Directorate, EFTA Surveillance Authority: Arts. 8-13, 27 EEA.

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Benedikt Pirker, LL.M. (Bruges), Ph.D. (IHEID Geneva), Privatdozent, Senior Lecturer, Institute for European Law, Université de Fribourg: Report on Switzerland. Thomas Chr. Poulsen, Judge, Borgarting Court of Appeal, former Legal Secretary at the EFTA Court: Art. 125 EEA, Arts. 42-53 SCA. Ole-Andreas Rognstad, Professor dr. juris., University of Oslo, former Director of Department of Private Law (2008-2011), since 2016 associated with the Centre for European Law: Art. 65(2) EEA. Sigrid Eskeland Schütz, Professor dr. juris (Bergen), University of Bergen, Head of the Research Group for Natural Resource Law, Environmental Law and Development Law: Arts. 73-75 EEA. Erling Selvig, Professor em. dr. juris (Oslo), University of Oslo, Chairman of the Board for the Centre for European Law, University of Oslo (1997-2012); ad hoc Judge of the EFTA Court (1997-2002); chairman of the Norwegian Banking Law Commission (1991-2017): Foreword. Ida Sørebø, Legal Advisor, Legislation Department, Norwegian Ministry of Justice and Public Security, with responsibility for EEA implementation and constitutional issues, former Officer at the EFTA Surveillance Authority, Legal Department: Art. 7, Arts. 99-104 EEA. Karl Harald Søvig, Professor dr. juris (Bergen), University of Bergen, Dean of the Faculty of Law (2017-), Vice President of the European Association of Health Law (2015-); temporary Judge at the District Court (2002) and Gulating Court of Appeals (2005): Arts. 69, 70 EEA. Tron Løkken Sundet, Vice-President, Labour Court of Norway: Arts. 66-68 and 71 EEA. Dora Sif Tynes, LL.M. (EUI, Florence), Attorney-at-law in Iceland, former Head of EEA Legal Services at the EFTA Secretariat, previously legal officer at the EFTA Surveillance Authority: Arts. 5, 89-96, 108, 109 EEA. Pål Wennerås, Ph.D. (Amsterdam), Advocate, Office of the Attorney General (Civil affairs): Arts. 6 EEA, Art. 3 SCA.

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Abbreviations AAA AAMS ACER ADR ADM AFMP AFSJ AG Art. BEREC BGH CCS CEDAW CEDEFOP CEEP CESL CETA CFI CFP CFSP CISG CMLR COM Commission COREPER COSME CJEU CS CSA Dir. DSB EAFRD EASA EBA EC ECB ECC-Net ECDC ECHA ECHR ECtHR ECJ ECJ RoP ECN ECOFIN ECR ECSC ECSR ECU EDA EDPB

Ankara Association Agreement Administration of State Monopolies Agency for the Cooperation of Energy Regulators Alternative Dispute Resolution Administration Agreement on the Free Movement of Persons Area of freedom, security and justice Advocate General Article Body of European Regulators for Electronic Communications Bundesgerichtshof Carbon capture and storage UN Convention on the Elimination of All Forms of Discrimination against Women European Centre for the Development of Vocational Training European Centre of Enterprises with Public Participation and of Enterprises of General Economic Interest Common European Sales Law EU-Canada Comprehensive Economic and Trade Agreement Court of First Instance of the European Communities Common Fisheries Policy Common Foreign and Security Policy United Nations Convention on Contracts for the International Sale of Goods Common Market Law Review (Journal) Communication from the European Commission European Commission Committee of the Permanent Representatives of the Governments of the Member States to the European Union Competitiveness of Enterprises and Small and Medium-sized Court of Justice of the European Union (the institution, not the court) Continental Shelf Competition and State Aid Directorate Directive Danske Statsbaner (Danish State Railways) European Agricultural Fund for Rural Development European Aviation Safety Agency European Banking Authority European Communities European Central Bank European Consumer Centres Network European Centre for Disease Prevention and Control European Chemicals Agency European Convention of Human Rights European Court of Human Rights Court of Justice of the European Union (the court, not the institution) Rules of Procedure of the Court of Justice of the European Union European Competition Network Economic and Financial Affairs Council European Court Report European Coal and Steel Community European Committee of Social Rights European Currency Unit European Defence Agency European Data Protection Board XXIX

Abbreviations EEA EEAS EEC EECMA EEIG EES EESC EEZ EFSA EFTA EFTA States EIA Directive EIB e.i.f EIOPA EJIL ELRev EMA EMFF EMU ENP EPC EPC ERA ERDF ERIC ESA ESF ESIF ESMA ESO ESS ETUC EU EUCJ EU ESAs EU ETS EU-OSHA EUR EuR Euratom EURES EUROFOUND Europol Eurostat FMC FMG FMO FTA GATT GBER GC GDP GMO

XXX

European Economic Area/EEA Agreement European External Action Service European Economic Community European Electronic Communications Market Authority European Economic Interest Grouping European Economic Space European Economic and Social Committee European Economic Zone European Food Safety Authority European Free Trade Association Iceland, Liechtenstein and Norway (in the context of EEA Law); Iceland, Liechtenstein, Norway and Switzerland (outside the scope of EEA Law) Environmental Impact Assessment Directive European Investment Bank entry into force European Insurance and Occupational Pensions Authority European Journal of International Law European Law Review (Journal) European Medicines Agency European Maritime and Fisheries Fund Economic and Monetary Union European Neighbourhood Policy European Professional Card European Patent Convention European Railway Agency European Regional Development Fund European Research Infrastructure Consortium EFTA Surveillance Authority European Social Fund European Structural and Investment Funds European Securities and Markets Authority EFTA Statistical Office European Statistical System European Trade Union Confederation European Union European Union Court of Justice (the institution) European Financial Supervisory Authorities EU Emission Trading Scheme European Agency for Safety and Health at Work Euro Europarecht (Journal) European Atomic Energy Community European Employment Services European Foundation for the Improvement of Living and Working Conditions European Union Agency for Law Enforcement Cooperation Statistical Office of the European Union Financial Mechanism Committee Free Movement of Goods Financial Mechanism Office Free Trade Agreement General Agreement on Tariffs and Trade General Block Exemption Regulation General Court Gross domestic product Genetically modified organism

Abbreviations GNI GPA GPG HS HSE IEA ILO IMA IMF IMI IMO IOSCO IP IPCEI IPR IPrax ISA JC JCD LEA MA MEIP MEO principle MFF MFN MFSD mn. MoU MRA MSP NAP NATO NCA NGO NIMIC NOK NUPI NZZ ODR OECD OJ OLG Para. PEM Convention PIL Prot. PSO PWD RoP SAM SCA SCE

Gross national income Agreement on Government Procurement Gender Pay Gap International Convention on the Harmonized Commodity and Coding System Health, safety and environment International Energy Agency International Labour Organisation Internal Market Affairs Directorate International Monetary Fund Internal Market Information System International Maritime Organisation International Organisation of Securities Commissions Intellectual Property Important Projects of Common European Interest Intellectual Property Right Praxis des Internationalen Privat- und Verfahrensrechts (Journal) Interoperability for Public Administrations Joint Committee Joint Committee Decision Legal and Executive Affairs Department United Nations Millennium Ecosystem Assessment Market Economy Investor Principle Market Economy Operator principle Multiannual Financial Framework Most Favoured Nation Marine Strategy Framework Directive margin number (Randnummer) Memorandum of Understanding Mutual Recognition Agreement Marine Spatial Planning National Allocation Plan North Atlantic Treaty Organisation National competition authority Non-governmental Organisation National IMI (Internal Market Information) Coordinator Norwegian Krone Norsk Utenriskspolitisk Institutt (Norwegian Institute of International Affairs) Neue Züricher Zeitung (Newspaper) Online Dispute Resolution Organisation for Economic Co-operation and Development Official Journal of the European Union Oberlandesgericht (Higher Regional Court, Germany) Paragraph Regional Convention on pan-Euro-Mediterranean preferential rules of origin Private International Law Protocol Public Service Obligation Posting of Workers Directive Rules of Procedure of the EFTA Court State Aid Modernisation Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice European Cooperative Society

XXXI

Abbreviations SE SEA Directive SERA SGEI SIEC-test SME SNE SPC St.prp. State Aid Guidelines TAA TBT TCN TEC TEDIS TEEC TEN-T TEU TFEU TfR TMD TRIPS TTIP UEAPME UNCITS UK UNCLOS UN/EDIFACT UNICE VAT VIS WFD WG WIPO WTO ZJS

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European Company Strategic Environmental Assessment Directive Single European Railway Area Services of General Economic Interest Significant Impediment of Effective Competition test Small and medium sized enterprise Seconded National Expert Supplementary Protection Certificate Proposisjon til Stortinget Procedural and Substantive Rules in the Field of State Aid Transitional Arrangements for a period after the Accession of certain EFTA States to the European Union Technical Barriers to Trade Third Country National Treaty Establishing the European Community Trade Electronic Data Interchange Systems Treaty Establishing the European Economic Community Trans-European Transport Network Treaty on the European Union Treaty on the Functioning of the European Union Tidsskrift for Rettsvitenskap (Journal) Trade Mark Directive The Agreement on Trade-Related Aspects of the Intellectual Property Rights EU-US Transatlantic Trade and Investment Partnership European Association of Craft, Small and Medium-Sized Enterprises Undertakings for collective investment in transferable securities United Kingdom United Nations Convention on the Law of the Sea The United Nations rules for Electronic Data Interchange for Administration, Commerce and Transport Union of Industrial and Employers’ Confederations of Europe Value Added Tax Visa Information System Water Framework Directive Working Groups World Intellectual Property Organisation World Trade Organisation Zeitschrift für das Juristische Studium (Journal)

General bibliography The following books are referred to in abbreviated form throughout the commentary

Catherine Barnard, The Substantive Law of the EU – The Four Freedoms (5th ed., Oxford University Press, Oxford 2016) Carl Baudenbacher (ed.), The Handbook of EEA Law (Springer, 2015) Thérèse Blanchet, Risto Piipponen and Maria Westman-Clément, The Agreement on the European Economic Area (Clarendon Press, Oxford 1994) Henrik Bull, Norsk lovkommentar (Rettsdata.no), Comments on the Norwegian EEA Act and the Main Part of the EEA Agreement. Christian Calliess and Matthias Ruffert (eds.), EUV/AEUV – Das Verfassungsrecht der Europäischen Union mit Europäischer Grundrechtecharta – Kommentar (5th ed., CH.Beck, Munich 2016) Paul Craig and Gráinne de Búrca, EU Law – Texts, Cases and Materials (6th ed., Oxford University Press, Oxford 2015) EFTA Court (ed.), The EEA and the EFTA Court – Decentred Integration (Hart Publishing, Oxford and Portland, Oregon 2014) EFTA Court (ed.), Judicial Protection in the European Economic Area (German Law Publishers, Stuttgart 2012) Niels Fenger, Michael Sánchez Rydelski and Titus van Stiphout, European Free Trade Association (EFTA) and European Economic Area (EEA) (Wolters Kluwer, Alphen an den Rijn 2012) Halvard Haukeland Fredriksen and Gjermund Mathisen, EØS-rett (2nd ed., Fagbokforlaget, Bergen 2014) Peter-Christian Müller-Graff and Erling Selvig (eds.), The European Economic Area – Norway’s Basic Status in the Legal Construction of Europe (Berlin Verlag Arno Spitz, Berlin 1997) Peter-Christian Müller-Graff and Erling Selvig (eds.), EEA-EU Relations (Berlin Verlag Arno Spitz, Berlin 1999) Olivier Jacot-Guillarmod (ed), Accord EEE – Commentaires et réflexions (Schultess, Zürich 1992) Sven Norberg, Karin Hökborg, Martin Johansson, Dan Eliasson and Lucien Dedichen, EEA Law – A Commentary on the EEA Agreement (Fritzes, Stockholm 1993) Fredrik Sejersted, Finn Arnesen, Ole-Andreas Rognstad and Olav Kolstad, EØSrett (3rd ed., Universitetsforlaget, Oslo 2011) Christoph Vedder and Wolff Heintschel von Heinegg (eds.), Europäisches Unionsrecht – EUV/AEUV/Grundrechte-Charta – Handkommentar (Nomos, Baden-Baden 2012)

XXXIII

Finding the sources of EEA Law EEA legal texts

EEA legal texts can be accessed through the EEA’s official website, www.efta.int. In the section called “The EEA Agreement” one can find: • • • • • • •

•

•

• •

the text of the Main Part of the EEA Agreement updated versions of Annexes 1 to 22 to the EEA Agreement updated versions of Protocols 1 to 49 to the EEA Agreement the full text of the Final Act to the EEA Agreement a chronological archive of the Decisions of the EEA Joint Committee the Decisions adopted by the EEA Council a list of adopted EU acquis marked as EEA relevant by the EU or considered as such by the EEA EFTA States currently under discussion for incorporation into the EEA Agreement a list of adopted EU acquis considered as EEA relevant and for which draft Joint Committee Decisions have been formally submitted and are under consideration by the two sides an updated list of adopted Decisions of the EEA Joint Committee where constitutional requirements have been indicated by one or more EFTA States in accordance with Art. 103(1) EEA an updated list of adopted Decisions of the EEA Joint Committee where indicated constitutional requirements have not yet been fulfilled a list of veterinary acts subject to simplified procedures

Particularly helpful is the interactive EEA-lex database (www.efta.int/eea-lex), which can be used to check the current EEA law status of any EU legal act. The EFTA homepage further provides access to: • •

the updated version of the Agreement between the EFTA States on a Standing Committee, www.efta.int/eea/eea-institutions/standing-committee the updated version of the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice, including its Protocols and Annexes: www.efta.int/legal-texts/the-surveillance-and-courtagreement. Decisions from the EFTA Court

Cases from the EFTA Court can be accessed free of charge through the Court’s official website, www.eftacourt.int.

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Finding the sources of EEA Law

Decisions and guidelines from the EFTA Surveillance Authority

Decisions and guidelines from the EFTA Surveillance Authority can be accessed free of charge from ESA’s official website, www.eftasurv.int. EU-sources of EEA-relevance

EU-sources of EEA-relevance can be obtained from the usual EU law databases (EUR-lex, InfoCuria etc.)

XXXVI

Introduction The EFTA States, the EEA and the different views on the legal integration of Europe I. The background of the EEA Agreement

Today, the basic function of the EEA Agreement is to integrate Norway, Ice- 1 land and Lichtenstein into the internal market of the European Union. It is a special type of an association agreement with its homogeneity mechanism, its related dynamism and its institutional set-up, both in the Agreement itself and the Agreement’s requirement that independent institutions are to be established by the participating EFTA States.1 In a wider perspective, the EEA Agreement demonstrates that European integration can be shaped in different ways, not only inside an EU with different speeds, but also outside and closely associated with developments within the EU itself. The background to the EEA Agreement lies in the relationship between the 2 development of what was to become the EU on the one hand and the needs and possibilities of the EFTA States on the other. When the European Free Trade Association (EFTA) was established on the initiative of the UK in 1960, it was meant as an alternative for Western European States unwilling (or unable) to join the European Economic Community (EEC). The aim was to promote closer economic cooperation and free trade in Europe, but within the framework of a multilateral association and without any transfer of sovereignty to supranational institutions.2 The founding members of EFTA were Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the UK, tellingly known at the time as ‘the outer seven’ (as opposed to the six founding members of the EEC – ‘the inner six’). Finland joined EFTA in 1961,3 Iceland in 1970 and Liechtenstein in 1991.4 However, most of the EFTA States soon came to see the more ambitious plan 3 for deep economic and even political integration pursued by the EEC/EC/EU as more attractive than the traditional multilateral free trade agenda of the EFTA. The UK applied for membership in the EEC already in 1961 and pioneered negotiations for entry for its EFTA partners Denmark and Norway (as well as Ireland). However, the UK application was vetoed by France. Due to their strong links both economically and politically to the UK, neither Denmark nor Norway wanted to join the EEC on their own.5 A second UK application in 1967 was 1 Art. 1 EEA states explicitly that it is an ‘Agreement of association’. On the EU side, the relevant provision is Art. 217 TFEU (ex Art. 310 TEC) which establishes the competence to enter into association agreements. 2 Compare the preamble and Art. 2 of the EFTA Convention of 1960 (‘the Stockholm Convention’) with the preamble and Arts. 2 and 3 of the Treaty establishing a European Economic Community of 1957 (‘the Treaty of Rome’). 3 As an associate member, Finland became full member of EFTA in 1986. 4 Up until 1991, the EFTA Convention applied to Liechtenstein by way of a particular Protocol under which the interests of Liechtenstein were represented by Switzerland.

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equally unsuccessful. When the UK finally joined the EC in 1972, so did Denmark. Norway had applied for membership too, but remained in the EFTA after 53,5 % of the voters rejected the accession agreement in a referendum.6 4 As a result of the EC enlargements, presumably in particular the accession of the former EFTA States Denmark and the UK and the gradual understanding within the EC that the EFTA was not really a competitor to fear, the relationship between the EC and the EFTA States became closer. The 1972/1973 bilateral Free Trade Agreements between each of the remaining EFTA States, on the one hand, and the EC (as well as the ECSC), on the other, were concluded, and full free trade under these agreements was achieved by the end of 1983.7 This lead to the next step in the development of the EFTA-EC relationship: The 1984 EFTAEC Ministerial meeting and the resulting declaration to create a dynamic European Economic Space (‘EES’) (the Luxembourg Declaration).8 In parallel, the EC States and the EFTA States negotiated what became the 1988 Lugano Convention on jurisdiction and the enforcement of judgments in civil and commercial matters – essentially a ‘parallel convention’ to the 1968 Brussels Convention between the EC Member States. 5 As the limits of the bilateral relationship between each EFTA State and the EC became evident, however, accession to the EC remained the more attractive alternative for several of the EFTA States. In 1986, Portugal followed the UK and Denmark, increasing the ‘inner circle’ of EC member states to 12 whilst reducing the ‘outer circle’ of EFTA States to six.9 6 The attractiveness of the EC grew further as a result of the Single European Act of 1986 and the ambitious plan to ‘complete’ the internal marked by the end of 1992. Notwithstanding differing views on the prospect of future accession to the EC, the remaining EFTA States all agreed that access to the EC internal marked was vital to their economic interests. To the EC Member States, access to the markets of the EFTA States was also attractive. Furthermore, a comprehensive agreement of association was preferable to further membership applications from EFTA States at a time when priority was given to deepening the integration through the foreseen establishment of the European Union. The solution found was the Agreement on the European Economic Area (EEA), which was initiated by the President of the European Commission, Jacques Delors, in 1989 (‘the Delors Initiative’), discussed at the political level in 1989-90, formally negotiated in 1990-1992 and then signed on 2 May 1992. The entry into force was

5 For the same reasons, it is assumed that both Denmark and Norway would have become members of the EEC in the 1960 s if France had not vetoed UK membership. 6 See further Bøckman Finstad’s report on Norway in Part I of this book. 7 See Norberg and Johansson, ‘The history of the EEA Agreements and the first twenty years of its existence’, in: Baudenbacher (ed.), Handbook of EEA Law, pp. 3-42, at p. 15. 8 For the details, see Norberg and Johansson, pp. 15-21. 9 Ireland (1973), Greece (1981) and Spain (1986) had joined the EC without first having been members of the EFTA.

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The EFTA States, the EEA and the different views on the legal integration of Europe

delayed when the Agreement was rejected by Swiss voters (by 50.3% to 49.7%), but the EEA eventually came into existence on 1 January 1994. II. The function of the EEA Agreement

In short, the EEA Agreement integrated the, at that time, five participating 7 EFTA States, Austria, Iceland, Finland, Norway and Sweden, into the internal marked, but with important exceptions for the fields of agriculture and fisheries. For some of the EFTA States, notably Iceland, Norway and Switzerland, keeping agriculture and/or the fisheries out of the deal was considered of fundamental importance. Part of the price to pay for these ‘opt outs’, however, was the lack of genuine joint decision-making procedure where the EFTA States would be able to influence the future regulation of the internal market. Commission President Delors had initially given the EFTA States expectations about some kind of a joint EC-EFTA decision-making mechanism, but this met strong opposition from the European Parliament and was ultimately rejected by the Council. From the perspective of the EFTA States, the resulting ‘democratic deficit’ of the EEA is the Agreement’s main shortcoming.10 It was an important factor behind the Swiss ‘No’ to the Agreement in 1992 and it remains one of the main reasons why accession to the EEA appears not to have been seriously considered by the Swiss ever after. Instead, Switzerland has negotiated numerous bilateral agreements with the EU.11 The EFTA States’ inability to get the EC-side to agree to a genuine joint deci- 8 sion-making procedure was part of the reason why five of EFTA States (Austria, Finland, Norway, Sweden and Switzerland) applied for membership of the EC/EU even before the EEA negotiations were concluded. The Swiss application was put on hold by the Swiss government as a result of the outcome of the referendum on the EEA Agreement, but the four other EFTA States negotiated and signed accession agreements in 1994. Three of them, Austria, Finland and Sweden, acceded to the EC/EU in 1995, whereas Norway remained in the EFTA-pillar of the EEA after 52,2 % of the voters rejected the accession agreement in a referendum. With only Iceland and Norway left in the EFTA pillar of the EEA, it was im- 9 portant that the Swiss ‘No’ did not prevent Liechtenstein from acceding to the EEA on 1 May 1995.12 Even though the institutional architecture of the EEA

10 As noted in the final report of the Norwegian EEA Review Committee: ‘The most problematic aspect of Norway’s form of association with the EU is the fact that Norway is in practice bound to adopt EU policies and rules on a broad range of issues without being a member and without voting rights. This raises democratic problems. Norway is not represented in decisionmaking processes that have direct consequences for Norway, and neither do we have any significant influence on them.’ (NOU 2012:2 Utenfor og innenfor – Norges avtaler med EU, Ch. 1, Point 1.1). See also Erik Oddvar Eriksen and John Erik Fossum (eds), Det norske paradoks. Om Norges forhold til Den europeiske union, Oslo 2014. 11 For details, see Pirker’s report on Switzerland in Part I of this book.

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Introduction

was designed for seven EFTA States, it has proven to function well with only the three smallest of them left in the EFTA pillar. 10 Since 1995, all changes in the list of EEA Contracting Parties have happened on the EU-side.13 The Faroe Islands has enquired about the possibility of their territory joining EFTA and the EEA, but the fact that the Faroe Islands is not a sovereign State effectively hinders this. Enquiries have also been made concerning the EEA as a suitable affiliation to the EU internal market for microstates such as Andorra, Monaco and San Marino.14 From the EU’s perspective, this would be an ideal way to integrate these states into the internal market through a tried and tested institutional set-up funded by the participating EFTA States. For the EFTA States, however, accepting Andorra, Monaco and San Marino into EFTA and the EEA would complicate life in the EFTA pillar without adding much bargaining power. The Norwegian government therefore made it known that it did not consider EFTA/EEA membership for the microstates to be an appropriate mechanism for their integration into the internal market. The EU accepted this, opting instead for the negotiation of a single multilateral Association Agreement with all three states.15 11 The prospects of Switzerland eventually joining the EEA appear rather remote. Still, given the EU’s growing dissatisfaction with the cumbersome ‘Swiss Model’ of numerous bilateral agreements without an institutional framework, as well as the general uncertainty brought about by Brexit, it should perhaps not be ruled out completely.16 12 Out of a total number of ten EFTA States, six are now members of the EU. It is tempting to claim that at least three of the remaining four come across as thoroughly sceptical towards the ‘ever closer union of the peoples of Europe’ envisaged by the EU Treaty. The prospects of either of the remaining EFTA States joining the EU in the foreseeable future appear slim.17 At least for Iceland, Norway and Switzerland, this is mainly because of an electorate less than enthusiastic about the idea.18 However, as dramatically demonstrated by the 2016 ‘Brexit’ vote, EU membership has not automatically transformed former members of 12 Liechtenstein’s accession to the EEA was delayed by the need to sort out the relationship between the EEA Agreement and the Swiss-Liechtenstein customs union. For details, see Frommelt’s report on Liechtenstein in Part I of this book. 13 For an overview, see the comments by Arnesen and Fredriksen to the list of EEA Contracting Parties in Part II of this book. 14 European Commission, ‘EU Relations with the Principality of Andorra, the Principality of Monaco and the Republic of San Marino – Options for Closer Integration with the EU’, COM (2012) 680 final. 15 European Commission, ‘EU Relations with the Principality of Andorra, the Principality of Monaco and the Republic of San Marino: Options for their participation in the Internal Market’, COM (2013) 793 final. 16 See also Pirker’s report on Switzerland and the EEA in Part I of this book. 17 Iceland applied for EU membership in the wake of the financial crisis, but the government suspended the application in 2013 and then, in 2015, sent a letter withdrawing it. 18 For Liechtenstein, the small size of the country alone makes EU membership hard to envisage and the matter does not seem to be on the political agenda.

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The EFTA States, the EEA and the different views on the legal integration of Europe

‘the outer circle’ into enthusiastic supporters of European integration either. Out of the founding members of EFTA, only Austria and Portugal participate fully in all EU policies, including the Euro. It is hardly a mere coincidence that Austria and Portugal were among those of the founding states that were unable rather than unwilling to join the European Economic Community at the time when the EFTA was established.19 The EFTA States’ scepticism towards deep integration with supranational in- 13 stitutions and transfer of legislative and judicial competences is clearly visible in the EFTA Convention, both the original Stockholm Convention from 1960 and the new Vaduz Convention of 2001. The EFTA has always been primarily about free trade, within the framework of a multilateral association and without any transfer of sovereignty, whereas the raison d’être of the EEC/EC/EU is the process of integration towards an ever closer union of the peoples of Europe.20 Thus, from the very beginning, there were fundamental differences between the EEC and the EFTA with regard to objectives, means and institutional arrangements. These differences are, with the transition from the EEC to the current EU, all the more apparent today. In this context, it is certainly notable that two of the founding EFTA States, Denmark and Sweden, have opted out from important EU policies, and that another, the UK, now is leaving the Union altogether. Despite their persistent position as ‘reluctant Europeans’, however, the re- 14 maining EFTA States’ relationships to the EU has developed considerably since the signing of the EEA Agreement. As a side-effect, the integration between the four EFTA States has also become deeper. III. The development of the EEA Agreement

The EEA Agreement itself has evolved in ways hardly foreseen by the EFTA 15 States when it was signed in 1992. Over the years, the EEA Joint Committee has widened the substantive scope of the Agreement on a number of occasions. Important examples include the incorporation of veterinary issues into the EEA Agreement;21 the incorporation of the EU Emissions Trading Scheme;22 the granting of rights to economically inactive persons (other than pensioners and students) through the incorporation of the Citizenship Directive;23 and the acceptance of EEA law incursions into criminal law through the incorporation of the Environmental Crime Directive.24

19 The same applies to Finland, who opted for EU membership as soon as the geopolitical situation allowed for it and who has come across as a much more enthusiastic supporter of European integration than the other Nordic countries. 20 As stated by the ECJ (Full Court) in Opinion 2/13, 18.12.2014, ECHR, para. 172. 21 Decision of the EEA Joint Committee No. 69/1998. 22 Decision of the EEA Joint Committee No 146/2007. 23 Decision of the EEA Joint Committee No 158/2007. 24 Decision of the EEA Joint Committee No 191/2015. See also Decision No 188/2007, incorporating into the EEA Agreement the Ship-Source Pollution Directive (Directive 2009/123/EC).

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Introduction

In parallel, the EFTA Court has not only vigorously pursued an interpretation of EEA law in line with the ECJ’s dynamic development of EU law; it has also embraced, and won acceptance for, an effect-related conception of the homogeneity objective: Homogeneity is a legal principle (not only a political goal) which applies also to the question of the legal effect of EEA law in the legal orders of the Contracting Parties. The crossing of the Rubicon took place in 1999, when the EFTA Court in Case E-9/97 Sveinbjörnsdóttir deduced an unwritten principle of State liability from the object and purpose of the Agreement.25 For the dualist EFTA States, liability for loss and damage caused by incorrect implementation of EEA law obligations was a bitter pill, but the EFTA Court received invaluable support by the ECJ in Case C-140/97 Rechberger26 and Sveinbjörnsdóttir was thereafter accepted by all of the supreme courts of the EFTA States.27 Even though the EU law principles of direct effect and primacy are not part of EEA law,28 the recognition of the principle of State liability provides a judicial protection in the EFTA-pillar of rights based on EEA law which comes quite close to that provided for within the EU. 17 In other cases, the EFTA Court has relied on the homogeneity principle in attempts to bridge, by way of interpretation, the ‘widening gap’ that has formed between the (unchanged) Main Part of the EEA Agreement and the EU Treaties as a result of the Treaties of Maastricht, Amsterdam, Nice and Lisbon. Particularly sensitive are cases where the lack of EEA parallels to the EU law concept of Union citizenship and the EU Charter of Fundamental Rights come into play.29 In Case E-26/13 Gunnarsson and Case E-28/15 Jabbi, the EFTA Court opted for an interpretation of provisions of the Citizenship Directive (Dir. 2004/38) at odds with ECJ case-law in order to ‘remedy’ the lack of provisions in the Main Part of the EEA Agreement mirroring Arts. 20 f. TFEU.30 Whereas some applaud this as bold moves to attain homogeneity between EU and EEA law;31 others see it as illegitimate overruling of the fact that the EFTA States refused to take on board the concept of Union citizenship when accepting the Citizenship Directive.32 18 In Sveinbjörnsdóttir, the EFTA Court held that the ‘depth of integration of the EEA Agreement is less far-reaching than under the EC Treaty, but the scope and 16

25 Case E-9/97, 10.12.1998, Sveinbjörnsdóttir. 26 Case C-140/97, 15.6.1999, Rechberger, para. 39. 27 Judgment of the Supreme Court of Iceland, 16.12.1999, in Case 236/1999 Sveinbjörnsdóttir; judgment of the Supreme Court of Norway, 28.10.2005, in Case 2005/412 Finanger II and, finally, judgment of the Supreme Court of Liechtenstein, 7.5.2010, in Case CO.2004.2 Dr. Tschannet II. 28 Despite the ECJ’s suggestions to the contrary in Case C-431/11, 26.9.2013, UK v. Council, para. 54, and Case C-83/13, 8.7.2014, Fonnship, para. 24. See further the comments by Dystland, Finstad and Sørebø on Art. 7 EEA in Part II of this book. 29 See Fredriksen and Franklin, ‘On Pragmatism and Principles – The EEA Agreement 20 Years On’, 52 Common Market Law Review (2015) pp. 629-684, at pp. 635 ff. 30 Case E-26/13, 27.6.2014, Gunnarsson and Case E-28/15, 26.7.2016, Jabbi. 31 See, e.g. the comments by Einarsson on Art. 32 EEA in Part II of this book. 32 See, e.g., the comments by Wennerås on Art. 6 EEA in Part II of this book.

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The EFTA States, the EEA and the different views on the legal integration of Europe

the objective of the EEA Agreement goes beyond what is usual for an agreement under public international law’.33 This is an accurate observation, as the EEA Agreement indeed does bridge some of the differences between the EFTA and the EU, making all the EEA States subject to a new kind of international cooperation, different from the ones they were in prior to the EEA Agreement. There are also developments in the fields of agriculture and fisheries that are 19 related to the EEA Agreement in one way or another. Even though concluded by way of bilateral agreements between the EU and each of the EFTA States, Arts. 19 and 20 EEA provide a basis for EU-EFTA relations also in these fields.34 IV. The development of further relationships between the EFTA States and the EU

The relationship between the EU and the EFTA States have developed also 20 outside the scope of the EEA Agreement. While the conclusion of the EEA Agreement has to be seen in the context of the ‘completion’ of the internal market after the European Single Act of 1986, the many other agreements between the EFTA States and the EU reflect the widening and deepening of EU policies brought about by the Treaties of Maastricht, Amsterdam, Nice and Lisbon. As early as in 1957, Denmark, Norway, Sweden, and Finland agreed to re- 21 move passport control at their internal borders.35 The Convention was extended to Iceland in 1965, thus completing the Nordic Passport Union. In 1996, however, the agreements on the accession of Denmark, Sweden and Finland to the Schengen Agreement were signed. In order to maintain the freedoms established by the Nordic Passport Union, Iceland and Norway signed an association agreement with the Contracting Parties to the Schengen Agreement to become part of the Schengen Area. However, this agreement never came into force, as the 1995 Convention implementing the Schengen Agreement did not open for signature by non-EU States. Fortunately, the extension of EU competences through the Treaty of Amsterdam allowed Iceland and Norway to conclude a similar agreement with the EU, which they then did in 1999.36 Switzerland followed suit in 2008 and in 2011 Liechtenstein too joined the Schengen Area. As six of the currently 28 EU Member States remain outside the Schengen Area,37 the EFTA States’ Schengen association agreements show that there are fields where the

33 Case E-9/97, 10.12.1998, Sveinbjörnsdóttir, para 59. 34 See further the comments by Arnesen on Art. 19 (agriculture) and 20 (fisheries) EEA in Part II of this book. 35 Convention between Denmark, Finland, Norway and Sweden concerning the waiver of passport control at the Intra-Nordic frontiers. Signed at Copenhagen, on 12 July 1957. 36 The agreement on Iceland’s and Norway’s association with the implementation, application and development of the Schengen acquis, as based on the Council Decision 1999/439/EC of 17 May 1999, was signed between Iceland, Norway and the EU on 18 May 1999. 37 Bulgaria, Croatia, Cyprus and Romania have still not been admitted into the Schengen Areas, whereas Ireland and the UK have permanent opt-outs.

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7

Introduction

EFTA States actually are deeper integrated into EU policies than some of the EU’s own Member States. 22 The Schengen association agreements connect all four EFTA States to the EU Area of freedom, security and justice (Arts. 67-89 TFEU).38 Other important agreements within this field include association agreements to the so-called Dublin Asylum System. Iceland and Norway concluded a joint agreement with the EU in 2001,39 whereas Switzerland concluded a separate one in 2004 (which entered into force in 2008).40 Liechtenstein acceded to the latter agreement in 2008 (with effect as of 2011).41 To this comes a long list of agreements related to criminal matters and police cooperation, such as, e.g., Operational Agreements with Europol;42 agreements on cooperation with Eurojust43 and the European Union Agency for Law Enforcement Training (Cepol); agreements with the EU on the application of certain parts of the Prüm regime on cross-border cooperation to combat terrorism and cross-border crime44 and with respect to mutual assistance in criminal matters45 as well as the (still not effective) Agreement on Icelandic and Norwegian affiliation to the European Arrest Warrant.46 23 Also part of the EU Area of freedom, security and justice are the EU rules on jurisdiction and the recognition and enforcement of judgments in civil and com38 This is briefly described in NOU 2012:2 Utenfor og innenfor. Norges avtaler med EU, pp. 72-74. 39 Agreement between the Kingdom of Norway and the Republic of Iceland and the European Community concerning the criteria and mechanisms for establishing the State responsible for examining a request for asylum lodged in a member State or in Iceland or Norway, 19 January 2001. 40 Agreement between the European Community and the Swiss Confederation concerning the criteria and mechanisms for establishing the State responsible for examining a request for asylum lodged in a Member State or in Switzerland, 26 October 2004. 41 Protocol between the European Community, the Swiss Confederation and the Principality of Liechtenstein on the accession of the Principality of Liechtenstein to the Agreement between the European Community and the Swiss Confederation concerning the criteria and mechanisms for establishing the State responsible for examining a request for asylum lodged in a Member State or in Switzerland, 28 February 2008. 42 Agreement between The Republic of Iceland and Europol, 28 June 2001; Agreement on Operational and Strategic Co-operation between the Principality of Liechtenstein and the European Police Office, 7 June 2013; Agreement between The Kingdom of Norway and Europol, 28 June 2001; Agreement between The Swiss Confederation and Europol, 24 September 2004. 43 Agreement between the Republic of Iceland and Eurojust, 2 December 2005Agreement on Cooperation between Eurojust and the Principality of Liechtenstein, 7 June 2013; Agreement between the Kingdom of Norway and Eurojust, 28 April 2005; Agreement between the Swiss Confederation and Eurojust, 27 November 2008. 44 Agreement between the European Union and Iceland and Norway on the application of certain provisions of Council Decision 2008/615/JHA on the stepping up of cross-border cooperation, particularly in combating terrorism and cross-border crime, 26 November 2009. At the time of writing, the agreement has still not entered into force. Liechtenstein and Switzerland are negotiating a similar agreement. 45 Agreement between the European Union and the Republic of Iceland and the Kingdom of Norway on the application of certain provisions of the Convention of 29 May 2000 on Mutual Assistance in Criminal Matters between the Member States of the European Union and the 2001 Protocol thereto, Agreement between EU, Norway and Iceland signed in Brussels 19 December 2003. Neither Liechtenstein nor Switzerland have so far concluded a similar agreement.

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The Editors

The EFTA States, the EEA and the different views on the legal integration of Europe

mercial matters. Developments in this field necessitated an update of the abovementioned 1998 Lugano Convention. Thus, in 2007 a new Lugano Convention was signed, this time with the EU as the sole Contracting Party on the EU-side and with the three EFTA States Iceland, Switzerland and Norway on the other.47 In addition, Denmark is a Contracting Party due to the Danish opt out from this part of EU law. Notably, Liechtenstein is not a party to the Lugano Convention. The recast Brussels I Regulation of 2012 (Reg. No. 1215/2012) has introduced some changes to the EU rules that mean that there is no longer full homogeneity between the Lugano and the Brussels Regimes, but so far without any call from the Lugano Convention’s Standing Committee for an update of the Convention. Unlike the EEA Agreement and the Schengen and Dublin association agreements, the Lugano Convention lacks a simplified procedure that allows for updating of the agreement to keep up with changes within EU law. Also within the field of EU’s Common Foreign and Security Policy have the 24 EFTA States entered into several separate agreements with the EU.48 As a particularly striking example, Norway has negotiated an opt-in to participate with military personnel in one the EU’s battlegroups – the so-called Nordic battlegroup.49 Typically, Norway also aligns itself with EU Council decisions on the field of foreign policy. All of the agreements between the EU and the EFTA States outside the scope 25 of the EEA Agreement demonstrate that the EEA Agreement alone today no longer meets the EFTA States’ desires to be part of the cooperation that takes place within the framework of the EU. At the same time, however, the absence of any interest in the EFTA States for similar affiliation to EU policies in the fields of agriculture, fisheries, the customs union, the banking union, the economic and monetary union etc. demonstrates that their status as non-members of the EU allows them to ‘cherry pick’. The price to pay is, as already mentioned, the absence of genuine influence in the fields in which they choose to enter into agreements of association with the EU. In parallel to, and at least partially as a side-effect of, the development of EU- 26 EFTA relations, the EFTA as such has also been revitalized. The EFTA secre46 Agreement between the European Union and the Republic of Iceland and the Kingdom of Norway on the surrender procedure between the Member States of the European Union and Iceland and Norway, 28.6.2006. At the time of writing, this agreement has still not entered into force. 47 Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, 30 October 2007 (entry in force 1 January 2010). It expands the applicability of the Brussels I regulation (Council Regulation 44/2001) to the mentioned non-EU members. 48 The EU’s Agreements with Norway in this field are briefly described in NOU 2012:2 Utenfor og innenfor. Norges avtaler med EU, pp. 74-75. 49 Memorandum of understanding between the Ministry of Defence of the Republic of Estonia and the Ministry of Defence of the Republic of Finland and the Ministry of Defence of the Kingdom of Norway and the Government of the Kingdom of Sweden concerning the principles for the establishment and operation of a multinational battle group to be made available to the European Union, 17 May 2005.

The Editors

9

Introduction

tariat plays a crucial role in the daily management of the EEA Agreement and has been strengthened accordingly. Furthermore, in an attempt to keep up with the EU’s common commercial policy, the EFTA States have jointly negotiated and concluded numerous free trade agreements with third countries. Currently, the number of such agreements is 27, covering 38 countries.50 Finally, the EFTA Convention was completely overhauled in 2001 and now includes provisions on the free movement of persons and progressive liberalization of trade in services and of investment, essentially reflecting developments in the bilateral agreements between the EU and Switzerland. V. The role of the EEA Agreement today. Future developments

As can be seen from this overview, there is today a whole web of agreements between the EU and the different EFTA States. From an EU perspective, the EEA Agreement and the other agreements between the EU and one or more of the EFTA States can be seen as projections of EU norms and values onto neighbouring States.51 Seen from the EFTA States, the perspective is rather one of shared values, mutual interests and practical considerations as to how to structure cross border relations with close neighbours. 28 Notwithstanding the importance of the other agreements, the EEA Agreement still stands out as by far the most important one for the three participating EFTA States Iceland, Liechtenstein and Norway. 25 years on, the EEA has proven surprisingly resilient. Defying the discouraging predictions made by leading commentators at the time of its creation,52 the EEA Agreement has accomplished its aim of extending (much of) the EU internal market to the participating EFTA States. However, the Agreement’s resilience is hardly due to it being so much better than perceived by those predicting its demise 25 years ago, but rather to the fact that the remaining EFTA States have proven to be far more pragmatic than any commentator back in the early 1990’s could ever have imagined them to be.53 29 Notwithstanding, the inherent tensions brought about by the attempt to integrate the EFTA States into the EU internal market without any transfer of sovereignty are still there. Furthermore, the independent 2012 EEA review com27

50 For updated information, see http://www.efta.int/free-trade/free-trade-agreements. Norway has only negotiated two FTAs on its own. They are the free trade agreements with Greenland and the Faroe Islands, both having a special Nordic perspective. 51 See Hillion, Integrating an outsider. An EU perspective on relations with Norway, Europautredningen Rapport # 16, August 2011, see pp 6, 8, “the EEA is, from an EU point of view, a nearly perfect tool of norm projection” (p 13), 14. 52 See, eg, Schermers’ prognosis in his annotation of the ECJ’s Opinions 1/91 and 1/92 in 29 Common Market Law Review (1992), pp. 991-1009, 1005: “It is unlikely that the compromises found will lead to a system which remains workable in the long term”. Similarly Cremona ‘The “dynamic and homogeneous” EEA: Byzantine structures and various geometry’ 19 European Law Review (1994) pp. 508-526, 524. 53 See further Fredriksen and Franklin, ‘On Pragmatism and Principles – The EEA Agreement 20 Years On’, 52 Common Market Law Review (2015) pp. 629–684.

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The EFTA States, the EEA and the different views on the legal integration of Europe

missioned by the Norwegian government and the Commission’s follow-up review from an EU perspective both revealed that the functioning of the EEA is not quite as unproblematic as suggested in previous conclusions of both the EEA Council and the EU Council.54 There are tensions both within the EFTA pillar55 and between the EFTA States and the EU. Subsequently, in 2014, the EU Council noted with concern ‘the recurrent backlog and delays incurred during the entire process of incorporation of EU legislation into the EEA Agreement, as well as in the implementation and enforcement of relevant legislation in the EEA EFTA states’ and strongly emphasizes ‘the need for renewed efforts in order to ensure homogeneity and legal certainty in the European Economic Area’.56 The 2016 assessment was a bit more positive, but the Council still noted that ‘there is still an important number of legal acts for which the compliance date in the EU has passed but which have not entered into force in the EEA EFTA States as their incorporation into the EEA Agreement has been delayed’.57 The Council thus stressed the need for the EFTA States to ‘continue their efforts towards a streamlined incorporation and application of EEA relevant legislation, in order to reduce the number of pending acts for incorporation and to ensure legal certainty and homogeneity in the EEA.’ Also, developments within the EU in more recent years have given rise to 30 new challenges in the EEA. The development of Union citizenship, the entry into force of the EU Charter of Fundamental Rights, the blurring of the lines between the law of the internal market and other parts of EU law, the ‘agencyfication’ of the EU and the development towards closer cooperation between national authorities of the Member States, to name only some of the most important, all present challenges to the functioning of the EEA. At the time of writing, the EU has still not recovered from the 2008 financial 31 crisis and not even begun to absorb the shock of the 2016 Brexit vote. Predictions about the future of EU-EFTA relations, or indeed that of the EU itself, are almost impossible to make. Still, it is to be noted how the term ‘multispeed Europe’ has gained renewed attention. Based on the history of EFTA-EU relations, it may be objected that it would be more precise to talk about different levels of integration, as views differ not only with regard to the speed of the integration

54 NOU 2012:2 Utenfor og innenfor. Norges avtaler med EU; European Commission Staff Working Document ‘A review of the functioning of the European Economic Area’, Brussels, 7 December 2012 (SWD (2012) 425 final). 55 In Iceland, some diplomats have opined that ‘their Norwegian counterparts on occasion seem to forget that they are in a binding agreement with two smaller partners and that Norway, as the big power within the EFTA/EEA, is prone to operate alone on issues that are a concern to all of them’, see Bergmann, Iceland and the EEA 1994-2011, Europautredningen Rapport # 7, March 2011, p 17. 56 Council conclusions on a homogeneous extended single market and EU relations with NonEU Western European countries, 16 December 2014, para 32. See also Helgadóttir and Einarsdóttir’s report on Iceland in Part I of this book. 57 Council conclusions on a homogeneous extended single market and EU relations with NonEU Western European countries, 13 December 2016, para. 42.

The Editors

11

Introduction

32

33

34

35

process but also the ultimate goal of the whole enterprise. Terminology aside, the future of European integration may come in different versions, both within and outside the EU. As to the EFTA, the prospect of UK re-entry is not necessarily far-fetched, even though UK membership of the EFTA pillar of the EEA seems to be off the agenda – at least as anything more than a temporary crisis-solution if the negotiations for a future UK-EU agreement drag out. The question of Scotland’s possibility of becoming a member of the EFTA pillar of the EEA cannot be ruled out,58 even though the necessary backing by the UK government may be difficult to get. The EU’s push for a framework agreement with Switzerland may well in the end lead to something which resembles the institutional structure of the EEA – perhaps even with a kind of Swiss ‘docking’ to the EFTA Surveillance Authority and/or the EFTA Court (although the Swiss at the moment appear to favour the ECJ above the EFTA Court).59 A bold, but perhaps not completely far-fetched proposition would be for an updated and broadened ‘EEA 2.0’ which includes several of the other EU-EFTA agreements mentioned above (Lugano, Schengen, Dublin etc.)60 and introduces a genuine joint decision-making procedure. It would solve the problem with the ‘static’ character of some of the current agreements (such as the Lugano Convention) and remedy the democratic deficit of the EEA, thus potentially turning the EEA into a permanent solution for those European states less enthusiastic about deepened integration within the EU. So far, Iceland, Liechtenstein and Norway have been very reluctant to open up for renegotiation of the EEA Agreement – acknowledging that the bargaining-power on the EFTA-side is smaller now than it was in 1990-91 and fearing a range of tough demands from the EU-side. However, as demonstrated by several of the contributions to this commentary, 25 years after it was signed, the need for an ‘overhaul’ of the EEA Agreement is growing. Rather than just leave the matter to the courts, the Contracting Parties will sooner or later have to acknowledge their responsibility as masters of the Agreement and deal with the challenges to the continued success of the EEA. If a genuine joint decision-making procedure is off the table, the EFTA States’ could prevent the opening Pandora’s Box by limiting the discussions from the outset to a mere update of the Main Part of the EEA Agreement as it stands today – thus leaving the grand debate concerning the EFTA States’ future relationship to the EU for another day. Grand or not, any debate about the future of EFTA-EU relations has to be based on a thorough understanding of EEA Agreement as it stands and functions today. This commentary on the Agreement is intended to provide just that.

58 See the Scottish government’s discussion paper Scotland’s Place in Europe, Edinburgh, 2016. 59 See the report by Pirker in Part I of this book on Swiss-EU relations. 60 As suggested by the Committee reviewing Norway’s relationship to the EU, see the concluding chapter of NOU 2012:2 Utenfor og innenfor – Norges avtaler med EU.

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The Editors

PART I: General Reports Iceland and the EEA I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Constitutional issues concerning the EEA Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 1. Acceding to the EEA: constitutional matters in 1992 . . . . . . . . . . . . . . 2. Developments since 1992 . . . . . . . . . . 3. Proposed constitutional amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. General Impact of EEA on Icelandic law: Impact on legal theory . . . . . . . . . . . . IV. Incorporating and Implementing EU Acts – How is Iceland Doing? . . . . . . . . . 1. Incorporating EU Acts into the EEA Agreement – Why the Increased Backlog? . . . . . . . . . . . . . . . . .

1 3 3 8 13 18

2. Increased Implementation Deficit V. Legal Effects of EEA Law on Icelandic Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. No Direct Legal Effect, but Obligation to Comply with Principles of Uniform Interpretation . . . . . . . . . . 2. Precedence of EEA Law over Icelandic Law . . . . . . . . . . . . . . . . . . . . . . . . . . VI. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII. Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

42 48 48 56 76 76

25 25

I. Introduction ‘The EEA Agreement is the most extensive agreement that Iceland has entered into internationally … It is one of the main pillars of the economic life of the Icelandic nation …’ 1

This chapter will provide an overview over the implementation of EEA law in 1 Iceland, the constitutional challenges which the EEA cooperation entails and very briefly over the impact of the EEA Agreement on the Icelandic legal system. First, the constitutional issues that have arisen out of Iceland’s participation in 2 the EEA, and which continue to create problems for Iceland, will be discussed. Then, there will be a brief section on the general impact of the Agreement on the legal system in general. The economic and social impact of the Agreement, although huge as evidenced by the citation above, will not be discussed here in any detail. Suffice it to say that in 2015 (the most recent year for which complete data is available), almost 80% of export value for goods from Iceland came from trade with the EEA countries and almost 60% of the export value for services.2 Thirdly, there will be given an overview over the Icelandic execution of the EEA Agreement. Finally, the legal effect of EEA law in Iceland will be discussed, both regarding direct legal effect and supremacy.

1 Information material on the EEA Agreement from the website of the Ministry of Foreign Affairs https://www.utanrikisraduneyti.is/verkefni/evropumal/verkefni/nr/4578. 2 Source: Statistics Iceland.

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II. Constitutional issues concerning the EEA Agreement 1. Acceding to the EEA: constitutional matters in 1992

Unlike many European constitutions, the Icelandic Constitution of 1944 has no provision on the transfer (Icelandic: “framsal” – also often translated as “delegating“ so both terms are used in what follows) of powers described in the Constitution to international organisations, similar to Art. 115 of the Constitution of Norway or Art. 20 of the Constitution of Denmark. 4 Art. 2 of the Constitution no. 33/1944, provides that „Alþingi and the President of Iceland jointly exercise legislative power. The President and other governmental authorities referred to in this Constitution and elsewhere in the law exercise executive power. Judges exercise judicial power.” This is a principle which has been derogated from in a number of ways3 – including by delegation of legislative power to the executive and by some delegating of powers of international and supranational bodies – but the principle remains clear and limits considerably the delegation of powers to international and supranational bodies. In addition, Art. 13 provides inter alia that “The President entrusts his authority to Ministers” and Art. 14 of the Constitution provides that “Ministers are accountable for all executive acts.” This last provision has been held to imply that executive power is vested in the Icelandic cabinet ministers and their subordinates. 5 When Iceland ratified the EEA Agreement in 1992, constitutional questions were therefore raised, regarding notably whether the transfer of state powers inherent in the Agreement was consistent with the Icelandic constitution. 6 A committee of experts was commissioned by the Ministry of Foreign Affairs to address these questions.4 Their conclusions, especially concerning delegation of executive powers, were based on the assumption that there exists, in Icelandic law, a customary law rule, allowing delegation of state powers to international organs under certain circumstances. The constitutionality of delegation thus came (in some instances) down to whether: a) The delegation was clearly delimited – the state powers to be delegated clearly determined. b) The scope of the delegation was limited. c) and whether the delegation imposed a substantial burden on individuals or legal entities. They concluded that the EEA agreement was consistent with the principle in Art. 2 of the Constitution. It must be noted that Icelandic legal theory accepts customary rules on certain conditions and such rules can (and do) have constitutional status, both as supplementary rules and as amending the written constitutional text. So the rule permitting delegation of state powers to international organs is by no means unique.5 3

3 As pointed out inter alia by the 1992 Committee of legal experts. See the Report of the Committee appointed by the Minister of Foreign Affairs on the Constitution and the EEA Agreement, dated 6 July 1992. It is annex I, to þskj. 30, 116. löggj.þ. 1992. Available at http://www.al thingi.is/altext/116/s/0030.html. 4 Ibid.

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Iceland and the EEA

The committee’s conclusions were disputed both in public and amongst ex- 7 perts, as other experts found the delegation inherent in the treaty to go beyond what was permissible.6 However, Alþingi passed the Act incorporating the EEA treaty and Iceland acceded to the treaty, presumably basing its opinion of its constitutionality on the premises laid out by the Committee. 2. Developments since 1992

Constitutional questions regarding the EEA and related agreements (such as 8 Schengen) have therefore, in Icelandic law, been examined under this rule of customary constitutional law, which is, admittedly, somewhat unclear around the edges. Questions regarding its scope and substance have never come before the courts but instead elaborated on in theory.7 While noting that it is hard to establish the scope and substance of the cus- 9 tomary rule permitting delegation, Judge Davíð Þór Björgvinsson wrote in 2006, that delegating state powers to international organs was permissible to a certain extent under the Icelandic Constitution, on the following conditions: – – – –

The delegation is determined by statute; its scope is limited and the delimitations are clear; it does not impose a substantial burden on the Icelandic state or the citizens; it is based on a treaty which provides mutual rights and obligations and provides for a similar delegation of state power on the part of other state parties; – the international organs to whom power is delegated must be democratically sound and accept the rule of law and the principles of fair administration and fair trial; – the delegation must be due to an international treaty which has legitimate aims concerning peace and social, economic and cultural development;

5 See on the status of customary rules and constitutional customary rules e.g. Sigurður Líndal, Um lög og lögfræði: grundvöllur laga – réttarheimildir (Hið íslenzka bókmenntafélag 2002) 75; Ragnhildur Helgadóttir, ‘Hvordan skabes en (islandsk) grundlov? Grundlovsændringer, sædvaneret og praksis 1874-2011’ InHolmøyvik (ed.), Grunnlova mellom tolking og endring (Oslo 2013). One example of constitutional custom amending the written constitution is in Hrd. 1985:1544. 6 See e.g. the opinions of Björn Þ. Guðmundsson and Guðmundur Alfreðsson. They are Annexes II and III to þskj. 30, 116. löggj.þ. 1992. Available at www.Alþingi.is/altext/116/s0030.html. 7 See, in addition to the opinions already cited, Davíð Þór Björgvinsson, EES-réttur og landsréttur (Bókaútgáfan Codex 2006); Stefán Már Stefánsson, Evrópusambandið og evrópska efnahagssvæðið, (Bókaútgáfa Orators 2000); the opinion of Davíð Þór Björgvinsson regarding the constitutionality of a new Competition Act, incorporating new EEA rules, available in þskj. 883, 131. löggj.þ. 2004-2005. Available at www.Alþingi.is/altext/131/s/0883.html and the opinion of Davíð Þór Björgvinsson, Stefán Már Stefánsson and Viðar Már Matthíasson on the constitutionality of joining the Schengen Agreement. Their conclusions are summarized in þskj. 1176, 122. löggj.þ. 1997-1998. Available at http://www.Alþingi.is/altext/122/s/1176.html and the opinion of Ragnhildur Helgadóttir as to whether certain provisions in proposed EU legislation concerning electronic communications are consistent with the Icelandic Constitution and the role of the EFTA Surveillance Authority, 20.5.08, (on file with authors and PFS – the Post and Telecom Administration in Iceland).

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PART I: General Reports

– the delegation must not lead to a derogation from the constitutional rights of the citizens; – and the delegation must be retractable.8 One can argue that the importance of these conditions – and their practicality – varies widely and it is possible that this list has changed in the intervening years. But this has been used and amongst the different issues evaluated under this standard,9 one can name a new Competition Act (in 2004-2005),10 the Schengen agreement (1997-1998), Arts. 5-7 and 11-13 of the proposed Regulation establishing the European Electronic Communications Market Authority (2008) and the European System of Financial Supervision (2012).11 In at least two of those cases12 – the European System of Financial Supervision and the EECMA – the intended changes were held to go beyond what the constitution permits. In the first case, due to the delegation’s scope not being sufficiently limited or the delimitations clear and in the second one due to the same reason and because there was no precedent for delegation of the kind suggested there.13 The opinion on the constitutionality of the European System of Financial Supervision mentioned especially the need to amend the constitution so as to permit delegation, as well as the risk of cumulative delegation going beyond what is constitutionally acceptable, even if any single instance of delegation does not.14 11 Indeed, it has been discussed in public and legal debate since at least the early 2000, that the EEA Agreement gives lead to constitutional questions. In a 2001 interview in the main Icelandic newspaper, Norwegian law professor Eivind Smith noted that the EEA Agreement had been a „constitutional catastrophe.“15 10

8 Björgvinsson 1992, pp. 478-479. 9 For years, most recently in 2014, the main constitutional questions arising out of the EEA Agreement each year were mentioned in the annual report of the Foreign Minister to Parliament. See e.g. https://www.utanrikisraduneyti.is/media/utn-pdf-skjol/Skyrsla-radherra-2014.p df#page=34, p. 35. 10 See e.g. the opinions of Björn Þ. Guðmundsson and Guðmundur Alfreðsson. They are Annexes II and III to þskj. 30, 116. löggj.þ. 1992. 11 The Opinion of Björg Thorarensen and Stefán Már Stefánsson on the constitutionality of the European System of Financial Supervision. Available at https://www.utanrikisraduneyti.is/me dia/Frettatilkynning/Alitsgerd_BTh_SMS.pdf. 12 See http://blog.pressan.is/mordur/2014/03/12/stjornarskra-i-evropustefnu-00/, where more examples of delegation going beyond what is viewed as permissible are listed. See also Margrét Einarsdóttir, ‘Nýjar áskoranir fyrir framkvæmd EES-Samningsins’ [New Challenges in the Execution of the EEA Agreement], Tímarit lögfræðinga, forthcoming 2017. 13 In light of the discussion, political and legal, when Iceland acceded to the EEA treaty and the worries evidenced over foreign access to resources in the parliamentary records, it seems clear that this delegation goes much further than anyone envisioned at the time. There are thus no precedents for concluding that this delegation would fall within the customary rule allowing derogation from Arts. 2 and 14 of the constitution. There is therefore serious doubt as to whether Alþingi would accept such delegation and whether it can constitutionally do so. The opinion of Ragnhildur Helgadóttir, 1998, p.23. 14 See The Opinion of Björg Thorarensen and Stefán Már Stefánsson 1992, p. 39. 15 ‘Norræn þingræðishefð er sterk‘ [The Nordic Tradition of Parliamentarism is strong] Morgunblaðið 6.2.2001. Available at http://www.mbl.is/greinasafn/grein/587554/.

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Iceland and the EEA

In 2002-2003, Þór Vilhjálmsson and Kristrún Heimisdóttir published articles discussing these matters and the latter in particular argued that “The accession to the EEA was based on the condition that it did not delegate sovereignty and that there was no need to amend the constitution because of it. The main reason for holding that this condition was fulfilled was that the theory of dualism [...] would ensure that EU legislation would enter into force in Iceland according to traditional formal means but not otherwise. Dualism did not prove a strong fort against the tide of EEA-legislation since other means of implementing EEA legislation had in fact been enacted with the treaty. In practice, dualism lost out to them. The Constitution, no. 33/1944, does not provide for delegating sovereignty. The EEA Agreement entailed that kompetenz-kompetenz was limited in the fields covered by the Agreement, as an international organization that Iceland is not party to holds legislative power. This puts great stress on the elasticity of the constitution and weakens the principle of legality which is the basis of the rule of law and democracy in the country.”16

She concluded, and rightly so in the view of these authors, that even acceding 12 to the EU after a referendum would not solve the constitutional problems: ‘The legal system has changed irrespective of [referenda] and the problem concerning legality must be solved through multiple means.’17 3. Proposed constitutional amendments

In the context of EEA cooperation, a committee on constitutional revision, 13 which was active from 2005-7 noted, in its report, that “When foreseeing increased international cooperation in the future, it is natural to prepare and implement constitutional amendments to prevent specific doubts being raised every time the decision is made to cooperate in a certain area.”18 Successive constitutional committees have agreed. The specialist committee of 7, which was asked to make recommendations early in the constitutional amendment process of 2010-2013 noted that it had repeatedly been discussed whether and how the Icelandic constitution should account for more international cooperation.19 It went further than previous committees and wrote: The committee finds it urgent, that Icelandic constitutional law allow the delegation of state powers within certain limits, but also that the direct participation of the nation in such decisions be ensured ... In this context, the development of constitutions of all other Nordic countries, and indeed most European countries after 1950 must be noted.20

The Constitutional Council which drafted a whole new constitution in 2011, 14 included in its draft a provision on “Devolution of state power” permitting “the devolution of state power to international institutions where Iceland is a member for the purpose of peace and economic cooperation...” The article stipulated that 16 Kristrún Heimisdóttir, ‘Stjórnarskrárbundið fullveldi Íslands‘ (2003) Tímarit lögfræðinga 1, p. 54. 17 Ibid., p. 56. 18 See Endurskoðun stjórnarskrárinnar: Áfangaskýrsla nefndar um endurskoðun stjórnarskrár lýðveldisins Íslands, febrúar 2007. [The Revision of the Constitution: Report of the Committee on the Revision of the Constitution of the Republic of Iceland] Available at http://www.alt hingi.is/altext/133/s/pdf/1293.pdf. 19 Skýrsla stjórnlaganefndar 2011 [Report of the Constitutional Commission 2011], I. 104. 20 Ibid., 106.

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the devolution of state power should always be withdrawable and that a referendum was needed when Alþingi made decisions under this article.21 None of these amendments was successful. 15 In 2013, the Minister of Foreign Affairs stated in Parliament that Iceland might need to retreat from the EEA Agreement if the amendment on devolution did not pass.22 A 2014 report from a new constitutional committee emphasized ... that there exists broad political consensus concerning the need for the constitution to discuss the possibility, limits and practice of delegating state powers in the interests of peace and international cooperation. One can consider that such provisions are to be found in most European constitutions, including the constitutions of all other Nordic countries. Then, Icelandic legal scholars and civil servants have repeatedly pointed out the disadvantages of not having such a provision, inter alia regarding Iceland‘s participation in the EEA Agreement.“23

In spite of this view, the committee did not propose an amendment concerning this matter. The Icelandic constitution thus remains unchanged, and the customary rule permitting delegation, described above, remains the only constitutional rule to follow. 17 The fact that Iceland has, in spite of broad political consensus on the necessity of the matter not managed to amend its constitution so as to define and clarify permissible delegation of state powers is very harmful. Vis-a-vis the EEA, it creates legal uncertainty which can only be resolved on a case by case basis and generally not before courts, so foreseeability is low. Domestically, it undermines the constitution and respect for it; principles of interpretation (as the state bases decisions on constitutional interpretations which are questionable) and the rule of law (due to foreseeability and hierarchy of norms issues). None of this is really disputed in Icelandic legal circles. In addition, it does, in the opinion of the authors, render parts of legal theory (particularly concerning sources of law and the primacy of the constitution) illusory. The main political reasons for the failure of any such amendments are worries from certain political parties that such a provision would enable Iceland to join the EU without a referendum. Of course, a provision on delegation need not do that; its effect depends on the drafting. But this fear, coupled with popular lack of support for EU accession, has so far meant that none of the drafted provisions has been adopted. In a very real sense, Iceland’s constitutional status within the EEA Agreement and the integrity of the Icelandic constitutional system are thus collateral damage in a political disagreement on EU membership. 16

21 Art. 111 of the Constitutional Council’s Proposal. 22 ‚Deilt um framsal ríkisvalds í stjórnskipunarlögum: Getum þurft að hverfa frá EES-aðild‘ [Arguments about delegation of state powers in constitutional law: May need to leave the EEA] Vísir 1.2.2013. Available at http://www.visir.is/deilt-um-framsal-rikisvalds-i-stjornskipunarlog um--getum-thurft-ad-hverfa-fra-ees-adild/article/2013702019935. 23 See Starf stjórnarskrárnefndar – 1. áfangaskýrsla (06/2014) [The Work of the Constitution Committee – 1. Report] 14.

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III. General Impact of EEA on Icelandic law: Impact on legal theory

It is of course undisputed that the EEA has immensely influenced the law in EEA areas. The question of the impact of the EEA cooperation on the legal system in general – the way laws are written, methods of interpretation and the relative weight of sources of law – has received much less attention in Icelandic legal theory. Obviously, the EEA Agreement has meant that legislation is now enacted in Iceland, which has different roots than being written in the Icelandic ministries. This is not totally new – Nordic legal cooperation preceded the EEA Agreement by close to a century – but the fact remains that a sizeable chunk of Icelandic legislation stems from the EEA Agreement. This matters when looking at and analysing legal sources. However, because EEA law is implemented through traditional channels, this difference is sometimes omitted entirely in discussions of legal sources. It remains the opinion of these authors that the influx of rules stemming from an international agreement is an important change in the legal system, irrespective of the modes of implementation. On a related note, the EEA is, along with the European Convention on Human Rights, generally viewed as having weakened dualism as the default mode of thinking about the relation between domestic and international law. From the “hard” theory of dualism practiced by the Icelandic Supreme Court in the 1980 s,24 where the Court refused any application of the ECHR, Icelandic law has moved to a stage where the relationship between domestic and international law is much murkier, and where plenty of court decisions do “not sit easily with the principle of dualism”.25 No dominant mode of thought has emerged on those issues, however. Another issue, which is very undertheorised, is the impact of the EEA co-operation on legal interpretation. Until further studies, including statistical ones, have been undertaken, one can only offer a few tentative suggestions. First of all, it seems likely that the EEA has played a role (along with the ECHR, constitutional changes and changes in legislative methodology) in opening up Icelandic law to influences from elsewhere. International law and foreign domestic law are cited more, and used more frequently in interpretation than before 1990.26 In the absence of further studies, it is however impossible to distinguish the influence of the EEA in particular. As regards the areas covered by the EEA, the Agreement has obviously led to substantive changes in legislation. In those areas, the Advisory Opinions of the EFTA Court have proven very influential27 and the Supreme Court, as well as lower courts and parties to cases, have cited the ECJ directly. But the volume of 24 See e.g. Hrd. 1985.1290. 25 Davíð Thór Björgvinsson, The Intersection of National Law and Domestic Law (Edward Elgar 2015) p. 83. 26 See, as regards constitutional judgments, Ragnhildur Helgadóttir, ‚Afstaða dómstóla til hlutverks síns við mat á stjórnskipulegu gildi laga – þróun síðustu ára‘ [Judicial Review, Recent Developments], (2002) 55 Úlfljótur 1.

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legislation in these areas has also increased dramatically compared to pre-1994. This suggests (and once again this is only a suggestion) that there is less need for courts to resort to analogy, unwritten principles of law, etc. This also suggests that the rules in these areas are more detailed than they were before, which can be a systemic change. The “legal standard” approach – with broadly worded provisions which take their substance from other norms – which characterized Icelandic law for a while, may then be retreating. 22 It seems, although this too, needs more substantiation, that Icelandic law is now written in a manner more similar to EEA law. Definitions of terms and objectives of legislation are now sometimes found in the legislation itself, which is a novelty. Although some changes in the writing of Supreme court opinions seem evident in the last 25 years, mostly in favour of longer and more reasoned opinions compared to the very short, almost summary, court opinions that characterized Danish and Icelandic law through the 20th century, this is undertheorized and no links have been made to the EEA. 23 In a 2007 report, Althingi estimated that roughly 20% of Icelandic legislation stemmed directly or indirectly from the EEA cooperation.28 This estimate is likely too low. Firstly, the volume of EEA legislation implemented in Iceland pr. year, has doubled now compared to 2007.29 Secondly, this is lower than the approximately 30% of legislation that Europautredningen in Norway suggested in 2012 was influenced in whole or in part by the EEA.30 24 To sum up, it was stated already in 2003 that the EEA cooperation had fundamentally changed the Icelandic legal system.31 These authors agree that the constitutional issues arising from the EEA cooperation are important and impact the constitutional system far beyond the scope of EEA legislation. Also, that the influx of rules stemming from international cooperation and the weakening of dualism have opened up Icelandic law to foreign domestic and international law with inherent complications. However, we find that there is not enough informa27 See Þorgeir Örlygsson, ‚Hvernig hefur Ísland brugðist við ákvörðunum EFTAdómstólsins‘ [How Has Iceland Reacted to EFTA Court Decisions?] (2004) 54 Tímarit lögfræðinga 412; Davíð Þór Björgvinsson, ‚Application of Art. 34 of the ESA/Court Agreement by the Icelandic Courts‘ in Mario Monti, ed. Economic Law and Justice in Times of Globalisation: Festschrift for Carl Baudenbacher Baden-Baden 2007; Þorgeir Örlygsson: „Iceland and the EFTA Court“ in Economic Law and Justice in Times of Globalisation: Festschrift for Carl Baudenbacher (Baden-Baden 2007); Margrét Einarsdóttir, ‚Ráðgefandi álit EFTA-dómstólsins – Raunveruleg áhrif í íslenskum rétti‘ [Advisory Opinions of the EFTA Court – Real Effects in the Icelandic Legal System]“ (2012) 62 Tímarit lögfræðinga 135. 28 Samantekt – Lög samþykkt á Alþingi sem eiga rætur að rekja til samningsins um Evrópska Efnahagssvæðið [Report – Legislation enacted in Alþingi which stems from the EEA Agreement]. Skrifstofa Alþingis, mars 2007. See https://www.forsaetisraduneyti.is/media/Ymislegt/ Altingi_-_EES_tengd_loggjof.pdf. 29 See the Annual report of the Minister of Foreign Affairs to Parliament 2016 https://www.utanr ikisraduneyti.is/media/gunnar-bragi/Sky%CC%81rsla-utanri%CC%81kisra%CC%81dherra-til -Althingis-2016.pdf#page=36 38. 30 Utenfor og innenfor – Norges avtaler med EU, NOU 2012: 2. Available at https://www.regjeri ngen.no/no/dokumenter/nou-2012-2/id669368/. See ch. 7.1. 31 Heimisdóttir 2015.

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tion to state unequivocally that legal methodology or the legal system as such have changed. As suggested above, it is possible, but unsubstantiated. IV. Incorporating and Implementing EU Acts – How is Iceland Doing? 1. Incorporating EU Acts into the EEA Agreement – Why the Increased Backlog? a) General

The principal aim of the EEA Agreement is to expand the so-called internal 25 market of the European Union in such a manner that the four freedoms, i.e., the free movement of goods, the free movement of services, the free movement of persons, and the free movement of capital, do not solely apply to EU Member States, but also to the EEA EFTA States.32 The basic objective is to establish a homogeneous European Economic Area which is founded on common rules and equal conditions of competition.33 In order to attain this objective, it is necessary that the same rules regarding 26 the internal market apply to the EEA EFTA States as those that apply to the EU Member States. The EEA Agreement contains clauses that have the same content as the basic clauses of the Treaty of the functioning of the European Union on the four fundamental freedoms. In terms of the EEA Agreement, secondary law of the EU, which EU institutions enact in areas that fall within the scope of the Agreement, have to be incorporated into the EEA Agreement as soon as possible. It is the principal role of the EEA Joint Committee to pass decisions regarding the incorporation of EU secondary law into the EEA Agreement. In accordance with Art. 102 of the EEA Agreement, the EEA Joint Commit- 27 tee shall take all decisions regarding amendments to an Annex of the Agreement “as closely as possible” to the adoption by the Community of the corresponding new Community legislation, “with a view to permitting a simultaneous application of the latter as well as of the amendments of the Annexes to the Agreement”.34 In other words, the aim is that the secondary law which is found by the EEA Joint Committee to be EEA relevant, become valid simultaneously within the three EEA EFTA States and the EU Member States.35

32 The EEA Agreement was signed on the 2nd of May 1993 by the European Economic Community and the European Coal and Steel Community and the Member States of these alliances on the one hand, and the EFTA Member States at that time, on the other hand. The accession of Switzerland to the EFTA State was rejected by a national referendum and Switzerland is therefore not a party to the Agreement. The Agreement came into force on 1 January 1994. 33 See Section 4 of the Preamble of the EEA Agreement. A closer discussion of the objectives of the EEA Agreement can be found in the following book by Björgvinsson, 1992, pp. 40-42 and the book by Sigurður Líndal and Skúli Magnússon: Réttarkerfi Evrópusambandsins og Evrópska efnahagssvæðisins [The legal system of the European Union and the European Economic Area]. Reykjavík 2011, pp. 123-124. 34 See Art. 102 of the EEA Agreement. 35 Norberg et al., EEA Law, 1993, p. 142.

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Since the adoption of the EEA Agreement, the EEA EFTA States have been facing challenges regarding the incorporation of EU acts into the EEA Agreement in a timely manner. During the first years of the EEA Agreement, this task did not go very well. During 2000-2010, this task went acceptably well according to Contracting Parties. This is true despite the fact that a high proportion of the acts has consistently not been incorporated in a timely manner in accordance with Art. 102 of the EEA Agreement, that is, prior to the adoption of the new legislation by the EU. Alternatively, the more realistic aim has been to attempt to keep the magnitude of the backlog of unincorporated acts to a minimum.36 29 However, from 2011, the backlog has increased significantly. For example, during 2011-2014, about 418-544 legal acts had not been incorporated into the EEA Agreement, despite the fact that the compliance date had passed for these acts in the EU. Moreover, the compliance date in the EU takes place, on average, around 18 months prior to the equivalent incorporation date into the EEA Agreement.37 If the incorporation of secondary law takes too long, it is evident that the same rules do not apply in the EU and the EEA EFTA States. Thus, the primary objective of the EEA Agreement to create a homogeneous European Economic Area is jeopardised. 30 According to the authors, there are a few contributing factors that have exacerbated the problems regarding the incorporation of EU acts into the EEA Agreement. Regarding Iceland, it is clear that to a nation consisting of just over 300.000 people with an understaffed public administration, the task of executing the EEA Agreement is challenging. Furthermore, the economic crash in Iceland in 2008 has placed even more pressure on public administration and this has been accompanied by heavy cutbacks and an increase in pressing projects. As will be discussed in the next section, the extensive consultation process in the incorporation process in the Icelandic Parliament has also had the tendency to take a long time.38 28

b) Increased Parliamentary Consultations during the Incorporation Process 31

Parliamentary consultation by the Parliament of Iceland increased significantly with the changes to the Rules Regarding the Parliamentary Process of EEA Matters on 16 August 2010. Acts that require legislative changes when implemented, have now to be discussed in the Parliament of Iceland, as part of the incorporation process, on three occasions prior to implementation into Icelandic law.

36 Einarsdóttir, ‘Upptaka afleiddrar löggjafar í EES-samninginn og innleiðing í íslenskan rétt’ [The incorporation of EU secondary law into the EEA Agreement and the implementation into Icelandic national law]. Tímarit lögfræðinga 2015, p. 558. 37 Halvard Haukeland Frederiksen and Christian N.K. Franklin, ‘Of pragmatism and principles: The EEA Agreement 20 years on’, CMLR 52 (2015), p. 658. 38 For further discussion, see the article by Einarsdóttir, 2015, pp. 562-566.

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Firstly, parliamentary consultation takes place via the so-called standard sheet, that is, early in the incorporation process in cases where specialists employed by the ministries claim that the implementation of the specific legal act requires a legislative change to national law. This involves a comprehensive parliamentary consultation process that can take a long time.39 However, it must be pointed out that there is no corresponding consultation process during this stage of the incorporation process in Norway. Similarly, as in Norway, approval by the Standing Committee on Foreign Affairs of the Icelandic Parliament takes place a few days prior to the meeting of the EEA Joint Committee that passes a decision regarding the incorporation of the legal act into the EEA Agreement. This approval process generally runs smoothly and without delay. However, occasionally the Standing Committee on Foreign Affairs requests the Minister of Foreign Affairs to postpone the incorporation of the act for further consideration. Experience has shown that this process takes many months whilst the acts await incorporation into the EEA Agreement.40 As a final step, the legal act comes under consideration by the Parliament for the third time during the incorporation, if the legal act has to be incorporated into the EEA Agreement via constitutional requirements in accordance with Art. 103 of the EEA Agreement. In the case of Iceland, legal acts have to be incorporated with constitutional requirements, if the implementation requires a change to legislation. Iceland has six months to lift the constitutional requirements. This part of the process also tends to take much longer than six months.41

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c) New Challenges Facing the Execution of the EEA Agreement.

There are more factors than those presented above that account for the incor- 36 poration delay. From the time of the signature of the EEA Agreement on 2 May 1992, the EU has undergone a lot of changes. However, the main part of the EEA Agreement has remained unchanged. Various changes within the EU has resulted in new challenges regarding the execution of the EEA Agreement and has caused delays in the incorporation process. For a long time, EU institutions more commonly adopted secondary law in 37 the form of directives. However, during the past years, regulations have become 39 According to the rules of the parliamentary proceedures of EEA matters, the process should take two weeks, but it seems, in practise, to take a much longer time, even monhts. See the Report of the Steering Committee on the Execution of the EEA Agreement. Prime Minister’s Office, December 2015, 37. 40 Report of the Steering Committee on the Execution of the EEA Agreement, p. 38. It should be noted that the Foreign Affairs Committee of the Parliament has no legal authority to delay or stop the incorporation of acts into the EEA Agreement. The authority lies with the minister of foreign affairs to make a decision on whether a draft decision of the EEA Joint Committee should go before the Committee, cf. Art. 21 of the Constitution of Iceland. 41 Einarsdóttir, ‘Upptaka afleiddrar löggjafar í EES-samninginn – Hvað er unnt að gera betur?’ [The incorporation of secondary law into the EEA Agreement – What improvements can be made?] Tímarit lögfræðinga, pp. 24-25.

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the most common form of secondary law.42 Regulations are directly applicable in the Member States of the EU43 and generally take effect 20 days after publication of the specific regulation in the Official Journal of the EU.44 In comparison, the Member States invariably receive a certain time limit to implement directives into national law after adoption by EU institutions in accordance with Art. 288 of the Treaty on the Functioning of the European Union. 38 Prior to a decision by the EEA Joint Committee on the incorporation of a legal act into the EEA Agreement, preparation within the EEA EFTA States takes place, i.e. consultation with the parliament of a state. It is inevitable that this process takes a long time. In cases where regulations apply, it is clear from the discussion above that the time that the EEA EFTA States have to prepare for the incorporation of a specific regulation into the EEA Agreement before the compliance date in the EU, is much shorter than in the case of directives. The increased shift from directives to regulations by the EU thus plays, without a doubt, a role in the increased backlog. 39 Secondly, it is undisputed that, over the past years, decisions regarding the relevance of EU acts to the EEA Agreement have become increasingly difficult.45 One reason for this is that with the entry into force of the Lisbon Treaty, the so-called three pillar system of the EU was abolished.46 With the abolishment of the three pillar system, the separation between the internal market legislation that is EEA relevant and other legislation became unclear inasmuch as such distinction is of no importance to the EU Member States any longer.47 Consequently, it has become increasingly difficult to decide whether an act is EEA relevant and whether it should therefore be incorporated into the EEA Agreement. 40 As a final point, the number of EU agencies has increased significantly over the past few years and this development has resulted in increased constitutional complications in relation to the incorporation of EU acts into to EEA Agreement. The reason for this is that some of these agencies have the power to settle disputes among various EU Member States and pass decisions that are binding on individuals and legal entities of the Member States.48 It is undisputed that

42 Sven Norberg and Martin Johansson, ‘The history of the EEA Agreement and the first twenty years of its existence’, in: Baudenbacher (ed.), The handbook of EEA law, 2016, p. 36. 43 M. Elvira Méndez-Pinedo, EC and EEA Law. A Comparative Study of the Effectiveness of European Law (Groningen 2009), p. 62. 44 Fenger, Rydelski and van Stiphout, EFTA and EEA, 2012, p. 132. 45 Report of the Institute of International Affaris, University of Iceland: Iceland’s Accession Negotiations. A report commissioned by the Icelandic Confederation of Labor, the Confederation of Icelandic Employers, the Icelandic Federation of Trade, and the Icelandic Chamber of Commerce. Reykjavik 2014, pp. 115-116. Also see The EEA Agreement and Norway’s other agreement with the EU, Meld.St. 5 (2012-2013), 12. 46 Jean-Claude Piris, The Lisbon Treaty, A legal and political analysis (Cambridge 2010), p. 177. 47 Report of the Institute of International Affaris, University of Iceland: Iceland´s Accession Negotiations, p. 115 and European Economic Area, Joint Parliamentary Committee, Report. The review of the EEA. Brussels 3.5.2012, p. 3.

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these types of decisions entail a transfer of power to international organisations. As mentioned in part 2, however, the Constitution of Iceland contains no pro- 41 vision that allows for the transfer of powers to international organisations.49 The development described above has resulted in constitutional problems for Iceland regarding the incorporation process.50 2. Increased Implementation Deficit

Once a decision has been adopted by the EEA Joint Committee to incorporate 42 an EU act into the EEA Agreement, Iceland is required to implement the specific act into national laws in accordance with Art. 7 of the EEA Agreement. If the specific act has already entered into force in the EU Member States, the abovementioned requirement comes into existence the day after the decision by the EEA Joint Committee, alternatively on compliance date in the EU.51 The implementation of directives into the national laws of Iceland has, since 43 the existence of the EEA Agreement, been a challenging task for the administration and the legislature. At times, this task has been completed successfully and Iceland has placed well in comparison with other EU Member States and other EEA EFTA States. However, there have also been times during which this task has not gone so well and over the past few years, Iceland has performed poorly in the implementation of directives into national law. Iceland places at the bottom in terms of the implementation deficit in comparison with all 28 EU Member States and the other EEA EFTA States.52 Furthermore, the implementation of regulations into Icelandic national law has not been up to par since 2007.53 However, relatively few infringement procedures against Iceland have been 44 initiated based on a “lack of conformity or incorrect application of EEA law” in 48 H. Frederiksen and C. Franklin, 2015, p. 676. Also see Morten Egeberg and Jarle Trondal, ‘National Administrative Sovereignty. Under pressureʼ, in The European Union’s Non-Members. Independence under hegemony (New York 2015), pp. 173-174 and p. 178. 49 Björgvinsson, ‘Stjórnarskrárákvæði um framsal valdheimilda ríkisins til alþjóðastofnana’ [The Icelandic Constitution and the Transfer of Powers to International Organisations], Rannsóknir í félagsvísindum IV, p. 219. 50 The incorporation of the EEA regulations on the supervision of financial markets took for example many years due to constitutional problems, see the proposal to the Parliament to make a declaration regarding its confirmation of the decision of the EEA Joint Committee to change Annex IX (Financial services) of the EEA Agreement (European rules on financial supervision). Parliamentary Document 1109 – Case No. 681, submitted to the 145th Legislative Session 2015-2016. 51 For further discussion, see the article by Einarsdóttir 2015, pp. 566-568. 52 Einarsdóttir 2015, pp. 569-570. 53 The regulations as decided by the EU institutions have direct effect in the EU Member States. This means that the EU Member States do not have to implement regulations into their national law, as they are binding in their entirety and they are directly applicable in all EU Member States without the need for further implementation according to Art. 288 of TFEU, see Méndez-Pinedo 2009, pp. 57-58 and 62. This also applies to Liechtenstein which has a monist legal system, cf. “Internal Market Scoreboard”, the EFTA-states, February 2007, p. 10. Therefore, it is only Iceland and Norway that need to implement regulations into national law via specific measures.

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comparison to other EU Member States and other EEA EFTA States, since the entry into force of the of the EEA Agreement. That is, the main problem is not related to the quality of the legislation implementing the Acts, it is rather due to delays with the implementation itself.54 45 The EFTA Surveillance Authority (ESA) has voiced serious concerns with the performance of Iceland in the implementation of EU acts into Icelandic law.55 The former President of ESA, Oda Helen Sletnes, stated in an announcement dated 28 February 2014 that delays or failure to implement EEA law have serious consequences for the internal market. There are also various indicators that signal increasing EU impatience with Iceland’s implementation deficit.56 46 One of the factors that underlie the implementation deficit of Iceland is the small size of the administration. Another contributing factor is the incorporation problem as discussed above. Delays in incorporation result in a situation that once the secondary law has been incorporated into the EEA Agreement, the time limits for implementing the directives and regulations into the national laws of the EU Members States have passed. This means that on the same day as the EEA Joint Committee passes a decision, the deadline passes for the EEA EFTA States to implement the directive or regulation into their national law as was found in Case E-15/12, 22.7.13, Jan Anfinn Wahl v The Icelandic State. 47 It is not common practice, and very few cases can be found, where Iceland prepares for the implementation of secondary law into its national law prior to a formal decision being passed for the incorporation of that specific law into the EEA Agreement. It is therefore clear that the delay in the incorporation process leads to a delay in the implementation process. V. Legal Effects of EEA Law on Icelandic Law 1. No Direct Legal Effect, but Obligation to Comply with Principles of Uniform Interpretation

EEA law does not have direct effect in Icelandic law. In order for an individual or any legal entity to rely on rights protected by the provisions of the EEA Agreement, these rights have to be implemented into the domestic laws of Iceland.57 49 With Act No. 2/ 1993, the main part of the EEA Agreement gained legal force in Iceland. According to Art. 7 of the EEA Agreement, Iceland has to implement regulations and directives that have been incorporated into the EEA Agreement into its national law. 50 As discussed in Chapter 2, the implementation of regulations and directives into Icelandic law has been a challenging task for the Icelandic administration 48

54 Einarsdóttir 2015, p. 574 and p. 580. 55 See “Internal Market Scoreboard” from February and July 2014. 56 For further discussion, see the Report of the Institute of International Affairs, University of Iceland: Iceland’s Accession Negotiations, pp. 109-110. 57 Méndez-Pinedo, 2009, pp. 163-164.

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and in the past few years this task has not been executed properly, as described above. Individuals and legal entities can sustain losses in cases where they cannot base their rights on regulations or directives that have not yet been implemented into national laws, or as a result of the wrong implementation into national laws. EEA law aims at safeguarding the rights of individuals and legal entities against this situation. Thus, an obligation rests on the Icelandic courts to interpret applicable national law in light of the wording and purpose of the EEA rule as far as possible in order to attain the intended result of the EEA rule. This obligation rests on the Icelandic courts from the date on which the legal act has been incorporated in the EEA Agreement and the period for implementation has expired.58 If however an act has been incorporated into the EEA Agreement, but the period for implementation has not expired, national courts are still obliged to interpret national law in conformity with EEA law. This has been established by the EFTA court with reference to Arts. 3 and 7 of the EEA Agreement and Prot. 35.59 The time factor (whether the implementation period has expired or not) thus seems to make little difference. The Icelandic courts have followed the above principle and interpreted the provisions of national law in light of EEA law whenever possible.60 If, on the other hand, the Icelandic law has such “clear and fixed subject matter that the textual interpretation is the only way then the principle of uniform interpretation of EEA law does not apply because it should not lead to an interpretation that one cannot use (l. contra legem).”61 If, on the other hand, an individual or legal entity cannot rely on rights based on an EEA rule – either because the rule was not implemented into Icelandic law or its implementation was wrong – and the national provision cannot be inter58 Páll Hreinsson, ‘Samræmd EES-túlkun’ [Conform EEA-Interpretation]. Tímarit lögfræðinga 2014, p. 276 and pp. 279-280. Also see C-212/04, 4.7.06, Konstantinos, “... where a directive is transposed belatedly into a Member State´s domestic law and the relevant provisions of the directive do not have direct effect, the national courts are bound to interpret domestic law so far as possible, once the period for transposition has expired, in the light of the wording and the purpose of the directive concerned with a view to achieving the result sought by the directive, favouring the interpretation of the national rules which is the most consistent with that purpose in order thereby to achieve an outcome compatible with the provisions of the directive.” 59 E-15/15 and E-15/16, 10.5.16, Franz-Josef Hagedorn and Vienna-Life Lebensversicherung AG Vienna Life Insurance Group and Rainer Armbruster and Swiss Life (Liechtenstein), para. 9. 60 See, for example, the Supreme Court of Iceland Case No. 201/2011, 10.6.11, Kaupthing Singer & Friedlander (Isle of Man) Limited v. Kaupþing Bank hf. However, there are judgments that cast doubt on whether the Icelandic courts have gone far enough in their obligation to interpret national law in conformity with EEA rules, for example, Supreme Court of Iceland Case No. 160/2015, 15.5.15, Gunnar V. Engilbertsson v. Íslandsbanki hf. 61 The Supreme Court of Iceland, Case No. 265/2013, 21.11.13, Prosecutor v. Benedikt Eyjólfsson and Bílabúð Benna ehf. For further discussion, see the article by Hreinsson, 2014, pp. 289-290.

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preted in conformity with the EEA rule, the individual or legal entity can use other remedies. 55 The judgment of Supreme Court of Iceland in the Case No. 236/1999, 16.12.99, Erla Maria Sveinbjörnsdottir v Iceland, confirmed that individuals and legal entities have a right to claim damages, subject to the fulfilment of certain conditions, against the government of Iceland based on its negligence in the implementation of an EEA rule into national law.62 This provides legal protection for individuals and legal entities, but only if the period for implementation has expired. 2. Precedence of EEA Law over Icelandic Law a) Protocol 35

Even though an EEA rule, whether relating to a provision of the main part of the EEA Agreement or a regulation or directive, has been correctly implemented into Icelandic law, problems can arise. There can be a conflict between statutory law that provide legal validity to rules of the EEA Agreement and other statutory laws – even younger laws. 57 During the negotiations of the EEA Agreement, the EEC emphasised63 that the supremacy rule of EEC law also applies to EEA law.64 However, the EEA EFTA States could not accept this rule because, among other reasons, it included a transfer of legislative power, which was considered incompatible with the sovereignty of the states. A compromise between these two opposing views can be found in the wording of Prot. 35 of the EEA Agreement: 56

“Prot. 35: äWhereas this Agreement aims at achieving a homogeneous European Economic Area, based on common rules, without requiring any Contracting Party to transfer legislative powers to any institution of the European Economic Area; and Whereas this consequently will have to be achieved through national procedures; Sole Article For cases of possible conflicts between implemented EEA rules and other statutory provisions, the EFTA States undertake to introduce, if necessary, a statutory provision to the effect that EEA rules prevail in these cases.”

58

According to the wording of the Prot. an obligation exists that requires the EEA EFTA States to implement provisions, as needed, to guarantee that EEA rules take precedence over other statutory laws, that is, to guarantee the supremacy of EEA rules over the provisions of national law in cases where a conflict of law arises. Therefore, it is the legislative bodies of the EEA EFTA States themselves who are responsible for ensuring that the EEA rules which are implemented enjoy supremacy over incompatible provisions in national laws that do not derive from EEA law. The means by which this obligation is ful62 See also case E-9/97, 16.12.99, Sveinbjörnsdóttir, para 95. 63 Now the European Union. 64 Björgvinsson, 1992, p. 101.

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filled, is left for the EEA EFTA States to decide. By applying this procedure, it was believed that no delegation of sovereignty was involved.65 Judgments passed by the EFTA Court involving the interpretation of Prot. 35 59 are clear. The Prot. involves an obligation on behalf of the EEA EFTA States, including Iceland, to ensure that EEA rules, which have been correctly transposed into national laws and which are unconditional and are sufficiently precise, take precedence over other national legislation that is not derived from EEA law. Examples of these judgments can be found in the Restamark66 and Hörður Einarsson cases.67 b) Does Iceland Comply with its International Obligation as Set out in Prot. 35?

The Parliament of Iceland aims at complying with the contents of Prot. 35 by 60 means of Art. 3 of Act No. 2/1993 on the European Economic Area. The Art. reads as follows: “Laws and regulations shall be interpreted, insofar as applicable, in conformity with the EEA Agreement and the rules on which it is based.”

According to the wording of this Art., it is simply a rule of interpretation 61 which prescribes that the rules of national laws should be interpreted in conformity with the EEA Agreement. However, if it is not possible to interpret the provision of the national law in conformity with the correctly implemented EEA rule, one has to rely on the provision of the national law as Art. 3 of Act No. 2/1993 cannot lead to the ignoring of the Icelandic law. In this case, it seems that the provision cannot be considered to represent a sufficient transposition of the obligations contained in Prot. 35. Comments in the report supporting Art. 3 of Act No. 2/1993 offer another in- 62 terpretation possibility. According to the commentary, there is a strong tradition in Icelandic law that specific legislation prevails over general legislation, that is, laws that govern general matters do not supersede similar provisions contained in older specific legislation except if this aim is clearly stated in the younger law. In the comments in the report it is stated: “Often the EEA rule represents a specific rule on a particular topic. Article 3 states, inter alia, that national law which is based on the EEA Agreement should be construed as specific legislation against incompatible younger law, to such an extent that the younger law does not diverge from the specific legislation in case of contradictions, except if clearly declared by the legislator. This is necessary in order to guarantee legislative homogeneity in the European Economic Area. Protocol 35 clearly states that this interpretation rule does not encompass a transfer of legislative power and Article 3 is based on this principle.”68

65 It was considered that Prot. 35 only mattered for those EEA EFTA States that apply the principle of dualism in relation to international law and national law, Iceland being one of them. See the discussion in Norberg et al., EEA Law, p. 204. 66 Case E-1/94, 16.12.94, Restamark. 67 Case E-1/01, 11.1.01, Einarsson. 68 Alþingistíðindi A 1992-1993, þskj. 1, p. 224.

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In this way, the legislator endeavours to comply with Iceland’s international obligations embodied in Prot. 35. Subsequently, it was left to the courts of Iceland how to interpret Art. 3 of Act No. 2/1993 and by that establishing whether the aforementioned Art. 3 constitutes an adequate implementation of Prot. 35. 64 In the Supreme Court Judgment, Case No. 477/2002 Hörður Einarsson v The Icelandic State, Art. 3 of Act No. 2/1993 was interpreted in accordance with the comments in the report supporting Article 3. The relevant part of the judgment reads as follows: 63

“With Article 2 of Act No. 2/1993 on the European Economic Area, the main part of the EEA Agreement came into force here in Iceland. According to Article 3 of the Act, laws and regulations shall be interpreted, insofar as applicable, in conformity with the EEA Agreement and the rules on which it is based. From the comments on the draft bill relating to this Article, it should be decided that the Article was intended to meet the obligations of the Contracting Parties as set out in Protocol 35 of the EEA Agreement, which states, inter alia, that if a conflict arises between an EEA rule, which has been implemented, and other legislation, the EEA EFTA States undertake to pass law, if necessary, to the effect that the EEA rule will prevail in these cases. The comments also state that Article 3 involves, among other things, that national law, which is based on EEA law, should be construed as specific legislation against incompatible younger law, to such an extent that the younger law does not diverge from the specific legislation in case of contradictions, except if clearly stated by the legislator. This is necessary in order to guarantee legislative homogeneity in the European Economic Area. Protocol 35 clearly states that this interpretation rule does not encompass a transfer of legislative power and Article 3 is based on this principle In this light, it must be considered that Paragraph 2 of Article 14 of the EEA Agreement on the prohibition of indirect taxation, which is intended to protect similar domestic products of the Contracting Parties, should be construed as a specific law regarding the taxation of imports from other EEA EFTA States, and that it enjoys precedence over older provisions of the previous existing Act No. 50/1988, Paragraph 6 of Article 14 on a lower VAT rate for books written in Icelandic. After the EEA Agreement was given its legal force with Act No. 2/1993, is was prohibited to distinguish between books written in Icelandic and books written in other languages in relation to levying VAT”.

The conclusion of the Supreme Court is in line with the above discussion in that Para. 2 of Art. 14 of the EEA Agreement enjoys precedence over para. 6 of Art. 14 of Act No 50/1988. This conclusion is in complete union with the advisory opinion of the EFTA Court in Case E-1/01 Hörður Einarsson v The Icelandic State.69 For a while it therefore seemed that Article 3 of Act No. 2/1993 fulfilled Iceland’s international obligations on the basis of Prot. 35. 66 However, in the Supreme Court judgment, Case No. 10/2013, dated 24 January 2013, Landsbankinn hf. v Flugastraumur ehf. there was a turnaround in the interpretation of Art. 3 of Act No. 2/1993. 67 The case involved an appeal against the judgment of the District Court for the rejection of the request by Landsbankinn to seek for the advisory opinion of the EFTA Court in relation to the case that Flugastraumur brought against Landsbankinn hf. based on a so-called financial lease agreement between the two parties. Two questions posed by Landsbankinn hf. pertained to whether the prohibition as set out in Act No. 38/2001 on Interest and Price Indexation against the 65

69 Case No. E-1/01, 11.1.01, Einarsson.

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binding of liabilities that are in Icelandic krona to foreign exchange rates, was in contravention of Arts. 36 and 40 of the EEA Agreement. In the judgment of the Supreme Court, it is stated that, according to Art. 3 of 68 Act No. 2/1993, laws and regulations should be interpreted, insofar as applicable, in conformity with the EEA Agreement and the rules on which it is based. Subsequently, the judgment states that the interpretation of Art. 3 of Act No. 2/1993 attempts to interpret the words of Icelandic legislation as closely as possible to the corresponding rule that is in place in the European Economic Area. The Court then states: “This interpretation cannot, on the other hand, lead to the ignoring of other Icelandic law [...].” Next the Court refers to the judgment of the Supreme Court in Case No. 69 92/2010 of 16 June 2010 (the so-called “currency loans judgment”) and states that according to Arts. 13 and 14 of Act No. 38/2001 it is prohibited to index a loan that is in Icelandic krona against a foreign exchange rate. The Supreme Court judgment states: “Articles 13 and 14 of Act No. 38/2001 have remained unchanged since the aforementioned judgment of the Supreme Court in Case No. 92/2010 was passed on 16 June of that year. The absolute ban against the binding of liabilities that are in Icelandic krona to foreign exchange rates is still unaffected. It is not possible to diverge from this conclusive ban in any way, not even via the application of Art. 3 of Act No. 2/1993”

There is no doubt that Arts. 36 and 40 of the EEA Agreement are correctly 70 implemented and comply with the requirements of being unconditional and sufficiently precise in terms of Prot. 35. Here a conflict exists between a correctly implemented EEA rule and younger Icelandic legislation, that is, Act No. 39/2001. According to the interpretation by the EFTA Court of Prot. 35 in Case E-1/94 Restamark and Case E-1/01 Hörður Einarsson, Arts. 36 and 40 of the EEA Agreement should enjoy precedence. However, in this case, the Supreme Court chose to interpret Art. 3 of Act No. 71 2/1993 according to the wording of the provision, that is as an interpretation rule, instead of taking into account the comments in the report that accompany the bill, as was done in the judgment in Case No. 477/2002 Hörður Einarsson.70 According to the aforementioned, the judgment of the Supreme Court in Case 72 No. 10/2013 of 24 January 2013 Landsbankinn hf. v Flugastraumur ehf, the Icelandic provision will prevail if it is not possible to interpret national law in accordance with the provisions of a correctly implemented EEA rule.71 In other words, EEA rules that have been correctly implemented do not take precedence over Icelandic law.72

70 Supreme Court of Iceland, Case No. 477/2002, 15.5.03, Einarssson. 71 This does, of course, not apply if the standard Icelandic interpretation rule results in a different outcome, for example, if the correctly implemented EEA rule is younger than the provision of national law.

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There is no doubt that according to this interpretation of the Supreme Court of Art. 3 of Act No. 2/1993, Iceland does not comply with its international obligations set out in Prot. 35. 74 It would not be fair to accuse the Supreme Court of being solely responsible for this difficult situation relating to the execution of the EEA Agreement. The blame can, first and foremost, be placed on the Icelandic Parliament for not implementing the obligations contained in Prot. 35 in an adequate manner. The wording of Art. 3 of Act No. 2/1993 is flavoured by political compromises in that the obligations that are actually contained in Prot. 35 are hidden. The comments in the report attempt to ensure that these international obligations are met, perhaps in the hope that the courts of Iceland will ensure that the execution takes place in accordance with Prot. 35, without having to address the primacy of EEA law in the political arena. As noted earlier, this wishful thinking did not become a reality where the Supreme Court, in a recent judgment, interpreted Art. 3 of Act No. 2/1993 in terms of the wording of the Article and not the comments as set out in the report. 75 In light of the above, it seems only a matter of time when the EFTA Surveillance Authority will commence infringement proceedings against Iceland, based on Art. 31 of the Agreement Between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice. 73

VI. Conclusions 76

As we have discussed above, the EEA agreement is immensely important for Iceland and has been very influential in Icelandic society and in Icelandic law. When this is written in spring 2017, however, the current situation regarding the EEA seems to some extent to be temporary. For in spite of renewed political commitment to building Iceland’s future in Europe on the EEA agreement,73 the constitutional issues and implementation issues are such, that they can hardly remain unresolved for long. VII. Literature Alþingistíðindi, A 1992-1993, þskj. 1, 224; Annual report of the Foreign Minister to Parliament 2014: https://www.utanrikisraduneyti.is/media/utn-pdf-skjol/Skyrsla-radherra-2014.pdf# page=34; Annual report of the Foreign Minister to Parliament 2016: https://www.utanrikisrad uneyti.is/media/gunnar-bragi/Sky%CC%81rsla-utanri%CC%81kisra%CC%81dherra-til-Althi ngis-2016.pdf#page=36; Davíð Þór Björgvinsson, ‘Application of Article 34 of the ESA/ Court Agreement by the Icelandic Courts’ in Mario Monti (ed.) Economic Law and Justice in Times of Globalisation: Festschrift for Carl Baudenbacher (Baden-Baden 2007) 37; Davíð 72 There are more judgments that indicate that the interpretation of Art. 3 of Act No. 2/1993 takes place in the abovementioned manner, such as, the Supreme Court of Iceland, Case No. 220/2005 JT International, 06.4.05, and the Supreme Court of Iceland, Case No. 274/2006, 24.5.06, Prosecutor v. X. 73 The annual report of the Foreign Minister to Parliament 2016, www.utanrikisraduneyti.is/medi a/gunnar-bragi/Sky%CC%81rsla-utanri%CC%81kisra%CC%81dherra-til-Althingis-2016.pdf# page=36.

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Iceland and the EEA Þór Björgvinsson, EES-réttur og landsréttur [EEA-law and national law], Reykjavík 2006; Davíð Thór Björgvinsson, The Intersection of National Law and Domestic Law, Edward Elgar 2015; Davíð Þór Björgvinsson, ‘Stjórnarskrárákvæði um framsal valdheimilda ríkisins til alþjóðastofnana’ [The Icelandic Constitution and the Transfer of State Powers to International Organisations] in Viðar Már Matthíasson ed., Rannsóknir í félagsvísindum IV (2003); ‘Deilt um framsal ríkisvalds í stjórnskipunarlögum: Getum þurft að hverfa frá EES-aðild’ [Arguments about delegation of state powers in constitutional law: May need to leave the EEA] Vísir 1.2.2013. Available at http://www.visir.is/deilt-um-framsal-rikisvalds-i-stjornskipunarlo gum--getum-thurft-ad-hverfa-fra-ees-adild/article/2013702019935; The EEA Agreement and Norway´s other agreement with the EU, Meld.St. 5 (2012-2013); Information material on the EEA Agreement from the website of the Ministry of Foreign Affairs https://www.utanrikisrad uneyti.is/verkefni/evropumal/verkefni/nr/4578; Morten Egeberg og Jarle Trondal, ‘National Administrative Sovereignty. Under pressure’ The European Union´s Non-Members. Independence under hegemony? (New York 2015); Endurskoðun stjórnarskrárinnar: Áfangaskýrsla nefndar um endurskoðun stjórnarskrár lýðveldisins Íslands, febrúar 2007. [The Revision of the Constitution: Report of the Committee on the Revision of the Constitution of the Republic of Iceland] Available at http://www.althingi.is/altext/133/s/pdf/1293.pdf; European Economic Area, Joint Parliamentary Committee, Report. The review of the EEA. Brussels 3 May 2012; Niels Fenger, Michael Sánchez Rydelski og Titus Van Stiphout, European Free Trade Association (EFTA) and European Economic Area (EEA), Holland 2012; Halvard Haukeland Frederiksen og Christian N.K. Franklin: ‘Of pragmatism and principles: The EEA Agreement 20 years on’. Common Market Law Review 52, 629-684; Internal Market Scoreboard, of the EFTA-states; Kristrún Heimisdóttir, ‘Stjórnarskrárbundið fullveldi Íslands’ [The Constitutional Sovereignty of Iceland]. (2003) 53 Tímarit lögfræðinga 19-60; M. Elvira Méndez-Pinedo, EC and EEA Law A Comparative Study of the Effectiveness of European Law, Groningen 2009; Margrét Einarsdóttir, ‚Nýjar áskoranir fyrir framkvæmd EES-Samningsins‘ [New Challenges in the Execution of the EEA Agreement] Tímarit lögfræðinga, forthcoming 2017; Mörður Árnason (Blog-post). http://blog.pressan.is/mordur/2014/03/12/stjornarskra-i-evropustefnu-00 /; Margrét Einarsdóttir, ‘Ráðgefandi álit EFTA-dómstólsins – Raunveruleg áhrif í íslenskum rétti’ [Advisory Opinions of the EFTA Court – Real Effects in the Icelandic Legal System] (2012) 62 Tímarit lögfræðinga 135; Margrét Einarsdóttir, ‘Upptaka afleiddrar löggjafar í EESsamninginn og innleiðing í íslenskan rétt’ [The incorporation of EU secondary law into the EEA Agreement and the implementation into Icelandic national law] (2015) 65 Tímarit lögfræðinga 545: Sven Norberg, Karin Hökborg, Martin Johansson, Dan Eliasson og Lucien Dedichen, EEA Law, A commentary on the EEA Agreements, Stokkhólmur 1993; Sven Norberg og Martin Johansson, ‘The history of the EEA Agreement and the first twenty years of its existence’ The handbook of EEA law, Luxemborg 2016; ‘Norræn þingræðishefð er sterk’ [The Nordic Tradition of Parliamentarism is strong] Morgunblaðið 6 February 2001, available at http://www.mbl.is/greinasafn/grein/587554/; Páll Hreinsson, ‘Samræmd EES-túlkun’ [Conform EEA-Interpretation] (2014) 64 Tímarit lögfræðinga 273; Jean-Claude Piris, The Lisbon Treaty, A legal and political analysis, Cambridge 2010; Report of the Committee appointed by the Minister of Foreign Affairs on the Constitution and the EEA agreement, dated July 6, 1992. Annex I, to þskj. 30, 116. löggj.þ. 1992. Available at www.Alþingi.is/altext/116/ s0030.html; Ragnhildur Helgadóttir, ‚Afstaða dómstóla til hlutverks síns við mat á stjórnskipulegu gildi laga – þróun síðustu ára‘ [Judicial Review, Recent Developments], (2002) 55 Úlfljótur 97; Ragnhildur Helgadóttir, ‘Hvordan skabes en (islandsk) grundlov? Grundlovsændringer, sædvaneret og praksis 1874-2011’. In Eirik Holmöyvik (ed.) Grunnlova mellom tolking og endring (Pax Forlag Oslo 2013); Report of the Institute of international affairs, University of Iceland: Iceland´s Accession Negotiations. A report commissioned by the Icelandic Confederation of Labor, the Confederation of Icelandic Employers, the Icelandic Federation of Trade, and the Icelandic Chamber of Commerce, Reykjavík 2014; Report of a

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PART I: General Reports Steering Committee about the execution of the EEA Agreement. Prime Minister´s Office, December 2015; Samantekt – Lög samþykkt á Alþingi sem eiga rætur að rekja til samningsins um Evrópska Efnahagssvæðið [Report – Legislation enacted in Alþingi which stems from the EEA Agreement]. Skrifstofa Alþingis, mars 2007. Available at https://www.forsaetisraduneyti .is/media/Ymislegt/Altingi_-_EES_tengd_loggjof.pdf; Sigurður Líndal & Skúli Magnússon, Réttarkerfi Evrópusambandsins og Evrópska efnahagssvæðisins [The legal system of the European Union and the European Econmic Area], Reykjavík 2011; Sigurður Líndal, Um lög og lögfræði: grundvöllur laga – réttarheimildir, Hið íslenzka bókmenntafélag 2002; Starf stjórnarskrárnefndar – 1. áfangaskýrsla (06/2014) [The Work of the Constitution Committee – 1. Report] Available at https://www.forsaetisraduneyti.is/media/stjornarskra/starf-stjornarskrar nefndar-1-afangaskyrsla.pdf; Skýrsla stjórnlaganefndar 2011 [Report of the Constitutional Commission 2011], I. Reykjavík 2011; Stefán Már Stefánsson, Evrópusambandið og evrópska efnahagssvæðið, Bókaútgáfa Orators 2000; Utenfor og innenfor — Norges avtaler med EU, NOU 2012: 2. Available at https://www.regjeringen.no/no/dokumenter/nou-2012-2/id669 3 68/; Þorgeir Örlygsson, ‚Hvernig hefur Ísland brugðist við ákvörðunum EFTAdómstólsins‘ [How Has Iceland Reacted to EFTA Court Decisions] Tímarit lögfræðinga 2004, 375-417; Þorgeir Örlygsson, ‚Iceland and the EFTA Court‘ in Mario Monti, ed., Economic Law and Justice in Times of Globalisation: Festschrift for Carl Baudenbacher (Baden-Baden 2007) 225; Opinions on constitutionality of various acts: The opinions of Björn Þ. Guðmundsson and Guðmundur Alfreðsson on the EEA Agreement. Annexes II and III to þskj. 30, 116. löggj.þ. 1992. Available at www.Alþingi.is/altext/116/s00 30.html; The opinion of Davíð Þór Björgvinsson regarding the constitutionality of a new Competition Act, incorporating new EEA rules, available in þskj. 883, 131. löggj.þ. 2004-2005. Available at www.Alþingi.is/altext/131/s/0883.html; The opinion of Davíð Þór Björgvinsson, Stefán Már Stefánsson and Viðar Már Matthíasson on the constitutionality of joining the Schengen agreement. Their conclusions are summarized in þskj. 1176, 122. löggj.þ. 1997-1998. Available at http://www.Alþingi.is/altext/122/s/1176.html; The Opinion of Björg Thorarensen and Stefán Már Stefánsson on the constitutionality of the European System of Financial Supervision. Available at https://www.utanrikisraduneyti.is/frettir/nr/7048 and https://www.utanrikisraduneyti.is/media/Frettatilkynning/Alitsgerd_BTh_SMS.pdf; The opinion of Ragnhildur Helgadóttir as to whether certain provisions in proposed EU legislation concerning electronic communications are consistent with the Icelandic Constitution and the role of the EFTA Surveillance Authority, dated May 20, 2008 (on file with authors and PFS – the Post and Telecom Administration in Iceland).

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Liechtenstein and the EEA

Liechtenstein and the EEA I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Liechtenstein’s path to joining the EEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Administration of the EEA Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Other agreements with the EU . . . . . . . . . V. EEA law in the Liechtenstein legal order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI. Implementation of EEA law by Liechtenstein . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Parliamentary involvement in EEA matters . . . . . . . . . . . . . . . . . . . . . . . .

1 5 15 23 28 35

2. Implementation of EEA law . . . . . . . 3. Application of EEA law . . . . . . . . . . . VII. Liechtenstein’s tailor-made arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. The special solution in the free movement of persons . . . . . . . . . . . . . . . 2. Other tailor-made arrangements . . . 3. Explanations for and effects of tailor-made arrangements . . . . . . . . . . . . . VIII. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX. Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

43 48 55 56 60 66 70 73

36

I. Introduction

With approximately 38’000 inhabitants the Principality of Liechtenstein is 1 Europe’s fourth smallest country. Liechtenstein has a sovereign history which goes back to 1806 when Napoleon established the Confederation of the Rhine. Due to its smallness, however, Liechtenstein has always been closely integrated with its surrounding countries. From 1852 to 1919 Liechtenstein was in a customs and currency union with the Austrian monarchy. After this customs and currency union ended with World War I, Liechtenstein built up an even closer regional union with Switzerland. It is based on the Customs Treaty of 19231 but includes also many other agreements (concerning inter alia the treatment of foreigners, the enforcement of civil judgments, the control of medicines, air traffic, patent protection and the currency). From Liechtenstein’s perspective, this regional union is a ‘genuine success story as the economic actors of Liechtenstein gained access to the Swiss market and to the export markets that Switzerland had opened up through trade agreements’.2 In addition to the close regional cooperation, Liechtenstein is also deeply em- 2 bedded in European integration. On 2 May 1992, after long negotiations, representatives of the EU and its member states as well as of the countries of the European Free Trade Association (EFTA) signed the Agreement on the European Economic Area (EEA). Today, Liechtenstein finds itself as a member of the EEA half-way between Austria, a member of the EU, and Switzerland, which has stayed out of both the EEA and the EU. This country report analyses the specific feature of Liechtenstein’s EEA 3 membership by combining the perspectives of political science and jurisprudence. In line with various other reports it concludes that Liechtenstein, due to an efficient bureaucracy, a favourable legal culture and some flexibility of the EU, its EEA EFTA partners and Switzerland, is able to comply with the 1 LGBl. 1923 No. 24. 2 Christian Frommelt and Sieglinde Gstöhl, Liechtenstein and the EEA: the Europeanization of a (very) small state (Europautredningen, Oslo 2011) 8.

Frommelt

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obligations set out in the EEA Agreement. In this regard, the EEA membership marks an important step for Liechtenstein in its ‘quest for independence and recognition as a sovereign state’.3 At the same time, by focusing on economic integration EEA membership provided for a pragmatic approach to European integration. Indeed, Liechtenstein has been able to turn its EEA membership into a boost to the economy. 4 The report will first give an overview of Liechtenstein’s path to joining the EEA. Second, it will describe how Liechtenstein administrates its EEA membership. Third, it shows what other agreements Liechtenstein shares with the EU. In the remaining sections we will show how the EEA is embedded in the legal order of Liechtenstein and address some specific features of the implementation of EEA law in Liechtenstein. Finally, we provide a brief overview of the tailormade arrangements of Liechtenstein. Chapter 8 concludes. II. Liechtenstein’s path to joining the EEA4

Historically speaking, Liechtenstein’s desire to participate in international organisations was often met with scepticism. The most prominent example is the rejection of Liechtenstein’s application to join the League of Nations in 1920 due to country’s small size, the delegation of some aspects of its sovereignty and the lack of an army.5 Similar obstacles had to be overcome later on when joining the International Court of Justice (1950),6 the Council of Europe (1978)7 and the United Nations (1990)8 as the first very small European state.9 From the perspective of Liechtenstein’s foreign policy, membership in international organizations has therefore always been seen as a strategy to safeguard Liechtenstein’s independence and international recognition as the two main elements of the country’s sovereignty. 6 Based on the Customs Treaty Liechtenstein delegated its treaty-making power in trade matters to Switzerland. As a result, Liechtenstein was initially not an independent contracting party of the EFTA. Instead, a special protocol of the EFTA Convention stated that the EFTA provisions also apply to Liechtenstein as long as the customs union with Switzerland persists. Liechtenstein was formally represented by the Swiss delegation to EFTA. The same applied to the negotiations leading up the 1972 Free Trade Agreement between the European Community (EC) and Switzerland,10 though Liechtenstein was allowed to have a 5

3 Jacques Pelkmans and Philip Böhler, The EEA Review and Liechtenstein’s Integration Strategy (Centre for European Policy Studies, Brussels 2013) 12. 4 This section is partly based on Frommelt and Gstöhl (n 2) 12-15. 5 Sieglinde Gstöhl, Flexible Integration für Kleinstaaten? Liechtenstein und die Europäische Union (Verlag der Liechtensteinischen Akademischen Gesellschaft, Vaduz 2001). 6 LGBl. 1950 No. 6. 7 LGBl. 1979 No. 26. 8 LGBl. 1990 No. 65. 9 Frommelt and Gstöhl (n 2) 12. 10 LGBl. 1973 N. 10.

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representative in the Mixed Committee. By contrast, from the very start in the 1980 s, Liechtenstein was invited to the “Luxembourg Process” which aimed at deepening the European integration. Moreover, the principality also took part in the informal exploratory talks about closer cooperation following Commission President Delors’ 1989 initiative for an European economic area. Liechtenstein thus participated independently in this decisive stage of European integration. From the perspective of Liechtenstein the envisaged economic area with its four freedoms as well as horizontal and flanking policies went well beyond the Swiss competences in the framework of the Customs Treaty. The completion of the EU’s internal market and the establishment of the World Trade Organization (WTO) made it increasingly difficult to separate trade in goods from other matters of international negotiations which the treaty-making power delegated to Switzerland did not cover. In 1991 the Customs Treaty was thus modified to allow Liechtenstein its own membership in international organizations and agreements, provided that Switzerland was also a contracting party. Liechtenstein joined the EFTA as well as the WTO and participated in the EEA negotiations in its own right. Hence, in the context of the new dynamics in European integration and the end of the Cold War, Liechtenstein emancipated itself from Switzerland within a few years and developed an own integration policy vis-àvis the EU. Liechtenstein’s accession to the EEA was the result of a lengthy and intense domestic debate, facing serious opposition by the local manufacturing sector as well as numerous trustees and other actors within the finance sector. The opponents of an EEA membership used several arguments that were related to Liechtenstein’s smallness, in particular, the lack of bargaining power and the lack of administrative resources. Put simply, for the opponents Liechtenstein was too small to join the EEA. Nonetheless, in September 1992, the Liechtenstein Parliament (Landtag) approved the EEA Agreement but decided to hold a national referendum. The Liechtenstein government set the date for the vote on the EEA Agreement one week after the Swiss referendum on the same matter. The Swiss electorate and cantons rejected an EEA membership by a very narrow margin. Against all odds, 55.8 percent of the Liechtensteiners approved the EEA Agreement in the referendum. Of the possible “yes/no” combinations between the two countries, this scenario was the most unexpected as the two economies seemed too tightly interwoven to permit a different choice of policy. As a result of the outcomes of the two referendums, the Liechtenstein government first had to renegotiate relations with Switzerland, then have the solution approved by the EEA partners and finally overcome the domestic ratification hurdle again. In March 1995, the Landtag approved several changes to the Customs Treaty and other agreements between Liechtenstein and Switzerland. The Customs Treaty now allowed Liechtenstein to join international organisations and agreements without Switzerland as intermediary. However, the parallel Frommelt

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membership of Liechtenstein in two important economic and legal areas also required adaptations to the EEA Agreement. The solution of this “Gordian knot” was found in the innovative principle of parallel marketability, which allows products meeting either EEA or Swiss requirements to circulate in Liechtenstein.11 11 Due to the changes to the Customs Treaty and the EEA Agreement the members of the Landtag agreed to hold a second referendum. It took place in April 1995 after the approval by the Landtag and vivid campaigns in favour and against EEA membership. In a remarkable show of independence, Liechtensteiners voted again in favour of European integration. With 55.9 percent “yes” votes the support was about the same as in 1992. On 1 May 1995 the principality became a full EEA member and thus achieved its first own treaty-based relationship with the EU. 12 Several factors allowed to “square the circle” of participating in the EEA’s enhanced free trade area while maintaining the bilateral customs union with a non-member.12 The small size of Liechtenstein made it quite easy to observe the trade flows. The need to adapt the bilateral relations was mainly restricted to the free movement of goods and the differences between EU and Swiss rules that could potentially lead to conflict were relatively small. The political will on all sides to honour the Liechtensteiners’ wish to join the EEA despite Switzerland’s rejection was strong – the Swiss had no interest in complicating their future bilateral negotiations with the EU while the EU was keen to demonstrate its understanding for the concerns of small states after the Danish “no” to the Maastricht Treaty. Finally, Art. 121(b) of the EEA Agreement already recognized the regional union between Liechtenstein and Switzerland as being in conformity with the EEA Agreement to the extent that it did not impair its functioning. It would indeed have been paradoxical to force these two countries to reintroduce border controls after seventy years. Moreover, an additional EEA EFTA country was most welcome in view of the EU accession negotiations with Austria, Finland, Norway, and Sweden. 13 The immediate effect of the accession to the EEA was a fast increase in the number of Law Gazettes published per year from 86 in 1994 to 233 in 1995. To cope with the new obligations, Liechtenstein’s public administration had to increase its resources. However, there was also an economic boost. Between 1995 and 1999 the GDP grew by 7.3 percent on average while the average in-

11 Georges Baur, ‘Die ‘parallele Verkehrsfähigkeit’ und analoge Verfahren als Prinzipien des Europarechts’ in Francis Baur and Georges Baur (eds), Aktuelle Rechtsfragen 1996. Liber amicorum zum sechzigsten Geburtstag von Theodor Bühler (Schulthess Juristische Medien, Zürich 1996). 12 Sieglinde Gstöhl ‘Successfully Squaring the Circle: Liechtenstein's Membership of the Swiss and European Economic Area’, in Madeleine O. Hösli and Arild Saether (eds), Free Trade Agreements and Customs Unions: Experiences, Challenges and Constraints, (Tacis European Commission and European Institute of Public Administration, Brussels/Maastricht 1997) 164-166.

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crease of the GDP of Switzerland was only 1.6 percent.13 Indeed, there has never been a period when the economic growth diverged that strongly between Liechtenstein and Switzerland. This economic boost is likely to explain why the polarization between supporters and opponents of an EEA membership in Liechtenstein ended. With that said, it can be seen as the foundation of the strong public support of the EEA in Liechtenstein. To sum up, two lessons can be drawn from Liechtenstein’s path to joining the 14 EEA: First, due to its smallness Liechtenstein has always aimed for international integration in order to safeguard the country’s sovereignty. This wish for independence may explain why the EEA is widely seen by the Liechtenstein people and policy-makers as a gain of sovereignty. Second, Liechtenstein’s negotiating parties repeatedly demonstrated their willingness and capabilities to facilitate European integration of Liechtenstein. Indeed, Liechtenstein has received various opt-outs and tailor-made arrangements in order to ensure that EEA membership remains feasible. III. Administration of the EEA Agreement

State capacity is one of the main factors in order to explain why some states 15 comply better with international obligations than others. Taking into account Liechtenstein’s smallness and the debate on the feasibility of its EEA membership, it is important to analyse how Liechtenstein administrates its EEA membership. In 2015 there were 1’674 people working in the public administration of Liechtenstein which corresponds to 1’400 full-time equivalent employees (including local councils). Without doubt, in absolute terms, Liechtenstein has by far the lowest number of administration employees of all 31 EEA members. However, Frommelt14 has shown that in relation to its population, Liechtenstein is likely to invest more human resources in its public administration than the other EEA members. Moreover, since Liechtenstein has joined the EEA employment in public administration has increased by over 60 per cent. The increase was particularly high in the first five years of Liechtenstein’s EEA membership because Liechtenstein had to establish several new government offices, and within the already existing offices the workload has also significantly increased due to EEA membership.15 The rise in the employment in public administration in the late 1990 s proves 16 that Liechtenstein was willing to and capable of increasing the resources of its public administration in order to fulfil the obligations of the EEA Agreement. 13 Calculations made by Andreas Brunhart, Liechtenstein Institute. 14 Christian Frommelt, ‘Liechtenstein’s tailor-made arrangements in the EEA: A small state’s creative solutions in European integration’ in Sebastian Wolf (ed), State size matters. Politik und Recht im Kontext von Kleinstaatlichkeit und Monarchie (Springer VS, Wiesbaden 2016) 140. 15 Regierung des Fürstentums Liechtenstein, Bericht und Antrag der Regierung an den Landtag des Fürstentums Liechtenstein betreffend 20 Jahre Mitgliedschaft des Fürstentums Liechtenstein im Europäischen Wirtschaftsraum (EWR) Liechtenstein 2015: 183.

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However, interview evidence suggests that over the last 20 years not all government offices have always had enough EEA specific resources at their disposal. This is likely to affect the implementation of policies that are not high priority for the Liechtenstein government, such as those regarding the environment or consumer protection. 17 State capacity cannot be reduced to the number of employees in public administration. Indeed, an efficient bureaucracy is likely to compensate for a lack of resources. Subsequently, it is also important to look at the procedures and the general organisation of an administration. In the case of Liechtenstein, all departments of its public administration and all ministries are involved in the administration of the EEA, each having at least one EEA expert. Based on their personal expertise, these experts accompany the EEA policy-making process, represent Liechtenstein’s interests in the respective EFTA or EU committees and are responsible for the transposition of EEA law into domestic law. The EEA Coordination Unit and Liechtenstein’s diplomatic representation in Brussels support and coordinate the activities of the specialists. In practice, the EEA Coordination Unit is the key player which advises the government and public administration on EEA matters, coordinates the incorporation and implementation of EEA law, and represents the government in proceedings before the ESA and EFTA Court. In addition, the EEA Coordination Unit is responsible for the documentation of EEA topics. It is subordinated to the Prime Minister’s Office. Hence, in Liechtenstein – as in most EU states but in contrast to Norway16 and Iceland – the administration of EEA matters is separate from foreign policy which, from an analytical perspective, is likely to have triggered a power shift from the political to the administrative level and thus increased the technical expertise of Liechtenstein in EEA matters. In a nutshell, Liechtenstein’s administration of EEA matters is an elaborate trade-off between the thematic specialisation of the individual departments and the EEA Coordination Unit’s specialisation in the EEA policy-making process. 18 Based on semi-structured interviews Frommelt17 selected various factors that are supposed to have increased the efficiency of Liechtenstein’s public administration in EEA matters, such as expertise or discretion. The compilation also addresses organisational features. In this regard, Liechtenstein’s size is considered to be an advantage as it ensures quick communication across the various administrative units as well as between the administration and the government. Moreover, in contrast to its EEA EFTA partners, Liechtenstein does not have to translate EU acts because German is an official EU language. 19 Liechtenstein has delegated and outsourced various administrative and political tasks such as representation in EU programme committees, the authorisation of medicinal products and the implementation of EU veterinary law. 16 In 2013 Norway appointed a Minister of EEA and EU Affairs who together with the Minister of Foreign Affairs represent the Ministry of Foreign Affairs. 17 Frommelt (n 14).

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Liechtenstein’s participation in EU and EFTA committees follows its political and economic interests. Interviews show that Liechtenstein uses its access to those committees not only to influence an EEA policy but also to disclose the structural limits of its public administration and potential short-comings of its implementation capacity in order to receive tailor-made arrangements. As a monist state Liechtenstein recognises the provisions of international law 20 as part of its national legal order. Subsequently, EU acts do not necessarily have to be implemented through a national law before they can apply within the Liechtenstein legal system. Taking into account the high number of regulations incorporated into the EEA Agreement monism is likely to increase the efficiency of the day-to-day management of the EEA membership by Liechtenstein. With regard to the legal order it is also important to note that, thus far, Liechtenstein has not faced constitutional problems related to its participation in EU agencies. Finally, different political aspects such as high public and party-based support 21 for the EEA and a low degree of politicisation are likely to increase Liechtenstein’s capacity to implement EEA law. Overall, Frommelt18 concludes that the consulted experts show a high level of 22 sensitivity towards the challenges that result from the lack of human resources in Liechtenstein and confirmed various efforts in place to increase the efficiency of the day-to-day management of the EEA Agreement. In practice, however, there are still various shortcomings. For instance, thus far, Liechtenstein has never seconded a national expert to the European Commission, and participation in EU and EFTA committees is indeed less consistent and comprehensive than actually aimed for. Moreover, EEA experts who have been involved in the administration of EEA matters for a long time may have a lot of knowledge and broad networks but the fact that this knowledge is held by individual experts makes the public administration more vulnerable to staff turnover. Finally, the interest of the Liechtenstein government in a broad debate of EEA matters is very limited. Indeed, the government provides only very little information on the EU and the EEA policy-making process and reporting is confined to assessments of the EEA every five years. Efficiency may thus sometimes come at the expense of deliberation and participation. IV. Other agreements with the EU

Liechtenstein, like the other EFTA states, has concluded bilateral agree- 23 ments with the European Union beyond the EEA Agreement. In 2004 the principality has negotiated an agreement with the EU on the taxation of savings income.19 In 2015 the EU and Liechtenstein agreed on an amending protocol which entered into force on 1 January 2016.20 The revised agreement shall implement the OECD Standard for Automatic Exchange of Financial Account 18 Frommelt (n 14). 19 LGBl. 2005 No. 111. 20 LGBl. 2015 No. 354.

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Information. It was widely seen as an important step for Liechtenstein to reaffirm its commitment to international cooperation on tax matters. Liechtenstein has also concluded an agreement with the EU on security procedures for exchanging classified information21 as well as cooperation agreements with Europol22 and Eurojust.23 Another important integration step for Liechtenstein – like for Norway, Iceland and Switzerland – is the association with the Schengen area and Dublin convention.24 It requires the principality to adopt the relevant acquis and includes it in the European information and consultation mechanisms in the fields of border controls, international justice and police cooperation, visa and asylum policy. Similar to the EEA, the EFTA countries have the right to participate in decision-shaping but not a formal right to participate in decision-making in the further development of Schengen/Dublin law. Although Liechtenstein's association to the Schengen area is not based on a separate agreement with the EU but linked to the Swiss bilateral agreements via protocols, the principality is a formal Schengen member since December 2011. It enjoys the same rights and obligations as the Swiss Confederation. Specific provisions are laid down for Liechtenstein concerning the time period required to implement new acquis, in case constitutional requirements need to be fulfilled (18 months). Liechtenstein is a member of the Mixed Committee, in which it has the right to express its opinion and which it may preside over. In 2007 Liechtenstein concluded with the EU and Switzerland an additional agreement extending the sectoral agreement between Switzerland and the EU on trade in agricultural products to Liechtenstein (see Chapter VII).25 Finally, Liechtenstein is included in the EU-Swiss agreements on processed agricultural products26 and on the carriage of goods.27 Those agreements apply to Liechtenstein although it is not an official contracting party because they are linked to the customs union between Switzerland and Liechtenstein. To sum up, similar to Iceland and Norway, the EEA Agreement was not sufficient to ensure Liechtenstein’s place in the process of European integration. Overall, the principality of Liechtenstein has reached an unprecedented level of participation. However, it has also shown that Liechtenstein sometimes lacks the state capacity as well as the treaty-making power to make its own agreements with the EU. Hence, outside the scope of the EEA Agreement, Liechtenstein often lags behind Switzerland. Finally, the legal and political cooperation with the EU in the area of taxation has improved the reputation of Liechtenstein’s financial centre. 21 22 23 24 25 26 27

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LGBl. 2010 No. 187. LGBl. 2013 No. 405. LGBl. 2013 No. 376. LGBl. 2011 No. 131. LGBl. 2007 No. 257. AS 2005 No. 1533 (Swiss law). AS 2011 No. 983 (Swiss law).

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V. EEA law in the Liechtenstein legal order

The Principality of Liechtenstein is a constitutional hereditary monarchy 28 on a democratic and parliamentary basis.28 Liechtenstein’s Constitution was adopted in 1921. Since then there were numerous amendments but they have not changed the Constitution’s specific features. In a nutshell, the power of state is shared between the Prince and the people establishing a dualism of the monarchic and the democratic principle. Indeed, unlike in the other European monarchies (except for Monaco), the Prince has real powers and is not confined to a mere representational role. The far-reaching competences of the Prince such as the power to veto every law or to dismiss the government have often been criticized by international organisations, in particular the Council of Europe. On the other hand, the Liechtenstein Constitution also includes a wide range of direct democratic rights. Similar to Switzerland, Liechtenstein has thus a very active tradition of direct democratic votes. The Liechtenstein Constitution is generally seen as ‘friendly’ towards interna- 29 tional law allowing for direct effect of international law.29 Moreover, Art. 8 para 2 of the Liechtenstein Constitutions enables the Landtag to transfer sovereign rights to other states or international organisations as long as it does not restrict the fundamental rights laid down in the Liechtenstein Constitution. The most far-reaching example of such a transfer of power is Liechtenstein’s Customs Union with Switzerland. According to Art. 4 of the Customs Treaty30 the Swiss customs law automatically applies to Liechtenstein. In practice, this means that twice a year the Landtag takes note of the newly adopted Swiss laws that are applicable in Liechtenstein.31 For some specific parts of the Customs Treaty the recourse to legal process takes place at the respective Swiss Courts. Shortly after Liechtenstein joined the EEA, the State Court ruled that EEA 30 law has direct effect in Liechtenstein.32 This means that ‘it is effective as international law on a national level from the time of taking effect without any special national act of transformation’.33 The precedence of EEA law, however, only applies if EEA law has been incorporated into the Liechtenstein legal order

28 Constitution of the Principality of Liechtenstein, LGBl. 1921 No. 15 Art. 2. 29 Daniel Thürer, ‘Liechtenstein und die Völkerrechtsordnung. Ein Kleinstaat im völkerrechtlichen Spannungsfeld zwischen Singularität und Modell rechtlicher Integration’ in: Archiv des Völkerrechts (Tübingen 1998) 112. 30 LGBl. 1923 No. 24. 31 It is important to mention that in contrast to the EEA and EEA secondary law the Landtag does not approve the incorporation of Swiss law into the Liechtenstein legal order. Instead, it only takes note of the incorporation. All Swiss law provisions that are applicable to Liechtenstein based on the Customs Treaty are published in the same Liechtenstein Law Gazette (see for the most recent version: LGBl. 2017 No. 114). 32 StGH 1995/14. 33 Peter Bussjäger, National Report by the State Court of the Principality of Liechtenstein, XVI. Congress of the Conference of European Constitutional Courts; see also StGH 1995/14.

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by the respective process foreseen in the EEA Agreement34 because EEA and EU institutions do not have independent legislative competences.35 31 The State Court has further argued that the EEA Agreement amends and supplements the substance of the Constitution and that violations of rights established by EEA law can be qualified as violations of constitutionally guaranteed rights. In this vein the State Court has extended its judicial review of legislation (“Normenkontrollfunktion”)36 to the control of compliance of domestic law with EEA law. There was thus no need to introduce a legal provision stating that EEA law prevails in cases where there is a conflict between EEA rules and other legal rules (see Protocol 35 of the EEA Agreement).37 Instead, it is the practice of the State Court that EEA law prevails over any Liechtenstein law contradicting it, unless ‘fundamental principles and core elements of the fundamental rights laid down in the Liechtenstein Constitution’ are violated.38 However, according to Bussjäger39 ‘such a constellation is conceivable only in stark exceptional cases, so that the constitutionality of a decision of the EFTA Court or of an EEA rule need not be examined in practice’. 32 This Court practice has remained unchanged, although by the revision of the Liechtenstein Constitution in 2003 the State Court was attributed jurisdiction to review the constitutionality of international treaties (Art. 104 para. 2). Due to this revision one might argue that international treaties shall rank below the Constitution. However, in 2004, the State Court decided that the revision of the Constitution from 2003 shall not affect the established qualification of the EEA Agreement as an international treaty amending and supplementing the Constitution.40 33 In the legal debate on the EEA, the relationship between EEA law and constitutional law is the main subject of interest. The large majority of experts does not doubt the direct applicability and precedence of EEA law in Liechtenstein's judicial system, but, for instance, opinions are divided with regard to the relationship between the EFTA Court of Justice and the State Court. It is for the State Court to annul Liechtenstein laws that are not compatible with the EEA Agreement. The competence of judicial review may also affect the domestic impact of an advisory opinion by the EFTA Court. The main point at issue is whether domestic courts are allowed to disregard a national law which is not compatible with EEA law, or whether they have to wait until the State Court annuls the respective law.41 The proponents of the State Court hold the view that in

34 See explanations to Art. 8 para 2 of the Liechtenstein Constitution in Chapter VI of this report. 35 Andrea Entner-Koch, ‘Liechtenstein im EWR-Rechtsetzungsprozess’, in Bruha, Pallinger and Quaderer (eds), Liechtenstein – 10 Jahre im EWR. Bilanz, Herausforderungen, Perspektiven (Verlag der Liechtensteinischen Akademischen Gesellschaft, Schaan 2005). 36 LGBl. 2004 No. 32 Art. 18 para. 1. 37 Bussjäger (n 33). 38 StGH 1998/61. 39 Bussjäger (n 33), refering to StHG 1998/61. 40 StGH 2004/45.

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case the EFTA Court has declared national law contrary to EEA law, the presenting court cannot disregard the respective law but must refer it to the State Court to conduct a judicial review. Hence, not the EFTA Court but the State Court would decide in last instance whether a national law is compatible with EEA law or not.42 On the other hand, some experts argue that the precedence of EEA law has to be interpreted as a precedence of application which replaces national law but does not dissolve it.43 This debate has never been particularly salient, but is one example in order to indicate that the recognition of the jurisdiction of the EFTA Court varies across different national Courts and judges. To sum up, the judicial system of Liechtenstein is very open to EEA law. 34 This friendly approach is mainly the result of Liechtenstein’s monistic approach to international law. However, it has also to be seen in context of Liechtenstein’s specific legal tradition according to which Liechtenstein law has been developed based on Swiss and Austrian law. Moreover, all Liechtenstein Courts have judges of Swiss or Austrian nationality and based on the Customs Treaty with Switzerland Liechtenstein gives direct effect to numerous Swiss laws. VI. Implementation of EEA law by Liechtenstein

This section addresses three specific aspects of the implementation of EEA 35 law by Liechtenstein. First, it analyses how the Liechtenstein parliament is involved in the EEA policy-making. Second, it shows some specific techniques to implement EU law that Liechtenstein has introduced. Finally, it addresses the application of EEA law in Liechtenstein as well as the Liechtenstein Court system. 1. Parliamentary involvement in EEA matters

Before the formal adoption of a Joint Committee Decision (JCD), each EEA 36 EFTA state has to inform the other contracting parties if the fulfilment of constitutional requirements is called for. According to Art. 103 of the EEA Agreement, a JCD cannot enter into force until the members of the national parliament of the EEA EFTA state that had previously acknowledged constitutional requirements have ratified the respective JCD. The members of the parliament of an EEA EFTA state can only approve a JCD but cannot make any changes or adaptations, neither to the JCD nor the EU act itself. Each EEA EFTA state has its own rules and requirements to fulfil before 37 launching a procedure in accordance with Art. 103. In Liechtenstein, the EEA 41 See for different perspectives: Herbert Wille, ‘Das Abkommen über den Europäischen Wirtschaftsraum und seine Auswirkungen auf das liechtensteinische Verfassungs- und Verwaltungsrecht’ in Bruha, Pallinger and Quaderer (eds), Liechtenstein – 10 Jahre im EWR. Bilanz, Herausforderungen, Perspektiven (Verlag der Liechtensteinischen Akademischen Gesellschaft, Schaan 2005) and Peter Bussjäger, ‘Rechtsfragen des Vorrangs und der Anwendbarkeit von EWR-Recht in Liechtenstein’ (Liechtensteinische Juristen-Zeitung, Vaduz 2006). 42 Wille (n 42) 136; see also StGH 2006/94. 43 Bussjäger (n 42) 145.

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Committee of the Liechtenstein parliament (‘EWR-Kommission’)44 meets a few days prior to the meeting of the EEA Joint Committee in order to decide whether a procedure in accordance with Art. 103 is necessary for a specific EU act. The parliamentary EEA Committee makes its decision based on a recommendation from the EEA Coordination Unit of the Liechtenstein government whose experts also participate in the meetings of the parliamentary EEA Committee so questions raised by the Members of Parliament (MP) can be answered directly. In nearly all cases the parliamentary EEA Committee decides according to the recommendation of the government without much discussion.45 38 To make its recommendation, the EEA Coordination Unit receives reports from the responsible department of the Liechtenstein public administration concerning: the content of an EU act; specific information on the expected impact of an EU act on Liechtenstein’s bilateral relations with Switzerland; the financial costs; and legal amendments triggered by the respective EU act. The recommendation itself is based on an expert opinion of Liechtenstein’s State Court,46 which specified the provisions of the EEA Agreement (Art. 103) and of Liechtenstein’s Constitution (Art. 8 para 2).47 According to the State Court, a JCD has to be treated as an international treaty affecting the sovereignty of the state, the rights of its citizens, or resulting in new burdens. As a result, a JCD requires the consent of the Liechtenstein parliament and may also be subject to a referendum. In its judgment, however, the State Court also states that parliament’s approval of a JCD is only necessary if the corresponding JCD changes domestic law or has financial consequences. By contrast, delegated and implementing EU acts, EU acts with a specific addressee, non-binding EU acts and EU acts that simply amend or consolidate other EU acts do not require the approval of the Liechtenstein parliament. This also applies to EU acts that are invalid or irrelevant for Liechtenstein due to its specific geographic and economic properties. Furthermore, the State Court stated that the decision of the parliamentary EEA Committee has to reflect the efficiency and proper working of the EEA Agreement. Finally, it highlights the necessity of close cooperation between government and parliament to ensure the democratic legitimacy of the EEA policy-making process. These specifications give all players certain room for interpretation as to whether the stipulation of constitutional requirements is necessary or not. 39 If Liechtenstein states the need to fulfil its own constitutional requirements to a JCD, the Landtag has to approve the respective JCD in a plenary meeting for which the government provides a short report addressing its relevance and consequences. The debates in the Landtag on a JCD are usually very short. In most 44 LGBl. 2013 No. 9, Art. 69. 45 Christian Frommelt Europäisierung der Landtagsarbeit (Arbeitspapiere Liechtenstein, Bendern 2011, No 29). 46 StGH 1995/14. 47 Peter Bussjäger, Kommentar zur liechtensteinischen Verfassung. Online-Kommentar, Bendern 2016, www.verfassung.li.

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cases there are only very few requests to speak made by the MPs. An exception was the incorporation of the Directive 94/34/EC on Parental Leave which caused an extensive and emotional discussion about sovereignty, economic freedom and social policy.48 In other more controversial cases, like the incorporation of the Directive 2001/97/EC on Money Laundering49 or the Directive 98/5/EC on practice of the profession of lawyer,50 opposition was mainly motivated by the specific interests of individual MPs. Thus far, there has never been a referendum on the ratification of a JCD. Despite quite similar procedures and criteria, the number of constitutional 40 requirements and the required time for parliamentary approval varies greatly across the EEA EFTA states.51 From 1 January 1994 to 31 December 2015 Liechtenstein has stipulated constitutional requirements to 196 JCDs compared to 275 by Iceland and 270 by Norway. In total, the EEA EFTA states specified that constitutional requirements must be fulfilled in 468 JCDs. However, there were only 87 JCDs where all EEA EFTA states established that constitutional requirements had to be fulfilled. Surprisingly, although Iceland and Norway have similar economic interests and a comparable legal tradition, they have only slightly more often pointed out the need to fulfil their own constitutional requirements to the same JCDs (126 cases) than Norway and Liechtenstein (119 cases) or Iceland and Liechtenstein (115 cases). On average (median), it takes 266 days until the EEA EFTA states fulfil 41 their constitutional requirements. With 176 days the average time to ratification of a JCD is in Liechtenstein slightly lower than in Norway (185 days) and much lower than in Iceland (283 days). There were only two JCDs where the ratification took more than one year. By contrast, Norway and Iceland had various JCDs, where it took several years until their constitutional requirements were fulfilled. Beyond Art. 103 of the EEA Agreement the involvement of the Liechtenstein 42 parliament is very limited. In contrast to Norway and Iceland there are no special parliamentary procedure rules on EEA matters according to which the government has to inform or consult the Landtag during the EEA decision-making process. Hence, it is completely up to the government to decide when to inform the Landtag about EEA matter. Thereby strategic questions on Liechtenstein’s European politics are addressed by the parliamentary Foreign Affairs Commission52 or, at the EEA EFTA level, by the Delegation to the EFTA and EEA Parliamentary Committee.53 Taking into account the limited resources of the Liechtenstein Parliament it is hard to understand why there are three different in48 49 50 51

Landtagsprotokoll 17 June 1999. Landtagsprotokoll 18 December 2003. Landtagsprotokoll 22 November 2002. Christian Frommelt In search for effective differentiated integration (PhD thesis, Zürich 2017) (not yet published). 52 LGBl. 2013 No. 9, Art. 64. 53 LGBl. 2013 No. 9, Art. 61.

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stitutions with often different MPs, between whom there is no formal exchange or cooperation. 2. Implementation of EEA law

There is no specific legislative procedure for the transposition of an EU directive into Liechtenstein law. In general, EU directives are transposed by amending the respective Liechtenstein law bill. This process requires the approval by the Liechtenstein parliament and the assent of the Reigning Prince (sanction). Statistical analyses of the Liechtenstein law making between 2001 and 200954 show that over 49 percent of the law and 34 of the ordinances have had their impetus in Liechtenstein’s legal relationship with the EU compared to 39 percent of the laws and 37 percent of ordinances with a domestic impetus. Put differently, EEA membership was the most important impetus for legislative activities in Liechtenstein between 2001 and 2009. As at 31 May 2017 a total of 303 laws and ordinances in force included references to the EEA. This is approximately one third of the domestic law in force. 44 On the other hand, empirical analyses of the number of votes and voting results from the Landtag show that there is a high level of consent and little debate about EEA matters in Liechtenstein.55 Hence it is no surprise that the enactment of laws with an EEA impetus takes less time and requires fewer amendments by the parliament than laws with a domestic impetus.56 However, in December 2013 the Landtag rejected a financial resolution which would have ensured Liechtenstein’s participation in the EU Framework Programme Horizon 2020.57 Liechtenstein then has been exempted from the participation in the EU programme (Protocol 31 EEAA). 45 From a legal perspective, there are two interesting features in the context of implementing EEA law in Liechtenstein. First, Liechtenstein transposes certain directives of Annex II of the EEA Agreement by so-called ‘modular ordinances’ (‘Modularverordnung’).58 Based on the law about the circulation of goods,59 the government enacts a decree that implements a directive on a certain type of goods, for instance Directive 69/493/EEC on crystal glass.60 However, the ordinance includes only the basic principles about the circulation of the corresponding product as well as references to the respective directive and its pos43

54 Christian Frommelt, Europäisierung der liechtensteinischen Rechtsordnung (Arbeitspapiere Liechtenstein, Bendern 2011, No 28). 55 Frommelt (n 45). 56 Christian Frommelt, 20 Jahre EWR-Abkommen: Einschätzungen von EWR-Experten und Führungskräften. Ergebnisse einer Onlinebefragung (Unterlagen zuhanden der Regierung des Fürstentums Liechtenstein, Vaduz 2015.). 57 Landtagsprotokoll 5 December 2013. 58 Christoph Büchel, ‘Wie verwaltet der Kleinstaat Liechtenstein das EWR-Abkommen? ’ in Prange (ed) Zwischen Bern und Brüssel, Erfahrungen Liechtensteins im Europäischen Wirtschaftsraum (Rüegger, Chur/Zürich 1999) 35. 59 LGBl. 1995 No. 94. 60 LGBl. 1998 No. 126.

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ition in the annex of the EEA Agreement. Subsequently, Liechtenstein does not adopt specific implementation measures but gives the respective directive direct effect. Moreover, the government does not update a modular ordinance in case the corresponding directive is amended because the modular ordinance stipulates that the currently valid edition of the directive results from the publication of the respective JCD. Put simply, Liechtenstein treats directives mentioned in modular ordinances as well as their amendments in the same way as it treats EU regulations. Legally speaking, in the EU and the EEA, directives have to be implemented 46 into domestic law by each member state (see Art. 288 TFEU and Art. 7 as well as the respective case law). Hence, Liechtenstein’s waiver to implement certain directives can be seen as an offence of EEA law. It also threatens the legal certainty of the EEA law as well as the transparency of Liechtenstein’s legal order. Thus far, however, the renouncement to implement certain directives of Annex II is tacitly accepted by the ESA. In this vein, Liechtenstein can substantively reduce administrative expenses of its EEA membership. By the end of 2014, Liechtenstein had 35 such modular ordinances in force which referred to approximately 500 directives, which, in practice, had direct effect on the legal order of Liechtenstein after they were incorporated into the EEA Agreement. The second feature reflects a rather recent development. The delayed incorpo- 47 ration of several EU acts into the EEA Agreement has restricted the EEA EFTA states’ access to the EU’s internal market for financial services. To protect the interest of its economic operators Liechtenstein decided to introduce legislative changes autonomously in their national legal order. Put simply, Liechtenstein applies exactly the same implementation technique as it usually uses to implement EEA secondary law but with the exception that it directly referred to the EU’s Official Journal since the EU act is not yet incorporated into the EEA Agreement.61 The State Court of Liechtenstein has recently confirmed that this implementation technique is under specific circumstances compatible with the Liechtenstein Constitution.62 By contrast, according to the European Commission63 under the current legal system such an implementation approach ‘does not represent an acceptable option for the EU’ in order to compensate for the uneven willingness among the EEA EFTA states to incorporate new EU law into the EEA Agreement. Against this background, the actual extent of the rights ensured by this autonomous implementation remains unclear. However, the incorporation of the regulations establishing the European Financial Supervisory Authorities (ESAs) into the EEA Agreement in September 2016 allowed for the incorporation of numerous EU acts related to financial services. As a result, an autonomous implementation of those EU acts is no longer necessary. 61 See for instance LGBl. 2014 No. 348. 62 StGH 2015/81. 63 European Commission, A review of the functioning of the European Economic Area (Commission Staff Working Document, Brussels 2012) 6.

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3. Application of EEA law

According to the EEA Coordination Unit Liechtenstein ‘makes every effort to fulfil its obligations arising out of the EEA Agreement, in particular regarding the correct and timely transposition of internal market directives’.64 Indeed, in the recent years Liechtenstein’s implementation deficit was mostly below the average implementation deficit of the three EEA EFTA states. The most recent Internal Market Scoreboard from January 2017 shows for Liechtenstein an implementation deficit of 0.9 percent compared to 2.2 percent for Iceland and 0.4 percent for Norway. However, Liechtenstein’s implementation deficit was mostly above the EU average. 49 Although there is an intense exchange between the EEA Coordination Unit, the various Liechtenstein government offices and ESA, the work of ESA does not attain much political or academic interest. Hence, there are no studies on the exchange between Liechtenstein and the ESA and on how this exchange shapes Liechtenstein’s implementation record and its implementation quality. 50 Jurisdiction in civil and criminal matters is exercised in the first instance by the Court of Justice (“Landgericht”), in the second instance by the Court of Appeal (“Obergericht”), and in the third and last instance by the Supreme Court (“Oberster Gerichtshof”). The decisions and decrees of the administrative bodies can be challenged in the Administrative Court (“Verwaltungsgerichtshof”), and any final decision of a Liechtenstein court or administrative body can be appealed to the State Court (“Staatsgerichtshof” StGH) on the grounds of an infringement of constitutional rights or of rights guaranteed under the European Convention on Human Rights. Due to the lack of human resources and the strong impact of Switzerland and Austria on Liechtenstein's legal system, all Courts have judges of Swiss or Austrian nationality, but the majority of judges and the presidents of the respective Courts have to be Liechtenstein citizens. All Courts have been facing a strong increase in the number of cases in the recent years. In addition to the above-mentioned Courts, special independent commissions65 may be appointed to decide on appeals against decisions by the government. As Ungerank66 points out all Courts as well as those special commissions have the authority to submit requests for advisory opinions to the EFTA Court in terms of Art. 34 of the Surveillance and Court Agreement (SCA). 51 Liechtenstein procedural law does not include special rules concerning the form of referrals. However, the parties of the main proceeding can only “suggest” that an opinion has to be obtained as there is no right that their request for an advisory opinion from the EFTA Court is accepted by the Liechtenstein Court 48

64 Andrea Entner-Koch and Thomas Bischof ‘Liechtenstein EEA Coordination Unit’ in C.Baudenbacher (ed) The Handbook of EEA law (Springer International Publishing, Cham 2016) 242. 65 LGBl. 1921 No. 15, Art. 78. 66 Wilhelm Ungerank ‘Liechtenstein Courts’ in C. Baudenbacher (ed), The Handbook of EEA law (Springer International Publishing, Cham 2016) 296.

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in charge of the proceeding.67 Against this background the State Court has recently defined the conditions when a request for an advisory opinion is appropriate. According to the State Court a referral to the EFTA Court is required if the legal situation concerning EEA law is unclear and the interpretation of EEA law is necessary to the proceeding in question.68 According to Ungerank69 the decision of the State Court can be seen to have set an ‘obligation to refer to the EFTA Court if the above mentioned conditions are fulfilled’ under Liechtenstein law. Again, the impact of EEA membership on the jurisdiction of Liechtenstein 52 has never been empirically analysed. However, the case law of the EFTA Court is occasionally discussed in the main law journals of Liechtenstein. There are also some overviews of the EFTA Court cases related to Liechtenstein.70 Most of those cases were related to the free movement of persons or the right of establishment. Indeed, several laws of Liechtenstein initially included residence requirements which were in breach of Art. 31 of the EEA Agreement and therefore had to be adapted after Liechtenstein joined the EEA.71 However, there are also other topics addressed by the EFTA Court such as preferential taxation regimes.72 In the recent years, the number of EFTA Court cases relating to Liechten- 53 stein has increased. As a result, the requests by Liechtenstein Courts for advisory opinions cover a wider range of policies.73 Particularly salient were the first two referrals by the State Court regarding the procedure for awarding casino concession74 and environmental impact assessments.75 Except for the Supreme Court, all Courts have submitted a request for an advisory opinion to the EFTA Court.76 Nonetheless, it is important to mention that most requests were made by the same judges. Hence, the big majority of judges at the Liechtenstein Courts has never requested an advisory opinion from the EFTA Court. To sum up, the implementation process can be divided into three stages. First, 54 the EEA EFTA states have to incorporate EU secondary law into the EEA Agreement. This is only possible if all EEA EFTA states and their parliaments agree. In practice, however, Art. 103 is mainly seen as a right to information rather than a decision-making power of the national parliaments of the EEA EFTA states. Second, EU law has to be transposed into national law. In the case of 67 68 69 70 71 72 73 74 75 76

Ungerank (n 66) 300. StGH 2014/172. Ungerank (n 66) 301. E. g. Entner-Koch and Bischof (n 64) or Ungerank (n 66). E.g. Case E-3/98 Herbert Rainford Towning. E.g. Joined Cases E-4/10, E-6/10 and E-7/10 Liechtenstein, REASSUR Aktiengesellschaft and Swisscom RE Aktiengesellschaft v. ESA. Ungerank (n 66) 306. Case E-24/13 Casino Admiral AG v. Wolfgang Egger. Case E-3/15 Liechtensteinische Gesellschaft für Umweltschutz v. Gemeinde Vaduz. However, Ungerank (n 66) points out that the Supreme Court hast dealt with and based its decisions on opinions of the EFTA Court.

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Liechtenstein there is no EEA specific legislative procedure. However, empirical analyses show again that law bills linked to the EEA receive less attention and are less controversial than purely domestic law bills. Finally, EEA law is applied by the people and institutions and in this vein has to be interpreted by the Liechtenstein Courts. The increasing number of requests for advisory opinions from the EFTA Court by the Liechtenstein Courts may indicate that EEA law has become more important for the Liechtenstein jurisdiction in the recent years. To confirm this observation, however, further analysis would be necessary. VII. Liechtenstein’s tailor-made arrangements 55

Liechtenstein is likely to have widely benefited from various tailor-made arrangements and several opt-out clauses. In this section, we will therefore analyse Liechtenstein’s tailor-made arrangements in the EEA. 1. The special solution in the free movement of persons77

The most prominent and politically most sensitive opt-out of Liechtenstein is the ‘special solution’ which allows a quantitative restriction on the number of new residents. It is based on a sectoral adaptation included in Annex V (free movement of workers) and VIII (right of establishment) of the EEA Agreement. The arrangement, however, was the outcome of a longer process. The EEA Agreement contained in Protocol 15 a standard transitional period (until the end of 1997) and a review clause which foresaw to jointly review the transitional measures ‘duly taking into account the specific geographic situation of Liechtenstein’. In the context of the negotiations adapting the EEA Agreement to the revised Liechtenstein-Swiss regional union, the Liechtenstein government obtained in 1995 an additional joint declaration with the EEA Council.78 This declaration recognized Liechtenstein as a very small area of rural character with an unusually high percentage of non-national residents and employees. It also acknowledged the principality’s vital interest in maintaining its own national identity. 57 In view of the expiry of the transitional period as of 1998 and the failure to negotiate a solution in time, the Liechtenstein government invoked the safeguard clause of the EEA Agreement (Art. 112) which allows a contracting party to take unilateral measures ‘if serious economic, societal or environmental difficulties of a sectorial or regional nature liable to persist are arising’. In 1999 the EEA Joint Committee, under Liechtenstein’s chair, agreed to extend the transitional period until the end of 2006 because the principality’s situation still justified the maintenance of special conditions.79 The special solution was incorp56

77 This section is based on Sieglinde Gstöhl and Christian Frommelt, Back to the Future? Lessons from the EFTA Countries for the UK’s Withdrawal from the EU (Conference Paper EUSA, Miami 2017). 78 EEA Council Decision 1/95. 79 JCD 191/1999.

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orated as a ‘sectoral adaptation’ and therefore did not require specific ratification by the contracting parties. Before the expiry of that second transitional period, the EU had to enter negotiations with the EEA EFTA countries on the enlargement of the EEA to the ten new EU member states in 2004. On this occasion, the special solution for Liechtenstein was slightly amended. Thus, the “special solution” no longer expires automatically but has become a “quasi-permanent” exception, subject to a review every five years. The later EEA enlargement agreements (Bulgaria, Romania, and Croatia) followed this example. As a result, the free movement of persons applies to Liechtenstein citizens, 58 but EEA citizens wishing to live in the country have to obtain a residence permit. The number of permits is limited, with a yearly net increase. There are no restrictions preventing family members of holders of a residence permit from joining and they also have the right to take up an economic activity. The authorities shall grant the new permits in a way that is not discriminatory and does not distort competition. In order to guarantee equal chances, half of them are granted by a ballot procedure. The number of applications for residence permits exceeds the allocable quota by multiple times. Yet, obtaining a residence permit is not a requirement for working in Liechtenstein, and many people commute from neighbouring countries on a daily basis. The special solution applying to Liechtenstein is closely linked to its tiny ter- 59 ritory (160 km2) and high number of foreigners among its resident population (about one third) and workforce (about two thirds). It has emerged over time as a complex, tailor-made solution institutionally embedded in the EEA. No EU or EEA EFTA state has so far contested Liechtenstein’s limited absorption capacity.80 2. Other tailor-made arrangements

After the Swiss people rejected an EEA membership while the citizens of 60 Liechtenstein approved it one week later, the maintenance of the much appreciated customs union between the neighbouring countries posed a challenge. Part of the solution was the ‘parallel marketability’ of goods that enables Liechtenstein to apply Swiss technical regulations and standards deriving from its regional union with Switzerland on the Liechtenstein market in parallel with the legislation implementing the EU acts incorporated into the EEA Agreement. To implement the parallel marketability, Liechtenstein had to create a national market surveillance and control system in order to prevent that Swiss products differing from EEA standards are exported into EEA countries and products following different EEA standards are marketed in Switzerland. The parallel marketability was included as a sectoral adaptation to Annex II 61 (Technical regulations, standards, testing and certification) of the EEA Agree80 European Commission, Liechtenstein Sectoral Adaptations Review (COM(2015) 411 final, Brussels, 2015).

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ment. Today, it mainly covers goods with different tariffs (such as fish or agricultural products) as well as products with different technical standards (like chemicals or medicinal products). Due to the various sectoral agreements between Switzerland and the EU, the number of products subject to parallel marketability decreased significantly over time. Overall, the system has worked well, but it also has its limits. For example, a judgment of the CJEU81 related to the calculation of the term of protection of specific certificates for medicinal products approved by Switzerland – and thus also by Liechtenstein – has forced both countries to confine the parallel marketability in order to protect the economic interests of Swiss businesses. 62 Another sectoral adaptation exempts Liechtenstein from the application of the EU acts contained in Protocol 47 (Trade in wine) and Annex I (Veterinary and phytosanitary matters) of the EEA Agreement as well as the EU acts contained in Chapter XII (Foodstuffs) and XXVII (Spirit drinks) of Annex II of the EEA Agreement. Indeed, the adaptation was only possible after Switzerland and the EU concluded the Agreement on trade in agricultural products (Agriculture Agreement). Based on an Additional Agreement between the EU, Switzerland and Liechtenstein,82 the EU secondary law covered by the Agriculture Agreement is extended to Liechtenstein. Put differently, while the EU acquis on veterinary issues and foodstuffs incorporated into the EEA Agreement was suspended, the EU acquis on veterinary issues and foodstuffs contained by the Agriculture Agreement is extended to Liechtenstein. In this regard, the term ‘extended’ means that the implementation of the EU secondary law into Swiss law automatically applies to Liechtenstein. Hence, by the suspension of the respective parts of the EEA Agreement Liechtenstein could ensure conformity with Swiss legislation that is traditionally applied in Liechtenstein based on the Customs Treaty between Switzerland and Liechtenstein but could also avoid substantial investments in its administrative capacity that would have been required to ensure correct implementation of the respective EEA acquis. 63 Aside from these sectoral adaptations the contracting parties have also agreed on numerous specific adaptations for Liechtenstein (e. g. Directive 2003/55/ EC).83 Those adaptations are usually included in a JCD and refer to a specific EU act by stating that an EU act or a specific provision of an EU act shall not apply to a specific EEA EFTA state. Most of these specific adaptations can be found in the field of statistics. However, specific opt-outs for Liechtenstein can be found in nearly all annexes. 64 The number of EU acts that Liechtenstein has to implement is further reduced as the EEA EFTA states usually do not have to implement EU acts for which there is no field of application. For instance, none of the EEA EFTA 81 European Court of Justice, Millennium Pharmaceuticals – Novartis and Others, Joined Cases C-207/03 and C-252/03, ECR 2005 I-03209, 21 April 2005. 82 JCD 97/2007, LGBl. 2007 No. 257. 83 JCD 146/2005.

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states have inland waterways, which is why ESA does not require the notification of implementing measures from the EEA EFTA states. In the case of Liechtenstein, there are various other policies where no implementing measures are necessary such as maritime transport or some parts of the aviation acquis. An overview of those EU acts can be found in the implementation status database of ESA. As at 1 March 2017 this database showed that Liechtenstein was released from the implementation of 40.4 percent of the EU directives and regulations in force in the EEA. By contrast, Norway was released from the implementation of 4.9 percent and Iceland from the implementation of 15.8 percent of the EU acts in force in the EEA. These statistics do not include the above mentioned EU acts implemented by modular decrees. Finally, in very specific cases ESA might accept derogations from the EEA 65 acquis that are anchored in the national law of the EEA EFTA states. For instance, due to the small inhabitable area, the access of EEA nationals to the property market is confined to EEA nationals with a residence permit in Liechtenstein. This restriction on the free movement of capital is accepted by the ESA since nationals of Liechtenstein also face certain restrictions on Liechtenstein’s property market (Liechtenstein 2007). 3. Explanations for and effects of tailor-made arrangements

To systematise the numerous explanations for Liechtenstein’s exemptions 66 from EEA secondary law, Frommelt and Gstöhl84 distinguish between opt-outs related to Liechtenstein’s smallness and opt-outs related to its close relations with Switzerland. Frommelt85 examines more closely how Liechtenstein’s optouts and tailor-made arrangement can be linked to different aspects that are directly or indirectly related to its smallness including small market size (e. g. electronic communication networks),86 limited administrative resources (e. g. EEA acquis on agriculture),87 lack of a regulatory need (e. g. EEA acquis on inland waterways), small inhabitable area (e. g. property market/free movement of capital), limited natural resources (e. g. renewable energy sources),88 lack of specific infrastructure (e. g. combustion plants)89 or Liechtenstein’s vital interest to maintain its national identity (e. g. free movement of persons).90 Finally, in the field of statistics, a small population might raise privacy concerns which is why Liechtenstein is exempted from collecting such data (e. g. business statistics).91

84 85 86 87 88 89 90 91

Frommelt and Gstöhl (n 2) 43ff. Frommelt (n 14) 153. JCD 11/2004. JCD 97/2007. JCD 102/2005. JCD 147/2002. EEA Council Decision 1/1995. EEA JCD 123/2008.

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In the face of it the high number of tailor-made arrangements for Liechtenstein seems to challenge the confidence in Liechtenstein’s implementation capacity and willingness but also in the uniformity of EEA law. However, Liechtenstein’s market is simply too small for specific arrangements for Liechtenstein to have an impact on the functioning of the EEA. Likewise, Liechtenstein is too small to attain much attention or to set a precedent. Moreover, most of Liechtenstein’s tailor-made arrangements concern mainly technical issues and are tied to certain conditions. Accordingly, they will be abolished as soon as those conditions have changed. In this vein, they are embedded in a narrow institutional corset according to which Liechtenstein cannot take advantage of its opt-outs for its own economic benefits. As a result, Liechtenstein’s tailor-made arrangements are unlikely to impair the functioning of the EEA. 68 From a domestic point of view, most of Liechtenstein’s tailor-made arrangements are not base on material or ideational preferences that often are seen as the main causes for differentiated integration. Instead, most arrangements are supposed to reduce the expenses of Liechtenstein’s public administration while Liechtenstein does not gain legislative sovereignty. Indeed, most of those arrangements even impose certain restrictions on Liechtenstein’s sovereignty because they give EU law or its implementation by Switzerland or Austria direct effect in Liechtenstein. 69 To sum up, Liechtenstein has various tailor-made arrangements that adapt the application of EEA law to the special characteristics of Liechtenstein. Those exemptions were either introduced as a sectoral adaptation that automatically applies to all related EU acts or as a specific adaptation which is tight to an individual EU act. Due to its smallness, however, Liechtenstein cannot be seen as a precedent for other EEA states. Moreover, from an analytical perspective, Liechtenstein’s tailor-made arrangements represent mostly a trade-off between legislative sovereignty and administrative efficiency. That said, Liechtenstein’s tailor-made arrangements may be crucial in order to make EEA membership feasible and to ensure a high public support for EEA membership. 67

VIII. Conclusions 70

As an EEA member Liechtenstein could assert its international legal personality and has finally achieved its own treaty-based relationship with the EU. Despite its smallness it has proven to be capable to fully comply with its obligations set out by the EEA Agreement. This achievement has also been acknowledged by Liechtenstein’s EEA partners. In December 2016 the Council92 commends Liechtenstein ‘for its continued excellent rate of implementation of EEA relevant EU acquis, (…) its efforts to bring about solutions to pending issues regarding the incorporation of relevant EU acquis into the EEA Agreement’. In its 92 Council of the European Union, Council Conclusions on a homogenous extended single market relations with Non-EU Western European countries (Brussels, 2014).

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preceding conclusions from December 2014 the Council also pointed to Liechtenstein’s willingness to share its ‘extensive experience in implementing EU acquis as a small-sized country with other western European small-sized countries’. This shows that by its EEA membership Liechtenstein is likely to provide a vanguard role to the other small-sized countries of Europe Andorra, Monaco and San Marino – a role that it has already provided for by the accession to the Council of Europe and the United Nations. Even more remarkable is the high political support for the EEA among the 71 Liechtenstein people. Survey results show that in no other EEA state the official European policy received that much public support.93 In addition, Liechtenstein’s political elites are strongly committed to the EEA membership which is seen as a gain of sovereignty and prosperity. From an analytical perspective, however, a precondition of this high support is the compatibility of Liechtenstein’s EEA membership with the Customs Union between Switzerland and Liechtenstein. Moreover, this report has shown that Liechtenstein benefits from various tailor-made arrangements and applies specific implementation techniques in order to save administrative resources. Despite such tailor-made arrangements Liechtenstein’s EEA membership can- 72 not be belittled as a ‘Sonderfall’. Instead, the success of its EEA membership is the result of an ambitious but pragmatic European politics. To sum up, over the last 25 years, Liechtenstein has not only shown a remarkable willingness to participate in European integration but also the expertise and adaptability to do so. IX. Literature Baur, G S (1996), ‘Die ‘parallele Verkehrsfähigkeit’ und analoge Verfahren als Prinzipien des 73 Europarechts’, in: F Baur and G Baur (eds), Aktuelle Rechtsfragen 1996. Liber amicorum zum sechzigsten Geburtstag von Theodor Bühler (Schulthess, Zürich 1996), pp. 83-101; Büchel, Christoph (1999), ‘Wie verwaltet der Kleinstaat Liechtenstein das EWR-Abkommen?’, in: H Prange (ed), Zwischen Bern und Brüssel. Erfahrungen Liechtensteins im Europäischen Wirtschaftsraum (Rüegge, Chur/Zurich 1996), pp. 23-60; Bussjäger, Peter (2006), ‘Rechtsfragen des Vorrangs und der Anwendbarkeit von EWR-Recht in Liechtenstein’, in: Liechtensteinische Juristen-Zeitung (Vaduz 2006), pp. 140-146; Bussjäger, Peter (2016), Art. 8 LV, Kapitel VIII, Liechtenstein-Institut (ed), Kommentar zur liechtensteinischen Verfassung. Online Kommentar Bendern, 2016, www.verfassungs.li; Council of the European Union (2014), Council Conclusions on a homogenous extended single market and EU relations with NonEU Western European countries. Brussels, 16 December; Council of the European Union (2016), Council Conclusions on a homogenous extended single market and EU relations with Non-EU Western European countries. Brussels, 14 December; Entner-Koch, Andrea and Thomas Bischof (2016), ‘Liechtenstein EEA Coordination Unit’, in: C Baudenbacher (ed), The Handbook of EEA law (Springer International Publishing, Cham 2005), pp. 69-85; Entner-Koch, Andrea (2005), ‘Liechtenstein im EWR-Rechtsetzungsprozess’, in: Bruha, Pallinger and Quaderer (eds), Liechtenstein – 10 Jahre im EWR. Bilanz, Herausforderungen, Perspektiven (Verlag der Liechtensteinischen Akademischen Gesellschaft, Schaan 2005); European Commission (2012), A review of the functioning of the European Economic Area.

93 Frommelt (n 51).

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PART I: General Reports Commission Staff Working Document. SWD(2012) 425 final, Brussels; retrieved from http:// www.europarl.europa.eu/RegData/docs_autres_institutions/commission_europeenne/swd/201 2/0425/COM_SWD(2012)0425_EN.pdf; European Commission (2015), Liechtenstein Sectoral Adaptations Review, COM(2015) 411 final, Brussels, 28 August 2015; Frommelt, Christian and Sieglinde Gstöhl (2011), ‘Liechtenstein and the EEA: the Europeanization of a (very) small state’, Rapport no. 18 (Europautredningen, Oslo 2011), Frommelt, Christian (2011 a), ‘Die Europäisierung der liechtensteinischen Rechtsordnung’, in: Arbeitspapiere LiechtensteinInstitut 28. doi: 10.13091/li-ap-28; Frommelt, Christian (2011 b), ‘Die Europäisierung der Landtagsarbeit’, in: Arbeitspapiere Liechtenstein-Institut 29. doi: 10.13091/li-ap-29; Frommelt, Christian (2015), ‘20 Jahre EWR-Abkommen: Einschätzungen von EWR-Experten und Führungskräften. Ergebnisse einer Onlinebefragung. Unterlagen zuhanden der Regierung des Fürstentums Liechtenstein’, Retrieved from http://www.liechtenstein-institut.li/Portals/0/cont ortionistUniverses/408/rsc/Publikation_downloadLink/Entwurf_Experten_zhd_Regierung.pdf (Februar 2015); Frommelt, Christian (2016), ‘Liechtenstein’s tailor-made arrangements in the EEA: A small state’s creative solutions in European integration’, in: S Wolf (ed), State size matters. Politik und Recht im Kontext von Kleinstaatlichkeit und Monarchie (Springer VS, Wiesbaden 2016), pp. 131-161; Frommelt, Christian (2017), In Search of Effective Differentiated Integration: Lessons from the European Economic Area (EEA), ETH Zürich (PhD dissertation); Gstöhl, Sieglinde and Christian Frommelt (2017), ‘Back to the Future? Lessons from the EFTA Countries for the UK’s Withdrawal from the EU’ (Conference Paper EUSA, Miami 2017); Gstöhl, Sieglinde (2001), Flexible Integration für Kleinstaaten? Liechtenstein und die Europäische Union (Verlag der Liechtensteinischen Akademischen Gesellschaft, Vaduz 2017); Gstöhl, Sieglinde (1997), ‘Successfully Squaring the Circle: Liechtenstein’s Membership of the Swiss and European Economic Area’, in: Madeleine O Hösli and Arild Saether (eds), Free Trade Agreements and Customs Unions: Experiences, Challenges and Constraints, Brussels/Maastricht: Tacis European Commission and European Institute of Public Administration, 163-176; Pelkmans, Jacques and Philip Böhler (2013), The EEA Review and Liechtenstein’s Integration Strategy. Brussels: Centre for European Policy Studies. Retrieved from https://www.ceps.eu/system/files/EEA%20Review_Liechtenstein%20Final.pdf; Regierung des Fürstentums Liechtenstein (2015), Bericht und Antrag der Regierung an den Landtag des Fürstentums Liechtenstein betreffend 20 Jahre Mitgliedschaft des Fürstentums Liechtenstein im Europäischen Wirtschaftsraum (EWR), retrieved from http://bua.gmg.biz/bu a/default.aspx?nr=18&year=2015&content=1425573281; Thürer, Daniel (1998), Liechtenstein und die Völkerrechtsordnung. Ein Kleinstaat im völkerrechtlichen Spannungsfeld zwischen Singularität und Modell rechtlicher Integration (Tübingen 1998), pp. 98-127; Ungerank, Wilhelm (2016), ‘Liechtenstein Courts’, in: C Baudenbacher (ed), The Handbook of EEA law (Springer International Publishing, Cham 2016), pp. 69-85; Wille, Herbert (2005), ‘Das Abkommen über den Europäischen Wirtschaftsraum und seine Auswirkungen auf das liechtensteinische Verfassungs- und Verwaltungsrecht’, in: Bruha/Pallinger/Quaderer (ed), Liechtenstein – 10 Jahre im EWR. Bilanz, Herausforderungen, Perspektiven (Verlag der Liechtensteinischen Akademischen Gesellschaft, Vaduz 2005), pp. 108-148.

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Norway and the EEA 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . 2. Norway and the EEA – a brief historical sketch . . . . . . . . . . . . . . . . . . . . . . . . 3. Other agreements with the EU and their relation to the EEA Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. The legal position of EEA law under Norwegian law . . . . . . . . . . . . . . 5. Implementing EU/EEA acts – the constitutional framework . . . . . . . . . .

1 4 9 15

6. The modes of implementation of EEA law and consequences for the Norwegian style of legislation 7. The question of EEA relevance – and the need for a complete makeover . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. The UK’s exit from the EU and the EEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Norway is not a member state of the European Union. Still, in many respects 1 Norway is more deeply involved and integrated legally, practically and economically in the EU’s cooperation than some of the EU Member States. Norway takes part in broad areas of the EU’s total cooperation through the EEA Agreement and a host of other agreements with the EU; in 2015 the country had received 200.000 posted workers from the EU; and between 75 and 80 % of Norway’s exports go to the EU.1 Norway is the EU’s fifth largest trading partner (larger than e.g. India and Canada),2 and Norway is the major exporter of natural gas to the EU. The oil and gas export counts for 70 % of Norway’s exports to the EU.3 The world’s largest sovereign wealth fund, the Norwegian Government Pension Fund Global (in January 2017 valued to approximately NOK 7 530 billion), is an important operator in the economies within the European Union; it holds 2,3 % overall of the listed companies in Europe and it invests heavily in real estate especially in the UK, France and Germany. The EEA and Norway Grants distribute 2,8 billion euros from 2014 to 2021 directly to projects in the EU Member States.4 It is important to note, however, that Norway is not a part of the euro-area and the cooperation and obligations in that field, which in itself is a strongly integrating force in Europe. As a matter of course, the legal frameworks governing the numerous relation- 2 ships between the EU and economic and other operators in the EU, on the one side, and Norway and Norwegian businesses and individuals, on the other, is crucial for the nature, vitality and viability of all these relations. The EEA Agreement is the main mechanism of translating EEA relevant EU law into binding Norwegian law prevailing over non-constitutional law. It is the legal guarantor of a significant share of “Norwegian” activities within the EU, be it 1 See e.g. NOU 2012: 2 ch. 14, 16 and 25 and Fredriksen and Franklin: Of pragmatism and principles: The EEA Agreement 20 years on, CMLR 52: pp. 629-684 (630). 2 Eurostat 95/2016, report 17.5.16. 3 NOU 2012: 2 ch. 14.5 pp. 338-339. 4 For more on this, see comments by Christiansen to Arts. 115 to 117 EEA on the Financial Mechanism in Part II of this book.

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for example businesswise, educational activities or access to health services. The agreement likewise gives effective legal protection to EU Member States’ companies and individuals before Norwegian authorities, including the courts of law. 3 This general report gives an overview of the legal workings of the EEA Agreement in Norway. To properly understand its practical and legal status, it is necessary to start out with a brief outline of why the EEA Agreement came about and still forms the major legal relationship between the EU and Norway (subchapter 2). Subchapter 3 then provides an overview of some of the numerous other agreements entered into between Norway and the EU – agreements that are partly overlapping with the EEA Agreement and that fill in at least some of the gaps not covered by the EEA Agreement. We then in subchapter 4 analyse the legal position of EEA law in Norway as implemented EEA rules prevailing over non-constitutional law, giving EU operators legal security in Norway. This substantially mirrors how Norwegian operators in the EU enjoy legal protection of rights adopted as EEA law directly before the EU judicial bodies and all the EU Members States’ public authorities and courts. In the further analysis, subchapter 5 takes a closer look at the techniques used when implementing EEA relevant EU legislation into Norwegian law and their consequences for the Norwegian style of legislation. In subchapter 6, we analyse a recurring theme that is currently of a growing concern in Norway and the EU: the question of which new pieces of EU legislation that are to be included in the EEA Agreement, i.e. EEA relevance. In this connection, we discuss the need of having a “complete makeover” of the main part of the agreement and the other agreements between the EU and Norway. The report concludes in subchapter 7 with some brief remarks on the coming exit of Norway’s traditional foreign policy ally and trading partner – the UK – from the EU and the EEA. 2. Norway and the EEA – a brief historical sketch 4

In the 1950 s, there was a split in Europe between states wishing to pursue a supranational market strategy and states seeking market access based on intergovernmental cooperation.5 On the supranational integrationist side stood France, West Germany, Italy and the three Benelux states, eventually signing the Rome Treaty in 1957. Other states did not wish or were not able, for different reasons, to join such a project. In 1960, on a British initiative, some of these states (the UK, Sweden, Denmark, Portugal, Austria and Norway, with Iceland, Liechtenstein and Switzerland joining later), formed the European Free Trade Association (EFTA) through the Stockholm convention. Norway, for its part, had in 1949, based on its war experiences and its close relationship with Britain and the US, chosen to join NATO as a founding member, and thereby giving up its pre-war policy of bloc neutrality, and for a large part following UK’s foreign 5 A thorough historical analysis of Norway’s relations to the EU can be found in NOU 2012: 2 ch. 4 pp. 44-63, see also Sejersted et al., EEA law, pp. 32-37, Fredriksen and Mathisen, EØSrett, pp. 16-19, Norberg et al., EEA law, pp. 1-3.

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policy lead. When the UK saw it fit to start membership negotiations with the EEC, Norway also applied (in 1962 and encore in 1967). The application processes were stopped by France not wishing to admit the UK into the EEC, and consequently Norway followed suit and withdrew its applications. A third Norwegian attempt of joining the EEC stranded in 1972 due to a negative vote in a referendum. The political debate over the question of membership was harsh and bitter, centering on strong commercial, industry and shipping interests in joining the EEC and an even stronger grassroots’ negativity to cede national sovereignty, give up national control of natural resources, as well as a sense of being part of a nation geographically and culturally far removed from the European power centers. The bitter debates still reverberate in Norwegian common psychological undercurrents and in discussions regarding EU matters. The wounds were reopened after yet another membership application and referendum in 1994, again with a negative vote on membership. Economically, Norway is one of the most “open” states in Europe, exporting 5 and importing substantial amounts of goods and services to keep up its high standard of living. The bilateral trade agreements from the 1970 s between the EFTA states and the EEC, securing the EFTA States market access in the EEC for industrial products, were not considered sufficient for full market access for other goods and for services. The common market was taking shape through the Final Act in 1986, and the EFTA negotiations with the EC regarding approximation of rules and standards went sluggishly due to the EC’s internal processes of making the internal market a reality and more efficient, and a string of accession negotiations. From the mid-1980 s, Norway decided to speed things up through unilaterally adapting its internal legislation to the EC’s internal market rules and standards. As a result of a strong political push by the Norwegian prime minister Gro 6 Harlem Brundtland and Commission president Jacques Delors, formal negotiations between the EC and the EFTA States started in June 1990 with the goal of establishing a more “structured partnership” between the EC and the EFTA States.6 The EFTA States were to take over large parts of the existing acquis communautaire governing the EC internal market, consisting of the rules on the free movement of goods, services, workers and capital, the competition rules, rules on state aid, public procurement, the environment, transport, social affairs, consumer protection, etc.7 A major obstacle for reaching a final agreement was how to create an institu- 7 tional framework that would secure that the common rules were followed in practice both within and outside the Community. Vesting that task with the ex6 See Sejersted et al. (2011) pp. 34-35. 7 Fredrik Sejersted, Between Sovereignty and Supranationalism in the EEA Context – On the Legal Dynamics of the EEA Agreement, in Peter-Christian Müller-Graff and Erling Selvig (eds), The European Economic Area – Norway’s Basic Status in the Legal Construction of Europe, (1997) p. 43.

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isting EC institutions (the Commission and the ECJ) regarding the EFTA States’ obligations under the agreement was politically and constitutionally unacceptable for the EFTA States. The institutional solution consisted of setting up a two-pillar structure consisting of EFTA institutions on the one side vaguely mirroring the EC institutions on the other, and bridging the two pillars with common institutions. The most important common body is the EEA Joint Committee, which sees to the constantly dynamic character of the EEA cooperation through deciding which new EU rules are EEA relevant and consequently to be included in the EEA Agreement and to be made part of the Contracting Parties’ internal legal order. After first having rejected a common EEA court, the ECJ accepted the setting up an EFTA court, thereby securing control instances on the EFTA side consisting of the EFTA Surveillance Agency and the EFTA Court.8 8 The EEA Agreement became effective as of 1 January 1994. The agreement has remarkably enough survived, despite the fact that the major EFTA States either joined the EU in the 1990 s (Austria, Finland, Sweden) or rejected the EEA Agreement in a referendum (Switzerland in December 1992). In many respects, the EEA Agreement governs the bilateral relationship between the EU and Norway. For its part, Norway is dominant in the EEA EFTA sphere over the relatively much smaller states and economies of Iceland and Liechtenstein. In Norway, the Agreement is commonly seen as compromise between getting and giving full and legally protected market access for goods (with some exceptions regarding fish and agricultural products), services, workers and capital with only marginally giving up formal sovereignty, but accepting the EU as political and legal hegemon within the scope of the EEA Agreement, with only little to no democratic participation in the europeanisation of national law and society. It goes without saying that this compromise contains severe tensions – tensions that might become unacceptable in the not too distant future. We shall return to some of these tensions below. 3. Other agreements with the EU and their relation to the EEA Agreement

In addition to the EEA Agreement, the legal relationship between the EU and Norway is governed by a large number of agreements covering other and partly overlapping areas of EU cooperation – areas that can be equally important politically and legally in the current geopolitical situation. 10 The Committee analysing Norway’s agreements with the EU found that Norway had entered into 74 agreements with the EU as of 2011.9 Since then, new agreements have been entered into within different policy areas. In addition comes 50 bilateral agreements with the EU Member States regarding the operation of the EEA and Norway Grants.10 The reason for these additional agree9

8 Opinion 1/91, 14.12.91 and 1/92 10.4.92. 9 An overview of the agreements is set out in NOU 2012: 2 pp. 71-76, see also a full listing as of 2011 in its annex 1 pp. 878-881.

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ments is the difficulties of renegotiating the EEA Agreement itself. An understanding of Norway and the EEA thus needs to include the broad cooperation Norway has with the EU beyond the EEA Agreement. This is especially relevant in EEA terms because legal initiatives from the EU can be partially EEA relevant and partially relevant under some other agreement, typically due to the Schengen cooperation or in the other fields of cooperation in the justice and home affairs sector. This is the case for example for the 2016 EU rules on protection of personal data that are to be implemented into Norwegian law in 2018.11 Furthermore, broad “policy packages” initialised and negotiated in the EU 11 can span over all legal competences found in the EU treaties, not necessarily taking the EEA scope or the EFTA States’ interests into consideration. An EU anti-terrorism internal security policy, or a European Agenda for Security can therefore use internal market, justice and home affairs, defence, and external action rules or measures in a coordinated fashion.12 Such broad policy initiatives can lead to considerable political, practical and legal challenges for Norway and the other EFTA states, and it has resulted in a profound need to enter into a number of agreements with the EU on a range of policy fields, but especially within the justice and home affairs area and within the defence and security field. Within the defence and security area, Norway and the EU has entered into a 12 string of cooperation arrangements and agreements relating to the political dialogue between Norway and the EU, a Memorandum of Understanding on participation in the EU Nordic Battle Group,13 a cooperation agreement linking Norway to the broad range of cooperation in the European Defence Agency (EDA), and agreements regarding Norway’s participation in the EU’s civil and military operations.14 An example of the latter is Norway’s participation in the anti-piracy operations in the Gulf of Aden in 2009-2010 with the battle ship Fridtjof Nansen. Within the area of security and defence, Norway has not entered into an over- 13 arching and dynamic agreement like the EEA and Schengen agreements. The agreements nevertheless constitute important political ties to Europe. The participation from 2006 in the European Defence Agency also has an important de10 Available in the Treaty Database of the Ministry of Foreign Affairs, found at www.lovdata.no. 11 Reg. 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Dir. 95/46/EC (General Data Protection Regulation). 12 See for example the broad range of measures in the overview of the December 2016 state of play for the EU Agenda for Security: https://ec.europa.eu/home-affairs/sites/homeaffairs/files/ what-we-do/policies/european-agenda-security/fact-sheets/docs/20161221/european_agenda_on_security_state_of_play_21122016_en.pdf. 13 See Memorandum of Understanding 23 May 2005 between the Ministries of Defence of Estonia, Finland and Norway and the Government of the Kingdom of Sweden concerning the Principles for the Establishment and Operation of a Multinational Battle Group to be made available to the European Union. 14 Agreement between Norway and the European Union regarding the setting up of a framework for Norway’s participation in The European Union’s crises operations.

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fence industry market dimension for the considerable Norwegian defence industry. From 2014, detailed defence procurement rules have been a part of the EEA Agreement through the Defence and Security procurement directive.15 EDA facilitates a broad range of tools that can be used by the procuring states when applying the Directive. The EDA Supply Chain Action Plan aims to support the industry by addressing supply chain related issues in a comprehensive manner to promote the creation of a globally competitive European defence equipment market.16 14 The most important link to the European justice and home affairs cooperation comes through the EFTA States’ status as associated Schengen states.17 The border cooperation in the EU started out in the 1980 s as a measure i.a. to make the internal market more effective through abolishing the internal border control between the Schengen states. As a compensatory measure, common external border control rules were necessary, and these rules and policies are a vital part of the European policies regarding the migration challenges. The EFTA States take full part in these measures. Thus, Norway is for instance vested with guarding the EU’s external border to Russia to the northeast in Finnmark and its north-west sea border along the Norwegian coastline. Furthermore, Norwegian police forces and vessels take part in the European Border and Coast Guard Agency’s (Frontex) operations in the Mediterranean and elsewhere. The constantly evolving Schengen acquis is to be implemented into Norwegian law. Hundreds of Schengen acts have thus been made part of Norwegian law in a similar dynamic homogeneity mechanism as under the EEA Agreement. Of particular importance are the rules on border controls18 and border surveillance, rules on information exchange through common databases in the Schengen Information System19 and the Visa Information System,20 other rules on information exchange between police authorities, and rules on the return of illegal migrants.21 Closely linked to the Schengen cooperation is the Dublin cooperation 15 The directive is implemented in Norwegian law through regulation 4. october 2013 nr. 1185 on defence and security procurements. 16 See further Sjursen, “Demokrati eller handlingskapasitet? Paradokser i Norges tilknytning til EU på det utenriks- og sikkerhetspolitiske område”, in: Eriksen and Fossum (eds), Det norske paradoks. Om Norges forhold til Europa (2014) pp. 174-195, Meld. St. 5 (2012-2013) EØSavtalen og Norges øvrige avtaler med EU, Sentrale prioriteringer og virkemidler i norsk europapolitikk ch. 55 pp. 55-56, NOU 2012: 2 ch. 23 pp. 723-758. 17 Agreement concluded 19 December 1996 by the Council of the European Union and the Republic of Iceland and the Kingdom of Norway concerning the latter’s association with the implementation, application and development of the Schengen acquis. 18 Reg. No 562/2006, 15.3.06, establishing a Community Code on the rules governing the movement of persons across borders (Schengen Borders Code) is implemented in Norwegian law by incorporation through the utlendingsforskrift § 4-1. 19 The EU rules are implemented through Act of 16 June 1999 nr. 66 (the SIS law) and the regulation of 21 December 2000 No. 1365 (the SIS regulation). 20 The VIS rules are implemented into Norwegian law through the utlendingslov §§ 102 to 102 f. 21 Dir. 2008/115/EC,16.12.08, on common standards and procedures in Member States for returning illegally staying third-country nationals is implemented into Norwegian law through the utlendingslov and the utlendingsforskrift.

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regarding where asylum applications are to be handled.22 Both the Schengen system and the Dublin rules have been under considerable pressure since 2014. In addition to the cooperation under the Schengen and Dublin acquis, Norway has entered into association agreements with the police intelligence institution Europol and the judicial cooperation unit Eurojust and several other substantive agreements regarding practical cooperation in the criminal and police fields.23 4. The legal position of EEA law under Norwegian law

As touched upon in subchapter 2 above, the basic aim of the EEA is to inte- 15 grate the EFTA states into the internal market of the EU. To reach this aim, the agreement seeks dynamic legal homogeneity, i.e. to secure an updated legal level playing field in the whole of the EEA. This goal is clearly stated in the fourth indent of the preamble to the Agreement and in Art. 1.24 Before discussing the position of EEA law under Norwegian law, it is impor- 16 tant to emphasize that the EU legal system gives the EEA Agreement a prominent legal position as an integrated part of EU law. This entails that the European Commission’s surveillance competences also cover the EU Member States’ implementation duties under the EEA Agreement and that the European Courts of Justice can rule on the contents of the EEA Agreement with respect to the EU Member States. Furthermore, the EEA Agreement, including its secondary law, has direct effect in the EU Member States, and can be relied upon by all individuals and economic operators based within the EEA with full legal force directly before the public authorities and courts in all 28 EU Member States. This means that a Norwegian market actor can file a case directly before the ECJ or for example before an Italian or French court regarding a Member State’s, a customer’s or competitor’s breach of their duties under EEA law. This goes far beyond private parties’ legal position under the EFTA agreements from the 1970 s or the WTO rules – these arrangements leave it to the states to pursue and protect private legal interests under the agreement, if they so wish.25 The Agreement’s stable and effective legal framework on the pan-European level 22 Reg.No 604/2013,26.06.13, establishing the criteria and mechanisms for determining the Member State responsible for examining an application for international protection lodged in one of the Member States by a third-country national or a stateless person is incorporated into Norwegian law through the utlendingslov § 32 fourth paragraph. 23 Further on Norway’s agreements in the justice and home affairs area, see preparatory works, NOU 2012: 2 ch. 22, Ugelvik, Inside on the Outside. Norway and Police Cooperation in the EU (2014), Part II, PhD dissertation submitted to the University and Oslo, Bruce, “Praktisk politi- og påtalesamarbeid i Europa”, Tidsskrift for strafferett No. 4/2015, pp. 447-468 and Finstad, “Norges tilknytning til EUs justis- og innenrikspolitikk” in: Eriksen and Fossum, Det norske paradoks. Om Norges forhold til Den europeiske union (2014) pp. 89-112 with further references. 24 For further information, see the comments by Arnesen and Fredriksen on the preamble and Art. 1. 25 See Fredriksen and Mathisen, EØS-rett, pp. 21-21 with reference to Case C-85/12, 24.10.13, LBI regarding an Icelandic bank’s filing of a case before a French court with respect to arrest of assets in France.

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within the EEA is in general overlooked in the Norwegian EEA and EU discourse. Now turning to the effect of EEA law in Norway; to a large extent, this follows from the incorporation of the Main Part of the Agreement into Norwegian formal statutory law through the EEA Act of 27 November 1992.26 The reason for the incorporation of the Agreement into statutory law is explained in the following. Norway (as Iceland) has a constitutionally dualistic legal system with respect to international legal obligations and thus do not grant EEA law direct effect. To reach dynamic homogeneity that to an acceptable extent mirrors the EU concepts of directly effective rules with supremacy over other national law, Norwegian law has to cater for an evolving, timely and effective implementation of all EEA relevant legislation stemming from the EU. This includes taking EEA relevant case law from the European Courts of Justice and the EFTA Court into account when interpreting EEA law. The former is first and foremost a running implementation task vested in the government with its ministries and the parliament, the latter depends on to what extent the courts, and especially the Supreme Court, applies case law from the European courts when deciding cases containing EEA elements. The Main Part of the EEA Agreement does not contain any explicit provisions regarding the Contracting Parties’ duties to give the Main Part a certain national legal effect. However, the good faith treaty obligation being part of the pacta sunt servanda principle under public international law makes it clear that national implementation may be necessary.27 The loyalty principle in Art. 3 states that the parties shall “take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of this Agreement”. This is understood as defining a stricter implementation requirement pursuant to the EEA Agreement, especially when reading Art. 3 together with the Agreement’s homogeneity principle.28 The Main Part of the Agreement consists of 129 articles. As it contains provisions that mirror the treaty-based rules in the EU on non-discrimination, free movement of goods, workers, services, competition and state aid – rules that are liable to give private parties legal rights or to impose duties, and that have direct effect under EU law – Norway decided to implement the main part of the EEA Agreement into Norwegian law through the abovementioned EEA Act. The implementation method used in the act is implementation through incorporation, i.e. by referring directly to the Agreement in the implementing legislation, giving the text of the Agreement the force of formal Norwegian statutory law that may be invoked directly before Norwegian authorities and courts. To 26 Act of 27 November 1992 nr. 109 (EØS) § 1. 27 See The Vienna Convention on the Law of Treaties Art. 26, Evans (ed), International Law (2010) pp. 181-182, Cassese, International Law (2005) pp. 213-237. 28 Sejersted et al., 196; Fredriksen and Mathisen, EØS-rett, p. 275.

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ensure that EEA law prevails over national law, Protocol 35 to the EEA Agreement has been implemented in Section 2 of the EEA Act.29 The Act ensures that both parliamentary acts and ministerial regulations implementing EEA law prevail over other formal Norwegian non-constitutional law.30 The rules on the four freedoms in the Main Part of the Agreement has been 21 invoked in a long series of cases before Norwegian courts and before the EFTA Court, the first being filed only four weeks after the entering into force of the Agreement in 1994. That case concerned the right to sell strong beer in ordinary shops.31 Other seminal cases concern state monopolies on automated gambling, the rights to natural resources used to produce hydroelectric power, the use of the rules on free movement of capital in tax cases (tax policy not in itself being part of the EEA Agreement’s scope), and the marketing of tobacco products.32 The hotly debated issue of the position of collective agreements and workers’ rights under the EEA Agreement has been tried before the Supreme Court i.a. in the controversial STX-case33 in 2013, and again in 2016 in Holship.34 The Holship case has raised considerable controversy in the lower courts and 22 following the EFTA Court’s advisory opinion in the case, as it puts to the fore the relationship between constitutional law, human rights law and EEA law. The Supreme Court’s decision is in itself quite remarkable, showing a court sitting in plenary being split almost in the middle regarding the substantive EEA law matter of the case. The minority disagreed with the EFTA Court’s assessment of, in its view, important factual premises, and could therefore not accept the EFTA Court’s conclusion. The Supreme Court was clear and in no disagreement, however, on the question of the effect of the EEA law in question and of the substantial weight to be given to the EFTA Court’s opinions in general.35 More out of the public eye are the scores of cases with strong EEA law ele- 23 ments heard by the lower courts. They frequently hear cases on for example public procurement based on the EEA public procurement rules as implemented in Norwegian law, and on labour law based on EEA law regarding takeovers.36 Likewise, a public supervisory organ such as the Competition Authority (Konkurransetilsynet) deals with hundreds of cases each year based on implemented EEA competition law with its main rules stemming directly from 29 See further on Prot. 35 in the comments by Dystland, Finstad and Sørebø to Art. 7 EEA in Part II of this book. 30 Fredriksen and Mathisen, EØS-rett, pp. 298-302. 31 See judgment by Oslo City Court in case 95-06187 and case E-6/96, 02.1.98, Wilhelmsenp. 53. 32 Regarding automated gambling, see Rt. 2007 p. 1003 A and case E-1/06, 13.3.06, p. 7 and case E-3/06, 25.8.06, p. 85. On the rights to hydroelectric power sources, see case E-2/06, 31.7.06, ESA v. Norway p. 164. On tax, see RG 2005 p. 1542 and case E-1/04, 27.4.04, Fokus Bank, p. 1. 33 Rt-2013-258. The European Surveillance Authority 25 October 2016 issued a letter of formal notice to Norway concerning posting of workers on the basis of the result of the case: http:// www.eftasurv.int/media/esa-docs/physical/Letter-of-formal-notice---Complaint-against-Norway-concerning-posting-of-workers---1.pdf. 34 Judgment 16 December 2016, Holship, HR-2016-2554-P. 35 HR-2016-2554-P, Holship, para. 77 and 142.

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the wording of the EEA Agreement Arts. 53 and 54. The Competition Authority is in 2017 evaluating whether to fine the major Norwegian mobile operator Telenor with a fine of NOK 906 million due to alleged abuse of its dominant position. 24 Art. 6 of the EEA Agreement furthermore states that the provisions in the Agreement shall “in their implementation and application, be interpreted in conformity with the relevant rulings of the Court of Justice of the European Communities given prior to the date of signature of this Agreement”. The SCA Art. 3(2) furthermore sets out the duty for the EFTA Court to “pay due account to the principles laid down by the relevant rulings by the Court of Justice of the European Communities given after the date of signature of the EEA Agreement and which concern the interpretation of that Agreement”. On that basis and taking into account the general homogeneity and loyalty principles embedded in the Main Agreement, both the EFTA Court and the Norwegian Supreme Court takes duly into consideration the case law of the ECJ both before and after the signing of the agreement.37 The cut-off date in Art. 6 at the signing of the Agreement has thus had no significance —the Supreme Court sees also later practice from the EU courts as “binding in practice”.38 25 It seems to be a general view in Norway that the EFTA Court’s consistent practice both towards the case law of the ECJ and with respect to the position of EEA law in the EFTA States has cemented the acceptance in the EU courts that homogeneity with EU law is indeed an established legal fact, and that it has considerably helped to ensure and secure the position of EEA law in the EU. The EFTA Court’s loyal use of ECJ case law has also led the Norwegian Supreme Court and lower courts to employ the principle of EEA conform interpretation39 and in general to give substantial weight to case law stemming from the EU courts and the EFTA Court. 26 When it comes to changing the jurisprudential method in Norway from being nationally orientated to being far more internationally geared, the Norwegian Supreme Court has played a pivotal role, and more important than the legislature, the governmental administration and academia. The methodological change has been characterised as a “silent revolution” and has happened over time. The last years have shown the Supreme Court confidently applying cases decided by the EU courts.40

36 An analysis of all 700 cases in Norwegian courts with an EEA element from 1994 to 2010 is given by Fredriksen in EU/EØS-rett i norske domstoler, Utredning nr. 3 til Europautredningen (2011). 37 See Fredriksen and Mathisen, EØS-rett, pp. 258-261, Sejersted et al. p. 287, Bull (2015) p. 366, Backer, Loven – hvordan blir den til? p. 110. 38 Skoghøy, “Dommerrollen gjennom 50 år – noen utviklingstrekk”, Lov og Rett 2011 p. 11. 39 For more on this, see the comments by Dystland, Finstad and Sørebø on Art. 7. 40 See in general Arnesen and Stenvik, Internasjonalisering og juridisk metode. Særlig om EØSrettens betydning i norsk rett (2nd ed., 2015) and also Mestad, “Dissensens alvor”, in: Schei, Skoghøy and Øie (eds.), Lov Sannhet Rett: Norges Høyesterett 200 år (2015) pp. 222-253.

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The Supreme Court sees it as its responsibility to have an independent view 27 of an EEA legal question before it. As the lower courts in the majority of EEA cases, it seldom finds it necessary to ask the EFTA Court for advisory opinions pursuant to Art. 34 SCA and Section 51 of the Norwegian Courts Act, instead applying the relevant ECJ and EFTA Court case law directly. Contrary to what is the case under Art. 267(3) TFEU, the Supreme Court does not have a duty to ask for a prejudicial advisory opinion. The practice of not to a larger extent turning to the EFTA Court for advisory opinions, have raised criticism especially from the President of the EFTA Court.41 The relationship between the EFTA Court and i.a. the Norwegian Supreme Court has been described as “troubled” by leading commentators, pointing to the fact that the Norwegian Supreme Court waited 12 years after its last referral before it made its request in the Holship case in 2016. The relationship between the courts seem, however, to have improved. The Supreme Court has recently filed two new cases to the EFTA Court for advisory opinions.42 As of 2017, the Supreme Court and the EFTA Court also have a secondment agreement, under which the former may post a clerk at the EFTA Court for a period of about a month twice a year to gain direct insight into the workings of the EEA Agreement and the EFTA Court. An important question is whether the implementation of the main part of the 28 Agreement also brings with it the implementation of unwritten general principles under EEA law. The EFTA Court in the Icelandic Sveinbjörnsdottir-case was in favour of such a position when holding that the Agreement itself constituted the legal basis for state liability for damages for not having implemented a directive correctly. The Court’s reasoning was that state liability is “an integral part of the EEA Agreement as such” and that it was “natural to interpret national legislation implementing the main part of the Agreement as also comprising the principle of state liability”.43 The EFTA Court’s position regarding state liability flowing from the EEA Agreement was upheld by the Norwegian Supreme Court sitting in plenary in the seminal Finanger II-case.44 Fredriksen and Mathisen furthermore considers that the Main Agreement might be said to carry with it further general unwritten legal principles found in general EU law, such as the principles of equivalence and effectiveness.45 41 See for instance Baudenbacher, “EFTA-domstolen og dens samhandling med norske domstoler”, Lov og Rett 2013 p. 515, at pp. 518-519 and 532. Bull goes through the full body of the 201 Supreme Court cases with European elements in “Høyesteretts bruk av EU- og EØS rett” in: Schei, Skoghøy and Øie (eds.), Lov, Sannhet, Rett. Norges Høyesterett 200 år (2015) pp. 358-392 where he also discusses the possible reasoning behind the Supreme Court’s practice of only seldomly referring EEA questions to the EFTA Court. 42 Case E-19/16, 14.12.16, Thue and Case E-03/16, 24.2.16, Ski Taxi, Follo Taxi og Ski Follo Taxidrift. 43 Case E-9/97, 12.11.97, Sveinbjörnsdottir, para 95, see also Case E-8/07, 14.9.07, Nguyen. 44 Rt. 2005 p. 1365 (52), see further Halvard Fredriksen, Offentligrettslig erstatningsansvar ved brudd på EØS-avtalen (2013), Fredriksen and Mathisen, EØS-rett, pp. 324-338, Sejersted et al. (2011) pp. 208-218, Jervell (2001) pp. 100-172, Stemsrud (2015) pp. 122-123. 45 Fredriksen and Mathisen, EØS-rett, p. 276 and pp. 288-293 with further references, see also Fredriksen and Franklin (2015) pp. 653-654.

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5. Implementing EU/EEA acts – the constitutional framework

Norway has incorporated a total number of approximately 8.500 EU legal acts through the EEA Agreement into Norwegian law. The number of EU acts transposed into Norwegian law is even higher when taking into consideration the other agreements between the EU and Norway. The Committee that analysed the agreements between the EU and Norway found that Norway takes part in approximately ¾ of the total EU cooperation, excluding the euro cooperation. It found that 174 out of a total of 600 consolidated Norwegian parliamentary acts were enacted or amended in some way due to adaptions to the agreements with the EU. Furthermore, the number of (consolidated) delegated acts (regulations – forskrifter) given or amended due to EEA incorporation duties is around 1.000 out of a total of 11.000. In general, Norway transposes EU law in an efficient and loyal manner. However, as the abovementioned Committee found, and as the European Commission became fully aware of due to the report, there is a row of substantially delayed directives and regulations awaiting to be included in the Agreement and transposed into Norwegian law.46 30 To have full legal effect in the dualistic Norwegian legal system, EEA relevant EU acts have to be incorporated into Norwegian law through an incorporative act. If the act is of “special importance” or necessitates transposition through a parliamentary act, the Parliament has to accept that the actual EU act is to be taken into the EEA Agreement through a decision by the EEA Joint Committee, cf. the Norwegian Constitution (Grunnloven) Section 26 second paragraph. The choice between incorporation through a parliamentary act and a ministerial regulation follows normally the same route as when choosing the adequate legislative instrument under internal national law. 31 In this way, it is generally accepted that the EEA Agreement does not formally or legally overturn sovereignty to the EU. This was held before entering into the EEA Agreement, and it is supported by a stable state practice when evaluating the constitutional EEA framework in relation to new acts making parliamentary acceptance necessary. A profound debate over the constitutional framework is nevertheless currently taking place in Norway. Several commentators are questioning the prevailing constitutional doctrine, especially when overturning power to EFTA organs that legally “translate” decisions made by EU agencies for EEA purposes, see directly below.47 But the Ministry of Justice and an overwhelming majority in the Parliament and have continuously found that the existing practise is constitutional. 32 A legal and political challenge in Norway is the growing number of agencies in the EU with supervisory and regulative functions; a development that was not envisaged when the EEA Agreement was entered into. Vesting such bodies with 29

46 See especially NOU 2012: 2 ch. 7 pp. 118-135 and ch. 25, p. 789-804 and SWD (2012) 425 final Commission Staff Working Document, A review of the functioning of the European Economic Area.

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executive or legislative powers, that are to have direct effect in Norway raises constitutional difficulties in a dualistic legal order. However, what has sometimes been referred to as a de minimis rule allows for transfer of powers to a supranational organisation with a simple majority vote in the Parliament, cf. Section 26 of the Constitution. The doctrine has evolved through legal theory and state practice since the 1960 s. The parameters to be taken into account is i.a. the degree of reciprocity, participation in the decision making, the nature of the competence transferred, how far reaching are the powers transferred, the societal area concerned, and the Parliament’s view on the matter. If the de minimis rule is not applicable, powers cannot be transferred to a supranational body to which Norway is not associated. In such circumstances adaptations to the original structures are needed. It is likewise evidently demanding for the EU to accept voting rights in the agencies for states not being EU-members. It is therefore normally necessary to set up institutional rules that leave it to an EFTA body, where Norway fully partakes, to make the decisions that will have binding effect in Norway. This can still be constitutionally challenging. Outside the scope of the de minimis rule, one has to employ Section 115 of the Constitution as the proper constitutional basis for parliamentary consent to the incorporation of the act. That provision necessitates a 3/4 parliamentary majority for accepting the new act and it may lead to difficult political negotiations both in the parliament, with the EFTA partners, and with the EU, to reach acceptable solutions. This has indeed been the case regarding a row of EEA relevant EU regulations regarding the setting up of new financial supervision bodies, causing their inclusion into the EEA Agreement to be delayed substantially. Similar questions and difficult discussions might be expected when other sets 33 of EU rules regarding other agencies are to be incorporated into the EEA Agreement.48 The evolution of the EEA Agreement under Norwegian law is constitutionally and formally sound, and it follows the dynamic and evolving machinery that was set out in the parliamentary documents regarding accession to the EEA Agreement.49 However, “the incoming tide”, to quote Denning,50 and the nature 47 St.prp. nr. 100 (1991—1992) ch. 8.10 pp. 335-347, NOU 2012: 2 ch. 11 pp. 229-268. The understanding of the Constitution § 26 underpinning the implementation of a row of EEA instruments have been discussed widely, see generally Smith, Konstitusjonelt demokrati (2015) pp. 167-169, Lilleby, Grunnloven § 93 [now § 115] og unntaket for “lite inngripende” myndighetsoverføring, in the Parliament’s report Perspektiv 03/10, Holmøyvik, “Grunnlova § 93 [now § 115] og læra om “lite inngripende” myndighetsoverføring i lys av nyare konstitusjonell praksis”, Lov og Rett nr. 8/2011 (p. 447-471), Holmøyvik, “Sikker konstitusjonell praksis”? Grunnlova og Noregs avtaler om suverenitetsoverføring, Nytt norsk tidsskrift 2013 pp. 117-125, Sejersted, “Læren om “lite inngripende” myndighetsoverføring – statsrettslig selvbedrag eller fornuftig grunnlovstolkning?”, Nytt norsk tidsskrift 2013 pp. 416-421, Bekkedal, “Om grunnlovens medlemsskapsprinsipp ved overføring av myndighet til internasjonale organisasjoner”, Kritisk Juss nr. 4/2015 pp. 197-230 and “Suverenitet og samarbeid – Grunnlovens skranker for delegasjon av statsmakt”, Kritisk Juss nr. 1/2016 pp. 3-37. 48 See further on the agencification question: Fredriksen and Mathisen 176-182, NOU 2012: 2 ch. 9.3.2 pp. 175-177. 49 See St.prp. nr. 100 (1991-1992) pp. 335-347.

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and the consequences of that legal tide, cannot be said to have been fully grasped in the early 1990 s. Moreover, it cannot be overlooked, that, in practice, a de facto substantial power shift from the Norwegian parliament to the EU has followed from the implementation of a massive amount of legislation stemming from the EU, the constant entering into new agreements with the EU, and the resulting profound europeanisation of the Norwegian society – combined with the narrow possibilities for democratic Norwegian voice into the EU legislative system.51 This power shift is thoroughly documented in the 911-page long report by the Committee that analysed the agreements between Norway and the EU, and is described in unusually clear terms there. The Committee thus i.a. stated that, akin to the effect for the EU Member States, the adaptions to the EU has led to “a massive transfer of power from national to supranational level. The EEA Agreement is the largest and most binding agreement that Norway has ever entered into, and it has been followed by a row of other association agreements with the EU. The overturning of power to some extent goes to the EFTA and the EEA organs, but the substantial transfer of power is to the EU and to the EU institutions”.52 With respect to the Parliament’s legislative function, the Committee moved on by stating that within “the framework of the agreements, the Parliament is not in itself the legislator, but has to be content with implementing rules that are enacted in the EU. Even though this only is the case for a part of the Parliament’s legislation, it is a considerable part, and it is growing”.53 34 It is, however, important to keep in mind that the Norwegian Parliament retains its full powers in all budgetary matters. Moreover, the weak influence on the Parliament’s side regarding its role with respect to the incorporation of EEA law is freely chosen, and the Parliament is formally and legally free to change its overall relationship to the EEA and the European Union.54 It is remarkable, though, that within the lifespan of the EEA Agreement, the Norwegian parliament’s legislative EEA processes to this date, which have been by the hundreds, have never led to the opening of the dispute resolution procedures under Art. 102 and 111.55 35 We now leave the constitutional questions and turn to some specific legal matters that need to be taken into account when incorporating EU relevant acts into Norwegian law.

50 Bulmer v. Bollinger, [1974] All England Law Reports p. 1226, at p. 1231, quoted from Sejersted (1997) p. 43. 51 See further the commentaries on Art. 99 to 101 by Dystland, Finstad and Sørebø in part II of this book. 52 NOU 2012: 2 Ch. 26 p. 807-837. p. 820, see also i.a. Eriksen og Fossum (eds.), Det norske paradoks. Om Norges forhold til den europeiske union (2014) ch. 1, 2 and 11. 53 NOU 2012: 2 ch. 26 p. 821. 54 Iris Nguyên-Duy, “Stortinget i passasjersetet. Er det noe igjen av parlamentets lovgivende myndighet?”, in Bugge, Indreberg, Syse og Tverberg (eds), Lov, liv og lære, Inge Lorange Backer 70 år (2016) p. 377. 55 NOU 2012: 2 ch. 6.4.6, pp. 103-106.

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6. The modes of implementation of EEA law and consequences for the Norwegian style of legislation

The incorporation technique to be employed when transposing EEA relevant EU law into Norwegian law has to observe Art. 7 in the EEA Agreement as incorporated into Norwegian law through the EEA Act Section 1. Contrary to the legal effect of regulations in the EU Member States following from Art. 288(2) TFEU, regulations are not directly applicable in Norway. However, equal legal effect shall pursuant to Art. 7 litra a be secured by making an act corresponding to a regulation as such part of the internal legal order. In the Norwegian legal system, this requirement has been understood, at least as the clear main rule, to mean implementation through the incorporation technique. This method has been used, as mentioned above, when implementing the Main Part through the EEA Act, and is also the method used in almost all cases for implementing regulations, be it implementation through parliamentary acts or through delegated legislation enacted by ministries or directorates. The technique employed is simply to refer directly to the EEA regulation in the implementing act or delegated act, thus making the regulation itself an integral part of national law.56 For some time, it was the position of Norwegian authorities that EEA regulations that in no way regulated rights and duties for private legal subjects, but typically vested reporting duties with a Norwegian public body to an EFTA organ, did not have to be implemented through the use of the heavy administrative (time and resource consuming) formal legislative tools. The perception was that they could be implemented effectively, loyally (“as such”), and with full notoriety through for instance a ministerial order (instruks). Interestingly, the matter was (for reasons unknown to the practical world outside Rue Belliard) given priority by the EFTA Surveillance Authority, and eventually brought before the EFTA Court. The Court solved the actual case without taking up the principled matter.57 The practice of implementing regulations through ministerial orders seems now, however, abandoned by Norwegian authorities. Pursuant to Art. 7 EEA litra b, an act corresponding to an EU directive leaves to the authorities of the Contracting Parties the choice of form and method of implementation. The ordinary way of implementing directives in Norway is through the method of transformation. This can be employed in an active mode, writing the actual pieces of the directive into new legislation or through amending existing legislation. It can also consist of a normative promulgation of passive transformation where already existing legislation is found to be in conformity with the directive, thus leaving it unnecessary to enact new implement56 See further the guide issued by The Ministry of Justice, Lovteknikk og lovforberedelse (2000) 176-180, NOU 2012: 2 ch. 7.2.2, p. 120, and the commentaries to Art. 7 litra a by Dystland, Finstad and Sørebø. 57 Case E-5/11, 20.09.11, ESA v Norway, p. 418 and Fredriksen and Mathisen, EØS-rett, pp. 279-280.

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ing legislation. The precise legal-technical requirements for implementing directives correctly follow the doctrine employed by the ECJ when interpreting the corresponding rule in Art. 288(3) TFEU.58 40 There have been relatively few cases before the EFTA Court stemming from Norway concerning the question of the correct implementation of directives. However, the Periscopus-case regarding whether the so-called Takeover Directive had been implemented correctly, is an example of the EFTA Court drawing on legal certainty and transparency considerations when analysing whether the directive was correctly transposed into Norwegian law.59 41 Based on case law from the ECJ regarding Swedish and Danish implementation of EU directives, the Scandinavian technique of legislating broad standards followed up by normatively specifying the act’s provisions in the travaux preparatoires might not be upheld.60 The question of implementation through the travaux preparatoires was one of the matters analysed in Periscopus mentioned just above. Moreover, the traditional Norwegian technique of legislating general rules combined with discretionary powers for the administrative authorities to decide on the detailed content through interpretation on a case by case basis, can run counter to the sufficiently clear and precise requirements following from Art. 7. The diversity in the EEA points to a need for a higher degree of specificity to secure legal certainty. This has led to a change in the Norwegian legislative style with a more frequent use of detailed legislation.61 7. The question of EEA relevance – and the need for a complete makeover

As emphasised above, the EEA Agreement is characterised by its dynamism through foreseeing a constantly strengthening of the cooperation through the enactment and incorporation of new secondary law. Year by year, the EU produces a large amount of regulations and directives that are to be made part of the Agreement on the condition that the legislation in question is EEA relevant. In short – a piece of EU legislation is EEA relevant if it falls under the Agreement’s geographical and material scope. The question of EEA relevance is a matter for the EEA Joint Committee to decide under the rules in Art. 93 and Art. 97 et seq.62 43 To enable the EEA Joint Committee to decide on the matter of EEA relevance, it has to be discussed in and between the Contracting Parties. Normally 42

58 Lovteknikk og lovforberedelse (2000) pp. 170-176, see the commentaries to Art. 7 litra b Dystland, Finstad and Sørebø. 59 Case E-1/10, 24.4.09, Periscopus, p. 198. 60 On the use of traveaux preparatoires in the implementation, see case 143/83 Commission v. Denmark, p. 427 and case C-478/99, 07.5.02, Commission v. Sweden, p. I-4147, Fredriksen and Mathisen, EØS-rett, 281, Backer (2013) pp. 99-100, Prechal, Directives in EC Law (2005) pp. 76-87. 61 See further Dystland, Finstad and Sørebø’s comments to Art. 7 and the general report on Iceland and the EEA mn. 50-57. 62 See further the commentaries on Art. 102. By Dystland, Finstad and Sørebø.

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the question raises no controversy whatsoever – and this indeed is the case for Norway: thousands of directives and regulations have been implemented into Norwegian law with no signs of utterances or discussions about EEA relevance; the piece of legislation is evidently EEA relevant and gives no reason to wrangle. In some instances the matter does, however, raise considerable debate, and the question may have different outcomes between the Contracting Parties. Solving the EEA relevance question can thus be vital for homogeneity: Art. 93(2) and Art. 98 sets out that the parties shall act in unison when deciding to extend the Agreement with new rules; that is not possible if one of the parties cannot accept the instrument as EEA relevant, or is applying it in a way that in some relations excludes the instrument’s homogenous legal effect. For Norway’s (and Iceland’s) part, the relevance matter has been brought up 44 in several cases concerning the Agreement’s geographical scope.63 Norway’s position has, on the basis of established practice in international law, consistently been that the notion “territory” in Art. 126(1) excludes the Norwegian continental shelf and its economic zone from the geographical scope of the EEA Agreement.64 Thus, it has in principle – contrary to the EU’s functional view – been against letting implemented EEA law govern activities on its continental shelf and in its economic zone, but the Parties have not initiated the dispute resolution procedures in Art. 102 or Art. 111. This is due to the fact that Norwegian authorities seem to apply the EEA rules on the shelf etc. when being put under pressure by the EFTA Surveillance Authority65 or through legal proceedings before the courts.66 In the actual cases, Norway amended the national rules in question on a “voluntary” basis, but did not accept ESA’s stance regarding the geographical scope of the Agreement.67 The disagreement between Norway and the EU on the geographical scope of 45 the Agreement has furthermore led to directives not being put on the incorporation agenda of the EEA Joint Committee at all. That is the case for the Marine Strategy Framework Directive (2008/56/EC)68 and the Offshore Safety Directive (2013/30/EU). As Fredriksen and Franklin points out, the “EU has repeatedly called for incorporation of the Marine Strategy Framework Directive and the 63 Seeing the geographical scope as a matter of EEA relevance has been critisised by Bjørnar Alterskjær, see memo 13 March 2013 to Bellona: Offshore Strategy Directive – EEA relevance and geographical applicability ch. 4, pp. 6-10: http://bellona.no/assets/sites/2/2015/06/ fil_Offshore_EEA_relevance1.pdf. 64 Meld. St. 5 (2012-2013) EØS-avtalen og Norges øvrige avtaler med EU, ch. 5.3.1, pp. 41. 65 Reasoned Opinion 24 September 1999 concerning the application of Reg. 1408/71 to persons working on the Norwegian Continental Shelf and Reasoned Opinion of 2 April 2004 concerning Norway’s legislation regarding nationality requirements for the crew on board Norwegian vessels. 66 See Case LF-2006-24118, 21.9.2006, Leinebris, the appeal to the Supreme Court was withdrawn by the Director General of Public Prosecution. 67 Fredriksen and Franklin, ‘On Pragmatism and Principles – The EEA Agreement 20 Years On’, 52 CMLR (2015) pp. 655-656 with further references. 68 The Norwegian government decided in 2011 that the directive is not to be included in the EEA-agreement, ref. Meld. St. 5 (2012-2013) p. 41.

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Offshore Directive, but so far with no result”.69 In addition to the principled view on geographical scope, there seems to be a strongly held general view in Norway that the directive sets too low security standards and would represent a major setback of Norwegian offshore safety to the level in the 1980 s. 46 Questions of relevance regarding the substantial scope of the Agreement have materialised in a series of cases, and they are a growing concern in Norway. Deciding substantial relevance falls in principle under the legal test defined by Art. 102(1), which states that a “legislative act on an issue which is governed by this agreement” shall be communicated by the EU to the other Contracting Parties in the EEA Committee”. Furthermore, Art. 102(3) states that the “Contracting Parties shall make all efforts to arrive at an agreement on matters relevant to this agreement”. The relevance assessment is normally straightforward: included in the agreement’s scope as materially relevant are, as the main rule, EU directives and regulations that fall within the EEA Agreement Part III on free movement for persons, services and capital, Part IV on competition rules and other common rules, and Part V with provisions on all four freedoms. Cooperation outside the four freedoms (Part VI) may not stand the relevance test. EU legal acts based on the competences in the TEUF on e.g. agriculture and fisheries, freedom, security and justice, the economic and monetary policies, the common trade policy and the external action, foreign policy and defence, fall outside the EEA Agreement altogether. They have to be covered by a separate agreement to form rights and duties for the EU and Norway, for instance under the Schengen cooperation. 47 The relevance analysis may in some cases not be that straightforward, and it can imply several factors, i.a. a closer analysis of the EU’s treaty basis, the aim of the directive and incorporation precedence, i.e. whether similar directives have been taken in at an earlier stage.70 Norway has perceivably shown a tendency for a more liberal interpretation of relevance than Iceland, and Norway has unilaterally included EU legal acts in its legislation that the EU or the other EFTA States have not deemed EEA relevant.71 That tendency might have turned, cf. e.g. the Norwegian position on the Marine Strategy Framework and the Offshore Directive dealt with above.72 Furthermore, Norwegian authorities’ position on the relevance question has been in the negative regarding rules on criminal sanctions in directives based on TFEU Art. 83(2) and regarding procedural rules.73

69 Fredriksen and Franklin (2015) p. 656 with a reference in footnote 106 to the Minutes of the 41st meeting of the EEA Council. In the minutes of the EEA Council’s 45th meeting 25 May 2016, there does not seem to be any mentioning of the matter. 70 Meld. St. 5 (2012-2013) ch. 5.3.1, pp. 39-43, see further the commentaries to Art. 102 by Dystland, Finstad and Sørebø. 71 NOU 2012: 2 ch. 6.4.2, p. 95. 72 See also St. Meld. 5 (2012—2013) box 5.3, p. 40, on the relevance of directives regarding energy supply.

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The question of relevance is in itself not normally an obstacle to the good 48 functioning of the Agreement, but it may lead to considerable use of sparse human resources on the part of the civil services in the Contracting Parties, and may in some cases cause substantial frustration and impatience – with infighting also between the ministries in the capitals. More critical for the well-being of the Agreement is it that the recurring relevance questions indicate structural weaknesses in the Agreement, and these weaknesses seem generally to be recognised by all the Contracting Parties. Worth emphasising in this connection is the fact that the main Agreement has 49 not been substantially renegotiated and adjusted to the major political and legal developments since its conclusion in 1992. The Main Agreement thus does not reflect the changes that have been done to the EU treaties, latest through the Lisbon Treaty effective in the EU since 2009. The European Commission sums the matter up poignantly in its 2012 review of the functioning of the European Economic Area: “To date, the EEA Agreement has been sufficiently flexible in adapting to all the various changes of circumstance. The question arises, however, whether this flexibility will be able to provide the necessary responses to some of the current and future developments in the EU. For example, the grey zone between what is internal market legislation stricto sensu and what would fall under other policies is growing. Also, the EU adopts more and more packages of legislation with many dimensions, rather than individual acts, which strictly correspond to the internal market concept as understood in 1994. The EU’s institutional set-up has also changed radically in some respects since the coming into force of the EEA Agreement.”74

These points stated by the European Commission on the “widening gap” be- 50 tween the EEA Agreement and the EU treaty evolution, highlights exactly the same points as were repeatedly emphasised by the Committee that analysed Norway’s agreements with the European Union.75 The Committee i.a. pointed at the need for evaluating a renegotiation of the EEA and the numerous other agreements between the EU and Norway, especially within the justice and home affairs sphere.76 The need for a thorough maintenance check through renegotiation has also been expressed in relation to the unclear status of human rights in EEA law due to the inclusion of the Human Rights charter in the EU constitutional sphere and a range of other legal matters.77 So far, the above caveats and invitations do not seem to have led to any at- 51 tempts on the Norwegian government’s side to take steps to broaden and streamline the EEA and the bewildering patchwork of numerous other agreements with 73 Finstad and Salomonsen, “Fra Valle til Brussel: Om EUs betydning for norsk strafferett”, Tidsskrift for strafferett 4/2015, 408-414, Backer, Loven – hvordan blir den til, Oslo 2013, p. 98, Prop. 81 L (2012-2013) Endringer i lovgivningen om industrielt rettsvern m.m. (styrking av håndhevingsreglene) ch. 2.3, pp. 8-9. 74 SWD (2012) 425 final Commission Staff Working Document, A review of the functioning of the European Economic Area (4-5). 75 See for example NOU 2012: 2 ch. 6.4.2, p. 95. 76 NOU 2012: 2 ch. 28, pp. 867-875. 77 See especially Fredriksen and Franklin (2015).

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the EU. On the contrary, the (former) Norwegian government formally stated to the Parliament that an agreement covering the current and other agreements on the justice and home affairs area would “not be in Norway’s interest”.78 Norwegian governments have since prime minister Trygve Bratteli’s time in the 1970 s employed an active policy towards the EU.79 Currently, the EU, on the basis of considerable geopolitical pressures, employs holistic policies regarding for instance internal security and migration. The EU draws on all its forms of treaty based competences (economic, justice and security, external action, foreign policy and defence) when proposing and deciding new legislation. A broad renegotiation of the overall legal framework between the EU and Norway would on that basis be welcome. On the other hand, the EEA Agreement has been stable and well-functioning and in general served Norwegian and EU interests well. A renegotiation of the EEA Agreement would be demanding and time consuming, and it might need to tackle a row of challenging questions between the current Contracting Parties, between the EFTA states, and also internally in the EFTA states. 8. The UK’s exit from the EU and the EEA

A major concern in Norway is the UK’s future exit from the EU. The UK is an important trading and political partner for Norway, both within and outside the scope of the EEA Agreement, and Brexit necessitates a multi- or bilateral arrangement of for example numerous market, educational and migration matters. As mentioned in subsection 2, Norway has traditionally followed British leadership with respect to European economic integration. For instance, the cooperation within the EU and EEA forms a major part of Norway’s environmental and climate policy, a policy area in which Norway and the UK have been long-standing partners. Norway cannot in the future rely on the UK’s support within the EU when that policy area is developed in the EU. 53 Norway is not a party in the upcoming exit negotiations between the EU and the UK. Nevertheless, the coming negotiated exit result between the EU and the UK is going to have important consequences for Norway and the EEA. 54 First, the UK is also going to have to exit the EEA Agreement, and it is expected that the UK is going to leave the EEA at the same time as it exits the EU. Writing before the exit negotiations are to start in April 2017, there does not seem to be sufficient political interest in neither the UK nor in the EU for Britain to re-enter EFTA and become an EEA/EFTA state.80 The migration question 52

78 Meld. St. 5 (2012-2013) p. 54. 79 See NOU 2012: 2 ch. 4.2.2, p. 47, and for example the current (2017) government’s Europe strategy “Norge i Europa”: https://www.regjeringen.no/no/dokumenter/europa_strategi/ id762511/. 80 See for example Aftenposten and Dagens Næringsliv, 17.1.17; compare, however, Dagens Næringsliv, 13.3.17 and Financial Times, 21.6.17.

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seems to bar such a solution, it being a vital and important part of the free movement rights and ethos of both the EU and the EEA market integration project. Moreover, democratically, an EEA solution seems to be far below British ex- 55 pectations – the EEA Agreement gives no democratic participations rights whatsoever in the EU legislative bodies (the Council and the European Parliament). One could perhaps think of the Schengen institutional set up as a possible model for an association agreement, as it employs a system of strict dynamic Schengen homogeneity and caters for participation in the Council through a Mixed Committee between the EU Schengen states and the associated Schengen states when Schengen relevant matters are discussed. However, the British Prime Minister seems to turn down such a model as well, stating in her 17 January 2017 speech on the 12-point plan for Brexit: “Not partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out. We do not seek to adopt a model already enjoyed by other countries. We do not seek to hold on to bits of membership as we leave”.81 Secondly, and perhaps more importantly for both the EU and the future of the 56 EEA and consequently for Norway, the upcoming negotiations between the EU and the UK could have serious repercussions in the whole of the EU and its internal and external mode of operation, and could lead to a chilled-down regional and international trade and cooperation. This is clearly not in Norway’s interest. Thirdly, Brexit has set into motion a discussion in Iceland and Norway about 57 the future of the EEA Agreement with respect to both states. The former Icelandic Prime Minister Jóhannsson has thus stated that Iceland has to consider its EEA and Schengen Agreements anew after Brexit. One of the current Norwegian opposition parties, Senterpartiet, has followed suit, and has aired the proposal of leaving the EEA together with Iceland and start negotiations together with the UK to reach a new free trade agreement with the EU.82 The Norwegian government has resolutely turned that proposal down.

81 Quote from The Telegraph, 17.1.17. 82 Klassekampen 14 October 2016.

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Switzerland and the EEA I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Switzerland, the EEA and the EU – a historical account . . . . . . . . . . . . . . . . . . . . . . . . 1. The EFTA days . . . . . . . . . . . . . . . . . . . . . 2. The creation of the EEA and Switzerland’s non-accession . . . . . . . 3. The bilateral agreements between Switzerland and the EU and the continuing relevance of the discussion on the EEA . . . . . . . . . . . . . . . . III. The EFTA as Switzerland’s bridge towards the EEA . . . . . . . . . . . . . . . . . . . . . . . . 1. The EFTA Convention and its adaptation to the bilateral agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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2. Parallel norms in EU law, the bilateral agreements, the EFTA Convention and EEA law . . . . . . . . . . IV. The Relevance of EEA Law for Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Relevance of ECJ case law in the framework of the Bilateral Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Excursus: The ECJ’s case law on the Bilateral Agreements . . . . . . . . . . . 3. Indirect relevance of EFTA Court case law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI. Case law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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I. Introduction

At a quick glance, one might question the relevance of examining the relationship between the European Economic Area (EEA) and Switzerland which is neither a member of the EEA nor of the European Union (EU). At a closer look, however, not only did Switzerland play an important role during the creation of the EEA, but it also has legally relevant ties to the EEA as a member of the European Free Trade Association (EFTA) and, of course, bilateral relations with the EFTA-EEA member states.1 In particular, the rules applicable between Switzerland and the EFTA-EEA member states are to an appreciable extent parallel to those applicable in the relations between Switzerland and the EU; the latter again are fashioned after the relevant rules of EU primary and secondary law. Because of this “double parallelism”, the case law of the European Court of Justice (ECJ) cannot be ignored in an examination of the interpretation of these mentioned parallel legal norms since the law of the Bilateral Agreements partly requires, partly enables Swiss courts to take into account said case law. At a closer look, there is even a “triple parallelism” of EFTA legal norms, norms in the Bilateral Agreements, EEA legal norms and EU legal norms. This is due to the fact that EEA law is, to a considerable extent, parallel to the mentioned norms of the Bilateral Agreements, too. The consequence is that inspiration from the case law of the EFTA Court is also an option for Swiss courts. EEA law and case law thus possesses at least indirect relevance for Switzerland even as a non-member to the EEA.2 2 To make these points clearer, the present chapter first examines the history of the relations between Switzerland and the EU and the role the EEA has played 1

1 Note to the reader: From a Swiss perspective, it is obvious that the term “EFTA States” includes not only the three EFTA-EEA States Iceland, Liechtenstein and Norway but also Switzerland. This is different from the perspective of the three EFTA-EEA States, who in the context of EEA law regularly refer to themselves simply as “EFTA States”.

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and continues to play in this context. A further section explains how the EFTA serves as a bridge towards the EEA for Switzerland, focusing in particular on the pertinent rules of the EFTA Convention.3 At the same time, it is established to what extent there are parallel norms in the mentioned legal regimes. Finally, the chapter studies the direct and more indirect relevance of EEA law for Switzerland based on the discovered legal framework and the mentioned “triple parallelism”. As a caveat, not all the legal norms applicable in the triangle EU, EFTA-EEA 3 member states and Switzerland can be examined in the present chapter. The focus will thus be on the mentioned triple parallelism of norms, as it is in this case that the relevance of EEA law is most notable. II. Switzerland, the EEA and the EU – a historical account

To understand the historical development of today’s relationship between 4 Switzerland and the EEA, three periods can roughly be distinguished; 1) the phase of EFTA; 2) the creation of the EEA and 3) the years since Switzerland’s non-accession to the EEA. 1. The EFTA days

The road to EFTA started with discussions in the framework of the Organisa- 5 tion for European Economic Cooperation (OEEC) in the second half of the 1950 s concerning a West European free trade zone. These discussions already took place against the backdrop of the advanced preparations of the founding states of the European Economic Community (EEC).4 As, in particular, the positions of France and the United Kingdom on any wider free trade area proved irreconcilable, attempts started to bring together the non-EEC countries United Kingdom, Denmark, Norway, Sweden, Austria, Portugal, Ireland, Greece, Iceland, Turkey and Switzerland to create a front against discrimination by the EEC and to be able to ultimately find a joint agreement or association with the EEC members,5 as was also indicated in the preamble of the Stockholm Convention.6

2 Often, in similar situations the doctrine also speaks of multilevel systems (Mehrebenensysteme), see for an example of Swiss domestic law, the Agreement on the Free Movement of Persons and EU law providing for norms with a parallel content N Diebold, Freizügigkeit im Mehrebenensystem – Eine Rechtsvergleichung der Liberalisierungsprinzipien im Binnenmarkt-, Aussenwirtschafts- und Europarecht (Dike/Nomos, Zürich/St. Gallen/Baden-Baden 2016) 115 paras. 340 ff. 3 SR 0.632.31. For ease of reference, in this chapter the Swiss Systematische Rechtssammlung (SR, the so-called “Classified Compilation” system) will be used to refer to legal sources in Swiss law (see for further information https://www.admin.ch/gov/en/start/federal-law/classified -compilation.html, last accessed on 24.7.2017). 4 S Norberg and M Johansson, The History of the EEA Agreement and the First Twenty Years of Its Existence’ in C Baudenbacher (ed) The Handbook of EEA Law (Springer, Cham 2016) 8. 5 M Oesch, Europarecht – Grundlagen, Institutionen, Verhältnis Schweiz-EU (Stämpfli, Bern 2015) 35-36 para. 58; Norberg and Johansson (n 4) 8. 6 Oesch (n 5) 38 para. 62.

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The successful talks led to the signing of the EFTA Convention, often called Stockholm Convention, on 4 January 1960 and its entry into force on 3 May 1960.7 The Stockholm Convention mostly contained provisions on free trade in industrial goods and, to a limited extent, on trade in processed agricultural goods.8 In Switzerland, the government’s position on EFTA membership was that it could be reconciled with the imperatives of national independence, neutrality, a certain degree of autonomy in the country’s external commercial policy and protectionism in agricultural matters.9 7 With regard to other members, Finland became associated with EFTA in 1961 and a full member in 1986. Iceland joined EFTA in 1970, while Denmark and the United Kingdom left EFTA in 1973 upon their accession to the EEC, as did Portugal in 1986. Liechtenstein eventually joined EFTA in 1991, its interests having been represented by Switzerland under a special protocol up until that point in time.10 8 Already in the early 1960 s, Switzerland together with Austria and Sweden asked the EEC for the conclusion of an association agreement, followed by further – vain – attempts from the EFTA side to gain better access to the EEC single market.11 Only when political obstacles to EEC membership were eliminated at the end of the 1960 s and the accession negotiations began for Denmark, Ireland, the United Kingdom and Norway, agreements on free trade in mostly industrial goods could be signed with Portugal, Sweden, Iceland, Austria and Switzerland in 1972.12 For Switzerland, this free trade agreement still continues to form the backbone of trade relations with the EU.13 It is a classic free trade agreement focusing on the elimination of tariffs, quotas and similar trade restrictions and containing provisions similar to those of EU law for example on discriminatory taxation or on quantitative restrictions and measures having equivalent effect.14 At the same time, EFTA continues to be relevant. Despite the nonaccession of Switzerland to the EEA discussed in the following section, as an EFTA member Switzerland still participates in all EFTA activities that are not 6

7 SR 0.632.31. Earlier talks about a Nordic customs union were simultaneously abandoned, see in more detail CVCE, ‘The plan for a Nordic customs union and common market’, available at http://www.cvce.eu/content/publication/1999/1/1/baef2186-069a-4bf1-ab12-2df475f762c2/pu blishable_en.pdf (last accessed on 24.7.2017) 2-3. 8 See in more detail on the swift early progress of economic integration A Müller, The Future of EFTA from a Swiss Point of View (Basler Schriften zur Europäischen Integration, Basel 2011) 9; Norberg and Johansson (n 4) 10. 9 See the relevant accompanying materials, Botschaft des Bundesrates über die Beteiligung der Schweiz an der EFTA, 5.2.1960, BBl 1960 I 841, 891. 10 See for a concise overview over accessions and other changes http://www.efta.int/about-efta/h istory (last accessed on 24.7.2017). 11 Norberg and Johansson (n 4) 11-12. 12 Ibid. 14. Norway concluded a similar agreement after a negative consultative referendum on EEC membership in 1972. 13 Oesch (n 5) 39 para. 63. 14 See in more detail T Cottier and others, Die Rechtsbeziehungen der Schweiz und der Europäischen Union (Stämpfli, Bern 2014) 208 ff.

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connected to the EEA.15 One notable activity of EFTA has been the common negotiation and conclusion of plurilateral trade agreements between the EFTA states and one or several third countries.16 2. The creation of the EEA and Switzerland’s non-accession

Switzerland played a central role in the following developments. The Luxem- 9 bourg Declaration on the European Economic Space brought the idea of a future common dynamic economic area on the table. Before the backdrop of the 1985 White Paper on the completion of the internal market by the Commission, it was suggested that this area necessarily had to be “homogeneous”.17 A separate, yet indicative step towards a definition of such dynamism and homogeneity was the Lugano Convention. This convention was concluded in 1988 between all the European Community (EC) and EFTA Member States on the jurisdiction and enforcement of judgments in civil and commercial practice.18 It extended the regime of the Brussels Convention concluded among the EC members to the EFTA states and provided important lessons in how to ensure a uniform interpretation of two parallel legal instruments without a common judicial institution in charge of such a uniform interpretation.19 Subsequently, the 1989 Delors initiative sketched the option of going beyond 10 a mainly bilateral road to form a new association with common institutions for decision and administration.20 After two years of negotiations in 1990 and 1991 and a few additional months of renegotiation after the ECJ’s negative Opinion 1/91,21 the EEA Agreement was eventually signed by all contracting parties in Porto on 2 May 1992. Simultaneously, already during the negotiations a number of EFTA members were disappointed by the features of the emerging EEA and decided to apply for membership in the EU. Switzerland was part of this group. This appeared somewhat surprising as Switzerland had played a major role in the negotiations and influenced in particular the institutional design of the 15 Norberg and Johansson (n 4) 34. 16 See for a current overview of EFTA free trade agreements http://www.efta.int/free-trade/free-t rade-agreements (last accessed on 24.7.2017). More recently, however, as Oesch (n 5) 40 para. 64, notes, agreement on a common negotiation strategy could be found less often, so that individual EFTA members have started to conclude unilateral trade deals with third countries (see e.g. Switzerland with Japan in 2009 and China in 2014). 17 S Gstöhl, ‘The Nordic Countries and the European Economic Area (EEA)’ in L Miles (ed) The European Union and the Nordic Countries (Routledge, London 1996) 50. 18 OJ 1988 L 319, 9 ff. 19 See in more detail C Baudenbacher, ‘The Relationship Between the EFTA Court and the Court of Justice of the European Union’ in C Baudenbacher (ed) The Handbook of EEA Law (Springer, Cham 2016) 180 ff. 20 See for part of Delors’ declaration before the European Parliament Oesch (n 5) 41 para. 69. See also on the consequences of this approach for EFTA as an organisation K Arnason, ‘The EFTA Secretariat: Steward of the EEA’ in T E Court (ed) The EEA and EFTA Court: Decentred Integration (Hart Publishing, Oxford 2014) 509. 21 Opinion 1/91, 14.12.1991, Draft agreement between the Community, on the one hand, and the countries of the European Free Trade Association, on the other, relating to the creation of the European Economic Area, EU:C:1991:490.

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emerging EEA.22 The Swiss government explained its application for membership of 26 May 1992 with the argument that the EEA should only be seen as an intermediate step important for domestic politics, whereas the overarching goal of the Swiss policy on European integration should be EU membership.23 However, the Federal Council and the Parliament had decided previously that a compulsory referendum24 was necessary to decide whether to accede to the EEA because of the major political and economic significance of the decision and the nature of the agreement which could not be adequately classified under the relevant constitutional provisions of Swiss law at that time.25 On 6 December 1992, a majority of 50,3% of the people and of 18 out of 26 cantons rejected the ratification of the EEA Agreement for Switzerland. Ever since this moment, the discussion has been vivid as to whether the application for EU membership was an error, or wrongly timed, or whether other factors, such as the rather negative assessments of the result of the EEA negotiations by the Swiss negotiators, played a predominant role in the negative outcome of the vote.26 11 In any event, quick reactions were necessary: an Adjusting Protocol to the EEA Agreement had to be concluded in March 1993 which brought the Agreement in force despite the Swiss non-ratification; a special provision allowed Liechtenstein to join the EEA later after having sorted out its relationship to Switzerland27 and the references to Switzerland in the EEA Agreement were deleted while Article 128 (1) EEA Agreement was introduced and specifically mentions Switzerland as entitled to make an application to adhere to the Agreement. Adjusting Protocols also had to be concluded regarding the EFTA Convention.28 Furthermore, Switzerland was granted observer status in the EFTA pillar of the EEA and can thus monitor the development of the EEA acquis to some extent.29 22 D Freiburghaus, ‘Königsweg oder Sackgasse? Sechzig Jahre schweizerische Europapolitik’ in NZZ Libro, Zürich 2009, 197 ff. 23 Bericht über einen Beitritt der Schweiz zur Europäischen Gemeinschaft, 18.5.1992, BBl 1992 III 1185, 1194. 24 The legal situation with regard to referenda has changed after the adoption of the 1999 revised constitution. Today, apart from the possibility to request a referendum on legislative acts (see Article 141 of the Swiss Federal Constitution), there are two forms of referenda on whether an international treaty can be concluded. Treaties that are concluded for an unlimited time, concern accession to an international organisation, are to be considered as law-making or require an implementation by means of federal laws are subject to a ‘facultative’ referendum that a number of citizens or cantons can request; treaties on the accession to organisations of collective security or supranational organisations are subject to a ‘compulsory’ referendum; see in more detail U Häfelin and others, Schweizerisches Bundesstaatsrecht (9 edn, Schulthess, Zürich/Basel/Genf 2016) 591 ff. 25 Botschaft zur Genehmigung des EWR-Abkommens, BBl 1992 IV 1, 541, 542. 26 J Kellenberger, ‘Wo liegt die Schweiz? Gedanken zum Verhältnis CH–EU’ in NZZ Libro, Zurich 2014) 32. Switzerland’s application for membership has only been formally withdrawn in June 2016, see Simon Gemperli, ‘Schweiz zieht EU-Beitrittsgesuch zurück’, in NZZ, 15 June 2016. 27 Liechtenstein eventually joined the EEA on 1 May 1995. 28 See on all these changes Norberg and Johansson (n 4) 31. 29 Müller (n 8) 14.

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Moreover, a certain reorganisation of EFTA took place as a consequence of 12 the creation of the EEA. Switzerland was granted a discount on its contribution to the EFTA budget since a major part of total EFTA expenses were and still are caused by the administration of the EEA in Brussels.30 Nonetheless, at least at present the Swiss perspective seems to be that the regulation of relations with the other EFTA states and the network of trade agreements prove the continued value of EFTA, so that Swiss EFTA membership or EFTA’s future as a whole is not really put in doubt.31 At the same time, it should be noted that the Swiss “No” left the terminology of the EFTA-institutions in the EEA Agreement rather misplaced. The EFTA Court is not the Court of Justice of the European Free Trade Association – it is the Court of Justice of Iceland, Liechtenstein and Norway for EEA affairs. The same is true for the other EFTA-institutions such as the EFTA Surveillance Authority and the Standing Committee of the EFTA States, which can be confusing to “outsiders”. 3. The bilateral agreements between Switzerland and the EU and the continuing relevance of the discussion on the EEA

Despite the negative vote on the EEA, closer ties with the internal market of 13 the EU were seen as a necessity in Switzerland, so that subsequently the strategy of negotiating sector-specific bilateral agreements, the “Bilateral Path”, developed.32 The scope and topics of the Bilateral Agreements have to be understood through the various windows of opportunities and needs prevailing at the relevant time of their negotiation and conclusion, which is also why there is no recognizable coherent overarching system.33 In 1999, the first package of Bilateral Agreements was signed. The Agree- 14 ment on Land Transport aims to strike a balance between the liberalisation of market access in road and rail traffic of persons and transportation of goods with objectives of environmental protection.34 The Agreement on Public Procurement extends liberalization commitments undertaken by the EU and Switzerland in the framework of WTO law to additional actors such as municipalities and new sectors, such as electricity and water services.35 The Agreement on Scientific and Technological Cooperation enables Switzerland to participate as an 30 Ibid. 23. 31 See e.g. ibid. 36 based on an examination of alternative options. 32 See for a more comprehensive English language overview over the Bilateral Agreements and the relationship between Switzerland and the EU B Pirker and A Epiney, ‘The Integration of Switzerland into the Framework of EU Law by Means of the Bilateral Agreements’ in P-C Müller-Graff and O Mestad (eds), The Rising Complexity of European Law (Berliner Verlag der Wissenschaften, Berlin 2014) passim. 33 Oesch (n 5) 615 para. 894. 34 OJ 2002 L 114, 91 ff. See e.g. K Sollberger, Konvergenzen und Divergenzen im Landverkehrsrecht der Europäischen Gemeinschaft und der Schweiz. Unter besonderer Berücksichtigung des bilateralen Landverkehrsabkommens (Universitätsverlag, Freiburg 2003) 177 ff.; K Sollberger and A Epiney, Verkehrspolitische Gestaltungsspielräume der Schweiz auf der Grundlage des Landverkehrsabkommens (Stämpfli, Bern 2001) 17 ff.

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equal partner in EU research programmes.36 The Agreement on Mutual Recognition in Relation to Conformity Assessment aims to eliminate double assessments and double certification for Swiss producers.37 The Agreement on Trade in Agricultural Products contains a limited commitment to liberalization of trade with regard to certain product groups.38 15 The arguably most important agreements are the Agreement on Air Transport39 and the Agreement on the Free Movement of Persons (AFMP).40 The Agreement on Air Transport aims to integrate Switzerland into the common European air space; it therefore lays down central principles such as non-discrimination and the freedom of establishment, adopts numerous EU norms as binding for the Swiss legal system and even gives certain supervisory powers to EU institutions.41 Notably, the competent organs of the EU, in particular the Commission, are given the task and power of applying the competition rules of the agreement which mirror the relevant provisions of EU law, whereas the General Court and the Court of Justice of the EU have jurisdiction over all questions of validity arising from acts taken by EU organs under these provisions.42 16 The AFMP aims to enable the free movement of workers and self-employed persons; it also contains some limited provisions on the free movement of services.43 Mainly, it contains provisions on non-discrimination, on the rights of 35 OJ 2002 L 114, 430 ff. See in more detail G Biaggini, ‘Das Abkommen über bestimmte Aspekte des öffentlichen Beschaffungswesens’ in D Thürer et al. (eds), Bilaterale Verträge I & II Schweiz – EU (Schulthess, Zürich/Basel/Geneva 2007) 651 ff. 36 OJ 2002 L 114, 468 ff. See in more detail M Vahl and N Grolimund, Integration ohne Mitgliedschaft. Die bilateralen Verträge der Schweiz mit der Europäischen Gemeinschaft (Schulthess, Zürich 2007) 30. 37 OJ 2002 L 114, 369 ff. See in more detail T Bühler, ‘Abkommen über die gegenseitige Anerkennung von Konformitätsbewertungen’ in D Thürer et al. (eds), Bilaterale Verträge I & II Schweiz – EU (Schulthess, Zurich/Basel/Geneva 2007) 581 ff. 38 OJ 2002 L 114, 132 ff. See e.g. R Senti, ‘Abkommen über den Handel mit landwirtschaftlichen Erzeugnissen’ in D Thürer et al. (eds), Bilaterale Verträge I & II Schweiz – EU (Schulthess, Zurich/Basel/Geneva 2007) 731 ff. 39 OJ 2002 L 114, 73 ff. 40 OJ 2002 L 114, 6 ff. 41 U Haldimann, ‘Grundzüge des Abkommens über den Luftverkehr’ in D Felder and C Kaddous (eds), Bilaterale Abkommen Schweiz – EU (Erste Analysen) (Helbing & Lichtenhahn, Basel 2001) 91 ff.; see also on the status of the agreement as a “partial integration agreement” R J Schweizer, ‘Wie das europäische Recht die schweizerische Rechtsordnung fundamental beeinflusst und wie die Schweiz darauf keine systematische Antwort findet’ in A Epiney and F Rivière (eds), Auslegung und Anwendung von „Integrationsverträgen“ Zur Übernahme des gemeinschaftlichen Besitzstandes durch Drittstaaten, insbesondere die Schweiz/Inteprétation et application des traités d’intégration“ De la reprise de l’acquis communautaire par des Etats tiers, notamment par la Suisse (Schulthess, Zürich 2006) 38. 42 See Articles 11 and 20 of the Agreement. 43 See on the limited scope of these provisions A Epiney and P Zbinden, 'Arbeitnehmerentsendung und Freizügigkeitsabkommen Schweiz-EG: zur Tragweite und Auslegung der Dienstleistungsfreiheit im Freizügigkeitsabkommen Schweiz-EG' (2009) 8 Freiburger Schriften zum Europarecht 1; on the debate whether a new agreement could and ought to be concluded in the area of services A Epiney, Zur rechtlichen Tragweite eines Einbezugs der Schweiz in den unionsrechtlichen Besitzstand im Bereich des Dienstleistungsverkehrs (Schulthess, Zurich/ Basel/Geneva 2011).

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various groups of persons in its Annex I, on the coordination of social security systems in Annex II44 and on the mutual recognition of diplomas in Annex III.45 Compared to the state and scope of EEA law on the same topic, the central difference under the law of the AFMP is that Annex I still mainly mirrors the state of EU law in 1999 before the adoption of the Citizens Rights Directive.46 By contrast, Regulation 883/2004 on the coordination of social security systems47 and the implementing Regulation 987/200948 have been added under Annex II and the Recognition Directive49 under Annex III as important newer rules of EU law.50 The second package of Bilateral Agreements was signed in 2004 on a num- 17 ber of “left-over” and new topics. The Agreement on Processed Agricultural Products extends the 1972 Free Trade Agreement to improve market access and simplify the existing price stabilization mechanism.51 The Agreement on Statistics establishes cooperation in this field to ensure e.g. the publication of statistical data in a form compatible with EU standards.52 The Agreement on the Participation of Switzerland in the European Environmental Agency and the European Environment Information and Observation Network formalizes an earlier informal cooperation.53 Based on the MEDIA Agreement Switzerland could participate in the EU’s MEDIA programme.54 A specific agreement regulates the problem of double taxation of pensions received by former EU officials resident in Switzerland.55 The Agreement to Combat Fraud provides for mutual administrative and legal assistance in the fields of indirect taxation, subsidies and public procurement.56 The Agreement on the Taxation of Sav44 See e.g. B Kahil-Wolff, ‘L’application et l’interprétation de l’ALCP: le cas de la sécurité sociale’ in A Epiney, B Metz and R Mosters (eds), Das Personenfreizügigkeitsabkommen Schweiz – EU Auslegung und Anwedung in der Praxis/L’accord sur la libre circulation des prsonnes Suisse – UE Interprétation et application dans la pratique (Schulthess, Zürich 2011) 49 ff. 45 See e.g. N Gammenthaler, Diplomanerkennung und Freizügigkeit (Schulthess, Zurich/Basel/ Genf 2010). 46 See section III.2.c. 47 OJ 2004 L 166, 1 ff. 48 OJ 2009 L 284, 1 ff. 49 See section III.2.a. 50 A complete picture of the state of the law under the AFMP can be gained by means of the regularly updated list of legal acts adopted under the annexes of the AFMP at https://www.ad min.ch/opc/de/european-union/international-agreements/007.html (last accessed on 24.7.2017). 51 OJ 2005 L 23, 19 ff. See generally on agriculture in EU-Swiss relations A Epiney, D Furger and J Heuck, Zur Berücksichtigung umweltpolitischer Belange bei der landwirtschaftlichen Produktion in der EU und in der Schweiz: ein Vergleich unter besonderer Berücksichtigung der Implikationen eines Freihandelsabkommens im Agrar- und Lebensmittelbereich (Schulthess, Zürich 2009) 1 ff. 52 OJ 2006 L 90, 2 ff. 53 OJ 2006 L 90, 36 ff. 54 OJ 2007 L 303, 11 ff. 55 Agreement of 26 October 2004, not published in the Official Journal. 56 OJ 2009 L 46, 8 ff. See also A Meier, Schutz der finanziellen Interessen der Europäischen Union: Implikationen für die Schweiz (Schulthess, Zürich 2007).

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ings Income in its old form57 did not provide for an automatic exchange of information, but for tax deduction at source; it has now been revised to include such an automatic exchange for the future.58 The Schengen and Dublin Association Agreements oblige Switzerland to continuously adopt a number of EU legal norms to participate in the pertinent EU regulatory schemes.59 Since then, a number of other agreements has been concluded,60 but major steps forward have been impossible due to the political situation. 18 Already at this point, it has been noted at numerous occasions to what extent EU law as such influences domestic law at all levels, including at the cantonal level in Switzerland.61 At the same time, the Bilateral Agreements are not the only tool of such influence. Switzerland also complements its strategy of concluding Bilateral Agreements with one of autonomous adaptation of its law to the state and requirements of EU law in other areas without being explicitly obliged to do so.62 One of the shortcomings of this approach is, of course, that the Swiss courts called to interpret such autonomously adapted Swiss law are not obliged to follow the case law of the ECJ and therefore a fully homogeneous interpretation is not guaranteed.63 19 More recently, obstacles have appeared on the Swiss Bilateral Path. Since about 2006, the EU institutions have been emphasizing the burden caused by the administration of the Swiss-EU relations under the Bilateral Agreements and suggested as solutions either Swiss accession to the EEA or a special association 57 OJ 2004 L 385, 30 ff. 58 The amending protocol is in the process of ratification after its signature on 27 May 2015 and is planned to enter into force on 1 January 2017. The text can be found under https://www.eda. admin.ch/dea/en/home/bilaterale-abkommen/abkommen-umsetzung/abkommenstexte/zinsbest euerung.html (last accessed on 24.7.2017). 59 OJ 2008 L 53, 50 ff. and OJ 2008 L 53, 5 ff., respectively. 60 See e.g. the Agreement on the Simplification of Inspections and Formalities in Respect of the Carriage of Goods and on Customs Security Measures, OJ 2009 L 199, 24 ff., or the Agreement Concerning Cooperation on the Application of Competition Laws, OJ 2014 L 347, 3 ff. See for an overview https://www.eda.admin.ch/dea/en/home/bilaterale-abkommen/abkommen -umsetzung/abkommenstexte.html (last accessed on 24.7.2017). 61 M Oesch, ‘Der Einfluss des EU-Rechts auf die Schweiz – von Gerichtsdolmetschern, Gerichtsgutachtern und Notaren’ (2016) 112 Schweizerische Juristen-Zeitung 53; E Kohler, Le rôle du droit de l'Union européenne dans l’interprétation du droit suisse (Stämpfli, Bern 2015), passim. It should be noted that the cantons are, of course, not merely subject to such influences, but also active participants in the conduct of Swiss foreign policy; they have certain limited competences to conclude treaties with other countries (see on these competences A Auer, Staatsrecht der schweizerischen Kantone (Stämpfli, Bern 2016) 303 ff.). Moreover, the cantons have rights to participate in certain matters of foreign policy which are enshrined in the Swiss constitution and in legislation. These rights concern in particular the relations with the EU, for example in the field of the Schengen association, see T Pfisterer, Die Kantone mit dem Bund in der EU-Zusammenarbeit: Art. 54 Abs. 3, 55 und 56 BV und deren Anwendung auf die bilateralen Verträge (Dike, Zurich 2014) 31 ff. 62 C Tobler, ‘A Look at the EEA from Switzerland’ in T E Court (ed) The EEA and EFTA Court: Decentred Integration (Hart Publishing, Oxford 2014) 542. 63 See with examples F Maiani, ‘Lost in Translation: Euro-Compatibility, Legal Security, and the Autonomous Implementation of EU law in Switzerland’ (2013) European Law Reporter 29 32-33.

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in the form of an institutional “framework agreement”64 that should cover all market access-related Bilateral Agreements, indicating that no further bilateral agreements of this kind are to be concluded before a solution has been found.65 The EU centrally insists on four points being taken care of: There must be a system to continuously update the law of Bilateral Agreements on market access following developments in the relevant EU law; the interpretation of this law must be in line with the case law of the ECJ on the same EU law matters; there must be an effective mechanism to supervise the application of this law; and there must be a supranational mechanism for the resolution of disputes between the parties.66 On the Swiss side, an intense debate ensued as to whether such a framework 20 agreement would be compatible with the country’s sovereignty and constitutional tradition of autonomy and direct democracy.67 Various options were debated with regard to the continuous adaptation of the law of the Bilateral Agreements and to the interpretation of the acquis under the Bilateral Agreements. One alternative often discussed in this context is an accession of Switzerland to the EEA. Those in favour point not only at the more evolved institutional system of the EEA, but also at the opt-outs and limits that some EFTA EEA members could negotiate into the EEA Agreement.68 A different EEA-related option would be to “dock” Switzerland to the EEA institutionally, e.g. by adding a Swiss judge to the bench of the EFTA Court to decide cases on the Bilateral Agreements. Again others argue that in light of recent developments and the shortcomings of the Bilateral Path a serious discussion on EU membership should take place in Switzerland.69 All in all, it should be noted that neither accession to the EU nor to the EEA has so far been a politically very realistic option in the discussion, with the majority of the population in Switzerland favouring the chosen Bilateral Path.70 With the more recent developments with regard to Brexit and the United Kingdom’s Brexit strategy, the EEA is an even less popular option among Swiss politicians; whereas Switzerland could be interested in adhering to a future comprehensive trade agreement between the United Kingdom and the EU that excludes the free movement of person, the current

64 “Rahmenabkommen” is the central term in the Swiss debate. 65 See in particular the Conclusions of the Council of Ministers on EU relations with the EFTA countries issued several times, e.g. with particular clarity in 2010 http://www.consilium.europ a.eu/uedocs/cms_data/docs/pressdata/EN/foraff/118458.pdf (last accessed on 24.7.2017) para. 48. 66 Tobler (n 62) 543 who also provides a comprehensive list of the Bilateral Agreements that contain norms on market access (544-545). 67 Oesch (n 5) 662 para. 959. 68 Liechtenstein for example is allowed to restrict immigration, but mainly because of its character as a micro-state, see Tobler (n 62) 554. It seems not too realistic that the EU would accept similar restrictions on the free movement of persons in the case of Switzerland. 69 See for an overview Oesch (n 5) 664 para. 962 and 670-671 para. 976. 70 Norberg and Johansson (n 4) 35.

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position of the government is that the Bilateral Path should continue to be followed and not be put in danger e.g. by discussing a termination of the AFMP.71 21 Ultimately, the Swiss government and the Council of the EU adopted their respective mandate for negotiations on a framework agreement on 18 December 2013 and 6 May 2014. Somewhat surprisingly in light of the previous Swiss position, in particular its scepticism towards international courts in which Switzerland would not be represented, the Swiss government decided that no new supranational institutional arrangements ought to be created; that Switzerland should remain able to decide over each new norm of EU law being transposed to the acquis under the Bilateral Agreements; and that with regard to disputes on the interpretation of the law of the Bilateral Agreements, Switzerland and the EU should be enabled to ask the ECJ for a binding interpretation; should a disagreement not be settled in this manner, each party should be allowed to take proportionate safeguard measures up to a potential suspension of the agreement in question.72 Negotiations started in early 2014. 22 However, a further complication rendered progress even more difficult and pushed the debate on a framework agreement into the background. On 9 February 2014, the popular initiative on “mass immigration” was accepted by the Swiss people, which introduced a new provision into the Swiss Federal Constitution. While there are conflicting readings,73 central points of the provision are an obligation to draft legislation that caps immigration to Switzerland and creates a system of national preference for Swiss citizens in the field of employment; furthermore, existing international treaties inconsistent with this new provision must be renegotiated or amended; finally, no new international agreements must be signed which would be contrary to the new constitutional provision. A majority position thus considers the provision as incompatible with central obligations of the AFMP.74 Various attempts by Switzerland to negotiate with the EU on an amendment of the AFMP failed, while several avenues for future action were under discussion in Switzerland, such as a unilateral implementation of the constitutional provision, an implementation that exempts persons covered by the AFMP from any restrictions, termination of the AFMP, another revision of the constitution amending or abolishing the problematic provision or introducing an additional clause in the Constitution.75 Ultimately, in December 2016 the Swiss parliament approved implementing legislation for the constitutional provisions. The legislative changes do not foresee any quotas on 71 Simon Gemperli, ‘“Harter” Brexit schmälert Hoffnung auf “weichen Schwexit”’, NZZ, 18 January 2017. 72 See for more information https://www.eda.admin.ch/dam/dea/en/documents/fs/11-FS-Instituti onelle-Fragen_en.pdf (last accessed on 24.7.2017). 73 See e.g. P Uebersax, ‘Die verfassungsrechtliche Zuwanderungssteuerung – Zur Auslegung von Art. 121 a BV’ (2014) Jusletter (14 April) 1; see for a different reading A Epiney, ‘Zur rechtlichen Tragweite der Art. 121 a, Art. 197 Ziff. 9 BV’ (2014) Jusletter (2 June) 1, who also suggests a number of ways of implementing the new constitutional provision in compliance with the requirements of the Agreement on the Free Movement of Persons (para. 83 ff.). 74 Oesch (n 5) 665 para. 966.

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immigration or similar measures, but at their core impose an obligation on employers in regions or professions where unemployment is above average to advertise vacant positions to job centers and invite resident job seekers for interviews, at the risk of a fine in case of non-compliance.76 As some perceive this rather cautious implementation as being incompatible with the constitutional provisions, at the time of writing there are currently efforts to launch a referendum on the implementing legislation.77 The Commission, as a first reaction, sent out a positively worded communica- 23 tion welcoming the new legal developments as making it possible to ‘preserve the integrity of the contractual commitments’ between the two parties.78 While it indicated that some concerns remained with regard to access to information about job vacancies and the rights of frontier workers and that these concerns would be further monitored, it also argued that progress in other dossiers such as the institutional agreement would now be possible.79 III. The EFTA as Switzerland’s bridge towards the EEA

As the historic overview has shown, EFTA remains Switzerland’s central con- 24 necting point towards the EEA. A number of legal rules contained in the EFTA Convention are therefore of relevance. After some general remarks on the Convention, for the present purposes, the focus is put on the parallelism of norms between EU law, the EFTA Convention, the Bilateral Agreements (the AFMP) and EEA law in the field of the free movement of persons. 1. The EFTA Convention and its adaptation to the bilateral agreements

Switzerland was one of the original signatory states to the original Stockholm 25 Convention. Initially limited in its ambition, the Convention underwent a major revision in the form of the Vaduz Convention. The latter was signed on 21 June 2001 to adapt the “old” Convention of 1960 to new developments, in particular to the legal situation between Switzerland and the EU with regard to the free movement of persons.80 It entered into force on 1 June 2002 in parallel to the AFMP between Switzerland and the EU. The Vaduz Convention constituted a 75 See in more detail M Oesch, ‘Ein Europa-Artikel für die schweizerische Bundesverfassung’ in A Glaser and L Langer (eds), Die Verfassungsdynamik der europäischen Integration und demokratische Partizipation (Dike, Zürich/St. Gallen 2015) 172 ff.; Oesch (n 5) 665 paras. 967 ff.; T Jaag, ‘Die Beziehungen zwischen der Schweiz und der Europäischen Union nach dem 9. Februar 2014’ in G Biaggini, O Diggelmann and C Kaufmann (eds), Polis und Kosmopolis – Festschrift für Daniel Thürer (Dike/Nomos, St. Gallen/Zürich/Baden-Baden 2015) 329 ff. 76 Samuel Osborne and Matt Broomfield, ‘Switzerland waters down immigration referendum to protect EU relationship’, The Independent, 15 December 2016. Earlier legislative drafts under discussion had still foreseen an obligation on employers to justify their decision to refuse a Swiss or resident candidate for a job. 77 ‘SP-Mann überrascht mit MEI-Referendum’, Tagesanzeiger, 28 December 2016. 78 European Commission, ‘European Commission welcomes progress in relations between the European Union and Switzerland’, press release IP/16/4501 of 22 December 2016. 79 Ibid.

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major overhaul for the EFTA Convention and essentially extended the content of the First Package of Bilateral Agreements between Switzerland and the EU to the relationship between Switzerland and the EFTA States. It also contained revised rules on services, the free movement of capital and the protection of intellectual property.81 26 A specific arrangement was found for Liechtenstein in light of its particularly close ties to Switzerland.82 For Liechtenstein nationals, an exchange of notes of 29 October 2004 between Liechtenstein and Switzerland grants them full free movement rights in Switzerland, while a limited number of persons are admitted from Switzerland to Liechtenstein partly as workers or self-employed persons and partly to take residence as persons without employment status.83 27 Like in the case of the Bilateral Agreements, there is also a need for continuous adaptation of the Convention to new legal developments in EU law, in particular for the transposition of new EU secondary legislation to the relevant annexes of the Convention. For this purpose, the Convention is adapted by the EFTA Council as the competent organ.84 This legal situation is to some extent similar to Article 98 EEA Agreement and the respective competences of the EEA Joint Committee.85

80 DW Grossen and C de Coulon, ‘Bilaterales Abkommen über die Freizügigkeit zwischen der Schweiz und der Europäischen Gemeinschaft und ihren Mitgliedstaaten’ in D Thürer et al. (eds), Bilaterale Verträge I & II Schweiz – EU (Schulthess, Zürich/Basel/Genf 2007) 140 para. 15. 81 Oesch (n 5) 40 para. 67. 82 It should be noted that this relationship also leads to particular rules applicable in the area of trade between Switzerland and Liechtenstein. In customs matters, Liechtenstein signed a Customs Treaty in 1923 in which it accepted Swiss customs regulations and which gave to it the same status as a Swiss canton with regard to said regulations (SR 0.631.112.514). With the accession of Liechtenstein to the EEA, the Treaty regime had to be amended in an additional agreement with Switzerland which specified that from accession onwards both the legal regime of the Customs Treaty and the legal regime of the EEA would apply simultaneously, with preference being given to EEA law towards EEA members in cases of a norm conflict between the two legal regimes (Article 3 of the Agreement of 2 November 1994 to the Customs Treaty, SR 0.631.112.514.6). With regard to trade in goods, a complex system of market surveillance had to be introduced to ensure the parallel marketability of products that are in compliance with EEA rules and Swiss rules, respectively (see M Oesch, ‘Wirtschaft’ in HM Tschudi et al. (eds), Die Grenzüberschreitende Zusammenarbeit der Schweiz (Dike, Zürich/St. Gallen 2014) 316). See for more details on the treaties between Switzerland and Liechtenstein V Zellweger and O Bühler, ‘Die grenzüberschreitende Zusammenarbeit aus der Sicht des schweizerischen Staatsvertragsrechts’ in H M Tschudi et al. (eds), Die Grenzüberschreitende Zusammenarbeit der Schweiz (Dike, Zürich/St. Gallen 2014) 52 ff. 83 Grossen and de Coulon (n 80) 140 footnote 14. This arrangement is based on the Protocol to Annex K to the EFTA Convention on the free movement of persons between Liechtenstein and Switzerland. 84 See for an overview of the amendments that have and those that have not entered into force http://www.efta.int/legal-texts/efta-convention (last accessed on 24.7.2017). See e.g. Decision No 4 of the EFTA Council of 2015 amending Annex Q to the Convention on air transport. 85 See in more detail Dystland/Bøckman Finstad/Sørebø’s comments on Article 98, EEA Agreement.

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2. Parallel norms in EU law, the bilateral agreements, the EFTA Convention and EEA law

Only a certain group of norms are parallel to EU law in the EFTA Conven- 28 tion, in the law of the Bilateral Agreements and under EEA law. For these norms, the mentioned triple parallelism becomes relevant and thus there might be an interest for Swiss courts to have a look at EEA law and in particular the case law of the EFTA Court. The focus lies on the field of the free movement of persons which is also the core topic of the most important one of the Bilateral Agreements. As a starting point, it should be emphasized that the parallel content of norms does not change anything with regard to the different treaty context and scope of application of such a norm. One thus has to carefully examine what judicial avenues are open to resolve a particular case, even if the norm at issue may be similar in substance in EU law, in the AFMP or in EEA law. As an example, Swiss courts confronted with a problem of interpretation in a case under one of the Bilateral Agreements can neither submit a question to the ECJ in the framework of the preliminary ruling procedure86 nor ask the EFTA Court for an advisory opinion87 under Article 34 of the Agreement between the EEA-EFTA States on the Establishment of a Surveillance Authority and a Court of Justice (SCA).88 a) The AFMP

With regard to the free movement of persons, the AFMP regulates primarily 29 fundamental principles in its Main Part, in particular the general prohibition of discrimination on grounds of nationality89 and a guarantee of legal remedies.90 The other provisions set out the relevant rights of persons in a general matter, while referring to the annexes for the specifics.91 In contrast to Annex I, Annexes II and III can be and are amended by the Joint Committee of the Agreement to adapt them to new developments in the relevant parts of the EU legal acquis.92 Annex I of the AFMP regulates in detail the rights granted to groups of individuals; for this purpose, the categories of EU law are used to distinguish between workers, self-employed persons, service providers and receivers, economically inactive persons and family members. The rights are enumerated expressly and correspond essentially to the state of EU law in 1999 when the agreement was signed; rather rarely direct references to EU law are made.93 Annex II is concerned with the coordination of the systems of social se86 87 88 89 90 91 92 93

BGE 135 V 339, para. 5.3. BGE 136 V 244, para. 10. See closer on this procedure Christiansen’s comments on Art 34 SCA, passim. Article 2 AFMP. Article 11 AFMP. Articles 3-9 AFMP. Article 18 AFMP. Changes to Annex I are treated like a revision of the Agreement as a whole. See e.g. Article 5 (2) of Annex I AFMP which refers to the then relevant EU secondary legislation.

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curity and for this purpose refers to a wide range of EU secondary legislation; Switzerland is obliged to create an equivalent legal situation in its internal order.94 Similarly, Annex III of the AFMP is dedicated to the mutual recognition of professional qualifications and refers to a number of EU legislative acts for this purpose, in particular Directive 2005/36/EC.95 b) The EFTA Convention 30

The EFTA Convention shows a very similar structure. Article 20 (1) EFTA Convention provides that the Convention shall secure the free movement of persons and for this purpose refers to Annex K. Article 20 (2) aims at granting a right of entry, residence, access to work as employed persons, establishment on a self-employed basis and the right to stay, to facilitate the provision of services in particular of brief duration, to accord a right of entry and residence to persons without an economic activity and to accord the same living, employment and working conditions as the ones accorded to the own nationals of a contracting party. Annex K reproduces practically word by word the AFMP’ provisions, so that it can safely be assumed that the same rights of free movement are granted by these provisions.96 Notably, Annex K itself, similarly to the body of the AFMP, contains the general rights, while the specifics of free movement are regulated in Appendix I. Appendix I replicates Annex I of the AFMP. Appendix II mirrors Annex II of the AFMP on the coordination of systems of social security,97 as does Appendix III with regard to Annex III of the AFMP on the mutual recognition of professional qualifications. c) EEA law

31

EEA law replicates more closely the norms of EU (primary) law. Article 28 EEA on the free movement of workers for example mirrors nearly word by word Article 45 TFEU. Self-employed persons can rely on Article 31 EEA. Going beyond the law of the Bilateral Agreements, the free movement of services is also fully included under EEA law, mirroring the essential characteristics of EU internal market law in this regard.98 It comes as no surprise at this point that the relevant acts of secondary legislation on the coordination of social security

94 Reference is made e.g. to Regulation (EC) 883/2004 (OJ 2004 L 166, 1 ff.) and the later acts amending this regulation that have been added to the Annex by the Joint Committee. 95 OJ 2005 L 255, 22 ff. Again, later legislation amending the Directive has been included by decisions of the Joint Committee. 96 Diebold (n 2) 93 para. 264. 97 The above-mentioned Regulation (EC) 883/2004 has been included in the list of EU secondary legislation by means of EFTA Council decision No 5, adopted on 12 November 2015 and entered into force on 1 January 2016. 98 See in more detail P Speitler, ‘Right of Establishment and Freedom to Provide and Receive Services’ in C Baudenbacher (ed) The Handbook of EEA Law (Springer, Cham 2016) 446 ff.

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systems99 and on the mutual recognition of professional qualifications100 have also been included into EEA law. As a particularly interesting development and remarkable difference in the le- 32 gal acquis, the Union Citizenship Directive 2004/38/EC101 has been included in the EEA legal acquis, although there is as a matter of principle a reservation with regard to EU citizenship as a legal concept that does not exist as such in EEA law.102 Consequently, this Directive provides closer definitions to the right of persons to move and reside freely, notably with regard to economically inactive persons, students and family members e.g. of workers.103 Under the Bilateral Agreements, because of Swiss opposition the Directive is not part of the legal acquis.104 It therefore finds no expression in the EFTA Convention. Consequently, with regard to certain free movement rights, in EU law the concept of Union citizenship applies in combination with the Directive; in EEA law, the Directive applies with the (in practice hardly relevant) reservation regarding Union citizenship; and in the law of the Bilateral Agreements and under the EFTA Convention, neither Union citizenship nor the Directive apply, but only the precursor legislation105 taken up in the relevant annexes and appendices. In conclusion, there are thus a number of norms on the free movement of per- 33 sons that are parallel to EU law in EEA law, the law of the Bilateral Agreements and the EFTA Convention. Nonetheless, in each concrete situation one has to examine carefully which norms and concepts are applicable to establish the exact scope of rights enjoyed by an individual. IV. The Relevance of EEA Law for Switzerland

Having set out the legal frameworks of EEA law, of the Bilateral Agreements 34 between Switzerland and the EU and of the EFTA Convention as the link be99 100 101 102

See in more detail Fløistad’s comments on Art. 29 EEA. See Speitler (n 98) 448 ff. OJ 2004 L 158/77. It should be noted, however, that the EFTA Court has given very limited effect to this reservation and a very broad reading to the Directive’s provisions in its case law. See on the earlier, more cautious case law C Tobler, ‘Bikers Are(n’t) Welcome (Jan Anfinn Wahl v The Icelandic State, EFTA Court, Judgment of 22 July 2013, E-15/12)’ (2013) European Law Reporter 246, passim, who suggests that the reservation ought to be read as comprehensive and could be a possible model to integrate the Directive into the bilateral law between Switzerland and the EU. See, by contrast, on the subsequent case law Ciarán Burke and Ólafur Ísberg Hannesson, ‘Citizenship by the back door? Gunnarsson – Case E-26/13, The Icelandic State v. Atli Gunnarsson, Judgment of the EFTA Court of 27 June 2014’ (2015) 52 Common Market Law Review 1111 ff.; Halvard Haukeland Fredriksen and Christian N K Franklin, ‘Of pragmatism and principles: The EEA Agreement 20 years on’ (2015) 52 Common Market Law Review 643–644. See also recently Case E-28/15, 26.7.2016, Jabbi, not yet reported, in particular paras. 49 ff., and Fløistad’s comments on Art. 28-29 EEA. 103 See in more detail K B Björgvinsson, ‘Free Movement of Persons’ in C Baudenbacher (ed) The Handbook of EEA Law (Springer, Cham 2016) 483 ff. 104 Tobler (n 62) 547. 105 Directives 64/221/EEC (OJ 1964 L 56, 850 ff.), 72/194/EEC (OJ 1972 L 121, 32 ff.) and 75/35/EEC (OJ 1975 L 14, 10 ff.).

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tween Switzerland and the EFTA-EEA Member States, at this point the actual relevance for Switzerland of EEA law and in particular for its interpretation by the EFTA Court can be assessed. First, the situation under the Bilateral Agreements between Switzerland and the EU is examined, where treaty norms and the rules of interpretation lead to a situation in which Swiss courts look at the case law of the ECJ to interpret certain norms. An excursus compares this approach with the case law of the ECJ on the Bilateral Agreements. Subsequently, it can be shown that also the EFTA Court’s case law is indeed relevant, though in an indirect manner. When interpreting norms of the Bilateral Agreements and of national law taking into account the case law of the ECJ, Swiss courts such as the Federal Tribunal can and sometimes do take inspiration from the EFTA Court’s findings on similar norms. 1. Relevance of ECJ case law in the framework of the Bilateral Agreements

There are a number of ways in which the case law of the ECJ is relevant for the interpretation of the Bilateral Agreements. In particular, it is relevant for the mentioned parallel norms which copy parts of the EU law acquis into the Bilateral Agreements. 36 Both in the AFMP and the Agreement on Air Transport, express clauses provide that for rules that are substantially identical to EU law rules “account shall be taken” of ECJ case law prior to a certain date or that they “shall […] be interpreted” in conformity with such case law.106 While the exact extent of the obligation contained in these clauses has led to some debate,107 the Swiss Federal Tribunal developed a constant jurisprudence to follow the case law of the ECJ prior to the signature of the AFMP and also held in a landmark judgment that it could and would also take into account the later jurisprudence of the ECJ; only if “compelling reasons” spoke out against a parallel interpretation, it would deviate from the ECJ’s interpretation, but would not do so “carelessly”.108 In that very case, the Federal Tribunal therefore followed a reversal of the case law of the ECJ to bring the case law of the Swiss courts under the Bilateral Agreements back in line with the ECJ.109 It should be noted in this context 35

106 See Article 16 (2) AFMP and Article 1 (2) Agreement on Air Transport, respectively. 107 See e.g. T Cottier and N Diebold, ‘Warenverkehr und Freizügigkeit in der Rechtsprechung des Bundesgerichts zu den Bilateralen Abkommen. Zur Anwendung und Auslegung von nachvollzogenem Recht und Staatsverträgen unterschiedlicher Generationen’ in A Epiney and N Gammenthaler (eds), Schweizerisches Jahrbuch für Europarecht/Annuaire suisse de droit européen (Schulthess, Bern/Zürich 2008/2009) 258 ff.; A Epiney, B Metz and B Pirker, Zur Parallelität der Rechtsentwicklung in der EU und in der Schweiz – Ein Beitrag zur rechtlichen Tragweite der "Bilateralen Abkommen" (Schulthess, Zürich 2012) 157; C Schnell, Arbeitnehmerfreizügigkeit in der Schweiz, Ausgewählte rechtliche Aspekte zum Personenfreizügigkeitsabkommen (Schulthess, Zurich/Basel/Geneva 2010) 122; V Boillet, L’interdiction de discrimination en raison de la nationalité au sens de l’Accord sur la libre circulation des personnes (Helbing Lichtenhahn, Basel 2010) 54 ff. 108 BGE 136 II 5, para. 3.4 (“triftige Gründe” and “leichthin” in the original German version); some more precision has been added in BGE 139 II 393. See for other cases following the ECJ BGE 131 II 339; BGE 129 II 249; BGE 136 II 329.

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that there continue to exist disputes over whether the Swiss courts and in particular the Federal Tribunal is going too far in its attempt to interpret the Bilateral Agreements taking into account the case law of the ECJ.110 Also, there are striking parallels to the case law and approach taken by the EFTA Court with regard to the ECJ’s case law.111 Even in other agreements where no express obligation to interpret the norms 37 of the Bilateral Agreements in parallel to those of EU law exists, good arguments can be made in favour of an interpretation that still takes inspiration from EU law and the case law of the ECJ based on the rules of interpretation applicable in international law,112 contained in Articles 31 and 32 of the Vienna Convention on the Law of Treaties.113 The Federal Tribunal thus considered the interpretation of the ECJ of the 1972 Free Trade Agreement as relevant in its own jurisprudence on that same agreement.114 Summing up, there is thus a strong trend both in the substance of the Bilateral 38 Agreements as well as in the adjudicative practice to take into account the interpretation of parallel EU law by the ECJ when interpreting the Bilateral Agreements. 2. Excursus: The ECJ’s case law on the Bilateral Agreements

It should be noted at this point that the tendency of Swiss courts to look to- 39 wards case law of the ECJ in interpreting the Bilateral Agreements is mirrored by an increasing readiness of the ECJ to interpret provisions of the Bilateral Agreements in the same way as parallel provisions of EU law. In earlier decisions on the AFMP such as Grimme, the Court emphasized the Polydor principle, according to which a parallel interpretation of external agreements of the EU depends on the objective and context of the respective treaty norm.115 Con109 See in more detail F Maiani, ‘La ‘saga Metock’, ou des inconvénients du pragmatisme helvétique dans la gestion des rapports entre droit européen, droit bilatéral et droit interne’ (2011) Zeitschrift für Schweizerisches Recht 27. 110 See for this view S Besson and O Ammann, ‘L’interprétation des accords bilatéraux SuisseUE – Une lecture de droit international’ in A Epiney and S Diezig (eds), Schweizerisches Jahrbuch für Europarecht/Annuaire suisse de droit européen (Stämpfli/Schulthess, Bern 2014); for an opposing view B Pirker, ‘Zu den für die Auslegung der Bilateralen Abkommen massgeblichen Grundsätzen – Gedanken zu BGE 140 II 112 (Gerichtsdolmetscher)’ (2015) 116 Schweizerisches Zentralblatt für Staats- und Verwaltungsrecht 295. 111 See in more detail Wennerås’ comments on Art. 6 EEA and Art. 3 (2) SCA. 112 Epiney, Metz and Pirker (n 107) passim. 113 SR 0.111. 114 BGE 131 II 271, para. 10.3, as compared to the more sceptical stance taken earlier in BGE 105 II 49. It should, however, be noted that apart from courts, disagreements on the interpretation of rules e.g. of the Free Trade Agreement can also lead to long disputes between the political institutions, as the example of the diverging interpretations of the state aid rules of said agreement relating to certain corporate taxation systems in individual Swiss cantons demonstrates. See in more detail C Tobler, ‘State aid under Swiss-EU bilateral law: The example of company taxation’ in M Bulterman and others (eds), Views of European Law from the Mountain – Liber amicorum Piet Jan Slot (Wolters Kluwer Law & Business, Austin 2009). 115 Case 270/80, 9.2.1982, Polydor, EU:C:1982:43.

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sequently, it held that the objectives of the AFMP were not to be understood as equally far-reaching as EU law, as with its refusal to join the EEA Switzerland had also rejected participation in the EU single market.116 As a consequence, the interpretation given to norms of EU law could not “automatically” be applied to norms of the AFMP.117 40 In more recent case law the ECJ, however, interprets in particular the AFMP in the same manner as the parallel norms of EU law. For this purpose, the Court abandoned the argument on the Swiss rejection of the single market and emphasized the similarity of the rights and obligations laid down in the AFMP to EU law as well as the overall objective of the Bilateral Agreements “to strengthen the economic ties” between the EU and Switzerland and other elements of the Agreement’s preamble.118 In the area of the coordination of systems of social security, the ECJ similarly relied mainly on the objective of the AFMP “to ensure the free movement of persons”119 in order to interpret the law of the AFMP in the same way as EU law.120 3. Indirect relevance of EFTA Court case law

If Swiss courts sometimes take into account interpretations given by the ECJ out of their own initiative within their interpretative discretion, there is no legal obstacle for them to also take inspiration from the case law handed down by the EFTA Court. As shown before, there are parallel norms in EU law, EEA law, the EFTA Convention and in the Bilateral Agreements. Interpretations given by the EFTA Court can thus provide valuable in-put for the interpretation of provisions of the Bilateral Agreements, of the EFTA Convention or even of Swiss law that has been shaped to replicate norms of EU/EEA law. EEA law enjoys at least some indirect relevance in this constellation, although there is no obligation for Swiss courts to look at the EFTA Court’s case law. 42 In adjudicative practice, two instances can be pointed out where the Swiss Federal Tribunal has referred to the EFTA Court. 41

116 Case C-351/08, 12.11.2009, Grimme, EU:C:2009/697, para. 27. See sceptical on the relevance of this argument Pirker (n 108) 308. 117 Case C-351/08, 12.11.2009, Grimme, EU:C:2009/697, para. 29; see also Case C-70/09, 15.7.2010, Hengartner, EU:C:2010:430, para. 41. See also C Tobler, ‘Die EuGH-Entscheidung Grimme – Die Wiederkehr von Polydor und die Grenze des bilateralen Rechts’ in A Epiney and N Gammenthaler (eds), Schweizerisches Jahrbuch für Europarecht (Schulthess, Zurich/Basel/Geneva 2009/2010). The earlier Hauer case is less relevant for the question of parallel interpretation, see Case C-13/08, 22.12.2008, Hauser, EU:C:2008:774. 118 Case C-506/10, 6.11.2011, Graf, EU:C:2011:643, para. 33. See with a similar reasoning in the area of taxation Case C-425/11, 28.2.2013, Ettwein, EU:C:2013:121, para. 51; Case C-241/14, 19.11.2015, Bukovansky, EU:C:2015:766, para. 40. 119 Case C-257/10, 15.12.2011, Bergström, EU:C:2011:839, para. 43. 120 See also on the preamble Case C-656/11, 27.2.2014, United Kingdom/Council, EU:C:2014:97, para. 55; the Court accepts in this area that Switzerland is to be treated like a Member State because of the applicable EU secondary law, see Case C-247/09, 18.11.2010, Xhymshiti, EU:C:2010:698, para. 31.

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First, the Federal Tribunal used the EFTA Court’s case law121 as part of a 43 larger overview of case law to demonstrate that a certain opinion – that competition law sanctions could have a criminal character for the purpose of fundamental rights protection – was now widely represented among the highest “European” courts.122 Even more relevant is a case in which the Tribunal was asked to decide over 44 the admissibility of measures taken in Switzerland in the context of the entry into force of the AFMP to restrict the admission of medical doctors as practitioners based on the pre-determined need for new doctors. The Tribunal held that measures whose goal it was to absorb to some extent the effects of the entry into force of the AFMP could be compared to similar measures taken in the context of the accession of a new Member State to the EU. They could not be considered as discriminatory merely because of this objective, but had to be examined as to their design and to their effects to establish whether they are discriminatory or not.123 To bolster its reasoning, the Federal Tribunal quoted as an example a number of decisions handed down by the EFTA Court. The latter had found Liechtenstein’s then existing single practice rule with regard to medical doctors to be incompatible with the freedom of establishment under the EEA Agreement. At the same time, however, it had admitted that as a matter of principle the risk of seriously undermining the financial balance of the social security system, and of jeopardising the sustainability of a health care system accessible to all, might constitute an overriding reason in the general interest capable of justifying such a measure.124 All in all, there is thus evidence, albeit scarce, that the Swiss courts are aware 45 of the possibility to use EEA law and its interpretation by the EFTA Court as a resource in their own interpretative processes. However, the bulk of parallel interpretation happens by Swiss courts following the ECJ, as one would also expect in light of the express provisions in some of the Bilateral Agreements and the more prominent role played by the ECJ. V. Conclusion

A closer look at the relationship between Switzerland and the EEA shows that 46 despite Swiss non-membership, the EEA and EEA law as well as its interpretation by the EFTA Court are relevant for Switzerland. First, Switzerland historically played an important role in EFTA and the creation of the EEA. The EEA 121 Case E-15/10, 18.4.2012, Posten Norge AS v EFTA Surveillance Authority [2012] EFTA Court Report 246, paras. 84 ff. 122 BGE 139 I 72, paras. 2.2.2. and 4.4. 123 BGE 130 I 26, para. 3.1. 124 Case E-6/00, 14.6.2001, Tschannett [2000-2001] EFTA Court Report 203, para. 32, referring to the ECJ’s decision in Case C-158/96, 28.4.1998, Kohll v Union des Caisses de Maladie [1998] ECR I-1931; the Tribunal somewhat less precisely also refers to Case E-5/00, 14.6.2001, Mangold [2000-2001] EFTA Court Report 163, and to Case E-4/00, 14.6.2001, Brändle [2000-2001] EFTA Court Report 123.

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remains a topic of discussion in today’s debate on a future institutional solution or framework agreement for the Bilateral Agreements. Furthermore, there exists a “triple parallelism” of norms in the field of the free movement of persons between EU law, EEA law, the EFTA Convention and the law of the Bilateral Agreements. Lastly, based on this parallelism there even exist some elements of a judicial dialogue not only by Swiss courts looking at the practice of the ECJ, as partly required by the AFMP, but also with regard to the EFTA Court. There exist thus legally relevant links between Switzerland and the EEA and its EFTA EEA member states, although their practical relevance should not be overstated. VI. Case law 47

Swiss Federal Tribunal: BGE 105 II 49; BGE 129 II 249; BGE 130 I 26; BGE 131 II 271; BGE 131 II 339; BGE 135 V 339; BGE 136 II 5; BGE 136 II 329; BGE 136 V 244; BGE 139 I 72; BGE 139 II 393. ECJ: Opinion 1/91, 14.12.1991, Draft agreement between the Community, on the one hand, and the countries of the European Free Trade Association, on the other, relating to the creation of the European Economic Area, EU:C:1991:490; Case 270/80, 9.2.1982, Polydor, EU:C:1982:43; Case C-158/96, 28.4.1998, Kohll, EU:C:1998:171; Case C-13/08, 22.12.2008, Hauser, EU:C:2008:774; Case C-351/08, 12.11.2009, Grimme, EU:C:2009/697; Case C-70/09, 15.7.2010, Hengartner, EU:C:2010:430; Case C-257/10, 15.12.2011, Bergström, EU:C:2011:839; Case C-506/10, 6.11.2011, Graf, EU:C:2011:643; Case C-425/11, 28.2.2013, Ettwein, EU:C:2013:121; Case C-241/14, 19.11.2015, Bukovansky, EU:C:2015:766. EFTA Court: Case E-4/00, 14.6.2001, Brändle, [2000-2001] EFTA Court Report 123; Case E-5/00, 14.6.2001, Mangold, [2000-2001] EFTA Court Report 163; Case E-6/00, 14.6.2001, Tschannett, [2000-2001] EFTA Court Report 203; Case E-15/10, 18.4.2012, Posten Norge AS v EFTA Surveillance Authority, [2012] EFTA Court Report 246; Case E-28/15, 26.7.2016, Jabbi, not yet reported.

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The EEA in the Union’s Legal Order I. The EEA as a result of the external European relations policy of the EEC/EC/EU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. From Western European Economic Cooperation to the competing EEC and EFTA . . . . . . . . . . . . . . . . . . . . . 2. The discovery of the external relations of the EEC, 1969 . . . . . . . . . . . . . 3. First enlargement and free trade agreements with the EFTA countries, 1970-1973 . . . . . . . . . . . . . . . . . . . . 4. Southern and Eastern enlargement, the path to an European Economic Area, 1980ies and early 1990ies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Northern enlargement and the EEA, 1992-1995 . . . . . . . . . . . . . . . . . . . . 6. The EFTA States’ affiliation to the EU today: a network of agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3 5 9 10

11 18

7. The EEA in the treaty relations of the EU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. An unequal marriage: the EU after Maastricht and the Treaty of Lisbon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. The EEA Agreement within the Union’s legal order . . . . . . . . . . . . . . . . . . . . . . 1. The Association competence of the EU, Art. 217 TFEU . . . . . . . . . . . . 2. Common practice: mixed agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Responsibility of the EU and its Member States under the EEA Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Effects of international agreements within the Union . . . . . . . . . . . . III. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23 24 26 28 47 50 68 82

19

The Agreement establishing the European Economic Area provides the legal 1 basis for the relationship between the three EFTA countries Liechtenstein, Iceland and Norway, on the one hand, and the EU, on the other. By many seen to serve as a transitional framework on the way to EC membership, 25 years later it proves to establish a stable and potentially permanent structure for particular relations. With its numerous Annexes and Protocols, as well as various related agreements in the EFTA pillar, the EEA Agreement has established the most comprehensive relationship which exists between the Union and a group of non-member States. This relationship has been described as the participating EFTA States being ‘out and in’ of the EU, simultaneously.1 While the EEA Agreement has always enjoyed high political and legal atten- 2 tion within the EFTA States, it has not received much attention within the continental EU law community. The aim of this essay is hence to explore the EEA from a EU law perspective in the context of the Union’s European treaty relations. I. The EEA as a result of the external European relations policy of the EEC/EC/EU

The EEA Agreement is deeply rooted in the making of the European integra- 3 tion and constitutes the outcome of the co-existence and differences between the EEC and the EFTA, of the beginning of the external policy of the EEC as well as the enlargements of the EEC/EC/EU or the non-accession of countries to the

1 NOU 2012:2 Utenfor og innenfor. Norges avtaler med EU, pp. 838 et seq.

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EU. It was with the creation of the EEA that the divide between the EEC/EC/EU and the EFTA was finally overcome. 4 Hence, for a country that leaves the EU because it feels dominated by the European legislation and the migration of Union citizens, the EEA is neither suitable nor acceptable. Rather the post-Lisbon neighbourhood policy which was designed for the new neighbouring countries after the Eastern enlargement may be a frame for further relations with an old friend, UK, too. 1. From Western European Economic Cooperation to the competing EEC and EFTA

After the Second World War, economic cooperation in Western Europe became an issue within the OEEC.2 Various proposals were launched, one of which was an Anglo-Scandinavian Economic Cooperation comprising the UK, Denmark, Sweden and Norway. A gradual reduction of tariffs was also debated within the OEEC in 1956. These attempts, however, were overtaken by the steps which led to the foundation of the European Economic Community. After the Treaty establishing the European Coal and Steel Community came into force in 1952, both the European Defence Community and the European Political Community failed in 1954. A conference of the foreign ministers of the six Member States of the ECSC in Messina in June 1955 gave the starting signal for the creation of the EEC and the Euratom, eventually leading to the conclusion of the Treaties of Rome. 6 In response, negotiations started in the OEEC in 1957 aiming at a West European Free Trade Area which would include all 17 European OEEC members and the EEC, called the Greater Free Trade Area. Due to the irreconcilable positions of the French and British, however, this project was abandoned in December 1958. 7 In order to protect themselves against the for them negative effects of the EEC, the seven non-EEC States countries Austria, Denmark, Norway, Sweden, Switzerland and the UK launched negotiations in the summer of 1959 to establish among them a free trade area (‘Small Free Trade Area’). On 4 January 1960, the Stockholm Convention establishing the European Free Trade Association (EFTA) was signed. It entered into force on 3 May 1960. One of the main aims of the creation of the EFTA was to provide for free trade between the EFTA countries with a view to come to an arrangement with the EEC3 – between the ‘inner six’ and the ‘outer seven’. In March 1961, the Finland-EFTA Association Agreement was concluded.4 Iceland joined the EFTA in 1970. 5

2 See, from the perspective of the EFTA countries, Norberg and Johansson, ‘The History of the EEA Agreement and the First Twenty Years of Its Existence’, in Baudenbacher (ed), The Handbook of EEA Law, 2016, pp. 3 et seq. 3 Norberg/Johansson (fn. 2), p. 9. 4 Finland became regular member of EFTA in 1986.

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Liechtenstein, which was covered by the EFTA Convention through a protocol with Switzerland, became full member as late as in 1991. As some of the most knowledgeable commentators observed, ‘EFTA was cre- 8 ated more as a reaction to the creation of the EEC than as an end in itself. The ambition of the EFTA countries was as soon as possible to find acceptable solutions to the problem created by the division of Western Europe in to two economic blocks‘.5 Already in August 1961, the UK applied for membership in the EEC, followed by applications from Denmark and Norway while, due to concerns about their neutrality, Austria, Sweden and Switzerland strived for association agreements with the EEC. However, in early 1963, the French President refused the membership of the UK and the negotiations were abandoned. A repeated British application was rejected by France in 1967. Only after de Gaulle had resigned in June 1969 was the path open to a relaunch of the EEC. As a result, both the UK and Denmark left EFTA to join the EEA in 1973. 2. The discovery of the external relations of the EEC, 1969

The birth of an active foreign policy was given by the Hague Summit of the 9 Heads of States or Governments in December 1969. In order to overcome the EEC’s internal crisis of the 1960ies, the Member States developed the foreign dimension of the EEC as a field of action and decided ‘to speak with one voice’ internationally. During the 1960ies, the EEC had concluded only four international agreements; with Greece in 1961 and Turkey in 1963, both in the view of future membership, and with Morocco and Tunisia in 1969. All of them were association agreements based on Art. 238 EECT, now Art. 217 TFEU. The second treaty making power expressly available to the EEC at that time, i.e. to conclude trade agreements according to Art. 113 EECT, now Art. 207 TFEU, had never been used so far. The more active foreign action of the EEC was further encouraged by the renowned ERTA judgement, rendered in March 1971, in which the ECJ established the implied treaty making powers of the EEC.6 3. First enlargement and free trade agreements with the EFTA countries, 1970-1973

In early 1970, accession negotiations with Denmark, Ireland, Norway and the 10 UK were launched. Norway remained in the EFTA following the referendum of September 1972, but Denmark, Ireland and the UK joined the EEC on 1 January 1973. As a consequence, a new format of relations between EFTA countries joining the EEC and those remaining in the EFTA became necessary in order to maintain free trade between the former EFTA family members. Hence, based on Art. 113 EECT, bilateral free trade agreements between the EEC and Sweden, Switzerland, Austria, Portugal, Iceland, Norway and Finland 5 Norberg/Johansson (fn. 2), p. 11. 6 Case 22/70, 31.3.1971, ERTA; see under II.3 c

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were concluded in 1972 and 1973 resulting in an overarching Western European free trade area encompassing the greater EEC as a customs union, the free trade area of the remaining EFTA countries and bilateral free trade areas between the EFTA countries and the EEC. 4. Southern and Eastern enlargement, the path to an European Economic Area, 1980ies and early 1990ies

Greece joined the EEC in 1981, as did Spain and Portugal in 1986 after the collapse of their respective dictatorships. Pursuant to the Single European Act of 1986, a ‘European Political Cooperation’ in foreign relations was established and the completion of the internal market by the end of 1992 was provided for. The change of the political systems in the Soviet Union and the socialist countries in 1989/1991 had a further significant impact on the EC: the GDR became part of the EC through its accession to the Federal Republic of Germany while the Central and Eastern European countries expressed their wish to join the EC. As part of a pre-accession strategy, non-preferential and then preferential free trade agreements, the so-called Europe Agreements, were concluded with those countries in the early and mid-1990ies. Eventually, the Central and Eastern European countries acceded to the EU in 2004/2007 together with Malta and Cyprus. The legal basis of the EU-Russia relations is still the non-preferential Partnership and Cooperation Agreement of 1997, which, since 2007, is renewed annually. 12 The Maastricht Treaty of 1992 created the EU as a distinct pillar, the Monetary Union and the Common Foreign and Security Policy (CFSP) as well as the cooperation in Home Affairs. The Treaties of Amsterdam and Nice, respectively, dealt with some ‘leftovers’, but with little success. Besides some limited specific external powers vested in the EC by these Treaties, the EC, for the conduct of foreign relations, still was confined to the Common Commercial Policy (Art. 133 ECT Maastricht version) and the association power (Art. 310 ECT Maastricht version). 13 Although European integration was dominated by those events, the relations with the EFTA countries entered into a new stage at the same time. After a meeting of the EFTA countries with the EC and its Member States in Luxembourg in April 1984, the creation of an ‘European Economic Space’ as a large free trade system which was to encompass the then EEC and the EFTA countries was envisaged. The Luxembourg Declaration paved the way to the later European Economic Area. 14 Soon after that Declaration, beginning with the Visby meeting of the EFTA Head of Governments in May 1984, a series of EFTA and EFTA – EC meetings took place. In 1985, the EC Commission published its White Paper on the completion of the internal market by the end of 1992, the Single European Act was under negotiation in 1985 and, at the Reykjavik meeting of January 1986, both sides agreed to develop the EFTA – EC relations in parallel to the internal devel11

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opment of the EC. With the Delors Initiative of January 1989 at the latest, it became evident that the bilateral relations based on the free trade agreements had to be replaced by a multilateral approach in the form, as proposed by Commission President Delors, of a new form of association with a strong institutional structure. This avenue was welcomed by the EFTA Heads of Governments meeting in 15 Oslo in March 1989. In the spring and summer of the same year various high ranking groups of legal experts held exploratory talks mainly on the four freedoms, the institutional structure and the integration of the acquis communautaire with the aim of establishing a dynamic and homogenous ‘EES’. After the results of these talks were welcomed by the EFTA countries as well as by the EC and its Member States, the decision to start formal negotiations was given at a common meeting in Gothenburg on 14 June 1990, the day of the thirtieth anniversary of the EFTA. The negotiations, at the outset of which, for linguistic reasons, the English 16 term ‘European Economic Space’ was changed into ‘European Economic Area’, were conducted from July 1990 until October 1991. However, on 14 December 1991, the ECJ declared the envisaged EEA Court incompatible with the EECT.7 The judicial system of the EEA was renegotiated and again submitted to the ECJ which, on 10 April 1992, ruled that the new EFTA Court was in compliance with the EECT.8 On 2 May 1992, the EEA Agreement was signed. On the same day, the seven EFTA countries Austria, Finland, Iceland, Liechtenstein, Norway, Sweden, and Switzerland signed the related intra-EFTA Agreements on the Establishment of a Surveillance Authority and a Court of Justice and on the Establishment of a Standing Committee of the EFTA States and, on 29 May 1992, the Agreement on a Committee of Members of Parliament of the EFTA States. The EEA Agreement was designed to enter into force on 1 January 1993. 17 However, after the Swiss referendum of December 1992 had rejected the ratification, Adjusting Protocols to the EEA Agreement and the intra-EFTA Agreements had to be concluded. The EEA Agreement and related agreements eventually came into force on 1 January 1994. Special clauses allowed Liechtenstein to join the EEA at a later stage after having re-negotiated its relationship with Switzerland and gave Switzerland the option to apply for membership. Liechtenstein joined the EEA on 1 May 1995. Switzerland continued, and has since further developed, its bilateral relations with the EU. 5. Northern enlargement and the EEA, 1992-1995

With the fall of the Soviet Union, the way to EC membership opened up for 18 the neutral EFTA States Austria, Finland, Sweden and Switzerland. As all of 7 Opinion 1/91, 14.12.1991, EEA I. 8 Opinion 1/92, 10.4.1992, EEA II.

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them, together with Norway, applied for membership of the EC even before the EEA negotiations were concluded, the German acronym for the ‘EEA’ – ‘EWR’ – was commonly read as ‘Europäischer Warte-Raum’, i.e. the ‘European Waiting Room’. The Swiss application was put on hold by the Swiss government as a result of the outcome of the referendum on the EEA Agreement, but the four other EFTA States negotiated and signed accession agreements in 1994 – only six months after the EEA Agreement entered into force. While, following the negative referendum of November 1994, Norway rejected membership, Austria, Finland and Sweden joined the EC on 1 January 1995, thereby moving from the EFTA pillar to the EU pillar.9 With Norway, Iceland and, as of 1 May 1995, Liechtenstein remaining in the EFTA-pillar, the EEA became a permanent undertaking. 6. The EFTA States’ affiliation to the EU today: a network of agreements

Although Art. 238 EECT, the legal basis at the time of the conclusion of the EEA Agreement, granted the EEC an exclusive and extensive treaty-making power, the EEA Agreement was concluded as a mixed agreement, i.e. concluded by the EU and its Member States together on one side. 20 Besides the EEC, the ECSC was also a party to the EEA Agreement. According to Art. 97 ECSC, this distinct Community ceased to exist in 2002 and the substance-matters covered by that Treaty came under the responsibility of the EC. In respect to the EEA Agreement, an internal succession of responsibility took place and the ECSC was replaced by the EU. The ECSC was then formally removed from the EEA Agreement by Art. 2 of the 2003 EEA Enlargement Agreement.10 The European Atomic Energy Community (Euratom) which, despite the Treaty of Lisbon, still continues to exist besides the EU is not a party to the EEA. 21 Over the years, the EEA Agreement has been complemented by various further agreements so that the EEA EFTA States’ affiliation to the EU is the result of a network of agreements. Iceland and Norway were associated to the Schengen Area in 200011 with Liechtenstein following in 2011 and to the Dublin Asylum System in 200112 with Liechtenstein following in 2011. In the AFSJ, all three EEA EFTA States cooperate with Europol13 and Eurojust.14 Iceland and Norway, but not Liechtenstein, are parties to the Lugano Convention.15 In the 19

9 Enlargement Agreement of 2003, EU OJ 2004 L 130, p. 1. 10 Art. 2 of the EEA Enlargement Agreement of 2003, EU OJ 2004 L130 p. 11. 11 Agreement on the association of Iceland and Norway with the implementation, application and development of the Schengen acquis of 18 May 1999, EU OJ 1999 L 176 p. 36. 12 Agreement between Norway and Iceland and the European Community concerning the criteria and mechanisms for establishing the State responsible for examining a request for asylum of 19 January 2001. 13 Separate Agreements with Iceland, Liechtenstein and Norway of 28 June 2001 and 7 June 2001. 14 Separate agreements of 2 December 2005, 7 June 2013 and 28 April 2005.

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context of the CFSP, Norway cooperates with the EU under the auspices of the NATO and is part of the Nordic Battlegroup.16 In parallel, all of the four remaining EFTA States (i.e. including Switzerland) 22 comprehensively revised the EFTA Convention of 1960 by concluding the Vaduz Convention in 2001.17 With this convention, the EFTA States essentially achieved a level of integration among themselves that corresponds to what the EEA Agreement already provided for in their relations with the EU. Since then, the EFTA cooperation includes the free movement of persons, the liberalization of the trade in services and investments, the opening of the public procurement markets and the protection of intellectual property rights. 7. The EEA in the treaty relations of the EU

The EEA Agreement is embedded in a network of treaty relations enter- 23 tained by the EU. Like the layers of an onion, the core of the EU and its Member States is surrounded by a wider Europe which consists of the EEA EFTA countries and, based on a series of bilateral agreements, Switzerland in a unique position of an enlarged area of the four freedoms, followed by the candidate countries in the Western Balkans under Partnership and Cooperation Agreements which are association agreements in the view of membership. Though the 1963 association agreement with Turkey clearly aims at a future EU membership, the negotiations presently have an uncertain perspective. The other neighbours of the Union, by virtue of the neighbourhood policy under Art. 8 TEU, are linked to the EU through non-preferential or preferential trade and cooperation agreements in the framework of the Eastern Partnership. Each of the countries bordering the southern rim of the Mediterranean Sea, based on a sequence of renewed association agreements which go back to the 1970ies, entertain free trade areas with the EU. 77 African, Caribbean and Pacific countries, all of them former colonies of the Member States, hence part of the family, enjoy free trade with the EU and extensive development cooperation under the, now, Cotonou Convention, an association agreement as well. 8. An unequal marriage: the EU after Maastricht and the Treaty of Lisbon

The EEA Agreement was concluded by the then EEC based on the EEC 24 Treaty and the ECSC Treaty of pre-Maastricht style.18 Although the EEC underwent significant changes by, first, the Treaty of Maastricht, which entered into 15 Convention on the recognition and enforcement of judgments in civil and commercial matters of 30 October 2007, in force as of 1 January 2010. 16 Memorandum of understanding between the Ministry of Defence of the Republic of Estonia and the Ministry of Defence of the Republic of Finland and the Ministry of Defence of the Kingdom of Norway and the Government of the Kingdom of Sweden concerning the principles for the establishment and operation of a multinational battle group to be made available to the European Union, 17 May 2005. 17 The Vaduz Convention entered into force on 1 June 2002. 18 As the Agreement was negotiated in 1990-1992.

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force on the same day as the EEA Agreement, and, second, the Treaty of Lisbon, the EEA Agreement was not amended in substance or even adjusted to the new EC and EU. Only the subsequent enlargements of the EC/EU were taken into account by Agreements.19 25 One of the major amendments by the Lisbon Treaty is the succession of the EC by the EU, as expressly determined in Art. 1(3) 3rd sentence TEU. This fact did not, however, make an amendment of the EEA Agreement necessary. The term ‘Community’ now simply has to be understood as ‘Union’. II. The EEA Agreement within the Union’s legal order 26

The legal value and effect of the EEA Agreement upon the EU and within the Union’s legal order derive from the Agreement being an international treaty concluded by the EU. The effects of such agreements are provided for in Art. 216(2) TFEU, formerly Article 228 par. 2 EECT in quite obscure terms: ‘Agreements concluded by the Union are binding upon the institutions of the Union and on its Member States.’

27

The effects of such agreements have been largely explained by established case law of the ECJ.20 1. The Association competence of the EU, Art. 217 TFEU

The EEC concluded the EEA Agreement exclusively based upon its competence to enter into association agreements with third States laid down in what was then Art. 238 EECT.21 In the pre-Maastricht version of the Treaty, the association power directly followed Arts. 236 and 237 EECT, which provided for the amendments of the Treaty and the accession to the EC. The legal aim of introducing Art. 238 EECT into the Treaty was to allow an ‘associated membership’, in particular with a view of the UK. 29 Another major achievement of the Treaty of Lisbon is that the external relations powers were codified and framed as a distinct coherent policy field. The legal basis for the EEA Agreement, however, continues to be unchanged. Art. 238(1) EECT which provides the substantive treaty-making competence, remained Art. 238(1) ECT after Maastricht and was simply relocated by the Treaty of Amsterdam in 1996 as Art. 310 ECT. Following the Treaty of Lisbon, the association competence found its place in Art. 217 TFEU. With some linguistic changes from ‘EC’ to ‘EU’ and concerning the designation of the third States and international organizations as parties, the description of the agreements remains unchanged in its wording from the beginning of the EEC: 28

19 EEA Enlargement Agreements of 2003, OJ 2004 L130 p. 11, of 2007, OJ 2007 L221, p. 15, and 2014, OJ 2014 L 170. 5. 20 See under II.4, mn. 68. 21 The Council Decision of 13 December 1993 authorizing the conclusion of the EEA Agreement expressly and exclusively refers to Art. 238 EEC, EU OJ 1993 L346/14.

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The EEA in the Union’s Legal Order ‘The Union may conclude with one or more third countries or international organisations agreements establishing an association involving reciprocal rights and obligations, common action and special procedure.’

Since the 1980ies, the term ‘association’ or ‘association agreement’ was no 30 longer employed in the titles of association agreements because of its negative connotations of an inferior position of the third countries party to such agreement. Instead, terms like ‘partnership’ or ‘cooperation’ agreements become popular. Nevertheless, those agreements continue to be based on Art. 238 EECT and its successors and are, in legal terms, association agreements. Pursuant to Art. 1(1) and (2) EEA, the EEA Agreement is an ‘Agreement of 31 association’ and the entity established by the EEA is named ‘association’. The term ‘association’ used in the name of EFTA, however, means a loose organization of States with no transfer of powers, in contrast to the ‘supranational’ EEC/EC/EU. a) Scope of the association power

Art. 217 TFEU and its predecessors provide the legal foundation for many 32 treaties of the EU with third countries. Before the Maastricht Treaty became effective, the association power, together with the power to conclude trade agreements, were the only two explicit treaty-making powers. Art. 217 TFEU, as was Art. 238 par. 1 EECT, is silent on the substantial 33 scope of this competence. The term ‘association’ is in some way related to membership and was originally designed to organize a special relationship with the UK which at that time did not want to become full member of the EEC. Nevertheless, the substantial scope was fundamentally contested between Commission and Council, i.e. the Member States. This dispute led to the practice of concluding early association agreements as mixed agreements, i.e. the Member States joined the EEC as contracting parties forming a single party to the agreement with a third country. This approach made it possible to keep the delimitation of competences between the EEC/EU and its Member States unresolved. Thus, mixed agreements became a common and politically preferred practice in the conduct of foreign relations of the EU. The dispute about the delimitation of powers with regard to association agree- 34 ments was for a long time kept away from the ECJ. Only as late as in 1987 did the ECJ have the opportunity to determine the scope of application of association agreements. In the well-known Demirel judgement, the Court held:22 ‘Since the agreement ... is an association agreement creating special privileged links with a nonmember country which must, at least to a certain extent, take part in the Community system, Article 238 must necessarily empower the Community to guarantee commitments towards non-member countries in all fields covered by the Treaty. Since freedom of movement for worker is, by virtue of Article 48 et seq. of the EEC Treaty, one of the fields covered by that Treaty it follows that commit-

22 Case 12/86, 30.9.1987, Demirel, para. 9, emphasis added; see also Case C-192/89, 20.9.1990, Sevince.

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35

In general terms, all policy fields covered by the Treaty can be subject-matters of an association agreement concluded under Art. 217 TFEU23 by the EU alone without the interference of the Member States in a mixed procedure. b) Institutional structure

36

Art. 217 TFEU requires an institutional structure which governs and further develops the association. The bodies set up by association agreements mirror to some extent the institutional structure of the EEC/EC/EU at the time of the conclusion: an Association Council, a Joint Committee, a Parliamentary Assembly and a dispute resolution mechanism. aa) EEA institutions

With respect to the EEA Agreement, a clear distinction must be made between the institutions of the association as such with responsibility for both the EU including its Member States and the EFTA countries, on the one, and the institutions with responsibilities for the EFTA States or the EU side, respectively, on the other hand. This distinction is seen in the EEA Agreement itself. The first chapter under Part VII which contains the ‘Institutional Provisions’ deals with ‘The Structure of the Association’ and creates the EEA Council, the EEA Joint Committee and the EEA Joint Parliamentary Committee and provides for the relevant decision-making procedures. The powers and responsibilities of these institutions are addressed by Arts. 89–104 EEA Agreement.24 This structure is modelled after the general patterns of the EU’s association agreements. 38 Nonetheless, under the perspective of the EEA Agreement being a mixed agreement, there are noticeable peculiarities in the representation and decision-making. As a common feature, the EEA Council and the EEA Joint Committee are bilaterally composed of representatives of the EU side and the EFTA countries and adopt decisions by agreement between the two pillars. However, while, according to Art. 93 (1), the Joint Committee consists of representatives of the “Contracting Parties” which includes the Member States to the extent of their competences, in the EEA Council, pursuant to Art. 90 (1), the EU side is exclusively represented by “the members of the Council … and members of the EC Commission”. The Member States are not individually but only indirectly represented through the Council and, therefore, integrated in this EU institution. Furthermore, it is in the decision-making process that the Member States are fully excluded and replaced by the EU independent of the internal allocation 37

23 For the broad understanding of the association power, see i.e. Bungenberg, in von der Groeben/Schwarze/Hatje (eds), Europäisches Unionsrecht. Kommentar, 7th edn. 2015, Art. 217 par. 30 et seq. 24 See further the comments on these provisions in Part II of this book.

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of competences. Decisions in both the EEA Council and the Joint Committee, pursuant to Arts. 90 (2) and 93 (2), are taken “by agreement between the Community … and the EFTA States …”. Yet, the decisions of the Joint Committee can have binding force, according to Art. 104 EEA Agreement. The operation of the above EEA institutions requires rules of procedure to be followed when deciding on the position to be adopted, both on the EU side and on the EFTA side. Thus, Council Regulation 2894/94 (EC) concerning arrangements for implementing the EEA Agreement addresses this as far as the EU side is concerned,25 and the Agreement on a Standing Committee of the EFTA States as far as the EFTA side is concerned.26 Arts. 99 through 101 EEA Agreement provide for the participation of the EFTA States in the relevant decision-making processes of the EU. The dispute settlement mechanism, set up by Art. 111 EEA, follows the es- 39 tablished pattern of association agreements of the EU. All disputes between the EU and the EFTA States relating to the interpretation or application of the EEA Agreement must be brought before the EEA Joint Committee. Interestingly, only the ‘Community’, i.e. not the EU Member States, is entitled to refer a dispute to the Joint Committee. If a dispute concerning the interpretation of provisions of the EEA Agreement, ‘which are identical in substance to corresponding rules [of the European Treaties] and to acts adopted in application of these treaties’ is not settled by the Joint Committee, the parties to the dispute may agree to request the ECJ to give a ruling on the interpretation of the rule in question. This task is specially assigned to the ECJ by virtue of the EEA Agreement and, thereby, the ECJ is employed as an institution of the EEA and not as an organ of the EU under the EU Treaties.27 The relevant procedure is set forth in Art. 204 of the ECJ’s Rules of Procedure. As an alternative to referring the matter to the ECJ, a party to the dispute may adopt safeguard measures. Disputes about the details of the safeguard measures must be brought before the Joint Committee and, in case of a non-resolution, may be referred to an ad-hoc arbitration, according to Protocol no. 33, the award of which shall be binding.28 This overview demonstrates that the EEA, as any other association estab- 40 lished by association agreements of the EU, is bilateral in its structure. Although the EEA Agreement, at first glance, seems to be a multilateral agreement it is in fact a bilateral undertaking between the EU and its Member States, on the one hand, and the group of the three participating EFTA States, on the other. Art. 238 EECT reflected the bilateral structure in its wording: ‘an association with a third state, a union of states or an international organization’. The bilateral composition of the association bodies is clearly mirrored by the decision-making procedures. All decisions are taken by common agreement of both sides, 25 26 27 28

EU OJ 1994 L 305/6. Commented upon by Fredriksen and Jónsdóttir in Part IV of this book. Bungenberg (fn. 23), Art. 217 TFEU, para. 101. See further the comments by Fredriksen on Art. 111 EEA in Part II of this book.

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notwithstanding how many representatives of the EU and its Member States and of the EFTA States form the institution in question. 41 An association established by EU association agreements such as the EEA Agreement can be understood as an international organisation under public international law with own institutions and decision-making mechanisms without, however, a distinct legal personality. bb) EFTA Countries’ institutions

The specific EFTA institutions within the EEA, however, are only presupposed in the chapter on the surveillance procedures (Arts. 108-110 EEA); they are established by the intra-EFTA Agreements related to the EEA Agreement. The EU and its Member States concert themselves within the EEA through the existing EU institutions and, within the EU, the EEA Agreement is implemented by these institutions. Hence, the EEA displays a two-pillar structure, i.e. the EFTA pillar organized through intra-EFTA agreements establishing EFTA institutions, on the one hand, and the EU pillar operating through the institutions of the Union, on the other hand. Both pillars are overarched by the common institutions of the association, as such. 43 The group of the EFTA countries within the EEA has created particular organs by the Agreement on the Establishment of a Surveillance Authority and a Court of Justice and the Agreement on a Standing Committee of the EFTA States.29 According to Arts. 108, 109 EEA Agreement, both the ESA and the EU Commission shall monitor the fulfilment of the obligations under the EEA Agreement, the ESA under the implementing agreement and the Commission following the European Treaties. The EFTA Court has jurisdiction over EEArelated disputes within the EFTA countries, exclusively while the ECJ is competent for disputes arising from the application of the EEA Agreement within the EU. 42

c) Secondary association law 44

Institutions set up by association agreements are typically empowered to take binding decisions which implement and further develop the agreement. That is what Art. 217 TFEU calls ‘common action’. Those decisions are adopted unanimously, i.e. both sides agree: the EU and its Member States, on the one hand, and the third state or group of states like Norway, Iceland and Liechtenstein together, on the other. According to Art. 104 EEA, the decisions taken by the EEA Joint Committee are binding upon the Contracting Parties. In the EU legal order they become, as far as they fall within the competences of the Union, secondary Union law, prevail over the domestic law of the Member States and can produce direct effect under the same conditions as the provisions of the agreement.30 29 See further Part III and IV of this book.

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Within the EU legal order, binding decisions adopted by association institu- 45 tions constitute secondary legislation created by a body outside the EU institutions. By the conclusion of an association agreement, the EU transfers competences to bodies set up by a treaty under public international law. The ECJ has confirmed that the treaty-making powers enable the EU to re-transfer limited competences to international bodies.31 The jurisdictional powers of the ECJ and the autonomy of the EU legal order, however, limit this transfer of powers, as emphasized by the ECJ in its first opinion on the EEA Agreement.32 The EEA Agreement provides for atypical secondary association law: the 46 acts of EU legislation with EEA relevance which are adopted for the EEA pillar. They are enacted by the EU institutions with, however, some participation of the EFTA States according to Arts. 99 et seq. EEA, and then introduced into the EEA by the Joint Committee. The implementation and application of that body of law, however, differs in each of the pillars of the EEA. Within the EU, it is Union law with all the consequences which this entails whereas in the EFTA pillar, these acts do not as such have primacy and direct effect in the legal orders of the EFTA States. 2. Common practice: mixed agreements

Since the conclusion of the association agreements with Greece and Turkey in 47 the early 1960ies, it has become permanent practice to conclude all association agreements, including the EEA Agreement, as mixed agreements. Obviously, where the EU competences do not suffice to encompass all subject-matters of an international agreement the latter has to be concluded on behalf of the EU by both the Union and its Member States which thereby put their competences together. Consequently, mixed agreements shall be concluded collectively by both the 48 EU according to Article 218 TFEU and by its Member States pursuant to their constitutional requirements. Following a well-founded practice, the EU performs its ratification process only after all of the Member States have ratified. As a result, each Member State, by refusing the ratification of the agreement, can bar the conclusion of the agreement and, therefore, prevent the EU from exercising its powers. For trade agreements, this means that unanimity requirements enter through the back door instead of a qualified majority in Council. As for association agreements, the impact is more limited as they require unanimity in Council pursuant to Art. 238(2) EECT and Art. 218(8)(2) TFEU. However, it makes a significant difference, both legally and politically, whether a government votes in Council or whether the national parliament must ratify or whether 30 Case C-192, 20.9.1990, Sevince, para. 9. 31 Opinion 1/76, European Laying-up Fund, ECR 1977 p. 741; opinion 1/81, EEA I, 14. 12. 1991, para. 40, 79; opinion 1/92, EEA II, 10. 4. 1992, para. 33; opinion 2/15. FTA Singapore, 16. 5. 2017 par. 276 32 Opinion 1/91, 14.12.1991, EEA I, paras. 30 et seq.

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even a referendum takes place. That happened in 2016 in the Netherlands with respect to the association agreement with Ukraine which was submitted to a referendum. The conclusion of the CETA agreement with Canada threatened to fail at the very last moment due to the lack of approval by the regional parliament of the Belgian region of Wallonia. For an EU-only, agreement the necessary democratic approval is secured by the European Parliament pursuant to Art. 218(6)(2)(a) TFEU. 49 Undisputedly, multilateral conventions regularly go beyond the limited EU’s competences and, therefore, require the participation of the Member States. However, with respect to bilateral agreements with one State or a group of third States such as association agreements, the participation of the Member States often is legally questionable or unjustified. As a matter of fact, the Member States do not want to step back and give way to the EU for conducting international relations alone. Therefore, it is pretended by the Member States that some subject-matters included in a given agreement go beyond the EU’s exclusive treaty-making powers. The extent of the EU’s external powers is a matter of ongoing dispute between the Commission and the Council and the Member States. The Juncker Commission, as of 2015, took efforts to assert the conclusion of ‘EU-only’ agreements and requested a judicial examination of the practice of mixed agreements by the ECJ on the occasion of the free trade agreement with Singapore, as an example of the new generation of free trade agreements.33 However, shocked by the Brexit decision the Commission gave in and accepted that, against its conviction, the CETA should be treated as a mixed agreement. 3. Responsibility of the EU and its Member States under the EEA Agreement 50

Mixed agreements have the benefit that, at least at the time of their conclusion, the disputed internal allocation of competences can be left undecided visà-vis third states because each of the substance-matters is covered by either the EU’s or the Member States’ powers. However, the EU is bound by those agreements under the customary law of international treaties, as laid down in the Vienna Convention on the Law of Treaties between States and International Organizations of 1986. a) Responsibility under public international law

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As a rule, under public international law all parties to a treaty are bound by the totality of the provisions, i.e. both the EU and its Member States for the whole range of the treaty in question unless the treaty provisions in their wording makes clear which party is meant by which provision. In multilateral organizations and conventions such as the UNCLOS, the EU is therefore often re33 Opinion 2/15, 16.5.2017, FTA Singapore, see mn. 60.

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quired to provide declarations of competences which are intended to clarify the delimitation of competences between the EU and its Member States with effect on the international level. In bilateral agreements such as association agreements, the EU generally introduces provisions aiming at clarifying the distribution of responsibilities between the EU and its Member States for the fulfilment of the agreement. b) Delimitation of responsibilities within the EEA

According to Art. 2 EEA:

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‘The term “Contracting Parties” means, concerning the Community and the EC Member States, the Community and the EC Member States, or the Community, or the EC Member States. The meaning to be attributed to this expression in each case is to be derived from the relevant provisions of this Agreement and from the respective competences of the Community and the EC Member States as they follow from the Treaty establishing the European Economic Community’.

Further provisions concerning the EEA institutions, in particular Arts. 89(2) and 92(2), reiterate this general rule. The above definition offers three options for the application of the various provisions of the EEA Agreement: affected are either (1) the EU, or (2) the Member States or (3) the EU and its Member States, jointly. The answer, as stated in Art. 2 EEA, depends on the allocation of competences between the EU and the Member States as determined by the European Treaties. The delimitation clause of Art. 2 EEA refers to the state of Union law and, hence, follows the shifting allocation of competences between the Union and its Member States. Due to the close cooperation within the EEA framework, the EFTA States are aware of the shifting delimitation of competences and, pursuant to the delimitation clause, bound to respect the increasing responsibilities of the EU within the EEA. It follows from the definition in Art. 2 EEA that the EU is bound by the EEA Agreement as far as its competences reach, and that the Member States are responsible for subject-matters not covered by EU powers. Thus far, the provisions of the EEA Agreement become domestic law of each of the Member States by virtue of their respective constitutional law. With the UK leaving the EU, the part of the EEA Agreement covered by the EU’s treaty-making powers will no longer apply to that country. With respect to the provisions under the Member States’ jurisdiction, if any left, the UK must withdraw from the EEA Agreement by virtue of an Adjustment Protocol which has to be concluded. This obligation derives from the duty of co-operation34, which also includes negative duties. Furthermore, no free-standing membership to the EEA is compatible with the Agreement because the contracting parties must adhere to either of the two pillars, i.e. must be part of the EU or the EFTA, as provided for by Art. 128 EEA. 34 See II.3.d), mn. 67.

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c) The Union’s responsibility within the EEA

Under both public international law and European law is the EU responsible for applying the EEA Agreement to the extent of its treaty-making powers. According to Art. 216(2) TFEU, only agreements concluded by the EU, that means concluded pursuant to its powers, are binding upon the EU under European law and create legal effects within the Union’s legal order. Agreements the subject-matters of which exceed the EU’s powers are not compatible with the Treaties and have no effect under European law. 58 The clarification of the association power by the Demirel formula is dynamic in the sense that it includes ‘all fields covered by the Treaty’. Since the competences of the EU have increased, and perhaps will continue to increase over the time, the realm of the Union’s responsibilities under the EEA Agreement expands likewise and is greater today than at the time of negotiation and conclusion. The Demirel formula encompasses the fields covered by the Treaties at any time during the existence of the association agreement. 59 According to the rationale of the Demirel judgment, the whole content of the EEA appears to be covered by the association power of the EU, leaving no substance-matters for the Member States. Subject to an in-depth analysis for each particular policy field, the entire EEA Agreement falls under the association competence of the Union, perhaps not already in 1992, but following the increased competences of the Union, at least today. Indisputably, the provisions on the four freedoms, i.e. free movement of goods, persons, services and capital (Arts. 8 et seq., 28 et seq., 36 et seq., and 40 et seq.) as well as on transportation (Arts. 47 et seq.), competition and state aid (Arts. 53 et seq.) are covered by the Demirel formula. The horizontal provisions on social policy, consumer protection, environment, statistics and company law (Arts. 66 et seq.) are included because of their link to the four freedoms. The areas of the cooperation outside the four freedoms, provided for in Arts. 78 et seq., which extend to research and technology, information services, environment, education, vocational training and youth, social policy, consumer protection, small and medium-sized enterprises, tourism, the audiovisual sector and civil protection are covered by EU policies under the TFEU. This is all the more true as the cooperation mainly takes the form of the EFTA States’ participation in the relevant activities within the EU framework. Even the cooperation in aspects of economic and monetary policy seems not to go beyond what is provided for in the TFEU because this cooperation is restricted to the exchange of views and information in a nonbinding fashion. 60 All other treaty-making powers besides the association competence, being ‘fields covered by the Treaty’, are included in the association power35 and, 57

35 Bungenberg (fn. 23), Art. 217 TFEU par. 33 et seq.; Schmalenbach, ‘Assoziierung und Erweiterung‘, in von Arnauld (ed.), Europäische Außenbeziehungen, Enzyklopädie Europarecht vol. 10, 2014, 6, par. 23.

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therefore, do not need to be especially mentioned as legal bases in the Council Decision authorizing the conclusion. Even in the early phase of association agreements, it was never disputed between the Commission and the Council that the competence to conduct the Common Commercial Policy pursuant to Art. 113 EECT, now Art. 207 TFEU, which at the time of the negotiation and conclusion or the EEA Agreement was the only other express treaty-making power available, was embedded in the association competence. Therefore, all subject-matters covered by Art. 207 TFEU, considerably amended by the Treaty of Lisbon and recently determined by the ECJ in the Opinion 2/15 of 16 May 2017 on the EU’s Free Trade Agreement with Singapore, fall under the Union’s responsibility for the application of the EEA Agreement.36 According to Opinion 2/15, only provisions related to non-direct investments, including the related dispute settlement, exceed the EU’s competence because Art. 207 TFEU only refers to direct investments. Non-direct investments, however, fall under the free movement of capital according to Art. 63 TFEU which is a ‘field covered by the Treaty’. The substance-matters included in the EU-Singapore Agreement go beyond the scope of application of the EEA Agreement. However, Opinion 2/15 delineates the limits for a further evolution of the EEA without the need for ratification by all of the EU Member States. Though not mentioned in Art. 3 TFEU, the power to conclude association 61 agreements is an exclusive one37 because, by its very nature, only the EU is able to establish an association to the Union in the legal sense. This leads to the conclusion that whenever the EEA Agreement include fields which, as a matter of EU law, are shared or coordinating and supporting competences, the related provisions in the EEA Agreement are nevertheless part of the EU’s exclusive association power. As a further result, once a ‘field covered by the Treaty’ is included in an association agreement, the relevant provision of that agreement falls under the exclusive association competence with the further result that the association agreement is an EU-only agreement independent of its substancematters. Only when an association agreement comprises provisions on matters which are not included in the Treaties at all can and must the Member States participate in the agreement. However, as the above conclusions are far from being accepted by the Mem- 62 ber States, recourse must be taken to the other treaty-making powers of the EU. They are encompassed by the association power.38 As expressly stated in Art. 3(1) (e) TFEU, the common commercial policy under Art. 207 TFEU is also an exclusive power of the EU. In the realm of exclusive EU competences, the Member States are prevented from acting and cannot enter into international 36 Opinion 2/15, 16.5.2017, FTA Singapore, paras. 33 through 167 37 Bungenberg (fn. 23), Art. 217 par. 37; this was already obvious for the early commentators including i.e. Wohlfarth, in; Wohlfahrt/Everling/Glaesner/Sprung (eds.), Die Europäische Wortschaftgemeinschaft, 1960, Art. 238 par. 1. 38 Bungenberg (fn. 23), Art. 217 TFEU para. 3.

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agreements. In the cases where a dispute about the extent of the Union’s external powers were brought before the ECJ, exclusive competences were needed for the Union to conclude an ‘EU-only’ agreement. In a situation where the Member States were not willing to let the EU act alone, shared powers were not sufficient. Therefore, the ECJ examines the presence of exclusive treaty-making powers. However, if the Member States, convening in Council, were willing to let the EU act, the EU would have the power to make use of shared treatymaking powers. 63 One of the major achievements of the Treaty of Lisbon is that the implied treaty-making powers of the EU, which had been acknowledged by the ECJ in the ERTA judgement and further developed in subsequent jurisprudence, were codified in Art. 216(1) second, third and fourth alternative TFEU. According to the clear case law which Art. 216 TFEU is intended to codify, implied treaty-making powers exist as far as internal legislative powers occur. This is laid down in the fourth alternative of Art. 216(1) TFEU. Implied treaty-making powers ab initio are exclusive ones if the relevant internal legislative power is exclusive. This, according to Art. 3(1) TFEU, applies to the conservation of marine resources and competition. 64 In all other areas of EU policies, the implied treaty-making powers are shared powers. However, as, pursuant to Art. 2(2) TFEU, shared legislative powers become exclusive if exercised, the related implied treaty-making powers become exclusive as well when and insofar as internal powers have been exercised.39 This is what Art. 3(2) third alternative TFEU states, though not very clearly. As a result, once the EU has adopted internal legislation, it enjoys exclusive external powers and assumes responsibility in the setting of EEA law as well. As ‘fields covered by the Treaty’ implied treaty-making powers become part of the association competence as acknowledged by the ECJ in its second EEA opinion.40 The material scope of the association power is filled up with other treaty making powers such as Art. 207 TFEU. This leads to a decrease of the scope of Member States competences within the EEA, if there are any left, and reduces their participation within the EEA institutions. 65 Today, the EEA Agreement is fully covered by the EU’s power to enter into association agreements and, therefore, the EU is exclusively responsible under both European law and public international law to apply and implement the EEA Agreement on the side of the EU. This leaves the Member States’ participation as contracting parties void of any substantial meaning. The EU Member States must abstain from participating in the operation of the EEA institutions. This is comparable to the situation with regard to the WTO where the Union, following the amended Art. 207 TFEU, succeeded its Member States without the latter withdrawing from the WTO Agreement. Consequently, agreements amending the EEA Agreement in substance or because of new EU 39 Opinion 2/15, 16. 5. 2015, FTA Singapore, paras. 170 et seq. 40 Opinion 1/92, 10.4.1992, EEA II, para. 39.

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Member States joining or present Member States leaving must be concluded by the EU alone. Due to the internal succession from the EU to the Member States their participation in an amending agreement is not even necessary to formally terminate their status as parties.41 However, the case law of the ECJ, including Demirel and Sevince, actually re- 66 late only to the four freedoms. The ECJ has not yet decided on the delimitation of competences in mixed association agreement in general as it has on mixed trade agreements in the Singapore opinion. d) Duty to cooperate

Even if one should take the view that there are parts of the EEA Agreement 67 which are not covered by EU powers and, thus, remains under the responsibility of the Member States, the latter would be under an obligation to cooperate amongst themselves and with the EU in order to ensure the “unity in the international representation” of the Union.42 This obligation glues the participation of the Member States to the conduct of the EU policies under the EEA Agreement. The duty to cooperate is mirrored in Art. 3 EEA. 4. Effects of international agreements within the Union

Once an international agreement has been concluded by the EU and become 68 valid and binding under public international law, it creates legal effects within the legal order of the EU. Only at that stage does Art. 216(2) TFEU come into play. Based upon the somewhat obscure wording of that provision and its predecessors, the ECJ has clarified these effects in an established jurisprudence. It is not only the agreement in question but also the secondary law adopted pursuant to the provisions of a treaty which produces such legal effect.43 Secondary EEA law consists of the binding decisions adopted by the EEA Joint Committee.44 a) Part of Union law

With its entry into force under public international law, an agreement con- 69 cluded by the EU becomes ‘integral of [Union] law’.45 This, however, only applies to the extent the agreement is covered by the EU’s treaty-making powers. The ECJ follows a strict monist approach in assessing the relationship between public international law and the domestic law of the EU. The integration of an international agreement into European law is independent of the internal 41 42 43 44 45

Opinion 2/15, 16.5.2017, FTA Singapore, paras, 246 et seq Opinion 1/94, 15.11.1994, WTO, para. 108. Case C-192/89, 20.9.1990, Sevince, para. 14. Case C-431/11, 26.9.2013, UK v. Council, para. 54. Case 181/73, 30.4.1974, Haegeman II, paras. 2 and 6; Opinion 1/91, 14.12.1991, EEA I, para. 37; See also Graver, ‘Der Europäische Wirtschaftsraum’, in: Enzyklopädie Europarecht, vol. 1, Hatje/Müller-Graff (eds.), § 19 para. 2; Bungenberg (fn. 23) Art. 217 paras. 80 et seq.

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act authorizing and ratifying the agreement, namely the relevant Council decision. There is little jurisprudence with regard to the EEA Agreement. However, the ECJ expressly confirmed that the EEA Agreement constitutes an ‘integral part’ of the Union’s legal system46 or tacitly assumes that effect.47 70 As part of the EU law, international agreements concluded by the EU prevail over the domestic law of the Member States. 71 However, following the monist approach of the ECJ, international agreements keep their nature as instruments of public international law. Therefore, the provisions of such agreements are to be interpreted in the light of the rules of public international law, i.e. Art. 31 of the Vienna Convention on the Law of Treaties. That is what the ECJ did in its first opinion on the EEA Agreement.48 aa) Secondary law of the Union 72

An international agreement concluded by the EU or, with respect to mixed agrements, as far as it has been concluded based upon its treaty-making powers, constitutes ‘an act of its institutions’49 in the sense of Arts. 263 and 267 TFEU and, therefore, is part of the Union’s secondary law. Hence, the treaty-making procedure set forth in Art. 218 TFEU and its predecessors is a law-making procedure distinct from the internal law-making procedures. There is no room in the Treaty law to assume that international agreements obtain an intermediary position between primary and secondary law. bb) Primacy over autonomous legislation

According to the established case law, international agreements, though ‘integral part’ of EU law with the hierarchical rank of secondary law, prevail over ‘autonomous’ legislation, i.e. regulations, directives and decisions. The ECJ constantly reviews the legality of EU legislation in relation to the rules of international agreements binding the EU50 as well as those of international customary law.51 This approach implies that the agreements enjoy a higher rank than internal legislation of the EU. As a consequence, within the EU’s legal order, international agreements form part of secondary law with, however, a higher rank than internal legislation, i.e. a higher rank within the category of secondary law.52 74 The ECJ’s position results in the EU being obliged to comply with the rules of public international law binding the EU. Secondary legislation must, therefore, be in line with the provisions of the EU’s international agreements. In the 73

46 Case C-452/01, 23.9.2003, Ospelt, para. 27; Case T-115/94, 22.1.1997, Opel Austria, para. 101. 47 Case C-431/11, 26.9.2013, UK v. Council, paras. 52 et seq. 48 Opinion 1/91, 14.12.1991, EEA I, para. 14. 49 Opinion 1/91, 14.12.1991, EEA I, para. 38. 50 Since Joined Cases 21 to 24/72, 12.12.1972, International Fruit Company. 51 Case C-286/90, 24.11.1992, Poulsen and Diva; Case C-162/96, 16.6.1998, Racke. 52 Vöneky/Beylage-Haarmann, in: Grabitz/Hilf/Nettesheim (eds.), Das Recht der Europäischen Union, Art. 216 TFEU, para. 41.

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judicial procedures, available under Arts. 263 and 267 TFEU, any natural or legal person including non-EU based companies can challenge the validity of any piece of EU legislation for non-compliance with the Union’s international agreements,53 including the EEA Agreement. The ECJ reviewed the legality of EU legal acts in the light of provisions of the EEA in the seminal case Opel Austria.54 cc) Interpretation of European legislation in the light of its international agreements

In order to avoid a conflict of law between a piece of EU legislation and an 75 international agreement which would make the legal act null and void, the latter must be interpreted ‘in the light of’ or in conformity with the international instruments binding the EU.55 b) Direct effect

Under public international law international treaties establish rights and duties 76 of the parties to the treaty only, with the result that the EU and, in case of mixed agreements, the Member States are the only addressees of the provisions and, therefore, bound while natural and legal person are not. This is the same situation as with the provisions of the EU Treaties and directives, which, nevertheless, may have direct effect by virtue of European law. According to settled case law of the ECJ, provisions comprised in international agreements too can produce direct effect.56 Direct effect means that a natural or legal person can rely on a given provision of an international agreement before courts or administrative authorities of the Member States or the EU. The direct effect of a provision is the precondition for a conflict of law between such provision and either EU law or domestic law of the Member States which has to be resolved. The solution then lies in the primacy of EU law. In recent trade agreements concluded by the EU, non-direct-effect clauses 77 are often intended to exclude the possibility of provisions of the agreement having direct effect. The EEA Agreement does not contain such a provision. Protocol 35, which does not openly refer to primacy and direct effect,57 only applies to the EFTA States, calling them to make sure that EEA law prevails over domestic legislation. In order to find out whether a provision of an international agreement is di- 78 rectly applicable, the ECJ applies a two-step test the second of which is identical with regard to Treaty or directive provisions.

53 54 55 56 57

The compliance with WTO law, however, is reviewed by the ECJ to a limited extent only. Case T-115/94, 22.1.1997, Opel Austria, paras. 103 et seq. Case C-286/90, 24.11.1992, Poulsen and Diva, para. 9. State of the law since Case 104/81, 26.10.1982, Kupferberg I. Opinion 1/91, 14.12.1991, EEA I, para. 27.

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A provision has direct effect:

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‘when, regard being had to its wording and the purpose and nature of the agreement itself, the provision contains a clear and precise obligation which is not subject, in its implementation or effects, to the adoption of any subsequent measure.’58

The first condition looks at the overall content and nature of the agreement as a whole on the level and in the context of public international law. Here, the ECJ examines whether or not ‘the agreement, as a whole, interpreted in the light of its subject-matter and purpose’,59 i.e. according to its content and nature, is generally able to produce direct effect. This is merely a negative test because the bona fide performance of international commitments, which is required by public international law, has the effect that each party to the treaty must implement the obligations in the best possible way. Therefore, only under specific circumstances does an agreement exclude the possibility of its provisions having direct effect. According to the case law of the ECJ, trade agreements and, even more so, association agreements which mirror the Treaty provisions to a great extent and are designed to create close relations with the EU are able to produce direct effect.60 81 The second part of the test is the same as for provisions of the Treaties or directives, i.e. whether the particular provision in question is ‘unconditional and sufficiently precise’ to be applied directly.61 The answer depends on the clarity and certainty of the provision under examination. Abundant jurisprudence exists concerning association agreements of the EU in which the ECJ has acknowledged direct effect with respect to the four freedoms set forth in the agreements, this general line of case law can be found in the Opel Austria judgment of the (then) Court of First Instance with respect to Art. 10 EEA concerning the free movement of goods: 80

‘Article 10 thus lays down an unconditional and precise rule, subject to a single exception which is itself unconditional and precise. It follows that ever since the EEA Agreement entered into force Article 10 has had direct effect.’62

III. Conclusion

For the EU, the EEA is an indispensable completion of its pan-European treaty relations. 83 The EEA, as any other association, is strictly bilaterally structured with an EFTA pillar and an EU pillar under the umbrella of the EEA institutions. Each pillar has its own institutions. The EFTA States, as provided for in the EEA Agreement, have established their own EFTA institutions whereas the EU and its Member States make use of the EU institutions. 82

58 59 60 61 62

Case 12/86, 30.9.1987, Demirel, para. 14. Case C-280/93, 5.10.1994, Germany v Council (Banana-market organization), para. 105. For association agreements since Case 12/86, 30.9.1987, Demirel. Case 104/81, 26.10.1982, Kupferberg I, para. 23. Case T-115/94, 22.1.1997, Opel Austria, para. 102.

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The EEA Agreement is implemented in each of these pillars according to the 84 respective rules and procedures. Within the EU, the EEA Agreement and the EEA secondary law constitute secondary Union law with primacy over internal EU legislation and potential direct effect. EEA law, as part of the EU law, prevails over the law of the Member States. Today, the entire content included in the EEA Agreement is covered by the 85 exclusive treaty-making powers of the EU and, therefore, the participation of the Member States in form of a mixed agreement is no longer needed or justified. Within the EEA institutions, the Member States are succeeded by the EU and shall refrain from participating in the operation of these bodies. Therefore, the participation of the EU Member States in the EEA is reduced to a purely formal nature. The “requirement of unity in the international representation”63 compels the Member States to remove from the EEA Agreement at the next occasion.

63 See II.3.d), mn. 67 et seqq.

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EEA law in and beyond the text of the Main Part of the EEA Agreement I. Introduction – a reader’s guide to EEA Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Unwritten principles of EEA law . . . . . . III. The Protocols to the EEA Agreement – an overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. The Annexes to the EEA Agreement – an overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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V. The Surveillance and Court Agreement, the Standing Committee Agreement and other related agreements between the EFTA States . . . . . . . . . . . . . . .

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I. Introduction – a reader’s guide to EEA Law

The complex and multifaceted picture of EEA law is a challenge for any attempt to write an extensive commentary on the EEA Agreement. In this book, the comments on the provisions of the Main Part of the EEA Agreement are supplemented by comments on the Main Part of the Surveillance and Court Agreement1 as well as on the Main Part of the Agreement on a Standing Committee of the EFTA States.2 Other parts of EEA law – in the broad sense of the term – will be taken into account whenever relevant. However, an overview of key elements of EEA law that a reader of the Main Part of the EEA Agreement may easily overlook will be provided in the following, with further references to the relevant parts of the comments on the EEA Agreement, the Surveillance and Court Agreement and the Standing Committee Agreement. 2 The EEA Agreement is by far the largest and most complex international treaty that the participating EFTA States Iceland, Liechtenstein and Norway have ever entered into. It is also the most comprehensive agreement of association with third countries ever concluded by the EU and the Union’s Member States. The scope and magnitude of the EEA Agreement reflects its object and purpose: to extend the EU internal market to include the EFTA States.3 3 At the time of signing, 1.875 EC legal acts were part of the Agreement. Since then, almost 10.000 EU legal acts have been incorporated by decisions of the EEA Joint Committee and more than 1.000 others have been incorporated by simplified procedure in the veterinary area.4 Out of all these acts, around half are currently in force in the EEA, putting the number of EU legal acts to be found in the Annexes and Protocols of the Agreement at around 6.000.5 The magnitude of this figure is due to the fact that the participation of the EFTA States in the 1

1 Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice, signed in Porto on 2 May 1992 (with later amendments). 2 Agreement on a Standing Committee of the EFTA States, signed in Porto on 2 May 1992 (with some later amendments). 3 See further the comments by Arnesen and Fredriksen on Art. 1 EEA in Part II of this book. 4 See Annex I to the EEA Agreement, Section I, Points 7, 8 and 13, and Annex II, Section XII, Point 54zzzc. The simplified procedure is further commented on by Dystland, Finstad and Sørebø in their comments on Art. 98 EEA in Part II of this book. 5 Source: EEA-Lex, available at www.efta.int/eea-lex.

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internal market requires the incorporation into the Agreement of not only EU legislative acts (as defined in Art. 289 TFEU), but also vast numbers of delegated acts, implementing acts, targeted decisions and recommendations. The EEA Agreement is structured in a way that is to some extent reminiscent of the architecture of EU law. It consists of a Main Part (with 129 Articles), 22 Annexes dealing with EEA-relevant EU secondary law, 52 Protocols6 with special rules under EEA law (and some more secondary EU law) and a Final Act with various declarations by the Contracting Parties that may be of significance to the interpretation of the Agreement. Like the EU treaties, the Main Part of the EEA Agreement contains not only provisions concerning institutions, loyal cooperation, decision-making procedures, incorporation of EU legal acts into the national legal orders, settlement of disputes etc., but also the most important substantive rules. These include the general prohibition against discrimination on grounds of nationality (Art. 4 of Part I) and the basic provisions on the four freedoms (Part II on the free movement of goods and Part III on the free movement of persons, services and capital), as well as the basic provisions on competition (Part IV), both concerning undertakings (Chapter 1) and State aid (Chapter 2). The details – as laid out in secondary EU law – are then found in the various Annexes and Protocols. At least at first sight, a further parallel to EU law lies in the fact that the written rules of the EEA Agreement must be supplemented by a number of unwritten general principles. Their legal basis and relationship to the general principles of EU law are not very clear and they are still a matter of academic debate, but there is general agreement in case law and the literature that the objective of securing a homogeneous EEA means that the general principles of EU law form part of EEA law so long as this is not irreconcilable with the provisions and characteristics of the EEA Agreement (see further Section II below). However, the prima facie resemblance to the structure of EU law can be rather misleading for a number of reasons. Firstly, the relationship between the Main Part of the EEA Agreement and the EU legal acts incorporated into the 22 Annexes is different from the relationship between primary and secondary EU law. According to the definition provided in Art. 2(a) EEA, ‘the term "Agreement" means the Main Agreement, its Protocols and Annexes as well as the acts referred to therein’, and Art. 119 EEA makes it clear that the Annexes (and Protocols) form ‘an integral part’ of the Agreement. Thus, despite the EFTA Court’s rather unfortunate introduction of the term ‘primary EEA law’ in some decisions a few years ago,7 there is no such thing as a formal hierarchy of ‘primary’ and ‘secondary’ EEA law mirroring that found in EU law.8 Tellingly, the Contracting Parties decided to place a number of important derogations from provisions of the Main Part of the 6 At the time of its entry into force, the EEA Agreement contained 49 protocols, but extensions of the EEA Financial Mechanism since then have necessitated the addition of Protocols 38 a, 38 b and 38 c.

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Agreement in various Annexes. Of particular importance to Iceland and Norway are the derogations found in the Annexes on the right of establishment and the free movement of capital, which state that, notwithstanding Arts. 31 to 35 and 40 EEA, Iceland and Norway may continue to apply restrictions existing on the date of signature of the EEA Agreement on the establishment of non-nationals in fishing operations or companies owning or operating fishing vessels, as well as on foreign ownership and/or ownership by non-residents in the fisheries and fish processing sectors.9 9 It must be added, however, that the lack of a hierarchy between the Main Part and the Annexes matters relatively little in practice. The EEA Agreement’s overarching objective of uniform interpretation within the EU and the EEA of secondary EU law that has been incorporated into the Agreement requires that the hierarchy of EU law be taken into account as far as possible when interpreting EEA law. Thus, an EU legal act found in an Annex to the EEA Agreement is first to be interpreted as a matter of EU law, taking the hierarchical structure of EU law fully into account. Thereafter, the homogeneity objective provides the legal basis for transferring the proper EU law interpretation to the EEA setting. Exceptionally, there may be differences in scope and purpose between EEA law and EU law that hinder this transfer,10 but this will be straightforward in most cases concerning legal acts that are simply taken over from EU law. It can safely be assumed that the EEA Joint Committee intended the legal act in question to be interpreted in the same manner in EEA law as in EU law, regardless of the underlying reason for the EU law interpretation. Nevertheless, for lawyers accustomed to the hierarchy of EU law, it is important to stress the need to always check for possible derogations or other special arrangements in the Annexes to the EEA Agreement. 10 Secondly, there are several important fields of EEA law that are scarcely visible at all in the Main Part of the Agreement. Quite a number of the provisions found in the Main Part largely, and sometimes even solely, refer the reader to the relevant Annexes and/or Protocols. Examples include the provisions on agriculture and fisheries (Part II, Chapter 2 – Arts. 17-20 EEA); on transport (Part III, Chapter 6 – Art. 47 EEA), and on public procurement and intellectu7 Case E-7/11, 30.3.2012, Grund, para. 82; Case E-9/11, 16.7.2012, ESA v Norway, para. 72; Case E-3/12, 20.3.2013, Jonsson, para. 57. The EFTA Court’s point in these cases is simply that provisions of secondary EU law that have been incorporated into the Annexes of the EEA Agreement must be interpreted in light of the provisions in the Main Part of the Agreement that correspond to provisions found in the EU Treaties in order to maintain homogeneity between EU and EEA law. After the problems associated with the introduction of ‘primary EEA law’ as a concept in EEA law were pointed out in the literature, the EFTA Court seems to have refrained from further use of the term. 8 See the comments by Arnesen on Art. 119 EEA in this book, as well as Fredriksen, ‘EEA Main Agreement and Secondary EU Law Incorporated into the Annexes and Protocols’, in: Baudenbacher (ed.), The Handbook of EEA Law, pp. 95-109, on pp. 98-106. 9 Annex VIIII (Right of Establishment), Points 9 and 10, and Annex XII (Free Movement of Capital) Point 1 letters g and h. 10 See, in general, Joined Cases E-9/07 and E-10/07, 8.7.2008, L'Oréal, paras. 27 and 31 ff.

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al property rights (Part IV, Chapter III – Art. 65 EEA), but even more so in the case of Part V on so-called horizontal provisions relevant to the four freedoms. The provisions on social policy (Chapter 1); consumer protection (Chapter 2); environment (Chapter 3); statistics (Chapter 4) and company law (Chapter 5) are largely only of an informative nature as they only direct the reader to the relevant Annexes and/or Protocols.11 As to Part VI on cooperation outside the four freedoms, the provisions of the Main Agreement (Art. 78 EEA et seq.) do not themselves contain any substantive rules of a judicially enforceable nature: all of the substance is found in Protocol 31. If one adds the unfortunate fact that the Main Part of the EEA Agreement has 11 not been amended to reflect developments in the EU treaties brought about by the Treaties of Maastricht, Amsterdam, Nice and Lisbon, the result is that the text of the Main Agreement leaves the reader with a rather inaccurate and outdated picture of EEA law. Examples include the EEA Joint Committee’s decision in 1998 to incorporate the entire body of EU veterinary and phytosanitary law into Annex I,12 the decision in 2007 to incorporate the EU Emissions Trading Scheme into Annex XX (Environment)13 and the decision in 2007 to incorporate the EU Citizenship Directive into Annexes V (Free movement of workers) and VIII (Establishment).14 None of these significant developments of EEA law are reflected in the text of the Main Agreement. Thirdly, the distinctive two-pillar structure of the EEA Agreement further 12 complicates any attempt to convey the full picture of EEA law (in the broad sense of the term). As regards the EFTA States, the obligation to establish an independent surveillance authority (the EFTA Surveillance Authority – ESA) and a separate court of justice (the EFTA Court)15 was complied with by the Surveillance and Court Agreement (SCA).16 Furthermore, the obligation on the EFTA States to speak with one voice when decisions are to be taken in the EEA Council (Art. 90(2) EEA) or, more practically, in the EEA Joint Committee (Art. 93(2) EEA) necessitated the establishment of a Standing Committee of the EFTA States.17 Like the Surveillance and Court Agreement, the Agreement on a Standing Committee of the EFTA States is a separate agreement under public international law between the EFTA States only. Further still, the EEA Agreement’s establishment of an EEA Joint Parliamentary Committee (Art. 95 11 Albeit with some exceptions: Art. 69 EEA establishes the principle that men and women should receive equal pay for equal work and Art. 73 EEA is the legal basis for the precautionary principle in environmental law as well as the principle that the polluter pays. 12 Decision of the EEA Joint Committee No 69/1998. 13 Decision of the EEA Joint Committee No 146/2007. 14 Decision of the EEA Joint Committee No 158/2007. 15 See Art. 108 EEA. 16 Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice, signed in Porto on 2 May 1992 (with later amendments). For details, see Part III of this book. 17 Agreement on a Standing Committee of the EFTA States, signed in Porto on 2 May 1992 (with some later amendments). For details, see Part IV of this book.

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EEA) and an EEA Consultative Committee (Art. 96 EEA) caused the EFTA States to establish a Committee of Members of Parliament of the EFTA States18 and to reform the existing EFTA Consultative Committee.19 13 Additional complexity follows from the fact that the various institutions in the EFTA pillar have adopted further rules on their own, some of which are also of relevance to individuals and economic operators. One prominent example is ESA’s Rules on public access to documents, which have been at issue before the EFTA Court in several cases. In a controversial ruling in Case E-14/11 DB Schenker I, the EFTA Court held that, even though the rules on public access to ESA documents were adopted by ESA on its own motion, they were nonetheless ‘part of EEA law’ (and therefore within the Court’s jurisdiction) and fell to be interpreted in line with the essentially corresponding provisions of Reg. (EC) No 1049/2001 regarding public access to European Parliament, Council and Commission documents.20 The EFTA Court based this finding on ‘principles of transparency and good administration common to, and fostered by, the democratic traditions of the EEA/EFTA States’, ‘the objective of establishing a dynamic and homogeneous European Economic Area’ and ‘reasons of reciprocity’.21 Presumably as a result of the proceedings before the EFTA Court, ESA adopted new Rules on access to documents in 2012, introducing certain deviations from the provisions found in Reg. (EC) No 1049/2001 and leaving out any reference to the EU rules in the decision’s preamble.22 In Case E-5/13 DB Schenker V, the EFTA Court acknowledged ESA’s right to change the rules on the right of public access to documents held by it (as long as the EEA Joint Committee has not adopted any such rules), but made it clear that ESA’s discretion in this regard is limited by ‘the general principles of EEA law’, in particular the principles of procedural homogeneity, good administration and respect for fundamental rights, and that ESA’s decision in the case at hand, even if in full compliance with its self-imposed rules on public access, would have to be regarded as unlawful if it in fact resulted in a negation of ‘the essential substance’ of those rights and principles.23 Thus, while not part of the EEA Agreement as such, ESA’s rules on access to documents form part of EEA law in the broad sense of the term.

18 Agreement on a Committee of Members of Parliament of the EFTA States, signed in Reykjavik on 20 May 1992 (with some later amendments). For details, see the comments by Tynes on Art. 95 EEA in Part II of this book. 19 See EFTA Consultative Committee Rules of Procedure, adopted in connection with the CC’s 95th meeting on 25 March 1996 (see http://www.efta.int/advisory-bodies/consultative-committee). For details, see the comments by Tynes on Art. 96 EEA in Part II of this book. 20 Case E-14/11, 21.12.2012, Schenker I, paras. 116-121. Reg. (EC) No 1049/2001 has not been incorporated into the EEA Agreement. 21 See further the comments by Bjørgan on Art. 13 SCA in Part III of this book. 22 See Decision No 300/12/COL of 5 September 2012 to adopt revised Rules on public access to documents, and repealing Decision 407/08/COL. 23 Case E-5/13, 7.7.2014, DB Schenker V, paras. 62-67.

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Finally, the full picture of EEA law also includes a number of EU rules regu- 14 lating the EU institutions’ handling of EEA-related matters. Of particular importance is Reg. (EC) 2894/94 concerning arrangements for implementing the Agreement on the European Economic Area, although important rules on the handling of EEA-related matters are also found in, e.g., the Statute and the Rules of Procedure of the ECJ and in the legal framework for the steadily rising number of EEA-relevant EU agencies. II. Unwritten principles of EEA law

The debate about unwritten legal principles as part of EEA law has been 15 with the EEA Agreement from the very beginning. It is intrinsically linked to the equally long and hard-fought debate over the true ‘character’ or ‘nature’ of the EEA Agreement – is it an ‘ordinary’ treaty under international public law or rather a ‘constitutional’ treaty that contains a distinct legal order of its own?24 To some, the answer given to this question will further impact on the method of interpretation of the Agreement – is the EEA Agreement to be interpreted according to the customary international law rules on treaty interpretation codified in the 1969 Vienna Convention on the Law of Treaties, or according to a more dynamic method of interpretation, resembling those favoured by national supreme and constitutional courts as well as by the ECJ when interpreting EU law? More than 20 years after the entry into force of the Agreement, these ques- 16 tions may at first sight seem to be long settled. Already in Case E-9/97 Sveinbjörnsdóttir, the EFTA Court famously declared the EEA Agreement ‘an international treaty sui generis which contains a distinct legal order of its own’ and, apparently on this basis, deduced from its object and purpose an unwritten 24 See, e.g., van Gerven, ‘The Genesis of EEA Law and the Principles of Primacy and Direct Effect’, Fordham International Law Journal (1992), pp. 955-989; Sevón, ‘Primacy and Direct Effect in the EEA – some reflections’, in: Festskrift Ole Due, 1994, pp. 340-352; Sejersted, ‘Between Sovereignty and Supranationalism in the EEA Context – on the Legal Dynamics of the EEA Agreement’, in: Müller-Graff/Selvig (eds.), The European Economic Area, 1997, pp. 43-74, on pp. 54-58; Baudenbacher, ‘Between Homogeneity and Independence: The Legal Position of the EFTA Court in the European Economic Area’, Colombia Journal of European Law (1997) pp. 169-227; Baudenbacher, ‘The Legal Nature of EEA Law in the Course of Time. A Drama in Six Acts, and More May Follow’, in: Afmaelsrit Thór Vilhjálmsson 2000, pp. 39-64; Graver, ‘Mission Impossible: Supranationality and National Legal Autonomy in the EEA Agreement’, European Foreign Affairs Review (2002) pp. 73-90; Baudenbacher, ‘Facets of an EEA Constitutional Order’, in: Colneric et al. (ed.), Une communauté du droit – Festschrift Gil Carlos Rodrigues Iglesías, 2003, pp. 343-359; Fenger ‘Limits to a dynamic homogeneity between EC law and EEA law’, in: Fenger et al. (eds.), Festschrift Claus Gulmann, 2006, pp. 131-154; Bekkedal, Frihet, likhet og fellesskap, 2008, pp. 127-147; Sejersted et al., EØS-rett, pp. 107-114; Fredriksen, ‘Bridging the Widening Gap between the EU treaties and the Agreement on the European Economic Area’, European Law Journal (2012) pp. 868-886; Burri og Pirker, ‘Constitutionalization by Association? The Doubtful Case of the European Economic Area’, Yearbook of European Law (2013) pp. 1-23; Fredriksen and Mathisen, EØSrett, pp. 29-32 and Arnesen, ‘The EEA – another distinct legal order of its own?’, SIMPLY – Scandinavian Institute of Maritime Law Yearbook 2016, pp. 109-129.

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principle of State liability for loss caused to individuals as a result of violations of EEA law.25 Since then, a long list of general principles of EEA law have been identified and articulated by the EFTA Court.26 Furthermore, none of the almost 300 decisions rendered by the EFTA Court since 1994 include any reference to the Vienna Convention on the Law of Treaties or to the customary international law rules on treaty interpretation. This is certainly no coincidence – according to its president, the EFTA Court has deliberately avoided what he sees as the Vienna Convention’s ‘conservative’ rules.27 17 Further, and of fundamental importance: the outcomes reached by the EFTA Court by virtue of its dynamic method of interpretation have been accepted by the EFTA States as well as (perhaps less surprisingly) by the EU side. The litmus test in this regard was the principle of State liability, which won acceptance from all of the supreme courts of the EFTA States (after an invaluable endorsement by the ECJ in an obiter dictum in Case C-140/97 Rechberger)28 and which is now a well-established part of EEA law.29 18 However, the general acceptance of the outcomes reached by the EFTA Court may to a certain extent serve to conceal still existing disagreement about the ‘character’ or ‘nature’ of the EEA Agreement and the appropriate method for its interpretation. To many Nordic lawyers, the ‘grandeur’ inherent in descriptions of the EEA as a sui generis legal order with its own unwritten principles simply does not match the reality – the EEA Agreement is no more than an agreement of association that attempts to integrate the EFTA States into the internal market of the EU. Thus, characterising the EEA as a distinct legal order does not in itself contribute anything to the discussion about unwritten principles of EEA law – their legal basis must be found in the purposes and structure of the EEA Agreement, notably in the Agreement’s overarching objective of dynamic homogeneity between EU and EEA law, not in a philosophical meta-discussion about the legal ‘nature’ of EEA law.30 Behind this criticism of the approach taken by the EFTA Court lies the still widespread scepticism in the Nordic legal tradi25 Case E-9/97, 10.12.1998, Sveinbjörnsdóttir. 26 For an overview, see Hreinsson, ‘General Principles’, in: Baudenbacher (ed.), The Handbook of EEA Law, pp. 349-388. 27 Baudenbacher, The EFTA Court in Action, 2010, pp. 49-50; Baudenbacher, ‘The EFTA Court: Structure and Tasks’, in: Baudenbacher (ed.), The Handbook of EEA Law, pp. 139-178, on pp. 172-173. 28 Case C-140/97, 15.6.1999, Rechberger, para. 39, followed by the judgment of the Supreme Court of Iceland, 16.12.1999, in Case 236/1999 Sveinbjörnsdóttir; the judgment of the Supreme Court of Norway, 28.10.2005, in Case 2005/412 Finanger II and, finally, the judgment of the Supreme Court of Liechtenstein, 7.5.2010, in Case CO.2004.2 Dr. Tschannet II. 29 An overview of the rather heated discussion in the wake of Sveinbjörnsdóttir is provided by Fredriksen, ‘The EFTA Court and the Principle of State Liability: Protecting the Jewel in the Crown’, in: EFTA Court (ed.), The EEA and the EFTA Court: 2014 pp. 317-334. 30 See, e.g., Bekkedal, Frihet, likhet og fellesskap (Oslo, 2008), p. 137; Sejersted et al., EØS-rett, p. 113; Fredriksen, ‘Bridging the widening gap between the EU treaties and the agreement on the European Economic Area’ (2012) European Law Journal 868–886, on p. 881; Fredriksen and Mathisen, EØS-rett, p. 31; Arnesen, ‘The EEA – another distinct legal order of its own?’, SIMPLY – Scandinavian Institute of Maritime Law Yearbook 2016, pp 109-129.

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tion towards unwritten ‘principles’ as a basis for legal rights and obligations.31 In short, unwritten legal principles are simply regarded as legally relevant considerations whose importance is perceived to be more or less generally accepted, but whose weight in a legal debate does not increase merely because they are referred to as ‘principles’.32 Thus, neither the objective of dynamic homogeneity between EU and EEA law, nor the reasons of reciprocity referred to in the fourth recital of the Preamble to the EEA Agreement, increase their impact on the interpretation and application of EEA law simply because the EFTA Court refers to them as fundamental principles of EEA law. Arguably, the longer the list of general principles becomes, the less convincing the legal reasoning in which they are cited may seem to Nordic lawyers – at least if it is difficult to understand why certain considerations are elevated to the level of principles while others are not. The disagreement as to the ‘character’ or ‘nature’ of the EEA Agreement and 19 the appropriate method for its interpretation resurfaces in debates about certain ‘EEA-specific’ questions that test the outer limits of the objective of dynamic homogeneity between EU and EEA law. Examples from the last few years include the discussion about a possible unwritten obligation on the highest national courts of the EFTA States to refer questions of interpretation of the EEA Agreement to the EFTA Court;33 the discussion about the character and legal effect of the EFTA Court’s Advisory Opinions;34 the legal basis for analogous application of the Citizenship Directive;35 the still unresolved question about the geographical scope of EEA law;36 the legal basis for ESA’s obligation to adopt rules on public access to its documents mirroring those found in EU law by virtue of Reg. (EC) No. 1049/2001,37 and ESA’s recent argument for the ‘priority of implemented EEA rules over other national law’ as ‘a principle which follows directly from the EEA Agreement’, apparently unfettered by the limits of Protocol 35 on the implementation of EEA rules and the national implementation thereof.38 Several of these discussions relate to the EFTA Court’s introduc31 See the view from the outside offered by Zweigert and Kötz in their Introduction to Comparative Law, 3rd Ed, OUP 1998 (translated by Weir), p. 285: ‘the tendency to undue conceptualism and the construction of large-scale integrated theoretical systems has never really been followed in the North, thanks to the realism of the Scandinavian lawyers and their sound sense of what is useful and necessary in practice.’. 32 Influential books that confirm that this is still a view held by leading authors include Backer, Norsk sivilprosess, Oslo 2016, pp. 88-89 and Smith, Konstitusjonelt demokrati, 3rd ed., Bergen 2015, pp. 109-110. 33 See further the comments by Franklin on Art. 3 EEA and by Christiansen on Art. 34 SCA. 34 See Baudenbacher, ‘The EFTA Court: Structure and Tasks’, in: Baudenbacher (ed.), Handbook of EEA Law, pp. 139-178, who argues that the EFTA Court’s Advisory Opinions are of a sui generis nature (on p.160). See further the comments by Christiansen on Art. 34 SCA in Part III of this book. 35 For very different views on the EFTA Court’s approach in Case E-28/15, 26.7.2016, Jabbi, see the comments by Wennerås on Art. 6 EEA, by Fløistad on Art. 28 EEA and by Einarsson on Art. 31 EEA. 36 See the comments by Arnesen on Art. 126 EEA. 37 Case E-5/13, 7.7.2014, DB Schenker V, discussed in Section I above.

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20

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tion of reciprocity as ‘a fundamental principle of EEA law’ in Case E-12/13 ESA v Iceland,39 a characterisation whose legal significance remains doubtful at best.40 The ‘Brexit’ decision by UK voters in 2016 has contributed to renewed interest in the more ‘traditional’ public international law elements of the EEA Agreement, such as the procedures for leaving the EEA, the conditions for being accepted as a new EEA State and the conditions for implementing unilateral safeguard measures (as well as possible reactions by the other Contracting Parties).41 Furthermore, certain recent contributions to the literature have taken a distinctly less dynamic approach to key questions of EEA law, apparently in an attempt to ‘sell’ the EEA as an option for the UK after Brexit.42 The reasons why the EEA Agreement has managed just fine for nearly 25 years, despite differing views on the Agreement’s ‘nature’, methods of interpretation and ability to bring forth unwritten principles of law, are twofold. Firstly, the disagreement matters little in the vast majority of cases that fall firmly within the command of the Agreement’s overarching objective of homogeneity between EU and EEA law. There is general agreement in case law and literature that the objective of securing a homogeneous EEA entails that the general principles of EU law form part of EEA law so long as they are not irreconcilable with the provisions and characteristics of the EEA Agreement.43 Thus, acceptance of the EEA as a sui generis legal order with its own unwritten principles is not necessary in order to agree that the general principles of EU law have to be taken into account when interpreting and applying EEA law. A telling example is the recognition of fundamental rights as general principles of EEA law. There is no provision in the EEA Agreement mirroring the fundamental rights clause now found in Art. 6 TEU, and nor has the EU Char-

38 See ESA Decision No 91/16/COL: Letter of formal notice to Iceland concerning the implementation of Directive 2001/24/EC on reorganisation and winding-up of credit institutions in Iceland, following an EFTA Court judgment and recent judgments by the Supreme Court of Iceland, 6 July 2017 (Case 77038). 39 Case E-12/13, 11.2.2014, ESA v Iceland, para. 68. The characterisation is endorsed by Baudenbacher (who did not himself sit in the case) in his contribution ‘The EFTA Court: Structure and Tasks’, in: Baudenbacher (ed.), Handbook of EEA Law, pp. 139-178, on p. 145, and by Hreinsson (who did) in his contribution ‘General Principles’, in: Baudenbacher (ed.), Handbook of EEA Law, pp. 349-389, on p. 354. 40 See further, on this matter, the comments by Arnesen and Fredriksen on the fourth recital of the Preamble to the EEA Agreement. 41 See, e.g., Schroeter and Nemeczek, ‘The (Uncertain) Impact of Brexit on the United Kingdom’s Membership in the European Economic Area’, (2016) European Business Law Review, pp. 921-958. 42 See, e.g., Baudenbacher, ‘After Brexit: is the EEA an option for the United Kingdom?’, (2016) European Law Reporter, pp. 134-142; Burke, Hannesson and Bangsund, ‘Life on the Edge: EFTA and the EEA as a Future for the UK in Europe’, 22 (2016) European Public Law, pp. 69-96; Clifton, ‘EEA: Another Side to Europe’, (2016) European Law Reporter, pp. 174-186. 43 See, e.g., Hreinsson, ‘General Principles’, in: Baudenbacher (ed.), The Handbook of EEA Law, pp. 349-388, on p. 356; Fredriksen and Mathisen, EØS-rett, pp. 29-30; Sejersted et al., EØSrett, pp. 105-107.

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ter of fundamental rights been incorporated into the EEA Agreement or in any other way formally recognised by the EFTA States. Still, there is general agreement in case law and the literature that EEA law is to be interpreted and applied in conformity with fundamental rights.44 However, the legal reasoning leading up to this conclusion differs. To some, adherence to the fundamental rights already recognised as general principles of EU law follows directly from the homogeneity objective,45 whereas others sees the legal basis as deriving from the common constitutional traditions of the Contracting Parties and the fact that all of the EEA States are parties to the European Convention on Human Rights (ECHR).46 So far, this underlying disagreement has not caused any problems in practice, but the EFTA Court’s ECHR-centred approach could perhaps run into difficulties in the event that the existing tensions between the European Court of Human Rights (ECtHR) and the ECJ should lead to divergences between the ECtHR’s interpretation of the ECHR and the ECJ’s interpretation of more or less similar provisions of the EU Charter of Fundamental Rights.47 Secondly, the disagreement on the EEA Agreement’s ‘nature’, methods of in- 24 terpretation and ability to bring forth unwritten principles was originally almost entirely focused on possible EEA equivalents to the EU law principles governing the effect of EU law within the legal orders of the Member States – in particular the EU law principles of direct effect and primacy.48 However, this debate was largely settled through the pragmatic ‘Sveinbjörnsdóttir compromise’: the attempts to ‘transfer’ the EU law principles of direct effect and primacy to EEA law were rejected, but the practical effect was largely mitigated through the recognition of the EU law principles of State liability and consist44 See, e.g., Björgvinsson, ‘Fundamental Rights in EEA Law’, in: EFTA Court (ed.), The EEA and the EFTA Court – Decentred Integration, pp. 263-280 (with further references). 45 See, e.g., Fenger, Rydelski and van Stiphout, EFTA and EEA, p. 81. This approach was suggested already in 1993 by Kälin, ‘EWR-Abkommen und Europäische Menschenrechtskonvention’, in: Jacot-Guillarmod (ed.), Accord EEE, pp. 653-666. 46 Baudenbacher, ‘Zur Auslegung des EWR-Rechts durch den EFTA-Gerichtshof’, in: Müller, Osterloh and Stein (eds.), Festschrift für Günter Hirsch, München 2008, pp. 27–50 (on p. 46): ‘Insgesamt ist festzustellen, dass der EFTA-Gerichtshof seine Grundrechtsrechtsprechung nicht gestützt auf Homogenitätsüberlegungen, sondern in freier Rechtsfindung unter direkter Bezugnahme auf die EMRK und die Rechtsprechung des EMRGH entwickelt hat’ (italics added). 47 See the comments by Arnesen and Fredriksen on the first recital of the Preamble to the EEA Agreement. 48 See, e.g., van Gerven, ‘The Genesis of EEA Law and the Principles of Primacy and Direct Effect’, Fordham International Law Journal (1992), pp. 955-989; Sevón, ‘Primacy and Direct Effect in the EEA – some reflections’, in: Festskrift Ole Due, 1994, pp. 340-352; Sejersted, ‘Between Sovereignty and Supranationalism in the EEA Context – on the Legal Dynamics of the EEA Agreement’, in: Müller-Graff/Selvig (eds.), The European Economic Area, 1997, pp. 43-74, on pp. 54-58; Baudenbacher, ‘Between Homogeneity and Independence: The Legal Position of the EFTA Court in the European Economic Area’, Colombia Journal of European Law (1997) pp. 169-227; Baudenbacher, ‘The Legal Nature of EEA Law in the Course of Time. A Drama in Six Acts, and More May Follow’, in: Afmaelsrit Thór Vilhjálmsson 2000, pp. 39–64; Graver, ‘Mission Impossible: Supranationality and National Legal Autonomy in the EEA Agreement’, European Foreign Affairs Review (2002) pp. 73-90.

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ent interpretation of national law.49 The acceptance of this compromise by the Contracting Parties has taken much of the heat out of the debate.50 25 Nevertheless, as mentioned above, the disagreement as to the ‘character’ or ‘nature’ of the EEA Agreement and the appropriate method for its interpretation tends to resurface in debates about certain ‘EEA-specific’ questions that test the outer limits of the objective of dynamic homogeneity between EU and EEA law. When addressing these matters, it is important to bear in mind that, upon closer scrutiny, the EFTA Court’s case law is not quite so definitive in its reliance on dynamic homogeneity as the lack of references to the customary international law rules on treaty interpretation may lead one to think. The EFTA Court has not only declined invitations to deduce EEA equivalents to the EU law principles of direct effect and primacy from the Agreement’s object and purpose (or from its own characterisation of the EEA as a sui generis legal order), it has also on occasion explicitly ruled out dynamic interpretation of certain provisions of the Agreement. The leading case is Pedicel, where the Court was invited to broaden the product coverage of EEA law through an interpretation of the term ‘technical barriers to trade’ in Art. 18 EEA in line with the term ‘measures having equivalent effect’ to quantitative restrictions in Art. 11 EEA.51 The Court replied that the objective of creating a dynamic and homogeneous EEA ‘may make a dynamic interpretation of EEA law necessary’, but then concluded that this could not apply to the rules on the product coverage of the Agreement: ‘The Court cannot hold that Article 11 EEA applies to trade in wine since this would amount to extending the scope of the Agreement.’52 26 The refusal to engage in ‘dynamic interpretation’ of the rules on the product coverage of the EEA Agreement is certainly convincing, but Pedicel inevitably raises the question of which other parts of EEA law fall to be interpreted in a less dynamic manner.53 The simple answer is that this depends on the reach of the EEA Agreement’s overarching (but not limitless) objective of dynamic homogeneity between EU and EEA law, generally referred to in case law and the literature as the (fundamental) principle of homogeneity. Unfortunately, this does not really help much in ‘hard cases’ since the outer reach of the principle of homogeneity remains disputed.54 Still, valuable guidance can be found in the

49 See, e.g., Baudenbacher, ‘If Not EEA State Liability, Then What? Reflections Ten Years after the EFTA Court's Sveinbjörnsdóttir Ruling’, 10 Chicago Journal of International Law (2009) pp. 333–358. 50 Even though the debate on the effect of EEA law within the legal orders of the dualist EFTA States is unlikely to ever be completed, see further Fredriksen and Franklin, ‘Of Pragmatism and Principles – The EEA Agreement 20 Years On’, 52 Common Market Law Review (2015) pp. 629–684 (on pp. 661 ff.) and the comments by Dystland, Finstad and Sørebø on Art. 7 EEA. 51 Case E-4/04, 25.2.2005, Pedicel. 52 Para. 28. 53 It may, e.g., be argued that the EFTA Court’s extension of the personal scope of EEA law through analogous application of the Citizenship Directive in Case E-28/15, 26.7.2016, Jabbi sits rather uncomfortably alongside Pedicel.

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EFTA Court’s general presumption in favour of homogeneity between EU and EEA law and the inherent requirement of ‘compelling grounds’ to interpret EEA law provisions differently from corresponding provisions of EU law.55 In short, the general principles of EU law must be taken into account when interpreting and applying EEA law, so long as there are no ‘compelling grounds’ to the contrary. Perhaps somewhat paradoxically, at least if seen in light of the lack of any 27 references in the case-law of the EFTA Court to the customary international law rules on treaty interpretation, this approach to the interpretation of the EEA Agreement appears to be fully in line with the 1969 Vienna Convention on the Law of Treaties.56 The extent to which the method of interpretation used by the ECJ when interpreting EU law is to be applied to the EEA Agreement is dependent on the objectives of the EEA Agreement and may thus vary from one part of the Agreement to another.57 Regardless of whether the unwritten parts of EEA law are regarded as origi- 28 nal EEA law principles or primarily as EU law principles applicable in the EEA by virtue of the object and purpose of the EEA Agreement, any presentation of EEA law would be incomplete if limited to written law. This is obviously a challenge for any attempt to write a commentary on the EEA Agreement. In this book, the unwritten parts of EEA law will be taken into account whenever relevant. However, the following reader’s guide may be helpful: – The principle of homogeneity is dealt with throughout the book and in virtually all contributions. The most in-depth analysis is found in the comments by Wennerås on Art. 6 EEA. The reach of the homogeneity principle nevertheless remains contentious and the reader should therefore be aware that different contributors may well have slightly differing views on the limits to homogeneity. – The principle of reciprocity is touched upon by several contributors. Its only textual basis in the EEA Agreement is in the fourth recital of the Preamble, and it is thus analysed in some depth in the comments thereon. However, 54 See further the extensive and very critical analysis of the homogeneity principle by Wennerås in his comments on Art. 6 EEA. 55 Joined Cases E-9/07 and 10/07, L’Oréal, para 31. 56 See the instructive analysis by AG Cruz Villalón in Case C-221/11, 11.4.2013, Demirkan (concerning the EEC-Turkey Association Agreement): ‘According to that case-law [of the ECJ], the similarity or even uniformity between the wording of provisions of an agreement with a non-member country and the corresponding provisions of the Union Treaties does not in itself suffice to extend the case-law on the provisions of the Union Treaties to the agreement with the non-member country. Instead, entirely in accordance with Article 31 of the Vienna Convention on the Law of Treaties, the possibility of extension is dependent on the objectives of the relevant agreements’ (para. 62, emphasis added). 57 This seems to be the view also advocated by Hreinsson, ‘General Principles’, in: Baudenbacher (ed.), The Handbook of EEA Law, pp. 349-388, at. p. 353: ‘A uniform and homogeneous interpretation and application of the EEA Agreement usually precludes the EFTA Court from using Articles 31 and 32 of the Vienna Convention where Articles 6 EEA and 3(2) SCA apply.’ (emphasis added).

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reciprocity is closely related to homogeneity and therefore also discussed, e.g. by Wennerås in his comments on Art. 6 EEA. The EU law principles of direct effect and primacy and their status under EEA law are discussed by Dystland, Finstad and Sørebø in their comments on Art. 7 EEA. The principle of State liability has already been mentioned and its origin and legal basis will also be discussed, e.g. in the comments on the Preamble of the EEA Agreement (the important eighth recital on individual rights). However, the details of the conditions for the liability of the EEA States are discussed by Poulsen in his comments on Art. 46(2) SCA. This is the provision on ESA’s non-contractual liability (essentially the EFTA pillar equivalent to Art. 340(2) TFEU). The link between the liability of ESA and of the EEA States makes this the natural place to also discuss the conditions for the liability of the States. The principle of consistent interpretation of national law is discussed, e.g. by Franklin in his comments on Art. 3 EEA and by Dystland, Finstad and Sørebø in their comments on Art. 7 EEA. Fundamental rights are only mentioned once in the text of the Main Part of the EEA Agreement, namely the short reference in the Preamble’s first recital to the construction of ‘a Europe based on peace, democracy and human rights’. The acknowledgment of fundamental rights as general principles of EEA law is thus discussed in the comments on the Preamble. However, the role of fundamental rights is also discussed elsewhere, in particular in the comments on the four freedoms and on the competition rules. The principles of effectiveness and equivalence are discussed, e.g. by Franklin in his comments on Art. 3 EEA and by Dystland, Finstad and Sørebø in their comments on Art. 7 EEA. The principle of proportionality is dealt with by several commentators, in particular those commenting on the provisions concerning the four freedoms.

In addition to the unwritten principles listed above, several important principles of EU law have a clear textual basis in the EEA Agreement. The list includes the principle of loyalty (Art. 3 EEA); the principle of equality enshrined in the prohibition to discriminate on grounds of nationality (Art. 4 EEA); the principle of equal treatment for men and women (Arts. 69 and 70 EEA); the environmental law principles of sustainable development, of precautionary and preventive action, of rectification of environmental damage at source and that the polluter should pay (Art. 73 and the ninth recital of the Preamble). For a discussion of these principles, reference is made to the respective provisions.

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III. The Protocols to the EEA Agreement – an overview

At the time of its entry into force, the EEA Agreement contained 49 Proto- 30 cols. Over the years, extensions of the EEA Financial Mechanism have necessitated the addition of Protocols 38 a, 38 b and 38 c. Further, a new Protocol on safeguard mechanisms pursuant to enlargements of the European Economic Area was added through the 2003 EEA Enlargement Agreement.58 However, this was achieved through a ‘take-over’ of the obsolete Protocol 44 on an EEArelated Agreement between the EEC and Switzerland on the carriage of goods by road and rail.59 The number of protocols thus stands at 52 at present. It should be added, however, that quite a few of them concern transitional arrangements that have long lapsed,60 and that others have become obsolete due to the shrinking of the EFTA pillar to only include Iceland, Liechtenstein and Norway.61 The most important protocol for the day-to-day functioning of the EEA 31 Agreement is Protocol 1 on ‘horizontal adaptations’. It contains general rules for the adaptation of EU acts that are incorporated into the EEA Agreement, so that, for instance, references in an act to the EU Member States shall be understood to include the EFTA States and references to nationals of EU Member States shall be understood to include the nationals of EFTA States etc. This avoids the need to make such adaptations in each decision by the EEA Joint Committee incorporating an EU legal act into the Agreement. In addition to possible sectorial adaptations provided for in the respective Annexes and specific adaptations related to individual EU legal acts, the horizontal adaptations in Protocol 1 must always be taken into account when applying an EU legal act as a matter of EEA law. Protocol 1 also contains an important clarification of the relevance in the 32 EEA context of the preambles to the EU legal acts that are incorporated into the Agreement:

58 Agreement on the participation of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic in the European Economic Area of 14 October 2003. The EEA Enlargement Agreements are presented by Arnesen and Fredriksen in the comments on the list of EEA Contracting Parties in Part II of this book. 59 Later amended by the Agreement on the participation of Bulgaria and Romania in the European Economic Area of 25 July 2007 and again by the Agreement on the participation of Croatia in the European Economic Area of 11 April 2014. 60 Protocol 5 on customs duties of a fiscal nature (Switzerland/Liechtenstein); Protocol 15 on transitional periods on the free movement of persons (Switzerland and Liechtenstein); Protocol 16 – Social Security – Transitional periods on the free movement of persons (Liechtenstein); Protocol 44 on safeguard mechanisms pursuant to enlargements of the European Economic Area, and Protocol 45 on transitional periods concerning Spain and Portugal. 61 See, e.g., Protocol 20 on access to inland waterways and Protocol 43 on the Agreement between the EEC and the Republic of Austria on the transit of goods by road and rail.

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PART I: General Reports ‘The preambles of the acts referred to are not adapted for the purposes of the Agreement. They are relevant to the extent necessary for the proper interpretation and application, within the framework of the Agreement, of the provisions contained in such acts.’

The importance of this clarification can be demonstrated by the many EU legal acts that include references to the EU Charter of fundamental rights in their preambles.62 As noted in Section 2 above, the Charter has not been made part of EEA law. Protocol 1 precludes any attempt to deduce general acceptance of the Charter from the incorporation into the Agreement of EU legal acts that refer to it in their preambles, but it also clearly establishes the Charter as a relevant consideration for the interpretation and application of those EU legal acts in the setting of EEA law (in the absence of any specific statements to the contrary in the decision from the EEA Joint Committee incorporating the act into the EEA Agreement).63 34 Furthermore, Protocol 1 is the legal basis for the EFTA-pillar parallel to the EU comitology procedures. Paragraph 4 letter (d) of Protocol 1 foresees that functions of the Commission in the context of procedures for verification or approval, information and notification or consultation and similar matters shall for the EFTA States be carried out ‘according to procedures established among them’. The EFTA States have implemented this by Protocol 1 SCA on the functions and powers of ESA in cases where the Annexes to the EEA Agreement vest such functions in ESA. Art. 3 of this Protocol provides that in cases where the Commission, in the context of EU law, shall submit a draft measure to be taken to, or otherwise consult, a committee, ESA shall, according to corresponding procedures to be laid down by the Standing Committee, consult a corresponding committee set up or designated in accordance with the Agreement on a Standing Committee of the EFTA States. These EFTA comitology procedures were updated in 2012 in order to adjust to the new EU comitology procedures of Reg. (EU) No 182/2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers. This was achieved through: 33

– Decision of the Standing Committee of the EFTA States No 3/2012/SC of 26 October 2012 laying down procedures for committees assisting ESA in carrying out its functions under Art. 3 of Protocol 1 SCA; and – Decision of the Standing Committee of the EFTA States No 4/2012/SC of 26 October 2012 designating committees to assist ESA in carrying out its functions under Art. 3 of Protocol 1 SCA64 62 To name only one particularly important example of a great many, the preamble to Directive 2004/38/EC on Citizenship states in its 31st recital that the Directive ‘respects the fundamental rights and freedoms and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union’. 63 See Fredriksen and Franklin, ‘Of Pragmatism and Principles – The EEA Agreement 20 Years On’, 52 Common Market Law Review (2015) pp. 629-684, on p. 647. 64 See further the comments by Fredriksen and Jónsdóttir on Art. 5 of the Standing Committee Agreement, in Part IV of this book.

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Paragraph 4 letter (d) of Protocol 1 is also the legal basis for the vesting of certain administrative and executive functions in the Standing Committee of the EFTA States.65 Quite a few of the other Protocols are related to the substantive regulation of the internal market. This applies, for example, to Protocols 2, 3 and 4 concerning which products are covered by the principle of free movement of goods; Protocol 8 on State monopolies; Protocol 10 on simplification of inspections and formalities in respect of carriage of goods; Protocol 11 on mutual assistance in customs matters; Protocol 14 on trade in coal and steel products; Protocols 21 to 27 on legal issues relating to competition and State aid, Protocol 28 on intellectual property, and Protocol 47 on the abolition of technical barriers to trade in wine. Most of these protocols have their own point(s) of reference in the Main Part of the Agreement: Art. 8 refers to Protocols 2 and 3; Art. 21 refers to Protocols 10 and 11; Art. 27 refers to Protocols 14 and 25; Arts. 55 to 58 refer to Protocols 21, 22, 23 and 24; Art. 62 refers to Protocols 26 and 27; Art. 65(2) refers to Protocol 28, and Art. 23 refers to Protocol 47. Accordingly, the content of these protocols is dealt with in the comments on the said provisions of the Main Part of the Agreement. Others, such as Protocol 8 on State monopolies, are not mentioned in the text of the Main Agreement, but are so closely related to provisions found therein that the place for the comments on them is a given.66 A protocol worthy of particular attention is Protocol 9 on trade in fish and other marine products, which in many ways is an independent agreement within the EEA Agreement. Its point of reference in the Main Part of the Agreement – Art. 20 – contains nothing but a naked reference to this Protocol. The provisions and arrangements that apply to fish and other marine products, and which in many ways differ from the main rules of the EEA Agreement, are to be found in Protocol 9. Accordingly, the comments on Art. 20 will essentially be about Protocol 9.67 Protocol 31 on cooperation in specific fields outside the four freedoms also merits particular attention. This Protocol includes substantive provisions ranging from research and technological development, via the environment, to education, social policy, consumer protection, tourism, culture, energy issues etc. The Protocol establishes the EFTA States’ participation in a number of EU programmes and agencies. Importantly, Art. 79(3) EEA entails that the institutional provisions in Part VII of the Main Part of the EEA Agreement shall only apply to Protocol 31 when this is explicitly stated. This means, among other things, that ESA and the EFTA Court are largely placed on the sidelines and that 65 As to the distribution between ESA and the Standing Committee of the functions covered by paragraph 4 letter (d) of Protocol 1, see the comments by Fredriksen and Jónsdóttir on Art. 3 of the Standing Committee Agreement, in Part IV of this book. 66 Protocol 8 is accordingly covered by Myhre in his comments on Art. 16 EEA. 67 See the comments by Arnesen on Art. 20 EEA.

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the rules on the settlement of disputes do not apply. Cooperation outside the four freedoms is by no means a hidden part of EEA law – no fewer than 11 provisions of the Main Agreement are devoted to this and the details found in Protocol 31 (and Protocol 32)68 will therefore be covered by the comments on this part of the Main Agreement.69 40 The protocols on the EEA Financial Mechanism will be covered by the comments on the provisions in the Main Agreement that lay the groundwork for the EFTA States’ financial contributions to economic and social cohesion in Europe.70 41 The remaining protocols (or at least those of practical interest) concern various institutional matters. The list includes Protocol 33 on the arbitration procedures foreseen in Art. 111 EEA; Protocol 34 on the possibility foreseen in Art. 107 EEA for the EFTA States to allow their national courts to request the ECJ to decide on the interpretation of EEA rules; Protocol 35 on the implementation of EEA rules; Protocol 36 on the Statute of the EEA Joint Parliamentary Committee (as foreseen in Art. 95 EEA); Protocol 37 containing a list of EU committees to which also experts from EFTA States shall be associated (Art. 101 EEA), and Protocol 48 concerning the EEA Joint Committee’s obligation to respect ECJ case law when fulfilling its task under Arts. 105 and 111 EEA. Of these, the very important and somewhat controversial Protocols 35 and 48 are the only ones not mentioned in the text of the Main Agreement. Protocol 48 will, naturally, be dealt with in the comments on Arts. 105 and 111 EEA, whereas the in-depth analysis of Protocol 35 is to be found in the comments on Art. 7 EEA on the Contracting Parties’ obligation to implement EEA law into their national legal orders.71 42 Finally, two protocols deal with the geographical scope of EEA law. Protocol 40 gives Norway the right to exempt the territory of Svalbard from the application of the Agreement. This is a right of which Norway has indeed availed itself.72 The Svalbard Treaty of 1920 only allows for taxation at the level necessary to support the governing of Svalbard and, further, grants citizens and economic operators from all of the now 45 High Contracting Parties equal rights to reside in Svalbard and to fish, hunt or undertake any kind of maritime, industrial, mining or commercial enterprises both on land and in the territorial waters.73 A combination of the Svalbard Treaty and the four freedoms of the EEA Agreement could essentially turn Svalbard into a European tax-haven and consider-

68 Protocol 32 concerns the financial modalities for the participation of the EFTA States in EU programmes covered by Protocol 31. 69 See the comments by Jónsdóttir on Arts. 78-88 EEA. 70 See the comments by Christiansen on Art. 115 to 117 EEA. All of the substance of the current EEA Financial Mechanism is to be found in Protocol 38 c. 71 See the comments by Dystland, Finstad and Sørebø on Art. 7 EEA. 72 See Section 6 of the Norwegian EEA Act (Act. No 109 of 27 November 1992). 73 Treaty concerning the Archipelago of Spitsbergen (‘the Svalbard Treaty’), Paris, 9 February 1920, Art. 8(2) (the tax clause) and Art. 3 (non-discrimination).

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ably complicate Norwegian regulation of the economic activities on Svalbard. The 1960 EFTA Convention and the 1973 Free Trade Agreements between Norway and the EEC/the ECSC do not pose similar problems as they are essentially limited to trade in (certain) goods. Thus, Protocol 40 EEA states that these agreements shall continue to apply to the territory of Svalbard. However, the scope of the EFTA Conventions was broadened considerably through the 2001 Vaduz Convention. Consequently, an Annex to that Convention makes it clear that Norway has the right to exempt the territory of Svalbard from the application of the EFTA Convention with the exception of trade in goods.74 Protocol 49 on Ceuta and Melilla obliges the EFTA States to grant to im- 43 ports of products originating in those Spanish possessions the same customs regime as that which is granted to products imported from and originating in the EEA. IV. The Annexes to the EEA Agreement – an overview

All of the 22 Annexes to the EEA Agreement have their own point(s) of 44 reference in the Main Part of the Agreement. These provisions in the Main Agreement are not the legal basis for the incorporation of novel EU legal acts into the Annexes, but they do inform the EEA Joint Committee’s decision as to which Annex any given legal act of EEA-relevance should be placed in.75 To the reader, the list of the 22 Annexes offers a quick overview of the sub- 45 stantive scope of EEA law, at least if supplemented by Protocol 31 on cooperation in specific fields outside the four freedoms. In this commentary, the various Annexes will be dealt with in connection with the provisions of the Main Part of the Agreement that refer the reader to them. In the many cases where the substance of a field of EEA law is to be found in the Annex (i.e. where the text of the Main Agreement only offers a naked reference to an Annex), the comments will essentially be about the Annex. It is impossible to cover all of the legal acts found in all of the Annexes within the format of a book such as this one, but it is equally impossible to offer an accurate picture of EEA law if one does not at least include the most important provisions found in the Annexes. Examples include the presentation of EEA law in the fields of public procurement,76 intellectual property,77 labour law,78 gender equality,79 consumer protection,80 environmental protection81 and company law.82 74 Annex U to the EFTA Convention. 75 Note that certain EU legal acts have been incorporated into more than one Annex, as the EU legislators take no account of the structure of the EEA Agreement. The Citizenship Directive (Dir. 2004/38) is a case in point. It had to be incorporated into both Annex V (Workers) and Annex VIII (Establishment), see the Decision of the EEA Joint Committee No 158/2007. 76 See the comments by Hammersvik on Art. 65(1) EEA. 77 See the comments by Rognstad on Art. 65(2) EEA. 78 See the comments by Sundet on Arts. 67 and 68 EEA. 79 See the comments by Søvig on Arts. 69 and 70 EEA. 80 See the comments by Konow on Art. 72 EEA. 81 See the comments by Nordtveit and Schütz on Art. 74 EEA.

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The following list of the ‘points of departure’ in the Main Part of the EEA Agreement will tell the reader of this book where to look for comments (also) on the substance of the different Annexes: Art. 17 EEA Art. 23 EEA Art. 23 EEA Art. 24 EEA Art. 28 EEA Art. 29 EEA Art. 30 EEA Art. 31 EEA Arts. 31 and 36 Arts. 31 and 36 Arts. 31 and 36 Art. 40 EEA Art. 47 EEA Art. 60 EEA Art. 63 EEA Art. 65(1) EEA Art. 65(2) EEA Arts. 68-70 Art. 72 EEA Art. 74 EEA Art. 76 EEA Art. 77 EEA

Annex I Annex II

Veterinary and Phytosanitary Matters Technical Regulations, Standards, Testing and Certification Annex III Product Liability Annex IV Energy Annex V Free Movement of Workers Annex VI Social Security Annex VII Recognition of Professional Qualifications Annex VIII Right of Establishment Annex IX Financial Services Annex X Services in general Annex XI Electronic Communication, Audiovisual Services and Information Society Annex XII Free Movement of Capital Annex XIII Transport Annex XIV Competition Annex XV State Aid Annex XVI Procurement Annex XVII Intellectual Property Annex XVIII Health and Safety at Work, Labour Law and Equal Treatment for Men and Women Annex XIX Consumer Protection Annex XX Environment Annex XXI Statistics Annex XXII Company Law

V. The Surveillance and Court Agreement, the Standing Committee Agreement and other related agreements between the EFTA States 47

The relationship between the EEA Agreement as such and the related intraEFTA-pillar agreements is rather complex. Some of the provisions found in the Surveillance and Court Agreement or the Standing Committee Agreement were dictated by the Main Part of the EEA Agreement or one of its Protocols from the very beginning.83 Others are the result of later decisions by the EEA Joint Committee.84 However, many provisions found in the intra-EFTApillar agreements are enacted by the EFTA States without any such EEA-based 82 See the comments by Müller-Graff on Art. 77 EEA. 83 Examples include Art. 108 EEA on the general powers of ESA and the EFTA Court, Protocol 18 on the powers of the Standing Committee of the EFTA States in case of use of the safeguard clause found in Art. 43 EEA (protective measures in the field of capital movements) and Protocols 21 and 26 on the powers of ESA in the field of the competition rules applicable to undertakings and in the field of State aid. 84 For example EEA Joint Committee decisions that vest ESA or the Standing Committee with new administrative tasks. A case in point are the EEA Joint Committee Decisions No 199/2016; No 200/2016 and No 201/2016 on the affiliation of the EFTA States to the European Supervisory Authorities in the field of financial services. These decisions assign new powers to ESA. The EFTA States complied with this by a separate Agreement of 6 October 2016 amending the SCA by adding a new Article 25 a and a new Protocol 8.

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instructions.85 Furthermore, the intra-EFTA-pillar agreements are clearly not part of the EEA Agreement as such under the definition provided in Art. 2 letter (a) EEA. This is also reflected in the powers of ESA and the jurisdiction of the EFTA Court. Both institutions can only deal with matters arising under the intra-EFTA-pillar agreements to the extent that the Surveillance and Court Agreement allows for this.86 As already indicated, however, matters arising under the Surveillance and Court Agreement or the Standing Committee Agreement can sometimes be rephrased as questions concerning the EFTA States’ fulfilment of their obligations under the EEA Agreement as such. In this book, two approaches to the EEA-related intra-EFTA-pillar agree- 48 ments will be pursued in parallel. Firstly, the agreements, and primarily the Surveillance and Court Agreement, will be included in the comments on the EEA Agreement as such when relevant to the understanding of the EEA rules in question.87 Secondly, the comments on the provisions of the Main Part of the EEA Agreement are supplemented by comments on the Main Part of the Surveillance and Court Agreement as well as on the Main Part of the Agreement on a Standing Committee of the EFTA States.88 On the other hand, the most prominent of the intra-EFTA Agreements – the 49 EFTA Convention itself – has no direct link to the EEA Agreement. It will still be referred to and discussed on many occasions throughout the book, but only as an interesting contrast to the EEA rules.

85 One interesting example is Art. 34 SCA, which vests the EFTA Court with jurisdiction to give Advisory Opinions on the interpretation of the EEA Agreement. 86 Art. 31 SCA vests ESA with competence to bring infringement proceedings also in cases of alleged breaches of the Surveillance and Court Agreement itself, but not of any of the other intra-EFTA-pillar agreements. Art. 34 SCA limits the jurisdiction of the EFTA Court to giving Advisory Opinions on the interpretation of the EEA Agreement, apparently leaving no room for questions concerning the interpretation of the SCA itself. Nevertheless, the EFTA Court must be competent to rule on matters concerning the Court’s own jurisdiction. 87 The Standing Committee Agreement is primarily of interest only in relation to the institutional provisions found in Arts. 89-91 EEA (EEA Council) and Art. 92-94 EEA (EEA Joint Committee) as well as to the provisions on the decision-making procedure (Arts. 97 ff.), and it will accordingly be dealt with there. The Agreement on a Committee of Members of Parliament of the EFTA States will be covered in the comments on Art. 95 EEA on the EEA Parliamentary Committee, whereas the EFTA Consultative Committee will be covered by the comments on Art. 96 EEA on the EEA Consultative Committee. 88 See Parts III and IV of this book.

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PART II: The Agreement on the European Economic Area The Contracting Parties THE EUROPEAN COMMUNITY, THE KINGDOM OF BELGIUM, THE REPUBLIC OF BULGARIA, THE CZECH REPUBLIC, THE KINGDOM OF DENMARK, THE FEDERAL REPUBLIC OF GERMANY, THE REPUBLIC OF ESTONIA, IRELAND, THE HELLENIC REPUBLIC, THE KINGDOM OF SPAIN, THE FRENCH REPUBLIC, THE REPUBLIC OF CROATIA, THE ITALIAN REPUBLIC, THE REPUBLIC OF CYPRUS, THE REPUBLIC OF LATVIA, THE REPUBLIC OF LITHUANIA, THE GRAND DUCHY OF LUXEMBOURG, HUNGARY, THE REPUBLIC OF MALTA, THE KINGDOM OF THE NETHERLANDS, THE REPUBLIC OF AUSTRIA, THE REPUBLIC OF POLAND, THE PORTUGUESE REPUBLIC, ROMANIA, THE REPUBLIC OF SLOVENIA, THE SLOVAK REPUBLIC, THE REPUBLIC OF FINLAND, THE KINGDOM OF SWEDEN, THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND, AND ICELAND, THE PRINCIPALITY OF LIECHTENSTEIN, THE KINGDOM OF NORWAY

I. The EEA Agreement as a Mixed Agreement

From the perspective of EU law, the EEA Agreement is a Mixed Agree- 1 ment.1 The list of Contracting Parties is thus not limited to the EU and the three participating EFTA States; it also includes all of the present 28 EU Member States. EFTA, on the other hand, is not a Contracting Party to the EEA Agreement. 2 EFTA is an international organisation with legal capacity, but the EFTA Member States have not vested it with any competence to enter into international agreements on their behalf.2 The reason why the EEA Agreement is a mixed agreement appears to be of a 3 political nature. During the EEA negotiations, the Commission held the view that the Agreement was to be concluded without the EC Member States as Contracting Parties, because it only covered areas that fell within the exclusive external competence of the EC.3 When the EC Member States refused to accept this, however, the Commission gave in without bringing the matter before the ECJ. From a legal perspective, the Commission’s view was the most convincing.4 In any event, subsequent developments in EU law, not least those brought 1 See also the comments on Art. 2(c), mn. 13, and Vedder, ‘The EEA in the Union’s Legal Order’ in part I of this book. 2 See Art. 43 of the EFTA Convention, whose letter h shows a contrario that any trade or cooperation agreement negotiated between EFTA and other States, union of States or international organisation will have to be entered into by the EFTA Member States as such. This is also confirmed in practice by the many Free Trade Agreements between the EFTA Member States, on the one hand, and third countries, on the other. 3 Norberg et al., EEA Law, p. 59.

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PART II: The Agreement on the European Economic Area The Contracting Parties THE EUROPEAN COMMUNITY, THE KINGDOM OF BELGIUM, THE REPUBLIC OF BULGARIA, THE CZECH REPUBLIC, THE KINGDOM OF DENMARK, THE FEDERAL REPUBLIC OF GERMANY, THE REPUBLIC OF ESTONIA, IRELAND, THE HELLENIC REPUBLIC, THE KINGDOM OF SPAIN, THE FRENCH REPUBLIC, THE REPUBLIC OF CROATIA, THE ITALIAN REPUBLIC, THE REPUBLIC OF CYPRUS, THE REPUBLIC OF LATVIA, THE REPUBLIC OF LITHUANIA, THE GRAND DUCHY OF LUXEMBOURG, HUNGARY, THE REPUBLIC OF MALTA, THE KINGDOM OF THE NETHERLANDS, THE REPUBLIC OF AUSTRIA, THE REPUBLIC OF POLAND, THE PORTUGUESE REPUBLIC, ROMANIA, THE REPUBLIC OF SLOVENIA, THE SLOVAK REPUBLIC, THE REPUBLIC OF FINLAND, THE KINGDOM OF SWEDEN, THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND, AND ICELAND, THE PRINCIPALITY OF LIECHTENSTEIN, THE KINGDOM OF NORWAY

I. The EEA Agreement as a Mixed Agreement

From the perspective of EU law, the EEA Agreement is a Mixed Agree- 1 ment.1 The list of Contracting Parties is thus not limited to the EU and the three participating EFTA States; it also includes all of the present 28 EU Member States. EFTA, on the other hand, is not a Contracting Party to the EEA Agreement. 2 EFTA is an international organisation with legal capacity, but the EFTA Member States have not vested it with any competence to enter into international agreements on their behalf.2 The reason why the EEA Agreement is a mixed agreement appears to be of a 3 political nature. During the EEA negotiations, the Commission held the view that the Agreement was to be concluded without the EC Member States as Contracting Parties, because it only covered areas that fell within the exclusive external competence of the EC.3 When the EC Member States refused to accept this, however, the Commission gave in without bringing the matter before the ECJ. From a legal perspective, the Commission’s view was the most convincing.4 In any event, subsequent developments in EU law, not least those brought 1 See also the comments on Art. 2(c), mn. 13, and Vedder, ‘The EEA in the Union’s Legal Order’ in part I of this book. 2 See Art. 43 of the EFTA Convention, whose letter h shows a contrario that any trade or cooperation agreement negotiated between EFTA and other States, union of States or international organisation will have to be entered into by the EFTA Member States as such. This is also confirmed in practice by the many Free Trade Agreements between the EFTA Member States, on the one hand, and third countries, on the other. 3 Norberg et al., EEA Law, p. 59.

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about by the Treaty of Lisbon and the case law of the ECJ, suggest that the areas covered by the EEA Agreement, with the possible exception of some parts of Protocol 31 on cooperation in specific fields outside the four freedoms, today fall well within the exclusive external competence of the EU.5 4 The EU’s exclusive competence to conclude international agreements in fields already regulated internally in the EU through EU legislation is key to the daily functioning of the EEA Agreement. It is this competence that explains why the EU alone can commit itself and its 28 Member States to new obligations visà-vis the EFTA States through decisions by the EEA Joint Committee, without there being any need for the EU Member States as such to consent.6 5 In practice, the only implication of the EEA Agreement being a mixed agreement is that changes to the Agreement that fall outside the competence of the EEA Joint Committee require the consent of all the 28 EU Member States as such. One consequence of this is the lack of a much needed update of the Main Part of the Agreement. II. Developments in the number and position of Contracting Parties

The original signatories to the EEA Agreement were the European Coal and Steel Community, the European Economic Community, the 12 EEC Member States Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain and the United Kingdom, and the seven EFTA Member States Austria, Finland, Iceland, Liechtenstein, Norway, Sweden and Switzerland.7 7 Switzerland never became a Contracting Party due to the negative outcome of the 1992 referendum on the country’s participation in the EEA. The listing of Switzerland as a Contracting Party was removed through an Adjusting Protocol.8 8 For Liechtenstein, the EEA Agreement entered into effect on 1 May 1995.9 9 Austria, Finland and Sweden acceded to the (then) European Community and the European Union on 1 January 1995. At that time, no formal agreement was concluded to move them from the list of EFTA Member States to that of the 6

4 As hinted at by Norberg et al., EEA Law, p. 98 and Bull, ‘Mixity Seen from Outside the EU but Inside the Internal Market’, in: Hillion and Koutrakos (eds.), Mixed Agreements Revisited – the EU and Its Member States in the World, 2010, pp. 320-330. 5 See Vedder, ‘The EEA in the Union’s Legal Order’ in part I of this book. 6 See the comments by Tynes on Art. 93 EEA, mn. 3 to 6. An individual EU Member State can make its voice heard through the internal EU decision-making procedures in EEA-related matters, but will in most cases have to accept that EEA-related decisions in the EU Council are taken by qualified majority, see Art. 1 of Council Reg. (EC) No 2894/94 of 28 November 1994 concerning arrangements for implementing the Agreement on the European Economic Area. 7 OJ No L 1 of 3.1.1994, p. 1. 8 Protocol Adjusting the Agreement on the European Economic Area of 17 March 1993 (OJ No L 1, 3.1.1994, p. 572). 9 EEA Council Decision No 1/95 of 10 March on the entry into force of the Agreement on the European Economic Area for the Principality of Liechtenstein (OJ No L 86, 20.4.1995, p. 58).

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EC Member States.10 This was however done as part of the 2003 EEA Enlargement Agreement.11 The European Coal and Steel Community was absorbed by the European Community in 2002 and subsequently removed from the list of Contracting Parties by way of the 2003 EEA Enlargement Agreement.12 Through the 2003 EEA Enlargement Agreement, the ten new EU Member States Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia and the Slovak Republic acceded to the EEA on 1 May 2004, the same day as their accession to the EU entered into effect. The 2003 Enlargement Agreement did not enter into force until 6 December 2005, but applied provisionally as a result of an exchange of letters between the EC, Iceland, Liechtenstein and Norway.13 In 2007, Bulgaria and Romania acceded to the EEA Agreement. The Agreement on their participation in the EEA was signed on 25 July 2007,14 almost seven months after Bulgaria’s and Romania’s Accession Treaty to the EU entered into effect. The main reason for the delay was a disagreement concerning the EFTA States’ financial contributions to cooperation programmes for economic growth and sustainable development in Bulgaria and Romania, but it was also related to questions concerning tariff quotas for fish and fishery products originating in Iceland and Norway.15 As a result of an exchange of letters between the EC, Iceland, Liechtenstein and Norway, the 2007 EEA Enlargement Agreement applied provisionally from 1 August 2007.16 The Agreement itself did not enter into force until 9 November 2011 due to delays in the ratification process in some EU Member States. With the entry into force of the Lisbon Treaty on 1 December 2009, the EU replaced and succeeded the EC as a Contracting Party to the EEA Agreement. Obviously, from a legal perspective there was no need to amend the EEA Agreement in order to reflect this, but, for pedagogical purposes, one could say that 10 While recognising that an adjusting protocol would have been preferable, the Contracting Parties were of the opinion that this was not strictly necessary, see also Tichy and Dedichen, ‘Securing a smooth shift between the two EEA pillars’, 32 CMLR (1995) pp. 131-156, on pp. 150-151. 11 Agreement on the participation of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic in the European Economic Area of 14 October 2003 (OJ No L 130, 29.4.2004, p. 11), Art. 2(1) (a). 12 Ibid. 13 OJ No L 130, 29.4.2004, p. 3. Despite the fact that the EEA Agreement is a mixed agreement under EU law, it was not considered necessary for each of the EU Member States to take part in this exchange of letters. As explained above, the reason for this is that the areas covered by the EEA Agreement today all appear to fall within the exclusive competence of the EU. 14 Agreement on the participation of Bulgaria and Romania in the European Economic Area of 25 July 2007 (OJ No L 221, 25.8.2007, p. 15). 15 See, in general, the comments by Christiansen on the EEA Financial Mechanism (Arts. 115-117). 16 OJ No L 221, 25.8.2007, p. 3.

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the Contracting Parties should have seized the subsequent 2014 EEA Enlargement Agreement as an opportunity to update the wording of the Main Part of the EEA Agreement. 14 The hitherto last country to join the EEA is Croatia. The Agreement on Croatia’s participation in the EEA was signed on 11 April 2014,17 almost 10 months after Croatia became an EU Member State. Once again, the delay was caused by difficult negotiations concerning the EFTA States’ financial contributions, as well as questions concerning tariff quotas for fish and fishery products. As a result of an exchange of letters between the EU, Iceland, Liechtenstein and Norway, the 2014 EEA Enlargement Agreement applies provisionally from 12 April 2014. At the time of writing, it has not yet been ratified by all of the EU Member States. III. Prospective Contracting Parties

Art. 128 states that any European State that becomes a member of the EU shall apply to become a party to the EEA Agreement. As demonstrated by the EEA enlargements of 2004, 2007 and 2014, future enlargements of the EU can be expected to lead to a corresponding expansion of the list of EEA Contracting Parties. It should be added, however, that the need for such EEA Enlargement Agreements appears less obvious than sometimes assumed.18 The vast majority of EEA law falls under the exclusive competence of the EU to enter into association agreements with third countries. Moreover, even without a specific EEA Enlargement Agreement, new EU Member States and the EFTA States have to accept that the EEA Agreement is primarily an Agreement between the EU (with the number of Member States it may have at any given time) and the EFTA States that are party to the Agreement. Still, for reasons of legal certainty, it is obviously desirable that new EU Member States become parties to the EEA Agreement with effect from the date of their accession to the EU. 16 Art. 128 goes on to state that Switzerland or any European State that becomes a member of EFTA may apply to become a party to the EEA. The Faroe Islands has reportedly enquired about the possibility of their territory joining EFTA and the EEA, but the fact that the Faroe Islands is not a sovereign State effectively hinders this.19 Enquiries have also been made concerning the EEA as a suitable affiliation to the EU internal market for microstates such as Andorra, Monaco and San Marino.20 From the EU’s perspective, this would be an ideal 15

17 Agreement on the participation of Croatia in the European Economic Area of 11 April 2014 (OJ No L 170, 11.6.2014, p. 5). 18 Cf., e.g., Norberg et al., EEA Law, p. 306: ‘It would … not be acceptable to have a difference in membership between the Community and the EEA.’. 19 See Djurhus et al., ‘The Faroes and the EU – possibilities and challenges in a future relationship’, Report commissioned by the Ministry of Foreign Affairs in the Faroes, Tórshavn 2010. 20 European Commission, ‘EU Relations with the Principality of Andorra, the Principality of Monaco and the Republic of San Marino – Options for Closer Integration with the EU’, COM (2012) 680 final.

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way to integrate these states into the internal market through a tried and tested institutional set-up funded by the EFTA States. For the EFTA States, however, accepting Andorra, Monaco and San Marino into EFTA and the EEA would complicate life in the EFTA pillar without adding much bargaining power. The Norwegian government therefore made it known that it did not consider EFTA/EEA membership for the microstates to be an appropriate mechanism for their integration into the internal market. The EU accepted this, opting instead for the negotiation of a single multilateral Association Agreement with all three states.21 The prospects of Switzerland eventually joining the EEA appear rather re- 17 mote. Still, given the problems with the EU-Swiss bilateral agreement and the general uncertainty brought about by Brexit, it should perhaps not be ruled out completely.22 IV. Brexit

In the case of UK withdrawal from the EU (‘Brexit’), difficult questions may 18 arise related to the status of the United Kingdom as an independent Contracting Party to the EEA Agreement. Under Art. 127, UK withdrawal from the EEA requires at least twelve months’ notice in writing to the other Contracting Parties. The EEA Agreement contains no provision mirroring Art. 50 TEU, but an orderly withdrawal from the EEA still presupposes some sort of EEA-Brexit Agreement between the UK, the EEA EFTA States and the EU (and possibly also the remaining 27 EU Member States) in particular concerning rights and obligations that individuals and economic operators have already acquired under EEA law.23 UK withdrawal from the EEA will also necessitate modifications to the EEA 19 Agreement as such, as envisaged by Art. 127(2).24 Trade in agricultural products is likely to be particularly sensitive, as the careful liberalisation reluctantly accepted by Iceland and Norway is clearly based on the premise that it includes imports from the UK.25 The Iceland-EU and Norway-EU agreements concerning tariff quotas for fish and fishery products are also likely to be affected. Even though formally not part of the EEA Agreement, they have been negotiated in parallel to the EEA Enlargement Agreements and are clearly related to the EFTA States’ financial contributions under the EEA Financial Mechanism.

21 European Commission, ‘EU Relations with the Principality of Andorra, the Principality of Monaco and the Republic of San Marino: Options for their participation in the Internal Market’, COM (2013) 793 final. 22 See also Pirker’s report on Switzerland and the EEA in part I of this book. 23 Vgl. Haas and Zellweger, 'Allgemeine und Schlussbestimmungen', in: Jacot-Guillarmod, Accord EEE, pp. 669-689 on p. 687 (‘heikle Probleme der Rückabwicklung eingegangener Verpflichtungen’). 24 See also the comments by Hillion on Art. 127, mn. 24 to 28. 25 See also the comments by Petursson on Art. 8, mn. 19, and by Arnesen on Art. 19.

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The question of whether the UK can decide unilaterally to remain in the EEA, e.g. as a temporary short-term solution securing continued access to the internal market while negotiating its future relationship with the EU, is unlikely to come up in practice. Even though it may perhaps be argued from a public international law perspective that withdrawal from the EU cannot automatically entail withdrawal from the EEA, the two-pillar structure of the EEA Agreement leaves no room for a Contracting Party that does not belong to either the EU or the EFTA side. The fact that most EEA rules confer rights on individuals and economic operators from EU and EFTA States only, as well as the lack of a voice in the EEA Joint Committee or in the EEA Council, suffices to demonstrate that such a free-standing membership of the EEA would be untenable also from the perspective of the UK. 21 Whether the EFTA pillar of a renegotiated EEA Agreement (‘EEA 2.0’) could be a viable alternative for the UK after Brexit remains to be seen. 22 In the case of what is referred to as ‘hard Brexit’, which cuts off the UK from the EU internal market, the question of Scotland’s possibility of becoming a member of the EFTA pillar of the EEA might also arise.26 20

Preamble CONVINCED of the contribution that a European Economic Area will bring to the construction of a Europe based on peace, democracy and human rights; REAFFIRMING the high priority attached to the privileged relationship between the European Community, its Member States and the EFTA States, which is based on proximity, long-standing common values and European identity; DETERMINED to contribute, on the basis of market economy, to world-wide trade liberalization and cooperation, in particular in accordance with the provisions of the General Agreement on Tariffs and Trade and the Convention on the Organisation for Economic Cooperation and Development; CONSIDERING the objective of establishing a dynamic and homogeneous European Economic Area, based on common rules and equal conditions of competition and providing for the adequate means of enforcement including at the judicial level, and achieved on the basis of equality and reciprocity and of an overall balance of benefits, rights and obligations for the Contracting Parties; DETERMINED to provide for the fullest possible realization of the free movement of goods, persons, services and capital within the whole European Economic Area, as well as for strengthened and broadened cooperation in flanking and horizontal policies; AIMING to promote a harmonious development of the European Economic Area and convinced of the need to contribute through the application of this Agreement to the reduction of economic and social regional disparities; DESIROUS of contributing to the strengthening of the cooperation between the members of the European Parliament and of the Parliaments of the EFTA States, as well as between the social partners in the European Community and in the EFTA States;

26 See the Scottish government’s discussion paper Scotland’s Place in Europe, Edinburgh 2016.

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The question of whether the UK can decide unilaterally to remain in the EEA, e.g. as a temporary short-term solution securing continued access to the internal market while negotiating its future relationship with the EU, is unlikely to come up in practice. Even though it may perhaps be argued from a public international law perspective that withdrawal from the EU cannot automatically entail withdrawal from the EEA, the two-pillar structure of the EEA Agreement leaves no room for a Contracting Party that does not belong to either the EU or the EFTA side. The fact that most EEA rules confer rights on individuals and economic operators from EU and EFTA States only, as well as the lack of a voice in the EEA Joint Committee or in the EEA Council, suffices to demonstrate that such a free-standing membership of the EEA would be untenable also from the perspective of the UK. 21 Whether the EFTA pillar of a renegotiated EEA Agreement (‘EEA 2.0’) could be a viable alternative for the UK after Brexit remains to be seen. 22 In the case of what is referred to as ‘hard Brexit’, which cuts off the UK from the EU internal market, the question of Scotland’s possibility of becoming a member of the EFTA pillar of the EEA might also arise.26 20

Preamble CONVINCED of the contribution that a European Economic Area will bring to the construction of a Europe based on peace, democracy and human rights; REAFFIRMING the high priority attached to the privileged relationship between the European Community, its Member States and the EFTA States, which is based on proximity, long-standing common values and European identity; DETERMINED to contribute, on the basis of market economy, to world-wide trade liberalization and cooperation, in particular in accordance with the provisions of the General Agreement on Tariffs and Trade and the Convention on the Organisation for Economic Cooperation and Development; CONSIDERING the objective of establishing a dynamic and homogeneous European Economic Area, based on common rules and equal conditions of competition and providing for the adequate means of enforcement including at the judicial level, and achieved on the basis of equality and reciprocity and of an overall balance of benefits, rights and obligations for the Contracting Parties; DETERMINED to provide for the fullest possible realization of the free movement of goods, persons, services and capital within the whole European Economic Area, as well as for strengthened and broadened cooperation in flanking and horizontal policies; AIMING to promote a harmonious development of the European Economic Area and convinced of the need to contribute through the application of this Agreement to the reduction of economic and social regional disparities; DESIROUS of contributing to the strengthening of the cooperation between the members of the European Parliament and of the Parliaments of the EFTA States, as well as between the social partners in the European Community and in the EFTA States;

26 See the Scottish government’s discussion paper Scotland’s Place in Europe, Edinburgh 2016.

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Preamble CONVINCED of the important role that individuals will play in the European Economic Area through the exercise of the rights conferred on them by this Agreement and through the judicial defence of these rights; DETERMINED to preserve, protect and improve the quality of the environment and to ensure a prudent and rational utilization of natural resources on the basis, in particular, of the principle of sustainable development, as well as the principle that precautionary and preventive action should be taken; DETERMINED to take, in the further development of rules, a high level of protection concerning health, safety and the environment as a basis; NOTING the importance of the development of the social dimension, including equal treatment of men and women, in the European Economic Area and wishing to ensure economic and social progress and to promote conditions for full employment, an improved standard of living and improved working conditions within the European Economic Area; DETERMINED to promote the interests of consumers and to strengthen their position in the market place, aiming at a high level of consumer protection; ATTACHED to the common objectives of strengthening the scientific and technological basis of European industry and of encouraging it to become more competitive at the international level; CONSIDERING that the conclusion of this Agreement shall not prejudge in any way the possibility of any EFTA State to accede to the European Communities; WHEREAS, in full deference to the independence of the courts, the objective of the Contracting Parties is to arrive at, and maintain, a uniform interpretation and application of this Agreement and those provisions of Community legislation which are substantially reproduced in this Agreement and to arrive at an equal treatment of individuals and economic operators as regards the four freedoms and the conditions of competition; WHEREAS this Agreement does not restrict the decision-making autonomy or the treaty-making power of the Contracting Parties, subject to the provisions of this Agreement and the limitations set by public international law; HAVE DECIDED to conclude the following Agreement:

I. Origin and legal importance

The Preamble to the EEA Agreement consists of 16 recitals. Fifteen of them 1 were part of the text agreed upon by the Contracting Parties at the Joint Ministerial Meeting in Luxembourg on 21 and 22 October 1991, whereas one – the important fifteenth recital on the homogeneity objective – was added as a result of the ECJ’s Opinion 1/91.1 The reason for this was that the ECJ not only rejected the proposition for a joint EEA Court; it also suggested that divergences between the aims of the EEA Agreement, on the one hand, and Community law, on the other, would stand in the way of achieving the objective of homogeneity in the interpretation and application of the law in the EEA.2 Of the fifteen recitals in the text agreed upon in October 1991, however, only 2 one was included in the version that was considered by the ECJ in Opinion 1/91.3 This mistake is unlikely to have affected the ECJ’s dismissal of the judicial architecture of the draft agreement. However, it may well have contributed 1 Norberg et al., EEA Law, p. 92. 2 Opinion 1/91, 14.12.1991, para. 29.

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to the Court’s characterisation of the EEA Agreement as a treaty that essentially creates rights and obligations as between the Contracting Parties only.4 This interpretation of the EEA Agreement is hard to reconcile with the important eighth recital, in which the Contracting Parties express their conviction that individuals will play an important role ‘through the exercise of the rights conferred on them by this Agreement and through the judicial defence of these rights’. This recital proved to be essential when the EFTA Court in Case E-9/97 Sveinbjörnsdóttir deduced an unwritten principle of State liability from the object and purpose of the Agreement and, more generally, won acceptance for an effect-related conception of homogeneity.5 3 The contrast between the sole recital in the version considered by the ECJ and the fifteen recitals in the text that was actually agreed upon in October 1991 reveals that many of the recitals were added quite late in the process. This does not suggest that the preamble is of little importance, however. The fact that the EEA negotiations of 1991 coincided with the preparations for the drafting of the Maastricht Treaty6 allowed the Contracting Parties to follow and anticipate, at least to a certain degree, developments in EC/EU law. As a result, the EEA preamble contains important statements on, e.g., human rights, regional policy, environmental protection (including the precautionary principle), HSE (health, safety and the environment), the social dimension of the internal market and consumer protection. The Preamble to the EEA Agreement thus goes much further and contains more far-reaching statements of political commitments and ambitions than those of the Free Trade Agreements of 1972 and 1973 between the EC, on the one hand, and the various EFTA States, on the other.7 Rather tellingly, it also goes further than the preamble to the EFTA Convention, even though the latter was thoroughly revised in 2001.8 4 The EEA preamble is an integral part of the EEA Agreement. As with the preambles to the EU treaties9 – and the preambles to international agreements in 3 Opinion 1/91, introductory part, where the ECJ reproduces the wording of what was (and still is) the fourth recital only, but claims this to be ‘[t]he sole recital of the preamble to the agreement’. The reason for this misunderstanding appears to be that the Commission initially sent the ECJ an incomplete and provisional translation into French of the draft agreement as it stood in the early summer of 1991, see Norberg, ‘Justice in the European Economic Area – the Role of the EFTA Court’, in: EFTA Court (ed.), Judicial Protection in the European Economic Area, 2012, pp. 29-52, on pp. 44-47. However, as noted by Norberg, this cannot excuse the ECJ given that the Court itself wrote that its Opinion was given on the basis of the English version of the Agreement in its form prior to initialing (Opinion 1/91, para 2). The preamble to the English version at that time consisted of fifteen recitals. 4 Opinion 1/91, para. 20. See for a similar assessment, Norberg ‘Justice in the European Economic Area – the Role of the EFTA Court’, p. 46. 5 See the comments on the eighth recital below. 6 The Maastricht Treaty was signed on 7 February 1992, but its drafting was concluded by the European Council on 9-10 December 1991. 7 Norberg et al., EEA Law, p. 92. 8 Through the 2001 Vaduz Convention. 9 See, e.g., Heintschel von Heinegg, in: Vedder/Heintschel von Heinegg (eds.), Europäisches Unionsrecht, Präambel EUV, Rn. 2 and Präambel AEUV, Rn. 3.

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general10 – the preamble is part of the context in which the provisions of the Agreement are to be interpreted.11 Even though the potential importance of the wide-ranging preamble was 5 recognised by leading commentators from the outset,12 it seems safe to say that its actual impact has surpassed expectations. The main reason for this is the lack of a much-needed update of the Main Part of the EEA Agreement. Faced with a ‘Widening Gap’ between the Main Part of the EEA Agreement and the EU Treaties, the EFTA Court has on a number of occasions relied on the preamble in order to keep up with developments in the post-Maastricht case law of the ECJ.13 As a result, the legal importance of the preamble to the EEA Agreement probably outweighs that of the preambles to the EU Treaties in the context of EU law.14 However, not every objective of EU law anno 1992 with a potential impact on 6 the EU internal marked was included in the EEA preamble. For example, the preamble contains no reference to the national identities of the EEA States corresponding to the one introduced into EU law through Art. F of the Maastricht treaty.15 In Case E-1/01 Einarsson, the EFTA Court rejected pleas for analogous application of this provision, noting that, since the Treaty on European Union was negotiated before the final conclusion of the EEA Agreement, it had to be assumed that this discrepancy was intentional.16 As regards later developments in the objectives of the internal market, the 7 lack of an update of the Main Part of the EEA Agreement means that none of them are reflected in the preamble. As a somewhat paradoxical result, at least for Norwegian lawyers used to a Nordic type of social market economy, the preamble to the EEA Agreement stands out as being more unreservedly free market-oriented than the presentation of the EU internal market that is now to

10 See Art. 31(2) of the Vienna Convention on the Law of Treaties. 11 Jacot-Guillarmod, ‘Préambule, objectifs et principes’, in: Jacot-Guillarmod, Accord EEE, pp. 49-75 on p. 51 and Norberg et al., EEA Law, p. 91. 12 See Jacot-Guillarmod, ‘Préambule, objectifs et principes’, in: Jacot-Guillarmod, Accord EEE, pp. 49-75 on pp. 51-55, and Norberg et al., EEA Law, p. 92. But compare with the Norwegian government’s very superficial presentation of the Preamble in Stortingsproposisjon (White Paper) No 100 (1991-1992) p. 73, in which the preamble was essentially presented as a purely political collection of good intentions. 13 See the sixth, eight, ninth, tenth, eleventh and twelfth recitals, all further commented on below. 14 The legal importance of the EEA preamble also outweighs that of the preambles to the many free trade agreements between the EFTA States and third countries, but this is better explained by the lack of a judicial architecture resembling that found in EU and EEA law than by the preambles as such, cf., e.g., the far-reaching and ambitious preamble to the 2013 FTA between the EFTA States and Bosnia and Herzegovina (which entered into force in 2015). 15 Art. F was later renumbered as Art. 6(3) TEU, now replaced by Art. 4(2) TEU. See also the fourth recital of the Maastricht Treaty on the Member States desire to ‘deepen the solidarity between the peoples while respecting their history, their culture and their traditions.’. 16 Case E-1/01, 22.2.2002, Einarsson, para. 43. Importantly, analogous application of what was then Art. 6(3) TEU would hardly have affected the outcome of the case, so that homogeneity between EU and EEA law was not at stake.

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be found in Art. 3(3) TEU.17 In practice, however, this will in most cases be compensated for by the homogeneity principle.18 Still, the EFTA Court’s president has claimed that the EFTA Court is more free market-oriented and ‘business friendly’ than the ECJ (albeit without linking this to the preamble of the EEA Agreement).19 II. The individual recitals 1. Peace, democracy and human rights

The first recital sets out the Contracting Parties’ conviction that the European Economic Area will contribute to the construction of a Europe based on peace, democracy and human rights. It is clearly inspired by the third recital of the preamble to the at the time of the EEA negotiations forthcoming Treaty on European Union20 and could therefore serve as an early acknowledgement of the EEA-relevance of developments outside the field of EC law as such. Primarily, however, the first recital must be read in the historical context of the fall of the Berlin Wall and the democratisation of the Eastern European states. 9 As far as the references to peace and democracy are concerned, they have to be understood as essentially political ambitions with limited legal relevance to the interpretation and application of EEA law. As with ‘ordinary’ Free Trade Agreements, the democratic legitimacy of the EEA is entirely based on the internal procedures of the Contracting Parties. The EEA Agreement knows of no parallel to Art. 10 TEU, and the EEA Joint Parliamentary Committee has no formal role in the EEA decision-making procedure.21 Consequently, seeds of an EEA parallel to the ECJ’s strengthening of the position of the European Parliament are lacking.22 10 After more than 20 years of experience, the reference to democracy rings rather hollow if read in light of the EFTA States’ lack of any real influence over the development of the internal market aquis, which is constantly incorporated into the EEA Agreement. 8

17 See, e.g., Fredriksen/Mathisen, EØS-rett, p. 49 and Sejersted et al., EØS-rett, p. 115. 18 As demonstrated by the EFTA Court’s approach in Case E-8/00, 22.3.2002, LO, in which the homogeneity principle allowed the Court to hold that the general statements on social policy objectives in the seventh and eleventh recitals of the preamble sufficed to justify a limitation in the Application of Art. 53 EEA to collective agreements in line with the ECJ’s interpretation of Art. 101 TFEU in Case C-67/96, 21.9.1999, Albany. 19 See e.g. Baudenbacher, ‘[M]ust be interpreted in the light of economic considerations: some reflections on the case law of the EFTA Court’, in: Edward et al. (ed.), Ian S. Forrester: A Scot without Borders – Liber Amicorum – Volume II, 2015, pp. 77-98. Three examples that arguably substantiate such a claim are Case E-10/14, 18.12.2014, Deveci (business-friendly interpretation of the transfer of undertakings directive); Case E-14/15, 19.4.2016, Holship (limited competition law immunity for collective agreements) and Case E-5/15, 26.7.2016, M’Bye (employer-friendly interpretation of the working-time directive). 20 Now the fourth recital of the TEU. 21 See Thynes’ comments on Art. 95. 22 Cf., e.g., Case C-70/88, 22.5.1990, Parliament v Council (Chernobyl).

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The reference to human rights, on the other hand, is important as it is the 11 only reference to fundamental rights in the entire EEA Agreement. It was highlighted early on by commentators concerned with the status of fundamental rights in EEA law.23 Importantly, a similar statement was not to be found in the EC Treaty prior to Maastricht, so that its inclusion in the EEA preamble had to be seen as the Contracting Parties anticipating the entry into force of the Maastricht Treaty. On the other hand, commentators who are less enthusiastic about the prospect of the EFTA Court as a Human Rights Court argued that this lone reference to human rights in the preamble was an insufficient legal basis for an entire EEA catalogue of fundamental rights.24 The EFTA Court, on its part, has wisely chosen to build its approach to this matter on the homogeneity objective and the fact that all of the EEA States are parties to the ECHR.25 There is now consensus in case law and literature that provisions of the EEA Agreement are to be interpreted and applied in a manner that is consistent with the Contracting Parties’ obligations under the ECHR.26 The situation is less clear, however, when it comes to fundamental rights en- 12 shrined in the EU Charter of Fundamental Rights that go beyond those found in the ECHR. In cases concerning EU legal acts that include references to the EU Charter in their preambles,27 Protocol 1 to the EEA Agreement can be relied upon in order to justify an interpretation in line with the Charter.28 In other cases, the EFTA Court has engaged in fairly creative constructions in order to preserve homogeneity between EU and EEA law, while at the same time side-stepping the sensitive issue of the legal significance of the EU Charter as such: In Case E-14/11 Schenker I, the Court deduced an EEA parallel to the right to access to documents (Art. 42 of the Charter) from ‘the principles of transparency and good administration common to, and fostered by, the democratic traditions of the EEA/EFTA States’,29 whereas, in Case E-10/14 Deveci, it held that the freedom to conduct a business (Art. 16 of the Charter) lies ‘at the heart of the EEA Agreement’ and thus had to be recognised ‘in accordance with EEA law

23 See, in particular, Jacot-Guillarmod, ‘Préambule, objectifs et principes’, pp. 49-75 on p. 52 and Kälin, ‘EWR-Abkommen und Europäische Menschenrechtskonvention’, pp. 653-666, on p. 661, both in: Jacot-Guillarmod, Accord EEE. 24 See Fløistad, Fundamental Rights and the EEA Agreement, ARENA Report No 1/2004, p. 47; Sejersted et al., EØS-rett 2011, p. 107. 25 See, e.g., Case E-2/03, 12.12.2003, Ásgeirsson, para. 23; Case E-12/10, 28.6.2011, ESA v Iceland, para. 60; Case E-4/11, 26.7.2011, Clauder, para. 49; Case E-15/10, 18.4.2012, Posten Norge, para. 85; Case E-18/11, 28.9.2012, Irish Bank, paras. 63-64; Case E-14/15, 19.4.2016, Holship, para. 123 and Case E-28/15, 26.7.2016, Jabbi, para. 81. 26 For an analysis, see Björgvinsson, ‘Fundamental Rights in EEA Law’, in: EFTA Court (ed.), The EEA and the EFTA Court, pp. 263-280. 27 See, e.g., Case E-23/13, 9.5.2014, HCMC, para. 81 (concerning Directive 2003/6/EC on insider dealing and market manipulation). 28 According to this Protocol, the preambles to EU legal acts are ‘relevant to the extent necessary for the proper interpretation and application, within the framework of the Agreement, of the provisions contained in such acts’. 29 Case E-14/11, 21.12.2013, Schenker I, para. 118.

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and national law and practices’.30 The net result of this approach may come close to judge-made incorporation of all of the EEA-relevant parts of the Charter, but this remains to be seen.31 Depending on future developments in ECJ case law, some of the provisions of the Charter may include rights that even the EFTA Court will have to acknowledge are not reflected in international legal instruments by which all of the EEA States are bound, or not easily linked to constitutional traditions common to them. Furthermore, the EFTA Court’s ECHRcentred approach could run into difficulties in the event that existing tensions between the ECtHR and the ECJ should lead to divergences between the ECtHR’s interpretation of the ECHR and the ECJ’s interpretation of more or less similar provisions of the EU Charter. 2. Privileged relationship 13

The second recital reaffirms the high priority attached to the privileged relationship between the EU, its Member States and the EFTA States, which is based on proximity, long-standing common values and European identity. This must be read as a political ambition with limited legal relevance. It has never been invoked by the ECJ or the EFTA Court. 3. Trade liberalisation

14

The third recital sets out the Contracting Parties’ determination to contribute, on the basis of market economy, to world-wide trade liberalisation and cooperation, in particular in accordance with the provisions of the General Agreement on Tariffs and Trade (GATT) and the Convention on the Organisation for Economic Cooperation and Development (OECD). The legal significance of this essentially political ambition is limited, although it may be of relevance if the EU’s new Trade and Investment Strategy and a next generation of Deep and Comprehensive Free Trade Agreements impact the EU’s future regulation of the internal market.32 Importantly, Protocol 12 to the EEA Agreement foresees that the EU will negotiate Mutual Recognition Agreements (MRAs) with third countries on the basis that the third countries concerned will conclude parallel mutual recognition agreements with the EFTA States.

30 Case E-10/14, 18.12.2014, Deveci, para. 64. 31 See Fredriksen and Franklin, ‘On Pragmatism and Principles – The EEA Agreement 20 Years On’, 52 CMLR (2015) pp. 629–684, on pp. 646-650, and Wahl, ‘Uncharted Waters: Reflections on the Legal Significance of the Charter under EEA Law and Judicial Cross-Fertilisation in the Field of Fundamental Rights’, in: EFTA Court 2014, pp. 281-298. 32 See, e.g., the proposal for regulatory cooperation as it stands after the 14th round of negotiations on the EU-US Transatlantic Trade and Investment Partnership (TTIP) (July 2016). For an assessment of the potential implications of TTIP for the EEA, see the EEA Joint Parliamentary Committee’s resolution ‘TTIP and its possible implications for the EEA EFTA States’ (16 March 2015).

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4. Homogeneity, equality and reciprocity

The fourth recital sets out the objective of establishing a dynamic and ho- 15 mogeneous European Economic Area, based on common rules and equal conditions of competition and providing for adequate means of enforcement, including at the judicial level, and achieved on the basis of equality and reciprocity and of an overall balance of benefits, rights and obligations for the Contracting Parties. This is the first basis in the EEA Agreement’s text for the general EEA law 16 principle of homogeneity.33 It is particularly important because it sets out the dynamic nature of the homogeneity principle and foresees its judicial enforceability through the courts. It thus lends support to the EFTA Court’s firm understanding of homogeneity as a principle of law (not only a political goal)34 and the Court’s application of the principle in its attempts to bridge the widening gap between the Main Part of the EEA Agreement and the EU Treaties through dynamic interpretation of EEA law in light of the amendments made to EU primary law.35 As far as the homogeneity principle is concerned, however, the fourth recital tends to be overshadowed by the fifteenth recital, which explains more directly that homogeneity is about interpreting and applying EEA law in line with corresponding provisions of EU law (and not about uniform interpretation and application of EEA law as such throughout the EEA).36 The reference to equality in the fourth recital is the closest one comes to an 17 EEA parallel to Art. 4(2) TEU, according to which the EU ‘shall respect the equality of Member States before the Treaties’. In contrast to the situation within the supranational EU legal order, where the equality of the Member States has to be read in light of, e.g., the rules on qualified majority voting in the Council and the degressively proportional distribution of the seats in the European Parliament between the Member States,37 the reference in the EEA preamble appears to be little more than a confirmation of the general public international law principle of the sovereign equality of States.38 However, if interpret-

33 Cited already in the EFTA Court’s very first case, Case E-1/94, 16.12.1994, Restamark, para. 32. 34 See Case E-9/97, 10.12.1998, Sveinbjörnsdóttir, where the Court cited the fourth recital (para. 50) and, albeit only implicitly, rejected the Icelandic government’s view that questions of homogeneity not covered by the wording of Art. 6 EEA should be left to the diplomats (Report for the Hearing, para. 62). 35 See, e.g., Case E-8/00, 22.3.2202, LO, paras. 38ff; Case E-28/15, 26.7.2016, Jabbi, para. 68ff. Opinions differ as to just how dynamic the interpretation of EEA law can and should be, as recently demonstrated by the EFTA Court’s controversial analogous application of the Citizenship Directive in Jabbi. The dynamic nature of the homogeneity principle is generally accepted, however. 36 See comments on the fifteenth recital below. 37 See Vedder, in: Vedder/Heintschel von Heinegg (eds.), Europäisches Unionsrecht, Art. 4 EUV, No 15. 38 See, e.g., Art. 2(1) of the Charter of the United Nations.

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ed as also applying to individuals, the fourth recital may perhaps be invoked in support of a general EEA law principle of equality.39 18 The fourth recital has attracted renewed attention in recent years as the basis for what the EFTA Court in Case E-12/13 ESA v Iceland characterised as the fundamental EEA law principle of reciprocity.40 The legal significance of this characterisation remains uncertain, however. In Case E-12/13, the new principle was only invoked to underline the already clear obligation to implement a Directive (and to notify ESA thereof). 19 If limited to questions concerning the effect of EEA law in the legal orders of the EEA Contracting Parties, reciprocity is hardly more than an argument in support of the, by now, already well-established effect-related understanding of the principle of homogeneity.41 It has long been recognised in literature that, from an EU law perspective, the ECJ’s protection of EEA-based rights within the EU legal order could be influenced by the protection offered in the EFTA States to individuals and market operators from the EU.42 However, considerations of reciprocity alone cannot establish the judicial protection of EU rights within EU law, as it stands at any given moment, as the golden standard against which EEA law is to be measured.43 It is therefore important that Protocol 35 seems to presuppose that the EU law principles of direct effect and primacy will govern the effect of EEA law within the EU legal order. The wording of this Protocol obliges the EFTA States only to introduce, if necessary, a statutory provision to the effect that EEA rules prevail in cases of conflict between implemented EEA rules and other statutory provisions.44 The one-sidedness of the obligation suggests that the Contracting Parties presupposed that the existing EU law principles on direct effect and primacy would guarantee effective judicial protection of EEA-based rights and obligations within the EU legal order, thereby transforming the continuation of this legal situation into an EEA law obligation for the EU.45

39 See Hreinsson, ‘General Principles’, in: Baudenbacher (ed.), Handbook of EEA Law, pp. 349-389, on p. 360. 40 See Case E-12/13 ESA v Iceland, para. 68. See also Hreinsson, ‘General Principles’, in: Baudenbacher (ed.), Handbook of EEA Law, pp. 349-389, on p. 354. 41 See the comments on the eighth recital below. 42 See Sevón and Johansson, ‘The Protection of the Rights of Individuals under the EEA Agreement’, 24 (1999) ELRev 373 on p. 385; Norberg, ‘Perspectives on the Future Development of the EEA’, in: Björgvinsson et al. (eds.), Festschrift Tor Vilhjalmsson, 2000, p. 367, at p. 374; Baudenbacher, ‘The EFTA Court Ten Years On’, in Baudenbacher et al. (eds.), The EFTA Court Ten Years On, 2005, p. 13, at. p. 30; Fredriksen, ‘The EFTA Court 15 Years On’, 59 (2010) ICLQ 731, on p. 734. 43 Even in its strictest form, reciprocity as such only entails that the EFTA States cannot expect better judicial protection of EEA-based rights in the EU than they are themselves prepared to offer in their own legal orders – it says nothing about the level of this protection. 44 See further the comments by Dystland, Finstad and Sørebø on Art. 7, mn. 36 to 42. 45 See also the Joint Declaration on Protocol 35 in the Final Act: ‘It is the understanding of the Contracting Parties that Protocol 35 does not restrict the effects of those existing internal rules which provide for direct effect and primacy of international agreements.’.

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However, the reference to reciprocity in the EEA preamble cannot support 20 ‘an eye for an eye’ approach. The origins of the reference can be traced to Art. 310 of the EC Treaty (now Art. 217 TFEU and, more generally, Art. 8(2) TEU), and in this EU law context the ECJ has clearly stated that it is not to be understood in a strict sense.46 It may well be argued that the EEA Agreement’s object and purpose – the inclusion on an equal footing of the (economically well-off) EFTA States in the EU internal market – suggest a stricter approach to reciprocity than the ECJ’s approach to agreements of association with a development aid element.47 After more than 20 years of experience, it nevertheless seems clear that the EU side considers the overall effect of EEA law within the EFTA pillar to be satisfactory. The ECJ recognises the direct effect of EEA law within the EU legal order and continues to interpret provisions of EEA law in line with their EU law counterparts,48 despite prevailing views that the EEA Agreement as such neither guarantees EU-style direct effect of EEA law within the legal orders of the EFTA States nor establishes an obligation on their national courts of last instance to refer questions of interpretation to the EFTA Court, nor, if a referral is made, to follow the latter’s Advisory Opinions.49 Thus, the elevation of reciprocity to a fundamental principle cannot in itself justify rethinking these questions of EEA law. It may, however, serve as an appropriate reminder to the EFTA States that the lack of an EEA law principle of direct effect makes timely implementation as well as loyal interpretation and application of EEA law obligations crucial, not only for the proper functioning of the EEA Agreement in the EFTA pillar, but also for its continued acceptance within the EU legal order.50 Moving beyond the question of the effect of EEA law in the national legal or- 21 ders, the EFTA Court, in Case E-14/11 Schenker I, referred to the fourth recital and suggested that ‘reasons of reciprocity’ obliged ESA to adopt rules on access to its documents equalling those found in EU law by virtue of Regulation 1049/2001.51 Read in isolation, this is a bold statement.52 However, the case concerned the interpretation of rules on access to documents that ESA had in fact adopted, and the EFTA Court backed up its classification of these as part of 46 See, e.g., Case 104/81, 26.10.1982, Kupferberg, para. 18 and the comments by Schmalenbach, in: Calliess/Ruffert (Eds.), EUV/AEUV Kommentar, Art. 8 EUV, Rn. 10 and Art. 217 AEUV, Rn. 3. 47 Such as in Case 87/75, 5.2.1976, Bresciani, para. 23. 48 See the general report by Vedder in Part I of this book on the EEA in the Union’s Legal Order. 49 See the comments by Dystland, Finstad and Sørebø on Art. 7 EEA, mn. 53 to 59, and by Christiansen on Art. 34 SCA, mn. 19 and 28. 50 See Case E-12/13, 11.2.2014, ESA v Iceland, para. 68 (warning the EFTA States that timely and correct implementation of directives is ‘of crucial importance for securing the two fundamental EEA law principles of homogeneity and reciprocity’), and Case E-6/12, 11.9.2013, Jonsson, para. 60 (reminder to national courts on referrals to the EFTA Court as a means of avoiding ‘unnecessary mistakes in the interpretation and application of EEA law’, thereby ensuring ‘coherence and reciprocity in relation to rights of EEA citizens, including EFTA nationals, in the EU’). 51 Case E-14/11, 21.12.2012, Schenker I, para. 121.

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EEA law (as opposed to internal ESA rules) by a more convincing (albeit still quite bold) reference to the principles of transparency and good administration common to, and fostered by, the democratic traditions of the EFTA States.53 22 It is also uncertain what potential impact the fourth recital’s reference to reciprocity has on the understanding of the homogeneity principle in cases where uniform interpretation of a provision common to the EU and the EEA would lead to different outcomes in similar cases, because of other EU rules without any counterparts in EEA law. An orthodox understanding of the homogeneity principle suggests that judicial bridge-building in such cases is not only outside the reach of the principle, but actually in contradiction to it.54 The EFTA Court saw this differently in Case E-26/13 Gunnarsson and Case E-28/15 Jabbi, but without really explaining the broader result-oriented understanding of the homogeneity principle upon which its dynamic EEA law interpretation of the Citizenship Directive is based.55 If limited to cases in which it can be argued that the ECJ would have interpreted the provision in question in a similar way, if this had been necessary to reach an outcome which, in the context of EU law, was secured by a different route, reasons of reciprocity may perhaps serve to justify the EFTA Court’s approach. The Court’s critics are unlikely to be convinced, however.56 23 A further uncertainty concerns the potential impact of the fourth recital’s reference to reciprocity on the interpretation of the geographical scope of the EEA Agreement. Arguably, the long-standing disagreement between the EU and the EFTA States on this matter boils down to whether considerations of reci52 Something that is easily overlooked due to the political desirability of the outcome and the fact that the finding ‘only’ affected ESA. Imagine, however, a case where ‘reasons of reciprocity’ are invoked as the sole argument for a legal obligation on the EFTA States to enact legislation equaling rules found in EU law. 53 Para. 118. 54 As suggested by ESA in Case E-26/13, 27.6.2014, Gunnarsson, para. 59 (arguing that the principle of homogeneity cannot be ‘overridden by considerations of reciprocity’) and by the Norwegian government in Case E-28/15, 26.7.2016, Jabbi, para. 37 (arguing that the principle of homogeneity cannot support different interpretation of common provisions). See further on this issue Wennerås’ comments on Art. 6 EEA, mn. 67 and 68, and Art. 3 SCA, mn. 8. 55 It is important that the EFTA Court’s controversial ‘result-related’ conception of homogeneity in Gunnarsson and Jabbi is not confused with the, by now, well-established ‘effect-related’ understanding established in Case E-9/97, 10.12.1998, Sveinbjörnsdóttir. The effect-related conception of homogeneity is limited to the question of the effect of EEA law in the legal orders of the Contracting Parties, i.e. to the judicial protection of existing EEA rights. It is supported by, e.g., the fourth and eighth recitals of the preamble, as well as by Art. 1 EEA, and has won the acceptance of the highest courts of the EFTA States; see further the comments on recital eight below. The textual support for the ‘result-related’ conception of homogeneity in Gunnarsson and Jabbi is much weaker. 56 The problems inherent in the EFTA Court’s approach in Gunnarsson and Jabbi are apparent if one imagines a case where an economically inactive EU Citizen residing in an EFTA State invokes the Citizenship Directive against his/her home state. Art. 21 TFEU will not be applicable in such a scenario. If one follows the EFTA Court, the result will be that the Citizenship Directive gives the EU citizen in question additional rights as compared to the very same Directive being applied in an internal EU context. It remains to be seen whether the ECJ will accept such a solution.

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procity (and homogeneity) are at all relevant to the interpretation of the term ‘territory’ in Art. 126 EEA. In essence, Norway’s position is that the relevance of reciprocity and homogeneity is limited to the interpretation of EEA law within the geographical scope of the EEA Agreement, thus negating their relevance to the interpretation of Art. 126 as such.57 The fourth recital’s final reference to an overall balance of benefits, rights 24 and obligations for the Contracting Parties is of a political nature only. It is not for the courts to rule on whether, e.g., the EFTA States’ lack of any real influence over the development of the internal market aquis is balanced by the preservation of greater parts of the sovereignty of their legal orders when compared to those of the EU Member States or, for that matter, by the fact that the Agreement gives the EFTA States full access to the internal market while at the same time allowing for far-reaching exemptions when it comes to the sensitive fields of agriculture and fisheries. The inherent political nature of any attempt to assess the overall fairness of the EEA Agreement also strengthens the abovementioned view that ‘an eye for an eye’ approach to reciprocity is misguided. 5. The four freedoms

The fifth recital sets out the Contracting Parties’ determination to provide for 25 the fullest possible realization of the free movement of goods, persons, services and capital within the whole EEA, as well as for strengthened and broadened cooperation in flanking and horizontal policies. It explains the essence of the EEA Agreement in one sentence, which is probably why it was paraphrased by the ECJ in important EEA-related cases such as Case C-452/01 Ospelt and Case C-431/11 UK v Council.58 More recently, it has attracted attention because the EFTA Court referred to it in Case E-28/15 Jabbi to demonstrate that the free movement of persons in the context of EEA law, from the very beginning, covered more than only economically active persons (workers and selfemployed persons).59 However, while the reference to ‘persons’ indeed reflects the fact that Directives giving rights to students and pensioners were part of the EEA Agreement at the time of its entry into force, opinion will probably be divided as to whether this supports the EFTA Court’s finding that also other economically inactive persons can derive rights from (an analogous application of) the Citizenship Directive.60

57 See further the comments by Arnesen on Art. 126 EEA, mn. 4 to 11. 58 C-452/01, 23.9.2003, Ospelt, para. 29; C-431/11, 26.9.2013, UK v Council, para. 50. Even though the fifth recital was not named, there can be no question about the source of inspiration (as all but confirmed by the Opinions of the Advocate Generals in both cases). 59 Case E-28/15, 26.7.2016, Jabbi, para. 59, where the Court also highlights the corresponding wording of Art. 1(2) EEA. 60 See further Fløistad’s comments on Art. 29, mn. 20.

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6. Reduction of economic and social regional disparities 26

The sixth recital sets out the Contracting Parties’ aim of promoting a harmonious development of the EEA and their conviction that it is necessary to contribute, through the application of the Agreement, to the reduction of economic and social regional disparities. Even though the practical implications are left to the Contracting Parties to iron out in the context of the EEA Financial Mechanism,61 the statement in the recital ought to be read as an important recognition of solidarity with those regions of the EEA that risk losing out in competition with other, more competitive regions.62 It is well known that the benefits of the internal market are unequally distributed between regions (and Member States) and that undistorted competition may in some cases increase rather than decrease economic and social disparities as highly competitive regions attract more investment, new entrepreneurs, skilled workers etc.63 Thus, structural funds to help those who risk losing out must be seen as part of the deal on the EEA and not, as has sometimes has been the case in the well-off EFTA States, as charitable alms to the less fortunate regions of the EEA. 7. Cooperation between parliamentarians and social partners

27

The seventh recital sets out the Contracting Parties’ desire to strengthen cooperation between the members of the European Parliament and of the Parliaments of the EFTA States, as well as between the social partners in the EU and in the EFTA States. It points to the establishment of the EEA Joint Parliamentary Committee (Art. 95 EEA) and of the EEA Consultative Committee (Art. 96 EEA). The desire to strengthen cooperation between the social partners in the EU and in the EFTA States was cited by the EFTA Court in Case E-8/00 LO as part of the justification for limiting the applicability of Art. 53 EEA to collective agreements in line with the ECJ’s interpretation of Art. 101 TFEU in C-67/96 Albany.64 8. Individual rights

28

The eighth recital sets out the Contracting Parties’ conviction that individuals will play an important role in the EEA through the exercise of the rights conferred on them by this Agreement and through the judicial defence of these rights. This is arguably the most important of all of the sixteen recitals of the preamble. The striking resemblance to the ECJ’s reasoning in Case 26/62 van Gend en Loos was recognised by leading commentators from the outset.65 The reference to individual rights provided a crucial point of departure for the EFTA Court’s deduction in Case E-9/97 Sveinbjörnsdóttir of the unwritten prin61 62 63 64

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ciple of State liability from the object and purpose of the Agreement,66 and, more generally, the underlying effect-related conception of homogeneity: The principle of homogeneity is not limited in scope to the substantive law of the internal market – it also embraces the question of the legal effect of EEA law in the legal orders of the Contracting Parties. This conception of homogeneity establishes a presumption of equal protection of EU-based and EEA-based rights. It may well be rebutted by other sources of EEA law, as it indeed has been as regards the questions of EU-style direct effect and primacy.67 Nevertheless, its importance is demonstrated not only by the general acceptance of the above-mentioned principle of State liability;68 but also that of (i) the EEA-adoption of the EU law principles of effectiveness and equivalence;69 (ii) the EEAbased duty of national courts to do whatever lies within their competence to interpret and apply national law in conformity with obligations under the EEA Agreement;70 (iii) the EEA-based duty of administrative authorities to do likewise;71 (iv) the EEA-based obligation to repay charges levied in breach of EEA law72 and (v) what the EFTA Court characterises as the procedural branch of homogeneity.73 The importance of the eighth recital’s reference to individual rights in this 29 context simply cannot be overestimated. This is clearly demonstrated by the Norwegian Supreme Court’s reasoning in Finanger II, when it rejected the Norwegian government’s plea for a milder liability regime under EEA law than the one that exists under EU law: ‘The directives in question here are directives which are to give citizens specific rights, and State liability is to ensure that those rights become a reality. It seems then not reasonable that citizens

65 See Jacot-Guillarmod, ‘Préambule, objectifs et principes’, in: Jacot-Guillarmod, Accord EEE, pp. 49-75 on p. 53 and van Gerven, ‘The Genesis of EEA Law and the Principles of Primacy and Direct Effect’, Fordham International Law Journal 16 (1992) pp. 955-989, at p. 793. However, it was overlooked completely by the Norwegian government in Stortingsproposisjon (White Paper) No 100 (1991-92), in which the government assured Parliament that the EU law principles of direct effect and primacy were not part of the EEA Agreement (pp. 316ff.). 66 See, e.g., Arnesen, ‘EFTA-domstolen statuerer erstatningsansvar’, Europarättslig tidskrift 1999 pp. 357-362, on p. 360 and Bruha, ‘Is the EEA an Internal Market’, in: Müller-Graff/ Selvig (eds.), EEA-EU Relations, pp. 97-129, on p. 123. 67 See the comments by Dystland, Finstad and Sørebø on Art. 7, mn. 53 to 57. 68 Endorsed by the ECJ in Case C-140/97, 15.6.1999, Rechberger, para. 39; by the Supreme Court of Iceland in Case 236/1999, 18.3.1999, Sveinbjörnsdóttir; by the Supreme Court of Norway (full court) in Rt. 2005 p. 1365, 28.10.2005, Finanger II, and by the Supreme Court of Liechtenstein in Case CO.2004.2, 7.5.2010, Dr. Tschannet II. 69 See, e.g., the Norwegian Supreme Court in Rt. 2005 p. 597, 3.5.2005, Allseas and, thereafter, the EFTA Court in Case E-2/10, 10.12.2010, Kolbeinsson, para. 46 (and subsequent cases); see further the comments by Franklin on Art. 3. 70 The Norwegian Supreme Court (Full Court) in Rt. 2000 p. 1811, 16.11.2000, Finanger I and, thereafter, the EFTA Court in Case E-4/01, 30.5.2002, Karlsson, para. 28 (and subsequent cases); see further the comments by Franklin on Art. 3. 71 Case E-1/04, 23.11.2004, Fokus Bank, para. 41. 72 Case E-7/13, 16.12.2013, Creditinfo Lánstraust, para. 43. 73 Case E-14/11, 21.12.2012, Schenker I, para. 77.

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should be in different legal positions when it comes to the protection of these rights.’74 30 In its judgment in the State liability case Fellesforbundet for sjøfolk, the Norwegian Supreme Court rejected analogous application of the EEA law principle of State liability to breaches of the European Social Charter by distinguishing the EEA Agreement from ‘ordinary’ public international law treaties. In passing, the Supreme Court not only repeats its endorsement of the EFTA Court’s reasoning in Sveinbjörnsdóttir, it also quotes with implicit approval from an EEA law perspective the following key parts of the ECJ’s reasoning in Francovich: ‘It should be borne in mind at the outset that the EEC Treaty has created its own legal system, which is integrated into the legal systems of the Member States and which their courts are bound to apply. The subjects of that legal system are not only the Member States but also their nationals.’75 31 The importance of the eighth recital is also demonstrated by the EU Court’s acknowledgment of the direct effect of EEA law within the EU legal order.76 This is in stark contrast to the texts of recent free trade agreements between the EU and third countries, where direct effect in EU law is explicitly precluded.77 This is also the case with the now finalised (but not ratified) EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the draft version of the EU-US Transatlantic Trade and Investment Partnership (TTIP).78 This development in EU policy suggests that, in negotiations on a possible updated and extended ‘EEA 2.0’, perhaps with Switzerland and/or the UK as new members of the EFTA pillar, the question of direct effect will be raised anew by the EU. In such case, the EFTA States may well have to accept direct effect as a matter of EEA law if they are to secure the continued recognition of the direct effect of EEA law within the EU legal order.

74 Rt. 2005 p. 1365, 28.10.2005, Finanger II, para. 68. 75 HR-2016-296-A, 8.2.2016, Fellesforbundet for sjøfolk, paras. 46-47. As any lawyer wellversed in EU law will immediately recognise, the origin of this characterisation of the EU legal order is to be found in Case 26/62, 5.2.1963, van Gend en Loos, in which the ECJ famously established the direct effect of the EEC Treaty. Even though there is nothing in the Norwegian Supreme Court’s endorsement of this characterisation that suggests that it will revisit the established view that the principle of direct effect is not part of the EEA Agreement (as held by the full court in Rt. 2000 p. 1811 Finanger I), the quote certainly underscores the Supreme Court’s positive assessment of the ‘constitutional’ aspects of the EEA. 76 The seminal case is T-115/94, 22.1.1997, Opel Austria, in which both the Council and the Commission argued against the direct effect of Art. 10 EEA. The General Court held otherwise. As the Council chose not to bring the matter before the ECJ, Opel Austria marks the recognition in EU law of the direct effect of EEA-based rights and obligations. 77 See, e.g., the explicit ‘No direct effect-clause’ of the 2013 EU-Singapore Free Trade Agreement (Art. 17.15): ‘For greater certainty, nothing in this Agreement shall be construed as conferring rights or imposing obligations on persons, other than those created between the Parties under public international law.’ For a general analysis of this development in EU policy, see Semertzi, ‘The preclusion of direct effect in the recently concluded EU free trade agreements’ 51 (2014) CMLR, pp. 1125–1158. 78 CETA Art. 30.6 and the draft Art. X.14 in the Chapter on Institutional, General and Final Provisions of the TTIP (as of July 2016).

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9. Protection of the environment

The ninth recital sets out the Contracting Parties’ determination to preserve, 32 protect and improve the quality of the environment and to ensure a prudent and rational utilisation of natural resources on the basis, in particular, of the principle of sustainable development, as well as the principle that precautionary and preventive action should be taken. This is one of the instances where the Contracting Parties foresaw the entry into force of the Maastricht Treaty, since the preamble’s reference to the precautionary principle is clearly taken from what was to be Art. 174(2) of the EC Treaty (now Art. 191 (2) TFEU).79 According to Norberg et al., it was of great importance to several EFTA States that the principle of sustainable development was made part of the EEA Agreement in this manner.80 The ninth recital facilitates the EEA reception of EU case law concerning protection of the environment as a justification for national measures that are capable of hindering intra-EU trade81 and, more generally, the implementation into the EEA Agreement of key parts of EU environmental law.82 The reference to the precautionary principle in the context of environmental law probably also eased the EFTA Court’s development of a similarly structured approach to cases where national authorities restrict the free movement of goods by reference to potential risks to human health.83 10. Protection of health, safety and the environment

The tenth recital sets out the Contracting Parties’ determination, in the fur- 33 ther development of rules, to take as a basis a high level of protection concerning health, safety and the environment. The explicit reference to the further development of rules makes it clear that this is first and foremost a political ambition. It is largely undermined, however, by the EFTA States’ lack of any real influence in the development of the internal market aquis. The relevance of this recital thus appears to be limited to the support it lends to EEA reception of EU case law concerning the protection of health, safety and the environment as justification for national measures capable of hindering intra-EU trade and, more generally, the implementation into the EEA Agreement of related parts of the internal market aquis.84

79 80 81 82 83

As noted by the EFTA Court in Case E-4/04, 25.2.2005, Pedicel, para. 59. Norberg et al., EEA Law, p. 620. See, e.g., Case C-573/12, 1.7.2014, Ålands Vindkraft. See the comments by Nordtveit and Schütz on Arts. 73-75, mn. 1 to 7. Even though the ninth recital of the preamble was not mentioned in Case E-3/00, 5.4.2001, ESA v Norway (‘Kellogg’s’), the EFTA Court later remedied this in Case E-4/04, 25.2.2005, Pedicel, para. 59. 84 See the comments by Sundet on Art. 67, mn. 2, and by Nordtveit and Schütz on Art. 73, mn. 1 to 6.

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11. The social dimension of the EEA 34

The eleventh recital notes the importance of the development of the social dimension, including equal treatment of men and women, in the EEA, and the Contracting Parties’ wish to ensure economic and social progress and to promote conditions for full employment, an improved standard of living and improved working conditions within the EEA. From a legal perspective, the main function of this recital is to facilitate the EEA reception of EU case law concerning the social dimension of the internal market85 and, more generally, the implementation into the EEA Agreement of the relevant parts of the EU aquis.86 12. Consumer protection

35

The twelfth recital sets out the Contracting Parties’ determination to promote the interests of consumers and to strengthen their position in the market place, aiming for a high level of consumer protection. As with the ninth, tenth and eleventh recitals, this is primarily a political ambition. From a legal perspective, its main function is to facilitate the EEA reception of EU case law concerning consumer protection and, more generally,87 the implementation into the EEA Agreement of the relevant parts of the EU aquis.88 13. Research and development

36

The thirteenth recital sets out the Contracting Parties’ attachment to the common objectives of strengthening the scientific and technological basis of European industry and of encouraging it to become more competitive at the international level. This is essentially a political ambition. Its most concrete expression is the participation of the EFTA States in the European Research Area, including the EU Framework Programme for Research and Innovation (Horizon 2020) and the Erasmus+ Exchange Programme.89 14. Possibility of EU accession

37

The fourteenth recital makes clear that the EEA Agreement shall not in any way prejudge the possibility of any EFTA State acceding to the EU. Interested EFTA States can thus expect to be treated as any other candidate country under Art. 49 TEU, without fearing that the fact that they have already given individuals and economic operators from the EU (almost) full access to their home 85 As demonstrated by the EFTA Courts reference to this recital in Case E-8/00, 22.3.2002, LO, para. 41. 86 See the comments by Sundet on Art 66, mn. 3, and by Søvig on art. 69. 87 It has been invoked before the EFTA Court twice, in Case E-1/99, 17.11.1999, Finanger and in Case E-8/07, 20.6.2008, Ngyuen, in order to support a consumer-friendly interpretation of the Motor Vehicle Insurance Directives. In both cases, the EFTA Court essentially ruled in favour of the injured consumers, but without citing the twelfth recital of the preamble. 88 See the comments by Konow on Art. 72, mn. 1. 89 See the comments by Jonsdóttir on Art. 78, mn. 1 to 5.

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markets will cause the EU to prioritise candidate countries whose accession to the EU will further extend the internal market. In a way, the felt need for this assurance illustrates the benefits of the EEA from the EU’s perspective. As long as the EEA Agreement functions as intended, the EFTA States are the kind of Member States Brussels dreams of: full members of the internal market that amongst themselves cover the costs related to the independent institutions that control them (ESA and the EFTA Court) and that also pay a sort of ‘membership fee’ through the EEA Financial Mechanism, and all of this without complicating decision-making procedures in Brussels. The EFTA States’ possibility of joining the EU was firmly demonstrated by the accession to the Union in 1995 by the then EFTA States Austria, Finland and Sweden. 15. Homogeneity

The fifteenth recital sets out the core of the homogeneity principle: In full 38 deference to the independence of the courts, the Contracting Parties’ objective is to arrive at, and maintain, a uniform interpretation and application of this Agreement and those provisions of EU law which are substantially reproduced in the Agreement and to arrive at an equal treatment of individuals and economic operators as regards the four freedoms and the conditions of competition. It resembles the sixth recital of the preamble to Protocol 2 to the 1988 Lugano Convention, where the Contracting Parties (the EC Member States and the EFTA States as of 1988) had expressed their desire ‘to prevent, in full deference to the independence of the courts, divergent interpretations’ and ‘to arrive at as uniform an interpretation as possible’ of the provisions of the Convention, and of these provisions and those of the Brussels Convention which were substantially reproduced in it.90 The fifteenth recital was added to the EEA preamble as a result of the ECJ’s Opinion 1/91 ‘in order to emphasise the expression of the objective of homogeneity more clearly and with a view to responding to the criticism by the [ECJ]’.91 This explains the lack of coordination between the fourth and the fifteenth recitals. The added value of the fifteenth recital essentially lies in the fact that it makes clear how homogeneity concerns the relationship between EU and EEA law (and not only uniform interpretation and application of EEA law as such throughout the EEA).92 It also makes it clear, in response to the ECJ’s criticism of Art. 6 EEA in Opinion 1/91,93 that the intention is not on90 Later superseded by a similar recital in the preamble to Protocol 2 to the 2007 Lugano Convention, where the reference to the Brussels Convention is replaced by a reference to the relevant EU legal acts (as of 2007). 91 Norberg et al., EEA Law, p. 187. It may be added, however, that the wording of the fifteenth recital is clearly inspired by the introductory part of Art. 104(1) of the Draft Agreement in the version considered by the ECJ in Opinion 1/91 (the text of which is reproduced in the comments on Art. 106 below). 92 The fifteenth recital was cited by the EFTA Court already in its very first case, Case E-1/94, 16.12.1994, Restamark, para. 32. For later examples, see, e.g., Case E-9/97, 10.12.1998, Sveinbjörnsdóttir, paras. 49, 51 and 57; Case E-3/98, 10.12.1998, Rainford-Towning, para. 18; Case E-5/10, 17.12.2010, Kottke, para. 26 and Case E-3/11, 14.12.2011, Sigmarsson, para. 29.

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ly to arrive at a uniform interpretation, but also to maintain this for the future. By stressing this in a recital on the interpretation of EEA law, the fifteenth recital makes it clear that maintaining homogeneity is not a job to be left to the diplomats in the EEA Joint Committee alone. Further, by emphasising not only the interpretation of EEA law, but also its application, the fifteenth recital lends support to the EFTA Court’s effect-related conception of homogeneity.94 39 On the other hand, there is no denying that the focus on uniform interpretation (and application) of ‘provisions of [EU law] which are substantially reproduced in [the EEA Agreement]’ suggests a narrower understanding of the homogeneity principle than the one the EFTA Court has developed through its practice.95 Still, at least as far as the four freedoms and the conditions of competition are concerned, the EFTA Court’s emphasis on procedural homogeneity and a result-oriented homogeneity principle that ‘cannot be restricted to the interpretation of provisions whose wording is identical in substance to parallel provisions of EU law’96 is supported by the last part of the fifteenth recital on ‘equal treatment of individuals and economic operators’, as well as by the fourth recital and, importantly, by Art. 1(1). 40 More uncertain is the applicability of result-oriented homogeneity outside the four freedoms and the conditions of competition. A case in hand is the longstanding disagreement between the EU and the EFTA States on the geographical scope of the EEA Agreement, where Norway’s position is that, since Art. 126(1) EEA differs in wording from what is now Art. 355 TFEU, the principle of homogeneity does not apply, thus allowing for a traditional public international law interpretation of the term ‘territory’.97 41 The introductory reservation in the fifteenth recital to the full deference to the independence of the courts was highlighted by the EFTA Court in Case E-28/15 Jabbi in an attempt to justify an interpretation of the Citizenship Directive at odds with ECJ case-law.98 The EFTA Court’s sweeping declaration that ‘[w]ithout independence in its adjudication no court could claim legitimacy’ appears misguided99 and was, in any event, not necessary in order to explain that 93 See Opinion 1/91, 14.12.1991, para. 26. For reasons of sovereignty, Art. 6 EEA limits the obligation to follow the relevant case law of the ECJ to rulings given prior to the date of signature of the EEA Agreement (2 May 1992). See also Wennerås’ comments on Art. 6, mn. 8 and 9. 94 See Fredriksen/Mathisen 2014, p. 42. As to the EFTA Court’s effect-related conception of homogeneity, see the comments on the eighth recital above. 95 As acknowledged by Hreinsson, ‘General Principles’, in: Baudenbacher (ed.), Handbook of EEA Law, pp. 349-389, on p. 353. See further the comments by Wennerås on Art. 6, mn. 10 to 21. 96 Case E-14/11, 21.12.2012, Schenker I, para. 78. 97 See further the comments by Arnesen on Art. 126 EEA, mn. 14 and 25. 98 Case E-28/15, 26.7.2016, Jabbi, paras. 70-71. 99 Given the context – the interpretation of the Citizenship Directive – the EFTA Court’s declaration actually suggests that any court bound by an interpretation laid down by another court (such as all the national courts of the EU Member States in cases where they make use of Art. 267 TFEU) cannot claim legitimacy. This is simply wrong – independence in adjudication and independence in interpretation are different matters.

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differences in the legal context between EU and EEA law may justify differences in the interpretation of common EU/EEA rules.100 It may therefore perhaps be understood as a more general attempt to get out of the ECJ’s shadow.101 As a presumably unforeseen side-effect, this ‘declaration of independence’ may well be cited by national courts considering deviating from an interpretation of EEA law advocated by the EFTA Court in an Advisory Opinion.102 16. Decision-making autonomy

The sixteenth and final recital makes it clear that the EEA Agreement does 42 not restrict the decision-making autonomy or the treaty-making power of the Contracting Parties, although with the important reservation that this is subject to the provisions of the EEA Agreement and the limitations set by public international law. This primarily reflects the fact that the EFTA States were unsuccessful in their attempt to establish a genuine common decision-making mechanism for the future regulation of the internal market.103 Nonetheless, as demonstrated by Arts. 99-101, the EFTA States did secure some participation in what is referred to as the decision-shaping phase.104 As a result, the EEA Agreement does affect, albeit only to a limited degree, the decision-making procedures of the EU. As a corollary to the lack of EFTA State participation in EU decision-making, 43 the EEA Agreement leaves the decision-making autonomy of the EFTA States formally intact. In this context, the sixteenth recital can also be interpreted as supporting the lack of EEA parallels to the EU law principles of direct effect and primacy, in particular if read together with the preamble to Protocol 35.105 Nevertheless, the EEA Agreement clearly limits the decision-making autono- 44 my of the EFTA States, the EU and the EU Member States to a considerable extent. If this were not the case, the Agreement could simply not fulfil its object 100 As a matter of principle, this is fully in line with the ECJ’s view in Opinion 1/91 as well as the EFTA Court’s own settled case law, see, e.g., Case E-3/98, 10.12.1998, Rainford-Towning, para. 21: ‘there are differences in the scope and purpose of the EEA Agreement as compared to the EC Treaty, and it cannot be ruled out that such differences may, under specific circumstances, lead to differences in the interpretation’. The controversial aspect of Jabbi lies in the fact that the EFTA Court found its break with the case law of the ECJ to be supported by the homogeneity principle (as opposed to representing a deviation from it) and, as a result, advocated a more extensive reading of the Citizenship Directive in the EEA law context than in the EU law context. 101 I.e. as an attempt to ‘overrule’ the statements made in Case E-9/07, 8.7.2008, L'Oréal, para. 29. 102 See, in general, the comments by Christiansen on Art. 34 SCA. 103 See the comments by Dystland, Finstad and Sørebø on Art. 97, mn. 4. 104 See the comments by Dystland, Finstad and Sørebø on Arts. 99ff. 105 See Jacot-Guillarmod, ‘Préambule, objectifs et principes’, in: Jacot-Guillarmod, Accord EEE, pp. 49-75 on p. 55 and Arnesen, ‘EEA – a ‘distinct legal order of its own’?’, in: SIMPLY, Scandinavian Institute of Maritime Law Yearbook 2016, pp 109-129, on p. 126 et seq. The preamble to Protocol 35 makes it clear that the EEA Agreement does not require ‘any Contracting Party to transfer legislative powers to any institution of the European Economic Area’.

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and purpose. Thus, Art. 97 makes it clear that, in the areas covered by the Agreement, the Contracting Parties may only amend their internal legislation with the consent of the EEA Joint Committee106 or after the procedure set out in Art. 102 has resulted in the provisional suspension of the affected part of an Annex to the Agreement.107 45 It may be added that a number of EU legal acts incorporated into the EEA Agreement also restrict the formal decision-making procedure of the EFTA States by introducing obligations on them to notify ESA as well as the other Contracting Parties of any national measures envisaged that fall within the scope of the Directives/Regulations in question. A particularly important example is Directive 98/34/EC, in the EU replaced by Dir. 2015/1535/EU on the information procedure in the field of technical regulations and information society services and yet to be adopted by the Joint EEA Committee, which establishes not only an obligation to notify, e.g., draft technical regulations, but also a standstill period of three months. If ESA is of the opinion that the measure envisaged may create obstacles to the free movement of goods within the internal market, the standstill period is extended by another three months, thus essentially enabling ex ante review of national legislation before the EFTA Court.108 Failure to notify, or to respect the standstill period, will render the national legislation ineffective under EU/EEA law.109 46 As to the treaty-making competence of the Contracting Parties, Protocol 12 to the EEA Agreement merits particular attention. It states that Mutual Recognition Agreements (MRAs) with third countries concerning conformity assessment of products where the use of a mark is provided for in EU legislation will be negotiated on the initiative of the EU. The EFTA States cannot, therefore, initiate such negotiations on their own. This may be of practical importance if the upcoming ‘Brexit’ negotiations between the EU and the UK drag on for years. 47 The reference to the limitations set by public international law is simply a reference to general treaty law (principle of pacta sunt servanda, loyal fulfilment etc.).110

106 This has never happened and it is very difficult to envisage it happening in the future either. 107 See the comments by Dystland, Finstad and Sørebø on Art 97, mn. 5 and 6, and on Art. 102, mn. 35 ff. 108 Since the EFTA Court, through interim measures, can block the entry into force of the proposed legislation until its final judgment in the case, see Art. 41 SCA. 109 Case C-194/94, 30.4.1996, CIA Security and Case C-443/98, 26.9.2000, Unilever, implemented into Norwegian law through Act No 101 of 17 December 2004 Section 9. 110 See Arts. 26 and 27 of the Vienna Convention on the Law of Treaties.

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Article 1 Object and purpose

Part I: Objectives and principles Article 1 [Object and purpose] 1. The aim of this Agreement of association is to promote a continuous and balanced strengthening of trade and economic relations between the Contracting Parties with equal conditions of competition, and the respect of the same rules, with a view to creating a homogeneous European Economic Area, hereinafter referred to as the EEA. 2. In order to attain the objectives set out in paragraph 1, the association shall entail, in accordance with the provisions of this Agreement: (a) the free movement of goods; (b) the free movement of persons; (c) the free movement of services; (d) the free movement of capital; (e) the setting up of a system ensuring that competition is not distorted and that the rules thereon are equally respected; as well as (f) closer cooperation in other fields, such as research and development, the environment, education and social policy.

I. The main objective – extending the internal market to include the EFTA States

Art. 1(1) sets out the aim of the EEA Agreement: the creation of a homogeneous European Economic Area with equal conditions of competition, and respect of the same rules, thus enabling continuous and balanced strengthening of trade and economic relations between the Contracting Parties. The means of achieving this aim are spelled out in Art. 1(2): free movement of goods, persons, services and capital; a system to ensure undistorted competition; and cooperation in other fields, such as research and development, the environment, education and social policy. The inspiration for a separate provision on the aim of the Agreement, and the means of achieving it, was clearly Arts. 1 to 3 of the EEC Treaty.1 A comparison between Art. 1 EEA and Art. 3 EEC Treaty (and, later, Art. 3 TEC and now Arts. 3-4 TEU) illuminates what the EEA is about and, equally importantly, which parts of EEC/EC/EU law fall outside its scope.2 With its reference to (all of) the Contracting Parties and the solemn creation of a brand new entity called the European Economic Area, the wording of Art. 1(1) gives the impression that the Agreement is more of a grand multilateral agreement between equals than the de facto bilateral ‘one-way street’ agreement that it actually is.3 In Art. 1, it is only the characterisation of the Agreement as an ‘[a]greement of association’ that points to the reality – that the purpose was to make the EFTA States associate members of the already existing internal mar1 Norberg et al., EEA Law, p. 96. 2 See further the comments on Art. 1(2) found in section IV below, mn. 13 et seqq.

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2

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ket of the European Community. The absence in Art. 1 of any reference to the internal market is conspicuous and can only be explained by the EFTA States’ desire to present the EEA as more than just a form of associate membership of the EC/EU. It may well have contributed to the ECJ’s initial scepticism in Opinion 1/91 about the viability of the whole project. Fortunately, however, the ECJ later saw through the wording of Art. 1. In the seminal Case C-452/01 Ospelt, the ECJ acknowledged in plain language that: ‘one of the principal aims of the EEA Agreement is to provide for the fullest possible realisation of the free movement of goods, persons, services and capital within the whole European Economic Area, so that the internal market established within the European Union is extended to the EFTA States.’4

5

The EFTA Court followed this up in Case E-1/03 ESA v Iceland: ‘the aim of the EEA Agreement […] is the realisation of the four freedoms within the whole of the European Economic Area, so that the internal market is extended to the EFTA States.’5

6

In short, the main objective of the EEA Agreement is to integrate the EFTA States into the EU internal market. II. The underlying objectives of the internal market

In relation to the above analysis of the principal aim of the EEA Agreement, it might be objected that the internal market is hardly an end in itself, neither for the EFTA States nor for the EU or the EU Member States, but rather a means to ensure economic growth, which, in turn, will help improve the living and working conditions of the peoples of all of the EEA Contracting Parties. Given the explicit reference to this underlying aim both in Art. 2 and in the Preamble to the EEC Treaty,6 it is somewhat surprising that the EEA Agreement contains no similar statements. However, the EEA Agreement’s silence on this matter is of limited legal significance as it is difficult to envisage a case where it will matter whether the internal market is regarded as an end in itself or as a means to ensure economic growth. 8 Somewhat more complicated, however, is the EEA-relevance of the other objectives of the EU’s internal market, now set out in Art. 3(3) TEU. A comparison between the EEC Treaty, as it stood at the time of the EEA negotiations, and Art. 3(3) TEU makes it very clear that the EU has developed from an Economic Community into a political Union and that the internal market is now conceptualised in more holistic terms.7 The aim of the internal market is not only economic growth, it is to facilitate a social market economy with full em7

3 Bull, ‘Mixity Seen from Outside the EU but Inside the Internal Market’, in: Hillion and Koutrakos (eds.), Mixed Agreements Revisited – the EU and Its Member States in the World, 2010, pp. 320-330, on p. 325. 4 Case C-452/01, 23.9.2003, Ospelt, para. 29. 5 Case E-1/03, 12.12.2003, ESA v Iceland, para. 27. 6 See now the second and third recitals of the Preamble to the TEUF. 7 For an overview, see Craig and de Búrca, EU Law, pp. 632 ff.

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ployment and social progress; a high level of protection and improvement of the quality of the environment; scientific and technological advance; social justice and protection; equality between women and men; solidarity between generations; protection of the rights of the child; economic, social and territorial cohesion; solidarity among Member States and respect for Europe’s cultural and linguistic diversity. Fortunately for the functioning of the EEA, the Preamble to the EEA Agree- 9 ment mentions many of these objectives, thus easing the EFTA Court’s task of keeping up with the ECJ’s teleological interpretation of the internal market aquis.8 An instructive example is Case E-8/00 LO, where the EFTA Court relied on, e.g., the seventh and eleventh recitals of the preamble to conclude that the social policy objectives of EU law that limit the applicability of Art. 101 TFEU to collective agreements have a sufficient basis in the EEA Agreement to limit the applicability of Art. 53 EEA correspondingly.9 As suggested in Case E-1/01 Einarsson and Case E-1/02 ESA v Norway (‘postdoc’),10 however, this approach may limit the reach of the homogeneity principle in cases where relevant objectives of EU law are not reflected in the text of the EEA Agreement. It can therefore be argued that a more direct approach based on the homogeneity principle as such would be preferable: In cases of common EU/EEA provisions – i.e. EU law provisions that are simply reproduced in the EEA Agreement – there is a strong presumption in favour of uniform interpretation.11 Unless there are compelling grounds to hold that a given objective of EU law is not relevant in the context of EEA law, the principle of homogeneity will see to it that the objectives of the EU internal market, as they are now laid out in Art. 3(3) TEU, also inform the interpretation of EEA law. In practice, the choice between these two approaches is unlikely to be decisive as the case law of the EFTA Court shows that homogeneity will prevail either way.12 Still, an approach based directly on the homogeneity principle leaves less room for assertions that EEA law remains more unreservedly free market-oriented than the social market economy of the EU post Lisbon. Perhaps more problematic from an EEA law perspective, at least at first sight, 10 are cases where the ECJ interprets EU internal market law in light of the overar-

8 See the comments on the Preamble. 9 Case E-8/00, 22.3.2002, LO, paras. 38-44. 10 Case E-1/01, 22.2.2002, Einarsson, paras. 39-46; and Case E-1/02, 24.1.2003, ESA v Norway (‘postdoc’), para. 55. 11 In line with the EFTA Court’s approach in cases such as Case E-4/00, 14.6.2001, Brändle, para. 7; Case E-2/06, 26.6.2007, ESA v Norway, para. 59 and Case E-9/07, 8.7.2008, L’Oréal, para. 31. 12 It is important to note in this context that the outcomes in Case E-1/01, 22.2.2002, Einarsson and Case E-1/02, 24.1.2003, ESA v Norway (‘postdoc’) would hardly have been any different if the EFTA Court had interpreted the EEA rules in question in the light of the new EU rules on cultural and linguistic diversity and equality between women and men, respectively. Thus, the EFTA Court’s stance in these cases ought to be interpreted primarily as a warning to the Contracting Parties of the need to revise the main part of the EEA Agreement.

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ching political objective of the EU. As noted in no uncertain way by the ECJ in its Opinion 1/91 and 1/92, the ‘ever closer union’ objective of Community/EU law is not shared by the EEA Agreement.13 According to the ECJ, the process of European integration is the entire raison d’être of the EU.14 The EEA Contracting Parties’ conviction, expressed in the first recital of the preamble, that the EEA will contribute to the ‘construction of Europe’, hardly compares. Nonetheless, as argued by leading commentators at the time of the entry into force of the EEA Agreement, the practical effect of this difference of objectives is remedied by the principle of homogeneity:15 Even if it cannot be said that it is an objective of the EEA Agreement to contribute to an ever closer union among the peoples of Europe, the presumption of uniform interpretation of common EU/EEA provisions applies even in cases where it may well be argued that the ECJ’s interpretation of EU law has been influenced by the EU law objective of European integration. As argued by Norberg et al.: inherent in the homogeneity objective lies an implicit acceptance of the objectives of EU law to the extent necessary to achieve a homogeneity between EU and EEA law.16 III. The principle of homogeneity 11

Inherent in the objective to extend the EU internal market to include the EFTA States lies the principle of homogeneity. The reference in Art. 1(1) to a homogeneous EEA with equal conditions of competition forms an important part of the basis for this principle, even though the lack of any reference to the EU internal market may, seen in isolation, give the false impression that homogeneity is only about uniform interpretation of the EEA rules as such throughout the EEA, i.e. in both the EU pillar and the EFTA pillar of the EEA. It is only when Art. 1(1) is read in light of the objective to include the EFTA States in the internal market and other parts of the Agreement, notably the fifteenth recital of the Preamble and Art. 6, that it becomes clear that homogeneity is about the relationship between EU and EEA law: the principle of homogeneity dictates an interpretation of EEA law that is in line with the ECJ’s interpretation of corresponding provisions of EU law.17

13 Opinion 1/91, 14.12.1991, paras. 15-18; Opinion 1/92, 10.4.1992, paras. 17-18. 14 As highlighted by the Full Court in Opinion 2/13, 18.12.2014, para. 172. 15 See Jacot-Guillarmod, ‘Préambule, objectifs et principes’, in: Jacot-Guillarmod, Accord EEE, pp. 49-75 on p. 55 and Norberg et al., EEA Law, pp. 182-187. 16 Norberg et al., EEA Law, p. 185. 17 See further, in particular, Wennerås’ comments on Art. 6. The objective of uniform interpretation and application of the EEA Agreement as such in both the EU pillar and the EFTA pillar of the EEA ought not to be confused with the principle of homogeneity – this is nothing but a reflection of the universal assumption that an international agreement (or any other agreement for that matter) is intended to have the same legal content regardless of where and by whom it is interpreted and applied; see Fredriksen, ‘One Market, Two Courts: Legal Pluralism vs. Homogeneity in the European Economic Area’, 79 Nordic Journal of International Law (2010) pp. 481-499, on p. 483. Unfortunately, the text of the main Part of the EEA Agreement is not always clear on this, see, e.g., the wording of Art. 106.

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The EFTA Court has referred to Art. 1(1) as a basis for the homogeneity prin- 12 ciple on numerous occasions.18 IV. The substantive scope of the EEA Agreement

Art. 1(2) sets out the substantive scope of the EEA Agreement: free movement of goods, persons, services and capital; competition law and flanking policies, such as research and development, the environment, education and social policy. If compared to Art. 3 EEC Treaty, Art. 1(2) informs the reader that the following activities of the European Economic Community were not included in the EEA Agreement: the common customs tariff; the common commercial policy; the common agricultural policy; the co-ordination of the economic policies of Member States; the European Social Fund and the European Investment Bank. If compared to Art. 3 TEC and now Arts. 3-4 TFEU, the list may be extended by monetary policy; the common fisheries policy, the area of freedom, security and justice, and the concept of Union Citizenship.19 As confirmed by the open-ended wording of Art. 1(2)(f), however, Art. 1(2) as such cannot in any way limit the Contracting Parties, ability to widen the substantive scope of EEA law through decisions of the EEA Joint Committee. Such limits will instead have to be deduced from the provisions setting out the competences of the EEA Joint Committee and/or Art. 118 EEA.20 Over the years, the EEA Joint Committee has widened the substantive scope of the Agreement on a number of occasions. Important examples include the incorporation of veterinary issues into the EEA Agreement;21 the incorporation of the EU Emissions Trading Scheme;22 the granting of rights to economically inactive persons (other than pensioners and students) through the incorporation of the Citizenship Directive;23 and the acceptance of EEA law incursions into criminal law through the incorporation of the Environmental Crime Directive.24 An important case where Art. 1(2) was invoked by the EFTA Court in order to justify a broad interpretation of the scope of EEA law is Case E-28/15 Jabbi. The EFTA Court referred to Art. 1(2) to demonstrate that, from the very beginning, the free movement of persons in the context of EEA law covered more than just economically active persons (workers and self-employed persons).25 18 See, e.g., Case E-9/97, 10.12.1998, Sveinbjörnsdóttir, para. 49; Case E-6/01, 9.10.2002, CIBA, para. 33; Case E-1/03, 12.12.2003, ESA v Iceland, para. 27. 19 As well as the external action and the common foreign and security policy of the EU Treaty. 20 See the comments by Dystland, Finstad, Sørebø on Art. 98, mn. 11 ff., and by Hillion on Art. 118. Limitations may also follow from the EU law rules on the Union’s external competences, see Arts. 216 ff. TFEU. 21 Decision of the EEA Joint Committee No. 69/1998. 22 Decision of the EEA Joint Committee No 146/2007. 23 Decision of the EEA Joint Committee No 158/2007. 24 Decision of the EEA Joint Committee No 191/2015. See also Decision No 188/2007, incorporating into the EEA Agreement the Ship-Source Pollution Directive (Directive 2009/123/EC). 25 Paras. 59-61.

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However, while the reference to ‘persons’ indeed reflects the fact that Directives giving rights to students and pensioners were part of the EEA Agreement at the time of its entry into force, opinion will be divided as to whether this supports the EFTA Court’s finding that also other economically inactive persons can derive rights from (an analogous application of) the Citizenship Directive.26

Article 2 [Definitions] For the purposes of this Agreement: (a) the term “Agreement” means the main Agreement, its Protocols and Annexes as well as the acts referred to therein; (b) the term “EFTA States” means Iceland, the Principality of Liechtenstein and the Kingdom of Norway; (c) the term “Contracting Parties” means, concerning the Community and the EC Member States, the Community and the EC Member States, or the Community, or the EC Member States. The meaning to be attributed to this expression in each case is to be deduced from the relevant provisions of this Agreement and from the respective competences of the Community and the EC Member States as they follow from the Treaty establishing the European Economic Community; (d) the term “Act of Accession of 16 April 2003” shall mean the Act concerning the conditions of Accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties on which the European Union is founded, adopted in Athens on 16 April 2003; (e) the term “Act of Accession of 25 April 2005” shall mean the Act concerning the conditions of accession of the Republic of Bulgaria and Romania and the adjustments to the Treaties on which the European Union is founded, adopted in Luxembourg on 25 April 2005 (f) the term “Act of Accession of 9 December 2011” shall mean the Act concerning the conditions of accession of the Republic of Croatia and the adjustments to the Treaty on European Union, the Treaty on the Functioning of the European Union and the Treaty establishing the European Atomic Energy Community, signed at Brussels on 9 December 2011.

I. The EEA Agreement comprises more than the Main Part 1

Art. 2 litra (a) establishes that the term “Agreement” as used in the EEA Agreement refers not only to the Main Part of the Agreement, i.e. the preamble and Arts. 1 to 129, but also to the Protocols and Annexes, as well as the acts referred to therein. The acts referred to are secondary EU legislation and other EU legal acts adopted pursuant to the EU treaties for the purposes of these treaties, adjusted to the EEA Agreement.

26 See further the differing views of Fløistad in her comments on Art. 29, mn. 20 and Einarsson in his comments on Art. 31, mn. 49.

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While the acts referred to in the Annexes originate in the EU-pillar, the Protocols are mostly tailor made for the EEA. They cover a wide range of topics, ranging from the cooperation between the European Commission and ESA in competition matters to the right for Norway to exempt the territory of Svalbard from the application of the EEA Agreement.1 The Protocols are addressed in their proper context throughout this commentary. Art. 119 EEA provides that the annexes and the acts referred to therein as adopted for the purposes of the EEA Agreement as well as the Protocols shall form an integral part of the Agreement. This confirms the impression left by Art. 1 litra (a) that there is no formal hierarchy between the different parts of the EEA Agreement, even though the Joint EEA Committee pursuant to Art. 98 has in its powers to amend the Annexes and a number of the Protocols. However, neither the EFTA Court nor any other Court of law has the power to quash amendments to the Annexes done by the EEA Joint Committee.2 Thus, formally speaking, the term ‘primary EEA law’ as applied by the EFTA Court in a number of decisions appears misguided. However, being that as it may, it remains that in order to achieve homogeneity of EU and EEA law, the same interpretative approach should be applied when interpreting the EEA Agreement as when interpreting provisions of EU law. In EU law, of course, it is paramount to be aware of the hierarchy between primary and secondary law.3 An important consequence of the definition of the term ‘Agreement’ in Art. 2 litra (a) is that it makes clear that the Surveillance and Court Agreement, the Standing Committee Agreement and the other EEA-related agreements between the EFTA States4 are not part of the EEA Agreement as such. This definition of the term ‘EEA Agreement’ is important to bear in mind when reading the adaptations to EU legal acts made by the EEA Joint Committee. By way of an example; the EEA adaptations of the EU regulations establishing European Supervisory Authorities in the field of financial services make clear that the words ‘Union law’ shall be read ‘the EEA Agreement’.5 At first sight, one may think that such references to ‘Union law’ rather ought to be re1 See the overview provided for by Fredriksen in the introduction ‘EEA law in and beyond the text of the Main Part of the EEA Agreement, Section III. As to the Svalbard Protocol in particular, see also Arnesen’s comments to Art. 126, mn. 3. 2 Still, in Case E-6/01, 9.10.2002, CIBA, the EFTA Court found, in para. 22, that ‘nothing in the EEA Agreement or the Surveillance and Court Agreement or other relevant legal instruments that suggests that any provision governing the functioning of the EEA Joint Committee is excluded from the jurisdiction of the Court under Article 34 of the Surveillance and Court Agreement.’ See further on this Christiansen’s comments on Art. 34 SCA in Part III of this book. 3 Further on this issue, see Arnesen’s comments on Art. 119 EEA, mn. 21 to 23. See also Fredriksen, ‘EEA Main Agreement and Secondary EU Law Incorporated into the Annexes and Procols’, in: Baudenbacher (ed.), Handbook of EEA Law, pp. 95-110. 4 Such as the Agreement on a Committee of Members of Parliament of the EFTA States, signed in Reykjavik on 20 May 1992 (with some later amendments). For details, see the comments by Tynes on Art. 95 EEA, mn. 4. 5 See EEA Joint Committee Decision No. 199/2016 (EBA) Art. 1(i)(i); No. 200/2016 (EIOPA) Art. 1(i)(i) and No. 201/2016 (ESMA), Art. 1(i)(i).

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placed by references to ‘EEA law’. However, the term ‘EEA law’ is ambiguous as it is often used in a broad sense which includes the EEA-related agreements between the EFTA States (and sometimes even EEA-related parts of EU law). 6 The term ‘EEA rules’ which is found, inter alia, in the important Protocol 35 EEA on ‘the implementation of EEA rules’ must be presumed to refer to rules of the EEA Agreement as defined in Art. 2 litra (a). 7 On the other hand, unwritten principles of EEA law deduced from the object and purpose of the EEA Agreement as such6 must be regarded as covered by references to ‘the EEA Agreement’ and ‘EEA rules’. 8 It should be added that matters arising under the Surveillance and Court Agreement or the Standing Committee Agreement can sometimes be rephrased as questions concerning the EFTA States’ fulfilment of their obligations under the EEA Agreement as such.7 II. The EEA-specific definition of the term ‘the EFTA States’

Art. 2 litra (b) originally defined the term ‘EFTA-states’ to mean ‘the Contracting Parties which are members of the European Free Trade Association’. As Switzerland did not accede to the agreement, however, the format was changed to listing the participating EFTA States.8 This was hardly necessary as the original wording was flexible enough to cater for changes on the EFTA side of the EEA Agreement. With the amendment, the symmetry that existed between Art. 2 litras (b) and (c) was broken. 10 When Austria, Finland and Sweden acceded to the (then) European Community and the European Union on 1 January 1995, no formal agreement was concluded to remove them from the list of EFTA Member States in Art. 2 litra (b).9 This was done as part of the 2003 EEA Enlargement Agreement, however.10 11 The very specific definition of the term ‘EFTA States’ now found in Art. 2 litra (b) is one of the reasons why it is difficult to envisage that an EU Member State leaving the EU could switch to the EFTA-pillar of the EEA without the consent also of the EU and the remaining EU Member States. 9

6 See further Fredriksen in the introductory chapter on ‘EEA law in and beyond the text of the Main Part of the EEA Agreement’, Section II. 7 See further Fredriksen in the introductory chapter on ‘EEA law in and beyond the text of the Main Part of the EEA Agreement’, Section V. 8 See Adjusting Protocol of 17 March 1993 adjusting the Agreement on The European Economic Area, Art. 2. 9 While recognising that an adjusting protocol would have been preferable, the Contracting Parties were of the opinion that this was not strictly necessary, see also Tichy and Dedichen, ‘Securing a smooth shift between the two EEA pillars’, 32 CMLR (1995) pp. 131-156, on pp. 150-151. 10 Agreement on the participation of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic in the European Economic Area of 14 October 2003 (OJ No L 130, 29.4.2004, p. 11), Art. 2(1) (a).

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A well-known communication problem with the EEA-specific definition of 12 the term ‘EFTA States’ is that it renders the term ambiguous: Within the setting of EEA law, Switzerland is not an EFTA State; whereas references to the EFTA States in all other settings usually means all of the four remaining member states of EFTA. III. The Contracting Parties on the EU-side

Art. 2 litra (c) has remained virtually unchanged since the signing of the EEA 13 Agreement,11 and does therefore not reflect subsequent developments of EU external relations law. However, the definition reflects that the EEA Agreement is a mixed agreement where the allocation of competences between the Union and its Member States may vary depending on the issues to be addressed and, indeed, over time. The definition is therefore basically a referral to EU-law, and flexible enough to adapt to changes in the allocation of competences between the EU and its Member States.12 This however comes with a price as one has to consult EU-law in order to establish, with regard to signatories belonging in the EU pillar, whether the term ‘Contracting Parties’ in any given setting means the European Union, the EU Member States, or the European Union and the EU Member States. Cumbersome as this may be as a matter of principle, it is hard to see that it will create any problems, neither in the cooperation between the two pillars nor in the EEA Joint Committee. Due to Art. 207 TFEU and the ECJ’s ERTA-case law,13 the ‘Contracting Party’ on the EU side in the EEA Agreement will in almost all cases be the European Union, represented by the European Commission. IV. Acts of accession of 16 April 2013, 25 April 2005 and 9 December 2011

Art. 2 litras (d) to (f) refer to the acts of accession of the new Member States 14 of the European Union. According to Art. 128(1) EEA, any European State becoming a Member State of the EU has to apply to become a party to the EEA Agreement. Through the 2003, 2007 and 2014 EEA Enlargement Agreements Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia, the Slovak Republic, Bulgaria, Romania and Croatia have acceded to the EEA.14 The various acts of accession of the said States to the EU were the central points of reference in the subsequent negotiations on their accession to the EEA Agreement. Thus, the 2003, 2007 and 2014 EEA Enlargement Agreements all include numerous references to the relevant acts of ac-

11 By the EEA Enlargement Agreement of 14th October 2003 a reference to the European Coal and Steel Community was deleted, as this community ceased to exist with the expiry of the ECSC Treaty 23rd July 2003. 12 See Vedder’s contribution on the EEA in the Union’s Legal Order, in Part I of this book. 13 See Vedder’s constribution, EEA in the Union’s Legal Order. 14 See further the comments to the list of Contracting Parties above.

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cession of the said States to the EU, which is why it was felt necessary to define the terms in Art. 2 litras (d) to (f).

Article 3 [Principle of loyalty] The Contracting Parties shall take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of this Agreement. They shall abstain from any measure which could jeopardize the attainment of the objectives of this Agreement. Moreover, they shall facilitate cooperation within the framework of this Agreement.

I. The principle of loyalty – or sincere cooperation

Art. 3 enshrines what has become known as the principle of loyalty, or sincere cooperation, under EEA law. The very wording of the provision will be immediately familiar to those acquainted with EU law, as largely mirroring the specific duties imposed on the EU institutions and the EU Member States under Arts. 4(3) and 13(2) TEU. Just as with its sister provisions in the EU Treaties, Art. 3 EEA has come to play an integral part in the development of the EEA legal system. It applies in all fields covered by the EEA Agreement, and is linked to all EEA rules and provisions through its reference to attainment of the Agreement’s objectives. As such, it saturates the entire EEA Agreement, providing a “keystone which supports the EEA edifice, without which the construction might crumble”.1 2 The multifaceted and dynamic nature of the duties imposed by the provision nevertheless makes it challenging to attempt to catch all of its many actual and potential applications in a concise, systematized approach. The first potential difficulty is purely terminological, as both the ECJ and the EFTA Court have referred to the various duties entailed by these provisions in many different terms.2 Whilst much can probably be said about the differences in emphasis (if not perhaps substance) between loyalty and sincere cooperation, since both EEA Courts appear to treat the terms synonymously, for reasons of convenience, we shall do the same in the following.3 3 The second difficulty is more conceptual, as the principle of loyalty or sincere cooperation may be seen as in certain parts analogous and/or closely linked 1

1 Almestad, ‘The Essentials’, in: The EFTA Court (ed.), The EEA and the EFTA Court – Decentred Integration (Hart, 2014), 299-309, 305. 2 Prior to its current wording as a duty of “sincere cooperation” under Arts. 4(3) and 13(2) TEU, the ECJ had at times previously referred to earlier corresponding Treaty provisions as establishing a “duty of loyal cooperation and assistance” (see e.g. Case C-374/89, 19. 2.1991, Commission v. Belgium, para. 15), and a “duty of loyalty” (Case C-459/03, 30.5.2006, Commission v. Ireland (MOX Plant), para. 168). The EFTA Court for its part has referred to Art. 3 EEA as entailing “loyal cooperation” (Case E-7/97, 30.4.1998, ESA v. Norway, para. 16), a “duty of loyalty” (Case E-18/11, 28.9.2012, Irish Bank, para. 58) and a “principle of loyalty” (Case E-24/15, 2.6.2016, Waller, para. 41).

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to (yet not necessarily synonymous with) a number of other EU/EEA legal principles. As we shall see, certain aspects of the specific duties imposed could rightly be viewed as mere expressions of the public international law principle of pacta sunt servanda – such as where Art. 3 is used to play a “gap-filling” role in fleshing out various parts of the EEA Agreement, or to (presumably) require the EFTA States to refrain from acts which might nullify the effects of Regulations or Directives before the end of the transposition deadlines provided. Yet the EEA principle also clearly requires more. EEA Member States must for example not only cooperate and be loyal to each other; they also have mutual cooperative duties vis-à-vis the EU/EEA/EFTA institutions. Several writers have therefore drawn on notions of constitutional and federal loyalty or fidelity in seeking to explain the principle of cooperation under EU law, with some even contending how it combines elements of both.4 Others refer to solidarity as the fundamental basis for cooperative duties under the EU Treaties.5 Others still see links and interplay between the duty of cooperation and the EU principles of effectiveness6 and consistency/coherence.7 In light of these terminological and conceptual variances, loyalty or sincere 4 cooperation has indeed been aptly described as “a coat of many colours”,8 and notoriously difficult to grasp. It should come as little surprise therefore to also find many different approaches taken in academic literature attempting to systematize the various strands of the principle’s application in practice.9 Focusing mainly on the addressees (Section II below) and functions (Sections III-VII) of 3 Klamert has for example argued that the duty of sincere cooperation should be understood as a subcategory of a more general principle of loyalty (M. Klamert, The Principle of Loyalty in EU Law (2014, Oxford University Press), p. 33). ESA for its part has similarly claimed that Art. 3 “entails both a duty of loyalty and a duty of sincere cooperation”, yet without explaining what the differences in terminology implied here might involve more specifically (see ESA Decision No. 143/16/COL, Case No. 76496, “Letter of formal Notice to Lichtenstein concerning the principle of equal treatment between men and women in the field of insurance and related financial services”, p. 17). 4 See e.g. M. Klamert, The Principle of Loyalty in EU Law, p. 61, with further references; C. Donnelly, “Administrative Law and Multi-Level Administration: An EU and US Comparison”, 11 (2009) CYELS, 211-246, p. 235; and P. Hreinsson, “General Principles”, in C. Baudenbacher (ed.), The Handbook of EEA Law, 349-389, at p. 357, who compares the duty to “federal good faith”. 5 See e.g. C. Vedder, “Artikel I-5”, in C. Vedder & H. von Heinegg (eds.), EuropäischerVerfassungsvertrag (2007, Nomos); and R. Bray (ed.), K. Lenaerts & P. van Nuffel, Constitutional Law of the European Union (2nd ed. 2004, Thomson/Sweet & Maxwell), p. 115. 6 M. Klamert, The Principle of Loyalty in EU Law, p. 73. 7 See e.g. C. Franklin, Consistency in EC External Relations Law (2010, University of Bergen PhD Series), 361-395; and C. Hillion, ‘Mixity and coherence in EU external relations: The significance of the duty of cooperation’, CLEER Working Papers 2009/2. 8 M. Klamert, The Principle of Loyalty in EU Law, p. 298. 9 See generally e.g. M. Klamert, The Principle of Loyalty in EU Law (2014, Oxford University Press); J.Temple Lang, “Article 10 EC – The Most Important ‘General Principle’ of Community Law”, in U. Bernitz, J. Nergelius & C. Cardner (eds.), General Principles of EC Law in a Process of Development (2008, Wolters Kluwer), 75-113; C. Vedder, “Artikel I-5”, in C. Vedder & H. von Heinegg (eds.), EuropäischerVerfassungsvertrag; and R. Bray (ed.), K. Lenaerts & P. van Nuffel, Constitutional Law of the European Union, 115-123.

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Art. 3, the approach in the following will aim to provide a comprehensive picture of how the EFTA Court has interpreted and applied this provision to date, based on and compared with the ECJ’s understanding of corresponding provisions under the EC/EU Treaties over the years.10 A number of potential and unresolved issues concerning the scope and application of the provision will also be broached (Section VIII). II. Addressees of the duties of cooperation 1. Vertical cooperation

Where parallel provisions in the EEA Agreement and the TEU/TFEU are to be interpreted, the general rule is that homogeneity is to prevail – unless the differences between them are so great as to warrant divergent approaches.11 As contended by Hreinsson, this implies that “Article 3 EEA will be construed in the same manner as the corresponding EU provisions contained in Article 4(3) TEU, so long as this interpretation is not irreconcilable with the provisions and characteristics of the EEA Agreement”.12 6 Concerning the addressees, the merest of glances shows how the wording of Arts. 3 EEA and 4(3) TEU differ quite markedly from one another. This should come as no surprise, however, given that Art. 3 has never been subject to amendment. It therefore still mirrors the wording of Arts. 5 EEC and 10 EC, before they were later replaced and amended following the Lisbon Treaty by Art. 4(3) TEU.13 7 The wording of Arts. 5 EEC and 10 EC only explicitly imposed classic vertical duties of cooperation on the EU Member States, obliging them to cooperate with the EU institutions. The ECJ nevertheless interpreted both provisions beyond their wording as providing for “mutual duties of sincere cooperation”, thereby also imposing on the EU institutions reverse vertical duties of cooperation owed to the Member States.14 Both of these vertical aspects of the principle are now fully codified in Art. 4(3) TEU, which refers to the various cooperative 5

10 A different – yet equally interesting – parallel would be provided by comparing the dynamic development of Art. 3 EEA to the corresponding principle of cooperation set out in Art. 50 of the EFTA Convention. Whilst the latter seems intentionally cast as an almost verbatim reproduction of the EU and EEA principles, in light of the vastly diverging nature of the EFTA Convention compared to the EEA and EU legal systems, it is difficult to imagine it being interpreted equally dynamically in practice. 11 See e.g. Case E-3/98, 10.12.1998, Rainford-Towning, para. 21. 12 P. Hreinsson, “General Principles”, in: Baudenbacher (ed.), The Handbook of EEA Law, p. 358. 13 Indeed, the principle of cooperation under EC/EU law can be traced back even further, to its least developed form, in Art. 86 ECSC. Whilst the drafters and the parties to the ECSC probably intended Art. 86 ECSC to enjoy more of a moral (or perhaps political) as opposed to legal weight in practice, as drawing more heavily from general notions of comity and the principle of pacta sunt servanda under international law, the same can certainly not be said of Art. 5 EEC.

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duties as applying in “full mutual respect” to both the EU institutions and the Member States.15 Although Art. 3 EEA contains no similar express reference, it clearly also im- 8 poses mutual duties of sincere cooperation through its reference to the “Contracting Parties” – i.e. the EU (and hence its institutions), the EU Member States and the three participating EFTA States. Indeed, the provision therefore imposes duties of mutual cooperation on a much broader potential range of constellations than Art. 4(3) TEU: Not only does it oblige the EFTA States to cooperate with the EFTA institutions – which as we shall see later, is also the main thrust of the provision. It also imposes mutual duties on the EU institutions and EU Member States to cooperate in seeking achievement of EEA objectives. The EFTA Court has further confirmed the reverse vertical nature of the obligations set out in Art. 3 EEA: In Fesil and Finnfjord, without referring to the ECJ’s case-law, the EFTA Court held that the provision imposed on ESA a duty to respect the EFTA States’ rights to be heard, and to cooperate with them fully, in state aid cases.16 2. Horizontal cooperation

There are two potential horizontal dimensions to bear in mind under Art. 3. 9 The first concerns the relationship between the Contracting State Parties to the Agreement (i.e. the EU Member States and the EFTA States), who are clearly obliged to cooperate with one another. The best example of this is provided by the principle of mutual recognition, which goes to the very heart of the internal market, and was established jointly on the basis of the principle of sincere cooperation by the ECJ.17 In short, mutual recognition requires the EEA States 14 See e.g. Case 230/81, 10.2.1983, Luxembourg v European Parliament, para. 37; Case C-2/88, 6.12.1990, Zwartweld, para. 17: “In that community subject to the rule of law, relations between the Member States and the Community institutions are governed, according to Article 5 of the EEC Treaty, by a principle of sincere cooperation. That principle not only requires the Member States to take all the measures necessary to guarantee the application and effectiveness of Community law, (…) but also imposes on Member States and the Community institutions mutual duties of sincere cooperation” – more specifically, requiring the Commission to produce certain documents to a national court, and to have their staff testify before the national court in question. ECJ later confirmed that the same mutual duties of cooperation also applied under Art. 10 EC; see e.g. Case C-511/03, 20.10.2005, Ten Kate Holding, para. 28. 15 There are nevertheless somewhat conflicting academic views on the strength of the mutual duties (i.e. whether they apply as strongly for the EU institutions as for the Member States); compare e.g. C. Hillion, “Mixity and Coherence in EU External Relations”, in C. Hillion & P. Koutrakos (eds.), Mixed Agreements Revisited: The EU and its Member States in the World (2010, Hart), and M. Klamert, The Principle of Loyalty in EU Law, pp. 24-25. 16 Cases E-5-7/04, 21.7.2005, Fesil and Finnfjord, para. 128: “Although ESA is not under an obligation to open formal proceedings under Article 1(1) of Protocol 3 SCA, it is nevertheless under a duty not only to respect the right of the State concerned to be heard, but also to cooperate sincerely with the latter in that procedure. Such an obligation follows from Article 3 EEA.” Further reflected in ESA’s Notice on the co-operation between the EFTA Surveillance Authority and the courts of the EFTA States in the application of Arts. 53 and 54 of the EEA Agreement, OJ 2006 C 305, p. 19, and EEA Supplement to the Official Journal 2006 No 62, p. 21, in particular points 15, and 21-26.

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to recognize the equivalence of the regulatory history of a product, service or worker coming from another Contracting State.18 Beyond the general provisions on free movement in the Agreement, there are many Directives and Regulations setting out more specific duties of mutual recognition (and hence cooperation).19 In certain instances, the EFTA Court also appears to have identified specific duties of mutual recognition arising indigenously on the basis of Art. 3 alone.20 10 The second horizontal dimension of Art. 3 concerns inter-institutional cooperation between the EFTA institutions themselves, and as between the EU institutions. Although no provision mirroring Art. 13(2) TEU is to be found in the EEA Agreement (which is not surprising, as it was only introduced by Lisbon Treaty), Art. 3 EEA seems at the very least also capable of encompassing reciprocal, inter-institutional duties of cooperation. Indeed, certain writers had argued that such duties could already be seen to flow from Arts. 5 EEC and 10 EC, in spite of their express wording.21 11 Whilst one could imagine a number of potential scenarios in this regard – such as for example the EEA Joint Committee rejecting a request for information by the EEA Joint Parliamentary Committee; or a refusal of one of the subcommittees of the EEA Joint Committee to take steps to discuss potential amendments to the various Annexes to the EEA Agreement in light of new ECJ judgments, following an invitation by ESA22 – the issue is nevertheless of less practical importance under EEA law. Firstly, since the EFTA institutions have limited (and in certain situations no) means of bringing cases against one another 17 See e.g. Case C-71/76, 28.4.1977, Thieffry, para. 16; Case C-340/89, 7.5.1991, Vlassopoulou, para. 14; Case C-5/94, 23. 5.1996, Hedley Lomas, para. 19. 18 See generally C. Barnard, The Substantive Law of the EU, pp. 581-582. 19 See e.g. Art. 84 of Reg. 1408/71 on the application of social security schemes, which the EFTA Court deemed “a specification” of the principle of sincere cooperation, in requiring the competent authorities of the Member States to communicate to each other information regarding inter alia their implementing measures; to lend their good offices and act as though implementing their own legislation; and to carry out a proper factual assessment and consequently to guarantee the correctness of the information contained in an E101 form, see Case E-3/04, 14.12.2004, Tsomakas, para. 30. 20 Case E-3/04, 14.12.2004, Tsomakas, para. 32, where the EFTA Court held that “In a situation, such as the one at hand, where no [document which certifies that an EEA resident working for his employer outside his native country is covered by that country’s social insurance legislation] has been issued, the States concerned are similarly under an obligation to ensure the correct application of the choice of law rules contained in Title II of Regulation 1408/71. That follows from the principle of sincere cooperation which is laid down in Article 3 EEA.” 21 See e.g. M. Cremona, “Defending the Community Interest: The Duties of Cooperation and Compliance”, in M. Cremona & B. De Witte (eds.), EU Foreign Relations law: Constitutional fundamentals (2008, Hart), 125-169, pp. 157-158; J.Temple Lang, “Article 10 EC – The Most Important ‘General Principle’ of Community Law”, in U. Bernitz, J. Nergelius & C. Cardner (eds.), General Principles of EC Law in a Process of Development, p. 75. 22 For an example of the latter kind of situation, see ESA Doc. No. 786049, 13 January 2016: In Case C-236/09, 1.3.2011, Test-Achats, the ECJ had deemed a provision in a Directive which had been incorporated into the EEA Agreement invalid. Referring (inter alia) to Art. 3 EEA, ESA reminded the EEA Committee’s subcommittees of their duty to take all necessary measures, particularly including any necessary amendments to the Annexes to the EEA Agreement, in order to align them with decisions of the ECJ.

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to defend their prerogatives. Although there may therefore be a legal duty to cooperate at an inter-institutional level, it may simply not prove justiciable. Whilst Art. 111 EEA provides the EU institutions and the EFTA States with the possibility to bring a dispute before the EEA Joint Committee for resolution, this provision – by its wording, at least – does not open up for other EFTA institutions to do the same.23 And although the wording of Art. 34 SCA seems theoretically broad enough to allow other entities beyond national courts to request Advisory Opinions from the EFTA Court, including the EU and/or EEA/EFTA institutions, such a claim has yet to be tried in practice.24 Secondly, whilst the inter-institutional duty of cooperation under Art. 13(2) 12 TEU will usually be invoked by the EU institutions against one another to defend their prerogatives in the context of the various legislative procedures for passing secondary EU law, the same battles over competence simply do not arise in an EEA setting owing to the vastly divergent “legislative” method for making EU secondary measures part of the EEA Agreement.25 Finally, in light of the similar make-up of certain of the EFTA institutions, 13 certain constellations of inter-institutional conflicts may be less likely to arise in the first place. The EEA Council and EEA Joint Committee are for example both made up of state representatives, with the latter even helping to prepare the agenda for the EEA Council meetings, which usually adopts the proposed conclusions without much further ado. 3. Cross-pillar cooperation

Under the two-pillar system of the EEA Agreement, the enforcement of EEA 14 obligations in the EFTA States is generally left to ESA, whilst enforcement in the EU Member States is entrusted to the Commission.26 Certain provisions of the EEA Agreement therefore impose specific so-called “cross-pillar” cooperative duties on ESA and the Commission, such as for example Art. 109(2) EEA. The issue as to whether the EU Member States have a general duty under 15 Art. 3 EEA to cooperate with ESA, or the EFTA States have a general duty to cooperate with the Commission, nevertheless seems somewhat unresolved. The 23 ESA could, however, bring an action against all three EFTA States (jointly, if need be), under Art. 31 SCA – which would have much the same effect as if it were directing an action against the EEA Joint Committee. 24 Whilst art. 34 SCA was fashioned with (what is now) art. 267 TFEU clearly in view, the judicial cooperative schemes which they put in place are fundamentally different: Unlike preliminary rulings of the ECJ, the EFTA Court’s Advisory Opinions are not legally binding (although highly authoritative), and there is no formal duty to refer for national courts or tribunals acting at last instance. The EFTA Court also has the capacity (and apparent desire) to handle a greater caseload than it presently has. Allowing requests for Advisory Opinions from others than national courts and tribunals may not therefore seem completely beyond the realm of reason or possibility. 25 See the comments by Dystland, Finstad and Sørebø on Arts. 98 ff. 26 Art. 108 EEA.

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courts have yet to clarify whether the Zwartveld procedure applies in such cross-pillar situations, so that for example national public authorities or courts in the EFTA States could request documents from the Commission on the basis of Art. 3.27 III. Duties of positive action

In spite of the many and varied constellations mentioned above, the main thrust of Art. 3 – like its counterpart provision under EU law – lies in the application of the specific cooperative obligations it imposes on the EU and EFTA States in fulfilment of their obligations under EEA law. In most cases the provision is used as a conflict resolving measure, largely biased towards securing EEA (as opposed to national) interests. The duties imposed apply not only to the executive and legislative branches of the Contracting States, but also their judiciaries.28 17 The first sentence of Art. 3 imposes a general duty of positive action on the Contracting Parties to take all appropriate measures, whether general or particular, to ensure fulfilment of their EEA obligations. This particular strand of the provision is the most frequently relied upon by the EFTA Court in its case-law, and has been used to manifest a wide range of more specific duties. 18 First and foremost of these is the essential duty to take all measures necessary to ensure that EEA law is properly implemented into national law. Such cases will usually involve a claim by ESA that one of the EFTA States has failed to implement a Directive or Regulation within the transposition deadline stipulated by either the measure in question or the EEA Joint Committee,29 although they may also naturally concern wrongful implementation of the provisions of the Main Agreement.30 The EFTA Court has emphasized how the general lack of direct effect under EEA law makes timely implementation crucial for the proper functioning of the EEA Agreement, particularly in the two dualist EFTA States of Norway and Iceland, and therefore amounts to an obligation of result (as 16

27 Case 2/88, 13.7.1990, Zwartveld, para. 17. As we have argued elsewhere, given the Commission’s refusal to formally accept decentralised enforcement of Arts. 53 and 54 EEA, it remains doubtful whether it would be prepared to accept that Art. 3 EEA entails that national authorities and courts from the EFTA-pillar could request documents from it in competition cases – see C. Franklin, H.H. Fredriksen & I.M. Halvorsen Barlund, “National report on private enforcement of European competition law in Norway”, in G. Bándi, P. Darák, P. Láncos & T. Toth (eds.), Private Enforcement and Collective Redress in European Competition Law (2016, Wolters Kluwer) 365-391, 376. 28 See e.g. E-28/13, 17.10.2014, Merrill Lynch, para. 40. 29 Article 7 EEA. More than 60 of the around 90 cases where the EFTA Court has relied on Art. 3 EEA concerned such claims, see e.g. Case E-10/97, 19.6.1998, ESA v. Norway, para. 15; Case E-2/99, 22.6.2000, ESA v. Norway, para. 15; Case E-05/01, 5.12.2001, ESA v. Lichtenstein, para. 15; and Case E-3/08, 29.10.2008, ESA v. Iceland, para. 15. 30 Such as e.g. in Case E-7/14, 24.9.2014, ESA v. Norway, where by failing to amend national rules providing for the payment of registration tax for foreign-registered leased cars, Norway was deemed to have acted in breach of Arts. 36 EEA concerning the freedom to provide services, coupled with Art. 3 EEA.

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presumably opposed to mere best endeavours).31 ESA for its part also contends that the duty to take all measures under Art. 3 imposes more general duties on the EFTA States to confer with it in cases where there are difficulties or doubts on whether the adoption of new national legislation would be in compliance with their legal obligations under EEA law.32 The EFTA Court has further relied on this strand of Art. 3 to impose positive 19 duties on the national courts to take all measures to ensure that a Directive or Regulation which has been implemented and satisfies the general conditions of sufficient clarity and precision prevails over conflicting national law, in accordance with the primacy principle set out in Protocol 35 of the EEA Agreement.33 It has further been referred to as a joint basis in requiring the EFTA States to take any legislative measures necessary in order to comply with judgments of the EFTA Court,34 and for their national public authorities – both administrative and judicial – to interpret national law consistently with EEA law obligations.35 Consistent with the principles of effectiveness and equivalence, and further to 20 the duty to take all necessary measures, the EFTA States may in certain situations be required to create or adapt national procedural rules in order to safeguard the rights of individuals and economic operators under EEA law.36 Public or administrative proceedings must also be conducted in a way which will not impede individual rights under EEA law.37 Finally, the EFTA Court has relied on the first sentence of Art. 3 to impose a duty on the EFTA States to take steps to retrieve illegally granted state aid following an ESA Decision to such effect.38 IV. Duties of abstention

The second sentence of Art. 3 imposes a general duty on the Contracting Par- 21 ties to abstain from any measure which could jeopardize the attainment of the 31 See e.g. Case E-11/14, 28.1.2015, ESA v. Iceland, paras. 16-17. 32 See ESA Case No. 76496; Document No. 757520; Decision No. 143/16/COL; Letter of formal notice to Lichtenstein concerning the principle of equal treatment between men and women in the field of insurance and related financial services, p. 19 – “such a proactive approach is an emanation of the principle of loyal cooperation”. 33 See e.g. Case E-15/12, 22.7.2013, Wahl, para. 54; and Case E-12/13, 11.2.2014, ESA v. Iceland, para. 73. 34 See Case E-18/10, 28.6.2011, ESA v. Norway, para. 25-32, where Norway was deemed in breach of Art. 33 SCA, as reinforced by Art. 3 EEA, for not having introduced amendments to its Public Service Pension Act to bring it in line with the EFTA Court’s ruling in Case E-2/07, 30.10.2007, ESA v. Norway. 35 Case E-1/07, Criminal Proceedings against A, 3.10.2007, para. 39; Case E-28/13, 17.10.2014, Merrill Lynch, para. 42. 36 See e.g. Case E-2/10, 10.12.2010, Kolbeinsson, para. 46, where the EFTA Court relied on Art. 3 to conclude that EFTA States must guarantee the application and effectiveness of EEA law through national measures, even in situations where e.g. a Directive does not provide for infringement penalties. See also e.g. K. Almestad, “The Essentials”, in: The EFTA Court (ed.), The EEA and the EFTA Court – Decentred Integration (Hart, 2014), 299-309, 306. 37 Case E-1/04, 23.11.2004, Fokus Bank, para. 41. 38 Case E-2/05, 24.11.2005, ESA v. Iceland, para. 35.

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objectives of the EEA Agreement. This includes notably a duty to refrain from enacting new laws or engaging in other practices (whether legislative, administrative or judicial) which might hinder the achievement of EEA objectives, such as e.g. the setting up of a system ensuring that competition is not distorted and that the rules thereon are equally respected.39 22 Somewhat surprisingly, there are few other examples of reliance on this strand of the provision in the EFTA Court’s case-law.40 ESA for its part has contended that adopting new national law which contradicts the understanding of an EEA measure as interpreted at a later date by the ECJ would fall foul of this obligation.41 Presumably, it also encompasses a specific duty to refrain from taking any measures liable seriously to compromise the attainment of the result prescribed by a Directive or Regulation during the period prescribed for transposition thereof, and regardless of whether or not the provision of national law at issue which has been adopted is concerned with the transposition of the Directive or Regulation in question.42 23 It would also appear safe to assume that the vertical duty of cooperation under Art. 3 reaches a limit concerning purely political matters covered by the Agreement, just as Art. 4(3) TEU does. The Contracting Parties will therefore not presumably be obliged to refrain from acting in accordance with or pursuing national (or organizational) interests within the EEA institutions.43 24 A similar duty of abstention to that imposed in Adeneler – where the ECJ held that Art. 4(3) TEU imposed duties on the EU Member States to refrain as far as possible, in the period between entry into force and the transposition deadline, from interpreting domestic law in a manner which might seriously compromise attainment of the objective pursued by an EU Directive – may also potentially exist under EEA law.44 In Liechtensteinische Gesellschaft für Umweltschutz, the EFTA Court held that Art. 3 imposes a duty on national courts of the EFTA States to apply, as far as possible, the methods of interpretation recognised by national law in order to achieve the result sought by the Directive, from the date upon which a Directive or Regulation is made part of the EEA Agreement (i.e. the date on which it is adopted by the EEA Joint Committee, or alternatively at a later date owing to fulfilment of national consti39 Arts. 1(2)(e) and 53 EEA; see Case E-8/00, 22.3.2002, LO, para. 40. 40 It was for example mentioned, yet not applied, in Case E-7/97, 30.4.1998, ESA v. Norway, para. 16. 41 See ESA Case No. 76496; Document No. 757520; Decision No. 143/16/COL; Letter of formal notice to Lichtenstein concerning the principle of equal treatment between men and women in the field of insurance and related financial services,, where national law adopted a month and a half after the ECJ ruling in Test-Achats was alleged by ESA to contradict the Court’s findings, in breach of the second sentence of Art. 3 EEA. 42 Case C-129/96, 18.12.1997, Inter-Environnement Wallonie, para. 45; Case C-14/02, 8.5.2003, ATRAL, para. 58. See further ESA Case No. 76496; Document No. 757520; Decision No. 143/16/COL; Letter of formal notice to Lichtenstein concerning the principle of equal treatment between men and women in the field of insurance and related financial services, p. 19. 43 Joined Cases C-63 & 67/90, 13.10.1992, Portugal and Spain v. Council, paras. 52-53. 44 Case C-212/04, 4.7.2006, Adeneler, para. 123.

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tutional requirements following Art. 103 EEA).45 It is nevertheless not entirely clear whether the EFTA Court had the ECJ’s decision in Adeneler specifically in mind in reaching its decision in this case. The fact that the EFTA Court chose to address the duty in terms of the positive duties of action under the first sentence of Art. 3 is probably not decisive in itself, as an abstention could arguably be viewed as one of the particular measures which national authorities must take in order to fulfil their EEA obligations. Yet an application of the principle of consistent interpretation prior to expiry of the transposition deadline may arguably go even further than current requirements under EU law: In light of the ECJ’s stipulation that the national measure must be liable to “seriously compromise” attainment of the Directive’s objective, it remains uncertain whether it was applying the principle of consistent interpretation, or a similar (yet nevertheless distinct) duty grounded (in part, at least) in Art. 4(3) TEU. And unlike in Adeneler, the transposition deadline in the case facing the EFTA Court coincided with the Directive’s entry into force under the EEA Agreement; meaning that since the transposition deadline had in fact passed, the principle of consistent interpretation would in any event have kicked in. V. Duty to facilitate cooperation

The third sentence of Art. 3, which imposes on the Contracting Parties a duty 25 to facilitate cooperation within the framework of the EEA Agreement, has not been widely referred to or applied by the EFTA Court in its case-law to date. One example may nevertheless be found in Case E-4/16 ESA v Norway, where it held that the duty under Art. 33 SCA requiring the EFTA States to take any legislative measures necessary in order to comply with its judgments is an “essential expression” of the obligations to take all necessary measures and to facilitate cooperation set out Art. 3.46 Yet the facilitative duty does not appear to be limited to merely reinforcing 26 the other two strands of Art. 3. Another recent case – Case E-25/15 ESA v Iceland, concerning (inter alia) the recovery of illegally granted state aid – seems to suggest that it may be capable of providing a basis for indigenous duties as well.47 The EFTA Court held here that the EFTA States remain free to choose 45 Case E-3/15, 2.10.2015, Liechtensteinische Gesellschaft für Umweltschutz, paras. 74-75. See also the EFTA Court’s earlier indications to much the same effect in Case E-4/01, 30.5.2002, Karlsson, at para. 28: “(…) it is inherent in the general objective of the EEA Agreement of establishing a dynamic and homogeneous market, in the ensuing emphasis on the judicial defence and enforcement of the rights of individuals, as well as in the public international law principle of effectiveness, that national courts will consider any relevant element of EEA law, whether implemented or not, when interpreting national law.” 46 Case E-4/16, 16.11.2016, ESA v Norway, para. 24. See also Case E-19/14, 19.6.2015, ESA v Norway, para. 39; and similarly in Case E-18/10, 28.6.2011, ESA v Norway, para. 25-32, where Norway was deemed in breach of Art. 33 SCA, as reinforced by Art. 3 EEA, for not having introduced amendments to its Public Service Pension Act to bring it in line with the EFTA Court’s ruling in Case E-2/07, 30.10.2007, ESA v Norway. 47 Case E-25/15, 29.7.2016, ESA v Iceland,.

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the means by which to fulfil an obligation to recover unlawful state aid, provided that the measures chosen do not adversely affect the scope and effectiveness of EEA law. Where they nevertheless decided to recover aid by other means than a payment of monies (for example by repealing legislation granting an advantage to private individuals), they were obliged to provide ESA with evidence enabling it to establish that the measures were suitable for achieving the result required by ESA’s decision. The Court held that this “entails close cooperation between the EFTA States and ESA. The Court points to the obligation in Article 3 EEA to facilitate the achievement of ESA’s tasks, in particular by ensuring that decisions adopted by ESA are applied and complied with”.48 VI. (Joint) Basis in creation of novel EEA obligations 27

Just like the various general cooperation provisions of the EU Treaties, Art. 3 has generated a wealth of diverse effects under EEA law. As we recall, the ECJ has famously relied on the principle of sincere cooperation as a joint legal basis in the establishment and development of several integral EU principles – including supremacy,49 direct effect,50 consistent interpretation,51 state liability,52 the doctrine of implied external EU competence,53 and (as mentioned above) mutual recognition. The EFTA Court has similarly relied on Art. 3 as a (partial) basis for the creation and development of a number of fundamental unwritten EEA principles, in order to fill in perceived gaps in the EEA Agreement. These include the principles of state liability,54 consistent interpretation55 and effectiveness/equivalence,56 which largely appear to correspond to their EU counterparts. The need to ensure that the objectives of the EEA Agreement are fulfilled – notably homogeneity,57 but also including for example reciprocity and the defence of individual EEA rights – explains why national authorities in the EFTA States are similarly obliged to do all in their power to avoid conflicts between 48 49 50 51 52

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Ibid. para. 46. See e.g. Case 6/64, 15.7.1964, Costa v ENEL, p. 594. See e.g. Case 190/87, 20.9.1988, Moorman, para. 24. See e.g. Case 14/83, 10.4.1984, von Colson, para. 26. See e.g. Case 6/60, 16.12.1960, Humblet, p. 569, where the Court referred to Member States’ duties under Art. 86 ECSC (as forerunner to Art. 5 EEC) to rescind a national measure “and to make reparation for any unlawful consequences which may have ensued”, following a finding of incompatibility with Community law; Cases C-6 & 9/90, 19.11.1991, Francovich, para. 36; and Cases C-46 & 48/93, 5.3.1996, Brasserie de Pêcheur, para. 39. Case 22/70, 31.3.1971, Commission v Council, para. 20-22. See e.g. Case E-09/97, 10.12.1998, Sveinbjörnsdóttir, para. 61. See e.g. Case E-13/11, 25.4.2012, Granville, para. 52; Case E-15/12, 22.7.2013, Wahl, para. 54; Case E-6/13, 27.11.2013, Metacom, para. 69; Case E-12/13, 11.2.2014, ESA v Iceland, para. 73; Case E-28/13, 17.10.2014, Merrill Lynch, para. 42. Case E-2/10, 10.12.2010, Kolbeinsson, para. 46. See e.g. K. Almestad, “The Essentials”, in The EFTA Court (ed.), The EEA and the EFTA Court – Decentred Integration (Hart, 2014), 299-309, 308; and H.H. Fredriksen, Offentligrettslig erstatningsansvar ved brudd på EØS-avtalen (Fagbokforlaget, 2013), p. 58, who further contends that the same results could have been attained in any event by relying on the principle of homogeneity alone.

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national and EEA law, and to yield to EEA law where possible, even going so far as to demand compensation where the avoidance of such conflicts proves impossible. VII. Subsidiary nature of the provision

Looking at the ways in which arguments based on Art. 3 are employed in a 28 more methodological sense by the EFTA Court, the provision would appear to be largely subsidiary to other EEA rules – i.e. it will not usually be applied autonomously in a situation covered by another more specific rule governing the situation in question. Similarly to the way in which the ECJ has normally applied Art. 4(3) TEU and its forerunners,58 arguments based on Art. 3 have been employed almost exclusively as a supplementary basis in addressing breaches of other specific provisions of EEA law. A good example is provided by the many cases mentioned above involving failures by the EFTA States to implement Directives and Regulations within the transposition deadlines provided, where the EFTA Court’s conclusions indicate that the main breach concerns the specific duties set out in Art. 7 EEA (and/or the Directive/Regulation in question, as the case may be), with references to Art. 3 merely serving to support this conclusion. A number of other EEA law provisions also provide more specific manifes- 29 tations of the principle of sincere cooperation itself, and will therefore fall to be applied lex specialis to Art. 3. Art. 59(1) EEA on public undertakings for example imposes on the EEA Contracting Parties a special duty of abstention not to enact or maintain in force any measure contrary to the Agreement.59 Certain provisions further provide that national authorities must cooperate in specific ways with ESA, the Commission and/or the EEA Joint Committee in their inquiries, and to supply these institutions with particular information – see for example Arts. 22,60 48(2),61 11162 and 113 EEA.63 Many Directives and Regulations also contain provisions requiring specific measures to be taken by the Contracting States to notify ESA of national measures they intend to adopt to implement the EEA act in question into their domestic legal orders.64 58 See e.g. C-18/93, 17.5.1994, Corsica Ferries, para. 18. 59 See further Bekkedal’s commentary on art. 59 EEA. 60 Art. 22 EEA imposes a qualified duty on the Contracting Parties to notify the EEA Joint Committee of any proposed reduction or suspension of the effective level of its duties or charges having equivalent effect applicable to third countries benefiting from most-favoured-nation treatment no later than thirty days before they come into effect, and to take note of any representations by other Contracting Parties regarding any distortions which might result therefrom. 61 Art. 4(2) EEA imposes duties on the EU and EFTA States to notify the EEA Joint Committee as to any national measures relative to transport by rail, road and inland waterway and not covered by Annex XIII which are less favourable in their direct or indirect effect on carriers of other States as compared with carriers who are nationals of that State. 62 Art. 111 EEA provides the EEA Joint Committee with the power to collect all information which might be of use in making possible an in-depth examination of any dispute brought to its attention by the EU or one of the EEA EFTA states concerning the interpretation or application of the EEA Agreement.

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Beyond these specifications of vertical cooperative duties, several provisions of the EEA Agreement also provide specific manifestations of the coordinative, inter-institutional side to the principle – such as for example Arts. 58, 62, 64, 99, 106 and 109 (2) and (4). Certain provisions of the Agreement also provide for particular duties of mutual cooperation between the Contracting State parties – i.e. with specific reference to the Member States of the EU and EFTA. Art. 30 for example requires the Contracting States to take all necessary measures to ensure mutual recognition of diplomas, certificates and other evidence of formal qualifications.65 31 As mentioned previously, the EFTA Court has further contended that the duty under Art. 33 SCA, which requires the EFTA States to take any legislative measures necessary in order to comply with its judgments, is an “essential expression” of the obligations to take all necessary measures and to facilitate cooperation set out Art. 3.66 The Advisory Opinion procedure under Art. 34 SCA has also been viewed as one particular facet of the principle of sincere cooperation.67 Whilst it would seem perfectly natural to view both Arts. 33 and 34 SCA as more specific expressions of the principle of sincere cooperation, it is not entirely clear why the EFTA Court has chosen to treat these provisions as lex specialis to Art. 3 of the EEA Agreement, rather than the corresponding general cooperation provision of Art. 2 of the SCA itself.68 32 In spite of the many specific cooperative obligations contained in these other EEA provisions, one should nevertheless not underestimate the value of including a general cooperation clause in the EEA Agreement. To the contrary, Art. 3 acts as an important safety net by ensuring the application of a duty to cooperate in particular ways even in the absence of more specific cooperative obligations. 30

63 According to Art. 113 EEA, the Contracting Parties (i.e. the EFTA states acting unilaterally, and the Commission acting on behalf of the EU Member States) must notify the Joint EEA Committee of any measures taken in the event of serious economic, societal or environmental difficulties of a sectorial or regional nature which might affect the implementation and application of the Agreement. 64 In such cases, a breach of Art. 3 has nevertheless been used as a supplementary argument to reinforce the claim – see e.g. Case E-04/03, 5.5.2004, ESA v Norway, para. 23. 65 As explained in the 5th recital to Dir. 89/48 on the recognition of higher-education diplomas, this provision is clearly viewed as an expression of Art. 5 EEC, and by extension therefore also of Art. 3 EEA. (“whereas, however, they may not, without infringing their obligations laid down in Art. 5 of the Treaty, require a national of a Member State to obtain those qualifications which in general they determine only by reference to diplomas issued under their own national education systems, where the person concerned has already acquired all or part of those qualifications in another Member State; …”). 66 Case E-4/16, 16.11.2016, ESA v Norway, para. 24. See also Case E-19/14, 19.6.2015, ESA v Norway, para. 39; and similarly in Case E-18/10, 28.6.2011, ESA v. Norway, para. 25-32, where Norway was deemed in breach of Art. 33 SCA, as reinforced by Art. 3 EEA, for not having introduced amendments to its Public Service Pension Act to bring it in line with the EFTA Court’s ruling in Case E-2/07, 30.10.2007, ESA v Norway. 67 See e.g. Case E-1/94, 16.12.1994, Restamark, para. 25; Case E-1/95, 20.6.1995, Samuelsson, para. 13; Case E-1/11, 15.12.2011, Dr A, para. 34; and Case E-18/11, 28.9.2012, Irish Bank, para. 53-54. 68 See commentary on art. 2 SCA, mn. 4.

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VIII. Other unresolved and potential issues

Art. 3 has been used in many and varied ways in practice. Certain questions 33 nevertheless still remain concerning its nature and scope. Some have been touched upon already – such as for example the scope of the potential inter-institutional dimension of the duties imposed. Another issue briefly touched upon is whether it solely enjoys an auxiliary role – i.e. is purely subsidiary (or at best supplementary) to breaches of more specific EEA rules, or used as a supplementary argument in expounding novel EEA principles – or whether it is perhaps also capable of creating distinct legal obligations on its own. Whilst academic views on the remit of Art. 4(3) TEU may remain somewhat 34 divided on the issue,69 there would indeed appear to be certain cases where the ECJ has identified specific legal obligations as arising from this provision (or one of its predecessors) alone. Such as for example in situations involving a manifest and obvious refusal to provide information to the Commission, yet where no substantive obligation to provide the information in question was contained in specific provisions in the EU Treaties or secondary measures;70 or in situations involving intentionally obstructive conduct on the part of national authorities, “to a degree verging on malevolence”.71 As contended by Advocate General Poiares Maduro, there would seem to be several cases where the ECJ “has clearly recognized that refusal to assist the Commission in the achievement of its tasks may constitute a distinct failure by a State to fulfil its obligations under Article 10 EC”.72 Certain decisions of the EFTA Court might be understood as embracing much 35 the same view with regards to Art. 3. As mentioned previously, in Tsomakas, the EFTA Court for example appeared to draw a specific duty of mutual recognition indigenously on the basis of Art. 3.73 In Fokus Bank, the EFTA Court has also 69 J.Temple Lang, “Article 10 EC – The Most Important ‘General Principle’ of Community Law”, in U. Bernitz, J. Nergelius & C. Cardner (eds.), General Principles of EC Law in a Process of Development, p. 78, has for example argued that the provision “applies only together with some other rule of Community law or some document stating Community policy which identifies the purpose which the national authorities are obliged to promote, or at least not to obstruct”. Compare with the views of M. Klamert, The Principle of Loyalty in EU Law, pp. 236-241 and C. Hillion, ‘Mixity and coherence in EU external relations: The significance of the duty of cooperation’, CLEER Working Papers 2009/26, who both argue how certain actions of the EU Member States may amount to distinct violations of the duties of cooperation under Art. 4(3) TEU in their own right. 70 See e.g. Case C-374/89, 19.2.1991, Commission v Belgium, para. 12-16. 71 M. Klamert, The Principle of Loyalty in EU Law, p. 238; referring to the ECJ’s decision in Case C-82/03, 13.7.2004, Commission v Italy, para. 15-18. 72 Opinion of Advocate General Poiares Maduro in Case C-82/03, 1.4.2004, Commission v Italy, para. 8. 73 See Case E-3/04, 14.12.2004, Tsomakas, para. 32, where the EFTA Court held that: “In a situation, such as the one at hand, where no [document which certifies that an EEA resident working for his employer outside his native country is covered by that country’s social insurance legislation] has been issued, the States concerned are similarly under an obligation to ensure the correct application of the choice of law rules contained in Title II of Regulation 1408/71. That follows from the principle of sincere cooperation which is laid down in Article 3 EEA.”

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seemed to rely on Art. 3 as an indigenous legal basis for the creation of novel EEA obligations.74 Just like the Commission, ESA therefore also appears to have become more aware in recent years of the possibilities of founding complaints against the EFTA States based on indigenous breaches of Art. 3 EEA. In a recent Letter of Formal Notice, ESA has for example claimed that the actions of Lichtenstein authorities – by enacting new national legislation at odds with the ECJ’s decision in Test-Achats, and failing to confer more generally with ESA in the specific situation – constituted two indigenous breaches of Art. 3.75 Interestingly, these claims are raised under a separate heading, and unconnected to any other specific EEA provisions. 36 Another issue concerns whether Art. 3 may be used as a joint or independent basis for the potential transformation from mere possibility to positive obligation under Art. 34 SCA for national courts of last instance in the EFTA States to request Advisory Opinions from the EFTA Court. In a series of relatively recent cases starting with Irish Bank, the EFTA Court has held that “courts against whose decisions there is no judicial remedy under national law will take due account of the fact that they are bound to fulfil their duty of loyalty under Article 3 EEA. The Court notes in this context that EFTA citizens and economic operators benefit from the obligation of courts of the EU Member States against whose decision there is no judicial remedy under national law to make a reference to the ECJ (see Case C-452/01 Ospelt and Schlössle Weissenberg [1993] ECR I-9743)”.76

37

The ensuing “to refer or not to refer” debate has been much discussed in academic literature.77 Suffice to say for our present purposes that an obligation to 74 Case E-01/04, 23.11.2004, Fokus Bank, para. 41: “The Court notes at the outset that the EEA Agreement does not, as a general rule, lay down specific provisions governing the administrative proceedings in the Contracting Parties’ legal orders. However, such proceedings must be conducted in a manner that does not impair the individual rights flowing from the EEA Agreement. Such an obligation on the Contracting Parties follows from Article 3 EEA, the provision mirroring Article 10 EC.” 75 See ESA Case No. 76496; Document No. 757520; Decision No. 143/16/COL; Letter of formal notice to Lichtenstein concerning the principle of equal treatment between men and women in the field of insurance and related financial services, pp. 17-19. 76 Case E-18/11, 28.9.2012, Irish Bank, para. 58; as confirmed in Case E-3/12, 20.3.2012, Jonsson, para 60; Case E-11/12, 13.6.2013, Koch, para. 117; and Case E-2/12 INT, 31.10.2013, HOB-vín, para 11. 77 See e.g. C. Baudenbacher, “The EFTA Court: Structure and Tasks”, in: Baudenbacher (ed.), The Handbook of EEA Law, 139-178, p. 157: “[i]f there is no clear case-law either from the ECJ or the [EFTA] Court, a [national] court of last resort is basically obliged to make a reference. It is for ESA to enforce that obligation.” Similarly, G. Baur, “Preliminary Rulings in the EEA – Bridging (Institutional) Homogeneity and Procedural Autonomy by Exchange of Information”, in The EFTA Court (ed.), The EEA and the EFTA Court, 169-185, p. 177, who speaks of a “de facto duty to submit”; and S. Magnusson, “Efficient Judicial Protection of EEA Rights in the EFTA Pillar – Different Role for the National Judge?”, in The EFTA Court (ed.), The EEA and the EFTA Court –, 117-132, pp. 122-123, who views the EFTA Court’s decision in Irish Bank as making clear that “’whether or not to refer’ is not purely optional for the national courts [of last instance of the EEA EFTA States]”, and that “national courts cannot be considered to enjoy full discretion with regard to this matter.” Compare however with the more sceptical views of H.H. Fredriksen & C.N.K. Franklin, “Of pragmatism and principles: The EEA Agreement 20 years on” 52 (2015) 3 Common Market Law Review, 629-684, pp. 672-673.

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refer cannot be deduced from the wording of Art. 34 SCA alone; neither could it be deduced from an indigenous application of Art. 3 EEA alone. At best, Art. 3 EEA could (and should) be seen as imposing a heightened duty on national courts of the EFTA States – at all levels – to seriously consider the potential implications of a decision not to refer in cases where the status of EEA law may be unclear. In the event that a national court were to decide not to refer in a case, and then proceeded to interpret and/or apply EEA law in a manner which proved manifestly wrong or at odds with the practice of the ECJ and/or EFTA Court, then Art. 3 might clearly come into play ex-post the national court’s final ruling. In such an event, ESA or one of the other EFTA States could raise infringement proceedings against the EFTA State concerned for failing to take a measure (i.e. referral) which might otherwise have ensured fulfilment of its EEA obligations – notably the fundamental objectives of homogeneity, reciprocity and/or the judicial defence of individual EEA rights in the specific case at issue. Whilst the duty of sincere cooperation may therefore serve to indirectly steer the decision of national courts – at all levels – in certain cases as to whether they should refer a particular case to the EFTA Court or not (i.e. exante), Art. 3 cannot be viewed as directly determinative or constitutive in itself of an obligation to refer. Much the same applies as far as the discussion of the binding nature of the 38 EFTA Court’s Advisory Opinions is concerned. Whilst the duty of sincere cooperation cannot in and of itself oblige a national court to follow the EFTA Court’s Opinions, the threat of infringement proceedings based on Art. 3 will surely entail an exceptionally high threshold before national courts would consider arriving at a different result. Indeed, the national courts of the EFTA States have expressed as much of their own accord.78 One final issue is how far the duties of sincere cooperation under Art. 3 might 39 prove capable of being stretched in the name of homogeneity in the future, given the real and/or potential legal, institutional and political differences between the EEA Agreement and the EU Treaties. Art. 4(3) TEU has undoubtedly been used by the ECJ in a variety of legal and practical connections which find no direct parallel in an EEA setting. Most notably perhaps in the field of EU external relations law, where the constantly shifting borderline between national and EU powers owing to implied EU external competences has in practice been policed predominantly by Art. 4(3) TEU.79 Art. 4(3) TEU has further been relied upon by the ECJ to ensure loyal cooperation by the EU Member States even when they operate outside of the EU Treaties entirely – obliging them to exercise sovereign rights in a manner which furthers (or at least does not work against) the interests of the Union.80 Whilst analogous waters have yet to be tested by the courts in an EEA setting, given the differing systematic contexts that Art. 4(3) 78 For Norway, see e.g. Rt. 2000, 1811; Rt. 2004, 904; Rt. 2007, 1003; and Rt. 2013, 258. For Iceland, see e.g. H.1999, 4429; and H.1999, 4916. 79 See e.g. M. Klamert, The Principle of Loyalty in EU Law, p. 59.

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TEU and Art. 3 EEA find themselves in, it seems reasonable to assume that any attempt to bind the exercise of sovereign rights by the Contracting State parties in similar ways beyond the confines of the Agreement would be vigorously contested. IX. Summary 40

As we have seen, the practice of the ECJ and EFTA Court reveal the very concept of loyalty or sincere cooperation to be a “coat of many colours”. Art. 3 has been interpreted and applied in a sui generis manner, allowing it to adapt to the changing nature and state of EEA law over time. The specific obligations flowing from Art. 3 therefore appear to surpass the wording of the provision in practice today. The fact that the Contracting State parties to the EEA Agreement not only must cooperate and be loyal to each other, but also have cooperative duties vis-à-vis the EU/EEA institutions, also goes some way in showing how the principle is more than simply an enhanced version of the public international law principle of pacta sunt servanda. Given the many and particular idiosyncrasies of EEA law as compared to EU law, the principle also seems even more important in its EEA setting, where effective enforcement and application is left to an even greater degree to national authorities, with fewer compulsive overarching elements (e.g. non-binding nature of Advisory Opinions, and the fact that all EEA legal acts – i.e. both Directives and Regulations – must be transposed into national law). The provision therefore serves as a prime example of the true magnetizing force of EEA law, by making accomplices of the Contracting Parties to the Agreement in the regulation of the EEA through strong, mutual obligations of loyalty.

Article 4 [Non-discrimination on grounds of nationality] Within the scope of application of this Agreement, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited.

1. Introduction

Article 4 provides the fundamental right in EEA law to equal treatment irrespective of nationality. 2 The provision reproduces the wording of what is now Art. 18(1) TFEU. It seems settled that Art. 4, within its scope, also reproduces the content of it; the ECJ has expressed that Art. 4 is “identical” to what is now Art. 18(1) TFEU.1 1

80 Such as e.g. binding the EU Member States where they seek to exercise reserved competences within the context of a mixed agreement. 1 See Case C-155/09. 20.1.2011, Commission v Greece, at para. 74 and Joined Cases 204 to 208/12, 11.9.2014, Essent Belgium, at para. 123.

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This contrasts Art. 4 to similar provisions in other agreements entered into by the EU.2 Art. 4 does not reproduce Art. 18(2) TFEU conferring on the European Parliament and the Council the power to adopt rules designed to prohibit discrimination. However, all such relevant measures either are or will be integrated into the Agreement in accordance with the decision-making procedure in Part VII of it. Thereby is the same result achieved in the EEA as through Article 18(2) TFEU in the EU,3 see also Section 2 below. The effect of Art. 4 is thus, in essence, that for situations governed by the EEA Agreement, the EU-law principle of non-discrimination on grounds of nationality is extended to the whole EEA.4 The ECJ early pointed out that the principle now in Art. 18 TFEU “is one of the fundamental legal provisions of the Community”.5 Similar wording is used by the EFTA Court, describing Art. 4 as “a general principle”.6 More recently, the ECJ has described Art. 18 TFEU as “a specific expression of the general principle of equality, which itself is one of the fundamental principles of Community law”.7 However, neither court has so far characterized Art. 4 as a specific expression of a general principle of equality in EEA law. The existence of any such broad principle within EEA is uncertain and disputed. It has no direct legal basis in the EEA itself but EEA law will on the other hand be deprived its homogeneity with EU law if the principle is not accepted also in EEA law. Hreinsson has recently argued that the unwritten general principle of equality in EU law is applicable also in EEA law,8 and the EFTA Court has made reference to it in State aid cases where the question has been whether or not ESA has infringed it.9 Another issue is however whether or not the EEA States, and even private parties, are bound by a general principle of equality (see Section 5 below regarding the parallel issue under Art. 4); and in the affirmative whether or not the principle will be accepted and applied by national courts.10 2 See case C-70/09, 15.7.2010, Hengartner and Gasser, at paras. 41 and 42 and more expressively the Advocate General’s opinion at para. 57. The case concerned the EU-Switzerland agreement on the free movement of persons. 3 See Nordberg et al., EEA Law, A Commentary on the EEA Agreement, at p. 102. 4 An updated presentation and discussion of the principle of non-discrimination on grounds of nationality in an EEA context is given by Fredriksen in: Baudenbacher (ed), The Handbook of EEA Law, pp. 391-411. 5 See C-2/74, 21.6.1974, Reyners, at paras. 15 and 24. 6 See Case E-16/11, 28.1.2013, ESA v Iceland (“Icesave”), at para. 204. 7 See Case C-115/08, 27.10.2009, ČEZ, at para. 89. 8 Hreinsson in Baudenbacher (ed), The Handbook of EEA Law, pp. 349-390 on p. 362. 9 See Joined Cases E-4, 6 and 7/10,10.5.2011, Liechtenstein v. ESA, at para. 159-161 and Joined Cases E-17/10 and E-6/11, 30.3.2012 Liechtenstein v. ESA, at para. 147. Case E-26/13, 27.6.2014, Gunnarsson, at para. 84 is not an example in this respect as it concerned the interpretation of Art. 28 EEA. 10 See as an illustration the Danish Supreme Court’s ruling in Case 15/2014, 6.12.2016, DI som mandatar for Ajos A/S v. Boet efter A where held that the principle of equality as developed by the ECJ was not applicable in Denmark in a case between private parties due to lack of implementation.

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Art. 18 TFEU has long been recognized as conferring rights to individuals which can be invoked and relied on before national courts; it has direct effect.11 The same applies for Art. 4, but on a different legal basis; in Norway and Iceland such effect is due to national implementation of the Main Part of the EEA Agreement; in Liechtenstein it is due to the country’s monist approach to international law and within the EU it is due to the EEA Agreement being an integral part of EU law and Art. 4 fulfilling the criteria for the direct effect of international obligations as a matter of EU law. 2. Without prejudice to any special provision

The phrase “without prejudice to any special provision contained” in the Agreement indicates that special provisions take precedence. The effect is that Art. 4 applies independently only to situations for which the EEA Agreement lays down no special rule prohibiting discrimination on grounds of nationality.12 If any such non-discrimination rule exists elsewhere in the Agreement, that provision applies, not Art. 4. 9 The residual character of Art. 4 implies that the provision performs only a ‘gap-filling’ function. In cases where a special provision applies, the courts usually confine themselves to refer to that provision only, not to Art. 4.13 For that reason, the EFTA Court has so far applied Art. 4 independently only in two cases; E-5/10 Kottke14 and E-16/11 Icesave.15 10 In the Main Part of the EEA Agreement, special non-discrimination rules are found in Arts. 11 to 16 and 28 to 42 (‘the four freedoms’). Some of them are quite similar to Art. 4; see for example Art. 28(2) concerning free movement of workers. Others are slightly different, adapting the principle to the circumstances there governed. One example is Art. 14 which prescribes that, within its scope, goods cannot be discriminated against based on their origins or destinations. 11 Special provisions of non-discrimination are found not only in the Main Part of the Agreement but also in regulations and directives incorporated into the Annexes or Protocols. One example is Reg. 492/2011 on the freedom of movement for workers, in which for example Art. 7(2) prescribes that a worker who is a national of an EEA State “shall enjoy the same social and tax advantages as national workers”. Also such non-discrimination provisions in secondary EU leg8

11 See e.g. Joined Cases C-92/92 and C-326/92, 20.10.1993, Phil Collins, at para. 34. 12 See Case E-1/00, 14.7.2000, Íslandsbanki-FBA, at para. 35 and Case E-16/11, 28.1.2013, ESA v Iceland (“Icesave”), at para. 205. The same applies under Art. 18 TFEU; see e.g. Case C-105/07, 17.1.2008, Lammers, at para. 14 and Case C-384/08, 11.3.2010, Attanasio, at para. 37. 13 See e.g. Case C-251/98, 13.4.2000, Baars, at paras. 23-25 concerning the now parallel Art. 18 TFEU and Case E-1/00, 14.7.2000, Íslandsbanki-FBA, at paras. 35-36. This was different in earlier case law; see C-59/85, 17.4.1986, Reed. 14 See Case E-5/10, 17.12.2010, Kottke. 15 See Case E-16/11, 28.1.2013, ESA v Iceland (“Icesave”).

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islation made part of the EEA render Art. 4 inapplicable. This may be explained by the term “Agreement” used in Art. 4, which is defined in Arts. 2(a) and 119 to include not only the Main Agreement, but also Protocols, Annexes and “the acts referred to therein” which form “an integral part” of the Agreement.16 However, it may also be explained by the homogeneity principle which calls for an interpretation of Art. 4 in line with the ECJ’s interpretation of Art. 18 TFEU. Art. 18 TFEU applies without prejudice to any special provisions contained in “the Treaties” and this includes secondary EU law enacted in conformity with such special provisions. In principle, special non-discrimination rules take precedence over Art. 4 re- 12 gardless of the content of the former. The implication is that a special rule may allow for discrimination that is prohibited under Art. 4 and vice versa. However, the fundamental character of the non-discrimination principle expressed in Art. 4 (see Section 1 above), indicates that the special provisions will be interpreted in light of Art. 4. Under Art. 18 TFEU, the ECJ has stated: “As a derogation from the principle of equal treatment provided for in Article 18 TFEU, of which Article 24(1) of Directive 2004/38 is merely a specific expression, Article 24(2) must, according to the Court’s case-law, be interpreted narrowly and in accordance with the provisions of the Treaty, including those relating to citizenship of the Union and the free movement of workers (see, to that effect …)” 17

By stating that the special provision, in casu Art. 24(1) of the Citizen Direc- 13 tive, is “merely a specific expression” of Art. 18 TFEU, the ECJ has prepared for indirect application of the latter. Furthermore, Art. 24(2) of the directive, providing for a specific derogation from Art. 24(1), “must […] be interpreted narrowly in accordance with the provisions of the Treaty”. More far-reaching derogations under special non-discrimination rules than those applicable under Art. 18 TFEU are thus vulnerable for not being applied in accordance with their wording. The quoted case may be an example of that. Nothing calls for a different approach under EEA law. It can thus be concluded that formally, Art. 4 has a limited impact due to its 14 subordination to a large number of special rules in the Agreement prohibiting discrimination on grounds of nationality. In reality however, the impact of Art. 4 is huge due to its strong influence on the interpretation of the special rules, in particular of the special rules in secondary legislation. 3. Within the scope of application this Agreement

If a measure is to be reviewed on the basis of Art. 4, the measure must fall 15 within the scope of application of this Agreement. This scope will, as a starting point, essentially correspond to the scope of the EC Treaty as it stood at the time of the EEA negotiations, i.e. before the amendments made by the Treaty of Maastricht. 16 See further the comments by Arnesen and Fredriksen to Art. 2 and by Arnesen to Art. 119. 17 Case C-46/12, 21.2.2013, L.N., at para. 33.

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Put simply, the scope of the Agreement is limited to activities of economic nature (cf. the European Economic Area). This concept has however always been interpreted broadly by the ECJ.18 In E-5/10 Kottke the EFTA Court concluded that legislation of an EEA State which requires plaintiffs in legal proceedings to furnish security for costs, falls within the scope of EEA law (para. 18). The presumption was apparently that legal proceedings in general, by the costs they generate for the parties, constitute economic activities under the Agreement. That might however be a too broad interpretation; the ECJ has emphasized that “the main proceedings [must] relate to the exercise of the freedoms guaranteed by Community law”.19 Case E-5/07 Private Barnehagers Landsforbund20 provides for an example of an activity outside the scope of the application of the Agreement. The EFTA Court held that an activity carried out by a public entity is not economic in nature (under the State aid rules) if the essential element of remuneration is (almost) absent. In general, the outer limits of the concept ‘economic activity’, i.e. of the Agreement itself, correspond to the limits of the provisions of the four freedoms, competition law, State aid, etc. Moreover, Art. 4 does not apply to situations which are wholly internal to an EEA State and which are “in no way” connected to any situation envisaged by EEA law.21 In C-43/95 Data Delecta the ECJ clarified that the national rule in question fell within the scope of EU law for the purposes of Art. 18 TFEU, “in so far it has an effect, even though indirect, on trade in goods and services between Member States”.22 By reference to the provisions on Union Citizenship in TFEU, the ECJ has gradually widened the scope of Art. 18 TFEU to cover EU nationals who are neither economically active nor economically self-sufficient.23 The concept of Union Citizenship has no equivalent in the Agreement. The implication is that case-law of the ECJ relying to this concept for the applicability of Art. 18 TFEU can hardly be transferred to Art. 4. It may however be difficult to determine the EEA relevance of concrete judgments which partly relies on legal acts made part of the Agreement and partly on the concept of Union Citizenship.24 The EFTA Court's approach in E-28/15 Jabbi25 suggests that it will do much to preserve homogeneity with EU law in its interpretation and application of 18 See e.g. Case C-191/97, 11.4.2000, Deliége, at paras. 49-59 concerning non-professional sports activities and Case 186/87, 2.2.1989, Cowan, at para. 17 concerning compensation from a criminal injuries compensation scheme. 19 See Case C-122/96, 2.10.1997, Saldanha, at para. 17. The same position has been taken by the Norwegian Supreme Court in HR-2016-407-U, at para. 15 and by the Norwegian Government in Prop. 42 S (2016-2017). 20 Case E-5/07, 21.2.2008, Private Barnehagers Landsforbund. 21 In the setting of EU law, see Case 44/84, 15.1.1986, Hurd, at para. 55. 22 Case C-43/95, 26.9.1996, Data Delecta,, at para. 15; see also Joined Cases C-92/92 and C-326/92, 20.10.1993, Phil Collins at para. 27. 23 See e.g. Case C-209/03, 15.3.2005, Bidar. 24 See as an example Case C-184/99, 20.9.2001, Grzelczyk.

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EEA law also in situations where the parallel in EU law has been interpreted and applied in light of provisions not made part of the Agreement. In such cases, assessments have to be made on a case-by-case basis of whether or not the reference to non-EEA law is decisive for the applicability of Art. 18 TFEU.26 In the affirmative, it appears unlikely that Art. 4 can be applied within the EEA. It remains however to be seen how far the EFTA Court can and will go in this respect, and also how the ECJ will consider such issues qua EEA law.27 4. The Addressees

Article 4 itself is silent as to whom it is addressed. Determining those obliged by it must therefore be made by reference to the ‘scope’ of the application of the Agreement. The general system of the Agreement is that the obligations and prohibitions it contains are directed only at the Contracting Parties and/or the institutions set up by the Agreement, unless expressly otherwise provided. Thus, the EEA States; the EU and the institutions established by the Agreement (in Arts. 89 et sec.) are clearly bound by Art. 4. This includes ESA and the Commission as institutions of EEA Contracting Parties (the EFTA States and the EU, respectively).28 All levels of the EEA States are bound, not only central government, but also functionally or territorially decentralized entities of it. They are bound both when issuing legislative provisions and when taking individual decisions and actions.29 In this respect, the ECJ has interpreted the notion of ‘public body’ wide (see below). One rationale is that it should not matter how the State in question has chosen to organize itself. Some of the Agreement’s provisions, e.g. Arts. 53 and 54 (competition law) and a number of implementing regulations in other fields, sometimes in secondary legislation, are expressly directed at undertakings. In such areas of EEA law it could be argued that the private entities concerned are bound also by Art. 4. However, Art. 4 is normally not relevant in such situations because discriminatory behavior normally is prohibited in the special rule concerned. For example, private undertakings' possible attempts to keep undertakings from other EEA States out of market are prohibited under Arts. 53 and 54.

25 Case E-28/15, 26.7.2016, Jabbi, see also Case E-4/11, 26.7.2011, Clauder and Case E-26/13, 27.6.2013, Gunnarsson. The Jabbi case is discussed in more detail by Fløistad in her comments on Art. 28 and by Einarsson in his comments on Art. 32. 26 In Case E-26/13, 27.6.2013, Gunnarsson, the EFTA Court in para. 80 held that the incorporation of the Directive 2004/38/EC, (see Section 5), “cannot introduce rights into the EEA Agreement based on the concept of Union Citizenship”. 27 For further discussion, see Fredriksen in Baudenbacher (ed), The Handbook of EEA Law. 28 EU is a party to the Agreement and its institutions are as such bound by it. ESA is dealt with in Art. 108 et sec. and is probably as such bound by Art. 4. The same conclusion derives from case-law; see Case 147/79, 16.10.1980, Hochstrass concerning the EC Council. 29 See Case 36/75, 28.10.1975, Rutili, at para. 21.

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Under EU law the issue of who is bound by Art. 18 TFEU has been addressed as a question of horizontal direct effect, i.e. whether private parties can rely on the provision against other private parties. Some of the Treaty's provisions have been held to have horizontal direct effect;30 directives have on the other hand not.31 In C-411/98 Ferlini the ECJ expressed: “According to the case-law of the Court, the first paragraph of Article 6 of the Treaty [Article 18 TFEU] also applies in cases where a group or organisation such as the EHL exercises a certain power over individuals and is in position to impose on them conditions which adversely affect the exercise of the fundamental freedoms guarantied under the Treaty (se, to that effect, Case 36/74 Walrave […]; Case 43/75 Defrenne […]; and Case-415/93 Bosman […]).”32

Ferlini concerned fees collected by a private group of hospitals (EHL); Walrave concerned certain provisions adopted by cycling associations; Defrenne concerned employee pay from an airline; and Bosman concerned transfer rules adopted by football associations. 27 From this it appears that not only entities exercising public authority are bound by Art. 18 TFEU. Also at least some private entities exercising private power are bound by it.33 In determining the private entities bound, the test appears to be whether or not the entity concerned exercises certain power over individuals, affecting the fundamental freedoms guaranteed by the Treaty. This will be the case not only if the entity concerned adopts and applies certain rules, but also if it takes other measures. What seems important is the entity’s dominance, not the form of its action. Vulnerable for being caught by Art. 18 TFEU are thus labor organizations acting on their own34 or trough collective agreements (cf. Walrave); large employers acting as such (cf. Defrenne); sports organizations acting towards their suppliers (cf. Walrave) and members (cf. Bosman); health institutions acting towards their customers (cf. Ferlini); probably infrastructure and transportation undertakings acting towards their suppliers and customers; etc. Nothing calls for any different approach under Art. 4. 28 Art. 4 may also in some other contexts be invoked in cases between private parties. If for example a private undertaking in its trade with a foreign undertaking complies with national legislation in breach of Art. 4, the foreign undertak26

30 See e.g. Case 43/75, 8.4.1976, Defrenne, re. Art. 119 EC (equal pay) and Case C-281/98, 6.6.2000, Angonese, at para. 36 re. Art. 48 EC (Art. 28 EEA, free movement of workers). 31 See Case C-91/92, 14.7.1994, Dori which concerned the effect of a directive not implemented nationally. 32 Case C-411/98, 3.10.2000, Ferlini, at para. 50. 33 It appears not entirely clear how Ferlini should be interpreted in this respect. See on the one hand Kapteyn & VerLoren, The Law of the European Union and the European Communities (2008), arguing at p. 163 that stricter wording in Ferlini compared to Case C-281/98, 6.6.2000, Angonese, delivered three months earlier and not referred to in Ferlini, indicates that the Court “is more reluctant” to accept direct horizontal effect under Art. 18 TFEU than under Art. 45 TFEU. See on the other hand Krenn, Common Market Law Review 49: 177-216, 2012 at p. 192 who, by making reference to Ferlini, concludes that Art. 18 TFEU “has been attributed horizontal direct effect”. 34 See Case C-341/05, 18.12.2007, Laval at para. 98 which however did not concern the parallel to Art. 4.

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ing may invoke that breach in an action before national courts against its trading partner. In such cases the court can conclude that the national legislation relied on by the trading partner is in breach of Art. 4.35 However, Art. 4 can hardly impose an obligation on the national court to order the trading partner to surrender its discriminatory activity in cases where the trading partner itself is not bound by Art. 4. 5. The holders of the right

Article 4 is equally silent as to who can invoke it. The starting point is that all individuals who are nationals of an EEA State, including undertakings and entities established within an EEA State (see i.a. Art. 34), may invoke Art. 4. This implies that nationals of other States than the EEA States (third country nationals) cannot invoke Art. 4.36 They fall outside the scope of the application of the Agreement. However, the Citizenship Directive (Directive 2004/38/EC) explicitly confers rights of residence to family members of nationals of EEA States irrespective of their nationality. The question thus arises whether such family members may invoke Art. 4 if they are nationals of a third country. As pointed out in Section 3 above, in E-28/15 Jabbi37 the EFTA Court went far in reaching the conclusion that such third country nationals have similar rights under EEA law as under EU law, even if the right assigned under EU law is based on the Union Citizenship provisions. Whether the Court's reasoning may lead to the conclusion that such family members under certain circumstances also can invoke Art. 4 is to some degree an open question. However, as also pointed out in Section 3 above Art. 4 cannot apply to situations outside the scope of application of the Agreement, and that scope is not widened by the EU concept of Union Citizenship. There are also limits on the applicability of Art. 4 to the EEA States' own nationals. Against its own State, Art. 4 cannot be invoked in situations which are "wholly internal to that state and which are in no way connected to any situations envisaged by [EEA] law".38 The home state may thus adopt measures in relation to its own nationals which are more restrictive than those applied to nationals of other EEA States. Reverse discrimination is not prohibited by Art. 4, unless the situation concerned is connected to cross-border activity (i.e. not a wholly internal situation).39

35 36 37 38 39

See Sejersted et al, EØS-rett (2011), at pp. 297-298. See Case C-291/09, 7.4.2011, Guarnieri, at para. 20. See Case E-28/15, 26.7.2016, Jabbi. See Case 44/84, 15.1.1986, Hurd, at para 55. In the EU, the Union Citizenship may put some pressure also on the concept of 'wholly internal situation' because citizen-rights are conferred by virtue of the person's status.

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6. The concept of discrimination 33

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In short, Art. 4 prohibits the use of nationality as a criterion when distributing rights and obligations. The implication is that every person (natural or legal) being a national of an EEA State, shall be given (at least) the same rights and obligations as nationals of other EEA States, those of the host State included. On the other hand, discrimination does not exist simply because different rules are applied in different States. If for instance State A bans an activity for all and State B allows it for all, neither of them discriminates anyone on the grounds of nationality. Moreover, different rules for nationals of the same State do not constitute discrimination. When a State distinguishes between nationals of one (typically its own) State, other criteria than nationality are applied per se.40 In order to constitute discrimination it therefore has to be a situation where one State (or entity of it) treats nationals of different States differently. Case-law has clarified the concept to be as follows: Art. 4 (and Art. 18 TFEU) “requires that comparable situations must not be treated differently and that different situations must not be treated in the same way”.41 The implication is first that different treatment of nationals and non-nationals is discriminatory only if the two groups are in comparable situations. And second; if they are not – they are in ‘different situations’ – equal treatment is discriminatory: they must be treated differently (in order to ensure equality).42 In C-279/93 Schumacher the ECJ expressed that “in relation to direct taxes, the situations of residents and of non-residents are not, as a rule, comparable”.43 The reason is i.a. that a major part of a taxpayer's income is normally concentrated in the State of residence. That was however not the case in Schumacher who obtained the major part of his income in Germany where he was a non-resident. For that reason, there was “no objective difference” between him and taxpayers resident in Germany “such as to justify different treatment” (para. 37). Consequently, in casu, the different treatment was discriminatory. The ruling illustrates that the assessment of whether being in ‘comparable’ or ‘different’ situations must be made concrete in each case, not at a general level.44 The ECJ’s reasoning also illustrates that determining whether two groups are in ‘comparable’ or ‘different’ situations is an exercise quite similar to that of determining whether the discrimination is objectively justified, see Section 7 be-

40 Both situations are dealt with in Case 223/86, 19.1.1988, Pesca Valentia, see paras. 18 and 20. See also Case 185 to 204/78, 3.7.1979, Van Dam, at para. 10. 41 See Case E-16/11, 28.1.2013, ESA v Iceland (“Icesave”), at para. 218 and e.g. Case C-279/93, 14.2.1995, Schumacker, at para. 30. 42 Case 147/79, 16.10.1980, Hochstrass is an example of a case where held that different treatment (an expatriation allowance) was not discriminatory. The reason was that the allowance (granted to foreign nationals) restored equality between nationals and non-nationals. 43 Case C-279/93, 14.2.1995, Schumacker, at para. 31, see also Case C-383/05, 22.3.2007, Talotta, at para. 19. 44 See also Case C-141/99, 14.12.2000, AMID.

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low. Both assessments involve the question of whether or not there are relevant differences to justify different (or equal) treatment. Furthermore, it is settled case-law that Art. 4 does not only prohibit directly 38 or overt discrimination by reason of nationality, but also indirect or covert forms of it that “lead to the same result”.45 A typical example of covert discrimination is distinctions made on the basis of residence, “in that non-residents are denied certain benefits which, conversely, are granted to persons residing within the national territory, is liable to operate mainly to the detriment of nationals of other EEA States, since non-residents are in the majority of cases foreigners, thus constituting indirect discrimination by reason of nationality”.46 Also the application of criteria such as regional residence,47 language skills48 39 and particular work experience49 might be examples of covert discrimination by reason of nationality. In general, there is indirect or covert discrimination if a measure, even though equally applicable notwithstanding nationality, in its application is more disadvantageous for nationals from other EEA States than for those of the state taking the measure. This is also the case when there is a risk that the measure operates “to the particular detriment” of foreigners.50 Despite the fact that the general application of the concept of discrimination 40 is well established, the application of it in concrete cases is not always straightforward. In Case E-16/11 Icesave51 the Icelandic Government had transferred domestic Landsbanki deposits to a new bank ‘New Landsbank’ established by the Government, leaving foreign customers as deposit-holders in an insolvent bank. The move certainly raises the question of discrimination because domestic depositors were treated better than foreign. However, the EFTA Court held that it was bound by the limitation of the scope of the case that ESA had made in its application to not attack this move (paras. 221-223). ESA had restricted itself to attack only the fact that the foreign depositors did not receive the minimum amount of compensation provided for in Directive 94/19. On the latter, the Court held that no discrimination had been made because neither foreign nor domestic depositors received such minimum compensation. The Court added; “[a] specific obligation upon [Iceland] that, in any event, would not establish equal treatment between domestic depositors and those depositors in Landsbanki’s branches in other EEA States cannot be derived from [the non-discrimination] principle” (para. 226). The implication is that the principle does not apply if the measure under consideration is not capable of resulting in equal treatment; being de45 See e.g. See Case E-5/10, 17.12.2010, Kottke, at para. 29, and also Case C-628/11, 18.3.2014, International Jet Management, at para. 64 and Case C-155/09, 20.1.2011, Commission v. Greece, at para. 45. 46 See Case E-5/10, 17.12.2010, Kottke, at para. 30. 47 See Case E-3/05, 3.5.2006, ESA v. Norway, at para. 56 and Case C-388/01, 16.1.2003, Commission v. Italy, at para. 14. 48 See Case C-281/98, 6.6.2000, Agnonese and Case C-90/96, 20.11.1997, Petrie. 49 See Case C-212/99, 26.6.2001, Commission v. Italy. 50 See Case C-237/94, 23.5.1996, O’Flynn, at para.18. 51 See Case E-16/11, 28.1.2013, ESA v Iceland (“Icesave”).

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positor in New Landsbanki was still a better position than receiving the minimum compensation. On this basis, the ruling in Icesave appears sustainable. If however ESA had not limited the case as it did, the Court could hardly have concluded that no discrimination had taken place. 7. Justifications

Measures which are discriminatory can be justified on objective grounds independent of nationality. This is clear if the measure concerned discriminates indirectly or covert,52 and is possible also in cases of direct or overt discrimination.53 In practice however, formal distinction on grounds of nationality is less likely to be justified because such measures will only rarely meet the justification test.54 42 The courts have described the test as follows: A discriminatory measure “can be justified only if it is based on objective considerations independent of the nationality of the persons concerned and is proportionate to the legitimate aim of the national provisions”.55 This prepares for a proportionality test similar to the one generally applicable under EEA law. 43 The first step is to identify a legitimate aim (an ‘objective consideration’ or a ‘public interest’) which includes not only interests such as public order; public security; public health and public safety. Also other interests such as good functioning of the civil justice system;56 protection of enforcement;57 regional policy;58 consumer protection including language skills;59 effective management; highly educated population; 60 etc. might be invoked. In fact all objective considerations 'independent of nationality' might be relevant. 41

52 See e.g. Case E-5/10, 17.12.2010, Kottke, at para. 40 and Case C-628/11, 18.3.2014, International Jet Management, at para. 68. 53 See Case C-155/09, 20.1.2011, Commission v. Greece, at paras. 68-71. Under the special nondiscrimination rules (e.g. Art. 28(3)) direct discrimination can be justified only based on certain considerations prescribed in the provision concerned, see Case C-388/01, 16.1.2003, Commission v. Italy, at para. 19. Because that ruling also referred to what is now Art. 18 TFEU, the same appears to apply also to Art. 18 TFEU (Art. 4 EEA). It is however not entirely clear that the public interest considerations applicable under Art. 4 (Art. 18 TFEU) generally is more limited in cases of overt/direct discrimination than in cases of covert/indirect discrimination. 54 See Kapteyn & VerLoren, The Law of the European Union and the European Communities, at p. 161. Justification was accepted in Case C-336/96, 12.5.1998, Gilly (Art. 48 TEC), but the case is rather special (double taxation). 55 See Case C-628/11, 18.3.2014, International Jet Management, at para. 68 and Case E-16/11, 28.1.2013, ESA v Iceland (“Icesave”), at para. 218. 56 See Case E-10/04, 1.7.2005, Piazza, at para. 43. 57 See Case C-224/00, 19.3.2002, Commission v. Italy, at para. 21 and Case E-5/10, 17.12.2010, Kottke, at para. 42. 58 See Case E-3/05, 3.5.2006, ESA v. Norway, at para. 57 regarding the Finnmark (region) supplement to family allowances. 59 See Case C-281/98, 6.6.2000, Angonese, at para. 44. 60 See Case C-238/15,14.12.2016, Verruga, at para. 46 (re. Regulation 492/2011).

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On the other hand, protection of the national economy61 and administrative simplification62 cannot justify discrimination. However, in Icesave the EFTA Court noticed in an obiter dictum that "the EEA States enjoy a wide margin of discretion in making fundamental choices of economic policy in the specific event of a systematic crisis provided that certain circumstances are duly proven".63 It is indeed reasonable that protection of national economy cannot be ruled out as a legitimate aim in situations of ‘systematic crises’ in the State concerned. The statement is however unspecific, leaving it up to further rulings to develop and decide on this concept.64 The second step is to verify that the measure is suitable for securing the legitimate aim.65 The third step is to verify that the discriminatory measure concerned does not exceed what is necessary in order to achieve the objective pursued: if less restrictive means are available, the discrimination is not justified. The Finnmark supplement case66 provides for an example of a discriminatory measure meeting the test: because the supplement allowance concerned was directed to those bringing up children in the designated area, no less restrictive means (i.e. no non-discriminatory means) were available in order to prevent depopulation. Case C-628/11 International Jet Management67 is an example of the opposite; a requirement of a particular license for safety reasons was not necessary because safety was secured by other means (by licenses granted by the home state under certain EC regulations). Another example is C-238/15 Verruga68 where held that certain restrictions on granting financial aid to non-resident students where excessive. Finally, depending on the circumstances,69 the fourth step is to ensure that the discriminating measure is not disproportionate in the sense that “the burden, in light of the objective sought, is not excessive in its discriminatory effects”.70 This implies a balancing of the interests at stake.

61 62 63 64 65

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See Case C-628/11, 18.3.2014, International Jet Management, at para 70. See Case C-18/95, 26.1.1999, Terhoeve, at para 45. See Case E-16/11, 28.1.2013, ESA v Iceland (“Icesave”), at para. 227. See commentary by Hanten and Plaschke in [2014] Common Market Law Review 295-310, at p. 306. See as an example Case C-350/96, 7.5.1998, Clean Car Autocervice, at para. 35, where the ECJ held that a requirement of residence in the country for the manager of an undertaking was not suitable for securing effective management; a requirement of local residence would probably have been. See Case E-3/05, 3.5.2006, ESA v. Norway, at para. 61. See Case C-628/11, 18.3.2014, at para. 74. See Case C-238/15, 14.12.2016, at para. 69. In many cases, this fourth step is not carried out. It is not entirely clear when and not, but it seems that the courts are reluctant to balance the interests at stake in cases of 'strong' objectives sought which is hard for a court of law to balance; such as public health, public security, morality and the like. In such cases it might be said that the States are left with a certain margin of appreciation. See Case E-5/10, 17.12.2010, Kottke, at para. 47.

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In this regard, different legal contexts in different EU and EEA States may lead to different results in similar cases. In E-5/10 Kottke the EFTA Court was asked whether or not Art. 4 precluded Lichtenstein from applying a national rule requiring plaintiffs residing in another EEA State to lodge security for legal costs in civil proceedings whereas residing plaintiffs were not subject to such a rule. Because Lichtenstein was not party to the Lugano Convention (essentially identical to the Brussel I Regulation within the EU), its law did not provide for the enforcement of a cost award. The circumstances under which the justification of the (indirect) discriminating measure applied were therefore different for Lichtenstein compared to other EEA States. For that reason, the EFTA Court did not rule out the application of the Lichtenstein rule but instead established a threshold (i.a. not unreasonably high amount and not to be paid within very short period of time). 8. Remedies

Article 4 is silent as to the legal consequences of breaches of its prohibition. Clearly, looking forward to potential breaches not yet committed, the States (the addressees) are free to abolish any discrimination by either depriving the advantages granted to the favored persons71 or by granting the disadvantaged persons the same advantages as enjoyed by those favored. 50 The same choice may also sometimes be available when looking backwards. That would be the case if no one has taken advantage of the favored position assigned or if unfavorable retrospective legislation is possible under the national law concerned (the EEA law included).72 51 If however the option of reducing the advantages to those favored is not available, equality can be ensured only by granting (in retrospect if necessary) to those disadvantaged the same advantages as have been granted others. The ECJ has gone a step further and stated that until measures reinstating equal treatment have been adopted, equality can be ensured only by granting the disadvantaged persons the same advantages as the favored ones.73 In such cases, Art. 4 imposes an obligation to grant the disadvantaged person the benefit concerned. If such remedy is no longer available because the benefit concerned was granted historically and was not pecuniary, it has to be granted in the form of compensation; a concept with further conditions. 49

71 See Case C-399/09, 22.6.2011, Landtova, at para. 53. 72 ECHR Art. 7; its Protocol 1 Art. 1 and the general principle in EEA-law on legitimate expectations are examples of provisions/principles that may prevent such retrospective legislation. 73 See Case C-399/09, 22.6.2011, Landtova, at para. 53, and also Case C‑18/95, 26.1.1999, Terhoeve, at para. 57 and Case C-401/11, 11.4.2013, Soukupova, at para. 35.

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Article 5 [The droit d’évocation in the EEA Council and Joint Committee] A Contracting Party may at any time raise a matter of concern at the level of the EEA Joint Committee or the EEA Council according to the modalities laid down in Articles 92(2) and 89(2) respectively.

Art. 5 establishes the right to raise a matter of concern, a droit d’évocation, as 1 one of the general principles of the EEA Agreement. The inclusion of this right in Part I of the Agreement serves to underline the importance of this principle. In procedural terms, however, the provision as such does not have any standalone value. Indeed, it explicitly refers to further modalities laid down in Arts. 92(2) EEA concerning the right to raise matters of concern in the EEA Joint Committee1 and 89(2) EEA as concerns the right to raise a matter of concern in the EEA Council.2 This general principle therefore only refers to relations between the Contracting Parties themselves. In contrast, the application of the other general principles laid down in this part of the Agreement, such as the principle of loyalty enshrined by Art. 3, the principle of non-discrimination stipulated by Art. 4 and the duty of implementation laid down in Art. 7, may have an effect on the rights and obligations of individuals and economic operators under EEA law. The inclusion of the droit d’évocation as one of the general principles in Part 2 I of the Agreement serves as a reminder of the political nature of the EEA Agreement. Should a Contracting Party invoke the right of raising a matter of concern in either the EEA Joint Committee or the EEA Council, it would most likely lead to deliberations or negotiations at the political level. Norberg et al. noted that the placing of this principle together with the other general principles showed that it had a general application. Therefore, they suggested that it could have an important function during the decision-shaping process as it conferred the right to lift a potential disagreement to a higher level at the preparatory stage.3 However, to date the Contracting Parties have never made use of the droit d’évocation stipulated by Art. 5.

Article 6 [Homogeneity] Without prejudice to future developments of case law, the provisions of this Agreement, in so far as they are identical in substance to corresponding rules of the Treaty establishing the European Economic Community and the Treaty establishing the European Coal and Steel Community and to acts adopted in application of these two Treaties, shall, in their implementation and application, be interpreted in conformity with the relevant

1 See comments on Article 92 EEA. 2 See comments on Article 89 EEA. 3 See Norberg et al., EEA Law, at p. 103.

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I. The principle of homogeneity*

The aim of the EEA Agreement, as set out in Art. 1(1) and the fourth recital in the preamble, is to create a dynamic and homogenous European Economic Area. The basic idea was to extend the single market to the EFTA States.1 This objective rested on two essential elements. The provisions of the EEA Agreement must correspond to the single market rules and there must be judicial mechanisms that ensure that these provisions are interpreted in the same manner.2 Chief of these mechanisms are Arts. 6 EEA and 3 SCA, which essentially require EEA rules to be interpreted in conformity with the ECJ case law. Other means of ensuring homogeneity are found in Arts. 105 to 107 EEA concerning review by the EEA Joint Committee, exchange of information on jurisprudence as well as the possibility for EFTA States to request preliminary rulings from the ECJ.3 2 The emphasis that is placed on homogenous interpretation throughout the EEA Agreement must be seen in conjunction with the Polydor judgment.4 The ECJ held in that case that provisions in a trade agreement between the Community and Portugal could not be interpreted in the same way as corresponding provisions in the EC Treaty, although worded identically. The ECJ emphasised that the objectives and context of the two agreements differed.5 The EEA Contracting Parties wanted to reduce the risk of the same thing happening to the EEA Agreement,6 which is why Art. 6 explicitly provides that EEA law shall be interpreted in the same manner as corresponding Community rules. When the ECJ in Opinion 1/91 expressed scepticism in regard to the reach of Art. 6 EEA, the Contracting Parties reinforced their commitment to homogeneous interpretation in a new recital (no 15) in the preamble and in Art. 3 SCA. The objective of homogeneity was thus made very clear. The instruments for attaining that objective were less committing, however. Arts. 6 EEA and 3 SCA circumscribe both the scope and content of homogenous interpretation. Their wording is nevertheless of limited significance today. The EFTA Court’s case law has expanded the scope of these rules and basically substituted them for a principle of homogeneity sans frontières. 3 Some criticise this as judicial activism altering the scope and nature of the EEA Agreement.7 Others claim that it has been necessary to ensure the longevi1

* The views expressed are personal and do not necessarily reflect those of the Office of the Attorney General. I am grateful to the editors and Ketil Bøe Moen for their comments. 1 E.g. Case C-452/01, 23.9.03, Ospelt, para. 29. 2 E.g. Case E-9/97, 10.12.98, Sveinbjörnsdóttir, paras. 52-54. 3 See the comments by Fredriksen on these provisions. 4 Case 270/80, 9.2.82, Polydor. 5 Ibid, paras. 14-21. 6 Norberg et al., EEA Law, p. 183.

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ty and development of the EEA.8 Yet others argue that Arts. 6 EEA and 3 SCA are not exhaustive and should not be interpreted antithetically, as the overarching objective of homogeneity is anchored in Arts. 1 and 3 EEA.9 But this is turning things on its head. Arts. 6 EEA and 3 SCA represent the concrete expression of how far, and by what means, the Contracting Parties were prepared to go in order to promote the objective of homogeneity. Some may argue that these provisions do not go far enough, and that may very well be true, but that is a political and not a legal argument. Be that as it may, the following tour d’horison will map the transformation of these provisions into a far-reaching principle of homogeneity and beyond. II. Scope and content 1. Material scope

The homogeneity principle applies to most substantive EEA rules. Art. 6 EEA 4 requires a homogenous interpretation of “the provisions of this Agreement …”. According to Art. 2(a) EEA, that covers the main Agreement, its Protocols and Annexes, as well as the acts referred to therein. The latter includes EU secondary law incorporated into the EEA Agreement. This is supplemented by Art. 3(1) SCA which similarly requires homogenous interpretation of the provisions in Protocols. 1 to 4 to the SCA, as well as the acts listed in Annexes I and II to that Agreement. These protocols and annexes cover substantive and procedural rules in the fields of public procurement, state aid and competition law. Neither Art. 6 EEA nor Art. 3(1) SCA refers to the institutional and procedu- 5 ral rules in the Main Part of the SCA. Whether these rules fall within the scope of Art. 3(2) SCA is unclear. The introductory part refers to the homogenous interpretation of the “EEA Agreement and this Agreement”, which thus indeed covers the Main Part of the SCA. But Art. 3(2) thereafter only makes reference to EU judgments concerning rules corresponding to the EEA Agreement and Protocols 1-4 and Annexes 1-2 to the SCA, thereby omitting rules mirroring those found in the Main Part of the SCA. The wording is thus internally contradictory. Reading it consistently with Art. 3(1) SCA militates in favour of a narrow interpretation. The wording of Art. 3(2) nevertheless supports a broader interpretation. Otherwise the introductory reference to the Main Part of the SCA would be rendered meaningless. A teleological interpretation suggests the same. It is difficult to see why the objective of homogeneity should not apply to the institutional and procedural rules in the Main Part of the SCA insofar as they are

7 E.g. Fløistad, Associated, Adapted and (almost) Assimilated. The European Economic Area Agreement in a revised EU constitutional framework for welfare services, Florence: European University Institute, 2016. 8 E.g. Sevon, ‘The ECJ, the EFTA Court and the national courts of the EFTA Countries’, in: Lødrup et al. (eds.), Rettsteori og rettsliv: festskrift til Carsten Smith (2000), p. 731. 9 Bekkedal, Frihet, likhet og fellesskap (2008) p. 144.

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identical in substance to corresponding rules governing the Commission and the ECJ. 6 The EFTA Court opted for a broad approach in Restamark, albeit with a twist.10 The case concerned whether the EFTA Court should be informed by ECJ case law when interpreting Art. 34 SCA and the notion of a “court or tribunal” competent to request advisory opinions. The EFTA Court briefly noted that Art. 3(1) SCA did not require homogenous interpretation of the Main Part of the SCA, but the ECJ’s interpretation of the corresponding provision in EU law was still deemed “relevant”.11 So relevant in fact that the EFTA Court without further ado proceeded to apply the criteria laid down in that case law.12 This was probably a sensible outcome, but it is regrettable that the reasoning did not offer much justification. It is puzzling that the EFTA Court omitted referring to Art. 3(2) SCA. This was after all the applicable provision in the proceedings and its wording, albeit ambiguous, could have supported homogenous interpretation. The open-ended reasoning in Restamark has still been applied ever since.13 Furthermore, in the absence of any anchoring in Art. 3(2) SCA, the EFTA Court has been free to develop this case law to its own liking.14 It has incrementally described the approach as an expression of “procedural homogeneity”,15 “the procedural branch of the principle of homogeneity”16 and, finally, “the principle of procedural homogeneity”.17 7 Although the principle of homogeneity concerns interpreting substantive and, now, procedural EEA rules in conformity with how the ECJ interprets corresponding rules of EU law, it is noteworthy that Art. 3(2) SCA also refers to ECJ case law concerning the EEA Agreement. This implements the objective of interpreting the EEA Agreement uniformly in the EFTA and EU States. It may be added that uniform interpretation does not necessarily have to coincide with interpreting EEA provisions homogenously with corresponding EU provisions.18 2. Temporal scope 8

The homogenous interpretation required by Arts. 6 EEA and 3 SCA is limited to corresponding rules in the EEC and ECSC Treaties and acts adopted in the application of these two Treaties.19 No reference is made to identical provisions in successor Treaties and secondary acts adopted under these treaties. This may seem odd since the Maastricht Treaty was being negotiated at the same time as 10 11 12 13 14 15 16 17 18

Case E-1/94, 16.12.94, Restamark. Ibid para. 24. Ibid. E.g. Case E-5/16, 22.3.16, Municipality of Oslo, para. 37. See Section IV. 5. Case E-18/10, 28.6.11, ESA v Norway, para. 26. Case E-14/11, 21.12.12, DB Schenker, para. 77. Order in Case E-19/13, 20.3.15, Konkurrenten v ESA, para. 34. See also the comments by Arnesen and Fredriksen on the fifteenth recital of the EEA preamble. 19 The latter reference is curiously missing in Art. 3(2) SCA.

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the EEA Agreement and was signed on 7 February 1992. It is nevertheless consistent with the fact that Arts. 6 EEA and 3(1) SCA only deal with judgments rendered before the signature of the EEA Agreement.20 Art. 3(2) SCA covers subsequent judgments. One might therefore have ex- 9 pected that the provision referred to Community rules subsequently adopted in so far as they were identical in substance. It does not, however, and this must have been a deliberate choice. This omission indicates that the Contracting Parties were more concerned with ensuring a homogenous European Economic Area than a dynamic one. The two are closely intertwined, however, and the former is difficult to attain without the latter. Furthermore, the original EEC rules have been repeatedly reshuffled following amendments to the EU Treaties. The EFTA Court has therefore not given the wording of Arts. 6 EEA and 3 SCA much attention. The reference to the EEC Treaty was substituted for the EC Treaty already in its first judgment, Restamark.21 The judgment also employed dual references to Arts. 6 EEA and 3 SCA and joint treatment of the ECJ case law, thus indicating that the EFTA Court was not too concerned with whether the judgments originated before or after the signature of the EEA Agreement.22 The references have later been substituted by the TFEU, and the date of ECJ judgments is no longer considered. 3. Content

The most important criterion for homogenous interpretation, according to 10 Arts. 6 EEA and 3 SCA, is that the relevant EEA and, now, EU rules must be “identical in substance”. This has only gained greater significance since the temporal limitations are not applied. Some commentators argue that that notion widens the scope of homogenous interpretation as identical in substance, does not mean identical in wording.23 The latter part of that argument is certainly correct. It is also true that one could envisage homogenous interpretation of provisions that are, as these commentators observe, identically worded save for elements that have not been carried over because of their sole relevance for internal Community procedures.24 But the notion of “identical in substance” also means that identical wording does not constitute sufficient grounds for homogeneous interpretation. It thus qualifies the reach of homogenous interpretation. This follows from the fact that an international treaty is to be interpreted not 11 only on the basis of its wording, but also in the light of its objectives and context. Therefore, as the ECJ observed in Opinion 1/91, the fact that provisions of the EEA Agreement and corresponding Community provisions are identically 20 Opinion 1/91, 14.12.91, para. 44. 21 Case E-1/94 Restamark, 16.12.94, paras. 46 and 64. 22 Ibid, see also e.g. Case E-3/98, 10.12.98, Rainford Towning, paras. 19-20. See also Skouris, “The Role of the Court of Justice of the European Union in the Development of the EEA Single Market” in: EFTA Court (ed.), The EEA and the EEA Court (2014), p. 5. 23 Norberg et al., EEA Law, p. 190. 24 Ibid.

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worded does not mean that they must necessarily be interpreted identically.25 The ECJ then proceeded to distinguish the objectives and context. While both Agreements contained similar rules on trade and competition, the EC Treaty contained provisions aiming at economic integration leading to an internal market and an economic and monetary union.26 By contrast to the EEA Agreement, the EC rules on free movement were not ends in themselves but means for attaining those objectives.27 This was underscored by the direct effect and primacy of Community law. The EEA Agreement, on the other hand, was deemed a traditional international agreement which only created rights and obligations between the Contracting Parties and that did not provide for any transfer of sovereign rights.28 Thus, the ECJ concluded that homogeneity could not be secured by the fact that the provisions of Community law and corresponding provisions of the EEA Agreement were identical in their wording.29 12 The EFTA Court has viewed this differently. It has downplayed differences and emphasized commonalities instead. The EFTA Court has in particular highlighted the homogeneity objectives set out in the fourth and fifteenth recital in the preamble to the Agreement. While the former existed at the time of Opinion 1/91, the fifteenth recital was added as a consequence of that opinion and was intended to reinforce the Contracting Parties’ ambitions of homogeneity.30 But that addition could not alter the underlying problem identified in that opinion, as the ECJ pointed out in Opinion 1/92, namely that the objectives and context of the EEA Agreement differ from that of the Community.31 Still, some commentators argue that the homogeneity objective presupposes acceptance of other EU objectives to the extent necessary to achieve homogenous interpretation.32 But this is tantamount to the tail wagging the dog. The objective of homogeneity certainly reflects that the two agreements share many objectives and that identical provisions should be interpreted alike. This overarching objective cannot be construed, however, as a cheque in blanco for importing EC objectives that are absent in the EEA Agreement. The EFTA Court has nevertheless employed the fifteenth recital as a stepping-stone for narrowing the different legal context of the two Agreements, for instance by introducing the principle of state liability.33 This in turn paved the way for more generally interpreting EEA law homogenously with corresponding Community rules on the grounds of identical wording.

25 26 27 28 29 30 31 32 33

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Acknowledging at the outset in Rainford Towning that there are differences in 13 the scope and purpose of the EEA Agreement compared to the EC Treaty, the EFTA Court was only prepared to concede that it “cannot be ruled out that such differences may, under specific circumstances, lead to differences in the interpretation”.34 Another step in the same direction was taken in Norwegian Waterfalls. This judgment established a presumption that provisions framed identically in the EEA Agreement and the EC Treaty shall be construed in the same way.35 This logically amounts to saying that there is a presumption that identically worded provisions in EEA and EU law share the same objectives and context, and therefore are identical in substance. This is a far-reaching proposition, but some commentators support it. They in fact argue that the presumption of homogeneity must hold true “unless expressly provided otherwise”.36 But this goes further than the presumption established by the EFTA Court and lacks support in the wording of Arts. 6 EEA and 3 SCA. The basic element of homogenous interpretation is that EEA rules must be construed in accordance with the same methodology that is applied by the ECJ when interpreting EU rules.37 That involves interpreting EEA rules in the light of their wording, objectives and context, with a view to ascertaining whether they indeed are identical in substance to corresponding EU rules.38 The presumption of homogeneous interpretation largely holds true for the 14 Main Part of the EEA Agreement, including the rules on freedom of movement, competition and state aid. Irrespective of whether the objectives and context of these provisions were exactly same as their counterparts in the EU Treaty, a homogenous interpretation of these provisions has become settled case law. The reservations in Opinion 1/91 have been superseded by the EFTA Court’s case law, which the ECJ eventually warmed to.39 Where the presumption runs into choppy waters is above all cases involving secondary legislation. This may lead to vertical problems (the interplay between primary and secondary law) as well as horizontal ones (the homogenous interpretation of secondary law). A few examples may be provided here. Starting with the horizontal situation, it will be observed that the EEA Joint 15 Committee will consider relevant differences between EEA and EU law when determining whether a piece of legislation shall be incorporated into the EEA Agreement. It may omit parts of a directive falling outside the scope of the EEA Agreement or adopt amendments to the text. But it does not always tackle these

34 Case E-3/98, 10.12.98, Rainford Towning, para. 21. 35 Case E-2/06, 26.6.07, ESA v Norway, para. 59. See also Case E-9/07, 8.7.08, L’Oreal, para. 27. 36 Norberg et al., EEA Law, p. 183. 37 See also Fredriksen and Mathiesen, EØS-rett (2014) p. 217 et seq. 38 This is how EU law must be interpreted according to settled case law, see e.g. Case C-558/15, 15.12.16, Azevedo and Others, para. 19 and case law cited. 39 E.g. Case C-452/01, 23.9.03, Ospelt. See also Fredriksen, “Er EFTA-domstolen mer katolsk enn paven?” 122 TfR (2009) p. 507 at p. 555.

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issues head on. Sometimes the Committee will instead incorporate a directive in full, but with reservations. That is for instance the case with Dir. 2004/38 on the rights of citizens of the Union and their family members to move and reside freely within the territories of the Member States (the Union Citizenship Directive). As the title reveals, this directive provides for free movement not only based on economic activity, but also simply on the grounds of Union citizenship. Art. 7(1)(a) and (c) confer rights on workers, self-employed and students, thus codifying case law under Arts. 45 (workers), 49 (establishment) and 56 TFEU (services). Art. 7(1)(b) gives rights to non-economically active persons with sufficient resources, thus codifying case law under Art. 21 TFEU (union citizenship). The directive was therefore adopted on a joint legal basis that included Art. 21 TFEU. The EEA Agreement does not contain a provision corresponding to Art. 21 TFEU. The most direct response to this difference would have been for the EEA Joint Committee to incorporate the directive, save for provisions based on Art. 21 TFEU, e.g. Art. 7(1)(b). Instead, it opted for including the directive in full, but with the reservation that “[t]he concept of Union Citizenship as introduced by the Treaty Maastricht … has no equivalent in the EEA Agreement”.40 The Contracting Parties thus recognized that incorporating the directive in full was problematic, but left it for case law to sort it out on the basis of this reservation. The EFTA Court first dodged the issue. The judgment in Wahl recognized the reservation, and held that its impact had to be assessed on a case-by-case basis.41 That was swept aside in Gunnarsson, however, where Art. 7(1)(b) of the directive was deemed applicable in general.42 The result is that EEA law has become a bit schizophrenic. It now covers a field of law falling outside the Main Part of the EEA Agreement. This may in turn cause new challenges, which brings us to the next topic. 16 As concerns the downward vertical situation, it will be recalled that within the EU legal order secondary legislation must be interpreted in the light of primary law.43 This poses a problem where the ECJ interprets secondary legislation in light of primary EU law not reflected in the EEA Agreement. This concerns in particular Treaty provisions that do not have counterparts in the EEA Agreement, but the same applies to general principles of EU law, e.g. the fundamental rights catalogue developed by the ECJ. The EFTA Court has attempted to tackle this issue by continuously recognizing the same as general principles of EEA law.44 The challenges nevertheless remain in some areas, for instance the Charter of Fundamental Rights.45 The same goes for EU Treaty provisions that have been adopted subsequently to the signature of the EEA Agree40 Joint Declaration by the Contracting Parties to Decision of the EEA Joint Committee No 158/2007, cited in Case E-15/12, 22.7.13, Wahl, para. 10. 41 Case E-15/12, 6.2.12, Wahl, paras. 73-77. 42 Case E-26/13, 27.6.14, Gunnarsson, commented upon in Section V. 2. 43 E.g. Joined Cases C-427/93, C-429/93 and C-436/93, 11.7.96, Bristol-Myers Squibb, para. 27. 44 Section IV. 3. below. 45 Ibid.

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ment. Union citizenship may again serve as an example. Dir. 2004/38 is interpreted in the light of Art. 21 TFEU. The ECJ regularly makes introductory reference to the pivotal importance of union citizenship in the EU and its fundamental status.46 Since free movement for union citizens is a fundamental principle of EU law and the general rule, it follows that the conditions in Dir. 2004/38 must be construed narrowly.47 The ECJ thus rejects any interpretation that could compromise the objective of the directive, which is to strengthen the Union citizens’ primary right to move and reside freely.48 Having regard to such reflections, as well as financial solidarity among the EU Member States, the ECJ has interpreted the condition of “sufficient resources” in Art. 7(1)(b) very restrictively. That condition may be fulfilled even if the person is eligible for social assistance in the host Member State, unless the grant of social security could place a burden on that Member State’s social assistance system as a whole.49 Such dynamic reasoning has proved controversial even for the EU Member States that have signed up to an ever closer union and the concept of Union citizenship.50 It would be challenging to transpose such reasoning to the EEA Agreement. Although Art. 7(1)(b) is worded the same, it is hardly identical in substance as the context and objectives differ. The EEA Agreement does not have a provision corresponding to Art. 21 TFEU because it is a trade agreement linking free movement to economic activity,51 much like the Community was before the Treaty on the European Union entered into force.52 Differences between EU and EEA law may also give rise to upward vertical 17 problems, that is to say that corresponding primary law rules may be affected by differences at the level of secondary legislation. The straightforward example is where EU law exhaustively regulates an area through secondary legislation that has not been made part of the EEA Agreement. This means that the EU Member States will be obligated by those secondary rules,53 while the EFTA States will be subject to the applicable provisions of the Main Part of the EEA Agreement. The EEA Joint Committee has for instance omitted to incorporate some secondary environmental legislation into the EEA Agreement, but the EFTA States may still be subject to the general environmental principles laid down in Art. 73(2) EEA.54 46 E.g. Case C-184/99, 20.9.01, Grelzcyk, para. 31, and Case C-413/99, 17.9.02, Baumbast, para. 82. 47 E.g. Case C-140/12, 19.9.13, Brey, para. 70. 48 Ibid, para. 71. 49 Ibid, para. 72. 50 See e.g. ‘Editorial Comments’ 51 CMLR (2014) p. 729, see also Hailbronner, ‘Union Citizenship and Access to Social Benefits’ 42 CMLR (2005) p. 1245. 51 See Opinion 1/91, 14.12.91, para. 15. 52 See Case C-413/99 Baumbast, 17.9.02, para. 81. 53 E.g. Case C-150/11, 6.9.12, Commission v Belgium, para. 79 and case law cited. 54 An example is protection of biodiversity under the birds directive (Dirs. 79/409 EEC and 2009/147 EC) and the habitat directive (Dir. 92/43/EEC) which have not been made part of the EEA Agreement. Another matter is that EFTA States parties to the Bern Convention will still be obliged by similar requirements.

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Obstacles to homogeneity may similarly arise where the ECJ interprets primary law in light of secondary legislation absent in the EEA. This is not orthodox methodology according to the lex superior principle, but it nevertheless occurs from time to time – more often than not without the ECJ explicitly admitting to it.55 19 Differences at the level of secondary law may also affect how primary law is applied. The field of taxation provides one example. Tax regimes often distinguish between resident and non-resident companies for reasons of fighting tax evasion. The ECJ has regularly dismissed this justification on the grounds that Dir. 77/799 (now Dir. 2011/16) reduces the risk of tax evasion by allowing the Member State concerned to obtain the necessary information from the authorities in the other Member State. Those directives have not been made part of the EEA Agreement. The ECJ has consequently in several cases held that an indirectly discriminatory tax regulation was incompatible with Art. 56 TFEU, but could be justified for reasons of fighting tax evasion under Art. 40 EEA.56 The only caveat is where there are bilateral agreements providing an exchange of information “as effective” as the EU Directives.57 The EFTA Court was expected to apply this case law in Fred Olsen, but ultimately did not comment on the issue.58 20 These examples illustrate that the presumption that identically worded provisions are substantively identical may be rebutted on the basis of different objectives and context. Another matter is that case law suggests that such reasoning will be an uphill struggle. 21 The EFTA Court has gone even further in some cases concerning procedural and institutional rules in the Main Part of the SCA. In this area it has held that homogenous interpretation “cannot be restricted to the interpretation of provisions whose wording is identical in substance to the parallel provisions of EU law”.59 This phrasing is not entirely clear, but it presumably alludes to provisions that are worded differently, yet identical in substance. But one would have thought that identical wording is a necessary, albeit not sufficient, requirement for homogeneous interpretation. That was after all why the EFTA Court established a presumption of homogeneous interpretation where the provisions are worded identically. It therefore appears that the EFTA Court operates with a distinct doctrine of homogeneity with regard to procedural rules, where the wording is downplayed.60 18

55 E.g., to this effect, Case C-115/14, 17.11.15, Regio Post, para. 67. See also Syrpis, ‘The relationship between primary and secondary law in the EU’, 52 CLMR (2015) 461. 56 Case C-540/07, 19.11.09, Commission v Italy, paras. 69-72. 57 E.g. Case C-48/11, 19.7.12, Veronsaajien oikeudenvalvontayksikkö, paras. 34-39 and case law cited. 58 Joined Cases E-3/13 and 20/13, 13.3.13, Fred. Olsen and Others v. Norway, paras. 161 et seq. and 223. 59 Order in Case E-16/11, 28.1.13, ESA v Iceland, para. 32, and Case E-14/11, 21.12.12, DB Schencker, para. 78. 60 See Section IV. 5. below.

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4. Impact

Arts. 6 EEA and 3(1) SCA require corresponding EEA rules to be interpreted 22 “in conformity” with judgments by the ECJ prior to the signature to the EEA Agreement. Subsequent judgments must in accordance with Art. 3(2) SCA merely be paid “due account” and, somewhat ambiguously, only insofar as their “principles” are concerned. The EFTA Court has not applied such distinctions, but sought to interpret EEA law in conformity with EU case law as it stands at any given point. This was clearly expressed in L’Oreal.61 The question raised was how to proceed when the ECJ had rendered a judgment conflicting with a previous judgment of the EFTA Court. The EFTA Court recalled at the outset that Art. 3(2) SCA required it to pay due account to subsequent judgments from the ECJ and noted, as an understatement, that it had consistently done so. Although Art. 3(2) SCA did not explicitly deal with the situation where the ECJ had given a judgment conflicting with a prior EFTA Court judgment, “the consequences for the internal market within the EEA are the same” as where the ECJ has gone first.62 This accordingly required an interpretation in line with new ECJ case law irrespective of whether the EFTA Court had previously ruled on the issue.63 This amounts to extending the obligation in Art. 6 EEA to interpret EEA law in conformity with prior ECJ judgments to cover all EU case law. The reasoning also covers instances where the ECJ directly interprets the EEA Agreement, as referred to by Art. 3(2) SCA. L’Oreal consequently entails that the ECJ is the authoritative interpreter of EEA law.64 This extends beyond following the ECJ in a specific case and entails adhering to the legal methodology of the ECJ.65 Although L’Oreal is unequivocal and reflects previous case law, the EFTA 23 Court openly departed from an ECJ judgment in the recent Jabbi case.66 Reference was inter alia made to the fifteenth recital in the preamble, which provides that homogenous interpretation does not prejudice the independence of courts. Those words were inserted as a consequence of Opinion 1/91 and the purpose was to reassure the ECJ that the judicial architecture of the EEA Agreement would not interfere with its independence.67 It was not intended to mean that the EFTA Court could choose not to follow the judgments of the ECJ, as this would undermine the principle of homogeneity.68 The circumstances in Jabbi were par61 62 63 64

65 66 67 68

Case E-9/07, 8.7.08, L’Oreal. Ibid, para. 29. Ibid. Fredriksen, “One market, two courts: legal pluralism vs homogeneity in the European Economic Area” 79 Nordic Journal of International Law (2010) p. 499. For a more diplomatic view, see Skouris, ‘The Role of the Court of Justice of the European Union in the Development of the EEA Single Market’, in: EFTA Court (ed), The EEA and the EEA Court (2014) p. 5. Fredriksen and Mathisen, EØS-rett (2014), pp. 217-218. Case E-28/15, 26.7.16, Jabbi. See Opinion 1/91, 14.12.91, paras. 35-36. See, by analogy, Opinion 1/91, 14.12.91, paras. 62-64.

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ticular, however, and the judgment should probably be viewed as an exception confirming the general rule set out in L’Oreal.69 24 Arts. 6 EEA and 3 SCA do not refer to judgments by the General Court (formerly Court of First Instance).70 The EFTA Court has still found that it should be included. The reason was that the General Court institutionally forms part of the ECJ, and that Art. 106 EEA (on exchange of information) refers to judgments from both courts.71 The EFTA Court’s conclusion is sound, but the reasoning is not very convincing. The first argument is quite formalistic and the contextual interpretation rather militates in the opposite direction. The fact that Arts. 6 EEA and 3 SCA, as well as Art. 105 EEA, omit any reference to the case law of the General Court, in contrast to Art. 106 EEA, suggests that this was intentional. The essential point is that Arts. 6 EEA and 3 SCA entail compliance with the methodology of the ECJ, and that includes taking into account the case law of the General Court. Another matter is that the ECJ does not grant that case law the same weight as its own. This distinction is not always reflected in the EFTA Court’s case law, sometimes indiscriminately referring to judgments of both courts as “essential sources”.72 25 This brings us to another tenet of the case law sitting a bit uneasily with Arts. 6 EEA and 3 SCA, namely the significant reliance by the EFTA Court on opinions rendered by Advocates General at the ECJ. These opinions are drafted to assist the ECJ in solving a case. The ECJ usually cites the parts of the opinion it agrees with and omits such references where it is of a neutral or different opinion. Either way, in subsequent cases the ECJ will refer to its judgment and not the opinion of the Advocate General. The EFTA Court, on the other hand, often refers to the Advocate General’s opinion and sometimes foregoes reference to the judgment.73 Within the EFTA-pillar, EEA law might thus be interpreted in conformity with opinions of the advocates general rather than judgments of the ECJ. That risk has in fact materialized and not by mere accident. In several judgments it emerges that the EFTA Court preferred the opinion of the Advocate General over that of the ECJ.74 This concerns for instance opinions by former Advocate General Jacobs and his common law thoughts on market liberalization, competition and trade unions.75 The president of the EFTA Court has in 69 See Section V. 3. 70 Case E-1/94, 16.12.94, Restamark, para. 24. See also Skouris, ‘The Role of the ECJ in the European Union in the Development of the EEA Single Market: Advancement through Collaboration between the EFTA Court and the CJEU’, in: EFTA Court (ed), The EEA and the EFTA Court (2014) p. 5. 71 Case E-2/94, 21.3.95, Scottish Salmon Grovers, para., see also Hreinsson, ‘General Principles’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 351. 72 Case E-28/15 Jabbi, para. 71. 73 Skouris, ‘The Role of the Court of Justice of the European Union in the Development of the EEA Single Market’, in: EFTA Court (ed), The EEA and the EEA Court (2014) p. 12. 74 Case E-8/00 LO, Case E-14/15 Holship and Case E-29/15 Sorpa. See also Baudenbacher, “’Must be interpreted in the light of economic considerations’ – some reflections on the case law of the EFTA Court”, in Edward et al (ed), Ian S. Forrester: A scot without Borders – Liber Amicorum, Volume II, 2015, p. 78.

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fact admitted that his opinions have swayed the EFTA Court in cases where the ECJ has chosen a different path, for instance in the LO and Holship judgments.76 Although EU law is inspired by French civil law, the EFTA Court’s president has claimed that markets flourish better under common law than under civil law and that the EFTA Court is on a “common law track”.77 This viewpoint is difficult to square with the principle of homogeneity. 5. Subjects

Art. 3 EEA requires the Contracting Parties to take all appropriate measures 26 to ensure the obligations in the EEA Agreement. National authorities, including the courts, are therefore required to interpret EEA law homogenously in accordance with Art. 6 EEA and 3(1) SCA. The same applies to Art. 3(2) SCA. Although the wording of that provision is directed at ESA and the EFTA Court, the underlying homogeneity objective similarly requires national courts to take into account ECJ judgments rendered after the signature of the EEA Agreement. The issue is thus not so much about whether the national courts are obliged to apply the principle of homogenous interpretation, but rather how they should go about doing so. This brings us to the section below. III. Application and enforcement 1. Dialogue between national courts and the EFTA Court

The most important guardians of the homogeneity principle are necessarily 27 the national courts in their day-to-day business of processing claims based on EEA law. But they are not left entirely to their own devices. Art. 34 SCA allows them to request the EFTA Court for opinions on the interpretation of EEA law. These opinions are advisory and thus not binding on the national courts.78 The system set up by Art. 34 SCA still presupposes that advisory opinions carry considerable weight. The EFTA Court consists of persons well versed in EEA law. The procedure also allows for input from ESA, the Commission and Member States. The combined effect is that the EFTA Court is generally better placed than national courts to ensure homogenous interpretation. It is possible to imagine conflicting judgments from the EFTA Court and the ECJ, however. Where the EFTA Court itself rectifies the dichotomy, as in L’Òreal, all is fine. Yet there may be instances where there is a judgment of the ECJ that the EFTA Court has not considered, or have considered but reached a different conclusion. 75 Ibid, discussed in Section IV. 4. b). 76 Baudenbacher, “’Must be interpreted in the light of economic considerations’ – some reflections on the case law of the EFTA Court”, in Edward et al (ed), Ian S. Forrester: A scot without Borders – Liber Amicorum, Volume II, 2015, p. 78 and Baudenbacher, “After Brexit: is the EEA an option for the United Kingdom”, 4 European Law Reporter (2016) 134 at p. 134 and 140. 77 Ibid, at pp. 140-141. 78 E.g. Case E-18/11, 28.9.12, Irish Banks, para. 57.

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Such conflicts will presumably be rare. Should they occur, however, the case law of the ECJ must take precedence in accordance with the reasoning in L’Oreal. Another matter is that national courts are unlikely to deviate from advisory opinions unless firmly convinced that a conflict actually exists, which entails a high threshold. This is the approach adopted by the Norwegian Supreme Court.79 The EFTA pillar of the EEA may thus be described as protestant rather than catholic. National courts do not, strictly speaking, need an interlocutor (the EFTA Court) to be advised by the almighty (the ECJ), although they often will prefer to make use of such assistance.80 28 This has seemingly been a thorn in the side of the EFTA Court. It conceded in Irish Banks that Art. 34 SCA does not oblige national courts of last instance to request advisory opinions from the EFTA Court.81 It also acknowledged that this reflects that the EEA Agreement aims at a less far-reaching integration than under the EU Treaties, and that the relationship between the EFTA Court and national supreme courts is more partner-like.82 But the EFTA Court then added, somewhat ambiguously, that the national courts still are obliged by the principle of loyal cooperation in Art. 3 EEA.83 It also indicated that a failure to refer may conflict with fundamental rights in EEA law, arguing that it could fall foul of Art. 6(1) ECHR. Referring to the European Court of Human Rights’ judgment in Ullens de Schooten and Rezabek, the EFTA Court claimed that this may be the case if a decision not to make a request for an advisory opinion is not reasoned and can be considered arbitrary.84 Another brick was laid in Jonsson, where the EFTA Court held that it is important that national courts make references for advisory opinions if the legal situation lacks clarity,85 thus echoing the acte clair doctrine in EU law.86 This was not only deemed necessary to avoid mistakes in the interpretation of EEA law, but also in order to ensure reciprocal rights of EEA citizens.87 29 These judgments reveal that the EFTA Court is preoccupied with receiving more requests for advisory opinions, in particular from the supreme courts. The idea of forming a partnership is an elegant invitation, and one that is likely to bear fruit. The whip side of the reasoning is less so. National last instance courts hardly fall foul of Art. 6(1) ECHR by deciding to tackling cases involving EEA law without making a reference to the EFTA Court. The analogy with Ullens de Schooten and Rezabek seems misplaced. The premise of that judgment was the 79 E.g. Rt. 2000 p. 1811 at p. 1820, Rt. 2013 p. 258 paras. 93-94 and Rt. 2016 p. 2054 para. 77. 80 For a different view, see Baudenbacher, ‘The EFTA Court: Structure and Tasks’, in: Baudenbacher (ed) The Handbook of EEA Law (2016) p. 157. 81 Case E-18/11, 28.09.12, Irish Banks, para. 57. 82 Ibid. 83 Para. 58. 84 Para. 61. 85 Case E-3/12, 20.3.13, Jonsson, para. 60. See also the Order in Case E-2/12, 11.2.12, HÓB-Vin, para. 11. 86 E.g. Case C-72/14, 09.9.15, X and Others, paras. 58-60 and case law cited. 87 Case E-3/12, 20.3.13, Jonsson, para. 60.

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binding obligation under Art. 234 EC [Art. 267 TFEU] for the highest courts in the EU Member States to make references to the ECJ, save for issues that are acte clair.88 In such a legal context, the European Court of Human Rights concluded, Art. 6 ECHR imposes an obligation to give reasons for refusing to refer a preliminary question, especially since EU law only exceptionally allows for such a refusal.89 This reasoning does not appear applicable to a system, such as that established by Art. 34 SCA, which does not oblige national courts to refer preliminary questions and only grants the opinions advisory effect.90 The reference to reciprocity would seem to fail for the same reasons.91 2. Dialogue between the EFTA Court and the ECJ

The EEA Agreement is characterized by its two-pillar structure.92 The EFTA 30 Court adjudicates cases involving the EFTA States and the ECJ does the same with regard to the EU Member States. Together they ensure homogenous interpretation of EEA law. This is intended to be facilitated by the information exchange about each other’s judgments, as envisaged in Art. 106 EEA. Such a system, albeit still not yet operational, presupposes that each court takes into account judgments rendered by the other one and rely on them where appropriate. This is already an obligation for the EFTA Court (and the EFTA states) by virtue of Arts. 6 EEA and 3 SCA, but Art. 106 EEA thus implies that this is not altogether a one-way street. The ECJ and its Advocates General accordingly occasionally cite EFTA Court judgments. Notable citations in the early years of the EEA Agreement concerned the EFTA Court’s rulings on matters of principle, such as homogenous interpretation93 and state liability.94 The ECJ thus signalled its approval and that it would abide by the same approach when interpreting the EEA Agreement.95 It is nevertheless striking that the ECJ does not refer more often to the case 31 law from the EFTA Court. This is partly because novel questions usually come before the ECJ first. It after all receives referrals from national courts in 28 Member States, as compared to the three, small EFTA States making references to the EFTA Court. But that is not the full story. There have been a number of cases where relevant EFTA Court judgments existed, sometimes also cited by 88 Ullens de Schooten and Rezabek v. Belgium, nos. 3989/07 and 38353/07, 12.9.11, para. 56-57. 89 Ibid, paras. 59-60. 90 See also Broberg and Fenger, Preliminary References to the European Court of Justice (2014) pp. 10-11, Fredriksen and Mathisen, EØS-rett (2014) pp. 198-199, and Björgvinsson, ‘Fundamental Rights in EEA law’, in: EFTA Court (ed), The EEA and the EFTA Court (2014) p. 279. 91 See also Section V. 3. 92 See, to this effect, e.g. Case C-321/97, 15.6.99, Andersson, paras. 26-29. 93 E.g. Case C-471/04, 3.2.06, Keller, para. 48 and case law cited. 94 E.g. Case C-140/97, 15.6.90, Rechberger, para. 39. 95 Similar, Editorial Comments CLMR 1999 p. 700. For a different view, see references cited in Fredriksen, ‘Er EFTA-domstolen mer katolsk enn paven?’ 122 Tidsskrift for Rettsvitenskap (2009) p. 507 at p. 553.

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the Advocate General, yet the ECJ refrained from referring to those judgments. This was for instance poignant in Säkhöalojen concerning Dir. 96/71 on the posting of workers. The EFTA Court had earlier ruled on several of the same issues in the STX case.96 The claimant in Säkhöalojen relied heavily on this judgment before the ECJ and the Advocate General cited STX, albeit only once.97 The ECJ nevertheless omitted any reference to that judgment.98 This could be explained by the fact that the ECJ seemed to view things differently.99 But the same occurs in cases where there is no conflict of opinion. This tendency should not really come as a surprise, however. Consider for instance how rarely, in relative terms, the ECJ cites the European Court of Human Rights. It all seems to be a matter of hegemony. The ECJ has consistently made clear that it does not want interference in its exclusive jurisdiction to interpret EU law, which includes EEA law.100 Regularly citing the EFTA Court would lead applicants to invoking this case law more often and Advocates General would in turn have to devote more of their opinions to it. Not before long the ECJ might not only have to square cases with its own judgments, but also those of the EFTA Court. That is presumably not a development the ECJ wants to encourage, so it doesn’t. This means in practice that the interpretation of EEA law is unilaterally determined by the ECJ,101 much like the secondary legislation imported from the EU. There is nevertheless the difference that the EFTA States are allowed to participate in (certain) cases before the ECJ, thus allowing them a chance to influence this part of EU/EEA law.102 3. Interpretation vs. judicial review 32

In addition to giving advisory opinions on the interpretation of the EEA Agreement, Arts. 36 and 37 SCA confer on the EFTA Court competence to review acts and omissions by ESA. This power serves several objectives, including ensuring that the Authority fulfils its obligation to interpret and apply EEA law homogenously. These objectives could equally serve as justification for reviewing acts adopted by other institutions, but Arts. 36 and 37 SCA does not grant such powers to the EFTA Court. It is thus prevented from examining, for instance, decisions by the EEA Joint Committee incorporating secondary legis96 97 98 99 100

Case E-2/11, 23.1.12, STX. Opinion in C-396/13, 12.2.15, Sähköalojen, para. 92. Judgment in C-396/13, 12.2.15, Sähköalojen. See Section IV. 4. c). See, to this effect, Opinion 1/91, 14.12.91, para. 35, Opinion 1/92, 10.4.92, para. 19 and Opinion 2/13, 18.12.14, paras. 145-146. 101 This is without prejudice to the harmonious relationship between the two courts, as emphasized by Skouris, ‘The Role of the Court of Justice of the European Union in the Development of the EEA Single Market’, in: EFTA Court (ed), The EEA and the EEA Court (2014) p. 5. 102 See also Fredriksen, ‘The EEA and the case law of the CJEU: Incorporation without participation?’ in: Eriksen and Fossum (eds), The European Union’s Non-Member – Independence under hegemony (2015) pp. 102-117.

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lation into the EEA Agreement. This poses some challenges with regard to judicial control of homogeneity. What if, for instance, the EEA Joint Committee incorporates secondary legislation falling outside the ambit of the EEA Agreement? Or does the opposite, by amending or adapting a piece of legislation further than the EEA Agreement presupposes? And what of instances where serious concerns arise as to whether the incorporated legislation is in conformity with fundamental rights and the ECJ has not yet ruled on the matter? The EFTA Court’s power to deal with such issues has become contentious af- 33 ter CIBA.103 The case concerned a decision by the EEA Joint Committee allowing Norway to derogate from certain provisions in a directive. The appellants claimed that the decision was ultra vires, to which the Government retorted that the EFTA Court had no competence to rule on the validity of a decision by the Joint Committee. However, the EFTA Court considered that the question concerned the interpretation of the EEA Agreement and that it had jurisdiction according to Art. 34 SCA.104 Nothing in the EEA or the SCA indicated that any provision governing the functioning of the EEA Joint Committee is excluded from that jurisdiction, according to the EFTA Court.105 It then concluded that the EEA Joint Committee was competent to adopt the decision in question.106 This reasoning is controversial. Any action alleging that an act is ultra vires 34 involves interpretation of the rules governing the competence of the body concerned. This is still a matter of judicial review rather than interpretation, as the latter otherwise would consume the former. This distinction also follows from the wording and system of the EEA Agreement and the corresponding EU rules. Art. 267 TFEU gives the ECJ power to give preliminary rulings on (a) the interpretation of the Treaties and (b) the validity of acts of the EU institutions. Litra b corresponds to its jurisdiction of judicial review under Art. 263 TFEU. By contrast, Art. 34 SCA only refers to interpretation of the EEA Agreement, while judicial review is limited to acts of the EFTA Surveillance Authority in direct actions under Art. 36. Hence, Art. 34 SCA does not confer competence to review the validity of acts adopted by common institutions of the Contracting Parties, such as the EEA Joint Committee. Neither the ECJ nor the EFTA Court has such jurisdiction. The elephant in the room is nevertheless the ECJ’s exclusive competence to 35 review the legality of secondary EU legislation.107 The EEA Joint Committee’s main task is to adopt decisions rendering such legislation part of the EEA Agreement and making necessary adaptations. If the EFTA Court would be competent to review the legality of such adaptations, as CIBA suggests, then it must a fortiori be able to review the incorporating decision as such. The EFTA 103 104 105 106 107

Case E-6/01, 9.10.02, CIBA. Ibid, para. 21. Ibid, para. 22. Ibid, paras. 24-35. Case 314/85, 22.10.87, Foto-Frost, para. 17.

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Court would thus be able to indirectly review the legality of secondary EU legislation through its policing of the Joint Committee´s competence to include it into the EEA legal order, for instance having regard to fundamental rights. Furthermore, the proposition that review of the Committee’s exercise of competence is simply a matter of interpreting EEA law implies that national courts are competent to do the same. This is hardly tenable. 36 None of this detracts from the fact that the absence of judicial review of secondary legislation is a lacuna in the EFTA pillar.108 The competence to review such acts is one of the most important tasks given to the ECJ. An increasingly significant part of this review concerns whether secondary legislation conforms to fundamental rights derived from the ECHR.109 It is the existence and exercise of this competence that has brought about the Bosphorus doctrine, whereby the European Court of Human Rights presumes that EU Member States implementing EU law act in conformity with the ECHR.110 The EFTA Court has likewise held that fundamental rights are guaranteed in the EEA legal order and applicable in all situations governed by EEA law.111 This promise nevertheless rings a bit hollow as review of secondary legislation remains outside its jurisdiction. Still, it would constitute a giant leap if the EFTA Court was to assert competence to indirectly review the legality of EU secondary legislation. But the EFTA Court’s President has stated that it would simply not apply a legal act with a “serious flaw”, irrespective of whether it has been held void by the ECJ and repealed by the EEA Joint Committee.112 37 This viewpoint may at first sight seem understandable, for instance in an exceptional situation where it is all but certain that a piece of legislation conflicts with fundamental rights. But such an approach could cause outcries from the Contracting Parties and bring the EFTA Court in conflict with the ECJ.113 The interests of the Contracting Parties are not the same, however. While the Bosphorus doctrine effectively shields the EU Member States from responsibility under the ECHR when complying with EU secondary legislation, the same is not true for the EFTA States.114 The EFTA States might thus look favourably on the EFTA Court having similar jurisdiction to that of the ECJ, as this could al108 Similar Fredriksen and Franklin, ‘Of Pragmatism and Principles: The EEA Agreement 20 years on’, 52 CLMR (2015) 629 at 681-683. 109 See e.g. Case C-36/09, 11.11.10, Test Achats and Case C-293/12, 8.4.14, Digital Rights Ireland. 110 Bosphorus Hava Yolları Turizm ve Ticaret Anonim Şirketi v. Ireland, no. 45036/98, 30.6.05, paras. 149-158, Michaud v. France, no. 12313/11, 6.3.13, paras. 102-104, and Avotins v. Latvia, no. 17502/07, 23.5.16, paras. 101-104. 111 Case E-14/15, 19.4.16, Holship, para. 123 and case law cited. 112 Baudenbacher in: Baudenbacher (ed), The Handbook of EEA Law (2016) pp. 165-166. 113 One creative, albeit perhaps not very realistic, solution would be to allow the EFTA Court to refer questions on validity to the ECJ, similar to the Foto-Frost doctrine applicable to national courts in the EU Member States, see Fredriksen and Franklin, ‘Of Pragmatism and Principles: The EEA Agreement 20 years on’, 52 CLMR (2015) 629 at 683. 114 Similar Bjørgvinsson, ‘Fundamental Rights in EEA law’, in: EFTA Court (ed), The EEA and the EFTA Court (2014) pp. 271-272.

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low them to be included in Bosphorus doctrine. There may be different views among the EFTA States, though, and it would in any event be politically and legally unfeasible to gain acceptance for this from the EU Member States and the ECJ. The EFTA States will thus have to rely on national mechanisms for ensuring compliance with the ECHR, for instance through the supreme courts reviewing secondary legislation against constitutional rules,115 similar to what the German Bundesverfassungsgericht has done. IV. Selected areas 1. Introduction

The homogeneity principle is often analysed with reference to its application 38 in different areas of EEA law. Reference is sometimes made to substantive homogeneity, procedural homogeneity and homogeneity in effect.116 These labels may bring confusion rather than clarity, however. The essential criterion for homogenous interpretation, according to Arts. 6 EEA and 3 SCA, is that the EEA and EU rules are identical in substance. The determining issue is thus not whether they deal with matters of substance, procedure or effect in the national legal orders, but whether the rules are substantively identical.117 This is without prejudice to the fact that rules on procedure or on the effect of EEA law are less often than substantive rules identical in substance to corresponding EU rules. These features therefore still make it purposeful to divide the case law into different categories. It may be added that the following does not presume to offer any exhaustive presentation. The aim is simply to provide some broad strokes as to how the principle of homogeneity is applied in some areas of EEA law. 2. Effect in the legal order a) State liability

Opinion 1/91 emphasized that the EEA Agreement was a traditional interna- 39 tional agreement that only created rights and obligations between the Contracting Parties and did not provide for any transfer of sovereign rights.118 The EU law concepts of direct effect and primacy were thus ruled out, which the EFTA Court later acknowledged.119 But a few days after Opinion 1/91, the ECJ established in Francovich another closely related doctrine: individuals’ rights to hold the Member States liable for infringements of EC law.120 Although state liability 115 See also Baardsen, Fundamental Rights in EEA Law – The Perspective of a National Supreme Court Justice (2015) paras. 40-41. 116 E.g. Barnard, ‘Reciprocity, Homogeneity and Loyal Cooperation: Dealing with Recalcitrant National Courts?’, in: EFTA Court (ed), The EEA and the EFTA Court, p. 154. 117 Similar Baur, ‘Preliminary Rulings in the EEA – Bridging (Institutional) Homogeneity and Procedural Autonomy by Exchange of Information’, in: EFTA Court (ed), The EEA and the EFTA Court, p. 170-171. 118 Opinion 1/91, 14.12.91, para. 19. 119 Case E-4/01, 30.05.02, Karlsson, para. 28 and Case E-1/07 Criminal Proceedings v A.

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was incompatible with the characterization of the EEA Agreement in Opinion 1/91, the ECJ had no opportunity to explicitly state so when it delivered that opinion. This accordingly left the door slightly ajar for the EFTA Court. 40 Ignoring the protests of the EFTA States as well as the objections of the Commission, the EFTA Court established the doctrine of state liability in Sveinbjörnsdottir.121 The objectives of homogeneity and the right of individuals to equal treatment were “so strongly expressed” in the EEA Agreement, according to the Court, that the EFTA States had to be liable to compensate individuals for breaches of EEA law.122 But both of these assertions rest on the premise that the EEA Agreement involves a depth of integration similar to Community law. Since the EFTA Court conceded it does not,123 homogeneity and equal treatment could hardly be invoked in favour of establishing the same liability doctrine in EEA law.124 This is perhaps why the judgment lacks references to the EU case law, which further confounds the reference to homogeneity as a legal basis.125 It should also not be forgotten that the ECJ stated in Brasserie de Pecheur that state liability is the corollary of direct effect and primacy,126 while Art. 7 EEA and Protocol 35 preclude such a transfer of State sovereignty. The EFTA Court still concluded that state liability was “an integral part of the EEA Agreement as such”.127 The controversy reached its apex when the Norwegian judge at the EFTA Court argued that the judgment was ultra vires.128 The EFTA Court nevertheless reaffirmed the state liability doctrine in Karlsson, dismissing that the absence of direct effect was an obstacle.129 State liability has thus become the law of the land, despite its uncertain origin. It may also have had some positive spillover effects. Some commentators thus speculate that Sveinbjörnsdottir may have been instrumental in fostering the ECJ’s positive attitude towards the EEA Agreement.130 41 The EFTA Court added in Karlsson that the finding that state liability was an integral part of EEA law, and not based on EU case law, implied that the principles need not in all respects be coextensive.131 This suggests that state liability in

120 Case C-9/90, 19.11.91, Francovich. 121 Case E-9/97,10.12.98, Sveinbjörnsdottir. See also Baudenbacher, ‘If not EEA State Liability, then What? Reflections Ten Years after the EFTA Court’s Sveinbjörnsdóttir Ruling’, 10 Chicago Journal of International Law (2009) 333. 122 Case E-9/97, 10.12.98, Sveinbjörnsdottir, para. 60. 123 Ibid, para. 59. 124 Similar Bekkedal, Frihet, likhet og felleskap (2008) p. 139. 125 Similar Fenger, ‘Limits to a dynamic homogeneity between EC law and EEA law’ in Fenger, Hagel-Sørensen and Vesterdorf (eds), Festskrift til Claus Gulmann (2006) p. 131 at p. 137. 126 Joined Cases C-46/93 and C-48/93 5.3.96, Brasserie du Pêcheur, para. 22. 127 Case E-9/97, 10.12.98, Sveinbjörnsdottir, para. 63. 128 Baudenbacher ‘If not EEA State Liability, then What? Reflections Ten Years after the EFTA Court’s Sveinbjörnsdóttir Ruling’, 10 Chicago Journal of International Law (2009), p. 348. 129 Case E-4/01, 30.5.02, Karlsson. 130 Fredriksen, ‘The EFTA Court and the Principle of State Liability: Protecting the Jewel in the Crown’, in: EFTA Court (ed), The EEA and the EFTA Court (2014) p. 335. 131 Case E-4/01, 30.5.02, Karlsson, para. 30.

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EEA law is less far-reaching than its EU counterpart, thus reflecting the different depth of integration.132 But some have drawn the opposite conclusion, claiming that a stricter liability is required to compensate for the lack of direct effect and primacy in EEA law.133 The EFTA Court’s president has similarly argued that the threshold for “serious” infringements capable of incurring state liability may be lower because the EFTA Court, unlike the ECJ, has not inferred this condition from an analogy with the non-contractual liability of the EU institutions under Art. 340(2) TFEU.134 Members of cabinet in the EFTA Court have in fact suggested that the judgment in HOB-Vín is a step in this direction,135 although it is difficult to see how. That judgment is certainly an example of a strict review, but it does not appear that the legal criteria used differ from those of the ECJ.136 State liability in EU law covers acts and omissions by national authorities. 42 This partly includes the judiciary. The judgment in Köbler established that the state may be liable where a court of last instance commits a manifestly erroneous application of EU law as a consequence of having failed to request a preliminary ruling from the ECJ.137 The ECJ has subsequently repeated that noncompliance with the obligation to make a reference under Art. 267(3) TFEU is a criterion for such liability.138 The reasoning in Köbler also indicates that that criterion is particularly important, as Advocates General have observed.139 This reasoning is not easily transposed to EEA law, however.140 Art. 34 SCA neither contains any obligation to request advisory opinions from the EFTA Court nor are such opinions binding on the referring court. It was expected that these differences would be affirmed in Kolbeinsson, but the EFTA Court found that state liability for the judiciary fell outside the question referred.141 It added nonetheless in an obiter dictum that such liability would in any event be limited to manifest infringements.142 That goes without saying, however, as EEA law could hardly entail a stricter liability for the judiciary than in the EU. What is more 132 Case E-9/97, 10.12.98, Sveinbjörnsdottir, para. 59. 133 Magnusson, cited in Baudenbacher ‘If not EEA State Liability, then What? Reflections Ten Years after the EFTA Court’s Sveinbjörnsdóttir Ruling’,” 10 Chicago Journal of International Law (2009), p. 357. 134 Ibid, p. 356. 135 See Speitler, ‘The Role of the EFTA Court – Homogeneity Revisited’ (2013) p. 11, referring to Case E-2/12 HOB-Vín, paras. 120. 136 To the contrary, the judgment is characterized by extensive paraphrasing of passages from the EU case law on state liability, albeit without any references to that jurisprudence; see Fredriksen, ‘The EFTA Court and the Principle of State Liability: Protecting the Jewel in the Crown’, in: EFTA Court (ed), The EEA and the EFTA Court (2014), p. 335. 137 Case C-224/01, 30.9.03, Köbler, paras. 55 and 123. 138 Case C-173/03, 13.6.06, Traghetti del Mediterraneo, paras. 32 and 43. 139 See also Opinion in Traghetti del Mediterraneo, paras. 70-75. 140 Some argue that it not necessarily decisive that this reasoning cannot be transposed to EEA law, see Fredriksen, ‘The EFTA Court and the Principle of State Liability: Protecting the Jewel in the Crown’, in: EFTA Court (ed), The EEA and the EFTA Court (2014), p. 326. 141 Case E-2/10, 10.12.10, Kolbeinsson, para. 77. 142 Ibid.

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curious is that ESA claims that the obiter dictum in Kolbeinsson confirmed that the EEA law principle of state liability extends to the judiciary.143 43 Employing yet another religious metaphor permeating EEA law commentary, the EFTA Court’s president has summed up his view in the following manner: “One may say that in EEA law we do not have the giant gothic cathedral with the three naves – direct effect, primacy, and State liability – which is characteristic for EC law. Instead, our construction resembles a simple Nordic stave church. But worshipping is possible in both places, with essentially the same results.”144 b) Consistent interpretation

State liability was followed by importing the EU law principle that national law must be interpreted as far as possible in conformity with non-implemented EU rules. The EFTA Court alluded to this principle in Karlsson145 and established it in Criminal Proceedings against A.146 This further bridges the gap left by the lack of direct effect and primacy in EEA law. Some commentators have thus described this doctrine as supranational.147 45 Like the advent of state liability, the principle of consistent interpretation was established without explicit reference to the ECJ’s case law. It was simply deemed inherent in the objectives of the EEA Agreement.148 This sui generis construction, similar to state liability, may foster speculation as to whether there may be differences between this principle in EEA and EU law. The content of the principle has nevertheless been set out in identical fashion. National courts must apply the interpretative methods recognized by national law as far as possible in order to achieve the result sought by the relevant EEA/EU rule.149 It is a relative doctrine and its impact ultimately depends on national law. Furthermore, the principle of consistent interpretation does not require national courts to interpret domestic law contra legem.150 This applies a fortiori to the EEA Agreement as it otherwise would amount to introducing direct effect and primacy. 44

143 Formal Notice in Case No 75004, paras. 19-21. 144 Baudenbacher ‘If not EEA State Liability, then What? Reflections Ten Years after the EFTA Court’s Sveinbjörnsdóttir Ruling’, 10 Chicago Journal of International Law (2009), p. 358. 145 Case E-4/01, 30.5.02, Karlsson, para. 28. 146 Case E-1/07, 3.10.07, Criminal Proceedings against A, para. 39. 147 Graver, Forvaltningsrett i markedsstaten (2002) p. 103. 148 Case E-1/07, 3.10.07, Criminal Proceedings against A, para. 39, see also Case E-4/01 Karlsson, para. 28. 149 Ibid, and e.g. Joined Cases C-397/01 to C-403/01, 5.10.04, Pfeiffer and Others, para. 113 and case law cited. 150 See, to this effect, Case E-18/11, 28.9.12, Irish Banks, paras. 123-125, and e.g. Case C-187/15, 13.7.16, Pöpperl, para. 44 and case law cited.

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3. Fundamental Rights

The EFTA Court early on cited judgments from the ECHR and referred to hu- 46 man rights when interpreting EEA law.151 Later, in Asgeirsson, it held more generally that EEA law must be interpreted in light of fundamental rights and that the ECHR and the accompanying case law were important sources.152 Nowadays the EFTA Court asserts that fundamental rights form part of the general principles of EEA law.153 These rights are thus guaranteed by the EEA legal order.154 The EFTA Court has never explained the legal basis for these findings. It has seemingly taken for granted that EEA law must recognise the same fundamental rights as those acknowledged in EU law. The closest thing to a justification came in Clauder, where the EFTA Court recalled that all EEA States are members of the ECHR.155 This seems to be a nod to the ERT case.156 This doctrine states that the ECJ draws inspiration from international human rights treaties of which the Member States are signatories, and in particular the ECHR.157 The EU has since then complemented its human rights catalogue with the 47 Charter of Fundamental Rights, which according to Art. 6(1) TEU has the same legal value as the Treaties. The Charter has not been made part of the EEA Agreement. When acknowledging fundamental rights in EEA law on the basis of provisions in the ECHR, the EFTA Court nevertheless sometimes refers to corresponding provisions in the Charter.158 This double-referencing may at first sight simply appear a bit superfluous. It still is troubling if the EFTA Court should start referring to EU case law on corresponding provisions in the Charter, bearing in mind that Opinion 2/13 made it clear that the ECHR and the Charter may not necessarily be interpreted identically in every respect.159 Reliance on the Charter is particularly problematic with regard to provisions 48 that do not have corresponding provisions in the ECHR.160 This includes the freedom to conduct business in Art. 16 of the Charter, which has been used vigorously in some cases. The prime example is the much-criticised Alemo-Herron judgment.161 In this case the ECJ relied on the freedom to conduct business 151 E.g. Case E-8/97, 12.6.98, TV 1000 Sverige AB, para. 26, and Case E-2/02, 19.6.03, Bellona, para. 37. 152 Case E-2/03, 12.12.03, Asgeirsson, para. 23. See also Case E-12/10, 28.6.11, ESA v. Iceland, para. 60, Case E-15/10, 18.04.12, Posten Norge AS, para. 85, and Case E-4/11, 26.7.11, Clauder, para. 49. 153 Case E-14/15, 5.6.15, Holship para. 123. 154 Joined Cases E-13/20 and 20/13, 9.7.14, Fred. Olsen and others v Norway, para. 125. 155 Case E-4/11, 26.7.11, Clauder, para. 49. 156 Case C-260/89, 18.6.91, ERT. 157 Ibid, para. 41. 158 Case E-15/10, 18.04.12, Posten Norge AS, para. 86, and Case E-4/11, 26.7.11, Clauder, para. 49. 159 See, to this effect, Opinion 2/13, 18.12.14, paras. 170-177 Advocate General Wahl has asserted, however, that “the Charter is nothing more, nothing less than the Convention”, see his contribution in EFTA Court (ed), The EEA and the EFTA Court, p. 294. 160 For a different view, see Advocate General Wahl, ibid, pp. 295 ff.

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to lower the protection of workers in Dir. 2001/23 on the transfer of undertakings. When faced with a similar issue in Deveci, the EFTA Court chose not to comment on whether Art. 16 of the Charter was relevant for the interpretation of the directive in the context of EEA law.162 Instead, it held that the EEA Agreement had linked the markets of the EFTA States to the single market of the European Union and the freedom to conduct business was therefore at the heart of the EEA Agreement.163 It is true that that freedom is reflected in the EEA Agreement, as expressed by the rules on free movement, competition and state aid. This is not the same as recognizing freedom to conduct business as a fundamental right, however. This is why commentators have recognized that Art. 16 of the Charter was a legal novelty in EU law.164 It therefore remains unclear from what legal basis the EFTA Court infers that this freedom constitutes a fundamental right in EEA Agreement. The reference to linkage of markets might suggest that homogeneity is the underlying reason. Homogenous interpretation does not, however, involve taking into account provisions that are not part of EEA law. 49 The import of fundamental rights into EEA law, if not gone unnoticed, has at least not resulted in any outcries from the Contracting Parties. There are several reasons for this. One is pragmatic. The EFTA States have ratified the ECHR and adherence to it within the auspices of EEA law does not add to their existing obligations. In fact, at first sight at least, it simplifies things by enjoining potentially conflicting international obligations. Yet there are significant differences between EEA and EU law in this regard. While the Bosphorous doctrine removes the EU Member States implementing EU law from strict review under the ECHR, the reasoning that led the ECtHR to establish this doctrine is not applicable to the EEA legal system.165 The EFTA States therefore still face a risk of infringing ECHR when applying EEA law.166 This brings us to a related, controversial issue. The EFTA Court has effectively given itself powers to authoritatively interpret the ECHR and the case law of the ECHR, these being “important sources” of the fundamental rights in EEA law. But these are matters in which the EFTA Court has no particular expertise beyond those of national courts. The Supreme Courts in the EU Member States have swallowed this pill

161 Case C-426/11, 18.7.13, Allemo-Herron, paras. 30-32. See e.g. the harsh criticism by Weatherill, ‘Use and Abuse of the EU’s Charter of Fundamental Rights: on the improper veneration of ‘freedom of contract’’ 10 European Review of Contract Law (2014) p. 167. 162 Case E-10/14, 31.3.14, Deveci. 163 Ibid, para. 64. 164 Prassl, ‘Business Freedoms and Employment Rights in the European Union’, 17 Cambridge Yearbook of European Legal Studies (2015) p. 189 and references cited. 165 Bosphorus Hava Yolları Turizm ve Ticaret Anonim Şirketi v. Ireland, no. 45036/98, 30.6.05, paras. 149-158, Michaud v. France, no. 12313/11, 6.12.12, paras. 102-104, and Avotins v. Latvia, no. 17502/07, 23.5.16, paras. 101-104. See also Bjørgvinsson, ‘Fundamental Rights in EEA law’, in: EFTA Court (ed), The EEA and the EFTA Court (2014) pp. 271-272. 166 E.g. Baardsen, Fundamental Rights in EEA Law – the Perspective of a National Supreme Court Justice (2015) para. 42.

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with regard to the ECJ, but the bargain is that the Bosphorous doctrine comes to their aid.167 The Supreme Courts in the EFTA States, on the other hand, may be more reluctant to defer to the EFTA Court on these issues, albeit presented as part and parcel of EEA law. The Norwegian Supreme Court nevertheless did just that in Holship,168 but it would be premature to think that that heralds a general deference in the field of human rights. 4. Substantive rules a) Introduction

Some commentators have argued that the EFTA Court is “more catholic than 50 the Pope“.169 Proponents of this view mean that it has gone further than the ECJ in promoting economic operators and market integration. The EFTA Court’s president has to some extent agreed to this characterisation, albeit objecting to favouring a particular faith of market integration.170 He acknowledges that the EFTA Court has adopted a “market approach… that was not obvious”, referring to examples of a “more competition-friendly” approach than the ECJ in fields such as labour law, consumer protection and gambling.171 Case law supports this description, which is in fact controversial.172 It is paradoxical, let alone politically sensitive, if the EEA Agreement is construed as promoting a deeper form of market integration than the EU. This would also fly in the face of homogeneity. Space does not allow for any exhaustive examination of this issue here, but some examples may be provided. b) Scope of prohibitions

One feature of the case law is that the EFTA Court has extended the prohibi- 51 tions on restrictions of free movement and competition compared to the corresponding EU rules. This concerns for instance Art. 11 and the free movement of goods. The Keck doctrine in EU law provides that rules regulating selling arrangements do not constitute a restriction “so long as they apply to all relevant traders operating within the national territory and so long as they affect in the same manner, in law and in fact, the marketing of the domestic products and of those from other Member States”.173 Discrimination can thus only arise if there are domestic products competing with imported products, as the ECJ observed 167 See e.g. the Swedish Supreme Court’s reasoning in NJA 2014 p. 79. 168 HR-2016-2554-P Holship. 169 Fredriksen, ‘Er EFTA-domstolen mer katolsk enn paven? ’, 122 Tidsskrift for Rettsvitenskap (2009) 507 at pp. 533-544. 170 Baudenbacher, ‘‘Must be interpreted in the light of economic considerations’ – some reflections on the case law of the EFTA Court’, in Edward et al. (ed), Ian S. Forrester: A scot without Borders – Liber Amicorum, Volume II, 2015, pp. 77-98. 171 Ibid. 172 See also Rognstad, ‘EF-domstolens og EFTA-domstolens praksis som rettskilder ved tolkningen av EØS-avtalen’, Tidsskrift for Rettsvitenskap (2001) 435 at p. 458. 173 Joined Cases C-267 and 268/91, 23.5.11, Keck and Mithouard, para. 16.

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in Commission v Greece.174 The EFTA Court’s judgment in Philip Morris nevertheless reformulated the Keck test as a question of whether the selling arrangement “affects the marking of products from other EEA States to a greater degree than that of imported products that were, until recently, produced in Norway”.175 This entails a test of discrimination between two categories of products from other Member States, whereas EU law only prohibits unequal treatment between domestic and imported products. 52 The EFTA Court has similarly extended the scope of the competition and state aid rules. This concerns for instance the prohibition on agreements restricting competition under Art. 53 EEA. The Albany doctrine in EU law, having regard to the social policy objectives pursued by collective agreements, provides that “agreements entered into within the framework of collective bargaining between employers and employees and intended to improve employment and working conditions must, by virtue of their nature and purpose, be regarded as not falling within the scope of Art. 101(1) TFEU” (Art. 53 EEA).176 However, the EFTA Court held in LO and Holship that these two exempting conditions should be qualified and supplemented by additional conditions.177 According to the EFTA Court, the notion of “employment and working conditions” only includes (1) “the core elements of collective agreements” and account must also be taken of the following factors: (2) the form and the content of the agreement and of its various provisions, (3) the circumstances under which they were applied, (4) subsequent practice of the parties, (5) the effect, in practice, of its provisions, and (6) their aggregate effect.178 These qualifications and conditions, in particular the references to “effects”, render the exception for collective agreements narrower in EEA law than EU law.179 The EFTA Court relied in this regard on the views of Advocate General Jacobs in Albany, even though the ECJ did not follow his opinion in Albany and subsequent case law.180 53 Another example concerns the notion of “undertakings” in competition and state aid law. This concept determines the scope of Arts. 53-54 EEA as well as Art. 61 EEA since those rules only apply to undertakings. An “undertaking” means, according to settled EU case law, an entity engaging in an economic 174 Case C-391/92, 29.6.95, Commission v Greece [1995] ECR I-1621, paras. 16 to 19. See also, mutatis mutandis, Case C-47/88, 11.12.90, Commission v Denmark [1990] ECR, paras. 9 to 11. 175 Case E-16/10, 12.9.11, Philip Morris, para. 51. This was reaffirmed in Case E-19/11, 30.11.12, Vín Trío v Iceland, para. 59. 176 E.g. Case C-437/09, 3.3.11, AG2R Prévoyance, para. 29, and C-413/13, 4.12.14, FNV, para. 23 and case law cited. 177 Case E-8/00, 22.3.02, LO and Case E-14/15, E-14/15, Holship. 178 LO, ibid, paras. 54-57, and Holship, ibid, paras. 44-46. 179 Baudenbacher, ‘After Brexit: is the EEA an option for the United Kingdom’, 4 European Law Reporter (2016) 134 at pp. 134 and 140. 180 See Opinion in Case C-437/09, 3.3.11, AG2R Prevoyance, para. 43. See also Baudenbacher, “ ‘‘Must be interpreted in the light of economic considerations’ – some reflections on the case law of the EFTA Court’, in: Edward et al. (ed), Ian S. Forrester: A scot without Borders – Liber Amicorum, Volume II, 2015, p. 78.

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activity.181 When assessing whether a public body engages in economic activity, the EFTA Court originally held that it cannot matter whether the same activity could be pursued by a private operator. Such an interpretation, according to the judgment in Private Barnehagers Landsforbund, would “basically bring any activity of the State not consisting in an exercise of public authority under the notion of economic activity.”182 Some years later, in Sorpa, the tune shifted. Now “the basic test is … whether the entity in question is engaged in an activity which consists in offering goods or services and which, could in principle, be carried out by a private actor in order to make profits”.183 The EFTA Court thus appears to have embraced a legal test that, according to its own prior statement, brings any activity not consisting in an exercise of public authority within the scope of the competition and state aid rules. The EFTA Court justified this reformulation of the “basic test” by referring to an opinion by Advocate General Jacobs in Cisal di Battistello Venanzio.184 But the judgment in the case reaffirmed that the basic test is whether the public entity may be characterised as engaging in economic activity.185 This must be assessed having regard to several factors and the possibility for private actors to carry out the activity only constitutes one element in that assessment. The EFTA Court in fact picks up on this case law later in Sorpa, thus leaving some ambiguity as to where it ultimately stands.186 c) Scope of justifications

Another feature of the case law is that the EFTA Court has narrowed the 54 grounds for justifying restrictions on free movement and competition due to overriding requirements of public interest. This may be illustrated by cases concerning worker protection. The narrow take on the exemption of collective agreements from the competition rules has already been mentioned. This was exacerbated by the fact that Holship also transposed this strict test to the assessment of whether restrictions on free movement could be justified by protection of workers. Answering that question negatively, the EFTA Court held that “the aggregate effects of the [collective agreement and boycott] … are not limited to the establishment or improvement of working conditions of the workers… and go beyond the core object and elements of collective bargaining and its inherent effects on competition.”187 The EFTA Court thus transposed its version of the Albany doctrine to free movement. This is not consistent with EU jurisprudence. It is settled case law that the Albany doctrine does not apply to the rules on freedom of movement.188 This applies a fortiori to a test that does not adhere to that doctrine, but imposes stricter conditions.189 181 182 183 184 185 186 187

E.g. Case C-138/11, 12.7.12, Compass-Datenbank, para. 35. Case E-5/07, 21.2.08, Private Barnehagers Landsforbund, para. 80. Case E-29/15, 22.9.16, Sorpa, para. 53 (emphasis added). Ibid. Case C-218/00, 22.1.02, Cisal di Battistello Venanzio and Others, para. 23. Case E-29/15, 22.9.16, Sorpa, para. 58 and case law cited. Case E-14/15, 5.6.15, Holship, para. 126.

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Case law concerning Dir. 96/71 on the posting of workers goes in the same direction. Art. 3(1) lays down, according to the case law of the ECJ, a nucleus of mandatory rules for minimum protection of workers.190 This includes “minimum rates of pay” required by Art. 3(1)(c). But the EFTA Court held in STX that even if the contested pay (remuneration for work requiring overnight stays away from home) constituted minimum wages within the meaning of Art. 3(1)(c), and thus mandatory protection of workers, the national court still had to review its compatibility with the free movement of services under Art. 36 EEA.191 Revealing scepticism in this regard, the EFTA Court required the national court to consider whether the mandatory rule for minimum protection of workers was (i) justified for the protection of workers, whether (ii) it conferred a genuine benefit for posted workers, whether it was (iii) suitable and (iv) necessary to achieve these aims, and finally whether (v) the administrative and economic burdens imposed on service providers outweighed the increased social protection of workers.192 Considering that the Norwegian Supreme Court in STX had not applied those requirements with sufficient vigour, the EFTA Court subsequently found it necessary to further clarify the relationship between freedom of movement and protection of workers in Jonsson.193 The EFTA Court explained that secondary legislation adopted on the internal market provisions in the EU, such as the posting of workers directive, “intends to protect the free movement … rather than protection of workers.”194 Hence, EEA law only requires that that “freedom must not be abused in order to manifestly circumvent the protection of workers … while measures intended to address such abuse must be justified and proportionate.195 This case law seems at odds with the tenor of the ECJ’s jurisprudence. The judgment in Laval emphasised that Art. 3 of the directive promotes fair competition and protection of workers, and that it lays down the degree of protection for posted workers which the host State can require the undertakings to observe.196 Hence, the ECJ kept it brief when faced with the same allowance as in the STX case. The judgment in Säkhöalojen simply noted that the allowance was part of the minimum wage under Art. 3 of the directive and “[a]ccordingly … must be paid to posted workers … to the same extent as it is paid to local workers when they are posted within Finland.”197 56 If protection of workers is a sensitive area in which the ECJ has acknowledged some regulatory discretion to Member States and the social partners,198 it 55

188 E.g. Case C-438/05, 11.12.07, Viking Line, paras. 48-53, and Case C-271/08, 15.7.10, Commission v. Germany, paras. 44-48. 189 See Section IV. 4. b) above. 190 C-341/05, 18.12.07, Laval, para. 59. 191 Case E-2/11, 23.1.12, STX, para. 74. 192 Ibid, paras. 84-87. 193 Case E-3/12, 20.3.13, Jonsson. 194 Ibid, para. 58. 195 Ibid. 196 Case C-341/05, 18.12.07, Laval, paras. 73-77 and 80. 197 Case C-396/13, 12.2.15, Sähköalojen, paras. 48-51.

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is certainly the case in areas in which there are significant moral, religious and cultural differences between the Member States. This includes regulation of gambling. The EFTA Court’s judgment in Ladbrokes, by contrast, comes across as an example of strict review.199 One of the aims of the Norwegian gambling regulation was to prevent gambling from being a source of profit. This was not accepted by the EFTA Court. This was deemed a moral aim that could not be relied upon when a State monopoly offers several gaming opportunities; that is to say, never.200 The EFTA Court also required a strict proportionality assessment of gambling restrictions, having regard to each “game’s specific circumstances, including its features, its presentation, the reactions of its potential consumers and the broader socio-cultural environment...”201 This may be contrasted with the ECJ’s brief assessment of proportionality in Liga Portuguesa.202 Recalling the sensitivity of this area and the absence of harmonization, the Court held that Member States are entitled to consider that a state monopoly prevents fraud and crime more effectively than a system allowing for competition from gaming operators established in other Member States.203 This deference was also reflected in Sjöberg, where the ECJ held that restrictions could in fact be justified for reasons of excluding private profit-making and the question of proportionality was thus a foregone conclusion.204 A slightly stricter approach to proportionality may be witnessed in Stoß 205 but it still builds on the deferential principles set out in Liga Portuguesa rather than – as some have submitted206 – the more restrictive tenor in Ladbrokes. The field of taxation provides another field characterized by a more “dynam- 57 ic” case law, as the EFTA Court’s president has put it,207 than the jurisprudence of the ECJ. The Fokus Bank judgment provides one well-known example.208 In this case, the EFTA Court held that the EFTA States could not justify restrictions on the free movement of capital under Art. 40 EEA for reasons of ensuring cohesion of the tax system.209 Adherence to bilateral agreements between Con198 E.g. Case 279/80, 17.12.81, Webb, paras. 18 and 19, and Joined Cases C-297/10 and C-298/10, 8.9.11, Hennigs and Others, para. 65 and case law cited. 199 See also Planzer, ‘Gambling Law’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 691-693. 200 Case E-3/06, 30.5.07, Ladbrokes, para. 48. 201 Ibid, para. 57. 202 Case C-42/07, 8.9.09, Liga Portuguesa. 203 Ibid, para. 69. 204 Joined Cases C-447 and 448/08, 13.9.11, Sjöberg and Others, para. 45. 205 Joined Cases C-316/07, C-358-360/07, C-409/07 and C-410/07, 08.9.10, Stoß and Others. 206 Baudenbacher, ‘‘Must be interpreted in the light of economic considerations’ – some reflections on the case law of the EFTA Court’, in Edward et al. (ed), Ian S. Forrester: A scot without Borders – Liber Amicorum, Volume II, 2015, p. 90. 207 Baudenbacher, ‘The EFTA Court, the ECJ and the Latter’s Advocates General – a Tale of Judicial Dialogue’ in: Arnull, Eckhout and Tridimas (eds.), Continuity and Change in EU Law: Essays in Honour of Sir Francis Jacobs (2008), p. 30. 208 Case E-1/04, 23.11.04, Fokus Bank, see also comment by Fredriksen, ‘Er EFTA-domstolen mer katolsk enn paven?’ 122 Tidsskrift for Rettsvitenskap (2009) 507 at p. 534-5. 209 Ibid, para. 31.

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tracting States designed to avoid double taxation would, in the EFTA Court’s view, amount to granting preference to such agreements over EEA law. The ECJ has viewed this differently, as one Advocate General explicitly observed,210 and has accepted this justification in a series of cases.211 Some dispute any conflict, however.212 5. Institutional and procedural rules

The EFTA Court has held that homogenous interpretation extends to the Main Part of the SCA and that there is a principle of procedural homogeneity.213 But this case law deviates in two respects from the orthodox principle of homogeneity. First of all, some judgments proclaim that homogenous interpretation of institutional and procedural rules “cannot be restricted to the interpretation of provisions whose wording is identical in substance to the parallel provisions of EU law”.214 The EFTA Court’s president has extra-judicially explained that, “otherwise, there would not have been any need for the Court to recognise that principle [procedural homogeneity]”.215 But although it is possible to construe Art. 3(2) SCA as extending homogenous interpretation to the procedural rules in SCA,216 it presupposes in any event that those rules are identical in substance to the corresponding EU rules. Members of the EFTA Court nevertheless maintain extra-judicially that they are less bound in matters of procedure, referring to “creative homogeneity” as an “interesting” concept.217 59 As for those rules that indeed are identical in substance and where it is thus meaningful to speak of homogenous interpretation, the EFTA Court has sometimes deviated from the ECJ. This applies in particular to the rules governing advisory opinions under Art. 34 SCA. We have already touched upon some of these aspects above, for instance the proposition that national courts may be obliged by the principle of loyal cooperation to request advisory opinions and the possibility that the ECHR requires courts of last instance to do so.218 It is therefore perhaps not surprising that the EFTA Court has been more liberal than the ECJ when dealing with the admissibility of such requests, as members of the ECJ have observed extra-judicially.219 One aspect concerns the 58

210 Opinion in Case C-374/04 Test Claimants in Class IV of the ACT Group Litigation, para. 71 and fn 83. 211 E.g. Case C-374/04 Test Claimants in Class IV of the ACT Group Litigation, and Case C-170/05 Denkavit. See also a commentary on subsequent case law by Rust, ‘To Tax or Not to Tax: Reflections on the case law of the EFTA Court’, in: EFTA Court (ed.), The EEA and the EFTA Court (2014) p. 461-463. 212 Baudenbacher in: Baudenbacher (ed), Handbook of EEA law (2016) p. 191. 213 See Section II. 1. above. 214 Order in Case E-16/11 ESA v Iceland, para. 32, and Case E-14/11 DB Schencker, para. 78. 215 Baudenbacher in: Baudenbacher (ed), The Handbook of EEA law (2016) p. 146. 216 Section II. 1. above. 217 Baudenbacher, ‘After Brexit: Is the EEA an option for the United Kingdom’, 4 European Law Reporter (2016) 134 at 139. 218 Section III. 1. above.

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“court or tribunals” that may ask for advisory opinions. These concepts have been defined by the ECJ in an abundant case law. Like the ECJ, the EFTA Court has observed that the purpose of preliminary rulings is to ensure homogenous interpretation and assist the national courts.220 Unlike the ECJ, it inferred in Dr A that “[a]ccordingly, the purpose of this procedure does not require a strict interpretation of the terms ‘court or tribunal’”.221 The EFTA Court has accordingly accepted referrals from bodies carrying out administrative rather than judicial activity.222 The ECJ, on the other hand, underscored in Belov that ensuring the effectiveness of the preliminary reference procedure and securing uniform interpretation of EU law means not blurring the boundaries between administrative and judicial activity, in particular where the jurisdiction of the administrative body is not compulsory.223 The ruling was expected to be determining in Fred. Olsen and others,224 yet the EFTA Court omitted to comment on the non-compulsory jurisdiction of the referring administrative body.225 The controversy surrounding this case law reached its apex in a reference from the Board of Appeal for Industrial Property Rights in the Municipality of Oslo case.226 The Norwegian Government observed that the ECJ had explicitly held in DTC that similar administrative body did not qualify as a “court or tribunal” due to lack of independence.227 The EFTA Court remained undeterred, however. It first listed a series of cases in which the Norwegian government had objected to the recognition of the referring body as a “court or tribunal”, yet the EFTA Court had found them competent to request advisory opinions.228 It thereafter recalled the principle of procedural homogeneity, but only to cast doubt on its reach by adding that Art. 3 SCA does not require adherence to the ECJ’s jurisprudence when interpreting the main part of the SCA.229 The judgment nonetheless cited the DTC judgment, but still concluded that the referring body had the necessary independence. Reference was made to the fact that the chair and deputy chair of the Board qualified as judges, while administrative and employment law protected all members against unlawful dismissal.230 This reasoning is in fact contradictory to DTC and subsequent cases.231 The ECJ held in that case that the Danish 219 Rosas ‘The Content of Requests for Preliminary Rulings to the European Court of Justice and the EFTA Court: What are the Minimum Requirements?’, in: EFTA Court (ed), The EEA and the EFTA Court, p. 91. 220 E.g. Case E-1/94, 16.12.94, Restamark, para 25. 221 Case E-1/11, 15.12.11, Dr A, para 34 See also Case E-23/13, 21.10.13, Hellenic Capitals Market Commission, para. 34. 222 See the overview provided in Case E-5/16, 22.3.15, Municipality of Oslo, para. 35. 223 See, to this effect, Case C-394/11, 31.1.13, Belov, paras 51-53. 224 Joined Cases E-13/20 and 20/13, 9.7.14, Fred. Olsen and others. 225 Ibid, paras. 66-72, cf. para. 62. 226 Case E-5/15, 11.2.15, Municipality of Oslo. 227 Case C-222/13, 9.10.14, TDC, paras. 28-38. 228 Ibid, para 35. 229 Ibid, para 37. 230 Ibid, para 40. 231 See also Case C-396/14, 24.5.16, MT Højgaard, paras. 25-31.

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Teleklagenævnet lacked the necessary independence since its members, unlike judges of the ordinary courts, are not subject to any specific rules against unlawful dismissals, “other than the general rules of administrative and employment law which apply in the event of an unlawful dismissal.”232 This reasoning applies in full to the Board of Appeal for Industrial Property Rights, it being immaterial if any of its members have the necessary qualifications to become judges. Another common denominator was that both these administrative entities act as defendant where their decisions are brought before the courts. Such a body does not act as a third party to the proceedings, the ECJ observed, and therefore does not possess the necessary impartiality.233 The judgment Municipality in Oslo is thus contrary to the interpretation of “court or tribunal” in EU law. Furthermore, the reasoning in DTC indicates that the same goes for many of the other cases listed by the EFTA Court at the outset of its judgment. The EFTA Court’s president has remarked as follows in this regard: “[i]f you are not overloaded, and we are not, then why should we throw out cases if the situation is not crystal clear?”234 60 These two strands in the case law indicate that homogenous interpretation of procedural rules is done in a somewhat selective fashion. ECJ judgments are relied on even when they concern EU rules that are worded differently from the relevant EEA rules, while the ECJ jurisprudence is not considered binding as concerns rules that are identical in substance. It therefore seems that the principle of procedural homogeneity might be a misnomer. 61 The EFTA Court sometimes acknowledges deviations from the case law of the ECJ in procedural and institutional matters. The judgment will then often offer additional justification for its conclusion. References to reciprocity and equal treatment are sometimes employed, as we shall return to.235 Other times the EFTA Court states that it must “in any event” respect fundamental rights when applying procedural rules.236 But so does the ECJ. It is therefore unclear how fundamental rights warrant a departure from homogenous interpretation. However, the EFTA Court’s president has considered it appropriate to go “further in the protection of the right to a fair trial than its EU sister court” in some cases.237 This concerns for instance the intensity of review in competition cases.238 In 232 Case C-222/13, 9.10.14, TDC, paras. 35-36. 233 Ibid, para 37. 234 Cited by Rosas, ‘The Content of Requests for Preliminary Rulings to the European Court of Justice and the EFTA Court: What are the Minimum Requirements?’, in: EFTA Court (ed), The EEA and the EFTA Court (2014) p. 91. 235 Section V. 3. below. 236 Case E-15/10, 18.4.12, Posten Norge AS, para. 110, and Case E-14/11, 21.12.12, DB Schenker, para. 78. 237 See also Baudenbacher, ‘‘Must be interpreted in the light of economic considerations’ – some reflections on the case law of the EFTA Court’, in Edward et al. (ed), Ian S. Forrester: A scot without Borders – Liber Amicorum, Volume II, 2015, pp. 79-80. 238 Compare Posten Norge, ibid, para. 100 with Case C-295/12, 10.7.14, Telefonica, para. 54 and case law cited. See also de la Serre, ‘Standard of review in Competition Law Cases: Posten Norge and Beyond’ in: EFTA Court (ed), The EEA and the EFTA Court (2014) p. 423.

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other cases, the EFTA Court considers that the ECJ has gone too far in this direction, e.g. concerning the requirement that lawyers must be sufficiently independent from their client.239 The EFTA Court’s president has commented that denying in-house-attorneys from representing their employer not only restricts competition, but also carries a whiff of the Third Reich.240 V. Bridging perceived gaps 1. Introduction

The principle of homogeneity was initially designed to reduce the risk of the 62 EEA Agreement being subject to the Polydor doctrine.241 The raison d’être was to ensure that provisions of EEA law were interpreted in the same manner as corresponding EU rules. This principle has later on also functioned as a shield against excursions taking EEA law outside its remit or construing it contrary to corresponding EU rules. The EFTA Court has accordingly dismissed invitations to rely upon EU Treaty provisions that do not exist in the EEA Agreement. As regards analogous use of Art. 151(4) EC, introduced by the Treaty of Amsterdam, the EFTA Court acknowledged in Einarsson that “it would not be a proper exercise of the judicial function to seek to extend the scope of application of the EEA Agreement on that basis”.242 Similar statements were made as regards analogous use of Art. 141(4) EC in the Post-Doc case.243 The EFTA Court reflected in Jabbi on the gap to the EU Treaties that has 63 emerged since the signing of the EEA Agreement in 1992.244 It underscored that the gap had widened as the EU Treaties have been amended four times. This development had created what the EFTA Court called “certain discrepancies at the level of primary law” which “may have an impact on the interpretation of the EEA Agreement”.245 These words imply certain assumptions. If this indeed is a matter of discrepancies, the course of action would be for the Contracting Parties to update the EEA Agreement in accordance with the procedure in Art. 118 EEA. If that has not taken place, it may be inferred that these are not discrepancies but differences reflecting that the Contracting Parties view the EEA as a trade agreement rather than a path towards an ever-closer union. In so far as this has any impact on the interpretation of the EEA Agreement, it underscores the importance of abiding to its letter. But it seems that the EFTA Court 239 Compare the judgment by the EFTA Court’s in Case E-8/13, 24.6.13, Abelia v ESA, para. 46 with those of the ECJ in Case C-550/07, 14.9.10, P Akzo Nobel, para. 45 and Joined Cases C-422/11 and C-423/11, 06.9.12, P Prezes Urzedu Kommunikacji Elektronicznej, para. 24. 240 Baudenbacher, ‘‘Must be interpreted in the light of economic considerations’ – some reflections on the case law of the EFTA Court’, in Edward et al. (ed), Ian S. Forrester: A scot without Borders – Liber Amicorum, Volume II, 2015, pp. 82-83. 241 See Section I. 242 Case E-1/01, 22.2.02, Einarsson, para. 45. 243 Case E-1/02, 24.1.03, ESA v Norway, para. 55. 244 Case E-28/15, 26.7.16, Jabbi, para. 62. 245 Ibid.

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drew different conclusions in Jabbi, as we shall return to below. This was in fact already hinted to in extrajudicial writings by the EFTA Court’s president. He claimed that the Contracting Parties wanted to update the EEA Agreement and that only practical difficulties have prevented them from doing so.246 Therefore, in his opinion, the separation of powers doctrine is not really a valid argument against the EFTA Court bridging the gaps. This reasoning has been criticised,247 but it nevertheless appears to have informed the EFTA Court’s case law. 2. From a European Economic Agreement to a European Union

The EFTA Court has taken incremental steps248 to extend the scope of the EEA Agreement to include free movement for non-economically active persons. It opened this door in Wahl249 and swung it wide open in Gunnarsson.250 The Union Citizenship Directive (Dir. 2004/38) was deemed to apply fully within the EEA, including provisions (e.g. Art. 7(1)(b)) based on Art. 21 TFEU concerning free movement for Union Citizens. Regard was neither had to the fact that the EEA Agreement does not contain a provision corresponding to Art. 21 TFEU, nor that the decision incorporating the directive explicitly set out this reservation and that the Contracting Parties had done the same in a Joint Declaration attached to that decision.251 The EFTA Court was also not swayed by the fact that EU case law even suggested that the directive was not applicable in the situation at issue in Gunnarsson.252 65 The change represented by Gunnarsson may be illustrated by the ECJ’s reflections in the Baumbast judgment. The ECJ observed that, before the Treaty on European Union entered into force, the residence rights conferred by the EC Treaty were conditional on economic activity within the meaning of Arts. 39 EC, 43 EC and 49 EC, but it is none the less the case that Union citizenship has been introduced into the EC Treaty and Art. 18(1) EC has conferred a right for every citizen to reside freely in the Member States.253 The link between free movement and economic activity was thus broken by the EU Member States adopting Art. 18(1) EC [Art. 21 TFEU]. This transformed what had been a European Economic Community to a European Union. The EEA Agreement was 64

246 Baudenbacher, ‘Der EFTA Gerichtshof, das EWR-Abkommen und die Fortentwicklungen des EG-Vertrages’, in: Liechtensteinisches Stiftungs- und Verfassungsrecht im Umbruch – Wissenschaftliche Beiträge zur Festschrfit für Prof. Dr. Dr. Herbert Batliner zum 75. Geburtstag (2004) p. 97 at p. 106. See also Fredriksen, ‘Er EFTA-domstolen mer katolsk enn paven?’ 122 Tidsskrift for Rettsvitenskap (2009) 507 at p. 564. 247 Fenger, ‘Limits to a dynamic homogeneity between EC law and EEA law’ in: Fenger, HagelSørensen and Vesterdorf (eds.), Festskrift til Claus Gulmann (2006) p. 131 at p. 145-146. 248 A similar technique is sometimes used by the ECJ, see Hartley, The Foundations of European Law (2010), p. 74. 249 Case E-15/12, 06.12.12, Wahl. 250 Case E-26/13, 27.06.14, Gunnarsson. 251 Ibid, paras. 79-80. 252 Ibid, para. 81. 253 Case C-413/99, 17.9.02, Baumbast, para. 81.

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similarly transformed by Gunnarsson. The difference is that this did not occur by amendment of the EEA Agreement. It was the product of the EFTA Court.254 There remained one difference, though. The directive covers all situations 66 where non-economically active Union citizens seek residence for themselves and their family members in another Member State. For obvious reasons, it does not give right of residence for the citizen in his or her own State, nor that of his or her family members. This could nevertheless be construed as an indirect obstacle to free movement where a Union citizen takes up residence in another Member State, marries a person that is not a Union citizen, and wants to return home with that person. Not granting such a right could be a deterrent from going abroad in the first place. The ECJ recognised as much in O. and B., but pointed out that the directive, having regard to its wording, objectives and context, does not cover that situation.255 Such derived rights of residence in the home Member State could only be based on the open-ended wording in Art. 21 TFEU.256 So when the same case as in O. and B. arrived before the EFTA Court in Jabbi, the legal issues appeared to be acte éclairé.257 The directive does not give the rights in question and Art. 21 TFEU is not part of the EEA Agreement. The EFTA Court did not follow the judgment in O. and B., however. It held that the directive could be applied by analogy and gave the applicant the same rights as the ECJ had said could only be derived from the concept of Union citizenship in Art. 21 TFEU. The judgment speaks volumes about how the EFTA Court perceives the principle of homogeneity and the objectives of the EEA Agreement, as we shall turn to below.258 3. Homogeneity v. other objectives

The EFTA Court acknowledged in Jabbi that the judgment in O. and B. 67 meant that the rights in question could not be inferred from the directive, but only on the basis of Art. 21 TFEU.259 It then set out to explain why it would not adhere to the judgment. The first reason was equal treatment. If it was to apply the reasoning in O. and B., according to the EFTA Court, “an unequal level of protection of the right of free movement for persons within the EEA could ensue”.260 It next referred to homogeneity. The case should be distinguished from O. and B. “to the extent that that judgment is based on Union citizenship” and “it must be examined if homogeneity in the EEA can be achieved based on an authority included in the EEA Agreement”.261 Reference was then made to the 254 Similar, Burke and Hannesson, ‘Citizenship by the back door? Gunnarsson’, 52 CLMR (2015) p. 1111. 255 Case C-456/12, 12.03.14, O. and B., paras. 37-44. 256 Ibid, paras. 44-50. 257 Case E-28/15, 26.7.16, Jabbi. 258 For two very different opinions in this regard, see the comments by Fløistad on Art. 28 EEA and by Einarsson on Art. 32 EEA. 259 Case E-28/15, 26.7.16, Jabbi, paras. 65-66. 260 Ibid, para. 66.

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fifteenth recital in the preamble to the EEA Agreement and the independence of courts. The legitimacy of the EFTA Court’s judgments presupposes independence, the judgment proclaims.262 These three factors led the EFTA Court to reflect on what homogenous interpretation entails. The case law of the ECJ is only an essential source for the EFTA Court where the legal context is the same. That was not the situation in this case, according to the EFTA Court, since the ECJ had “ruled out the application of the directive and instead applied the concept of Union citizenship in the evolution of the free movement of persons in the EU”.263 The EFTA Court also employed an analogy with an ECJ judgment (Eind) delivered before O. and B.264 On the basis of the foregoing reflections and analogies, the EFTA Court concluded that the directive by analogy gave the rights the ECJ said it did not do in O. and B. 68 What are we to make of this reasoning? The analogy with Eind can be dismissed at the outset. The judgment concerned Reg. 1612/68 on the free movement for workers265 and the ECJ held in O. and B. that an analogy from that judgment could only give rights on the basis of Art. 21 TFEU.266 So we come back to the EFTA Court’s references to equal treatment, homogeneity, independence of courts and relevant legal context, which presumably is why so much space was devoted to these issues in the first place. The judgment is not consonant with the principles of equal treatment and homogeneity, however. According to well-established case law, discrimination is defined as treating differently situations that are identical, or treating in the same way situations that are different.267 Equal treatment does accordingly not entail that rights and obligations stemming from Art. 21 TFEU should be extended to the EEA Agreement, as this would amount to treating situations that are different in the same way. Conversely, equal treatment requires that rights and obligations stemming from the directive are treated the same under EU law and EEA law, as the situations are identical. So does the principle of homogeneity. The case concerned a provision incorporated in the EEA Agreement that is identically worded to a corresponding EU provision. It should therefore have been interpreted in conformity with the ruling in O. and B. Nor does the reference to the independence of courts in the fifteenth recital in the preamble entail that the EFTA Court can disregard the case law of the ECJ, as this would put an end to homogenous interpretation. Underneath it all lays, it would seem, a conviction that the Contracting Parties wants EEA law to provide the same results as EU law and that it is for the EFTA Court to carry out this task.268 Only such a perspective can explain the references to equal rights and homogeneity. The same goes for the independence 261 262 263 264 265 266 267

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Ibid, para. 68. Ibid, para. 71. Ibid. Ibid, paras. 77-79. Case C-291/05, 11.12.07, Eind. Case C-456/12, 12.3.14, O. and B., paras. 44-49. E.g. Case C-459/07, 2.4.09, Elshani, para. 36 and the case law cited.

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of courts and different legal context, which is taken to mean that the EFTA Court must be able to use the tools at its disposal (the directive) in order to compensate for the larger toolbox available to the ECJ (Art. 21 TFEU), even if this means deviating from EU case law. But it is not “a proper exercise of the judicial function to seek to extend the scope of application of the EEA Agreement on that basis”, as the EFTA Court observed in its younger years.269 The Jabbi judgment may be startling, but the reasoning is not all that novel. 69 The same line of argument, coupled with references to reciprocity, underpinned the attempts in Irish Bank and Jonsson to construe a quasi-obligation for national courts of last instance to request advisory opinions. In Irish Bank, the EFTA Court held that the objective of establishing a dynamic and homogenous European Economic Area could only be achieved if the EFTA and EU citizens enjoy the same rights in both the EU and EFTA pillars.270 In Jonsson, the EFTA Court likewise stressed how important it was that “the coherence and reciprocity in relation to rights of EEA citizens, including EFTA nationals, in the EU are ensured.”271 The common denominator is that the EEA Agreement does not contain the same obligations as EU law, thus creating a perceived void between the two agreements that the principle of homogeneity is unable to fill. The gap must instead be closed by recourse to the objectives of equal protection and reciprocity. Art. 34 SCA neither imposes an obligation for national courts to request or abide by advisory opinions, therefore quasi-binding obligations and effects must be construed. But the ECJ has never considered that equal treatment or reciprocity has such a reach. General principles of international law certainly require that agreements are performed in good faith. Each contracting party is fully responsible for executing the commitments they have undertaken. This does not detract from the fact, as noted by the ECJ already in Kupferberg, that the Contracting Parties are free to determine the legal means appropriate for attaining that end in its legal system unless the agreement itself specifies those means.272 Differences in the legal order of the Contracting Parties, for instance whether provisions in the Agreement are directly applicable or not, are thus not such as to call into question the reciprocity in the implementation of the Agreement.273 It follows a fortiori that reciprocity does not justify creating obligations contrary to the means specified by the Agreement, for instance such as those laid down in Art. 34 SCA.274

268 The same observation has been made as concerns the Gunnarsson judgment; see Burke and Hannesson, ‘Citizenship by the back door? Gunnarsson’, 52 CLMR (2015) p. 1111. See also the comments by Arnesen and Fredriksen in this book on the fourth recital of the EEA preamble. 269 Case E-1/01, 22.2.02, Einarsson, para. 45. 270 Case E-18/11, 28.9.12, Irish Banks, para. 122 and Case E-14/11, 21.12.12, DB Schenker, para. 118. 271 Case E-3/12 Jonsson, para. 60. 272 Case 104/81, 26.10.82, Kupferberg, para. 18. 273 Ibid.

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4. ESA and the Commission: Guardians of the EEA Agreement?

Some years ago, commentators asked whether ESA is ‘more catholic than the Pope’, a rather heretic reference to the Commission.275 They concluded negatively. We may take that to refer to the vigilance of ESA rather than the faith of the Commission. Both these supervisory entities have as their task to ensure proper application and enforcement of the EEA Agreement, in addition to the EU Treaties in the case of the Commission. They are often fondly referred to as the Guardians of the Treaties in their performance of this role. The principle of homogeneity is fundamental in this regard. It entails that they ensure that EEA law is interpreted in conformity with corresponding provisions of EU law, no more and no less. ESA and the Commission have traditionally been conscious of this balancing act. It may be witnessed by the Commission’s observations in Sveinbjörnsdottir, where it asserted that importing the EU state liability doctrine to the EEA Agreement would be a bridge too far.276 ESA similarly submitted in Gunnarsson that the principle of homogeneity had its limits and that it would be contrary to this principle to interpret the Union Citizenship Directive so as to give rise to different sets of obligations for the EU States and the EFTA States.277 71 Such restraint is not always displayed, however. Consider for instance ESA’s subsequent pleading in Jabbi. In a reversal of its observations in Gunnarsson, it now asserted as follows: “The lack of a citizenship concept in the EEA Agreement entails that the directive should be accorded a more important role in the EEA context” and “[i]ts scope must therefore be broadened on the basis of the principle of effectiveness”.278 One thing is to accept that the Gunnarsson judgment had altered the legal landscape, but it is quite another thing to argue that effectiveness dictates that a directive should be given a different and more far reaching scope in EEA law than EU law. The Commission was equally bold. It criticized the judgment in O. and B. and urged the EFTA Court to depart from it.279 The coordinated effort in Holship provides another example. In virtually identical written observations, ESA and the Commission insisted that the EFTA Court should follow the opinion of Advocate General Jacobs in Albany,280 even though the ECJ opted for a different course in Albany and subsequent case law.281 Pending infringement cases go in the same direction. In a follow up to 70

274 For a contrary view, referring to extra-judicial writings of the EFTA Court’s President, see Barnard, ‘Reciprocity, Homogeneity and Loyal Cooperation: Dealing with Recalcitrant National Court’, in: EFTA Court (ed), The EEA and the EFTA Court (2014) p. 157-158. 275 Graver and Sverdrup, ‘ESA – mer katolsk enn paven?’, Arena Working Paper 02/11 (2002). 276 Case E-9/97, 10.12.98, Sveinbjörnsdottir, para. 44. 277 Case E-26/13, 27.6.14, Gunnarson, para. 59. 278 Case E-28/15, 26.7.16, Jabbi, para. 43. 279 Ibid, para. 46. 280 See Report for the Hearing in Case E-14/15, 5.6.15, Holship, para. 81 fn. 58 and para. 115 fn. 99. 281 See Opinion in Case C-437/09, 3.3.11, AG2R Prevoyance, para. 43.

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the STX case, ESA is claiming that the public policy exception in Art. 3(10) of the posted workers directive is so narrow “that it is difficult to see how EEA States can argue that any labour laws, however fundamental to the system of employment protection, satisfy this extraordinary high standard”.282 That is a surprising reading of a directive that, according to the fifth recital of its preamble, aims at promoting a fair climate of competition and measures guaranteeing respect for the rights of workers. Similar boldness is at display in a pending case against Iceland. Here ESA claims that Kolbeinsson has established that the judiciary falls within the state liability doctrine,283 although the judgment explicitly states that it would not deal with that issue.284 ESA and the Commission are important cogs in the EEA machinery. They 72 are, indeed, the Guardians of the EEA Agreement. This entails homogenous interpretation, upholding a rule based on law and ensuring legal certainty. It does not involve policy-making. VI. Drawing the lines together

We started off this tour d’horizon in Arts. 6 EEA and 3 SCA and have arrived 73 in a territory bearing little resemblance to what those provisions describe. The district court judge sitting late at night looking for answers to help finalise his or her judgment may by now be climbing the walls. So then, a summary may be in place and an outlook as to what the future heralds. Let us start with seeking out firm ground in order to identify what the princi- 74 ple of homogeneity enshrines. Settled case law of the EFTA Court dictates that Arts. 6 EEA and 3 SCA can no longer be applied according to their wording. The temporal limitations in Arts. 6 EEA and 3(1) SCA are certainly no longer applicable. Nor does the modest obligation in Art. 3(2) SCA to “take into account” EU case law after the signature of the EEA Agreement reflect the current state of law. Arts. 6 EEA and 3 SCA must rather be read in conjunction and the synthesis provided by case law reads as follows: Provisions of EEA law, in so far as they are identical in substance to corresponding rules of EU law, shall, in their implementation and application, be interpreted in conformity with rulings of the ECJ. Consequently, the ECJ’s judgments are determining for national courts and the EFTA Court in their interpretation of EEA law. This includes instances where the EFTA Court has rendered a conflicting judgment. When examining whether the rules indeed are identical in substance, recourse must be had to their wording, context and objectives. Provisions worded identically are presumed to be construed in the same way, but this presumption may be rebutted by having regard to their context and objectives. Conversely, the principle of homogeneity does not entail interpreting EEA law in conformity with EU rules that do not have any counterparts in the EEA Agreement. 282 Letter from ESA of 10 July 2015 in Case no. 74557, para. 79. 283 Formal Notice in Case No 75004, para. 19-21. 284 See Section IV. 2. a) above.

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This summary reflects the basic tenets of the case law. The jurisprudence is not entirely harmonious, however. This falls into three categories of cases. First of all, it has become clear that institutional and procedural EEA rules are not consistently interpreted in the same manner as corresponding EU rules, despite the assertions of procedural homogeneity. Secondly, there is no escaping that at least part of the jurisprudence promotes free movement and competition at the expense of overriding requirements of public interest to a higher degree than what the ECJ has been prepared to do.285 This means that the EFTA States have less room of manoeuvre to protect public interests than the EU Member States. The final category of cases concern instances in which the EFTA Court has extended the scope of the EEA Agreement in order to bridge the gap to the EU Treaties. The consequence of this case law, which includes the issue of Union citizenship, is that the EEA is today closer to a European Union than a European Economic Agreement. The EFTA Court’s president has expressed the view that the decisive criterion for assessing the legitimacy of its dynamic case law is whether it is accepted by the Contracting Parties (Konzept der Akzeptanz).286 An alternative yardstick could be that provided by the fourth recital in the preamble, namely whether a dynamic and homogenous European Economic Area is attained. The principle of homogeneity has for many years been the glue that holds this project together. We should take great care of it.

Article 7 [Binding effect and implementation of EU legal acts] Acts referred to or contained in the Annexes to this Agreement or in decisions of the EEA Joint Committee shall be binding upon the Contracting Parties and be, or be made, part of their internal legal order as follows: a) an act corresponding to an EEC regulation shall as such be made part of the internal legal order of the Contracting Parties; b) an act corresponding to an EEC directive shall leave to the authorities of the Contracting Parties the choice of form and method of implementation.

I. Ensuring correct implementation of EEA legislation 1

The aim of Art. 7 is to ensure legal homogeneity within the EEA, i.e. that the acts referred to in the Annexes of the Agreement in practice produce the same legal results in the EFTA States as in the EU.1 Such a provision was, and 285 Similar, Fredriksen, ‘Er EFTA-domstolen mer katolsk enn paven?’ 122 Tidsskrift for Rettsvitenskap (2009) 507 at p. 544 and p. 546. 286 See Fredriksen, ‘Er EFTA-domstolen mer katolsk enn paven?’ 122 Tidsskrift for Rettsvitenskap (2009) 507 at p. 568, citing Baudenbacher, ‘Der EFTA Gerichtshof, das EWR-Abkommen und die Fortentwicklungen des EG-Vertrages‘, in: Liechtensteinisches Stiftungs- und Verfassungsrecht im Umbruch – Wissenschaftliche Beiträge zur Festschrfit für Prof. Dr. Dr. Herbert Batliner zum 75. Geburtstag (2004) p. 97 at p. 106, and Baudenbacher ‘Zur Auslegung des EWR-Rechts durch den EFTA-Gerichtshof’, in: Müller, Osterloh and Stein, Festschrift für Günter Hirsch p. 27 at p. 49.

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still is, necessary in order to secure the correct implementation of EEA legislation by the Contracting Parties. As will be discussed below, it is also necessary in order to avoid that the public international law character of the Agreement would have the result, especially in monist Contracting Parties, of EU directives becoming more binding under EEA law than the EU directives under EU law in the Member States.2 Art. 7 was modelled on Art. 189 EEC, now Art. 288 TFEU. Although 2 Art. 288 TFEU lays down rules similar to those in Art. 7 EEA, there are important differences both in wording and effect inter alia due to the particularities of the EEA. These differences are visible both in the implementation requirements, which are presented in Part II, and, in particular, in the effect of secondary legislation, presented in Part III. II. The implementation requirements 1. General requirements

Art. 7 EEA states that secondary EU legislation that was made part of the 3 Agreement at the time it was signed in 1992, or that has been included through decisions of the EEA Joint Committee, “shall be binding” upon the Contracting Parties. The chapeau of Art. 7 further places an obligation on the Contracting Parties to ensure that all acts are made part of their respective national legal system. The requirement of making the acts part of the “internal legal order” is usually achieved by implementation of the act through national statutes or administrative acts.3 As for the wording “shall be, or be made, part”, the first option (“shall be”) 4 applies to Liechtenstein, which constitutionally takes a monistic view on international law. An act will therefore be part of the internal legal order of Liechtenstein once it is legally binding.4 However, Liechtenstein nevertheless remains subject to an obligation to transpose directives into national law.5 The second option (“or be made, part”) applies to Iceland and Norway, which adhere to dualism. In these states the requirement entails that, in order for an EEA act to become a part of national law, they must adopt a statute or regulation to that effect. The EEA Agreement, as an international agreement, is binding by virtue of 5 Art. 216(1) TFEU and forms an integral part of EU law and of the EU Member States’ legal order without any act of national implementation.6 In the 1 Norberg et. al, EEA Law, p. 106. 2 Norberg et. al, EEA Law, p. 106. 3 See Case E-5/11, 20.9.2011, ESA v Norway. The reference in para. 4 to pre-litigation procedure indirectly points to the question of whether the act could be implemented through a budgetary act of the Parliament. For more on this requirement, including the solution chosen in national law in the EFTA States, see Bull, ‘‘Shall be Made Part of the Internal Legal Order’: The Legislative Approaches’ in: EFTA Court (ed), The EEA and the EFTA Court – Decentred Integration. 4 Hreinsson, “General Principles”, in Baudenbacher, Handbook of EEA Law, p. 385. 5 Case E-1/07, 3.10.2007, Criminal Proceedings Against A, para. 41.

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context of Art. 7 EEA, the EU Member States are therefore in a situation similar to Liechtenstein, but in practice, Art. 7 is mainly directed at the EFTA States due to the EU Member States’ duty under Art. 288 TFEU to incorporate the underlying EU acts. However, the characteristics of the EEA Agreement and any specific adaptations made when incorporating the EU act into the EEA Agreement will in some circumstances require (additional) implementing measures also in the EU Member States.7 6 Art. 7 refers to “acts” in general, but unlike Art. 288 TFEU, it only specifically addresses the implementation of regulations and directives. There is no explicit mention of the implementation of other acts, such as decisions. The wording of Art. 7 does undoubtedly say that all acts shall be, or be made, part of the internal legal order. Decisions are however highly diverse in content and form and it would not be fruitful to lay down an obligation on the EEA States to implement all decisions.8 As for the requirements of how to implement those decisions that the Contracting Parties decide to incorporate into the EEA Agreement, it would be reasonable to apply the principles applicable to the Agreement in general, inter alia Art. 3, which lays down an obligation to “take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of this Agreement”.9 The question of what are “appropriate measures” would then have to be answered on a case-by-case basis, taking into account inter alia the particular circumstances and the nature of the relevant decision. 7 The same would apply to EEA relevant recommendations and opinions. Although these are non-binding acts, it is in certain situations appropriate to incorporate also such acts into the Agreement.10 An assessment must be made in each 6 Martines, ‘Direct Effect of International Agreements of the European Union’ in EJIL (2014), Vol. 25 No. 1, 129-147, at p. 133. For a further analysis of the nature of the EEA Agreement under EU law, see Tynes and Haugsdal, ‘In, Out or In-between? The UK as a Contracting Party to the Agreement on the European Economic Area’, European Law Review 2016, Volume 41, No. 5, p. 753-765, at pp. 761-765. 7 In practice, this will only come into play for directives, as regulations are not subject to implementation procedures in the EU, see mn. 15-17 below. For directives, the obligation on the EU Member States will most often consist of ensuring that the national legislation through which the directive has been implemented is amended to cover also the wider EEA scope, see mn. 33 below. 8 Fredriksen and Mathisen, EØS-rett, p. 284. 9 Fredriksen and Mathisen, EØS-rett, p. 284. The EFTA Court has stated that Art. 3 imposes a duty upon the EFTA States to take all appropriate measures to make secondary EEA legislation part of their internal legal order, see Hreinsson, ‘General Principles’, in Baudenbacher (ed), Handbook of EEA Law, p. 358, especially note 41 and the references therein. For a general presentation, see the comments by Franklin on Art. 3. 10 This is particularly the case where the recommendation or opinion follows up on the adoption of a legally binding act, or where it foreshadows the enactment of a binding legislative act and is likely to constitute a part of the context necessary for the understanding of the act in question. However, political or other considerations may speak against incorporating such non-binding acts. For more on the assessment of incorporation of non-binding acts, see Baur, ‘Decision-Making Procedure and Implementation of New Law’, in Baudenbacher (ed.), The Handbook of EEA Law, p. 54.

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individual case of whether and, if so, in what way, implementation should take place. Art. 7 is only applicable to acts that are incorporated into the EEA Agree- 8 ment. The provision consequently creates no obligations for the Contracting Parties to implement EEA relevant EU legislation until the EEA Joint Committee has adopted a decision under Art. 102.11 This entails inter alia that ESA will not be monitoring the implementation of an EEA relevant act until that act is made part of the Agreement and the deadline for implementation has expired.12 Once the act is incorporated into the EEA Agreement and a transposition 9 deadline is set, the question arises whether the national authorities are barred from introducing measures that would potentially contradict the obligations stemming from the act in question. In the EU, the ECJ has stated that the principle of loyalty requires that, during the transposition period, Member States must “refrain from taking any measures liable seriously to compromise the result” prescribed in the act that is to be implemented.13 The obligation must be understood as referring to the adoption of any measure, general or specific, liable to produce such a compromising effect.14 Under the EEA Agreement, the question of an equivalent obligation for the 10 EFTA States is particularly challenging due to the lack of direct effect in the EEA.15 Although the EFTA States are not obliged to implement regulations or directives pursuant to Art. 7 before the end of the period prescribed for transposition, it follows from the principle of loyalty in Art. 3 that during that period they must refrain from taking any measures that could compromise the objectives prescribed by the act concerned.16 The starting point in the EEA would however be different from that in the EU. The decisive marker under the EEA Agreement cannot be the entry into force of the EU act, but the date of the entry into force of the EEA Joint Committee Decision (JCD) on the incorporation of the act in question. An additional complicating issue is whether, or to what extent, the principle of loyalty is applicable before constitutional requirements under Art. 102 are lifted and the JCD enters into force.

11 The States may of course voluntarily, and advantageously so, prepare the legislative work before a decision is adopted: early preparation contributes to timely implementation. However, although not excluded, premature entry into force of such legislation should be used with caution as the new EEA commitments under the JCD may contradict existing commitments as they stand before the amendment to the Agreement (for example where a new act replaces or amends an act already in force). 12 For general information on ESA’s monitoring task, see the comments by Bjørgan to Part III SCA. 13 Case C-129/96, 18.12.1997, Inter-Environnement Wallonie, para. 45. 14 Case C-165-167/09, 26.5.2011, Stichting Natuur en Milieu, para. 78. 15 Fredriksen and Mathisen, EØS-rett, p. 287. For information on direct effect in the EEA, see mn. 52 ff below. 16 Hreinsson, ‘General Principles’, in Baudenbacher, Handbook of EEA Law, p. 387.

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2. Implementation of acts corresponding to regulations a) No direct applicability

Art. 7 litra a sets out how EU regulations incorporated into the EEA Agreement shall be implemented by the Contracting Parties. It follows from the wording of the provision that an act corresponding to a regulation shall “be made part of the internal legal order” of each EEA State, meaning that the act must be implemented into national law. This requirement significantly distinguishes the situation under EEA law from the corresponding situation under EU law, where Art. 288 TFEU states that regulations are “directly applicable” in the EU Member States. 12 Contrary to the situation under EU law, a distinct feature of the EEA Agreement is the lack of transfer of legislative powers, and the aim of achieving a homogeneous EEA must be achieved through national procedures.17 Consequently, when regulations are incorporated into the EEA Agreement, the Contracting Parties are obliged under Art. 7 to ensure that the act is made part of their internal legal order by adopting the implementing measures required in accordance with their respective constitutional law. For Liechtenstein, which is subject to a monistic doctrine under its legal system, the act will be part of the internal legal order without the need for implementing measures.18 Art. 216(2) TFEU creates the same effect for EU Member States with regard to EEA acts corresponding to an EU regulation. For the dualistic States Iceland and Norway, however, a regulation will not be made part of their respective national legal orders by sole virtue of the amendment of the EEA Agreement. These States must undertake national legislative measures to implement the act into national law. 13 The necessity of implementing measures for acts incorporated into the EEA Agreement, including regulations, has been viewed as a fundamental principle of EEA law by the EFTA States, ESA and the EFTA Court since the entry into force of the Agreement. By accepting that the Agreement does not entail transfer of legislative powers, the ECJ has also appeared to assume that regulations are not directly applicable in the dualist EFTA States.19 Contrary to this well-established view, the ECJ in Case C-431/11 UK v Council, surprisingly found that “as regards an EU regulation, Article 7(a) of the EEA Agreement expressly pro11

17 See inter alia Cases E-4/01, 30.5.2002, Karlsson; E-1/07, 3.10.2007, Criminal Proceedings against A; and E-1/01, 22.2.2002, Einarsson, para. 52. This is also explicitly stated in the preamble to Protocol 35 of the EEA Agreement, see mn. 36 below. 18 In Liechtenstein, a special provision was adopted in Art. 67 of the Constitution, providing that EEA provisions applicable to Liechtenstein shall be promulgated in a particular EEA compendium, thereby making it superfluous to promulgate regulations in the ordinary Liechtenstein Legal Gazette in order to be applicable, see Bull in: EFTA Court (ed) The EEA and the EFTA Court, p. 210. 19 Opinion 1/91, 14.12.1991, para. 20, where the ECJ gives the following description: “The EEA is to be established on the basis of an international treaty which, essentially, merely creates rights and obligations as between the Contracting Parties and provides for no transfer of sovereign rights to the inter-governmental institutions which it sets up”.

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vides that such an act is ‘as such’ to be made part of the internal legal order of the Contracting Parties, that is to say, without any implementing measures being required for that purpose”.20 Then, in Case C-83/13 Fonnship, the ECJ noted that provisions of the regulation in question were “an integral part of the legal order of all of the States that are parties to the EEA Agreement by virtue of Article 7(a) of the EEA Agreement and Annex XIII thereto”.21 These statements give the impression that the ECJ finds regulations generally to be directly applicable under the EEA Agreement as no reference to Art. 216(1) TFEU is included. However, the statements on Art. 7 in these two cases might merely be based on a misunderstanding, as claimed by leading experts on EEA law.22 Such an assumption seems well-founded on the fact that the ECJ did not in either case elaborate on its statement or in any way assess the differences between the EU and the EEA that make up the reason for the implementation requirement under Art. 7.23 b) The act as adapted to the EEA Agreement

The phrase “act corresponding to an EEC Regulation” underlines that it is 14 not the regulation adopted by the EU legislators, but instead the act as adapted to the EEA Agreement by the decision of the EEA Joint Committee,24 that is to be implemented by the Contracting Parties. The act as implemented in the EEA Agreement is a different legal instrument and produces different legal effects than the EU regulation from which it originates. c) Restrictions on implementation in the EU due to the nature of regulations

Regulations are EU law in its purest form, similar in form and function to 15 domestic legislation in the EU Member States. As opposed to decisions, they have general application, i.e. the “measure applies to objectively determined situations and produces legal effects with regard to categories of persons described in a generalized and abstract manner”.25 Upon entry into force, their direct applicability makes them part of the internal legal order in all EU Member States, prevailing over conflicting acts of the national legislator without the need of 20 Case C-431/11, 26.9.2013, UK v Council, para. 54. 21 Case C-83/13, 8.7.2014, Fonnship, para. 24. 22 See inter alia Bull, ‘‘Shall be Made Part of the Internal Legal Order’: The Legislative Approaches” in EFTA Court (ed), The EEA and the EFTA Court – Decentred Integration, p. 211, and Björgvinsson, ‘Fundamental Rights in EEA Law’ in: EFTA Court (ed), The EEA and the EFTA Court, p. 265 (“it seems that the CJEU has simply misunderstood”). See also Fredriksen and Franklin, ‘Of Pragmatism and Principles: The EEA Agreement 20 Years on’, Common Market Law Review 2015 52, p. 629-684, at p. 670. 23 For more on this, see Fredriksen and Franklin, ‘Of Pragmatism and Principles: The EEA Agreement 20 Years on’, Common Market Law Review 2015 52, p. 629-684, at pp. 669-670. See also Case C-300/01, 15.5.2003, Salzmann, para. 66, where the ECJ stated that its interpretations of the EEA Agreement apply solely with regard to the EU. 24 For more on adaptations, see the comments by Dystland, Finstad and Sørebø to Art. 102(1), mn. 23 ff. 25 Joined Cases 789/79 and 790/79, 17.6.1980, Calpak, para. 9.

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transposition measures. The ECJ has held that “owing to its very nature and its place in the system of sources of Community law, a Regulation has immediate effect and, consequently, operates to confer rights on private parties which the national courts have a duty to protect”.26 Consequently, regulations come into force solely by their publication in the Official Journal.27 16 The ECJ has held that reproducing the provisions of the regulation in national legislation, as a general rule, is not allowed as it brings “into doubt both the legal nature of the applicable provisions and the date of their coming into force”.28 Thus, EU Member States must not adopt a measure by which the nature of a regulation as a legal act of the EU and the consequences that arise from it, are concealed from the persons concerned.29 The ECJ has highlighted that procedures or measures by national authorities in the EU Member States that disguise the nature of the legal rule from those subject to it, might affect the jurisdiction of the Court to pronounce on any question involving the interpretation of EU law or the validity of an act of the institutions of the EU.30 17 However, in some instances the regulation itself requires that the EU Member States enact implementing legislative measures. In these circumstances, failure to put in place the necessary implementing measure, as required by the regulation, amounts to a breach of EU law.31 The ECJ has also in special circumstances accepted, by reference to the interplay between EU law and national law in certain areas, the fact that national law incorporate, for the sake of coherence and in order to make them comprehensible to the persons to whom they apply, some elements of the Community regulations.32 d) Strict rules on implementation in the EEA 18

In line with the strict approach on regulations under EU law, Art. 7 litra a states that acts corresponding to a regulation shall “as such” be made part of the internal legal order of the Contracting Parties. The requirement clearly contrasts the discretion provided to Contracting Parties under litra b for directives, whereby the Contracting Parties can choose the form and method of implementation.

26 Case 34/73, 10.10.1973, Variola, para. 8. 27 Art. 297(2) TFEU. 28 Case 39/72, 7.2.1973, Commission v Italy, para. 17. See also Fenger, ‘Gennemførelse af direktiver og regler, der understøtter forordninger’, in: Olsen and Sørensen (ed), Europæiseringen af dansk ret, p. 199-223 at p. 221. 29 Case 94/77, 31.1.1978, Zerbone, para. 26. 30 Case 34/73, 10.10.1973, Variola, para. 11. 31 See inter alia Case 128/78, 7.2.1979, Commission v UK. 32 Case 272/83, 28.3.1985, Commission v Italy, para. 27. See also C-113/02, 14.10.2004, Commission v Netherlands, para. 16; and C-316/10, 21.12.2011, Danske Svineproducenter, para. 41: “Member States may adopt rules for the application of a regulation if they do not obstruct its direct applicability and do not conceal its Community nature, and if they specify that a discretion granted to them by that regulation is being exercised, provided that they adhere to the parameters laid down under it”.

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Read as whole, Art. 7 aims at replicating the distinction under Union law between directives and regulations in the EEA Agreement. Whereas direct applicability of regulations is not part of the EEA Agreement, 19 the wording “as such” indicates that acts are to be implemented without changes or amendments, and that the legal nature of the act should not be concealed. The requirement offers the Contracting Parties very limited discretion as to how the act is to be made part of the internal legal order. Therefore, contrary to the situation with directives, acts corresponding to regulations must be implemented in full word by word.33 This includes provisions in the act that do not seek to create or affect rights and obligations for private individuals.34 Consequently, the requirement under Art. 7 litra a to implement acts corresponding to regulations is absolute. Whether non-implementation actually or potentially poses a risk to the simultaneous and uniform application throughout the EEA, is irrelevant. Following the same line of argument, there can be no screening of the act to 20 carve out provisions that offer discretion to the national authorities and require that supplementary national measures be put in place. The same applies to provisions regarded as being too imprecise or ambiguous to be justiciable. Lastly, arguments related to the lack of EEA relevance of a certain provision must also be rejected as grounds for non-implementation once the act is part of the EEA Agreement through a decision by the EEA Joint Committee.35 As explained above, the aim of Art. 7 with regard to regulations is to replicate 21 the characteristics of the instrument in an EEA context while respecting the constitutional necessity of implementing measures for dualistic EFTA States. Consequently, national implementing measures shall ensure the required legal basis, but the national legislator is not provided with any discretion to shape or affect the content of the act. In our view, it is entrenched in the requirement “as such” that the act corresponding to regulations must be made part of the internal legal order as a whole. They cannot be implemented in fragments in the national legislation. This means that they cannot be split up and implemented in different parts of the national legislation, regardless of whether the partition is made between several different statutes or whether provisions are implemented partly in statute and partly through administrative acts.36 Such fragmented implementation would create a risk of concealing the legal nature of the act, by blurring the distinction between national law and EEA law. The approach might easily

33 Bull, ‘‘Shall be Made Part of the Internal Legal Order’: The Legislative Approaches’ in EFTA Court (ed), The EEA and the EFTA Court – Decentred Integration, p. 211; and Backer, Loven – hvordan blir den til, p. 99. 34 See Case E-5/11, 20.9.2011, ESA v Norway, para. 26. 35 The need for adaptations due to lack of EEA relevance must be raised before incorporation into the EEA Agreement and have to be specified in the JCD, see comments by Dystland, Finstad and Sørebø on Art. 102(1), in particular mn. 28 and 32. 36 Backer, Loven – hvordan blir den til, p. 99-100. See Fredriksen and Mathisen, EØS-rett, p. 278.

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distort the interpretive value of the act read as a whole, as well as hinder the application of EEA principles of interpretation. Moreover, the approach might entail that different parts of the act do not enter into force at the same time. e) Method of implementation

The above suggests that acts corresponding to regulations must be incorporated by reference into the national legal order to comply with the “as such” requirement.37 Under this method of incorporation, the national legislation would simply include a reference to the specific act, as implemented in the relevant Annex to the EEA Agreement, but the wording of the act would not be reproduced. This form of implementation offers the advantage that the origin of the act is clearly spelled out and the act is preserved in full. Moreover, incorrect implementation is not an issue, as the act is either incorporated correctly or not.38 In addition, all official language versions of the act are equally authoritative.39 23 Incorporation is almost without exemption the technique used for making acts corresponding to regulations part of the Norwegian internal order. The same method was previously used in Iceland, but changed due to criticism from the judiciary and the Ombudsman.40 According to Icelandic law the act cannot be implemented before an official translation of the act is finalized. The act is then subsequently transposed into the national legal order based on the translation.41 It may be questioned whether this is in conformity with litra a, as the procedure apparently only makes the Icelandic version of the regulations applicable in Icelandic law. 24 While incorporation of acts corresponding to regulations clearly complies with the requirement to make the act part of the internal legal order “as such”, the drawback of the method is the lack of transparency for affected private individuals. It might be argued that a similar effect is embedded in the principle of direct applicability of regulations under EU law, and that the situation is not exclusive to the EEA Agreement.42 However, for private individuals deriving 22

37 Fredriksen and Mathisen, EØS-rett, p. 278; Jervell, Lovgivningen i EØS, p. 94; Sejersted et al., EØS-rett, p. 198; and NOU 2012: 2 Utenfor og innenfor, p. 123. 38 Bull, ‘‘Shall be Made Part of the Internal Legal Order’: The Legislative Approaches’ in: EFTA Court (ed), The EEA and the EFTA Court – Decentred Integration, p. 211. 39 The EFTA Court has previously held that in the case of differing language versions, a preferred starting point for the interpretation will be the one that has the broadest basis in the various language versions. This would imply that the provision, to the largest possible extent, acquires the same content in all EEA States, cf. Cases E-9/97, 10.12.1998, Sveinbjörnsdóttir, para. 28, and E-18/11, 28.9.2012, Irish Bank, para. 86. For more on authoritative language versions, see comments by Arnesen on Art. 129. 40 Bull, ‘‘Shall be Made Part of the Internal Legal Order’: The Legislative Approaches’ in: EFTA Court (ed), The EEA and the EFTA Court – Decentred Integration, p. 211. For more on implementation of EEA Acts in Iceland, see Helgadóttir/Einarsdóttir in: Part I, General Reports – Iceland. 41 Bull, ‘‘Shall be Made Part of the Internal Legal Order’: The Legislative Approaches’ in: EFTA Court (ed), The EEA and the EFTA Court – Decentred Integration, p. 211.

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rights and obligations from acts corresponding to a regulation, an additional obstacle arises from the fact that their legal position cannot be directly deduced from the wording in the original regulations. It is instead reached through “cut and paste” by merging any adaptations made to the specific act in the JCD, with general adaptations provided for in the introductory part of the relevant Annex as well as in Protocol 1 to the Agreement and taking into consideration the Agreement as a whole. 3. Implementation of acts corresponding to directives a) The act as adapted to the EEA Agreement

Art. 7 litra b lays down the requirements for the implementation of acts corre- 25 sponding to directives. As under litra a, the use of the phrase “corresponding to” indicates that the act incorporated into the Agreement differs, to a greater or lesser degree, from the corresponding EU directive. The act to be implemented is therefore not the directive in the form it was adopted by the EU, but rather the directive in the form in which it is described in the JCD incorporating the directive into the EEA Agreement.43 b) Form and method of implementation

When it comes to the requirements as to how directives should be implement- 26 ed, litra b appears to leave the States a high degree of discretion; an act corresponding to a directive “shall leave to the authorities … the choice of form and method of implementation”. Consequently, the States are under an obligation to adopt national legislation with a certain content, not a certain form. As in the EU, directives merely impose an obligation to ensure that the directive’s objectives are secured in the States’ respective national legal systems.44 There is in principle no obligation to follow inter alia the wording, structure, or order of the directive, allowing every State to choose the form of implementation it considers most suited. The actual manoeuvring space when implementing a directive will nevertheless vary according to the form and content of the directive in question, especially the level of harmonisation chosen: minimal requirements only; harmonisation in such detail that it in fact requires implementation word by word; or somewhere in between.45 In this regard, there is no difference between the EEA Agreement and EU law.

42 Backer, Lov og lovgivning, p. 76 and footnote 18. 43 In most cases, the differences are only minor and limited to technical adjustments. However, the importance of distinguishing between the EU act and the EEA version of the act becomes apparent when, due to various reasons, substantial adaptations are made to the act in the incorporation process. For more on adaptations, see comments by Dystland, Finstad and Sørebø on Art. 102(1) EEA, in particular mn. 23-27. 44 Art. 288 (3) TFEU explicitly states that directives are binding “as to the result to be achieved”. 45 For more on harmonisation, see Barnard, The Substantive Law of the EU, chapter 15.

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c) Binding force 27

Art. 7 states that the acts shall be binding upon the Contracting Parties. In principle, this entails an obligation to implement a directive through the adoption of binding legislation, excluding the use of internal instructions, administrative practice or guidelines.46 However, depending on the legal context, the implementation of a directive does not necessarily require legislative action, as long as it is implemented with unquestionable binding force.47 d) Sufficiently precise and clear

Further, the States are obliged to adopt all measures necessary to ensure the full effect of a directive in accordance with its objectives and the implementation needs to be “sufficiently precise and clear” and in such a way that individuals be made fully aware of their rights, enabling them to rely on them before the national courts.48 This creates challenges in particular for the Nordic States, which have a tradition of using general and broad wording in their legislation, leaving it up to the administrative authorities to decide on the detailed content by way of interpretation. Such an approach is reasonable in small, homogeneous countries such as the Nordic States. However, the diversity in the EEA gives rise to a need for more detailed rules to ensure legal certainty in that legislation implementing EU law is clearly understandable to all those who are subject to it in all the different States. Because of this, the national legislative processes have changed and, although the States are left “the choice of form and method of implementation”, the EU drafting technique and principle of legal certainty have undoubtedly led to a more frequent use of detailed legislation than would have been the traditional choice of the Nordic States.49 29 The requirement of sufficiently precise and clear implementation has also resulted in a more restricted use of the Nordic method of providing detailed interpretative guidance in the preparatory works. The ECJ has held that clarifying statements in preparatory works are not sufficient to ensure that individuals are adequately informed of the rights provided to them by the legislation in question.50 This does not prevent the use of such guidance by the legislator in general, but the guiding statements cannot replace explicit statutory provisions as means of implementing directives. In cases where a directive is given a broad wording, leaving it up to the individual State to decide on the detailed content, the use of clarifying comments may be accepted as part of the implementation together with a generally phrased provision. The question of the status of preparatory works was raised before the EFTA Court in Case E-1/10 Periscopus. 28

46 47 48 49

Case E-15/12, 22.7.2013, Wahl, paras. 51 to 53. Case E-15/12, 22.7.2013, Wahl, paras 51 and 56. Case E-15/12, 22.7.2013, Wahl, para 52. See inter alia Sejersted et al., EØS-rett, p. 202 (for the situation in Norway) and Helgadóttir/ Einarsdóttir in: Part I, General Reports – Iceland, mn. 21-22 (for the situation in Iceland). 50 Case C-143/83, 30.1.1985, Commission v Denmark, paras. 11-12.

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However, as the preparatory works in question did not provide sufficient clarity, the Court found that it was “unnecessary … to address whether clarifying comments in preparatory works to a provision … may help secure full implementation of the requirements of the Directive in a national legal system such as the one at hand”.51 The States must ensure full application of directives not only in fact, but 30 also in law.52 This entails that where a provision is interpreted and practiced by national courts in a way that is contrary to rights and obligations arising out of the EEA Agreement, the implementation could be considered not to fulfil the requirement of being sufficiently precise and clear. In a case against Norway regarding a provision on security for costs, ESA has argued that Norway is in breach of EEA law because case law from national courts shows that the provision in question is practised in a way that goes against the prohibition on discrimination in Art. 4 EEA.53 ESA relies on case law from the ECJ and the EFTA Court, inter alia Joined Cases E-10/11 and E-11/11 Hurtigruten, where the EFTA Court stated that the principle of legal certainty “requires that rules of EEA law be clear and precise, so that interested parties can ascertain their position in situations and legal relationships governed by EEA law”.54 The States are under an obligation to ensure that provisions are “worded unequivocally so as to give the persons concerned a clear and precise understanding of their rights and obligations and enable national courts to ensure that those rights and obligations are observed”.55 Building on the principles of homogeneity and loyalty it may be assumed that 31 other general requirements laid down by the ECJ for the EU Member States’ implementation of directives are applicable also to the EFTA states.56 As in the EU, there is the possibility of passive transformation in cases 32 where national legislation already contains provisions fulfilling the requirements in the directive.57 51 Case E-1/10, 10.12.2010, Periscopus, para. 51. The Commission appeared ready to accept the statements in the preparatory works as part of the implementing measure, ensuring the fulfilment of the obligation to ensure sufficiently clear implementation, see para. 45. See also Case C-478/99, 7.5.2002, Commission v Sweden, paras. 20 ff., where the ECJ accepted preparatory works as part of the implementation, albeit for lists annexed to the directive in question. 52 Case E-12/13, 11.2.2014, ESA v Iceland, para 70. 53 Case No. 76155. The case does not directly concern implementation of a directive, but may be relevant due to the significance ESA puts on the requirement of sufficiently precise and clear provisions to ensure legal certainty under the EEA Agreement. In that case, the Norwegian government has not accepted ESA’s position, but has nevertheless chosen to forward a bill to the Parliament amending the rules on security of costs that meets ESA’s concerns, see Prop. 42 L (2016-2017) Endringer i tvisteloven (sikkerhet for sakskostnader), ch. 3 and 6. 54 Joined Cases E-10/11 and E-11/11, 8.10.2012, Hurtigruten, paras. 280 and 281. 55 Case C-478/01, 6.3.2003, Commission v Luxembourg, para. 19. 56 Fredriksen and Mathisen, EØS-rett, p. 282. For more on the requirements of implementation of directives, see Prechal, Directives in EC Law (2005); Fenger, ‘Gennemførelse af direktiver og regler, der understøtter forordninger’ in: Olsen and Sørensen (ed), Europæiseringen af dansk ret, p. 199-223; Fredriksen and Mathisen, EØS-rett, ch. 2.4; and Sejersted et al., EØS-rett, pp. 196-200.

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e) Implementation in the EU Member States 33

Art. 7 litra b is also applicable to the EU Member States and obliges them to ensure that their national legislation implementing directives that are incorporated into the EEA Agreement, is given effect also to persons and entities in the EFTA states.58 If the incorporation of a directive into the EEA Agreement takes place before national implementation in the EU Member States, this does not raise an issue. The EU Member States then merely include the EEA element in their implementation process. However, where there is a delay in the Joint Committee leading to incorporation taking place only after the EU Member States have completed their national legislative procedures, they are obliged to adopt necessary additional legislative amendments to ensure that their national legislation also covers the EFTA states.59 III. The effect of secondary legislation in the EEA

34

Due to the particularities of the EEA compared to the EU and the differences between Art. 7 EEA and Art. 288 TFEU, there are important differences when it comes to the effect of secondary legislation in the EEA and in the EU. This applies to both implemented and non-implemented acts, with the differences being more visible and of a greater practical importance for the latter. 1. The status of implemented acts a) An EEA principle of primacy?

35

In the EU, EU law takes precedence over national law in cases of conflict. This principle of primacy does not only apply to the EU Member States, as normally foreseen by public international law; it also puts an obligation on the national courts in the EU Member States to grant EU law priority over national legislation in cases of conflict.60 The question of whether an equivalent principle of primacy should be included in the EEA Agreement was the source of difficult discussions during the negotiations.61 From the perspective of the EU, the aim of a homogeneous EEA entailed a need for a corresponding principle of primacy under the Agreement. For the EFTA States, however, primacy was seen as a consequence of the supranational elements that were not made part of the Agreement and therefore distinguishes it from the EU.62 They found primacy

57 Case E-15/12, 22.7.2013, Wahl, paras 49 and 50. 58 Fredriksen and Mathisen, EØS-rett, p. 280. 59 Where it is clear to the EU Member States that the directive will be made part of the EEA Agreement, there is nothing hindering them from including the whole of the EEA in their national legislation already before the formal decision of incorporation has been made. 60 For more on primacy of EU law, see Craig and de Búrca, EU Law, ch. 9. 61 Sejersted et. al., EØS-rett, p. 204. 62 NOU 2012:2 Outside and Inside – Norway’s agreements with the European Union, p. 131 (in Norwegian version).

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incompatible with the formal status of the EEA Agreement, as well as with their national constitutions.63 aa) Protocol 35 – National measures in the EFTA States to ensure primacy

The Nordic States’ desire to preserve their dualistic system led to a compro- 36 mise by which the principle of primacy would have to be achieved in the EFTA pillar through national procedures in the EFTA States.64 The compromise materialised in a joint Protocol 35 EEA on the implementation of EEA rules, where in the introduction it is stated that the EEA Agreement aims at achieving a homogeneous EEA “without requiring any Contracting Party to transfer legislative powers to any institution of the European Economic Area”. The sole article of the Protocol then states: “For cases of possible conflicts between implemented EEA rules and other statutory provisions, the EFTA States undertake to introduce, if necessary, a statutory provision to the effect that EEA rules prevail in these cases.”

As a result of the protocol, the EFTA States – where “necessary” – laid 37 down a rule, by virtue of a provision in their respective national law, stating that EEA law prevails in cases of conflict. In Norway and Iceland such provisions were indeed necessary and therefore adopted prior to the entry into force of the Agreement to ensure priority for implemented EEA legislation over national law in cases of conflict.65 In Liechtenstein, however, there was no need for such a national provision. bb) Primacy of EEA law in the EU Member States

For the EU Member States, the principle of primacy in EU law is presumed to 38 also cover the situation under the EEA Agreement. Under Art. 216(1) TFEU, the Agreement is binding on the EU and its Member States. EU agreements become, from their entry into force, an integral part of the European legal order and acquire the rank of EU law in Member States’ legal orders.66 Implemented EEA rules therefore enjoy primacy over national law by virtue of the EEA Agreement’s status as an integral part of EU law.67

63 Hreinsson, “General Principles”, in Baudenbacher (ed), Handbook of EEA Law, p. 385. 64 Fredriksen and Mathisen, EØS-rett, p. 296, and Norberg and Johansson, ‘The History of the EEA Agreement and the First Twenty Years of Its Existence’ in: Baudenbacher (ed), The Handbook of EEA Law, p. 39. 65 In Norway, the provision is placed in Section 2 of the EEA Act (lov 27. november 1992 nr. 109 om gjennomføring i norsk rett av hoveddelen i avtale om Det europeiske økonomiske samarbeidsområde (EØS) m.v. (EØS-loven)). In Iceland, the equivalent provision can be found in Art. 3 of the EEA Act (Lög nr. 2/1993 um Evrópska efnahagssvæðið). 66 Martines, ‘Direct Effect of International Agreements of the European Union’ in EJIL (2014), Vol. 25 No. 1, 129-147, at p. 133. 67 For more on the status of EU Agreements, see Mendez, The Legal Effects of EU Agreements (2013).

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cc) Actual primacy of EEA law in the EFTA States?

Protocol 35 EEA, although aiming at ensuring priority for EEA law, differs significantly from the principle of primacy in EU law. First, it does not lay down an actual principle of hierarchy between EEA law and national legislation: the effect of the protocol is that EEA law enjoys primacy because a national provision is granting it such a status; it does not as such take priority over national law. The national provision granting priority is an ordinary provision with no higher status than other national legislation and could in theory be amended or repealed.68 Second, it only applies to “implemented EEA rules”.69 The status of non-implemented acts (discussed in point 2 below) is consequently not addressed and clarified through Protocol 35. Third, the requirement of granting EEA law priority is only applicable to cases of conflict with “statutory provisions”, not constitutional provisions. 40 In spite of these formal differences, Protocol 35 does in practice grant an almost identical status to implemented EEA law in the EFTA states as in the EU – at least in Norway.70 41 As for Iceland, Art. 3 of the Icelandic EEA Act, adopted to incorporate Protocol 35, has been criticised for not sufficiently ensuring that EEA law prevails in cases of conflict.71 The provision is worded as a rule of interpretation, prescribing that laws and regulations “shall be interpreted, insofar as applicable, in conformity with the EEA Agreement and the rules on which it is based”. The Icelandic legislator aimed at complying with the contents of Protocol 35 by means of Art. 3, but case law from the Icelandic Supreme Court has shown that the provision might not provide the desired effect.72 The Supreme Court has stated that an Icelandic provision will prevail if it is not possible to interpret national law in accordance with the provisions of a correctly implemented EEA rule, meaning that correctly implemented EEA rules do not take precedence over Icelandic law.73 Thus, Iceland may therefore be in breach of the EEA Agreement by not ensuring a correct implementation of Protocol 35. It remains 39

68 Such an amendment would however entail that the EFTA State(s) in question would be in breach of the obligations under the EEA Agreement. 69 The term is in this context given a wide interpretation, also extending to include EEA rules that are not, as such, implemented correctly in national law, but where they are considered “implemented” in national legislation by way of EEA conform interpretation, se Fredriksen and Mathisen, EØS-rett, p. 296. For more on EEA conform interpretation, see mn. 60-62 below. 70 Fredriksen and Mathisen, EØS-rett, p. 297, supported by Bull, “‘Shall be Made Part of the Internal Legal Order’: The Legislative Approaches” in EFTA Court (ed) The EEA and the EFTA Court – Decentred Integration, p. 213. 71 Thórisson, “Icelandic Bar”, in Baudenbacher, The Handbook of EEA Law, p. 320, and Helgadóttir/Einarsdóttir in: Part I, General Reports – Iceland, mn. 60 and 61. The question of the sufficiency of Art. 3 was raised in Case E-1/01, 22.2.2002, Einarsson. However, the EFTA Court merely referred to the provision, stating that it understood it to have been enacted to fulfil Protocol 35, and that (as Art. 3 is a national provision) the consideration and interpretation of that provision lies with the national courts, see para. 51. 72 Helgadóttir/Einarsdóttir in: Part I, General Reports – Iceland, mn. 60-64.

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to be seen whether ESA will commence infringement proceedings against Iceland under Art. 31 SCA for failing to ensure priority for EEA law as laid down by the Protocol.74 dd) Scope of primacy in the EEA: “unconditional and sufficiently precise”

The undertaking assumed under Protocol 35 does not extend to every provi- 42 sion of the main part of the EEA Agreement. It relates only to those provisions that are framed in a manner capable of creating rights that individuals and economic operators may invoke before national courts. The EFTA Court has stated that this is the case when the provision in question is “unconditional and sufficiently precise”.75 b) The principles of equality and of effectiveness

When implementing EEA legislation, the States must not only take into ac- 43 count the explicit requirements in Art. 7 EEA, but also ensure that the implementing measures are in accordance with the EEA Agreement in general. Of special importance are the principles of equality and of effectiveness. The principle of equality is fundamental to the functioning of the internal 44 market and consequently the EEA Agreement. The objective of the EEA is to establish a dynamic and homogeneous EEA by ensuring inter alia “equal conditions of competition” and “adequate means of enforcement including at the judicial level, and achieved on the basis of equality and reciprocity …”. Further, in recital 11 emphasis is put on the importance of equal treatment of men and women, and recital 15 points at on the objective of the Contracting Parties to ensure equal treatment of individual and economic operators.76 The principle of equality is also expressed in several articles in the Agree- 45 ment, with Art. 4 on the prohibition of discrimination being an obvious example. Art. 4 requires each EEA State to provide equal treatment of its own nationals 73 Case No. 10/2013 Landsbankinn hf. V Flugastraumur ehf, and Helgadóttir/Einarsdóttir in: Part I, General Reports – Iceland, mn. 66-72 74 In Case No. 77038, in a letter of formal notice of 6 July 2016, ESA has indeed argued that Iceland is in breach of Protocol 35. However, the case does not concern Art. 3 of the EEA Act and the potentially insufficient implementation of Protocol 35. ESA seems to argue that the principle of priority for EEA rules as required under Protocol 35 is inherent in the nature of the EEA Agreement. By failing to ensure that implemented EEA rules prevailed over Icelandic provisions in the case at hand, hereunder “by failing to interpret national law, so far as possible, in conformity with EEA law”, Iceland is in violation of Protocol 35. For the full account, see point 5.4 of ESA’s letter of formal notice. 75 Case E-1/01, 22.2.2002, Einarsson, para. 53. Fredriksen and Mathisen, in EØS-rett, p. 297, consider the Court’s statements to be based on the aim of Protocol 35, which is to ensure that EEA law is in practice given the same effect in the EFTA States as the corresponding EU rules in the Member States, without restricting the authority of the legislative in the EFTA States. The term “unconditional and sufficiently precise” is inspired by EU law, see mn. 53-59 on direct effect of non-implemented acts. 76 Recitals 4, 11 and 15 of the Agreement, further presented in the comments by Arnesen and Fredriksen to the preamble.

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and those of other EEA States. It must apply in every respect and in all circumstances governed by the EEA Agreement to any person established in an EEA State.77 The EFTA Court has noted that compliance with the principle of equal treatment requires that comparable situations must not be treated differently and that different situations must not be treated in the same way unless such treatment is objectively justified.78 Any national measures not abiding by these requirements would be in contradiction with the EEA Agreement.79 46 The principle of effectiveness relates to the efficacy of law and entails inter alia that the EEA States must ensure effective protection of EEA rights, and more generally, effective enforcement of EEA law in national courts.80 The principle is said to be partly inherent in the principle of loyalty under Art. 3, which requires the Contracting Parties to take all measures necessary to guarantee the application and effectiveness of EEA law.81 When implementing EEA acts into national legislation, a State must ensure that the national provisions adopted do not deprive the implemented act of its effectiveness.82 When necessary, it must lay down procedural rules governing actions for safeguarding rights under the implemented act and ensure that such rules do not render it practically impossible or excessively difficult to exercise the rights in question.83 47 As regards application of the principle of effectiveness, every case in which the question arises as to whether a national procedural provision makes the application of EEA law impossible or excessively difficult must be analysed by reference to the role of that provision in the procedure, its conduct and its special features, viewed as a whole, before the various national bodies. For those purposes, account must be taken, where appropriate, of the basic principles of the domestic judicial system, such as protection of the rights of the defence, the principle of legal certainty and the proper conduct of procedure.84 48 The principles of equality and of effectiveness may to a certain degree influence the question of EEA relevance. The goal of EU rules on procedural and criminal law is to see to equal and effective governance of common EU substan77 Hreinsson, ‘General Principles’, in: Baudenbacher (ed), Handbook of EEA Law, p. 361 and case law cited. For more on the prohibition of discrimination, see the comments by Falch to Art. 4. 78 Joined Cases E-4/10, E-6/10 and E-7/10, 10.5.2011, Liechtenstein and others v ESA, para. 160. 79 For a more detailed analysis of the principle of equality, see Hreinsson, ‘General Principles’, in: Baudenbacher (ed), Handbook of EEA Law, p.360-362. 80 For a detailed and practical presentation of the principle, including examples of which requirements the principle lays down for inter alia the implementation process, see Lenaerts, Effective judicial protection in the EU, available at http://ec.europa.eu/justice/events/assises-justice-2013/files/interventions/koenlenarts.pdf. 81 Hreinsson, ‘General Principles’, in: Baudenbacher (ed), Handbook of EEA Law, p. 376. For more on the principle of loyalty, see the comments by Franklin to Art. 3 EEA. 82 Case E-15/12, 22.7.2013, Wahl, para. 54. 83 Case E-11/12, 13.6.2013, Beatrix Koch and others, para. 121. 84 Case E-11/12, 13.6.2013, Beatrix Koch and others, para. 132.

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tive rules. The EFTA states' position has, however, to a large extent been in the negative to the question of EEA relevance of such rules.85 The important point in this connection is that even though EU procedural or criminal law rules are deemed not to be EEA relevant, the EFTA states may nevertheless be obliged to have national procedural rules and legal sanctions that meet the EEA law principles of equality and effectiveness.86 c) The requirement of equivalent and “effective, proportionate and dissuasive” penalisation of infringements of EEA law

As mentioned above, the principle of loyalty in Art. 3 requires EEA States to 49 take all measures necessary to guarantee the application and effectiveness of European law. This applies even where an act does not specifically provide any penalty for an infringement or refer for that purpose to national laws, regulations and administrative provisions.87 This inter alia puts the EEA States under an obligation to grant implemented EEA legislation at least the same level of protection under national law as that granted to equivalent national provisions. In addition, any sanctions for infringements of EEA provisions must be effective, proportionate and dissuasive. The existence of these obligations was explicitly confirmed by the EFTA Court in Case E-2/10 Kolbeinsson: “The ECJ has repeatedly held that while the choice of penalties remains within the discretion of the Member States, they must ensure that infringements of European law are penalised under conditions, both procedural and substantive, which are analogous to those applicable to infringements of national law of a similar nature and importance and which, in any event, make the penalty effective, proportionate and dissuasive […]. These considerations are equally valid in the context of the EEA Agreement. Provisions establishing a duty would be reduced to mere declarations of intent if they were imposed without any form of liability in the event of the duty being breached...”88

The States’ obligation to ensure that infringements of EEA law and national 50 law are sanctioned in an equal manner has its basis not only in the principle of loyalty, but also in the principle of equality. In this context, the principle of equality is referred to as the principle of equivalence.89 It entails that procedural rules governing actions related to rules implementing EEA legislation must not be less favourable than those governing similar domestic actions.90 Consequently, the States can inter alia not settle for sanctioning EEA infringements through private or civil law means whereas infringements of corresponding national rules are publicly prosecuted. A national rule must be applied without 85 For more on EEA relevance, see the comments by Dystland, Finstad and Sørebø to Art. 102, mn. 11-22. 86 See also Fredriksen and Franklin, ‘Of Pragmatism and Principles: The EEA Agreement 20 Years on’, Common Market Law Review 2015 52, p. 629-684, at p. 653-655, and Halvard Haukeland Fredriksen, ‘Tvisteloven og EØS-avtalen’, Tidsskrift for Rettsvitenskap, 2008, p. 289-359, ch. 2. 87 Case E-2/10, 10.12.2010, Kolbeinsson, para. 46. 88 Case E-2/10, 10.12.2010, Kolbeinsson, para. 47. 89 Case E-11/12, 13.6.2013, Beatrix Koch and others, para. 123. 90 Case E-11/12, 13.6.2013, Beatrix Koch and others, para. 121.

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distinction, whether the infringement alleged is of EEA law or national law, where the purpose and cause of action are similar.91 Where national rules are protected under criminal law, the same must apply to equivalent EEA rules and both types of cases must be subject to the same procedural rules and case handling.92 To a certain extent, this may affect resource allocation at the police and prosecutors offices and also in the public administration: States would not be able to systematically give less priority to EEA infringements than infringements of national law. As long as EEA provisions and national rules are equivalent in nature and importance, the principles of loyalty and of equality oblige the States to ensure equal enforcement and to sanction infringements in an equal manner.93 51 The nature of the sanctions will vary according to the content of the act in question. The Court in Kolbeinsson stated that “the assessment of what constitutes effective, proportionate and dissuasive sanctions must take into account the provisions with which the sanctions are meant to secure compliance”.94 2. The effect of non-implemented acts 52

It occurs that EU acts incorporated into the EEA Agreement have not been implemented into national law before they enter into force in the EEA, or that they have indeed been implemented in a timely manner, but incorrectly so. In these cases, the EEA State in question is in breach of its obligations under Art. 7, triggering action from ESA or the Commission.95 Such flawed or lacking implementation also raises the question of whether the non-implemented act may nevertheless be given effect in the State in question. This encompasses the discussions on direct effect and conform interpretation, which will be presented in the following. a) Direct effect of non-implemented regulations and directives

53

In the EU, acts are often given effect in the EU Member States also in the absence of implementing measures. This is always the case for regulations, which, as mentioned above, are directly applicable. However, also directives may be given direct effect in cases of lacking or flawed implementation, and the effect of decisions has been extended beyond what follows from Art. 288(4) TFEU. The principle of direct effect in these cases is established by the ECJ

91 92 93 94

Case E-11/12, 13.6.2013, Beatrix Koch and others, para. 122. Fredriksen and Mathisen, EØS-rett, p. 285. Fredriksen and Mathisen, EØS-rett, p. 285. Case E-2/10, 10.12.2010, Kolbeinsson, para. 52. The Court’s detailed assessment in that case of which sanctions were required under the directive in question (paras. 53-63) provides guidance for the assessment in general, and for the requirement of “dissuasive” penalties in particular. See also Fredriksen and Mathisen, EØS-rett, pp. 285-286. 95 For general information on ESA’s monitoring task, see the comments by Bjørgan to Part III SCA.

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and aims at ensuring individuals and economic operators the rights given to them through EU acts. In the EU, there are consequently two types of direct effect: the direct effect 54 given to regulations, referred to as “direct applicability”, whereby there is no need for implementing measures; and the type of direct effect that comes into play where required implementation measures have not been adopted or insufficiently so. As described under litra b, regulations are not granted direct applicability in the EEA, but are rather subject to an implementation requirement. As a result of this, the question of direct effect in the EEA relates only to the latter type of direct effect. In return, that discussion encompasses both non-implemented regulations and non-implemented directives.96 The EEA Agreement does not contain any provisions on direct effect.97 55 However, both recital 16,98 Art. 7 and Protocol 35 are seen as indications of the Agreement not including a principle of direct effect.99 Art. 7 EEA clearly requires all EEA acts to be implemented into national law to have effect. In the EU, the principle of direct effect was established by the ECJ in spite of the requirement of implementation of directives and the lack of explicit provisions in the EU treaties. In the early years of the EEA Agreement being in force, there was therefore uncertainty as to whether an equivalent principle would be established also for the EEA through the case law of the EFTA Court.100 The EFTA Court clarified the matter in case E-4/01 Karlsson101 and then con- 56 firmed its stance in Case E-1/07 Criminal proceedings against A, which dealt directly with the question of inter alia direct effect: “It follows from Article 7 EEA and Protocol 35 EEA that the EEA Agreement does not entail transfer of legislative powers. In Karlsson, the Court held this to mean that EEA law does not require that individuals and economic operators can rely directly on non-implemented EEA rules before the national courts […]. This applies to all EEA law …”.102

96 As for the Main Part of the EEA Agreement, the question of direct effect does not come into play as both Iceland and Norway have made the Main Part of the Agreement part of national law through their respective EEA Acts, and the Agreement is directly binding on monistic Liechtenstein and the EU Member States. As for general principles of EEA law, the Commission has argued in favour of direct effect of fundamental EEA rules such as the prohibition of discrimination on the basis of nationality in Art. 4 EEA, see Case E-13/11, 25.4.2012, Granville. The EFTA Court’s judgment in Case E-9/97, 10.12.1998, Sveinbjörnsdóttir must be seen as confirmation that there is no direct effect of general principles of EEA law. 97 However, Art. 110 EEA provides for an element of direct effect for certain decisions by the EFTA Surveillance Authority and the Commission, see Bull, “‘Shall be Made Part of the Internal Legal Order’: The Legislative Approaches” in EFTA Court (ed), The EEA and the EFTA Court – Decentred Integration, p. 208. 98 See the comments by Arnesen and Fredriksen on the Preamble, mn. 43. 99 In Opinion 1/91, 14.12.1991, para. 27, the ECJ saw Protocol 35 as an indication that the Contracting Parties did not recognise a principle of direct effect under the EEA Agreement. The same assumption of a lack of direct effect in the EEA was also made in Opinion 1/92, 10.4.1992, paras. 17-18. 100 For more on the discussions around the turn of the millennium of possible direct effect in the EEA, see Jervell, Lovgivningen i EØS, p. 173 ff. 101 Case E-4/01, 30.5.2002, Karlsson, paras. 28 and 29. 102 Case E-1/07, 3.10.2007, Criminal Proceedings against A, para. 40.

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The Court has later reaffirmed its position and the general conception is that there is no principle of direct effect under the EEA Agreement.103 There are examples of legal writers arguing in favour of direct effect of EEA law and of the EFTA Court reconsidering its stance in this regard.104 The EFTA Court’s extensive deliberation on the principle of homogeneity in Case E-18/11 Irish Bank105 was interpreted by some to possibly entail that the Court could be prepared to reconsider the issue where the lack of direct effect cannot be compensated through other means.106 However, the EFTA Court has since then on several occasions made it clear that its view remains unchanged by stating that “the lack of direct legal effect of acts referred to in decisions by the EEA Joint Committee makes timely implementation crucial for the proper functioning of the EEA Agreement”.107 58 Although EEA law does not entail direct effect in the national legal order of the EFTA States, the provisions of the EEA Agreement may nonetheless have direct effect in the EU Member States in accordance with the EU principle of direct effect.108 As somewhat superfluously stated in the Joint Declaration on Protocol 35 in the Final Act of the EEA Agreement, “Protocol 35 does not restrict the effects of those existing internal rules which provide for direct effect and primacy of international agreements”. According to settled case-law from the ECJ, the provisions of such an agreement may have direct effect if they are “unconditional and sufficiently precise”.109 59 As for Liechtenstein, the form of monism to which it has adhered to does not fully reflect the EU principles of direct effect and primacy.110 This became evident in Case E-1/07 Criminal Proceedings Against A. In Liechtenstein, the power to declare national statutes void or inapplicable is reserved for the Constitutional Court, whereas in the EU, direct effect and primacy of EU law are principles to be applied by all courts. The EFTA Court stated that “in cases of conflict 57

103 For a different view, see Sevon and Johansson, “The protection of the rights of individuals under the EEA Agreement”, European Law Review 1999, p. 373. 104 Johansson and Norberg, ’EFTA-domstolen – garant för det homogena EES. Reflektioner i ljuset av 17 års tillämpning av EES-avtalet’, Europarättslig tidskrift nr 2 2011, pp. 390-391. 105 Case E-18/11, 28.9.2012, Irish Bank. 106 Fredriksen and Mathisen, EØS-rett, pp. 316-317. The EFTA Court has gone a long way in its case law to compensate for the negative effects of the absence of recognition of direct effect and primacy for non-implemented EEA rules in the EFTA States and to, as far as possible, ensure equal judicial protection in all the Contracting Parties to the EEA Agreement. Of most importance are the principles of EEA conform interpretation and of State liability. 107 See inter alia Cases E-33/15, 2.8.2016, ESA v Iceland, para. 14; E-23/15, 1.2.2016, ESA v Liechtenstein, para. 17; and E-6/15, 28.9.2015, ESA v Norway, para. 46. For further reading on the question of direct effect of non-implemented EEA rules, see Johansson, ‘Judicial protection in the EEA EFTA states – direct effect of EEA law revisited’ in: EFTA Court (ed), The EEA and the EFTA Court – Decentred Integration; and Johansson and Norberg, ‘EESrätten – dynamisk ipso jure!’, Europarättslig Tidskrift nr. 4 2011, p. 795. 108 Hreinsson, ‘General Principles’, in: Baudenbacher (ed), Handbook of EEA Law, p. 384 and case law cited. 109 See inter alia Case T-115/94, 22.1.1997, Opel Austria, para. 101 and case law cited. 110 Bull in EFTA Court (ed) The EEA and the EFTA Court, p. 210.

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between national law and non-implemented EEA law, the Contracting Parties may decide whether, under their national legal order, national administrative and judicial organs can apply the relevant EEA rule directly, and thereby avoid violation of EEA law in a particular case. It also follows that the Contracting Parties may decide on which administrative and judicial organs they confer such a power”.111 Liechtenstein was therefore free to decide that the authority was to lie with the Constitutional Court alone. b) The principle of EEA conform interpretation

Where the implementation in national law is lacking or flawed, the ECJ has 60 laid down an obligation for the judges in the EU Member States to interpret national law in accordance with the relevant binding EU act.112 In Case E-4/01 Karlsson, the EFTA Court ruled that there is an equivalent obligation under the EEA Agreement by stating that “it is inherent in the general objective of the EEA Agreement of establishing a dynamic and homogeneous market, in the ensuing emphasis on the judicial defence and enforcement of the rights on individuals, as well as in the public international law principle of effectiveness, that national courts will consider any relevant element of EEA law, whether implemented or not, when interpreting national law”.113 In addition to the mentioned general objective of the EEA Agreement, the 61 obligation of conform interpretation is based on the principle of loyalty in Art. 3.114 The EFTA Court has stated that national courts are bound to interpret national law, and in particular legislative provisions specifically adopted to transpose EEA rules into national law, “as far as possible” in conformity with EEA law.115 The principle of EEA law conform interpretation seems to be as far-reaching 62 as the corresponding principle in the EU.116 However, it has its limits and there have been, and will be, cases where it is not possible to solve an issue of failed implementation through conform interpretation. Where that is not possible, the EFTA Court has stated that in cases of violation of EEA law by an EEA State, the State in question is obliged to provide compensation for loss and damage caused to individuals and economic operators, in accordance with the principle of State liability.117

111 Case E-1/07, 3.10.2007, Criminal Proceedings against A, para. 41. 112 For more on the principle of conform interpretation in the EU, see Craig and Búrca, EU Law. Text, Cases, and Materials, p. 209 ff. 113 Case E-4/01, 30.5.2002, Karlsson, para. 28. 114 For information on this provision, see the comments by Franklin on Art. 3 EEA. 115 Case E-1/07, 3.10.2007, Criminal Proceedings against A, para. 39. For more on EEA conform interpretation, see Fredriksen and Mathisen, EØS-rett, p. 288 ff. See also Hreinsson, ‘General Principles’, in: Baudenbacher (ed), Handbook of EEA Law, p. 387 with reference to case E-18/11, 28.9.2012, Irish Bank, paras. 121-126. 116 Norberg and Johansson, ‘The History of the EEA Agreement and the First Twenty Years of Its Existence’ in: Baudenbacher (ed), The Handbook of EEA Law, p. 40-41.

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c) No primacy of non-implemented EEA law 63

Protocol 35 EEA, as stated above, only applies to implemented EEA law. Consequently, it does not lay down an obligation to ensure that non-implemented acts prevail over national law in cases of conflict. The EFTA Court has also clearly stated that “EEA law does not require that non-implemented EEA rules take precedence over conflicting national rules”.118 One might say that the principle of conform interpretation reduces or to a large extent even eliminates the need for a principle of primacy, as conflicts may be solved through interpreting national legislation in conformity with the EEA act. However, where such conform interpretation is not possible, the lack of primacy (and direct effect) entails that non-implemented acts do not prevail over conflicting national provisions.

Part II: Free movement of goods Chapter 1: Basic principles

Article 8 [Free movement of goods, scope of application] 1. Free movement of goods between the Contracting Parties shall be established in conformity with the provisions of this Agreement. 2. Unless otherwise specified, Articles 10 to 15, 19, 20 and 25 to 27 shall apply only to products originating in the Contracting Parties. 3. Unless otherwise specified, the provisions of this Agreement shall apply only to: (a) products falling within Chapters 25 to 97 of the Harmonized Commodity Description and Coding System, excluding the products listed in Protocol 2; (b) products specified in Protocol 3, subject to the specific arrangements set out in that Protocol.

I. Introduction 1

Art. 8 is one of the most important provisions of the EEA Agreement as it effectively defines the Agreement’s material scope concerning the free movement of goods and, as it has turned out, even beyond that.1 This key provision of the EEA Agreement contains elements of both a fundamental and highly technical nature.

117 Hreinsson, ‘General Principles’, in: Baudenbacher, Handbook of EEA Law, p. 387 with reference to case E-1/07, 3.10.2007, Criminal Proceedings against A, para. 42. For more on the principle of State liability, see the comments by Poulsen on Art. 46 SCA, mn. 11-23. 118 Case E-1/07, 3.10.2007, Criminal Proceedings against A, para. 40. This was also presupposed in Opinion 1/91, 14.12.1991, paras. 27-29.

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c) No primacy of non-implemented EEA law 63

Protocol 35 EEA, as stated above, only applies to implemented EEA law. Consequently, it does not lay down an obligation to ensure that non-implemented acts prevail over national law in cases of conflict. The EFTA Court has also clearly stated that “EEA law does not require that non-implemented EEA rules take precedence over conflicting national rules”.118 One might say that the principle of conform interpretation reduces or to a large extent even eliminates the need for a principle of primacy, as conflicts may be solved through interpreting national legislation in conformity with the EEA act. However, where such conform interpretation is not possible, the lack of primacy (and direct effect) entails that non-implemented acts do not prevail over conflicting national provisions.

Part II: Free movement of goods Chapter 1: Basic principles

Article 8 [Free movement of goods, scope of application] 1. Free movement of goods between the Contracting Parties shall be established in conformity with the provisions of this Agreement. 2. Unless otherwise specified, Articles 10 to 15, 19, 20 and 25 to 27 shall apply only to products originating in the Contracting Parties. 3. Unless otherwise specified, the provisions of this Agreement shall apply only to: (a) products falling within Chapters 25 to 97 of the Harmonized Commodity Description and Coding System, excluding the products listed in Protocol 2; (b) products specified in Protocol 3, subject to the specific arrangements set out in that Protocol.

I. Introduction 1

Art. 8 is one of the most important provisions of the EEA Agreement as it effectively defines the Agreement’s material scope concerning the free movement of goods and, as it has turned out, even beyond that.1 This key provision of the EEA Agreement contains elements of both a fundamental and highly technical nature.

117 Hreinsson, ‘General Principles’, in: Baudenbacher, Handbook of EEA Law, p. 387 with reference to case E-1/07, 3.10.2007, Criminal Proceedings against A, para. 42. For more on the principle of State liability, see the comments by Poulsen on Art. 46 SCA, mn. 11-23. 118 Case E-1/07, 3.10.2007, Criminal Proceedings against A, para. 40. This was also presupposed in Opinion 1/91, 14.12.1991, paras. 27-29.

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The provision is fundamental in the sense that it reflects the nature of the EEA Agreement and its substantive limitations. Its technical nature is best explained by the fact that its requirements concerning proof of origin and classification in the Harmonised Commodity Description and Coding System (the ‘HS’ or the ‘Harmonised System’) require considerable contextual, factual and technical knowledge. Therefore, the access through this forecourt of the EEA Agreement is not necessarily as easy as it may appear at first glance. The scope and objectives of the EEA Agreement go beyond what is usual for a free trade agreement under public international law.2 Looking at the general scope, objectives and institutional set up of the EEA Agreement, it may rightly be called an enhanced free-trade agreement, even sui generis.3 However, the purpose and objectives of the EEA Agreement are less far reaching than its counterpart, (now) the EU Treaty framework.4 As will be further discussed in this chapter, this difference is clearly reflected in Art. 8. Art. 8(1) establishes that the free movement of goods shall be established “between the Contracting Parties”. In that sense, the provision reflects the fact that the EEA Agreement does not contain the principle of free circulation or the unlimited product scope of free movement of goods, as is the case for its counterpart, the TFEU. The EEA Agreement does not establish a customs union comparable to that of the EU, and this difference materialises in Art. 8. Furthermore, the EEA Agreement does not entail a common commercial policy towards third countries, and the EFTA States remain free to conclude treaties and agreements with third countries in relation to foreign trade.5 Further still, for the same reasons, Art. 8 encompasses two fundamental elements, namely, that the Agreement, unless otherwise specified, only covers free movement of goods originating within the EEA, see Art. 8(2), and that it only applies to a limited range of products, see Art. 8(3). Below, the approach in Art. 8 will be further articulated with the purpose of shedding light on both these fundamental and technical elements of the provision. The focus will be on the implementation and application of Art. 8, in particular through the empirical lens of the case law of the EFTA Court.

1 See Case E-4/04, 25.2.2005, Pedicel, where Art. 8 is understood also to limit the scope of the rules concerning the freedom to provide services so that they do not include services inseparably linked to the sale of goods that fall outside the scope of EEA law (para. 34). See further on this the comments by Einarsson on Art. 36, mn. 17-24. See further Case E-1/16, 15.12.2016, Synnøve Finden concerning the similar limitation of the scope of the State aid rules. 2 See e.g. Case E-9/97, 10.12.1998, Sveinbjörndóttir, para. 59. See also T-115/94, 22.1.1997, Opel Austria, where the (then) Court of First Instance held that “the EEA Agreement involves a high degree of integration, with objectives which exceed those of a mere free-trade agreement.” 3 This was maintained by the EFTA Court in the Sveinbjörnsdóttir case, para. 59. 4 Already emphasised by the ECJ in Opinion 1/91. 5 Case E-2/97, 3.12.1997, Maglite, para. 27.

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II. Art. 8(2) – products originating within the EEA 1. Introduction

Art. 8(2) limits the fundamental rules concerning the free movement of goods to products originating within the EEA. As stated above, the reason for this requirement is directly linked to the fact that the EEA Agreement does not establish a customs union; there are no common custom tariffs for third countries and no common customs code (in fact, there is no common commercial policy). In that sense, the principle of the free circulation of products that have lawfully been placed on the EU market (a fundamental principle of the EU, Art. 29 TFEU), is limited to products that originate in either the EU or the EFTA States. Art. 8 must be read in the context of Art. 9, which provides that rules of origin are to be dealt with on the basis of Protocol 4, which will be further discussed below. 7 As stipulated in Art. 8(2), the prohibitions in Art. 10 (custom duties and charges having equivalent effects); Arts. 11 to 12 (quantitative restrictions and measures having equivalent effects); Art. 14 (discriminatory taxation); and Art. 15 (repayment of internal taxation) are only applicable to products originating in the Contracting Parties. The same applies for Art. 19 (specific matters in relation to trade in agricultural products); Art. 20 (arrangements for fish and other agricultural products); Art. 25 (safeguard measures); Art. 26 (prohibition of anti-dumping rules); and Art. 27 (trade in coal and steel products). Additionally, reading together Art. 23(b) and Protocol 47, the same appears to apply to trade in wine. 8 However, the limitations found in Art. 8(2) only apply unless otherwise specified. For example, in Art. 23(a) with regard to Protocol 12 and the vast amount of regulations under Annex II concerning so-called Technical Barriers to Trade (TBTs), it is stipulated that they apply to all products. In fact, many of the secondary rules and regulations under Annex II are of such a nature that once implemented at the national level, they would have the effect of applying to all products, irrespective of the origin of the product. A dual system would be very difficult to sustain.6 The same applies to Annex III in relation to rules on product liability, referred to in Art. 23(c). Additionally, Art. 65(1) on public procurement and Art. 65(2) on intellectual property also apply to ‘all products and services’. 9 An example of the effects of the rules of origin is found in the judgement of the Norwegian Supreme Court in the Personal Watercrafts case (Rt. 2004 p. 834). The case was decided prior to Mickelson & Roos,7 but is somewhat similar, since it concerned rules that severely limited the use of personal watercrafts in Norway, and criminal charges as the consequence of breaching these rules. 6

6 See also Case E-2/12, 11.12.2012, HOB-vín III, para. 46, as concerning Art. 8(3) and product coverage. 7 Case C-142/05, 4.6.2009, Mickelson & Roos.

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The Norwegian Supreme Court ruled that, since the actual facts of the criminal proceedings concerned a Canadian, and thus a non-originating product, within the meaning of Art. 8(2) EEA, Art. 11 EEA, that was invoked by the defendants, would not be applicable in the case. At that point in time, Dir. 94/25/EC on recreational crafts, which is part of Annex II to the EEA Agreement, did not apply. Subsequently, Dir. 2003/44/EC widened the scope of Dir. 94/25/EC inter alia to include personal watercrafts. In the light of Art. 23(a) EEA, Dir. 94/25/EC8 would apply to all personal watercrafts that fall within the material scope of the Dir., and lawfully placed on the national market, irrespective of their origin.9 It seems also safe to conclude that the limitations in Art. 8(2) only apply to 10 the specified Arts. and not to other provisions of the EEA Agreement. In that respect, the approach to the product coverage in Art. 8(3) is different, since those limitations apply in general (unless otherwise specified). There were discussions during the negotiations as to whether the rules on technical barriers to trade and exhaustion of intellectual property rights, as well as the rules on state monopolies (Art. 16) and competition and state aid, should be limited to products originating within the EEA, but the negotiators decided that they should apply to both originating and non-originating products.10 2. Case-law from the EFTA Court and the ECJ: Maglite, Silhouette and L’Oréal

Only a limited number of cases from the EFTA Court refer directly to 11 Art. 8(2). This may be explained by the fact that there in general are fewer legal questions concerning the origin of products than there are questions concerning the products’ classification under the Harmonised System, as further discussed below. However, in Maglite,11 the rules of EEA origin played a seminal role. In its 12 ruling, the EFTA Court referred to Art. 8 as reflecting the more limited ‘free circulation’ principle of the EEA Agreement. The Court stated, in para 26, that: “According to Article 8 EEA, the principle of free movement of goods as laid down in Articles 11 to 13 EEA applies only to goods originating in the EEA, while in the Community a product is in free circulation once it has been lawfully placed on the market in a Member State. In general, the latter applies in the context of the EEA only in respect of products originating in the EEA.”

8 Dir. 94/25/EC, has been replaced by Dir. 2013/53/EU, on recreational craft and personal watercraft, now also found in Annex II to the EEA Agreement. 9 Interestingly, however, Art. 2(2) of the Dir. 94/25, as amended by Dir. 2003/44, allows for laying down of national provisions, otherwise in compliance with the EEA Agreement, concerning “navigation on certain waters for the purpose of protection of the environment, the fabric of waterways, and ensuring safety of waterways, providing that this does not require modification to craft conforming to this Directive.” 10 Blanchet, Piipponen, Westman-Clément, The Agreement on the European Economic Area, p. 43. 11 Case E-2/97, 3.12.1997, Maglite.

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Furthermore, the EFTA Court emphasised that due to the fact that the EFTA States have not transferred their treaty-making power ‘to any kind of supranational organs’, and thus remain free to conclude treaties with third countries as concerning foreign trade, the EEA Agreement does not entail a common commercial policy towards third countries.12 In light of this, the EFTA Court concluded that it was for the EFTA States to decide whether they wanted to introduce or maintain the principle of international exhaustion with regard to ‘goods originating from outside the EEA’.13 14 Subsequent to the ruling of the EFTA Court in Maglite, the ECJ came to a different conclusion in Silhouette.14 In that case, the ECJ ruled that Art. 7 of the Trade Mark Dir. required a mandatory EU-wide exhaustion of trade mark rights, and that no room was allowed for different national solutions. 15 More than 10 years after Maglite, in the L’Oréal case,15 the EFTA Court was asked whether it had changed its mind due to the ECJ’s ruling in Silhouette. In L’Oréal, the EFTA Court summarised the difference between Maglite on the one hand and Silhouette (and Sebago) on the other as being limited to the exhaustion of trade mark rights in relation to goods originating from outside the EEA. Furthermore, the EFTA Court placed a specific emphasis on the need to secure homogeneous interpretation and application of the common EEA rules,16 and, among other things, pointed to the abovementioned fact that according to Art. 65(2), the provisions contained in Protocol 28 and Annex XVII ‘”shall apply to all products”, “unless otherwise specified”’.17 In the opinion of the EFTA Court, this meant that Art. 65(2) and Protocol 28 made no reservation against rules providing for mandatory EEA-wide exhaustion of rights relating to goods originating from outside the EEA. This could, inter alia, be seen in the fact that the Copyright and Rental Right Dirs. (Dir. 2001/29/EC and Dir. 2006/115) contained requirements of such mandatory EEA-wide exhaustion, that had been incorporated into the EEA Agreement without any specific adaptations.18 In light of this, the Court opined that the differences between the EEA Agreement and the EC Treaty, with regard to trade relations with third countries, did not constitute ‘compelling grounds’ for divergent interpretations of Art. 7(1) of the Trade Mark Dir. in EEA law and EC law.19 Therefore, the EFTA Court concluded that Art. 7(1) of the Trade Mark Dir. was to be interpreted to the effect that it precluded the unilateral introduction or maintenance of international exhaustion of 13

12 Ibid, para. 27. 13 Ibid, para. 28. The EFTA Court furthermore highlighted that this was in line with the TRIPS agreement – that is, to leave the issue open for the States to regulate (para. 29). 14 Case C-355/96, 16.7.1998, Silhouette. See also the similar approach in Case C-173/98, 1.7.1999, Sebago. 15 Case E-9-10/07, 8.7.2008, L’Oréal. 16 Ibid, para. 27. 17 Case E-9-10/07, 8.7.2008, L’Oréal, para. 33. 18 Ibid, para. 34. 19 Ibid, para. 37.

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rights conferred by a trade mark, regardless of the origin of the goods in question. Maglite, Silhouette, Sebago and L’Oréal were all ‘hard cases’ as opinions 16 among the EU Member States and the EFTA States alike were far from uniform on the issue of international exhaustion of trade mark rights, particularly in light of consumer benefits, and the potential limitations of the Trade Mark Dir. on the treaty making powers of the States when it comes to the exhaustion of trade mark rights.20 As for the EEA Agreement, the general observations of the EFTA Court concerning the nature of the EEA Agreement, as explained in Maglite, still hold true. When the EFTA Court overruled Maglite in L’Oréal, it did so with a reference to the fact that the scope of the EEA Agreement is not limited to originating products when it comes to the specific field of intellectual property rights. Therefore, the question still remains how far the EFTA Court can and will go in uniform interpretation of identically worded provisions of EU and EEA law in future cases where the limitation set out in Art. 8(2) applies. In Art. 9, it is stipulated that the rules of origin shall be set out in Protocol 4. 17 Further discussion of the rules of origin, as laid down in Protocol 4, are to be found below in the comments on Art. 9. III. Art. 8(3) – Product coverage 1. Introduction

Art. 8(3) describes the limitations of the EEA Agreement in terms of specific 18 product categories. It contains three elements. Firstly, in litra a it contains a general reference to a bulk of products falling within Chapters 25-97 in the Harmonised System, with the exclusion of the products listed in Protocol 2. The Harmonised System lists products based on the nomenclature of the International Convention on the Harmonised Commodity Description and Coding System, to which both the EU and the EEA EFTA Countries are Contracting Parties. The Harmonised System categorises products, mainly for customs purposes and groups together goods related to the same industry, in a progressive way, from the raw material to the more processed products.21 The Harmonised System contains 99 Chapters, divided into 21 sections. Under the Chapters, the products are divided into approximately 5.000 headings and sub-headings. The HS-code normally consists of 6 digits. The first two numbers indicate the Chapter, under which the heading belongs, and the second two numbers indicate the products’ position within that Chapter. Each heading may be divided further into subheadings. Chapters 25-97 cover in essence a wide range of industrial products, while Chapters 1-24, cover, inter alia meat and fish, and wide range of processed food products, alcohol, beverages and tobacco. The list of excluded prod20 See further the comments by Rognstad on Art. 65(2). 21 Blanchet, Piipponen Westman-Clément, The Agreement on the European Economic Area, Clarendon Press, 1994, p. 44.

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ucts, found in Protocol 2, that otherwise would fall within the product coverage of the EEA Agreement, since falling within Chapters 25-97, currently only lists two types of products, found in HS Chapters 35 and 38.22 19 Secondly, in litra b reference is made to products in Protocol 3, that contains a reference to a whole range of agricultural products, such as chocolate, bakery products, beer, strong alcohol (e.g. rum, gin and vodka) and tobacco products, that otherwise fall outside Chapters 25-97 in the Harmonised System, but are included to the Agreement’s product coverage based on this reference. Protocol 3 has been amended since the EEA Agreement’s entry into force, but is subject to a specific arrangement, laid down in the provisions of the Protocol, including custom duties for some products. 20 Thirdly, the phrase “[u]nless otherwise specified” in Art. 8(3) opens up for specific arrangements that may include the applicability of other provisions of the Agreement, to products otherwise excluded, based on the arrangements prescribed by Art. 8(3) in litras a and b. For example, Art. 21 (on co-operation in customs related matters and trade facilitation) stipulates in para 4, that ‘[n]otwithstanding Art. 8(3), this Art. applies to all products.’ Similarly, and as mentioned above, Art. 23 stipulates that the fields of the Agreement referred to in the provision, ‘appl[ies] to all products unless otherwise specified’. Furthermore, Art. 65(1) on public procurement and Art. 65(2) on intellectual property, ‘shall apply to all products and services’. 2. The early cases – of whisky and wine and a little bit of Cointreau 21

In the EFTA Court’s very first case, Restamark,23 the Court dealt with what it referred to as the material scope of application of the EEA Agreement. Under that term, the Court referred to ‘the rules of origin’ and ‘the rules on product coverage’.24 This very first case demonstrates well the sometimes complex application of the rules on product coverage. The case concerned importation of whisky and wine.25 As both whisky and wine fall within Chapter 22 of the Harmonised System, neither of them were covered by Art. 8(3)(a). However, whisky is listed in Table II of Protocol 3 and therefore, due to Art. 8(3)(b), Arts. 11 and 16 were applicable to such products. Wine, on the other hand, is not listed in Protocol 3. However, Protocol 8 on State Monopolies stipulates in its para 2 that Art. 16 also applies to wine. Therefore, the EFTA Court concluded that Art. 16 covers both whisky and wine, whereas Art. 11 only applies to whisky.

22 Chapter 3502 which concerns albumins, albuminates and other albumin derivatives (further specified), and Chapter 3823 Industrial monocarboxylic fatty acids; acid oils from refining; industrial fatty alcohols. 23 Case E-1/94, 16.12.1994, Restamark. 24 Ibid, para. 36. 25 Restamark imported 120 bottles of Italian red wine from Italy into Finland, and from Germany 18 bottles of Johnny Walker Red Label Whisky, 12 bottles of Ballantines Whisky and 30 bottles of Racke Rauchzart.

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The EFTA Court added an interesting obiter dictum concerning Art. 18:

22

“in relation to products other than those covered by Article 8(3) EEA, Article 18 EEA obliges the Contracting Parties, without prejudice to the specific arrangements governing trade in agricultural products, to ensure inter alia that the arrangements provided for in Article 23(b) (which refers to Protocol 47) regarding the abolition of technical barriers to trade in wine, are not compromised by ‘other technical barriers to trade’.”26

Therefore, despite the fact that wine is excluded from the product coverage of Art. 8(3), the EEA States are obliged to abolish technical barriers to the trade of wine in accordance with Protocol 47 and, furthermore, to ensure that this obligation is not compromised by “other technical barriers to trade”.27 In Wilhelmsen,28 the question before the EFTA Court was whether beer falls under the material scope of the EEA Agreement. Beer is not listed in Chapters 25-97 HS, but, nonetheless, ‘beer made from malt’ is listed in Table I of Protocol 3 to the EEA Agreement. Therefore, the EFTA Court concluded that beer ‘is governed by Articles 11, 13 and 16 EEA’.29 In Karlsson,30 the main product at issue was the French liqueur Cointreau, which in the view of the EFTA Court fell within the material scope of the EEA Agreement for the reason that liqueurs containing more than 5% of added sugar are listed in Table I of Protocol 3. Thus, on the basis of Art. 8(3)(b), Cointreau should fall within the scope of EEA law.31 In practice, this caused the entire system of import and wholesale distribution of alcohol in Iceland to be reviewed by the EFTA Court as to its compatibility with Art. 16 EEA. All of the abovementioned cases are rather classical in their approach, in the sense that the products at issue could easily be identified and classified. However, the cases demonstrate at the same time that in order for the EEA Agreement to become applicable as a minimum one product needs to be identified that falls within the material scope of the Agreement, as defined by Art. 8.32

26 27 28 29 30 31

Ibid, para. 42. See further the comments by Arnesen on Art. 18. Case E-6/96, 27.6.1997, Wilhelmsen. Ibid, para. 33. Case E-4/01, 30.5.2002, Karlsson. Ibid, para. 14. The company K. Karlsson, was, however, appointed agent for various other alcohol beverages. 32 An interesting example is the Norwegian promotional campaign for agricultural products, Nyt Norge, which was materially similar to promotional campaigns at issue in cases such as Case C-249/81, 24.11.1982, Buy Irish, and Case 102/86, 8.3.1988, Apple and Pears Deveopment Council, but covered 2.214 products, of which 137 fell within the scope of the EEA Agreement, on the basis of Art. 8(3) litra b – products specified in Protocol 3. ESA sent a letter to Norway, with reference to Art. 31 SCA, where it held that there was no de minimis rule for Art. 11 EEA, that was clearly applicable in this case – see Letter of Formal Notice (case no. 76478, document no. 761049) sent by ESA to Norway on 8 July 2015 concerning the use of Nyt Norge (“Enjoy Norway”)brand. Available on the homepage of ESA.

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3. More recent (challenging) cases

Further difficulties arise in cases where products are challenging to define within the framework of Art. 8(3). This is clearly demonstrated in the Alcopops case.33 The case was an infringement case brought by ESA after Norwegian alcohol importers complained about alleged market advantages given to beer with alcohol percentages between 2.5 and 4.75, since beer within this range could be sold in grocery stores and served through a specific licence, while other alcoholic beverages with the same alcohol content could not. The majority of the complaints concerned mixed drinks or so-called alcopops, which are pre-packaged beverages consisting of alcohol-based mixed drinks, spirit, wine or beer and a mixer (mainly flavoured sodas or fruit juice). The case concerned the potential application of both Arts. 11 and 16. As noted above, the EFTA Court had already established in Restamark and Wilhelmsen that Arts. 11 and 16 applies to beer, whereas only the latter provision applies to wine. On the basis of Art. 8(3) (b), however, Arts. 11 and 16 both apply to spirits, as spirits are listed under the heading 22.08 in Table II of Protocol 3. In Alcopops, the EFTA Court admitted that there was ‘no established definition’ of the product category at stake.34 Therefore, the EFTA Court based its assessment on the classification of the product’s alcohol source. The Court emphasised that its reasoning in the case should be read ‘with this limitation in mind’ and that the considerations and conclusions of the Court were ‘restricted to pre-packaged products that are marketed or served in closed containers’.35 28 Difficult questions about the classification of products in the context of Art. 8(3) also arose in Vín Trío.36 At issue was the refusal of the Icelandic Alcohol monopoly (ÁTVR) to accept two alcoholic beverages Mokai Cider and Cult Shaker on trial sale. The main reason given for the decision was that the products at stake respectively contained 10 and 15 mg of caffeine per 100 ml. The EFTA Court stated that it was not clear if the products fell under the product coverage of the EEA Agreement but held this to be a factual issue to be assessed by the national court. Still, the EFTA Court pointed out that it appeared that the products were to be classified under heading 22.06 of the HS, as they were mixtures of fermented apple wine (cider) and non-alcoholic beverages with an alcohol content of 4.5%. In this light, and as Heading 22.06 HS is not mentioned in Protocol 3, the products appeared not to be covered by the EEA Agreement. The EFTA Court nonetheless deemed the case admissible with a reference to the rule that national courts should enjoy a presumption of relevance.37 To a national court, Vín Trío still demonstrates the need to assess carefully the applicability of EEA law to any of the products involved before one enters into detailed discus27

33 34 35 36 37

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Case E-9/00, 15.3.2002, ESA v Norway (‘Alcopops’). Ibid, para. 31. Ibid. Case E-19/11, 30.11.2012, Vín Tríó. Ibid, paras. 26-27.

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sions about the content of the EEA rules on the free movement of goods.38 It also highlights, as in the Alcopops case, that the creativity of economic operators may make it challenging to apply Art. 8(3). The Pedicel case39 is also of interest. The case is to an extent an EEA law 29 parallel to the Swedish Gourmet case40 before the ECJ, as it concerned the prohibition of advertisement for alcohol in Norway. However, the important difference is that Art. 11 EEA does not apply to wine. The EFTA Court highlighted the more limited scope of the EEA Agreement, as compared to the (then) EC Treaty, with regard to its coverage of agricultural products (including wine) and fishery products and stated that the reason for this exclusion must be ‘that the Contracting Parties wished to maintain the freedom to decide on their respective regulations unaffected by the rules contained in the EEA Agreement unless otherwise specified’.41 The Court followed up by refusing to construe the term “other technical barriers to trade” in Art. 18 as being synonymous with “measures having equivalent effect to quantitative restrictions” in Art. 11, not least due to the ‘explicit difference in wording’.42 Furthermore, the EFTA Court pointed out that Art. 18 EEA refers via Art. 23(b) to Protocol 47, which concerns trade facilitation in wine, but only insofar as it is in conformity with the secondary norms prescribed by Appendix 1 to Protocol 47. The EFTA Court emphasised that the object of that arrangement was not to make Art. 11 EEA applicable to wine ‘and thereby bypass the product coverage rules as established under the EEA Agreement’.43 In this context, the EFTA Court made an important methodological statement on how Art. 8(3) should (or should not) be interpreted: “The Contracting Parties are pursuing the objective of creating a dynamic and homogeneous European Economic Area. This fundamental goal, which is laid down, inter alia, in the fourth and fifteenth recitals of the Preamble to the EEA Agreement, may make a dynamic interpretation of EEA law necessary. That is, however, not so with regard to Article 8(3) EEA. The Court cannot hold that Article 11 EEA applies to trade in wine since this would amount to extending the scope of the Agreement.” 44

It is thus clear that Art. 8(3), in the view of the EFTA Court, is not to be inter- 30 preted in a dynamic way. In Pedicel, this methodological point seemingly had spill-over consequences as the EFTA Court deemed that the advertisement services at issue were so ‘inseparably linked to the sale of wine [that they] must be deemed to be excluded from the scope of Art. 36 of the EEA Agreement’.45 38 At the national level the case was finally decided without a reference to the EEA Agreement (even without explicitly denying its applicability for product coverage reasons, but the EFTA Court had, however, indicated that the restrictive measures could be justified); see judgment by Reykjavik City Court of 17 May 2013 in Case E-823/2011. 39 Case E-4/04, 25.2.2005, Pedicel. 40 Case C-405/98, 8.3.2001, Gourmet International, which concerned the similar Swedish prohibition. 41 Case E-4/04, 25.2.2005, Pedicel, para. 25 (emphasis added). 42 Ibid, para. 27. 43 Ibid. 44 Ibid, para. 28.

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Finally, the Fresh meat case46 needs to be given particular consideration, as it concerns the applicability of EEA law, through Art. 8, for certain agricultural products otherwise falling outside the product coverage of the EEA Agreement. The case concerned import of fresh meat into Iceland by the company Ferskar Kjötvörur (‘Fresh meat’). The company was not willing to accept the requirements of Icelandic law of having to freeze its products, in concreto 83 kg of beef fillets that were transported by air from Denmark, since the aim was to offer fresh meat. The Icelandic Government essentially argued that the EU agricultural system fell in its entirety outside the scope of the EEA Agreement and that Iceland had only, through the incorporating Dir. 89/662/EEC on veterinary checks into Annex I to the EEA Agreement, agreed to ensure certain procedures and formalities in terms of health standards in order to facilitate trade in agricultural products. This meant that Iceland should be able to adopt disputed safety measures (the freezing requirements) concerning the protection of livestock and public health. 32 In its Advisory Opinion, the EFTA Court recalled some of the fundamental aims of the EEA Agreement, inter alia the aim to ‘provide for the fullest possible realisation of the free movement of goods’.47 The Court then confirmed that raw bovine meat does not fall within Chapters 25-97 HS. Therefore, it fell outside the scope of the EEA Agreement ‘unless otherwise provided for in the Agreement’.48 Furthermore, the EFTA Court pointed out that Art. 17 EEA states that provisions and arrangements concerning veterinary and phytosanitary matters are to be incorporated into Annex I, where Dir. 89/662/EEC indeed is to be found.49 The EFTA Court held, that according to Art. 19(2), the Contracting Parties have undertaken to make efforts to achieve progressive liberalisation of agricultural trade. These provisions, in the view of the EFTA Court, provide for the regulation of agricultural matters in the EEA context. As Dir. 89/662/EEC had been included in Annex I without any adaptation, it was fully applicable to Iceland. This meant, in the view of the Court, that the Contracting Parties had agreed to ‘extend the scope of the Agreement’, and that this extension might limit, as in this case, Iceland’s ‘discretion in setting rules on trade in goods’.50 Therefore, the EFTA Court ruled that the field of application of the EEA Agreement, as laid down in Art. 8, was not to entail that Iceland had the discretion to set rules on the importation of raw meat products unbound by the acts, in this case Dir. 89/662/EEC, incorporated into Annex I of the EEA Agreement.51 31

45 Case E-4/04, 25.2.2005, Pedicel, para. 34. See also Synnøve Finden, Case E-1/16, 15.12.26, where ESA tried, to no avail, to convince the EFTA Court to limit the scope of the Pedicel ruling to the fundamental freedoms, but not to have spill-over effects into state aid rules. See further the comments by Einarsson on Art. 36. 46 Case E-17/15, 1.2.2016, Ferskar kjötvörur (‘Fresh meat’). 47 Ibid, para. 41. 48 Ibid, para. 43 (emphasis added). ‘[U]nless otherwise specified’ would be the more consistent term, as found in Art. 8. 49 Ibid, para. 45. 50 Ibid, para. 49.

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Even if the Fresh meat case, as interpreted by the EFTA Court, primarily con- 33 cerned the compatibility of the Icelandic measures with Dir. 89/662/EE, it is also of importance more generally in the context of Art. 8. It demonstrates that the limitations of Art. 8 do not supersede arrangements the EEA Agreement ‘otherwise provide for’, either explicitly in other basic provisions, Protocols to the EEA Agreement, or through arrangements in secondary norms incorporated into any of the Annexes to the EEA Agreement.52

Article 9 [Origin of goods] 1. The rules of origin are set out in Protocol 4. They are without prejudice to any international obligations which have been, or may be, subscribed to by the Contracting Parties under the General Agreement on Tariffs and Trade. 2. With a view to developing the results achieved in this Agreement, the Contracting Parties will continue their efforts in order further to improve and simplify all aspects of rules of origin and to increase cooperation in customs matters. 3. A first review will take place before the end of 1993. Subsequent reviews will take place at two-yearly intervals. On the basis of these reviews, the Contracting Parties undertake to decide on the appropriate measures to be included in this Agreement.

I. Introduction

Rules of origin are laid down in Protocol 4. Specific rules of origin are the 1 necessary corollary of a free movement of goods regime which does not entail a customs union. Therefore, the main aim of these rules is to establish if the products in question fulfil the originating products status necessary in order to enjoy the freedom of movement secured in the EEA Agreement, as stipulated in Art. 8. The approach taken in the EEA negotiations was to improve and simplify the 2 complicated rules of origin contained in the 1972 Free Trade Agreements between the EFTA States and the EC.1

51 Case E-17/15, 1.2.2016, Ferskar kjötvörur (‘Fresh meat’), para. 50. It should be noted that the EFTA Court decided not to answer questions on Art. 18 EEA, and, additionally, that in its ruling of 18 November 2016, the District Court of Reykjavik (the referring court) acknowledged that Iceland was liable (state liability) for insufficient implementation of Dir. 89/662/EEC into the Icelandic legal order: see judgment by Reykjavik City Court of 18 November 2016 in Case E-1471/2014. 52 Similar conclusions can also be drawn from the Case E-2/12, 11.12.2012, HOB-vín III, where the EFTA Court concluded that the questions of the national court were to be answered in light of the labelling Directive, (Dir. 2000/13), which is part of Annex II to the EEA Agreement. According to Art. 23(2) EEA, the rules in Annex II ‘shall apply to all products unless otherwise specified’. The EFTA Court emphasised that the labelling Directive was applicable to ‘all foodstuff’ (para. 46), and, therefore, the relevance of within which Chapter of the Harmonised System the beverages at issue might fall, was of no relevance in the case. 1 Blanchet, Piipponen Westman-Clément, The Agreement on the European Economic Area, Clarendon Press, 1994, p. 53.

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As stipulated in paragraphs 2 and 3 of Art. 9, the rules of origin are to work towards improving and simplifying the rules, and to review them at twice-yearly intervals. 4 Protocol 4 has been amended by the EEA Joint Committee several times and those amendments have then been consolidated by completely new versions of the protocol on no less than three occasions – in 2003, 2005, and 2015.2 The reasons for the amendments have not only been to develop the rules of origin as they apply between the EEA Contracting Parties, but also to widen the geographical scope of (some of) the rules of origin to include an increasing number of third countries. On the basis of the original version of Protocol 4, the socalled pan-European cumulation system was created in 1997 between the EC, the EFTA States (including Switzerland), the Baltic States and a group of Central Eastern European States. It was then widened to Slovenia, to industrial products originating in Turkey and to include the Faroe Islands. In 2005, the scope expanded to cover the participants in the so-called Barcelona Process (Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine, Syria, Tunisia and Turkey), resulting in the creation of a pan-Euro-Mediterranean cumulation system of origin. The current version of Protocol 4 is the result of an alignment of the EEA Agreement’s rules of origin for the EEA Contracting Parties’ common obligation under the 2011 Regional Convention on pan-EuroMediterranean preferential rules of origin (‘PEM Convention’).3 The PEM Convention provides for cumulation of origin between all of its 23 Contracting Parties – the EU; the EFTA States (including Switzerland); the Faroe Islands; the participants in the Barcelona Process; the participants in the EU's Stabilisation and Association Process (Albania, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Kosovo) and, as of 2015, Moldova.4 Still, the rules on cumulation of origin in Protocol 4 EEA remain more far-reaching than the system of diagonal cumulation, established by the PEM Convention – as will be explained below, full cumulation is applied between the EEA Contracting Parties. 3

II. Full and diagonal cumulation

From the very beginning, Protocol 4 introduced two elements to the assessment of origin that were more flexible than the rules found in the 1972 Free Trade Agreements. These were the rules on full cumulation and the more relaxed rules in terms of the territorial principle (Section IV below).5 6 The principle of full cumulation is now found in Art. 2(1)(2) of Protocol 4: For the purpose of the rules in origin, the territories of the Contracting Parties to 5

2 EEA Joint Committee Decisions Nos. 38/2003; 136/2005 and 71/2015. 3 OJ L 54, 26.2.2013, p. 4. 4 The preferential rules of origin also cover industrial products of Chapters 25 to 97 of the Harmonised System originating in Andorra and San Marino. 5 Norberg et al., EEA Law, p. 320.

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which the EEA Agreement applies, shall be considered as a single territory. This means, in essence, that originating status can be conferred on a product by adding together working or processing carried out in different EEA States, even if the process in each single State is insufficient to confer originating status on the intermediate product.6 Thus, the EEA Agreement does not require goods to be originating in one EEA State before being exported to another EEA State for further work or processing. Instead, all operations carried out within different EEA States are taken into account in order to decide whether the working or processing carried out on non-originating materials is sufficient for the final product to obtain origin. As a result of Liechtenstein customs union with Switzerland, however, the 7 territory of the Principality is excluded from the principle of full cumulation (Art. 2(2) of Protocol 4). In addition to the system of full cumulation set out in Art. 2, Art. 3 introduces 8 diagonal cumulation of origin for products incorporating materials originating in a Contracting Party to the 2011 Regional Convention on pan-Euro-Mediterranean preferential rules of origin (see Section I above). However, the end product will only be given EEA originating status if the working or processing carried out in the EEA goes beyond the minimum requirements of Art. 6 of Protocol 47 or, failing that, where the value added within the EEA is greater than the value of the materials used originating in any one of the other Contracting Parties to the PEM Convention. Furthermore, the rules of diagonal cumulation only apply if a preferential trade agreement with identical rules of origin is applicable between the countries involved in the acquisition of the originating status and the country of destination (Art. 3(5)). III. Origin criteria

The alternatives for products to be considered originating products are stipu- 9 lated in Art. 2 of Protocol 4: Either the products are wholly obtained in the EEA, within the meaning of Art. 4 of Protocol 4, or they have undergone sufficient working or processing in the EEA, as defined in Art. 5.8 According to Art. 4(1) of Protocol 4, the following products are considered 10 wholly obtained in the EEA: (a) mineral products extracted from their soil or from their seabed; (b) vegetable products harvested there; (c) live animals born and raised there; (d) products from live animals raised there; (e) products obtained by hunting or fishing conducted there; (f) products of sea fishing and other products taken from the sea outside the territorial waters of the Contracting Parties by their vessels;9 products made aboard their factory ships10 exclusively 6 Ibid. 7 See further on these minimum requirements in Section III below, mn. 9 et seqq. 8 Note that the requirement of sufficient working or processing does not apply to materials covered by the rules in diagonal cumulation, see Art. 3(1) and (2) of Protocol 4. 9 The term “their vessels” is specifically defined in Art. 4(2).

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from products referred to in litra f; (h) used articles collected there fit only for the recovery of raw materials, including used tyres fit only for retreading or for use as waste; (i) waste and scrap resulting from manufacturing operations conducted there; (j) products extracted from marine soil or subsoil outside their territorial waters provided that they have sole rights to work that soil or subsoil and (k) goods produced there exclusively from any of the products specified in litras (a) to (j). 11 As stipulated in Art. 2, products which are not wholly obtained in the EEA may acquire originating status if they are sufficiently worked or processed in the EEA. According to Art. 5(1), the conditions to be fulfilled are laid down in Annex II of Protocl 4. However, under Art. 5(2), non-originating materials which, according to the conditions set out in the list in Annex II, should not be used in the manufacture of a product, may nevertheless be used, provided that (a) their total value does not exceed 10 % of the ex-works price of the product and (b) any of the percentages given in the list for the maximum value of non-originating materials are not exceeded.11 Furthermore, these rules must be read in conjunction with Art. 6, which lists specific operations that shall be considered insufficient working or processing to confer the status of originating products, even if the requirements of Art. 5 are satisfied. These are, for example, (a) preserving operations to ensure that the products remain in good condition during transport and storage; (b) breaking up and assembly of packages; (c) washing, cleaning, removal of dust, oxide, oil, paint or other coverings; (d) ironing or pressing of textiles; (e) simple painting and polishing operations; (h) peeling, stoning and shelling, of fruits, nuts and vegetables; (k) simple packaging operations; (m) simple mixing of products; simple assembly of parts of articles to constitute a complete article or disassembly of products into parts and (q) slaughter of animals. 12 The only case from the EFTA Court interpreting the conditions of Arts. 5 and 6 of Protocol 4 is Ásgeirsson.12 In that case, the EFTA Court was asked whether defrosting, beheading, filleting, boning, trimming, salting and packing of fish could, under the rules of origin established under Protocol 4, confer EEA originating status on fish of non-EEA origin. The questions referred to the EFTA Court were a part of criminal proceedings in Iceland, where the defendants had been charged with making false declarations on invoices and export documents, claiming that fish (cod) that was exported to five (then) EC countries originated in Iceland. The fish had been caught off the coasts of Alaska and Russia by foreign fishing vessels. Therefore, it was clear that it had not been caught within the territorial waters of the EEA Contracting Parties, as required by what is now Art. 4(1)(f) of Protocol 4. Furthermore, it was clear that the vessels did not fulfil 10 The term “their factory ships” is specifically defined in Art. 4(2). 11 Art. 5(2) does not apply to products falling within Chapters 50 to 63 of the Harmonised System. 12 Case E-2/03, 12.12.2003, Ásgeirsson.

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the definition of EEA vessels set out in Art. 4(2). However, the question was whether the processing of the cod in Iceland was sufficient for the products to gain EEA origin through the provisions of Art. 5. The EFTA Court noted that products which are not wholly obtained are only 13 to be considered to be sufficiently worked or processed when the conditions set out in the list in Annex II of Protocol 4 are fulfilled. In Annex II, it is stated that, i.a., fish ‘must be wholly obtained’ in order to be conferred EEA originating status. Therefore, the EFTA Court held that working and processing would never lead to conferring originating status on these products, nor would the processing of the cod at issue fall under the above-mentioned ’10 %-clause’13 found in Art. 5(2)(a), since the processing methods at hand were insufficient working or processing in terms of Art. 6.14 The case certainly demonstrates the complexity of Protocol 4 and the need for 14 coherent and contextual reading of the rules in question. IV. Principle of territoriality

Another improvement, compared to the rules found in the 1972 Free Trade 15 Agreements between the EEC and the EFTA States, was the relaxation of the territorial principle (Section IV below).15 The principle is set out in Art. 11 of Protocol 4, and essentially entails that the conditions for acquiring originating status for products must be fulfilled without interruption in the EEA. However, Art. 11(3) introduces an exemption in case of materials other than textiles16 that have been exported from the EEA and subsequently reimported there, provided that the total added value acquired outside the EEA does not exceed 10% of the ex-works price of the end product for which originating status is claimed.17 V. Proof of origin

Title V of Protocol 4 lays down detailed rules for proof of origin. According 16 to Art. 15, exporters of originating products that want to benefit from the EEA rules of origin have to submit either a movement certificate EUR.1 or a movement certificate EUR-MED. For certain approved exporters, conditions for which are laid down in Art. 22(1), and for any consignment consisting of one or more packages containing originating products whose total value does not exceed EUR 6000, an origin declaration provided by the exporter on an invoice, a delivery note or any other commercial document may be considered sufficient proof of origin. General exemptions from the proof of origin provisions are

13 14 15 16 17

Aptly characterised as a ‘tolerance rule’ by Norberg et al., EEA Law, p. 320. Case E-2/03, 12.12.2003, Ásgeirsson, paras. 44-47. Norberg et al, EEA Law, p. 320. Art. 11(7) of Protocol 4. Further exceptions from the principle of territoriality follows from the rules on diagonal cumulation of origin set out in Art. 3 of Protocol 4.

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found in Art. 26 and apply, for example, in the case of small personal packages and occasional imports of low value for personal use.

Article 10 [Customs duties and charges having equivalent effect] Customs duties on imports and exports, and any charges having equivalent effect, shall be prohibited between the Contracting Parties. Without prejudice to the arrangements set out in Protocol 5, this shall also apply to customs duties of a fiscal nature.

I. Introduction

At the time of the EEA negotiations, the EEC Treaty included several provisions on customs duties on imports, exports and charges having equivalent effect: A stand-still clause was found in Art. 12 whereas Arts. 13 to 16 set out rules on the gradual abolition of such charges (and Art. 17 clarified that also customs duties of a fiscal nature was covered). As all such charges were already abolished between the EFTA States, under the EFTA Convention, and between the EC and the EFTA States, under the Free Trade Agreements of 1972, there was no need for similar rules in the EEA Agreement.1 Therefore, Art. 10 sets out a complete prohibition. As the transitional periods found in Community law had run out, Art. 10 EEA was essentially identical in substance to Art. 12 ff. of the EC Treaty. 2 This was confirmed by the (then) Court of First Instance (‘CFI’) in Opel Austria, in which the CFI undertook an in-depth analysis of the nature of the EEA Agreement and held inter alia that it involves ‘a high degree of integration, with objectives exceeding those of mere free-trade agreement’. By virtue of Art. 6 EEA, the CFI thus held, contrary to the submissions of both the Commission and the Council, that Art. 10 was to be interpreted in conformity with ECJ caselaw concerning Art. 12 ff. of the EC Treaty.2 3 As Art. 12 TEC was finally replaced by a complete prohibition through the Treaty of Amsterdam, Art. 30 TFEU essentially mirrors the wording of Art. 10. 4 As to the enforceability of Art. 10, the CFI’s judgment in Opel Austria also made clear that Art. 10 fulfils the conditions of being unconditional and sufficiently precise and as such has direct effect as an ‘integral part of the Community legal order’.3 This put Art. 10 EEA on an equal footing to Art. 12 TEEC, whose direct effect was confirmed by the ECJ already in the seminal van Gend en Loos case.4 As is well known, the EEA does not entail a similar principle of 1

1 2 3 4

See Norberg et at, EEA Law, p. 321. Case T-115/94, 22.1.1997, Opel Austria, para. 111. Ibid, para. 101. Case 26/62, 5.2.1963, van Gend en Loos, in which the ECJ famously held Art. 12 TEEC to be ‘clear and unconditional’, ‘not qualified by any reservation on the part of States which would make its implementation conditional upon a positive legislative measure enacted under national law’ and therefore ‘perfectly suited to produce direct effects in legal relations between the Member States and their citizens’.

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direct effect.5 As far as Art. 10 is concerned, however, this appears to be of no practical significance, since together with the rest of the EEA Main Agreement, this provision has been made part of both Icelandic and Norwegian law,6 whereas it enjoys direct effects in Liechtenstein by virtue of Liechtenstein’s monist approach to international law. Thus, Art. 10 confers rights on economic operators which can be invoked and relied on by them before the national courts of all of the EEA States (as well as, of course, before the EU Courts and the EFTA Court). II. Customs duties and charges having equivalent effects

The introduction of customs duties would traditionally be the first line of de- 5 fence when it comes to limiting imports from other countries. However, there is no tolerance for customs duties within an internal market and cases involving such duties or charges having equivalent effects are nowadays rare in the EU and EEA legal orders. So far, the EFTA Court has only considered Art. 10 once – in the HOB Vín II 6 case.7 Here, the Court concluded that Art. 10 was not applicable to the port charges at issue as they were not levied on the products by reason of the fact that they crossed a frontier: “It is not disputed that, formally, the port charge levied by the Respondent for the loading and unloading of alcoholic beverages is imposed regardless of whether the products are being imported or have been transported by sea from another port in Iceland. Thus, as those charges are not levied on the products by reason of the fact that they cross a frontier, they do not constitute charges having equivalent effect to customs duties, see for comparison Case 24/68 Commission v Italy [1969] ECR 193, at paragraphs 8-9 and Case C-90/94 Haahr Petroleum [1997] ECR I-4085 …, at paragraph 20. Already for that reason, Article 10 EEA is not applicable. It is immaterial in this context that goods arriving from abroad by sea may be considered to have entered the customs territory of the importing State when brought ashore. The judgment of the [ECJ] in Case C-163/90 Legros [1992] ECR I-4625, referred to by the Appellant, does not contradict this finding. The dues imposed in that case were levied on goods by reason of the fact that they crossed a regional border and the dues did not apply to goods originating in that region, cf. paragraphs 4 and 11-12 of the judgment. The reason why the port charge at issue in the present case is not levied on domestic alcoholic beverages is that, for reasons of practicality or economy, they are not transported by sea.”8

In is to be noted that in its findings, the EFTA Court cited both a ruling from 7 the ECJ given prior to the date of the signature of the EEA Agreement a case decided after that date. In the light of the principle of homogeneity, it may safely be concluded that the EFTA Court will interpret Art. 10 in conformity with ECJ case-law.9 As a result, the ECJ’s broad definition of the concept of charges having 8 equivalent effects will also apply to Art. 10 EEA. In the Statistical Levy case,10 5 6 7 8 9 10

See, e.g., the comments by Dystland, Finstand and Sørebø on Art. 7. Through the Icelandic EEA Act (No. 2/1993) and the Norwegian EEA Act (No. 109/1992). Case E-6/07, 11.12.2012, HOB Vín II. Ibid, para. 26. See, in general, the comments by Wennerås on Art. 6 EEA and Art. 3(2) SCA. Case 24/68, 1.7.1969, Commission v Italy.

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in which the EFTA Court cited in HOB Vín II, the ECJ defined the concept as covering: “any pecuniary charge, however small and whatever its designation and mode of application, which is imposed unilaterally on domestic or foreign goods by reason of the fact that they cross a frontier, and which is not a customs duty in the strict sense, […], even if it is not imposed for the benefit of the state, is not discriminatory or protective in effect and if the product on which the charge is imposed is not in competition with any domestic product”.

In the case Commission v. Luxembourg (the Gingerbread case),11 the ECJ held that the concept of charges having equivalent effect was necessarily complementary to the prohibition against customs duties, aimed at measures that were presented under other names and forms with the same effects as customs duties. Additionally, the Court noted, that the concept would also apply in cases where no similar costs were charged from domestic producers. 10 The prohibition in Art. 10 is absolute, and according to the ECJ it applies, irrespective of the charge being of a protectionist nature or not.12 However, charges having equivalent effect must be distinguished from pecuniary charges that constitute a remuneration for a service rendered to the importer/exporter, and is commensurate with that service. Such a fee would fall outside the definition of a charge having equivalent effect to customs duties prohibited by Art. 10 EEA. Nevertheless, this distinction would have to be narrowly construed and the charge proportionate to the service rendered.13 Furthermore, a charge that is levied to finance measures to comply with EU/EEA law, for example veterinary and public health inspections, will not fall under the prohibition in Art. 10, as opposed to similar charges, levied for the purpose of public health inspections based on purely national rules, which would be prohibited by Art. 10. That holds true, even if the inspections were justified on the basis of Art. 13 EEA/36 TFEU.14 11 The uniform interpretation of Art. 10 EEA and Art. 30 TFEU may also be assumed to cover the ECJ’s understanding that not only charges imposed on goods crossing national frontiers, but also on goods crossing other (internal) frontiers, are prohibited.15 12 A charge that ‘relates to a general system of internal dues applied systematically and in accordance with the same criteria to domestic products and imported products alike’ is a tax to be considered under Art. 110 TFEU/Art. 14 EEA. In that context the ECJ has held Arts. 30 and 110 TFEU to be mutually exclu9

11 Joined cases 2/62 and 3/62, 14.12.1962, Commission v. Luxembourg, [1962] ECR 425, 432-434. 12 See e.g. joined cases 2/69 and 3/69, 1.7.1969, Sociaal Fonds voor de Diamantarbeiders. 13 See e.g. Case 46/76, 25.1.1977, Bauhuis, Case 132/78, 31.5, Denkavit, Case 170/88, 11.7.1989, Ford España and Case C-209/89, 21.5.1991, Commission v Italy. 14 Case 46/76, 25.1.1977, Bauhuis, paras. 31 and 13. See further, Müller-Graff, ‘The free movement of goods’, in: Baudenbacher (ed), Handbook of EEA Law, pp. 423-424, and C. Barnard, ‘The Substantive Law of the EU – The Four Freedoms’, (Oxford, 2016), pp. 51-52. 15 See Cases C-163/90, 16.7.1992, Legros; C-485/93, 8.11.2000, Simitzi and C-72/03, 9.9.2004, Carbonati Apuani.

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sive.16 That view may also safely be transferred to the relationship between Arts. 10 and 14 EEA.17 Finally, it should be mentioned that Art. 10 also refers to the prohibition of 13 customs duties of a fiscal nature. The term covers taxes and charges levied on products not produced in the country levying it, that is, only on imported products, such as turnover taxes or consumer taxes (excise duties).18 Art. 10 refers to Protocol 5, where a specific derogation for Liechtenstein is found which applies to a limited range of products.

Article 11 [Quantitative restrictions on imports and measures having equivalent effect] Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between the Contracting Parties.

I. Introduction

The free movement of goods is one of the cornerstones of the EEA internal 1 market. This is reflected in Art. 1(2)(a) of the EEA Agreement and highlighted in the fifth recital of the preamble, according to which the Contracting Parties are determined to ‘provide for the fullest possible realisation of the free movement of goods … within the whole European Economic Area’.1 It is well known that the case-law of the ECJ concerning the free movement 2 of goods formed the basis of the initial evolution of the fundamental principles of the EU on free movement more generally. Through interpretation of what is now Art. 34 TFEU, mainly in preliminary ruling cases, the ECJ developed an analytical framework in order to effectively apply the four freedoms throughout the EU. The ground-breaking rulings in Dassonville and Cassis extended the scope of these provisions from being purely aimed at limiting discriminatory measures to covering a prohibition of any form of restrictive measures, irrespective of their character and, laying down the principle of mutual recognition.2 In that sense, these cases lay down the foundation of what may be referred to as the European economic constitution.3 However, the fundamental freedoms are not absolute rights. From the outset, 3 the Rome Treaty presumed that they could be derogated from, based on public policy, public security, public health and (for free movement of goods only) pub-

16 See, Joined cases 2/62 and 3/62, 14.12.1962, Commission v Luxembourg (the Gingerbread case), at pages 432-433. 17 As seemingly suggested by the EFTA Court in Case E-6/07, 11.12.2012, HOB Vín II, para. 27. 18 Norberg et al, EEA Law, p. 326. 1 See also the comments by Arnesen and Fredriksen on both the preambles and Art. 1. 2 See further below. 3 M.P. Maduro, Reforming the Market or the State? Art. 30 and the European Constitution: Economic Freedom and Political Rights, European Law Journal [1997] Vol. 3. No. 1, p. 55.

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lic morality interests. In this field of shared competences (as confirmed by Art. 4(2)(a) TFEU), the free movement provisions, in essence, are the basis for judicial review of restrictive national measures and define the acceptable level of protection intended by these measures (see further discussion under Art. 13). II. The scope and nature of Art. 11 1. Introduction

Art. 11 is one of the provisions of the Main Part of the EEA Agreement that, without any doubt, is ‘identical in substance’ to a corresponding provision of EU law, namely Art. 34 TFEU. Therefore, on the basis of Art. 6, Art. 11 is to be interpreted in conformity with the relevant rulings of the ECJ given prior to the signature of the EEA Agreement. Similarly, the EFTA Court is also, in light of Art. 3 SCA, bound to pay due account to the principles laid down in the relevant rulings of the ECJ given after that same date.4 5 Still, it is important to establish if, and to what extent, the EFTA Court has confirmed the fundamental steps taken by the ECJ in defining the scope of Art. 34 TFEU in cases such as Dassonville; Cassis de Dijon; Keck; and; Commission v Italy. This will be the focus of the following sub-chapters, bearing in mind, however, that Art. 11 may only be invoked if the conditions in Art. 8 concerning originating products and product coverage are fulfilled. 4

2. Reception of the Dassonville formula

Already in Restamark, the EFTA Court was asked to define the scope of Art. 11. The Court held Art. 11 to be ‘identical in substance’ to what is now Art. 34 TFEU, referred to Dassonville5 and took over the Dassonville formula: the prohibition of measures having an effect equivalent to quantitative restrictions, applies ‘to all trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade’, highlighting specifically that it would be sufficient to prove a potential effect on trade.6 7 Later, in Astra, the EFTA Court cited Dassonville to confirm that there is no de minims rule under Art. 11.7 Also in Alcopops, the EFTA Court stated that it ‘is settled case law that all trading rules enacted by EEA States which are capable of hindering, directly or indirectly, actually or potentially, intra-EEA trade are to be considered as measures having an effect equivalent to quantitative restrictions and are thus prohibited by Article 11 EEA’, citing again Dassonville.8 6

4 5 6 7 8

Confirmed already in E-1/94, 16.12.1994, Restamark, paras. 33-34. Case 8/74, 11.7.1974, Dassonville. Case E-1/94, 16.12.1994, Restamark, paras. 46-47. Case E-1/98, 24.11.1998, Astra, para. 23. Case E-9/00, 15.3.2002, ESA v Norway (‘Alcopops’), para. 47.

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3. Reception of the principle of mutual recognition (Cassis de Dijon)

In Restamark, the EFTA Court also cited Cassis de Dijon,9 but only in pass- 8 ing. The Court noted that given the discriminatory nature of the measure in question, it could not be justified by any of the ‘mandatory requirements’ recognised by the ECJ in Cassis de Dijon.10 In Philip Morris, however, the EFTA Court explicitly recognised the principle of mutual recognition, stating that Art. 11 was to be understood as an obligation to ‘comply with the EEA principles of non-discrimination and mutual recognition of products lawfully manufactured and marketed in other EEA States’.11 4. Reception of the Keck exemption

The EFTA Court was first asked to establish the relevance of the Keck doc- 9 trine12 in the Ullensaker case.13 The case concerned a refusal by four municipalities in Norway to grant licences to sell videograms. The EFTA Court cited Keck and concluded that the measures at stake were to be regarded as selling arrangements within the meaning of the Keck doctrine.14 The Court, furthermore, stated that it appeared that the conditions15 established by the ECJ for such selling arrangements to fall outside the scope of what is now Art. 34 TFEU appeared to be met, since the national legislation applied equally to all traders and appeared not to discriminate, neither in law nor in fact, between imported and domestic products.16 However, the EFTA Court noted that even if no discrimination was apparent, the application of the licensing scheme could amount to de facto discrimination. That assessment was, however, to be undertaken by the national court, in light of the relevant facts of the case.17 Of interest is also the EFTA Court’s ruling in the Pedicel case,18 which to an 10 extent is an EEA law parallel to the Gourmet case before the ECJ. In Gourmet,

9 Case 120/78, 20.2.1979, Rewe-Zentral (‘Cassis de Dijon’). 10 Case E-1/94, 16.12.1994, Restamark, para. 51. 11 Case E-16/10, 12.9.2011, Philip Morris, para. 40. The EFTA Court cited Case C-110/05, 10.2.2009, Commission v Italy (‘Trailers’) and Case C-108/09, 2.12.2010, Ker-Optika in this respect. See also more generally on the principle of mutual recognition in the field of free movement: X. Groussot, G.T. Petursson, H.Wenander, Regulatory Trust in EU Free Movement Law – Adopting the level of protection of the other? European Papers, Vol. 1, 2016, No. 3, pp. 865-892. 12 Joined Cases C-267/91 and C-268/91, 24.11.1993, Keck and Mithouard. 13 Case E-5/96, 14.5.1997, Ullensaker. 14 Ibid, paras. 23-25. 15 As stipulated in Joined Cases C-267/91 and C-268/91, 24.11.1993, Keck and Mithouard, paras. 16-17, the conditions are in fact three staged: (i) whether the legislation in question constitutes a “selling arrangement”; (ii) whether the national provisions apply equally to all the relevant traders operating within the national territory; and (iii) whether the measures affect, in the same manner de jure and de facto, the marketing of domestic and imported products. 16 Case E-5/96, 14.5.1997, Ullensaker, paras. 25-27. 17 Ibid, para. 29. 18 Case E-4/04, 25.2.2005, Pedicel.

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the ECJ had analysed the Keck conditions in a detailed manner and concluded that the Swedish ban on advertisement for alcoholic beverages affected the marketing of foreign products more heavily than the marketing of domestic products and thus were an obstacle to trade not escaping the ambit of Art. 34 TFEU.19 In Pedicel, the EFTA Court referred to Gourmet rather than Keck and stated that the information presented to it indicated that the presumptions made in by the ECJ in Gourmet ‘also applied to the circumstances in Norway’.20 Therefore, the EFTA Court regarded the Norwegian prohibition on advertising as an ‘obstacle to trade’ caught by Art. 11. 11 The Philip Morris case21 of the EFTA Court, is also relevant here. The case concerned the Norwegian ban on the public display of tobacco products. The EFTA Court cited Keck and held the measures at stake to constitute selling arrangements. However, the EFTA Court left it to the national court to decide whether the application of these national measures were such that they affected the marketing of foreign tobacco products differently than national products (the Keck conditions). Interestingly, the EFTA Court pointed out that if the discriminatory effect of the Norwegian legislation could not be clearly verified, it would be ‘too uncertain or indirect’ to constitute hindrance of trade.22 This bears a resemblance to the obiter dictum made in Ullensaker, where the EFTA Court also mentioned the too uncertain or indirect effects to trade approach.23 12 An important aspect in Philip Morris is the fact that the national production of tobacco in Norway had ceased in 2008. When assessing the Keck conditions, the EFTA Court nevertheless saw a possibility for the ban affecting the marketing of products from other EEA States to a greater degree than that of imported products that were, ‘until recently’, produced in Norway.24 This assessment has been criticised as a questionable attempt to limit the reach of the Keck exemption.25 At any rate, it has to be taken into consideration in the analysis of Philips Morris that the EFTA Court did not finalise this assessment, but left it to the national court to undertake in light of ‘the characteristics of the relevant market and of other facts’.26

19 20 21 22

Case C-405/98, 8.3.2001, Gourmet International, para. 25. Case E-4/04, 25.2.2005, Pedicel, para. 46. Case E-16/10, 12.9.2011, Philip Morris. Case E-16/10, 12.9.2011, Philip Morris, para. 50. The EFTA Court cited the ECJ’s Case C-291/09, 7.4.2011, Guarnieri & Cie, for comparison – that case, however, is not about selling arrangements, but rather the general question of whether a measure is too uncertain and indirect to be liable to affect trade between Member States. 23 Case E-5/96, 14.5.1997, Ullensaker, para. 28 (with a reference to ECJ’s judgment in Joined cases C-140/94, C-141/94 and C-142/94, 10.7.1997, Bassano del Grappa). See J. Stuyk, Is Keck still alive and kicking? (2012) European Journal of Consumer Law, p. 343, at p. 335, who notes that the ECJ ‘rarely’ applies this test. 24 Case E-16/10, 12.9.2011, Philip Morris, para. 48. 25 Fredriksen and Mathisen, EØS-rett, p. 84, arguing in particular that the EFTA Court’s reliance on Case C-391/92, 29.6.1995, Commission v Greece (‘Infant milk’) must be based on a misunderstanding of that judgment.

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The EFTA Court’s reference to the ‘too uncertain or indirect’ case-law of the 13 ECJ, along with the absence of any reference to Keck in Pedicel and, to an extent, the application of the marketing test in Philip Morris, shows that the EFTA Court has been somewhat reluctant in its approach to the Keck doctrine.27 However, even if there might be instances where the EFTA Court’s assessment of the Keck conditions may be criticised, there is no reason to assume that the EFTA Court will not generally follow suit when it comes to applying the Keck doctrine and the approach by the ECJ in that respect as, for example, demonstrated in Alcopops.28 In fact, there is also an indication that the ECJ has been reading, and in fact applying, the Keck doctrine, more narrowly in its more recent case-law, as may be seen in Commission v. Italy (‘Trailes’) and Mickelson and Roos, further discussed below.29 The EFTA Court’s reference to the abovementioned judgments in Philip Morris to those judgments may be interpreted to the effect that the EFTA Court will focus on a market access approach and apply the Keck exemption in a narrow way. However, this does not entail that the core of Keck does not remain good law in both the EU and EEA judicial context.30 5. Reception of ECJ caselaw on national bans on the use of products

Interestingly, disputes concerning the limits of Art. 34 TFEU seem to be nev- 14 er-ending and in the case Commission v Italy,31 the ECJ was yet again faced with challenging questions about the exact scope of Art. 34 TFEU. The case concerned traffic rules in Italy that prohibited trailers from being trailed by motorcycles, thereby limiting the use of products. The case was brought before the ECJ’s Grand Chamber, and in its intervention, most of the EU Member States argued either that these types of rules should fall outside the scope of Art. 34

26 Case E-16/10, 12.9.2011, Philip Morris, para. 49. See in contrast the ECJ’s approach in Gourment, para. 21; C‑322/01 Deutscher Apothekerverband, para. 74, and C-108/09, Ker-Optika, para. 54, where the ECJ completes this assessment itself. See further on this difference in the comments on Art. 13 below. 27 See Baudenbacher, The goal of homogeneous interpretation of the law in the European Economic Area in: The European Legal Forum (ELF) 2008, 22–31, who held that the EFTA Court had not (at that point in time) not necessarily taken the Keck jurisprudence of the Court of Justice as the ‘last word of the wisdom’ at 23. See also similar views by Müller-Graff, ‘The free movement of goods’, in: Baudenbacher (ed), Handbook of EEA Law, p. 427. The approach of the EFTA Court in the case E-6/96 Wilhelmsen, may also be mentioned, but in that case, the EFTA Court did not deal specifically with the Keck case, and the question of selling arrangements, since the Court was of the opinion that the measures at stake gave ‘rise to discrimination between foreign and local beer brands’, para. 50. 28 Case E-9/00, 15.3.2002, Alcopops, where the EFTA Court, referred to Keck, but concluded that the national measures in fact did not affect in the same manner the sale of domestic products and products from other EEA States (para. 51). The case was an infringement case, pursued on the basis of Art. 31 SCA. 29 Case C-110/05, 10.2.2009, Commission v Italy and Case C-142/05, 4.6.2009, Mickelson and Roos. 30 K. Lenaerts, ‘The Free Movement of Goods in the EEA’, in: The EEA and the EFTA Court – Decentred Integration, (Hart, Oxford 2014), p. 381. 31 Case C-110/05, 10.2.2009, Commission v Italy.

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15

16

17

18

TFEU, or that they should be regarded as selling arrangements, within the meaning of the Keck doctrine. The ECJ used the opportunity to clarify and extend the definition of the concept measures having equivalent effects, as stipulated in Art. 34 TFEU (and Art. 13 EEA) and held that it also covered ‘[a]ny other measure which hinders access of products originating in other Member States to the market of a Member States’ (see further discussion below).32 The ECJ relied on this in the case itself, and held that ‘a prohibition on the use of a product in the territory of a Member State has a considerable influence on the behaviour of a consumer, which, in turn, affects the access of the product to the market of that Member State’.33 Furthermore, the ECJ emphasised, that consumers, ‘knowing that they are not permitted to use their motorcycle with a trailer specifically designed for it, have practically no interest in buying such a trailer’.34 Therefore, in this case, the rules on use of products were regarded as falling within the scope of Art. 34 TFEU, although eventually, the Court ruled that they were justifiable on the basis of the general interest concern, namely road safety. In fact, the scrutiny of the Italian measures by the ECJ under the principle of proportionality was rather lenient, referring to the State’s ‘margin of appreciation’ in these circumstances.35 That may be explained by the fact that here the ECJ was entering into a new territory with its interpretation of the scope of Art. 34 TFEU, and, that at stake were traffic rules, generally regarded as falling within the exclusive Member States’ competence. In a subsequent case, Mickelson and Roos,36 the ECJ further clarified its approach. At issue were rules in Sweden that, without completely prohibiting the use of personal watercrafts in Sweden, prohibited, unless allowed, its use on waters other than general navigable waterways. In the view of the ECJ these rules had a ‘considerable influence on the behaviour of consumers’ and therefore, affected their access to the Swedish market, which in turn made the ECJ to consider the rules to be contrary to Art. 34 TFEU.37 However, the ECJ acknowledged that the rules could be justified on the basis of environmental protection and public health grounds, but the analysis of the proportionality of the Swedish rules was for the national court to undertake.38 From these cases, it may be read that not any limitation of the use of products would be caught by Art. 34 TFEU. However, what may be concluded is that a total ban on use (such as that in Commission v Italy); measures ‘preventing users

32 33 34 35 36 37 38

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Ibid, para. 37. Ibid, para. 56. Ibid, para. 57. Ibid, para. 65. Case C-142/05, 4.6.2009, Mickelson and Roos. Case C-142/05, 4.6.2009, Mickelson and Roos, para. 26. Similar rules were in place in Norway, which made ESA issue a letter of formal notice to Norway, where it held that the Norwegian rules were disproportionate and thus a breach of Art. 11 EEA (case no. 72009).

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of a [product] to use it’, for its intended purpose;39 and; measures that have the effect of ‘greatly restricting [its] use’,40 would fall within the scope of Art. 34 TFEU.41 This, and in particular the last part, still leaves a large room for interpretation, that needs to take place at the national level, where consumer behaviour is clearly an important factor.42 Even if the EFTA Court has not dealt directly with similar questions as in 19 Commission v. Italy, or the subsequent Mickelson and Roos case, concerning rules that are directly aimed at limiting the use of products, the EFTA Court, when analysing the nature and width of Art. 11 EEA in Philip Morris, directly took up the ECJ’s above mentioned analysis of Art. 34 TFEU in Commission v. Italy, verbatim (see further below).43 6. The applicability of Art. 11 to private parties

The EFTA Court still has not been given any opportunity to discuss the ra- 20 tione personae (the personal scope) of Art. 11.44 It is clear that Art. 11, like Art. 34 TFEU, would apply to both action and inaction of the State.45 Furthermore, Art. 11 will apply to the activities of quasi-government bodies or private parties to which public powers have been transferred, similarly to what the ECJ decided in its case-law.46 In fact, views to this effect are to be found in the Case E-5/98 Fagtún, where the EFTA Court held that Art. 11 could in principle apply to a clause in an employment contract requiring the use of materials produced in Iceland. The Court held that: “In the present case, it is quite clear that the building committee acted on behalf of the Government and thus must be considered a public contracting authority. The committee itself was established by a contract between the Government of Iceland, the City of Reykjavík and the Municipality of Mosfellsbær. Its members were appointed by the Ministry of Education, the City of Reykjavík and the Municipality of Mosfellsbær. They were, in fact, essentially chosen from the ranks of these public entities. The funding of the committee is wholly provided by public means and, according to information received from the Defendants, the owners of the school building are the Government of Iceland, the City of Reykjavík and the Municipality of Mosfellsbær. These links between the State and

39 Case C-142/05, 4.6.2009, Mickelson and Roos, para. 28. 40 This last part, ‘greatly restricting their use’ was introduced in Case C-142/05, 4.6.2009, Mickelson and Roos para. 28. 41 As summarised by K. Lenaerts, ‘The Free Movement of Goods in the EEA’, in: The EEA and the EFTA Court – Decentred Integration, (Hart, Oxford 2014), p.379. 42 Ibid, pp. 379-80. 43 Case E-16/10, 12.9.2011, Philip Morris, paras. 39-41, in particular para. 41. See also K. Lenaerts, ‘The Free Movement of Goods in the EEA’, in: The EEA and the EFTA Court – Decentred Integration (Hart, Oxford 2014), p. 381. 44 See for example the ECJ Case C-171/11, 14.7.2012 Fra-bo, which in essence was a case between two private companies. However, the case has to be interpreted in the light of the specific circumstances and regulatory environment in which it originated. The case does not provide for sufficient grounds to draw the conclusion that all private activities fall under the scope of Art. 34 TFEU. 45 Case C-265/95, 9.12.1997, Commission v France (the Strawberries case) and Case C-112/00, 12,6.2003, Schmidberger. 46 See e.g. Joined cases 266 and 267/87, 18.5.1989, Royal Pharmaceutical Society.

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However, even if Art. 34 TFEU has been held to apply in legal proceedings between two private companies, that does not mean that Art. 34 TFEU/11 EEA should be able to have unlimited vertical legal effects and thus govern in private activity in general.48 7. Conclusions

It is quite clear that the EFTA Court regards Art. 11 to be identical in substance to Art. 34 TFEU and has cited and applied materially all the major cases decided by the ECJ concerning the scope of Art. 34 TFEU. There seem to be no real differences between references by the EFTA Court to cases decided by the ECJ prior to or post the signature date of the EEA Agreement. 23 Art. 11 has so far, much like Art. 34 TFEU, been developed by the EFTA Court largely through references from national courts for advisory opinions (save only Alcopops and Kellogg’s).49 Of course, the total number of cases decided by the EFTA Court, concerning Art. 11, is substantially lower than that decided by the ECJ as concerning Art. 34 TFEU. This may impact on the development of Art. 11, but considering the above, no major deviations in the case-law can be detected at this stage – apart from what may obviously arise from the distinct factual circumstances of cases and the specific nature of the EEA Agreement. Therefore, it may be concluded that homogeneity has been preserved in this field, to the extent possible. For example, in the Philipp Morris case,50 the EFTA Court took directly up the ECJ’s Grand Chamber, text-book like summary of the ‘new’ definition of the term ‘measures having an effect equivalent to quantitative restrictions’, which may be summarised in the following way: 22

‘Measures adopted by a Member State the object or effect of which is to treat products coming from other Member States less favourably are to be regarded as measures having equivalent effect to quantitative restrictions on imports within the meaning of Art. [34 TFEU]’, in essence, distinctly applicable measures (discrimination).51 Rules ‘applying, to goods coming from other Member States where they are lawfully manufactured and marketed, rules that lay down requirements to be met by such goods constitute measures of equivalent effect to quantitative restrictions even if those rules apply to all products alike’.52 ‘Any other measure which hinders access of products originating in other Member States to the market of a Member State is also covered by that concept’.53

47 Case E-5/98, 12.5.1998, Fagtún, para. 23. 48 Even if such vertical legal effects have been accepted as concerning other freedoms, most commentators argue against that approach when it comes to Art. 34 TFEU (See C. Barnard, ‘The Substantive Law of the EU – The Four Freedoms’, (Oxford, 2016), p. 77). 49 Case E-9/00, 15.3.2002, ESA v Norway (‘Alcopops’) and case E-3/00, 5.4.2001, ESA v Norway. 50 Case E-16/10, 12.9.2011, Philip Morris. 51 Case C-110/05, 10.2.2009, Commission v Italy (‘Trailers’), para. 36. 52 Ibid, para. 35 (emphasis added). 53 On this, see also older case law, such as Case C-293/94, 27.6.1996, Brandsma, para. 6 and Case C-219/07, 19.6.2008, Nationale Raad van Dierenkwekers en Liefhebbers and Andibel, para. 22.

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III. The importance of the obligation to notify technical standards

Dir. 98/34/EC on the procedure for the provision of information in the field of technical standards and regulations (and of rules on Information Society services)54 merits particular attention among all the EU legal acts that facilitate the free movement of goods within the EEA. The main aim of Dir. 98/34/EC55 is to secure the free movement of goods (and information society services) in the internal market. For those purposes, the Directive lays down the obligation for the EEA States to notify (for the EU Member States: to the EU Commission; for the EFTA States: to ESA) of the draft of any new technical regulation within the meaning of the Directive. This applies to technical regulations concerning products56 (any industrially manufactured product and any agricultural product, including fish products) and draft technical regulations concerning Information Society services. Once notification of the draft has duly been made, the EEA States are obliged to respect a threemonth standstill period. The drafts may be commented upon by ESA, the Commission and by the other EEA States, if they deem that the draft rules are susceptible of creating unjustified trade barriers. In that sense, it may be held that the Directive serves the purpose of ‘litigation avoidance’, or as the ECJ put it in Belgische Petroleum, the Directive has the purpose of protecting ‘by means of preventive control, the free movement of goods, which is one of the foundations of the European Union’.57 Initially, States were reluctant to notify technical regulations, which resulted in the EU Commission initiating a series of infringement proceedings against EU Member States.58 In a Communication from 1996, the Commission argued that not complying to the obligation to notify, or not respecting the standstill period, should lead to regulations thus adopted being ‘unenforceable against third parties in the legal system of the Member State in question’. Furthermore, litigants should have the right to expect national courts to refuse to enforce such national technical regulations.59 In 1996, the ECJ took on board the message in the Commission communication when it ruled in CIA Security that a breach of the obligation to notify of draft technical rules found in the Directive constituted a ‘procedural defect’ in the adoption of the technical regulation concerned that ‘renders the technical 54 On the EU side now governed by Directive (EU) 2015/1535, which is still not a part of the EEA Agreement. 55 This notification procedure was first established via Dir. 83/189/EEC, and later codified by Dir. 98/34, which was amended by Dir. 98/48, in order to expand its application to Information Society services. 56 As stipulated in Art. 23(a) EEA the vast amount of secondary norms under Annex II (TBT’s), which includes Dir. 98/34/EC, in its Chapter XIX, apply to all products. 57 Case C-26/11, 31.1.2013, Belgische Petroleum, para. 49. See also, C. Barnard, ‘The Substantive Law of the EU – The Four Freedoms’, (Oxford, 2016), p. 108. 58 Ibid, p. 110. 59 Commission communication concerning the non-respect of certain provisions of Council Directive 83/189/EEC (later to become Dir. 98/34/EC), 86/C 2245/05, of 01.10.86.

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regulations concerned inapplicable, so that they are unenforceable against individuals’. In the view of the ECJ this would enhance the effectiveness of the EU control.60 In Unilever, the ECJ confirmed its position in CIA Security, and held this to apply even in a situation, such as that at hand, which was governed by a contract between two enterprises.61 Through these two cases, the interests of both private parties, and economic operators, should be protected by national courts, in the cases of State’s failure to comply with the notification and/or standstill obligations found in Dir. 98/34/EC. The EFTA Court applied Dir. 98/34 in the Case E-4/03, ESA v. Norway,62 where it held that Norway had failed to fulfil its obligation to notify technical rules concerning type approval of gaming machines. However, the EFTA Court made no reference to the CIA Security case or other cases from the ECJ concerning implementation and application of the Directive. The EFTA Court’s advisory opinion in Case E-2/12, HOB-vín III, concerned, inter alia, national labelling rules for alcoholic beverages that had been adopted in Iceland without respecting the notification procedure under Dir. 2000/13/EC, which governs labelling, presentation and advertising of foodstuffs, and has notification obligations similar to those under Dir. 98/34/EC. The EFTA Court answered that a failure to notify of draft measures under Dir. 2000/13/EC meant that the non-notified labelling rules at issue could not be ‘considered effective under EEA law and cannot be allowed to impose burdens on individuals and economic operators’.63 The EFTA Court, therefore, took on board the principles laid down in CIA and Unilever, however, without making a reference to these cases. Such a reference would have rendered the precedent stronger.64 The Norwegian authorities have implemented the principles of CIA Security and Unilever in the Norwegian act, implementing Dir. 98/34 by way of Act No. 101 of 17 December 2004 Section 9.65 Unlike Norway, Iceland has not implemented a clear and precise rule to this effect in its national law. The District Court of Reykjavik, that sent the questions to the EFTA Court in HOB Vín III, followed, in principle, the EFTA Court’s decision concerning the inapplicability of non-notified labelling requirements, but 60 Case C-194/94, 30.4.1996, CIA Security, para. 45 (emphasis added). 61 Case C-443/98, 26.9.2000, Unilever. In that case, the Italian technical rules in question had actually been notified to the Commission, but the rules were then adopted during the standstill period. However, the ECJ subsequently, in case that concerned an alcohol breathalyser, pointed out that a failure to notify does not have the effect of ‘rendering unlawful any use of a product which is in conformity with regulations which have not been notified’ (Case C-226/97, 16.6.1998, Lemmens, paras.34-35 (emphasis added)). 62 Case E-4/03, 5.5.2004, ESA v Norway. 63 Case E-2/12, 11.12.2012, HOB-vín III, para. 113 and 115. 64 It has, however, been argued, that it cannot be assumed that all notification procedures will have the ‘CIA’ effects, and that it is uncertain what is required for a notification procedure to have these effects. See Karsten Engsig Sørensen, ‘Non-Harmonised Technical Regulations and the Free Movement of Goods,’ (2012) 23 European Business Law Review, pp. 163-212 at p. 195 and the literature cited. 65 Fredriksen and Mathisen, EØS-rett, p. 311.

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the case was not appealed to the Icelandic Supreme Court.66 In earlier case law of the Icelandic Supreme Court that concerned tobacco advertising rules, the Supreme Court inter alia confirmed a decision of the Reykjavik District Court, which rejected claims by the defendant (a tobacco company) that a failure to comply with Dir. 98/34, based on ECJ case law, would result in non-notified technical regulations becoming inapplicable.67 However, it should be noted that the Supreme Court has not directly dealt with this issue after the HOB Vín III case.68 It should also be mentioned that as a part of the EU Commission’s 2007 32 ‘Package on Internal Market for Goods’ the so-called ‘Mutual Recognition Regulation’, Reg. 764/2008/EC was introduced.69 The Regulation also entails notification obligations (which replaced the ineffective Decision 3052/95) if States intend, through administrative decision, whether taken or intended, on the basis of a technical rule to prohibit the placing of a product of the market, requiring modification or additional testing of a product or its withdrawal from the market (Article 2).

Article 12 [Quantitative restrictions on exports and measures having equivalent effect] Quantitative restrictions on exports and all measures having equivalent effect shall be prohibited between the Contracting Parties.

Art. 12 mirrors the provision of EU law now found in Art. 35 TFEU. As will 1 be further explained below, the scope of this provision has traditionally been more limited than that of Art. 11, as concerning import, since it only covers discriminatory measures. This limitation in scope, along with the fact that situations where States interfere in export are rare, explain in essence the reason why

66 Judgement by Reykjavik District Court of 21.2.2014 in Case no. 2381/2011. 67 Ruling of the Icelandic Supreme Court, Case no. 220/2005. 68 Case E-2/12, 11.12.2012, HOB-vín III. In the case of Iceland, due to the lack of a specific national rule implementing non-enforceability of measures not duly notified under Dir. 98/34, and in light of conflicting case law, ESA has issued a Reasoned Opinion alleging a violation of the Dir. 98/34 and Art. 7 of the EEA Agreement (Case No:74074, issued 13 July 2016). 69 Reg. (EC) No. 764/2008 of the European Parliament and of the Council of 9 July 2008 laying down procedures relating to the application of certain national technical rules to products lawfully marketed in another Member State. Other legal instruments, part of this ‘package’ are Reg. (EC) No. 765/2008 of the European Parliament and of the Council of 9 July 2008 setting out the requirements for accreditation and market surveillance relating to the marketing of products and Decision No. 768/2008/EC of the European Parliament and of the Council of 9 July 2008, on a common framework for the marketing of products. They have all been made part of the EEA Agreement by JCD 126/2012 of 13 July 2012. The Regs. were regarded as so important by the Norwegian legislator that they were implemented into Norwegian law by way of a brand-new statute on free movement of goods within the EEA (Lov 12. april 2013 nr. 13 om det frie varebytte i EØS “EØS-vareloven”).

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the number of cases concerning limitations to export is very low. In fact, the EFTA Court has yet to rule on a case that deals with Art. 12. Art. 12 is one of the provisions of the EEA Agreement that is clearly ‘identical in substance’ to the corresponding provisions of the EU Treaties within the meaning of Art. 6 EEA and Art. 3(2) SCA.1 Concerning the relevant rulings of the ECJ given prior to the signature date of the EEA Agreement, the ECJ held in Groenveld that the scope of what is now Art. 35 TFEU was limited to discriminatory measures. The ECJ therefore concluded that Art. 35 TFEU did not apply to an export ban on sausages containing horse meat, and that it applied without distinction between products intended for the national market or for export.2 For a long time, the Groenveld test remained good law and established a divergence between the scope of application of what is now Arts. 34 and 35 TFEU. One of the reasons for the two provisions developing down different trajectories, may lie in the fact that export restrictions were not susceptible of protectionism.3 However, in 2009, the ECJ’s Grand Chamber in Gysbrecht4 seemingly modified the Groenveld test. The case concerned Belgian consumer protection rules governing online sales (distance selling) that effectively prevented the seller from requiring payment before the expiry of the seven working days cooling-off period. This was problematic since sales to countries other than Belgium (export) were made exclusively through credit card payments. The ECJ held that these rules fell afoul of the prohibition in Art. 29 TFEU, since ‘even if a prohibition such as that at issue in the main proceedings is applicable to all traders active in the national territory, its actual effect is nonetheless greater on goods leaving the market of the exporting Member State than on the marketing of goods in the domestic market of that Member State’ (emphasis added).5 Even if the Gysbrecht ruling is not a direct overruling of Groenveld, there is much to suggest that the ECJ is modifying the Groenveld test, largely aligning its respective approaches to Arts. 34 and 35 TFEU. This was in fact strongly suggested by the Advocate General Trstenjak in the Gysbrecht case.6 In that context, it should also be pointed out that in Gysbrecht, the ECJ maintained that the Belgian measures could be justified ‘by overriding requirements of public interest’,7 even referring to the Cassis ruling when, in principle, accepting the 1 See Norberg et al., EEA Law, p. 345 and also Müller-Graff, ‘The free movement of goods’, in: Baudenbacher (ed), Handbook of EEA Law, p. 428. 2 Case 15/79, 8.11.1979, Groenveld. See also e.g. Case 155/80, 14.7.1981, Obel. 3 L. Woods & P. Watson, Steiner & Woods – EU Law, (12th ed., Oxford 2014), p. 405. 4 Case C-205/07, 16.12.2008, Gysbrecht. 5 Ibid, para. 43. 6 C. Barnard, The Substantive Law of the EU, p. 101. See also Niamh Nic Shuibhne, The Coherence of EU Free Movement Law – Constitutional Responsibility and the Court of Justice (Oxford 2013), p. 195, who, however, without discussing the Kakavetsos case, maintains that the Gysbrecht decision, should not be seen as revolutionizing the scope of Art. 35 TFEU, although not excluding that such bigger steps could be taken in the future, p. 196.

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reference of the Belgian authorities to consumer protection interests (even if these were ultimately held to be disproportionate). Likewise, in the subsequent Kakavetsos case, the ECJ did not cite Groenveld, but used the Dassonville formula in the context of Art. 35 TFEU (even if not citing the case itself), and considered the national measures at issue to constitute a ‘restriction’ to the fundamental principle of free movement.8 The ECJ assessed the restrictive measures under the ‘overriding public interests’ of consumer protection and prevention of fraud, even if finally not held to be compliant with the principle of proportionality.9 Even if Groenveld is a ruling that is binding on the EEA Contracting Parties 7 (their courts included) under Art. 6 EEA and Gysbrecht is only a ruling which the ESA and EFTA Court is to pay due account to under Art. 3(2) SCA, it is submitted that the interpretation of Art. 12 has to follow the developments in the ECJ’s approach to Art. 35 TFEU. As far as the EFTA Court is concerned, such an approach can be substantiated by a long line of cases containing unreserved references to, and application of, cases from the ECJ concerning ‘corresponding’ provisions, and decided after the signature of the EEA Agreement.10

Article 13 [Exemptions] The provisions of Articles 11 and 12 shall not preclude prohibitions or restrictions 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 prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between the Contracting Parties.

I. Introduction

Art. 13 mirrors the provision of EU law now found in Art. 36 TFEU, and 1 makes clear that the free movement of goods principle is not absolute, but rather a principle which can be derogated from 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. Art. 13 is one of the provisions of the EEA Agreement that clearly is ‘identi- 2 cal in substance’ to a corresponding provision of the TFEU within the meaning of Art. 6 EEA and Art. 3(2) SCA.1

7 8 9 10

Ibid, para. 45. Case C-161/09, 3.3.2011, Kakavetsos, para. 27. Ibid, paras. 59-61. See, in general, the comments by Wennerås on Art. 6 EEA and Art. 3(2) SCA.

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The analytical framework for applying the express derogations, and the unwritten justifications which supplement them, was not spelled out in the founding treaties nor in the subsequent amendments. Therefore, the concepts involved and the methods to apply them have had to be further articulated through interpretation by the ECJ. As a result of the homogeneity principle, the ECJ’s approach to derogations from the free movement of goods informs also the interpretation of Art. 13 of the EEA Agreement.2 4 However, in light of the fact that the methodology of derogations and justifications goes beyond the wording of the Art. 13/Art. 36 TFEU, it is necessary to analyse the EFTA Court’s reception of the ECJ’s case law. This is, in particular, important in regard to judge-made derogations, the mandatory requirements, and the extent to which the proportionality principle, which is not at all mentioned in the EEA Agreement, is used to reconcile the free movement of goods with other public interests. These issues will be further analysed below, and, in particular, issues of the EFTA Court’s novelty in this context will be highlighted. 3

II. The express derogations and the mandatory requirements

In EU law, the list of derogations from the free movement of goods has remained static throughout the years. The list is reproduced verbatim in Art. 13 and contains the following grounds: 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. 6 They are to be interpreted strictly,3 and the burden of proof is borne by the State concerned.4 The ECJ and the EFTA Court accept, in principle, the justifications put forward by the Member States, as long as they do not pursue aims of purely economic nature.5 Still, it is clear that States will, under certain circumstances, have to be granted a wide margin of discretion, not least when derogations such as, for example, public health issues are at stake.6 That discretion is, 5

1 As confirmed by the EFTA Court already in Case E-1/94, 16.12.1994, Restamark, para. 52. See further Norberg et al., EEA Law, p. 347 and Müller-Graff, ‘The free movement of goods’, in: Baudenbacher (ed), Handbook of EEA Law, p. 428. 2 Clearly confirmed already in Case E-1/94, 16.12.1994, Restamark, para. 52; Case E-5/96, 14.5.1997, Ullensaker, para. 32 and Case E-6/96, 27.6.1997, Wilhelmsen, para. 7. 3 This has been consistently maintained by the ECJ in numerous cases, see for example Case 95/81, 9.6.1982, Commission v Italy, and the case law of the ECJ was directly referred to in this context by the EFTA Court in case E-5/96, 14.5.1997, Ullensaker, para. 33. 4 Case E-5/96, 14.5.1997, Ullensaker, para. 35, (citing Case 204/84), and Case E-1/64, 16.12.1994, Restamark, para. 60 and Case E-9/00, 15.3.2002, Alcopops, para. 54. 5 C. Barnard, The Substantive Law of the EU, p. 174. In fact, the ECJ has ruled that economic interests cannot serve as an objective justification for restrictions on free movement, in general (see e.g. Case 95/81 Commission v Italy), a view endorsed by the EFTA Court both in Case E-01/06, 14.3.2007, ESA v. Norway (‘Gaming Machines’), para. 36 and Case E-3/06, 30.5.2007, Ladbrokes, para. 46. 6 See e.g. Case E-16/10, 12.9.2011, Philip Morris, para. 80.

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however, primarily controlled through the principle of proportionality (see further in Section IV). In the majority of the cases that have been dealt with by the EFTA Court, the 7 interests invoked to justify a derogation from Art. 11 have been matters of public health. According to the EFTA Court in Philip Morris ‘the health and life of humans rank foremost among the assets or interests protected by Art. 13 EEA’.7 The express derogations reflect a reality that does not directly take into ac- 8 count interests such as consumer rights, environmental protection, social interests or fundamental rights. These interests are relevant and present in today’s society.8 In EU law, these interests have been accepted by the ECJ through the famous Cassis de Dijon doctrine,9 where the ECJ held that: “[O]bstacles to movement within the Community resulting from disparities between the national laws relating to the marketing of the products in question must be accepted in so far as those provisions may be recognised as being necessary in order to satisfy mandatory requirements relating in particular to the effectiveness of fiscal supervision, the protection of public health, the fairness of commercial transactions and the defence of the consumer.”10

These are the mandatory requirements, that in fact form a non-exhaustive 9 list and apply in cases of indistinctly applicable restrictive measures. They apply without discrimination to both domestic and imported products, as subsequently confirmed in ECJ’s Italian Cider case.11 Already in Restamark, the EFTA Court cited the Cassis de Dijon case and re- 10 ferred to the term mandatory requirements. In the case, the EFTA Court held that given the discriminatory nature of the measures in question (import licence), they could not be justified by the mandatory requirements recognised by the ECJ in Cassis de Dijon. Even if the EFTA Court has yet to accept a mandatory requirement as a legiti- 11 mate ground of justification in the field of free movement of goods, nothing indicates that such requirements are not acceptable or possible in principle.12 The EFTA has been very clear on the issue that mandatory requirements are not acceptable as a justification in the case of (overt) discriminatory measures.13 This view has also been maintained frequently by the ECJ.14 However, the case-law of the ECJ has not been entirely consistent on this point, particularly in some gambling cases, and cases concerning environmental protection.15

7 8 9 10 11 12

Ibid, para. 77. C. Barnard, The Substantive Law of the EU, p. 150. Case 120/78, 20.2.1979, Rewe-Zentral (‘Cassis de Dijon’). Case 120/78, 20.2.1979, Rewe-Zentral (‘Cassis de Dijon’), para. 8. Case 788/79, 26.6.1980, Gilli. See for example discussions on cultural policy in Ullensaker, and of course the direct references to mandatory requirements in the cases E-1/64, 16.12.1994, Restamark, Case E-5/96, 14.5.1997, Ullensaker and Case E-5/98, 12.5.1998, Fagtún. 13 Restamark, para. 51, Ullensaker, para. 30 and 34, and Fagtún, para. 38.

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III. Fundamental rights

The ECJ has long accepted that fundamental rights play an important role when it comes to the question of acceptable limitations to the principles of free movement. In ERT, the ECJ held that when the Member States relied on the Treaty to justify national rules that restricted the fundamental freedoms (in casu the freedom to provide services and Greek rules relating to television broadcasting), those national rules ‘must be interpreted in the light of the general principles of law and in particular of fundamental rights’ and were only to be allowed as a justified restriction if ‘compatible with fundamental rights’.16 This may be called the ‘additional hurdle’ approach, i.e. the restrictive measures also have to comply with fundamental rights in order to be deemed acceptable justifications. Later, in Schmidberger,17 the ECJ held that the Member States could, as a mandatory requirement (citing Cassis de Dijon), rely on fundamental rights as the very basis upon which the justification for restrictive national measures could be built. 13 The roots of the EFTA Court’s fundamental rights jurisdiction lie in the TV 1000 case,18 where the EFTA Court cited the Handyside case from the European Court of Human Rights19 and the Bellona case,20 that concerned access to justice 12

14 See for example Case C-153/08, 6.10.2009, Commission v Spain where the Court stated in para. 36: ‘First of all, it should be pointed out that, although a certain number of overriding reasons in the public interest have indeed been recognised by the Court’s case-law, such as the objectives of consumer protection and the prevention of both fraud and incitement to squander money on gambling, as well as the general need to preserve the social order (see, in particular, Liga Portuguesa de Futebol Profissional and Bwin International, para. 56), which may justify a restriction on the freedom to provide services, the fact remains that those objectives cannot be relied upon to justify discriminatory restrictions (see, to that effect, Case C-55/94, 30.11.1995, Gebhard [1995] ECR I-4165, para. 37; Case C-243/01, 6.11.2003, Gambelli and Others, para. 65; Joined cases C-338/04, C-359/04 and C-360/04, 6.3.2007, Placanica and Others, para. 49, and C-42/07, 8.9.2009, Liga Portuguesa de Futebol Profissional and Bwin International, para. 60)’. Emphasis added. 15 C. Barnard, The Substantive Law of the EU, p. 415. See for example, concerning environmental measures, Case C-2/90, 9.7.1992, Commission v Belgium, where directly discriminatory measures were declared justified. In an article written by former AG Trstenjak, The Growing Overlap of Fundamental Freedoms and Fundamental Rights in the case-law of the Court of Justice (2013) 38(3) E.L.Rev., 293-315, at p. 311, she argues that this should be accepted, particularly for the field of environmental protection, since it is difficult to understand why that ‘should not be possible’, at p. 301. 16 Case C-260/89, 18.6.1991, ERT, para. 42. 17 Case C-112/00, 12.6.2003, Schmidberger. This case concerned demonstrations in Austria that resulted in a major motorway being blocked for a certain period of time, causing grave disruptions in major transfer routes. The Austrian authorities abstained from taking measures to remove the obstacles, and regarded the demonstrators to be protected by the Constitution in Austria and Arts. 10 and 11 of the ECHR, concerning the freedom of expression and freedom of assembly. 18 Case E-8/97, 12.6.1998, TV1000. 19 Ibid para. 26. It is interesting to note that late Judge Þór Vilhjálmsson (later to become the President of the EFTA Court), the judge rapporteur in the TV 1000 case, was one of the judges of the European Court of Human Rights in the Handyside case (Judgment of 7 December 1976, Series A no. 24). 20 Case E-2/02, 19.6.2003, Bellona.

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(locus standi). In the Bellona case the EFTA Court made a reference to the eighth recital of the Preamble to the EEA Agreement, that ‘stresses the value of the judicial defence of rights conferred by the Agreement on individuals, and intended for their benefit’.21 Furthermore the Court held that: ‘The idea of human rights inspires this development, and reinforces calls for widening the avenues of access to justice’.22 In the case of Ásgeirsson, the EFTA Court cited TV 1000 and Bellona, and summarised the status of its fundamental rights jurisdiction as being: ‘that provisions of the EEA Agreement as well as procedural provisions of the Surveillance and Court Agreement are to be interpreted in the light of fundamental rights’.23 Furthermore, the EFTA Court acknowledged the European Convention of Human Rights (‘ECHR’), and the judgments of the European Court of Human rights as ‘important sources for determining the scope of these rights’.24 So far, the EFTA Court has not raised concrete fundamental rights issues in 14 the field of free movement of goods. However, the EFTA Court has, in Olsen25 (concerning the right of establishment and the free movement of capital), held that national restrictive measures could only be compatible with EEA law as long as they were also compatible with fundamental rights, similar to what the ECJ maintained in ERT. Also, in Piazza26 (concerning the free movement of capital and the freedom to provide services), the EFTA Court held that fundamental rights (the good functioning of the civil justice system), as public policy arguments, constituted the base on which the derogation from the free movement principle could be built upon, much like the ECJ held in Schmidberger.27 IV. Principle of proportionality

The principle of proportionality is of fundamental importance in EU law, and 15 its visibility has increased in recent years, not least after the entry into force of the EU Charter of Fundamental Rights, which includes a direct reference to the principle in its Art. 52.28 Despite the fact that the depth and width of the princi21 22 23 24

Ibid, para. 36. Ibid, para. 37. Case E-2/03, 12.12.2003, Ásgeirsson, para. 23. (Emphasis added). Ibid, para. 23. It is noteworthy that in Case E-4/11, 26.7.2011, Clauder, the EFTA Court referred to the EU Charter of Fundamental rights, when the Court noted in an obiter dictum (the issue had seemingly not been raised by any of the parties, at least not in the written proceedings) that the ‘same right’, namely, the right to respect for private and family life, found in Art. 8 of the ECHR, was also protected by Art. 7 of the EU Charter of Fundamental Rights (para. 49). See also, Case E-15/11, 18.4.2012, Posten Norge, where the EFTA Court cited Article 47 of the EU Charter of Fundamental Rights (para. 86). 25 Subsequently confirmed in E-14/15, 19.4.2016, Holship Norge, where the EFTA Court referred to the Olsen case, when stipulating that the restrictive measures in question (boycott) could only fall under the exemptions of the freedom of establishment if they were compatible with fundamental rights – here in particular the right to collective bargaining and collective actions, also recognised through Art. 11 ECHR. 26 Case E-10/04, 1.7.2005, Piazza. 27 See also Case C-368/95, 26.6.1997, Familiapress.

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ple is difficult to define, and that there is no direct reference to it in the EU Treaty sections on free movement, it holds a great weight in the case-law of the ECJ when it comes to reviewing restrictive measures derogating from the fundamental free movement principles. 16 The Cassis de Dijon case already bears traces of the principle of proportionality since the ECJ made a reference to the term ‘necessity’ in the case. In the Rau case,29 which came subsequently, and supplementary to Cassis de Dijon and Gilli cases, the ECJ held, in terms of application of the proportionality principle, that, for the national restrictive measures, it was: “also necessary for such rules to be proportionate to the aim in view. If a Member State has a choice between various measures to attain the same objective it should choose the means which least restricts the free movement of goods.”30

In the period that followed the ruling of the ECJ in Cassis de Dijon, the principle of proportionality began to play an increasingly prominent role in striking the right balance between the fundamental principle of free movement of goods and rational national interests restricting that free movement.31 18 Similarly, the EEA Agreement holds no reference to the principle of proportionality. However, in Restamark, the EFTA Court took the principle on board when the Court stated: 17

“The principle of proportionality, which underlies the second sentence of Article 13 EEA, requires that the power of the Contracting Parties to prohibit imports from other Contracting Parties should be restricted to that which is necessary to attain the legitimate aim of protecting health.”32

Furthermore, the EFTA Court emphasised that the burden of proof concerning the proportionality of the restrictive measure is borne by the State responsible for the restriction.33 20 In Pedicel,34 the EFTA Court described the principle of proportionality and its role when reviewing measures that restrict free movement, in the following way: 19

“Under the proportionality principle, the measure chosen by an EEA Contracting Party must be proportionate to the aim pursued. It must be established that measures taken are suited to achieve the objective sought, and that the same objective may not be as effectively achieved by measures which are less restrictive of intra-EEA trade.”35

28 The principle, even if different context, is also referred to in Art. 5 of the Lisbon Treaty and Protocol No. 2 to the Lisbon Treaty. 29 Case 261/81, 10.11.1982, Walter Rau Lebensmittelwerke v De Smedt PVBA. 30 Ibid, para. 12. Emphasis added. 31 J. Schwarze, European Administrative Law (Sweet and Maxwell, 2006), p. 773 and T. Tridimas, The General Principles of EU Law (2nd ed., Oxford University Press, Oxford 2006), p. 142. 32 Case E-1/94, 16.12.1994, Restamark, para. 58, where the EFTA Court interestingly used the term ‘principle’. See also a reference to the principle in the Case E-1/95, 20.6.1995, Samuelsson, para. 31, even if in a different context. 33 Case E-1/94, 16.12.1994, Restamark, para. 60. 34 Case E-4/04, 25.2.2005, Pedicel. 35 Ibid, para. 56.

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In particular circumstances, such as those related to public health interests 21 and the choice of acceptable risk levels, the EFTA Court has acknowledged that it is for the EEA States, within the limits imposed by the EEA Agreement, to decide upon the acceptable level of protection they wish to assure.36 As indicated above, the proportionality principle plays a specific and key role in these circumstances, that is, when the balance between important public policy issues and the interest of free movement of goods must be determined. As the EFTA Court held in Philip Morris: “the principle of proportionality has been observed in the field of public health must take account of the fact that an EEA State has the power to determine the degree of protection that it wishes to afford to public health and the way in which that protection is to be achieved. As EEA States are allowed a certain margin of discretion in this regard, protection may vary from one EEA State to another. Consequently, the fact that one EEA State imposes less strict rules than another does not mean that the latter’s rules are disproportionate.”37

The EFTA Court has emphasised that a measure restrictive of the fundamen- 22 tal freedoms must, as concerning proportionality, satisfy the conditions laid down in the case law of both the EFTA Court and the ECJ.38 In that context it should be noted that in recent years, additional elements are making their way within the proportionality test in ECJ’s case law, in particular in the field of free movement.39 Firstly, procedural requirements, which remain closely related to the concepts 23 of legal certainty and transparency, have been introduced, to which restrictive measures must comply in order to be considered proportionate.40 In the case law of the ECJ, the proportionality test, has, in this respect, been developed under the case law of free movement of goods. The first example is the well-known German Beer case.41 Interestingly the ECJ held that: ‘[B]y virtue of the principle of proportionality, traders must be able to apply [for the use of additives], under a procedure which is easily accessible to them and can be concluded within a reasonable time’. Furthermore, the Court held that a trader should be able to challenge before courts an unjustified failure to grant authorisations.42 Also, in the Greenham and Abel case,43 the ECJ considered that Arts. 34 and 36 TFEU must be interpreted as meaning that they do not preclude a Member State from 36 Ibid, para. 55 and Case E-16/10, 12.9.2011, Philip Morris, para. 77. 37 Case E-16/10, 12.9.2011, Philip Morris, para. 80. Similarly, the principle of proportionality is explicitly referred to in this context in Case E-4/04, 25.2.2005 Pedicel, para. 55. 38 See Case E-1/06, 14.3.2007, ESA v. Norway (‘Gaming Machines’), paras. 29 and 31 and Case E-3/06, 30.5.2007, Ladbrokes, para. 42. 39 See further, G. T. Petursson, X. Groussot, ‘Balancing as a Judicial Methodology of EU Constitutional Adjudication’ in: Balancing Fundamental Rights with the EU Treaty Freedoms: the European Court of Justice as ‘tightrope’ walker (Eleven Law Publishing, 2012). 40 C. Barnard, The Substantive Law of the EU, has referred to this development as the proceduralisation of proportionality, see p. 193-194. 41 Case 178/84, 12.3.1987, Commission v Germany. See also the case law on state monopolies, that was foundational in this context; Case C-189/95, 23.10.1997, Franzén, paras. 44 and 51; and C-438/02, 31.5.2005, Hanner, paras. 38-39. 42 Case 178/84, 12.3.1987, Commission v Germany, paras. 45-46.

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prohibiting the marketing without prior authorisation of foodstuffs lawfully manufactured and marketed in another Member State, where nutrients such as vitamins or minerals have been added thereto other than those whose use has been declared lawful in the first Member State, provided that certain procedural conditions are satisfied. 24 In other words, it appears essential that a transparent procedure is available for the applicant to obtain authorisation of its products. This requirement is now consistently reiterated by the ECJ in cases related to free movement, not least in cases that concern free movement of goods. Similarly, the EFTA Court has confirmed, that for a restriction to the fundamental freedoms to be justified, the principle of legal certainty must be complied with.44 Moreover, the EFTA Court has held this to be a ‘general principle of EEA law’.45 25 The precautionary principle is also of relevance in this context. It has been developed, in particular in the field of free movement of goods, in cases where uncertainty exists in terms of scientific evidence for the public health risk at stake.46 Under such circumstances states are allowed in accordance with the precautionary principle, to take protective measures without having to wait until the reality and seriousness of those risks are fully demonstrated.47 In fact, the EFTA Court has been instrumental in developing the conditions under which the precautionary principle applies in EEA law. In Kellogg’s the EFTA Court rendered operational, in a novel judgment, the idea that had been presented by the ECJ in Sandoz, and advanced the understanding and rational for using the principle.48 The EFTA Court held that: “EEA law in this area may be summarised as follows. In the absence of harmonisation of rules, when there is uncertainty as to the current state of scientific research, it is for the Contracting Parties to decide what degree of protection of human health they intend to assure, having regard to the fundamental requirements of EEA law, notably, the free movement of goods within the European Economic Area. This means that a risk management decision rests with each Contracting Party. It is within the discretion of the Contracting Party to make a policy decision as to what level of risk it considers appropriate. Under those conditions, a Contracting Party may invoke the precautionary

43 Case C-95/01, 5.2.2004, Greenham and Abel, paras. 35 and 50. See also Case C-320/03, 15.11.2005, Commission v Austria, para. 87. Here we find a duty on national authorities to examine carefully the less burdensome alternatives to free movement of goods. See in relation to state aids and public procurement situations: Case C-280/00, 24.7.2003, Altmark; and Case T-289/03, 12.2.2008, BUPA v Commission, and in relation to freedom to provide services, Case C-318/10, 5.7.2012, SIAT, paras. 54-60. 44 Case E-1/04, 23.11.2004, Fokus Bank, para. 37, and Case E-9/11, 16.7.2012, ESA v Norway, para. 99. 45 Case E-9/11, 16.7.2012, ESA v Norway, para. 99, but the case concerned shareholder restrictions in financial services infrastructure institutions in Norway. Additionally, in that case the EFTA Court noted that all persons affected by the type of restrictions at issue in the case (prior administrative approval), ‘must have a legal remedy available to them’, para. 100. 46 The principle emerged first in the case law of the ECJ in the Case C-174/82, 14.7.1983, Sandoz, para. 16. See also, for example, Case C-192/01, 23.9.2003, Commission v Denmark and Case C-24/00, 5.2.2004, Commission v France. 47 See e.g. Case C-192/01, 23.9.2003, Commission v Denmark, para. 49. 48 A. Alemanno, The Precautionary principle, in: Baudenbacher (ed), Handbook of EEA Law, pp. 844-845.

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Article 13 Exemptions principle, according to which it is sufficient to show that there is relevant scientific uncertainty with regard to the risk in question. That measure of discretion must, however, be exercised subject to judicial review.”49

It is precisely through this ‘judicial review’ where the proportionality princi- 26 ple becomes the key, including specific procedural requirements. As the EFTA Court explained in Kellogg’s, the measures taken by the State ‘must be based on scientific evidence; they must be proportionate; non-discriminatory, transparent and consistent with similar measures already taken’.50 Furthermore, even if the level of protection chosen by the State should not be placed in question, ‘the principle of proportionality must be respected’.51 In the Kellogg’s case the EFTA Court emphasised that States must run ‘a comprehensive evaluation of the risk to health based on the most recent scientific information’.52 In the case the Norwegian authorities failed to demonstrate that such a comprehensive risk assessment had taken place.53 In fact, in most cases before the ECJ, where the precautionary principle has been invoked and accepted, the States have failed to fulfil the procedural requirements of the proportionality principle.54 Secondly, under the suitability (appropriateness) part of the proportionality 27 test, the ECJ has developed the so-called consistency test. Its current basis is found in the so-called gambling cases and since the Gambelli case, a Member State can rely on a national interest, e.g. consumer protection and the prevention of fraud, inasmuch as it serves to limit betting activities in a ‘consistent and systematic manner’.55 In the Placanica case,56 the ECJ made clear that the Italian legislation on gambling was inconsistent and thus disproportionate. The Italian legislatures were pursuing a policy to expand activity in the betting and gaming

49 50 51 52 53

Case E-3/00, 5.4.2001, ESA v Norway (Kellogg’s), para. 25. Ibid, para. 26 (emphasis added). Ibid, para. 27. Ibid, para. 30. Case E-3/00, 5.4.2001, ESA v Norway (Kellogg’s), paras. 36-38. The precautionary principle was further developed by the EFTA Court, in Case E-16/10, 12.9.2011, Philip Morris, paras. 83-84, however, as A. Alemanno has pointed out, in an unorthodox way, since held to cover also circumstances were the hazard is scientifically certain (tobacco consumptions), but the effects of measures preventing it from turning into risk are not – see A. Alemanno, ‘The Precautionary principle’, in: Baudenbacher (ed), Handbook of EEA Law pp. 848-849. In fact, in more recent line of cases, where there is ‘scientific uncertainty’ concerning the actual effects of the restrictive measures, the ECJ has emphasised the need for a detailed proportionality analysis by the national courts, see Case C-333/14, 23.12.2015, The Scotch Whisky Association (paras. 64-65). 54 See for example, Case C-192/01, 23.9.2003, Commission v Denmark, Case C-24/00, 5.2.2004, Commission v France, Case C-41/02, 2.12.2004, Commission v Netherlands, and Case C-338/08, 24.6.2010, Commission v France. 55 Case C-243/01, 6.11.2003, Gambelli, para. 63. In fact, Mathisen has demonstrated that its origins may be traced back to the Läärä case, Case C-124/97, 21.9.1999, Läärä (which is in fact a case concerning gambling, as well). See further on that and the consistency test in general Gjermund Mathisen Consistency and coherence as conditions for justifications of Member State measures restricting free movement, Common Market Law Review, 2010, pp. 1021-1048. 56 Cases C-338/04, C-359/04 and C-360/04, 6.3.2007, Placanica, paras. 53-54.

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sector, with the aim of increasing tax revenue. No justification for the Italian legislation was to be found in the objectives of limiting the propensity of consumers to gamble or of curtailing the availability of gambling.57 The test of consistency, has now also clearly found its way into the case law of free movement of goods,58 freedom of establishment,59 and fundamental rights.60 28 The EFTA Court applied the consistency test clearly for the first time in the Gaming Machine case, and subsequently in the Ladbrokes case. Both cases concerned gambling (services and establishment), but traces of the test may also be found in the Kellogg’s case.61 For example, the EFTA Court found in the Gaming Machine case, that the Norwegian state, that had chosen to fight gambling addiction through the reduction of gambling opportunities (by subjecting operation of gaming machines to a state-owned monopoly), could not at the same time be responsible for extensive marketing, which could lead to increase of gambling opportunities.62 29 Finally, it should be highlighted that it is of relevance to identify which court completes or exhausts the proportionality analysis in each case. In infringement proceedings under Art. 31 SCA, in cases that concern a potential breach of the fundamental free movement provisions, such as, for example, Art. 11 EEA, it is for the EFTA Court to complete the assessment of the proportionality of the restrictive measure in the context of the interests invoked. However, when it comes to advisory opinion cases under Art. 34 SCA, the EFTA Court has, in similar circumstances, shown judicial restraint in terms of exhausting the proportionality analysis itself. This was apparent in the Philip Morris case, where the EFTA Court held that it was appropriate to leave the final assessment of the proportionality of the national measure to the national court, on the basis of all the matters of law and fact before it, since that court was ‘in a better position’ than the EFTA Court to conduct the assessment.63 Then, the EFTA Court stated: “In this regard, it should be recalled that in proceedings under Article 34 of the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice, which is based on a clear separation of functions between the Court and the national courts, it is for the national court to ascertain the facts which have given rise to the dispute and to establish the consequences that they have for the judgment which it is required to deliver.”64

57 See also C-42/07, 8.9.2009, Liga Portuguesa, paras. 61-67, where the Member State was given a wide margin of discretion. 58 Case C-141/07, 11.9.2008, Commission v Germany (hospital pharmacies), para. 56. See more recently Case C-333/14, 23.12.2015, The Scotch Whisky Association, paras. 37-38 and 53. 59 See e.g. Case C-500/06, 17.7.2008, Corporación Dermoestética; Case C-169/07, 10.3.2009, Hartlauer, para. 55; and Cases C-171/07 and C-172/07, 19.5.2009, Apothekerkammer des Saarlandes, para. 42. 60 See e.g. Case C-157/15, 14.3.2017 Achbita (G4S). 61 See Case E-01/06, 14.3.2007, ESA v. Norway (‘Gaming Machines’), para. 43 and Case E-3/06, 30.5.2007, Ladbrokes, paras. 52-53, and Case E-3/00 ESA v Norway (‘Kellogg’s’) at paras. 26 and 41, as held by the EFTA Court in para. 43 of the Gaming Machines case. 62 Case E-01/06, 14.3.2007, ESA v. Norway (‘Gaming Machines’), para. 43, and also similar views as concerning the marketing activities and its scope are found in Case E-3/06, 30.5.2007, Ladbrokes, para. 54. 63 Case E-16/10, 12.9.2011, Philip Morris, para. 86.

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In this context of better placed argumentation, the EFTA Court, in Philip 30 Morris, cited the preceding case-law of the ECJ.65 It is true that the ECJ sometimes makes similar statements. However, that court has not consistently demonstrated similar restraints and, in reality, quite often completes the proportionality analysis itself in preliminary reference cases.66 It is evident that layers of more detailed review have gradually been built into 31 the proportionality analysis, such as the above-mentioned consistency test and specific procedural requirements. However, that should not automatically lead to the balance in the proportionality analysis to tilt in the favour of unreserved market integration. The proportionality principle, respectful of diversity and judicial dialogue, also has the capabilities to preserve market disintegration, when necessary, on the basis of strong interests involved, such as deep national interests and/or constitutional and fundamental rights.

Article 14 [Internal taxation: No fiscal discrimination of imported goods] No Contracting Party shall impose, directly or indirectly, on the products of other Contracting Parties any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products. Furthermore, no Contracting Party shall impose on the products of other Contracting Parties any internal taxation of such a nature as to afford indirect protection to other products.

I. Introduction

Article 14 prohibits discriminatory internal taxation imposed on imported 1 goods. Whereas Art. 10 is designed to prevent customs duties and “charges having equivalent effect” levied at the border, Art. 14 prohibits fiscal discrimination against foreign products which have already entered the territory of the importing state. As the ECJ stated in Bergandi, concerning the similarly worded Art. 110 TFEU, the provision intends to ensure both freedom of movement for goods and the complete neutrality of internal taxation as regards domestic and 64 Ibid, para. 87. See similar views in case E-2/12, 11.12.2012, HOB Vín III, para. 38. See also Case E-18/1, 28.9.2012, Irish Bank, para. 53, where the EFTA Court held that Art. 34 SCA is providing for a special means of judicial cooperation. 65 Case E-16/10, 12.9.2011, Philip Morris, para. 86, citing Case C-434/04, 28.9.2006, Ahokainen and Leppik, para. 38. 66 See the results of the case analysis made by Gunnar Thor Petursson. The Proportionality Principle as a Tool for Disintegration in EU Law – of Balancing and Coherence in the Light of the Fundamental Freedoms. Faculty of Law, University of Lund, Sweden, which demonstrate that in the majority of preliminary ruling cases, as concerning free movement, the ECJ de facto exhaust the proportionality analysis. In this context it is also of interesting to compare the decisions in Pedicel and Gourmet, (discussion under Art. 11 EEA), in terms of completing the analysis of the Keck conditions – where the EFTA Court also showed more restraints than the ECJ, with a reference to ‘better placed arguments’ – see above.

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imported products.1 As under EU law, provided that the internal tax regime applies without discrimination, Art. 14 leaves EFTA States considerable discretion to determine the content of their national taxation policy. This enables national authorities to decide which products to tax, the methods for calculating taxes and the tax level of individual product groups.2 2 Article 14 supplements the prohibition in Art. 10 on customs duties and other charges of equivalent effect. The latter prohibition would inevitably be undermined if an EEA State were allowed to levy discriminatory taxes on imported products that are in competition with domestic products.3 This important complementary role of Art. 110 TFEU has been recognized by the ECJ, which has stated that the provision seeks to fill any “loop-hole” not covered by the scope of the provisions prohibiting customs duties.4 Similarly, Art. 14 precludes the evasion of the ban on customs duties and avoids the imposition of any further economic disadvantages on imports which have already entered the country. 3 At the outset, two differences between Art. 14 EEA and Art. 110 TFEU ought to be mentioned. Firstly, Art. 14 is placed under Part II – Free Movement of Goods in the EEA Agreement. Thus, the essential role of the prohibition on discriminatory taxation in terms of complementing the ban on customs duties, is reflected in the fact that Arts. 10 and 14 are both located in Part II of the EEA Agreement. However, in the TFEU, the similarly worded provision in Art. 110 TFEU is found in Title VII on “Common rules on competition, taxation and approximation of laws”. To a certain extent, the placing of Art. 110 TFEU under Title VII is unfortunate, because it blurs the close relationship between this provision and Art. 30 TFEU on customs duties.5 4 Secondly, Art. 8 EEA entails that the product coverage of Art. 14 is more limited than that of Art. 110 TFEU. In Art. 8(3) it is stated that the EEA Agreement only applies to: (a) products falling within Chapters 25 to 97 of the Harmonized Commodity Description and Coding System, excluding the products listed in Protocol 2; (b) products specified in Protocol 3, subject to the specific arrangements set out in that Protocol. 5

One noteworthy aspect of the limited product coverage of the EEA Agreement, concerns the application of Art. 14 to alcoholic beverages. In Einarsson, the EFTA Court expounded on the limited application of Art. 14 to alcohol.6 As

1 Case E-1/01, 22.2.2002, Einarsson, at para. 22 with further reference to Case C-166/98, 17.6.1999, Socridis at para. 16, See also, Craig and de Búrca, EU law, p. 648. 2 See Barnard, The Substantive Law of the EU, p. 53. 3 See Craig and de Búrca, EU law, p. 648. 4 Joined Cases 2 and 3/62, 14.12.1962, Commission v Luxembourg and Belgium, at para. 431. See also Norberg et al., EEA Law 1993, p. 327. 5 See also Barnard, The Substantive Law of the EU, p. 53, fn. 75. 6 Case E-6/07, 5.3.2008, HOB vín, see further below.

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the EFTA Court noted, it follows from Tables I and II of Protocol 3 to the EEA Agreement, that Art. 14 applies to beer and spirits. However, the Court also noted that Art. 14 does not apply to wine.7 Besides wine, other types of naturally fermented alcoholic beverages, such as cider and “mjød” (in English “mead”, an alcoholic drink made from honey and water) not mentioned in Protocol 3, fall outside the EEA Agreement in its entirety.8 The limited product coverage in the EEA Agreement may, however, entail the 6 inclusion of protectionist elements in national agricultural policy. A hypothetical example illustrates the issue at hand. A characteristic feature of Norwegian alcohol policy is the high level of excise taxes on all types of alcoholic beverages. In recent years, consumer demand for traditional and locally produced beverages, such as cider and “mjød” is increasing.9 So far, the Norwegian government has supported this industry by way of allowing off-premises farm sales and thus bypassing the general obligation to sell alcoholic beverages through state alcohol monopoly outlets or through licensed grocery stores. If the Norwegian government decides to grant further support to this growing industry, one possible way of doing this is by introducing a low level of alcohol tax, or even a complete tax exemption, for cider and “mjød”. In such a scenario, cider and “mjød”, which are most likely in a competitive relationship with beer (which is covered by the scope of the EEA Agreement), would clearly benefit from the tax relief.10 Nevertheless, the obvious benefit of a tax exemption afforded to cider and “mjød” would escape scrutiny under Art. 14, since these beverages are excluded from the product range of the EEA Agreement. In reality though, it is questionable whether this scenario will play out in the future. Tax reliefs for certain traditional beverages that fall outside the scrutiny of Art. 14 would threaten the strict, but nonetheless consistent, Norwegian alcohol policy, which has been accepted as a premise by the Contracting parties to the EEA Agreement. Thus, from a political point of view, beneficial taxation of cider and “mjød” would be highly contentious. A final remark regarding the rules on product coverage with relevance to 7 Art. 14 must be made. Since wine is excluded from the product coverage of EEA law, the now extensive caseload of the ECJ concerning national taxation of beer

7 Ibid., at para. 24. Art. 8(3)(a) EEA does not refer to Chapter 22 of the Harmonized Commodity Description and Coding System, thus excluding the application of Arts. 10, 11 and 14 EEA to wine, see Case E-6/07, 5.3.2008, HOB vín, at para. 24. According to Art. 1(2) of Protocol 3 to the EEA Agreement, the provisions of the Protocol do not apply to Liechtenstein. See further the comments by Petursson on Art. 8. 8 See also the report by Arnesen and Sejersted, “EØS-rettslig vurdering av om salg av alkohol fra nisjeprodusenter kan tillates uten å svekke dagens monopolordning” on behalf of the Norwegian Ministry of Health and Care Services, Oslo, 30.9.2014, pp. 13-16. 9 See the report by Arnesen and Sejersted, “EØS-rettslig vurdering av om salg av alkohol fra nisjeprodusenter kan tillates uten å svekke dagens monopolordning” on behalf of the Norwegian Ministry of Health and Care Services, Oslo, 30.9.2014, p. 3. 10 On the determination of the competitive relationship between products with different physical characteristics, see section III below, mn. 24 ff.

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and wine must be read with the caveat that this strand of case law cannot be transferred directly to EEA law. However, the general guidelines concerning the interpretation of Art. 110 TFEU that have been inferred from the “beer and wine”-cases, are transferable to future situations where the products in question do fall within the product coverage of Art. 14 EEA. II. The first paragraph – Equal taxation of similar products 8

The first paragraph of Art. 14 prohibits direct and indirect internal tax discrimination against imports which are “similar” to domestic products. In this section, three questions are discussed. The first question concerns what constitutes “similar” products. The first paragraph of Art. 14 only applies when there is certain degree of similarity between the imported and the national goods at issue. If imported and domestic goods are not regarded as “similar”, but nonetheless in competition with one another, the situation must be dealt with under the second paragraph of Art. 14. After defining the concept of “similarity”, the discussion turns to the content of the two forms of discrimination referred to in the first paragraph of Art. 14, namely direct and indirect internal tax discrimination. 1. Similar products

It is only when imported products are “similar” to national products that the prohibition on tax discrimination in the first paragraph of Art. 14 comes into play. Imports that are found to be similar, must be treated on equal terms as domestic products, and not be made subject to internal taxes in excess of the internal taxes imposed on their domestically produced counterparts.11 In other words, the level of taxation on similar products must be the same. 10 In HOB vín, the EFTA Court reiterated the essential elements from the ECJ in the determination of similarity: “For products to be considered similar under the first paragraph of Article 14 EEA, they must have similar characteristics and meet the same needs from the point of view of the consumer […]”.12 Drawing from this, it is clear that identical products will always be regarded as similar. However, imported and domestic goods are rarely, if ever, completely identical. What matters is that the products being compared share a sufficient amount of similar physical and functional features. For this reason, both a comparison of the physical characteristics as well as the use of the products are relevant factors when determining similarity. 11 The ECJ judgment in Commission v France is instructive.13 The case concerned the similarity between light- and dark-tobacco cigarettes. As the Commission had pointed out, light-tobacco cigarettes, which were essentially imported products, were subject to a higher tax rate that dark-tobacco cigarettes, which 9

11 Case C-198/14, 12.11.2015, Valev Visnapuu, at para. 59. 12 Case E-6/07, 5.3.2008, HOB vín, at para. 51, with further reference to Case 106/84, 04.3.1986, Commission v Denmark, at para. 12. 13 Case C-302/00, 27.2.2002, Commission v France.

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were almost exclusively made in France. The ECJ first stated that according to settled case law, the concept of similarity had to be interpreted widely.14 Subsequently, the Court went on to discuss the physical likeness of the two types of tobacco. It was observed that the two types of cigarettes were manufactured from different types of the same base product, tobacco, using comparable processes. Furthermore, the Court noted that while the “organoleptic characteristics of dark- and light-tobacco cigarettes, such as their taste and smell, are not identical they are nevertheless similar.”15 Moreover, the Court emphasised that the similarity of dark- and light-tobacco cigarettes is recognised by the Community legislature on the harmonisation of national excise duties on manufactured tobacco, which provides for uniform tax treatment for all cigarettes.16 As regards the functional features of the products, the Court stated that light- 12 and dark- tobacco cigarettes shared similar physical properties and could satisfy the same needs of consumers. Both types were ready-made cylinders of tobacco rolled in sheets of paper intended for tobacco consumption in the typical form of cigarettes. The fact that the average age of consumers of dark-tobacco was clearly higher than the average age of consumers of light-tobacco, could not cast doubt on that finding.17 On two occasions, the EFTA Court has dealt with the question of similarity 13 under the first paragraph of Art. 14. In Einarsson, the Court was specifically requested by the Reykjavík District Court to give an answer to the question whether books written in the Icelandic language were similar to imported books written in other European languages.18 The case concerned the Icelandic VAT rate, which was lower for books written in Icelandic than for books in other languages. Although the Reykjavík District Court had specifically requested an answer on the compatibility of the Icelandic VAT rates with the first paragraph of Art. 14, the EFTA Court evaded the question. Instead, the compatibility of the Icelandic VAT rates was assessed according to the second paragraph. The reasons for not going into further details concerning the similarity of books in Icelandic and books in other languages were not expounded. One possible explanation is that there is no clear answer in ECJ case law to whether or not books in different languages should be classified as similar products. There was, however, no doubt that there existed a competitive relationship between books in Icelandic and books in other languages for the purposes of the second paragraph of Art. 14.19 In a later case, HOB vín, the EFTA Court confirmed, without any further dis- 14 cussion, that imported alcoholic beverages were similar to alcoholic beverages produced in Iceland for the purpose of the first paragraph of Art. 14. In the same 14 15 16 17 18 19

Ibid., at para. 23. Ibid., at para. 24. Ibid., at para. 27. Ibid., at para. 26. See Case E-1/01, 22.2.2002, Einarsson. See further the comments on Art. 14(2) below.

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case, the EFTA Court was further asked by the Icelandic court whether alcoholic and non-alcoholic beverages were similar products. The EFTA Court spelled out, without any need for a comprehensive examination of the potential physical and functional features of the products, that alcoholic and non-alcoholic beverages were “clearly not similar products within the meaning of the first paragraph of Article 14 EEA.”20 2. Direct internal tax discrimination

The first paragraph of Art. 14 prohibits both direct and indirect internal tax discrimination. The distinction between direct and indirect discrimination refers to the design of the national tax measure in question. As the wording denotes, taxes on imports that are higher than those applicable to domestic products and aimed “directly” at imported goods, are often referred to as discriminatory “in law”.21 A directly discriminatory measure targets imports specifically, and the less favourable treatment of imports can be ascribed the text of the measure itself. 16 In ECJ case law, there are several cases that concern directly discriminatory internal tax measures.22 An instructive example is Tulliasiamies and Siilin, which concerned the Finnish tax on imported used cars.23 The Finnish tax on imported used cars was based on a higher value than similar cars that were already on sale on the domestic market. The tax directed at imports did not take into account the actual depreciation of imported cars and was therefore in violation of the first paragraph of Art. 110 TFEU. Other examples are national tax rules that reserve tax exemptions to domestic products only.24 17 National requirements concerning the conditions for paying taxes can also be classified as direct discrimination if they treat domestic products more leniently than imports. In Commission v Ireland, the ECJ struck down Irish rules which granted deferment of payment of excise duties to national producers of spirits, beer and wine, but did not extend the same beneficial terms of payment to importers who introduced similar products from other Member States.25 Although the same Irish excise duties applied to all alcoholic beverages irrespective of origin, there was still a breach of the first paragraph of Art. 110 TFEU since national producers, unlike importers, were granted between 4 and 6 weeks before payment was required. 15

20 Case E-6/07, 5.3.2008, HOB vín, at para. 51, see also below. 21 See Barnard, The Substantive Law of the EU, p. 60. For a comprehensive analysis of direct discrimination in free movement case law, see Davies, Nationality Discrimination in the European Internal Market (The Hague, London, New York 2003) pp. 22-27. 22 For an extensive analysis of different examples of direct discrimination, see Barnard, The Substantive Law of the EU, pp. 58-60. 23 Case C-101/00, 19.9.2002, Tulliasiamies and Siilin. 24 Case C-221/06, 8.11.2007, Stadtgemeinde Frohnleiten. 25 Case 55/79, 27.2.1979, Commission v Ireland.

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As of today, there are no examples from the case law of the EFTA Court con- 18 cerning direct internal tax discrimination for the purposes of Art. 14 EEA. 3. Indirect internal tax discrimination

In addition to directly discriminatory measures, the first paragraph of Art. 14 19 also prohibits indirect internal tax discrimination. Whereas a national tax measure categorised as directly discriminatory explicitly singles out imported goods, a tax rule constituting indirect discrimination does not differentiate between goods based on their origin, but it nonetheless imposes a tax burden on imports not suffered by similar national products.26 A typical example is found in Commission v France, concerning the unequal 20 tax on dark- and light- tobacco cigarettes.27 The two types of cigarettes were regarded as similar products, but the tax on dark-tobacco cigarettes, mainly made in France, was lower than on the imported light-tobacco type. According to the ECJ, it “appear[ed], therefore, that the system of taxation is designed in such a way as to benefit a typical domestic product and handicaps imported cigarettes to the same extent”.28 Even though the French tax rules made no reference to the origin of the cigarettes, the effect of the taxation scheme was a burden on imports. The EFTA Court has so far not found any violations of the prohibition on in- 21 direct discrimination under the first paragraph of Art. 14 EEA. In HOB vín, an Icelandic company that imports alcoholic beverages from other EEA States submitted that the higher charges for unloading alcoholic beverages in certain Icelandic ports violated Art. 14.29 The argument was that all imported alcoholic beverages had to be transported to Iceland by sea, whereas similar domestic products were all transported by road from Icelandic breweries to national sales outlets, restaurants and pubs. According to the importer, the high port charge for alcoholic beverages added a cost element which was lacking for domestic alcoholic beverages. Further, the importer submitted that there was no appreciable difference in the costs related to the ports’ handling of alcoholic beverages compared to the handling of non-alcoholic beverages.30 In addressing this, the EFTA Court stated in para. 46: “Both the first and the second paragraph of Article 14 EEA apply to indirect discrimination of goods imported from other EEA States. Thus, a system of taxation which makes no reference to the origin of the goods may still violate Article 14 EEA if it is designed in such a way as to benefit typically domestic products and to handicap imported products to the same extent, see for comparison Case C-302/00 Commission v France [2002] ECR I-2055, at paragraph 30.”

26 27 28 29

See Barnard, The Substantive Law of the EU, p. 60 and Craig and de Búrca, EU law, p. 649. Case C-302/00, 27.2.2002, Commission v France, see above. Ibid., at para. 30. Case E-6/07, 5.3.2008, HOB vín, see above. The EFTA Court recognised that Art. 14 applied to the port operators in question, regardless of the categorisation of port operators as private bodies or public authorities under Icelandic law, see paras. 28-30. 30 Ibid., at para. 41.

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The EFTA Court did not agree with the appellant that the charge in question had a discriminatory effect. The reason for this was that the charge was levied for loading and unloading alcoholic beverages in the Icelandic ports, offered on equal terms to all in need of that particular service. The EFTA Court also distinguished the Icelandic case from the situation in Haahr Petroleum, which concerned port charges that were higher for imported goods than for domestic goods.31 In contrast, in Iceland the difference in treatment between domestic and imported alcoholic beverages resulted from the fact that imports were transported by sea, and went through ports when unloading, whereas domestic products were transported by road and were not subject to the port charge. The Court added that it was the port operators which set the tariff for unloading alcoholic beverages, whereas they did not set the tariff for competing domestic alcoholic beverages that were transported by road. In this respect, the EFTA Court declared that it could not matter that the charge in question clearly exceeded the cost of the service for which it constitutes payment, as alleged by the appellant.32 23 The factual situation in HOB vín sheds light on the finding that the high charge levied on port services for imported alcoholic beverages did not constitute indirect discrimination. The essential point to draw from the facts of the case is that the ports at issue were in competition with other ports and had not been granted special or exclusive rights by Icelandic authorities.33 Bearing this in mind, the EFTA Court acknowledged that the concept of taxation within the meaning of Art. 14 must be interpreted in a wide sense, and that payment for port services constitutes taxation for the purposes of this provision when the customers have no option but to rely on the service in question.34 However, the EFTA Court stressed that in Haahr Petroleum, in which the ECJ did find indirect discrimination, the tariff was set by the Minister in the exercise of official authority vis-à-vis the ports.35 In HOB vín, the EFTA Court emphasised that “[…] it would seem that the port operator sets the tariff itself based on an authorisation in law which subjects the pricing policy only to conditions of a general nature.”36 In this context, without public regulation of prices, and when port operators offer services in a competitive market, there is no actual risk of discrimination against imported products. 22

31 Ibid., at para. 47 with further reference to Case C-90/94, 17.7.1997, Haahr Petroleum. 32 Ibid., at para. 48. Although the EFTA Court found no violation of Art. 14, it did imply that the pricing policy of the Icelandic ports might constitute abuse of a dominant position on the relevant market and for that reason violate EEA competition law. The Court did not, however, address the pricing policy under Art. 54 EEA. 33 See the submission by the responding port operators, in Case E-6/07, 5.3.2008, HOB vín, at para. 18. 34 Ibid., at para. 35. The EFTA Court left for the national Icelandic courts to establish whether there were alternative ports, see para. 37. 35 Ibid., at para. 32, with further reference to Case C-90/94, 17.7.1997, Haahr Petroleum. 36 Ibid., at para. 32.

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III. The second paragraph – no protectionism through taxation

When products are not similar within the meaning of the first paragraph of 24 Art. 14, the second paragraph steps in and prohibits internal taxation which affords indirect protection to other domestic products. As the EFTA Court stated in Einarsson, in a situation where imports and domestic products are “in competition with each other, even if only partial, indirect or potential”, EEA States are cut off from introducing tax schemes that benefit domestic products.37 For a tax measure to be caught by the second paragraph of Art. 14, two condi- 25 tions must be met. Firstly, there must exist a competitive relationship between imports and domestic products. In certain situations, this is obvious. This was the case in Einarsson, in which the EFTA Court assessed the competitive relationship between books written in Icelandic and books written in other languages.38 In Iceland, VAT on books in Icelandic was lower than on books in foreign languages. In its request for an Advisory Opinion, the Icelandic court asked whether this afforded indirect protection to domestic book publishing. The EFTA Court confirmed that the Icelandic taxation scheme had such a protectionist effect. As regards the competitive relationship between books in Icelandic and imported books, the EFTA Court emphasised that at least for some groups of readers, books in different languages constitute alternatives.39 Moreover, it was stressed that for certain categories of books the textual contents may be a minor element compared with other content matter, such as illustrations, art reproductions, maps and tables.40 In other situations, when the manufacture and composition of the products be- 26 ing compared are less alike than in Einarsson, a broader range of factors is examined when determining the competitive relationship between products. In Commission v Sweden, which concerned taxation of beer and wine, ECJ made an assessment of whether these two types of beverages could be regarded as competing products.41 The ECJ emphasised that the two products were capable of meeting identical needs from a consumer perspective. As was pointed out, there was a “certain measure of mutual substitutability” between beer and wine, which means that consumers would be willing to drink wine instead of beer and vice versa. However, this competitive relationship could only be established between beer and easily accessible and cheap wine that was accessible to the public at large. In other words, a comparison could only be made between beer and the “lightest and least expensive” varieties of wine. According to the ECJ, there was no equivalent competitive relationship between beer and expensive wine.42 37 Case E-1/01, 22.2.2002, Einarsson, at para. 22 with further reference to Case 184/85, 7.5.1987, Commission v Italy, at para. 11. 38 Case E-1/01, 22.2.2002, Einarsson. 39 Ibid., para. 25. 40 Ibid., para. 26. 41 Case C-167/05, 8.4.2008, Commission v Sweden.

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Once having established a competitive relationship, the next question is whether the internal taxation arrangements at issue afford indirect protection to domestic products.43 For the purposes of this assessment, both the intention of the tax scheme as well as its effect will be examined. In Einarsson, the EFTA Court stressed that the higher VAT rate on books in other languages than Icelandic was “intended to have protective effect, and confirms the incompatibility with the second paragraph of Article 14 EEA”.44 The effect of the measure is also key. In Einarsson, a 10.5 per cent difference in VAT rates was “likely to affect the competitive relationship between books in Icelandic and books in other languages” and to afford indirect protection with regard to Icelandic books.45 However, insignificant tax rate differences, which are unlikely to influence consumer behaviour, do not necessarily entail a prohibited protectionist effect. In Commission v Sweden, the ECJ ruled that the slightly higher taxation of wine (6.65%) compared with beer, did not have a protectionist effect.46 Thus, slightly higher taxation of typically imported products, which does not influence consumer behavior and is devoid of any protectionist effect, can be permitted under Art 14 EEA. IV. Objective justifications

Occasionally, the question arises whether preferential tax treatment caught by Art. 14 may be justified. Whereas infringements of Arts. 11 and 12 EEA may be justified by the derogations in Art. 13 EEA or by reference to one or more of the “mandatory” requirements recognised by the ECJ and/or the EFTA Court, there is no express basis in the EEA Agreement for justification of discriminatory tax measures.47 29 In Einarsson, the EFTA Court was asked by the Icelandic court whether the low VAT rates on books in Icelandic could be justified on grounds relating to the public interest in enhancing the position of the national language.48 The Icelandic State, with support from the Norwegian Government, argued that that the preferential treatment of books in Icelandic could be objectively justified. According to the Icelandic State, the purpose of the VAT arrangement was to “sustain and protect the Icelandic language, which forms an essential part of Iceland’s cultural heritage and contributes materially to the formation of the Icelandic identity.”49 The EFTA Court acknowledged that support for the national language was a cultural goal of high priority, but rejected the possibility of objectively justifying the preferential treatment. Furthermore, the EFTA Court 28

42 43 44 45 46 47 48 49

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Ibid., at para. 43. Case E-1/01, 22.2.2002, Einarsson, at para. 28. Ibid., at para. 32. Ibid., at para. 34. Case C-167/05, 8.4.2008, Commission v Sweden, at para. 58. See Petursson’s comments on Art. 13. Case E-1/01, 22.2.2002, Einarsson. Ibid., at para. 40.

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ruled out the suggestion that Art. 13 EEA could be invoked as a possible legal basis for justifying the high tax on books in foreign languages. According to the EFTA Court, it follows from the wording and the purpose of Art. 13 that this provision is applicable only as justification for breaches of Arts. 11 and 12 and could not be invoked as a basis for justification of a breach of Art. 14.50 As Einarsson demonstrates, the strict interpretation of the principle of non- 30 discrimination can have a severe effect on national non-economic policy objectives. It is certainly true, as the EFTA Court pointed out, that the primary objective of the VAT arrangement was to provide a basis for reduced prices on books in Icelandic, thus making them affordable and competitive faced with imported books in other languages.51 Framed in these terms, such deliberate shielding from foreign competition resembles protectionism in its purest form. Nevertheless, by striking down the VAT arrangement, the EFTA Court removes a practical and simple way of protecting the Icelandic language. It might certainly be possible to think of other less trade restrictive ways to accomplish this objective, for instance by providing financial aid to writers or publishers who publish texts in Icelandic. There is, however, no assurance that such an alternative support measure will be as effective as the VAT arrangement that was struck down. Compared with an all-embracing VAT relief, which is easy to implement, the establishment of a state aid regime for books in Icelandic might turn out to be a far more cumbersome task. Nevertheless, the potentially negative impact that Art. 14 can have on national 31 social policy is to a certain extent mitigated in the case law of the ECJ. On several occasions, the ECJ has accepted what some authors refer to as objective justification of national tax arrangements, even when the arrangements in question mostly benefit domestic products.52 What the ECJ does, is that it allows Member States to lay down tax arrangements that differentiate between products on the basis of objective criteria. This differentiation is compatible with EU law if the policy choices of the state are recognised in the Treaties and EU secondary legislation.53 Consequently, when the differentiation between products is based on legitimate policy choices, the ECJ will refrain from labeling the tax arrangement in question as indirect discrimination.54 Among the legitimate policy reasons accepted by the ECJ are the protection of the environment,55 regional development56 and industrial and agricultural policy.57

50 Ibid., at para. 42. Although the EFTA Court does not refer to the case law of the ECJ, the assertion in para. 42 must undeniably be correct. In its case law, the ECJ has rejected attempts by Member States to justify fiscal measures under Art. 36 TFEU, see Case 7/68, 10.12.1968, Commission v Italy. As Weatherill confirms; “[a]rticle 36 is available only in respect of physical and technical barriers to trade caught by Art. 34, and is unavailable in the field of fiscal barriers to trade.”, see Weatherill, Cases and Materials on EU Law (12th ed., Oxford 2016) p. 271. 51 Ibid., at para. 32. 52 See Craig and de Búrca, EU law, pp. 650-651. 53 Case 140/79, 14.1.1981, Chemial Farmaceutici, at para. 14.

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Viewed in light of the ECJ’s willingness to accept various national policy choices as grounds for justification of prima facie cases of indirect discrimination under Art. 110 TFEU, it may well be asked why the EFTA Court did not accept the Icelandic attempt to justify the tax scheme in Einarsson.58 However, in defence of the EFTA Court, the situation in Einarsson was not completely comparable to the cases where the ECJ has accepted objective justification of national tax arrangements. What sets Einarsson apart from the cases decided by the ECJ, is that it is highly unlikely that a significant amount of books in the Icelandic language will ever be written outside of Iceland. In the cases so far decided by the ECJ, foreign producers had the opportunity to adapt to the rules of the importing state and thus being able to access the market on equal terms as the domestic producers. The language barrier in Einarsson made this scenario unrealistic.

Article 15 [Repayment of internal taxes] Where products are exported to the territory of any Contracting Party, any repayment of internal taxation shall not exceed the internal taxation imposed on them whether directly or indirectly. 1

Article 15 mirrors the similarly worded provision now found in Art. 111 TFEU. Just like Art. 14 EEA, Art. 15 is based on the “destination principle”, namely that goods are taxed by the country of importation.1 The destination principle presupposes that goods can move freely across borders without taxes, and then ultimately become subject to the national tax regime in their country of destination. Whereas the purpose of Art. 14 EEA is to prevent discrimination upon arrival in the importing state, the purpose of the Art. 15 is to prevent state subsidies in the form of repayment of internal taxation on domestically produced goods for export, which exceeds the level of internal taxation imposed on 54 Craig and de Búrca argue that tax arrangements classified as “direct” discrimination, in this context more properly referred to as distinctly applicable tax measures, cannot be justified and will always constitute a violation of Art. 110 TFEU, see Craig and de Búrca, EU law, 2015, p. 650. However, in its case law relating to Arts. 34 and 36 TFEU, the ECJ has in recent years shown an increasing willingness to allow distinctly applicable measures to be justified under the “mandatory requirements” doctrine, which in early case law was reserved for the justification of indistinctly applicable trade restrictions. Most recently in Ålands vindkraft, in which the ECJ allowed the issuing of tradable green electricity certificates to Swedish electricity producers only, to be justified justified by overriding requirements relating to protection of the environment, see Case C-573/12, 1.7.2014, Ålands Vindkraft, at paras. 76-82. In a similar vein, with reference to other examples from ECJ case law, see Barnard, The Substantive Law of the EU, p. 61, fn. 138. 55 Case C-132/88, 5.4.1990, Commission v Greece. 56 Case 196/85, 7.4.1987, Commission v France. 57 Case 140/79, 14.1.1981, Chemial Farmaceutici. 58 Case E-1/01, 22.2.2002, Einarsson. 1 See, concerning what is now Arts. 110 and 111 TFEU, the Opinion of AG Jacobs in Case C-213/96, 13.12.1997, Outokumpu, at para. 45.

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imports.2 Repayment to exporters of an amount exceeding the taxation in fact paid, can be equally damaging to the free of movement of goods as discriminatory internal taxation on imports.3 In one of the few cases concerning Art. 111 TFEU, Commission v Italy, the 2 ECJ laid down the parameters for permissible repayments. In this case, the Commission submitted that the repayment of duties paid on licenses, concessions, motor vehicles and advertising of certain engineering products was not authorised by Art. 96 EEC [now Art. 111 TFEU].4 The ECJ agreed, because the duties and charges were not imposed on the products as such, but were costs imposed upon the producer in the varied aspects of its general commercial and financial activity. In this regard, the ECJ stressed that the expression “directly” in Art. 111 TFEU refers to taxation imposed on the finished product itself, whereas the expression “indirectly” refers to taxation imposed during the various stages of production on the raw materials or semi-finished products used in the manufacture of the product.

Article 16 [State monopolies of a commercial character] 1. The Contracting Parties shall ensure that any State monopoly of a commercial character be adjusted so that no discrimination regarding the conditions under which goods are procured and marketed will exist between nationals of EC Member States and EFTA States. 2. The provisions of this Article shall apply to any body through which the competent authorities of the Contracting parties, in law or in fact, either directly or indirectly supervise, determine or appreciably influence imports or exports between Contracting Parties. These provisions shall likewise apply to monopolies delegated by the State to others.

I. Introduction

Art. 16 mirrors what is now Art. 37(1) TFEU. Consequently, ECJ case-law 1 on the interpretation of Art. 37(1) TFEU will inform the interpretation of Art. 16. This follows from the principle of homogeneity1 and was confirmed already in the first case decided by the EFTA Court, the Restamark case.2 The case concerned the Finnish state import monopoly of alcoholic beverages. One of the questions addressed the issue of the application of Art. 16. The EFTA Court stated that this provision is identical in substance to what is now Art. 37(1) TFEU. 2 See Norberg et al., EEA Law, p. 333. 3 See Dashwood et al., Wyatt and Dashwood’s European Union Law (6th ed., Oxford and Oregon, Portland 2011) p. 404. 4 Case 45/64, 1.12.1965, Commission v Italy. 1 See, e.g., the comments by Arnesen and Fredriksen on the fourth recital, mn. 15 and 16 and fifteenth recital mn. 38-41 of the Preamble and the comments by Wennerås on Art. 6 EEA and on Art. 3 SCA, mn. 1-25. See also Joined Cases E-9/07 and E-10/07, 8.7.2008, L’Oreal, paras. 27-29, 31 and 37. 2 Case E-1/94, 16.12.1994, Restamark, paras. 32 and 64.

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“Thus Article 6 EEA and Article 3(2) of the Surveillance and Court Agreement are applicable when interpreting Article 16 EEA.”3 2 In Case E-4/01 Karlsson, the EFTA Court also took over the ECJ’s view of the object and purpose of Art. 16/Art. 37 TFEU: “The purpose of Article 16 EEA is to reconcile the possibility for EEA States to maintain certain monopolies of a commercial nature as instruments for the pursuit of public interest aims with the requirements of the establishment and functioning of the EEA market. It seeks to eliminate obstacles to the free movement of goods, save, however, for restrictions on trade inherent in the existence of the monopolies in question.”4

In order properly to understand the scope of Art. 16, it may be useful at the outset to draw the attention to the case-law of the ECJ and the EFTA Court regarding the relationship between Arts. 11 and 16 (mirroring the relationship between Arts. 34 and 37 TFEU). The issue will be dealt with in more detail in Section VIII. At this stage it suffices to state that a central question is whether the national provisions concern “the exercise by a public monopoly of its specific function”, in which case Art. 37 TEC (now Art. 37(1) TFEU) is applicable, or national provisions which apply ”in a general manner to the production and marketing of alcoholic beverages”, in which case Art. 30 TEC (now Art. 34 TFEU) is applicable.5 4 It is to be noted that the wording in the case law may vary somewhat from “the exercise by a public monopoly of its specific function”6 to ”the exercise, by a domestic commercial monopoly, of its exclusive rights”.7 This difference in wording refers to the same distinction. 5 The importance of the distinction lies in the fact that Art. 11 applies to all trading rules enacted by EEA States which are capable of hindering, directly or indirectly, actually or potentially, intra-EEA trade (the Dassonville formula), whereas Art. 16 only applies to discriminatory measures undertaken by a State monopoly. 6 At the time of the EEA negotiations, the discussions in the Nordic EFTA States Finland, Iceland, Norway and Sweden concerning what was to be Art. 16 were focused on maintaining the existing State monopolies dealing with import and sale of alcoholic beverages. To this end they presented a joint declaration on alcohol monopolies, which was annexed to the Final Act of the Agreement. It states that the Nordic alcohol monopolies “are based on important health and socio-political considerations.”8 A similar joint declaration from the governments of Liechtenstein and Switzerland states that their alcohol monopolies “are 3

3 See Restamark, para. 64. See further the comments in section IV below. 4 Case E-4/01, 30.5.2002, Karlsson, para. 37, paraphrasing the ECJ’s view on Art. 37 TEC in Case C-189/95, 23.10.1997, Franzén, para. 39. 5 Case 120/78, 20.2.1979, “Cassis de Dijon”, para. 7. 6 Case 120/78, 20.2.1979, “Cassis de Dijon”, para. 7 and Case C-170/04, 5.6.2007, Rosengren, para. 22. 7 Case C-189/95, 23.10.1997, Franzén, para. 35 and Case E-4/05, 17.1.2006, HOB-vín, para. 24. 8 Declaration by the governments of Finland, Iceland, Norway and Sweden on alcohol monopolies, annexed to the Final Act of the EEA Agreement.

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based on important agricultural, health and social policy considerations.9 However, as a result of the EU side threatening to come up with a “counter-declaration”, both declarations make clear that they apply “without prejudice to the obligations arising under the Agreement”, thus essentially eliminating their legal significance. Immediately after the entry into force of the EEA Agreement on 1 January 1994, all EFTA States were asked by ESA to provide information on their commercial monopolies. The request especially emphasized the alcohol monopolies. ESA noted that in several EFTA States, legislation provided for exclusive rights to import, export and wholesale trade of alcoholic beverages. In parallel, the alcohol monopolies were challenged before the national courts, which again led to referrals to the EFTA Court. The first one was Case E-1/94 Restamark, in which the EFTA Court held the Finnish import monopoly on alcoholic beverages to violate the free movement of goods under Art. 11 EEA10 and, further, that Art. 16 meant that the Finnish alcohol monopoly had to be adjusted so as to eliminate the exclusive right to import alcoholic beverages covered by the EEA Agreement.11 The interpretation of Art. 16 mirrored the ECJ’s interpretation of Art. 37 of the EC Treaty in Case 59/75 Manghera, in which the ECJ stated that “every national monopoly of a commercial character must be adjusted so as to eliminate the exclusive right to import from other Member States.”12 Export monopolies are assessed in the same manner as import monopolies. This means that none of these monopolies can be adapted to fulfill the requirement of non-discrimination in Art. 16 EEA/Art. 37(1) TFEU. As to wholesale distribution monopolies, the EFTA Court held in Case E-4/01 Karlsson that a wholesale monopoly cannot be regarded as being discriminatory by nature. It will thus be compatible with Art. 16 EEA as long as trade in goods from other EEA States is not put at a disadvantage, in law or in fact, in relation to trade in domestic goods.13 Still, even though it may be legally permissible to maintain a wholesale distribution monopoly even after having abolished the import monopoly, all of the EFTA States choose to abolish the State monopolies on the wholesale distribution of alcoholic beverages as well when the import monopolies were abolished. As to the retail monopolies, the ECJ’s judgment in Case C-189/95 Franzén made clear that they can be maintained as long as alcoholic beverages from other EEA States is not put at a disadvantage, in law or in fact, in relation to trade in domestic goods. This is a possibility that Finland, Iceland, Norway and Sweden all have taken advantage of. As a result, the main role of Art. 16 EEA, at

9 Declaration by the governments of Liechtenstein and Switzerland on alcohol monopolies, annexed to the Final Act of the EEA Agreement. 10 See further on this the comments by Pétursson on Art. 11. 11 Case E-1/94, 16.12.1994, Restamark, para. 71. 12 Case 59/75, 3.2.1976, Manghera, para. 13. 13 Case E-4/01, 30.5.2002, Karlsson, paras. 20-21.

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least if seen from the perspective of the remaining EFTA States, is to regulate the daily functioning of the retail monopolies of Iceland and Norway. II. Systematic appearance in the EEA Agreement 11

Systematically, Art. 16 appears in Part II on the Free movement of goods, more precisely Chapter 1 on Fundamental principles. This is a clear indication that the scope of applicability is limited to trade in goods.14 Service monopolies are not covered. Indirectly, however, there may be an effect on the free movement of goods. This was acknowledged by the ECJ in Case 271/81 Mialocq, which concerned the provision of semen, a product, and insemination, a service. The ECJ pointed to the possibility that a monopoly over the provision of services may have an indirect influence on trade in goods between Member states. Thus, a State monopoly in the field of services may violate Art. 16 if it leads to discrimination against imported products as opposed to products of domestic origin.15 III. Goods covered by Art. 16

The reference in Art. 16(1) to “goods [which are] procured and marketed” is also a clear indication that the provision only applies to monopolies engaged in trade of goods. 13 The ECJ, in Case 6/64 Costa and further in Case C-393/92 Almelo, confirmed that electricity is considered as goods within the scope of Art. 37(1) TFEU.16 Gas is also covered, as demonstrated by Case C-159/94 Commission v France, which concerned State monopolies for import and export for electricity and gas.17 14 Art. 16 applies to goods as defined in Art. 8. As trade in agricultural products is subject to a special regime specified in Art. 8 and Protocol 3, this means that State monopolies engaged in trade in processed agricultural products are at the outset not regulated by Art. 16. However, certain agricultural products are included, as provided for in Art. 8(3)(a).18 This means for example that alcoholic beverages such as beer, vermouth and liquor are covered by the EEA Agreement. 15 Trade with wine produced from grapes is not covered by the EEA Agreement. This is however modified by Protocol 8, which in paragraph 2 explicitly 12

14 By way of a curiosity, it may be noted that the explicit references to “goods” is lacking in the Norwegian language version of Art. 16. 15 See Norberg et al, EEA Law, p. 353 and Case 271/81, 28.6.1983, Mialocq, para. 10. The question was, however, answered in the negative: There were not circumstances sufficient “to support the view that legislation of the kind which in France governs the artificial insemination of cattle indirectly establishes a monopoly hindering the free movement of goods” (para. 11). 16 Case 6/64, 15.7.1964, Costa and Case C-393/92, 27.4.1994, Almelo, para. 28. 17 See Case C-159/94, 23.10.1997, Commission v French Republic. 18 See further Pétursson’s comments on Art. 8, mn. 18-33.

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states that “Article 16 shall also apply to wine (HS Heading 22.04)”. It is to be noted that this modification only applies to the application of Art. 16 EEA. As a result, the Nordic retail monopolies for alcoholic beverages have to adhere to the equal treatment obligation of Art. 16 in their selection and treatment (distribution, display in the outlets etc.) of wines from EEA States. Art. 16 is not applicable to arrangements which only influence import or ex- 16 port of goods to or from third countries.19 Production monopolies will have to be assessed according to the competi- 17 tion rules.20 However, the combined existence of an import monopoly and a production monopoly may also necessitate an assessment of the production monopoly in order to ascertain the legality of the trade monopoly in Art. 37(1) TFEU/Art. 16 EEA. IV. Art. 16 as the basis for enforceable individual rights

In EU law, it has long been recognized that what is now Art. 37(1) TFEU con- 18 fers a right to equal treatment on economic operators and is unconditional and sufficiently precise to be invoked and relied on as such by them before national courts.21 In Case E-1/94 Restamark, the EFTA Court was asked whether this applied to Art. 16 EEA as well. The EFTA Court stressed that the Art. 16, together with the rest of the EEA Agreement, had been implemented into Finnish law, thus evading the, at the time, unresolved and highly sensitive question of an EEA law principle of direct effect.22 The Court then went on to state: “In comparing Article 16 EEA with Article 37(1) EC, it is clear that the two Articles lay down the same precise obligation as to the prohibition of discrimination regarding the conditions under which goods are procured and marketed and that Article 16, like Article 37(1) after the end of the transitional period, does not make this obligation subject to any condition. In view of the homogeneity objective referred to above … and in order to ensure equal treatment of individuals throughout the EEA, Article 16 must also be interpreted as fulfilling the criteria of being unconditional and sufficiently precise.”23

It has later been clarified that the EEA does not entail a similar principle of 19 direct effect.24 As far as Art. 16 is concerned, however, this appears to be of no practical significance. Together with the rest of the EEA Main Agreement, this provision has been made part of both Icelandic and Norwegian law, whereas it enjoys direct effect in Liechtenstein by virtue of Liechtenstein law.25 Further, Art. 16 is clearly both unconditional and sufficiently precise to fulfil the EU law conditions for the direct effect of international obligations in the EU legal or19 See Case 91/78, 13.3.1979, Hansen. 20 This refers to Arts. 53 (1)(b), 54 second paragraph (b) and 59(1) and (2) EEA and Arts. 101(1) (b), 102 second paragraph (b), 106 and 110 TFEU. See also Norberg et al, EEA Law, p. 353. 21 See already Case 59/75, 3.2.1976, Manghera. 22 Case E-1/94, 16.12.1994, Restamark, paras. 75-78. 23 Para. 80. 24 See, e.g., the comments by Dystland, Finstad and Sørebø on Art. 7, mn1-5. 25 See the national reports in part I of this book.

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der.26 Thus, Art. 16 confers a right to equal treatment irrespective of nationality which can be invoked and relied on by economic operators before the national courts of all of the EEA States. V. Limitations on the organization and operation of State monopolies

Art. 16 thus concerns the organization and operation of State monopolies of a commercial character. The State monopolies are thus not to be abolished, but to be adjusted so that their impact on the free movement of goods within the EEA is limited to restrictions which are inherent in the very existence of the monopolies in question. 21 The wording, “[n]o discrimination regarding the conditions under which goods are procured and marketed”, may perhaps suggest that Art. 16 was only meant to deal with the daily operation of otherwise lawful State monopolies, leaving matters concerning their organization (product coverage etc.) to be assessed against the general provisions on the free movement of goods.27 However, the purpose – to reconcile the possibility for Member States to maintain certain monopolies of a commercial character as instruments for the pursuit of public interest aims with the requirements of the establishment and functioning of the common market – supports the view that Art. 16 also limits the organization of the monopolies. In the words of the ECJ in Case C-189/95 Franzén: 20

“(39) The purpose of Article 37 of the Treaty is to reconcile the possibility for Member States to maintain certain monopolies of a commercial character as instruments for the pursuit of public interest aims with the requirements of the establishment and functioning of the common market. It aims at the elimination of obstacles to the free movement of goods, save, however, for restrictions on trade which are inherent in the existence of the monopolies in question. “(40) Thus, Article 37 requires that the organization and operation of the monopoly be arranged so as to exclude any discrimination between nationals of Member States as regards conditions of supply and outlets, so that trade in goods from other Member States is not put at a disadvantage, in law or in fact, in relation to that in domestic goods and that competition between the economies of the Member States is not distorted.”28

Three decisions from the EFTA Court of particular interest are Case E-6/96 Wilhelmsen; Case E-1/97 Gundersen and Case E-9/00 ESA v Norway (Alcopops). 23 In Wilhelmsen, the EFTA Court found the provisions limiting the Norwegian State monopoly’s exclusive right for retail sale of beer to beers containing more than 4.75% alcohol by volume to form “an inherent part of the regulations designing the system” and that they therefore were to be examined under Art. 16. Even if the Court found that the chosen dividing line affected domestic 22

26 Without there being any need in this context to discuss whether the conditions for the direct effect of international obligations in the EU legal order differ somewhat from the conditions for the direct effect of EU law in the national legal orders of the EU Member States. 27 As suggested by ESA and the Commission before the EFTA Court in Case E-6/96, 27.6.1997, Wilhelmsen, para. 99. 28 Case C-189/95, 23.10.1997, Franzén, paras. 39 and 40. The ECJ concluded that the Swedish retail monopoly of alcoholic beverages was not discriminatory.

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and foreign production differently, it held that it lay within the discretion of the Member States to use the alcohol content of a product as a basis for differential treatment as long as the dividing line is not set with a view to protecting domestic production.29 In Gundersen, the EFTA Court upheld the finding in Wilhelmsen, but added 24 that the Norwegian legislation in force at the time instituted discriminatory measures with respect to products containing between 2.5% and 4.75% alcohol by volume, inasmuch as wine and wine products (as well as other products with an alcoholic content) were to be sold only through Vinmonopolet if they contained more than 2.5% alcohol by volume, whereas beer was only brought within the sphere of the retail monopoly if the alcoholic content exceeds 4.75% alcohol by volume.30 In Case E-9/00 ESA v Norway (Alcopops), the EFTA Court confirmed that as 25 the provisions of the Norwegian legislation relating to the retail sale of alcoholic beverages define the scope and product coverage of Vinmonopolet’s exclusive right to sell alcoholic beverages, those provisions are subject to examination under Article 16.31 The case concerned the same two dividing lines that the EFTA Court disallowed in Gundersen, as the Norwegian government attempted to justify the discrimination by the desire to protect young people from the harmful effects of so-called alcopops (beverages that, by their taste, presentation, and name, appear to appeal particularly to young people). The EFTA Court was not convinced and confirmed the assessment made in Gundersen. As to the daily operation of retail monopolies covered by Art. 16, the EFTA 26 Court’s decision in Wilhelmsen is instructive: “The Court notes that a retail monopoly may be maintained if it is adjusted in such a way that it functions as a mere distribution monopoly. To meet those requirements, the monopoly may not in any way influence intra-community trade. Marketing conditions must not just be uniform but also nondiscriminatory. Vinmonopolet, which enjoys exclusive rights for marketing at the retail sale level, must stay in a commercially neutral position regarding the goods it is marketing. Producers and exporters from the other Member States must be guaranteed equal access to the market.”32

To the extent that it is a part of the organization and operation of the 27 monopoly, the levying of taxes or “cash adjustments” may constitute discrimination in violation of Art. 37(1) TFEU and Art. 16 EEA. This was the case in Miritz.33 Here, the ECJ stated that what is now Art. 37(1) TFEU prevents a Member State from levying a charge imposed only on products imported from another Member State for the purpose of compensating for the difference between the selling price of the product, in the country from which it comes, and the higher price paid by the State monopoly to national producers of the same product. 29 30 31 32 33

Case E-6/96, 27.6.1997, Wilhelmsen, para. 87 read together with para. 102. Case E-1/97, 3.12.1997, Gundersen, paras. 29 and 31. Case E-9/00, 15.3.2002, ESA v Norway (alcopops), para. 35. Para. 105. Case 91/75, 17.2.1976, Miritz, paras. 4, 5, 8 and 12.

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VI. The notion of discrimination – dependent on competitive relationship 28

In cases where a State monopoly covered by Art. 16 treats different products differently, a detailed assessment may be required in order to decide whether the products are comparable and thus entitled to equal treatment. An instructive decision from the EFTA Court is Case E-9/00, ESA v Norway (alcopops): “The defendant argues that there is little or no competitive relationship between beer and the alcoholic beverages in dispute in the present case. The Court notes that these beverages are to some extent bought and consumed for the same purpose. At least for some groups of consumers, beer, and wine and spirit based alcoholic beverages, may meet the same needs. Furthermore, one cannot conclude from an alleged increase in alcohol consumption that beer and other beverages with the same alcohol content are not in a competitive relationship. It must therefore be concluded that mediumstrength beer and other beverages with the same alcohol content are, at least partially and potentially, in a competitive relationship.”34

VII. Structural requirements for a lawful selection system

The ECJ’s judgment in Hanner sets out in some detail the relevant elements to be taken into consideration when assessing whether or not a State monopoly complies with Art. 37(1) TFEU/Art. 16 EEA. The case concerned retail sale of medicinal preparations, which according to Swedish law was reserved to Apoteket AB, a company controlled and managed by the Swedish state. The ECJ held that Art. 31(1) TEC (now Art. 37(1) TFEU) precluded a sales regime as that of Apoteket.35 According to the ECJ, a lawful selection system must be based on criteria independent from the origin of the products and that it must be transparent by providing both for an obligation for the state to justify their decisions and for an independent monitoring procedure. The retail network must be organized in such a way that the number of sales outlets is not limited to the point of compromising the consumers’ procurement of supplies. As for the marketing and advertising measures, they must be impartial and independent from the origin of the products, and must endeavor to make new products known to the consumers.36 30 Apoteket failed the test. The ECJ pointed i.a. to the fact that there was no purchasing plan or a system of calls for tenders, within which producers, whose products were not selected, were informed of the reasons for the State’s decision. On the contrary, Apoteket was in principle entirely free to select a product range of its own choice. 31 The Hanner judgment can serve as a guide to other distribution systems practiced by a State monopoly. Particularly important to the Nordic EFTA States Iceland and Norway is the daily operating of the retail monopolies for alcoholic beverages. In Norway, the government has enacted detailed rules on the purchasing procedures and product ranges of the State alcohol monopoly (Vin29

34 Case E-9/00, 15.3.2002, ESA v Norway (alcopops), para. 39. 35 Case C-438/02, 31.5.2005, Hanner, paras. 37-44. 36 See as an example of the need for transparency, Case E-19/11, 30.11.2012, Vin Tríó, paras 52-53.

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monopolet).37 An independent complaint board to hear complaints against decisions by the monopoly has also been set up.38 The board is vested with power to annul any decisions by the monopoly which is found to violate the purchasing regulation, thus i.a. ensuring that the legal obligations flowing from Art. 16 EEA are complied with.39 VIII. The relationship between Arts. 11 and 16

As for the relationship between Arts. 34 and 37 TFEU, and thus Arts. 11 32 and 16 EEA, ECJ case-law has established a distinction between rules that are applicable to the existence and operation of the monopoly as such, and other provisions of domestic legislation which only have a bearing on the monopoly. In Cassis de Dijon, the ECJ stated that: “It should be noted in this connection that Article 37 relates specifically to State monopolies of a commercial character. That provision is therefore irrelevant with regard to national provisions which do not concern the exercise by a public monopoly of its specific function — namely, its exclusive right — but apply in a general manner to the production and marketing of alcoholic beverages, whether or not the latter are covered by the monopoly in question. That being the case, the effect on intra-Community trade of the measure referred to by the national court must be examined solely in relation to the requirements under Article 30, as referred to by the first question.”40

Thus, the question is whether the national provisions concern “the exercise by 33 a public monopoly of its specific function”, in which case Art. 37 TEC (now Art. 37(1) TFEU) is applicable, or national provisions which apply “in a general manner to the production and marketing of alcoholic beverages”, in which case Art. 30 TEC (now Art. 34 TFEU) is applicable. In Case E-4/05 HOB-Vin, the EFTA Court, referring i.a. to the ECJ’s judg- 34 ment in Franzén, further refined the distinction. The EFTA Court started out by reiterating that according to the case law of the ECJ, Arts. 28 and 31 TEC (now Arts. 34 and 37(1) TFEU), the provisions on which Arts. 11 and 16 were modelled, are to be understood as exclusively rather than cumulatively applicable. Following this approach, each provision covers different aspects of State monopolies with a commercial character. The EFTA Court went on to state: “Whereas Article 31 EC applies to rules relating to the existence and operation of the monopoly and, more specifically, to the exercise by a domestic commercial monopoly of its exclusive rights, the effect on intra-Community trade of the other provisions of domestic legislation, which are separable from the operation of the monopoly although they have a bearing upon it, fall to be examined under Article 28 EC.”41

37 Regulation No. 938 of 30 November 1995 on the procurement activity of Vinmonopolet. 38 Regulation No. 24 of 16 January 1996 on a board to hear complaints against purchasing decisions by Vinmonopolet. 39 The complaint board is actually set up in a way that seems to satisfy the requirement of a “tribunal” under Art. 34 SCA, thus enabling it to refer questions to the EFTA Court: The board’s four members are appointed for four year-terms and the legal framework requires at least two of them to fulfil the statutory requirements for judicial appointments. – There are approximately 10 complaints a year, of which 10% are successful, according to a response by e-mail from Lars Sogn, Director of Legal Department of AS Vinmonopolet, dated 19.12.2016. 40 Case 120/78, 20.2.1979, “Cassis de Dijon”, para. 7.

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Here the key term is “separable from the operation of the monopoly”. In HOB-Vin, one of the issues concerned two requirements imposed by the State monopoly on its contractual partners, namely to make it mandatory that merchandise was delivered to the warehouse on EUR pallets, and that the price of these pallets was included in the product price. Applying the test cited above, the EFTA Court stated that: “… as to the dividing line in the case at hand, the crucial factor must be that the statutory requirements allowing for standardized product handling and storage only apply to A’TVR [The Icelandic Monopoly] and not to other undertakings that are operating warehouses. Since they exclusively regulate A’TVR’s contractual relationships, the requirements at issue are to be considered inseparable from the operation of the monopoly.”

As the requirements at issue were considered inseparable from the operation of the monopoly, the question was to be dealt with under Art. 16.42 37 In Case C-170/04 Rosengren, the ECJ held that a Swedish regulation under which private individuals were prohibited from importing alcoholic beverages did not, as such, govern the State monopoly’s exercise of its exclusive right of retail sale of alcoholic beverages.43 It thus fell to be assessed in the light of what is now Art. 34 TFEU and not in the light of Article 37(1) TFEU. 38 Consequently, Art. 16 is applicable to the existence and operation of the monopoly, whereas the effect on intra-EEA trade of the other provisions, even though they have a bearing upon the State monopoly, is to be examined under Art. 11. This may require a thorough analysis, as demonstrated by HOB-Vin. 36

IX. Public interest considerations 39

In Case C-189/95 Franzén, the ECJ pointed to “monopolies of a commercial character as instruments for the pursuit of public interest aims.”44 This indicates a general requirement that all State monopolies of a commercial character have to be based on public interest considerations in order to be in compliance with Art. 37(1) TFEU (and thus Art. 16 EEA).45 There are good reasons to assume that the answer is in the affirmative, taking into consideration the overriding interests of the free movement of goods and the avoidance of discrimination between domestic and imported products. The mere existence of a State monopoly may represent a restriction on the free movement of goods.46 How41 Case E-4/05, 17.1.2006, HOB-Vin, para. 24, in which the Court also referred to Cases E-1/97 Gundersen and E-4/01 Karlsson as examples of how to draw the line when defining the relationship between Arts. 11 and 16. It may be noted that the EFTA Court initially saw this differently, see Case E-6/96, 27.6.1997, Wilhelmsen, paras. 99-102 (parallel application of Art. 11 and 16). 42 See Case E-4/05, 17.1.2006, HOB-vín, paras. 25-26 and 38. See also Case C-456/10, 26.4.2012, ANETT, paras. 24-27. 43 Case C-170/04, 5.6.2007, Rosengren, paras. 20 ff. 44 Case C-189/95, 23.10.1997, Franzén, para. 39. 45 See Case C-438/02, para. 35, Case E-4/01, Karlsson, para. 17 and Case E-19/11, Vin Tríó, paras. 51-54 for further examples. 46 See e.g. Case C-157/94, 23.10.1997, Commission v the Netherlands, paras. 21-23.

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ever, ECJ case-law has not completely clarified the issue, neither regarding the requirement of a public interest base, nor which public interests that can be included. As to Art. 13 EEA, which provide for derogations based on grounds of public 40 morality, public policy or public security etc., it appears not to be applicable to Art. 16: Art. 13 only and explicitly refers to Arts. 11 and 12 EEA.47 As far as the daily operation of a State monopoly covered by Art. 16 is concerned, this may be explained by the simple fact that it is hard to see any need for such derogations. This may be different, however, when it comes to the organization (product coverage etc.) of the monopoly. The EFTA Court was confronted with this question in Case E-9/00, ESA v Norway (alcopops), but left it open: “It is not necessary to consider whether there is a sufficient basis in the EEA Agreement for establishing the possibility of justifying national measures contrary to Article 16 EEA on grounds of public health. Justification would in any case not be possible if the national measure do not meet the conditions of being necessary to protect the objective pursued and proportionate to that objective. The defendant has not been able to prove that the contested rules on the retail sale of alcoholic beverages fulfil those conditions.”48

For State monopolies that are examined both under Arts. 16 and 59, public, 41 or general economic interest considerations may be applied. This is perhaps best demonstrated in the Dutch and Italian cases concerning State monopolies in the electricity sector, and the case against France, with monopolies both in the gas and electricity sector. In the Netherlands, a body, the SEP, was designated by Dutch authorities as a 42 national import monopoly for electricity intended for public distribution. The ECJ firstly examined the application of what was then Art. 37 TEC. It found a clear discrimination of exporters that were established in other Member States and that Dutch authorities were in a position to control, direct or appreciably influence trade between Member States through a body established for that purpose. Free movement was impeded by the very existence of the exclusive import rights.49 However, the Netherlands claimed that the State monopoly was justified un- 43 der Art. 90(2) TEC (now Art. 106 TFEU). As to the relationship between Arts. 37 and 90(2) TEC, the ECJ stated that: “Having regard to the scope just attributed to paragraphs 1 and 2 of Article 90, and to their combined effect, paragraph 2 may be relied upon to justify the grant by a member State, to an undertak-

47 See Case E-9/00, 15.3.2002, ESA v Norway, para. 45: Art. 13 EEA provides “no direct basis for derogations from Article 16 EEA”. 48 Case E-9/00, 15.3.2002, ESA v Norway (alcopops), para. 46. 49 Case C-157/94, 23.10.1997, Commission v the Netherlands, paras. 17-23. The Dutch Government had contended that only the discriminatory exercise of exclusive rights, not merely the holding of them, was prohibited by Article 37 EC (para. 21). This was rejected by the ECJ, which stated that:” Such free movement is impeded by the very existence of exclusive import rights in a Member State since economic operators in other Member States are thereby deprived of the possibility of offering their products to customers of their choice in the Member State concerned” (para. 23).

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PART II: The Agreement on the European Economic Area ing entrusted with the operation of services of general economic interest, of exclusive rights which are contrary to, in particular, Article 37 of the Treaty, to the extent to which performance of the particular tasks assigned to it can be achieved only through the grant of such rights and provided that the development of trade is not affected to such extent as would be contrary to the interests of the Community.”50

Thus, the ECJ confirmed as a matter of principle the application of what is now Art. 106 TFEU to State monopolies covered by Art. 37 TFEU. The Commission did not deny that the SEP was to be regarded as an undertaking entrusted with the operation of services of general economic interest, but argued that the Dutch Government had not lifted its burden of proof, and that in particular the application of the Treaty rules would directly or indirectly obstruct the performance of SEP’s particular tasks.51 45 As what was then Art. 90(2) TEC being a provision permitting derogation from the Treaty rules, the ECJ noted that the provision had to be interpreted strictly.52 Citing Almelo,53 the ECJ pointed to the fact that it had already accepted that a regional undertaking being entrusted with the uninterrupted supply of electricity throughout the territory, on further specified conditions, was a task of general economic interest. 46 Given the fact that Art. 16 only address the aspect of hindering discrimination between domestic and imported products, the additional application of Art. 59 is logical. 44

X. The organization of the state monopoly 47

Art. 16 (2) makes clear that the obligations flowing from the first paragraph shall apply to “any body through which the competent authorities of the Contracting parties, in law or in fact, either directly or indirectly supervise, determine or appreciably influence imports or exports between Contracting Parties”. In other words, even though it is up to the national authorities to decide how a State monopoly with a commercial character is to be organized, the requirements of EEA law will apply regardless. Similarly, Art. 16(2) second sentence makes clear that Art. 16 applies also to “monopolies delegated by the State to others”.

50 Case C-157/94, 23.10.1997, Commission v the Netherlands, para. 32. In para. 45, the SEPs task was described to ensure, together with the electricity generating undertakings, “the proper functioning of the public national electricity supply system at costs which are as low as possible and in a socially responsible manner». Detailed information on the functioning of the system and the negative consequences of a prohibition was presented by the Netherlands and not sufficiently rebutted by the Commission. The ECJ concluded by dismissing the Commission’s application. There were similar issues and similar conclusions in Case C-158/94, 23.10.1997, Commission v Italy, and Case C-159/94, 23.10.1997, Commission v France. 51 C-157/94, 23.10.1997, Commission v the Netherlands, para. 34. 52 C-157/94, 23.10.1997, Commission v the Netherlands, para. 37. 53 Case C-157/94, 23.10.1997, Commission v the Netherlands, para. 41 and Case C-393/92, 27.4.1994, Almelo, para. 48.

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Chapter 2: Agricultural and fishery products

Article 17 [Veterinary and phytosanitary measures] Annex I contains specific provisions and arrangements concerning veterinary and phytosanitary matters.

By Decision 69/98 of the EEA Joint Committee, the original Annex I was replaced to the effect that the entire body of EU legal acts pertaining to veterinary and food safety matters was included in the agreement.1 This made import of fish and agricultural products from the EFTA States into the EU subject to basically the same regime as import of such products from one EU Member State to another. Annex I is the largest of the annexes, and accounts for approximately 40 % of the legal acts referred to in the EEA Agreement.2 It contains three chapters, on Veterinary Issues, Feeding stuffs and Phytosanitary Matters respectively. The chapter on veterinary issues refers to EU legal acts pertaining to fish health, animal health, animal welfare, public health, imports from third countries and control measures. The chapter on feeding stuffs refer to EU legal acts pertaining to additives, marketing, as well as to general food law. The chapter on phytosanitary issues refer to EU legal acts pertaining to plants and seeds. There are made substantial sectoral adaptations, i.a. to the effect that the Annex is not applicable to Liechtenstein. The reason for this is that the issues addressed in this Annex are also addressed in a bilateral agreement between EU and Switzerland, and Swiss authorities monitor Liechtenstein under this agreement. It is also worth mentioning that the provisions concerning live animals (other than fish and aquaculture animals), and animal products such as ova, embryo and semen are not applicable to Iceland.3 In addition, there are frequent adaptations connected to the legal acts referred to. An important element in the regulation of veterinary issues is spot-checks, inspections and dispute settlement procedures. With regard to the EFTA States, this is the responsibility of ESA,4 mirroring the responsibility of the Commission with regard to the EU Member States.

1 2 3 4

As to the contents of the original Annex I, see Norberg et al., EEA Law, pp. 358-365. NOU 2012:2, Utenfor og innenfor, p. 650. See Case E-17/15, 1.2.2016, Ferskar kjötvörur, paras. 44 to 47 for a closer description. The ESA homepage on the internet, www.eftasurv.int, is informative.

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3 4 5

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A large number of the legal acts referred to are regulations of a very detailed and technical character. According to Art. 7 EEA, regulations are to be made part of the internal legal order of the Contracting Parties ‘as such’.5 Infringements of the transposed regulations are often penalized under national law, and the Annex is amended frequently. Thus, the challenges caused by translating the regulations into the Icelandic and Norwegian languages within the time limit prescribed by the decision in the EEA Joint Committee become imminent.6 8 Proposed amendments to Annex I have on two occasions caused debate and subsequent voting in the Norwegian Parliament as to whether Norway should agree to them. The first occasion concerned directives on food additives,7 whereas the second was about directives concerning cereal foods and baby foods.8 On both occasions did the Norwegian Parliament in the end vote in favour of the proposed amendment. 9 Even though the EEA Agreement does not reflect the EU’s common agricultural policy and fisheries policy, and in spite of the limitations that follow from Art. 8(3) EEA, it does by way of Annex I regulate a number of issues relating to food and feed safety, animal welfare and trade in live animals, plants, as well as in agricultural and fish products. 7

Article 18 [Technical barriers to trade in agricultural products] Without prejudice to the specific arrangements governing trade in agricultural products, the Contracting Parties shall ensure that the arrangements provided for in Articles 17 and 23 (a) and (b), as they apply to products other than those covered by Article 8(3), are not compromised by other technical barriers to trade. Article 13 shall apply. 1

The arrangements provided for by Arts. 17 and 23 (a) and (b) EEA liberalize trade in the goods covered by those provisions. The aim of Art. 18 is to make sure that trade in these goods is not obstructed by other technical barriers to trade. In Case E-4/04 Pedicel it was submitted that the term ‘other technical barriers to trade’ should be construed to cover the same measures as those covered by the term ‘measures having equivalent effect’ to quantitative restrictions on imports in Art. 11 EEA. The EFTA Court did however not agree, and held that the prohibition of other technical barriers to trade contained in Art. 18 requires the Contracting Parties not to impose further requirements of the same kind as those foreseen under EU legal acts referred to via Arts. 17 and 23 (a) and (b) EEA.1 5 See the comments by Dystland, Finstad and Sørebø on Art. 7 EEA, mn. 11 ff. 6 See further the comments on Art. 129 EEA, mn. 9. 7 Dir. 94/35 on sweeteners for use in foodstuffs, Dir 95/36 on colors for use in foodstuffs and Dir. 95/2 on food additives other than colors and sweeteners. 8 Dir 96/5 on processed cereal-based foods and baby foods for infants and young children, as amended by Dir. 96/5 and Dir. 99/39. 1 Case E-4/04, 25.2.2005, Pedicel, para. 27.

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Article 19 Liberalization of trade in agricultural products

Case E-17/15 Ferskar kjötvörur concerned an Icelandic authorisation regime 2 for the import of raw meat. The EFTA Court found that the regime was not compatible with legal acts referred to in the Annex, and held that the protection of the health and life of humans and animals could not be invoked where these considerations are guaranteed by legal acts included in the Annex.2 This is in line with consistent case law from the EFTA Court as well as the ECJ; written and unwritten exceptions to the prohibitions against hindrances to free movement are only applicable in the absence of relevant harmonisation measures.3

Article 19 [Liberalization of trade in agricultural products] 1. The Contracting Parties shall examine any difficulties that might arise in their trade in agricultural products and shall endeavour to seek appropriate solutions. 2. The Contracting Parties undertake to continue their efforts with a view to achieving progressive liberalization of agricultural trade. 3. To this end, the Contracting Parties will carry out, before the end of 1993 and subsequently at two-yearly intervals, reviews of the conditions of trade in agricultural products. 4. In the light of the results of these reviews, within the framework of their respective agricultural policies and taking into account the results of the Uruguay Round, the Contracting Parties will decide, within the framework of this Agreement, on a preferential, bilateral or multilateral, reciprocal and mutually beneficial basis, on further reductions of any type of barriers to trade in the agricultural sector, including those resulting from State monopolies of a commercial character in the agricultural field.

A striking feature with Art. 19 is the absence of strong wording, both with 1 regard to what the Contracting Parties have committed themselves to, and with regard to the instruments to be employed in the implementation of their achievements, if any. Art. 19 EEA may best be characterized as an evolutionary clause, and the provision reflects that trade in agricultural products, both from the point of view of the EFTA States and from that of the EU, may raise a number of sensitive issues.1 It should therefore come as no big surprise that it took more than a 2 Case E-17/15, 1.2.2016, Ferskar kjötvörur, para. 77. As a follow up on this advisory opinion, ESA has initiated infringement procedures against Iceland, see Case E-2/17 ESA v Iceland, pending. 3 The judgment has been criticised by Stefán Már Stefánsson, ‘Bemærkninger til EFTA-domstolens dom i sag nr. E-17/15, Ferska kjötvörur ehf. mod den islandske stat’, Lov og Rett (2016), p. 640, claiming that the EFTA Court erred in finding that Art. 13 EEA could not be relied upon. His critique is based on the absence in the EEA Agreement of a provision mirroring Art. 114(4) and (5) TFEU, as he takes this to imply that Art. 13 EEA, within the field covered by Annex I, can be relied upon in situations where the EU Member States can rely on Art. 114 (4) or (5) TFEU. However, the basis for Stefánsson’s criticism rests, it is respectfully submitted, on a misconception. First, Art. 114 (4) and (5) TFEU cannot be invoked in situations similar to the one in Ferskar kjötvörur. Second, Art. 97 EEA can be understood to be the EEA solution to the situations envisaged in Art. 114 (4) and (5) TFEU. See also Bull’s comments on Art. 21 EEA, mn. 14. 1 See Norberg et al ‘EEA Law’, p. 365.

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decade from the signing of the EEA Agreement until the first agreement under Art. 19 EEA between the EU and Norway entered into force, in 2003. The second agreement entered into force in 2012, and a third agreement is pending parliamentary consent, both by the Norwegian Parliament, and by the European Parliament.2 That Agreement is foreseen to enter into force in 2019.3 2 Agreements under Art. 19 between Iceland and EU have proved easier to conclude. The latest agreement provides that almost 90 % of EU agricultural products will enter Iceland duty-free. For products where Iceland has defensive interests, i.e. products that are produced also on Iceland, such as meat, dairy fruit and vegetables, the parties has agreed upon additional tariff quotas and tariff reductions.4 3 In 2013, Norway switched to ad valorem duties for a number of agricultural products, causing both an increase in the duties levied on those goods, but also general disdain from EU institutions.5 That incident demonstrated that albeit the agreements concluded according to Art. 19 EEA are justiciable, Art. 19 EEA as such is not.

Article 20 [Fish and marine products] Provisions and arrangements that apply to fish and other marine products are set out in Protocol 9.

I. Overview

Fish and other marine products are outside the general scope of the EEA Agreement as defined by Art 8(3) EEA. The wording of Art. 20 may give the impression that Protocol 9 is the only part of the EEA Agreement that contains provisions and arrangements that apply to fish and other marine products. This would be a misconception, as also Annex I addresses veterinary and public health related issues connected to fisheries, fish farming and handling of fish, and Protocol 4 provides the rules of origin that apply.1 2 Depending on the interpretation of the rulings of the EFTA Court in cases E-4/07 Pedicel and E-1/16 Synnøve Finden, where the Court held that ‘any measure that is inseparable to the trade in products that fall outside the scope of the EEA Agreement, falls in itself outside that scope’,2 also other provisions of the 1

2 See Prop 115 S (2016-2017). 3 Prop 115 S (2016-2017) p. 1. 4 See COM (2016) 564 Final, Proposal for a Council Decision on the signing, on behalf of the European Union, of an agreement in the form of an exchange of letters between the European Union and Iceland concerning additional trade preferences in agricultural products. 5 See 1607/1/12, Conclusions of the 38th meeting of the EEA Council Brussels, 26 November 2012, point 23. 1 See also Norberg et al., EEA Law, pp. 365-368, and Almestad, ‘Natural resources’, in Baudenbacher (ed), Handbook of EEA Law, on pp. 770 et seq. 2 Case E-1/16, 15.12.2016 Synnøve Finden, para. 59.

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EEA Agreement than those found in Protocol 9 apply to fish and other marine products.3 Trade in fish and other marine products proved to be one of the most difficult 3 issues in the EEA negotiations,4 partly because EFTA States like Iceland and Norway had offensive interests within this field, while the EUs interests were more defensive, while the situation was the opposite within the agricultural field. Thus, concessions given within both fields are best explained by this asymmetry of interests. Protocol 9 is essentially a separate free trade agreement on certain goods 4 falling outside the scope of the EEA Agreement. Thus, Protocol 9 requires the EFTA States to abolish, on certain listed products, customs duties on imports and charges having equivalent effect upon the entry into force of the EEA Agreement. The EU is required to do the same on certain products, and to reduce customs duties and charges having equivalent effect on others. Furthermore, the EFTA States may not apply quantitative restrictions on imports or measures having equivalent effect on certain listed products, and the EU has a similar obligation regarding other listed products. This is the free movement element of the Protocol. The second element in Protocol 9 is provisions pertaining to state aid and competition. We will come back to these two elements below. A third element relates to access to ports and first-stage marketing installations.5 The provisions of Protocol 9 yield to the provisions of the EFTA States’ 5 agreements concerning agriculture and fisheries signed in the early 1970ies, to the extent these grant the EFTA States concerned more favourable trade regimes.6 II. Free movement

The term ’customs duties and charges having equivalent effect’ echoes 6 Art. 10 EEA. Apart from the fact that no explicit reference is gives, there is little in Protocol 9 that advocates the term being given a different interpretation from the one applied in relation to Art. 10 EEA. Thus, reference is made to the comments on Art. 10 EEA. An important difference between the two provisions is however that where Art. 10 prohibits customs duties and charges having 3 Thus, it is open to discussion whether national measures that affect employment, establishment, services and investments inseparably linked to fisheries or fish farming is subject to the provisions of the EEA Agreement. The answer to this depends to a large extent on the term ‘inseparably linked’, and this term is open to more than one interpretation. For a closer analysis, see Arnesen, ‘Homogeneity and Disparity’ in Lorenzmeier/Folz (eds), Recht und Realität, Festschrift für Christoph Vedder, p. 255 ff. See also Almestad, ‘Natural resources’, in Baudenbacher (ed), Handbook of EEA Law, p. 771. 4 Norberg et al., EEA Law, p. 365. 5 Art. 5 of Protocol 9. This provision illustrates that the Protocol is not about fisheries policy, as a Contracting party may refuse landings from a fish stock of common interest ‘over the management of which there is serious disagreement’. 6 Art. 7 of Protocol 9. In Case E-2/03, 12.12.2003, Ásgeirsson, the EFTA Court held that the term ‘trade regime’ did not encompass the EEA rules of origin.

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7

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10

equivalent effect on both imports and exports, Protocol 9 only prohibits such charges on imports. Thus, the Contracting Parties seem free to levy charges on exports.7 The term ‘quantitative restrictions on imports’ and ‘measures having equivalent effect’ echoes Art. 11 EEA. Apart from the lack of an explicit reference to Art. 11 EEA, there is nothing in the wording of Protocol 9 that supports an interpretation of the terms which differs from the ones applied in relation to Art. 11 EEA. Still, Norway is of the opinion that the system established in Protocol 9 calls for a different and less far-reaching interpretation of the terms in the context of Protocol 9.8 As with customs duties, there are no prohibition against quantitative restrictions and measures having equivalent effect on exports. It is only fish and marine products that have origin in the Contracting Parties that are accorded free movement. The rules of origin applicable to fish and marine products are found in Protocol 4 to the EEA Agreement. For a long time, the obligations under Protocol 9 have been handled like obligations under any ordinary free trade agreement.9 However, according to Art. 109 EEA, ESA shall monitor the EFTA States’ fulfilment of their obligations under the EEA Agreement, of which Protocol 9, according to Art. 19 EEA, is an integral part. ESA have now raised the matter in a case concerning Norwegian levies imposed on fish exporters.10 Norway has replied that a combined reading of the provisions in Protocol 9 and Protocol 46 implies that Protocol 9 is not subject to the surveillance regime applicable to the rules on free movement in the main part of the EEA Agreement.11 Some support for that view may arguably be found in Case E-1/16 Synnøve Finden, where the EFTA Court here held that ‘for any EEA rule to apply to [products not covered by Art. 8(3) EEA], a specific legal basis in EEA law is required’.12 The question thus is where such specific legal basis is to be found. The dispute is wriggling its way to the EFTA Court. III. Competition and State Aid

11

Art. 4 of Protocol 9 provides that ‘aid granted through State resources to the fisheries sector which distorts competition shall be abolished’ and that ‘legisla-

7 This view is contended in a complaint regarding Norwegian levies imposed on fish exporters. ESA has followed up the complaint be sending Norway a pre-31 letter, but without picking up on this aspect of the complaint. The documents are filed under Case no 79122 on eftasurv.int. 8 Letter of 21.12.2016 Observations regarding the complaint against Norway concerning levies on fish exporters and exported fish products. Filed under Case no 79122 on eftasurv.int. 9 Bull, Norsk rettsdata, comments to Art. 20 EEA. 10 Case no 79122 (pending). 11 For a closer of the arguments put forward, see the documents filed under Case 79122 on eftasurv.int. 12 Case E-1/16, 15.12.2016 Synnøve Finden, para 57.

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tion relating to the market organisation in the fisheries sector shall be adjusted so as not to distort competition’. The notion ‘aid granted through State resources’ echoes Art. 61 EEA, and there is therefore reason to assume that the interpretation of the term will be informed by case law relating to Art. 61 EEA and Art. 107 TFEU. This assumption is supported by the Joint declaration on the agreed interpretation of Art. 4(1) and (2), annexed as joint declaration no 23 to the Final Act of the EEA Agreement. However, in contrast to Art. 61 EEA and Art. 107 TFEU, Protocol 9 has no derogation clauses. This mitigates vigilance in applying case law pertaining to the notion of state aid in Art. 61 EEA when construing Protocol 9. Consideration must be taken to all aspects of the acquis on state aid. The likeliness of this issue being put before the EFTA Court is scarce as ESA has consistently held that it does not have the competence to assess state aid to the fisheries sector as neither Art. 1 Protocol 26 EEA nor Art. 24 SCA on the surveillance powers of ESA within the field of State Aid refers to Protocol 9.13 ESA’s view is however challenged in Case E-12/16 Marine Harvest v ESA, pending. The obligation of the Contracting Parties to adjust their legislation pertaining to the market organisation so as not to distort competition, is, again according to the joint declaration, ‘to be assessed in relation to the principles of the acquis communautaire concerning the common organization of the market’. The principles referred to are those flowing from Arts. 38 TFEU et seq., and in particular EU legal acts adopted pursuant to Arts 42 and 43 TFEU. Art. 4(3) indicates quite strongly that it is not for ESA to monitor the EFTA States’ fulfilment of their obligations under Art. 4 of Protocol 9, as the ‘Contracting Parties shall endeavour to ensure conditions of competition which will enable the other Contracting Parties to refrain from the application of antidumping measures and countervailing duties’.

Chapter 3: Cooperation in customs-related matters and trade facilitation

Article 21 [Border controls and cooperation in customs‑related matters] 1. In order to facilitate trade between them, the Contracting Parties shall simplify border controls and formalities. Arrangements for this purpose are set out in Protocol 10.

13 See Case E-02/94, 21.3.1995, Scottish Salmon Growers, and lately letter of 27.7.2016 informing the complainant about the closure of the case.

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PART II: The Agreement on the European Economic Area 2. The Contracting Parties shall assist each other in customs matters in order to ensure that customs legislation is correctly applied. Arrangements for this purpose are set out in Protocol 11. 3. The Contracting Parties shall strengthen and broaden cooperation with the aim of simplifying the procedures for trade in goods, in particular in the context of Community programmes, projects and actions aimed at trade facilitation, in accordance with the rules set out in Part VI. 4. Notwithstanding Article 8(3), this Article shall apply to all products.

I. Legal Context 1

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Unlike certain other association agreements between the EU and third States,1 the EEA Agreement does not establish a customs union or a general commitment for EFTA States to align their commercial policy towards non-EEA States with the EU’s external trade policy.2 Only goods originating within the EEA benefit from the EEA rules on free movement, see Art. 8(2). Nor does the EEA Agreement ban the collection at the border of VAT and other internal taxes, duties and charges on goods imported from other Contracting Parties. Consequently, and unlike the situation in the EU, border controls and formalities concerning cross-border movement of goods have not been abolished between the EU and the EFTA States or between the EFTA States themselves. Instead, Art. 21 – or rather, the Protocols to which it refers – provides for simplification of border controls and other administrative procedures for trade in goods as well as cooperation in customs matters and certain aspects of external trade policy. It follows from Art. 8(2) that Art. 21 is not among those provisions on free movement of goods that, unless otherwise specified, apply only to goods originating in the Contracting Parties. The same must apply to the Protocols to which Art. 21 refers. They apply to all products, regardless of origin. Art. 21(4) provides that, in derogation from Art. 8(3), Art. 21 applies to all kinds of products, not only industrial goods. By extension, the more specific obligations concerning simplification of border controls etc. laid down in the Protocols referred to in Art. 21, also apply to all products. This does not mean, however, that the rules in the Protocols are the same for all product categories. For instance, Arts. 4, 5 and 8(2) of Protocol 10 contain special regimes for veterinary and plant health rules.

1 See in particular Agreement 12 September 1963 establishing an Association between the European Economic Community and Turkey Arts. 2-5 and 10. 2 There are some commitments of a more limited nature. Within their limited scopes of application, Art. 21(3) on trade facilitation covers wider international processes, and Protocol 12 on conformity assessment agreements with third countries foresees a certain coordination of negotiations with third countries, cf. comments to Art. 23 below.

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II. Art. 21 (1) and Protocol 10 on the simplification of border controls and formalities 1. Relationship to EU legal acts and EU-Swiss agreements

Art. 21(1) is simply a reference to Protocol 10 to the Agreement. This Proto- 6 col contains the actual arrangements for the simplification of border controls and formalities. The model for this Protocol is the Agreement of 23 April 1990 between the European Economic Community and the Swiss Confederation on the simplification of inspections and formalities in respect of the carriage of goods.3 This agreement again is modelled on Dir. 83/643/EEC on the facilitation of physical inspections and formalities in respect of the carriage of goods between Member States, as amended by Dir. 87/53/EEC and Dir. 91/342/EEC. In particular, Arts. 1, 3, 6–11 and 15 of Protocol 10 are all based, fully or in part, on Dir. 83/643/EEC as amended. In Case C-125/94 Aprile Srl,4 the ECJ concluded that Dir. 83/643 as amended 7 did not apply to trade with non-member countries, only to the carriage of goods between Member States including carriage involving the crossing of a third State. Protocol 10 EEA in effects extends the regime of the Directive to the carriage of goods between an EFTA State and an EU Member State as well as between the EFTA States themselves. However, unlike the Directive, the Protocol does not apply to the control at borders with third countries of goods being transported between EEA States [Directive: EU Member States] across a third country, cf. Art. 2 of the Protocol compared to Art. 1 of the Directive. 2. Simplification of inspections and formalities

Art. 3 of Protocol 10 provides that inspections and formalities concerning the 8 carriage of goods shall take place with the minimum delay necessary and as far as possible at one place. Inspections are to be carried out by means of random checks unless exceptions are duly justified. Random checks shall be based on the total number of consignments passing through a frontier post rather than the total number of goods making up each consignment. It follows from the judgment in Case 190/87 Moormann,5 that “inspections” covers all inspection of goods which involve physical contact with them, whereas “formalities” are all operations involving the checking of documents and certificates and intended to ensure by simple visual inspection that the goods correspond to the documents and certificates. The obligation to use random checks only applies to inspections. Under Art. 6, one of the relevant control services, and preferably the 3 OJ L 116, 08/05/1990 p. 19 -23. Replaced by Agreement of 25 June 2009 between the European Community and the Swiss Confederation on the simplification of inspections and formalities in respect of the carriage of goods and on customs security measures, OJ L 199, 31/7/2009 p. 24-42, so that it now corresponds to Protocol 10 EEA as amended in 2009, see below. 4 Case C-125/94, 5.10.1995, Aprile Srl. 5 Case 190/87, 20.9.1988, Moormann.

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customs service, shall be duly authorised to inspect documents and check their validity and authenticity, as well as the identity of the goods, on behalf of the other services. Art. 7 provides that, without prejudice to the possibility of carrying out random checks, the Contracting Parties shall recognize inspections carried out and documents drawn up by the competent authorities of other Contracting Parties certifying that the goods comply with legal requirements of the importing country or equivalent requirements in the country of export. 3. Opening hours and reduction of waiting time 9

Opening hours of frontier posts are regulated in Art. 8. Art. 9 provides for express lanes for goods placed under a customs transit procedure. According to Art. 12, border control and formalities are to be organized in such a way with regard to opening hours, staff available etc. as to minimize waiting time. When serious disruptions occur, the Contracting Party concerned is to inform other Contracting Parties that are affected immediately. Also Arts. 10 and 11 lay down rules on cooperation between the competent authorities of the Contracting Parties, for instance with regard to the harmonization of business hours on either side of a frontier. 4. Protocol 10 yields to specific agreements

Art. 2(1) provides that Protocol 10 applies “[w]ithout prejudice to the specific agreements concluded between the European Economic Community and EFTA States”. The Convention of 20 May 1987 on the simplification of formalities in trade in goods,6 negotiated as part of the “Luxembourg Process” that eventually led to the EEA Agreement, provides for a single administrative document to be used for any procedure at export and import and for a common transit procedure. This is based on the single administrative document introduced in the EU7 but later abolished for intra-EU trade as internal border controls were discontinued.8 Also in 1987, an accompanying Convention on a Common Transit Procedure was entered into.9 Both conventions, to which also Switzerland is a Party, continue to apply, with a Joint Committee inter alia amending annexes and appendices. 11 Art. 16 allows for the application of greater facilities that two or more of the Contracting Parties may grant to each other. This covers the bilateral agreements between Norway and Sweden and Finland on border controls.10 The Agreements allow customs officials of one State to conduct border control on 10

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behalf of the other State and according to that State’s legislation within a border zone extending several kilometers from the border. 5. Veterinary and phytosanitary border controls

As indicated above, Arts. 4 and 5 of Protocol 10 contain separate rules for 12 veterinary and phytosanitary border controls. Art. 4 provides that in areas relating to the protection of human and animal 13 health and the protection of animals, implementation of the principles set out in Arts. 3 (on random checks and formalities), 7 (mutual recognition of inspections and documents) and 13 (on administrative assistance) shall be decided upon by the EEA Joint Committee. In effect, this means that these provisions only apply to veterinary control in so far it has been specifically decided by the EEA Joint Committee. Originally, animal products and animals exported from the EFTA States to the 14 EU were subjected to veterinary control at the border in the form of document control, identity control and physical inspection according to the rules applicable for such imports from other non-EU States.11 The reason for this was that Annex I to the EEA Agreement on veterinary and phytosanitary matters did not include legal acts pertaining to checks at the point of origin and procedures for spot checks on arrival at destination.12 After Austria, Sweden and Finland became members of the EU, also exports to these markets from the remaining EFTA States were subjected to the EU external border control regime for animal products. From 1 January 1997, the EU increased the control frequency from 3–5 percent of the consignments on average to 20–50 percent.13 This led to a revision of Annex I to the EEA Agreement.14 Included in this revision, Decision No 69/1998 of the EEA Joint Committee, were rules on border controls, in effect making this a decision also under Art. 4 of Protocol 10. The revision made it possible to subject the import of animal products from the EFTA States into the EU to basically the same border control regime as that applicable between EU Member States. This was of particular importance to Norway, and Annex I as amended does not apply in full to Iceland and Liechtenstein.15 Art. 5 of Protocol 10 provides that plant health inspections shall take the form of random checks and sample testing unless in duly justified circumstances, and that such inspections shall be carried out at either the place of destination or another designated place affecting the itinerary of the goods to the least possible extent. It follows from Art. 5(3) that this applies also to goods produced outside the EEA provided that by their nature, they present no health risk or that they have under-

11 According to Stortingsproposisjon (Bill to the (Norwegian) parliament) No 6 (1998-1999) p. 8, the only difference being that health certificates were not required. 12 See in particular Dir. 89/662/EEC concerning veterinary checks in intra-Community trade with a view to the completion of the internal market. 13 See Stortingsproposisjon nr. 6 (1998-1999) p. 8. 14 OJ L 158, 24.6.1999, p. 1 and EEA Supplement No 27, 24/06/1999, p. 128.

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gone plant health inspection on entering the territory of the respective Contracting Party and have been found to meet national requirements in this regard. As a corollary to this, Annex I to the EEA Agreement Chapter III on phytosanitary matters states that the provisions relating to third country relations and border controls in the acts referred to in that Chapter are not applicable. 6. Customs security measures

In 2006, the EU introduced new customs security measures, including pre-arrival and pre-departure declarations.16 These measures were based on the World Customs Organization’s SAFE Framework of Standards to Secure and Facilitate Global Trade. Also states such as Norway were working on similar reforms. As a consequence of this, a new Chapter IIa on customs security measures was added to Protocol 10 EEA in 2009.17 The new provisions are for the time being not applicable to Iceland and Liechtenstein.18 Under Art. 9 b, the Contracting Parties are to introduce and apply the customs security measures set out in Chapter IIa – in effect the new EU security measures – to goods entering or leaving their customs territories and waive the application of those measures to goods carried between their respective customs territories. Art. 9 d and Annex II to Chapter IIa extends the regime of “authorised economic operator” to economic operators established in the EFTA States. This status entails certain facilitations with regard to the new control regime. 16 A decision-making procedure resembling that found in Arts. 99-102 of the Main Part of the EEA Agreement is set up under Arts. 9 h and 9 i of Protocol 10: 15

15 See the adaptations laid down at the beginning of Annex I for Liechtenstein (Sectoral Adaptations) and Iceland (I. Veterinary Issues, Introductory Part) and the judgment of the EFTA Court in Case E-17/15, 1.2.2016, Ferskar kjötvörur, concerning the application of Dir. 89/662/EEC on veterinary checks: The inclusion of that Directive into Annex I means that Iceland, to which the Directive also applies, could no longer could introduce additional control requirements for imported raw meat pursuant to Art. 13 EEA. Stefán Már Stefánsson, ‘Bemærkninger til EFTA-domstolens dom i sag nr. E-17/15, Ferskar kjötvörur ehf. mod den islandske stat’, Lov og Rett 2016, p.640, argues that Art. 18 EEA should have led to a different conclusion. Article 18 EEA provides that “[w]ithout prejudice to the specific arrangements governing trade in agricultural products, the Contracting Parties shall ensure that the arrangements provided for in Articles 17 and 23 (a) and (b), as they apply to products other than those covered by Article 8(3), are not compromised by other technical barriers to trade. Article 13 shall apply.” The wording indicates that the last sentence referring to Art. 13 and thus the possibility of introducing measures justified by health concerns applies only to technical barriers to trade other than those covered by legal acts referred to in annexes and protocols mentioned in Arts. 17 and 23 (a) and (b). A different interpretation of Article 18 would seem to lead to that provision defeating the purpose of introducing into the EEA Agreement legal acts harmonising border control procedures for agricultural products. 16 Reg. (EC) No 648/2005 amending Reg. (EEC) No 2913/92 establishing the Community Customs Code and Reg. (EC) No 1875/2006 amending Reg. (EEC) No 2454/93 laying down provisions for the implementation of Reg. (EEC) No 2913/92 establishing the Community Customs Code. 17 Decision 76/2009 of the EEA Joint Committee, entry into force on 1 July 2009. 18 See Art. 2(3) of Protocol 10 EEA. It follows from Decision 76/2009 of the EEA Joint Committee that Iceland and Liechtenstein may join later.

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The EFTA States participating in the new system are to be involved on an advisory level in amendments to the EU rules,19 and the provisions of Chapter IIa are to be amended accordingly in order to ensure continued equivalence of the security regimes. When it comes to the consequences of a possible “veto” from the EFTA States, however, Art. 9 i of Protocol 10 has considerably sharper teeth than Art. 102 EEA – if the equivalency of the customs security measures is no longer assured because the amendments have not been decided, the application of the entire Chapter IIa is suspended already on the date when the EU legislation concerned is applied within the EU unless the EEA Joint Committee, having examined the measures to maintain its application, decides otherwise. III. Art. 21(2) and protocol 11 on mutual assistance in customs matters

According to Art. 21(2), the Contracting Parties assist each other in customs matters in order to ensure that customs legislation is correctly applied. The rules for this cooperation are set out in Protocol 11. This Protocol reflects the results of negotiations on treaties between the EC and the EFTA States on mutual assistance in customs matters that were started as part of the “Luxembourg Process”. Art. 3 of the Protocol lays down a general obligation to provide, upon request, all relevant information for ensuring that customs legislation is correctly applied. The competent authorities may also ask for surveillance of natural or legal persons of whom there are reasonable grounds to believe that they are contravening or have contravened customs legislation, as well as of goods and means of transport that may be involved in such contraventions. According to Art. 7, requests are to be carried out as if the requested authority were acting on its own account. Art. 9 provides for exceptions to the obligation to provide assistance, including public policy, security or other essential interests as well as on the grounds that currency or tax regulations (other than regulations concerning customs) are involved. Without the written consent of the administrative authority furnishing the information, it may only be used for the purposes of the Protocol and within any restriction laid down by that authority. However, this does not apply to drug offences or to any subsequent administrative or judicial proceedings for the violation of customs legislation. On the EU side, it is the competent services of the European Commission that act as the authority competent for requesting or furnishing information. Art. 14(2) also allows for direct contact between national authorities on the EU and EFTA side in cases of urgency or because only two States are involved. As follows from Art. 15 of Protocol 11, the Protocol only complements, and does not impede the application of, agreements on mutual assistance that have been or may be concluded between EU Member States and EFTA States as well 19 In addition, by Decision 76/2009 of the EEA Joint Committee, Protocol 37 EEA, containing a list of EU committees in which EFTA experts are to participate according to Art. 101 EEA, was amended to include the Customs Code Committee.

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as between the EFTA States. Nor does it preclude more extensive mutual assistance under such agreements or, according to Art. 2(2), prejudice the rules governing mutual assistance in criminal matters. 22 On 19 June 1997, after Austria, Finland and Sweden had joined the EU, all of the remaining EFTA States, i.e. including Switzerland, added to the EFTA Convention a new Annex I – in 2001 renamed Annex B – on mutual assistance in customs matters that closely follows Protocol 11 EEA. IV. Art. 21(3) on trade facilitation 23

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Under Art. 21(3), the Contracting Parties undertake to strengthen and broaden their cooperation with the aim of simplifying the procedures for trade in goods, in particular in the context of EU programmes, projects and actions aimed at trade facilitation. The Programmes, actions and projects in which the EFTA States take part pursuant to Art. 21(3) are listed in Art. 11 of Protocol 31 EEA. The list has not been amended since 1994 and refers to only three Council decisions relating to the Community programme on trade electronic data interchange systems (TEDIS).20 The EC and the EFTA States concluded bilateral agreements on the latter’s’participation TEDIS already in 198921 as part of the “Luxembourg Process”. In accordance with the general principles laid down in Arts. 81 and 82 EEA, Art. 11 of Protocol 31 provides for full participation of the EFTA States in the committees assisting the Commission in the management of the programme, and in the financing of the Programme. Art. 21(3) also covers cooperation with regard to wider international processes concerning trade facilitation. The TEDIS Programme must be seen in the context of the United Nations’ Programme for Electronic Data Interchange for Administration, Commerce and Transport (UN/EDIFACT), where the EFTA States and the EU also cooperate. Art. 21(3) refers to the rules set out in Part VI (Arts. 78-88) of the EEA Agreement dealing with cooperation outside the four freedoms. According to Art. 86, the decision-making procedure set out in Part VII (Arts. 97-102) of the Agreement is applicable. This is the general EEA decision-making procedure under which the EEA Joint Committee may amend all the Annexes and several of the Protocols, including Protocols 10, 11 and 31. However, it should be noted that the provision in Art. 102 on suspension in case the Contracting Parties cannot agree on an amendment, only refers to amendments of the Annexes, not the

20 Council Decision 87/499/EEC introducing a communications network Community programme on trade electronic data interchange systems (TEDIS), Council Decision 89/241/EEC amending Decision 87/499/EEC and Council Decision 91/385/EEC establishing the second phase of the TEDIS programme. 21 With Austria, Finland, Iceland, Norway, Sweden and Switzerland, all published in the OJ L 400 30/12/1989. They entered into force on 1 February 1990.

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Protocols. On the other hand, a refusal by the EFTA side to agree to an amendment to Protocol 31 that is needed to take account of changes on the EU side, may be claimed by the EU side to constitute a breach of implied conditions for EFTA participation, in effect leading to termination of the affected part of Protocol 31.

Article 22 [Reduction of customs duties] A Contracting Party which is considering the reduction of the effective level of its duties or charges having equivalent effect applicable to third countries benefiting from mostfavoured-nation treatment, or which is considering the suspension of their application, shall, as far as may be practicable, notify the EEA Joint Committee not later than thirty days before such reduction or suspension comes into effect. It shall take note of any representations by other Contracting Parties regarding any distortions which might result there from.

Art. 22 corresponds to Art. 12 of the Free Trade Agreements between the EEC and the EFTA States.1 It follows from its very raison d’être that Art. 22 applies to goods originating from outside of the EEA. This also follows from Art. 8(2) EEA. However, Art. 8(3) leads to the result that it only applies to the type of goods covered by the abolition of customs duties and charges with equivalent effect within the EEA, i.e. for the most part industrial goods. As the EEA Agreement is not a customs union with a common trade policy towards third countries, the Contracting Parties are free to conclude trade agreements with such countries. Reductions of the effective level of customs duties or charges having equivalent effect applicable to third countries, or the suspension of their application, may, however, have negative consequences for other EEA Contracting Parties. Firstly, because of differences in the level of costs, a lowering of customs duties or similar charges for a certain product may make the importation of it into the EEA Contracting Party in question so cheap that it becomes difficult for producers of this product in other Contracting Parties to compete on the market of the former Party, regardless of the fact that they benefit from the total abolition of customs duties within the EEA. Secondly, the lowering of such duties or charges may apply to materials used in the importing Contracting Party in the manufacturing of a product there, making the finished product cheaper than it otherwise would have been. As long as the materials are used within the limits of the general tolerance rule of Art. 4(2) of Protocol 4 EEA on rules of origin, the finished product will benefit from the EEA rules on free movement 1 22 July 1972 with Austria, Iceland, Portugal, Sweden and Switzerland, 14 May 1973 with Norway.

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and improve its competitive position also in other parts of the EEA market. Thirdly, it could be that the lowering of customs duties or equivalent charges in one Contracting Party for a product in short supply will make it difficult for other EEA Contracting Parties with higher customs barriers to attract enough imports of that product to cover its needs.2 6 For this reason, Art. 22 requires that the EEA Joint Committee is to be notified, “as far as may be practicable”, about such reductions or suspensions at least 30 days in advance so that the other EEA Contracting Parties are able to discuss the matter with the Contracting Party concerned. 7 Art. 22 applies to reductions or suspensions “applicable to third countries benefiting from most-favoured-nation treatment”. This must mean that Art. 22 applies also to reductions and suspensions that are triggered indirectly by virtue of most-favoured-nation clauses.

Chapter 4: Other rules related to the free movement of goods

Article 23 [Technical regulations and barriers to trade in wine, product liability] Specific provisions and arrangements are laid down in: (a) Protocol 12 and Annex II in relation to technical regulations, standards, testing and certification; (b) Protocol 47 in relation to the abolition of technical barriers to trade in wine; (c) Annex III in relation to product liability. They shall apply to all products unless otherwise specified.

I. Letter a: technical barriers to trade 1. Introduction 1

Through Annex II, EU legal acts concerning harmonisation of technical standards, testing and certification have been made part of the EEA Agreement. Such common rules significantly reduce the possibility of the EEA States to maintain technical barriers to trade based on technical requirements that differ from those of the exporting State, or based on the non-recognition of test results or certification from other States on the fulfilment of like or equivalent requirements – or even common requirements.1 With regard to trade in goods, Annex II thus represents a major step forward compared to the free trade agreements between the EEC and the EFTA States that preceded the EEA Agreement. It

2 See Norberg et al. EEA Law, pp. 369-370.

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contains 32 chapters covering a vast number of legal acts concerning such diverse issues as motor vehicles, medicinal products and cultural goods. 2. Adaptations and derogations

Like so many other Annexes to the EEA Agreement, Annex II contains vari- 2 ous adaptations of and derogations from the EU legal acts referred to therein. For instance, Chapter XV on dangerous substances originally listed Dir. 67/548/EEC and Dir. 88/379/EEC relating to the classification, packaging and labelling of dangerous substances and dangerous preparations, respectively.2 Both acts were accompanied by the following EEA adaptation: “The Contracting Parties agree on the objective that the provisions of the Community acts on dangerous substances and preparations should apply by 1 January 1995. (…) If an EFTA State concludes that it will need any derogation from the Community acts relating to classification and labelling, the latter shall not apply to it unless the EEA Joint Committee agrees on another solution.”

In 1995 and 1999, two Joint Statements by the EEA Joint Committee noted 3 Norway’s acceptance of the Directives but allowed Norway some further derogations. In Case E-2/00 Allied Colloids,3 the EFTA Court found that Norway had interpreted the leeway accorded to it by the 1995 Statement too broadly, but that the 1999 Statement did allow for the Norwegian derogations. The Court did not specifically address the issue of whether the EEA Joint Committee had authority to accept further derogations from the Directives, and in Case E-6/01 CIBA,4 it was contended by CIBA (the new name of Allied Colloids) that under Art. 102 EEA, the Committee’s competence is limited to making decisions on amendment of Annexes to the EEA Agreement as closely as possible to new EU legislation. The Committee could not, argued CIBA, widen the scope of the derogations under the 1995 Statement. The EFTA Court disagreed, stating at para. 33: “The EEA Joint Committee is designed to function as an institution working in the pursuit of the common interest of the Community side and the EFTA side. As pointed out by the Commission of the European Communities at the oral hearing, a decision of the EEA Joint Committee may constitute a simplified form of an international agreement between the Community and its Member States on the one hand, and the EFTA States party to the EEA Agreement on the other. This supports the finding that the competence of the EEA Joint Committee cannot be restricted to adopting the relevant Com-

1 It follows from consistent case law of the ECJ, also prior to the signature of the EEA Agreement, that even without such legal acts, Member States are not free to disregard test results and certificates issued in other Member States when checking whether the product in question fulfil applicable requirements. See for example Case 251/78, 8.11.1979, Denkavit, at paras. 11 and 22-24. As this case law concerns Art. 34 TFEU, it is clearly also relevant for the application of Art. 11 EEA. However, under this case law, it is not excluded that the non-recognition of such tests and certificates may be justified under Art. 36 TFEU (Art. 13 EEA) or the principle of mandatory requirements developed by the Court. Hence the continued need for harmonisation. 2 Dir. 67/548/EEC deleted with effect from 1 June 2015 by EEA Joint Committee Decision No 106/2012. Dir. 88/379/EEC replaced by Dir. 91/155/EEC by EEA Joint Committee Decision No 59/2004, which was subsequently deleted by EEA Joint Committee Decision No 25/2008. 3 Case E-2/00, 14.7.2000, Allied Colloids. 4 Case E-6/01, 9.10.2002, CIBA.

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PART II: The Agreement on the European Economic Area munity acts into the EEA legal order. The Court notes in this context that the maintenance of homogeneity within the EEA market and securing the protection of the rights of individuals and economic operators in that market constitute fundamental policy objectives of the Contracting Parties. To attain these objectives, the competence of the EEA Joint Committee must not be overly restricted. However, the competence of the EEA Joint Committee is not unlimited. It must, in particular, be exercised within the boundaries of the EEA Agreement and with due respect for essential procedural requirements.”

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A preliminary question in the case was whether the EFTA Court, in the framework of the advisory opinion procedure under Art. 34 SCA, could pronounce on the authority of the EEA Joint Committee, since Art. 36 SCA does not attribute to the Court any authority to review the legality of EEA Joint Committee decisions, only the legality of ESA decisions. However, the Court took the view, at para. 22 of the judgment, that the authority of the Court under Art. 34 SCA to interpret the EEA Agreement on request by national courts extended to the whole of the EEA Agreement, with no exception made for the provisions on the EEA Joint Committee.5 3. Product coverage

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According to the second paragraph of Art. 23, the annexes and protocols referred to in Art. 23 shall apply to all products unless otherwise specified. This means that as a general rule, they apply also to products originating from outside the EEA and to goods outside of the general product coverage of the EEA Agreement according to Art. 8(3). a) Products originating from outside the EEA

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The EU concludes agreements with third countries concerning mutual recognition of conformity assessments of products where the use of a mark is provided for in EU legislation. This means that tests made and certificates issued in third countries concerning the technical quality of products falling under the agreements will be recognized in the EU, with no need – and no right – for the Member States to insist on new EU tests and certificates. According to Protocol 12 EEA, the EU will negotiate such agreements on the basis that the third countries concerned will conclude with the EFTA States parallel mutual recognition agreements equivalent to those to be concluded with the EU. The EU and the EFTA States undertake to cooperate and consult with regard to such negotiations. Protocol 12 demonstrates that although the EU’s external trade policy falls outside the EEA Agreement, it is not possible to keep all aspects of this policy completely outside the Agreement. So far, parallel agreements exist with New Zealand and Australia,6 Canada,7 Switzerland,8 USA9 and Turkey.10 The 5 6 7 8

See commentary on Art. 34 SCA by Per Christiansen in this volume. Both 29 April 1999, in force from 1 March and 1 July 2000, respectively. 4 July 2000, in force from 1 January 2001. Annex I to the EFTA Convention as amended by the Vaduz Convention 21 June 2001, in force from 1 June 2002.

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agreements concluded with Latvia, Lithuania, Slovenia and Hungary have now been rendered inoperative by the EEA membership of those States. Conformity assessment agreements between the EU and Japan11 and Israel12 have not led to parallel agreements. b) Applicability to goods outside of the general product coverage of the EEA Agreement according to Art. 8(3)

The general product coverage in derogation of Art. 8(3) is demonstrated 7 inter alia by Chapter XII on foodstuffs including legal acts pertaining to certain foodstuffs falling within Chapter 1-24 of the Harmonized Commodity Description and Coding System of the World Customs Organization and not covered by Art. 8(3).13 This was confirmed by the EFTA Court in Case E-2/12 HOB-vín, which concerned Dir. 2000/13/EC on the approximation of the laws of the Member States relating to the labelling, presentation and advertising of foodstuffs (now replaced by Reg. (EU) No 1169/2011 on the provision of food information to consumers).14 The Court held, at para. 46, that since the Directive had been incorporated into Annex II to the EEA Agreement without specifying any limitations on the scope of its application (except the exception concerning Liechtenstein to the whole of Chapter XII of Annex II), it had to be considered to apply to all foodstuffs. It was therefore of no relevance under which Chapter of the Harmonized Description and Coding System the alcoholic beverages at issue might fall. Chapter XXVII of Annex II on spirit drinks is, however, no derogation from 8 Art. 8(3) as such drinks are covered by virtue of Protocol 3, referred to in Art. 8(3).15 Chapter XXVII contains a rare example of the EFTA States having obtained a 9 permanent derogation from the acquis. At point 9, making Reg. (EC) No 110/200816 part of the Agreement, the EFTA States are allowed to prohibit, on a 9 17 October 2005, in force from 1 March 2006. 10 Protocol E, added by Joint Committee Decision No. 3 of 2009 of 3 December 2009 and entered into force on 5 July 2011, to the Free Trade Agreement 10 December 1991 between Turkey and the EFTA States. 11 OJ L 284, 29/10/2001 p. 3-32. 12 OJ L 263, 09/10/1999 p. 7-18. 13 As mentioned in the comments to Art. 21, legal acts on veterinary matters and phytosanitary issues are listed in Annex I EEA, not in Annex II. 14 Case E-2/12, 11.12.2012, HOB-vín. 15 See Table II of that protocol and judgment of the EFTA Court in Case 9/00, 15.3.2002, ESA v Norway, at para. 30. One may discuss whether products listed in Protocol 3 are covered only with regard to Norway and Iceland. Art. 1(2) of Protocol 3 provides that “[t]he provisions of this Protocol shall not apply to Liechtenstein”. In Case E-6/96, 27.6.1997, Wilhelmsen, at paras. 17-33, the EFTA Court seems to take the view that the products listed in Protocol 3 fall within the general product coverage of the EEA Agreement by virtue of Art. 8(3) EEA regardless of whether the specific provisions of the Protocol apply to that product. This is however without practical interest for Art. 23 due to the second paragraph of that Article. 16 Reg. (EC) No 110/2008 on the definition, description, presentation, labelling and the protection of geographical indications of spirit drinks.

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non-discriminatory basis, spirit drinks with an alcohol content in excess of 60 per cent. 4. Notification procedures 10

Chapter XIX of Annex II is entitled “General Provisions in the Field of Technical Barriers to Trade” and lists Dir. 98/34/EC laying down a procedure for the provision of information in the field of technical standards and regulations. In the EU, this directive is replaced by Directive 2015/1535, and a draft Joint Committee to the same effect is currently r consideration. According to ECJ case law,17 Dir. 98/34/EC produces so-called incidental direct effect meaning that a national technical regulation that has not been notified before implementation may not be invoked even in disputes between private parties. Due to the lack of an obligation to introduce direct effect and primacy of EEA law comparable to that of EU law,18 EFTA States whose legal system take a dualist approach to international obligations (Norway and Iceland but not Liechtenstein) would have to pass legislation to produce the same suspensory effect of non-notification. – In Norway, the Directive is implemented through Act No. 101/2004 on Notification of technical regulations – In Iceland, the Directive is implemented through Law No. 57/2000 on the Exchange of Information concerning Technical Regulations on Products and Information Society Services and Regulation No. 733/2000 on the Notification of Technical Regulations on Products and Information Society Services

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A similar obligation to notify national measures requiring additional mandatory particulars for specific types or categories of foods are to be found in Art. 39 of Reg. No 1169/2011 on the provision of food information to consumers. In Case E-2/12 HOB-vín, the EFTA Court had to deal with a similar provision in one of the Regulation’s predecessors, Dir. 2000/13/EC. The EFTA Court ruled that since the necessary notification procedure had not been followed, an Icelandic rule on the labelling of alcoholic beverages, could not be “considered effective under EEA law and … [could] not be allowed to impose burdens on individuals and economic operators”.19 In view of the above-mentioned lack of an obligation to introduce direct effect and primacy of EEA law, this should probably not be construed to mean that the EFTA Court introduced incidental direct effect. The statement should rather be understood to mean that there is an obligation under EEA law for the EFTA States, by way of national law, to make the labelling requirement non-effective so as not to impose burdens on individuals and economic operators.20 17 Case C-194/94, 30.4.1996, CIA Security, and Case C-443/98, 26.9.2000, Unilever Italia. 18 See i.a. Bull, ‘“Shall be Made Part of the Internal Legal order”: The Legislative Approaches’, in the EFTA Court (ed), The EEA and the EFTA Court – Decentred Integration (Oxford and Portland, Oregon 2014), pp. 203-213. 19 Case E-2/12, 11.12.2012, HOB-vín, at para. 113.

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Neither the EFTA Court nor the ECJ have ruled on whether breach of the pro- 12 cedure laid out in Art. 39 of Reg. No 1169/2011 will have the same effect, but the purpose and effect of the notification procedure do suggest an affirmative answer. Reg. No 1169/2011 has been made part of both Icelandic and Norwegian law. II. Letter b: trade in wine

With Annex II being able to cover all product categories regardless of Art. 8(3), also legal acts concerning wine could have been included here.21 Nevertheless, the abolition of technical barriers to trade in wine is covered by Protocol 47 EEA, also referred to in Art. 23, not by Annex II. This is because Arts. 11-15 on free movement of goods do not apply to goods outside the scope of Art. 8(3), so rules on the importation and exportation of wine had to be laid down elsewhere.22 These provisions are found in Protocol 47. It then made sense to include references to the relevant EU legal acts here rather than in Annex II. Protocol 47 obliges the Contracting Parties to authorise imports and marketing of wine products which are in conformity with the EU legislation set out in Appendix 1 to the Protocol. This legislation relates to product definition, oenological practices, composition of products and modalities for circulation and marketing. The product coverage is expressly limited to wine products in which all the grapes or any materials derived from grapes used therein are wholly obtained within the EEA. The Protocol does not provide for the abolition of customs duties or discriminatory internal taxes. Protocol 47 also lays down provisions on mutual assistance between control authorities in the wine sector. The Protocol establishes the same exceptions to the obligation to assist as found in Protocol 11, including assistance involving tax or currency matters. The only EFTA State with any production of wine made from own grapes, is Liechtenstein. According to the Protocol itself, it does not apply to Liechtenstein as long as the application of the Agreement between the European Community and the Swiss Confederation on trade in agricultural products is extended to Liechtenstein. As of 2017, this was still the case.

20 At para. 138, the EFTA Court uses the phrase “if the national legislation or administrative regulation cannot be considered effective due to a failure to notify”. This would indeed seem to suggest incidental direct effect. However, in this part of the judgment, the EFTA Court addresses the issue of State liability for the damage caused incorrect application of Dir. 2000/13/EC, and this formulation should be seen as a somewhat simplified version of the full statement at para. 113. 21 Wine is listed in chapter 22 of the Harmonized System. 22 However, according to Protocol 8 EEA on State monopolies, Art. 16 EEA on State monopolies of a commercial character does apply to wine. See judgment of the EFTA Court in Case E-1/94, 16.12.1994, Restamark, at paras. 38-43.

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III. Letter c: product liability

Art. 23 also refers to Annex III on product liability. Differences in the rules on product liability may serve as a technical barrier to trade. This, and the fact that Dir. 85/374/EEC concerning liability for defective products goes beyond simply being a consumer protection directive, is presumably the reason why Art. 23 contains this reference. 18 Norway enacted a product liability act based on the Directive already in 1988.23 However, as Norway was not bound by the Directive at the time, the Act on certain points went further than the Directive in placing liability on the producer, for instance by not providing for the threshold called for in Art. 9 of the Directive. When these differences had to be abolished as part of Norway entering into the EEA Agreement, Art. 13 of the Directive was thought to provide a basis for a new provision to the effect that the Act did not limit the right to compensation under other principles of tort law for damage caused by defective products. Art. 13 provides that the Directive does not affect any rights which an injured person may have according to the rules of the law of contractual or noncontractual liability or a special liability system existing at the moment when this Directive is notified. However, in its judgment in Case C-183/00 Gonzáles Sánchez,24 the ECJ made it clear that Art. 13 does not allow for other liability systems to apply as long as the ground for compensation is a product defect. The Norwegian Supreme Court in the judgment reported in Rt. 2004 p. 122, followed up on this and in effect “interpreted away” the amendment made to the Act in 1992.25 17

Article 24 [Energy] Annex IV contains specific provisions and arrangements concerning energy.

I. General comments 1

The EEA Agreement has no provision similar to that of Art. 194 TFEU on the Union’s energy policy. This is not because energy policy, to the extent it forms part of the internal market, falls outside the scope of application of the EEA Agreement ratione materiae. Under the EEA Agreement, the general decisionmaking procedure set out in Arts. 97-104 applies also to the energy sector. Consequently, there is no need for a provision similar to that of Art. 194 TFEU. Instead, Art. 24 EEA simply states that “specific provisions and arrangements concerning energy” are to be found in Annex IV.

23 Act 23 December 1988 No 104. 24 Case C-183/00, 25.4.2002, Gonzáles Sánchez. 25 Amendment Act 27 November 1992 No 113.

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Making some of the EU’s energy policy measures part of the EEA Agreement 2 has turned out to be politically difficult. II. Energy security

At the time of negotiating the EEA Agreement, EC legislation in the field of 3 energy could be roughly divided into two groups: Rules concerning stockpiling of crude oil and petroleum products in order to meet future energy crises, and rules relating to improved transparency and competition in the production and sale of energy.1 The EC attempted to include both sets of rules in the EEA Agreement, but met with resistance from the EFTA States. Only the second set of rules was made part of the Agreement.2 The EFTA States’ contribution to security of energy supply continues to be 4 governed by their participation in the International Energy Agency (IEA). Norway has an Agreement of 7 February 1975 concerning the participation of Norway in the work of the Agency. According to Art. 1 of the Agreement, Norway does not automatically take part in the Agency’s emergency measures. This requires a separate Norwegian decision. III. Energy policy and the geographical scope of application of the EEA Agreement

An underlying unresolved issue with regard to the energy sector has been 5 whether the EEA Agreement applies to the continental shelves of the EFTA States. Art. 52 EU and Art. 355 TFEU, earlier Art. 227 EEC, do not limit the territorial scope of the Treaties to the “territory” of the Member States. It simply states that they apply to the Member States, with some territorial exceptions and clarifications. It follows from ECJ case law that the Treaties apply to activities outside of the Member States’ territories in the traditional sense provided that the Member States exercise jurisdiction over such activities and that the activities are covered by the treaties ratione materiae.3 Art. 126 EEA states that “[t]he Agreement shall apply to the territories to 6 which the Treaty establishing the European Economic Community is applied and under the conditions laid down in that Treaty, and to the territories of Iceland, the Principality of Liechtenstein and the Kingdom of Norway”. The question is whether the territorial scope of the Agreement, at least as concerns the EFTA States, are limited to their “territories” in the traditional sense – i.e. land territory and territorial waters. That would exclude activities on the continental shelf and in the economic zone even if such activities are covered ratione materiae. This has been the position of the Norwegian Government.4 1 See Norberg et al. EEA Law, p. 387. 2 Stortingsproposisjon No 100 (1991-92) p. 164. 3 See for instance Case 9/89, 27.3.1990, Spain v Commission, at para. 29 (a regulation concerning the Members States’ obligation to penalize certain infringements of the fisheries policy applied to infringements “within the maritime waters under its sovereignty or jurisdiction”).

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Nevertheless, the EFTA States have accepted the inclusion in Annex IV of Dir. 94/22/EC on oil and gas licensing.5 The Directive has been implemented in Norwegian legislation concerning petroleum activities on the continental shelf, making it illegal to favour Norwegian companies and industry in the way that had been done in the first decades of exploration of the Norwegian continental shelf.6 The Norwegian government at the time argued that with a more mature Norwegian oil industry, this form of protectionism was no longer needed.7 A Joint Declaration by the EEA Joint Committee was added to the Committee’s Decision No 19/95 on the inclusion of the Directive into the Agreement. The Declaration is based on Protocol 4 to the failed Treaty on Norwegian Accession to the EU and underlines i.a. the respect of ownership rights (the State being the owner of all Norwegian petroleum resources), sovereign rights over natural resources, the right of the State to take part in petroleum extraction and the right to tax and levy royalties.8 8 The Norwegian position has been that such one-off acceptances of a wider geographical application of certain legal acts have no bearing on the understanding of Art. 126.9 9 The geographical scope of application of the EEA Agreement is still an issue between the EU and Norway with regard to Dir. 2013/30/EU on safety of offshore oil and gas operations.10 Norway still resists its inclusion into the EEA Agreement on the grounds that the Agreement does not apply to the continental shelf outside of territorial waters.11 7

IV. Liberalization of the gas market 10

EU liberalization of the gas market has also been a difficult question in relation to Annex IV EEA. Unlike oil, which is a truly global commodity, gas is tied to pipelines whose grids form natural monopolies. It has been a goal of EU energy policy to “unbundle” the traditional combination of the same undertaking being both grid operator and wholesale provider of gas, into a system where 4 See further the comments by Arnesen on Art. 126. 5 Dir. 94/22/EC on the conditions for granting and using authorizations for the prospection, exploration and production of hydrocarbons. 6 Such a policy would of course also have run into problems with the general principles of free movement provided that the Agreement applies to the continental shelf in the same way as the EU Treaties. 7 St.prp. No 40 (1994-95) pp. 9-10. 8 The Directive went through the EU legislative process just as Norway was negotiating membership in the EU. Norway was able to somewhat influence the content of the Directive, in addition to the Protocol. After this demonstration of good will on part of the EU, the Norwegian government probably felt that it would not be in its general long-term interest to turn its back on the Directive as part of the EEA Agreement after EU membership was rejected in the Norwegian referendum in the autumn of 1994. 9 Meld. St. 5 (2012-2013) p. 41. 10 Minutes from the meeting of the Storting’s commitee on European affairs 27 April 2016. 11 There are also less principled reasons why Norway is against this, having to do with safety requirements that Norway finds excessive.

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third parties have access to the pipelines and producers and end users are able to contract directly with each other. The Norwegian position was originally that subsea pipelines should be seen as an off-shore production facility rather than as transportation infrastructure, but this position had to be abandoned in 2001, when Dir. 98/30/EC concerning common rules for the internal market in natural gas12 was made part of the EEA Agreement.13 Parallel to the discussions on the Gas Market Directive, the European Com- 11 mission successfully used EU and EEA competition rules to challenge the way in which the contractual regime for gas sales from the Norwegian shelf had been organized – as a cartel formed on the basis of ministerial guidelines. This led to a negotiated solution that liberalized also the Norwegian part of the gas market, although the Norwegian shelf remains dominated by a small number of sellers of gas.14 V. Liberalization of the electricity market

The electricity market has gone through a similar liberalization process as 12 the gas market, but the inclusion of the relevant legal acts into Annex IV of the EEA Agreement15 has been less controversial. Norway liberalised its electricity market ahead of the EU. Due to the size of their systems, Liechtenstein and Iceland have remained free not to unbundle.16 In the electricity sector, it has instead been the rules on ownership of hy- 13 dropower resources that has caused the most controversy. In Case E-2/06 ESA v Norway,17 the EFTA Court came to the conclusion that the Norwegian rules on such ownership violated EEA rules on rights of establishment and free movement of capital. However, the Court agreed with Norway that in principle, the reversion to the State of privately owned rights to energy production in water12 Dir. 98/30/EC of the European Parliament and of the Council of 22 June 1998 was included into the Agreement as Point 16 of Annex IV by Decision 123/2001 of the EEA Joint Committee. It was later replaced, from 2005 also in the EEA Agreement as point 23 of Annex IV, by Dir. 2003/55/EC concerning common rules for the internal market in natural gas, see Decision No 146/2005 of the EEA Joint Committee. Dir 2003/55/EC is set to be replaced by Dir. 2009/73/EC, decision to be made by the EEA Joint Committee. Iceland has no gas infrastructure or gas market, so the Directive will formally not apply to Iceland. Norway and Iceland will receive various adaptations due to their small gas markets. 13 O.G. Austvik and D.H. Claes, EØS-avtalen og norsk energipolitikk, Rapport #8 for Europautredningen, pp. 26 and 30. 14 O.G. Austvik and D.H. Claes, EØS-avtalen og norsk energipolitikk, Rapport #8 for Europautredningen, pp. 30-31. 15 Dir. 96/92/EC of the European Parliament and of the Council concerning common rules for the internal market in electricity, placed as point 14 of Annex IV by Decision 168/1999 of the EEA Joint Committee. Later replaced, from 2005 also in the EEA Agreement as point 22 of Annex IV, by Dir. 2003/54/EC concerning common rules for the internal market, see Decision No 146/2001 of the EEA Joint Committee. Dir. 2003/54/EC is set to be replaced by Dir. 2009/72/EC, decision to be made by the EEA Joint Committee. 16 See derogations in Annex IV EEA at point 22. 17 Case E-2/06, 26.6.2007, ESA v Norway. See also the analysis of this judgment by Poulsen in his comments on Art. 125.

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falls with related facilities after a concession period of 60 years could be justified as necessary means of ensuring the goal of establishing and maintaining public ownership of hydropower resources. In this context, the Court made reference to Art. 125 EEA, corresponding to Art. 345 TFEU.18 According to these provisions, the treaties shall in no way prejudice the rules governing the system of ownership. The problem with the Norwegian rules as they stood, according to the Court, was that they did not pursue this goal in a consistent manner.19 The judgment led to a tightening of the rules rather than to the liberalization that many had expected. 14 It may be argued that the EFTA Court took a somewhat more State-friendly view of Art. 125 EEA than the ECJ did with regard to Art. 345 TFEU in Joined Cases C-105/12, C-106/12 and C-107/12 Essent and others,20 at paras. 53-55. Here, the ECJ accepted that a goal of public ownership could justify a restriction on free movement only in so far the interests underlying the choice of rules on public or private ownership qualified as overriding reasons in the public interest. The EFTA Court did not conduct an inquiry into the reasons behind the goal of public ownership. VI. Energy Markets Supervision 15

In the EU, a third generation of gas and electricity directives and regulations (‘third Energy Package’) have been enacted.21 Included in the package is Reg. (EC) No 713/200922 of the European Parliament and of the Council setting up an independent Agency for the Cooperation of Energy Regulators (ACER). These legal acts are set to be made part of the EEA Agreement. In particular, ACER proved difficult to fit into the traditional two-pillar model of administering the EEA, which does not really take account of the many new EU agencies with decision-making powers outside of the Commission. The solution found resembles that constructed for EFTA participation in the EU financial supervisory authorities: Representatives of the EFTA States will participate in the various ACER bodies where the EU States are represented, but without the right to vote. Vis-à-vis the EFTA States, the EFTA Surveillance Authority shall have the same powers to make decisions as ACER has with regard to the EU Member States, and shall make such decisions based on drafts prepared by ACER. The EFTA Surveillance Authority and ACER shall participate fully in each other’s work. In – the unlikely – event of disagreement, Article 111 EEA on settlement of disputes and safeguard measures shall apply.23 In short, ACER will effectively set the policy for the whole of EEA, based on input from representatives also of 18 19 20 21

The judgment at paras. 71-72. The judgment at paras. 73-77. Joined Cases C-105/12, C-106/12 and C-107/12, 22.10.2013 Essent and others. Among them Dir. 2009/72/EC concerning common rules for the internal market in electricity and Dir. 2009/73/EC concerning common rules for the internal market in natural gas, see footnotes 13 and 15 above. 22 Reg. (EC) No 713/2009 establishing an Agency for the Cooperation of Energy Regulators.

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the EFTA States. However, the EFTA States will not formally be subjected to ACER’s authority, but to that of their own organisation. VII. Energy Policy and Climate Policy

Energy policy is linked to climate policy. As the EU in the last 20 years has 16 developed an ambitious climate policy, Annex IV has been expanded to include many legal acts concerning measures to reduce the use of energy that is harmful to the climate. The aim to increase the share of energy from renewable sources is set out in the 2009 Renewable Energy Directive24 The Directive prescribes an increase in that share regardless of the share already achieved. This poses particular problems for Iceland and Norway, with their already very high share of electricity generation from geothermal sources and waterfalls: The higher the renewable share is at the outset, the more difficult and costly it is to increase it even further. Iceland and Norway therefore negotiated somewhat lower levels of increase, set out in Annex IV point 4, than what would have otherwise followed from the Directive.25 Annex IV also refers to EU legal acts on energy-efficiency design and mark- 17 ing. 18 Further legal acts on climate policy are to be found in Annex XX.26

Article 25 [Safeguard measures] Where compliance with the provisions of Articles 10 and 12 leads to: (a) re-export towards a third country against which the exporting Contracting Party maintains, for the product concerned, quantitative export restrictions, export duties or measures or charges having equivalent effect; or (b) a serious shortage, or threat thereof, of a product essential to the exporting Contracting Party; and where the situations referred to above give rise, or are likely to give rise, to major difficulties for the exporting Contracting Party, that Contracting Party may take appropriate measures in accordance with the procedures set out in Article 113.

Art. 23 is based on Art. 24 a of the free trade agreements between the EC 1 and the EFTA States. Art. 24 a was added to the agreements by 1989 supplemen23 See Proposal for a Council Decision on the position to be adopted, on behalf of the European Union, within the EEA Joint Committee concerning an amendment to Annex IV (Energy) to the EEA Agreement, COM(2017) 110 final, 3 March 2017. 24 Dir. 2009/28/EC on the promotion of the use of energy from renewable sources, made part of the EEA Agreement in Annex IV point 41 by EEA Joint Committee Decision No162/2011. The related Dirs. 2009/29/EC on emissions trading, 2009/30/EC on fuel quality and 2009/31/EC on carbon capture and storage have been made part of the EEA Agreement through Annex XX on environment points 21al, 21ad and 21at by Decisions No 152/2012, 270/2015 and 115/2012 of the EEA Joint Committee. 25 NOU 2012: 2 Utenfor og innenfor, p. 568. 26 See the comments by Nordtveit and Schütz on Art. 73-75.

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tary protocols on the elimination of existing and prevention of new quantitative restrictions affecting exports or measures having equivalent effect. Arts. 10 and 12 EEA ban customs duties and quantitative restrictions on exports as well as all charges and other measures having similar effects between the Contracting Parties, but the Agreement leaves the Parties free to set their own customs duties in relation to third countries – unlike the EU, the EEA is no customs union. This may lead to distortions of trade that are not possible within a customs union. Firstly, an exporter in one of the Contracting Parties wishing to avoid that Party’s export duties or restrictions towards a third country could export the goods first to another Contracting Party without the same duties or restrictions towards the third country in question and then re-export the goods from there to the third country. This would circumvent the export regime of the former Contracting Party. Secondly, the ban on export duties and other export restrictions on trade between the Contracting Parties could conceivably also lead to a serious shortage of products that are essential to the exporting Party. These situations are dealt with in Art. 23 litras a and b. Art. 23 allows the Contracting Party concerned to introduce safeguard measures, but only if the situation gives rise to, or is likely to give rise to, major difficulties for that Party. This additional condition significantly narrows down the right to introduce measures in order to counteract circumvention of customs duties and other export restrictions under litra a, but it adds little to the condition under litra b of a “serious shortage” of an “essential” product. Art. 23 refers to the procedure under Art. 113. This means that unless “exceptional circumstances requiring immediate action” obtain, the Contracting Party concerned must first inform the other Contracting Parties and allow one month of consultations within the EEA Joint Committee before applying the protective measure. Art. 23 only refers to “the procedures set out in Article 113”. This would seem to exclude the possibility of meeting measures under Art. 23 with rebalancing measures under Art. 114. Had it been the intention of the Contracting Parties to allow for rebalancing measures also in case of Art. 23, it would have been natural to refer also to Art. 114, which is not really a procedural rule. The free trade agreements did not provide for rebalancing measures against protective measures under Art. 24 a.

Article 26 [Anti-dumping and anti-subsidies measures] Anti-dumping measures, countervailing duties and measures against illicit commercial practices attributable to third countries shall not be applied in relations between the Contracting Parties, unless otherwise specified in this Agreement.

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I. Introduction

Anti-dumping measures are countermeasures against an imported product 1 sold at a lower price than the normal value of the product. This usually takes the form of a duty equal to the margin of dumping, or a “voluntary” undertaking by the producer concerned not to sell below a certain price. Countervailing duties are duties imposed to neutralise the effect of subsidies or export premiums granted by an exporting State. Both types of countermeasures are, subject to conditions, allowed under Art. VI GATT. The EU has enacted legislation pertaining to conditions and procedures for the imposition of anti-dumping measures and countervailing duties.1 From the perspective of producers in third countries, which until the entry in- 2 to force of the EEA Agreement included the EFTA States, the EU’s use of antidumping measures and countervailing duties is considered highly problematic. In their view, the EU accords to itself too wide a margin of discretion in deciding what constitutes dumping and subsidies, making it possibly to use these instruments in a protectionist manner, often at the urging of EU producers eager to ward off competition from abroad. Even if third country producers in the end are able to avoid measures against them, the process itself can be costly and time-consuming, and the producers may feel compelled to refrain from lowering prices simply to avoid such procedures being started Art. 26 also covers “illicit commercial practises”. This is a concept used by 3 the EU to cover international trade practises attributable to third countries and considered to be incompatible with international law or generally accepted rules for international trade.2 This concept has since been replaced by “obstacles to trade”, meaning “any trade practice adopted or maintained by a third country in respect of which international trade rules establish a right of action” – international trade rules being primarily those of the WTO but also of any other trade agreement that the EU has entered into.3 The countermeasures may take the form of any commercial policy measure compatible with existing international

1 At the time of the EEA negotiations in the form of Reg. (EEC) No 2423/88 on protection against dumped or subsidized imports from countries not members of the European Economic Community. Now see Reg. (EU) 2016/1036 on protection against dumped imports from countries not members of the European Union (the Basic Anti-Dumping Regulation) and Reg. (EU) 2016/1037 on protection against subsidised imports from countries not members of the European Union (the Basic Anti-Subsidy Regulation). 2 See Reg. (EEC) No 2641/84 on the strengthening of the common commercial policy with regard in particular to protection against illicit commercial practices, in force at the time of the EEA negotiations. 3 Art. 2 of Reg. (EC) No 3286/94 laying down Community procedures in the field of the common commercial policy in order to ensure the exercise of the Community’s rights under international trade rules, in particular those established under the auspices of the World Trade Organization. This regulation has now been replaced by Reg. (EU) 2015/1843 laying down Union procedures in the field of the common commercial policy in order to ensure the exercise of the Union’s rights under international trade rules, in particular those established under the auspices of the World Trade Organization, using the same concept.

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obligations and procedures including quantitative restrictions, the raising or introduction of customs duties or the suspension or withdrawal of concessions.4 II. No place for such measures in the EEA? 4

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Because of EU rules on free movement of goods, competition and state aid, including enforcement at Union level through the European Commission and the ECJ, there is no place for anti-dumping measures, countervailing duties or any other national measures to counter illicit trade practises between the EU States. With these rules made part of the EEA Agreement, including the establishment of the EFTA Surveillance Authority and the EFTA Court with powers comparable to those of the Commission and the ECJ, there should also be no place for such measures and duties between the EU and the EFTA States. Art. 26 therefore abolishes them “unless otherwise specified in this Agreement”. In Case T-115/94 Opel Austria,5 The Court of First Instance held that Art. 26 applies not only to measures in the form of duties, but also to any other measure, no matter what form they take, including undertakings accepted by Commission decisions in dumping cases. The express exceptions from Art. 26 are found in Protocol 13 “on the nonapplication [sic] of anti-dumping and countervailing duties”. There are two of them. The first exception is more of a clarification of the field of application of Art. 26 than an exception in the real sense: The Article applies only to “areas covered by the provisions of the Agreement and in which the Community acquis is fully integrated into the Agreement”. In Opel Austria, The Court of First Instance, not surprisingly, concluded that the field of state aid was such an area, and that an import duty on gearboxes from Austria introduced just as the EEA Agreement came into force could not be justified under Art. 26.6 The second exception allows measures to avoid circumvention of antidumping measures and countervailing duties aimed at third countries and of measures against illicit commercial practices attributable to third countries. For instance, it should not be possible to circumvent countervailing duties imposed by one Contracting Party by importing the product into one of the other Contracting Parties and then re-exporting it to the former Party under the protection of Art. 10 EEA. In addition to the express exceptions found in Protocol 13 and the special regime for fish and other marine products discussed below, it may be argued that Arts. 25, 64, 111(3), 112 and 114 EEA also open up for measures that are otherwise banned under Art. 26. This is perhaps particularly so under Art. 64, which deals with conflicts between the EU and EFTA sides on what constitutes lawful state aid under EEA law. As remarked by the Court of First Instance in Opel 4 Art. 13 of Reg. (EU) 2015/1843. 5 Case T-115/94, 22.1.1997, Opel Austria, para. 116 of the judgment. 6 Para. 117 of the judgment. The Court of First Instance concluded that the import duty infringed Art. 10 EEA banning import and export duties and all charges having equivalent effect.

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Austria, Art. 64 may be applied notwithstanding the other provisions of the Agreement and allows for measures to offset the effect of a distortion of competition.7 A countervailing duty would seem a natural choice. But also Arts. 25, 111 (3), 112 and 114 apply notwithstanding the other provisions of the Agreement. Safeguard measures pursuant to Arts. 25 and 112, the latter referred to in Art. 111(3), and rebalancing measures under Art. 114 could conceivably include measures of a type that would otherwise fall under Art. 26. However, it is important to bear in mind that measures under Arts. 25, 64, 111(3) and 112-114 are subject to special conditions and procedures.8 III. Trade in fish and other marine products: a special regime

The problem in this context has been the export of fish products from the EFTA States to the EU – mostly export from Norway because of its large fish farming industry and the way in which the Norwegian fishing industry has been organised. According to Art. 8(3) EEA, fish and marine products fall outside the products covered by the Agreement unless otherwise specified. Furthermore, Art. 42 TFEU provides that the competition rules, including the state aid rules, of the Treaty only apply to trade in agricultural goods, including fishery products, to the extent decided by the European Parliament and the Council. In light of this, Art. 20 EEA stating that “[p]rovisions and arrangements that apply to fish and other marine products are set out in Protocol 9” must mean that Arts. 53-64 on competition and State aid do not apply to the trade in fish and other marine products. Instead, Protocol 9 has its own competition and state aid regime. Art. 4 of the Protocol provides firstly that aid granted through State resources to the fisheries sector which distorts competition “shall be abolished”. Secondly, legislation relating to the market organisation in the fisheries sector “shall be adjusted so as not to distort competition”. Thirdly, the Contracting Parties undertake to “endeavour to ensure conditions of competition which will enable the other Contracting Parties to refrain from the application of anti-dumping measures and countervailing duties”. This, and the lack of any provision in Protocol 9, the Main EEA Agreement and SCA on any role for ESA with regard to state aid in the fisheries sector, has led ESA to conclude that it has no role in assessing state aid in that sector – this is left to the Contracting Parties themselves.9 In other words, the obligation un7 At para. 113. 8 As the Court of Instance also remarked with regard to Art. 64 at para. 113 of the judgment in Opel Austria. See further also the comments by Jordal and Mathisen on Art. 64 and by Fredriksen on Arts. 111-112. 9 Decision of 30 October 1996 concerning alleged state aid to the Norwegian salmon industry, in which ESA also stated that the state aid rules in the main EEA Agreement were not applicable. ESA has upheld this view in later decisions, most recently a decision of 27 July 2016. An action against that decision has been brought before the EFTA Court (Case E-12/16).

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der Art. 4 of Protocol 9 to “abolish” state aid and the promise that market organisations “shall be adjusted” so as to avoid distortion of competition boils down to a “best efforts” obligation: The Contracting Parties undertake to negotiate with a view to finding mutually acceptable solutions. Until such solutions have been found, the right to take measures under the applicable rules of international trade law remains. 13 A Joint Declaration annexed to the Final Act of the EEA Agreement contains an agreed interpretation of Art. 4(1) and (2) of Protocol 9, giving some guidelines for what the mutually acceptable solutions should be: There is no obligation for the EFTA States to take over the EU acquis with regard to competition and state aid in the fisheries sector, but whether or not the competition and state aid regimes they maintain distort competition are to be assessed on the basis of that acquis, with a possibility to assess regional state aid favourably also on the basis of very low population density.10 Furthermore, national provisions on market organisation in the fisheries sector are to be considered a priori compatible with the acquis provided they fulfil certain criteria with regard to producers’ organisations and price support interventions. 14 At the beginning of the 1990 s, the heavily regulated Norwegian fisheries sector had reached a crisis point. The crisis affected both traditional fisheries and the fish farming industry. The traditional fisheries were marred by overfishing. The growth of the fish farming industry had led to decreasing prices, and the attempt to deal with this had collapsed. This led to a reform of the sector, both with regard to market organisation and state aid. The solutions found made the sector more market-oriented than it had been. This was in part due to an increased trust in market solutions generally, but it also reflected a wish to avoid anti-dumping measures and countervailing duties, not only from the EU, but also the US and other states.11 15 Nevertheless, between 1991 and 2008, EU countermeasures, in particular anti-dumping measures, were almost continually in existence with regard to Norwegian salmon.12 In 2006, this led Norway to request the establishment of a WTO panel. When the panel report was published on 16 November 2007, both sides claimed victory. In July 2008, the EU discontinued its antidumping measures against Norwegian salmon,13 but the possibility of future action remains.14 It has thus far not been possible reach the goal set out in Protocol 9 to abolish

10 On this point, the Joint Declaration on Art. 4(1) and (2) of Protocol 9 refers to another Joint Declaration, on Art. 62(3)(c) EEA (corresponding to Art. 107(3)(c) TFEU) introducing very low population density as a criterion in the assessment of state aid schemes in general. In the current guidelines of ESA and the European Commission on regional aid, the term “very sparsely populated” is used. 11 See NOU 2012: 2 Utenfor og innenfor – Norges avtaler med EU, p. 670. 12 See NOU 2012: 2 Utenfor og innenfor – Norges avtaler med EU, p. 678 for an overview. 13 WT/DS337/R, finally adopted on 15 January 2008. 14 See Meld. St. (Report to (the Norwegian) Parliament) 10 (2015-2016) p. 92.

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the potential for anti-dumping measures, countervailing duties and other trade measures also in the fisheries sector. A bone of contention between the EU and EFTA sides concerning Protocol 9 16 has been whether the safeguard provisions found in Arts. 112-114 EEA also apply to the fisheries sector. Some Commission Regulations are based on the view that the Articles do apply.15 However, that would seem to run counter to Art. 8(3), cited above, on the product coverage of the EEA Agreement, which excludes fish and marine products unless otherwise specified. It also seems to be at odds with the express provision, in Art. 6 of Protocol 9, that “[i]n the event of failure to reach agreement [under Art. 4 on competition and state aid or Art. 5 on access to ports and first-stage marketing installations], the provisions of Art. 114 of the Agreement [on rebalancing measures] shall apply mutatis mutandis.” This would seem superfluous if Arts. 112–114 applied in any case.16

Chapter 5: Coal and steel products

Article 27 [Provisions concerning coal and steel products] Provisions and arrangements concerning coal and steel products are set out in Protocols 14 and 25.

Art. 27 is found in Part II to the EEA Agreement on the free movement of 1 goods. The provision is the sole provision of Chapter 5, which has the heading ‘Coal and steel products’. Art. 27 is one of the provisions explicitly referred to in Art. 8(2) EEA, thus limiting its application to coal and steel products originating in the Contracting Parties. Through its references to Protocol 14 and Protocol 25, Art. 27 incorporates a complex set of provisions on state aid, competition rules and information exchange. Coal and steel products are in principle under the Agreement’s product cover- 2 age, as defined by Art. 8(3).1 However, Art. 27 makes clear that coal and steel products are subject to a special regime, set out in Protocols 14 and 25. Protocol 14 concerns ‘trade in coal and steel products’, while Protocol 25, concerns ‘competition rules regarding coal and steel products’. 15 Reg. (EC) No 2907/95 making the release for free circulation of salmon of EEA origin condition upon the observance of a floor price cites Art. 112(1) and (3) EEA as the legal basis. Reg. (EC) No 1447/2004 imposing provisional safeguard measures against imports of farmed salmon and Reg. (EC) No 206/2005 imposing definitive safeguard measures against imports of farmed salmon were both notified to the EFTA States citing Art. 113 EEA although both of them were based on EU legislation referring to GATT and WTO, see Baur, “Suspension of Parts of the EEA Agreement”, in: Baudenbacher (ed), Handbook of EEA Law, pp. 69-83, at pp. 80-81. 16 Baur, op. cit. 81 suggests the opposite conclusion. 1 See further the comments on Art. 8(3).

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This specific set-up must be seen in its historical context, since the European Coal and Steel Community (‘ECSC’) was the first of the European Communities, entering into force in 1952. The ECSC Treaty had a specific product coverage, whereas coal and steel products falling outside that coverage were governed by the EEC Treaty that entered into force in 1958. The EFTA States concluded separate bilateral Free Trade Agreements with the ECSC and/or its Member States in 1972-1973 (‘ECSC FTAs’).2 Protocol 14, according to its Art. 1, concerns products covered by the bilateral ECSC FTAs, which were listed in the Annex to these agreements and refer to specific coal and steel products in Chapters 26, 27 and 76 of the Harmonized Commodity and Coding System.3 Art. 2 of Protocol 14 stipulates that the ESCS FTAs shall remain unaffected unless otherwise provided for in the Protocol itself. Art. 2(2) further stipulates that prohibitions on quantitative restrictions on exports, measures having equivalent effect and customs duties and charges having equivalent effect were to be abolished. Furthermore, Art. 3 prohibits the introduction of any restrictions or administrative and technical regulations which would form an impediment to the free movement of the coal and steel products covered by the Protocol. Finally, Art. 7 of the Protocol stipulates that the EEA Agreement’s rules of origin, found in Protocol 4, replace those laid down in the ECSC FTAs. Where the ECSC FTAs do not apply, Art. 2 of Protocol 14 stipulates that ‘the provisions’ of the EEA Agreement are applicable. This would clearly apply to all products not covered by the product coverage of the ESCS FTAs, but otherwise falling with the product coverage (and rules of origin) found in Art. 8 EEA. Art. 4 of Protocol 14 stipulates that substantive competition rules applicable to undertakings concerning the products covered by the Protocol are to be found in Protocol 25 and the secondary legislation set out in Protocol 21 and Annex XIV. Arts. 1 and 2 of Protocol 25 reproduce the substantive provisions of the ECSC Treaty (Arts. 65 and 66 ECSC), while Protocol 21 EEA refers to the procedural paragraphs of the original ECSC rules. However, the provisions of Protocol 25 were amended to take into account the more developed competition rules (such as the ‘affecting trade’ condition) found in the basic provisions of the EEC Treaty (at the time Arts. 85 and 86 EEC), and Arts. 53 and 54 EEA.4 Furthermore, Art. 5 of Protocol 14 takes precedence over the state aid rules of the ECSC FTAs concerning steel products.5 The ECSC Treaty was limited in time (Art. 97 ECSC Treaty) and expired 50 years after its entry into force, that is on 23 July 2002 – and with it any specific arrangements for trade in coal and steel products in the EU. After that point in 2 Norberg et al., EEA Law, p. 393. 3 More precisely, Chapters 26.01-02, 27.01-02, 27.04, 73.01-3, 73.05-73.13 and 73.15-16. See in general the comments on Art. 8(3). 4 Blanchet, Piipponen and Westman-Clément, The Agreement on the European Economic Area, 1994, p. 173. 5 Norberg et al., EEA Law, p. 398.

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time, these sectors were fully subject to the (then) EC Treaty and relevant secondary legislation derived from that Treaty.6 However, the EEA Agreement, and its Protocols have not been amended accordingly. As for free movement of goods, it is submitted that all coal and steel products are after the expiry of the ECSC Treaty subject to the general provisions on free movement of goods. That may also be supported by a reference to Art. 2 of Protocol 14, i.e. where the ECSC FTAs are no longer applicable, ‘the provisions’ of the EEA Agreement are applicable. Mathisen and Jordal also maintain that after the expiry of the ECSC Treaty, aid to the steel industry is now subject to Art. 61-63 EEA.7

Part III: Free Movement of persons Chapter 1: Workers and self-employed persons

Article 28 [Free movement of workers] 1. Freedom of movement for workers shall be secured among EC Member States and EFTA States. 2. Such freedom of movement shall entail the abolition of any discrimination based on nationality between workers of EC Member States and EFTA States as regards employment, remuneration and other conditions of work and employment. 3. It shall entail the right, subject to limitations justified on grounds of public policy, public security or public health: (a) to accept offers of employment actually made; (b) to move freely within the territory of EC Member States and EFTA States for this purpose; (c) to stay in the territory of an EC Member State or an EFTA State for the purpose of employment in accordance with the provisions governing the employment of nationals of that State laid down by law, regulation or administrative action; (d) to remain in the territory of an EC Member State or an EFTA State after having been employed there. 4. The provisions of this Art. shall not apply to employment in the public service. 5. Annex V contains specific provisions on the free movement of workers.

I. The “Widening Gap” between the EEA Agreement and the TFEU with regard to free movement of persons

Art. 28 EEA reiterates the wording of Art. 45 TFEU (the former Art. 48 1 EEC). The provision gives EEA workers1 and self-employed persons2 the right 6 Communication from the Commission concerning certain aspects of the treatment of competition cases resulting from the expiry of the ECSC Treaty, OJ No C 152, 26.6.2002, p. 5. 7 See the comments by Jordal and Mathisen on Arts. 61-63 EEA.

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time, these sectors were fully subject to the (then) EC Treaty and relevant secondary legislation derived from that Treaty.6 However, the EEA Agreement, and its Protocols have not been amended accordingly. As for free movement of goods, it is submitted that all coal and steel products are after the expiry of the ECSC Treaty subject to the general provisions on free movement of goods. That may also be supported by a reference to Art. 2 of Protocol 14, i.e. where the ECSC FTAs are no longer applicable, ‘the provisions’ of the EEA Agreement are applicable. Mathisen and Jordal also maintain that after the expiry of the ECSC Treaty, aid to the steel industry is now subject to Art. 61-63 EEA.7

Part III: Free Movement of persons Chapter 1: Workers and self-employed persons

Article 28 [Free movement of workers] 1. Freedom of movement for workers shall be secured among EC Member States and EFTA States. 2. Such freedom of movement shall entail the abolition of any discrimination based on nationality between workers of EC Member States and EFTA States as regards employment, remuneration and other conditions of work and employment. 3. It shall entail the right, subject to limitations justified on grounds of public policy, public security or public health: (a) to accept offers of employment actually made; (b) to move freely within the territory of EC Member States and EFTA States for this purpose; (c) to stay in the territory of an EC Member State or an EFTA State for the purpose of employment in accordance with the provisions governing the employment of nationals of that State laid down by law, regulation or administrative action; (d) to remain in the territory of an EC Member State or an EFTA State after having been employed there. 4. The provisions of this Art. shall not apply to employment in the public service. 5. Annex V contains specific provisions on the free movement of workers.

I. The “Widening Gap” between the EEA Agreement and the TFEU with regard to free movement of persons

Art. 28 EEA reiterates the wording of Art. 45 TFEU (the former Art. 48 1 EEC). The provision gives EEA workers1 and self-employed persons2 the right 6 Communication from the Commission concerning certain aspects of the treatment of competition cases resulting from the expiry of the ECSC Treaty, OJ No C 152, 26.6.2002, p. 5. 7 See the comments by Jordal and Mathisen on Arts. 61-63 EEA.

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to move freely and participate in economic activity in other EU Member States or EFTA States, on the same terms as nationals.3 The free movement of persons constitutes a fundamental right in EEA law.4 The recitals in the preamble point to the importance in which the Contracting Parties attach to this freedom. The Contracting Parties are, parallel to the EU legal order, convinced that individuals will play an important role in the EEA by exercising their rights under the Agreement and through the judicial review. Some aspects of the free movement of persons must be read in conjunction with the chapter on free movement of services (free movement rights for service recipients, like patients and students),5 and the chapter on freedom of establishment.6 2 Prior to the introduction of Union citizenship, the treaty-based rights to move and reside, in the EU legal order, only applied to economically active persons, i.e. workers (now Art. 45 TFEU), the self-employed (now Art. 49 TFEU), service providers and recipients (now Art. 56 TFEU). This is mirrored in the Main Part of the EEA Agreement, as it was negotiated whilst the Maastricht Treaty negotiations were still ongoing.7 According to Art. 28 EEA workers and selfemployed persons, as economic actors, benefit from the right to free movement. These migrants may be described as market citizens. 3 The scope of these free movement rights depends on how the concept of 'workers', 'employment' and 'remuneration and other conditions of work and employment' are defined and applied, see Art. 28(1) and (2) that reiterate the right to free movement in the EEA. Furthermore, free movement of persons within the EEA may be restricted. Art. 28(3) and (4) EEA reiterate the right to limit the free movement of persons in the EEA as laid down in the parallel provision of the present Art. 45(3) and (4) TFEU. In line with the overall objective of this commentary this chapter will focus on the area of free movement of persons in regard to a selection of specific EEA questions.8 In sections II-IV the Union citizenship’s consequences for the EEA is discussed more generally, separating between worker’s and resident’s rights in their home and host states. In section 1 For the sake of simplicity, the terminology used is either ‘EEA workers’ or ‘EEA citizens’. This includes both Union citizens (citizens of the EU Member States) and citizens of the EFTA States party to the EEA Agreement. 2 See below on Art. 29 EEA regarding the inclusion of the self-employed and the comments by Einarsson on Art. 31 EEA regarding the right of establishment. 3 This freedom includes ‘related’ or ’derived’ rights such as the right to remain in the host state’s territory after having been employed there. It also includes rights against the home state upon return, such as family members being granted a derived right of residence in that state, see below regarding the cases C-370/90, 7.7.1992, Singh and C-291/05, 11.12.2007, Eind from the ECJ. 4 See for a recent reference case E-28/15, 26.7.2016, Jabbi, paras. 49 and 59, see also Norberg et al., EEA Law, p. 402 characterizing this freedom as “one of the foundations of the European Economic Area”. See for the sectoral adaptations regarding Liechtenstein’s quantitative limitations for new residents, in force until 2019, Protocol 15 on transitional periods on the free movement of persons (Liechtenstein) and COM(2015) 411 final. 5 See the comments by Einarsson on Art. 36 EEA. 6 See the comments by Einarsson on Art. 31 EEA. 7 See the Preamble added after the conclusion of the Maastricht Treaty.

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V the concept of the worker is discussed in regard to its interplay with the right to free movement, stemming from Union citizenship. The concept of ‘citizenship of the Union’ in the EU legal order, introduced in 4 the Maastricht Treaty, also includes treaty-based free movement rights to persons that are not economically active. Of the rights laid down in the present Arts. 20-25 TFEU on Union citizenship, Art. 21(1) TFEU gives both economically active and inactive citizens of EU Member States the right to move and reside freely within the Member States and Contracting Parties. However, these rights are subject to the limitations and conditions laid down in the treaties and by the measures adopted to give them effect.9 No parallel provisions exist in the EEA Agreement. Hence, the ‘Widening Gap’ between the EEA Agreement and the TFEU is clear when comparing the Main Part of the EEA Agreement with EU primary law regarding the free movement of persons.10 However, there are dissimilarities between the free movement provisions in 5 the Main Part of the EEA Agreement and of those in EU primary law: The inclusion of the Citizenship Dir.11 in the EEA Agreement and the Joint Declaration call for a closer examination of the legal significance of this discrepancy.12 The provisions in EU secondary law are, with minor adjustments, repeated in the EEA Agreement: The words ‘Union citizen(s)’ are replaced with the words ‘national(s) of EC member States and EFTA States.13 This calls for a closer analysis of differences and similarities between the right of free movement of persons in the EEA legal order and in the EU legal order.14 In order to properly address the legal significance of the inclusion of the secondary legislation in the EEA

8 There is vast EU law literature on the right to free movement of the economically active as well as the right to restrict movement, see for a recent contribution with further references, Barnard, The Substantive Law of the EU, Part III, chapters 7-9. 9 Other rights provided to Union citizens are political rights (the right to vote and stand as a candidate for election), consular rights and diplomatic protection, see Art. 20 (b), 22, 23 and 24 TFEU, all of which are outside the scope of the EEA Agreement. 10 The "Widening Gap" is commented on several places in this book, see in particular the general context of this phenomenon in the introductory chapters, see Fredriksen on EEA Law in and beyond, mn. 50-51. Arnesen/Fredriksen on the Preamble, mn. 5, 16 11 Dir. 2004/38/EC replacing i.a. Dirs. 90/364/EEC, 90/365/EEC and 93/96/EEC. See also the inclusion and updating of other relevant pieces of secondary legislation such as Reg. 883/2004 on the coordination of social security systems, replacing Reg. 1408/71 and Reg. 492/2011 on freedom of movement of workers, replacing Reg. 1612/68. 12 Decision by the EEA Joint Committee No. 158/2007. 13 Confer Decision Annex VIII 1(c). See also the general adaptation in 1(d) regarding the words Treaty and secondary law. The possible significance of the adaptations 1(a) and (b) will be returned to in the case law analysis. These adaptations did not change the wording of the Dir., see also the inclusion of other relevant pieces of secondary legislation such as Reg. 883/2004 on the coordination of social security systems, replacing Reg. 1408/71 and Reg. 492/2011 on freedom of movement of workers, replacing Reg. 1612/68. 14 A recent commentary of the Citizenship Dir. is E. Guild and S. Peers and J. Tomkin, The EU Citizenship Dir., A Commentary (Oxford University Press, Oxford 2014). An older but still relevant commentary on the substance of the coordination regime for social security benefits (including in the EEA) is Van der Me, Free Movement of Persons within the European Community Cross-Border Access to Public Benefits (Oxford, Portland Oregon 2003).

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Agreement, further explanation in regard to the ECJ's interpretation of the EU primary law provisions on Union citizenship is needed.15 II. Free movement of persons in the EU after the introduction of the primary law provisions on Union citizenship

The Maastricht Treaty introduced the legal concept of citizenship in the Union based on the right to free movement and residence. One possible interpretation of the concept was the existence of a general right of free movement, residence and equal treatment for all Union citizens regardless of economic activity. After all, the right for people to move freely from one state to another is a distinct feature of the ever-closer Union. However, according to the wording in the treaty the citizenship rights are subject to limitations: They can only be exercised in accordance with the conditions defined by the treaties and the measures adopted thereunder.16 The understanding of this phrasing has undergone a transformation through the ECJ’s interpretation of the concept of Union citizenship and through the evolvement in secondary legislation. At this introductory stage, it will suffice to point out that the wording of the Treaty provisions, creating the novel concept of Union citizenship, limits the right of free movement and residence for Union citizens as well as their right to equal treatment.17 7 For this reason, it was for many years generally perceived, both in the EU Member States and in the EFTA States, that the status of Union citizenship was more symbolic in nature.18 The practical legal impact of the concept remained largely supplemental and residual to the legal categories into which EU law traditionally divided the nationals of the Member States, such as workers, selfemployed, job seekers, students, family members etc.19 The capacity of citizenship to strengthen and supplement the rights to free movement, residence and equal treatment, as these were laid down in other articles in the Treaty and secondary legislation, seemed unlikely for a long time. Thus, the absence of the concept of Union citizenship in the EEA legal order did not appear to challenge the functioning of the EEA Agreement. Nor did it appear to challenge the fundamental objective of provisions on free movement of persons in the EEA: To secure a dynamic and homogeneous interpretation. 6

15 See also the comments on the hierarchy of norms by Arnesen on Article 119, mn. 21-23 16 Art. 20 para. 2 TFEU ‘These rights shall be exercised in accordance with the conditions and limits defined by the Treaties and by the measures adopted thereunder’. This limitation has not stopped an expansive interpretation by the ECJ as demonstrated in this chapter. 17 A comprehensive overview and summary of Union citizenship can be found in Barnard [2016] The Substantive Law of the EU, fifth edition, Oxford University Press, chapter 10. 18 See for background information in M. Dougan and E. Spaventa, ‘Educating Rudy and the (non-)English patient: A double-bill on residency rights under Art. 18 EC’, 28 European Law Revew 28 2003, p. 699-712. 19 Van der Mei, Free Movement of Persons within the European Community Cross-Border Access to Public Benefits, Oxford, Portland Oregon 2003, in chapter 2 on historical context of free movement of persons which includes EEA nationals under the EEA Agreement, see p. 56.

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However, over the last two decades, the concept of Union Citizenship has un- 8 dergone significant changes. From ECJ case law, it is now possible to identify rights enjoyed by all Union citizens subject to conditions in the following areas: – Rights of departure, entry and return, including obligations on home states to include citizens who have taken up residence elsewhere – A right of residence in the host state – A right to equal treatment, including social welfare rights in the host and home states – Specific derived rights for family members The ECJ has come to understand Union Citizenship as a reason to rethink the 9 case law on the free movement of persons. In particular, the Court has struck down national rules that distinguish between nationals and migrants20 and between nationals who have migrated and those who have not.21 The ECJ has found the concept of Citizenship as a justification to expand the scope of the secondary legislation on migrants’ rights through a narrow interpretation of the limits of the said legislation.22 Scrutiny of the national rules’ proportionality characterises the case law – Union Citizenship compels that the personal circumstances of each individual must be taken into account despite the administrative burden this might entail.23 Union citizenship is described as a major step forward in the evolution of the right to free movement away from a simple economic right.24 The ECJ has thus used Union Citizenship as an instrument to eliminate the existing basic distinction between economically active and inactive Union citizens, and to create rights for all.25 In judicial literature, this has been described as a major condition to ‘liberate’ the EU from its economic preoccupation and to make way for a 'Citizens Europe'.26 For present purposes, the creation of a form of European social citizenship is 10 of particular interest.27 The ECJ has continuously maintained that citizens from other Member States can expect a certain degree of financial solidarity.28 In this chapter, no attempt is made to provide for a comprehensive analysis of the 20 Case C-456/02, 7.9.2004, Trojani, M. Dougan,‘ The constitutional dimension to the case law on Union citizenship’, European Law Revew 31(5) 2006, p. 613-641. 21 Case C-224/98, 11.7.2002, D’Hoop. 22 Case C-413/99, 17.9.2002, Baumbast, see also the analysis of the relationship between primary and secondary EU law and the constitutional dimension of the case law on Union citizenship in M. Dougan, ‘The constitutional dimension to the case law on Union citizenship’, European Law Revew 31(5) 2006, p. 613-641 and for more recent analysis of this dimension in Dougan, ‘The Spatial Restructuring of National Welfare States within the European Union: The Contribution of Union Citizenship and the Relevance of the Treaty of Lisbon’ in: U. Neergaard, R. Nielsen and L. M. Roseberry (eds), Integrating Welfare Functions into EU Law – From Rome to Lisbon, DJØF Publishing 2009. 23 Case C-499/06, 22.5.2008, Nerkowska regarding a Polish residence requirement for the payment of a disability pension, joined cases C-11/06 and 12/06 Morgan and Bucher [2007] ECR I-9161 on the award of education and training grants for studies in another Member State. This early approach by the Court may have been somewhat modified in the most recent cases where the Court is seen to have taken a retreating step, see cases C‑333/13, 11.11.2014, Dano and C‑67/14, 15.9.2015, Alimanovic and C-308/14, 14.6.2016, UK v Commission.

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case law concerning Union citizenship and the degree of solidarity required by EU law. The case law is under constant development, and exact limits and boundaries regarding rights based on Union citizenship can therefore not be drawn.29 Rather, the focus here is on the interpretation and application of EEA law on the free movement of persons, in particular in the area of economically inactive migrants and their family members.30 The Citizenship Dir. is added to Annex V (and VIII) and hence Art. 28 EEA is the better alternative for the present analysis.31 The analysis includes the free movement rights for the economically inactive in regard to both the individuals’ host state and home state. The purpose is to shed light on the question of whether there is a parallel right to free movement of persons in the EEA legal order in comparison to the EU legal order, despite the lack of Union Citizenship in the EEA Agreement. First, it seems necessary to comment in more detail on the Citizenship Dir. including the Joint Declaration attached to the incorporating decision. III. The Citizenship Dir. 2004/38/EC: The Joint Declaration No. 158/2007 11

The complicated history of the incorporation of the Citizenship Dir. into the EEA Agreement has already been described and analysed in the literature:32 The Icelandic Government’s initial view was that the provisions on both social policy and immigration policy in the Citizenship Dir. overstepped the legal bound-

24 Third report from the Commission to the Council and the European Parliament on the application of Dirs. 93/96, 90/364, 90/365 on the right of residence for students, economically inactive and retired Union citizens, COM(2006)156 final on p. 8 and a significant number of references to this change in the literature, i.e. M. Dougan and E. Spaventa, ‘‘Wish You Weren’t Here …’ New models of social solidarity in the European Union’ in: M. Dougan and E. Spaventa (eds), Social Welfare and EU Law (Hart Publishing, Oxford 2005); E. Spaventa, ‘The Constitutional impact of Union citizenship’ in U. Neergaard and R. Nielsen and L. Roseberry (eds), The Role of Courts in developing a European social model – Theoretical and Methodological Perspectives, 2010, pp. 141-168 and E. Spaventa, ‘Seeing the wood despite the trees? On the scope of union citizenship and its constitutional effects’, CMLR (45) 2008, pp. 13-45. 25 K. Hailbronner, ‘Union citizenship and access to social benefits’, CMLR (42) 2005, pp. 1245-1267. 26 K. Hailbronner, ‘Union citizenship and access to social benefits’, CMLR (42) 2005, pp. 1245-1267, p. 1245. For an early use of this expression, see Norberg et al., p. 402. 27 The political, electoral and diplomatic rights, Art. 20(2)(b-d), 22, 23 and 24 TFEU stemming from Union citizenship are all outside the scope of the EEA Agreement and do not create any specific challenges vis a vis the homogeneity objective in the EEA Agreement. See also Joint Declaration 158/2007 on the incorporation of the Citizenship Dir. into the EEA Agreement. 28 Case C-184/99, 20.9.2001 Grzelczyk, para. 44, case C‑140/12, 19.9.2013 Brey, para. 72. 29 See the recent retreat in cases such as cases C- 333/13, 11.11.2014, Dano, C-67/14 Alimanovic and C-308/14, 14.6.2016, UK v Commission. 30 The rights of TCNs are outside the scope of the EEA Agreement with the exception of TCN’s derived right as family members under the Citizenship Dir. and national requirements of sufficient means/economic activity. 31 See also the comments on the Preamble by Arnesen/Fredriksen, mn. 16, the comments by Wennerås on Art. 6, mn. 65-69 and Art. 3 SCA, mn. 5 and the comments by Einarsson on Art. 31 and 36. 32 J. Jónsdóttir, Europeanization and the European Economic Area, Routledge 2013, pp. 96-112.

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aries of the EEA.33 The Citizenship Dir. was nevertheless incorporated in the EEA Agreement without any changes or modifications as to its substantive content.34 35 When the Dir. was included in the EEA Agreement, the Contracting Parties 12 stressed that Union Citizenship and immigration policy are not part of EEA law.36 The reservations were reinforced by the Contracting Parties in the following Joint Declaration attached to the decision: The concept of Union Citizenship as introduced by the Treaty of Maastricht (now Articles 17 seq. EC Treaty) has no equivalent in the EEA Agreement. The incorporation of Directive 2004/38/EC into the EEA Agreement shall be without prejudice to the evaluation of the EEA relevance of future EU legislation as well as future case law of the European Court of Justice based on the concept of Union Citizenship. The EEA Agreement does not provide a legal basis for political rights of EEA nationals. The Contracting Parties agree that immigration policy is not covered by the EEA Agreement. …

The Citizenship Dir. is known as the citizens’ rights Dir. codifying to a large 13 extent the case law of the ECJ related to the right to move and reside freely, conferred on every citizen of the Union through the fundamental status of Union citizenship.37 Of the 31 recitals of the Dir.’s preamble, only eight make no explicit reference to Union Citizenship. The aim is, according to the preamble, to simplify and strengthen the right to the free movement and residence of all Union citizens. In the following, the question of how to reconcile the incorporation of provisions regarding the free movement of people into the EEA Agreement (similar to those under the Citizenship Dir.) with statements made by the Joint Committee in the above-mentioned decision, will be addressed. The lack of a parallel legal framework in the Main Part of the EEA Agreement will also be discussed.

33 J. Jónsdóttir, Europeanization and the European Economic Area, Routledge 2013, pp. 97-103. 34 Dir. 2004/38 was incorporated into the EEA Agreement through an amendment of annexes V and VIII, and the Dir. entered into force in the EEA on 1 March 2009, see decision by the EEA Committee No. 158/2007 OJ 2008L 124, p. 20, and EEA Supplement No. 26 8.5.2008, p. 17. 35 The usual adaptations such as substituting the words ‘Union citizen(s)’ with the words ‘national(s) of EC Member States and EFTA States’ were naturally included in the incorporating decision, confer Decision Annex VIII 1(c). 36 The preamble to the decision in the EEA Joint Committee incorporating the Dir. reads as follows: THE EEA JOINT COMMITTEE, … (8) The concept of ‘Union Citizenship’ is not included in the Agreement. (9) Immigration policy is not part of the Agreement. … Furthermore, it is stated that the provisions of the Dir. shall, for the purposes of the Agreement, be read with the following adaptations: (a) … (b) The Agreement applies to nationals of the Contracting Parties. However, members of their family within the meaning of the Dir. possessing third country nationality shall derive certain rights according to the Dir. (c) The words ‘Union citizen(s)’ shall be replaced by the words ‘national(s) of EC Member States and EFTA States.’… 37 Union citizenship destined to be the fundamental status of nationals of the Member States was first formulated in case C-184/99, 20.9.2001, Grzelczyk, para. 31.

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The Joint Declaration can be interpreted as a signal to the ECJ and the EFTA Court, as well as the EFTA Surveillance Authority and the European Commission, not to interfere with the welfare policies or the national immigration policies of the Contracting States under the EEA Agreement in the same manner as the concept of Union citizenship has had an impact on Member States’ national welfare policies and national immigration policies in the EU.38 Nothing in the references to this Joint Declaration by the institutions applying EEA law thus far indicates, however, that the Declaration has been interpreted as a legal limitation. IV. Case law from the EFTA Court 1. Introduction

15

In the first case where the EFTA Court commented on the Joint Declaration,39 the Court made some preliminary remarks indicating that the exclusion of the concept of Union citizenship (and immigration policy) from the EEA Agreement had no material impact on the present case.40 The ECJ’s interpretation of the Joint Declaration in Case C-431/11 UK v. Council is equally clear in disregarding the differences between EU and EEA law, due to the EEA law’s lack of Union citizenship provisions.41 Three EFTA Court cases will be analysed more closely below. The analysis will distinguish between the individuals’ rights in the host state, Case E-4/11 Clauder and in the home state, Cases E-26/13 Gunnarsson and E-28/15 Jabbi. 2. Individuals' rights in the host state a) Introduction

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The Clauder case42 was the first preliminary reference to the EFTA Court on the right to free movement for economically inactive citizens and the correlative right to a family life.43 The question in the case concerned the conditions subject 38 See the analysis of the incorporation process of the Dir. into the EEA in J. Jónsdóttir, Europeanization and the European Economic Area (Routledge 2013), pp. 96-112. 39 Case E-15/12, 22.7.2013, Wahl, paras. 72-92. 40 Case E-15/12, 22.7.2013, Wahl, para. 75. The case concerned the issue of membership of an organisation (Hells Angels) and the denial of entry into Iceland based on a risk assessment. While acknowledging the lack of the concept of Union citizenship in the EEA, the Court seemed less principled in its reasoning compared to earlier decisions such as case E-1/01, 22.2.2002 Einarsson and case E-1/02, 24.1.2003 Post doc and more inclined towards an analysis based on a case-by-case approach. In the Einarsson and Postdoc cases the Court rejected any application of revised EU Treaty provisions either directly or by analogy. 41 See for an analysis of this case in N. Rennuy and P. van Elsuwege, ‘Integration without membership and the dynamic development of EU law: United Kingdom v. Council (EEA)’, CMLR (51) 2014, pp. 935-954. The authors conclude on p. 945 that ‘[N]ationals of the four EFTA States are not to be regarded as third-country nationals as far as the application of the EU’s social security rules is concerned. On the contrary, they have the same status as the nationals of EU Member States.’ 42 Case E-4/11, 26.7.11, Clauder.

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to which a family member can derive a residence right in order to stay in a host state together with an EEA national who already holds a right of permanent residence. In particular, the question was whether the host state’s requirement of sufficient resources, for the right to family reunification, was compatible with EEA law. b) The facts of the case

Mr Clauder, a German national who at the time of the application for family 17 reunification had resided in Liechtenstein since 1992, was a pensioner and recipient of old-age pensions from both Germany and Liechtenstein. As the old-age pensions, even in combination, were relatively modest, he received supplementary benefits in Liechtenstein pursuant to national legislation. The application was rejected on the grounds that Mr. Clauder could not prove 18 that he had sufficient financial resources for himself and his wife. Hence, the national condition of having sufficient resources to not become a burden on the social assistance system of the host EEA state was not satisfied. The question at issue was limited to whether or not EEA citizens’ family members coud enjoy derivative rights to residence. Mrs. Clauder’s possible independent right to reside in Liechtenstein, as a German citizen, fell outside the scope of the case. c) The EFTA Court’s advisory opinion

In its decision, the EFTA Court recognised that Art. 16 in the Citizenship Dir. 19 is silent in terms of providing a right to family reunification.44 This silence becomes distinct as it contrasts with several other provisions in the Dir. that explicitly provide for a right to family reunification.45 Indeed, the application of Art. 7 in the Dir., regarding conditions for family reunification for the economically inactive, would not have led to the result that the national requirements were incompatible with EEA law obligations. On the contrary, the requirement of being self-sufficient in Liechtenstein was seemingly compatible with the requirements in the harmonised legislation.46 Despite the recognition of the absence of a provision in the Dir. as a legal basis for the right of family reunification in the case of Mr. Clauder, the Court nevertheless found the national requirement to be incompatible with EEA law. This finding is what makes the case important as the Court took an innovative step towards free movement rights for economically inactive citizens in the EEA Agreement. This is comparable to the Union citizenship case law in the EU legal order. 43 The Clauder case is also commented upon by i.a. Falch in his comments to Article 4, mn. 31 and by Pétursson in his comments on Article 13, mn. 13. 44 See para. 42. 45 In particular Art. 7, see above. 46 The situation can be compared with the situation in the UK in the Baumbast case, case C-413/99. In Baumbast, the national condition requiring full medical insurance, in order to achieve the right to a residence permit, was deemed fully compliant with Art. 1(1) of Dir. 90/364/EEC.

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The right to family reunification is only a derived right in the EU/EEA legal order. Hence, the right to family reunification depends on another EU/EEAbased rights being present. In the EU, the impact on national immigration and welfare law is based on the gradual expansion of the general right to free movement for all, regardless of economic activity based on the fundamental status of Union citizenship. In this context, Clauder can be viewed as effectively paralleling EU free movement rights for the economically inactive persons in the EEA. The Clauder case clearly laid the substantive foundation for the EEA integration process to include a parallel right to free movement, residence and equal treatment for all EEA citizens regardless of economic activity.47 3. Individuals' rights in the home state a) Introduction

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Both the Gunnarsson case48 and the Jabbi case49 raised a new question in EEA law. The question in both cases was whether economically inactive persons who had made use of their free movement rights could claim these in their home state.50 b) Union citizens’ rights in the home state in the EU legal order

The Citizenship Dir. distinguishes between Chapter II, Regulating the Right of Exit and Entry, and Chapter III, Regulating the Right of Residence on the Territory of Another Member State. The provisions in Chapter II, for example, give nationals certain rights in their home state. The home state is prohibited from requiring exit visas or equivalent formalities and is obliged to issue identity cards or passports for nationals leaving its territory.51 Corresponding obligations on the host state are laid down in Art. 5 of the Citizenship Dir. 23 Regulating both home and host state obligations is, however, limited to Chapter II on exit and entry. Chapter III has a different structure and solely establishes the right of residence on other Member States’ territory. This is clear from the wording in Art. 3(1) of the Citizenship Dir. which only applies to Union citizens (and their family members) who move to or reside in a Member State other than his or her home state. This wording has led the ECJ52 to conclude that the Dir. does not regulate the Union citizen’s and his/her family members’ right of resi22

47 See the comments on this in the preamble, see also the analyses of the case by T. Burri and B. Pirker, ‘Constitutionalization by Association? The Doubtful case of the European Economic Area’, Yearbook of European Law (2013) pp. 207-229 stating on p. 220 that ‘there is EEA citizenship’. 48 Case E-26/13, 27.6.2014, Gunnarsson. 49 Case E-28/15, 26.7.2016, Jabbi. 50 The cases are also commented upon by several of the contributors to this commentary. Wennerås comments extensively on both cases in his comments on Art. 6 and Art 3 SCA. Einarsson analysis the cases in his comments on Art. 31. Arnesen/Fredriksen, Tynes, Hillion, Falch, Pirker and Fredriksen all refer to various aspects of these important cases. 51 The Citizenship Dir. Art. 4.

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dence in the Union citizen’s own Member State. Union citizens’ right to reside in their own Member State is ascribed to them by principles of international law. A state cannot refuse its own nationals to enter and reside on its territory.53 The purpose of the Dir. is to strengthen the right of freedom of movement to other Member States.54 Hence, the Union citizens and their family members may only invoke rights under the Dir. in Member States other than their home state.55 Nevertheless, the ECJ has found that, under certain circumstances, a Union 24 citizen and his or her family members may have rights in their home state based on provisions in the Treaties.56 The derived right for family members to enter and reside in the home state of the Union citizen is based on the consideration that a refusal of the family members’ right to entry and residence could interfere with the Union citizen’s right of freedom of movement. Similarly, obstacles from the home state may interfere with the Union citizen’s personal right to free movement. According to the ECJ, a granting of a derived right of residence on the TCN 25 family member upon return to the Union citizen’s home Member State: ‘seeks to remove the […] obstacle on leaving the Member State of origin […] by guaranteeing that the citizen will be able, in his Member State of origin, to continue the family life which he created or strengthened in the host Member State’.57

The ECJ has ruled that the conditions for granting such a right of residence 26 ‘should not, in principle, be stricter than those provided for by the Citizenship Directive’.58 The O and B case, C-456/12, concerned a TCN family member’s right of res- 27 idence in the Union citizen’s state of origin. O, a Nigerian national, lived in Spain. His spouse, a Dutch national, resided with him there for two months without pursuing economic activity. She moved back to the Netherlands when she could not find a job in Spain. B, a Moroccan national, was resident in Belgium. His partner, a Dutch national, was resident in the Netherlands, but she visited B regularly in Belgium for a period of one and a half years. Both the TCNs applied for a right to reside in the Netherlands with their respective wives and partners. The applications were refused. The question before the ECJ was 52 Case C-457/12, 12.3.2014, S. and G., paras. 34-35 and case C-456/12, 12.3.2014, O and B, paras. 37-43 as well as Advocate General Sharpston in the recent opinion in joined cases C-523/11 and C-585/11, 18.7.2013 Prinz and Seeberger, para. 35. 53 European Convention on Human Rights Protocol No. 4 Art. 3. 54 See also the analysis by the ECJ regarding the provision of services in the case of Carpenter, case C-60/00, 11.7.2002, Carpenter, paras. 35-36. 55 See also the wording in Art. 7(1)(b) referring to the need to have sufficient resources not to become a burden on the social assistance system of the host Member State. Furthermore, Art. 24(1) refers to discrimination carried out by the host Member State, hence the right to equal treatment is with the nationals of that Member State (emphasis added). 56 For the Union citizen own rights, see as an example case C-224/02, 29.4.2004, Pusa, for family members’ derived rights, see cases C-370/90,7.7.1992, Singh, C-291/05, 11.12.2007, Eind and C-456/12, 12.32014, O and B. 57 Case C-456/12, 12.3.2014, O and B, para. 49. 58 Case C-456/12, 12.3.2014, O and B, para. 50.

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whether the TCNs were entitled to a derived right of residence in the Netherlands on the basis of Art. 21(1) TFEU. The ECJ had ruled in previous cases that such a right should be granted to TCN family members of returning Union citizens who had engaged in economic activity in the host Member State. 28 The first of these economic cases was Case C-370/90 Singh, which concerned a UK national who had resided in Germany for two years as a worker together with her Chinese spouse. They returned to the UK as self-employed. The ECJ ruled that the rights of movement and establishment conferred upon EU nationals by virtue of Arts. 48 and 52 EEC (now Arts. 45 and 49 TFEU) ‘cannot be fully effective if such a person may be deterred from exercising them due to obstacles in his or her country of origin in regard to the entry and residence of his or her spouse.59 29 In Case C-291/05 Eind, the question was whether a TCN daughter of a Dutch national, who had resided in the UK on the basis of Reg. 1612/68 Art. 10, was entitled to a derived right of residence in the Netherlands when the father moved back to his home state. According to the ECJ, the right of a migrant worker to return to his home Member State ‘after being gainfully employed in another Member State is conferred by Community law, to the extent necessary to ensure the useful effect of the right to free movement for workers under Art. 39 EC (now Art. 45 TFEU) and the provisions adopted to give effect to that right’.60 The ECJ stated the following: “[A] national of a Member State could be deterred from leaving that Member State in order to pursue gainful employment in the territory of another Member State if he does not have the certainty of being able to return to his Member State of origin, irrespective of whether he is going to engage in economic activity in the latter State.”61

The ECJ found that a worker’s right to return to his/her home state could not be considered a purely internal situation and that ‘[b]arriers to family reunification are therefore liable to undermine the right to free movement which the nationals of the Member States have under Community law’.62 It is clear from Singh and Eind that TCN family members’ right of residence in the Union citizen’s home Member State is based on the prohibition on restrictions on free movement pursuant to the Treaty provisions. 31 In the case of O and B, the question was whether the case law resulting from Singh and Eind could be applied generally in situations covered by Art. 21(1) TFEU. The ECJ’s answered in the affirmative. However, the scope of application of Art. 21(1) TFEU was limited to circumstances where the ‘residence of the Union citizen in the host Member State (by virtue of Art. 21(1) TFEU) has been sufficiently genuine so as to enable that citizen to create or strengthen family life in that Member State’.63 30

59 60 61 62

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Hence, it was firmly established in the O and B case that Art. 7 of the Citizen- 32 ship Dir. did not place any obligations on the home state regarding rights of own nationals who have exercised their free movement rights. The Court was exceptionally clear, stating that this interpretation of the limits of the application of the Dir. follows from a ‘literal, systematic and teleological interpretation’ of the Citizenship Dir.64 Thus, it follows that a Union citizen may not rely upon Art. 7 of the Dir. in his or her home state under EU law. Having regard to the first paragraph of its preamble, the Citizenship Dir. 33 clearly promotes free movement in the context of economic activity (workers, services and establishments) as well as free movement in the context of Union citizens regardless of their economic activity. Arts. 45, 49 and 56 TFEU constitute the legal basis for rights in the sphere of economic activity. Arts. 20 and 21 TFEU constitute the legal basis for rights beyond the sphere of economic activity. The new legal environment that was introduced with the provisions on Union citizenship was spelt out by the ECJ in Baumbast in the following manner: “Although, before the Treaty on European Union entered into force, the Court had held that that right of residence, conferred directly by the EC Treaty, was subject to the condition that the person concerned was carrying on an economic activity within the meaning of Articles 48, 52 or 59 of the EC Treaty (now, after amendment, Articles 39 EC, 43 EC and 49 EC) (see Case C-363/89 Roux [1991] ECR I-273, paragraph 9), it is nonetheless the case that, since then, Union citizenship has been introduced into the EC Treaty and Article 18(1) EC has conferred a right, for every citizen, to move and reside freely within the territory of the Member States”.65

The absence of parallel provisions in the EEA Agreement that reflect primary 34 EU law on Union citizenship seemed to create differences between the two legal orders in regard to the right to free movement for economically inactive migrants. The EFTA Court, however, saw this differently in the two cases where this question was at issue. c) The Gunnarsson case

The Gunnarsson case concerned two Icelandic citizens, Mr. and Mrs. Gun- 35 narsson. They were both residents in Denmark from 2004 to 2009. During that period, they depended on Mr. Gunnarsson’s disability pension from the Icelandic social insurance administration as well as benefit payments from two Icelandic pension funds. Mr. Gunnarsson paid taxes in Iceland. Under the Icelandic tax legislation applicable at the time, there was an inter-spousal personal tax credit where a husband and wife could pool their tax credits if this was to their financial advantage. Mr. Gunnarsson and his wife’s application for tax pooling in Iceland was 36 turned down on the grounds that such pooling was only possible between taxpayers with unlimited tax liability in Iceland (essentially resident taxpayers) or 63 Case C-456/12, 12.3.2014, O and B, para. 51. 64 Case C-456/12, 12.3.2014, O and B, para. 37. 65 Case C-413/99, 17.9.2002, Baumbast, para. 81.

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where both spouses were recipients of Icelandic pensions. Mr. Gunnarsson and his wife were neither residents in Iceland nor both recipients of a pension pursuant to Icelandic law during the relevant period. Therefore the Court concluded that the conditions authorising the transfer of unused personal tax credits between spouses were not fulfilled. Essentially, the national legislation excluded pensioners who resided in other EEA states from utilising the same tax credits as Icelandic residents. 37 Mr. Gunnarsson claimed repayment of the excess taxes he had paid. The Supreme Court of Iceland decided to seek an advisory opinion from the EFTA Court on the compatibility of the national rule with EEA law. The national court specifically asked the EFTA Court whether it made any difference that the Treaty provisions on Union citizenship in EU law were not paralleled in the EEA Agreement.66 The EFTA Court issued a ruling in favour of Mr. Gunnarsson, holding that the national rule was incompatible with the former Dir. 90/365 and subsequently the Citizenship Dir. The EFTA Court concluded that Art. 7(1) (b) of the Dir. must be interpreted as granting the moving person not merely a right of residence in relation to the host state but also a right to move freely away from his/her state of nationality: “[T]he latter right prohibits the home State from hindering such a person from moving to another EEA State”.67

This represents a significant divergence from the ECJ’s position regarding rights stemming from the Dir. The EFTA Court observed that less favourable treatment of nationals who no longer reside in their home state, compared to those who do, would hinder their right to move freely. This is familiar terminology from the ECJ’s case law on the right to move freely, which, under the Union citizenship provisions, include, as already demonstrated, the economically inactive person.68 39 Arguably, the EFTA Court’s diverging interpretation of the Dir. maintained substantive parity with EU law, ensuring equal levels of protection for individual rights throughout the EEA.69 The applied methodology is highly unusual. 38

66 See question 2 from the Supreme Court, cited in decision by the EFTA Court para. 29. 67 Case E-26/13, 27.6.2014, Gunnarsson, para. 82. 68 See for instance the cases C-224/02, 29.4.2004, Pusa and case C-520/04, 9.11.2004, Turpeinen. Both cases involved retired Finnish nationals who moved to Spain and who incurred greater tax liability in Finland than what would have applied had they remained residents there. In neither case did the ECJ consider the provisions of Dir. 90/365 EEC (which preceded Dir. 2004/38). The ECJ decided that the rights of Union citizens stemming from the Treaty were violated when the national rules had the effect of placing some of its nationals at a disadvantage ‘simply because they [had] exercised their freedom to move and to reside in another Member State’, see cases C-224/02, 29.4.2004, Pusa, para. 20 and C-520/04, 9.11.2004, Turpeinen, para. 22. 69 Supporting this interpretation of the decision, see C. Burke and O. I. Hannesson, ‘Citizenship by the back door? Gunnarsson’, CMLR (52) 2015, pp. 1-24, see also C. Baudenbacher, ‘The EFTA Court and the ECJ – Coming in parts but winning together’ in: The Court of Justice and the Construction of Europe: Analysis and perspectives on Sixty years of case Law (Springer/ Asser Press 2013), p. 183.

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This is the first time the EFTA Court has applied secondary legislation to grant rights under the EEA legal order that did not follow from an identical provision within the EU legal order. Divergence from the EU legal order on an identical point of law has already materialised under the EEA Agreement. This has, however, led to a more narrow range of available rights.70 The Gunnarsson case is the first case where the EFTA Court has interpreted EEA law to entail more extensive rights than what follows from the ECJ’s settled interpretation of an identical provision. d) The Jabbi case

The Jabbi case concerned a Gambian national who married a Norwegian na- 40 tional in Spain and lived with her in Spain almost a year. The Norwegian sponsor did not engage in economic activity during her stay in Spain and it was undisputed that she was entitled to receive a disability pension. Mr. Jabbi' s application for residence in Norway, as the spouse of an EEA national, was rejected by the immigration authorities. Proceedings were therefore instigated before Oslo District Court with the claim that Mr. Jabbi had a derived right of residence in Norway as a result of his wife’s stay in Spain and subsequent return to Norway.71 The principal question in the case was whether an economically inactive EEA 41 citizen seeking family reunification with a TCN national has EEA-based rights upon the return to his/her home state based on EEA law. In other words, the question was whether the described situation is governed exclusively by national domestic (immigration) law or whether rights in this regard can be derived from EEA law. The Court noted that a gap between the two EEA pillars had emerged since the signing of the EEA Agreement in 1992. This development creating certain discrepancies could, depending on the circumstances, have an impact on the interpretation of EEA law.72 Regarding the right to free movement of persons, the EFTA Court seemed, 42 however, determined to avoid an unequal level of protection between the EEA and the EU.73 The Court relied on both Eind74 and Gunnarsson75 to reach the following conclusion: Where an EEA national has created or strengthened a family life with a third country national, during genuine residence in an EEA State other than that of which he or she is a national, Arts. 7(1)(b) and Art. 7(2) of the Citizenship Dir. apply by analogy where that EEA national returns with the family member to his or her home State. Through the advisory opinion in 70 See for example Case E-4/04 Pedicel concerning products outside the scope of the EEA Agreement. 71 The national case was in the Court of first instance ultimately decided based on national law, see decision 23 March 2017, Case nr 15-052864TVI-OTIR/08. 72 Para. 62. 73 See in particular the Court’s reasoning in paras. 66-68. 74 Case C-291/05 Eind. 75 Case E-26/13 Gunnarsson.

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Jabbi the EFTA Court has taken yet another step to ensure substantial similarity of rights of free movement of persons in the EEA legal order corresponding to the EU legal order.76 43 In paras. 78 and 82 of the EFTA Court’s advisory opinion subscribes that the Citizenship Dir. Art. 7(1)(b) applies by analogy to a returning national’s situation. The Court made this reference stating that a derived right depends on the conditions in this Art. to be fulfilled (in addition to other conditions familiar from ECJ Union citizenship case law regarding 'genuine stay' and length of stay for the Union citizen to find him/herself in a cross-border situation). The Court’s statements can be interpreted as a means to maintain national requirements for family reunification in terms of financial means available for the sponsor.77 However, the decision is consistent with the Gunnarson case in paralleling in the EEA right to free movement for persons independent of their economic activity. This is comparable to the Union citizenship case law in the EU. Hence, based on the institutional practices, the right to free movement of persons is effectively paralleled in the EEA.78 V. The concept of worker and Union citizenship

The legal significance of the Union citizenship provisions in the EU legal order may also be observed in the ECJ case law regarding the concept of a worker. The extent of the prohibition on discrimination depends on how, amongst others, the concept of worker is defined and applied. The distinction between an economically active worker and an economically inactive student was at centerstage in the case of C-46/12 L.N.79 The ECJ assessed the compatibility of Danish residence requirements for the grant of maintenance aid to students. The question in the case was whether Mr. N was to be considered as a worker according to Art. 45 TFEU or as an economically inactive student. As a worker, Mr. N could not be denied the maintenance grant, whereas the Danish residence requirement was compatible with the Citizenship Dir. in regard to students. The facts of the case pointed clearly in the direction that Mr. N entered Denmark intending to study. 45 The Danish and the Norwegian governments argued to the effect that the intention of Mr. N, when he entered Danish territory, which was to follow a course of study, excluded him from having the status of ‘worker’ within the meaning of Art. 45 TFEU. The governments were presumably motivated by the fear of circumvention of national limitations on rights to financial support in the host state of migrating students. This could be the case if students engaged in part-time work in the summer while aiming to take courses in the fall. 44

76 See also the comments to the preamble about how to understand the homogeneity objective. 77 At the time of writing the national case is still pending in the domestic court. 78 See for an analysis of the Jabbi case in a different context by Olafur Einarssons’ comments on Art. 30-39 EEA. 79 Case 46/12, 21.2.2013 L.N.

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The ECJ began its reasoning in the case with numerous references to the 46 rights of Union citizens, the fundamental status of Union citizenship and its Union citizenship case law. This line of reasoning seemed to almost indicate that the Court disagreed with the limitation in the Citizenship Dir. whereby Union citizens can be denied equal treatment, in particular in regard to student maintenance grants. In para. 38, the Court refutes the argument that entering the territory of Denmark with the principal intention of following a course of study precluded Mr. N from having the status of worker. The Court then leaves it to the national court to assess the employment activities of Mr. N but underlines that low level of remuneration, low productivity, or the fact that the person only works a few hours per week does not exclude that person from being recognised as covered by the autonomous meaning specific to EU law of a worker. As pointed out in the next section regarding Art. 29 EEA, there are a number 47 of cases from the ECJ where the Court refers to Union citizenship in its reasoning regarding free movement rights for persons formerly covered by the right to free movement of the economically active.80 As demonstrated by the EFTA Court i.a. in Cases E-3/12 Jonson and E-6/12 ESA v. Norway there are parallel rights of free movement in the EEA Agreement. Hence, it is unlikely that the EFTA institutions in the future will interpret the concept of a worker in the EEA differently and more limited than the ECJ’s interpretation in the case C-46/12 L.N.81

Article 29 [Social security for workers and self-employed persons] In order to provide freedom of movement for workers and self-employed persons, the Contracting Parties shall, in the field of social security, secure, as provided for in Annex VI, for workers and self-employed persons and their dependants, in particular: (a) aggregation, for the purpose of acquiring and retaining the right to benefit and of calculating the amount of benefit, of all periods taken into account under the laws of the several countries; (b) payment of benefits to persons resident in the territories of Contracting Parties.

I. Introduction

Art. 29 reproduces parts of Art. 48 TFEU (former Art. 51 EEC). The wording 1 of Art. 29 EEA differs slightly in the sense that self-employed persons are explicitly referred to.1 Annex VI EEA contains references to the relevant secondary legislation in the field of social security.2 The EEA citizens’ rights to 80 One example is the right to free movement of the unemployed receiving benefits, see i.a. cases C-406/04, 18.7.2006, De Cuyper, C-228/07, 11.9.2008, Petersen, C-503/09, 21.7.2011, Stewart, C-140/12,19.9.2013, Brey. 81 See also the analysis of this case law in Fløistad (2016) Associated, Adapted and almost Assimilated. The European Economic Area Agreement in a revised EU constitutional framework for welfare services, Ph.D., European University Institute.

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move and reside freely, as described above, would to a large extent be deprived of their real importance if the field of social security had not been included in the EEA Agreement. The possibility to export a right to benefit including contributions to the social security scheme in one state to give rise to a right of benefit in another state as well as the aggregation of time periods is necessary to give real effect to the provisions on free movement of persons.3 2 The EEA Joint Committee’s decision to incorporate the coordination regime for social security benefits does not contain an EEA specific Joint Declaration similar to the one in the decision to incorporate the Citizenship Dir.4 Reg. No. 883/2004 and Reg. 987/2009 both, as amended and as adapted to the EEA Agreement Protocol 1 thereto, coordinate the application of social security schemes within the EEA.5 II. Case C-431/11 UK v. Council

The decision to include Reg. 883/2004 in the EEA Agreement was, however, part of the dispute in the EU legal order in the case C-431/11 UK v. Council.6 The case is one of the relatively few examples of the ECJ interpreting EEA law specifically. The legal question in the case is directly relevant for the scope of the right to free movement of persons, and the decision sheds significant light on the importance of the homogeneity principle in the EEA Agreement from the ECJ’s point of view.7 4 This decision is significant as the ECJ has, in its past case law, not refrained from expressing the differences between the EU and the EEA legal order. Thus, historically speaking, the fundamental aim of homogeneity in the EEA Agreement has not prevented the ECJ from emphasising the differences between the two legal orders. In its first decision on the EEA Agreement, the ECJ underlined the fundamental differences between the two legal orders, referring to European unity as a unique concern of the EU legal order, going far beyond the economic objective of the EEA legal order.8 Its heavy emphasis on the different objectives 3

1 See Norberg et al., EEA Law, p. 419 footnote 55 regarding this preference on the part of the negotiators achieving the same objective as achieved in the EU legal order through secondary legislation. 2 See this Article in context with Sundet comments on Social Policy Art. 66-71. 3 See Norberg et al., EEA Law, pp. 418-422. 4 See Annex VI to the EEA Agreement (Social Security). 5 Reg, (EC) No. 883/2004 on the coordination of social security systems and Reg. (EC) No. 987/2009 laying down the procedure for implementing Reg. (EC) No. 883/2004 on the coordination of social security systems. 6 Case C-431/11, 26.9.2013, UK v Council. The position by the Court has later been reiterated in the decision in Case C-656/11, 27.2.2014, UK v Council on the Suisse Agreement on Movement of Persons. 7 Note, however, that the ECJ reached the same interpretative result in cases involving the bilateral relation of the EU and Switzerland, perhaps reducing the significance of the EEA specific result, see case C-656/11 UK v Council. 8 Opinion 1/91, see comments on Art. 1.

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of the two legal orders was also evident in the line of case law from the ECJ concerning tax deductions.9 Furthermore, the ECJ has a long history, dating back to the Polydor case,10 of refusing to accept that an interpretation of provisions in EU law can be automatically applied by analogy to the free trade agreement, focusing in particular on the different aims of the treaties. A different approach from the one described above can, however, be seen in case C-431/11 concerning the UK’s obligations in regard to moving EEA nationals under Reg. 2004/883.11 More precisely the case involved the rights of economically inactive persons moving within the EEA, and the possibility of closing in the circle of persons with the status of Union citizenship. The arguments made by the UK and Ireland were based on nationals of the EFTA States being considered as third country nationals (TCNs). The case of UK v. Council seems, at first glance, like a technical case concerning the choice of a correct EU legal basis for a decision in the EEA Joint Committee to update the annexes of the EEA Agreement in the field of social welfare benefits. The process of updating the annexes seldomly (especially on the EU side) raises problematic issues. The UK and Ireland were, however, concerned that the updated Reg. would give social rights to economically inactive TCNs, given that, in their opinion, nationals of the EFTA States were to be considered as TCNs. An extension of social rights to economically inactive TCNs was, according to the UK, within the scope of the reservation that the UK had made in relation to the EU policy on immigration. For this reservation right to be invoked, also in an EEA context, however, there was a need to change the legal basis for the decision in the Council from Art. 48 TFEU to also include Art. 79 TFEU. In other words, the UK attempted to limit the solidarity in terms of rights to national welfare benefits for Union citizens, leaving EFTA State nationals, in particular economically inactive nationals from the EFTA States, outside the circle of beneficiaries. The dispute was triggered by the extension of the new rules in the coordination regime into the EEA Agreement.12 To that end, the Council had established which position the EU should take in the EEA Joint Committee in regard to the 9 The string of cases started with case C-72/09, 28.10.2010, Rimbaud and continued with cases C-267/09, C-342/10, C-387/11, C-112/14. The cases all concern the application of Art. 40 EEA and the lack of corresponding provisions in the EEA to those of Dir. 77/799/EEA (now Dir. 2011/16/EU) on mutual assistance between Member States’ authorities in the field of direct taxation. 10 Case 270/80 Polydor. 11 See also Fredriksen’s view on this case in his comments to Article 105, mn. 13. 12 In this context it should be added that Reg. (EU) No. 1231/2010 extending in the EU legal order the application of the coordination regime for social security to nationals of a third country who are not already covered, solely on the ground that their nationality was never included in the annexes of the EEA Agreement, see the decision of the EEA Joint Committee 9 July 2014 explicitly stating that coordination regime applies without this addition in Art. 1 subparagraph (b). Hence the case C-431/11 UK v Council was only about EFTA States' nationals being considered as TCNs.

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freedom of movement of workers within the EU internal market as enshrined in Art. 48 TFEU.13 The UK, supported by Ireland, challenged the decision, taking the view that regard should be had to the provisions concerning the rights of TCNs in the area of freedom, security and justices, and more precisely Art. 79(2) TFEU. The UK argued quite correctly that the practical importance of distinguishing between these provisions was the special rights for the UK and Ireland in the context of Art. 79(2)(b) to opt out of legislative acts. In the context of Art. 48 TFEU, there is no parallel opt-out, but only an emergency brake mechanism, which was not relevant in the case. 9 However, the ECJ did not accept this line of reasoning. In order to reach the conclusion that Art. 48 TFEU was the appropriate legal basis for the decision, the Court had to ‘internalise’ the EEA Agreement. This internalisation meant that the Court employed language whereby the EFTA States, through the EEA Agreement, were almost considered ‘one of us’ (a part of the EU) and therefore not part of EU external relations or EU policies regarding TCNs. Only by departing from the ordinary view through characterising the EEA Agreement as semi-internal could the Court achieve the desired interpretation. It is crucial that the citizens of the EFTA States are not put in the same box as TCNs and that mobility in the EEA is secured. 10 Had the Court accepted the view of the UK’s and Ireland’s Governments, this would have been a serious defeat for the EEA Agreement’s homogeneity principle. The Court relied strongly on the element of reciprocity when it reached its conclusion. It repeatedly referred to the rights of EU citizens in the EFTA countries. Underlying the reasoning and the conclusion was also arguably a sense of solidarity, albeit clearly based on reciprocity. Economically inactive EEA individuals are included as members of the EU also in terms of their right to national social welfare benefits outside the economic justification of such rights, provided these same rights are extended to EU nationals in the EFTA States. All are, in a sense, members of the same community, a point of view that powerfully reinforced the strength of the homogeneity principle in the EEA as it is understood by the ECJ.14 11 Regarding the wider implication of the case, Rennuy and Elsuwege have concluded that ‘the objective to provide for the fullest possible realisation of the internal market on the basis of homogeneity arguably puts the contracting EFTA States on par with EU Member States for all areas covered by the EEA Agreement’.15 Burri and Pirker refer to the concept of 'EEA citizenship'.16

13 Council Decision 2011/407/EU of 6 June 2011. 14 See also the analysis of the case in N. Rennuy and P. van Elsuwege, ‘Integration without membership and the dynamic development of EU law: United Kingdom v. Council (EEA)’, CMLR (51) 2014, pp. 935-954. The authors conclude on p. 945 that ‘[N]ationals of the four EFTA States are not to be regarded as third-country nationals as far as the application of the EU’s social security rules is concerned. On the contrary, they have the same status as the nationals of EU Member States.’

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III. EFTA Court – social security case law

The first steps to develop the EEA Agreement in the direction of encompass- 12 ing social rights beyond the rights afforded to the economically active citizen, was taken in Case E-5/06.17 The case regards the understanding of the coordination regime for social security benefits in the Regs. 1408/71 and 574/72.18 The main reason for adopting a coordination system was that national social welfare systems in large remain built on the principle of territoriality and nationality.19 Territoriality of the national welfare systems means that the states in principle confine payments to residents for consumption within the state borders. Not being able to export a social security benefit would seriously deter the beneficiary from exercising his or her right of free movement. The EEA Agreement, therefore, guarantees, subject to the coordination, that a person who has been covered for a certain period under an EEA state’s social welfare system, does not lose entitlement to a benefit as a consequence of settling in another EEA State. However, this also entails limits for the coordination regime. The regime only aims to overrule the ‘principle of territoriality’ as far as this is necessary to prevent people who cross national frontiers from being disadvantaged in the field of social security benefits. It is essential to understand that rather than being harmonised, social security 13 schemes are coordinated. Coordination means that the individual will not lose his or her social security rights as a consequence of exercising the right to freedom of movement. Social security coordination aims to secure access to social security in the new host state and to prevent the loss of acquired social security rights in the former state of residence or employment (home state). Coordination is a method that leaves the competence to legislate on social security matters in the hands of the states. It also secures the possibility of maintaining a variety of different national social security schemes. ‘It is based on the understanding that disparities would and should exist, but ought not to create an obstacle to free movement’.20 The coordination regime includes social welfare-type benefits, which typical- 14 ly cover social security schemes as opposed to social assistance schemes. Social security-type schemes are characterised by legally defined rights and an element of contribution by the beneficiary, typically through former work engagement. 15 N. Rennuy and P. van Elsuwege, ‘Integration without membership and the dynamic development of EU law: United Kingdom v. Council (EEA)’, CMLR (51) 2014, pp. 935-954, p. 947. 16 T. Burri and B. Pirker, ‘Constitutionalization by Association? The Doubtful case of the European Economic Area’, Yearbook of European Law (2013) pp. 207-229, p. 220. 17 Case E-5/06, 14.12.2007, ESA v. Liechtenstein. 18 The Regs. are later replaced by Regs. 883/2004 and 987/2009. 19 See generally on the coordination of social security schemes in A.P. Van der Mei, Free Movement of Persons Within the European Community Cross-Border Access to Public Benefits (Oxford, Portland Oregon 2003), which also includes an analysis of the EEA dimension to the coordination. 20 M. Sakslien, ‘The Concept of Residence and Social Security: Reflections on Finnish, Swedish and Community Legislation’, European Journal of Migration and Law 2: pp. 157-183, 2000.

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This payment of social charges by the worker, and/or his/her employer, entitles the worker to sickness, unemployment or pension benefits. The levels of the benefits are fixed, and it does not generally depend on the individuals’ other income sources. Normally, payments are funded out of collectively paid contributions. The coordination regime does not cover social assistance-type benefits that are not legally defined rights or generally means tested. Social assistance is subsidiary in nature. These benefit schemes are usually offered to all members of a society and serve as a financial safety net for those in need. Normally, they are paid out of general tax revenues, and enjoyment does not depend on former contribution. The legal question in case E-5/06 concerned a benefit that was ‘half way’ between traditional social security and social assistance. The so-called special noncontributory benefits, a mixed kind, are based on a legally defined right. However, they do not depend on the length of work periods or amount of contribution. They are intended to relieve a clear financial need. Other examples than the benefit in the case would be supplements to pension and special benefits for disabled persons. There are three main reasons why social assistance-type benefits are not covered by the coordination regime, and thus why enjoyment is normally limited by the territoriality/nationality principle. Such benefits are perceived as being connected to an understanding of solidarity and thus the responsibility of the state, which normally does not extend beyond the borders. Furthermore, such benefits are determined by the cost of living in each state and in a way presuppose consumption within the state territory. A third obstacle concerns the administrative difficulties of checking the fulfilment of conditions for eligibility and other more technical obstacles for the export of benefits. The question for the EFTA Court was how to balance these considerations for ‘special non-contributory benefits of a mixed kind’ with free movement rights.21 The reason why this decision can be seen as the first step towards developing the EEA Agreement to encompass social rights beyond the rights afforded to the economically active citizen, is that Liechtenstein was forced to give up its territorial principle for a benefit closely resembling social assistance schemes. This decision meant that Liechtenstein had to give this benefit to categories of people who were not residing in its territory and who were not contributing to the finances of the state.22 Through its decision, the EFTA Court demonstrated how the EEA Agreement affects the boundaries of the national solidarity systems and laid the ground for 21 See paras. 65-69 in particular. 22 On the implied solidarity with non-economic actors through the coordination regime of social security, see H. Verschueren, ‘European (Internal) Migration Law as an Instrument for Defining the Boundaries of National Solidarity Systems’, European Journal of Migration and Law 9 (2007) pp. 307-346.

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future cases.23 When the coordination regime was adopted into the EEA Agreement, one may safely assume that the EFTA States believed that the ceiling for how much of the welfare systems the states were expected to export was established. The application of the homogeneity principle in later case law, however, proved that it was no longer a ceiling but a floor. The case law from the EFTA Court regarding the coordination of social secu- 20 rity schemes is more extensive than the case law regarding the Citizenship Dir. The EFTA Court has, in a number of cases, been asked to interpret ‘residencelike’ requirements and the refusal to export social benefits.24 A significant number of cases concern refusals from EFTA States in situations of minor or no economic activity on the part of the beneficiary.25 The cases concern the situation of claims being made by the moving individual in both the host state and the home state, and they include both preliminary references and infringement proceedings. All three EFTA States have been involved in cases regarding the coordination of social security schemes. All the cases decided thus far point in the same direction, namely to the free movement rights being paralleled regardless of economic activity and regardless of whether claims are made in the home or against the host state. In summary, the EFTA Court and the ECJ have moved the EEA Agreement beyond the economically active, and the case law may be summarised as rather ‘Union citizenship friendly’, as it develops the EEA integration process in parallel with the EU integration process, also under the coordination regime.26

Article 30 [Recognition of diplomas, certificates] In order to make it easier for persons to take up and pursue activities as workers and self-employed persons, the Contracting Parties shall take the necessary measures, as contained in Annex VII, concerning the mutual recognition of diplomas, certificates and 23 Later case law, which expands this solidarity dimension further, makes references to case E-5/06, see as an example paras. 36 and 47 in case E-4/07, 1.2.2008, Porkelsson. 24 The so-called Zambrano case law (case C-34/09) is not commented here given that there is no free movement involved in these cases. See however, for an interesting effect of the Zambrano case law on the interpretation of national law by the Supreme Court of Norway, the so-called Maria-case, Rt. 2015 s. 93. 25 For rights against the host state confer case E-4/07, 1.2.2008, Porkelsson and for rights against the home state confer cases E-3/12, 20.3.2013, Jonsson and E-6/12, 11.9.2013, Childcare benefit. The first step taken by the EFTA Court to develop the EEA Agreement beyond the economically active in the field of the coordination regime for social security benefits included free movement rights in both the home and host states, confer case E-5/06, 14.12.2007, ESA v Liechtenstein. For a more detailed analysis of this case law as well as the case law on the Citizenship dir., see Fløistad (2016) Associated, Adapted and almost Assimilated. The European Economic Area Agreement in a revised EU constitutional framework for welfare services, Ph.D., European University Institute. Her findings support the understanding of the EEA integration process as moving homogenously with the EU integration process in the field of free movement of persons, despite significant differences in the legal framework. 26 See also Fredriksen and Franklin, ‘On Pragmatism and Principles: The EEA Agreement 20 years on’, CMLR 52 (2015), pp. 629-684, on pp. 640-641.

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PART II: The Agreement on the European Economic Area other evidence of formal qualifications, and the coordination of the provisions laid down by law, regulation or administrative action in the Contracting Parties concerning the taking up and pursuit of activities by workers and self-employed persons.

I. Comparison with TFEU

Art. 30 corresponds to what is now Art. 53(1) TFEU, previously Art. 57 EEC. That Article is placed in the part of the TFEU concerning establishment, whereas Art. 30 EEA is placed under the heading workers and self-employed in the Agreement. This was not meant to indicate any substantive difference between EEA law and Community law, but rather to reflect the status of mutual recognition within the Community at the time of the entry into force of the EEA Agreement.1 The only real difference between Art. 30 EEA and Art. 53 TFEU is that paragraph 2 of the latter states that in the case of the medical and pharmaceutical professions, the progressive abolition of restrictions shall be dependent on coordination of the conditions for their exercise in the various Member States. The lack of this paragraph in the EEA Agreement does not entail any real substantive difference either as it is in many respects out dated and of limited current relevance as a matter of EU law. 2 Art. 22 of the EFTA Convention contains a similar provision to Art. 30 EEA. It states that in order to make it easier for nationals of the Member States to take up and pursue activities as workers and self-employed persons, the Member States shall take the necessary measures, concerning the mutual recognition of diplomas, certificates and other evidence of formal qualifications, and the coordination of the provisions laid down by law, regulation or administrative action in the Member States concerning the taking up and pursuit of activities by workers and self-employed persons. 1

II. Directive 2005/36/EC 3

At the time of entry into force of the EEA Agreement, Dir. 89/48/EEC, the first directive on a general system for the recognition of higher-education diplomas awarded on completion of and training of at least three years, duration, was in force. Shortly after the entry into force of the EEA Agreement, Dir. 92/51/EC on a second general system for the recognition of professional education and training to supplement Dir. 89/48/EEC was incorporated.2

1 Norberg et al., EEA Law, p. 422. 2 At the time of the entry into force of the EEA, several old directives regarding the medical and the paramedical profession were applicable, as well as a directive concerning architects and some other professions. For a list of the directives regarding the medical profession see Zaglmayer’s Anerkennung von Gesundheitsberufen in Europa, 2016, p. 6. These directives laid down minimum requirements for the qualification and recognition was therefore automatic once the qualification had been obtained, which is of course advantageous for the migrant. However, the process of approving these directives was very difficult, e.g. it took 17 years for the Architects Directive to be approved: Barnard, The Substantive Law of the EU, p. 278.

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As of 1 July 2009, these Directives as well as Dir. 99/42, as amended,3 were 4 replaced by Dir. 2005/36/EC on the recognition of professional qualifications.4 This Directive essentially consolidated the existing Directive as it had been amended.5 Recently, the EEA Joint Committee incorporated Dir. 2013/55/EU amending Dir. 2005/36 on the recognition of professional qualifications and Reg. (EU) No 1024/2012 on the administrative cooperation through the Internal Market Information System (‘the IMI Regulation’) into the EEA Agreement. However, due to constitutional requirements the entry into force of this amending Directive is still pending. According to its Art. 2(1), Dir. 2005/36/EC applies to all nationals of an EEA 5 State wishing to pursue a regulated profession in an EEA State other than the State in which they obtained their professional qualification on either a selfemployed or employed basis. Thus, the Directive covers those who move on the basis of Arts. 28, 31 and 36 EEA. The Directive covers both where the migrant wishes to provide services on a temporary and occasional basis and where he wants to establish himself in the host State. The general view has been that it is up to each EEA State to decide which 6 professions to regulate subject to compliance with the principles of non-discrimination and proportionality. However, recently the Commission has published a proposal for a directive on proportionality test before adoption of new regulation of professions.6 According to its Art. 1, the proposal lays down a common framework for conducting proportionality assessments before introducing new legislative, regulatory or administrative provisions restricting access to or pursuit of regulated professions, or amending existing ones, with a view to ensuring the proper functioning of the internal market. In this context, an obiter dictum in ESA v Liechtenstein, is of interest. The case concerned a prohibition imposed on so-called Dentisten to work in a self-employed capacity. The EFTA Court sustained ESA’s application to the effect that this was in breach of Art. 31 EEA. Subsequently, the activities of the profession were prohibited. The EFTA Court stated that it was difficult to see how a prohibition in Liechtenstein on the

3 Dir. 99/42 establishing a mechanism for the recognition of qualifications in respect of the professional activities covered by the Directives on liberalisation and transitional measures and supplementing the general systems for the recognition of qualifications consolidates all the existing directives on the trades and crafts professions, which had been in the EEA from the beginning. Dirs. 89/48, 92/51, 99/42 (and several other directives) were subsequently amended by Dir. 2001/19. 4 Interestingly, all the three EFTA States encountered problems in implementing this Directive and ESA brought infringement proceedings against all three to the EFTA Court: Case E-8/10, 10.12.2010, ESA v Iceland; Case E-9/10, 10.12.2010, ESA v Liechtenstein; Case E-10/10, 10.12.2010, ESA v Norway. For a general overview of the Directive reference can be made to Sørensen, Nielsen and Danielsen, EU-Retten, 2014, pp. 927-938. 5 Sørensen, Nielsen and Danielsen, EU-Retten, 2014, p. 928. 6 Brussels, 10.1.2017 COM(2016) 822 final 2016/0404 (COD) Proposal for a Directive of the European Parliament and of the Council on a proportionality test before adoption of new regulation of professions.

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activities of a Dentist, regardless of any transitional period, may be more easily justified than the restrictions dealt with in the case.7 7 Art. 5 of the Directive sets out the general rule regarding the freedom to provide services. The Article provides that without prejudice to specific provisions of EEA law, as well as to Arts. 6 and 7 of the Directive, the States shall not restrict, for any reason relating to professional qualifications, the free provision of services in another EEA State. This part of the Directive only applies where the service provider moves to the territory of the host State to pursue, on a temporary and occasional basis, the profession referred to in paragraph 1. The temporary and occasional nature of the provision of services shall be assessed on a case by case basis, in particular in relation to its duration, its frequency, its regularity and its continuity. Thus, the Directive essentially took over the same criteria as applied when it comes to deciding whether a case falls under Art. 31 or Art. 36 EEA.8 8 As stated above, the Directive also covers, and in more detail, establishment in the host State. Three different systems of recognition exist under the Directive – The general system for the recognition of professional qualifications; – The system of automatic recognition of qualifications attested by professional experience in certain industrial, craft and commercial sectors; – The system of automatic recognition of qualifications for specific professions (doctor, nurse, dentist, vet, midwife, pharmacist and architect).9 The general system is applicable to all professions which are not covered by the specific rules in other Chapters of the Directive. The principle of mutual recognition lies at the heart of the general system. If there are substantial differences in the level of training between the home and the host State, Art. 14 of the Directive allows for the application of so-called compensatory measures. These measures can take the form of an adaptation period or an aptitude test. A partial recognition is also possible under certain conditions (see Art. 4 f). 10 The second category covers activities previously regulated at EEA level and those are subject to automatic recognition of qualifications provided that the conditions of duration and form of professional experience are satisfied. 11 The third category provides for automatic recognition of certain medical and paramedical professions and architects. The directive sets out the minimum training conditions and minimum duration of studies for these professions. The EFTA Court dealt with the legal effects of automatic recognition in the case of Dr A, which will be examined below. 12 The amending Dir. 2013/55 introduced the European Professional Card (EPC). The EPC is an electronic certificate issued via an online procedure for the recognition of qualifications, which aims to simplify the recognition under 9

7 Case E-17/14, 31.3.2015, ESA v Liechtenstein, para. 48. 8 See the comments on Arts. 31 and 36 below. 9 Barnard, The Substantive Law of the EU, p. 282.

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the three basic recognition methods. This procedure takes place through the Internal Market Information System (IMI).10 When an EPC has been introduced for a particular profession, the holder of the qualification may choose to apply for such a card. The home State authorities are then under an obligation to create an IMI file and initiate the procedure. By Reg. 2015/983, which has not yet been incorporated into the EEA Agreement, the Commission made the EPC available for five professions: general care nurses, physiotherapists, pharmacists, real estate agents and mountain guides. An application for an EPC cannot be made until the Commission has introduced the EPC to that profession by way of an implementing Regulation. The conditions for enacting such a regulation are: significant mobility or potential mobility in the relevant profession; sufficient interest by the relevant stakeholders and that the profession is regulated in a significant number of EEA States. The main advantage of the EPC is that once a file has been established by a professional, it remains in IMI and can be used again for new recognition applications in other EEA States. It is important to note that the EPC is not a physical card granting access to a profession in other States and the substantive conditions for recognition are not altered by this procedure.11 III. Incorporation into the EEA Agreement

Dir. 2005/36 as incorporated into the EEA Agreement, contains several adap- 13 tations to cater for the professions in place in the EFTA States: By way of example, the professional titles of various medical specialisations are listed in Annex VII. There are no substantive adaptations, which depart from the main principles of the Directive. However, with the incorporation of Dir. 2013/55 an important adaptation 14 was put in place to respect, to the extent possible, the two pillar set-up of the Agreement. This adaptation concerns Art. 21 a, which deals with notifications from the Member States concerning updates to the evidence of professional qualifications. On the EU side; the Commission is empowered to adopt delegated acts to take account of these updates, cf. paragraph 4 of Art. 21. These delegated acts amend Annex V of the Directive. Prior to the entry into force of Dir. 2013/55, this was done by a decision, which posed no particular problems for the EFTA pillar, as ESA could simply adopt a corresponding decision for the EFTA States. Following the adoption of such decisions, the Commission or ESA would publish a communication, which would trigger the obligation to recognise the formal qualifications, professional titles, etc. It is clear that the task of assessing these notifications from the EFTA States is the competence of ESA. 10 Reg. (EU) No 1024/2012 on administrative cooperation through the Internal Market Information System (‘the IMI Regulation’), referred to point 3 of Annex X to the EEA Agreement. 11 Two other new concepts were introduced by Dir. 2013/55/EU to facilitate the recognition under the general system, namely common training frameworks and common training tests (see Arts. 49 a and 49 b).

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However, it is equally clear that it is impossible to grant ESA the power to amend the Directive. The solution hit upon to solve this conundrum is the following: “Where the laws, regulations and administrative provisions notified by an EFTA State pursuant to paragraph 1 of this Article are in conformity with the conditions set out in this Chapter, the EFTA Surveillance Authority shall issue a recommendation to amend Annex VII to the EEA Agreement to update the titles adopted by the EFTA States for evidence of formal qualifications and, where appropriate, the body which issues the evidence of formal qualifications, the certificate which accompanies it and the corresponding professional title The EEA Joint Committee shall take recommendations issued by the EFTA Surveillance Authority into account when amending Annex VII to the EEA Agreement.”

15

To sum up, the adaptation text provides that ESA is to adopt a recommendation in place of a delegated act. The EEA Joint Committee is then to adopt a decision amending Annex VII to the Agreement, taking into account the recommendation issued by ESA. The two pillar structure is thus safeguarded to the extent that ESA is to issue a recommendation, however, to ensure the necessary cross pillar effect, a decision of the Joint Committee is required. Were the Joint Committee to take a decision, which would not be in line with ESA’s recommendation, that could obviously be problematic for those who possess the qualifications at issue. However, in practical terms this must be regarded a very unlikely event. Apparently, an earlier draft of the adaptation text was drafted with the intention of not providing the EEA Joint Committee with any discretion whether to follow ESA’s recommendation. However, it may legitimately be queried whether any recommendation issued by ESA could, as a matter of law, be regarded as binding on the Joint Committee. In any event, this example shows the difficulties that can arise when keeping EEA Agreement in line with developments on the EU side. IV. Case law of the EFTA Court

16

In the case of Dr A, the EFTA Court faced an interesting issue regarding the automatic recognition of qualifications for doctors.12 Dr A, a Bulgarian doctor in possession of the required qualifications, applied for a licence to practise medicine in Norway. However, the Norwegian authorities refused to grant her a licence as they considered, inter alia, that her theoretical knowledge was lacking and that she had language and communication problems. The question of how to deal with this under Dir. 2005/36 was referred to the EFTA Court. The Court stated that access to the profession of doctor is conditional on the possession of a given qualification ensuring that the person concerned has undergone training which meets the minimum conditions laid down in the Directive. The Court continued that an EEA State is not permitted to make the recognition of professional qualifications of doctors meeting the criteria of the Directive subject to any further conditions. The system of automatic recognition would be jeopar12 Case E-1/11, 15.12.2011, Dr A.

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dised if it were open to EEA States at their discretion to question the merits of a decision taken by the competent authority of another State to award the formal evidence of qualification.13 However, this was not the end of the story. The EFTA Court held that an EEA 17 State may make an authorisation to practice medicine conditional upon linguistic knowledge, which is necessary for the exercise of the profession, provided that such requirements were non-discriminatory and proportionate. More interestingly, the Court also noted that it followed from Art. 4(1) of the Directive that the effect of recognition of professional qualifications by the host State is that the beneficiary is allowed access to the profession for which he is qualified in the home State, and to pursue it under the same conditions as nationals in the host State. The rights under the Directive are without prejudice to compliance with any non-discriminatory conditions of pursuit, which may be laid down by the authorities of the State, provided that these are objectively justified and proportionate with regard to ensuring a high level of health and consumer protection.14 It followed from this, that the host State had the competence to take disciplinary actions, such as suspension or withdrawal of licence, against migrant professionals. Moreover, when the national authorities are in possession of information that would give grounds to suspend or withdraw an existing licence, they cannot be under an obligation to grant an authorisation, which it would subsequently be necessary to revoke. The Court stated that in such circumstances the authorities must be entitled to deny an authorisation outright.15 This case neatly illustrates the effects of automatic recognition under the Di- 18 rective and the obligation it places upon the host State. The important contribution of this judgment, however, lies in the way in which it treats the subsequent issue of a licence to practice. The Court draws a distinction between these two issues and its approach avoids the rather illogical conclusion that a national authority would be obliged to grant a licence only to immediately withdraw it. As far as the present author knows, a similar case has not been ruled upon by the ECJ, there is, however, little reason to suppose that it would not follow the EFTA Court’s well founded approach.16 V. Directives concerning the legal profession

Annex VII of the EEA Agreement contains two Directives concerning the le- 19 gal profession: Council Dir. 77/249/EEC to facilitate the effective exercise by lawyers of freedom to provide services (Lawyers’ Services Directive) and Dir. 98/5 of the European Parliament and of the Council to facilitate the practise of the profession of lawyer on a permanent basis in a Member State other than that in which the qualification was obtained (Lawyers’ Establishment Directive).17 13 14 15 16

Paras. 65-66. Paras. 69-72. Paras. 73-76. Zaglmayer, Anerkennung von Gesundheitsberufen in Europa, 2016, p. 82.

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The Lawyers’ Services Directive applies, as the name clearly indicates, to “activities of lawyers pursued by way of provision of services”. Paragraph 1 of Art. 1 provides that the States may reserve the preparation of formal documents for obtaining title to administer estates of deceased persons and the drafting of formal documents creating or transferring interests in land, to prescribed categories of lawyers. Given the set-up of the legal profession in the EFTA States, this exemption is of limited relevance to them. Under Art. 2 of the Lawyers’ Services Directive, the EEA States are to recognise as a lawyer those persons who practice under the titles set out in paragraph 2 of Art. 1. The professional titles used in the EFTA States are laid down in an adaptation text to the Directive. In this context, it may also be mentioned that no other adaptation was made when the Directive was incorporated into the EEA Agreement and the same applies to the Lawyers’ Establishment Directive. Paragraph 1 of Art. 4 of the Lawyers’ Services Directive provides that the activity of representing a client in legal proceedings in another EEA State must be pursued under the conditions laid down for lawyers established in that State, with the exception of any condition concerning residence, or registration with a professional organisation. The second paragraph of that Article sets out that the rules of professional conduct of the host State must be observed in the pursuit of those activities. 21 Art. 5 of the Lawyers’ Services Directive allows EEA States to require lawyers from other EEA States representing a client in legal proceedings to work with a national lawyer. The scope of this provision was under consideration by the EFTA Court in A.18 The Liechtenstein Lawyers Act provided that in court proceedings in which a party is represented by a lawyer or a defending counsel from another EEA State, who has not passed the Liechtenstein aptitude test, the lawyer or defending counsel must provide his services in conjunction with a national lawyer. The EFTA Court started by setting out that the Directive must be interpreted in light of the general principles enshrined in the EEA Agreement governing the free movement of services.19 The Court continued by holding that the scope of the exemption in Art. 5; interpreted in light of the general principles, is limited to circumstances where considerations relating to the public interest justify the obligation for a lawyer to work in conjunction with a national lawyer. Such considerations do not exist in court proceedings for which representation by a lawyer is not mandatory.20 Accordingly, the conclusion of the EFTA Court was that such a requirement as laid down in Liechtenstein law was not in line with Art. 36 EEA and the Directive. This conclusion of the EFTA Court is securely anchored in case law from the ECJ, which had ruled on cases concerning German and French legislation that had also defined too 20

17 For a good overview of these Directives see Dashwood et al., Wyatt and Dashwood’s European Union Law, 2011, pp. 639-645. 18 Case E-1/07, 3.10.2007, A. 19 Para. 28. 20 Para. 30.

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broadly the scope of the obligation to work in conjunction with a national lawyer.21 Art. 7 of the Lawyers’ Services Directive states that the competent authority 22 of the host EEA State may request the person providing the services to establish his qualifications as a lawyer. The EFTA Court has also been called upon to examine the extent of the requirements national authorities may impose on the basis of this provision.22 The Liechtenstein Lawyers Act required that a lawyer established in another EEA State intending to provide cross-border services in Liechtenstein, must notify, on his own motion, the Chamber of Lawyers before commencing his activities and renew the notification once a year. The EFTA Court had no problem in holding that this provision went beyond what a host State is permitted under Art. 7 of the Directive. The Court noted that Art. 7 of the Lawyers’ Services Directive differed from Art. 3 of the Establishment Directive.23 The Court also held that this provision of the Liechtenstein Lawyers Act was a restriction under Art. 36 EEA and that it was disproportionate to achieve the objective of ensuring effective supervision of lawyers practising in Liechtenstein. The objective of ensuring that the lawyer was entitled to practise in the home State was taken into account in the safeguard measure in Art. 7 of the Directive and could therefore not be used to justify verification measures that go beyond what is permitted under the Directive.24 The conclusion of the EFTA Court concerning the compatibility of the Liechtenstein law with the Directive and Art. 36 EEA is well founded. However, the most interesting aspect of the case is, how the EFTA Court applies the Directive and Art. 36 EEA concurrently to reinforce the obligation on the EEA States to facilitate the free movement of services. Derrick Wyatt has labelled the Lawyers’ Establishment Directive as perhaps 23 the most interesting directive adopted under Art. 53 TFEU.25 However, here this Directive will only be very briefly mentioned. As stated above, the only adaptation made was to include the professional titles of the EFTA States. Moreover, there is no case law from the EFTA Court on the Lawyers’ Establishment Directive. The Directive essentially provides for two options for lawyers who wish to establish in another EEA State. The first one is permanent practice under home title; covering the activities set out in Art. 5 of the Directive, i.e. give advice on the law of his home State, on EEA law, on international law and on the law of host State. Art. 6 provides that, in respect of the activities concerning the host State, the lawyer practising under home title shall be subject to the rules on professional conduct applicable in the host State. The second option is the acquisition of the professional title of the host State after a period of at least three years 21 Case C-427/85, 25.2.1988, Commission v Germany; Case C-294/89, 10.7.1991, Commission v France. 22 Case E-6/13, 27.11.2013, Metacom. 23 Para. 60. 24 Paras. 61-64. 25 Dashwood et al., Wyatt and Dashwood’s European Union Law, 2011, p. 640.

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practising under home State title, with this period effectively serving as an adaptation period. The detailed rules on the acquisition of host State title and its relationship with the general Directive are laid down in Art. 10. The Lawyers’ Establishment Directive contains similar provisions as laid down in the Lawyers’ Services Directive regarding the possibility of reserving certain activities to a prescribed category of lawyers and requiring a lawyer practising under home title to work in conjunction with a national lawyer. 24 For the sake of completeness it should be mentioned that lawyers can always rely on Dir. 2005/36 and seek recognition under its general system (see in particular Art. 14 paragraph 3).

Chapter 2: Right of establishment

Article 31 [Freedom of establishment] 1. Within the framework of the provisions of this Agreement, there shall be no restrictions on the freedom of establishment of nationals of an EC Member State or an EFTA State in the territory of any other of these States. This shall also apply to the setting up of agencies, branches or subsidiaries by nationals of any EC Member State or EFTA State established in the territory of any of these States. Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of Article 34, second paragraph, under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of Chapter 4. 2. Annexes VIII to XI contain specific provisions on the right of establishment.

I. Comparison with Art. 49 TFEU

Art. 31 is based on Art. 52 EEC, the provision concerning the right of establishment that was in force prior to the entry into force of the Maastricht treaty. The wording is identical, except that Art. 31 EEA contains no reference to the transitional period, with the latter having long expired by the time the EEA Agreement came into force.1 The right of establishment is now governed by Art. 49 TFEU and its wording is identical to Art. 31 EEA. There are therefore no differences in the texts, that would indicate a difference between the rules in the Agreement on the one hand and the Treaty on the other. However, there are certain derogations in Annex VIII, which will be discussed below. 2 By way of comparison, Art. 23 of the EFTA Convention lays down the principles regarding establishment and Art. 24 provides for national treatment in the host State for companies established there. 1

1 The transitional period expired twelve years after the entry into force of EEC Treaty.

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The ECJ made clear in its seminal judgment in Reyners2 that Art. 52 EEC had 3 direct effect. As Art. 31 EEA is in the main part of the Agreement, which has been made part of national law in dualistic Iceland and Norway (Liechtenstein is a monist system), beneficiaries should be able to rely on the Article when faced with incompatible provisions of national law. II. Restriction under Art. 31

The EFTA Court has on several occasions, relied on the findings of the ECJ 4 in the famous Gebhard case, namely that the concept of establishment refers to a situation in which a person pursues a professional activity on a stable and continuous basis.3 Art. 31 EEA covers both discriminatory and non-discriminatory restric- 5 tions on the right of establishment.4 There is no case law from the EFTA Court concerning a directly discriminatory measure. One example of that nature may be found in the case law of the ECJ, namely in the case of Commission v Greece. There, the ECJ considered that a requirement for granting a tax advantage that the applicant be a Greek national or of Greek origin, was directly discriminatory and in breach of Arts. 28 and 31 EEA.5 As will be discussed later in this Chapter, the EFTA Court has dealt with sev- 6 eral cases concerning residence requirements in Liechtenstein, which the Court considered to be indirectly discriminatory. The most interesting case for the present purposes is ESA v Liechtenstein, a case which, inter alia, concerned a form of residence requirement for members of the management of a bank. The EFTA Court held that such requirements were indirectly discriminatory, and that it could not be decisive that there might be more nationals of other EEA States than Liechtenstein nationals who could fulfil the residence requirements. The residence requirements are still intrinsically liable to operate to a particular disadvantage for non-Liechtenstein nationals and for banks having or wishing to have non-Liechtenstein nationals represented within their management.6 It is certainly very rare and the present author is not aware of any example from the case law of the ECJ, where it is explicitly stated that a residence requirement is fulfilled by a higher number of non-nationals. Indeed, the rationale behind classifying measures of this kind as indirectly discriminatory is that nationals generally, satisfy the conditions more easily. However, one must bear in mind the spe-

2 Case 2/74, 21.6.1974, Reyners. 3 See e.g. Case E-4/00, 14.6.2001, Brändle, para. 10, referring to Case C-55/94, 30.11.1995, Gebhard, paras. 23-25. For a more recent example, see Joined Cases E-3/13 and 20/13, 9.7.2014, Fred Olsen, para. 94. 4 Speitler, ‘Right of Establishment and Freedom to Provide and Receive Services’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 460-461. 5 Case C-155/09, 20.1.2011, Commission v Greece, paras. 67-75. Before turning to the provisions of the EEA Agreement, the Court concluded that the rule was in breach of Arts. 18, 39 and 43 TEC. 6 Case E-1/09, 6.1.2010, ESA v Liechtenstein, para. 29.

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cial situation of Liechtenstein (a small state with population of only 37,000). The conclusion of the EFTA Court seems sound, as it would appear clear that, as a matter of fact, the detrimental effect of these rules was mainly felt by non-nationals. 7 The Seabrokers case is interesting when it comes to the concept of restriction in the area of direct taxation.7 It concerned the tax treatment in Norway of a company, which in addition to its Norwegian operations had a branch in another EEA State. After a thorough assessment of the rules in question, the EFTA Court held that such rules had the potential to lead to a more burdensome result for taxpayers with income earned through a branch in another EEA State than would have been the case had the taxpayers not exercised their freedom of establishment. After having been granted a credit allowance from the Norwegian global income tax, such taxpayers may not be able to enjoy, in effect, the same deduction of expenses as taxpayers with the same total income, but earned in Norway only. This places taxpayers with a branch in another EEA State in a less favourable position for the sole reason that they have made use of their right of establishment under the EEA Agreement.8 This judgment of the EFTA Court is interesting to put in the context of the development of the case law of the ECJ regarding what constitutes a restriction of the fundamental freedoms within the field of tax law. Initially, the Court applied the general restriction approach, however, e.g. following the opinion of AG Geelhoed in ACT Group Litigation9 the Court shifted towards a more discrimination-based analysis.10 The EFTA Court’s approach in Seabrokers shows that it was well attuned to the changes in the approach being undertaken by the ECJ. 8 The EFTA Court has on many occasions used what can now be termed as the standard formula of the ECJ, namely that measures liable to hinder or make less attractive the exercise of the fundamental freedoms, constitute restrictions that require justifications.11 9 To sum up, the EFTA Court’s application of the concept of restriction under Art. 31 is fully in line with the case law of the ECJ. However, there is one development on the horizon, which might pose a challenge, albeit probably not a very serious one, to the uniformity of the concept, namely the existence of the EU Charter. In his opinion in AGET Iraklis, AG Wahl observed that Art. 49 TFEU had to be interpreted in accordance with Art. 16 of the Charter, which provides for the freedom to conduct a business. That freedom encompasses: (i) freedom to exercise an economic or commercial activity; (ii) freedom of contract; and (iii) free competition. The Advocate General considered that the national mea7 For a general examination of this case see Rust, ‘To Tax or Not to Tax: Reflections on the Case of the EFTA Court’, in: EFTA Court (ed), The EEA and the EFTA Court, pp. 463-466. 8 Case E-7/07, 7.5.2008, Seabrokers, para. 47. 9 Case C-374/04, 12.12.2006, ACT Group Litigation. 10 On this development in the case law see: Barnard, The Substantive Law of the EU, pp. 399-405. 11 For a recent example concerning Art. 31 EEA: Case E-14/15, 19.4.2015, Holship, para. 115.

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sures at stake were thus restrictive both of Art. 49 TFEU and Art. 16 of the Charter. Importantly, he was of the view that the issue of justification and proportionality was basically the same under both provisions. In its judgment the ECJ followed the same approach and concluded on identical grounds that the legislation was disproportionate and in breach of Art. 49 TFEU and Art. 16 of the Charter.12 A case like this would probably not be very difficult to deal with in the context of the EEA Agreement, as it was clear that the national measures were restrictive of the right of establishment and that conclusion in itself was not affected by Art. 16 of the Charter. A case where the existence of provisions of the Charter, which have no equivalent in the ECHR, would be crucial for concluding that a national measure is restrictive under Art. 49 TFEU, would be another story and in such a case it would be difficult to maintain homogeneity. It should be stressed that no such case yet exists from the ECJ and it remains to be seen whether the Court will allow Art. 16 of the Charter to influence its interpretation in such a manner. Moreover, as noted by Fredriksen and Franklin, the EFTA Court has shown its awareness of the sensitivity to the absence of the Charter in EEA law, as well as a willingness to go to great lengths to maintain homogeneity.13 III. Relationship with other freedoms 1. Freedom to provide services

In Criminal proceedings against B,14 the EFTA Court dealt with the issue of 10 how to distinguish between the freedom to provide services and the right of establishment.15 The distinguishing feature is the duration of the activity. However, as the Court set out, there are several issues that need to be assessed in this context. The referring court was to consider the duration, regularity, periodical nature or continuity of the activities carried out in Liechtenstein. One may, while still remaining within the scope of the freedom to provide services, remain and equip oneself with some infrastructure in the host State, insofar that such infrastructure is necessary for the purposes of performing the service. However, a person who pursues a professional activity on a stable and continuous basis in another State where he holds himself out from an established professional base, 12 Case C-201/15, 21.12.2016, AGET Iraklis, para.103. 13 Fredriksen and Franklin, ‘Of Pragmatism and Principles: The EEA Agreement 20 Years on’, Common Market Law Review (2015) p. 649. They refer to Case E-10/14, 18.12.2014, Deveci which raised the issue of whether Art. 16 of the Charter had an impact on the interpretation of Dir. 2001/23 on the transfer of undertakings. The EFTA Court did not explicitly rule on the issue. However, it did refer to a judgment from the ECJ, where the Court had considered this provision of the Charter. It will be for future cases to determine what the EFTA Court intends with this reference. 14 Joined Cases E-26/15 and E-27/15, 3.8.2016, Criminal proceedings against B and B v Finanzmarktaufsicht. 15 On the relationship between Arts. 31 and 36 EEA and the other freedoms: P. Speitler, ‘Right of Establishment and Freedom to Provide and Receive Services’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 440-442.

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to amongst other, nationals of that State falls within the scope of the right of establishment and not the freedom to provide services.16 These findings of the EFTA Court rely on established case law from the ECJ and are fully in line with the latter. 11 In the Liechtenstein single practice cases, which will be further discussed below, the EFTA Court also highlighted the difference between establishment and services. The Liechtenstein rules at stake prohibited practitioners from other EEA States to set up businesses in Liechtenstein, if they had offices in another State. The Liechtenstein Government maintained that this rule did not prevent the provision of services. The EFTA Court was not impressed by these arguments and stated that this did not remove the restrictive effect of the requirement with regard to secondary establishment. The Court continued stating that the fact that rule was not contrary to Art. 36 EEA did not affect its compatibility with Art. 31.17 12 As a general rule, Arts. 31 and 36 cannot be simultaneously applicable and it may be of significance, in particular for the justification of a national measure, under which Article it falls to be examined.18 However, in infringement proceedings initiated under Art. 31 of the Surveillance and Court Agreement, the ESA may allege a breach of both Articles. In such cases, the national measures are examined in the abstract without the need to determine which freedom is applicable on the facts of the case.19 2. Free movement of capital 13

As regards the distinction between Arts. 31 and 40 EEA, the EFTA Court has been fully in line with the case law of the ECJ. The test for differentiating between the two is as follows: national provisions applicable to holdings of the capital of a company which give the owner definite influence on the company’s decisions and allow him to determine its activities, fall within the substantive scope of the provision of the freedom of establishment, whereas acquisition of shares below this threshold, by a non-resident, constitutes a capital movement within the meaning of Art. 40 EEA.20 For a further discussion, reference is made to the Chapter on capital. 3. Free movement of workers

14

Art. 31 concerns those who exercise their rights in a self-employed capacity as opposed to Art. 28 EEA which deals with those who move as workers. Ac16 Joined cases E-26/15 and E-27/15, 3.8.2016, Criminal proceedings against B and B v Finanzmarktaufsicht, para. 101. 17 Case E-4/00, 14.6.2001, Brändle, para. 22. 18 As an example of both provisions being applicable, reference may be made to Case E-3/06, 30.5.2007, Ladbrokes, para. 40. 19 As an example see: Case E-2/06, 26.6.2007, ESA v Norway, para. 67. 20 See for an example Case E-9/11, 16.7.2012, ESA v Norway, para. 81; Case E-14/13, 2.12.2013, ESA v Iceland, para. 27 and the case law of the ECJ referred to therein.

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cording to the case law of the ECJ, the difference is that, unlike workers, the self-employed work outside a relationship of subordination, and as such bear the risk for the success or failure of their employment, and they are paid directly and in full.21 There is no case law from the EFTA Court applying these criteria. In ESA v Liechtenstein, the Court dismissed the claims of ESA based on Art. 28 EEA, concerning members of management boards and executive managers of banks, holding that this was to be assessed under Art. 31 EEA. The Court referred to its previous findings in that respect, where Art. 28 EEA had not been pleaded and accordingly the criteria applied by the EFTA Court are not explicitly set out. However, in light of the fact that the EFTA Court has followed the ECJ on the demarcation line between the other freedoms, it can be safely assumed that the distinction would be drawn in the same manner in the EFTA pillar. IV. Notable EFTA Court judgments on Art. 31 1. Waterfalls case

The so-called Waterfalls case is undoubtedly one of the more significant cas- 15 es that the EFTA Court has dealt with. It concerned a cherished Norwegian phenomenon, the reversion back to the State (n. hjemfall) of hydropower installations.22 The rules in question provided firstly, that public undertakings were granted concessions for the acquisition of waterfalls for energy production without time limitation whereas others, including all foreign undertakings were granted a concession with time limitations. Secondly, according to the provisions, property rights to waterfalls utilised for energy production and related installations were transferred from the concessionaire to the State at the expiry of the concession without compensation. The first question facing the Court was whether Art. 125 EEA, on the system 16 of property ownership, meant that the rules were outside the scope of the EEA Agreement.23 Having rejected that contention, the EFTA Court examined whether the rules constituted a restriction under Arts. 31 and 40 EEA. First, the Court noted that the differentiation entailed in the contested rules has a negative effect on the investment of private and foreign investors due to the fact that they have a shorter time to get a return on their investment as compared to Norwegian public owners of hydropower resources. The Court stressed that this was particularly disadvantageous for foreign investors, as the rules excluded them from the more favourable regime. The Court referred to the fact that the rules did not require an undertaking to be Norwegian to obtain a concession for an indefinite period. However, to receive such a concession Norwegian public entities had to own at least two-thirds of the shares of the undertaking. There21 Barnard, The Substantive Law of the EU, p. 242. 22 Case E-2/06, 26.6.2007, ESA v Norway. 23 See further the comments by Poulsen on Art. 125 EEA, mn. 3-11.

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fore, the Court concluded that the rules constituted indirect discrimination and as such fell within the scope of Arts. 31 and 40 EEA.24 17 The conclusion that the rules constituted a restriction is certainly correct. However, the question may at least be posed, whether the Court was correct in labelling the rules as being indirectly discriminatory. Given that Norwegian public entities had to own at least two-thirds of the undertaking it seems, at the very least, to come very close to being directly discriminatory. The judgment of the ECJ relied on by the EFTA Court in reaching this conclusion does not seem to be fully comparable. That case concerned an Italian requirement, according to which contracts for data processing could only be granted to companies in Italian public ownership. However, this rule did not require that the companies be Italian.25 At the very least, it can safely be said that this is a case, where the differentiation being made, is on the dividing line between direct and indirect discrimination.26 18 Until recently there was no judgment from the ECJ concerning a national measure similar to the Norwegian reversion system. However, in Laezza the ECJ was faced with an Italian case concerning an obligation on gaming licence-holders to transfer free of charge, at the time of the cessation of the business owing to the expiry of the licence or as a result of measures revoking or terminating that licence, the rights to use tangible and intangible assets which they own and which constitute their network for the management and collection of bets.27 The ECJ held that such a requirement, to transfer free of charge the rights to use equipment for the collection of bets at the time of the cessation of business, including the situation in which the cessation of business is due solely to the expiry of the final term of the licence, may render the exercise of that activity less attractive. The risk that an undertaking may have to transfer, without financial consideration, the rights to use the assets in its possession may prevent it from obtaining a return on its investment. For those reasons, the Court concluded that the measure restricted the right of establishment (and the freedom to provide services.)28 This judgment clearly suggests that even if the Norwegian rules had also imposed a reversion requirement on Norwegian public undertakings, they would nevertheless have constituted a restriction under Arts. 31 and 40 EEA.

24 Case E-2/06, 26.6.2007, ESA v Norway, paras. 64-66. It is interesting to note that before examining the difference in treatment entailed in the rules, the Court referred to the restriction approach, i.e. that national measures liable to hinder or make less attractive the exercise of the fundamental freedoms. 25 Case 3/88 5.12.1989 Commission v Italy, paras. 8-9. 26 Fredriksen and Mathisen, EØS-rett, p. 80. 27 Case C-375/14, 26.1.2016, Laezza. 28 Para. 23.

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2. Holship

The recent judgment in Holship, the first reference case from the Norwegian 19 Supreme Court in well over a decade, is interesting as it concerns the relationship between collective agreements and EEA law.29 The case concerned the refusal of Holship, a Norwegian forwarding agent fully owned by a Danish company, to sign up to the framework collective agreement for dock workers, and the subsequent boycott that followed. The collective agreement granted a priority of engagement for certain loading and unloading works. The EFTA Court, following the ECJ’s lead in Viking Line, concluded that 20 even if competition law were not found to be applicable to an agreement,30 the free movement rules may still apply, as these two set of provisions of EEA law are based on different conditions. The EFTA Court also followed Viking Line in holding that the fundamental freedoms extend to rules of any nature aimed at regulating in a collective manner gainful employment, self-employment and the provision of services. The EFTA Court held that there would be a risk of creating inequality in the application of the fundamental freedoms if their scope was limited to public authorities, as working conditions in the EEA States may be differently regulated, either by laws or regulations or by collective agreements and other acts adopted by private parties. The EFTA Court considered in the case at hand, that the organisation of collective action by trade unions must be regarded as covered by their legal autonomy, which those organisations enjoy pursuant to the trade union rights accorded to them by national and other sources of law. Although, the EFTA Court cites Viking Line in support of its conclusion there appears to be one, at least potentially significant difference between the facts of that case compared to Holship. The collective agreements at stake in Viking were generally applicable, i.e. they bound not only the parties to those agreements. This was not the situation in Holship and the methods available under Norwegian labour law to achieve such general application had not been made use of. Having determined that the rules of the collective agreement were within the 21 scope of the Agreement, the EFTA Court then turned to the issue of whether the boycott was a restriction within the meaning of Art. 31. Applying the usual restriction test, the Court had little difficulty in concluding that this was indeed the case, stating that a priority clause is likely to discourage or even prevent the establishment of companies from other EEA States.31 In its final judgment in the case, the Norwegian Supreme Court concurred with this conclusion.32 The trade unions had argued that Art. 31 did not prevent “nationality-neutral” regulation of business activity.33 If this argument is to be understood to the effect that a na29 Case E-14/15, 19.4.2016, Holship. 30 As to the competition law aspect of the case, see the comments by Gjendemsjø on Arts. 53, mn. 60-61 and 54 EEA, mn. 5. 31 Case E-14/15, 19.4.2016 Holship, para. 120. 32 Judgment of the Norwegian Supreme Court 16.12.2016, para. 91.

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tional measure concerns the regulation of activity, subsequent to the establishment, it has to be discriminatory to come within the scope of Art. 31, it is submitted that it is not in line with the case law of the ECJ.34 This is illustrated, e.g., by AGET Iraklis, where the ECJ held that the exercise of the right of establishment entailed the freedom to determine the nature and extent of the economic activity that will be carried out in the host State, in particular the size of the fixed establishment and the number of workers required and subsequently the freedom to scale down or even, if the undertaking so decides, to give up its activity.35 The national rules in the above mentioned cases had a direct impact on the operations of the undertakings. These type of measures may therefore be distinguished from the ones at stake in e.g. DHL. There the ECJ concluded that all postal services providers being subject to an external complaints procedures was not restrictive for the purposes of Art. 49 TFEU.36 This type of rule has a much less direct impact on the company’s operation and may be compared a particularly lenient civil procedure regime, which would make it very easy for consumers to bring actions against a company would not be regarded as being a restriction under Art. 49 TFEU. Although in these cases, the ECJ has not used the term too remote, it would appear that there are similarities between these types of cases, as the ECJ appears to be saying that there is insufficient direct impact for the rule to be a restriction under Art. 49 TFEU. 22 Another noteworthy element of this part of the judgment is, that upon a question from the Norwegian Supreme Court, the EFTA Court confirmed explicitly that no form of de minimis rule exists, i.e. it was of no significance whether a restriction of Art. 31 EEA was of limited scope or minor importance.37 This is in line with established case law from the ECJ.38 However, this is the first time the EFTA Court confirmed this with regard to Art. 31 EEA. Applied to the case at hand, this resulted in it being irrelevant whether Holship’s need for loading/ unloading services is very limited and/or sporadic in nature. In this context it is important to distinguish between the above regarding de minimis and the case law of the ECJ where it has concluded that the effects of a national rule are too remote for it to be a restriction.39

33 34 35 36 37

Report for Hearing, para. 48. Barnard, The Substantive Law of the EU, pp. 398-399. Case C-201/15, 21.12.2016, AGET Iraklis, paras. 52-53. Case C-148/10 13.10.2011 DHL, para. 62. In Case E-4/00, 14.6.2001, Brändle, para. 24, the Court reached the same conclusion although the wording was slightly different. 38 For a discussion of de minimis in the context of free movement see: Oliver et al., Oliver on the Free Movement of Goods in the European Union, pp. 91-92. 39 See as an example Case C-418/93, 20.6.1996, Semeraro Casa; a famous example from the field of workers is Case C-190/98, 27.1.2000, Graf. See further the discussion in Sørensen, Nielsen and Danielsen, EU Retten, p. 591.

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3. Tax law cases

The EFTA Court has dealt with a number of tax law cases throughout the 23 years, the most interesting ones concerning Art. 31 being Arcade Drilling and Fred Olsen.40 In Arcade Drilling the EFTA Court was called upon to rule on socalled exit tax restrictions, which had already been the subject of considerable litigation before the ECJ, most notably in National Grid Indus.41 The Court stated that while Art. 31 was in particular intended to secure the benefit of national treatment in a host State, it also prohibits the home State from hindering the establishment of its own nationals or companies incorporated under its legislation, in other EEA States. This is in line with the case law of the ECJ.42 The EFTA Court recalled that the prohibition on discrimination under EEA law, irrespective of its legal basis, required comparable situations not being treated differently and that different situations not being treated in the same manner unless objectively justified. The issue to be resolved before determining whether the Norwegian rules constituted a restriction was whether the same anti-avoidance rules applied when a company relocated within Norway and when it moved its place of management to another EEA State. The EFTA Court held that if there was no objective difference between those two situations and if the same rules were not applicable, this difference in treatment constituted a restriction under Art. 31. However, determining this was an issue of fact that fell to the referring court to establish.43 Fred Olsen concerned the compatibility with EEA law, of Norwegian mea- 24 sures levying taxes on Norwegian beneficiaries of a Liechtenstein trust.44 The most interesting aspect of this case, concerning the application of Art. 31, was whether trusts enjoy rights under Art. 31, cf. Art. 34. The EFTA Court reaffirmed the concept of establishment that was discussed at the beginning of this Chapter. Having regard to the meaning of the concept as a matter of EEA law, the Court concluded that any person or entity that pursues real and genuine economic activity is taking advantage of its right of establishment under Arts. 31 and 34 EEA. To date there is no judgment from the ECJ on this issue. However, in Panayi a pending request for a preliminary ruling from the United Kingdom, the ECJ is seized of this very issue and among the questions from the referring Court is whether the EFTA Court reached the correct conclusion.45 40 Case E-15/11, 3.10.2012, Arcade Drilling; Joined cases E-3/13 and E-20/13, 9.7.2014, Fred Olsen. 41 Case C-371/10, 29.11.2011, National Grid Indus. 42 It may be of interest to note that the EFTA Court took the same approach in its interpretation of the Citizenship Directive in Gunnarsson, see further in Section VI below, mn. 29 ff. 43 For the justification analysis reference is made to the Chapter regarding Art. 33 EEA. 44 Lyal, ‘Tax Law’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 744-745. 45 Case C-646/15 Panayi, pending. Both the Commission and ESA in their written observations support the conclusion of the EFTA Court. In her opinion of 21.12.2016, AG Kokott concluded that trusts may rely on the fundamental freedoms provided for in Art. 54 TFEU. Her opinion does not examine the judgment of the EFTA Court in any detail.

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This leaves the question what is a real and genuine economic activity as a matter of EEA law. The essential feature of this criteria with regard to establishment is that a person or an entity carries on a business, such as by offering services, which are effected for consideration, for an indefinite period through a fixed establishment. Whether the entity in question conducts a real and genuine economic activity cannot be answered in the abstract, but depends on the actual terms and activities of the entity. This part of the judgment is in line with the judgment of the ECJ in Cadbury Schweppes and does not call for any particular observations although it may be queried how useful it was for the referring court. However, subsequent statements of the EFTA Court seem slightly confusing. The Court stated that if the trust is involved in the management of a group’s companies or other activities for a group, such as managing a pool of resources, and its actual incorporation reflected its actual activities, it must be regarded as a real and genuine economic activity, which constitutes establishment. Then, the Court continued, it is not required that the economic activities take effect in the EEA State of establishment. It suffices that they take effect within the EEA.46 The last sentence is difficult to reconcile with what precedes it. Given the constituent elements of the right of establishment and its objective to allow participation, on a stable and continuous basis, in an EEA State other than the State of origin, it appears illogical to assess what is real and genuine economic activity not on the basis of each establishment within the EEA and examine whether every one of them individually fulfils those conditions.47 V. Residence requirements in Liechtenstein

26

As mentioned above, the EFTA Court has dealt with a string of cases concerning residence requirements in Liechtenstein. The first one was RainfordTowning, an important case for the application of Art. 31 as well as being of considerable general interest for EEA law.48 The case originated in Liechtenstein, where the government denied an application for the grant of business approval essentially on the grounds that the managing director, Mr Rainford-Towning, did not reside in Liechtenstein. The refusal was based on a provision of the Liechtenstein Business Act which provides that a managing director must have his residence in Liechtenstein in order to be able to carry on the function of managing director of a company. Mr. Rainford-Towning was resident in London. The EFTA Court concluded that a requirement to reside in Liechtenstein constituted indirect discrimination based on nationality, contrary to Art. 31.49 As regards justification, the Court concluded that the requirement was neither necessary 46 Joined cases E-3/13 and E-20/13, 9.7.2014, Fred Olsen, para. 99. 47 Daniel Smit observes that it would seem to go one step too far if any inactive company would always be protected by the freedom of establishment as long as it, directly or indirectly, holds shares in an active company: Daniel Smit: ‘Comments on Fred Olsen’ Highlights & Insights on European Taxation 2014, p. 92-95. 48 Case E-3/98, 10.12.1998, Rainford-Towning. 49 Para. 30.

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nor sufficient to ensure compliance with the national legislation and to safeguard the possibility to bring a criminal prosecution, as this could be achieved by other, less restrictive and more appropriate means.50 However, the real interest of this case lies in the fact that the Liechtenstein 27 Government maintained that Art. 31 should not be interpreted in line with its EU counterpart, due to the fundamental differences between the EU legal order and that of the EEA. The EFTA Court categorically rejected these arguments. It first set out its findings in Restamark that the objective of the Contracting Parties was to create a dynamic and homogeneous European Economic Area. This the Court had based on recital 4 to the Agreement. The Court also referred to recital 15, which underlined the aim of the Contracting Parties to maintain a uniform interpretation of the Agreement and the corresponding provisions of Community law. This objective was reflected in Art. 6 EEA as well as Art. 3(2) of the SCA. Having examined these sources the EFTA Court stated that there were admittedly differences in the scope and purposes of the EEA Agreement as compared to the EC Treaty, and it could not be excluded that such differences, under specific circumstances, might lead to differences in interpretation. However, when parallel provisions are to be interpreted without any such specific circumstances being present, homogeneity should prevail. This was the first time the EFTA Court set out in this clear manner the rebuttable presumption that parallel provisions should be interpreted in the same manner in both the EU and the EFTA pillar. The importance of this finding for the EEA should not be underestimated as this parallelism with the EU Treaty and secondary legislation is what sets the EEA Agreement apart from many other association- and bilateral agreements the EU has concluded with non-member States. In subsequent case law, the EFTA Court has only twice explicitly departed from established interpretation by the ECJ of provisions in EU law, in Pedicel and Jabbi, both of which will be discussed later in this chapter. The saga of residence requirements in Liechtenstein continued with three cas- 28 es, Brändle, Mangold and Tschannett concerning the so-called single practice rule, which prohibited establishment in Liechtenstein for several professions, if they were already established elsewhere.51 The EFTA Court found this to be indirectly discriminatory and not justified. This was then followed by Pucher where the imposition of a residence requirement for at least one member of a domiciliary company was at stake.52 Subsequently, ESA has twice taken Liechtenstein to the EFTA Court for maintaining similar requirements, the latter of those cases, Case E-1/09 mentioned above, being the most interesting one as it did not contain as obvious a residence requirement.53

50 51 52 53

Paras. 32-37. Case E-4/00, 14.6.2001, Brändle; E-5/00 14.6.2001, Mangold; E-6/00, 14.6.2001, Tschannett. Case E-2/01, 22.2.2002, Pucher. Case E-8/04, 1.7.2005, ESA v Liechtenstein; Case E-1/09, 6.1.2010, ESA v Liechtenstein.

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VI. Derogations in Annex VIII 29

Annex VIII contains significant derogations from the application of Art. 31. The first concerns Liechtenstein’s possibility to control the taking up of residence in that State while the second relates to fisheries sector in Iceland and Norway. In Annex VIII we also find the important Dir. 2004/38/EC on the right of citizens of the Union and their family members to move and reside freely within the territory of the Member States (Citizenship Directive).54 A brief description of the EFTA Court’s most important case law regarding this Directive will be provided following the discussion of the derogations. 1. Residence in Liechtenstein

Since it became a Contracting Party to the EEA Agreement on 1 May 1995, Liechtenstein has enjoyed derogations from the general rules of the Agreement on the free movement of persons. The rules were initially transitional measures laid down in Protocol 15 EEA, which expired on 1 January 1998 and are now part of the sectoral adaptations in Annex VIII. What sets these rules apart is, that they are the only example in the entire EEA of a State being allowed, as a matter of EEA law, to control immigration into the State by citizens of other Contracting Parties. The rationale behind these derogations is explained by the declaration of the EEA Council when Liechtenstein became party to the Agreement. The EEA Council recognised that Liechtenstein has a very small inhabitable area of a rural character with an unusually high percentage of non-national residents and employees.55 Moreover, the Council recognised the vital interest of Liechtenstein to maintain its identity. Currently, the preamble to the sectoral adaptations refers to the fact that due account has been taken of the specific geographic situation of Liechtenstein. 31 The EFTA Court dealt with the legal effects of Protocol 15 EEA in RainfordTowning. First, the Liechtenstein Government claimed that the residence requirement was justified on the basis of public policy, cf. Art. 33 EEA, which had to take account of the special situation of Liechtenstein. The Court referred to the declaration cited above and concluded that the obligations of Liechtenstein are to be decided on the basis of the decisions of the Contracting Parties. Thus, the Court rejected any arguments to the effect that public policy,56 a concept of EEA law, be given a different meaning, with reference to the considerations listed above.57 The referring court also posed the question whether the restrictions could be justified based on Protocol 15. The EFTA Court dealt with that 30

54 Note that the Directive is also to be found in Annex V on workers. See further on this the comments by Fløistad on Art. 28 EEA. 55 The population is around 37.000 and one specific feature worth mentioning in this context is that Liechtenstein has a very high number of frontier workers coming in daily from the neighbouring States, around 17.500. 56 See Section II in the comments regarding Art. 33. 57 Case E-3/98, 10.12.1998, Rainford-Towning, para. 40.

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question simply by noting that the relevant Protocol had expired. As regards the Council Declaration, the Court stated that it did not provide any basis for maintaining such restrictions and that the Liechtenstein Government had not invoked it as a justification.58 Although the observations of the EFTA Court on the content of Protocol 15 and the accompanying declaration are rather brief, they show that the Court interpreted them strictly and was not willing to consider giving them any effect beyond their explicit content. After the expiry of Protocol 15, Liechtenstein applied safeguard measures 32 under Art. 112 EEA (the only example of an EFTA State making use of this Article) until the adoption of Joint Committee Decision 191/1999. It is beyond the scope of this Chapter to examine whether the conditions for applying Art. 112 EEA were fulfilled in this case.59 The application of the Article requires the presence of serious economic, societal or environmental difficulties. The threshold for meeting those criteria is high. In this context it is interesting to note, that Iceland did attempt to apply that Article when the global financial crisis of autumn 2008 hit the island in a particularly severe manner.60 The present author considers it far from certain whether the conditions for Liechtenstein for making use of this provision were met. However, it remains the case that, the other Contracting Parties did not engage in any counterbalancing measures under Art. 114 EEA. The currently applicable adaptations were put in place with the 2004 EEA 33 Enlargement Agreement, which entered into force on 1 May 2004. The derogations are now permanent with an obligation to review them every five years. In the latest review from 2015, the conclusion of the Commission was that there was no need to change the current rules and it considered that the adaptations could remain unchanged. It was noted that no Member State had raised any concerns about the continuation of the regime.61 Even if these derogations are specific to Liechtenstein and its unique situation, they are nevertheless of a greater general interest as they are the only example of derogations from the rules of the Agreement on free movement of persons. According to Point I of the adaptations, nationals of other EEA States may 34 only take up residence in Liechtenstein after having received a permit from the Liechtenstein authorities. Point I also provides that no permit shall be necessary for a period of less than three months, if the person is not engaged in employment or any other economic activity. Moreover, no permit is required for 58 Paras. 45-49. 59 Georges Baur notes that the conditions for the application of the safeguard measures are very strict. He outlines Liechtenstein’s use of them as set out above, however, without expressing a view as to whether it complied with the conditions, see Baur, ‘Suspension of Parts of the EEA Agreement: Disputes about Incorporation, Consequences of Failure to Reach Agreement and Safeguard Measures’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 75. See also the comments by Fredriksen on Art. 112 in this book. 60 Iceland did apply the more specific derogation provided for in Art. 43. 61 Brussels, 28.8.2015 COM(2015) 411 final Communication from the Commission to the Council and the European Parliament Liechtenstein Sectoral Adaptations – Review.

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those providing cross-border services in Liechtenstein. Finally, it lays down the rule that the conditions applying to EEA nationals may not be more restrictive than those applying to third country nationals. This has the significance that Liechtenstein could not agree with Switzerland on rules more favourable to Swiss nationals than those applying in the EEA. 35 Paragraph 1 of Point II regulates the number of residence permits available for economically active EEA nationals. The text is rather convoluted and provides: ‘The number of residence permits available annually for nationals of Iceland, Norway or an EU Member State exercising an economic activity shall be determined in such a way that the yearly net increase from the previous year in the number of economically active nationals of those countries resident in Liechtenstein is not less than 1.75% of their number on 1 January 1998.’

Point IV provides for a supplementary quota for non-economically active of 0.5 % of the basis referred to in the cited paragraph. In real terms, this amounted to 72 residence (56 economically active and 16 non-active) permits being available in 2014. Paragraph 2 of Point II places the obligation on the Liechtenstein authorities to grant residence permits in a manner that is non-discriminatory and does not distort competition. Half of the new permits available each year shall be granted through a procedure which gives an equal chance to all applicants. In practice, this done by a drawing of lots amongst the applications submitted. 37 Point III provides for the important rule that family members of those EEA nationals who reside lawfully in Liechtenstein, shall have the right to obtain a permit of the same validity as that of the person upon whom they depend. They also have the right to take up economic activity in which case they will be counted towards the quota outlined above. However, the conditions laid down in Point II may not be used to refuse them a permit in the event of the quota already being filled. 38 The question may perhaps be posed, whether the existence of the derogations has any impact on the interpretation of the Citizenship Directive vis-à-vis Liechtenstein. However, the answer to that question is clearly negative. In Clauder,62 a case concerning the right of a German national with permanent residence in Liechtenstein to bring his spouse to the State, the EFTA Court held that although not explicitly stated in Art. 16(1) of the Directive, the right to permanent residence must confer a derived right of residence in the host State on the holder’s family members.63 No mention was made of the sectoral adaptations and the EFTA Court several times highlighted that the Citizenship Directive should be interpreted in a manner that retains its effectiveness. The EFTA Court’s view that the derogations have no impact on the interpretation of the Citizenship Directive is well founded, as giving such major deviations from the 36

62 For a detailed discussion on this case: Legal study on Norway´s obligations under the EU Citizenship Directive 2004/38/EC Advokatfirmaet Simonsen Vogt Wiig AS, pp. 121-133. 63 Case E-4/11, 26.7.2011, Clauder, para. 43.

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main principles of EEA law any broader application than could be directly derived from their very wording, would not be appropriate. This is also the same approach that the EFTA Court had taken in relation to Protocol 15 EEA in Rainford-Towing referred to above. ESA conducted a thorough assessment of Liechtenstein’s implementation of 39 the Citizenship Directive, which it considered defective in a number of areas. When ESA delivered its reasoned opinion three issues remained outstanding.64 ESA considered inter alia that Liechtenstein had not adequately implemented Art. 3 of the Directive as regards the facilitation of entry and residence by other family members and entry and residence by partners in a durable relationship. The last issue is the most interesting one for present purposes and concerned restrictions on economic activity outside Liechtenstein, for EEA national having a residence permit as economically active persons, which was considered to be in breach of Art. 7 of the Directive. Following the reasoned opinion, Liechtenstein loosened these requirements and ESA closed the case as it considered the rules to strike a reasonable balance between, on the one hand, the free movement of persons guaranteed by EEA law and, on the other, the specific situation of Liechtenstein, which underpins the need for maintaining the quota system.65 As regards permanent residence rights, there are no derogations laid down in the adaptations. Therefore, ESA has considered that the rules of the Citizenship Directive apply in full.66 2. Derogations in the Fisheries Sector

Iceland and Norway both have permanent derogations with regard to the right 40 of establishment and the free movement of capital in the fisheries sector, i.e. they may maintain restrictions existing at the date of entry into force of the Agreement. The derogations are laid down in Annex VIII and Annex XII.67 The Icelandic derogation is broad and permits Iceland to maintain restric- 41 tions vis-à-vis non-nationals and nationals who do not reside in Iceland in the sectors of fisheries and fish processing.68 The Norwegian derogation covers restrictions vis-à-vis non-nationals in fishing operations or companies owning and operating fishing vessels.69 These derogations permit restrictions that certainly would not be compatible with Art. 31 EEA in their absence. This is clearly demonstrated by the conclusion of the ECJ in the famous Factortame litigation. 64 65 66 67

Reasoned opinion 18.2.2015. Closure decision of 28.9.2016. Letter of 2.3.2015. As regards the latter, reference is made to the comments by Bull on the provisions on the free movement of capital (Art. 40 ff.). 68 The derogations laid down in Annex VIII and XII are given effect in the Icelandic legal order by Art. 4(1) of Act 34/1991 on Investment by Non-residents in Business Enterprises. 69 Interestingly, the derogation set out in Annex XII only covers the ownership of fishing vessels. The derogations are given effect to in Norwegian law by Sections 2, 5 and 5 a of Lov-1999-03-26-15 (deltakerloven) and Sections 3 and 4 of Lov-1966-06-17-19 (fiskeriforbudsloven).

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As summarised by Barnard, the ECJ concluded that the UK had breached Art. 49 TFEU by preventing nationals of other Member States from setting up and acting as directors of concerns in the fisheries sector and restricting the possibilities for companies of other Member States to pursue fishing activities from the UK through agencies, branches and subsidiaries.70 42 There are no judgments from the EFTA Court concerning the scope of these derogations. However, in a case concerning ownership restrictions in the fish farming industry, ESA and the Norwegian Government disagreed as to whether the Norwegian derogation extended to fish farming. The Authority was of the opinion that the term “fishing operations” did not extend to aquaculture and considered that both a textual and a contextual interpretation of the derogation lead to the conclusion that it was not applicable to fish farming.71 43 It has been maintained that the principle established by the EFTA Court in Pedicel also extends to Art. 31.72 In Pedicel the EFTA Court held that the Art. 36 EEA was not applicable to advertisement services which were an integral part of and inseparably linked to trade in wine, which is outside the scope of the EEA Agreement by virtue of Art. 8 EEA.73 In Synnøve Finden the EFTA Court did not address this issue as it considered that a separate assessment of the national measure (state aid to a dairy producer) under Art. 31 EEA was precluded and it was to be examined only under Art. 61 EEA.74 The present author believes that as a matter of principle, Pedicel should not be extended to Art. 31.75 The right of establishment allows EEA nationals (and undertakings) to participate on a stable and continuous basis in the economic life of the host State. In the absence of an explicit derogation in the EEA Agreement, it is of no legal relevance whether that participation consists in producing products, which may not fall under the scope of the Agreement. Moreover, and on a more practical note, it would seem difficult to envisage a national measure, which would be a restriction under Art. 31 EEA and as well be inseparably linked to trade in products. VII. Citizenship Directive 44

The Citizenship Directive is located both in Annex V (workers) and Annex VIII of the Agreement. At first glance, this might seem surprising. However, bearing in mind that the Directive deals with both the rights of those who move

70 Barnard, The Substantive Law of the EU, p. 391. 71 Letter of Formal Notice of 11 July 2012, Dec. No 186/12/COL in Case No 68781. The case did not proceed further than the stage of a letter of formal notice as it was closed following a relaxation of the contested rules by the Norwegian Government. 72 Arnesen, Endringer i deltakerlovens aktivitetskrav – EØS-rettslige spørsmål, Report submitted to the Norwegian Ministry of Trade, Industry and Fisheries (22 March 2015), in particular pp. 8-9. 73 Case E-4/04, 25.2.2005, Pedicel paras. 34-35. 74 Case E-1/16, 15.12.2016, Synnøve Finden, para. 74. 75 See further the detailed examination made in the comments on Art. 36 EEA.

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as workers under Art. 28 EEA and those who move as self-employed persons under Art. 31 EEA, this is quite logical.76 This leaves open the question of what, if any, rights EEA law grants to those who move without engaging in any economic activity, which we will turn to below. The incorporation of the Directive into the EEA Agreement was a tortuous and time-consuming process.77 Attached to the Joint Committee Decision incorporating the Directive was a joint declaration, which provides, inter alia, that the concept of Union Citizenship has no equivalent in the EEA Agreement and that the Agreement does not provide a legal basis for political rights of EEA nationals. Moreover, it states that the incorporation of this Directive shall be without prejudice to the evaluation of the EEA relevance of future legislation as well as the future case law of the ECJ on the concept of Union citizenship. In two highly interesting cases, the EFTA Court has essentially been faced with questions related to the absence of the concept of citizenship in the EEA Agreement. In Gunnarsson, the Court was asked whether it was in line with Art. 7 of the 45 Directive that an Icelander, on disability benefits, lost certain tax advantages upon moving his residence to Denmark.78 In the EU pillar, this issue would have been resolved on the basis of the Citizenship provision and indeed in a Finnish case, Turpeinen, the ECJ had concluded that a broadly similar rule was in breach of Art. 18 TEC (Art. 21 TFEU).79 The EFTA Court concluded that Art. 7 of the Citizenship Directive and its predecessor, Art. 1 of Dir. 90/365, could be relied on against exit restrictions put in place by the home State. In a key paragraph, the Court stated that these Articles conferred on a pensioner not only a right of residence in relation to the host State, but also a right to move freely from the home State. That right prohibits the home State from hindering such a person from moving to another EEA State. A less favourable treatment of persons exercising the right to move than those who remain amounts to such a hindrance.80 This conclusion from the EFTA Court was far from evident as is very aptly demonstrated by the fact that ESA argued that Art. 7 could only be relied on against the host State. However, ESA had previously been of the opposite view and sent Iceland a letter of formal notice as it considered that the contested provision of the Icelandic Income Tax Act was in breach of Art. 28 EEA and Art. 7 of the Directive.81 Burke and Hannesson have noted that Gunnarsson represented an example of 46 the EFTA Court asserting its independence, straying from substantive paral-

76 This section will only briefly cover the Directive. See further the comments by Fløistad on Art. 28 EEA in this book and Björgvinsson, ‘Free movement of persons’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 473-500. 77 Jónsdóttir, Europeanization and the European Economic Area, pp. 96-112. 78 Case E-26/13, 27.6.2014, Gunnarsson. For a critical view of this judgment, see Advokatfirmaet Simonsen Vogt Wiig AS (Thue, Fløistad et al.), Legal study on Norway´s obligations under the EU Citizenship Directive 2004/38/EC, 2016, pp. 133-144. 79 Case C-520/04, 9.11.2006, Turpeinen. 80 Case E-26/13, 27.6.2014, Gunnarsson, para. 82.

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lelism in favour of maintaining the homogeneity of the Internal Market.82 In deciding the case, the Court was confronted with a considerably divergent context from Turpeinen and other cases decided by the ECJ. Previous judgments by the ECJ had avoided an expansive interpretation of the Citizenship Directive vis-àvis the home state. Such a stretching exercise was unnecessary because other legal bases, notably Union Citizenship, provided for such obligations. However, while the ECJ had relied upon Union Citizenship in order to ensure that host states could not frustrate the free movement rights of their own non-economically active nationals, the EFTA Court had no analogous concept upon which to lean, rather resorting to result-oriented homogeneity, stretching the wording of the directive contra legem, far beyond what had been attempted by the ECJ, in order to ensure that outcomes in similar cases would remain consistent within both EEA pillars. The result in Gunnarsson has been described as a “significant cleavage” between the two legal regimes, and it is difficult to disagree. However, it is equally true that “[l]ato sensu reasoning is certainly preferable to imperiling homogeneity, and thereby the Internal Market.”83 Whilst recognizing that there is scope of different views on this, the present author believes that the judgment in the aforementioned case and Jabbi, discussed below, strike the correct balance in this regard. In a similar vein, Lyal has stated that Gunnarsson daring though it may seem, reflects a current in the case law of the ECJ favourable to free movement for all persons economically active or not.84 47 In O and B, the ECJ, handed down a few months before Gunnarsson, had reached the opposite conclusion to the EFTA Court, i.e. that Art. 7 of the Directive only applied vis-à-vis the host State and that restrictions of the home State were to be assessed under the Citizenship provisions. In Jabbi the EFTA Court was again seized of the question whether the Article could be applied in relation to the home State and essentially asked to reconsider Gunnarsson in light of O and B.85 The Court started by setting out detailed general remarks about the importance of the free movement of persons in the EEA. The Court stated that the freedom formed part of the core of the EEA Agreement and therefore considerations of homogeneity carried substantial weight. Turning to the judgment in O and B, the Court recalled that the ECJ had concluded on the basis of Art. 21 TFEU, that the conditions for granting a derived right of residence to a third‑country national who is a family member of that Union citizen, in the latter’s Member State of origin, should not, in principle, be stricter than those pro81 That case was closed following amendments being made to the Income Tax Act. The difficulties ESA had to form a position on this question was one of the factors relied on by the Icelandic Supreme Court in reaching the conclusion that the breach of the Icelandic State was not sufficiently serious to warrant the award of damages. Judgment of 2 October 2014 in case no 92/2013. 82 Burke and Hannesson, ‘Citizenship by the back door? Gunnarsson’, in Common Market Law Review, 52 (2015), pp. 1111-1134. 83 Ibid, p. 1132. 84 Lyal, ‘Tax Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 741. 85 Case E-28/15, 26.7.2016, Jabbi.

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vided for by that directive for the grant of a derived right of residence to a third‑country national who is a family member of a Union citizen who has exercised his right of freedom of movement by becoming established in a Member State other than the Member State of which he is a national. The EFTA Court noted that the ECJ had reached its conclusion on a legal basis not existing in the EEA and had apparently rejected the application of the Directive. Consequently, the EFTA Court held that an unequal level of protection of the right of free movement of persons within the EEA could ensue. However, if the EFTA Court wishes to ensure the same level of protection in the EEA, it must explain why the ECJ’s conclusions regarding the Directive could not decide the matter. Turning to the question referred, the EFTA Court stated that the case was to 48 be distinguished from O and B to the extent that the judgment is based on citizenship. It had to be examined whether homogeneity in the EEA can be achieved based on the authority included in the EEA Agreement. The EFTA Court then proceeded to interpret Art. 7 of the Directive in the EEA context and in doing so confirmed its conclusion in Gunnarsson that when an EEA national makes use of the right of free movement under that provision, he may not be deterred from exercising that right by restrictions put in place by his home State. However, the EFTA Court added some unnecessary confusion regarding the legal basis underpinning its conclusion by applying Art. 7 of the Directive by analogy rather than directly, which would seem to be the logical step following the Court’s reasoning. The present author believes that the reasoning of the EFTA Court in Jabbi is 49 mostly convincing and the Court correctly achieved homogeneity of result, between the EU and the EFTA pillars, albeit based on different legal basis.86 It is at the very least plausible that the ECJ would reach the same conclusion, were it ever called upon to interpret Art. 7 in an EEA context. 87 This is indeed similar to what the EFTA Court did in its most celebrated case Sveinbjörnsdóttir, where it established the principle of state liability in EEA law. The reasoning behind the existence of state liability in the EEA differed considerably from what was set out by the ECJ in Francovich. On a related note, ESA has applied Art. 61(3) (c) EEA to cover aid for cultural purposes, effectively giving the EFTA States the same possibility of granting aid on that basis, as the EU States have on the basis of Art. 107(3)(d) TFEU, which has no counterpart in the EEA Agreement.88 The most important issue was that the rule established was broadly speaking the same even if the legal basis was different. As Niels Fenger has put 86 For a very different view of the EFTA Court’s rulings in these cases reference is made to the comments by Wennerås on Art. 6, mn. 64-69 and Fløistad on Art. 28, mn. 21-43. 87 In this context it is interesting to examine how the ECJ treated the issue of non-economically active EFTA nationals in Case C-431/11, 26.9.2013, UK v Council, see the comments by Fløistad on Art. 29, mn. 3-11. 88 See the comments by Mathisen and Jordal on Art. 61(3) EEA and, further, Fenger, ‘Limits to a dynamic homogeneity between EC law and EEA law’, in: Fenger et al. (eds.), Festskrift til Claus Gulmann, 2006 pp. 131-154, at p. 141.

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it: “for an EEA lawyer, the goal of homogeneity has always related primarily to the outcome of case and only to a lesser extent to the reasons.“89

Article 32 [Exemptions for exercise of official authority] The provisions of this Chapter shall not apply, so far as any given Contracting Party is concerned, to activities which in that Contracting Party are connected, even occasionally, with the exercise of official authority. 1

2 3

4

5

Art. 32 provides that insofar as the activities in question constitute exercise of official authority, the rules of the Agreement on establishment and services (cf. Art. 39) are not applicable. Art. 32 corresponds to what is currently Art. 51(1) TFEU, previously Art. 55(1) EEC. There is no textual difference between Art. 32 on the one hand and Art. 51(1) TFEU on the other. Art. 51(2) TFEU provides that the European Parliament and the Council may, acting in accordance with ordinary legislative procedure, rule that this Chapter shall not apply to certain activities. Although Art. 32 differs from the derogation concerning employment in public service laid down in Art. 28(4), the case law of the ECJ concerning the equivalent provisions in the TFEU makes clear that the ECJ treats them in a similar manner and applies a functional approach to both.1 A similar provision may also be found in Art. 33(1) of the EFTA Convention. To date, there have been no judgments from the EFTA Court nor any infringement proceedings launched by ESA regarding Art. 32. Nevertheless, it seems very safe to assume that the approach taken in the case law of the ECJ would be followed in the EFTA pillar. Starting with the seminal Reyners case, the ECJ has held that as a derogation from the fundamental freedoms what is now Art. 51(1) TFEU must be given a restrictive interpretation.2 In Reyners, the ECJ held that the derogation only applied to activities, which, taken on their own, constitute a direct and specific connection with the exercise of official authority. Moreover, an application of the derogation to a whole profession would only be possible in cases where the activities of the profession were such that the freedom of establishment would result in imposing on Member States the obligation to allow the exercise, even occasionally, by non-nationals of functions related to official authority.3 Barnard describes the case law of the ECJ as restricting the derogation in Art. 51 TFEU to activities which in themselves are directly and specifically connected with the exercise of official authority. Functions which are auxiliary or preparatory are excluded from that concept.4 89 1 2 3

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Fenger, ‘Limits to a dynamic homogeneity between EC law and EEA law’, p. 137. Barnard, The Substantive Law of the EU, p. 473. Case 2/74, 21.6.1974, Reyners, para. 43. See further Norberg et al., EEA Law, p. 435. Case 2/74 21.6.1974 Reyners, paras. 45-46.

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A good illustration is the relatively recent Grand Chamber judgment in Com- 6 mission v Belgium concerning nationality requirements for notaries.5 The Commission and Belgium agreed that the principal activity of notaries under Belgian law consists of the establishment of authentic instruments in due and proper form. The notary has to ascertain that all the conditions required by law for drawing up the instrument are satisfied. An authentic instrument has probative value and is enforceable. However, in the ECJ’s view, this was not sufficient for the activity to come within the scope of Art. 51 TFEU. The Court noted that the notary’s intervention presupposed the prior existence of an agreement between the parties and that the notary could not unilaterally alter an agreement he has been called on to authenticate without obtaining the consent of the parties. The activity of authentication did not therefore involve a direct and specific connection with the exercise of official authority.6 The Court acknowledged the arguments advanced by Belgium, that the notary’s verification in the case of instruments subject to mandatory authentication pursued an objective in the public interest i.e. to guarantee the lawfulness and legal certainty of documents. However, acting in the pursuit of a public interest objective was not in itself sufficient for a particular activity to be regarded as an exercise of official authority.7 Finally, the Court concluded that the enforceability of documents did not result from powers vested in the notary, which were directly and specifically connected with the exercise of official authority. In that context the Court noted that, while the notary’s endorsement gave the instrument the enforceable status, that status was based on the intention of the parties to enter into an agreement and to make it enforceable.8 It is clear that, as a matter of Belgian law, the notary has certain public law powers and his status is different from that of a lawyer. Nevertheless, the ECJ did not consider Art. 51 TFEU applicable. This clearly underlines the narrow view it has taken as to what is to be considered an exercise of official authority for the purposes of Art. 51 TFEU. As regards the remainder of the judgment in Commission v Belgium, the ECJ 7 examined in detail the other activities of notaries under Belgian law and similarly reached the conclusion that they were outside the scope of Art. 51 TFEU. At the end, the Court made interesting observations about the status of notaries. It observed that parties (with minor exceptions) were free to choose their own notary and that even if their fees were fixed by law, the quality of the services provided could vary from one notary to another based on their professional capabilities. From this, the Court deduced that, within the geographical limits of their office, notaries practised their profession in conditions of competition.9 This would seem to suggest that any activity in which some form of competi4 5 6 7 8 9

Barnard, The Substantive Law of the EU, p. 475. Case C-47/08, 24.5.2011, Commission v Belgium. Paras. 89-92. Paras. 92-94. Para. 103. Para. 117.

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tion and free choice of the consumer exists would not be considered as being an exercise of official authority. 8 Art. 32 EEA has been used as a basis for not tendering out child and youth care services in Norway.10 The first issue to be examined in this context is whether as a matter of principle Art. 32 EEA is available as means of derogation from the EEA rules on public procurement as according to its wording, the derogation is only applicable to the relevant Chapters, i.e. Chapters 2 and 3 of Part III. Art. 65(1) EEA, which forms part of Part IV of the Agreement, competition and other common rules, refers to Annex XVI to the EEA Agreement. That Annex contains specific provisions and arrangements concerning procurement. The ECJ has held that the Directives on public procurement are designed to implement the fundamental freedoms guaranteed by the EEA Agreement, namely the right of establishment and the freedom to provide services.11 Therefore, it would seem logical to conclude, in so far as Arts. 32 EEA and 39 EEA recognise the right of the EEA States to derogate from the said fundamental freedoms as a whole in certain areas of activity characterised by an exercise of official authority, the application of these exceptions must have the same legal effect as regards the provisions of Dir. 2014/24. This approach appears to be the one taken by the ECJ in Case C-3/88 Commission v Italy and in Case C-272/91 Commission v Italy: The ECJ first examined whether the activity in question qualified as “exercise of official authority” within the meaning of the exception to freedom of establishment and freedom to provide services under the EEC Treaty, and, only after concluding that this was not the case, proceeded to examine whether there had been a breach of secondary EU legislation.12 Thus, in light of the homogeneity principle it appears unconvincing to preclude the application of Art. 32 EEA in the field of public procurement simply because Art. 65 EEA is placed in a different part of the Agreement and that there is a separate Annex on public procurement. 9 That leads to the question of whether excluding the operation of child welfare services fulfils the strict conditions for relying on Art. 32. To the extent that these institutions are, as a matter of national law, permitted to take coercive measures against the minors such as depriving them of their liberty, it would seem that their operation would involve the exercise of the official authority. In that respect, the situation may be distinguished from a line of cases concerning nationality requirements for security undertakings. The ECJ held that surveillance and protection tasks on the basis of private law relation, did not mean that these undertakings were vested with powers of constraint. Merely making a contribution to the maintenance of public security, which any individual may be called upon to do, does not constitute exercise of official authority.13 Drawing on 10 Currently, cases are pending both at ESA and before the national courts in Norway. 11 Case C-160/08, 29.4.2010, Commission v Germany, para. 74. 12 Case C-3/88, 5.12.1989, Commission v Italy and Case C-272/91, 26.4.1994, Commission v Italy.

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principles recognised in the application of Art. 28(4) EEA, it may probably be added that in order for the child welfare services to be placed under Art. 32 EEA, it must be demonstrated that the activities involving the exercise of official authority are not purely marginal and ancillary.14 Moreover, assuming that Art. 32 is indeed applicable, its nature as a derogation to be interpreted strictly means that it could not be relied on in respect of services related to the operation of the child welfare institutions such as e.g. the construction of facilities, catering and transport services. Finally, it may be mentioned that Art. 2(2)(i) of the Services Directive pro- 10 vides that the Directive does not apply to activities involving exercise of official authority as set out in Art. 32 EEA. In Hiebler, a case concerning the profession of chimney sweepers in Austria, the ECJ, relying on principles set out above, rejected that the exercise of official authority was at stake. It is interesting to note that the ECJ considered that the tasks of the chimney sweepers could be regarded as a service of general economic interest, which however, did not alter the fact that the Services Directive was applicable. In this respect, the case neatly illustrates that the exemption in Art. 32 EEA only covers to a limited extent the tasks carried out to serve the public interest.15

Article 33 [Exemptions] The provisions of this Chapter and measures taken in pursuance thereof shall not prejudice the applicability of provisions laid down by law, regulation or administrative action providing for special treatment for foreign nationals on grounds of public policy, public security or public health.

I. Comparison with Art. 51 TFEU

Art. 33 reproduces the wording of Art. 56(1) EEC. The currently applicable 1 provision is Art. 51(1) TFEU. Similarly, Art. 39 EEA contains the same rule as is now laid down in Art. 62 TFEU. It can safely be concluded, that in this respect there is no textual difference between the provisions of the EEA Agreement and the TFEU. By way of comparison, Art. 27(2) of the EFTA Convention lists public poli- 2 cy, public security, public health and the protection of the environment as justification grounds. II. Justification of discriminatory measures vs non-discriminatory measures

Any measure that constitutes a restriction under Arts. 31 and 36 EEA may be 3 justified on the basis of the grounds set out in Art. 33, i.e. public policy, public 13 Case C-114/97, 29.10.1998, Commission v Spain para. 36-37. 14 Barnard, The Substantive Law of the EU, p. 472. 15 Case C-293/14, 23.12.2015, Hiebler, paras. 34-43.

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4

5

6

7

security and public health. This applies irrespective of whether the measure is directly or indirectly discriminatory or liable to hinder or make less attractive the exercise of the freedom of establishment and the free movement of services. The ECJ has consistently held that measures which are directly discriminatory can only be justified on the grounds expressly laid down in the Treaty. However, other restrictions, including indirectly discriminatory measures, may be justified on the basis of a much broader category of overriding requirements in the general interest, which will be discussed below.1 The EFTA Court has followed the approach taken by the ECJ. As an example of this, the EFTA Court held in Granville that it follows from Art. 39 EEA, applied in conjunction with Art. 33, that a directly discriminatory rule may be justified only on grounds of an express derogating provision, such as Art. 33, that is, on grounds of public policy, public security or public health.2 Applied to the facts of that case, the EFTA Court noted that the parties had not relied on any of the grounds set out in Art. 33. It was apparent from the preparatory works to the national law that its purpose was to force companies doing business in Liechtenstein to make use of the Liechtenstein courts. As such considerations were not permissible, as a matter of EEA law, the EFTA Court concluded that the discrimination could not be justified. Of these express justification grounds, public policy is the one that the EFTA Court has been called upon most often to interpret. As regards the other justification grounds, public health and public security, there are no particular EEA law developments worth referring to and it may be safely asserted that the concepts have the same meaning as they have within EU law. The most noteworthy case of the EFTA Court in this respect is certainly STX. This aspect of the case concerned the issue of whether payment of board and lodgings, which did not fall under Art. 3(1)(c) of the Posting of Workers Directive, could be justified on the basis of the public policy provision of Art. 3(10) of the Directive.3 The EFTA Court set out the test for what constitutes public policy in line with its own case law and that of the ECJ,4 stating that the notion of public policy, particularly when it is cited as a justification for a derogation from the fundamental principle of the freedom to provide services, must be interpreted strictly and that its scope cannot be determined unilaterally by each EEA State.5 Referring to a judgment from the ECJ, the EFTA Court held that an 1 Barnard, The Substantive Law of the EU, p. 482. There are certainly some examples of the ECJ deviating from the orthodoxy and allowing directly discriminatory measures to be justified on the basis of overriding requirements in the general interest. The present author is not aware of any EFTA Court judgment to that effect and in any event an examination of those cases is not relevant for this Chapter. 2 Case E-13/11, 25.4.2012, Granville, paras. 49-51. For a recent confirmation, see Case E-14/15, 19.4.2016, Holship, para. 121. 3 Although this concerned a provision in secondary law, the concept of public policy is applied in a uniform manner to what is applicable under free movement law. 4 The Court cited Case E-12/10, 28.6.2011, ESA v Iceland and Case C-319/06, 19.6.2008, Commission v Luxembourg.

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EEA State cannot rely on the public policy exception referred to in the first indent of Art. 3(10) of the Directive in order to apply to undertakings posting workers on its territory a requirement relating to the automatic adjustment of wages other than minimum wages to reflect changes in the cost of living.6 On this basis, the EFTA Court held that the information provided to the Court indicated that these allowances were not justified on public policy grounds. This conclusion is clearly in line with the way in which EU and EEA law have generally understood the concept of public policy. Following the case law of the ECJ, it has been maintained that hardly any provisions regarding labour law would fall under this umbrella, except issues such as prohibition on slavery.7 However, the EFTA Court’s judgment also contains a statement that the assessment of the national court of whether the allowance fell under the public policy exception should be made on the basis of the facts before it and in light of criteria related to the assessment of compliance with the principle of proportionality. That the national court should base its reasoning on an assessment of the facts before it, is obviously correct. However, it is difficult to understand why the Court seems to be mixing the assessment of whether a measure falls within the public policy justification and the subsequent issue as to whether it complies with the principle of proportionality. Despite this inaccuracy, the conclusion of the EFTA Court was quite clear and 8 it seemed inevitable that the Norwegian Supreme Court would also conclude that the contested allowances were outside the scope of the public policy exception. Nevertheless, the Supreme Court reached the opposite conclusion. The Supreme Court stated that whether the allowances came within the concept had to be considered in the light of the Norwegian labour market or wage negotiations model. After a detailed examination of expert reports, the Court concluded that the measure was justified on public policy grounds and that the documentation submitted to the Supreme Court clearly met the requirements under EEA law for analysis and substantiation of the suitability and proportionality.8 The understanding of the Norwegian Supreme Court in STX of the EEA law 9 concept of public policy is too broad.9 There are no examples from the case law of the ECJ where the concept has been stretched as far as this. In fact, the

5 The EFTA Court also added that reasons which may be invoked by an EEA State in order to justify a derogation from the principle of freedom to provide services must be accompanied by appropriate evidence or by an analysis of the expediency and proportionality of the restrictive measure adopted by that State, and precise evidence enabling its arguments to be substantiated. 6 Case E-2/11, 23.1.2012, STX, para. 99. 7 Barnard, EU Employment Law, p. 232. 8 Judgment of the Norwegian Supreme Court of 5 March 2013, para. 175. 9 Barnard is of the view that the EFTA Court followed the judgment of the ECJ in Commission v Luxembourg to the letter and that the Supreme Court´s understanding is not in line with that. However, she obviously has a certain sympathy for the conclusion of the Norwegian Supreme Court and that the economic narrative of the EFTA Court/ECJ might not always be attractive to national courts. Barnard, ‘Reciprocity, Homogeneity and Cooperation’, in: EFTA Court (ed), The EEA and the EFTA Court, pp. 162-166.

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Supreme Court seems to apply it in a way that brings it close to being synonymous with overriding reasons in the general interest.10 In this context it might be of interest to note that the Norwegian translation of Art. 3(10) of the Posting of Workers Directive translates public policy (f. ordre public) as offentlig orden.11 The concept of public policy is also to be found in Art. 34 of the Lugano Convention, which provides that a judgment should not be recognised if such recognition is manifestly contrary to public policy in the State in which recognition is sought. In the Norwegian version of the Convention, this is translated as virke støtende på rettsordenen (‘ordre public’), which is also the wording used in sub-paragraph 3 of Art. 19-16 of the Civil Procedure Act (tvisteloven). 10 Despite the outcome of the national proceedings in STX, there is no reason to believe that the concept of public policy has a different meaning in EEA law when compared to EU law. Analysis of the EFTA Court’s interpretation of public policy provisions in cases subsequent to STX demonstrates that there is no divergence from the established case law of the ECJ.12 Moreover, there are no other judgments from national courts in the EFTA States, which could indicate that they do not subscribe to a correct EEA law understanding of the concept. III. Public interest justification 11

When it comes to justification of national measures that are restrictive without being directly discriminatory, the EFTA Court has, in the same way as the ECJ, allowed them to be justified on the basis of an open list of public interest justifications, often referred to as overriding requirements in the public/general interest.13 Among the justification accepted by the EFTA Court, reference can be made to: – – – –

social protection of workers;14 the prevention and combating of money laundering and terrorist financing;15 the functioning and good reputation of the financial market;16 the safeguarding of a balanced allocation between EEA States of the power to impose taxes;17

10 As argued by ESA in its subsequent letter to Norway of 10 July 2015 in Case No 74557. 11 This is interesting to contrast with the Danish and the Swedish translations: ‘arbejds- og ansættelsesvilkår på andre områder end dem, der er nævnt i stk. 1, første afsnit, for så vidt der er tale om grundlæggende retsprincipper (ordre public)’; ‘arbets- och anställningsvillkor på andra områden än de som anges i punkt 1 första stycket om bestämmelserna rör ordre public.’ 12 See E-13/11, 25.4.2012, Granville, para. 49; Case E-15/12, 22.7.2013, Wahl, paras. 81 ff.; Case E-26/11, 27.6.2014, Atli Gunnarsson, para. 91. 13 The list of justifications accepted by the ECJ is very long, see Barnard, The Substantive Law of the EU, pp. 483-487. See also Speitler, ‘Right of Establishment and Freedom to Provide and Receive Services’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 467-469. 14 Case E-2/11, 23.1.2012, STX, para. 81. 15 Joined Cases E-26/15 and E-27/15, 3.8.2016, Criminal Proceedings against B and B v Finanzmarktaufsicht (FMA), para. 92. 16 Case E-1/09, 6.1.2010, ESA v Liechtenstein, para. 36. 17 Joined Cases E-3/13 and 20/13, 9.7.2014, Fred Olsen, para. 168.

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– the risk of seriously undermining the financial balance of the social security system, and of jeopardising the sustainability of a health care system accessible to all;18 and – the aim of ensuring sufficient and permanent access to a balanced range of high quality hospital treatment in the State concerned, and the desire to control costs and prevent wastage of financial, technical and human resources.19 All of these examples have a firm basis in the case law of the ECJ. The EFTA 12 Court has also followed the ECJ in rejecting the contention that economic aims may justify a restriction on the fundamental freedoms.20 Similarly, as may be seen from the above, the EFTA Court has deviated from that general rule when it comes to the financing of the health care systems.21 The only example of the EFTA Court having recourse to a public interest 13 justification, in the field of establishment and services, not applied previously by the ECJ is in the Waterfalls case.22 The EFTA Court held that Art. 125 EEA was to be interpreted to the effect that an EEA State’s right to decide whether hydropower resources and related installations are to be in private or public ownership, was not affected by the EEA Agreement. The corollary of this was that Norway could legitimately pursue the objective of establishing a system of public ownership over these properties, provided that the measures were nondiscriminatory and proportionate in nature. On the facts of the case, the EFTA Court concluded that the Norwegian measures were not in line with Arts. 31 and 40 as they did not consistently pursue the objective of public ownership. Following the EFTA Court’s judgment Norway tightened the rules, essentially precluding any private ownership of these resources.23 In Essent, the ECJ was faced with a related issue, i.e. whether a Dutch ban on 14 privatisation of shares in an electricity or gas system operator was in line with EU law.24 The Court held that it followed from Art. 345 TFEU (Art. 125 EEA) that, as a general rule, the Treaties neither precluded the nationalisation of undertakings nor the privatisation thereof. Consequently, Member States might legitimately pursue an objective of establishing or maintaining a body of rules relating to the public ownership of certain undertakings. On this basis, the ECJ considered that the Dutch rules fell within the scope of Art. 345 TFEU. However, the Court nevertheless considered that they were restrictive of Art. 63

18 19 20 21

Case E-4/00, 14.6.2001, Brändle, para. 35. Joined Cases E-11/07 and E-1/08, 19.12.2008, Rindal and Slinning, para. 55. See e.g. Case E-4/00, 14.6.2001, Brändle, para. 34 and Case E-2/11, 23.1.2012, STX, para. 83. For a detailed examination of justification based on economic aims, see Oliver, ‘When, if Ever, Can Restrictions on Free Movement be Justified on Economic Grounds’, European Law Review (2016), pp. 147-175. On the financial balance of health care systems, in particular pp. 153-156. 22 Case E-2/06, 26.6.2007, ESA v Norway, paras. 71-73. 23 Inspired by the judgment, Iceland also prohibited the transfer of certain energy resources out of public ownership. 24 Joined Cases C-105-107/12, 22.10.2013, Essent et al., paras. 30-34.

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TFEU and then turned to the question of justification. The ECJ held that even if the fact that the prohibition came within the scope of Art. 345 TFEU, this could not, in line with consistent case law, justify a restriction of the free movement of capital. However, this did not mean that the interest underlying the choice of the legislature in relation to the rules on the public or private ownership of energy distributors may not be taken into consideration as a public interest justification.25 The Court went on to distinguish previous case law and concluded that it was ultimately for the referring court to examine whether the rules could be justified on that basis. 15 It thus appears as if the ECJ and the EFTA Court do not approach the issue of public ownership as a public interest justification in quite the same manner. The question then arises: does this difference result in any substantive difference of significance between EEA and EU law regarding this issue? The present author submits that this is not the case. Although it was less explicit than the EFTA Court, the ECJ came at least very close to stating that public ownership could constitute a legitimate public interest objective. In this context, it is also of interest that the ECJ stressed that the Dutch rules contained an absolute prohibition on privatisation and contrasted that with previous cases, for example concerning the privileged status of a Member State as shareholder. This reflects the legislative response to the EFTA Court’s judgment in both Iceland and Norway, which have essentially enacted a ban on privatisation regarding the ownership of hydropower resources.26 IV. Fundamental rights 16

In recent cases such as Holship, the EFTA Court has stated that fundamental rights form part of the unwritten principles of EEA law.27 It follows from the Court’s case law that the fundamental rights guaranteed in the EEA legal order are applicable in all situations governed thereby. Where public interests are invoked in order to justify restrictions on the fundamental freedoms, including those under discussion here, such justifications must be interpreted in light of the general principles of EEA law and, in particular, fundamental rights. Thus, national measures restrictive of the fundamental freedoms can only fall under the exception provided for under EEA law, if they are compatible with fundamental rights.28 In Holship, this meant that any justification of the priority clause

25 Joined Cases C-105-107/12, 22.10.2013, Essent et al., paras. 53-55. 26 See also the comments by Bull on Art. 24, mn. 14, noting that it may be argued that the approach of the EFTA Court is more state friendly than that of the ECJ. 27 For a detailed examination of fundamental rights in the EEA, see Björgvinsson, 'Fundamental Rights in EEA Law’, in: EFTA Court (ed), The EEA and the EFTA Court, pp. 263-280 and Wahl, ‘Uncharted Waters: Reflections on the Legal Significance of the Charter under EEA Law and Judicial Cross-Fertilisation in the Field of Fundamental Rights’, in: EFTA Court (ed), The EEA and the EFTA Court, pp. 281-298. 28 Case E-14/15, 19.4.2016, Holship, para. 123.

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as a measure to ensure the protection of workers would fail, should it not respect the freedom of association under Art. 11 ECHR.29 Fundamental rights act not only as limits on the justification of restrictive na- 17 tional measures, they can also represent the public justification thereof, as was the case e.g. in the famous case of Schmidberger.30 The EFTA Court has never made such use of fundamental rights, the closest it has come to this was in ESA v Iceland where the Court rejected the argument that the fundamental right to property had an impact on the interpretation of the concept of public policy.31 V. Proportionality

Most cases concerning the fundamental freedoms ultimately turn on whether 18 the measures are in line with the principle of proportionality. In the following, a few examples of the EFTA Court’s application of the principle will be provided.32 In infringement cases brought by ESA against one of the EFTA States under Art. 31 SCA, similar to proceedings under Art. 258 TFEU, it falls to the EFTA Court to make the final determination of whether a national measure is in line with the principle. In a request for an advisory opinion under Art. 34 SCA, the EFTA Court will generally limit itself to provide guidance to the national court, as the latter will generally be in a better position to carry out the final assessment of the measure’s proportionality. As regards the burden of proof, consistent case law from the EFTA Court provides that it falls to the EFTA States to demonstrate the proportionality of a restrictive measure. Moreover, the State must provide analysis thereof and specific evidence substantiating its arguments.33 In this context, it is also worth mentioning that the EFTA Court has stated that even if the States are free to define their level of protection within a particular field e.g. gaming, the restrictive measures must nevertheless comply with the principle of proportionality.34 In light of this, it may be queried how much significance it has in practical terms, that the States are granted the freedom to set the level of protection. This is of course not to say that the scrutiny of the EFTA Court does not vary in light of issues such as the sensitivity of the sector, as will be discussed below. Moreover, the level of protection chosen, may

29 See for a similar example Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred Olsen, paras. 226-231. 30 Case C-112/00, 12.6.2003, Schmidberger. 31 Case E-12/10, 28.6.2011, ESA v Iceland, para. 60. This approach of the EFTA Court to the relationship between fundamental rights and public interest justification is line with the one taken by the ECJ, Barnard, The Substantive Law of the EU, pp. 195-196. 32 For a general examination of the principle of proportionality, including how the Norwegian Supreme Court has applied it, reference is made to Fredriksen and Mathisen, EØS-rett, pp. 92-102. See also Barnard, The Substantive Law of the EU, pp. 489-91. 33 Case E-9/11, 16.7.2012, ESA v Norway, paras. 88-89. As can be seen from this citation, this applies equally for all the fundamental freedoms and is the approach adopted by the ECJ. 34 Case E-3/06, 30.5.2007, Ladbrokes, para. 42; Case E-24/13, 29.8.2014, Casino Admiral, para. 50.

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19

20

21

22

have an impact when assessing the equivalence of control carried out in the home State of a service provider. The EFTA Court has applied the classic three part test of proportionality, i.e. that measures must be suitable, necessary (the least restrictive alternative test) and proportionate (proportionality stricto sensu).35 As is well known, very few judgments of the ECJ have dealt with the last limb of the proportionality principle, and the present author is not aware of any judgment from the EFTA Court where a national measure has been struck down on that basis.36 In practice, most cases turn on whether the necessity test has been complied with. However, in cases regarding various forms of residence requirements in Liechtenstein, the EFTA Court considered that they were not suited to achieve the objectives pursued by the Liechtenstein Government and therefore failed the test for that reason. By way of example, as regards the objective of ensuring professional knowledge regarding the Liechtenstein legal system, the EFTA Court stated that it sufficed to point out that the requirements relating directly to professional experience and training would be more appropriate and certainly less restrictive of the freedom of establishment. Similarly, as regards the objective of ensuring on-site presence of the management of a bank in the event of a crisis, the Court noted that it would be more appropriate and certainly less restrictive to require the bank to demonstrate, in a credible and verifiable manner, that it has the capacity to muster key personnel at the place of business within a reasonable amount of time.37 The so-called Stock Exchange case is a good example of the EFTA Court conducting quite a rigorous analysis of the proportionality of the Norwegian measures restricting ownership and voting rights in financial infrastructure institutions.38 In contrast to the example cited above, the Court explicitly concluded that the measures were suitable to attain the objective of promoting the proper functioning and efficiency of the financial markets. However, after a detailed examination, the Court held that Norway had not sufficiently demonstrated that other forms of control, even if administratively more burdensome, could not achieve the public interest objectives in an equally effective manner. Interestingly, the EFTA Court also held that given the latitude of the discretion conferred on the competent authorities and the uncertain scope of the exemption provision contained in the Act, there was an interference with the principle of legal certainty. This should not give the impression that the EFTA Court is unusually strict in its application of the principle of proportionality. An example of the Court being rather lenient with an EFTA State is the Gaming Machines case. The Court held 35 See e.g. Case E-1/09, 6.1.2010, ESA v Liechtenstein, para. 38. 36 For a discussion of this aspect of the principle, see Hreinsson, ‘General Principles’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 370-371. 37 Case E-1/09, 6.1.2010, ESA v Liechtenstein, paras. 40-41. See also Case E-8/04, 1.7.2005, ESA v Liechtenstein, para. 29. 38 Case E-9/11, 16.7.2012, ESA v Norway, paras. 87-101.

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it was reasonable to assume that a monopoly operator in the field of gaming machines subject to effective control by the competent public authorities will tend to accommodate legitimate concerns of fighting gambling addiction better than a commercial operator or organisations, the humanitarian or socially beneficial activities of which partly rely on revenues from gaming machines. Furthermore, it was plausible to assume that in principle the State can more easily control and direct a wholly State-owned operator than private operators.39 The result then essentially turned on the EFTA Court relying on an assumption in favour of the party bearing the burden of proof. However, this is in line with some case law from the ECJ, which has adopted an equally lenient approach to the proportionality of national measures in field of gaming.40 As stated above, the situation is different in requests for advisory opinions. In 23 such cases the EFTA Court, much like the ECJ is to provide guidance to the national court, with the task of the latter being to carry out a final assessment of the proportionality of the measure.41 Good examples of this approach include Pedicel and Criminal Proceedings against B.42 In some instances the EFTA Court undertakes part of the proportionality assessment itself, such as in Arcade Drilling, where it concluded that a national measure, which prescribed the immediate recovery of tax on unrealised assets at the time of the assessment of the tax authorities that the company has lost its legal status as a separate legal entity under national company law, was disproportionate.43 Similarly, in the cases discussed above concerning the so-called single practice rule in Liechtenstein, the EFTA Court concluded that it could not be justified by any public interest objectives.44 A very recent example of a detailed examination by the EFTA Court may be found in Netfonds where the Court examined thoroughly both the suitability and the necessity of Norwegian measures concerning ownership requirements in respect of authorisations for financial institutions.45 The ruling of the EFTA Court in this case, is explained by the fact that the referring court had posed very specific and detailed questions regarding the application of the prin-

39 Case E-1/06, 14.3.2007, ESA v Norway, para. 51. 40 See Section IV.1 in the comments regarding Art. 36. 41 There are some examples in the case law of the ECJ where it conclusively settles the question. As examples, admittedly outside the scope of services and establishment: In Case C-170/04, 5.6.2007, Rosengren the Court concluded that a Swedish requirement (a similar one existed under Norwegian law) that private import of alcohol had to pass through the State Alcohol Monopoly was disproportionate and in breach of what is now Art. 34 TFEU without leaving any part of the assessment to referring court. In Case E-8/07, 20.6.2008, Nguyen, the EFTA Court in a similar manner decided that exempting redress for non-economic injury, a form of civil liability, from the compulsory insurance system under national law was in breach of the first, second and third motor vehicle insurance directives and that this breach was sufficiently serious to be able to entail state liability. 42 Case E-4/04, 25.2.2005, Pedicel, paras. 52-58; Joined Cases E-26/15 and E-27/15, 3.8.2016, Criminal proceedings against B and B v Finanzmarktaufsicht, paras. 93-99. 43 Case E-15/11, 3.10.2012, Arcade Drilling, paras. 103-104. 44 See e.g. Case E-4/00, 14.6.2001, Brändle, para. 40. 45 Case E-8/15, 16.5.2017, Netfonds, paras. 117-134.

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ciple of proportionality: In light of those questions, the approach of the Court appears logical. VI. Specifics of EEA law regarding justifications 24

In a string of cases concerning justifications of tax law restrictions, the ECJ has considered the effect of the fact that the EU Directives on mutual assistance in tax matters are outside the scope of the EEA Agreement.46 Starting with Commission v Italy concerning Italian rules less favourable to the distribution of dividends to companies established outside Italy,47 the ECJ found that these rules constituted a restriction on the right of establishment and the free movement of capital and that they could not be justified under EU law. However, when it came to the EEA Agreement the result was different as the ECJ considered the restriction justified on the basis of the fight against tax evasion. First, the Court noted that Dir. 77/799 was not applicable to the EFTA States. Second, it noted that no provision for information exchange existed between Italy and Liechtenstein and that the existing convention between Italy and Norway and Iceland did contain an obligation to supply information.48 This judgment was followed by Etablishment Rimbaud, where the ECJ held the fact that no convention was applicable between France and Liechtenstein to be decisive when it came to justifying a restrictive rule on the taxation of real estate.49 In A Oy, the ECJ dealt with the situation where a convention was in place between Norway and Finland. The Court held that if that convention contained information exchange mechanisms which were sufficient for the Finnish authorities to verify and check whether the conditions of national law were met, the restriction at stake could not be justified.50 It is worth noting that the ECJ did not require that the exchange mechanisms in place between Norway and Finland should offer identical protection to the Finnish authorities (nor that they laid down rules 46 Council Dir. 77/799/EEC concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation and Council Dir. 2011/16/EU on administrative cooperation in the field of taxation. 47 Case C-540/07, 19.11.2009, Commission v Italy. 48 Paras. 69-72. The ECJ has been criticised for this reasoning and relying on facts that were not accurate: Zimmer, ‘ECJ Settles Dispute Over Italian Withholding Tax, Raising New Concerns About EEA Agreement’, (2011) European Business Law Review, 107, 110-112. In fairness to the ECJ, it did explicitly state that these facts had been maintained by Italy without being contradicted by the Commission. 49 Case C-72/09, 28.10.2010, Etablishment Rimbaud, paras. 42-50. For a critical view of this judgment, reference is made to the comments by Bull on Art. 40 EEA in this book. Several other examples exist where restrictions were found justified under the EEA Agreement, not under the Treaty: Case C-267/09, 5.5.2011, Commission v Portugal, Case C-342/10, 8.11.2012, Commission v Finland; Case C-387/11, 25.10.2012, Commission v Belgium; Case C-112/14, 13.11.2014, Commission v UK and Case C-503/14, 21.12.2016, Commission v Portugal. 50 Case C-48/11, 19.7.2012, A Oy, para. 37. The ECJ left it to the national court to make the final determination of this, whilst noting that at the hearing the Finnish Government itself stated that the information exchange mechanisms were as effective as those provided for in the EU Directives.

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that were identical to EU law); it rather considered that the test was whether the rules were sufficient to allow the authorities to obtain the information required.51 The EFTA Court has never had the occasion to pronounce itself on this line of 25 the cases from the ECJ. However, in light of its findings in the recent judgment Criminal Proceedings against B, there would seem to be little doubt that it agrees with the ECJ. Concerning the justification of measures meant to combat money laundering and terrorist finance, the EFTA Court held that where the necessary information could be obtained through cooperation between the competent authorities, an obligation to provide the same information was not justified. However, the Court noted that the Directive on the prevention of money laundering contained very little in terms of rules on cooperation and moreover that a council decision on cooperation between financial intelligence units did not extend to the EEA Agreement.52 This then led the EFTA Court to conclude that the cooperation between the EEA States suffered from certain deficiencies.53 The cases from the ECJ and the EFTA Court discussed above, show that lim- 26 its of the substantive scope of the EEA Agreement can have an impact when it comes to justifying measures restrictive of the EEA fundamental freedoms. Although elements of this case law are certainly not exempt from criticism, it is submitted that the overall approach is sound and perhaps inevitable in light of the fact that EEA law does not have quite as broad a scope as EU law. Another rather more anomalous justification that can be found in the case 27 law of the EFTA Court concerns security for costs in Liechtenstein. Liechtenstein civil procedure law provides for an obligation on non-resident plaintiffs in court proceedings to furnish security for costs. In the absence of a link to a particular freedom, this falls within the general prohibition in Art. 4 EEA, as it is clearly indirectly discriminatory. In EU law, there is no doubt that such a rule would fall foul of Art. 18 TFEU. However, Reg. 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I) is outside the scope of EEA law. Furthermore, the Lugano Convention between the EFTA States (including Switzerland) and the EU, which covers essentially the same issues as Brussels I, does not apply to Liechtenstein as it is not a signatory of this Convention. Therefore, it is not certain that a costs award from a Liechtenstein court can be enforced in other EEA States. In Kottke, this led the EFTA Court to accept that this indirect discrimination could be justified,

51 Lyal, ‘Tax Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 735. In the Report of the Norwegian EEA Review NOU 2012:2 Utenfor og innenfor Norges avtaler med EU, pp. 309-310, it is maintained that the reason behind the conclusion in Rimbaud was a mistrust of Liechtenstein tax arrangements. 52 Council Decision 2000/642/JHA concerning the arrangements for cooperation between financial intelligence units of the Member in respect of exchanging information. 53 Somewhat confusingly, the EFTA Court referred to the judgment of the ECJ in C-212/11, 25.4.2013, Jyske Bank, which concerned what the ECJ considered missing from the decision rather than complete lack of any measure as is the case in EEA context.

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although the Court was at pains to try to limit the consequences of such a finding by stressing the constraints the principle of proportionality placed on the requirement to provide security. The Court even went so far as to suggest joining the Lugano Convention as a remedy, if Liechtenstein wanted to do away with the case-by-case assessment.54 Still, as noted by Fredriksen and Franklin it remains the case, that Liechtenstein’s failure to sign up to the Lugano Convention may serve to justify indirect discrimination which cannot be justified in an EU law context.55 28 The question arises whether the EFTA Court’s judgment in Holship signals that it might look differently at this issue should it again be brought before the Court. In Holship one of the reasons that had been advanced to justify a restriction under Art. 31 EEA was that it was to be considered as a part of Norway’s fulfilment of obligations stemming from an ILO Convention. The EFTA Court was very categorical in rejecting that line of argument, stating that it followed from Protocol 35 EEA, that in the case of a conflict between national law implementing EEA law and other national rules, the EFTA States shall introduce a statutory provision to the effect that the national law implementing EEA law shall prevail. Therefore, the EFTA Court concluded, a Contracting Party cannot make rights conferred by Art. 31 EEA subject to the ILO Convention or other international agreements.56 This conclusion is certainly correct, as any other finding would call into question the hierarchy of norms established by Protocol 35 EEA and open a door for the Contracting Parties to evade their obligations under the Agreement. However, this begs the question as to why Liechtenstein’s failure to sign up to the Lugano Convention can have an effect on the assessment of public interest justifications under EEA law, when Norway’s obligations under ILO Conventions are considered irrelevant. There are certainly differences between the two cases; in Holship international law is pleaded to evade obligations under EEA law whereas in Kottke the non-applicability of the Lugano Convention forms part of the factual and legal context of the proportionality assessment. Based on these differences it would be possible to distinguish the cases. However, here it is submitted that the optimal approach to ensure the application of EEA law rights would be to dismiss the relevance of international law in both instances.

Article 34 [Right of establishment for companies] Companies or firms formed in accordance with the law of an EC Member State or an EFTA State and having their registered office, central administration or principal place of business within the territory of the Contracting Parties shall, for the purposes of this 54 Case E-5/10, 17.12.2010, Kottke, paras. 42-51. 55 Fredriksen and Franklin, ‘Of Pragmatism and Principles: The EEA Agreement 20 Years on’, Common Market Law Review (2015) p. 651. 56 Case E-14/15, 19.4.2016, Holship, para. 128.

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Article 34 Right of establishment for companies Chapter, be treated in the same way as natural persons who are nationals of EC Member States or EFTA States. ´Companies or firms` means companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are not-profit-making.

I. The Relationship between Art. 34 EEA and Art. 54 TFEU 1. Parallel Wording in the EEA Agreement and the TFEU with Regard to the Right of Establishment of Companies or Firms

Art. 34 is based on Art. 58 EEC, the provision on the right of establishment 1 of companies and firms that entered into force on 1 January 1958. The wording of Art. 34 parallels the wording of that provision (nowadays Art. 54 TFEU) with the sole exception that its scope of application extends the right of establishment to companies or firms formed in accordance with the law ‘of an EC Member State or an EFTA State’. 2. The effect of Art. 34 before national courts

Due to the different legal nature of EEA law as compared to that of EU law, 2 Art. 34 EEA, different from Art. 54 TFEU, does not enjoy direct effect and primacy by its own force in all Contracting Parties on which economic operators can rely when confronted with conflicting national rules. Rather, such effects depend upon the respective rules of the respective Contracting Party concerning the relation between national law and international obligations in the specific context of provisions of the EEA Agreement.1 In the EU-pillar of the EEA the provisions of the EEA Agreement, from the 3 coming into force thereof, form an integral part of Union law (in accordance with the general Haegeman case law),2 enjoy primacy in relation to secondary Union law3 and partake, as far as applicable, in the concepts of direct applicability4 and primacy of Union law in relation to the national law of the Member States of the EU. Art. 34 EEA is formulated in a clear, precise and unconditioned way5 and confers the right of establishment on private economic operators. Hence the provision has to be considered to be eligible for direct effect and primacy within the EU. In the EFTA-pillar, the effect of Art. 34 depends, as a matter of principle, on 4 the respective rules of the EFTA State concerned on the relationship between na1 See further the comment by Dystland, Finstad and Sørebø on Art. 7 EEA. 2 Case 181/73, 30.4.1974, Haegeman, para. 2/6. 3 Art. 216(2) TFEU; see Case 61/94, 10.9.1996, Commission/Germany, para. 52; Stefan Lorenzmeier, ZJS 3/2012, 322 at p. 325. 4 For this possible effect of provisions of an international agreement of the EU see Stefan Lorenzmeier, ZJS 3/2012, 322 at p. 324. 5 See for these requirements for direct applicability of a provision in an international treaty concluded by the EU Case 12/86, 30.9.1987, Demirel, para. 14; Case C-18/90, 31.1.1991, Kziber, para. 15.

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tional law and international treaties (monistic or dualistic principle). However, Art. 34, together with the rest of the EEA Main Agreement, has been made part of both Icelandic and Norwegian law.6 Furthermore, it enjoys direct effect in Liechtenstein by virtue of Liechtenstein law.7 Thus, Art. 34 can be invoked and relied on by individuals and economic operators before the national courts of all of the three EFTA States. In case of conflicting national legislation, the obligations flowing from Protocol 35 EEA will apply (‘Quasi-primacy’).8 3. Interpretation of Art. 34 in the light of the Principle of Homogeneity 5

Art. 34 is a constitutive part of the basic aim of the EEA Agreement, ‘to promote a continuous and balanced strengthening of trade and economic relations between the Contracting Parties with equal conditions of competition, and the respect of the same rules, with a view to creating a homogeneous European Economic Area’ (Art. 1(1) EEA).9 Art. 34 belongs to the area of free movement of persons (Art. 1(2) EEA). The principle of homogeneity pertains also to the interpretation of the provisions of the EEA, therein included Art. 34 EEA. It has two aspects: on the one hand it refers to the ‘internal’ homogeneity of the interpretation of EEA provisions by the different competent courts, namely the ECJ, the General Court of the EU, the EFTA Court and the Courts of last instance of the EFTA-EEA States (Art. 106 EEA); on the other hand it addresses the ‘external’ homogeneity in the sense of a ‘synchronized’ interpretation of provisions of the EEA Agreement and those provisions of Union legislation ‘which are substantially reproduced’ in the EEA Agreement with a view to arriving ‘at as uniform an interpretation as possible’ (Art. 105 EEA).10 The latter dimension of the homogeneity principle requires, first, the interpretation of provisions of the EEA Agreement, ‘in so far as they are identical in substance to corresponding rules’ of Union law ‘in conformity with relevant rulings’ of the ECJ ‘given prior to the date of signature’ of the EEA Agreement (Art. 6 EEA). Second, for subsequent developments of ‘case law’,11 the EFTA Court is bound to pay ‘due account’ to the principles laid down by relevant rulings by the ECJ (Art. 3(2) SCA). Ar-

6 Through the Icelandic EEA Act (No. 2/1993) and the Norwegian EEA Act (No. 109/1992). 7 Under the Liechtenstein constitutional system, a Treaty ratified by the Principality is as such part of the national legal order, see, the submissions of the Liechtenstein government before the EFTA Court in Case E-1/07 Criminal proceedings against A, para. 35. 8 See further on Protocol 35 the comments by Dystland, Finstad and Sørebø on Art. 7 EEA. 9 For this concept see Müller-Graff, ‘EEA Agreement and EC Law’, in: Müller-Graff/Selvig (eds.), The European Economic Area – Norway´s Basic Status in the Legal Construction of Europe, 1997, p. 17 et seq.; Sejersted, ‘Between Sovereignty and Supranationalism in the EEA Context – On the Legal Dynamics of the EEA-Agreement’, ibid., p. 43 et seq. See also the comments by Arnesen and Fredriksen on Art. 1(1) EEA in this book. 10 See also the comments by Fredriksen on Arts. 105 and 105 EEA. 11 A methodically misleading term, since it means only judicial decisions in the system of European law. Hence it is not identical with the classical concept of ‘case law’ (‘stare decisis’) in the system of common law; see for this common law concept, e.g., Farnsworth, An Introduction to the Legal System of the United States, 1963, p. 45 et seq., 48 et seq.

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guably, a similar obligation on the ECJ to take into consideration decisions by the EFTA Court can be inferred from the principle of loyalty in Art. 3 EEA. According to the ECJ, the rules prohibiting restrictions of the freedom of es- 6 tablishment, set out in Art. 31 EEA, ‘are identical’ to those imposed by (today) Art. 49 TFEU.12 Hence, as far as developments of ‘case law’ after the date of signature are concerned, the interpretation of Art. 34 EEA has to be guided also by the question whether substantive reasons exist for any of the two Courts to deviate from the interpretation given to the respective provision by the other Court.13 II. The notion of ‘companies or firms’

According to Art. 34(1) ‘companies or firms’ which have the two connections 7 to the Union required by the provision (see section III and IV below) enjoy the right of cross-border establishment. The distinction between ‘company’ and ‘firm’ is not clarified by Art. 34 EEA nor by Art. 54 TFEU. In the four authentic language versions of the founding Member States of the EEC only one term is used: ‘Gesellschaften’, ‘sociétés’, ‘società’, ‘vennootschappen’. If the English wording is not pleoneastic and without any substantive difference, the term ‘firm’ seems to have the more general meaning of including any legally configured market actor even if the character of a company is not fulfilled. In Art. 34(2) EEA ‘companies or firms’ are jointly defined as ‘companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are non-profit-making’. The terms ‘society’ and ‘legal person’ are not necessarily identical with definitions of a ‘society’ or ‘legal person’ under national law. In the context of the basic aim of the EEA they comprise all legally configured profit-orientated market participants, therein included, e.g. public enterprises.14 Convincingly, the EFTA Court held that the right of establishment provided for in Art. 34 is granted to ‘legal entities …, no matter whether they have legal personality or not’, provided they fulfil the connection requirements with the EEA as laid down in Art. 34.15 As a consequence of this ‘very broad concept of establishment within the meaning of the EEA Agreement’,16 a trust that pursues economic activities that are ‘real and genuine’ (in the sense of carrying on a business ‘for an indefinite period through a fixed establishment’) must be re12 See, e.g., Case C-471/04, 5.11.2002, Keller, para. 49; Case C-104/06, 18.1.2007, Commission v Sweden, para. 32. 13 See in this context Baudenbacher and Buschle, ‘Niederlassungsfreiheit für EWRGesellschaften nach Überseering’, IPrax 2004, 26 et seq.; for the extension of the principles of the Übersee-decision of the ECJ to companies formed in an EFTA State see in the German judiciary practice OLG Frankfurt/Main, 28.5.2003 (23 I 35/02); BGH, 19.9.2005 (II ZR 372/03). 14 E.g. for a ‘Etablissement Public’ in Art. 54 TFEU see Case T-358/94, 12.12.1996, Air France/ Commission, para. 58. 15 Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and Others, para. 93. 16 Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and Others, para. 94.

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garded as taking advantage of its right under Art. 34 EEA;17 this right can be invoked by all interested parties (the trust’s settlors, trustees and beneficiaries).18 8 Excluded, due to their ‘non-profit-making’-character, are, in particular, those entities which primarily pursue pure religious, charitable, cultural or social aims. However, if profit-making co-determines their activities, they enjoy the right of establishment: e.g., professionally active sports clubs or economically active foundations.19 III. First connection requirement: Formation in accordance with the law of an EC Member State or an EFTA State 1. Purpose of the requirement 9

Among the companies or firms within the meaning of Art. 34(2), only those which fulfil two requirements of connection with the EEA enjoy the right of establishment: i) the formation in accordance with the law of an EU Member State or an EFTA State and ii) a specific institutional element of the ongoing operation within the territory of the Contracting Parties. Both requirements aim at excluding those legal entities which are not regulated or supervised by the law of an EEA State. Hence, Art. 34 EEA does not apply to companies or firms formed according to the law of a third country20 nor to those which lack the specific institutional element within the territory of the EEA States. 2. Formation in accordance with the law of an EEA State

The company or firm has to be formed in accordance with ‘the law of an EC Member State or an EFTA State’. ‘EC Member State’ has to be read as EU Member State (due to the EU as the legal successor of the EC: Art. 1(3) TEU), whereas ‘EFTA State’ is to be understood in the restricted sense of an EFTA State which has ratified the EEA (Art. 2(b) EEA). 11 Whether a company or firm has been effectively formed depends – as a prequestion of the applicability of Art. 3421 – on the relevant substantive formation law. In the EU-pillar of the EEA this includes also the directly applicable Union law on the formation of European forms of companies (EEIG,22 SE,23 SCE).24 Art. 34 EEA does not contain any explicit specification or requirement other than ‘in accordance’ with the law of an EC Member State or an EFTA State for coming into legal existence (as different from the question of the preservation of 10

17 Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and Others, paras. 96 and 97 et seq.; for the criteria of ‘a real and genuine economic activity’ see para. 99. 18 Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and Others, paras. 102-103. 19 See Müller-Graff, in: Streinz (ed), EUV/AEUV, 2nd ed. 2012, Art. 54 AEUV, mn. 3. 20 For Art. 54 TFEU see Case C-47/12, 11.9.2014, Kronos International, para. 46. 21 For Art. 54 TFEU see Case C-210/06, 16.12.2008, Cartesio, para. 109. 22 For the EU: Reg. (EEC) No. 2137/85. 23 For the EU: Reg. (EC) No. 2157/2001. 24 For the EU: Reg. (EC) No. 1435/2003.

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the legal personality if a company or firm when leaving into another Member State; see section VI.1.b below). The provision does not confer any right to form a company in one Member State according to the law of another Member State. IV. Second connection requirement: Specific institutional element of the ongoing operation within the territory of the contracting parties 1. Purpose of the requirement

The purpose of the second connection requirement parallels that of the first 12 one (see above III 1). It excludes off-shore companies which in their ongoing operation are not under the control of the law of any EEA State from the right of establishment.25 2. Territory of the contracting parties

The territory of the Contracting Parties is defined in Art. 126 EEA. It com- 13 prises the territories to which the TEU is applied (Art. 52 TEU and Art. 255 TFEU) and the territories of the three participating EFTA States. Exceptions exist for the application of provisions on restrictions on the right of establishment in the Åland Islands (Art. 126(2) (a) (ii)).26 3. The three alternatives for territorial connection: Registered office, central administration, principal place of business

Art. 34 requires a company or firm which has been formed according to the 14 law of one of the EEA States to fulfil at least one of three alternatives for a territorial connection to the EEA: i) registered office, ii) central administration or iii) principal place of business. Art. 34 does not require that this requirement is fulfilled in the State in which the company or firm was formed, nor does it require a particular nationality of the shareholders or directors.27 The applicability of Art. 34 EEA is neither affected by the fact that a company is controlled by a parent company established in a third country.28

25 For the function of the corporate seat in Art. 54 TFEU see Case C-264/96, 16.7.1998, ICI, para. 20. 26 See further the comments by Arnesen on Art. 126. 27 For Art. 54 TFEU see Case C-221/98, 25.7.1991, Factortame, para. 30; Case C-80/12, 1.4.2014, Felixstowe Dock and Railway Company et al., para. 40. 28 For Art. 54 TFEU see Case C-80/12, 1.4.2014, Felixstowe Dock and Railway Company et al., para. 37.

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V. General content of the right of establishment of companies or firms: Treatment in the same way as natural persons who are Nationals of EEA States 1. Principle

The general content of the right of establishment for companies or firms follows from the rule that they shall be treated in the same way as natural persons who are nationals of EU Member States or EFTA States (for the term see Section III 2 above). Their right of establishment is laid down in Arts. 31 to 33 EEA29 and in specific provisions on the right of establishment contained in the Annexes VIII to XI which concern the right of establishment in general, financial services, services in general as well as electronic communication, audiovisual services and the ‘information society’ (Art. 31(2) EEA). 16 The ‘same treatment principle’ implies that restrictions of the freedom of establishment are prohibited (see Section V.2 below) and that this prohibition applies not only to public measures but also to specific private measures.30 Hence the EFTA Court, referring to the jurisprudence of the ECJ, has convincingly held ‘that the provisions on the fundamental freedoms also extend to rules of any nature aimed at regulating in a collective manner gainful employment, self-employment and the provision of services’31 and consequently found that a boycott ‘aimed at procuring acceptance of a collective agreement providing for a system which includes a priority clause’ for the benefit of a certain group of dockworkers ‘is likely to discourage or even prevent the establishment of companies from other EEA States and thereby constitutes a restriction on the freedom of establishment under Article 31 EEA.’32 15

2. Prohibition of restrictions 17

Paragraph 1 of Art. 31(1) EEA contains the general prohibition of restrictions on the freedom of establishment of nationals of an EEA State in any other of these states (primary establishment) and on setting up of agencies, branches or subsidiaries by nationals of any EEA State established in the territory of any of these states (secondary establishment). The applicability of Arts. 31 and 34 requires an establishment in another EEA State. According to the EFTA Court, the concept of establishment ‘has a specific EEA meaning and must not be interpreted narrowly’.33 It requires the pursuit of economic activities ‘that are real and genuine’ in the sense of carrying on a business for an indefinite period 29 See also the comments by Einarsson on these provisions. 30 For the direct effect of the fundamental freedoms on private measures in EU law see comprehensively Müller-Graff, ‘Die horizontale Direktwirkung der Grundfreiheiten’, EuR 2014, 3 et seq. 31 Case E-14/15, 19.4.2016, Holship, para. 112, thereby referring to ECJ, Case C-438/05, 11.12.2007, Viking Line para. 33 and case law cited. 32 Case E-14/15, 19.4.2016, Holship, paras 120 and 117. 33 Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and Others, para. 96.

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through fixed establishment.34 Consequently, ‘an entity not carrying out any business in another EEA State, due to the extent it exists in terms of premises, staff and equipment, and whose incorporation may thus not reflect economic reality’ cannot invoke Arts. 31 and 34 EEA ‘due to its lack of actual economic activity’.35 In conformity with the relevant rulings of the ECJ given prior to the date of 18 the signature of the EEA Agreement on the corresponding (today) Art. 49 TFEU,36 the prohibition of restrictions in Art. 31 EEA is not limited to discriminatory restrictions. The wording of Art. 31(1) paragraph 2 may suggest such a limitation,37 but this paragraph only illustrates the particularly burdening type of a restriction of market access. Thus, it does not exclude non-discriminatory impediments to market access from the prohibition. Hence the EFTA Court, in view of Art. 31 EEA, has convincingly held that 19 ‘measures liable to hinder or make less attractive the exercise of the fundamental freedoms guaranteed by the EEA Agreement, albeit applicable without discrimination on grounds of nationality, are an encroachment upon these freedoms requiring justification’38 and that any restriction is prohibited, ‘even if it is of limited scope or minor importance’ (no de minimis rule).39 This corresponds to the settled ‘case law’40 of the ECJ that the term ‘restriction’ within the meaning of Art. 49 TFEU ‘covers all measures which prohibit, impede or render less attractive the freedom of establishment’41 and therefore covers also measures, ‘which, although applicable without distinction, affect access to the market for undertakings from other Member States and thereby hinder intra-Community trade’.42 However, Art. 32 EEA (corresponding to Art. 51(2) TFEU) excludes the ap- 20 plicability of the provisions of the chapter on the right of establishment to activities which, in a given EEA Contracting Party, are connected, even occasionally, with the exercise of official authority.43

34 Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and Others, paras. 96 and 97. 35 Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and Others, para. 98. 36 See in particular Case 107/83, 12.7.1984, Klopp, para. 17 et seq. For the numerous rulings of the ECJ in this respect see Müller-Graff, in Streinz (ed.), EUV/AEUV, 2nd ed., 2012, Art. 49 AEUV, mn. 57 et seq. 37 ‘Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies and firms within the meaning of Article 34, second paragraph, under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of Chapter 4’. 38 Case E-14/15, 19.4.2016, Holship, para. 115; see also Case E-2/06, 26.6.2007, ESA v Norway, para. 64; Case E-9/11, 9.7.2014, ESA v Norway, para. 82. 39 Case E-14/15, 19.4.2016, Holship, para. 116. 40 See the criticism of this terminology above note 11. 41 Case C-577/11, 7.3.2013, DKV Belgium, para. 31. 42 Case C-577/11, 7.3.2013, DKV Belgium, para. 33. 43 For details, see the comments by Einarsson on Art. 32 EEA.

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3. Justification of restrictions

Restrictions of the right of establishment can be justified by an EEA State on grounds of public policy, public security and public health (Art. 33 EEA, corresponding to Art. 52(1) TFEU) or, if applicable without discrimination on grounds of nationality, by ‘overriding reasons of general interest’44 (as long as the measures are compatible with fundamental rights as part of the unwritten principles of EEA law).45 The list includes protecting workers;46 safeguarding the independence, neutrality and integrity of important financial infrastructure institutions in the financial market;47 safeguarding the effectiveness of fiscal supervision;48 safeguarding the cohesion of the national tax system;49 preserving the allocation of powers of taxation between the EEA States;50 and preventing tax avoidance by ‘wholly artificial arrangements which do not reflect economic reality’;51 but not preventing loss of tax revenue in general.52 22 According to the well-established jurisprudence of the EFTA Court, the concrete restriction must be appropriate to ensuring the attainment of the objective in question and it must not go beyond what is necessary to attain that objective.53 This jurisprudence of the EFTA Court is in line with the jurisprudence of the ECJ on Art. 49 TFEU.54 21

44 Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and Others, paras. 162 and 220; Case E-14/15, 19.4.2016, Holship, para. 121. 45 Case E-14/15, 19.4.2016, Holship, para. 123. 46 Case E-14/15, 19.4.2016, Holship, para. 122; Case E-2/11, 23.1.2012, STX Norway and Others, para. 81. 47 Case E-9/11, 16.7.2012, ESA v Norway, para. 84-86; see also Case E-2/01, 22.2.2002, Dr. Pucher, para. 32. 48 Joined Cases E-3/13 and 20/13, 9.7.2014, Fred. Olsen and Others, para. 221; for Art. 49 TFEU see ECJ’s judgment in Case C-250/95, 15.5.1997, Futura Participations and Singer, para. 31. 49 Joined Cases E-3/13 and 20/13, 9.7.2014, Fred. Olsen and Others, para. 221. 50 Case E-15/11, 3.10.2012, Arcade Drilling, para. 85; Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and Others, para. 221. 51 Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and Others, para. 166 et seq.; Case E-15/11, 3.10.2012, Arcade Drilling, para. 89. 52 Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and Others, para. 166; for Art. 49 TFEU see the ECJ’s judgment in Case C-196/04, 12.9.2006, Cadbury Schweppes and Cadbury Schweppes Overseas, para. 49. 53 See, e.g., Case E-9/11, 16.7.2012, ESA v Norway, paras. 83 and 87 (denied for the dual-track system based on a fixed ownership ceiling, see para. 97); Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and, para. 163; for a thorough assessment of these questions see, e.g., Case E-15/11, 3.10.2012, Arcade Drilling, para. 94-106. 54 See, e.g., Case C-576/13, 11.12.2014, Commission v Spain, paras. 47 and 50 and case law cited. For the development of this jurisprudence on mandatory requirements of general interest see in particular Case 120/78, 20.2.1979, Rewe-Zentral AG/Bundesmonopolverwaltung für Branntwein, para. 8 (‘mandatory requirements’); extended to all four freedoms and bundled in the so called Gebhard-formula; see Case C-55/94, 30.11.1995, Gebhard, para. 37 (‘imperative requirements’).

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VI. Specific features of the right of establishment of companies or firms 1. Right of primary establishment

Specific features of the freedom of establishment of companies or firms relate 23 to the right of primary establishment as well as to the right of secondary establishment. a) The general range of prohibited restrictions

Art. 34 entails free movement of productive factors, which opens up the pos- 24 sibility of competition between different regional locations for attracting undertakings. The purpose of Art. 34 thus includes the abolition of restrictions on the transfer of the company seat, thereby paralleling the prohibition of restrictions on the border-crossing establishment of natural persons in the territory of another EEA State under Art. 31 EEA. Among the restrictions caught by Art. 34 are restrictions on the right of per- 25 sons and undertakings established in EEA States to own holdings and exercise voting rights in financial services infrastructure institutions in the EEA State concerned (above a certain percentage of the total voting capital or the shares represented at the general meeting)55 as well as any form of discriminatory corporate taxation.56 The latter category includes, e,g., different tax treatment between domestic and cross-border mergers,57 unfavourable wealth tax treatment of the beneficiaries in a trust of another EEA State as compared to beneficiaries of a comparable domestic asset fund58 or, in contrast to participants in comparable domestic entities, the exclusion of personal participants in a controlled foreign company in another EEA State from any opportunity to undo the economic double taxation that the controlled foreign company rules entail.59 Caught by Art. 34 are also all measures ‘which, although applicable without 26 distinction, affect access to the market for undertakings’60 from other EEA States and specific restrictions which result from general national rules on international company law,61 as far as they are not justified on grounds of Art. 33

55 Case E-9/11, ESA v Norway, 16.7.2012, paras. 67, 81 and 101. 56 In this respect abundant case law of the ECJ has emerged in the interpretation of Art. 49, 54 TFEU; see Müller-Graff, in: Streinz (ed.), EUV/AEUV, 2nd ed., 2012, Art. 49 AEUV mn. 76 et seq. (direct taxation of enterprises), mn. 78 et seq. (taxation of dividends of distributing corporations and shareholders), mn. 87 et seq. (justification on grounds of imperative requirements) and mn. 91 (control of wholly artificial arrangements aimed at circumventing the application of the tax legislation of the Member State concerned). 57 See Case E-14/13, 2.12.2013, ESA v Iceland para. 32. 58 Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and Others, paras. 198 and 203. 59 Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and Others, para. 151. 60 For Art. 49 TFEU see Case C-577/11, 7.3.2014, DKV Belgium, para. 33. 61 For Art. 54 TFEU see Case C-208/00, 5.11.2002, Überseering, para. 82; for the same interpretation of the corresponding EEA Articles see Baudenbacher and Buschle, ‘Niederlassungsfreiheit für EWR-Gesellschaften nach Überseering’, IPrax 2004, 26 et seq.; Szabados, The Transfer of the Company Seat within the European Union, 2012, p. 76.

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EEA62 or overriding requirements in the public interest (‘imperative requirements’).63 27 Arts. 34 and 31 EEA do not contain a verdict on the general compatibility of a certain national concept of international company law with EEA law (in particular concerning the conflicting private international law doctrines of the seat theory and the incorporation theory),64 but prohibit unjustified restrictions which result from such doctrines. In a case of conflict of laws, this prohibition can have the effect of a principle of origin with the consequence of the obligation to respect the domestic law of a foreign company or firm.65 The transfer of the company seat can be hindered by restrictions of the home state (b) or the host state (c). b) Home state restrictions of the transfer of the company seat (departure restrictions)

Home state restrictions of the transfer of the company seat to another EEA State (departure restrictions) fall, in principle, under the prohibition of Art. 34 EEA.66 They are thus compatible with Art. 34 EEA only if they are justified on grounds of overriding requirements in the public interest of the home state67 and thereby, in particular, comply with the requirements of being appropriate to ensuring the attainment of the objective thus pursued and not going beyond what is necessary to attain it68 (requirements of appropriateness and necessity). 29 Hence, the prohibition of a company to transfer its central management and control to another EEA State (while retaining its status as company incorporated in the home state) without prior consent of the tax authorities of the home state, which depends on the disclosure of assets for taxation purposes and the respective tax payment, constitutes a restriction in the meaning of Art. 34 EEA.69 However, it may be justified on grounds of overriding interest in the public interest. The same applies to other forms of departure or exit taxation of a company which burden the relocation of its head office in another EEA State70 or the 28

62 For the applicability of Art. 52 par. 1 TFEU on corporations see Case 79/85, 10.7.1986, Segers, para. 17. 63 For Art. 54 TFEU see, e.g., Case C-210/06, 16.12.2008, Cartesio, para. 113 (‘overriding requirements in the public interest’); Case C-371/10, 29.11.2011, National Grid Indus, para. 42. 64 For this conflict in general see Szabados, The Transfer of the Company Seat within the European Union, 2012, p. 37 et seq. 65 For Art. 54 TFEU see Case C-208/00, 5.11.2002, Überseering, para. 94. 66 EFTA Court, Case E-7/07, 7.5.2008, Seabrokers, para. 28; Case E-15/11, Arcade Drilling, 3.10.2012, para. 59; for Art. 49 TFEU see, e.g., ECJ, C-298/05, 6.12.2007, Columbus Container Services, para. 33. 67 EFTA Court, Case E-15/11, 3.10.2012, Arcade Drilling, para. 41. 68 EFTA Court, Case E-15/11, 3.10.2012, Arcade Drilling, para. 42; for Art. 49 TFEU (departure of a natural person) see ECJ Case C-9/02, 11.3.2004, de Lasteyrie du Saillant, para. 49; ECJ, Case C-470/04, 7.9.2006, N., para. 40. 69 Concerning the former Art. 58 EEC-Treaty the ECJ took another view due to the (now abolished) former Art. 220 EEC-Treaty: ECJ, Case 81/87, 27.9.1988, Daily Mail, para. 21 and 25.

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transfer of its place of the effective management or its registered office to another EEA State.71 The loss of the legal personality of a company, due to the laws of its home 30 state, in case of transferring its seat from one EEA State in another, should be considered compatible with Art. 34 EEA only if this consequence is justified on grounds of overriding requirements in the public interest of this State. Under Art. 54 TFEU, the ECJ draws a distinction between the transfer of the seat of a company to another Member State with no change as regards the law which governs that company and the transfer ‘with an attendant change as regards the national law applicable’, since in the latter situation ‘the company is converted into a form of company which is governed by the law of the Member State to which it has moved’.72 In the latter situation, the ECJ convincingly assesses a home State rule which terminates the existence of the company (‘death penalty’) as a restriction on the freedom of establishment. Consequently, such a home state rule is prohibited under Art. 54 TFEU, unless it can be justified on grounds of overriding requirements in the public interest.73 In the first situation, however, the ECJ grants the Member States ‘the power to define both the connecting factor required of a company if it is to be regarded as incorporated under the law of that Member State … and that required if the company is to be able to subsequently maintain this status’.74 This power includes the possibility for this Member State ‘not to permit a company governed by its law to retain that status if the company intends to reorganise itself in another Member State by moving its seat to the territory of the latter, thereby breaking the connecting factor required under the national law of the Member State of incorporation.’75 It is, however, doubtful whether such a general approval of rules which terminate the existence of a departing company matches the purpose of the freedom of primary establishment, if compared to the freedom of natural persons in Art. 49 TFEU and Art. 31 EEA. Although a State has, under international law, the power to lay down the conditions for the acquisition and loss of its nationality, the loss of its nationality for the sole reason that a citizen moves to another Member State with a view of establishing a commercial activity 70 EFTA Court, Case E-15/11, 3.10.2012, Arcade Drilling para. 66: The definitive establishment of the amount of tax payable by a company that relocates its head office outside of Norway based on the assessment of the tax authorities that it is in avoidance of taxation consequent to an obligation to wind up and liquidate the company pursuant to national company law, constitutes a restriction under Arts. 31 and 34 EEA if companies deemed to be in breach of such an obligation, but not seeking relocation, are not subject to liquidation taxation. 71 For Art. 49 TFEU see ECJ, Case C-371/10, 29.11.2011, National Grid Indus, para. 35 et seq., 42 et seq.; ECJ, Case C-38/10, 6.9.2012, Commission/Portugal, para. 27 and 31 (immediate exit tax); Case C-380/11, 6.9.2012, Finanziaria di Diego della Valle, para. 40 and 41. 72 Case C-210/06, 16.12.2008, Cartesio, para. 111. 73 Case C-210/06, 16.12.2008, Cartesio, para. 113. 74 Case C-210/06, 16.12.2008, Cartesio, para. 110; Case C-371/10, 29.11.2011, National Grid Indus, para. 27; ECJ, Case C-378/10, 12.7.2012, VALE, para. 29. 75 Case C-210/06, 16.12.2008, Cartesio, para. 110; Case C-371/10, 29.11.2011, National Grid Indus, para. 27; Case C-378/10, 12.7.2012, VALE, para. 29.

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would evidently contradict the freedom of establishment. Convincingly, the ECJ has held that a Member State in exerting this power is nevertheless obliged to have due regard to Community law.76 This should be understood in the way that rules which provide for the loss of nationality and thereby entail the loss of the right of primary establishment of the individual concerned, need, in order to comply with Art. 49 TFEU and Art. 31 EEA, a justification on grounds of overriding requirements in the public interest. The mere power to regulate nationality law should not be considered as a sufficient reason for justification in this case. There is no reason why this rationale should not hold true also for the freedom of primary establishment in Art. 54 TFEU or Art. 33 EEA. c) Host state restrictions of the transfer of the company seat (access restrictions)

Host state restrictions of the transfer of the company seat to another EEA State (access restrictions) are compatible with Art. 34 EEA only if they are justified on grounds of overriding requirements in the public interest of the host state and thereby, in particular, comply with the requirements of appropriateness and necessity.77 32 These requirements are not met if the legal capacity which a company enjoys in the country of its formation is completely denied in the host state by the seat theory78 (even if indistinctly applicable),79 thereby forcing the company to reincorporate anew under the conditions of this country. In the clear words of the ECJ (given prior to the signature of the EEA Agreement) in view of the then Art. 48 EC (today Art. 54 TFEU), such an obstacle to transferring the actual centre of administration of a company ‘is tantamount to outright negation of freedom of establishment’.80 Hence, it cannot be justified on grounds of overriding requirements in the public interest, such as the (as such judicially recognized)81 protection of the interests of creditors, minority shareholders, employees and taxation authorities.82 In view of creditors, the seat theory is anyway not suitable to protect them against domestic transactions of companies incorporated and located in other Member States and not necessary as far as the mentioned requirements relating to the general interest are equivalently served by the law of the home state or by less burdening precautions of the host state. In any case, the general denial of the legal capacity of a company incorporated (with this capacity) in another EEA State has to be considered as being disproportional in relation to the freedom of primary establishment. 31

76 77 78 79

Case C-369/90, 7.7.1992, Micheletti et al., para. 10. See above VI 1 b. See above VI 1 a. See the submission of the German government in Case C-208/00, 5.11.2002, Überseering, para. 85. 80 For Art. 54 TFEU, see Case C-208/00, 5.11.2002, Überseering, para. 81. 81 For Art. 54 TFEU see Case C-208/00, 5.11.2002, Überseering, para. 92. 82 For Art. 54 TFEU see Case C-208/00, 5.11.2002, Überseering, para. 93.

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Art. 34 EEA precludes also the discriminatory refusal of registration in the 33 national commercial register of a cross-border merger by dissolution without liquidation of one company and transfer of the whole of its assets to another company, whereas such registration is possible where the two companies participating in the merger are both established in the domestic territory.83 Although imperative reasons in the public interest, in particular the protection of creditors, minority shareholders and employees as well as the preservation of the effectiveness of fiscal supervision and the fairness of commercial transactions may justify a restrictive measure of cross-border mergers,84 they have to comply with the requirements of appropriateness and necessity.85 These are not met by a general refusal of registering a cross-border merger, since it can impede the project of restructuring also in situations in which imperative requirements are not threatened.86 While Art. 34 EEA precludes such discriminatory treatment, it does not require that the EEA States provide a law of conversion for all forms of companies. Dir. 2011/35/EU concerning mergers of public limited liability companies87 and Dir. 82/891/EC concerning the division of public limited liability companies88 prescribe only a substantive legal framework for this type of companies. Dir. 2005/56/EC on cross-border mergers of limited liability companies 89 applies only, save as otherwise provided in it, to cross-border mergers between types of companies which may merge under the national law of the Member States concerned.90 Rules of a host state which provide for the direct liability of shareholders of 34 a limited liability company should not be considered as being justified by the sole reason that the company has the company form of the law of another EEA State. Indistinctly applicable rules on the operation of a company after its formation, such as, e.g., the liability of the manging director for the reimbursement of payments made by him after the date on which the insolvency of the company was established, do not qualify as an access restriction under Art. 34 EEA.91 2. Right of secondary establishment

The right of secondary establishment as contained in the second sentence of 35 paragraph 1 of Art. 31(1) EEA encompasses also companies or firms within the meaning of Art. 34(2) EEA.92 Hence, the EFTA Courts has consequently held 83 84 85 86 87 88 89 90 91 92

For Art. 54 TFEU see Case C-411/03,13.12.2005, SEVIC, paras. 23 and 31. For Art. 54 TFEU see Case C-411/03, 13.12.2005, SEVIC, para. 28. See Section VI.1.b above; for Art. 54 TFEU see Case C-411/03, 13.12.2005, SEVIC, para. 29. For Art. 54 TFEU, see Case C-411/03, 13.12.2005, SEVIC, para. 30. OJ 2011 L 110/1; referred to by point 3 of Annex XXII (see Art. 77 EEA). OJ 1982 L 378/47; referred to by point 5 of Annex XXII (see Art. 77 EEA). OJ 2005 L 310/1; referred to by point 10 e of Annex XXII (see Art. 77 EEA). Art. 4 para. 1 lit. a of Dir. 2005/56/EC. For Art. 54 TFEU see Case C-594/14, 10.12.2015, Kornhaas, para. 28. For Arts. 49 and 54 TFEU, see, e.g., Case 270/83, 28.1.1986, Commission v France, para. 18; Case 79/85, 10.7.1986, Segers para. 13; Case C-212/97, 9.3.1999, Centros, para. 17; Case C-167/01, 30.9.2003, Inspire Art, para. 97.

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that Art. 34 entails the right of companies to pursue their activities in another EEA State through a subsidiary established there.93 Therefore, measures of the home or host state which make less attractive the setting up of agencies, branches or subsidiaries in any other of the EEA States in order to pursue their business activities in this state fall under the prohibition of Art. 31 EEA.94 In particular, different tax treatments of actions within a group of companies (“Konzern”), dependent upon the domestic or foreign location of a daughter company can constitute restrictions in the sense of Arts. 31 and 34 EEA, such as, e.g., a certain tax treatment with respect to group contributions.95 36 In EU law, the right of secondary establishment of companies and firms is not dependent on any volume of business pursued in the state of its primary establishment. The ECJ has consequently held for the corresponding provision of Union law that ‘the fact that the company conducts its business through an agency, branch or subsidiary solely in another Member State is immaterial’96 and affirmed this jurisprudence even for the case that the company was formed in one state ‘only for the purpose of establishing itself in the second [Member State], where its main, or indeed entire, business is to be conducted.’97 It follows from this understanding of the right of establishment as a right to use the best environment for doing business that ‘the fact that a national of a Member State who wishes to set up a company chooses to form it in a Member State whose rules in company law seem to him the least restrictive and to set up branches in other Member States cannot, in itself, constitute an abuse of the right of establishment.’98 This, however, does not exclude the possibility of specific regulatory restrictions for a company which are justified on grounds of overriding requirements in the public interest (according to the general rules for such a justification;99 see below). In EEA law, the EFTA Court explicitly requires the pursuit of economic activities ‘that are real and genuine’100 (see section V.2 above) in a parallel to the ECJ’s finding under Art. 49 TFEU that an incorporation ‘must correspond with an actual establishment intended to carry on genuine economic activities in the host Member State’.101 A further requirement may follow from the requirement of Art. 31(1) para. 1 second sentence EEA that a national of an EEA State has to be ‘established in the territory of any of these

93 Case E-15/11, 22.7.2013, Arcade Drilling, para. 58; Case E-14/15, 19.4.2016, Holship, para. 110. 94 For Arts. 49 and 54 TFEU see, e.g, Case 270/83, 28.1.1986, Commission v France, para. 18. 95 Case E-7/07, 7.5.2008, Seabrokers, paras. 67-70. 96 Case 79/85, 10.7.1986, Segers, para. 16; Case C-212/97, 9.3.1999, Centros, para. 17; Case C-167/01, 30.9.2003, Inspire Art, para. 95. 97 Case C-212/97, 9.3.1999, Centros, para. 17. 98 Case C-212/97, 9.3.1999, Centros, para. 27; see also C-167/01, 30.9.2003, Inspire Art, para. 139. 99 For Arts. 49 and 54 TFEU, see Case C-212/97, 9.3.1999, Centros, para. 34. 100 Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and Others, paras. 96-98. 101 Case C-196/04, 12.9.2006, Cadbury Schweppes and Cadbury Schweppes Overseas, para. 66 et seq.

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States’. This provision may be understood as demanding a real and permanent connection to any of the EEA States in order to allow, if necessary, an effective control over the business conduct. On the basis of this line of thought it might be doubtful whether Art. 34 can be invoked in a situation in which the registered office within the territory of the Contracting Parties is the only connecting factor to the EEA (in particular ‘letterbox companies’).102 Restrictions of the right of secondary establishment can be justified in accor- 37 dance with Art. 33 EEA and, beyond this provision, in accordance with the general four conditions of the Gebhard-formula (application in a non-discriminatory manner; pursuit of an imperative requirement in the general interest; suitability for securing the attainment of the objective which they pursue; not going beyond what is necessary to attain it).103 In addition, a restriction can only be justified in the absence of exhaustive EEA law regulating the matter.104 In the jurisprudence of the ECJ on Arts. 49 and 54 TFEU, an example of a 38 unjustified restriction is the refusal of registering a branch of a company formed in accordance with the law of another Member State in which the company conducts no business. The objective of protection of creditors was legitimate, but the refusal to register the branch was not suitable to attain it: If the company concerned had conducted business in the home state, its branch would have been registered in the host state, even though creditors in the host state might have been equally exposed to risk.105 Furthermore, such a refusal is not necessary either, since less restrictive measure are available (such as specific guarantees for public creditors or specific measures to preventing or penalising fraud).106 Another example of an unjustified restriction of the right of establishment of 39 a foreign company is the application of requirements for the formation of a domestic type of company to a foreign company which relate to minimum share capital and directors´ liability on the grounds of the protection of creditors. Such requirements are not necessary for the objective pursued if the company presents itself as a company governed by foreign law and not as domestic company and therefore ‘its potential creditors are put on sufficient notice’ that it is covered by another and not by domestic legislation laying down rules in respect of minimum capital and directors´ liability.107

102 See Tiedje, in: von der Groeben et al. (ed), Europäisches Unionsrecht, 7. ed. 2015, Art. 54 AEUV mn. 30 f; against this interpretation Jung, in: Schwarze (ed), EU-Kommentar, 3rd ed. 2012, Art. 54 AEUV mn. 16. 103 For Arts. 49 and 54 TFEU, see Case C-212/97, 9.3.1999, Centros, para. 34; Case C-55/94, 30.11.1995, Gebhard, para. 37. 104 For Arts. 49 and 54 TFEU, see Case C-167/01, 30.9.2003, Inspire Art, para. 69 in view of Dir. 89/666/EEC concerning disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State. 105 Case C-212/97, 9.3.1999, Centros, para. 35. 106 Case C-212/97, 9.3.1999, Centros, para 37 and 38. 107 Case C-167/01, 30.9.2003, Inspire Art, para. 135.

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Article 35 [Recognition of diplomas, certificates] The provisions of Article 30 shall apply to the matters covered by this Chapter. 1

Art. 35 only contains a reference to Art. 30. That Article corresponds to Art. 53(1) TFEU, which is placed in the Treaty’s chapter on establishment. Art. 30 EEA is in the chapter on workers. However, as outlined in the comments on that Article, this difference is of no substantive significance. Nevertheless, this required a reference to Art. 30 EEA in the chapter on establishment, as mutual recognition of professional qualifications is relevant for both workers and self-employed.

Chapter 3: Services

Article 36 [Freedom to provide services] Within the framework of the provisions of this Agreement, there shall be no restrictions on freedom to provide services within the territory of the Contracting Parties in respect of nationals of EC Member States and EFTA States who are established in an EC Member State or an EFTA State other than that of the person for whom the services are intended. Annexes IX to XI contain specific provisions on the freedom to provide services.

I. Comparison with Art. 56 TFEU

Art. 36(1) largely reproduces the wording of what was Art. 59 EEC. However, that Article foresaw a gradual dismantling of restrictions on the freedom to provide services during a transitional period. Such a reservation is not to be found in Art. 36(1) and there are no textual differences between the Article and its current counterpart, namely Art. 56(1) TFEU.1 2 As early as the mid-seventies, the ECJ found in van Binsbergen that Art. 59 EEC had direct effect.2 As Art. 36 EEA is in the main part of the Agreement, which has been made part of national law in dualistic Iceland and Norway (Liechtenstein is a monist system), beneficiaries should be able to rely on the Article when faced with incompatible provisions of national law. 3 Under the EFTA Convention, the freedom to provide services is given expression in Art. 29. 1

1 Norberg et al., EEA Law, pp. 448-449. 2 Case 33/74, 3.12.1974, van Binsbergen.

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II. Restriction under Art. 36 1. Direct and indirect discrimination

Initially, the case law of the ECJ regarding the free movement of services dealt with discrimination on the basis of nationality. The EFTA Court has referred to discrimination in the context of Art. 36 on several occasions. The Court has stated that the freedom to provide services entails the abolition of any discrimination against a service provider on account of its nationality or the fact that it is established in an EEA State other than that in which the service is to be provided.3 Such rules regarding the equality of treatment between nationals and non-nationals forbid not only overt/direct discrimination by reason of nationality, but also all covert/indirect forms of discrimination which, by the application of other criteria of differentiation, lead to the same result.4 With regard to direct discrimination, it is worth noting the relationship between Art. 4 EEA, which provides for a general principle prohibiting discrimination on grounds of nationality, and other more specific rules prohibiting discrimination contained in the EEA Agreement.5 In this respect, Art. 4 EEA serves a subsidiary function to the freedom to provide services, which gives the above-mentioned principle specific expression and effect through Art. 36.6 Direct discrimination arises when a situation is subject to differentiated treatment on the basis of nationality or the fact that a service provider is established in another EEA State. This is the case when no objective difference exists between the situations of national service providers and service providers from other EEA States to justify different treatment.7 It may come as a slight surprise that as recently as 2012, the EFTA Court dealt with a case concerning direct discrimination. In that case, Granville, the Court examined provisions of Liechtenstein law which treated Liechtenstein nationals differently from other EEA nationals. According to the rule at issue, Liechtenstein nationals were protected against the enforcement of foreign agreements in Liechtenstein, unless they had been publicly recorded, whereas non-Liechtenstein EEA nationals were not afforded the same protection.8 The EFTA Court held that the rule was, indeed, directly discriminatory and could not be justified on any of the grounds contained in Art. 33 EEA. The ECJ and the EFTA Court have sometimes used a variation of a discrimination test, holding that the freedom to provide services under Art. 36 EEA precludes the application of any national rules which have the effect of making the provision of services between EEA States more difficult than the provi3 4 5 6

Case E-13/11, 25.4.2012, Granville, para. 40. Case E-5/10, 17.12.2010, Kottke, para. 29; Case E-13/11, 25.4.2012, Granville, para. 40. Case E-13/11, 25.4.2012, Granville, para. 36. Case E-13/11, 25.4.2012, Granville, para. 37. See further the comments by Falch on Art. 4 EEA, mn. 4-8. 7 Case E-13/11, 25.4.2012, Granville, para. 48. 8 Para. 46.

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sion of services purely within an EEA State.9 This type of test has been used in so-called health care cases, where it would not be logical to apply the restriction test set out below.10 In Rindal and Slinning, the EFTA Court examined Norwegian rules that made it more difficult to obtain reimbursement from the national social security system of costs for treatment abroad than to obtain the treatment free of charge from domestic hospitals forming part of the national social security system.11 According to those rules, in order to receive hospital services outside of Norway, fulfilment of certain administrative procedures was required, which did not apply if the patient had received such services in Norway.12 The EFTA Court found that such a situation made the provision of services between EEA States more difficult than the provision of services purely within an EEA State.13 Accordingly, the EFTA Court concluded that such administrative procedures constituted a restriction on the free movement of services. 2. Restriction test

In the seminal case of Säger, the ECJ introduced what is now called the restriction test for examining whether a national measure amounted to a restriction of the free movement of services. The Court stated that the freedom requires not only the elimination of all discrimination against a person providing services on the grounds of nationality, but also the abolition of any restriction, even if it applies without distinction to national providers of services and to those of other Member States, when it is liable to prohibit or otherwise impede the activities of a provider of services established in another Member State where he lawfully provides similar services.14 In its subsequent case law, the ECJ had applied certain variations of this test, and several commentators have criticised the case law as being inconsistent.15 Moreover, certain cases such as Commission v Italy regarding maximum fees for lawyers have been referred as modifying the restriction test.16 However, for present purposes it is not necessary to examine this in any further detail. It suffices to note that the concept is a very broad one and has been applied by the EFTA Court in several cases, for example, in STX.17 9 The EFTA Court has also followed the ECJ in concluding that EEA States may not make the provision of services in their territory subject to compliance 8

9 Joined Cases E-11/07 and E-1/08, 19.12.2008, Rindal and Slinning, para. 44. 10 Zaglmayer and Einarsson, ‘Access to and Reimbursement of Health Care in the European Economic Area’, Tidsskrift for Erstatningsrett (2009) pp. 180-182. 11 Joined Cases E-11/07 and E-1/08, 19.12.2008, Rindal and Slinning, para. 47. 12 Para. 54. 13 Para. 54. 14 Case C-76/90, 25.7.1991, Säger, paras. 12-13. 15 For an excellent overview of the case law see Enchelmaier, ‘Always at your Service (Within Limits): The ECJ’s Case Law on Article 56 TFEU (2006-2011)’, European Law Review (2011), pp. 618-633. 16 Cases C-565/08, 29.3.2011, Commission v Italy. 17 Case E-2/11, 23.1.2012, STX, para. 75.

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with all of the conditions required for establishment and thereby deprive the freedom to provide services of all practical effectiveness. The application of the host EEA State’s national rules to service providers is liable to prohibit, impede or render less attractive the provision of services to the extent that it involves expenses and additional economic burdens.18 3. Wholly internal situation

The freedom to provide services under Art. 36 covers, in essence, the provi- 10 sion of cross-border services. That is, the provision of services from a service provider in one EEA State to a recipient located in another EEA State.19 The essential element is that the service crosses a border within the EEA. This can take place either by the provider, the recipient or even the service moving. Therefore, in a situation where the service provider and the service recipient are located in the same EEA State, Art. 36 would not apply. Of course, in such a situation, the freedom of establishment or another provision of the EEA Agreement might come into play, depending on the circumstances of the case in question. III. Concept of services – beneficiaries 1. Remuneration

An essential element for services to come within the scope of Art. 36 is the 11 requirement stipulated in Art. 37 EEA that they are normally provided for remuneration. The EFTA Court has held that the essential characteristic of remuneration lies in the fact that it constitutes consideration for the service rendered. Moreover, it is not necessary that the remuneration be paid in money, as long as the consideration for the provision of the service is capable of being expressed in money.20 For the fulfilment of this condition, it is not necessary that remuneration be 12 paid from one party to another. In Metacom, the fact that a lawyer represented himself in legal proceedings did not alter the fact that the service provided was a service normally provided for remuneration.21 In Rindal and Slinning, the EFTA Court ruled that the fact that the beneficiary does not provide the remuneration does not change the fact that the service is provided for consideration and that it should fall within the scope of the provisions on the freedom to provide services.22

18 Case E-2/11, 23.1.2012, STX, para. 76. 19 See, to that effect, Case E-13/11, 25.4.2012, Granville, para. 38 and Case E-6/13, 27.11.2013, Metacom, para. 33. 20 Case E-6/13, 27.11.2013, Metacom, para. 34. 21 Case E-6/13, 27.11.2013, Metacom, para. 35. It may however, be queried whether there was any cross border element present in this case. 22 Joined Cases E-11/07 and E-1/08, Rindal and Slinning, para. 42.

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It is clear from the case law that not much is required in terms of remuneration for a service to trigger the application of the free movement of services. In addition to the abovementioned court cases, an infringement case against Liechtenstein concerning residence requirement for trustees may be cited.23 Liechtenstein had maintained that the trustee did not provide services within the meaning of the Agreement. However, ESA found that the national provision in question expressly provided that the trustee was entitled to “reimbursement for all necessary expenses and costs incurred by him on behalf of the trust” and to “appropriate remuneration for his services”. In light of this, ESA concluded that it was clear that the national provision in question provided for sufficient remuneration for the trustee’s services, in order to constitute remuneration for the purposes of the provisions on the freedom to provide services.24 14 The EFTA Court has made a link between the notion of services under Art. 37 EEA and what constitutes economic activity under the competition rules of the Agreement (Arts. 53-54 and 61 EEA). In Private Barnehagers Landsforbund, an action for annulment of a state aid decision, the Court had to rule on whether Norwegian municipal kindergartens were undertakings engaged in economic activity. As to the distinction between services falling within the scope of the Agreement and those that do not, an analysis is required in order to ascertain whether the provision constitutes an economic activity or whether a service is provided in order to fulfil duties towards a State’s population.25 The Court noted that 80% of the costs of municipal kindergartens were borne by the public purse. Moreover, there was no connection between the actual costs of the service provided and the fee paid by the parents whose child was attending the kindergarten.26 Taking these facts into consideration, the EFTA Court found that the element of remuneration was absent from this activity. In particular, because the parents’ fee constituted only a fraction of the true costs of the service and was only a contribution to a system predominantly funded by the public purse.27 This is interesting to compare with the observations of AG Poiares Maduro in Fenin, in which he stated that it did not necessarily follow that the same solution should be adopted with regard to the free movement of services and competition law.28 For present purposes, it is not necessary to take a definitive view on that statement. However, the present author considers the approach of the EFTA Court in Private Barnehagers Landsforbund and the parallels drawn between the state aid rules and the free movement of services, quite convincing. 13

23 24 25 26 27 28

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Case No 67726, Reasoned Opinion, Document No 635307. Ibid, para. 40. Case E-5/07, 21.2.2008, Private Barnehagers Landsforbund, para. 80. Case E-5/07, 21.2.2008, Private Barnehagers Landsforbund, para. 82. Para. 83. Case C-205/03P, 11.7.2006, Fenin, paras. 51-52.

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2. Beneficiaries

It is immaterial whether it is the beneficiary of the service in question or 15 someone else that remunerates the service provider for the purposes of determining whether a service should fall within the scope of Art. 36. Such a situation may arise, for example, in relation to the free movement of hospital services, when a State’s social security system covers the cost of medical treatment. In Rindal and Slinning, the EFTA Court examined Norwegian rules on the coverage of expenses for medical treatment abroad with regard to Art. 36, concluding that those rules did, indeed, come within the scope of the freedom to provide services.29 In certain cases, a beneficiary can even simultaneously be the service 16 provider. This was the case in Metacom, which concerned representation in legal proceedings. Lawyers representing themselves in judicial proceedings may be awarded compensation for costs incurred during those proceedings. The EFTA Court held that this effectively entailed that the service provided is not paid for by the recipient of the service, but by the opposing party in the proceedings. Additionally, the Court noted that Art. 37 EEA does not require that the services be paid for by those for the benefit of whom it is performed.30 3. Relationship with other freedoms – Pedicel and the product coverage of EEA law

With regard to the relationship between the free movement of services and the 17 right of establishment, it is important to bear in mind that there are no derogations in place as regards services similar to those applicable to fisheries under the rules covering establishment and capital. The most important issue to examine in this context is the relationship be- 18 tween the free movement of services and the free movement of goods. According to Art. 8(3) EEA, most agricultural and fisheries products are excluded from the product scope of the Agreement. This limitation applies, in principle, to goods alone and not to services. However, the relationship between a certain product excluded from the scope of the EEA Agreement, and a service dedicated to it may raise certain questions as regards the applicability of Art. 36. In the context of EU law, it might not be of great practical significance 19 whether a national measure is assessed under the provisions on the free movement of goods or those on the free movement of services(although there are certain differences between the freedoms).31 However, under the EEA Agreement, the issue of which freedom is applicable is potentially more significant, given the exclusions in Art. 8(3) EEA. The EFTA Court was faced with this issue in 29 Joined Cases E-11/07 and E-1/08, 19.12.2008, Rindal and Slinning. 30 Case E-6/13, 27.11.2013, Metacom, paras. 35 and 41. 31 On the distinction between free movement of goods and freedom to provide services: Oliver et al., Oliver on Free Movement of Goods in the European Union, pp. 32-39, as regards advertising see in particular pp. 38-39.

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Pedicel, a case concerning the compatibility of the Norwegian ban on alcohol advertising with the EEA Agreement.32 In Gourmet,33 the ECJ had dealt with a similar Swedish prohibition under both the rules on goods and services simultaneously. The EFTA Court first reached the rather self-evident conclusion that Art. 11 EEA does not apply to trade in wine.34 Similarly, the Court correctly concluded that the content of Art. 18 EEA does not correspond to Art. 11 EEA. It then turned to the more intriguing issue of how to assess the applicability of Art. 36. The EFTA Court held that the inclusion of Art. 8 EEA in Part II of the Agreement, concerning the free movement of goods, and the fact that services are not covered by the Harmonized Commodity Description and Coding System (which defines the product scope of the Agreement) was not decisive for the determination of the issue. What was called for, rather, was a broader interpretative approach, which in particular takes into account the purpose of the exclusion of these products from the scope of the Agreement. That purpose was to leave the decision of regulating trade in wine to the Contracting Parties without being constrained by the rules on free movement of goods. Therefore, the EFTA Court concluded that a service, such as the one at issue, which was inseparably linked to the sale of wine, was excluded from the scope of Art. 36.35 20 This conclusion seems to sit rather oddly with the general rule of interpretation that an exception from the fact that the EEA Agreement covers all services within the meaning of Art. 37 EEA, should be interpreted narrowly. Essentially, the EFTA Court considered applicable an exception which is not explicitly set out with regard to the free movement of services. However, it should be emphasised that the EFTA Court seemed very cautious to avoid the judgment being interpreted expansively. After having reached the above conclusion, the Court went out of its way to rebut the arguments presented by the ESA and the European Commission and stressed that the conclusion reached was only applicable when the service was inseparably linked to trade in goods which fall outside the product coverage of EEA law.36 21 In Synnøve Finden, the EFTA Court relied on Pedicel in the assessment of whether Art. 61 EEA on State aid is applicable to the production of goods which falls outside the scope of the EEA Agreement.37 The Court concluded that Art. 61 was not applicable as the subsidy was inseparably linked to trade in the relevant products.38 As excluding state aid to products outside the scope of the Agreement has clear textual basis in Art. 8 EEA, this conclusion of the EFTA Court seems much more straightforward than the one in Pedicel. 32 33 34 35 36 37

Case E-4/04, 25.2.2005, Pedicel. Case C-405/98, 8.3.2001, Gourmet International. Case E-4/04, 25.2.2005, Pedicel para. 28. Paras. 33-34. Paras. 37-38. Case E-1/16, 15.12.2016, Synnøve Finden. Note that the Court declined the invitation to examine whether the approach taken in Pedicel could also be extended to Art. 31 EEA. 38 Paras. 60-61.

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ESA has dealt with the principle established in Pedicel in two infringement 22 cases. The former concerned the legality according to Art. 36 EEA of subjecting services performed under an agreement between a Swedish parent company and a Norwegian subsidiarity to customs duties. The products in question fell outside the scope of the Agreement by virtue of the rules of origin laid down in Art. 9 EEA. ESA considered that the principle established in Pedicel was equally applicable vis-à-vis the rules of origin. However, it then went on to analyse the nature of the services and considered that the vast majority did not meet the test of being inseparably linked to the trade in goods.39 Further, in an infringement case concerning Norwegian ownership restriction in the aquaculture sector, ESA rejected the argument of the Norwegian Government that Art. 8(3) and the principle set out in Pedicel could have an impact on assessing the legality of those restrictions under Art. 31 EEA.40 The present author is of the view that the scope of the exemption set out in 23 Pedicel should be interpreted strictly. Given that the main element underlying the EFTA Court´s reasoning was that the purpose of the exclusion from the product scope was to allow the Contracting Parties to regulate trade without having regard to the rules on free movement of goods, it is submitted that the principle should be confined to circumstances in which that purpose would be undermined through application of the provisions on the freedom to provide services. The present author considers, as a matter of principle, that Pedicel does not extend to Arts. 28, 31, 40 EEA.41 If the other freedoms are applicable in their own right, the product scope of the EEA Agreement is of no relevance. This is well illustrated by the facts of the famous Ospelt case decided by the ECJ, where that Court found Art. 40 EEA to be applicable to an investment by a Liechtenstein national in agricultural land without any reference to the product scope of the Agreement or examination as to whether the product subsequently produced on that land would enjoy free circulation under Art. 11 EEA. In any event, possible application of Pedicel to Arts. 28, 31, 40 EEA is of limited practical relevance, as restrictions of these freedoms which simultaneously restrict the free movement of goods are few and far between. The interpretation advocated here is in line with how the EFTA Court has 24 considered issues relating to the application of Acts included in the Annexes which concern products outside the product scope of the EEA Agreement. In Ferskar kjötvörur the Court rejected the suggestion that Art. 8 EEA provided Iceland with a discretion to set rules regarding the import of raw meat unbound by the EU legal acts contained in the Annexes. The EFTA Court noted that certain legal acts dealing with specific aspects of trade in agricultural and fish products have been incorporated in the EEA Agreement. This extension of the scope of the EEA is intended to further a continuous and balanced strengthening of 39 Letter of Formal Notice of 21.10.2009 in Case No 65232. 40 Letter of Formal Notice of 11.7.2012 in Case No 68781. 41 See Section V.2 regarding Art. 31.

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trade and economic relations between the Contracting Parties in a homogeneous and dynamic EEA. The Court concluded that, in the absence of an adaptation text, the Act was fully applicable to Iceland.42 IV. Notable EFTA Court Cases 1. Gaming machines and Ladbrokes

Gaming was the topic of two highly contentious cases before the EFTA Court, Gaming machines43 and Ladbrokes.44 Both cases concerned legislation regulating the provision of gaming services in Norway. These cases are both interesting in their own right and as illustrations of the difficulty faced by the EFTA Court in following the case law of the ECJ.45 26 Before turning to the judgments of the EFTA Court, it is necessary to set the scene by looking briefly at the case law of the ECJ in the field of gaming.46 The first case to reach the ECJ was Schindler, where the Court rejected any arguments to the effect that the special nature of gambling left it outside the scope of the fundamental freedoms of the Treaty.47 However, in turn, the Court adopted a very deferential approach to assessing the proportionality of national measures and gave national authorities a very wide margin of discretion. This approach was essentially followed in the subsequent cases Läärä and Zenatti.48 However, in Gambelli, the ECJ tightened the screw and reduced the discretion afforded to national authorities. It was emphasised that public interest justifications were available on the condition that the authorities were limiting betting activities in a consistent and systematic manner. The national court stated that the Italian State was pursuing a policy of substantially expanding betting and gaming at national level with a view to obtaining funds, while also protecting incumbent licence-holders. This led the ECJ to conclude that in-so-far as the authorities of a Member State incite and encourage consumers to participate in lotteries, games of chance and betting to the financial benefit of the public purse, the authorities of that State cannot invoke public order concerns relating to the need to reduce opportunities for betting in order to justify restrictive measures.49 The ECJ essentially followed this relatively strict approach in Placanica, but softened its stance regarding the consistency of national measures, holding that a controlled expansion of gaming offers was acceptable. However, the Court concluded that a limitation of the number of licences based on a specific assessment of what was sufficient for the territory was not justifiable, and that the blanket 25

42 43 44 45 46 47 48 49

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See similarly, Case E-2/12, 11.12.2012, HOB-Vín, para. 46. Case E-1/06, 14.3.2007, ESA v Norway. Case E-3/06, 30.5.2007, Ladbrokes. For an examination of the EFTA Court’s case law in the field of gaming, see Planzer, ‘Gambling Law’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 687-701. Barnard, The Substantive Law of the EU, pp. 413-416. Case C-275/92, 24.3.1994, Schindler. Case C-124/97, 21.9.1999, Läärä; Case C-67/98, 21.10.1999, Zenatti. Case C-243/01, 6.11.2003, Gambelli, paras. 67-69.

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exclusion of companies from tender procedures for the award of new licences was disproportionate.50 This judgment was handed down just a few days before the EFTA Court rendered its judgment in the Gaming machines case. In Gaming machines, ESA brought infringement proceedings against Norway 27 for introducing a monopoly for a State owned undertaking to operate gaming machines in Norway, and contended that, in doing so, Norway had infringed Arts. 31 and 36 EEA.51 The fact that the national measure constituted a restriction was not in dispute. This was clear from the fact that private operators were entirely excluded from the market. Rather, the case turned on whether the national legislation could be objectively justified.52 In that regard, the EFTA Court examined the legitimacy of the aims pursued, as well as the suitability, consistency and necessity of the national legislation. As to the legitimacy of the aims pursued by the national legislation, ESA as- 28 serted that the national legislation was contrary to EEA law because, in reality, it pursued an illegitimate economic goal. ESA argued that the introduction of the exclusive right to operate gaming machines was motivated by the wish to limit the reduction in revenues for humanitarian and socially beneficial causes, and that the national legislation therefore pursued an economic aim. The Norwegian Government, however, specified several public interest objectives, most notably that the national legislation had the aim of fighting gambling addiction.53 Following an analysis and comparison of the rulings of the ECJ in Zenatti and Gambelli, the EFTA Court considered that the objectives of fighting gambling addiction and reducing crime and malpractice were the most prominent aims of the national legislation. The EFTA Court held that the other objectives cited, such as limiting reduction in revenue for humanitarian and socially beneficial causes, were but a beneficial consequence, which were merely incidental, entailing that they were accessory in nature.54 In order to assess the suitability of the national legislation, the EFTA Court 29 analysed the consistency of the national legislation. According to EEA law, an EEA State must not take, facilitate or tolerate measures that would run counter to the achievement of the stated objectives of a given national measure. In Gaming machines, Norway had chosen to fight gambling addiction through the reduction of gambling opportunities by subjecting the operation of gaming machines to a State-owned monopoly. In order to be consistent, Norway could not, at the same time, endorse or tolerate measures, such as extensive marketing, which could lead to an increase in gambling opportunities.55 Taking into account the fact that, under the current regime, gaming machines were not marketed be50 Joined Cases C-338/04, C-359/04, C-360/04, 6.3.2007, Placanica. 51 To date, this case remains the only example of either ESA or the Commission bringing an infringement case concerning gaming to Court. 52 Case E-1/06, 14.3.2007, ESA v Norway, para. 28. 53 Para. 31. 54 Paras. 39 and 40. 55 Para. 43.

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yond their mere presence at authorised locations, the EFTA Court found that the national legislation was not unsuitable for the achievement of the aim of reducing gambling addiction in Norwegian society.56 30 With regard to whether the national legislation was proportionate to the aim pursued, the EFTA Court considered that, in order for the legislation to be necessary, it was required that the introduction of a monopoly should lead to a more effective achievement of the aims pursued than other less restrictive measures.57 The EFTA Court found that it was reasonable to assume that a monopoly operator would allow for more effective control by the public authorities and would better accommodate legitimate concerns of fighting gambling addiction than a commercial operator or organisation, the humanitarian or socially beneficial activities of which partly rely on revenues from gaming machines. Furthermore, the EFTA Court held that it was plausible to assume that, in principle, the State could more easily control and direct a wholly State-owned operator than private operators.58 Taking these factors into consideration, the EFTA Court concluded that Norway had sufficiently demonstrated that the exclusive right system under the national legislation was more likely to be more effective in order to achieve its objectives, taken as a whole, than the other means proposed by ESA.59 As argued above, the reasoning of the EFTA Court is not entirely convincing, as it rests on an assumption in favour of the party bearing the burden of proof of demonstrating the proportionality of the restrictions.60 This is not to say that the EFTA Court did not reach the correct conclusion. One should not underestimate the fact that it would have required the EFTA Court to be very convinced of the Norwegian measures being disproportionate in order for it to be the Court to strike down a national gaming monopoly, something that the ECJ has never done. In that respect, it might also have influenced the EFTA Court that the case concerned gaming machines, which were recognised as entailing a higher risk of addiction than many other forms of gaming. 31 Shortly after the judgment in Gaming machines, the EFTA Court handed down its judgment in Ladbrokes.61 This judgment is rather interesting from the perspective of the scope of judicial scrutiny of national measures within the field of gaming, as well as with regard to the latitude national authorities have to regulate the sector. The EFTA Court categorically rejected the argument advanced by the Norwegian State that the proportionality (necessity) of the measures should only be reviewed if there were reasons to believe that the rules

56 57 58 59 60

Para. 46. Para. 49. Para. 51. Para. 52. See the comments on Art. 33 above. John Temple Lang considers this one of the very few unconvincing judgments of the EFTA Court:, see Temple Lang, ‘Competition Law: The Brussels Perspective’, in: Baudenbacher (ed), The Handbook of EEA Law p. 531. 61 Case E-3/06, 30.5.2007, Ladbrokes. For a critical view of this judgment see the comments by Wennerås on Art. 6, mn. 56.

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were discriminatory or protectionist. The Court held that even though the EEA States enjoy discretion in setting the level of protection in this field, this does not entail that the national measures are shielded from judicial review. In this context, the Court considered that it might be necessary to distinguish between different types of games based on the risks they might pose. The Court noted that if less restrictive measures than a monopoly would have the effect of achieving the objectives pursued at the level of protection chosen, a monopoly could not be considered necessary simply because it might offer an even higher level. The EFTA Court also examined how the level of protection chosen by the authorities should be assessed. In essence, a low level of protection exists if the authorities allow a high number of gaming opportunities and high level of gaming activity. Moreover, the referring court should examine whether the exclusive rights holder had fewer economic incentives, for example with regard to aggressive marketing and whether such an act is actually subject to more effective control.62 It follows from this brief description of the EFTA Court´s findings that it im- 32 posed relatively strict requirements that the national measures had to satisfy in order to comply with the principle of proportionality and that it arguably went further than the ECJ had done before it. This is not to say that the EFTA Court did not recognise the special features of the gaming sector, or that, in light of the discretion granted to the EEA States, different levels of protection could not exist throughout the EEA. Accordingly, in the event a monopoly was regarded as being disproportionate, the States were allowed to require a licence irrespective of whether the entity already had a gaming licence in its home State. However, the host State was nevertheless under an obligation to take into account the requirements the services provider already fulfilled in his home State.63 Following these judgments of the EFTA Court, the pendulum swung again in 33 favour of a more lenient review of national measures. The high water mark of that was the judgment of the ECJ Grand Chamber in Liga Portuguesa concerning the Portuguese ban on offering games of chance via the internet. The ECJ stated that such games posed different and more substantial risks of fraud. After a very light touch proportionality review, the conclusion was reached that, in light of the specific features associated with games of chance offered via the internet, the restriction could be regarded as being justified by the objective of combating fraud and crime.64 This led commentators to conclude that the line pursued by the EFTA Court, 34 in particular in Ladbrokes, afforded the national authorities less room for manoeuvre than the ECJ.65 That is most probably quite correct. However, the picture is more nuanced if one looks to subsequent developments in the case law of the ECJ. The brevity of the present contribution precludes a detailed examina62 Paras. 55-63. 63 Paras. 85-86. 64 Case C-42/07, 8.9.2009, Liga Portuguesa, in particular paras. 70-72.

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tion. However, it appears that the case law of the ECJ has moved again in the same general direction as that followed by the EFTA Court. For example, in Hit, the ECJ considered that a ban on foreign casinos advertising in Austria could not be justified if Austrian law required the rules in the other State to be identical in scope and unless the imposed requirements were directly related to protection against the risks of gaming.66 In Pfleger, the ECJ stated that an Austrian licensing scheme for the operation of gaming machines appeared disproportionate since it was not appropriate to guarantee the consistency required by the Court’s case law and went beyond what was necessary to attain the objectives pursued.67 For a similar conclusion, reference may also be made to the recent judgment in Ince.68 The main point being made is not to claim that the EFTA Court’s judgments are exempt from criticism; far from it. However, the present author considers that the EFTA Court has managed to deal quite reasonably with the complex and sometimes contradictory case law of the ECJ in the field of gaming. 35 Finally, the EFTA Court also dealt with issues related to gaming, albeit in a different context, in a case from Liechtenstein regarding the award of concessions for operating a casino in Liechtenstein. This is the only occasion on which the EFTA Court has had to grapple with the requirements flowing from the case law of the ECJ regarding transparency outside the scope of the public procurement directives. As a preliminary point, the EFTA Court took the view that national legislation, such as that at issue in Casino Admiral, which made the exercise of an economic activity subject to the grant of a concession, constituted an obstacle to the freedoms guaranteed by Arts. 31 and 36 EEA.69 Although service concessions were not, at that point in time, covered by any directives, public authorities were still bound to comply with the fundamental rules of the EEA Agreement in general, including the freedom to provide services, and in particular, the principles of equal treatment and non-discrimination on grounds of nationality, and the consequent obligation of transparency.70 36 One of the contentious issues of the case concerned the relative weighing for each of the award criteria, which was neither stated in the publication notice, nor the tender documentation. 71 The EFTA Court held that a contracting authority must ensure the impartiality of the process and the equality of those interested in acquiring a concession for a service. Moreover, weighing should not be adopt65 Fredriksen, ‘Er EFTA-domstolen mer katolsk enn paven?’, Tidsskrift for Rettsvitenskap 4-5/2009, pp. 543-544. An interesting fact noted by Fredriksen is that following the judgment of the ECJ in Liga Portugeusa, the applicant in Ladbrokes withdrew the appeal he made to the Borgarting Court of Appeal. 66 Case C-176/11, 12.7.2012, Hit and Hit Larix. 67 Case C-390/12, 30.4.2014, Robert Pfleger. 68 Case C-336/14, 4.2.2016, Sebat Ince. 69 Case E-24/13, 29.8.2014, Casino Admiral, para. 48. See further the comments by Hammersvik on Art. 65(1) EEA, mn. 29-32. 70 Para. 51. 71 Para. 57.

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ed on the basis of matters likely to give rise to discrimination against one of the tenderers.72 Attaching relative weighing to the award criteria was not precluded by EEA law, in the opinion of the EFTA Court; however, there remained a duty to comply with the obligation of transparency.73 2. Rindal and Slinning

In Rindal and Slinning, the EFTA Court was called upon to examine the case 37 law of the ECJ in the health care sector and the extent of which the right to hospital treatment in another EEA State could be claimed on the basis of the free movement of services. This case touches upon many of the complicated aspects of the right to cross-border health care under Art. 36 as well as the Social Security Coordination Regulation.74 However, here, only one aspect of the case will be examined; under which circumstances the home State may prioritise its own offer of treatment and legitimately refuse reimbursement of treatment in the host State? The EFTA Court followed the long standing case law of the ECJ, holding that 38 EEA law cannot in principle have the effect of requiring an EEA State to extend the range of medical services paid for under its social security system.75 The EFTA Court found in line with the ECJ (in particular the judgment in Smits and Peerbooms, which introduced the requirement that criteria concerning entitlements to health-care had to be assessed on the basis of international medical science)76 that if the home State offers the same or equally effective treatment and provides it within a medically justifiable time limit, the home State may justify prioritising its own offer of treatment.77 However, the EFTA Court went further, and stated that when it is established 39 according to international medicine that the treatment abroad is indeed more ef72 Para. 59. 73 Para. 60. The case also dealt with the consequences if the requirements of EEA law were not satisfied (paras. 70-74). The EFTA Court stated that the principles of equal treatment and nondiscrimination on grounds of nationality enshrined in Arts. 31 and 36 EEA and the consequent obligation of transparency do not always require, in case of a breach, that a contract be terminated or an award decision set aside. However, in case of a sufficiently serious breach of the obligation of transparency, with respect to the weighting of the award criteria, the EFTA Court considered that a re-opening of the tender procedure was a more appropriate course of action than the substitution of one tenderer for another. The stage of the tender procedure which should be re-opened, whether ab initio or at the point at which the bids were received, depended on the nature of the flaw in the process and was matter for the national court to determine. As to the remedies available in the case of a breach, the EFTA Court stated that it was for the domestic legal system to regulate the legal procedures for safeguarding the rights which individuals derive under EEA law. However, any such procedure would have to satisfy the requirements of the principles of effectiveness and equivalence. 74 For a detailed examination of these topics: Zaglmayer and Einarsson, ‘Access to and Reimbursement of Health Care in the European Economic Area’, Tidsskrift for Erstatningsrett (2009), pp. 146-224. For an overview of the case law of the ECJ on health care and the free movement of services: Barnard, The Substantive Law of the EU, pp. 313-322. 75 Joined Cases E-11/07 and E-1/08, 19.12.2008, Rindal and Slinning, paras. 43, 60 and 82. 76 Case C-157/99, 12.7.2001, Smits and Peerbooms. 77 Joined Cases E-11/07 and E-1/08, 19.12.2008, Rindal and Slinning, para. 83.

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fective, the State may no longer justify prioritising its own offer of treatment. It has been suggested that here, the EFTA Court was implying that EEA law provided for a certain standard of health care and thus went too far and contradicted the established principle set out above that EEA law does not have the effect of extending the offer of health-care under a national social security system.78 However, the subsequent judgment of the ECJ in Elchinov clearly indicates that the above is not a correct interpretation of this finding of the EFTA Court. In that case, the ECJ held that, if it is established that a treatment proposed in another State falls within one of the categories or types of treatment covered by the home State, that State is required to give the necessary authorisation, when the alternative treatment, which can be given without undue delay in the home State is not equally effective.79 This seems to follow quite a similar approach to that of the EFTA Court outlined above. 40 In this context, it is important to bear in mind that, essentially, the EEA States opt for either a closed list of treatment offered under their national system or have in place an open list, often based on discretionary assessment. In the second scenario, EEA law does not require an extension of health care offered. However, it has an effect upon how such an assessment should be carried out. First, it must take into account international rather than merely national medicine. Second, the fact that a particular treatment is unavailable on the national territory does not imply that it does not fall within the scope of the national system.80 3. STX 41

The STX case is one of the most famous cases handed down by the EFTA Court, made all the more so in light of the judgment of the Supreme Court and the way in which it dealt with the conclusions of the EFTA Court.81 In the comments on Art. 33, this aspect of the case was analysed in detail, and the conclusion reached that the Norwegian Supreme Court´s interpretation was not in line with the general understanding of the concept under EEA law.82 However, the case also concerned the relationship between the fundamental freedoms, in this case, the freedom to provide services under Art. 36, and secondary legislation incorporated into the EEA Agreement concerning that freedom, in this case Dir. 96/71/EC concerning the posting of workers in the framework of the provision

78 Zaglmayer and Einarsson, ‘Access to and Reimbursement of Health Care in the European Economic Area’, Tidsskrift for Erstatningsrett (2009), pp. 193-195. 79 Case C-173/09, 5.10.2010, Elchinov, para. 67. 80 See for a more a detailed examination, see van der Mei, ‘Case C-512/08 and Case C-173/09’, Common Market Law Review (2011), pp. 1303-1306. 81 Fredriksen, ‘The Troubled Relationship between the Supreme Court of Norway and the EFTA Court – Recent Developments’, in: Müller-Graff/Mestad (eds), The Rising Complexity of European Law, 2013, pp. 11-37 (also available at http://bora.uib.no/). 82 See the comments on Art 33, mn. 7-10. According to Art. 39, Art. 33 applies also to the freedom to provide services.

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of services (PWD). It should not be overlooked that underlying in the STX case are the same contentious issues that were at stake in the hotly debated Laval case.83 Art. 3(1) of the Directive lays down the terms and conditions of em- 42 ployment that the host State may impose upon posted workers on its territory. In Art. 3(1)(c), reference is made to minimum rates of pay, and the EFTA Court held that additional remuneration for work assignments requiring overnight stays away from home could fall within that provision, provided that the minimum rate condition was satisfied.84 This left the question as to whether there was any scope for assessing the national rule under Art. 36. The EFTA Court answered this in the affirmative. The Court emphasised that the material content of the rules permitted under Art. 3(1) PWD may be freely defined by the EEA States, provided that it does not hinder the provision of services and is in line with the EEA Agreement and “general principles of EEA law”. Moreover, the Court stated that even if the national court found that the remuneration satisfied the requirements of the PWD with regard to minimum rates, it should also be examined with regard to the provisions of the PWD interpreted in light of Art. 36 and, where appropriate, with direct reference to that provision.85 Applying a restriction test, the Court held that the additional remuneration was liable to make it less attractive or more difficult for foreign service providers to perform their services in Norway and accordingly, it constituted a restriction for the purposes of Art. 36. The Court then turned to public interest justifications and proportionality. In its judgment, the Norwegian Supreme Court disagreed with the EFTA 43 Court’s interpretation that a separate assessment under Art. 36 EEA was required.86 The Supreme Court based this conclusion on its own interpretation of the relevant case law, in particular Laval, and also referred to the fact that the Commission had stated in its written observations to the EFTA Court that “there is no room for a separate evaluation of the compatibility of those provisions with Article 36 EEA”. However, the Supreme Court found it ultimately unnecessary to reach a final conclusion on this issue, as it also examined the proportionality of the measure and found that it satisfied the test.87 The above of course begs the question; who reached the correct conclusion, 44 the EFTA Court or the Norwegian Supreme Court? The present author concurs with Barnard’s view that the EFTA Court adopted an approach that is not unproblematic, but nonetheless represents the best (or least bad) option available.88 As she states, the EFTA Court is aware of the complex nature of the PWD, 83 Case C-341/05, 18.12.2007, Laval un Partneri. A brief description is provided by Barnard, The Substantive Law of the EU, pp. 423-424. Further reference may be made to the literature listed by her at p. 448. 84 Case E-2/11, 23.1.2012, STX, para. 72. 85 Paras. 70 and 74, both referring to paras. 34-35. 86 Judgment of 5 March 2013, paras. 95-103. 87 Judgment of 5 March 2013, paras. 104-117.

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which exhaustively harmonises the choice of law (home or host State), while the substantive content of the rules remains unharmonised. In his opinion in Sähköalojen ammattiliitto, Advocate General Wahl, agreed with the conclusion of the EFTA Court as to the relationship between the PWD and Art. 36 EEA (Art. 56 TFEU).89 V. Services Directive

The Services Directive is incorporated into Annex X of the EEA Agreement, which covers services in general. The Directive was incorporated into the Agreement without any substantive adaptations. Within its field of application, the Services Directive will replace not only Art. 36, but also Art. 31 EEA, as, despite its name, the Directive also lays down rules on establishment in Chapter III. However, many types of services fall outside the scope of the Directive and will accordingly remain subject to the rules in Arts. 31 and 36.90 To date, the EFTA Court has had the occasion to deal with the Directive in two infringement cases brought by ESA. 46 Case E-6/15 ESA v Norway concerned an authorisation scheme, under which undertakings carrying out construction works were required to obtain an authorisation by local municipalities prior to the beginning of their activity. ESA maintained that the authorisation scheme infringed Art. 16 of the Services Directive. Norway did not contest ESA´s plea; however, it cautioned against accepting ESA’s view that the list of justifications in Art. 16(3) of the Directive was exhaustive. Moreover, Norway asserted that ESA’s interpretation of the grounds of justification stipulated in Art. 16(3) was too strict, arguing that the preamble to the Directive suggested a broader interpretation.91 The EFTA Court did not deal with this line of argument, rather preferring to find in favour of ESA on the basis that the necessity of the authorisation scheme could not be established, in accordance with Art. 16(1)(b) of the Services Directive.92 However, this question also arose in the Court´s next case involving the Directive. 47 In Case E-19/15 ESA v Liechtenstein, the EFTA Court examined the compatibility of certain authorisation schemes set out in the Liechtenstein Trade Act with the Services Directive, in particular Arts. 9 and 16.93 The first issue to be considered was the compatibility of the scheme with the rules on establishment 45

88 Barnard, ‘Reciprocity, Homogeneity and Cooperation’, in: EFTA Court (ed), The EEA and the EFTA Court, pp. 163-164. 89 Case C-396/13, 12.2.2015, Sähköalojen ammattiliitto, Opinion of AG Wahl of 18.9.2014, para. 92. The ECJ did not explicitly refer to the judgment of the EFTA Court, however, para. 34 of the judgment seems to suggest a similar understanding of the issue. 90 Barnard, The Substantive Law of the EU, pp. 428-447. 91 Case E-6/15, 28.9.2015, ESA v Norway, para. 42. 92 Para. 52. 93 As the scope of the Services Directive is limited to only certain types of services, only authorisation schemes dealing with those services were examined under that directive. The other authorisation schemes were examined under Arts. 31 and 36, due to this limited scope of the Services Directive.

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in Art. 9 of the Directive. Liechtenstein did not contest that the measures constituted an authorisation scheme and therefore the focus was on the justification. The Court noted that the list of justification grounds in Art. 4(8) was not exhaustive, and considered that the grounds relied on by Liechtenstein were in principle capable of justifying the scheme. However, in order to be compatible with the Directive, the national measures also had to satisfy a proportionality test. Applying its previous case law, the EFTA Court held that it was incumbent upon the State to set forth an analysis of the proportionality of the measure and to submit precise evidence enabling the arguments to be substantiated. This clearly shows the close relationship between the Services Directive and the main provisions of the Agreement. The Liechtenstein scheme covered all services and the EFTA Court convincingly held that allowing an EEA State to lay down and enforce a prior authorisation scheme for the provision of all services on the sole ground that the possibility could not be excluded that a service might pose a risk to safety, life or health would effectively undermine the aim of the Directive to limit the obligation to obtain prior authorisation in cases in which it is deemed essential. The Court added that prior authorisation must be the exception rather than the rule.94 The most interesting aspect of this case, however, concerned the application 48 of Art. 16 of the Directive. More specifically, whether the Directive has narrowed down the possibilities for justifying restrictive measures as compared to what is the case under Art. 36. Art. 16(3) of the Directive provides that requirements (restrictions) can only be justified by reasons of public policy, public security, public health or the protection of the environment. These are the express derogations provided for in Art. 33 EEA, along with the additional ground of protection of the environment. The question was, essentially: is this list exhaustive? A few months earlier, in Commission v Hungary the Grand Chamber of the ECJ had sidestepped this contentious issue. It held that, irrespective of whether it was possible under the terms of the Article to rely on the grounds of justification advanced by Hungary, the measures were, in any event, disproportionate.95 Ultimately, the EFTA Court adopted the same approach, noting that, independently of whether the grounds referred to by Liechtenstein were applicable, the scheme did not satisfy the proportionality test. However, the EFTA Court went further than the ECJ in indicating that it does view the list in Art. 16(3) as being exhaustive, as it observed that neither the protection of service recipients nor the prevention of social dumping were listed in Art. 16(3).96 However, this is clearly not the final word on this important legal question.

94 Case E-19/15, 10.5.2016, ESA v Liechtenstein, paras. 45-54. 95 Case C-179/14, 23.2.2016, Commission v Hungary, para. 116. 96 Case E-19/15, 10.5.2016, ESA v Liechtenstein, paras. 71-79.

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VI. Annexes IX to XI – secondary legislation related to services

Art. 36(2) refers to Annexes IX to XI as containing specific provisions on the freedom to provide services. In Annex IX, the voluminous legislation relating to financial services is to be found. Until recently, there were over 150 legal acts pending incorporation into this annex, as it has been blocked pending solution of how to fit the new financial supervisory structure of the EU into the EEA Agreement. The solution found to this problem is of considerable general interest for the institutional set-up of the EEA Agreement and will be examined below. The reason being, that this institutional set-up will probably serve as inspiration for how to integrate the EFTA States into other agencies with decisionmaking powers. 50 Annex X is very short. However, it contains two very important Directives, the Services Directive (as well as associated legislation) and the Patients’ Rights Directive, both of which were briefly examined above. Annex XI comprises a number of important policy areas: telecommunication services; postal services; data protection; information society services and audio-visual services. Both in the field of telecommunication and that of postal services, the EEA is lagging behind the EU. Telecommunications is still governed by the regulatory framework from 2002, which on the EU side was changed in 2009. The same goes for postal services, where the applicable legislation in the EEA is Dir. 97/67/EC, which was amended in the EU by Dir. 2008/6/EC. The incorporation of these acts into the EEA Agreement has been delayed for a variety of reasons, and these are prime examples of the weakness of the incorporation mechanism and the delays that occur in that process, which of course have an impact on the homogeneity of the EEA as compared to the EU.97 49

VII. The institutional solution in the financial services sector 51

On 30 September 2016, the EEA Joint Committee decided to incorporate into the EEA Agreement Regulations 1093, 1094 and 1095 of 2010 on the European Banking Authority (EBA), European Securities and Markets Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA) (collectively referred to as ESAs).98 The establishment of these EU agencies was a response to the financial crisis of 2008 and the regulations entered into force on 1 January 2011. The process of incorporating these regulations into the EEA Agreement proved to be very difficult. As will be set out further below, these EU agencies have some supranational powers. This meant that, constitutionally, it was impossible for both Norway and Iceland to be subject to their jurisdiction without becoming full voting members in the authorities. How97 See further the comments by Dystland, Finstad and Sørebø on Art. 102 EEA. 98 As there is an obvious risk of confusing the EU ESAs with the abbreviation for the EFTA Surveillance Authority used in this book, the former will be referred to jointly as the EU agencies in the following.

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ever, for the EU, it was out of the question that the EFTA States be granted anything more than the status of non-voting member (observer status). A political solution was found at the meeting of the EU and the EFTA Ministers of Finance and Economic Affairs in the autumn of 2014. According to the agreement reached, it was for the EU agencies to perform actions of non-binding nature, such as the adoption of recommendations and non-binding mediation vis-à-vis the competent authorities in the EFTA States and market participants established there. However, the formal decision-making power with respect to those entities was invested in ESA. To ensure integration of the expertise of the EU agencies and consistency of application between the EU and EFTA pillars, any decision by ESA is to be based on a draft by the competent EU agency. This, as stated in the conclusion, “will preserve key advantages of supervision by a single authority at Union level.”99 Essentially, the solution arrived at means that all the substantive work will be carried out by the EU agencies. It is only in the presumably very rare cases that a formal decision will be required that will there be a need for the involvement of the EFTA pillar. This set-up has been criticised as being far from the balanced solution it sets 52 out to be, as it rests on the premise that ESA will simply rubber-stamp the conclusion of the relevant EU agency. It also raises questions regarding effective judicial protection.100 While the present author recognises that this criticism has some merits, he is of the view that the benefits of this solution outweigh the costs. In reaching this conclusion, it must also be borne in mind that, given the constraints on both sides, it is difficult to imagine any other solution being possible unless radical changes were undertaken, such as granting the EFTA States voting rights. A fully fledged two pillar set-up, with comparable EFTA authorities, would also seem to be an unrealistic alternative. This is the case from a practical point of view, as to establish bodies with responsibility for the EFTA States is far from straight-forward, and from a more principled point of view, as such duplication of authorities would go against the aim of having one supranational authority responsible for the internal market. Moreover, it is important to bear in mind that the supranational decision- 53 making powers granted to the EU agencies are only applicable in narrowly defined circumstances and, to date, there are very few examples of any of the agencies making use of these powers.101 In this context, it is worth stressing that the possibility of addressing a decision directly to a particular market participant, as opposed to a national competent authority, is limited to the instances laid down in Art. 17(6), and this can only take place after a decision has been addressed to the national authority, which in turn has failed to act. The case of 99 Conclusions EU and EEA-EFTA Ministers of Finance and Economy on 14 October 2014: Incorporation of the EU ESAs Regulations into the EEA Agreement (14178/1/14 REV 1). 100 Fredriksen and Franklin, ‘Of Pragmatism and Principles: The EEA Agreement 20 Years on’, Common Market Law Review (2015) p. 679. 101 The relevant Articles of the regulations common to all the EU agencies are the following: Art. 9(5), Art. 17, Art. 18 and Art. 19.

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ESMA is somewhat different, as it is the only one of the authorities with direct supervisory powers over credit rating agencies and trade repositories.102 Currently, there are no such entities operating in the EFTA States, and although it can of course not be excluded that they might be established there, their number will certainly remain very low. Accordingly, it appears very likely that decisions taken by ESA on the basis of this set-up will be few in number and will not affect many market participants.

Article 37 [Definition of services] Services shall be considered to be ‘services’ within the meaning of this Agreement where they are normally provided for remuneration, in so far as they are not governed by the provisions relating to freedom of movement for goods, capital and persons. ‘Services’ shall in particular include: (a) (b) (c) (d)

activities of an industrial character; activities of a commercial character; activities of craftsmen; activities of the professions.

Without prejudice to the provisions of Chapter 2, the person providing a service may, in order to do so, temporarily pursue his activity in the State where the service is provided, under the same conditions as are imposed by that State on its own nationals. 1

Art. 37 corresponds to what was at the time of the EEA negotiations Art. 60 EEC and is now Art. 57 TFEU. There is no textual difference between the provisions. Art. 37 defines the concept of services within the meaning of the Agreement and the relationship between the free movement of services and the other fundamental freedoms. The concept and the relationship between the free movement of goods and free movement of services, which is particularly important in the EEA context, are examined in the comments on Art. 36 EEA. For a discussion regarding the relationship with the other freedoms, reference is made to the comments on Arts. 28 and 40.

Article 38 [Transport services] Freedom to provide services in the field of transport shall be governed by the provisions of Chapter 6 1

Art. 38 reproduces the wording of what was Art. 61(1) EEC and is now Art. 58(1) TFEU. There is no textual difference between the provisions. In the same manner as under the TFEU, the EEA Agreement provides that the freedom to provide services in the field of transport shall be governed by separate 102 Reg. (EU) No 462/2013 amending Reg. No 1060/2009 on credit rating agencies and Reg. 648/2012 on OTC derivatives, central counterparties and trade repositories.

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provisions. In the EEA Agreement, those provisions are found in Chapter 6 of the EEA Agreement and, in particular, the Acts contained in Annex XIII to the EEA Agreement.1 Those Acts apply and implement the principle of the freedom to provide services as regards various specific modes of transport. Accordingly, the provisions of those acts related to the freedom to provide services are to be interpreted in light of the general principle enshrined in Art. 36.2 However, it is important to note that the free movement of services is not applicable to the field of transport in the absence of secondary legislation providing for such applicability. Accordingly, it is of considerable significance how the line is drawn between services falling within the scope of Art. 36 and those classified as transport services.3 In Fonnship, the ECJ was faced with a question from a Swedish Court con- 2 cerning the applicability of Reg. (EEC) No 4055/86 applying the principle of freedom to provide services to maritime transport between Member States and between Member States and third countries, as regards an EFTA State. The case concerned a company incorporated under Norwegian law, which had its seat in Norway, and a vessel owned by that company, the Sava Star, which was registered in the Panama Ship Registry and therefore flew the Panamanian flag.4 The parties to the case were in dispute as to whether EU/EEA law was rele- 3 vant to the case, as the vessel at issue, the Sava Star, flew the Panamanian flag.5 The ECJ found that two categories of persons enjoyed, under certain conditions, the freedom to provide services according to Reg. No 4055/86.6 First, nationals of a State that is party to the EEA Agreement and who are established in the EEA, and second, nationals of a State that is a party to the EEA Agreement who are established in a third country, as well as shipping companies established in third countries and controlled by nationals of a State that is party to the EEA Agreement.7 In light of this, the ECJ held that, to the extent that Fonnship could be considered to be the actual provider of the service, it could rely on the provisions of the Regulation, despite the fact that the Sava Star flew a third country flag.8 For this to be the case, Fonnship had to have operated the vessel by which the transport was carried out.9

1 See the comments by Hennig on Arts. 47 ff. 2 Case E-1/03, 12.12.2003, ESA v Iceland, para. 28. For an examination of this case and similar cases from the ECJ, see Lyal, ‘Tax Law’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 727-728. 3 For a recent examination of these issues see opinion of AG Szpunar in Case C-434/15 Asociación Profesional Elite Taxi as well as the comments by Hennig on Art. 47, mn. 19-22. 4 Case C-83/13, 8.7.2014, Fonnship, paras. 11-12. 5 Para. 22. 6 Council Reg. (EEC) No 4055/86 applying the principle of freedom to provide services to maritime transport between Member States and between Member States and third countries. 7 Case C-83/13, 8.7.2014, Fonnship, para. 33. 8 Paras. 35, 36 and 37. 9 Para. 38.

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Apart from the issue of the applicability of EEA law, briefly described above, this judgment contains an intriguing statement concerning the effect of Regulations under the EEA Agreement. The ECJ stated that the provisions of Reg. No 4055/86 are an integral part of the legal order of all of the States that are parties to the EEA Agreement by virtue of Art. 7(a) of the EEA Agreement and Annex XIII thereto. This observation needs to be read in connection with the judgment in UK v Council, which also suggest that there is direct applicability of Regulations under the EEA Agreement. If this is a correct reading of these judgments of the ECJ, which is far from certain,10 it is contrary to consistent case law of the EFTA Court. By way of example, the EFTA Court stated in ESA v Iceland that Under Art. 7 EEA, the Contracting Parties are obliged to implement all acts referred to in the Annexes to the EEA Agreement. The EFTA Court then stated that the lack of direct legal effect in Iceland of acts referred to in decisions from the EEA Joint Committee, makes timely implementation crucial for the proper functioning also in Iceland of the EEA Agreement.11 5 Although transport services are excluded from the scope of Art. 36 EEA, the right of establishment under Art. 31 EEA is applicable and its application is not dependent upon the existence of any secondary legislation. The key difference between Arts. 31 and 36, in this regard, is the fact that, as the individual establishes himself in the host EEA State, the service in question is no longer crossing a border, which represents an essential prerequisite for it to come within the scope of Art. 36. Rather, the right of establishment enables individuals to operate in the host EEA State on a stable and continuous basis. This was indeed the case in Yellow Cab, which concerned urban or suburban services in Vienna, which the ECJ considered to fall within the scope of the right of establishment, which, as the Court noted, is directly applicable to transport.12 6 In early 2017, ESA delivered a reasoned opinion to Norway concerning certain provisions governing access of transport operators to the market for taxi services and their compliance with the freedom of establishment. ESA concluded that the Norwegian measures constituted a restriction under Art. 31 EEA, which could not be justified. ESA did not call into question the requirement of a prior authorisation for taxi operations. However, a needs based assessment and a numerical limitation of licences was considered a disproportionate restriction of Art. 31.13 4

10 Fredriksen and Mathisen, EØS-rett, p. 317. 11 Case E-15/14, 28.1.2015, ESA v Iceland, para. 32. See further the comments by Dystland, Finstad and Sørebø on Art. 7 EEA, mn. 13. 12 Case C-338/09, 22.12.2010, Yellow Cab, paras. 32-33. 13 Reasoned Opinion of 22 February 2017 (Decision No: 041/17/COL in Case No 818034).

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Article 39 Scope of application

Article 39 [Scope of application] The provisions of Articles 30 and 32 to 34 shall apply to the matters covered by this Chapter.

Art. 39 contains the same rule as is now laid down in Art. 62 TFEU. The 1 reference to Art. 30 EEA concerning mutual recognition of professional qualifications is somewhat superfluous as it is already contained in Art. 35 EEA. As regards the content of these Articles of the Agreement, reference is made to the chapter on the respective Articles.

Chapter 4: Capital

Article 40 [Free movement of capital] Within the framework of the provisions of this Agreement, there shall be no restrictions between the Contracting Parties on the movement of capital belonging to persons resident in EC Member States or EFTA States and no discrimination based on the nationality or on the place of residence of the parties or on the place where such capital is invested. Annex XII contains the provisions necessary to implement this Article.

I. The “generation gap” between the EEA Agreement and the TFEU with regard to free movement of capital

Art. 40 is based on Art. 67(1) EEC, the provision on capital movements that 1 was in force before the Maastricht amendments.1 Art. 67 EEC foresaw a gradual lifting of capital restrictions “in the course of the transitional period and to the extent necessary for the proper functioning of the Common Market”. However, by the time of negotiating the EEA Agreement, the last step in freeing intraCommunity capital movements had been taken in the form of Dir. 88/361/EEC.2 The Directive has been part of the EEA Agreement from the outset by way of Annex XII. Consequently, Art. 40 does not refer to any transitional period. It simply states that “[t]here shall be no restrictions” on movements of capital, echoing “Member States shall abolish restrictions” on movements of capital” in Art. 1 of Dir. 88/361/EEC. Nor does Art. 40, or the Directive, contain any proviso that liberalisation shall 2 take place only to the extent necessary for the proper functioning of the common (internal) market. This proviso led the ECJ to conclude, in Case 203/80 Casati,3 that Art. 67(1) EEC in and of itself did not have the effect of totally abolishing 1 Generally on free movement of capital in the EEA, see also P Christiansen, ‘Free Movement of Capital’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 501-520. 2 Dir. 88/361/EEC for the implementation of Art. 67 of the Treaty. 3 Case 203/80, 11.11.1981, Casati.

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restrictions on capital movements after the end of the transitional period – it was still for the Council to appraise the advantages and risks that any step of liberalisation might entail for the common market and act accordingly. Art. 1 of Dir. 88/361/EEC, however, has no such proviso and was considered to have direct effect in the EU, see Joined Cases C-358/93 and C-416/93 Bordessa.4 3 In order to decide whether Art. 40, and Art. 1 of the Directive as an EEA obligation, have direct effect in the EU legal order, one needs to take into account Art. 43 et seq., which leaves it in the hands of each Contracting Party, albeit with an obligation to consult with its EEA partners, to introduce various protective measures. It has been argued that this makes Art. 40 EEA and Art. 1 of the Directive insufficiently unconditional for them to have direct effect.5 The ECJ has not specifically addressed the issue.6 In Case E-3/11 Sigmarsson,7 the EFTA Court concluded that it could, in principle, rule on the legality of measures taken pursuant to Art. 43, but that the State in question enjoyed a wide margin of discretion subject however to control of proportionality and the respect of the principle of legal certainty. The case is further dealt with in the comments to Art. 43. 4 As EEA law does not entail an obligation to introduce direct effect and primacy in the same way as in the EU, see comments to Art. 6 and Protocol 35, the corresponding question in an EEA context is whether those EEA Contracting Parties (Norway and Iceland) that adhere to the dualist principle with regard to the relation between national law and international obligations are under a duty pursuant to Protocol 35 EEA to make the necessary legislative arrangements in order for individuals and economic operators to be able to rely on the principle of free movement of capital, be it under Art. 40(1) EEA or Art. 1 of Dir. 88/361/EEC, when faced with national rules to the opposite effect. Both States have made the Main EEA Agreement part of their internal legal order without excluding Art. 40. 5 In the EU, Art. 67 was replaced by Art. 73 et seq. from 1 January 1994, with Art. 73B stating that “[w]ithin the framework of the provisions set out in this Chapter [a new Chapter 4 on capital and payments], all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.”8 Art. 73B has since been renumbered, first as

4 Joined Cases C-358/93 and C-416/93, 23.2.1995, Bordessa. 5 J Pinborg, ‘Comments to Arts. 63-66 TFEU’, in Danielsen, Ellehauge and Holst-Christensen (eds), EU-Karnov 2016 volume 2 (Copenhagen 2016) p. 1231. 6 In Case C-452/01, 23.9.2003, Ospelt, the ECJ did not distinguish between Art. 40 and the Articles on free movement of capital of the TEC. At paras 27 to 32 of the judgment, the Court insisted on the identity of the two sets of rules, and on the EFTA States not being “third countries” with regard free movement of capital. Admittedly, the Court did not specifically address the question of direct effect of Art. 40 within the EU legal order, but had the Court seen a difference between Art. 40 and the TEC provisions in this regard, it would perhaps have been natural for the Court to point it out. 7 Case E-3/11, 14.12.2011, Sigmarsson. 8 As Art. 1 of Dir. 88/361/EEC, Art. 73B has direct effect, see Joined Cases C-163/94, C-165/94 and C-250/94, 14.12.1995, Sanz de Lera.

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Art. 56 EC and now as Art. 63 TFEU. With the Amsterdam Treaty, the old Art. 67 was deleted as redundant. In Case C-244/15 Commission v Greece, the ECJ confirmed that “the provi- 6 sions of Art. 40 of the EEA Agreement have the same legal scope as the substantially identical provisions of Art. 63 TFEU”, so considerations concerning the existence of a restriction under Art. 63 TFEU could be transposed to Art. 40 EEA mutatis mutandis.9 This is in line with ECJ case law, and that of the EFTA Court, concerning the question of whether restrictions are lawful, see point II.1 below. II. The scope for lawful restrictions on the free movement of capital 1. Differences in wording between the EEA Agreement (Dir. 88/361/EEC) and the TFEU

The new EU Treaty provisions also contain rules based on the Directive con- 7 cerning safeguard measures and Member States’ right to restrict the free movement of capital in order to protect certain societal interests. In this context, it should be noted that Art. 40 makes a reservation: free movement of capital between EEA residents are only to take place “[w]ithin the framework of the provisions of this Agreement”. Under Art. 2 EEA, the term “Agreement” means not only the “Main Agreement”, but also the protocols and annexes and the acts referred to therein. This includes Dir. 88/361/EEC. This reservation could also be read into the last sentence of Art. 40, stating 8 that Annex XII contains the provisions “necessary to implement” this Article. Also this formulation, which is not found in other provisions of the EEA Main Agreement referring to the various annexes, may be interpreted to mean that the right to free movement of capital under Art. 40 does not go beyond the provisions of secondary legislation referred to in Annex XII. In Case C-284/09 Commission v Germany,10 at para. 96, the ECJ took this view and recognized that “restrictions of the free movement of capital between nationals of States party to the EEA Agreement must be assessed in the light of Annex XII” to the Agreement, not only Art. 40. According to Art. 4 of Dir. 88/361/EEC, the Directive is without prejudice 9 to the right of Member States [EEA States] to take all requisite measures to prevent infringements of their laws and regulations, inter alia in the field of taxation and prudential supervision of financial institutions, or to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information. However, application of those measures and procedures may not have the effect of impeding capital movements carried out in accordance with Community [EEA] law.

9 Case C-244/15, 26.5.2016, Commission v Greece, at para 48. 10 Case C-284/09, 20.11.2011, Commission v Germany.

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A similar but more detailed provision is found in Art. 65(1) and (3) TFEU. Para. (1)(a) states that the provisions of Art. 63 shall be without prejudice to the right of Member States to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested. This an echo of what the ECJ has stated generally with regard to free movement and tax law.11 The ECJ has refused to accept that this provision exempts the Member States from having to demonstrate that the difference in treatment concerns situations which are not objectively comparable or may be justified by overriding reasons in the general interest, such as the need to safeguard the coherence of the tax system.12 This means that Art. 65 (1)(a), although not found in the EEA Agreement, does not create a difference between EU and EEA law. 11 The wording of Art. 65(1)(b) corresponds to the wording of Art. 4 of the Directive, but with the addition of measures which are justified on grounds of public policy or public security. As Art. 4 of the Directive is open-ended with regard to the general interest objectives that may be pursued, the addition of public policy and public security to Art. 65 TFEU has no real significance.13 Para. 3 of Art. 65 TFEU also has a slightly different wording than the second sentence of Art. 4 of the Directive, by directing that the measures “shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Art. 63”. 12 It would seem that the ECJ has applied Art. 4 of the Directive without regard to the differences in wording between Art. 4 of the Directive and Art. 65 TFEU, see to this effect Case C-358/93 Bordessa14 at para. 22: 10

“Article 73 d, paragraph (1)(b) of which essentially reproduces the first paragraph of Article 4 of the Directive but also provides that Member States have the right to take measures which are justified on grounds of public policy or public security.”

13

More generally, the EFTA Court in Case E-1/04 Fokus Bank15 at para. 23 and Case E-10/04 Piazza16 at para. 39 recognised that “[t]he rules governing the free movement of capital in the EEA Agreement are essentially identical in substance” to those of – now – the TFEU. In this connection, the Court referred to Case C-452/01 Ospelt17 where, at para. 28, the ECJ stated, firstly, that “the rules laid down in them [i.e. Art. 40 of and Annex XII to the EEA Agreement] pro-

11 See i.a. Case C-279/93, 14.2.1995, Schumacker, at paras 30 and 31: “It is also settled law that discrimination can arise only through the application of different rules to comparable situations or the application of the same rule to different situations. In relation to direct taxes, the situations of residents and of non-residents are not, as a rule, comparable.” 12 See i.a. Case C-319/02, 7.9.2004, Manninen, at para 29. 13 See also under point II.2 below with regard to direct discrimination. 14 Case C-358/93, 23.2.1995, Bordessa. 15 Case E-1/04, 23.11.2004, Fokus Bank. 16 Case E-10/04, 1.7.2005, Piazza. 17 Case C-452/01, 23.9.2003, Ospelt.

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hibiting restrictions on the movement of capital and discrimination, so far as concerns relations between the States party to the EEA Agreement, irrespective of whether they are members of the Community or members of EFTA, are identical to those under Community law with regard to relations between the Member States”. The ECJ then went on to conclude, at para. 32, that it must “be assessed in the light of Article 40 of and Annex XII to the aforementioned Agreement, which are provisions possessing the same legal scope as that of Article 73 b of the Treaty, which is identical in substance” whether the restrictions in question were lawful. On this basis, the ECJ, at para. 54, answered that question while referring only to Arts. 73 b to 73 d, 73 f and 73 g TEC, without finding it necessary to mention the EEA Agreement. 2. Differences in wording between the provisions on free movement of capital and provisions concerning other forms of free movement

The wording of the capital movement provisions both of the EEA Agreement 14 and the TFEU differs slightly from that found in provisions concerning the right of Member States/EEA States to restrict other forms of free movement in pursuit of general interest objectives. This leads the following question: Does the right to take “measures to prevent infringements” (Art. 4 of the Directive and Art. 65 (1)(b) TFEU) mean exactly what it says, excluding measures that make certain capital movements infringements in the first place? If so, is the right of Member States / EEA States to introduce the latter form of restrictions, and the limits thereto, to be understood as inherent in Art. 1 of the Directive and Art. 63 TFEU? It would seem that the answer to these questions is yes on a purely formal lev- 15 el, but that this distinction does not matter in practice. In Case C-174/04 Commission v Italy18 at para. 35, the ECJ stated the following: “[T]he free movement of capital, as a fundamental principle of the Treaty, may be restricted only by national rules which are justified by reasons referred to in Article 58(1) EC [Article 65 TFEU] or by overriding public-interest grounds. Furthermore, in order to be so justified, the national legislation must be suitable for securing the objective which it pursues and must not go beyond what is necessary in order to attain it, so as to accord with the principle of proportionality.”

This was echoed by the EFTA Court in Case E-10/04 Piazza at para. 39:19

16

“[N]ational rules restricting the free movement of capital in the EEA may, as in Community law, be justified on grounds such as those stipulated in Article 58 EC or on considerations of overriding public interest. In order to be so justified, the national rules must be suitable for securing the objective that they pursue and must not exceed what is necessary in order to achieve it, so as to accord with the principle of proportionality.”

As we see, there is no attempt to distinguish between measures to prevent 17 infringement of underlying national rules, and those rules in themselves as restrictions on free movement. 18 Case C-174/04, 2.6.2005, Commission v Italy. 19 See also case E-9/11 ESA v Norway, at para 83.

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As one and the same national measure may constitute both a restriction on, in particular, the right of establishment and a restriction on free movement of capital, it makes sense that the test is the same. In Case E-9/11 ESA v Norway20 at para. 83, the EFTA Court implicitly recognised this: “According to established case-law, a national measure which hinders the freedom of establishment laid down in Article 31 EEA or restricts the free movement of capital under Article 40 EEA can be justified on the grounds set out in Article 33 EEA or by overriding reasons in the public interest, provided that they are appropriate to secure the attainment of the objective which they pursue and do not go beyond what is necessary in order to attain it (compare, as regards freedom of establishment, ESA v Norway,[21] cited above, paragraph 64 et seq.).”

With regard to other forms of free movement, only express derogatory provisions in the Treaty / EEA Main Agreement have been accepted as grounds capable of justifying restrictions that openly discriminate on the basis of nationality.22 However, unlike other provisions on the possibility of introducing restrictions to free movement, which contain a closed list of possible justificatory grounds – public policy, public security and public health being the central grounds23 – Art. 4 of the Directive and Art. 65(1) TFEU are quite open-ended. Unlike Art. 65(1) TFEU, Art. 4 of the Directive does not even explicitly mention public policy and public security. It remains to be seen what the ECJ and the EFTA Court will make of this. However, given the close relationship between capital movements and in particular right of establishment, it would make sense to understand all freedoms in the same way also in this regard, at least as far as public policy and public security are concerned.24 20 Another matter is that discriminatory restrictions openly based on nationality are usually found to be disproportionate.25 This will probably also be the case in 19

20 Case E-9/11, 16.7.2012, ESA v Norway. 21 Case E-2/06, 26.6.2007, ESA v Norway, concerning conditions for concession for acquisition of hydropower resources. At para 68 of that judgment, the Court stated that when the contested rules fall under both the EEA rules on right of establishment and the EEA rules on free movement of capital, the contested rules are to be examined in parallel under both sets of EEA rules. For the ECJ, the question has mostly arisen in cases where the Court has found the right of establishment to be the dominant factor, with any consequences of the national measure for the free movement of capital to be an unavoidable consequence of the restriction on freedom of establishment. In those cases, the ECJ has not made an independent examination under the rules on free movement of capital, see for instance Case C-524/04, 13.3.2007, Test Claimants in the Thin Cap Group Litigation, at para 34 and Case C-196/04, 12.9.2006, Cadbury Schweppes plc, at para 33. However, it follows from Case C-390/99, 22.1.2002, Canal Satélite Digital, at paras 31-33, that when it is difficult to determine generally which freedom should take priority, the legitimacy of the restriction must be examined simultaneously in the light of both – or all – freedoms concerned. Canal Satélite Digital concerned free movement of goods and services, but the same must apply with regard to other combinations of freedoms. 22 See for instance Case C-311/97, 29.4.1999, Royal Bank of Scotland, at para 32 with further references to case law. The same is implicitly recognized by the EFTA Court in Case E-5/98, 12.5.1999, Fagtún, at paras 37-38 (free movement of goods). 23 Arts. 33 and 39 EEA and Arts. 52 and 62 TFEU. Arts. 13 EEA and 36 TFEU on restrictions on free movement of goods contain a longer list. 24 Public health presumably being irrelevant with regard to free movement of capital. 25 Case E-5/98, 12.5.1999, Fagtún provides an example of this.

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the field of capital movements, making the question of whether direct discrimination in the field of capital movements are treated differently from direct discrimination in other fields a moot point. III. Tax law restrictions 1. Credit for witholding tax

Just like the ECJ, the EFTA Court has had to deal with cases in which it has been claimed that national tax law constitutes an unlawful restriction on free movement of capital – or on the right of establishment, as the case may be.26 As is the case with regard to the other forms of free movement, the EFTA Court has closely followed the case law of the ECJ. However, the EFTA Court’s judgment in Case E-1/04 Fokus Bank, in which the Court found Norwegian rules on withholding tax on dividends paid to nonresidents to be contrary to EEA law, sits uncomfortably besides the ECJ’s judgment i.a. in Case C-487/08 Commission v Spain.27 In Fokus Bank, the EFTA Court considered it to be irrelevant whether the taxpayer is resident in another Contracting Party which, in a tax agreement, has undertaken to grant credit for the withholding tax. In Commission v Spain at paras. 58-59, the ECJ held that a Member State might succeed in ensuring compliance with its obligations under the Treaty by concluding a convention for the avoidance of double taxation with another Member State. According to that judgment, when the tax withheld at source under national legislation can be set off against the tax due in the other Member State in the full amount of the difference in treatment arising under the national legislation, that difference in treatment between resident and non-resident taxpayers does not constitute a restriction on free movement. The ECJ thus held on to its view on this point in previous judgments28 in spite of the Commission trying to convince it to follow the EFTA Court (see para. 17 of the judgment). On the other hand, the ECJ in Case C-379/05 Amurta29 at para. 78, agreed with the EFTA Court’s view in Fokus Bank that it is irrelevant whether the taxpayer in the specific case is granted credit for the withholding tax by his home State on a unilateral basis. It should be noted that the judgment in Fokus Bank was rendered before the ECJ had occasion to pronounce itself on the question. The judgment demonstrates the difficulty that the EFTA Court is faced with when having to “go 26 Case E-1/04, Fokus Bank, Case E-7/07, 7.5.2008, Seabrokers, Joined Cases E-3/13 and E-20/13, 9.7.2014, Fred. Olsen and others, Case E-15/11, 3.10.2012, Arcade Drilling, Case E-14/13, 2.12.2013, ESA v Iceland. 27 Case C-487/08, 3.6.2010, Commission v Spain. 28 See in particular Case C-374/04, 12.12.2006, Test Claimants in Class IV of the ACT Group Litigation, at para 71, Case C-170/05, 14.12.2006, Denkavit, at paras 45-47, Case C-379/05, 8.11.2007, Amurta, at paras 79-80. 29 Case C-379/05, 8.11.2007, Amurta.

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first” on an unresolved question of law. It may reasonably be expected that the EFTA Court, following the principle of homogeneity as applied in Joined Cases E-9/07 and E-10/07 L’Oréal,30 will follow the ECJ’s view in Case C-487/08 Commission v Spain if faced with the question for a second time. 2. Mutual assistance in tax matters

A question concerning taxation and free movement of capital that hitherto only the ECJ has had to deal with, is the consequences of Dir. 77/799/EEC on mutual assistance in tax matters31 not having been included in the EEA Agreement. In Case C-72/09 Rimbaud,32 the ECJ had to answer the question of whether Art. 40 EEA prevented France from imposing a property tax on a company (Rimbaud SA) having its seat in Liechtenstein as long as the French rules exempted French companies from the tax, and also, on certain conditions, companies having their seat in States with which France had concluded a convention on mutual assistance in tax matters. Liechtenstein and France had no such convention. 26 In a previous judgment, Case C-451/05 ELISA,33 the ECJ had had to deal with the same question in relation to free movement of capital within the EU. In this regard, the relevance of Dir. 77/799/EEC came up. It turned out that in the circumstances of that case, the Directive would be of little use since the authorities of the other State involved, Luxembourg, were barred by Luxembourg law to obtain the relevant information even for internal purposes. Nevertheless, the ECJ came to the conclusion that the French rule constituted an unlawful restriction on intra-EU movement of capital. The ECJ relied mainly on the argument the French rules made it impossible to obtain exemption even if the taxpayer provided all relevant documentary evidence enabling the French tax authorities to ascertain, clearly and precisely, that he was not attempting to avoid or evade the payment of taxes. According to paras. 97-98 of the judgment, the fact that it might be impossible directly to request the cooperation of the Luxembourg authorities, and thus to check information, could not justify a categorical refusal to grant the tax benefit. 27 One should perhaps have expected that the ECJ, having downplayed the importance of the Directive in Case C-451/05 ELISA, would have done the same in Rimbaud with regard to the lack of a convention on mutual assistance in tax matters between Liechtenstein and France. The option of requesting information from the taxpayer himself was the same with regard to the Liechtenstein company. However, this time the ECJ made the lack of a treaty its decisive argument in finding that the French rule did not violate Art. 40 EEA. 25

30 Joined Cases E-9/07 and E-10/07 L’Oréal. 31 Dir. 77/799/EEC concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation. 32 Case C-72/09, 28.10.2010, Rimbaud. 33 C-451/05, 11.10.2007, ELISA.

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At para. 46, the Court stated that “[e]ven though, in the situation which was under consideration in ELISA, the Luxembourg authorities were not, by virtue of Article 8(1) of Directive 77/799, under any obligation in principle to provide information, the fact remains that the regulatory framework is quite different.” The Court did not really explain why this difference was relevant. In Case C-48/11 A Oy,34 the ECJ had to revisit the question under the rules 28 on right of establishment. A Oy, a Finnish company, owned shares in another Finnish company in which the other shareholder was a Norwegian company. A Oy then transferred its shares in the Finnish company to the Norwegian company in exchange of newly issued shares in the Norwegian company. It was clear that had A Oy’s partner in the exchange been a company from within the EU, the exchange would not have constituted a taxable disposal. The question was whether it would constitute discrimination contrary to the EEA Agreement to treat the exchange differently when the partner was a Norwegian company. The decisive issue in this regard was whether such different treatment was justified by the public interest related to the need to combat tax evasion and to safeguard the effectiveness of fiscal supervision. This time, the ECJ accepted that a convention between Finland and Norway closely corresponding to Dir. 77/799/EEC made the difference in treatment unjustified. The judgment in Case C-48/11 A Oy does not directly answer the question of 29 whether, with regard to the EEA Agreement, the ECJ would accept, as it did in Case C-451/05 ELISA, that the convention need not necessarily cover the exact information at issue in the case at hand. On the one hand, the Court in A Oy did repeat that the taxpayer should not be precluded a priori from providing relevant documentary evidence enabling the tax authorities of the State imposing the tax to ascertain that there was no attempt to avoid or evade the payment of taxes. On the other hand, it did accept that if compliance with the relevant tax law requirements could be verified only by obtaining information from the competent authorities of an EFTA State, it is in principle legitimate for an EU State to refuse to grant the relevant tax law advantage. The latter statement could be interpreted to signal a less welcoming attitude in this regard to conventions on mutual assistance in tax matters between EFTA/EEA and EU States than to the EU’s own legislation on this matter. IV. The relationship to right of establishment

The EFTA Court has followed the same line as the ECJ as concerns the 30 question of when to apply the rules on right of establishment and when to consider the case as falling under the rules on free movement of capital.35

34 C-48/11, 19.7.2012, A Oy. 35 Case E-9/11, 16.7.2012, ESA v Norway, at para 81 referring to Case C-524/04, 13.3.2007, Test Claimants in the Thin Cap Group Litigation, at para 27. See also Case E-14/13, 2.12.2013, ESA v Iceland, at para 27.

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Both the EEA Agreement and the TFEU have provisions stating that the right of establishment is “subject to the provisions of” the chapter on free movement of capital (Art. 31(2) EEA and Art. 49(2) TFEU). This is a provision that stems from the original EEC Treaty and must be considered in the light of the gradual lifting of currency restrictions culminating with Dir. 88/361/EEC. Today, the function of this provision in an EEA context would be to clarify that safeguard measures pursuant to Art. 43 EEA cannot be undermined by the rules on right to establishment. The Chapter on free movement of capital in the TFEU no longer contains any provision on intra-EU safeguard measures as the original EEC Treaty did in its Art. 73. 32 The EEA Agreement has no equivalent to Art. 65(2) TFEU, which states that “[t]he provisions of this Chapter shall be without prejudice to the applicability of restrictions on the right of establishment which are compatible with the Treaties”. This provision echoes Art. 5 of the First Directive of 11 May 1960 for the implementation of Art. 67 of the Treaty. That Directive was abolished by Dir. 88/361/EEC, which did not contain a similar provision. However, both the EFTA Court and the ECJ have “harmonized” the concept of a restriction,36 and the test of whether a restriction is lawful,37 under the rules on free movement of capital and the right of establishment. Thus, it is difficult to foresee a national measure being an unlawful restriction on the free movement of capital while at the same time being a lawful restriction on the right to establishment – provided both freedoms were to be considered applicable to the case at hand. 31

V. Cross border elements of capital movements 1. The concept of “residents”

Art. 40 liberalises “movement of capital belonging to persons resident in EC Member States or EFTA States”. The wording of Art. 1 of Dir. 88/361/EEC is slightly different: The Member States, i.e. the EEA States, shall abolish restrictions on movements of capital taking place “between persons resident in Member States”. The explanatory notes to the nomenclature of capital movements in Annex I to the Directive state that “residents” and “non-residents” are to be understood as “[n]atural and legal persons according to the definitions laid down in the exchange control regulations in force in each Member State”. 34 It may seem strange to leave it to the States themselves to define this. However, it is not in the States’ own interest to employ definitions that would render their exchange control mechanisms – only reporting requirements under normal circumstances – unsuitable for purpose. Thus, there is little danger that the States will alter their exchange control definitions of a resident in order to pursue other societal interests. In most States, the main criterion seems to be the 33

36 See Case E-2/06, 26.6.2007, ESA v Norway, at para 64. 37 See mn. 6 et seqq., above.

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same: the centre from which the person’s economic activities are decided upon or carried out.38 According to Art. 40, the freedom of movement applies to “capital belonging 35 to” persons resident within the EEA. In this context, it cannot matter whether the capital is “owned” by the person in question or is a loan from somebody else. Art. 1 of the Directive does not mention any ownership requirement – what is decisive, is that the movement takes place between residents. 2. Capital movements between residents of the same EEA State; discrimination based on nationality

Art. 1 of Dir. 88/361/EEC does not require that the persons should be resi- 36 dents of different States. However, the general principle that the rules on free movement do not apply to situations that are wholly internal to one State, apply also to capital movements.39 Not all capital movements between residents of the same EEA State are wholly internal to that State. The nomenclature of capital movements found in Annex I to Dir. 88/361/EEC lists certain transactions between residents of the same State. Points III, IV and V of the nomenclature cover acquisition by residents of foreign financial instruments of various sorts, regardless of whether they are purchased from another resident of the same State. The decisive factor is whether the instrument in question has been issued in another EEA State. The same points also cover the introduction of financial instruments on the markets of another EEA State, regardless of where the buyers may be residing. Point II deals with investments in real estate, and the decisive factor here is whether the real estate is situated in a different State than the investor, not whether buyer and seller are residents of different EEA States. In this context, it should also be mentioned that Art. 40 EEA and Art. 67 EEC 37 not only prescribe the abolition of all restrictions between the Contracting Parties on the movement of capital belonging to persons resident in EC Member States or EFTA States. They also lay down an obligation not to discriminate based on the nationality or on the place of residence of the parties or on the place where capital is invested. As we have seen, the latter two forms of discrimination are mostly caught also by the Directive and its nomenclature. The former, discrimination based on nationality, is covered by Art. 40 EEA regardless of whether the discriminatory measure is applied to two residents of the same EEA State engaged in a transaction of property situated, or a financial instruments issued, in that State. Art. 63 TFEU contains no similar ban on discrimination based on nationality. 38 However, to the extent that the transaction to which such discrimination applies may not be construed as a capital movement between different EU States, the discrimination is in any case caught by Art. 18 TFEU. 38 V Lelakis, ‘la libre circulation des capitaux au sein de la Communauté’, Revue du marché unique européen (1991) pp. 47, 50-51. 39 See Case C-268/15, 15.11.2016, de Schooten, at para 47 with further references.

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Art. 124 EEA, based on what is now Art. 55 TFEU, lays down an obligation of equal treatment of nationals of all EEA States as regards participation in the capital of companies or firms. The development in the interpretation of the principles of free movement of capital and right of establishment has made these Articles obsolete.40 3. Cross border movement without transfer between persons

40

It follows from Annex I to the Directive that the nomenclature is non-exhaustive. One consequences of this is that there may be a cross-border capital movement even if there is no transfer of capital between different persons. In Case C-358/93 Bordessa, the ECJ found that the carrying of banknotes in a handbag across the border is covered, even if not connected to any transfer of ownership of the capital in question.41 VI. Capital movements with third countries

The new EU provisions on capital movements that entered into force on 1 January 1994 also liberalised movements with regard to third countries, thus laying the groundwork for the euro becoming a global currency. By limiting the free movement of capital to “movement of capital belonging to persons resident in EC Member States or EFTA States” (Art. 40 EEA) / “movements of capital taking place between persons resident in Member States” (Art. 1 of the Directive), the EEA Agreement does not establish free movement of capital between a resident of an EEA State and a resident of a non-EEA State. The EEA obligation in this regard is a “best endeavours clause” in Art. 7 of the Directive: The “Member States” – in this context the EEA Contracting Parties – “shall endeavour to attain the same degree of liberalization as that which applies to operations with residents of other Member States, subject to the other provisions of this Directive”. 42 With regard to financial instruments issued in non-EEA States, a particular question arises. Points III, IV and V of the nomenclature mention “foreign” instruments. This may be read to include instruments issued in third countries. However, to include such instruments would go beyond the aim of the EEA Agreement, namely “to promote a continuous and balanced strengthening of trade and economic relations between the Contracting Parties” (Art. 1 EEA). The main effect of including financial instruments issued in third countries would be to further the economic development of those third countries, by making it easier to raise capital from within the EEA for the development of their economies. This is particularly so when the transaction takes place between two residents of the same EEA State, or between a resident of an EEA State and 41

40 See further the comments on Art. 124. 41 Case C-358/93, 23.2.1995, Bordessa.

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a resident of a non-EEA State. In those cases, the only cross-border elements in the transaction are with third countries. A slightly different matter is transactions in such instruments between resi- 43 dents of different EEA States, or at least through a financial institution situated within the EEA. In those cases, there is also an intra-EEA element. Nevertheless, some commentators have been of the opinion that free movement of capital under the EEA Agreement and the EEC Treaty (prior to the Maastricht amendments) do not extend to financial instruments issued outside of the EEA/ EEC.42 It may be argued, however, that any restrictions on the right of financial insti- 44 tutions situated within the EEA to conduct transactions involving such movements constitute a restriction on their freedom to provide services (assisting in transactions between residents of different EEA States) or on their right to establishment (assisting in transactions between residents of the EEA State in which the subsidiary itself is situated or between a resident of that State and a resident of a third country). Another matter is that for the EFTA States, restrictions on capital movements 45 with third countries, or with regard to financial instruments issued in third countries, may prove ineffective as long as capital movements remain free within the EEA and free between the EU and the rest of the world. VI. The relationship between free movement of capital and financial services

The nomenclature of the Directive lists many transactions that are regularly 46 performed by financial institutions, typically loans. However, the ECJ has concluded that the granting of credit on a commercial basis also constitutes a provision of services. Case C-452/04 Fidium Finanz,43 sums up the Court’s view on this question. The case concerned a Swiss undertaking that offered consumer credit on the German market without a German licence for doing so, and the Court concluded that this fell to be considered under the rules on free movement of services only, as the services aspect of the case was predominant. In Case E-1/00 Íslandsbanki,44 concerning an Icelandic guarantee scheme for banks that required the banks to pay a higher fee for foreign loans than for domestic loans, the EFTA Court considered the scheme under the rules on free movement of capital only. The EFTA Court’s argument for seeing free movement of capital as the pre- 47 dominant feature of the case was that the Icelandic system directly restricted the 42 H Bull, Det indre marked for tjenester og kapital tjenester – Import av finansielle tjenester (2002) 157, and Lelakis op.cit. pp. 51-52. 43 Case C-452/04, 3.10.2006, Fidium Finanz. 44 Case E-1/00, 14.7.2000, State Debt Management Agency v Íslandsbanki-FBA hf. The case is discussed in more depth by Dirk Buschle, ‘Free Movement of Capital in the EEA – A Lehrstück in Homogeneity’, in Monti, Liechtenstein, Vesterdorf, Westbrook, Wildhaber (eds), Economic Law and Justice in Times of Globalisation, Festschrift for Carl Baudenbacher (2007) pp. 83-84.

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cross-border flow of capital by making loans from abroad more expensive than domestic ones. The effects on the freedom to provide and receive services were only indirect, the Court held.45 48 In Case C-452/04 Fidium Finanz, the ECJ made a distinction between restrictions in the form of national rules on the general supervision of banking services, including licensing requirements, and national rules pertaining to individual loans and the transfer of credit to the borrower. As the case concerned the former sort of rules, the predominant consideration in the case was freedom to provide services rather than the free movement of capital.46 49 The two judgments are not necessarily in conflict with each other. But it is an open question whether it is a good solution to distinguish between the services and capital aspects of financial services based on whether the national rules at stake regulate prudential supervision and consumer protection at a general level or rather regulate individual transactions. The two forms of regulations are linked. It would be more in line with the thinking in other areas of free movement to distinguish between different forms of movement based on the character of transaction in question rather than on the character of the national regulation that restricts it.47 VII. Permanent EEA derogations in the fisheries sector

Annex XII contains permanent derogations for Iceland and Norway with regard to restrictions existing at the date of signature of the EEA Agreement in the fisheries sector. Both for Norway and Iceland, the derogations contained in Annex XII start with the words “[n]otwithstanding Art. 40 of the Agreement” and so are meant to derogate not only from the Directive, but also from Art. 40 of the Main Agreement. Thus, it does not matter whether Art. 40 or Art. 1 of the Directive is seen as the legal basis for free movement of capital in the EEA, see point I above. 51 The Norwegian derogation concerns “ownership by non-nationals of fishing vessels”. It does not extend to investments by non-nationals in land-based fish processing or in companies which are only indirectly engaged in fishing operations, but if such investments have been made, the company concerned may be required to divest itself of any investment in fishing vessels. 50

45 Case E-1/00, 14.7.2000, Íslandsbanki, at para 32. 46 Case C-452/04, 3.10.2006, Fidium Finanz, at paras 45 and 49. 47 One is tempted to ask whether the ECJ was somewhat influenced by the fact that unlike capital, services are only liberated within the EU (extended to the EFTA States through the EEA Agreement). By considering the case under the rules on free movement of services only, the Court avoided the conclusion that there was a restriction on free movement and therefore also avoided going into a discussion of whether the restriction was justified. It is understandable that the ECJ would be hesitant to open up its principles on what constitutes a restriction on free movement and on what may legitimize such restrictions, to the whole world – even though the latter question would obviously have to be answered in light of the lack of global harmonisation of financial services, in particular regarding prudential supervision. Under the EEA Agreement, this is not a problem.

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The Icelandic derogation is broader than the Norwegian one. It covers “the 52 sectors of fisheries and fish processing” generally. It applies to non-resident nationals as well as non-nationals. This shall not prevent investments by such persons in companies that are only indirectly engaged in fisheries and fish processing, but such companies may be required to divest themselves of any investments in fish-processing activities and fishing vessels. Similar derogations have been included in Annex VIII on right of establish- 53 ment. VIII. Secondary legislation

As mentioned above, Annex XII EEA refers to Dir. 88/361/EEC. Art. 3 of 54 that Directive contains a safeguard clause concerning short-term capital movements of exceptional magnitude. In the EU, it was for the Commission to authorize protective measures. However, according to Annex XII, for the EFTA States, it is the procedure laid down in Protocol 18 and Art. 45 EEA that shall apply.48 In view of the safeguard measures that may be taken according to Art. 43 EEA, and considering that Art. 45 and Protocol 18 also applies to Art. 43 safeguards, Art. 3 of the Directive has little practical interest.49 According to Art. 3 (j) of the Agreement on a Standing Committee of the 55 EFTA States, it is for the Standing Committee to examine matters relative to capital movements and prepare reports thereon in cases where, according to legal acts referred to in Annex XII, the EC Monetary Committee carries out such tasks in the EU. Under Art. 8 of Dir. 88/361/EEC, the Monetary Committee was to examine the situation regarding free movement of capital as it results from the application of this Directive at least once every year. Dir. 88/361/EEC was long the only piece of secondary legislation listed in 56 Annex XII EEA on free movement of capital. However, as the EU has introduced legislation concerning payments and financial collateral arrangements, these have also been included in Annex XII: – Dir. 2011/7/EU on combating late payment in commercial transactions – Reg. (EC) No 924/2009 on cross-border payments in the Community – Reg. (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro – Dir. 2002/47/EC on financial collateral arrangements

48 Protocol 18 is dealt with in the comments to Art. 44 EEA. 49 P Christiansen, ‘Free Movement of Capital’, in: Carl Baudenbacher (ed), The Handbook of EEA Law, p.505 footnote 19 sees Art. 3 of the Directive as an elaboration of Art. 43(2) EEA.

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Article 41 [Free movement of payments] Current payments connected with the movement of goods, persons, services or capital between Contracting Parties within the framework of the provisions of this Agreement shall be free of all restrictions.

The pre-Maastricht EEC Treaty contained two provisions on free movement of payments. Art. 67(2) EEC provided that “Current payments connected with movements of capital between Member States shall be freed from all restrictions not later than at the end of the first stage”. The central provision concerning free movement of payments, however, was Art. 106(1) EEC. This provision foresaw freedom of “any payments connected with the exchange of goods, services or capital, and also any transfers of capital and wages, to the extent that the movement of goods, services, capital and persons is freed as between Member States”. 2 Art. 41 EEA is based on Art. 67(2) EEC, but with the addition of payments connected with goods, persons and services and no mentioning of any transitional period, as there was none in the EEA. The reasons for using Art. 67(2) as the basis are probably two-fold. Firstly, with no transitional period, the wording of Art. 67(2) was closer to what was needed. One simply had to add goods, persons and services and delete the reference to the transitional period. Secondly, Art. 106 was placed in a part of the EEC Treaty, namely Part Three, Title II on Economic Policy, that has no equivalent in the EEA Agreement. 3 As the ECJ has made no distinction between Art. 67(2) and Art. 106(1) after the end of the transitional period, but rather treated them as one rule on free movement, this mixed origin of Art. 41 EEA should not create any problems in applying ECJ case law to that Article. 4 In Joined Cases 286/82 and 26/83 Luisi and Carbone,1 the ECJ had to address the difference between capital movements and payments. At para. 21, the Court concluded: 1

The general scheme of the Treaty shows, and a comparison between Articles 67 and 106 confirms, that current payments are transfers of foreign exchange which constitute the consideration within the context of an underlying transaction, whilst movements of capital are financial operations essentially concerned with the investment of the funds in question rather than remuneration for a service. For that reason movements of capital may themselves give rise to current payments, as is implied by Articles 67 (2) and 106 (1).

5

This fits well with the traditional understanding that capital movements are unilateral transfers of wealth, usually in the form of a loan or an investment in share capital or real estate, whereas payments are remuneration for an output of equivalent value going in the opposite direction. Dividends and interest payments would then be payments connected with capital movements – the payments in principle equalling the value, for the borrower or company concerned, of being able to use the capital placed at its disposal. 1 Joined Cases 286/82 and 26/83, 31.1.1984, Luisi and Carbone.

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However, with the total liberalisation also of capital movements, the distinc- 6 tion between capital movements and payments has become much less important than it used to be. Also with regard to payments, the general principles of what constitutes 7 justified restrictions on free movement must apply. In the TFEU, Arts. 64 and 65 concerning restrictive State measures apply to both capital movements and payments. As we have seen in the comments to Art. 40 EEA, the EFTA Court and the ECJ, have in fact “harmonised” these provisions with those general principles. It could also be argued that without Art. 41, restrictions on payments would most likely have been regarded as indirect restrictions on the underlying transactions in goods, services, investments etc. to which they are connected. Art. 41 has so far not played any role in the case law of the EFTA Court or the 8 ECJ.

Article 42 [Circumvention of capital movements liberalization] 1. Where domestic rules governing the capital market and the credit system are applied to the movements of capital liberalized in accordance with the provisions of this Agreement, this shall be done in a non-discriminatory manner. 2. Loans for the direct or indirect financing of an EC Member State or an EFTA State or its regional or local authorities shall not be issued or placed in other EC Member States or EFTA States unless the States concerned have reached agreement thereon.

Art. 42 EEA is based on Art. 68 (2) and (3) EEC, repealed with effect from 1 1 January 1994 and deleted from the text of what is now the TFEU by the Amsterdam Treaty. The traditional understanding of Art. 68 (2) seems to have been that it prohib- 2 ited the circumvention of capital movements liberalization already achieved by applying in a discriminatory manner national currency and prudential regulations that were still lawful.1 With the total liberalization of capital movements following from Dir. 88/361/EEC and Art. 40 EEA, such attempts would rather be viewed as violations of those provisions. Art. 42 (2) prohibits the raising of loans by one EEA State or its local authori- 3 ties in the market of another EEA State without that State’s approval. This prevents one State from unilaterally sapping the capital resources of another State. In the EU, this derogation from free movement of capital was seen as incompatible with the economic and monetary union. However, Art. 6 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (the 2012 Fiscal Compact) requires the Contracting Parties to report ex-ante on their public debt issuance plans to the Council of the European Union 1 Martin Seidel, ‘Schutzmaßnahmen auf dem Gebiet des Zahlungs- und Kapitalverkehrs‘, in Kölner Schriften zum Europareicht (vol. 28, 1977) pp. 29, 44.

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and to the European Commission, with a view to better coordinating the planning of their national debt issuance.

Article 43 [Protective measures] 1. Where differences between the exchange rules of EC Member States and EFTA States could lead persons resident in one of these States to use the freer transfer facilities within the territory of the Contracting Parties which are provided for in Article 40 in order to evade the rules of one of these States concerning the movement of capital to or from third countries, the Contracting Party concerned may take appropriate measures to overcome these difficulties. 2. If movements of capital lead to disturbances in the functioning of the capital market in any EC Member State or EFTA State, the Contracting Party concerned may take protective measures in the field of capital movements. 3. If the competent authorities of a Contracting Party make an alteration in the rate of exchange which seriously distorts conditions of competition, the other Contracting Parties may take, for a strictly limited period, the necessary measures in order to counter the consequences of such alteration. 4. Where an EC Member State or an EFTA State is in difficulties, or is seriously threatened with difficulties, as regards its balance of payments either as a result of an overall disequilibrium in its balance of payments, or as a result of the type of currency at its disposal, and where such difficulties are liable in particular to jeopardize the functioning of this Agreement, the Contracting Party concerned may take protective measures.

I. Comparison with the TFEU; role of the EFTA Court

Art. 43 is based on Art. 70(2), 73(1), 107(2) and 108 EEC. The three first were repealed by the Maastricht Treaty. Art. 108 EEC, corresponding to Art. 43(4) EEA, is now Art. 143 TFEU, applicable to Member States not participating in the euro. The substantive criteria of the latter provision, as well as of Art. 64 and 66 TFEU, for introducing restrictive measures vis-à-vis third countries are circumscribed by those of Art. 43 EEA with regard to the EFTA/EEA States. The EU is not free to introduce safeguard measures pursuant to TFEU provisions vis-à-vis the EFTA/EEA States in situations not covered by Art. 43 EEA. 2 Unlike the EEC provisions, which limited the affected Member State’s right to introduce or maintain unilaterally the measures in question by giving a role for the Commission or the Council in authorising measures or ordering the Member State to scale back or abolish measures, Arts. 43-45 EEA introduce an obligation to consult but ultimately leave final authority in the hands of the State concerned.1 1

1 This difference between the EEA rules and the TFEU raises the question of whether the EEA capital movement provisions have direct effect in the EU legal order, see comments to Art. 40 EEA.

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In Case E-3/11 Sigmarsson,2 this special procedure led the defendant and the 3 Government of Iceland to argue that the EFTA Court cannot rule on the legality of measures taken under Art. 43. In their view, judicial scrutiny was limited to an assessment of whether the EFTA State concerned followed the procedures prescribed in Arts. 44 and 45. At paras. 26-31, the EFTA Court disagreed, drawing on its finding in Case E-6/01 CIBA3 on its competence to review the legality of decisions by the EEA Joint Committee4 and the essential identity of EEA and EU rules on free movement of capital.5 The EFTA Court did not elaborate on the fact that in CIBA, the question was the whether the Court could, in principle, review the decision-making of the EEA Joint Committee, whereas in Sigmarsson, the Court reviewed the measures taken by the Icelandic State according to an emergency clause of the Agreement. However, at para. 50 the EFTA Court accorded the EFTA States “a wide 4 margin of discretion, both in determining whether the conditions are fulfilled, and the choice of measures taken, as those measures in many cases concern fundamental choices of economic policy”. The Court then, at paras. 52-55, went on to make a rather traditional “four freedoms analysis” of whether the Icelandic measures were suitable and necessary for securing the objective they pursued, and whether they satisfied the principle of legal certainty. The Court probably saw proportionality and legal certainty as general principles of law that without doubt applied also to measures under Art. 43. The analysis did not really make it necessary for the Court to rely on a special margin of discretion for the State concerned in order to find the measures justified. Consequently, it did not have to elaborate on the difference that the Court probably saw between general derogations from the fundamental freedoms and special measures pursuant to Art. 43.6 It would seem to follow from Sigmarsson that the EFTA Court could answer 5 questions from national courts on whether Art. 43 measures have been retained for longer than necessary, but again leaving a wide margin of discretion for the State concerned.7 2 3 4 5 6

Case E-3/11, 14.12.2011, Sigmarsson. Case E-6/01, 9.10.2002, CIBA. See comments to Art. 23 EEA. See comments to Art. 40 EEA. For a critical analysis, see D Guðmundsdóttir, ‘Case E-3/11 Sigmarsson v. the Central Bank of Iceland’ 49 Common Market Law Review (2012), pp. 2019-2038. Towards the end of 2016, investors brought an action against the EFTA Surveillance Authority before the EFTA Court (Case E-20/16) seeking voidance of the Surveillance Authority’s decision of 23 November 2016 closing the applicants’ complaint against Iceland concerning certain Icelandic safeguard measures still in place. The applicants claim that the Surveillance Authority has misjudged the level of discretion awarded to EEA/EFTA States by Art. 43. In April 2017, the proceedings were discontinued at the request of the applicants. 7 In the conclusions of its 45th meeting in May 2016, the EEA Council stated at point 11 that “[t]he EEA Council noted that free movement of capital is a fundamental internal market freedom and an integral part of the EEA acquis and acknowledged that restrictions can be implemented only temporarily on the basis of the provisions of Article 43 of the EEA Agreement.”

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II. Measures to counter evasion of currency exchange restriction vis-à-vis third countries

With free movement of capital within the EEA, but with each Contracting Party to the EEA Agreement remaining free to set rules concerning capital movements to and from third countries, it could happen that free movement within the EEA would be used to evade such third country rules. Art. 43(1) EEA provides for a possibility to introduce measures to prevent this. 7 In the EU, Art. 63 TFEU lays down free movement of capital also between EU States and third countries. In normal times, exchange restrictions with regard third countries are a thing of the past also for the EFTA States. Thus, it would seem that Art. 43(1) has little practical importance outside times of economic crises. In this context, it should be noted that under Art. 66 TFEU, it is still possible for the EU to introduce restrictions on capital movements with third countries as a safeguard measure. 6

III. Capital market disturbances

Art. 43(2) EEA, like the previous Art. 73(1) EEC, concerns disturbances in the functioning of the capital markets of an EEA State caused by capital movements. It follows from Case 203/80 Casati that the provision is not applicable for restrictions that are lawful according to the general principles on the right of Member States to restrict free movement in order to pursue general interest objective.8 This question is less important in an EEA context than it was in the EC. Under Art. 73(1) EEC, the Commission had to authorise measures, Member States could not introduce them on their own. In the EEA, it follows from Arts. 44 and 45 EEA that the EFTA States can introduce these measures themselves. If secrecy and urgency so requires, which presumably will most often be the case with regard to Art. 43(2), they can do so without prior consultations with their EEA partners. 9 In Case E-3/11 Sigmarsson, the EFTA Court accepted that Icelandic measures introduced when the financial crisis hit the country in 2008 were justified under Art. 43(2) and (4). The measures severely limited the right to movement of capital denominated in domestic currency between residents and non-residents and other foreign exchange transactions. Domestic parties that acquired foreign currency had to deposit such holdings with domestic financial undertakings within a certain time-limit.9 The Court did not go into which of the two provisions – the second or fourth paragraph of Art. 43 – that applied to each of the different national measures. In reality, the provisions overlap, both with regard to the situations to which they apply and which measures they allow. 8

8 Case 203/80, 11.11.1981, Casati, para 15. See the comments to Art. 40 EEA concerning this. 9 Towards the end of 2016, Iceland eased several of the capital control measures that had been introduced in the wake of the financial crisis in 2008.

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IV. Exchange rate alterations

Art. 43(3) is based on Art. 107(2) EEC and allows a Contracting Party whose 10 markets have been hit by a serious distortion of competition by an alteration in the exchange rate made by another Contracting Party, to take measures for a strictly limited period in order to counter the consequences thereof. The EEA Agreement lacks a provision similar to that found in Art. 107(1) EEC, now Art. 142 TFEU, which stated that Each Member State should treat its policy with regard to exchange rates as a matter of common interest.10 It should be noted that Art. 1(2) of Dir. 88/361/EEC requires transfers in re- 11 spect of capital movements to be made on the same exchange rate conditions as those governing payments relating to current transactions. This limits the right of a Contracting Party to alter its exchange rates in the first place. According to Art. 43(3), a Contracting Party has to “make” an alteration in 12 the exchange rate for counter-measures by other Contacting Parties to be justified. Alterations caused by market fluctuations can hardly be said to be “made” by the State concerned. V. Balance of payments problems

Art. 43(4), modelled on Art. 108 EEC, concerns difficulties caused by a dise- 13 quilibrium in the balance of payments. Such difficulties consist in being unable to pay for essential imports and/or being unable to service the nation’s debt. This is usually accompanied by a rapid decline in the value of the national currency as foreign investors pull out the capital that hitherto has been imported to cover current account deficits. Art. 43(3) covers such difficulties firstly when they result from an overall disequilibrium in the balance of payments. Secondly, the provision also allows measures when the disequilibrium is caused by the type of currency at the disposal of the State concerned. The provision sets as a condition that the difficulties are liable “in particu- 14 lar” to jeopardize the functioning of the Agreement. It could be argued that a balance of payments crisis for one EEA Contracting Party is always bad for intra-EEA trade and thus for the functioning of the Agreement. In view of this, and the words “in particular”, this condition does not have much independent significance. In line with this, the EFTA Court, in finding the Icelandic measures after the financial crisis hit in 2008 to be in conformity with Art. 43(4) in Case E-3/11 Sigmarsson, only discussed the dire situation for the Icelandic economy.11

10 See P. Christiansen, ‘Free Movement of Capital’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 507 on exchange rate regimes. 11 See in particular para 50 of the judgment.

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VI. Relationship to emergency measures enacted pursuant to the financial supervisory regulations

According to Art. 18 of the EBA, EIOPA and ESMA Regulations,12 when the Council has determined the existence of an emergency situation threatening the orderly functioning and integrity of the financial markets or the stability of the financial system “in the Union”, the EU supervisory authorities may adopt individual decisions requiring the competent national authorities to take the necessary action in relation to financial institutions under their supervision. If such action is not taken, the EU supervisory authorities may themselves adopt individual decisions addressed directly to the financial institutions concerned. With regard to the EFTA States, these powers to adopt decisions directed to national authorities and, if need be, directly to national financial institutions have been vested in ESA, which shall act based on drafts from the relevant supervisory authority.13 16 There is no EEA adaptation vesting powers identical to those of the EU Council in an EFTA organ. Thus, the powers of ESA to make decisions are triggered by the decision of the EU Council, just as they are for the EU supervisory authorities. From the point of view of sovereignty, the premise seems to be that the problem is the individual decisions made by the supervisory authorities, not the preceding determination by the Council, which in itself does not bind the States or their financial institutions to any particular cause of action. Therefore, a separate EFTA decision making procedure is needed for the former but not the latter.14 However, with ESA acting on the basis of drafts from the relevant EU supervisory authority, the freedom of action of the EFTA States’ own institutions is very limited in real terms.15 This is somewhat off-set by the right of representatives of the EFTA States and of ESA to participate on par with representatives of the EU Member States, but without the right to vote, in the organs of the EU supervisory authorities. 15

12 Reg. (EU) No 1093/2010 of the European Parliament and of the Council establishing a European Banking Authority (EBA), Reg. (EU) No 1094/2010 of the European Parliament and of the Council establishing a European Insurance and Occupational Pensions Authority (EIOPA) and Reg. (EU) No 1095/2010 of the European Parliament and of the Council establishing a European Securities and Markets Authority (ESMA), Made part of the EEA Agreement as points 31 g, 31 h and 31 i of Annex IX by Decisions No 198/2016, No 199/2016 and No 200/2016 of the EEA Joint Committee. 13 See adaptations included in the relevant decisions of the EEA Joint Committee. 14 See Bill to the Norwegian Parliament (Prop 100 S (2015-2016) at point 3.3.2.11. As ESA is vested with making decisions that will be directly binding in Norway, a decision pursuant to Art. 115 of the Norwegian Constitution on transfer of sovereign powers was necessary to authorize Norway’s acceptance of the Regulations as part of the EEA Agreement. This was the second time in Norwegian history that this provision has been employed, the first time being the original authorization to ratify the EEA Agreement in 1992. 15 The EEA adaptations foresee the possibility of disagreement between the EU supervisory authorities and ESA, with the disagreement, if not solved by the authorities themselves, going before the EEA Joint Committee according to Art. 111 EEA. The prospect of ESA’s view prevailing in such a procedure is probably rather limited.

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As a geographical concept, the words “in the Union” in Art. 18 must, ac- 17 cording to Point 8 of Protocol 1 EEA, be read to include also the EFTA States for the purposes of the Regulations forming part of the EEA Agreement. Thus, the authority of the Council to enable individual decisions to be taken extends also to a situation where only the markets of EFTA States are affected. Whether the regulations allow for action to be taken if the emergency situation affects only one State, is not clear. This is a general question, not a question that arises only with regard to the EFTA States. In reality, it is not very likely that such a crisis in one State should not also affect at least on other State – although perhaps less unlikely with regard to some of the EFTA States than within the EU. The financial supervisory regulations are primarily concerned with micro- 18 prudential action. Art. 43 EEA, on the other hand, is concerned with macro-economic emergencies. However, there could be situations in which both sets of rules would be applicable. This raises the question of priority of action. The sensible solution in most cases would be to let action under Art. 18 of the Regulations take precedence, leaving action under Art. 43 to function as a basis for ancillary action, if need be. This would be in line with the principles lex posterior derogat legi priori and lex specialis derogat legi generali, as well as the principle of loyal cooperation contained in Art. 3 EEA. Under EEA law there is no formal distinction between ‘primary’ and ‘secondary’ EEA law that could make the principle of lex superior derogat legi inferiori applicable as such.16 However, one could also argue that Art. 43 EEA, by its very nature, is 19 meant to cover actions that derogate from otherwise applicable EEA law when certain vital national interests are at stake, thus leaving the door open for EFTA States to take protective actions disregarding decisions by ESA under Art. 18. When accepting the financial supervisory regulations as part of the EEA Agreement, Iceland made a declaration in the EEA Joint Committee to this effect, “underlining that the incorporation of these Regulations and the related Regulations and Directives does not affect the wide margin of discretion that the EEA States enjoy when making fundamental choices of economic policy in the specific event of a systemic crisis, such as the financial crisis of 2008”.17

Article 44 [Implementation of protective measures] The Community, on the one hand, and the EFTA States, on the other, shall apply their internal procedures, as provided for in Protocol 18, to implement the provisions of Article 43.

16 See the introductory chapter by Fredriksen on ‘EU law in and beyond the text of the Main Part of the EEA Agreement’ in Part II of this book. 17 Published on the website of the Althingi, the Icelandic Parliament, at http://www.althingi.is/ altext/145/s/1674.html.

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Art. 43 EEA leaves it to the “Contracting Party” concerned to take measures. On the EFTA side, this will be the individual EFTA States. On the EU side, this follows from the internal distribution of powers between the Member States and Union institutions. Protocol 18 EEA provides that “[f]or the Community, the procedures to be followed for the implementation of Art. 43 of the Agreement are set out in the Treaty establishing the European Economic Community”. Initially, this should probably be read as a reference to the procedures set out in Arts. 70, 73, 107 and 108-109 EEC.1 With the Economic and Monetary Union now established and these provisions no longer applying in the EU, it would seem that it is the procedures set out in Arts. 66 and 143 TFEU that apply. For the EFTA States, Protocol 18 states that “the procedures are set out in the agreement on a Standing Committee of the EFTA States” which will include an obligation to give prior notice to the Committee unless reasons of secrecy or urgency compel otherwise. The Standing Committee shall be competent to deliver an opinion regarding the introduction of the measures and to make, by majority vote, recommendations regarding the possible amendment, suspension or abolition of the measures introduced or regarding any other measures to assist the EFTA State concerned to overcome its difficulties. Protocol 2 to the Agreement on a Standing Committee for the EFTA States simply restates the relevant parts of Protocol 18 EEA, without adding anything.

Article 45 [Role of the Joint Committee in case of protective measures] 1. Decisions, opinions and recommendations related to the measures laid down in Article 43 shall be notified to the EEA Joint Committee. 2. All measures shall be the subject of prior consultations and exchange of information within the EEA Joint Committee. 3. In the situation referred to in Article 43(2), the Contracting Party concerned may, however, on the grounds of secrecy and urgency take the measures, where this proves necessary, without prior consultations and exchange of information. 4. In the situation referred to in Article 43(4), where a sudden crisis in the balance of payments occurs and the procedures set out in paragraph 2 cannot be followed, the Contracting Party concerned may, as a precaution, take the necessary protective measures. Such measures must cause the least possible disturbance in the functioning of this Agreement and must not be wider in scope than is strictly necessary to remedy the sudden difficulties which have arisen. 5. When measures are taken in accordance with paragraphs 3 and 4, notice thereof shall be given at the latest by the date of their entry into force, and the exchange of information and consultations as well as the notifications referred to in paragraph 1 shall take place as soon as possible thereafter.

1 See Norberg et al., EEA Law, p. 473.

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Whereas Protocol 18 EEA, referred to in Art. 44, concerns the internal procedures on the EU and EFTA sides, Art. 45 EEA lays down notification and consultations procedures on the EEA level. These are similar to those found on the EFTA side in Protocol 18 – however, without any powers for the EEA Joint Committee to deliver opinions or make recommendations. Opinions and recommendations by the EFTA Standing Committee – and decisions on the EU side – shall be notified to the EEA Joint Committee pursuant to Art. 45(1). It follows from Art. 45(2) on prior consultation and exchange of information of all measures that also the measures themselves have to be notified in advance, not only to the EFTA Standing Committee under protocol 18, but also to the EEA Joint Committee. However, there are exceptions to this on grounds of secrecy or urgency. These grounds are spelt out in a more detail in Art. 45 than in Protocol 18. Art. 45(3) concerns measures under Art. 43(2) and is based on Art. 70 (3) EEC: When movements of capital lead to disturbances in the functioning of the capital market, giving prior notice of the measures to counter those disturbances would often defeat the purpose of the measures by giving the market actors time to react. Consequently, such measures may be made without prior consultations when secrecy and urgency so requires. Likewise, Art. 45(4) concerns measures to deal with balance of payments problems, and is based on Art. 109 EEC, which gave the Member State concerned the right to take provisional safeguard measures in cases of urgency without waiting for the Commission to examine the situation first. The equivalent provision of the TFEU is Art. 144, applicable to Member States not participating in the euro. Both under Art. 45(4) EEA and Art. 109 EEC, the provisional measures must be such as to cause the least possible disturbance in the functioning of the EEA Agreement/Common Market and not exceed the minimum strictly necessary to remedy the sudden difficulties which have arisen. When an EFTA State avails itself of the opportunity under Art. 45(3) and (4) to introduce measures without prior consultations, it is obliged under Art. 45(5) to notify them to the EEA Joint Committee no later than the date they enter into force. This is what Iceland did in November 2008.1

Chapter 5: Economic and monetary policy cooperation

Article 46 [Exchange of views and information] The Contracting Parties shall exchange views and information concerning the implementation of this Agreement and the impact of the integration on economic activities 1 See Guðmundsdóttir, ‘Case E-3/11 Sigmarsson v. the Central Bank of Iceland’ 49 Common Market Law Review (2012), pp. 2022-2023, in particular footnote 20.

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PART II: The Agreement on the European Economic Area and on the conduct of economic and monetary policies. Furthermore, they may discuss macro-economic situations, policies and prospects. This exchange of views and information shall take place on a non-binding basis.

Art. 46* is the sole provision of Chapter 5 on Economic and Monetary Policy Cooperation, contained in Part III on the Free Movement of Persons, Services and Capital. The aim of the provision is to encourage the Contracting Parties to meet and discuss the economic consequences of the EEA Agreement. The integration of the financial and capital markets of the EU and the EFTA States will inevitably influence the conduct of their economic and monetary policies.1 Considering the economic orientation of the EEA, it seems most adequate that political cooperation in economic and monetary policy is provided for in the EEA Agreement. Art. 46 leaves to the Contracting Parties a wide scope for cooperation in this field. 2 The exchange of views and information take place in an annual meeting informally named “EFTA ECOFIN”. That term indicates that the meeting is at a high political level involving ministries of finance and economy. The Ministers of Finance and Economy of the EFTA States attend together with the ECOFIN Council chairman (Minister of Finance of the Member State having the Presidency of the Council). The meeting is usually held in connection with an ECOFIN meeting and normally, the Council Chairman is joined by most of the other EU Ministers of Finance and Economy, along with relevant Commissioners, such as the Commissioners responsible for Economic and Financial Affairs and Internal Market and Services, and occasionally the President of the European Central Bank. At intervals, the EFTA States’ Ministers of Finance and Economy also meet with the chairmanship of the ECOFIN on a bilateral basis to discuss respective points of interest. 3 Art. 46 states that the exchange shall focus on “the implementation of the Agreement, the impact of the integration on economic activities and on the conduct of economic and monetary policies”. The parties may also discuss macroeconomic situations, policies and prospects. These issues are interwoven. 4 “Economic and monetary policies” as such are not part of the EEA Agreement. This is an important difference between the EEA and the EU, where EU law restricts Member States’ competence in economic and monetary policies, particularly the Member States of the Eurozone. In economic policy, EU law of the Economic and Monetary Union in particular requires balanced public budgets and Member States to avoid excessive deficits and to limit the public debt. EU law in general may also restrict Member States’ competence in economic policy fields. The prohibition of discrimination on grounds of nationality may for example influence revenue from national tax rules. EU competition rules reflect a common policy and may influence expenditure, for example by restrict1

* The author wishes to thank Marthe Kristine Fjeld Dystland for her contributions to the text. 1 Norberg et al., EEA Law, 1993, p. 478.

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ing State aid that a Member State wishes to give to an undertaking. In the internal market, EU law harmonises legislation which may also have an impact on aspects of economic policies, for example banking regulation. In monetary policy, the European Central Bank fixes its lending rates of euro to banks and may decide upon an exchange rate system for the euro. Although this part of the EU cooperation is not part of the EEA Agreement,2 5 it is nevertheless of importance to the EEA. Most EU measures related to the internal market will form part of the EEA. In particular, the fact that financial services and the free movement of capital is part of the internal market affects economic and monetary policies also of the EFTA States in the EEA. Art. 46 provides a possibility for cooperation in areas beyond the internal market. During the negotiations, there was an expressed mutual interest among the Contracting Parties to strengthen the contacts in economic and monetary policies. Extended deliberations became a part of the cooperation within the EEA.3 As for exchanges on the implementation of the Agreement, Art. 89 states 6 that it is for the EEA Council to give “the political impetus in the implementation of this Agreement”.4 Accordingly, the EEA Council has the overall political responsibility for implementation of the Agreement.5 There are no council formations in the EEA corresponding to the ones in the EU pillar: since there is no legislation in the EEA separate from EU legislation, there is no need for council compositions according to the subject matter, as in the EU. Nevertheless, the annual meetings of the EFTA ECOFIN work as such in the context of Art. 46. The continued work on incorporation and implementation usually takes place 7 at a non-political level of the EEA cooperation. However, difficult implementing issues in the EEA has been dealt with at the political level in the context of Art. 46. As an example, at the EFTA ECOFIN meeting in 2014, the parties agreed on the principles for the incorporation into the EEA Agreement of the EU regulations on establishing European supervisory authorities for financial services.6 The strengthening of financial supervision in the EU due to the financial crisis resulted in increased integration in this area by expansion of the authority of EU supervisory agencies. These changes were controversial between EU Member States. It was also controversial in the EEA, especially because of the question of organisation of the supervisory tasks as regards operators in the 2 See however the comments by Bull on Arts. 43 and 45 EEA, which were inspired by corresponding safeguard clauses in the EU. 3 St.prp. nr. 100 (1991-92) Om samtykke til ratifikasjon av Avtale om Det europeiske økonomiske samarbeidsområdet (EØS) chapter 5.3, p. 204. 4 For information on the EEA Council and its responsibilities, see the comments by Tynes on Art. 89 EEA. 5 This political role in implementation must be separated from the proper supervision of implementation of the EEA Agreement. That task is the responsibility of ESA and, in some cases, of the EEA Joint Committee. For more information on this, see the comments by Bjørgan to Part III SCA and comments by Tynes on Art. 92 EEA. 6 See Council Conclusions of the EU and EEA EFTA Ministers of Finance and Economy (14178/1/14 REV 1) 14 October 2014.

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EFTA States. This issue became subject to complex discussion of principle, where it was necessary to take into account both the structure and objectives of the regulations on establishing European supervisory authorities and of the EEA Agreement. However, the agreement reached at the EFTA ECOFIN meeting paved the way for incorporation of the numerous relevant acts into the Agreement. The EEA Joint Committee adopted the first portion of the necessary decisions in September 2016.7 8 As concerns the impact of integration between the Contracting Parties on economic activities and the conduct of economic and monetary policies, issues of trade patterns and capital movements may be addressed. In meetings in the EFTA ECOFIN, the subjects of discussion have included economic growth and structural reforms, financial services and economic dynamics in Europe, financial market integration and economic growth, financial sector stability, intelligent fiscal supervision and financial market regulation, and supervision. Also discussions regarding macro-economic developments and the orientation of the economic policies may take place. Studies on macro-economic and micro-economic levels can help the Contracting Parties identify areas where additional policy measures may be useful or necessary.8 9 Cooperation under Art. 46 takes place on a non-binding basis. Other parts of the Agreement do however create obligations for the Contracting Parties. It may be important to exchange views on the effects of these obligations on the development of the economy and of economic and monetary policies, and to identify and assess possible difficulties.9 In addition, it may assist the Contracting Parties in assessing how to reach the EEA Agreement’s full potential.10

Chapter 6: Transport

Article 47 [Scope of application] 1. Articles 48 to 52 shall apply to transport by rail, road and inland waterway. 2. Annex XIII contains specific provisions on all modes of transport.

I. Introduction – Transport in the EEA 1

The importance of transport cannot be underestimated. Mobility across borders is the very premise of European economic integration. In relation to the internal market, transport is an indispensable element to the establishment of the internal market. It is undeniably so that free movement of workers and goods 7 8 9 10

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See Decisions of the EEA Joint Committee No. 198/2016 to 206/2016 of 30 September 2016. Norberg et al., EEA law, p. 478. St.prp. nr. 100 (1991-92), p. 205. Norberg et al., EEA law, p. 478.

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would be rendered impossible without well-functioning modes of transport. In addition to the crucial role of mobility in the realisation of the internal market, transport is, in and of itself, a substantial industry. The European transport sector consists of a broad range of sub-sectors such as rail, aviation, road and waterborne transport and employs millions of people. Further, the sector receives massive capital investment from both public and private sources in order to develop efficient transport infrastructure and equipment.1 As noted, it is beyond doubt that mobility plays a crucial role within the inter- 2 nal market, and constitutes an indispensable means to achieve freedom of movement and furthering European integration. However, the transport sector has distinctive features, which sets it apart from other less complex industrial sectors and makes it unsuited for automatic application of the entire thrust of the general rules of EEA and EU law. As stressed by Greaves in the context of the EU, the fundamental problem with transport is that historically national transport systems have been developed to secure national needs rather than the realisation of European integration.2 On a national level, the financing, development and extension of transport networks have traditionally been closely tied to state economic policy. For instance, in certain states promotion of the railway sector has been utilised for the purpose of encouraging industrialisation in underdeveloped regions. The operation of unprofitable railway lines has even in some cases been used to promote employment in areas with high unemployment.3 Thus, the EU and EFTA States alike have provided and continue to provide heavy funding in order to secure the development of necessary infrastructure and communication lines in distant regions. These particularities of the transport sector are part of the explanation as to why national authorities in many countries have been reluctant to open the railway sector to competition from foreign operators. Chapter 6 of the EEA Agreement extends the application of the key principles 3 and rules on transport found in Title VI of the TFEU to the EFTA States. Furthermore, it is worth mentioning that ensuring mobility through important geographical areas of Europe has been secured through bilateral agreements between the EU and non-member countries. In this regard, the agreement concluded with Switzerland which secures transport by rail and road across the Alps is of utmost importance.4 A significant distinction between Chapter 6 in the EEA Agreement and Title 4 VI of the TFEU, is that the latter stresses the establishment of a “common transport policy”. Art. 90 TFEU states that “[t]he objectives of the Treaties shall, in matters governed by this Title, be pursued within the framework of a 1 On the importance of transport in the EU, see European Commission, White Paper, ‘Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport system’ COM (2011) 144 final. Similarly, relating to the importance of transport in the EEA, see (Norway) Report by the EEA Review Committee, NOU 2012: 2 ‘Utenfor og innenfor – Norges avtaler med EU’, pp. 590-604. 2 See Rosa Greaves, EC Transport Law (European law series, Longman 2000), 1-3. 3 See Norberg et al. 1993, p. 481.

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common transport policy.”5 Art. 91 TFEU assigns the task of implementing the common transport policy to the European Parliament and the Council. The common transport policy shall be implemented through the adoption secondary legislation in accordance with the ordinary legislative procedure. 5 As there is no mention of the common transport policy in the EEA Agreement, this naturally leads to two considerations that will be addressed at the outset. (1) To begin with, it is asked what the content of the EU common transport policy is. (2) Secondly, the relationship between the EU common transport policy and EEA law is analysed, and a reflection on the future challenges confronting the European transport sector in the wake of “Brexit” is presented. 1. The EU Common transport policy

There is little guidance in Title VI of the TFEU with regard to the substance of the common transport policy. However, certain imperative aims of the policy can be deduced from the wording of Art. 90 TFEU. This provision, which has no equivalent in Chapter 6 of the EEA Agreement, states that “[t]he objectives of the Treaties shall, in matters governed by this Title, be pursued within the framework of a common transport policy.” An early case from the ECJ, Case 167/73 Commission v French Republic, gives guidance on the understanding of the provision and its importance in relation to the content of the common transport policy.6 The case concerned nationality requirements for the crew who operated French ships. According to French rules, crewmembers employed on the bridge, in the engine room, the wireless room as well a certain proportion of the general crew on board, had to be of French nationality. The nationality requirement was declared to be discriminatory and thus unlawful under Art. 45(2) TFEU (ex Art. 48(2) of the EEC Treaty). What is interesting in regard to the common transport policy, are the general statements by the Court concerning the relationship between Title VI of the TFEU (ex Title IV of the EEC Treaty) and general principles of EU law. 7 Starting out, the ECJ declared that the fundamental aims of EU law apply to the provisions on transport. At para. 18 the ECJ stated as follows: 6

Under Article 2 of the Treaty [replaced, in substance, by Article 3 TEU], which is placed at the head of the general principles which govern it, the Community has as its task to promote throughout the Community a harmonious development of economic activities by establishing a common market and progressively approximating the economic policies of Member States.

4 See “The EC/Switzerland land transport agreement”, Agreement between the European Community and the Swiss Confederation on the Carriage of Goods and Passengers by Rail and Road – Final Act – Joint Declarations – Information relating to the entry into force of the seven Agreements with the Swiss Confederation in the sectors free movement of persons, air and land transport, public procurement, scientific and technological cooperation, mutual recognition in relation to conformity assessment, and trade in agricultural products, OJ L 114, 30.4.2002, p. 91-131. 5 The obligation to introduce a common transport policy was first established in the EEC Treaty, Art. 3(d). 6 Case 167/73, 4.4.1974, Commission v French Republic.

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Further, the ECJ stressed that “[t]he establishment of the common market thus refers to the whole of the economic activities in the Community”.7 Consequently, according to the ECJ, an essential objective of the rules relating to the common transport policy was the attainment of the fundamental aim of economic development within the EU.8 Although it can be derived that the furthering of economic development is an essential goal within the framework of Title VI, in the wake of Case 167/73 Commission v French Republic any further elaboration of the common transport policy was slow to emerge. Throughout the 1980 s, when there was a general push for liberalisation and the opening up of markets to competition, the Commission and the European Parliament grew impatient with the Council, which was reluctant to take steps to develop the common transport policy.9 Nevertheless, further development was sped up when the European Parliament, with support from the Commission, started proceedings before the ECJ against the Council for its failure to act in the field of transport. In Case 13/83 Parliament v Council, the first claim submitted by the European Parliament was that the Council had failed to introduce a common policy, especially with a view to bringing about liberalisation of the individual transport sectors.10 The ECJ ruled that although the Council had not introduced anything resembling a common transport policy as such, it had not committed a failure to act. The ECJ declared that in terms of forming the policy, the Council has a margin of discretion, for instance in deciding which of the transport sectors to prioritise and also in the choice of measures to employ. It was, however, underlined that the discretion given to the Council was limited by the requirements which stem from the establishment of the common market in the EEC Treaty.11 Although there was no failure on the Council to introduce a common transport policy, the ECJ did agree that the Council had failed to adopt common rules intended to enable freedom to provide services in the transport sector. The ECJ found that Art. 75 (1)(a) and (b) EEC Treaty [now Art. 91 (1)(a) and (b) TFEU], which impose an obligation on the Council to introduce freedom to provide services in the sphere of international transport and to lay down the conditions under which non-resident carriers may operate transport services in a Member State, was sufficiently precise to conclude that the Council had failed to act in this regard.12 Following Parliament v Council, a considerable number of legislative frameworks covering a broad variety of transport modes has been adopted. Market opening and competitiveness remain key components of the current common transport policy, and are generally believed to lead to more efficiency and lower 7 8 9 10 11 12

Para. 19. Ibid. at paras. 24-26. See Greaves 2000 3-14. Case 13/83, 22.5.1985, Parliament v Council. Ibid., at paragraphs 49-53. Ibid., at paragraphs 54-71.

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costs. Although the aim of market opening still is valid, in recent years the importance of a sustainable transport policy has been put on the agenda. Thus, the common transport policy now includes range of objectives such as protection of the environment, the prevention of accidents, technological innovation and the development of modern infrastructure.13 Among the key objectives of the common transport policy as is stands today, is the aim to make greater use of more energy-efficient modes. In order to achieve this aim, the Commission foresees that a shift from road transport to other more environmentally friendly modes such as rail and waterborne transport is required in the near future.14 2. The relationship between the EU common transport policy and EEA law

The mere fact that there is no mention of the EU common transport policy in Chapter 6 of the EEA agreement, does by no means imply that EEA law is unaffected by the legislative measures adopted as part of the transport policy. Indeed, quite the reverse can be said to be true, as the main bulk of EU secondary legislation adopted under Title VI of the TFEU, with few exceptions, is integrated into the EEA Agreement in Annex XIII. In fact, as the EFTA States participate fully in the internal market for transport services, the free movement of goods etc., most EU transport legislation is deemed EEA-relevant and subsequently incorporated into national law.15 14 The extensive amount of secondary legislation adopted under Title VI, has in recent years resulted in a noteworthy number of actions being brought by the ESA against all of the three EFTA States before the EFTA Court for failure to properly implement various EU transport acts into national law. Since 2009, in no less than 10 separate cases the EFTA Court has found improper implementation of EU transport acts included in Annex XIII.16 This large number of cases mirrors not only the sheer volume of acts adopted in the EU transport sector, but also that ensuring compliance in this sector under national law is a highly complex and resource-demanding task for national authorities. 15 Following “Brexit”, the United Kingdom will inevitably be facing tough choices when deciding how to deal with EU transport policy. As mentioned, a special feature of the sector is the sheer amount of legislative acts adopted under Title VI of the TFEU. As pointed out by Norwegian authorities in their assessment of the EEA Agreement in 2012, transport is among the most comprehensive sectors in terms of the number of secondary acts it includes. When negotiating the EEA Agreement in the early 1990 s, the EEA states chose to adopt the entire EU transport acquis en bloc, with very few exceptions. After the entry in13

13 See European Commission, Communication from the Commission, ‘A Sustainable future for transport: Toward an integrated, technology led and user friendly system’ COM(2009) 279 final, p. 2-17. 14 See European Commission, White Paper Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport system COM(2011) 144 final, p. 8-10. 15 See the Norwegian Ministry of Foreign Affairs, https://www.regjeringen.no/en/topics/europeanpolicy/areascooperation/transport/id686011/ (last visited 23.8.2017).

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to force of the agreement, the EFTA States have, with few exceptions, continued to implement the ever-growing number of EU transport acts into national law.17 The outcome of the negotiations between the UK and the EU will determine how the UK will relate to the extensive EU transport acquis in the years to come. One solution is to opt for continuous implementation of future EU transport acts into the UK legal system. However, this option does not sit well with the idea of preserving national autonomy. Only time will show how the UK manages to secure full or partial access to the EU transport market. II. The Scope of Chapter 6 1. Transport by rail, road and inland waterway

Art. 47(1) defines the material scope of Chapter 6 and declares that Arts. 48 16 to 52 apply to transport by rail, road and inland waterway. This delimitation implies that other important transport sectors such as maritime transport and civil aviation (air and sea transport), are not governed by Chapter 6. Whereas the air and sea transport sectors are excluded from the scope of application of the provisions of Chapter 6, these sectors are nonetheless covered by the general rules of the EEA Agreement. Furthermore, Art. 47(2) declares that Annex XIII contains specific provisions on all modes of transport. Consequently, alongside EU secondary regulation on rail, road and inland waterway, Annex XIII includes a comprehensive amount of EU acts concerning sea and air transport which have been incorporated into the EEA Agreement.18 2. Relationship to other areas of EEA law

An essential issue concerning the scope of Chapter 6 is its relationship to the 17 general rules of the EEA Agreement. Although the transport sector is governed by the specific provisions of Chapter 6 and the many legislative acts in Annex 16 Case E-35/15, 2.6.2016, ESA v Norway, on the failure to implement Directive 2000/59/EC on port reception facilities for ship-generated waste and cargo residues; Case E-32/15, 29.7.2016, ESA v Liechtenstein, on the failure to implement the EU directives on driving licenses; Case E-18/15, 16.12.2015, ESA v Iceland, on the failure to implement Directive 2010/65/EU on reporting formalities for ships; Case E-2/14, 10.11.2014, ESA v Iceland, on the failure to implement Directive 2005/35/EC on ship-source pollution and on the introduction of penalties for infringements; Case E-20/14, 31.3.2014, ESA v Iceland, on the Failure to implement Regulation (EC) No 392/2009 on the liability of carriers of passengers by sea in the event of accidents; Case E-3/14, 24.9.2014, ESA v Norway, on the failure to implement Directive 2009/12/EC on airport charges; Case E-1/14, 24.9.2014, ESA v Iceland, on the failure to implement Directive 2006/38/EC on the charging of heavy goods vehicles for the use of certain infrastructures, see further below; Case E-9/13, 15.11.2013, ESA v Norway, on the failure to implement EU directives on roadworthiness tests for motor vehicles and their trailers; Case E-05/11, 20.9.2011, ESA v Norway, on the failure to implement EU regulations on the establishment and funding of the European Maritime Safety Agency and Case E-2/09, 20.5.2009, ESA v Iceland, on the failure to implement Commission Regulation (EC) No 593/2007 on the fees and charges levied by the European Aviation Safety Agency. 17 See subsection III. Overview of Annex XIII below. 18 See subsection III. Overview of Annex XIII below.

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XIII, this does not imply that the sector is completely shielded from the impact of the general rules concerning freedom of movement, competition law and state aid. This section deals first with the relationship between Chapter 6 and the general rules of the EEA Agreement. Secondly, the relationship between Chapter 6 and the freedom to provide services is looked into, and finally the interplay between Chapter 6 and the freedom of establishment is assessed. The relationship between Chapter 6 and the rules on state aid is analysed below under Art. 49. 18 As a result of the homogeneity principle, the interaction between Chapter 6 and the general rules of the EEA Agreement must follow the same line of reasoning as the corresponding relationship in EU law between Title VI of the TFEU and the general rules of EU law. In Case 167/73 Commission v France, in which the ECJ dealt with nationality requirements for employment on French ships, the Court stated that the general rules of EU law must be applied to the transport sector insofar as they are not expressly excluded.19 Further, the Court gave an account of the relevant situations which may exclude transport activities from the general rules. Firstly, it was noted that transport, which is basically a service, had been provided a special exemption from the freedom to provide services in Art. 58(1) TFEU (ex Art. 61(1) EEC Treaty). Art. 58(1) states that “[f]reedom to provide services in the field of transport shall be governed by the provisions of the Title relating to transport.”20 Secondly, the Court declared that sea and air transport, which was excluded from the scope of what is now Title VI TFEU, remained subject to the general rules of the treaty.21 The Court recognised however, that the European Parliament and the Council may make appropriate provisions for sea and air transport, for instance by way of exclusion from the general rules of EU law.22 19 As regards the relationship between the general rules on the freedom to provide services, recent case law from the ECJ narrows down the scope of the actual transport services which fall within the scope of Title VI TFEU (and thus Chapter 6 EEA). The question which has arisen lately is what constitutes a “service in the field of transport” for the purpose of Title VI, which is excluded from the freedom to provide services under Art. 58(1) TFEU. To Member States, the importance of distinguishing between the activities dealt with under the general rules on services and the activities falling within Title VI is crucial. Unless a specific service in the field of transport is covered by EU secondary legislation, the activity in question is exempted from the general obligation to ensure freedom to provide services. This in turn, means that national authorities retain regulatory autonomy and are not bound by the onerous demands of the 19 Case 167/73, 4.4.1974, Commission v French Republic, at para. 21. 20 Art. 38 EEA contains a corresponding exception. 21 Naturally, EEA law follows the same pattern. In Case E-1/03, 12.12.2003, ESA v Iceland, which concerned the higher taxation on intra-EEA flights than on domestic Icelandic flights, the EFTA Court declared that by maintaining its contested tax-differentiation scheme, Iceland had failed to respect its obligations under Art. 36 EEA. 22 Ibid., at para. 32.

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general rules on services, such as the prohibition on discrimination and the principle of proportionality found therein.23 In Grupo Itevelesa and Others, which concerned Spanish authorisation re- 20 quirements for operators of vehicle roadworthiness testing services in Catalonia, the ECJ dealt with the scope of the exception for “services in the field of transport”.24 In its request for a preliminary ruling, the Spanish Tribunal Supremo asked whether roadworthiness testing services were excluded from the Services Directive. The Services Directive contains a similarly worded exception as that found in Art. 58(1) TFEU for “services in the field of transport”.25 With reference to the Opinion of AG Wahl, the Court adopted a wide definition of “services in the field of transport”, covering not only the “physical act of moving persons or goods from one place to another by means of a vehicle, aircraft or waterborne vessel, but also any service inherently linked to such an act.”26 This means that not only transport services in a narrow sense of the term, involving the actual movement of people and goods from one location to another are covered by the exception.27 Also ancillary services, such as roadworthiness tests for vehicles, which are indispensable to the main transport activity, can be exempted from the general obligation to ensure freedom to provide services.

23 The general prohibition on discrimination on grounds of nationality still applies, cf. Art. 18 TFEU/Art. 4 EEA. See, in particular, the Grand Chamber judgment in Case C-628/11, 18.3.2014, International Jet Management. The case concerned the applicability of the general ban on discrimination on grounds of nationality in Art. 18 TFEU to air transport services provided between a third country and a Member State by an air carrier holding an operating license issued by another Member State. The ECJ declared that the fact that a number of general rules of EU secondary law relating to the aviation sector also apply to the air transport services in question sufficed to bring the matter within the scope of application of Art. 18 TFEU. Most of the secondary legislation relied upon by the ECJ, i.e. Regulations Nos 1008/2008 of the European Parliament and of the Council of 24 September 2008 on common rules for the operation of air services in the Community, 261/2004 of the European Parliament and of the Council of 11 February 2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights, and repealing Regulation (EEC) No 295/91, Commission Regulation (EU) No 285/2010 of 6 April 2010 amending Regulation (EC) No 785/2004 of the European Parliament and of the Council on insurance requirements for air carriers and aircraft operators, but not Regulation (EC) NO 847/2004 of the European Parliament and of the Council of 29 April 2004 on the negotiation and implementation of air service agreements between Member States and third countries, are incorporated into the EEA Agreement. 24 Case C-168/14, 15.10.2015, Grupo Itevelesa and Others. 25 See Article 2(2)(d) of Directive 2006/123/EC (the Services Directive). According to the ECJ, the exception was intentionally drafted and designed to correspond to the wording of Art. 51(1) EC [now Art. 58(1) TFEU], see Case C-168/14, 15.10.2015, Grupo Itevelesa and Others, at para. 44. 26 See Case C-168/14, 15.10.2015, Grupo Itevelesa and Others, at para. 46. 27 It should be duly noted, however, that in Amstelboats, the ECJ declared that carrying passengers on a boat in Amsterdam for a waterway tour for event-related purposes, which had its main focus on “pleasant celebration rather than point-to-point transport”, did not constitute a service in the field of transport excluded from the scope of the Services Directive, see Joined Cases C-340/14 and C-341/14, 1.10.2015, R.L. Trijber v College van Burgemeester en Wethouders van Amsterdam and J. Harmsen v Burgemeester van Amsterdam, at paras. 56-59.

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Rightfully so, it can be argued that the wide reach of the exception in Art. 58(1) TFEU (Art. 38 EEA) for “services in the field of transport”, constitutes a drawback with regard to the opening up and liberalisation of the transport sector. However, the negative effects of the exception to the freedom to provide services are mitigated due to the fact that freedom of establishment enshrined in Art. 49 TFEU (Art. 31 EEA) applies unreservedly to the transport sector. Not all transport services can be provided across borders and some form of permanent establishment such as garages, parking or storage facilities will often be a pre-requisite for offering transport services in another Member State.28 The exception, of course, is where transport services are performed in areas close to the border of the host state and all permanent facilities are placed in the home state. 22 Thus, although “services in the field of transport” in principle are left for EU and EEA States to regulate, the combined force of the other fundamental freedoms have a significant liberalising effect on national transport policy. In this regard, national transport policy serves as an example that, in practice, there are few areas of national economic policy which are unaffected by EU internal market law. 21

III. Overview of Annex XIII 23

As stated in Art. 47(2) EEA, Annex XIII contains specific provisions on all modes of transport. The Annex is divided into six subsections, incorporating a broad range of EU acts within the different transport sectors. This section provides a brief overview of some of the acts incorporated into the Annex. Due to the significant amount of acts included in the Annex, only a synopsis of the most significant acts, which have sometimes caused political or legal challenges, will be presented here. It should also at the outset, that Annex XIII does not contain an exhaustive list of all the EU acts which are of importance to the transport sector within the EEA Area. For instance, the Schengen Agreement has been integrated into the legal framework of the EU, but is not part of the EEA Agreement and is therefore not mentioned in Annex XIII. The Schengen Agreement has played a significant role in creating freedom of movement by removing most internal border controls within the Schengen Area.29

28 For an interesting example concerning the relationship between Art. 58(1) TFEU (Art. 38 EEA) and Art. 49 TFEU (Art. 31 EEA), see Case C-168/14, 15.10.2015, Grupo Itevelesa and Others. In this case the ECJ declared that the requirement to obtain prior authorisation for operators who wished to offer roadworthiness testing services in Catalonia, was liable to hinder or render less attractive permanent establishment in Catalonia. Consequently, the requirement to obtain prior authorisation constituted a restriction on the freedom of establishment for the purposes of Article 49 TFEU.

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1. Inland Transport

The acts included in the first subsection of Annex XIII apply to all modes of 24 inland transport, i.e. transport by road, rail and inland waterway.30 Among the general provisions included is an accounting system for calculating expenditure on infrastructure in respect of transport by rail, road and inland waterway.31 Another essential set of rules applicable to transport by road and inland water- 25 way concerns the issue of frontier facilitation. Regulation 1100/2008 implements a general elimination of controls performed at frontiers and sets the further conditions for the checks or inspections of vehicles or vessels.32 The Regulation does not apply to customs inspections, but aims to eliminate other types of frontier controls, such as weighing of vehicles or verification of roadworthiness proof, which all hamper fluidity across borders.33 The Regulation does not prohibit inspections of foreign vehicles or vessels, but demands that such inspections must be applied in a non-discriminatory manner throughout the territory of the state.34 2. Road transport

The second subsection of Annex XIII includes a broad range of acts on, inter 26 alia, road transport of goods (haulage), passengers, taxation of heavy goods vehicles for the use of infrastructure, working hours for transport workers and road safety requirements. As regards transport of goods by road, the acts included in Annex XIII con- 27 tain important provisions which seek to facilitate road haulage within the EEA area. In the EU, road haulage is the main inland transport mode, and accounts for more than 70% of all inland transport activity.35 The EU provisions on road 29 What is commonly known as the “Schengen Agreement” is based on “The Agreement, signed in Schengen on 14 June 1985, between the Governments of the States of the Benelux Economic Union, the Federal Republic of Germany and the French Republic on the gradual abolition of checks at their common borders.” The Agreement is now incorporated into the framework of the EU by “Protocol (No 19) Integrating the Schengen Acquis into the Framework of the European Union” of the Lisbon Treaty. All four EFTA States have signed association agreements with the signatories of the Schengen Agreement, and are part of the Schengen Area. With the exception of Ireland, the UK, Romania, Bulgaria, Croatia, and Cyprus, all EU Member States are members of the Schengen Area. 30 See Norberg et al. 1993, p. 487. 31 Council Regulation (EEC) No 1108/70 of 4 June1970 introducing an accounting system for expenditure on infrastructure in respect of transport by rail, road and inland waterway. 32 Regulation (EC) No 1100/2008 of the European Parliament and of the Council of 22 October 2008 on the elimination of controls performed at the frontiers of Member States in the field of road and inland waterway transport. The Regulation replaces Council Regulation (EEC) No 4060/89 of 21 December 1989 on the elimination of controls performed at the frontiers of Member States in the field of road and inland waterway transport. 33 The types of checks and inspections which are prohibited as part of frontier controls are listed in Annex I to the Regulation. 34 Cf. Art. 3 of the Regulation. 35 See Report from the Commission to the European Parliament and the Council on the State of the Union Road Transport Market Brussels, 14.4.2014 COM(2014) 222 final, p. 3.

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haulage pursue a range of objectives. Among the key provisions is Regulation 1072/2009, on access to the market for border haulage services.36 So far, the market for cross-border carriage of goods within the EEA has been opened up, but the Regulation does not grant non-resident hauliers access to the national markets for transport services in other EU or EFTA States. Non-resident hauliers may only offer carriage of goods in a host state within the limits set by Art. 8 of the Regulation. Art. 8 provides that once imported goods have been delivered, non-resident hauliers are only entitled to carry out three “cabotage” operations within a week after unloading. In this way, cabotage improves the efficiency of road transport by reducing the number of empty trips when non-resident carriers unload their goods in host states. A similar regime is established in Regulation 1073/2009 for the coach and bus services (passengers) markets.37 As with goods, Regulation 1073/2009 permits cross-border passenger transport services, and limits the number of cabotage operations which can be carried out by non-resident operators. 28 In two particular areas, the implementation of the provisions on road transport has caused difficulties. The first contentious issue concerns the rules on taxation of heavy goods vehicles for the use of infrastructure. Directive 1999/62 sets out the main requirements that have to be observed in national road charging schemes.38 In 2006, the scope of the Directive was amended to include vehicles with a laden weight of 3.5 tonnes and above.39 Whereas the Directive does not oblige states to levy tolls or user charges on heavy goods vehicles, it lays down important conditions that have to be complied with in national road charging schemes. The Directive is based on the “user pays” and “polluter pays” principles, and harmonises the conditions for applying taxes, tolls and other road charges.40 As of 2006, national road charges can be differentiated according to the emission category of each vehicle, i.e. its “EURO” classification, and the level of damage it causes to roads and the amount of congestion it 36 Regulation (EC) No 1072/2009 of the European Parliament and of the Council of 21 October 2009 on common rules for access to the international road haulage market. This Regulation replaces Council Regulation (EEC) No 881/92 of 26 March 1992 on access to the market in the carriage of goods by road within the Community to or from the territory of a Member State or passing across the territory of one or more Member States, Council Regulation (EEC) No 3118/93 of 25 October 1993 laying down the conditions under which non-resident carriers may operate national road haulage services within a Member State (4) and Directive 2006/94/EC of the European Parliament and of the Council of 12 December 2006 on the establishment of common rules for certain types of carriage of goods by road. 37 Regulation (EC) No 1073/2009 of the European Parliament and of the Council of 21 October 2009 on common rules for access to the international market for coach and bus services, and amending Regulation (EC) No 561/2006. 38 Directive 1999/62/EC of the European Parliament and of the Council of 17 June 1999 on the charging of heavy goods vehicles for the use of certain infrastructures. The Directive is often referred to as the “Eurovignette” directive. 39 Directive 2006/38/EC of the European Parliament and of the Council of 17 May 2006. 40 See Commission staff working document: Ex-post evaluation of Directive 1999/62/EC, as amended, on the charging of heavy goods vehicles for the use of certain infrastructures SWD(2013)1, p. 2.

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causes. However, in Iceland and Norway, the implementation of the amendment to the Directive was significantly delayed. In 2013, ESA issued letters of formal notice to both countries. Subsequently, Norway took steps to implement the amendment, but Iceland did not comply with the request from ESA to implement the Directive properly into its legal order. Thus, in January 2014, ESA lodged an application before the EFTA Court. Subsequently, the EFTA Court declared that Iceland had failed to implement the Directive.41 The other area which has turned out to be highly problematic, especially in 29 the case of Norway, is the long list of safety requirements laid down in Directive 2004/54 (the “Tunnel Safety Directive”).42 This Directive lays down minimum technical and operational standards for road tunnels longer than 500 metres which form part of the trans-European road network (the TEN-T). Among the safety requirements are a minimum number of escape routes and emergency exits, ventilation systems for extracting smoke in the case of fire, lighting and emergency stations. In the case of Norway, compliance with the requirements of the Tunnel Safety Directive has turned out to be a very costly affair. Due to geographical conditions, i.e. many mountains and fjords, Norway has a large number of road tunnels encompassed by the scope of the Directive. It is especially costly and difficult for Norway to fulfil the requirement in paragraph 2.3.6 of Annex I to the Directive, which provides that “[…] in new tunnels, emergency exits shall be provided where the traffic volume is higher than 2 000 vehicles per lane.” However, regarding emergency exits, Annex XIII EEA contains an important exception which offers some leniency for Norwegian road authorites: “An exception can be made for tunnels shorter than 10 km and with traffic volume lower than 4000 vehicles per lane if a risk analysis shows that the same or better overall safety can be obtained with alternative safety measures.” Despite the exception regarding emergency exits in new tunnels, various other technical upgrades will have to be made to approximately 450 older Norwegian tunnels that do not fulfil the criteria of the Directive. Article 11 of the Directive sets the deadline for fulfilling the safety requirements to 2019. Norwegian authorities stipulate that it will not be possible to complete the refurbishment of all the tunnels comprised by the Directive within this timeframe.43 3. Transport by rail

Annex XIII implements essential elements of the EU railway acquis. The 30 main focus of EU railway policy is the establishment of a Single European Railway Area (SERA) and thus to ensure the overall competitiveness of EU and EEA transport in the long term. The realisation of the Single European Railway 41 Case E-1/14, 24.9.2014, ESA v Iceland. 42 Directive 2004/54/EC of the European Parliament and of the Council of 29 April 2004 on minimum safety requirements for tunnels in the Trans-European Road Network. 43 See the report by Riksrevisjonen (Norway) “Riksrevisjonens undersøking av arbeidet til styresmaktene med å styrkje tryggleiken i vegtunnelar”, Dokument 3:16 (2015-2016) p. 12.

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Area consists of acts intended to open up national and cross-border railway markets to competition and thereby to secure the provision of efficient and attractive railway services.44 31 The opening up to competition and liberalisation of the EU and EEA railway sector is an ongoing process which is far from completed. One of the first steps in the liberalisation of the railway sector was the adoption of the Railway Directive from 1991.45 The Railway Directive demanded separation of accounts of railway undertakings and rail infrastructure managers, and paved the way for railway undertakings to operate on non-national railway networks. Since the 1991 Railway Directive, three successive EU “railway packages” have been incorporated into Annex XIII. The first railway package from 2001, consists of three directives, which sought, inter alia, to establish harmonised licensing criteria for railway undertakings. Steps were also taken to liberalise the market international freight services by securing access to the trans-European freight network.46 The second railway package from 2004, focused on the continued liberalisation of rail freight services and completely opening the rail freight market to competition. Furthermore, this second railway package established the European Railway Agency (ERA) and introduced harmonised technical and safety provisions.47 The third railway package dates back to 2007 and takes important steps towards the liberalisation of international passenger services. The third railway package enabled licensed railway undertakings to carry out cross-border passenger transport, and secured open access to the EU and EEA railway network. Moreover, the 2007 incentive strengthens the rights of passengers.48 Currently, the EU is presenting its fourth railway package which sets out to achieve further liberalisation of the railway sector.49

44 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on “The Fourth Railway Package – Completing the Single European Railway Area to Foster European Competitiveness and Growth”, COM(2013) 25 final, p. 2. 45 Council Directive No 91/440/EEC of 29 July 1991 on the development of the Community’s Railways. 46 Directive 2001/12/EC of 26 February 2001 amending Council Directive 91/440/EEC on the development of the Community's railways, Directive 2001/13/EC of 26 February 2001 amending Council Directive 95/18/CE on the licensing of railway undertakings and Directive 2001/14/EC of 26 February 2001 on the allocation of railway infrastructure capacity and the levying of charges for the use of railway infrastructure and safety certification. 47 Among the acts from the second railway package that have been incorporated into Annex XIII EEA are: Directive 2004/49/EC of 29 April 2004 on safety on the Community's railways and amending Council Directive 95/18/CE on the licensing of railway undertakings and Directive 2001/14/CE on the allocation of railway infrastructure capacity and the levying of charges for the use of railway infrastructure and safety certification, Directive 2004/51/EC of 29 April 2004 amending Council Directive 91/440/EEC on the development of the Community's railways and Regulation (EC) No 881/2004 of the European Parliament and of the Council of 29 April 2004 establishing a European Railway Agency.

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4. Transport by inland waterway

Due to the geographical location of the EFTA States, the practical importance 32 of the provisions on inland waterways is limited.50 Nevertheless, Part IV contains provisions that apply to the EFTA States and that ensure access to the market for such services, access to the occupation and various rules concerning technical harmonisation of vessels. 5. Maritime transport

Unlike the rail and road sectors, which are heavily regulated at EU level, mar- 33 itime transport is largely regulated at international level.51 For instance, all EU Member States, and Iceland and Norway are members of the International Maritime Organization (IMO), and subject to the comprehensive range of conventions adopted by this organisation. Due to the international aspect of maritime transport, the EU legislators have to a large extent left the regulation of maritime matters such as ship safety, accident prevention and working conditions for seafarers to the IMO and other international organisations.52 The EU does, however, play an important role in the development of improved international safety and environmental standards for ships. For instance, in response to the 2002 “Prestige” oil spill in Spain, it was the EU that accelerated the phasingout of single-hull oil tankers at international level.53 In response to the initiative 48 Directive 2007/58/EC of the European Parliament and of the Council of 23 October 2007 amending Council Directive 91/440/EEC on the development of the Community’s railways and Directive 2001/14/EC on the allocation of railway infrastructure capacity and the levying of charges for the use of railway infrastructure, Directive 2007/59/EC of the European Parliament and of the Council of 23 October 2007 on the certification of train drivers operating locomotives and trains on the railway system in the Community, Regulation (EC) No 1370/2007 of 23 October 2007 on public passenger transport services by rail and by road and repealing Council Regulations (EEC) Nos 1191/69 and 1107/70 (on this Regulation, see further under Article 49 below) and Regulation (EC) No 1371/2007 of 23 October 2007 on rail passengers’ rights and obligations. 49 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on “The Fourth Railway Package – Completing the Single European Railway Area to Foster European Competitiveness and Growth”, COM(2013) 25 final. 50 See Baudenbacher et al. 2015 p. 119. 51 As was the situation when the EEA Agreement was signed in 1991, see Norberg et al. 1993 p. 493. 52 In its Communication from 2009, the Commission recommends that the EU should continue to “[s]upport the work of the International Maritime Organisation (IMO) and the International Labour Organisation (ILO) on the fair treatment of seafarers, to ensure, inter alia, that the guidelines on the treatment of seafarers in the event of a maritime accident, abandonment, personal injury or death of seafarers, and shore leave conditions are adequately implemented in the EU and worldwide”, see Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – Strategic goals and recommendations for the EU’s maritime transport policy until 2018, COM(2009) 8 final p. 4. 53 Regulation (EC) No 1726/2003 of the European Parliament and of the Council of 22 July 2003 amending Regulation (EC) No 417/2002 on the accelerated phasing-in of double-hull or equivalent design requirements for single-hull oil tankers.

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by the EU, the IMO followed suit and introduced a worldwide ban on large single-hull tankers in 2003.54 34 An important act incorporated under Annex XIII, concerning the freedom to provide maritime transport services is Regulation 4055/86. This Regulation is lex specialis as regards maritime transport services, but as the ECJ declared in Fonnship, the Regulation merely “transposes, in essence, the rules of the treaty relating to the freedom to provide services and the case-law relating thereto”.55 Thus, the substantive content of the freedom to provide maritime transport services laid down in the Regulation corresponds with the obligations encompassed in the fundamental freedom to provide services laid down in the TFEU and the EEA Agreement. 35 However, in relation to maritime transport services between Member States and third countries, the substantive scope of the Regulation is wider than that of the general rules on the freedom to provide services under the TFEU. According to the wording of Art. 1(1), the Regulation covers both the freedom to provide maritime transport services “between Member States” and also “between Member States and third countries”. Thus, as the ECJ declared in Geha Naftiliaki and Others, Art. 1(1) of the Regulation extends the “… the principle of the freedom to provide services as regards intra-Community traffic to traffic between a Member State and a third country …”.56 36 The recent case Fonnship falls into a long line of hotly debated rulings from the European Courts with far-reaching consequences for the design of national labour protection laws.57 The case concerned a bulk carrier owned by a Norwegian shipping company, flying the Panamanian flag. The ship sailed principally between States that are parties to the EEA Agreement, but was operated by a crew consisting of third country nationals. The crew members’ wages were governed by a collective agreement concluded between Fonnship and a Russian trade union. When the vessel lay at the port of Holmsund (Sweden), the Swedish Transport Workers’ Union called on Fonnship to enter into a collective agreement approved by the International Transport Workers’ Federation. This demand was rejected by the shipping company. In response to the rejection of the collective agreement, the Swedish Transport Workers’ Union initiated industrial action against Fonnship, inter alia, by preventing the loading and unloading of goods from the ship. The preliminary question brought by the Swedish court, was whether the shipping company Fonnship could rely on the Regulation

54 The IMO regulatory framework and the timetable for the phasing out of large and small single-hull tankers can be found at: http://www.imo.org/en/ourwork/safety/regulations/pages/ oiltankers.aspx. 55 Fonnship, para 41. According to Art. 1(3) of the Regulation, Arts. 55 to 58 of the EEC Treaty (Arts. 51 to 54 TFEU) containing the general derogations from Arts. 56 and 57 TFEU, also apply to maritime transport services. 56 C-435/00, 14.11.2002, Geha Naftiliaki and Others, para. 21. 57 C-83/13, 8.7.2014, Fonnship and Svenska Transportarbetarförbundet.

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4055/86 and invoke that the industrial action initiated against the ship constituted a violation of the freedom to provide maritime services. The ECJ answered the preliminary question in the affirmative. The ECJ made 37 clear that the shipping Company was entitled to rely on the freedom to provide maritime services ensured by the Regulation. The fact that the vessel flew a Panamanian flag and was operated by non EU/EEA nationals did not bring the Norwegian shipping company outside the personal scope of the Regulation. With reference to its own case law, including the case Laval, the ECJ affirmed that the collective action initiated by the workers’ union constituted an unlawful restriction on the right to provide maritime services, unless the restriction could be objectively justified by overriding reasons of public interests.58 The ECJ left it for the referring Swedish Labour Court (Arbetsdomstolen) to determine whether the industrial action in the case was justified or not. In 2015, the Swedish Labour Court ruled that the industrial action brought against the ship constituted a breach of the rules on the freedom to provide services. Although the Swedish Labour Court acknowledged that the aim to secure fair wages and working conditions in international shipping were legitimate aims protected under EU law, the measures initiated were not regarded as proportionate. More specifically, the industrial action initiated in order to achieve a high level of worker protection, went beyond what was necessary to achieve this aim. Furthermore, since the industrial action was unlawful, the Swedish Labour Court ordered the Swedish Transport Workers’ Union to compensate the economic damage incurred by the shipping company.59 6. Civil Aviation

Like maritime transport, air transport has traditionally been regulated at na- 38 tional and international level. As regards the international regulation of air transport, a significant regulatory framework is the Convention on International Civil Aviation of 1944 (“the Chicago Convention”). The EU itself is not a party to the Chicago Convention, but all EU States are parties to it. Iceland and Norway are also parties to the Convention. Another important international framework is the “Open Skies”-Agreement between the EU and the US. The first stage of the Open Skies-Agreement was first signed in 2007 and the Agreement was followed up with further amendments in 2010. The Agreement sets out to create a transatlantic single air transport market for passenger and cargo services. Iceland and Norway acceded the EU-US “Open Skies”-Agreement in 2011.60 In terms of liberalising the market for air transport within the EU and EEA 39 Area, the EU legislators have removed a range of restrictions hindering market access for commercial airlines. Among the noteworthy acts included under An58 Para 40, with further reference to the case commonly known as Laval, C-341/07, 23.11.2011, Commission v Sweden. 59 Arbetsdomstolen (the Swedish Labour Court) Dom nr 70/15, Mål nr A 14/02, A 39/02, A 53/03 och A 137/03, 25.11.2005.

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nex XIII, is Regulation 1008/2008 (“the Air Service Regulation”). The Regulation contains rules on market access for air carriers, aircraft registration and establishes the right of air carriers to freely set prices for intra-EU (and EEA) air services. The Regulation also draws up the limits of permissible State aid that can be paid to air carriers which have been given the task of performing public service obligations on air routes to peripheral regions in an EU or EEA State. 40 As part of the efforts made to open the European market for air transport services, the EU has adopted a range of aviation safety rules which have progressively been incorporated under Annex XIII. The aviation safety rules cover aspects such as technical harmonisation of airworthiness and environmental requirements, and common rules on the licensing of aeronautical mechanics and technicians. The European Aviation Safety Agency (EASA) provides the EU legislators with assistance and technical expertise in the development of aviation safety rules. 41 One aspect of air transport which has been particularly troublesome to Norwegian authorities, concerns the incorporation of the provisions in Commission Regulation 2016/1199 into the EEA Agreement.61 The Regulation introduces common safety measures, which will permit all EU and EEA based air operators that fulfill the requirements of the Regulation, to provide offshore operations in all EU and EEA States. In this way, the regulation aims to facilitate the opening of the market for helicopter offshore operations. From the perspective of Norwegian authorities, the Regulation raises problematic questions. Firstly, the role of the Norwegian Civil Aviation Authority (Luftfartstilsynet) in the approval and oversight of offshore helicopter operations will be downplayed. The Regulation introduces a shift from home state to host state control of offshore helicopter operations, which will allow air operators licensed by foreign aviation authorities, to run offshore helicopter operations in Norway. The concern from a Norwegian perspective is that foreign aviation authorities have little knowledge of Norwegian offshore operations, which might present a possible future safety risk.62

60 Decision of the Council and of the Representatives of the Governments of the Member States of the European Union, meeting within the Council of 16 June 2011 on the signing, on behalf of the Union, and provisional application of the Air Transport Agreement between the United States of America, of the first part, the European Union and its Member States, of the second part, Iceland, of the third part, and the Kingdom of Norway, of the fourth part; and on the signing, on behalf of the Union, and provisional application of the Ancillary Agreement between the European Union and its Member States, of the first part, Iceland, of the second part, and the Kingdom of Norway, of the third part, on the application of the Air Transport Agreement between the United States of America, of the first part, the European Union and its Member States, of the second part, Iceland, of the third part, and the Kingdom of Norway, of the fourth part. 61 Commission Regulation (EU) 2016/1199 of 22 July 2016 amending Regulation (EU) No 965/2012 as regards operational approval of performance-based navigation, certification and oversight of data services providers and helicopter offshore operations, and correcting that Regulation. 62 See http://europalov.no/rettsakt/felles-regler-for-sivil-luftfart-endringsbestemmelser-for-kommersielle-operasjoner/id-9002.

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Article 48 Non-discriminatory application of national rules

Secondly, the implementation of the Regulation into national Norwegian law raises constitutional problems. On more than one occasion, Norwegian authorities have refused to implement EU acts which apply to the Norwegian exclusive economic zone and the continental shelf. For instance, in recent years, the EU has identified both the Marine Strategy Framework Directive 2008/56 and the Offshore Safety Directive 2013/30 as EEA Relevant acts, but this classification has been disputed by Norway. From the perspective of Norwegian authorities, an EU act may only be EEA relevant if it falls inside the geographical scope of the EEA Agreement. The geographical scope of the EEA Agreement is regulated in Art. 126 EEA, where it is stated that the Agreement only applies to the “territories” of Iceland, Liechtenstein and Norway. Norway has consistently claimed that the term must be interpreted in accordance with established practice in international law, i.e. that EEA only applies to Norwegian land territory, and its internal and territorial waters.63 Thus, due to reluctance of Norwegian authorities to relinquish sovereignty over its exclusive economic zone and the continental shelf, it might turn out to be controversial to implement the provisions concerning offshore helicopter operations in Regulation 2016/1199 in Norwegian law.

Article 48 [Non-discriminatory application of national rules] 1. The provisions of an EC Member State or an EFTA State, relative to transport by rail, road and inland waterway and not covered by Annex XIII, shall not be made less favourable in their direct or indirect effect on carriers of other States as compared with carriers who are nationals of that State. 2. Any Contracting Party deviating from the principle laid down in paragraph 1 shall notify the EEA Joint Committee thereof. The other Contracting Parties which do not accept the deviation may take corresponding countermeasures.

Art. 48 (1) contains a standstill obligation which prohibits the introduction by 1 EU Member States or EFTA States of new discriminatory measures, or an increase discrimination in already existing frameworks governing transport by rail, road and inland waterway and not covered by Annex XIII. A similar standstill obligation is found in Art. 92 TFEU. The obligation does not place a ban on discrimination as such, but prohibits any increase in discrimination in law or in administrative practice.1 Nevertheless, the constant adoption of secondary legislation by the EU aiming to remove discrimination in the transport sector, which is subsequently incorporated into Annex XIII, gradually diminishes the importance of the ban.2 63 See Fredriksen, and Franklin, ‘Of pragmatism and principles: The EEA agreement 20 years on’, CMLR 2015, 52: 629-684, pp. 655-656. 1 See Joined Cases C-184/91 and C-221/91, 31.3.1993, Oorburg and van Messem, at para. 15. See also Greaves 2000, p. 19. 2 See Norberg et al. 1993 p. 483.

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Art. 48(2) lays down that in case a Contracting Party deviates from the standstill obligation, a notification must be addressed to the EEA Joint Committee. A similar notification procedure is found in EU law, under which Member States notify the Commission of their intention to impose less favourable conditions on foreign carriers.3 Other Contracting Parties which do not accept the deviation may take countermeasures to balance out the effects of the deviation. The mere fact that other Contracting Parties can accept deviations from the standstill obligation, apparently without individuals or economic operators being in a position to challenge this, shows that there are limits to the reach of individual rights under the EEA Agreement. However, although the mechanism in Art. 48(2) opens for the exchange of sanctions and the initiation of possible “trade wars”, the likes of which can be observed in WTO trade disputes, the provisions has never been in use. As the EU’s common transport policy continues to develop and finds its way into the EEA Agreement, Art. 48(2) is likely to remain dormant.

Article 49 [State aid in the transport sector] Aid shall be compatible with this Agreement if it meets the needs of coordination of transport or if it represents reimbursement for the discharge of certain obligations inherent in the concept of a public service.

Art. 49 lays down specific rules for the award of state aid in the transport sector and parallels Art. 93 TFEU. Art. 49 warrants the grant of state aid in two situations; state aid is permitted if (1) it meets the needs of coordination of transport or (2) it represents reimbursement for the discharge of certain obligations inherent in the concept of a public service. 2 The derogations found in Art. 49 do not relieve the transport sector from the ban on state aid laid down in Art. 61(1). This was confirmed in Belgian Railways, where the ECJ declared in general terms, that Art. 77 EEC Treaty [now Art. 93 TFEU] does not exempt the application of the general provisions on state aid to the transport sector.1 Rather, Art. 49 should be regarded as an additional basis for allowing state aid, complementing the exceptions found in Article 61(2) and (3).2 In relation to the transport modes falling within the scope of Chapter 6, Art. 49 thus constitutes a lex specialis in the general scheme of EEA state aid law.3 1

3 Decision No 357/2009/EC of the European Parliament and of the Council of 22 April 2009 on a procedure for prior examination and consultation in respect of certain laws, regulations and administrative provisions concerning transport proposed in Member States (Codified version). This Decision codifies Council Decision of 21 March 1962 instituting a procedure for prior examination and consultation in respect of certain laws, regulations and administrative provisions concerning transport proposed in Member States. 1 Case 156/77, 12.10.1978, Commission v Belgium, at para. 10. 2 See Case C-504/07, 7.5.2009, Associação Nacional de Transportadores Rodoviários de Pesados de Passageiros and Others, at para. 23. On the similar relationship between Arts. 93 and 107 TFEU, see Hancer et al. EU State Aids (London 2012), pp. 501-502.

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The first derogation in Art. 49 permits aid granted to meet needs of (1) “coor- 3 dination of transport”. The concept of “coordination of transport” has not been defined in case law of the EFTA Court or the ECJ. However, according to the Commission, the concept has significance which goes “beyond the simple fact of facilitating the development of an economic activity. It implies an intervention by public authorities which is aimed at guiding the development of the transport sector in the common interest.”4 More specifically, coordination can be required after the liberalisation of the sector, in particular where market failures justify the intervention of public authorities. In this regard, the Commission refers to major negative externalities, for instance congestion and pollution. Such externalities may be difficult to take into account in the pricing systems for access to certain transport infrastructure. This may result in disparities between different modes of transport, which should be corrected through aid to the transport modes which give rise to the lowest external costs.5 The obvious example in this respect is the funding of the railway sector at the expense of transport by road. Further, state aid is also compatible with the EEA Agreement if it represents 4 (2) reimbursement for the discharge of certain obligations inherent in the concept of a public service. This second derogation from the general ban on state aid concerns the situation in which a public authority compensates a public service operator for the discharge of public service obligations.6 In this regard, the European institutions have long been wary of the potentially distortive effects of any overcompensation of public service obligations.7 Public service providers are often “national champions”, raising fear that authorities are supporting the national economy by funding overprized transport services. Thus, in the late 1960 s and early 1970 s, a range of measures were adopted which harmonised rules concerning the procedure for awarding public service contracts and the permissible limits for the reimbursement of public service obligations. In 2007, the ageing EU public service regime was updated through the introduction of Reg. 2007/1370 (the PSO-Regulation).8 The PSO-regulation incorporates the 3 Cf. the status of Art. 93 TFEU, see Communication from the Commission Community guidelines on State aid for railway undertakings (2008/C 184/07) 22.7.2008, at para. 17. The ESA has adopted a set of guidelines on State aid for railway undertakings in Iceland, Liechtenstein and Norway, which are broadly equivalent to the guidelines adopted by the Commission, see Guidelines on state aid for railway undertakings (2011/L 105/32) 21.4.2011. 4 See Communication from the Commission Community guidelines on State aid for railway undertakings (2008/C 184/07) 22.7.2008, at para. 89. 5 Ibid., at para. 91. 6 For a comprehensive discussion on the concept of “public service obligations” in French, UK and EU Law, see Hennig, ‘Public Service Obligations: Protection of Public Service Values in a National and European Context’ in Szyszczak (ed) et al. Developments in Services of General Interest (Dordrecht 2011) 179-193. 7 See Hancer et al., EU State Aids (London 2012) 505. 8 Reg. (EC) No 1370/2007 of the European Parliament and of the Council of 23 October 2007 on public passenger transport services by rail and by road and repealing Council Regulations (EEC) Nos 1191/69 and 1107/70.

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development in the case law of the ECJ, most notably the Altmark case, establishing the limits of permissible state aid under EU law.9 The regulation came into force in 2009, and has been incorporated into Annex XIII of the EEA Agreement.10 Art. 2(e) of the regulation defines the concept “public service obligation”: “‘public service obligation’ means a requirement defined or determined by a competent authority in order to ensure public passenger transport services in the general interest that an operator, if it were considering its own commercial interests, would not assume or would not assume to the same extent or under the same conditions without reward.”

5

The PSO-regulation contains important provisions relating to the award of public service contracts in the field of transport. Whereas the wording of Art. 49, and the wide definition of the concept “public service obligations” in Art. 2(e) of the PSO-regulation, seemingly leave EFTA States with ample freedom to grant aid for the operation of unprofitable transport services, the PSO-regulation significantly curtails the discretion of public authorities in this regard. Inter alia; (1) According to Art. 3 of the PSO-regulation, public authorities must grant aid for the discharge of public service obligations within the framework of a “public service contract”. In this regard, Art. 4 lays down that a “public service contract” shall clearly define the public service obligations of the operator and the geographical areas concerned. Further, the contract must establish, in an objective and transparent manner, the parameters for calculating the compensation for the discharge of PSOs in a way that prevents overcompensation.11 (2) Article 5 provides that public service contracts, with certain exceptions, are subject to mandatory tendering procedures. (3) Article 7 contains mandatory rules on the publication of invitations to tender for public service contracts.

9 Case C-280/00, 24.3.2003, Altmark. 10 Decision of the EEA Joint Committee No 85/2008 of 4 July 2008 amending Annex XIII (Transport) to the EEA Agreement. Case C-303/13, 6.10.2015, Andersen v Commission concerned the relationship between the temporal scope of the old PSO-regime in Regulation 1191/69 of 26 June 1969 on action by Member States concerning the obligations inherent in the concept of a public service in transport by rail, road and inland waterway; and the new rules laid down in Regulation 2007/1370, which came into force 3.12.2009. Jørgen Andersen, who provided bus transport services between Copenhagen (Denmark) and Ystad (Sweden), had filed a complaint concerning the conclusion of an economically compensated public service contract to Danske Statsbaner (DSB) for the operation of rail transport services on the same route in the period between 2005 to 2014. The contentious issue before the ECJ was whether the Commission ought to have examined the legality and compatibility with the internal market of the payment of the aid paid from 3 December 2009 in the light of the old regime, which was in force when the public service contract was concluded, or whether the assessment of aid paid after 3 December 2009 had to be based on regime in the new PSOregulation. The Court relied on settled case-law, and ruled that new rules apply, as a matter of principle, immediately to the future effects of a situation which arose under the old rule. Therefore, even though the old regime was in force at the time of the conclusion of the public service contract, the examination of aid paid to DSB after 3 December 2009 had to be based on the current PSO-regime, see paragraphs 49-55. 11 For further discussion of the Altmark criteria, see the comments by Mathisen and Jordal on Art. 61.

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Article 50 Prohibition of discriminatory rates or conditions for carriage of goods

Article 50 [Prohibition of discriminatory rates or conditions for carriage of goods] 1. In the case of transport within the territory of the Contracting Parties, there shall be no discrimination which takes the form of carriers charging different rates and imposing different conditions for the carriage of the same goods over the same transport links on grounds of the country of origin or of destination of the goods in question. 2. The competent authority according to Part VII shall, acting on its own initiative or on application by an EC Member State or an EFTA State, investigate any cases of discrimination falling within this Article and take the necessary decisions within the framework of its internal rules.

Art. 50(1) prohibits discrimination in the form of carriers charging different 1 rates and imposing different conditions for the carriage of within the EEA Area. The prohibition applies to all carriers of goods falling within the scope of Chapter 6. A similarly worded prohibition is found in Art. 95 TFEU. The prohibition complements the general rules on the free movement of 2 goods in Arts. 8 to 16.1 However, unlike the general provisions on the free movement of goods, which are principally directed at public authorities, Art. 50(1) applies to all carriers of goods, comprising both public and private actors. The wide personal scope of the prohibition thus eliminates possible state protectionism, for instance differential pricing by government-operated railways, as well as distortions of competition created by private parties. Hence, Art. 50(1) constitutes a lex specialis in relation to the general prohibition on discrimination enshrined in Art. 4.2 Art. 50(1) is supplemented by Reg. 11/60 concerning the abolition of discrim- 3 ination in transport rates and conditions, which is listed in Annex XIII point 6 to the EEA Agreement.3 A crucial obligation in the regulation is found in Art. 5(1), which places EU Member States under a duty to notify the Commission of rates and conditions which vary according to the country of origin or of destination of the goods in question. Under the EEA Agreement, EFTA States notify the ESA.4 Further, Art. 5(2) is addressed to transport undertakings, which must supply national public authorities with all relevant information concerning transport rates and conditions. Additionally, under Reg. 11/60 the Commission may impose economic penalties on carriers for failure to supply relevant information or for charging discriminatory prices.5 The ESA has been entrusted with equivalent powers to impose monetary penalties on transport undertakings in the EFTA States.6 1 See Greaves 2000, p. 21. 2 Cf. Arts. 95(1) and 18(1) TFEU, see also Norberg et al. 1993, p. 484. 3 EEC Council: Reg. No 11 concerning the abolition of discrimination in transport rates and conditions, in implementation of Art. 79(3) of the Treaty establishing the European Economic Community. 4 See Annex XIII Point 6, with further reference to Protocol 21. 5 See Reg. 11/60, Arts. 16 to 18.

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Art. 50(2), instructs that the competent authorities according to Part VI of the EEA Agreement shall, acting on its own initiative or on application by an EU Member State or an EFTA State, investigate any cases of discrimination falling within the Article and take the necessary decisions within the framework of its internal rules. In terms of monitoring discriminatory pricing and conditions in the transport sector, it falls upon the Commission to conduct investigations within the EU. Conversely, it is for the ESA to investigate possible discriminatory practices within the EFTA States. In individual cases concerning possible discrimination on both the territory of an EU Member State and an EFTA State, Art. 109(2) in Part VI of the EEA Agreement instructs the Commission and the ESA to cooperate, exchange information and to consult each other during the investigation.7

Article 51 [Prohibition of State aid in the form of favorable rates or conditions] 1. The imposition, in respect of transport operations carried out within the territory of the Contracting Parties, of rates and conditions involving any element of support or protection in the interest of one or more particular undertakings or industries, shall be prohibited unless authorized by the competent authority referred to in Article 50(2). 2. The competent authority shall, acting on its own initiative or on application by an EC Member State or an EFTA State, examine the rates and conditions referred to in paragraph 1, taking account in particular of the requirements of an appropriate regional economic policy, the needs of underdeveloped areas and the problems of areas seriously affected by political circumstances, on the one hand, and of the effects of such rates and conditions on competition between the different modes of transport, on the other. The competent authority shall take the necessary decisions within the framework of its internal rules. 3. The prohibition provided for in paragraph 1 shall not apply to tariffs fixed to meet competition. 1

Art. 51(1) prohibits the imposition of rates and conditions involving any element of support or protection of undertakings or specific sectors of the transport industry. Art. 51(1) EEA, and the similarly worded provision in Art. 96 TFEU, can thus be regarded as a specification of the general state aid prohibition in EU and EEA law.1 Alternatively, the prohibition can be viewed as a confirmation that the favourable treatment of national transport undertakings or of the transport industry as such, is prohibited by the principle of non-discrimination.2 6 See Annex XIII Point 6, with further reference to Protocol 21. 7 See comments on Art. 109. 1 Concerning the relationship between Arts. 96 and 107 TFEU, see Hancer et al. 2012, pp. 501-502. 2 See Greaves 2000, p. 21.

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Article 51 Prohibition of State aid in the form of favorable rates or conditions

Derogation from the prohibition in Art. 51(1) must be authorised by the competent authority referred to in Art. 50(2). It is thus for the ESA or the Commission, within their respective areas of competence, to authorise the support rates or conditions at issue.3 The terms for derogation are specified in Art. 50(2), which requires that negative effects of protectionist rates and conditions on competition between different modes of transport, must be balanced against the benefit achieved in national regional economic policy. The second subparagraph specifically refers to situations relating to “the needs of underdeveloped areas and the problems of areas seriously affected by political circumstances”. When performing the examination required under the second subparagraph, the ESA or the Commission have a large degree of discretion, not only as regards the rates and conditions to be authorised, but also as regards the details of the authorisation to be granted.4 Prior to a potential authorisation, Art. 50(2) further lays down that “[t]he competent authority shall take the necessary decisions within the framework of its internal rules.” It is unclear which set of “internal rules” it is referred to in this context. However, Art. 96(2) TFEU states that “[a]fter consulting each Member State concerned, the Commission shall take the necessary decisions.” Thus, the ESA should initiate a similar consultation among the EEA States concerned prior to authorising rates or conditions at the benefit of national transport undertakings. Art. 51(3) stresses that “[t]he prohibition provided for in paragraph 1 shall not apply to tariffs fixed to meet competition.” This last subparagraph specifies the scope of the prohibition in Art. 51(1). What is prohibited is the imposition of rates and conditions with a protectionist element. Price regulation intended to promote competition between undertakings or modes of transport is not covered by the first subparagraph.5 For instance, in monopoly situations, it can be deemed necessary to intervene and fix prices for access to transport infrastructure so that multiple undertakings can provide services on the network. Naturally, Art. 51(3) permits tariffs fixed to meet competition set by EEA States, but the scope of this last subparagraph should also cover for tariff fixing by semi-public regulatory bodies. Finally, it is noted that questions relating to Art. 51, and the corresponding Art. 96 TFEU, have rarely been brought before the European Courts.6 Part of the explanation for this is that matters concerning state aid and national regional

3 See on Art. 50(2) above. 4 Case 1/69, 09.7.1969, Italian Republic v Commission, at para. 4. 5 The origin of Art. 96(3) TFEU (and thus Art. 51(3) EEA) harks back to Joined cases 24/58 and 34/58, 15.7.1960, Chambre syndicale de la sidérurgie. This case concerned the alignment of tariffs for the transport of coal and coke on German inland waterways and by railway, which were regarded as competing modes of transport. In general terms, as long as there was no element of subsidy or other form of discrimination on grounds of nationality, the Court declared that tariffs which enable carriers to maintain a competitive relationship between undertakings, or between different modes of transport, are to be regarded as tariffs fixed to meet competition.

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policy, are covered by, and assessed under, the general provisions on state aid, i.e. Arts. 61 and 62 and Arts. 107 and 108 TFEU. Further, regional operating aid to compensate for the additional transport costs of goods produced or processed in sparsely populated areas is covered by the block exemptions, currently found in Commission Reg. No 651/2014.7

Article 52 [Charges for crossing the borders] Charges or dues in respect of the crossing of frontiers which are charged by a carrier in addition to transport rates shall not exceed a reasonable level after taking the costs actually incurred thereby into account. The Contracting Parties shall endeavour to reduce these costs progressively.

Art. 52 is directed to transport undertakings and prohibits excessive charges or dues which exceed the costs actually incurred when crossing borders. The Contracting Parties shall aim to reduce the costs related to border crossings. The provision mirrors Art. 97 TFEU. 2 Article 52, which applies to carriers of goods and thus mostly private parties, supplements the provisions laid down in Part II of the EEA Agreement concerning the free movement of goods.1 The latter provisions address restrictions on the free movement of goods created by the Contracting Parties, in particular Art. 10 on “customs duties”, Art. 11 covering quantitative restrictions and “measures having equivalent” effect as well as the prohibition on internal tax discrimination in Art. 14.2 Hence, the EEA Agreement ensures the removal of both public and private restrictions to free movement within the EEA Area. However, in stark contrast to the significant amount of cases brought before the European courts concerning Arts. 10 and 11, excessive pricing related to border crossings by private carriers has not turned out to result in similar problems before the courts. 1

6 See, however, the recent request for a preliminary ruling from the Cour d’appel de Bruxelles (Belgium) lodged on 3.5.2016 in Case C-253/16, Flibtravel International (undecided), concerning the application of Art. 96 TFEU to rates and conditions imposed by Belgian authorities on cross-border taxi journeys. 7 Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Arts. 107 and 108 of the Treaty. On the General block exemption Regulation, see the comments by Mathisen and Jordal on Art. 63. 1 See Greaves 2000, p. 21 and Norberg et al. 1993, p. 486. 2 See the comments by Petursson on Arts. 10 and 11.

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Introduction to the competition rules applicable to undertakings

Part IV: Competition and other common rules Chapter 1: Rules applicable to undertakings

Introduction to the competition rules applicable to undertakings I. General remarks on the rules applicable to undertakings

Arts. 53 to 60 are the competition law provisions of the EEA Agreement. 1 They constitute Chapter 1 of Part IV of the Agreement and contain the rules applicable to undertakings. Chapter 2 of Part IV contains the state aid provisions. Arts. 53 and 54 EEA are the counterparts to Arts. 101 and 102 TFEU, with an identical wording. The EEA Agreement does not contain any counterpart to Art. 104 TFEU. Art. 55 EEA establishes the competence and duty to ensure the application of the competition rules, and is similar, although not identical, to Art. 105 TFEU. One important difference is that Art. 55 EEA does not contain a third paragraph which grants the competence to adopt block exemptions. The legal basis and procedure for adopting such regulations for the EFTA pillar of the EEA will be described in the comments to Art. 55 EEA. Art. 59 EEA is the counterpart to Art. 106 TFEU, being also identical in its wording. The other provisions in Chapter 1 of Part IV of the EEA Agreement are not 2 EEA counterparts to the provisions in TFEU. Art. 56 regulates the division of competence between the EU Commission and ESA to enforce Arts. 53 and 54. Art. 57 contains the legal basis for control of concentrations with effect in the EEA area. Lastly, Art. 58 imposes a duty of cooperation between the EU commission and ESA to ensure a homogeneous interpretation of the EEA Agreement and the TFEU. The substantial competition law provisions, Arts. 53, 54 and 59 EEA, all 3 identical to their TFEU counterparts, should also be interpreted in line with the EU Courts’ interpretation of Arts. 101, 102 and 106 TFEU. This is a derived consequence of the principle of homogeneity, or uniform application.1 This implies that anyone with knowledge of the competition provisions in TFEU is also well educated in its EEA counterparts. The comments on these provisions in this commentary will, in addition to a short general approach, try to highlight the existing case law and decisional practice in the EFTA pillar regarding these provisions. The goal is to discuss whether the interpretation by the EFTA bodies of the provisions in the EEA Agreement contributes to homogeneity or if there are any important differences between the EU and EFTA pillars regarding the interpretation of Arts. 53 and 54.

1 See further on homogeneity the comments by Fredriksen on Arts. 105 and 106 EEA.

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In relation to homogeneity, it is also important to be aware that both the General Court and the ECJ apply and interpret Arts. 53 and 54, and when doing so there is no separate interpretation of the EEA provisions. The grounds and reasons in these judgments only refer to the provisions of TFEU, even if the cases concern infringements of both the TFEU and EEA provisions.2 This shows that it is implied that the interpretation of Arts. 53 and 54 is identical to the interpretation of Arts. 101 and 102 TFEU. This ensures homogeneity between the EEA and the TFEU provisions.

Article 53 [Agreements, decisions and concerted practices] 1. The following shall be prohibited as incompatible with the functioning of this Agreement: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Contracting Parties and which have as their object or effect the prevention, restriction or distortion of competition within the territory covered by this Agreement, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. 2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void. 3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of: – any agreement or category of agreements between undertakings; – any decision or category of decisions by associations of undertakings; – any concerted practice or category of concerted practices; which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

I. Introduction 1

Art. 53 contains the prohibition of anti-competitive agreements and it is the EEA equivalent of Art. 101 TFEU. It consists of three paragraphs. The first paragraph contains the prohibition, the second paragraph renders prohibited 2 See e.g. Case C-260/09 P, 10.2. 2011, Activision Blizzard; Case T‑111/08, 24.5.2012, Mastercard; Case C‑549/10 P, 19.4.2012 Tomra.

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agreements as void and the third paragraph contains an exception to the prohibition in the first paragraph. As mentioned in the introductory comments to Chapter 1 of Part IV of the 2 EEA Agreement, the wording of Art. 53 is identical to Art. 101 TFEU. One of the goals with this text is to examine whether the EU Courts and the EFTA Court interpret the provision in a uniform manner.1 The concept of undertaking is not discussed here, but in the comments on State Aid.2 II. Agreements between undertakings, decisions by associations of undertakings or concerted practices 1. Introduction

Art. 53 is often labelled as the prohibition of anti-competitive agreements. 3 This illustrates that the purpose of the prohibition is to prevent that two or more undertakings cooperate instead of competing. Art. 53 covers more than just agreements; three alternative conditions represent different forms of cooperation that may amount to a violation of the prohibition. These are agreements, concerted practices and decisions by associations of undertakings. Together, these alternatives ensure that most forms of cooperation or coordination are covered by the prohibition. 2. Agreements

Agreements have been defined by the EFTA Court as “an expression of a 4 joint intention of the parties involved to conduct themselves on the market in a specific way, the object or effect of the conduct being the prevention, restriction or distortion of competition”.3 Apart from the last segment about restricting competition, this is the same definition as we find in the judgments of the ECJ and General Court.4 The EFTA Court’s definition cannot be understood to imply that the concept of an agreement in itself requires that the joint intention has as its object or effect to restrict competition, but it must be understood as a reference to the second condition in Art. 53, stating that only agreements restricting competition may amount to a violation of Art. 53. Agreements have also been defined as “the existence of a concurrence of 5 wills between at least two parties, the form in which it is manifested being unimportant so long as it constitutes the faithful expression of the parties’ intention”, although not by the EFTA Court.5 Despite the wording being different in the two definitions, they both show that an agreement consists of a joint intention or a

1 2 3 4

See comments by Gjendemsjø on Chapter 1 of Part IV of the EEA Agreement above. See further on this the comments by Jordal and Mathisen on Art. 61 EEA, mn. 8-20. Case E-3/97, 1.4.1998, Jæger, para. 35 (emphasis added). See inter alia Case C-49/92 P, 8.7.1999, Anic, para. 130; Joined Cases C-2 and 3/01 P, 6.1.2004, Bayer, para. 97; Case T-587/08, 14.3.2013 Fresh Del Monte, para. 299.

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concurrence of wills, and that this intention or concurrence of wills must have been expressed or manifested in some manner. Both definitions establish that a concurrence of wills as such is not sufficient for there to be an agreement. The concurrence of wills or the joint intention must somehow have been expressed. As a consequence, if two undertakings happen to have concurring interests and unilaterally decide to act based on that interest, without being in any form of contract with each other, there is no agreement. The typical example of this is tacit collusion. Furthermore, the definitions clarify that it is the expressed intention or the manifested wills that decide if there is an agreement or not. The implication of this is that if a supplier ‘forces’ its retailers to accept a certain market behaviour, e.g. a fixed price level or only to sell to customers in a designated area, there will be an agreement even if the retailers’ true intention was to decide the prices on their own or to offer the products in other areas. Hence, imposing one’s own intentions on others is considered as an agreement.6 Art. 53 is applicable to both horizontal and vertical agreements. The concept of agreement has received most attention in cases regarding vertical agreements. The main reason for this being that in cases about horizontal collusion the alternative condition, concerted practices, cover forms of collusion that do not qualify as agreements. Consequently, there is no reason to establish the exact boundaries of the concept of an agreement. As the ECJ held in Anic: “the only essential thing is the distinction between independent conduct, which is allowed, and collusion, which is not, regardless of any distinction between types of collusion.”7 One can then ask why has the concept of an agreement received so much attention in vertical cases? Is the concept of a concerted practice not suitable for vertical cases? This question is discussed in the section about concerted practices below. Here the purpose is to establish the content of, or the boundaries of, the concept of an agreement. And for that purpose it suffices to analyse the Courts’ discussions of that concept in the cases about vertical relations. Two of the EFTA Court’s judgments concern vertical agreements.8 Only in one of them, Jæger, was it necessary to discuss whether there was an agreement or not. One of the questions of the case was if a refusal to accept a dealer forms part of the contractual relationship between the supplier and its dealers. The EFTA Court based its reasoning on the ECJ’s judgment in AEG.9 In this case the ECJ found that the supplier’s refusals of new dealers and exclusions from the distribution network of existing dealers were done in agreement with the exist5 Joined Cases C-2 and 3/01 P, 6.1.2004, Bayer, para. 97 (emphasis added); Case T-208/01, 3.12.2003, Volkswagen, para. 32, judgment upheld by the ECJ in Case C-74/04, 13.7.2006, Volkswagen, but the ECJ did not itself present a definition of the concept of agreements in its judgment. 6 Joined Cases T-25/95 etc, 15.3.2000 Cimenteries, para. 2557. 7 Case C-49/92 P, 8.7.1999, Anic, para. 108. 8 Case E-3/97, 1.4.1998, Jæger and Case E-7/01, 18.10.2002, Hegelstad v Hydro Texaco. 9 See: Case C-107/82, 25.10.1983, AEG Telefunken.

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ing and loyal dealers.10 The EFTA Court’s judgment in Jæger may be criticised for not limiting the scope of the rule expressed in AEG to selective distribution agreements that are based on objective criteria, such as the ECJ did in AEG. In this sense, the EFTA Court stated that “where a car importer operates a distribution system which may affect channels of distribution and the conditions of which are not negotiable and are imposed on all accepted dealers, a refusal to accept a dealer forms part of the contractual relations between the undertaking and its dealers which fall to be examined under Article 53 EEA”.11

In AEG the refusal to accept dealers was directly linked to the dealers not ad- 10 hering to an anti-competitive price policy and not based on objective criteria.12 This element of the ECJ’s reasoning in AEG is not explicitly found in the EFTA Court’s judgment, which appears to apply a broader scope for the rule expressed in AEG. After the judgments in both Jæger and AEG there has been some develop- 11 ment in the case law on the concept of agreement. In Bayer it was made clear that “an agreement cannot be based on what is only the expression of a unilateral policy of one of the contracting parties, which can be put into effect without the assistance of others”.13 The ECJ went on to state that: “For an agreement within the meaning of Article 85(1) of the Treaty to be capable of being regarded as having been concluded by tacit acceptance, it is necessary that the manifestation of the wish of one of the contracting parties to achieve an anti-competitive goal constitute an invitation to the other party, whether express or implied, to fulfil that goal jointly.”14

The judgment in Bayer did to a certain extent clarify the concept of agree- 12 ments. The limitation towards unilateral conduct was not a surprise, but still welcomed. In accordance to the judgment, the minimum requirements for an agreement to exist appear to be that a joint intention must be expressed, but that a tacit acceptance is sufficient as such an expression, given that one of the undertakings has manifested its goal through an explicit or implied invitation to fulfil this goal. This has later been followed up in subsequent case law.15 The requirement of an expressed or tacit acceptance of the other party’s policy clarifies that one can no longer infer such acceptance solely on the basis that the distributors or retailers simply continue to take part in the distribution network.16 Furthermore, in Bayer a refusal to deal was not considered to be an agree- 13 ment, but rather unilateral conduct. The conduct discussed in AEG and Jæger was also a refusal to deal. A refusal to deal is de facto a unilateral conduct. Since unilateral conduct cannot amount to an agreement according to Bayer, one can ask if Bayer then set aside the AEG precedence. 10 11 12 13 14 15 16

Case E-3/97, 1.4.1998, Jæger, paras. 40-43. Case E-3/97, 1.4.1998, Jæger, paras. 42. See: Case 107/82, 25.10.1983, AEG Telefunken, para. 33-35. Joined Cases C-2 and 3/01 P, 6.1.2004, Bayer, para. 101. Joined Cases C-2 and 3/01 P, 6.1.2004, Bayer, para. 102. See e.g. Case C-74/04, 13.7.2006, Volkswagen, para. 46. See Alison Jones and Brenda Sufrin, EU Competition Law (6th edn Oxford 2016). p. 151.

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In Bayer the ECJ distinguished the case from AEG by stating that it was the manner in which AEG applied the existing selective distribution agreement which was the subject of that case, and not whether there was an agreement or not.17 This argument is not entirely convincing, since what the Court argued in AEG appears to be that, in addition to the distribution agreement itself, there was a concurrence of wills between AEG and the distributors that adhered to the price policy that those that did not adhere would be precluded from distributing AEG’s products.18 Instead, it would arguably be more elegant to distinguish the cases based on the fact that AEG required assistance from its distributors to achieve its price policy. And since that goal requires the assistance of the distributors, this could not be regarded as a unilateral policy. Still though, the actual refusals to deal with those not adhering to the price policy do not require any assistance. On that basis it is tempting to conclude that Bayer did set aside the AEG precedence despite the ECJ’s lack of express statement in the judgment. Some support for this interpretation can also be found in Volkswagen II.19 Here the Commission claimed that it followed from AEG that entering into a distribution network implied adherence to the policy pursued by the manufacturer.20 The Court’s response was that “the case-law to which the Commission refers does not imply that any call by a motor vehicle manufacturer to dealers constitutes an agreement within the meaning of Article 81(1) EC”.21 15 To summarise, unilateral conduct does not constitute an agreement. Furthermore an agreement requires not only the existence of a joint intention, but that the intention has been expressed somehow. An agreement can be based on a tacit acceptance if there is an explicit or implied invitation from one undertaking to fulfil a certain goal. The fact that retailers or distributors maintain their business relationship with a producer or supplier does not in itself constitute a tacit acceptance of the producer or supplier’s policy. 14

3. Concerted practices 16

Undertakings may coordinate their behaviour without entering into agreements. To assure that Art. 53 forbids such forms of coordination the prohibition also covers anti-competitive concerted practices. The EFTA Court has not dealt with any cases where it had to apply the concept of concerted practices. However, the EU Courts have applied this concept on numerous occasions. The ECJ has defined concerted practices as “a form of coordination between undertakings which, without it having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition”.22

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In addition to this general definition, a concerted practice is described as

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“any direct or indirect contact between [undertakings] by which an undertaking may influence the conduct on the market of its actual or potential competitors or disclose to them its decisions or intentions concerning its own conduct on the market where the object or effect of such contact is to create conditions of competition which do not correspond to the normal conditions of the market in question”.23

Compared with the general definition this description narrows the concept of 18 concerted practices to coordination based on contact. The core of this rather lengthy description of a concerted practice is often expressed in the following way: “The Court has therefore held that the exchange of information between competitors is liable to be incompatible with the competition rules if it reduces or removes the degree of uncertainty as to the operation of the market in question, with the result that competition between undertakings is restricted.”24

These quotes from case law establish that a concerted practice consists of at 19 least two elements: contact and a reduction of uncertainty. It has further been held by the ECJ that for a conduct to be regarded as a concerted practice the concertation, meaning contact that reduces uncertainty, must lead to a subsequent conduct on the market.25 This does not imply that an anti-competitive effect must be established; only that the concertation has some effect on the market conduct.26 The case law has further established that subject to proof of the contrary, which has to be adduced by the undertakings, an influence on subsequent market conduct is presumed.27 Considering that this condition is not a requirement of an anti-competitive effect, the presumption is well founded. It is

22 Case 48/69, 14.7.1972, Imperial Chemica, para. 64. This definition has been used in as good as all judgments concerned with concerted practices, see e.g. case C-455/11 P, 5.12.2013, Solvay v Commission, para. 36; Case C-8/08, 4.6.2009, T-Mobile Netherlands, para. 26; Case C-199/92 P, 8.7.1999, Hüls AG, para. 158; Case C-49/92 P, 8.7.1999, Anic, para. 115; Joined Cases C-89, 104, 114, 116, 117, and 125 to 129/85, 31.3.1993 A. Ahlström Osakeyhtiö and others, para. 63; Joined Cases C-40 to 48, 50, 54 to 56, 111, 113 and 114-73, 16.12.1975, Suiker Unie and others, para. 26; Case T-588/08, 14.3.2013, Dole Food Company, para. 56. 23 Case C-455/11 P, 5.12.2013, Solvay v Commission, para. 36 (emphasis added). See also Case C-286/13, 19.3.2015, Dole Food and Dole Fresh Fruit, para. 120; Case C-8/08, 4.6.2009, T‑Mobile Netherlands, para. 33; Case C-199/92 P, 8.7.1999, Hüls AG, para. 117; Joined Cases C-40 to 48, 50, 54 to 56, 111, 113 and 114-73, 16.12.1975, Suiker Unie and others, para. 174. 24 Case C-286/13, 19.3.2015, Dole Food and Dole Fresh Fruit, para. 121 (emphasis added). Other judgments presenting the requirement of reduction of uncertainty are, inter alia, Case T-36/91, 29.6.1995, Imperial Chemical, para. 76; Case C-8/08, 4.6.2009, T-Mobile Netherlands, para. 35; Case T-587/08, 14.3.2013 Fresh Del Monte,, para. 303. 25 See Case C-286/13, 19.3.2015, Dole Food and Dole Fresh Fruit, para. 126; Case C-8/08, 4.6.2009, T-Mobile Netherlands, para. 51; Case C-199/92 P, 8.7.1999, Hüls AG, para. 161; Case C-49/92 P, 8.7.1999, Anic, para. 118. 26 Case C-49/92 P, 8.7.1999, Anic, para. 124; Case C-199/92 P, 8.7.1999, Hüls AG, para. 165; Case C-8/08, 4.6.2009, T-Mobile Netherlands, para. 51; Case C-286/13, 19.3.2015 Dole Food and Dole Fresh Fruit, para. 127. 27 Case C-49/92 P, 8.7.1999, Anic, para. 121; Case C-199/92 P, 8.7.1999, Hüls AG, para. 162; Case C-8/08, 4.6.2009, T-Mobile Netherlands, para. 51; Case C-286/13, 19.3.2015 Dole Food and Dole Fresh Fruit, para. 127.

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difficult to imagine that information which reduces uncertainty should not have an effect on the undertaking’s conduct. Even if that information is used to behave more aggressively in the market, the information has an effect on the conduct. 20 The requirement of direct or indirect contact has not received a lot of attention in case law, at least when it comes to its content. There is often a question of whether the evidence proves that there has been contact. That is, however, a question of what the established facts are, and not a question of what type of conducts amount to contact. We do know from the case law that tacit collusion is not regarded as a concerted practice. As a consequence, coordination based on the availability of prices following high market transparency cannot be regarded as contact.28 21 The requirement of reducing uncertainty has been the focus of discussion in several judgments by the EU Courts. When assessing whether contact reduces uncertainty one has to consider the nature of the information disclosed,29 the frequency of the communication,30 and to whom the information is disclosed.31 In addition, the market structure is of importance since that has an impact on how easy it is to coordinate the behaviour of the market.32 It is not a surprise that in most of the cases where an illegal concerted practice has been found have been concerned with information exchange about prices or future prices. 22 One final question related to concerted practices is whether this concept can be applied to vertical relationships. As mentioned in the section about agreements above, this is not obvious. The definition of a concerted practice presented above shows that this is a concept capturing coordination or collusion between competitors. As undertakings involved in a vertical relationship, e.g. a producer and its distributor, more often than not are not competitors their relationship will not amount to a concerted practice. In contrast to this, it has been argued that the concept of concerted practices does apply to vertical relations,33 but still no judgment from the EFTA Court, the ECJ or the General Court has considered a pure vertical relationship as a concerted practice. There are a few 28 Case C-286/13, 19.3.2015, Dole Food and Dole Fresh Fruit, para. 120. See also e.g. Case C-8/08, 4.6.2009, T-Mobile Netherlands, para. 33; Case C-49/92 P, 8.7.1999, Anic, para. 117; Joined Cases C-89, 104, 114, 116, 117, and 125 to 129/85, 31.3.1993 A. Ahlström Osakeyhtiö and others, para. 71. 29 See e.g. Case C-7/95 P, 28.5.1998, John Deere, para. 89; Case T-587/08, 14.3.2013 Fresh Del Monte, paras. 110 ff. 30 See e.g. Case C-7/95 P, 28.5.1998, John Deere, para. 89; Case T-587/08, 14.3.2013 Fresh Del Monte, paras. 349 ff. 31 See e.g. Case C-7/95 P, 28.5.1998, John Deere, para. 89; Case T-587/08, 14.3.2013 Fresh Del Monte, paras. 346 ff. 32 See e.g. Case T-587/08, 14.3.2013 Fresh Del Monte, paras. 427 ff.; Case T-588/08, 14.3.2013, Dole Food Company, para. 340; Case C-7/95 P, 28.5.1998, John Deere, para. 88; Case C-8/08, 4.6.2009, T-Mobile Netherlands, para. 60. 33 See Jonathan Faull and Ali Nikpay, The EU Law of Competition, (Oxford University Press 2014), p. 223. Notice that the authors still argue that concerted practices are not well fit for vertical cases.

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cases where the concerted practice between competitors has been aided or facilitated by their supplier. However, this is still a form of horizontal collusion since it is the conduct of the distributors that is coordinated.34 Consequently, these circumstances combined clearly indicate that the concept of concerted practices does not apply to vertical relationships. 4. Decisions by associations of undertakings

Coordination between undertakings is not necessarily the result of agreements 23 or concerted practices. It can also be achieved through trade associations. To make sure that Art. 53 EEA prohibits any coordination among undertakings regardless of how it is achieved – apart from tacit collusion – “decisions by associations” restricting competition are also prohibited. The inclusion of decisions by association in Art. 53 has mainly two implications. First, that coordination which is a consequence of the conduct of an association is prohibited even if there are no agreements or contact between the undertakings themselves. The second implication being that when an association facilitates coordination by collecting and sharing information on behalf of the undertakings engaged in the collusion, the association may also be fined.35 The EFTA Court has not dealt with any cases regarding decisions by asso- 24 ciations of undertakings. There’s not much case law on concept from the EU Courts either. In IAZ however the ECJ did clarify that Art. 101 TFEU applies to “associations of undertakings in so far as their own activities or those of the undertakings affiliated to them are calculated to produce the results which [Article 101] aims to supress. It is clear […] that a recommendation, even if it has no binding effect, cannot escape Article 85 (1) where compliance with the recommendation by the undertakings to which it is addressed has an appreciable influence on competition”.36

The inclusion of non-binding recommendations implies that the concept of 25 “decisions” is at least not interpreted in a strict manner. Also, an association does not have to be an undertaking to be subject to 26 Art. 53, meaning that it does not have to perform an economic activity. This was made clear in Wouters where Art. 101 TFEU was applied to a decision by the Dutch Bar Association.37 The Bar Association was not itself involved in any economic activity and Art. 101 TFEU was applied to a provision in a regulation of the lawyer profession, adopted by the association.

34 Joined Cases 100-103/80, 7.6.1983, Musique Diffusion francaise and others, paras. 72-80; Case C-86/82, 21.2.1984, Hasselblad, paras. 24-29. 35 Richard Whish and David Bailey, Competition Law, (8th edn Oxford 2015), p. 116. 36 Joined cases 96-102, 104, 105, 108 and 110/82, 8.11.1983, IAZ and others, para. 20. 37 Case C-309/99, 19.2.2002, Wouters.

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5. Single continuous infringements and the concept of agreements and/or concerted practices

The EU Courts and the Commission have developed two concepts which are applied in cases dealing with so called ‘complex’ cartels. These are the concept of agreements and/or concerted practices and the concept of a single overall agreement. The concept of agreements and/or concerted practices relieves the Commission and ESA from having to classify each instance of the cartel as either a concerted practice or an agreement. This is possible since it has been held that the distinction between concerted practices and agreements is of no importance, as mentioned above.38 The concept was accepted by the ECJ in Anic.39 28 The concept of a single overall agreement was developed by the Commission to make undertakings responsible for the whole cartel without having been involved in its day to day operation. For an undertaking to be responsible for the overall cartel it must be established that the undertaking knew, or must have known, about the overall plan.40 27

III. Effect on inter-state trade

The application of both Arts. 53 and 54 is limited to conduct that may affect trade between the Contracting Parties. The wording employed in the EEA provisions is slightly different from the wording of Arts. 101 and 102 TFEU, which refers to trade between the Member States. The reason is simply that there are no member states to the EEA. However, all EU Member States and the three EFTA states are parties to the agreement. This difference does not have any effect on the interpretation of the requirement of effect on inter-state trade. 30 In Holship the EFTA Court held, as previously stated by the ECJ, that an effect on inter-state trade is present when it is possible to foresee with a sufficient degree of probability that the practice “may have an influence, direct or indirect, actual or potential, on the pattern of trade between EEA States”.41 Holship also illustrates that having an effect only on a part of the territory of a state may be sufficient for the conduct to have an effect on inter-state trade. 31 In the competition cases dealt with by the EFTA Court this requirement has not been problematic. The cases have either concerned products or services which have been exported from or imported to an EFTA state or have concerned undertakings from other countries establishing themselves in an EFTA state, or both. The EU case law has determined that the effect on trade does not need to 29

38 See infra mn. 8 and Case C-49/92 P, 8.7.1999, Anic, para. 108. 39 Case C-49/92 P, 8.7.1999, Anic, paras. 132 and 133. 40 Joined cases T-305 to 307, 313, 316, 318, 325, 328, 329 and 335/94, 20.4.1999, Limburgse Vinly and others, para. 773. 41 Case E-14/15, 19.4.2016, Holship, para. 75 (emphasis added). For the same interpretation by the ECJ see Joined Cases C-215/96 and C-216/96, 21.1.1999, Carl Bagnasco and others, para. 47; Case C-306/96, 28.4.1998, Javico International, para. 16; Case 42/84, 1.7.1985, Remia, para. 22.

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have a negative effect. An increase in trade is sufficient, due to this being a jurisdictional requirement intended to define the sphere of application of community rules in relation to national laws.42 Finally, the effect on trade has to be appreciable.43 As for Arts. 101 and 102 TFEU, a notice on the effect on trade concept in Arts. 53 and 54 EEA has been published.44 IV. Restriction of competition

Art. 53 prohibits agreements and other forms of cooperation that have as their 32 “object or effect the prevention, restriction or distortion of competition”. A restriction, distortion or prevention of competition can be understood in different ways, such as: a reduction of welfare,45 an effect on the competitive process,46 an effect on the rivalry process,47 altering the market structure48 or a restriction of the freedom of the market operators,49 to mention some.50 The case law, both by the EU Courts and the EFTA Court, has not explicitly defined what a restriction of competition actually is. Unfortunately, there is no room to discuss this at full extent in this commentary. Nevertheless, it should still be mentioned that the EFTA Court has not presented a definition or something similar to a definition of what a restriction of competition is. Neither have the EU Courts, but there are indications in their reasoning of how to define what a restriction of competition is. The most frequently used phrase in case law to explain what a restriction of competition is, is that the competition rules are “designed to protect not only the immediate interests of individual competitors or consumers but also to protect the structure of the market and thus competition as such”.51 This 42 Joined Cases 56 and 58/64, 13.7.1966, Consten and Grundig, page 299 and Case 6 and 7/73, 6.3.1974, Commercial Solvents, para. 31. 43 Case 27/87, 19.4.1988, Erauw-Jacquery v La Hesbignonne SC, para. 17. See also Case 5/69, 9.7.1969, Völk v Vervaecke, page 295. 44 OJ C 305, 14.12.2006, p. 34 and EEA Supplement to the OJ No 62, 14.12.2006, p. 17. 45 Case T-168/01, 27.9.2006, GlaxoSmithKline, paras. 118 and 167. Notice that the statements indicating that a restriction of competition being reduction of consumer welfare, was not upheld by the ECJ in the appeal judgment. See also Christopher Townley, Article 81 EC and Public Policy, (Hart Publishing, Oxford and Portland 2009), pp. 231-241; Okeoghene Odudu, The Boundaries of EC Competition Law – The Scope of Article 81, (Oxford 2006), p. 125. Odudu does in fact argue for allocative efficiency being the criteria in Article 101 (1), while the efficiencies come into the assessment when applying Article 101 (3). 46 Joined cases C-501, 513, 515 and 519/06 P, 6.10.2009, GlaxoSmithKline, para. 63. 47 A description of this approach is presented in Jonathan Faull and Ali Nikpay, The EU Law of Competition, (Oxford University Press 2014), paras. 3.221-3.221. 48 Joined cases C-501, 513, 515 and 519/06 P, 6.10.2009, GlaxoSmithKline, para. 63. 49 Case C-519/04 P, 18.7.2006, Meca Medina, para. 42; Case C-309/99, 19.2.2002, Wouters, para. 97.See also Giorgio Monti, ‘Article 81 EC and Public Policy’ (2002) CMLR 1057, p. 1061. 50 For further reading about the concept of a restriction of competition, see Okeoghene Odudu, The Boundaries of EC Competition Law – The Scope of Article 81, (Oxford 2006), pp. 97-128; Giorgio Monti, ‘Article 81 EC and Public Policy’ (2002) CMLR 1057; Christopher Townley, Article 81 EC and Public Policy, (Hart Publishing, Oxford and Portland 2009), p. 205-241; Jonathan Faull and Ali Nikpay, The EU Law of Competition, (Oxford University Press 2014), paras. 3.160-3.183.

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implies that establishing direct consumer (welfare) harm is not necessary. An effect on the structure of the market, competition as such or the competitive process is seemingly sufficient. It follows from the wording of Art. 53 that both restrictions of competition by effect and by object are prohibited. These are alternative criteria. If an agreement has as its object to restrict competition, there is no need to establish an anti-competitive effect.52 The concept of object restrictions has been much debated lately.53 The EFTA Court had an opportunity to present its interpretation of object restrictions in Ski and Follo Taxi. In this case, the Norwegian Supreme Court had referred a question of what is the test when determining if an agreement “has a competition-restricting object”, and which criteria that has particular importance when considering if a joint tender should be deemed to have as its object to restrict competition.54 The EFTA Court’s interpretation of object restrictions is in line with the EU case law. The judgment is to a large extent based on Cartes Baincaires and Toshiba.55 The EFTA Court concludes that for an agreement to be regarded as a restriction of competition by object “it must reveal a sufficient degree of harm to competition”,56 and that to determine if that is the case “regard must be had to the content of its provisions, its objectives and the economic and legal context of which it forms part”.57 Furthermore, Ski and Follo Taxi is also in line with the EU case law when determining that for the most serious object restrictions only a limited context assessment is necessary.58 When it comes to the specific topic of the case, joint bidding, it had already been established that the parties to the joint bidding agreement were able to submit individual bids. The EFTA Court classified the joint bidding as cooperation on price, and hence as a restriction of competition by object.59 Ski and Follo Taxi is a very welcome judgment since it is based on established EU case law, and then contributes to securing homogeneity. However, there are two issues in the judgment which still require comments. The first one

51 Case C-286/13, 19.3.2015, Dole Food and Dole Fresh Fruit, para. 125. See also Joined cases C-501, 513, 515 and 519/06 P, 6.10.2009, GlaxoSmithKline, para. 63; Case T-587/08, 14.3.2013 Fresh Del Monte, para. 460. A similar statement was made in Case C-8/08, 4.6.2009, T-Mobile Netherlands, para. 38. 52 Case E-3/16, 22.12.2016, Ski Taxi, Follo, para. 46; Case C-8/08, 4.6.2009, T-Mobile Netherlands, para. 28. 53 See e.g. David Bailey ‘Restrictions of competition by object under article 101 TFEU’, Common Law Market Review, (2012) 559; Saskia King, ‘The Object Box: Law, Policy or Myth?’, European Competition Journal (2011) 269. 54 Case E-3/16, 22.12.2016, Ski Taxi, Follo, para. 24. 55 Case C-67/13 P, 11.9.2014, Cartes Bancaires; Case C-373/14 P, 20.1.2016, Toshiba. 56 Case E-3/16, 22.12.2016, Ski Taxi, Follo, para. 64. See also paras. 50 and 51. 57 Case E-3/16, 22.12.2016, Ski Taxi, Follo, para. 65. See also para. 56. 58 Case E-3/16, 22.12.2016, Ski Taxi, Follo, para. 65. See also para. 93. Confer with Case C-373/14 P, 20.1.2016, Toshiba, paras. 28 and 29. 59 Case E-3/16, 22.12.2016, Ski Taxi, Follo, paras. 91, 92 and 96.

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is that according to judgment “the block exemption regulations do not apply” to agreements having as their object to restrict competition.60 This is not correct as none of the block exemptions contain such an exception. This part of the judgment must be based on a mistaken identification of the so called ‘hard core’ restrictions which block exemptions do not apply to and object restrictions. The restrictions excluded from the block exemptions are specified types of restrictions which are excluded, and this is not a general exclusion of object restrictions from the block exemptions. The second issue deserving a comment is that according to the judgment 37 “[o]nly conduct whose harmful nature is easily identifiable, in the light of experience and economics, should be regarded as a restriction of competition by object”.61 The EFTA Court finds support for this in Advocate General Wahl’s Opinion in Cartes Baincaires.62 This is a statement which the ECJ did not follow up in Cartes Baincaires and has neither been emphasised by the EU Courts in other cases. When the ECJ has emphasised that “that certain types of coordination between undertakings can be regarded, by their very nature, as being harmful to the proper functioning of normal competition”,63 that is not the same as requiring that the harm is easily identifiable. On this point the EFTA Court appears to apply a narrower concept of restrictions by object than the ECJ. This may not necessarily have been the intention, though. Earlier, the EFTA-Court assessed possible object restrictions in two cases, 38 namely Jæger and Hegelstad.64 None of the judgments contain a detailed discussion of object restrictions. In Jæger the EFTA Court found that a non-compete clause restricted competition by its object.65 In Hegelstad the EFTA Court found that an exclusivity agreement did not restrict competition by its object.66 An interesting observation is that these cases concern quite similar agreements. The non-compete obligation in Jæger prevented a potential Opel dealer to sell other cars as well as precluding the owners of the car dealership to be involved with other car dealer companies. The exclusivity agreement in Hegelstad prevented a petrol station to sell motor fuels from others than Hydro Texaco. At its core, both agreements prevent the dealer and retailer to sell products from other suppliers, but only one of them was considered as an object restriction, Jæger. Hegelstad, which is also the most recent of the two judgments, appears to be most in line with the state of law today: non-compete obligations are not considered as agreements that have as their object to restrict competition.67 In cases 60 61 62 63 64 65 66 67

Case E-3/16, 22.12.2016, Ski Taxi, Follo, para. 47. Case E-3/16, 22.12.2016, Ski Taxi, Follo, para. 61 (emphasis added). Opinion of Advocate General Wahl in Case C-67/13 P, 27.3.2014, Cartes Bancaires, para. 56. See e.g. Case C-67/13 P, 11.9.2014, Cartes Bancaires, para. 26. Case E-3/97, 1.4.1998, Jæger, and Case E-7/01, 18.10.2002, Hegelstad v Hydro Texaco. Case E-3/97, 1.4.1998, Jæger, para. 68 and 70. Case E-7/01, 18.10.2002, Hegelstad v Hydro Texaco, para. 26. Cnf. Jonathan Faull and Ali Nikpay, The EU Law of Competition, (Oxford University Press 2014), p. 237. See also OJ C 130, 19.5.2010, p. 1, Commission notice – Guidelines on vertical restraints, paras. 129-150.

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with dominant suppliers one could imagine that such agreements would be considered to have as their object to restrict competition, but those cases are more often dealt with as abuse of dominance cases. 39 If an agreement does not have as its object to restrict competition, it may still violate Art. 53 if it has as its effect the restriction of competition.68 To establish that an agreement, concerted practice or decision by an association of undertakings has as its effect to restrict competition a detailed assessment of the consequences of the agreement in the actual conditions it functions, in particular the economic context, the products or services covered by the agreement and the actual market structure is necessary.69 It is, therefore, required to compare the situation on the market in the presence of the agreement with how it would operate without the agreement.70 40 It is not possible to go further into details on how the effects assessment is or should be performed in this commentary, however, some remarks will be made.71 ESA has adopted a guidance paper for the assessment of effects which mirrors the Commission’s guidance paper.72 In Hegelstad the EFTA Court guided the national court on how to assess the effects of the agreement in that particular case, advising it to consider both the positive and negative effects of exclusivity.73 Also and connected to this, to define the relevant market,74 to appraise the context and a possible cumulative effect from a network of exclusivity agreements,75 the possibilities for new entry to the market,76 the duration of the concrete exclusivity clause and of other clauses in the market,77 whether the concrete agreement make an appreciable contribution to the cumulative effect of such agreements in the market.78 The dispute was later settled by the parties before the Norwegian court got the opportunity to apply the advice given by the EFTA Court. 41 The last issue related to restrictions of competition is that the restriction has to be appreciable. If an agreement, concerted practice or decision of an association of undertakings only has an insignificant effect on the market, it falls outside of Art. 53.79 ESA has adopted a de minimis notice containing safe harbours for 68 Case C-8/08, 4.6.2009, T-Mobile Netherlands, para. 28; Joined cases C-501, 513, 515 and 519/06 P, 6.10.2009, GlaxoSmithKline, para. 50. 69 Joined cases T-374, 375, 384 and 388/94, 15.9.1998, European Night Services. 70 Case 56/65, 30.6.1966, Société Technique Minière v Maschinenbau, p. 249 and 250; Case T-328/03, 2.5.2006, O2 v Commission, paras. 65-117. 71 For further details see e.g. Jonathan Faull and Ali Nikpay, The EU Law of Competition, (Oxford University Press 2014), paras. 3.219-3.384. 72 OJ C 362, 12.12.2013 p. 3 and EEA Supplement to the OJ No 69, 12.12.2013 p.1 (EEA guidelines); OJ C 11, 14.1.2011 p. 1 (EU guidelines). 73 Case E-7/01, 18.10.2002, Hegelstad v Hydro Texaco, para. 28. 74 Case E-7/01, 18.10.2002, Hegelstad v Hydro Texaco, para. 29. 75 Case E-7/01, 18.10.2002, Hegelstad v Hydro Texaco, para. 31. 76 Case E-7/01, 18.10.2002, Hegelstad v Hydro Texaco, para. 33. 77 Case E-7/01, 18.10.2002, Hegelstad v Hydro Texaco, para. 36. 78 Case E-7/01, 18.10.2002, Hegelstad v Hydro Texaco, para. 37. 79 Case C-226/11, 13.12.2012, Expedia, para. 16.

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agreements between undertakings with low market shares, which corresponds to the Commissions de minimis notice.80 V. Void agreements

Pursuant to Art. 53 (2), agreements or decisions that are prohibited by Art. 53 42 are void. It is not sufficient that the agreement violates Art. 53 (1). If Art. 53 (1) is inapplicable because the agreement meets the criteria in Art. 53(3), the agreement is not void. This follows from the wording of Art. 53(2) which refers to conduct prohibited pursuant to Art. 53 as such, and not only to Art. 53(1). The EFTA Court has ruled that the nullity applies to “those parts of the agreement affected by the prohibition, or to the agreement as a whole if it appears that those parts are not severable from the agreement itself”.81 Further, the EFTA Court has expressed that “[i]t is for the national court to determine in accordance with the relevant national law the extent and consequences, for the contractual relations as a whole, of the nullity of certain contractual provisions by virtue of Art. 53(2)”.82 Both the partial nullity and the application of national contract law are in line with EU case law.83 VI. The efficiency exception

Pursuant to Art. 53 (3) the prohibition in paragraph one may be declared inap- 43 plicable if the agreement, concerted practice or decision by an association of undertakings contributes to efficiencies outweighing its negative effects. The wording of the provision “may […] be declared incompatible” indicates that an exemption requires a decision declaring paragraph one inapplicable. This was how this exception was applied prior to the entering into force of Reg.1/2003 in the EU and the SCA Protocol 4, Chapter II, Art. 1 being amended by the EFTA states.84 Art. 1 of SCA protocol 4, Chapter II now declares that Art. 53 (3) is directly applicable so that any agreement in conformity with its cumulative conditions is legal, without any approval from ESA being necessary. Art. 53 (3) contains four conditions for an agreement to be exempted from 44 paragraph one. The first one is that the agreement must contribute to some benefits, described as “improving the production or distribution of goods or to promoting technical or economic progress”. Secondly, the consumers must be al-

80 Notice on agreements of minor importance which do not appreciably restrict competition under Article 53(1) of the EEA Agreement (De Minimis Notice), adopted 1 October 2014. 81 Case E-3/97, 1.4.1998, Jæger, para. 77 and Case E-7/01, 18.10.2002, Hegelstad v Hydro Texaco, para. 43. 82 Case E-3/97, 1.4.1998, Jæger, para. 77 and Case E-7/01, 18.10.2002, Hegelstad v Hydro Texaco, para. 43. 83 Case 319/82, 14.12.1983, Société de Vente de Ciments v Kerpen & Kerpen, paras. 11 and 12; Case 10/86,18.12.1986, VAG France v Magne, para. 15. 84 For further comments on the status of Council Regulation 1/2003, OJ L 1, 4.1.2003, on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, in the EFTA pillar, see comments to Article 56 EEA.

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lowed “a fair share of the resulting benefits”. Thirdly, the restrictions of competition must be indispensable to the attainment of the benefits and lastly, the agreement must not eliminate competition on the relevant market. All these conditions will be discussed in the following. It is worth nothing that so far the EFTA Court has not dealt with any cases where it has been necessary to elaborate on these conditions. 1. Contributing to improved efficiency or other benefits

The wording of Art. 53’s first condition, referring to improving the production or distribution of goods or promoting technical or economic progress, indicates that an agreement contributing to economic efficiencies outweighing the negative effect on competition is exempted from the prohibition in the first paragraph, given that the other conditions are met. Examples of such benefits are if two or more undertakings cooperate to develop more efficient production methods, to develop new or better products or divide between them which products or product segments to focus their production on to achieve specialised production. The wording of the provision only refer to production and distribution of goods, but applies by analogy to services.85 46 A much debated question is whether and to what extent other benefits than economic efficiencies are relevant for qualifying for an exemption, such as e.g., developing production which reduces pollution, improving consumer’s health, promoting culture, or reducing unemployment.86 To what extent public policies other than economic efficiencies are relevant is still debated. That they may at least be relevant appears to follow from the case law of the EU Courts. In STIM, the General Court referred to Art. 151 TEC [167 TFEU] in support for holding that the Commission is required to consider the objective of promoting and respecting cultural diversity when applying Art. 101 TFEU.87 In Metropole Television, the General Court held that “in the context of an overall assessment, the Commission is entitled to base itself on considerations connected with the pursuit of the public interest in order to grant exemption under Article [101(3)] of 45

85 Commission Guidelines on the application of Article 81(3) of the Treaty, OJ C 101, 27.04.2004, p. 97, para. 48; ESA Guidelines on the Application of Article 53(3) of the EEA Agreement, OJ C 208, 6.9.2007, p.1 and EEA supplement to the OJ No 42, 6.9.2007, p. 1, para. 48. 86 See Christopher Townley, Article 81 EC and Public Policy, (Hart Publishing, Oxford and Portland 2009); Giorgio Monti, ‘Article 81 EC and Public Policy’ (2002) CMLR 1057; Okeoghene Odudu, The Boundaries of EC Competition Law: The Scope of Article 81, (Oxford 2006), pp. 159-174; Okoghene Odudu ‘The Wider Concerns of Competition Law’ (2010) Oxford Journal of Legal Studies 599; Richard Whish and David Bailey, Competition Law, (8th edn Oxford 2015), pp. 165-171; Ben van Rompuy, Economic Efficiency: The Sole Concern for Modern Antitrust Policy?: Non-efficiency Considerations Under Article 101 TFEU, (Kluwer Law International 2012); Aleksander Maziarz, ‘Do Non-economic Goals Count in Interpreting Article 101(3) TFEU?’, European Competition Journal, (2014) 341; Anne C Witt, ‘Public Policy Goals Under EU Competition Law – Now is the Time to Set the House in Order’, (2012) European Competition Journal 443. 87 Case T-451/08, 12.4.2013, Stim, para. 73.

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the Treaty”.88 In Metro, the ECJ found stabilising employment as relevant.89 The reason for this was that in this case the agreement improved the general conditions of production. This judgment can, hence, not necessarily be used as an argument that benefits other than economic efficiency are relevant. In Remia the ECJ repeated what it had held in Metro.90 The Commission has found different public interests relevant in its deci- 47 sional practice, but all of these decisions are previous to the adoption of Reg. 1/2003.91 After the decentralisation of the enforcement of Article 101(3) TFEU and the removal of the notification procedure, there have been very few Art. 101(3) TFEU cases decided by the Commission. Both the Commission’s and ESA’s guidelines on the application of Art. 101(3) TFEU and Art. 53(3) EEA, respectively, concentrate on economic efficiencies, and do not characterise other public interests as relevant benefits.92 This indicates that the Commission’s approach to what qualifies as a relevant benefit changed with the decentralisation of the enforcement of Art. 101(3). However, as long as the ECJ finds public interests relevant, the change of opinion from the Commission does not matter much, especially when the ECJ in Stim found a public interest other than economic efficiency to be relevant.93 The case law does not give much guidance on to what extent other public 48 interests are relevant. There are no examples of cases where the courts have accepted that an agreement qualifies for an exception solely based on benefits other than economic efficiencies. As a consequence, is it not clear if these public interests are sufficient on their own for the agreement to be exempted from Art. 53(1). It can be argued that, in relation to EU competition law, national competition 49 authorities are not well suited for the task of balancing different EU policies. After the decentralisation of the enforcement of Art. 101(3) one can then argue that to prevent national competition authorities from balancing different EU policies, Art. 101(3) must be interpreted in a narrow manner.94 This may also explain why the Commission in its guidelines did not mention other public interests than economic efficiency as relevant benefits, despite having considered such interests as relevant in its decisional practice up until the decentralisation of the enforcement entered into force. Other arguments that can be made in support 88 89 90 91

Case T-528, 542, 543 and 546/93, 11.7.1996, Metropole Télévision, para. 118. Case 26/76, 25.10.1997, Metro v Commission, para. 43. Case 42/84, 1.7.1985, Remia, para. 42. See e.g. Commission Decision of 23 December 1992 (OJ L 20, 28.1.1993, p-14); Commission Decision of 10 May 2000 (OJ L 151, 24.6.2000, p. 18); Commission Decision of 24 January 1999 (OJ L 187 26.7.2000, p. 47). 92 Commission Guidelines on the application of Article 81(3) of the Treaty, OJ C 101, 27.4.2004, p. 97, paras. 48-72; ESA Guidelines on the Application of Article 53(3) of the EEA Agreement, OJ C 208, 6.9.2007, p.1 and EEA supplement to the OJ No 42, 6.9.2007, p. 1, paras. 28-72. 93 Case T-451/08, 12.4.2013, Stim, para. 73. 94 Richard Whish and David Bailey, Competition Law, (8th edn, Oxford 2015), p. 168-169.

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of a narrow interpretation are that the exception will be less operational if one has to balance different policies, compared to if it is only about balancing a negative and a positive effect on competition. Also, it has been argued that interpreting provisions such as Art. 167 TFEU promoting cultural diversity, and other rules protecting different public interest, as a benefit that competition authorities are required to take into account when applying Art. 101(3), is to give these provisions a direct effect through the “back door”.95 One may also add that these provisions are not directed at national enforcement agencies but at EU institutions. 50 It is hard to present a clear conclusion on what constitute relevant benefits under Art. 53(3). And if public interests are to be considered as relevant benefits it is furthermore not clear to what extent they may help qualifying an agreement for an exception. Future judgments from the EU Courts or the EFTA Court may clarify this question. 51 Annex XIV to the EEA Agreement contains block exemptions for some types of agreements that are expected to contribute to economic efficiency. These block exemptions mirror the block exemptions from Art. 101 TFEU, with minor but necessary adjustments of the wording. Examples of these adjustments are that Art. 101 shall be read as Art. 53, or that “Commission” shall be read “competent surveillance authority”. In essence, the block exemptions are identical on all substantive matters. 2. Benefitting consumers 52

The second condition in Art. 53(3) is that consumers must be allowed “a fair share of the resulting benefit”. Benefits that only apply to the undertakings investigated, such as increased profit, are not sufficient. This requirement indicates that a consumer welfare standard is applied. An agreement may result in reduced costs for the companies, but at the same time to increased market power, which can lead to the prices being unchanged. This increases the profit of the undertakings and hence contributes to increased total welfare. However, such benefits will not qualify for an exemption since the consumers are not allowed a fair share of the benefits. Often though, reduced costs as a consequence of an agreement leading to more efficient production are also beneficial for the consumers. Depending on the market structure, the elasticity of demand and the magnitude of the restriction of competition, the reduced costs will have reduced prices as their effect.96 If the undertakings parties to the agreement do not have substantial market power the reduced costs will be used to reduce prices and increase sales.

95 Okeoghene Odudu, The Boundaries of EC Competition Law: The Scope of Article 81, (Oxford 2006), pp. 164-170. 96 ESA Guidelines on the Application of Article 53(3) of the EEA Agreement, OJ C 208, 6.9.2007, p.1 and EEA supplement to the OJ No 42, 6.9.2007, p. 1, paras. 95-101.

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Qualitative efficiencies in the form of better or new products will also be 53 beneficial to consumers. However, if the agreement also leads to a price increase, the net effect on the consumers may not necessarily be positive. The balancing of increased quality on the one hand and increased prices on the other hand is difficult to do.97 Both the Commission and ESA do acknowledge that quality increases can outweigh price increases.98 Furthermore, it is the net effect on all the consumers in the relevant mar- 54 ket which is to be considered.99 If an agreement has an effect on two distinct groups of consumers both groups have to receive a fair share of the benefits.100 According to the Commission and ESA, if two markets are related and the consumers are substantially the same in both markets, the positive effects can be balanced against negative effects in a different market.101 3. Indispensable restrictions

The third condition for an agreement to be exempted is that it does not im- 55 pose restrictions on the undertakings “which are not indispensable to the attainment of” the benefits. If a cartel agreement produces some efficiency, the price fixing or market sharing elements of the agreement must be necessary to achieve the positive effects. If the efficiencies can be achieved through less restrictive measures the agreement will not be exempted.102 This condition is often the limb that precludes ‘hard core’ restrictions from 56 qualifying for the exception in Art. 53. It is rarely necessary to agree on prices or to share markets in the downstream market to achieve production efficiencies, or to join forces on developing new or better products. On the other hand, such cooperation will often lead to a certain amount of information exchange about, e.g. production costs, which may restrict competition, but still be exempted from the prohibition in Art. 53.

97 ESA Guidelines on the Application of Article 53(3) of the EEA Agreement, OJ C 208, 6.9.2007, p.1 and EEA supplement to the OJ No 42, 6.9.2007, p. 1, para. 103. 98 ESA Guidelines on the Application of Article 53(3) of the EEA Agreement, OJ C 208, 6.9.2007, p.1 and EEA supplement to the OJ No 42, 6.9.2007, p. 1, para. 102; Commission Guidelines on the application of Article 81(3) of the Treaty, OJ C 101, 27.4.2004, p. 97, para. 102; Commission Decision of 19 December 2007 in case 34579, Mastercard, para. 734. 99 Case C-238/05, 23.11.2006, Asnef-Equifax v Ausbanc, para. 70. 100 Case T‑111/08, 24.5.2012, Mastercard, para. 228. 101 ESA Guidelines on the Application of Article 53(3) of the EEA Agreement, OJ C 208, 6.9.2007, p.1 and EEA supplement to the OJ No 42, 6.9.2007, p. 1, para. 43; Commission Guidelines on the application of Article 81(3) of the Treaty, OJ C 101, 27.4.2004, p. 97, para. 43. 102 ESA Guidelines on the Application of Article 53(3) of the EEA Agreement, OJ C 208, 6.9.2007, p.1 and EEA supplement to the OJ No 42, 6.9.2007, p. 1, para. 75; Commission Guidelines on the application of Article 81(3) of the Treaty, OJ C 101, 27.4.2004, p. 97, para. 75.

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4. No elimination of competition 57

The last condition in Art. 53(3) is that the agreement does not allow the undertakings “the possibility of eliminating competition in respect of a substantial part of the products in question”. This condition can be labelled as a safety net. It prevents agreements which both have a severe effect on competition and produce efficiencies from being exempted from the prohibition in paragraph one. When assessing if an agreement makes it possible to eliminate competition both the present degree of competition in the market and to what extent the agreement will restrict competition has to be examined.103 This condition is probably most relevant when an agreement produces short term efficiencies but at the same time eliminates or largely reduces rivalry in the market in the long run.104 VII. Public policy exemptions and the applicability of Art. 53 EEA

Art. 53(3) is not the only manner in which an agreement can be exempted from the prohibition in the first paragraph. Case law has developed other exceptions from the prohibition. These are the non-applicability of Art. 53 on collective bargaining agreements improving conditions of work and employment, ancillary restraints and objectively justified restrictions (the Wouters-justification). 59 The EFTA Court has dealt with the collective bargaining exception in two cases, LO and Holship.105 Both of them were advisory opinions to national courts. In LO the court, without concluding on the case, indicated that a collective agreement regulating the criteria for the quality of a supplementary pension scheme was intended to improve the conditions of work and employment and, hence, was to be exempted from the application of Art. 53. The advisory opinion in LO was followed up the national court.106 60 In Holship the EFTA Court’s advisory opinion went far in indicating that a collective agreement and a boycott introduced on the basis of the collective agreement, which had the effect that port users were bound to engage dock workers employed by a local administration office, went beyond what could be regarded as measures intended to improve conditions of work and employment. This was based on the fact that the collective agreement gave the lo58

103 ESA Guidelines on the Application of Article 53(3) of the EEA Agreement, OJ C 208, 6.9.2007, p.1 and EEA supplement to the OJ No 42, 6.9.2007, p. 1, para. 107; Commission Guidelines on the application of Article 81(3) of the Treaty, OJ C 101, 27.4.2004, p. 97, para. 107. 104 ESA Guidelines on the Application of Article 53(3) of the EEA Agreement, OJ C 208, 6.9.2007, p.1 and EEA supplement to the OJ No 42, 6.9.2007, p. 1, para. 75; Commission Guidelines on the application of Article 81(3) of the Treaty, OJ C 101, 27.4.2004, p. 97, para. 75. 105 Case E-8/00, 22.3.2002, Landsorganisasjonen; Case E-14/15, 19.4.2016, Holship is also commented by John Temple Lang, ‘Competition Law: The Brussels Perspective’, in: C. Baudenbacher (ed), The Handbook of EEA Law (Springer 2016), p. 529. 106 Norwegian Labour Court in judgment 8. October 2002, paras. 656-698.

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cal administration office an exclusive right to offer these services in the port. Furthermore the EFTA Court held that this priority clause for the local administration office protects only a limited group of workers to the detriment of other workers and, hence, differs from the kind of agreements “at issue in the Albany line of case law”.107 The Norwegian Supreme Court decided Holship based on the free movement provisions, as the exclusivity and boycott were considered to be a restriction of the freedom of establishment.108 A dissenting minority did address the competition law aspects and did not follow the advisory opinion from the EFTA Court. The reason for this was that the EFTA Court apparently had misunderstood the facts, and according to the dissenting minority the sole purpose of the agreement was to secure the dock workers’ wages and working conditions.109 Both judgments are based on ECJ’s judgment in Albany.110 In LO the EFTA Court first discussed if the social policy objectives which limit the applicability of Art. 101 TFEU had a sufficient basis in the EEA Agreement to limit the applicability of Art. 53 similarly.111 Based on the goal of an uniform interpretation, equal treatment in the whole EEA, the principle of loyalty and the mentioning of social policy objectives in the preamble to EEA Agreement, the EFTA Court found a sufficient legal basis to conclude that collective bargaining agreements “intended to improve conditions of work and employment [… must] be regarded as falling outside the scope of the prohibition contained in Article 53(1)”.112 Regarding the scope of this exception, the EFTA Court has held that it is not sufficient that the parties to the agreement are labour unions and employer organisations or that the overall objective of the agreement is to improve work and employment conditions.113 Both EFTA Court judgments contain one element which cannot be found in Albany or later EU case law. The EFTA Court held that “the term “conditions of work and employment” must be interpreted broadly”.114 Whether this is a difference in opinion or a position shared by the ECJ is not certain. Neither of the cases can be said to provide an answer to this. The other two case law-based exemptions have not been subject to any judgments by the EFTA Court. However, based on the EFTA Court’s reasoning for applying the Albany exception, it appears safe to conclude that both the ancillary restraints doctrine and the Wouters-justification are applicable in EEA law. The ancillary restraints exception “covers any restriction which is directly 107 108 109 110 111 112 113

Case E-14/15, 19.4.2016, Holship, paras. 51 and 52. HR-2016-2554-P, Holship v Norsk Transportarbeiderforbund. HR-2016-2554-P, Holship v Norsk Transportarbeiderforbund, paras. 146-157. Case C-67/96, 21.9.1999, Albany. Case E-8/00, 22.3.2002, Landsorganisasjonen, paras. 38 f. Case E-8/00, 22.3.2002, Landsorganisasjonen, paras. 38-44. Case E-8/00, 22.3.2002, Landsorganisasjonen, paras. 49-51; Case E-14/15, 19.4.2016, Holship, paras. 42 and 51. 114 Case E-8/00, 22.3.2002, Landsorganisasjonen, para. 53; Case E-14/15, 19.4.2016, Holship, para. 44.

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related and necessary to the implementation of a main operation”.115 The so called Wouters-justification is based on the ECJ’s judgments in Wouters and Meca Medina.116 In these judgments a restriction of competition that was objectively necessary to achieve a legitimate objective was exempted from the application of Art. 101 TFEU.117 The scope of this justification is not entirely clear. It has been argued both that it only applies to regulatory measures and that is generally applicable.118

Article 54 [Abuse of a dominant position] Any abuse by one or more undertakings of a dominant position within the territory covered by this Agreement or in a substantial part of it shall be prohibited as incompatible with the functioning of this Agreement in so far as it may affect trade between Contracting Parties. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

I. Introduction

Art. 54 contains the prohibition of abuse of a dominant position and is the EEA equivalent of Art. 102 TFEU. It consists of two paragraphs. The first paragraph contains the prohibition, while the second presents some examples of abuses. The wording of the provision is identical to Art. 102 TFEU. 2 The EFTA Court has dealt with Art. 54 only in a handful of cases. The two most significant ones are Posten and Sorpa.1 Both will be discussed below. This commentary will not discuss in detail all the different types of abuses which are found in the case law of the ECJ. As a consequence, the analysis focuses on the 1

115 Case T-112/99, 18.9.2001, Métropole Television, para. 104. 116 Case C-309/99, 19.2.2002, Wouters; Case C-519/04 P, 18.7.2006, Meca Medina. 117 Case C-309/99, 19.2.2002, Wouters; Case C-519/04 P, 18.7.2006, Meca Medina, paras. 42-47. 118 Christopher Townley, Article 81 EC and Public Policy, (Hart Publishing, Oxford and Portland 2009), pp. 130-138; Giorgio Monti, ‘Article 81 EC and Public Policy’ (2002) CMLR 1057, p. 1086-1088; van de Gronden, ‘The Treaty Provisions on Competition and Health Care’, in van de Gronden, Szyszczak, Neergaard and Krajewski (eds), Health Care and EU Law (Springer, 2011), pp. 274-278; Wolf Sauter and Harm Schepel, State and Market in European Union Law, (Cambridge, 2009), pp. 91-93; Richard Whish and David Bailey, Competition Law, (8th edn, Oxford 2015), pp. 138-145. 1 Case E-15/10, 18.4.2012, Posten Norge; Case E-29/15, 22.9.2016, Sorpa.

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topics which have been subject to decisions by ESA and judgments by the EFTA Court.2 For the requirement of effect on trade between the Contracting Parties, see the comments to Art. 53 EEA. II. Dominant position

A dominant position has been defined as

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“the economic strength enjoyed by an undertaking [t]hat ... enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers”.3

Those familiar with the case law of the ECJ on dominance will recognise this 4 definition.4 It has not yet been necessary for the EFTA Court to go in depth on the concept of dominance. In Posten, which is the only ESA decision finding an abuse of dominance that has been appealed before the Court, the finding of dominance was not challenged. Also, the cases referred from national courts have neither raised any specific issues related to dominance. In Holship, where one of the questions was if the priority right for an administration office in a harbour to offer loading or unloading services amounted to an abuse of a dominant position, the EFTA court did elaborate on the concept of a dominant position to a certain extent. The EFTA Court’s interpretation is very much in line with the case law of the ECJ. Here it was held that the relevant market has to be defined and that a market share of 50 per cent or above in itself, save in exceptional circumstances, is evidence of a dominant position.5 The EFTA Court has also underlined that the dominant position has to cover 5 a substantial part of the EEA territory.6 The territory of one Contracting Party (or Member State) has been found to constitute a substantial part of the EEA territory, which is in line with the EU case law.7 In Holship the question of whether a port may be regarded as a substantial part of the EEA required a response by the EFTA Court. Again, the EFTA Court followed the EU case law and held that a port can be regarded as a substantial part, depending on the volume of traffic in it, and its importance to maritime and export operations as a whole in the EEA.8 The EFTA Court went further and held that if one port is not 2 For more detailed works on abuse of dominance see: Robert O’Donoghue and Jorge Padilla, The Law and Economics of Article 102 TFEU, (Oxford and Portland, Oregon 2013); Jonathan Faull and Ali Nikpay, The EU Law of Competition (Oxford University Press 2014), paras. 4.252-4.935; Richard Whish and David Bailey, Competition Law (8th edn Oxford 2015), pp. 721-852; Ekaterina Rouseva, Rethinking Exclusionary Abuses in EU Competition Law (Oxford and Portland, Oregon 2010); Eirik Østerud, Identifying Exclusionary Abuses by Dominant Undertakings under EU Competition Law: The Spectrum of Tests (Kluwer 2010). 3 Case E-14/15, 19.4.2016, Holship, para. 82. 4 See e.g. Case 27/76, 14.2.1978, United Brands, para. 65; Case 85/76, 13.2.1979, Hoffmann La Roche, para. 38; Case C‑549/10 P, 19.4.2012, Tomra, para. 38. 5 Case E-14/15, 19.4.2016, Holship, paras. 78-81 and 83. 6 Case E-14/15, 19.4.2016, Holship, para. 85. 7 Case E-4/05, 17.1.2006, HOB-vín, para. 47; Case T-229/94, 21.10.1997, Deutsche Bahn, para. 58.

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considered as a substantial part of the EEA, one would have to assess “the extent to which comparable AO [Administration Office] systems exist in other ports”.9 This may be understood to imply that if there is a network of dominant port operators, the requirement of a dominant position in a substantial part of the EEA is fulfilled. However, this cannot be a correct interpretation. After all, the wording of Art. 54 requires that a single undertaking has a dominant position in a substantial part of the EEA. Only if one and the same undertaking has a dominant position in several ports can the network effect of its position be relevant for finding that it is dominant in a substantial part of the EEA. 6 The EFTA Court’s case law does not highlight other factors of relevance in the assessment of a dominant position than market shares. Nevertheless, in ESA’s decisional practice other factors have been relevant though, in particular entry barriers. Both of ESA’s decisions related to an infringement of Art. 54, Posten and Color Line, concerned undertakings with very high market shares. Despite the high market shares, ESA examined if there were high entry barriers on the relevant markets. In the Posten Decision circumstances such as a wellknown brand, customer loyalty, Posten’s wide range of offered products, its statutory monopoly on letter deliveries, and the high costs of establishing a parcel delivery infrastructure were considered to contribute to high entry barriers.10 In Color Line ESA examined potential entry barriers in the form of brand, reputation and lack of alternative harbours, despite Color Line having a market share of 100%.11 III. Abuse 1. General remarks 7

Art. 54 does not contain a definition of abuse. The second paragraph lists examples of abusive behaviour. This is not an exhaustive list of abuses, as made clear by the wording “[s]uch abuse may, in particular, consist in”.12 The case law does neither contain a general definition of abuse but it does define the two main groups of abuses. Exploitative abuses have been defined as an undertaking making “use of the opportunities arising out of its dominant position in such a way as to reap trading benefits which it would not have reaped if there had been normal and sufficiently effective competition”.13 Exclusionary abuses have been defined as: 8 9 10 11 12

Case E-14/15, 19.4.2016, Holship, para. 85; Case C-242/95, 17.7.1997, GT-Link, para. 37. Case E-14/15, 19.4.2016, Holship, para. 86. Case No 34250, Norway Post, paras. 421, 423, 425 and 468. Case No 59120, Color Line, paras. 542. Case E-4/05, 17.1.2006, HOB-vín, para. 52; Case 6/72, 21.2.1973, Continental Can, para. 26; Joined Cases C-395 and 396/96 P, 16.3.2000, CEWAL, para. 112. For a somewhat different view see Robert O’Donoghue and Jorge Padilla, The Law and Economics of Article 102 TFEU, (Oxford and Portland, Oregon 2013) pp. 256-258. 13 Case C-52/07, 11.12.2008, Kanal 5 and TV4, para. 27; Case 27/76, 14.2.1978, United Brands, para. 249.

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Article 54 Abuse of a dominant position “An objective concept relating to the conduct of a dominant undertaking which, on a market where the degree of competition is already weakened precisely because of the presence of the undertaking concerned, through recourse to methods different from those governing normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition”.14

The definition contains two conditions for a conduct to amount to an exclu- 8 sionary abuse: a negative effect on competition and a conduct which differs from normal competition. The presence of these conditions confirm what can also be deduced from the wording of the provision itself, that merely being dominant is not illegal in itself, as confirmed by the EFTA Court in Posten.15 That an abuse has to be conduct which differs from normal competition implies that not all conducts that have a negative effect on competition amount to an abuse. This has been clearly expressed by the ECJ.16 Apart from the definition quoted above the EFTA Court has not been as clear, but it has held that “acquiring, on its own merits, a dominant position” is not prohibited by Art. 54.17 Despite being allowed to compete on the merits, e.g. charging lower prices 9 because of lower costs, offering better products etc., a dominant undertaking “has a special responsibility not to allow its conduct to impair genuine undistorted competition in the EEA internal market”.18 The true meaning of this special responsibility has never been clarified. The easy and arguably correct interpretation of it is that the freedom of dominant undertakings is reduced compared to non-dominant ones.19 The obvious example being that their unilateral conduct may be illegal. As well as that some agreements may be anti-competitive when entered into by dominant undertakings. The effect on competition mentioned in the definition of an abuse does not 10 have to be an effect in the sense of direct consumer harm. As held by the EFTA Court, Art. 54 “must be interpreted as referring not only to practices which may cause damage to consumers directly, but also to those which are detrimental to them through their impact on competition.”20 This has been held by the ECJ as well.21 Further, there is no requirement of demonstrating actual effects; it is sufficient “to show that the conduct in question was liable to distort competition”.22 On that basis, a potential effect on competition is required, but it is not 14 Case E-15/10, 18.4.2012, Posten Norge, para. 130; Case E-14/15, 19.4.2016, Holship, para. 89; Case C‑549/10 P, 19.4.2012 Tomra, para. 17; Case C-52/09, 17.2.2011, TeliaSonera, para. 27. 15 Case E-15/10, 18.4.2012, Posten Norge, para. 127. 16 Case C-280/08 P, 14.10.2010, Deutsche Telekom, para. 177; Case C-52/09, 17.2.2011, TeliaSonera, para. 43; Case C-457/10 P, 6.12.2012, AstraZeneca, para. 75. 17 Case E-15/10, 18.4.2012, Posten Norge, para. 127. 18 Case E-15/10, 18.4.2012, Posten Norge, para. 128; Case E-14/15, 19.4.2016, Holship, para. 88. 19 See Richard Whish and David Bailey, Competition Law, (8th edn Oxford 2015), p. 202. 20 Case E-14/15, 19.4.2016, Holship, para. 87; Case E-15/10, 18.4.2012, Posten Norge, para. 127. 21 Case 6/72, 21.2.1973, Continental Can, para. 26; Case C-95/04, 15.3.2007, British Airways; para. 106.

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necessary to establish any direct consumer harm. Beyond this it is arguably not possible to establish a general requirement of what kind of effects a conduct has to produce to be considered as an abuse. Different tests are applied to different types of conduct to examine whether the particular conduct amounts to an abuse of a dominant position. This commentary will elaborate on a few of these tests below, spotlighting those which have been applied by the EFTA Court. However, it is outside the scope of this commentary to go into detail on all the different tests applied to different forms of conduct. 2. Exclusivity agreements

In Holship the EFTA Court held that if a dominant undertaking enters into an agreement that “obliges purchasers to obtain all or most of their requirements from that undertaking, it will be abusing its dominant position”.23 Rebates based on obtaining all or most of the requirement from the dominant undertaking, so called exclusivity rebates are also considered to be an abuse.24 These agreements are what may be labeled as an abuse by their very nature. If no objective justification is present the agreements will amount to an abuse. It should be mentioned that the pending appeal in Intel may change the state of the law at least regarding exclusivity rebates.25 In his opinion Advocate General Wahl proposes a more refined test to examine exclusivity rebates.26 12 In Posten the EFTA Court reviewed a decision by ESA regarding exclusivity agreements that did not foreclose the actual market but partially foreclosed the distribution channel. The EFTA Court distinguished between the two types of exclusivity and did not apply the strict test quoted above.27 Instead, the EFTA Court held that “where the degree of foreclosure with regard to important distribution outlets is substantial, the conduct is capable of distorting competition on the entire market in question”.28 Posten had entered into agreements with three of the four big grocery store chains in Norway to establish its ‘Post in Shop’ concept. One of these chains, Norgesgruppen, was given a priority partner status which, in turn, gave Posten an exclusive right to have a business to consumer (“B to C”) parcel delivery service in all of that chain’s stores; a so called chain level exclusivity. This precluded Norgesgruppen from allowing other “B to C” service providers to offer their services in stores where Posten was not presented, as well. With regard to the two other partners of Posten it was agreed to grant 11

22 Case E-15/10, 18.4.2012, Posten Norge, paras. 131 and 189; C-23/14, 6.10.2015, Post Danmark II, para. 66; Case C-52/09, 17.2.2011, TeliaSonera, para. 64. 23 Case E-14/15, 19.4.2016, Holship, para. 90; See also 85/76, 13.2.1979, Hoffmann La Roche, para. 89. 24 Case T-286/09, 9.7.2010, Intel, paras. 80 and 81. 25 Case C-413/14 P, Intel, pending. 26 Opinion of Advocate General Wahl in Case C-413/14 P, 20.10.2016, Intel. 27 Case E-15/10, 18.4.2012, Posten Norge, para. 135. 28 Case E-15/10, 18.4.2012, Posten Norge, para. 135.

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Posten exclusivity only in the stores where Posten offered its “B to C” parcel delivery service. To establish if a substantial part of the distribution outlets were foreclosed the EFTA Court upheld ESA’s conclusion that there was a strong preference for the leading grocery store, kiosk or petrol station chains when establishing a B to C parcel delivery service. The basis for this was that these outlets had better opening hours, good accessibility and well trained staff.29 This had the effect of narrowing the amount of relevant outlets when deciding if Posten’s agreements foreclosed a substantial part of the distribution outlets. All specialised stores were excluded, mainly based on less attractive opening hours, not being as accessible and due to a possible conflict of interest with the distance selling companies using B to C delivery services. The result was that Posten’s conduct foreclosed 50 per cent of the relevant outlets. A highly interesting element in Posten is that it was not only the agreements that contributed to the foreclosure. Posten’s negotiation strategy when renewing the agreements with the grocery store chains contributed to the foreclosure of the distribution market. During the renegotiations Posten held the possibility of becoming the preferred partner open for all of its three existing partners. As mentioned above, a preferred partner had to give Posten exclusivity in the whole chain, even in the outlets where Posten did not have a Post in Shop outlet. This strategy was considered to reduce the incentives for all of Posten’s partners to give Posten’s competitors in the B to C parcel delivery market access to their grocery stores. Giving such access would reduce their possibility of becoming Posten’s preferred partner.30 When concluding that a negotiation strategy may constitute an abuse, the EFTA Court identified a type of abuse which we do not find in the EU case law. Finding that such a strategy is an abuse may also come out as a bit harsh. Still, the EFTA Court’s reasoning is sound. Given that Posten was the most attractive business partner all the grocery store chains had incentives to become Posten’s preferred partner. That would require them giving Posten an exclusive right to offer B to C package deliveries in the whole chain. The strategy, then, reduced the incentives for the grocery store chains to cooperate with Posten’s competitors. An important factor for finding that the negotiations amounted to an abuse was that the negotiations went on for a significant period, two years.31 The renegotiation strategy was then held to be intended to or capable of restricting or foreclosing competition. This is so because it extended the effects of the exclusivity by foreclosing a larger amount of the available outlets than the agreement as such did. Apart from finding that the renegotiation strategy amounted to an abuse, the judgment appears to be based on the General Court’s judgments in Tomra and 29 Case E-15/10, 18.4.2012, Posten Norge, paras. 147-158. 30 Case E-15/10, 18.4.2012, Posten Norge, paras. 176-179. 31 Case E-15/10, 18.4.2012, Posten Norge, paras. 178.

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Van den Bergh Foods.32 Both judgments had earlier held that when it comes to foreclosing distribution outlets, a conduct foreclosing a substantial part of the market is capable of restricting competition.33 17 The EFTA Court’s judgment in Posten has been praised by Temple Lang for not entering into a discussion regarding which of apparently three different interpretations given by the ECJ to Art. 102 TFEU should apply in its Posten judgment.34 According to Temple Lang the ECJ has applied three different tests on exclusivity agreements, and by doing that creating uncertainty about the state of the law.35 He does seem to overlook that the three interpretations he refers to are not substitutable tests for exclusivity agreements, but different tests applied to different factual situations. There is the strict test applicable to exclusivity agreements foreclosing the actual market, which was referred to by the EFTA Court in Holship.36 Then, there is the test applied in Posten and Tomra to foreclosure of a distribution channel. The third alternative mentioned by Temple Lang appears to be the tests related to predatory pricing which are not relevant for exclusivity agreements. Considering that these tests are meant to be applied in different factual situations, it is perhaps going a bit far to praise the EFTA Court for finding the correct test to apply. 3. Price discrimination 18

In Sorpa the EFTA Court was referred a question from the Icelandic Supreme Court about price discrimination.37 Sorpa – a publicly owned company – operated a waste acceptance centre and a landfill site. Sorpa was not involved in the waste collection service. It offered a discount on waste acceptance to its owners, a number of municipalities in the Reykjavik area. A competing waste acceptance company – Gámaþjónustan – claimed that they were placed at a disadvantage by this discount, and that the discount was a discrimination which amounted to an abuse. The Icelandic Competition Authorities found that the discount constituted an abuse. The decision was appealed all the way to the Supreme Court. The case was based on the application of a provision in the Icelandic competition act which is harmonised with Art. 54 EEA. Due to the harmonisation the referred questions about the interpretation of EEA provisions was considered admissible by the EFTA Court.38

32 Case T-155/06, 9.9.2010, Tomra; Case T-65/98, 23.10.2003, Van den Bergh Foods. 33 Case T-65/98, 23.10.2003, Van den Bergh Foods, para. 160. Case T-155/06, 9.9.2010, Tomra, para. 240 and 241. 34 John Temple Lang, ‘Competition Law: The Brussels Perspective’. in C. Baudenbacher (ed), The Handbook of EEA Law (Springer 2016), p. 540. 35 John Temple Lang “Competition Law: The Brussels Perspective” in Carl Baudenbacher (ed.), The Handbook of EEA Law, (Springer 2016), p. 540. 36 Case E-14/15, 19.4.2016, Holship, para. 90. Cf. with Case 85/76, 13.2.1979, Hoffmann La Roche, para. 89. 37 Case E-29/15, 22.9.2016, Sorpa. 38 Case E-29/15, 22.9.2016, Sorpa, paras. 34-36.

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The question asked by the Icelandic Supreme Court was restricted to the interpretation of Art. 54(2)(c) which specifies as an abuse discrimination of trading parties and thereby placing them at a competitive disadvantage. As the EFTA Court rightly held, Art. 54(2)(c) requires that the party which is discriminated against must be placed at a competitive disadvantage vis-à-vis its competitors and “that disadvantage must occur on a market either downstream or upstream of the dominant market”.39 Gámaþjónustan was not competing with Sorpa’s owners who received the discount, but instead competed with Sorpa and, hence, Article 54(2)(c) did not apply.40 Despite not being an abusive discrimination in relation to Art. 54(2)(c) specifically, Sorpa’s conduct may still constitute an abuse. The discounts provided by Sorpa may have created incentives for the waste collectors acting in the municipalities that owned Sorpa, to deliver the waste to Sorpa’s waste acceptance center, since that would give the municipalities the discount. On the other hand, if the waste was delivered to Gámaþjónustan the municipalities would not get the discount. If the discount then had as their effect that Gámaþjónustan lost customers, they may have had an exclusionary effect. The question referred from the Icelandic Supreme Court did not address other types of abuses, but the EFTA Court still addressed the topic in its Advisory Opinion. It held that the conduct may constitute an abuse as tying, margin squeeze or predatory pricing provided that the conditions laid down in the case law were met.41 Interestingly, the case law referred to by the EFTA Court was EU case law.42 The EFTA Court then implied that Art. 54 is to be interpreted in the same manner as Art. 102 TFEU.43 The EFTA Court was right in not finding an Art. 54(2)(c) discrimination and in indicating that the conduct may amount to a different abuse. The discount may have been predatory pricing or loyalty inducing rebates. As pointed out by the EFTA Court, since Sorpa was prevented by national law to charge a price not exceeding its costs, the discounts given to its owner may have led to prices below cost.44 In the final judgment of the Icelandic Supreme Court, the Court seems to have found that the conduct constituted an abusive discrimination.45 The Icelandic Supreme Court appears to have interpreted the national provision differently than the EFTA Court’s interpretation of Art. 54(2)(c), in the sense that the national provision did not require that Gámaþjónustan was put at a competitive

39 40 41 42 43

Case E-29/15, 22.9.2016, Sorpa, para. 108. Case E-29/15, 22.9.2016, Sorpa, paras. 110, 113 and 115. Case E-29/15, 22.9.2016, Sorpa, paras. 116 and 117. Case E-29/15, 22.9.2016, Sorpa, para. 116. See John Temple Lang, ‘Competition Law: The Brussels Perspective’, in C. Baudenbacher (ed), The Handbook of EEA Law (Springer 2016) 524. Temple Lang points out that The EFTA Court tends to follow and apply the substantive case law of the EU Courts. 44 Case E-29/15, 22.9.2016, Sorpa, para. 117. 45 Mál nr 273/2015, Sorpa v Samkeppniseftirlitinu (Icelandic Competition Authority).

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disadvantage towards those receiving the discount. Instead, the fact that its competitive position was generally weakened was sufficient. The Supreme Court did emphasise that the list provided in (a) to (d) in the national provision, as for Art. 54(2), was not exhaustive; however, it still appears to end up applying the discrimination alternative in (c). Considering that it was national law on unilateral behaviour which was applied, the Court is free to interpret the national law stricter than EEA law,46 but it is tempting to ask why they refer the case to the EFTA Court if they do not intend to interpret the national provision in line with Art. 54. 4. Other types of abuses 23

As mentioned above, the EFTA Court’s judgment in Sorpa indicates that Art. 54 is to be interpreted in the same manner as Art. 102 TFEU. 47 The application of Art. 54(2)(c) in Sorpa and the assessment of Posten’s exclusivity agreements in Posten confirms this. The judgment in Posten appears, as mentioned above, highly influenced by Tomra and Van den Bergh Foods and in Sorpa the EFTA Court refers to EU case law for the interpretation of Art. 54(2)(c) as well.48 IV. Justifications

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A conduct which at first appears to be an abuse of a dominant position may be justified and, therefore, not constitute an abuse.49 The justification can either be that the conduct is objectively necessary,50 or that the negative effect is counterbalanced by efficiencies.51 The burden of demonstrating a justification is on the undertaking allegedly having abused its dominant position.52 The possibility of demonstrating a justification appears to be low. To the author’s knowledge, the EU Courts and the EFTA Court are yet to approve a justification claim. Though, the case law may provide a biased picture of the possibility to justify an abusive conduct, considering that all judgments deal with cases where a competition authority has found an abuse in the first place. Some cases may never have been formally opened or ended with a closing decision if efficiencies or an objective justification were present.

46 See SCA Protocol 4, Chapter II, Art. 3(2) which is the EEA equivalent to Reg. 1/2003 Art. 3(2). 47 Case E-29/15, 22.9.2016, Sorpa, para. 116. 48 Case E-29/15, 22.9.2016, Sorpa, para. 109; Case E-15/10, 18.4.2012, Posten Norge, paras. 129, 135, 161, and 189. 49 Case C-209/10, 27.3.2012, Post Danmark I, para. 40; Case 27/76, 14.2.1978, United Brands, para. 184; Case C-52/09, 17.2.2011, TeliaSonera,, paras. 31 and 75. 50 Case T-30/89, 12.12.1991, Hilti, paras. 102-119. 51 Case C-209/10, 27.3.2012, Post Danmark I, para. 41. 52 Case E-15/10, 18.4.2012, Posten Norge, para. 206; Case C-209/10, 27.3.2012, Post Danmark I.

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In connection to this, Posten claimed that their exclusivity arrangements were 25 justified. The EFTA Court agreed with ESA’s opinion that “exclusionary conduct which maintains, creates or strengthens a market position approaching that of a monopoly cannot normally be justified on the grounds that it also creates efficiency gains”.53 Several other justifications were also dismissed by the EFTA Court. For instance, that exclusivity was not considered necessary to secure quality, or that separation of the different B to C delivery services within one outlet was sufficient to avoid mix up, free riding or reduced quality.54 Exclusivity was neither necessary to assure the grocery store chains’ commitments as Posten was the most attractive business partner.55 Posten’s universal service obligation regarding letters neither justified exclusivity nor Posten’s Post in Shop concept.56 V. Economic considerations

A distinctive feature in the EFTA Court’s judgments where competition law is 26 applied is the EFTA Court’s statement that whether something is an abuse or a restriction of competition “is a legal question that must be examined in the light of economic considerations”.57 One understanding of this is that it only states the obvious. It has been held by Temple Lang that this statement “clearly rejects formalist approaches to competition law and usefully stresses upon the importance of economics in the application of competition rules”.58 It is not clear if this statement indicates that the EFTA Court is less formalistic than the EU Courts. As argued in the comments on Arts. 53 and 54, the EFTA Court’s judgments do not show any major differences in the interpretation of the competition provisions from those applied by the EU Courts. Rather the EFTA Court’s judgments appear to be very much in line with the EU case law.

Article 55 [Supervision] 1. Without prejudice to the provisions giving effect to Articles 53 and 54 as contained in Protocol 21 and Annex XIV of this Agreement, the EC Commission and the EFTA Surveillance Authority provided for in Article 108(1) shall ensure the application of the principles laid down in Articles 53 and 54.

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Case E-15/10, 18.4.2012, Posten Norge, para. 241. Case E-15/10, 18.4.2012, Posten Norge, para. 231. Case E-15/10, 18.4.2012, Posten Norge, para. 217. Case E-15/10, 18.4.2012, Posten Norge, para. 218. Case E-8/00, 22.3.2002, Landsorganisasjonen, para. 77 (emphasis added); Case E-15/10, 18.4.2012, Posten Norge, para. 126; Case E-29/15, 22.9.2016, Sorpa, para. 100. Case E-4/05, 17.1.2006, HOB-vín, para. 51. Case E-14/15, 19.4.2016, Holship, para. 87; Case E-3/16, 22.12.2016, Ski Taxi, Follo, para. 45; Case E-7/01, 18.10.2002, Hegelstad v Hydro Texaco, para. 27. 58 John Temple Lang, ‘Competition Law: The Brussels Perspective’ in C. Baudenbacher (ed), The Handbook of EEA Law (Springer 2016), p. 535.

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I. Legal context

Art. 55 is the EEA Agreement’s equivalent to Art. 105 TFEU. One important difference between the two provisions is that the EEA provision does not contain a competence to adopt block exemption regulations such as Art. 105(3) TFEU does. However, the block exemptions and the competence to enact them into EEA law still exists and will be commented upon below. 2 First and foremost, Art. 55 provides ESA and the Commission with the competence and duty to enforce the prohibitions in Arts. 53 and 54 EEA. The division of the competence between ESA and the Commission is regulated in Art. 56 EEA. The cooperation between ESA and the Commission is regulated in Art. 58 EEA. For more details on those topics see the comments on the respective articles. Art. 108(1) EEA, which is referred to in Art. 55(1), is the legal basis for establishing ESA. 1

II. The competence provided for by Art. 55

Pursuant to Art. 55, both the Commission and ESA have the power to enforce the prohibitions in Arts. 53 and 54. It is perhaps obvious, but important to remark, that the EEA competition provisions are not solely enforced by ESA. This is not only an issue of formality. The Commission has in fact applied Arts. 53 and 54 on several occasions.1 4 According to Art. 55, the authorities shall investigate cases on its own initiative or on the application of a State. Further, they have the competence to propose appropriate measures and to record an infringement if the proposal does not end the infringement. They may also authorize States to take necessary remedies. 3

1 See the general by Gjendemsjø on Chapter 1 of Part IV of the EEA Agreement for further details.

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However, the article’s wording does not provide a realistic impression of 5 how the competition rules are enforced, as is also the case for Art. 105 TFEU. The reason for this is that Art. 105 TFEU, upon which Art. 55 is modelled, was drafted at a time when the exact powers and procedures for the enforcement of the competition rules had not yet been adopted. Until more detailed rules could be adopted, a provision providing the competence and to some extent defining the content of this competence, was necessary. The more specific powers of ESA and the Commission are regulated in SCA Protocol 4 and Reg. 1/2003, respectively.2 Art. 1 of Protocol 21 EEA, referred to in the text of Art. 55 EEA, establishes 6 that ESA shall “be entrusted with equivalent powers and similar functions to those of the EC Commission”. Art. 1(2) of Protocol 21 prescribes that the necessary steps to provide the Commission with equivalent powers and functions under the EEA-Agreement as it has when applying EU competition law, shall be taken by the EU. Additionally, Art. 2 of Protocol 21 ensures uniformity in the enforcement of the competition law. It requires that whenever the Commission’s powers to enforce EU competition law are amended, corresponding amendments shall be adopted in EEA law. Art. 3 lists the acts reflecting the powers and functions of the Commission for the application of the competition rules, e.g. Reg. 1/2003 and Reg. 773/2004.3 In sum, Protocol 21 essentially ensures that the powers to enforce EEA competition law, both for ESA and the Commission, are identical to the powers of the Commission to enforce EU competition law. The measures required by Protocol 21 EEA are provided for by SCA Art. 25 7 and SCA Protocol 4 Chapters II and III. Art. 25 SCA grants ESA with the competence to give effect to the competition rules, and as mentioned, SCA Protocol 4 contains provisions similar (often identical) to Reg. 1/2003 and Reg. 773/2004. These acts are further discussed in the comments to SCA Art. 25. Hence, they will not be discussed here, with one exception. When Reg. 1/2003 was implemented into the EEA Agreement, this was done without any EEA specific adaptations of the regulation. The most important consequence of this is that Reg. 1/2003 and SCA Protocol 4 functions as parallel acts providing the Commission and ESA, respectively, with the necessary competences to enforce Arts. 53 and 54. None of these legal instruments have any cross-pillar effects between the EFTA States on the one side and the EU Member States on the other side. Some of the challenges raised by this are discussed in the comments on Art. 56.

2 Council Reg. (EC), No 1/2003 on the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty. 3 Commission Reg. (EC), No 773/2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty.

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III. Block exemptions and guidelines

As mentioned above, Art. 55 does not contain a third paragraph providing competence to adopt block exemptions. Still, Annex XIV, which Art. 55 refers to, does contain block exemptions. Pursuant to Art. 60 EEA, Annex XIV contains specific provisions giving effect to the principles set out in Arts. 53, 54, 57 and 59, and thereby providing the provisions included in the Annex a legal basis. Annex XIV includes all the block exemptions adopted by the Commission in EU law. The Annex specifies the necessary modifications in the wording of the regulations, such as e.g. that Art. 85 is to be read as Art. 53 and that “Commission” shall be read as “competent surveillance authority”. 9 According to Art. 98 EEA the power to amend Annex XIV lies with the EEA Joint Committee, meaning that ESA does not have the same competence as the Commission has been given in EU law. Handing this competence to the EEA Joint Committee secures uniformity since its decisions are made through agreement between, on the one hand, the EU, and the EFTA States on the other. 10 Annex XIV also lists guidelines previously published by the Commission as notices. This part of the Annex is no longer updated. The last section of Annex XIV – entitled “General” – provides ESA with the competence to adopt, after consultations with the EC Commission, acts corresponding with new acts adopted by the Commission. These acts are published in the EEA Supplement to the Official Journal. 8

Article 56 [Distribution of competences between the ESA and the Commission] 1. Individual cases falling under Article 53 shall be decided upon by the surveillance authorities in accordance with the following provisions: (a) individual cases where only trade between EFTA States is affected shall be decided upon by the EFTA Surveillance Authority; (b) without prejudice to subparagraph (c), the EFTA Surveillance Authority decides, as provided for in the provisions set out in Article 58, Protocol 21 and the rules adopted for its implementation, Protocol 23 and Annex XIV, on cases where the turnover of the undertakings concerned in the territory of the EFTA States equals 33 per cent or more of their turnover in the territory covered by this Agreement; (c) the EC Commission decides on the other cases as well as on cases under (b) where trade between EC Member States is affected, taking into account the provisions set out in Article 58, Protocol 21, Protocol 23 and Annex XIV. 2. Individual cases falling under Article 54 shall be decided upon by the surveillance authority in the territory of which a dominant position is found to exist. The rules set out in paragraph 1(b) and (c) shall apply only if dominance exists within the territories of both surveillance authorities.

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Article 56 Distribution of competences between the ESA and the Commission 3. Individual cases falling under subparagraph (c) of paragraph 1, whose effects on trade between EC Member States or on competition within the Community are not appreciable, shall be decided upon by the EFTA Surveillance Authority. 4. The terms 'undertaking' and 'turnover' are, for the purposes of this Article, defined in Protocol 22.

I. Introduction

Art. 56 defines when it is either ESA or the Commission that has the compe- 1 tence to decide individual cases under Arts. 53 and 54.1 This is a specific EEA issue, not having an equivalent in the TFEU. Art. 56 establishes a “one stop shop” principle for all cases, avoiding that both authorities have competence to deal with the same case.2 The details regarding the division of competence are presented in section II below. Art. 56 is silent about national enforcement of EEA competition law. Some issues or challenges related to this are discussed in section III below. II. Division of competence between ESA and the Commission

Art. 56 defines in a fairly detailed manner when either ESA or the Commis- 2 sion has the competence to decide upon a specific case. The criteria used for this are the effect on trade between states and turnover thresholds. In general, the main criterion is whether there is an effect on trade between EU Member States or not. If there is an effect on trade between EU Member States, then the case is to be handled by the Commission (see Art. 56(1)(c)). If there is only an effect on trade between EFTA States, the case is to be handled by ESA (see Art. 56(1)(a)). If there is an effect on trade between one or more EFTA States and an EU Member State, the competence is decided by turnover thresholds. According to Art. 56(1)(b), in a case where trade between one or more EFTA 3 States and a single EU Member State is affected, but trade between EU Member States is not affected, coupled with the fact that the turnover of the undertakings concerned in the territory of the EFTA States amounts to at least 33 percent of their total turnover in the EEA area, ESA has the competence to decide the case. All other cases, as long as trade between EU Member States or trade between one EU Member State and an EFTA State is affected, are to be decided by the Commission. This implies that if an agreement only affects trade between Norway, Iceland and Liechtenstein, the case is to be decided by ESA. If an agreement among undertakings affects trade between both Norway and Iceland, as well as trade between Norway and Denmark or Iceland and Denmark, the competence depends on how much of the turnover of the undertakings concerned that can be attributed to the EFTA States. If more than 33 percent of the

1 Art. 56 is also commented on in Norberg et al., EEA Law, pp. 261-265 and by Büchel and Lewis, ‘The EFTA Surveillance Authority’ in: Baudenbacher (ed), The Handbook of EEA Law, pp. 121-122. 2 See Norberg et al., EEA Law, p. 235.

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concerned undertakings’ turnover is attributed to the EFTA States, then ESA has the competence to decide the case. The Commission would have the competence to investigate and decide the case if less than 33 percent of the turnover is attributed to the EFTA States and, importantly, in all cases where trade between two or more EU Member States is affected. This means that if an agreement affects trade between, e.g., Germany and Denmark, the Commission has the competence to decide the case, even if the turnover of the concerned undertakings in Norway and Iceland amounts to at least 33 percent of the undertakings’ turnover. The only exception to this is if the effect on trade between the EU Member States or the effect on competition within in the EU is not appreciable, in accordance to Art. 56(3). 4 In cases falling under Art. 54 the competence is, as a starting point, decided based on in which territory the undertaking has a dominant position – see Art. 56(2). If the undertaking has a dominant position in both an EFTA State and an EU Member State, the competence is decided by the rules set out in Art. 56(1)(b) and (c) – which are the same provisions that provide the criteria for which body is competent in Art. 53 cases. Hence, the decisive factor is whether trade between EU Member states is appreciably affected, and if that is not the case, how much of the undertaking’s turnover that can be attributed to the EFTA States. 5 Art. 56 (4) refers to Protocol 22 for definitions of the term undertaking and turnover. On this point, the EEA Agreement differs from the TFEU as this latter does not define ‘undertaking’ or ‘turnover’. In Protocol 22 Art. 1 ‘undertaking’ is defined as “any entity carrying out activities of a commercial or economic nature”. The definition is identical to how the term has been defined by the ECJ.3 III. National enforcement, the damages directive and challenges for future enforcement harmonisation 6

While Art. 56 establishes when a case is to be decided by either ESA or the Commission, it is completely silent about national enforcement. Pursuant to SCA Protocol 4, chapter II, Art. 5, the national competition authorities in the EFTA States have the power to apply Arts. 53 and 54. On the other hand, EU Member States are not given the competence to enforce Arts. 53 and 54 EEA. Neither is there any provision which ensures information exchange or binding effects of decisions between the EFTA pillar and the EU pillar. SCA Protocol 4, enabling national enforcement of Arts. 53 and 54 EEA, is a legal instrument adopted by the EFTA States, and with a binding effect only in the EFTA pillar. There are no specific legal basis in the EEA Agreement, its protocols or the annexes for national enforcement of EEA competition law.

3 See e.g. Case C-41/90, Höfner, 23.4.1991, para 21.

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Article 56 Distribution of competences between the ESA and the Commission

SCA Protocol 4 regulates the relationship between the EFTA States and ESA 7 in the same manner as Reg. 1/20034 does with regard to the EU Member States and the Commission related to EU competition law. When Art. 16 of Reg. 1/2003 prevents national courts and NCAs in the Member States from taking decisions counter to Commission decisions, Art. 16 of SCA Protocol 4, chapter II does the same for the relationship between ESA and EFTA NCAs and national courts. None of these legal instruments enable any similar effects across the EFTA and EU pillar. ESA decisions do not have a binding effect on EU Member State’s NCAs or national courts, and a Commission decision does not have a binding effect on EFTA’s NCAs or national courts. Thus, there is no cross-pillar effect. This is, at least partially, a consequence of Reg. 1/2003 only being implemented into EEA law as a legal instrument referred to in Protocol 21, without any EEA adjustments being made. In other words, the EEA version of Reg. 1/2003 only applies to the Commission’s enforcement of the EEA competition provisions. The enforcement by ESA or EFTA States, on the other hand, is regulated by SCA Protocol 4, chapter II and III. Although there are provisions regulating the cooperation between the Commission and ESA, those do not relate to national enforcement. Those provisions are discussed in the comment to Art. 58. In relation to national enforcement, one can perhaps argue that the lack of 8 cross-pillar binding effect is of little importance, given the relatively clear provisions in Art. 56 dividing the competence between the two pillars. This is based on an interpretation according to which SCA Protocol 4, chapter II, Art. 5 does not provide EFTA State NCAs with the competence to apply Arts. 53 and 54 when this competence lies with the Commission, according to Art. 56. Although this is not expressed anywhere in SCA Protocol 4, it appears as a safe assumption to make. The reason behind this interpretation is that neither the EEA Agreement, its protocols nor the annexes give in any way EFTA States the competence to interfere with the Commission’s powers under the EEA-agreement. Hence, the powers granted to the EFTA States’ NCAs in SCA Protocol 4, chapter II, Art. 5, and to EFTA States’ national courts in SCA Protocol 4, chapter II, Art. 6, must be interpreted as restricted to the cases where Art. 56 EEA provides ESA with the competence to decide the case. As a consequence of this, the lack of any cross-pillars effects has up until recently not lead to any significant challenges regarding the enforcement of EEA competition law. Some minor issues have existed, like the lack of provisions providing a mechanism for exchange of information between authorities in the two pillars, and the EFTA pillar competition authorities not being full members of the European Competition Network (ECN). Recently though, the lack of any cross-pillar effects has caused challenges in 9 relation to the Damages Directive.5 The Damages Directive, which has entered into force in the EU, is yet to be incorporated into the EEA Agreement. The rea4 Council Reg. (EC), No 1/2003 on the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty.

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son is that the EFTA States and EU have not managed to agree on how to incorporate it. In this sense, the directive raises similar issues as Reg. 1/2003. One of them is related to Art. 9(2) of the Damages Directive which provides that decisions by NCAs in other Member States should be presented as prima facie evidence in a claim for damages before a court in another Member States. This provision presupposes national enforcement. Without national enforcement of the EEA competition provisions, Art. 9(2) will only have a one sided effect; only decisions by EU Member State NCAs will be binding in EFTA countries, and not the other way around. Alternatively, this provision could be left out of the version of the directive that is incorporated into the EEA Agreement. 10 Therefore, the EFTA States do not wish to incorporate the directive unless Art. 9(2) is given a cross-pillar effect. This is so due to the lack of recognition of national enforcement of the EEA competition provisions and the lack of any cross-pillar effect of NCA decisions. It appears that the EFTA countries do not wish to accept the directive’s EEA relevance unless national enforcement of the EEA competition provisions is acknowledged and the decisions are given a cross-pillar effect. In other words, they request that the enforcement of EEA competition law is placed on equal terms as the enforcement of EU competition law. 11 An important reason for the understanding of this conflict is the apparent lack of interest from the EU to acknowledge national enforcement of the EEA competition provisions. This might be based on the view that the EU institutions may lose some control of EEA competition law. For example, there is a small risk that an NCA decision in Norway or Iceland applying EEA competition law will have a binding effect over an EU Member State authority in a case where there is effect on trade between Norway and Germany, and the final say on that case will be left to the EFTA Court and not the ECJ. Similarly, a damage claim for loss pursuant to a cartel which violates both EU and EEA law may be decided by Norwegian courts, and again the EFTA Court will be the competent body the Norwegian court may refer questions to, not the ECJ. 12 The legal basis supporting the Commission’s view appears to be Art. 56 EEA. According to its wording, the competence to decide on Arts. 53 or 54 cases is handed to the Commission and ESA. There is no mention of national enforcement in this or any other provision in the EEA Agreement. The similar wording in Art. 105 TFEU and ex Art. 84 Treaty of the European Community has not prevented national enforcement of EU competition law, though. Furthermore, Art. 103 TFEU which provides the basis for adopting Reg. 1/2003 does not mention national enforcement either. It is on that basis hard to understand why Art. 56 EEA prevents national enforcement when Art. 104 TFEU obviously does not. In addition, Art. 55 EEA, which points to ESA and the Commission as the 5 Dir. 2014/104/EU on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union Text with EEA relevance.

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Article 57 Merger control

bodies that shall ensure the application of the principles laid down in Arts. 53 and Art. 54, expressly gives way to the provisions found in Protocol 21 and Annex XIV. Both Protocol 21 and Annex XIV can be amended by the EEA Joint Committee and they are, opposed to regulations and directives in EU law, not considered as secondary law since EEA law does not contain a hierarchy of primary and secondary law.6 Recapitulating, it is difficult to find any legal ground to justify that an amend- 13 ment of Protocol 21 or Annex XIV should not be able to provide the legal basis for national enforcement and a cross pillar effect.7 In addition to the arguments raised above, Art. 56 was drafted and adopted at a time when there was no national enforcement of EU competition law. Because of this, whether Art. 56 should block national enforcement or not was probably not the discussed at the time.

Article 57 [Merger control] 1. Concentrations the control of which is provided for in paragraph 2 and which create or strengthen a dominant position as a result of which effective competition would be significantly impeded within the territory covered by this Agreement or a substantial part of it, shall be declared incompatible with this Agreement. 2. The control of concentrations falling under paragraph 1 shall be carried out by: (a) the EC Commission in cases falling under Regulation (EEC) No 4064/89 in accordance with that Regulation and in accordance with Protocols 21 and 24 and Annex XIV to this Agreement. The EC Commission shall, subject to the review of the EC Court of Justice, have sole competence to take decisions on these cases; (b) the EFTA Surveillance Authority in cases not falling under subparagraph (a) where the relevant thresholds set out in Annex XIV are fulfilled in the territory of the EFTA States in accordance with Protocols 21 and 24 and Annex XIV. This is without prejudice to the competence of EC Member States.

I. Legal context

The EEA Agreement, unlike the TFEU, contains a provision on merger con- 1 trol. While the legal basis for merger control in EU law is found in Reg. 139/2004,1 which replaced Reg. 4064/89,2 the legal basis for merger control in EEA law is found in Art. 57. Art. 57 is divided into two paragraphs. The first one expresses the legal test for declaring a concentration incompatible with the 6 See Halvard H. Fredriksen, ‘EEA Main Agreement and Econdary EU Law Incorporated into the Annexes and Protocols’, in C. Baudenbacher (ed), The Handbook of EEA Law (Springer 2016), pp 95-110. 7 For a similar opinion, see Christian N.K. Franklin, Halvard H. Fredriksen and Ingrid M.H. Barlund, Norwegian national report for the 2016 FIDE Congress, p. 371. 1 Council Reg. (EC) No 139/2004 on the control of concentrations between undertakings. 2 Council Reg. (EEC) No 4064/89 on the control of concentrations between undertakings (replaced by Reg. 139/2004).

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Agreement. The second paragraph assigns the competence to carry out control of concentrations between ESA and the Commission. As will be demonstrated in section III below, the criteria used to share the competences between the National Competition Authorities, ESA and the Commission has as its effect that no cases fall under ESA’s competence. As a consequence, control of concentrations is of no practical importance in EEA law and, therefore, the substantive test in the control of concentrations will not be discussed in detail here.3 II. The substantive test

The substantive condition for declaring a concentration incompatible with the agreement will be familiar to those acquainted with EU merger control law, as it is the same test which was used in the previous merger regulation, the so-called dominance test. However, the substantive test in EU merger control was changed when Reg. 139/2004 entered into force. Now, the test in EU law is whether the merger or concentration significantly impedes effective competition, pursuant to Art. 2(3) of the merger regulation; the so-called SIEC-test. The creation or strengthening of a dominant position is no longer required. The wording still refers to the creation or strengthening of dominance, but only as a particular way of which a merger may significantly impede effective competition. 3 This difference between the merger regulation and Art. 57 EEA raises the question of whether EEA and EU law have different substantive tests in their merger control. The answer is no. Reg. 139/2004 has been incorporated into Annex XIV by Decision 78/2004 of the EEA Joint Committee.4 Despite there being a conflict in the wording of Art. 57 and Annex XIV, the principle of homogeneity and the lack of a primary and secondary law distinction in EEA law, without a doubt grants the Annex preference over Art. 57 on this matter. 2

III. Division of competence – Or why ESA never deals with mergers

Art. 57(2) allocates the competence to carry out control of concentrations between ESA and the Commission. By deciding when one of these two bodies have the competence it determines whether national competition authorities have this competence as well. In case a merger or concentration falls outside of ESA’s and the Commission’s jurisdiction, it is for the national authorities to decide on the merger. 5 According to Art. 57(2)(a), the competence lies with the Commission if the merger falls under Reg. 4064/89. However, that regulation has been replaced by Reg. 139/2004 and the provision must be read as referring to the new merger regulation.5 Then, what Art. 57(1)(a) determines is that any merger or concentration falling under the merger regulation, despite also impeding competition in 4

3 For further reading on merger control, see e.g. Faull and Nikpay, The EU Law of Competition, 2014, pp. 540-808; Kokkoris and Shelanski, EU Merger Control: a legal and economic analysis, 2014. 4 OJ L 219, 19.6.2004, p. 13 and EEA Supplement No 32, 19.6.2004, p. 1.

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the EFTA States, is to be controlled by the Commission. In other words, the EEA Agreement has no effect on the competence of the Commission pursuant to the merger regulation. Also, Art. 57(2)(a) refers to Protocols 21 and 24, and Annex XIV. The relevance of Protocol 21 is that it refers to Reg. 139/2004 and Reg. 802/2004 as the acts containing rules regulating the Commission’s competence. Protocol 24 contains provisions on cooperation between the Commission and ESA, and will be analyzed in the commentaries on Art. 58. Annex XIV contains the amendments made to Reg. 139/2004 for its incorporation into the EEA Agreement. Before presenting the details of the EEA version of Reg. 139/2004, it is important to be aware of that Art. 57(2)(b) determines that ESA has the competence to carry out merger control only in cases not falling under subparagraph (a). The EEA version of the regulation simply applies the same thresholds as the EU version to decide when ESA has the competence to carry out merger control. In other words, the merger must meet the turnover thresholds in Reg. 139/2004, but only in the EFTA countries and not in the EU Member States. This implies that if the aggregate worldwide turnover of the involved undertakings is more than EUR 5000 million and the aggregate EFTA wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million, without the aggregate EU-wide turnover of at least two of the undertakings being more than EUR 250 million, then ESA has the competence to carry out the control of this merger. So far this has, unsurprisingly, not happened in practice. Because of the very large turnover thresholds it is hard to imagine that a merger of such size would meet the thresholds only in EFTA States but not in the EU Member States. According to the second alternative in the regulation, ESA has the competence when the aggregate worldwide turnover is more than EUR 2500 million and the combined aggregate turnover of all the undertakings concerned is more than EUR 100 million in each of at least three EFTA States, and the undertakings concerned do not have a combined aggregate turnover of at least EUR 100 million in three or more EU Member States. For ESA to have competence according to this alternative, the undertakings’ combined aggregate turnover in Norway, Iceland and Liechtenstein has to meet the threshold, while also not being reached in three or more EU Member States. Once again, mergers of this size more often than not also meet the thresholds in the EU Member States, ruling out ESA being the competent body to carry out the merger control. As a consequence of these competence assignation rules ESA has so far not dealt with any merger cases. The cases have either had an EU dimension and been dealt with by the Commission, or not met the turnover thresholds at all and, hence, been under national jurisdiction. Should a concentration end up being un5 This is also supported by the fact that Reg. 139/2004 has been incorporated into the EEA Agreement by the EEA Joint Committee’s Decision 78/2004, which added the regulation to Annex XIV and to Protocol 21.

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6

7

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der the control of ESA, the concentration shall be subject to the same rules as if it had an EU dimension, pursuant to the incorporation of Reg. 139/2004 into Annex XIV, and the SCA Protocol 4, chapter V is based on Reg. 802/2004.6 10 Lastly, Art. 57(2)(b) also determines that ESA’s competence is without prejudice to the competence of EU Member States to deal with the merger. In principle, this can lead to a merger falling under both ESA and an EU Member State jurisdiction. This would happen if a merger meets the merger regulation turnover thresholds only in EFTA States and at the same time meets national merger regulation thresholds. This could happen due to low thresholds implemented in an EU Member States or if the undertakings have a relatively high turnover in one EU Member State but not sufficient to meet the EU merger regulation thresholds. However, since mergers in practice never fall under ESA’s jurisdiction, this is not a real concern. If it should happen, the solution is probably simple: if the substantive criteria are met in one of the jurisdictions, the merger will not be allowed.

Article 58 [Cooperation between the ESA and the Commission] With a view to developing and maintaining a uniform surveillance throughout the European Economic Area in the field of competition and to promoting a homogeneous implementation, application and interpretation of the provisions of this Agreement to this end, the competent authorities shall cooperate in accordance with the provisions set out in Protocols 23 and 24.

I. Introduction 1

Pursuant to Art. 58, ESA and the Commission shall cooperate in the field of competition. The wording does not mention ESA and the Commission explicitly. Instead it refers to the competent authorities. However, ESA and the Commission are the authorities that have been acknowledged as competent authorities. The details of the cooperation are further elaborated on in Protocols 23 and 24.1 II. Protocol 23

2

Protocol 23 provides the details of the cooperation between the Commission and ESA in cases related to Arts. 53 and 54. They shall cooperate on the handling of individual cases (Art. 1(2)), inform each other about complaints and ex officio procedures (Art. 2(1)), consult each other on statements of objections (Art. 3), invite the other authority to hearings (Art. 5), and assist the other authority on requests for information, inspections and interviews (Art. 8). 6 Commission Reg. (EC) No 802/2004 implementing Council Reg. (EC) No 139/2004 on the control of concentrations between undertakings. 1 For other comments or discussions of Article 58, see Norberg et al., EEA Law, pp- 265-268; Büchel and Lewis, ‘The EFTA Surveillance Authority’ in: C. Baudenbacher (ed), The Handbook of EEA Law, pp. 123-124.

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Art. 7 of Protocol 23 confers a right to request copies of the most important 3 documents in a case. Art. 9 grants the authorities the right to provide the other authority with evidence, including confidential information. Art. 9(3) prevents the receiving authority to use information that originates from leniency applications and is received through this procedure, to perform inspections on its own initiative. Furthermore, Art. 9(4) restricts the possibility to share information from a leniency applicant; this can only be done when the applicant has given its consent, unless both authorities have received a leniency application or the receiving authority in writing commits not to use the information to impose sanctions (Art. 9(5)). Finally, Art. 10 allows the authorities to forward information exchanged to 4 National authorities for the purpose of carrying out the tasks entrusted to them by the Protocol. III. Protocol 24

Pursuant to Art. 1(2) of Protocol 24, both the Commission and ESA may re- 5 quest to consult with each other on general policy issues. Furthermore, Art. 1(2) of Protocol 24 prescribes a duty to cooperate in the handling of concentrations falling under Art. 57(2)(a). The cooperation procedures are further elaborated on in the other provisions of Protocol 24. It is worth to notice that this duty to cooperate only exists for the cases which, according to Art. 57 EEA, fall under the Commission’s jurisdiction. The cases falling under Art. 57(2)(b) are not mentioned. Additionally, Art. 2 of the Protocol further limits the scope of the duty to cooperate to cases where the concentration has a significant EFTA State dimension or is liable to significantly impede effective competition in the territory of one or more EFTA States. Whether a concentration has an EFTA State dimension or not depends on market share and turnover thresholds expressed in its Art. 2(a) and (b). The details of the cooperation are elaborated on in Arts. 3 and 4 of Protocol 6 24 and consist of transmitting notifications, a right for ESA and EFTA States to express their views to the Commission, to be present at hearings and at meetings of the Advisory Committee on Concentrations, and to receive relevant documents. Further, Art. 8 gives the Commission the power to request assistance from ESA and EFTA States to gather evidence. Art. 6 gives the Commission the power to refer notified concentrations to 7 an EFTA State. The provision is modelled upon Art. 9 of Reg. 139/2004.2 A case may be referred to an EFTA State where it threatens to significantly affect competition in a market within an EFTA State, which presents all the characteristics of a distinct market, or if it affects such a distinct market which does not constitute a substantial part of the EEA territory. Art. 6(2) provides the EFTA

2 Council Reg. (EC) No 139/2004 on the control of concentrations between undertakings.

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States the possibility of appealing a referral decision to the ECJ, on the same grounds and conditions as an EU Member State. 8 The provision in Art. 6(3) concerns the situation where an EU Member State has referred a concentration to the Commission pursuant to the procedure of Art. 22 of Reg. 139/2004. If such a concentration may affect trade between one or more EFTA States, ESA shall be notified. The EFTA States may then join the request for the Commission to examine the case, with the effect that national time limits are suspended. 9 Art. 6(4) provides the possibility for undertakings to request that a concentration falling under Reg. 139/2004 is to be examined by an EFTA State. The undertakings will have to submit a reasoned opinion showing that the concentration may significantly affect competition in a market within an EFTA State which presents all the characteristics of a distinct market. Pursuant to Art. 6(5), the undertakings may request that the Commission examines a concentration without a community dimension if it is capable of being reviewed under the national competition law of at least three EU Member States and at least one EFTA State. It is important to be aware that an EFTA State may express its disagreement as regards the request to refer the case; if it does so it retains its competence to decide the case. This means that when a concentration does not meet the thresholds in Reg. 139/2004 the Commission may not deprive an EFTA State of its competence to stop the merger. 10 Lastly, Art. 7 allows EFTA States to consider public security, plurality of media and prudential rules in their assessments of mergers. They may also consider other public interests on the approval of the EU Commission. This applies to the cases where the concentration falls under the jurisdiction of the Commission in the first place, and not all merger control performed by the EFTA States, since the provisions of the Protocol only applies to cases falling under the Commission’s jurisdiction according to Art 2(1). In their control of concentrations falling outside of the Commission’s jurisdiction, national authorities are free to consider public interests.

Article 59 [Public undertakings, services of general economic interest] 1. In the case of public undertakings and undertakings to which EC Member States or EFTA States grant special or exclusive rights, the Contracting Parties shall ensure that there is neither enacted nor maintained in force any measure contrary to the rules contained in this Agreement, in particular to those rules provided for in Articles 4 and 53 to 63. 2. Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in this Agreement, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be af-

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Article 59 Public undertakings, services of general economic interest fected to such an extent as would be contrary to the interests of the Contracting Parties. 3. The EC Commission as well as the EFTA Surveillance Authority shall ensure within their respective competence the application of the provisions of this Article and shall, where necessary, address appropriate measures to the States falling within their respective territory.

I. Introduction

Art. 59 is a blueprint of Art. 106 TFEU, but differs in one important aspect. Art. 106(3) TFEU establishes a competence for the Commission to enact “appropriate directives or decisions”, while Art. 59(3) EEA simply refers to “appropriate measures”. This reflects the main difference between EU and EEA law. The EEA Agreement is construed as an ‘ordinary’ international treaty pursuant to public international law and does not transfer any legislative competence to institutions operating on the supranational level. The main purpose of Arts. 59 EEA and 106 TFEU is to establish a framework to identify a fair balance between the general interests pursued by the regulation of Services of General Economic Interest (SGEIs) on the one hand and the effectiveness of the relevant Treaty provisions governing the internal market on the other.1 From the outset it should be noted that an alternative route to identify a fair balance exists, outside the scope of the provision: Generally, regulation that is protective of Services of General Economic Interest will constitute a restriction on the right to free movement. The doctrine on mandatory requirements allows for justifications. The principle of proportionality is applied to reconcile the competing values. When the existing, traditional framework for the balancing between the public interest and the principles of the market is taken into regard, Art. 59 may to some extent appear as unnecessary. It can even be argued that the provision adds complexity rather than answers. Within EU law, the most immediate importance of Art. 106(1) and (2) TFEU is perhaps that they describe and frame the competence conferred on the Commission pursuant to the third paragraph of the provision. This reduces the practical importance of Art. 59 given that Art. 59(3) enshrines no formal competence to enact directives or legally binding decisions addressed to the EEA States. Within the EU, the application of Art. 106 TFEU by the ECJ has been strongly informed by the approaches and doctrines developed by the Commission when the application of the competence enshrined in Art. 106(3) reached its heights in the 1990’ties. At that point in time the reach of the fundamental freedoms was to some extent uncertain, as outside the field of goods, the principles on free movement were yet to mature. Instead, Art. 106(2) was applied in conjunction with the competition rules – Art. 102 TFEU in particular – as a means to dismantle existing monopolies protected by special and exclusive 1 Cf. Norberg et al., EEA Law, p. 546; NOU 2012: 2, p. 148.

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rights. In general, the competition rules only apply to undertakings and it required some subtle legal sophistry to broaden their scope.2 5 As it is unnecessary to invoke Art. 106 TFEU as a mere reminder of the fact that the Member States are subject to the fundamental freedoms, the operative use of the provision has diminished within the practice of the ECJ. The difference between Art. 59(3) EEA and Art. 106(3) TFEU and the fact that the principles of free movement are by now well-established as far-reaching explain why Art. 59 has not been an important provision in EEA law. The provision was applied by the EFTA Court for the first time in September 2016. We shall return to the judgment in Case E-29/15 Sorpa below (Section V). II. Paragraph 1

Art. 59(1) EEA reproduces the wording of Art. 106(1) TFEU. As noted by Norberg et. al, the provision is addressed to the Contracting Parties and not to undertakings.3 The main purpose of the provision is to make the authorities of the state subject to the rules that apply to undertakings. State authorities should not be allowed to use their influence over public companies or their regulatory capacity in a way which requires undertakings to act in a way which is in breach of the competition rules. Art. 59(1) can thus be seen as a mechanism for the attribution of conduct, the purpose of which is to prevent other provisions in the Agreement from being circumvented. 7 “Public undertaking” is an autonomous term of European Law. The content of the term is substantive rather than formal and is dependent on the concept of economic activity and of State control. The definition of “public undertaking” as set out in the Transparency Directive is of relevance to the interpretation of the identical term in the Treaties.4 It is important to emphasize that measures taken by public undertakings are not imputable to the State per se.5 8 The detailed definitions in the Transparancy Directive casts light on the interpretation of “special or exclusive rights” as well. The ECJ has never provided a general explanation of the term, but its case law provides instructive examples. In Parking Brixen the ECJ assessed a public service concession as a special or exclusive right.6 The judgment in Sporting Exchange concerned an exclusive right to provide games of chance.7 Whether a privileged position is established through legislation, a contract, a tender or other means is of no relevance as long as it stems from an act of the public authorities. 6

2 Cf. the seminal contribution of Buendia Sierra, Exclusive Rights and State Monopolies under EC Law (1999), pp. 147 et seq. See also Arnesen, Statlig styring og EØS-rettslige skranker (1996), pp. 456 et seq. 3 Norberg et al., EEA Law, p. 548. 4 Dir. 2006/111/EC on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings. 5 Case C-482/99, 16.5.2002, Stardust Marine and the subsequent line of case law. 6 Case C-458/03, 13.10.2005, Parking Brixen, paras. 51–52. 7 Case C-203/08, 3.10.2010, Sporting Exchange, para. 47.

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Being a rule of attribution, Art. 59(1) EEA does not introduce autonomous 9 substantive requirements. Thus, the term “any measure” cannot be given any specific meaning. Its content must be derived from the provisions to which Art. 59(1) refers. This follows from the judgment in Asemfo where the ECJ stated that: ‘[i]t follows from the clear terms of Art. [106(1) TFEU] that it has no independent effect in the sense that it must be read in conjunction with the relevant rules of the Treaty.’8

That finding has later been repeated in UPC.9 The statement clarifies that Art. 106(1) TFEU is a mere reference provision. For this reason, Art. 106(1) is always applied in conjunction with other rules, normally the competition rules, to confirm that state regulation may indeed be subject to scrutiny pursuant to the latter. In this regard, Art. 106(1) TFEU has been considered to express a special duty of loyalty addressed to the Member States. Due to the principle of homogeneity Art. 59(1) EEA must be interpreted accordingly. The long standing question in EU-law has been how far the duty of loyalty reaches. According to the grand-father judgment in GB-INNO, the Member States must not enact regulation that will deprive the competition rules of their effectiveness.10 For a long time the indefiniteness of that statement provoked more questions than answers.11 One possible interpretation has been that the Member States must not enact regulation whose effects will encroach upon the objectives and purposes of the competition rules (the effet utile-approach). Another and more modest interpretation would be that Member States must not enact regulation which automatically will lead to actual abuses from specific companies benefitting from regulation (the behavior-approach).12 In the early days it seemed like the ECJ preferred a dynamic interpretation of what is now Art. 106(1) TFEU – the effet utile-approach. The judgment in Courbeau represents the most expansive and (in)famous interpretation of the provision.13 The judgment suffers from a lack of reasoning, but seemingly the ECJ considered the establishment of a dominant position through the means of public regulation as being contrary to the objectives of the competition rules per se – even if there was no sign of actual abuse. A first back-step, indicating a preference for the more modest behaviour-approach, appeared immediately afterwards.14 In the la Crespelle judgment the 8 Case C-295/05, 19.4.2007, Asemfo, para. 40. The Court’s finding seems to deviate from the opinion presented by AG Geelhoed, paras. 114, 121. 9 Case C-250/06, 13.12.2007, UPC, para. 15. See also Opinion of Jacobs AG in Case C-475/99, 25.10.2001, Ambulanz Glöckner, para. 88 of the opinion. 10 Case 13/77, 16.11.1977, GB-INNO, paras. 30-32. 11 Cf. Manaridou, ‘The Greek Lignite case: a (questionable) victory of the effects theory’, European Law Review (2015), 424 at p. 428. 12 For a more thorough description of the two alternative approaches, see Buendia Sierra, Exclusive Rights and State Monopolies under EC Law, p. 151 et seq and Maillo, ‘Services of General Interest and EC Competition Law’, in: Amato & Ehlerman (eds), EC Competition Law: a critical assessment (2007), p. 591 at pp. 599 et seq. 13 Case C-320/91, 19.5.1993, Corbeau.

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Court ruled that the mere creation of a dominant position by the granting of an exclusive right within the meaning of Art. 106(1) TFEU is not as such incompatible with Art. 102 of the Treaty. In other words, Member State regulation is not caught unless, in merely exercising the exclusive right granted to it, the undertaking that benefits from regulation cannot avoid abusing its dominant position.15 14 The judgments in Asemfo and UPC is a second back-step that marks that the ECJ has resorted to a literal reading of Art. 106(1) at the expense of a more dynamic interpretation. This coincides with the dynamic development of the reach of the fundamental freedoms and marks, as we shall return to, a preference for the traditional framework within which the conformity of State regulation with the objectives of the market is being assessed. III. Paragraph 1 read in conjunction with the competition rules

The scant use of Art. 59 EEA means that its details must be identified through a comparison with Art. 106 TFEU. The application of Art. 106(1) TFEU read in conjunction with Art. 102 has been systemized through the identification of three different doctrines labelled (1) the extension of the dominant position doctrine; (2) the conflict of interests doctrine and (3) the demand limitation doctrine.16 16 (1) The extension of the dominant position doctrine applies where a Member State vests a company which already holds a dominant position in one market, with special or exclusive rights on a neighbouring but separate market.17 Even though the doctrine seems to be well established and is accepted in legal theory,18 it has been applied by the ECJ in only a few cases.19 17 The extension of the dominant position doctrine played an important role to dismantle and control former monopolies on the telecommunications sector.20 With the sector today being fully liberalized, it may seem as the ECJ has put the extension of the dominant position doctrine to rest. The Connect Austria case concerned the allocation of frequencies for mobile telephony.21 The former Aus15

14 Cf. Buendia Sierra, Exclusive Rights and State Monopolies under EC Law, at p. 173 et seq., Maillo, ‘Services of General Interest and EC Competition Law’, at p. 603. 15 Case C-323/93, 5.10.1994, la Crespelle, para. 18. See Case C-387/93, 14.12.1995, Banchero, para. 51 and Case C-475/99, 25.10.2001, Ambulanz Glöckner, para. 39. 16 Cf. Buendia Sierra, Exclusive Rights and State Monopolies under EC Law, p. 160 et seq. For a more recent account cf. Manaridou, ‘The Greek Lignite case: a (questionable) victory of the effects theory’, European Law Review (2015), 424 at p. 430 et seq. 17 The landmark judgment is Case C-18/88, 13.12.1991, RTT v. GB-Inno BM. 18 See Buendia Sierra, Exclusive Rights and State Monopolies under EC Law, at p. 169 et seq; Whish, Competition Law (5th ed, 2003) at pp. 228-229; Maillo, ‘Services of General Interest and EC Competition Law’, at p. 602. 19 Cf. Case C-475/99, 25.10.2001, Ambulanz Glöckner, para. 43. Case C-203/96, 25.6.1998 Dusseldorp, paras. 61–63 may also be understood to employ the doctrine. 20 The ECJ has accepted the Commission’s application of the doctrine in this regard, see Joined Cases C-271/90, C-281/90 and C-289/90, 17.11.1992, Spain, Belgium and Italy v. Commission, paras. 36-38.

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trian telecommunications incumbent, Mobilkom, already held frequencies in the GSM 900 band, and was considered to have a dominant position in the national market for GSM telephony. Then, in addition, the company was awarded frequencies in the GSM 1800 band. It was disputed whether Mobilkom had paid a frequency fee in line with what its competitors had to bear. Clearly, if that was not the case, the award should be considered to be in breach of both the rules on the four freedoms and on state aid. The questions from the national court, however, was directed at the application of Art. 106(1) TFEU read in conjunction with Art. 102 TFEU – perhaps due to the tradition of applying the mentioned provisions on the telecommunications sector. If the extension of the dominant position doctrine is understood as an au- 18 tonomous doctrine, it should in principle not be decisive whether Mobilkom had paid the same fee as its competitors. The allocation of additional frequencies would in all cases extend the dominant position of the company. Instead, the ECJ avoided the subtleties and chose a straightforward approach: It ruled that the award of additional frequencies would be in breach of Art. 106(1) TFEU read in conjunction with Art. 102 if Mobilkom did not have to pay the same fee as other operators. Conversely, if the fee was fixed at a rate ensuring equal opportunities, the measure at hand would not be caught.22 That finding is much the same as to substitute the extension of the dominant position doctrine for the principle of equal treatment, as enshrined in the right to free movement. (2) The conflict of interests doctrine was first established in the ERT judg- 19 ment.23 Greek law entrusted the national broadcasting company, ERT, with a monopoly to broadcast, and an exclusive right of transmission of other broadcasts, including broadcasts from other Member States. The ECJ ruled that such a situation would be in breach of Art. 106(1) TFEU, where the rights were liable to create a situation in which ERT was led to infringe Art. 102 TFEU by virtue of a discriminatory broadcasting policy favouring its own programs. Noteworthy, as Whish puts it, it was not necessary for ERT to have actually 20 abused its dominant position, as long as the measures made this sufficiently likely.24 To some, this may seem similar to an effet utile-approach towards the competition rules.25 On further inspection, however, without denying the existence of the conflict of interests doctrine, it is submitted that it should not be understood as a ‘competition doctrine’. What the ECJ really feared in the ERT-judgment was a potentially discriminatory broadcasting policy, encroaching upon 21 Case C-462/99, 22.5.2003, Connect Austria. 22 Ibid, paras. 80-95. 23 Case C-260/89, 18.6.1991, ERT. See also Case C-179/90, 10.12.1991, Port of Genoa; Case C-163/96, 2.2.1998, Silvano Raso. Cf. Buendia Sierra, Exclusive Rights and State Monopolies under EC Law; at p. 165 et seq.; Maillo, ‘Services of General Interest and EC Competition Law’, at pp. 599 et seq. 24 Whish, Competition law, at p. 228. 25 Gyselen, ‘Anti-Competitive State Measures Under the EC Treaty: Towards a Substantive Legality Standard, EL Rev Competition Law Checklist (2003), p. 55 at p. 77, Szyszczak, The Regulation of the State in Competitive Markets in the EU (2007), p. 125.

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the basic principle of equal opportunity which flows from the fundamental freedoms.26 The latter observation explains why no actual abuse was necessary. As noted by the ECJ in the later judgment in MOTOE, a company’s commercial exploitation of motorcycle events would make it ‘tantamount de facto’ to also confer upon it the regulatory power to authorize such events.27 21 The finding of the Court in ERT led van der Woude to pose the well-founded rhetorical question of why ‘the Court still bothered to analyse these rights under Articles [102] and [106]’.28 With regard to the fundamental freedoms it is clear that the Member States must establish regulatory structures that respect the prohibition of discrimination and which makes it possible to realize the principle of equal treatment. The question of whether to apply the effet utlile approach or the behavior approach is simply inappropriate in this context, as, according to the long standing guideline established in Dassonville, any measure affecting intracommunity trade in the negative, “directly or indirectly, actually or potentially”, is caught.29 22 The judgment in Hanner illustrates the practical implications of the observation above.30 The case concerned the Swedish monopoly on the retail sale of medicinal preparations (‘Apoteket’). Even though a monopoly as such was justified it could not, in law or in fact, place goods from other Member States at a disadvantage, in comparison to trade in domestic goods. In this regard the Swedish system lacked structural safeguards – i.e. well established, transparent procurement procedures to avoid discrimination. For this reason the ECJ found Art. 37(1) TFEU to be infringed.31 Important in our regard is that the ECJ considered it ‘unnecessary to deal with the “second aspect”, namely the question whether Apoteket in practice did place medicinal preparations from other Member States at a disadvantage’.32 The finding makes it clear that with regard to free movement, a lack of structural safeguards that is attributable to the State and that creates a potential risk of discrimination, does in itself constitute an infringement, even if there is not yet any actual abuse. An approach based on the fundamental freedoms is straight-forward while the subtleties of the conflict of interests doctrine: the alleged difference between the effet utlile approach and the behavior approach simply misses the point. 23 (3) The demand limitation doctrine is the most important instance of the combined reading of Arts. 106(1) and 102 TFEU. The judgment in Höfner is the leading precedent.33 The German Federal Office for Employment was vested 26 Case C-260/89, 18.6.1991, ERT, paras. 19-26. As Hancer points to, the monopoly was not considered to be a problem as such. Hancer, ‘Community, State and Market’, in Craig and de Búrca, The Evolution of EU Law (1999), p. 721 at p. 722. 27 Case C-49/07, 1.7.2008, MOTOE, para. 51. 28 van der Woude, ‘Art. 90: Competing for Competence’, 16 ELRev (1991), p. 60 at p. 74. 29 Case 8/74, 11.7.1974, Dassonville, para. 5. 30 Case C-438/02, 31.5.2005, Hanner. 31 Ibid, para. 44. The corresponding provision of EEA law is Art. 16. See further the comments by Myhre on this provision. 32 Ibid, para. 45, emphasis added.

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with exclusive rights of employment procurement. Hence, it was prohibited for everyone else to engage in employment activities. The ECJ ruled that the arrangement would be in breach of Art. 106(1) TFEU if it created a situation where the agency could not avoid infringing Art. 102 TFEU. Whether that was actually the situation was conditional on several requirements, most importantly that the agency had to be ‘manifestly incapable of satisfying demand prevailing on the market for such activities’.34 The analysis required by the demand limitation doctrine seems unnecessarily complex in comparison to the fundamental freedoms approach. Normally, if an exclusive right is established to the benefit of a specific, privileged company it will go hand in hand with a prohibition for other companies to engage in the same activity. A prohibition is a straightforward restriction to free movement. Of course in specific instances, as in Höfner, the assessment under the competition rules can be pretty straightforward as well, but that is not always the case.35 The practice of the ECJ reflects the observation above. For one thing, the Court seems to have become somewhat reluctant in answering interpretative questions from national courts regarding the application of Art. 106(1) TFEU read in conjunction with Art. 102 TFEU. In a number of cases the ECJ has declared the questions inadmissible, pointing to the complexity of evaluation and a lack of sufficiently detailed market information.36 In comparison, the application of the fundamental freedoms are purposely construed to avoid such difficulties – that is the crux of the Dassonville doctrine quoted above. From a material point of view, the recent judgment in Commission V Dei is of seminal importance.37 By reference to Connect Austria, the ECJ abstained from choosing between the effects theory and the behavior theory, and instead stated the obvious: “It follows that if inequality of opportunity between economic operators, and thus distorted competition, is the result of a State measure, such a measure constitutes an infringement of Art. [106.1 TFEU] read together with Art. [102 TFEU]”.38 The principle of equal treatment as enshrined in the fundamental freedoms was decisive to the reach and application of the demand limitation doctrine. It is submitted that today, the demand limitation doctrine is not important to the question of whether a prima facie infringement of the Treaty exists, but instead at the level of justification. The judgment in Ambulanz Glöckner is of seminal importance.39 The case concerned exclusive rights for ambulance transport 33 Case C-41/90, 23.5 1991, Höfner. 34 Ibid, para. 34. 35 Consider e.g. Case C-203/96, 25.6.1998, Dusseldorp, operative part, para. 2; Case C-208/05, 11.1.2007 ITC Innovative Technology, para. 52. 36 See, e.g, Case C-134/03, 17.2.2005, Viacom, para. 29; Case C-451/03, 30.3.2006, Ausiliari Dottori, para. 26, and Asemfo, supra, para. 45. 37 See also Manaridou, ‘The Greek Lignite case: a (questionable) victory of the effects theory’, European Law Review (2015), 424. 38 Case C-553/12 P, 17.7.2014, Commission v. DEI, para. 44 (emphasis added). 39 Case C-475/99, 25.10.2001, Ambulanz Glöckner.

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in the German region Rheinland-Pfalz. The ECJ concluded that these rights would be contrary to Art. 106(1) TFEU read in conjunction with Art. 102 TFEU if the entrusted company had a dominant position, and notably, if there was ‘a sufficient degree of probability that national regulation actually prevented undertakings established in Member States other than the Member State in question from carrying out ambulance transport services there, or even from establishing themselves there’ – e.g. if there was a restriction on the right to establishment.40 But the ECJ also accepted that the objective of assuring the service provider’s economic viability was a relevant justification pursuant to the exception in Art. 106(2) TFEU. The invocation of that justification was however made conditional, and would not be accepted if the medical aid organizations entrusted with the operation of the public emergency ambulance service were ‘manifestly unable to satisfy demand in the area of emergency ambulance and patient transport services’.41 28 It is important to note that not until both the character of the infringement and the possible justification were established, was the doctrine of demand limitation taken into consideration. The functioning of that test was not to provide some additional arguments in a broad reconciliation of competing values. Quite to the contrary, the rationale behind the ECJ’s requirement seems to be coarse-cut: It is hard to see how a Member State can justify distortions to the fundamental principles of the Treaty by reference to the importance of securing universal access to an indispensable service, if in fact not all citizens have access to it. In the latter case, the considerations of the Members States would seem to be purely economic and hence unjustified.42 29 The observations presented above indicate that the demand limitation test introduces an additional factual requirement which may lead to a rejection of (economic) justifications which would otherwise, in the abstract, be legitimate. If it is proven that the regulatory efforts of the Member State fail to achieve their purpose, the likely result is that the basic principles of free movement will prevail, and citizens’ demand must then be accommodated through the functioning of the market. This gives the refined application of the doctrine of demand limitation the character of being a right of access to SGEIs, protecting the interests of citizens. The latter understanding gains support from Art. 36 in the Charter of fundamental rights in the European Union.43

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IV. The scope of the exemption in paragraph 2

With regard to the scope of Art. 59(2) EEA, Norberg et al. made two observations. First: The exemption is of relevance to both public and private undertakings, but in order to invoke the provision, the company must be entrusted with the operation of services of general economic interest by an act of the public authority. This requirement was confirmed by the EFTA Court in Holship.44 The second observation made by Norberg et al. is that the reach of the exemption should be strictly defined.45 With regard to the latter submission, a detailed comparison with the interpretation of the similarly worded provision in Art. 106(2) TFEU is required. According to the conventional view, Art. 106(2) TFEU may exempt the organization and provision of Services of General Interest from the requirements of the Treaty, if the application of e.g. the fundamental freedom to provide services, the rules on competition or the rules on State Aid will obstruct the performance of the operator of an indispensable service.46 Usually, the exemption in Art. 106(2) TFEU is described as autonomous, in the sense that it has a horizontal reach and is not confined to specific kinds of infringements. Consequently, according to the conventional view, it may be invoked by both undertakings and the Member States. According to its wording, Art. 106(2) TFEU is applicable to services of general economic interest. If that notion is understood to mark a difference from the more commonly used reference to overriding reasons in the ‘general interest’, and if the exception is interpreted both literally and strictly (as is the case for paragraph 1), it may be argued that its scope is limited to objectives of an economic nature with regard to the provisions of SGEIs. The provision protects the public’s economic interests with regard to the financing of society’s indispensable services. Indeed, it has been argued that in its practical application, Art. 106(2) TFEU is intrinsically linked to the provision of universal services in their different kinds, due to the very specific problems connected to the planning and financing of such services (especially the risk of ‘cream skimming’).47 Generally however, that view has been dismissed as too formal.48 In his seminal 1999-contribution Buendia Sierra argued that the exception in Art. 106(2) TFEU accounts for objectives of both an economic and a non-economic nature. The protection of health was mentioned as an example of a legitimate concern.49 Buendia Sierra admitted that the wording of Art. 106(2) TFEU appears to limit the scope of the exception to objectives of an economic charac44 Case E-14/15 Holship, para. 97. 45 Norberg et al., EEA Law, at p. 552. 46 Cf. eg. Lenaerts, ‘Defining the concept of ‘Services of General Interest’ in light of ‘checks and balances’ set out in the EU Treaties’, 19 Jurisprudence (2012), p. 1247. 47 Wachsmann & Berrod, ‘Les criterès de justification des monopoles: un premier bilan après l’affaire Courbeau’ 30 Revue trimestrielle de droit européen (1994) p. 39. 48 Hirsch et al., Competition Law: European Community Practice and Procedure (2008), p. 1293.

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ter, but claimed that formal distinctions are ‘groundless’ – pointing to the fact that economic objectives must, in any case, promote some ultimate non-economic goal to be accepted. This seems to be the most common view. 34 It is submitted however, that the conventional view – that Art. 106(2) TFEU establishes a universal and general exemption clause – is unfounded. In particular it is submitted that Art. 106(2) TFEU is not – in the direct sense – an available exemption to the Treaty rules on the fundamental freedoms. 35 First, it is worth recalling that the ECJ has consistently held that the exemption in Art. 106(2) EC is to be narrowly constructed.50 To include objectives of a non-economic nature is to take the opposite stance. Buendia Sierra’s line of argument is unappealing because it changes the character of Art. 106(2) TFEU from a special exemption into a general one – and as we will return to, the ECJ seems reluctant to adopt this idea. 36 Second, coherence is an overarching concern. With regard to the mandatory requirements doctrine, which forms an inherent part of the fundamental freedoms and protects the general interest, the ECJ has consistently held that in general, considerations of an economic nature are not accepted.51 Suffice to say, the distinction between economic and non-economic aims has not been regarded as ‘groundless’ with regard to the fundamental freedoms.52 Art. 106(2) TFEU in comparison, accepts economic objectives openly, and in a principled and general manner. This imposes on Art. 106(2) TFEU the character of being a narrow and very specific provision that provides a justification for economic objectives – relating to the provision of SGEIs.53 Without elaborating the comparison further, it is worth noting that this is the main function of the exemption in the field of State Aid as well. It should not be considered as a universal exception of general applicability. 49 Buendia Sierra, Exclusive Rights and State Monopolies under EC Law, at pp. 337–338. Probably, this has always been the main view, see, e.g. Deringer, The Competition Law of the European Economic Community (1968), at pp. 246–247. 50 See, e.g. Case 127/73, 27.3.1974, BRT, para. 19; Case C-157/94, 23.10.1997, Commission v Netherlands, para. 37; Case C-242/9, 17.7.1997, GT-Link, para. 50. 51 See, e.g, ECJ Case 95/81, 9.6.1982, Commission v Italy, para. 27; Case 238/82, 7.2.1984, Duphar, para. 23; Case 288/83, 11.6.1985, Commission v Ireland, para. 28; Case 352/85, 26.4.1988, Bond van Adverteerders, para. 34; Case C-288/89, 25.7.1991, Gouda, para. 29; Case C-324/93, 28.3.1995, Evans Medical, para. 36; Case C-484/93, 14.11.1995, Svensson and Gustavsson, para. 15; Case C-120/95, 28.4.1998, Decker, para. 39; Case C-398/95, 5.6.1997, SETTG, para. 23, Case C-158/96, 28.4.1998, Kohll, para. 41; Case C-264/96, 16.7.1998, ICI, para. 28; Case C-224/97, 29.4.1999, Ciola, para. 16; Case C-35/98, 6.6.2000, Verkooijen, para. 48; Case C-254/98, 13.1.2000, TK-Heimdienst, para. 33; Case C-367/98, 4.6.2002, Commission v Portugal, para. 52; Case C-164/99, 24.1.2002, Portugaia Construções, para. 26; Case C-168/01, 18.9.2003, Bosal, para. 42; Case C-388/01, 16.1.2003, Commission v Italy, paras. 19, 23; Case C-76/05, 11.9.2007, Schwarz, para. 77. 52 An illumining example is found in Case C-385/99,13.5.2003, Müller-Fauré, paras. 71–72 where the ECJ, contrary to Buendia Sierra’s submission, emphasised the economic aims of the national regulation on access to medical and hospital services, even if intrinsically linked to the ultimate goal of health protection. 53 See also Hatzopoulus, ‘Killing National Health and Insurance Systems but Healing Patients?’ 39 CMLR (2002), p. 683 at pp.726-727.

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If we turn to the practice of the ECJ, there are scarcely any examples of 37 Art. 106(2) TFEU being used as an exemption from the fundamental freedoms. Common to the few and random judgments that exist is that they are quite old, that Art. 106(1) TFEU serves as the starting point, and that the Member State is held responsible for violating both the competition rules and the Treaty rules on the four freedoms.54 There are no examples of Art. 106(2) being invoked as an available exemption in cases which solely concern the application of the fundamental freedoms. Quite to the contrary: in Campus Oil the ECJ emphasised that the exception could not exempt a Member State from the obligations flowing from Art. 34 TFEU – however without stating any grounds for that finding.55 The jurisprudence of the ECJ concerning State monopolies of a commercial 38 character, pursuant to Art. 37 TFEU requires specific analysis. The ECJ has made it clear that Art. 37 refers to monopolies of goods only. Regarding such monopolies, the ECJ has accepted that Art. 106(2) can be invoked as a justification for their pure existence.56 It should however be recalled that the ECJ has constructed the scope of Art. 37 narrowly. In Franzén the ECJ drew a dividing line, and stated that “the effect on intra-Community trade of the other provisions of the domestic legislation which are separable from the operation of the monopoly although they have a bearing upon it” had to be examined with reference to Art. 34 of the Treaty.57 In the latter regard Art. 106(2) TFEU was not applied. The same strict approach was followed in Rosengren. Swedish rules on imports of alcoholic beverages, had the “effect of channelling consumers who wish to acquire such beverages towards the monopoly”.58 The ECJ found Art. 37 TFEU to be irrelevant and resorted instead to Art. 34.59 The narrow interpretation of Art. 37 TFEU makes the scope of the excep- 39 tion in Art. 106(2) similarly narrow. It is submitted that this is intentional; otherwise there would seem to be no convincing explanation to the very careful elaborations in the judgments mentioned above. The approach of the Court is interesting with regard to the fact that in some of the early drafts on the Treaty, what we today know as Arts. 37 and 106 respectively, formed one single provision. Further, the dividing line between regulation concerning the mere existence and operation of the monopoly, and other regulation with a possible negative impact on intra-Community trade is difficult to draw outside the field of goods. The interpretation of Art. 37 TFEU seems to correspond to the distinctions made in Keck, i.e. between selling arrangements and other regulation.60 The reasoning

54 See, e.g, Case C-179/90, 10.12.1991, Merci; Case C-266/96, 18.6.1998, Corsica Ferries; Joined cases C-147/97 and C-148/97, 10.2.2000, Deutsche Post. 55 Case 72/83, 10.7.1984, Campus Oil, para. 19. 56 Case C-157/94 Commission v. Netherlands, 23.10.1997; Case C-158/94 Commission v. Italy, 23.10.1997; Case C-159/94 Commission v. France, 23.10.1997, Case C-438/02 Hanner, 31.5.2005. 57 Case C-189/95 Franzén, 23.10.1997, para. 36. 58 Case C-170/04 Rosengren, 5.6.2007, para. 23. 59 Rosengren, para. 24-27.

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in Keck has never been transposed to the other freedoms and it may seem that its distinctions are unsuitable outside the field of goods.61 If that is correct, one may add that Art. 106(2) seems to be unsuitable as well. 40 The analyses above may explain why the functioning of Art. 106(2) TFEU has to some extent changed from being an operative provision to becoming a constitutional value statement, the ideals of which must be taken into regard and integrated into the application of the fundamental freedoms and the mandatory requirements doctrine when relevant. Correctly, Buendia Sierra has submitted that Art. 14 TFEU ‘reaffirms the logic behind the provision’.62 Hence, the values enshrined in Art. 106(2) TFEU should rightly be seen as a mandatory element in the reconciliation between the fundamental principles of the market and the social policies of the Member States within the traditional framework provided by the fundamental freedoms, the doctrine of mandatory requirements and the principle of proportionality. 41 In practice, the constitutional influence of the provision plays out in two important manners. First, the existence of Art. 106(2) (but not its application) can explain why the ECJ, on specific occasions, namely in the field of welfare and the provision of social services, has consistently deviated from its general doctrine that economic objectives cannot justify prima facie infringements of the fundamental freedoms. The judgment in Müller-Fauré is one of many examples where the Court, within the framework of the fundamental freedoms, has accepted that the need to ensure the financial balance of the social security system, and the need of planning and rationalization to avoid overcapacity, could justify a waiting list system and a requirement of prior authorization for hospital treatment abroad.63 42 Second, as in Ambulanz Glöckner (analyzed above), the ECJ has transposed the demand limitation doctrine into a further qualifier, protecting the right of citizens to access SGEIs. Again the judgment in Müller-Fauré reveals how this works within the fundamental freedoms framework. After first having accepted economic justifications as relevant concerns which could in principle justify restrictions on the possibility to travel abroad to get hospital treatment, the Court added that if an authorization was refused solely by referring to there being a waiting list, and without taking account of the medical situation of the patient, such considerations would seem to be purely economic, and hence unjustified.64

60 Joined cases C-267/91 and C-268/91 Keck and Mithouard, 24.11.1993. The point made becomes clearer if one also compares with Case C-323/93 la Crespelle, 5.10.1994 and Case C-387/93 Banchero, 14.12.1995. 61 Convincingly Hatzopoulus, “Recent developments of the case law of the ECJ in the field of services”, 37 CMLR (2000), 43 at 67–68. 62 Buendia Sierra, Exclusive Rights and State Monopolies under EC Law, at p. 313. 63 Case C-385/99,13.5.2003, Müller-Fauré, para. 91. Established case-law since Case C-120/95, 28.4.1998, Decker, para. 39. 64 Ibid, para. 92.

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The examples prove how Art. 106(2) is being respected, not through the di- 43 rect application of the provision, but through the integration of its values into the traditional framework, when relevant. This approach has two obvious advantages: it provides flexibility and preserves coherence. Further, it confirms the submission made by Norberg et al., that the definition of the exception must be strictly defined. V. Case E-29/15 Sorpa

The judgment of the EFTA Court in Sorpa concerned the organization of 44 waste management services. The public undertaking Sorpa was owned by 6 Icelandic municipalities, each municipality holding 1 share. Allegedly, the rates that the public undertaking offered its owners were suppressing its private competitors in a manner which was contrary to Art. 54 EEA.65 For the sake of argument, the latter finding will be treated as a fact. The EFTA court established that a publically owned company could be re- 45 garded as an undertaking pursuant to the competition rules and thus that the competition rules would apply as long as the legal regime under which the company operated did not preclude it from engaging in autonomous conduct in the setting of prices. If, on the other hand, the terms and price setting was demanded by public regulation, the competition rules would not be applicable to the company.66 In that regard the EFTA Court added that “should an EEA State, by national legislation, grant public entities a derogation from the application of the EEA competition rules, for instance by granting them special or exclusive rights, it must do so in accordance with the EEA competition rules, in particular with Art. 59(1) EEA”.67 The reminder is somewhat imprecisely worded, as Art. 59(1), similar to Art. 106(1) TFEU, must be regarded as a mere reference provision. What the EFTA Court clarified, however, is that if abusive behavior is demanded by public regulation, the infringement of the competition rules will be attributed to the state. Further, the EFTA Court noted that Art. 59(2) can be invoked by the state to justify its regulation provided that the undertaking has been entrusted with the exercise of a Service of General Economic Interest by an act of public authority,68 but only if the application of the EEA competition rules would obstruct the performance of the particular tasks at stake.69 These findings are in conformity with the practice of the ECJ. If read in isolation, Sorpa paras. 70–73 may be taken to suggest that the ex- 46 ception in Art. 59(2) could also be invoked by the company itself, even if it acted autonomously in its price-setting. Such a finding would however be contrary both to the system of Art. 59 and its purpose, and finds no parallel in the 65 66 67 68 69

Case E-29/15, 22.9.2016, Sorpa, paras. 110-118. Ibid, paras. 86–87 and No. 4 of the conclusions. Ibid, para. 88. Ibid, para. 68. Ibid, para. 69.

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practice of the ECJ. Principally speaking, it is the official entrustment of a public service mission by the state which is subject to scrutiny and which can benefit from the exemption in Art. 59(2), not the autonomous behavior of an undertaking.70 The requirement of entrustment serves multiple purposes. It provides a link between the democratic process and the operation of the undertaking; it clarifies that the operation of the undertaking is attributable to the state; and it clarifies in advance how the undertaking shall operate as a warning to its potential competitors. 47 For the reasons set out above, an isolated reading of paras 70–73 in Sorpa would be mistaken. In para. 66 of the judgment, the EFTA Court set out the general point, that “for the derogation in Art. 59(2) EEA to apply, it must be established first, that the undertaking in question has been entrusted with the operation of a service of general economic interest, second, that the application of the EEA competition rules would obstruct the performance of its taks.” 48 This clarification confirms that the approach of the EFTA Court to Art. 59 is in line with the approach of the ECJ to Art. 106 TFEU. VI. Paragraph 3

The different wording of Art. 59(3) EEA compared to Art. 106(3) TFEU reflects that the purpose of the EEA Agreement is to include the EEA-states in the internal market while preserving their sovereignty. As a main rule, the EEA Agreement does not confer powers to institutions operating on the supranational level. Admittedly, the Agreement provides some very minor examples to the opposite, but these peculiarities confirm the main principle to which the wording of Art. 59(3) adheres. The formal transfer of powers would require special Constitutional procedures to be respected in (at least some of) the EEA-countries. At the time of the enactment of the EEA Agreement, the awareness with regard to sovereignty and Constitutional concerns served to crystalize its controversial provisions. Art. 59(3) EEA was not one of them. The re-wording of the provision (compared to Art. 106.3 TFEU) acknowledges the sovereignty-issue by making a conscious choice of not transferring any power to enact directly effective binding decisions. 50 Consequently, directives issued by the Commission on the basis of Art. 106(3) TFEU must be (and has been) implemented into the EEA Agreement by the EEA Committee. Such directives cannot be “copied” by a decision made by the EFTA Surveillance Authority. The same is true for Commission decisions with EEA relevance, such as the general decisions on the functioning and application of the rules on State Aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest.71 Neither does Art. 59(3) EEA empower 49

70 Norberg et al., EEA Law, p. 552. 71 OJ L 7, 11.1.2012, p. 3–10. Cf. the State Aid Guidelines of the EFTA Surveillance Authority, part VI para. 4.

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the EFTA Surveillance Authority to issue individual decisions that are legally binding upon private parties. It remains unclear whether Art. 59(3) EEA establishes a competence for the 51 EFTA Surveillance Authority to enact binding decisions which are directed at the EFTA-states only, and which establishes, in a specified manner, that an EFTA-State has failed to fulfil an obligation pursuant to the EEA Agreement. If the EFTA Surveillance authority possesses such a competence, it will provide an alternative to infringements proceedings pursuant to the agreement on the establishment of a Surveillance Authority and a Court of Justice (SCA) Art. 31.72 The more restrictive interpretation is that Art. 59(3) EEA does not confer on 52 the EFTA Surveillance Authority any power to “take decisions”, as defined in the SCA, Art. 5(2)(a). Instead, with regard to Art. 59(3) EEA, the EFTA Surveillance Authority must confine itself to “formulate recommendations, deliver opinions and issue notices or guidelines” pursuant to the SCA Art. 5(2) (b).73 The latter instruments, which are not formally binding, will in that case exhaust the term “appropriate measures” in Art 59(3) EEA. The basic observation that the EEA agreement was constructed to preserve sovereignty provides a strong argument in favor of a restrictive interpretation of Art. 59(3) EEA. The wording, “appropriate measures”, provides another argument in the same direction, especially when it is being compared to the term “appropriate directives or decisions” in TFEU Art. 106(3). It has been questioned whether the nuances above have “much or any practi- 53 cal meaning as ESA can address a decision to an EEA/EFTA State requiring it to take the measures necessary to ensure that EEA law is complied with in the internal legal order. The practical effect of the decision would be the same as that of a directive.” 74 This observation may appear as somewhat sweeping. First, from a formal point of view, the EFTA Surveillance Authority possesses no formal powers that addresses the decision making (“law making”) processes within the EEA Committee, nor can it assert any practical influence in this regard. Second, while it is on the one hand true that the substantive content of Art. 59, paras (1) and (2), or other obligations which stem from the EEA-agreement must be respected by the EEA Member States, it is submitted that the purpose of the rewording of para (3) was to emphasize that the EFTA Surveillance Authority cannot address a decision to an EEA/EFTA State on the basis of the latter. If that is the case, the extent to which the EFTA Surveillace Authority can contribute to making the substantive content of Art. 59(1) and (2) effective is dependent on the other decision making competences to which the Art. 5(2)(a) SCA refers.

72 In this direction, Arnesen, Statlig styring og EØS-rettslige skranker, at p. 631 et seq. Cf. Case E-7/96, para. 16. 73 Cf. in this regard the State Aid Guidelines of the EFTA Surveillance Authority, part I, para. 1 (legal basis). 74 Büchel and Lewis, ‘The EFTA Surveillance Authority’, in: C. Baudenbacher (ed), Handbook of EEA Law (2016), p. 113 at p. 121.

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These competences are not inherent in Art. 59 EEA but must be found elsewhere.

Article 60 [Specific provisions on undertakings] Annex XIV contains specific provisions giving effect to the principles set out in Articles 53, 54, 57 and 59. 1

2

3

4

5

The legal acts included in Annex XIV have already been discussed in the comments on the previous Articles. Therefore, they will only be given a short mention here. The annex provides the necessary adjustments to the wording of the acts for the purpose of implementing them into EEA law. Some of these are general adjustments which apply to all acts contained in the Annex unless otherwise specified, such as that the term “Commission” shall be read “competent surveillance authority”, that the term “common market” shall read “the territory covered by the EEA Agreement”, that “Article 81” shall read “Article 53”. Other adjustments are specific for each act, and are specified under each act in the Annex. The first act referred to in the Annex is Reg. 139/2004 on control of concentrations. The legal implications of the implementation of the regulation are further discussed in the comments on Art. 57. The Annex also includes the different block exemption regulations are included. These are Reg. 330/2010 on vertical agreements, Reg. 461/2010 on vertical agreements in the motor vehicle sector, Reg. 316/2014 on technology transfer agreements, Reg. 1218/2010 on specialization agreements, Reg. 1217/2010 on Research and development agreements, Reg. 169/2009 on transport agreements, Reg. 906/2009 on liner shipping agreements, and Reg. 267/2010 on in the insurance sector. The role of the block exemptions and the competence to adopt them are described in the comments on Arts. 53 and 55. For the block exemptions for vertical agreements, vertical agreements in the motor vehicle sector, and for technology transfer agreements, the Annex provides a procedure for declaring the block exemptions inapplicable in cases where there are parallel networks of the same restraint covering more than 50% of the market in question. The last part of the Annex refers to some older Commission guidelines. As mentioned in the comments on Art. 55, this part of the Annex is no longer updated. New Guidelines are now, as described in the comments on Art. 55, adopted by ESA in cooperation with the Commission. The annex also refers to the telecommunication sector Directives: Dir. 2008/63/EC on competition in the markets for telecommunications terminal equipment, Dir. 2002/77/EC on competition in the markets for electronic communications network and services. Finally, two High Authority Decisions re-

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garding the Coal and Steel Treaty, Decision No 24/54 and Decision No 25/67 are referred to.

Chapter 2: State aid

Article 61 [Prohibition of state aid, exemptions] 1. Save as otherwise provided in this Agreement, any aid granted by EC Member States, EFTA States or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Contracting Parties, be incompatible with the functioning of this Agreement. 2. The following shall be compatible with the functioning of this Agreement: (a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned; (b) aid to make good the damage caused by natural disasters or exceptional occurrences; (c) aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division. 3. The following may be considered to be compatible with the functioning of this Agreement: (a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment; (b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of an EC Member State or an EFTA State; (c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest; (d) such other categories of aid as may be specified by the EEA Joint Committee in accordance with Part VII.

I. The main provision on state aid

Art. 61 is the main substance provision on state aid in the EEA Agreement. 1 The first paragraph defines and prohibits state aid. The second and third paragraphs set out grounds on the basis of which state aid is or may be found compatible with the functioning of the EEA Agreement. Art. 61 corresponds to Art. 107 TFEU (ex-Art. 87 TEC). However, certain 2 amendments have been made to the latter after the entry into force of the EEA Agreement, whereas Art. 61 remains unchanged. The implications of the differences between the provisions are set out in the following. ESA has provided guidance on how it applies various aspects of Art. 61. 3 These guidelines correspond to the guidance provided by the Commission. By Jordal/Mathisen

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issuing guidelines ESA binds its discretion. ESA cannot, as a rule, depart from the guidelines.1 4 The objective of the EEA state aid rules is to ensure a level playing field in the internal market. It would not be in keeping with basic economic free market ideals to allow the EEA States to subsidise or artificially keep afloat their preferred companies and hence give these an undue competitive advantage. At the same time, European state aid law recognises a plethora of just causes for granting state aid. This is why the second and third paragraphs of Art. 61, along with Arts. 59(2) and 49 provide a wide variety of legal bases for finding state aid compatible with the functioning of the EEA Agreement. II. Definition of state aid 1. Introduction

State aid is defined in Art. 61(1). This part of Art. 61 is parallel to the first paragraph of Art. 107 TFEU. 6 The concept of state aid is an objective and legal concept defined by the EEA Agreement. In 2017, ESA issued guidelines on the notion of state aid as referred to in Art. 61(1),2 setting out how ESA interprets the definition of state aid. The guidelines are based on case law and practice. 7 For state aid to exist, the following criteria must be cumulatively fulfilled: the measure must be granted by the State or through state resources; it must confer a selective economic advantage on an undertaking or for the production of certain goods; and it must be liable to affect trade between Contracting Parties and threaten to distort competition. 5

2. Notion of undertaking and economic activity

Only “undertakings” can receive state aid. The notion of an undertaking is, for the purposes of Art. 56 EEA, defined in Art. 1 of Protocol 22 to the EEA Agreement, which describes it as: “any entity carrying out activities of a commercial or economic nature”. The EFTA Court has used this definition in the realm of Art. 61(1). The EFTA Court does not distinguish between the notion of an undertaking for the purposes of competition law and state aid law.3 9 The EFTA Court has aligned its interpretation of the notion of an “undertaking” with that of the ECJ,4 by more narrowly defining undertakings as entities engaged in economic activities.5 Economic activities consist of offering goods or services on a given market.6 8

1 Case E-9/12, 22.7.2013, Iceland v ESA, at para. 57 and Case C-526/14, 19.7.2016, Kotnik, at para. 59. 2 Available at: http://www.eftasurv.int/media/esa-docs/physical/EFTA-Surveillance-AuhtorityGuidelines-on-the-notion-of-State-aid.pdf. 3 Case E-5/07, 21.2.2008, Private Barnehagers Landsforening, at para. 78 and Case E-14/15, 19.4.2016, Holship, at para. 69. 4 Case C-222/04, 10.1.2006, Cassa di Risparmio di Firenze, at para. 107.

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The key to analysing what constitutes an undertaking is to look to the activity carried out, and not to the formal organisation of the entity carrying out the activity. In the same vein, the status of an entity under national law is irrelevant. Public entities such as states7 or municipalities8 are undertakings when they carry out economic activities. The undertaking is only the part of the entity that carries out the economic activity. On the other hand, several separate legal entities constitute one undertaking for the purposes of the state aid rules where they act as one economic unit.9 The exercise of public powers does not constitute an economic activity.10 The exercise of public powers remains non-economic also when carried out on behalf of the public authorities by a private entity.11 An entity does not constitute an undertaking where it is offering goods or services outside the realm of what could be defined as a proper market. Whether a market exists or not may be dependent upon the way it is organised in the state concerned,12 and the classification of a particular activity as economic or not may thus change over time. ESA has taken the view that where the states have organised the provision of a certain service in such a way that market forces do not have a say in how it is provided, and the service is not provided in competition with other market players, a market cannot be said to exist.13 The service providers will therefore not be engaging in economic activities within the meaning of the jurisprudence.14 To the extent that it offers goods or services on a market, also a non-profit entity constitutes an undertaking.15 The acquisition, holding and selling of shares or other negotiable securities do not automatically constitute an economic activity. However, an entity holding a controlling shareholding in a company, which actually exercises that control by involving itself directly or indirectly in the management thereof must be regarded as taking part in the economic activity carried on by the controlled undertaking, and must thus be regarded as an undertaking.16 Social security systems based on the principle of solidarity are not considered to involve an economic activity.17 5 Cases E-8/00, 22.3.2002, Landsorganisasjonen i Norge, at para. 62 and E-5/07, 21.2.2008, Private Barnehagers Landsforening, at para. 78. 6 Case E-14/15, 19.4.2016, Holship, at paras. 68-69. 7 Case C-343/95, 18.3.1997, Cali & Figli, at paras. 16-17. 8 Case E-8/00, 22.3.2002, Landsorganisasjonen i Norge, at para. 64. 9 Case C-480/09 P, 16.12.2010, AceaElectrabel Produzione. 10 Case E-29/15, 22.9.2016, Sorpa, at paras. 54-57. 11 Case C-343/95, 18.3.1997, Cali & Figli, at paras. 22-25. 12 Case C-159/91, 17.2.1993, Poucet and Pistre. 13 ESA Decision No 349/07/COL, 18.7.2007, ESA Decision No 91/13/COL, 27.2.2013, and ESA Decision No 144/13/COL, 10.4.2013. 14 Case T-125/06, 25.1.2009, Centro Studi Manieri, at para. 78. 15 Case E-29/15, 22.9.2016, Sorpa, at para. 61. 16 ESA Decision No 44/11/COL, 15.2.2011. 17 Case C-159/91, 17.2.1993, Poucet and Pistre.

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10

11

12

13

14 15

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To the extent national health systems are not operated on market terms, but rather in line with the principles of universal coverage and solidarity, the service providers are not effectively offering services on a market.18 When national health systems that otherwise adhere to these principles also offer goods like pharmaceuticals on the market without adhering to the principles of universal coverage and solidarity, they are considered as undertakings with regard to those activities.19 18 Publicly education financed entirely or mainly by public funds does not constitute an economic activity.20 That is also the case where the pupils or their guardians have to pay a degree of tuition or enrolment fees, which contribute to the financing of the education system.21 This can apply to the provision of education in kindergartens, primary schools, secondary schools, and universities. Furthermore, this can apply to the provision of teaching materials to be used in the publicly financed schools.22 19 Moreover, ESA considers that primary activities of universities and research organisations, such as independent research and the dissemination of research results, do not constitute economic activities.23 20 When certain non-commercial culture activities as well as heritage and nature conservation are provided free of charge or for a nominal fee that does not cover the cost of the activity, ESA considers them to be non-economic in nature.24 17

3. State resources

For a measure to constitute state aid within the meaning of Art. 61(1) it has to stem from state resources. Furthermore, it must be imputable to the state. 22 The concept of state resources covers the resources flowing directly or indirectly from any public entity at any level of a state. This applies also to autonomous public bodies.25 The question of state resources is a question of the degree of public control. Thus, the resources of publicly owned undertakings will constitute state resources if those resources are under the control of public authorities.26 What is more, the resources of purely private entities constitute state resources when they are under public control. Measures financed by parafiscal charges imposed and managed in accordance with publicly mandated rules are considered to stem from state resources.27 21

18 Case T-319/99, 4.3.2003, FENIN, at para. 40. 19 ESA Decision No 36/15/COL, 4.2.2015, at para. 3. 20 Case C-74/16, 27.6.2017, Congregación de Escuelas Pías Provincia Betania v Ayuntamiento de Getafe, at para. 50. 21 Case E-5/07, 21.2.2008, Private Barnehagers Landsforening, at para. 83. 22 ESA Decision No 244/14/COL, 26.6.2014. 23 ESA guidelines on the notion of state aid as referred to in Art. 61(1) EEA, at paras. 28-31. 24 ESA guidelines on the notion of state aid as referred to in Art. 61(1) EEA, at paras. 33-37. 25 Case T-358/94, 12.12.1996, Air France v Commission. 26 Case C-482/99, 16.5.2002, France v Commission. 27 Case C-206/06, 17.7.2008, Essent Netwerk Noord.

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Funds stemming from the EEA institutions (for example funds from the Fi- 23 nancial Mechanism Office or the EU structural funds) are not considered as state resources unless national authorities have a controlling influence on how the funds are distributed. For Art. 61(1) to apply, the state must somehow forego revenue. However, an 24 actual transfer of funds does not have to take place. When a state declines to collect taxes or when it commits to make a guarantee available it foregoes revenue and state resources are made available to the beneficiary within the meaning of Art. 61(1). A grant by the state of an economic advantage to an undertaking is clearly 25 imputable to the state. The question of imputability comes to the fore where an advantage is granted through a public undertaking. Under those circumstances, the involvement of public authorities in the decision to confer the economic advantage must be established.28 4. Advantage

For a measure to constitute state aid within the meaning of Art. 61(1) it must 26 confer upon the undertaking an advantage that it would not have had under normal market conditions. The financial situation of the undertaking after the measure must be compared with the financial situation had the measure not been implemented.29 The concept of an advantage is an objective notion. It is the financial effects of the measure, which have to be assessed in order to determine whether it constitutes an advantage within the meaning of Art. 61(1).30 A classic example of an advantage is a grant of cash. The notion of an advan- 27 tage is however, much wider. In principle, any economic advantage flowing to the undertaking from state resources can constitute a form of state aid within the meaning of Art. 61(1). This includes tax exemptions and other tax breaks, loans and guarantees not provided on market terms or transactions such as the sale of publicly held property or other assets, or the purchase by public authorities of goods or services on more beneficial terms than what would be acceptable to a rational market economy operator. Transactions carried out on market terms do not fall under Art. 61(1). For in- 28 stance where public authorities sell an asset, the buyer is not considered an aid recipient by the mere fact that it is buying the asset from a public authority. If the public entity is acting as a market economy operator and, in particular, sells the asset at market price, no advantage is transferred to the buyer. This is referred to as the market economy operator (MEO) principle.31 Thus when a 28 ESA has on numerous occasions considered whether different transactions carried out by the publicly owned Icelandic power company Landsvirkjun were imputable to the Icelandic State, see ESA Decisions No 391/11/COL and 392/11/COL, both of 13.12.2011 and ESA Decision 543/14/COL, 10.12.2014. ESA did not conclude on the question of imputability in any of these cases. 29 Case 173/73, 2.7.1974, Italy v Commission, at para. 17. 30 Case C-559/12 P, 3.4.2014, France v Commission, at para. 94.

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29

30

31

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public authority acts as a private entity it is treated as a private entity. This is a result of the neutrality of EEA law as to public and private ownership. However, the MEO principle has a wider application in that it also applies in situations where public entities use their exclusively public competencies, such as affording a tax break to a given undertaking.32 The comparator market operator must be a normal, rational market operator. This excludes charitable acts, and investments connected with a risk appreciably larger than normal in the relevant market. Where public investments can be directly compared to actual private investments carried out on the same terms (pari passu), state aid can normally be excluded.33 Also in cases where public authorities enter into contracts where there is no directly comparable market benchmark, the question of whether the terms are of a kind that would have been accepted by a rational market economy operator must be assessed.34 The application of the MEO principle must be made on the basis of the information available at the time of the conclusion of the contract. Generally, an informed ex ante assessment would be sufficient to exclude the presence of state aid, even if the assumptions used in the assessment prove to be wrong with hindsight. Another area where the question of what constitutes an advantage within the meaning of Art. 61(1) has been widely debated is the situation where a public authority acquires a service of general economic interest (SGEI), which is a service that is not offered on the market at the quality level and/or the terms desired by the public authorities.35 In order for that service to be provided, a degree of public intervention is required. This can often take the form of public financing. The challenge is how to determine whether that public financing confers an advantage on the provider of the service. With its judgment in 2003 in the Altmark case, the ECJ set out four criteria which all have to be met in order for public service compensation not to confer an advantage to the undertaking providing the service.36 If any of those four cri31 Generally on the MEO principle, see Malgorzata Cyndecka, The Market Economy Investor Test in EU State Aid Law: Applicability and Application (Kluwer Law, 2016). 32 Case C-124/10 P, 5.6.2012, Commission v EDF, at para. 92. 33 ESA Decision No 273/14/COL, 9.7.2014. 34 ESA Decision No 258/13/COL, 19.6.2013 where ESA assessed the sale by a Norwegian municipality to a power company of its right to purchase electricity at a certain fixed price (socalled concession power) for 50.5 years going forward. After a formal investigation, ESA compared the transaction to the sale of a power plant. After carrying out a sensitivity analysis, and taking account of the municipality’s liquidity needs, ESA concluded that the transaction was within the scope of the MEO principle. Consequently, the transaction did not confer an advantage on the buyer and therefore did not involve state aid within the meaning of Art. 61(1). 35 On the notion of an SGEI, see Mamdani and Rapp, ‘Chapter 33. Altmark and the Communication’, in: Pesaresi et al. (eds), EU Competition Law. Volume IV. State Aid (2nd ed., 2016), pp. 1257 et seq., mn. 4.4 et seq., in particular 4.51–4.58. 36 Case C-280/00, 24.7.2003, Altmark, at paras. 89-93.

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teria are not met, the public service compensation will confer an advantage on the undertaking.37 The criteria are as follows. First, the service has to be a genuine public service, the undertaking must have an actual obligation to provide it, and it must be clearly defined. Second, the parameters for compensation must be objectively and transparently established in advance. Where the undertaking provides services outside the public service remit, it needs to keep separate accounts.38 Third, there can be no overcompensation, meaning compensation in excess of net costs plus a reasonable profit. The fourth criterion has two alternatives, and it suffices that one of the two alternatives are met. The first option is that the public service obligation is awarded through a public procurement procedure. If that is not the case, the compensation can meet the fourth condition only if it does not exceed the level of compensation granted to a typical undertaking, well run and adequately equipped. The first three criteria are largely comparable to the conditions that have to be 34 met for public service compensation to be compatible with the functioning of the EEA Agreement.39 The distinguishing factor is the fourth criterion, which relates to a market testing of the amount of compensation. For this kind of service of general economic interest that is not offered on the market in a politically desirable manner, the presence of an advantage can only be excluded in cases where it can be demonstrated that the level of compensation has been determined through a competitive open tender process, or established by the comparison with a typical, well-run and adequately equipped undertaking. The Altmark criteria have proved to be hard to meet in practice. ESA has nev- 35 er excluded the existence of aid on this basis. The Commission has only rarely done so.40 5. Selectivity

In order to constitute state aid a measure must favour certain undertakings or 36 the production of certain goods. A measure that is general in its application does not meet the selectivity condition. Individual measures that provide an advantage to one undertaking will be selective. Also general schemes are typically set up in a way so as to exclude certain undertakings. They may be targeted at a certain sector (rail transport and not road), or a certain type of activity (renewable but not non-renewable energy) and thereby be selective. The selectivity issue typically comes to the fore with tax or tax-like mea- 37 sures. In order to assess whether a measure such as a tax exemption provides an advantage that is selective, a three-step analysis is applied. First, the system of reference must be identified. Second, the position of the undertaking benefitting 37 38 39 40

Case C-280/00, 24.7.2003, Altmark, at para. 94. Joined Cases E-10/11 and E-11/11, 8.10.2012, Hurtigruten, at para. 117. See Art. 59(2) EEA. See also the comments by Hennig to Art. 49 mn. 5. Examples are Commission Decisions in Case C-7/2005, 24.4.2007, Case C-49/2006, 21.10.2008 and Cases N-206/2009 and N-207/2009, both 15.9.2009.

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from a tax exemption must be compared to other undertakings, which are in a comparable factual and legal situation in the light of the objective pursued by the measure in question.41 If the undertaking, at this stage of the analysis can be said to benefit from an advantage, the conclusion is that the exemption is prima facie selective. If not, the exemption is not selective, and the analysis can be concluded. Where prima facie selectivity is established a third step is used to conclude the analysis. The third step consists of examining whether the exemption can be justified within the nature and logic of the tax system. If it can, it does not entail a selective advantage.42 On the other hand, if the tax exemption cannot be justified within the nature and logic of the tax system, it is selective. The third step is a bit of an anomaly in the otherwise objective state aid analysis under Art. 61(1) EEA in that the exercise of examining whether a derogation to a system adheres to an overarching internal logic emphasises elements of a more subjective nature. 38 A measure that only applies to certain undertakings or certain sectors of the economy is materially selective. A measure that by law is formally reserved for certain undertakings is selective de jure. A measure that formally appears to be available for all undertakings due to the fact that the criteria for benefitting from the measure is formulated in a general and objective manner but is, due to actual restrictions, only available to certain undertakings is selective de facto. 39 The term regional selectivity is used where a central authority imposes lower tax levels in certain regions.43 However, not all measures that apply only to certain parts of the territory of a Contracting Party are selective. Under certain circumstances regionally differentiated measures are not held to be selective. This is practical where local authorities have the power to impose different levels of tax in one EEA State. The different tax levels do not entail that the tax is selective as a normal national reference system does not exist. 6. Distortion of competition and effect on trade

According to the wording of Art. 61(1) EEA a measure does not constitute state aid if it does not distort or threaten to distort competition, or does not affect trade between the Contracting Parties to the EEA Agreement. 41 The two conditions have to be fulfilled in order for the measure to be classified as state aid. Taken at face value, the wording of the “affect trade” condition 40

41 Joined Cases E-4/10, E-6/10 and E-7/10, 10.5.2011, Liechteinstein, Reassur Aktiengesellschaft and Swisscom, at para. 74. 42 In Decision No 155/16/COL, 13.7.2016, ESA concluded that a Norwegian import duty exemption for low-value goods imported by consumers was not selective as it was within the logic of the tax system to exempt low-value goods to reduce the administrative burden on the customs authorities. 43 An example of a regionally selective measure is the Norwegian regionally differentiated social security contributions. This aid scheme was last approved by ESA with its Decision No 225/14/COL, 18.6.2014. (A certain part of the Decision was annulled by the EFTA Court with its judgment in Case E-23/14, 23.9.2015, Kimek v ESA, however ESA addressed that with its Decision No 94/17/COL, 31.5.2017).

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requires actual effect on trade between the Contracting Parties. The EFTA Court has however clarified that it is sufficient that a measure is “liable” to affect trade between Contracting Parties.44 In general, very little is required for the two conditions to be met. Furthermore, as the conditions “threaten to distort” and “liable to affect trade” are linked to the potential effects of the measure, rather than its actual effects, a fullfledged market analysis, comparable to those carried out in the field of competition law, is not required. It is therefore not necessary to define the market or to carry out a detailed assessment of the impact of the measure on the market.45 A measure is generally considered to threaten to distort competition where an undertaking receives an advantage stemming from state resources. This is the case even if the advantage does not actually help the undertaking broaden its economic activities. The standard would not be met where it is merely hypothetical46 that a measure would threaten to distort competition. As regards the effect on trade condition, the ECJ has clarified that “there is no threshold or percentage below which it may be considered that trade between Member States is not affected. The relatively small amount of aid or the relatively small size of the undertaking which receives it does not as such exclude the possibility that trade between Member States might be affected.”47 When a measure strengthens the position of an undertaking compared with other undertakings competing in intra-EEA trade, the latter must be regarded as affected by that aid.48 That a measure affects trade between Contracting Parties can be established also for undertakings that do not engage in cross-border activities. The support could make it more difficult for foreign actors to establish themselves on the market. The effect on trade requirement is occasionally not met where a measure has purely local impact. In this regard, ESA has stressed that such purely local effects can be established where an undertaking supplies goods or services in a limited area within the state where it is established, and that activity is unlikely to attract customers from other EEA States, and that it cannot be foreseen that the measure would have more than a marginal effect on cross border establishment and trade.49 This approach is arguably not fully in line with the afore-referenced case law, and can be seen as an attempt by ESA to contribute to the evolution of the notion of aid by heightening the threshold for what is to be considered to have an intra-EEA effect. In principle, the lack of effect on intra-EEA trade can entail that both individual measures as well as schemes can fall outside the state aid definition.50 44 Joined Cases E-5/04, E-6/04 and E-7/04, 21.7.2005, Fesil and Finnfjord and Others v ESA, at para. 93. 45 Case 730/79, 17.9.1980, Philip Morris, at paras. 9-11. 46 Case C-280/00, 24.7.2003, Altmark, at para. 79. 47 Case C-280/00, 24.7.2003, Altmark, at para. 81. 48 Case C-518/13, 14.1.2015, Eventech, at para. 66. 49 ESA guidelines on the notion of state aid as referred to in Art. 61(1) EEA, at para. 196.

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On a general level, it might be easier to exclude intra-EEA effect of individual aid as opposed to schemes, in light of the fact that the former normally are more easily ring-fenced than generally applicable schemes. However, ESA has in addition to finding that individual public financing of a swimming pool and spa facility on the island of Bømlo in western Norway did not constitute state aid due to the lack of effect on intra-EEA trade,51 also concluded that a national scheme for the financing of municipal day-care institutions in Norway did not affect trade within the meaning of Art. 61(1) EEA.52 III. Automatic compatibility grounds 1. Social aid

According to Art. 61(2)(a) aid having a social character, granted to individual consumers, shall be compatible with the functioning of the Agreement, provided that it is granted without discrimination related to the origin of the products concerned. This part of Art. 61 corresponds to Art. 107(2)(a) TFEU. 48 Although the provision only refers to products, it is also applied to services.53 49 An interesting element of this provision is that it acknowledges the existence of the concept of so-called indirect aid in that it refers to aid granted to individual consumers. A consumer as such typically does not offer goods or services on a market and therefore cannot be classified as an “undertaking” within the meaning of the first paragraph of Art. 61. The provision acknowledges that financial advantages flowing from state resources to consumers can indirectly provide undertakings (e.g. those selling the products) with advantages. 50 The non-discrimination aspect of the provision is a reflection of the general non-discrimination norm in EEA law. 47

2. Aid for natural disasters or exceptional occurrences 51

This part of the provision is parallel to Art. 107(2)(b) TFEU. It allows for aid to make good the damages caused by natural disasters or exceptional circumstances such as force majeure events. On the basis of this provision, ESA approved aid to the Icelandic and Norwegian aviation sectors in the wake of the terrorist attacks against the United States of America on 11 September 2001.54 50 Case 248/84, 14.10.1987, Germany v Commission, at para. 18. 51 ESA Decision No 459/12/COL, 5.12.2012. See also ESA’s letter to the Norwegian authorities of 10.7.2015, where it took the preliminary view that the financing of a multi-purpose sports hall in Finnmark in northern Norway did not constitute state aid due to the lack of effect on intra-EEA trade. The letter is available on ESA’s website: http://www.eftasurv.int/state-aid/ state-aid-register/preliminary-assessments/. 52 ESA Decision No 39/07/COL, 27.2.2007. The decision was challenged before the EFTA Court, with its judgment in Case E-5/07, 21.2.2008, Private Barnehagers Landsforening the Court upheld the decision on the grounds that the day-care institutions did not constitute undertakings. The Court did not rule on the issue of effect on trade, see para. 84 of the judgment. 53 See ESA’s guidelines on state aid to airports and airlines, para. 156, OJ No L 209, 6.8.2015, p. 17.

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3. Aid to compensate for the division of Germany

This provision allows aid for certain areas of the Federal Republic of Germany affected by the division of Germany in the wake of the Second World War. The provision has little practical impact today. At the signing of the EEA Agreement on 2 May 1992, German reunification was already a fact. However, as Germany would still be allowed to grant aid in accordance with what is now Art. 107(2)(c) TFEU after the entry into force of the EEA Agreement, it was deemed necessary to incorporate Art. 61(2)(c) into the EEA Agreement in order to avoid a situation where Germany could be allowed to grant aid to alleviate the cost of its division, in accordance with what is now Art. 107(2)(c), but not in accordance with the EEA Agreement. After the reunification of Germany, aid has only been granted on the basis of Art. 107(2)(c) TFEU in two cases, in 1992 and 1994.55 With the Lisbon reform process, the possibility of repealing Art. 107(2)(c) TFEU by the Council, following a proposal from the Commission, was introduced. This new part of the provision is not reflected in Art. 61(2)(c) EEA. European Commissioner for Competition, Margrethe Vestager made an official statement on 20 October 2015 that a proposal to repeal Art. 107(2)(c) TFEU was not on the Commission’s current legislative programme.56

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IV. Facultative compatibility grounds 1. Common assessment principles

Following the state aid modernisation reform that was launched in 2012, ESA 56 now applies the seven so-called common assessment principles when it applies Art. 61(3). They are as follows. First, the state aid measure has to aim at an objective of common interest, such as the protection of the environment. Second, there must be a need for state intervention. This entails that the state aid must be targeted towards a situation where aid can bring about a material improvement that the market alone cannot deliver, for example by remedying a market failure. Third, the aid measure must be an appropriate policy instrument to address the objective of common interest. Fourth, the aid must incentivise the behaviour of the beneficiary in such a way that it engages in additional activity which it would not carry out without the aid. Fifth, the aid must be proportionate. It must be limited to the minimum needed to incentivise the additional investment or activity in the area concerned. Sixth, aid a priori threatens to distort competition and is liable to affect intra-EEA trade. However, undue negative effects on com54 ESA Decisions No 315/01/COL, 30.10.2001; 361/01/COL, 21.11.2001; 88/02/COL and 89/02/COL, both of 31.5.2002, and 246/03/COL and 247/03/COL, both of 3.12.2003. 55 http://www.europarl.europa.eu/sides/getAllAnswers.do?reference=E-2015-012371&language =EN. 56 http://www.europarl.europa.eu/sides/getAllAnswers.do?reference=E-2015-012371&language =EN.

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petition and trade between Contracting Parties must be avoided. Seventh, the aid must be transparent. Contracting Parties, the Authority, economic operators, and the public, should have easy access to all relevant acts and to information about the aid awarded. Contracting Parties are required to make information about aid available online. 2. Regional aid where the standard of living is abnormally low or where there is serious underemployment

Art. 61(3)(a) provides a legal basis for the compatibility of aid to regions where the economic situation is extremely unfavourable. The benchmark is not national, but rather the EEA as a whole.57 This is different from regional aid granted on the basis of Art. 61(3)(c). The EFTA States that intend to grant regional aid must provide information to justify that the relevant region meets the criteria of the provision. For regional investment aid, ESA requires the states to notify regional aid maps identifying the geographical areas eligible for regional aid. In 2014, ESA approved regional aid maps for Iceland and Norway, which are applicable until the end of 2020.58 These maps only have areas that meet the requirement for regional aid under Art. 61(3)(c), not Art. 61(3)(a). Liechtenstein has not notified any regional aid map. 58 Shortly after the entry into force of the EEA Agreement, ESA did approve aid on the basis of Art. 61(3)(a).59 But in 2005, ESA rejected a Norwegian notified aid measure as it concluded that Norway did not have any regions that met the requirement.60 57

3. Important projects of Common European interest and financial crisis aid

Art. 61(3)(b) EEA covers two categories of aid which bear few similarities. First, aid to promote the execution of important projects of common European interest (so-called “IPCEIs”), and secondly aid to remedy a serious disturbance in the economy of an EEA State. 60 In 2016 ESA issued guidelines for the analysis of the compatibility of aid to IPCEIs.61 Although it has been considered in a number of cases,62 ESA has as of this writing not approved aid to an IPCEI on the basis of Art. 61(3)(b). The inapplicability of Art. 61(3)(b) to an aid measure does not exclude the compatibility of the aid on another basis such as Art. 61(3)(c).63 59

57 58 59 60 61

Case 248/84, 14.10.1987, Germany v Commission, at para. 19. ESA Decisions No 91/14/COL, 26.2.2014 and 170/14/COL, 24.4.2014. See ESA Decision No 107/94/COL, 28.9.1994. ESA Decision No 298/05/COL, 22.11.2005. Guidelines for the analysis of the compatibility with the functioning of the EEA Agreement of state aid to promote the execution of important projects of common European interest, OJ No L 39, 16.2.2017, p. 49. 62 See for example ESA Decisions No 139/03/COL, 16.7.2003; 503/08/COL, 16.7.2008 and 27/09/COL, 29.1.2009. 63 See para. 8 of the IPCEI guidelines.

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After the event of the financial crisis in 2008 ESA issued several guidelines 61 on the compatibility of aid to financial institutions. Prior to that, the general guidelines on aid for rescue and restructuring were held to be sufficient for the assessment of aid to financial institutions. After 2008, ESA has assessed a number of measures implemented in Iceland and Norway on the basis of this provision and the accompanying guidelines. 4. Aid to facilitate the development of certain economic activities or areas

Of the compatibility grounds in Art. 61, its third paragraph, litra c offers by far the broadest category. Under this provision, the compatibility of aid granted for a wide range of policy objectives can be subsumed. On the basis of this provision ESA has, as of this writing, in force, horizontal state aid guidelines including: aid for research and development and innovation, aid for environmental protection and energy, in addition to regional aid, aid for the promotion of risk finance investments, aid for rescue and restructuring of non-financial undertakings in difficulty, as well as training aid and aid for the employment of disadvantaged and disabled workers. Furthermore, ESA currently has in force guidelines on aid to broadband as well as for aid to maritime transport, and the rail and aviation sectors. ESA has moreover issued guidelines on cultural aid to broadcasting and audio-visual works on the basis of Art. 61(3)(c). The Commission has based its guidelines on Art. 107(3)(d) TFEU. The EEA Agreement does not contain a cultural exemption similar to Art. 107(3)(d) TFEU, which allows the Commission to regard aid to promote culture as compatible with the internal market where such aid does not affect trading conditions and competition in the Community to an extent that is contrary to the common interest. This does not mean, however, that the application of the EEA state aid rules leaves no room for the consideration of cultural aspects. The EEA Agreement recognises the need for strengthening cultural cooperation in Art. 13 of Protocol 31. In this respect, it should be recalled that the Authority established in a decision-making practice regarding state aid for film production and film related activities that measures in favour of cinematographic and audio-visual production might be approved on cultural grounds under the application of Art. 61(3)(c), provided that this approach takes the criteria developed by the Commission sufficiently into account and that the approach does not deviate from the Commission’s practice prior to the adoption of Art. 107(3)(d) TFEU. ESA can find aid falling outside the scope of application of the guidelines compatible with the functioning of the EEA Agreement by direct application of Art. 61(3)(c).64 EFTA States remain free to notify aid which does not meet the criteria laid down in the guidelines and ESA may authorise such proposed aid in exceptional circumstances.65

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5. Categories of aid found compatible by the EEA Joint Committee

Art. 61(3)(d) gives the EEA Joint Committee the competence to specify other categories that are compatible with the functioning of the EEA Agreement. 67 This provision is parallel to Art. 107(3)(e) TFEU where the competence is given to the Council, which can take its decisions on the basis of a proposal from the Commission. 68 The Council has made use of the provision to specify grounds for compatibility for the shipbuilding sector (no longer in force),66 and the coal sector.67 The EEA Joint Committee has incorporated rules on aid to shipbuilding into the EEA Agreement,68 however, the rules on aid to the coal industry were not incorporated into the EEA Agreement as they were not considered relevant.69 66

Article 62 [Review of State aid through the ESA and the Commission] 1. All existing systems of State aid in the territory of the Contracting Parties, as well as any plans to grant or alter State aid, shall be subject to constant review as to their compatibility with Article 61. This review shall be carried out: (a) as regards the EC Member States, by the EC Commission according to the rules laid down in Article 93 of the Treaty establishing the European Economic Community; (b) as regards the EFTA States, by the EFTA Surveillance Authority according to the rules set out in an agreement between the EFTA States establishing the EFTA Surveillance Authority which is entrusted with the powers and functions laid down in Protocol 26. 2. With a view to ensuring a uniform surveillance in the field of State aid throughout the territory covered by this Agreement, the EC Commission and the EFTA Surveillance Authority shall cooperate in accordance with the provisions set out in Protocol 27.

64 With Decision No 27/09/COL, 29.1.2009, ESA approved aid to carbon capture and storage (CCS) in Kårstø in Norway directly on the basis of Art. 61(3)(c). At the time of the decision, aid to CCS was not covered by the ESA guidelines on state aid for environmental protection (OJ No L 144, 10.6.2010, p. 1). The current ESA guidelines on state aid for environmental protection and energy 2014-2020 (OJ No L 131, 28.5.2015, p. 1) now cover aid to CCS. 65 Case C-526/14, 19.7.2016, Kotnik, at para. 43. 66 Council Reg. (EC) No 3094/95 of 22.12.1995 on aid to shipbuilding; Council Reg. (EC) No 1013/97 of 2.6.1997 on aid to certain shipyards under restructuring and Council Reg. (EC) No 1540/98 of 29.6.1998 establishing new rules on aid to shipbuilding. These regulations are no longer in force. 67 Council Reg. (EC) No 1407/2002 of 23.7.2002 on state aid to the coal industry (no longer in force); Council Decision 2010/787/EU of 10.12.2010 on state aid to facilitate the closure of uncompetitive coal mines (in force until 31.12.2027). 68 Decisions of the EEA Joint Committee No 16/96 and No 12/1999. 69 See http://www.efta.int/eea-lex/32002R1407.

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I. Introduction – state aid procedure in the EEA 1. Overview

The general enforcement regime in the field of state aid is one of ex ante control. The main rule is set out in Art. 1 of Part I of Protocol 3 SCA, corresponding to Art. 108 TFEU. According to Art. 1(3) there is a notification obligation and a standstill obligation. The EEA EFTA State in question is required to notify any state aid measure to ESA before putting the measure into effect, and the State must not put the measure into effect until ESA has adopted a final decision authorising it. The authorisation of an aid measure is dependent on ESA finding it compatible with the functioning of the EEA Agreement (‘compatible aid’). See further section V.2 below on ‘notified aid’, mn. 30-31. Preceding the formal notification of a measure is in most cases an informal and confidential pre-notification phase. This phase allows ESA to give guidance on a possible notification, and it allows for discussions of any substantive issues raised by a planned measure, see ESA’s Best Practice Guidelines, paras. 10-17.1 In case the State breaches the notification obligation or the standstill obligation, and ESA does not find the aid to be compatible aid, ESA shall as a rule require ‘recovery’. That is, ESA imposes on the State to recover from the beneficiaries any advantages stemming from the state aid. See further section V.3 below on ‘unlawful aid’, mn. 38. Besides handling pre-notifications and notifications, ESA also takes cases based on complaints, and less frequently initiates own-initiative cases. Cases follow different procedures depending on whether they concern ‘existing aid’ or ‘new aid’, cf. sections IV and V below, mn. 21-38.

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2. The legal framework

Together with Art. 24 SCA, Art. 62 EEA constitutes the basic legal frame- 6 work for ESA’s handling of state aid cases (Art. 62(1)(b)), referring to Art. 108 TFEU (ex-Art. 93 EEC) for the Commission’s handling of such cases (Art. 62(1) (a)), and requiring homogeneity in the two surveillance authorities’ surveillance in the field of state aid (Art. 62(2)). Based on Art. 109 TFEU the Council has adopted, most recently in 2015, a 7 Procedural Regulation laying down detailed rules for the application of Art. 108 TFEU.2 The Regulation defines key concepts in state aid procedure, such as ‘existing aid’, ‘new aid’, and ‘aid scheme’ (Chapter I). Further, it prescribes specific procedures regarding notified aid (Chapter II), unlawful aid 1 Guidelines on Best Practice for the conduct of state aid control procedures, OJ No L 82, 22.3.2012, p. 7. 2 In the EU, currently Council Reg. (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Art. 108 of the Treaty on the Functioning of the European Union (codification).

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(Chapter III), misuse of aid (Chapter V), and existing aid schemes (Section VI). Moreover, the Regulation has rules on limitation periods (Chapter IV), the rights of interested parties (Chapter VII), sector investigations (Chapter VIII), monitoring (Chapter IX), cooperation with national courts (Chapter X), and various other issues (Chapter XI). With a legal basis in the Procedural Regulation, the Commission has adopted an Implementing Regulation, with provisions on the form, content and other details of notifications, annual reports and complaints, on time limits, and on applicable interest rates.3 Pursuant to Protocol 26 EEA ESA “shall, in an agreement between the EFTA States, be entrusted with equivalent powers and similar functions to those of the EC Commission” (Art. 1). The Protocol then lists the Procedural Regulation, with amendments (Art. 2, point 1), and the Implementing Regulation, with amendments (Art. 2, point 2). Accordingly, the Procedural Regulation is implemented in the EFTA pillar of the EEA through Part II of Protocol 3 SCA. Art. 1 of Part I of Protocol 3 SCA mirrors Art. 108(1)–(3) TFEU. Finally, the Implementing Regulation is implemented by ESA through Decision No 195/04/COL, with amendments.4 Regrettably, at the time of writing (August 2017) there is a more than a four years’ delay in updating Protocol 26 EEA with amendments to the Procedural Regulation.5 As a consequence, the rules in Protocol 3 SCA are less up-to-date than the rules applicable in the EU, and there is a lack of homogeneity. In particular, Protocol 3 SCA has no rules on requests for information made to sources other than the competent national authorities (Art. 7 and 8 of the Procedural Regulation), sector investigations (Chapter VIII), and cooperation with national courts (Chapter X). The lack of homogeneity is rooted in Norway’s hesitation to accept incorporation of the revised Procedural Regulation that allows for the imposition of fines or periodic penalty payments on undertakings in case of (typically) an undertaking’s failure to comply with requests for information, see Art. 8 of the Procedural Regulation. Norway’s hesitation is essentially political; without an adaptation text that would avoid granting ESA the same competence that the Commission has in this respect, the Norwegian Parliament may have to give its consent to the incorporation of the Procedural Regulation pursuant to Section 115 of the Norwegian Constitution, requiring a qualified majority.6 Protocol 26 EEA is somewhat more up to date with amendments to the Implementing Regulation, but still out-dated.7 Anyhow, as long as Protocol 3 SCA is 3 In the EU, currently Commission Reg. (EC) No 794/2004 of 21 April 2004 implementing Council Reg. (EU) 2015/1589 laying down detailed rules for the application of Art. 108 TFEU. 4 Decision No 195/04/COL,14.7.2004 on the Implementing Provisions Referred to under Art. 27 in Part II of Protocol 3 SCA. A consolidated version is available at: http://www.eftasurv.int/ state-aid/legal-framework/procedural-rules/. 5 Lacking are Council Reg. (EU) No 517/2013, and Council Reg. (EU) No 2015/1589. 6 See JDLOV-2013-6526.

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not updated ESA remains unable to fully update Decision 195/04/COL, which has its legal basis in Protocol 3 SCA. Notably, new rules on the admissibility of complaints, introduced as Article 11 a in the Procedural Regulation through Reg. (EU) No 372/2014, remain inapplicable in the EFTA pillar. Other parts of Protocol 3 SCA are also out-dated. Specifically, Part III on 14 transport and Part IV on coal and steel are both obsolete.8 II. Constant review of all aid measures

When Art. 62(1) states that any plans to grant or alter state aid, as well as all 15 existing systems of state aid shall be subject to constant review, this is somewhat out of line with Art. 108 TFEU, which only requires systems of “existing aid” to be kept under “constant review”. The apparent difference is however subject to the proviso in Art. 62(1)(a)–(b) that the Commission shall carry out its review according to the rules laid down in Art. 108 TFEU, and that ESA shall carry out its review according to Protocol 3 SCA, which mirrors the relevant provisions of Art. 108 TFEU, and the Procedural Regulation. Aid to the fisheries sector, falling within the scope of Art. 4 of Protocol 9 16 EEA, has been deemed to fall outside ESA’s competence.9 Aid “inseparably linked” to trade in products falling outside the scope of 17 the EEA Agreement also falls outside ESA’s competence.10 The products in question are products not covered by Art. 8(3)(a) or (b).11 However, an aid scheme covering products falling both outside and inside the scope of the EEA Agreement, must be notified to ESA, “as a whole”, for ESA to assess, “to the extent that the [aid scheme] is governed by EEA State aid rules”, whether the aid scheme is compatible with the functioning of the EEA Agreement.12 III. Aid schemes vs. individual aid

Aid is granted either on a stand-alone basis as an individual aid or as individ- 18 ual aid granted on the basis of an aid scheme. An ‘aid scheme’ is any act on the basis of which, without further implement- 19 ing measures being required, individual aid awards may be made to undertakings defined within the act in a general and abstract manner, or on the basis of which aid not linked to a specific project may be awarded to one or several un-

7 Commission Reg. (EU) No 372/2014 has been incorporated; still lacking is Commission Reg. (EU) 2015/2282 of 27 November 2015 amending Reg. (EC) No 794/2004 as regards the notification forms and information sheets. 8 Cf. respectively Annex XIII EEA, section I (iv), the only point of which was repealed in 2008; and Annex XV EEA, point 1a[a], which was repealed in 2013. 9 See e.g. Decision No 729/08/COL, 26.11.2008, and the comments by Bull to Art. 26 mn. 10-13. Note, however, pending Case E-12/16, Marine Harvest v ESA. 10 Case E-1/16, 15.12.2016, Synnøve Finden, at paras. 55-60, with reference to Case E-4/04, 4.4.2013, Pedicel, at para 34. 11 See the comments by Pétursson to Art. 8 mn. 18-33. 12 Case E-1/16, 15.12.2016, Synnøve Finden, at para. 63.

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dertakings for an indefinite period of time and/or an indefinite amount, see Art. 1(d) of Part II of Protocol 3 SCA. 20 ‘Individual aid’ is aid that is not awarded on the basis of an aid scheme, and notifiable awards of aid on the basis of an aid scheme, see Art. 1(e) of Part II of Protocol 3 SCA. Individual aid not granted on the basis of a scheme is referred to as ‘ad hoc aid’. IV. Existing aid 21

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There are five categories of existing aid, as enumerated in Art. 1(b)(i)–(v) of Part II of Protocol 3 SCA: (i) aid schemes and individual aid which were put into effect before the entry into force of the EEA Agreement (1 January 1994 in Iceland and Norway, 1 May 1995 in Liechtenstein), and which are still applicable; (ii) aid which has been authorised by ESA or, pursuant to Art. 1(2) third subparagraph of Part I of Protocol 3 SCA, by common accord between the EFTA States; (iii) aid which is deemed to have been authorised pursuant to Art. 4(6) of Part II of Protocol 3 SCA after a failure by ESA to take a decision on a notification within the applicable two months’ deadline; (iv) aid with regard to which the ten years’ limitation period pursuant to Art. 15 of Part II of Protocol 3 SCA has expired; and (v) measures which did not constitute aid at the time when they were put into effect, and subsequently became aid due to the evolution of the EEA without having been altered by the State. However, where measures become aid following the liberalisation of an activity by EEA law, they are not considered as existing aid after the date of liberalisation. The procedure for dealing with existing aid only concerns existing aid schemes. ESA cannot touch existing individual aid. Something else altogether is the use of the provisions on misuse of aid, see mn. 39 below. Under the procedure regarding existing aid schemes (Section V of Part II of Protocol 3 SCA), ESA first obtains all necessary information for the review from the EFTA State (Art. 17(1)). If ESA considers that an existing aid scheme is not, or is no longer, compatible with the functioning of the EEA Agreement, it gives the EFTA State an opportunity to submit its comments (Art. 17(2)). Where ESA maintains its view, it shall issue a recommendation proposing appropriate measures (Art. 18). Where the EFTA State accepts the proposed measures, these are made binding upon the State (Art. 19(1)). The appropriate measures apply only for the future, and no recovery can be ordered, cf. mn. 38 below. In case the EFTA State does not accept the proposed measures, ESA may initiate the formal investigation procedure described below (Art. 19(2); section V.2 below, mn. 30-31).

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V. New aid 1. The concept of new aid

‘New aid’ is defined negatively: it is all aid, whether aid schemes or individ- 28 ual aid, which is not existing aid. ‘New aid’ also includes alterations to existing aid, see Art. 1(c) of Part II of Protocol 3 SCA. 2. Notified aid

The procedure regarding notified aid is set out in Section II of Part II of Protocol 3 SCA, and requires that any plans to grant new aid shall be notified to ESA by the EFTA State concerned (notification obligation), which shall not put the aid into effect until ESA has authorised it (standstill obligation), see Art. 2 and 3. ESA’s preliminary examination of the notification shall result in a ‘no aid decision’ (finding that the notified measure does not constitute aid), a ‘decision not to raise objections’ (where there are no doubts as to the compatibility of the aid measure with the functioning of the EEA Agreement), or a ‘decision to initiate the formal investigation procedure’ (in case there are doubts, objectively speaking, as to whether the measure constitutes state aid or whether it is compatible). The decision shall be taken within two months, with the deadline starting after the receipt of a complete notification. Where ESA considers the information received incomplete, it issues a formal request for information with a view to completing the notification and starting the deadline (Art. 4 and 5). In case there are doubts as mentioned above, and ESA therefore initiates the formal investigation procedure, opening what may be referred to as ‘phase II’ of the investigation, the ‘opening decision’ is published in the Official Journal and interested parties are called upon to submit comments. The investigation shall be closed by a ‘no aid decision’, a ‘positive decision’ (finding the aid compatible with the functioning of the EEA Agreement), a ‘conditional decision’ (a positive decision subject to conditions), or a ‘negative decision’ (declaring the aid incompatible with the functioning of the EEA Agreement). In the latter case the aid shall not be put into effect. The formal investigation shall normally be completed within a period of 18 months from the opening decision (Art. 6 and 7). The EFTA State concerned may withdraw the notification, in which case ESA shall close the investigation (Art. 8).

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‘Unlawful aid’ is any new aid put into effect in breach of the notification 33 obligation and/or standstill obligation in Art. 1(3) of Part I of Protocol 3 SCA, see Art. 1(f) of Part II of Protocol 3 SCA. Unlawful aid is examined by ESA on the basis of complaints or ex officio, 34 and the procedure is set out in Section III of Part II of Protocol 3 SCA. Jordal/Mathisen

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Before adopting a decision on the compatibility of unlawful aid with the functioning of the EEA Agreement, ESA may order the aid suspended (suspension injunction), or even order any unlawful aid provisionally recovered, on certain conditions (recovery injunction). ESA has never adopted any such injunction under Art. 11(1) or (2) respectively. 36 The preliminary examination of possible unlawful aid may, just like the preliminary examination of notified aid (see above, mn. 30), end in a no aid decision, a decision not to raise objections or a decision to initiate the formal investigation procedure, but there is no deadline (Art. 13). 37 On the same basis, there is no deadline when the formal investigation procedure has been initiated. 38 In case of a negative decision, ESA shall as a rule require recovery of the aid from the beneficiary (Art. 14). The national authorities are then obliged to recover the aid with interest and compound interest from the date on which the aid was at the disposal of the beneficiary until the date of its recovery, see Art. 9 and 11 of Decision 195/04/COL.13 National law must allow the immediate and effective execution of ESA’s decision to order recovery. In practice, this is an area where the States often have difficulties; see e.g. the case law cited in section VII below, mn. 41, for examples from Iceland. See further Rt. 2013 s. 1665 for a problematic example from Norway, implying that different types of national rules, including national statutes of limitations, may create difficulties. 35

VI. Misuse of aid 39

Art. 16 of Part II of Protocol 3 SCA provides the legal basis for ESA to initiate the formal investigation procedure in case of misuse of aid. This way, ESA may effectively re-open a case closed with a decision not to raise objections, a positive decision or a conditional decision if it appears that the aid is misused. That is, if the aid is use by the beneficiary in contravention of the decision, see Art. 1(g) of Part II of Protocol 3 SCA. ESA has never initiated any formal investigation on this basis. VII. Monitoring

Section VII of Part II of Protocol 3 SCA, on monitoring, has rules on annual reports from the EFTA States on their existing aid schemes (Art. 21), rules on on-site monitoring (Art. 22), and rules on non-compliance with decisions and judgments (Art. 23). 41 Art. 23(1) allows ESA, in derogation from Art. 31 SCA, to refer the matter to the EFTA Court directly where an EFTA State does not comply with conditional decisions or negative decisions, including recovery decisions.14 The same ap40

13 Applicable interest rates for the EFTA States are available at: http://www.eftasurv.int/state-aid/ rates/. 14 See Case E-2/05, 24.11.2005, ESA v Iceland and Case E-25/15, 29.7.2016, ESA v Iceland, both concerning failure to recover aid.

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plies where an EFTA State fails to comply with a judgment; ESA may then refer the matter to the EFTA Court directly, see Art. 23(2). VIII. Uniform surveillance and cooperation between the Commission and ESA

Art. 62(2) is a specific expression in the field of state aid of the EEA law prin- 42 ciple of homogeneity, requiring that the two surveillance authorities cooperate with a view to ensuring uniform surveillance, and referring to Protocol 27 EEA on Cooperation in the Field of State Aid. Protocol 27 EEA requires the two surveillance authorities to exchange infor- 43 mation and views, in individual cases and more generally, formally and informally. Art. 64 adds to Art. 62(2) a mechanism to deal with cases where the Commis- 44 sion or ESA believes that uniform surveillance has not been ensured.

Article 63 [Specific provisions on State aid] Annex XV contains specific provisions on State aid.

I. Introduction – Annex XV on State aid

Art. 63 is a mere reference to Annex XV, which incorporates into the EEA 1 Agreement EU secondary legislation on state aid. The important legal acts referred to in Annex XV are the Transparency Di- 2 rective,1 the de minimis Regulation,2 the SGEI Decision,3 the SGEI de minimis Regulation,4 and the General Block Exemption Regulation (GBER).5 The Annex also refers to a 1995 regulation on aid to shipbuilding.6 How- 3 ever, this Regulation remains inapplicable. According to its Art. 10, it shall only apply as from the date of entry into force of the 1994 OECD Agreement Respecting Normal Competitive Conditions in the Commercial Shipbuilding and Repair Industry, but this agreement is not yet in force as the USA has still not ratified it.7 1 Commission Dir. 2006/111/EC of 16 November 2006 on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings. 2 Commission Reg. (EU) No 1407/2013 of 18 December 2013 on the application of Art. 107 and 108 TFEU to de minimis aid. 3 Commission Decision 2012/21/EU of 20 December 2011 on the application of Art. 106(2) TFEU to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest. 4 Commission Reg. (EU) No 360/2012 of 25 April 2012 on the application of Art. 107 and 108 TFEU to de minimis aid granted to undertakings providing services of general economic interest. 5 Commission Reg. (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Art. 107 and 108 of the Treaty, as amended. 6 Council Reg. (EC) No 3094/95 of 22 December 1995 on aid to shipbuilding, as amended.

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Finally, the Annex also lists a number of different acts, adopted by the Commission up to 31 July 1991, of which the Commission and ESA shall take due account. However, all of these acts are now out-dated or replaced with other acts, and may be deleted from the Annex by the EEA Joint Committee.8 To the extent they are EEA relevant more recent acts adopted by the Commission, typically in the form of guidelines, communications and notices, are mirrored in the state aid guidelines adopted by ESA.9 II. The Transparency Directive

The Transparency Directive requires transparency in financial relations between public authorities and public undertakings, i.e. undertakings over which the public authorities may exercise a dominant influence, in one way or another (Art. 2(b)). With some exceptions (Art. 5(1)), any public funds made available to public undertakings must emerge clearly, as must the use to which these funds are actually put (Art. 1(1)). 6 Furthermore, with some exceptions (Art. 5(2)), undertakings enjoying special or exclusive rights under Art. 59(1) EEA, or entrusted with the operation of SGEIs under Art. 59(2) EEA are required to maintain separate accounts for services with public service compensation and other activities (Art. 2(d)). The costs and revenues associated with different activities must emerge clearly, as must the methods by which costs and revenues are assigned or allocated to these different activities (Art. 1(2)). 7 There are certain thresholds for Art. 5(1) and (2) of the Directive to apply. Most notably, these provisions do not apply to public undertakings with an annual net turnover of less than EUR 40 million. However, separation of accounts and transparent cost-allocation may still be required. In its decisional practice, ESA has required that when an entity carries out both commercial and non-commercial activities, a cost-accounting system that ensures that the commercial activities are not financed through state resources allocated to the nonprofit making activities must be in place.10 Indeed, separate accounts, and a clear establishment of the cost accounting principles according to which separate accounts are maintained, may be necessary to enable verification that there is no cross-subsidisation from non-commercial to commercial activities, amounting to incompatible state aid.11 In this perspective, Art. 5(1) and (2) of the Directive is but a specific expression of an underlying principle of transparency. 5

7 See the OECD’s overview of the Agreement at: http://www.oecd.org/industry/ind/shipbuildingagreement-overview.htm. 8 Letter from ESA to the EFTA Secretariat of 27 September 2016, Doc. No 814008. 9 A consolidated version of ESA’s guidelines is available at: http://www.eftasurv.int/state-aid/ legal-framework/state-aid-guidelines/. 10 E.g. ESA Decision No 144/13/COL, 10.4.2013, at para. 35; and ESA Decision No 460/13/ COL, 20.11.2013, at para. 66, with further references. 11 See also Case C-74/16, 27.6.2017, Congregación de Escuelas Pías Provincia Betania v Ayuntamiento de Getafe, at para. 51.

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III. The de minimis Regulation

The de minimis Regulation exempts from the notification obligation in Art. 1(3) of Part I of Protocol 3 SCA aid to most undertakings of up to EUR 200 000 (gross grant equivalent) per EEA State over a rolling period of three fiscal years. Such de minimis aid is deemed not to be liable to affect trade between EEA states or distort competition. Aid to certain activities is excluded, such as aid to export-related activities; and road freight transport has a lower ceiling of EUR 100 000 (Arts. 1 and 3). De minimis aid must be transparent. That is, it must be possible to calculate precisely the gross grant equivalent of the aid ex ante without any need to undertake a risk assessment (Art. 4). Any beneficiary shall be informed of the de minimis character of aid to be granted under this Regulation, and must declare in advance of the aid being granted any other de minimis aid received during the present and previous two fiscal years (Art. 6). De minimis aid for the same eligible costs counts towards other aid ceilings laid down in e.g. the GBER or guidelines; the aid may be cumulated only up to the applicable ceiling. Cumulation with de minimis aid under the SGEI de minimis Regulation is in any case only allowed up to the ceiling laid down in that Regulation (Art. 5).

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IV. The SGEI Decision

The SGEI Decision exempts from the notification obligation in Art. 1(3) of Part I of Protocol 3 SCA state aid in the form of public service compensation that meets certain conditions. Such aid is deemed compatible with the functioning of the EEA Agreement (Art. 1 and 3). It is recalled that public service compensation does not constitute state aid if the Altmark criteria are met, see the comments to Art. 61, mn. 33–35, and the discussion of the concept of an ‘advantage’. The public service compensation must be granted to an undertaking specifically entrusted with the operation of a service of general economic interest (Art. 4). On the notion of a ‘service of general economic interest’, see the comments to Art. 61, mn. 32. Moreover, the compensation must fall within certain categories, such as health care, air or maritime transport with relatively few passengers, or aid not exceeding an annual amount of EUR 15 million in other areas. Land transport, i.e. transport by rail, road and inland waterway, for which Art. 49 EEA constitutes a lex specialis, is excluded from the scope of the Decision (Art. 2). The amount of compensation shall not exceed what is necessary to cover the net costs incurred in discharging the public service obligations, including a reasonable profit (Arts. 5 and 6).

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V. The SGEI de minimis Regulation

The SGEI de minimis Regulation exempts from the notification obligation in Art. 1(3) of Part I of Protocol 3 SCA aid granted for the provision of a service of general economic interest (SGEI) when the aid received by the beneficiary undertaking does not exceed EUR 500 000 (gross grant equivalent) per EEA State over a rolling period of three fiscal years (Art. 2(1)-(3)). Such de minimis aid is deemed not to be liable to affect trade between EEA States and/or distort competition. De minimis aid under the de minimis Regulation (see above) counts towards the same ceiling (Art. 2(7)). Undertakings in certain sectors or situations are excluded, such as undertakings performing road freight transport for hire or reward, or undertakings in difficulty (Art. 1). 17 SGEI de minimis aid must be transparent. That is, it must be possible to calculate precisely the gross grant equivalent of the aid ex ante without any need to undertake a risk assessment (Art. 2(4)). 18 Any beneficiary shall be informed of the de minimis character of aid to be granted under this Regulation, and must declare in advance of the aid being granted any other de minimis aid received during the present and previous two fiscal years (Art. 3). 19 De minimis aid for the same eligible costs counts towards other aid ceilings laid down in e.g. the GBER or guidelines; the aid may be cumulated only up to the applicable ceiling (Art. 2(6)). No cumulation with other compensation, whether or not it constitutes state aid, is allowed in respect of the same SGEI (Art. 2(7)). 16

VI. The General Block Exemption Regulation (GBER)

The GBER, as expanded in 2014, is a cornerstone of the State Aid Modernisation (SAM). It exempts from the notification obligation in Art. 1(3) of Part I of Protocol 3 SCA certain categories of aid on compatibility conditions defined in detail in the Regulation. Such aid is deemed compatible with the functioning of the EEA Agreement (Art. 3). 21 The categories of aid falling under the GBER, as expanded in 2014 (cf. mn. 26 below), are: regional aid, aid to SMEs, aid for access to finance for SMEs, aid for research and development and innovation, training aid, aid for disadvantaged workers and for workers with disabilities, aid for environmental protection, aid to make good the damage caused by certain natural disasters, social aid for transport for residents of remote regions, aid for broadband infrastructures, aid for culture and heritage conservation, aid for sport and multifunctional recreational infrastructures, and aid for local infrastructures. 22 However, the GBER does not apply to aid that exceeds certain thresholds, such as EUR 7.5 million per undertaking per investment project in investment aid for SMEs (Art. 4). 20

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All GBER aid must be transparent. That is, it must be possible to calculate precisely the gross grant equivalent of the aid ex ante without any need to undertake a risk assessment (Art. 5). Each individual aid award exceeding EUR 500.000 must be published on a comprehensive state aid website, along with other details of the aid (Art. 9). Whereas GBER aid is exempted from the notification requirement, the States shall transmit to the Commission/ESA summary information about each aid measure in the standardised format laid down in Annex II to the Regulation, together with a link providing access to the full text of the aid measure, within 20 working days following its entry into force (Art. 11(a)). In 2017, the Commission adopted Reg. (EU) 2017/1084, which further extends the GBER.12 Notably, the GBER can now be used for aid to ports and regional airports, and the scope for regional operating aid under the GBER is expanded. It is expected that this new Regulation will be incorporated into the EEA Agreement by the end of 2017.

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Article 64 [Dispute resolution] 1. If one of the surveillance authorities considers that the implementation by the other surveillance authority of Articles 61 and 62 of this Agreement and Article 5 of Protocol 14 is not in conformity with the maintenance of equal conditions of competition within the territory covered by this Agreement, exchange of views shall be held within two weeks according to the procedure of Protocol 27, paragraph (f). If a commonly agreed solution has not been found by the end of this two-week period, the competent authority of the affected Contracting Party may immediately adopt appropriate interim measures in order to remedy the resulting distortion of competition. Consultations shall then be held in the EEA Joint Committee with a view to finding a commonly acceptable solution. If within three months the EEA Joint Committee has not been able to find such a solution, and if the practice in question causes, or threatens to cause, distortion of competition affecting trade between the Contracting Parties, the interim measures may be replaced by definitive measures, strictly necessary to offset the effect of such distortion. Priority shall be given to such measures that will least disturb the functioning of the EEA. 2. The provisions of this Article will also apply to State monopolies, which are established after the date of signature of the Agreement.

Art. 64 adds on to Art. 62(2), and is another expression of the homogeneity 1 principle in EEA law, dealing specifically with uniform surveillance in the 12 Commission Regulation (EU) 2017/1084 of 14 June 2017 amending Regulation (EU) No 651/2014 as regards aid for port and airport infrastructure, notification thresholds for aid for culture and heritage conservation and for aid for sport and multifunctional recreational infrastructures, and regional operating aid schemes for outermost regions and amending Regulation (EU) No 702/2014 as regards the calculation of eligible costs.

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field of state aid, and providing for a mechanism to deal with any lack of homogeneity in this respect. Art. 64 was added after the ECJ’s Opinion 1/91 on the EEA Agreement. The immediate background would seem to have been the dispute between the EU (EEC/EC) and Austria that led to Case T-115/94 Opel Austria. The Council had, just days before the entry into force of the EEA Agreement, adopted a Regulation withdrawing tariff concessions and introducing a duty on certain gearboxes produced in Austria, allegedly with state aid that was not justified. The producer challenged the Regulation before the (then) Court of First Instance (and won). Art. 64 provides a mechanism for dealing with situations where the Commission or ESA believes the other surveillance authority’s practice under Arts. 61 and 62 may result in a distortion of competition within the EEA. Such situations may arise if the two surveillance authorities, despite Art. 109(2), have diverging interpretations of the state aid rules. Given that there is no common EEA Court with jurisdiction to resolve any such disagreement, there is a need for a mechanism such as the one under Art. 64. However, in case the diverging interpretations are due to diverging case law from the EFTA Court and the ECJ or the General Court, the mechanism under Art. 111 would seem the more appropriate choice.1 Art. 64 also refers to Art. 5 of Protocol 14 EEA. This provision is concerned with aid to the steel industry, and the rules that previously regulated such aid as a lex specialis. After the expiry of the ECSC Treaty in 2002, however, aid to the steel industry is now subject to Arts. 61–63 EEA.2 Art. 64 may be invoked by the Commission, or by ESA. It appears, though, that Art. 64 has never been invoked by any of the surveillance authorities. If invoked, the two authorities shall then initiate the exchange of views foreseen in Protocol 27, paragraph (f). They have two weeks to find a commonly agreed solution before “the affected Contracting Party” may immediately adopt interim measures in order to remedy the resulting distortion of competition. The requirements on the interim measures are not very strict; they are adopted unilaterally, cannot be met with countervailing measures and must only be “appropriate”. That is, they must be reasonably well targeted, aiming at and being capable of offsetting the effects of the (potential) distortion of competition. In the EU pillar, “the affected Contracting Party” would be the EU. In the EFTA pillar, it would be Iceland, Liechtenstein or Norway. This entails a structural imbalance in the ability to use Art. 64. The Commission is an EU institution and could adopt, or initiate the adoption of interim measures on the EU side. ESA, however, is not a Liechtenstein, Icelandic or Norwegian institution; it cannot be instructed by any of the States to invoke Art. 64, and it cannot adopt, 1 See the comments by Fredriksen on Art. 111. 2 Communication from the Commission concerning certain aspects of the treatment of competition cases resulting from the expiry of the ECSC Treaty, OJ No C 152, 26.6.2002, p. 5.

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or initiate the adoption of interim measures on their behalf. Thus, whereas it is difficult to see that Art. 64 will be formally invoked by any of the surveillance authorities, and even more difficult to see that it will come to the adoption of interim measures, it is particularly difficult to see the EFTA side making use of this mechanism. If the Commission and ESA cannot find a commonly agreed solution by the 7 end of the two-week period, consultations shall be held in the EEA Joint Committee. ESA is then side-lined, and the Contracting Parties must seek to find a commonly acceptable solution. The Joint Committee has three months from the end of the two-week period. If unsuccessful in resolving the matter, the affected Contracting Party may replace its interim measures with definitive measures. The requirements on the definitive measures are stricter; not because the practice against which measures are taken must result in (potential) distortion of competition so as to affect trade between the Contracting Parties, but because the definitive measures must be “strictly necessary” to “offset the effect” of such distortion. Moreover, priority shall be given to such measures that will least disturb the functioning of the EEA Agreement. This must be read as a strict necessity test. Like the interim measures, also the definitive measures cannot be met with countervailing measures. If the dispute thus continues, the settlement of it may continue under Art. 111. The interim measures and later definitive measures may consist in measures 8 such as those that may be taken under Art. 26, e.g. countervailing duties.3 As Art. 64 is open on what type of measures may be adopted, this goes even if Art. 26 does not apply where Arts. 61 and 62 apply.4 At the same time, potential interim or definitive measures are not restricted to those mentioned in Art. 26. Also, Art. 26 is perhaps designed more for national measures impacting on the export of goods than measures impacting on the cross-border provision of services or the establishment of companies. However, any interim or definitive measures are always restricted by the requirements of appropriateness (for interim measures) and strict necessity (for definitive measures). These requirements may restrict the use of any measure beyond what Art. 26 would allow for. Art. 64(2) makes the mechanism under Art. 64 applicable also to equivalent 9 situations regarding the Commission’s or ESA’s enforcement of the EEA Agreement in cases involving state monopolies established after the date of signature of the Agreement, see e.g. Arts. 16 and 59(2).

3 See further the comments by Bull on Art. 26 mn. 4-8. 4 Case T-115/94, 22.1.1997, Opel Austria, para. 117.

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Chapter 3: Other common rules

Article 65(1) [Public procurement] 1. Annex XVI contains specific provisions and arrangements concerning procurement which, unless otherwise specified, shall apply to all products and to services as specified.

I. Introduction

Art. 65(1) is the only provision in the Main Part of the EEA Agreement on public procurement. However, it does not contain any substantive regulation of public procurement, as it merely refers to Annex XVI. In comparison, the EU Treaties do not contain any specific provisions on public procurement; specific rules on public procurement are only found in the secondary legislation.1 2 The legal basis for the EU Acts on public procurement is found in the free movement rules, in particular Art. 34 TFEU (free movement of goods), Art. 49 TFEU (freedom of establishment) and Art. 56 TFEU (freedom to provide services). Thus, public procurement is an integral and important part of the internal market.2 Art. 18 TFEU prohibiting discrimination on the grounds of nationality also plays a role in public procurement, as well as the established fundamental principles deriving from the Treaty, i.e. the principles of equal treatment, transparency, proportionality and mutual recognition. Furthermore, public procurement constitutes a significant part of national Gross National Product and discriminatory procurement practices may thus have a negative impact on the competitive structures in the marketplace and distort the competition. Accordingly, the rules on public procurement have a clear connection to EU rules on competition and state aid.3 3 The adoption of an EU public procurement policy was necessary in order to ensure the creation of a single market with open cross-border competition. The main purpose of the coordination of public procurement procedures at Community level was, as pointed out by the ECJ in Case C-237/99, to eliminate barriers to the freedom to provide goods and services as well as to protect suppliers in one Member State wishing to provide goods or services to public authorities in other Member States.4 Without public procurement rules there is a risk 1

1 Indeed, Arts. 199(4) and 179(2) TFEU mention procurement regarding EU’s industrial policy and EU financed contracts. 2 Generally on objectives of EU policy and measures on public procurement, see Arrowsmith, The Law of Public and Utilities Procurement, regulations in the EU and UK, Volume 1, 3rd ed (2014), chapters 3 and 4. 3 On this subject, see Sánchez Graells A, Public procurement and the EU competition rules, 2nd ed (2015). 4 Case C-237/99, 1.2.2001, Commission v. France, para. 41.

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that contracting authorities will give preference to national suppliers or make decisions based on other considerations than economic ones. By the time of negotiating the EEA Agreement, there was already in place in 4 the EU an elaborate set of secondary legislation regarding public procurement. This secondary legislation was incorporated into the EEA Agreement from the outset, and the original Annex XVI contained four council directives and one regulation.5 In 1994, the Annex was amended as part of the Interim Package,6 so that it referred to eight legal acts.7 This meant that the rules applicable to public procurement were identical in the EFTA and EU,8 covering procurement of goods, services and works above certain thresholds by public authorities, as well as public and private entities in the utilities sectors and introducing legal procurement-specific remedies. Accordingly, Art. 65(1) EEA gives a clear indication of the importance of 5 public procurement in the realization of an internal market within the EEA. Art. 65(1) must be seen in connection with the other provisions on free movement and Art. 4 EEA as well as the general principles deriving from these provisions. These fundamental rules and principles apply to all procurements covered by the EEA Agreement, and the secondary legislation must be interpreted and applied in accordance with these rules and principles.9 In the following, this outline will first discuss how these general rules and principles shall be applied to procurements under the main part of the EEA Agreement (section II), and second, the inclusion of the EU secondary legislation into the EEA Agreement and the EEA adaptions (section III). Thereafter, this outline will discuss the rules on public procurement under the Procurement Directives (section IV), and finally, the rules on national review and enforcement (section V). II. Procurement under the main part of the EEA Agreement – Outside the Directive’s scope 1. Scope of Application

The field of public procurement is regulated in detail by EU’s Procurement 6 Directives10 which have been incorporated into the Annex XVI of the EEA Agreement.11 However, there are several public contracts which due to their na5 Dirs. 71/304/EEC, 71/305/EEC, 77/62/EEC, 89/665/EEC and 90/531/EEC, and Reg. No. 1182 of 3 June 1971. 6 Decision of the EEA Joint Committee No 7/94. 7 Dirs. 71/304/EEC, 89/665/EEC, 92/13/EEC, 92/50/EEC, 93/36/EEC, 93/37/EEC and 93/38/EEC and Reg. No. 1971/1182. 8 Norway, however, had a transitional period until the end of 1994 for the implementation of the utilities directive (Dir. 93/38/EEC). 9 See the first recital of the preamble of Dir. 2014/24/EU on public procurement. 10 Dir. 2014/24/EU on public procurement; Dir. 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors; Dir. 2014/23/EU on the award of concession contracts; and, Dir. 2009/81/EC on the coordination of procedures for the award of certain works contracts, supply contracts and service contracts by contracting authorities or entities in the fields of defence and security.

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ture12 or value13 fall outside the scope of the Procurement Directives. These contracts would nevertheless be subject to the fundamental rules and general principles enshrined in the EEA Agreement,14 provided that, first, the contracting (procuring) entity in question is subject to those rules and principles, and second, that the contract in question is of cross-border interest. 7 As to the contracting entities covered by the EEA Agreement, the question arises whether the entities subject to the obligations of the Procurement Directives are bound by the free movement rules for contracts which fully or partly fall outside the scope of the secondary legislation;15 this is, outside of the thresholds for the application of the Procurement Directives. 8 At the outset, the rules on free movement obviously apply for procurements of state,16 regional and local authorities. Likewise, the rules on free movement apply to procuring bodies governed by public law, implying that entities not having an industrial or commercial character and which are mainly financed or appointed by the State are bound by the rules on free movement when contracting outside the scope of the directives.17 9 The situation regarding other forms of contracting entities covered by the Utilities Directives is, however, more uncertain.18 In the case C-91/08 Wall, the ECJ held that the rules on free movement are only binding to undertakings which fulfil the following two conditions: first, that the undertaking is effectively controlled by the State or another public authority, and, second, that the undertaking does not compete in the market.19 Based on this judgment, it is suggested that public undertakings competing in the market and commercial undertakings holding special or exclusive rights, are not in general bound by the free movement rules when procuring outside the scope of the Utilities Directive.20 Similarly, contracting entities not covered by the Procurement Directives are in general not bound by the free movement rules.21 However, the conduct of such entities may through specific State involvement, be imputable to the State.22

11 12 13 14 15 16 17 18 19 20 21

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See Section IV below. See for instance Dir. 2014/24/EU on public procurement, Arts. 1, 8 and 10. Dir. 2014/24/EU Art. 4, 2014/23/EU Art. 8, Dir. 2014/25 Art. 15, Dir. 2009/81 Art. 8. See Section 2 below. See also Szydlo, ‘Contracts beyond the scope of the EC procurement directives – who is bound by the requirement for transparency’, European Law Review (2009) pp. 720-737; Arrowsmith, The Law of Public and Utilities Procurement, pp. 286-289 and pp. 297-298. This include the legislator, the executive and the judiciary. See for instance Case C-6/05, 14.6.2007, Medipac; Case C-91/08, 13.4.2010, Wall; and Case E-5/98, 12.5.1999, Fagtún. Art. 4 of Dir. 2014/25/EU. Case C-91/08, 13.4.2010, Wall, para. 49. On this subject, see Arrowsmith, The Law of Public and Utilities Procurement, pp. 288-289; Brown, ‘Changing a Sub-contractor Under a Public Services Concession: Wall AG v Stadt Frankfurt am Main’, Public Procurement Law Review (2010) no. 5 NA 160 pp. 156-166. See Arrowsmith, The Law of Public and Utilities Procurement, pp. 288-289.

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Further, the fundamental rules and principles of EEA law only apply for con- 10 tracts which have a “certain cross-border interest”23 or which “may be of interest”24 to undertakings established in another EEA State. In principle, it is for the contracting authority to decide whether such an interest exists based on the factual circumstances of the individual case, but the decision shall nevertheless be subject to judicial review.25 In this assessment, national authorities must particularly take into account the nature and value of the contract in question, in addition to the location for the contract execution.26 Other objective elements which, in an overall assessment, may indicate a cross-border interest are whether the procurement has been advertised at EEA-wide level,27 expression of interest from other operators located in another EEA State, and existence of complaints from operators located in other EEA States provided that those complaints are real and not fictitious.28 Even though a contract is of cross-border interest, it may, however, be ex- 11 empted from the EEA Agreement if the contracting authority invokes an applicable exclusionary provision, such as Arts. 32 and 39 EEA regarding exercise of official authority,29 and Art. 123 EEA regarding contracts in the field of defence.30 2. General Principles on Public Procurement

Both the EFTA-Court and the ECJ have consistently held that, although cer- 12 tain contracts are excluded from the scope of the Procurement Directives, the contracting authorities concluding them are nevertheless bound to comply with the fundamental rules of the EEA Agreement.31 In a public procurement context, there are, in essence, three fundamental 13 obligations deriving from the free movement rules of the EEA Agreement, 22 See the principle set out in Case C-482/99, 16.5.2002, Commission v. France. Along these lines, contracts which are mainly State subsidies may be subject to the fundamental rules of the EEA Agreement even if they are contracted by commercial entities. 23 See for instance Case C-278/14, 16.4.2015, Enterprise Focused Solutions, para. 18; Case C-147/06 and Case C-148/06, 15.5.2008, SECAP, para. 21. 24 Case E-24/13, 29.8.2014, Wolfgang Egger, para. 51; Case C-226/09, 13.9.2010, Commission v. Ireland, para. 34; Case C-91/08, 13.4.2010, Wall, para. 34. 25 Commission Interpretative Communication on the Community law applicable to contract awards not or not fully subject to the provisions of the Public Procurement Directives. 26 Case C-318/15, 6.10.2016, Tecnoedi Costruzioni, and the case law cited therein. 27 Case C-91/08, 13.4.2010, Wall, para. 35. 28 Case C-278/14, 16.4.2015, Enterprise Focused Solutions, para. 20 and the case law referred to therein. 29 Case C-160/08, 29.4.2010, Commission v. Germany, para. 73 following. 30 C-615/10,7.6.2012, Puolustusvoimat. Art. 123 EEA was invoked by Norwegian government in Case Rt. 2005 s. 1638 New Pac Safety regarding procurement of military ponchos, see further the comments by Ormberg on Art. 123. 31 Cf. inter alia Case C-324/98 Teleaustria; Case C-59/00, 3.12.2001; Vestergaard, para. 20; Case C-231/03, 21.7.2005, Coname, para. 16; Case C-264/03, 20.10.2005, Commission v. France, para. 32; Case C-410/14, 2.6.2016, Dr. Falk Pharma, para. 44; Case E-24/13, 29.8.2014, Wolfgang Egger, para.51.

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namely the principle of non-discrimination on grounds of nationality, the principle of equal treatment, and the consequent obligation of transparency. 14 According to the case law of the EFTA Court and ECJ, the principle of nondiscrimination deriving from Arts. 11 (Art. 34 TFEU),32 31 (Art. 49 TFEU)33 and 36 EEA (Art. 56 TFEU)34 applies, first, to measures that directly discriminate imported products and services for the benefit of domestic products and services.35 This is illustrated by Fagtún, in which the EFTA Court ruled that a provision in a public works contract requiring that roof elements should be produced in Iceland amounted to a clear discrimination in favour of national products, thus in breach of Art. 11 EEA.36 15 Second, the free movement rules apply to measures that indirectly discriminate imported goods and services. Commission v. Italy is an example of this, in which the ECJ found that direct award of contracts constituted indirect discrimination on the basis of nationality because the effect of the direct award was that undertakings located in other Member States were excluded from the award of the contract.37 16 Third, the free movement rules might cover non nationality-based discriminatory procurement measures. In Parking Blixen, regarding a public service concession contract at the time excluded from the scope of the Procurement Directives, the ECJ stated, with reference to its case law on the Procurement Directives, that the principle of equal treatment intends to afford equality of opportunity to all tenderers when formulating their tenders, which must apply even in absence of discrimination on grounds of nationality.38 However, in more recent case law, the ECJ has been more reluctant to apply to cases outside of the Directives’ scope the more detailed and concrete provisions found in them.39 This seems to suggest that the equal treatment principle under primary law is not as far-reaching as the equal treatment principle under the Procurement Directives.40

32 33 34 35

36 37 38 39

40

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See further on this the comments by Pétursson on Art. 11 EEA See further on this the comments by Eniarsson on Art. 31 EEA See further on this the comments by Einarsson on Art. 36 EEA The prohibition against discrimination on grounds of nationality follows also from the general prohibition set out in Art. 4 EEA. However, according to settled case law, Art. 4 applies independently only to situations in which the EEA Agreement lays down no specific rules prohibiting discrimination. Inasmuch as public procurement regularly is covered by Arts. 11, 31 and 36 EEA, it is not necessary to invoke Art. 4 in procurement cases, cf. Case E-5/98, 12.5.1999, Fagtún, para. 42. See further on Art. 4 EEA the comments by Falch. Other illustrations are found in Case C-21/88, 20.3.1990, Du Pont De Nemours (goods); and Case C-360/89, 3.6.1992, Commission v. Italy (services). Case C-412/04, 21.2.2008, Commission v. Italy, para. 66. Case C-458/03, 13.10.2005, Parking Blixen, para. 48. Case C-95/10, 17.3.2011, Strong Segurança, paras. 41- 42; C-42/04, 12.5.2005, Commission v. Italy, para. 106; Case 226/09, Commission v. Ireland, para. 43; Case E-24/13, 29.8.2014, Wolfgang Egger, para. 58. See also Treumer and Werlauff, ‘The leverage principle, secondary Community law as a lever for the development of primary Community law’, European Law Review 28/1 (2003), pp. 124-133. See in particular Case C-95/10, 17.3.2011, Strong Segurança, para. 42.

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The principle of equal treatment does not merely prohibit negative measures 17 restricting access to public markets as it also implies a positive obligation of transparency.41 Pursuant to the EFTA Court and the ECJ, the principle of transparency imposes upon the contracting authorities to ensure, for the benefit of any potential tenderer, a degree of advertising sufficient to enable the public procurement market to be opened up to competition.42 The content of this obligation will be further elaborated in the following sections. In addition to the principles of equal treatment and transparency, other gener- 18 al principles of EEA law apply to public procurement, including: the principle of proportionality according to which the procurement procedures and decisions must be proportionate;43 the principle of mutual recognition implying equal validity to qualifications and standards from other EEA states; and the principle of legal certainty which requires that the rules of law must be clear, precise and predictable as regards their effect.44 3. Advertising of Contracts

In the landmark case of Teleaustria, the ECJ ruled that contracting authorities 19 are obliged to secure a sufficient degree of advertising for contracts falling outside the Procurement Directives,45 provided that the contract is covered by primary law.46 The purpose of the advertising obligation is dual. To secure that the impartiality of the award procedure can be reviewed, and to enable the public procurement market to be opened up to competition by providing tenderers of other EEA States sufficient information so that they would be in a position to express their interest in obtaining the contract.47 However, the precise content of the advertising obligation is vague, and the 20 case law of ECJ and the EFTA Court provides limited guidance on what contracting authorities shall do in order to comply with this obligation. To remedy this, the Commission has published an interpretative communication on Community law applicable to contracts awards not or not fully subject to the provisions of the Procurement Directives.48 In general, the scope of the advertising obligation depends on the circum- 21 stances of the individual case,49 and the EEA member states enjoy some latitude when adopting measures intended to ensure observance with the transparency 41 42 43 44 45 46 47 48

Case C-324/98, 7.12.2000, Teleaustria. Case C-324/98, 7.12.2000, Teleaustria; Case E-24/13, 29.8.2014, Wolfgang Egger. Case C-425/14, 22.10.2015, Impressa Edilux and the case law referred to therein. Case E-24/13, 29.8.2014, Wolfgang Egger, para. 56. Case C-324/98, 7.12.2000, Teleaustria, para. 62. See Section II 1 above. This is also stated in Case E-24/13, 29.8.2014, Wolfgang Egger, paras. 54 and 55. See 2006 Communication [2006] (OJ C-179/2). The validity of this communication was challenged by Germany before the General Court in Case T-258/06, 20.5.2010, Germany v. Commission, but the challenge was dismissed. 49 See opinion of Advocate General Stix-Hackl in Case C-532/03, 14. 9.2006, Commission v. Ireland, paras. 71-81.

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obligation.50 As a starting point, the greater the interest of the contract to potential bidders from other EEA states, the wider the coverage of advertising should be.51 However, the advertising obligation under primary law is not as far-reaching as those applicable under the procurement directives.52 This implies inter alia that the principle of transparency does not necessarily entail an obligation to launch an invitation to tender.53 22 As to requirements to the means of advertising, the Commission guidelines state that it rests with the contracting authority to decide the most appropriate medium for advertising, taking into account the contract's relevance to the internal market. Appropriate examples may be publication on the Internet, advertising in newspapers or in national or European journals.54 23 As to requirements regarding the content of the advertising, the obligation of transparency implies, first, that the advertisement must contain sufficient information to provide undertakings located in other EEA States a real opportunity of expressing their interest in obtaining the contract in question.55 This entails that the conditions and detailed rules of the award procedure should be included.56 Hence, the advertisement, or appurtenant tender documents which are readily available to all interested undertakings in sufficient time and on equal conditions,57 should in general provide a description of the subject-matter of the contract, any criteria for qualification and selection of tenderers and the award criteria.58 24 Second, the transparency principle implies that the conditions and detailed rules of the award procedure must be drawn up in a clear, precise and unequivocal manner, 59 and the contracting authority must interpret the conditions in the same way throughout the procurement process;60 not substantially amending those criteria after publication of a contract notice.61 The purpose of this requirement is both to limit the discretion of the contracting authority and to enable all reasonably informed tenderers exercising ordinary care to understand the exact significant of the procedural rules and interpret them in the same way. 50 51 52 53 54

55 56 57 58 59 60 61

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Case C-410/14, 2.6.2016, Dr. Falk Pharama, para. 44. See 2006 Communication [2006] (OJ C-179/2), pp. 3-4. See Opinion of Advocate General Stix-Hackl in Case C-231/03, 12.4.2005, Coname, para. 97. E-24/13, 29.8.2014, Wolfgang Egger, para.52. 2006 Communication [2006] (OJ C-179/2), p. 4. For analysis on this subject, se Brown, ‘EU Primary Law Requirements in Practice: Advertising, Procedures and Remedies for Public Contracts Outside the Procurement Directives’, Public Procurement Law Review 5 (2010), pp. 169-181. Case C-231/03, 21.7.2005, Coname, para. 21; Case E-24/13, 29.8.2014, Wolfgang Egger, para. 54. Case E-24/13, 29.8.2014, Wolfgang Egger, para. 55. 2006 Communication [2006] (OJ C-179/2), p. 5 and Opinion of Advocate General Jacobs in Case C-174/03, 21.4.2005, Impresa Portugale, paras. 76-78. See Sections 4, 5 and 6 below. Case E-24/13, 29.8.2014, Wolfgang Egger, para. 55. Case C-226/09, 18.11.2010, Commission v. Ireland, para. 59. Case C-226/09, 18.11.2010, Commission v. Ireland, para. 60; and Case C-278/14, 16.4.2015, Enterprise Focused Solutions, para. 29.

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The requirement of advertisement is, however, subject to certain exemp- 25 tions. First, contracting authorities may, if applicable, invoke the explicit derogations set out in the EEA Agreement or reasons of overriding general interest, provided that the conditions regarding proportionality are satisfied.62 Second, in general, the derogations from publicity expressly provided in the Procurement Directives apply equally to contracts falling outside the scope of those directives,63 for instance in cases of extreme urgency or in-house procurement.64 4. The Description of the Subject Matter of the Contract

The obligation of transparency requires the contracting authority to include a 26 description of the subject matter of the contract in the advertisement or appurtenant contract documents made available to all interested undertakings.65 The description shall provide the information necessary for undertakings to decide whether to participate, implying that the essential characteristics regarding the subject matter of the contract should be included.66 However, the requirements to the extent of the description will vary depending on the specific contract’s relevance for the internal market and the nature of the contract’s subject matter. Furthermore, the description of the subject matter of the contract must be ob- 27 jective and non-discriminatory. In particular, Art. 11 EEA precludes contracting authorities from requiring use of domestic products,67 and likewise, to require products of a specific make which exclude products equally suitable to meet the functional requirements of the contracting authority. Hence, designation of particular products in the contract documents is only allowed if the words “or equivalent” is added.68 5. Criteria for Qualification and Selection of Tenderers

The EEA States may wish to ensure that tenderers participating in the proce- 28 dure for the award of public contracts possess certain professional qualities by setting out in national legislation, on pain of exclusion, general criteria for participation in tender procedures, such as criteria relating to the tenderers solvency, economic and financial capacity and professional honesty.69 However, such criteria must comply with general principles of EEA law. In this respect, the ECJ

62 See for instance Case C-260/04, 13.9.2007, Commission v. Italy, para. 26. 63 For a discussion on this, see Brown, ‘Seeing through Transparency: the Requirement to Advertise Public Contracts and Concessions under the EC Treaty’, Public Procurement Law Review 1 (2007). 1-21, p. 1, The Law of Public and Utilities Procurement, p. 271. 64 Case C-458/03, 13.10.2005, Parking Blixen, para. 61. 65 See opinion of Advocate General in Case C-174/03, 23.3.2006, Impresa Portugale, para. 76. 66 2006 Communication [2006] (OJ C-179/2), p. 5. 67 Case C-45/87, 22.12.1988, Dundalk; and Case E-5/98, 12.5.1999, Fagtún. Se the comments by Petursson on Art. 11 EEA. 68 Case C-359/93, 24.1.1995, Unix, para. 27. 69 Case C-213/07,16.12.2008, Michaniki.

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has held that it is the concern of the EU to ensure, in relation to the freedom to provide services and establishment, the widest possible participation of tenderers in a call for tenders.70 However, the application of provisions which set out general grounds for exclusion of economic operators may, even though they may applied without discriminating on grounds of nationality, compromise the purpose of the free movement rules by restricting the freedom to provide services and establishment.71 Hence, in order to be justified, such general provisions must pursue a legitimate aim in the public interest, and be suitable and necessary for securing the attainment of that objective. 29 Moreover, contracting authorities may, for the individual contract, set out specific criteria for qualification and participation in procurement procedures as long as such criteria comply with the general principles of EEA law.72 In particular, the principles of equal treatment and transparency require, first, that the criteria for qualification and selection of tenderers are objective and non-discriminatory.73 Second, contracting authorities are under the same principles prohibited from rejecting tenderers which satisfy the requirements of the invitation to tender on grounds not set out in advance in the tender specifications.74 Third, contracting authorities must strictly comply with the criteria which they have themselves established, and are accordingly prohibited from amending those criteria after the contract is advertised. 75 6. Criteria for Award of Contracts 30

The criteria for awarding contracts in public procurement procedures must comply with fundamental rules and general principles of EEA law. In Wolfgang Egger,76 which concerned the award of a service concession excluded from the Procurement Directives’ scope, the EFTA Court found that the principles of equal treatment and transparency require that the award criteria must be objective and non-discriminatory.77 Furthermore, it held that all the procurement conditions and detailed rules for the award procedure must be known in advance.78 70 Case C-358/12, 10.7.2014, Consorzio Stabile Libor Lavori Pubblici, para. 29. 71 Case C-376/08, 23.12.2009, Serrantoni, para. 42; Case C-358/12, 10.7.2014, Consorzio Stabile Libor Lavori Pubblici, para. 29; Case C-147/06; Case C-425/14, 22.10.2015, Impressa Edilux, para. 29; and Case C-148/06, 15.5.2008, SECAP, para. 28. 72 See Section 3 above. 73 Case E-24/13, 29.8.2014, Wolfgang Egger, para. 53. 74 Case C-278/14, 16.4.2015, Enterprise Focused Solutions, paras. 26-29. 75 Case C-278/14, 16.4.2015, Enterprise Focused Solutions, paras. 26-29; and Case C-42/13, 6.11.2014, Cartiera dell’Adda, para. 48. 76 For further comments on this judgement, see I. H. Anchustegui, ‘EFTA Court case E-24/13 Casino Admiral AG v Wolfgang Egger: the obligation of transparency and consequences of its breach when awarding service concessions’, Public Procurement Law Review 1 (2015). NA1-NA9. 77 Case E-24/13, 29.8.2014, Wolfgang Egger, para. 53. Depending on the circumstances of the individual case, the rules on State aid may imply that price must be included as an award criteria, see by comparison E-1/13, 27.1.2014, Mila, para. 99. 78 Case E-24/13, 29.8.2014, Wolfgang Egger, para. 55.

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Hence, the EFTA Court seems to assume that contracting authorities, similar to the rules under the Procurement Directives,79 must set out and disclose in advance both main award criteria and any sub award criteria.80 However, contrary to the directive rules,81 in Wolfgang Egger, the EFTA 31 Court ruled that the contracting authorities are not obliged to state the relative weighting for each of the award criteria at the stage of publication of a contract notice.82 Nevertheless, the principles of equal treatment and transparency entail, first, that subsequent weighting of award criteria must not alter the criteria for the award of contract. Second, the weighting attributed should not contain elements which, if they had been known at the time the tenderers were prepared, could have affected the preparation. Third, the weighting should not be adopted on the basis of matters likely to give rise to discrimination against one of the tenderers. As to the latter, in order to avoid discrimination, the weighting should be fixed before opening of the tenderers.83 Finally, contracting authorities are not obliged to set out and disclose the 32 method of evaluation in the contract notice. Nevertheless, the evaluation method must not amend the contract award criteria. Furthermore, in order to ensure compliance with the principle of equal treatment, the evaluation method should be determined prior to the opening of the tenders. However, if it by demonstrable reasons is impossible to determine the evaluation prior to the opening of tenders, the contracting authorities may decide the evaluation method after the opening of the tenders. 84 7. Amendment of public contracts

The principles and rules on public procurement govern first and foremost 33 contracting authorities’ actions prior to conclusion of contracts. However, it is evident from the case law of ECJ that the principles of equal treatment and transparency imply a duty to carry out a new award procedure if an existing contract amended and rendered materially different in character from the original contract during its currency.85 This was stated in Wall,86 in which the ECJ applied by analogy the ratio decidendi of Pressetext87 to a service conces-

79 Case C-532/06, 24.1.2008, Lianakis, para. 38. 80 In comparison, in C-226/09 Commission v. Ireland, the ECJ did not clearly express whether contracting authorities are obliged to set and disclose in advance the main award criteria themselves, see also The Law of Public and Utilities Procurement, p. 273. 81 Under the Procurement Directives, the weighting of main criteria must be set out in advance in the advertisement, whereas weighting of sub criteria may be fixed subsequently provided that the requirements set out in Case C-331/04 ATI are met. 82 Case E-24/13, 29.8.2014, Wolfgang Egger, para. 58. 83 Case E-24/13, 29.8.2014, Wolfgang Egger, para. 59; Case C-226/09, 18.11.2010, Commission v. Ireland, para. 48; Case C-331/04, 24.11.2005, ATI, para. 32. 84 Case C-6/15, 14.7.2016, TNS Dimarso, para. 31. 85 Case C-454/06, 19.6.2008, Pressetext, para. 34. 86 Case C-91/08, 13.4.2010, Wall, para. 39. 87 Case C-454/06, 19.6.2008, Pressetext, para. 34.

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sion contract falling outside the scope of the Procurement Directives. Pursuant to this, a new award procedure is required if the amendments introduce conditions which, if they had been part of the original award procedure, would have allowed for the acceptance of an offer other than that originally accepted, or other tenderers to have taken part.88 Examples of such substantial amendments are change of contractual partner,89 substantial alteration of the subject matter of the contract,90 and other substantial adjustments to the fundamental terms of the contract and failure to enforce those terms.91 34 Moreover, substantial amendments of public contracts may in certain circumstances constitute state aid under EEA art. 61. This is illustrated by the judgement of the EFTA Court in Hurtigruta, in which the EFTA Court found that amendment of a compensation clause under a public service contract – without express authority to do so under the initial contract – infringed the principle of transparency set out by the ECJ in Altmark.92 III. Incoproration of the Procurement Directives into the EEA Agreement 1. The most central secondary legislation and EEA adaptions

As mentioned introductorily, Art. 65(1) EEA does not contain any substantive regulation of the public procurement as it merely refer to the secondary legislation incorporated into Annex XVI EEA. However, according to Art. 65(1), the specific provisions and arrangements set out in the secondary legislation shall, unless otherwise specified, be applicable to the products and services covered by the Procurement Directives. This implies that the Procurement Directives apply to all products covered by those directives, including products not covered by Art. 8 (3), which defines the product coverage of the EEA Agreement.93 36 Most of the EU legal acts on public procurement have been fully incorporated in the EEA agreement in Annex XVI, procurement. The most central acts are: 35

– Dir. 2014/24/EU on public procurement in the classical sector94 – Dir. 2014/25/EU on procurement in the utilities sectors95

88 Case C-454/06, 19.6.2008, Pressetext, para. 34. 89 Case C-454/06, 19.6.2008, Pressetext; and Case C-91/08, 13.4.2010, Wall, para. 39, regarding change of a subcontractor which in exceptional cases may amount to a substantial amendment. 90 Case C-549/14, 7.9.2016, Finn Frogne, regarding reduction of the scope of the contract's subject matter, and Case C-160/08, 29.4.2010, Commission v. Germany, regarding extension of a contract. 91 The Law of Public and Utilities Procurement, pp. 577-604. 92 Case E-10/11 and E-11/11, 8.10.2012, Hurtigruten, paras. 121-130. See further on this the comments by Mathisen and Jordal on Art. 61 EEA. 93 See Norberg et al., EEA Law, p. 570. For further reading on Art. 8 EEA, see the comments by Pétursson. 94 Dir. 2014/24/ on public procurement, cf. Point No 2 in Annex XVI. 95 Dir. 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors, cf. Point No 4 in Annex XVI.

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– Dir. 2014/23/EU on concession contracts96 – Dir. 2009/81/EC on procurement in the fields of defence and security97 – Dir. 89/665/EEC as amended by Dir. 2007/66/EC on remedies for the classical sector98 – Dir. 92/13/EEC as amended by Dir. 2007/66/EC on remedies for the utilities sectors99 A number of sectoral and specific adaptions, however, have been made to the above mentioned acts. For example, references in the EU acts to TFEU Arts 107 and 346 shall be read as references to the corresponding Arts 61 and 123 of the EEA Agreement. Dirs. 2014/24/EU and 2014/25/EU contain specific provisions on conditions relating to the GPA and other international agreements which concern EU's trade policy and international commitments towards non EU/EEA countries.100 This is not covered by the material scope of the EEA Agreement, and thus the provisions are not considered EEA relevant and they are therefore not incorporated into the EEA Agreement. Nevertheless, it can be pointed out that the EFTA States in principle have the same commitments towards suppliers from GPA countries and countries with whom they have entered into bilateral trade agreements with. Such commitments, however, are of no relevance to the EEA Agreement and are thus not reflected in the agreement. There is also a reference to EU’s so-called defence list in Annex 1 point 3 of the GPA101 in Art. 4(b) and (c) of Dir. 2014/24. Pursuant to this, a lower threshold applies to defence supplies covered by Annex III of the directive. This provision seems to be of EEA relevance, since it affects the threshold that will be applied within the EEA. However, Iceland and Norway have their own similar lists in the GPA. Even though the wording here is somewhat different, they are materially of the same content. Thus, Annex III of the Dir. 2014/24 has been replaced in the EEA Agreement by the list provided in Appendix 2 to Annex XVI. Dir. 2014/25/EU also contains two specific third country provisions, Arts 85 and 86, which do similarly not apply in the EEA. Art. 85 regulates the access of third countries to the EU public procurement market. Pursuant to this provision, contracting authorities can in some cases reject tenders where more than 50 per96 Dir. 2014/23/EU on the award of concession contracts, cf. Point No 6 f in Annex XVI. 97 Dir. 2009/81/EC on the coordination of procedures for the award of certain works contracts, supply contracts and service contracts by contracting authorities or entities in the fields of defence and security, cf. Point No. 5 c in Annex XVI. 98 Council Dir. 89/665/EEC on the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts as amended by Dir. 2007/66/EC, cf. Point No 5 in Annex XVI. 99 Council Dir. 92/13/EEC coordinating the laws, regulations and administrative provisions relating to the application of Community rules on the procurement procedures of entities operating in the water, energy, transport and telecommunications sectors, as amended by Dir. 2007/66/EC cf. Point No 5 a in Annex XVI. 100 Art. 25 and Art. 43 of the directives respectively. 101 In the revised GPA-agreement the defence list is found in Annex 4, point 2.

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cent of the offered products have their origin in a third country, i.e. in a State with whom the Community has not concluded an agreement. Art. 86 regulates the relations with third countries. Pursuant to this provision, Member States are to inform the Commission of any general difficulties encountered by their undertakings in accessing the markets of such countries and a number of duties are put on the Commission in this regard. The Commission has also in proposed to introduce a new regulation on third country access, building on these provisions.102 If and when such a regulation is adopted, Arts 85 and 86 will probably be repealed.103 41 Neither of these third country provisions – nor a possible new regulation – are EEA relevant. Even though the provisions will surely have an impact on the internal market, their aim is to strengthen the negotiation position of the EU towards third countries. The provisions deal mainly with how Member States and contracting authorities should deal with goods and supplies coming from third countries. As for the GPA-provisions, the EU’s trade policy towards third countries is not covered by the material scope of the EEA agreement. Furthermore, the legal basis for a possible new regulation is Art. 207 TFEU, also falling outside the scope of the agreement. 42 Also, the references to the ILO Conventions in Annex X of Dir. 2014/24/EU, Annex XIV of Dir. 2014/25/EU and Annex X of Dir. 2014/23/EU do not apply to Liechtenstein. This is due to the fact that Liechtenstein is not a member of ILO. However, Liechtenstein has undertaken to ensure compliance with standards equivalent to those laid down in the listed ILO Conventions. Also, Dir. 2009/81/EC on procurement in the fields of defence and security does not apply to Liechtenstein in its entirety. This is due to the fact that Liechtenstein does not have its own armed forces. 43 It can also be mentioned, that the directives contain a number of references to EU legal acts that are not EEA relevant. One example of this is the new provisions on exclusion grounds in Art. 57 of Dir. 2014/24/EU, e.g. the exclusion of economic operators who have been convicted for participation in a criminal organisation as defined in Art. 2 of Council Framework Decision 2008/841/ JHA. This Decision is not EEA relevant, and the question of EEA relevance for the provision in the directive arises. However, the mere reference in a provision to a definition in a legal act that has not been incorporated into the EEA Agreement, does not necessarily mean that the provision itself is not EEA relevant. The references do not imply that the legal acts will apply in EEA States or that they are required to incorporate these acts. The important element is the definition in these acts, and the reference might have been inserted for practical reasons; with such a reference there is no need to repeat the definition in the provision itself and change it whenever there are changes in the respective legal acts. 102 See COM (2012) 124. 103 Recital 111 of Dir. 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors.

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No adaptions have been made to Art. 57 when implementing Dir. 2014/24/EU, and thus the definitions – in the legal acts, which are not EEA relevant – become EEA relevant only in the context of this directive. 2. Other secondary legislation

The list of relevant legal acts in Art. XVI also includes the following:

44

– Commission implementing Reg. 2016/7 establishing the standard forms for the European Single Procurement Document;104 – Commission decision 93/327/EEC defining the conditions under which contracting entities exploiting geographical areas for the purpose of exploring for or extracting oil, gas, coal or other solid fuels must communicate to the Commission information relating to the contracts they award;105 – Dir. 92/50/EEC relating to the coordination of procedures for the award of public service contracts;106 – Reg. (EEC/Euratom) No 1971/1182 determining the rules applicable to periods, dates and time limits;107 – Reg. (EC) No 2195/2002 on the Common Procurement Vocabulary;108 – Dir. 2014/55/EU on electronic invoicing in public procurement;109 – Commission Implementing Reg. (EU) No. 2015/1986 establishing standard forms for the publication of notices in the field of public procurement and repealing Implementing Reg. (EU) No 842/2011;110 – Commission Implementing Decision (EU) 2016/1804 on the detailed rules for the application of Arts. 34 and 35 of Dir. 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors.111 In addition, Annex XVI contains a number of legal acts of which the contract- 45 ing parties shall take note, without creating legal obligations for the contracting parties: – Guide to the Community rules on open public procurement (OJ No C 358, 21.12.1987, p. 1);112 – Commission communication (COM (89) 400 of 27.7.1989) on regional and social aspects;113

104 105 106 107 108 109 110 111 112 113

See Point No 2 a in Annex XVI. See Point No 4 a in Annex XVI. See Point No 5 b in Annex XVI. See Point No 6 in Annex XVI. See Point No 6 a in Annex XVI. See Point No 6 e in Annex XVI. See Point No 6 g in Annex XVI. See Point No 6 h in Annex XVI. See Point No 7 in Annex XVI. See Point No 8 in Annex XVI.

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– Commission recommendation 91/561/EEC of 24 October 1991 on the standardization of notices of public contracts;114 – Commission communication to the Council of 1 June 1992 on SME participation in public procurement in the Community (SEC(92) 722 final);115 – Commission communication of 30 December 1992 on the forms to be used by contracting entities concerned by the entry into force of Dir. 90/531/ EEC.116 3. Appendices to Annex XVI 46

Annex XVI contains 3 appendices: – Appendix 1 contains a list of central government authorities in the EEA States. The list is referred to in Article 2 (1) 2 of Dir. 2014/24/EU and is the EEA correspondent to the list of central government authorities in the EU States found in Annex I of the directive. – Appendix 2 contains the EEA defence list referred to in Article 4 b of Dir. 2014/24/EU, mentioned above. It is the EEA correspondent to the EU defence list found in Annex III of the directive. – Appendix 3 contains the list of professional and trade registers kept in the EEA States, referred to in Article 58 (2) of Dir. 2014/24/EU. It is the EEA correspondent to the list of registers kept in the EU found in Annex XI of the directive. IV. Procurement under the Procurement Directives 1. Scope of Application

The Procurement Directives do not oblige the EEA States to contract out or externalize the provision of services which they wish to provide themselves.117 Accordingly, the EEA States are free to organize such services by other means than public contracts falling within the Procurement Directives.118 However, if one or more contracting authorities or contracting entities conclude a public contract of defined nature and value with one or more economic operators, the Procurement Directives apply. 48 As to the contracting (procuring) entities subject to the secondary legislation, the Procurement Directives are addressed to the EEA states119 covering central, regional and local authorities in addition to bodies governed by public law and associations formed by such authorities or bodies.120 In addition, the Utilities 47

114 115 116 117 118 119

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See Point No 9 in Annex XVI. See Point No 10 in Annex XVI. See Point No 11 in Annex XVI. Case C-51/15, 21.12.2016, Remondis, para. 39. Dir. 2014/24/EU, Recital 5. Hence, the directives do not apply to procurement carried out by international organizations, nor to political parties unless those parties under national law constitute bodies governed by public law, cf. Recital 5 of Dir. 2014/24/EU.

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Directive121 and the Concession Directive122 also apply to private owned undertakings which fall within the notion of contracting entities.123 The Procurement Directives apply only to public contracts meeting certain 49 requirements.124 First, the Procurement Directives require existence of a mutually binding contract for pecuniary interest concluded in writing and which is legally enforceable.125 The ECJ has, with reference to the purposes of the Procurement Directives, interpreted the notion of a contract broadly, without regard to denominations under national law. In particular, the notion of a contract within the Procurement Directives may apply even if the implied parties have limited freedom to negotiate the terms of the contract. This is illustrated by Correos, in which the ECJ found that an arrangement between the Spanish State and a stateowned company regarding provision of postal services would constitute a contract even though the service provider in question was obliged by national law to carry out those services to the public for a fixed tariff.126 However, the requirement that the contract in question must be of pecuniary interest implies that the contracting authority concluding the contract must receive a direct economic benefit in return for consideration.127 On the one hand, a direct economic benefit will exist if the public authority receives the services in question, or becomes owner or otherwise holds legal rights of the goods or works in question. On the other hand, the consideration from the public authority does not need to be financial128 as long as the economic operator receives some economic benefit from the contract,129 for instance through mutual exchange of goods or services.130 Lastly, the requirement of a direct economic benefit in return for consideration implies that the mutual nature of the contract constitutes an essential element of a public contract. Accordingly, the Procurement Directives do not apply in cases where public entities unilaterally provide subsidies or financial

120 121 122 123 124 125 126

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See section II 1 above. Art. 4 of Dir. 2014/25/EU. Art. 7 of Dir. 2014/23/EU. Contracting entities encompass entities, including private undertakings, which pursue one of the activities referred to in those directives and operates on the basis of special or exclusive rights granted by a competent authority of an EEA State. Case C-51/15,21,12.2016, Remondis, paras. 42-43. Case C-451/08, 25.3.2010, Helmut Müller, para. 45-57 and paras. 62-63. Case C-220/06, 18.12.2007, Correos, paras. 50-55. However, the Procurement Directives do not apply when national law imposes upon one provider exclusively to carry out works and services at fixed prices solely for the benefit of designated public authorities, cf. Case C-295/05, 19.4.2007, Asemfo, para. 54. Case C-451/08, 25.3.2010, Helmut Müller, para. 49, Case C-51/15, 21.12.2016, Remondis, para. 43 and Case C-701/15, 13.7.2017, Malpensa Logistica Europa, para. 29. As for concessions, consideration consists in the right to explore the service or works, either alone, or together with payment from the contracting authority, see below. In this respect, a contract do not fall outside the scope of the directives merely because the consideration remains limited to reimbursement of the expenditure incurred by providing the services in question, cf. Case C-159/11, 19.12.2012, Ordine degli Ingegneri della Provincia di Lecce, para. 29. Cf. Arrowsmith (2014) p. 395.

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support to economic operators131 without an entitlement to receive goods, works or services.132 50 Second, the Procurement Directives' rules on application set out certain requirements as to the nature and object of the contract.133 At the outset, the directives apply only to public contracts regarding procurement, implying that the directives are not applicable when the contracting authority assumes the position of seller and not purchaser.134 As to the types of contracts covered, the Public Sector Directive, the Utilities Directive and the Defense Procurement Directive apply only to public contracts which have as their object the execution of works,135 supply of products,136 or provision of services. As to the latter, the 2014 Procurement Directives have abolished the former distinction between priority and non-priority services, and accordingly, the Procurement Directives apply to all forms of services not covered by any express exemption.137 The Concession Directive, on the other hand, applies to works concessions and service concessions. The main feature of a concession contract is that the consideration for the provision of services or works consists in the right to explore the service or works, either alone, or together with payment from the contracting authority.138 Accordingly, in contrast to service and works contracts, the concession-

131 Grant of public subsidies or financial support to undertakings may, however, be subject to the state aid rules, see further on this the comments by Mathisen and Jordal on Art. 61. 132 Recital 4 of Dir. 2014/24/EU. Similar, the creation of joint venture by a contracting authority and a private economic operator does not as such fall within the Procurement Directives, cf. Case C-215/09, 22.12.2010, Mehiläinen Oy, para. 33. The same applies both to situations in which the contracting authority merely carry out urban-planning powers intended for the benefit of public interests, cf. C-451/08, 25.3.2010, Helmut Müller, para 57, and to situations regarding internal reorganization of public authorities as defined in C-51/15, 21.12.2016, Remondis, para. 41. Also in house procurement fall outside the directive’s notion of a mutual public contract, but this form of procurement is now regulated by exceptions provisions in the Procurement Directives. 133 The Utilities Directive and the Defense Procurement Directive apply only when contracting authorities or contracting entities conduct procurements which are related to the activities defined in those directives, Cf. Dir. 2014/25/EU Art. 1 (2) and Arts. 8 to 14; 2009/81/EC Art. 2 Similar, the Concession Directive applies to concession contracts awarded by contracting entities if the services or works in question are intended for the pursuit of one of the activities referred to in Annex II of that Directive, Cf. Dir. 2014/23/EU Art. 1 (2) litra b. 134 Case C-451/08, 25.3.2010, Helmut Müller, para. 41. Nevertheless, contracting authorities’ sale of goods and services may be subject to EEA rules on State aid under Art. 61 EEA see further on this the comments by Mathisen and Jordal on Art. 61. 135 Works contracts encompass three variants of works, which in essence cover contracts whose object are execution of works fulfilling an economic or technical function which correspond to the requirements specified by the contracting authority. 136 In general, goods encompass every product which can be valued in money and which are capable, as such, of forming the subject of commercial transaction, cf. Case C-7/68 Commission v. Italy. 137 However, the 2014 Procurement Directives introduced a new light-touch regime for procurement of services within the health and social service areas listed in those directives; cf. Dir. 2014/23/EU Art. 19; Dir. 2014/24 Art 74 and; Dir. 2014/25 Art. 91. The light touch regime provides contracting authorities with greater flexibility and less stringent rules compared to the full rules regime. 138 Dir. 2014/23/EU Art. 5 (1) litra a and b.

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ary's remuneration come primarily from third parties and not from the contracting authority.139 To that end, in order to qualify as a concession contract, the concession holder must assume all, or at least a significant share, of the operating risk faced by the contracting authority.140 Third, the Procurement Directives apply only to contracts equal to or greater 51 than the thresholds provided therein,141 which vary considerable depending on the object of the contract and the sector concerned. The value of the contract in question must be estimated based on the usual value in the market for the procurement in question, in which all revenue must be taken into account, whether received from the contracting authority or from third parties.142 Finally, as to the requirements to the contractor, the Procurement Directives 52 apply to public contracts awarded to one or a limited number of economic operators.143 The ECJ has interpreted the notion of economic operator in a broad manner. In essence, the term economic operator encompasses any natural or legal person, regardless of legal form, which offers the execution of works, the supply of products or provision of services in the market.144 In this regard, it is immaterial whether the body concerned is primarily profit-making or whether it has a continuous presence in the market.145 The notion of economic operators also includes public entities, implying that the Procurement Directives apply when a contracting authority award a contract to another contracting authority provided that the latter is independent from the former. 146 However, the application of the Procurement Directives provides that the contracting authority designate one or several economic operators to whom the contractual exclusivity is to be awarded. In situations in which the contracting authority does not designate the contract to particular economic operators, there are in principle no risks that contracting authorities will give preference to national suppliers or make considerations based on other considerations than economic ones, and thus, there is no need for the application of the Procurement Directives. This is illustrated by Dr. Falk Pharma, in which the ECJ found that Public Sector Directive did not apply to a contract scheme through which the contracting authority intended to acquire 139 Case C-274/09, 10.3.2011, Privater Rettungsdienst, paras. 24-25. 140 In this regard, it is not decisive for the purpose of defining a concession contract that the risk involved, from the outset, is very limited, for instance due to detailed rules of public law, cf. Case C-206/08, 10.9.2009, Eurowasser, para. 77. 141 Dir. 2014/23/EU Art. 8; Dir. 2014/24/EU Art. 4; Dir. 2014/25/EU Art. 15 and Dir. 2009/81/EC Art. 8. 142 Case C-220/05, 18.1.2007, Jean Auroux, para. 54. 143 Dir. 2014/23/EU Art. 2; Dir. 2014/24/EU Art. 1 (2); Dir/2014/25/EU Art. 1 (2) and Dir. 2009/81/EC Art. 1 (2). 144 Dir. 2014/23/EU Art. 5 (2); Dir. 2014/24/EU Art. 2(1) 10; Dir. 2014/25/EU Art. 2 (6) and Dir. 2009/81/EC Art. 14. It follows from this that the notion of economic operator is a broader concept than the notion of an undertaking under the state aid rules and the competition rules, see further on the notion of an undertaking the comments by Mathisen and Jordal on Art. 61 EEA, mn. 8. 145 Case C-305/08, 23.12.2009, CoNISMa, para. 30. 146 Case C-107/98, 18.11.1999, Teckal, para. 50.

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goods from any economic operator who undertook to provide the goods concerned on fixed terms without choosing between the interested operators.147 53 If the Procurement Directives apply, there is no requirement for a cross-border interest.148 Nevertheless, there are several exceptions set out in the Procurement Directives. In particular, there are exceptions due to the economic operator's link to the contracting authority, encompassing in house procurement and public cooperation.149 Furthermore, there are exceptions due to the nature of the contract in question150 and exceptions for procurements carried out in accordance with other specific rules for award of contracts.151 2. General on award procedures and fundamental principles

At the outset, the Procurement Directives require that the award of public contracts falling under the scope of those directives comply with certain procedural requirements. First and foremost, in line with the obligation of transparency, contracting authorities must publish a contract notice in the Official Journal of the European Union containing the information required by the Procurement Directives. Furthermore, the contracting authorities must employ one of the procedures provided for in the Procurement Directives.Under the Public Sector Directive, unless the light touch regime applies,152 use of the open or restricted procedure is the general rule,153 implying a prohibition against negotiation in the period between tender submission and the award of contract.154 However, the 2014 Public Sector Directive has significantly extended the grounds for using the competitive procedures with negotiations, allowing negotiations for all procurements which are not “off the shelf”.155 As to the other directives, contracting authorities may always apply negotiated procedures. 55 Moreover, contracting authorities and contracting entities must at all stages of the tender procedure comply with the fundamental principles deriving from the Treaty and the EEA Agreement, that is, the principles of non-discrimination, equal treatment, transparency, proportionality, mutual recognition and competition.156 As a result of the principle of equal treatment,157 any interested econo54

147 Case C-410/14, 2.6.2016, Dr. Falk Pharma, para. 37. However, such contract schemes may be subject to general principles of EEA law, see Case C-410/14, 2.6.2016, Dr. Falk Pharma, para. 44 and Section II 1 above. 148 Case C-213, 16.12.2008, Michaniki, paras. 29-30. 149 Dir. 2014/23/EU Arts. 10 (1), 13 and 17; Dir. 2014/24/EU Arts 11 and 12; Dir. 2014/25/EU Arts. 28 to 30. 150 See for instance Dir. 2014/24/EU Art. 10. 151 See for instance Dir. 2014/24/EU Arts. 7, 9 and 17. 152 The Concession Directive, however, does not govern the contracting authority’s choice of procedure. Arts. 74-77 of Dir. 2014/24/EU. 153 Dir. 2014/24/EU Art. 26. 154 Case C-336-12, 10.10.2013, Manova, para. 31. 155 See Kühn, ‘The reform of the EEA rules on public procurement’, Procurement Law Journal 2 (2015) p. 162. 156 Art. 18 of Dir. 2014/24/EU.

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mic operator within the EEA is entitled to submit a tender or request to participate in response to a contract notice governed by the Public Procurement Directives.158 Similar, the principle of equal treatment prohibits contracting authorities from setting out criteria for participation which unduly narrow the competition by favoring or disadvantaging certain economic operators. In this respect, the question arises of whether contracting authorities nevertheless are entitled to limit tender procedures to specific categories of economic operators, such as non-profit organizations. For instance, under the former prevailing Norwegian Regulations on Public Procurement, contracting authorities were entitled to reserve health and social services to non-profit organizations by derogating from the more detailed procedural rules for award of public contracts.159 Even though this rule was abolished in connection with the implementation of the 2014 Procurement Directives, there is an ongoing debate in Norway whether the Public Sector Directive allows reserving health and social services to non-profit organizations. As a starting point, the principle of equal treatment does not allow contracting 56 authorities to reserve certain contracts for specific categories of economic operators.160 This is exactly the reason for why the Public Sector Directive provides exceptions allowing the EEA States, on certain conditions, to reserve the rights to participate in public procurement procedures to particular groups of economic operators.161 In this respect, the ECJ has consistently held that the exclusions listed in the Procurement Directives are exhaustive and shall be interpreted strictly,162 suggesting that the EEA States may not reserve contracts to specific groups of economic operators on other grounds than those set out in that directive. Similar, in procurement procedures not qualifying for any of the exemptions set out in the Public Sector Directive, economic operators may, in general, only be excluded from public procurement procedures with reference to their professional qualities or ability to perform the contract. Under these rules, the object of the economic operator in question may not be the basis for exclusion because it does not concern the economic operator's ability to perform the contract. Nevertheless, under primary law, the ECJ has held that the EEA States under certain conditions may, by direct award and without advertising, entrust

157 The principle of equal treatment requires in essence that comparable situations must not be treated differently, and that different situations must not be treated in the same way, unless such treatment is objectively justified, cf. C-336/12, 10.10.2013, Manova, para. 30. 158 Dir. 2014/24/EU Arts. 27-31, Dir. 2014/25/EU Arts. 45-49, Dir. 2009/81/EC Art. 1 (11). 159 Regulations 7.4.2006. no. 402 on Public Procurement Section 2-1 (3). 160 Case C-21/88, 20.3.1990, Du Pont de Nemours Italiana. 161 First, the Public Sector Directive does not apply for certain emergency services performed by non-profit organizations, cf. Art. 10. Second, the EEA States are entitled to reserve the right to participate in certain contracts to sheltered workshops engaging disabled persons or disadvantage workers, cf. Art. 20. Third, pursuant to the so-called light touch-regime, the EEA States may reserve the right to participate in procedures for award of health, social and cultural services to non-profit organizations as defined therein, cf. Art. 77. 162 Case C-220/05, 18.1.2007, Jean Auroux, para. 59.

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particular health services to voluntary associations. This is illustrated by Spezzino, regarding Italian legislation providing direct award of ambulance services to voluntary associations.163 In that case, the ECJ stated that even though direct award of services to voluntary associations constitute indirect discrimination, such restrictions on the right to provide services and establishment may be justified in exceptional cases.164 Based on this case law, it has been argued that EEA States have a similar right to reserve contracts to non-profit organizations for contracts covered by the Public Sector Directive.165 However, the ECJ stated in both Spezzino and Casta that the exemption referred to therein applies only to contracts subject to primary law and not to contracts covered by the Public Sector Directive.166 This clearly suggests that the EEA States are not entitled under the Procurement Directives to limit tender procedures to non-profit organizations on other grounds than those referred to therein.167 3. What to buy – Defining the subject matter of the contract 57

One of the main objectives of the Procurement Directives is to ensure the most efficient use of public funds, e.g. by increasing the efficiency of public spending.168 Traditionally, this goal has been achieved by setting out procedural rules for the award of public contracts – so called rules on “how to buy” – entailing that contacting authorities are more or less free to decide “what to buy”.169 However, in the last decade there has been a shift towards more rules on what to buy. First, within specific sectors the EU has enacted secondary legislation which set out mandatory requirements governing the characteristics of the goods or services to be provided.170 Second, the Procurement Directives provide incentives steering the decisions of the contracting authority as to which services and goods that should be procured. The purpose of rules on what to buy 163 Case C-113/13, 11.12.2014, Spezzino. 164 In short, in order to be justified, the use of voluntary associations must, first, actually contribute to the social purpose and the pursuit of the objectives of the good of the community and budgetary efficiency on which that system is based. Second, the voluntary associations in question must not pursue other objectives than those aforementioned. 165 This is suggested in a report submitted to the Norwegian Ministry of Trade, Industry and Fisheries by Karin Fløistad, cf. Utredning av handlingsrommet for bruk av ideelle leverandører av helse- og soisaltjenester, 8.3.2017. 166 Case C-113/13, 11.12.2014, Spezzino, para. 41; and Case C-50/14, 28.1.2016, CASTA, paras. 53-54. For further comments on the former judgement, see Telles ‘The impact of the Spezzino Judgement for Third Sector Organisations’, European Procurement & Public Partnership Law Review 11 (2016) pp. 22-30. 167 See also Commission staff working document SWD (2013) 53 p. 95, which indicate that national law in exceptional cases might restrict access to certain services for the benefit of nonprofit organizations provided compliance with primary law. This statement, however, seems related to procurements outside the scope of the Procurement Directives, implying that such reservations are prohibited under those directives. 168 Recital 8 to the preamble of Dir. 2014/24/EU. 169 See for example the Commissions Green Paper on the modernisation of EU public procurement policy – Towards a more efficient European Parliament COM(2011) 15 final for the use of the terms “how to buy” and “what to buy”, Section 4.

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is to encourage the EEA States to use their purchasing powers to procure goods and services with higher societal value, in particular, more environmental friendly and socially responsible goods and services.171 Notwithstanding the above, under the Procurement Directives, contracting au- 58 thorities still have great freedom when deciding what to buy and the requirements which must be fulfilled to that end. However, the contracting authorities must comply with the fundamental principles of EEA law, entailing an obligation to set out proportionate and non-discriminatory172 technical specifications in the procurement documents, which are sufficiently precise to enable economic operators to decide whether to express interest in obtaining the contract. To this end, in order to open public procurement to competition and foster innovation, the contracting authorities are encouraged to draft the technical specifications in terms of functional and performance requirements allowing that the object of the procurement is met in the best way.173 In any event, the technical specifications shall be neutral and must not refer to a specific make or a particular process unless justified by the subject-matter of the contract.174 If such references are used, they must be accompanied by the words “or equivalent”. However, contracting authorities are under certain conditions entitled to require a specific label as means of proof that the works, services or products in question meet specific environmental, social or other characteristics.175 Furthermore, the technical specifications must be linked to the subject-mat- 59 ter of the contract. The requirement for a link to the subject matter of the contract should be interpreted broadly, covering all stages and aspect of the contract’s subject matter throughout its life cycle. Accordingly, the technical requirements may regard both the material substance of the requested works, services and goods in question, and requirements regarding specific processes or methods of production. This allows ample scope for the contracting authority to include social and environmental interest when defining the technical specifications in question. Examples of such requirements may be noise levels, levels of environmental and climate performance, conditions for storage and disposal of dangerous products, accessibility for disabled persons etc.176 However, such requirements must concern the specific contract in question, and may thus not relate to the suppliers behavior outside that contract.177 170 See Dirs. 2006/32/EC on energy end-use efficiency and energy services, 2009/28/EC on the promotion of the use of energy from renewable sources, 2010/31/EU on the energy performance of buildings and 2010/30/EU on the indication by labelling and standard product information of the consumption of energy and other resources by energy-related products. 171 See also the Commissions guide Buying Social – A Guide to Taking Account of Social Considerations in Public Procurement, and COM (2001) 274. 172 Case C-243/89, 22.6.1993, Commission v Denmark. 173 Dir. 2014/24/EU Art. 42 (3), Dir. 2014/25/EU Art. 60 (3). 174 Ibid. See also Section II 4 above. 175 Dir. 2014/24/EU Art. 43; Dir. 2014/25/EU Art. 91. 176 Dir. 2014/24/EU, Rectial 97. 177 See Section IV 5 below.

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Finally, the principles of equal treatment and transparency prohibit contracting authorities from substantially amend the technical specifications after publication of a contract notice.178 This imply, on the one hand, that contracting authorities are not entitled to reject a tender which satisfies the technical requirements set out in the invitation to tender on grounds not stated in the procurement documents.179 On the other hand, contracting authorities are not allowed to accept nor negotiate with tenders that do not comply with mandatory requirements set out in the technical specifications of the contract.180 4. Qualification and selection of tenderers

Pursuant to the Procurement Directives, public contracts may only be awarded to tenders submitted by tenderers that, first, are not excluded due the general exclusion grounds set out in those directives, and second, that meet the selection criteria set out by the contracting authority in the procurement documents.181 62 As to the general exclusion grounds,182 the Procurement Directives list exhaustively the grounds for excluding a tenderer from participation in a tender procedure for reasons related to the professional qualities of the tenderer concerned.183 In particular, these grounds relate to the tenderer's professional honesty, solvency and economic and financial capacity.184 However, even though the Procurement Directives are exhaustive of the grounds for exclusion relating to the professional qualities of the tenderers, the Procurement Directives do not preclude exclusion due to other reasons than the professional qualities of the tenderers, provided that those measures are designed to ensure the principles of equal treatment and transparency and otherwise comply with the principle of proportionality. This is illustrated by Fabricom, in which the ECJ found that national authorities were entitled to provide rules for exclusion of tenderers in cases of conflict of interests due to the tenderer’s prior involvement in the procurement process. Nevertheless, the ECJ found that the rule in question did not comply with the principle of proportionality as it did not afford those concerned any 61

178 179 180 181

Case C-298/15, 5.4.2017, Borta UA, para. 70-76. Case C-278/14, 16.4.2015, Enterprise Focused Solutions, paras. 26-30. Case C-561/12, 5.12.2013, Nordecon, para. 39. The Procurement Directives set out compelling rules on the means of proof as evidence for the absence of grounds on for exclusion and fulfilment of the selection criteria. In particular, at the time of submission of request to participate or of tenders, contracting authority shall accept a standardized self-declaration form (the European Single Procurement Document) as preliminary evidence on absence of grounds of exclusion and fulfillment of the selection criteria. 182 Dir. 2014/23/EU Art. 38; Dir. 2014/24/EU Art. 57; Dir. 2014/25/EU Art. 80 and Dir. 2009/81/EC Art. 39. 183 Case C-213/07, 16.12.2008, Michaniki, para. 43. 184 In addition, these rules include grounds for exclusion which are situational and do not relate to the tenderer’s professional qualities, such as cases of conflict of interest, and exclusion of tenderers due to prior involvement in the procurement procedure, Cf. Art. 57(4) f.

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possibility to demonstrate that the prior involvement was not capable of distorting competition.185 The Public Procurement Directives set out both mandatory and discretionary 63 grounds for exclusion. As to the mandatory grounds for exclusion, these apply when the contracting authority is aware that an economic operator, or a person who manage the economic operator in question, has been the subject of a conviction by final judgement for participation in a criminal organization, corruption, fraud affecting the EU's financial interests, terrorist offences, child labor and money laundering or terrorist financing as defined in the legal acts referred to therein.186 The same applies to an economic operator that pursuant to a final judicial or administrative decision is in breach of its obligations relating to the payment of taxes or social security contributions. The purpose of the first mentioned mandatory grounds for exclusion is primarily to support EU’s policies of combating crimes with a cross-border dimension, which constitute a central part of the EU 2020 Strategy. As to the discretionary grounds for exclusion, they do not provide for uniform application at EEA level since the EEA States may choose whether or not to apply those grounds for exclusion187 based on the legal, economic or social considerations prevailing at national level.188 Accordingly, to a certain extent, the discretionary grounds for exclusion enable the EEA States to use their purchasing powers to support social policies, such as combating unsound business practices and to secure compliance with general legal requirements. Moreover, the Procurement Directives set out that the EEA States must specify in national law the maximum period for exclusion. Nevertheless, economic operators may prior to the end of the established time-period for exclusion provide evidence that it has conducted sufficient self-cleaning measures which demonstrate its reliability despite the existence of a relevant ground for exclusion. To that end, if the evidence submitted is considered as sufficient, the economic operator in question shall not be excluded.189 As to the selection criteria, contracting authorities are entitled to set out spe- 64 cific criteria relating to the tenderers’ suitability to perform the contract, and rejecting tenderers not fulfilling those criteria.190 However, such criteria must comply with the fundamental principles of EEA law, entailing inter alia that selection criteria must be non-discriminatory and proportionate to the value and objectives of the contract. Furthermore, the selection criteria must comply with the specific requirements of the Procurement Directives. As to the Public Sector 185 Joined Cases C-21/03 and C-34/03, 3.3.2005, Fabricom. 186 Member States may only derogate from these mandatory grounds for exclusion on an exceptional basis, for overriding reasons relating to public interest. 187 However, the contracting authorities may be required by the EEA States to apply those grounds for exclusion, cf. Art. 57(4). 188 Joined Cases C-226/04 and 228/04, 9.2.2006, La Cascina, para. 23. 189 On this subject, see Puender, Preiss and Arrowsmith (eds.), Self-Cleaning in Procurement Law (2009). 190 Dir. 2014/23/EU Art 38 (1); Dir. 2014/24/EU Art. 58; Dir. 2014/25/EU Art. 78 and Dir. 2009/81/EC Art. 40.

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Directive, Art. 58 requires, first, that selection criteria must relate to the economic operator’s suitability to pursue to the professional activity, economic or financial standing or technical and professional ability.191 Second, the selection criteria must be related to the subject-matter of the contract, entailing that they must relate to the performance of the contract being awarded. In sum, these requirements confine the EEA States’ possibility to use the selection criteria to pursue social consideration. This is illustrated by Beentjes, in which the ECJ found that a condition relating to employing long-termed unemployed bore no relation to the checking of the operator’s suitability to perform the contract and thus violated the directive’s rules on selection criteria.192 By comparison, Art. 78 of the Utilities Directive merely states that the selection criteria must be objective and made available to interested economic operators. The difference in wording suggest that contracting authorities and contracting entities within the utility sector enjoy a wider margin of discretion when defining selection criteria compared to contracting authorities under the Public Sector Directive. 5. Award of Contracts 65

Contracting authorities' choice of the winning tender must be based on award criteria which are set out in advance and established in accordance with the Procurement Directives and fundamental principles of EEA law. In contrast to the selection criteria, which relate to the professional qualities of the tenderers, the award criteria relate to the qualities of the tenders. Thus, award criteria constitute the basis for the comparative assessment of the relative value of the tenders and are aimed at identifying the tender which is economically the most advantageous.193 In this respect, in the 2014 Public Sector Directive194 and Utilities Directive,195 the former dichotomy of lowest price versus the most economically advantageous tender has been replaced by the latter as the sole mandatory basis for award of contracts. The purpose of this is to encourage contracting authorities to put more emphasize on cost effectiveness,196 quality, environmental and social considerations in addition to innovation when awarding public contracts. Nevertheless, pursuant to the abovementioned directives, the most economically advantageous tender shall be identified on the basis of the price or cost, whereas it may include the best price-quality ratio, implying that contracting authorities may still apply price as the sole award criteria unless otherwise provided by the EEA State in question. 197 191 To this end, economic operators are in general entitled to relay on the capacity of other entities, but contracting authorities may on certain conditions restrict that right, cf. Case C-324/14, 7.4.2016, Partner Apelski Dariusz, Case C-387/14 Esaproject, 4.5.2017, para. 48-49 192 Case C-31/87, 20.9.1988, Beentjes, para. 28. 193 Recital 90 of Dir. 2014/24/EU. 194 Art. 67 of Dir. 2014/24/EU. 195 Art. 82 of Dir. 2014/25/EU. 196 Cf. Dir. 2014/24/EU Art. 68 on life cycle costs.

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As to the award criteria based on the best price-quality ratio, the Procure- 66 ment Directives set out a non-exhaustive list of possible award criteria. In line with the case law of ECJ, there is no requirement that such award criteria must be of a purely economic nature,198 allowing ample scope for the contracting authority to include non-economic criteria, such as social and environmental considerations, when defining the award criteria. However, such criteria must comply with other requirements set out in those directives and fundamental principles of EEA law. First, contracting authorities may only chose award criteria suitable to identi- 67 fy the tender which is economically the most advantageous. In particular, this imply that contracting authorities are not allowed to apply criteria for award of contract which essentially are linked to the tenderers’ ability to perform the contract in question, that is, selection criteria. This was stated in Linikais,199 in which the ECJ found that criteria relating to the tenderers general experience, manpower and equipment concern the tenderers’ suitability to perform the contract and therefore did not have the status as award criteria. However, in Ambisig the ECJ clarified that the professional merits of the personnel assigned to performing the contract may constitute an intrinsic characteristic of the tender which may be suitable to assess the quality of the tenders, and accordingly, such considerations may be included as award criteria.200 Second, the award criteria must be linked to the subject-matter of the con- 68 tract in question. As stated above, this requirement should be interpreted broadly. This is illustrated by Commission v Netherlands, in which the ECJ found that “there is no requirement that an award criterion relates to an intrinsic characteristic of a product, that is to say something which forms part of the material substance thereof”.201 Accordingly, contracting authorities are entitled to set out award criteria relating to any aspect of the procurement in question throughout the life cycle of the service, supply or works in question, ranging from the extraction of raw materials to the stage of disposal of the products concerned. This allows ample scope for integration of social and environmental considerations in the award criteria, such as criteria relating to fair trade origin, resource efficiency and waste minimization.202 However, the requirement for a link to the subject-matter excludes criteria relating to the general corporate policy of the potential tenderers, implying for instance that contracting authorities are 197 Cf. Recital 90. See also Case C-247/02,7.10.2004, Sintesi, paras. 40-42, according to which the EEA States may not impose upon contracting authorities to use only the criterion of lowest price. 198 Case C-368/10, 10.5.2012, Commission v Netherlands. 199 Case C-532/06, 24.1.2008, Liniakis, paras. 25-35. 200 Case C-601/13, 26.3.2015, Ambisig, paras. 31-33. In line with this, Art. 67(2) b of the Public Sector Directive sets out that award criteria may relate to organization, qualification and experience of staff assigned to performing the contract, where the quality of the staff assigned can have a significant impact on the level of performance of the contract. 201 Case C-368/10, 10.5.2012, Commission v Netherlands, para. 91. 202 Recital 97 of Dir. 2014/24/EU.

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not entitled to take into consideration whether all the goods in the tenderers' product range are fair trade regardless of whether they concern the products to be delivered under the contract in question.203 This is illustrated by Wienstrom, in which the ECJ did not accept an award criterion relating to the tenderers’ capacity to provide the largest amount of electricity in excess of the supply to be purchased under the contract, as that criterion related to supply of energy to the tenderers’ other customers and not the contracting authority.204 69 Third, the ward criteria must not confer an unrestricted freedom of choice on the contracting authority.205 To this end, the chosen criteria must be objectively quantifiable and must be accompanied by specifications enabling the tenderers to provide information which verify the fulfillment of the criteria in question. This was established in Wienstrom, in which the contracting authority did not have technical ability to verify whether the requested supply of energy had been generated from renewable energy sources, and therefore, the tenderers were not requested to provide proof of fulfillment of the award criterion at issue. The ECJ found that the principles of equal treatment and transparency imply that the contracting authority must be able to verify effectively whether the tenders submitted meet the award criteria, and accordingly, the award criterion in question was contrary to EU procurement law.206 70 Finally, the award criteria must be adopted in accordance with the procedural rules in the in the Procuring Directives, in particular the requirement for advertising, and must otherwise comply with the fundamental principles of EEA law. The latter entails inter alia that the contracting authority must not alter the award criteria after the publication of a contract notice.207 6. Conditions for contract performance 71

Pursuant to the Procurement Directives, contracting authorities are entitled to set out special conditions relating to how the contract should be performed. In comparison to the award criteria, contract performance conditions have no impact on the contracting authority's comparative assessment of the tenders’ quality. Instead, the tenderers must simply accept such conditions, without providing proof of compliance in the tenders at the time of submitting the tenders. Tenders which, on the other hand, do not accept fundamental contract requirements shall in line with the principle of equal treatment be rejected from the award procedure.208

203 Opinion of the General Advocate in Case C-368/10, 10.5.2012, Commission v Netherlands, para. 111. 204 Case C-448/01, 4.12.2003, Wienstrom, paras. 67-68. 205 Case C-513/99, 17.9.2002, Concirdia Buss Finland, para. 61; Case C-19/00, 18.10.2001, SIAC Construction, para. 35-44. 206 Case C-448/01, 4.12.2003, Wienstrom, para. 50. 207 Case C-448/01, 4.12.2003, Wienstrom, para. 94, Recital 81 Dir. 2014/24/EU. 208 Case C-243/89, 22.6.1993, Commission v Denmark, paras. 39-43.

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Moreover, the Procurement Directives do not lay down exhaustive rules re- 72 garding special conditions relating to the contract. Similar to the award criteria, contracting authorities have great freedom to set out conditions for performance of contracts, provided that they are linked to the subject-matter of the contract and indicated in the tender documents. Accordingly, as with award criteria, contracting authorities are allowed to integrate social and environmental considerations in the contract performance requirements. The preamble set out several examples of such requirements, including employment of long-term job-seekers or implementation of training measures for young people, provided that such conditions relate to the performance of the contract in question.209 Similar, in Commission v Netherlands, the ECJ found that the requirements relating to fair trade origin of the products in question were covered by the concept of conditions for performance of contract.210 However, conditions for performance of contract must comply with EEA 73 law, including the Procurement Directives. The latter is illustrated by Wroclaw,211 in which the ECJ ruled on the question of whether contracting authorities are permitted to impose limitations on the use of subcontractors in a works contract by requiring that a future successful tenderer must itself perform a certain percentage of the works in question. The ECJ found that even though the requirement in question was covered by the notion of contract performance conditions, the requirement was contrary to Article 48 (3) of Dir. 2004/18 providing that tenderers are entitled to use subcontractors for the performance of a contract. Pursuant to that provision, contracting authorities are indeed entitled to restrict use of subcontractors for the performance of essential parts of the contract in question provided that the contracting authority has not been in a position to verify the professional qualities of the subcontractors when examining the tenders.212 However, the restriction on use of subcontractors set out by Wroclaw did not fulfill those conditions as the limitation on use of subcontractors was fixed in abstract terms, without regard to the character of the tasks it would be concerned, and irrespective of the possibility to verify the professional qualities of the subcontractors.213 Finally, the principles of equal treatment and transparency imply that con- 74 tracting authorities may not substantially amend contract performance condition, implying an obligation to enforce the terms of the contract in cases of breach of contract.214

209 210 211 212 213

Recital 99. Case C-368/10, 10.5.2012, Commission v Netherlands, paras. 75-76. Case C-406/14, 14.7.2016, Wroclaw, paras. 31-37. Case C-314/01, 18.3.2004, Siemens and ARGE, para. 45. Another example is Case C-115/14, 17.11.2015, RegioPost, regarding contract conditions requiring tenderers and their subcontractors to undertake to pay a minimum wage to staff performing the services covered by the contract. 214 Art. 72 of Dir. 2014/24/EU and Case C-454/06, 19.6.2008, Pressetext, para. 34, discussed in Section II.7 above.

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V. National judicial review and enforcement

In order to secure an internal market with level playing field for all businesses within EEA, the EU has adopted the Remedies Directives.215 These instruments set out minimum national review standards ensuring availability of effective means of redress within the scope of the Procurement Directives.216 76 At the outset, the Remedies Directives provide that the EEA States must ensure that review procedures are available, under detailed rules which they themselves may establish, to any economic operator having or having had an interest in obtaining a particular contract and who has been or risks being harmed by an alleged infringement. To this end, the EEA States must adopt measures necessary to ensure that decisions taken by contracting authorities in public award procedures may be reviewed effectively and as rapidly as possible. However, it rests with the EEA states to choose whether such procedures shall be brought before national courts or national tribunals. In any event, the Remedies Directives require that three types of remedies must be available before national review bodies. First, national review bodies must have powers to take interim measures, aiming at correcting alleged infringement or preventing further damage. Second, national law must provide for set aside remedies, entailing that the review body must have powers to cancel or render ineffective unlawful decisions taken by contracting authorities. Third, national review bodies must have powers to award damages to persons harmed by an infringement.217 77 As to procurements falling outside the Procurement Directives, there are no rules similar to that of the Remedies directive governing national enforcement and remedies for breaches of primary law.218 Nonetheless, it follows from case law that economic operators are entitled to effective judicial protection of rights enshrined in primary law, including the principles of equal treatment and transparency.219 Furthermore, the ECJ has stated that once a cross-border interest is established, any economic operator within the EEA area may allege infringe75

215 Council Dir. 89/665/EEC as amended by Dir. 2007/66/EC and Council Dir. 92/13/EEC as amended by Dir. 2007/66/EC. These acts are referred to in points 5 and 5 a of Annex XIV EEA, see Section IV below. These directives are discussed in more depth by Schmauch, ‘Public Procurement’ in: Baudenbacher (ed), The Handbook of EEA Law (2016), pp. 605-624. 216 Furthermore, within the field of public procurement, ESA has powers in the EFTA pillar that correspond to those of the European Commission within the EU pillar. ESA’s functions and powers concerning public procurement are governed by the Surveillance and Court Agreement, see further on this the comments by Bjørgan on Art. 23 SCA. 217 In Norwegian law, economic operators are entitled to damages in form of loss of profit if the tenderer can prove, first, that the contracting authority has committed a material breach of the procurement law, and second, that there is a clear preponderance that the tenderer would have been awarded the contract if the breach had not been committed, cf. Rt. 2001 p. 1062 Nucleus. 218 This topic is discussed by Brown, ‘EU Primary Law Requirements in Practice: Advertising, Procedures and Remedies for Public Contracts Outside the Procurement Directives’, Public Procurement Law Review 5 (2010), pp. 169-181. 219 2006 Communication [2006] (OJ C-179/2), p. 6-7 and case law cited therein.

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ment of the transparency obligation deriving from primary law before national courts, even where the economic operator in question is established in the same EEA State as the contracting authority.220 As to the remedies for breach of primary law, the absence of EEA rules on 78 remedies for procurements outside the scope of the Procurement Directives entails that it is for the domestic legal system to lay down enforcement rules safeguarding the rights of the EEA Agreement. However, such rules must, first, comply with the principle of equivalence, implying that national rules on remedy must be no less favorable than those governing similar domestic actions. Second, national enforcement rules must obey the principle of effectiveness, implying that national enforcement rules must not render practically impossible or excessively difficult to exercise the rights enshrined in the EEA Agreement.221 In general, there may be several appropriate solutions for national authorities 79 to remedy non-compliance with the principles of equal treatment and transparency, such as reopening of the tenderer procedure.222 In particular, the EFTA Court has ruled that the principles of equal treatment and transparency ‘do not necessarily’ require the national authorities to terminate a contract or the national court to set aside award decisions affected in case of non-compliance with those principles.223 It may be argued that the EFTA Court by this implies that national courts, in exceptional cases, in fact may be obliged to set aside an award decision or to terminate a contract, for instance in which there has been sufficiently serious breaches of the principles of equal treatment and transparency which cannot be redressed by other means.

Article 65(2) [Intellectual property rights] 2. Protocol 28 and Annex XVII contain specific provisions and arrangements concerning intellectual, industrial and commercial property, which, unless otherwise specified, shall apply to all products and services.

I. Introduction: Intellectual Property in the EEA

Intellectual property (IP) is an important part of modern market economy. 1 Therefore, it is not surprising that much of the EU acquis in the field is covered by the EEA Agreement.1 The core provision in this respect is Art. 65(2), which is mainly a ‘reference provision’ in that it refers to other legislative instruments 220 221 222 223 1

Case C-221/12, 14.11.2013, Belgacom, para. 32. Case E-24/13, 29.8.2014, Wolfgang Egger, para. 69. This provides that the contract in question is not yet concluded. Case E-24/13, 29.8.2014, Wolfgang Egger, para. 70. See Blanchet et al, The Agreement on the European Economic Area, 1993, p. 118, who point out that “[t]he EC and the EFTA experts were … very keen on putting genuine intellectual property provisions in the EEA Agreement, as these are one of the essential elements of the proper functioning of the free movement of goods”.

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as far as the further content of the IP rules under the EEA Agreement is concerned. That goes even for the question what is meant by the term ‘intellectual, industrial and commercial property’, which will follow from Protocol 28 Art. 1 and existing and future contents of Annex XVII.2 One specific feature of Art. 65(2) has independent significance, though, namely the statement that ‘unless otherwise specified’ the provisions of Protocol 28 and Annex XVII ‘shall apply to all products and services’ The meaning of this statement will be discussed further in sec. II below. 2 Protocol 28 contains specific rules and obligations regarding IP in the EEA, which must be read on the background of the time at which the EEA Agreement was concluded (1992). The rules will be presented in sec. III infra. 3 Annex XVII contains the legislative acquis of the EEA in the field of IP, i.e. directives, regulations and decisions that were part of the Agreement originally, including the so-called ‘additional package’ of legislation enacted between the adoption of the Agreement and its entry into force,3 and legislation that have been adopted as a result of decisions of the EEA Joint Committee. This includes all EU Directives in the field of copyright and neighboring rights adopted until 2012, with necessary EEA amendments.4 On the other hand, it means that the Directive on collective rights management and multi-territorial licensing of rights in musical works for online uses of 2014 is not yet (spring 2017) part of the EEA Agreement, despite its undisputable EEA relevance and the fact that the deadline for the EU Member States implementation of the directive already has run out.5 The time gap demonstrates the problem with the legislative process in the EEA in this highly dynamic field. The same goes for the Trade Mark Directive, as the Directive of 2008,6 which replaces the original Directive of 1989 – and not the latest Directive of 20157 – (as of spring 2017) still is the current legislative instrument for the EFTA states. 4 Otherwise, Annex XVII includes the Directive and various decisions regarding the legal protection of topographies of semiconductor products (“chips”),8 the Regulation concerning the supplementary protection certificate for medicinal products (SPC),9 the Plant Protection Regulation,10 the 2 See sec. II, infra. 3 See Blanchet et al, The Agreement on the European Economic Area, 1993, p. 131. 4 See Dir. 2009/24/EC on the legal protection of computer programs (Annex XVII point 5); Dir. 96/9/EC of on the legal protection of databases (point 9 a); Dir. 2006/116/EC on rental and lending rights etc. (point 9 g); Dir. 93/93 on copyright and related rights applicable to satellite broadcasting and cable retransmissions (point 8); Dir. 2001/29/EC on copyright and related right in the information society (Infosoc) (point 9 e); Dir. 2001/84/EC on the resale right for the benefit of the author of an original work of art (point 9 c); Dirs. 2006/116/EC and 2011/115/EC on the term of protection of copyright and certain related rights (point 9 f); Dir. 2012/28/EU on certain permitted uses of orphan works (pt 9 h). 5 See Art. 43 of Dir. 2014/28/EU (10 April 2016). 6 Dir. 2008/95/EC (Annex XVII point 9 h). 7 Dir. (EU) 2015/2436. 8 Dir. 87/54/EEC and Annex XVII point 1-3. 9 Reg. (EEC) 1768/92 (Annex XVII pt 6).

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Design Directive11 and the Directive on the legal protection of biotechnological inventions.12 In addition, it is also stated that the Contracting Parties should ‘take note of’ the content of’ the Council Resolution on increased protection for copyright and neighbouring rights13 and the Commission Communication on intellectual property rights and standardization.14 This positive enumeration of the contents of Annex XVII implies on the other hand that there are EU legislative instruments that fall outside the scope of the EEA Agreement, also beyond the ‘time gap’ problem. We will come back to this in sec. II below. Indeed, the rules on free movement of goods and services of the main part of 5 the EEA Agreement also play an important role in the field of intellectual property. Reference to intellectual property is found in Art. 13 EEA, which in accordance with the correspondent provision of Art. 36 TEUF, confirms that the prohibitions on import and export restrictions in Arts. 11 and 12 may be justified on grounds of ‘industrial and commercial property’ – an expression which by the ECJ (and to some extent also the EFTA Court) has been interpreted as equivalent to what we normally call ‘intellectual property’.15 Additionally, the competition rules, both in the main agreement and those entailed in the secondary legislation, have – in the same manner as in EU law – great impact on IP.16 To be sure, the case law applying the free movement and competition rules on IP in the EEA is so far very sparse, limited to free movement issues in parallel imports cases which will be elaborated on in sec. V 2 below. II. Scope and coverage 1. ‘Intellectual, industrial and commercial property’

As pointed out above, the term ‘intellectual, industrial and commercial 6 property’ in Art. 65(2) contains in fact a reference to Protocol 28 on ‘Intellectual Property’ and Annex XVII. Art. 1(1) of Protocol 28 states that “[f]or the purposes of this protocol … the term ‘intellectual property’ shall include the protection of industrial and commercial property as covered by Art. 13 of the Agreement”. Thus, the article refers back to the contents of the free movement provision, and the case law of the ECJ is relevant in this respect due to the aim of homogeneity.

10 11 12 13 14 15

Reg. (EC) 1610/96 (Annex XVII point 6 a). Dir. 98/71/EC (Annex XVII point 9 b). Dir. 98/44/EC (Annex XVII point 9 d). Resolution 92/C 138/01. COM(92) 445 final. See eg. Joined Cases 155/80 and 157/80, 14.7.1981, GEMA, para. 12; Case E-1/98, 24.11.1998, Astra, para. 25; Joined Cases C-403/08 and C-429/08, 4.10.2011, Premier League, para. 94. 16 See eg. Joined Cases 56/64 and 58/64, 13.7.1966, Consten Grundig; Joined Cases 241/91 and 242/91, 6.4.1995, Magill; Case T-201/04, 17.98.2007, Microsoft; Joined Cases C-403/08 and C-429/08, 4.10.2011, Premier League, para. 134 et seq.

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It follows that the term ‘industrial and commercial property’ comprises copyright and related rights in addition to ‘industrial property’ like patents, trademarks and designs. The insertion of the term ‘intellectual property’ in the EEA provisions reflects the fact that copyright, at the time of the drafting of the Agreement, was included.17 Later case law of the ECJ shows that the term is also likely to expand beyond traditional intellectual property, so as to comprise protection of sporting events even though such events “cannot be protected under copyright” and it is, “moreover, undisputed that European Union law does not protect them on any other basis in the field of intellectual property”. The reason given is that “sporting events, as such, have a unique and, to that extent, original character which can transform them into subject-matter that is worthy of protection comparable to the protection of works, and that protection can be granted, where appropriate, by the various domestic legal orders”.18 This shows the broad take on the concept of intellectual property of the ECJ. The reference in Art. 1(1) of Protocol 28 to the term ‘industrial and commercial property’ in Art. 13 EEA indicates, along with the homogeneity principle, that the concept is equally broad in an EEA context. As far as the scope of Annex XVII is concerned, the current acquis includes mostly traditional intellectual property, including however, topographies of semiconductor products. Whether also for example the Trade Secrets Directive will be included in Annex XVII, despite the fact that the recital of the directive contrasts protection of trade secrets with ‘intellectual property rights’, will depend on the future decision of EEA Joint Committee.19 Being based on Art. 114 TEUF on the functioning of the internal market, the Directive is in any case EEA relevant. 2. EEA relevance

8

This leads us to the question of EEA relevance and the scope of the EEA Agreement. Because of the maintenance of the (formal) decision making-autonomy of the EFTA States, the regulations on unitary trademarks and designs respectively are left outside the scope of the EEA law and are therefore not included in Annex XVII. The same goes for the EU legislation on unitary patents which exclusively apply to the EU countries.20 More surprisingly, also the Directive on Enforcement of Intellectual Property (the IPRED-directive) is held outside the scope of the EEA Agreement, although it is stated in the directive that it is ‘EEA relevant’.21 When deciding upon the concrete relevance of the directive, the EEA Joint Committee accepted the argument of the Norwegian Government that procedural rules are outside the scope of the EEA Agreement.

17 18 19 20

See Blanchet et al, The Agreement on the European Economic Area, p. 119. Joined Cases 408/08 and 429/08, 4.11.2011, Premier League, paras. 99 and 100. Dir. (EU) 2016/943 Recitals 1 and 2. Reg. 1257/2012 implementing enhanced incorporating in the area of the creation of unitary patent protection, Art. 3(1) and Art. 2(a). 21 Dir. 2004/48/EC.

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The consistency of this holding is disputable, both on the background of the fact that procedural rules in other fields, like public procurement,22 are included in the agreement, and that specific rules on procedure and sanctions in other IP Directives, are not excluded from applying to the EEA.23 Ironically, the Norwegian Government has since gone far in the direction of implementing the Directive on a voluntary basis, but the Directive itself remains outside the scope of the EEA Agreement. 3. The impact of the lack of coordinated third country policy

Another limitation in the scope of the EEA Agreement which affects the field 9 of intellectual property is its lack of coordinated policy on third country relations, including the facts that the agreement contains neither a customs union nor a common commercial policy. This is indeed an important difference to the European Union, but the implications must on the other hand not be overstated in this context. In relation to trade with third countries, intellectual property rights (IPRs) are in many way ‘two faced’ in that the question whether IPRs can be invoked in order to prevent transactions originating in a third country not only is a trade policy question but also a question about the scope of the IPRs of the Contracting Parties. This is evident from the reasoning of the ECJ in Case C-355/96 Silhouette, where the Court for the first time held that the Trade Mark Directive (of 1989) had to be interpreted as to oblige the Member States to provide for a rule of so-called mandatory EEA-regional exhaustion of trademark rights.24 While Art. 7(1) of the Directive stated that the trademark rights did not entitle the right holder to prohibit the use of the trademark in relation to goods put on the market in the Community (EEA) by the right holder or with his consent, the question was whether this was to be understood a contrario, to give the right holder the right to oppose to the sale of goods put on the market outside the Community (EEA). When answering the question in the affirmative, the ECJ pointed out that Art. 7 was “not intended to regulate relations between Member States and non-member countries but to define the rights of proprietors of trade marks in the Community”.25 This holding stood in contrast with the opinion of the EFTA Court in Case E-2/97 Maglite delivered seven months earlier, where that Court held that the EFTA states were free to introduce or maintain rules on international exhaustion of trade mark rights, with the result that the right holder could not oppose imports from third countries.26 The EFTA Court put forward several arguments in favor of this result, including the fact that “the EEA Agreement does not establish a customs union, but a free trade area” and that it “does not entail a common commercial policy towards third countries”.27 In Joined 22 23 24 25 26

See Art. 65(1) supra. For example, Dir. 2001/29/EC (Infosoc) Art. 8(3) on injunctions for Internet intermediaries. Case C-355/96, 17. 7.1998, Silhouette. Silhouette para. 29. Case E-2/97, 3.12.1997, Maglite.

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Cases E-9/07 and E-10/07 L’Oreal decided more than a decade later, the EFTA Court nevertheless deviated from its position in Maglite, resigning to the view of the ECJ.28 4. Application to ‘all products and services’

This leads to the express statement in Art. 65(2) EEA that Protocol 28 and Annex XVII shall apply to ‘all products’ (and services specified) unless otherwise specified. It is reasonable to read this statement on the background of the limitations of the scope of free movement of goods (FMG), cf. Art. 8(2) limiting the FMG rules in Arts. 10-15 of the Agreement to goods originating in the EEA and 8(3) which in effect implies that the rules of the EEA Agreement do not apply to agricultural and fisheries products ‘unless otherwise specified’. Thus, the ‘all products’ statement in Art. 65(2) on the face of it appears to be a lex specialis in relation to the limitations of Art. 8.29 Still, the EFTA Court in Maglite referred to the limitation in Art. 8(2) as another argument in favor of its view that the EFTA states were free to introduce or maintain a rule on international exhaustion of trade mark rights. The argument seemed to be that as long as products originating outside the EEA are not comprised by the free movement of goods, unlike what is the situation in the EU, there is no reason for obliging the EFTA states to regulate trade with such products altogether. 11 Also on this point the EFTA Court changed its position in L’Oreal as Art. 65(2) in that case became an important part of the reasoning why a mandatory rule on regional exhaustion of trademark rights should apply to the EEA as well. The EFTA Court emphasized that “[a]ccording to Art. 65(2) EEA, the provisions contained in Protocol 28 and Annex XVII ‘shall apply to all products’, ‘unless otherwise specified’” and that “[a]rticle 65(2) does not make a reservation against rules providing for mandatory EEA wide exhaustion of rights relating to goods originating from outside the EEA”.30 This de facto deviation from Maglite confirms that the reference to ‘all products’ in Art. 65(2) shall prevail over the limitation of the free movement of goods rules in Art. 8 as far as IPRs are concerned. 10

III. Special EEA provisions 12

In addition to the adoption of the EU acquis, there are also – as outlined in the introduction – some special EEA provisions with regard to intellectual property

27 Maglite para. 27. 28 Joined cases E-9/07 and E-10/07, 8.7.2008, L’Oreal para. 31-36.See further Rognstad, ‘Intelletual Property Law’ in: Baudenbacher (ed), The Handbook of EEA Law, 2015, pp. 703-720, at pp. 710-712. 29 See Blanchet et al., The Agreement on the European Economic Area, 1993, p. 119. See also Norberg et al., EEA Law, 1992, p. 587, although admitting that the situation “is not … clear”. 30 L’Oreal para. 33.

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laid down in Protocol 28. Here, the further content and implications of these provisions shall be briefly discussed. 1. General obligations

The provisions in Arts. 1(2) and 1(3) of Protocol 28 on obligations on part of 13 the Contracting Parties to adjust their legislation to the general rules on free movement of goods and services and, on part of the EFTA States, to adhere to the rules of the Protocol and Annex XVII respectively to reach at least the level of IP protection in the Community at the time of the signature, need no further comment. That the states are obliged by the obligations laid down in the agreement goes without saying, and the point of the provisions was rather to underscore the importance of the adjustment to the necessary protection levels at the time of the entering into of the agreement.31 2. Exhaustion of rights

Also Art. 2 on exhaustion of rights seems from some point of view superflu- 14 ous, but has on the other hand caused certain interpretation problems. The provision reads “[t]o the extent that exhaustion is dealt with in Community measures or jurisprudence, the Contracting Parties shall provide for such exhaustion of intellectual property rights as laid down in Community law. Without prejudice to future developments of case-law, this provision shall be interpreted in accordance with the meaning established in the relevant rulings of the Court of Justice of the European Communities given prior to the signature of the Agreement.” In principle, this rule would follow from the facts that (i) the ECJ already had developed a principle of exhaustion under the free movement of goods rules in the Treaty of Rome (corresponding to TFEU), meaning that once a product is put on the market in one Member State by the right holder or with his consent, IP rights could not be invoked to prevent the importation into other states, (ii) that the principle also was expressed at the time of the signature of the EEA agreement, and (iii) the obligation to interpret the provisions in accordance with case law of the ECJ prior to the signature date already followed from Art. 6 EEA. Protocol 28 Art. 2(1) underscores, however, specifically the parties’ intention 15 to extend the exhaustion principle to the EFTA States, the importance of which is reflected in the previous decision of the ECJ in Case 270/80 Polydor. In that case, the Court held that the free movement of goods provisions in the bilateral trade agreement between the European Community and the former EFTA state Portugal, gave no rise to exhaustion of copyrights.32 In order to prevent the same applying to the EEA context, it was considered important that the extension of the exhaustion rule to the EEA was expressed explicitly in the agreement.

31 See further Blanchet et al., The Agreement on the European Economic Area, 1993, pp. 120-121. 32 Case 270/80, 9.2.1982, Polydor paras. 14-23.

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The reference to ‘Community measures’ in Art. 2(1) obviously also points to the fact that the exhaustion rule is laid down in the secondary legislation in addition to following from the free movement of goods. At the time of the signature of the Agreement that meant the Trademark Directive and the Computer Program Directive, but later legislation, also added to Annex XVII, include further specific exhaustion provisions in the fields of designs and copyright and related rights. 17 The reference to ‘such exhaustion … as laid down in Community law’ apparently implies the extension of the Community (EU) exhaustion to the EEA, but the exhaustion rules of the Directives also gave rise to another problem, which was mentioned in section II above, namely whether they should be interpreted as to oblige the Member States to provide for Community (EU) exhaustion only (regional exhaustion). When the ECJ answered the question in the affirmative with regard to the Trade Mark Directive in Case C-355/96 Silhouette, and in Case C-479/04 Laserdisken33 concerning the Infosoc Directive (copyright), it could be likely to read ‘such exhaustion’ as a reference to that the same should apply to the EEA. 18 Nevertheless, when the EFTA Court in Case E-2/97 Maglite rejected mandatory regional exhaustion of trademarks in the EEA context, the Court pointed to the fact that there was no case law on the issue neither at the time of the signature of the EEA agreement nor at the time of the decision. Consequently, the EFTA Court found that Art. 2(1) of Protocol 28 a priori was limited to confirming the principle of EEA wide exhaustion and was not relevant to whether the EFTA States still might provide for international exhaustion.34 In Joined Cases 9/07 and 10/07 L’Oreal, decided after both Silhouette and Laserdisken, however, the EFTA Court emphasized that the provision “[a]lows for the incorporation into Annex XVII of legal acts providing for mandatory EEA-wide exhaustion of rights, regardless of the origin of the goods to which the rights relate”. The Court referred to the statement in the provision saying that it is “[w]ithout prejudice to future developments of case law”35 and noted that “Article 2(1) of Protocol 28 does not exclude mandatory EEA-wide exhaustion of trade mark rights as one of the possible ‘future developments’ in the case law of the ECJ which, implicitly, would be relevant also for EEA law”.36 Concluding that it “is clear that the EEA Agreement foresees the possibility of mandatory EEA-wide exhaustion of intellectual property rights, also in relation to goods”,37 the EFTA Court makes it evident that the reference to ‘such exhaustion’ in Protocol 28 Art. 2(1) includes also mandatory rules on non-exhaustion, as long as they are provided for in EU law.38 16

33 34 35 36 37

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3. ‘Community’ and European patents

Art. 3(1) of Protocol 28 contains an obligation on part of the EFTA States to 19 “use their best endeavors to conclude within a period of three years after the entry into force of the Agreement relating to Community Patents (89/695/EEC) negotiations with a view to the participation of the EFTA States in that Agreement”. The obligation has historical interest only, since said agreement never entered into force and the efforts to create a Community Patent has been replaced by the regulation and agreements surrounding the Unitary Patent. One question that could be raised is whether the obligation could apply by analogy to the Unitary Patent, but since this to date only applies to the EU Member States,39 the option is ruled out for the moment. If this situation changes in the future, however, for example as a result of Brexit,40 Art. 3(1) could come to play a role, but it is in any case to be remembered that the specific conditions for the EFTA States’ participation must be subject to negotiations (Art. 3(2)) Art. 3(4) obliges the EFTA states to comply with the substantive provisions 20 of the European Patent Convention (EPC). This provision, which aims at a certain level of substantive homogeneity in the patent field, must be read on the background that Finland (which until 1995 belonged to the ‘EFTA side’ of the Agreement), Norway and Iceland at that time had not yet ratified the EPC.41 As these countries mostly had harmonized their national legislations with the substantive provisions of the EPC at the time of the signature of the EEA Agreement,42 the obligation did not require radical changes in domestic law save that for Finland and Iceland pharmaceuticals and foodstuff products were not patentable. Arts. 3(5) and 3(6) therefore contain specific provisions in order for these countries to comply with the requirements of the EPC. 4. Extending protection of semiconductor products

Art. 4 of Protocol 28 gives the Contracting Parties the right to extend the 21 protection of semiconductor products to third countries, This provision must be seen on the background of the fact that Art. 3(6) to (8) of Dir. 87/54 on the legal protection of topographies of semiconductor products about the division of competences between the EU Council, the Commission and the Member States with regard to the extension of the protection provided for by the Directive to 38 See para. 35 second sentence, where the Court noted that “the conclusion, in Maglite, at para. 22, that Art. 2 of Protocol 28 only provided for EEA-wide exhaustion as a minimum requirement was built on the premise that “to date” there was no case law of the ECJ which ruled out international exhaustion of rights”. It follows, conversely, that situation is different now that the ECJ has ruled out international exhaustion of rights. 39 See fn. 20 supra. 40 See e.g. Ohly and Streinz,‘Can the UK stay in the UP system after Brexit?’, 12 Journal of Intellectual Law & Practice, pp. 245-258. 41 The situation is different now, as a result of this provision, Iceland acceding EPC as from 1 November 2004 and Norway 1 January 2008. 42 See Norberg et al., EEA Law, 1992, p. 602.

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third countries do not apply to the EEA.43 Instead, Art. 4 of Protocol 28 applies to the EEA context, and as a result several Council and Commission decisions on third countries extension have been adopted in the EEA with necessary adaptations.44 5. Adherence to International IP Conventions 22

In addition, the Contracting Parties undertook in Art. 5 to adhere to a number of international conventions in the IP field by the 1st of January 1995, including the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works and the Rome Convention on so-called neighboring rights. It is to be noted that ‘Contracting Parties’ in this respect also includes the European Community (Union), which means that the EEA Agreement actually prepared the ground for the EC accession to these conventions. On the other hand, since the obligations were limited to international conventions in force at the time of the signature of the EEA Agreement, they do not apply to important instruments like the so-called Internet Treaties (WIPO Copyright Treaty (WCT) and WIPO Performances and Phonograms Treaty) of 1996, the result of which is that Norway, for quite special reasons, has not yet acceded to these treaties. Since the EU on the other hand has acceded to the treaties, and the obligations following from them are implemented by way of Dir. 2001/29/EC (Infosoc), which is included in Annex XVII EEA, the implications are not believed to be severe. On the other hand, the implications of the WTO Agreement on IP, the so-called TRIPs Agreement, which was under negotiation at the time of the signature of the EEA Agreement, was foreseen, in the sense that pursuant to Art. 6 of Protocol 28 the Contracting Parties agreed to “improve the regime established by the Agreement as regards intellectual property in light of the results of the Uruguay Round negotiations”. To underscore the considered importance of the work of the international organizations and conventions in the field of IP, Art. 7 contains a general obligation on part of the Contracting Parties to “keep each other informed in the context of work within the framework of international organizations and within the context of agreements dealing with intellectual property”. IV. Homogeneity and possible deviations

23

In line with the general homogeneity objective of the EEA Agreement, laid down e.g. in Recital 4 and Art. 1 EEA, the acquis in the field of IP, including both the general principles on free movement and competition and ‘secondary legislation’ in Annex XVII, will be interpreted in accordance with the EU case law on corresponding provisions. There are some challenges in this respect though, not least due to the limitation in scope and coverage under the EEA 43 See Annex XVII point 1 adaptation b). 44 See Annex XVII points 2 and 3.

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Agreement. As pointed out in sec. II above, the differences are, however, not to be exaggerated, and the case law of the EFTA Court eventually shows that although there is a potential for deviation from the homogeneity principle in this field, the Court still will seek homogeneity when possible. That is well illustrated by the Maglite/L’Oreal dichotomy, where the EFTA Court in the first case went far in underscoring the differences between the EU and the EEA with regard to third countries relations, on the background that the ECJ had not yet ruled on the question of international vs regional exhaustion of trademark rights, while it in L’Oreal still gave priority to homogeneity after the ECJ had decided on the issue.45 Another potential ‘gap’ between the EEA and the EU lies in the increasing 24 tendency by the ECJ to refer to the fundamental rights protection of the EU Charter of Fundamental Rights which has no equivalence in the EEA. For, example the ECJ has referred to the ‘property protection’ in Art. 17 of the Charter several times when interpreting Art. 8(3) of the ‘Infosoc Directive’ on the admittance of temporary injunctions against intermediaries.46 Judging from the tendencies of the case law of the EFTA Court, there is reason to believe that the EFTA Court will give priority to homogeneity also in such cases, given that reference still may be made to ‘fundamental rights’ even in the context of the EEA Agreement, since the EFTA states have acceded to the European Convention of Human Rights (including its ‘property protection’ in Art. 1 Protocol 1 of the Convention), and that the EFTA Court in Case E-22/15 Jabbi attached limited importance to the ECJ’s reference to Art. 21 of the EU Charter when interpreting the Union Citzenship Directive in an EEA context. But certainly, each case has to be judged on its own merits. A different question is how the lack of unified IP law is likely to affect ho- 25 mogeneity under the EEA Agreement. So far the problem has not come to its head since the EU Courts tend to interpret corresponding provisions under the Directives and the Regulations on unitary trademarks and designs in the same manner. In this situation, case law concerning the substantive provisions of the Regulations may serve as arguments for the interpretations of the Directives due to the homogeneity principle.47 This situation might change, however, were the ECJ to interpret the Regulations and the Directives differently. A last problem, of a general kind, but still important in a dynamic field like 26 intellectual property is the ‘time gap’ problem. The problem is illustrated by the recent Case E-5/16 Vigeland, where the EFTA Court was asked to give advisory opinion on the interpretation of Dir. 2008/95/EU on trademarks, which at the time of the reference was repealed and replaced by Dir. 2015/2436/EU. As 45 Case E-2/97, 3.12.1997, Maglite, paras. 22 and 25-27 and Joined Cases E-9/07 and E-10/07, L’Oreal, 8.7.2008, paras. 32-33. 46 See e.g. Case C-275/06, 29.1.2008, Promusicae, paras. 61-62; Case C-70/10, 24.11.2011, Scarlet Extended, para. 43; Case C-314/12, 27.3.2014, UPC Telekabel, para. 47. 47 See e.g. the EFTA Court in Case E-5/16, 6.4.2017, Vigeland, para. 44.

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pointed out in sec. I above, the latter directive is, however, not yet included in the EEA agreement. Although there are important differences between the two directives, also with regard to problems subject to the case, it is not believed to have had any impact on the results of the ruling of the EFTA Court. The case will be commented on in sec. V.4. V. Case law 1. Introduction 27

The case law concerning specific EEA issues related to IP is very sparse so far as only six cases have been decided by the EFTA Court. That having been said, the relevant case load as such in the field is by no means meager, since the EU courts have delivered a tremendous amount of decisions, not least in the trade mark field, but also increasingly in the field of copyright and related rights. Given the importance of the homogeneity principle, the guidance that national EFTA states get from the case law of the EU Courts as to how the IP rules of the EEA Agreement is to be interpreted, is hardly of less importance than it is for EU States. Still, the question about the reach of the homogeneity principle in the field gives rise to specific EEA problems. Of the six cases that until now have been decided by the EFTA Court,48 two of them – the already much mentioned Maglite and L’Oreal cases – raised such problems. In the four remaining cases, there were hardly substantive arguments in favor of deviating from homogeneity. These cases are therefore also relevant from an EU law perspective, and in one of the cases the ECJ even explicitly referred to the preceding decision of the EFTA Court. Otherwise, the four first rulings of the EFTA Court were on various issues of parallel imports, while the two latest decisions dealt with other subject matters. 2. Parallel imports

28

To shortly recapitulate the Maglite/L’Oreal saga, which has been mentioned several times already, both cases concerned the question whether the Contracting Parties may allow for parallel imports of trade mark goods from countries outside the EEA under the doctrine of international exhaustion, or if the states had an obligation under the [1989] Trade Mark Directive to give the trade mark holder the right to oppose such imports on the premise that trade mark rights are exhausted only by sale of the products with the consent of the right holder in an EEA state, and not when the same occurred in a third country. Both cases were about imports of goods (Maglite lights and REDKEN cosmetics respectively) produced in the USA and imported from an independent wholesaler there to Norway. As pointed out, the EFTA Court came to different conclusions in the two cases, allowing in case E-2/97 Maglite the EFTA states to maintain interna48 Leaving out Case E-31/15 on the failure of the Icelandic state to implement amendments to the Copyright Term Directive as the case did not deal with substantive issues.

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tional exhaustion and consequently parallel imports from states outside the EEA and reaching the opposite result in joined cases E-9/07 and E-10/07 L’Oreal. Giving priority to homogeneity, the EFTA Court in the latter case followed the ECJ rulings in Case C-355/95 Silhouette and Case C-173/98, Sebago. Consequently, the rule of mandatory EEA-regional exhaustion of trade mark rights now seems to prevail also in the EEA context. The ruling of the EFTA Court in L’Oreal indicates that the same also will apply to other fields of IP regulated by directives, pointing explicitly to the distribution right under the European Copyright Directive.49 Also the EFTA Court’s rulings in Cases E-1/98 Astra and E-3/02 Paranova 29 concerned parallel imports, but in contrast to Maglite/L’Oreal the decisions were about imports from other EEA states. Moreover, the problems that the Court had to deal with in these two cases were quite different. In Case E-1/98 Astra, the question was whether copyright rules giving a phar- 30 maceutical company the right to prevent national authorities from using the pharmaceutical company’s own description of the medicinal product in relation to authorizing a parallel importer’s marketing of the same product, conflicted with the rules on free movement of goods under Arts. 11 and 13 EEA. The EFTA Court answered the question in the affirmative. The Court noted that such right would imply that the parallel importer be required to produce its own description, which is the ‘cornerstone’ of any marketing authorization for pharmaceutical. This would complicate the marketing procedure for the parallel importer and making it more costly, which in itself indicated that the copyright rules would amount to a “measure having an effect equivalent to a quantitative restriction on imports in medicinal products”. In this respect, the EFTA Court cited the ‘Dassonville formula’ of the ECJ under the corresponding provision which today is found in Art. 34 TFEU.50 When assessing whether such restriction could be justified on grounds of the protection of industrial and commercial property pursuant to Art. 13 EEA, the EFTA Court found that it “would lead to an artificial partitioning of the market in the European Economic Area” which “would be disproportionate to the aim of protecting the copyright in the SPC” and “amount to a disguised restriction on trade”.51 The EFTA Court did not refer to any ECJ judgment on this point, but it is 31 submitted that the decision has certain parallels to the ECJ finding in case C-337/95 Dior that a trade mark holder could not invoke its copyright to pictures of the parallel imported products to prevent parallel importers advertising of their products to a larger extent than was permitted under trade mark law.52 Both decisions may be read as implying that copyright cannot be invoked in or49 L’Oreal, para. 34. See further Rognstad, ‘Intellectual Property Law’, in Baudenbacher (ed.), The Handbook on EEA Law, 2015 pp. 703-720, at pp. 709-713, holding that L’Oreal rested on more complete and consistent reasoning than Maglite. For a different view, see Tobler ‘Dispute Resolution under the EEA Agreement’, id., pp. 195-207, at p. 197 with further references. 50 C-1/98, 24.11.1998, Astra, paras. 22-24. 51 Id. para. 25-26.

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der to circumvent results that would follow from the exhaustion of trade mark rights. Thus, one may speak of a principle of ‘accessory exhaustion’.53 Even though exhaustion of trade mark rights was not an issue in Astra, parallel imports would be allowed under the trade mark rules in the situation in question, and invoking copyright to affect the lawfulness of the parallel import was considered as disproportionate and as a disguised restriction on trade. 32 In Case E-3/02 Paranova, no precedents from the ECJ were applicable to solve the issue in question.54 Also this case concerned parallel imports of pharmaceuticals. The parallel importer Paranova had repackaged the original product in accordance with the principles for repackaging of parallel imported products laid down in the case law of the ECJ, but had in addition introduced its own design on the packages. The question which arose in this case was whether the parallel importer was free to carry out such co-branding, on the premise that the repackaging as such was necessary in order for the parallel imported product to have market access in the importing state (Norway),55 or if a ‘necessity requirement’ also applied to the package design. Applying Art. 7(2) of the (1989) Trade Mark Directive, which allows for invoking trade mark rights to parallel imports where there exist ‘legitimate reasons’, the EFTA Court held that once the parallel importer lawfully had repackaged the products in order to achieve market access, he was “to be considered as an operator on basically equal footing with the manufacturer and trade mark proprietor”.56 Imposing the necessity requirement on the market conduct of the parallel importer, and in particular its strategy of product presentation, after having gained market access, would in the EFTA Court’s opinion constitute a disproportionate restriction on the free movement of goods. Thus, the Court struck a line between measures to secure market access, where such necessity requirement applies, and measures regarding the parallel importers’ market conduct, to which it does not apply. 33 The approach has later been endorsed by the ECJ in Case C-348/04 Boehringer II, confirming that “the condition that packaging be necessary is directed only at the fact of repackaging product … for the purposes of allowing that product to be marketed in the importing state and not the manner of style in which it has been repackaged”.57 Although there are some differences in the details, the EFTA Court seeming to emphasize the importance of free movement of 52 See Kur, ‘Händlerwerbung für Markenartikel aus urheberrechtlicher Sicht – Präsentationsrecht als neue Schutzschranke?’, 48 Gewerblicher Rechtschutz und Urheberrecht, Internationaler Teil pp. 24-30 and also Kur, ‘Advertising for parallel imports in the EEA’, in Gorton et al., Festskrift till Gunnar Karnell, 1999, pp. 379-395. 53 See Rognstad, ‘Intellectual Property Law’ in: Baudenbacher (ed), The Handbook on EEA Law, 2015 pp. 703-720, at pp. 719. 54 Case E-3/02, 8.7.2003, Paranova. 55 See Joined Cases C-427/93, C-429/93, C-436/93, 11.7.1996, Bristol Myers Squibb et al., para. 56. 56 Paranova, paras. 44-45. 57 Case C-348/04, 26.4.2007, Boehringer II para. 38. See also Case C-276/05, 22.12.2008, Wellcome para. 25.

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goods while the ECJ rather underscores the trade mark holder’s legitimate interests in controlling the commercialization of repackaged goods, the EFTA Court’s influence on ECJ’s handling of the ‘rebranding’ issue is indisputable.58 The Paranova decision is thus an example of the homogeneity principle working ‘both ways’. 3. Patent law – supplementary protection certificates

The only decision of the EFTA Court in the patent field so far is Case E-16/14 34 Pharmaq concerning so-called supplementary protection certificates (SPC).59 The case arose from a dispute in Norway between two producers of vaccines against viral pancreatic disease (‘PD’) in salmonid fish. One of the parties, Intervet BV, held a patent to any virus strain that causes PD in salmon, covering also the patent of the other party, Pharmaq AS, and was additionally granted a SPC, which gives a supplementary protection beyond the patent term as compensation for the time consuming process concerned with obtaining market authorizations for pharmaceuticals which makes the period of effective protection under the patent insufficient to cover the investment involved in the research. In the case, Pharmaq had challenged the validity and the scope of the SPC before Norwegian courts, and the EFTA Court was asked for an advisory opinion on the interpretation of certain provisions of the SPC regulation (Reg. 1768/92).60 Prior to receiving a market authorization, Intervet had sold the vaccine in Norway and Ireland under special marketing regimes and the first question of the referring court (Oslo District Court) sought guidance as to whether the SPC was invalid on the basis that the vaccine was to be considered ‘placed on the market’ prior to the authorization procedure.61 The EFTA Court confirmed that an SPC for a veterinary medicinal product could be granted in the EEA in accordance with the administrative procedure set out in the Directive on the Community code relating to veterinary medicinal products (VMP Directive).62 Art. 8(1) of that Directive states that Member States in the event of ‘serious epizootic diseases’, may provisionally allow the use of immunological medicinal products without a marketing authorization. The EFTA Court held that this provision did not constitute a marketing authorization within the meaning of the SPC regulation, but left it to the national court to decide whether the sale under the special marketing regimes was carried out in accordance with the VMP Directive, not answering directly the question of the referring court.63 58 See further Rognstad, ‘Intellectual Property Law’, in: Baudenbacher (ed), The Handbook on EEA Law, 2015 pp. 703-720, at 713-717 and 719-720. 59 Case C-16/14, 9.4.2015, Pharmaq. 60 In the European Union, this Regulation has been repealed by Reg. 46/2009, but not yet incorporated into the EEA Agreement, representing another example of the ‘time gap problem’. See para. 1 of the EFTA Court’s decision, where it, however, is pointed out that the relevant provisions of the two regulations are identical. 61 Cf. Reg. 1768/92 Arts. 2 and 3 b and d of Regulation. 62 Dir. 2001/82/EC.

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On the second question, regarding the scope of the SPC protection, the EFTA Court found that the SPC could extend to a specific strain of a virus covered by the basic patent, but not referred to in the marketing authorization, to the extent the specific strain constituted the same active ingredient as the authorized medicinal product hand had therapeutic effects falling within the therapeutic indications for which the marketing authorization was granted. Although Art. 4 of the SPC Regulation entailing that the use of a medicinal product which has not been authorized by the marketing authorization may not be covered by the SPC represented the baseline for the protection, the Court submitted that a different result would “frustrate the purpose of the SPC Regulation, which is to ensure the holder of the basic patent of exclusivity on the market during a given period extending beyond the period of validity of the basic patent”.64 In reaching the result, the Court relied heavily on the case law of the ECJ under the equivalent EU legislation, in particular Case C-631/13 Forsgren. The decision whether the SPC covered the same ‘medicinal product’ was, however, left for the national courts to decide and the Norwegian appellate court finally decided that the scope of the SPC was too broad and consequently invalid.65 4. Trade Mark Protection for Copyright Protected Works

36

The hitherto last decision of the EFTA Court in this field is its advisory opinion in Case E-5/16, Vigeland.66 Here, the Norwegian Board of Appeal for Industrial Property had submitted six questions to the EFTA Court regarding the interface between trade mark and copyright law on the background of the Muncipality of Oslo having filed a number of trade mark applications for the artwork of the Norwegian sculptor Gustav Vigeland, for which the term of copyright protection had recently expired. The Norwegian Intellectual Property Office (NIPO) had refused several of the applications on the ground that the trade marks lacked distinctiveness or were descriptive for the goods or services for which they were applied, and also in some of the cases that the trade mark consisted of a shape that added substantial value to the goods.67 In particular on the background that distinctiveness may be acquired through use of the trade mark,68 the Board of Appeal submitted questions to the EFTA Court as to whether trade mark registration for copyrighted works for which the term of pro63 On the basis of the decision of the EFTA Court, however, Oslo District Court came to the conclusion that the vaccine had not been ‘placed on the market’ prior to the authorization procedure since the sale under the special marketing regime was limited and did not provide for full market access for the products. The decision was repealed by the appellate court on a different ground, see the judgment of Borgarting Court of Appeal 19 December 2016, case LB-2015-170539. 64 Pharmaq, para 86. 65 Judgment of Borgarting Court of Appeal 19 December 2016, case LB-2015-170539. 66 Case E-5/16, 6.4.2017, Vigeland. 67 Norwegian Trade Mark Act Sections 14(1) and (2), cf. section 2; Dir. 2008/95/EC Arts. 3(b), 3(d) and 3(e)(iii). 68 Dir. 2008/95/EC Art. 3(3).

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tection has expired – i.e. works fallen into the ‘public domain’ – can be refused on the ground that the trade marks are contrary to public policy or accepted principles of morality pursuant to Dir. 2008/95/EC Art. 3 f). In this respect it was also asked what impact it would have on the assessment that the work is wellknown and of great cultural value, and whether other criteria as well could have bearing on the assessment. In addition, the Board of Appeal asked questions regarding certain aspects concerning the refusal grounds on which the NIPO had based its decisions. As a point of departure, the EFTA Court emphasized the differences in scope 37 and purpose of copyright and trade mark legislation69 and noted that “the fact that an artwork has previously enjoyed copyright protection may not in itself form the basis for refusing trade mark registration”.70 As to whether there still could be circumstances under which trade mark registration would conflict with public morality or public policy, the Court drew a line between these two concepts. Refusal based on grounds of ‘public policy’, the Court said, “must be based on an assessment of objective criteria whereas an objection to a trade mark based on ‘accepted principles of morality’ concerns an assessment of subjective value”.71 The values relevant for the assessment of the latter had to be determined by 38 reference to the perception of the sign by the relevant public taking the circumstances of the particular EEA State into account. The possibility could not “be ruled out that trade mark registration of an artwork may be perceived by the average consumer in the EEA State in question as offensive and therefore as contrary to accepted principles of morality”. The assessment whether the trade mark conflicts with public morality would have to be carried out on a case-to case basis taking, in the context of the case, “into account the status or perception of the artwork in the relevant EEA state and, where relevant, the nature of the goods and services for which registration as a trade mark has been applied, such that registration must be refused if the work is being misappropriated … [and] the extent to which the sign contains elements, which may lead to a desecration of the work”.72 With regard to the notion of ‘public policy’ the EFTA Court found it refer- 39 ring “to principles and standards regarding to be of a fundamental concern to the State and the whole of society” and that “it is necessary to grant the competent national authorities some discretion” in this respect. Thus, this alternative in Art. 3(1)f) TMD can “only be relied on if there is a genuine and sufficiently serious threat to a fundamental interest of the society” so that “registration of a sign as a trade mark may only be refused as contrary to public policy … in exceptional circumstances”.73 The Court still opened for accepting such refusal for 69 70 71 72

Vigeland, paras. 62 et seq. Para. 88. Para 86. Paras. 89, 92 and 93.

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artworks, “for example, under the circumstances that its registration is regarded as a genuine and serious threat to certain fundamental values or where the need to safeguard the public domain, itself is considered a fundamental interest of society”, leaving it to the referring body to determine whether these requirements are met.74 40 The criteria for refusing trade mark registration of artworks on the ground of public morality and public policy set out by the EFTA Court thus seem to be rather strict, but it is nevertheless noteworthy that the Court accepted that registration may be refused on public policy grounds where there is need to safeguard the public domain.75 The holding stands in a certain contrast to the decision of the German Federal Patent Court in the Mona Lisa case, where the claim that the registration of the Mona Lisa was contrary to public policy (or public morality) was rejected on the ground that trade mark registration of Leonardo Da Vinci’s painting would not violate the principle that cultural expressions must be freely available to the public after the expiry of copyright protection.76 Following the reasoning of the EFTA Court, such claims cannot be rejected as such, but must be considered in light of the circumstances of the case and the rationale behind safeguarding the public domain of cultural expressions.77 Taking into account that there are no reasons for deviating from the homogeneity principle in the case at hand, although it was decided under Dir. 2008/95/EC and not Dir. (EU) 2015/, it is believed that also this decision of the EFTA Court may have impact even on the interpretation of the latter in an EU context. 41 As to the three remaining questions posed in the Vigeland case, the EFTA Court confirmed – in line with case law of the General Court – that the prohibition in Art. 3(1)e)iii) of the TMD 2008 against registration of signs consisting exclusively of the shape which gives substantial value to the goods applies also to two dimensional representations of three dimensional shapes, in the case at hand typically a photograph of the sculpture.78 On the other hand, the Court seems to have misunderstood the intention of the remaining questions,79 which in essence was to seek clarification as to whether the assessment criterion de73 Paras. 94-95. 74 Para. 96. 75 See also the opinion of the European Copyright Society delivered prior to the ruling of the EFTA Court, see https://europeancopyrightsocietydotorg.files.wordpress.com/2016/11/ecs-efta-reference-vigeland-final-1nov 16.pdf. 76 See Vigeland para. 29 with reference. 77 Noteworthy in this respect is also the EFTA Court’s statement at para. 66 that creative content as a matter of principle belongs to the public domain once communicated, and that “the fact that works are part of the public domain is not a consequence of the lapse of copyright protection. Rather, protection is the exception to the rule that creative content becomes part of the public domain once communicated.” This is a wide understanding of the concept of ‘the public domain’. 78 Paras. 110-115 and point 4 of the conclusion. 79 The same misunderstanding is found in the opinion of the European Copyright Society, fn. 75, supra, p. 12.

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veloped under Art. 3(1)b) of the Directive that the shape or appearance of a mark must depart significantly from the norms and customs in the relevant sector,80 also applies to the case in question and even ‘carries over’ to the assessment whether the shape is descriptive for the goods subject to the trade mark application. It may well be that the questions were not formulated clearly enough in that respect, but the pleadings of the Norwegian government shed light upon the intention of the questions.81 The EFTA Court’s answer to the two last questions – that the prohibition on registering descriptive trade marks applies to representations of the shape of the goods and that descriptive marks lacks distinctiveness82 – says, in combination, nothing more than what clearly follows from the case law of the ECJ and well settled trade mark law.

Part V: Horizontal provisions relevant to the four freedoms Chapter 1: Social policy

Article 66 [Improvement of working conditions] The Contracting Parties agree upon the need to promote improved working conditions and an improved standard of living for workers.

Article 66 is based on Art. 117 TEEC, now Art. 153 TFEU.1 The need to pro- 1 mote improved working conditions and improved standard of living for workers2 is also addressed in the Preamble’s eleventh recital.3 Like the statement in the Preamble, Art. 66 is essentially an open-ended political declaration: Protecting social rights and improving working conditions will come about as part of the legislation on worker protection and labour law incorporated into Annex XVIII. The chapter on social policy in the EEA Agreement does not include any 2 reference to fundamental social rights, cf. Art. 151 TFEU. The lack of specific references to fundamental social rights in the main part of the Agreement or in the secondary legislation, may give rise to doubt as to whether or not it is possible to preserve the principle of homogeneity if the different legal frameworks for

80 81 82 1

See case C-97/12, 15.5.2014, Louis Viutton, para. 52, with further references. See a short summary in Vigeland para. 130. See points 5 and 6 of the conclusion. See generally on social policy law within the framework of the EEA, Catherine Barnard, ‘Social Policy Law’, in Baudenbacher (ed), The Handbook of EEA Law, pp. 809-839. 2 See the comments by Fløistad on Art. 28 mn. 44-47 and the concept of a worker with regard to the right of free movement. 3 See the comments by Arnesen and Fredriksen on the preamble mn. 34.

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veloped under Art. 3(1)b) of the Directive that the shape or appearance of a mark must depart significantly from the norms and customs in the relevant sector,80 also applies to the case in question and even ‘carries over’ to the assessment whether the shape is descriptive for the goods subject to the trade mark application. It may well be that the questions were not formulated clearly enough in that respect, but the pleadings of the Norwegian government shed light upon the intention of the questions.81 The EFTA Court’s answer to the two last questions – that the prohibition on registering descriptive trade marks applies to representations of the shape of the goods and that descriptive marks lacks distinctiveness82 – says, in combination, nothing more than what clearly follows from the case law of the ECJ and well settled trade mark law.

Part V: Horizontal provisions relevant to the four freedoms Chapter 1: Social policy

Article 66 [Improvement of working conditions] The Contracting Parties agree upon the need to promote improved working conditions and an improved standard of living for workers.

Article 66 is based on Art. 117 TEEC, now Art. 153 TFEU.1 The need to pro- 1 mote improved working conditions and improved standard of living for workers2 is also addressed in the Preamble’s eleventh recital.3 Like the statement in the Preamble, Art. 66 is essentially an open-ended political declaration: Protecting social rights and improving working conditions will come about as part of the legislation on worker protection and labour law incorporated into Annex XVIII. The chapter on social policy in the EEA Agreement does not include any 2 reference to fundamental social rights, cf. Art. 151 TFEU. The lack of specific references to fundamental social rights in the main part of the Agreement or in the secondary legislation, may give rise to doubt as to whether or not it is possible to preserve the principle of homogeneity if the different legal frameworks for

80 81 82 1

See case C-97/12, 15.5.2014, Louis Viutton, para. 52, with further references. See a short summary in Vigeland para. 130. See points 5 and 6 of the conclusion. See generally on social policy law within the framework of the EEA, Catherine Barnard, ‘Social Policy Law’, in Baudenbacher (ed), The Handbook of EEA Law, pp. 809-839. 2 See the comments by Fløistad on Art. 28 mn. 44-47 and the concept of a worker with regard to the right of free movement. 3 See the comments by Arnesen and Fredriksen on the preamble mn. 34.

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the ECJ, the EFTA Court, and particularly the importance of the Charter, could give rise to different interpretations.4 3 So far, the EFTA Court has relied on the EEA Agreement, both on specific provisions and as a whole. Where possible, the Court has relied on any references to fundamental rights in secondary EU legislation incorporated into the Agreement, to refer to social rights when interpreting EEA law.5 The reference in the Preamble’s eleventh recital to the importance of the development of the social dimension indicates that the evolving social policy in the secondary legislation and in the case law of the ECJ must be implemented into EEA law.6 Generally speaking, the substantive law on social policy and labour law is essentially the same in the EEA as in the EU. A notable exception is Dir. 2000/78 on a general framework for the equal treatment in employment and occupation.7

Article 67 [Health and safety of workers] 1. The Contracting Parties shall pay particular attention to encouraging improvements, especially in the working environment, as regards the health and safety of workers. In order to help achieve this objective, minimum requirements shall be applied for gradual implementation, having regard to the conditions and technical rules obtaining in each of the Contracting Parties. Such minimum requirements shall not prevent any Contracting Party from maintaining or introducing more stringent measures for the protection of working conditions compatible with this Agreement. 2. Annex XVIII specifies the provisions to be implemented as the minimum requirements referred to in paragraph 1.

I. The minimum requirements in an EEA context

Article 67 is based on Art. 118A TEEC, now Art. 153 TFEU: Particular attention shall be paid to the health and safety of workers. The tenth recital in the Preamble also notes the Contracting Parties’ determination to ensure a high level of protection concerning health and safety as a basis for further development of the regulation of the internal market.1 The Contracting Parties may maintain or introduce more stringent measures, but these must be compatible with the EEA Agreement. 2 Just like other similar “gateway” provisions of the Main Part of the Agreement, the wording of Art. 67 promises more than it can hold. In practice, it is not the EEA Contracting Parties who decide on the level of protection offered in the EEA; this is decided by the EU institutions as they enact novel EU legal acts 1

4 See the comments by Sundet on Art. 68. 5 See Fredriksen and Franklin, ‘Of pragmatism and principles’, (2015) Common Market Law Review, pp. 629-684 at pp. 646-650. 6 See the comments by Arnesen and Fredriksen on the preamble, eleventh recital mn. 34. 7 See the comments by Søvig on Art. 70 mn. 29-30. 1 See the comments by Arnesen and Fredriksen on the preamble, 10th recital, mn. 33.

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which the EEA Joint Committee later on incorporates into the EEA Agreement. However, as long as the Union lives up to the objectives set out in Art. 153 TFEU, so will the EEA Contracting Parties adhere to Art. 67 EEA when they add the novel EU social policy rules to the EEA Agreement. II. Annex XVIII – an overview

Secondary EU legislation on health and safety is included in Annex XVIII. 3 In short, the substantive law with regard to the minimum requirements for health and safety at work is the same in the EEA as in the EU. The overview below does not list subsequent changes or supplements to the directives. The EU legal acts concerning minimum requirements concerning health 4 and safety at the workplace incorporated into Annex XVIII include: – Dir. 89/391/EEC on the introduction of measures to encourage improvements in the safety and health of workers at work; – Dir. 89/654/EEC concerning the minimum safety and health requirements for the workplace; – Dir. 89/656/EEC on the minimum health and safety requirements for the use by workers of personal protective equipment at workplace; – Dir. 92/58/EEC on the minimum requirements for the provision of safety and/or health signs at work; – Dir. 2009/104/EC concerning the minimum safety and health requirements for the use of work equipment by workers at work; Annex XVIII further incorporates the directives on the protection of workers 5 against exposure to chemical, physical or biological agents at work: – Dir. 91/322/EEC on establishing indicative limit values by implementing Dir. 80/1107/EEC on the protection of workers from the risks related to exposure to chemical, physical and biological agents at work; – Dir. 98/24/EC on the protection of the health and safety of workers from the risks related to chemical agents at work; – Dir. 1999/92/EC on minimum requirements for improving the safety and health protection of workers potentially at risk from explosive atmospheres; – Dir. 2000/39/EC establishing a first list of indicative occupational exposure limit values in implementation of Dir. 98/24/EC on the protection of the health and safety of workers from the risks related to chemical agents at work; – Dir. 2000/54/EC on the protection of workers from risks related to exposure to biological agents at work; – Dir. 2002/44/EC on the minimum health and safety requirements regarding the exposure of workers to the risks arising from physical agents (vibration); – Dir. 2003/10/EC on the minimum health and safety requirements regarding the exposure of workers to the risks arising from physical agents (noise); Sundet

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– Dir. 2004/37/EC on the protection of workers from the risks related to exposure to carcinogens or mutagens at work; – Dir. 2006/15/EC establishing a second list of indicative occupational exposure limit values in implementation of Dir. 98/24/EC and amending Dirs. 91/322/EEC and 2000/39/EC; – Dir. 2006/25/EC on the minimum health and safety requirements regarding the exposure of workers to risks arising from physical agents; – Dir. 2009/148/EC on the protection of workers from the risks related to exposure to asbestos at work; – Dir. 2009/161/EU establishing a third list of indicative occupational exposure limit values in implementation of Dir. 98/24/EC – Dir. 2013/35/EU on the minimum health and safety requirements regarding the exposure of workers to the risks arising from physical agents (electromagnetic fields). 6

Annex XVIII also incorporates secondary EU legislation on protection against risks in certain work places, working situations or for precarious workers: – Dir. 90/269/EEC on the minimum health and safety requirements for the manual handling of loads where there is a risk particularly of back injury to workers; – Dir. 90/270/EEC on the minimum safety and health requirements for work with display screen equipment; – Dir. 91/383/EEC supplementing the measures to encourage improvements in the safety and health at work of workers with a fixed-duration employment relationship or a temporary employment relationship; – Dir. 92/29/EEC on the minimum safety and health requirements for improved medical treatment on board vessels; – Dir. 92/57/EEC on the implementation of minimum safety and health requirements at temporary or mobile construction sites; – Dir. 92/85/EEC on the introduction of measures to encourage improvements in the safety and health at work of pregnant workers and workers who have recently given birth or are breastfeeding; – Dir. 92/91/EEC concerning the minimum requirements for improving the safety and health protection of workers in the mineral-extracting industries through drilling; – Dir. 92/104/EEC on the minimum requirements for improving the safety and health protection of workers in surface and underground mineral-extracting industries; – Dir. 93/103/EC concerning the minimum safety and health requirements for work on board fishing vessels; – Dir. 2010/32/EU implementing the Framework Agreement on prevention from sharp injuries in the hospital and healthcare sector.

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In addition to these directives, Annex XVIII also incorporates guidelines and 7 recommendations that the Contracting Parties shall take note of: – Communication from the Commission (COM(2000) 466 final, as corrected by COM(2000) 466 final/2) on the Guidelines on the assessment of the chemical, physical and biological agents and industrial processes considered hazardous for the safety or health of pregnant workers and workers who have recently given birth or are breastfeeding (Council Dir. 92/85/EEC); – Council Recommendation 2003/134/EC concerning the improvement of the protection of the health and safety at work of self-employed workers. Autonomous agreements between the Social Partners supplements the regula- 8 tions incorporated into Annex XVIII. For example, the autonomous framework agreement of 8 October 2004 between the social partners outlining different measures to prevent work-related stress, was also implemented in the EEA states, cf. Art. 71 below. III. Effective implementation

Regulations on health and safety at work must be effective and applied at the 9 workplace level, and imposes obligations on the state, employers and workers. The directives on health and safety for workers impose minimum standards to be implemented.2 In Case E-2/10 Kolbeinsson, the EFTA Court was asked whether it was compatible with Dir. 89/331 on safety and health at work and Dir. 92/57 on minimum safety and health requirements at temporary or mobile construction sites, to deny compensation to workers in cases of contributory negligence, even in cases where the accident would not have occurred had the employer complied with the rules regarding safety in the workplace. An Icelandic carpenter had fallen five meters from joists on a temporary construction site and had suffered physical injuries. The employer had not taken any precautions at the workplace. The carpenter’s claim for compensation from the employer was dismissed due to contributory negligence: He had not taken any precautions despite being familiar with the working conditions and having considerable work experience.3 The carpenter then claimed compensation from the Icelandic state, arguing that the defeat in the case against his employer violated his rights under the above-mentioned directives. A first question in the State liability case was thus whether Icelandic tort law violated the obligations flowing from the Directives. Before the EFTA Court, the Icelandic and Norwegian governments argued that matters of civil liability was outside the scope of the directives, but the EFTA Court disagreed:

2 Se comments by Franklin on Art. 3 mn. 20. 3 The essence of the Supreme Court of Iceland’s reasoning in its judgment of 20 December 2005 is reported in the EFTA Court’s advisory opinion in Case E-2/10, 10.12.2010, Kolbeinsson, para. 5.

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The EFTA Court also noted that any sanctions for breaching the duties established by the directives, “must reflect the principle that the employer bears the main responsibility for the safety and health of workers”: “This does not exclude the possibility of attributing responsibility for an accident to an employee who has contributed to the accident through his own negligence. However, save in exceptional circumstances it would be contrary to the principle that the main responsibility lies with the employer to attribute all, or the greater share, of the losses suffered as a result of an accident at work to the employee due to his own contributory negligence when it has been established that the employer, in disregard of his duties according to the Directives, had not on his own initiative complied with rules regarding safety and conditions in the work place. Exceptional circumstances may exist where the employee has caused the accident wilfully or by acting with gross negligence, but even in such cases a complete denial of compensation would be disproportionate and not in compliance with the Directives except in extreme cases of the employee being substantially more to blame for the accident than the employer.”5

11

The EFTA Court noted that possible criminal sanctions against an employer would not be sufficient in order to ensure effective sanctions against possible breaches of the directives on health and safety at the workplace.

Article 68 [Labour law] In the field of labour law, the Contracting Parties shall introduce the measures necessary to ensure the good functioning of this Agreement. These measures are specified in Annex XVIII.

I. Legal context and starting points 1. Legal Context

Article 68 is the basis for implementing legislation based on Art. 118 TEEC, cf. Art. 153 TFEU. Annex XVIII incorporates secondary legislation on labour law, and the substantive labour law is generally the same in the EEA as in the EU. 2 Of the EFTA Court’s case law in the period 1994–2016, about 16 cases are related to social policy and labour law. In some areas, it may be questioned whether the interpretation of EEA law advocated by the EFTA Court deviates from the ECJ’s approach to corresponding provisions in EU law, see comments in Section I.2, IV and V below. 1

2. The relationship between market freedoms and labour law 3

Market regulation is closely connected to labour law. The free movement of workers, as part of the single market, gives the opportunity to seek em4 Case E-2/10, 10.12.2010, Kolbeinsson, para. 47. 5 Case E-2/10, 10.12.2010, Kolbeinsson, paras. 57-58.

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ployment in the Member States on equal footing with national workers.1 But there is an underlying tension between (national) labour law on the one hand and market and competition law on the other: Defending social rights might mean restrictions on the free movement principles. Furthermore, the tension between labour law and market law is not limited to areas within the Union’s competences. According to Art. 153 (5) TFEU, the EU’s competences do not cover “pay, the rights of association, the right to strike or the right to impose lock-out”, and the same limitations are the starting point for the EEA Agreement. The activities of trade unions, including their right to take industrial action, thus fall outside the scope of Art. 153 TFEU. But with the “Laval Quartet”,2 the clash between labour law and the market approach came to the fore, and with it the clash between freedom of association, including the right to collective action and market freedoms.3 With Case E-8/00 LO, Case E-2/11 STX and Case E-14/15 Holship before both the EFTA Court4 and Norwegian courts,5 the clash between fundamental rights and market freedoms is now also a part of the discussion in the EEA. Another aspect of the relationship between labour law and market law, is the 4 principle that competition law does not apply to terms and conditions of work based on collective agreements.6 If an agreement is entered into following collective bargaining between employers and employees, and the agreement pursues the objective of improving conditions of work and employment, competition law will not apply.7 The scope of this “immunity” for collective agreements is of particular importance in the Nordic countries.8 It has been argued in cases before the Norwegian courts that the EFTA Court has gone further in applying competition law to collective agreements than the ECJ. The Norwegian Labour Court has questioned whether the EFTA Court’s interpretation of Arts. 53 and 54 EEA is fully in line with case-law from the ECJ.9 However, it remains to be seen whether the ECJ’s approach in case C-67/96 Albany will be upheld in light of the Court’s approach in case C-438/05 Viking Line. In Case E-14/15

1 See the comments by Fløistad on Art. 28 EEA mn. 1. 2 See cases C-341/05, 18.12.2007, Laval; C-346/06, 3.4.2008, Rüffert; C-319/06, 19.6.2008, Commission v Luxembourg and C-438/05, 11.12.2007, Viking Line. 3 See Filip Dorssemont, ‘The Right to take Collective Action under Art. 11 ECHR’, in: Dorssemont, Lörcher and Schömann (eds), The European Convention on Human Rights and the Employment Relationship, pp. 333-366, and Stein Evju, ‘Fundamental Social Rights vs. Fundamental Freedoms’, 2013 Europäische Zeitschrift für Arbeitsrecht, pp. 312-323. 4 Cases E-8/00, 22.3.2002, LO; E-2/11, 23.1.2012, STX and E-14/15, 19.4.2016, Holship. 5 See decisions by the Norwegian Labour Court ARD 2002 p. 90 LO and the Norwegian Supreme Court Rt. 2013 p. 358 STX and HR-2016-2554-P Holship. 6 Se Cases E-14/15, 19.4.2016, Holship and E-8/00, 23.3.2002, LO, and comments by Gjendemsjø on Art. 53 EEA mn. 59-63. 7 Case E-14/15, 19.4.2016, Holship, para. 42. 8 For an outline of labour law systems and collective agreements in the nordic countries, see Stein Evju, ‘Labour Courts and Collective Agreements – the Nordic Model’, in: S. Evju, Arbeidsrett. Utvalgte artikler 2001–2010 pp. 77-86 at pp. 79-83. 9 ARD 2002 p. 90 LO, paras. 660-65.

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Holship, the trade union argued before the Norwegian Supreme Court (full court) that the EFTA Court’s advisory opinion should be disregarded when interpreting Arts. 53 and 54 EEA. The majority of 10 justices decided the case on a different legal basis (Art. 31 on the freedom of establishment) and just referred in passing to the EFTA Court’s opinion on Arts. 53 and 54. The minority of seven justices, on the other hand, deviated from the EFTA Court’s opinion because they found the opinion to be based on factual errors. Thus, neither the majority nor the minority dealt with the suggestion that the EFTA Court’s understanding of the immunity for collective agreements was too strict, presumably leaving the matter open for further discussion. 3. EU/EEA labour law, fundamental rights and national labour law

One question in the labour law context is whether the differences in legal framework for the ECJ and the EFTA Court will have a bearing on the outcome of the cases, and for the possibility of judicial dialogue between the ECJ and EFTA Court, the committees overseeing the ILO Conventions and the European Social Charter and the national courts.10 Further, the impact of the case-law from the ECJ and the EFTA Court varies according to the specificities of the national labour law systems.11 The impact on trade union activities will thus also vary. In countries with strong trade unions and systems of collective agreements, such as the EFTA States Iceland and Norway, the market freedoms and aspects of the right to freedom of association might be at odds with national labour law traditions, in particular with regard to worker’s right to negative freedom of association. In the E-14/15 Holship case, the EFTA Court also raised questions with regard to the employer’s negative freedom of association.12 It remains to be seen how these principles and rights may be reconciled. 6 By way of an example, the differences between the UK and the Nordic countries with regard to collective agreements should be noted. In the Nordic countries, the collective agreement is a private law contract sui generis, concluded between a trade union and an employer or an employer’s association. The notion of trade union is wide in the Nordic countries, covering both a combination of 5

10 See also C. Barnard, ‘Posting Matters’, Arbeidsrett 2014 pp. 1-28 at pp. 26-27. 11 For an outline of labour law systems and collective agreements in the nordic countries, see Stein Evju, ‘Labour Courts and Collective Agreements – the Nordic Model’, in S. Evju, Arbeidsrett. Utvalgte artikler 2001–2010 pp. 77-86, at pp. 79-83. 12 Case E-14/15, 19.4.2016, Holship, para. 127. The reference to the employer’s freedom of association was raised by the Court during the hearing, cf. Report for the hearing, para. 52 and the judgement, paras. 123–124. In light of the facts of the case, it could be argued that it rather raised questions of the employer’s freedom to conduct a business and freedom of contract. In light of European Court of Human Rights judgements in Gustafsson (no. 15573/89) and AB Kurt Kellermann (no. 41579/98), it is difficult to see that the use of industrial action in order to compel the employer to enter into a collective agreement, could give rise to questions of the employer’s rights under ECHR Art. 11. In a human rights and labour law perspective, extending case law on worker’s protection against closed shop clauses to the employer’s freedom of contract and freedom to conduct a business is extraordinary.

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workers at the enterprise level and at a national level, in the form of confederations of trade unions. Also, in a Nordic context, the collective agreement is a fundamental aspect of wage setting and for setting the terms and conditions in the labour market, being legally binding both for the parties to the collective agreement and for the members of the trade union or the employer’s association. The collective agreement may therefore be enforced against the parties to the agreement and against the members of the associations. The collective agreement may also have effects vis-á-vis third parties. In the UK, the collective agreements are basically non-enforcable agreements that must be incorporated into the individual employment contracts in order to have a binding effect for the parties in the employment relationships.13 This difference in labour law systems may have an effect when assessing whether or not the collective agreement is necessary due to overriding reasons of general interest. The Nordic model may explain why the UK may be sceptical about becoming part of the EFTA pillar, and likewise why Norway may be sceptical about having UK as part of the EFTA pillar.14 Labour rights are part of the fundamental social rights, including, but not li- 7 mited to, Art. 11 ECHR. They constitute a part of the unwritten principles of EEA law. In Case E-14/15 Holship paras. 122–123, the recognition of these rights is offset by the judicial review and limits expressed in paras. 125 and 127. The approach to the balancing of interests by the majority in the Norwegian Supreme Court in the Case E-14/15 Holship is fully in line with the EFTA Court’s approach in the advisory opinion. The onus is less on the trade union’s and the workers’ need for the disputed “priority of engagement” clause, the right to enter into collective agreements and the right to use collective action to achieve this aim, and more on the individual effect of the contested regulation on the freedom of establishment. Furthermore, the EFTA Court and the Norwegian Supreme Court notes that Art. 11 ECHR is a fundamental right, but makes no attempt to elaborate on the extent to which Art. 11 ECHR guarantees the freedom to enter into collective agreements, and the right to collective action when viewed in the light of the European Social Charter.15 II. Annex XVIII – an overview

The relevant EU labour law legislation incorporated into Annex XVIII in- 8 cludes, firstly, directives concerning the protection of worker’s rights in connection with restructuring of enterprises:

13 See Simon Deakin and Gillian S. Morris, Labour Law (6th ed) pp. 68-73. 14 See also comments by Arnesen and Fredriksen on the Contracting parties mn. 18–22 on the consequences of “Brexit” and the possibility of a UK accession to the EEA Agreement. 15 See i.a. the European Court of Human Right’s approach in Demir and Baykara (no. 34503/97) and National Union of Rail, Maritime and Transport Workers (no. 31045/10).

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– Dir. 98/59/EC on the approximation of the laws of the Member States relating to collective redundancies; – Dir. 2001/23/EC on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses; – Dir. 2008/94/EC on the protection of employees in the event of the insolvency of their employer. 9

Secondly, the Annex incorporates into EEA law EU directives on workers’ right to information and consultation: – Dir. 91/533/EEC on an employer's obligation to inform employees of the conditions applicable to the contract or employment relationship; – Dir. 2001/86/EC supplementing the Statute for a European company with regard to the involvement of employees; – Dir. 2002/14/EC establishing a general framework for informing and consulting employees in the European Community; – Dir. 2003/72/EC supplementing the Statute for a European Cooperative Society with regard to the involvement of employees; – Dir. 2009/38/EC on the establishment of a European Works Council or a procedure in Community-scale undertakings and Community-scale groups of undertakings for the purposes of informing and consulting employees.

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Thirdly, relevant legislation on atypical employment contracts, young workers and precarious workers is incorporated: – Dir. 94/33/EC on the protection of young people at work; – Dir. 96/71/EC concerning the posting of workers in the framework of the provision of services; – Dir. 97/81/EC concerning the Framework Agreement on part-time work – Dir. 1999/70/EC of 28 June 1999 concerning the framework agreement on fixed-term work concluded by ETUC, UNICE and CEEP; – Commission Decision 2009/17/EC setting up the Committee of Experts on Posting of Workers.16

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Finally, directives on parental leave, working time and other aspects of working conditions are incorporated: – Dir. 1999/63/EC concerning the Agreement on the organisation of working time of seafarers; – Dir. 2000/79/EC concerning the European Agreement on the organization of Working Time of Mobile Workers in Civil Aviation;

16 The EFTA States may appoint two persons to participate as observers in the meetings of the Committee of Experts on Posting of Workers, see the Decision of the EEA Joint Committee 92/2010, Art. 1.

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– Dir. 2003/88/EC concerning certain aspects of the organisation of working time; – Dir. 2005/47/EC on the Agreement on certain aspects of the working conditions of mobile workers engaged in interoperable cross-border services in the railway sector; – Dir. 2008/104/EC on temporary agency work; – Dir. 2009/13/EC implementing the Agreement on the Maritime Labour Convention 2006; – Dir. 2010/18/EU implementing the revised Framework Agreement on parental leave; – Dir. 2014/112/EU implementing the European Agreement concerning certain aspects of the organisation of working time in inland waterway transport. In addition to the secondary legislation, Annex XVIII also incorporates reso- 12 lutions and recommendations that the Contracting Parties shall take note of: – Res. 95/C 296/06 on the image of women and men portrayed in advertising and the media; – Res. 95/C 168/02 on the balanced participation of men and women in decision-making; – Rec. 96/694/EC on the balanced participation of women and men in the decision-making process. The following comments will focus on areas where the EFTA Court has con- 13 tributed to the interpretation of the directives and on possible differences between EU and EEA law. III. Proof of employment contract

Directive 91/533/EEC imposes on the employer an obligation to notify the 14 worker about the essential terms and conditions of the employment relationship.17 In E-10/12 Hardarson the EFTA Court found that if such notification is made, the notification must be given such evidential weight as to allow it to serve as factual proof of the essential aspects of the contract of employment, including a certain presumption of correctness as enjoyed by similar documents under domestic law.18 If such notice is not given, the amendment to the essential elements of the employment contract may still be effective. The Court noted that the directive had no provisions leaving un-notified changes without effect, and there were no provisions on rules of evidence.19 In other words, it was for the national courts to apply national rules on evidence in order to decide the materi-

17 See Cases C-306/07, 18.12.2008, Andersen; C-253/96 to 258/96, 4.12.1997, Kampelmann and others and C-350/99, 8.2.2001, Lange. 18 Case E-10/12, 25.3.2013, Hardarson, para. 49. 19 Case E-10/12, 25.3.2013, Hardarson. paras. 53-54.

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al content of the employment relationship.20 The decision is in line with the case-law from the ECJ. IV. Posting of Workers

The Posting of Workers Directive has stirred much debate in EU law. It has also been subject of discussion in an EEA context, particularly regarding which terms and conditions21 of the host state that the employer must guarantee posted workers from the exhaustive list in Art. 3(1).22 Terms and conditions outside the scope of Art. 3(1) can only be applied as a public policy provision according to Art. 3(10). 16 The legal basis for the directive is the freedom to provide services. In the EEA Agreement, the directive is also incorporated among the labour law measures in Annex XVIII. The Case E-2/11 STX illustrates the complex character of the directive, the conflicting interests in this area, and the relationship between the EFTA Court and the national courts in the EEA.23 The case concerned the posting of workers to the maritime construction industry, and the dispute concerned three forms of compensation and the concept of minimum rates of pay in the directive: 1) Were overtime rates covered? 2) Was a posting allowance of about 20 % of the hourly wage covered? 3) Was compensation for travel, for board and for lodging covered? 17 The EFTA Court’s interpretation was closely based on relevant decisions from the ECJ, and the advisory opinion was for the most part accepted by the Norwegian Supreme Court.24 Both courts agreed that overtime rates were covered by Art. 3(1). However, on two points the Norwegian Supreme Court departed from the EFTA Court’s interpretation. Firstly, the EFTA Court argued that posting allowance covered by the directive also had to be assessed as to its compatibility with Art. 36 EEA. The Supreme Court, however, found no room for such further review. Secondly, the EFTA Court concluded that compensation for 15

20 See the Norwegian Supreme Court decisions Rt. 2004 p. 53, Rt. 2005 p. 1535 and Rt. 2007 p. 129. In the decision from 2007, the Supreme Court noted that the preamble’s aim of “improved protection against possible infringements of their rights and to create greater transparency on the labour market” meant that an employer that failed to give notification on the essential aspect of the employment contract or relationship or any subsequent amendments to it, had a “heavy burden of proof”. 21 See E-12/10, 28.6.2011, ESA v Iceland: Sick pay not sat at a minimum rate not covered by “minimum rates of pay”; obligation to take out accident insurance protection for workers not covered by Art. 3(1). 22 On the exhaustive character of Art. 3(1), see C-341/05, 18.12.2007, Laval; C-346/06, 3.4.2008, Rüffert and C-319/06, 19.6.2008, Commission v. Luxembourg. See further the contributions in S. Evju (ed.), Cross-Border Services, Posting of Workers and Multilevel Governance (Department of Private Law, Skriftserie 193, Oslo 2013) and S. Evju (ed.), Regulating Transnational Labour in Europe: The quandaries of multilevel governance (Department of Private Law, Skriftserie 196, Oslo 2014). 23 See also C. Barnard, ‘Posting Matters’, Arbeidsrett 2014, pp. 1–28 and, C. Barnard, ‘Reciprocity, Homogeneity and Loyal Cooperation: Dealing with Recalcitrant Courts?’, in: EFTA Court (ed), The EEA and the EFTA Court, pp. 151-168, at pp. 160-168. 24 Rt. 2013 p. 258.

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travel, board and lodging for the posted workers did not constitute pay. The Supreme Court disagreed, and questioned the EFTA Court’s interpretation based on a different reading of Art. 3 and case law from the ECJ. The Supreme Court did not conclude on this matter, however, but proceeded on the assumption that the EFTA Court was correct and found that compensation for travel, board and lodging could be applied based on Art. 3(10). Subsequent case-law from the ECJ has not given any clear guidance on the interpretation of Art. 3 on the points of divergence between the EFTA Court and the Norwegian Supreme Court.25 V. The evolving interpretation of the transfers of undertakings directive 1. The directive and case law at a glance

A number of cases from the EFTA Court deal with Dir. 2001/23 on transfers 18 of undertakings. For the most part, the opinions of the EFTA Court apply caselaw from the ECJ concerning: – – – – –

Personal scope (“employees”);26 The concept of a transfer of an undertaking;27 The question of whether the undertaking retains its identity;28 The rights and obligations transferred;29 The mandatory nature of the Directive;30

Dir. 2001/23/EC has its roots in Dir. 77/187/EC, which was adopted as part of 19 the Social Action Programme. The directive is meant to safeguard the rights of 25 Cf. the rather ambiguous judgment of the ECJ in Case C-396/13, 12.2.2015, Sähköalojen ammattiliitto. On 25 October 2016, ESA issued a formal notice to Norway (Case no. 74557, decision No: 191/16/COL).See also Jonas Myhre, ‘The EFTA Court – gradually more or less relevant?’, Europarättslig Tidskrift 2014, pp. 13-53. Based on the formal notice from ESA, the Norwegian Government stated that a solution in conformity with the directive could be achieved through changes to the applicable collective agreements, and that this would be a topic in forthcoming revisions of the agreements between the parties (LO and NHO), cf. letter from the Norwegian Government 20 January 2017 (ref 13/3362) and ESAs reply 25 January 2017 (doc.no. 74557). 26 Case E-3/01, 22.3.2002, Viggosdottir (civil servant in the postal service). 27 Cases E-2/95, 25.9.1996, Eidesund (entering into contract for catering services with new company); E-2/96, 19.12.1996, Ulstein (putting out to tender); E-3/96, 14.3.1997, Ask (expiry of time-limited contract); E-3/01 22.3.2002, Viggosdottir (transfer based on statute) and E-2/04, 10.12.2004, Rasmussen (putting out to tender). 28 Cases E-2/95, 25.9.1996, Eidesund (entering into contract for catering services with new company); E-2/96, 19.12.1996, Ulstein (transfer of ambulance services, various factors to be taken into account) and E-2/04, 10.12.2004, Rasmussen (maintenance and support functions offshore, not all functions transferred). 29 Cases E-2/95, 25.9.1996, Eidesund (employer’s obligation to pay pension premium); E-3/95, 25.9.1996 Langeland (employer’s obligation to pay pension premium) and E-10/14, 18.12.2014, Deveci (terms and conditions in collective agreements). 30 Cases E-3/95, 25.9.1996, Langeland (employee cannot waive rights conferred on him, regardless of whether the waivers is in pejus or not, but may enter into new agreement with new employer); E-3/01, 22.3.2002, Viggosdottir (employee cannot waive rights, but may enter into new agreement with new employer) and E-2/04, 10.12.2004, Rasmussen (employees termination of employment relationship).

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employees and secure worker involvement in the transfers by imposing an obligation for the old and the new employer – the transferor and tranferee – to consult with employee’s representatives. According to Art. 3(1) of the Directive, the transferor’ rights and obligations arising from the employment contract shall be transferred to the new employer. For terms and conditions based on collective agreements, Art. 3(3) states that the new employer must apply the terms of the collective agreement which the old employer was bound by for a definite period, after which the new employer may change the terms and conditions. These rather strict starting points have been modified by the ECJ with respect to rights based on collective agreements.31 2. The transfer of undertakings Directive and the Charter Art. 16 20

A notable aspect of recent case-law from the ECJ is a shift in what was perceived as the purpose of the directive, with a new emphasis on the interests of the new employer, and the introduction of Art. 16 of the EU Charter of Fundamental Rights into the mix. This is most clearly illustrated by Case C-426/11 Alemo-Herron. The question was whether a dynamic clause in the employment contract was enforceable against the transferee. The clause incorporated future changes in a collective agreement to which the new employer was not party. Based on Art. 3 and the aim of worker-protection, the answer would seem to be that the clause could be enforced against the new employer. However, the ECJ emphasized that the directive must be interpreted as striking a balance between the interests of the worker and those of the employer/transferee. Also, if the new employer was bound by a collective agreement concluded by third parties after the transfer, it would seriously affect the new employer’s contractual freedom and freedom to conduct a business, cf. the Charter Art. 16. On the basis of the purpose of the directive and the fundamental rights of the employer, the ECJ interpreted Art. 3 as precluding national regulation where dynamic clauses could be enforced against the new employer for such agreements negotiated after the date of transfer. The ECJ’s interpretation of the directive has been criticized, both on the shift in the purpose of the directive and on the reference to the Charter being limited to Art. 16.32

31 See also C. Barnard, EU Employment Law (OUP, 2012), pp. 608–609. 32 See Barnard, ‘Social Policy Law’, in Baudenbacher (ed), Handbook of EEA Law, pp. 809-839 at pp. 832-833 and Jeremias Prassl, ‘Freedom of Contract as a General Principle of EU Law? Transfers of Undertakings and the Protection of Employer Rights in EU Labour Law’, Industrial Law Journal, 2013, pp. 434-446. In cases C-680/15 Asklepios Kliniken and C-681/15 Asklepios Dienstleistungsgesellschaft, the advisory opinion of Advocate General Bot refers to the need for a “fair balance”, based on an interpretation of Art. 3(1) and (3). The ECJs judgement 27.4.2017 expressly refers to the Charter Art 16. In substance, the judgement may be said to be less strict than court’s approach in case c-426/11, 18.7.2013, Alemo-Herron.

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3. The EFTA Court’s approach

The ECJ’s reasoning in Case C-426/11 Alemo-Herron was based partly on an 21 evolving view of the purpose of the Directive and on a reference to the Charter Art. 16. How would the EFTA Court approach a similar question? In Case E-10/14 Deveci, one of the questions was whether the collective agreement in the transferee’s undertaking could be applied after the expiry of the collective agreement in the transferor’s undertaking, even if it resulted in a significant reduction in pay. The EFTA Court noted that if the new collective agreement was applied after the expiration of the old collective agreement, the reduction was not linked to the transfer. However, Norwegian law has provisions on the continued effect of collective agreements.33 In other words a collective agreement does not lapse after the expiry of the period of validity, but remains in force as a collective agreement after the expiry of the time limits for notice and mediation.34 The employment contract could also have references to applicable collective agreements. This raised the question on when a new collective agreement could be applied. The undertaking argued that a continued effect of the old collective agreement, based on the employment contract, would be contrary to the purpose of the directive and to the freedom to conduct a business. The EFTA Court adopted the ECJ’s understanding of the purpose of the directive and noted: “In the interest of the employees, a national rule may give continued effects to a collective agreement in order to avoid a rupture of the framework governing the employment relationship. In that case, it must be assessed whether such a rule complies with the main objective of the Directive. That objective is to ensure a fair balance between the interests of the employees and those of the transferee. The transferee must be in a position to make adjustments and changes necessary to carry on its operations … Since continued effects applicable after the expiration of a collective agreement limit the freedom of action of the transferee, such a national rule must be limited in its duration. Otherwise, it would bind the transferee indefinitely.”35

As for the undertaking’s arguments based on the Charter Art. 16, the EFTA 22 Court noted: ‘The Court finds no reason to address the question of Article 16 of the Charter. The EEA Agreement has linked the markets of the EEA/EFTA States to the single market of the European Union. The actors of a market are, inter alia, undertakings. The freedom to conduct a business lies therefore at the heart of the EEA Agreement and must be recognised in accordance with EEA law and national law and practices.’36

This goes some way towards assimilating the approach by the ECJ in Case 23 C-426/11 Alemo-Herron, but is not as clear-cut or absolute as the ECJ’s statement. It does not indicate any primacy for the freedom to conduct a business.37

33 Cf. the Norwegian Labour Disputes Act section 8(3). 34 See Stein Evju, ‘The Right to Strike in Norwegian Labour Law. An insider–outsider perspective’, in: S. Evju, Arbeidsrett. Utvalgte artikler 2001–2010 (Universitetsforlaget 2010) pp. 171-186 at p. 176. 35 Case C-426/11, 18.7.2013, Alemo-Herron, para. 63. 36 Case E-10/14 Deveci, para. 64.

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The lack of formal legal basis for the EFTA Court could to some extent explain this carefully worded approach.38 VI. The Working Time Directive – from worker protection to balancing the need for flexibility? 1. The Working Time directive at a glance

The Working Time Directive (2003/88/EC) is both a health and safety measure and a work condition measure. The directive was originally adopted on the basis of Art. 118A TEEC. Thus, health and safety is an essential guideline for its interpretation.39 Worker protection is also mentioned in the preamble of the directive. On the other hand, there are some statements in the preamble on the need to avoid imposing financial, administrative and legal constraints on the Member States which may hold back the creation of small and medium sized undertakings. The preamble also notes the need “to provide for flexibility in the application of certain provisions” in the directive when organizing the working time within the undertaking, whilst ensuring compliance with the principles of protecting the safety and health of workers”.40 In spite of these concessions to the needs of the employer and the market, it is clear that the focus of and the aim of the directive is worker protection.41 25 The directive has provisions on maximum daily and weekly working time and minimum periods of rest, but with the possibility to derogate from these provisions based either on the worker’s agreement (Art. 22) or on derogations provided for by national law (Art. 17). 24

37 See Jeremias Prassl, ‘A Fork in the Road for Freedom of Contract: Joint Cases C-680/15 and C-681/15 Asklepios’, in J. Mulder, M. J. Hotvedt, M. Nesvik, T.L. Sundet (eds), Sui Generis. Festschrift for Stein Evju (2016) pp. 544 at pp. 548-550. Cf. Fredriksen and Franklin, ‘Of pragmatism and principles – the EEA Agreement 20 years on’, Common Market Law Review 2015 pp. 629 at pp. 648–649. 38 The request for an advisory opinion was made by Eidsivating Court of Appeal. While the case was pending before the Court of Appeal, the question on whether the collective agreement as such was binding for the new employer, was brought before the Norwegian Labour Court. The Norwegian Labour Court found that the new employer, according to principles established by Norwegian case law, was not bound by the collective agreement, cf. ARD-2015-9. After the judgement of the Labour Court, the employees withdrew the appeal. 39 See Daniel Ullner in: Preis/Sagan (eds), Europäisches Arbeitsrecht. Grundlag. Richtlinien. Folgen für das Deutsche Recht (2015) p. 341 and C. Barnard, EU Employment Law (4th ed., 2012) p. 534. 40 Second and fifteenth recital of the Preamble, respectively. 41 See i.a. C-313/02, 12.10.2004, Wippel, para. 46 (“minimum requirements intended to improve the living and working conditions of workers”) and C-173/99, 26.6.2001, BECTU, para. 59 (“it is clear from the fifth recital in the preamble to Directive 93/104 that 'the improvement of workers’ safety, hygiene and health at work is an objective which should not be subordinated to purely economic considerations”, cf. the preamble’s fourth recital).

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2. The EFTA Court’s approach

In Case E-5/15 M’Bye and others, the EFTA Court was asked for an advisory opinion on the maximum weekly working time, the derogation provision in Art. 17 and on the opt-out in Art. 22. The Court’s reasoning indicates an approach to the interpretation of the directive which deviates from that of the ECJ. The M’Bye case dealt with working time in cohabitant care arrangements. Therapists at the clinic “Stiftelsen Fossumkollektivet” for the treatment of young people with alcohol or drug problems, had a working time based on ‘3 days work, 7 days rest, 4 days work, 7 days rest’ (3-7-4-7), amounting on average to 56 working hours per week. Due to financial losses, and purely for this reason, the clinic proposed changing the working time to a 7-7-rotation, which could amount to a weekly working time of 84 hours. Under Norwegian law, there was a temporary regulation on working time at cohabitant care institutions according to which employees may consent to a weekly working time of more than 48 hours, and more than 60 hours if the employee has housing in or attached to the clinic. Employees who do not have housing in or near the clinic, may freely revoke the consent. The change in the working time arrangement at the Fossumkollektivet clinic made it possible to reduce the number of therapists necessary for each team. The employees were asked to consent to this change, and those who did not were given notice, combined with an offer of re-hiring based on the new terms and conditions on working time. Three questions were raised before the EFTA Court: 1) Is a working time amounting to on average 84 hours per week compatible with the directive? 2) Is a provision in national law that declares that a consent to work more than 60 hours per week cannot be revoked, compatible with the directive?, and 3) Is a notice of dismissal, given after the worker has declined to consent to a working time arrangement of more than 48 hours over a seven day period, combined with an offer of re-hiring on new terms, a detriment within the meaning of the directive Art. 22(1)(b)? The EFTA Court found all this to be compatible with the directive. Based on the hearing, the Court also commented on what constitutes working time for on-call duty, as opposed to periods of rest. The therapists would be provided with separate living quarters at the clinic. Would on-call duty combined with this housing arrangement constitute working time? It could be argued that this matter is not clearly settled in case law from the ECJ, but several cases suggest that situations where the therapist has to be present at the premises and oncall, is working time whether or not any work is actually performed.42 In light of the ECJ’s approach, the fact that the worker has to be present at the employer’s 42 Cases C-303/98, 3.10.2000, Simap; C-151/02, 9.9.2003, Jaeger; C-14/04, 1.12.2005, Dellas; C-437/05, 11.1.2007, Vorel and C-258/10, Grigore. See also the pending Case C-518/15, Matzak.

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premises in periods of rest, would easily constitute restrictions on their freedom to pursue his or her interests, and thus working time according to the directive.43 The EFTA Court indicated that the period when the therapist was oncall at the institution would not constitute working time because individual housing on the employer’s premises meant that they would have a private sphere that improved the quality of the worker’s rest. Only time linked to any provision of care services at night would be regarded as working time. 31 When assessing the limitations imposed by the Working Time Directive, the EFTA Court started by noting the need to protect the health and safety of the worker, but added that as long as these requirements are fulfilled, the parties must be able to exercise their right to freedom of contract and the need to strike a fair balance between the interests of workers and employers.44 The EFTA Court also noted that the directive aims for flexibility in the application of certain provisions, and acknowledges the interests of the employer.45 According to Art. 17(2), if there is a derogation, the workers concerned are to be afforded “equivalent periods of compensatory rest“, or “in exceptional cases … appropriate protection“. The ECJ has underlined that an exception from the right to compensatory rest is only allowed under “absolutely exceptional” circumstances.46 32 The EFTA Court’s opinion is not in line with the reasoning of the ECJ, and seems to add an element of flexibility when implementing an extraordinary working time regime due to economic reasons, and not connected to the work or care itself. The interpretation is hard to reconcile with the derogation clauses as narrow exceptions from the minimum requirements. The same goes for the EFTA Court’s assessment of the prohibition in Art. 17(1)(b). A worker who chooses not to consent to derogation from Art. 6 cannot be subjected to any detriment because of this. The special circumstances in this case was that the economic reasons for introducing a new working time arrangement were basically the same as those given for the dismissal of workers who did not consent. It could be argued that when a notice was given in combination with an offer of re-hiring, it could dissuade the worker from exercising his or her minimum rights. Even though the need for consent and the reasons for notice were interconnected, the EFTA Court found that there was no detriment.47 33 Where does this leave national courts, caught between the case law from the ECJ and the EFTA Court’s novel approach? When Case E-5/15 M’Bye was heard by the Court of appeal, the workers argued that the national court should make an independent assessment of the case law from the ECJ and reject the EF43 See C-428/09, 14.10.2010, Union syndicale Solidaires Isère (“not subject to any obligation vis-à-vis his employer which may prevent him from pursuing freely and without interruption his own interests in order to neutralise the effects of work on his safety or health”). 44 E-05/15, 16.12.2005, M’Bye, paras. 37, 63 and 79. 45 E-05/15, 16.12.2005, M’Bye, paras. 37, 63 and 79. 46 See C-428/09, 14.10.2010, Union Syndicale Solidaires Isère, para. 55. 47 E-05/15, 16.12.2015, M’Bye, para. 80. The assessment seems less strict than the ECJ’s approach in Case C-429/09, 25.11.2010, Fuss II.

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TA Court’s opinion. This would be in line with the Norwegian Supreme Court’s approach in STX.48 The Appeal Court’s approach limited itself to declaring that it could not see any faults with the EFTA Court’s reasoning. The Appeal Court’s approach is more in line with the majority’s approach in the Norwegian Supreme Court’s decision in Holship.49 Leave to appeal to the Norwegian Supreme Court in the M’Bye case was not granted.50 The tenor of the EFTA Court’s reasoning is one where the interests of the 34 employer is noted just as much as the interest of the health and safety of the worker. It introduces flexibility, but where worker protection might be subordinated to economic reasons. In light of the homogeneity principle, and the lack of any compelling grounds to deviate from it in this context, future decisions from the ECJ will be awaited with considerable interest by the EFTA States and their national courts.

Article 69 [Equal pay for equal work] 1. Each Contracting Party shall ensure and maintain the application of the principle that men and women should receive equal pay for equal work. For the purposes of this Article, 'pay' means the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in kind, which the worker receives, directly or indirectly, in respect of his employment from his employer. Equal pay without discrimination based on sex means: (a) that pay for the same work at piece rates shall be calculated on the basis of the same unit of measurement; (b) that pay for work at time rates shall be the same for the same job. 2. Annex XVIII contains specific provisions for the implementation of paragraph 1.

I. Legal context and development of the principle of equal pay

Art. 69 mirrors Art. 119 TEEC, which was later moved to Art. 141 TEC and 1 then replaced by Art. 157 TFEU. However, Art. 157 TFEU contains additional provisions compared to Art. 119 TEEC. Firstly, Art. 157 TFEU states in its third paragraph that the European Parliament and the European Commission shall adopt measures to ‘ensure the application of the principle of equal opportunities and equal treatment of men and women’ in matters of employment and occupation, ‘including’ equal pay for equal work or work of equal value. Secondly, the fourth paragraph states that, with a view to ensuring full equality in practice between men and women in working life, equal treatment shall not prevent the EU Member States from maintaining or adopting measures that provide for specific advantages for the under-represented sex. This applies in particular when these measures facilitate the under-represented sex’s pursuance of vocational ac-

48 Rt. 2013 p. 258. 49 HR-2016-2554-P. 50 HR-2016-1553-U.

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tivities, or prevent or compensate for disadvantages in professional careers. The latter provision gives the EU Member States leeway to introduce different forms of ‘affirmative action’. 2 In contemporary societies, equal pay for equal work is usually taken for granted, but it was a milestone when the provision was introduced as a part of the Treaty of Rome. The historical background was France’s concern that French industry would be placed at a competitive disadvantage if it had to observe the existing French principle of equal pay for equal work in a situation where that principle was not observed in certain other Member States.1 However, although pursuing an economic purpose, the provision also aims to protect workers’ social conditions within the internal market.2 This dual purpose was emphasised by the ECJ in the landmark Case 43/75 Defrenne II.3 In Case C-50/96 Schröder, the potential conflict between the two major aims was the crux of the matter. Declaring the right not to be discriminated against on grounds of sex as ‘one of the fundamental human rights’ whose observance the courts have a duty to ensure, the ECJ held the competitive aim to be secondary to the social aim.4 3 In Case 43/75 Defrenne II, the ECJ also made it clear that the principle now found in Art. 157 TFEU has direct effect in the legal orders of the EU Member States, also when the employer is a private company (i.e. so-called horizontal direct effect).5 As is well known, the EEA Agreement does not entail a similar principle of direct effect.6 As far as Art. 69 is concerned, however, this appears to be of no practical significance. Together with the rest of the EEA Main Agreement, this provision has been made part of both Icelandic and Norwegian law,7 whereas it enjoys direct effect in Liechtenstein by virtue of Liechtenstein law. Further, Art. 69 is clearly both unconditional and sufficiently precise to fulfil the EU law conditions for the direct effect of international obligations in the EU legal order. Thus, Art. 69 confers a right to equal pay without discrimination based on sex that can be invoked and relied on by individuals and economic operators before the national courts of all of the EEA States. 4 There is a substantial body of case law from the ECJ concerning gender discrimination, where equal pay for equal work is one of the components. Some of the most prominent cases will be presented in the comments on the specific parts of Art. 69 in the following. The EU has been constantly developing its discrimination law, as regards both gender and possible expansion to other grounds of

1 2 3 4 5

Craig and de Búrca, EU Law, p. 896. Norberg et al., EEA Law, 1993, p. 615. Case 43/75, 8.4.76, Defrenne II. Case C-50/96, 10.2.2000, Schröder, paras. 56-57. Case 43/75, 8.4.76, Defrenne, para. 39. See also Craig and de Búrca, EU Law, pp. 200–205 with further references. 6 See, e.g., the comments by Dystland, Finstad and Sørebø on Art. 7. 7 See Helgadóttir and Einarsdóttir’s report on Iceland in Part I of this book, mn. 48 ff and Finstad’s report on Iceland in Part I of this book, mn. 15 ff.

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discrimination (age, sexual orientation etc.). The disparities between EU and EEA law in this respect will be dealt with in III and IV. Some European countries have introduced a third gender,8 and in several 5 countries citizens can themselves decide to change gender without undergoing any medical intervention.9 Both the EEA Agreement and the Union treaties, as well as EU secondary legislation, use the terms ‘men’ and ‘women’. It remains to be decided which rights EU and EEA law grants to persons in various forms of transition. II. The principle of equal pay for equal work 1. Wording of Art. 69 EEA and Art. 157 TFEU

The first paragraph of Art. 69 states that men and women should receive 6 ‘equal pay for equal work’ and dictates that each Contracting Party shall ‘ensure and maintain’ the application of this principle. The provision does not cover discrimination on other grounds (age, sexual orientation etc.) or in other fields (civil life outside the field of labour law). Both the core elements of the provision are defined in the subsequent part of the first paragraph, see sections 2 and 3 below. While Art. 69 uses the phrase ‘equal pay for equal work’, Art. 157 TFEU has added the words ‘or work of equal value’. At first sight, this difference in wording seems significant since the reach of equal pay for work of equal value certainly goes beyond equal pay for equal work.10 This is remedied, however, by the general principle of homogeneity and the fact that the relevant EU legal acts that define and give concrete expression to Art. 157 TFEU have been incorporated into Annex XVIII.11 2. The notion of pay

The term ‘pay’ is defined in Art. 69 itself. This definition is exactly the same 7 as the one now used in the first paragraph of Art. 157 TFEU. Consequently, the case law of the ECJ on the mirroring provision is of direct relevance.12 The definition states explicitly that pay includes both wages and other considerations, whether in cash or in kind, that a worker receives, directly or indirectly, although restricted to benefits ‘in respect of his employment from his employer’. The latter part indicates a differentiation between payments (between the parties to the labour contract) and social benefits (provided by the state on the basis of the labour contract). This has been a recurring issue for the ECJ. Equal treatment in relation to state social security is not covered by Art. 69 EEA/Art. 157 8 E.g. Germany (Sect. 22(3) Personenstandgesetz), which has the option of a blank alternative in birth certificates. A complaint is pending before the Constitutional Court concerning the lack of a third gender. 9 E.g. Norway (Act 17 June 2016 No 46). 10 Cf. Craig and de Búrca, EU Law, pp. 895–896. 11 See Dir. 79/7/EEC, Dir. 2006/54/EC and Dir. 2010/41/EU. 12 See the comments by Wennerås on Art. 6 EEA.

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TFEU, but primarily by Dir. 79/7/EEC on the progressive implementation of the principle of equal treatment for men and women in matters of social security. Occupational social security, on the other hand, is covered in part by Art. 69, and in part by Dir. 2006/54/EC on the implementation of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation (recast).13 8 In Case 80/70 Defrenne I,14 the ECJ ruled that retirement pensions that are directly governed by legislation, that do not involve any form of agreement, and that are compulsory for general categories of workers, fall outside the scope of what is now Art. 157 TFEU. Case C-170/84 Bilka Kaufhaufs concerned a German department store that reserved pension for full-time workers, while most of the part-time workers were female. The ECJ distinguished between the contractual and statutory nature of the pension scheme. Although the scheme was adopted in accordance with the German legislation, it was based on an agreement between the company and the representatives of the employees and had the effect of supplementing the social benefits that were paid under national legislation.15 It thus constituted pay. The ruling was followed by Case C-262/88 Barber,16 in which the ECJ held that even a private occupational pension scheme that was set up in the form of a trust fell within the scope of what is now Art. 157 TFEU, since it applied to benefits received ‘indirectly’ from the employer. The case was highly debated, since it in practice partly overruled a newly negotiated directive (Dir. 86/378).17 9 The EFTA Court was called to draw the line between ‘pay’ within the meaning of Art. 69 and social benefits in the Norwegian Widower’s Pension Case.18 The case concerned a Public Pension Scheme granted to persons whose spouses had joined the scheme before 1976. The survivor’s pension of a widower was subject to curtailment if he had other sources of income, whereas no such curtailment applied to widows. Although the parties agreed that the benefit concerned was to be considered as ‘pay’ and thus fell within the scope of Art. 69, the EFTA Court still had to make its own assessment. The EFTA Court summarised the relevant case law of the ECJ as follows: ‘first, the pension concerns only a particular category of workers, second, it is directly related to the period of service completed and, third, its amount is calculated by reference to the public servant's final salary’.19 The EFTA Court pointed out that the pension scheme specifically targeted state employees since full pension was only awarded to those with more than 30 years of membership, and, according to the national legislation, the amount of the pension was calculated by reference to the public 13 14 15 16 17 18 19

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Craig and de Búrca, EU Law, p. 899. Case 80/70, 25.5.71, Defrenne I. Case 170/84, 13.5.1986, Bilka-Kaufhaus. Case C-262/88, 17.5.1990, Barber. Craig and de Búrca, EU Law, pp. 900–901. Case E-2/07, 30.10.2007, ESA v Norway. Para. 27.

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servant’s final salary. Since the pensions qualified as ‘pay’ under Art. 69(1), the EFTA Court concluded that the scheme fell within the ambit of Dir. 86/378/ EEC20 on the implementation of the principle of equal treatment for men and women in occupational social security schemes. 3. The notion of discrimination

If a benefit is considered to be pay, then it should be offered without discrimi- 10 nation on grounds of gender. Art. 69 contains a definition also in this respect, cf. letters a and b. As with the definition of ‘pay’, the reference to ‘equal pay without discrimination’ is worded in a way that targets traditional industrial workers. What kind of differentiation is considered to be discriminatory has been developed in ECJ case law, and the distinction between direct and indirect discrimination is now well established. These concepts have also influenced the EU legislators, and a definition of both direct and indirect discrimination is now found in Art. 2(1) letters a and b of Dir. 2006/54/EC on the implementation of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation (recast), which has been incorporated into the EEA Agreement.21 The protection against indirect discrimination may be of special importance within the field of gender equality, since many national provisions appear to be neutral, and the obstacles for the underrepresented sex lie in practice.22 The EFTA Court was also called to address the question of discrimination in 11 the Norwegian Widower’s Pension Case.23 As with the notion of ‘pay’, the parties agreed that the disputed legislation was curtailing the pensions of widowers with other sources of income, while this was not the case for widows. Since no justification was provided for the differentiation, it was a clear example of direct discrimination. 4. Annex XVIII

The second paragraph of Art. 69 refers to Annex XVIII, which ‘contains spe- 12 cific provisions for the implementation’ of the first paragraph. This Annex originally referred to five directives concerning equal treatment of men and women, and this part of the Annex covers both Art. 69 (equal pay of men and women) and Art. 70 EEA (equal treatment of men and women). The directive concerning equal pay will be dealt with in Section III below, while the directives concerning 20 Later replaced by Dir. 2006/54/EC. 21 EEA Joint Committee Decision No 33/2008. 22 See Barnard, ‘Social Policy Law’, in: Baudenbacher (ed), Handbook of EEA Law, pp. 809-837, on p. 819. From national case law, see the judgement from Eidsivating Court of Appeal concerning different working hours for cabin crew (predominantly women) and pilots (predominantly men), where the court – with reference to EU legislation and case law from the ECJ – found indirect discrimination on the basis of a collective agreement to be justified (LE-2008-76592, 24.3.2009). 23 Case E-2/07, 30.10.2007, ESA v. Norway.

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equal treatment of the genders in general will be addressed in the commentaries to Art. 70. III. EU secondary law implementing the principle of equal pay for equal work

The first directive mentioned in the relevant part of Annex XVIII was Dir. 75/117 on the approximation of the laws of the Member States relating to the application of the principle of equal pay for men and women. Along with several other directives, this directive was later replaced by Dir. 2006/54 on the implementation of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation (recast).24 The latter is basically a systematisation of existing legislation and incorporation of relevant ECJ case law. 14 As mentioned above, Art. 69 does not include a provision on ‘affirmative action’ like the one found in Art. 157 TFEU fourth paragraph. However, there is such a clause in Dir. 2006/54 Art. 3. According to this provision, Member States ‘may maintain or adopt measures within the meaning of [Art. 157(4) TFEU] with a view to ensuring full equality in practice between men and women in working life’. 13

IV. Outlook

Art. 69, together with Art. 70, protects equal treatment of the genders. At the global level, the UN Convention on the Elimination of All Forms of Discrimination against Women of 18 December 1979 (CEDAW) is the chief instrument. In Norway, CEDAW is incorporated by the Human Rights Act (21 May 1999 No 30), which in turn gives it de facto primacy over concurring statutory provisions.25 Art. 11 CEDAW letter d) states that the parties shall take all appropriate measures to eliminate discrimination against women in the field of employment, which, inter alia, includes the ‘right to equal remuneration, including benefits, and to equal treatment in respect of work of equal value, as well as equality of treatment in the evaluation of the quality of work’. In the post-doc case (E-1/02), the Norwegian government claimed that the relevant EEA and EU rules had to be read in light of CEDAW. The potential impact of CEDAW on EEA law will be discussed in the comments on Art. 70. 16 Despite 40 years of EU legislation on equal pay, the unadjusted Gender Pay Gap (GPG) is still 16.1 per cent (GPG is the percentage difference between average gross hourly earnings of male paid employees and of female paid employees).26 Iceland and Norway are both around the average level (figures are 15

24 Cf. Case E-11/10, 17.10.2010, ESA v. Liechtenstein concerning failure to implement the directive as such and Case E-10/1, 10.12.2010, ESA v. Iceland concerning failure to implement specific provisions of the directive. 25 Section 3 of the Human Rights Act. 26 EUROSTAT, Gender pay gap in unadjusted form, tsdsc340 (figures for 2014).

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not available for Liechtenstein). The Commission has expressed concern and has introduced ‘transparency policies on wage composition and structures’ as a remedy for speeding up the reduction of the gender gap.27 Iceland´s government introduced on 8 March 2017 a draft for amending the Act on Equal Status and Equal Rights of Women and Men.28 The amendment is based on the platform of the current government. The amendments applies to companies and institutions of a certain size, 25 or more employees, and require public and private businesses to prove they offer equal pay to employees.

Article 70 [Equal treatment of men and women] The Contracting Parties shall promote the principle of equal treatment for men and women by implementing the provisions specified in Annex XVIII.

I. Scope of Art. 70

While Art. 69 addresses equal pay for equal work, Art. 70 has a broader 1 scope, targeting ‘equal treatment’ between the genders in general. In contrast to Art. 69, Art. 70 does not mirror any provision found in the Treaty of Rome. The substantial function of Art. 70 is to refer to Annex XVIII, which, in turn, originally incorporated five directives concerning equal treatment of men and women. The relevant directives, and their successors, are discussed below in Section II. With the exception of the former equal pay directive (Dir. 75/117), the directives originally mentioned in the Annex had their legal basis in provisions in the Treaty of Rome that were not reproduced in the Main Part of the EEA Agreement.1 It was therefore necessary to integrate them into the EEA agreement by reference.2 The parties are obliged to ‘promote the principle of equal treatment’. How- 2 ever, the provision is limited to equal treatment between ‘men and women’. As a consequence, other forms of discrimination fall outside its scope. On the other hand, while Art. 69 is limited to the labour market, Art. 70 applies to all fields of society. At the time of the EEA negotiations, the EC had certain competences within 3 the field of social security. This is now reflected in Art. 153 TFEU (ex Art. 137 TEC), which gives the Union competence to legislate in order to secure ‘equality between men and women with regard to labour market opportunities and treatment at work’ (letter i). This provision – like its predecessors – targets gen27 Commission Recommendation 2014/124/EU of 7 March 2014 on strengthening the principle of equal pay between men and women through transparency. 28 Act No. 10/2008. 1 Dir. 79/7/EEC (still in force) and Dir. 86/613/EEC (still in force), Dir. 76/207/EEC and Dir. 86/378/EEC (both replaced by Dir. 2006/54/EC) were all based on Art. 235 TEEC (some also on Art. 100 TEEC). 2 See Nordberg et al. EEA Law, p. 615.

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der discrimination in the labour market. There has been subsequent development within the EU with regard to equal treatment and discrimination. Art. 21 of the Charter of Fundamental Rights establishes a general EU law principle of equality. According to this provision, discrimination based on any grounds, such as ‘sex, race, colour, ethnic or social origin, genetic features, language, religion or belief, political or any other opinion, membership of a national minority, property, birth, disability, age or sexual orientation’, shall be prohibited. Here, gender is only one of the protected categories. The same far-reaching notion of discrimination is found in Art. 19 TFEU (ex Art. 13 TEC). The Council, acting unanimously in accordance with a special legislative procedure and after obtaining the consent of the European Parliament, may take appropriate action to combat discrimination based on ‘sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation’. II. Secondary legislation and case law

The recast Equal Treatment Directive (Dir. 2006/54/EU) covers both Arts. 69 and 70 EEA by addressing equal pay for equal work as well as other forms of discrimination in the labour market (employment and occupation). Besides replacing the equal pay directive (Dir. 75/117/EEC), it replaced Dir. 76/207/EEC on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions, and Dir. 86/378/EEC on the implementation of the principle of equal treatment for men and women in occupational social security schemes, both of which were part of the EEA Agreement from the outset. The recast Equal Treatment Directive also repealed Dir. 97/80/EC on the burden of proof in cases of discrimination based on sex.3 5 The post-doc case (Case E-1/02)4 concerned the reservation of academic positions for women at the University of Oslo. This reservation was based on a provision in the Norwegian Universities Act (12 May 1995 No 22)5 that allowed for positions to be reserved for members of the underrepresented sex. Accordingly, the University of Oslo had earmarked 20 positions as post-doctoral fellows for women (the case also involved the earmarking of permanent positions).6 ESA instituted infringement proceedings and claimed that earmarking positions was not in conformity with the equal rights directive (76/207/EEC) then in force. The EFTA Court relied on case law from the ECJ under the directive, and summarised it as follows (para. 43): 4

3 Dir. 97/80/EC was incorporated into Annex XVIII by EEA Joint Committee Decision No 43/1999. On the burden of proof in these cases, see R Nielsen, EU Labour Law, 2. edn 2013, pp. 355–357. 4 Case E-1/02, 24.1.2003, ESA v Norway. 5 Act of 12 May 1995 No 22 (later replaced by the new Universities Act of 1 April 2005 No 15). 6 For a commentary on the case, see also Barnard, ‘Social Policy Law’, in: Baudenbacher (ed.), Handbook of EEA Law, pp. 809–837, on pp. 821–822.

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Article 70 Equal treatment of men and women “… the Court of Justice of the European Communities has accepted as legitimate certain measures that promote substantive equality under Article 2(4) of the Directive. In determining the scope of a derogation from an individual right, such as the right to equal treatment of men and women laid down by the Directive, regard must, however, be had to the principle of proportionality, which requires that derogations remain within the limits of what is appropriate and necessary in order to achieve the aim in view and that the principle of equal treatment be reconciled as far as possible with the requirements of the aim pursued …”

The EFTA Court emphasised that the directive was based on recognition of 6 the right to equal treatment as a fundamental right of the individual. National rules and practices derogating from that right could therefore ‘only be permissible when they show sufficient flexibility to allow a balance between the need for the promotion of the under-represented gender and the opportunity for candidates of the opposite gender to have their situation objectively assessed’.7 Furthermore, the EFTA Court held that, ‘as a matter of principle’, it had to be possible for the best-qualified candidate to obtain the post. The EFTA Court also referred to the ruling by the ECJ in Case C-407/98 Abrahamsson,8 where a selection procedure favouring female candidates was found to violate the principle of equal treatment of men and women even though it foresaw an assessment of all candidates for the position. The EFTA Court found that the ECJ’s reasoning in Abrahamsson implied that the Norwegian earmarking rule fell foul of the principle of equal treatment a fortiori.9 The EFTA Court underlined that there was ‘no provision for flexibility, and the outcome is determined automatically in favour of a female candidate’.10 The Norwegian government had admitted that it could not be ruled out that posts might be awarded to women applicants with inadequate qualifications, if there was not a sufficient number of qualified women candidates. Based on the foregoing, the EFTA Court reached the conclusion that, by reserving a number of academic posts exclusively for members of the underrepresented gender, Norway had failed to fulfil its obligations under Art. 70 EEA and the relevant provision of the directive. In the same case, the EFTA Court also had to deal with the widening gap 7 between the Main Part of the EEA Agreement and the EU Treaties.11 The Norwegian government invited the EFTA Court to redefine the concept of discrimination in light of the development within the Union, i.e. Art. 141(1) TEC (now replaced by Art. 157 TFEU). The EFTA Court pointed out that there had been ‘substantial changes’ in the legal framework of the Union since the entry into force of the directive,12 but noted that these were not reflected in the EEA Agreement and could not therefore be applied as ‘a legal basis to decide the present application either directly or by analogy’.13 Importantly, however, the 7 8 9 10 11

Para. 45. Case C-407/98, 6.7.2000, Abrahamsson. Case E-1/02, 24.1.2003, ESA v. Norway, para. 51. Case E-1/02, 24.1.2003, ESA v. Norway, para. 54. Tobler, ‘Case E-1/02, EFTA Surveillance Authority v. Norway’, Common Market Law Review 41 (2004) pp. 245–260. 12 Case E-1/02, 24.1.2003, ESA v. Norway, para. 56.

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outcome of the case would probably have been the same even if the legal developments particular to the EU had been taken into account.14 The chosen approach was strikingly far-reaching. Positions were reserved for one gender only and even applicants with inadequate qualifications could end up with permanent positions. 8 The post-doc case received a lot of attention in Norway, both in the media and among scholars.15 The Norwegian government initiated a round of consultations with ESA in 2009 with the aim of reserving some positions in the academic sector for female scientists. The feedback was that such reservation would still not be in conformity with EEA law. The government then decided to pursue alternative means in order to level the representation of both genders in the academic sector.16 The average percentage of female researchers in the higher education sector for the EU-28 is 41, while Norway scores 45.7 (figures from 2012).17 The annual increase in female researchers in Norway during the period 2005–2011 was 5%, while for men it was 1.2% (for the EU-28, the respective figures are 4.4% and 2.3%).18 Turning to the proportion of women at the top level of academic staff (Grade A, professor or equivalent), the female percentage (2013) in Norway is 25.2% (up from 22.9% in 2011), while in the EU-28 it is 20.9% (up from 19.5% in 2011).19 These figures indicate that various means are necessary to increase the representation of women and help to speed up development. It should also be added that the figures presented here are average levels, and in the post-doc case, the incentives were employed in fields where the recruitment of women needed to be strengthened. However, such drastic measures as reserving positions are not in conformity with EEA or EU law de lege lata. 9 Dir. 79/7/EEC on the progressive implementation of the principle of equal treatment for men and women in matters of social security has been part of the EEA Agreement since the beginning. The social security directive is strictly employment-related. It does not cover someone who has never worked, and the ECJ has been reluctant to extend the scope of the provisions.20 10 Dir. 2010/41/EU on the application of the principle of equal treatment between men and women engaged in an activity in a self-employed capacity is also of importance. It repealed and preplaced Dir. 86/613/EEC. Its Art. 3 sets out 13 Para 55. 14 Fredriksen and Franklin, ‘Of pragmatism and principles: The EEA Agreement 20 years’, Common Market Law Review 52 (2015) pp. 629–684 on p. 634 with further references. 15 For a critical analysis, see Tobler, ‘Case E-1/02, EFTA Surveillance Authority v. Norway’, Common Market Law Review 41 (2004) pp. 245–260. 16 NOU 2012: 2 p. 498. 17 European Commission, She Figures (2015), Figure 4.5. Proportion of women researchers in the higher education sector 68. 18 European Commission, She Figures (2015), Figure 4.8. Compound annual growth rate for researchers in the higher education sector, by sex, 2005–2012, 72. 19 European Commission, She Figures (2015), Table 6.1. Proportion of women academic staff, by grade and total 129 and Figure 6.3. Evolution of the proportion of women in grade A positions 131. 20 Craig and de Búrca, EU Law, p. 922.

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the principle of equal treatment in a similar way to that in the ‘recast’ equal treatment directive (Dir. 2006/54/EU) and the social security directive (Dir. 79/7/EEC).21 While the other directives listed in Annex XVIII regulate equal treatment in 11 the labour market, Dir. 2004/113/EC implements the principle of equal treatment between men and women in the access to and supply of goods and services. It introduces the principle of equal treatment for men and women when they act as consumers. The directive has Art. 13 TEU as its legal basis, a provision not mirrored in the Main Part of the EEA Agreement, although it was still considered to be EEA-relevant. When the EEA Joint Committee incorporated it into the Agreement, it emphasised that the directive is based on a provision of EU law not reproduced in the EEA Agreement, and that the decision to incorporate it should not affect the scope of the EEA Agreement.22 Importantly, Dir. 2004/113/EC also applies to the field of insurance. Its 12 Art. 5(1) states that, for insurance contracts concluded after 21 December 2007, gender shall not be used as an actuarial factor if it leads to differences in individuals’ premiums or benefits. However, under Art. 5(2), Member States were permitted to allow for ‘proportionate differences in individuals’ premiums and benefits where the use of sex is a determining factor in the assessment of risk based on relevant and accurate actuarial and statistical data’. However, the Grand Chamber of the ECJ held in Case C-236/09 Test-Achats that this provision was incompatible with Arts. 21 and 23 of the Charter of Fundamental Rights.23 The disputed provision of the directive represents a derogation from the principle of equal treatment for an indefinite period, which, according to the ECJ, would undermine this principle. Provisions that are not reproduced in the EEA Agreement were the legal basis for invalidating the disputed provision. The Norwegian government decided to change the national legislation to ensure conformity with the ruling and in order to obtain legal symmetry within the EU and the EEA.24 Liechtenstein has taken a different approach, however. According to the Liechtenstein Equal Treatment Act, the use of gender in the calculation of premiums and benefits that leads to different premiums and benefits for women and men is, on certain conditions, not regarded as discrimination.25 ESA is of the opinion that Liechtenstein infringes EEA law by maintaining this legislation in force, and decided in 2016 to issue a Letter of Formal Notice on Liechtenstein.26 ESA emphasises that the concept of discrimination on grounds of gender 21 22 23 24

Craig and de Búrca, EU Law, p. 931. EEA Joint Committee Decision No 147/2009. Case C-236/09, 3.3.2009, Test-Achats. Proposition No 87 L (2013-14) 58. See also Schanze, ‘Equality, Solidarity, and the Allocation of Risks: Notes on the Unisex Insurance Tariff Decision of the European Court of Justice’, in: Karl Harald Søvig et al. (eds.), Essays in honour of Jan Fridthjof Bernt (Bergen 2013) pp. 585-596 (footnote 41). 25 Gesetz vom 10. März 1999 über die Gleichstellung von Frau und Mann (Gleichstellungsgesetz). 26 6.7.2016, Case No: 76496, Doc No: 757520, Dec No: 143/16/COL.

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cannot be redefined for the EEA compared with the same concept in EU law, as established by the ECJ, and it argues that ‘the principle of equal treatment and non-discrimination between men and women is also a general principle of EEA law’ (para. 82). The case raises fundamental and difficult questions relating to the impact on EEA law of subsequent development of Union law, in particular relating to the Charter of Fundamental Rights. 13 Pursuant to Art. 13 TEC (see the now Art. 19 TFEU), the EU legislator has enacted two directives targeting equal treatment in a broader sense. Dir. 2000/43/EC implements the principle of equal treatment between persons irrespective of racial or ethnic origin, and Dir. 2000/78/EC establishes a general framework for equal treatment in employment and occupation. According to the latter’s Art. 1, the aim is to combat discrimination as regards employment and occupation on the grounds of religion or belief, disability, age or sexual orientation. Neither of these two directives is included in the EEA Agreement. Norway was in favour of including them, but Liechtenstein and Iceland opposed the inherent extension of the scope of the EEA Agreement as a matter of principle.27 14 Age discrimination has been a recurring issue in Norwegian courts in recent years, and some of these cases have raised interesting questions concerning the interplay between national legislation and EEA law. In Rt. 2010 p. 202 Nye Kystlink, a seaman had been dismissed on grounds of age. According to the legislation then in force, seamen had a special retirement age of 62 years, but the Seamen’s Act also contained a general prohibition on age discrimination.28 The latter was introduced as a result of Dir. 2000/78/EC. Even though the directive is not included in the EEA Agreement, Norway decided to implement it. The Supreme Court held that, even though Norway was not bound by the directive as such, the intention of parliament was to accomplish homogeneity between national law and EU law. A majority of three justices held that, as a matter of principle, this means that Norwegian courts have to make an independent decision based on the same legal material as if the matter had been referred to the ECJ, and that this could result in the setting aside of a special retirement age such as that found in the Seamen Act. Even though only one of the justices found that age discrimination was present in the case at hand,29 the ECJ-centred approach has proven very important in subsequent cases.30 Rt. 2012 p. 219 CHC is of particular interest. It raised the question of whether, based on a collective agree27 See the note on the Norwegian government’s website: https://www.regjeringen.no/no/sub/eosnotatbasen/notatene/2010/apr/ikke-diskrimineringsdirektivet/id2431719/. 28 Act 30 May 1975 No 18. 29 The seamen’s union subsequently brought the matter before the European Committee of Social Rights (ECSR), which held the retirement age to be in violation of Art. 1 § 2 and 24 of the European Social Charter, see Complaint No 74/2011, Fellesforbundet for Sjøfolk (FFFS) v. Norway, 2 July 2013. The labour union then brought a State liability case in the Norwegian courts, but this claim failed because the Supreme Court refused to apply the EEA law principle of State liability by analogy to the European Social Charter, see HR-2016-296-A. 30 See Rt. 2011 p. 964 and Rt. 2011 p. 974 (both concerning company-internal retirement age limits) and Rt. 2011 p. 609 (termination of labour contracts when downsizing based on age).

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ment, an employer was entitled to demand that helicopter pilots resigned upon attaining the age of 60 years.31 The Supreme Court reiterated the viewpoint of the majority in Rt. 2010 p. 202, and followed the Grand Chamber judgement of the ECJ in Case C-447/09 Prigge.32 The Supreme Court held that it followed directly from the Prigge judgment that safety considerations or health aspects cannot justify a general 60-year age limit for helicopter pilots.33 III. The impact of CEDAW

As mentioned in the comments on Art. 69, the UN Convention on the Elimi- 15 nation of All Forms of Discrimination against Women (CEDAW) is a global instrument within the field of sex discrimination that applies in all fields of society. In the post-doc case (Case E-1/02),34 the Norwegian government claimed that the obligations pursuant to CEDAW should be taken into account in the interpretation of EU and EEA law. The EFTA Court held (para 58): “CEDAW, which has been invoked by the Defendant, was in force for Community Member States at the time when the Court of Justice of the European Communities rendered the relevant judgments concerning the Directive. Moreover, the provisions of international conventions dealing with affirmative action measures in various circumstances are clearly permissive rather than mandatory. Therefore they cannot be relied on for derogations from obligations under EEA law.”

The quote indicates that the EFTA Court found CEDAW to be a source of rel- 16 evance within EEA law, but that, in the given case, CEDAW did not support derogation from the relevant provisions. IV. Outlook

Art. 70 can be seen an example of the ‘generation gap’ between the Main 17 Part of the EEA Agreement and EU primary law, as the former remains restricted to gender discrimination whereas the latter has moved towards a general ban on any form of discrimination (as set out in Art. 21 of the Charter of Fundamental Rights). To give an example, the Grand Chamber of the ECJ (in)famously held in Case C-447/09 Mangold that the ‘principle of non-discrimination on grounds of age must thus be regarded as a general principle of Community law’.35 A possible way of remedying the apparent differences between EU and EEA law could be for the courts to develop corresponding unwritten principles of EEA law. It should be taken into account, however, that the Mangold ruling remains controversial36 and that there are limits to the dynamic homogeneity between EU and EEA law. However, non-discrimination can be seen as a common 31 The proceedings had been stayed in order to await the development of case law of the ECJ (see next footnote), cf. Rt. 2010 p. 944. 32 Case C-447/09, 13.9.2011, Prigge. 33 However, the pilots’ subsequent claim for compensation from their employer was rejected by the Supreme Court in HR-2017-219-A CHC II as the error of law was found to be excusable. 34 Case E-1/02, 24.1.2003, ESA v. Norway. 35 Case C-144/04, 22.11.2005, Mangold, para. 75. 36 Craig and de Búrca, EU Law, p. 933 with further references.

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European principle, which is also developed by the European Court of Human Rights.37 It should also be emphasised that attitudes vary between the EFTA States (see above regarding the different views on incorporating Dir. 2000/43/EC and Dir. 2000/78/EC into the EEA Agreement). For the EEA Joint Committee to incorporate the principle of ‘non-discrimination on grounds of age’ or similar general principles as part of EEA law would be straightforward, whereas the courts’ competence to do the same is more controversial.

Article 71 [Social dialogue] The Contracting Parties shall endeavour to promote the dialogue between management and labour at European level.

Art. 71 reproduces the first element of Art. 118 b TEEC, as it was introduced by the Single European Act. There is no relevant case-law from the EFTA Court. The wording in Art. 71 does not fully reflect the emerging competence in social matters brought about through the Social Policy Agreement and Social Policy Protocol, and the role played by the social partners, going from “endeavour to promote the dialogue” to “promoting the consultation of management and labour at Community level”.1 2 Based on Art. 71, the system of social dialogue between the Commission, member organizations on the employers’ side and organizations on the workers’ side, is applicable for members of the EEA. Member organizations from the EEA States are represented through their membership in BUSINESSEUROPE,2 CEEP3 and UEAPME on the employer’s side and ETUC4 on the worker’s side. Member organizations from the EEA States may also be represented in other organizations in the sectorial social dialogue.5 Although Art. 71 gives the EFTA States access to the social dialogue in the EU, within the framework of Arts. 154 and 155 TFEU, it has been argued that the social partners from the EEA States are at a disadvantage compared to the participants from the EU Member States.6 3 Art. 71 is limited to consultations “at European level”. Neither Art. 71 or the Main Part of the EEA Agreement, reflect the development of the role of the social partners in the EU after the EEA Agreement was concluded. One example is the concept of dialogue between the social partners under Art. 152 TFEU, whereby the Union shall facilitate dialogue between the social partners, respect1

37 It should be noted that many Member States of the Council of Europe have been reluctant to ratify Protocol No 12, which provides for a general prohibition on discrimination. 1 See also the comments by Tynes on Art. 96 mn. 4-6 on the EEA Consultative Comittee. 2 From Iceland: SA and SI and from Norway: NHO. 3 From Norway: KS. 4 From Iceland: BSRB and ASI, from Liechtenstein: LANV and from Norway: LO, YS and UNIO. 5 For example, the Norwegian trade union Lederne is a member of CEC European Managers. 6 See the Final Report by the Norwegian EEA Review, NOU 2012: 2, p. 436.

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ing their autonomy, and The Tripartite Social Summit for Growth and Employment shall contribute to social dialogue. The EEA Agreement does not have any provisions on employees’ rights to information or participation, nor on the principles of promoting such dialogue, cf. Art. 151 TFEU and Arts. 27 and 28 of the Charter of Fundamental Rights. However, secondary EU legislation on dialogue between employees and employers and participation in the workplace, has been included in Annex XVIII.7 In this way, the EEA Joint Committee has essentially “updated” Art. 71 to the present stand of EU law.

Chapter 2: Consumer Protection

Article 72 [Provisions on consumer protection] Annex XIX contains provisions on consumer protection

I. General observations

Art. 72 is the only provision in the Main Part of the EEA Agreement dealing 1 with consumer protection as such. However, consumer protection is a crosscutting task that is reflected also in several other parts of the EEA Agreement – in particular in the parts on the free movement of goods and services.1 Examples include rules on competition,2 on product safety,3 on liability for defective products,4 on labelling of foodstuffs5 and chemicals,6 on life assurance7 and financial services to consumers,8 on passenger’s rights in the transportation sector9 etc. This integrated approach to consumer protection is now laid out in Art. 12 TFEU, which makes it clear that consumer protection requirements shall be taken into account by the EU legislator when defining and implementing all Union policies and activities. The lack of a corresponding provision in the EEA Agreement does not hinder this approach from being reflected in EEA law. The full width of EEA consumer protection law can thus only be seen by studying

7 See the comments by Sundet on Art. 68 mn. 9. 1 As noted already by Norberg et al., EEA Law, p. 617 and by Stauder, ‘Der Konsumentschutz nach dem EWR-Abkommen’, in: Jacot-Guillarmod, Accord EEE, pp. 451-458, at pp. 451-452. 2 See the comments by Gjendemsjø on Arts. 53 and 54, cf. Annex XIV on Competition. 3 Cf. Annex II in relation to technical regulations, standards, testing and certification. 4 Cf. Annex III in relation to product liability. 5 Cf. Annex II in relation to technical regulations, standards, testing and certification. 6 Cf. Annex II in relation to technical regulations, standards, testing and certification. 7 Cf. Annex XIII on Transport. 8 Cf. Annex IX on Financial Services. 9 Reg. (EU) No 181/2011 concerning the rights of passengers in bus and coach transport and Reg. (EU) No 1177/2010 concerning the rights of passengers when travelling by sea and inland waterway, both incorporated into Annex XIII (Transport).

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Art. 72 and Annex XIX together with all the other aspects of EEA law that address consumer protection. At the policy-level, cooperation between the EU and the EFTA States in the field of consumer protection is regulated in Art. 6 of Protocol 31 regarding cooperation outside the four freedoms.10 Through the incorporation of Reg. (EU) No 254/2014 into this protocol, Iceland and Norway are participating in the EU’s multiannual consumer programme for the years 2014-2020.11 Chapter 2 of Part V of the Main Part of the EEA Agreement as such does not contain any substantive provisions on consumer protection. Art. 72 is nothing but a simple reference to Annex XIX. In this sense consumer protection is a hidden topic in the EEA Agreement. In contrast, Arts. 12, 114(3) and 169(1) TFEU all highlight consumer protection as one of the main objectives of the internal market. The latter provision states that in order to promote the interests of consumers and to ensure a high level of consumer protection, the Union shall contribute to protecting the health, safety and economic interests of consumers. The simple explanation for the lack of corresponding provisions in the Main Part of the EEA Agreement is that Arts. 12 and 169(1) TFEU were introduced into the EC Treaty only through the Treaty of Maastricht, e.g. after the conclusion of the substantive part of the EEA negotiations.12 The negotiators of the EEA Agreement were well aware of the developments of EC law, however, and included in the twelfth recital of the Preamble a statement as to their determination ‘to promote the interests of consumers and to strengthen their position in the market place, aiming at a high level of consumer protection’.13 As to later developments of primary EU law, the obligation on the EU legislator to secure a high level of consumer protection is now also to be found in Art. 38 of the EU Charter of Fundamental Rights. As a matter of principle, the EEA Agreement is less clear than the EU treaties on consumer protection. The EU treaties hold consumer protection as a goal in itself, not only as a means to improve the functioning of the internal market. In practice, however, the lack of more substantial or at least informative provisions on consumer protection in the Main Part of the EEA Agreement matters little. The EEA Agreement covers consumer protection, and the relevant parts of the EU aquis are continuously incorporated into the relevant Annexes by the EEA Joint Committee. The homogeneity principle directs uniform interpreta-

10 The legal basis in the Main Part of the Agreement is Art. 78 listing consumer protection as one of the fields in which the Contracting Parties shall strengthen and broaden cooperation in the framework of the EU’s activities. See further on this Jónsdóttir’s comments on Arts. 78 ff. 11 See EEA Joint Committee Decision No 251/2014. Liechtenstein is exempted from the participation in, and the financial contribution to, this programme. 12 Art. 129 a of the EC Treaty was inserted by Art. G(38) of the Treaty of Maastricht. It was subsequently renumbered as Art. 153 TEC by the Treaty of Amsterdam and then split up and moved to Arts. 12 and 169 TFEU by the Treaty of Lisbon. 13 See the comments by Arnesen and Fredriksen to the preamble.

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tion of the EU consumer protection legislation both in the context of EU and EEA law, regardless of the lack of provisions mirroring Arts. 12 and 169(1) TFEU.14 EU consumer protection law is a quite comprehensive topic.15 In the follow- 8 ing, the objective is primarily to present and analyse the EU secondary law found in Annex XIX. However, some cases from the EFTA Court concerning life assurance will also be covered as they provide insight into the expectations that the EFTA Court has to ‘the average consumer’ (see Section IV.1 below). Furthermore, there is an important field of EU law that falls outside the scope of the EEA Agreement altogether, but it is so important to cross-border consumer protection that it must be mentioned to give a full picture of the relationship between EU and EEA consumer protection law – namely EU private international law (see Section V below). II. Background: Nordic consumer protection prior to the EEA Agreement

At the time of the conclusion of the EEA Agreement in 1992, four of the five 9 Nordic countries were EFTA members. Denmark had left in 1972, but the Nordic countries had still managed to maintain their long tradition of legislative cooperation, especially in the area of contract law.16 The common Nordic contract legislation, stemming from the early 20th century, includes, inter alia, the Contract Act on formation of contracts and invalidity;17 the Sale of Goods Act;18 the Act on Promissory Notes19 and the Act on Trade Agents.20 In the 1970 s, consumer protection was an important issue with regard to legal cooperation between the Nordic countries, resulting in common mandatory provisions of con14 See, in general, the comments by Arnesen and Fredriksen to Art. 1. 15 A few examples from more recent literature: Micklitz/Reich/Rott, Understanding EU consumer law (2009), Howells/Schulze, Modernising and Harmonising Consumer Contract Law (2009); Weatherill, EU consumer law and policy (2013); Benöhr, EU consumer law and human rights (2013); de Christofari/de Franceschi (ed), Consumer Sales in Europe (2016). 16 See Ole Lando in Lando, Holle, Håstad, Konow, Møgelvang-Hansen, Nystén-Haarala, Ólavsdottir & Zackariasson (eds), Restatement of Nordic Contract Law, Copenhagen (2016) p. 16. 17 The Swedish Contract Act is from 1915, the Danish one from 1917 and the Norwegian one from 1918. Finland was subject to Russian law at the time which is why the Finland act followed a bit later (in 1929). Chapter 1 in the Icelandic Contracts Act from 1936 mirrors the provisions of the other acts as to formation of contract. 18 The Nordic Sale of Goods Act was enacted by Sweden in 1905, in Denmark in 1906 (where it is still in force) and Norway in 1907. The Icelandic Nordic Sale of Goods Act was enacted in 1922. Due to the influence from Russia, Finland did not enact similar legislation, but over the years, Finish sales law developed in lines with the Nordic Sale of Goods Act. 19 The Nordic Promissory Act was enacted in Sweden in 1935, in Denmark in 1938, in Norway in 1939 and in Finland in 1947. Icelandic legislation does not contain a similar act, but the principles of the Nordic Promissory Note Act is included under the general principles of the law of obligations, see Restatement of Nordic Contract Law, p. 313. 20 The Nordic Act on Commission and Trade Agents was enacted in 1916 by Act 30th of June 1916 No 1. Similar legislation in Sweden dates back to 1914 and in Denmark from 1917. Iceland and Finland do not have equivalent legislation, but the Nordic Commission and Trade Agents Act has been taken into consideration in court practice, see Restatement of Nordic Contract Law, p. 128.

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sumer protection integrated in the national acts on the sale of goods. This cooperation had a huge impact also on other areas of contract law as provisions from the sale of goods acts were used by courts and academics in all of the Nordic countries to deduce general unwritten principles of national contract law. 10 In the 1980 s and 1990 s, all of the Nordic countries but for Iceland became parties to the Convention of International Sale of Goods (CISG).21 However, the Nordic countries made a joint reservation under CISG Art. 94 so that interNordic sales are not governed by the Convention. 11 However, CISG was implemented differently in Norway than in Denmark, Finland and Sweden. In 1988, Norway got a new Sale of Goods Act based upon the CISG.22 This act was applicable to contracts between professionals, between private individuals and between professionals and consumers (so-called B2C: business-to-consumer), and was essentially equally applicable to national and international sales of goods. As a result, CISG has had a greater impact on the development of Norwegian contract law than what has been observed elsewhere in Scandinavia. Despite the fact that CISG does not cover consumer sales, there are many examples of Norwegian consumer legislation being based on or at least inspired by CISG. The Convention was used as a model for the 1992 Purchase of Real Estate Act, the 1997 Home Construction Act and the 1989 Craft Services Act.23 Some of the CISG-based legislation, such as the 1992 Purchase of Real Estate Act, is equally applicable to commercial actors and consumers. 12 In the 1980 s, the Nordic countries cooperated to create a general clause of contract law – a provision on invalidity or revision in cases of unfair contract terms, now found in Section 36 of the Contract Acts of all of the Nordic countries. This started out as an initiative on consumer protection, but in its final wording the general clause is applicable to any contract regardless of the legal status of the parties. According to the general clause, a contract can be modified or set aside by a court if it is unreasonable, having regard to the content of the contract, the circumstances prevailing at the time of its conclusion, as well as subsequently arising circumstances.24 However, case law shows that there is a high threshold for a contract to be declared void on the general clause, in particular if both parties are professional market operators.

21 United Nations Convention of International Sale of Goods concluded in Vienna 11 April 1980. Iceland eventually became a party to CISG in 2003. 22 Act 13th of May 1988 no 88 on Sale of Goods. 23 Purchase of Real Estate Act 3 July 1992 No 93; Home Construction Act 6 June 1997 No 43 and Craft Services Act 16 June 1989 No 63. 24 Section 36 of the Contract Acts is explained in Restatement of Nordic Contract Law, pp.154-158. See also Hauge, Unfair Contract Terms in Nordic Contract Law, in: Håstad (ed), The Nordic Contract Act (2015) pp. 157-178. There is a vast literature in Scandinavian languages on contract law covering Section 36. As for Norway, see Hauge, Ugyldighet ved formuerettslige disposisjoner (2006), Giertsen, Avtaler, 3rd ed (2014) pp. 201-273, Hagstrøm, Obligasjonsrett, 2nd ed (2011), pp. 287-323 and Hov/Høgberg, Obligasjonsrett (2016), pp. 401-431.

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A few Supreme Court cases from Iceland and Norway where contract clauses 13 were not set aside in business-to-business contractual relationship: In Rt. 2010 p. 1345 the Norwegian Supreme Court decided in a dispute between a municipality and a company maintaining the roads during the winter. The need for salt to keep the roads free from ice and snow turned out to be three times as high as was presented as average in the procurement documents. The Norwegian Supreme Court concluded that this was not sufficient to make revisions under the contract by reference to Section 36. So far there are no examples of contract revision in business-to business contracts in Norwegian Supreme Court practice. The Icelandic courts seem to be somewhat more willing to modify business-to business contracts compared to other Nordic countries. See for example HRD 542/2010 where the fixed fee for a construction contract based on tender was raised by applying Section 36 due to the sudden and unforeseen devaluation of the Icelandic Krona. In consumer cases, the question of reasonableness and fairness under Section 36 will be influenced by “stronger-weaker party” considerations. Disputes regarding business-to-consumer cases will often in addition be covered by the EU Consumer Contracts Directive (Dir. 1993/13/EC). However, the threshold for declaring a contract unfair and thus void under Section 36 is high also in consumer cases. See for example Rt. 2012 p. 355 and Rt. 2012 p. 1926 were bank customers did not succeed in disputes regarding so-called structured saving products. In Rt. 2013 p. 388 however, a contract of structured saving products was regarded unreasonable by the Supreme Court’s Grand Chamber. After the entry into force of the EEA Agreement, there was a discussion in 14 the Nordic countries on how to incorporate and relate to EC consumer protection law. It was a common conception that the level of consumer protection was higher in the Nordic countries than in the EC. As most of the directives on consumer protection were minimum harmonizing directives, Norway and the other Nordic countries essentially decided to keep their national legislation. III. The consumer protection rules found in Annex XIX 1. Introduction

The EU consumer protection rules found in Annex XIX can be divided into 15 three categories: consumer contract law; rules on commercial practices and on procedural matters (such as rules on Alternative Dispute Resolution and cooperation between national authorities for the enforcement of consumer protection laws). At the time of the entry into force of the EEA Agreement, Annex XIX includ- 16 ed seven Directives.25 Almost 25 years later, only one of them remain in force – Dir. 87/357/EEC on the approximation of the laws of the Member States con-

25 See Norberg et al., EEA Law, pp. 618-619.

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cerning products that, by appearing to be something that they are not, endanger the health or safety of consumers. The other six have all been replaced by new directives. As of 2017, Annex XIX includes 16 EU legislative acts (13 directives and 3 regulations), a couple of implementing acts and, finally, a list of recommendations and resolutions (both from the Council and from the Commission) of which the Contracting Parties “take note”. 2. Consumer contract law 17

Some of the directives incorporated into Annex XIX are limited in scope to a specific type of contract. The list includes: – Dir. 90/314/EEC on package travel, package holidays and package tours; – Dir. 2008/122/EC on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts26 and – Dir. 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees.

The EU adopted a new Package Travel Directive in 2015,27 bringing the regulation of package travel up to date with developments in the travel market. The new directive applies to pre-arranged travel packages, ready-made holidays from a tour operator as well as customised packages bought from a single business and looser combinations of travel services by way of linked travel arrangements. At the time of writing, it has yet to be incorporated into the EEA Agreement. 19 All of the directives regarding specific type of contracts are minimum harmonization directives.28 20 Many transactions entered into by consumers are financed by credit from the seller or from a financial institution. The interests of consumers in this regard are now protected by Dir. 2008/48/EC on credit agreements for consumer, which was incorporated into Annex XIX in 2009.29 21 Consumer protection in cases of distance contracting has a long tradition in EU consumer law. At the time of the EEA Agreement’s entry into force, Annex XIX included Dir. 1985/577/EEC on protection of consumers in respect of contracts negotiated away from business premises. That directive was later replaced by Dir. 1997/7/EC, which again was replaced by the general Consumer Rights Directive (Dir. 2011/83/EU).30 Consumer rights in respect of distance and off18

26 The 2008 Directive replaced the old Timeshare Directive (94/47/EC) with clearer and simpler rules. 27 Dir. 2015/2302/EU on package travel and linked arrangements. 28 See Section VI below where the development from minimum harmonization to fully harmonized EU law is commented upon. 29 EEA Joint Committee Decision No 16/2009. The Directive has later been amended by Dir. 2011/90/EU, which was incorporated into the EEA Agreement by EEA Joint Committee Decision No 229/2012.

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premises contracts are now regulated by Chapter III of the latter directive and takes into account that many consumer contracts today are concluded online. The Directive’s requirements for distance and off-premises contracts include information about digital content. It regulates the right of withdrawal (length of the withdrawal period, procedure and effects of the withdrawal), including detailed rules on a standardised withdrawal form that must be provided by traders and may be used by consumers to notify the withdrawal from the contract. The Consumer Rights Directive from 2011 is applicable to all consumer con- 22 tracts including matters regulated by special rules such as the abovementioned sector-specific directives that are still in force.31 Another, much older, directive of general applicability is Dir. 93/13/EEC on 23 unfair terms in consumer contracts.32 This directive applies to contract terms that have not been individually negotiated. In these cases, it is particularly important to secure a fair balance between the consumer’s rights and duties under the contract. According to Art. 3(1) of the Directive, a contractual term that has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer. Dir. 93/13/EEC has been considered both by the EFTA Court and Icelandic and Norwegian national courts, see further in Section IV below. When it comes to the level of protection, it can be observed that the more re- 24 cent directives such as the Consumer Credit Directive and the Consumer Rights Directive fully harmonizes the law within their respective scope of applicability. The Unfair Contract Term Directive from 1993, however, is a minimum directive. 3. Unfair commercial practices

The second category of EU legislation on consumer protection found in An- 25 nex XIX concerns unfair commercial practices. The list includes: – Dir. 98/6/EC on consumer protection in the indication of prices of products offered to consumers – Dir. 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market – Dir. 2006/114/EC on misleading and comparative advertising The EU legislation prohibiting unfair commercial practices is not only about 26 consumer protection; it is also very much about securing a level playing field for economic operators in the internal market. This dual purpose is visible also in the Commissions strategy for a Single Digital Market.33

30 EEA Joint Committee Decision No 181/2012. 31 See further Art. 3 of the Directive. 32 Incorporated into the EEA Agreement already by EEA Joint Committee Decision No 7/94.

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4. Effective consumer protection by way of dispute resolution and cooperation between national authorities

The third category of consumer protection law found in Annex XIX concerns matters of procedural and administrative law with a view to the effective judicial protection and enforcement of the substantive rules. These developments of EU consumer protection law have unfolded after the EEA Agreement’s entry into force. The EU legal acts in this category have therefore all been added to Annex XIX by decisions from the EEA Joint Committee. 28 The two most important EU legal acts in this category, at least from the perspective of the individual consumer, are 27

– Dir. 2013/11/EU on alternative dispute resolution for consumer disputes (the ADR Directive) – Reg. (EU) No 524/2013 on online dispute resolution for consumer disputes (the ODR Regulation) Both of these acts were incorporated into the EEA Agreement only in 2016 – three years after they were enacted by the EU legislator.34 There is a link between the two: When dispute resolution is carried out online, it is referred to as Online Dispute Resolution (ODR). 30 Norway implemented both the ADR Directive and the ODR Regulation in 2016, actually before the formal incorporation under the EEA Agreement.35 Important changes were made to the Norwegian scheme of handling consumer complaints out of court. There has been a long tradition in Norway for solving such complaints out of court. Regional Consumer Councils offers mediation with a possibility to appeal to The Consumer Disputes Commission. In addition, there has long been a multitude of complaint boards for different branches. 31 After the implementation of the ADR Directive and the ODR Regulation, there is now a more comprehensive approach to questions regarding consumer complaints. Different complaint boards for different branches still exist, but the complaint boards are now subject to public authorization. Complaint boards and mediation entities can apply for authorization and thereby prove that the complaint board meets quality requirements regarding the board members¨ competence and procedural rules in decision making. 32 The general, two-instance system of the Consumer Council and the Consumer Disputes Commission still exists alongside the branch-specific complaint boards. The plaintiff starts the complaint by submitting a written com29

33 See the Study on Consumer protection aspects of financial services, prepared for IMCO Committee, Policy Department A from 2014. See also COM(2015) 192 final, A Digital Single Market Strategy for Europe. 34 EEA Joint Committee Decision No 194/2016. 35 Act 17th of June 2016 No 79 and Regulation 20 th of June 2016 no 733. In addition new legislation was enacted regarding the Consumer Disputes Commission, see Act 17th of February 2017 No 7.

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plaint to the Consumer Council. The first step consists of an obligatory effort to solve the dispute through mediation by the local offices of the Consumer Council (Forbrukerrådet). The case is passed on to the secretariat to the Commission if mediation is unsuccessful. The Commission shall consider the case on the basis of the written presentation, and the parties do not attend the meetings. The decisions are published on the Consumer Disputes Commission's websites. The ODR Regulation requires that businesses established in the EU that sell goods or services to consumers online need to comply with the ADR/ODR legislation: Businesses are required to provide a link from their website to the ODR platform. According to the decision of the EEA Joint Committee, the ODR platform shall be accessible in all the languages referred to in Art. 129(1) EEA. However, special requirements regarding translations to and from the Icelandic language have been agreed. The system for Online Dispute Resolution was added to Annex XIX in July 2017.36 By incorporating the ADR Directive and the ODR Regulation into the EEA Agreement, the harmonization process regarding consumer protection has extended beyond questions of contract law, market access and market behaviour. ADR and ODR lay down harmonized rules for dispute settlement outside of the national court systems. Making the ADR/ODR scheme part of the EEA Agreement means that consumers from Norway, Iceland and Lichtenstein have access to the same simple and inexpensive out of court dispute settlement scheme as any consumer in the EU.37 In addition to the legal instruments regarding ADR/ODR, the somewhat older Dir. 2009/22/EC on injunctions for the protection of consumers’ interests ought to be mentioned.38 It obliges the EEA States to designate an entity (a public body or a private organization) responsible for protecting the collective interests of consumers. According to Art. 3 member states shall designate the courts or administrative authorities competent to rule on proceedings commenced by qualified entities. The competent authority in Norway is Markedsrådet (the Market Council). The Market Council has the authority to issue decisions banning unlawful marketing, contract terms and conditions in standard contracts when deemed necessary in the interests of consumers. It also has the authority to ban unlawful advertising. In order to facilitate consumer protection in cross-border trade, the EU has established a cooperation between national authorities responsible for consumer

36 Decision of the EEA Joint Committee No 194/2016 of 23 September 2016. On 24 May 2012, the EFTA States submitted a Comment on the Commission’s Proposal for a ADR Directive and a ODR Regulation to the European Parliament, basically supporting the initiative, but also pointing at some challenges. 37 Interesting critical remarks regarding the influence of EU harmonization to national civil procedure is given by Nylund, ‘European Integration and Nordic Civil Procedure’, Chapter 3 in the book The Future of Civil Litigation (2014). 38 As amended by Reg. (EU) No. 524/2013 and Dir. 2013/11/EU, see Point 7 d of Annex XIX.

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protection. The EEA Agreement integrates the EFTA States into this system through the following acts found in Annex XIX: – Reg. (EC) No 2006/2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws (with later amendments)39 – Commission Decision 2007/76/EC implementing Reg. (EC) No 2006/2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws as regards mutual assistance (with later amendments)40 The inclusion of the EFTA States into the EU consumer protection cooperation includes the so-called European Consumer Network and the system of European Consumer Centres. 38 The entity Forbruker Europa (Consumer Europe) offers free help and advice for consumers purchasing goods or services from EU member states, Norway or Iceland. Forbruker Europa is the Norwegian office in the European network of consumer offices found in each state (ECC-Net). The main goal of the ECC-Net cooperation is to make it safer for consumers to shop in other EU/EEA countries. The ECC-Net is co-funded by the EU Consumer Programme and by national authorities.41 37

IV. Interpretation and application of EEA consumer protection law 1. The ECJ and the EFTA Court

In the field of EU consumer protection law, the ECJ has rendered a significant number of important judgments since the entry into force of the EEA Agreement. As a result of the homogeneity principle and the loyal adherence to ECJ case-law demonstrated by ESA, the EFTA Court and the governments, legislatures and national courts of the EFTA States, these rulings have essentially had the same impact within the EFTA-pillar of the EEA as in the EU. Some examples where the EFTA Court and/or national courts have relied on ECJ case law will be presented in the following. However, a general analysis of the impact of ECJ case law to EU (and thus EEA) consumer protection law is outside the scope of this contribution.42 40 The EFTA Court’s contributions to the development of EU/EEA consumer protection law have been rather limited, but a few cases ought to be mentioned. 39

39 See Point 7 f of Annex XIX. 40 See Point 7fa of Annex XIX. 41 For more information see http://ec.europa.eu/consumers/solving_consumer_disputes/non-judicial_redress/ecc-net/index_en.htm or https://forbrukereuropa.no/en/; see also ECC-Net Report, March 2013. 42 See Nebbia & Askham, EU Consumer Law (2004), pp. 38-41, emphasising the importance of ECJ case law. See also Ramsey, Consumer Law and Policy (2007), p 42.

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The first consumer-related case to be brought before the EFTA Court was 41 Case E-1/05 ESA v Norway. The dispute essentially concerned the question of whether a Norwegian regulation requiring upfront payment of costs that accrue when life assurance contracts are entered into was compliant with the 2002 Life Assurance Directive.43 Before the EFTA Court, the Norwegian government acknowledged that the requirement constituted a restriction on the freedom of assurance providers authorised in other EEA States (which did not charge contract completion costs in the contested manner) to offer their products in Norway, but submitted that it was justified by the need to ensure effective competition and consumer protection. Prior to the enactment of the contested regulation, life assurance providers in Norway charged quite substantial contract completion costs (normally around EUR 1,000), spreading repayment over the term of the contract. This meant that if a life assurance contract was terminated or transferred, a completion cost debt was deducted from the accrued funds, often coming as an unpleasant surprise to consumers who were considering offers from other providers. As a result of the requirement, that the costs had to be charged and paid no later than the date when the first premium payment was due, contract completion costs on average fell to only around EUR 50. To Norwegian lawyers, accustomed to a protective and regulative State, this appeared as a proportionate interference in the market. The EFTA Court, however, saw this differently. Drawing upon the ECJ’s expectations to “the average consumer” in its case-law concerning misleading advertising, the EFTA Court held that the point of departure when interpreting the Life Assurance Directive was ‘a consumer who is reasonably well informed and reasonably observant and circumspect’.44 Based on this, the Court argued that consumers would be offered sufficient protection if life assurance providers were required to supply more specific information (e.g. on all contract completion costs and the terms of their repayment).45 As such an obligation would be less restrictive than the requirement of upfront payment, the Norwegian regulation was held to be disproportionate to the objective pursued. To a Norwegian lawyer, the implicit conviction of the EFTA Court, that the average consumer, when only the necessary information is available, will actually acquire and act upon this information to choose the contract best suited to his/her needs, appears somewhat unrealistic. Interestingly, the decisions thus appear to be grounded in higher expectations to the average consumer and, implicitly, higher appreciation of the freedom of contract than the one underlying the Nordic partiality to consumer protection through prescriptive contract law.46 It is of considerable interest in this regard that the President of

43 Dir. 2002/83/EC concerning life assurance, which was incorporated into Annex IX (Financial Services). It has later been replaced by Dir. 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (recast), see EEA Joint Committee Decision No 78/2011 and Point I.(i)1 of Annex IX. 44 Para. 41, citing the ECJ’s judgment in Case C-210/96 Gut Springenheide. 45 Paras. 44-45.

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the EFTA Court, who himself participated in the case, has characterized the judgment as truly dynamic in its approach.47 42 Another case concerning insurance services to consumers that points in the same direction is Case E-4/09 Inconsult.48 The case concerned the interpretation of Dir. 2002/92/EC on insurance mediation, which the EEA Joint Committee has incorporated into Annex IX (Financial Services). The question referred to the EFTA Court concerned the criteria by which an Internet site may be regarded as constituting a ‘durable medium’, as it is to be understood under Art. 2(12) of the Directive. The EFTA Court implied that in the Internet age consumers can be expected to download or print out the document from the website of a financial services provider.49 Just one and a half year later, however, the ECJ took a different approach in Case C-49/11 Content Services with regard to the same question in the context of Dir. 97/7 on the protection of consumers in respect of distance contracts. 50 Despite referring to the EFTA Court’s decision in Inconsult in an affirmative manner, the ECJ continued to hold that a website on which information is accessible to consumers via a link provided by the seller cannot be regarded as a ‘durable medium’. The analysis of the EFTA Court’s President is telling: According to him, the ECJ’s implicit view that a consumer ‘cannot even be expected to make a mouse click’ is ‘based on a different image of man’ than the one prevailing in the EFTA Court.51 Given this difference between the ECJ and the EFTA Court, which the EFTA Court’s President regard as ‘important’, it will be interesting to see whether the national courts of the EFTA States will chose to follow the ECJ or the EFTA Court. 43 The next case that should be mentioned, Case E-11/12 Koch, also concerned life assurance. The core issue in this case was the duty of the life insurance company to give information before conclusion of a contract for life insurance. In 2004, the four plaintiffs signed contracts for a combined package product including a loan, securities and life assurance. In the proceedings before the national court, the plaintiffs claimed that their assurance premiums had been all but wiped out. 44 The EFTA Court found that the Life Assurance Directives did not require the assurance undertaking to provide the policyholder with advice before the contract was concluded. It was the duty to inform that was underlined. The Court held that the written information to be communicated to the policyholder before 46 Fredriksen, ‘Er EFTA-domstolen mer katolsk enn paven?’, Tidsskrift for Rettsvitenskap 2009 pp. 507-576, at p. 542. 47 Baudenbacher, ‘Zur Auslegung des EWR-Rechts durch den EFTA-Gerichtshof’, in: Müller, Osterloh and Stein (ed), Festschrift für Günter Hirsch, München 2008, pp. 27-50, at p. 41 (‘aus durchaus dynamischen Character’). 48 Case E-4/09, 27.1.2010, Inconsult. 49 See Baudenbacher, ‘After Brexit: is the EEA an option for the United Kingdom?’, European Law Reporter (2016) 134-142, at p. 140. 50 Case C-49/11, 5.7.2012, Content Services. 51 See Baudenbacher, ‘After Brexit: is the EEA an option for the United Kingdom?’, European Law Reporter (2016) 134-142, at p. 140.

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a contract on unit-linked life assurance is concluded must be complete, clear and accurate. Information must also be sufficient to define the units to which the benefits are linked and to describe the nature of the underlying assets. The prospective policyholder must be able to choose the contract best suited for his or her needs. Two Icelandic cases of interest concerning Dir. 93/13/EEC on unfair terms in consumer contracts are Case E-25/13 Engilbertsson and Case E-27/13 Gunnarsson. In Case E-25/13, Mr. Engilbertsson had taken on mortgage loans in the form of securities-backed bonds in order to buy property in Reykjavik. The loan at issue was linked to the Icelandic consumer price index and the contract included a provision on the review of the interest rate. In the subsequent proceedings, it was disputed whether the indexation was an unfair contract term, contrary to the Directive. The bank argued that the price indexation was based upon national rules that must be considered mandatory and therefore excluded from the scope of the Directive according to its Art. 1(2). The EFTA Court noted that indexation did not appear mandatory in the sense that a mortgage loan had to be indexed and, further, that indexation did not apply as a default rule in the absence of any specific contractual arrangement on this point between the parties. At the same time, however, it appeared that if parties agree to index a loan in accordance with one of the possibilities provided under Icelandic law, then they are bound to a substantial extent by the scheme set out in regulatory and statutory provisions of national law. The Court then held that it would be ‘artificial’ to draw a distinction between terms that, pursuant to national law, had to be included in a category of contract, such as mortgage loans, and clauses whose inclusion in the category of contract is optional but whose substance is mandatory.52 This was so because in neither case does the inequality of bargaining power influence the content of the terms to the detriment of the consumer. Moreover, to the extent that the parties have to apply contractual terms which reflect a scheme set out in regulatory and statutory provisions of national law, these rules are equally imposed on the supplier and consumer. The concrete assessment as to whether and to what extent the Icelandic regulatory scheme was exhaustive so that the bank had no right to unilaterally set out certain aspects in terms and conditions at a contractual level was left to the national courts. As far as the substance of the prohibition on unfair contract terms was concerned, the EFTA Court cited several rulings from the ECJ, implicitly making clear that the ECJ’s approach is to be followed also in the context of EEA law. The EFTA Court concluded that the Directive does not categorically prohibit a price-indexation clause in a mortgage loan agreement, but also instructed the national court to assess the clauses in questions with particular attention to the clar52 Para. 75.

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ity and quality of the information about the price indexation which the seller or supplier provided the consumer with at the time when the contract was concluded.53 Further, and again fully in line with ECJ case law, the EFTA Court held that it was for the competent national court to establish whether a particular contract term had been negotiated individually within the meaning of Art. 3 of the Directive and whether a contract term relating to the indexation of repayment instalments of a loan to finance real estate purchases had been explicitly and comprehensibly described to the consumer. Finally, the EFTA Court also adhered to the ECJ’s interpretation of Art. 6 of the Directive in instructing the national court to exclude the application of an unfair contractual term such that it does not produce binding effects with regard to the consumer, without also being authorised to revise the term's content. In principle, the contract must continue in existence without any amendment other than that resulting from the deletion of the unfair terms, in so far as, in accordance with the rules of domestic law, such continuity of the contract is legally possible.54 Case E-27/13 Gunnarsson also raised question of fairness of clauses in loan agreements between a bank and a consumer. The loan in question was an indexed loan agreement and the bank had used standard contract terms. The consumer, Mr Gunnarsson, claimed that the indexation in the loan agreement violated his rights under the 1987 Consumer Credit Directive (Dir. 87/102/EEC).55 The EFTA Court found that the term ‘total cost of the credit’ in the Consumer Credit Directive comprises all the costs that the consumer is liable to pay under the credit agreement, including both interest charges and charges resulting from the price indexation. The Court also found that it is for the national court to assess, taking account of all the circumstances of the case, the legal consequences and the remedies for such incorrect information, provided that the level of protection established by the Consumer Credit Directive is not compromised. The EFTA Court also stated that a failure of a credit institution to provide the consumer with full information regarding the total cost of credit and annual percentage rate of charge specified in the Consumer Credit Directive qualifies as an unfair business. The questions in Gunnarsson concerning the interpretation of Dir. 93/13/EEC on unfair terms in consumer contracts were in substance identical to those examined in Case E-25/13 Engilbertsson. With respect to the substance of these questions, the EFTA Court found that there was no reason to make a distinction between a mortgage credit, as in the case of Mr. Engilbertsson, and a consumer credit loan, as in the case of Mr. Gunnarsson. The answers were therefore sub-

53 Paras. 97-98. 54 Para. 164. 55 Now replaced by Dir. 2008/48/EC on credit agreements for consumer, which was incorporated into Annex XIX in 2009, see Section III.2 above.

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stantially identical and numerous and lengthy references were made to the Engilbertsson case. 2. The national courts of the EFTA States

The ECJ has stated that EU Consumer Directives may have to be applied ex officio by national courts.56 It is assumed that this obligation also applies in the context of EEA law and thus also to the national courts of the EFTA-pillar.57 A few cases from the Norwegian Supreme Court will be presented as examples of EU consumer law being interpreted and applied in a Norwegian context. The so-called ‘Boots heel case’, Rt. 2006 p. 179, was essentially a dispute about remedies. A consumer had bought a pair of boots at the cost of NOK 1360 (about EUR 150). Six weeks later, the heel fell off one of the boots. The customer demanded a new pair of boots whereas the seller claimed that she would have to accept a repair. Giving the customer a new pair of boots would have cost the seller NOK 447 in contrast to the cost of repairing the boot for approximately NOK 65. Section 29 of the 2002 Consumer Sales Act states that a consumer has a right to choose between the goods being repaired or to be given a new item of the same kind, but not if this will lead to unreasonable cost for the seller. The Supreme Court split over the issue. The majority of three judges came to the conclusion that the gap between the costs of repair compared to the cost of delivering a new pair of boots constituted ‘unreasonable costs’. The minority of two found that when interpreting the ‘unreasonable cost’-criteria, the amount of the cost itself must be decisive regardless of the proportion between the cost of repair and redelivery. The minority found that an amount of NOK 400 did not represent an ‘unreasonable cost’. As explained earlier, Norway got a separate Consumer Sales Act in 2002. The structure and pattern of the Act follows the CISG based 1988 Sale of Goods Act. Many of the provisions in the Consumer Sales Act however represent an integration of the Consumer Sales Directive. The majority in the Boot Heel Case referred to the Consumer Sales Directive (1999/44/EC) and interpreted its Art. 3(3) in light of the Directive’s preamble. In addition, the majority referred to the preparatory work to the 2002 Norwegian Consumer Sales Act where it was pointed out that an extensive right for the consumer to demand new goods instead of accepting the sold product to be repaired, would support a ‘use and discard’ society that disregards strong environmental policy considerations. The majority thus chose to interpret Section 29 of the Consumer Sales Act in a manner that supported an environmentally friendly practice. The majority raised the question if such an interpretation would be contrary to Norway´s obligation under the EEA Agreement. The majority referred to legal literature where it was stated that the wording of Art. 3(3) of the Directive does not in itself mention 56 See, e,g., Case C-227/08. 57 See Giertsen, Kontraktsrett (2017), p. 82.

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environmental considerations, but still appear flexible enough to allow for such considerations.58 The minority of two judges did not disagree with regard to the interpretation of the Directive, but pointed out that the Consumer Sales Directive is a minimum directive. Another Norwegian Supreme Court case regarding consumer protection in the finance sector that should be mentioned is the Røeggen case, Rt. 2013 p. 388. The case deals with so-called structured saving products. The consumer, Mr. Røeggen, claimed that the agreement in question was invalid because the contract was unfair and therefore contrary to Sections 36 and 37 of the Norwegian Contract Act. As grounds for invalidity, Mr. Røeggen pleaded misleading information, unfair contract terms, violation of good business practice and the bank not complying with the duty to advice the consumer not to enter into the contract. The terms of the agreement between Røeggen and the bank were standard contract terms. The Supreme Court had previously concluded that investment agreements with great similarities to the Røeggen case, were not unfair.59 In the Røeggen case, however, the Grand Chamber of the Supreme Court ruled unanimously in favour of the consumer. This merits a closer look at the facts of the case. Mr. Røeggen had borrowed NOK 500,000 from a Norwegian bank to buy two investment products (structured savings instruments) that the same bank was offering. He lost a substantial amount of money on the ‘investment’ and felt misled by the information and the advice given by the bank. In the Supreme Court, the Directive on Unfair Contract Terms caught the attention of the judges. The mentioning of the Directive is in Norwegian legal literature described as a turning point in the way to argue and use legal sources stemming from EU law in Norwegian contract law.60 The Supreme Court referred to the Unfair Contracts Terms Directive when interpreting Sections 36 and 37 in the Contract Act. Referring to the ECJ’s rather withdrawn approach in Case C-237/02 Freiburger Kommunalbauten, the Supreme Court held that it was up to national courts to make the assessment of the ‘unreasonable’ criteria. However, the Supreme Court continued to state that the Unfair Contract Terms Directive must be seen as an expression of a general view that the consumer, when meeting with a professional actor, is in need of particular protection. The Supreme Court added that the consumer protection objective had to be given substantial weight, and this must be reflected when interpreting the question of reasonableness.61 The Supreme Court also emphasized

58 Rt. 2006 p. 179, para. 40, citing Hagstrøm, Norsk kjøpsrett, 2005, p. 203. 59 See Rt. 2012 p. 355 Longvik and Rt. 2012 p 1926 Fokus Bank. 60 See Lilleholt, ‘Revitalisering av generalklausulen? – Litt om opplysningssvikt og avtalelova § 36’, Tidsskrift for Rettsvitenskap 2013 pp. 550-566. 61 Para. 61.

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that Section 37 of the Norwegian Contract Act was added to implement the Unfair Contract Terms Directive.62 In the case of Mr. Røeggen, the Supreme Court found that the mere content of 62 the contract was not sufficient for invalidity. In the overall assessment, however, the Supreme Court underlined that misleading information together with the bank´s focus on the prospects for profits and not the risk of losses, gave the consumer a distorted picture of the possibilities for profit.63 Mr. Røeggen’s agreements with the bank were thus set aside. V. The lack of EEA private international law

One important area of EU law with relevance also to consumer protection that is not covered by the EEA Agreement is Judicial Cooperation in Civil Matters (Art. 81 TFEU). When dealing with cross-border consumer contracts, it is thus important to be aware that EU private international law is outside the scope of the EEA Agreement. In the EU, private international law has been considered important for the functioning of the internal market. International civil procedural rules regarding jurisdiction, recognition and enforcement of judgements have been an important part of EU law since the 1968 Brussels Convention. Over the years, this set of rules has developed into the Brussels I (recast) Regulation.64 When it comes to choice of law rules, the so-called Rome Convention from 1980 was the first legal instrument for the EU Member States covering choice of law in matters of contract. Over the years, the Rome Convention has been converted into the Rome I Regulation.65 Both the Brussels I (recast) Regulation and the Rome I Regulation contain provisions on consumer protection. Given the EEA Agreement’s object and purpose – to integrate the EFTA States into the EU internal market – it is obviously problematic that the Agreement does not include EU rules on judicial cooperation in civil matters which the EU legislator consider necessary for the proper functioning of the internal market (Art. 81(2) TFEU). To a certain degree, however, these topics have been dealt with through other instruments. Already in 1988, the then 12 member states of the European Communities had signed the Lugano Convention on jurisdiction and the enforcement of judgments in civil and commercial matters with the then six EFTA States Austria, Finland, Iceland, Norway, Sweden and Switzerland. The 1988 Lugano Con62 Para. 60. 63 Para. 129. 64 Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments n civil and commercial matters (recast.). 65 Convention 80/934/ECC on the law applicable to contractual obligations opened for signature in Rome on 19 June 1980 and Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I).

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vention was construed as a ‘copy’ of the Brussels Convention, the two being referred to as ‘parallel conventions’. When the Brussels Convention was replaced by the Brussels I Regulation in 2007, a new Lugano Convention was finally agreed between the EU and the EFTA States Iceland, Norway and Switzerland in 2007.66 The 2007 Lugano Convention is not updated in line with the Brussels I recast, however, meaning that there now are some divergences between the 2007 Lugano Convention and Brussels I recast. Still, the rules on jurisdiction for insurance contracts and consumer contracts found in Brussels I recast Arts. 10-19 are by and large parallel to the provisions in the 2007 Lugano Convention Arts. 8-14 and Arts. 15-17. The level of consumer protection when it comes to agreements on jurisdiction in cross-border trade is basically the same under both regimes. However, Liechtenstein is not a party to the Lugano Convention, so the equivalence of consumer protection brought about by the Lugano Regime is limited to two of the three EEA EFTA States. The EU rules on choice of laws is a different matter as there is no parallel convention extending these rules to the EFTA States. The Danish opt-out from the Rome I Regulation does not compare as Denmark applies the Rome Convention as the legal basis for choice of law in matters related to contractual obligations.67 The Rome Convention Art. 5 and the Rome I Regulation Art. 6 are important provisions when it comes to consumer protection regarding choice of law. In addition, there are protective provisions e.g. in cases of insurance contracts. By comparison, consumer protection with regard to choice of law is dependent on national legislation in the EFTA States. Iceland has legislation on choice of law in contractual matters based Art. 1-17 of the 1980 Rome Convention.68 When it comes to consumer protection, the Icelandic act includes the provision on consumer protection found in the Rome Convention’s Art. 5. Lichtenstein has an act on choice of law that covers many areas such as family law, law of succession etc. Chapter VII of the act covers choice of law regarding contractual obligations. A special provision on consumer protection is found in Art. 45. It essentially reproduces Art. 5 of the Rome Convention. Norway has no general act on choice of laws in matters concerning contractual obligations. However, Norway is a member of the 1955 Hague Convention on choice of law for international sales of goods. This convention is integrated into Norwegian law by the 1964 Act on choice of laws in international sale of goods.69 However, the Hague Convention, and thus the 1964 act, does not contain any particular rule regarding consumer protection.

66 Denmark is also a Party to the 2007 Lugano Convention. 67 Most of the rules are similar in the two legal instruments, but the Rome I Regulation is somewhat more detailed, and the main rule on choice of law where the parties have not made a choice of law agreement is different. 68 Act No 43/2000 on the Conflict of Laws of Contracts. 69 Act No 1/1964.

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The lack of a common legal instrument on choice of laws does not mean that 72 there is no common choice of law rules in the EEA area regarding consumer protection. There are rules concerning choice of law in some EU legal acts such as the Consumer Rights Directive. Art. 25 of the Directive limits the content of any choice of law agreement. If a contractual term, for example a choice of law clause, waives or restricts the consumer’s rights under the Directive, the contractual term is not binding for the consumer, see Art. 25(1). This directive is implemented in § 3(2) of the Norwegian Consumer Sales Act, but is limited to sales with an EEA-dimension (cross-border sales within the EEA). The general legal framework on choice of law that the Rome I Regulation offers, including Art. 6 on consumer protection, is lacking in Norway. In Norway, private international law rules in matters of contract are in general 73 non-codified law. Traditionally, Norwegian courts have applied the so-called Irma Mignon formula. The Norwegian Supreme Court stated in the Irma Mignoncase from 1923 that “a legal relationship is to be governed by the law of the state in which it is most closely connected”.70 The way the Supreme Court phrased this main principle has great similarities to Art. 4(1) of the 1980 Rome Convention and the principle of the closest connection. In more recent cases, however, the Supreme Court has stated that Norwegian 74 private international law ought to be practised in line with EU private international law.71 Still, the lack of a general consumer protection rule similar to Art. 6 in the Rome Regulation makes it hard to predict the outcome of a dispute regarding choice of law in a consumer contract. This lack of predictability is a general problem in Norwegian private international law since this area of law is mainly non-codified. When it comes to cross border consumer contracts and the question of applicable law, Norwegian law does not meet the same standard of consumer protection as found in the EU. VI. Assessment and outlook

It is fair to say that rules on consumer protection stemming from the EU have 75 had a huge impact in the EFTA States. There are several explanations to this. The EFTA States have in general been faithful to their obligations under the EEA Agreement to integrate EU consumer law into national legislation. In parallel, the development of EU consumer legislation from minimum directives for specific types of contracts towards directives covering any type of contracts and demanding full harmonisation have gradually increased the impact of EU consumer law also in the EFTA States. EU legislation regarding consumer protection is obviously of EEA-relevance 76 and therefore continuously incorporated into the EEA Agreement. There will in general be no room for adaptations. In cases where the EU directive or regu70 See Rt 1923 II p. 58. 71 See Rt 2009 p 1537 and Rt 2011 p 531, both cases referring to the relationship to the Rome II Regulation.

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lation is a full harmonization legal instrument, the EFTA States are sometimes in disappointment as to the level of protection, but they will nevertheless accept it in the end. The incorporation of EU consumer law into the EEA Agreement, and its subsequent implementation in the EFTA States is likely to continue this way. 77 The somewhat nationalistic view that Nordic countries are ‘world champions’ of consumer protection is not necessarily correct. According to the assessment made of the Norwegian EEA Review Committee, EU directives demanding total harmonization had not lead to any lowering of the level of consumer protection. This includes the Directive concerning unfair business-to-consumer commercial practices (Dir. 2005/29) and the Directive on Consumer Credit Agreements (Dir. 2008/48).72 78 Cooperation between national authorities is important to secure a high level of consumer protection in cross border trade. It is a good and simple solution for consumers to have one ‘Contact Point’ in each country. Low-threshold solutions offered to solve disputes between the consumer and the trader by way of Alternative Dispute Resolution (ADR) or Online Dispute Resolution (ORD) increases the consumers’ possibility to enforce their legal rights. The Standing Committee of the EFTA States have given comments on the proposals for a regulation on cooperation between national authorities responsible for the enforcement of consumer protection laws. In general, the EFTA States are supportive of the Commission’s initiative to develop more efficient cooperation mechanisms among national authorities enforcing EU consumer protection rules.73 However, the EFTA States underline that it is important for national authorities to be able to prioritize trading practices that have a considerable effect on consumers. They also emphasize that national authorities should have the last word regarding whether or not they will participate in a common action, despite there being a Union dimension to the proposal. 79 It is well known that it is difficult to make predictions – especially regarding the future. This also applies when trying to give perspectives on future development in the area of consumer protection in the EEA. However, based on the analysis in Section V above, it is suggested that the consumer protection dimension of EU private international law will be a matter of concern for the EFTA States. As discussed above, EU private international law is not part of the EEA Agreement. The Norwegian Supreme Court has stated that in cases where there is no PIL-legislation in Norway, the need for uniformity suggests that Norwegian courts give weight to the solutions chosen by the EU.74 However, the longterm sustainability of this case-by-case approach may well be questioned. Both the homogeneity objective of the EEA Agreement and reasons of legal certainty 72 See NOU 2012: 2, p. 639. 73 See EEA EFTA Comments 2 March 2004 and EEA EFTA Comments 1 December 2016. 74 See Rt. 2009 p 1537 para. 34 (the ‘Bookseller in Kabul’-case). A similar statement is made in the so-called Bosnia case, Rt. 2011 p. 531, para. 46.

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suggest that the EFTA States eventually will have to explore the possibility to extend existing agreements with the EU to include EU private international law. In 2011, the Commission made a proposal for a Common European Sales 80 Law (CESL).75 This legal instrument would have reduced the focus of private international law-related issues within its scope. The proposed regulation was to cover sale of goods, downloading of digital content and related services. It was designed as an opt in-instrument, making it up to the parties of the contact to decide if their contractual relationship was to be covered by the regulation or not. If the parties opted in, it was not necessary to make a choice of law. The proposed regulation was clearly EEA-relevant. The Norwegian Government therefore arranged a hearing in Norway in order to prepare for a fast implementation of the proposed regulation in Norwegian legislation. The Standing Committee of the EFTA States also gave a largely positive comment to the CESL.76 The proposed regulation has however been abandoned. In May 2012, the Commission launched its new Consumer Agenda for the 81 period up to 2020.77 In its report, the Commission points out that a number of new challenges have emerged, in particular as a result of new developments in technology, unsustainable patterns of consumption and social exclusion. Through the EEA Agreement, the EFTA States will be affected by the EU’s attempt to tackle these challenges in the years ahead. In 2015, the Commission adopted the so-called Digital Single Market Strat- 82 egy. The Digital Single Market strategy aims to open up digital opportunities for people and businesses and enhance Europe's position as a world leader in the digital economy. A Digital Single Market is explained as a market in which the free movement of persons, services and capital is ensured and where the individuals and businesses can seamlessly access and exercise online activities under conditions of fair competition, and a high level of consumer and personal data protection, irrespective of their nationality or place of residence. The Commission has followed up the Digital Single Market Strategy by making two proposals for new directives: (i) a proposal on certain aspects concerning contracts for the supply of digital content,78 and (ii) a proposal on certain aspects concerning for the online and other distance sales of good. In reality, these proposals replace the 2011 proposal for a Common European Sales Law although the proposed directives are much more limited both regarding the scope and the content of the provisions compared to the CESL. The proposed directives call for total harmonisation.

75 COM (2011) 635 final. 76 See the EEA EFTA Comment 27 September 2012 to the CESL proposal, where the EFTA States however expressed some concern that the CESL did not meet expected standards of consumer protection on some particular issues such as protection of cancellation of the contract (para. 16) or interpretation of the contract (para. 19). 77 See COM(2012) 225 final: Europe 2020 – The European Consumer Agenda. 78 COM (2015) 634.

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The two proposals for new directives on supply of digital content and online/ distance sale of goods are clearly EEA-relevant. In December 2016, the EFTA States sent their comments on them to the EU.79 In general, the EFTA States are supportive of the proposals. As for the directive on digital content, the EFTA States nevertheless have some concerns and suggestions regarding the level of harmonisation, financial risks and termination of long-term contracts.80 When it comes to online sales of tangible goods, the EFTA States are in particular concerned with the length of the proposed legal guarantee period of two years. In Norway, consumers can claim a remedy for a faulty item up to a limit of five years, provided that the item is meant to last considerably longer than two years, and that the lack of conformity existed at the time the risk passed to the consumer. The Commission’s proposal for a guarantee period of two years for all tangible goods subject to distance sales would therefore substantially reduce consumers’ rights with respect to certain faulty products.81 84 As to other development of EU consumer protection law, legal literature has pointed to the possibility for harmonisation of sanctions. By way of an example, the consequences in cases of breach of the duty to inform differ substantially among the different EU/EEA States. If the information was of vital importance to the consumer, and the trader understood or ought to have understood this, breach of the duty to inform could lead to the contract being void under the Nordic Agreement Act Sec. 33 and/or Sec. 36. Lack of information, misleading information or other pre-contractual statements that have influenced the decision to contract are also important in the assessment of whether or not there is a breach of contract.82 It remains to be seen if the EU legislator will attempt to regulate these matters in any detail. 85 A trend that is likely to continue, however, is the shift towards full rather than only minimum harmonisation. This is a development that causes some concern from a Nordic point of view as there is an inherent risk that the use of full-harmonization rules may decrease the level of consumer protection in the Nordic States.83 If the EU legislator continues to opt for full harmonisation of the consumer protection laws of the EU/EEA States, the level of consumer protection in the harmonised rules becomes crucial. It is an intriguing thought that if Norway and Iceland were members of the EU, it would have been easier for the Nordic counties to join forces for an even higher European consumer protection. 83

79 See EEA EFTA Comment on the proposal for a directive on contracts for the supply of digital content and on the proposal for a directive on contracts for online and other distance sales of goods, 21 December 2016. 80 Paras. 2.2–2.11 of the Comments. 81 Para. 3.5 of the Comment. 82 See Restatement of Nordic Contract Law, pp. 205-209. 83 See Jørgensen, ‘Who Should take Responsibility for the Consumer Protection?’, in: Liber Amicorum Peter Møgelvang-Hansen (2017) pp. 209-231.

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Introduction to EEA environmental law

Chapter 3: Environment

Introduction to EEA environmental law Chapter 3 on the Environment is included in Part V as an area of indirect rel- 1 evance to the four freedoms. Differences in environmental regulation might influence economic activity and competition within the EEA.1 The main objective of the EEA Agreement is to ensure free trade and free movement in order to enhance economic growth, and to link the EFTA States to the EU internal market. Economic activities, however, have to take place within environmentally sound limits and there are strong links between the regulation of trade and protection of the environment, since differences in environmental standards might distort competition. Since the early 1970 s, the EEC/EC/EU and the EFTA States have cooperated on addressing the environmental challenges of our time,2 and environmental issues were an important part of the EEA negotiations.3 Art. 73 expresses the objectives and principles governing the Contracting 2 Parties’ obligations with respect to environmental policy and regulation. It also regulates the protection of humans as an integral part of the environment. The specific legal acts are listed in Annex XX, see Art. 74. Art. 75 regulates the freedom national authorities have to maintain or introduce more stringent protection of the environment in national law than is set out in the legal acts referred to in Art. 74. Protection of the environment is a cross-cutting task that influences almost 3 every policy area under the EEA Agreement.4 This is reflected in the heading of Part V of the Agreement: Horizontal provisions relevant to the four freedoms. Certain environmental law questions specific to one of the four freedoms are dealt with in Parts II to IV of the Agreement. The supplementary role of the Chapter on the Environment is reflected in Art. 73(2) as is the integration prin-

1 It is not just economic activity that can be influenced by environmental regulation. Even though Art. 125 states that the EEA Agreement shall in no way prejudice the rules of the Contracting Parties governing the system of property ownership, there is no doubt that the exercise of property rights is heavily restricted by material and procedural environmental requirements under the EEA Agreement. 2 Bugge et al. EØS-avtalen i miljørettslig perspektiv, 1995 p. 11 and the Final Report of the Norwegian EEA Review, NOU 2012: 2, p. 573. 3 Bugge et al., EØS-avtalen i miljørettslig perspektiv, 1995 p. 6. The Norwegian emphasis on environmental protection is also reflected in the agreement on Norwegian EU membership, which was signed on 25 June 1994, but later rejected in the Norwegian referendum. This agreement had a provision on a four-year transition period, during which Norway could maintain national rules with stricter standards than the EU on the environment, health and safety, cf. Lykke Friis, in: Elgström et al. (eds), European Union Negotiations: Processes, Networks and Institutions, 2004, p. 202. 4 See Norberg et al., EEA Law, pp. 621-622.

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ciple, which states that environmental protection requirements shall be a component of the Contracting Parties' other policies. The full breadth of EEA environmental law can thus only be seen by studying both Part V of the Agreement and all the other aspects of EEA law that address protection of the environment. 4 The EU rules concerning the classification, labelling and packaging of substances and mixtures (Regulation No 1272/2008) is a case at hand. The rules are formally based on the internal market competence of the EU.5 The regulation is to be found in Annex II to the EEA Agreement, i.e. in one of the annexes that deals with the free movement of goods.6 Further, important aspects of EU environmental law relating to energy policy are incorporated into Annex IV on energy law.7 The Contracting Parties can also cooperate on environmental questions outside the four freedoms, see Part VI, Arts. 78 ff.8 5 The expressed objectives and principles of environmental policy and regulation found in Art. 73 have not been changed since they were adopted in 1992.9 It is a demanding task to make changes to an international agreement that now has 32 Contracting Parties. This creates significant methodological problems in relation to the dynamic areas of environmental and natural resource law. 6 New environmental problems and environmental hazards will arise due to economic and technological development, and ecological connections will be understood differently as a result of scientific progress. Moreover, the articulation of and approach to economic and environmental policy tools will change over time. New environmental principles are finding their way into the international policy arena and EU law. New legal principles have been developed in both international agreements and national legislation in response to environmental challenges such as biodiversity loss and, above all, climate change.10 In EU law, this development is reflected at the treaty level (such as Art. 3(3) TEU, 191(2) TFEU and Art. 37 of the EU Charter of Fundamental Rights) and in secondary law. In particular, the new paradigm of environmental management, the ecosystem-based management approach,11 is integrated in EU law, but is not reflected in the Main Part of the EEA Agreement. Likewise, the principle of sus5 Regulation No 1272/2008 on classification, labelling and packaging of substances and mixtures; see in particular the fifth recital of the preamble. 6 In the Main Part of the EEA Agreement, the reference to Annex II is found in Art. 23(1)(a) in Chapter 4 on ‘Other rules relating to the free movement of goods’. See also the comments by Bull on Art. 23. 7 See also the comments by Bull on Art. 24, which is the provision that refers onwards to Annex IV, esp. mn. 16-18. 8 See the comments below on Art. 78. 9 The development towards today’s understanding of environmental law started even before the EEA negotiations. The UN World Commission on Environment and Development and its report ‘Our Common Future’ from 1987 placed the principle of sustainable development on the agenda, and the parties to the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer under the 1985 Vienna Convention for the Protection of the Ozone Layer were ‘[d]etermined to protect the ozone layer by taking precautionary measures’. 10 See Nordberg et al., in: Baudenbacher Handbook of EEA Law, 2016 p. 29.

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tainable development and the precautionary principle, which are important and accepted principles in international and national environmental law, are not mentioned in Art. 73. However, it is stated in the preamble that the parties are ‘determined to preserve, protect and improve the quality of the environment and to ensure a prudent and rational utilization of natural resources on the basis, in particular, of the principle of sustainable development, as well as the principle that precautionary and preventive action should be taken’.12 Together with this statement in the preamble, the overarching principle of 7 homogeneity calls for a dynamic interpretation of Arts. 73-75. The Contracting Parties’ environmental law obligations must be interpreted on the basis of the general development of the principles and ambitions of international environmental law, and they must give consideration to new environmental problems or threats that occur. The EEA Agreement should thus not merely be seen as a snapshot of the environmental law and policy of the early 1990 s. The Contracting Parties’ understanding of and approach to the environmental challenges, and the law concerning them, have undergone considerable changes since 1991– 1992. The ambition of EU environmental policy and legislation today is to achieve a low carbon society, a green circular economy and resilient ecosystems as the basis for the well-being of its citizens,13 an ambition that is presumably shared by the EFTA States.

Article 73 [Object and purpose of EEA environmental law] 1. Action by the Contracting Parties relating to the environment shall have the following objectives: (a) to preserve, protect and improve the quality of the environment; (b) to contribute towards protecting human health; (c) to ensure a prudent and rational utilization of natural resources. 2. Action by the Contracting Parties relating to the environment shall be based on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source, and that the polluter should pay. Environmental protection requirements shall be a component of the Contracting Parties' other policies.

11 Vito de Lucia ‘Competing Narratives and Complex Genealogies: The Ecosystem Approach in International Environmental Law’, Journal of Environmental Law, 2014. p. 92 with further references. 12 Ninth recital. See also the comments on the preamble by Arnesen and Fredriksen mn. 3-7 and 32-33. 13 See the 7th Environment Action Programme, European Environment State and Outlook 2015. Synthesis Report, Copenhagen 2015.

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I. Paragraph 1 – the objectives of EEA environmental law 1. Introduction

Art. 73(1) defines the general obligation of the Contracting Parties relating to the environment, which includes all actions and decisions with an effect on the environment. The phrase ‘[a]ction by the Contracting Parties’ in Art. 73(1) and (2) creates the impression that Iceland, Norway and Lichtenstein act as proper legislators in the area of EEA environmental law, alongside the EU and its Member States. The illusion of a ‘grand multilateral agreement between equals’1 is thus upheld, obscuring the fact that the EU institutions are the policy-makers that put the general objectives and principles of EU/EEA environmental law into effect through legislative measures. The EEA Joint Committee essentially accepts the choices made by the EU legislators when incorporating the relevant parts of secondary EU environmental law into the EEA Agreement.2 2 Further, the wording ‘[a]ction by the Contracting Parties’ could suggest that the objectives set out in Art. 73 primarily relate to the EEA Joint Committee as the ‘EEA legislator’ and not so much to other actors (notably the courts). While this is in line with the current wording of Art. 191 TFEU, it is in clear contrast to traditional international agreements, where the objectives expressed are primarily guidelines for the interpretation and application of already adopted rules. The lack of genuine policy-making in the EEA Joint Committee suggests that it is primarily as an interpretative guideline for the courts that Art. 73 will be of practical interest.3 3 Still, by using the wording ‘[a]ction’, Art. 73(1) and (2) are directly relevant in cases where the EEA Joint Committee amends, adapts or derogates from obligations found in EU legal acts when incorporating them into the EEA Agreement. Derogations from obligations flowing from EEA-relevant secondary EU law are generally difficult to obtain4 and, in the field of environmental law, the parallelism between the objectives stated in Art. 73 EEA and Art. 191 TFEU may make it even more difficult for the EU to consent to derogations that will leave the EFTA States with more lax regulations. However, amendments and adaptations are becoming more practical as important EU environmental rules establish individual obligations to be met by the Member States. In the process of setting applicable targets, quotas etc. for the individual EFTA States, the principles of EEA environmental law set out in Art. 73 will apply.5 1

1 See Bull, ‘Mixity Seen from Outside the EU but Inside the Internal Market’, in: Hillion and Koutrakos (eds), Mixed Agreements Revisited – the EU and Its Member States in the World, 2010, pp. 320-330, on p. 325. 2 See, in general, the comments by Dystland, Finstad and Sørbø on Part VII, Chapter 2: The EEA Decision Making Procedure. 3 See Bugge et al., EØS-avtalen i miljørettslig perspektiv, 1995 p. 33. 4 See the comments by Dystland, Finstad and Sørebø on Part VII, Chapter 2: The Decision-Making Procedure, mn. 23-27.

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The objectives and principles set out in Art. 73 will in any event primarily be 4 relevant as guidelines for the courts in their interpretation of secondary EU law that is incorporated into the EEA Agreement by the EEA Joint Committee. In the same way as the ECJ interprets secondary EU law in light of the environmental principles in Art. 191 TFEU,6 the EFTA Court will interpret the legal acts found in Annex XX in light of Art. 73. As discussed in the introduction to this chapter, however, the interpretation of Art. 73 itself must be based on the homogeneity principle and must take into account subsequent developments in EU environmental law.7 Art. 73 echoes Art. 191(1) TFEU (ex. Art. 174 TEC) with the exception of the 5 EU objective of ‘promoting measures at international level to deal with regional or worldwide environmental problems, and in particular combating climate change’, which was added to the EC Treaty by the Treaty of Maastricht. However, a reference to measures at the international level would probably not have been included in Art. 73 in any event, as the EEA Agreement does not establish cooperation on foreign policy. The EFTA States are therefore not obliged to promote or to take the same position as the EU in international negotiations on measures to combat climate change.8 It can still be argued, however, that the principle of loyalty in Art. 3 obliges all of the EEA Contracting Parties to, also at the international level, act in a way that does not jeopardise attainment of the objectives set out in Art. 73(1). After all, the objectives of EEA environmental law in relation to regional or worldwide environmental problems can only be achieved through international cooperation. In any event, to the extent that the EU’s positions at international level result 6 in novel EU legislation of EEA relevance that the EEA Joint Committee thereafter decides to incorporate into Annex XX, the lack of an explicit objective to combat climate change in Art. 73 is unlikely to have any practical effect. 2. Letter (a) – preservation, protection and improvement of the environment

Letter (a) obliges the Contracting Parties to ‘preserve’, ‘protect’ and ‘im- 7 prove’ the quality of the environment. Preservation and protection are aimed at avoiding further degradation or damage to the environment. In order to achieve this, the Contracting Parties can establish legal boundaries for human interference with the natural environment and the exploitation of natural resources, as well as taking procedural measures related to land use, activities that cause pollution, the marketing of new products, handling of waste etc. Environ5 This is the case regardless of the lack of judicial review of the decisions of the EEA Joint Committee. 6 See Case C-6/99, 21.3.2000, Greenpeace France and others and Case C-127/02, 7.9.2004, Waddenzee, both regarding the precautionary principle. 7 An alternative route to the same result would be to base the interpretation of the legal acts found in Annex XX directly on the homogeneity principle, see the comments by Arnesen and Fredriksen on Art. 1, mn. 9. 8 See the comments below on Art. 74.

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mental quality can be improved by restoring degraded environments to a better status, e.g. by adopting management plans for rivers, lakes and coastal waters. The Water Framework Directive (WFD) is an example of a legal measure that aims to achieve a good environmental status for all waters.9 Under the WFD, the pre-industrial status of the freshwater environment, i.e. ‘undisturbed conditions’, is used as a normative reference representing a high environmental status as regards chemicals (pollution) and ecology (life).10 Strategies for marine regions, such as plans that aim to achieve good environmental status under the Marine Strategy Framework Directive (MSFD), are other examples.11 However, the latter is not incorporated into the EEA Agreement; see the comments on Art. 74 below. 3. Letter (b) – protection of human health 8

Letter (b) imposes a special obligation on the Contracting Parties to contribute to the protection of ‘human health’. The introductory part of Art. 73(1), ‘[a]ction … relating to the environment’, makes it clear that this obligation applies when risks arise as a result of environmental degradation, pollution etc. Since the obligation in letter (a) to protect the environment includes the protection of humans, letter (b) establishes a specific obligation to intervene against environmental damage that directly threatens or more indirectly influences the health and well-being of people. 4. Letter (c) – prudent and rational utilization of natural resources

Letter (c) obliges the Parties to ensure prudent and rational utilization of ‘natural resources’. Construed broadly, the concept of ‘natural resources’ can be defined as all resources that come to exist without human action.12 This encompasses sunlight, the atmosphere, water and land, including minerals, petroleum and all biological resources (terrestrial and marine). The concept is often used in a more narrow sense to mean resources that have a direct economic value. The concept of ‘ecosystem services’ that has developed in the international environmental dis-course, especially since 2000, based on the UN Millennium Ecosystem Assessment 2005, has widened the concept of natural resources, as economic value is attributed to new resources. This broader definition has also been used in EU material.13 10 The Contracting Parties to the EEA Agreement may well have used the concept of natural resources in a more narrow sense than it is commonly understood 9

9 Dir. 2000/60/EC establishing a framework for Community action in the field of water policy. 10 See the WFD Art. 4 nr.1 a) ii, cf. Annex V table 1.2, see ‘high status’ with ref. to ‘undisturbed conditions’. 11 Dir. 2008/56/EC establishing a framework for community action in the field of marine environmental policy. 12 The declaration of the United Nations Conference on the Human Environment (the Stockholm Declaration) defines natural resources as ‘natural resources of the earth including the air, water, land, flora and fauna and especially representative samples of natural ecosystems […]’.

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today, but the principle of homogeneity strongly suggests that the concept is to be understood in line with the current understanding of the corresponding concept in Art. 191(1) TFEU.14 The distinction between renewable and non-renewable resources is impor- 11 tant. Prudent and rational utilization of non-renewable resources or resources that take a long time to reproduce will have a somewhat different meaning than for resources that recover and reproduce quickly or are available in a more or less unlimited quantity, such as sunlight. However, renewable resources such as fish stocks, forests etc. can also be depleted by overuse and need to be used rationally and effectively, and in a manner that does not harm their potential for reproduction. One important area where more effective use of natural resources has been 12 targeted in the EU as well as in the EFTA States is the utilization of energy resources. The oil crisis in 1973–1974 led to some cooperation on energy policy in the EU, but the common energy policy first gained momentum around 1990. The EU has subsequently passed several directives and regulations dealing with energy policy where more effective use of energy resources, increased use of renewable energy resources and the relationship between energy and the environment have been central issues. See the comments on Art. 74 below.15 Transitioning from fossil fuels to non-fossil energy sources can also be seen as a measure to protect the atmosphere as a natural resource, thus falling under Art. 73. The objective of ensuring ‘prudent and rational utilization’ of natural re- 13 sources must be interpreted in light of the preamble, which states that the parties are ‘determined to … ensure a prudent and rational utilization of natural resources on the basis, in particular, of the principle of sustainable development’. The meaning of such utilization is specified in secondary EU law. One important example is the Water Framework Directive (WFD), which aims to achieve sustainable management and protection of freshwater resources,16 operationalised through a complex set of requirements.

13 In COM(2005) 670 final on Thematic Strategy on the sustainable use of natural resources, it is stated that: ‘European economies depend on natural resources, including raw materials such as minerals, biomass and biological resources; environmental media such as air, water and soil; flow resources such as wind, geothermal, tidal and solar energy; and space (land area). Whether the resources are used to make products or as sinks that absorb emissions (soil, air and water), they are crucial to the functioning of the economy and to our quality of life.’ 14 See Krämer, EU Environmental law, 8th ed., p. 14 (1-19), who, in relation to the understanding of Art. 191 TFEU, states that ‘[n]atural resources’ is a ‘vague term: it probably covers the management of all resources that are found in the environment, fauna and flora, timber, minerals, air, water, soil, oil, natural gas and chemicals.’ 15 The central directives in the third energy package from 2009 are Dir. 2009/28/EC (promotion of the use of energy from renewable sources); Dir. 2009/72/EC (internal market in electricity) and Dir. 2009/73/EC (internal market in natural gas), all of which are incorporated into the EEA Agreement. 16 Dir. 2000/60/EC establishing a framework for Community action in the field of water policy, third recital.

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II. Paragraph 2 – the principles of EEA environmental law

Paragraph 2 sets out some basic environmental law principles: that ‘preventive action’ should be taken, that ‘environmental damage should as a priority be rectified at source’, and that the ‘polluter should pay’. These principles were all clearly taken from what was then Art. 130 r of the EEC Treaty.17 As a result of later developments in EU law, however, there are two important differences between Art. 73(2) and what is now Art. 191(2)(1) TFEU: neither the reference to ‘a high level of protection taking into account the diversity of situations in the various regions of the Union’, nor the reference to the ‘precautionary principle’ are mirrored in Art. 73(2).18 However, as already discussed in the introduction to this chapter, these differences are unlikely to matter much in practice. 15 The actual level of protection offered by EEA environmental law is decided by the level of protection guaranteed by the EU legislation that the EEA Joint Committee incorporates into the EEA Agreement. Insofar as the Union fulfils its obligation under Art. 191(2)(1) TFEU to aim for a high level of protection, the EEA Contracting Parties will also fulfil this obligation when they add new EU environmental rules to the EEA Agreement. The lack of an explicit reference to ‘a high level of protection’ in Art. 73(2) will thus only be of interest if the EFTA States refuse to incorporate new EU rules that they find too ambitious, or where they demand amendments or exceptions that will lead to a lower level of protection in the EFTA pillar than in the EU. This is a rather unlikely scenario and it is even more unlikely that the EU would ever accept such an argument from the EFTA States. 16 Similarly, the lack of a reference to the diversity of situations in the various regions is remedied by the fact that EU legal acts that allow for such differentiation also give the same possibility to the EFTA States when the acts are incorporated into the EEA Agreement. As an example, the possibility of regional adaptation was recognised by the EEA Joint Committee in the decision to incorporate the Water Framework Directive into the EEA Agreement.19 17 Finally, the lack of a reference to the precautionary principle is compensated for by the ninth recital of the preamble to the EEA Agreement (as well as by the general principle of homogeneity).20 This conclusion is further supported by 14

17 See Norberg et al., EEA Law, p. 620. 18 Both of these were added to the EC Treaty through the Treaty of Maastricht, i.e. after the negotiations on the text of the Main Part of the EEA Agreement were concluded. 19 See Joint Statement to Decision No 125/2007 incorporating Dir. 2000/60/EC into the Agreement: ‘The Contracting Parties recognise the diversity of anthropogenic pressures and impacts on waters across Europe. Consequently, the measures and efforts to achieve the environmental objective of the Directive might vary from region to region. The Water Framework Directive takes account of these diversities. It allows authorities responsible for the implementation of the Directive to select measures and efforts adapted to the pressures and impacts prevailing, whilst achieving the environmental objectives.’ 20 See the comments by Arnesen and Fredriksen on the Preamble’s ninth recital, mn. 32.

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the fact that the precautionary principle, as a principle of EU environmental law, follows inherently whenever EU environmental legislation is added to Annex XX of the EEA Agreement. Art. 73(2) also underlines that environmental protection requirements shall be 18 a component of the Contracting Parties' other policies. This principle of integrating environmental requirements into other policies of the Contracting parties is closely linked to the ambition of a high level of environmental protection, as stated in Art. 191(2)(1) TFEU and reiterated in Art. 37 of the EU Charter of Fundamental Rights. Substantial environmental effects from the Communities’ agriculture, transport and regional policies were observed in the early 1980 s, leading to the introduction of an obligation to make environmental protection an integral part of all policies through the Single European Act of 1986 (Art. 130r(2) of the EEC Treaty).21 Again, as observed above, it is for the Union to live up to the obligation to integrate environmental requirements into such other policies. The integration principle has been criticised for having had little practical impact,22 but in recent years the EU’s climate policy has been developing in the direction of integrating climate as a perspective in all policy areas.23

Article 74 [Protective measures] Annex XX contains the specific provisions on protective measures which shall apply pursuant to Article 73.

I. Introduction

Art. 74 is the gateway into EEA law for EU legislation adopted under 1 Art. 192 TFEU, where the EU legislator is given competence to ‘decide what action is to be taken by the Union in order to achieve the objectives referred to in Article 191’. The legal acts referred to in Annex XX thus represent the core of EEA environmental law.1 At the time when the EEA Agreement was concluded, the body of EC environmental law consisted of about 200 Directives and Regulations, of which around three-quarters were made part of EEA law.2 However, most of these legal acts were included in Annex II on the free movement of goods, and Annex XX only included 32 legal acts.3 About 25 years later, An21 Mahmoudi ‘Protection of the European environment after the Amsterdam treaty’, Scandinavian Studies in Law 39 (2000): 123-137, at p. 126. 22 Mahmoudi, ‘Protection of the European environment after the Amsterdam treaty’, Scandinavian Studies in Law 39 (2000): 123-137, at p. 127. 23 Consultation memorandum of the Norwegian Ministry of Climate and Environment, 27 September 2016, Proposal for an Act on Climate Goals (klimaloven), p. 11. 1 As stated in the introduction to this chapter, the full breadth of EEA environmental law can only be grasped by studying both Part V of the Agreement and all the other aspects of EEA law that address protection of the environment. 2 Norberg et al., EEA Law, p. 621 and Bugge et al., EØS-avtalen i miljørettslig perspektiv, 1995 pp. 2-3. 3 All of which are mentioned by Norberg et al., EEA Law, pp. 624-626.

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nex XX lists almost 300 legal acts4 out of a body of EU environmental law that now amounts to some 500 Directives, Regulations and Decisions.5 Thus, unsurprisingly, EU environmental law constitutes an increasingly important part of the environmental legislation and the regulatory models of the EFTA States.6 With the development of even more ambitious EU legislation in the area of the environment, energy and climate, this development is likely to continue. II. EU environmental law vs. EEA environmental law – differences and challenges 1. Limited scope 2

EEA environmental law differs in some respects from EU environmental law. Due to its more limited substantive and geographical scope, important matters of EU environmental policy are not part of the EEA Agreement. 2. Nature conservation and flood risks management

3

EU environmental law outside the substantive scope of the EEA Agreement includes nature conservation acts, because they are not considered to be of even indirect relevance to the four freedoms. Important examples include Dir. 79/409/EEC on the conservation of wild birds (the Birds Directive); Dir. 92/43/EEC on the conservation of natural habitats and of wild fauna and flora (the Habitats Directive); Dir. 79/923/EEC on the quality required of shellfish waters and Dir. 78/659/EEC on the quality of fresh waters needing protection or improvement in order to support fish life.7 However, the development towards a coherent and integrated body of EU environmental law poses some challenges for the EFTA States in this field. When the Water Framework Directive (WFD) was incorporated into the EEA Agreement in 2007, adaptation was needed in order to make sure that it would not lead to indirect applicability of, inter alia, the above-mentioned directives within the EEA.8 In addition, the EEA Joint Committee stated in general that the Water Framework Directive had to be read ‘taking particular account of the fact that Article 73 of the Agreement defines the objectives of action by the Contracting Parties in the field of environment, whereas other policies addressed by the EC Treaty fall outside the scope of the Agreement’.9 EU directives now regulate flora and fauna in lakes, rivers and coastal waters as a result of the WFD, while terrestrial nature falls outside 4 Source: EEA-lex. 5 The European Environment, State and Outlook 2015, Synthesis Report, European Environment Agency, 2015 p. 21. 6 See the Final Report of the Norwegian EEA Review NOU 2012:2, p. 572. For Iceland, see Jonsdottir, Europeanization and the European Economic Area, at p. 113. 7 In designing the national nature conservation regulation, the Norwegian government has looked to the EU for inspiration, see the Final Report of the Norwegian EEA Review NOU 2012:2 p. 576 and below in Annex XX sec. 1 General rules. 8 Decision of the EEA Joint Committee No 125/2007, Art. 1(1)a. 9 Decision of the EEA Joint Committee No 125/2007, fifth recital of the Preamble.

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the scope of EEA, a situation regarded as somewhat paradoxical.10 The particular substantive limited scope of the EEA agreement is thus difficult to consistently uphold, as EU legislation is being designed regardless of these limits. Reducing the risk of floods, partly as a result of climate change, is not one of 4 the principal objectives of the WFD, even though river basin management plans, in order to achieve good ecological status, could contribute to mitigate the effects of floods. The lack of flood risk management led to the adaptation of the Dir. 2007/60/EC on the assessment and management of flood risks.11 Its aim is according to Art. 1 to reduce and manage the risks that floods pose to human health, the environment, cultural heritage and economic activity. After a preliminary assessment to identify the river basins and associated coastal areas at risk of flooding,12 flood risk maps should be drawn up and flood risk management plans established, all in consideration of the relevant environmental objectives under the WFD art 4.13 In spite the aspects of environmental protection, this directive was considered not to have ‘a content, objective, nor effects of a kind that creates an obligation for the EFTA states to incorporate the directive in the EEA Agreement due to the fact that ‘[t]he focus of the Directive is primarily on risk management, and it will not affect the internal market’.14 The flood risk management directive is thus not included in the EEA Agreement. 3. Agriculture and fisheries

Further, environment-related EU rules in the areas of agriculture and fish- 5 eries are largely excluded from the EEA Agreement.15 There are important exceptions in the field of agriculture and aquaculture, however. One example is the EIA Directive, which introduces a duty to make certain projects, such as the use of uncultivated land for intensive agricultural purposes and water-management projects for agriculture and intensive fish farming, subject to an environmental impact assessment where their characteristics so require.16 Further examples are the EU rules regulating the use of pesticides, which were incorporated into Annex XX of the EEA Agreement.17 Other areas of the EEA Agreement will also be important for agriculture and aquaculture. Veterinary and phytosanitary 10 See the Final Report of the Norwegian EEA Review NOU 2012:2, p. 584. 11 Published in the Official Journal on 6 November 2007, p. 27, marked as “[t]ext with EEA relevance”. See fourth recital on the lack of flood risk management under the WFD. 12 See Art. 4. 13 See Arts. 6 and 7. 14 Standing Committee of the EFTA states, Standard Sheet for the preparation of EEA Joint Committee 7.11. 2007, ref. no 31818, fn. 1. 15 Bugge et al., EØS-avtalen i miljørettslig perspektiv, 1995 p. 47. 16 Dir. 2011/92/EU on the assessment of the effects of certain public and private projects on the environment, as amended by Dir. 2014/52/EU Art. 4 (2), cf. Annex II no 1. b), c) and f). In an amendment in 1997, an explicit requirement to make such projects subject to a requirement for development consent was added, see Dir. 97/11/EC Art 1(1). 17 See Dir. 2009/128/EC establishing a framework for Community action to achieve the sustainable use of pesticides and the Decision of the EEA Joint Committee No 208/2014 amending Annex XX.

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matters are part of the Agreement, see Annex I. Under Annex II of the agreement, Norway has now finally agreed to implement Council Reg. (EC) No 834/2007 and Commission Reg. (EC) No 889/2008 on organic aquaculture animal production, without having won acceptance for requested adaptations to the text on slatted floors in sheep housing or on the labelling of organic products.18 While waiting for the Icelandic position in the EEA Joint Committee, Norway hopes to secure acceptance for labelling organic salmon from Norway during the interim period.19 6 An EU legal act with a more implicit influence on agriculture is the Water Framework Directive (WFD), which aims to achieve good status for all waters by a set deadline.20 All sources of impact on water quality could be relevant under the directive, and river basin management plans must therefore take into account the impact of human activity on both the surface water and the groundwater. This requires an estimate of the amount of diffuse source pollution that can occur and a summary of the use of land in the area.21 If it is necessary to reach the quality norms, pollution from sources such as farming must be reduced or eliminated completely, with obvious consequences for the activities concerned. 7 More recently, the Commission has also proposed including greenhouse gas emissions from agriculture and land use or land use change in the EU’s reduction commitments.22 This might also have an impact on the economic framework for the agricultural sector in the EFTA States. 4. Geographical scope 8

The Norwegian position on the geographical scope of the EEA Agreement is that the term ‘territory’ in Art. 126 is to be understood in accordance with established practice in international law, thereby limiting the applicability of EEA law to Norway’s land territory, and its internal and territorial waters, and excluding the Exclusive Economic Zone and the Continental Shelf outside territorial waters.23 This is of particular relevance to the field of environmental law.24 As a result, several EU legal acts that regulate sea areas and marine resources outside territorial waters have not been incorporated into the EEA Agreement. The practical effect of this has increased over time, as increased environmental pressure and the economic prospects in the marine areas have caused the EU to regulate activities in the Exclusive Economic Zone and on the Continental Shelf more 18 Letter from the Norwegian Minister of Agriculture and Food to Commissioner Phil Hogan, dated 7.10 2016, ref. 1413/88. 19 Ibid. 20 Dir. 2000/60/EC establishing a framework for Community action in the field of water policy (WFD). 21 See WFD Art. 13 no 4, cf. Annex VII, Sec. A. no 2. 22 COM(2014) 15 final, A policy framework for climate and energy in the period from 2020 to 2030. 23 Norway’s territorial waters extend 12 nautical miles out from the baselines. 24 See, e.g., Parliament White Paper No 5 (2012–2013), Section 2.3.1. See also the comments by Arnesen on Art. 126.

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extensively. Examples are the 2008 Marine Strategy Framework Directive and the 2014 Directive on maritime spatial planning.25 Together with the EU fisheries policy, these directives constitute the core elements of EU marine policy. None of them are part of the EEA Agreement. Another example of relevance to environmental law is the 2013 Offshore Safety Directive, where Norway has taken the position that the directive, both substantially and geographically, falls outside the scope of the EEA Agreement.26 However, the impact of EEA law on the Norwegian Exclusive Economic 9 Zone and the Continental Shelf is more nuanced. Dir. 2009/31/EC on the geological storage of carbon dioxide, is a legal act that is also (or even primarily) applicable to the Continental Shelf. Art. 2 of the Directive states that it applies to the territory of the Member States, their exclusive economic zones and on their continental shelves. The Directive has recently been incorporated into the EEA Agreement without any reservations as to its geographical scope.27 5. Methodological challenges

The differences between EU and EEA environmental law create certain chal- 10 lenges. EU environmental law constitutes a coherent system consisting of a large number of legal acts. The different acts are enacted and amended in order to concur and complement each other. The same regulatory tools, techniques and legal concepts are often found in different legal acts, and decisions from the ECJ in relation to one specific legal act can thus influence the interpretation of other parts of EU environmental law. As several of these legal acts do not apply under the EEA Agreement, it might be questioned whether they can be taken into account in the interpretation of EU legal acts that are part of EEA environmental law. The principle of homogeneity strongly suggests an affirmative answer to 11 this, even though the result may be that the content of EEA obligations is influenced by developments in EU environmental law beyond the reach of EEA law. In cases of common EU/EEA provisions – i.e. provisions of EU environmental law that are simply taken over by the EEA Joint Committee – there is a strong presumption in favour of homogeneous interpretation, regardless of the underlying EU law sources that may have influenced the ECJ’s interpretation of the act in question.28 Unless there are compelling grounds to the contrary in connection 25 Dir. 2014/89/EU establishing a framework for maritime spatial planning. 26 Dir. 2013/30/EU on safety of offshore oil and gas operations. The directive was enacted by the EU after the Macondo accident in the Gulf of Mexico (‘Deep Water Horizon’). It introduces new safety standards for offshore petroleum operations. It is known that Norway, having developed its safety regime for petroleum activity over decades, considers the EU directive to be a step backwards because it introduces a prescriptive ‘command and control’ type of regulation that Norway has replaced with a ‘goal-oriented’ or functional approach. The directive could thus arguably lead to a reduction in the safety level on the Norwegian continental shelf. 27 Decision of the EEA Joint Committee No 115/2012. 28 See also the comments by Fredriksen and Arnesen on Art. 1, mn. 9 and by Wennerås on Art. 6, mn. 6 and 7.

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with a decision of the EEA Joint Committee, the principle of homogeneity will see to it that the ECJ’s efforts to secure the consistency of EU environmental law will also inform the interpretation of EEA environmental law. 6. Shaping national environmental law that falls outside the EEA Agreement 12

Another challenge for the EFTA States is how to shape national environmental law in areas that are not subject to the EEA Agreement. Norway, for example, has in some cases used EU law that does not fall under the EEA Agreement as a model for national law.29 Even in areas where the EFTA States have no obligation to implement EU law, their room for manoeuvre is de facto limited by the logic and structure of EU environmental law. It would be difficult, for instance, for an EFTA State to create a system for marine spatial planning or to develop monitoring systems, methods of establishing environmental indicators or chemical and environmental quality standards in marine waters that differ substantially from the solutions chosen by the EU legislator. This is also due to the fact that both Norway and the EU can be parties to international agreements influencing the relevant EU legislation, such as the 1992 Convention for the Protection of the Marine Environment of the North-East Atlantic (OSPAR). III. Annex XX

Annex XX is divided into six chapters: Chapter I concerns General rules; Chapter II Water; Chapter III Air; Chapter IV Chemicals, Industrial Risk and Biotechnology; Chapter V Waste and Chapter VI Noise. In addition, the Annex includes a list of non-binding legal acts of which the Contracting Parties ‘take note’. 14 The content reflects the current legal status of EEA environmental law – the Annex is continuously updated as new legal acts are implemented in the Agreement or old acts are repealed.30 15 In the introduction to Annex XX, it is stated that, when acts referred to in the Annex contain notions or refer to procedures that are specific to the Community legal order, such as references to territories of the EC, Protocol 1 on horizontal adaptations shall apply. Protocol 1 Section 8 states that, whenever the acts referred to contain references to the territory of the Community or of the 'common market’, the references shall, for the purposes of the Agreement, be understood as references to the territories of the Contracting Parties as defined in Art. 126 EEA. 13

29 The Final Report of the Norwegian EEA Review NOU 2012:2 p. 576. 30 For an update, see the EEA-lex database (www.efta.int/eea-lex).

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1. General rules

The General part of Annex XX contains directives and other legal acts relat- 16 ing to impact assessments, which are an important instrument in natural resource management and governance of the environment. Plans or projects that are likely to have a significant effect on the environment are subject to an assessment with regard to their effects on the environment under the SEA and EIA Directives.31 These directives have proved difficult to implement seamlessly into national law.32 The assessment requirements must be interpreted in light of substantial re- 17 quirements under the Water Framework Directive or other environmental quality standards. An impact assessment must shed light on a plan or project’s possible impact on the affected environment and any established environmental standards. The aim under the WFD of preventing further deterioration33 will still be met if, among other conditions, failure to prevent deterioration from high to ‘only’ good status is the result of new sustainable human development34 of overriding public interest.35 The ECJ stated in Case C-346/14 Commission v Austria that the Member States must be allowed a certain margin of discretion to determine whether a specific project is of such interest.36 In the case of hydroelectricity production, which is highly relevant to both Iceland and Norway, it is not sufficient merely to refer to the overriding public interest in the production of renewable energy in the abstract, a detailed and specific scientific analysis of the contested project is required to conclude on the sustainability of the development project.37 Impact assessments under EU law are an instrument for knowledge-based 18 management and public participation, but they generally lack a formal link to rules on substantial protection of the environment. However, under the Natura 2000-regime, whether or not a plan or project is likely to have significant effect will have legal consequences. Art. 6(3) and (4) of the Habitats Directive38 set out the circumstances under which a proposed plan or project with ‘significant’ negative effects may or may not be allowed. Even though EU rules on nature con31 Dir. 2001/42/EC on the assessment of the effects of certain plans and programmes on the environment, and Dir. 2011/92/EU on the assessment of the effects of certain public and private projects on the environment. 32 See EFTA Surveillance Authority Case 67596: Failure by Iceland to correctly implement Dir. 2011/92/EU on environmental impact assessments, Letter of Formal Notice, Decision No 285/13/COL; Case 67073: Failure by Norway to correctly implement Dir. 2011/92/EU on environmental impact assessments, Decision No 286/13/COL; Case 67661: Failure by Liechtenstein to correctly implement Dir. 2011/ 92/EU on environmental impact assessments, Decision No 287/13/COL and Case 69054: Failure by Norway to correctly implement the Strategic Environmental Assessment Dir. 2001/ 42/EC, Decision No 288/13/COL. 33 See Art. 1(a). 34 See Art. 7 second indent. 35 See Art. 4(7) (c). 36 Case C-346/14, 4.5.2016, Commission v Austria, para. 70. 37 Para. 80. 38 Dir. 92/43/EEC.

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servation are not part of the EEA Agreement, a similar regulation can be found in the Norwegian Nature Diversity Act.39 For Norwegian national parks, no activity that has a ‘lasting impact’ on the natural environment is permitted unless such an impact is essential in order to achieve the purpose of protection.40 For ‘protected landscapes’, no projects may be initiated if they ‘substantially’ alter the nature or character of the landscape.41 This illustrates a more general characteristic: for environmental policy-areas that fall outside the scope of the EEA Agreement, the corresponding national environmental policy within the EFTA States will in many situations mirror the legal approach in the EU.42 19 Environmental legislation in the Union can be shaped by international agreements ratified by the Member States, and sometimes by the Union itself. Important conventions have influenced legislation under the general part of Annex XX. The EU is for example a party to the 1998 Convention on access to information, public participation in decision-making and access to justice in environmental matters (the Aarhus convention),43 the 1991 Convention on Environmental Impact Assessment in a Transboundary Context (the Espoo Convention) and the later 2003 Kiev Protocol on strategic environmental assessment.44 The Aarhus convention’s requirements for access to environmental information is operationalised in Directive 2003/4/EC of 28 January 2003 on public access to environmental information,45 which was implemented under the EEA Agreement the same year.46 Signing the conventions has also led to changes in the SEA and EIA directives and influenced the legislation on the right to public participation under the WFD. The adoption of Council Directive 96/61/EC of 24 September 1996 concerning integrated pollution prevention and control (IPPC),47 included in the General section, is an operationalisation of the obligations originating from the Aarhus convention. Criteria for eco-design and energy labelling48 of products are implemented under various parts of the EEA Agreement.

39 Act of 19 June 2009 No 100 Relating to the Management of Biological, Geological and Landscape Diversity (Nature Diversity Act). The preparatory works state that the Norwegian authorities had looked to the EU for inspiration, see the Final Report of the Norwegian EEA Review NOU 2012:2 on p. 576. 40 See Section 35 of the Nature Diversity Act. 41 See Section 36 of the Nature Diversity Act. 42 See also above on the challenges to shaping national environmental law that falls outside EEA. 43 The EU, Norway, Iceland and Lichtenstein all signed the Aarhus treaty in 1998. It was ratified in Norway in 2003, the EU in 2005 and Iceland in 2011, while Lichtenstein is still pending. 44 The EU, Norway, Iceland and Lichtenstein have all signed Espoo, though Iceland has not yet ratified it. 45 Repealing Council Directive 90/313/EEC. 46 Decision of the EEA Joint Committee No 123/2003 of 26 September 2003 amending Annex XX (Environment) to the EEA Agreement. 47 Implemented under the EEA Agreement, see Decision of the EEA Joint Committee No 27/97 amending Annex XX (Environment) to the EEA Agreement.

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The Commission has issued some communications, but the EU has not adopt- 20 ed any regulation on terrestrial land use planning or coastal zone planning,49 which are policy areas of great importance to the environment. Nonetheless, procedural requirements for environmental impact assessments under EIA and SEA have also influenced land use planning, coastal planning and marine spatial planning. By requiring environmental impact assessments in connection with licence applications, it was possible to limit and reduce ‘the almost total discretion given to local or others authorities to decide on a project’.50 2. Water

The chapter on Water includes directives on the protection of water against 21 pollution from discharges of toxic substances, and legal acts aimed at securing quality standards for water intended for human consumption, as well as the governance of water resources in general. The most important legal act on water is the Water Framework Directive 22 (WFD), which establishes a framework for EU action in the field of water policy. It was incorporated into the EEA Agre-ement in 2007.51 It entered into force in the EEA on 1 May 2009 and was implemented into Norwegian legislation by the Water Regulation Act of 15 December 2006 No 1446. Several complaints have been filed with ESA concerning the directive. In 2011, the Norwegian Association of Municipalities hosting Hydropower 23 Plants and several associations representing the interests of local communities, nature conservation, biodiversity, and outdoor recreation interests, and river owners filed a complaint with ESA, questioning the Norwegian implementation of the WFD in regulated watercourses.52 The Norwegian Ministry of Environment responded. This has been followed by 15 different letters from the complainants, ESA and the ministry so far. The case is still pending. On behalf of associations representing the interests of local communities and river owners 48 Directive 2009/125/EC of the European Parliament and of the Council of 21 October 2009 establishing a framework for the setting of ecodesign requirements for energy-related products; see Decision of the EEA Joint Committee No 67/2011 of 1 July 2011 amending Annex II (Technical regulations, standards, testing and certification) and Annex IV (Energy) to the EEA Agreement. Directive 2010/30/EU of the European Parliament and of the Council of 19 May 2010 on the indication by labelling and standard product information of the consumption of energy and other resources by energy-related products. See Decision of the EEA Joint Committee No 217/2012 of 7 December 2012 amending Annex II (Technical regulations, standards, testing and certification) and Annex IV (Energy) to the EEA Agreement. 49 See Krämer, EU Environmental law, p. 164 (4-28). Recommendations by the European parliament and Council on management of the coastal zone are stated by Krämer as being ‘largely ignored, the most obvious example being the destruction of the Spanish coast by construction projects’, see p. 165. 50 See Krämer, EU Environmental law, p. 167 (4-31). 51 EEA Joint Committee Decision No 125/2007. 52 Complaint to ESA concerning the Norwegian government´s failure to comply with the provisions of the water framework directive (Dir. 2000/60/EC) in regulated watercourses, Oslo 10 March 2011, EFTA Case no 69544. See the EFTA online database; http://www.eftasurv.int/ press--publications/public-documents/.

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and for the sake of nature conservation, biodiversity and outdoor recreation, a complaint was filed with ESA in 2015 concerning the Norwegian government’s failure to comply with the WFD with respect to the biological effects and other significant impacts of aquaculture.53 The complaint is still pending. 24 Finally, a Norwegian mining project involving the dumping of tailings in a fjord, has been challenged under the WFD.54 In 2015, ESA received three complaints against Norway's decision to permit mining activities in Engebø mountain, with tailings being dumped into the Førdefjord on the west coast of Norway. ESA assessed the Norwegian decision-making process on the basis of EEA law and found no breach of Norway´s commitments. 25 Other important EU legal acts in Chapter II of Annex XX include: – Dir. 91/271/EEC concerning urban waste water treatment – Dir. 91/676/EEC concerning the protection of waters against pollution caused by nitrates from agricultural sources – Dir. 98/83/EC on the quality of water intended for human consumption – Dir. 2006/11/EC on pollution caused by certain dangerous substances discharged into the aquatic environment – Dir. 2006/118/EC on the protection of groundwater against pollution and deterioration – Dir. 2008/105/EC on environmental quality standards in the field of water policy 26

The following important EU legal acts concerning water are not incorporated into the EEA Agreement: – Dir. 76/160/EEC on the quality of bathing water (the Bathing Water Directive) – Council Decision 77/795/EEC establishing a common procedure for the exchange of information on the quality of surface fresh water – Dir. 78/659/EEC on the quality of fresh waters needing protection or improvement in order to support fish life – Dir. 79/923/EEC on the quality required of shellfish waters

53 Complaint to ESA concerning the Norwegian government´s failure to comply with the provisions of the water framework directive (Dir. 2000/60/EC) with regards to the biological effects and other significant impacts of aquaculture, Oslo 25 November 2015, EFTA Case No78330. 54 See Case No:77424, Document No: 830452, Decision No: 009/17/COL, Case No:77442, Document No: 830500, Decision No: 007/17/COL and Case No:76709, Document No: 830021, Decision No: 008/17/COL, all by the EFTA surveillance authority, decided on 18 January 2017, closing complaints arising from alleged failures by Norway to comply with Directive 2000/60/EC of the European Parliament and the Council establishing a framework for Community action in the field of water policy by approving a mining project and a proposal to dispose of mining tailings in the Førdefjord.

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3. Air a) Introduction

Chapter II of Annex XX includes legal acts protecting the environment, and 27 also human health from air pollution and bad air quality, by regulating emissions of air pollution and the level of pollution in ambient air. b) Ambient air quality

One of the most important EU legal acts in Chapter II of Annex XX is Dir. 28 2008/50/EC on ambient air quality and cleaner air for Europe. In 2015, ESA brought infringement proceedings against Norway for alleged 29 breaches of Dir. 2008/50/EC relating to poor air quality in some areas, mostly some of the bigger cities. Before the EFTA Court, Norway acknowledged that it had surpassed the limit values set out in the directive and admitted, inter alia, that the requirements in the directive in relation to preparing and implementing air quality plans for the relevant zones were not fully met. Unsurprisingly, the EFTA Court concluded that Norway had failed to fulfil its obligations arising under the directive.55 For the Norwegian Ministry of Climate and Environment, which is responsible for the air quality norms, part of the problem was that the competence needed to fulfil the directive’s requirements rested with several other ministries as well as local authorities. This, and the complexity of the efforts needed, had led to a situation where too little was done too late, resulting in unpopular ad hoc emergency measures, such as bans on diesel cars. However, as a result of ESA’s investigation and control, and the judgment from the EFTA Court, a strong and better coordinated effort now seems to be being made to address the air quality problems. c) The EU Emissions Trading Scheme

The problem of climate change due to emissions of greenhouse gases into the 30 atmosphere has developed from a relatively insignificant issue during the negotiation of the EEA Agreement56 to become the dominant environmental problem and the defining political and legal issue of our time, internationally, for the EU and also in relation to the EEA Agreement. The EU has aimed to take a leading position in combating climate change, 31 and since 2005 it has established an emissions trading scheme for carbon – the EU Emissions Trading Scheme (EU ETS) – as its most important legal instrument for reducing emissions of greenhouse gases.57 Other important components in the EU’s climate policy are binding goals and support for renewable energy, increased energy efficiency, special state aid regulations for energy efficiency 55 Case E-7/15, 2.10.2015, ESA v Norway. 56 See, however, St. prp. nr. 100 (1992-92), where limitation of emission of greenhouse gases is mentioned as a possible future area for cooperation in the EEA.

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and renewable energy, and regulation of the energy and climate quality of certain products. 32 The participation of the EFTA States in the Emissions Trading Scheme has developed over time and through rather difficult negotiations that have also given rise to some tension. In the international negotiations on the Kyoto Protocol on climate change, Norway took a different position than the EU, Norway was a member of the so-called ‘Umbrella Group’, which advocated the use of trading systems for emission quotas and other flexible instruments, while the EU at the time was sceptical about such solutions. Iceland, on its part, negotiated a separate agreement under the Kyoto Protocol, which allowed the country to increase its emissions by 10%. 33 During the 1990 s, the EU and the EFTA States did not cooperate on developing legal strategies to fulfil their obligations under the Kyoto Protocol. The EU eventually decided to develop a system for emissions trading, while Norway worked to develop a national emissions trading system. The first EU proposal for an ETS Directive in 2001 was not labelled EEA-relevant, possibly by oversight. When the EU later changed its position concerning the directive’s EEArelevance, the EFTA States were at first reluctant and argued that this would infringe their international obligations under the UN Framework Convention on Climate Change and the Kyoto Protocol. Norway later changed its position and became a strong supporter of the EU ETS, and Lichtenstein also accepted the scheme, leaving Iceland as the only EFTA State with reservations. This created some tension between Iceland and the other EFTA countries.58 Views also differed between the EU and some of the EFTA States on certain issues relating to the structuring of the ETS. Norway argued that a smaller proportion of allowances than planned by the EU should be granted free of charge. A compromise was reached on a 50/50 split between free allowances and auctioned allowances. 34 The EU ETS regime, including the ETS Directive and related legal acts, were, with a few exceptions, incorporated into the EEA Agreement in 2007.59 However, the decision includes important limitations and adaptions in relation to the ETS Directive. The EFTA States were exempted from the ETS Directive in the first three-year period, which had started on 1 January 2005. Norway had established its own scheme for emissions trading and the Decision’s preamble in57 See Dir. 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, with later amendments (ETS Directive). See more generally on the EU ETS scheme: Stefan E. Weishaar, Emissions Trading Design. A Critical Overview, 2014 and Research Handbook on Emission Trading Systems, 2016, and Sanja Bogojević Emissions Trading Schemes: Markets, States and Law, 2013. 58 See the detailed presentation of the process by Jonsdottir, Europeanization and the European Economic Area, 2013, Chapter 6, especially pp. 117-120, where she refers to an EU official claiming that the discussion on the implementation of the ETS ‘was one of the hardest battles they had ever fought in the EEA’ (p. 119). See also the Final Report of the Norwegian EEA Review in NOU 2012: 2 pp. 565-567. 59 Decision of the EEA Joint Committee No 146/2007, amending Annex XX, 21al ff.

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cludes statements on how Norway would exercise its competence in the remaining part of the initial three-year period.60 Moreover, it was pointed out that the ‘different situation’ in the different EFTA States had to be considered and that particular account needed to be taken of the commitments of Iceland under the Kyoto Protocol. The Decision also stressed that it did not affect the autonomy of the parties with respect to international negotiations on climate change, other than ‘in respect of the instruments incorporated […] into the EEA Agreement’. The EFTA States accepted, however, that they would take ‘due account’ of the obligations under the EEA Agreement in international negotiations. The EU ETS scheme has been developed gradually over time. Phase I of the EU ETS (2005-2007) was a test phase. From the start of Phase II (2008-2012), the EFTA States were fully integrated into the EU ETS. However, this does not prevent them from introducing other instruments or regulations for reducing emissions of greenhouse gases. Norway, for example, has kept the carbon tax on emissions from the petroleum sector. Through Dir. 2009/29/EC, important amendments were made to the ETS Directive in order to improve and extend the emissions trading scheme. The revised directive was implemented in the EEA Agreement in 2012.61 It entered into force in the EEA from the start of Phase III (2013-2020) on 1 January 2013. EU ETS is a cap and trade system where a maximum limit is set on total greenhouse gas emissions, and emission allowances within this limit are distributed free of charge or auctioned off. A limited amount of credits can also be bought by engaging in emission saving projects around the world. The total number of allowances to be distributed is decided by the Commission. Through the implementation of the revised directive, the EFTA States were integrated into the system for granting free quotas on a par with the EU Member States. In accordance with the decision, a subparagraph was added to Article 3e(3) of the ETS Directive, granting the EEA Joint Committee competence to decide on the EEA-wide number of allowances, the number of allowances to be auctioned, the number of allowances in the special reserve and free allowances. This was done by adding the relevant numbers for flights within the territories of the EFTA States and flights between the EFTA States and third countries to the Commission decision, when incorporating the latter into the EEA Agreement.62 The EFTA States’ figures for phase II pursuant to Article 9 of the ETS Directive are listed in the Appendix to the decision of the EEA Joint Committee.

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d) The 2030 Climate & Energy Framework

A discussion is currently ongoing on the future structuring of the EU ETS. In 39 October 2014 the EU adopted a binding 2030 Climate & Energy Framework, 60 Ninth recital of the preamble to EEA Joint Committee Decision No 146/2007. 61 Decision of the Joint Committee No 150/2012. 62 Annex XX, III. 21 al. (f.).

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which sets three key targets for the year 2030: a 40% cut in greenhouse gas emissions, a 27% share of renewable energy and a 27% improvement in energy efficiency. A proposal has been presented for Phase IV (2021 to 2030) that is in line with this framework. The plan is considered to be EEA relevant.63 A legistlative proposal to integrate greenhouse gas emissions and removals from land use, land use-change and forestry into the 2030 climate and energy framework, has been presented by the Commission.64 Negotiations have been ongoing since 2015 for an agreement on cooperation between the EU and Norway on the climate plan. Norway has argued that this cooperation should either be regulated by a separate agreement outside the EEA Agreement or as part of the cooperation outside the four freedoms (Part IV), whereas the EU wants it to be included in the ‘ordinary’ part of the EEA Agreement.65 This has sparked a debate in Norway on the consequences for the agricultural sector. Trade in agricultural products is exempted from the EEA Agreement, but agriculture is part of the climate plan. 4. Chemicals, industrial risk and biotechnology

Control of chemical hazardous substances is regulated in the so-called REACH regulation.66 The regulation aims to both protect humans and environment against the risks that can be posed by chemicals and to enhance the competitiveness of the EU chemicals industry. Despite its obvious environmental relevance, the regulation is formally implemented under Annex II to the EEA Agreement, with adaptations.67 41 Deliberate release of genetically modified organisms (GMO) is a controversial policy area. The 2001 GMO Directive (Dir. 2001/18/EC) is the core element of the EU regulation in this field, supplemented by several Commission and Council Decisions.68 Norway participated actively in the preparation of the Directive.69 The directive was nevertheless not incorporated into the EEA Agreement until the EEA Joint Committee decision in September 2007.70 42 The 2001 GMO Directive repealed the former 1990 GMO Directive, which was part of the EEA Agreement from the outset. Due to several derogations 40

63 Commission Reg. (EU) no. 920/2010 on a standardised and secured registration system pursuant to Dir. 2003/87/EC (Quota Directive) and Decision 280/2004/EC. 64 COM(2016) 479 final. 65 See also Jonsdóttir’s comments on Art. 79, mn. 7. 66 Regulation (EC) No 1907/2006 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH). 67 Decision of the EEA Joint Committee No 25/2008 amending Annex II (Technical regulations, standards, testing and certification). 68 Dir. 2001/18/EC on the deliberate release into the environment of genetically modified organisms. 69 O.K. Fauchald, ‘Genetically Modified Organisms and precaution in Norwegian Law’, in: Nicolas de Sadeleer (ed), Implementing the Precautionary Principle. Approaches from the Nordic Countries, EU andUSA (Earthscan, London 2007), on p. 231. 70 Decision of the EEA Joint Committee No 127/2007.

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granted as part of the EEA negotiations,71 the 1993 Norwegian GMO Act was stricter than the 1990 Directive, giving the EFTA countries a broad margin of appreciation in determining to what extent a precautionary approach should apply to the deliberate release of GMOs.72 In addition to emphasising health and environment, as allowed (and required) under the 1990 Directive, the Norwegian Act includes considerations such as precaution, sustainable development and usefulness to society when deciding on deliberate release. The Norwegian authorities adopted a more precautionary approach than the EU in several GMO cases, setting a high level of protection and requiring a high standard of proof.73 In the decision of the EEA Joint Committee in 2007 adopting the GMO Di- 43 rective, the EFTA States obtained important derogations.74 The Directive’s Article 23 gives a member State the power to prohibit GMO notified and consented to under the Directive ‘as a result of new or additional information made available since the date of the consent and affecting the environmental risk assessment or reassessment of existing information on the basis of new or additional scientific knowledge’. In the EFTA States, it is sufficient that a Contracting Party has ‘detailed grounds’ for deeming a GMO to constitute a risk to human health or the environment.75 Another difference is that the EFTA States ‘may restrict or prohibit’, while the Directive only gives the Member States competence to ‘provisionally’ restrict or prohibit. And where the EFTA text states that the Contracting Party shall immediately inform the other Contracting Parties and give reasons for its decision, the Directive also requires the Member State to supply its review of the environmental risk assessment and, where appropriate, the new or additional information on which its decision is based. The substantive criterion, that the GMO constitutes ‘a risk to human health or the environment’, is the same in the EEA-adaptation text and the Directive. This apparent parallelism must still be read in light of the following statement in the Joint Committee’s Decision: ‘The Contracting Parties agree that the Directive only covers aspects relating to the potential risks to humans, plants, animals and the environment. The EFTA States therefore reserve the right to apply their national legislation in this area in relation to other concerns than health and environment, in so far as it is compatible with this Agreement.’

The text arguably allows the EFTA States to take ‘other concerns’ into con- 44 sideration than the aspects highlighted in the directive, even though the ‘in so far as it is compatible with this Agreement’ caveat leaves the matter far from settled. In practice, it may be a considerable problem for the EFTA States that any dispute in this regard is only to be handled by political instruments in the EEA 71 72 73 74

See the Final Report of the Norwegian EEA Review NOU 2012:2 p. 583. Fauchald, ‘Genetically Modified Organisms and precaution in Norwegian Law’, p. 236. Fauchald, ‘Genetically Modified Organisms and precaution in Norwegian Law’, p. 245. See Art. 1 of Decision of the EEA Joint Committee No 127/2007. The outsider status of the EFTA States has a price, however. In the Committee assisting the Commission (Art. 30 of the Directive), the EFTA States shall participate fully ‘but shall not have the right to vote’. 75 Decision of the EEA Joint Committee No 127/2007.

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Joint Committee in accordance with Art. 111, thus leaving them vulnerable to safeguard measures and/or suspension of the affected parts of Annex XX.76 45 From 2015, after five years’ tug of war, an amendment was made to the 2001 Directive regarding the possibility for the Member States to restrict or prohibit the cultivation of GMOs in their territory. The text is marked EEA-relevant, but so far it has not been implemented under the Agreement. Art. 23 is not changed, but a new Art. 26 a), b) and c) have been added. It follows from Art. 26 b) (1) that, during the authorisation/renewal of consent procedure for a given GMO, a Member State ‘may demand that the geographical scope of the written consent or authorization be adjusted to the effect that all or part of the territory of that Member State is to be excluded from cultivation’. The applicant may then adjust the geographical scope of its initial application. If no such demand is made, a Member State may still prohibit the cultivation of a GMO in all or part of its territory, provided, among other things, that the measures are based on compelling grounds such as environmental policy objectives, town and country planning considerations, land use, socioeconomic impacts, avoidance of GMO presence in other products, agricultural policy objectives and public policy. It has been claimed that the amendment brings the EU law approach closer to that of the 1993 Norwegian GMO Act, since the aspects and concerns covered by the Norwegian GMO Act are now covered by the Directive.77 In future, the most practical alternative will be to ask an applicant to exempt Norway from the geographical scope of the application. The 1993 Norwegian GMO Act did not explicitly address the issue of compatibility with international trade law,78 while compatibility with WTO was a focal point in the EU amendment of the GMO Directive. 5. Waste

Chapter V of Annex XX contains legal acts on the handling and disposal of waste. The Framework Directive on Waste (Dir. 2008/98/EC) sets out the general rules that apply to all forms of waste handling. Hazardous waste is especially regulated in Dir. 91/689. The handling of end-of-life vehicles, Directive 2000/53/EC, and waste electrical and electronic equipment, Directive 2012/19/EU, are also regulated in this section. 47 Other important legal acts found in Chapter V include: 46

– Dir. 86/278/EEC on the protection of the environment, and in particular of the soil, when sewage sludge is used in agriculture – Dir. 1999/31/EC on the landfill of waste

76 See also the comments by Fredriksen on Art. 111, mn. 1. 77 See the note on the Norwegian position on the amendment; https://www.regjeringen.no/no/sub /eos-notatbasen/notatene/2010/nov/endringer-i-utsettingsdirektivet-for-gmo/id2434835/. 78 Fauchald, ‘Genetically Modified Organisms and precaution in Norwegian Law’, p. 245.

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– Reg. (EC) No 1013/2006 on shipments of waste – Dir. 2006/21/EC on the management of waste from extractive industries In case E-35/15, the EFTA Court ruled against Norway for not having ful- 48 filled Directive 2000/59/EC by failing to implement adequate port reception facilities for ship-generated waste and cargo residues in time. The directive is implemented in Appendix XIII. 6. Noise

Chapter VI of Annex XX includes only one legal act – Dir. 2002/49/EC relat- 49 ing to the assessment and management of environmental noise. 7. Acts of which the contracting parties take note

In addition to the legal acts listed in its Chapters I-VI, Annex XX also con- 50 tains a list of ‘acts of which the contracting parties shall take note’. The list includes Council Recommendation 75/436/EEC regarding cost allocation by public authorities on environmental matters, and Council Recommendation 79/3/EEC regarding methods of evaluating the cost of pollution control to industry.

Article 75 [More stringent national measures] The protective measures referred to in Article 74 shall not prevent any Contracting Party from maintaining or introducing more stringent protective measures compatible with this Agreement.

I. Legal Context

Art. 75 reproduces in substance Art. 193 TFEU (ex. Art. 176 TEC), but, for 1 the EU Member States, the latter provision imposes an additional obligation to notify the Commission of the introduction of any more stringent protective measures. A similar unequivocal reference to the Member States’ right to introduce stricter rules is not associated with Art. 114 TFEU, the key legal basis for the establishment and functioning of the internal market. The delimitation between internal market-related environmental law and environmental law matters without such connection may therefore be decisive for the EEA States’ possibility of maintaining or introducing more stringent protective measures.1 Unlike the EU Member States, however, the EFTA States cannot challenge the EU legislator’s choice to fully harmonise environmental law-related matters based on Art. 114 TFEU, even if they believe that the proper legal basis ought to have been Art. 192 TFEU. 1 Even though measures enacted on the basis of Art. 114 TFEU may, of course, also entail only minimum harmonisation.

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For EU legal acts based on Art. 192 TFEU, the possibility of setting stricter national rules can cause difficulties for national courts in cases where it is unclear whether the national legislator has made use of this possibility or not. National courts will base their interpretation of national implementing legislation on the underlying directive, but this link to EEA law will be broken in cases where the national rules are deemed to entail more stringent protective measures.2 II. Compatibility with other parts of the EEA Agreement

3

At first sight, Art. 75 might be read as reflecting an either/or situation – if an EU legal act has been incorporated into Annex XX, the EEA States can always enact stricter rules on the same subject matter. However, the reservation that any such national measures must be compatible with other parts of the EEA Agreement considerably limits the leeway of the EEA States. Stricter environmental norms in national law could, for example, be regarded as quantitative restrictions on imports or measures having equivalent effect, and thus incompatible with Art. 11 EEA, or as representing discrimination on grounds of nationality, and thus in violation of Art. 4 EEA.3 In short, stricter environmental regulation cannot be used as a smokescreen for national protective measures. III. More stringent protective measures

Directives must be implemented into national law in accordance with the requirements of Art. 7 EEA – the choice of form and method of implementation is left to the EEA States.4 Given the intricacies of full and minimum harmonisation, however, it is more pertinent to ask to what extent a particular directive incorporated into Annex XX harmonises environmental regulation. The national regulation could concern questions not yet addressed in EU/EEA environmental law, but still be ‘stricter’, or to some extent differ from the path chosen in EU law. When the ECJ decides on the level of harmonisation brought about by a directive, and thus the extent of national leeway, the assessment is based on a concrete and complex evaluation, the outcome of which is not always easy to foresee.5 5 This is well demonstrated by Case C-64/09 Commission v France, which concerned an environmental directive based on Art. 192 TFEU – Directive 2000/53/EC on end-of-life vehicles. The first recital in its preamble underlines 4

2 See, implicitly on this distinction, Norwegian Supreme Court case Rt. 2009 p. 661, para. 65 relating to the EIA and SEA Directives and the planning of a new American Embassy in Oslo. 3 Import restrictions are often characterized as ‘protectionist’, as they are deemed to favour the State’s inner market, rather than the EU market as a whole, cf. H.P. Graver, ‘Grenseområdet mellom miljøbeskyttelse og proteksjonisme i EUs miljørett’, Kritisk Juss 1995 pp. 211-236 on p. 211. The article gives an overview of the intersection between environmental protection and protectionism within EEA law. 4 See the comments by Dystland, Finstad and Sørebø on Art. 7, mn. 11-13. 5 Langlet and Mahmoudi, p. 133.

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that the end-of life regulation not only aims to minimize the impact of end-oflife vehicles on the environment, but also ‘to ensure the smooth operation of the internal market and avoid distortions of competition in the Community’. The Commission pleaded that the French implementation was incompatible with the Directive’s Art. 5(3), which regulates the procedure that is to be followed in order to cancel the registration of an end-of-life vehicle. The Commission observed that Art. 5(3) gives a precise description of this procedure. Thus, in order to ensure consistency between the national approaches to achieving smooth functioning of the internal market and to avoid distortions of competition within the EU, the provision determines which persons are empowered to issue a certificate of destruction, the addressee(s) of such a certificate and at which point in time it must be issued. According to the Commission, the French system did not comply with those instructions as only shredders were empowered to issue a ‘certificate of destruction’ and because the certificate was to be lodged with the prefect of the department of the place of registration of the vehicle after it had been physically destroyed, while the holder of the end-of-life vehicle was to receive a ‘receipt of acceptance for destruction’, a more bureaucratic and ineffective system, in the Commission’s view. The French objected that they had put in place a two-stage procedure, permitting better traceability of end-of-life vehicles, in order to ensure a higher level of protection. The ECJ stated that the directive seeks to minimize the impact of end-of-life 6 vehicles on the environment, but that it does not provide for complete harmonisation. Such measures must be compatible with the provisions of the TFEU and ‘must not frustrate the achievement of the objective pursued in the second instance by that directive, namely to ensure the smooth functioning of the internal market and to avoid distortions of competition in the Union’.6 7 The ECJ further held that the Directive’s Art. 5(3): ‘provides a precise description of the procedure to be followed for cancelling the registration of an end-of-life vehicle, in order to ensure, as stated by recital 2 in the preamble to the directive, coherence between national approaches. In the context of that procedure, a very specific function is given to a key document entitled “certificate of destruction”. That function of the document may not be altered. Even if it were to be conceded that the French system affords better traceability of end-oflife vehicles, it is clear that that system was giving the “certificate of destruction” a function different from that laid down in Art. 5(3) of Dir. 2000/53. Such an alteration of the function of that certificate is liable to jeopardise the coherence between the national approaches referred to in the preceding paragraph and, consequently, the functioning of the internal market. Likewise, the issue of a document entitled “receipt of acceptance for destruction” which, in the French Republic’s submission, fulfils the function of the “certificate of destruction” provided for in Art. 5(3) of Directive 2000/53 is liable to give rise to confusion capable of undermining the achievement of the objective pursued by that provision.’7

The ECJ thus found the Commission’s plea well-founded. The case illustrates 8 that, for directives that do not provide for complete harmonisation, a concrete and complex evaluation is needed to evaluate national measures. 6 Case C-64/09, 15.4.2010, Commission v France, para. 35. 7 Case C-64/09, 15.4.2010, Commission v France, paras. 36-38.

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Chapter 4: Statistics

Article 76 [Cooperation in the field of statistics] 1. The Contracting Parties shall ensure the production and dissemination of coherent and comparable statistical information for describing and monitoring all relevant economic, social and environmental aspects of the EEA. 2. To this end the Contracting Parties shall develop and use harmonized methods, definitions and classifications as well as common programmes and procedures organizing statistical work at appropriate administrative levels and duly observing the need for statistical confidentiality. 3. Annex XXI contains specific provisions on statistics. 4. Protocol 30 contains specific provisions on the organization of cooperation in the field of statistics.

Art. 76(1) imposes upon the Contracting Parties an obligation to produce and disseminate coherent and comparable statistical information. The obligation to collect statistical information includes “all relevant economic, social and environmental aspects of the EEA”. Essentially, the obligation to collect statistical information corresponds with the key objectives laid down in Art. 1 EEA, which, inter alia, refers to the aim of strengthening economic relations between the EEA States and to engage in close cooperation in matters concerning the environment and social policy. Thus, the overall purpose of Art. 76 is to provide comparable statistical information that describes the development in key areas of the EEA Agreement. Another way of putting this is that the collection of statistical information enables the Contracting Parties to survey the effects of the integration in economic, social and environmental aspects of the EEA.1 2 Art. 76(2) instructs the Contracting Parties to develop and use harmonised methods, definitions and classifications as well as common procedures. The organisation of the statistical work must be carried out at the appropriate administrative levels and confidentiality must be observed. Art. 76(3) refers to Annex XXI, which contains the relevant EU legal acts that have been incorporated into the EEA Agreement. Annex XXI thus fleshes out the substantive scope of Art. 76(1) by specifying the fields that are covered by the duty to collect statistical information. Annex XXI lays down specific provisions on statistics in a broad range of fields, inter alia, on business, transport, tourism, foreign trade, demography, fishery, energy, the environment and science and technology. It 1

1 See Norberg et al., EEA Law, pp. 626-7. By way of bilateral agreement the EU and Switzerland have adopted a regime for cooperation in the field of statistics, which largely parallels the EU/EEA model, see Council Decision of 27 February 2006 on the conclusion of the Agreement between the European Community and the Swiss Confederation on cooperation in the field of statistics.

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is worth noting that the obligation to collect statistical information covers areas which fall outside the substantive scope of the EEA Agreement itself. For instance, the EU fisheries policy is not covered by the EEA Agreement, but Reg. 1921/2006/EC nonetheless requires the EFTA States to submit statistical data on landings of fishery products.2 However, due to the demanding task of providing statistical information in all the areas covered by Annex XXI, Liechtenstein has been granted several important exemptions.3 Art. 76(4) contains reference to Protocol 30 EEA. This Protocol sets up the 3 framework for statistical cooperation. Art. 1(1) of Protocol 30 lays down that: ‘A conference of representatives of national statistical organisations of the Contracting Parties, the Statistical Office of the European Communities (Eurostat) and the EFTA Statistical Office (ESO) shall guide statistical cooperation and develop programmes and procedures for statistical cooperation in close coordination with those of the Community and monitor their implementation. This conference and the European Statistical System Committee (ESSC) shall organise their tasks for the purposes of this Protocol in combined meetings as ESSC/EEA Conference pursuant to specific rules of procedure to be established by the ESSC/EEA Conference.’

National statistical organisations from EU Member States and EFTA States 4 participate in the European Statistical System (ESS). The ESS is led by Eurostat (the Statistical Office of the European Union). National statistical organisations from the EFTA States are allowed to participate fully in the various committees of the ESS.4 However, according to Art. 1(2) of Protocol 30 EEA, although the EFTA States have the right to participate in the work carried out by these committees, the EFTA States do not have the right to vote when decisions are made in the committees. The role of the EFTA Statistical Office (ESO) is to guide the statistical co- 5 operation between Eurostat and the EFTA national statistical organisations. ESO is situated in Luxemburg within the premises of Eurostat. Thus, an essential task for the ESO is to ensure that statistical data from the EFTA States is included in the publications of Eurostat. In practice, up until recently, Eurostat has not always added data from the EFTA States in its analyses and charts. One reason for this is that the EFTA States occasionally have failed to produce the necessary statistical information required in order to be included in the publications of Eurostat. Another reason is that in instances where the EFTA States have collected and provided statistical information, Eurostat has considered the data as incomplete and has therefore refused to publish the information.5

2 Regulation (EC) No 1921/2006 of the European Parliament and of the Council of 18 December 2006 on the submission of statistical data on landings of fishery products in Member States and repealing Council Regulation (EEC) No 1382/91, incorporated under the subsection “Fishery Statistics” of Annex XXI. 3 See Annex XXI for the details. 4 See (Norway) Report by the EEA Review Committee, NOU 2012: 2 ‘Utenfor og innenfor – Norges avtaler med EU’, p. 629. 5 See (Norway) Report by the EEA Review Committee, NOU 2012: 2 ‘Utenfor og innenfor – Norges avtaler med EU’, p. 630.

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Arts. 2-5 of Protocol 30 EEA incorporate various EU statistical programmes, in which the EFTA States currently participate. In the years to come, the statistical cooperation between the EU and the EFTA States will be further strengthened. In May 2016, the EFTA Council approved an arrangement between all of the EFTA States (Switzerland included) and Eurostat with the objective of ensuring close cooperation in a number of programmes for technical cooperation within the field of statistics. The agreement covers a three-year period, from 2017 to 2019.6

Chapter 5: Company law

Article 77 [Provisions on company law] Annex XXII contains specific provisions on company law.

I. The function of Art. 77

Art. 77 serves as a turntable to Annex XXII which incorporates specific provisions of secondary EU law on company law into the EEA Agreement in the interest of the prime objective laid down in Art. 1(2) EEA, namely ‘to promote a continuous and balanced strengthening of trade and economic relations between the Contracting Parties with equal conditions of competition, and the respect for the same rules, with a view to creating a homogeneous European Economic Area.’ 2 The underlying conceptual idea of Art. 77 and the provisions laid down in Annex XXII derive from their conjunction with, in particular, the purpose of Art. 34 EEA. Art. 34 EEA guarantees companies or firms, formed in accordance with the law of an EEA State and having their registered office, central administration or principal place of business within the territory of the Contracting Parties, the right of establishment in the territory of any other of these States (Art. 31 EEA). Since Arts. 31 and 34 EEA correspond to Arts. 49 and 54 TFEU, the connection of Art. 77 EEA and Annex XXII to the freedom of establishment serves, in this subject matter, as the transmission of the concept of the internal market of the EU to the EEA. In order to attain freedom of establishment of companies, Art. 50 TFEU contains, in particular, the idea that the harmonisation of national company laws may foster the readiness of companies to set up branches and subsidiaries in other Member States in a legal environment of company law that resembles familiar characteristics of company law in their home state. To these ends, Art. 50(2) lit. g TFEU empowers the European Par1

6 See http://www.efta.int/About-EFTA/news/EFTA-Council-approves-new-three-year-arrangeme nt-Eurostat-499576.

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liament and the Council, acting in accordance with the ordinary legislative procedure and by means of directives, to coordinate to the necessary extent ‘the safeguards, which, for the protection of the interests of members and others, are required by Member States of companies and firms … with a view to making such safeguards equivalent throughout the Union.’ As a result, the Union has produced numerous directives regulating questions of company law.1 In addition, the right of establishment of companies can also be served by the 3 availability of European types of companies. EU-legislation to this effect can be based on Art. 352 TFEU, which indeed has been activated for this purpose several times.2 In line with the above-mentioned object and purpose of the EEA Agreement, 4 Annex XXII contains the secondary EU law on company law considered to be relevant for the EEA. In order to maintain homogeneity between EU and EEA company law, Annex XXII is constantly amended by Decisions of the EEA Joint Committee in accordance with the procedural rules laid down in Part VII of the EEA Agreement.3 The footnotes inserted by the EFTA Secretariat reveals all the changes adopted by the Decisions of the EEA Joint Committee. Consequently, Annex XXII is a breathing register of the current EU legal acts on company law which are relevant for the EEA. Annex XXII also contains the obligation of the Contracting Parties ‘to take note’ of certain acts relevant to company law, namely certain Recommendations of the European Commission (which are not binding by their legal nature under Union law: Art. 288(5) TFEU). II. The EU legal acts referred to in Annex XXII

In short, Annex XII contains the EEA-relevant parts of the so-called sec- 5 ondary ‘European Company Law’ of the EU. This body of EU law is characterized by the non-existence of a complete system of company law. This is true both for the directives harmonizing national company law and the legal acts regulating European types of companies (which all partially refer to the applicable national law of such a type of company). This situation is due to two factors. First, the scope of legislation of the Union is generally restricted by the prin- 6 ciple of conferral (Art. 5(2) TEU), which provides that ‘the Union shall act only within the limits of the competences conferred upon it by the Member States in the Treaties to attain the objectives set out therein.’ The EU has not been given general competence to legislate in company law; only more limited competences by way of Art. 50(1) and (2) lit. g and Art. 352(1) TFEU. However, 1 See as a very comprehensive treatise and analysis of the state of this development Lutter, Bayer and Schmidt, Europäisches Unternehmens- und Kapitalmarktrecht, 5th ed., 2012. 2 For a comprehensive analysis see Lutter, Bayer and Schmidt, Europäisches Unternehmens- und Kapitalmarktrecht, pp. 1415 et seq. 3 See. e.g., EEA Joint Committee Decision No 293/2015, incorporating into Annex XXII Dir. 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings. The EEA decision-making procedure is further commented upon by Dystland, Finstad and Sørebø in their comments on Arts. 98 ff EEA.

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they are susceptible for flexible interpretation in the light of their respective objectives – in Art. 50(1) TFEU: attaining freedom of establishment; in Art. 352(1) TFEU: attaining one of the objectives set out in the Treaties. 7 Second, even as far as the Union enjoys power to legislate in company law, the necessary political majorities have to be found for every single legislative project. As an example, the proposals of the Commission for a directive concerning the structure of public limited companies and the power and obligations of their organs4 did not get the necessary approval until today, mainly due to the controversies over the issue of entrepreneurial co-determination. 8 As a result, secondary ‘European Company Law’ is composed of a considerable number of legislative acts on different topics, but they do not add up to a comprehensive body of company law. This is mirrored by the reference list found in Annex XXII. However, the different acts aim at interlinking with each other (if possible) and at avoiding contradictions between them. 9 The acts listed in Annex XXII points 1 to 10 i can basically be distinguished according to the criterion whether they aim at harmonising national company laws (Section III below) or whether they govern European types of companies (Section IV). III. Acts directed at harmonising national company laws 10

The considerable number of acts directed at harmonising national company laws in the list of Annex XXII point 1 to point 10 i allows a rough grouping according to the respective topics of the ‘life cycle’ of certain types of companies dealt with: formation, organisation, single-member private limited liability companies, ongoing operations, accounting, structural changes and termination. In addition, some acts pertain to commercial registers. The following annotations, without any effort or possibility of completeness, outline an overview of the profiling topics of the most important acts referred to in Annex XXII. 1. Formation of certain types of companies

11

Concerning the formation of certain types of companies, specific aspects are dealt with by parts of the EU legal acts referred to in points 1, 2 and 8 of Annex XXII. Point 15 refers to Dir. 2009/101/EC (with subsequent amendments), which deals with the compulsory disclosure by companies as referred to in its Art. 1 of a multitude of documents (Arts. 2 to 7), among them their instrument of constitution and the companies’ required legal form at the time of formation (Art. 11), and the admissible grounds of nullity of the company as well as rules on procedure and legal consequences in such cases (Arts. 12 and 13). Specific

4 See COM (72) 887; COM (83) 185; COM (90) 629; COM (91) 372. 5 The original text of point 1 which referred to Council Dir. 68/151/EEC was replaced by EEA Joint Committee Decision No 56/2010.

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disclosure requirements which pertain to branches opened in a Member State by certain types of company governed by the law of another State are covered by Dir. 89/666/EEC (as amended) which is included in the EEA Agreement by point 8. Point 26 refers to Dir. 2012/30/EU (as amended) which contains rules in respect of the formation of public limited liability companies with an emphasis on very detailed rules on its capital and shares (Arts. 6 et seq) and the required information in their statutes or instruments of incorporation (Arts. 2 and 3). Specific rules for liabilities incurred by or on behalf of the company during the period of its coming into full legal existence are contained in both Directives.7 A private limited liability company may have a single member when it is formed.8 2. Organisation in listed companies

Certain aspects of the internal organisation of listed companies are dealt with 12 by Dir. 2007/36/17 on the exercise of certain rights of shareholders in listed companies referred to in point 10 g of Annex XXII.9 The Directive establishes ‘requirements in relation to the exercise of certain shareholder rights attaching to voting shares in relation to general meetings of companies’ (Art. 1) and contains, among other things, rules on equal treatment of shareholders, information prior to the general meeting, the right to put items on the agenda of the general meeting and to table draft resolutions, requirements for participation and voting in the general meeting, participation in the general meeting by electronic means, proxy voting, voting by correspondence and the removal of impediments to the effective exercise of voting rights. 3. Single-member private limited liability companies

The law on single-member private limited liability companies is given spe- 13 cial, though rather scarce attention by Dir. 2009/102/EC (as amended), which is referred to by point 9 of Annex XXII.10 It recognizes the type of a company which has a sole member when it is formed or where all shares come to be held by a single person and requires the transparency of that fact and the identity of the sole member (to be recorded in the file or entered in either the register as referred to in Art. 3(1) and (2) of Dir. 68/151/EEC or a register kept by the company and accessible to the public).

6 The original text of point 2 which referred to Council Dir. 77/91/EEC was replaced by EEA Joint Committee Decision No 131/2013. 7 Art. 8 of Dir. 2009/101/EC; Art. 4(1) of Dir. 2012/30/EU. 8 See Art. 2(1) of Dir. 2009/102/EC. The Directive is referred to in point 9 of Annex XXII. 9 Inserted by EEA Joint Committee Decision No 59/2008. 10 The original text of point 9 which referred to Council Dir. 89/67/EEC was replaced by EEA Joint Committee Decision No 56/2010.

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4. Ongoing operations in certain types of companies 14

As far as the ongoing operation in certain types of companies is concerned, again the Directives referred to by points 1, 2 and 8 of Annex XXII contain specific provisions. They relate to the disclosure of certain documents and particulars11 and the validity of obligations entered by the company12 as well as to a wide panoply of issues concerning the maintenance and alteration of the capital of public limited liability companies.13 5. Accounting

In the interest of members and third parties alike, accounting is a central issue of several acts referred to by Annex XXII. Through Decision No 293/2015 of the EEA Joint Committee, Council Dir. 78/660/EEC (and its numerous amendments) on the annual accounts of certain types of companies and Council Dir. 83/349/EEC (and its numerous amendments) on consolidated accounts were replaced by the incorporation into the EEA Agreement of Dir. 2013/34/EU on the annual financial statements and related reports of certain types of undertakings (and its amendments).14 16 Also relevant in this respect are points 10 b15 and 10ba16 which refer to the Reg. (EC) No 1606/2002 on the application of international accounting standards and to the Commission Reg. (EC) No 1126/2008 (and its numerous amendments) adopting certain international accounting standards. Reg. No 1606/2002 aims at harmonising the financial information presented by companies, if their securities are admitted to trading in a regulated market of any Member State within the meaning of Art. 1(13) of Council Dir. 93/22/EEC on investment services in the securities field.17 17 Lastly, several EU legal acts referred to by points 10 f et seq.18 provide rules for statutory audits of annual accounts and consolidated accounts, in particular Dir. 2006/43/EC (and its amendment) and a couple of related Commission Decisions.19 15

6. Structural changes 18

Structural changes of certain types of companies are the topic of the acts referred to by points 3,20 5, 10 e21 and 10 f of Annex XXII. While mergers of public limited liability companies within a national jurisdiction are the topic of Dir. 2011/35/EU (and its amendment), cross-border mergers of limited liability com11 12 13 14 15 16 17 18

Arts. 2 et seq. of Dir. 2009/101/EC; Arts. 2 et seq. and Arts. 7 et seq. of Dir. 89/666/EEC. Arts. 9 and 10 of Dir. 2009/101/EC. Dir. 2012/30/EU. Point 10 i of Annex XXII. Inserted by EEA Joint Committee Decision No 37/2003. Inserted by EEA Joint Committee Decision No 176/2004. Arts. 1 and 4 of Reg. (EC) No 1606/2002. All of them inserted by Decisions of the EEA Joint Committee.

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panies are dealt with in Dir. 2005/56/EC (and its amendments). The division of public limited liability companies is subject of point 5 which refers to Dir. 82/891/EEC and its amendments. Also relevant for structural changes in a wide sense is point 10 d22 which refers to Dir. 2004/25/EC on takeover bids.23 7. Termination et al.

Termination, liquidation and winding-up of certain types of companies is a 19 theme of compulsory disclosure in Dirs. 2009/101/EC24 and 89/666/EEC (in respect of branches)25 and a topic of the legal consequences of the order of nullity of a company by decision of a court of law in Dir. 2009/101/EC.26 8. Commercial registers

Art. 3(1) of Dir. 2009/101/EC orders that ‘in each Member State, a file shall 20 be opened in a central register, commercial register or companies register, for each of the companies registered therein’ entailed the adoption of two subsequent legal acts concerning the interconnection of registers. Dir. 2012/17/EU deals with interconnection of central, commercial and companies registers,27 while the Commission Implementing Reg. (EU) 2015/884 establishes technical specifications and procedures required for the system of interconnection of registers established by Dir. 2009/101/EC. These Directives are referred to by points 1, 1 a28 and 10 h29 of Annex XXII.

19 Commission Decisions 2008/627/EC concerning a transitional period for audit activities of certain third country auditors and audit entities; 2010/64/EU on the adequacy of the competent authorities of certain third countries; 2010/485/EU on the adequacy of the competent authorities of Australia and the United States; 2011/30/EU on the equivalence of certain third country public oversight, quality assurance, investigation and penalty systems for auditors and audit entities and a transitional period for audit activities of certain third country auditors and audit entities in the European Union; 2013/280/EU on the adequacy of the competent authorities of the United States of America; 2013/281/EU on the equivalence of the public oversight, quality assurance, investigation and penalty systems for auditors and audit entities of the United States of America. 20 The original text of point 3 which referred to Dir. 78/855/EEC was replaced by EEA Joint Committee Decision No 99/2012. 21 This point was inserted by EEA Joint Committee Decision No 127/2006. 22 Inserted by EEA Joint Committee Decision No 70/2005. 23 For interpretation of the Directive’s Art. 5(4) in the EEA context, see the EFTA Court’s judgment in Case E-1/10, 10.12.2010, Periscopus. 24 See Art. 2 lit. h to lit. k; referred to by point 1 of Annex XXII. 25 See Art. 2 lit. f and Art. 7 lit. i; referred to by point 8 of Annex XXII. 26 See Art. 13; referred to by point 1 of Annex XXII. 27 For amendments to Dir. 2009/101/EC see Art. 3 of Dir. 2012/17/EU. It contains also amendments to Dir. 89/666/EEC and Dir. 2005/56/EC. 28 Inserted by EEA Joint Committee Decision No 159/2016. 29 Inserted by EEA Joint Committee Decision No 177/2013.

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IV. Acts governing European types of companies 21

Among the acts referred to by Annex XXII are also the Regulations which govern the presently three European types of companies: Council Reg. (EEC) No 2137/85 on the European Economic Interest Grouping (EEIG),30 the Council Regulation on the Statute of a European Company (SE)31 (and its amendments) and the Council Regulation on the Statute for a European Cooperative Society (SCE).32 They have in common that they aim at fostering the institutionalized cross-border cooperation and to these ends establish the basic rules for any of these types of European companies, but refer in a panoply of subject matters to national law for completion. 1. European Economic Interest Grouping (EEIG)

22

The EEIG is characterised by several elements. It is designed, according to the recitals 1, 2 and 5 of Reg. (EEC) No 2137/85, to offer an appropriate European ‘legal instrument’ which facilitates for natural persons, companies, firms and other legal bodies their effective cooperation across frontiers, though only within a restricted purpose (see below). To these ends, the grouping must comprise at least either i) two companies, firms or legal persons (within the meaning of Art. 54(1) and (2) TFEU and Art. 34(1) and (2) EEA), which have their central administrations in different EEA States or ii) two natural persons who carry on their principal activities in different EEA States or iii) a company, firm or legal person in the mentioned meaning and a natural person with the respective mentioned location (central administration, principal activities) in different EEA States.33 The purpose of an EEIG ‘shall be to facilitate or develop the economic activities of its members and to improve the results of those activities’, but ‘not to make profits for itself’ and, hence, ‘its activity shall be related to the economic activities of its members and must not be more than ancillary to those activities’.34 An EEIG has, from the date of its registration, ‘the capacity, in its own name, to have rights and obligations of all kinds, to make contracts or accomplish other legal acts, and to sue and be sued.’35 It is ‘represented vis-à-vis third parties by an organ legally separate from its membership.’36 The liability for its debts and other liabilities is with the EEIG, due to its legal capacity, as well as with the members of the EEIG, who have unlimited joint and several liability.37 For numerous issues the Regulation refers to national law. Subject to its own 30 Referred to by point 10 of Annex XXII. 31 Referred to by point 10 a of Annex XXII, inserted by EEA Joint Committee Decision No 93/2002. 32 Referred to by point 10 c of Annex XXII, inserted by EEA Joint Committee Decision No 15/2004. 33 Art. 4(2) of Reg. (EEC) No 2137/85. 34 Art. 3(1) of Reg. (EEC) No 2137/85. 35 Art. 1(2) of Reg. (EEC) No 2137/85. 36 Recital 9 and Arts. 19 and 20 of Reg. (EEC) No 2137/85. 37 Art. 24(1) of Reg. (EEC) No 2137/85.

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provisions, the law applicable to the contract for the formation of the EEIG (with exceptions) and to the internal organisation is the internal law of the state in which the official address is situated, as laid down in the contract for the formation of the grouping.38 2. European Company (SE)

The SE is designed to give existing companies from different Member States 23 the option of combining their potential by means of mergers in the form of a European public limited-liability company for the purpose of reorganising their business on a European scale.39 To these ends, for certain forms of companies, four variants for primary formation of an SE are available, provided that the applicable respective cross-border requirements are met: formation of an SE by means of a merger,40 formation of a holding SE,41 formation of a subsidiary SE,42 conversion into an SE.43 A secondary formation of an SE is available for an SE when setting up a subsidiary.44 The minimum capital of an SE is € 120.000.45 The capital is divided into shares and no shareholder is liable for more than the amount he has subscribed.46 An SE has legal personality.47 Its registered office has to be located within the EEA, in the same Member State as its head office.48 Every SE has to be registered in the Member State in which it has its registered office in a register designated by the law of that State in accordance with Dir. 2009/101/EC.49 The organisational structure of an SE comprises a general meeting of shareholders and either a two-tier board system, composed of a supervisory organ and a management organ, or a one-tier system in form of an administrative organ depending on the form adopted in the statutes.50 The different layers of the law governing an SE are threefold: first the Regulation; second, where expressly authorised by the Regulation, the provisions of the statutes of an SE; third in the case of matters not regulated by the Regulation (or, where matters are partly regulated by it, of those aspects not covered by it), by the provisions of laws adopted by Member States in implementation of Community measures relating specifically to SEs, the provisions of Member States´ laws which would apply to a public limited-liability company formed in accordance

38 39 40 41 42 43 44 45 46 47 48 49 50

Art. 2(1) of Reg. (EEC) No 2137/85. Recital 1, 2 and 6 of Reg. (EC) No 2157/2001. Art. 2(1) and Arts. 17 et seq. of Reg. (EC) No 2157/2001. Art. 2(2) and Arts. 32 et seq. of Reg. (EC) No 2157/2001. Art. 2(3) and Art. 36 of Reg. (EC) No 2157/2001. Art. 2(4) and Art. 37 of Reg. (EC) No 2157/2001. Art. 3(2) of Reg. (EC) No 2157/2001. Art. 4(2). Art. 1(2). Art. 1(3). Art. 7. Art. 12(1). Art. 38.

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with the law of the Member State in which the SE has its registered office, and the provisions of its statutes, in the same way as for such a company.51 3. European Cooperative Society (SCE) 24

The SCE is designed to provide cooperatives with an adequate ‘legal instrument’ of facilitating the development of their cross-border activities.52 To these ends, an SCE ‘shall have as its principal object the satisfaction of its members´ needs and/or the development of their economic and social activities’53 and can be formed by different ways which all require a cross-border element: by an original formation (ex nihilo) ‘by five or more natural persons resident in at least two Member States’ or ‘by five or more natural persons and companies or firms’ (within the meaning of Art. 54(2) TFEU and Art. 34(2) EEA) ‘and other bodies of public or private law, formed under the law of a Member State, resident in, or governed by the law of, at least two different Member States’ or by such companies and firms;54 or by a merger between cooperatives formed under the law of a Member State with registered and head offices within the EEA (provided that at least two of them are governed by the law of two Member States);55 or by conversion of a cooperative with connecting factors of its operation (registered office and head office, establishment or subsidiary in two different Member States).56 The minimum capital of an SCE is € 30.000 (with the exception for national requirements of greater subscribed capital).57 The subscribed capital is divided into shares and no member is liable for more than the amount he has subscribed (unless otherwise provided by the statutes of the SCE).58 An SCE has legal personality.59 Its registered office has to be located within the EEA, in the same Member State as its head office.60 The organisational structure of the SCE basically corresponds to that of the SE (without prejudice to cooperative specifics) with a general meeting and the option between a two-tier-system and a one-tier system.61 The different layers of the law governing an SCE are ordered in a parallel way to the SE.62 V. Acts of Which the Contracting Parties Shall Take Note

25

The concluding part of the Annex comprises several Commission Recommendations which, by their legal nature, are not binding in EU law (Art. 288(5) 51 52 53 54 55 56 57 58 59 60 61 62

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Art. 9(1). Recital 6 of Reg. (EC) No 1435/2003. Art. 1(3). Art. 2(1). Art. 2(1) and Arts. 19 et seq. Art. 2(1) and Art. 35. Art 3(2) and (3). Art. 1(2). Art. 1(5). Art. 6. Art. 36. Art. 8.

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Introduction to EEA cooperation outside the four freedoms

TFEU) and hence cannot serve as the basis of an obligation in the EEA either. They relate to topics of statutory audit (quality assurance, independence, limitation of civil liability of statutory auditors and audit firms), environmental issues in the annual accounts and reports of companies, remuneration of directors of listed companies and the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board.

Part VI: Cooperation outside the four freedoms Introduction to EEA cooperation outside the four freedoms* Most descriptions of the EEA Agreement begin by highlighting that it grants 1 the EFTA States almost full access to the EU’s Single Market. Although the Single Market is indeed the crux of the EEA, Part VI of the Agreement expands its scope to “cooperation outside the four freedoms”. It would, however, be incorrect to say that Part VI has no link to the Single Market. A number of the areas included in Part VI are also covered by Part V on horizontal provisions related to the four freedoms. Furthermore, the overall goal of many of the activities falling under Part VI is to promote economic and political ambitions related to the four freedoms. Nonetheless, the EEA Agreement is much more than an economic pact and the importance of Part VI in this respect should not be underestimated. Part VI of the EEA Agreement differs from Parts II-V in a number of ways. 2 Firstly, the range of areas falling under Part VI is much broader and more flexible than in other parts of the Agreement. Several new areas of cooperation not mentioned in previous sections of the Agreement are introduced in Part VI such as research and development, education, tourism, and civil protection. Furthermore, Part VI contains an obligation on the Contracting Parties to take steps to develop, strengthen or broaden cooperation in activities not specifically listed “where such cooperation is considered likely to contribute to the attainment of the objectives” of the Agreement (Art. 87). This differs substantially from Parts II-V in which the areas covered are quite rigidly defined. Part VI is thus much more fluid in scope and arguably rather more malleable than other parts of the EEA Agreement which makes it easier in some ways to adapt to developments within the EU as well as the priorities and preferences if the EFTA States at each time. Part VI EEA is also quite flexible with respect to the types of cooperation 3 covered. Since the entry into force of the EEA Agreement, cooperation under * The author wishes to thank Thomas Tzieropoulos, Senior Legal Officer at the EFTA Secretariat and Ólafur Einarsson, Director of Internal Market Affairs at the EFTA Surveillance Authority for their contribution.

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TFEU) and hence cannot serve as the basis of an obligation in the EEA either. They relate to topics of statutory audit (quality assurance, independence, limitation of civil liability of statutory auditors and audit firms), environmental issues in the annual accounts and reports of companies, remuneration of directors of listed companies and the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board.

Part VI: Cooperation outside the four freedoms Introduction to EEA cooperation outside the four freedoms* Most descriptions of the EEA Agreement begin by highlighting that it grants 1 the EFTA States almost full access to the EU’s Single Market. Although the Single Market is indeed the crux of the EEA, Part VI of the Agreement expands its scope to “cooperation outside the four freedoms”. It would, however, be incorrect to say that Part VI has no link to the Single Market. A number of the areas included in Part VI are also covered by Part V on horizontal provisions related to the four freedoms. Furthermore, the overall goal of many of the activities falling under Part VI is to promote economic and political ambitions related to the four freedoms. Nonetheless, the EEA Agreement is much more than an economic pact and the importance of Part VI in this respect should not be underestimated. Part VI of the EEA Agreement differs from Parts II-V in a number of ways. 2 Firstly, the range of areas falling under Part VI is much broader and more flexible than in other parts of the Agreement. Several new areas of cooperation not mentioned in previous sections of the Agreement are introduced in Part VI such as research and development, education, tourism, and civil protection. Furthermore, Part VI contains an obligation on the Contracting Parties to take steps to develop, strengthen or broaden cooperation in activities not specifically listed “where such cooperation is considered likely to contribute to the attainment of the objectives” of the Agreement (Art. 87). This differs substantially from Parts II-V in which the areas covered are quite rigidly defined. Part VI is thus much more fluid in scope and arguably rather more malleable than other parts of the EEA Agreement which makes it easier in some ways to adapt to developments within the EU as well as the priorities and preferences if the EFTA States at each time. Part VI EEA is also quite flexible with respect to the types of cooperation 3 covered. Since the entry into force of the EEA Agreement, cooperation under * The author wishes to thank Thomas Tzieropoulos, Senior Legal Officer at the EFTA Secretariat and Ólafur Einarsson, Director of Internal Market Affairs at the EFTA Surveillance Authority for their contribution.

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Part VI has taken the form of EFTA participation in a range of EU programmes, agencies, projects, budget lines, bodies, networks, and a variety of other initiatives. Moreover, the nature of the cooperation foreseen in Part VI differs substantially from Parts II-V in the sense that its aim is not to create rights and obligations for individuals and economic operators based on harmonised rules but to serve as a basis for cooperation between the Contracting Parties to develop shared policy objectives.1 Relevant provisions are included in Protocol 31 EEA rather than being incorporated into one of the Annexes of the EEA Agreement. The acts referred to in Protocol 31 usually do not require national level legislative adaptation in the same manner as acts incorporated into the Annexes under Parts II-V. Furthermore, Part VII on institutional provisions only applies where specifically provided for. As such, there are generally no penalties for non-incorporation or infringement procedures for non-implementation. Art. 78 does imply some obligation on the part of the EFTA States to participate in EU activities under Part VI of the EEA Agreement. Furthermore, and quite importantly for the EFTA States, the EU arguably has an obligation to allow participation from the EFTA States in said activities.2 However, in practice, EFTA participation in specific activities falling under Part VI has been more or less voluntary. 4 Another important aspect of Part VI is that it foresees financial contributions from the EFTA States to the EU budget in order to grant them access to the EU activities in question. The provisions governing the financial participation of the EFTA States are set out in Art. 82 and detailed in Protocol 32. The EFTA States’ financial contributions increase the EU’s budget. 5 It is safe to say that the ground level impact of Part VI has been substantial. It has meant, for example, that scientists from the EFTA States participate in international cooperation on the same basis as their counterparts in EU Member States. Students are able to broaden their horizons through exchange programmes with universities all over Europe. Employment authorities have a venue in which to meet with their pan-European counterparts. Start-ups and small- and medium sized enterprises (SMEs) have access to funding from a communal European pot, cultural institutions have participated in film, theatre or music projects to name but a few examples of cooperation. Part VI of the EEA Agreement thus has a tangible an effect on businesses, research institutions, students, workers, artists and consumers in the EFTA States and has enabled EFTA and EU participants to learn from each other and take advantage of the expertise and best practices that exist in a wide range of areas.

1 Norberg et al., EEA Law, pp. 639 and 648. 2 Norberg et al., EEA Law, p. 640.

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Article 78 Areas of cooperation

Article 78 [Areas of cooperation] The Contracting Parties shall strengthen and broaden cooperation in the framework of the Community's activities in the fields of: – – – – – – – – – –

research and technological development, information services, the environment, education, training and youth, social policy, consumer protection, small and medium-sized enterprises, tourism, the audiovisual sector, and civil protection,

in so far as these matters are not regulated under the provisions of other Parts of this Agreement.

The first Article under Part VI of the EEA Agreement contains a list of fields 1 in which the Contracting Parties shall strengthen and broaden their cooperation. Three of these areas (social policy, consumer protection and the environment) are also covered by Part V on horizontal provisions relevant to the four freedoms. Furthermore, Part III of the EEA Agreement contains a chapter on services which includes telecommunication services, audiovisual services and information society services amongst others as detailed in Annex XI. Therefore, the fields covered by Part VI partially overlap with other parts of the Agreement, although, as noted in the introduction, the nature of the cooperation differs as will be explored further in the following. Art. 78 also introduces several totally new areas of cooperation not covered by other parts of the EEA Agreement. These are: education, training and youth, research and technological development, small and medium-sized enterprises, tourism and civil protection. According to Art. 84, the provisions governing the cooperation between the 2 Contracting Parties in the specific fields covered by Part VI of the Agreement are set out in Protocol 31. Arts. 1-10 of Protocol 31 correspond exactly to the list of fields provided for in Art. 78. However, Art. 87 makes it clear that the list of fields in Art. 78 is not exhaustive. On the contrary, the Contracting Parties are to take the necessary steps to develop, strengthen and broaden cooperation in the framework of the activities not listed in Art. 78. Art. 87 thus contains an obligation to cooperate in further areas in the future as long as it is of mutual interest or likely to contribute to the attainment of the objectives of the EEA Agreement. The inclusion of this dynamic aspect was considered a major achievement by the EFTA States during negotiations of the EEA Agreement.1

1 Norberg et al., EEA Law, p. 647.

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Article 79 [Dialogue and consultation] 1. The Contracting Parties shall strengthen the dialogue between them by all appropriate means, in particular through the procedures provided for in Part VII, with a view to identifying areas and activities where closer cooperation could contribute to the attainment of their common objectives in the fields referred to in Article 78. 2. They shall, in particular, exchange information and, at the request of a Contracting Party, hold consultations within the EEA Joint Committee in respect of plans or proposals for the establishment or amendment of framework programmes, specific programmes, actions and projects in the fields referred to in Article 78. 3. Part VII shall apply mutatis mutandis with regard to this Part whenever the latter or Protocol 31 specifically provides therefor.

One of the main drawbacks of the EEA Agreement is that the EFTA States have to adopt EU legislation without access to its decision-making institutions. There are, however, some provisions in the EEA which foresee that the EFTA States can contribute to and influence EU decision-making. This is most often referred to as decision-shaping although this term does not officially appear anywhere in the Agreement. The principal decision-shaping mechanisms consist of written contributions and resolutions from the EFTA States called “EEA EFTA comments” and EFTA participation in committees and expert groups under the European Commission.1 In general, the same decision-shaping principles and mechanisms apply in the context of Part VI as to other parts of the Agreement. In addition, however, Arts. 79 and 81 refer to decision-shaping mechanisms specific to Part VI. 2 EEA EFTA Comments are considered part of the consultation procedure set out in Art. 99 under Part VII on Institutional Provisions. Art 79(1) encourages the Contracting Parties to strengthen dialogue between them by all appropriate means in particular through the procedures provided for in Part VII. The EFTA States often submit comments in relation to pre-pipeline or pipeline EU initiatives which would involve cooperation under Part VI of the EEA Agreement when they have specific views on them.2 In practice, the EFTA States do not differentiate between whether they send in such comments on proposals or prepipeline initiatives set to be included in Protocol 31 or incorporated into an Annex. It is perhaps difficult to measure the precise impact of these comments, but in general it can be said to vary from issue to issue, whether the view of the EFTA States coincides with the views of other states and stakeholders and whether they are considered to have particular expertise on the file in question. Their impact may also vary depending on how efficiently they are used in conjunction with other tactics. 3 In terms of decision-shaping, it should also be noted that Art. 79(2) provides for formal input or discussions on new programmes from the EFTA States 1

1 [See comments by Dystland, Finstad and Sørebø on Articles 99 and 100. 2 A full list of EEA EFTA comments is available here: http://www.efta.int/eea/eea-efta-comments.

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Article 79 Dialogue and consultation

through the EEA Joint Committee. The author is not aware that deep debates on the establishment or amendment of new EU programmes have taken place within the Joint Committee as such, although the relevant EFTA Working Groups follow proposals for new programmes in their respective fields and often discuss them with representatives from the EU during the formulation stages. In some cases, the Working Groups thus serve as venues to highlight the EFTA States’ views or issues put forward in EEA EFTA comments. Art. 79(3) is an interesting clause. It gives the option of Part VII applying mu- 4 tatis mutandis with regard to Part VI whenever the latter or Protocol 31 specifically provides therefor. As noted, Art. 79(1) covers the decision-shaping aspects of Part VII. Furthermore, Art. 86 specifies that the EEA Joint Committee shall, in accordance with Part VII, take all decisions necessary for the implementation of Arts. 78 to 85 and measures derived therefrom. Therefore Art. 79(3) mainly pertains to the remaining aspects of Part VII on homogeneity, surveillance procedure and settlement of disputes, i.e. the role of ESA and the EFTA Court as well as the dispute settlement procedures under Arts. 102, 105 and 111. As noted in the introduction, Part VI differs from Parts II-V in the sense that 5 its aim is not to create a homogenous legal environment within the Single Market but rather to promote cooperation between the Contracting Parties in areas of mutual interest. Dispute settlement, monitoring and enforcement mechanisms are thus arguably not as relevant in relation to Part VI. Indeed Art. 102 has never been given application under Part VI and, as a general rule ESA and the EFTA Court have not played any role in relation to the acts included in Protocol 31. Interestingly, an adaptation stating that “by virtue of Article 79(3) of the 6 Agreement Part VII (Institutional Provisions) of the Agreement shall apply to this paragraph” has been included with respect to the the European Institute of Innovation and Technology,3 the European Environment Agency,4 European Centre for disease prevention and control5 and the European Agency for Safety and Health at Work.6 This could be taken to mean that ESA and the EFTA Court would have a similar function with respect to these acts as those incorporated into Annexes. However, given that purpose of the inclusion of these acts in Protocol 31 is to allow for the EFTA States’ participation in said bodies rather than to approximate their legislation to that of EU Member States in a specific field, the inclusion of this adaptation arguably has limited tangible effect with respect to the role of ESA or the EFTA Court.

3 Regulation (EC) No 294/2008 establishing the European Institute of Innovation and Technology. 4 Regulation (EC) No 401/2009 on the European Environment Agency and the European Environment Information and Observation Network. 5 Regulation (EC) No 851/2004 establishing a European Centre for disease prevention and control. 6 Council Regulation (EC) No 2062/94 establishing a European Agency for Safety and Health at Work.

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One area where such an adaptation could have considerable effect is in relation to rules on the EU’s 2030 climate targets. There is discussion in the EFTA States as to the potential incorporation of these rules into Protocol 31 which would arguably be a pragmatic solution rather than the more cumbersome method of formulating bilateral agreements with the EU on the joint fulfilment of these targets. At the same time there is concern in some circles that if Part VII is given application and ESA is to monitor compliance with these acts, and the EFTA Court to rule on their interpretation, they may be given “more teeth” than desirable.7 8 Another type of provision which can be found in Protocol 31 states that: “By virtue of Article 79(3) of the Agreement Part VII (Institutional Provisions) of the Agreement, with the exception of Sections 1 and 2 of Chapter 3, shall apply to this paragraph.” This provision specifically excludes any role for ESA and the EFTA Court in monitoring or enforcing implementation by the EFTA States of the acts concerned. It has been used with respect to the Council Directive on critical infrastructures8 as well as Regulation setting up the European GNSS Agency.9 It is not entirely clear what the Contracting Parties wished to achieve by specifically enabling the application of the residual provisions of Part VII. It may be that the EFTA States wanted to underline that they should be informed of possible revisions to these agencies’ founding regulations under Arts. 99 and 100 or that the Contracting Parties considered it important to provide for the application of Arts. 102 and 103 EEA.10 9 It should be noted that whether or not an adaptation is included giving application to Part VII in accordance with Art 79(3), Art. 7 of the EEA Agreement applies to acts that are incorporated into Protocol 31 through decisions of the Joint Committee. Accordingly these acts should be made part of the internal legal orders of the EFTA States. Therefore, legal acts included in Protocol 31 do create a legal obligation under international law to comply with the provisions of the act.11 Moreover, the legal basis for ESA’s infringement proceedings is Art. 31 SCA. Therefore, as long as no adaptation text has been included to the effect of precluding ESA’s application of that Article, one point of view would be that ESA would be competent to initiate infringement proceedings, which ultimately may end up at the EFTA Court, if the acts included in Protocol 31 correspond to a Regulation or a Directive. 10 This is not necessarily in line with the perception of the EFTA States who generally do not consider ESA or the EFTA Court to have any role with respect to Part VI or Protocol 31 (except perhaps where specifically provided for). As 7

7 Personal communication with Professor Finn Arnesen, 12 January 2017. 8 Council Directive 2008/114/EC on the identification and designation of European critical infrastructures and the assessment of the need to improve their protection. 9 Regulation (EU) No 912/2010 setting up the European GNSS Agency. 10 Personal communication with Senior Legal Officer at the EFTA Secretariat, 9 January 2017. 11 Norwegian Ministry of Foreign Affairs (2012-2013) Meld St. 5 Report to the Storting (White Paper): The EEA Agreement and Norway’s other agreements with the EU.

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Article 80 Forms of cooperation

noted, Part VI serves a different function to Parts II-V and, as such, the nature of the acts included in Protocol 31 are generally intended to provide a legal base for enabling cooperation between the Contracting Parties. For the most part, the obligations contained therein are imposed on states and do not confer rights or obligations on individuals or economic operators. Thus, although they are binding, they do not usually require legislative or regulatory change at national level and are rarely subject to interpretation by national courts. This idea is also reflected in the recitals to JCDs in Protocol 31, which generally do not refer to „incorporation“, but rather describe how cooperation will be extended. Notwithstanding these differences, the distinction between whether an act 11 should be included in Protocol 31 or incorporated into one of the Annexes is not always entirely clear cut. For example, the Regulation12 on Union guidelines for the development of the trans-European transport network was included in Protocol 31 whereas its predecessor had been incorporated into Annex 13.13 It may be the case that the EFTA States wished to preclude any involvement of ESA or the EFTA Court in terms of the application of this act and indeed it was included in Protocol 31 without any adaptation on the basis of Art. 79(3). However, in line with what was stated above, ESA might consider that it was competent to initiate infringement proceedings under Art. 31 SCA if compliance was lacking. This conclusion seems to be particularly compelling when it is debatable whether an act should be placed in an Annex or Protocol 31.

Article 80 [Forms of cooperation] The cooperation provided for in Article 78 shall normally take one of the following forms: – –

– – – –

participation by EFTA States in EC framework programmes, specific programmes, projects or other actions; establishment of joint activities in specific areas, which may include concertation or coordination of activities, fusion of existing activities and establishment of ad hoc joint activities; the formal and informal exchange or provision of information; common efforts to encourage certain activities throughout the territory of the Contracting Parties; parallel legislation, where appropriate, of identical or similar content; coordination, where this is of mutual interest, of efforts and activities via, or in the context of, international organizations, and of cooperation with third countries.

12 Regulation (EU) No 1315/2013 on Union guidelines for the development of the trans-European transport network. 13 EEA Joint Committee Decision No 280/2015.

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I. Forms of cooperation

The aim of Parts II-V of the EEA Agreement is to safeguard homogeneity in the Single Market by ensuring incorporation of relevant EU legislation into the Annexes of the EEA Agreement so that it applies in a uniform manner throughout the entire EEA thus guaranteeing equal rights and obligations for citizens and economic operators. As previously discussed, the focus of Part VI is rather different to this rigid approximation/harmonisation approach. Art. 80 of the EEA Agreement lists the forms which the cooperation provided for in Art. 78 will usually take. 2 As the list in Art. 80 was drawn up during the negotiations of the EEA Agreement in 1990-91, it reflects the forms of cooperation which were in use within the Community at the time. Thus, the negotiators knew that this list should not be regarded as exhaustive and that several forms of cooperation might be used within one and the same field.1 Accordingly, much as was the case with respect to fields of cooperation, Part VI is characterised by its flexibility in terms of the types of participation allowed. The content of Protocol 31 as it stands at present (2017) shows that cooperation is rather policy based and usually takes the form of participation in programmes, agencies, annual activities such as European years or specific budget lines, and a range of networks or bodies. Each of these types of activities will be described further below. 1

II. Participation in EU programmes 3

One of the most significant aspects of Part VI of the EEA Agreement is that it allows for the participation of the EFTA States in a number of EU programmes which is a vital part of their integration in the Single Market and a key instrument for cooperation with the EU in a wide range of areas. Programmes form part of the EU’s Multiannual Financial Framework (MFF) which defines the areas in which the EU should invest over periods of five years or more based on its political priorities. The current Multiannual Financial Framework was established for the period 2014-2020. The focus areas for the programming period follow the main policy structure outlined in the Europe 2020 Growth Strategy, defining activities under the following headings:2 – – – – –

Smart and Inclusive Growth Sustainable Growth: Natural Resources Security and citizenship Global Europe Administration

1 Norberg et al, EEA Law, p. 643. 2 Further information on the MFF 2014-2020 is available on the European Commission‘s website: http://ec.europa.eu/budget/mff/introduction/index_en.cfm.

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Article 80 Forms of cooperation

The EFTA States negotiated their participation in a range of programmes within this framework in line with their prioritised fields of cooperation. One or more of the EFTA States participate in 14 programmes under the Multiannual Financial Framework 2014-2020, either fully or partially. These are: Horizon 2020, Erasmus +, Galileo, Copernicus, Creative Europe, the Connecting Europe Facility, Health for Growth, Civil Protection Mechanism, European Statistical Programme, Employment and Social Innovation, Consumer Programme, the EU programme for the Competitiveness of Enterprises and Small and Medium-sized Enterprises (COSME), Rights, Equality and Citizenship and Interoperability for Public Administrations (ISA).3 Although this is a wide range of programmes in a number of different fields, it represents a relatively small portion of the total number of EU programmes, which is 45 for the current Financial Framework.4 Many EU programmes relate to activities which quite specifically fall outside the scope of the EEA Agreement including the Common Foreign and Security Policy or the Common Agricultural and Fisheries Policies or are linked with the structural funds and as such the EFTA States have not sought to participate in them. Interestingly, participation of the three EFTA States in EU programmes varies considerably and not all of the EFTA States participate in all 14 programmes. There was a large increase in differentiated participation by the EFTA States in the current Multiannual Financial Framework, something which can probably be attributed, at least partly, to the fact that the EU adopted fewer and more broadranging programmes in the current framework. For example, only Iceland and Norway participate in the EU’s research and development programme Horizon 2020. In the programme for Employment and Social Innovation, Iceland participates fully, Norway partially and Liechtenstein not at all. In the programme for Rights, Equality and Citizenship again Iceland participates fully, Liechtenstein partially and Norway not at all whereas only Norway participates in Galileo – the European satellite navigation programme. During the negotiations for the EFTA States’ participation in the programmes under the new framework, there was some apprehension among the EFTA States that the EU would not be sympathetic towards such differentiated participation. The EU was, however, generally understanding of this allowing for participation of varying degrees and of differing states. Through these programmes, citizens of the EFTA States can benefit from the activities put in motion by resources from all of the participating EEA States. It is important to bear in mind that the EFTA States are not the only non-EU countries to participate in EU programmes and activities. In some cases participation is also open to other countries such as Switzerland, candidate countries 3 Further information on the EFTA States‘ participation in EU programmes is available on the EFTA Secretariat‘s website: http://www.efta.int/eea/eu-programmes. 4 A list of EU programmes can be found on the European Commission‘s website: http:// ec.europa.eu/budget/mff/programmes/index_en.cfm.

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4

5

6

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and ENP states. This is relevant to potential future scenarios and developments within the EU, notably in relation to Brexit, or the UK’s forthcoming withdrawal from the EU. One high profile fallout of Brexit has been grave concern from universities and researchers across the UK that they will no longer have access to the EU’s research and innovation programme, Horizon 2020. This programme has received substantial attention as British universities, scientists and researchers fear exclusion from this pan-European venue of cooperation. As such, the UK’s participation in areas outside the four freedoms are likely to form an important part of the Brexit negotiations and the experience of the EFTA States may provide useful insights in this respect. For example, the EU will of course expect a financial contribution in exchange for any participation in its activities and any state negotiating such participation would do well to think carefully about the modalities of its association with the committees and bodies managing said activities. III. Participation in EU agencies

A large number of EU agencies have been established in recent years in response to new and specific policy needs and to cope with new tasks of a legal, technical and/or scientific nature. Agencies were not mentioned specifically in Art. 80 and it is unlikely that the negotiators foresaw the extent of the proliferation of agencies within the EU. Their prominence in Protocol 31 is thus in a way illustrative of the flexibility of Part VI of the EEA Agreement. Two main types of agencies can be identified, namely decentralised and executive agencies. A decentralised agency implements a specific EU policy based on the Treaty on the Functioning of the European Union and helps regulate a specific sector. On the other hand, executive agencies’ tasks are exclusively related to the management of programmes (see previous section).5 Within the framework of the EEA Agreement, the EFTA States participate in both decentralised agencies and executive agencies through the relevant programme. 9 The EFTA States participate in the following 13 decentralised agencies6 to varying degrees: the European GNSS Supervisory Authority (GSA), the European Environment Agency (EEA), the European Centre for the Development of Vocational Training (CEDEFOP), the European Foundation for the Improvement of Living and Working Conditions (EUROFOUND), the European Agency for Safety and Health at Work (EU-OSHA), the European Centre for Disease Prevention and Control (ECDC), the European Aviation Safety Agency, the European Chemicals Agency, the European Food Safety Agency, the European Maritime Safety Agency, the European Medicine 8

5 Further information on EU agencies is available on the European Commission‘s website: http:// ec.europa.eu/budget/mff/programmes/index_en.cfm. 6 A list of the decentralised agencies in which the EFTA States participate can be found on the EFTA Secretariat‘s website along with the legal base for their participation: http:// www.efta.int/eea/eu-agencies.

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Article 80 Forms of cooperation

Agency, the European Network and Information Security Agency and the European Railway Agency. In some cases acts establishing agencies are incorporated into the Annex of the EEA Agreement which covers the field of the relevant agency’s work. However, in many cases cooperation is based on the inclusion of the establishing act in Protocol 31. Participation in most of these agencies also entails a financial contribution to the EU budget in accordance with Art. 82 and Protocol 32 EEA.7 The nature of the EFTA States’ cooperation with agencies can vary substan- 10 tially. For example, the EFTA States’ cooperation with both Eurofound and EUOSHA is based on Protocol 31. Cooperation with EU-OSHA is, however, much more extensive than with Eurofound. According to Protocol 31, the EFTA States participate fully in EU-OSHA and contribute financially to it. With respect to the Governing Board, it is stated that “the EFTA States shall participate fully in the Governing Board and shall within it have the same rights and obligations as EU Member States, except for the right to vote”. Each of the EFTA States is therefore allowed representation on the Board. Furthermore, EFTA nationals are eligible to seek employment for posts within the Agency. On the other hand, cooperation with Eurofound is based on a framework agreement with the EFTA States which lies outside the scope of the EEA Agreement and according to Protocol 31 the Contracting Parties are only obliged to “encourage appropriate cooperation with Eurofound”. In practice this has meant that the EFTA States only have one observer place for each of the groups represented: governments, employers and workers. They do not contribute financially to Eurofound in accordance with Protocol 32 and the EFTA nationals are not employed by this Agency. Through the years some issues have come up in relation to the increased powers of the decentralised agencies, the employability of EFTA nationals in agencies and the representation of the EFTA States on the management boards of agencies to which they contribute financially.8 IV. Participation in EU annual activities

The EFTA States participate in a variety of annual activities through Part VI 11 such as European years, preparatory actions, pilot projects and individual budget lines. “European Years” focusing on specific themes have been held since 1983. Their main purpose is to increase public awareness and stimulate political debate across the European Union on a given topic. The European Commission is responsible for their implementation, but they can fall under different directorates-general and therefore different fields of cooperation depending on the theme. The EFTA States first participated in the European Year of Languages in 2001.9 Since then, decisions for five European Years have been in7 See the comments on Art. 82. 8 As to the EFTA States’ participation on the management boards of the various agencies, see further the comments on Art. 81 below. 9 See Protocol 31(4)(2 e).

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cluded in Protocol 31.10 An effort was made by the EFTA States to participate in the European Year of Volunteering in 2011, but this was unsuccessful as the Council Decision establishing the European Year11 had already been adopted by the EU without the necessary legal base for EFTA participation. The EU argued that amending the text of the Decision to allow for EFTA participation would not be feasible due to time pressure. The EFTA States did participate in the following European Year of Active Ageing, but decided not to seek participation in the European Year for Citizens (2013) or the European Year of Development (2015). No particular themes were designated for 2014 or 2016. 12 The EFTA States have also participated in a number of preparatory actions that serve to prepare future EU actions in specific fields, on the basis set priorities. The EFTA States have for example participated in preparatory actions for the enhancement of European security research and in relation to education and youth policy. On a similar note they have participated in pilot projects for example related to the participation of young people. 13 Contribution to annual budget lines in specific fields has also allowed the EFTA States to participate in various EU activities. For example, through their participation in the budget line on free movement of workers, coordination of social security systems and measures for migrants, the EFTA States have been able to participate in ESSII, an IT system that helps social security bodies exchange information more rapidly and securely. Since 2004, the EFTA States have participated in budget lines linked to the development of the internal market. Unlike programmes, which are incorporated into the EEA Agreement for a period of seven years, budget lines can be incorporated on a rolling basis or based on an individual decision of the EEA Joint Committee each year. V. Participation in EU networks and bodies 14

The EFTA States also participate in various EU networks and bodies on the basis of Part VI and Protocol 31. For instance in the area of Employment, the EFTA States participate actively in a network bringing together the Heads of Public Employment Services (PES)12 as well as the European Employment Services network (EURES) which helps jobseekers find vacancies and employers to find candidates throughout Europe.13 Furthermore, the Decision to establish a Platform to Tackle Undeclared Work14 was incorporated into Protocol 31 in De10 There were no specific themes designated in 1991, 2000, 2002, 2014 or 2016. The EFTA States participated in 2003, 2004, 2007, 2010 and 2012, but not in 2005, 2006, 2008, 2009, 2011, 2013 or 2015. 11 Council Decision 2010/37/EC on the European Year of Voluntary Activities Promoting Active Citizenship (2011). 12 Decision No 573/2014/EU on enhanced cooperation between Public Employment Services (PES). 13 Participation in EURES also implies changes to the legal orders of the EFTA States through the incorporation of relevant legislation into Annex V. 14 Decision (EU) 2016/344 on establishing a European Platform to enhance cooperation in tackling undeclared work.

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cember 2016. Often these networks and bodies have links to EU programmes – each of these networks are for example financed through the Programme on Employment and Social Innovation (EaSI). Another example is the inclusion of the Regulation for a European Research Infrastructure Consortium (ERIC)15 in Protocol 31, which is designed to facilitate the joint establishment and operation of research infrastructures of European interest. In fact, this is an interesting case, as the ERIC Regulation was amended16 in order to allow associated countries (including the EFTA States) to participate in ERICs on a much more equal footing with EU Member States. Prior to this amendment, the EFTA States had not accepted the incorporation this act into Protocol 31 as they felt their status as associated states was too limited. This case perhaps demonstrates that the EU can be accommodating to the EFTA States’ wishes, particularly when mutual interests are at stake and financial contributions from the EFTA States are forthcoming.

Article 81 [EFTA States’ participation in EU programmes] Where cooperation takes the form of participation by EFTA States in an EC framework programme, specific programme, project or other action, the following principles shall apply: a) The EFTA States shall have access to all parts of a programme. b) The status of the EFTA States in the committees which assist the EC Commission in the management or development of a Community activity to which EFTA States may be contributing financially by virtue of their participation shall take full account of that contribution. c) Decisions by the Community, other than those relating to the general budget of the Community, which affect directly or indirectly a framework programme, specific programme, project or other action, in which EFTA States participate by a decision under this Agreement, shall be subject to the provisions of Article 79(3). The terms and conditions of the continued participation in the activity in question may be reviewed by the EEA Joint Committee in accordance with Article 86. d) At the project level, institutions, undertakings, organizations and nationals of EFTA States shall have the same rights and obligations in the Community programme or other action in question as those applicable to partner institutions, undertakings, organizations and nationals of EC Member States. The same shall apply mutatis mutandis to participants in exchanges between EC Member States and EFTA States, under the activity in question. e) EFTA States, their institutions, undertakings, organizations and nationals shall have the same rights and obligations with regard to dissemination, evaluation and exploitation of results as those applicable to EC Member States, their institutions, undertakings, organizations and nationals.

15 Council Regulation (EC) No 723/2009 on the Community legal framework for a European Research Infrastructure Consortium (ERIC). 16 Council Regulation (EU) No 1261/2013 amending Regulation (EC) No 723/2009 concerning the Community legal framework for a European Research Infrastructures Consortium (ERIC).

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The Contracting Parties undertake, in accordance with their respective rules and regulations, to facilitate the movement of participants in the programme and other action to the extent necessary.

In addition to EEA EFTA comments and exchanges of information through the Joint Committee structure, the other main mechanism for decision-shaping is that the EEA Agreement provides for EFTA participation in three main types of committees – programme committees, expert groups, and comitology committees (as well as certain other committees). This section will primarily focus on programme committees as well as other committees and bodies falling under Part VI, paying particular attention to some challenges that have come up in relation to EFTA participation. Programme committees are responsible for the development and management of the Community programmes, and consist of representatives of the participating states. They assist the Commission in tasks like specifying the content of the programme, drafting texts for public calls for proposals, or selecting projects for funding. Art. 81 sets out the key principles of EFTA participation in programmes, projects and other actions including their status in the programme committees. According to Art. 81, the EFTA States shall have access to all parts of a programme and their status in the committee which assists the Commission in the management or development of the programme or activity in question shall take full account of the financial contribution of the EFTA States. This means in practice that the EFTA States are to participate fully and equally in such committees taking into account the level of contribution in each case.1 Art. 81 also guarantees that the rights and obligations of participants from the EFTA States in the programme or action in question shall be the same as those of participants from the EU States. This is a particularly important point since any limitation on equal access would create unacceptable discrimination against the participating institutions, undertakings, organisations and nationals of the Contracting Parties.2 Provisions on third country participation in legal acts establishing EU programmes generally state that EFTA participation shall take place in accordance with the provisions of the EEA Agreement. Adaptation texts on EFTA participation in programme committees, which have been inserted upon the inclusion of the acts establishing the relevant programmes in Protocol 31, generally ensure the right to fully participate, without the right to vote. Although EFTA participation in programme committees is well-established, some challenges have been noted in particular when it comes to new programmes being adopted within a new financial framework. The decision-making procedure for establishing the legal base for EFTA participation in a relevant

1 Norberg et al., EEA Law, pp. 643-644. 2 Norberg et al., EEA Law, pp. 643-644.

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programme or activity can be rather prolonged. Therefore, representatives of the EFTA States can often only formally join the committee somewhat later than their colleagues from the EU Member States. This is not ideal as important discussions often take place in the committee during the initial phases of a programme. However, in some cases, notably when an existing programme is replaced with a new similar programme, participants from the EFTA States have been invited to attend meetings pending the establishment of a legal base for their participation. The EFTA States also had to be proactive in order to secure their eligibility to participate in early calls for proposals which were published under some of the programmes before the relevant establishing act had been included in Protocol 31. As noted, the EFTA States also participate in and contribute financially to a 6 substantial number of EU decentralised agencies. This development was perhaps not foreseen at the time of negotiating the EEA Agreement and there is no explicit provision in the Main Part of the EEA Agreement setting out the modalities of their participation in such agencies or the committees/boards which manage them. As such, this must be agreed by the Contracting Parties in the EEA Joint Committee upon establishing the legal base for such participation. Participation in the management boards of decentralised agencies is impor- 7 tant in terms of decision-shaping as it gives the EFTA States an opportunity to contribute to the decision-making of the agencies, as well as to monitor the work they carry out. This particularly relevant where agencies assist the Commission in the preparatory work for the updating and development of EU legislation or where such agencies are conferred regulatory competences as regards authorities, undertakings or individuals in the Member States. In general, the EFTA States have argued that the principle of full participation without the right to vote, which applies to their participation in programme committees, should also apply to their participation in other EU committees/bodies managing activities which they contribute to financially for example in relation to agencies. The main argument is that the status of the EFTA States in management committees and other committees intrinsic to the work of the agencies should take full account of their financial contributions. Thus the approach preferred by the EFTA States is that they should have the same participation rights as EU Member States, except for the right to vote.3 In the majority of cases, adaptation texts related to EFTA participation in the 8 management boards/committees of decentralised agencies provide for full participation without the right to vote. With regard to the Management Board of the Medicines Agency, however, the EFTA States are merely entitled to “send observers”.4 Lengthy discussions over this issue have also taken place with respect 3 Standing Committee of the EFTA States – Subcommittee II on the Free Movement of Capital and Services (2013) EEA EFTA Comment on the proposal for a Regulation of the European Parliament and of the Council laying down measures concerning the European single market for electronic communications and to achieve a Connected Continent – COM(2013) 627.

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to EFTA participation in the Body of European Regulators for Electronic Communications (BEREC). In this case the EU side rejected an adaptation text ensuring full participation, without the right to vote, on the basis that the basic act set out observer status for the EFTA states.5 The EFTA States did not share the logic of the EU arguing that the intention of an adaptation text was precisely to allow for the necessary adjustments to the basic act in the EEA context. In other words, the EU’s argument would imply that no adaptations of any kind would be acceptable. At the time of writing this issue is still under discussion by the Contracting Parties. 9 In many cases, provisions in the basic act allow for EFTA participation and states that the modalities for participation have to be established under the respective agreements between the EU and the relevant third countries, in the case of the EFTA States – the EEA Agreement.6 Practice varies in this respect and it is interesting to note that the EU has in the past accepted adaptations which “contravene” the basic act. For example, Art. 9 of the Regulation establishing a European Agency for Safety and Health at Work7 states that the Governing Board may “invite representatives of non-member countries ... as observers”. At the same time, the adaptation text in Protocol 31 states that the EFTA States shall “participate fully in the Governing Board and shall within it have the same rights and obligations as EU Member States, except for the right to vote”. 10 The EFTA States have not always been able to secure participation in the management boards of agencies. For example, with regard to the European Institute for Gender Equality, the EFTA States were denied observer status in the management board because only 18 of the EU Member States participate on a rotation basis. In 2009, the EFTA States therefore decided not to participate in this agency. On the other hand, the EFTA States have agreed to participate in the European Food Safety Authority, which has a reduced management board and in which they have not been granted observer status. Interestingly, the composition of the latter is not based on the principle of Member State representation, but on the principle of expertise. 11 In sum, in relation to clauses in EU acts setting out EFTA participation, experience shows that both the absence and presence of such clauses can cause challenges in relation to EFTA participation in various EU activities. In cases where such clauses are absent, the EU has sometimes been unwilling to allow EFTA participation. On the other hand, in cases where such clauses are too detailed the 4 See Annex II.XIII. – Medicinal Products to the EEA Agreement. 5 The Body of European Regulators for Electronic Communications (BEREC) was established by Regulation (EC) No 1211/2009. BEREC is not an agency and it has no legal personality. It has more limited powers than most, if not all, agencies and it has notably no legally binding decision-making powers although there are plans to convert it into a fully-fledged agency see COM(2016) 591 final. 6 For example Regulation (EU) No 526/2013 concerning the European Union Agency for Network and Information Security (ENISA). 7 Council Regulation (EC) No 2062/94 establishing a European Agency for Safety and Health at Work, as amended by later acts.

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EFTA States have not always agreed with the specifications set out by the EU. In these cases, the EFTA States have argued for adaptations during the incorporation of such acts into the EEA but the EU has, at least in some cases, been reluctant to allow for such changes. The lesson is that the EFTA States should aim to ensure that EU acts establishing activities which they wish to participate in contain clauses reserving the application of the EEA Agreement as regards the participation of the EFTA States. On a related topic, the EEA Agreement contains clauses setting out the EFTA 12 States’ participation in programme committees but does not contain specific Arts on their participation in other bodies to which the contribute financially. The EFTA States should endeavour to ensure that the established norm of full participation without the right to vote should be extended to cover all new activities to which they contribute financially.

Article 82 [EFTA States’ financial contributions] 1. When the cooperation envisaged under the present Part involves a financial participation of the EFTA States, this participation shall take one of the following forms: a) The contribution of the EFTA States, arising from their participation in Community activities, shall be calculated proportionally: – to the commitment appropriations; and – to the payment appropriations; entered each year for the Community in the general budget of the Community for each budgetary line corresponding to the activities in question. The ‘proportionality factor’ determining the participation of the EFTA States shall be the sum of the ratios between, on the one hand, the gross domestic product at market prices of each of the EFTA States and, on the other hand, the sum of the gross domestic products at market prices of the EC Member States and of that EFTA State. This factor shall be calculated, for each budgetary year, on the basis of the most recent statistical data. The amount of the contribution of the EFTA States shall be additional, both in commitment appropriations and in payment appropriations, to the amounts entered for the Community in the general budget on each line corresponding to the activities concerned. The contributions to be paid each year by the EFTA States shall be determined on the basis of the payment appropriations. Commitments entered into by the Community prior to the entry into force, on the basis of this Agreement, of the participation of the EFTA States in the activities in question – as well as the payments which result from this – shall give rise to no contribution on the part of the EFTA States. b) The financial contribution of the EFTA States deriving from their participation in certain projects or other activities shall be based on the principle that each Contracting Party shall cover its own costs, with an appropriate contribution which shall be fixed by the EEA Joint Committee to the Community's overhead costs

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PART II: The Agreement on the European Economic Area c)

The EEA Joint Committee shall take the necessary decisions concerning the contribution of the Contracting Parties to the costs of the activity in question. 2. The detailed provisions for the implementation of this Article are set out in Protocol 32.

The EFTA States have undertaken important financial obligations arising from cooperation under Part VI of the EEA Agreement as stipulated in Art. 82 and set out in further detail in Protocol 32.1 These contributions represent direct financial contributions to the EU under the EEA Agreement. While the financial mechanism aims to provide direct support from the EFTA States to certain EU Member States in order to reduce economic and social disparities in certain regions of the EU,2 the financial contribution of the EFTA States to activities in Part VI is mutually beneficial to all Contracting Parties as they supplement the EU budget and allow for EFTA participation in the activities referred to above. EFTA contributions to the EU budget are not included in the total EU budget based on the EU Member States’ gross national income (GNI), but rather, added to it. This means that EFTA participation results in an increase in funds compared to the initial amount foreseen in the EU act establishing the activity in question.3 2 The contributions of the EFTA States to operational expenditure are based on a proportionality factor, which is subject to annual adjustments based on the gross domestic product (GDP) of the EFTA States and calculated in accordance with Art. 82(1)(a) of the EEA Agreement. This proportionality factor is then used to determine the EFTA States’ payments in relation to each of the budget lines in the EU budget covering the activities in which they participate. As noted, in some cases one or more of the EFTA States has decided not to participate in an activity involving financial contributions. In these cases, the proportionality factor is adjusted accordingly. The annual fluctuations in the proportionality factor mean that the contributions of the EFTA States are subject to change depending on the relative strength of their economies against the economies of the EU Member States. For example, in 2007 the proportionality factor was 2.28% but 3.03% in 2014. 3 In relation to programmes, the financial contribution of the EFTA States takes the form of a seven-year commitment to make annual payments towards the programmes in which they participate. Therefore, when a new Multiannual Financial Framework is established with a new generation of programmes, this entails great changes to the EEA EFTA budget. It was estimated at the beginning of the programme period that the EFTA commitment to the Financial Framework 2014-2020 would be approximately EUR 3.22 billion.4 Importantly, the propor1

1 Norberg et al., EEA Law, p. 646. 2 See Chrstiansen’s comments on Art. 115-117. 3 See the EFTA Secretariat’s website: http://www.efta.int/eea/eu-programmes/application-finance s/eea-efta-budget. 4 See the EFTA Secretariat‘s website: http://www.efta.int/eea/eu-programmes.

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tionality factor is re-calculated annually which, along with fluctuations in exchange rates, makes it difficult for the EFTA States to calculate the exact level of their yearly contributions to the EU budget during each programme period. Furthermore, the EEA EFTA budget, like the EU budget, contains two types of appropriations: commitments and payments. The total commitment amount is decided for a multiannual period and is broken down into yearly commitment amounts. However, as the implementation period of each project is multiannual, the committed funds are not paid out in full but spread over several years. Therefore, the yearly commitments and payments within programmes differ.5 In 2015, the financial contribution of the EFTA States under Part VI of the EEA Agreement amounted to EUR 425 million, the bulk of which covers their participation in EU programmes and agencies.6 In addition to contributing to the EU's operational expenditure, the EFTA 4 States contribute to the administrative costs of the European Commission. This contribution is negotiated individually for each programme on an annual basis and is both financial and in kind. The financial cost contribution is towards the fixed overhead costs of the Commission, whereas the in kind contribution refers to the EFTA States’ supply of human resources to the European Commission through the secondment of national experts (SNEs) as part of their programme participation.7 The cost per national expert is fixed in the annual budget. This amount is multiplied by the number of experts and then deducted from the administrative costs to be paid by the EFTA States to the EU Budget. When new programmes are being included in Protocol 31, the relevant min- 5 istries in the EFTA States and the relevant EFTA Working Groups must agree on the number and placement of national experts within the Commission. Once a decision is made, the EFTA Secretariat takes the necessary steps vis-à-vis the EU, first and foremost through the Working Group on Budgetary Matters. If required, contact is also made with the relevant Directorates-General in the Commission, in particular if the EFTA States express an interest in having experts in DGs where there are no pre-existing agreements for the secondment of experts. As noted above, the EFTA States can also participate in other activities out- 6 side the programme framework and contribute to them financially (for example agencies, European years, individual budget lines etc.). In these cases, according to Protocol 32, the EFTA States shall by 15 February of each year communicate to the European Commission a list of new EU activities which they wish to include in the EEA Annex to the preliminary draft budget of the EU for the next financial year which is usually adopted in April or May.8 The EFTA Working 5 See the EFTA Secretariat’s website: http://www.efta.int/eea/eu-programmes/application-finance s/eea-efta-budget. 6 Tore Grønningsæter (2015) The EEA Agreement – Backrgound, Developments and Challenges, Available at: http://www.efta.int/sites/default/files/documents/eea/seminars/eea-a15/2015-09-02 -efta-secretariat.pdf. 7 A list of EFTA SNEs is available on the EFTA Secretariat‘s website: http://www.efta.int/eea/eft a-national-experts.

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Groups are thus asked to identify any potential new activities which are subsequently communicated to the EU by the EFTA Secretariat and the legal base is then established in accordance with the decision-making procedure set out in Art. 86. In order for participation to be secured, the legal base must be established by 10 July of the relevant financial year (see Protocol 32) and, as noted in section 3, the EFTA States are working on measures to make this process more streamlined and less time-consuming in order to ensure that this deadline is met. 7 When the EFTA States participate in a decentralised agency their payment is calculated according to the proportionality factor and added to the existing budget under the agency’s budget line. On the other hand, as regards executive agencies, the financial means are directly drawn from the financial allocation to the related programme. In view of this, separate EEA Joint Committee Decisions incorporating executive agencies into the EEA Agreement have generally not been thought necessary, as the incorporation of the related EU programme has been considered to provide the legal basis for participation in the executive agencies.

Article 83 [Exchange of information between public authorities] Where cooperation takes the form of an exchange of information between public authorities, the EFTA States shall have the same rights to receive, and obligations to provide, information as EC Member States, subject to the requirements of confidentiality, which shall be fixed by the EEA Joint Committee. 1

Art. 83 specifies that where cooperation takes the form of an exchange of information between public authorities, the EFTA States shall have the same rights to receive and obligations to provide information as the EU Member States. This is subject to the requirements of confidentiality which is to be fixed by the Joint Committee. As noted in the discussion on Art. 80, cooperation under Part VI can take various forms including EFTA participation in a range of networks and bodies which can involve exchange of information between public authorities. For example, as of 2016, the EFTA States have participated in the EU platform to enhance cooperation in tackling undeclared work. This platform brings together all relevant national authorities, in particular enforcement authorities, which lead and/or are active in tackling undeclared work. This can include a host of actors such as labour inspectorates, social security inspectorates, tax authorities, migration authorities and employment services. The platform facilitates and supports the exchange of best practices and information between these authorities to provide a framework for developing common understanding, expertise and analysis on undeclared work. 8 Further information on the EU´s budgetary process is available on the European Commission‘s website: http://ec.europa.eu/budget/explained/management/deciding/deciding_detail/decide_det ail_en.cfm.

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Article 84 Cooperation in specific fields

Interestingly, Art. 2 of the decision establishing the platform allows represen- 2 tatives of the EFTA States to participate in its work as observers. As noted in the discussion on Art. 81, the EFTA states generally prefer to set out the conditions of their participation during the incorporation of the relevant act into the EEA Agreement rather than this being pre-defined in the EU act. Indeed, while the decision was at the proposal stage, the EFTA States sent an EEA EFTA comment to the EU recommending that a new paragraph be introduced stating that „participation in the Platform shall be open to the EEA EFTA States and that arrangements shall be made under the relevant provisions of the EEA Agreement, specifying the nature, extent and manner of their participation“.1 The EU did not make such an amendment to the final act and so it remains to be seen whether the participation of the EFTA States will somehow be hampered due to their observer status. If they experience any limitations in the exchange of information between public authorities they could potentially rely on Art. 83 to rectify the situation.

Article 84 [Cooperation in specific fields] Provisions governing cooperation in specific fields are set out in Protocol 31.

As noted, provisions under Part VI are set out in Protocol 31 to the EEA 1 Agreement rather than being incorporated into an Annex as is the case for legal acts incorporated on the basis of Parts II-IV. At the time of writing, the main text of Protocol 31 is 44 pages long and contains a variety of different types of cooperation in a wide range of policy fields. Further analysis of the content of Protocol 31 is provided in the discussions of other Articles falling under Part VI, particularly Arts. 78, 79, 80, 81, 82, 83 and 87.

Article 85 [Inclusion of pre-existing cooperation] Unless otherwise provided for in Protocol 31, cooperation already established between the Community and individual EFTA States in the fields referred to in Article 78 on the date of entry into force of this Agreement shall thereafter be governed by the relevant provisions of this Part and of Protocol 31.

The idea behind Art. 85 was to include and continue pre-existing cooperation 1 between the Contracting parties in the fields covered by Art. 78 which was already in place at the time the EEA Agreement was negotiated EEA under the EEA Agreement. This concerned for example, participation of the EFTA States 1 Standing Committee of the EFTA States – Subcommittee IV on Flanking and Horizontal Policies (2014) EEA EFTA Comment on the proposal for a decision of the European Parliament and of the Council on establishing a European Platform to enhance cooperation in the prevention and deterrence of undeclared work – COM(2014) 221.

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in the ERASMUS and COMETT II programmes where the EFTA States participated under bilateral agreements until entry into force of the EEA Agreement.1

Article 86 [Role of the EEA Joint Committee] The EEA Joint Committee shall, in accordance with Part VII, take all decisions necessary for the implementation of Articles 78 to 85 and measures derived therefrom, which may include, inter alia, supplementing and amending the provisions of Protocol 31, as well as adopting any transitional arrangements required by way of implementation of Article 85.

Although the nature of cooperation between the Contracting parties under Part VI of the EEA Agreement differs substantially from Parts II-VI, in essence the same decision-making procedures apply. Indeed Art. 86 provides that the EEA Joint Committee is, in accordance with Part VII EEA, to take all the decisions necessary for the implementation of Arts. 78-85 and measures derived therefrom which was considered to be a practical arrangement by the original negotiators.1 As such, there is no real difference in terms of the decision-making process when it comes to the incorporation of EU acts into the relevant Annexes of the EEA Agreement under Parts II-V of the EEA or the inclusion of acts in Protocol 31 EEA under Part VI whereby amending this protocol also requires a Decision of the Joint Committee. 2 As noted in the discussion of Art. 97, decision-making procedures generally involve an assessment of potential horizontal challenges in EU acts. Given the difference in nature between Part VI and Parts II-IV, horizontal challenges are not very common in acts included in Protocol 31.2 However, they could for example potentially arise with respect to agencies whereby the modalities regarding participation, funding and employment need to agreed when the founding acts are incorporated into Protocol 31 in the same manner as when they are incorporated into Annexes. Issues can also arise with respect to partial or differentiated participation of the EFTA States in various activities whereby specific adaptation texts need to be agreed with the EU. 3 Another variation, due also to the difference in nature between Part VI and Parts II-IV is that the EFTA States generally do not face the same level of pressure from the EU to include acts in Protocol 31 as they do to incorporate acts into the Annexes. For example, EFTA participation in programmes under the new Multiannual Financial Framework appeared to be largely voluntary and the 1

1 Norberg et al, EEA Law, p. 647. 1 Norberg et al., EEA Law, p. 642. 2 EEA horizontal challenges may arise when a provision in an act or proposal has a material and/or structural impact on EEA law or the EEA institutional framework. Horizontal challenges may occur, for example, in relation to the delegation of competence in the EU pillar, fines to be imposed by an EU institution or body, reference to criminal sanctions or provisions with thirdcountry elements.

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Article 87 Expansion to new fields of cooperation

EFTA States excluded at will acts establishing various programmes even though they had been marked as EEA relevant by the EU.3 Moreover, the principle of speaking with one voice does not apply in the same way in the sense that it is common in Protocol 31 that only one or two of the EFTA State participate in an EU activity.4 Part VII therefore applies under certain conditions and with the necessary adjustments following from the special characteristics of Part VI with regard to provisions contained in Part VI.5 It was felt to be a major achievement that the decision-making procedure of 4 the EEA Agreement should apply in fields of cooperation where the EFTA states participate fully and consequently contribute to the costs involved.6 At the same time, using this decision-making procedure can be challenging when it comes to adopting Joint Committee Decisions for acts with budgetary consequences as it can be quite lengthy. In order to participate in an EU activity with budgetary consequences the legal base for such participation must be in place by 10 July of any given year. This often does not give the EFTA States much time to finalise their procedures. For example, the Regulations establishing the programmes for the Multiannual Financial Framework 2014-2020 were not adopted until the end of 2013. This meant that there was a rather narrow window to finalise all procedures particularly as the EU also required a substantial amount of time to review the draft JCDs Council approval was required. It also led to challenges in terms of decision-shaping as has been discussed in relation to Art. 81. Meeting this deadline can also be challenging when it comes to the yearly incorporation of annual budget lines into the EEA Agreement but the EFTA Secretariat and the EFTA States are looking into ways of streamlining this process to ensure budgetary deadlines are met and EFTA States do not miss out on participation due to delays in acquis processing.

Article 87 [Expansion to new fields of cooperation] The Contracting Parties shall take the necessary steps to develop, strengthen or broaden cooperation in the framework of the Community's activities in fields not listed in Article 78, where such cooperation is considered likely to contribute to the attainment of the objectives of this Agreement, or is otherwise deemed by the Contracting Parties to be of mutual interest. Such steps may include the amendment of Article 78 by the addition of new fields to those listed therein.

The ambition of Part VI is to provide a vehicle for additional cooperation 1 within the EEA structure, beyond what is required for the Agreement to deliver 3 For example Regulation (EU) No 1382/2013 establishing a Justice Programme for the period 2014 to 2020. 4 See for example the differentiated participation of the EFTA States in the MFF 2014-2020 as disucssed in the comments on Art. 80. 5 Norberg et al., EEA Law, p. 642. 6 Norberg et al., EEA Law, p. 642.

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on its core objective of creating a homogeneous market characterised by identical rules. Accordingly, Art. 87 makes it clear that the list of fields of cooperation in Art. 78 is not exhaustive. According to Art. 87 second sentence, steps to develop, strengthen or broaden cooperation may include the amendment of Art. 78 by the addition of new fields to those listed therein. Importantly, the Contracting Parties appear to agree that this is not only a (superfluous) reminder of their ability to change Art. 78 by way of the procedure set out in Art. 118. Rather, Art. 87 is interpreted as vesting the EEA Joint Committee with competences to amend the list found in Art. 78 by way of amendments to Protocol 31. This makes Art. 87 a rather unique clause in the Main Part of EEA Agreement. 2 Over the years, the Contracting Parties have amended Protocol 31 to expand, develop and broaden the fields of cooperation beyond the list found in Art. 78. In addition to the first 10 Articles of Protocol 31, Articles have been added containing provisions on a range of areas such as trade facilitation, transport and mobility, culture, energy, employment, public health, telematics interchange of data, exchange between administrations of national officials, and reduction of economic and social disparities. These fields have all been included after the entry into force of the original agreement. Interestingly, the Financial instrument 1999-2003 is also included in Protocol 31 whereas in general the Financial Mechanisms are found in Protocol 38. 3 The areas included in Protocol 31 may well expand further. For example, as noted under Art. 79(3), discussions are ongoing with respect to the potential inclusion of the EU’s 2030 climate targets for emissions from sectors not covered by other clauses of the EEA Agreement. In this case there has been some concern, especially from farmer’s organisations, that by including this in Protocol 31, the scope of the EEA Agreement will in essence be expanded to cover controversial areas such as agricultural policy.1 4 Discussions regularly take place amongst the EFTA States whether or not to seek participation in new fields of cooperation under Art. 87. In some cases, for example in relation to the European Year of Citizens in 20132 and the European Year for Development in 2015,3 discussions have led to the conclusion that the EFTA States would not pursue participation. In other cases, the EFTA States have sought cooperation with the EU under Part VI EEA but have been unsuccessful in their attempt. For example, the EFTA States voiced an interest in participating in the European Year of Voluntary Activities in 2011.4 However, the EU argued that this would not be possible, as the decision establishing the year had been adopted without a participation clause for the EFTA States.

1 2 3 4

Personal communication with professor Finn Arnesen, 12 January 2017. Decision No 1093/2012/EU on the European Year of Citizens (2013). Decision No 472/2014/EU on the European Year for Development (2015). Council Decision of 27 November 2009 on the European Year of Voluntary Activities Promoting Active Citizenship (2011).

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This example shows that if EFTA States want to secure their participation in 5 new fields or activities on the basis of Art. 87, it can be necessary to lobby the EU institutions at the pipeline stage to ensure that the final act includes a clause allowing for their participation. Of course in many cases participation of the EFTA States is already foreseen in the pipeline proposal of the Commission.5 In other cases, participation is not problematic even if the final act does not contain a clause specifying such participation6 and so practice varies substantially in this regard. The insertion of participation clauses for the EFTA States in EU acts raises the question of whether the modalities of their participation shouldn’t be discussed and agreed in the EEA Joint Committee and set out in the relevant sectoral Protocol/Annex to the EEA Agreement rather than being decided unilaterally by the EU as discussed in relation to Articles 80, 81 and 83. An interesting legal question emerges from this discussion, i.e. whether the 6 inclusion of an act in Protocol 31 is strictly speaking necessary in order to secure EFTA participation if the act itself contains a clause setting out the terms of their participation. It might be argued that in these cases the EFTA States could rely on EU law to participate in said EU activity. For example, this was discussed with the EU when the Decision establishing a Platform to tackle Undeclared Work was adopted as Art. 2(e) of this decision specifies that the EFTA States shall have observer status in the Platform (see also discussion under Art. 83). The EU, however, preferred that the decision should be included in Protocol 31 to increase the legal certainty and legitimacy of EFTA participation and this view was supported by the EFTA States.7 Although in most cases the EFTA States approach the EU in order to seek 7 participation in new fields of cooperation, the situation is sometimes reversed. For example, the European External Action Service (EEAS) approached the EFTA Secretariat regarding possible incorporation of the Regulation establishing the European Voluntary Humanitarian Aid Corps (‘EU Aid Volunteers initiative’)8 into the EEA Agreement stating that it would be of mutual interest to relevant organisations based in the EFTA States and the EU to participate in this initiative.9 Indeed, Art. 23 of the Regulation stated that the initiative should be open to participation of citizens and sending organisations from the EFTA States despite the fact that the Regulation was adopted on the basis of Art. 214 TFEU (‘Humanitarian Aid’), a legal basis situated under Part V of the TFEU which concerns the external action by the European Union and hitherto not considered

5 For example, COM(2014) 221 and a number of proposals for programmes under the 2014-2020 MFF such as COM(2011) 609. 6 For example, Decision No 573/2014/EU on enhanced cooperation between public emploment services (PES) does not contain any specific clause mentioning the participation of the EFTA States, although it is marked as EEA relevant. It is included in Protocol 31 and the EFTA States have participated actively in this network. 7 Personal observation. 8 Regulation (EU) No 375/2014 establishing the European Voluntary Humanitarian Aid Corps. 9 Personal observation.

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EEA relevant. Therefore, any participation of the EFTA States would have had to be based on Art. 87. Although the EFTA States have so far decided not to participate in this initiative, this example demonstrates just how broadly Art. 87 can potentially be interpreted. 8 In sum, on the basis of Art. 87 and Protocol 31, the EFTA States can arguably participate in EU activities in almost any field under the EU Treaties. Indeed, the fields covered by Protocol 31 have expanded significantly since the EEA Agreement entered into force. This is, however, often dependent on the EFTA States seeking out such participation at an early stage as the EU seems, at least in some cases, to be quite strict on the legal act in question allowing for such participation. This increasing insistence of the EU on participation clauses being present in the EU act generally conflicts with the view of the EFTA States that the modalities of their association should be discussed and agreed upon in the EEA Joint Committee and set out in the relevant sectoral Protocol/Annex to the EEA Agreement. However, it is important to bear in mind that practice appears to vary substantially between different fields and Commission Directorates-General. Furthermore, although Arts. 78 and 87 imply an obligation on the Contracting Parties to further and strengthen their cooperation, the EFTA States seldom face any real pressure from the EU to participate in activities falling under Part VI and so, unlike Parts II-V, cooperation under Part VI is largely voluntary in practice.

Article 88 [Domestic measures] Without prejudice to provisions of other Parts of this Agreement, the provisions of this Part shall not preclude the possibility for any Contracting Party to prepare, adopt and implement measures independently. 1

Art. 88 conveys that the Contracting Parties are still free to prepare, adopt and implement measures independently in the areas covered by Part VI EEA. According to the original Commentary on the EEA by Norberg et al, this should be the exception rather than the rule.1 In essence, however, Art. 88 supposes that EEA rules adopted pursuant to Part VI EEA will not prevail over domestic measures adopted by the Contracting Parties and is a strong indicator that the drafters of the EEA Agreement did not intend Protocol 31 EEA to contain rules on the approximation of national laws but, rather, modalities regarding direct cooperation between the Contracting Parties at international level.2

1 Norberg et al., EEA Law, p. 648. 2 Personal communication with Senior Legal Officer at the EFTA Secretariat, 9 January 2017.

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Part VII: Institutional provisions Chapter 1: The structure of the Association

Section 1: The EEA Council

Article 89 [Responsibilities of the EEA Council] 1. An EEA Council is hereby established. It shall, in particular, be responsible for giving the political impetus in the implementation of this Agreement and laying down the general guidelines for the EEA Joint Committee. To this end, the EEA Council shall assess the overall functioning and the development of the Agreement. It shall take the political decisions leading to amendments of the Agreement. 2. The Contracting Parties, as to the Community and the EC Member States in their respective fields of competence, may, after having discussed it in the EEA Joint Committee, or directly in exceptionally urgent cases, raise in the EEA Council any issue giving rise to a difficulty. 3. The EEA Council shall by decision adopt its rules of procedure.

Art. 89 establishes the EEA Council, the highest political body in the EEA. 1 It may be inferred, from the wording of the Articles pertaining to the EEA Council that the Contracting Parties at the time of negotiation of the EEA Agreement thus intended to create a political forum to reflect to a certain extent the role of the (then) EC Council. Art. 89 stipulates that the EEA Council is responsible for giving political impetus to implementation and development of the Agreement. At the time of conclusion of the EEA Agreement, it therefore seems to have been envisaged that the Council would take political decisions which might lead to amendments of the Agreement.1 The competences of the EEA Council where thus to include policy discussions and consultations in the framework of shaping new EEA rules.2 The competences and function of the EEA Council are not exhaustively listed 2 in Art. 89 as demonstrated by the wording “in particular”. Indeed, the EEA Council is afforded additional tasks and competences in provisions placed in other parts of the Agreement. Thus Art. 5 provides for the right of the Contracting Parties to raise any matter of concern in the EEA Council, a droit d’évocation.3 Art. 118 provides that the EEA Council may, when appropriate, take the political decisions with a view of opening up negotiations between the Contracting Parties on further development of the relations established by the Agreement by extending them to fields not yet covered by it.4 Further, Art. 128 pro1 See Norberg et al., EEA Law, pp. 119. 2 Ibid, pp. 119 to 120. 3 See further the comments on Art. 5.

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vides that an application to become party to the EEA Agreement by a new EU Member State or an EFTA State shall be addressed to the EEA Council.5 As regards changes to the EEA Agreement in the event of a withdrawal of a Contracting Party from the Agreement, however, Art. 127 is silent on the role of the EEA Council.6 3 The EEA Council has not evolved into the forum for deep political discussions related to the development of the EEA Agreement as envisaged by Norberg et al. Neither the EU and its Member States on one hand, nor the EFTA States on the other have transferred any legislative competences to the EEA Council. Therefore, to date, the EEA Council has only served as a formal political platform where the overall functioning of the Agreement is assessed and summarized in the conclusions adopted at each meeting.7 The Contracting Parties have not made use of the droit d’évocation provided in Art. 5 and the Council has not been requested to take political decisions related to opening up negotiations under Art. 118. On the other hand, the framework for affording the EEA Council a more prominent role in political discussions and negotiation is in place. 4 It should be noted that, although the EEA Agreement is a mixed agreement under EU law,8 the EEA Council is the only common EEA institution where the EFTA States regularly interact with representatives from the EU Member States. Both the European Commission and the EU Member State holding the presidency of the EU Council represent the EU in the EEA Council. 5 Art. 89(3) stipulates that the EEA Council shall adopt its rules of procedure. This was done at the Council’s first meeting in 1994.9

4 See further the comments by Hillion on Art. 118. 5 See further the comments by Hillion on Art. 128. 6 At the time of writing, the UK has formally invoked Art. 50 TEU and started negotiations with the EU on the withdrawal from the EU and thus the internal market. It may therefore be assumed that negotiations under Art. 127 EEA on the withdrawal of the UK from the EEA Agreement will ensue. 7 July 2017, the Liechtenstein Chair of the Standing Committee announced that the work programme of the Committee for the second half of 2017 would include legal and technical work to prepare for the UK’s withdrawal from the Agreement, including the establishment of an Ad-hoc working group for this purpose. 7 Fenger, Rydelski and van Stiphout, EFTA and EEA, at p. 89. The only exception being EEA Council Decision No 1/95 of 10 March on the entry into force of the Agreement on the European Economic Area for the Principality of Liechtenstein. 8 See further on the EEA Agreement as a mixed agreement from the perspective of EU law the comments by Arnesen and Fredriksen on the list of Contracting Parties. 9 Decision of the EEA Council No 1/94 of 17 May 1994 adopting the Rules of Procedure of the EEA Council, Official Journal L 138, 02/06/1994 pp. 39-40. Available from the EFTA homepage www.efta.int.

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Article 90 Composition of the EEA Council, decision-making

Article 90 [Composition of the EEA Council, decision-making] 1. The EEA Council shall consist of the members of the Council of the European Communities and members of the EC Commission, and of one member of the Government of each of the EFTA States. Members of the EEA Council may be represented in accordance with the conditions to be laid down in its rules of procedure. 2. Decisions by the EEA Council shall be taken by agreement between the Community, on the one hand, and the EFTA States on the other.

I. Composition of the EEA Council

Art. 90 stipulates that the EEA Council shall consist of the members of the Council of the EU and members of the European Commission, and of one member of Government of each of the EFTA States. All of the EFTA States used to be represented by their respective minister of foreign affairs, but since the creation of a special post of Minister for EEA and EU Affairs in Norway in 2013, that minister has represented Norway. Before the adoption of the Lisbon Treaty, the EU side was represented by the minister of foreign affairs of the Member State holding the presidency of the EU Council, the European Commissioner for External Relations and, since the creation of that post, the High Representative for the EU’s Common Foreign and Security Policy. Post Lisbon, the two latter positions were merged by the creation of the European External Action Service (EEAS). However, the EU side continues to be led by the EU Member State holding the presidency of the EU Council. Importantly, Art. 3 of the Rules of Procedure of the EEA Council provides that a member may authorize a person to represent him. In practice, the EEAS is usually represented by an accredited Director General and the EU Member State holding the presidency of the EU Council by an ambassador of the relevant EU Member State. This illustrates very clearly that the EEA Council has not evolved into the forum for deep political envisaged by the EFTA States. In line with Art. 3(4) of the Rules on Procedure, ESA is regularly invited to take part in meetings of the EEA Council as an observer. Art. 3(5) of the Rules of Procedure further stipulates that the European Investment Bank is entitled to attend meetings of the EEA Council as an observer when matters referred to in Article 6 of Protocol 38 to the Agreement are on the agenda. However, matters related to Protocol 38 EEA have not been dealt with by the EEA Council for several years.

1

2

3 4

II. Decision-making in the EEA Council

The conditions for the adoption of decisions by the EEA Council are laid 5 down in Art. 90(2). Decisions shall be taken by agreement between the EU, on the one hand, and the EFTA States, on the other. In contrast to decisions to be adopted by the EEA Joint Committee,1 the provision does not stipulate that the EFTA States shall speak with one voice. However, Article 4 of the Rules of ProTynes

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cedure stipulate that the EFTA States shall nevertheless speak with one voice in the event of a decision adopted by the Council. The practical effects of this contrast is however limited since the Council in general does not adopt formal decisions. 6 Indeed, the EEA Council has only made use of its power to adopt decisions once – the (very important) Decision No 1/95 on the entry into force of the EEA Agreement for Liechtenstein in March 1995.2 Other amendments to the Agreement, notably following the enlargement of the EU, have been executed by agreement between the Contracting Parties without making use of the EEA Council as such. The reason for this is presumably the EEA Agreement’s character as a mixed agreement from the perspective of EU law, coupled with the fact that Art. 90 only envisages decisions taken by the EU as such on the one hand and the EFTA States on the other, thus leaving no room for the individual EU Member States. Thus, it is clear that the EU Member States have opted for direct involvement in the agreements on enlargement and the corollary amendments to Protocol 38 EEA on the EFTA Financial Mechanism3 instead of making use of the EEA Council. 7 For matters within the competence of the EEA Joint Committee, such as the incorporation of new acts, there is simply no practical need for any separate decision-making in the EEA Council – the decision-making procedure is the same. For matters outside the competence of the EEA Joint Committee which at the same time falls inside the EU’s competence to enter into agreements with third countries, the possibility to use the EEA Council remains untested.

Article 91 [The EEA Council: presidency and meetings] 1. The office of the President of the EEA Council shall be held alternately, for a period of six months, by a member of the Council of the European Communities and a member of the Government of an EFTA State. 2. The EEA Council shall be convened twice a year by its President. The EEA Council shall also meet when circumstances so require, in accordance with its rules of procedure. 1

As stipulated by Art. 91(1), the office of the President of the EEA Council is held alternately by a member of the EU Council and a member of the Government of an EFTA State, coinciding with the rotating presidency of the EEA Joint Committee.1 1 See comments on Article 92 and 93 EEA. 2 EEA Council Decision No 1/95 of 10 March on the entry into force of the Agreement on the European Economic Area for the Principality of Liechtenstein. In addition, the EEA Council has also adopted its own Rules of Procedure by way of Decision 1/94, see the comments on Art. 89 above. 3 The EFTA States’ contribution to social and economic cohesion in the EEA, as further prescribed in Protocol 38 EEA. 1 See the comments on Art. 94.

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Art. 91(2) stipulates that the Council shall be convened twice a year, but also 2 provides for the possibility of convening the Council whenever circumstances so require. However, this latter possibility has not been invoked since 1995. Thus, the meetings of the Council have to date been regular at six month intervals. At its meetings, the EEA Council will always take note of a progress report 3 provided by the EEA Joint Committee and, as the case may be, resolutions adopted by the EEA Joint Parliamentary Committee and/or the EEA Consultative Committee. An overall assessment of the functioning of the EEA Agreement is a regular feature on the agenda and so is an orientation debate where the EU side provides information on pending legislative initiatives related to the internal market. The Council also adopts its conclusions at each meeting.2 In practice, the representative of the relevant EU Member State will present the views of the EU, followed by comments by the representative of the EEAS. Although the EFTA States are not required to speak with one voice, the EFTA State in presidency of the Standing Committee3 will present the common views of the EFTA States, followed by individual remarks by the representatives of the other two EFTA States. As may be inferred from the standard agenda for the meetings of the EEA 4 Council and its conclusions, the Council has not evolved into a body where high level political discussions on the development and future of the EEA Agreement take place.4 To some extent, this may be due to developments on the EU side corollary to the changes to the EU treaties since the signing of the EEA Agreement, most notably post the adoption of the Lisbon Treaty. Another explanation may be that ministers of the EFTA States have preferred bilateral contacts with EU ministers as they are often invited to informal EU ministerial meetings and ministerial conferences relevant to the EFTA States’ participation in the internal market.5 However, in connection to the meetings of the EEA Council, informal exchanges in the form of a political dialogue which goes beyond the stricter confines of the EEA Agreement are sometimes held.6

2 The agendas and the minutes of the Council meetings are published upon completion at the EFTA website www.efta.int. 3 See the comments by Fredriksen and Jónsdóttir on of the Agreement on the Standing Committee of the EFTA States. 4 Ibid. 5 See for instance paragraph 29 of the Conclusions of the 46th meeting of the EEA Council, Brussels, 15 November 2016. 6 Fenger, Rydelski and van Stiphout, EFTA and EEA, p. 90. For examples, see the minutes of the Council meetings from the last couple of years, available online from the EFTA website www.efta.int.

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Section 2: The EEA Joint Committee

Article 92 [Responsibilities of the EEA Joint Committee] 1. An EEA Joint Committee is hereby established. It shall ensure the effective implementation and operation of this Agreement. To this end, it shall carry out exchanges of views and information and take decisions in the cases provided for in this Agreement. 2. The Contracting Parties, as to the Community and the EC Member States in their respective fields of competence, shall hold consultations in the EEA Joint Committee on any point of relevance to the Agreement giving rise to a difficulty and raised by one of them. 3. The EEA Joint Committee shall by decision adopts its rules of procedure.

I. Establishment of the EEA Joint Committee

Art. 92 provides the legal basis for the establishment of the EEA Joint Committee and prescribes that the committee shall ensure the effective implementation and operation of the Agreement. Crucially, the EEA Joint Committee is empowered by Art. 98 to adopt decisions on amendments to the Annexes and certain Protocols to the EEA Agreement. It is therefore the body entrusted with the vital job of incorporating new EU legal acts into the Agreement and thus extend the rules of the internal market to the EFTA States. However, the EEA Joint Committee also plays a role with regard to securing homogeneity in the interpretation and application of the Agreement, the settlement of disputes and the procedures regarding safeguard measures.1 2 It may be recalled that two of the core issues of the negotiations of the EEA Agreement related to the extent of the obligation of the EFTA States to take over the internal market acquis of the Community including the possibility for adaptations or amendments and the access of the EFTA States to the decision-making process leading up to adoption of new EEA relevant legal acts.2 The solution was the inclusion of the EFTA States in what was later coined as EU decisionshaping3 and the establishment of a joint decision-making body; the EEA Joint Committee. 3 The establishment of Joint Committees is a common trait of Free Trade Agreements. The EEA Joint Committee is however quite unique as demonstrated by the wide range of tasks entrusted to it, in particular the quasi-legislative competence to incorporate new legal acts into the Agreement (Art. 98); to preserve the homogeneous interpretation of the Agreement (Art. 105) and to settle disputes between ESA and the Commission (Art. 109) or between the Contracting Parties (Art. 111). Thus, as noted by Fenger et al., the EEA Joint Com1

1 See, e.g., the comments by Wennerås on Art. 105 and by Fredriksen on Art. 111 and on Art. 112-114. 2 See Nikolaus von Liechtenstein, The EEA Joint Committee – A Political Assessment, in: EFTA Court (ed), The EEA and the EFTA Court, p. 476. 3 See the comments by Dystland, Bøckman Finstad and Sørebø Arts. 99 and 100 EEA.

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mittee can neither be compared to the secretariat of an intergovernmental organization nor to a government of a sovereign State.4 II. Exchanges of views and information

Art. 92(1) stipulates that in order to ensure effective implementation and oper- 4 ation of the EEA Agreement, the Joint Committee shall carry out exchanges of views and information between the Contracting Parties. Numerous provisions of the Agreement refer to this function of the EEA Joint Committee. For instance, Art. 105(2) provides that the EEA Joint Committee is to keep under constant review the development of the case law of the EFTA Court and the EU Courts in order to preserve the homogenous interpretation of the EEA Agreement.5 It is also envisaged in Art. 106 that the EEA Joint Committee shall set up a system of exchange of information concerning judgments by the respective courts as well as the courts of last instance in the EFTA States. This system has as such never been set up by the EEA Joint Committee, however, likely since the EFTA Court and the Union Courts have from the outset had extensive exchanges and cooperation and the development of case-law has not given rise to any concern as to homogenous interpretation of the Agreement.6 In practice, the exchange of views and information in the EEA Joint Commit- 5 tee most commonly relates to the main task of the EEA Joint Committee, the adoption of decisions incorporating new internal market acquis into the Agreement. For instance, Art. 100 provides that the EFTA States may submit comments to the EU side on proposed legislation; the so-called EEA EFTA Comments.7 These comments regularly feature on the EEA Joint Committee’s agenda, where they will be addressed by an official from the relevant DirectorateGeneral of the EU Commission at the meeting of the EEA Joint Committee. III. Consultations on matters of difficulty

As mentioned above, Art. 5 EEA provides for the right of raising matters of 6 concern, a droit d’évocation, at the level of the EEA Joint Committee or the EEA Council. As far as the Joint Committee is concerned, Art. 5 refers to the modalities laid down in Art. 92(2). Art. 92(2) specifies that as regards the EU, the droit d’évocation is subject to the division of competences between the EU and its Member States. In essence, this entails that it is for the EU as a Contracting Party to call for consultations under this provision. To date, no such consultations have not been carried out by the EEA Joint Committee.

4 5 6 7

Fenger, Rydelski and van Stiphout, EFTA and EEA, p. 92. See further the comments by Wennerås on Art. 105 EEA. See further the comments by Wennerås on Art. 106 EEA. These comments are published at http://www.efta.int/eea/eea-efta-comments.

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IV. Rules of procedure 7

As stipulated by Art. 92(3), the EEA Joint Committee has adopted rules of procedure which to some extent reflect elements laid down in the EEA Agreement itself.8 Thus the rules of procedure regulate the meetings of the EEA Joint Committee, the form of the decisions, authentic languages and publication. In addition, the rules of procedure provide that a representative from the EFTA Surveillance Authority shall be invited as observer at the meetings of the Joint Committee. In practice, the three members of the college of the EFTA Surveillance Authority usually attend the meetings. The rules of procedure however provide that the Joint Committee may decide to deliberate without the presence of the Authority’s representative(s). It may however be assumed that the Committee would only make use of that provision in extraordinary circumstances.

Article 93 [Composition of the EEA Joint Committee, decision‑making] 1. The EEA Joint Committee shall consist of representatives of the Contracting Parties. 2. The EEA Joint Committee shall take decisions by agreement between the Community, on the one hand, and the EFTA States speaking with one voice, on the other.

I. Composition of the EEA Joint Committee 1

In accordance with Art. 93(1), the EEA Joint Committee shall consist of representatives of the Contracting Parties. Von Liechtenstein notes that the EEA Joint Committee was to a certain extent prefigured by the High-Level EC-EFTA Negotiating Group for the EEA, composed of leading diplomats of the EFTA States and the EC Director-General responsible for external affairs and trade. Quite a few of the EFTA chief negotiators later became the first representatives of their countries in the EEA Joint Committee.1 It later became the practice that the EFTA Ambassadors to the EU represent their respective countries in the EEA Joint Committee. On the EU side, the responsibility for EEA matters was moved to the European External Action Service (EEAS) as a result of the Lisbon Treaty. For a while, the EU was represented by the EEAS Director responsible for the EEA, EFTA and Western countries thus represented the EU, but in later years it has been the Head of the EEA Unit of the EEAS that leads the

8 Decision of the EEA Joint Committee No 1/94 of February 1994 Adopting the Rules of Procedure of the EEA Joint Committee (OJ L 85, 30.3.1994, p. 60) as amended by Decision of the EEA Joint Committee No 24/2005 of 4 February 2005 amending the Rules of Procedure of the EEA Joint Committee (OJ No L 161, 23.6.2005, p. 54 and EEA Supplement No 32, 23.6.2005 p.32). 1 Von Liechtenstein, ‘The EEA Joint Committee – A Political Assessment’, in: EFTA Court (ed), The EEA and the EFTA Court, at p. 477.

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EU delegation. Attendance by representatives of the individual EU Member States is very rare. It may be argued that the changes in representation of the EU in the EEA 2 Joint Committee reveal that the importance placed on the EEA Agreement by the EU side has decreased. It must however be recalled that the EU has undergone significant changes in the same period of time – the number of Member States has grown from 12 to 28 and the EU Treaties have been amended no less than four times. Furthermore, the working methods of the EEA Joint Committee call for most of the consultations or negotiations between the Contracting Parties to be carried out at earlier stages in the decision-making process – the meetings as such are of a quite formal character.2 II. Decision-making in the EEA Joint Committee

As mentioned above, the EEA Joint Committee is empowered to take deci- 3 sions on amendments to the Annexes and certain Protocols to the Agreement. It is thus the Joint Committee that incorporates new EEA relevant EU acquis into the Agreement. This is the core function of the EEA Joint Committee and the reason why its role is pivotal in the day to day management of the Agreement. Art. 93(2) stipulates that decisions shall be taken by agreement between the 4 EU, on the one hand, and the EFTA States speaking with one voice, on the other. The requirement that the EFTA States speak with one voice entails that they must come to agreement between themselves on the incorporation of a new legal act and/or the modalities for the incorporation including possible adaptations or amendments to the act before agreeing with the EU side. The need for internal agreement among the EFTA States represents one of the main challenges to the operation of the EEA Agreement.3 Evidently, the EFTA States may at times have different political interests and/or constitutional challenges with regard to the incorporation of new EEA relevant acquis. For instance, Iceland and Norway have different constitutional challenges when it comes to two-pillar issues, most notably when a legal act requires the transfer of decision-making powers to ESA. The internal EFTA negotiations may therefore prove to be at least as difficult and time consuming as negotiating possible amendments or adaptations to an act with the EU side. In turn, this may contribute to delays in the incorporation of new acquis which has been a constant concern of the Contracting Parties in recent years.4 On the other hand, the EU too has to agree internally as to any position to be 5 taken in the EEA Joint Committee. It follows from the internal EU procedures laid out in Reg. (EC) No 2894/94 that EEA Joint Committee Decisions contain2 See the comments by Dystland, Bøckman Finstad and Sørebø on Art. 102 EEA. 3 See von Liechtenstein, ‘The EEA Joint Committee – A Political Assessment’, in: EFTA Court (ed), The EEA and the EFTA Court, at p. 481. 4 Further on the so-called backlog, see the comments by Dystland, Bøckman Finstad and Sørebø on Art. 102 EEA.

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ing substantive adaptations must be approved by the EU Council. The EU Commission only has the competence to approve technical adaptations. The EU has traditionally taken a narrow approach as to which adaptations that are considered of a purely technical nature which in turn leads to most decisions containing adaptations being submitted to the EU Council for approval.5 The unfortunate delays in the incorporation of new acquis may therefore also be traced to procedures on the EU side. 6 It may also be noted, that the requirement to take decisions by agreement entails that it is the EEA Joint Committee who is the final arbiter on whether an EU act should be incorporated into the EEA Agreement or not. The EEA Agreement does not provide for the jurisdiction of any court to adopt binding rulings on whether an act should be incorporated into the EEA Agreement.6 Although delays in incorporation of new acquis have been subject to political discussions with the EU side since 2011, and on numerous occasions raised as a matter of concern by the EEA Council, no formal steps under the auspices of the EEA Agreement have been taken in this respect.7

Article 94 [The EEA Joint Committee: presidency, meetings, sub-committees and working groups] 1. The office of the President of the EEA Joint Committee shall be held alternately, for a period of six months, by the representative of the Community, i.e. the EC Commission, and the representative of one of the EFTA States. 2. In order to fulfil its functions, the EEA Joint Committee shall meet, in principle, at least once a month. It shall also meet on the initiative of its President or at the request of one of the Contracting Parties in accordance with its rules of procedure. 3. The EEA Joint Committee may decide to establish any subcommittee or working group to assist it in carrying out its tasks. The EEA Joint Committee shall in its rules of procedure lay down the composition and mode of operation of such subcommittees and working groups. Their tasks shall be determined by the EEA Joint Committee in each individual case. 4. The EEA Joint Committee shall issue an annual report on the functioning and development of this Agreement.

I. Presidency and meetings 1

It follows from Art. 94(1) that the presidency of the EEA Joint Committee alternates for a period of six months between the representative of the EU and the representative of one of the EFTA States. As regards the EFTA States, the presidency is held by the representative holding the presidency in the Standing 5 This may include the involvement of the EU Parliament. 6 Although the Contracting Parties may agree to request an opinion by the ECJ under Art. 111(3) EEA. See further the comments by Fredriksen on that provision. 7 See for instance adopted EEA Council conclusions published at http://www.efta.int/eea/eea-institutions/eea-council.

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Committee of the EFTA States. Art. 94(2) provides that the Joint Committee should meet in principle at least once a month and can also meet at the initiative of the President or at the request of one of the Contracting Parties. In practice, however, the EEA Joint Committee meets six to eight times a year. Article 4 of the Rules of procedure further provides for the possibility of adopting decisions by written procedure in matters of urgency and by agreement between the parties. In practice, the EEA Joint Committee has in recent years opted for a written procedure around twice a year. Although the presidency of the EEA Joint Committee rotates between the EU 2 side and the EFTA side as described above, the bulk of the work related to the preparation of EEA Joint Committee decisions is carried out by the EFTA Secretariat. It is thus the Secretariat, in cooperation with experts in the EFTA States, that drafts all decisions for the EEA Joint Committee. The meetings of the EEA Joint Committee are held in English and all docu- 3 ments pertaining to the meetings are also in the English language. Decisions amending the Annexes and Protocols of the EEA Agreement are however drafted in English, Icelandic and Norwegian.1 II. Subcommittees and working groups

Art. 94(3) provides that the EEA Joint Committee may set up subcommittees 4 and working groups to assist it in carrying out its tasks. Art. 15 of the Rules of Procedure establishes five permanent subcommittees in the fields of free movement of goods (I), free movement of capital and services (II), free movement of persons (III), flanking and horizontal policies (IV) and legal and institutional questions (V).2 These subcommittees correspond to the subcommittees established on the EFTA side to assist the Standing Committee of the EFTA States.3 The Standing Committee is established by a separate agreement between the EFTA States beyond their obligations under the EEA Agreement.4 The establishment of the Standing Committee was considered necessary due to the obligation of the EFTA States to speak with one voice in the EEA Joint Committee.5 The EFTA subcommittees are in turn assisted by numerous working groups 5 composed of experts from the EFTA States in the relevant fields.6 In practice the bulk of the work of scrutinizing EU acquis considered for incorporation into the

1 The EU side is responsible for translating the EEA Joint Committee Decisions in the official languages of the EU, including German, the official language of Liechtenstein. 2 As subcommittees in turn mirror the sub-structure of the High Level Negotiating Group, see von Liechtenstein, at p. 477. 3 Agreement on a Standing Committee of the EFTA States, see further comments on the Agreement by Fredriksen and Jónsdóttir. 4 Fenger, Rydelski and van Stiphout, EFTA and EEA, p. 100. 5 Norberg et al., EEA Law, p. 685. 6 An overview of the Subcommittee and Working Group structure is provided at http:// www.efta.int/eea/eea-institutions/standing-committee.

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EEA Agreement is carried out by the working groups on the EFTA side. Since 2012, the subcommittees I to IV meet jointly in preparation for the incorporation of new acquis. Subcommittee V on legal and institutional questions meets less regularly and usually will opt for informal meetings.7 The subcommittees and working groups are assisted by the EFTA Secretariat, which is tasked with extensive legal assistance to the EFTA States, including providing analysis of the more complex horizontal legal issues, as well as drafting all decisions. 6 Following several years of discussion with the EU side on the delays in incorporation of new acquis into the EEA Agreement, the so-called backlog, the procedures for incorporation on the EFTA Side where revised in 2014.8 Standing Committee Decision No 1/2014/SC lays down the new procedures for the incorporation of EU acquis into the EEA Agreement and sets out the tasks and responsibilities of the EFTA Secretariat, the working groups and the subcommittees. 7 The new procedures entail that the EFTA Secretariat will by automated means pick up all legislative proposals with possible EEA relevance9 as well as adopted legal acts on the EU side for processing. The inclusion of legislative proposals thus aims at speeding up the process on the EFTA side by starting the scrutiny of acts at the first possible date. However, for obvious reasons formal processing can only start once the legal act has been adopted by the EU. The procedures also include the introduction of a new fast track procedure, suitable for more technical regulations where no adaptation text is usually required.10 III. Annual report 8

The EEA Joint Committee is to issue an annual report on the functioning and development of the Agreement which is subject to an examination by the EEA Joint Parliamentary Committee but also addressed to the EEA Council. The annual reports are published on the website of EFTA, cf. Art. 21(3) of the Rules of Procedure.11

7 Although Subcommittee V is formally established by the Rules of Procedure, it traditionally only meets informally. 8 The backlog refers to the number of outstanding legal acts awaiting incorporation into the EEA Agreement. In recent years this number has consistently been around 400 to 500 legal acts. 9 On the notion of EEA relevance, see the comments by Dystland, Finstad and Sørebø on Art. 102 EEA. 10 See further on the incorporation procedures the comments by Dystland, Finstad and Sørebø on Art. 102 EEA. 11 http://www.efta.int/eea/eea-institutions/eea-joint-committee.

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Article 95 The EEA Joint Parliamentary Committee

Section 3: Parliamentary cooperation

Article 95 [The EEA Joint Parliamentary Committee] 1. An EEA Joint Parliamentary Committee is hereby established. It shall be composed of equal numbers of, on the one hand, members of the European Parliament and, on the other, members of Parliaments of the EFTA States. The total number of members of the Committee is laid down in the Statute in Protocol 36. 2. The EEA Joint Parliamentary Committee shall alternately hold sessions in the Community and in an EFTA State in accordance with the provisions laid down in Protocol 36. 3. The EEA Joint Parliamentary Committee shall contribute, through dialogue and debate, to a better understanding between the Community and the EFTA States in the fields covered by this Agreement. 4. The EEA Joint Parliamentary Committee may express its views in the form of reports or resolutions, as appropriate. It shall, in particular, examine the annual report of the EEA Joint Committee, issued in accordance with Article 94(4), on the functioning and development of this Agreement. 5. The President of the EEA Council may appear before the EEA Joint Parliamentary Committee in order to be heard by it. 6. The EEA Joint Parliamentary Committee shall adopts its rules of procedure.

I. Establishment of the EEA Joint Parliamentary Committee and composition

In order to facilitate information sharing and exchanges of views, Art. 95 provides for the establishment of an EEA Joint Parliamentary Committee. It might be said that the negotiators of the EEA Agreement wished to add an element of parliamentary democracy to the Agreement and thus reflect in some manner the establishment of the EU Parliament in the EU Pillar. However, the EEA Joint Parliamentary Committee does not have a formal role, it is merely an advisory body. The EEA Joint Parliamentary Committee is composed of equal numbers of members of the European Parliament on the one hand and members of Parliaments of the EFTA States on the other. Protocol 36 to the EEA Agreement contains the statute of the EEA Joint Parliamentary Committee. According to Art. 2 of the Protocol, the total number of members of the committee shall be twentyfour. On the EFTA side, Iceland and Norway have five members each, whereas Lichtenstein has two. Art. 3 of the Protocol provides that the committee shall elect a President and a Vice-President from among its members, the office of the President to be held alternately for a period of one year by a member appointed by the European Parliament and by a member appointed by a Parliament of an EFTA State. The EEA Joint Parliamentary Committee has adopted rules of procedure in accordance with Art. 4 of Protocol 36.1 As a result of the establishment of the EEA Joint Parliamentary Committee, the EFTA States established their own Committee of Members of Parliament Tynes

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of the EFTA States.2 However, informal cooperation between members of parliaments of the EFTA States traces its roots back to 1963. The meetings were formalized in 1977 when the Committee of Members of Parliament of the EFTA countries was founded. Since the entry into force of the EEA Agreement there have thus been two EFTA Parliamentary Committees. The Committee of Members of Parliament of the EFTA States covers all matters related to the EEA and forms the EFTA side of the EEA Joint Parliamentary Committee. It is composed of five members from Norway, five from Iceland and two from Liechtenstein. The Committee of Members of Parliament of the EFTA Countries includes five members from Switzerland and deals with other matters of interest to the EFTA States, in particular free trade and relations with third countries. In practice, however, these two committees hold their meetings jointly and function practically as one. 5 The Swiss Members of the Committee of Members of Parliament of the EFTA Countries are invited as observers in the EEA Joint Parliamentary meetings. II. Aim and function

The EEA Joint Parliamentary Committee is an advisory body and does not have any formal powers under the EEA Agreement. It may be recalled that the Agreement does not entail any transfer of legislative powers by the EFTA States to common institutions. Therefore, the role of the Parliaments of the EFTA States in the implementation and execution of the Agreement is in accordance with the national constitutional requirements. However, at the time of negotiation of the Agreement it was deemed important to provide for a forum for cooperation and exchange of views between members of European Parliament and the national parliaments of the EFTA States. Thus, the EEA Joint Parliamentary Committee is to contribute to a better understanding between the EU and the EFTA States, as stated in Art. 95(3). As mentioned above, it may also have been an underlying aim of the negotiators to attach an aura of more direct democratic participation to the EEA Agreement by creating a role for Parliaments. 7 Art. 95(2) provides that the EEA Joint Parliamentary Committee is to hold a general session twice a year, alternately in an EU Member State and in an EFTA State. In the former case, meetings are held at the seat of the European Parliament either in Strasbourg or in Brussels. Members of the committee may put oral or written questions to the representatives in the EEA Council and the EEA Joint Committee. The committee further has the possibility of engaging in dialogue with representatives of the EEA Council, the EEA Joint Committee and the EFTA Surveillance Authority at its meetings. The rules of procedure provide 6

1 Last amended 18 June 1996, published at http://www.efta.int/eea/eea-institutions/eea-joint-parliamentary-committee. 2 Agreement on a Committee of Members of Parliament of the EFTA States, signed in Reykjavik on 20 May 1992 (with some later amendments).

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Article 96 The EEA Consultative Committee

that the committee may express its views in reports and resolutions as appropriate. The committee has the fixed task of examining the Annual Report of the EEA Joint Committee. The EEA Joint Parliamentary Committee clearly does not compare to the 8 European Parliament with its function under the EU Treaties nor to the national parliaments in the EFTA States. Taking into consideration the two-pillar structure of the EEA Agreement and the lack of transfer of supranational powers by the EFTA States as well as the EU to joint bodies, one could hardly envisage a role for this Committee in, for instance, decision-shaping. The EEA Joint Parliamentary Committee does therefore not have a formal role necessary for the good functioning of the EEA Agreement. Although it may nevertheless serve as a useful platform for the exchange of views and information between parliamentarians, this has been challenged in recent years by lack of interest on the EU side for participation in the meetings.

Section 4: Cooperation between economic and social partners

Article 96 [The EEA Consultative Committee] 1. Members of the Economic and Social Committee and other bodies representing the social partners in the Community and the corresponding bodies in the EFTA States shall work to strengthen contacts between them and to cooperate in an organized and regular manner in order to enhance the awareness of economic and social aspects of the growing interdependence of the economies of the Contracting Parties and of their interests within the context of the EEA. 2. To this end, an EEA Consultative Committee is hereby established. It shall be composed of equal numbers of, on the one hand, members of the Economic and Social Committee of the Community and, on the other, members of the EFTA Consultative Committee. The EEA Consultative Committee may express its views in the form of reports or resolutions, as appropriate. 3. The EEA Consultative Committee shall adopts its rules of procedure.

I. Establishment and composition of the EEA Consultative Committee

Art. 96(1) provides for the establishment of an EEA Consultative Commit- 1 tee. It follows from Art. 96(2) that it is composed of equal numbers of, on the one hand, members of the European Economic and Social Committee (EESC) and, on the other, members of the EFTA Consultative Committee. Unlike most of the other institutions in the EFTA pillar, the EFTA Consulta- 2 tive Committee predates the EEA Agreement. The members of the EFTA Consultative Committee are designated by the Member States, and chosen from the social partner organisations, i.e. trade unions and employers’ organisations in the four EFTA countries. Each country can send six representatives to the EFTA Consultative Committee. The European Trade Union Confederation and BUSINESSEUROPE may send one observer each. Tynes

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According to the current Rules of Procedure of the EEA Consultative Committee, the committee is composed of twenty-four members, twelve appointed by the EESC and twelve appointed by the EFTA Consultative Committee.1 The members from the EFTA Consultative Committee are chosen among the members from the EFTA States parties to the EEA Agreement.2 However, two of the Swiss members of the EFTA Consultative Committee are granted observer status in the EEA Consultative Committee. II. Aim and function

The EEA Consultative Committee is an advisory body which aim is to strengthen the contacts between the social partners in the EU and in the EFTA States and to cooperate with the aim to enhance awareness and provide input on the social and economic aspects of the EEA. Informal cooperation between the EESC and the EFTA Consultative Committee traces its roots back to 1975 but was formalized with the establishment of the EEA Consultative Committee. The committee meets once a year alternately in an EU Member State and in an EFTA State, or in the latter case alternately also in Brussels at the premises of the EFTA Secretariat. 5 As provided by Art. 2(2) of the Rules of Procedure, the EEA Consultative Committee regularly adopt reports and resolutions, usually by consensus. Art. 2(3) of the Rules of Procedures further provides that the EEA Consultative Committee shall exercise the right of initiative implicitly given to it by the EEA Agreement by means of decisions taken at its plenary session. This provision has not been tested in practice, perhaps simply due to the fact that determining which right of initiative is implicitly afforded by the EEA Agreement is not an easy task. 6 The EEA Consultative Committee therefore mainly serves the purpose of providing a platform for discussions and exchange of views. It does not have any formal role in decision-shaping or decision making under the EEA Agreement as opposed to, for instance, the role of the EESC under Arts. 300 to 304 TFEU. 4

Chapter 2: The decision making procedure

Introduction to the Chapter 1

Chapter 2 encompasses rules on the Contracting Parties’ right to legislate in the areas covered by the Agreement (Art. 97), on which parts of the EEA Agree1 Consolidated version of the Rules of Procedure of 12 May 2011, published at http:// www.efta.int/eea/eea-institutions/eea-consultative-committee. 2 Art. 3 of the Rules of Procedure of the EEA Consultative Committee and Rule 9 of the EFTA Consultative Committee Rules of Procedure.

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Article 97 Right to amend internal legislation

ment that can be amended by decisions of the EEA Joint Committee (Art. 98), on the EFTA States’ participatory rights in the EU decision-shaping stage (Arts. 99 to 101), on the main procedure for incorporating new acts into the Agreement (Art. 102), on constitutional requirements in the EFTA States (Art. 103), and on entry into force of Joint Committee Decisions (Art. 104).

Article 97 [Right to amend internal legislation] This Agreement does not prejudge the right for each Contracting Party to amend, without prejudice to the principle of non-discrimination and after having informed the other Contracting Parties, its internal legislation in the areas covered by this Agreement: – –

if the EEA Joint Committee concludes that the legislation as amended does not affect the good functioning of this Agreement; or if the procedures referred to in Article 98 have been completed.

Art. 97 regulates the Contracting Parties’ competence to legislate in the fields 1 that fall within the ambit of the EEA Agreement. It states that the Agreement does not prejudge the right for each Contracting Party to amend its internal legislation in the area as long as certain criteria are met. The wording of the article is probably based on the Agreement between the EC and Switzerland on direct insurance1 that existed as a draft agreement when the EEA Agreement was negotiated.2 The provision must be read in light of the sixteenth recital of the preamble, which makes clear that the EEA Agreement does not restrict the decision-making autonomy or the treaty-making power of the Contracting Parties, subject to the provisions of the EEA Agreement and the limitations set by public international law.3 The EU Treaties contain no corresponding provision. Art. 97 lists four criteria, two of which are placed in the chapeau. The first re- 2 quirement is that any legislative amendment must respect the principle of nondiscrimination. This is merely a restatement of Art. 4, which sets out the basic non-discrimination rule in the Agreement. Second, any Contracting Party intending to amend its legislation in the area must inform the other Contracting Parties. This is normally done in the EEA Joint Committee, Subcommittees and Working Groups, through the parties’ continued dialogue on developments in their respective legal systems and inter alia regarding proposed legislative amendments in relevant areas.4 The EEA Agreement also encompasses secondary legislation on formalised EEA notification procedures for certain types of legislation.5

1 Agreement between the European Economic Community and the Swiss Confederation concerning direct insurance other than life assurance (OJ 1991 L 205/3), see Art. 39. 2 Bull in Norsk lovkommentar, comments on Art. 97 EEA, note 182 (last visited 23.8.2017). 3 See the comments by Arnesen and Fredriksen to the sixteenth recital of the preamble, mn. 42-46. 4 For more on these committees, see the comments by Tynes on Arts. 92 to 94.

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The third criterion, listed in the first indent in Art. 97, entails that the legislative amendments must not affect the good functioning of the Agreement. It follows explicitly from the wording that this assessment is not for the Contracting Party itself to make, but lies with the Joint Committee. Where the Joint Committee concludes that the legislation in question does not affect the good functioning of the Agreement, that decision will “immunize” the legislation in question from EEA-based judicial review, be it before the EFTA Court or the ECJ, presumably even in cases where the EEA rules derogated from are not among those that the Committee is competent to change (such as the Main Part of the Agreement).6 Art. 97 thus reveals the nature of the EEA Agreement as an international law agreement under the control of the Contracting Parties. However, seen in light of the main goal of achieving legal homogeneity, the rights which the EEA Agreement confers on individuals, and the duty to observe the non-discrimination rules, it does not seem likely that the Joint Committee would accept but narrow exceptions comparable to the cases considered acceptable under EU law, see Art. 114(4) and 114(5) TFEU, or technical or other adaptations otherwise normally agreed upon when including new legislation.7 To the best of our knowledge, the EEA Joint Committee has never been called upon to exercise its competences under Art. 97. 4 The second indent in Art. 97 clarifies that the EU’s decision-making autonomy is not impeded by the Agreement.8 It concerns the situation where the EU has adopted new legislation that has not been accepted by the EEA Joint Committee to be included in the EEA Agreement under a procedure referred to in Art. 98 (normally the procedure in Art. 102). The dynamic evolution of EU law is not impeded by reluctance on the EFTA side to include new rules in the Agreement.9 In such cases, the EU is not bound by those rules in the Agreement that remain unchanged.10 Once the procedure set out in Art. 98 is completed, the “old” EEA rules can therefore not be invoked by individuals or economic operators from the EFTA States in the EU. 5 Art. 97 seems to indicate that the parties have transferred a substantial part of their formal legislative powers to the EEA Joint Committee.11 In essence, however, this is just the EEA law version of the basic public international law rule that parties to an international agreement should not legislate contrary to their international obligations. In the EEA legal context, that principle is also embedded in the general principle of loyalty in Art. 3, which states that the Contract3

5 See in particular Directive 2015/1535 laying down a procedure for the provision of information in the field of technical regulations and of rules on Information Society services. 6 Even though the relationship between the Joint Committee’s competences under Art. 97 and the limits imposed by Art. 98 could have been clearer. 7 Bull in Norsk lovkommentar, comments on Art. 97 EEA, note 182. 8 Norberg et. al., EEA Law, p. 132. 9 Norberg et al. EEA Law, p. 132, Gjems-Onstad (2000), p. 166. 10 Bull in Norsk lovkommentar, comments on Art. 97 EEA, note 182. 11 Walter van Gerven (1992-1993), p. 987-88 with further references, and Jervell (2001), p. 87-89.

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Article 98 Amendments to Annexes and selected Protocols

ing Parties shall, inter alia, “abstain from any measure which could jeopardise the attainment of the objectives of the Agreement”. As long as the Contracting Parties observe their obligations under the EEA 6 Agreement, they can freely legislate within their jurisdictions, i.e. also within the ambit of the EEA Agreement. What Art. 97 does, is to add a legal “safety valve” regarding legislation that otherwise might run counter to EEA law.12

Article 98 [Amendments to Annexes and selected Protocols] The Annexes to this Agreement and Protocols 1 to 7, 9 to 11, 19 to 27, 30 to 32, 37, 39, 41 and 47, as appropriate, may be amended by a decision of the EEA Joint Committee in accordance with Articles 93 (2), 99, 100, 102 and 103.

I. Amendments of the EEA Agreement, its Protocols and Annexes – general

The procedures envisaged in the EEA Agreement to achieve the underlying 1 principle of dynamic homogeneity are threefold: first, the traditional method of changing the Contracting Parties’ duties under public international law; second, the specialised EEA procedure under Arts. 97 to 104 regarding amendments of the annexes and a number of the protocols; and third, a simplified procedure for certain rules within the feedingstuffs and veterinary areas. 1. The traditional amendment procedures under international public law

The ordinary treaty procedures under international public law, governed inter 2 alia by the Vienna Convention on treaties and customary international law, can in principle be used to amend both the Main Agreement, the protocols and the annexes.1 All amendments of the Main Agreement and of those protocols not explicitly enumerated in Art. 98 have to follow these general rules; the EEA Agreement does not include specialised procedures regarding such amendments apart from a partial legal framework regulating institutional and preparative stages. Such amendments would therefore have to be agreed upon and ratified by all of the Contracting Parties to the EEA Agreement under Art. 129(2).2

12 Jervell (2001), p. 89. 1 Jervell (2001), p. 14. 2 Fredriksen, ‘EEA Main Agreement and Secondary EU Law Incorporated into the Annexes and Protocols’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 100; Norberg et al., EEA Law, p. 133. For more on Art. 129, see the comments by Arnesen to that provision. Discussions between the Contracting Parties on the general functioning of the Agreement should take place in the EEA Council, ref. Art. 89(1) inter alia stating that the EEA Council shall take the political decisions leading to amendments of the Agreement. Furthermore, Art. 118 gives certain rules regarding the preparative stages of such changes, see Norberg et al., EEA Law, pp. 133 and 647, and comments by Hillion to Art. 118, mn. 10-18.

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2. The amendment competence of the EEA Joint Committee under Art. 98 3

For the amendment of annexes and 263 of the 52 protocols, Art. 98 grants the EEA Joint Committee competence to decide on amendments on the basis of Arts. 93(2), 99, 100, 102 and 103.4 The decision referred to in Art. 98 forms a specialised form of agreement between the Contracting Parties and must in accordance with Art. 93(2) be taken by agreement between the EU, on the one hand, and the EFTA States speaking with one voice, on the other.5 3. The simplified procedure in the veterinary field and food area

4

Some EU acts are subject to a simplified procedure according to which corresponding measures are taken simultaneously in the EU and the EFTA States. This procedure only applies to certain acts in the veterinary field and for the processing of certain emergency acts in the food area.6 The relevant acts become legally binding for Iceland and Norway as soon as they are in force within the EU and without the need of going through the EEA Joint Committee.7 The reason for the procedure lies in the urgency of matters related to animal and public health (for example to prevent infectious diseases or dangerous bacteria in food/feed). II. The competence to amend Annexes

Art. 98 says that the Joint Committee may amend the Annexes to the Agreement. Such amendments consist of adding new acts to the lists of EU legal acts to be transposed into national law in the EFTA states according to the rules in Art. 7 EEA.8 The decision itself is called a Joint Committee Decision (JCD) and might include technical or substantive EEA adaptations to the EU legal act in question.9 6 It follows from the wording of Art. 98 (and Art. 102) that the EEA Joint Committee cannot add new annexes to the Agreement. Such amendments have to go through the procedures pursuant to Arts. 89 and 118, and the general treaty amendment procedures under international public law. 5

3 Note, however, that several of these 26 protocols are obsolete. 4 The specific procedures are presented in the comments on the respective articles. 5 Müller-Graff, ‘EEA-Agreement and EC Law: A comparison in Scope and Content – Overview on the Basic Link between Norway and the European Union’, in: Müller-Graff and Selvig (eds.), The European Economic Area – Norway’s Basic Status in the Legal Construction of Europe (1997), p. 27. For more on Art. 93, see the comments by Tynes to that provision. 6 See paras. 7, 8 and 13 of the introductory part of Annex I Chapter I EEA, and adaption text (i) (2) to point 54zzzc in Annex II. See further Fredriksen and Mathisen, EØS-rett, pp. 164-65; and NOU 2012: 2 Utenfor og innenfor. Norges avtaler med EU, pp. 650-52. 7 Liechtenstein is exempted altogether from this area of EEA law due to its close cooperation with Switzerland concerning feedingstuffs and veterinary matters. 8 For more on the implementation requirements, see the comments by Dystland, Finstad and Sørebø on Art. 7 EEA. 9 See comments by Tynes on Art. 93, mn. 5, and the comments on Art. 102, mn. 23-26.

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Article 99 Participation of EFTA States in EU decision-shaping

III. The competence to amend Protocols

The Joint Committee can also amend 26 out of the EEA Agreement’s cur- 7 rent 52 protocols, as specified in the provision. The protocols enumerated in Art. 98 were presumably picked out by the Contracting Parties during the negotiations as the protocols most closely linked to the substantive regulation of the internal market.10 This is certainly the case for Protocol 1 on horizontal adaptations, Protocols 2 and 3 on products excluded from the scope of the Agreement in accordance with Art. 8; Protocol 4 on rules of origin; Protocol 9 on trade in fish and other marine products; and Protocols 21 to 27 on competition and state aid. The competences of the Joint Committee are not, however, limited to proto- 8 cols linked to the internal market narrowly construed. This is evident from the fact that Art. 98 includes Protocol 31 on cooperation in specific fields outside the four freedoms. Examples of such fields are listed in Art. 78, and Art. 84 states that provisions governing cooperation in the specific fields in question are set out in Protocol 31. Art. 86 makes it clear that the “EEA Joint Committee shall, in accordance with Part VII, take all decisions necessary for the implementation of Arts. 78 to 85 and measures derived therefrom, which may include, inter alia, supplementing and amending the provisions of Protocol 31, as well as adopting any transitional arrangements required by way of implementation of Article 85”.11 The protocols that cannot be amended through the Art. 98 procedure are typi- 9 cally those dealing with institutional or other matters which (some of) the Contracting Parties did not wish to expose to a simplified procedure for amendments.12 The list includes Protocol 34 on the possibility to request the ECJ to interpret EEA rules, Protocol 35 on the implementation of EEA rules, and Protocol 40 on Norway’s possibility to exempt the territory of Svalbard from the application of the Agreement.

Article 99 [Participation of EFTA States in EU decision-shaping] 1. As soon as new legislation is being drawn up by the EC Commission in a field which is governed by this Agreement, the EC Commission shall informally seek advice from experts of the EFTA States in the same way as it seeks advice from experts of the EC Member States for the elaboration of its proposals. 2. When transmitting its proposal to the Council of the European Communities, the EC Commission shall transmit copies thereof to the EFTA States. At the request of one of the Contracting Parties, a preliminary exchange of views takes place in the EEA Joint Committee.

10 Jervell (2001), pp. 17-18. 11 See further the comments by Jónsdóttir on Arts. 78 to 88. 12 Jervell (2001), p. 17-18; and Fredriksen and Mathisen, EØS-rett, p. 153.

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PART II: The Agreement on the European Economic Area 3. During the phase preceding the decision of the Council of the European Communities, in a continuous information and consultation process, the Contracting Parties consult each other again in the EEA Joint Committee at the significant moments at the request of one of them. 4. The Contracting Parties shall cooperate in good faith during the information and consultation phase with a view to facilitating, at the end of the process, the decisiontaking in the EEA Joint Committee.

I. EFTA participation in the preparatory stage of EU decision-making

The EFTA States are granted access to the preparatory phase and the so-called decision-shaping stage of the EU legislative procedure. This early involvement is necessary to facilitate the entry into force of legal acts in the EEA and in the EFTA States as close in time as possible to that in the EU.1 2 According to Art. 99(1), the Commission, when preparing new legislation, has an obligation to informally seek advice from experts of the EFTA States in the same way it seeks advice from experts of the Member States. The obligation sets in “as soon as new legislation is being drawn up” in a field governed by the EEA Agreement. The question of whether a proposal falls under a field governed by the Agreement makes up a part of the discussion on EEA relevance, which may at times be quite challenging.2 Uncertainty surrounding EEA relevance may hinder the EFTA States’ possibilities of participation under Art. 99 or delay the initiation of the consultations with the EFTA States’ experts. Experience has shown that where questions of relevance are raised, the cooperation under the EEA Agreement has been flexible and robust enough for the Contracting Parties to reach practical and pragmatic solutions. However, the abolishment of the pillar structure through the Lisbon Treaty has made the assessment of EEA relevance more challenging, placing a greater responsibility on the EFTA States in ensuring that their right of participation is not overlooked by the Commission.3 3 It is up to the Commission to decide whether it wants to seek advice, how this should be done and from whom (national officials, private persons, consumers etc.).4 Art. 99(1) does not regulate the form and method of consultation apart from merely stating that it is to be done informally. However, as soon as the Commission decides to consult one or several experts, Art. 99(1) obliges the Commission to involve Member States’ and EEA EFTA States’ experts on an equal basis (“in the same way”). 1

1 Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 56. 2 For more on EEA relevance, see the comments on Art. 102(1). 3 The right to participate is generally accepted in the Commission, but it is not always known among the Commission employees and the representatives of the Member States. At times, it is therefore necessary for experts from the EFTA States to assert their rights under Art. 99. 4 In practice, it is very common for the Commission to make use of expert groups. For more on this and participation of EFTA experts, see the comments to Art. 100.

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Article 99 Participation of EFTA States in EU decision-shaping

The experts – both from the EU and the EFTA States – are consulted in their 4 personal capacity and may not be subject to instructions from their respective governments.5 II. Decision-shaping

Art. 99(2) guarantees the EFTA States information on initiatives on EEA rele- 5 vant legislation by obliging the Commission to transmit all proposals to the EFTA States at the same time as transmitting them to the Council (and the European Parliament).6 The provision also lays down a commitment to have a preliminary exchange of views on the proposal in the EEA Joint Committee, should one of the Contracting Parties request it. To ensure continued exchange of information and consultation up until a 6 decision is made on the legislative proposal, Art. 99(3) lays down an obligation for the Contracting Parties to consult each other in the EEA Joint Committee at significant moments in the preparatory phase. Consultations can be requested by any Contracting Party. Normally, the Commission continuously transmits to the EFTA States information on anything which could influence the final outcome of the decision-making procedure (inter alia amendments from the Commission and discussions in the Parliament, in ECOSOC, in Council working groups, COREPER or in the Council itself). The significant moments of the procedure typically include the adoption by the Parliament or ECOSOC of their opinions; amendments to the proposal by the Commission; adoption of the Council’s position; the Parliament’s rejection or approval of or amendments to the common position; and the adoption by the Commission of a revised proposal. The EEA Joint Committee is assisted by subcommittees and working 7 groups, in which the various proposals and developments are discussed by representatives of the Contracting Parties (subcommittees) and by Commission and EFTA Government experts (working groups). In parallel with the procedure in the EEA Joint Committee, the EFTA States consult and coordinate their position within the EFTA Standing Committee. Government experts and officials of the EFTA States assist the work of the Standing Committee by participating in subcommittees and working groups parallel to those under the EEA Joint Committee.7 As part of the consultation procedure, the EFTA States may at any stage before a proposal is adopted, submit so-called EEA EFTA Comments.8 5 Norberg et al., EEA Law, pp. 135 and 136. 6 The Lisbon Treaty introduced a new right for national parliaments in the EU to receive more and swifter information from the Commission, see Art. 12 TEU and protocols 1 and 2 to the Treaties. Although requested by the EFTA States, an equivalent right has not been accepted for the national parliaments in the EFTA States. However, the EFTA Secretariat has taken on the task of gathering and sending out the relevant information, ensuring that the national parliaments in the EFTA States in practice receive the same information as the national parliaments in the EU. 7 For more on subcommittees and working groups and the EFTA Standing Committee, see the comments by Tynes on Art. 94, mn. 4-5 and the comments by Fredriksen and Jónsdóttir on the Standing Committee Agreement.

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The EFTA Secretariat, although not explicitly mentioned in the EEA Agreement, holds an important coordination role in inter alia the procedures under Art. 99.9 9 Art. 99(4) states that the Contracting Parties shall cooperate “in good faith” during the process. The obligation is a practical example of the principle of loyalty (Art. 3) and its aim is to ensure a timely incorporation of EEA relevant EU legislation into the Agreement. 8

Article 100 [Participation of EFTA States’ experts in the EU comitology system] The EC Commission shall ensure experts of the EFTA States as wide a participation as possible according to the areas concerned, in the preparatory stage of draft measures to be submitted subsequently to the committees which assist the EC Commission in the exercise of its executive powers. In this regard, when drawing up draft measures the EC Commission shall refer to experts of the EFTA States on the same basis as it refers to experts of the EC Member States. In the cases where the Council of the European Communities is seized in accordance with the procedure applicable to the type of committee involved, the EC Commission shall transmit to the Council of the European Communities the views of the experts of the EFTA States.

I. EFTA participation in the comitology system

Art. 100 grants the EFTA States a right of participation in the comitology system under the Commission.1 The EEA rules are to a very large extent based on EU rules and at the early stages of the EEA negotiations, it became clear that in order to safeguard the future homogeneity of the Agreement, a solution had to be found which ensured the right of representatives and experts of the EFTA States to be involved in the work of the relevant EU committees on all issues of relevance to the Agreement. Otherwise, there would be a risk of common rules developing in different directions and of particular experiences and conditions in the EFTA States not being taken into account.2 2 Over the years, there have been several changes to the comitology system in the EU, especially after the entry into force of the Lisbon Treaty. The reform has 1

8 Such comments, which present the view of (one or more of) the EFTA States on a proposed EU act, are prepared in the working groups, discussed in the subcommittees, and taken note of by the EEA Joint Committee before being submitted to the EU. The EU has increasingly responded to EEA EFTA Comments, confirming a certain value of such submissions from the EFTA States. 9 For more information on this, see Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 56-57. 1 Under Art. 5(2) of Protocol 1 of the Standing Committee Agreement, a number of EFTA comitology committees have been set up or designated by the Standing Committee to assist ESA in carrying out its task and obligations under Articles 1 and 3 of Protocol 1 SCA. 2 Norberg et al., EEA Law, p. 152.

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Article 100 Participation of EFTA States’ experts in the EU comitology system

not entailed significant changes in the EFTA States’ possibility of participating in the committees. It is still in the interest of both the EU and the EFTA States that the latter participate in the Commission’s work on implementing and delegated acts to ensure the best possible legislation for the whole of the EEA. II. “As wide a participation as possible”

According to the first paragraph of Art. 100, the Commission is obliged to ensure experts of the EFTA States “as wide a participation as possible” in the preparatory stages of draft measures that are submitted to the comitology committees. Participation is usually covered by government officials from the EFTA States who are responsible at the national level for the implementation and application of the relevant legislation. Each EFTA State designates its own experts and those experts will be involved on an equal footing together with national experts from the EU Member States.3 The right of participation is limited to the “preparatory stage”. Art. 100 grants a right to participate in the informal discussions only and representatives of the EFTA States are not authorised to participate in the formal decision making. In some cases, the right to participate is also limited to participation in working groups under a comitology committee. The EFTA States’ right to participate is generally accepted in the Commission, but sometimes the terms of participation in a specific committee will have to be negotiated, especially in new committees and for participation in new areas. In practice, the Commission sends out invitations to meetings and relevant documentation to the experts of both the EU Member States and EFTA States. The experts meet and discuss on an equal footing the first draft of the measure drawn up by the Commission. When agreement is reached, or almost reached, the draft goes up for a vote.4 The EFTA States’ representatives are then excluded (normally by being asked to leave the room) and may not participate in the formal adoption of a decision. The outcome of the vote is communicated to the EFTA States. In cases where the Commission communicates its draft measure or a proposal relating thereto, to the Council, the second paragraph of Art. 100 states that the Commission should also transmit the views of the experts of the EFTA States.

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5

6

III. The impact of the use of the trilogue procedure

Under Part I above, it was stated that the changes to the comitology system 7 have not affected the EFTA States’ right to participate in the committees. However, other changes to the legislative procedure have had an impact on the EFTA 3 Declaration by the (then) European Community on the participation of the EFTA States’ experts in EEA relevant EC committees in application of Art. 100, contained in the Final Act to the EEA Agreement. 4 The Commission pursues consultation “as long as deemed necessary”, cf. the Declaration on Art. 100.

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States’ actual possibilities of influencing the content of EEA relevant legislation, in particular the increased use of the trilogue procedure.5 The EFTA States have no access to these important discussions between the Parliament, the Council and the Commission wherein significant questions of relevance to the EEA are discussed and decided upon. The right to participate under inter alia Art. 100 may have lost some of its significance as substantial changes may now more often than before take place at a later stage and in a different setting than those to which the EFTA States have access. 8 However, the foundation for legislative acts are still undoubtedly laid by the Commission in accordance with input and proposals from the expert groups and comitology committees wherein the EFTA States are entitled to participate. It is therefore increasingly important for the EFTA States to act and participate in these fora in an active and constructive manner, trying to build a solid foundation and get acceptance and extensive support for solutions that favour also the EFTA States. The fewer open questions left for an eventual trilogue stage, the greater are the EFTA States’ chances of influencing the content of new EEA relevant legislation.

Article 101 [Participation of EFTA States’ experts in non-comitology committees] 1. In respect of committees which are covered neither by Article 81 nor by Article 100 experts from EFTA States shall be associated with the work when this is called for by the good functioning of this Agreement. These committees are listed in Protocol 37. The modalities of such an association are set out in the relevant sectoral Protocols and Annexes dealing with the matter concerned. 2. If it appears to the Contracting Parties that such an association should be extended to other committees which present similar characteristics, the EEA Joint Committee may amend Protocol 37. 1

In the EU, there are quite a number of committees with functions that do not include assisting the Commission in the exercise of its legislative powers through the comitology system. These “non-comitology committees” are varied and consist of not only representatives of the States, but also of inter alia scientists and representatives of trade unions, and professional or economic organisations.1 They make up important fora for exchanges of views on the interpretation and application of EU legislation and provide advisory input to the Commission

5 For more on the trilogue procedure, see Roederer-Rynning and Greenwood, “The Culture of Trilogues”, Journal of European Public Policy, 2015, Vol. 22, No. 8, pp. 1148-1165. A critical view of the procedure and proposed amendments is found in Decision 12 July 2016 of the European Ombudsman setting out proposals following her strategic inquiry OI/8/2015/JAS concerning the transparency of trilogues, available at the Ombudsman’s website. 1 Norberg et al., EEA Law, pp. 167-168.

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Article 102 Amendments of Annexes, incooperation of EEA-relevant EU legislation

on questions of a particular nature, covering various subjects such as transport, foodstuffs, pharmaceuticals and money laundering. In an EEA context, these are committees neither covered by Art. 100 nor by 2 Arts. 76 or 81. According to Art. 101(1), experts from the EFTA States shall be associated with the work of such committees “when this is called for by the good functioning” of the EEA Agreement. Protocol 37 contains a list of the committees in question.2 Modalities of these associations are set out in the relevant Protocols or Annexes.3 In accordance with Art. 101(2), the EEA Joint Committee may amend Proto- 3 col 37 to include also other committees of similar characteristics and significance for the Agreement. The Protocol has been amended on numerous occasions and includes more than 30 different committees.4

Article 102 [Amendments of Annexes, incooperation of EEArelevant EU legislation] 1. In order to guarantee the legal security and the homogeneity of the EEA, the EEA Joint Committee shall take a decision concerning an amendment of an Annex to this Agreement as closely as possible to the adoption by the Community of the corresponding new Community legislation with a view to permitting a simultaneous application of the latter as well as of the amendments of the Annexes to the Agreement. To this end, the Community shall, whenever adopting a legislative act on an issue which is governed by this Agreement, as soon as possible inform the other Contracting Parties in the EEA Joint Committee. 2. The part of an Annex to this Agreement which would be directly affected by the new legislation is assessed in the EEA Joint Committee. 3. The Contracting Parties shall make all efforts to arrive at an agreement on matters relevant to this Agreement. The EEA Joint Committee shall, in particular, make every effort to find a mutually acceptable solution where a serious problem arises in any area which, in the EFTA States, falls within the competence of the legislator. 4. If, notwithstanding the application of the preceding paragraph, an agreement on an amendment of an Annex to this Agreement cannot be reached, the EEA Joint Com2 In relation to Protocol 37, it should be noted that, upon request by the EU, experts from the EU Member States shall on the same basis be associated with corresponding committees among the EFTA States or set up by ESA, cf. Joint Declaration on the association of Community experts with the work of committees among the EFTA States or set up by the EFTA Surveillance Authority, contained in the Final Act to the EEA Agreement. This inter alia encompasses EU expert participation in committees set up in the field of competition under Art. 6 of Protocol 23 EEA. 3 Norberg et al., EEA Law, pp. 169-171. For committees included in the EEA Agreement at the time of entry into force, the modalities were made part of the adopted text. For new committees being added to the Agreement, the Joint Committee Decision amending Protocol 37 to insert the committee on the list will also lay down any necessary amendments to other protocols and annexes in order to specify the detailed arrangements of association, see for example Joint Committee Decision No. 192/2014 of 25 September 2014. 4 An updated version of the Protocol, including references to the various amendments, is available at the EFTA website, www.efta.int.

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PART II: The Agreement on the European Economic Area mittee shall examine all further possibilities to maintain the good functioning of this Agreement and take any decision necessary to this effect, including the possibility to take notice of the equivalence of legislation. Such a decision shall be taken at the latest at the expiry of a period of six months from the date of referral to the EEA Joint Committee or, if that date is later, on the date of entry into force of the corresponding Community legislation. 5. If, at the end of the time limit set out in paragraph 4, the EEA Joint Committee has not taken a decision on an amendment of an Annex to this Agreement, the affected part thereof, as determined in accordance with paragraph 2, is regarded as provisionally suspended, subject to a decision to the contrary by the EEA Joint Committee. Such a suspension shall take effect six months after the end of the period referred to in paragraph 4, but in no event earlier than the date on which the corresponding EC act is implemented in the Community. The EEA Joint Committee shall pursue its efforts to agree on a mutually acceptable solution in order for the suspension to be terminated as soon as possible. 6. The practical consequences of the suspension referred to in paragraph 5 shall be discussed in the EEA Joint Committee. The rights and obligations which individuals and economic operators have already acquired under this Agreement shall remain. The Contracting Parties shall, as appropriate, decide on the adjustments necessary due to the suspension.

I. Simplified decision-making and procedures for consultation in case of disagreement

Art. 102 lays down the general procedure for amending the Agreement to include new EEA relevant EU legislation. The dynamic nature of the Agreement entails a significantly higher frequency of amendments than usual under international treaties: whenever an EEA relevant act is adopted, or amendments are made to acts already incorporated into the Agreement, the legislation in question should be included also in the EEA. It was evident that it would be too cumbersome to undergo the normal treaty amendment procedures for each amendment to the Agreement and a simplified decision-making procedure was therefore adopted to simplify the inclusion of new legislation in the annexes of the Agreement.1 2 Whereas Art. 98 applies to amendments both of an annex and of the protocols referred to in that provision, Art. 102 applies only to amendments of annexes. The procedure is also restricted to incorporation of EU acts in areas already covered by the EEA Agreement. The EEA Joint Committee has no authority to add new annexes to the Agreement or to otherwise extend the scope of the Agreement by incorporating acts in areas not covered by existing annexes.2 Such amendments to the Agreement must be adopted according to the procedure laid down in Art. 118.3 1

1 Similar simplified procedures are found inter alia in the EFTA Convention (see Art. 53) and in various EU association agreements with third countries, typically establishing a “Joint Committee” or “Association Committee” with various degrees of decision-making competence. 2 Fredriksen and Mathisen, EØS-rett, p. 153. 3 For more on these amendment procedures, see the comments on Arts. 98 and 118.

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Article 102 Amendments of Annexes, incooperation of EEA-relevant EU legislation

To ensure that agreement may be reached also in cases of initial disagreement 3 concerning an amendment of an annex, Art. 102 lays down procedures for consultations among the Contracting Parties and states the consequences of continued failure to agree on the incorporation of a disputed act. II. Procedure for incorporation of EEA relevant legislation into the Agreement 1. The aim of “simultaneous application” of legislation in the whole of the EEA

Art. 102(1) lays down the procedure for incorporating EEA relevant legisla- 4 tion into the Agreement. It states that the aim of the procedure is to guarantee legal security and homogeneity. Timely incorporation of EEA relevant EU legislation is crucial to ensure common rules and equality in all the EEA States. The EEA Joint Committee is therefore obliged to take a decision on amending an annex to the Agreement as closely as possible to the date of adoption by the EU of EEA relevant legislation. The tight timeline is chosen to allow for a simultaneous application of the 5 new act in the whole of the EEA. In general, the entry into force of the amendment to the Agreement should take place at the same date as the entry into force of the corresponding legislation in the EU. However, experience has shown that there are certain practical challenges connected to the aim of simultaneous application. These will be presented in the following. 2. The challenge of the inherent delay of EEA decision-making

The set-up of the EEA Agreement inevitably entails that a decision in the 6 Joint Committee will always be made later than the corresponding decision in the EU. This inherent delay in the EEA should in theory not pose a problem insofar as the date of entry into force in the EU is normally set not to the date of adoption of the act, but rather sometime in the future. The Joint Committee could then adopt a decision shortly after the adoption in the EU and set the same date of entry into force in the EEA. However, the period between a decision on adoption of an act and its entry into force in the EU is in practice often too short to allow for a timely decision in the Joint Committee. This is particularly the case for regulations, for which the implementation period is usually particularly short (and in cases with direct entry into force in the EU, non-existing), resulting in an unavoidable delay in the entry into force in the EEA. Even though regulations must be implemented “as such” and for the most part do not require a lengthy implementation procedure,4 there are some minimum requirements in the implementation process both on the national and EEA level that would have to be fulfilled and that requires time, making it impossible to uphold the short 4 See the comments by Dystland, Finstad and Sørebø on Art. 7 litra a, in particular mn. 18 and 19.

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timeline. The same applies where EU decisions are incorporated into the Agreement: the implementing measures are usually limited, but the minimum requirements may nevertheless entail a delay in the entry into force in the EEA due to a too short period between adoption and entry into force in the EU.5 As for directives, they usually come with an implementation period of several months or even years and therefore as such pose fewer challenges. The implementation procedure for directives is however more complex than for regulations6 and in practice the entry into force of directives has also been delayed in the EEA in spite of a long implementation period in the EU. The Joint Committee has the possibility of setting a later date for entry into force in the EEA compared to in the EU, but such a solution would contradict the aim of homogeneity and is therefore seldom used.7 7 These challenges to achieving simultaneous application are somewhat reduced through the EFTA States’ participation in the preparatory stage of the EU legislative process.8 When participating in the development of new acts, the EFTA States achieve sufficient insight into new potential legislation to start any necessary internal preparations at an early stage. However, as will be discussed in the following, there are some discussions and procedures that can only take place and be finalised once a decision has been made in the EU and the final version of an act is available. 3. The process leading up to an EEA Joint Committee Decision (JCD) a) The formal starting point 8

The second sentence of Art. 102(1) is meant to alleviate some of the challenges in ensuring simultaneous entry into force. In order for the Joint Committee to be able to make a timely decision on implementation, the EU is obliged to inform its EFTA partners in the Joint Committee “as soon as possible” of new EEA relevant legislation. When the EEA Agreement was entered into, it was foreseen that a definite version of the EU act would be immediately transmitted to the EFTA States and that the act would be put on the agenda of the following meeting of the Joint Committee.9 However, it has been the exception rather than

5 Decisions usually take effect upon notification to the addressees, or for decision with no addressees, on the date set out in the decision or 20 days after publication in the Official Journal. 6 See the comments by Dystland, Finstad and Sørebø on Art. 7 litra b, in particular mn. 26. 7 Fredriksen and Mathisen, EØS-rett, p. 161 and the example there given in fn. 477. In cases where the date of entry into force in the EU has already passed at the time of the EEA Joint Committee making a decision on incorporation, such setting of a later date of entry into force in the EEA will naturally be a necessity. The implementation period should however always be set as short as possible, reducing the negative effects of dissimilar dates of application in the EU and the rest of the EEA. 8 See the comments on Arts. 99 to 101, especially those related to the obligation of continued consultations under Art 99(3), mn. 6. 9 Norberg et al., EEA Law, p. 142.

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Article 102 Amendments of Annexes, incooperation of EEA-relevant EU legislation

the rule that the process is so swift that an act may be discussed and adopted at the following meeting. b) Assessment of horizontal challenges

Just as the EU was unwilling to surrender its autonomy in decision-making, 9 the EFTA States were unwilling to restrict their own autonomy as regards the future additions to the EEA Agreement.10 Therefore, each new EU act has to be examined to see if it raises any so-called horizontal challenges to the EEA Agreement. This has come to affect the duration and content of the incorporation process quite significantly. The assessment of horizontal challenges includes assessing, first, whether an 10 EU act is EEA relevant and, if so, whether it is possible to implement the act into the EEA Agreement as such, amended only by necessary technical adaptations, or whether there are substantive problems that call for other adaptations.11 aa) EEA relevance

The assessment of EEA relevance entails assessing whether an act is “gov- 11 erned by this Agreement”, as stated in Art. 102(1), i.e. whether it falls within the material and territorial scope of the Agreement. In most cases, the question of the Agreement’s territorial scope does not raise problems.12 The question of the material scope, however, poses certain challenges and increasingly so following the restructuring of the EU through the Lisbon Treaty. Previously, the scope of the Agreement was closely related to the internal market pillar and an act’s EEA relevance was to a large extent identifiable by its placement in that part of the EU cooperation. The abolishment of the pillar structure has blurred, and to some extent even erased, the distinction between internal market related initiatives and other initiatives, complicating the assessment of which acts, or parts thereof, fall under the Agreement. It is becoming increasingly common that an EU act contains both provisions that are inside and outside of the scope of the EEA Agreement. In some cases, an act may even contain individual provisions that are partly EEA relevant and partly not. The assessment of EEA relevance should be based on legal and objective cri- 12 teria. However, the criteria set out in the EEA Agreement are not precise and the assessment will therefore to a certain extent be discretionary.13 The question of EEA relevance must be considered by the Commission at a very early stage since it is obliged under Art. 99(1) to involve experts from the EFTA States as 10 Blanchet et al., The Agreement on the European Economic Area, p. 34. 11 Blanchet et al., The Agreement on the European Economic Area, p. 34. Horizontal challenges are discussed in detail below. 12 Discussions have however occurred in relation to inter alia the economic zone and the continental shelf, see Almestad, ‘The Notion of ‘Opting-Out’’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 90-91, and also Meld. St. 5 (2012-2013), p. 13. For further on the territorial scope of the Agreement, see the comments by Arnesen on Art. 126. 13 Meld. St. 5 (2012-2013), English version, p. 12.

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soon as an EEA relevant proposal is being drawn up.14 Acts that the Commission finds to fall under the EEA Agreement are marked as “Text with EEA relevance”. The Commission normally adds this text because it considers the act to support the achievement of a homogeneous EEA and thus foresees the act being incorporated into the Agreement.15 The marking is an indication of the act being EEA relevant; it is however not binding on the EFTA States. They may therefore find that an act marked as EEA relevant is nevertheless (fully or partly) not relevant, or they may find that acts that have not been marked as EEA relevant, are indeed so.16 In the latter case, it is of particular importance for the EFTA States to determine this at an early stage to safeguard their rights under Arts. 99 to 101 to participate in the preparation of the acts in question. 13 As a main rule, it will not be difficult or controversial to agree on the EEA relevance of legal acts that are directly related to the four freedoms and the competition rules.17 If an act amends or repeals an act already referred to in one of the annexes or protocols of the EEA Agreement, it is also likely that it is EEA relevant and should be incorporated.18 Where an act does not amend or repeal an already incorporated act, the assessment is more difficult and must be made taking into account the objectives of the EEA Agreement and the means to achieve these objectives.19 14 Among the EFTA States, Norway has gone the farthest in establishing a formal set of criteria to be considered in the assessment. Their assessment of EEA relevance is based on an overall consideration of the provisions and intentions of the EEA Agreement, including inter alia the following factors: – Whether the legal act deals with one or more of the fields specified in the main Agreement and its protocols and annexes. – Whether it sets out rules of importance for the free movement of goods, persons, services and capital and free competition across national borders, and whether it imposes obligations on market actors that will have economic consequences.

14 Almestad, ‘The Notion of ‘Opting-Out’’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 89. See also the comments above on Art. 99, in particular mn. 2 and 3. 15 Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 54. 16 Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 53. For an example of disagreement on the actual EEA relevance of a text marked as EEA relevant and on the question of EEA relevance in general in a specific field of law (energy), see Buschle and Jourdan-Andersen, ‘Energy Law’ in Baudenbacher (ed), The Handbook of EEA Law, pp.785 (point cc) and 789-791. 17 Almestad, ‘The Notion of ‘Opting-Out’’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 89. 18 Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 53. 19 Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 54.

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– The purpose of the act, i.e. whether it applies to fields that are relevant for the functioning of the internal market, or whether its purpose is cooperation beyond this.20 – Whether the act amends, follows up or supplements legislation that has already been incorporated into the EEA Agreement, and whether related legislation has been incorporated into the EEA Agreement. It may also be relevant to consider the EU’s treaty basis for adopting the act. 15 This may give an indication of its purpose, as well as in certain cases its impact on the internal market.21 No formal guidelines exist in Iceland on how to assess the EEA relevance of 16 EU acts. However, in practice there are several factors considered when assessing whether to incorporate an act into the EEA Agreement, including the following: – The scope of the EEA Agreement. – Whether the legal basis for the act falls within the four freedoms or the rules on competition or state aid. If so, this is considered an indication for EEA relevance. – Whether the legal act succeeds an older act that was incorporated into the EEA Agreement. – Whether the territorial application is within the EEA Area. – For “mixed” acts where a part of the act falls within the scope of the EEA Agreement and a part outside the EEA Agreement, the matter has to have stronger ties to the internal market than to the other field also covered by the act. – Other relevant factors considered on a case-by-case basis. When assessing the criteria mentioned above, the assessment of the other EF- 17 TA States is also considered. In addition, the opinion of the European Union is taken into account (i.e. whether the act is marked “Text with EEA relevance”, but it is not considered a decisive factor). In Liechtenstein, EEA relevance assessments are made on the basis of a Gov- 18 ernment Decision issued for internal use in the public administration. Although the detailed criteria are not public, the starting point of the assessment is accord-

20 For the question of EEA relevance in the context of cooperation outside the four freedoms, see Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 55. 21 For further details on the Norwegian assessment, se Meld. St. 5 (2012-2013), English version ch. 2.3.1; NOU 2012: 2 Utenfor og innenfor ch. 6.4.2 (pp. 39-43); Fredriksen and Mathisen, EØS-rett, pp. 154-155; Sejersted, EØS-rett, pp. 189-190; Fredriksen and Franklin ‘Of pragmatism and principles: The EEA Agreement 20 years on, CMLR (2015), pp. 652-65; Arnesen (1994), pp. 424 et seq; Arnesen and Sejersted, report 6 June 2008, Datalagringsdirektivet og EØS-avtalen, report 29 January 2009, Om datalagringsdirektivets EØS-rettslige relevans; and Bjørnar Alterskjær, memo 13 March 2013 to Bellona: Offshore Strategy Directive – EEA relevance and geographical applicability.

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20

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ing to the EEA Coordination Unit the legal basis of the EU act, in addition to the scope of the EEA Agreement, as well as the assessment of Norway and Iceland on EEA relevance. A particular discussion has concerned the question of whether rules on criminal sanctions or criminal or civil procedure are EEA relevant.22 The matter has come up several times especially due to the fact that such rules have been seen by the EFTA states as falling outside the EEA altogether, whilst the EU has enlarged and deepened its cooperation within these fields, and has included such rules in provisions based on the EU internal market competences in the EU treaties. The question of whether criminal sanctions in directives based on Art. 83(2) TFEU are EEA relevant, does indeed seem to be solved: they are not relevant.23 When the parties do not agree on the question of EEA relevance, the EU can sometimes put considerable pressure on the EFTA States to take over certain EU legal acts. This was the case for instance with respect to the Citizen’s Directive (2004/38), where the EFTA States had to accept the EU’s wish to incorporate the act.24 When the assessment has been done and an act is found to be EEA relevant, the procedures for incorporating the act into the Agreement may be continued. Where an act is found to be only partially EEA relevant, there will be a need for adaptations (discussed below), excluding those parts that are not EEA relevant from being incorporated into the Agreement. The assessment of EEA relevance also includes assessing which part of an Annex to the Agreement is directly affected by the new legislation.25 Art. 102(2) states that it is for the Joint Committee to decide which Annex is directly affected and should be amended. In reality, however, the assessment of which annex is affected by the new act is usually made by the EFTA Secretariat in cooperation with EU and EFTA experts in the Working Groups, then merely confirmed by the relevant Subcommittee, the Standing Committee of the EFTA States and finally the Joint Committee.26 22 On the relevance of the EEA Agreement for national procedural rules, see especially Fredriksen and Franklin, ‘Of pragmatism and principles: The EEA Agreement 20 years on, CMLR (2015), pp. 652-55 with further references; Fredriksen, Tvisteloven og EØS-avtalen, Tidsskrift for Rettsvitenskap 2008, pp. 289-359; and Fredriksen, EU/EØS-rett i norske domstoler, Report no. 3 (2011) to Europautredningen, pp. 60-68. 23 EEA Joint Committee Decisions 10 July 2015 No. 188/2015 and No. 191/2015, see further Fredriksen and Mathisen, ‘Litt om EØS-avtalens betydning for norsk strafferett’, Tidsskrift for Strafferett, 4/2015, pp. 478-82 with further references; and Finstad and Salomonsen, ‘Fra Valle til Brussel: Om EUs betydning for norsk strafferett’, Tidsskrift for Strafferett, 4/2015, pp. 408-15 with further references. 24 Jónsdóttir, Europeanization and the European Economic Area, p. 107, and Fredriksen and Franklin, ‘Of pragmatism and principles : The EEA Agreement 20 years on’, CMLR (2015), p. 652. 25 Almestad, ‘The Notion of ‘Opting-Out’’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 89. 26 For detailed information on the procedure, se mn. 29-32 below.

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bb) Adaptations

Another horizontal challenge is the question of whether there is a need for adaptations. In most cases, incorporation of an act may take place without any amendments being made. However, there are circumstances where adaptations of a technical or substantial nature may be necessary due to the particular features of the EEA or the particular situation of an EFTA State.27 The reasons for requesting adaptations to an act vary. Some are unproblematic and do not give rise to particular discussions, for example, where the act itself contains provisions allowing for exemptions or derogations. An EFTA State may then request a similar exemption or derogation stated in an adaption text in the EEA Joint Committee Decision incorporating the act.28 Then there are the horizontal adaptations, regulated by Protocol 1 EEA, which cover recurring general adaptations such as ensuring that for the purposes of the EEA Agreement any references to “EU nationals” are understood as a reference also to nationals of the EEA EFTA States; that references to the territory of the EU are understood as a reference to the territories of all the EEA Contracting Parties, etc. In practice, all Joint Committee Decisions are adopted with a reference to this protocol. Protocol 1 EEA does however not resolve all issues arising from the institutional set-up of the EEA. There may therefore be a need for specific adaptations due to the two-pillar structure of the EEA Agreement. When EU acts, for instance, confer to the EU institutions the competence to adopt binding decisions, to grant authorisations, or to issue fines or other pecuniary measures, an adaptation in the JCD is generally needed to describe how this should be dealt with on the EFTA side.29 As an example, any authority granted to the Commission would under the EEA Agreement normally (albeit not always) be placed with ESA as regards the EFTA States.30 The same goes for tasks laid on the ECJ, which for the EFTA States would be assigned to the EFTA Court. The changes made in the EU since the entry into force of the EEA Agreement, especially when it comes to the increased tendency of conferring authority to EU agencies that have no equivalence in the EFTA pillar, give rise to challenges in finding acceptable and sustainable solutions for the EFTA States.31 However, the 27 Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 59. In case E-6/01, 9.10.2002, CIBA, the EEA Joint Committee’s authority to allow for substantial adaptations to EU acts was challenged before the EFTA Court. The Court stated that the competence of the EEA Joint Committee must not be overly restricted. However, it is not unlimited and “must, in particular, be exercised within the boundaries of the EEA Agreement and with due respect for essential procedural requirements”. 28 Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 58. 29 Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 59. 30 The alternative being the Standing Committee of the EFTA States, see further the comments by Fredriksen and Jónsdottir on Art. 3 of the Standing Committee Agreement, in particular mn. 2-4.

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Contracting Parties have shown that they are capable of reaching agreement also in these cases, albeit at times following a somewhat lengthy process of discussions at all levels of the decision-making procedure. 27 As mentioned under the discussion of EEA relevance, adaptations may be necessary when incorporating an act that contains parts that are not EEA relevant.32 Lastly, there may also be specific situations in the EFTA States (geography, climate, infrastructure, etc.) that raise the need for adaptations.33 cc) Preliminary assessment of horizontal issues 28

To ensure timely incorporation of new EU acts, it is of importance that the EFTA States initiate preliminary assessments of horizontal issues at an early stage of the EU’s legislative process. The final decision may naturally not be made until a final version of the act is adopted and its content is fixed. However, a thorough preliminary process leading to early identification of any potential issues will give the Contracting Parties more time to discuss and agree on possible solutions compared to where the assessment would not take place until an act is adopted. Early assessments contribute in significantly reducing the time needed for going through with the incorporation process under Art. 102. They should be initiated as soon as EFTA participation in an EU legislative process has been triggered under Arts. 99 to 101. It is indeed also becoming more common to have horizontal challenges discussed among the Contracting Parties already in the preparatory stages of the EU legislative process, particularly as part of the continued consultation process foreseen under Art 99(3). c) The incorporation procedure in practice

29

In practice, the procedure in Art. 102(1) is initiated when the EFTA Secretariat picks up on the publication of a new EU act in the Official Journal of the European Union and starts the process on the EFTA side by preparing a so31 This became particularly evident in the process of incorporation of the legal acts establishing the EU’s financial supervisory system into the EEA Agreement. The process of finding a solution to the horizontal challenges raised by the acts in question was intense and technically complex, but finally had a break-through on 14 October 2014, when the finance ministers from Iceland, Liechtenstein, Norway and the EU Member States reached a political agreement on the principles for the incorporation into the EEA Agreement. It took another two years to agree on the detailed formulations of the EEA adaptations in the JCDs and to get approval from the national parliaments in Norway, Iceland and Liechtenstein. On 30 September 2016, the Joint Committee adopted nine decisions on incorporating the acts into the EEA Agreement, see Decisions of the EEA Joint Committee No. 198/2016 to 206/2016. 32 See for example Decision of the EEA Joint Committee No 158/2007, incorporating the Citizenship Directive while emphasising, inter alia, that the concept of “Union citizenship” and immigration policy is not part of the EEA Agreement. 33 See for example Decision of the EEA Joint Committee No 69/2009 amending Annex XIII (Transport) to the EEA Agreement, which incorporates Regulation (EC) No 300/2008 on common rules in the field of civil aviation security into the Agreement, while stating that the regulation has restricted application for particularly Iceland and Liechtenstein in specific circumstances, see Art. 1(1)(c) and (d).

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called standard sheet to be sent to the EFTA States.34 The standard sheet is a form that records all references and vital information about the act in question and also the EFTA Secretariat’s assessment of possible horizontal challenges.35 EFTA experts in the capitals are given a deadline for answering questions on horizontal challenges, and also on constitutional requirements.36 Once the experts have returned their standard sheets to the Secretariat, the act 30 is normally discussed in the relevant EFTA Working Group, which – upon finding that the act is (fully or partly) EEA relevant and should be incorporated into the Agreement – asks the Secretariat to draft a Joint Committee Decision and, where necessary, an explanatory note. The draft decision is sent to the experts for approval, before undergoing final legal scrutiny by the Secretariat and then being put on the agenda of the relevant EFTA Subcommittee.37 Where a Working Group cannot reach agreement, the matter is transferred to the Subcommittee for discussion. When approved by the Subcommittee, the draft decision is handed over to the 31 EU side through the European External Action Service, which will then initiate the internal process in the Commission for approving it. Where a draft decision contains adaptations that are of a technical nature only, these can be adopted by the Commission, whereas substantial adaptations must be submitted to the Council for approval.38 It is only upon completion of these procedures and when both sides have ap- 32 proved the draft JCD, that the EU act in question is put on the agenda of the next meeting of the EEA Joint Committee. The EEA Joint Committee meets on average 6-8 times a year. Before each meeting, the Secretariat prepares the “longlist”, which contains all the draft JCDs agreed upon by the parties. Even where a 34 There are three different procedures (the fast-track procedure, the standard procedure, and the simplified procedure) applicable to different types of acts, see EFTA Secretariat, EFTA Bulletin. Handbook on EEA EFTA procedures for incorporating EU acts into the EEA Agreement (2nd ed, Brussels, 2016), available at the EFTA website, www.efta.int, and Baur, ‘DecisionMaking Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 60-61. 35 http://www.efta.int/eea/eea-institutions/eea-decision-making. 36 For information on constitutional requirements, see the comments on Art. 103 EEA below. 37 Variations may occur among the different Working Groups, but it is common for the EFTA experts to discuss the draft JCD with their colleagues on the EU side in the realm of meetings in the Working Group. The aim is to solve any potential problematic issues at the expert level before handing the draft JCD over to the relevant Subcommittee. According to the EFTA procedures for incorporation, no informal discussions with the EU on acts raising EEA horizontal challenges should take place at the Working Group level without the prior agreement of the relevant subcommittee, cf. Standing Committee Decision No 1/2014/SC, point 5.1. 38 Art. 1(2) and (3)(a) of Regulation (EC) No 2894/94 concerning arrangements for implementing the Agreement on the European Economic Area. In the latter cases, the procedure for incorporating the act into the EEA Agreement will be further delayed because of the extra time needed for the Council to assess the matter and give its approval. The EU has traditionally applied a narrow interpretation of which adaptations are considered to be purely technical and most decisions containing adaptations are therefore submitted to the Council for approval. This practice contributes to the delays in incorporation of new acts leading to the so-called “backlog” issue, see litra d, mn. 33 below.

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draft JCD is undisputed, an EFTA State or the EU may still decide to pull it off the long-list and postpone its adoption to the next meeting. Usually the reason is that necessary internal procedures cannot be finalised in time for the meeting of the EEA Joint Committee. However, where a draft JCD is kept on the list, it is considered ready for approval and then adopted by the EEA Joint Committee at the upcoming meeting.39 d) The “backlog” issue 33

Since the beginning of the 2010 s, there has been increased awareness of the number of EEA relevant EU acts awaiting incorporation (the so-called backlog). In maintaining a homogeneous EEA with equal conditions of competition, and respect of the same rules, it is essential to avoid such delays. The question of how to reduce the backlog has therefore long been on the agenda of the EEA Joint Committee and also of the EEA Council. In May 2014, in response to what was considered a too extensive backlog, the Standing Committee of the EFTA States adopted new procedures for the incorporation of EU acts into the Agreement, aiming at making the various steps of the EFTA internal assessment more efficient.40 e) Publication of EEA Joint Committee Decisions

34

To ensure transparency on the extension of EU legislation to the whole of the EEA, arrangements were agreed upon, entailing that all JCDs are published in a special EEA Section of the Official Journal.41 Translations into Icelandic and Norwegian are published in an EEA Supplement issued by the EFTA Secretariat.42 The translations of JCDs are done by the EFTA Secretariat. Translations of the acts incorporated by the JCDs, however, are done by Icelandic and Norwegian authorities and the quality of the work is normally not checked by the EU. This could suggest that the Icelandic and Norwegian translations should be assigned less weight than language version drawn up by organs independent from the States.43 Another question is whether a wrongful translation could lead to State liability in a case where an incorrectly translated act results in domestic 39 For further details on the preparation of JCDs and long-lists, se Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 61-63. 40 For a detailed presentation of the procedures, see EFTA Secretariat, EFTA Bulletin. Handbook on EEA EFTA procedures for incorporating EU acts into the EEA Agreement (2nd ed, Brussels, 2016), available at the EFTA website, www.efta.int, and Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 60-61. 41 Blanchet et al, The Agreement on the European Economic Area, 1994, p. 34. 42 For Liechtenstein, the necessary language versions are already provided for due to German being an official EU language. 43 Arnesen, ‘Om den babelske vending i norsk rett’, Lov og Rett, 2015, Volume 55, No. 6, pp. 344-362, point 5. See also the comments by Arnesen to Art. 129 on authentic languages under the EEA Agreement.

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legislation being in contradiction to EEA law. Although potential liability cases could be avoided through EEA conform interpretation of the act in question, there is a limit to this interpretative method and liability can therefore not be ruled out.44 III. Procedures for consultation in case of failure to reach agreement and the possibility of provisional suspension

Normally, the EEA Joint Committee agrees on the incorporation of EU acts 35 without particular difficulties. However, in some cases, the process is not that straightforward. Under Art. 102(3), the Contracting Parties are obliged to “make all efforts to arrive at an agreement”. In particular, they shall “make every effort to find a mutually acceptable solution” if disagreement occurs in an area falling under the competence of the legislators in the EFTA States. The reason for emphasising the latter is that since no Contracting Party has transferred any legislative powers to any of the EEA institutions, the parliaments of the EFTA States maintain their powers to give final approval to decisions of the Joint Committee, when this is required under national constitutions.45 If a solution still cannot be found, the Joint Committee shall examine all fur- 36 ther possibilities to maintain the good functioning of the Agreement, cf. Art. 102(4). It may also “take any decision necessary to this effect”. The provision explicitly mentions the possibility of taking notice of the equivalence of legislation, but such a case does not appear to have ever occurred.46 Providing for transitional periods may also be an alternative.47 The EEA Joint Committee is under an obligation to make its decision before the expiry of a six-month period, starting at the date on which the disputed act was referred to the Joint Committee or, if that date is later, on the date of entry into force of the act in the EU. A Contracting Party needs to mention expressly that it considers the sixmonth period to have begun; it is not sufficient that a certain matter is discussed in the Joint Committee.48 Such expressed initiation of the time period has the merit of guaranteeing legal certainty for all Contracting Parties because they are made explicitly aware of the fact that the matter has been referred to the Joint Committee for the purpose of applying Art 102(4).49

44 For more on EEA conform interpretation, see the comments by Dystland, Finstad and Sørebø to Art. 7, mn. 60-62. 45 Norberg et al., EEA Law, p. 143. For more on constitutional requirements, see the comments below on Art. 103. 46 Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 71. 47 Norberg et al., EEA Law, p. 143. 48 There are two known examples of use of this provision. In connection with the incorporation of Dir. 2001/97/EC into the Agreement, the Commission explicitly pointed out that it considered the time period of 6 months mentioned in Art. 102(4) to have started running. This was also the case with respect to the incorporation of the Union Citizenship Directive (Dir. 2004/38/EC), see Minutes of the EEA Joint Committee meeting of 27 October 2006 at item 8.

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Where the Contracting Parties, at the end of the six-month period, have not succeeded in finding a solution, Art. 102(5) prescribes for a provisional suspension of the part of the Annex directly affected by the act in question. Which part of which Annex is affected is determined in accordance with Art. 102(2).50 When negotiating the Agreement, the EU required an automatic termination clause in case of failure to reach agreement on the incorporation of new legislation.51 However, the EFTA States managed to avoid such a clause. The chosen solution under Art. 102(5) is better suited for a complex and extensive agreement such as the EEA Agreement: a failure to reach agreement on an isolated issue cannot result in the unreasonable termination of the whole agreement, but merely a more proportional consequence in the form of suspension of the relevant part of the affected Annex. The consequences of a failure to reach agreement is thereby restricted to that which is strictly necessary and the least disturbing to the functioning of the Agreement.52 As suspension only affects the relevant part of the affected Annex, the main rules in the area (as laid down in the main part of the EEA Agreement) will still apply. Although this may reduce some of the unwanted consequences of a suspension, there will no longer be homogenous secondary legislation in place in that specific field. Such lack of uniform legislation could in practice lead to a series of legal complications.53 38 The suspension mechanism in Art. 102(5) can be compared with the so-called guillotine in the Schengen Agreement Art. 8(4), which seems to be close to the mechanism initially wanted by the EU side for the EEA Agreement (see directly above). All four EFTA States (i.e. including Switzerland) are integrated in the EU’s Schengen acquis concerning border cooperation.54 As the EEA Agreement, the Schengen Agreement establishes a system of dynamic homogeneity, but without the two-pillar structure found in the EEA. Instead, the associated EFTA States participate directly in the EU’s decision shaping phase through a Mixed Committee consisting of representatives of the members of the Council, 37

49 Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p.71. 50 For more on the determination of which annex may be suspended, see Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p.72. However, note also the statements by the Commission in point 2.4 of SWD(2012) 425 final: ”In order to effectively oppose any attempt by an EEA EFTA partner to incorporate EEA relevant EU legislation in a selective manner, the EU side should, evidently, ensure that the part of the Annex to be ultimately suspended would impact negatively on the partner’s interests, rather than merely suspend parts of the Agreement that the contravening partner wishes to ignore.”. 51 Norberg et al., EEA Law, p. 144 (in note 49). 52 See Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 72, where reference is made to favor contractus and Art. 112(2). 53 Sejersted et al., EØS-rett, p. 192. 54 Agreement of 18 May 1999 concluded by the Council of the European Union and the Republic of Iceland and the Kingdom of Norway concerning the association with the implementation, application and development of the Schengen acquis. Switzerland joined Schengen in 2008, Liechtenstein in 2011.

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the Commission and the associated Schengen states (Art. 3). However, if the associated states do not accept a new Schengen act, do not fulfil their notification duties, or if the parties, after a careful examination of ways to continue the Agreement, do not find a solution, the agreement is terminated in toto. To our knowledge, the question of termination of the Schengen Agreement has never been brought up between the parties.55 Art. 102(5) allows for the Joint Committee to decide for the suspension not 39 to take effect. This possibility is important, for example in order to avoid cases where the effects of a suspension would be much more detrimental to the good functioning of the Agreement than the effects of two different sets of rules being applied in the EU and the EEA in a specific field.56 In order to terminate an eventual suspension as soon as possible, the provision also states that the Joint Committee shall pursue its efforts to find a mutually acceptable solution. Where a suspension is set to take effect, this may not happen until the six- 40 month period has ended and in any case not before the date on which the act in question is implemented in the EU.57 In an Agreed Minute ad Art. 102(5),58 the Contracting Parties have stated that “in the case of a provisional suspension under Article 102(5) EEA the scope and entry into force thereof shall be adequately published”. This is inter alia for reasons of legal certainty.59 Art. 102(6) further states that a suspension should not affect the rights and obligations that individuals and economic operators have already acquired under the Agreement. In an Agreed Minute ad Art. 102(6), the Contracting Parties have clarified that this does not apply to mere expectations, only to actually acquired rights, and then provided some examples of what is considered acquired rights.60 Without such a limitation, the situation might occur where an economic operator or and individual would acquire rights under an act which is put under suspension. The practical consequences of the suspension shall be discussed in the EEA 41 Joint Committee and the Contracting Parties shall, as appropriate, decide on necessary adjustments to the suspension. This might for example entail arranging for other parts of the Annex affected to continue to apply.61 There are no actual examples of what the consequences of a suspension are, as suspension of a part

55 St.prp. nr. 50 (1998-99) Om samtykke til inngåelse av en avtale mellom Rådet for Den europeiske union og Republikken Island og Kongeriket Norge om de sistnevnte statenes tilknytning til gjennomføringen, anvendelsen og videreutviklingen av Schengen-regelverket ch. 3; NOU 2012: 2, ch. 5.2 (p. 72); and Finstad, ‘Norges tilknytning til EUs justispolitikk’, in: Eriksen and Fossum (eds.), Det norske paradoks. Om Norges forhold til Den europeiske union, 2014, p. 110. 56 Norberg et al., EEA Law, p. 144. 57 This is of particular importance where the act in question is a directive, for which the Member States are usually granted a long implementation period. 58 Agreed Minute Ad Article 102(5) EEA, contained in the Final Act to the EEA Agreement. 59 Norberg et al., EEA Law, p. 145. 60 Agreed Minute Ad Article 102(6) EEA, contained in the Final Act to the EEA Agreement. 61 Norberg et al., EEA Law, p. 144.

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of an annex under Art. 102(5) has never occurred. At the time of the entry into force of the Agreement, it was assumed that the possibility of suspension under Art. 102(5) would only be considered in exceptional circumstances.62 After more than two decades, it is evident that this assumption was fair. Even in the two known cases where Art. 102(4) was applied,63 continued discussions beyond the deadline were chosen over the option of invoking a suspension.64 42 The assessment made at the time of the entry into force of the Agreement is still valid. Looking at the effect a suspension would have, not only for the Contracting Parties, but also for economic operators and individuals in particular, it is obvious why such a measure should be avoided by all means possible. A failure to reach agreement on incorporation of an act into the EEA Agreement would entail a lack of uniform legislation in the EU and in the EEA in the particular area covered by the act, but the situation is only made worse by a suspension affecting all the common rules covered by the affected part of the relevant Annex. In an Agreed Minute ad Art. 111,65 the Contracting Parties have even stated that “suspension is not in the interest of the good functioning of the Agreement and all efforts should be made to avoid it”. 43 Consequently, although it cannot be excluded that Art. 102(5) may be invoked sometime in the future, there is still reason to believe that the Contracting Parties will rather go to great lengths to reach an agreement under the other provisions of Art. 102 to ensure that a suspension would not have to be put into effect. This applies in particular to the EFTA States, as the Agreement, although unquestionably to the benefit of all Contracting Parties, is of a greater significance to the EFTA States and their economies. In a case of conflict, it is therefore more likely for the EFTA States to yield their position to ensure a continued good functioning of the Agreement. However, it is also in the interest of the EU to avoid creating a negative climate under the Agreement: it is a highly convenient cooperation in the way that the EFTA States take care of most of its administration through the EFTA institutions, and the process of incorporation is efficient, streamlined and to a very large extent unproblematic.66 The fact that the EU has only applied Art. 102(4) twice and that Art. 102(5) was never invoked although the time limit expired, shows that also the EU would rather see the issue solved

62 Norberg et al., EEA Law, p. 145. 63 Regarding the incorporation of the second Anti-Money Laundering Directive (Directive 2001/97/EC) and the Union Citizenship Directive (Directive 2004/38/EC), see footnote 90 above. 64 Baur. ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 74, raises the question of whether the reticence on the EEAS’ part to invoke a suspension was due to uncertainty on whether the competence in the situation lies with the EEAS or rather with the Council, and hence the EU Member States. 65 Agreed Minute Ad Article 111 EEA, contained in the Final Act to the EEA Agreement. Even though it refers to Article 111 EEA, it is clear from the text of the Agreed Minute that it is equally valid for Article 102(5) EEA. 66 See also the comments by Arnesen and Fredriksen on the fourteenth recital of the preamble, mn. 37, (characterizing the EFTA States as the Member States of Brussel’s dreams).

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through other means than a suspension. The EU is perhaps not likely to yield as much as the EFTA States, but some concessions are in any case required to achieve the necessary agreement.67 Having taken note of the negative effects of suspension, it should be kept in 44 mind, however, that the effect of suspension of the relevant Annex might not in all cases have serious negative effects for the functioning of the Agreement. This could be the case where the acts in the Annex are merely applying or giving expression to the four freedoms or other rights following from the Main Part of the Agreement. This may be the case for example in the area of state aid. It is then up to the courts to decide whether the Main Part of the Agreement is to be construed differently than the suspended act(s) in question.68 However, a major part of the EU’s secondary harmonising legislation goes far beyond expressing the main treaty rules, for example the rules incorporated in the EEA Agreement on the financial services sector (Annex IX). Suspending Annex IX due to delays in incorporating the package of regulations on financial agencies would have led to major negative effects for the financial sectors in the EFTA states, and in a suspension scenario, they would not have been helped in any significant degree by applying the Main Part of the Agreement.

Article 103 [Requirements for binding Joint Committee decisions] 1. If a decision of the EEA Joint Committee can be binding on a Contracting Party only after the fulfilment of constitutional requirements, the decision shall, if a date is contained therein, enter into force on that date, provided that the Contracting Party concerned has notified the other Contracting Parties by that date that the constitutional requirements have been fulfilled. In the absence of such a notification by that date, the decision shall enter into force on the first day of the second month following the last notification. 2. If upon the expiry of a period of six months after the decision of the EEA Joint Committee such a notification has not taken place, the decision of the EEA Joint Committee shall be applied provisionally pending the fulfilment of the constitutional requirements unless a Contracting Party notifies that such a provisional application cannot take place. In the latter case, or if a Contracting Party notifies the non-ratification of a decision of the EEA Joint Committee, the suspension provided for in Article 102 (5) shall take effect one month after such a notification but in no event earlier than the date on which the corresponding EC act is implemented in the Community.

67 The process on the incorporation of the Union Citizenship Directive is illustrative of the complexity, the imbalance between the pillars, and the political tug-of-war between the EU and the EFTA States in such a situation of conflict, see the detailed presentation of the process in Jónsdóttir, Europeanization and the European Economic Area, pp. 101-110. 68 Fredriksen, ‘EEA Main Agreement and Secondary EU Law Incorporated into the Annexes and Protocols’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 108-109; and NOU 2012: 2, pp.102-103.

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I. Constitutional requirements for the entering into force of a Joint Committee Decision

Art. 104 states that a Joint Committee Decision is binding on the Contracting Parties as of its date of entry into force “unless otherwise provided for” in the decision. Art. 103 concerns cases where the Agreement provides for additional provisions regarding the coming into force of a Joint Committee Decision, i.e. when fulfilment of national constitutional requirements in the EFTA States is needed before such a decision can be binding on the Contracting Parties. Art. 103 is closely linked with Art. 102: the consequence of not notifying that the constitutional requirements have been met after the deadline in Art. 103, is provisional suspension of the affected part of the relevant Annex as provided for in Art. 102(5). 2 Art. 103 shows a major difference between the legislative processes in the EU and the EEA. The EFTA States have not ceded any formal legislative powers to the EU or the EEA joint bodies1 and have consequently kept unchanged their constitutional requirements for the entry into force of new legal obligations under international treaties. The question of what these constitutional requirements are, and when they are triggered, may however differ between the three EFTA states.2 3 In Norway, parliamentary approval is required for treaties on matters of special importance, and, in all cases, treaties whose implementation, according to the Constitution, necessitates a new statute or a decision by the Parliament (the Storting).3 If an act necessitates the ceding of sovereign power to an EFTA body beyond the threshold in Section 26(2) of the Norwegian Constitution (“insignificant impact on sovereignty” – lite inngripende myndighetsoverføring), Section 115 of the Constitution must be applied, demanding a ¾ majority to accept the act. Section 115 was employed in 2016 to incorporate the financial agencies reg1

1 For more on this, see the comments by Arnesen and Fredriksen on the last recital of the preamble, mn. 42-46 and in particular the comments by Dystland, Finstad and Sørebø on Art. 7, mn. 12. 2 Baur, “Decision-Making Procedure and Implementation of New Law”, in: Baudenbacher (ed), The Handbook of EEA Law, p. 63; and Jervell, Lovgivningen i EØS,2001, p. 67. 3 Section 26(2) of the Norwegian Constitution. The understanding of Section 26, underpinning the implementation of a row of EEA instruments, have been discussed widely, see generally NOU 2012: 2 ch. 11 (p. 229-268); Smith, Konstitusjonelt demokrati (2015), p. 167-169; Lilleby, Grunnloven § 93 [now § 115] og unntaket for “lite inngripende” myndighetsoverføring, in the Parliament’s Report Perspektiv 03/10; Holmøyvik, ‘Norway’s constitutional acrobatics under the EEA Agreement’, in: Eriksen and Fossum (eds.), The European Union’s Non-Members: Independence under hegemony? (2015), pp. 137-152; Holmøyvik, ‘Grunnlova § 93 og læra om ‘lite inngripende’ myndighetsoverføring i lys av nyare konstitusjonell praksis’, Lov og Rett nr. 8/2011, pp. 447-471; Holmøyvik, ‘Sikker konstitusjonell praksis? Grunnlova og Noregs avtaler om suverenitetsoverføring’, Nytt norsk tidsskrift 2013, p. 117-125; Sejersted, ‘Læren om lite inngripende’ myndighetsoverføring – statsrettslig selvbedrag eller fornuftig grunnlovstolkning?’, Nytt norsk tidsskrift 2013, pp. 416-421; Bekkedal, ‘Om grunnlovens medlemsskapsprinsipp ved overføring av myndighet til internasjonale organisasjoner, Kritisk Juss nr. 4/2015, pp. 197-230; and Bekkedal, ‘Suverenitet og samarbeid – Grunnlovens skranker for delegasjon av statsmakt’, Kritisk Juss nr. 1/2016, pp. 3-37.

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ulations after long and difficult discussions with the EU, between the EFTA States and internally in Norway.4 The EFTA States’ constitutional requirements will continue to have a profound impact on the EEA Joint Committee’s ability to incorporate important pieces of EU legislation into the Agreement, for instance when it comes to the setting up of new agencies. The simple fact that Art. 103 is often invoked by all of the three EFTA States 4 simultaneously, suggests that the constitutional thresholds in Iceland and Liechtenstein are similar to that in Norway. However, there are more substantial differences between the EFTA States regarding the amount of time needed to get the parliaments’ acceptance, Liechtenstein being the most effective.5 II. Entering into force of a JCD on fulfilment of constitutional requirements

Art. 103(1) first subparagraph explains the main rule for the entry into force 5 of Joint Committee Decisions that require fulfilment of constitutional requirements in one or more EFTA States: As long as the decision itself contains a date for its entry into force and the EFTA states by that date have notified the other Contracting Parties that the constitutional requirements are fulfilled, then the decision simply enters into force on the said date. To allow for the main rule in Art. 103(1) first subparagraph to take effect, the 6 EEA Joint Committee will take due notice of the need for parliamentary ratification when setting the date for the decision’s entry into force. Furthermore, the national parliaments need to be thoroughly informed well in advance of upcoming Joint Committee Decisions. All the EFTA States have consequently established national procedures that cater for prior parliamentary information, consultation, and debate of the act in question.6 Enactment of such procedures can also be seen to meet the EFTA States’ clearly stated political aim to see to it that the constitutional requirements are met in due time, ref. the Declaration on Art. 103(1) contained in the Final Act to the EEA Agreement. There, the EFTA states declared that in aiming to achieve a homogenous EEA, and without prejudice to the functioning of their democratic institutions, “the EFTA States will use their best endeavours to promote the fulfilment of the necessary constitutional requirements as foreseen in the first subparagraph of Article 103(1) of the EEA Agreement”. In the absence of all due notifications that the constitutional requirements 7 have been fulfilled, Art. 103(1) second subparagraph states that the Joint Committee’s Decision shall enter into force on the first day of the second month following the last notification.

4 Prop. 100 S (2015-2016). 5 NOU 2012: 2 Utenfor og innenfor, p. 100; and Fredriksen and Mathisen EØS-rett, pp. 161-164. 6 Norberg et al., EEA Law, p. 147; NOU 2012: 2 Utenfor og innenfor, ch. 11 (pp. 229-268); and Sejersted, Kontroll og konstitusjon (2002), pp. 591-612.

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III. Deadline, delays and veto

Art. 103(2) first sentence indirectly sets up a six-month deadline to fulfil the constitutional requirements: if notification of the fulfilment of constitutional requirements has not taken place upon the expiry of a period of six months after the decision of the Joint Committee, the decision of the Joint Committee shall be applied provisionally, unless a Contracting Party notifies that this cannot take place. The wording directly concerns the provisional application of the Joint Committee Decision pending the fulfilment of constitutional requirements.7 Provisional application entails that the EFTA States come under an obligation to implement the act in question into national law pursuant to Art. 7 EEA.8 Failure to do so will entail the same consequences as in other cases of delayed or lacking transposition – with the prospect of State liability particularly unattractive from the perspective of the EFTA State in question. The only way to avoid any consequences is by notifying to the Joint Committee that provisional application cannot take place. Unsurprisingly, notifications to this effect are routinely made by the EFTA States. In the case of Norway, for instance, provisional application of international treaties that need approval by the Storting would violate Section 26(2) (or even Section 115) of the Constitution. Notifications to block provisional application are thus always produced if the six-month deadline is approaching. 9 There have been instances where Iceland has notified delays in the fulfilment of constitutional requirements only after expiry of the deadline of six months in Art. 103(2). In such cases, the late-coming notification does not repair the delay.9 10 The provisional applicability of a Joint Committee Decision will affect all of the Contracting Parties. If, for example, an EEA State puts on hold its own implementation of a directive pending fulfilment of constitutional requirements in one or more EFTA States, it will thus risk breaching Art. 7 EEA if it fails to note that the EFTA State(s) in question has forgotten to notify a delay within the six months period of Art. 103(2).10 11 Still, the wording “applied provisionally” should be paired with the wording “enter into force” in Art. 103(1); the important part being that the Joint Committee Decision enters into force and becomes binding on the Contracting Parties, and thus kicks off the parties’ duties to implement the act in question under Art. 7 EEA.11 The provisional entry into force does not entail any kind of direct effect of the legal act that is to be included in national law.12 8

7 Norberg et al., EEA Law, p. 146-147; Baur, ‘Decision-Making Procedure and Implementation of New Law’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 63-65; Gjems-Onstad (2001), p. 174-176; and Almestad, ‘The Notion of ‘Opting-Out’’, in: Baudenbacher (ed), The Handbook of EEA Law, p. 88. 8 For more on the implementation requirements, see the comments by Dystland, Finstad and Sørebø on Art. 7 EEA. 9 Case E-17/11, 22.11.2012, Aresbank, paras. 70-77. 10 Fredriksen and Mathisen, EØS-rett, p. 164.

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Art. 103(2) second sentence makes clear that refusal to accept provisional 12 application of the Joint Committee Decision upon expiry of the six-month deadline is equated with non-ratification of the decision. The effect is that the JCD in question will not enter into force, and it is hardly surprising that both these alternatives are treated as if the EFTA States had blocked the Decision in the first place. Still, the process laid out in Art. 103(2) is more direct than the long procedure set out in Arts. 102(3) to (4), as a “late veto” under Art. 103(2) will trigger the suspension provided for in Art. 102(5) one month after the notification of the inability to ratify the decision in time (unless the compliance date in the EU is later). So far, however, there has not been any case where a parliament in an EFTA 13 State has availed itself of this second veto opportunity. On the other hand, the EU has not taken the initiative of employing the suspension mechanism in Art. 102(5) even though there have been quite a few cases of considerable delay in the fulfilment of constitutional requirements.13 There has, however, been growing critique and impatience within the EU in recent years.14 In November 2013, the EEA Council noted “the increase of the number of EEA EFTA notifications of Joint Committee decisions for which the constitutional requirements have exceeded the six-month period stipulated in the EEA Agreement” and “encouraged the EEA EFTA States to strengthen their efforts to solve the pending cases as soon as possible and to avoid such delays in the future”.15 As a result of the attention drawn to this problem, the list of awaited Art. 103-notifications has shortened considerably.16 The question is, however, still on the agenda between the Contracting Parties. For example, in November 2016 the EEA Council noted that “there were a number of Joint Committee Decisions, for which the sixmonth deadline provided for in the EEA Agreement with regard to constitutional clearance had been exceeded.” The EEA Council furthermore “encouraged the EEA EFTA States to strengthen their efforts to resolve the pending cases as soon as possible and to avoid such delays in the future.”17 11 Bull, ‘Shall be made part of the internal legal Order: The legislative approaches’, in: EFTA Court (ed), The EEA and the EFTA Court, pp. 208-210. 12 Bull, ‘Shall be made part of the internal legal Order: The legislative approaches’, in: EFTA Court (ed), The EEA and the EFTA Court, pp. 208-210. Smauch seems to hold another view in ‘Reglene om midlertidig anvendelse av EØS-rett i påvente av implementering’, Lov og Rett, 52 (2013), pp. 358-372. 13 The “food law package” (Regulations (EC) 852/2004, 853/2004, 854/2004 and 882/2004 with Commission implementing acts) was included in the Agreement in 2007, but did not enter into force until 1 May 2010 due to fulfilment of constitutional requirements in Iceland. Directive 2001/97/EC was delayed by Liechtenstein for two years, see Fredriksen and Franklin ‘Of pragmatism and principles: The EEA Agreement 20 years on, CMLR (2015), p. 657-658. 14 See, in particular, Commission Staff Working Document 7 December 2012, SWD(2012) 425 final, A review of the functioning of the European Economic Area, p. 6-9. 15 EEE 1608/1/13REV 1. 16 Cf. the List of awaited notifications, available at the EFTA website, www.efta.int (under ‘legal texts’/’eea’). 17 EEE 1605/1/16REV1, p. 5, para. 20. See also for example the Conclusions of the 44th meeting of the EEA Council 17 November 2015, EEE 1607/1/15REV 1, p. 4, para 17.

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Some important and principled cases involving parliamentary clearing seem to be transferred from the Art. 103(2) procedure and onto the Art. 102 stage. This is for example the case for the inclusion in the Agreement of a row of financial regulatory instruments that need parliamentary clearing in all the EFTA States.18 The sensitivity of these rules, especially with respect to giving ESA new powers in this field, have led to lengthy discussions with the EU, and a growing impatience has been noted in the EEA Council conclusions.19 Notwithstanding the unsatisfactory delays, it might be better to tackle the legal and political issues of incorporation head on in the EEA Joint Committee, and to seek a broad political consensus between and within the Contracting parties, before the JCD is made regarding incorporation of the act into the Agreement. The EFTA States thus have the option of seeking political clearance in the parliaments before the incorporation decision is made in the EEA Joint Committee, as the case was with the financial regulatory instruments mentioned above. That might be the only politically viable solution when it comes to sensitive questions such as the transfer of sovereignty.

Article 104 [Binding effect of EEA Joint Committee decisions] Decisions taken by the EEA Joint Committee in the cases provided for in this Agreement shall, unless otherwise provided for therein, upon their entry into force be binding on the Contracting Parties which shall take the necessary steps to ensure their implementation and application. 1

Art. 104 states that decisions of the EEA Joint Committee are binding on the Contracting parties upon their entry into force, unless otherwise is provided in the decision itself.1 The Contracting Parties are to take the necessary steps to ensure their implementation and application. This duty is a reference to the general loyalty principle found in Art. 3 and to the specific implementation requirements following from Art. 7.

18 See, for the case of Norway, Prop. 100 S (2015-2016). See further the commentaries above on Art. 102, mn. 26. 19 See e.g. EEA Council conclusion of the 45th meeting of the EEA Council (Brussels, 25 May 2016), EEE 1602/1/16 REV 1. 1 See the comments on Art. 102, part II, and on Art. 103.

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Article 105 Homogeneous interpretation of EU and EEA law

Chapter 3: Homogenity, surveillance procedure and settlement of disputes

Section 1: Homogeneity

Article 105 [Homogeneous interpretation of EU and EEA law] 1. In order to achieve the objective of the Contracting Parties to arrive at as uniform an interpretation as possible of the provisions of the Agreement and those provisions of Community legislation which are substantially reproduced in the Agreement, the EEA Joint Committee shall act in accordance with this Article. 2. The EEA Joint Committee shall keep under constant review the development of the case-law of the Court of Justice of the European Communities and the EFTA Court. To this end judgments of these Courts shall be transmitted to the EEA Joint Committee which shall act so as to preserve the homogeneous interpretation of the Agreement. 3. If the EEA Joint Committee within two months after a difference in the case-law of the two Courts has been brought before it, has not succeeded to preserve the homogeneous interpretation of the Agreement, the procedures laid down in Article 111 may be applied.

I. The institutional implementation of the homogeneity objective

In the Draft Agreement agreed upon by the Contracting Parties in 1991, the 1 fulfilment of the objective of a homogeneous European Economic Area with equal conditions for competition was to be guaranteed by a common EEA Court functionally integrated with the ECJ. In short, the EEA Court itself would safeguard uniform interpretation of EEA law as such in both pillars of the EEA,1 whereas the participation of ECJ judges in the EEA Court was to safeguard homogeneity between the interpretation and application of EEA rules and corresponding rules of Community law. Importantly, the ECJ judges would be in majority – the ‘plenary session’ of the EEA Court was to be composed of five judges of the ECJ and, on the basis of rotation, three of the judges nominated by the EFTA States.2 As a further means to arrive at, and maintain, homogeneity between EEA and EC law, the Draft Agreement obliged

1 The EEA Court was to have jurisdiction to, i.a., settle disputes between the Contracting Parties, see Arts. 96(1)(a) and 117(1) and (3) of the Draft Agreement in the version which was considered by the ECJ in Opinion 1/91. The EEA Court could be seized either by the EEA Joint Committee or directly by a Contracting Party in the event that the Joint Committee had not resolved a dispute after two consecutive meetings. The relevant part of the text of the Draft Agreement may be found in the introductory part of Opinion 1/91, published in [1991] ECR 6085-6092. 2 See Art. 95 of the Draft Agreement. The term ‘plenary session’ is somewhat misleading as there was to be one judge from each of the seven EFTA States. Further, all of the at the time 12 judges of the ECJ would be eligible to sit in the EEA Court, so the EEA Court would have 19 members. This, however, does not change the fact that there was to be a 5:3 majority of ECJjudges in the formation in which the EEA Court was to decide all important cases.

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the EEA Court and the ECJ (as well as the national courts of the EFTA States) to ‘pay due account to the principles laid down by any relevant decisions delivered by the other Courts’.3 2 However, in its (in)famous Opinion 1/91, the ECJ declared the proposition for a common EEA Court to be incompatible with the EEC Treaty.4 The essence of the ECJ’s objections was that it saw the creation of an EEA Court as a threat to its own position as the supreme authority on Community law.5 As the decisions by the EEA Court would be binding on the Community institutions, including the ECJ itself, the ECJ feared that its future interpretation of the rules governing the internal market would be conditioned by the EEA Court.6 According to the ECJ, this was in conflict not only with Art. 164 of the EEC Treaty (now Art. 19 TEU), but also ‘with the very foundations of the Community’.7 Thus, for the Contracting Parties it was obvious that a renegotiated judicial architecture had to avoid binding interpretation of common EU/EEA rules – for the Community institutions – in any other forum than the ECJ. The solution found was to extend the existing two-pillar structure of the EEA to also include the judicial branch through the establishment of an EFTA Court without any functional or personal connections to the ECJ.8 3 In the absence of a common court, other mechanisms were introduced in order to arrive at, and maintain, uniform interpretation of the common EEA rules (as well as for the settlement of ‘cross-pillar’ disputes). As explained by Leif Sevón, who chaired the working-group on the institutional framework: ‘Before the ECJ rendered its Opinion 1/91, the negotiators counted on the EEA Court as the final guarantor of the homogeneity. When it became clear that such a court would be incompatible with the EC Treaty, new solutions had to be found guaranteeing to the utmost the homogeneous application of the EEA Agreement. If the homogeneity could not be ensured, the whole EEA would lose its purpose. If the common rules were to be applied and interpreted in two or more different ways, there would be no reason whatsoever to negotiate such a far-reaching agreement with its complex institutional set up. After Opinion 1/91, the negotiators thus tried to make sure that nobody studying the Agreement would miss the writing on the wall: no matter what the limitations of the solutions imposed by the technical and political realities, the overriding objective of the Contracting Parties is to ensure a uniform interpretation and application of the EEA Agreement and corresponding Community rules in a homogeneous EEA.’9

3 Art. 104(1) of the Draft Agreement. This obligation was to apply also to the (then) Court of First Instance of the European Communities and the envisaged EEA Court of First Instance. 4 Opinion 1/91, 14.12.1991. 5 See, i.a., T. Hartley, ‘The European Court and the EEA’, International and Comparative Law Quarterly 41 (1992), pp. 841-848, at p. 847. 6 Opinion 1/91, 14.12.1991, paras. 41-44. 7 Opinion 1/91, 14.12.1991, para. 44. 8 The ECJ approved this two-pillar model in Opinion 1/92 of 10.4.1992. An intriguing alternative not pursued by the Contracting Parties would be to add additional judges nominated by the EFTA States to the ECJ. This would have required an amendment to Art. 164 EEC (now Art. 19 TEU) and would probably not have been welcomed by the ECJ itself, but there is no compelling reason why the ECJ needs to be composed of judges from the EU Member States only. 9 Sevón, ‘The ECJ, the EFTA Court and the national courts of the EFTA countries’, in: Lødrup et al. (eds), Rettsteori og rettsliv – Festskrift til Carsten Smith, Oslo, 2002, pp. 722 f.

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The results of these efforts include the emphasis on homogeneity in the fif- 4 teenth recital to the Preamble of the EEA Agreement;10 the similarly phrased reference to the homogeneity objective in Art. 105(1) EEA and the EFTA States’ unilateral instruction to the EFTA Court in Art. 3(2) SCA to ‘pay due account to the principles laid down by the relevant rulings’ of the ECJ given after the date of signature of the EEA Agreement.11 Another important element is the Contracting Parties’ possibility to partici- 5 pate in cases pending before the Court of the ‘other’ pillar: Art. 36 of the Statute of the EFTA Court, as laid down in Protocol 5 SCA, allows not only any EFTA State and ESA to intervene in cases before the EFTA Court – this right is extended to the EU and the European Commission as well. Furthermore, Art. 20 of the Statute allows not only any EFTA State and ESA, but also the EU and the European Commission to submit statements of case or written observations to the EFTA Court in all cases before it. The right to submit statements of case or written observations also includes a right to take part in the oral hearing of a case. Importantly, the term ‘[European] Union’ in the Statute is interpreted to include all of the EU Member States, thus allowing all of them to express their views on any question of EEA law brought before the EFTA Court.12 Conversely, the Art. 23(3) of the Statute of the ECJ allows for the EFTA States and ESA to submit statements of case or written observations in all preliminary reference cases which concern one of the fields of application of the EEA Agreement. Furthermore, Art. 40(3) of the Statute allows for the EFTA States and ESA to intervene in certain other types of cases.13 The importance of these possibilities should not be underestimated – it is obviously valuable for the EF-

10 See the comments by Arnesen and Fredriksen on the Preamble. 11 See the comments by Wennerås on Art. 3 SCA in Part III of this book. 12 There are numerous examples of EU Member States exercising their right to take part in proceedings before the EFTA Court. The high-water mark is the case about the Norwegian monopoly on the operation of gaming machines, Case E-1/06, 14.3.2007, ESA v Norway, where Belgium intervened in support of Norway and seven further EU Member States, Finland, France, Greece, Hungary, the Netherlands, Portugal and Sweden, submitted written observations and/or took part in the oral hearing. 13 Note that the narrow interpretation of the latter provision favoured by the ECJ’s president in his orders in C-542/09, 1.10.2010, Commission v Netherlands and C-493/09, 15.7.2010, Commission v Portugal, has the regrettable consequence that the right of ESA and the EFTA States to intervene before the ECJ is more limited than the right of the Commission and the EU Member States to do likewise before the EFTA Court. In his order in Case E-16/11, 23.4.2012, ESA v Iceland, the president of the EFTA Court rightly refused to let this impact negatively on the Commission’s right to intervene in the Icesave case. It may be added that the discrepancy is made worse by the fact that Art. 23(3) of the Statute of the ECJ on the EFTA States’ right to submit statements of case or written observations is limited to preliminary reference cases. By contrast, Art. 20 of the EFTA Court’s Statute gives this right to the European Commission and the EU Member States in all cases. The EFTA States have reportedly raised the issue with the EU, both in the EEA Joint Committee and in the EEA Council, and the Norwegian government has vowed to ‘continue to work actively to gain acceptance for its view on this matter’ (Parliament White Paper no. 5 (2012–2013), pp. 22–24), but essentially all they can do is to hope for the president of the ECJ to adopt a more EEA-friendly interpretation of the Statute.

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TA Court that the Commission regularly appears before it and lays out the EU’s view on the interpretation of the relevant parts of the EEA Agreement; and the Norwegian government has highlighted the right to appear before the ECJ as an important way to ‘influence’ the development of EEA law.14 6 Still, as the EFTA Court itself remarked in the L’Oréal case from 2008, it is an inherent consequence of an institutional system with two courts at the international level that from time to time the EFTA Court and the ECJ may come to different conclusions in their interpretation of the common rules.15 7 Acknowledging this, Art. 105 EEA empowers the EEA Joint Committee to keep under constant review the development of the case-law of the ECJ and the EFTA Court and to act so as to preserve the homogeneous interpretation of the Agreement. Thus, in the institutional set-up of the EEA, it is not a court but rather the EEA Joint Committee that is the final guarantor of the homogeneity.16 II. The notion of homogeneity 8

Rather unfortunately, the wording of Art. 105 is not entirely clear when it comes to what homogeneity is about. The second and third paragraph of Art. 105 both suggest that homogeneity is only about uniform interpretation of the EEA rules as such in the EU-pillar and the EFTA-pillar, whereas the first paragraph refers to the need for uniform interpretation of the EEA rules and those provisions of the internal market rules of the EU which are substantially reproduced in the EEA Agreement. The same ambiguity is found in other parts of the EEA Agreement – both Arts. 1 and 106 appear to support the former, more limited understanding,17 whereas the fifteenth recital to the Preamble and Art. 6 clearly support the latter.18 As argued elsewhere, it is only the objective of uniformity between two different bodies of law, EEA and EU law, which deserves to be attributed to the notion of homogeneity, as the former is nothing but a reflection of the universal assumption that an international agreement (or any other agreement for that matter) is intended to have the same legal content regardless of where and by whom it is interpreted and applied.19 Uniform interpretation of the EEA Agreement in the EU-pillar and the EFTA-pillar is necessary but not sufficient to create a homogeneous EEA. In the following, the

14 Parliament White Paper no. 5 (2012–2013), pp. 22–24. An interesting effect is that the ECJ (and, in the Icesave case, the EFTA Court) is sometimes de facto seized as a forum to settle ‘cross-pillar’ disputes concerning the interpretation of the EEA Agreement, see further in the comments on Art. 111 EEA, Section V. 15 Joined Cases E-9/07 and E-10/07, 8.7.2008, L’Oréal, para. 28. 16 With the caveat that Contracting Parties to a dispute brought before the Joint Committee can agree to request the ECJ to give a ruling on the interpretation of common EU/EEA rules, see Art. 111(3). 17 See the comments above and below on Arts. 1 and 106, respectively. 18 See the comments by Arnesen and Fredriksen on the Preamble and by Wennerås on Art. 6. 19 Fredriksen, ‘One market, two courts: legal pluralism vs. homogeneity in the European Economic Area’, 79 Nordic Journal of International Law (2010) pp. 481-499, at p. 483.

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term homogeneity is thus reserved for the relationship between EU and EEA law. The wording of Art. 105(1) refers to the core of the homogeneity objective: 9 provisions of EU law which are substantially reproduced in the EEA Agreement are to be interpreted in the same way in the contexts of EU and EEA law. This notion of homogeneity is in line with the one found in the fifteenth recital to the Preamble of the EEA Agreement as well as Arts. 6 and 111(3) EEA and Art. 3 SCA.20 The wording makes clear that the homogeneity objective was never meant to be limited to interpretation of identically worded provisions of EU and EEA law – the essential question is whether the substance of the EU law provision has been taken over in the EEA Agreement.21 In practice, however, the EFTA Court has developed a much broader, almost 10 all-encompassing notion of homogeneity.22 Already in its very first case, Restamark, the EFTA Court held that the ECJ’s case-law concerning the expression ‘court or tribunal’ in Art. 177 EC (now Art. 267 TFEU) was ‘relevant’ for the interpretation of the same expression in Art. 34 SCA.23 From this cautious beginning, the EFTA Court has over the years drawn on ECJ case-law when interpreting a number of the provisions in the Main Part of the SCA which are inspired by procedural rules found in EU law.24 This development culminated in Case E-14/11 Schenker I where the EFTA Court introduced the term ‘the procedural branch of the principle of homogeneity’ and held that the application of this principle ‘cannot be restricted to the interpretation of provisions whose wording is identical in substance to parallel provisions of EU law’.25 The distinction between a substantive and a procedural branch of homogene- 11 ity is not the best as there are numerous procedural rules in the EEA Agreement as such and these are clearly covered by the wording of Arts. 6, 105 and 111(3) EEA.26 Still, the EFTA Court’s point is that the principle of homogeneity also 20 The term used in Arts. 6 and 111(3) EEA and Art. 3 SCA is ‘identical in substance’, which must be the same as the term ‘substantially reproduced’ used in Art. 105 and the fifteenth recital to the Preamble of the EEA Agreement (and the fourth recital to the Preamble to the SCA). 21 As demonstrated well by both the ECJ and the EFTA Court in their interpretation of Art. 40 EEA and Art. 63 TFEU, see the comments by Bull on Art. 40. 22 Cf. the understatement by Hreinsson, ‘General Principles’, in: Baudenbacher (ed), Handbook of EEA Law, p. 353: ‘In practice, the EFTA Court has ensured broader homogeneity with EU law than required by the Articles 6 EEA and 3(2) SCA.’ 23 Case E-1/94, 16.12.1994, Restamark, para. 24. 24 See, e.g., Case E-2/94, 21.3.1995, Scottish Salmon Growers, para. 11; Case E-2/02, 19.6.2003, Bellona, para. 39; Joined Cases E-5/04, E-6/04 and E-7/04, 21.7.2005, Fesil and Finnfjord, para. 53; Case E-5/07, 21.2.2008, Private Barnehagers Landsforbund, para. 47; Case E-13/10, 31.1.2011, Aleris Ungplan, para. 24; Case E-15/10, 18.4.2012, Posten Norge, paras. 109 f.; Case E-18/10, 28.6.2011, ESA v Norway, para. 26 and Case E-14/10 COSTS, 9.11.2912, Konkurrenten.no, para. 23. 25 Case E-14/11, 21.12.2012, Schenker I, paras. 77 and 78. The phrase ‘provisions whose wording is identical in substance to parallel provisions of EU law’ is far from elegant, but the meaning is clear enough: the application of the principle cannot, according to the EFTA Court, be restricted to the interpretation of identically worded provisions of EU and EEA law.

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applies to the interpretation of the SCA (and, presumably, the other EEA-related agreements between the EFTA States). Importantly, this distinction between the EEA Agreement as such and the SCA is also reflected in the weight put on homogeneity: The account paid to ECJ case-law is clearly lower when it comes to the interpretation of the procedural provisions found in the SCA.27 12 Even more important than procedural homogeneity, however, was the introduction of the effect-related conception of homogeneity inherent in the EFTA Court’s deduction of an unwritten principle of State liability from the object and purpose of the EEA Agreement in the seminal Sveinbjörnsdóttir ruling.28 The essence of Sveinbjörnsdóttir is that the EFTA Court decided that the principle of homogeneity is not limited in scope to the substantive law of the internal market – it also embraces the question of the legal effect of EEA law in the legal orders of the Contracting Parties. Crucially, this (from the perspective of the dualist EFTA States highly controversial) conception of homogeneity was shortly thereafter endorsed by the ECJ in Case C-140/97 Rechberger29 and thereafter accepted also by all of the Supreme Courts of the EFTA States.30 The reach of ‘the effect-related branch of the principle of homogeneity’ remains disputed – it is not a magic formula which suddenly makes the EU law principles of direct effect and primacy part of EEA law. What it does, however, is establish a presumption of equal protection of EU-based and EEA-based rights.31 This presumption may be rebutted by other sources of EEA law, as it indeed has been as regards the questions of EU-style direct effect and primacy,32 but its importance is demonstrated not only by the general acceptance of the principle of State liability. Also the EEA-adoption of the EU law principles of effectiveness and equivalence33 and the EEA-based duty of national courts to do whatever lies within their competence to interpret and apply national law in conformity with obligations under the EEA Agreement34 are built on the premise that the 26 See also Wennerås’ comments on Art. 6 EEA. 27 As clearly demonstrated in Case E-5/16, 6.4.2017, Municipality of Oslo, paras. 37 ff., where the notion of ‘court or tribunal’ in Art. 34 SCA was interpreted more generously than suggested by recent ECJ case-law concerning the same notion in Art. 267 TFEU. 28 Case E-9/97, 10.12.1998, Sveinbjörnsdóttir. See also the comments by Arnesen and Fredriksen on the eight recital to the Preamble to the EEA Agreement. 29 Case C-140/97, 15.6.1999, Rechberger, para. 39. 30 Judgment of the Supreme Court of Iceland, 16.12.1999, in Case 236/1999 Sveinbjörnsdóttir; judgment of the Supreme Court of Norway, 28.10.2005, in Case 2005/412 Finanger II and, finally, judgment of the Supreme Court of Liechtenstein, 7.5.2010, in Case CO.2004.2 Dr. Tschannet II. 31 See Case E-18/11, 28.9.2012, Irish Bank, para. 122; Case E-14/11, 21.12.2012, Schenker I, para. 118 and Case E-11/12, 13.6.2013, Koch, para. 116. 32 See the comments by Dystland, Finstad and Sørebø on Art. 7. 33 See, e.g., the Norwegian Supreme Court in Rt. 2005 p. 597, 3.5.2005, Allseas and, thereafter, the EFTA Court in Case E-2/10, 10.12.2010, Kolbeinsson, para. 46 (and subsequent cases); see further the comments by Franklin on Art. 3. 34 The Norwegian Supreme Court (Full Court) in Rt. 2000 p. 1811, 16.11.2000, Finanger I and, thereafter, the EFTA Court in Case E-4/01, 30.5.2002, Karlsson, para. 28 (and subsequent cases); see further the comments by Franklin on Art. 3.

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principle of homogeneity embraces the legal effect of EEA law in the legal orders of the Contracting Parties. Remaining disagreements as to the content of these principles in certain situations does not call into question the general acceptance of the effect-related conception of homogeneity. More recently, the EFTA Court has gone even further with regard to ‘the first 13 (or ‘original’) branch of the principle of homogeneity’ – the objective of substantive homogeneity between EU and EEA law. In Gunnarsson and Jabbi, the EFTA Court opted for an interpretation of provisions of the Citizenship Directive (Dir. 2004/38) at odds with ECJ case-law in order to ‘remedy’ the lack of provisions in the Main Part of the EEA Agreement mirroring Arts. 20 f. TFEU.35 An orthodox understanding of the homogeneity principle suggests that this kind of judicial bridge-building is not only outside the reach of the principle, but actually in contradiction to it.36 The EFTA Court saw this differently, but without really explaining the broader result-oriented conception of the homogeneity principle upon which its dynamic EEA law interpretation of the Citizenship Directive is based.37 If limited to cases in which it can be argued that the ECJ would have interpreted the provision in question in a similar way, if this had been necessary to reach an outcome which, in the context of EU law, was secured by a different route, reasons of reciprocity may perhaps serve to justify the EFTA Court’s approach. The Court’s critics are unlikely to be convinced, however.38 In the context of Art. 105 EEA, the development set out above must be re- 14 flected in a wide interpretation of the issues which the EEA Joint Committee may take up. Both the role and the composition of the Joint Committee suggest that it must be competent to deal with any matter which threatens the homogeneous interpretation of the EEA Agreement, and not only matters related to the interpretation of provisions of EU and EEA law which are ‘identical in substance’. Still, the Joint Committee’s possibility to act so as to preserve homogeneity is limited to the EEA Agreement as such. Thus, if the matter of concern relates to the interpretation of procedural rules found in the SCA (or other intraEFTA-pillar agreements), it is for the EFTA States to act if they think this is required in order to preserve procedural homogeneity.39 35 Case E-26/13, 27.6.2014, Gunnarsson and Case E-28/15, 26.7.2016, Jabbi. 36 As suggested by ESA in Gunnarsson (arguing that the principle of homogeneity cannot be ‘overridden by considerations of reciprocity’, para. 59) and by the Norwegian government in Jabbi (arguing that the principle of homogeneity cannot support different interpretation of common rules, para. 37). 37 It is important that the EFTA Court’s controversial ‘result-related’ conception of homogeneity in Gunnarsson and Jabbi is not confused with the ‘effect-related’ understanding of homogeneity in Sveinbjörnsdóttir. The effect-related conception of homogeneity is limited to the question of the effect of EEA law in the legal orders of the Contracting Parties, i.e. to the judicial protection of existing EEA rights. It is supported by, e.g., the fourth and eighth recitals of the preamble, as well as by Art. 1 EEA. The textual support for the ‘result-related’ conception of homogeneity in Gunnarsson and Jabbi is much weaker. 38 See further the very different views held by Wennerås in his comments on Art. 6 EEA; Fløistad in her comments on Art. 28 EEA and Einarsson in his comments on Art. 32.

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III. The powers of the Joint Committee to preserve homogeneity

The understanding of the homogeneity principle as a broad and strong but nonetheless rebuttable presumption of equal judicial protection under EEA and EU law has consequences for the role of the EEA Joint Committee under Art. 105. If a difference in the case-law of the EFTA Court and the ECJ is brought before the Joint Committee, the first question for the committee will be to decide whether the divergence is justified by differences between EU and EEA law. If the EU-side and the EFTA States agree that this is indeed the case, then there is no problem for the Joint Committee to deal with. 16 If, however, either the EU-side or the EFTA States should be of the opinion that the difference in the case-law cannot be justified and decides to bring the matter before the Joint Committee in accordance with Art. 105(3), the question is what the Committee can do. Art. 105 is completely silent on this matter – it only says that the Joint Committee ‘shall act to preserve the homogeneous interpretation of the Agreement’ (Art. 105(2)). As a result, it is not clear whether the powers of the Joint Committee under Art. 105 are limited to the competences it has as a legislative body (Art. 98 EEA) or whether it can also act as a quasijudicial body with competence to interpret existing EEA rules in an authoritative way. 17 The competence of the Joint Committee to preserve homogeneity through amendments to the EEA Agreement is clear enough.40 However, this will only be an alternative if the judicial conflict between the ECJ and the EFTA Court concerns the interpretation or application of parts of the EEA Agreement that the Joint Committee is competent to amend (the annexes and some of the protocols)41 and only if it suffices to change the legal situation with effect for future cases (ex nunc). In other cases, the Joint Committee’s role as an authoritative interpreter of EEA law will be put to the test. An important limitation on the Committee’s competence in this regard, but also an implicit acknowledgment that the Committee actually has such a quasi-judicial function, is Protocol 48 EEA. According to this Protocol, decisions taken by the EEA Joint Committee under Arts. 105 and 111 ‘may not affect the case-law of the [ECJ]’. This limitation, which originally followed from an agreed minute, was highlighted by the ECJ in its Opinion 1/92 as ‘an essential safeguard which is indispensable for the autonomy of the Community legal order’.42 Despite its presumed importance, however, the impact of Protocol 48 is not entirely clear. It is hardly needed to prevent the Joint Committee from acting as some sort of ‘EEA Court of Cassa15

39 40 41 42

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But the EU can of course raise the matter in the EEA Joint Committee, see Art. 5 EEA. See Norberg et al., EEA Law, p. 196. See further the comments by Dystland, Finstad and Sørebø on Art. 98. Opinion 1/92, 10.4.1992, paras. 23-24. As the ECJ demanded that the limitation on Joint Committee’s competence was laid down in a form binding on the Contracting Parties (para. 25), the procès-verbal agréé ad article 105 was replaced by Protocol 48 concerning Articles 105 and 111.

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tion’ to review judgments of the ECJ, as this limitation already follows from the Contracting Parties, adherence to the independence of the courts and respect of the principle of res judicata.43 The object and purpose of Protocol 48 must therefore be to protect the general erga omnes effect of the case-law of the ECJ: The effect of the case-law of the ECJ can only be ‘corrected’ by the ECJ itself in a new case or by the EU-legislator acting in accordance with the EU treaties.44 On this reading, it becomes relevant that the EFTA Court is not mentioned in Protocol 48. The EEA Joint Committee cannot annul the binding inter partes effect of a final judgment from the EFTA Court either (principle of res judicata), but it can probably decide that the legal view expressed in the judgment shall not have any erga omnes effect. This must at least be the case if the EEA rule in question is one which the Joint Committee is competent to amend.45 However, the wording of Art. 105(2) read in the context of Art. 98 (Art. 105 must be presumed to add something to the role and competences of the Joint Committee) and Protocol 48 suggests that the Joint Committee may also adjust the EFTA Court’s interpretation of the Main Part of the EEA Agreement in line with the view of the ECJ.46 If the EU-side and the EFTA States cannot agree as to how to preserve the 18 homogeneous interpretation of the EEA Agreement, the dispute settlement procedures laid down in Art. 111 may be applied.47 IV. The applicability of Art. 105 to Advisory Opinions from the EFTA Court pursuant to Art. 34 SCA

A separate matter is whether the EFTA Court’s Advisory Opinions pursuant 19 to Art. 34 SCA fall within the EEA Joint Committee’s obligations under Art. 105. Strictly speaking, Advisory Opinions are not judgments. The fact that the EFTA Court itself refers now to them as ‘judgments’ in the rubric (and as ‘Advisory Opinions’ in the operative part) cannot in itself change this. Furthermore, the SCA was signed on the same day as the EEA Agreement and the EU43 See the fifteenth recital of the Preamble. 44 Thus, the reference to ‘the binding nature of decisions of the Court of Justice within the Community legal order’ in Opinion 1/92 (para. 22) must be read as a reference to the general erga omnes effect of ECJ case-law. 45 See Bull, Norsk lovkommentar, comments on Art. 111 EEA, Note 203. 46 This seems to be the view of the Commission in its submissions before the ECJ in Opinion 1/92, characterising measures to be taken by the Joint Committee as means to secure “the ‘reception’ of new rulings of the Court of Justice” ([1992] ECR I-2821 at p. 2833). Along the same lines, M. Cremona, ‘The “dynamic and homogeneous” EEA: Byzantine structures and various geometry’, European Law Review 19 (1994), pp. 508-526, at p. 517 and Fenger, Rydelski and van Stiphout, EFTA and EEA, pp. 167-168. The question is left open by Bull, Norsk lovkommentar, comments on Art. 111 EEA, note 203. For a very different view, see C. Baudenbacher, The EFTA Court in Action, p. 5, who claims that the EEA Joint Committee ‘can neither incorporate ECJ case law into the EEA Agreement, nor overrule judgments of the EFTA Court.’ That view is reiterated in Baudenbacher, ‘The Relationship between the EFTA Court and the Court of Justice of the European Union’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 179-195, at p. 191. 47 See further the comments on Art. 111 below.

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side was clearly aware of the fact that the EFTA States were about to vest the EFTA Court with jurisdiction to give advisory opinions on the interpretation of the EEA Agreement, but without this being reflected in the wording of Art. 105. 20 However, a teleological interpretation clearly suggests that the EFTA Court’s Advisory Opinions form part of the ‘case-law’ of the EFTA Court within the meaning of Art. 105. The whole purpose of Art. 105 is to preserve the homogeneous interpretation of the Agreement and this objective may be threatened also by Advisory Opinions from the EFTA Court which deviates from ECJ case-law. This does not mean, however, that it’s immaterial whether a judicial conflict between the ECJ and the EFTA Court is brought about by an Advisory Opinion rather than by a judgment from the EFTA Court. As the Advisory Opinions are not binding on the national courts of the EFTA States, a judicial conflict worthy of the EEA Joint Committee’s attention will only arise if the national courts follow the interpretation advocated by the EFTA Court. V. The practical importance of Art. 105 21

As a result of the EFTA Court’s loyal adherence to ECJ case-law, Art. 105 has never been used. It is very unlikely that the EU will bring a case of judicial conflict before the Joint Committee unless the EFTA Court simply refuses to follow ECJ case-law on a matter clearly within the reach of the homogeneity principle and to the detriment of economic operators from the EU. After almost 25 years of experience, it may safely be stated that this is not a very practical scenario as far as the substantive EEA law is concerned.48 With regard to the question of the effect of EEA law in the legal orders of the Contracting Parties, however, there actually appears to be a conflict between the ECJ and the EFTA Court as the obiter dicta in Case C-431/11 UK v. Council and Case C-83/13 Fonnship seem to suggest that the ECJ is of the opinion that regulations are directly applicable also in the EFTA pillar of the EEA!49 The EFTA Court has made clear that these judgments have not led it to change its view on the matter – there is no EEA equivalent to the EU law principle of direct effect.50 This has, however, not prompted the EU to invoke Art. 105. Given the many objections which can be raised against the statements in UK v. Council and Fonnship, it may be that the EU-side has concluded that, on reflection, there may not be any conflict between the EFTA Court and the ECJ after all.51

48 As noted also by Baudenbacher, ‘The Relationship between the EFTA Court and the Court of Justice of the European Union’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 179-195, at p. 191. 49 As held by AG Kokott in her comments on UK v Council in Kokott and Dittert, ‘European Courts in Dialouge’, in: EFTA Court (ed), The EEA and the EFTA Court – Decentred Integration, pp. 43-52, at p. 46. 50 See, e.g., Case E-15/14, 28.1.2015, EFTA Surveillance Authority v Iceland, para. 32. 51 See further the comments by Dystland, Finstad and Sørebø on Art. 7 EEA, who conclude that the ECJ’s statements must simply be based on a misunderstanding.

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Article 106 Exchange of information concerning relevant judgements

Given the EFTA Court’s very far-reaching understanding of homogeneity in 22 Gunnarsson and Jabbi, it could actually be the EFTA States which may someday turn to the EEA Joint Committee to restore an interpretation of provisions of the EEA Agreement in line with the ECJ’s interpretation of the very same provisions in an EU law context. A premise for such a scenario, however, is that the EU-side will not tacitly accept that the EFTA States simply interpret away the problem by assuming that the EFTA Court did not really intend to deviate from ECJ case-law. There are some examples where Norwegian courts have done just that,52 so far without any reactions from the EU-side. This is obviously unwelcome from the perspective of the EFTA Court as it makes clear that the EEA judicial system is “rigged” against it. At least in cases of political significance, the governments of the EFTA States will always choose a decision of the ECJ over one from the EFTA Court, if they deem the former to be more favourable to them.53 Unfortunately for the EFTA Court, there is not much the EU can do with this form of ‘forum shopping’: The Union cannot reasonably call on the EFTA States to adhere to decisions which limit their political discretion even more than suggested by subsequent rulings from the ECJ. Thus, the fact that the EEA Joint Committee’s powers under Art. 105 have 23 been in little demand does not render the provision unimportant. As a matter of principle, the combination of Art. 105 and Protocol 48 sends a clear message to the EFTA Court (and, implicitly, to the national courts of the EFTA States) that the only way to maintain homogeneity is by letting the ECJ’s view prevail.54

Article 106 [Exchange of information concerning relevant judgements] In order to ensure as uniform an interpretation as possible of this Agreement, in full deference to the independence of courts, a system of exchange of information concerning judgments by the EFTA Court, the Court of Justice of the European Communities and the Court of First Instance of the European Communities and the Courts of last instance of the EFTA States shall be set up by the EEA Joint Committee. This system shall comprise:

52 See, e.g., Rt. 2009 p. 839 Pedicel, where the Supreme Court tacitly distanced itself from parts of the EFTA Court’s Advisory Opinion in Case E-4/04, 25.2.2005, Pedicel. Another example is the judgment by Oslo City Court in the Philip Morris case, 14.9.2012 (TOSLO-2010-41388), where the City Court questioned the EFTA Court’s approach to the ECJ’s Keck-doctrine in Case E-16/10, 12.9.2011, Philip Morris. 53 On the other hand, if satisfied with the decision of the EFTA Court, the EFTA States will be tempted to regard it as the final word on the matter. A Norwegian example can be found in Rt. 2007 p. 1003, where the government came very close to arguing that there was no need for the Supreme Court to assess the justification of the Norwegian monopoly on gaming machines after the EFTA Court had accepted it in Case E-1/06 ESA v Norway. 54 See the rather interesting remark by Baudenbacher, The EFTA Court in Action, 2010, p. 5: ‘In case of a judicial conflict, the dispute settlement provisions of the EEA Agreement may ultimately apply. The EFTA Court has always been aware of this threat.’ (emphasis added).

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PART II: The Agreement on the European Economic Area a) transmission to the Registrar of the Court of Justice of the European Communities of judgments delivered by such courts on the interpretation and application of, on the one hand, this Agreement or, on the other hand, the Treaty establishing the European Economic Community and the Treaty establishing the European Coal and Steel Community, as amended or supplemented, as well as the acts adopted in pursuance thereof in so far as they concern provisions which are identical in substance to those of this Agreement; b) classification of these judgments by the Registrar of the Court of Justice of the European Communities including, as far as necessary, the drawing up and publication of translations and abstracts; c) communications by the Registrar of the Court of Justice of the European Communities of the relevant documents to the competent national authorities, to be designated by each Contracting Party. 1

Art. 106 foresees the establishment of a system of exchange of information concerning judgments by the EFTA Court, the ECJ, the GC (then: the CFI) and the Courts of last instance of the EFTA States. The object and purpose is, despite the unfortunate wording of Art. 106(1), not only to ensure as uniform an interpretation as possible of the EEA Agreement, but also to ensure homogeneity between EU and EEA law.1 The inspiration was the system of exchange of information concerning judgments established by the 1988 Lugano Convention.2 However, unlike Protocol 2 to the 1988 Lugano Convention and Art. 104(1) of the Draft EEA Agreement3 torpedoed by the ECJ in Opinion 1/91, Art. 106 does not oblige the courts mentioned to pay any attention to the decisions delivered by the other Courts. The obligation put on the envisaged EEA Court, the EEA Court of First Instance, the ECJ, the (then) CFI and all of the Courts of the EFTA States to ‘pay due account to the principles laid down by any relevant decisions delivered by the other Courts’ was removed as a result of the ECJ’s not very accommodating approach in Opinion 1/91.4 Perhaps as a result of this, or perhaps as a result of the rapid diminishing of the EFTA-pillar in 1992-1994, the system envisaged by Art. 106 has never been set up.5 1 See Norberg et al., EEA Law, pp. 192-193. 2 Art. 2 of Protocol 2 to the 1988 Lugano Convention. 3 The text of Art. 104 of the Draft Agreement may be found in the introductory part of Opinion 1/91, published in [1991] ECR 6085-6092. 4 Note that Protocol 2 to the 1988 Lugano Convention did not put such an obligation on the ECJ either: It only referred to ‘the courts of the Contracting Parties’ and the EC was not a Contracting Party to the Convention. Still, the representatives of the Governments of the EC Member States signatories to the convention had declared ‘that they consider as appropriate that the Court of Justice of the European Communities, when interpreting the Brussels Convention, pays due account to the rulings contained in the case-law of the Lugano Convention’, see Baudenbacher, ‘The Relationship between the EFTA Court and the Court of Justice of the European Union’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 179-195, at p. 181. In any event, the fact that the EU is a Contracting Party to the 2007 Lugano Convention whose Protocol 2 puts a similar obligation on ‘any court’ [of the Contracting Parties] suggests that the removal of Art. 104(1) from the EEA Agreement was hardly required. Art. 104(1) was mentioned by the ECJ in Opinion 1/91, but not criticised in any way. 5 See Baur, ‘Preliminary rulings in the EEA’, in: EFTA Court (ed), The EEA and the EFTA Court, pp.169-185, at p. 184.

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Article 107 Preliminary rulings from the ECJ

The fact that the system of exchange of information concerning judgments 2 has not been established does not mean, however, that Art. 106 is without practical interest. Firstly, the EFTA Court relied on, inter alia, Art. 106 when concluding in Case E-2/94 Scottish Salmon Growers that also judgments by the (then) Court of First Instance (now: the GC) should be paid due account to by the EFTA Court by virtue of Art. 3(2) SCA.6 Secondly, the fact that the Courts of last instance of the EFTA States are mentioned alongside the EFTA Court, the ECJ and the CFI (GC) in Art. 106 lends support to the view that the relationship between the EFTA Court and the highest courts of the EFTA States differs from the hierarchical relationship between the ECJ and the national courts of the EU Member States. The EFTA Court itself has described its relationship to the national courts of last resort as ‘more partner-like’7 and once, in Case E-7/13 Creditinfo Lánstraust, cited a judgment from the Supreme Court of Norway.8 The EEA Joint Committee’s failure to implement Art. 106 is unfortunate and 3 has rightly been criticised.9 However, the lack of a formal system of exchange of information concerning judgments is hardly a problem for the EFTA Court, the ECJ or the GC. The cooperation between the EFTA Court and the two EU Courts appears well-established and it may safely be assumed that they are fully aware of each other’s judgments.10 It is therefore first and foremost the Courts of last instance of the EFTA States who are left out by the Joint Committee’s failure to implement Art. 106. According to Art. 106 litra (b), the system should comprise the classification of judgments from, e.g., the Courts of last instance of the EFTA States, ‘including, as far as necessary, the drawing up and publication of translations and abstracts’. To the Supreme Courts of Iceland and Norway in particular, this would offer an attractive opportunity to have their voices heard not only by the EFTA Court but even by the ECJ and the GC.11

Article 107 [Preliminary rulings from the ECJ] Provisions on the possibility for an EFTA State to allow a court or tribunal to ask the Court of Justice of the European Communities to decide on the interpretation of an EEA rule are laid down in Protocol 34.

6 7 8 9

Case E-2/94, 21.3.1995, Scottish Salmon Growers, para. 13. Case E-18/11, 28.9.2012, Irish Bank, para. 57. Case E-7/13, 16.12.2013, Creditinfo Lánstraust, para. 46. See the sharp criticism by Baur, ‘Preliminary rulings in the EEA’, in: EFTA Court (ed), The EEA and the EFTA Court, pp.169-185, at pp. 184-185. 10 Since the (then) CFI’s judgment in Case T-115/94, 22.1.1997, Opel Austria, the EU Courts have referred to judgments of the EFTA Court on numerous occasions. 11 In an attempt to have its voice heard at the European stage, the Supreme Court of Norway has started to publish English summaries and sometimes translations of entire judgments of interest also outside of Norway, see the Supreme Court’s homepage www.hoyesterett.no.

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Art. 107 gives each of the EFTA States the possibility to allow its courts or tribunals to refer certain questions on the interpretation of EEA rules to the ECJ for a binding preliminary ruling. During the EEA negotiations, the EFTA States argued for this competence to be vested in the common EEA Court, but the EC side rejected this.1 Instead, the Art. 104(2) of the Draft Agreement considered by the ECJ in its Opinion 1/91 stated that the EFTA States could allow their courts or tribunals to ask the ECJ ‘to express itself’ on the interpretation of EEA rules.2 This solution was rejected by the ECJ, however, which held it to be unacceptable that the answers given to the courts and tribunals in the EFTA States were not to be binding.3 According to the ECJ, this would change the nature of the function of the Court as conceived by the EEC Treaty, ‘namely that of a court whose judgments are binding’. Furthermore, the ECJ worried about the legal value for courts in EC Member States of the non-binding answers given to courts from the EFTA States and about the possibility for a negative ‘spill-over’ effect on the status of preliminary rulings under Art. 177 EEC (now: Art. 267 TFEU). 2 As a result of Opinion 1/91, the provision now found in Art. 107 was amended to the effect that the ECJ is to ‘decide’ on the interpretation of an EEA rule. In Opinion 1/92, the ECJ noted with satisfaction that this amendment ensures that the answers which it may be called upon to give will be binding.4 However, the ‘victory’ was a rather hollow one as it was quite clear from the beginning that none of the EFTA States were likely to allow their courts to make use of Art. 107 as amended.5 This has proven true – none of the EFTA States have activated Art. 107 and this is unlikely to change in the foreseeable future. It should be added, however, that this is due to political and not legal considerations. Even though the answers received from the ECJ under Art. 107 will be binding, the binding effect is limited to the interpretation of EEA law as such. It is still for the national courts to decide on whether the EEA rule in question, as interpreted by the ECJ, has been correctly implemented into national law so that it can be relied on by the parties to the dispute before it.6 3 The status of Art. 107 as lettre morte has caused the ECJ to delete the provisions in its Rules of Procedure which dealt with possible references from courts or tribunals of the EFTA States.7 This, however, does not change the fact that the 1

1 See Norberg et al, EEA Law, p. 194. 2 The text of Art. 104 of the Draft Agreement may be found in the introductory part of Opinion 1/91, published in [1991] ECR 6085-6092. 3 Opinion 1/91, 14.12.1991, paras. 61ff. 4 Opinion 1/92, 10.4.1992, para. 37. 5 Norberg et al, EEA Law, p. 194. 6 See the similar view of Max Sørensen ’Det europeiske økonomiske Fællesskab og Danmarks grundlov, Juristen 1963 pp. 57-85 (p. 68), concerning the relationship between Art. 20 of the Danish Constitution and Art. 177 EEC (now: Art. 267 TFEU). Art. 20 of the Danish Constitutions is similar to Art. 115 of the Norwegian Constitution. The question was left open by the Norwegian government in St.prp.nr.100 (1991-1992), p. 340.

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Article 107 Preliminary rulings from the ECJ

ECJ is under a legal obligation to accept and deal with preliminary references from the EFTA-pillar if an EFTA State should decide to invoke Art. 107. Protocol 34 makes clear that the right to turn to the ECJ is limited to the inter- 4 pretation of provisions of the EEA Agreement which are ‘identical in substance’ to provisions of the EU Treaties, as amended or supplemented, or of acts adopted in pursuance thereof (Art. 1). This limitation of the ECJ’s competence equals the one found in Art. 111(3). As suggested in the comments on that provision, the object and purpose of the EEA Agreement, in particular the objective of homogeneity, suggests that it has to be interpreted generously.8 In any event, the current status of Art. 107 as lettre morte does not render the 5 provision without practical interest. The fact that the only preliminary reference procedure mentioned in the EEA Agreement as such is one which allows for references to the ECJ and which makes clear that this is only an option makes it very difficult to argue that the principle of loyalty in Art. 3 EEA and/or reasons of reciprocity support an unwritten obligation on the highest courts of the EFTA States to refer questions to the EFTA Court under Art. 34 SCA.9 In light of the challenges brought about by the EFTA States’ affiliation to EU 6 agencies with competences to make decisions that are binding on national authorities and/or private parties,10 a creative way to wake Art. 107 up from its sleep would be to argue that the EFTA States can use this provision to introduce the possibility for the EFTA Court to ask the ECJ to rule on the validity of an EU legal act in cases where this appears decisive to a case brought before the EFTA Court.11 If limited to questions of validity as a matter of EU law, such a preliminary reference procedure should be acceptable to both the EFTA States and the EFTA Court – it will still be for the EFTA Court to rule on the consequences in the EFTA pillar of the EEA of an answer from the ECJ which either invalidates or upholds the EU legal act in question. Furthermore, following the logic behind the Foto Frost doctrine, a referral should only be made in cases where the EFTA Court is inclined to regard an EU legal act as invalid. It should be exclusively for the EFTA Court to decide if the assistance of the ECJ is called for. An affirmative answer is likely to be limited to extraordinary cases where a contested decision from ESA or national authorities of an EFTA State is a mere replica of an underlying decision from an EU agency.

7 As noted by Baudenbacher, ‘The EFTA Court: Structure and Tasks’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 139-178, at p. 152. 8 See the comments on Art. 111(3). 9 See, e.g., Fredriksen and Mathisen, EØS-rett, p. 198. Cf., however, the comments by Christiansen on Art. 34 SCA. 10 See, e.g., the comments on Art. 111. 11 In the context of Protocol 16 to the ECHR, Kokott and Dittert have argued that the EFTA Court should be covered by the wording ‘highest courts and tribunals of a High Contracting Party’, see their contribution ‘European Courts in Dialogue’, in: EFTA Court (ed), The EEA and the EFTA Court, pp. 43-52, at p. 50.

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PART II: The Agreement on the European Economic Area

Section 2: Surveillance procedure

Article 108 [The ESA and the EFTA Court: Establishment and competences] 1. The EFTA States shall establish an independent surveillance authority (EFTA Surveillance Authority) as well as procedures similar to those existing in the Community including procedures for ensuring the fulfilment of obligations under this Agreement and for control of the legality of acts of the EFTA Surveillance Authority regarding competition 2. The EFTA States shall establish a court of justice (EFTA Court). The EFTA Court shall, in accordance with a separate agreement between the EFTA States, with regard to the application of this Agreement, be competent, in particular for: a) Actions concerning the surveillance procedure regarding the EFTA States; b) Appeals concerning the decisions in the field of competition taken by the EFTA Surveillance Authority; c) The settlement of disputes between two or more EFTA States.

I. The EEA Surveillance Mechanism

As explained by several contributions in this book, the principle of homogeneity, that is the uniform implementation, application and interpretation of the EEA law is central in the EEA Agreement.1 Therefore, the modalities for a surveillance mechanism became one of the focal points of the High Level Negotiating Group in the negotiations of the Agreement.2 At the time of negotiation, the role of the EC Commission as the guardian of the EC Treaty with special competences to supervise the application of the EC Member States of Community law was well established. Similarly, it was firmly established that the Court of Justice had been entrusted with powers to interpret EU law in a way which was binding on the EU Member States.3 Therefore, it was recognised at an early stage of the negotiations that it would be necessary provide for a surveillance mechanism which made it possible to take initiatives in relation to individual Contracting Parties, handle complaints from individuals and economic operators and initiating legal proceedings concerning infringement of EEA law before a court.4 The focus of the negotiations was therefore not on whether to establish a surveillance mechanism but rather the organisational structure, i.e. whether to create one joint structure for all Contracting Parties. 2 It seems to have been clear from the outset that for constitutional reasons, the EFTA States could not transfer decision-making powers to the EC Institutions, most notably the EC Commission. Thus an independent surveillance authority 1

1 See, e,g., the comments by Wennerås on Art. 6 EEA and by Fredriksen on Art. 105 EEA. 2 See Norberg and Johansson, ‘The History of the EEA Agreement and the First Twenty Years of Its Existence’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 23 and 24. 3 Norberg et al., EEA law, p. 213. 4 Ibid, p. 214.

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with competences vis-á-vis the EFTA States was to be created. However, the first politically agreed version of the EEA Agreement envisaged the creation of a common EEA Court which was to be composed of judges from the Court of Justice and from the EFTA States.5 In Opinion 1/91 the Court of Justice however concluded that such a court would be incompatible with the EEC Treaty.6 The solution was therefore the creation of a surveillance mechanism based entirely on the so-called two-pillar system. This entailed the establishment of a surveillance authority and a court of justice in the EFTA pillar by a separate agreement between the EFTA States.7 II. The EFTA Surveillance Authority 1. The establishment of ESA

Art. 108(1) provides that the EFTA States shall establish an independent 3 surveillance authority (The EFTA Surveillance Authority – ESA). Although the modalities for the establishment of ESA are not specified in the provision,8 ESA was established following the conclusion of the Agreement on establishing a Surveillance Authority and a Court of Justice (The Surveillance and Court Agreement – SCA), cf. Art. 4 SCA. Art. 7 SCA provides, that ESA is governed by a college of three members 4 who shall be chosen on the grounds of their general competence and whose independence is beyond doubt.9 Art. 8 SCA stipulates that the members shall be completely independent in the performance of their duties and shall neither seek nor take instructions from Governments or other bodies.10 It further stipulates that the EFTA States undertake to respect this principle and not seek to influence the members in the performance of their tasks. College Members can only be removed from office by the EFTA Court upon an application by ESA itself if they no longer fulfil the requirement for their appointment or are found guilty of serious misconduct, cf. Art. 11 SCA. Although ESA’s surveillance function is modelled on the EU Commission, 5 ESA is a very different entity, not only as pertains to size and resources but also since it does not have any political function. The tasks of ESA as further described below therefore exclusively pertain to surveillance, they do not extend to any participation in legislative initiatives or rule-making.

5 Norberg and Johannsson, ‘The History of the EEA Agreement and the First Twenty Years of Its Existence’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 28 to 30. 6 Opinion of the Court of Justice 1/91. 7 Agreement between the EFTA States on the establishment of a Surveillance Authority and a Court of Justice, see Part III of this book. 8 By contrast, Art. 108(2) specifies that the EFTA Court shall be established by a separate agreement between the EFTA States. 9 See further the comments by Bjørgan on Art. 7 SCA in Part III of this book. 10 See further the comments by Bjørgan on Art. 8 SCA in Part III of this book.

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2. Procedures 6

Art. 108(1) EEA further provides that the EFTA States are to establish procedures similar to those existing in the Community including procedures for ensuring the fulfilment of obligations under the EEA Agreement and for control of the legality of acts of ESA regarding competition. Again, these procedures are established in the Surveillance and Court Agreement. Further, Protocol 21 EEA provides, that ESA should, by agreement between the EFTA States, be entrusted with equivalent powers and similar functions to those of the EU Commission in the field of competition. Similarly, Protocol 26 EEA provides that ESA should be entrusted with equivalent powers and similar functions to those of the EU Commission in the field of state aid. a) General Surveillance

Art. 108(1) creates the obligation of the EFTA States to lay down procedures related to general surveillance, i.e. procedures for ensuing the fulfilment of obligations under the EEA Agreement. The provision further provides that the procedures are to be similar to those existing in the EC. Art. 5 SCA stipulates that ESA is to ensure the proper functioning of the EEA Agreement by inter alia taking decisions and other measures, issue opinions and notices, formulate recommendations and carry out cooperation, exchange of information and consultations with the Commission. ESA’s main tasks are thus to ensure that the EFTA States live up to their obligations under the Agreement by fully, correctly and timely transposing EEA acquis into their domestic legal order and by applying these rules correctly.11 8 If ESA concludes that there is a failure on behalf of an EFTA State to fulfil its obligations under the EEA Agreement, it may initiate formal infringement proceedings under Art. 31 SCA, which largely corresponds to Art. 258 TFEU.12 Infringement cases may in general be divided in two categories; lack of conformity with or incorrect application of EEA law on one hand and late transposition of legal acts on the other. In the former instance, cases may be opened as a result of a complaint or at ESA’s own initiative. The latter category relates to the regular monitoring on behalf of ESA on timely implementation as the EFTA States are required to notify the measures adopted to implement directives and, if requested, to inform it of the incorporation of regulation, cf. Art. 7 EEA. ESA has full discretion to decide whether to pursue an infringement issue on its own initiative.13 ESA also has full discretion as to whether and how to pursue an infringement issue arising from a complaint from an individual or economic operator.14 The EFTA Court has however stated obiter that it considers it to be in the 7

11 Büchel and Lewis, ‘The EFTA Surveillance Authority’, in: Baudenbacher (ed), The Handbook on EEA Law, p. 117. 12 See also the comments by Christiansen on Art. 31 SCA. 13 Case E-13/10, 8.4.2013, Granville, paras. 26 and 27 and Case E-2/13, 23.10.2013, Bentzen Transport, paras. 40 and 41.

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interest of the proper functioning of the EEA Agreement that ESA should proceed within an appropriate time when assessing whether to bring an EFTA State before the EFTA Court.15 It is interesting to note that Art. 5(1)(c) SCA also places an obligation on ESA 9 to monitor the application of the EEA Agreement by the other Contracting Parties to that Agreement. This particular role of ESA is not rooted in Art. 108 EEA and therefore seems to have been added in the SCA at the initiative of the EFTA States. Thus it seems to have been envisaged by the EFTA States that ESA would also monitor the application of the EEA Agreement by the EU Member States and the EU institutions, i.e. the EU Commission. On the other hand, this function would seem to contradict the division of competence between ESA and the EU Commission stipulated by Art. 109 EEA and the emphasis on cooperation of the surveillance authorities, as further described below. The practical implication of this provision is however limited at best. Of course, technically ESA could in this respect make use of the dispute settlement procedure envisaged by Art. 109 EEA. b) Competition and State Aid

It may be recalled that one of the main objectives of the EEA Agreement is to 10 create equal conditions of competition in the EEA. In addition to the provisions on the four freedoms, the Agreement contains provisions laying down rules on competition and State aid largely corresponding to those now found in the TFEU, cf. Arts. 53 to 64 EEA. Art. 108(1) EEA stipulates that the EFTA States shall in particular provide for procedures for the control of the legality of acts of ESA regarding competition. Protocol 21 EEA further provides that ESA should by agreement between the EFTA States be entrusted with equivalent powers and similar functions to those of the EU Commission in the field of competition. The relevant acquis in this field is incorporated into the EEA Agreement in Protocol 21 EEA. In the same manner, Protocol 26 EEA stipulates that ESA shall be entrusted with equivalent powers and similar functions to those of the EU Commission in the field of State aid. The rules related to the functions and powers of the EU Commission in these fields are then reproduced in the Surveillance and Court Agreement, in Protocols 3 and 4 SCA. ESA therefore has the competence to control concentration of undertakings (Art. 57 EEA), intervene in restrictive practices (Art. 53 EEA) and the abuse of dominant position (Art. 54 EEA). The competences of ESA include adopting prohibition decisions and to impose fines on undertakings in breach of the competition rules. In the field of State aid, ESA has the competence to approve or reject notified aid and issue recovery decisions as the case may be. However, ESA does not have 14 As noted by Büchel and Lewis it is however extremely rare that ESA exercises its discretion to close complaints without advancing legal grounds for doing so, see their contribution ‘The EFTA Surveillance Authority’, in: Baudenbacher (ed), The Handbook on EEA Law, p. 119. 15 Case E-9/11, 8.4.2013, ESA v Norway, para. 68.

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the competence to adopt directives corresponding to Art. 106(3) TFEU or block exemptions cf. Arts. 105(3) and 106(3) TFEU. Such measures adopted by the EU Commission are incorporated into the EEA Agreement in Protocols 21 and 26 EEA respectively. It may also be noted that the EU Commission has adopted several soft-law measures, notices and communications, in the fields of competition and State aid. The practice has been that ESA will by decision of its College adopt corresponding measures.16 In essence, these measures reproduce the adopted text of the Commission amended only for the purposes of the EEA Agreement, i.e. replacing references to Treaty provisions with references to the corresponding provisions of the EEA Agreement. c) Special powers in certain other fields

In addition to general surveillance related to core internal market rules, ESA has the competence to act in a number of related areas such as food safety, transport, public procurement, environment, energy and most recently financial services. For instance in the fields of food safety and transport, ESA is tasked with carrying out on-site inspections in cooperation with the EU Commission. This means that ESA has been afforded the competence to act locally in the EFTA States. These additional tasks or competences of ESA were not reflected in corresponding amendments to the Surveillance and Court Agreement. However, it may be argued that they would fall under the rather broad description of ESA’s tasks and competences under Art. 5 SCA. 12 The emergence of various Agencies or other Supervisory Authorities in the EU Pillar with decision-making powers vis-á-vis economic operators sparked a new challenge for the two-pillar system of surveillance. The EU has consequently opposed direct participation in the agencies by authorities in the EFTA States or ESA. Similarly, the EFTA States have for constitutional reasons not been able to transfer decision-making powers to such entities. The solution has been to entrust ESA with the competence to adopt decisions similar to those of the agencies and to grant ESA with observer status in their work as well as providing for modalities for cooperation. With the incorporation of the EASA Regulation into the EEA Agreement17 ESA was, for instance, given the competence to issue decisions on fines in certain instances. 13 The incorporation of the new financial services acquis in 2016 brought about a new development in this respect. Under the new regime, ESA is given the competence to adopt decisions vis-á-vis national supervisory authorities and market operators mirroring corresponding decisions by the relevant European Supervisory Authorities, ESMA, EBA and EIOPA. The decisions adopted by 11

16 See for instance the State aid guidelines, published at http://www.eftasurv.int/state-aid/legalframework/state-aid-guidelines/. 17 Reg. (EC) No 216/2008 on common rules in the field of civil aviation and establishing the European Aviation Safety Agency, p.1 incorporated by EEA Joint Committee Decision No 163/2011.

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ESA, however, shall be based on a draft prepared by the relevant EU Authority. In addition to the necessary adaptations to the acquis in question, specifying the role of ESA, the EFTA States have enacted an amendment to the Surveillance and Court Agreement by providing an explicit legal basis for the adoption of a new Protocol on Financial Services laying down the competences of ESA in this field.18 In a similar manner it is foreseen that following incorporation of the Third Energy package, ESA will have the competence to adopt decisions vis-ávis national regulators based on drafts prepared by ACER.19 The decision making powers of ESA in this instance follow from Article 5 SCA so no amendment to the SCA is required. 3. Assessment

The establishment of an independent surveillance authority is without doubt 14 one of the key contributors to homogenous application and interpretation of EEA law. Without the active surveillance of ESA and the possibility to bring infringement cases before the EFTA Court it stands to reason that the interpretation and application of EEA law by the Contracting Parties could have developed in a more fragmented manner. This feature of the EEA Agreement is furthermore unique compared to other association agreements. In this respect, it is interesting to note that the EU Commission has repeatedly emphasised the need for an institutional framework with regard to other association agreements,20 such as the EU-Swiss bilateral arrangements and a potential agreement with the so called micro States.21 The EU is therefore clearly of the opinion that an institutional framework for surveillance and judicial review is imperative for the extension of the internal market to third countries through association agreements. On occasion, ESA has been criticised for pursuing its role with too much fer- 15 vour22 or, conversely, for doing too little to fulfil its role as the guardian of the EEA Agreement.23 Criticism from both ends of the spectrum however supports 18 Protocol 8 on the functions and powers of the EFTA Surveillance Authority in the field of financial supervision, as added by the Agreement amending the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice by adding a new Article 25 a and a new Protocol 8 to the Agreement. Signed in Brussels 6 October 2016 (e.i.f. 25 November 2016). 19 Proposal for a Council Decision on the position to be adopted on behalf of the European Union within the EEA Joint Committee concerning amendment to Annex IV (Energy) to the EEA Agreement (Third Energy Package) COM (2017) 1110 final, 3.3.2017. 20 Council conclusions on a homogeneous extended single market and EU relations with NonEU Western European countries, 16 December 2014. 21 Andorra, Monaco and San Marino, see further Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, COM (2012) 680 final, 20.11.2012. 22 In Norwegian media ESA has often been referred to as “more catholic than the Pope” when pursuing possible infringements of the EEA Agreement. 23 See Baudenbacher ‘The EFTA Court: Structure and Tasks’ in The Handbook of EEA Law, p. 150, where it is suggested that ESA is less active than the Commission in bringing infringement cases to court.

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that ESA is carrying out its tasks under the EEA Agreement, and the SCA, in a satisfactory manner. Here, it must be borne in mind that there are vast differences between a surveillance authority responsible for the monitoring of three small states with a staff of around 70 people and the EU Commission with all its resources and staff. 16 The function of ESA as an independent surveillance authority under the two pillar system established by the EEA Agreement is however not without challenges, as further discussed in section IV below. As mentioned above, the development of EU law in affording more decision-making competences to EU Institutions has had a significant impact on the development of EEA law. Thus the reluctance of the EFTA States to afford more powers to ESA than envisaged at the time of negotiation of the EEA Agreement and the SCA has both led to solutions which do not follow the two-pillar system to a tee and consequently given the EU side more bargaining power when adaptations are negotiated. Some of these solutions encroach upon the independence of ESA since in effect the institution is reduced to a mere processor of decisions prepared by other institutions and thus deprived of powers to carry out an independent assessment. On the other hand, it may be argued that from the point of pragmatism it would simply not be feasible for ESA to acquire the necessary experience and expertise for some of these tasks. III. The EFTA Court 1. Establishment of the EFTA Court

Art. 108(2) provides that the EFTA States shall establish a court of justice; The EFTA Court. As described above, the negotiators of the EEA Agreement initially envisaged a common EEA Court composed of judges from the Court of Justice and the EFTA States. In Opinion 1/91 the Court of Justice declared the system of judicial supervision proposed by the Agreement incompatible with the EEC Treaty. In essence, the Court of Justice held that such a system would encroach upon its exclusive competence to interpret EU law under the Treaty. After the Court of Justice had declared that solution incompatible with the EC Treaty, the Contracting Parties opted for a clear two-pillar solution as regards judicial control, by stipulating the establishment of the EFTA Court. The Court of Justice confirmed in Opinion 1/92 that such a system would be compatible with the EEC Treaty.24 18 The EFTA Court was thus established by the conclusion of the Surveillance and Court Agreement, cf. Art. 27 SCA. Protocol 5 SCA contains the Statute of the Court cf. Art. 43(1) SCA and the Court has adopted Rules of Procedure pursuant to Art. 43(2) SCA and Art. 43 of the Statute. Although the Court today only consists of three judges,25 it was from the outset modelled after the template 17

24 Opinion 1/92, 10.4.1992.

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of the Court of Justice, as reflected by both the Statute of the Court and its Rules of Procedure. Art. 108 EEA does not make an explicit reference to the independence of the 19 EFTA Court, in contrast to the wording pertaining to the establishment of ESA. The simple reason is likely that the negotiators took it for granted that a court of justice would naturally be independent and therefore saw no need to explicitly state this in the provision. The fifteenth recital in the preamble to the Agreement, which coins the application of the homogeneity principle, makes reference to full deference to the independence of the courts. Art. 106 EEA contains a similar reference. The independence of the EFTA Court as such should therefore be beyond doubt. The EFTA Court has on the other hand found the need to reaffirm its independence both vis-á-vis the ECJ and the EFTA States in recent rulings. The EFTA Court has from the outset placed utmost importance on the princi- 20 ple of homogeneity. Thus the Court has developed the doctrine of effect-related homogeneity which comprises both substantive and procedural homogeneity.26 Therefore, the EFTA Court has consistently followed case law from the ECJ and has, for instance, not distinguished between rulings rendered before the EEA Agreement entered into force and subsequent rulings.27 The Icesave case,28 marked a certain departure from this strict adherence to the homogeneity principle, where the EFTA Court applied a less assertive form of teleological reasoning that would have been expected from the ECJ, in light of that court’s established case law.29 Although the Court did not question EU law in that case, the reasoning was much more restrictive than in other controversial infringement cases brought before the Court. In the Jabbi case,30 the EFTA Court however relied on the fifteenth recital in support of a deviation from established case law by the ECJ in what appears to be an attempt to reaffirm its independence from the ECJ.31 Here of course the Court was facing a different dilemma, namely the different development of EEA and EU law in the field of free movement of persons post the introduction of the EU Citizenship in the Lisbon Treaty. With regard to the EFTA States, Art. 30 SCA stipulates that the judges of the 21 EFTA Court shall be chosen from persons whose independence is beyond 25 Initially there were supposed to be seven judges one from each of the EFTA States at the time; Austria, Finland, Iceland, Liechtenstein, Norway, Sweden and Switzerland. 26 See contributions by Baudenbacher ‘The EFTA Court: Structure and Tasks’ at p 145 and Hreinsson ‘General Principles’ at p. 350, both in: Baudenbacher (ed), The Handbook of EEA Law. 27 See comments by Wennerås on Art. 6 EEA and Art. 3(2) SCA. 28 Case E-16/11 ESA v Iceland, 28.1.2013. 29 See Chalmers, ‘Icesave and the EFTA Court Judicial Reasoning’ in; EFTA Court (ed), The EEA And The EFTA Court, at p. 408. 30 Case E-28/15, 21.9.2016, Jabbi, at paras. 70 to 71. 31 See comments by Arnesen and Frederiksen on the Preamble. As noted by the commentators the reference to the fifteenth recital in that instance seems at least somewhat superfluous since the difference in interpretation in that case could easily be justified by the different legal context of EU and EEA law.

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doubt and who possess the necessary qualifications. Art. 30 SCA further stipulates that the judges shall be appointed by common accord of the Governments of the EFTA States for a term of six years.32 It therefore sparked some controversy when the term of reappointment of the Norwegian judge in 2016 was shortened to three years in accordance with Norwegian rules on retirement age by a decision of the ESA/Court Committee.33 22 Shortly after the reappointment for only three years, the Princely Court of Appeal in Liechtenstein made a request for an Advisory Opinion to the EFTA Court in a case pending before the court. The court referred three questions to the EFTA Court; two regarding the substance matter of the case but the third in essence raised the issue of whether the Court would be lawfully composed in a manner which ensured its independence and impartiality after the entry into force of the ESA/Court Committee decision on 17 January 2017. Two days later the Court of Appeal submitted a request to the Court for an accelerated procedure pursuant to Art. 97 a of the Rules of Procedure. In January, the Court ruled that the third question was to be addressed separately as a preliminary matter in the form of a decision and subsequently, the President and the Norwegian Judge were recused for this part of the case. Two days later, the ESA/Court Committee adopted a new decision, repealing the previous one and appointed the judge for a period of six years, effective from 17 January 2017. 23 On 20 February 2017 the President issued an Order in the Nobile case,34 refusing the request for the accelerated procedure. In its findings, he rather extraordinarily suggests that there were indications that the nomination of the Norwegian judge for a shorter term by the Government of Norway was not free of political consideration. Further, referring to recent case law from the European Court of Human Rights,35 he pointed out that concerns as to the independence of adjudicating bodies had recently been voiced in Europe. The President then affirmed that the EFTA Court assumes an essential role on the EEA legal order and that without an independent court the purpose of the EEA Agreement would be rendered nugatory. The six year term stipulated by Art. 30 SCA constituted a minimum protection of judicial independence and constituted an essential part of the judicial constitution of the EFTA Pillar. The right to a six year term could therefore not be waived by individual judges.

32 Of course, since it is for each EFTA State to nominate a judge, in principle the choice of candidate lies with that State. 33 Decision by the ESA/Court Committee No 5 of 1 December 2016. The ESA/Court Committee is composed of one representative from each of the EFTA States. Its role is to appoint judges for the EFTA Court and College Members for ESA as well as approving the budget of the respective institutions. 34 Case E-21/16, 20.2.2017. 35 Notably, cases concerning Hungary and Turkey, see para. 23 of the Order.

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2. Competences of the EFTA Court

Art. 108(2) further provides that the EFTA States shall by separate agreement 24 establish the competences of the EFTA Court in particular as regards actions concerning the surveillance procedure regarding the EFTA States, appeals concerning decisions by ESA in the field of competition and settlement of disputes between two or more EFTA States. The competence to issue advisory opinions is therefore not proscribed by the EEA Agreement itself.36 However, the wording ‘in particular’ suggests that the competences listed in the provision are not exhaustive.37 It is also interesting to note that in contrast to the provision on ESA, Art. 108 clearly specifies that the EFTA Court and its competences shall be established by a separate agreement between the EFTA States. a) Actions concerning the general surveillance procedure

Art. 31 SCA provides that the EFTA Court is competent to hear cases con- 25 cerning a failure of an EFTA State to fulfil an obligation under the EEA Agreement or the Surveillance and Court Agreement itself. If an EFTA State has not complied with a reasoned opinion of ESA to this effect in a timely manner, ESA may therefore bring the matter before the EFTA Court. It is thus for the EFTA Court to decide whether an EFTA State has failed to fulfil its obligation; ESA can merely issue its reasoned opinion to this effect. Cases brought before the EFTA Court under Art. 31 SCA range from simple non-implementation cases, i.e. when EFTA States fail to comply with timely implementation of incorporated acts as prescribed by Art. 7 EEA, to complex issues related to the correct application and interpretation of EEA law. Pursuant to Art. 33 SCA, the EFTA States concerned shall take the necessary 26 measures to comply with the judgments of the EFTA Court. Contrary to EU law, however, the EFTA Court does not have the competence to impose fines on the EFTA States for failure to comply.38 b) Appeals concerning decisions in competition cases

Art. 36(1) SCA provides that the EFTA Court shall have jurisdiction in ac- 27 tions brought by an EFTA State against a decision of ESA on grounds of lack of competence, infringement of an essential procedural requirement, infringement of the Surveillance and Court Agreement, the EEA Agreement or of any 36 As noted by Fredriksen and Franklin, ‘Of pragmatism and principles: The EEA Agreement 20 Years On’, (2015) Common Market Law Review 629-684, who see this as one of several arguments why it is difficult to deduce an obligation to refer cases to the EFTA Court from the principle of loyalty found in Art. 3 EEA (p. 672). 37 The delivery of advisory opinions has nevertheless become a central function of the EFTA Court and such opinions have been pivotal for the development of EEA law. For instance, the EFTA Court held in Case E-9/97, 10.12.1998, Sveinbjörnsdóttir, which was an advisory opinion, that the principle of state liability is a general principle of EEA law. 38 ESA may bring a new action before the EFTA Court for failure to comply with a judgment of the Court. See further the comments by Christiansen on Art. 33 SCA.

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rule of law relating to their application, or misuse of powers. For the most part, cases brought before the EFTA Court under this provision relate to decisions by ESA in the field of state aid. 28 Art. 36(2) SCA provides that any natural or legal person may, under the same conditions as stipulated by Art. 36(1) SCA, institute proceedings before the EFTA Court against a decision of ESA addressed to that person or against a decision addressed to another person, if it is of direct and individual concern to the former. This provision therefore establishes the right of appeal for legal persons subject to a decision by ESA on infringement of the competition rules of the EEA Agreement. Moreover, it entails a right of appeal of state aid decision for parties which can establish direct and individual concern.39 c) Dispute settlement 29

Pursuant to Art. 108(2) EEA the EFTA States were obliged to provide for the competence of the EFTA Court to settle disputes between two or more EFTA States. Art. 32 SCA thus provides that the EFTA Court shall have jurisdiction in action concerning the settlement of disputes between two or more EFTA States regarding not only the interpretation and application of the EEA Agreement, but also the Agreement on a Standing Committee of the EFTA States and the Surveillance and Court Agreement. In contrast to the corresponding Art. 259 TFEU, the provision does not require any involvement by ESA. Thus, in principle, an EFTA State may bring proceedings against another EFTA State before the Court without fulfilling any procedural requirements.40 The provision has to date not been invoked before the EFTA Court and it seems very unlikely that the current EFTA States would consider this option. First, it contradicts the general approach of the EEA Agreement of consensus with the corollary political nature of the dispute settlement mechanisms of the Agreement.41 Moreover, given the fact that the EFTA States are required to speak with one voice in the EEA Joint Committee42 and that the Standing Committee generally operates on the basis of unanimity,43 it would hardly be conducive to the successful operation of the EEA Agreement should the EFTA States resort to bringing legal actions against each other before the EFTA Court. 3. Assessment of the EFTA Court

30

As noted above, it may be stated that the key to the success of the EEA Agreement is the institutional framework set up by the Agreement. The establishment of the EFTA Court and the modalities for judicial review set out by the 39 40 41 42 43

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See the comments by Christiansen on Art. 36 SCA. See the comments by Christiansen on Art. 32 SCA. See the comments by Fredriksen on Art. 111 EEA. See comments on Art. 93 EEA. See further the comments by Fredriksen and Jónsdóttir on the Standing Committee Agreement, in Part IV of this book.

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Agreement is for obvious reasons an indispensable element in this respect. Furthermore, the development of the homogeneity principle by the EFTA Court with the focus on effect-related homogeneity has proven to be a key factor in the development of EEA law as a whole. The application of the homogeneity principle by the EFTA Court has however not been without controversy. For instance, in the famous case of Sveinbjörnsdóttir,44 the Court expanded on the notion of homogeneity. The Court held that the homogeneity objective and the objective of establishing right for individuals and economic operators to equal treatment and equal opportunities were so strongly expressed in the EEA Agreement that it entailed state liability as a general principle of EEA law. When examining the conditions of state liability, the EFTA Court modelled itself after the case law of the ECJ on state liability under EU law, although that case law appeared to be based on the principles of direct effect and supremacy of EU law. Indeed, the Icelandic and Norwegian Governments had argued before the Court that the principle of state liability could not be extended to EEA law since it was rooted in the direct effect and supremacy of EU law. In Piazza,45 the Court dealt with the interpretation of the provisions of the 31 EEA Agreement relating to the free movement of capital. At the time, the corresponding provisions in the EC Treaty had been amended and therefore the wording of the relevant provisions of the EEA Agreement was no longer identical. The Court however concluded that the rules governing the free movement of capital in the EEA Agreement were essentially identical in substance to those of the EC Treaty. Therefore, in the interest of homogeneity, restrictions on free movement of capital in the EEA should be examined on the basis of the justifications grounds provided in the amended EC Treaty. In the recent cases of Gunnarsson and Jabbi, the Court was faced with interpretation of EEA law pertaining to free movement of persons, after the introduction of the EU Citizenship in the TFEU. Needless to say, no equivalent notion of EEA Citizenship exists in EEA law. In this instance, the Court diverged from the case law of the ECJ on the Citizenship Directive to achieve what it considered to be the same result as EU law would provide.46 Although the EFTA Court’s development of the homogeneity principle is an 32 important contributor to the development of EEA law there are inevitably limits to how far it can be applied to achieve the same results in both pillars. The EEA Agreement and the TFEU are different legal instruments of different legal orders. As long as the Main Part of the EEA Agreement remains static whereas EU law develops, the EFTA Court will at some point reach a crossroad where the differences of the two legal orders cannot be abridged by a zealous application of the homogeneity principle.

44 Case E-/97, 28.12.1998, Sveinbjörnsdóttir. 45 Case E-10/04, 1.7.2005, Piazza. 46 See further the comments by Arnesen and Fredriksen on the Preamble.

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Article 109 [The two-pillar surveillance system] 1. The fulfilment of the obligations under this Agreement shall be monitored by, on the one hand, the EFTA Surveillance Authority and on the other, the EC Commission acting in conformity with the Treaty establishing the European Economic Community. 2. In order to ensure a uniform surveillance throughout the EEA, the EFTA Surveillance Authority and the EC Commission shall cooperate, exchange information and consult each other on surveillance policy issues and individual cases. 3. The EC Commission and the EFTA Surveillance Authority shall receive any complaints concerning the application of this Agreement. They shall inform each other of complaints received. 4. Each of these bodies shall examine all complaints falling within its scope of competence and shall pass to the other body any complaints which fall within the competence of that body. 5. In case of disagreement between these two bodies with regard to the action to be taken in relation to a complaint or with regard to the result of the examination, either of the bodies may refer the matter to the EEA Joint Committee which shall deal with it in accordance with Article 111.

I. The two pillar system of surveillance 1

Art. 109 provides the framework for the two-pillar system of surveillance, the cornerstone for uniform surveillance and homogeneous application of common rules throughout the EEA. The General Court of the European Union (previously the Court of First Instance) recognized the two-pillar institutional set up of the EEA Agreement in its judgment in the Opel Austria case, stating that: “by establishing an EFTA Surveillance Authority and an EFTA Court with powers and jurisdiction similar to those of the Commission and the Court of Justice, a two pillar system has been created in which the EFTA Surveillance Authority and the EFTA Court monitor the application of the Agreement on the part of the EFTA States, while the Commission, the Court of Justice and the Court of First Instance do so on the part of the Community”.1

By virtue of Art. 109(1), therefore, the Commission and ESA are jointly and equally vested with the competence to monitor the respect of EEA rules. In turn, this would suggest that their decisions adopted pursuant to this surveillance competence are equally valid throughout the EEA. 3 Protocol 1 on horizontal adaptations to the EEA Agreement lays down further modalities related to the two-pillar structure. In essence, it stipulates that functions of the Commission in the context of procedures for verification or approval, information, notification or consultation and similar matter shall for the EFTA States be carried out according to procedures established by them.2 4 At first glance, the establishment of the two-pillar system of surveillance and the division of competence between the two surveillance authorities under Art. 109 seems, at least formally, to be straight forward. However, as EU law has 2

1 Case T-115/94, 22.1.1997, Opel Austria, para. 108. 2 Further on Protocol 1 EEA in the introductory chapter by Fredriksen.

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evolved with the corollary effects on the EEA Agreement challenges to the twopillar system continue to arise. II. The case of EU Agencies

The number of regulatory agencies established in the EU tasked with implementing policies and regulating specific sectors has increased significantly since the signing of the EEA Agreement. Since the role of agencies is not addressed in the EEA Agreement this has posed a significant challenge to the two-pillar system of surveillance. The main challenge for the two-pillar system as regards the increasing number of regulatory agencies concerns the extent of powers conferred upon such agencies. Decentralised agencies and bodies have gradually been given more powers to adopt legally binding decisions. Such decision-making powers extend to both procedural and substantive matters. An agency may thus be competent to take decisions addressed to individual companies, to individual EU Member States or to the EU Member States in general. In circumstances where an EU Agency has autonomous decision making powers, the most pressing two-pillar issue is whether such binding decisions should also apply to the EFTA States or economic operators established in the EFTA States, as well as who should carry out the judicial review of such decisions. In view of the two-pillar structure of the Agreement, the power to impose binding decisions or sanctions on market participants based in an EFTA State should be vested with a body in the EFTA-pillar, ESA being the obvious candidate. Therefore, in many instances ESA has indeed been vested with the power to adopt decisions corresponding to that of EU agencies. However, the EFTA States have at times opted for solutions which in essence deviate from this principle. One such example is the case of the European Medicines Agency.3 The Agency is responsible for a centralised authorisation procedure for human and veterinary medicines in the EU and EFTA States. Applications through the centralised procedure are submitted directly to the Agency which evaluates it and issues an opinion. The opinion is then submitted to the EU Commission, which has the ultimate authority for granting marketing authorisations in the EU. According to the EEA Joint Committee Decision incorporating Reg. (EC) 726/2004, decisions on approval of medical products are taken according to procedures described in Reg. (EC) No 726/2004 and Dir. 2001/27/EC, Dir. 2001/82/EC, as amended by Dir. 2004/28/EC. Once the Commission has taken such a decision, the EFTA States are to simultaneously and within 30 days of the decision, take corresponding decisions on the basis of the relevant acts.4 ESA

3 Reg. (EC) No 726/2004 laying down Community procedure for the authorisation and supervision of medical products for human and veterinary use and establishing a European Medicines Agency.

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only has to role of monitoring the application of the decisions taken by the EFTA States. III. Competence to impose fines

Another area of difficulty in the sphere of the two-pillar system of surveillance is the competence of the EU Commission to impose financial penalties on undertakings. As the provisions of Protocol 1 EEA do not extent to the issuing of fines, it has been necessary to address this competence specifically in an adaptation text to an EU act upon incorporation into the EEA Agreement. Traditionally, the EFTA States have been reluctant to extend the powers of ESA to the competence to issue financial penalties, at least on a permanent basis. However, it is clear that for constitutional reasons, Iceland and Norway will not accept that the Commission is entrusted with such tasks in the EFTA pillar. 11 Pursuant to Art. 84(3) of Reg. (EC) No 726/2004, the Commission may, at the Agency's request, impose financial penalties on the holders of marketing authorisations if they fail to observe certain obligations laid down in connection with the authorisations. It follows from the EEA Joint Committee Decision incorporating the Regulation that such the fines shall be issued by the EFTA State concerned, based on a proposal of the Commission, if the holder of the market authorisation is based in an EFTA State. The fact that it is the Commission, at the request of the Agency, that has the competence to propose the issuing of fines is not fully in line with the two-pillar system. Although the proposal by the Commission is not formally binding upon the EFTA States, it could create political difficulties between the Contracting Parties to the EEA Agreement should an EFTA State refuse to accept the proposal. 12 In the proposal for a Council Decision5 for the incorporation of the Paediatrics Regulation6 it is now envisaged that ESA will be afforded the competence to issue fines in certain instances. However, this adaptation entails that ESA shall obtain the assessment of the Commission before adopting a decision. The rationale for this proposed adaptation is that since the Commission is the body adopting decisions for market authorisations it should have a say in whether the imposition of a fine for breach of such decisions is appropriate. 13 In other fields, a stricter two-pillar approach has been followed. One example is the Regulation on common rules in the field of civil aviation and establishing a European Aviation Safety Agency (EASA).7 Pursuant to Art. 25 of the Regulation, the Commission may, at the Agency’s request, impose fines or periodic 10

4 Reg. (EC) No 726/2004 laying down Community procedures for the authorisation and supervision of medicinal products for human and veterinary use and establishing a European Medicines Agency, incorporated by EEA Joint Committee Decision No 61/2009. 5 Proposal for a Council Decision on the position to be adopted, on behalf of the European Union, within the EEA Joint Committee concerning an amendment to Annex II (Technical Regulations, Standards, Testing and Certifications) and Annex XVII (Intellectual Property) to the EEA Agreement (Paediatric Regulation) COM (2017) 13 final. 6 Reg. (EC) No 1901/2006 on medicinal products for paediatric use.

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penalty payments on the persons or undertakings to which the EASA has issued a certificate. In this instance, ESA was granted the competence to impose fines and periodic penalty payments on the persons and undertakings to which EASA has issued a certificate where such persons or undertakings are established in an EFTA State.8 IV. Information, notification and authorisation procedures

At the time of the EEA negotiations, the EC Commission was already entrusted with a number of competences of administrative and executive nature and in the field of surveillance in secondary legislation.9 These acts may confer upon the Commission the competence to exercise functions relating to information or approval procedures, precautionary measures and safeguard measures. In order cater for the two-pillar system of surveillance and to avoid extensive adaptations to the relevant legal acts, a special referencing technique was included in Protocol 1 EEA on horizontal adaptations. The horizontal adaptations set out in Protocol 1 EEA concern, inter alia, provisions on EC Committees, the setting up of procedures for adapting and amending Community acts, the exchange of information, the rights and obligations imposed upon Member States or their public entities, undertakings and individuals, the language requirements and the publication requirements. Thus, in principle, when such actions in the EU pillar are covered by Protocol 1 EEA, not specific adaptation text should be required. Centralised market authorisation schemes, registries, assessment and verification procedures and surveillance acts have however given rise to negotiations as to how to apply the two-pillar system. The main challenges concern whether, inter alia, authorisation decisions or surveillance acts are to be regarded as legislation that should be incorporated into the Agreement in accordance with Art. 102(1) EEA, or if they should be dealt with in accordance with the procedures laid down in Paragraph 4(d) of Protocol 1 EEA. In principle, the two-pillar system implies that the competence to issue certain decisions shall be divided between the Commission and ESA. Such “two-pillar decisions” should therefore have effect without having to be incorporated into the EEA Agreement. Nevertheless, certain types of surveillance acts have regularly been incorporated into the EEA Agreement, most notably in the veterinary and phytosanitary field. This may be explained by the fact that the EU Commission, in the early stages of the EEA Agreement, when ESA began exercising its competences under Protocol 1 SCA, initiated discussions on the validity, 7 Reg. (EC) No 216/2008 on common rules in the field of civil aviation and establishing a European Aviation Safety Agency (EASA). 8 EEA Joint Committee Decision No 163/2011. It may be noted that a unilateral declaration of the EFTA States was attached to the JCD, stating that the incorporation of the Regulation is without prejudice to the institutional solutions with regard to future acts conferring powers to impose sanctions. 9 Cf. Norberg et al., EEA Law, p. 702.

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recognition and application of decisions taken by ESA (i.e. concerning the approval of additional guarantees, zones, programmes, disease-free status, surveillance, contingency plans and list of establishments) in the EU pillar. These discussions resulted in the Commission blocking the incorporation of veterinary acts for a period of two years.10 18 Although the division of competence between ESA and the EU Commission should be firmly established by both Art. 109 EEA and Protocol 1 EEA, there are instances where these mechanisms are reiterated the EEA Joint Committee Decisions, somewhat unnecessary at times. 19 One example is the incorporation of the on the EU Greenhouse Gas Emission Trading Scheme (ETS) into the EEA Agreement.11 The scheme provides that for a given trading period each EU Member State must submit a National Allocation Plan (NAP) to the Commission, stating the amount of CO2 emissions within that participating State. The Commission is given the role of assessing whether each NAP is in line with the Member State’s Kyoto target. If the Commission finds that the NAP is not in line with the Kyoto target and other allocation criteria, it can reject the plan in part or in full. In line with the two-pillar system, the role of the Commission is to be assumed by ESA in the EFTA-pillar. However, the recitals of the EEA Joint Committee Decision in question explicitly provide for cooperation between ESA and the EU Commission in this respect, at the request of the latter.12 20 The Timber Regulation13 empowers the Commission to recognise, withdraw the recognition of and monitor organisations which develop and operate due diligence systems for operators who place timber and timber products on the market. The functions of the Commission set out in Art. 8(3), (5) and (6) fall within the scope of paragraph 4(d) of Protocol 1 to the EEA Agreement. However, in this instance the EFTA States insisted on an adaptation text stating that ESA is to carry out these functions of the Commission relating to monitoring organisations as regards the EFTA States, in order to ensure full clarity of the functions of ESA. V. Cooperation between the surveillance authorities

Art. 109 (2) lays down the duty of cooperation between ESA and the Commission in order to ensure uniform surveillance throughout the EEA. Further, Art. 5(2)(c) SCA states that ESA shall carry out cooperation, exchange of information and consultations with the Commission 22 To pursue the general aim of homogeneity in interpretation and application of EEA law, ESA and the Commission therefore exchange information and consult 21

10 In 2015, the EU Working Group on the Food Chain, in cooperation with the Commission, agreed to end this practice. 11 Directive 2003/87/EC EEA Joint Committee Decision No 146/2007. 12 Cf. Recitals 18, 19 and 9. 13 Reg. (EU) 995/2010.

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each other on surveillance policy issues and individual cases. Further, in practice, ESA participates in meetings of various Commission Committees and Expert Groups, and also invites representatives from the Commission to EFTA Committee meetings. ESA and the Commission have the opportunity to participate as observers in their respective inspections in various areas and also to participate in relevant training courses organised by the Commission or ESA. ESA and the Commission further engage in extensive informal consultations to ensure homogeneity in surveillance. The Legal Service of the Commission frequently submits written observations in infringement cases brought by or against ESA before the EFTA Court and has in one instance intervened in such cases to support ESA.14 In the same manner, ESA has submitted written observations to the ECJ and intervened in cases in support of the Commission. Although the legal services of the institutions may adopt different approaches or emphasis in a given case, it is customary to inform the other surveillance body of their submissions in an informal manner. It is therefore rare that ESA and the Commission explicitly disagree as to the law in their submissions. The rules on the cooperation between ESA and the Commission in the field of competition are set out in Protocol 23 EEA. In accordance with the relevant provisions of Arts. 53 and 54 EEA, ESA and the Commission forward complaints to one another and inform each other when opening ex officio procedures. The surveillance authority receiving such information is entitled to present its comments. ESA and the Commission furthermore consult each other in various instances and invite the other surveillance authority to be represented at hearings of the undertakings concerned. The surveillance authority not in charge of the case may request copies of the most important documents at all stages of the proceedings and make observations. Each surveillance authority may request the other to undertake inspections within its territory. The competent surveillance authority shall furthermore inform the other surveillance authority of such inspections and transmit the relevant results to that authority if requested. Thus, an inspection carried out by ESA may provide a basis for further investigation and formal decision by the Commission and vice versa.15 The authorities have in numerous cases carried out simultaneous inspections in their respective jurisdictions.16 This illustrates the close cooperation between the authorities in practice. ESA and the competent authorities of the EFTA States participate in meetings of the European Competition Network (ECN) for the purpose of discussion of general policy issues.17 The objective of the ECN is to build an effective le14 See for instance Case E-16/11, 28.1.2013, ESA v Iceland (Icesave). 15 Joined cases T-67/00, 68/99, 71/00 and 78/00, 8.7.2004, Nippon Steel et al v Commission. 16 Further information on joint inspections is available in ESA’s annual reports, published on its website. 17 Art. 1A was added to Protocol 23 EEA by decision of the EEA Joint Committee No 147/2007. The Article emphasises the importance of homogeneous interpretation by ESA and the Commission of Arts. 53 and 54 EEA and the corresponding Articles of the TFEU.

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gal framework to enforce the competition rules vis-à-vis companies that engage in cross-border business practices which restrict competition and harm consumers. However, ESA and the national competition authorities of the EFTA States do not participate in the ECN in matters of enforcement. The reason for the limited participation in the ECN is that after the modernisation of the competition rules and decentralised enforcement in the EU Pillar, the Commission firmly rejected a corollary decentralisation in the EFTA Pillar. The Commission thus hitherto has maintained that the division of competence stipulated by Art. 56 EEA prevents decentralised enforcement of the competition rules of the EEA.18 27 Protocol 24 EEA sets out the framework for the cooperation between ESA and the Commission in the field of control of concentrations. The parameters for the division of competence are laid down in Art. 57 EEA. In practice, the Commission has hitherto had the competence to handle all cases as no concentration with a pure “EFTA dimension” has ever been notified to ESA. The Commission however transmits to ESA copies of notifications and invites it to be represented at the hearings of the undertakings concerned. ESA will make an independent assessment of the impact of a proposed concentration in the EFTA States and inform the Commission of its views ESA is furthermore entitled to be present in the EU Advisory Committee on Concentrations and to express its views without the right to vote. The Commission may refer a notified concentration to an EFTA State in certain instances and any EFTA State may appeal to the ECJ on the same grounds and conditions as an EU Member State and request interim measures. The EFTA States have thus in this particular field accepted the jurisdiction of the ECJ. The rationale seems to be that due to the division of competence stipulated by the Agreement, the Commission would in these instances be acting as a surveillance authority under the EEA Agreement, not the TFEU.19 ESA has adopted guidelines and notices concerning the approach that will be taken by it in assessing competition cases. The guidelines are equivalent to the corresponding guidelines, communications and notices adopted by the Commission. Thus, ESA has adopted best practice guidelines on fines and leniency, effect on trade, de minimis, the definition of relevant markets, horizontal and vertical agreements to name a few.20 28 ESA and the Commission also cooperate with a view to ensuring a uniform surveillance in the field of State aid throughout the EEA. The rules on the cooperation between ESA and the Commission in the field of State aid are listed in Protocol 27 EEA. Exchange of information and views of general policy issues on the rules of State aid are held periodically or at the request of either surveil18 See further the comments by Gjendemsjø on Art. 56 EEA. 19 The constitutional limit, at least in Norway, seems to be drawn at the enforceability of decisions with pecuniary implications, see the comments by Einarsson and Fredriksen on Art. 110 EEA. 20 For overview see ESA’s website: http://www.eftasurv.int/competition/notices-and-guidelines.

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lance authority. In this regard, ESA and the Commission have bi-annual meetings. The former meeting takes place in the spring/summer where the President of ESA meets with the Deputy Director General of DG Competence to discuss all relevant policy issues. The latter meeting takes place in the autumn/winter where the relevant Directors and Heads of Units have a so-called contact meeting. Furthermore, multilateral meetings on state aid development are held when needed in order to adopt new state aid guidelines and ad hoc expert meetings are frequently held. ESA and the Commission periodically prepare surveys on State aid in the EU 29 and EFTA States and exchange that information with one another. ESA and the Commission furthermore notify one another if either authority refers a case to the ECJ or the EFTA Court. The notified authority may provide comments and submit written observation or intervene in the case before the relevant court. ESA and the Commission inform each other of all decisions and provide in- 30 formation and exchange views on individual State aid programmes and cases. Therefore, the cooperation between ESA and the Commission is wide ranging 31 and extends from informal contacts to formal procedures, both in the interest of homogeneous interpretation and application of EEA law and uniform surveillance. VI. Handling of complaints and division of competence

As provided for in Art. 109(3), ESA and the Commission receive complaints 32 concerning the application of the EEA Agreement and inform each other of the receipt of such complaints. Furthermore, ESA and the Commission examine complaints falling within their competence and pass to each other any complaints that fall within the competence of the other surveillance authority. In the field of general surveillance the division of competence is generally unproblematic; ESA handles cases and complaints vis-á-vis the EFTA States and the EU Commission vis-á-vis the EU Member States. In the field of competition, the EEA Agreement however contains specific 33 rules on how to divide competence between the two surveillance bodies.21 ESA is vested with equivalent powers and similar functions under the EEA Agreement and the SCA to those of the Commission under the TFEU for the application of the competition rules. Art. 58 EEA states that ESA and the Commission shall cooperate with a view to developing and maintaining uniform surveillance throughout the EEA in the field of competition and to promote homogeneous implementation, application and interpretation of the competition rules. This is primarily done by exchange of information and consultation on general policy issues, in accordance with Art. 1(1) of Protocols 23 and 24 EEA.

21 Following the modernisation of EEA competition rules in 2004, national competition authorities and national courts also play an important role in the enforcement of the competition rules, at least in the EFTA pillar, see further the comments by Gjendemsjø on Art. 56 EEA.

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Arts. 56 and 57 EEA provide detailed provisions as regards the formal division of competence between ESA and the Commission. In simplified terms, the Commission is responsible for cases which also fall under the competition rules of the TFEU. ESA is responsible for cases where there is an effect on trade between EFTA States alone. In all instances, either the Commission or ESA, but not both, handles a given case. This system has been described by the Court of First Instance as a “one-stop shop” system.22 In practice, most cases fall under the competence of the Commission. 35 Consequently, when the Commission has jurisdiction over a case with an EEA dimension the Commission will also apply the EEA competition rules.23 ESA will nevertheless make an independent assessment of the impact the case may have on the EFTA States and assist the Commission in the collection of market information in the EFTA States if necessary. 34

VII. Dispute settlement

It should be inherent in two-pillar system of surveillance with the corollary allocation of competences that there is mutual recognition and acceptance of the decisions adopted by the other surveillance authority. Art. 109(5) EEA however stipulates that, should disagreement arise between the two, either of the bodies may refer the matter to the EEA Joint Committee, which shall deal with it under Art. 111 EEA. 37 Art. 64 EEA sets out the procedure in the event of any disagreement between ESA and the Commission concerning the implementation of the state aid rules. In such an event exchange of views are held within two weeks. Should a commonly agreed solution not be found within that time, interim measures might be adopted and consultations thereafter held in the EEA Joint Committee. If the EEA Joint Committee would not find a solution within three months, the interim measures may be replaced by definitive measures. 38 In practice, neither surveillance body has identified a need to invoke the dispute settlement mechanism in the more than 20 years of application of the EEA Agreement. 36

Article 110 [Enforceability of decisions of the ESA and the Commission and of judgments of the EFTA Court and the EU Courts] Decisions under this Agreement by the EFTA Surveillance Authority and the EC Commission which impose a pecuniary obligation on persons other than States, shall be enforceable. The same shall apply to such judgments under this Agreement by the Court of Justice of the European Communities, the Court of First Instance of the European Communities and the EFTA Court. 22 Joined Cases T-67/00, 68/99, 71/00 and 78/00, 8.7.2004, Nippon Steel et al v Commission. 23 See for instance Commission decision of 19 December 2007, Case COMP/34.579 Mastercard, concerning breach of Arts. 81 EC and 53 EEA, para. 330.

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Article 110 Enforceability of decisions and judgements Enforcement shall be governed by the rules of civil procedure in force in the State in the territory of which it is carried out. The order for its enforcement shall be appended to the decision, without other formality than verification of the authenticity of the decision, by the authority which each Contracting Party shall designate for this purpose and shall make known to the other Contracting Parties, the EFTA Surveillance Authority, the EC Commission, the Court of Justice of the European Communities, the Court of First Instance of the European Communities and the EFTA Court. When these formalities have been completed on application by the party concerned, the latter may proceed to enforcement, in accordance with the law of the State in the territory of which enforcement is to be carried out, by bringing the matter directly before the competent authority. Enforcement may be suspended only by a decision of the Court of Justice of the European Communities, as far as decisions by the EC Commission, the Court of First Instance of the European Communities or the Court of Justice of the European Communities are concerned, or by a decision of the EFTA Court as far as decisions by the EFTA Surveillance Authority or the EFTA Court are concerned. However, the courts of the States concerned shall have jurisdiction over complaints that enforcement is being carried out in an irregular manner.

Art. 110 is closely modelled on Art. 192 EEC (later Art. 256 EC; now 1 Art. 299 TFEU). However, unlike Art. 299 TFEU, Art. 110 also regulates the enforceability of judgments and explicitly limit this to such judgments which impose a pecuniary obligation on persons other than States.1 Art. 110 is not a provision that, of itself, confers or limits powers to impose 2 pecuniary obligations. Rather, it is procedural in nature. It sets out how and under what conditions a decision by ESA, the European Commission, the Court of Justice, the General Court (previously the Court of First Instance) and the EFTA Court imposing a ‘pecuniary obligation’ is to be enforced in the Contracting Parties. Art. 110 thus assumes that another provision of the EEA Agreement confers on the above-mentioned institutions the power to impose a ‘pecuniary obligation’ on private entities. As made clear by its wording, Art. 110 is not applicable to pecuniary obliga- 3 tions imposed on States. Enforcement against a State through that State’s own courts is not very practical2 and enforcement in other EEA States is a sensitive matter which the Contracting Parties have not wished to touch. Fortunately, a threat of enforcement is hardly needed to get the EEA States to adhere to decisions by ESA and the Commission, or judgments from the EFTA Court or the EU Courts. It is worth bearing in mind that no provision of EEA law grants the EFTA Court to impose, upon a request by ESA, lump sum or penalties in line with what is laid down in Art. 260 TFEU.

1 In EU law, the enforceability of judgments of the CJEU (the ECJ and the GC) is regulated by Art. 280 TFEU (ex Art. 187 EEC/Art. 245 EC), which does not contain a similar limitation, see further on this Wegener in Calliess/Ruffert (eds), EUV/AEUV Kommentar, Art. 280 AEUV, Rn. 1. 2 In Norway this is ruled out by an exception in Section 1-2(1) of the Enforcement Act of 26 June 1992 No. 86.

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The term ‘pecuniary obligation’ is broader than that of ‘penalties’, ‘financial penalty’, ‘fine’ or ‘periodic penalty payment’ used in Art. 35 SCA and Arts. 23 and 24 of Protocol 4 SCA. Arts. 23 and 24 of Protocol 4 SCA is the legal basis for ESA to impose fines for breaches of the competition rules found in Arts. 53 and 54 EEA. At the time of entry into force of the EEA, these were the only fining powers granted to ESA. 5 Currently, however, there are now a few other examples of ESA having powers to issue fines: 4

– Art. 16 of Reg. (EC) 2289/89 on a code of conduct for computerized reservation systems; – Art. 25 of Reg. (EU) 216/2008 on common rules in the field of civil aviation and establishing a European Aviation Safety Agency; – Art. 22 of Reg. (EU) 714/2009 on conditions for access to the network for cross-border exchanges in electricity; – Art. 36 e of Reg. (EU) 1060/2009 on credit rating agencies; – Art. 65 of Reg. (EU) 648/2012 on OTC derivatives, central counterparties and trade repositories 6

There are some examples of the EFTA States having been granted adaptations when EU legal acts containing fining powers have been incorporated into the EEA Agreement. Those adaptation have provided that rather than vesting those powers in ESA, they have been given to the national authorities of the EFTA States.3 Iceland and Norway have insisted on such adaptations to avoid investing ESA with new competences. However, the trend seems to be that the EU is no longer willing to accept adaptations of this nature. Several EEA-relevant EU legal acts which vests the Commission with the power to fine private parties are awaiting incorporation into the EEA Agreement. In accordance with the two-pillar structure of the EEA, the EU side will presumably accept the need for EEA-adaptations, but apparently not any which result in the fining powers being vested in national authorities. Thus, ESA’s power to fine private parties from the EFTA States for breaches of certain rules of EEA law must be presumed to continue to grow in the future. The list of possible examples include: – Art. 49 of Reg. (EU) 1901/2006 on medicinal products for paediatric use; – Art. 6 of Reg. (EU) 391/2009 on common rules and standards for ship inspection and survey organisations – Art. 9 of Reg. (EU) No 510/2011 setting emission performance standards for new light commercial vehicles as part of the Union's integrated approach to reduce CO2 emissions from light-duty vehicles 3 Examples include the EEA-adaptations to Reg. (EC) No 1228/2003 on conditions for access to the network for cross-border exchanges in electricity (EEA Joint Committee Decision No. 146/2005) and Reg. (EC) No 726/2004 laying down Community procedures for the authorisation and supervision of medicinal products for human and veterinary use and establishing a European Medicines Agency (EEA Joint Committee Decision No. 61/2009).

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– Art. 6 b of Council Reg. (EU) No 734/2013 amending Reg. (EC) No 659/1999 laying down detailed rules for the application of Art. 93 of the EC Treaty [Art. 62 EEA] It is important to highlight that there is no basis for claiming that Art. 110 EEA only covers fines for competition law infringements. Firstly, as set out above, Art. 110 is procedural in nature and is itself not the basis of the imposition of any pecuniary obligations. Secondly, to limit Article 110 EEA to fines taken in the field of competition law would run counter to the wording of the provision itself. Furthermore, it may be added that Art. 299 TFEU has not been interpreted as containing any limitation on the EU institutions imposing pecuniary obligations on the basis of new secondary legislation. In Iceland the enforceability of fines for breaches of the competition rules is regulated by Art. 24 of the Competition Act no 44/2005. That provision lays down a legal basis for both ESA and the Commission to impose fines on undertakings for breaches of the competition rules of the EEA Agreement. Para. 1 states that ESA and the EFTA Court may impose fines to be paid by undertakings, associations of undertakings or individuals by reason of intentional or negligent infringements of Arts. 53, 54 or 57 EEA, of the provisions of Prot. 4 to the SCA. Para. 2 states that the same applies as regards the Commission and the ECJ when they have jurisdiction under the terms of the EEA. Para. 4 provides for the enforceability of the fines. Other fines issued by ESA (and any related judgment from the EFTA Court) would fall under sub-paragraph 11 of Art. 1 of Act 90/1989 on enforcement. The provision states that judgments and decisions by foreign courts or administrative authorities are enforceable provided that i) the Icelandic State has committed itself as a matter of public international law to recognise the enforceability of such claims; ii) the legal basis for the binding decision/judgment has been implemented into Icelandic law and iii) that their enforcement is not contrary to ordre public. As regards EEA law, the conditions for having recourse to this subparagraph would generally be fulfilled. With the incorporation of the EEA Joint Committee decision, the Icelandic State is bound under the terms of public international law and Art. 7 requires implementation of the Act into Icelandic law, which would ensure that the second condition is fulfilled. It must be regarded as very unlikely that the enforcement of a claim originating in EEA law would go against ordre public. In any event, paragraph 4 of Art. 110 EEA allows the courts of the state where the enforcement is being carried out to examine whether it is irregularly implemented. In Norway, the enforceability of fines issued by ESA (and any related judgment from the EFTA Court) is based on the general provision found in Section 4-1(2) letter h) of the Enforcement Act of 26 June 1992 No. 86. According to this provision, a decision by an international court or an international authority which is binding according to a public international law agreement shall be enforceable in Norway. The powers of ESA and the EFTA Court to impose fines Einarsson/Fredriksen

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on undertakings or associations of undertakings for the intentional or negligent infringement of Arts. 53, 54, or 57 EEA; the provisions of Annex XIV EEA or the provisions of Protocol 4 SCA with binding effect within the Norwegian legal order is secured by Section 4 of the EEA Competition Act of 2004.4 For the other examples listed above of ESA’s power to fine private parties from the EFTA States, the legal basis in Norwegian law is to be found in the Acts or Regulations implementing the relevant EU legal acts (as adapted by the EEA Joint Committee). 11 Whether an internal legal basis for binding decisions from ESA is really needed in order for such a decision to be enforceable under Section 4-1(2) letter h) of the Norwegian Enforcement Act is, however, not entirely clear. The wording of Section 4-1(2) h) of the Norwegian Enforcement Act is, unlike sub-paragraph 11 of Art. 1 of the Icelandic Enforcement Act, silent on national implementation of the legal basis for ESA’s decision as a prerequisite for national enforcement.5 As long as the EEA Joint Committee Decision vesting such powers in ESA has entered into force as a matter of EEA law, it is at least difficult to see any EEA law reason why ESA’s use of its powers should be conditional upon correct national implementation of the legal act in question. If ESA was to impose a pecuniary obligation on a private person in such a situation, refusal to enforce it would in any event be a blatant violation of Art. 110 EEA.6 12 Unlike the situation in Iceland, enforcement in Norway of decisions by the European Commission which impose pecuniary obligations (and related judgments from the EU Courts) is prohibited by law: Section 4 of the 1992 EEA Act makes clear that decisions by the EC institutions regarding pecuniary obligations addressed to enterprises located in Norway are not enforceable. This is in line with the unilateral declaration made by Norway in the Final Act of the EEA Agreement, where the Norwegian government drew the attention of the other Contracting Parties to the fact that the constitution of Norway does not provide for direct enforceability of decisions by the EC institutions regarding pecuniary obligations addressed to enterprises located in Norway.7 In response, the EU declared that the Commission would keep the situation ‘under constant review’ and ‘initiate consultations’ should problems arise.8 However, as any un4 Act concerning implementation and enforcement of the competition rules of the EEA Agreement of 17 December 2004 no. 100. The Act replaced the EEA Competition Act of 1992. 5 The matter is briefly discussed by the Ministry of Finance in the White Paper on the incorporation into the EEA Agreement of the EU financial supervisory system, see Prop. 100 S (2015-2016), Chapter 3.3.3. 6 In most cases, the problem can be avoided by invoking the need for national implementation of ESA’s legal basis as a constitutional requirements under Art. 103 EEA. Still, the national enforceability of ESA-decisions may be put to the test if it later turns out that the national implementation is deficient. 7 Declaration by the Government of Norway on the direct enforceability of decisions by the EC institutions regarding pecuniary obligations addressed to enterprises located in Norway, annexed to the Final Act to the EEA Agreement. 8 Counter-declaration by the European Communities, annexed to the Final Act to the EEA Agreement.

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dertaking with a wish to operate on the internal market has no choice but to comply with final decisions from the Commission, no such problems have arisen. In the EU Member States, enforcement of EEA-related decision by the 13 Commission and related judgments from the GC or the ECJ is governed by Arts. 299 and 280 TFEU. Thus, it is only in case of enforcement in EU Member States of decisions by ESA or related judgments from the EFTA Court (‘crosspillar enforcement’) that Art. 110 EEA is of practical interest for the EU-pillar of the EEA.

Section 3: Settlement of disputes

Article 111 [Dispute resolution in the EEA Joint Committee] 1. The Community or an EFTA State may bring a matter under dispute which concerns the interpretation or application of this Agreement before the EEA Joint Committee in accordance with the following provisions. 2. The EEA Joint Committee may settle the dispute. It shall be provided with all information which might be of use in making possible an in-depth examination of the situation, with a view to finding an acceptable solution. To this end, the EEA Joint Committee shall examine all possibilities to maintain the good functioning of the Agreement. 3. If a dispute concerns the interpretation of provisions of this Agreement, which are identical in substance to corresponding rules of the Treaty establishing the European Economic Community and the Treaty establishing the European Coal and Steel Community and to acts adopted in application of these two Treaties and if the dispute has not been settled within three months after it has been brought before the EEA Joint Committee, the Contracting Parties to the dispute may agree to request the Court of Justice of the European Communities to give a ruling on the interpretation of the relevant rules. If the EEA Joint Committee in such a dispute has not reached an agreement on a solution within six months from the date on which this procedure was initiated or if, by then, the Contracting Parties to the dispute have not decided to ask for a ruling by the Court of Justice of the European Communities, a Contracting Party may, in order to remedy possible imbalances, – either take a safeguard measure in accordance with Article 112(2) and following the procedure of Article 113; – or apply Article 102 mutatis mutandis 4. If a dispute concerns the scope or duration of safeguard measures taken in accordance with Article 111(3) or Article 112, or the proportionality of rebalancing measures taken in accordance with Article 114, and if the EEA Joint Committee after three months from the date when the matter has been brought before it has not succeeded to resolve the dispute, any Contracting Party may refer the dispute to arbitration under the procedures laid down in Protocol 33. No question of interpretation of the provisions of this Agreement referred to in paragraph 3 may be dealt with in such procedures. The arbitration award shall be binding on the parties to the dispute.

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I. Introduction – Dispute Settlement in the EEA 1

During the EEA negotiations, a common EEA Court was envisaged with jurisdiction, inter alia, to settle disputes between the Contracting Parties.1 However, in its (in)famous Opinion 1/91, the ECJ declared the proposition for a common EEA Court to be incompatible with the EEC Treaty.2 The essence of the ECJ’s objections was that it saw the creation of an EEA Court as a threat to its own position as the supreme authority on Community law,3 in particular because the EEA Court would be interpreting EEA provisions that were identical in substance to corresponding rules of Community law. As the decisions by the EEA Court would be binding on the Community institutions, including the ECJ itself, the ECJ feared that its future interpretation of the rules governing the internal market would be determined by the EEA Court.4 According to the ECJ, this was in conflict not only with Art. 164 of the EEC Treaty (now Art. 19 TEU), but also ‘with the very foundations of the Community’.5 Thus, to the Contracting Parties, it was obvious that a renegotiated dispute settlement mechanism had to avoid binding interpretation of common EU/EEA rules in any other forum than the ECJ. A common EEA Court to settle disputes related to the interpretation or application of other EEA-rules could presumably have been established without challenging the ECJ’s views in Opinion 1/91,6 but under the given circumstances it is understandable that the Contracting Parties took no risk and gave up the idea of a common court altogether. Instead, the existing two-pillar structure of the EEA was extended to also include the judicial branch. Jurisdiction to settle disputes between the EFTA States was vested in the EFTA Court (Art. 108(2)(c)EEA and Art. 32 SCA),7 whereas EEA-related disputes between the EC and/or EC Member States were left entirely to the ECJ (now Arts. 259 1 According to Arts. 96(1)(a) and 117(1) and (3) of the Draft Agreement in the version that was considered by the ECJ in Opinion 1/91. The EEA Court could be seized either by the EEA Joint Committee or directly by a Contracting Party in the event that the Joint Committee had not resolved the dispute after two consecutive meetings. The text of the Draft Agreement can be found in the introductory part of Opinion 1/91, published in [1991] ECR 6085-6092. 2 Opinion 1/91, 14.12.1991. 3 See, i.a., T. Hartley, ‘The European Court and the EEA’, International and Comparative Law Quarterly 41 (1992), pp. 841-848, at p. 847. 4 Opinion 1/91, 14.12.1991, paras. 41-44. There is a striking divergence between the ECJ’s understanding of the homogeneity objective of the EEA Agreement in this part of Opinion 1/91 (para. 43 assumes that the homogeneity objective will be achieved and therefore limits the ECJ’s interpretation of Community law) and the part that deals with the homogeneity objective as such (paras. 13-29 suggest that divergences between the aims of the EEA Agreement, on the one hand, and Community law, on the other, would render the homogeneity objective unattainable). 5 Opinion 1/91, 14.12.1991, para. 44. 6 See further on this issue later in this section. 7 See further the comments by Tynes on Art. 108 EEA and by Christiansen on Art. 32 SCA. Given the lack of an EEA/SCA-parallel to Art. 344 TFEU, it can be argued that an EFTA State can decide to bring a dispute with one of the other EFTA States before the EEA Joint Committee in accordance with Art. 111 EEA rather than before the EFTA Court in accordance with Art. 32 SCA. However, this is hardly a realistic scenario in practice.

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and 263 TFEU).8 For the remaining cross-pillar disputes, it was decided that disputes between the Community, on the one hand, and one or more EFTA States, on the other, are to be handled by the EEA Joint Committee (see section II below), with the possibility of referring questions on the interpretation of common EC/EEA rules to the ECJ (section III below) and the further possibility of referring disputes concerning safeguard and rebalancing measures to arbitration (see section VI below). As to possible disputes between an EFTA State and an EU Member State in an area of EEA law that falls outside the competences of the EU, no dispute settlement mechanism is offered, probably because of the presumed lack of any practical need for it. The lack of a common EEA Court to settle cross-pillar disputes is a consider- 2 able structural defect of the EEA.9 It is only due to the loyal adherence to ECJ case-law demonstrated by ESA, the EFTA Court and the national courts and governments of the EFTA States that this defect has not caused considerable problems for the functioning of the EEA.10 Still, with respect to important matters such as disagreement in the EEA Joint Committee about the EEA-relevance of novel EU legal acts, the legal consequences of the EFTA States making use of their collective right to block the incorporation of a given legal act into the Agreement (i.e. the legal consequences of a ‘veto’) and the question of the territorial scope of the EEA law, it seems safe to submit that the lack of an obligatory and binding judicial dispute resolution mechanism has indeed had a negative impact on the functioning of the EEA Agreement.11 Furthermore, the emergence of a growing number of EU Agencies with competence to, inter alia, settle disputes between national authorities of different EU Member States has accentuated the problem in recent years.12 In important fields such as foodstuffs, aviation safety, chemicals and medic- 3 inal products, the EFTA States have accepted the binding effect of certain decisions by the European Food Safety Authority (EFSA), the European Aviation Safety Agency (EASA), the European Chemicals Agency (ECHA) and the European Medicines Agency (EMA), and they have accepted that any dispute between the relevant national authorities of an EFTA State, on the one hand, and the EU agencies in question, on the other, is to be settled by the EEA Joint Com-

8 At least as far as disputes between EU Member States are concerned, this was presumably already the case under the Draft Agreement, since the EEA Agreement is an integral part of what is now EU law and Art. 344 TFEU (then Art. 219 of the EEC Treaty) obliges the Member States not to submit disputes concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein. 9 Cf. the understatement by Fenger, Rydelski and van Stiphout, EFTA and EEA, p. 166: ‘clearly only the second best option’. 10 See, e.g., Fredriksen and Franklin, ‘Of Pragmatism and Principles – The EEA Agreement 20 Years On’, 52 Common Market Law Review (2015) pp. 629-684, on pp. 681 ff. 11 See further on these contentious questions the comments by Dystland, Finstad and Sørebø on Art. 102 and by Arnesen on Art. 126. 12 See, e.g., Fredriksen and Franklin, ‘Of Pragmatism and Principles – The EEA Agreement 20 Years On’, 52 Common Market Law Review (2015) pp. 629-684, on pp. 676 ff.

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mittee.13 This solution is highly unsatisfactory. The EU representatives on the EEA Joint Committee will hardly be in a position to agree to a decision that declares a decision by an EU agency invalid. In reality, therefore, unless the EFTA States accept that the matter is referred to the ECJ in accordance with Art. 111(2),14 they have in effect waived the right to oppose EEA-related decisions by a steadily growing number of EU agencies.15 4 Equally problematic from the perspective of settling cross-pillar disputes are the cases in which the EFTA States have avoided transfer of sovereignty to EU agencies only by agreeing to vest ESA with competences to adopt binding decisions. The most prominent example is the affiliation of the EFTA States to the European Supervisory Authorities in the field of financial services – the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA).16 The same solution has been adopted with regard to the European Agency for the Cooperation of Energy Regulators (ACER).17 Disputes between ESA and the EU agencies are an inherent risk in this set-up. A special procedure has been established to fast track such cases to the EEA Joint Committee,18 but this will not in itself help to resolve the dispute. Thus, the set-up essentially rests on the premise that ESA will rubber-stamp the draft decisions it receives from the EU agencies, so that no disputes will arise.19 5 Despite the obvious problems with the existing dispute settlement mechanism, the lack of viable alternatives within the existing institutional architecture 13 See, i.a., the decisions of the EEA Joint Committee No 134/2007 (EFSA), No 179/2004 (EASA), No 25/2008 (ECHA) and No 61/2009 (EMA). 14 See further concerning this possibility in Section III below. 15 As a telling example, Norway is reportedly an eager behind-the-scenes initiator and supporter of the many Swedish attempts to get the EU Courts to annul unwelcome decisions by EU agencies and/or related decisions by the Commission in the fields of chemicals, see the EU/EEA newsletter from the Library of the Norwegian Parliament (‘EU/EØS-nytt’), 1 December 2016. A recent example is the pending Case T-837/16 Sweden v Commission. 16 See, in particular, the decisions of the EEA Joint Committee No 199/2016 (EBA), No 200/2016 (EIOPA), No 201/2016 (ESMA). 17 See decisions of the EEA Joint Committee No 93/2017. 18 See, e.g., EEA Joint Committee Decision No 201/2016 (ESMA), Art. 1, introductory adaptations, letter d: ‘[…] In case of disagreement between ESMA and the EFTA Surveillance Authority with regard to the administration of the provisions of the Regulation, the Chairperson of ESMA and the College of the EFTA Surveillance Authority shall, taking into account the urgency of the matter, without undue delay convene a meeting to find consensus. Where such consensus is not found, the Chairperson of ESMA or the College of the EFTA Surveillance Authority may request that the Contracting Parties refer the matter to the EEA Joint Committee which shall deal with it in accordance with Article 111 of this Agreement which shall apply mutatis mutandis. In accordance with Article 2 of Decision of the EEA Joint Committee No 1/94 […], a Contracting Party may request immediate organisation of meetings in urgent circumstances.’ Similar provisions are found in the other Joint Committee Decisions mentioned in the previous footnotes. 19 The EEA Joint Committee’s decision to incorporate Reg. (EC) No 713/2009 establishing an Agency for the Cooperation of Energy Regulators also cuts the EFTA States off from the possibility of appealing decisions by ACER to the Agency’s Board of Appeal, se Art. 1 No 5 letter (g) of EEA Joint Committee Decision No 93/2017.

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of the EEA Agreements entails that recourse to it is to be expected in other fields of EEA law where the EFTA States need to find a way to affiliate themselves to EU agencies, such as electronic communications and data protection.20 The lack of a common EEA court to settle cross-pillar disputes in a binding 6 manner is first and foremost a problem for the EFTA States, for example in cases where they feel that the EU is pressuring them into accepting the EEA-relevance of EU legal acts that the EFTA States believe fall outside the scope of the Agreement.21 However, when taking into account that the EEA Agreement confers rights on individuals and economic operators, it is clear that the lack of effective judicial protection in cases of cross-pillar disputes between the Contracting Parties is also a problem for affected private parties. In a way, the judicial protection offered to individuals and economic operators under EEA law lags behind the subjective rights that the Agreement confers upon them. The EEA Agreement is more than a traditional Free Trade Agreement, but not so much when it comes to judicial protection for individuals in cases of cross-pillar disputes between the EU, on the one hand, and an EFTA State, on the other.22 In disputes relating to the interpretation or application of common EU/EEA rules, it is within the EFTA States’ power to remedy this by opening up the way to the ECJ.23 In other cases, improvements will require amendments to the Main Part of the EEA Agreement.24 The less ambitious EFTA Convention provides for dispute settlement 7 through a classical arbitration approach (Art. 48 of the Convention).25 Unlike the very limited jurisdiction of the arbitration tribunal established under 20 Related to EFTA States’ affiliation to the EU Body of European Regulators for Electronic Communications (BEREC) and the European Data Protection Board (EDPB). 21 As, e.g., in the cases discussed in depth by Jónsdottir, Europeanization and the European Economic Area, chapters 4, 5 and 6 (the Citizenship Directive, the Emission Trading Scheme and the Food Law Package). 22 Even though the problem may in some cases be remedied by the possibility of bringing proceedings before national courts of an EU Member State, which then decide to refer the matter to the ECJ, since the ECJ’s ruling will de facto be binding on both the EU and the EFTA States. This is only an alternative, however, if the cross-pillar dispute concerns the interpretation of EEA rules that are justiciable before the national courts in the EU. As to the alternative of bringing proceedings before the national courts of an EFTA State, the problem is that neither the national courts nor the EFTA Court (if the case is referred to it under Art. 34 SCA) can ask the ECJ to rule on the validity of the underlying decision from the EU agency in question. 23 Either through the use of Art. 111(3) (see Section III below); through adaptations of the Joint Committee Decisions incorporating the relevant legal acts into the Agreement (such as in the cases of EFTA States’ affiliation to EU agencies) or, perhaps, through (creative) use of Art. 107 EEA to introduce horizontal ‘Foto Frost-references’ from the EFTA Court to the ECJ in cases where the crux of the matter is the validity as a matter of EU law of an EU legal act. 24 In Opinion 1/91 (and subsequent opinions), the ECJ has acknowledged that, in principle, the EU’s competence in the field of international relations entails the power to submit to the decisions of a common court with jurisdiction to settle disputes between the Contracting Parties (Opinion 1/91, paras. 39-40). Thus, a common EEA Court with jurisdiction to decide on the interpretation and application of EEA rules other than those which are taken over from EU law should be possible. 25 For an introduction, see Fenger, Rydelski and van Stiphout, EFTA and EEA, pp. 46-47.

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Art. 111(4) EEA, however, the arbitration tribunal foreseen in the EFTA Convention will have jurisdiction to rule on any matter arising from the Convention (Art. 46 of the Convention). II. Dispute settlement by political means 1. Right to invoke Art. 111

Under the first paragraph of Art. 111, the EU or an EFTA State may bring a matter under dispute which concerns the interpretation or application of this Agreement before the EEA Joint Committee. It is noteworthy that the individual EU Member States have no right to launch the dispute settlement procedure – their interests will have to be taken care of by the internal procedures where it is the EU that decides whether or not to bring a dispute to the Joint Committee.26 It should further be noted that each of the EFTA States has a right to invoke Art. 111 – there is no need for the EFTA States to speak with one voice. The dispute could well be between the EU and only one EFTA State, in which case access to the dispute settlement procedure should not require the approval of the other EFTA States.27 9 In addition to the EU and the EFTA States, Art. 109(5) EEA empowers the Commission and ESA to bring before the Joint Committee any dispute between them with regard to the action to be taken in relation to any complaints concerning the application of the EEA Agreement or with regard to the result of the examination.28 In the field of State Aid, Art. 64 contains a similar provision, but with tighter time limits.29 Similar procedures have also been adopted by the EEA Joint Committee in the decisions to affiliate the EFTA States to the European Supervisory Authorities in the field of financial services.30 8

26 As noted in Section I above, Art. 111 appears to be inapplicable to possible disputes between an EFTA State and an EU Member State in an area of EEA law that falls outside the competences of the EU. However, in the unlikely scenario that such a dispute should ever arise, Art. 5 EEA will at least provide for the right to consultations in the EEA Joint Committee or the EEA Council. See further the comments by Tynes on Art. 5. 27 But any decision in the Joint Committee on how to settle the dispute will require the EFTA States to agree, see Art. 93(2) and below in Section II.3. 28 Even though the Commission and ESA can initiate the dispute settlement procedure in Art. 111, this will not make the surveillance authorities as such parties to the dispute. However, the Commission will be able to act as a representative of a Contracting Party (but subject to any instructions it may receive from the Council regarding the position to be taken by the EU, see Reg. 2894/94). 29 Even though Art. 64 refers to ‘consultations’ in the Joint Committee rather than to Art. 111, it is difficult to see why the alternatives provided for in Art. 111 (referral to the ECJ and/or arbitration) should not be available in such a case. Nevertheless, the fact that Art. 64 includes its own criteria for unilateral rebalancing measures justifies characterising Art. 64 as an independent dispute resolution mechanism in its own right. 30 See, e.g., EEA Joint Committee Decision No 201/2016 (ESMA), Art. 1, introductory adaptations, letter d, which empowers ESA and the Chairperson of ESMA to request the Contracting Parties to refer a dispute between ESA and ESMA to the EEA Joint Committee.

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So far, Art. 111(1) is reported to have been invoked only twice. The first time 10 was in a dispute concerning a road toll introduced by Liechtenstein in 2001 that the EU regarded as incompatible with the Eurovignette directive (93/89/EEC). The matter was resolved, however, as it became known that the directive was about to be revised by the EU-legislator.31 The second time was in 2002, when Liechtenstein invoked Art. 111(1) in connection with the supplementary protection certificate for medicinal products under Regulation No 1768/92.32 No solution was found during 2002 and 2003. In 2003, the disputed question of interpretation – whether the date of the granting of a marketing authorisation in Switzerland, which was automatically recognised in Liechtenstein, was to be considered as the first authorisation for placing a medicinal product on the market – arose in cases between pharmaceutical firms and national patent authorities both in the UK and in Luxembourg. Because the national courts referred the matter to the ECJ under what is now Art. 267 TFEU, the EEA Contracting Parties apparently decided to wait for the ECJ’s answer. Before the ECJ, all of the three EFTA States and ESA argued that the question was to be answered in the negative since marketing authorisations granted in Switzerland did not permit the free movement of the medicinal products to which they relate within the EEA (only in Liechtenstein). The Commission, on the other hand, argued for an affirmative answer. The ECJ followed the Commission.33 Presumably realising that it would be futile to pursue the matter further in the EEA Joint Committee, Liechtenstein reacted by abolishing simultaneous recognition of Swiss marketing authorisations by introducing a delay (usually of 12 months). 2. No need to involve ESA or the Commission

There is no formal requirement to involve ESA or the Commission before a 11 matter under dispute is brought before the EEA Joint Committee. The EEA Agreement knows of no provision mirroring that of Art. 259(2) TFEU, which requires an EU Member State to bring a matter before the Commission before bringing an action against another Member State. Barring matters of particular urgency, however, there is little reason to invoke Art. 111 until it becomes apparent that the competent surveillance authority will not act on the matter.34

31 EEA Joint Committee, Annual Report 2001, 19 April 2002, Part II, Point 10. 32 EEA Joint Committee, Annual Report 2003, Annex 1, p. 3. 33 Joined Cases C-207/03 and C-252/03, 21.4.2005, Novartis and Millennium Pharmaceuticals. See, in particular, para. 32. 34 In the Eurovignette case mentioned above, it appears that the Commission did not wait for ESA to act. As a result, the EFTA States are reported to have refused to recognise the disagreement as a dispute under Art. 111. While understandable from a political perspective, it is difficult to see any legal basis for this refusal – Art. 111 does not require the opposing party to ‘recognise’ a dispute, and refusal to do so can obviously not hinder its use.

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3. The powers of the Joint Committee to settle a dispute

According to the second paragraph of Art. 111, the EEA Joint Committee shall carry out an in-depth examination of the situation, with a view to finding ‘an acceptable solution’. To this end, the Committee shall examine ‘all possibilities’ to maintain the good functioning of the Agreement. However, Art. 111(2) is silent as regards the specific means at the Joint Committee’s disposal.35 As a result, it is not clear whether the powers of the Joint Committee under Art. 111 are limited to the competences it has as a legislative body (Art. 98 EEA) or whether it can also act as a quasi-judicial body with competence to interpret existing EEA rules in an authoritative way. 13 The wording of Art. 111(2) suggests that the Joint Committee is not required to find the legally correct solution to the dispute.36 This is in line with the traditional dispute resolution mechanisms found in many FTAs (the EFTA Convention included) – a politically acceptable solution will suffice. However, the fact that the EEA Agreement vests individuals with rights which they can invoke before the courts of the Contracting Parties (be it the national courts or the ECJ/the EFTA Court) complicates matters considerably. 14 The competence of the Joint Committee to settle a dispute through amendments to the EEA Agreement is clear enough.37 However, this will only be an alternative if the dispute concerns the interpretation or application of parts of the EEA Agreement that the Joint Committee is competent to amend (the annexes and some of the protocols),38 and only if it suffices to change the legal situation with effect for future cases (ex nunc). In other cases, the Joint Committee’s role as an authoritative interpreter of EEA law will be put to the test. An important limitation on the Committee’s competence in this regard, but also an implicit acknowledgment that the Committee actually has such a quasi-judicial function, is Protocol 48 EEA. According to this Protocol, decisions taken by the EEA Joint Committee under Arts. 105 and 111 ‘may not affect the case-law of the [ECJ]’. This limitation, which originally only followed from an agreed minute, was highlighted by the ECJ in its Opinion 1/92 as ‘an essential safeguard which is indispensable for the autonomy of the Community legal order’.39 Despite its presumed importance, however, the impact of Protocol 48 is not entirely clear. It is hardly needed to prevent the Joint Committee from acting as 12

35 As noted by Tobler, ‘Dispute Resolution under the EEA Agreement’, in: Baudenbacher, Handbook of EEA Law, pp. 195-207, on p. 198. She deduces a competence to take ‘necessary action’ from the Committee’s task of settling the dispute, but does not elaborate further on what this entails. 36 As held by Fenger, Rydelski and van Stiphout, EFTA and EEA, p. 168. 37 See Norberg et al., EEA Law, p. 279; Tobler, ‘Dispute Resolution under the EEA Agreement’, in: Baudenbacher, Handbook of EEA Law, pp. 195-207, on p. 198. 38 See further the comments by Dystland, Finstad and Sørebø on Art. 98. 39 Opinion 1/92, 10.4.1992, paras. 23-24. As the ECJ demanded that the limitation on the Joint Committee’s competence be laid down in a form binding on the Contracting Parties (para. 25), the procès-verbal agréé ad article 105 was replaced by Protocol 48 concerning Articles 105 and 111.

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some sort of ‘EEA Court of Cassation’ to review judgments of the ECJ, since this limitation already follows from the Contracting Parties’ adherence to the independence of the courts and respect for the principle of res judicata.40 The object and purpose of Protocol 48 must therefore be to protect the general erga omnes effect of the case-law of the ECJ: The effect of case-law of the ECJ can only be ‘corrected’ by the ECJ itself in a new case or by the EU legislator acting in accordance with the EU treaties.41 On this reading, it is relevant that the EFTA Court is not mentioned in Protocol 48. The EEA Joint Committee cannot annul the binding inter partes effect of a final judgment from the EFTA Court either (principle of res judicata), but it can probably decide that the legal view expressed in the judgment shall not have any erga omnes effect. This must at least be the case if the EEA rule in question is one that the Joint Committee is competent to amend.42 However, the wording of Art. 111(2), read in the context of Art. 98 (Art. 111 must be presumed to add something to the role and competences of the Joint Committee) and Protocol 48, suggests that the Joint Committee may also adjust the EFTA Court’s interpretation of the Main Part of the EEA Agreement in line with the view of the ECJ.43 The practical use of this competence is nonetheless limited to cases of clear judicial conflict between the ECJ and the EFTA Court, as the Joint Committee would otherwise risk violating Protocol 48. As long as the EFTA Court follows the ECJ’s lead, this is not a very likely scenario in practice. If the dispute concerns the inter partes effect of a final judgment from the 15 ECJ, the EFTA Court or the national courts of an EEA State, the alternatives available to the Joint Committee are more limited. Still, if, for example, the EU claims that individuals or economic operators from an EU Member State have suffered an economic loss due to judicial wrongdoing in the EFTA pillar, there is, in principle, nothing to prevent the EEA Joint Committee from settling the dispute through an agreement that obliges the responsible EFTA State(s) to compensate the loss. A more complicated case would be one where an economic

40 See the fifteenth recital of the Preamble. 41 Thus, the reference to ‘the binding nature of decisions of the Court of Justice within the Community legal order’ in Opinion 1/92 (para. 22) must be read as a reference to the general erga omnes effect of ECJ case-law. 42 See Bull, Norsk lovkommentar, comments on Art. 111 EEA, Note 203. 43 This seems to be the view of the Commission in its submissions before the ECJ in Opinion 1/92, characterising measures to be taken by the Joint Committee as means to secure ‘the “reception” of new rulings of the Court of Justice’ ([1992] ECR I-2821 on p. 2833). Along the same lines, M. Cremona, ‘The “dynamic and homogeneous” EEA: Byzantine structures and various geometry’, European Law Review 19 (1994), pp. 508-526, on p. 517, and Fenger, Rydelski and van Stiphout, EFTA and EEA, pp. 167-168. The question is left open by Bull, Norsk lovkommentar, who comments on Art. 111 EEA, note 203. For a very different view, see C. Baudenbacher, The EFTA Court in Action, p. 5, who claims that the EEA Joint Committee ‘can neither incorporate ECJ case law into the EEA Agreement, nor overrule judgments of the EFTA Court.’ That view is reiterated in Baudenbacher, ‘The Relationship between the EFTA Court and the Court of Justice of the European Union’, in: Baudenbacher (ed.), The Handbook of EEA Law, pp. 179-195, on p. 191.

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operator from an EFTA State receives State aid with the approval of ESA and the EFTA Court, but which the EU believes to violate Art. 61 EEA. The binding effect of the EFTA Court’s judgment will probably prevent the Joint Committee from ordering the aid to be recovered, but this cannot protect the recipient from other measures to offset the effect of the aid.44 16 Any decision in the Joint Committee as to how to settle a dispute requires all of the EFTA States to agree, see Art. 93(2). III. Dispute settlement through the ECJ

If a dispute concerns the interpretation of provisions of EEA law which are identical in substance to corresponding provisions of EU law, the third paragraph of Art. 111 allows for the Contracting Parties to the dispute to agree, after a three-month ‘cooling off-period’, to request the ECJ to give a ruling on the interpretation of the relevant rules. 18 For the EFTA States, the need for agreement on a referral to the ECJ is important for reasons of sovereignty. For obvious reasons, it was politically difficult for them to accept that an EU institution should be involved in the settlement of disputes between them and the EU.45 The compromise found in Art. 111(3) essentially enables the EFTA States to decide, based on the specifics of any given dispute, on whether or not to turn to the ECJ.46 So far, no dispute has arisen in which this alternative has even been considered. The only scenario in which the ‘foreign judges’ of the ECJ might be a politically acceptable alternative is a case of a deadlocked conflict between the government and/or the courts of an EFTA State, on the one hand, and ESA and/or the EFTA Court, on the other, in which the EFTA State in question sincerely believes that it has a real chance to prevail before the ECJ. 19 Still, as illustrated by the EU-Liechtenstein dispute concerning the supplementary protection certificate for medicinal products under Regulation No 1768/92, the subject matter of a cross-pillar dispute may well – if it concerns the interpretation of EEA rules which are justiciable before the national courts in the EU – be brought before the ECJ in accordance with Art. 267 TFEU without the EFTA States being able to do anything about it.47 20 It should be noted that the decision on whether or not to turn to the ECJ lies with the Contracting Parties to the dispute alone. Thus, an EFTA State involved in a dispute with the EU can agree to request the ECJ to give a ruling even though the other two EFTA States are opposed to such a solution.48 The 17

44 This can even be done unilaterally by the affected Contracting Party, see Art. 64 EEA. 45 Norberg et al., EEA Law, p. 280. 46 It is worth noting that Switzerland, traditionally seen as perhaps the EFTA State with the biggest problem with ‘foreign judges’, has accepted the obligatory jurisdiction of the ECJ under the Swiss-EU Air Transport Agreement, and it is also reported to be willing to extend this to other fields as part of a future institutional framework agreement for the many Swiss-EU market access agreements; see the report by Pirker in Part I of this book. 47 The case is discussed in Section II.1 above.

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wording ‘Contracting Parties to the dispute’ and the nature of Art. 111 as a dispute resolution mechanism suggest that the other two EFTA States cannot block an unwelcome referral to the ECJ by claiming to be parties to the same dispute. The possibility of turning to the ECJ is limited to disputes concerning the in- 21 terpretation of provisions of the EEA Agreement that are ‘identical in substance to corresponding rules of the Treaty establishing the European Economic Community and the Treaty establishing the European Coal and Steel Community and to acts adopted in application of these two Treaties.’ In light of the need for the Contracting Parties to the dispute to agree to a referral to the ECJ, and the overarching object and purpose of Art. 111 as a dispute resolution mechanism, this limitation must be interpreted generously.49 Firstly, the lack of a corresponding rule in the current EU treaties cannot matter if such a corresponding rule existed in the EEC Treaty at the time the EEA Agreement was signed.50 Further, Art. 111(3) cannot be limited to the interpretation of identically worded provisions of EU and EEA law – certain divergences in the wording must be acceptable as long as the provisions regulate the same substance.51 Further still, it cannot be required that the Contracting Parties to the dispute agree that the EEA and EU rules in question have to be interpreted uniformly – this may well be the very core of the dispute between them and is in any event impossible to know for certain until the ECJ has rendered its judgment.52 Finally, the scope and content of unwritten principles of EU and EEA law ought also to be included. Even if Art. 111(3) is invoked, the ECJ will not settle the dispute in question; 22 it only delivers a ruling on the interpretation of the relevant rules of EEA law. In Opinion 1/92, the ECJ highlighted that ‘the Contracting Parties and the Joint Committee alike will be bound by the Court's interpretation of the rules at issue’.53 It is then for the EEA Joint Committee to apply the ruling to the dispute in question.54 Thus, indirectly, the other EFTA States will also be bound by the ECJ’s ruling in their capacity as members of the EEA Joint Committee. Strictly speaking, this binding effect must be limited to the settlement of the dispute that gave rise to the ruling, but in practice it will be very hard for the EFTA States to continue to advocate a different interpretation of EEA law in other settings.

48 In theory, the EFTA States must also be able to turn to the ECJ under Art. 111(3) in a dispute between themselves, but this would certainly be a rather odd choice as long as Art. 32 SCA has been specifically enacted to deal with such internal disputes in the EFTA pillar. 49 This view is further supported by the effectiveness of the second subparagraph of Art. 111(3), see section IV below. 50 One example of this is Art. 43(2) EEA, which was modelled on Art. 73(1) of the EEC Treaty. 51 As demonstrated by both the ECJ and the EFTA Court in their interpretation of Art. 40 EEA and 63 TFEU; see the comments by Bull on Art. 40. 52 Tobler, ‘Dispute Resolution under the EEA Agreement’, in: Baudenbacher, Handbook of EEA Law, pp. 195-207, appears to see this differently (on pp. 199-200). 53 Opinion 1/92, 10.4.92, para. 35. 54 Norberg et al., EEA Law, p. 281.

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The details of the procedure before the ECJ are set out in Art. 204 of the ECJ’s Rules of Procedure. IV. Safeguard measures in the event of an unresolved dispute

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If a dispute concerns the interpretation of provisions of EEA law that are identical in substance to corresponding provisions of EU law, the second subparagraph of Art. 111(3) allows for unilateral remedies in two situations, namely (i) where the Joint Committee has not reached agreement on a solution within six months of the date on which the dispute resolution procedure was initiated, or (ii) if the Contracting Parties to the dispute have not decided by then to ask for a ruling by the ECJ. In these situations, a Contracting Party may, in order to remedy possible imbalances, either (i) take a safeguard measure in accordance with Art. 112(2), or (ii) apply Art. 102 mutatis mutandis (see section V below). The right to unilateral remedies lies with ‘a Contracting Party’, thus suggesting that it is not limited to the Contracting Parties to the dispute.55 However, a contextual interpretation suggests that a Contracting Party cannot invoke Art. 111(3)(2) against another Contracting Party without having gone through the settlement procedure provided for in Art. 111(2) and the inherent cooling offperiod of three plus three months. The key requirement in the second subparagraph of Art. 111(3) is the existence of ‘possible imbalances’. As noted by Norberg et al., this concept is not defined in the Agreement.56 The lack of any threshold (such as the reference to ‘serious’ difficulties in Art. 112(1)) suggests that the requirements are moderate, but the Contracting Party invoking an imbalance must still substantiate its claim in the Joint Committee and pay due account to the common obligation to maintain the good functioning of the EEA Agreement.57 Further, there must obviously be a causal link between the matter under dispute and the alleged imbalances.58 Neither Art. 111(3)(2) nor Art. 112(2) defines the concept of ‘safeguard measures’, but the latter provision makes clear that any such measures shall be restricted with regard to their scope and duration to what is strictly necessary in order to remedy the situation and that priority shall be given to such measures as will least disturb the functioning of the EEA Agreement.59 As to procedure, Art. 111(3)(2) states that the procedure of Art. 113 is to be followed. Thus, a Contracting Party that intends to take a safeguard measure must, without undue delay, notify the other Contracting Parties through the EEA

55 Tobler, ‘Dispute Resolution under the EEA Agreement’, in: Baudenbacher (ed), Handbook of EEA Law, pp. 195-207, on p. 200. 56 Norberg et al., EEA Law, p. 281. 57 See also the comments on Art. 114. 58 Norberg et al., EEA Law, p. 281. 59 See further the comments on Art. 112.

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Joint Committee and adhere to the time limits found in Art. 113.60 The reference to Art. 113 also makes it clear that, for the EU, safeguard measures are to be taken by the Commission. The fact that the reference in Art. 111(3)(2) to Art. 112 is limited to the lat- 29 ter’s second paragraph means that a safeguard measure taken by a Contracting Party under Art. 111(3)(2) will only apply in relation to the other party to the dispute in question.61 This is a natural result of Art. 111 as an inter partes dispute resolution mechanism. It should be noted that Art. 111(3)(2) does not refer to rebalancing measures 30 in accordance with Art. 114. According to Norberg et al., this means that a safeguard measure adopted under Art. 111(3)(2) cannot be met by rebalancing measures under Art. 114.62 It may be objected that Art. 114 is worded in a general way that seems to allow for rebalancing measures in all cases where a safeguard measure creates an imbalance between rights and obligations under the Agreement.63 The practical effect of a possible prohibition on rebalancing measures is in any event very limited, since the affected party can respond by taking its own safeguard measures under Art. 111(3)(2) to remedy possible imbalances. For disputes not related to the interpretation of provisions of EEA law that are 31 identical in substance to corresponding provisions of EU law, Art. 111(3)(2) will not apply. V. Suspension of affected parts of the EEA Agreement in a case of an unresolved dispute

The second alternative in Art. 111(3)(2) is to apply Art. 102 mutatis mutandis, 32 i.e. to suspend the affected part of the relevant Annex to the EEA Agreement. The reference to Art. 102 leaves several questions unanswered, in particular related to the role of the EEA Joint Committee. Both Norberg et al. and Tobler assume that a decision of the EEA Joint Committee is required before any suspension can take effect.64 However, this would leave the reference to Art. 102 completely without practical significance, since a decision of the Joint Committee requires agreement between the EU, on the one hand, and the EFTA States speaking with one voice, on the other (Art. 93(2)). It would thus effectively give both parties to the dispute a veto against a remedy that Art. 111(3)(2) clearly assumes to be of a unilateral character. Thus, the mutatis mutandis supplement 60 See further the comments on Art. 113. 61 Norberg et al., EEA Law, p. 282. As to the erga omnes effect of safeguard measures adopted under Art. 112, see the comments on Art. 112(3). 62 Norberg et al., EEA Law, p. 282. Tobler, ‘Dispute Resolution under the EEA Agreement’, in: Baudenbacher (ed), Handbook of EEA Law, pp. 195-207, on p. 201, is apparently of the same view. 63 See further the comments on Art. 114. 64 Norberg et al., EEA Law, p. 282 (considering a decision in the Joint Committee to be needed in order to identify the affected part of the EEA Agreement); Tobler, ‘Dispute Resolution under the EEA Agreement’, in: Baudenbacher, Handbook of EEA Law, pp. 195-207, on p. 201 (considering that Art. 102(5) cannot be used by one Contracting Party alone).

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must mean that a Contracting Party can decide unilaterally to suspend the affected part of the relevant Annex to the EEA Agreement. However, the suspension will only apply inter partes, i.e. between the Contracting Parties to the dispute. Support for this view can be found both in the fact that Art. 111 is a dispute resolution mechanism, and in the similar limitation on the effect of any safeguard measures taken under the first alternative in Art. 111(3)(2).65 33 On the other hand, the time limits found in Art. 102 will also apply in the context of dispute settlement, presumably limiting the practicability of this remedy.66 34 It should be noted that application of Art. 102(5) will not be very helpful if the dispute concerns the interpretation or application of the Main Part of the EEA Agreement, at least not if the effect of the rules in dispute is not in some way dependent on EU secondary law found in one or more of the annexes. Further, even if the dispute is limited to EU secondary law found in an annex, it is not given that the suspension of the affected part of that annex will benefit the Contracting Party considering making use of Art. 111(3)(2). 35 An ‘Agreed Minute ad Article 111’ attached to the Final Act of the EEA Agreement states that suspension is not in the interest of the good functioning of the Agreement and that all efforts should be made to avoid it. VI. Settlement of disputes concerning safeguard measures and rebalancing measures through arbitration

The fourth paragraph of Art. 111 gives each Contracting Party the right to refer certain disputes to arbitration if the EEA Joint Committee has not succeeded in resolving them within three months of the date when the matter was brought before it. The disputes that can be referred to arbitration are disputes concerning (i) the scope or duration of safeguard measures taken in accordance with Arts. 111(3) or 112, and (ii) the proportionality of rebalancing measures taken in accordance with Art. 114. 37 The arbitration mechanism enables a Contracting Party that considers that another Contracting Party has gone too far in applying safeguard or rebalancing measures to submit the matter to an independent arbitration tribunal.67 38 As a consequence of the ECJ’s Opinion 1/91, the second sentence of Art. 111(4) explicitly excludes questions of interpretation of those provisions of EEA law referred to in Art. 111(3), i.e. provisions of EEA law which are identical in substance to corresponding provisions of EU law. Other questions of EEA law are not explicitly excluded from the jurisdiction of the arbitration tribunal. The possibility of dealing with any such questions through arbitration is 36

65 As noted above, the lack of a reference to Art. 112(3) means that a safeguard measure taken by a Contracting Party under Art. 111(3)(2) will only apply in relation to the other party to the dispute in question. 66 Norberg et al., EEA Law, p. 282. 67 Norberg et al., EEA Law, pp. 283-284.

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nonetheless limited by the fact that the tribunal shall only rule on the scope or duration of safeguard measures and/or the proportionality of rebalancing measures that have been taken. According to Norberg et al., the actual taking of a safeguard measure cannot 39 be subjected to arbitration.68 It can be objected, however, that the conditions for the taking of such measures are not covered by the exclusion of questions concerning provisions of EEA law which are identical in substance to corresponding provisions of EU law and, further, that any assessment of a measure’s proportionality needs to be based on a point of departure. The existence or non-existence of serious economic, societal or environmental difficulties of a sectorial or regional nature liable to persist (Art. 112(1)) or of an imbalance (Arts. 111(3) (2) and 114) will necessarily have an impact on the assessment of the proportionality of any safeguard or rebalancing measure taken.69 Indirectly, the arbitration tribunal must therefore be competent to assess the conditions for the taking of such measures. Still, in the case of safeguard measures taken in accordance with Art. 111(3), 40 the inability of the arbitration tribunal to deal with common provisions of EU/EEA law may leave the arbitrators with the difficult task of assessing the proportionality of safeguard measures without being allowed to express an opinion on whether, or to what extent, an alleged imbalance is a result of a violation of EEA law or simply a consequence of individuals and economic operators making use of their EEA-based rights. The only way to do this is by basing the assessment on the assumption that the alleged breach of EEA law is a matter of fact. Thus, the arbitration tribunal will probably have to dismiss attempts by the Contracting Party affected by a safeguard measure to argue that the measure cannot be deemed to be necessary simply because there is no underlying breach of EEA law to remedy. This obviously considerably limits the usefulness of the arbitration procedure. The details concerning the arbitration procedure are found in Protocol 33. 41 The procedure is based on a two-party arbitration concept, even though there may be more than one party on either side.70 There shall be three arbitrators unless the parties to the dispute decide otherwise. Each side appoints one arbitrator, who together nominate an umpire. The umpire shall be a national of a different Contracting Party. If the arbitrators appointed by the parties to the dispute cannot agree within two months of their appointment, the umpire shall be chosen by them from seven persons on a list established by the EEA Joint Committee. Unless the Contracting Parties decide otherwise, the arbitration tribunal shall adopt its rules of procedure. It takes its decisions by majority vote. 68 Norberg et al., EEA Law, p. 283. 69 Along the same lines, Fenger, Rydelski and van Stiphout, EFTA and EEA, p. 171 and, concerning Art. 111(3)(2), p. 170. 70 As noted by Sevón, ‘The EEA Judicial System’, in: Jacot-Guillarmod, Accord EEE, pp. 603-615 on p. 607.

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According to the last sentence of Art. 111(4), the arbitration award is binding on the parties to the dispute. VII. Settlement of disputes between the EU and one or more EFTA States outside Art. 111

The weaknesses of the EEA dispute settlement mechanism raise the question of whether disputes between the EU and one or more EFTA States can be settled by other means than those found in Art. 111. There is no provision in the EEA Agreement equalling that of Art. 344 TFEU, which obliges EU Member States not to submit disputes concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein.71 Nor, however, is there any provision such as Art. 27 in the 2008 FTA between the EFTA States and Canada, which states that any dispute regarding any matter arising under both that Agreement and the WTO Agreement may be settled in either forum at the discretion of the complaining party.72 44 When Norway in 2009 relied on the WTO dispute settlement mechanism in a case concerning the EU’s ban on the importation and marketing of seal products,73 the EU argued that the WTO was not an appropriate forum to settle the dispute because it took the view that the Seal Regulation (Regulation No 1007/2009 on trade in seal products) fell within the scope of the EEA Agreement.74 Referring to the ‘special duty of loyal cooperation’ under Art. 3 EEA, the EU argued that the Contracting Parties should not seek to evade the application of the specific rules governing the privileged relationship established by the EEA Agreement by resorting to dispute settlement under the WTO Agreement. The case was complicated, however, by the fact that the regulation in question had not been incorporated into the EEA Agreement.75 As the EU in the end declared that it ‘stood ready to defend its measures which it considered to be fully 43

71 It follows from ECJ case-law that this obligation encompasses disputes arising under other international agreements as long as the subject matter of the case is dealt with in parallel by EU law. See in particular Case C-459/03, 30.5.2006, Commission v. Ireland (‘Mox Plant’), concerning Ireland’s decision to commence arbitral proceedings against the UK pursuant to the UN Convention on the Law of the Sea for environmental harm. The ECJ ruled that, by bringing these arbitration proceedings, Ireland had violated its obligations to accord the ECJ exclusive jurisdiction in disputes between EU Member States in areas covered by the (then) EC Treaty. 72 Similar provisions are found in the other free trade agreements negotiated by the EFTA States in the last two decades (‘second generation FTAs’). See, e.g., Art. 37(2) of the 2006 Free Trade Agreement between the EFTA States and the States of the Southern African Customs Union; Art. 8.1 (2) of the 2009 Free Trade Agreement between the EFTA States and the Member States of the Co-operation Council for the Arab States of the Gulf, and Art. 12.1 (2) of the 2013 Free Trade Agreement between the EFTA States and the Central American States (Costa Rica and Panama). None of the ‘old’ bilateral free trade agreements between each of the EFTA States and the EU provide for any judicial dispute settlement procedures. 73 WTO dispute DS401, European Communities – Measures Prohibiting the Importation and Marketing of Seal Products. 74 WTO Dispute Settlement Body, Minutes of Meeting (21 April 2011), WT/DSB/M/295, para. 65.

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consistent with WTO law’, the WTO Dispute Settlement Body established a panel to decide the dispute without going into the alleged EEA dimension of the case.76 If put to the test in a future case, the lack of an EEA parallel to Art. 344 TFEU suggests that disputes between the EU and one or more EFTA States concerning subject matter that is regulated by both the EEA Agreement and other international agreements (such as the WTO Agreements) may indeed be submitted to other methods of settlement than those provided for in Art. 111.77 Under ordinary circumstances, however, this is hardly very practicable. A more practical alternative is for the EU and the EFTA State in question to, 45 more or less voluntarily, allow the dispute to be decided by proxy by either the ECJ or the EFTA Court. The first example is the EU-Liechtenstein dispute concerning the supplementary protection certificate for medicinal products under Regulation No 1768/92, which was effectively decided by the ECJ as a result of referrals from a UK and a Luxembourg court.78 Admittedly, the referrals were outside the control of the Contracting Parties, so that the case perhaps primarily illustrates that, with the help of national courts, private parties can bypass the ineffective EEA dispute resolution mechanism. However, once the referrals were made, all of the EFTA States (and ESA) exercised their right to take part in the proceedings before the ECJ, essentially transferring the legal discussion from the EEA Joint Committee to the ECJ. A perhaps even better example is the Icesave dispute between Iceland, on the 46 one hand, and the Netherlands and the UK, on the other. After prolonged consultations (including two referendums in which Icelandic voters rejected proposed solutions), the parties in dispute decided to let the EFTA Court rule on whether Iceland had infringed its obligations under EEA law.79 As neither the EU nor its Member States have legal standing to bring an infringement case against an EFTA State, the agreement was based on the assumption that ESA would pursue the matter before the EFTA Court. After ESA lived up to this expectation,80 both the Commission and the governments of the UK and the Netherlands exercised 75 See the Commission’s staff working document ‘A review of the functioning of the European Economic Area’, SWD (2012) 425 final, 7.12.2012, in which the Commission highlights this regulation as one of the rare instances of dialogue in the EEA institutional framework not having resulted in agreement concerning the EEA-relevance of novel EU secondary legislation. At the time of writing (April 2017), the matter has still not been resolved. 76 The EU reserved the right to pursue the matter under the EEA Agreement, however. 77 From the perspective of the other forum (such as the WTO Dispute Settlement Body), the possible violation of an EEA law obligation not to submit cross-pillar disputes concerning the interpretation or application of the EEA Agreement to any method of settlement other than those provided for in Art. 111 would in any event hardly have had any impact on the jurisdiction of that forum. 78 The case is discussed in Section II.1 above. 79 More precisely Dir. 94/19/EC on deposit-guarantee schemes and the general prohibition on discrimination on grounds of nationality enshrined in Art. 4 EEA. For an introduction to the dispute, see the introductory parts of the EFTA Court’s judgment in Case E-16/11, 8.4.2013, ESA v Iceland. 80 Whether ESA had real freedom of choice as to whether to bring the case before the EFTA Court can certainly be questioned, but, legally, the Authority was under no obligation to do so.

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their rights to take part in the proceedings before the EFTA Court.81 In reality, therefore, the EFTA Court was seized as a forum to decide an EEA-related dispute between an EFTA State and two EU Member States. This is not only an interesting by-passing of the (insufficient) means provided for in Art. 111 EEA, it also constitutes a clear salute to the EFTA Court from the EU and the EU Member States. This is even clearer when it is taken into account that the Netherlands and the UK accepted the fact that the EFTA Court acquitted Iceland of all charges in the end,82 even though it follows from the two-pillar structure of the EEA that the judgment is not legally binding on them as EU Member States.83 Given the fact that Iceland was originally pressured into guaranteeing repayment of the minimum deposit guarantees in the amount of EUR 4.0 billion, the outcome of the saga certainly illustrates the worth to a small EFTA State of the EFTA States having established an independent court of justice that is also recognised as such by the EU and its Member States. 47 At the same time, however, there is another form of tacit forum shopping in the EEA that is less flattering to the EFTA Court. In situations where similar questions of EEA law arise at the same time in the EFTA pillar and in the EU (which they often do), there seems to be a tacit understanding between the EFTA States and ESA to let the matter be decided by the ECJ.84 Rather than parallel proceedings before the EFTA Court and the ECJ, both ESA and the EFTA State(s) concerned make use of their right to take part in EEA-related proceedings before the ECJ.85 As long as the EFTA States loyally adhere to the subsequent ruling of the ECJ, there is hardly any reason for the EU to object to this indirect ‘use’ of the ECJ as a forum to decide such disputes. For the EFTA Court, however, this approach is obviously problematic as it demonstrates that the EFTA States acknowledge that, as regards the interpretation of the common EU/EEA rules, supreme authority de facto rests with the ECJ. It also contributes

81 The Commission intervened to support the EFTA Surveillance Authority, whereas the Netherlands and the UK submitted written observations (and participated in the oral hearing). 82 Case E-16/11, 8.4.2013, ESA v Iceland. 83 It must be added that acceptance of the outcome was probably made a lot easier by the fact that the assets of the Landsbanki receivership turned out to be much greater than feared, so that all priority claims (including minimum deposit guarantees) have subsequently been repaid in full. 84 Some examples are provided by Baudenbacher, The EFTA Court in Action, p. 14, but the list can easily be extended. 85 See the Statute of the ECJ Art. 23(3) (observations in preliminary reference cases) and Art. 40(3) (right to intervene in certain other types of cases). Note that the narrow interpretation of the latter provision favoured by the ECJ’s president in C-542/09 Commission v Netherlands, order of 1 October 2010, and C-493/09 Commission v Portugal, order of 15 July 2010, has the regrettable consequence that the right of ESA and the EFTA States to intervene before the ECJ is more limited than the right of the Commission and the EU Member States to do likewise before the EFTA Court. In his order of 23 April 2012 in Case E-16/11 ESA v Iceland, the president of the EFTA Court rightly refused to let this impact negatively on the Commission’s right to intervene in the Icesave case.

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to the low number of substantial cases before the EFTA Court. It is therefore not surprising that the practice has been sharply criticised by the Court’s president.86

Chapter 4: Safeguard measures

Article 112 [Safeguard measures] 1. If serious economic, societal or environmental difficulties of a sectorial or regional nature liable to persist are arising, a Contracting Party may unilaterally take appropriate measures under the conditions and procedures laid down in Article 113. 2. Such safeguard measures shall be restricted with regard to their scope and duration to what is strictly necessary in order to remedy the situation. Priority shall be given to such measures as will least disturb the functioning of this Agreement. 3. The safeguard measures shall apply with regard to all Contracting Parties.

I. Introduction

In Arts. 112-114, Chapter 4 of Part VII regulates the Contracting Parties’ pos- 1 sibility of taking safeguard measures in cases of serious economic, societal or environmental difficulties of a sectorial or regional nature. No corresponding provisions were to be found in the EEC Treaty at the time of the EEA negotiations and none are to be found in today’s EU Treaties.1 Provisions allowing for general safeguard measures are common in free trade agreements, however. Article 40 of the EFTA Convention mirrors Art. 112 EEA. Similar provisions are also found in Art. 27 of the 1973 FTA between the EEC and Iceland and in Art. 26 of the 1973 FTA between the EEC and Norway. Article 112 is the result of a compromise.2 The EFTA States envisaged certain 2 permanent derogations from the acquis communautaire, but this was firmly rejected by the EC. The solution was a combination of certain transitional periods, a number of sector-specific safeguard clauses and a general safeguard mechanism. With the exception of the extended transitional safeguard measures by Liecht- 3 enstein with regard to the free movement of persons,3 all the transitional arrangements appear to have lapsed. This also includes the transitional periods included in the 2004, 2007 and 2014 EEA Enlargement Agreements.4

86 See Baudenbacher, The EFTA Court in Action, pp. 17-19. 1 However, a number of sector-specific safeguard clauses also exist in EU law and transitional safeguard measures have also been included in all of the more recent agreements on the accession of new Member States. 2 Norberg et al., EEA Law, p. 288. 3 Originally found in Protocol 15, but now replaced by adaptations added to Annex V (Free movement of workers) and Annex VIII (Right of establishment); see EEA Joint Committee Decision No 191/1999 and the 2004 EEA Enlargement Agreement.

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The most important sector-specific safeguard clauses are Art. 25 concerning the free movement of goods and Art. 43 concerning the free movement of capital.5 However, Art. 64 can also be considered to be a safeguard clause, albeit of a special character since it presupposes that either ESA or the Commission has, in the eyes of the other surveillance authority, violated Arts. 61 and 62 on State aid and that this is the reason for a distortion of competition within the EEA.6 5 A special regime for anti-dumping measures and countervailing duties is found in Art. 4(3) of Protocol 9 on trade in fish and other marine products.7 This has to be understood as a reference to the general rules on anti-dumping measures and countervailing duties found in Art. XIX of GATT and the WTO Safeguards Agreement. However, Art. 6 of Protocol 9 also states that the provisions of Art. 114 in the Main Part of the EEA Agreement shall apply mutatis mutandis if the necessary legislative adaptations have not been effectuated to the satisfaction of the Contracting Parties. Thus, a Contracting Party that finds that another Contracting Party has failed to adjust its legislation relating to market organisation in the fisheries sector so as not to distort competition (Art. 4(2) of Protocol 9) will have to apply any anti-dumping measures and/or countervailing duties in conformity with the proportionality principle set out in Art. 114 EEA.8 The procedure set out in Art. 113 will apply. On the other hand, the lack of a reference to Art. 112 must imply that safeguard measures with erga omnes effect are ruled out.9 6 Further safeguard clauses can be found in EU legal acts incorporated into the Annexes or Protocols of the EEA Agreement, or in related adaptations adopted by the EEA Joint Committee. A politically sensitive example is the safeguard clause in Art. 23 of the GMO Directive. It allows an EU Member State to provisionally restrict or prohibit the use and/or sale of a genetically modified organism on its territory if it has detailed grounds for considering it to constitute a risk to human health or the environment, but subjects this to subsequent approval from the Commission.10 When the Directive was incorporated into the EEA Agreement in 2007, Art. 23 was replaced by a provision in which the role of the 4

4 See Protocol 44 on safeguard mechanisms pursuant to enlargements of the European Economic Area. This protocol originally concerned an EEA-related Agreement between the EEC and the Swiss Confederation on the carriage of goods by road and rail, but the EEA Contracting Parties turned it into a protocol on transitional safeguard mechanisms through the 2004, 2007 and 2014 EEA Enlargement Agreements. The transitional safeguard mechanisms essentially mirror those found in the relevant EU accession treaties. 5 See the comments by Bull on both provisions. 6 See the comments by Mathisen and Jordal on Art. 64. 7 See also the comments by Arnesen on Art. 20 EEA and by Bull on Art. 26 EEA. 8 As the EU did with regard to Norwegian salmon up until 2008; see further the comments by Arnesen on Art. 20 EEA and by Bull on Art. 26 EEA. 9 Baur, ‘Suspension of Parts of the EEA Agreement’, in: Baudenbacher (ed.), Handbook of EEA Law, pp. 69-83 on p. 81, sees this differently, but offers no explanation for why the reference in Art. 114(2) to Art. 113 must be understood to also include Art. 112. 10 Dir. 2001/18/EC on the deliberate release into the environment of genetically modified organisms, Art. 23.

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Commission is replaced by a reference to consultations in the EEA Joint Committee and the applicability of Part VII of the Main Part of the EEA Agreement.11 As a result, an EFTA State considering safeguard measures against a GMO will have to adhere to the conditions and procedures set out in Arts. 112 and 113, and take into account the possibility of rebalancing measures from the EU in accordance with Art. 114, but it will not have to seek the Commission’s approval. Any dispute concerning the conditions for taking such safeguard measures will have to be dealt with by the general dispute resolution mechanism found in Art. 111. II. Conditions for taking safeguard measures

The first paragraph of Art. 112 states that safeguard measures may be taken unilaterally by a Contracting Party ‘[i]f serious economic, societal or environmental difficulties of a sectorial or regional nature liable to persist are arising’. In an Agreed Minute to Art. 112(1), the Contracting Parties have made it clear that ‘the provisions of Article 112(1) also cover the situation in a given area’.12 A number of unilateral declarations annexed to the Final Act may shed some light on at least some of the Contracting Parties’ understanding of the criteria laid out in Art. 112(1). In a declaration by the Government of Iceland, the one-sided nature of its economy and the fact that its territory is sparsely populated are highlighted to suggest that safeguard measures may be taken in the event of serious disturbances in the labour market through large-scale movements of labour into certain geographical areas, particular types of jobs, or branches of industry, or serious disturbances in the real estate market.13 In a declaration by the Government of Liechtenstein, the specific geographical situation of the country is highlighted to justify safeguard measures if capital inflows from another Contracting Party are liable to endanger the access of the resident population to real estate, or in the case of an extraordinary increase in the number of nationals from the EU Member States or the other EFTA States, or in the total number of jobs in the economy, both in comparison with the size of the resident population.14 In a declaration by the Government of Austria, the ‘above average’ scarcity of available settlement area (particularly land available for housing construction) in parts of the country was highlighted to suggest that disturbances in the real estate market could require safeguard measures under Art. 112.15 11 EEA Joint Committee Decision No 127/2007. 12 Annexed to the Final Act to the EEA. 13 Declaration by the Government of Iceland on the use of safeguard measures under the EEA Agreement. 14 Declaration by the Government of Liechtenstein on the specific situation of the country. 15 Declaration by the Government of Austria on safeguards. The declaration must be presumed to have lapsed as a result of Austria’s accession to the EU, but it may still shed some light on the understanding of Art. 112(1).

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Finally, in a declaration by the Government of Switzerland, the particular geographical and demographic situation of the country is highlighted to justify safeguard measures in cases of imbalances of a demographic, social or ecological nature resulting from migratory movements of EEA nationals.16 14 However, both the Icelandic and the Liechtenstein declarations make clear that they are without prejudice to the obligations arising under the EEA Agreement, and both the Austrian and the Swiss ones were met with counterdeclarations by the EC to the same effect.17 Thus, their legal significance appears to be very limited. 15 Of greater importance is the hitherto only example of undisputed use of Art. 112 by a Contracting Party: In 1998, Liechtenstein applied Art. 112 to maintain the transitional safeguard measures with regard to the free movement of persons originally found in Protocol 15 EEA.18 The safeguard measures made the entry, residence and employment of citizens of other EEA States subject to prior authorisation, with a very limited number of residence permits available. They applied from 1 January 1998 until the entry into force in June 2000 of new sectoral adaptations to accommodate the specific geographical situation of Liechtenstein.19 None of the other Contracting Parties appear to have objected. The precedent of this example is rather limited, however, as a joint review undertaken in accordance with Protocol 15 had concluded that the specific geographical situation of Liechtenstein justified the maintenance of certain transitional safeguard measures and that negotiations about their exact content were ongoing.20 16 The conditions for taking safeguard measures have rightly been characterised as ‘very strict’:21 The difficulties have to be of a ‘serious’ character and be liable to persist. Still, opinion could obviously differ as to what constitutes, for example, serious societal difficulties.22 Further, the possibility for judicial review through arbitration is uncertain and will in any event take time.23 Thus, the real limit on the use of safeguard measures lies in the risk of rebalancing mea13

16 Declaration by the Government of Switzerland on safeguard measures. The declaration lapsed as a result of the Swiss ‘no’ to the EEA, but it may still shed some light on the understanding of Art. 112(1). 17 See the two counter-declarations by the European Community attached to the Austrian and Swiss declarations referred to above. 18 As reported by Baur, ‘Suspension of Parts of the EEA Agreement’, in: Baudenbacher (ed.), Handbook of EEA Law, pp. 69-83, on p. 75. As noted in Section I above, the Commission also relied on Art. 112 when it introduced a system of minimum prices for salmon in 1995, but the correct legal basis should have been Protocol 9 (as argued by the EFTA States). 19 EEA Joint Committee Decision 191/1999. 20 Cf. Schroeter and Nemeczek, ‘The (Uncertain) Impact of Brexit on the United Kingdom’s Membership in the European Economic Area’, [2016] European Business Law Review pp. 921-958, who suggest that the Liechtenstein case could be viewed as a precedent for a possible quota system to be imposed by the UK as a new member of the EFTA pillar of the EEA (on p. 950). 21 Baur, ‘Suspension of Parts of the EEA Agreement’, in: Baudenbacher (ed.), Handbook of EEA Law, pp. 69-83, on p. 75.

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sures under Art. 114 and, more generally, the Contracting Parties’ common interest in maintaining the EEA as more akin to the EU internal market than to a traditional free trade zone. The object and purpose of the EEA Agreement – the inclusion of the EFTA States in the EU internal market – leaves little room for general safeguard measures. III. Scope and duration of safeguard measures

The second paragraph of Art. 112 states that safeguard measures shall be re- 17 stricted with regard to their scope and duration to what is strictly necessary in order to remedy the situation and that priority shall be given to such measures as will least disturb the functioning of the EEA Agreement. As held by Norberg et al., these proportionality requirements are important. A Contracting Party must choose the safeguard measures that cause the least detriment to the good functioning of the EEA Agreement.24 Disagreements about the scope or duration of safeguard measures taken under 18 Art. 112 can be referred to arbitration in accordance with Art. 111(4).25 IV. Erga omnes effect of safeguard measures

The third paragraph of Art. 112 states that the safeguard measures shall apply 19 with regard to all Contracting Parties. A similar provision is found in Art. 40(4) of the EFTA Convention. Art. 112(3) is essentially a non-discrimination clause. It can also be regarded as a solidarity clause, as it prevents one Contracting Party from singling out another Contracting Party as the target of safeguard measures. The erga omnes effect of safeguard measures taken under Art. 112 is justified by the fact that Art. 112(1) does not presuppose the existence of a violation of EEA law by any other Contracting Party. This is different for safeguard measures taken under Art. 111(3), which explains why such measures only apply to those Contracting Parties involved in the dispute in question.26 A further benefit of the erga omnes effect of safeguard measures taken under 20 Art. 112 is that it must be presumed to raise the bar for any Contracting Party tempted to take safeguard measures, thus facilitating the inclusion of the EFTA States in the EU internal market where unilateral measures of this kind have no place.

22 Schroeter and Nemeczek, ‘The (Uncertain) Impact of Brexit on the United Kingdom’s Membership in the European Economic Area’, [2016] European Business Law Review pp. 921-958, note that the terms are ‘vague’ and suggest that they leave ample room for political negotiations (on p. 950). 23 See the comments on Art. 111(4) above. 24 Norberg et al., EEA Law, p. 288. 25 See further the comments on that provision. 26 See the comments on Art. 111(3) above.

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Article 113 [Notification of safeguard measures, consultations] 1. A Contracting Party which is considering taking safeguard measures under Article 112 shall, without delay, notify the other Contracting Parties through the EEA Joint Committee and shall provide all relevant information. 2. The Contracting Parties shall immediately enter into consultations in the EEA Joint Committee with a view to finding a commonly acceptable solution. 3. The Contracting Party concerned may not take safeguard measures until one month has elapsed after the date of notification under paragraph 1, unless the consultation procedure under paragraph 2 has been concluded before the expiration of the stated time-limit. When exceptional circumstances requiring immediate action exclude prior examination, the Contracting Party concerned may apply forthwith the protective measures strictly necessary to remedy the situation. For the Community, the safeguard measures shall be taken by the EC Commission. 4. The Contracting Party concerned shall, without delay, notify the measures taken to the EEA Joint Committee and shall provide all relevant information. 5. The safeguard measures taken shall be the subject of consultations in the EEA Joint Committee every three months from the date of their adoption with a view to their abolition before the date of expiry envisaged, or to the limitation of their scope of application. Each Contracting Party may at any time request the EEA Joint Committee to review such measures.

Article 113 sets out the procedure to be followed by a Contracting Party which is considering taking safeguard measures under Arts. 111(3) or 112 or rebalancing measures under Art. 114.1 A corresponding provision is found in Art. 41 of the EFTA Convention. 2 The ultimate objective of the consultation process in Art. 113 is to find a solution that prevents any safeguard and/or rebalancing measures being taken at all. Failing that, however, the goal is to arrive at such measures as will least disturb the functioning of the EEA Agreement.2 In the case of safeguard measures taken under Art. 111(3), the latter objective is probably the only one achievable since such measures presuppose six months of futile discussions in the Joint Committee. 3 As with the Joint Committee’s competence to settle disputes under Art. 111(2), the Committee’s possibility under Art. 113(2) of finding a commonly acceptable solution may be complicated by the fact that the EEA Agreement vests individuals with rights that they can invoke before the courts of the Contracting Parties (be it the national courts, the EU Courts or the EFTA Court).3 4 The second sentence of Art. 113(3) makes it clear that, for the EU, any safeguard measures shall be taken by the Commission. This is a natural reflection 1

1 The applicability of Art. 113 to safeguard measures taken in accordance with Art. 111(3) follows from Art. 111(4), whereas its applicability to rebalancing measures under Art. 114 follows from Art. 114(2). 2 Norberg et al., EEA Law, p. 288. 3 See the comments on Art. 111(2), mn. 13.

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of the Commission’s EU law competences as regards safeguard measures against third countries. However, Art. 113(3) may be of significance in the unlikely scenario of a dispute between an EFTA State and an EU Member State related to parts of EEA law that fall outside the competences of the EU. Disagreements about the scope or duration of unilateral safeguard measures 5 taken under Arts. 111(3) and 112 or the proportionality of rebalancing measures taken in accordance with Art. 114 can be referred to arbitration in accordance with Art. 111(4).4

Article 114 [Rebalancing measures] 1. If a safeguard measure taken by a Contracting Party creates an imbalance between the rights and obligations under this Agreement, any other Contracting Party may towards that Contracting Party take such proportionate rebalancing measures as are strictly necessary to remedy the imbalance. Priority shall be given to such measures as will least disturb the functioning of the EEA. 2. The procedure under Article 113 shall apply.

Article 114 allows for rebalancing measures to remedy imbalances brought 1 about by a safeguard measure taken by a Contracting Party. The significance of Art. 114 would appear to be fairly limited, however, as it only increases a Contracting Party’s possibility to react to safeguard measures in situations where the conditions for that Contracting Party taking its own safeguard measures are not met.1 A Contracting Party that believes that safeguard measures taken by another Contracting Party constitute a violation of the EEA Agreement, either because the conditions for taking such measures are not met or because the measures are disproportionate, can always bring the matter before the EEA Joint Committee as a dispute under Art. 111, and then respond by taking its own safeguard measures under Art. 111(3)(2) to remedy any imbalances. However, Art. 114 allows for a swifter response since the time limits in Art. 113(3) (one month or even immediate action if exceptional circumstances so require) are much shorter than those in Art. 111(3) (six months). Furthermore, Art. 114 also allows for rebalancing measures in cases where a Contracting Party accepts that the safeguard measures taken by another Contracting Party are lawful as such.2 The proportionality requirements set out in Art. 114(1) are strict. A Contract- 2 ing Party may only take such proportionate rebalancing measures as are ‘strictly necessary’ to remedy the imbalance caused by the safeguard measures, and must always give priority to such measures as will least disturb the functioning of the EEA. In this way, Art. 114(1) attempts to hinder an escalation of the conflict.

4 See further the comments on that provision. 1 There is no corresponding provision in the EFTA Convention. 2 As may be the case for safeguard measures taken in accordance with Art. 112 (as opposed to measures taken under Art. 111(3)(2)).

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The wording of Art. 114(1) makes it clear that rebalancing measures only apply in relation to the Contracting Party that has taken safeguard measures. This is also confirmed by the lack of a provision mirroring Art. 112(3). Thus, unlike safeguard measures taken under Art. 112, rebalancing measures do not apply erga omnes. Consequently, rebalancing measures are of little use to a Contracting Party that suffers indirectly due to the effect that the safeguard measures have on other Contracting Parties, inter alia because individuals and economic operators react to safeguard measures taken by one Contracting Party by shifting their attention towards other Contracting Parties. In such cases, the indirectly affected Contracting Party’s only effective remedy may be to take its own safeguard measures, provided that the conditions set out in Art. 112(1) are fulfilled. 4 Disagreements about the proportionality of rebalancing measures taken in accordance with Art. 114 can be referred to arbitration in accordance with Art. 111(4).3 3

Part VIII: Financial Mechanism Introduction: Economic and social cohesion in the EU and in the EEA* Economic and social cohesion was included among the original goals of EU integration, expressed in 1957 in the Preamble to the EEC Treaty. The EEC Member States stated their anxiousness to “strengthen the unity of their economies and to ensure their harmonious development by reducing the differences existing between the various regions and by mitigating the backwardness of the less favoured regions”.1 After changes pursuant to the Lisbon Treaty, Art. 2 of the EU Treaty refers to “economic, social and territorial cohesion”. Economic and social cohesion should be seen in the context of territorial development. The latter accentuates the concept of regional policy. 2 The Single European Act, establishing the single market, foresaw that measures towards promoting economic and social cohesion were to be financed through a number of structural funds.2 In EU’s financial framework 2014 to 2020, coordination between cohesion policy and other EU policies contributing to regional development, in particular rural development and fisheries and maritime policies, have been strengthened by laying down common provisions for 1

3 See further the comments on that provision. * The author wishes to thank Marthe Kristine Fjeld Dystland and Silje Vevle Nordtvedt for their contributions to the text. 1 Treaty establishing the European Economic Community (Rome, 25 March 1957), the second and fifth recital of the Preamble. 2 The Single European Act (OJ L 169, 29.6.1987, p. 1-28), see Art. 23 adding a Title V on economic and social cohesion to the EEC Treaty.

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The wording of Art. 114(1) makes it clear that rebalancing measures only apply in relation to the Contracting Party that has taken safeguard measures. This is also confirmed by the lack of a provision mirroring Art. 112(3). Thus, unlike safeguard measures taken under Art. 112, rebalancing measures do not apply erga omnes. Consequently, rebalancing measures are of little use to a Contracting Party that suffers indirectly due to the effect that the safeguard measures have on other Contracting Parties, inter alia because individuals and economic operators react to safeguard measures taken by one Contracting Party by shifting their attention towards other Contracting Parties. In such cases, the indirectly affected Contracting Party’s only effective remedy may be to take its own safeguard measures, provided that the conditions set out in Art. 112(1) are fulfilled. 4 Disagreements about the proportionality of rebalancing measures taken in accordance with Art. 114 can be referred to arbitration in accordance with Art. 111(4).3 3

Part VIII: Financial Mechanism Introduction: Economic and social cohesion in the EU and in the EEA* Economic and social cohesion was included among the original goals of EU integration, expressed in 1957 in the Preamble to the EEC Treaty. The EEC Member States stated their anxiousness to “strengthen the unity of their economies and to ensure their harmonious development by reducing the differences existing between the various regions and by mitigating the backwardness of the less favoured regions”.1 After changes pursuant to the Lisbon Treaty, Art. 2 of the EU Treaty refers to “economic, social and territorial cohesion”. Economic and social cohesion should be seen in the context of territorial development. The latter accentuates the concept of regional policy. 2 The Single European Act, establishing the single market, foresaw that measures towards promoting economic and social cohesion were to be financed through a number of structural funds.2 In EU’s financial framework 2014 to 2020, coordination between cohesion policy and other EU policies contributing to regional development, in particular rural development and fisheries and maritime policies, have been strengthened by laying down common provisions for 1

3 See further the comments on that provision. * The author wishes to thank Marthe Kristine Fjeld Dystland and Silje Vevle Nordtvedt for their contributions to the text. 1 Treaty establishing the European Economic Community (Rome, 25 March 1957), the second and fifth recital of the Preamble. 2 The Single European Act (OJ L 169, 29.6.1987, p. 1-28), see Art. 23 adding a Title V on economic and social cohesion to the EEC Treaty.

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the European Reconstruction and Development Fund (ERDF), the European Social Fund (ESF), the Cohesion Fund, the European Agricultural Fund for Rural Development (EAFRD) and the European Maritime and Fisheries Fund (EMFF). These five funds together are known as the European Structural and Investment Funds (ESIF). Considerable amounts are transferred to Member States under these policies.3 It was apparent from the beginning of the EEA negotiations that the EU-side 3 expected the EFTA States to contribute financially to the disadvantaged regions within the EC/EU.4 The EEA Agreement was considered beneficial to the highly industrialised EFTA States, whereas for less-developed EC Member States, it would not result in the same degree of advantages. It was therefore agreed to introduce certain provisions into the EEA Agreement to counter these imbalances.5 Accordingly, the Contracting Parties expressed in the sixth recital of the 4 Preamble to the EEA Agreement that they aimed at promoting a harmonious development of the EEA and were “convinced of the need to contribute through the application of this Agreement to the reduction of economic and social regional disparities”.6 The EFTA States’ financial contribution to these objectives was then laid down in the Agreement’s Part VIII on the Financial Mechanism. Arts. 115 to 117 provide the legal basis for the establishment of such a mechanism and further provisions are laid down in successive Protocols 38, 38 a, 38 b and 38 c.

Article 115 [Object and purpose of the EEA financial mechanism] With a view to promoting a continuous and balanced strengthening of trade and economic relations between the Contracting Parties, as provided for in Article 1, the Contracting Parties agree on the need to reduce the economic and social disparities between their regions. They note in this regard the relevant provisions set out elsewhere in this Agreement and its related Protocols, including certain of the arrangements regarding agriculture and fisheries.

Art. 115 expresses the agreement among the Contracting Parties on the need 1 to reduce the economic and social disparities between their regions to ensure a harmonious development of the EEA. The provision also makes an explicit reference to the overall aim of the Agreement, laid down in Art. 1, inter alia, to strengthen trade and economic relations.1

3 For the period 2014 to 2020, ESIF has at its disposal more than EUR 450,000 million and these funds constitute the main tool for EU investments. 4 St.prp. nr. 100 Om samtykke til ratifikasjon av Avtale om Det europeiske økonomiske samarbeidsområdet (EØS), p. 354. 5 Norberg et al., EEA Law, 1993, p. 673. 6 See also the comments by Arnesen and Fredriksen on the Preamble, mn. 26. 1 For more on the aims of the Agreement, see the comments by Arnesen and Fredriksen to Art. 1.

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The provision further states that the Contracting Parties note “the relevant provisions” of the Agreement and its related Protocols. An explicit reference is then made to agriculture and fisheries. The EEA Agreement exempts to a large degree free movement of agricultural and fish products from its scope of application.2 For many less-developed EU Member States, important advantages of EU membership are connected to the export of agricultural products. To take into account this fact, the Contracting Parties in Protocol 42 stated that they took note of bilateral agreements on trade in agricultural products signed at the same time as the EEA Agreement. It was emphasised how these agreements reflect in particular the agreed common objective to contribute to the reduction of social and economic disparities between their regions.3 In this way, agriculture is linked to the overall issue of cohesion.4 In the negotiations, it was emphasised that the Financial Mechanism had to be assessed in light of the solutions chosen for agriculture and fisheries.5 The explicit mention in Art. 115 of these fields indicates their importance to the economic and social cohesion in the EEA.

Article 116 [The EEA financial mechanism] A Financial Mechanism shall be established by the EFTA States to contribute, in the context of the EEA and in addition to the efforts already deployed by the Community in this regard, to the objectives laid down in Article 115.

Art. 116 obliges the EFTA States to establish a financial mechanism in order to contribute to the objectives laid down in Art. 115. During the negotiations and in the initial period of the functioning of the Financial Mechanism, there was a perception, at least in some of the EFTA States, that the mechanism was not permanent, but merely a one-off payment linked to the signing of the EEA Agreement.1 The EU has, however, repeatedly emphasised the durable need for such a mechanism in the Agreement. At the end of the first five-year period, the Financial Mechanism was thus maintained and, as will be described under Art. 117 EEA, the scheme has over the years become more comprehensive, in particular, as the funds made available have increased substantially. 2 It is further stated in Art. 116 that the financial mechanism in the EEA should supplement EU’s “efforts already deployed” in the area. This is a reference to the various structural funds and other financial instruments established by the EU – referred to as the European Structural and Investment Funds (ESIF). A certain coordination between ESIF and the Financial Mechanism in the EEA is reasonable. From the outset, the European Investment Bank in particular held an 1

2 3 4 5 1

See the comments by Arnesen on Arts. 17-20. Norberg et.al., EEA Law, p. 679. Norberg et.al., EEA Law, p. 674. St.prp. nr. 100 (1991-92), pp. 354 to 355. NOU 2012:2 Utenfor og innenfor. Norges avtaler med EU, p. 761 (Norway) and p. 762 (Iceland).

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important role in this cooperation and it has continued to do so as the Financial Mechanism has developed.2 The EFTA States’ contributions under the Financial Mechanism are some- 3 times described as a ‘fee’ for access to the EU’s internal market. The financial contributions were considered in this context at the time the mechanism was established, taking account of the limitations in the agricultural and fisheries sectors in the EEA Agreement.3 However, the financial contributions should be seen in a broader context of European integration. Market integration provides various economic advantages and disadvantages for the participating States. Various and sometimes contradictory economic effects come into existence in mutual and complex patterns. Accordingly, the financial contributions from the EFTA States result from considerations where each State must weigh, in overall terms, the perceived negative and positive economic impacts of EEA integration. It is difficult to compare the financial contributions of the EFTA States to the 4 EU and its Member States with the budgetary contributions made by the EU Member States themselves. The EEA Grants are a main contribution, but not the only one. Added must be, for example, contributions to EU research programmes. The Norway Grants should also be seen in the EEA context, albeit not formally part of the EEA. Furthermore, from the gross contributions must be deducted transfers from the EU to the Member States in order to arrive at net amounts. Had the EFTA States been EU Member States, they would likely be net contributors similar to the wealthier EU Member States. However, comparisons are hypothetical. The impact of contributions may also be seen in relation to the size of the economy of a net contributor, for example as shown by contributions per capita of the State.4 Art. 116 only determines the actual establishment of the Financial Mecha- 5 nism. It does not contain provisions on its organisation and functioning. The operations of the mechanism for the initial five-year period were subject to negotiations and set out in a separate protocol, as laid down in Art. 117. This means of agreeing on a protocol to govern the mechanism has been maintained for the following extensions, including the administration of the mechanism, see Art. 117.

2 For more on the role of the European Investment Bank, see the comments below to Article 117, mn. 2 and 5. 3 St.prp. nr. 100 (n 6) 355. 4 According to calculations made by the think tank Breugel, the UK is one of the major contributors to the EU budget with about EUR 9.5 billion. As the major contributor among the EFTA States, Norway contributed in 2014 EUR 306 million. In net terms, it is comparable to UK’s current payments. Norway contributes 0.16 per cent of gross national income, whereas Britain pays 0.25 per cent. On a per capita basis Britain currently pays EUR 79 per person, whereas Norway pays EUR 115 (analysis reported in the Financial Times 1.12.2016). For Norway’s contributions, reference may also be made to NOU 2012:2, p. 784.

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Article 117 [Provisions governing the EEA financial mechanism] Provisions governing the Financial Mechanisms are set out in Protocol 38, Protocol 38 a, the Addendum to Protocol 38 a, Protocol 38 b and the Addendum to Protocol 38 b and Protocol 38 c.

I. Governance through detailed provisions in protocols 1

Art. 117 merely states that further regulations governing the Financial Mechanisms are to be found in subsequent protocols to the Agreement. Originally, the provision contained a reference to Protocol 38 only. However, as the Financial Mechanism was maintained beyond the initial five-year period, Art. 117 has been amended to take into account the added protocols.1 II. Evolution of the Financial Mechanism 1. 1994 to 1998 – Protocol 38

Protocol 38 to the EEA Agreement covered the first five-year period from 1994 to 1998.2 Financial contributions were contained in a two-part scheme consisting of subsidised loans in the form of interest rate rebates and of direct grants to projects. The EFTA States should commit the financing of interest rate rebates on loans from the European Investment Bank (“EIB”) limited to an amount of loans of ECU3 1,500 million. In addition, the EFTA States committed themselves to give project grants of up to a sum of ECU 500 million. 3 The annual interest rate rebates were set to be two percent and available for ten years in respect of any one loan. The grant scheme was based on proposals of projects and programmes from the beneficiary States themselves. Priority was given to projects and programmes concerning environment, transport, education and training. Small and medium-sized enterprises were given a preference among private undertakings. The Financial Mechanism covered certain regions in Spain, and was later expanded to include regions in Portugal, Greece, Ireland and Northern Ireland. 4 The EFTA States agreed among themselves that their contributions to the Financial Mechanism each year should be distributed between them according to a key based on the size of the EFTA States’ economies, measured by their gross national income over the three most recent years.4 About ECU 109 million were paid to the beneficiary States under the commitments made in Protocol 38.,56 2

1 Amendments followed the 2004 EEA Enlargement Agreement (OJ No L 130, 29.4.2004, p. 3); the 2007 EEA Enlargement Agreement (OJ No L 221, 25.8.2007, p. 15); the Agreement between the European Union, Iceland, Liechtenstein and Norway on an EEA Financial Mechanism for the period 2009-2014 (OJ No L 291, 9.11.2010, p. 4); and the 2014 EEA Enlargement Agreement (OJ No L 170, 11.6.2014, p. 5). 2 The full text of the Protocol may be found at the EFTA homepage, www.efta.int. 3 The ECU (European Currency Unit) was later substituted with the euro at a rate of 1:1. 4 St.prp. nr. 100 (1991-92), p. 355. Due to the great difference in size of the EFTA States’ economies, Norway pays the dominant share of the financing of the Financial Mechanism.

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The EFTA States’ contributions were kept separate from the EU budget in or- 5 der to identify in the public domain the EFTA contributions. The EIB managed the contributions on behalf of the EFTA States.7 The EFTA contributions were closely related to relevant budgetary allocations made by the Commission from the EU budget. The decision on beneficiary EU States was made without much influence from the EFTA States.8 2. 1999 to 2003

At the expiry of the Financial Mechanism under Protocol 38, the EU held the 6 view that financial transfers from the EFTA States should continue. The EFTA States disagreed, but the result was nevertheless a framework for a new financial instrument for the period from 1999 to 2003. At this time, the renewal did not take place in the form of a new protocol to the Agreement, but through an EEA Joint Committee decision amending Protocol 31 on the basis of inter alia Art. 115.9 The new instrument was based exclusively on grants, thus eliminating the 7 interest rate rebate scheme. About EUR 120 million was made available for the five-year period. The beneficiary EU Member States were those of the preceding period. The priority areas for grants were largely maintained. 3. 2004 to 2009 – Protocol 38 a and a new bilateral arrangement EU-Norway a) The expansion of the EU and of the need for cohesion

With the third stage of the Financial Mechanism a distinct change in its scope 8 took place. In 2004, Estonia, Cyprus, Latvia, Lithuania, Malta, Poland, the Czech Republic, Slovenia, Slovakia and Hungary became new Member States of the EU and Contracting Parties to the EEA Agreement. Romania and Bulgaria followed in 2007. These two enlargements were of great significance and had substantial impact on the EU. An immediate consequence of the first enlargement was that the EU increased its population by about 75 million. Then followed the second enlargement with another population increase of near 30 million, altogether a population increase of more than 100 million. Also the land area was increased substantially, with important implications for regional policy. Cohesion policies until these enlargements had reduced economic dissimilarities among Member States. However, as the EU expanded, the overall economic dis-

5 Commitments could not be fully utilised during the fixed time period due to time lags in the starting up process. 6 The amounts of total periodical contributions mentioned here and in the text below are based on table 24.2 in NOU 2012:2, p. 765. 7 Over the years, the separation from the EU budget has been maintained, but the EFTA States have later taken charge of the management of the contributions, see part III chapter 1. 8 NOU 2012:2, p. 764. 9 Decision of the Joint Committee No 47/2000 of 19 May 2000 amending Protocol 31 to the EEA Agreement on cooperation in specific fields outside the four freedoms.

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parities within the enlarged EU became greater. As a result, more emphasis was placed on the promotion of social and economic cohesion. 9 The enlargements led to an immediate reduction of the average level of prosperity in the EU since, on the whole, the social and economic levels of development in the new Member States were below the average of the existing Member States. This effect of enlargement required funds to mitigate the larger disparities in the social and economic conditions in the 27 Member States, and therefore within the EEA. The enlargement also required a redistribution of funds between old and new Member States – in itself no small task. The EFTA States accepted EUs request to contribute. As a result, the Financial Mechanism was significantly expanded in scope. Furthermore, a second, supplementary mechanism was established and financed by Norway, the so-called Norway Grants (see below). The contribution over the years 2004 to 2009 were increased in total to EUR 1,307 million, of which EUR 600 million was covered by the Financial Mechanism and the remainder by the Norway Grants. The number of beneficiary States increased from five to 15, including Romania and Bulgaria.10 EU demands for additional contributions related to the latter two led to further negotiations in 2006-2007 and was the main reason why the Agreement on their participation in the EEA was not signed until 25 July 2007.11 Of the total contribution during this period, the amount dedicated to Romania and Bulgaria was set to EUR 140 million.12 b) The Financial Mechanism – Protocol 38 a 10

The Financial Mechanism for this period was established by Protocol 38 a.13 The funds should finance grants to investment and development projects in the priority sectors listed in the protocol. These priorities included protection of the environment; improved resource management; conservation of European cultural heritage; promotion of education and training; strengthening of administrative or public service capacities of local government or its institutions as well as the democratic processes; and health and childcare. 10 Spain, Portugal and Greece only benefitted from the EEA Grants, leaving 12 beneficiary States under the Norway Grants. 11 St.prp. nr. 72 (2006-2007) Om samtykke til ratifikasjon av avtale om Republikken Bulgarias og Romanias deltakelse i Det europeiske økonomiske samarbeidsområde (EØS) med tilliggende avtaler, samt inngåelse av avtale om midlertidig anvendelse, pp. 13-14. The negotiations were also linked to fisheries, similar to the situation for the first enlargement in 2004, see pp. 16-18 and NOU 2012:2, p. 770. With the extension of the EU and the EEA, existing free trade agreements between several of the new EU Member States and the EFTA States ceased to apply. Due to the loss of agreements on free trade in fisheries, Norway and Iceland demanded compensatory tariff quotas for their fish and fishery products to ensure satisfactory market access for these products. The EU eventually agreed to make such quotas part of the agreements. 12 NOU 2012:2, p. 761. 13 Protocol inserted in the EEA Agreement by the 2004 EEA Enlargement Agreement (OJ No L 130, 29.4.2004, p. 3) and amended by the 2007 EEA Enlargement Agreement (OJ No L 221, 25.8.2007, p. 15).

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Limits for financing were fixed to ensure co-financing of projects. Further- 11 more, State aid rules should be complied with when making contributions. The Commission could screen projects to ensure compatibility with relevant EU financial efforts. c) The establishment of the Norway Grants

EU’s requirements to the EFTA States for financial contributions in relation 12 to the EU enlargements were substantial. However, different views had developed between the EFTA States regarding the financial contributions. In particular, Iceland questioned the basis for the contributions and wanted to discontinue the Financial Mechanism. However, this view was not shared by Norway.14 In this context, and under pressure from the EU, Norway agreed to fund a separate scheme on its own. Accordingly, the Norwegian Financial Mechanism (the Norway Grants) was established for the period 2004 to 2009 in a bilateral agreement between the EU and Norway.15 Accordingly, the Norway Grants are formally not part of EEA legal context. 13 However, in fact, the Norway Grants must be seen fully in the context of the EEA Financial Mechanism (also referred to as the EEA Grants). The connection is pointed out, for example, in the bilateral agreement stating that “(t)he commitments undertaken by Norway under this agreement are based on Norway’s participation in the European Economic Area as an EFTA State”.16 The two mechanisms are closely coordinated by Protocol 38 a and the bilateral agreement with Norway.17 The mechanisms were given the same purposes and priority areas as the previous scheme. 4. 2009 to 2014 – Protocol 38 b

Both the EEA and the Norwegian financial mechanisms were renewed for an- 14 other five-year period from 2009 to 2014. The EEA Grants and the Norway Grants were laid down, respectively, in Protocol 38 b18 and in a bilateral agreement between the EU and Norway.19 In total, the schemes made available funds of about EUR 1,789 million over that period. The priority areas contained many of the previous priorities, but were expand- 15 ed, in particular, with the areas of climate change, renewable energy and civil

14 NOU 2012:2, p. 762. 15 Agreement between the Kingdom of Norway and the European Community on a Norwegian Financial Mechanism for the period 2004-2009, available in full text at the EEA Grants’ homepage www.eeagrants.org. 16 Art. 1 of the 2004 bilateral agreement between Norway and the EU. 17 See Art. 7 in both Protocol 38 a and the bilateral agreement. 18 Inserted in the EEA Agreement by the Agreement between the European Union, Iceland, Liechtenstein and Norway on an EEA Financial Mechanism for the period 2009-2014 (L 291, 9.11.2010, p. 4). 19 Agreement between the Kingdom of Norway and the European Union on a Norwegian Financial Mechanism for the period 2009-2014 (OJ L 291, 9.11.2010, p. 10).

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society. The limitation of grants as a share of programme costs and the requirements of compliance with State aid rules and cooperation with the Commission were maintained. The beneficiary States were the same as at the end of the previous period, with 15 beneficiary States under the EEA Grants and 12 under the Norway Grants. However, Croatia was included from 2014. Of the total contribution during this period, EUR 9.6 million was dedicated to Croatia.20 16 Contributions in this period were to be allocated taking transparency, accountability and cost efficiency into account, as well as requirements of good governance, sustainable development and gender equality. Monitoring and control of programmes were given more attention. 5. 2014 to 2021 – Protocol 38 c

At the beginning of 2014, negotiations for a new term of the Financial Mechanism and the Norway Grants were initiated for their continuation. The main discussions were on the total amount of the financial contributions, the length of the programme period, and the priority of programme areas.21 Agreement was reached in July 2015, followed by signing of the agreement and the launch in May 2016 of the new period. A difference is that the duration was prolonged from five years to a seven-year period lasting until 2021. As the negotiations were finalised sometime into the new period, a seven-year period was considered to bring a more sustainable development and execution of the programmes with the individual recipients.22 18 The agreement for the period 2014 to 2021 is laid down in Protocol 38 c23 and in a new bilateral agreement between the EU and Norway24 to a large extent reproducing Protocol 38 c. The total sum committed under the Financial Mechanism for the present period is EUR 1,548 million, whereas the Norway Grants agreement commits EUR 1,254 million, making up a total of EUR 2,802 million over the seven-year period. 19 The beneficiary States under the EEA Grants are Poland, Romania, Hungary, Croatia, Bulgaria, the Czech Republic, Lithuania, Greece, Slovakia, Croatia, Portugal, Latvia, Estonia, Slovenia, Cyprus and Malta.25 These are also the beneficiaries under the Norway Grants, with the exception of Greece and Portugal. 17

20 As for the enlargement in 2007, negotiations were held between the EU and the EFTA States to settle on additional contributions under the financial mechanism. Tariff quotas for fish and fishery products from Iceland and Norway to the EU was again made part of the deal. The negotiations were concluded late 2013 and the Agreement on the participation of Croatia in the European Economic Area was signed on 11 April 2014 (OJ No L 170, 11.6.2014, p. 5). 21 Prop. 119 S (2015-2016), p. 9. 22 Prop. 119 S (2015-2016), p. 9. 23 Protocol inserted into the EEA Agreement through Agreement between the European Union, Iceland, the Principality of Liechtenstein and the Kingdom of Norway on an EEA Financial Mechanism 2014-2021 (OJ L 141, 28.5.2016, p. 3). 24 Agreement between the Kingdom of Norway and the European Union on a Norwegian Financial Mechanism for the period 2014-2021 (OJ L 141, 28.5.2016, p. 11). 25 Art. 6 of Protocol 38 c.

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The main goal of the Financial Mechanism remains the support of economic and social development in the EEA. However, “the strengthening of [the EFTA States’] relations with the Beneficiary States” has been added as a target. This implies that the EFTA States may consider the contributions also in a countryspecific context. More importantly, perhaps, is the addition of the requirement that all programmes and activities “shall be based on the common values of respect for human dignity, freedom, democracy, equality, the rule of law and the respect for human rights including the rights of persons belonging to minorities”.26 The funds are to be divided between country specific allocations fixed for each beneficiary State and a global fund for regional cooperation. The global regional fund is financed jointly by the two schemes. The main part of the fund is allocated to promote youth employment, whereas the remaining part shall encourage regional cooperation. The latter may be used to extend and further develop existing programmes and may involve beneficiary States and neighbouring countries, for example an expanded cooperation with Ukraine and Moldova.27 When selecting the priority sectors, a purpose has been to seek, where possible, a combination of the needs of the beneficiary State with the expertise and preferences of the donor States. The priority sectors include innovation, research and education; social inclusion, youth employment and poverty reduction; environment, energy, climate change and low carbon economy; culture, civil society, good governance, fundamental rights and freedoms; and justice and home affairs. Within the priority sectors, an outline of a number of specific programme areas is listed in an annex to Protocol 38 c. Coordination with relevant EU policies is ensured through consultations between the EFTA States and the Commission. The aim is to promote “complementarity and synergies with EU cohesion policy, as well as exploring opportunities for applying financial instruments to increase the impact of financial contributions”.28 It is also provided that the Financial Mechanism contributions shall be “closely coordinated with the bilateral contributions from Norway provided for by the Norwegian Financial Mechanism”.29 The programme-based approach from previous periods has been maintained, but has become more focussed involving fewer, but larger programmes.30 The 26 Art. 1(2) of Protocol 38 c. These values reflect the EU values laid down in Art. 2 TFEU. In this respect, it may be noted that the Commission has initiated a procedure against Poland under Art. 7 TFEU (“rule of law framework”) in response to serious concerns about the rule of law in Poland. Poland is a major beneficiary State under the EEA Grants and the Norway Grants. See in this context some specific comments below on Hungary. 27 Prop. 119 S (2015-2016), p. 16. 28 Art. 4(2) of Protocol 38 c. 29 Art. 9(1) of Protocol 38 c. 30 According to the OECD, a programme-based approach is characterised, inter alia, by the beneficiary State’s leadership of the programme and efforts to use local systems for its implementation, budgeting, management, procurement and reporting.

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programmes shall align with the national needs of the beneficiary State and those of the EFTA State priorities and with wider goals of the EU. 25 Financing of programme costs shall normally not exceed 85 per cent in order to ensure co-financing. The purpose of co-financing is to establish risk sharing with the beneficiary States or recipients in order to counter moral hazard.31 Also, State aid rules must be complied with. The non-country specific allocations in the global fund for regional cooperation are regulated in some detail with an emphasis on the promotion of youth employment.32 26 The EEA Grants agreement is based on “the highest” degree of transparency, accountability and cost efficiency in all implementation phases, as well as principles of good governance, partnership and multi-level governance, sustainable development, equality between men and women, and non-discrimination.33 It also includes follow-up and control mechanisms. It is the beneficiary State itself that shall ensure appropriate control of sound implementation and management. However, the EFTA States may carry out additional controls. The beneficiary State is obliged to provide necessary assistance, information and documentation. As a sanction, the EFTA States may suspend financing and require recovery of funds in the case of irregularities. 27 In this context, a mention may be made of a conflict in 2014/15 concerning EEA and Norwegian funding in Hungary. At issue was a specific NGO allocation financed under the grants. The purpose of the NGO Fund was, in particular, to develop civil society in Hungary. The Financial Mechanism Office (FMO, see below) selected a Hungarian operator for the Fund. The selection took account, inter alia, of the operator’s independence of national authorities. This was considered a relevant criterion since beneficiary NGOs may legitimately be critical to government policies. However, the Hungarian authorities claimed that many of the NGO-projects favoured the interests of an opposition party, Politics Can Be Different (LMP), and listed beneficiary NGOs such as Transparency International Hungarian Foundation, Hungarian Civil Liberties Union, Rainbow Mission Hungary etc. According to the Hungarian Government, this financing represented interference in Hungary’s domestic affairs.34 In this context, the Hungarian authorities made changes in the control and implementation of the funding, including the NGO funding. However, in the EFTA States’ view this unilateral 31 Moral hazard denotes the economic effect that inefficiencies follow if a risk-taker is relieved of responsibility for losses if the risk occurs. 32 Art. 7 of Protocol 38 c. 33 Art. 10 of Protocol 38 c. 34 According to Bloomberg (28.7.2014), the Hungarian Prime Minister, Victor Orban, distanced himself “from values shared by most EU nations even as his government relies on funds from the bloc for almost all infrastructure-development financing in the country. Orban said civil society organizations receiving funding from abroad need to be monitored as he considers those to be agents of foreign powers. “We’re not dealing with civil society members but paid political activists who are trying to help foreign interests here,” Orban said”; see http://www.b loomberg.com/news/articles/2014-07-28/orban-says-he-seeks-to-end-liberal-democracy-in-hu ngary.

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step did not conform to the agreement concerning EEA funds. The EFTA States therefore decided to suspend, with a few exceptions, payments to Hungary from May 2014. The conflict was aggravated after investigations by the Government Control Office (an auditor), including at the premises of the NGO Fund’s operator, and especially after criminal complaints were filed. Hungary’s Rapid Deployment Police raided the premises of the Fund’s operator and other locations in Budapest. The authorities claimed that the grants were funds paid through Hungarian public budgets and thus subject to the Hungarian Budget Law authorising the investigation. However, the EFTA States held that the NGO Fund contained no Hungarian funding and that it had been agreed that the FMO should supervise the Fund. The Norwegian Minister for European Affairs described the events as ” Hungary’s journey back into the past”.35 However, in December 2015 the suspension was lifted after the parties agreed 28 on the performance of the control functions and implementation of the grants in Hungary and to respect the legal framework of the civil society program as they had been established. III. Administration of the Financial Mechanism 1. The organisation

The administration of the Financial Mechanism and the Norway Grants has to 29 a large extent been coordinated to achieve efficiency. The EFTA States, within the Financial Mechanism Committee (FMC), and the Norwegian Ministry of Foreign Affairs have established mainly parallel rules and procedures on the implementation of the schemes.36 The FMC is composed of representatives of the Ministry of Foreign Affairs in 30 each of the donor States. The committee has drawn up policies and guidelines (regulations) implementing the financial contributions and makes the decisions on and ensures monitoring and evaluation of the grants.37 The Norwegian Ministry of Foreign Affairs is the corresponding decision-making body for the Norway Grants. The grant application procedure is similar for both mechanisms. However, 31 agreements with the beneficiary States under the Norway Grants are made on a bilateral basis between Norway and the beneficiary State. 35 Vidar Helgesen wrote in the Financial Times (28.8.2014), inter alia, that “Norway is closely integrated with the EU and deeply committed to the values that underpin European integration. These values are now being challenged by the Hungarian government, a member state and a recipient of massive EU funding”; see https://www.ft.com/content/2234f99a-2942-11e48b81-00144feabdc0. 36 Rules and Procedures for the implementation of the Norwegian Financial Mechanism 2004-2009 were first adopted by the Norwegian Ministry of Foreign Affairs 17 February 2010 pursuant to Art. 8 of the bilateral EU-Norway agreement on the Norwegian Financial Mechanism. Rules and Procedures for the implementation of the EEA Financial Mechanism 2004-2009 was adopted by the FMC 7 June 2009 pursuant to Art. 8 of Protocol 38 a. 37 As for the Norway Grants, the Norwegian Ministry of Foreign Affairs carries out these tasks.

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In line with the development of the Financial Mechanism, the Financial Mechanism Office (FMO) was established as a separate administrative body by a decision in 2004 of the EFTA Standing Committee. Its tasks are to assist in the management of the EEA Grants and the Norway Grants.38 The FMO is a part of the EFTA Secretariat in Brussels, but the office operates with a high degree of independence. The FMO also serves as a liaison between the beneficiary States and the donor States. It cooperates particularly with the National Focal Points (see below), to whom applications for grants are submitted.39 All running expenses are covered from the assigned contributions. 33 The legal framework of the Financial Mechanism is Protocol 38 c, the memoranda of understanding between the donor States and the beneficiary States, individual programme agreements, and guidelines adopted by the FMC after consultation with the beneficiary States. Such provisions are laid down in an implementing regulation.40 32

2. The Memoranda of Understanding

The distribution of the funds to a beneficiary State is guided by a memorandum of understanding (MoU). The MoU is a bilateral agreement between the beneficiary State and the donor States, giving the basic operational framework of the financial contributions.41 Further rules are laid down in the FMC’s regulation with the purpose of ensuring the efficient and targeted implementation of the funds. 35 According to the implementing regulation, an MoU – one for each beneficiary State – shall contain, inter alia, a designation of the national entities responsible for implementation (“National Focal Point”), identification of their functions in national management and control structures, and specification of the programme areas and the programmes to be funded in each beneficiary State. The National Focal Point also acts as a representative of the beneficiary State in its relations with the FMC. A goal is that the contribution from the donor States shall be adapted to each beneficiary State’s need and to support as far as possible bilateral relations between beneficiary States and donor States. The regulation also contains further rules on external monitoring, audit, irregularities and suspension of payments, financial corrections, and repayments. Individual pro34

38 Decision of the Standing Committee of the EFTA States No. 1/2003 of 5 February 2004 and Decision of the Standing Committee of the EFTA States No 6/2010/SC of 9 December 2010, extending the tasks of the Office for the EEA Financial Mechanism and the Norwegian Financial Mechanism, OJ L 78 p. 58. 39 The EIB is no longer part of the institutional framework of the Financial Mechanism. 40 Regulation on the implementation of the EEA Financial Mechanism 2014-2021 adopted by the EEA Financial Mechanism Committee on 8 September 2016 and confirmed by the Standing Committee of the EFTA States on 23 September 2016. Similarly, for the Norway Grants, a regulation on the implementation of the Norwegian Financial Mechanism 2014-2021 was adopted by the Norwegian government on 23 September 2016. 41 See for EEA Grants, Art. 10(3) of Protocol 38 c.

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grammes are further governed from operational purposes in programme agreements. The MoU and the programme agreements are important tools for the EFTA 36 States and the FMO in their relation vis-à-vis beneficiary States. A certain tension between the donor States and the beneficiary States as to how the grants are spent, may arise. Moreover, a beneficiary State may claim that the grants are something it has rightfully been awarded. There are examples of such disagreement having occurred.42 3. Management and control

The overall responsibility for overseeing the objectives of the grants, the im- 37 plementation of an MoU, and the management and control of the individual programmes according to the programme agreement lies with the National Focal Point in each beneficiary State.43 These may be located within relevant ministries or within public agencies managing EU funding schemes. Concerns as to the financial contributions may be related to suspicion of cor- 38 ruption and other forms of economic crime. Strict and efficient control of distribution of funds to the beneficiary Member States in order to ensure that funds meet their purposes and that misappropriations are deterred, is important for the Financial Mechanism to be considered legitimate. 4. Dispute resolution

Neither the EEA Financial Mechanism nor the Norway Grants are subject to 39 supervision by ESA or dispute settlement by the EFTA Court. The applicable law and jurisdiction is laid down in the relevant regulations. It is stated in the regulations that Norwegian law shall govern the cooperation between the mechanism and the beneficiary States, as well as the interpretation of the programme agreement and the regulations. The FMC, the Norwegian Ministry of Foreign Affairs and the National Focal 40 Points, respectively for the EEA Grants and the Norway Grants, have waived their right to bring a dispute before any national or international court and agreed to settled any dispute “in an amicable manner”.44 In case a dispute is related to a demand for reimbursement, and agreement cannot be reached in an amicable manner, the dispute may be brought before Oslo District Court in accordance the regulations.

42 NOU 2012:2, p. 765. An example is the dispute between Norway and Hungary mentioned under part II, point 5 above. 43 Arts. 1.6(m) and 3.2 of both the EEA Regulation 2014-2021 and the Norway Grants Regulation 2014-2021. 44 Art. 14.4(2) of the Regulation.

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IV. Concluding remarks

Even though the Financial Mechanism was intended to be a temporary financial contribution, it has now become an integrated part of the EEA Agreement. This is illustrated, for example, by Art. 11 of Protocol 38 c stating that when the present agreement ends in 2021, “the Contracting Parties shall, in the light of Article 115 of the [EEA] Agreement, review the need to address economic and social disparities within the European Economic Area”. Due to the difference in the relative negotiating strength between the parties, it has been difficult for the EFTA States to avoid the inclusion of substantial financial support to EU beneficiary Member States into the EEA Agreement.45 The recent agreements have settled the issues for the coming years. 42 In Norway, a tendency may be traced to justify the financial contributions beyond the social cohesion context and to include foreign policy considerations, for example strengthening the bilateral relations between Norway and the EU Member State in question. 43 The financial contributions have successfully been kept apart from EU funding, which may benefit the EFTA States in the public opinion in the beneficiary States. Furthermore, the adaptation of the Financial Mechanism has gradually accommodated particular interests of the donor States, including commercial interests, in relation to the beneficiary States. This has contributed to strengthen the bilateral relation between the donor EFTA States and individual EU Member States. 41

Part IX: General and final provisions Article 118 [Extension of the EEA Agreement to new fields] 1. Where a Contracting Party considers that it would be useful in the interests of all the Contracting Parties to develop the relations established by this Agreement by extending them to fields not covered thereby, it shall submit a reasoned request to the other Contracting Parties within the EEA Council. The latter may instruct the EEA Joint Committee to examine all the aspects of this request and to issue a report. The EEA Council may, where appropriate, take the political decisions with a view to opening negotiations between the Contracting Parties. 2. The agreements resulting from the negotiations referred to in paragraph 1 will be subject to ratification or approval by the Contracting Parties in accordance with their own procedures.

45 See for example NOU 2012:2, p. 760.

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IV. Concluding remarks

Even though the Financial Mechanism was intended to be a temporary financial contribution, it has now become an integrated part of the EEA Agreement. This is illustrated, for example, by Art. 11 of Protocol 38 c stating that when the present agreement ends in 2021, “the Contracting Parties shall, in the light of Article 115 of the [EEA] Agreement, review the need to address economic and social disparities within the European Economic Area”. Due to the difference in the relative negotiating strength between the parties, it has been difficult for the EFTA States to avoid the inclusion of substantial financial support to EU beneficiary Member States into the EEA Agreement.45 The recent agreements have settled the issues for the coming years. 42 In Norway, a tendency may be traced to justify the financial contributions beyond the social cohesion context and to include foreign policy considerations, for example strengthening the bilateral relations between Norway and the EU Member State in question. 43 The financial contributions have successfully been kept apart from EU funding, which may benefit the EFTA States in the public opinion in the beneficiary States. Furthermore, the adaptation of the Financial Mechanism has gradually accommodated particular interests of the donor States, including commercial interests, in relation to the beneficiary States. This has contributed to strengthen the bilateral relation between the donor EFTA States and individual EU Member States. 41

Part IX: General and final provisions Article 118 [Extension of the EEA Agreement to new fields] 1. Where a Contracting Party considers that it would be useful in the interests of all the Contracting Parties to develop the relations established by this Agreement by extending them to fields not covered thereby, it shall submit a reasoned request to the other Contracting Parties within the EEA Council. The latter may instruct the EEA Joint Committee to examine all the aspects of this request and to issue a report. The EEA Council may, where appropriate, take the political decisions with a view to opening negotiations between the Contracting Parties. 2. The agreements resulting from the negotiations referred to in paragraph 1 will be subject to ratification or approval by the Contracting Parties in accordance with their own procedures.

45 See for example NOU 2012:2, p. 760.

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I. The EEA evolutionary clause

Art. 118 contains what has been referred to as the EEA “evolutionary 1 clause”.1 A familiar provision of EU external agreements, such a clause acknowledges the possibility for the “Contracting Parties” to “develop the relations established by the [EEA] Agreement by extending them to fields not covered thereby” (II). The procedure envisaged by Art. 118 EEA makes such an extension contingent on the contracting parties” approval (III), a requirement that makes its use rather unlikely (IV). II. Scope

Its formulation indicates that Art. 118 EEA aims at extending the Agreement’s 2 substantive scope of application. It does not explicitly contemplate the revision of the EEA institutional framework, nor does it acknowledge the Contracting Parties” ability to curb its material scope. As a treaty amendment device, Art. 118 EEA is thus considerably more limi- 3 ted than the EU Treaty revision procedure. Art. 48 TEU envisages both institutional and substantive modifications of EU primary law. Furthermore, since its revision by the Treaty of Lisbon, it also acknowledges the possibility for the Member States to “re-nationalise” competences transferred to the EU.2 As such, the EEA evolutionary clause has been and is likely to remain of limited use.3 All the more so since the Agreement acknowledges other less demanding ways for the parties to “develop the[ir] relations”: the elastic notion of “EEA relevance”, judicial dynamism, and amendments of the Agreement in the context of an EEA enlargement and withdrawal of one of its Contracting Parties. Further relations between the EFTA States and the EU may also develop outside of the EEA framework altogether. 1. The elastic notion of “EEA relevance”

The EEA Agreement is regularly updated through the EEA decision-making 4 procedure and by virtue of the principles of dynamism and homogeneity which underpin its functioning (Art. 102 EEA). EU legislation considered to be “EEA relevant” is regularly incorporated in the Annexes of the EEA Agreement thereby developing the latter, and in turn the relation between the Parties. A droit constant, the EEA Agreement is therefore structurally adaptable, thus possibly relativizing the expediency of a revision based of Art. 118 EEA. Admittedly, the above-mentioned evolution of the EEA only applies to 5 “fields” already “covered” by the Agreement as defined in Art. 1(2) EEA,4 most 1 Norberg et al, EEA Law, p. 293. 2 Art. 48(1) TEU foresees that “proposals [from the Government of any Member State, the European Parliament, or the European Commission] may, inter alia, serve either to increase or to reduce the competences conferred on the Union in the Treaties.” 3 It should be noticed that Art. 118 refers to “agreements” in plural, thereby suggesting that the envisaged extension of the EEA Agreement can take place in different steps.

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notably the free movement of goods, persons, services and capital, competition rules. Yet it has been noted that the notion of “EEA relevance” that triggers the regular updating of the EEA law, and thus its scope have raised questions. The 2012 White Paper of the Norwegian Ministry of Foreign Affairs to the Storting underlined that “the limits for what is covered by the EEA Agreement have become less clear than they were in the past”, adding that the criteria set out in the Agreement [to determine what is “EEA relevant”; i.e “whether [an EU measure] falls within the substantive and geographical scope of the EEA, as defined in the main Agreement and its protocols and annexes”] are not precise, and assessments are therefore to a certain extent discretionary”.5 Undoubtedly, the notion of “EEA relevance” impacts on the interpretation of the phrase “fields not covered” by the Agreement for the purpose of Art. 118 EEA. The broader the notion of “relevance” is envisaged, the wider the scope of the EEA Agreement, and in turn the narrower the notion of “fields not covered”. 6 The Parties’ ability to “develop their relations” without resorting to Art. 118 EEA is particularly conspicuous in areas envisaged by Art. 78 EEA, included in Part VI on “Cooperation outside the four freedoms”.6 The envisaged cooperation covers inter alia “social policy”, “consumer protection” and the “audio-visual sector”, areas in relation to which incorporation in the EEA framework is not compulsory. In particular, Art. 78 EEA foresees that the Contracting Parties “shall strengthen and broaden their cooperation in the framework of the Communities” activities in those fields “in so far as these matters are not regulated under the provisions of the other parts of this Agreement”. The latter phrase suggests that although they are covered by the Agreement, those fields are not subject to the same mandatory process of adaptation as in relation to the four freedoms. It is only if the EEA EFTA States so wish that the EU acts are incorporated in Protocol 31 of the Agreement,7 and thus become part of EEA law. The EEA Contracting Parties therefore have the possibility to develop their relation in several areas outside the internal market stricto sensu, without having formally to extend the scope of application of the Agreement through Art. 118 EEA. 2. Judicial (and administrative) dynamism 7

The scope of the EEA Agreement also evolves as a result of the case law of the EFTA Court,8 and to some extent, on the basis of decisions of the EFTA Surveillance authority. As well established in the literature, the EFTA Court has 4 See comments on Art. 1(2) EEA by Arnesen and Fredriksen. 5 The EEA Agreement and Norway’s other agreements with the EU, Report to the Storting (White Paper), Meld. St. 5 (2012-2013), 12 October 2012, pt. 2.3.1. 6 Further, see comments on Art. 78 EEA by Jóhanna Jónsdóttir. 7 Protocol 31 on “cooperation in specific fields outside the four freedoms”. 8 The same holds true with respect to the case law of the Court of Justice of the EU. The ECJ has jurisdiction to interpret the EEA Agreement within the EU legal order, having in turn an influence on the development of the case law of the EFTA Court. See e.g. Case T-115/94, 22.1.97, Opel Austria.

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developed a highly dynamic interpretation of the scope of EEA law.9 The recent Jabbi judgment is a case in point.10 The Court’s decision epitomised that the EEA Agreement may be construed broadly enough to reflect EU legal developments in areas in principle not covered by the EEA Agreement, for instance the EU provisions on citizenship.11 3. Amendments following accession to and withdrawal from the EEA

Art. 127 EEA, which sets out the procedure whereby a Contracting Party 8 may withdraw from the EEA Agreement, provides another, albeit exceptional means to modify the latter. In particular, it is foreseen that after being notified of the intended withdrawal, the other contracting parties “shall convene a diplomatic conference in order to envisage the necessary modifications to bring to the Agreement” (emphasis added). As discussed in the analysis of this Article below, the notion of “necessary modifications” could entail different types of amendments of EEA law.12 In the same vein, each enlargement of the EEA on the basis of Art. 128 EEA provides an opportunity for the Parties to adjust and amend the law of the EEA.13 4. Cooperation outside the EEA framework

While setting up the specific procedural framework for the parties to “develop 9 the relations established by th[e EEA] Agreement”, the EEA evolutionary clause does not prevent the Contracting Parties to strengthen their cooperation in fields not covered by the Agreement, outside the latter’s framework. Although the principle of cooperation set out in Art. 3 EEA invites them to do so when stipulating that the Contracting Parties “shall facilitate cooperation within the framework of this Agreement” (emphasis added),14 they have negotiated and concluded agreements, multilateral or bilateral, outside the EEA framework to cooperate in other fields.15 III. Procedure 1. Initiation

Any Contracting Party can activate the evolutionary clause if it considers it 10 “useful in the interest of all … to develop the relations established by [the] 9 See inter alia: Fredriksen and Franklin, ‘Of pragmatism and principles: The EEA Agreement 20 years on’ (2015) 52 Common Market Law Review, pp. 629-684; see also the various contributions in Baudenbacher, Tresselt & Orlygsson (eds), EFTA Court: Ten Years on (Hart publishing, Oxford 2005); and in Members of the EFTA Court (eds), EEA and the EFTA Court: Decentred Integration (Hart Publishing, Oxford 2015). 10 Case E-28/15, 26.7.16, Jabbi. 11 Further, see e.g. Franklin and Fredriksen, op. cit. 12 See the comments on Art. 127 EEA, below. 13 See the chapter on Art. 128 EEA, below. 14 Further on this provision, see comments by Franklin in this volume. 15 See NOU 2012:2, Utenfor og innenfor. Norges avtaler med EU.

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Agreement”. While EFTA states generally have to speak with one voice in the EEA decision making instances (eg Art. 93(2) EEA), there does not seem to be such an obligation first to coordinate their position before initiating the Art. 118 procedure. 11 Conversely, one may wonder whether any EU Member State could legally take such an initiative. As made clear in the relevant chapter of this commentary, the notion of Contracting Parties is multifaceted on the EU side.16 It relates to any of the Member States of the EU acting in the context of its competence, the EU either on its own when acting in a field of exclusive competence, or the EU and its Member States together in areas of shared competence. This has implications specifically for the purpose of initiating the revision procedure, as well for the ratification of the amending treaty, as discussed later. 12 Thus, for areas not covered by the EEA agreement falling within the ambit of EU exclusive competence, an EU Member State could not take the autonomous initiative to activate Art. 118 EEA; only the EU could.17 Indeed, for all policy areas relating to shared competences, Member States ought to coordinate their position with EU institutions in line with their duty of sincere cooperation,18 further circumscribing their ability to trigger the procedure autonomously. In principle therefore, the initiative by a Member State alone would only be conceivable in relation to those areas for which it has reserved competence. But even in this situation, it would appear that an autonomous right of initiative is not obvious. First, it would require that those areas of state powers be identified, an exercise that might raise divergences within the EU. Moreover, while in these instances, the obligation of sincere cooperation remains applicable to the Member States, such an autonomous initiative is in practice unlikely in view of the implications of a revision. The latter would in effect extend the EEA legal system, including its supranational enforcement mechanism to an area that by definition would not be covered by EU law, and thus where the EU enforcement mechanism would not apply. It would be difficult to contemplate that the EFTA Surveillance Authority and the EFTA Court would be entrusted to exercise their mandate in areas where EU institutions would not be able to do so. In sum, the initiative on the EU side appears to pertain to the EU or to the EU and Member States acting jointly, as the extension could only concern, in practice, fields covered by EU law. 13 The instigator of the process has to submit a “reasoned request” to the other Contracting Parties within the EEA Council which “may, where appropriate, take the political decisions with a view to opening negotiations between the Contracting Parties”. It may also instruct the EEA Joint Committee to examine all the aspects of this request and to issue a report. 16 On the notion of Contracting Parties, see comments by Arnesen and Fredriksen, in this volume. 17 See e.g. Case C-45/07, 12.2.09, Commission v Greece (IMO). 18 See e.g. Case C-246/07, 20.4.10, Commission v Sweden (PFOS).

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The role devolved to the EEA Council is a specific expression of its general 14 function established by Art. 89 EEA, namely to “giv[e] the political impetus in the implementation of th[e] Agreement”, to “assess the overall functioning and the development of the Agreement” (emphasis added), and in turn to “take the political decisions leading to amendments to the Agreement”.19 A slight difference between Art. 118 EEA and Art. 89(1) EEA should nevertheless be mentioned. While the latter appears to bind the EEA Council to act when using the word “shall”, the use of “may” in Art. 118 EEA suggests that it enjoys a degree of discretion whether or not to proceed. The initiative indeed needs the support of the EEA Council to prosper. 15 Art. 118 EEA does not provide for any particular quorum, thus indicating that general rules of decision-making apply. Thus, according to Art. 4 of the rules of procedure of the EEA Council,20 decisions by the EEA Council shall be taken by agreement between the Community, on the one hand, and the EFTA States speaking with one voice, on the other. This in turn implies that starting negotiations with a view to broadening the scope of the EEA Agreement is contingent upon the agreement of all parties involved. While the EEA institutions have a role to play in the substantive extension of the EEA legal order, the latter remains primarily dependent on the Contracting Parties as such. 2. Negotiation and ratification

Should the EEA Council be convinced of the expediency to extend the EEA 16 Agreement to new areas, a negotiation among all Parties will take place. The revision of the Agreement will then have to be ratified or approved by each of them, in accordance with their own procedures. Again, the question of whether the EU alone, or the EU together with the 17 Member States would have to be involved in the negotiation process, depends on what policy the Parties wish to include in the EEA. Generally, the Commission is entrusted with the task of negotiating EU external agreements under the EU treaty-making procedure enshrined in Art. 218 TFEU, whether it concerns EU exclusive or shared competence. The scope and nature of the EU competence involved become institutionally more significant for the ratification of the Agreement. Assuming that the initiative is successful, the notion of “Contracting Parties” 18 would also have to be clarified for the purpose of the ratification of the amending treaty. Arguably, an extension of the EEA to an policy area falling within the ambit of EU exclusive competence would entail the ratification by the EU only, and not by the Member States.21 Conversely, if it were to relate to fields of EU shared competence, the extension would possibly prompt recourse to a mixed 19 This function resonates with the role played by the European Council in the EU in general (Art. 15(1) TEU), and in the EU revision procedure in particular (Art. 48 TEU). 20 Decision of the EEA Council No 1/94 of 17 May 1994 adopting the Rules of Procedure of the EEA Council.

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agreement, making the outcome of the whole revision procedure more uncertain. National ratification of EU mixed agreements has become ever more demanding not only in view of the multiplication of Contracting Parties, but also considering the increase in the number of actors involved within the national systems. In such a case, national and sub-national parliaments, even referenda, could be involved, raising the risk of a deadlock along the way, in turn reverberating on the whole construction. IV. Outlook

While rather unexceptional in itself, the EEA evolutionary clause is of particular significance when considering the specific legal context in which it is included.22 An extension beyond the “fields not covered” not only means broadening the EEA association beyond the Agreement’s substantive scope defined in Art. 1(2) EEA. It also entails the extension of the specific EEA legal system to additional policy fields, both in terms of dynamism and homogeneity, and therefore in terms of regular updating and compliance control mechanisms. Were the EEA Agreement to cover new fields, related EU secondary legislation would be incorporated in the Annexes of the Agreement and become binding on the three EEA EFTA States, like any secondary legislation presently presumed to be “EEA relevant”, under the supervision of the EFTA Surveillance Authority and the EFTA Court. In short, the specific nature of the EEA Agreement makes the substantive extension under Art. 118 EEA particularly significant. 20 The mechanism of Art. 118 has yet to be used.23 This does not entail, as suggested earlier, that the scope of the EEA Agreement has remained static. Whether it will ever be used remains to be seen. Contracting Parties might continue to opt for alternative and perhaps less constraining forms of cooperation. 19

21 See e.g. Opinion 1/13, 14.10.14, Hague Convention on the civil aspects of international child abduction ECLI:EU:C:2014:2303. 22 Norberg et al., EEA Law consider that “it was, in particular for political reasons, important for the Contracting Parties explicitly to signal that the material scope of the [EEA] Agreement could be extended to other fields”, without exposing what these political reasons were. 23 Some references to Art. 118 EEA in EEA law can be mentioned, e.g. the EEA Joint Committee Decision No 158/2007 of 7 December 2007 (OJ 2008 L 124/20, and EEA Supplement 2008 No 26, p. 17) (“the Joint Committee Decision”), which entered into force on 1 March 2009. Attached to the Joint Committee Decision was a Joint Declaration by the Contracting Parties to the decision that refers to Art. 118 EEA in the following way: “The Contracting Parties agree that immigration policy is not covered by the EEA Agreement. Residence rights for third country nationals fall outside the scope of the Agreement with the exception of rights granted by the Directive to third country nationals who are family members of an EEA national exercising his or her right to free movement under the EEA Agreement as these rights are corollary to the right of free movement of EEA nationals. The EFTA States recognise that it is of importance to EEA nationals making use of their right of free movement of persons, that their family members within the meaning of the Directive and possessing third country nationality also enjoy certain derived rights such as foreseen in Art. 12(2), 13(2) and 18. This is without prejudice to Art. 118 of the EEA Agreement and the future development of independent rights of third country nationals which do not fall within the scope of the EEA Agreement.”

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Moreover, they might consider the process of renegotiating the EEA too risky, both in terms of domestic politics, but also in view of the uncertain outcome of the process if it were to involve a mixed agreement. To be sure, any such extension would be possible provided it concerns a field 21 of EU competence. More specifically considering the nature of the EEA legal order, an extension under Art. 118 EEA would concern mainstream areas of EU competence, i.e. areas involving the classic powers of EU institutions, particularly the Commission and the Court of Justice. For it is unlikely that Art. 118 EEA could allow an extension of the EEA to the e.g. Common Foreign and Security Policy, considering its distinct institutional set-up in the EU legal order. Otherwise the CFSP would have a more supranational character in the EEA context than within the EU legal order. Hypothetically, candidates for incorporation would rather be areas of EU exclusive and shared powers mentioned in Arts. 3 and 4 TFEU, respectively. Incidentally, the question could be asked as to whether the procedure of 22 Art. 118 EEA could be activated and used with some but not all Contracting Parties involved. In particular, would it be conceivable to trigger the procedure for the purpose of extending the scope of the Agreement to some Contracting Parties only, if the EEA Council agreed? Also, would it be possible to allow partial ratification – including incomplete mixity on the EU side – in case not all the EEA Parties would be willing and/or able to ratify the adjustments? The provision is not explicitly against, opening the possibility to extend the 23 EEA in a differentiated manner. To be sure, the initial EEA Agreement entered into force without all EFTA countries involved. Arguably, one could imagine that, in the same way, the EEA be extended to new policy areas for one or two EFTA states only.24 Though this may appear more difficult in principle on the EU side, one could nevertheless imagine an extension of the EEA Agreement to areas of EU migration law that fall within the scope of application of the UK, Ireland and Denmark so-called Opt-outs. Further EEA differentiation could however cause institutional and substantive difficulties in the functioning of the EEA, including within the EFTA pillar, akin to those that have arisen within the EU in areas covered by differentiation.25

24 Indeed, differentiation in the application of EEA law already exists with respect to Liechtenstein. Further, see Maresceau, ‘Very Small States and the European Union: the Case of Liechtenstein’ in Arnull et al. (eds.), A Constitutional Order of States? Essays in EU Law in Honour of Alan Dashwood (Hart Publishing, Oxford 2011), p. 501; Frommelt & Gstöhl, Liechtenstein and the EEA: the Europeanization of a (very) small state, Europautredningen (2011) Rapport #18. 25 See e.g. Case C-431/11, 26.9.13, United Kingdom v Council; Case C-482/08, 26.10.10, United Kingdom v Council; Case C-137/05, 18.12.07, United Kingdom v Council; Case C-77/05, 18.12.7, United Kingdom v Council.

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Article 119 [Annexes and Protocols as integral part of the Agreement] The Annexes and the acts referred to therein as adapted for the purposes of this Agreement as well as the Protocols shall form an integral part of this Agreement.

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Quite a few of the Protocols to the EEA Agreement relate to substantive provisions in the Main Part of the Agreement concearning to the internal market. Other relate to various institutional aspects illustrating, and necessitated by, the comprehensive and long-term relationship envisaged by the agreement. The treaties establishing the European Communities, and even more so today’s TEU and TFEU are framework treaties, enabling institutions set up by the treaties to adopt legal acts giving substance and detail to the principles contained in the treaties. The volume and number of these acts, and the frequency of which they are changed, have increased over the years. In order to make it possible to obtain and maintain homogeneity within the EEA, the Main Part of the EEA Agreement mirror the basic principles found in the now TFEU concerning the internal market, while the acquis commonautaire concerning the fields covered by the Agreement are listed in the Annexes. In order to facilitate maintaining homogeneity, the EEA Joint Committee is given authority to amend the Annexes to include legal acts adopted by the EU after the entering into force of the Agreement, and to remove acts that have become obsolete. Both the Protocols and the Annexes are addressed in their proper context throughout this book.1 However Art. 119, by providing that the Protocols and Annexes form an integral part of the EEA Agreement, merits a separate discussion. On a general note, it can be observed that literature has understood Art. 119 as establishing that there is no hierarchy between the provisions found in the main part of the Agreement and those found in the Protocols and Annexes.2 The ruling of the ECJ in case C-496/09 Commission v Italy,3 regarding the similarly worded Art. 51 TEU, substantiates the view expressed in literature. As will be demonstrated below, so do the rulings of the EFTA Court in Case E-2/03 Ásgeirsson, and Case E-4/04 Pedicel, with regard to the Protocols. As far as the legal acts referred to in the Annexes are concerned, the case law of the EFTA Court may be taken to imply that these are subordinate to provisions found in other parts of the EEA Agreement, as the EFTA Court on a num-

1 See the overview provided for by Fredriksen in the introductory chapter ‘EEA law in and beyond the text of the Main Part of the EEA Agreement’, Sections III and IV. 2 See Fredriksen, ‘EEA Main Agreement and Secondary EU Law incorporated into the Annexes and Protocols’, in: Baudenbacher (ed), The Handbook of EEA Law, at p. 99, with further references. 3 Case C-496/09, 17.11.2011, Commission v Italy, para 60.

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ber of occasions has emphasised the need for interpreting directives referred to in the annexes ‘in light of primary EEA law’.4 The implications of the lack of hierarchy are however best discussed separate- 6 ly for the Protocols and for the Annexes. II. Protocols

The Protocols to the EEA Agreement are made with the cooperation under the EEA Agreement in mind. This in contrast to the legislative acts referred to in the Annexes, which are all legal acts adopted under a different legal order, the EU legal order. The Protocols cover a wide spectrum of issues, from the general vademecum to the understanding of legal acts referred to in the Annexes (Protocol 1), via issues pertaining to the substantive regulation of the internal market, to the cooperation in specific fields outside the four freedoms (Protocol 31). Some of the Protocols contain derogations from provisions in the Main Part of the Agreement. Some of these derogations seem to be of little importance. Protocol 7, according to which Iceland may retain quantitative restrictions on the import of brooms and brushes, may serve as an example. Others may have significant impact. One example is Protocol 8, which provides that regardless of Art. 8 (3)(a) EEA, Art. 16 EEA on State monopolies also applies to wine. Some of the protocols refer to EU secondary legislation, like Protocols 21 and 22, but most of them do not. Being provisions that are tailor made for the cooperation under the EEA Agreement, it may be argued that discrepancies between interpretations based on the Protocols and those based on other parts of the agreement, are to be solved in favour of the interpretation mandated by the Protocols. On the other hand, provisions in the protocols may appear as exceptions to a main rule following from another part of the Agreement, and that would mandate a strict interpretation. The ruling of the EFTA Court in Case E-2/03 Ásgeirsson may serve as an example of the use of both approaches. Here, the EFTA Court was called upon to interpret the rules of origin with regard to trade in fish, as referred to in Protocols 4 and 9 to the EEA Agreement and Protocols 3 and 6 to the Free Trade Agreement between the European Economic Community and the Republic of Iceland of 22 July 1972. The court held that ‘the wording and scheme of Article 7 of Protocol 9 and Appendix 3 to that Protocol, as well as the fact that Article 7 of Protocol 9 is an exception to Article 120 EEA, speak in favour of a restrictive interpretation thereof. However, it has to be examined further whether the term “trade regime” in Article 7 of Protocol 9 must, in light of its purpose, be understood in a broad manner, i.e. as including the rules of origin.’5

4 See Case E-7/11, 30.3.2012, Grund, para. 82, and more recently, Case E-26/13, 27.6.2014, Gunnarsson, para. 83 – although without using the term ‘primary EEA law’. 5 Case E-2/03, 12.12.2003, Ásgeirsson, para. 35.

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In Case E-4/04 Pedicel, the applicant had suggested interpreting ‘technical barriers to trade’ in Art. 18 EEA as being synonymous with ‘measures having equivalent effect’ to quantitative restrictions in Art. 11 EEA. The EFTA Court did not agree, and held that ‘[a]lready the explicit difference in wording speaks against such a conclusion. Moreover, the purpose of Protocol 47, to which Article 18 EEA refers via Article 23(b) EEA, is to facilitate trade in wine products insofar as they are in conformity with the EC legislation as set out in Appendix 1 to the Protocol. Hence, the prohibition of ‘other technical barriers to trade’ in Article 18 EEA can only be understood to the effect that no further requirements of the same kind as foreseen under the implemented EC legislation shall be imposed.’6 12 Finally, reference is made to the EFTA Court’s elaborate discussion of the relationship between Art. 65(2) EEA and Protocol 28 on intellectual property in Joined Cases E-9/07 and E-10/07 L’Oreal, where also the objective of legal homogeneity were taken into account.7 13 These examples demonstrate that the EFTA Court considers provisions found in the Main Part of the EEA Agreement as being at the same level as provisions found in the Protocols, and that the Court resolves potential conflicts by making recourse to the aim, purpose and specificity of the provisions at hand and the EEA Agreement as such. 11

III. Annexes 1. Derogations, adaptations and declarations

The 22 Annexes to the EEA Agreement contain lists of references to legal acts adopted within the EU legal order. These lists are constantly adjusted to the legislative development in the EU by decisions of the EEA Joint Committee. These decisions may – as pointed out by the EFTA Court in case E-6/01 CIBA – be understood to ‘constitute a simplified form of an international agreement’ between the parties to the EEA Agreement.8 Accordingly, in addition to references to this EU secondary legislation, the Annexes also contain derogations, adaptations and statements made both in connection with the original negotiations of the EEA Agreement and when EU legal acts later were included in the EEA Agreement by decisions of the EEA Joint Committee. 15 The adaptations etc. are discussed in their proper context throughout this book. However, in order to illustrate some of the interpretative challenges Art. 119 EEA gives rise to, two derogations and one declaration will be discussed in the following. 14

6 Case E-4/04, 25.2.2005, Pedicel, para. 27. 7 Joined Cases E-9/07 and E-10/07, 8.7.2008, L’Oréal. For a thorough analysis of this judgment, see Rognstad’s comments to Art. 65(2) EEA, mn. 9 to 11, 18 and 28. 8 Case E-6/01, 9.10.2002, CIBA, para. 33.

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Annexes VIII and XII on right of establishment and free movement of capital provide that notwithstanding Arts. 31 to 35 and 40 EEA, Iceland and Norway may continue apply restrictions on establishment9 and ownership10 in the fisheries sector existing on the date of signature of the EEA Agreement. These derogations clearly show that provisions in the Annexes are not subordinate to those found in other parts of the EEA Agreement, be it the Main Part or the Protocols. It can probably be submitted that the restrictions that Annexes VIII and XII provide for in relation to the fisheries sector are ‘inseparably linked’ to goods which the EEA Agreement, according to Art. 8(3) EEA, is not applicable to. Following the line of reasoning adopted by the EFTA Court in Case E-4/04 Pedicel11 and Case E-1/16, Synnøve Finden,12 establishment and investment within this sector fall outside the ambit of the EEA Agreement ratione materiae. Therefore, no derogations should be necessary. Given that there are derogations, one could on the other hand argue that establishment and investments within these sectors are not, at least not always, ‘inseparably linked’ to goods not covered by the EEA Agreement. The solution to this conundrum is not obvious, but holding that a provision in one of the Annexes to the EEA Agreement offers a derogation from provisions in other parts of the agreement, it may be submitted that the provisions the derogation apply to should be interpreted isolated from the derogation and not in light of it. Every now and then when EU legal acts are included in the EEA Agreement, the Contracting Parties supplement the decision of the EEA Joint Committee with a joint declaration. One particularly interesting example is the joint declaration annexed to the decision to incorporate the Citizenship Directive (Dir. 2004/38/EC) into the EEA Agreement, in which the Contracting Parties addressed the issues raised by the fact that the EEA Agreement has no equivalence to the concept of EU Citizenship.13 The significance of such declarations for the interpretation of legislative acts included in the EEA Agreement is not altogether clear. They are as such not a part of the decision of the EEA Joint Committee, neither are they included in the Annex. Still, we must assume that they are made for a purpose, and that purpose has to be established through an interpretation of the declaration. As such declarations often leave the impression that agreement has been made as to words rather than content, it will be left to the courts to give meaning to the words agreed upon. Not being a decision of the EEA Joint Committee, the constraints following from Art. 98 EEA, whatever they might be,14 do not apply.

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Annex VIII point 9 and 10. Annex XII point 1 litra g and h. Case E-4/04, 25.2.2002, Pedicel. Case E-1/16, 15.12.2016, Synnøve Finden. The declaration is reproduced in Case E-28/15, 26.7.2016, para. 10. See Case E-6/01, 9.10.2002, CIBA.

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The EFTA Court has had opportunity to make recourse to the Joint Declaration related to Dir. 2004/38 on two occasions. In Case E-26/13 Gunnarsson, the Court found that the decisions of the EEA Joint Committee and the accompanying Joint Declaration, taken together with the EEA Agreement not having an equivalent to concept of Union Citizenship, meant that the incorporation of the Directive into the EEA Agreement did not introduce rights based on the concept of Union Citizenship.15 This use of the Joint Committee decision and the Joint Declaration is quite straightforward. However, in Case E-28/15 Jabbi, the EFTA Court found that it ‘cannot be assumed [from the joint declaration] that the Contracting Parties intended the introduction of Union citizenship in EU law to restrict further evolution of the free movement of persons in the EEA’. It is respectfully submitted that the issue was rather whether Dir. 2004/38, when applied within the framework of the EEA Agreement, could give basis for rights it does not when applied within the framework of the EU legal order. The EFTA Court answered this in the affirmative, partly based on the Joint Declaration. By that, the Court demonstrated that also Joint Declarations, while not being part of the Protocols or Annexes, may be considered an integrated part of the Agreement.16 2. Hierarchy of norms

When Art. 119 EEA provide that also the acts referred to in the Annexes form an integral part of the Agreement, it rejects the hierarchy that exists in the EU legal order between primary and secondary law. Still, as mentioned above, the EFTA Court now and then refers to ‘primary EEA law’, probably meaning general principles of EEA law and the provisions of the Main Part of the Agreement.17 However, the EFTA Court has so far not offered any explanation as to the contents of the concept of ‘primary’ EEA law. 22 The wording of Art. 119 clearly speaks against establishing a hierarchy of norms. However, the homogeneity objective of the EEA Agreement requires that conflicts of norms and other issues of interpretation are solved in the same way regardless of whether they appear within the framework of the EU legal order or the legal order established by the EEA Agreement, unless compelling grounds advise differently.18 Thus, any hierarchy of norms within the EEA legal order would have to mirror the hierarchy found in the EU legal order, and would consequently have to be based on the criteria establishing that hierarchy. To establish a hierarchy of norms within one legal order based on criteria taken 21

15 See Case E-26/13, 27.6.2014, Gunnarson, para. 80. 16 For a thorough analysis of Case E-28/15, see Fløistad’s comments on Art. 28 EEA, mn. 11 to 14 and 40 to 43. 17 To this effect, Fredriksen, ‘EEA Main Agreement and Seconadry EU Law Incorporated int the Annexes and Protocols’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 95 et seq., on p. 103. 18 In a similar vein, albeit different context, Joined Cases E-9 and E-10/07, 8.7.2008, L’Oréal, para. 37.

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from another legal order is already on the outset quite challenging. Where the purpose of the exercise is to facilitate homogeneity, it also seems superfluous as homogeneity can be achieved by solving conflicts of norms and other interpretative issues as they would have been if solved within the framework of the EU legal order. Thus, the term ‘primary EEA law’ should be avoided, as it neither connotes to 23 the legal order established by the EEA Agreement, nor offers useful guidance as to how conflicts of norms and other issues pertaining to interpretation should be handled within that legal order. 3. Validity

In Case E-6/01 CIBA, the EFTA Court found that it has jurisdiction under the procedure provided for by Art. 34 SCA to give advisory opinions on the interpretation of the provisions of the EEA Agreement concerning the functioning of the EEA Joint Committee, 19 and thus also may find that the committee has acted ultra vires.20 Accepting this, the ECJ must have the same jurisdiction under the procedure provided for by Art. 267 TFEU. A consequence of the finding in CIBA is that also in infringement procedures, be it under Arts. 31 and 32 SCA or Arts. 259 and 260 TFEU, the defending Contracting Party may plead that the EEA Joint Committee has acted ultra vires when deciding to include the provision(s) allegedly infringed in the EEA Agreement. There are, however, no provision in the EEA Agreement, the SCA or in EU law that provide either the EFTA Court or the ECJ with the power to declare decisions adopted by the EEA Joint Committee null and void. A slightly different question from whether the EEA Joint Committee has acted ultra vires or not, arises where a legal act adopted within the EU legal order and referred to in one of the Annexes to the EEA Agreement is deemed invalid under EU law. The question in these situations is the repercussions this finding has on EEA law. Joined Cases C-293/12 and C-594/12 Digital Rights Ireland, may serve as an intake. Here, the ECJ, in Art. 267 TFEU proceedings, found that Dir. 2006/24 was invalid as it interfered with Arts. 7 and 8 of the EU Charter on Fundamental Rights.21 The directive was considered EEA relevant, but was for various reasons not yet included in the EEA Agreement. If it had been, an issue would have been how to handle the judgment of the ECJ within the EEA legal order. It seems fairly obvious that Dir. 2006/24 would have had to be considered inapplicable in the EEA, if not only because it would be unattainable that the directive remained binding upon the EU Member States as an obligation under the EEA Agreement. Thus, systemic considerations require inapplicability.22 19 Case E-6/01, 9.10.2002, CIBA, paras. 20 to 23. 20 Case E-6/01, 9.10.2002, CIBA, para. 33. 21 Joined cases C-293/12 and C-594/12, 8.4.2014, Digital Rights Ireland.

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Where the grounds for invalidity under EU law are infringements of procedural requirements, wrong legal basis, infringement of the treaties or misuse of powers, cf. Art. 263 TFEU, it could be argued that the solution might be different to the extent these grounds of invalidity do not apply within the context of the EEA legal order. However, also in these situations it remains that the legal act is quashed within the EU legal order, and it seems unattainable that the act nevertheless should be binding upon the EU Member States as a matter of EEA law. 30 It is not very likely that the EFTA Court will be called upon to adjudicate where the ECJ has found a legal act invalid. One of the reasons for this is that there is precedence for the EEA Joint Committee to adopt amendments to the Annexes in order to align them with such judgments.23 However, amendments require unanimity in the EEA Joint Committee, and this may prove difficult to achieve. This is vividly illustrated by the letter of formal notice sent Liechtenstein on the ground that Liechtenstein has availed itself of the derogation clause in Dir. 2004/113 which the ECJ in Case C-236/09 Test-Achats,24 found incompatible with Arts. 21 and 23 of the Charter of Fundamental Rights of the European Union.25 31 Where it is submitted before the EFTA Court that a legal act, or a provision in a legal act, referred to in an Annex to the EEA Agreement is to be considered invalid, or inapplicable, under EU law, the question arises how this should be handled. Where the legal act encroach upon fundamental rights that are an integral part also of the EEA legal order, the solution would be to consider the legal act inapplicable as a matter of EEA law to the extent it infringes such rights. Such a finding would be without prejudice to an assessment of the act under EU law. 32 It may be envisaged that it is claimed before the EFTA Court that a legal act infringes upon principles, or has been adopted in breach of requirements, that are specific to EU law. The situation may be illustrated by Case C-376/98 Tobacco Advertising,26 where the ECJ annulled Dir. 98/43 on the basis that the directive had not been adopted on the proper legal basis. If the issue of proper legal basis is first raised before the EFTA Court, it seems questionable that the EFTA Court could or should, embark upon the question. Whether it would, is a slightly different matter. The best solution would probably be, as proposed by 29

22 Thus, I cannot adhere to Baudenbacher, ‘Between Homogenegeity and Independence: The Legal Position of the EFTA Court in the European Economic Area’, Columbia Journal of European Law 3(2) p 169-227, when he, on p. 184, finds that inapplicability follows from Art. 3(2) SCA. 23 See for instance Joint Committee Decision No 315/2015, 11.12.2015 deleting Commission Decision 2000/520/EC from Annex XI, following the judgment in case C-342/14, 6.10.2015, Maximillian Schrems v Data Protection Commissioner. 24 Case C-236/09, 1.3.2011, Test-Achats. 25 Letter of Formal Notice Case No 76496, Document No 757520, 6.7.2016. 26 Case C-376/98, 5.10.2000, Germany v. European Parliament and Council of the European Union.

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Fredriksen and Franklin, to introduce a possibility for the EFTA Court to ask the ECJ to rule on the validity of the EU legal act in question, as a matter of EUlaw.27 In want of this, it remains to be seen how the EFTA Court will react upon such opportunities to go first.

Article 120 [The EEA Agreement and pre-existing agreements] Unless otherwise provided in this Agreement and in particular in Protocols 41 and 43, the application of the provisions of this Agreement shall prevail over provisions in existing bilateral or multilateral agreements binding the European Economic Community, on the one hand, and one or more EFTA States, on the other, to the extent that the same subject matter is governed by this Agreement.

I. Relation to already existing agreements and public international law

Art. 120 regulates the relationship between the EEA Agreement and existing bilateral or multilateral agreements between the EU (the EEC at the time) on the one hand, and one or more EFTA States on the other. It provides that that the provisions of the EEA Agreement are to prevail over the provisions of the existing agreements unless otherwise follows from the provisions of the EEA Agreement itself. A great number of agreements has been concluded between the EU and the individual EFTA States over the years. Among other, the Free Trade Agreements between the EU and the Individual EFTA States, hereunder the 1972 agreement between the EEC and Iceland and the 1973 agreement between the EEC and the Norway.1 By providing that provisions of the EEA Agreement are to prevail over the existing agreements Art. 120 shows that the contraction parties did not intend for the existing agreements to be replaced by the EEA Agreement. The existing agreements were not terminated, but continued to co-exist separately.2 As long as the EEA Agreement remains in force, Art. 120 provides that its provisions are to be applied instead of the provisions of the existing agreements. It was necessary for the Contracting Parties to regulate the relationship between the EEA Agreement and already existing agreements governing the same subject matter because of the rules of Public International Law. As expressed in Art. 59 of the Vienna Convention on the Law of Treaties, a treaty is to be considered as terminated when parties to it conclude another treaty on the same subject matter and if a) it appears from the later treaty or is otherwise established 27 Fredriksen and Franklin, ‘Of Pragmatism and Principles: The EEA Agreement 20 Years on’, CMLR 52 (2015) 629-684, on p. 683. 1 Agreement between the European Economic Community and the Republic of Iceland (OJ L 301, 31.12.1972 p. 2), and Agreement between the European Economic Community and the Kingdom of Norway (OJ L 171, 27.6.1973, p. 2), respectively. 2 See, among other, Advisory Opinions by the EFTA Court in Case E-6/96, 27.7.1997, Wilhelmsen, para. 26, and Case E-2/03, 12.12.2003, Ásgeirsson, para. 28.

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that the parties intended that the matter should be governed by that treaty; or b) the provisions of the later treaty are so far incompatible with those of the earlier one that the two treaties are not capable of being applied at the same time.3 5 According to Nordberg et al, the contracting parties wanted to clarify the situation with regard to some of the agreements that were particularly closely connected with the EEA Agreement, such as the Free Trade Agreements between the EU and the individual EFTA States, because of the wide scope of the EEA agreement, and that a considerable number of agreements between the contracting parties potentially could be affected by the EEA Agreement.4 The Contracting Parties chose not to terminate the existing agreements since they considered it desirable that the agreements could apply should one of the parties wish to terminate the EEA Agreement, or if a part of the EEA Agreement would be provisionally suspended following the procedure set out in Art. 102(5) EEA.5 6 Art. 120 only applies to existing bilateral or multilateral agreements between the EU on the one hand, and one or more EFTA States on the other. Consequently, it neither applies to existing agreements between one or more EU Member State and one or more EFTA State, nor to agreements between two or more EFTA States. Partly, this was because of difficulties in delineating between the EU’s far reaching exclusive external competence with that of its Member States.6 However, it is worth noting that the Contracting Parties, by a Joint Declaration in the Final Act to the EEA Agreement, also declared that the EEA Agreement should not affect rights already assured through such agreements, among other agreements concerning individuals, economic operators, regional cooperation and administrative arrangements, until at least equivalent rights have been achieved under the Agreement. 7 The European Convention for the protection of Human Rights and Fundamental Freedoms (ECHR) is arguably the most important and influential treaty on human rights treaty in Europe. Its provisions goes far beyond the scope of the EEA Agreement. When it ratified the EEA Agreement, Norway assumed that the it would not affect its obligation under other international treaties, in particular under the conventions on human rights and especially the ECHR.7 It was presumed that these treaties did not concern the same areas and subject matter as the EEA Agreement, and that, under any circumstances, the rules would enjoy a special protection. The rules were thought to be expressions of the fun-

3 The Vienna Convention on the Law of Treaties. On the customary nature of Art. 59 of the Convention, see Lanfranchi, ‘1969 Vienna Convention – Article 59 Termination or suspension of the operation of a treaty implied by conclusion of a later treaty’, in: Corten and Klein (eds), The Vienna Convention on the Law of Treaties: a commentary, vol. II, p. 1328. 4 Nordberg et al., EEA Law, p. 297. 5 St. prp. 100 (1991-92), p. 30. 6 See inter alia Bull in: Norsk lovkommentar, Comments on Art. 120 EEA, notes 211 and 16. See e.g. ECJ’s opinions on the WTO in Opinion 1/94, 15.11.1994, and Opinion 2/92, 24.3.1995 on the OECD. Further, among other, judgment in Case 22/70, 31.3.1971, Commission v Council. 7 St. prp. 100 (1991-92), p. 103.

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damental human rights that were part of the common legal foundations shared by the Contracting Parties to the EEA Agreement.8 Notably, the Contracting Parties’ obligations pursuant to fundamental hu- 8 man rights would only be unaffected by the EEA Agreement if the provisions of the EEA Agreement were interpreted and applied in accordance with those fundamental rights.9 In this respect, the EFTA Court has since 1998 held that the provisions of the EEA Agreement, as well as procedural provisions of the Surveillance and Court Agreement, are to be interpreted in light of fundamental rights, and that the ECHR and the judgments of the ECtHR are important for determining the scope and content of those rights.10 According to Hreinsson, fundamental rights form part of the unwritten principles of EEA Law, and are applicable in all situations governed by EEA law.11 Regarding the EEA agreement and the relationship to fundamental rights, it is 9 important to note that the EU Charter of fundamental rights has not been incorporated into the EEA Agreement or in any other way formally been recognized by the EFTA States. However, despite the impact the Charter has had on the ECJ’s case law and the challenges that the Charter’s absence from the EEA Agreement might represent for the functioning of the EEA, the EFTA Court has managed to preserve homogeneity whilst at the same time “side-stepping the sensitive issues of the legal significance of the EU Charter as such.”12 When it entered into the EEA Agreement, Norway seems to have intended 10 that if the provisions of an agreement covered by the Joint Declaration granted a more favourable right than the EEA Agreement, the existing agreement would only apply between the parties to it. The EEA Agreement would apply in respect other EEA States not party to the existing agreement.13 In such event, nationals of other EEA States would be precluded from claiming a more favourable right enjoyed by nationals of an EEA State party to the existing agreement, notwithstanding, among other, the principle of non-discrimination pursuant to Art. 4 EEA. As commented by Bull, this view also seems to have influenced Norway’s adaptation of its legislation to the EEA Agreement.14

8 St. prp. 100 (1991-92), p. 103. 9 Kälin, ‘EWR-Abkommen und Europäische Menschenrechtskonvention’, in: Jacot-Guillardmod (ed), Accord EEE: commentaires et reflexiones, pp. 653-656, on p. 661. 10 See e.g. Case E-8/97, 12.6.1998. TV 1000 Sverige AB, para. 26, Case E-02/02, 19.6.2003, Bellona, para.37, Case E-2/03, 12.12.2003, Ásgeirsson, para. 23. Further reference is made to Hreinsson, ‘General Principles’, in Baudenbacher (ed), The Handbook of EEA Law, pp. 349-389, p. 374 et seq, and Björgvinsson, ‘Fundamental rights in EEA law’, in: EFTA Court (ed), The EEA and the EFTA Court: Decentered Integration, pp. 263-280. 11 See Hreinsson, ‘General Principles’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 349-389, p. 374-375. Similar, Björgvinsson, ‘Fundamental rights in EEA law’, in: EFTA Court (ed), The EEA and the EFTA Court: Decentered Integration, pp. 263-280, p. 279. 12 Fredriksen and Franklin, ‘Of pragmatism and principles: The EEA Agreement 20 years on’, Common Market Law Review, 2015, Vol. 52 (3), p. 629, pp. 646 et seq. 13 St. prp. 100 (1991-92), p. 334. 14 Bull in: Norsk lovkommentar, comments on Art. 120 EEA, note 211 and 16.

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Whilst the issue has yet to be challenged before the EFTA Court, ESA seems to have been of a different opinion. In a case against Liechtenstein concerning better treatment of Austrian nationals in granting permanent residence rights, ESA took the position that the EEA acquis, in particular Arts. 4, 28 and 31 EEA, applied regardless of a purported existing agreement between Lichtenstein and Austria. ESA argued that the EEA Agreement did not require Liechtenstein to revoke the practice of granting a more favourable resident permit to Austrian nationals, but that equality of treatment had to be achieved. Otherwise, the direct discrimination in granting more favourable residence permits to Austrian nationals under an existing agreement between Liechtenstein and Austria would only be compatible with the EEA Agreement if it could be covered by an express derogating provision.15 Unsurprisingly, ESA did not consider the “background of the close and manifold relations of the two neighbouring countries as well as the generous employment conditions for Liechtenstein nationals in Austria” as an objective circumstance capable for justifying difference of treatment based on nationality between non-Austrian EEA nationals and Austrian nationals.16 II. “unless otherwise provided”

Art. 120 provides that the provisions of the EEA Agreement prevails over already existing agreements only if no other provision in the Agreement provides otherwise. In this respect, Art. 120 specifically refers to Protocols 41 and 43 to the agreement. 13 Originally, Art. 120 also contained a reference to the then Protocol 44. The reference to Protocol 44 was removed and the entire protocol was deleted following Switzerland’s decision not to ratify or enter into the EEA Agreement.17 Protocol 41 was similarly adjusted and now contains a list of only two agreements; between Austria, Germany and the EU; and Austria and the EU; respectively. Protocol 43 concerned a bilateral agreement between the EU and Austria on the transit of goods by road and rail that was signed simultaneously as the EEA Agreement. Consequently, both Protocols 41 and 43 was rendered devoid of purpose following Austria’s accession to the EU in 1995. However, neither was formally deleted.18 14 Further provisions providing that other regulatory frameworks than the EEA Agreement should apply under certain condition, can be found throughout the 12

15 ESA Decision 42/05/COL, 23.2.2005, Letter of formal notice concerning more favourable treatment of Austrian nationals as regards granting of residence permits, p. 7. 16 ESA Decision 42/05/COL, 23.2.2005, Letter of formal notice concerning more favourable treatment of Austrian nationals as regards granting of residence permits, p. 8. 17 See Arts. 3 and 18 of the Protocol Adjusting the Agreement on the European Economic Area, 17.3.1993 (OJ No L 1, 3.1.1994, p. 572). A new Protocol 44 on safeguard mechanisms pursuant to enlargements of the European Economic Area was added in 2004 by the 2004 EEA Enlargement Agreement, subsequently replaced by the 2007 EEA Enlargement Agreement and again by the 2014 EEA Enlargement Agreement. 18 See also, Bull in: Norsk lovkommentar, Comments on Art. 120 EEA, note 209 and 2010.

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EEA Agreement. Among other, Art. 7 of Protocol 9 to the Agreement provides that the agreements listed in Appendix 3 to the Protocol shall prevail over the provisions of the Protocol to the extent they grant more favourable trade regimes to the EFTA States concerned. Appendix 3 to Protocol 9 to the Agreement lists the above-mentioned agree- 15 ments between the EU and Norway and Iceland, respectively, an agreement in the form of exchange of letters between the EU and Norway on the fishing agreement between the two,19 as well as an agreement and a subsequent exchange of letters between the EU and Sweden. Similar to Protocols 41 and 43 to the EEA Agreement, the reference to the agreement and exchange of letters between the EU and Sweden in Appendix 3 to Protocol 9 became devoid of purpose following Sweden’s accession to the EU. III. “to the extent that the same subject matter is governed by this Agreement”

The qualification that the EEA Agreement is to prevail “to the extent that the 16 same subject matter is governed” by it, entails that one first have to examine whether the EEA Agreement regulates the same subject matter in order to determine whether the provisions of the EEA Agreement are to prevail over those of the existing agreement.20 That the “same subject matter” is further qualified by “to the extent” demonstrates that the negotiators of the agreement were aware of the difficulties in precisely defining the situations in which the provisions of the EEA agreement would prevail over provision of existing agreements.21 Both the scope and depth of the regulation of the subject matter must examined on a case by case basis in order to determine whether, and if so, to what extent the provisions of the EEA Agreement should prevail. Further, even if provisions in the EEA Agreement provides that another regu- 17 latory framework applies to a certain subject matter it does not necessarily have as its consequence that the subject matter is regulated by that regulatory framework in its entirety. Whether and to what extent must be determined on a case by case basis, as illustrated by the EFTA Court in Wilhelmsen.22 Art. 11 of Protocol 3 EEA previously allowed the Contracting Parties to apply a price compensation system provided for in the free trade agreement under certain conditions.23 Whilst the Norwegian government argued that the product listed in table 1 to Protocol 3 would generally be excluded from the scope of the EEA Agreement as long as the conditions in Art. 11 of Protocol 3 were fulfilled, the EFTA Court 19 Agreement in the form of exchange of letters between the European Economic Community and the Kingdom of Norway concerning the fishing agreement between the European Economic Community and the Kingdom of Norway (OJ L 346, 31.12.1993, p. 36). 20 Nordberg et al., EEA Law, p. 297. 21 Nordberg et al., EEA Law, pp. 297-298. 22 Case E-6/96, 27.7.1997, Wilhelmsen. 23 Protocol 3 and Art. 11 as it read at the time was in its entirety replaced by Joint Committee Decision No. 140/2001 of 23 November 2001.

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found that Art. 11 of Protocol 3 did not preclude the application of the general rules of the EEA Agreement, such as Art. 11 EEA.24 18 Similar, in Ásgeirsson, the EFTA Court found that even though Art. 7 of Protocol 9 EEA provides that the agreement between Iceland and the EU is to prevail over the provisions of the Protocol if it grants more favourable trade regimes, it does not extend to cover the rules of origin of that agreement.25 19 It could be a question whether the EFTA Court have jurisdiction to interpret existing agreements with the purpose of establishing whether the EEA Agreement regulates the same subject matter and, if so, to what extent the provisions of the EEA Agreement should apply. As an outset, it is clear that the EFTA Court, pursuant to Art. 34 SCA, only has jurisdiction give advisory opinions on the interpretation of the EEA Agreement. Consequently, it has no jurisdiction over the application or interpretation of, among other, the existing free trade agreements.26 However, as in Ásgeirsson, the EFTA Court noted that the phrasing of Art. 7 of Protocol 9 EEA explicitly called for an assessment of which of two trade regimes was more favourable, an assessment which had to be distinguished from that of an interpretation of free trade agreements as such.27 Thus, the EFTA Court held it had jurisdiction to assess to what extent the reference to the Free Trade Agreement between the EU and Iceland also encompasses the rules of origin of that agreement.28

Article 121 [Nordic cooperation, regional union between Switzerland and Liechtenstein] The provisions of this Agreement shall not preclude cooperation: (a) within the framework of the Nordic cooperation to the extent that such cooperation does not impair the good functioning of this Agreement; (b) within the framework of the regional union between Switzerland and Liechtenstein to the extent that the objectives of this union are not attained by the application of this Agreement and the good functioning of this Agreement is not impaired; (c) […]* 1

Art. 121 provides that the EEA Agreement does not preclude certain regional cooperation. As commented by Nordberg, Art. 121 closely relates to Art. 120.1 24 25 26 27

Case E-6/96 27.7.1997, Wilhelmsen. Case E-2/03, 12.12.2003, Ásgeirsson. See Case E-2/03, 12.12.2003, Ásgeirsson, paras. 26–28. See Case E-2/03, 12.12.2003, Ásgeirsson, para. 32. For further comments on the jurisdiction of the EFTA Court pursuant to Art. 34 SCA, see the comments by Christiansen on that provision in part III of this book, mn. 4 et seq. 28 Case E-2/03, 12.12.2003, Ásgeirsson, para. 32 et seq. * Paragraph (c) deleted by the 2004 EEA Enlargement Agreement (OJ No L 130, 29.4.2004, p. 3 and EEA Supplement No 23, 29.4.2004, p. 1), provisionally applicable as of 1.5.2004, e.i.f. 6.12.2005. 1 Nordberg et al., EEA Law, p. 298.

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Whilst Art. 120 concerns agreements between the EU and one or more EFTA States in general, Art. 121 concerns two specific frameworks of regional cooperation.2 As with Art. 120, the relationship between the EEA Agreement and the specified regional cooperation would in absence of Art. 121 be regulated by the rules of Public International Law.3 The regional cooperation governed by Art. 121 are (a) the cooperation within the framework of the Nordic cooperation between Denmark, Sweden, Norway and Finland;4 and (b), the framework of the regional union between Switzerland and Liechtenstein. Art. 121(c) previously governed the regional cooperation between Austria and Italy concerning Tyrol, Vorarlberg and Trentino – Alto Adige.5 As further commented by Nordberg et al., taking into account the importance of regional cooperation which in may go further than the EEA Agreement, it was necessary for the Contracting Parties to provide for the possibility of continuing such cooperation.6 However, as can be seen by the wording, Art. 121 does not provide an unlimited derogation for the two frameworks for regional cooperation. Regarding the framework of the Nordic cooperation, Art. 120 provides that the EEA Agreement allows for the cooperation only to the extent that it does not impair the good functioning of the EEA Agreement. The same applies to the framework of the regional union between Switzerland and Liechtenstein, and to the extent that the objectives of that union are not attained by the application of the EEA Agreement. Art. 121 and the mentioned limitations to the derogations have yet to be subject to any proceeding before the EFTA Court. However, the provision bears some similarity to Art. 350 TFEU. Art. 350 provides that the EU Treaties shall not preclude the regional cooperation between the Benelux countries, “to the extent that the objectives of these regional unions are not attained by application of the Treaties”. In his opinion in van Gend en Loos, AG Roemer considered the idea behind Art. 350 TFEU (previously Art. 306 TEC and 233 TEEC) was to allow the Benelux countries further regional integration independently of the EU, not to justify a breach of the primary and basic provisions of the Treaties.7 Further, in Commission v Luxembourg, the ECJ stated that: “the aim of Article [350] of the Treaty is to prevent he application of Community law from causing the disintegration of the Benelux Union or from hindering its development. It therefore enables the three Member States concerned to apply, in derogation from the Community rules, the rules in force within their union in so far as that union is further advanced than the common market.8

2 See Nordberg et al., EEA Law, p. 299. 3 See the comments to Art. 120 EEA by Ormberg, above, and Nordberg et al., EEA Law, p. 299 with reference to p. 297. 4 See www.norden.org. 5 The content of paragraph (C) was deleted by the 2004 EEA Enlargement Agreement. 6 Nordberg et al., EEA Law, p. 299. 7 Opinion of AG Roemer in Case C-26/62, 12.12.1962, van Gend en Loos, on p. 28.

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The ECJ also stated that the Benelux Treaty could not justify derogation from the EU Treaties when the EU Treaties went further than the Benelux Treaty.9 7 Considering that the above are not explicitly expressed in Art. 350 TFEU, it might be that Art. 121 could be interpreted to containing the similar considerations through explicitly limiting the derogation for the specified regional cooperation to the extent that such cooperation does not impair the good function of the EEA Agreement. If so, it must be assessed in the individual case whether the regional cooperation in question infringes the general rules of the EEA Agreement, including, among other, the principles of loyalty and non-discrimination in Arts. 3 and 4 EEA.10 8 The Nordic Cooperation referred to in Art. 121(a) has since the beginning of the 1990’s become less significant and relevant following Sweden and Finland’s accession to the EU, the difference in the Nordic countries’ affiliation with the EU, and an ever-closer European integration.11 9 In respect of the regional union between Switzerland and Liechtenstein referred to in Art. 121(b) and the addition that Art. 121 only applies to the extent that the objectives of that union are not attained by the application of the EEA Agreement, it seems to have been the intention of the Contracting Parties that the provisions of the EEA Agreement are to apply if the subject matter in question lies within the scope of the Agreement. That being said it is interesting to note that the union between Switzerland and Liechtenstein is taken into account and accommodated for through special arrangements and adaptations, excepting Liechtenstein from the application of certain fields of EEA Law. In this respect, Protocol 4 EEA is particularly interesting. Art. 2 (2) of Protocol 4 excepts the territory of Liechtenstein from that of the EEA in determining the origin of products referred to in tables I and II of Protocol 3 EEA, and thereby, basically, excepting products originating in in Liechtenstein from a substantial part of the product scope of the EEA Agreement. Further, numerous decisions by the EEA Joint Committee accommodates for the union between Switzerland and Liechtenstein, be it through sectoral adaptations or by specific adaptations in decisions incorporating EU legal acts into the Agreement. By way of examples, neither Annex I on Veterinary and phytosanitary matters, Chapter XII and XXVII of Annex II on technical regulations, standards, testing and certification, nor Protocol 47 on the abolition of technical barriers to trade in wine apply to Liechtenstein as long as the application between the EU and Switzerland on trade in agricultural products is extended to Liechtenstein through the regional union between Liechtenstein and Switzerland.12 Arguably, accommodating to 6

8 Case C-473/93, 2.6.1996, Commission v Luxembourg, para. 42. See also Case C-105/83, 16.5.1984, Pakvries, para. 11. 9 Case C-473/93, 2.6.1996, Commission v Luxembourg, para. 43. 10 See similar Nordberg et al., EEA Law, p. 299. 11 Official Norwegian Reports, NOU 2012:2 Outside and inside: Norway’s agreements with EU, p. 756. 12 See, e.g., Decision of the EEA Joint Committee No 97/2007, OJ No L 47 of 21.2.2008, p. 3.

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the union between Switzerland and Liechtenstein through Joint Committee Decisions is better than having a dispute over scope of the EEA Agreement as such. Since Art. 121 provides a derogation for the specifically listed frameworks of 10 regional cooperation, the Contracting Parties to the EEA Agreement cannot rely on Art. 121 to derogate other regional cooperation agreements from the Agreement.13 However, as commented to Art. 120 EEA, in a Joint Declaration of the Final Act to the EEA Agreement, the Contracting Parties declared that the EEA Agreement should not affect rights already assured through existing agreements between one or more EU member state on the one hand, and one or more EFTA State on the other, or between two or more EFTA States, until at least equivalent rights have been assured under the EEA Agreement. Any rights following from a regional cooperation in an existing agreement would be subject to the Joint Declaration. 14

Article 122 [Secrecy obligations] The representatives, delegates and experts of the Contracting Parties, as well as officials and other servants acting under this Agreement shall be required, even after their duties have ceased, not to disclose information of the kind covered by the obligation of professional secrecy, in particular information about undertakings, their business relations or their cost components

Art. 122 provides that all representatives, delegates and experts of the Con- 1 tracting Parties, as well as officials and other servants acting under the EEA Agreement are required not to disclose information covered by professional secrecy, in particular information about undertakings, their business relations or their cost components. As can be seen by the wording of Art. 122, the obligation applies also after those subject to the obligation have left their positions. The obligation of professional secrecy is also expressed in the fourth para- 2 graph of Art. 14 SCA in respect of the officials and other servants of ESA, 1 as well as in among other Arts. 24 and 25 of Part II of Protocol 3 SCA on the Functions and Powers of ESA in the field of State Aid, and Art. 28 of Chapter II, Arts. 8, 15 and 16 of Chapter III and Art. 17 of Chapter IV, of Protocol 4 SCA on the Functions and Powers of ESA in the Field of Competition. The wording of Art. 122 corresponds to the wording of Art. 339 TFEU. Even 3 though the provisions refer in particular to information gathered about undertakings, the ECJ has established that the obligation of professional secrecy is a general principle that also applies to other confidential information.2 13 To this end, see ESA Decision 42/05/COL, 23.3.2005, Letter of formal notice concerning more favourable treatment of Austrian nationals as regards granting of residence permits, p. 7. 14 See the comments to Art. 120 EEA by Ormberg above, mn. 6 et seq., and, Nordberg et al., EEA Law, p. 299 with reference to p. 297. 1 See the comments by Bjørgan on Art. 14 SCA in Part III of this book, mn. 6.

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Among other confidential information, business secrets encompasses information about an undertaking’s business activity that, if transmitted to the public or other than the person or undertaking who provided the information, may seriously harm the undertaking or the person’s interests.3 Such information may include, but is not limited to, technical and or financial information relating to an undertaking’s know-how, methods of assessing costs, production secrets and processes, supply sources, quantities produced and sold, market shares, customer and distributor lists, marketing plans, cost and price structure and sales strategy. Depending on the specific circumstances of a case, other confidential information may include information provided by third parties about undertakings that are able to place considerable economic or commercial pressure on their competitors.4 5 The ECJ has also acknowledged the legitimacy of protecting information that may expose the authors to retaliatory measures, such as information enabling the parties to identify complainants or other third parties with a justified wish to remain anonymous.5 6 The ECJ has established that a breach of the obligation of professional secrecy could lead to a claim for damages pursuant to the second paragraph of Art. 340 TFEU in the non-contractual liability of the EU.6 The EEA Agreement itself does not contain a similar provision to Art. 340 TFEU concerning non-contractual liability. However, Art. 46 SCA contains corresponding rules on the contractual and non-contractual liability of ESA for damages caused by it or its servants in the performance of its duties.7 7 Even though the Art. 122 confers an obligation of secrecy upon representatives, delegates and experts of the Contracting Parties, as well as officials and other servants acting under the EEA Agreement, the obligation is neither absolute nor limitless. The obligation must be balanced in light of the principles of transparency and openness.8 Among other, the obligation must be considered in respect of the rules on public access to documents and the limits to its exceptions,9 an undertaking’s right of access to file in competition proceedings pursuant to Art. 15 of Chapter III of Protocol 4 SCA, as well as the duty of sin4

2 See Case C-145/84, 7.3.1985, Adams, para. 86. 3 See e.g. Case T-353/94, 18.9.1996, Postbank, para. 87. 4 See e.g. ESA’s Explanatory note on Business Secrets and other Confidential Information, available at www.eftasurv.int. 5 See, among other, Case C-310/93P, 6.4.1995, BPB Industries and British Gypsum and Case T-5/02, 25.10.2002, Laval, para. 98. 6 See Case C-145/84, 7.3.1985, Adams. 7 Reference is made to the comments on Art. 46 SCA by Poulsen in Part III of this book. 8 See Polley and Clifton, ‘The Principles of Transparency and Openness, and Access to Documents’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 626-656. 9 See e.g Section 4.6.4 on Art. 4(4) RAD 2012 of Polley and Clifton, ‘The Principles of Transparency and Openness, and Access to Documents’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 626-656 on p. 641.

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cere cooperation. As to the latter, a national court may use the Zwartveld procedure to obtain information from ESA or the Commission.10

Article 123 [National security and trade in arms] Nothing in this Agreement shall prevent a Contracting Party from taking any measures: (a) which it considers necessary to prevent the disclosure of information contrary to its essential security interests; (b) which relate to the production of, or trade in, arms, munitions and war materials or other products indispensable for defence purposes or to research, development or production indispensable for defence purposes, provided that such measures do not impair the conditions of competition in respect of products not intended for specifically military purposes; (c) which it considers essential to its own security in the event of serious internal disturbances affecting the maintenance of law and order, in time of war or serious international tension constituting threat of war or in order to carry out obligations it has accepted for the purpose of maintaining peace and international security.

I. Essential security interests, defence procurement and times of crisis and war

Art. 123 provides the Contracting Parties with an opportunity to derogate 1 measures from the Agreement in cases where compliance with the Agreement would undermine the Contracting Party’s essential security interests, and measures related to trade in armaments and other products indispensable for defence purposes, as well as research, development or production indispensable for such purposes. Similar provisions to Art. 123 EEA can be found in Arts. 346 and 347 TFEU 2 (ex. 296 and 297 TEC and Art. 223 and 224 TEEC), as well as Arts. 21 and 22 of the Free Trade Agreements between the EU and the individual EFTA States;1 Art. 18 of the 1960 Stockholm Convention establishing the European Free Trade Association; Art. 39 of the 2001 Vaduz Convention updating the EFTA Convention; and Art. XXI of the WTO General Agreement on Tariffs and Trade. Art 123 and the similar Arts. 346 and 346 TFEU has in practice shown to be 3 an important derogation from the treaties, as it provides the EEA States with an opportunity to derogate the award of defence contracts, provided that the conditions are fulfilled. The provisions thereby allow sizable markets to be exempt10 Order of the ECJ in Case C-2/88, 13.7.1990, Zwartveld, para. 17. Note that the applicability of the Zwartveld procedure in cross-pillar situations remains somewhat doubtful; see the comments by Franklin on Art. 3 EEA. 1 The 1973 Agreement between the European Economic Community and the Kingdom of Norway (OJ L 171, 27.6.1973, p. 2), and the 1972 Agreement between the European Economic Community and the Republic of Iceland (OJ L 301, 31.12.1972 p. 2, English special edition 31.12.1972, L301 P. 4), respectively.

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ed from the ordinary rules of the internal market. E.g., the Norwegian Defence Material Agency estimates that it procures materials for EUR 1.7 billion annually, and estimates investments in the order of EUR 4.8 billion from 2015 to 2018, and EUR 6.67 billion from 2019 to 2023.2According to the Commission, the overall value of defence procurement expenditure by the EEA States ranged between EUR 81 and 82 billion per year from 2011 to 2012.3 4 As commented by the EU Commission, national governments play a predominant role in the defence markets, as well as maintaining a close relationship with their suppliers. Since the defence markets are closely related to the security and defence policy of the individual country, the markets remain fragmented at a national level.4 Moreover, since the concept of essential security interests is vague, often associated with concerns of sovereignty, and considered to lie within the individual country’s discretion, control of the individual countries use of Arts. 346 TFEU, and surely Art. 123 EEA as well, is difficult and politically sensitive.5 Many EU Member States have interpreted the provisions as a general, categorical and automatic exception from the TFEU, and claims that they retain an unlimited jurisdiction over these products and their national security interests.6 Due to the sensitive nature, both the European Commission and the ECJ have shown reluctance in scrutinizing the Member State’s application of Arts. 346 and 347 TFEU.7 Similarly, the number of Art. 123 EEA cases in ESA’s practice is far from overwhelming, and non-existent in the jurisprudence of the EFTA Court. In addition, in the respect of Arts. 346 TF EU and, especially, 347 TFEU, the ECJ has left the Member States with a wide margin of discretion.8 5 In practice, many EU Member States made an almost automatic use of the possibility to exempt nearly all defence procurements contracts, often without taking into account the conditions defined by the TFEU and the ECJ.9 Since these cases unavoidably involve secrecy, they are difficult to detect. According to the Commission, this has limited the transparency and competition on the 2 See report by the Norwegian Ministry of Defence, Framtidige anskaffelser til Forsvaret (FAF) 2015–2023. 3 Report from the Commission to the European Parliament and the Council, COM(2016) 762 Final, on the implementation of Directive 2009/81/EC, p. 2. 4 Commission Communication COM(2005) 626 final on the results of the consultation launched by the Green Paper on Defence Procurement and on the future of Commission initiatives, p. 3. 5 See e.g. recital 8 of Dir. 2009/81/EC on the coordination of procedures for the award of certain works contracts, supply contracts and service contracts by contracting authorities or entities in the fields of defence and security. 6 See Trybus, Buying Defence and Security in Europe: The EU Defence and Security Procurement Directive in Context, Cambridge University Press, 2014, p. 105 with further references. 7 Trybus, Buying Defence and Security in Europe: The EU Defence and Security Procurement Directive in Context, Cambridge University Press, 2014, p. 107. 8 See Trybus, Buying Defence and Security in Europe: The EU Defence and Security Procurement Directive in Context, Cambridge University Press, 2014, p. 111. 9 Report from the Commission to the European Parliament and the Council, COM(2016) 762 Final, on the implementation of Directive 2009/81/EC, p. 2, and Commission Communication COM(2005) 626 final on the results of the consultation launched by the Green Paper on Defence Procurement and on the future of Commission initiatives, p. 4.

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defence market, with negative consequences for the efficiency of public spending and for Member States’ military capabilities.10 The Defence and Security Procurement Directive (Dir. 2009/81/EC) was adopted in order to remedy the situation and strengthen the European defence equipment market, and was accordingly incorporated into the EEA Agreement.11 The directive was intended to establish an appropriate legislative framework for defence procurement by addressing the security requirements and concerns of the Member States that previously have led them to derogate the from the Treaty.12 II. Homogeneity – A question of bridging the gap?

Being accustomed to the ever-increasing widening gap between the union 6 aquis and the Main Part of the EEA Agreement, it is easy to assume that the differences in wording between Art. 123 EEA and Arts. 346 and 347 TFEU are unintended and that the homogeneity principle nevertheless calls for uniform interpretation. However, Art. 123 EEA does not seem to be based on the provisions of the EC Treaty now found in Arts. 346 and 347 TFEU, but rather on the provisions found in the Free Trade Agreements between the individual EFTA States and the EC.13 In addition to the differences in wording between the provisions themselves, 7 Art. 348 TFEU sets out an extraordinary procedure providing that (1) the Commission shall examine how measures taken under Arts. 346 or 347 TFEU can be adjusted to the rules laid down in the Treaties in the event they affect the conditions of competition in the internal market; and (2), derogating from Arts. 258 and 259 TFEU, that the Commission or any Member State may bring the matter directly for the Court of Justice, ruling in camera, if it considers that a Member State is making improper use of Arts. 346 or 347 TFEU. Neither the EEA Agreement nor the SCA facilitates for a similar procedure. Considering the wording of the provisions in the existing Free Trade Agree- 8 ments, and that the wording of Arts. 346 and 347 TFEU have remained nearly unchanged since the Treaty of Rome it is evident that the Contracting Parties intentionally chose a different wording and scope to Art. 123 EEA than that of (now) Art. 346 and 347 TFEU. Since these differences between Art 123 EEA and Art. 346 and 347 TFEU were by design, the interpretation of Art. 123 EEA and the question of homogeneity is not a question of bridging a widening gap – the gap was there from the beginning. It has still to be resolved whether Art. 123 EEA as result must be interpreted entirely separately from Arts. 346 and 347 TFEU, or whether, for example, at least the criteria for taking measures derogat-

10 Commission Communication COM(2005) 626 final on the results of the consultation launched by the Green Paper on Defence Procurement and on the future of Commission initiatives, p. 4. 11 Dir. 2009/81/EC, incorporated into the EEA Agreement by Decision of the EEA Joint Committee No 129/2013. 12 Dir. 2009/81/EC on defence and security procurement. 13 See St. prp. nr. 100 (1991-1992) p. 103.

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ing form the Agreement could be interpreted in homogeneity with or similar to Arts. 346 and 347 TFEU. That being said, the Contracting Parties had to have been aware of the wording of Arts. 346 and 347 TFEU (223 and 224 TEEC at the time). If they had intended for same exemption in substance, they could simply have chosen the wording of the already existing provisions in the TEEC. The fact that they nevertheless chose a different option, both basing themselves on the similar provisions in the Free Trade Agreements and adding to the scope of the provision, makes for a compelling argument to limit homogeneity.14 9 The EFTA Court has yet to deliver a judgment or an advisory opinion on the matter, although so far, it seems that ESA merely assumes that homogeneity applies.15 Norway, on the other hand, seems to be of the opinion that Art. 123(b) EEA at least has a wider scope of application than that of Art. 346(1)(b) TFEU.16 However, the limited practice of the Norwegian administration and the Norwegian Complaints Board for Public Procurement seems to be inconsistent and undecided. In part, the practice seems to be without consideration to, and maybe even unaware of both the ECJ’s jurisprudence under Art. 346 TFEU and the question of whether or to what extent homogeneity applies.17 The only case in which Norwegian courts have dealt with Art. 123 EEA concerned procurement of rain ponchos to the Norwegian Army. In the Supreme Court’s judgment, it is merely stated that the parties had agreed that the exemption in Art. 123(b) EEA applied.18

14 See, in general, comments to Art. 6 EEA and Homogeneity by Wennerås. 15 See e.g. ESA Decision 379/98/COL, 16.12.1998 initiating proceedings, and Decision 381/98/ COL, 16.12.1998 letter of formal notice, in a case concerning a planned procurement of a coast guard vessel in Iceland: Similar ESA Decision 346/04/COL, 15.12.2004, closing a case concerning procurement of search and rescue helicopters. 16 See. Mld. 9 (2015-16) Nasjonal forsvarsindustriell strategi, p. 29, and the Ministry’s interpretive opinion to the Defence Staff Norway, dated 19.9.2005, Ref. 1998/01100-183/FD V/SLB, p. 3. 17 E.g. the Norwegian Ministry of Defence’s Consultation Paper on a proposal for a regulation of defence and security procurement, 13.11.2012, does not discuss homogeneity but partly relies on the similarity to Art. 346(1)(b) TFEU and jurisprudence of the ECJ. Similar, In St.mld. 38 (2006-2007) Forsvaret og industrien, – strategiske partnere: Strategi for de næringspolitiske aspekter ved Forsvarets anskaffelser, by the Norwegian Ministry of Defence, it is merely stated that the interpretation of Art. 123 EEA is to be based on Art. 346 TFEU, without mentioning the differences between the provisions (p. 15). The document even adds that the exemption in Art. 123(b) EEA concerns weapons, ammunitions, war material and other products is qualified by ‘essential to national security’, that is despites the fact that the qualification does not exist in the provision. By contrast, in the Ministry’s interpretative opinion to the Defence Staff Norway, dated 19.9.2005, Ref. 1998/01100-183/FD V/SLB, it points to the difference in wording between the provisions. In its Decision in case 2003/27, 5.6.2007, The Norwegian Complaints Board for Public Procurement does neither discuss homogeneity nor jurisprudence of the ECJ under Art. 346(1)(b) TFEU. However, in its decision in Case 2014/86, 2.6.2015, the Complaints Board thoroughly comments on both the difference in wording and the applicability of 346(1)(b) TFEU in interpreting Art. 123 EEA, whilst at the same time relying on the ECJ’s jurisprudence. 18 Rt. 2005 p. 1638.

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III. Art. 123(a) – information contrary to essential security interests

Art. 123(a) aims in general at protecting information that could undermine a Contracting Party’s essential security interest, and provides an opportunity for the Parties to derogate from the general obligations to supply information under the Agreement.19 In an Agreed Minute contained in the Final Act to the EEA Agreement, the Contracting Parties have stated that they would not make improper use of the provision to prevent disclosure of information in the fields of competition. Compared to letters (b) and (c) of Art. 123, letter (a) has a closer resemblance to Art. 346 TFEU. However, given the provisions’ different origin, there is nevertheless a question whether Art. 123 as such must be interpreted in its own right, and entirely separate from Arts. 346 and 347 TFEU. Similar to Art. 346(1)(a) TFEU, Art. 123(a) must nevertheless be understood to go beyond defence and defence and security contracts. Art. 346(1)(a) TFEU aims in general at protecting information that cannot be disclosed without undermining a Contracting Party or Member State’s essential security interests.20 The exemption can also concern information relating to defence contracts, however, as asserted by the Commission, possible confidentiality needs related to the procurement process for military equipment are covered by Art. 346(1)(b) TFEU. 21 The similar observation can be made for letter (a) and (b) of Art. 123 EEA. Thus, even if letter (b) of Art. 123 EEA must be interpreted to apply only to products specifically for military purposes and thus excluding dual use products and other sensitive materials (see below), the procurement of other materials outside the scope of letter (b) could be covered by the exemption in letter (a) if compliance with the EEA Agreement’s rules on public procurement would necessitate the Contracting Party to disclose information contrary to its essential security interests.22 Art. 346(1)(a) TFEU must, similar to Art. 346(1)(b) TFEU (see below), be interpreted strictly and invoked and justified on a case-by-case basis.23 I.e. the exemption is neither categorical nor automatic, and it is for the Member State wishing make use of the derogation to establish that the measure is necessary to protect its essential security interest.24 Even though Art. 346(1)(a) TFEU provides the opportunity to derogate from the general obligations to provide infor19 20 21 22

See e.g. Art. 6 SCA, and the comments by Bjørgan on this provision. Commission interpretative communication, COM(2006) 779 final, p. 4. Commission interpretative communication, COM(2006) 779 final, p. 4. See similar in respect of Art. 346(1)(a) TFEU, Commission interpretative communication, COM(2006) 779 final, p. 4. 23 Case C-372/05, 15.12.2009, Commission v Germany, para. 76. See also Trybus, Buying Defence and Security in Europe: The EU Defence and Security Procurement Directive in Context (Cambridge University Press, Cambridge 2014), pp. 131-133. 24 See Case C-372/05, 15.12.2009, Commission v Germany. See also Trybus, Buying Defence and Security in Europe: The EU Defence and Security Procurement Directive in Context (Cambridge University Press, Cambridge 2014), pp.131-133.

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mation under the treaties, it cannot be invoked to hinder scrutiny of its application by the Commission or the ECJ.25 It remains to be seen whether the EFTA Court will establish similar conditions for the exemption in Art. 123(a) EEA. IV. Art. 123(b) – armaments and other products indispensable for defence purposes

Under letter (b) of Art. 123, the contracting parties may take measures related to the ‘production of or trade in arms, munitions, war material or other products indispensable for defence purposes’. In addition, measures related to ‘research, development or production indispensable for defence purposes’ could be derogated. However, the measures must ‘not impair the conditions of competition in respect of products not intended specifically for military purposes’. 15 In contrast to Art. 346(1)(b) TFEU, Art. 123(b) EEA does not require the measures to be considered necessary for the Contracting Parties’ ‘essential security interest’. Further, Art. 123(b) EEA also allows the Contracting Parties to take measures related to ‘other products indispensable for defence purposes’, as well as ‘measures related to research, development or production indispensable for defence purposes’. Whilst the addition for ‘research, development or production indispensable’ is similar to Arts. 21 and 22 of Norway and Iceland’s individual Free Trade Agreements with the EU, respectively,26 the addition of ‘other products indispensable for defence purposes’ seems to be novel to the EEA Agreement.27 The EFTA Court has yet to deal with a case concerning this matter. Therefore, even though the question of homogeneity remains uncertain, there is little guidance on how the exemption should be interpreted outside the jurisprudence of the ECJ under Art. 346(1)(b) TFEU. 16 The provision provides that the Contracting Party may take ‘any measures’. Thereby, the provision does not set any limitation to the type of measure or procedure the Contracting Party may take, provided that the other conditions for applying the derogation are fulfilled. Measures may for instance consist of secrecy and non-transparency, requirements to suppliers and individuals, a special tax or aid regime, e.g. to a national defence industry in order to sustain an elsewise nonviable industry, by adding criteria to a public tender competition that would otherwise be contrary to the EEA procurement rules, or by exempting a procurement process from the Agreement as such.28 14

25 See Case C-372/05, 15.12.2009, Commission v Germany. See also Trybus, Buying Defence and Security in Europe: The EU Defence and Security Procurement Directive in Context (Cambridge University Press, Cambridge 2014), pp.131-133. 26 See St.prp. nr. 100 (1991-1992) p. 103. Agreement between the European Economic Community and the Kingdom of Norway (OJ L 171, 27.6.1973, p. 2), and, Agreement between the European Economic Community and the Republic of Iceland (OJ L 301, 31.12.1972 p. 2), respectively. 27 Art. 39 of the updated EFTA Convention, the Vaduz Convention of 21.6.2001, seems to be based on Art. 123 EEA in its entirety, including the addition of ‘other products’.

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The measures must relate to trade in ‘production or trade in arms, munitions 17 and war materials or other products indispensable for defence purposes’ or to ‘research, development or production indispensable for defence purposes’. Arms, munitions and war materials are often referred to as hard defence materials. Regarding the type of products which Art. 346(1)(b) is applicable to, Art. 346(2) TFEU refers to the 1958 list of armaments drawn up by the EU Council. The legal nature of the list has been debated, and a complete official version of the list has actually never been published.29 Nevertheless, the list has been found to be exhaustive, and Art. 346(1)(b) TFEU only applies to products on the list.30 Whether a measure can be derogated under Art. 346(1)(b) TFEU is therefore not a question of whether or not a product can be considered as hard defence material, but whether or not it can be found on that list.31 In addition to being limited to products on the 1958 list of armaments, the 18 ECJ has held that the requirement that measures must not adversely affect the conditions of competition for products which are ‘not intended for specifically military purposes’ implies that even though a product can be found on the list, only products designed, developed specifically for specifically military purposes can be exempted.32 Thus, even if a product is intended for military use, it must also be specially designed and developed for specific military purposes through substantial modifications.33 Hence, so-called ‘dual use’ products which has both military and civilian application, cannot be derogated under Art. 346(1)(b) TFEU. Art. 123(b) EEA, on the other hand, does not refer the 1958 list, or any list of 19 the kind, and adds that also ‘other products indispensable for defence purposes’ can be derogated from the Agreement. By the wording of the provision, it is unclear whether the requirement ‘indispensable for defence purposes’ only apply to ‘other products’ or whether it also applies at ‘arms, munitions and war materials’. By the wording, it nevertheless seems that Art. 123(b) EEA has a wider scope of products that can be exempted. However, it remains to be seen whether the EFTA Court would interpret Art. 123(b) EEA in homogeneity with Art. 346(1)(b) TFEU, and whether either ‘indispensable for defence purposes’ or 28 However, non-military offsets, which does not serve specific defence purposes, but general economic interests, wold probably not be considered necessary. See similar Commission interpretative communication, COM(2006) 779 final, in relation to Art. 346 TFEU. 29 Trybus, Buying Defence and Security in Europe: The EU Defence and Security Procurement Directive in Context (Cambridge University Press, Cambridge 2014), p. 88 et seq. 30 Case C-615/10, 7.6.2012, Insinööritoimisto InsTiimi Oy, paras. 36 and 37, and Case T-26/01, 30.9.2003, Fiocchi Munizioni v Commission, para. 61. See also Commission interpretative communication, COM(2006) 779 final, on the application of Article 296 of the Treaty in the field of defence procurement, p. 5. 31 As argued by Trybus in Buying Defence and Security in Europe: The EU Defence and Security Procurement Directive in Context (Cambridge University Press, Cambridge 2014), p. 94 et seq. 32 Case C-615/10, 7.6.2012, Insinööritoimisto InsTiimi Oy, para. 39, Case C-337/05, 8.4.2098, Commission v Italy, para 47, and Case C-157/06, 2.10.2008, Commission v. Italy, para. 26. 33 Case C-615/10, 7.6.2012, Insinööritoimisto InsTiimi Oy, para. 40.

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the requirement also found in Art. 123(b) EEA, that measures cannot impair the conditions of competition for products ‘not intended for specifically military purposes’, must be interpreted to restrict the scope of the provision similar to that of Art. 346(1)(b) TFEU. 20 In this context, it is interesting to note that the Norwegian Complaints Board for Public Procurement in a case concerning procurement of a surgical unit to a field hospital, considered that the fact that products intended for military purposes also have a civilian market does not limit the possibility to derogate the procurement from the procurement rules under Art. 123 EEA:34 Similar, in the case concerning the procurement procedure of Norway’s new NH-90 helicopters, some of which were intended for search and rescue, ESA accepted that Art. 123 EEA applied.35 The decision seems somewhat contrary to later judgments of the ECJ. In Commission v Italy, the ECJ rejected a derogation under Art. 346 TFEU for helicopters intended for both military and civilian (search and rescue) use.36 21 Under Art. 346(1)(b) TFEU, the ECJ has consistently held that the provision must be interpreted strictly, and even though the provision has been acknowledged to grant the Member State a broad discretion in deciding how to protect their essential security interests, the use of exemption must nevertheless be proportionate.37 It is neither an automatic nor categorical exemption, but deals only with exceptional and clearly defined cases, and must be invoked on a case-bycase basis.38 It for the Member State that wishes to avail itself of the Derogation to show that the measure is necessary in order to protect essential security interests.39 22 In Schiebel Aircraft, the ECJ found that the Austrian Government had failed to show that an imposed nationality requirement was necessary for the protection of its interests.40 The Court added that even if a nationality condition were suitable for achieving the objective, the objectives could be achieved through the use of less restrictive measures, such as regular controls of the production of and

34 Decision by the Norwegian Complains Board for Public Procurement in Case 2003/27, 5.6.2003, on p. 4. 35 ESA Decision 346/45/COL, 15.12.2004. 36 Case C-337/05, 8.4.2098, Commission v Italy. 37 See among other Case C-372/05, 15.12.2009, Commission v Germany, para. 67, Case 474/12, 4.9.2014, Schiebel Aircraft, para. 37, Case C-414/97, 16.9.1999, Commission v Spain, para. 22 and Case T-26/01, 30.9.2003, Fiocchi Munizioni v Commission, para. 58. 38 See among other C-284/05, 15.12.2009, Commission v Finland, para. 47; Case C-273/97. 26.10.1999, Sirdar, paras. 15-16; Case C-372/05, 15.12.2009, Commission v Germany, para. 76, and Commission interpretative communication, COM(2006) 779 final, p. 6 with further references. However, Compare to Case 474/12, 4.9.2014, Schiebel Aircraft, which leaves open the question of whether Art. 346 TFEU can justify a general derogation by way of national legislation. 39 See among other Case 474/12, 4.9.2014, Schiebel Aircraft, para 34; Case C-284/05, 15.12.2009, Commission v Finland, para. 47, and Commission interpretative communication, COM(2006) 779 final, p. 6 with further references. 40 Case C-474/12, 4.9.2014, Schiebel Aircraft, para. 35.

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trade in arms, an obligation of confidentiality or even the imposition of penalties for the disclosure of strategic information on the basis of criminal law.41 Taking the ECJ’s judgment in Shciebel Aircraft into account, The Norwegian 23 Defence Material Agency’s practice of nationality requirements is questionable.42 However, by contrast to Art. 346(1(b) TFEU, Art. 123(b) EEA does not require the measure to be ‘necessary’ for essential security interests. In absence of any guidance from the EFTA Court, it’s uncertain whether the same conditions of necessity and proportionality applies. It could be argued that the similar conditions can be inferred from the require- 24 ment that the measures must be ‘indispensable for defence purposes’, provided that that requirement also applies to all types of products covered by the provision.43 V. Art. 123(c) – measures in extraordinary and extreme circumstances

Letter (c) of Art. 123 provides the contracting parties with an opportunity to 25 derogate measures which it considers essential to its security interests in the event of serious internal disturbances affecting maintenance of law and order, in time of war or serious international tension constituting threat of war, or in order to carry out obligations accepted for the purposes of maintaining the peace and international security. Under Art. 123(c) EEA, it is for the Contracting Party to take measures which 26 it considers necessary to its own security or to carry out obligations it has accepted. Art. 347 TFEU provides the similar privilege for the individual Member States, but adds that the Member States shall consult each other ‘with a view to taking together the steps needed to prevent the functioning of the internal market being affected by measures which a Member State may be called upon to take’ in an event as described in the provisions. As argued by Trybus, the purpose of the consultation procedure set out in Art. 347 TFEU is to take the opinion of the other Member States into account in order to prevent any disruptive effects of the internal market. The consultation might lead to adapted measures less detrimental, to a measure adopted by the Union as a whole instead of the Individual Member States, or even to the Member State refraining from takin measures at all.44 Art. 123(c) EEA does not require a similar consultation process or any means of cooperation. However, it is nevertheless likely that the EFTA States

41 Case C-474/12, 4.9.2014, Schiebel Aircraft, para. 38. 42 Formerly the Norwegian Defence Logistics Organisation. See e.g. Invitation to pre-qualification for a competition for a framework agreement on maintenance of the Norwegian Nansen Class Frigates, 27.9.2016, Ref. No 201601140, in which it was required that any interested undertaking had to be established in Norway, its board had to consist of a majority Norwegian of citizens throughout the contract period, and that the activity and supply were to remain in Norway. 43 Decision 2014/86, 2.6.2015. 44 Trybus, European Union Law and Defence Integration (Hart Publishing, Oxford 2005), p. 179.

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would pay close attention to such consultations in the EU in the event of a situation as described in the provision. 27 As further argued by Trybus, Art. 347 TFEU could be seen as a lex specialis to Art. 346 TFEU in extreme circumstances. It is assumed that a situation as described in the provision would increase the margin of discretion of the Member State and, consequently, reduce the intensity of scrutiny by the ECJ.45 28 As for a definition of the situations described in Art. 123(c) EEA and Art. 347 TFEU, it has yet to be subject to a judgment or ruling by either the EFTA Court or the ECJ. However, it is questionable whether the ECJ or the EFTA Court has jurisdiction at all to rule on whether a situation as described in either Art. 347 TFEU or Art. 123 EEA exists. I.e. whether the Courts can rule on whether a situation is or was to be considered as ‘war’, or whether internal tension is or was sufficiently serious for the derogation to apply. As observed by Trybus, the question is still open to debate.46 For further reading on the crisis situations exemption, reference is made to Trybus’ analysis of Art. 347 TFEU.47 VI. The Defence Procurement Directive

As mentioned, the Defence and Security Procurement Directive was adopted in order to strengthen the European defence equipment market, and was intended to establish an appropriate legislative framework for defence procurement by addressing the security requirements and concerns of the Member States that previously have led them to derogate the from the Treaty.48 The directive incorporated into the EEA Agreement by Decision of the EEA Joint Committee No 129/2013. 30 Those who pays close attention would notice that the Joint Committee seems to have forgotten to adapt the text of the Directive. As the directive currently reads as incorporated into the EEA Agreement, the application of the Directive is according to Art. 2 of the Directive subject to Art. 346 TFEU. Given that the objective of uniform interpretation demands that the hierarchy of EU law is taken into account when interpreting EEA Law, as well as considering the lack of a hierarchy between the Main Part and the Annexes of the EEA Agreement,49 it is an interesting question whether the reference in Art. 2 of the Directive implies that the Directive would only be subject to the limited scope and strict interpretation of Art. 346 TFEU regardless of whether Art. 123 EEA could be interpreted differently. That being said, the lack of adaptation in the incorporation of the directive into the EEA Agreement seems merely to be a working 29

45 Trybus, European Union Law and Defence Integration (Hart Publishing, Oxford 2005), p. 179. 46 Trybus, European Union Law and Defence Integration (Hart Publishing, Oxford 2005), p. 183. 47 Trybus, European Union Law and Defence Integration (Hart Publishing, Oxford 2005), chapter 6, pp. 167-196. 48 Dir. 2009/81/EC on defence and security procurement. 49 See comments to Art. 119 by Arnesen.

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accident by the EFTA Secretariat in preparation of the Joint Committee Decision. By comparison, Decision No 97/2016 of the EEA Joint Committee implementing Directives 2014/24/EU and 2014/24/EU into the EEA Agreement, states that the references to Art. 346 TFEU in both directives shall be read a reference to Art. 123 EEA. The Directive aims to limit the need to invoke the exemptions in Art. 346 and 31 347 TFEU, and, as incorporated into the EEA Agreement, Art. 123 EEA. It cannot itself be interpreted as limiting or restricting the Contracting Parties’ right to derogate from the Agreement under Art. 123 EEA. However, as the Directive sets out procedures intended to protect certain essential security interests, among other by facilitating for necessary secrecy, it could affect the proportionality of any measures invoked under Art. 123 EEA. A measure might for example not be considered proportionate if the purported purpose the measure would be sufficiently protected by following procedures facilitated for in the Directive. In Norway, the Directive has been incorporated into national law by way of a 32 regulation on defence and security procurement, subject to the derogation in Art. 123 EEA.50 The defence sector in Norway’s procuring activities is also subject to guidelines issued by the Ministry of Defence which applies even if Art. 123 EEA is applicable.51 The guidelines contain certain rules and practices applicable to the procurement process and provides a certain transparency to the process.

Article 124 [Non-discrimination of investments] The Contracting Parties shall accord nationals of EC Member States and EFTA States the same treatment as their own nationals as regards participation in the capital of companies or firms within the meaning of Art. 34, without prejudice to the application of the other provisions of this Agreement.

I. EU Origin and Development

Article 124 is based on what is now Art. 55 TFEU – previously Art. 294 TEC, 1 until 1 May 1999 Art. 221 TEC/TEEC. As its transfer from the General and Final Provisions of TEC to the provisions 2 on right of establishment in the TFEU demonstrates, the provision is closely connected to the right of establishment. However, as Art. 221 TEEC originally had a transitional period of only three years, whereas the transitional period for right of establishment was considerably longer, the provision must have been meant to have a scope of application of its own. In providing that the provision should only apply “without prejudice to the application of the other provisions

50 Forskrift nr. 1185, 4.10.2013 om forsvars- og sikkerhetsanskaffelser. 51 Forskrift nr. 1411, 25.10.2013, anskaffelsesregelverk for forsvarssektoren.

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of this Treaty [EEA: Agreement]”, a certain functional overlap was nevertheless foreseen. Originally, the Commission seems to have based itself on Art. 221 TEEC when taking action against national legislation purely concerned with foreign ownership of domestic companies and firms. The rules on right of establishment, on the other hand, were used when going after national measures limiting the right of foreigners to engage in certain types of activities.1 However, drawing a clear line between one and the other is difficult. After the end of the transitional period for the right of establishment, there was also no need. In the few cases where what is now Art. 55 TFEU has been applied after that time,2 the ECJ has seen the provision, with the possible exception of Case 81/87 Daily Mail,3 as a mere clarification of the right of establishment, stating that national measures in question were contrary not only to then Art. 52 but “also” to what is now Art. 55 TFEU.4 The wording of what is now Art. 55 TFEU also covers investments that do not constitute an establishment.5 After the full liberalisation of free movement of capital, the ECJ has come to regard such 'portfolio' investments as protected by the provisions on free movement of capital. Before that stage, these investments were protected by Art. 221 TEEC. However, the right to move funds from one Member State to another fell under the rules on free movement of capital and was liberalised only gradually. As Art. 221 TEEC would yield to other Treaty provisions, national currency restrictions that were lawful until full liberalisation was achieved, could pose an indirect hindrance to such investments.6 Today, both the right of establishment and free movement of capital are understood not only as prohibitions against discrimination based on nationality, but 1 See Cesare Maestripieri, La libre circulation des personnes et des services dans la CEE (Editions UGA, Heule – Bruxelles – Namur 1972), p. 106. 2 There seems to have been hardly any court cases before that time, either. The explanation may be that directly discriminatory national rules on share ownership were abolished without infringements proceedings going before the ECJ, and indirectly discriminatory measures may have been dealt with under the rules on right of establishment. 3 Case 81/87, 27.9.1988, Daily Mail, at para 17, the Court made a distinction between the settingup of agencies, branches and subsidiaries, falling under what was then Art. 52 TEEC (now Art. 49 TFEU) on the right of establishment, and the exercise of right of establishment by taking part in the incorporation of a company, falling under what was then Art. 221. 4 Case C-221/89, 25.7.1991, Factortame, at paras 30-31. See also Case C-246/89, 4.10.1991, Commission v UK, at paras 31 and 33 and Case C-334/94, 7.3.1996, Commission v France, at paras 17-18. The cases concerned requirements that in particular fishing vessels i.a. had to be owned by nationals or companies controlled by nationals in order to be registered in national shipping registers. 5 See inter alia Case C-251/98, 13.4.2000, Baars, at para 22, and Case C-524/04, 13.3.2007, Test Claimants in the Thin Cap Group Litigation, at para 27. Investments that entail “definite influence on the company’s decisions and allowing them [i.e. the investors being nationals of another Member State] to determine its activities”) are considered to fall under the rules on right of establishment. This criterion has also been adopted by the EFTA Court, see Case E-2/06, 26.6.2007, ESA v Norway, at para 67 and Case E-9/11, 16.7.2012, ESA v Norway, at para 81. 6 See Maestripieri, La libre circulation des personnes et des services dans la CEE, p. 107.

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as more general bans on restrictive measures that do not fulfil the criteria of being lawful restrictions. It is therefore quite natural that the ECJ, after the few cases mentioned above, has stopped referring to what is now Art. 55 TFEU. Restrictions on the right to invest in companies and firms in other Member States are simply seen as restrictions on the rights to free movement.7 II. EEA Relevance

Given the state of development of the EU internal market at the time of nego- 7 tiating the EEA Agreement, a transitional period for Art. 124 like the one found in Art. 221 TEC/TEEC would not have made sense and was not introduced. Indeed, one may ask whether there was any need to include such a provision at all in the EEA Agreement. However, not including Art. 124 in the EEA Agreement could have led to unwarranted attempts at interpreting EEA law to be different from EU law. The proviso that Art. 124 shall be without prejudice to the application of the 8 other provisions of the EEA Agreement means that the provision yields to the Norwegian and Icelandic derogations concerning foreign ownership in the fisheries sector contained in Annexes VIII (establishment) points 9 and 10 and XII (capital) point1 litra g and h.8 Art. 124 has played no role in the case law of the EFTA Court. Ownership 9 restrictions, even when found to be (indirectly) discriminatory towards foreign investors, have been dealt with under the provisions concerning right of establishment and free movement of capital only.9 This is in line with the current view of the ECJ set out above. III. Legal Content

With Art. 124 having lost its significance, a discussion of its legal content has 10 no practical interest. However, this is how it is – or rather, was – commonly understood: The provision lays down a principle of equal treatment of “nationals” of 11 EEA States. The term “nationals” must apply also to companies that are to be considered “nationals” of an EEA State pursuant to the criteria laid down in Art. 34 (1) EEA.10 In other words, the provision protects both natural and legal persons in their capacity as investors. The right to equal treatment concerns participation in the capital of companies 12 within the meaning of Art. 34 EEA, that is to say any company or firm constituted under civil or commercial law, except those which are non-profit-making.

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Case C-367/98, 4.6.2002, Commission v Portugal, at paras 55-56. See on this the comments by Einarsson on Art. 31 and by Bull on Art. 40. Case E-2/06, 26.6.2007, ESA v Norway, at paras 66-68. See Jürgen Tiedje, ‘Comments to Art. 55 TFEU’, in: von der Groeben, Schwarze and Hatje (eds), Europäisches Unionsrecht, 7th ed., Nomos, Baden-Baden 2015.

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The right to participate in the “capital” of such firms and companies is to be understood in a broad sense, covering monetary investments as well as contributions in kind and in the form of intellectual property rights.11 Also subordinated loan capital has been considered to fall under the provision.12 14 The right of “participation” is understood to cover the right to invest as well as ancillary rights such as the right to take part and vote in general meetings and get elected to the governing bodies of the company or firm in question.13 13

Article 125 [The EEA Agreement and national systems of property ownership] This Agreement shall in no way prejudice the rules of the Contracting Parties governing the system of property ownership

Article 125 mirrors Article 345 TFEU (formerly Art. 295 EC, before 1 May 1999 Art. 222). 2 In Case C-367/98 Commission v Portugal, the ECJ held that Art. 222 EC (now Art. 345 TFEU) “merely signifies that each Member State may organise as it thinks fit the system of ownership of undertakings whilst at the same time respecting the fundamental freedoms enshrined in the Treaty”.1 3 In Case E-2/06 ESA v Norway (Waterfalls),2 which concerned conditions for acquiring rights to waterfalls for energy production, the Norwegian Government argued that despite their identical wording, Art. 125 EEA differs from (the previous) Art. 295 TEC. The Government asserted that Art. 125 had to be interpreted to the effect that rules governing the system of property ownership fall outside the scope of the EEA Agreement. The Government referred to fundamental differences between the EC Treaty and the EEA Agreement, and that this understanding was reflected in the EEA negotiations and in subsequent parliamentary procedures in Norway3 and Iceland. 4 The EFTA Court did not agree, and held: 1

“59 The principle of homogeneity enshrined in the EEA Agreement leads to a presumption that provisions framed identically in the EEA Agreement and the EC Treaty are to be construed in the same way. There are certain differences in the scope and purpose of the EEA Agreement as compared to the EC Treaty which may under specific circumstances lead to a different interpretation (see Case

11 See Maestripieri, La libre circulation des personnes et des services dans la CEE, p. 106 and Tiedje, ‘Comments to Art. 55 TFEU’, in: von der Groeben, Schwarze and Hatje (eds), Europäisches Unionsrecht. 12 See Tiedje, ‘Comments to Art. 55 TFEU’ in: von der Groeben, Schwarze and Hatje (eds), Europäisches Unionsrecht. 13 See Maestripieri, La libre circulation des personnes et des services dans la CEE, p. 105 and ‘Comments to Art. 55 TFEU’ in: von der Groeben, Schwarze and Hatje (eds), Europäisches Unionsrecht. 1 Case C-367/98, 4.6.2002, Commission v. Portugal, para. 28. 2 Case E-2/06, 26.6.2006, ESA v. Norway. 3 St.prp. nr. 100 (1991-92) pp. 161-67 and 200-202 and Ot.prp. nr. 82 (1991-92).

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Article 125 The EEA Agreement and national systems of property ownership E-3/98 Rainford-Towning [1998] EFTA Ct. Rep. 205, at paragraph 21). Unilateral expressions of understanding of the kind claimed to have been made by Norway and Iceland cannot constitute such circumstances. 60 The Defendant argues that when assessing whether the contested rules fall under the EEA Agreement it must be taken into account that they govern the management of essential natural energy resources. In that regard, the Court notes that such an interpretation is not supported by the provisions of the EEA Agreement. No provision exempts such rules from the scope of the Agreement. On the contrary, Article 73(1)(c) EEA provides that the Contracting Parties shall in their actions relating to the environment pursue the objective of ensuring a prudent and rational utilisation of natural resources. 61 There are no specific circumstances in the case at hand which would warrant an interpretation of Article 125 EEA different from the interpretation of Article 295 EC. Since Articles 125 EEA and 295 EC are identical in substance for the purpose of the case at hand, the case law of the ECJ on Article 295 EC is of relevance when interpreting Article 125 EEA. 62 It follows from the case law of the ECJ on Article 295 EC that Article 125 EEA is to be interpreted to the effect that, although the system of property ownership is a matter for each EEA State to decide, the said provision does not have the effect of exempting measures establishing such a system from the fundamental rules of the EEA Agreement, including the rules on free movement of capital and freedom of establishment (see for comparison Cases C-452/01 Ospelt v Schlössle Weissenberg [2003] ECR I-9743, at paragraph 24; C-302/97 Konle [1999] ECR I-3099, at paragraph 38 and 182/83 Fearon [1984] ECR 3677, at paragraph 7).”

Thus, the principle of homogeneity excludes interpretations based on preconditions or expectations of a Contracting Party which has not been made part of the Agreement, let alone unilateral expressions of understanding in preparatory works to the ratification of the Agreement, or in preparatory works to Acts transposing provisions of the Agreement.4 Consequently, Art. 125 entails that public ownership of assets, or that certain industries or sectors of the economy are nationalised, is in itself not contrary to the Agreement. However, the way in which public ownership is established and conducted must be compatible with other provisions in the Agreement, general (e.g. Art. 4 and the fundamental freedoms) or specific (e.g. Arts. 16 and 59). Case E-2/06 concerned provisions of the Norwegian Industrial Licensing Act5 which provided that undertakings that are defined as “public undertakings” pursuant to the Act, were granted concessions for acquisition of waterfalls for energy production without time limitation whereas others, including all foreign undertakings, were granted time-limited concessions. Moreover, all private and foreign undertakings were subject to the requirement that property rights to waterfalls and related installations, such as all the facilities through which the course and bed of the water have been altered, the power plant and appurtenant machinery, should revert to the State with full ownership rights and without compensation at the end of the concession period (system of reversion). As regards the relevance of Art. 125, the EFTA Court held: “72 The Court holds that Article 125 EEA is to be interpreted to the effect that an EEA State's right to decide whether hydropower resources and related installations are in private or public ownership is, as such, not affected by the EEA Agreement. The corollary of this is that Norway may legitimately

4 Fredriksen and Mathisen, EØS-rett, p. 252. 5 Lov 14. desember 1917 nr. 16 om erverv av vannfall, bergverk og annen fast eiendom mv.

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PART II: The Agreement on the European Economic Area pursue the objective of establishing a system of public ownership over these properties, provided that the objective is pursued in a non-discriminatory and proportionate manner. 73 However, for the Norwegian concession regime, with reversion to the State as an essential part of it, to qualify as aiming at establishing a “system of property ownership” within the meaning of Article 125 EEA, that regime must aim at attaining a situation where, as a matter of principle, the assets at issue are owned by public entities. A regime which merely brings or keeps this class of assets predominantly under public ownership, while at the same time leaving it to the discretion of the relevant authorities whether private ownership of the assets should be re-established, cannot be said to aim at establishing a system of property ownership under Article 125 EEA. Rather, such a regime aims at achieving a certain level of public control of the relevant sector of the economy – by means of securing public ownership of most of the relevant assets.”

Consequently, the EFTA Court rejected that the Norwegian regime at the time fell within the scope of Art. 125, as it did not aim at establishing a “system of property ownership”, within the meaning of that provision. 10 The Waterfalls case is arguably the most delicate Norwegian matter brought before the EFTA Court to date. The Norwegian watercourses represent renewable resources of great national importance, both from an economic and environmental perspective. Hydropower makes up 99 per cent of the electricity produced in the country and is fundamental for energy supply, infrastructure, wealth creation and welfare in Norway.6 On this background, it had been argued that the waterfalls regime was so important that if the rules could not be maintained, Norway should withdraw from the EEA Agreement.7 11 As a consequence of the judgment, the Norwegian Parliament was left with a choice between liberalisation of the rules on private ownership of hydropower resources or full public ownership. Parliament chose the latter, and in 2008 the Industrial Licensing Act was amended to the effect that the possibility of granting or renewing concessions to private parties was removed. Thus, the outcome of the case was – perhaps paradoxically and surprising to some – that public ownership of the hydropower resources was strengthened.8 12 Art. 125 is regarded as guaranteeing the freedom of the EEA EFTA States to run “mixed” economies, that is to say a mix of public and private ownership of undertakings.9 However, that provision is fundamentally incompatible with other parts of the EEA Agreement, notably Art. 61(1) on State aid. The ‘Market Economy Investor Principle’ (MEIP) is designed to strike a balance between those contradicting provisions.10 Under that test, it is assessed whether the same measure would have been adopted in normal market conditions by a private investor.11 In other words, would a private operator have done what the State is 9

6 NOU 2004: 26 p. 67. 7 P. Ørebech, ‘EØS-avtalens artikkel 125, med særlig vekt på diskusjonen i NOU 2004: 26 Hjemfall’, [2006] Lov og Rett 26-45. 8 NOU 2012: 2 (Europautredningen/Report by the EEA Review Committee). 9 See e.g. Parish, ‘On the Private Investor Principle’, [2003] European Law Review 70-89 (at p. 71), and Cyndecka, ‘The Problem of Objectives Pursued by the State Under the Application of the Market Economy Investor Principle (MEIP)’, [2015] Tidsskrift for Rettsvitenskap 263-294 (at p. 269). 10 Parish, ‘On the Private Investor Principle’, [2003] European Law Review 70-89 (at p. 71).

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doing? However, it has been argued that the test not only has its logical flaws, but that it is in fact incompatible with the notion of mixed economies.12 Although that is perhaps a judgment too harsh, it is clear that the MEIP sets limitations on Art. 125 – limitations which may appear problematic to proponents of mixed economies. A topical example is the Norwegian system of unlimited, indirect guarantees to municipalities. Under Norwegian law, municipalities cannot go bankrupt.13 Therefore, suppliers and lenders to municipal enterprises are de facto guaranteed full settlement. This indirect guarantee entails for example that municipal enterprises will obtain more favorable loan terms than would be possible without such a guarantee. In a letter to the Norwegian Government in 2015, ESA has taken the view that the indirect guarantee most likely amounts to State aid pursuant to EEA law.14 In a report from an expert commission appointed by the Norwegian Government to review the municipalities act, it is argued that if ESA's view is correct, all economic activity undertaken by municipalities must be separated from their other activities and placed in independent units. The report therefore raises the question whether ESA's interpretation of the State aid rules is compatible with Art. 125.15 The Norwegian Government has appointed a working group which shall assess these and other questions concerning a level playing field between public and private competitors. The working group shall finish its report by 1 January 2018.

Article 126 [Territorial application of the EEA Agreement] 1. The Agreement shall apply to the territories to which the Treaty establishing the European Economic Community is applied and under the conditions laid down in that Treaty, and to the territories of Iceland, the Principality of Liechtenstein and the Kingdom of Norway. 2. Notwithstanding paragraph 1, this Agreement shall not apply to the Åland Islands. The Government of Finland may, however, give notice, by a declaration deposited when ratifying this Agreement with the Depositary, which shall transmit a certified copy thereof to the Contracting Parties, that the Agreement shall apply to those Islands under the same conditions as it applies to other parts of Finland subject to the following provisions: a) The provisions of this Agreement shall not preclude the application of the provisions in force at any given time on the Åland Islands on:

11 See, e.g., Case C-124/10 P, 5.6.2012, Commission v. EDF, para. 79, and Case E-12/11, 17.8.2012, Asker Brygge v. ESA, para. 57 et. seq. 12 Parish, ‘On the Private Investor Principle’, [2003] European Law Review 70-89 (at p. 78). 13 Sec. 55(2) of the Municipalities Act (kommuneloven). 14 See the description given in NOU 2016: 4 p. 287, In ESA's State Aid Guidelines, Part V: Specific aid Instruments, State Guarantees, point 1.2, it is stated that “[t]he EFTA Surveillance Authority also regards as aid in the form of a guarantee the more favourable funding terms obtained by enterprises whose legal form rules out bankruptcy or other insolvency procedures or provides an explicit state guarantee or coverage of losses by the State”. 15 NOU 2016: 4 p. 289.

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b) c)

restrictions on the right for natural persons who do not enjoy regional citizenship in Åland, and for legal persons, to acquire and hold real property on the Åland Islands without permission by the competent authorities of the Islands; ii) restrictions on the right of establishment and the right to provide services by natural persons who do not enjoy regional citizenship in Åland, or by any legal person, without permission by the competent authorities of the Åland Islands. The rights enjoyed by Ålanders in Finland shall not be affected by this Agreement. The authorities of the Åland Islands shall apply the same treatment to all natural and legal persons of the Contracting Parties.

I. Introduction

Art. 126 defines the geographical scope of application of the EEA Agreement. The wording of the provision has been amended twice, first by the 2004 EEA Enlargement Agreement.1 By that Agreement, a long overdue amendment reflecting the accession of Austria, Finland and Sweden to the EU was made, In addition, a reference to the ECSC was deleted following the cessation of that treaty. By the 2007 EEA Enlargement Agreement “the republic of Iceland” was amended to “Iceland”. 2 Art. 126(1) stipulates the geographical sphere of application as regards the Contracting Parties, while Art. 126(2) contains special provisions relating to the autonomous archipelago of Åland. 3 Protocol 40 EEA allows Norway to exempt the territory of Svalbard from the application of the EEA Agreement. Norway availed itself of this right, and as a result, agreements existing between the Contracting Parties applicable to Svalbard continue to apply. 1

II. Art. 126 (1)

Art. 126 (1) is worded in the same manner as provisions on geographical scope in other agreements between the EU and third countries, and defines this scope by reference to the “territories” of the EFTA States and the “territories” where the EU treaties are applied. Thus, if a Member State of the EU leaves the EU, the EEA Agreement ceases to apply the territory of that State. 5 The Vienna Convention on the Law of Treaties Art. 29 provides that, unless a different intention appears, a treaty is binding upon each party in respect of its entire territory. Under public international law, and the Vienna Convention, the term “territory” connotes the geographical area over which it exercises sovereignty, i.e. the land, territorial waters and air space. The continental shelf, the exclusive economic zone and the fishery zones are not included.2 4

1 OJ No L 130, 29.4.2004 p. 3. 2 See Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties, 2nd ed, (2009) p. 392, and Aust, Modern Treaty Law and Practice, 3rd ed. (2013), p. 178.

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In contrast to Art. 126 (1) EEA, Art. 227 (1) TEC defined the scope of application of that treaty by reference to “The Kingdom of Belgium, the Kingdom of Denmark [etc.]”, without any use of the term territory.3 Art. 227 TEC (1) is now replaced by Art. 52 TEU, but the wording is the same, except for the addition of new Member States. It is settled that the scope of application of provisions of EU Law is to be decided by functional, not geographical, criteria unless the relevant provisions provide differently.4 This was also the state of the law at the time the EEA Agreement was negotiated.5 One of the techniques of the EEA Agreement in achieving homogeneity between EEA Law and EU Law is the use of mirror provisions, i.e. that the provisions of the EEA Agreement mirror those of EU Law.6 Where there are differences in wording, this can be taken to imply that the Contracting Parties also intended a different rule from the one applying under EU law. As mentioned above, the wording of Art. 126 (1) is a standard wording in agreements between the EU and third countries, and was found also in the 1973 Free Trade Agreement between the then European Economic Community and Norway. Norway’s position under this agreement was that the free trade agreement was not applicable to activities on the continental shelf. This position was well known by the European Commission, as there had been occasions where Norwegian measures relating to procurement in the petroleum sector and their compatibility with Norway’s obligations under the free trade agreement had been discussed.7 Having the above in mind, i.e. the established meaning of the term “territory” when used in international agreements, the principles applied when deciding the ambit of EU law, previous discussions between some of the Contracting Parties, the extensive use in the EEA Agreement of “mirror provisons”, the use of the term “territories” in Art. 126 (1) seems to imply that the EEA Agreement does not apply outside the territories referred to. This impression is strengthened when the EEA Agreement is read in parallel with other provisions of the then Treaty on the European Community (now reproduced to the letter in the TFEU). Where what is now Art. 45 (3) (d) TFEU, provides a right to remain “in the territory of a Member State after having been employed in that State”, the corresponding Art. 28 (3) (d) EEA provides a right 3 The term was however used in relation to the overseas territories, cfr. Art. 227(3) TEC, but that is of no relevance in this context. 4 See Case C-6/04, 20.10.2005, Commission v UK, para. 117 where the ECJ held that the Habitats Directive was applicable beyond the Member States’ territorial waters to other areas where the Member States exercise sovereign rights. For a general discussion, see the opinion of Advocate General Cruz Villalón in Case C-347/10, Salemink, para 43 et seq. 5 See for instance Kapteyn & VerLoren van Themaat, Introduction to the Law of the European Communities – After the coming into force of the Single European Act, 2nd ed. by Gormley (1990), pp. 53 to 55. 6 See Arnesen and Fredriksen’s comments on recitals four and fifteen of the Preamble. 7 See Skirbekk, ‘Leveransereguleringen i petroleumsvirksomheten’, MarIus No 147 (1989), pp. 157 et seq.

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“to remain in the territory of en EC Member State or an EFTA State after having been employed there.” Thus, Art. 28 (3) (d) EEA presupposes that the employment has been in the territory of an EEA State. Where Art. 56 TFEU provides that there shall be no restrictions on the freedom to provide services “within the Union”, Art. 36 EEA provides that there shall be no restrictions on the freedom to provide services “within the territory of the Contracting Parties”. Where Art. 95 TFEU refers to “transport within the Union”, Art. 50 EEA refers to “transport within the territory of the Contracting Parties”. Where Arts 101 and 102 TFEU refer to “the internal market”, Arts. 53 and 54 EEA refer to “the territory covered by this Agreement”. Finally, where Art. 108 TFEU refers to systems of aid existing in the Member States, Art. 62 EEA refers to systems of State Aid existing “in the territories of the Contracting Parties”. 11 Protocol 1 to the EEA Agreement, on horizontal adaptations, provides in no. 8 that whenever the acts contained in the annexes refer to “the territory of the ‘Community’ or of the ‘common market’ the references shall for the purposes of the Agreement be understood to be references to the territories of the Contracting Parties as defined in Article 126 of the Agreement.” Thus, Protocol 1 also leaves the impression that the application of the EEA Agreement is to be decided by geographical criteria as well as functional. However, Protocol 4 to the EEA Agreement, on rules of origin, provides in Article 4 (1) (j) that products extracted from marine soil or subsoil outside the EEA Member States’ territorial waters also have their origins within the EEA provided that the EEA Member States “have sole rights to work that soil or subsoil”. This could be taken to indicate that the scope of application of the EEA Agreement may extend outside the territories, as products extracted from such areas are deemed to have EEA origin. Mineral products, i.e., petroleum, extracted from the soil or seabed are however deemed to have their origin within the EEA pursuant to Protocol 4 Article 4 no. 1 (a). This provision does not contain the same proviso as paragraph (j) (“provided that they have sole rights to work that soil or subsoil”). Paragraph (j) was added by decision 38/2003 of the Joint EEA Committee when the old text of Protocol 4 was replaced in order to reflect a number of changes of a technical nature that had been made since the EEA Agreement was ratified. There is nothing in that decision that implies that also a substantial amendment was intended. 12 Whether the differences in wording with regard to geographical application also have practical implications, will depend on the legal issue at hand. Thus, the differences in wording between Art. 45 (3) TFEU and Art. 28 (3) EEA and the difference between Art. 56 TFEU and Art. 36 EEA could very well be taken to imply that work and services rendered on the continental shelf are not subject to free movement under the EEA Agreement, although they are so under EU Law. However, EEA law relating to certain aspects of for instance employment, like Dir. 2001/23/EC on employees’ rights in the event of transfer of undertakings, may very well apply where the undertakings concerned are established in the EEA, regardless of where the actual work is carried out.

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Neither the EFTA Court nor the ECJ has ruled explicitly upon the geographical application of the EEA Agreement. However, in Case E-2/04, Rasmussen, concerning the interpretation of Dir. 77/178/EEC, the facts giving rise to the questions of interpretation was a contract concerning maintenance works on the Frigg oil field, which is located partly on the Norwegian and partly on the British continental shelf.8 Neither the parties to the case nor the EFTA Court itself addressed the issue of geographical application. However, the issues in the case did not concern the access to activities on the continental shelf, but the concept of transfer of an undertaking within the meaning of directive 77/178/EEC. More generally, however, the EFTA Court held in the Case E-4/04, Pedicel that the underlying reason for excluding certain categories of products from the general scope of the EEA Agreement “must be that the Contracting Parties wished to maintain the freedom to decide on their respective regulations unaffected by the rules in the EEA Agreement unless otherwise specified”.9 Thus, the objective of the Contracting Parties of creating a dynamic and homogeneous European Economic Area could not mandate an interpretation that would amount to extending the scope of the Agreement.10 The same line of argument may be applied in relation to Art. 126 EEA. When the Contracting Parties have employed geographical criteria in the definition of the EEA Agreement’s scope of application, and a reading of the other provisions of the agreement shows that this is done consistently, the underlying reason for this, to use the words of the EFTA Court, “must be that the Contracting Parties wished to maintain the freedom to decide on their respective regulations unaffected by the rules in the EEA Agreement unless otherwise specified”.11 By virtue of Art. 8(3) EEA, subject to any provisions to the contrary, the EEA Agreement does not apply to fish products.12 It follows from the ruling of the EFTA Court in case E-4/04, Pedicel, that activities “that form an integral part of, and are inseparably from” trade in goods not covered by the EEA Agreement, also fall outside the EEA Agreement.13 Thus, activities, and measures,14 inseparably linked to fishing falls outside the material scope of the EEA Agreement. It is consistent with this that fishing, as far as it takes place outside territorial waters, also falls outside the geographical scope of the Agreement. At the time of negotiating the EEA Agreement, the petroleum activities offshore Norway was of vital importance to Norway. Also EU Member States like Denmark, the Netherlands, Ireland and the UK had extensive petroleum related

8 Case E-2/04, 10.12.2004, Rasmussen. 9 Case E-4/04, 25.2.2005, Pedicel, para. 25. 10 Case E-4/04, 25.2.2005, Pedicel, para. 28. In the same vein, Case E-1/16, 15.12.2016, Synnøve Finden, para. 56. 11 Case E-4/04, 25.2.2005, Pedicel, para. 25. 12 See further the comments by Petúrsson on Art. 8 EEA, para. 29 ff. 13 Case E-4/04, Pedicel, para 35. See also para 38, where the criterion is ‘inseparably linked’. The finding was confirmed in case E-1/16, 15.12.2016, Synnøve Finden, para. 57. 14 Case E-1/16, 15.12.2016, Synnøve Finden, para. 59.

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interests pertaining to their continental shelves. Thus, on both the EFTA side and the EU side there were ample reasons to whish to maintain as large freedom to decide upon the regulation of these activities as possible. Under public international law, subsequent practice in the application of a treaty that establishes the agreement of the parties regarding its interpretation is a means to establish its meaning.15 Thus, it is of interest to establish whether the Contracting Parties after the signing of the EEA Agreement has acted in a way that indicates that geographical criteria, in spite of the wording of the agreement, are not to be applied. The annexes to the agreement has been amended a number of times in order to maintain homogeneity between EU and EEA Law. By decision 19/95 of the EEA Joint Committee, Dir. 94/22/EC on the conditions for granting and using authorizations for the prospection, exploration and production of hydrocarbons was included in Annex IV. The directive is, as is most EU secondary legislation, silent as regards its geographical scope of application. However, the preamble makes express reference to the fact that Member States have “sovereignty and sovereign rights over hydrocarbon resources in their territories”, and also several provisions make express reference to the “territory”.16 There is however no reference to areas over which the Member States exercise limited jurisdiction, such as their continental shelves. A separate Joint Declaration of the EEA Contracting Parties was adopted together with the decision to include the directive, basically recognizing sovereignty over the resources within the limits of the EEA Agreement.17 Neither the decision nor the declaration addresses whether the directive is applicable to activities taking place outside territorial waters or not. The directive is implemented in Norwegian Law, also with respect to the activities taking place outside Norwegian territorial waters. Dir. 2008/56/EC, the Marine Strategy Framework Directive,18 applies to marine waters, defined as waters, seabed and subsoil on the seaward side of the baselines.19 The directive is marked EEA relevant by the EU, but is disputed by the EFTA States. The reason for this seems to be the directive’s geographical scope of application. It could however be argued that as the territorial waters are to be considered part of the territory, the directive is geographically EEA relevant regarding these. The directive has, to this writer’s knowledge, so far not been discussed in the EEA Joint Committee. In a similar vein comes Dir. 2013/30/EU on safety of offshore oil and gas operations.20 Also this directive is marked EEA relevant by the EU. It defines “offshore” as situated in the territorial sea, the Exclusive Economic Zone or the con15 Vienna Convention on the Law of Treaties, Art. 31. 16 Dir. 94/22/EC, para 8 of the preamble and arts. 2(1), 3(3), 7 and 9. 17 The Joint Declaration echoes Protocol 4 on Energy in the 1994 Agreement on Norway’s accession to the EU. 18 OJ 2008 no. L 164 p. 19. 19 Cf. Dir. 2008/56/EC Art. 3. 20 OJ 2013 No L 178 p. 66.

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tinental shelf of a Member State.21 The geographical scope of the EEA Agreement encompasses under any interpretation the territorial waters. Hence, the directive does, like Dir. 2008/56/EC, apply to areas both inside and outside the territory. Also this directive has been considered by the EFTA States not to be relevant for incorporation into the EEA Agreement. Again, a possible explanation may be that the EFTA States consider the directive to fall outside the geographical scope of the EEA Agreement. Both Dir. 2008/56/EC and Dir. 2013/30/EU may serve to illustrate the gener- 21 al question arising where EU secondary legislation relevant for inclusion, or included, in the EEA Agreement is applicable to activities taking place within the territories of the signatories to the EEA Agreement as well as activities explicitly taking place outside. Protocol 1 to the EEA Agreement does not provide a solution to this, and neither do Art. 126 EEA. The situation is thus different from where the secondary legislation is silent as to its geographical sphere of application. In these situations, Art. 126 solves the issue.22 However, Dir. 2009/31/EC on the geological storage of carbon dioxide was made part of the EEA Agreement by Joint Committee decision 115/2012, seemingly without any reservations. Art. 3 of that directive provides that it applies not only to the territory of the Member States, but also to their exclusive economic zones and Continental Shelves. ESA’s position, communicated in several Letters of Formal Notice and Rea- 22 soned Opinions to Norway, is that the scope of application of the EEA Agreement is to be decided by functional criteria, similar to the way in which the scope of EU Law is decided.23 Responding to the interventions from ESA, Norway has amended legislation pertaining to activities taking place outside Norwegian territory on at least three occasions. However, Norwegian authorities have on each occasion insisted that the EEA Agreement is applied mutatis mutandis, and thereby maintaining the position the agreement is not applicable to the said situations.24 ESA has not, even though the requirements under Art. 31 SCA for doing so were fulfilled, brought these matters before the EFTA Court.

21 Cf. Dir. 2013/30/EU Art. 2 (2). 22 Almestad seems to overlook this when he observes that “a number of important legal acts which clearly affect activities on the continental shelf have been made part of the EEA Agreement without provisions [regarding geographical scope]”, see his contribution ‘The Notion of Opting Out’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 85-94, at p. 91. Such provisions are unnecessary where the legal act in question is silent as to its geographical scope of application but necessary where it, like directive 2008/56/EC, applies explicitely to areas outside the territory. 23 See, e.g., Reasoned Opinion delivered 24 September 1999, Doc. No 6990-D, and Reasoned Opinion delivered 2 April 2004 in Case No. 2229. 24 For a closer account of these amendments, see Arnesen, ‘The EEA Agreement and activities off-shore’, Scandinavian Institute of Maritime Law Yearbook 2010 pp. 17 et seq. See also Almestad, ‘Natural Resources’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 763-773, at p. 769, who however fails to mention the persistent objections of Norwegian authorities.

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In the White Paper presenting the report of the EEA Review Committee,25 to the Norwegian Parliament, it was held that “The geographical scope of the EEA Agreement is set out in Article 126. The EEA Agreement applies to the territory of the Kingdom of Norway, but not to Svalbard. Norway’s position is that the term territory is to be understood in accordance with established practice in international law. This means that the EEA Agreement applies to Norwegian land territory, internal waters and territorial waters, but not to the exclusive economic zone, the continental shelf or the high seas. However, the geographical scope of the EEA Agreement is not considered to be a legal obstacle if Norway, after an assessment of a particular matter, decides to assume specific EEA obligations outside its territory. If there is a strong thematic or economic link between parts of a specific activity that take place within Norway’s territory and parts that take place outside Norway’s territory, Norway may in certain situations choose to incorporate legal acts whose scope encompasses the exclusive economic zone or the continental shelf into the EEA Agreement. In such cases Norway has made it a condition that expanding the geographical applicability of certain acts does not change the principle on which interpretation of the geographical scope of the EEA Agreement is based. In other cases Norway can take a decision at national level to also apply rules outside its territory that an EEA act has established within its territory.”26

Almestad has argued that this position is problematic, as it “presupposes for one that the Contracting Parties under the scheme and principles of the Agreement would be competent to make derogations from its obligatory parts in a way which inter alia would preclude the use of the system for surveillance and judicial control which is established by Chapter 3 of the EEA Agreement.”27 Even assuming that Almestad by “Chapter 3 of the EEA Agreement” means Part VII Chapter 3, i.e. Arts. 105 – 111 EEA, his critique is misconceived. The very system of the EEA Agreement is that when it comes to new legal acts to be included in the EEA Agreement, this is contingent upon agreement in the Joint EEA Committee. What is surveyed by ESA and the European Commission respectively, is the observance of the Contracting Parties of their obligations under the EEA Agreement, not whether new EU law acts are included in the Agreement. Furthermore, where an EEA State unilaterally decides to apply rules stemming from the EEA Agreement to areas not covered by it, this can hardly be seen as a threat to the Agreement as such. 25 The wording of Art. 126 EEA, read together with the consistent use of the term “territory” throughout the main part of the EEA Agreement and Protocol 1 point 8, presents something resembling a Gordian knot when confronted with established EU Law. The instrument disentangling this knot may be the considerations that guided the EFTA Court in case E-4/04 Pedicel, where the Court found 24

25 NOU 2012: 2 Utenfor og innenfor – Norges avtaler med EU. 26 Meld. St. 5 (2012-2013), p. 13. It might be that the inclusion of Dr. 2009/31/EC was made under the condition the this did not change the principle on which the geographical scope of the EEA Agreement is based. This is however not possible to read from Joint Committee Decision 115/2012 including the Directive in the Agreement. The report has been translated to the English language for information purposes, and is accessible on homepages of the Norwegian government www.regjeringen.no. 27 Almestad, ‘The Notion of Opting Out’, in: Baudenbacher (ed), The Handbook of EEA Law, pp. 85-94, at p. 91.

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that the deciding factor when deciding whether an activity falls outside the scope of the EEA Agreement ratione materiae, is whether that activity is “inseparably linked” to trade in goods not covered by the EEA Agreement. Under this view, the Contracting Parties will have maintained the freedom to decide on their respective regulations regarding access to and performance of activities taking place outside their territories unaffected by the rules contained in the EEA Agreement. Once given access, it could be argued that the there is a, rebuttable, presumption that a number of the legal positions of the undertakings and persons given access are no longer “inseparable” from the fact that the activities are taking place outside the territory. Whether this will be the route preferred by the courts if confronted with the issue, remains to be seen. III. Art. 126(2)

Art. 126(2) is mandated by the special constitutional position of the Åland 26 archipelago. The Government of Finland gave notice when ratifying the EEA Agreement that the agreement was to apply also to the Åland archipelago, on the same conditons as it applies to Finland, subject to the special proviso of Art. 126(2) litras (a) to (c). Thus, Åland is given a general exemption from the requirements of the EEA rules on freedom of establishment and free movement of services in that that restrictions on establishment may be imposed on persons not enjoying regional citizenship of Åland as well as all undertakings. The Åland authorities are however required to accord equal treatment to all 27 natural and legal persons of the Contracting Parties. When Finland became an EU Member State in 1995, similar derogations 28 were laid down in a Protocol to the Act of Accession, se now Art. 355 TFEU.

Article 127 [Withdrawal from the EEA Agreement] Each Contracting Party may withdraw from this Agreement provided it gives at least twelve months” notice in writing to the other Contracting Parties. Immediately after the notification of the intended withdrawal, the other Contracting Parties shall convene a diplomatic conference in order to envisage the necessary modifications to bring to the Agreement.

I. The EEA withdrawal clause

The EEA Agreement contains an exit clause. Art. 127 thus recognises a right 1 for “each Contracting Party” to withdraw from the Agreement (II). It also establishes a procedural framework (III). II. The right to withdraw

The right to leave the EEA is formulated in almost absolute terms; the only 2 condition for the Contracting Party wishing to exercise it being that it gives a twelve-months’ notice to the others. On closer inspection however, exiting the Hillion

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EEA is a restricted option for some of the Parties. Conversely, it may turn into an obligation for a state that would no longer fulfil the prerequisite for being party to the EEA Agreement, namely being either a Member of the EU, or a Party to the EFTA Convention. 1. Scope 3

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While prima facie applicable to all, the right to withdraw does not concern each and every Contracting Party in the same fashion. Pursuant to Art. 2 EEA, the notion of “Contracting Parties” refers on the one hand to Norway, Liechtenstein and Iceland, as EFTA states, and on the other to “the Community [now Union] and its Member States, or the [Union], or the E[U] Member States”. The same provision specifies that “[t]he meaning to be attributed to this expression in each case is to be deduced from the relevant provisions of this Agreement and from the respective competences of the [Union] and the E[U] Member States as they follow from the Treat[ies]”. The right to withdraw seems unfettered as regards the three EFTA States. Art. 128 EEA establishing the Accession procedure foresees that any European State “becoming a member of EFTA may” (emphasis added) apply to become party to the EEA Agreement. EEA participation is therefore not mandatory for EFTA states, as indeed confirmed by Switzerland’s decision to stay out. The situation is different for the EU and its Member States. Art. 128 EEA foresees that any European State becoming member of the EU “shall” apply to become a party to the EEA Agreement. The obligation to accede indicates that there can be no EU membership without EEA participation. This is not only a mechanical consequence of membership since any Member States must comply with EU law of which the EEA Agreement is part. But also the non-participation of a Member State would defeat the purpose of the EEA, which is to extend and apply homogeneously the law of the EU internal market to the three EFTA states. Allowing a EU Member State not to be part of the EEA would in effect entail a fragmentation of that market. Thus, all EU enlargements have entailed enlargements of the EEA, except in 1995 when the EU welcomed EFTA states that already participated in the EEA. Their accession to the EU only involved a transfer from the EFTA bloc to that of the EU, which was subsequently formalised in the text on the EEA Agreement by the 2004 Enlargement Agreement.1 Since the EEA is a mixed agreement, the question could be raised as to whether a EU Member State could denounce those parts of the Agreement identified as falling within States’ competence – in so far as they exist in the case of the EEA. In other words, could a Member State exercise the right to withdraw in 1 Art. 2(1) of the Agreement on the participation of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic in the European Economic Area.

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relation to some parts of the EEA Agreement only? While the State in question admittedly has the competence to do so from a EU law point of view, it might not be able freely to exercise that competence. First, as a Member State, it remains bound by all the other provisions of the EEA Agreement that are covered by EU law, by virtue of Art. 216(1) TFEU.2 Hence, withdrawing from certain parts of the Agreement would be legally possible only in so far as it does not impede its compliance with all EEA obligations it has to observe qua Member State of the EU. Secondly, it is debatable whether such a partial withdrawal, theoretically conceivable from the viewpoint of the EU law on competence, might be legally constrained, if not impaired by the Member State’s obligation to cooperate with the Union on the basis of Art. 4(3) TEU in general, and on the duty of cooperation applicable in the context of mixed agreements, in particular.3 In effect, its partial withdrawal from the EEA could make the EU fulfilment of its obligations under the EEA more difficult. Indeed, as Contracting Parties to the EEA, EU Member States are bound by the provisions of Art. 3 EEA to abstain from any measure which could jeopardize the attainment of the objectives of the [EEA] Agreement.” By withdrawing from some elements of the Agreement, the Member State would arguably hinder the harmonious functioning of the EEA. From the foregoing, one may consider that the EU side may exercise the right 8 to withdraw from the EEA in essentially two situations. First, the EU and its Member States would withdraw together, which in effect would be tantamount to terminating the EEA Agreement. To be sure, Member States do not have the competence of their own fully to participate in the EEA without the EU being part of it. Similarly the decision of all the Member States to withdraw would make it difficult for the EU to remain party, unless it is a technical toilettage to mark that the EU alone is competent in relation to the EEA. The second situation of withdrawal concerns a EU Member State that would depart from the EEA as a result of its withdrawal from the European Union altogether. The latter scenario is not only the most plausible since the introduction of an exit clause in EU primary law (Art. 50 TEU). It is also the most actual since its activation by the UK on 29 March 2017. In this situation, withdrawal is no longer only a right, but as discussed below, it becomes an obligation.

2 See e.g. Case C-13/00, 19.3.02, Commission v Ireland. 3 Art. 4(3) TEU foresees that: “Pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties. The Member States shall take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union. The Member States shall facilitate the achievement of the Union's tasks and refrain from any measure which could jeopardise the attainment of the Union's objectives.”

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2. Right and obligation 9

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Considering the definition of “Contracting Parties” set out in Art. 2 EEA, and the accession clause of Art. 128 EEA, the question arises as to whether any of the EEA States withdrawing either from the EU or from the EFTA Convention must as a result withdraw from the EEA too. Withdrawal from the EFTA Convention is indeed possible in accordance with its Art. 57 EFTA, whose formulation is very similar to that of the EEA which it may have inspired. It foresees that “Any Member State may withdraw from this Convention provided that it gives twelve months” notice in writing to the Depositary, which shall notify all other Member States (…) Before the withdrawal takes effect, the Member States shall agree on appropriate arrangements and equitable cost-sharing relating to the withdrawal.” It is arguable that an EFTA State that would cease to be party to the EFTA Convention could no longer participate in the EEA. As reflected by the Preamble of the Agreement, the latter’s definition of the Contracting Parties and by its provisions relating e.g. to the four freedoms, the EEA involves a relationship between the EU and its Member States, on the one hand, and “EFTA states” on the other. In particular, the Preamble of the Agreement refers to “the privileged relationship between the European Community, its Member States and the EFTA States”, while Art. 28 EEA for instance foresees that “Freedom of movement for workers shall be secured among EC Member States and EFTA States” (emphasis added). Similarly, Art. 31 EEA on the freedom of establishment envisages that there shall be no restrictions on the freedom of establishment of nationals of an EC Member State or an EFTA State in the territory of any other of these States, while Art. 36 EEA on the free movement of services stipulates that “there shall be no restrictions on freedom to provide services within the territory of the Contracting Parties in respect of nationals of EC Member States and EFTA States who are established in an EC Member State or an EFTA State other than that of the person for whom the services are intended.” In the same vein, the institutional framework of the EEA, and particularly the bodies in charge of monitoring the application of the Agreement on the non-EU side, including the EFTA Court and the EFTA Surveillance Authority, make it plain (also by their name) that belonging to EFTA is a prerequisite to EEA participation outside the EU. Art. 93(2) EEA in particular foresees that “[t]he EEA Joint Committee shall take decisions by agreement between the Community, on the one hand, and the EFTA States speaking with one voice, on the other”.4 Admittedly, Art. 126 EEA on the geographical scope of application of the Agreement foresees that it covers the territories of Iceland, Liechtenstein and Norway, rather than the territories of the EFTA states. However, read in its context, that provision in itself would not question the underpinning notion that the Agreement applies to the territories of those states as Contracting Parties of the 4 In the same vein, see Art. 4 of the rules of procedure of the EEA Council.

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Agreement as EFTA States. This is indeed confirmed by Art. 128 EEA which makes accession to the EEA conditional upon EU or EFTA affiliations. The situation would be different if an EEA state withdrew from the EFTA 14 Convention as a result of its accession to the EU. In line with the requirement of Art. 128 EEA, such a state would indeed have to be part of the EEA. Such a swap occurred when several EFTA states, namely Austria, Finland and Sweden became Member States of the EU in 1995, prompting an enlargement of the EU without enlargement of the EEA. They remained part of the EEA, albeit qua Member States of the EU, without the Agreement being immediately amended.5 Turning to the consequences of a EU Member State’s withdrawal from the 15 EU on its participation in the EEA, it is arguable that those would be similar. Based on EEA provisions recalled earlier, withdrawal from the Union in principle entails withdrawal from the EEA too. The situation would be otherwise if the former EU Member State intended to stay in the EEA by joining the group of EFTA States, having in the meantime acceded to the EFTA Convention. The position of EU states in relation to withdrawal is however slightly different as they are Contracting Parties to the EEA Agreement alongside the EU. This distinction has become evident in the wake of the UK decision to leave 16 the Union. One view has been that withdrawal from the EU ipso facto entails withdrawal from the EEA.6 In other words, unless the UK (re)adheres to the EFTA Convention, it will no longer be party to the EEA Agreement the moment it leaves the Union. Such a withdrawal from the EEA could in turn take different forms. One option would be to activate Art. 127 EEA in the context of the UK withdrawal negotiations with the EU. As discussed further below, the timing of the Art. 127 EEA notification would have to be chosen so as to ensure that it allows for a simultaneous withdrawal from both the EU and the EEA, thus preventing legal uncertainty. But it has also been suggested that withdrawal could occur irrespective of whether the procedure of Art. 127 EEA is formally triggered. The UK would exit the EEA Agreement the moment it departs from the Union, as it is the moment upon which, pursuant to Art. 50(3) TEU, the EU Treaties (and the EU acquis more generally, including the EEA Agreement) will cease to apply to the withdrawing state. This is indeed the opinion transpiring from the Guidelines of the European Council on the UK withdrawal.7

5 The adjustment of the Agreement came later, on the occasion of the subsequent enlargement of the EU, which in turn led to the enlargement of the EEA: see the Agreement on the participation of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic in the European Economic Area. 6 It has been reported that in response to the case on Art. 127 EEA before the High Court, a UK government spokesman said: “The UK is party to the EEA agreement only in its capacity as an EU member state. Once the UK leaves the EU, the EEA agreement will automatically cease to apply to the UK.” See: ‘Fresh Brexit legal challenge launched over single market’, The Guardian, 3 February 2017. Further: C. Hillion, ‘The UK withdrawal from the EU – Legal implications for Norway as Party to the EEA Agreement’, NUPI, Report No. 4, 2017.

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On another view, leaving the EU would not automatically entail withdrawal from the EEA. As the EEA Agreement involves all EU Member States as Contracting Parties alongside the EU, the state withdrawing from the Union would still have to trigger the procedure of Art. 127 EEA for it to be able to withdraw from the EEA as autonomous Contracting Party. Those parts of the Agreement that are not covered by EU law8 cannot in principle be denounced automatically pursuant to withdrawal from the Union. Leaving the EU entails that only EU law ceases to apply to the UK, whereas parts of the Agreement not covered by EU law would arguably still apply to it. In this vein, it has been contended that a decision of the UK Parliament would be required explicitly to mandate the UK Government to activate the procedure of Art. 127 EEA,9 the way the Parliament had to mandate the Government to activate the EU exit clause, in line with the decision of the UK Supreme Court in the Miller case.10 18 To be sure, the non-activation of Art. 127 EEA would not entitle the UK to remain in the EEA after it has left the EU. It could not be a full participant in the EEA merely by virtue of formally being a Contracting Party to the Agreement. First, as mentioned earlier, several provisions in the Agreement suggest that a Contracting Party must be a Member State of the EU or an EFTA state. Substantively and institutionally, the EEA Agreement is not designed to apply to Parties that are not included in one of the two groups. Moreover, as indicated above, Art. 126 EEA foresees that the EEA Agreement applies geographically to the territories of the EU and of the EEA EFTA States respectively. Hence, should a Member State leave the EU, without simultaneously joining the EFTA (and then the EEA qua EFTA state), it would simply no longer be included within the geographical scope of application of the EEA Agreement.11 In sum, by leaving the EU, the Member State would simply exclude itself from the operation of the EEA.12 Remaining would thus require that the UK join the EFTA pillar of the EEA, including the Agreement of the EFTA States on the establishment of a 17

7 Pt 13 of the “guidelines following the United Kingdom’s notification under Art. 50 TEU” (XT 20004/17, 29 April 2017) foresees that “[f]ollowing the withdrawal, the United Kingdom will no longer be covered by agreements concluded by the Union or by Member States acting on its behalf or by the Union and ist Member States acting jointly. The Union will continue to have its rights and obligations in relation to international agreements” (emphasis added). The emphasised phrase indicates that even mixed agreements will cease to apply to the UK. 8 C-13/00, 19.3.02, Commission v Ireland. 9 See: ‘Fresh Brexit legal challenge launched over single market’, The Guardian, 3 February 2017. 10 See, among many: Locke, ‘Brexit and the Single Market: You say Art. 50, we say Art. 127?’, VerfBlog, 2016/12/12; Peers, ‘Could the UK stay in the single market after leaving the EU? The planned case on Art. 127 EEA’, EU Law Analysis Blog, 30 November 2016. 11 Further, see comments on Art. 126. 12 International law could also be invoked to make the case that failure to notify would be tantamount to a material breach of the Agreement, i.e. a violation of various provisions essential to the accomplishment of the object or purpose of the EEA Agreement. It would thus allow the other Contracting Parties, by unanimous agreement, to terminate the Agreement in the relations between themselves and the defaulting State, in line with Art. 60(2)(a)(1) VCLT.

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Surveillance Authority and a Court of Justice,13 as well as the approval of the other Parties to introduce the relevant adjustments to the EEA Agreement.14 Arguably, the EU and the withdrawing state could agree, in the context of the 19 EU withdrawal negotiations, that that state would “remain” in the EEA postexit on a temporary basis, as part of a transitional arrangement towards its new agreement with the EU, while the latter is finalised and ratified. The state in question would then have to accept the authority of the institutions of the EEA in general, and of the EFTA pillar in particular. For it is inconceivable that the ex-Member State would fully remain within the internal market/EEA, albeit temporarily, without being subject to equivalent surveillance and judicial supervision to ensure homogeneity. While burdensome, particularly if for a temporary period, the ex-Member State could indeed integrate the institutional apparatus, i.e. the EFTA Surveillance Authority and the EFTA Court, while taking part in the decision-procedure within the EEA institutions. Crafting such arrangements would naturally require the full involvement and approval of the EFTA States. In sum, participation in the EEA by a state that is neither EU member nor 20 EFTA state is hardly plausible under present EEA law. Should a Contracting Party decide to withdraw from the EU or from the EFTA Convention, as the case may be, that Party would arguably have to withdraw from the EEA agreement too, unless the other Parties would decide otherwise, and introduced adjustments to that effect in the Agreement. III. The procedural framework 1. Activation

The EEA exit clause is activated when the Contracting Party wishing to 21 leave gives “at least twelve-months” notice in writing to the other Contracting Parties”. This is an unexceptional procedural step, inspired by Art. 56(2) of the Vienna Convention on the Law of Treaties,15 and replicated in the EFTA exit clause, mentioned above. The timing of the notice is particularly significant if withdrawal from the 22 EEA is connected to a EU Member State’s exit from the Union. As mentioned earlier, a state cannot be a Member of the EU without participating in the EEA, 13 OJ 1994 L 344/3. 14 As long as the UK has not formally withdrawn from the EEA, EFTA States, their citizens and businesses would arguably be in a position to require that as Contracting Party, it continues to comply with its EEA obligations. Thus, Norwegians exercising their EEA rights in the UK should still be able to have those rights guaranteed by UK Courts. 15 According to Art. 56 VCLT: “1. A treaty which contains no provision regarding its termination and which does not provide for denunciation or withdrawal is not subject to denunciation or withdrawal unless: (a) it is established that the parties intended to admit the possibility of denunciation or withdrawal; or (b) a right of denunciation or withdrawal may be implied by the nature of the treaty. 2. A party shall give not less than twelve months” notice of its intention to denounce or withdraw from a treaty under paragraph 1.”

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so that exit from the EEA cannot take place before it leaves the Union. Similarly, a state cannot in principle remain a Contracting Party of the EEA Agreement if it is no longer a Member State of the EU, and has not joined the EFTA group. Exiting one legal order before the other, whatever the order, would entail legal and practical difficulties, and challenge legal certainty. Coordination between the two processes is thus necessary to ensure the simultaneity of the two exits. 23 Art. 50(3) TEU foresees that the Treaties will cease to apply to the withdrawing state from the date of entry of the withdrawal agreement or, failing that, two years after the notification. The European Council may nevertheless, in agreement with the Member State concerned, unanimously decide to extend that period. In other words, the date of the state’s effective departure from the EU remains open. Art. 127 EEA requires a notice of “at least twelve months”, which entails some flexibility as to the timing of the effective withdrawal. The most practical option would thus be to notify the other Contracting Parties early in the process, and at the latest one year after the Member State notified the European Council of its intention to withdraw from the Union. The Contracting Parties could then agree that exit from the EEA would be effective on the same day as withdrawal from the EU. Given that the Member States’ autonomous participation in the EEA only covers limited aspects of the Agreement, being otherwise part of the EEA through the Union, the notification could be served by the withdrawing state itself, but also perhaps by the EU in relation to those parts for which the state does not have competence as long as it is EU Member State. 2. Negotiations

Unlike Art. 50 TEU, the EEA exit clause does not foresee the negotiation of a withdrawal agreement between the withdrawing state and the other contracting parties. The only envisaged negotiation involves the “other Contracting Parties” who shall convene “a diplomatic conference in order to envisage the necessary modifications to bring to the Agreement”. 25 The reference to “diplomatic conference” suggests that the envisaged modifications cannot be introduced in the Agreement as a technical exercise, by the EEA institutions themselves.16 Instead, the procedure entails an agreement of the Contracting Parties. What remains unclear is which form those modifications can take and how they will be formally introduced in the Agreement. 26 Indeed, the notion of “necessary modifications” can be read in different ways. The strict view would be to limit those modifications to what is manifestly required to ensure legal certainty. This would involve deleting all references to the departing state: e.g. from the list of Contracting Parties and in the Annexes and Protocols.17 The EEA Enlargement Agreements of 2004, 2007 and 2014 could 24

16 Art. 98 ECSC. 17 See in this respect the Protocol adjusting the EEA following Swiss non-ratification; it illustrates how references to Switzerland were deleted from the Agreement.

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offer guidance in this respect, though applied in reverse. Such restrictive reading could be warranted in view of the fact that Art. 127 EEA refers to “modifications” rather than amendments. It could also be argued that any substantive change in the sense of broadening or deepening the EEA legal order should rather be introduced through the specific procedure of Art. 118 EEA, following the institutional requirements it envisages. The broader view would be to construe the envisaged “modifications” more 27 widely, going beyond cosmetic adjustments, should the parties so wish. Moreover, the silence of the procedure regarding the question of ratification offers some flexibility. One could indeed imagine that the institutional requirements of Art. 118 EEA apply mutatis mutandis to incorporate changes of a more fundamental substantive nature. In the case of a withdrawal in connection with a Member State’s departure 28 from the Union, the nature and content of the modification to the EEA Agreement may reflect the terms of the withdrawal arrangements negotiated in the context of Art. 50 TEU. This is particularly true with respect to the Annexes and Protocols. This may also reflect the possible transitional deal between the EU and the departing state which may have EEA relevance. The EEA diplomatic conference shall be convened “immediately after the notification of the intended withdrawal”. As argued above, this notification should take place while that state is negotiating with the EU in the context of Art. 50 TEU. In other words, the conference and the negotiations should overlap to allow for coordination of the two processes, thereby ensuring coherence between the two outcomes.

Article 128 [Accession to the EEA Agreement] 1. Any European State becoming a member of the Community shall, and the Swiss Confederation or any European State becoming a member of EFTA may, apply to become a party to this Agreement. It shall address its application to the EEA Council. 2. The terms and conditions for such participation shall be the subject of an agreement between the Contracting Parties and the applicant State. That agreement shall be submitted for ratification or approval by all Contracting Parties in accordance with their own procedures.

I. An open legal order

Art. 128 makes clear that the EEA Agreement is an open Treaty. Three en- 1 largements of the EEA have occurred thus far, in 2004,1 20072 and 2013,3 fol1 Agreement on the participation of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic in the European Economic Area, OJ 2004 L 130/11.

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lowing the accessions of central, eastern and southern European states to the Union. The open character of the EEA Agreement is however limited by various substantive conditions (I), and procedural requirements (II). Seemingly, further EEA enlargement significantly depends on that of the EU (III). II. Conditions 2

Art. 128(1) establishes substantive limitations regarding the profile of potential candidates. First, like its TEU counterpart, the EEA accession clause limits accession to European States. Secondly, admission to the EEA is reserved to members of the EU and members of EFTA. 1. European States

The notion of European States is not explicitly defined in Art. 128 nor elsewhere in the Agreement. As discussed below, the geographical reach of the EEA is rather defined by default, by reference to geographical scope of application of the EU and EFTA Treaties.4 4 The reference to “states” as potential applicants is unexceptional in an accession clause. States are the traditional subjects of international law that have the legal capacity to conclude international agreements. Yet, the question has been raised as to whether sub-state entities such as the Faroe Islands, Scotland or Northern Ireland could join the EEA Agreement.5 Not itself a state, 6 the EU is party to the EEA, indicating that the notion of Contracting Parties may encompass non-state entities. Moreover, the EU has signed international agreements, including association agreements, with entities that were not recognised as “states” by all Member States, like Kosovo7 or the Palestine Liberation Or3

2 Agreement on the participation of the Republic of Bulgaria and Romania in the European Economic Area, OJ 2007 L 221/15. 3 Agreement on the participation of the Republic of Croatia in the European Economic Area; OJ 2014 L 170/18. 4 Art. 49 TEU includes the same geographical condition. It has been interpreted by the Commission in a report it submitted to the European Council in Lisbon in 1992, and which it produced in the context of the establishment of the EEA and the upcoming enlargement to several EFTA states. In that report, the Commission considered that the term European “… combines geographical, historical and cultural elements which all contribute to the European identity. The shared experience of proximity, ideas, values and historical interaction cannot be condensed into a simple formula, and is subject to review by each succeeding generation”; Europe and the Challenge of Enlargement, Suppl. 3/92 Bull CE 1992. 5 “On Faroe Islands, see ‘Faroe Islands seek closer EU relations’, EUobserver, 8 October 2007; see also the report referred to by Arnesen and Fredriksen in their comment on the Contracting Parties, at footnote 18. On Scotland and Northern Ireland, see respectively Scottish Government, Scotland’s Place in Europe, Edinburgh, December 2016, and Doherty, Temple Lang, McCrudden, McGowan, Phinnemore and Schiek, Northern Ireland and Brexit: the European Economic Area option EPC Discussion Paper, 7 April 2017. 6 The European Court of Justice recalled in its Opinion 2/13 that the EU is not a state: Opinion 1/13 ECHR (II). 7 Stabilisation and Association agreement between the European Union and the European Atomic Energy Community, of the one part, and Kosovo, of the other part; 10728/1/15; Brussels 2 October 2015.

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ganisation.8 Although it refers to EU association with “one or more third countries or international organisations”, Art. 217 TFEU, which is the legal basis of the EU conclusion of the EEA Agreement, has thus been interpreted pragmatically. What arguably matters for the purpose of accession to the EEA is less that the applicant is formally a “state” than its legal capacity to conclude international agreements, and its ability to be an effective participant in the EEA. Indeed, such sub-national entities would still have to meet the other conditions of the EEA accession clause. 2. EFTA or EU members only

According to Art. 128, admission is contingent on the applicant’s prelimi- 5 nary membership of either the EU or of EFTA. As discussed in the chapter on the EEA withdrawal clause,9 participation in the EEA outside the EU or EFTA is not legally and practically conceivable under the present dispensation of the Agreement. Thus, should it intend to participate in the EEA upon leaving the EU, the UK would first have to accede to the EFTA Convention, and so should sub-national entities such as Scotland and Northern Ireland, if the UK decided to stay out. For the latter entities, the exercise might prove difficult however, not least if the EFTA states apply their Convention strictly, as according to Art. 56(1) EFTA “Any State may accede to this Convention, provided that the Council decides to approve its accession, on such terms and conditions as may be set out in that decision” (emphasis added). EFTA or EU membership is a necessary but insufficient step towards EEA 6 entry. Accession to the EEA is a two-step process that requires observance of Art. 128 EEA. However, considering that the latter makes it compulsory for EU Member States to be part of the EEA, their accession thereto is almost mechanical. Indeed, membership in the EU already entails that EEA law, as part of EU law, is binding on any Member States. The situation is different for EFTA candidates. The EEA Agreement is not part of any “EFTA acquis” that a new member has to accept upon accession to the EFTA Convention. Indeed, the latter foresees in its Art. 56(3) EFTA that “Any State acceding to this Convention shall apply to become a party to the free trade agreements between the Member States on the one hand and third states, unions of states or international organisations on the other”.10 In practice, each EU enlargement has prompted the widening of the EEA by 7 way of an Enlargement Agreement with the EFTA states. While EFTA states could in principle oppose the accession of a new EU Member State to the Agree-

8 Euro-Mediterranean Interim Association Agreement on trade and cooperation between the European Community, of the one part, and the Palestine Liberation Organization (PLO) for the benefit of the Palestinian Authority of the West Bank and the Gaza Strip, of the other part. 9 See comments on Art. 127 EEA, above. 10 Such free trade agreements do not include the EEA, given that Art. 128 EEA does not oblige the new EFTA states to accede.

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ment, in practice, their refusal would lead to a systemic crisis of the EEA, and likely question its very existence. Past EU enlargement episodes and EEA Protocols confirm that enlargement of the EEA must not only be accepted, EFTA States indeed have to increase their financial contribution to economic and social cohesion as a result,11 which has been one of the reasons why the accession negotiations have taken longer. 8 Conversely, EFTA States may oppose the accession to the EEA of other European states that are not members of the EU. They can do so by opposing admission to the EFTA Convention, and/or subsequently, though more inconvenient for the good functioning of EFTA, by preventing their EEA accession as EFTA States. That they may block any EEA enlargement to non-EU members is indeed illustrated by the failure of the EU to convince EEA EFTA States to let the microstates of Andorra, Monaco and San Marino join.12 9 Although Art. 128 seemingly makes EEA accession through the EU easier than through EFTA, the reality is more complex. According to Art. 56(1) EFTA: “Any State may accede to this Convention, provided that the Council decides to approve its accession, on such terms and conditions as may be set out in that decision”. Compared to the EU accession procedure of Art. 49 TEU as further articulated in the EU enlargement policy,13 admission to the EEA via the EFTA route thus appears far less constrained than the EU itinerary. 10 Still, the EU may oppose accession of a new EFTA state to the EEA Agreement, for instance on the ground that it does not fulfil conditions it considers crucial to the functioning of the EEA, and for the candidate to operate effectively therein. Indeed, the candidate must not only subscribe to the aim of economic integration,14 it must also join the additional EFTA instruments concerning e.g. the Surveillance Authority and the EFTA Court, and accept to contribute to the EEA financial mechanism. But many of the conditions required for joining the EU, encapsulated in the so-called Copenhagen criteria,15 would also seem to be relevant for joining the EEA, given that it entails full participation in the functioning of the internal market, including in administrative and institu11 See Protocol 38 a on the EEA Financial Mechanism, Protocol 38 b on the EEA financial mechanism (2009-2014); Protocol 38 c on the EEA financial mechanism (2014-2021). 12 “Norge sier nei til nye mikrostater i EØS”, Nationen, 19 May 2011. See also: Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: EU Relations with the Principality of Andorra, the Principality of Monaco and the Republic of San Marino: Options for their participation in the Internal Market, COM(2013) 793 final; and Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, EU Relations with the Principality of Andorra, the Principality of Monaco and the Republic of San Marino – Options for Closer Integration with the EU COM(2012) 680. 13 See e.g. Hillion, ‘EU enlargement’, in: Craig and de Búrca (eds), The Evolution of EU Law Oxford: Oxford University Press, 2011, pp. 187-216. 14 Cf objectives of the EEA as understood by the ECJ in e.g. Opinion 1/91, 14.12.9, EEA (I), and Case C-431/11, 26.9.13, United Kingdom v Council. 15 Hillion, op. cit. at p. 194.

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tional terms. Thus the applicant state’s apparatus must provide all guarantees that its administration and judiciary will ensure effective and homogeneous application of EEA law. III. The procedure

According to Art. 128(2), the candidate shall address its application to the 11 EEA Council. The provision does not say whether the EEA Council has a say on the admissibility of the request. Arguably however, a discussion about the candidate’s capacity effectively to fulfil the requirements of EEA participation could be held at this stage, should it appear questionable. 1. Negotiation

The accession negotiation between the applicant state and the Contracting 12 Parties should establish the “terms and conditions” for its “participation”. The purpose is not to revisit the EEA acquis with the new Party in any fundamental way. Akin to the EU admission process, it is rather to agree on the necessary technical adjustments to be introduced in the EEA Agreement, Annexes and Protocols, to make admission possible. For example, the Enlargement Agreement introduces the necessary adjust- 13 ments to the list of Contracting Parties (i.e. Preamble and Art. 2 EEA), and as the case may be, to the list of the authentic languages (Art. 129 EEA). Moreover, all relevant amendments to EU legislation entailed by the Union’s enlargement must be inserted in the appropriate EEA Protocols (and Annexes). For instance, the Enlargement Agreement with Croatia introduced a change in Protocol 4 on the rules of origins to include the Croatian version of the text of the invoice declaration.16 Transitional arrangements related to the EU enlargement which are relevant to the EEA would also have to be reflected in EEA law,17 as well as any need for specific EEA transitional arrangements.18 Accession may nonetheless entail more far-reaching changes to EEA law, in 14 consideration of the particular profile of the newcomer(s). Hence, the 2004 Enlargement Agreement foresaw the inclusion of a new Protocol on the creation of the EEA financial mechanism,19 whereby EFTA States would contribute to the reduction of economic and social disparities in the EEA through the financ-

16 Art. 2 of the Agreement on the participation of the Republic of Croatia in the European Economic Area. 17 See Protocol 44 on safeguard mechanisms pursuant to enlargements of the European Economic Area. 18 See e.g. the sectoral adaptations for Liechtenstein in the field of free movement of persons under Annexes V and VIII to the EEA Agreement amended by the Agreement on the Participation of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic in the European Economic Area of 14 October 2003. 19 Protocol 38 a EEA.

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ing of grants to investment and development projects in various priority sectors.20 2. Ratification

The Enlargement Agreement containing the agreed adjustments and amendments to the EEA is an international treaty between the Contracting Parties and the applicant(s).21 It is not a treaty concluded by the EEA itself, which is not an international organisation endowed with the legal capacity to conclude international agreements. The Agreement must be “submitted for ratification or approval by all Contracting Parties in accordance with their own procedures”. This entails the applicant(s), the EFTA States, and the EU and its Member States. 16 As recalled by Arnesen and Fredriksen, it is arguable that “the need for such EEA Enlargement Agreements appears less obvious than sometimes assumed [considering that] the vast majority of EEA law falls under the exclusive competence of the EU”.22 Indeed, Art. 128 EEA is formulated in such a way as not to require the formal ratification from each and every Contracting Party on the EU side. The notion of “approval” alongside “ratification”, and the phrase “in accordance with their own procedures” rather than “in accordance with their respective constitutional requirements” included in EU accession clause (Art. 49(2) TEU) could provide the possibility for the EU itself to conclude that enlargement agreement. The recent case law of the Court of Justice on EU exclusive external competence further substantiates this point.23 17 To be sure, the multiplicity of ratification procedures makes the process lengthy and potentially uncertain. Ratification traditionally involves national parliaments, yet some of the Contracting Parties require multiple parliamentary approvals due the federal structure of their constitution, while recourse to referenda has also arisen.24 As a result, the process of ratification may be held up by each and every Contracting Party,25 which could undermine the functioning of the EEA. Indeed, the length of the ratification process entails that Enlargement Agreements, which must enter into force simultaneously with EU Accession 15

20 Ibid. See also: Art. 2(2) of the Agreement on the participation of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic in the European Economic Area. 21 See respective Enlargement Agreements of 2004, 2007 and 2014, op. cit. 22 See their comments on Contracting Parties in this volume. 23 E.g. Opinion 1/13, 14.10.14, op. cit; Opinion 2/15, 16 May 2017, Opinion on the Free Trade Agreement between the European Union and the Republic of Singapore. 24 E.g. the 2016 referendum in the Netherlands on the ratification of the EU-Ukraine Association Agreement. Further: G. Van der Loo and R.A. Wessels ‘The non-ratification of mixed agreements: Legal consequences and solutions’ (2017) 54 CMLR 735. 25 E.g. the ratification of the EU–Canada FTA (“CETA”), stalled by the regional Parliament of Wallonia in Belgium.

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treaties to ensure legal certainty and preserve homogeneity, are often applied provisionally until full ratification.26 Opposition to accession would arguably be conceivable only in relation to an 18 EFTA state, in case the EU or one of its Member States would oppose it. It is unlikely that accession of a new Member State of the EU be blocked by an EFTA state, all the less since in principle, this accession is required under the EEA agreement. The ratification of the Enlargement Agreement could rather be held up at the level of a new Contracting Party. The 2004 Enlargement Agreement thus foresaw in its Art. 6 that “If the New Contracting Parties have not all deposited their instruments of ratification or approval of the Agreement in due time, this Agreement shall enter into force for those States which have done so. In this case, the EEA Council shall decide immediately upon the adjustments to be made to this Agreement and, as the case may be, the EEA Agreement.” IV. Prospects

In the light of the above, future EEA enlargements will arise in two alterna- 19 tive ways. First, the EEA may expand if and when the EU enlarges. At this stage, the Union is engaged in accession talks with Albania, Macedonia, Montenegro, Serbia, Turkey, Bosnia & Herzegovina, and Kosovo.27 Each of these candidate states will, if and when they accede to the EU, become part of the EEA. Second, the EEA might expand via the EFTA route. One obvious candidate is 20 Switzerland. Indeed, Art. 128 EEA was partly redrafted to make Swiss accession possible.28 Time will tell whether the United Kingdom eventually decides to “remain” in the EEA through accession to EFTA, at least as a transitional arrangement,29 or whether, as evoked earlier, some of its constituent parts will attempt to join. Ultimately, much depends on the appetite of the current EFTA states to let this happen. Judging from the earlier failed attempt to bring the microstates of Andorra, Monaco and San Marino into the EEA, one may wonder 26 E.g. Agreements in the form of an exchange of letters concerning the provisional application of the Agreement on the participation of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Hungary, the Republic of Latvia, the Republic of Lithuania, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic in the European Economic Area and the provisional application of four related agreements. The Agreement on the participation of the Republic of Croatia in the European Economic Area, is still provisionally applied, see exchange of letters between the EU and Norway, OJ 2014 L 170/14. 27 See e.g. Commission Communication, 2016 Communication on EU Enlargement Policy, COM(2016) 715 final. 28 See Norberg et al., EEA Law, p. 305; Indeed according to Norberg and Johansson, “a special provision was introduced in the Agreement explicitly opening up the possibility for Switzerland applying to become a party to the Agreement”, the authors add that “[t]his has, however, never been discussed in Switzerland as a real possibility”; Norberg and Johansson, ‘The History of the EEA Agreement and the First Twenty Years of its Existence’ in: Baudenbacher (ed), The Handbook of EEA Law, p. 3 at pp. 31 and 35 respectively. 29 ‘Brussels’ Brexit Plan: Treat the UK like Norway’, Politico, 15 April 2017.

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whether there is any serious prospect of expansion of the EEA through EFTA. To quote informed commentators writing before the UK referendum on EU membership, “the complexity and sophistication of the EEA Agreement is … such that in practice it would probably be difficult for any other country than the original signatory Switzerland to qualify for membership”.30

Article 129 [Languages, ratification, entry into force] 1. This Agreement is drawn up in a single original in the Danish, Dutch, English, Finnish, French, German, Greek, Icelandic, Italian, Norwegian, Portuguese, Spanish and Swedish languages, each of these texts being equally authentic. Pursuant to the enlargements of the European Economic Area the versions of this Agreement in the Bulgarian, Croatian, Czech, Estonian, Hungarian, Latvian, Lithuanian, Maltese, Polish, Romanian, Slovak and Slovenian languages shall be equally authentic. The texts of the acts referred to in the Annexes are equally authentic in the Bulgarian, Croatian, Czech, Danish, Dutch, English, Estonian, Finnish, French, German, Greek, Hungarian, Italian, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slovak, Slovenian, Spanish and Swedish languages as published in the Official Journal of the European Union and shall for the authentication thereof be drawn up in the Icelandic and Norwegian languages and published in the EEA Supplement to the Official Journal of the European Union. 2. This Agreement shall be ratified or approved by the Contracting Parties in accordance with their respective constitutional requirements. It shall be deposited with the General Secretariat of the Council of the European Communities by which certified copies shall be transmitted to all other Contracting Parties. The instruments of ratification or approval shall be deposited with the General Secretariat of the Council of the European Communities which shall notify all other Contracting Parties. 3. This Agreement shall enter into force on the date and under the conditions provided for in the Protocol Adjusting the Agreement on the European Economic Area.

I. Multilingualism

The EEA Agreement was negotiated in the English language, but drawn up in all of the then official languages of the Contracting Parties, all being equally authentic. With the enlargement of the EU, and thus also the enlargement of the EEA, the EEA Agreement is authentic also in the official languages of the new EU/EEA States. 2 As far as acts referred to in the annexes are concerned, these are authentic in the official languages of the EU, as published in the Official Journal of the EU. As regards the versions of these acts in the Icelandic and Norwegian language, these become authentic when published in the EEA supplement to the Official 1

30 Norberg and Johansson, op. cit, at p. 42.

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Journal. The preparation of the Icelandic and Norwegian versions is undertaken by Iceland and Norway, respectively.1 This plethora of equally authentic language versions does not reduce the in- 3 terpretative challenges, well known in EU law, posed by multilingualism. This even though the purpose of introducing also the languages of the EFTA States as official languages presumably, as held by the EFTA Court in Case E-18/11 Irish Bank, is to ensure the uniform interpretation of the provisions of the EEA Agreement across the EEA.2 However, the basic aim of homogeneity between EEA law and EU law within the fields covered by the EEA Agreement implies that these challenges are not significantly increased either. The directions given by the ECJ to national courts in Case 283/81 CILFIT3 will apply also within the EEA legal order. Thus, one has to have in mind that an interpretation of a provision of EEA law always involves a comparison of different language versions; that EEA law often mirror provisions of EU law that uses terminology that is peculiar to EU law; that legal concepts do not necessarily have the same meaning in EU law as in national law, nor in EEA law for that matter,4 and that every provision of EEA law must be placed in its proper context and interpreted in the light of other provisions of EEA law having due regard to the object and purpose of the EEA Agreement. However, Case E-9/97 Sveinbjörnsdóttir shows that the EFTA Court did not 4 immediately follow the ECJ’s lead. In this case, the EFTA Court was asked to interpret the adaptation made by the EEA Joint Committee to Dir. 80/987 pertaining to Iceland. The Court noted that the negotiations regarding the adaptation were conducted, and the final text agreed, in the English language, that the wording agreed upon was not entirely precise, and that there were variations in the precision and scope of the wording in the translation to other authentic language versions. The Court held that where there are differing authentic language versions, ‘a preferred starting point for the interpretation will be to choose one that has the broadest basis in the various language versions. This would imply that the provision, to the largest possible extent, acquires the same content in all Member States.’5 However, as the issue at hand was the interpretation of an exception applicable to Iceland only, and affecting workers with Icelandic employers only, the EFTA Court found it to ‘be more appropriate to place greater weight on what the negotiators agreed to with respect to the Icelandic exceptions’.6

1 Under an arrangement between the EU and the EFTA States, the latter are responsible for official translations into the non-EU EFTA languages (now only Icelandic and Norwegian), see the Final Act to the EEA Agreement, pp. 19-22. 2 Case E-18/11, 28.9.2012, Irish Bank, para. 87. 3 Case 283/81, 6.10.1982, Srl CILFIT. 4 See to this effect, Case E-4/01, 30.5.2002, Karlssson, para. 30, regarding the principle of State liability. 5 Case E-9/97, 10.12.1998, Sveinbjörnsdóttir, para. 28. 6 l.c.

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The latter indicates that as far as adaptations of EU legal acts referred to in the Annexes are concerned, the EFTA Court will be more inclined to take into account what the negotiators – whoever they might be – may have meant than other factors. 6 As for the contentions regarding ‘the preferred starting point’ for the interpretation where authentic language versions differ, this has been honed over the years. In Case E-18/11, Irish Bank, the EFTA Court was confronted with an Icelandic language version of a directive that differed materially from a number of other language versions. After having repeated the preferred starting point stated in Sveinbjörnsdóttir, the Court went on to hold that the wording used in one language version cannot serve as the sole basis for the interpretation of that provision or made to override the other language versions, and found that 5

“in the case of divergence between the language versions, the provision must be interpreted by reference to the purpose and general scheme of the rules of which it forms a part so as to be consistent, as far as is possible, with the general principles of EEA law.”7

This was developed further in Case E-25/13 Engilbertsson, where the EFTA Court held that where there are discrepancy between different language versions, ‘the version which reflects the purpose and the general scheme of the rules provided for as well as the general principles of EEA law must be deemed to express the meaning of an EEA law provision’.8 By this, the EFTA Court has taken the same approach as the ECJ.9 It is respectfully submitted that this differs substantially, to the better, from ‘the preferred starting point’ established in Sveinbjörnsdóttir. 8 As mentioned above, the Icelandic and Norwegian translations of the EU legal acts referred to in the Annexes are authentic in the form they are published in the EEA supplement of the Official Journal. These versions are prepared by the Icelandic and Norwegian authorities, respectively, and not, like in the EU, by institutions independent from the Member States. The EFTA Court has however not found reason to treat them differently from versions in the other EEA languages. Nevertheless, one point should be made. 9 It may take considerable time, even years, from the decision of the EEA Joint Committee to include a legal act adopted in the EU in the EEA Agreement until a version of the act in the Icelandic or Norwegian language is published in the EEA Supplement to the Official Journal. From a purely EEA law angle, this does not create many problems, as these language versions are not crucial for determining the meaning of EEA law. However, where the legal acts in question are EU regulations, these are as such to be made part of domestic law in the EFTA States.10 As the time limit for implementation of regulations referred to in 7

7 Case E-18/11, 28.9.2012, Irish Bank, para. 90. 8 Case E-25/13, 28.8.2014, Engilbretsson, para. 139. 9 Compare Case C-510/10, 24.4.2012, DR, TV2 Danmark A/S v NCB – Nordisk Copyright Bureau, paras. 43 to 45 and the case law referred to, and more recently, Case C-41/14, 26.2.2015, Christie’s France SNC, para. 26.

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the decisions of the EEA Joint Committee may expire before they are translated into the Norwegian or Icelandic language and published in the EEA Supplement to the Official Journal, this places Iceland and Norway between a rock and hard place. Either they have to violate the time limit for implementation, or they have to implement the regulations in domestic law in a language that is not the national language. The two States have responded differently to this. In Iceland, regulations are not implemented until an authentic version in the Icelandic language is made. In Norway, the regulations are implemented as such in Norwegian law in all their language versions apart from the Icelandic and Norwegian within the time limit. The Norwegian approach might raise a number of issues pertaining to legal certainty and to Articles 6 and 7 of The European Convention on Human Rights. So far, however, none of these issues have surfaced in Norwegian courts.11 II. Ratification and deposition

Art. 129(2) states the obvious; the EEA Agreement had to be ratified or ap- 10 proved by the Contracting Parties in accordance with their respective constitutional requirements. As also the European Communities, now the European Union, is a Contracting Party and the EEA Agreement is an association agreement, the agreement also had to be approved by the European Parliament, cfr. now Art. 218 TFEU. The depositary of the EEA Agreement is the General Secretariat of the Coun- 11 cil of the European Union. III. Entry in to force

Art. 129(3) was introduced by the Adjusting Protocol necessitated by Switzer- 12 land not being able to ratify the EEA Agreement.12 The EEA Agreement entered into force on 1.1.1994.

10 See the comments by Dystland, Finstad and Sørebø on Art. 7 EEA, para. 11 ff. 11 For a discussion, see Arnesen, ’Om den babelske vending i norsk rett’, Lov og Rett (2015) pp. 343-361, and Kildahl Venemyr, ‘Konformitet og legalitet – et legalitetsperspektiv på EØS-initierte gjerningsbeskrivelser’, MarIus (2017) no. 481. 12 Protocol Adjusting the Agreement on the European Economic Area of 17 March 1993.

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The Contracting Parties to the SCA are now only the three remaining EFTA 1 States party to the EEA Agreement – Iceland, Liechtenstein and Norway. Accordingly, neither the EU Member States nor the EU itself are Contracting Parties to this Agreement. This appears justified by reasons of reciprocity. After all, the EFTA States have no influence over the EU rules governing the European Commission and the ECJ, neither generally nor in cases where these EU institutions ensure the fulfillment of EEA law obligations within the EU-pillar of the EEA. However, the absence of the EU from the list of Contracting Parties does not 2 leave the EFTA States free to decide on the content of the SCA. The EFTA States’ obligation to establish an independent surveillance authority (ESA) and a separate court of justice (the EFTA Court) follows from Art. 108 EEA. Many of the most important provisions on the competences of ESA and the EFTA Court are also dictated by the Main Part of the EEA Agreement or one of its Protocols,1 whereas others are the result of decisions by the EEA Joint Committee to adapt new EU legal acts to the two pillar structure of the EEA.2 This is straightforward in cases the obligations put on the EFTA States are clear, but less so in cases where the EEA Agreement leaves it to the EFTA States to decide on the details. It follows from Art. 108(1) EEA that ESA is to be ‘independent’ and vested with powers ‘similar’ to those of the European Commission, but the implementation of these obligations leave the EFTA States some margin of discretion. As to the EFTA Court, its independence is only implicit in Art. 108(2) and so is the link to the procedural rules governing the ECJ’s jurisdiction in the EU-pillar.3 As a matter of principle, the EFTA States’ possibility to amend the SCA is limited by their EEA law obligations and, more generally, the principle of loyalty enshrined in Art. 3 EEA. Fortunately, however, the EFTA States have never attempted to use their position as masters of the SCA to amend the 1 Examples include Art. 108 EEA on the general powers of ESA and the EFTA Court and Protocols 21 and 26 EEA on the powers of ESA in the field of the competition rules applicable to undertakings and in the field of State aid. 2 A case in point is the EEA Joint Committee Decisions No. 199/2016; No. 200/2016 and No 201/2016 on the affiliation of the EFTA States to the European Supervisory Authorities in the field of financial services. These decisions dictate new powers to ESA. The EFTA States complied with this by a separate Agreement of 6 October 2016 amending the SCA by adding a new Article 25 a and a new Protocol 8.

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Agreement in ways which have tested the legal limitations brought about by the EEA Agreement.4 3 Still, it is certainly noteworthy that the EU accepts the fact that the EFTA States appoint (and sometimes reappoint) their own supervisors and judges.5 The EFTA Court’s president has voiced some concern related to the appointment of both the ESA College Members6 and the judges of the EFTA Court,7 and the Court itself has proposed that an independent panel should be set up to give opinions on the suitability of candidates nominated for the EFTA Court to before the governments of the EFTA States make the appointments.8 In its 2012 review of the EEA Agreement, the European Commission encouraged ‘a discussion on the responsibilities of ESA, in particular in relation to the possibility of strengthening the control of the application of the EEA Agreement’.9 This was hardly meant as criticism of ESA, but rather as recognition of ESA’s capabilities with a view to extend its competences further (and perhaps also strengthen the tools at its disposal). The EU’s trust in ESA and the EFTA Court (and thus, indirectly, in the EFTA States’ respect of the independence of both institutions) is demonstrated well by the push for a similar institutional solution in the Union’s bilateral relationship to Switzerland.10 It is also apparent in the fact that the EEA Joint Committee on many occasions has entrusted ESA with new 3 Strictly speaking, Art. 108(2) only obliges the EFTA States to vest the EFTA Court with competence to decide a) actions concerning the surveillance procedure regarding the EFTA States; b) appeals concerning decisions in the field of competition taken by ESA and c) disputes between two or more EFTA States – it says nothing about the grounds of review, the intensity of the review, standards of proof etc. 4 Even though the attempt in 2016 to limit the new term of the Norwegian judge of the EFTA Court to only three years, with the effect that the Norwegian judge would leave office when passing retirement age for judges in Norway, came quite close to de facto rewriting of Art. 30 SCA (which provides that judges shall be appointed for a term of six years). The attempt to achieve this without amending Art. 30 SCA was clearly untenable, as the EFTA States themselves appeared to realise when faced with the prospect of having to defend the decision before the EFTA Court, see the retreat in ESA/Court Committee Decision 2017 No 1 of 13 January 2017 on the re-appointment of a Judge to the EFTA Court and repealing Decision 2016 No 5 of 1 December 2016 and the EFTA Court’s subsequent decision of 14.2.2017 in Case E-21/16 Pascal Nobile. If, however, the EFTA States had attempted to preserve the proposed limitation of the term by amending Art. 30 SCA, the timing of the amendment could have raised the sensitive and difficult question of compliance with the implicit obligation in Art. 108(2) EEA to preserve the independence of the EFTA Court. 5 See, e.g., Jónsdóttir, Europeanization and the European Economic Area (2014), p. 71. 6 See Baudenbacher, The EFTA Court in Action (2012), p. 13. 7 See Baudenbacher, ‘The EFTA Court: Structure and Tasks’, in: Baudenbacher (ed), Handbook of EEA Law, pp. 139-178, at p. 141. 8 See ‘An Extended EFTA Court? The EFTA Court proposes amendments to the SCA’, Press Release 11/11, 8 December 2011. The template for the proposal is the panel set up in accordance with Art. 255 TFEU. However, in order to enhance the EFTA Court’s credibility vis-àvis the ECJ in particular, one of the members of the evaluation panel was to be a former judge of the ECJ. The proposal has not been acted upon by the EFTA States. 9 Commission Staff Working document, ‘A review of the functioning of the European Economic Area’, SWD (2012) 425 final, Section 2.6. 10 See, e.g., Council conclusions on EU relations with the Swiss Confederation, 28 February 2017.

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tasks, including tasks which leave ESA with considerable discretionary powers.11 One may only hope that the unprecedented attempt by the Norwegian government in 2016/2017 to limit the new term of the Norwegian judge of the EFTA Court in order to adjust to Norwegian law on retirement age for judges will not change this. After all, swift reactions from academic observers, ESA, the Norwegian Judges Association and the Court of Appeal in Liechtenstein forced the Norwegian government to retreat, thus proving that the institutional structure of the EFTA-pillar is strong enough to defend the independence of the institutions.12

Preamble HAVING REGARD to the EEA Agreement; CONSIDERING that, in accordance with Article 108(1) of the EEA Agreement, the EFTA States shall establish an independent surveillance authority (EFTA Surveillance Authority) as well as create procedures similar to those existing in the European Community including procedures for ensuring the fulfilment of the obligations under the EEA Agreement and for control of the legality of acts of the EFTA Surveillance Authority regarding competition; FURTHER CONSIDERING that, in accordance with Article 108(2) of the EEA Agreement, the EFTA States shall establish a court of justice of the EFTA States; RECALLING the objective of the Contracting Parties to the EEA Agreement, in full deference to the independence of the courts, to arrive at and maintain a uniform interpretation and application of the EEA Agreement and those provisions of the Community legislation which are substantially reproduced in that Agreement and to arrive at an equal treatment of individuals and economic operators as regards the four freedoms and the conditions of competition; REITERATING that the EFTA Surveillance Authority and the Commission of the European Communities shall cooperate, exchange information and consult each other on surveillance policy issues and individual cases; CONSIDERING that the preambles to acts adopted in application of the Treaties establishing the European Economic Community and the European Coal and Steel Community shall, in so far as those acts correspond to the provisions of Protocols 1 to 4 and to the provisions of the acts corresponding to those listed in Annexes I and II to this Agreement, be relevant to the extent necessary for the proper interpretation and application of the provisions of these Protocols and Annexes; WHEREAS in the application of Protocols 1 to 4 to this Agreement due account shall be paid to the legal and administrative practices of the Commission of the European Communities prior to the entry into force of this Agreement; HAVE DECIDED to conclude the following Agreement:

The Preamble to the SCA consists of seven recitals. However, it is essentially 1 only two of them – the sixth and the seventh – which include something not al11 See, e.g., the adaptations agreed to related to the incorporation into the EEA Agreement of the Third Energy Package; EEA Joint Committee Decision 93/2017. 12 For the details as to this highly unfortunate affair, see Order of the President of 20.2.2017 in Case E-21/16 Pascal Nobile.

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tasks, including tasks which leave ESA with considerable discretionary powers.11 One may only hope that the unprecedented attempt by the Norwegian government in 2016/2017 to limit the new term of the Norwegian judge of the EFTA Court in order to adjust to Norwegian law on retirement age for judges will not change this. After all, swift reactions from academic observers, ESA, the Norwegian Judges Association and the Court of Appeal in Liechtenstein forced the Norwegian government to retreat, thus proving that the institutional structure of the EFTA-pillar is strong enough to defend the independence of the institutions.12

Preamble HAVING REGARD to the EEA Agreement; CONSIDERING that, in accordance with Article 108(1) of the EEA Agreement, the EFTA States shall establish an independent surveillance authority (EFTA Surveillance Authority) as well as create procedures similar to those existing in the European Community including procedures for ensuring the fulfilment of the obligations under the EEA Agreement and for control of the legality of acts of the EFTA Surveillance Authority regarding competition; FURTHER CONSIDERING that, in accordance with Article 108(2) of the EEA Agreement, the EFTA States shall establish a court of justice of the EFTA States; RECALLING the objective of the Contracting Parties to the EEA Agreement, in full deference to the independence of the courts, to arrive at and maintain a uniform interpretation and application of the EEA Agreement and those provisions of the Community legislation which are substantially reproduced in that Agreement and to arrive at an equal treatment of individuals and economic operators as regards the four freedoms and the conditions of competition; REITERATING that the EFTA Surveillance Authority and the Commission of the European Communities shall cooperate, exchange information and consult each other on surveillance policy issues and individual cases; CONSIDERING that the preambles to acts adopted in application of the Treaties establishing the European Economic Community and the European Coal and Steel Community shall, in so far as those acts correspond to the provisions of Protocols 1 to 4 and to the provisions of the acts corresponding to those listed in Annexes I and II to this Agreement, be relevant to the extent necessary for the proper interpretation and application of the provisions of these Protocols and Annexes; WHEREAS in the application of Protocols 1 to 4 to this Agreement due account shall be paid to the legal and administrative practices of the Commission of the European Communities prior to the entry into force of this Agreement; HAVE DECIDED to conclude the following Agreement:

The Preamble to the SCA consists of seven recitals. However, it is essentially 1 only two of them – the sixth and the seventh – which include something not al11 See, e.g., the adaptations agreed to related to the incorporation into the EEA Agreement of the Third Energy Package; EEA Joint Committee Decision 93/2017. 12 For the details as to this highly unfortunate affair, see Order of the President of 20.2.2017 in Case E-21/16 Pascal Nobile.

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ready expressed in the EEA Agreement as such. The first three recitals simply refer to the EEA Agreement and the EFTA States’ obligation in Art. 108 thereof to establish an independent surveillance authority and their own court of justice. The fourth recital reproduces verbatim the wording of the fifteenth recital to the preamble of the EEA Agreement on the homogeneity objective1 whereas the fifth recital reiterates the need for cooperation between ESA and the European Commission already established through, inter alia, Art. 109 EEA.2 The references to homogeneity and cross-pillar cooperation are of course completely unproblematic, but nonetheless a bit odd given the fact that the EU is not a contracting party to the SCA. The EFTA States can instruct the EFTA Court to take ECJ case-law into account and ESA to cooperate with the Commission, but not vice versa. This is presumably also the reason why neither the fourth nor the fifth recital to the SCA preamble appears ever to have been cited by the EFTA Court. 2 The sixth recital of the preamble reproduces the rule of interpretation found in Protocol 1 of the EEA Agreement, but extends its scope of application to the interpretation of Protocols 1 to 4 and Annexes I and II to the SCA: The preambles of EU legal acts are relevant for the interpretation of corresponding provisions found in the said protocols and annexes ‘to the extent necessary for the proper interpretation and application of the provisions of these Protocols and Annexes’. Protocols 1 to 4 and Annexes I and II are the parts of the SCA where rules on the functions and powers of ESA corresponding to those found in various EU legal acts concerning the functions and powers of the European Commission are to be found.3 The same demarcation is found in Art. 3 SCA. However, neither the sixth recital of the preamble nor Art. 3 SCA should be interpreted a contrario to the effect that the principle of homogeneity only applies to Protocols 1 to 4 and Annexes I and II. Rather, what the EFTA Court has coined ‘the procedural branch’ of the principle of homogeneity suggests that procedural law of the EU-pillar is of general interest for the interpretation and application of the SCA.4 3 The seventh recital obliges ESA to pay due account to the legal and administrative practices of the Commission in the application of Protocols 1 to 4 SCA. For reasons of the sovereignty of the EFTA States and ESA’s independence from the Commission, however, this obligation is limited to practices known at the time of the entry into force of the SCA (1 January 1994).5 Still, it follows from the homogeneity objective and the obligation on ESA to cooperate closely with the Commission that also the latter’s later practice is highly rele1 See the comments by Arnesen and Fredriksen on the Preamble to the EEA Agreement, mn. 15 to 24 and 38 to 41. 2 See the comments by Tynes on Art. 109 EEA, mn. 21 to 31. 3 See further the comments by Poulsen on Art. 42 SCA, mn. 1 to 7. 4 See further the comments by Wennerås on Art. 3 SCA, mn. 58 to 61. 5 Cf. also Art. 6 EEA and Art. 3(1) SCA, but note that the cut-off date in these provisions is the date of signature of the EEA Agreement (2 May 1992).

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vant. Thus, the temporal limit of the seventh recital of the preamble to the SCA is just as obsolete as the similar limitations found in Art. 6 EEA and Art. 3(1) SCA.

Part I: General rules Article 1 [Definitions] For the purposes of this Agreement: (a) the term 'EEA Agreement' means the main part of the EEA Agreement, its Protocols and Annexes as well as the acts referred to therein; (b) the term 'EFTA States' means the Republic of Iceland and the Kingdom of Norway and, under the conditions laid down by Article 1(2) of the Protocol Adjusting the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice, the Principality of Liechtenstein.

I. The SCA and the EEA Agreement

Art. 1 litra a establishes that the term ‘EEA Agreement’ as used in the SCA refers not only to the Main Part of that agreement, i.e. the Preamble and Arts. 1 to 129 EEA, but also to its Protocols and Annexes, as well as the acts referred to therein. Thus, Art. 1 litra a SCA simply duplicates the definition found in Art. 2 litra a EEA.1 The importance of Art. 1 litra a SCA primarily lies in the fact that the SCA itself is not part of the EEA Agreement. This is reflected in the powers of ESA and the jurisdiction of the EFTA Court: Both institutions can only deal with matters related to the SCA to the extent that the provisions of the SCA itself allows for this. By way of an example, Art. 31 SCA vests ESA with competence to bring infringement proceedings in case of alleged breaches of the Surveillance and Court Agreement as well as of the EEA Agreement, whereas Art. 34 SCA limits the jurisdiction of the EFTA Court to give Advisory Opinions on the interpretation of ‘the EEA Agreement’.2 As noted in the comments to Art. 2 EEA, the acts referred to in the annexes to the EEA Agreement are secondary EU legislation and other acts adopted pursuant to the EU-treaties for the purposes of these treaties, adjusted to the EEA Agreement. While the acts referred to in the Annexes originate in the EU-pillar, the Protocols are tailor made for the EEA and cover a wide range of topics. The Protocols of the EEA Agreement of special importance in relation to the SCA are Protocol 21 on the implementation of competition rules relating to 1 See the comments by Arnesen and Fredriksen on Art. 2 EEA, mn. 1 to 8. 2 Still, the EFTA Court is obviously competent to rule on matters concerning the Court’s own jurisdiction under Art. 34 SCA, see further the comments by Christiansen on this provision, mn. 4 to 8.

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1

2

3

4

Article 1 Definitions

vant. Thus, the temporal limit of the seventh recital of the preamble to the SCA is just as obsolete as the similar limitations found in Art. 6 EEA and Art. 3(1) SCA.

Part I: General rules Article 1 [Definitions] For the purposes of this Agreement: (a) the term 'EEA Agreement' means the main part of the EEA Agreement, its Protocols and Annexes as well as the acts referred to therein; (b) the term 'EFTA States' means the Republic of Iceland and the Kingdom of Norway and, under the conditions laid down by Article 1(2) of the Protocol Adjusting the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice, the Principality of Liechtenstein.

I. The SCA and the EEA Agreement

Art. 1 litra a establishes that the term ‘EEA Agreement’ as used in the SCA refers not only to the Main Part of that agreement, i.e. the Preamble and Arts. 1 to 129 EEA, but also to its Protocols and Annexes, as well as the acts referred to therein. Thus, Art. 1 litra a SCA simply duplicates the definition found in Art. 2 litra a EEA.1 The importance of Art. 1 litra a SCA primarily lies in the fact that the SCA itself is not part of the EEA Agreement. This is reflected in the powers of ESA and the jurisdiction of the EFTA Court: Both institutions can only deal with matters related to the SCA to the extent that the provisions of the SCA itself allows for this. By way of an example, Art. 31 SCA vests ESA with competence to bring infringement proceedings in case of alleged breaches of the Surveillance and Court Agreement as well as of the EEA Agreement, whereas Art. 34 SCA limits the jurisdiction of the EFTA Court to give Advisory Opinions on the interpretation of ‘the EEA Agreement’.2 As noted in the comments to Art. 2 EEA, the acts referred to in the annexes to the EEA Agreement are secondary EU legislation and other acts adopted pursuant to the EU-treaties for the purposes of these treaties, adjusted to the EEA Agreement. While the acts referred to in the Annexes originate in the EU-pillar, the Protocols are tailor made for the EEA and cover a wide range of topics. The Protocols of the EEA Agreement of special importance in relation to the SCA are Protocol 21 on the implementation of competition rules relating to 1 See the comments by Arnesen and Fredriksen on Art. 2 EEA, mn. 1 to 8. 2 Still, the EFTA Court is obviously competent to rule on matters concerning the Court’s own jurisdiction under Art. 34 SCA, see further the comments by Christiansen on this provision, mn. 4 to 8.

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3

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undertakings; Protocol 23 concerning the cooperation between the surveillance authorities; Protocol 24 on cooperation in the field of control of concentrations; Protocol 26 on the powers and functions of ESA in the field of State aid and Protocol 27 on cooperation in the field of State aid. The provisions of these protocols are addressed in connection with the relevant provisions of the SCA and the EEA Agreement. II. The term ‘EFTA States’

Art. 1 litra b SCA essentially reproduces the definition of the term ‘EFTA States’ found in Art. 2 litra b EEA. Also in the interpretation and application of the SCA, references to the EFTA States means Iceland, Liechtenstein and Norway, thus excluding the fourth remaining Member State of EFTA – Switzerland. Accordingly, the term ‘EFTA States’ has a different meaning in the context of the EEA Agreement, the SCA and other EEA-related texts than it has outside the realm of EEA law (in the broad sense of that term). 6 The Protocol Adjusting the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice Art. 1(2), referred to in Art. 1 litra b, concerns the entry in to force of the SCA with regard to Liechtenstein, and has today historical interest only. 7 Art. 1 litra b was amended when Austria, Finland and Sweden left EFTA and joined the EU. As it stands, Art. 1 litra b more than anything illustrates that the connotations the term two-pillar structure gives when used in the description of the EEA may be somewhat misleading. 5

Article 2 [Principle of loyalty] The EFTA States shall take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of this Agreement. They shall abstain from any measure which could jeopardize the attainment of the objectives of this Agreement. 1

Art. 2 provides for the general principle of loyalty or sincere cooperation under the SCA, the specific duties of positive action and abstention of which mirror the wording of two of the specific duties imposed under Art. 3 EEA.1 As we shall see, many of the points made in relation to Art. 3 EEA may therefore equally apply as far as Art. 2 SCA is concerned. However, since Art. 2 SCA has never been the subject of interpretation by the EFTA Court, much of the following will necessarily be based on a certain amount of conjecture. There are probably more unanswered questions therefore concerning the potential scope and remit of Art. 2 SCA than those which still exist with regards to Art. 3 EEA.

1 See the comments on Art. 3 EEA in Part II of this book.

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Whilst the main thrust of Art. 3 EEA centres on the obligations imposed on the Contracting Parties in the fulfilment of their obligations, the wording of Art. 2 SCA is even more explicit in this regard: the addressees are the EFTA states (i.e. the Contracting Parties to the SCA) only. The provision clearly therefore imposes both classic, vertical duties of loyalty on the EFTA States to cooperate with ESA and the EFTA Court, and a horizontal obligation to cooperate with one another in fulfilment of the SCA’s objectives. A number of other provisions of the SCA provide more specific manifestations of the classic, vertical duties imposed on the EFTA States, such as Art. 6 (duty to provide information to ESA), Art. 33 (duty to take all measures to comply with EFTA Court decisions) and Art. 52 (duty to communicate measures taken to implement the SCA to ESA). Indeed, the principle of loyalty therefore seems essential in ensuring that ESA is able carry out its tasks under Part III of the SCA as “watchdog” under the EFTA pillar of the EEA Agreement. Presumably, more specific manifestations of the principle of loyalty would also be applied lex specialis to Art. 2 SCA. And like Art. 3 EEA, we can also presume that Art. 2 SCA is largely to be deemed subsidiary to other SCA rules, meaning that it will not fall to be applied autonomously in situations covered by more specific rules governing the situation in question. As we have seen previously,2 the EFTA Court has viewed the duty under Art. 33 SCA (requiring the EFTA States to take any legislative measures necessary in order to comply with its judgments),3 and the Advisory Opinion procedure under Art. 34 SCA,4 as two particular facets of the principle of sincere cooperation under Art. 3 EEA. Whilst it would seem perfectly natural to view both Arts. 33 and 34 SCA as more specific expressions of the principle of sincere cooperation, it is not entirely clear why the EFTA Court has chosen to treat these provisions as lex specialis to Art. 3 of the EEA Agreement, rather than Art. 2 SCA. Just as with Art. 3 EEA, Art. 2 SCA may presumably also be seen to impose certain reverse vertical duties of cooperation on ESA and the EFTA Court. Such an understanding might be drawn contextually from a number of other more specific cooperative duties set out in other provisions of the SCA, such as Art. 16 and 17 (ESA’s duty to provide reasons and to notify its decisions), Art. 31 (ESA’s duty to provide the EFTA States with an opportunity to submit observations before delivering reasoned opinions) and Art. 37 (ESA’s implied

2 See the comments on Art. 3 EEA. 3 Case E-4/16, 16.11.2016, ESA v Norway, para. 24. See also Case E-19/14, 19.6.2015, ESA v Norway, para. 39; and similarly in Case E-18/10, 28.6.2011, ESA v. Norway, paras. 25-32, where Norway was deemed in breach of Art. 33 SCA, as reinforced by Art. 3 EEA, for not having introduced amendments to its Public Service Pension Act to bring it in line with the EFTA Court’s ruling in Case E-2/07, 30.10.2007, ESA v Norway. 4 See e.g. Case E-1/94, 16.12.1994, Restamark, para. 25; Case E-1/95, 20.6.1995, Samuelsson, para. 13; Case E-1/11, 15.12.2011, Dr A, para. 34; and Case E-18/11, Irish Bank, 28.9.2012, paras. 53-54.

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duty to act against breaches of EEA law). The very fact that the EFTA States may challenge ESA decisions before the EFTA Court under Art. 36 SCA further seems to imply that cooperation was meant to work both ways. 6 In spite of its express wording, and similarly to Art. 3 EEA, Art. 2 SCA also seems at the very least capable of providing for certain inter-institutional duties of cooperation. As much seems reflected in other more specific manifestations of the principle, such as Art. 38 SCA (ESA’s duty to take all necessary measures to comply with the EFTA Court’s decisions). Art. 2 SCA might also potentially be seen as giving rise to certain indigenous inter-institutional duties of cooperation on its own. Referring explicitly to Article 2 SCA, ESA for its part has recently contended that the EEA Joint Committee have a duty to take all necessary measures, particularly including any necessary amendments to the Annexes to the EEA Agreement, in order to ensure compliance with more recent decisions of the ECJ.5 7 Unsurprisingly, and unlike with Art. 3 EEA, Art. 2 SCA does not impose any obligations on the EU or its Member States. Whilst recital 5 of the preamble reiterates the mutual cooperative duties of ESA and the EU Commission under the EEA Agreement, cross-pillar cooperation under the SCA would only seem to work one way – i.e. as enforceable against ESA. As much seems further implied by a number of other SCA provisions, imposing a range of unilateral cooperative duties on ESA, such as Art. 5(2)(c) (duty to cooperate with the EU Commission), Art. 3 (duty to take ECJ case-law into consideration in the interpretation and application of EEA law), and Art. 24 and 25 (duty to issue competition and state aid guidelines corresponding to EU Commission guidelines in these fields). The lack of mutual cross-pillar cooperative duties under the SCA may nevertheless presumably be alleviated in many situations by relying on Art. 3 EEA instead, in light of the many provisions providing for mutual cooperation, information exchanges and consultation between ESA and the Commission in the EEA Agreement.6

Article 3 [Relevance of ECJ case law] 1. Without prejudice to future developments of case law, the provisions of Protocols 1 to 4 and the provisions of the acts corresponding to those listed in Annexes I and II to this Agreement, in so far as they are identical in substance to corresponding rules of the Treaty establishing the European Economic Community and the Treaty establishing the European Coal and Steel Community and to acts adopted in application of these two Treaties, shall in their implementation and application be interpreted in

5 See ESA Doc. No. 786049, 13 January 2016; and ESA Case No. 76496; Document No. 757520; Decision No. 143/16/COL; Letter of formal notice to Lichtenstein concerning the principle of equal treatment between men and women in the field of insurance and related financial services, p. 2. 6 See e.g. Arts. 58, 62(2) and 109 EEA.

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Article 3 Relevance of ECJ case law conformity with the relevant rulings of the Court of Justice of the European Communities given prior to the date of signature of the EEA Agreement. 2. In the interpretation and application of the EEA Agreement and this Agreement, the EFTA Surveillance Authority and the EFTA Court shall pay due account to the principles laid down by the relevant rulings by the Court of Justice of the European Communities given after the date of signature of the EEA Agreement and which concern the interpretation of that Agreement or of such rules of the Treaty establishing the European Economic Community and the Treaty establishing the European Coal and Steel Community in so far as they are identical in substance to the provisions of the EEA Agreement or to the provisions of Protocols 1 to 4 and the provisions of the acts corresponding to those listed in Annexes I and II to the present Agreement.

I. Introduction

Art. 3 SCA constitutes one of the two pillars on which the principle of homo- 1 geneity rests, the other being Art. 6 EEA. Together they implement the aim of creating a dynamic and homogenous European Economic Area, as set out in Art. 1(1) EEA and the fourth recital in the preamble. The combined effect of Arts. 6 EEA and 3 SCA is essentially that EEA rules must be interpreted in conformity with ECJ judgments concerning corresponding EU rules. The EFTA Court therefore employed dual references to Arts. 6 EEA and 3 SCA and joint treatment of the EU case law already from the start in Restamark.1 As the case law has matured, reference is nowadays more often made to the principle of homogenous interpretation rather than to its sources, i.e. Arts. 6 EEA and 3 SCA. This consolidation is also reflected in this book. Reference is made to the commentary on Art. 6 EEA, where the evolution of Arts. 6 EEA and 3 SCA into a far-reaching principle of homogeneity is described.2 The following will therefore only provide an overview of the architecture and context of Art. 3 SCA, while a more detailed analysis is provided together with the comment on Art. 6 EEA. II. Art. 3(1)

The main function of Art. 3(1) SCA is to complement the material scope of 2 Art. 6 EEA. The homogenous interpretation required by Art. 6 EEA is limited to the provisions in the EEA Agreement. This covers, according to Art. 2(a) EEA, the main Agreement, its Protocols and Annexes as well as the acts referred to there. Art. 3(1) SCA extends the reach of homogenous interpretation to Protocols 1 to 4 to the SCA as well as the acts listed in Annexes I and II to that agreement. This concerns substantive and procedural rules in the fields of public procurement, state aid and competition law.

1 Ibid, see also e.g. Case E-3/98 Rainford Towning, paras. 19-20. See also Skouris, ‘The Role of the Court of Justice of the European Union in the Development of the EEA Single Market’ in: EFTA Court (ed), The EEA and the EEA Court (2014), p. 5. 2 See the comments on Art. 6 EEA in Part II of this book.

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Arts. 6 EEA and 3(1) SCA are otherwise identically worded and the content is the same. Both contain a strongly worded version of homogenous interpretation by requiring that corresponding rules must be interpreted in conformity with judgments of the ECJ. This means in practice that the ECJ is the authoritative interpreter of EEA law. However, the wording only refers to judgments given before the EEA Agreement and only concerning Community rules existing at that time. But these temporal limitations are compensated for by Art. 3(2) SCA and the advent of an open-ended principle of homogeneity.3 III. Art. 3(2)

Art. 3(2) is a forward-looking consolidation of Arts. 6 EEA and 3(1) SCA. It basically extends homogenous interpretation to ECJ judgments given after the signature of the EEA Agreement, albeit with several limitations. The temporal scope is tempered by the fact that reference is still only made to corresponding rules in the EEC and ECSC Treaties as well as accompanying secondary legislation. There is no caveat for subsequent EU Treaties and secondary legislation insofar as they contain rules identical in substance to EEA rules, an oddity exacerbated by the fact that the Maastricht Treaty was being negotiated at the same time. Furthermore, Art. 3(2) merely requires “due account” to be taken of the EU jurisprudence and, somewhat ambiguously, only insofar as their “principles” are concerned. None of these limitations have been applied in case law, however.4 The judgment in L’Oreal essentially interpreted Art. 3(2) SCA as requiring the EFTA Court to interpret EEA rules in conformity with ECJ judgments concerning substantively identical EU rules.5 This applies irrespective of whether the EFTA Court has interpreted the EEA rules differently prior to the relevant judgment of the ECJ.6 The reasoning in L’Oreal appears equally relevant to cases in which the ECJ directly interpret the EEA Agreement, which Art. 3(2) SCA also refers to. 5 Although L’Oreal is unequivocal and reflects previous case law, the EFTA Court openly departed from an ECJ judgment in the recent Jabbi case.7 The circumstances in Jabbi were particular, however, and it should probably be viewed as an exception confirming the general rule set out in L’Oreal.8 6 The material scope of Art 3(2) may be broader than Arts. 6 EEA and 3(1) SCA in one regard.9 The introductory part refers to homogenous interpretation of the “EEA Agreement and this Agreement”, which thus covers the institutional and procedural rules in the main part of the SCA. But this reading is complicated by the fact that Art. 3(2) thereafter only makes reference to EU judgments on 4

3 4 5 6 7 8 9

See comment on Art. 6 EEA, Section II. 2. Ibid and Section II. 43.1. Case E-9/07 L’Oreal, paras. 27-29. Ibid, para. 29. Case E-28/15 Jabbi. See comment on Art. 6 EEA, Sections II. 4 and V. 3. See also comment on Art. 6 EEA, Section II. 1.

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rules corresponding to the EEA Agreement and Protocols 1-4 and Annexes 1-2 to the SCA Agreement, thereby omitting rules mirroring the main part of the SCA. This could be a lapse, however, since the introductory reference to the SCA Agreement otherwise would be rendered meaningless. It is also difficult to see why the objective of homogeneity should not apply to these procedural rules insofar as they are identical in substance to corresponding rules governing the Commission and the ECJ. Be that as it may, the EFTA Court has omitted to wrestle with the wording of Art 3(2) in Restamark and sufficed to say that the ECJ’s interpretation of EU provisions corresponding to the SCA in any event is “relevant”.10 So relevant in fact that the EFTA Court proceeded to apply the criteria laid down by the ECJ in that case.11 This case law has culminated in a principle of “procedural homogeneity.”12 The jurisprudence nevertheless indicates that EFTA Court considers itself more at liberty in this field compared to when interpreting substantive provisions. Art. 3(2) is directed at the ESA and the EFTA Court. The underlying homo- 7 geneity objective nonetheless requires national authorities, including the courts, to abide by the same standards as set out in L’Oreal.13 It would be untenable if national courts were subject to a less far-reaching obligation of homogenous interpretation than the EFTA Court, as this would lead to systematically different interpretations of EEA law. IV. Commonalities

Arts. 6 EEA and 3 SCA only require homogenous interpretation in so far as 8 the relevant EEA rules and EU rules are “identical in substance”.14 This warrants in principle a comparison of the wording, objectives and context of the rules.15 However, the EFTA Court’s case law has established a presumption that provisions worded identically in the EEA Agreement and the EC Treaty shall be construed in the same way.16 This may be rebutted, like any presumption, but it rarely occurs. Furthermore, the main part of the EEA Agreement has for the most part already been deemed substantively identical to corresponding rules in the EU Treaties. The presumption is less strong with regard to the intersection of primary and secondary EU law, where identically worded provisions may not necessarily be interpreted in the same manner due to different objectives and legal context. This is applies in particular to ECJ judgments concern-

10 Case E-1/94 Restamark, para. 24. See also Case E-5/16 Municipality of Oslo, para. 37 and case law cited. 11 Restamark, ibid. 12 E.g. Case E-18/10 ESA V. Norway, para. 26, Case E-14/11 DB Schencker, para. 77, and Order in Case E-19/13 Konkurrenten v ESA, para. 34. For a more thorough account of the principle of procedural homogeneity, see comment on Art. 6 EEA, Sections II. 1 and IV. 54.5. 13 See also comment on Art. 6 EEA, Section II. 5. 14 For a more detailed account, see comment on Art. 6 EEA, Section II. 3. 15 See e.g. Opinion 1/91, paras. 14-22, Opinion 1/92, paras. 17-18 and ibid. 16 E.g. Case E-2/06 ESA v Norway, para. 59, and Case E-9/07 L’Oreal, para. 27.

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ing the interplay between rules of secondary and primary EU law, where one or the other lacks any counterpart in the EEA Agreement.17 This scenario is becoming more commonplace as the EU Treaties have been amended four times since the signing of the EEA Agreement, thus leading to increased differences at both the level of primary and secondary law.18 The most contentious issue in EEA law is therefore how these gaps could be bridged and whether the principle of homogeneity may perform that role.19 Art. 118 EEA presupposes, however, that such changes must be enacted by the Contracting Parties.

Part II: The EFTA Surveillance Authority Article 4 [Establishment of the EFTA Surveillance Authority] An independent surveillance authority among the EFTA States, the EFTA Surveillance Authority, is hereby established.

The objective of the EEA Agreement is to establish a dynamic and homogenous European Economic Area based on common rules and equal conditions of competition. This means that the agreement shall be interpreted and applied in a similar manner all through the EEA, comprising the 28 EU Member States and the 3 participating EFTA States. 2 The Commission is responsible for the surveillance of the EU Member States’ fulfilment of the EEA Agreement. For the Commission, the task is for all practical purposes identical to its surveillance tasks under the TFEU since the EEA Agreement reproduces the relevant provision of the TFEU. The only difference is the more limited scope of the EEA Agreement. The EU Member States’ will by and large automatically comply with the EEA Agreement through their fulfilment of the obligations stemming from the TFEU. When the relevant EU legal acts (directives, regulations or decisions) are incorporated into the EEA Agreement, the EU Member States have in most instances already taken the necessary national implementing measures. A complaint from a citizen or business in an EFTA State concerning restrictive provisions in an EU Member State will be handled by the Commission in the same manner as all other complaints. To the extent necessary, the Commission also applies the relevant provisions of the EEA Agreement in parallel to the TFEU, most notably in the field of competition. In this manner, the Commission ensures the fulfilment also of its obligation to monitor and apply the EEA Agreement. The homogeneous application of the EEA Agreement with that of the TFEU is therefore more or less automatically ensured in the EU. 1

17 Some examples are provided in the comment on Art. 6, Section II. 3. 18 As noted in Case E-28/15 Jabbi, para. 62, see also comment on Art. 6 EEA, Section V. 1. 19 See comment on Art. 6 EEA, Section V.

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ing the interplay between rules of secondary and primary EU law, where one or the other lacks any counterpart in the EEA Agreement.17 This scenario is becoming more commonplace as the EU Treaties have been amended four times since the signing of the EEA Agreement, thus leading to increased differences at both the level of primary and secondary law.18 The most contentious issue in EEA law is therefore how these gaps could be bridged and whether the principle of homogeneity may perform that role.19 Art. 118 EEA presupposes, however, that such changes must be enacted by the Contracting Parties.

Part II: The EFTA Surveillance Authority Article 4 [Establishment of the EFTA Surveillance Authority] An independent surveillance authority among the EFTA States, the EFTA Surveillance Authority, is hereby established.

The objective of the EEA Agreement is to establish a dynamic and homogenous European Economic Area based on common rules and equal conditions of competition. This means that the agreement shall be interpreted and applied in a similar manner all through the EEA, comprising the 28 EU Member States and the 3 participating EFTA States. 2 The Commission is responsible for the surveillance of the EU Member States’ fulfilment of the EEA Agreement. For the Commission, the task is for all practical purposes identical to its surveillance tasks under the TFEU since the EEA Agreement reproduces the relevant provision of the TFEU. The only difference is the more limited scope of the EEA Agreement. The EU Member States’ will by and large automatically comply with the EEA Agreement through their fulfilment of the obligations stemming from the TFEU. When the relevant EU legal acts (directives, regulations or decisions) are incorporated into the EEA Agreement, the EU Member States have in most instances already taken the necessary national implementing measures. A complaint from a citizen or business in an EFTA State concerning restrictive provisions in an EU Member State will be handled by the Commission in the same manner as all other complaints. To the extent necessary, the Commission also applies the relevant provisions of the EEA Agreement in parallel to the TFEU, most notably in the field of competition. In this manner, the Commission ensures the fulfilment also of its obligation to monitor and apply the EEA Agreement. The homogeneous application of the EEA Agreement with that of the TFEU is therefore more or less automatically ensured in the EU. 1

17 Some examples are provided in the comment on Art. 6, Section II. 3. 18 As noted in Case E-28/15 Jabbi, para. 62, see also comment on Art. 6 EEA, Section V. 1. 19 See comment on Art. 6 EEA, Section V.

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It was from the very beginning of the EEA discussions1 clear that the extension of the internal market to the EFTA States required an independent surveillance mechanism. The EFTA States did not consider surveillance by the Commission to be a viable option. The EEA Agreement is therefore based on a twopillar surveillance system. According to Art. 108 EEA, the EFTA States shall establish an independent surveillance authority as well as create procedures similar to those existing in the European Community including procedures for ensuring the fulfilment of the obligations under the EEA Agreement and for control of the legality of acts of the EFTA Surveillance Authority regarding competition.2 The EFTA Surveillance Authority (ESA) was established in 1992 as an international organisation with legal personality, with the capacity to contract, to acquire and dispose of movable and immovable property and to be party to legal proceedings. ESA started its operations in 1994 and was at the time located in Geneva. The Governments of the EFTA States decided however that ESA would move headquarters to Brussels already in 1995, following the Swiss referendum and rejection of the EEA Agreement. ESA has, as envisaged in Art. 44 SCA, concluded headquarters agreement with Belgium that regulates its presence and diplomatic status there. Protocol 6 SCA stipulates in more detail the rules on legal capacity, privileges and immunities for the organisation. According to Art. 2, ESA shall as a main rule have immunity from prosecution. Art. 3 states that the archives of ESA and all documents in its possession shall be inviolable wherever located. Art. 7 sets out the privileges and immunities accorded to members, officials and their families, inter alia immunity from jurisdiction in respect of acts connected to the exercise of their function, exemption from measures restricting immigration, exemptions from military and other service and exemption from all national income tax on salaries and emoluments, excluding pensions. Neither the EEA Agreement nor the SCA contain detailed rules concerning the activities and operations of ESA. The guiding principle for ESAs fulfilment of its surveillance tasks has therefore always been Art. 108 EEA and the obligation to create procedures similar to those existing in the European Union. The working practices of ESA was in this regard already from the beginning based on the adoption of similar rules and practices as those in the Commission’s procedural rules and manuals. ESA has subsequently amended its rules and practices to reflect changes on the EU side. ESA’s Rules of procedures, organisation and case handling practices are described below under Art. 13. As opposed to the Commission, ESA is a pure surveillance body. It has no legislative or policy making function such as the Commission. Matters of policy is left for

1 A comprehensive description of the Delors initiative and the idea of a “European Economic Space” is found in Norberg et al., EEA Law, pp. 214 ff. 2 See also the comments by Tynes to Art. 108 EEA, Part II, Chapter 3.

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the Contracting Parties, with the EU, in particular the Commission as the driving force behind all new legal acts, guidelines etc. The two-pillar structure necessitates both rules on the allocation of competence in specific cases and on cooperation between the two surveillance bodies to ensure a uniform interpretation and application of the agreement. Allocation of competence regarding general surveillance and state aid raises few questions, ESA is competent to apply the agreement to all measures attributable to the EFTA States, including all state aid granted by their authorities, independently of where the recipient of the aid is located.3 For competition cases Art. 56 EEA regulates the division of competence between ESA and the Commission.4 Both the EEA Agreement and the SCA regulate in several provisions the close cooperation between ESA and the Commission. This cooperation is essential to ensure that the dynamic EEA Agreement is applied in a homogenous manner.5 A particular challenge to the two-pillar structure, is the development in the EU with an increasing number of agencies with more extensive surveillance tasks. The EEA Agreement does not as such provide for parallel EFTA agencies or for that matter the EFTA States’ or ESA’s participation in EU agencies. The Contracting Parties have therefore struggled to find mutually acceptable solutions when new acts with such different surveillance arrangements have been incorporated into the EEA Agreement.6 The solution has so far been to empower ESA to adopt similar decisions as the EU agencies with effect for EFTA States and undertakings. The decisions will be based on advisory opinions from the relevant EU agency.7 It follows from Art. 47 SCA that ESA’s budget is decided by the Governments of the EFTA States by common accord based on a proposal from ESA and after consulting a joint parliamentary committee. The budgetary decision moreover covers the apportionment of the expenses between the EFTA States. Nor-

3 ESA has for example considered itself competent to assess the compatibility of aid granted by Norway to undertakings in Romania (ESA decision 59/10/COL). The fact that the Commission would be closer to assess the potential negative effect of the aid in the relevant national and EU market was not decisive. A hitherto unique case was the joint refinancing of SAS by Sweden, Norway and Denmark (ESA decision 273/14/COL). ESA assessed the legality of Norway’s contribution and the Commission assessed Sweden and Denmark’s participation. It goes without saying that the case represented many potential challenges to the two-pillar structure, both in terms of risk of diverging decisions and possibilities for legal challenges of the similar decisions both in the EFTA Court and the EU Courts. 4 See the comments by Gjendemsjø to Art. 56 EEA in Part II, as well as the comments to Art. 5 SCA below. 5 See further the comments on Art. 5 and 26 SCA below. 6 Recent examples include the European Food Safety Authority, the establishment of a single supervisory mechanism for banks led by the European Central and the Body of European regulators of Electronic Communications (BEREC). See further, e.g., the comments by Tynes on Art. 108, mn. 32. 7 See further the comments below on the new Art. 25 a SCA.

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way currently covers 89 %, Iceland and Liechtenstein 11 %. The method for the allocation is mainly based on capita.8 ESA shall be consulted before a decision modifying or amending its proposal 11 is adopted, but the Governments ultimately decide the budget and thereby indirectly the extent of ESAs activities. This organisational set-up does not strengthen the notion of ESAs independence. Arts. 7 and 8 presented below regulate the requirements regarding ESAs inde- 12 pendence in more detail.

Article 5 [Responsibilities and means] 1. The EFTA Surveillance Authority shall, in accordance with the provisions of this Agreement and the provisions of the EEA Agreement and in order to ensure the proper functioning of the EEA Agreement: (a) ensure the fulfilment by the EFTA States of their obligations under the EEA Agreement and this Agreement; (b) ensure the application of the rules of the EEA Agreement on competition; (c) monitor the application of the EEA Agreement by the other Contracting Parties to that Agreement. 2. To this end, the EFTA Surveillance Authority shall: (a) take decisions and other measures in cases provided for in this Agreement and in the EEA Agreement; (b) formulate recommendations, deliver opinions and issue notices or guidelines on matters dealt with in the EEA Agreement, if that Agreement or the present Agreement expressly so provides or if the EFTA Surveillance Authority considers it necessary; (c) carry out cooperation, exchange of information and consultations with the Commission of the European Communities as provided for in this Agreement and the EEA Agreement; (d) carry out the functions which, through the application of Protocol 1 to the EEA Agreement, follow from the acts referred to in the Annexes to that Agreement, as specified in Protocol 1 to the present Agreement. 1 Art. 5 sets out in more detail the competences and specific tasks of ESA. Art. 5(1) reiterates the general aim and purpose with the establishment of 2 ESA, namely to ensure the proper functioning of the EEA Agreement and lists in that regard three specific tasks for ESA. It follows from Arts. 5(1)(a) and 22 SCA that ESA has the general surveil- 3 lance task regarding the EFTA States fulfilment of the EEA Agreement and the SCA. This task covers the EFTA States’ implementation and application of the main provisions of the EEA Agreement and the SCA, the protocols and the Annexes, including the EU legal acts that have been incorporated into the EEA

8 The Authority’s annual budget for 2015 was EUR 13.2 million, a 0.7% nominal decrease. The activities and operating expenses of the Authority are financed by contributions from Iceland (9%), Liechtenstein (2%) and Norway (89%).

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Agreement by Joint Committee decisions. To date, more than 11 000 EU legal acts have been incorporated into the EEA Agreement since the signing in 1992.1 4 ESA’s surveillance tasks in the field of agriculture and fish are limited by other provisions. The EEA agreement does not cover the EUs common agricultural policy, and Art. 8(3) EEA entails that only agricultural products as specified in Protocol 3 EEA is covered by the agreement. However, Art. 18 EEA states that the Contracting Parties shall ensure that the arrangements provided for in Arts. 17 and 23 (a) and (b) are not compromised by other technical barriers to trade and that Art. 13 shall apply.2 The legal test described is rather unclear but the surveillance of Art. 18 EEA should nevertheless be for ESA to carry out. For agricultural products in general, it follows from Art. 19 EEA that it is for the Contracting Parties to examine any difficulties that might arise in their trade of agricultural products. Thus, ESA may not launch infringement proceedings based on a Contracting Parties’ breach of that provision. 5 Neither does the EEA Agreement cover the EUs Common Fisheries Policy.3 Fish and most fishery products also fall outside the general product scope as regulated in Art. 8(3) EEA. Art. 20 EEA refers to Protocol 9, which contains special regulation of fish and fishery products and provisions regarding trade in fishery products, including custom duties, landing of catchments and competition and state aid issues. ESA concluded in one of its first decisions that it was not competent to assess aid to fisheries,4 as fish and other marine products fall outside the general product scope of the EEA Agreement as defined in Art. 8 EEA. That the monitoring of state aid in this sector is for the Contracting Parties themselves to undertake, follows also from a Joint declaration to the EEA Agreement. Other provisions in Protocol 9 may however be covered by ESA’s surveillance tasks. In Asgeirsson, the EFTA Court held that Protocol 9 formed an integral part of the EEA Agreement and therefore as such was subject to the general surveillance and court review mechanism. The Court was therefore competent to assess the EFTA States’ obligations stemming from Art. 7 of Protocol 9. For this provision, there is no special rule reserving the surveillance for the Contracting Parties themselves. 6 Art. 5(1)(b) establishes ESA as a competition authority empowered to ensure the application of the EEA competition rules. This seemingly general competence is however considerably limited by Art. 56 EEA. That provision regulates the division of competence between the Commission and ESA, inter alia based on the undertakings’ turnover in the relevant markets and the potential effect on trade in the EU. The ECJ has described the EEA competition law regime as a one stop shop, meaning that only the Commission or ESA may be competent authority in a specific case.5 In practice the division of competence entails that 1 2 3 4

See www.efta.int/eea-lex. See the comments by Arnesen to Art. 18 EEA, mn. 1. See also the comments by Arnesen on Art. 20 EEA mn. 1-5. Decision 196/96/COL. See also Decision 176/05/COL.

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for most competition cases that have a sufficient cross border effect to be caught by the EEA Agreement, the Commission will be competent authority, also towards undertakings in the EFTA States. ESA has therefore adopted relatively few decisions in infringement cases and no merger decision to date.6 Art. 5(1)(c) stipulates that ESA shall monitor the application of the EEA Agreement by the other Contracting Parties to that agreement. The other parties are the EU and the EU Member States. As explained above, the surveillance of the EU Member States’ obligations under the agreement falls on the Commission. However, since the Commission is both representing a Contracting Party and acting as a surveillance authority, the parties considered it necessary to redressing that possible imbalance by empowering ESA to monitor the other Contracting Parties application. ESA has however no competence to initiate proceedings. A possible infringement may only be addressed to the Joint Committee in accordance with Art. 109(5) EEA. ESA and the Commission are both under an obligation to cooperate closely to ensure uniform surveillance, cf. Art. 109 EEA. A possible disagreement with regard to surveillance activities in the two pillars should also be addressed in such discussions The second paragraph of Art. 5 describes the means at ESAs disposal. According to Art. 5(2)(a), ESA shall take decisions and other measures in cases provided for in the SCA and EEA. Naturally, ESA’s decision making competence is limited to adopting the types of decisions that follow from provisions of the two agreements. Art. 5(2)(b) states that ESA shall publish recommendations, deliver opinions and issue notices or guidelines on matters dealt with in the EEA Agreement, if that Agreement or the present Agreement expressly so provides or if ESA considers it necessary. ESA has mainly used this “soft-law” competence to publish guidelines, first and foremost in the field of State aid and competition.7 ESA’s guidelines are normally identical to those of the Commission. As mentioned above under Art. 4, ESA’s role is limited to surveillance, any policy initiatives or considerations will be carried out by the Contracting Parties. Art. 5(2)(c) refers to ESA’s obligation to cooperate with the Commission, including to exchange information and consult on specific cases, surveillance policy etc. As described above, various provisions in the EEA Agreement lay down a mutually binding obligation for the two surveillance bodies to cooperate closely. This provision serves merely as a reminder. Art. 5(2)(d) sets out that ESA shall carry out the functions which, through the application of Protocol 1 to the EEA Agreement, follow from the acts referred 5 Joined cases T-67/00, 68/99, 71/00 and 78/00, 8.7.2004, Nippon Steel et al v Commission, paragraphs 489-490. 6 ESA’s competence regarding competition matters is further described by Gjendemsjø in his comments on Art. 56 EEA and in the comments on Arts. 23-25 SCA below. 7 See comments to Arts. 24 and 25 below.

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to in the Annexes to that Agreement, as specified in Protocol 1 to the present Agreement. 14 Protocol 1 EEA provides for horizontal adaptations for the legal acts, i.e. the EU secondary legislation, that are incorporated into the EEA Agreement. When such acts describe functions for the Commission in the context of verification or approval, information, notification or consultation similar matters shall for the EFTA States be carried out according to procedures established by the EFTA States. 15 Through Protocol 1 SCA and Protocol 1 to the Agreement on a Standing Committee, the EFTA States have allocated the different types of operative tasks in secondary legislation between ESA and the Standing Committee. As a rule of thumb, ESA will carry out all operative tasks that do not involve policy considerations. Policy related tasks are to be carried out by the EFTA States through the Standing committee.8 16 ESA tasks under Protocol 1 SCA includes practically important tasks in various areas such as veterinary field, technical regulations, energy, precautionary and safeguard measures. The veterinary and phytosanitary field is a particularly operative field in which ESA shall make assessments, carry out tests and on-thespot checks, approve programmes, emergency vaccination programs, lists of approved zones etc.

Article 6 [Right to information from the EFTA States and from undertakings] In accordance with the provisions of this Agreement and the EEA Agreement, the EFTA Surveillance Authority may, in carrying out the duties assigned to it, request all the necessary information from the Governments and competent authorities of the EFTA States and from undertakings and associations of undertakings.

Art. 6 provides ESA with a legal basis to request necessary information from all level of government in the EFTA States and from undertakings and their associations. 2 The right to obtain information from the EFTA States is of crucial importance to ESA. ESA has in the fields of general surveillance and state aid (with few exceptions) no investigative powers as such. As opposed to the powers towards undertakings in competition investigations, ESA cannot undertake inspections and seize documents, or require statements from government officials. 3 The fulfilment of ESA’s surveillance tasks is thus based on a system of close cooperation with the governments of the EFTA States. The governments’ duty to cooperate and to provide ESA with all the relevant and necessary information 1

8 See also the comments by Thynes on Art. 108 EEA in Part II of this book and by Fredriksen and Jónsdóttir on Art. 3 of the Standing Committee Agreement in Part IV of this book.

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is as such the corollary of ESA’s right to request information and the obligations also follows from the general loyalty provision in Art. 3 EEA. An EFTA State’s failure to reply to information requests will constitute an infringement which can be pursued in accordance with the procedures governing ESA’s general surveillance.1 The limitation “necessary information” has so far not been subject to judicial review by the EFTA Court. In other words, no dispute concerning ESA’s right to ask for information has reached the EFTA Court.2 The absence of disputes may be due to ESA being somewhat careful not to ask for specific, internal documents of a sensitive nature, such as the Government’s internal deliberations, or correspondence containing legal advice that potentially could raise issue about principles of right of defence. Such documents could nevertheless be relevant, particularly to determine whether a restrictive measure is based on a legitimate aim. One example of such a dispute is the Gaming machine case from 2006.3 ESA’s right to information is not limited to documents. ESA may for instance ask for explanations about national law, case law and administrative practices. Replying to information requests may be work and resource demanding for national authorities, but as long as the information can be deemed “necessary” the national authorities must submit the requested information.4 Extensive requests may, however, justify extensions of time limits. For state aid cases, ESA has additional legal basis for information requests in Protocol 3, Section II. Art. 5 thereto specifies for notification cases that when an EFTA State does not reply to the request the notification may be deemed withdrawn. For cases concerning potential unlawful aid, ESA may issue an information injunction under Art. 10.5 The general right to request information also from undertakings and associations of undertakings was at the time of entry into force of the SCA an EFTA pillar novelty. The Commission has never had similar, general competence. 1 See further the comments on Art. 22 below. 2 In 2015 ESA delivered a Reasoned Opinion to Iceland for failure to provide information. The press release dated 5.3.2015 states: ‘The EFTA Surveillance Authority has issued a reasoned opinion to Iceland for its failure to respond to the Authority's requests for information in two cases concerning food safety and veterinary matters. This is the first time that the Authority takes the step of delivering a reasoned opinion due to lack of cooperation in such a situation by one of the EFTA states.’ 3 Case E-1/06, 14.3.2007, ESA v Norway, in which ESA submitted that the restriction on the operation of gaming machines in Norway was unjustified because it pursued an economic aim. The EFTA Court stated in para. 33: ‘The Court holds that any materials from which the legislative intent can be deduced must be taken into account when assessing that intent. It is clear, however, that, as a matter of principle, the Government’s proposal and the reports on the parliamentary debate will be more indicative than earlier drafts and documents. The Court also takes into account that views may change during the legislative process.’ 4 Examples in the past includes requests to specify all provisions in national law that entails a differentiation of treatment between residents and non-residents with regard to investments and taxation. 5 ESA has also in certain instances the powers to undertake so called On-site monitoring which resembles unannounced competition inspections.

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Since ESA in general pursues its cases and investigations in the same manner as the Commission, the competence to request information from undertakings has been of limited practical importance. Subsequent amendments on the EU side have extended such rights for the Commission for purposes such as sector inquiries in the field of competition. Similar powers have been extended to ESA through a revision of Protocol 4 SCA, and ESA has on that basis also carried out a number of sector inquiries. 10 In 2015, the EU adopted the new State Aid Procedural Regulation6 that grants the Commission competence to request undertakings and associations of undertakings to submit necessary market information. It may also under strict conditions impose fines and penalty payments for incorrect, incomplete or misleading information. 11 The new competence to impose fines has delayed the incorporation of the act into the EEA Agreement and, as a consequence, the corresponding amendments to the SCA by way of adjustments to Protocol 3 SCA.7 ESA may in the meantime rely on Art. 6 SCA to request similar information from undertakings and association of undertakings, although without competence to impose penalties for non-compliance.8 9

Article 7 [Composition] The EFTA Surveillance Authority shall consist of three members, who shall be chosen on the grounds of their general competence and whose independence is beyond doubt. Save as in the circumstances set out in the third paragraph of Article 9 at least two of the three members shall be nationals of the EFTA States.

The set-up with one member from each of the participating EFTA States mirrors the original organisational set-up of the Commission. The number of members were reduced from five to three following Austria, Finland and Sweden joining the EU in 1995 and Liechtenstein’s (almost) parallel accession to the EEA. 2 The members of ESA (ESA College Members) shall be chosen on the grounds of their general competence and their independence shall be beyond doubt.1 The criterion regarding general competence is vague and does not in practice represent any limitation as to whom the Governments may appoint. 3 The role of ESA is essentially limited to surveillance – it does not mirror the Commission task to also develop policy and propose legislation. It is therefore not surprising that the EFTA States mainly has appointed lawyers, preferably 1

6 Council Reg. (EU) 2015/1589 laying down detailed rules for the application of Art. 108 TFEU. 7 See the comments by Jordal and Mathisen on Art. 61-64 EEA, mn.12. 8 The financial crisis and the hitherto unprecedented state aid to banks was an important trigger for the Commission’s new powers to issue information request to obtain market information. 1 The requirements concerning the personal qualifications and independence mirrors those of Article 17(3) of the TFEU.

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with previous international experience. Iceland and Liechtenstein have consistently appointed lawyers, most with Foreign affairs and other public sector background. The first Norwegian College Member (and President of ESA) was also a lawyer, but since 2002 Norway has appointed members with other professional backgrounds. Four of the five Norwegian College Members appointed in this period came from long careers in the Ministry of Foreign Affairs, three came directly from the Norwegian Mission to the EU in Brussels, serving as ambassadors to the EU. Such a background certainly entails general and relevant competence and 4 may contribute to an efficient substitution of members as the newcomers already possess knowledge of the institutional set up of ESA and even knowledge of some of the pending cases. However, these appointments have raised questions as to whether the requirements of the members’ independence beyond doubt has been fulfilled.2 5 Two of the three members shall be nationals of the EFTA States.3

Article 8 [Independence of the members] The members of the EFTA Surveillance Authority shall be completely independent in the performance of their duties. They shall neither seek nor take instructions from any Government or other body. They shall refrain from any action incompatible with their duties. Each EFTA State undertakes to respect this principle and not to seek to influence the members of the EFTA Surveillance Authority in the performance of their tasks. The members of the EFTA Surveillance Authority shall not, during their term of office, engage in any other occupation, whether gainful or not. When entering upon their duties they shall give a solemn undertaking that, both during and after their term of office, they will respect the obligations arising therefrom and in particular their duty to behave with integrity and discretion as regards the acceptance, after they have ceased to hold office, of certain appointments or benefits. In the event of any breach of these obligations, the EFTA Court may, on application by the EFTA Surveillance Authority, rule that the member concerned be, according to the circumstances, either compulsorily retired or deprived of his right to a pension or other benefits in its stead.

The provision reiterates and set out more in detail the fundamental require- 1 ment of independence for the members of ESA. They shall be completely independent. The emphasis on independence in several provisions of the SCA underlines the crucial importance this has to the functioning of the EEA Agreement. They shall neither seek nor take instructions from any Government or other body. That obligation is at the outset clear and unambiguous.1 2 The requirement of independence is further discussed below under Art. 8. 3 For the EFTA Court, Art. 28 SCA provides merely for three judges and there are no nationality requirements. Liechtenstein has on that basis appointed Carl Baudenbacher, a Swiss national, as judge at the court. For comments regarding a scenario with only two remaining EEA EFTA States, see comments by Poulsen to Art. 50 SCA below.

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The EFTA States are bound by the provision and they shall not seek to influence the members in the performance of their tasks. That provision must be read with certain reservations since the EFTA States’ should not be restricted in their efforts to convince the members on the basis of EEA relevant legal and factual arguments. It is the improper influence the provision prohibits. 3 The agreement requires close cooperation between ESA and the Commission, but the ESA College Members may not seek or take instructions from the Commission either. They must do their own assessments and ultimately adopt decisions on an independent basis. The relations between ESA and the Commission is and has been one of mutual respect for respective roles and competences. The dispute resolution provisions of the EEA Agreement that are in place to solve and ensure coherence in ESAs and the Commission’s decision making practice have never been triggered. Moreover, the two surveillance bodies often intervene cross pillar in court cases and it is not unusual that they put forward diverging legal submissions before the courts. However, the fundamental EEA objective of ensuring homogeneity represents in practice a limitation for ESAs independence. There can be little doubt that despite the seemingly neutral obligation on both surveillance authorities to ensure a homogeneous application of the EEA Agreement, the set-up entails that the EU policies are reproduced in the EFTA pillar. It is thus more for ESA to follow the Commission than vice versa. 4 As mentioned above under Art. 7, the appointments of former EU ambassadors or other high ranking public officials to serve as college members raise issue with regard to the requirement of independence beyond doubt.2 The questioning of this practice is not without merit since a transition from Ambassador to the EU to College Member/President of ESA from one day to the next, indeed entails a distinct transition, from being the main defender of national interests towards the EU to lead the surveillance authority and if necessary initiate infringement proceedings against your state the next day.3 Moreover, the members remain employees of the EFTA State in question and they will regularly go back to working for the Government at the end of their term, sometimes again at the other side of the table from ESA. 5 The potential problem for the notion of ESAs independence should however not be exaggerated. In the EU, Commissioners have often come from or gone to national governments at the end of their term. Moreover, the ESA College takes decisions by simple majority so that two independent members in any given case can ensure the fulfilment of ESAs tasks. 2

1 The requirements concerning the personal qualifications and independence mirrors those of Article 17(3) of the TFEU. 2 The practice has been publicly questioned by several EEA law commentators, most notably by the present President of the EFTA Court, Mr. Carl Baudenbacher, who has questioned whether the appointments may explain why ESA sends fewer infringements cases to the EFTA Court than what the Commission sends to the ECJ for infringements by what is perceived to be comparable EU Member States. See Baudenbacher, The EFTA Court in Action (2012), p. 13. 3 A description of the Norwegian appointment practice can be found in NOU 2012:2 at p. 213.

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The members cannot enact in any other occupation, gainful or not. The limi- 6 tation concerns other professional activities but the exact scope of the limitation remains unclear. ESA has hitherto not published a code of conduct or other more detailed rules regarding the conduct of the members and their spouses, disclosure of their financial interests, use of ESAs resources, how to handle potential conflicts of interest, receipt of gifts etc.4 The final section requires the members upon appointment to give a solemn 7 undertaking that, both during and after their term of office, they will respect the obligations arising therefrom and in particular their duty to behave with integrity and discretion as regards the acceptance, after they have ceased to hold office, of certain appointments or benefits. The undertaking of new members is given during a procedure administered by the EFTA Court. In the event of any breach of these obligations, the EFTA Court may, on ap- 8 plication by the ESA, rule that the member concerned be, according to the circumstances, either compulsorily retired or deprived of his right to a pension or other benefits in its stead. While there have been such cases in the EU concerning Commissioners, no such procedure has been initiated to remove College members of ESA. The provision has first and foremost practical importance for members during their term of office. The alternative concerning deprival of pension or other benefits is not really relevant since ESA College Members do not obtain pension or other benefits from ESA after their term.

Article 9 [Appointment of the members] The members of the EFTA Surveillance Authority shall be appointed by common accord of the Governments of the EFTA States. Their term of office shall be four years. It shall be renewable. In case one of the members, in the opinion of the two other members, is disqualified from acting in a particular case, the two other members shall agree on a person to replace him chosen from a list established by common accord by the Governments of the EFTA States. If they cannot agree that person shall be chosen from the list by lot by the President of the EFTA Court. With regard to a member chosen in this way the rules applicable to regular members shall apply mutatis mutandis. In any case Article 8, second paragraph, and Article 10 shall not apply.

The term of appointment as member of ESA is four years. It shall be renew- 1 able, and previous practice demonstrates that the Governments consider several consecutive renewals to be covered. In case a member is disqualified in a specific case, a replacement will be cho- 2 sen from a list of ad hoc college members, also appointed by common accord of the EFTA governments. In the hitherto unpractical instance that the two mem-

4 Compare Code of Conduct for Commissioners published in 2011: http://ec.europa.eu/archives/ commission_2010-2014/pdf/code_conduct_en.pdf.

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bers cannot agree, the replacement shall be chosen from the list by lot by the President of the EFTA Court. 3 Naturally, the limitations with regard to other professional occupation does not apply to ad hoc college members as they are seldom called in.

Article 10 [Termination of office] Apart from normal replacement, or death, the duties of a member of the EFTA Surveillance Authority shall end when he resigns or is compulsorily retired. The vacancy thus caused shall be filled for the remainder of the member's term of office. 1

The term of office for the ESA College Members is four years. Art. 10 clarifies that in case a College Member for whatever reason is replaced within a fouryear term, the replacement will serve for the remainder of the term only.

Article 11 [Compulsory retirement] If a member of the EFTA Surveillance Authority no longer fulfils the conditions required for the performance of his duties or if he has been guilty of serious misconduct, the EFTA Court may, on application by the EFTA Surveillance Authority, compulsorily retire him. 1

The provision is a supplementary legal basis to Art. 8 for the removal of members. The provision has hitherto not been applied.

Article 12 [The President of the EFTA Surveillance Authority] The President of the EFTA Surveillance Authority shall be appointed from among its members for a period of two years by common accord of the Governments of the EFTA States.

The President of ESA is elected by the Governments of the EFTA States. This appointment system contrasts with that in place for the EFTA Court where the judges themselves elect the President. 2 There have been seven ESA Presidents since 1994, the current being Mr. Sven Erik Svedman from Norway. Art. 12 appears to be based on a concept of rotation as the President is appointed only for a period of two years. The Norwegian College Member has, however, consistently since the start up in 1994 been appointed President. The only exception took place in 2004 when the already long time serving Icelander, Mr. Hannes Hafstein, was appointed President. He served until he passed away in 2005. 1

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There have from time to time been disagreements between the Governments, 3 in particular Iceland and Norway, about appointments.1 The lack of rotation as envisaged in Art. 12, can hardly be interpreted differently than as a confirmation that the Norwegian Government considers it important that the ESA President is Norwegian. There are, however, no obvious legal reasons for this since ESA is led by a College of three and takes decisions collectively with simple majority votes, cf. comments above. The President does not have any special competence under the procedural rules. Arguments that have been voiced in support for Norwegian presidency is that the majority of the cases ESA deals with concerns Norway and that Norway has the biggest population of the three Contracting Parties. However, these arguments are not convincing in order to justify the lack of rotation foreseen in Art. 12.

Article 13 [Rules of procedure] The EFTA Surveillance Authority shall adopt its own rules of procedure.

The Rules of Procedures were adopted on 7 January 1994 as the very first de- 1 cision of the EFTA Surveillance Authority. They have since then been amended several times, most recently in 2002 when the ESA merged its Goods and Services Directorates and formed the Internal Market Affairs Directorate. It follows from the Rules of Procedure that the College Members shall act 2 collectively (Art. 1) and that decisions are taken with simple majority (Art. 13). The College has assigned the responsibility for the preparation and imple- 3 mentation of its decisions in the various fields of activity according to a portfolio for the members (Art. 16). This means that one of the three members is responsible for preparing all proposals for decisions in each area of the EEA Agreement. One member is for example responsible for the preparation of all cases concerning the free movement of goods, services, state aid or competition. It moreover follows from Art. 16 of the Rules of Procedures that the department concerned shall take its instructions from the same member. ESA has in most cases a considerable discretion regarding which cases to pursue and what steps that may be taken at what time.1 Art. 16 of the Rules of Procedures thus entails that one member to a significant extent may influence which cases ESA shall prioritise, investigate and pursue.2 1 See reference in footnote 4 to Article 8 SCA above. 1 ESA cannot be taken to the EFTA Court for failure to act in the field of general surveillance, i.e. all cases concerning internal market rules such as free movement. The same applies to existing state aid. 2 The allocation of portfolios is not subject to any regular reshuffle or rotation, not even when new members take up their term of office. A new member has typically taken over the portfolio of the predecessor from the same EFTA State. There have been certain adjustments or swaps over the years but the field of state aid has always been allocated to the Norwegian member.

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The President issues draft agendas for the weekly college meetings and chair the meetings (Art. 7). The task of issuing the draft agendas does however not imply control of the agenda as any item put forward by a Member shall be included (Art. 6). Any Member may also according to the same provision request to defer an item on the agenda to a later meeting. The College meetings are held once a week, normally on Wednesdays in ESAs headquarter in Brussels. The meetings shall not be public and deliberations shall be and remain confidential (Art. 9). The Rules of Procedures stipulate that decisions of ESA shall be taken either by at meetings of the College, by means of written procedure or by delegation. However, if follows from Art. 15 of the same rules that only decisions regarding clearly defined measures of management or administration and to adopt the definite text of a decision the substance of which has been determined by the College. In addition, one or more members shall be authorized to take any urgent decision during holiday periods. Also, officials may be empowered within certain strict limits. ESA has, on basis of Art. 13, adopted its own rules on public access to documents.3 Such rules were first adopted in 2008 and the rules were substantively similar to the rules on public access in Reg. 1049/2001 of the European Parliament and of the Council regarding public access to European Parliament, Council and Commission documents.4 The adoption of public access rules represented a significant change in ESA’s access policy that previously had been based on no access as a main rule, with very few and limited exceptions. The 2008 access rules were replaced by new provisions in 2012.5 The purpose of the access rules is to ensure openness and transparency, while still showing due concern to the necessary limitations in order to safeguard the Authority’s ability to carry out its tasks. The rules ensure that any natural or legal person has a right to request access to documents drawn up or received by ESA and the document shall be made accessible to the public.6 Article 3 defines a “document” as any content whatever its medium (written on paper or stored in electronic form or as a sound, visual or audiovisual recording) concerning a matter relating to the policies, activities and decisions falling within the Authority’s sphere of responsibility. The definition of documents does not cover unfinished documents or drafts. Such are not considered documents to which the access rules apply. As for the processing of access requests, Art. 7 stipulate that applications shall be handled as quickly as possible and as a main rule within 10 working 3 See also comments to Art. 18 below. 4 This regulation was not considered EEA relevant as it concerns procedural rules which are not “governed by this Agreement” within the meaning of Art. 99 EEA. 5 Accessible at: http://www.eftasurv.int/press--publications/rules-on-access-to-documents/. 6 Art. 2.

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days. The deadline may be extended by 30 working days if the request concerns a long or large number of documents. Moreover, if the request concerns third party documents, the time limit may be suspended while ESA carries out the necessary consultation with such parties.7 In the event of total or partial refusal of the access request, the applicant may make a confirmatory application asking ESA to reconsider its position. If ESA maintains its refusal it shall inform the applicant of the possibility of instituting court proceedings in accordance with Art. 36 SCA.8 In the introduction to the 2008 access rules, ESA stated explicitly that it would strive to achieve a homogeneous interpretation with that of the Community Courts and the European Ombudsman when interpreting a provision which is identical to a provision in Reg. 1049/2001 so as to ensure at least the same degree of openness as provided for by the Regulation. The amended rules from 2012 does not explicitly refer to Reg. 1049/2001 or the interpretation of the Community Courts, but ESA has continued to base its application of the rules on the case law of the EU courts. Reg. 1049/2001 introduced access to any document in the institutions’ possession as a main rule and further that any limitation had to be based on one of the specific exceptions in the same act, inter alia for a document where disclosure would undermine the protection of commercial interests of a natural or legal person. At the same time, the procedural rules governing state aid and competition proceedings9 provide for very limited access to documents, even for the direct parties to such proceedings or complainants.10 Interpreted literally, the public access rules thus appeared to grant the general public significantly wider access rights for state aid and competition documents than the rules applicable for the actual parties to such proceedings. The EU courts have therefore held that those considerations must be taken into account in interpreting the access rules’ exemptions regarding protection of commercial interests and investigations. If persons other than those with a right of access under the procedural rules governing state aid or competition proceedings, or those who enjoy such a right in principle but have not used it or have been refused access, were able to obtain access to documents on the basis of the access rules, the special procedural rules would be undermined.11 Moreover, it is obvious that the access rules, with the strict time limits and, at the outset, the requirement for ESA to assess each individual document, were 7 8 9 10

Art. 7.4 cf. 4.8. Art. 7.6. See comments to Arts. 24 and 25 SCA below. The rules on access to file in competition proceedings can only be invoked by an undertaking after the receipt of a statement of objections and is subject to detailed rules and guidance and dispute resolution mechanisms, see comments to Art. 25 below. 11 See most recent Case T-210/15 Deutche Telekom AG, para. 40 with references to precious case law.

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not designed for extensive access requests for competition case files, often containing thousands of documents gathered on the basis of the competition authorities’ special investigative powers, including to conduct unannounced inspections.12 Although the access rules would, for external documents in its possession, oblige ESA to consult with the parties concerned before granting access to their documents, the access rules does not provide for a system of dispute resolution in case ESA and the undertaking would not agree on the applicability of an exemption. The EU courts have on that basis in recent years consistently held that a presumption rule applies to documents in state aid and competition files. That presumption rule was first applied to a state aid case,13 later in merger cases,14 in cartel cases15 and recently in an abuse of dominance case.16 The presumption rule entails that access to such documents may be refused based on a general presumption derived from the exceptions in the access rules regarding protection of the commercial interests of the undertakings involved and the protection of the purpose of inspections, investigations and audits. Thus, no closer assessment of the individual case document is required. The EU courts have in that regard clarified that there is no basis for a distinction between internal documents and documents exchanged with third parties, since the general presumption applies to the whole case file in the administrative procedure. The general presumption against access applies moreover regardless of whether the access request concerns control proceedings which have already been closed or proceedings which are pending. The publishing of sensitive information concerning the economic activities of the undertakings involved, is liable to undermine their commercial interests irrespective of whether the proceedings are pending. Furthermore, the prospect of such a publication after the review procedure is closed could jeopardise the willingness of undertakings to cooperate when such proceedings are pending.17 In its judgment in the first of the numerous Schenker cases,18 the EFTA Court appeared to follow a different and stricter approach than that of the EU courts. The first noticeable element is the emphasis placed on fundamental rights in the interpretation of the self-imposed access rules.19 The court acknowledged that ESA may base its decisions on certain presumptions that apply to categories of documents and that the Union courts had accepted such general presumptions in cases concerning state aid and mergers. However, according to the Court, specific policy considerations arise in requests for access to docu12 See comments to Art. 25 below. 13 Case C-139/07 Commission v Technische Glaswerke Ilmenau. 14 Case C-404/10 Commission v Éditions Odile Jacob; Case C-477/10 P, Commission v Agrofert Holding. 15 Case C-365/12 EnBW Energie Baden-Württemberg AG. 16 Case T-210/15, cited above. 17 See for instance Case C-404/10, cited above at para. 66. 18 Case E-14/11 Schenker I.

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ments as part of follow-on damages cases brought before national courts concerning Arts. 53 and 54 EEA: ‘The private enforcement of these provisions ought to be encouraged, as it can make a significant contribution to the maintenance of effective competition in the EEA.’20 The Court moreover held that general presumptions regarding the purpose of inspections and investigations could not apply in a situation in which ESA had already adopted a final negative decision closing the file.21 In its closer assessment of the exception based on commercial interests the 21 court did not accept ESAs reasoning for withholding 350 of the 352 documents in the case file as the level of information in the decision was not sufficiently detailed and broken down to groups of documents of the same category or nature. Such a more detailed assessment was required – according to the Court – as ESA had stated in the decision that it had conducted a concrete, individual assessment. It was therefore not open to ESA to raise arguments based on the applicability of a general presumption.22 The Court’s reasoning seems to suggest that ESA must specifically, in the decision refusing to grant access, refer to a general presumption against access, in order to rely on such a defence before the court. This reasoning is difficult to follow. The general presumption against access applies as such to the request for access to documents in state aid and competition cases. It is through a shorter and more general reasoning this general presumption is applied.23 Whether the general presumption is explicitly referred to or not in the decision should not be decisive.24 19 The EFTA Court has also in Case E-5/13 Schenker V, at para. 66 stated that ... an ESA decision, even if in full compliance with its self-imposed rules on public access, would have to be regarded as unlawful if it resulted in fact in a negation of the essential substance of those rights and principles. While this as a general statement may be true, the relevance for a case concerning the interpretation of the access rules is unclear. As referred to in footnote 11 above, the benchmark and relevant concern and limitation for the Union courts in their interpretation of the public access rules, have been the special procedural rules for state aid and competition. Those rules would according to the courts be undermined if the public access rules should provide for wider access. Access to the file under these special procedural rules is very limited, even for the direct parties to the case. Unless those limitations would be considered questionable, it is difficult to see that fundamental rights could set aside limitations for the general public under the access rules. 20 Para. 132. It transpires here that the EFTA Court considers that the public access rules should be applied with a view to facilitate private damages claims. This appears to be at odds with the EU courts concern that public access rules could undermine the procedural rules for competition proceedings, see footnote 11 above. 21 Para. 133. This appears to be at odds with the Union courts case law, see footnote 17 above. 22 Paras. 182-190. 23 See for instance Case C-477/10 cited above. The facts of the case contain no information to the effect that the Commission referred to or as such invoked a general presumption in the decision refusing access to the merger case file. The ECJ nevertheless accepted the Commission’s short and more general reasoning as to why access was denied with reference to the presumption rule. 24 The Schenker judgment was handed down in December 2012 and the reasoning resembles that of the General Court in Case T-344/08 Baden-Württemberg, delivered in May 2012 in which the GC annulled the Commission’s decision to deny access to a cartel case file. That judgment was set aside by the ECJ by judgment of 27 February 2014, cited in footnote 15 above.

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Article 14 [The staff of the EFTA Surveillance Authority] The EFTA Surveillance Authority shall appoint officials and other servants to enable it to function. The EFTA Surveillance Authority may consult experts or decide to set up such committees and other bodies as it considers necessary to assist it in accomplishing its tasks. In the performance of their duties, officials and other servants of the EFTA Surveillance Authority shall neither seek nor accept instructions from any Government or from any body external to the EFTA Surveillance Authority. Members of the EFTA Surveillance Authority, officials and other servants thereof as well as members of committees shall be required, even after their duties have ceased, not to disclose information of the kind covered by the obligation of professional secrecy, in particular information about undertakings, their business relations or their cost components. 1

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ESA was originally established with a staff of approximately 100 officials, mainly from the five founding EFTA States. Following Austria, Sweden and Finland’s departure, ESA was reorganised and the staff reduced to approximately 40 officials.1 Many of the staff members from the departing states were hired by the Commission. The number of officials have increased over the years and today ESA employs approximately 70 officials, divided on the four departments; the Internal Market Affairs Directorate (IMA), the Competition and State Aid Directorate (CSA), the Legal and executive affairs department (LEA) and the Administration (ADM). Currently the staff of ESA consists of approximately 70 persons, of 16 different nationalities, mainly lawyers but also several economists, in particular for state aid and competition, and veterinarians for its tasks in food safety. ESA started out with a staff mainly recruited from the EFTA States but it has over the years, to an increasing extent, recruited staff from EU Member States, in particular officials with working experience from the Commission, international law firms or other particularly relevant European law background. In this manner ESA has secured the necessary expertise to function as a credible, independent surveillance body. In accordance with the Authority’s staff regulations established by the EFTA States, all fixed term staff are employed for a three-year period, normally renewable only once. As a consequence, the turnover of staff is very high and ESA uses significant resources on vacancies and recruitment procedures. Most of ESAs tasks are carried out by its own staff and the use of external experts is limited. ESA has set up various advisory committees in line with the requirements of the agreement and secondary legislation. The staff members shall be completely independent and not take any instructions from the Governments or any other body external to ESA. This requirement applies also to national experts sent from national administrations to work in ESA for a limited period, normally for two years.

1 ESA Annual Report 1994, available at www.eftasurv.int.

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The provision lastly describes the obligation concerning professional secre- 6 cy, which is implemented through the employment contracts and internal manuals and thereby applicable to all members and staff, including members of committees. They shall not, even after their duties have ceased, disclose information of the kind covered by the obligation of professional secrecy, in particular information about undertakings, their business relations or their cost components.

Article 15 [Decision-making] The EFTA Surveillance Authority shall act by majority of its Members. The rules of procedure shall determine the quorum.

ESA adopts its decisions by simple majority, there are no special provisions 1 requiring unanimous decisions. It follows from Art. 8 of the Rules of Procedures that two Members present 2 shall constitute a quorum. Thus, ESA may adopt decisions even if one of its members is not present. If a member is disqualified in accordance with Art. 9, it follows from the same provision that an ad hoc member shall be called in.

Article 16 [Obligation to state the reasons for decisions] Decisions of the EFTA Surveillance Authority shall state the reasons on which they are based.

The EFTA Court has on several occasions assessed Art. 16 and the requirement of reasoned decisions. The obligation of adopting reasoned decisions is a prerequisite for the functioning of the judicial control system in the agreement. The requirement is moreover important to ensure a homogenous application of the EEA Agreement. In FIFA, the EFTA Court noted that the statement of reasons must be appropriate to the measure at issue. It must disclose in a clear and unequivocal fashion the reasoning followed by ESA, in such a way as to enable the persons concerned to ascertain the reasons for the measure and thus enable them to defend their rights and enable the Court to exercise its power of review.1 The requirements depend on the circumstances of each case, in particular the content of the measure in question, the nature of the reasons given and the interest which the addressees of the measure, or other parties may have in obtaining explanations. The requirement does not entail that ESA should go into all the relevant facts and points of law, since the requirements of Art. 16 SCA must be assessed with

1 Case E-21/13, 3.10.2014, FIFA v ESA. See also Joined Cases E-4/10, E-6/10 and E-7/10, 10.5.2011, Liechtenstein and Others v ESA.

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regard not only to its wording, but also to its context and to all the legal rules governing the matter in question. Thus, when the measure at issue is adopted in a context with which the persons concerned are familiar, summary reasons may be given.2 5 The structure and content of ESA’s decisions resembles to a great extent that of the Commission’s. One noticeable difference may be that ESA tends to write longer decisions, especially in the field of state aid. ESA moreover closes existing aid procedures by way of decisions whereas the Commission follows a more informal procedure.

Article 17 [Notification and entry into effect of decisions] Save as otherwise provided in this Agreement or in the EEA Agreement, decisions of the EFTA Surveillance Authority shall be notified to those to whom they are addressed and shall take effect upon such notification. 1

The Rules of Procedures Art. 17 stipulates that the Director of Legal and Executive Affairs shall assist in implementing the decision-making procedures and in ensuring the communication of decisions, including where applicable their official notification.

Article 18 [Publication of decisions] Decisions of the EFTA Surveillance Authority shall be published in accordance with the provisions of this Agreement and of the EEA Agreement.

The provision does not entail that ESA’s decisions as a general rule shall be published. Whether the decisions are to be published or not is determined by other provisions in the SCA or the relevant EEA Acts. 2 ESA’s decisions taken as part of general infringement proceedings are as a rule not published. ESA however often publishes press releases when it delivers reasoned opinions or decides to take an EFTA States’ infringement to the EFTA Court. The Court will moreover publish a notice when the application has been received. 3 Many state aid decisions or summaries of such are published in the Official Journal of the European Union (OJ), in its EEA Section and EEA Supplement, in accordance with Art. 26 of Protocol 3 SCA. Such publication may be the starting point for various procedural time limits, including the time limit for application to the EFTA Court. Publication moreover gives interested parties, competitors and others the possibility for submitting comments to decisions to open formal investigations. ESA’s state aid decisions are also published in a de1

2 The EFTA Court here referred to Case C-201/11 P, 17.2.2011, UEFA v Commission.

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cision register on ESA’s website as soon as a non-confidential version has been prepared. In the field of competition, Art. 30 of Chapter II to Protocol 4 SCA regulates 4 which decisions that are to be published in the official journal and what the publication shall contain. The publication shall in any case be made with regard to the legitimate interest of undertakings in the protection of their business secrets. ESA has in recent years also published minutes of the College meetings1 and 5 it has an online searchable public access database, containing all documents to which access is granted in line with ESAs public access rules.2 The public access rules apply with few exceptions to all documents in ESA’s 6 possession. The database thus contains a large number of internal market and other decisions, correspondence such as info requests and submissions to the EFTA Court, etc.

Article 19 [Enforceability of decisions] Decisions of the EFTA Surveillance Authority which impose a pecuniary obligation on persons other than States, shall be enforceable in accordance with Article 110 of the EEA Agreement.

The provision refers to Art. 110 EEA that sets out the Contracting Parties’ 1 obligation to ensure that decisions by the EC Commission, the ESA and the courts are enforceable in the EEA States. Art. 19 concerns pecuniary obligations imposed by the ESA on persons oth- 2 er than States. Pecuniary obligation means claims for the payment of money. ESA has the power to issue fines to undertakings for violations of Arts. 53 and 54 EEA. Persons includes both legal and natural persons. However, the natural person must be an undertaking in order for the competition and state aid rules to apply. Over the years, ESA has been given similar powers also in certain other fields 3 of EEA law.1 By way of an example, ESA may issue fines to undertakings for certain breaches of the air safety rules.

Article 20 [Language] Individuals and economic operators shall be entitled to address and be addressed by the EFTA Surveillance Authority in any official language of the EFTA States and the European Communities as regards notifications, applications and complaints. This shall also

1 The minutes record the decisions that have been taken but does not reveal anything from the deliberations, as these are non-public according to Art. 13 of the Rules of Procedures, see Art. 13 above. 2 See comments to Art. 13 above. 1 See the comments by Einarsson and Fredriksen on Art. 110 EEA in Part II of this book.

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The internal working language of ESA is English. All decisions are prepared in the English language and the English version of the decision is normally the authentic one. The practice has always been that written communication with the EFTA States is conducted in the English language. Art. 20 entails that individuals and economic operators anywhere in the EEA may address ESA in the Icelandic, Norwegian or any of the 24 official languages in the EU for all types of cases at any stage of the case. The right to address and be addressed in any EEA official language was inspired by the language regime in the EU. However, ESA has neither interpreters nor its own translation service. Communication in any other language than English may therefore lead to significant delays in the handling of a case. Even communication in the EFTA languages could cause delays, since only a limited number of the staff is from the EFTA States. Approximately 50 % of staff are from EU Member States. The provision has limited practical importance as there are few examples of procedures that have been conducted in another language than English. ESA receives from time to time complaints in other languages but will normally agree with the complainants that future communications should be in English. If the complaint concerns internal market or state aid matters, the complainant will not be considered a party to the case and ESA will communicate with the EFTA State in question in English. Complainants will merely be informed about the main developments in the procedures. Choice of other procedural language than English is more practical in competition cases, in particular for the undertaking(s) subject to the opening of formal proceedings. In such cases ESA has for instance adopted corresponding decisions in both English and Norwegian. ESA has moreover typically adopted decisions regarding unannounced inspections in English and the language where the inspection takes place. This in order to avoid a delay in case the undertaking in question demands to be addressed in an EFTA language. Even though Art. 20 SCA is of limited practical significance, it has an important symbolic function as it reflects the EEA Agreement’s multinational scope and enables individuals and economic operators in the whole of the EEA to effectively pursue their interests before ESA.

Article 21 [Annual report] The EFTA Surveillance Authority shall annually publish a general report on its activities.

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The EFTA Surveillance Authority has published annual reports since 1994. 1 The reports describe the main events, tasks, cases and statistics for the last year. The reports are available on the EFTA Surveillance Authority’s website.1

Part III: The EFTA States’ fulfilment of their obligations under the EEA Agreement and the present Agreement Introduction to Part III As described above, Art. 108 EEA sets out the obligation of the EFTA States’ 1 to establish an independent surveillance authority and procedures similar to those existing in the EU, including procedures for ensuring the fulfilment of obligations under the EEA Agreement. Neither the EEA Agreement nor the SCA provides a detailed description of the surveillance procedures to be applied in the various areas. However, Part III concerning the EFTA States’ fulfilment of their obligations 2 under the EEA Agreement and the SCA contains more general guidance and references to secondary acts regarding ESA’s surveillance activities in the fields of general internal market rules, public procurement, state aid and competition.

Article 22 [Monitoring the application of the EEA Agreement and the SCA] In order to ensure the proper application of the EEA Agreement, the EFTA Surveillance Authority shall monitor the application of the provisions of the EEA Agreement and of the present Agreement by the EFTA States.

The provision sets out the general surveillance obligation of ESA, which is 1 to monitor the application by the EFTA States’ of the EEA Agreement, cf. Art. 109 EEA and Arts. 4 and 5 SCA.1 The division of competences between ESA and the Commission is clear 2 and straightforward regarding general internal market surveillance; ESA monitors the EFTA States’ and the Commission the EU Member States’ application of EEA law. Even though the division of competences is clear, the two surveillance authorities shall cooperate closely in order to ensure uniform surveillance within the meaning of Art. 109 EEA.2

1 See www.eftasurv.int. 1 See the comments by Tynes on Art. 109 EEA as well as the comments on Arts. 4 and 5 SCA above. 2 See the comments by Tynes on Art. 109 EEA as well as the comments on Art. 26 SCA below.

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The EFTA Surveillance Authority has published annual reports since 1994. 1 The reports describe the main events, tasks, cases and statistics for the last year. The reports are available on the EFTA Surveillance Authority’s website.1

Part III: The EFTA States’ fulfilment of their obligations under the EEA Agreement and the present Agreement Introduction to Part III As described above, Art. 108 EEA sets out the obligation of the EFTA States’ 1 to establish an independent surveillance authority and procedures similar to those existing in the EU, including procedures for ensuring the fulfilment of obligations under the EEA Agreement. Neither the EEA Agreement nor the SCA provides a detailed description of the surveillance procedures to be applied in the various areas. However, Part III concerning the EFTA States’ fulfilment of their obligations 2 under the EEA Agreement and the SCA contains more general guidance and references to secondary acts regarding ESA’s surveillance activities in the fields of general internal market rules, public procurement, state aid and competition.

Article 22 [Monitoring the application of the EEA Agreement and the SCA] In order to ensure the proper application of the EEA Agreement, the EFTA Surveillance Authority shall monitor the application of the provisions of the EEA Agreement and of the present Agreement by the EFTA States.

The provision sets out the general surveillance obligation of ESA, which is 1 to monitor the application by the EFTA States’ of the EEA Agreement, cf. Art. 109 EEA and Arts. 4 and 5 SCA.1 The division of competences between ESA and the Commission is clear 2 and straightforward regarding general internal market surveillance; ESA monitors the EFTA States’ and the Commission the EU Member States’ application of EEA law. Even though the division of competences is clear, the two surveillance authorities shall cooperate closely in order to ensure uniform surveillance within the meaning of Art. 109 EEA.2

1 See www.eftasurv.int. 1 See the comments by Tynes on Art. 109 EEA as well as the comments on Arts. 4 and 5 SCA above. 2 See the comments by Tynes on Art. 109 EEA as well as the comments on Art. 26 SCA below.

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ESA’s general surveillance encompasses the cornerstones of the internal market – the four freedoms. It also encompasses several horizontal provisions in the areas of environment, consumer protection, employment law, energy, telecommunications etc. The development of the internal market is further pursued by secondary EU legislation; directives, regulations and decisions that are incorporated into the EEA Agreement to subsequently be implemented in the national legal orders of the EFTA States.3 To date, more than 11 000 EU legal acts have been incorporated into the EEA Agreement.4 These legal acts also constitute “provisions of the EEA Agreement” within the meaning of Art. 22 SCA. Thus, in line with Art. 22 SCA, ESA has extensive tasks in monitoring the application of the EFTA States to ensure that the EEA rules have been effectively implemented in their national legal orders. ESA has various means at its disposal to ensure such effective monitoring. First, the EFTA States have various notification obligations of measures they adopt to implement directives. Provisions to this effect follows normally from the directives themselves. A specific form (Form 1) has been developed to this effect. There are also a number of other measures that the EFTA States are obliged to notify, including draft technical regulations, measures under the Services Directive, food products, draft regulatory measures in electronic communications and biocides.5 The regulations do normally not contain notification requirements but ESA makes frequent use of its extensive powers to send information requests to the EFTA States’ also about their incorporation of regulations.6 The control concerning incorporation of regulations is indeed a particularly important part of ESAs general surveillance, since, contrary to the legal situation in the EU, there is no doctrine of direct effect and no direct applicability of regulations in the EEA Agreement. Timely incorporation of regulations by the EFTA States’ is therefore important in order to ensure that similar rules apply all over the EEA. Cases concerning incorporation of regulations does normally not raise substantive issues as Art. 7 EEA, states that regulation shall “as such be made part of the legal order of the Contracting Parties.” The infringement cases thus mainly concern late incorporation. The situation is different regarding implementation of directives as Art. 7(b) EEA “leave to the authorities of the Contracting Parties the choice of form and the method of implementation.” ESA publishes, in cooperation with the Commission, twice a year an implementation scoreboard that monitors the transposition deficit of the EFTA States.7 3 4 5 6

See the comments by Dystland, Finstad and Sørebø on Arts. 98 ff. EEA in Part II of this book. See the introductory Chapter to Part II of this book. A more comprehensive list is found in the Handbook of EU law pp. 120-121. See comments to Art. 6 above, mn.1 and 2.

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ESA shall moreover, in accordance with Art. 109(3) EEA, receive and handle 11 complaints. There are no specific requirements for submitting complaints, anyone, for instance competitors, business associations, concerned citizens, political organisations, other EEA States etc. can in principle send complaints to ESA. However, complainants are not as such granted procedural rights and may, with few exceptions, not bring failure to act cases before the EFTA Court. With regard to infringements of internal market rules, ESA enjoys wide discretion with regard to the handling and prioritisation of complaints. If ESA has information indicating that domestic legislation or practices that 12 may not comply with EEA law, it can on its own initiative decide to initiate an investigation and it may request any information needed based on Art. 6 SCA, cf. comments above. ESA sometimes also send so called pre-Article 31 letters to EFTA States, which is a form of info request that also contains ESA’s services preliminary view as to why the rules of practices may violate EEA law. Based on an investigation, ESA may initiate infringement proceedings 13 against the EFTA State concerned. The infringement procedure follows certain procedural steps as described below under Art. 31 SCA.8 The process is initiated by a so-called letter of formal notice to which the EFTA State in question is invited to provide comments within a stipulated deadline. If ESA decided to pursue the matter a reasoned opinion is delivered in accordance with Art. 31. Thereafter, ESA may bring an infringement case before the EFTA Court. Most cases are solved, however, before they reach the EFTA Court.

Article 23 [Monitoring within the field of public procurement law] The EFTA Surveillance Authority shall, in accordance with Articles 22 and 37 of this Agreement and Articles 65(1) and 109 of, and Annex XVI to, the EEA Agreement as well as subject to the provisions contained in Protocol 2 to the present Agreement, ensure that the provisions of the EEA Agreement concerning procurement are applied by the EFTA States.

Art. 23 recalls and regulates ESA’s responsibility regarding the enforcement 1 of the EEA public procurement rules. Art. 65(1) EEA refers to Annex XVI that contains the EU procurement acts, 2 i.e. the secondary legislation with the substantive procurement rules and provides that these rules shall apply to all goods and services as specified. The objective of the procurement acts is to create a level playing field for 3 suppliers of goods and services across Europe. Thus, Art. 65(1) EEA, by its reference to the acts in Annex XVI, ensures that the EU procurement directives

7 See www.eftasurv.int. 8 See also Norberg et al., EEA Law, Chapter 3.3. with an extensive description of the infringement procedure and Baudenbacher, in: Baudenbacher (ed), The Handbook of EEA Law, chapter 4.1.1.

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on minimum harmonised public procurement rules, applies in the EFTA States. The acts regulate public authorities’ and certain public utility operators’ purchase of goods, works and services whose monetary value exceeds certain thresholds.1 The enforcement of the public procurement rules in individual cases is first and foremost ensured through procedures, administrative complaint boards and court proceedings in the EFTA States. The obligation to put in place such effective procedures and ensure that remedies are available follows from the relevant secondary legislation incorporated into the EEA Agreement.2 Art. 23 SCA stipulates that ESA shall enforce the public procurement rules against the EFTA States. As the provision refers to the application by the EFTA States, ESA may act both with regard to the implementation of the secondary acts as such and for the application of the rules in individual cases. Art. 23 refers for this purpose, in line with Art. 109 EEA, to the general surveillance procedure as regulated in Arts. 22 and 37 SCA, see comments above. Art. 23 moreover refers to Protocol 2 SCA that sets out a special enforcement regime for the procurement rules. The enforcement regime mirrors these rules on direct intervention correspond in substance to those in Art. 3 of Dir. 92/13/EEC, both as amended by Dir. 20077/66/EC. The special enforcement regime in Protocol 2 differ from that of the general surveillance in Art. 22 SCA as it provides for preventive measures by direct intervention by ESA. It follows from Arts. 1 and 3 of Protocol 2 that ESA may intervene at an early stage in order to prevent an infringement of the procurement rules.3 The procedures must be invoked prior to a contract being concluded, and only when ESA considers that a clear and manifest infringement of EEA procurement provisions has been committed during a contract award procedure falling within the scope of the acts referred to in point 2, 34 and 4 in Annex XVI to the EEA Agreement, i.e. Dir. 2014/24/EU and Dir. 2014/25/EU. The procedure is initiated by ESA notifying the EFTA State concerned that ESA considers that a clear and manifest infringement of the EEA procurement rules has been committed. The EFTA State shall thereafter, within 21 or 30 days, communicate to ESA its confirmation that the infringement has been corrected, or send a reasoned submission as to why no correction has been made, or give notice that the award procedure has been suspended. Moreover, Arts. 4, 5 and 6 of Protocol 2 introduced a special conciliation procedure according to which any person having or having had an interest in

1 See the comments by Hammersvik on Art. 65(1) EEA. 2 Acts referred to in Annex XVI EEA, see above. 3 The possibility for early intervention is otherwise, in general surveillance cases, limited to applying to the EFTA Court for interim measures, cf. Art. 41 SCA. 4 The reference to the act at point 3 is obsolete as that act has been taken out of the EEA Agreement.

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obtaining a particular contract may apply for a procedure in which ESA invites the contracting entity to participate in a type of mediation procedure. The special enforcement regime in Protocol 2 has been of very limited practi- 11 cal importance. ESA has as far as we are aware of so far not initiated any of the special procedures. The requirements to establish a clear and manifest infringement combined with the strict time limits to act, are not well suited to the bureaucratic decision making procedures of the ESA. ESA has on some occasions been challenged by complaints for its lack of in- 12 tervention. The EFTA Court has, in line with the case law of the Court of Justice of the European Union, held that private applicants do not have the right to challenge a refusal by ESA to initiate infringement proceedings. Thus, ESA’s decision as to initiate or not initiate the infringement procedure in Art. 31 SCA, is not subject to judicial review. The EFTA Court has considered it irrelevant in such cases whether ESA did or did not invoke the special procedure in Protocol 2.5

Article 24 [Responsibilities of the ESA in the field of State aid] The EFTA Surveillance Authority shall, in accordance with Articles 49, 61 to 64 and 109 of, and Protocols 14, 26, 27, and Annexes XIII, section I(iv), and XV to, the EEA Agreement, as well as subject to the provisions contained in Protocol 3 to the present Agreement, give effect to the provisions of the EEA Agreement concerning State aid as well as ensure that those provisions are applied by the EFTA States. In application of Article 5(2)(b), the EFTA Surveillance Authority shall, in particular, upon the entry into force of this Agreement, adopt acts corresponding to those listed in Annex I.

Art. 24 SCA sets out ESA’s obligation to give effect to the State aid provisions of the EEA Agreement and to ensure that those provisions are applied by the EFTA States. The provision refers to the substantive rules governing state aid control in the EEA Agreement: Art. 49 EEA which concerns transport aid, to Arts. 61 to 64 EEA, to Protocols 14, 26 and 27 and to Annex XIII and XV.1 Protocols 14 EEA contains special rules on trade in coal and steel products, including Art. 5 that concerns aid to the steel industry and refers to the Community rules for that sector. Protocol 26 EEA stipulates that ESA, in a separate agreement between the EFTA States, shall be entrusted with equivalent powers and similar functions to those of the Commission. The list in Protocol 26 refers currently to the previous legal acts that reflect the powers and functions of the Commission, including the

5 Orders of the EFTA Court in Case E-13/10, 31.1.2011, Aleris Ungplan, para. 26, Case E-2/13, 23.10.2013, Bentzen Transport, para. 40. 1 See the comments by Jordal and Mathisen on Arts. 61 to 64 EEA.

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procedural regulation, Council Regulation (EC) No 659/1999 and the implementing regulation, Commission Regulation (EC) No 794/2004. The list of regulations in Protocol 26 does not mean that the regulations have been implemented into the EEA Agreement and that the regulations take effect as such with the general adaptations following from Protocol 1 EEA. The purpose of the list is to ensure that ESA through Protocol 3 to the SCA, are granted similar powers as that of the Commission. Thus, the legal basis for ESAs enforcement is Protocol 3 SCA. Protocol 27 CSA regulates the cooperation between ESA and the Commission in the field of State aid. One important aspect concerns the obligation to conduct surveys on State aid in their respective States and is implemented through the publication of annual State aid scoreboards. Annex XV to the EEA Agreement contains several important legal acts such as transparency directive, the general de minimis regulation, the block exemption regulation and the exemption for certain Services of general economic interest. The procedural rules in Protocol 3 SCA describes the procedures for the review of new aid, including the stand still and notification obligation for the EFTA States, the procedures governing the misuse of aid and the review of existing aid schemes. The second paragraph concerns state aid guidelines and refers to the list in Annex 1 SCA which lists the various State aid guidelines in force in the European Community at the time of the conclusion of the EEA Agreement. Most of these guidelines have been replaced by newer guidelines, in fact all the State aid guidelines are at regular intervals subject to new assessment and adaptions. Footnote 1 to Annex 1 stipulates that “With regard to amendments to those acts or the adoption of other and future acts in this field, the obligation rests with the EFTA Surveillance Authority according to its competence under this Agreement.” ESA has on this basis constantly adopted corresponding guidelines to those of the Commission, sometimes with minor, necessary EFTA adaptations to reflect relevant differences between the TFEU and the EEA Agreement.2

Article 25 [Responsibilities of the ESA in the field of the competition rules] The EFTA Surveillance Authority shall, in accordance with Articles 53 to 60 and 109 of, and Protocols 21 to 25 and Annex XIV to, the EEA Agreement, as well as subject to the provisions contained in Protocol 4 to the present Agreement, give effect to the provisions of the EEA Agreement relating to the implementation of the competition rules applicable to undertakings as well as ensure that those provisions are applied.

2 For a comprehensive description of the legal framework for ESAs State aid control, including the guidelines, see the comments by Jordal and Mathisen on Art. 61-64 EEA.

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Article 25 Responsibilities of the ESA in the field of the competition rules In application of Article 5(2)(b), the EFTA Surveillance Authority shall, in particular, upon the entry into force of this Agreement, adopt acts corresponding to those listed in Annex II.

The system for the enforcement of the EEA Competition rules is regulated under a similar legal structure as the state aid rules. Art. 1(2) of the EEA Agreement describes as its objective the setting up of system to ensure that competition is not distorted. Art. 108 requires the EFTA States to set up an independent surveillance authority as well as procedures similar to those existing in the Community. Protocol 21 recalls that ESA shall, in an agreement between the EFTA States, be entrusted with equivalent powers to those of the Commission and lists, in addition to the acts in Annex XIV, the acts that reflect the powers and functions of the Commission in the application of the EU Competition rules. The list of EU acts in Protocol 21 does not mean that the those acts, that includes Reg. 1/2003, has as such been implemented into the EEA Agreement and that the regulations take effect as such with the general adaptations following from Protocol 1 EEA. The purpose of the list is to ensure that ESA through Protocol 4 to the SCA, is provided with similar powers as that of the Commission. Thus, the legal basis for ESAs enforcement of the Competition rules is Protocol 4 SCA. ESA has also published several guidelines in order to explain how it will enforce competition rules. Of particular importance is the Best Practice guidelines, in which ESA describes in more detail its procedures, including practical issues related to language, information requests, complaints, legal professional privilege, the role of the Hearing officer, the various steps in the procedure, commitments, access to file, etc.1 As mentioned above, Art. 5(1)(b) states ESAs to ensure the application of the EEA competition rules. This competence is however considerably limited by Art. 56 EEA that regulates the division of competence between the Commission and ESA, inter alia based on the undertakings’ turnover in the relevant markets and the potential effect on trade in the EU. The Court of Justice has described the EEA competition law regime as a one stop shop, meaning that only the Commission or ESA may be competent authority in a specific case. In practice the division of competence entails that most competition cases that have a sufficient cross border effect to be caught by the EEA Agreement in the first place, will be handled by the Commission, also towards undertakings in the EFTA States. The EFTA States have also, in Chapter II, Art. 5 SCA, implemented their own version of de-centralised application of the EEA Competition rules in the EFTA-pillar. Such national enforcement does not limit ESA’s competence to apply the competition rules as such, but the effect will likely be to reduce the number

1 See www.eftasurv.int/media/competition/Best-practice-guidelines.pdf.

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of cases for ESA even more. For these reasons, ESA has adopted relatively few infringement decisions. No merger has to date fallen under ESA’s competence. A practical and important part of ESA’s work in the field of competition concerns cooperation with the Commission, as regulated in Protocol 23 EEA. Those provisions regulate the transfer of cases between the two EEA competition authorities, ESA’s participation as observers in the EU’s competition networks and mutual administrative assistance, cf. Art. 8. ESA has on basis of that provision and on behalf of the Commission carried out numerous unannounced inspections in the EFTA States and gathered relevant evidence.2 Despite few cases, the procedural rules for the application of the competition rules are similar to those in the EU. They are, as mentioned above, reproduced in Protocol 4 SCA and an overview of the main provisions is given below. Protocol 4 on the functions and powers of the EFTA Survillance Authority in the field of competition consists of five Parts and is further divided in eight chapters. Some of the chapters are subdivided into sections. The Protocol has been amended a number of times since 1994 to reflect amendments to the procedural rules in the EU. Part II of Protocol 4 reflects the Commission’s powers under the procedural regulation, Reg. No 1/2003. Chapter I thereof contains three basic provisions that concern the application of Arts. 53 and 54 (Art. 1), the burden of proof (Art. 2) and the relationship between the EEA competition rules and national competition laws Art. 3). The latter provision forms part of the system of national enforcement of the EEA competition rules that the EFTA States’ put in place in parallel with the modernisation reform of the EU competition rules, implemented through Regulation 1/2003 that introduced national enforcement of the EU Competition rules. The decentralised application of the EEA competition rules and cooperation procedures between the ESA and national competition authorities, is further regulated inter alia in Arts. 5, 11-16. Particular attention is given to the protection of so-called leniency applications in the procedures for exchange of information and evidence. These issues are regulated in Arts. 11 A and B. The enforcement of EEA competition rules at the national level, is limited to the EFTA-pillar. The EU national competition authorities are not empowered to apply the EEA rules. This lack of a uniform approach to application of the EEA competition rules create many challenges.3 Art. 7 concerns the finding and termination of an infringement. It states that ESA, acting on a complaint or on its own, may by decision require the infringement brought to an end and ESA may, in accordance with the more detailed conditions, impose both structural and behavioural remedies. It follows from Art. 7(2) that natural and legal persons who can show a legitimate interest and EFTA States may be entitled to lodge a complaint. Thus, in competition cases 2 Examples include the investigation in the Tomra case, Case C-549/10. 3 See further the comments by Gjendemsjø on Art. 56 EEA.

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the requirements to be acknowledged as a complainant are considerably stricter than in internal market and state aid cases.4 Art. 8 provides the ESA with the power to adopt interim measures. Interim measures must be adopted by decision and be limited in time and scope and subject to review by the EFTA Court. Art. 9 regulates the important instrument of commitments that may be offered by undertakings to address the concerns expressed by ESA. If ESA, after having tested the proposed commitments in the market, accepts the proposed commitments, ESA shall conclude that are no longer grounds for action.5 This means that there will be no additional sanctions or remedies imposed by ESA. Moreover, and often equally important to the undertaking under scrutiny, there will be no decision establishing an infringement, which greatly reduces the possibilities for competitors to pursue follow-on damages actions before national courts. Art. 14 regulates the role and activity of the Advisory Committee that shall be composed of representatives of the EFTA States, in most cases from their competition authorities. The Commission and the EU Member States may also be present but are not entitled to vote. In the same vein, ESA and the EFTA States may participate in Advisory Committee meetings in the EU chaired by the Commission. The Advisory Committee shall be consulted before ESA adopts decisions in individual cases and ESA shall take the utmost account of the opinion delivered by the Advisory Committee. Art. 15 concerns cooperation with national courts and regulates exchange of information and opinions. It follows from Section 3 that ESA, acting on its own initiative, where the coherent application of the EEA competition rules so requires, may submit written observations to national court in the EFTA States. ESA has used this so-called amicus curie procedure on some occasions.6 Art. 16 shall ensure a uniform application of EEA competition law and entails important limitations for national courts and competition authorities. When national courts rule on agreements, decisions or practices under Art. 53 or Art. 54 of the EEA Agreement which are already the subject of a decision by the EFTA Surveillance Authority, they cannot take decisions running counter to the decision adopted by the EFTA Surveillance Authority. A similar limitation applies for national competition authorities.7

4 Requirement for legitimate interest will also be introduced in Protocol 3 SCA for state aid cases. 5 ESA has hitherto adopted one commitment decision after Art. 9 SCA, Decision 605/08/COL, which concerned Liechtensteinische Kraftwerke and Telecom Liechtenstein AG. 6 Three such amicus curie observations are accessible: http://www.eftasurv.int/competition/natio nal/co-operation-with-national-courts/. 7 It is also for this reason that an infringement decision from ESA as such will provide a basis for damages claims in national courts. ESA’s decision should serve as sufficient proof of an infringement.

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In cases for which ESA has initiated proceedings but not yet adopted any decision, national courts must also avoid giving decisions which could conflict with a future decision of ESA. To that effect, the national court may assess whether it is necessary to stay its proceedings. The principles laid down to avoid conflicting decisions in the same case, and where national authorities and courts must stand down to the Commission or ESA, is based on case law of the EU Court of Justice that refers the general loyalty principle, cf. Art. 3 EEA. This obligation for national courts in the EFTA pillar is not uncontroversial. Contrary to the basic principles of the TFEU, the EEA Agreement contains no specific limitations to the sovereignty of national courts. That is why the national courts in the EFTA States remain completely free with regard both to request and to follow the EFTA Court’s advisory opinions. That system is clearly different from the EU system of preliminary references. Section V, Arts. 17-22 concerns ESA powers of investigation and includes sector inquiries, requests for information, statements and powers of inspections. Unannounced inspections are among the most important investigative tools for the competition authorities. ESA can request national competition authorities to carry out the inspections ESA considers necessary. ESA may moreover request to participate with own officials or persons authorised by ESA. In practice, such inspections are carried out in accordance with national law procedures, by teams consisting of national authority and ESA officials with the latter acting as team leaders. The officials are empowered to enter any premises of the undertakings under investigation and examine books and other records. Whereas inspections in the past focused on the archives and offices, today’s inspections are mostly focused on the undertakings’ IT systems and servers. ESA and national authorities will for that purpose bring along qualified IT personnel, forensic IT software and technical equipment to store huge amounts of data selected on the basis of pre-determined search terms. The use of modern technology enables competition authorities to copy extensive amounts business records. This raises several issues with regard to ESAs investigative powers that are limited to make copies of documents relevant for the purpose and subject matter of the investigation. ESA may also, subject to stricter conditions, conduct inspections at other premises, including the homes of directors, managers and other members of staff of the undertaking under investigation. Section VI and VII, Arts. 23-27, concerns fines and limitation periods. ESA may impose fines on undertakings where they supply incorrect, incomplete or misleading information or if seals affixed on inspected premises have been broken. Such fines cannot exceed 1% of the total turnover in the preceding business year. For infringement of the substantive competition rules in Arts. 53 and 54 EEA, ESA may impose fines not exceeding 10% of each undertaking’s total turnover in the preceding year. ESA has published guidelines for the calculation of fines.8

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Section VIII, Arts. 27 and 28, concerns hearings and professional secrecy. ESA shall conduct hearings with the interested parties before adopting infringement decisions. The organisation of hearings and who may attend is further described in the Best Practice guidelines.9 Section X contains General provisions. Art. 30 regulates publication of infringement decisions, see comments to Art. 18 SCA above. Art. 31 concerns judicial review and states that the EFTA Court shall have unlimited jurisdiction to review decisions whereby ESA has fixed a fine or a periodic penalty payment. The court may cancel, reduce or increase the fine. The provision reiterates Art. 35 of the Main Part of the SCA. The case law illustrates that the ECJ and EFTA Courts do not avoid making discretionary adjustments of fines.10 Section XI covers transitional and special provisions. Art. 40 stipulates an obligation for the EFTA States to designate the competition authority responsible for the application of Art. 5 and 54 EEA. Liechtenstein is however not obliged to designate a competition authority, cf. Art. 41. Thus, in Liechtenstein, the EEA competition rules are to be enforced either by ESA, the Commission or by national courts. Reg. (EC) No 773/2004 contains the more detailed rules governing the Commission’s investigations and conduct of proceedings, in particular for the initiation of proceedings as well as the handling of complaints and the hearing of the parties concerned. The provisions of the implementing regulation are reproduced in Chapter III Part II to Protocol 4 SCA. Chapter III consists of 20 Articles that supplements the provisions in Chapter II. The provisions govern the different stages in a competition proceeding, from the initiation of proceedings, the handling of complaints, the submission of statement of objections and the right to be heard, including the conduct of oral hearings. Art. 10 a contains a new settlement procedure in cartel cases. The procedure differs from the commitment procedure described above as the parties must acknowledge their participation in an infringement of Art. 53 EEA. Thus, such a decision may form basis for competitors’ damages actions. The option may nevertheless be interesting for cartel members because of procedural efficiencies and thereby cost savings. ESA has to date not concluded any settlements proceedings. As mentioned above, a cartel case with sufficient cross border effect will normally be handled by the Commission according to Art. 56 EEA.

8 Guidelines on the method of setting fines imposed pursuant to Art. 23(2)(A) of Chapter II of Protocol 4 to the Surveillance and Court Agreement, available at www.eftasurv.int. 9 See comments to Art. 35 SCA below. 10 One interesting example is the EFTA Court’s judgment in Case E-15/10, 18.4.2012, Posten Nirge. ESA had explicitly acknowledged that the duration of the procedure had been too long and granted Norway Post a 7.2% reduction of the fine. The court referred to its unlimited jurisdiction and to Art. 13 ECHR and held, with reference to all the circumstances of the case, that 20% was needed for the reduction to be an effective remedy.

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Section VI, Art. 15 contains the provisions regarding access to the file. Access to the file is a crucial element of the right of defence. Thus, the parties addressed by a statement of objections have a right to be granted access to the file. 28 Since there are important exceptions regarding internal documents of the competition authorities, business secrets and other confidential information. Another important limitation concerns the use of the documents. They may only be used for the purposes of judicial or administrative proceedings for the application of Arts. 53 or 54 EEA. In order to prepare for access to file, ESA will routinely ask for identification of business secrets and for non-confidential versions from any person or business that ESA corresponds with in a given case. 27

Article 25 a [Responsibilities in the field of financial supervision] The EFTA Surveillance Authority shall, in accordance with the acts referred to in Annex IX of the EEA Agreement providing within the European Union for powers of a European Supervisory Authority which, as regards the EFTA States and according to the adaptations contained in that Annex are to be exercised by the EFTA Surveillance Authority, as well as subject to the provisions contained in Protocol 8 to the present Agreement, give effect to the relevant provisions of the EEA Agreement and ensure that those provisions are applied.

As noted elsewhere, the EEA Agreement does not contain mechanisms to reflect the amends to the surveillance of the internal market on the EU side, in particular with regard to the establishment of new agencies with new, cross border competence to request information and adopt decisions.1 The extension of the agencies’ formal competence to markets, authorities and undertakings in the EFTA States represent a comparable challenge to the two-pillar structure of the EEA.2 2 After years of stalemate between the EU and the EFTA States, a solution has now been found in Art. 25 a and Protocol 8 to the SCA. The arrangement is a system where the EU agency works closely with the EFTA Surveillance Authority and adopts a draft decision. The draft decision from the European Supervisory Authority, shall thereafter, without undue delay, be adopted by the ESA. 3 Art. 3 to Protocol 8 stipulates that ESA shall act in full independence. While this may formally speaking be true, it is obvious that the real decision making competence remains with the European Supervisory Authority. In that regard the new system deviates significantly from the normal two-pillar structure of the EEA Agreement. In that structure the cases are handled by and decided by the ESA and the EUs direct influence is limited to cooperation and dialogue. However, in the absence of a revision of the EEA Agreement, the parties, especially 1

1 See, e.g., the comments by Tynes on Art. 108 EEA in Part II of this book. 2 See the comments on Art. 4 above.

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the EFTA States, have consistently taken a pragmatic approach to the constitutional limitations in their national legal orders.

Article 26 [Cooperation between the ESA and the EU Commission] Provisions governing the cooperation, exchange of information and consultation between the EFTA Surveillance Authority and the Commission of the European Communities concerning the application of the EEA Agreement are laid down in Article 109 as well as in Articles 58 and 62(2) of, and Protocols 1, 23, 24, and 27 to, the EEA Agreement.

Art. 26 sums up the various provisions in the EEA Agreement regarding co- 1 operation between the ESA and the Commission. The provision, as a part of the SCA to which the Commission is not a party, has no legal significance as such.

Part IV: The EFTA Court Introduction to Part IV* Part IV SCA concerns the establishment, organisation and jurisdiction of the 1 EFTA Court. Further rules are laid down in Protocol 5 on the Statute of the Court (“the Statute”),1 adopted pursuant to Art. 43(1) SCA, and in the Court’s Rules of Procedure (“RoP”), adopted pursuant to Art. 43(2) SCA and Art. 43 of the Statute.

Article 27 [The establishment of the EFTA Court] A court of justice of the EFTA States, hereinafter referred to as the EFTA Court, is hereby established. It shall function in accordance with the provisions of this Agreement and of the EEA Agreement.

Art. 108(2) EEA lays down an obligation on the EFTA States to establish a 1 court of justice. Art. 27 SCA fulfils this obligation.1 In addition to establishing the EFTA Court, the provision states that the Court 2 shall function in accordance with the provisions of the SCA and of the EEA Agreement. Its jurisdiction is laid down in the subsequent provisions of the SCA, and empowers it to give judgments and advisory opinions on the application and interpretation of the EEA Agreement, the Agreement on a Standing

* The author wishes to thank Jørgen Reinholdtsen, Dag Sørlie Lund, Marthe Kristine Fjeld Dystland and Mariann Nilsen for their contributions to the text. 1 Protocol 5 to the ESA/Court Agreement on the Statute of the EFTA Court.

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the EFTA States, have consistently taken a pragmatic approach to the constitutional limitations in their national legal orders.

Article 26 [Cooperation between the ESA and the EU Commission] Provisions governing the cooperation, exchange of information and consultation between the EFTA Surveillance Authority and the Commission of the European Communities concerning the application of the EEA Agreement are laid down in Article 109 as well as in Articles 58 and 62(2) of, and Protocols 1, 23, 24, and 27 to, the EEA Agreement.

Art. 26 sums up the various provisions in the EEA Agreement regarding co- 1 operation between the ESA and the Commission. The provision, as a part of the SCA to which the Commission is not a party, has no legal significance as such.

Part IV: The EFTA Court Introduction to Part IV* Part IV SCA concerns the establishment, organisation and jurisdiction of the 1 EFTA Court. Further rules are laid down in Protocol 5 on the Statute of the Court (“the Statute”),1 adopted pursuant to Art. 43(1) SCA, and in the Court’s Rules of Procedure (“RoP”), adopted pursuant to Art. 43(2) SCA and Art. 43 of the Statute.

Article 27 [The establishment of the EFTA Court] A court of justice of the EFTA States, hereinafter referred to as the EFTA Court, is hereby established. It shall function in accordance with the provisions of this Agreement and of the EEA Agreement.

Art. 108(2) EEA lays down an obligation on the EFTA States to establish a 1 court of justice. Art. 27 SCA fulfils this obligation.1 In addition to establishing the EFTA Court, the provision states that the Court 2 shall function in accordance with the provisions of the SCA and of the EEA Agreement. Its jurisdiction is laid down in the subsequent provisions of the SCA, and empowers it to give judgments and advisory opinions on the application and interpretation of the EEA Agreement, the Agreement on a Standing

* The author wishes to thank Jørgen Reinholdtsen, Dag Sørlie Lund, Marthe Kristine Fjeld Dystland and Mariann Nilsen for their contributions to the text. 1 Protocol 5 to the ESA/Court Agreement on the Statute of the EFTA Court.

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Committee for the EFTA States and of the SCA, and on obligations arising from them.

Article 28 [Composition] The EFTA Court shall consist of three judges.

Just as in the EU (Art. 19(2) TEU), the number of Judges at the EFTA Court reflects the number of EFTA States parties to the EEA Agreement. When the SCA was signed on 2 May 1992, there were seven EFTA States.1 Accordingly, Art. 28 SCA provided for seven Judges. However, following a referendum in 1992, Switzerland rejected participation in the EEA. This led to a delay in Liechtenstein’s subsequent participation in the EEA. Accordingly, on 17 March 1993, a protocol adjusting the SCA was entered into between the five remaining States. The number of Judges provided for in Art. 28 was reduced to five. 2 The EEA Agreement and the SCA entered into force on 1 January 1994. The Court held an inaugural session on 4 January 1994, and five Judges took the oath. On 1 January 1995, Austria, Finland and Sweden became EU members. On 1 May 1995, Liechtenstein became a party to the EEA Agreement and the SCA. In anticipation of these events, Iceland and Norway adopted, on 29 December 1994, an agreement adjusting inter alia the SCA. The number of Judges provided for in Art. 28 was reduced to three.2 3 In 2011, the Court submitted a proposal to the EFTA States for an amendment of the SCA, granting the Court the possibility of sitting in a five-Judge formation in cases of particular significance.3 The two additional Judges would be ad hoc Judges. Furthermore, the Court proposed to have the possibility to call on an Advocate General in complex cases. Finally, inspired by Art. 255 TFEU, a 1

1 The Contracting Parties originally proposed to establish an EEA court to settle disputes between the Contracting Parties and to rule on matters relating to the EFTA States. However, the ECJ rejected the proposal as being incompatible with the EEC Treaty (Opinion 1/91, EU:C:1991:490). Following that opinion, it was decided to introduce an EFTA court, and a revised proposal was presented to the ECJ. Under that proposal the EFTA Court has sole jurisdiction vis-à-vis the EFTA States and institutions, whereas the ECJ has sole jurisdiction vis-à-vis the EU Member States and institutions. This revised version was approved by the ECJ in its later opinion on the EEA Agreement (Opinion 1/92, EU:C:1992:189). For more on these opinions and the choice of an EFTA Court, see the comments by Fredriksen on Art. 105 EEA, mn. 1-2 and the comments by Tynes on Art. 108 EEA, mn. 2 and 17-18. 1 Austria, Finland, Iceland, Liechtenstein, Norway, Sweden and Switzerland. 2 Art. 7 of the Agreement of 29 December 1994 Adjusting Certain Agreements between the EFTA States, published e.g. as Annex II to the Report of the EFTA Court 1994-1995. According to an earlier agreement between the then five EEA EFTA States, the five-member Court remained in session until 30 June 1995 in order to conclude cases in which the events giving rise to them occurred before 1 January 1995, see the earlier Agreement of 28 September 1994 on Transitional Arrangements for a period after the Accession of certain EFTA States to the European union, Arts. 5 and 7. 3 EFTA Court Press Release 11/2011 of 8 December 2011: “An extended EFTA Court? The EFTA Court proposes amendments to the SCA”.

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five-member panel should be set up to screen a nominated candidate’s suitability to perform the duties of a Judge, ad hoc Judge or Advocate General before the EFTA States make the appointments. However, none of these proposals have so far been acted upon by the EFTA States.

Article 29 [Quorum] Decisions of the Court shall be valid only when all its members are sitting in the deliberations.

Under the original seven-Judge provision, the Court was to sit in plenary ses- 1 sion, but decisions of the Court were valid if five members were sitting. The current wording of Art. 29 requires that all members are sitting for decisions to be valid. It was introduced when the number of Judges was reduced to five. The provision is reproduced in Art. 22 RoP, with the addition that decisions 2 on administrative matters may be adopted with two Judges present. In that case, the President has a casting vote. Pursuant to Art. 8 of the Statute, decisions of the Court are taken by a majori- 3 ty of the Judges sitting in the deliberations. Art. 31 of the Statute provides that the deliberations shall be and shall remain secret. In line with the system at the ECJ, the Court does not publish dissenting opinions. Since reappointment of a retiring Judge is possible, secrecy is intended to protect the independence of the Judge. It would have been incompatible with that independence, and therefore with the independence of the Court, if deliberations and voting were motivated by a Judge’s interest in reappointment.

Article 30 [Members] The Judges shall be chosen from persons whose independence is beyond doubt and who possess the qualifications required for appointment to the highest judicial offices in their respective countries or who are jurisconsults of recognized competence. They shall be appointed by common accord of the Governments of the EFTA States for a term of six years. Retiring Judges shall be eligible for reappointment. The Judges shall elect the President of the EFTA Court from among their number for a term of three years. He may be re-elected. In case one of the Judges, in the opinion of the two other Judges, is disqualified from acting in a particular case, the two other Judges shall agree on a person to replace him chosen from a list established by common accord by the Governments of the EFTA States. If they cannot agree that person shall be chosen from the list by lot by the President. With regard to a Judge chosen in this way the rules applicable to regular Judges shall apply mutatis mutandis. In any case Article 4, second paragraph, and Article 13, of Protocol 5 shall not apply.

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I. Introduction

Art. 30 is inspired by what is now Art. 19(2) TEU and Art. 253 TFEU. It has undergone two substantive changes since its adoption. The provision originally provided for a partial replacement of judges every third year. Under the sevenJudge formation, alternately three and four Judges were to be replaced. Under the five-Judge formation, these numbers were reduced to two and three. Following the reduction to three Judges, there is no longer any provision on a replacement pattern. 2 Furthermore, the fourth paragraph concerning a Judge who is disqualified from acting, was introduced following the reduction to three Judges. Since the Court’s decisions are only valid when all its members are sitting, a procedure for appointing ad hoc Judges was necessary. 1

II. Appointment of Judges

The first paragraph establishes professional requirements that must be fulfilled by the Judges and sets out the procedure for their appointment. The provision substantially corresponds to Art. 19(2) third paragraph TEU and Art. 253(1) TFEU. It is supplemented by provisions in the Statute further regulating the rights and obligations of the Judges. 4 Art. 30(1) states that the Judges must possess the qualifications required for appointment to the highest judicial offices in their State or be recognized experts of law (“jurisconsults of recognized competence”). Since the establishment of the Court, the appointed Judges have had their professional background from civil service, the judiciary, academia, or combinations of these.1 5 The Judges are appointed by common accord of the Governments of the EFTA States. This decision is made by the EFTA States’ ambassadors, or their representatives, gathered in Brussels in the ESA/Court Committee. In practice, each EFTA State nominates one person.2 Similar to the ECJ, there is no nationality requirement. 6 The judges must be chosen from persons whose independence is beyond doubt. Once an appointment has taken place, Art. 2 of the Statute obliges each Judge, before taking up his duties and in open court, to take an oath to perform 3

1 Former and current Judges and their most recent position before that: Leif Sevón (1994-1995), Supreme Court Justice; Bjørn Haug (1994-1999), Attorney General; Thór Vilhjálmsson (1994-2002), Supreme Court Chief Justice; Kurt Herndl (1994-1995), ambassador; Sven Norberg (1994-1995), Director of Legal Affairs, EFTA Secretariat in Geneva; Gustav Bygglin (1995), legal secretary, EFTA Court; Carl Baudenbacher (1995-), university professor; Per Tresselt (2000-2005), ambassador; Thorgeir Örlygsson (2003-2011), Secretary General, Ministry of Industry and Trade; Henrik Bull (2006-2011), associate university professor; Per Christiansen (2011-), university professor; and Páll Hreinsson (2011-), Supreme Court Justice. 2 For an overview of the nomination procedures in the respective countries, see Baudenbacher, ‘The EFTA Court: Structure and Tasks’ in: Baudenbacher (ed), The Handbook of EEA law, p. 140.

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his duties impartially and conscientiously and to preserve the secrecy of the deliberations of the Court. The judges are appointed for a term of six years.3 A judge may resign before 7 the end of this term. Pursuant to Art. 6 of the Statute, a Judge may be deprived of his office, but only if, in the unanimous opinion of the two other Judges, he no longer fulfils the requisite conditions or meets the obligations arising from his office. This procedure has never been invoked. III. Reappointment of Judges

According to the second paragraph, retiring Judges are eligible for reappoint- 8 ment.4 There is no age limit for Judges at the Court and no restriction on the number of times a Judge may be appointed. IV. Election of the Court’s President

According to the third paragraph, the Judges elect the President from among 9 their number for a renewable term of three years.5 The procedure for electing the President is laid down in Art. 6 RoP. The President is attributed certain tasks by the Court’s Statute and RoP. He 10 shall direct the judicial business and the administration of the Court, preside at hearings and deliberations, and designates the Judge-Rapporteur for incoming 3 By an ESA/Court Committee decision of 1 December 2016, the EFTA States (upon nomination by Norway) decided to reappoint Judge Per Christiansen for a period of three years only. In the recitals to the decision, reference was made to the statutory retirement age of 70 years for Norwegian Supreme Court Judges. A complaint was submitted to ESA by a group of Norwegian legal scholars, alleging that the reappointment for a period of three years was in contravention of Art. 30. In a letter to the Norwegian Government, the Norwegian Judges’ Association also criticised the decision. The EFTA Court also received a request for an advisory opinion (Case E-21/16), in which a Liechtenstein court sought clarification on the lawfulness of the Court’s composition in light of the ESA/Court Committee decision. However, by a decision of 13 January 2017, the ESA/Court Committee repealed its previous decision and reappointed Judge Christiansen for a period of six years. By a decision of 14 February 2017, the EFTA Court declared in Case E-21/16 that it is lawfully composed. In its decision, the Court highlighted the principle of judicial independence and the aim to protect the independence of the Judges, underlying the six-year term in Art. 30. It stated that the SCA and the Statute of the Court do not contain a statutory retirement age and that the original decision on reappointment did not address the grounds on which a term of three years could be reconciled with Art. 30. However, the subsequent decision from the ESA/Court Committee removed any doubt as to the lawfulness of the Court’s composition. 4 Each of the three Icelandic Judges has been reappointed. Judge Vilhjálmsson served from 1994 to 2002, and Judge Örlygsson served from 2003 to 2011. Judge Hreinsson was appointed in 2011 for the remainder of his predecessor’s mandate and reappointed in 2015. For Liechtenstein, Judge Baudenbacher has been reappointed several times and served as a Judge since 1995. Judge Christiansen was appointed in 2011 and reappointed in 2017. 5 Judge Sevón was elected President from January 1994 and served until he became an ECJ Judge in January 1995. Judge Haug was elected President from March 1995, and was re-elected for a new term starting in January 1997. He retired in December 1999. Judge Vilhjálmsson was elected President from January 2000 until he retired in December 2002. Judge Baudenbacher was elected President from January 2003, and has been re-elected. His current term expires in December 2017.

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cases.6 He may recuse a Judge from a case and fixes the date and time of the sittings of the Court.7 The President may extend the time limit for lodging a defense, give a case priority over others, and decide that an expedited or accelerated procedure be applied.8 He decides on costs in discontinued cases and may stay proceedings, suspend the execution or enforcement of an ESA decision, and prescribe interim measures.9 The President also decides on applications for intervention.10 V. Ad hoc Judges 11

12

13 14

15

The fourth paragraph concerns situations where a Judge is disqualified from acting. This will be the case where the Judge lacks the necessary impartiality or independence. The Statute provides further guidance on in which situations Art. 31(4) SCA may be relevant. As a means of seeking to avoid a Judge being disqualified from acting, Art. 4 of the Statute prohibits the Judges from holding any political or administrative office. Moreover, they may not engage in any occupation, whether gainful or not, unless exemption is granted by the Governments of the EFTA States.11 Art. 15(1) of the Statute prescribes that a Judge may not take part in the disposal of a case in which he has previously taken part in any capacity. Even if Art. 15(1) does not apply, a Judge may be disqualified under Art. 15(2) if he for some special reason lacks impartiality or independence. The Court has held that provisions of EEA law are to be interpreted in light of fundamental rights, and that the ECHR and the judgments of the ECtHR are important sources for determining the scope of these fundamental rights.12 The right to a fair trial guaranteed by Art. 6 ECHR includes the right to an impartial tribunal. The impartiality test consists of a subjective and an objective element.13 The subjective test concerns whether the Judge will in fact be able to assess the case impartially. The objective test concerns how the matter may be perceived by others if the Judge participates. An example may be if a Judge has publicly stated his opinion on a legal question directly relevant to a dispute that will be heard by the Court.14 Another 6 7 8 9 10 11

12 13

Arts. 7 and 8 RoP. Arts. 15 and 21 of the Statute, respectively. Arts. 35, 42, 59 a and 97 a RoP, respectively. Respectively Arts. 73, 74, 79 RoP and Art. 35 of the Statute, and Art. 82 RoP for interim measures. Art. 89 RoP. Pursuant to Art. 6(2) of ESA/Court Committee Decision No 1/2008 of 30 June 2008 on Rules and Procedure for Occupational Activities of the Judges of the EFTA Court, the Judges shall annually provide the ESA/Court Committee with a statement of occupational activities for the previous year. In the interest of enhanced transparency, the EFTA Court has since 2007 made available information on occupational activities of the Judges on its website. This information is available at http://www.eftacourt.int/the-court/members-staff/judges-and-staff/, 23.8.2017. Case E-15/10, 18.4.2012, Posten Norge v ESA, para. 85 and case law cited. See for example the ECtHR judgment of 23 April 2015 Morice v France (GC), no. 29369/10, para. 73.

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example may be where a Judge has a close relation to one of the parties, national judges, attorneys or agents of the case. According to the fourth paragraph of Art. 15 of the Statute, however, the nationality of a Judge shall not be a reason to replace the Judge. The question of impartiality may be raised by a party. It may also be raised by the Judge in question or by the President, pursuant to the second paragraph of Art. 15 of the Statute. Moreover, there is nothing to prevent the third Judge from raising the issue. It is normally for the President to decide whether a Judge should be recused. Any difficulty arising in this regard shall be settled according to the fourth paragraph of Art. 30, pursuant to which the two other Judges shall decide whether a Judge is disqualified from acting. In cases where a Judge is disqualified from acting, he is replaced by a person chosen from a list established by common accord by the Governments of the EFTA States. That list includes two persons nominated by each EFTA State.15 The Judge is replaced by a person nominated by the EFTA State that appointed the Judge in question. The choice of which of the two potential ad hoc Judges are chosen, is made either by agreement of the two other Judges or, “if they cannot agree”, by lot by the President.16 Replacement may also happen in case of a Judge’s valid absence for other reasons, for example a reason of health. Where a Judge is replaced, Art. 30(4) states that the rules applicable to regular Judges shall apply mutatis mutandis to the ad hoc Judge, with the exception of the rules in Arts. 4(2) and 13 of the Statute restricting a Judge’s occupation and requiring residency in Luxembourg.

Article 31 [Infringement action] If the EFTA Surveillance Authority considers that an EFTA State has failed to fulfil an obligation under the EEA Agreement or of this Agreement, it shall, unless otherwise provided for in this Agreement, deliver a reasoned opinion on the matter after giving the State concerned the opportunity to submit its observations.

14 See for example Joined Cases E-9/07 and E-10/07, 8.7.2008, L’Oréal, where President Baudenbacher was recused, and Case E-16/11, 28.1.2013, ESA v Iceland (“Icesave”), where Judge Christiansen was recused. 15 The first list of persons to serve as ad hoc judges was approved by the ESA/Court Committee in October 1997. The list has regularly been updated since then. Former and current ad hoc judges (time served and number of appearances, if any, in parenthesis): Davið Thór Björgvinsson (1997-2000), Erling Selvig (1997-2000), Marzell Beck (1997-2004), Stefán Már Stefánsson (1997-2007) (1), Martin Ospelt (1997-) (3), Bjørg Ven (1997-2013) (1), Henrik Bull (2001-2005), Dóra Guðmundsdóttir (2001-2007) (1), Nicole Kaiser (2004-), Ola Mestad (2006-) (2), Ingibjörg Benediktsdóttir (2007-2010), Benedikt Bogason (2007-2012 and 2013-) (2), Áslaug Björgvinsdóttir (2010-2013), Róbert Spanó (2012-2013), Ása Ólafsdóttir (2013-) and Siri Teigum (2013-). 16 Second sentence of Art. 30(4) SCA.

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19 20

PART III: The Agreement on ESA and EFTA Court If the State concerned does not comply with the opinion within the period laid down by the EFTA Surveillance Authority, the latter may bring the matter before the EFTA Court.

I. The infringement procedure 1

2 3

4

5

6

7

8

Art. 31 authorises ESA to initiate infringement proceedings against an EFTA State for failure to fulfil obligations arising from the EEA Agreement or the SCA. The infringement procedure corresponds to what is now Art. 258 TFEU.1 The investigation leading to the conclusion that an EFTA State has failed to fulfil its obligations, may be at ESA’s own initiative or following a complaint.2 ESA alone is competent to decide whether it is appropriate to bring proceedings under Art. 31. Consequently, a private applicant cannot challenge a refusal by ESA to initiate infringement proceedings against an EFTA State.3 Before taking action, ESA must deliver a reasoned opinion after giving the State concerned the opportunity to submit its observations. Before reaching this stage, ESA will have had informal contact with the State concerned to request information, based on preliminary observations. Depending on the information received, this may lead ESA to close the case, either because it has been convinced by the EFTA State that no breach has taken place, because the EFTA State has decided to accommodate ESA’s concerns or because ESA chooses to exercise its discretion against pursuing the matter further. However, if no solution is reached at this stage, ESA may initiate the formal procedure, which involves delivering a preliminary opinion of a breach of EEA law in a letter of formal notice. An EFTA State may accept ESA’s opinion and make the necessary adaptations. If the EFTA State disagrees, it may be able to convince ESA of its view. If ESA is not satisfied with the response from the EFTA State, it may issue a reasoned opinion in accordance with the first paragraph of Art. 31. This will state ESA’s final opinion, concluding that the EFTA State has failed to fulfil one or more obligations under EEA law. Failure to comply with the reasoned opinion within the period laid down by ESA, allows ESA to bring the matter before the Court under the second paragraph of Art. 31. ESA can bring proceedings as soon as the time limit has expired. In principle, however, ESA may also decide not to act. If ESA decides to bring proceedings,4 it may choose whether to include the alleged breaches of EEA law fully or partly. However, ESA may not address alleged breaches that have not been identified in the reasoned opinion. Allowing for ESA to put forward new elements 1 For commentary on this provision, see for example Lenaerts, Maselis and Gutman, EU Procedural Law (2014), pp. 159-204. 2 For a detailed description of ESA’s tasks under the SCA, see the comments by Bjørgan on Art. 5 SCA. 3 Cases E-13/10, 30.1.2011, Aleris Ungplan v ESA, para. 27; E-2/13, 23.10.2013, Bentzen Transport v ESA, paras. 40 to 42, and E-2/16, 24.5.2016, Spitzer v ESA, para. 22.

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would go against the objective of the pre-litigation procedure, which is inter alia to allow for the State concerned to put forward its defence to ESA’s complaints. The proper conduct of the procedure constitutes an essential guarantee not only for the protection of the rights of the States, but also for ensuring that the scope of the dispute is clearly defined.5 Prior to bringing proceedings before the Court, ESA must consider whether 9 the EFTA State has complied with the reasoned opinion. This is straight forward if no steps have been taken by the State concerned. However, the situation may be that the EFTA State has adopted measures to accommodate the reasoned opinion. ESA must then assess whether the steps taken were sufficient to comply with the reasoned opinion. Whether an EFTA State has failed to fulfil its obligations must be determined 10 by reference to the situation as it stood at the end of the period laid down in the reasoned opinion.6 Therefore, compliance with the reasoned opinion after the expiry of the time limit is not relevant for the assessment of whether there has been a breach of EEA law. Nor does compliance deprive ESA of its legal interest in obtaining the Court’s decision on whether the EFTA State failed to fulfil its obligations under EEA law by the end of the period laid down in the reasoned opinion.7 The period laid down by ESA must be reasonable and allow for the EFTA 11 State to reply to the letter of formal notice and to comply with a reasoned opinion or, where appropriate, prepare its defence. In order to determine whether the period allowed is reasonable, account must be taken of all the circumstances of the case. Very short periods may be justified in particular circumstances, especially where there is an urgent need to remedy a breach or where the EFTA State concerned is fully aware of ESA’s views long before the procedure starts.8 If the EFTA State has not been allowed a reasonable time limit, this may result in the Court rendering the action inadmissible. However, even where the time limit is considered unreasonable, a case may still be admissible where it is clear that the pre-litigation procedure was validly carried out and that the short time limit therefore did not cause negative consequences for the EFTA State concerned.9

4 In Case E-9/11, 16.7.2012, ESA v Norway, the EFTA Court stated that when assessing whether to bring a case before the Court, “it is in the interest of the proper functioning of the EEA Agreement that ESA proceeds within an appropriate time” or “without undue delay”. In the EU, the ECJ has not set an equivalent standard for the Commission in its assessment of whether and when to bring a case before the ECJ. This potential departure from procedural homogeneity has met some criticism, see Sletnes, “The EFTA Surveillance Authority and the Surveillance of the EEA Agreement” in EFTA Court (ed), The EEA and the EFTA Court. Decentred Integration (2014), pp. 505-506; and Fredriksen and Mathisen, EØS-rett, 2014, p. 179-180. 5 Case C-160/08, 29.4.2010, Commission v Germany, para. 42. For more on the objective of the pre-litigation procedure and the definition of the subject-matter, see Lenaerts, EU Procedural Law, 2014, points 5.40, 5.51 and 5.52. 6 See for example Case E-23/15, 1.2.2016, ESA v Liechtenstein, para. 19 and case law cited. 7 Case E-19/14, 19.6.2015, ESA v Norway, para. 38. 8 Case 293/85, 2.2.1988, Commission v Belgium, para. 14, and subsequent case law of the ECJ.

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II. Additional infringement procedure under Protocol 3 SCA 12

A special infringement procedure is provided for in Protocol 3 SCA on the functions and powers of ESA in the field of State aid. Art. 23(1) of Part II of that protocol, corresponding to the second paragraph of Art. 108(2) TFEU, provides that where an EFTA State does not comply with conditional or negative decisions, in particular in cases of recovery of unlawful aid referred to in Art. 14 of Part II of the protocol, ESA may refer the matter to the Court directly under Art. 1(2) of Part I of Protocol 3 SCA. Pursuant to Art. 23(2), the same applies where ESA considers that the EFTA State concerned has not complied with a judgment of the Court.10 Art. 1(2) of the protocol explicitly derogates from Art. 31 SCA.11 The reason for this derogation is the need for a swift enforcement of State aid law. III. The direct action procedure before the Court

Infringement cases against an EFTA State initiated by ESA before the EFTA Court under Art. 31(2) fall within the category of cases that is commonly referred to as direct actions.12 14 The procedure before the Court in direct action cases is initiated by an application that must satisfy certain criteria.13 The defendant has two months to submit its defence.14 The applicant may submit a reply, after which the defendant may submit a rejoinder.15 In addition, the EFTA States, ESA, the EU Member States and the Commission are invited to submit statements of case or written observations within two months from receiving a copy of the application and the defence.16 They may also formally intervene in support of one of the parties. Sometimes a private individual may do the same.17 The intervener may submit a statement in intervention, to which the parties may reply.18 Such pleadings will conclude the written stage of the procedure. 13

9 See for example Case 74/82, 31.1.1984, Commission v Ireland, paras. 12 and 13. In that case, a five-day time limit was found unreasonable, but did not lead to inadmissibility because the Commission had given Ireland the opportunity to put forward its defence after the expiry of the time limit and allowed for further reply even after extending the period. The Commission’s “regrettable behaviour” in setting an unreasonable time limit in the reasoned opinion had therefore not affected the further course of the proceedings and the case was admissible. 10 This corresponds to Art. 28 of Council Reg. (EU) 2015/1589 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union. 11 See Cases E-2/05, 24.11.2005, ESA v Iceland, and E-25/15, 29.7.2016, ESA v Iceland. 12 The other direct action cases are infringement cases against an EFTA State initiated by another EFTA State under Art. 32 and proceedings by an EFTA State or an individual against ESA for annulment, failure to act, or damages under Arts. 36, 37 and 39 SCA, respectively. 13 Art. 19 of the Statute and Art. 33 RoP. 14 Art. 35 RoP. 15 Art. 36 RoP. 16 Art. 20 of the Statute. However, if ESA or one or more EFTA States are parties to the dispute, their view may be expressed in the application or the defence. 17 Art. 36 of the Statute. 18 Art. 89(5) and Art. (6) RoP.

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The written stage is followed by an oral hearing. However, with the parties’ consent, the Court may decide to dispense with the hearing and proceed directly to judgment.19 The language of the Court is English. Parties and interveners other than the EFTA States, ESA, the EU Member States and the Commission may however be allowed, “if deemed necessary”, to plead orally in an official language of the EU or an EFTA State.20 A party who is wholly or in part unable to meet the costs of the proceedings in direct actions may be granted legal aid.21 The Court procedure normally takes eight to 12 months. An expedited or accelerated procedure may exceptionally be applied.22 Since the establishment in 1994, the Court has received more than 280 cases, of which around 60 per cent are direct actions.23 The Court’s workload has varied over the years, with a sharp increase in the number of cases as of 2011. Since then, the Court has received on average about 25 cases a year. In 2015, 36 cases were brought before the Court.

15

16

17 18 19

Article 32 [Infringement action by an EFTA State] The EFTA Court shall have jurisdiction in actions concerning the settlement of disputes between two or more EFTA States regarding the interpretation or application of the EEA Agreement, the Agreement on a Standing Committee of the EFTA States or the present Agreement.

Art. 32 corresponds to what is now Art. 259 TFEU. It grants the EFTA Court 1 jurisdiction in disputes between two or more EFTA States concerning the EEA Agreement, the Agreement on a Standing Committee of the EFTA States, or the SCA.1 The provision has till now not been invoked before the EFTA Court. In practice, the EFTA States leaves the intra-EFTA enforcement of alleged breaches of EEA obligations to ESA. In EU law, Art. 259 TFEU requires a Member State first to bring the matter 2 before the Commission. Only after the Commission has adopted a reasoned opinion, or if no such opinion is adopted within three months, may an action be 19 20 21 22 23

Art. 41(2) RoP. Art. 25(4) RoP. Art. 72 RoP. Art. 59 a RoP. This includes a specific type of cases on the taxation of costs. In direct action cases, the Court decides on the division of costs in accordance with Art. 66 RoP. The decision does, however, not specify the recoverable amount. If there is a dispute between the parties concerning the costs to be covered, a party may submit an application to the Court under Art. 70 RoP, upon which the Court makes an order. Such cases hardly occurred until 2012. Since then, the Court has received on average one case a year. 1 For more on the issue of jurisdiction, see Fredriksen, ‘The EFTA Court’, in Fabri, Howse and Ulfstein (eds), The Legitimacy of International Trade Tribunals, Cambridge 2017, chapter 3 (forthcoming).

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brought before the ECJ. No equivalent requirement exists under Art. 32 SCA, even though Art. 259 TFEU is identical to Art. 170 EEC, which was in force when the SCA was signed. Consequently, an EFTA State may bring proceedings before the EFTA Court against another EFTA State without fulfilling any procedural requirements involving ESA. 3 An EFTA State whose interests might be affected by another EFTA State’s granting of aid,2 may apply the special procedure provided for in Art. 1(2) of Part I of Protocol 3 SCA in cases where the latter EFTA State has not complied with an ESA decision prohibiting the aid. That provision explicitly derogates from Art. 32 SCA. 4 Were a case to be raised under Art. 32, the procedure before the Court would follow the procedure in direct actions, see part III under Art. 31 on the direct action procedure in practice.

Article 33 [Compliance with judgements of the EFTA Court] The EFTA States concerned shall take the necessary measures to comply with the judgments of the EFTA Court.

Art. 33 corresponds to what is now Art. 260 TFEU. It lays down an obligation to comply with the EFTA Court’s judgments. Compliance with a judgment requires the EFTA State concerned to bring the infringement established by the Court to an end. 2 The judgments of the Court in infringement proceedings will take the form of declaring that a legal or factual situation in the EFTA State is fully, partly or not in breach of EEA law. In case of a finding of one or more breaches of EEA law, the operative part will not directly order an EFTA State to take specific measures, normally apart from paying the costs of the proceedings. However, the Court’s declaration imposes obligations that the EFTA State concerned must fulfil. Art. 33 merely states that “the necessary measures” must be taken. What those measures are, will depend on an interpretation of the judgment. Frequently, obligations may be fulfilled in more than one way. If a judgment may be complied with in different ways, the EFTA State concerned may choose its measure of compliance.1 In the case of legislation found to be in breach of EEA law, the State concerned must amend the legislation. If the judgment concerns a failure to implement a legal act into the legal order, that legal act must be imple1

2 See the definition of interested party in Art. 1(h) of Part II of Protocol 3 SCA. 1 Two examples mentioned by Fredriksen and Mathisen, EØS-rett, 2014, p. 206, are Cases E-3/00, 5.4.2001, ESA v Norway (Kellogg’s Cornflakes) and E-2/06, 26.6.2007, ESA v Norway (Hydropower). In both cases, the restrictions in question could remain in place after amendments done to other parts of the respective regulatory regimes: removal of iron fortification from whey cheese in the Kellogg’s case and removing the possibility for private concessions in hydropower production in the Hydropower case.

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mented. If the judgment concerns a failure to recover unlawful State aid, the unlawful State aid must be recovered, and so on. Art. 33 does not specify the period within which the measures necessary to comply with a judgment must be taken. However, in the interest of immediate and uniform application of EEA law, “the process of compliance with a judgment must be commenced immediately and completed as soon as possible”.2 An EFTA State will need time after a judgment to analyse it and to consider the way to implement it. Compliance may require amendments to national legislation, which sets in motion a legislative procedure. Therefore, a reasonable period of time must have passed before an EFTA State may be considered to have infringed Art. 33. The assessment will depend on the circumstances of the case, in particular its complexity. However, circumstances concerning provisions, practices or situations prevailing in the domestic legal order are the responsibility of the EFTA State concerned and cannot justify a failure to observe obligations arising under EEA law.3 Art. 33 is based on Art. 171 EEC, now Art. 260(1) TFEU. However, pursuant to changes brought by the Lisbon Treaty, Art. 260(2) TFEU abolishes the requirement of issuing a reasoned opinion in infringement proceedings.4 This allows the Commission to bring a case for failure to implement a judgment to the ECJ after giving the Member State concerned the opportunity to submit its observations.5 Art. 33 SCA has not been amended correspondingly. Therefore, ESA still has to issue a reasoned opinion before bringing a case to the EFTA Court under that provision. A more important difference is that Art. 260(2) TFEU authorises the ECJ, upon an application from the Commission, to impose a lump sum or penalty payment to be paid by the EU Member State in question. The lump sum is a fixed amount to be paid once, whereas the penalty payment is a daily fine. This sanction was introduced with the EU Treaty in 1993. The EFTA Court may not impose a lump sum or penalty payment upon the EFTA State concerned. It has nevertheless emphasised that the lack of such a provision does not entail that the obligation on EFTA States to comply with the judgments of the Court is less strict than the corresponding obligation on EU Member States.6 The Court has until now dealt with three cases concerning failure to comply with a judgment. In Case E‑18/10 ESA v Norway, Norway had in a judgment from October 2007 been held to infringe the principle of equal treatment laid 2 See Cases E-18/10, 28.6.2011, ESA v Norway, para. 29; E-19/14, 19.6.2015, ESA v Norway, para. 42; and E-4/16, 16.11.2016, ESA v Norway, paras. 27 and 28. 3 See for example Case E-19/14, 19.6.2015, ESA v Norway, para. 48. 4 For commentary on Art. 260 TFEU, see, inter alia, Lenaerts, EU Procedural Law, 2014, pp. 205 to 214. 5 See for example the judgment in case C-378/13, 2.12.2014, Commission v Greece, para. 27. 6 Case E-19/14, 19.6.2015, ESA v Norway, para. 41 and case law cited. Moreover, where an individual or an economic operator suffers a financial loss due to the non-compliance, the EFTA State in question may be obliged to provide compensation in accordance with the conditions of State liability, see Case E-18/10, 28.6.2011, ESA v Norway, para. 28.

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down in Art. 69(1) EEA and secondary legislation by granting survivor’s pension to widows on more favourable terms than to widowers. More than two years passed without Norway adopting the legislation necessary to comply with the judgment, and ESA initiated a procedure claiming a breach of Art. 33. This claim was undisputed by Norway and the Court gave judgment in ESA’s favour. 8 In Case E-19/14 ESA v Norway, Norway had in a judgment from July 2012 been held to breach Arts. 31 and 40 EEA by maintaining in force restrictions on shareholder and voting rights in financial services infrastructure institutions in Norway. In June 2013, ESA issued a reasoned opinion stating that Norway had failed to comply with the judgment. It was undisputed that the legislative measures necessary to comply with the judgment had not been adopted within two months from the reasoned opinion. In the proceedings before the Court, Norway claimed that the time that had passed between the judgment and the expiry of the time prescribed in the reasoned opinion (approximately 13 months), were insufficient in order to comply with the judgment. However, having regard to the overall history of the case, and the fact that possible adjustments were indicated in the first judgment, the Court found that the length of the period set by ESA was objectively sufficient for Norway to adopt the measures needed to comply with the judgment. 9 In Case E-4/16 ESA v Norway, the EFTA Court had in a judgment from December 2013 held that Norway had failed to implement correctly Art. 37(1) of Directive 2005/60/EC.7 In July 2015, ESA issued a reasoned opinion stating that Norway had failed to comply with the judgment. This claim was undisputed by Norway and the Court ruled in favour of ESA. 10 The relevant time period to be considered under Art. 33 is the period between the delivery of the judgment ascertaining the infringement and the expiry of the date set in the ensuing reasoned opinion.8

Article 34 [Advisory opinion] The EFTA Court shall have jurisdiction to give advisory opinions on the interpretation of the EEA Agreement. Where such a question is raised before any court or tribunal in an EFTA State, that court or tribunal may, if it considers it necessary to enable it to give judgment, request the EFTA Court to give such an opinion. An EFTA State may in its internal legislation limit the right to request such an advisory opinion to courts and tribunals against whose decisions there is no judicial remedy under national law.

7 Dir. 2005/60/EC on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing. 8 Case E-19/14, 19.6.2015, ESA v Norway, para. 43.

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I. Introduction to the advisory opinion procedure1

Art. 34 establishes the EFTA Court’s jurisdiction to give advisory opinions 1 on the interpretation of the EEA Agreement. Supplementary rules on this procedure are found in Arts. 96 and 97 RoP. Unlike direct actions prescribed in Arts. 31, 32, 36, 37 and 39 SCA, where a 2 case starts and ends with the EFTA Court, the advisory opinion procedure before the EFTA Court is a step in proceedings that have begun and will be finalised within a national legal system. The purpose of Art. 34 is to establish cooperation between the EFTA Court 3 and the national courts and tribunals. It is intended as a “means of ensuring a homogenous interpretation” of the EEA Agreement and “to provide assistance” to the national courts and tribunals in cases in which they have to apply provisions of EEA law.2 It is the function of the Court to provide guidelines for the interpretation of EEA law that the referring court or tribunal has seen as necessary for the decision of the matter before it. It is for the national court or tribunal to examine and evaluate evidence and to make factual findings, and then apply EEA law to the facts of the case.3 II. The EFTA Court’s jurisdiction in advisory opinions proceedings

The jurisdiction of the Court under Art. 34 is confined to interpretation of 4 the EEA Agreement. Art. 1(a) SCA defines the EEA Agreement as the main part of the EEA Agreement, its Protocols and Annexes as well as the acts referred to therein.4 Since the SCA is only concluded between the EFTA States, the provisions of the SCA are not covered by the definition of the EEA Agreement in Art. 1(a). Furthermore, Art. 31 provides that ESA is to monitor the EFTA States’ obligations arising from the EEA Agreement as well as the SCA, thereby suggesting that the absence of a reference to the SCA in Art. 34 is deliberate. Many provisions of the SCA are not relevant to national proceedings. How- 5 ever, some provisions are, such as Art. 34. Moreover, Protocol 3 SCA, on the functions and powers of ESA in the field of State aid, contains provisions that may form the subject of disputes in national proceedings, notably in recovery procedures.5 The SCA seeks to fulfil functions in the EFTA pillar comparable to those found in the EU pillar of the EEA by virtue of the EU treaties, thereby aiming for a level playing field for economic operators and private individuals 1 See for comparison Art. 267 TFEU. For a presentation of the advisory opinion procedure, see for example Christiansen, ‘Om EFTA-domstolens rådgivende uttalelser’ in: Matningsdal et al. (eds), Festskrift til Tore Schei, Rettsavklaring og rettsutvikling (2016), pp. 419 to 437. 2 See for example Case E-1/94, 16.12.1994, Restamark, para. 25, and Joined Cases E-26/15 and E-27/15, 3.8.2016, Criminal Proceedings against B, para. 52. 3 Case E-14/15, 19.4.2016, Holship Norge, para. 37 and case law cited. 4 See also Art. 119 EEA, according to which “[t]he Annexes and the acts referred to therein as adapted for the purposes of this Agreement as well as the Protocols shall form an integral part of this Agreement”.

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throughout the EEA. The Court must therefore be considered competent to interpret provisions of the SCA in advisory opinion procedures. 6 A difference in principle between Art. 34 SCA and Art. 267 TFEU is that the ECJ may rule not only on the interpretation of acts of EU institutions, bodies, offices or agencies, but also on the validity of such acts. Therefore, although the ECJ may not rule on the validity of a treaty provision, it may, upon a reference from a national court or tribunal, annul provisions for example of a directive or a decision at issue in national proceedings. The EFTA Court has no jurisdiction to rule on the validity of an EEA act in an advisory opinion procedure. 7 Acts of EEA law have their basis in corresponding EU acts. As long as the act of EU law is valid, the resulting EEA act, adopted by the EEA Joint Committee, must be presumed to be valid too. Whether an EU act is valid is a matter of EU law. Such interpretations are not within the remit of the EFTA Court, but for the ECJ to pronounce. 8 In practice, the EFTA Court must therefore assume the validity of provisions of EU law in advisory opinion procedures. However, the Court has assessed whether the EEA Joint Committee acted within its competence when incorporating an act into the EEA Agreement.6 Provisions on the competence and procedure of the EEA Joint Committee are laid down in Part VII of the EEA Agreement, and may therefore be the subject of interpretation in an advisory opinion procedure pursuant to Art. 34.7 III. The notion of “court or tribunal”

The second paragraph of Art. 34 states that a question of interpretation of the EEA Agreement may be referred to the Court by any court or tribunal in an EFTA State. It must be assessed in general what is meant by court or tribunal. 10 Since its first advisory opinion, the Court has held that the expression court or tribunal in Art. 34 must be given an autonomous interpretation. It is therefore not decisive how the referring body has been classified under national law.8 In assessing whether the referring body is a court or tribunal within the meaning of Art. 34, the Court will consider a number of factors including, “in particular, whether the referring body is established by law, has a permanent existence, exercises binding jurisdiction, applies the rule of law and is independent, and, as the case may be, whether its procedure is inter partes and similar to a court procedure”.9 The purpose of the provision, namely to establish cooperation between 9

5 Where the national case concerns the validity of a national measure implementing an ESA decision on recovery of State aid, ESA even encourages the national court to make use of the procedure laid down in Art. 34 SCA, see ESA’s Guidelines on “Enforcement of State Aid Law by National Courts”, points 14 and 64. 6 Case E-6/01, 9.10.2002, CIBA and Others, paras. 20 to 23. 7 For more on the competence of the EEA Joint Committee, see the comments by Tynes to Art. 92 EEA and Art. 93 EEA, mn. 3-6, and the comments by Dystland/Finstad/Sørebø to Art. 102 EEA, in particular mn. 2, 4 and 32. 8 Case E-1/94, 16.12.1994, Restamark, para. 24.

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the Court and the courts and tribunals in the EFTA States, must also be taken into account.10 The Court has stated that “a strict interpretation of the terms ‘court’ and ‘tribunal’ is not required under Article 34 SCA”.11 In light of such observations, the Court has declared admissible requests from 11 the Appeals Committee at the Finnish Board of Customs,12 the Norwegian Market Council,13 the Appeals Commission of the Liechtenstein Financial Market Authority,14 the Norwegian Appeal Board for Health Personnel,15 the Norwegian Tax Appeals Board for the Central Tax Office for Large Enterprises,16 and the Norwegian Board of Appeal for Industrial Property Rights.17 The Court has not yet received a reference from an arbitration tribunal in 12 commercial arbitration. Whether such tribunals have an individual right to make a request for an advisory opinion to the Court, remains to be decided.18 It may be added that under Norwegian law, an arbitration tribunal may, pursuant to Section 30 of the Arbitration Act, ask a national court to request on its behalf an advisory opinion from the Court.19 For a national body to be accepted as a court or tribunal within the meaning 13 of Art. 34, it has to perform a judicial function. There must be a case pending before it and the national body must be called upon to give judgment in proceedings intended to lead to a decision of a judicial nature.20 In light of the purpose of Art. 34, the distinction between judicial and administrative functions may not require a strict application.

9 Case E-5/16, 6.4.2017, Municipality of Oslo, para. 38. 10 Case E-1/94, 16.12.1994, Restamark, para. 25. See also Case E-5/16, 6.4.2017, Municipality of Oslo, para. 36. 11 Case E-9/14, 10.11.2014, Otto Kaufmann, para. 28. 12 Case E-1/94, 16.12.1994, Restamark, paras. 24 to 31. 13 Joined Cases E-8/94 and E-9/94, 16.6.1995, Mattel and Lego, paras. 12 to 16, and Case E-4/04, 25.2.2005, Pedicel, paras. 20 and 21. 14 Case E-4/09, 27.1.2010, Inconsult, paras. 22 to 24. 15 Case E-1/11, 15.11.2011, Dr. A, paras. 32 to 42. 16 Joined Cases E-3/13 and E-20/13, 9.7.2014, Olsen and Others, paras. 58 to 72. 17 Case E-5/16, 6.4.2017, Municipality of Oslo. 18 The ECJ has deemed such tribunals not to constitute a “court or tribunal of a Member State” (see the judgment in case 102/81, 23.3.1982, Nordsee, para. 13). Compulsory arbitration provided for by Member State law has, however, been regarded by the ECJ to fulfil the criterion (see inter alia the order in case C-555/13, 13.2.2014, Merck Canada, para. 18). 19 For more on the possibility of arbitration tribunals to refer questions to the Court, see Woxholth, Voldgift, (2013), pp. 172 to 175, and Fjeld, ‘Retten til å forelegge spørsmål for EFTAdomstolen etter domstolloven § 51a’ in Lov og Rett 2009, pp. 532-548, point 3.4 and sources cited. 20 A decision of a judge whether to enter a conviction in criminal proceedings onto the criminal record of the person concerned, has been held to be of a judicial nature (see Case E-9/14, 10.11.2014, Otto Kaufmann, paras. 29 and 30). The EFTA Court has also held that a national court overseeing administrative cooperation between the national authorities of the EEA States concerning insider dealing and market manipulation, and whose decisions in such procedures cannot be appealed, exercises a judicial function in that capacity (see Case E-23/13, 9.5.2014, Hellenic Capital Market Commission, paras. 35 to 39).

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IV. The necessity and relevance of the request

Whether an advisory opinion is necessary in the case at hand is for the referring court or tribunal to decide.21 The national court may refer a question of interpretation of EEA law to the EFTA Court when such a question is raised before it. In the majority of cases, the decision to submit a reference will be made on an application by one or both parties in the national proceedings. However, it is settled case law that the national court may refer a case without being requested to do so by any party.22 15 Once a reference is made, the questions of interpretation of EEA law enjoy a presumption of relevance. Accordingly, the Court “may only refuse to rule on a question referred by a national court where it is quite obvious that the interpretation of EEA law that is sought bears no relation to the actual facts of the main action or its purpose, where the problem is hypothetical, or where the Court does not have before it the factual or legal material necessary to give a useful answer to the questions submitted to it”.23 16 A question referred may already have been resolved by the EFTA Court. This does not by itself affect the admissibility of the request. However, when a question referred is manifestly identical to a question the Court has already resolved, it may give a decision by reasoned order referring to the previous judgment or opinion, cf. Art. 97(3) RoP. So far, the Court has not resorted to this procedure.24 The corresponding provision in Art. 99 of the Rules of Procedure of the ECJ has a broader scope, as a ruling by reasoned order is possible also in situations where the reply to a referred question “may be clearly deduced from existing case-law or where the answer […] admits of no reasonable doubt”. 17 So far, the Court has not dismissed as inadmissible a request for an advisory opinion. However, the Court has limited the scope of a request by ruling that some of the questions submitted were inadmissible.25 14

V. National limitations on the right to refer 18

The third paragraph of Art. 34 allows the EFTA States in their internal legislation to limit the right to request an advisory opinion to courts and tribunals against whose decisions there is no judicial remedy under national law. This

21 Case E-18/11, 28.9.2012, Irish Bank, para. 55. 22 Case E-18/11, 28.9.2012, Irish Bank, para. 55. 23 See Joined Cases E-15/15 and E-16/15, 10.5.2016, Hagedorn and Armbruster, para. 26 and case law cited. 24 In Case E-24/15, 2.6.2016, Waller, the Court referred to its findings in E-13/15, 16.12.2015, Bautista, due to clear similarities of the questions in those cases. See in particular paragraph 19: “The present case concerns legal issues that the Court dealt with to some extent in Case E-13/15 Bautista […] Accordingly, in answering the questions in the present case the Court will refer to relevant reasoning contained in Bautista”. For a similar situation, see also Cases E-25/13, 28.8.2014, Engilbertsson and E-27/13, 24.11.2014, Gunnarsson. 25 Case E-6/96, 27.6.1997, Wilhelmsen, where two out of four questions were dismissed, and Case E-11/12, 13.6.2013, Koch, where the Court found the first of four questions inadmissible.

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possibility is not applied by any of the EFTA States. In all three EFTA States, references may be made by a lower court or tribunal.26 Moreover, in Liechtenstein and Norway, a decision on whether to refer a question may not as such be appealed. However, in Iceland, a decision by a district court to refer a question or not may be appealed to the Supreme Court. The Supreme Court may overrule the district court’s decision and it may also amend a question.27 This procedural practice is not in itself precluded by Art. 34.28 VI. No obligation to refer

Unlike Art. 267(3) TFEU, Art. 34(3) does not oblige courts and tribunals 19 against whose decisions there is no judicial remedy under national law, to make a reference when a question of interpretation of EEA law arises.29 However, in Case E-18/11 Irish Bank, the EFTA Court stated that such courts and tribunals “will take due account of the fact that they are bound to fulfil their duty of loyalty under Art. 3 EEA”.30 It is the task of the ECJ and the EFTA Court to rule on unresolved questions of interpretation of EEA law, with a view to achieving a homogeneous application throughout the EEA. It would go against that purpose, and could therefore arguably be considered as incompatible with the duty of loyalty in Art. 3 EEA, if national courts of last instance proceeded to resolve such questions without referring them to the EFTA Court. Moreover, the Court has stated that “it must be kept in mind that when a court or tribunal against whose decisions there is no judicial remedy under national law refuses a motion to refer a case to another court, it cannot be excluded that such a decision may fall foul of the standards of Article 6(1) ECHR […] In particular this may be the case if the decision to refuse is not reasoned and must therefore be considered arbitrary […] These considerations may also apply when a court or tribunal against whose decisions there is no judicial remedy under national law overrules a decision of a lower court to refer the case, whether in civil or criminal proceedings, to another court, or upholds the decision to refer, but nevertheless decides to amend the questions asked by the lower court”.31

26 However, under Section 51 a of the Courts of Justice Act, the Norwegian Conciliation Boards are prevented from requesting advisory opinions. 27 For a critique of the Icelandic Supreme Court’s practice in this regard, see Hreinsson, ‘The Interaction between Icelandic Courts and the EFTA Court’ in EFTA Court (ed): Judicial Protection in the European Economic Area (2012), pp. 90-99. 28 Case E-18/11, 28.9.2012, Irish Bank, paras. 61 and 62. 29 See Broberg and Fenger, Preliminary References to the European Court of Justice (2nd edn, 2014), pp. 10-11; Schei et al., Tvisteloven – Kommentarutgave (2nd edn, 2013) p. 400; Fredriksen and Franklin, ‘Of pragmatism and principles: The EEA Agreement 20 years on’ (2015) 52 Common Market Law Review, pp. 629-684, at p. 672-673. Some authors have argued in favour of interpreting Art. 34 as including an obligation to refer for the courts of last instance also in the EFTA pillar of the EEA, see inter alia Baudenbacher, ‘The EFTA Court: Structure and Tasks’ in Baudenbacher (ed), The Handbook of EEA Law, p. 156; and Magnússon, ‘Efficient Judicial Protection of EEA Rights in the EFTA Pillar – Different Role for the National Judge?’ EFTA Court (ed), The EEA and the EFTA Court, pp. 122-124. 30 Case E-18/11, 28.9.2012, Irish Bank, para. 58. 31 Case E-18/11, 28.9.2012, Irish Bank, para. 64. For a critical view on this statement, see Fredriksen and Mathisen, EØS-rett, 2014, pp. 198-199.

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The number of referred cases to the EFTA Court from the highest courts in the EFTA States has historically been low. However, the past few years have brought a positive development in the number of references received from the Supreme Courts of Iceland, Liechtenstein and Norway.32 Requests for advisory opinions make up around 40 per cent of the Court’s workload. VII. The advisory opinion procedure before the Court

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An advisory opinion procedure is initiated by the request from a national court or tribunal. The request is notified to the parties, the EFTA States, ESA, the EU Member States and the Commission. Within two months from the notification, they may submit statements of case or written observations to the Court.33 That concludes the written stage. As for direct action cases, the written stage is followed by an oral hearing. However, with the parties’ consent, the Court may decide to dispense with the hearing and proceed directly to judgment.34 In advisory opinion cases, the language of the case is that of the referring court, and English. The parties to the dispute may submit documents and plead orally in the language of the referring court. The Court arranges for the necessary translation and interpretation.35 All other participants must apply English. In special circumstances, the parties in an advisory opinion procedure may be granted legal aid to facilitate for representation or attendance.36 The Court procedure normally takes eight to 12 months. As for direct actions, an expedited or accelerated procedure may exceptionally be applied.37 VIII. The format and content of a request

Guidance on how to make a request is contained in the EFTA Court’s Note for guidance on requests by national courts for advisory opinions.38 The reference may be written in the language of the national court and will then be translated into English on the Court’s account. 27 As for the content, the reference should “give the Court and those who must be notified (the EFTA Member States, the Member States, the EFTA Surveil26

32 The Icelandic Supreme Court has referred five cases since 2011: E-17/11, 22.11.2012, Aresbank; E-15/12, 22.7.2013, Wahl; E-22/13, 12.11.2013, Íslandsbanki; E-26/13, 27.6.2014, Gunnarson; and E-29/15, 22.9.2016, Sorpa. Since 2015, the Norwegian Supreme Court has made three references: E-14/15, 19.4.2016, Holship, E-3/16, 22.12.2016, Ski Taxi, and E-19/16, not yet decided, Thue. The Supreme Court of Liechtenstein (one out of three courts of last instance) made its first two referrals to the EFTA Court in 2015: Joined Cases E-15/15 and E-16/15, 10.5.2016, Hagedorn and Armbruster. 33 Art. 20 of the Statute and Art. 97(1) RoP. 34 Art. 97(4) RoP. 35 Art. 27 RoP. 36 Art. 97(5) RoP. 37 Art. 97 a RoP and Case E‑18/14, 10.12.2014, Wow air. 38 Notice 1/99 (available online at www.eftacourt.int/). See also Jervell, ‘Utformingen av spørsmålsskrift til EFTA-domstolen’, Lov og Rett 1996, pp. 435-451.

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lance Authority and the Commission) a clear understanding of the factual and legal context of the main proceedings”.39 Accordingly, it should contain in particular – a statement of the facts which are essential for a full understanding of the legal significance of the main proceedings; – an exposition of the national law which may be applicable; – a statement of the reasons which have prompted the national court to refer the question(s) to the Court; and – where appropriate, a summary of the arguments of the parties.40 IX. Effect of an advisory opinion

Unlike Art. 267 TFEU, which authorises the ECJ to give preliminary rulings, 28 Art. 34 enables the EFTA Court to give advisory opinions.41 This difference in wording entails that the Court’s advisory opinions are not binding as such upon the national courts. However, the purpose of the advisory opinion procedure, which is to assist the national courts in their interpretation of EEA law, suggests that the opinion of the Court cannot be disregarded. The principle of loyalty that follows from Art. 3 EEA must be considered. Moreover, when a national court refers a question of interpretation, it must be assumed that the referring court has the intention to follow the Court’s interpretation. Still, difficulties may arise for example if the Court has been unsuccessful in stating a clear interpretation. The national courts and tribunals of the EFTA States pay due regard to the 29 advisory opinions of the Court. As for Norway, the Supreme Court has held that it has the authority and duty to consider independently whether and to what extent its decision should be based on an opinion from the EFTA Court, but emphasised that the opinions are to be attributed “significant weight” by the national courts when interpreting EEA law.42 In Iceland, the advisory opinions are considered “clearly … decisive in the interpretation and application of EEA rules by the courts” and considered by some to be of a “de facto binding nature”.43 Similarly, in Liechtenstein “all opinions of the EFTA Court have been 39 40 41 42

Notice 1/99, p. 2. Notice 1/99, p. 3. The Court nevertheless refers to its advisory opinions as judgments. This was held in Rt. 2000 p. 1811 Finanger, at p. 1820, and subsequently recalled on different occasions. The Supreme Court’s judgment in Rt. 2013 p. 258 STX has by some been interpreted as a deviation from well-established practice. In this case, the Supreme Court reiterated that advisory opinions must indeed be attributed significant importance, but a divergence from an opinion may be reasonable where there are “special reasons” for the Supreme Court to diverge. In October 2016, ESA sent Norway a letter of formal notice arguing that the situation prevailing in Norway in the wake of the STX-judgment entails a breach of EEA law on the posting of workers. For ESA’s view, see document 775382 in Case No. 74557. For further views, see Eidesen, ‘The Norwegian Experience of the EEA Judiciary’, and Barnard, ‘Reciprocity, homogeneity and Cooperation’, both in EFTA Court (ed), The EEA and the EFTA Court, at pp. 136-138 and 160-168 respectively, and Poulsen, ‘Norwegian Court’, in Baudenbacher (ed), The Handbook of EEA Law, pp. 267-270. 43 Magnússon, ‘Icelandic Courts’ in Baudenbacher (ed), The Handbook of EEA Law, p. 289-290.

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complied with and carried out” by the national courts or, where applicable, by the legislative authorities.44

Article 35 [Jurisdiction to review penalties imposed by the ESA] The EFTA Court shall have unlimited jurisdiction in regard to penalties imposed by the EFTA Surveillance Authority.

Arts. 23 and 24 of Chapter II and Arts. 14 and 15 of Chapter IV of Protocol 4 SCA on the functions and powers of ESA in the field of competition, grant ESA the authority to impose a fine on an undertaking or an association of undertakings for a breach of Arts. 53 and 54 EEA and for a specific failure to comply with an obligation imposed pursuant to that protocol. It follows from Art. 35, as well as from Art. 31 of Chapter II and Art. 16 of Chapter IV of Protocol 4 SCA, that the Court shall have unlimited jurisdiction with regard to such penalties. This is in line with the situation within the EU pillar of the EEA.1 2 Following the adoption of a new Art. 25 a and Protocol 8 SCA, ESA has been allocated tasks in the field of supervision of financial services as set out in Annex IX to the EEA Agreement. This includes adopting decisions addressed to EFTA States or natural or legal persons. Pursuant to Art. 6 of the Protocol 8 SCA, the Court will have jurisdiction to review such decisions. To the extent that such decisions impose fines or penalty payments, the third paragraph of Art. 6 stipulates that the Court shall have unlimited jurisdiction in accordance with Art. 35 SCA. 3 In case E-15/10 Posten Norge, the EFTA Court reviewed a penalty imposed by ESA.2 In that case, the Court found that the imposition of a fine for a breach of Art. 54 EEA is a criminal sanction for the purposes of Art. 6 ECHR.3 The burden of proof lies with ESA and the Court has full jurisdiction in its subsequent control of the penalty imposed, including in cases of complex economic matters.4 The Court stated that, 1

“it must be recalled that Article 6(1) ECHR requires that subsequent control of a criminal sanction imposed by an administrative body must be undertaken by a judicial body that has full jurisdiction. Thus, the Court must be able to quash in all respects, on questions of fact and of law, the challenged decision […] Therefore, when imposing fines for infringement of the competition rules, ESA cannot be regarded to have any margin of discretion in the assessment of complex economic matters which

44 Ungerank, ‘Liechtenstein Courts’ in Baudenbacher (ed), The Handbook of EEA Law, p. 302. 1 See for comparison Art. 261 TFEU. 2 Case E-15/10, 18.4.2012, Posten Norge. For an analysis of this judgment, see Lang, ‘Judicial Review of Competition Decisions under the European Convention on Human Rights and the Importance of the EFTA Court: the Norway Post Judgment’, European Law Review 2012, pp. 464-480. 3 Despite the fines being classified as not being of a criminal nature in Art. 23(5) of Chapter II and Art. 14(4) of Chapter IV of Protocol 4 SCA. 4 Case E-15/10, 18.4.2012, Posten Norge, paras. 93 to 94 and 100 to 101. Rules on the burden of proof are also laid down in Art. 2 of Chapter II of Protocol 4 SCA.

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Article 36 Action for annulment goes beyond the leeway that necessarily flows from the limitations inherent in the system of legality review”.5

Under the unlimited jurisdiction provided for by Art. 35, it follows from case 4 law that “the Court, in addition to carrying out a full review of the lawfulness of the penalty, is empowered to substitute its own appraisal for ESA’s and, consequently, to cancel, reduce or increase the fine or penalty payment imposed”. However, “the exercise of unlimited jurisdiction is not equivalent to a review on the Court’s own motion. Proceedings before the Court are inter partes. With the exception of pleas concerning public policy matters, which the Court must raise on its own motion, it is for the applicant to raise pleas in law against that decision and to adduce evidence in support of those pleas”.6

Article 36 [Action for annulment] The EFTA Court shall have jurisdiction in actions brought by an EFTA State against a decision of the EFTA Surveillance Authority on grounds of lack of competence, infringement of an essential procedural requirement, or infringement of this Agreement, of the EEA Agreement or of any rule of law relating to their application, or misuse of powers. Any natural or legal person may, under the same conditions, institute proceedings before the EFTA Court against a decision of the EFTA Surveillance Authority addressed to that person or against a decision addressed to another person, if it is of direct and individual concern to the former. The proceedings provided for in this Article shall be instituted within two months of the publication of the measure, or of its notification to the plaintiff, or, in the absence thereof, of the day on which it came to the knowledge of the latter, as the case may be. If the action is well founded the decision of the EFTA Surveillance Authority shall be declared void.

I. Introduction to the action for annulment1

Under Art. 36, the EFTA Court may review a decision adopted by ESA. Un- 1 der the first paragraph, an EFTA State may challenge a decision by ESA. The second paragraph extends the right of challenge to any natural or legal person that is directly and individually affected by the decision. The third paragraph sets out a time limit for the commencement of proceedings, whereas the fourth paragraph describes the consequences of a successful action. For information on the procedure before the Court in cases brought before it 2 under Art. 36, see part III under Art. 31 on the direct action procedure in practice.

5 Case E-15/10, 18.4.2012, Posten Norge, para. 100. 6 Case E-15/10, 18.4.2012, Posten Norge, paras. 267 and 268. 1 See for comparison Art. 263 TFEU.

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II. Standing for the EFTA States 3

As a Contracting Party to the EEA Agreement, an EFTA State is a privileged applicant. It may challenge a decision by ESA without having to justify its interest in doing so. The applicant EFTA State may claim partial or total annulment of the decision. The time limit laid down in the third paragraph applies. III. Grounds of review

The first paragraph draws up the grounds on which an action may be based. ESA’s decision may be challenged on lack of competence, infringement of an essential procedural requirement or infringement of the SCA, of the EEA Agreement or of any rule of law relating to their application, or misuse of powers.2 5 With the exception of the cases where the EFTA Court has unlimited jurisdiction, judicial review of measures involving a complex economic assessment, which is often the case with ESA decisions, is nevertheless “limited to verifying whether ESA complied with the relevant rules governing procedure and the statement of reasons, whether the facts on which the contested finding was based have been accurately stated, and whether there has been any manifest error of assessment of those facts or a misuse of powers”.3 4

IV. Acts subject to review

There is rarely any doubt as to whether a measure adopted by ESA is a decision that may be the subject of a challenge before the Court. Measures that seek to bring about a change in the legal position of the addressee will normally constitute a decision. In any event, it is the substance of the decision, rather than its form, which is decisive for the admissibility of the challenge.4 7 As mentioned in the comments to Art. 35 above, Art. 6 of Protocol 8 SCA will grant the EFTA Court jurisdiction to review decisions by ESA in the field of supervision of financial services. 6

V. Standing for non-privileged applicants

On the same grounds as under the first paragraph, an ESA decision may be challenged by any natural or legal person, provided that the decision is addressed to that person or that the decision otherwise is of direct and individual concern to him. 9 A decision addressed to a natural or legal person may for example be a fine imposed after a breach of EEA competition law, or a denial of access to documents requested by that person. The person to which a decision is addressed 8

2 For more on the various grounds on which an action may be based, see Lenaerts, EU Procedural Law, 2014, points 7.145 to 7.184. 3 See for example Case E-9/12, 22.7.2013, Iceland v ESA, para. 64 and case law cited. 4 Case E-14/11, 21.12.2012, DB Schenker v ESA, paras. 80 and 81.

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may challenge it before the Court without having to justify his legal standing any further.5 Legal standing for persons other than those to whom a decision is addressed, 10 is granted only when the decision is of direct and individual concern to them. In applying these conditions, the Court has resorted to the test developed by the ECJ since the Plaumann case,6 which focuses on the requirement of individual concern. According to this test, persons other than those to whom a decision is addressed may claim to be individually concerned within the meaning of the second paragraph of Art. 36 “if the decision affects them by reason of certain attributes that are peculiar to them or if they are differentiated by circumstances from all other persons and those circumstances distinguish them individually just as the person addressed by the decision”.7 This criterion will be fulfilled, for example, also where the applicant challenges a decision addressed to an EFTA State ordering recovery of State aid granted to the applicant.8 Cases regarding the legality of a decision by ESA addressed to another person 11 are often related to a challenge against ESA’s approval of State aid and raised by an alleged competitor of the State aid beneficiary. For the purposes of admissibility of such a challenge, a distinction must be drawn between decisions closing a formal investigation procedure,9 and decisions not to open a formal investigation procedure.10 As regards a challenge against a decision closing a formal investigation pro- 12 cedure, the requirement of individual concern entails that the competing undertaking must demonstrate that its market position is substantially affected by the aid to which the decision relates.11 In that regard, “[t]he mere fact that the State aid measure may exercise an influence on the competitive relationships existing on the relevant market and that the undertaking concerned was in a competitive relationship with the addressee of that measure cannot suffice for that undertaking to be regarded as individually concerned by that measure. Therefore, an undertaking cannot rely solely on its status as a competitor of the undertaking in receipt of aid but must additionally show that its circumstances distinguish it in a similar way to the undertaking in receipt of the aid”.12

As for decisions not to open a formal investigation procedure, an action for 13 the annulment of such a decision brought by an interested party within the meaning of Art. 1(h) of Part II of Protocol 3 SCA is admissible where that party does not challenge the merits of the decision, but merely seeks to safeguard the 5 An example of the first situation is E-15/10, 18.4.2012, Posten Norge. An example of the second situation is case E-14/11, 21.12.2012, DB Schenker v ESA. 6 See the judgment in Case 25/62, 15.7.2963, Plaumann & Co. 7 Case E-23/14, 23.9.2015, Kimek Offshore v ESA, para. 61. 8 See for example Joined Cases E-10/11 and E-11/11, 8.10.2012, Hurtigruten and Norway v ESA. 9 Art. 4(4) and Art. 7(2) and (3) of Part II of Protocol 3 SCA. 10 Art. 4(2) and (3) of Part II of Protocol 3 SCA. 11 Cases E-4/15, 31.3.2016, Icelandic Financial Services Association v ESA, para. 96; E-19/13, 20.3.2015, Konkurrenten.no v ESA, para. 95; and E-5/07, 21.2.2008, Private Barnehagers Landsforbund v ESA, para. 49. 12 Case E-19/13, 20.3.2015, Konkurrenten.no v ESA, para. 96.

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procedural rights that would have been available under the formal investigation procedure.13 Interested parties would have been entitled to submit their comments had ESA opened the formal investigation procedure. When ESA decides not to open that procedure, the persons intended to benefit from the procedural guarantees under that investigation may suffer a loss and must therefore be able to challenge ESA’s decision before the Court.14 14 Pursuant to Art. 1(h) of Part II of Protocol 3 SCA, an interested party is any EEA State and any person, undertaking or association of undertakings whose interests might be affected by the granting of aid, in particular the beneficiary of the aid, competing undertakings and trade associations. This definition covers an indeterminate group of persons. Those who fall within the definition may challenge a decision not to open a formal investigation procedure. 15 For all the persons mentioned, except EEA States, the status as interested party depends on whether their interests might be affected by the granting of aid. This requirement is less strict than the requirement that their market position must be substantially affected, which applies to challenges on the merits of a State aid decision.15 For an undertaking to demonstrate that its interests may be affected, it suffices to establish “that the aid is likely to have a specific effect on its situation”. The undertaking must “show a legitimate interest in the implementation or non-implementation of the alleged aid measures at issue or, if those measures have already been granted, in their maintenance. Such a legitimate interest may consist, inter alia, in the protection of its competitive position, in so far as that position would be adversely affected by the aid measures”.16

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In an action against a decision not to open a formal investigation procedure, the applicant may only seek to defend his procedural rights, and may therefore not challenge the merits of the decision, unless his market position is substantially affected. Any plea addressing the substance of ESA’s decision, is in principle a challenge on the merits. However, a plea alleging that ESA should have had doubts as to the compatibility with the functioning of the EEA Agreement of the notified measure, is considered to defend the applicant’s procedural rights.17 This is because the existence of doubts is a decisive criterion for opening the formal investigation procedure.18 Moreover, “where the applicant has raised a plea alleging the existence of doubts, the Court may examine arguments that the applicant has put forward regarding the merits, in order to ascertain whether those arguments are capable of establishing that the plea is well-founded. The use of such arguments does not change the subject matter of the action or the conditions for its admissibility”.19

13 Merchante, ‘On the Rules of Standing to Challenge State Aid Decisions Adopted at the End of the Preliminary Phase’, European State Aid Law Quarterly, 2012, pp. 601-610. 14 Case E-23/14, 23.9.2015, Kimek Offshore v ESA, paras. 62 to 70 and case law cited. 15 See for example Case E-1/13, 27.1.2014, Míla v ESA, para. 57. 16 See for example Case E-19/13, 20.3.2015, Konkurrenten.no v ESA, para. 118 and case law cited. 17 Case E-23/14, 23.9.2015, Kimek Offshore v ESA, paras. 73 and 74; and E-1/13, 27.1.2014, Míla v ESA, paras. 59 and 60. 18 Art. 4(4) of Part II of Protocol 3 SCA.

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The second paragraph of Art. 36 corresponds to the fourth paragraph of 17 Art. 263 TFEU. Following the Treaty of Lisbon, standing for individuals to challenge an act under that provision is extended to cover not only the addressee of the act and persons otherwise directly and individually concerned by the act, but also to persons challenging a regulatory act which is of direct concern to them and does not entail implementing measures. As regards regulatory acts, which have been held to encompass non-legislative acts of general application,20 the requirement of individual concern therefore does not apply as long as the act does not require implementing measures.21 Art. 36 SCA has not been amended accordingly. To the extent that ESA 18 adopts decisions equivalent to regulatory acts not entailing implementing measures, it could be argued, having regard to procedural homogeneity and equal access to justice in both EEA pillars,22 that the Court should recognise a corresponding rule on standing. The issue was raised in case E-19/13 Konkurrenten.no v ESA, but the Court merely pointed out that the contested decisions, which addressed specific aid measures, were not regulatory acts.23 A decision on a general aid scheme in an EFTA State is more likely to be regarded as a regulatory act.24 A person challenging an act which is not addressed to him, whether it is a 19 regulatory act or not, must in any event demonstrate that he is directly concerned by the act in question. That requirement entails that, “firstly, the contested […] measure must directly affect the legal situation of the individual and, secondly, it must leave no discretion to its addressees, who are entrusted with the task of implementing it, such implementation being purely automatic and resulting from [EEA] rules without the application of other intermediate rules”.25 VI. The time limit

Art. 36(3) lays down a time limit of two months for the commencing of pro- 20 ceedings. If the decision is published, the time limit is calculated from the date of the publication. The relevant publication method is publication in the EEA 19 Case E-1/13, 27.1.2014, Míla v ESA, para. 61. However, the line to be drawn between challenges on the merits and challenges alleging that ESA should have had doubts is a subtle one. 20 Case C-583/11 P, 3.10.2013, Inuit Tapiriit Kanatami and Others, paras. 60 and 61. 21 Case C-274/12 P, 19.12.2013, Telefónica, para. 27. The purpose of this rule is to prevent an individual from having to infringe the law in order to have access to a court. Demonstrating individual concern in the case of an act of general application is rarely possible, so the only way for an individual to challenge such an act would be to infringe it and rely on its invalidity as a defence in national proceedings in which the court referred the question of validity to the ECJ. 22 Case E-14/11, 21.12.2012, DB Schenker v ESA, para. 77 and case law cited. 23 Case E-19/13, 20.3.2015, Konkurrenten.no v ESA, para. 91. 24 See for comparison the opinion of AG Kokott in C-274/12 P, 21.3.2013, Telefónica, paras. 17 to 28. The ECJ refrained from addressing that issue since the act nevertheless entailed implementing measures, see paras. 27 to 38 of the judgment. 25 See for comparison Case T-262/10, 25.10.2011, Microban v Commission, para. 27 and case law cited.

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Section of and the EEA Supplement to the Official Journal of the European Union. Art. 77 RoP prescribes that the time allowed for commencing proceedings shall run from the 15th day after the publication. Effectively, applicants therefore have more than two months from the publication of ESA’s decision to commence proceedings. 21 If the decision is not published, the two-month time limit is calculated from the day following receipt of notification of the decision by the person concerned, see Art. 77 RoP. If no notification is sent, the time limit is calculated from the day on which the decision came to the knowledge of the applicant. VII. The consequences of a successful action 22

According to Art. 36(4), a successful action against ESA’s decision results in a judgment annulling the decision in full or in part (“shall be declared void”). ESA is then obliged, pursuant to Art. 38, to take the necessary measures to comply with the judgment.

Article 37 [Action for failure to act] Should the EFTA Surveillance Authority, in infringement of this Agreement or the provisions of the EEA Agreement, fail to act, an EFTA State may bring an action before the EFTA Court to have the infringement established. The action shall be admissible only if the EFTA Surveillance Authority has first been called upon to act. If, within two months of being so called upon, the EFTA Surveillance Authority has not defined its position, the action may be brought within a further period of two months. Any natural or legal person may, under the conditions laid down in the preceding paragraphs, complain to the EFTA Court that the EFTA Surveillance Authority has failed to address to that person any decision. 1

A failure to act1 on the part of ESA constitutes an infringement of the EEA Agreement or the SCA. In that case, an EFTA State may bring the matter before the Court. For such a failure to act to be established, it must be found that ESA was under a duty to act.2 Such a duty could be for example the duty to close a formal investigation procedure into a notified State aid measure, or to respond to a request for access to documents.3 The passivity must relate to a decision that may be reviewed under the procedure provided for by Art. 36.4 A decision not to bring proceedings against an EFTA State under Art. 31 may not be

1 2 3 4

See for comparison Art. 265 TFEU. Case E-7/12, 9.7.2013, DB Schenker v ESA, para. 76. For the latter case, see Case E-7/12, 9.7.2013, DB Schenker v ESA, para. 84. Bull in: Norsk lovkommentar, comments on Art. 37 SCA, note 280 (last visited 23.8.2017), and for comparison Craig and de Búrca, EU Law (6th edn, Oxford University Press, 2015), pp. 537-538.

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reviewed, as ESA is competent to decide whether to bring such proceedings.5 Such a decision is not challengeable under Art. 37.6 As mentioned in the comments to Arts. 35 and 36 above, Art. 6 of Protocol 8 SCA will grant the Court jurisdiction to review decisions by ESA in the field of supervision of financial services. The second paragraph of Art. 6 provides that a failure by ESA to comply with an obligation to act in this field may be brought before the Court in accordance with Art. 37. According to the second paragraph of Art. 37, an application for failure to act must be preceded by a formal notice calling upon ESA to act. The subject-matter of that notice “must be set out in such a manner as to make it clear what measures ESA should have taken under EEA law”.7 Lack of such clarity will lead to the application being dismissed as inadmissible.8 If the formal notice to ESA is sufficiently clear, ESA has two months to act. If ESA does not take a decision or define its position within that time limit, the matter may be brought to the Court within a further period of two months. An action brought before the expiry of ESA’s deadline, or after the expiry of the two months following ESA’s deadline, will be inadmissible. If ESA defines its position within the time prescribed, an action under Art. 37 will have no purpose, regardless of the contents of ESA’s decision. This also applies if ESA adopts its decision after the time prescribed, but before judgment is delivered.9 In that case, ESA’s decision may be the subject of a direct action under Art. 36. On the same conditions as under the two preceding paragraphs, Art. 37(3) gives any natural or legal person the right to bring an action before the Court claiming that ESA has failed to address to that person a decision. This may be the case where ESA investigates a possible breach of competition law by a specific undertaking10 or where an individual has requested access to documents from ESA.11 For information on the procedure before the Court in cases brought before it under Art. 37, see part III under Art. 31 on the direct action procedure in practice.

5 6 7 8

Case E-2/16, 24.5.2016, Spitzer v ESA, para. 22 and case law cited. See for comparison Lenaerts, EU Procedural Law, 2014, p. 423. Case E-7/12, 9.7.2013, DB Schenker v ESA, para. 75 and case law cited. Cases E-7/96, 27.6.1997, Hansen v ESA, para. 19, and E-5/08, 19.11.2008, Bergling v ESA, para. 5. 9 Case E-7/12, 9.7.2013, DB Schenker v ESA, paras. 78 and 79. This could suggest that also an infringement case by ESA against an EFTA State would be devoid of purpose if the EFTA State ensured compliance before the judgment. However, the Court has consistently held that the question of infringement is determined by reference to the situation as it stood at the end of the period laid down in the reasoned opinion (see for example Case E-3/00, 5.4.2001, ESA v Norway, para. 39). 10 Lenaerts, EU Procedural Law, 2014, p. 423. 11 Case E-7/12, 9.7.2013, DB Schenker v ESA, paras. 72 to 91.

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Article 38 [Obligation to comply with judgements of the EFTA Court] If a decision of the EFTA Surveillance Authority has been declared void or if it has been established that the EFTA Surveillance Authority, in infringement of this Agreement or of the provisions of the EEA Agreement, has failed to act, the EFTA Surveillance Authority shall take the necessary measures to comply with the judgment. This obligation shall not affect any obligation which may result from the application of Article 46, second paragraph.

Art. 38 concerns the consequences of a successful action pursuant to Arts. 36 or 37. Just as the EFTA States are obliged to take the necessary measures to comply with judgments against them after an infringement procedure according to Art. 33, ESA must take the necessary measures to comply with judgments against it under Art. 38. This mirrors the obligation of the Commission under Art. 266 TFEU. 2 The second paragraph of Art. 38 makes it clear that this obligation does not affect the non-contractual liability for ESA pursuant to the second paragraph of Art. 46.1 1

Article 39 [Actions for non-contractual liability] Save as otherwise provided for in Protocol 7 to this Agreement, the EFTA Court shall have jurisdiction in actions against the EFTA Surveillance Authority relating to compensation for damage provided for in Article 46, second paragraph.

Art. 39 corresponds to Art. 268 TFEU and gives the EFTA Court jurisdiction to determine the non-contractual liability of ESA. The legal basis for ESA’s liability is Art. 46(2), which obliges ESA to make good any damage caused by it, or by its servants, in the performance of its duties “in accordance with general principles of law”.1 Such damage may be caused in particular by failing to act in a timely manner or by adopting a decision which has later been annulled.2 2 The Court has held that the conditions under which ESA may incur liability for damage caused to individuals by a breach of EEA law should not, in the absence of particular justification, differ from those governing the liability of the Commission in similar circumstances, taking into account the shared supervisory role played by the two institutions in the EEA.3 Consequently, 1

“EEA law confers a right to reparation where the following three conditions are met: first, that the rule of law infringed is intended to confer rights on individuals; second, that the breach must be sufficiently serious; and third, that there must be a direct causal link between the breach of the obligation resting on the author of the act and the damage sustained by the injured parties”.4

1 1 2 3

See further the comments by Poulsen on Art. 46 SCA. See further the comments by Poulsen on Art. 46 SCA. Case E-7/12, 9.7.2013, DB Schenker v ESA, para. 101 and case law cited. Case E-7/12, 9.7.2013, DB Schenker v ESA, para. 111.

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The Court has held that “the application of the condition of a sufficiently serious breach concerning the non-contractual liability of ESA may not necessarily be coextensive with its application under the EEA State liability rules”. Account must be taken of “the complexity of the situations to be regulated, difficulties in the application or interpretation of the texts and, more particularly, the margin of discretion available to ESA”. The decisive test is “whether ESA manifestly and gravely disregarded the limits on its discretion”. This test may be fulfilled “[w]here ESA has only considerably reduced or even no discretion”.5 Failing to reply to a request for documents within the time limits laid down in ESA’s Rules on Access to Documents may constitute a sufficiently serious breach.6 The burden of proof for establishing the existence of a causal link between ESA’s breach and the damage sustained rests with the applicant.7 Moreover, the general principles of law “do not oblige ESA to make good every harmful consequence of its conduct”. The condition relating to a causal link “concerns a sufficiently direct causal nexus between ESA’s conduct and the damage”.8 Consequently, costs relating to legal proceedings in national courts related to the subject matter of ESA’s decision or failure to act are not to be considered as caused by ESA for the purposes of the second paragraph of Art. 46.9 The Court has ruled that “there is no causal link between ESA’s conduct and […] the lawyers’ fees” during administrative proceedings before ESA.10 Art. 39 refers to Protocol 7 SCA, which concerns the legal capacity, privileges and immunities of the Court. It is likely that the reference should have been to Protocol 6 SCA on the legal capacity, privileges and immunities of ESA.11 Art. 42 of the Statute contains a rule on limitation period of non-contractual liability. Proceedings against ESA in such matters shall be barred after a period of five years from the occurrence of the event giving rise to the claim. The period of limitation is interrupted if proceedings are instituted before the Court or if prior to such proceedings an application is made by the aggrieved party to ESA. After ESA has decided on the application, the aggrieved party has two months to institute proceedings before the Court. For information on the procedure before the Court in cases brought before it under Art. 39, see part III under Art. 31 on the direct action procedure in practice.

4 5 6 7 8 9 10 11

Case E-7/12, 9.7.2013, DB Schenker v ESA, para. 112. Case E-7/12, 9.7.2013, DB Schenker v ESA, paras. 120 to 123. Case E-7/12, 9.7.2013, DB Schenker v ESA, paras. 131 to 135. Case E-7/12, 9.7.2013, DB Schenker v ESA, para. 142 and case law cited. Case E-7/12, 9.7.2013, DB Schenker v ESA, para. 148. Case E-7/12, 9.7.2013, DB Schenker v ESA, paras. 149 to 151. Case E-7/12, 9.7.2013, DB Schenker v ESA, paras. 158 to 164, in particular 160. This is also suggested by Bull, in: Norsk lovkommentar, comments on Art. 39 SCA, note 284 (last visited 23.8.2017).

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Article 40 [Suspensory effect of actions brought before the EFTA Court] Actions brought before the EFTA Court shall not have suspensory effect. The EFTA Court may, however, if it considers that circumstances so require, order that application of the contested act be suspended. 1

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Art. 40 corresponds to Art. 278 TFEU and provides that an action brought against a decision by ESA does not in itself have the effect of suspending the contested act. However, the Court may order the suspension of the contested act if it considers that circumstances so require. Similarly, Art. 110 EEA and Art. 19 SCA provide that decisions by ESA which impose a pecuniary obligation on persons other than States, shall be enforceable. Enforcement may be suspended only by a decision of the Court. The procedure for applications for suspension pursuant to Art. 40, or other interim measures pursuant to Art. 41, is laid down in Arts. 80 to 86 RoP. Although Art. 35 of the Statute grants the President the authority to adjudicate on applications of this kind, he may, pursuant to Art. 82 RoP, refer the application to the Court. The first paragraph of Art. 80(1) RoP stipulates that an application made pursuant to Art. 40 SCA is admissible only if the applicant is challenging ESA’s measure in proceedings before the Court.1 The second paragraph of Art. 80(1) RoP provides that an application for the adoption of any other interim measure is admissible only if it is made by a party to a case before the Court and relates to that case. Art. 80(2) RoP requires that an application for interim measures shall state the subject-matter of the proceedings, the circumstances giving rise to urgency and the pleas of fact and law establishing a prima facie case for the interim measures applied for. The order prescribing interim measures must be “urgent in the sense that, in order to avoid serious and irreparable damage [to the applicant’s interests], it must be made and take effect before a decision is given in the main action. Where appropriate, the competing interests have to be weighed up”.2 The contested act will be a decision by ESA. A decision declaring State aid measures unlawful and a decision imposing a fine on undertakings may give rise to an application against the decision and lead to a suspension of its execution. Pure financial loss may normally not be regarded as “irreparable damage”.3 In those cases, damages may subsequently be awarded in full pursuant to the judgment in the main proceedings. Damage affecting a whole sector of the economy

1 Art. 35 of the Statute draws a distinction between applications to suspend execution as provided for in Art. 40 SCA, and applications to suspend enforcement in accordance with Art. 110 EEA. Both types of applications follow the same procedure, see Arts. 80 and 86 RoP. 2 Case E-6/98 R, 11.12.1998, Norway v ESA, para. 25 and case law cited. 3 See for comparison Lenaerts, EU Procedural Law, 2014, p. 600-601.

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of the EFTA State concerned as a result of ESA’s decision may, however, be sufficient for that State to demonstrate a serious and irreparable damage.4

Article 41 [Interim measures] The EFTA Court may in any case before it prescribe any necessary interim measures.

Art. 41 corresponds to Art. 279 TFEU and gives the EFTA Court competence to prescribe any necessary interim measures in a case before it. The provision is a supplement to Art. 40. The comments made to that article apply similarly to interim measures other than suspension of the contested act. The broad wording of the provision (“any necessary interim measure”) grants to the Court a high degree of liberty in deciding which action to take. What would be a reasonable interim measure, will depend on the circumstances of the case. The interests of both sides must be weighed in order to ensure the effectiveness of the judgment to be given in the main proceedings, whatever their outcome.1 Different from Art. 40, Art. 41 allows for measures to be taken not only in regards to a decision by ESA, but also decisions by national authorities. A potential measure could be to oblige national authorities to stop further payments under a national system which is potentially in contradiction with EEA State aid rules.2 The term “in any case” is restricted to direct actions. In cases concerning requests for advisory opinions, it is not for the EFTA Court to prescribe interim measures.

1

2

3

4

Part V: General and final provisions Article 42 [Protocols and Annexes as integral part of the SCA] The Protocols and Annexes to this Agreement shall form an integral part thereof.

There are eight protocols to the SCA: Protocol 1 (on the functions and powers of ESA which, through the applica- 1 tion of Protocol 1 to the EEA Agreement, follow from the acts referred to in the Annexes to that Agreement) establishes, on the basis of point 4(d) of Protocol 1 EEA on Horizontal Adaptations and Art. 5(2)(d) SCA, that for the EFTA States, 4 Case E-6/98 R, 11.12.1998, Norway v ESA, para. 27. 1 Case C-12/95 P, 7.3.1995, Tramasa, para. 23. 2 See also the remarks on ex ante review and potential blocking of entry into force of proposed legislation in the comments by Arnesen and Fredriksen to the last recital of the preamble, mn. 45.

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of the EFTA State concerned as a result of ESA’s decision may, however, be sufficient for that State to demonstrate a serious and irreparable damage.4

Article 41 [Interim measures] The EFTA Court may in any case before it prescribe any necessary interim measures.

Art. 41 corresponds to Art. 279 TFEU and gives the EFTA Court competence to prescribe any necessary interim measures in a case before it. The provision is a supplement to Art. 40. The comments made to that article apply similarly to interim measures other than suspension of the contested act. The broad wording of the provision (“any necessary interim measure”) grants to the Court a high degree of liberty in deciding which action to take. What would be a reasonable interim measure, will depend on the circumstances of the case. The interests of both sides must be weighed in order to ensure the effectiveness of the judgment to be given in the main proceedings, whatever their outcome.1 Different from Art. 40, Art. 41 allows for measures to be taken not only in regards to a decision by ESA, but also decisions by national authorities. A potential measure could be to oblige national authorities to stop further payments under a national system which is potentially in contradiction with EEA State aid rules.2 The term “in any case” is restricted to direct actions. In cases concerning requests for advisory opinions, it is not for the EFTA Court to prescribe interim measures.

1

2

3

4

Part V: General and final provisions Article 42 [Protocols and Annexes as integral part of the SCA] The Protocols and Annexes to this Agreement shall form an integral part thereof.

There are eight protocols to the SCA: Protocol 1 (on the functions and powers of ESA which, through the applica- 1 tion of Protocol 1 to the EEA Agreement, follow from the acts referred to in the Annexes to that Agreement) establishes, on the basis of point 4(d) of Protocol 1 EEA on Horizontal Adaptations and Art. 5(2)(d) SCA, that for the EFTA States, 4 Case E-6/98 R, 11.12.1998, Norway v ESA, para. 27. 1 Case C-12/95 P, 7.3.1995, Tramasa, para. 23. 2 See also the remarks on ex ante review and potential blocking of entry into force of proposed legislation in the comments by Arnesen and Fredriksen to the last recital of the preamble, mn. 45.

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ESA shall be entrusted with many of the functions which according to regulations and directives incorporated into the Annexes to the EEA Agreement are to be carried out by the Commission. This includes (i) informing a Member State whether a precautionary measure or a safeguard measure taken by a Member State was justified;1 (ii) authorising exemptions or derogations from a provision of an act;2 receiving information which an EFTA State or a competent authority according to EEA rules shall submit to it and passing on that information to the Commission,3 and “comparable” functions.4 2 Protocol 2 concerns the functions and powers of ESA in the field of procurement.5 It should be mentioned that Art. 1 of Protocol 2 establishes a special procedure under which ESA, where it considers that a clear and manifest infringement of the provisions of the EEA Agreement in the field of procurement has been committed during a contract award procedure,6 instead of bringing an action against the EFTA State in question for failure to fulfil obligations, may order the suspension of the award of the contract at issue. Such an order is, however, not legally binding on the EFTA State nor company in question. These rules on direct intervention correspond in substance to those in Art. 3 of Dir. 89/665/EEC and Art. 8 of Dir. 92/13/EEC, both as amended by Dir. 2007/66/EC,7 which regulate the functions of the Commission in the same field. The choice between that procedure and the special procedure in matters of public procurement is within ESA’s discretion.8 3 Protocol 3 sets out detailed rules on the functions and powers of ESA in the field of State aid, see Art. 5 and 24 SCA. Originally, the rules in Protocol 3 mirrored only Art. 88 EC (now Art. 108 TFEU). By an amendment of 10 December 2001, additional provisions were inserted into that Protocol. Part II was 1 2 3 4 5

Art. 1(a) of Protocol 1 SCA. Art. 1(c) of Protocol 1 SCA. Art 2(1) of Protocol 1 SCA. Art. 1(1), final paragraph, and Article 1(2) of Protocol 1 SCA. According to Art. 65(1) EEA, Annex XVI contains specific provisions and arrangements concerning procurement. The provisions on procurement are also subject to the monitoring by ESA under Art. 109 EEA. See also Art, 23 SCA. The Protocol was amended by an agreement of 11 September 2012. This agreement has not yet entered into force. For a detailed account of the rules in Protocol 2, see Schmauch, ‘Public Procurement’, in: Baudenbacher (ed), Handbook of EEA Law, pp. 605-624. 6 Falling within the scope of the acts referred to in points 2 and 3 of Annex XVI to the EEA Agreement. 7 Council Dir. 89/665/EEC of 21 December 1989 on the coordination of the laws, Regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts, Council Dir. 92/13/EEC of 25 February 1992 coordinating the laws, Regulations and administrative provisions relating to the application of Community rules on the procurement procedures of entities operating in the water, energy, transport and telecommunications sectors and Dir. 2007/66/EC of the European Parliament and of the Council of 11 December and 2007 amending Council Dirs. 89/665/EEC and 92/13/EEC with regard to improving the effectiveness of review procedures concerning the award of public contracts. 8 Cases E-13/10, 31.1.2011, Aleris Ungplan v. ESA, para. 26, and E-2/13, 23.10.13, Bentzen Transport v. ESA, para. 40.

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inserted in Protocol 3 and essentially replicated the detailed rules in Council Reg. No 659/1999.9 The Protocol provides rules on all steps of a State aid investigation: notification, preliminary examination of notified aid, the formal investigation phase, and recovery of unlawful aid. According to Art. 1(3) of Part I of Protocol 3, all new aid schemes and alterations to existing schemes shall be notified to ESA, and may only be implemented if accepted by ESA. The investigation is then split into two phases: preliminary examination under Art. 1(3) of Part I of Protocol 3 and formal investigation under Art. 1(2). The purpose of the preliminary examination is to enable ESA to form a first opinion on the existence of State aid and, if aid exists, on the compatibility of the State aid with the functioning of the EEA Agreement. If ESA finds, after the preliminary examination, that State aid exists and that it has doubts or serious difficulties in establishing whether the aid is compatible with the functioning of the EEA Agreement, it follows from Art. 4(4) of Part II of Protocol 3 that ESA shall adopt a decision to initiate the formal investigation procedure. The formal investigation procedure is designed to enable ESA to be fully informed about all the facts of the case. Thus, pursuant to Art. 6(1) of Part II of Protocol 3, a decision to open the formal investigation procedure involves calling upon the EFTA State concerned and upon other interested parties to submit comments within a prescribed period which must not as a rule exceed one month.10 On the admissibility of an action for the annulment of a decision not to initiate the formal investigation procedure, see e.g. Case E-1/13 Míla v. ESA.11 Where ESA, after the formal investigation procedure, finds that unlawful aid exists, it follows from Art. 14 of Part II of Protocol 3 that ESA shall order the EFTA State concerned to “take all necessary measures” to recover the aid from the beneficiary. According to the last sentence of Art. 1(3) of Part I of Protocol 3, which is 4 reiterated in Art. 3 of Part II, EFTA States shall not implement State aid measures without the prior approval of ESA (standstill obligation). However, there are a number of circumstances in which State aid can be lawfully implemented without prior approval.12 The standstill obligation mirrors Art. 108(3) TFEU. Under EU law, the standstill obligation gives rise to directly effective individual rights of affected parties (such as the competitors of the beneficiary), which national courts are obliged to enforce. That right of affected parties, and the corresponding obligation on national courts to enforce, applies also in the EFTA EEA States, as the standstill obligation has – in accordance with Protocol 35 EEA – been incorporated into national law.13 ESA Decision No 195/04/COL,14 adopted on the basis of Art. 27 in Part II 5 of Protocol 3, sets out detailed provisions concerning the form, content and oth9 That Regulation has been repealed and replaced by Council Reg. (EU) No 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union (OJ 2015 L 248, p. 9). 10 Case E-1/13, 27.1.2014, Míla v. ESA, paras. 45-49 and 51. 11 Ibid. 12 E.g. existing aid, as defined by Art. 1(b) of Part II of Protocol 3.

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er details of notifications and annual reports referred to in Part II of Protocol 3. It also provides rules on calculation of time limits in all procedures concerning State aid, and on interest rates for the recovery of unlawful aid. The rules in the Decision correspond to those in Commission Reg. (EC) No 794/2004.15 6 By Decision No 4/94/COL of 19 January 1994,16 having regard in particular to Art. 5(2)(b) and 24 SCA and Art. 1 of Part I of Protocol 3 SCA, ESA adopted Procedural and Substantive Rules in the Field of State Aid (“State Aid Guidelines”). It follows from Decision No 4/94/COL that the purpose of the State Aid Guidelines is to provide national administrations and enterprises with information on how ESA interprets and applies the EEA State aid rules. The State Aid Guidelines have been amended several times, and correspond to guidelines, communications and notices adopted by the Commission in the EU. The aim of the State Aid Guidelines is thus to ensure a uniform and transparent application of the EEA State aid rules throughout the EEA. The EFTA Court has held that by adopting guidelines, ESA must observe the requirements it has laid down in those guidelines, provided the guidelines do not depart from the rules in the EEA Agreement.17 The parties concerned are therefore entitled to rely on those guidelines. The guidelines cannot bind the Court, but may nevertheless form a useful point of reference.18 Some practitioners have criticised ESA for being too restricted by its Guidelines, whereas the Commission appears to be more flexible in certain situations. Others will argue that such a cautious approach from ESA is correct, as the development of EEA law should preferably take place in the EU pillar. 7 Protocol 4 sets out detailed rules on the functions and powers of ESA in the field of competition.19 Chapters II and III of Protocol 4 provide procedural rules implementing Art. 53 and 54 EEA. Those rules largely transpose Council Reg. (EC) No 1/2003,20 without explicitly reproducing that Regulation's preamble, and Commission Reg. 773/2004,21 giving ESA the same powers as the Commission. Chapters IV and V of Protocol 4 concern the control of concentrations 13 In Norway, Part II of Protocol 3 – and thus the standstill obligation in its Art. 3 – has been implemented through Sec. 1 of Regulation of 30 October 2009 No 1323 (forskrift om EØSprosedyreregler for offentlig støtte). 14 OJ 2006 L 139, p. 37 and EEA Supplement 2006 No 26, p. 1. 15 Commission Reg. (EC) No 794/2004 of 21 April 2004 implementing Council Reg. (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ 2004 L 140, p. 1). 16 OJ 1994 L 231, p. 1 and EEA Supplement 1994 No 32, p. 1. 17 Case E-9/12, 22.7.2013, Iceland v. ESA, paras. 57 and 59. 18 Ibid, para. 58. 19 It has been amended several times, most recently by agreement of 27 June 2014, which entered into force only on 18 November 2016 as a result of late ratifications by Iceland and Liechtenstein. 20 Council Reg. (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, as amended (OJ 2003 L 1, p. 1). 21 Commission Reg. (EC) No 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty, as amended (OJ 2004 L 123, p. 18).

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between undertakings, implementing Art. 4(4) and (5) and 6-24 of Council Reg. (EC) No 139/200422 (EC Merger Regulation) and Commission Reg. (EC) No 802/2004.23 On public access to inspection documents obtained by ESA on the basis of Art. 20 of Chapter 2 of Protocol 4, see Case E-14/11 Schenker North and Others v ESA.24 Protocol 5 encompasses the Statute of the EFTA Court, see comments on Art. 43 SCA. Protocols 6 and 7 on the legal capacity, privileges and immunities of ESA and the EFTA Court, respectively. See comments on Art. 44 SCA. Protocol 8 sets out the functions and powers of ESA in the field of financial supervision.25 Pursuant to Art. 25 a SCA and acts referred to in Annex IX of the EEA Agreement, ESA has been allocated with certain decision-making powers towards national supervisory authorities and market operators (including credit institutions, insurance companies and investment firms) established in the EFTA States. The powers to adopt binding decisions correspond to powers with the European Supervisory Authorities (EBA, EIOPA and ESMA) in the EU. As opposed to the structure in the EU, there is no board of appeal. Therefore, according to Art. 6 of Protocol 8, the legality of ESA's decisions may be challenged directly before the EFTA Court. Most noteworthy, according to Art. 3 of Protocol 8, ESA's decisions within the scope of the Protocol shall be adopted by ESA’s College on the basis of drafts prepared by the relevant European Supervisory Authority. In Norway, that rule caused a constitutional debate during the implementation process. Under Sec. 115 (formerly Sec. 93) of the Norwegian Constitution, sovereignty can be transferred to “an international organisation to which Norway belongs or will belong”. It was argued that Sec. 115 was not applicable, since, in real terms, sovereignty was transferred to the EU institutions – to which Norway is not a member – rather than ESA.26 It was pointed out that it is a formal construction that ESA will adopt the decisions, as ESA will not be given necessary resources to undertake an independent assessment of the drafts prepared by the relevant European Supervisory Authority.27 A ¾ majority of the Norwegian Parliament (Storting) found, on the presupposition that the drafts are non-binding on ESA,28 that Sec. 115 was applicable.

22 Council Reg. (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) (OJ 2004 L 24, p. 1). 23 Commission Reg. (EC) No 802/2004 of 7 April 2004 implementing Council Reg. (EC) No 139/2004 on the control of concentrations between undertakings (OJ 2004 L 133, p. 1). 24 Case E-14/11, 21.12.2012, Schenker North and Others v. ESA. 25 Protocol 8 was added by agreement of 6 October 2016, which entered into force on 25 November 2016. That agreement also added a new Art. 25 a to the SCA. 26 Fredriksen and Holmøyvik, ‘Formaljus om finanstilsyn’, Dagens Næringsliv 11.6.2016 (newspaper article). 27 Ibid. 28 Innst. 382 S (2015-2016) p. 6.

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11

12

PART III: The Agreement on ESA and EFTA Court 13

There are two Annexes to the SCA. Annex I contains a list of acts which ESA is obliged, under Art. 24(2) SCA, to adopt acts corresponding to, in the field of State aid. ESA fulfilled this obligation by adopting and issuing the corresponding acts in a single and consolidated document, its State Aid Guidelines.29 Annex II contains a list of acts which ESA is obliged, under Art. 25(2) SCA, to adopt acts corresponding to, in the field of competition. ESA fulfilled this obligation through its Decision No 3/94/COL of 12 January 1994,30 whereby 10 notices and guidelines were issued. The annexes have not been updated, and must be considered obsolete today. However, to fulfil its obligations under Art. 24 and 25 SCA respectively, ESA has updated the State Aid Guidelines on multiple occasions and issued several new notices in the field of competition law.

Article 43 [Statute and Rules of procedure of the EFTA Court] 1. The Statute of the EFTA Court is laid down in Protocol 5 to this Agreement. 2. The EFTA Court shall adopt its rules of procedure to be approved by the Governments of the EFTA States by common accord. 1

2

3

4

5

The Statute of the EFTA Court has been amended by decisions of 10 August 1996, 25 March 1999, and 8 December 2010. On the procedure for amendment of the Statute, see Ar. 44 of the Statute. The Statute is divided into four parts; part 1 on Judges, part 2 on organisation, part 3 on procedure and part 4 contains general provisions. There are four official language versions: English, Icelandic, German and Norwegian.1 The Rules of Procedure of the EFTA Court (“RoP”) were adopted on 4 January and 1 February 1994. Amendments to the RoP were made on 22 August 1996, 20 September 2007, 10 November 2010 and 16 May 2012. The RoP are divided into four titles; Title I on organisation of the Court, Title II on procedure, Title III on special forms of procedure, and Title IV (miscellaneous provision). According to Art. 98 RoP, there are four official language versions: English, Icelandic, German and Norwegian. However, the Icelandic, German and Norwegian versions have as of yet not been updated following the amendments in 2010 and 2012. The ECJ and the General Court adopted new RoP in 2012 and 2015, respectively, resulting in many structural changes. As a consequence, the EFTA Court has undertaken the task of a major overhaul of its own RoP. A new set of rules may be expected in early 2018.

29 The State Aid Guidelines are commented above in relation to Protocol 3. 30 OJ 1994 L 153, p. 1. 1 Cf. Art. 53(1) SCA and Art. 42 SCA.

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It falls outside the scope of this work to comment on all the provisions of the 6 Statute and the RoP.2 The provisions of the Statute and RoP correspond, with some exceptions, to the Statute and the RoP of the ECJ. Due to the principle of procedural homogeneity, reference can be made to the general textbooks on the procedural law of the EU.3 However, on a few occasions, the EFTA Court has interpreted its rules differently than the ECJ. On this background, it may be useful to have an overview of the relationship between the rules of the EFTA Court and the ECJ, i.e. which rules of the Statute and RoP of the EFTA Court correspond to which rules concerning the ECJ,4 and differences in wording and interpretation. This may be summarised as follows: Statute Art. 1

Corresponds to

Art. 1 ECJ Statute

Statute Art. 2

Corresponds to

Art. 2 ECJ Statute

Statute Art. 4

Corresponds to

Art. 4 ECJ Statute

Both provisions provide that the Judges may not engage in any occupation, 7 whether gainful or not. However, according to Art. 4 of the Statute of the ECJ, exemption may only “exceptionally” be granted by the Council, whereas pursuant to Art. 4 of the Statute of the EFTA Court, there is no such limitation as to when exemption may be given. For the Judges of the EFTA Court, decisions on granting exemption are taken by “the Governments of the EFTA States acting by common accord”, which means the ESA/Court Committee. The ESA/Court Committee is usually comprised by the three EFTA States’ ambassadors to the EU.5 Statute Art. 5

Corresponds to

Art. 5 ECJ Statute

Statute Art. 6

Corresponds to

Art. 6 ECJ Statute

Statute Art. 7

Corresponds to

Art. 7 ECJ Statute

Statute Art. 8

May be compared to

Art. 17 ECJ Statute

Statute Art. 9

Corresponds to

Art. 253(5) TFEU

Statute Art. 10 Statute Art. 11

Art. 10 ECJ Statute May be compared to

Art. 11 ECJ Statute

If the Registrar of the EFTA Court is absent, the President shall appoint an 8 Acting Registrar, see Art. 12 RoP. Up until recently, this has been the most senior legal secretary present at the Court. Now, however, a newly appointed assis2 See, however, Norberg et al., EEA Law, pp. 721-731 concerning the Statute. 3 See, in particular, Lenaerts et al., EU Procedural Law, and Fenger and Broberg, Preliminary References to the European Court of Justice. In Norwegian, the provisions of the Statute and RoP have been commented by Bull in Norsk lovkommentar. 4 Especially since new RoP of the ECJ were adopted in 2012, resulting in many structural changes (e.g. numbering of articles). 5 On 30 June 2008, the ESA/Court Committee adopted Decision No 1/2008 on Rules and Procedure for Occupational Activities of the Judges of the EFTA Court. In its Art. 3 it lists those activities which shall be deemed to be exempted. Art. 4 provides for the procedure for application should a Judge wish to undertake in occupational activity outside those mentioned in Art. 3.

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tant to the Registrar, titled “Lawyer Administrator”, will act as Registrar in the Registrar’s absence.

9

Statute Art. 12

Corresponds to

Art. 12 ECJ Statute

Statute Art. 13

Corresponds to

Art. 14 ECJ Statute

Statute Art. 14

Corresponds to

Art. 15 ECJ Statute

Statute Art. 15

Corresponds to

Art. 18 ECJ Statute

Statute Art. 16

Has no equivalent

The provision provides that rules governing the languages of the Court shall be laid down in the rules of procedure of the Court. Cf. Arts. 25 to 27 RoP. Statute Art. 17

10

11

Corresponds to

Art. 19 ECJ Statute

Pursuant to Art. 17(2) of the Statute of the EFTA Court, and Art. 19(3) of the Statute of the ECJ, natural or legal persons who bring actions against the institutions must be represented by a lawyer. According to the case-law of the ECJ, the lawyer must be a third party in relation to the litigant. That requirement has been rigorously and consistently upheld. Thus, there must be no employment relationship between the lawyer and his client, including a situation in which the lawyers are employed by an entity “connected to the party they represent”.6 However, in Case E-8/13 Abelia v. ESA,7 the EFTA Court, seemingly took a more lenient approach. The applicant, Abelia, a trade and employers association, was represented by a lawyer employed by NHO, the Confederation of Norwegian Enterprise. Abelia is one of the member federations of NHO. ESA, supported by the Commission, argued that the application had to be dismissed as inadmissible, since NHO was an entity “connected to” Abelia. Nevertheless, the Court held that it had not been provided with information demonstrating that the interests of NHO were largely the same as those of the applicant. The Court therefore concluded that Abelia was properly represented before the Court. Statute Art. 18

Corresponds to

Art. 20 ECJ Statute

Statute Art. 19

Corresponds to

Art. 21 ECJ Statute

Statute Art. 20

May be compared to

Art. 23 ECJ Statute

Before the EFTA Court, the so-called privileged parties (the EFTA States, the Union (including the EU Member States), ESA and the Commission) shall in all cases (direct actions and requests for advisory opinions) be notified and be entitled to submit statements of case or written observations to the Court. Before the ECJ, this right is restricted to cases governed by Art. 367 TFEU, i.e. references for preliminary rulings.

6 Joined Cases C-422/11 P and C-423/11 P, 6.9.2012, Prezes Urzędu Komunikacji Elektronicznej and Poland v. Commission, paras 24-25. 7 Case E-8/13, 29.8.2014, Abelia v. ESA.

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Article 43 Statute and Rules of procedure of the EFTA Court Statute Art. 21

Corresponds to

Art. 24 ECJ Statute

Statute Art. 22

Corresponds to

Art. 25 ECJ Statute

Statute Art. 23

Corresponds to

Art. 26 ECJ Statute

Statute Art. 24

Corresponds to

Art. 28 ECJ Statute

Statute Art. 25

Corresponds to

Art. 29 ECJ Statute

Statute Art. 26

Corresponds to

Art. 30 ECJ Statute

Statute Art. 27

Corresponds to

Art. 31 ECJ Statute

Statute Art. 28 Statute Art. 29

Corresponds to Corresponds to

Art. 32 ECJ Statute Art. 33 ECJ Statute

Statute Art. 30

Corresponds to

Art. 34 ECJ Statute

Statute Art. 31

Corresponds to

Art. 35 ECJ Statute

Statute Art. 32

Corresponds to

Art. 36 ECJ Statute

Statute Art. 33

Corresponds to

Art. 37 ECJ Statute

Statute Art. 34

Corresponds to

Art. 38 ECJ Statute

Statute Art. 35

Corresponds to

Art. 39 ECJ Statute

Statute Art. 36

Corresponds to

Art. 40 ECJ Statute

Pursuant to Art. 36(1) of the Statute of the EFTA Court, any EFTA State, 12 ESA, the Union and the Commission may intervene in any direct action before the EFTA Court. According to the second paragraph, the same right shall be open to any person establishing “an interest” in the result, save in cases between EFTA States or between EFTA States and ESA. According to Art. 40(1) of the Statute of the ECJ, the right of intervention lies with EU Member States and institutions of the Union. Pursuant to the second paragraph, the same right applies to bodies, offices and agencies of the Union and any other person which can establish an interest in the result. However, natural or legal persons shall not intervene in cases between Member States, between institutions of the Union or between Member States and institutions of the Union.) Under the third paragraph, the EFTA/EEA States and ESA may, “[w]ithout prejudice to the second paragraph”, intervene in cases where one of the fields of application of the EEA Agreement is concerned. In two orders by the President of the ECJ, it has been held that because of the wording of the second and third paragraphs of Art. 40 of the Statute of the ECJ, EFTA/EEA States and ESA do not have the right to intervene in cases between institutions of the Union or between Member States and institutions of the Union, for example infringement cases, even though the case concerns one of the fields of application of the EEA Agreement.8 In Case E-16/11 ESA v. Iceland (Icesave), the Commission was granted leave to intervene in support of ESA. ESA and the Commission argued that due to the difference in wording between the two provisions, the orders by the President of the ECJ were not relevant. In his order, the President of the EFTA Court stressed 8 See Orders by the President of the ECJ of 15 July 2010 in Case C-493/09 Commission v Portugal, and 1 October 2010 in Case C-542/09 Commission v Netherlands.

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that the principle of procedural homogeneity is not restricted to provisions whose wording is identical in substance to parallel provisions of EU law. Nevertheless, he added that: 13 “In the case at hand, consideration must be given to the fact that the capability for any EEA State, ESA, the European Union and its institutions, including the Commission, to intervene in cases before the Court is of paramount significance for the good functioning of the EEA Agreement. Not only from a textual, but also from a teleological and functional perspective, the first paragraph of Art. 36 of the Statute must be construed accordingly.”9 14 Currently there is thus a lack of homogeneity with regard to the right of intervention in infringement cases.10

15

Statute Art. 37

Corresponds to

Art. 41 ECJ Statute

Statute Art. 38

Corresponds to

Art. 42 ECJ Statute

Statute Art. 39

Corresponds to

Art. 43 ECJ Statute

Statute Art. 40

Corresponds to

Art. 44 ECJ Statute

Statute Art. 41

Corresponds to

Art. 45 ECJ Statute

Statute Art. 42

Corresponds to

Art. 46 ECJ Statute

Statute Art. 43

Corresponds to

Art. 63 ECJ Statute

RoP Art. 1

Corresponds to

Art. 1 ECJ RoP

RoP Art. 2

Corresponds to

Art. 3 ECJ RoP

RoP Art. 3

Corresponds to

Arts. 4 and 5 ECJ RoP

RoP Art. 4

Corresponds to

Art. 6 ECJ RoP

RoP Art. 5

Corresponds to

Art. 7 ECJ RoP

RoP Art. 6

Corresponds to

Art. 8 ECJ RoP

RoP Art. 7

Corresponds to

Art. 9 ECJ RoP

RoP Art. 8

Corresponds to

Art. 15 ECJ RoP

RoP Art. 9

Corresponds to

Art. 13 ECJ RoP

RoP Art. 10 RoP Art. 11

Corresponds to Corresponds to

Art. 18 ECJ RoP Art. 19 ECJ RoP

RoP Art. 12

Has no equivalent

The Article provides that where the Registrar is absent or prevented from attending or his post is vacant, the President shall designate an official or other servant to carry out temporarily the duties of Registrar. See above concerning

9 Order by the President of the EFTA Court of 23 April 2012 in Case E-16/11 ESA v Iceland, para. 33. 10 This lack of homogeneity has been criticised by Clifton, “Leave to intervene: a vital hindrance. An evaluation of recent orders on applications for leave to intervene at the Court of Justice of the European Union and the EFTA Court”, [2013] European Law Reporter, pp. 235-242.

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Art. 11 of the Statute. An identical rule could be found in Art. 14 of the former RoP of the ECJ of 19 June 1991. RoP Art. 13

Has no equivalent

The provision sets out that instructions to the Registrar shall be adopted by 16 the Court acting on a proposal from the President, and corresponds to Art. 15 of the former RoP of the ECJ of 19 June 1991 RoP Art. 14

Corresponds to

Arts. 21 and 22 ECJ RoP

RoP Art. 15

Corresponds to

Art. 20(1)-(2) ECJ RoP

RoP Art. 16

Corresponds to

Art. 20(3) ECJ RoP

RoP Art. 17

Has no equivalent

According to this Article, the Court may call upon the Registrar to attend the 17 sittings of the Court. Compare Art. 19 of the former RoP of the ECJ of 19 June 1991. RoP Art. 18

Has no equivalent

The officials and other servants of the Court shall be appointed in accordance 18 with the provisions of the Staff Regulations for the EFTA Court, and they shall take an oath as described. The rule corresponds to Art. 20 of the former RoP of the ECJ of 19 June 1991. RoP Art. 19

Has no equivalent

The rule that the organisation of the Court shall be laid down, and may be 19 modified, by the Court, corresponds to Art. 21 of the former RoP of the ECJ of 19 June 1991. RoP Art. 20

Corresponds to

Art. 20(3) ECJ RoP

RoP Art. 21

Corresponds to

Art. 23 ECJ RoP

Only the rule identical to the second paragraph of Art. 21 RoP of the EFTA 20 Court can be found in the new RoP of the ECJ. Rules corresponding to the first paragraph could be found in Art. 25(1) and (2) of the former RoP of the ECJ of 19 June 1991. RoP Art. 22

Has no equivalent

As the EFTA Court comprises only three Judges, this rule on quorum is 21 much simpler than those to be found in the RoP of the ECJ. RoP Art. 23(1)-(4)

Corresponds to

Art. 27 ECJ RoP

RoP Art. 23(6)-(7)

Corresponds to

Arts. 25 and 26 ECJ RoP

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The fifth paragraph11 has no equivalent in the current RoP of the ECJ, but corresponds to Art. 27(6) of the former RoP of the ECJ of 19 June 1991. RoP Art. 24

23

This provision on Court vacations corresponds to Art. 28 of the former RoP of the ECJ of 19 June 1991. Today, it follows from Art. 24 of the RoP of the ECJ that the judicial vacations shall be determined by the Court and published annually in the Official Journal. RoP Art. 25

24

Has no equivalent

Compare

Arts. 36-42 ECJ RoP

The Article sets out that English is the language of the Court, and thus the language of all cases. In advisory opinion cases, the report for the hearing and the judgment shall also, according to Art. 27 RoP, be made available in the language in which the case is dealt with before the national court (German, Icelandic or Norwegian). In such cases, the national court is entitled to make its request in the language in which the case is dealt with, and the parties to the dispute are entitled to address and be addressed by the Court both written and orally in the language in which the case is dealt with before that court or tribunal. It is an understatement to say that the language regime of the EFTA Court is less complicated than that of its sister court. RoP Art. 26

Corresponds to

RoP Art. 27

Has no equivalent (cf. comment to Art. 25 RoP)

Art. 38(7) ECJ RoP

RoP Art. 28

Corresponds to

Art. 43 ECJ RoP

RoP Art. 29

Corresponds to

Art. 44 ECJ RoP

RoP Art. 30

Corresponds to

Art. 45 ECJ RoP

RoP Art. 31

Corresponds to

Art. 46 ECJ RoP

RoP Art. 32

Corresponds to

Art. 57 ECJ RoP

RoP Art. 33

Corresponds to

Arts. 120-122 ECJ RoP

RoP Art. 34

Corresponds to

Art. 123 ECJ RoP

RoP Art. 35

Corresponds to

Art. 124 ECJ RoP

RoP Art. 36

Corresponds to

Art. 126 ECJ RoP

RoP Art. 37

Corresponds to

Arts. 127 and 128 ECJ RoP

RoP Art. 38

Corresponds to

Art. 49 of the RoP of the General Court

RoP Art. 39

Corresponds to

Art. 54 ECJ RoP

RoP Art. 40

Corresponds to

Art. 59 ECJ RoP and Arts. 52 and 53 of the RoP of the General Court

11 Which sets out that “[d]ifferences of view on the substance, wording or order of questions, or on the interpretation of the voting shall be settled by decision of the Court”.

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Article 43 Statute and Rules of procedure of the EFTA Court RoP Art. 41(1)

Corresponds to

Arts. 60(4) and 75 ECJ RoP and Art. 54 of the RoP of the General Court

RoP Art. 41(2)

Corresponds to

Art. 76 ECJ RoP

RoP Art. 42

Has no longer any equivalent

This provision, which concerns the order in which the Court shall deal with 25 cases, corresponds to Art. 55 of the former RoP of the ECJ of 19 June 1991. RoP Art. 43

Corresponds to

Arts. 78 and 79(1) ECJ RoP

RoP Art. 44

Corresponds to

Art. 80 ECJ RoP

RoP Art. 45

Corresponds to

Art. 119(1) ECJ RoP

RoP Art. 46

Has no equivalent

The rule that the President shall declare the oral procedure closed at the end 26 of the hearing corresponds to Art. 59(2) of the former RoP of the ECJ of 19 June 1991. RoP Art. 47

Corresponds to

Art. 83 ECJ RoP

RoP Art. 48

Corresponds to

Art. 84 ECJ RoP

RoP Art. 49

Corresponds to

Art. 64 of the RoP of the General Court

RoP Art. 50

Corresponds to

Arts. 64 and 65 ECJ RoP

RoP Art. 51

Corresponds to

Art. 65(3) ECJ RoP

RoP Art. 52

Corresponds to

Arts. 66-68 and 73-74 ECJ RoP and Art. 68 of the RoP of the General Court

RoP Art. 53

Corresponds to

Art. 70 of the RoP of the General Court

RoP Art. 54

Corresponds to

Art. 71 of the RoP of the General Court

RoP Art. 55

Corresponds to

Arts. 6-7 of the Supplementary RoP of the ECJ

RoP Art. 56

Corresponds to

Art. 72 ECJ RoP

RoP Art. 57

Corresponds to

Art. 73(2) and (3) ECJ RoP

RoP Art. 58

Corresponds to

Art. 75 of the RoP of the General Court

RoP Art. 59

Corresponds to

Art. 74 ECJ RoP

RoP Art. 59 a

Corresponds to

Arts. 133-135 ECJ RoP

RoP Art. 60

Corresponds to

Art. 87 ECJ RoP

RoP Art. 61

Corresponds to

Arts. 86 and 88 ECJ RoP

RoP Art. 62

Corresponds to

Art. 91 ECJ RoP

RoP Art. 63

Corresponds to

Arts. 103 and 152(2) ECJ RoP

RoP Art. 64

Corresponds to

Art. 155 ECJ RoP

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27

28

29

RoP Art. 65

Corresponds to

Art. 20(3) ECJ RoP

RoP Art. 66

Corresponds to

Arts. 137-142 ECJ RoP

RoP Art. 67

Has no longer any equivalent

This provision, which sets out that costs necessarily incurred by a party in enforcing a judgment, corresponds to Art. 89 of the former RoP of the ECJ of 19 June 1991. RoP Art. 68

Corresponds to

Art. 143 ECJ RoP

RoP Art. 69

Corresponds to

Art. 144 ECJ RoP

RoP Art. 70

Corresponds to

Art. 145 ECJ RoP

RoP Art. 71

Corresponds to

Art. 146 ECJ RoP

RoP Art. 72

Corresponds to

Arts. 115-116 ECJ RoP and Arts. 94-97 of the RoP of the General Court

RoP Art. 73

Corresponds to

Art. 147 ECJ RoP

RoP Art. 74

Corresponds to

Art. 148 ECJ RoP

RoP Art. 75(2)-(4)

Corresponds to

Art. 48(1)-(3) ECJ RoP

The first paragraph has no (and has never had any) equivalent in the RoP of the ECJ. It concerns service of documents on an EFTA/EEA State, ESA, the Union or the Commission. RoP Art. 76

Corresponds to

Art. 49 ECJ RoP

RoP Art. 77

Corresponds to

Art. 50 ECJ RoP

RoP Art. 78(1) and (3)

Corresponds to

Art. 52 ECJ RoP

The second paragraph, which sets out that a time-limit may not be extended on considerations of distance alone, has no (and has never had any) equivalent in the RoP of the ECJ. Conversely, according to 51 the RoP of the ECJ, procedural time-limits shall be extended on account of distance by a single period of 10 days. RoP Art. 79

Corresponds to

Art. 55 ECJ RoP

RoP Arts. 80-81

Corresponds to

Art. 160 ECJ RoP

RoP Art. 82

Corresponds to

Art. 161 ECJ RoP

RoP Art. 83

Corresponds to

Art. 162 ECJ RoP

RoP Art. 84

Corresponds to

Art. 163 ECJ RoP

RoP Art. 85

Corresponds to

Art. 164 ECJ RoP

RoP Art. 86

Corresponds to

Art. 165 ECJ RoP

RoP Art. 87

Corresponds to

Art. 151 ECJ RoP

RoP Art. 88

Corresponds to

Art. 53(2) ECJ RoP

RoP Art. 89

Corresponds to

Arts. 129-131 ECJ RoP

RoP Art. 90

Corresponds to

Arts. 152 and 156 ECJ RoP

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Article 44 Legal capacity, privileges and immunities, headquarters agreements RoP Art. 91

Corresponds to

Art. 157 ECJ RoP

RoP Art. 92

Corresponds to

Art. 159(2) ECJ RoP

RoP Art. 93

Corresponds to

Art. 159(3)-(4) ECJ RoP

RoP Art. 94

Corresponds to

Art. 159(5)-(7) ECJ RoP

RoP Art. 95

Corresponds to

Art. 158 ECJ RoP

RoP Art. 96(1)

Has no equivalent

This rule sets out that a where an EFTA/EEA State, pursuant to the EFTA/ 30 EEA-specific provision in Art. 34(3) SCA, has limited the right to request an advisory opinion to courts and tribunals against whose decisions there is no judicial remedy under national law, it should without delay inform the Court of such legislation. RoP Art. 96(2)-(4)

Corresponds to

Arts. 94-95 and 101 ECJ RoP

RoP Art. 97

Corresponds to

Arts. 96-99 ECJ RoP

RoP Art. 97 a

Corresponds to

Art. 105 ECJ RoP

RoP Art. 97 b

Has no longer any equivalent

The provision, which sets out that the EFTA Court may issue practice direc- 31 tions relating in particular to the preparation and conduct of the hearings before it and to the lodging of written statements of case or written observations, was added by a decision of the EFTA Court of 16 May 2012,12 and it corresponds to Art. 125 a of the former RoP of the ECJ of 19 June 1991. RoP Art. 98

Art. 210 ECJ RoP

Article 44 [Legal capacity, privileges and immunities, headquarters agreements] 1. The legal capacity, privileges and immunities to be recognized and granted by the EFTA States in connection with the EFTA Surveillance Authority and the EFTA Court are laid down in Protocols 6 and 7 to this Agreement, respectively. 2. The EFTA Surveillance Authority and the EFTA Court, respectively, may conclude with the Government of the States in whose territory their seats are situated an agreement relating to the privileges and immunities to be recognized and granted in connection with it.

Protocols 6 and 7 contain detailed rules on legal capacity, privileges and 1 immunities for ESA and the EFTA Court, respectively, and its servants.1 These rules are in line with those governing other international organisations.

12 OJ 2013 C 132, p. 12. 1 For an overview, see Norberg et al., EEA law, p. 732.

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ESA and the EFTA Court have, as legal persons under international law, entered into headquarters' agreements with Belgium2 and Luxembourg,3 respectively.

Article 45 [Seats of the ESA and the EFTA Court] The seat of the EFTA Surveillance Authority and the EFTA Court, respectively, shall be determined by common accord of the Governments of the EFTA States. 1

Initially ESA was situated in Geneva, with an additional office in Brussels. It moved all its functions to Brussels in 1995. The EFTA Court moved from Geneva to Luxembourg on 1 September 1996.

Article 46 [Contractual and non-contractual liability of the ESA] The contractual liability of the EFTA Surveillance Authority shall be governed by the law applicable to the contract in question. In the case of non-contractual liability, the EFTA Surveillance Authority shall, in accordance with the general principles of law, make good any damage caused by it, or by its servants, in the performance of its duties. 1 2

Article 46 mirrors the first and second paragraphs of Art. 340 TFEU. Non-contractual liability can be based on a wrongful act (decision)1 or a failure to act.2 To date, the EFTA Court has handled one case – Case E-7/12 Schenker North and Others v. ESA – concerning the non-contractual liability of ESA.3 The case concerned a failure to act on a request for access to documents. The EFTA Court held that, for the sake of procedural homogeneity,4 the caselaw of the EU courts concerning the second paragraph of Art. 340 TFEU should be taken into account when assessing a claim for non-contractual liability pursuant to the second paragraph of Art. 46 SCA (paras. 109-110). The EFTA Court added that the protection of the rights conferred on individuals in EEA law should not vary depending on whether ESA or the Commission is responsible for the damage when they exercise powers conferred upon them by the EEA Agreement pursuant to Art. 109 EEA (para. 111). Thus, the EFTA Court held that, just as in the EU pillar, the EEA agreement confers a right to reparation from ESA where the following three conditions are met: first, that the rule of law infringed must be intended to confer rights on individuals; secondly, that the breach must be sufficiently serious; and thirdly, that there must be a direct 2 3 1 2 3 4

Of 22 December 1994. Of 16 April 1996. Cf. Article 36 SCA. Cf. Article 37 SCA. Case E-7/12, 9.7.2013, Schenker North and Others v. ESA. See, e.g., Case E-15/10, 18.4.2012,Posten Norge v. ESA, paras. 108-109.

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causal link between the breach of the obligation resting on the author of the act and the damage sustained by the injured parties (para. 112). As regards the seriousness condition, the EFTA Court held, referring to the case-law of the ECJ, that account should be taken, inter alia, of the complexity of the situations to be regulated, difficulties in the application or interpretation of the texts and, more particularly, the margin of discretion available to ESA. The decisive test for finding that a breach of EEA law is sufficiently serious is whether ESA manifestly and gravely disregarded the limits on its discretion. Where ESA has only considerably reduced or even no discretion, the mere infringement of EEA law may be sufficient to establish the existence of a sufficiently serious breach (paras. 121-123). The EFTA Court added that application of the condition of a sufficiently seri- 3 ous breach in a case concerning the non-contractual liability of ESA, may not necessarily be coextensive with its application under the EEA State liability rules (para. 120). An assessment of this statement is given below, in the comments regarding State liability under EEA law. On this background, it is likely that the EFTA Court, applying the principle of 4 procedural homogeneity, will adapt the same approach as the EU Courts concerning admissibility of such actions. For example, where private parties seek damages for non-contractual liability against ESA, arguing that a wrongful act or omission from ESA has led to a breach of EEA law committed by national authorities, it is fair to assume that such actions, as a main rule, will be declared inadmissible on the basis of the exhaustion (of national remedies rule).5 Under that rule, damages in such situations of concurrent damages must be sought against national authorities before national courts.6 Moreover, it is fair to assume that, pursuant to Art. 33(1)(c) of the Rules of 5 Procedure of the EFTA Court, it must be required of an application seeking compensation for damage allegedly caused by ESA must state the evidence on which the conduct alleged may be identified, the reasons why it considers that a causal link exists between that conduct and the damage which it claims to have suffered, and the nature and extent of that damage. According to the case-law of the EU Courts, a claim for unspecified damages is not sufficiently concrete and must be regarded as inadmissible.7 It is not necessarily required that an applicant have put in figures the amount of the loss which it submits it has suffered. However, evidence which enables the assessment of the nature and extent of the loss, must be clearly indicated. In such circumstances, the absence of precise figures in the application does not affect the other party’s rights of defence.8

5 Fredriksen, Offentligrettslig erstatningsansvar ved brudd på EØS-avtalen (Bergen, 2013), p. 146. 6 See, e.g., Biondi and Farley, The Right to Damages in European Law (Austin, 2009), pp. 165 ff. 7 See, e.g., Case T-376/04, 22.7.2005, Polyelectrolyte Producers Group v. Council and Commission, para. 54. 8 Ibid., para. 55.

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It follows from Art. 42 of the Statute of the EFTA Court (Protocol 5 SCA) that proceedings against ESA in matters arising from non-contractual liability shall be barred after a period of five years from the occurrence of the event giving rise thereto.9 The period of limitation shall be interrupted if proceedings are instituted before the Court or if prior to such proceedings an application is made by the aggrieved party to ESA. In the latter event the proceedings must be instituted within two months of the publication of the measure, or of its notification to the plaintiff, or, in the absence thereof, of the day on which it came to the knowledge of the latter, as the case may be. 7 The provision is identical in substance to Art. 46 of the Statute of the ECJ. According to the case-law of the Union Courts concerning that provision, the period of limitation cannot begin until all the requirements governing an obligation to provide compensation for damage are satisfied and, in particular, once the damage to be made good has materialised.10 It is likely that the same approach will be taken by the EFTA Court if the question arises before it. Therefore, it is fair to assume that where liability is based on a decision by ESA, the period does not begin at the time of the decision, but when the damage has actually materialised. On a similar note, the EFTA Court will probably not apply Art. 42 of the Statute ex officio. It follows from the case-law of the ECJ that compliance with the limitation period in Art. 46 of the Statute of the ECJ may not be raised by a European Union Court of its own motion but must be raised by the party affected.11 Limitation therefore constitutes an objection to admissibility which, unlike procedural time-limits, is not absolute, but extinguishes the action for liability solely at the request of the defendant.12 8 Art. 46 SCA only concerns the non-contractual liability of ESA. In the EU, however, Art. 340 TFEU provides that the “Union”, that is to say all of its institutions and bodies, is subject to liability.13 The liability of the Union can be engaged as a result of administrative, legislative and judicial activities.14 Indeed, the liability of the EU institutions started developing not from administrative, but rather legislative, acts. The fact that the personal and material scope of Art. 340 TFEU is so much broader than what follows from the wording of Art. 46 SCA, raises the question whether non-contractual liability could be possible for other EEA institutions than ESA. 9 For example, it is clear that the Standing Committee of the EFTA States has certain administrative competences which, in the EU, are entrusted with the Commission.15 Moreover, it could be argued that the EEA Joint Committee, 6

9 Compare Article 46 ECJ Statute. 10 See, inter alia, Case C-282/05 P, 19.4.2007, Holcim (Deutschland) v. Commission, paras. 29 and 30. 11 Case C-469/11 P, 8.11.2012, Evropaïki Dynamiki v. Commission, para. 51, and the case-law cited. 12 Ibid, para. 54. 13 See, in general, P. Aalto, Public Liability in EU Law (Oxford 2011), p. 105. 14 Ibid, p. 106-107.

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when incorporating EU legislation into the EEA Agreement pursuant to Art. 98 EEA, acts as an “EEA legislator”. Furthermore, the EFTA Court has held that “nothing in the EEA Agreement, the SCA or other relevant legal instruments suggests that any provision governing the functioning of the EFTA Standing Committee or the EEA Joint Committee is excluded from the jurisdiction of the Court under Article 34 SCA”,16 that is to say under the advisory opinion procedure. On this basis, is it likely that the EFTA Court, despite the wording of Art. 46 SCA, would accept jurisdiction over actions in which these institutions are held liable for acts or failure to act? On the one hand, the fundamental objective of homogeneity suggests that 10 such jurisdiction should be possible. However, from my point of view it seems unlikely that it will occur. As the non-contractual liability of the Union (then Community) was part of EC law when the EEA Agreement was signed, the more limited scope of Art. 46 SCA appears to have been an intentional act when drafting the SCA. In any case, to accept jurisdiction concerning the liability of the EEA Joint Committee would be problematic vis-à-vis the ECJ, as the EFTA Court’s jurisdiction is limited to the EFTA pillar of the EEA. The EEA Agreement does not contain an express provision on State liability. 11 However, in its seminal Sveinbjörnsdóttir judgment from 1998, the EFTA Court concluded that “it is a principle of the EEA Agreement that the Contracting Parties are obliged to provide for compensation for loss and damage caused to individuals by breaches of the obligations under the EEA Agreement for which the EFTA States can be held responsible”.17 The Court held that State liability can be derived from the stated purposes and the legal structure of the EEA Agreement. Particular emphasis was given to the Agreement’s homogeneity objective, and that individuals and economic operators are to be ensured equal treatment and equal conditions of competition, as well as adequate means of enforcement.18 Thus, the existence of the EU law principle of State liability, famously introduced by the ECJ seven years earlier in Francovich,19 was a prerequisite for the EEA law principle of State liability.20

15 See Art. 3 of the Agreement on a Standing Committee of the EFTA States. 16 Case E-3/11,14.12.2011, Sigmarsson, para. 28. 17 Case E-9/97, 10.12.1998, Sveinbjörnsdóttir, para. 62. It has been written extensively on the EEA law principle of State liability. The most thorough and in-depth analysis is (in Norwegian) Fredriksen, Offentligrettslig erstatningsansvar ved brudd på EØS-avtalen. 18 Case E-9/97, 10.12.1998, Sveinbjörnsdóttir. Paras. 47-58. 19 Joined Cases C-6/90 and C-9/90, 19.11.1991, Francovich and Others. 20 Fredriksen, ‘State Liability in EU and EEA Law: The Same or Different?’, [2013] European Law Review 884-895 (at p. 886), Magnússon and Hannesson, ‘State Liability in EEA Law’ [2013] European Law Review 167-186 (at p. 171), and Baudenbacher, ‘If Not EEA State Liability, Then What? Reflections Ten Years after the EFTA Court’s Sveinbjörnsdóttir Ruling’, [2009] Chicago Journal of International Law 333-358 (at p. 356).

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The finding in Sveinbjörnsdóttir that there is a principle of State liability under EEA law was subsequently accepted by the ECJ in Rechberger,21 and by the Supreme Courts of Iceland, Norway and Liechtenstein.22 13 The conditions for State liability under EEA law are, first, that the rule of law infringed must be intended to confer rights on individuals and economic operators; secondly, the 12

– breach must be sufficiently serious; and, thirdly, there must be a direct causal – link between the breach of the obligation resting on the State and the damage – sustained by the injured party.23 Although these conditions are the same as those underlying the principle of State liability under EU law,24 and clearly adopted from the case law of the ECJ,25 it may be questioned whether their content is identical in all regards, see below. As regards the condition that the breach must be sufficiently serious, it follows from the case law of the EFTA Court that this depends on whether, in the exercise of its legislative powers, the State has manifestly and gravely disregarded the limits on the exercise of its powers. The factors to be taken into consideration in this connection are, inter alia, the degree of clarity and precision of the rule infringed and the measure of discretion left by that rule to the national authorities.26 If the State was not called upon to make any legislative choices and it had only limited or even no discretion, the mere infringement of EEA law may be sufficient to establish the existence of a sufficiently serious breach.27 15 Sveinbjörnsdóttir concerned incorrect implementation of a directive, and its reasoning was limited to liability for such infringements. However, in Case E-4/01 Karlsson, which concerned a breach of a provision of the main part of the EEA Agreement, the EFTA Court made the general statement that an EEA State may be held “responsible for breaches of its obligations under EEA law”. And in Case E-2/12 HOB-Vín, the EFTA Court held that individuals and economic operators must be able to invoke the principle of State liability when secondary law has been incorporated into the EEA Agreement, i.e. when the decision of the EEA Joint Committee to incorporate an act becomes applicable.28 14

21 Case C-140/97, 5.6.1999, Rechberger and Others. 22 Judgment of the Supreme Court of Iceland of 16 December 1999 in the Icelandic Government v. Sveinbjörnsdóttir; judgment of the Supreme Court of Norway of 28 October 2005 in Finanger v. the Norwegian Government (Rt. 2005 p. 1365); judgment of the Supreme Court of Liechtenstein of 7 May 2010 in the Liechtenstein Government v. Dr Tschannet. 23 See, for example, Case E-9/97, 10.12.1998, Sveinbjörnsdóttir, para. 66; Case E-4/01, 30.5.2002, Karlsson, para. 32, and Case E-2/12, 11.12.2012, HOB-Vín, para. 122. 24 Joined Cases C-46/93 and C-48-93, 5.3.1996, Brasserie de Pêcheur and Factortame, para. 51. 25 Fredriksen, ‘The EFTA Court and the Principle of State Liability: Protecting the Jewel in the Crown’, in: The EEA and the EFTA Court: Decentred Integration, pp. 319-335 (at p. 328). 26 Case E-2/12, 11.12.2012, HOB-Vín, para. 129, with further references.

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Almost 20 years after Sveinbjörnsdóttir, some important questions regarding 16 the content and scope of the principle of State liability under EEA law remain unanswered: First, even though Karlsson contained a quite sweeping statement on the 17 scope of a State´s liability, the EFTA Court has not yet decided a case on State liability for judicial wrongdoing. Given the judgment of the ECJ in Köbler, the homogeneity objective suggests that that the principle of State liability does encompass breaches of EEA law caused by national courts.29 And in Case E-2/10 Kolbeinsson, the EFTA Court stated, albeit in an obiter dictum, that if States are to incur liability under EEA law for incorrect application of EEA law by national courts, the infringement would in any case – referring to Köbler – have to be manifest in character.30 Secondly, does the EEA liability regime apply to all of the Contracting Par- 18 ties – the EFTA States, the EU Member States and the European Union itself – or to the EFTA States only? The EFTA Court has not yet ruled on the question.31 It is clear that the EEA Agreement is an integral part of the EU legal order and that EEA rules may have direct effect on the same conditions that apply to other parts of EU law. Thus, the EU Member States may – as a matter of EU law – incur liability for sufficiently serious breaches of EEA-based rights.32 However, it may be questioned whether this EU law protection of EEA27 Ibid., para. 130. The Supreme Court of Norway held, in its Finanger II-case, with 9 votes to 4, that when assessing the seriousness condition, a general distinction has to be drawn between situations in which the EEA rule in question leaves the EEA States a wide discretion and situations where they have only limited or even no discretion. The minority, on the other hand, held that the breach in any case has to be manifest and grave and that the existence or nonexistence of discretion is thus only a criterion in the assessment of whether this threshold is exceeded. In a subsequent case before the Supreme Court, Personskadeforbundet, the Government argued that later judgments from the ECJ had proved the minority right. The Supreme Court indicated that the Government might be correct. However, the matter was ultimately left open, as the court chose to concentrate on the degree of clarity of the directives infringed, see Rt. 2012 p. 1793, paragraph 48. See the analysis by Fredriksen, “The EFTA Court and the Principle of State Liability: Protecting the Jewel in the Crown”, in: The EEA and the EFTA Court: Decentred Integration, pp. 319-335 (at p. 329). 28 Case E-2/12, 11.12.2012, HOB-Vín, para. 128. A decision by the EEA Joint Committee becomes applicable when it enters into force or is provisionally applicable pursuant to Art. 103(2) EEA. 29 Fredriksen, ‘The EFTA Court and the Principle of State Liability: Protecting the Jewel in the Crown’, in: The EEA and the EFTA Court: Decentred Integration, pp. 319-335 (at p. 326). 30 Case E-2/10, 10.12.2010, Kolbeinsson, para. 77, with reference to the ECJ’s judgment in Case C-224/01,30.9.2003, Köbler and Others, para. 53. 31 Admittedly, in Case E-2/12, 11.12.2012, HOB-Vín, paras. 119, 121, and 129-131, Case E-19/14, 19.6.2015, ESA v. Norway, para. 41, and Case E-4/16, 16.11.2016, ESA v. Norway, para. 26, the EFTA Court referred exclusively to the liability of the EFTA States, in contrast to its earlier case law, in which reference has been made to the liability of the Contracting Parties. However, the question of personal scope, i.e. whether the EEA State liability rules apply solely to EFTA States, was not raised, and the change of wording was not explained, in these cases. Thus, they should not be taken as authority for the view that State liability under EEA law applies only to EFTA States. See, however, the analysis in Fredriksen, ‘State Liability in EU and EEA Law: The Same or Different?’, [2013] European Law Review 884-895 (at pp. 885-887).

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based rights is a fulfilment of an EEA law obligation or only as a generous concession on the part of the EU and its Member States for the benefit of private parties and economic operators from the EFTA States. If the former is the correct view, it may be argued that the State liability rules under EEA law apply, as such, to the EFTA States only. Even though the wording of Protocol 35 provides some support for such a view, it is questionable if this is sufficient to rebut the presumption that the EEA law principle of State liability, as it follows from the EEA Agreement as such, has to apply to all of the Contracting Parties.33 19 Thirdly, and related to the former question, even though the conditions for State liability for breach of the EEA Agreement are prima facie the same as under EU law, the question remains whether they are identical in all situations. In Karlsson, the EFTA Court made the following statement: “The finding that the principle of State liability is an integral part of the EEA Agreement differs, as it must, from the development in the case law of the Court of Justice of the European Communities of the principle of State liability under EC law. Therefore, the application of the principles may not necessarily be in all respects coextensive.”34

The statement was a dismissal of the Norwegian Government’s contention that the EU law principle of State liability is inseparable from the principle of direct effect, and that, as there is no direct effect in EEA law, there cannot be any State liability. Thus, the statement said nothing about how and when the conditions for State liability under EEA law may differ from those under EU law. The statement was repeated in Cases HOB-Vín and Schenker II. To date, it has not been necessary for the EFTA Court to elaborate on the question. 21 However, that State liability under EEA law should be less strict than under EU law appears incompatible with the principle of homogeneity. Indeed, the Norwegian Government’s arguments in favour of a more lenient liability under EEA law was, with reference to the fundamental goal of homogeneity, forcefully rejected by the Norwegian Supreme Court in Finanger II.35 Conversely, the homogeneity objective suggests that the EEA State liability regime may be stricter than under EU law, in order to remedy the lack of direct effect and primacy in EEA law.36 Magnusson/Hannesson appear to argue that liability under EEA law should be stricter on a more general basis.37 This author agrees, however, with Fredriksen, who contends that strict/objective liability for breach of 20

32 Fredriksen, ‘State Liability in EU and EEA Law: The Same or Different?’, [2013] European Law Review 884-895 (at p. 886). 33 Ibid. 34 Case E-4/01, 30.5.2002, Karlsson, para. 30. 35 Rt. 2005 p. 1365, para. 58. 36 See Fredriksen, ‘State Liability in EU and EEA Law: The Same or Different?’, [2013] European Law Review 884-895 (at p. 888), Magnússon and Hannesson, ‘State Liability in EEA Law’ [2013] European Law Review 167-186, and Baudenbacher, ‘If Not EEA State Liability, Then What? Reflections Ten Years after the EFTA Court’s Sveinbjörnsdóttir Ruling’, [2009] Chicago Journal of International Law 333-358 (at pp. 357-358). 37 Magnússon and Hannesson, ‘State Liability in EEA Law’, [2013] European Law Review 167-186.

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Article 46 Contractual and non-contractual liability of the ESA

EEA law, i.e. that EFTA States may be held liable without any further assessment of the seriousness of the breach, must be limited to cases where the lack of EEA law principles of direct effect and supremacy constitutes a condition sine qua non for the plaintiff’s loss.38 In other words, if the plaintiff would have succeeded had he tried to pursue his EEA rights in court (be it as a result of EEA-consistent interpretation of national law or as a result of other national rules securing the effect of EEA law in the given setting), then he may not argue in a subsequent State liability case that the liability of the EFTA State in question is strict. This is so since under the EU law State liability regime, where a private party who claims for damages has failed to avail himself of the principles of direct effect and supremacy, the usual requirement of a sufficiently serious breach applies. Were it otherwise, the consequence would, on the presumption that the EEA law principle of State liability applies to all of the Contracting parties, be a more burdensome EEA-based liability for the EU Member States than that which exists as a matter of EU law.39 Such a scenario is highly unlikely. Thus, the case for a stricter EEA liability regime has to be limited to situations where it is necessary to remedy the lack of direct effect and primacy in EEA law, i.e. something that will never occur in the EU pillar of the EEA.40 Even if the EEA State liability regime applies to the EFTA States only, there is no basis in the EEA Agreement to support the view that the EFTA States have taken upon themselves an obligation to provide even better protection of EEAbased rights than the protection offered by EU law in the EU pillar of the EEA.41 Further basis for such a limitation can also be found in the relationship be- 22 tween State liability and the non-contractual liability of ESA. As mentioned above, the EFTA Court held in E-7/12 Schenker v. ESA that the non-contractual liability of ESA cannot, in the absence of particular justification, differ from those governing the liability of the Commission in similar circumstances. It is clear that under EU law, the liability of the EU institutions and the EU Member States is the same in comparable situations.42 That finding is based on the reasonable argument that the protection of the rights that individuals derive from EU law cannot vary depending on whether a national authority or an EU authority is responsible for the damage.43 Admittedly, E-7/12 Schenker v ESA, it was stated that the application of the condition of a sufficiently serious breach in a case concerning the non-contractual liability of ESA may not necessarily be coextensive with its application under the EEA State liability rules.44 Neverthe38 Fredriksen, ‘State Liability in EU and EEA Law: The Same or Different?’, [2013] European Law Review 884-895. 39 Ibid. (at pp. 889-890). 40 Ibid. 41 Ibid. (at footnote 29). 42 See, in particular, Joined Cases C-46/93 and C-48-93, 5.3.1996, Brasserie de Pêcheur and Factortame, para. 42, and Case C-352/98, 4.7.2000, Bergaderm and Goupil v. Commission, para. 41. 43 Fredriksen, ‘State Liability in EU and EEA Law: The Same or Different?’, [2013] European Law Review 884-895 (at pp. 892-893).

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less, given the reasonable rationale behind the rule that the liability of the EU institutions and the EU Member States is the same in comparable situations, it is difficult to see how the EFTA Court might justify a different approach under EEA law and hold an EFTA State liable in circumstances where ESA would have been acquitted.45 Therefore, this author agrees with the argument set forth by Fredriksen that the only feasible situation where the application of the condition of a sufficiently serious breach in a State liability case may differ from its application in a case concerning the non-contractual liability of ESA, is where the plaintiff’s loss is caused by the lack of an EEA law principle of direct effect. That condition will, of course, never be fulfilled in liability cases against ESA.46 23 In conclusion, with the possible exception for situations where the lack of EEA law principles of direct effect and supremacy constitutes a condition sine qua non for the plaintiff’s loss, the homogeneity principle strongly suggests that the application of the EU and EEA law principles of State liability is indeed coextensive.47

Article 47 [Budget for the ESA] The Governments of the EFTA States shall, on a proposal from the EFTA Surveillance Authority and after consulting a committee consisting of the members of Parliament of the EFTA States who are members of the EEA Joint Parliamentary Committee, each year before 1 January by common accord establish a budget for the coming year and the apportionment of those expenses between the EFTA States. The EFTA Surveillance Authority shall be consulted before a decision modifying or amending its proposal for a budget is adopted. 1

The budgets of ESA and the EFTA Court shall be established by the Governments of the EFTA States, that is to say the ESA/Court Committee.1

44 Case E-7/12, 9.7.2013, Schenker North and Others v. ESA, para. 120. 45 Fredriksen, ‘State Liability in EU and EEA Law: The Same or Different?’, [2013] European Law Review 884-895 (at p. 893). 46 Ibid. 47 Fredriksen, ‘The EFTA Court and the Principle of State Liability: Protecting the Jewel in the Crown’, in: The EEA and the EFTA Court: Decentred Integration, pp. 319-335 (at p. 330). It should be added that in Finanger II, the Supreme Court of Norway held that State liability within the EEA “has the same scope and is at the same level as State liability in the [then] EC”. Nevertheless, as the question of whether there is a strict EEA State liability in cases where the plaintiff’s loss is caused by the lack of EEA law principles of direct effect and supremacy was not raised before the Supreme Court, its statement should not be taken as authority for an answer in the negative, see Fredriksen, ‘State Liability in EU and EEA Law: The Same or Different?’, [2013] European Law Review 884-895 (at pp. 890-891). 1 See comments on Art. 49 SCA.

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Article 48 [Budget for the EFTA Court] The Governments of the EFTA States shall, on a proposal from the EFTA Court, each year before 1 January by common accord establish a budget for the EFTA Court for the coming year and the apportionment of those expenses between them.

See comments on Art. 47 SCA.

1

Article 49 [Amendments to the SCA] The Governments of the EFTA States may, unless otherwise provided in this Agreement, on a proposal from or after hearing the EFTA Surveillance Authority, by common accord amend the main Agreement as well as Protocols 1 to 4 and 6 to 8. Such an amendment shall be submitted to the EFTA States for acceptance and shall enter into force provided it is approved by all EFTA States. Instruments of acceptance shall be deposited with the Government of Sweden which shall notify all other EFTA States.

In the EFTA Ministerial Meeting in May 1994, it was decided to establish a 1 permanent committee of representatives of the Governments of the EFTA States (“ESA/Court Committee”). The competence to amend the SCA and, inter alia, appoint the members of the ESA College and the EFTA Court,1 establish the budgets of ESA and the EFTA Court,2 is vested in the Committee. It consists of the ambassadors of the EFTA States to the EU. The 8th Protocol was added to the list by the Agreement amending the Agree- 2 ment between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice by adding a new Article 25 a and a new Protocol 8 to the Agreement of 6 October 2016 (e.i.f. 25 November 2016). The only part of the SCA not covered by Art. 49 is Protocol 5 on the Statute 3 of the EFTA Court. The procedure for amending Protocol 5 is found in Art. 44 of that protocol.3

Article 50 [Withdrawal from the SCA] 1. Any EFTA State which withdraws from the EEA Agreement shall ipso facto cease to be a Party to the present Agreement on the same day as that withdrawal takes effect. 2. Any EFTA State which accedes to the European Community shall ipso facto cease to be a Party to the present Agreement on the same day as that accession takes effect. 3. The Governments of the remaining EFTA States shall, by common accord, decide on the necessary amendments to be made to the present Agreement.

1 Arts. 9 and 30 SCA, respectively. 2 Arts. 47 and 48 SCA. 3 Protocol 5 was amended by Decision of the Committee of Representatives of the Contracting Parties to the ESA/Court Agreement of 10 August 1996 and 25 March 1999.

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When Austria, Finland and Sweden acceded to the (then) European Community and the EU on 1 January 1995, they ceased to be parties to the SCA. By an agreement of 29 December 1994 between Iceland and Norway, necessary amendments were made to the SCA.1 2 With the current composition of an EFTA-pillar with only three members, any further reduction will naturally be challenging. Still, faced with the Icelandic application for EU membership in the wake of the 2008 financial crisis, the official Norwegian view was that the EEA Agreement would continue to function with its current institutional set-up even with only Norway and Liechtenstein left in the EFTA-pillar.2 The political sustainability of such an arrangement may well be questioned, but it is true that the EEA Agreement functioned for four months from the date of departure of Austria, Finland and Sweden on 1 January 1995 until the Agreement entered into force for Liechtenstein on 1 May that year. The transitional arrangements then agreed by Iceland and Norway suggest that an EFTA-pillar of only two may be feasible from a legal perspective, at least as far as ESA and the EFTA Court are concerned.3 A greater challenge may be the functioning of the Standing Committee of the EFTA States, as the EFTA States’ affiliation to a number of EU agencies has resulted in adaptations vesting this committee with the power to take important decisions by majority-voting.4 1

Article 51 [Accession to the SCA] Any EFTA State acceding to the EEA Agreement shall accede to the present Agreement on such terms and conditions as may be laid down by common accord by the EFTA States. The instrument of accession shall be deposited with the Government of Sweden which shall notify the other EFTA States.

On possible accessions to the EEA Agreement by future EFTA States, see comments by Fredriksen and Arnesen to Contracting parties mn. 15 ff. 2 After Sweden’s accession to the EU in 1995, Norway functions as depositary. 1

1 Agreement between Iceland and Norway of 29 December 1994 adjusting certain agreements between the EFTA States. Amendments were made to the preamble and Art. 1(b), 7, 9, 15(1), 28, 29, 30(2)-(4) SCA. 2 See, e.g., the statements by the Norwegian foreign minister Jonas Gahr Støre referred to by Aftenposten, ‘EØS-avtalens mange liv’, 11 May 2009. 3 See the Agreement between Iceland and Norway of 29 December 1994 adjusting certain agreements between the EFTA States. A third college member of ESA wad appointed by common accord by the governments of Iceland and Norway whereas a third judge of the EFTA Court was to be elected by the two regular judges on a case by case basis from a list established by common accord by the two governments or, if they could not agree, by lot. A third judge was never needed, however, as the EFTA Court did not receive any new cases until the Liechtenstein judge took up his position. 4 See further the comments by Fredriksen and Jónsdóttir on Art. 6 of the Standing Committee Agreement in Part IV of this book.

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Article 52 Implementation of the SCA

Article 52 [Implementation of the SCA] The EFTA States shall communicate to the EFTA Surveillance Authority the measures taken for the implementation of this Agreement.

Under Norwegian law, the SCA and its protocols have not, as opposed to the 1 main part of the EEA Agreement, as such been made part of the internal legal order.1

Article 53 [Authentic languages, ratification, deposit and entry into force] 1. This Agreement, drawn up in a single copy and authentic in the English language, shall be ratified by the Contracting Parties in accordance with their respective constitutional requirements. Before the entry into force of this Agreement, it shall also be drawn up and authenticated in Finnish, French, German, Icelandic, Italian, Norwegian and Swedish. 2. This Agreement shall be deposited with the Government of Sweden which shall transmit a certified copy to each EFTA State. The instruments of ratification shall be deposited with the Government of Sweden which shall notify all other EFTA States. 3. This Agreement shall enter into force on the date and under the conditions provided for in the Protocol Adjusting the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice.

The SCA was signed on 2 May 1992 by Austria, Finland, Iceland, Liechten- 1 stein, Norway, Sweden and Switzerland. It was ratified by Austria (28 October 1992), Finland (21 December 1992), Iceland (2 February 1993), Norway (20 November 1992) and Sweden (26 November 1992). The SCA entered – together with the EEA Agreement – into force on 1 January 1994. It entered into force for Liechtenstein on 1 May 1995 (after it was ratified on 20 April 1995). After Sweden ceased to be a party to the SCA, Norway took over as deposi- 2 tory State. However, this has not been reflected by an amendment in the wording of Art. 53.

1 Save for Part II of Protocol 3 SCA, which has been implemented through Sec. 1 of Regulation of 30 October 2009 No 1323 on EEA procedural rules on State aid (forskrift om EØS-prosedyreregler for offentlig støtte), and Protocol 4 SCA, implemented through Sec. 17 of Regulation of 21 December 2011 No 1518 on implementation of the competition rules in the EEA Agreement.

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PART IV Agreement on a standing committee of the EFTA states Preamble THE REPUBLIC OF ICELAND, THE PRINCIPALITY OF LIECHTENSTEIN, THE KINGDOM OF NORWAY, HAVING REGARD to the EEA Agreement; RECALLING the objective to establish a dynamic and homogeneous European Economic Area; AIMING at facilitating the elaboration of decisions to be taken by the EEA Council and the EEA Joint Committee; CONSIDERING that for the purposes of the EEA, functions in respect of decision-making, administration and management, as well as consultations, have to be carried out among the EFTA States; RECALLING the Convention establishing the European Free Trade Association; WHEREAS nothing in this Agreement shall prejudice the competences of the surveillance authority referred to in the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice; HAVE DECIDED to conclude the following Agreement:

I. Contracting Parties and Preamble

The Agreement on a Standing Committee of the EFTA States is a separate 1 agreement under public international law between the EEA EFTA States only. Thus, the Contracting Parties to the Agreement are now only Iceland, Liechtenstein and Norway.1 As with the EFTA Surveillance Authority (ESA) and the EFTA Court, the Standing Committee got its name at a time when the EFTA States believed that all of them would become parties to the EEA Agreement. After the Swiss no to the EEA, the name of the Standing Committee is understandably confusing to observers unfamiliar with this background. As suggested by the four first recitals of the Preamble, the Standing Commit- 2 tee is intrinsically linked to the EEA Agreement. Its main purpose is reflected in the third recital: To facilitate the elaboration of decisions to be taken by the EEA Council and the EEA Joint Committee.2 The need for a platform for political and legal discussions in the EFTA-pillar of the EEA follows from the EEA Agreement’s requirement that the EFTA States speak with one voice when decisions are to be taken in the EEA Council (Art. 90(2) EEA) or, more practi1 The original reference to “the Swiss Confederation” was deleted by the Protocol Adjusting the Agreement on a Standing Committee of the EFTA States, signed in Brussels on 17 March 1993. The further references to “the Republic of Austria, the Republic of Finland and the Kingdom of Sweden” were subsequently deleted by the Agreement Adjusting certain Agreements between the EFTA States signed in Brussels on 29 December 1994. Liechtenstein was added as a Contracting Party by the Decision No 2/94/SC of the Standing Committee of the EFTA States of 10 January 1994. 2 See further Norberg et al, EEA Law, p. 685 and Fenger, Rydelski and van Stiphout, EFTA and EEA, p. 100.

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cally, in the EEA Joint Committee (Art. 93(2) EEA). However, as suggested by the fourth recital and elaborated further in the comments to Art. 3 below, the Standing Committee also carries out a number of administrative and executive functions related to the EFTA pillar of the EEA. This part of the Standing Committee’s role has become more important in the last couple of years, as the EFTA States affiliation to a number of EU agencies has resulted in the Standing Committee being entrusted with functions which within the EU belong to the EU Council.3 3 Conversely, the Standing Committee plays no role in relation to the EFTA Convention.4 It is thus not to be confused with the EFTA Council or with the organs, committees and other bodies set up by that Council.5 During the EEA negotiations, it was discussed whether to vest in the EFTA Council the competences and tasks now allocated to the Standing Committee, but this was rejected for political and practical reasons. It was felt necessary to be able to differentiate between EEA matters and cooperation between the EFTA States in other matters, notably trade relations with third countries, and acknowledged that it could not be excluded that one or more of the EFTA States would remain outside the EEA (as Switzerland subsequently did).6 Thus, the reference to the EFTA Convention in the fifth recital to the Preamble of the Standing Committee Agreement should not be misinterpreted as establishing any institutional link between the Standing Committee and the EFTA Council. 4 Whereas the establishment of both ESA and the EFTA Court is foreseen in Art. 108 EEA, the establishment of the Standing Committee is not dictated by the Main Part of the EEA Agreement. The internal coordination among the EFTA States is less of a concern to the EU than the need for an independent Surveillance Authority and a Court of Justice to guarantee the EFTA States’ fulfilment of their EEA law obligations. This is reflected in the sixth recital to the Preamble of the Standing Committee Agreement which makes clear that nothing in the Agreement shall prejudice the competences of ESA.7 Thus, the vesting of administrative and executive functions in the Standing Committee through decisions of the EEA Joint Committee should always be read in light of the competences of ESA, bearing in mind that the competences of the independent Surveillance Authority will prevail over those of the politically controlled Standing Committee. 5 Despite the EU’s preference for ESA, there are a number of administrative and executive functions that the EU accepted that the EFTA States should be able to handle on their own. An indirect reference to the Standing Committee in 3 Although it should be noted that many of these tasks are carried out semi-automatically without much detailed discussion within the Committee itself. See further the comments on Art. 3 below. 4 As stressed by Fenger, Rydelski and van Stiphout, EFTA and EEA, p. 101. 5 See Art. 43(3) and Annex S to the EFTA Convention. 6 Norberg et al, EEA Law, p. 685 and Fenger, Rydelski and van Stiphout, EFTA and EEA, p. 100. 7 See further the comments on Art. 3 below.

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Article 1 Role of the Standing Committee

Art. 44 EEA, which explains that the internal procedures of both pillars for the implementation of the safeguard clause found in Art. 43 EEA is to be found in Protocol 18 EEA. In that Protocol, the Standing Committee of the EFTA States is entrusted with the task to examine and make, by majority vote, recommendations regarding the possible amendment, suspension or abolition of any unilateral measures taken by an EFTA State under Art. 43 EEA.8 Further, a direct reference to the Standing Committee is found in paragraphs 4(d) and 5 of Protocol 1 EEA. Thus, the Standing Committee may be seen as part of the institutional setup foreseen by the EEA Agreement. Consequently, just as with the SCA, the absence of the EU from the list of 6 Contracting Parties to the Standing Committee Agreement does not leave the EFTA States completely free to decide on the legal framework for the Standing Committee: In certain cases, functions and voting arrangements of the Standing Committee are laid out by the EEA Agreement as such.9

Article 1 [Role of the Standing Committee] 1. A Standing Committee of the EFTA States, hereinafter referred to as the Standing Committee, shall, in accordance with the provisions of this Agreement and of the EEA Agreement, carry out functions in respect of decision-making, administration and management, as well as consultations, among EFTA States. 2. For the purposes of this Agreement: a) the term ’EEA Agreement’ means the main part of the EEA Agreement, its Protocols and Annexes as well as the acts referred to therein; b) the term “EFTA States” means the Republic of Iceland and the Kingdom of Norway and, under the conditions laid down by Article 1(2) of the Protocol Adjusting the Agreement on a Standing Committee of the EFTA States, the Principality of Liechtenstein.

I. Establishment of the Standing Committee

Art. 1(1) establishes the Standing Committee of the EFTA States as a joint 1 body of those EFTA States who are parties to the EEA Agreement. II. Competences and tasks of the Standing Committee

Art. (1) further presents the task of the Standing Committee: to carry out 2 functions in respect of decision-making, administration and management, as well as consultations, among the EFTA States. However, Art. 1(1) does not as such vest the Standing Committee with any competences. As made clear in Art. 1(1), the Standing Committee shall carry out its functions “in accordance with the provisions of this Agreement and of the EEA Agreement”. In essence, 8 See further the comments on Art. 3 below as well as the comments by Bull on Arts. 43 and 44 EEA. 9 See further the comments on Art. 6 below and, more generally, the comments by Arnesen and Fredriksen to the Preamble of the SCA in Part III of this book.

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the Standing Committee’s functions related to internal coordination among the EFTA States are regulated in the Standing Committee Agreement whereas the Committee’s administrative and executive functions of interest also to the EUside are regulated through decisions of the EEA Joint Committee, incorporated into the relevant Annexes or Protocols of the EEA Agreement. 3 Art. 1(1) does not mention the Standing Committee’s functions under the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice (SCA), but this a mere oversight without any legal significance.1 III. Definitions

Art. 1(2) defines the terms “EEA Agreement” and “EFTA States” in accordance with the definitions found in Art. 2 litras a and b of the Main Part of the EEA Agreement and Art. 1 SCA.2 The Standing Committee Agreement is not part of the EEA Agreement and Switzerland is not an EFTA State within the context of the Standing Committee Agreement. 5 The Protocol Adjusting the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice Art. 1(2), referred to in Art. 1 litra b, concerns the entry in to force of the SCA with regard to Liechtenstein, and has today historical interest only. 4

Article 2 [Consultations] The EFTA States shall, when appropriate, consult within the Standing Committee for the purpose of taking decisions in the EEA Council and the EEA Joint Committee.

Art. 2 establishes the Standing Committee as a forum for internal consultations among the EFTA States with regard to decisions to be taken by the EEA Council and the EEA Joint Committee. The need for such consultations follows from the EEA Agreement’s requirement that the EFTA States speak with one voice when decisions are to be taken in the EEA Council (Art. 90(2) EEA) or, more practically, in the EEA Joint Committee (Art. 93(2) EEA). 2 The words “when appropriate” makes clear that the EFTA States remain free to consult each other also outside the formal setting of the Standing Committee, which they do on a regular basis. What matters for the functioning of the EEA Agreement is that the EFTA States agree in advance as to their position in the EEA Council or the EEA Joint Committee, not how or in what forum they reach such agreement. The EFTA States freedom in this regard reflects the fact that it is them, and not EFTA as such, who are Contracting Parties to the EEA Agreement.1 1

1 See further the comments on Art. 3(1) litra (b) below. 2 Reference is thus made to the comments by Arnesen and Fredriksen on Art. 2 EEA and Art. 1 SCA.

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Article 2 Consultations

For matters where the EEA Agreement does not require the EFTA States to speak with one voice in the EEA Joint Committee, such as e.g. certain steps in the dispute resolution mechanism under Art. 111 EEA, there is no need for prior consultations in the Standing Committee. However, there is obviously nothing hindering an EFTA State involved in a dispute with the EU to use the Standing Committee as a forum for consultations with the other EFTA States. Consultations between the EFTA States are only necessary on matters where decisions are to be taken in the EEA Council or the EEA Joint Committee. As the EEA Council has turned out to be a forum for political discussions only, a meeting of the Standing Committee will normally not be held prior to the biannual meetings of the EEA Council.2 Conversely, the Standing Committee meets, systematically, on the eve of every meeting of the EEA Joint Committee. The Standing Committee usually meets eight times per calendar year and meetings generally last between 45 minutes to 1.5 hour. The consultations in the Standing Committee are naturally characterized by the fact that the EFTA States all have to concur before the EEA Joint Committee can decide to incorporate novel EU secondary legislation of EEA-relevance into the EEA Agreement. Strictly speaking, no decision as to their subsequent position in the EEA Joint Committee is taken in the Standing Committee,3 but there is no point in putting a matter on the Joint Committee’s agenda unless the EFTA States know that they will indeed be speaking with one voice. Although the Standing Committee is the forum in which the EFTA States formally arrive at a common position prior to meeting with the EU in the Joint Committee, in practice the work towards arriving at an agreement has usually taken place at lower levels of the substructure. In other words, in the subcommittees, working groups and expert groups set up to assist the Standing Committee in accomplishing its tasks.4 That being said, the Standing Committee receives briefings on the work of the Subcommittees at each meeting and sometimes engages in quite substantive discussions on this topic.5 Furthermore, the Standing Committee agrees a common position to be taken vis-a-vis the EU regarding the list of acts which have entered into force in the EU but have not yet been incorporated into the EEA Agreement (often referred to as the backlog). The fact that the EFTA States always speak with one voice vis-a-vis the EU does not mean that they always agree internally. Most acts that are incorporated into the EEA Agreement are unproblematic and do not give rise to any conflicts between the EFTA States. However, there have been cases where one or more EFTA State has been strongly in favour of the incorporation of specific act(s) into the EEA Agreement while the others have not been able to agree to this for 1 As noted by Norberg et al., EEA Law, p. 687. 2 Fenger, Rydelski and van Stiphout, EFTA and EEA, p. 102. 3 Note that the voting rules laid out in Art. 6 are limited to the Standing Committee’s responsibilities under Art. 3. 4 See also the comments on Art. 5 below. 5 See also the comments on Art. 5 below.

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3

4

5

6

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political, legal or constitutional reasons. One important such case was in relation to the European Financial Supervisory Authorities (EU ESAs).6 8 The EU ESAs were set up in the wake of the financial crisis with the aim of ensuring appropriate, efficient and harmonised European regulation and supervision. In certain instances, these authorities can issue binding decisions to national authorities and market participants. This made it constitutionally difficult for two of the EFTA States (Norway and Iceland) to accept the incorporation of these acts into the EEA Agreement. At the same time, due to the importance of its financial sector, Liechtenstein was eager to participate in the new European framework as quickly as possible. The EU ESAs started operating in 2011. However, the first package of acts on the ESAs was not incorporated into the EEA Agreement until 30 September 2016. This time lag was due to very difficult and technically complicated negotiations between the EFTA States and the EU in finding a solution which was both constitutionally acceptable for Iceland and Norway and politically acceptable to the EU.7 9 During this time Liechtenstein grew increasingly impatient with its colleagues in the EFTA pillar even entering into discussions with the EU about the potential for unilateral application of the relevant legislation to Liechtenstein. That being said, the Standing Committee is made up of high level diplomats. Discussions therein are generally very civil and the three EFTA States have a great deal of respect for each other’s autonomy and understanding for the dilemmas they might face with respect to the incorporation of certain acts. The Liechtenstein delegate often expressed the extreme importance of this legislative framework for Liechtenstein’s financial sector at meetings of the Standing Committee. This was generally met with understanding on the part of its EFTA partners but their hands were tied due to the political and legal situation at national level.8 It could be noted that much more extensive and candid discussions between the EFTA States took place within a special task force which was set up with the specific aim of finding a solution to incorporating the acts related to the EU ESAs into the EEA Agreement rather than within the Standing Committee itself. This body was made up of experts from the line ministries dealing with this policy area and so more suitable for technical and substantive discussions. 10 A further example of disagreement between the EFTA States includes the General Food Law Regulation9 and related acts. In this case, Norway was ea6 The ESAs are the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA). 7 In the end, a solution was reached whereby ESA takes formal decisions addressed to the EFTA competent authorities and market operators in line with the two-pillar system of the EEA. The EU ESAs will have a non-binding role vis-à-vis the EFTA States, whilst supervisory authorities of the EFTA States and ESA will be able to participate fully in the work of the EU ESAs. 8 The Icelandic Parliament did not authorise the government to approve the incorporation of these acts until 23 September 2016. 9 Reg. (EC) No 178/2002 laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety.

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Article 3 Responsibilities

ger to adopt the package of acts and became impatient with prolonged negotiations between Iceland and the EU.10 In another case, Iceland and Liechtenstein resisted the incorporation of the Citizenship Directive11 into the EEA Agreement arguing that large parts of it were not EEA relevant, while Norway did not oppose its incorporation.12 The two cases differ in the sense that concrete interests were at stake in Norway for the incorporation of the Food Law Package into the EEA Agreement, whereas Norway was rather indifferent towards the Citizenship Directive. The level of pressure exerted by Norway within the Standing Committee and its substructure therefore differed considerably between these two cases.13 It should also be noted that despite delays in reaching a common position among the EFTA States, in each of these cases discussions eventually led to the incorporation of the relevant acts into the EEA Agreement. This can be explained largely by the asymmetrical nature of the relationship between the EU and the EFTA States and clauses in the EEA Agreement which allow for a partial suspension of the Agreement if the EFTA states try to block legislation.

Article 3 [Responsibilities] 1. The Standing Committee shall, without prejudice to the competences of the EFTA Surveillance Authority set up under the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice, carry out the following tasks: a) take decisions necessary for the management of rules of, or adopted pursuant to, the EEA Agreement, in particular as specified in Article 1 of Protocol 1 to the present Agreement, in the cases which, through the application of Protocol 1 to the EEA Agreement, follow from the acts referred to in the Annexes to that Agreement; b) take decisions in the cases referred to it under procedures to be established in accordance with Article 3 of Protocol 1 to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice; c) receive information which an EFTA State or a competent authority according to the EEA rules is to submit to the Standing Committee or to one or several other EFTA States in addition to the Standing Committee and, in the latter case, pass it on to the EC Commission; d) receive from the EC Commission information which an EC Member State is to submit to one or several other EC Member States for distribution to the EFTA States or their competent authorities; e) perform the functions laid down in Protocol 2 to this Agreement, in the cases referred to in Article 43 of the EEA Agreement; f) in the veterinary field, lay down the necessary procedures on notification of diseases as well as on cooperation between administrative authorities of the EFTA

10 See Jonsdottir, Europeanization and the European Economic Area, p. 136. 11 Dir. 2004/38/EC on the right of citizens of the Union and their family members to move and reside freely within the territory of the Member States. 12 See Jonsdottir, Europeanization and the European Economic Area, p. 97. 13 See Jonsdottir, Europeanization and the European Economic Area, chapters 5 and 7.

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Art. 3 provides a long list of administrative and executive functions which the Standing Committee is to carry out. 2 Art. 3(1)(a) and 3(2) have to do with the allocation of tasks to the Standing Committee in relation to the two pillar system of the EEA Agreement. EU law assigns various operational, executive and quasi-legislative tasks to the European Commission. There is no body which corresponds exactly to the Commission in the EFTA pillar of the EEA Agreement. Therefore, each act which is being incorporated into the EEA Agreement has to be scrutinised to determine whether it contains provisions conferring competences to the Commission and, if so, these tasks have to be allocated either to ESA or the Standing Committee as the case may be. 3 In order to avoid reoccurring general adaptations, Protocol 1 to the EEA Agreement contains various horizontal adaptations regarding the allocation within the EFTA pillar of certain competences that various EU institutions have in the context of EU law. Thus, no adaptation text is needed in the EEA Joint 1

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Committee Decision incorporating an EU legal act into the EEA Agreement if the two-pillar issues therein are covered by Protocol 1 EEA. In terms of tasks allocated to ESA or the Standing Committee, these can include procedures for verification or approval, the submission and exchange of information, notifications or consultations and the preparation of reports and assessments (see Arts. 4(d) and 5).1 Protocol 1 EEA thus provides the EEA legal base for allocating a task to the EFTA pillar but does not take a position on whether those tasks have to be carried out by the Standing Committee or ESA. Hence Art. 3(2) and Protocol 1 to the Standing Committee Agreement provide an internal legal basis for alloacting tasks to the the Standing Committee while Protocol 1 SCA provides the legal basis for allocating tasks to ESA. Still, even in cases where the EEA Joint Committee Decision incorporating 4 an EU legal act into the EEA Agreement is silent on the matter and the competences in question fall squarley under paragraph 4(d) of Protocol 1 EEA, the EFTA States are not completely free to decide on whether to entrust a new task to the Standing Committee or to ESA. The general principle of loyalty ensrined in Art. 3 EEA will apply and suggest that certain tasks should be entrusted to the independent Surveillance Authority rather than to the EFTA States‘ own representatives in the Standing Committee.2 Be that as it may, the rules found in Protocol 1 SCA and Protocol 1 to the 5 Standing Committee Agreement appear fully in line with the principle of loyalty. The main rule is to delegate surveillance related functions to ESA while the Standing Committee is responsible mostly for elements of a legislative character, as well as certain administrative functions. Nonetheless, determining which tasks to allocate to ESA and which tasks to allocate to the Standing Committee is not always straightforward. In general, verification and approval tasks are allocated to ESA. On the other hand, information and notification tasks can be allocated either to ESA or the Standing Committee. For example, under Art. 1(1) of Protocol 1 to the Standing Committee Agreement, procedures under which the Commission prepares information received and/or distributes it to Member States or manages or updates lists of entities should be allocated to the Standing Committee.3 Art. 28(2) of the Services Directive is an example. It stipulates that Member States shall designate one or more liaison points, the contact details of 1 Protocol 1 EEA does not resolve all two-pillar issues that may arise, and adaptations may therefore be needed upon incorporation of some acts into the EEA Agreement. For example those that confer to EU institutions the competence to adopt binding decisions, to grant authorisations or to issue fines. 2 See, by way of an example, the EU Council decision on the position to be adopted, on behalf of the European Union, within the EEA Joint Committee concerning incorporation of the Third Energy Package into the EEA Agreement, COM(2017) 110 final, where a general reference to paragraph 4(d) of Protocol 1 EEA is followed up with the note that ‘[i]n the energy field, the EFTA Surveillance Authority is tasked with implementing the procedures provided for by EU law.’ It would arguably not be in line with the principle of loyalty if the EFTA States subsequently were to give this competence to themselves in the Standing Committee, even though the wording of paragraph 4(d) of Protocol 1 EEA seems to allow for it.

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6

7

8

9

which shall be communicated to the other Member States and the Commission. In the EFTA pillar, the EFTA States shall submit this information to the other EFTA States and the Standing Committee. Arguably, the most interesting (but hardly the most practical) part of the list provided for in Art. 3(1) are found in the letters g), h) and i). All of these letters refer to adaptations agreed upon in the EEA Joint Committee which vests in the Standing Committee competences which in the EU are entrusted to the Council. They all relate to extraordinary situations where EU law foresees the possibility of the Council to intervene and allow for safeguard measures or derogations opposed by the Commission. Under the two-pillar structure of the EEA, the Standing Committee is the closest parallel to the EU Council. Still, it may certainly be questioned whether the Standing Committee is really able to perform these functions in a comparable way to the EU Council with its 28 Member States. It remains to be seen how the EU would react if the Standing Committee was ever to allow for safeguard measures or derogations which both the Commission and ESA believe to be unjustified. The role of the Standing Committee as a kind of ‘Quasi-Council’ is also reflected in Art. 3(1)(e), which refers to the Standing Committee’s role in case of an EFTA State taking protective measures in the field of capital movements (Art. 43 EEA).4 Of interest is also Art. 3(1)(e), which refers to the Standing Committee’s role as a forum for dispute resolution between EFTA States in certain specific cases provided for in the transport field (Annex XIII EEA). As previously noted, the Standing Committee is mainly a venue for preparation for Joint Committee meetings between the Ambassadors of the EFTA States and the EU in order to take formal decisions to incorporate relevant EU legislation into the EEA Agreement. With respect to the division of tasks, it should be borne in mind that the Standing Committee is not really comparable to the European Commission. Some of the above-mentioned tasks, such as the preparation of reports, are highly technical in nature. Thus even if they are formally allocated to the Standing Committee under the two-pillar system of the EEA Agreement, it may not be the case that the Standing Committee actually performs them as this would require a disproportionate amount of resources.

3 See for example Art. 17 of Commission Decision 2009/750/EC on the definition of the European Electronic Toll Service and its technical elements, or Art. 9 of Reg. (EU) No 995/2010 laying down the obligations of operators who place timber and timber products on the market. 4 See further the comments on Art. 6 below and the comments by Bull on Art. 43 and 44 EEA in Part II of this book.

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Article 4 Decision-making

Article 4 [Decision-making] 1. Each EFTA State shall be represented in the Standing Committee and shall have one vote. 2. The Standing Committee can meet at the level of Ministers or High Officials. Meetings at other levels will be held in such subcommittees and other bodies as set up pursuant to Article 5(1).

I. Composition and votes

The composition of the Standing Committee is straightforward: According to 1 Art. 4(21), each EFTA State is represented and has one vote. This is in line with the international law principle of the sovereign equality of states. It must be seen in light of the fact that most decisions in the Standing Committee are made by unanimous vote.1 Thus, the EFTA pillar knows of no weighting of the votes of each EFTA States along the lines of the weighting behind the voting rules of the EU Council (Art. 16 TEU). 2 Switzerland has permanent observer status. 3 ESA may attend meetings as an observer. II. Representation

Art. 4(2) foresees that the Standing Committee can meet at the level of Minis- 4 ters or High Officials. In practice, the Committee meets at the level of ambassadors – the Heads of Missions of the EFTA States to the EU. EEA EFTA ministers do sometimes meet informally prior to EEA Council 5 meetings if their schedules allow. Furthermore, the ministers meet once a year together with the Parliamentary and Consultative Committees which is technically considered a joint meeting between the Standing Committee at ministerial level and the Advisory Bodies.2 However, it is rather interesting that the Standing Committee never meets formally on its own at ministerial level, not even prior to meetings of the EEA Council, even though meetings at this level are foreseen by Art. 4. This is in contrast to the bi-annual EFTA ministerial meetings which are held in Geneva and where external trade issues are the main agenda item. Perhaps formal Standing Committee meetings at ministerial level would serve to increase the visibility and political importance of the EEA. Although it is not an official body within the Standing Committee substruc- 6 ture, informal preparatory meetings of the deputy Heads of Missions always take place approximately one week before the meetings of the Standing Committee. Preparation for the upcoming Standing and Joint Committee meetings is one of the main purposes of these meetings. However, the deputies also discuss a variety of other issues including the coordination of the biannual EEA Council meetings and substantive discussions on politically important topics. The 1 See the comments on Art. 6 below. 2 See the comments on Art. 9 below.

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deputies also coordinate the letters which are sent out to new Council Presidencies to request EEA EFTA participation in informal Council meetings. Furthermore, they organise a variety of informal events and meetings for example with representatives of the EFTA Working Party in the Council. As is the case in the official Standing Committee structure, Switzerland sends an observer to these meetings. Although this is an unofficial body, it has developed into a valuable forum. As the deputies meetings are less formal than the Standing Committee and are attended by fewer people they are more conducive to substantive discussions and dialogue.

Article 5 [Subcommittees and working groups] 1. The Standing Committee may decide to set up subcommittees and other bodies to assist it in accomplishing its tasks. 2. The Standing Committee may also, on a proposal from the EFTA Surveillance Authority, set up new committees, or designate already existing committees, to assist the EFTA Surveillance Authority in carrying out its functions under the EEA Agreement as well as under the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice.

I. The Subcommittees of the Standing Committee 1

The Standing Committee’s substructure consists of five subcommittees and a number of working and expert groups. The five subcommittees are: – – – – –

2

Subcommittee I on Free Movement of Goods Subcommittee II on Free Movement of Capital and Services Subcommittee III on Free Movement of Persons Subcommittee IV on Flanking and Horizonal Policies Subcommittee V on Legal and Institutional Matters

Although they are officially separate bodies, since 2009 Subcommittees I-IV have in practice functioned as one committee. The role of Subcommittees I-IV is to prepare for the integration into the EEA Agreement of legislation related to the four freedoms and flanking and horizontal policies. Subcommittees I-IV are made up of officials from the Ministries of Foreign Affairs of the EEA EFTA States. They meet (as one) about eight times per year, usually in Brussels but sometimes one of the EEA EFTA States hosts the meeting. A joint meeting with the EU (EEAS) at Subcommittee level is generally scheduled directly after the internal meeting of the EEA EFTA States. As is the case with the Standing Committee, Switzerland and ESA can send observers to the internal meetings. Subcommittee meetings are much longer than meetings of the Standing Committee and cater for much more detailed discussions on specific issues or challenges related to the incorporation of acts into the EEA Agreement. Subcommittees I-IV must also clear draft JCDs by written procedure before they can be sent to the

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EU for scrutiny prior to their incorporation into the EEA Agreement. As previously noted, when it meets the Standing Committee receives a briefing from the EFTA Secretariat on the key issues discussed at the previous Subcommittees I‑IV meeting. The role of Subcommittee V is rather different to that of the other four Sub- 3 committees and it does not usually meet in conjunction with its counterparts. It is made up of legal experts from the Ministries of Foreign Affairs of the EFTA States. It provides analysis and assessments of issues of a legal or institutional nature which may be done at its own discretion or upon request by Subcommittees I to IV or the Standing Committee. According to the Joint Committee rules of procedure there is officially a Joint Subcommittee V which includes the EU. However, in practice Subcommittee V generally only meets internally. II. The working groups

A number of working groups have been set up under Subcommittees I-IV. It 4 is within these working groups that the substantive discussions on new acts to be incorporated into the EEA Agreement take place. Working Groups are made up of experts from the relevant government ministries or agencies in the EFTA States and are each responsible for particular policy areas. As with other levels of the Standing Committee substructure, representatives from Switzerland and ESA are considered observers in the work of these groups and often attend their meetings. Representatives from the Commission, the country which is in the Presidency of the Council and the Secretariat of the European Parliament are often invited to WG meetings in order to inform the EFTA States of the status of work going on within these institutions and to exchange ideas with the EFTA States. These groups vary considerably in terms of size, in the number and types of 5 acts which they process, the frequency with which they meet etc. Some groups such as the Working Group on Food Chain, for example, are responsible for very large quantities of acts while others,1 such as the Working Group on Education, Training and Youth may only be responsible for the incorporation of an act or two every few years. Both of these groups meet regularly, about 2-3 times per year, but the nature of their work varies substantially. Discussions within the WG Education are much more policy based and focused largely on programme participation. A number of other groups such as the Working Group on Gender Equality, Anti-Discrimination and Family Policy, the Working Group on Consumer Affairs and the Working Group on Free Movement of Persons, Employment and Social Policy meet regularly despite not being responsible for large quantities of EU legislation. In some cases, the acts these groups do deal with are comprehensive and politically important, rather than technical in nature, 1 According to the EFTA Annual Report for 2015, the Working Group on Food Chain oversaw the incorporation of 162 acts into the EEA Agreement that year.

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but this is also testament to the fact that much of the actual work related to the EEA (at least at the lower levels of the Standing Committee substructure) is not necessarily linked to acquis processing but to fostering cooperation between the EEA EFTA States and the EU. 6 In addition to regular meetings usually held in Brussels, the Working Groups are in close contact via mailing lists. Through these exchanges, they are for example responsible for analysing new EU acts and informing the EFTA Secretariat if any adaptations are needed in relation to their incorporation into the EEA Agreement. Some Working Groups, such as the Working Group on Technical Barriers to Trade (TBT) have also set up sector specific expert groups to assist it with its work. Many of these expert groups do not necessarily meet regularly but assist with acquis processing through written procedure via mailing lists. Furthermore, ad hoc working groups are sometimes established to deal with temporary issues such as EEA enlargement. III. The Financial Mechanism Committee 7

Ever since the establishment of the EEA Agreement in 1994, Iceland, Liechtenstein and Norway have provided funding to reduce social and economic disparities in the EEA supporting a range of projects in less affluent regions in the EU. The EEA Grants and Norway Grants are set up for a period of several years. Whenever a grant period is coming to an end and a new financial mechanism must be agreed with the EU, the Standing Committee adopts a formal decision for the establishment of a Financial Mechanism Committee (FMC) to oversee the implementation of the programmes. The deputy heads of mission of the EEA EFTA States to the EU usually serve on this committee. However, in practice there are limited ties between the day to day work of the Standing Committee and the FMC, although the Standing Committee receives briefings on its work. IV. Committees assisting ESA

According to the second paragraph of Art. 5, the Standing Committee may also, on a proposal from ESA, set up new committees, or designate already existing committees, to assist ESA in carrying out its functions under the EEA Agreement as well as under the SCA. Several such committees have been set up to establish the EFTA-pillar parallel to the EU comitology procedures. 9 The starting point for all of this is Protocol 1 EEA on horizontal adaptations, which foresees that functions of the Commission in the context of procedures for verification or approval, information and notification or consultation and similar matters shall for the EFTA States be carried out according to procedures established among them (No. 4 letter (d)). The EFTA States implemented this by Protocol 1 SCA on the functions and powers of ESA in cases where the Annexes to the EEA Agreement vest such functions in ESA. Art. 3 of this Protocol provides that in cases where the Commission, in the context of EU law, shall submit a draft measure to be taken to, or otherwise consult, a committee, ESA shall, ac8

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cording to corresponding procedures to be laid down by the Standing Committee, consult a corresponding committee, if any, set up or designated in accordance with the Agreement on a Standing Committee of the EFTA States. These EFTA comitology procedures were updated in 2012 in order to adjust 10 to the new EU comitology procedures of Reg. (EU) No 182/2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers. This was achieved through: – Decision of the Standing Committee of the EFTA States No 3/2012/SC of 26 October 2012 laying down procedures for committees assisting ESA in carrying out its functions under Art. 3 of Protocol 1 SCA; and – Decision of the Standing Committee of the EFTA States No 4/2012/SC of 26 October 2012 designating committees to assist ESA in carrying out its functions under Art. 3 of Protocol 1 SCA In order to extend the two-pillar structure of the EEA to include also the 11 comitology procedures, the Standing Committee has now established the following committees to assist ESA: 1

2

3 4 5 6

Name of Committee EFTA Veterinary and Phytosanitary Committee EFTA Committee on Technical Regulations, Standards, Testing and Certification EFTA Product Liability Committee EFTA Energy Committee EFTA Committee on Free Movement of Workers EFTA Social Security Committee

7

EFTA Committee on Recognition of Professional Qualifications

8

EFTA Committee on Right of Establishment EFTA Financial Services Committee EFTA Services Committee

9 10 11

EFTA Electronic Communications Committee (COCOM)

Legal acts Relevant acts mentioned under Annex I (Veterinary and Phytosanitary Matters) to the EEA Agreement. Relevant acts mentioned under Annex II (Technical Regulations, Standards, Testing and Certification) to the EEA Agreement. Relevant acts mentioned under Annex III (Product Liability) to the EEA Agreement. Relevant acts mentioned under Annex IV (Energy) to the EEA Agreement. Relevant acts mentioned under Annex V (Free Movement of Workers) to the EEA Agreement. Relevant acts mentioned under Annex VI (Social Security) to the EEA Agreement. Relevant acts mentioned under Annex VII (Recognition of Professional Qualifications) to the EEA Agreement. Relevant acts mentioned under Annex VIII (Right of Establishment) to the EEA Agreement. Relevant acts mentioned under Annex IX (Financial Services) to the EEA Agreement. Relevant acts mentioned under Annex X (Services in General) to the EEA Agreement. Relevant acts mentioned under Annex XI (Electronic Communication, Audiovisual Services and Information Society) to the EEA Agreement.

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Name of Committee EFTA Committee on Free Movement of Capital EFTA Transport Committee

16

EFTA Procurement Committee

17

20

EFTA Intellectual Property Committee EFTA Committee on Health and Safety at Work, Labour Law, and Equal Treatment for Men and Women EFTA Consumer Protection Committee EFTA Environment Committee

21

EFTA Committee on Statistics

12

18

19

Legal acts Relevant acts mentioned under Annex XII (Free Movement of Capital) to the EEA Agreement. Relevant acts mentioned under Annex XIII (Transport) to the EEA Agreement. Protocol 2 of SCA and relevant acts mentioned under Annex XVI (Procurement) to the EEA Agreement. Relevant acts mentioned under Annex XVII (Intellectual Property) to the EEA Agreement. Relevant acts mentioned under Annex XVIII (Health and Safety at Work, Labour Law, and Equal Treatment for Men and Women) to the EEA Agreement. Relevant acts mentioned under Annex XIX (Consumer Protection) to the EEA Agreement. Relevant acts mentioned under Annex XX (Environment) to the EEA Agreement. Relevant acts mentioned under Annex XXI (Statistics) to the EEA Agreement.

When these committees assist ESA, they shall do so in accordance with the Standing Committee Decision No 3/2012 (deciding the comitology procedures). In short, the procedures are identical to those which the European Commission, according to the acts referred to in the Annexes to the EEA Agreement, shall follow when carrying out the corresponding functions in the EU-pillar of the EEA. 13 As can be seen from the list above a specific committee has been set up to cover each Annex of the EEA Agreement. However, in practice only a small number of these committees are functional. These committees only come into play when ESA has to take decisions in relation to an EFTA State for surveillance type acts mostly found in Annexes I, II, XI and XIII EEA. For example in the veterinary field (Annex I), EFTA States can apply to ESA to recognise that they are free of a particular disease and in the area of transport, the EFTA States can request for derogations from specific security requirements. In these cases, ESA submits its proposal for a decision to the above mentioned committees for the Committee’s opinion. They are made up of one representative from each EFTA State, usually a contact point in the representation in Brussels. 14 The comitology process can in most cases be conducted by written procedure, so these committees do not need to convene a physical meeting to give their opinion on a draft decision from ESA. 12

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Article 6 Decision-making in the Standing Committee

Article 6 [Decision-making in the Standing Committee] 1. In exercising its responsibilities under Article 3, the Standing Committee may take decisions, which shall be binding on all EFTA States, and may make recommendations to EFTA States. 2. Decisions and recommendations of the Standing Committee shall be made by unanimous vote, unless otherwise provided for in the Annex to this Agreement. Decisions or recommendations shall be regarded as unanimous unless any EFTA State casts a negative vote. Decisions and recommendations which are to be made by majority vote require the affirmative vote of the majority of the EFTA States. 3. Decisions of the Standing Committee shall be published in accordance with the provisions of the EEA Agreement.

Art. 6(1) makes clear that the Standing Committee may take decisions or make recommendations to the EFTA States. The decisions shall be binding on all EFTA States. The Standing Committee is thus not only a forum for political discussions. As the main rule, decisions and recommendations of the Standing Committee shall be made by unanimous vote, which shall be considered to be achieved if no EFTA State casts a negative vote. On practice, the Standing Committee almost never proceeds to a vote. It prefers to take its decisions by consensus.1 However, in certain situations, the Standing Committee is to take decisions and make recommendations by majority vote. This applies to the cases listed in the sole Annex to the Standing Committee Agreement. That list refers back to Art. 3(1) of the Standing Committee Agreement and singles out those of the administrative and executive functions listed there to which majority voting apply. Importantly, however, it is not the EFTA States themselves who have decided to opt for majority voting. The voting arrangements are the results of obligations flowing from the EEA Agreement. One prominent example which was included in the EEA Agreement from the very beginning is found in Protocol 18 EEA on internal procedures for the implementation of Art. 43 EEA. The last indent of that Protocol makes clear that in case of protective measures taken by an EFTA State under Art. 43 EEA, the Standing Committee ‘shall keep the situation under review and may at any time make, by majority vote, recommendations regarding the possible amendment, suspension or abolition of the measures introduced or regarding any other measures to assist the EFTA State concerned to overcome its difficulties.’2 This obligation on the Standing Committee is reiterated verbatim in Art. 2 of Protocol 2 to the Standing Committee Agreement. The functions laid down in that Protocol is then listed in Art. 3(1)(e) of the Standing Committee Agreement and that provision is again listed in letter (b) of the above-mentioned Annex to that Agreement referred to in Art. 6(2). This is certainly a very elaborately way to fulfil the

1 See Fenger, Rydelski and van Stiphout, EFTA and EEA, p. 105. 2 See further the comments by Bull on Arts. 43 and 44 EEA in Part II of this book.

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obligation of majority voting flowing from Protocol 18 EEA, but the wording of Art. 6(2) appears to dictate such an approach – the only exceptions from the requirement of unanimity are those listed in the Annex. 6 Importantly, the Standing Committee’s powers under Art. 18 EEA is limited to recommendations. A potentially more consequential example is the new powers of the Standing Committee in the field of financial services. The EEA Joint Committee Decisions incorporating the EU Regulations establishing the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA) all include adaptations which foresee majority voting in the Standing Committee in case of application of the safeguards foreseen in Art. 38 of those Regulations:3 If an EFTA State believes that a decision taken by ESA4 impinges on its fiscal responsibilities, it can notify to ESA that the decision will not be implemented. If ESA maintains it decision, the Standing Committee of the EFTA States shall take a decision, ‘by a majority of votes cast’ as to whether ESA’s decision is maintained.5 Given the economic and political importance of the banking sector and the sensitivity of any ESA decision overriding the view of national authorities, the powers of the Standing Committee under Art. 38 is an interesting development brought about by the need to facilitate the EFTA States’ affiliation to new EU agencies. It remains to be seen, however, whether majority voting in a Standing Committee with only three members can really be expected to produce the same results as majority voting in the EU Council.

Article 7 [Rules of procedure] The Standing Committee shall adopt its rules of procedure. 1

The rules of procedure of the Standing Committee was adopted by Standing Committee Decision No. 1/94/SC. They have later been amended twice, in 1995 (on the occasion of Liechtenstein’s accession to the EEA) and then again in 2001 (amendments concerning the subcommittees and working groups). The consolidated version of the rules may be found at the EFTA homepage under http://www.efta.int/eea/eea-institutions/standing-committee.

3 Decisions of the EEA Joint Committee No. 199/2016 (EBA), Art. 1 letter (s); No. 200/2016 (EIOPA), Art. 1 letter (p); No 201/2016 (ESMA), Art. 1 letter (p). 4 Presumably a decision rubber-stamping the Draft Decision received from the relevant EU Agency. 5 The time limits for the Standing Committee’s decision depends on whether ESA’s decision is taken pursuant to Art. 19 of the Regulations (cross-border disputes) or Art. 18(3) (emergency situations). In the former case, the time limit is two months, whereas it is only ten days in emergency situation, see Art. 38(2) and (3) of the three regulations.

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Article 8 EFTA Secretariat

Article 8 [EFTA Secretariat] The Secretariat services for the Standing Committee shall be provided by the EFTA Secretariat.

Art. 8 stipulates that the Secretariat services for the Standing Committee shall 1 be provided by the EFTA Secretariat.1 In order to do this, the EFTA Secretariat’s Brussels Office is much bigger than the Headquarters in Geneva – the Secretariat employs approximately 100 staff members, of whom a third are based in Geneva and two thirds in Brussels.2 In Brussels, the Secretariat provides support for the Standing Committee and 2 its substructure including the subcommittees, working and expert groups and the advisory bodies (see article 9), as well as the informal deputies meetings (see Article 4). The Secretariat also serves the joint EEA bodies, in particular the EEA Council, the EEA Joint Committee, the joint Subcommittees, the EEA Joint Parliamentary Committee and the EEA Consultative Committee. This includes the logistics involved in the preparation and organisation of the meetings as well as drafting the agendas and minutes when the EEA EFTA States chair the joint bodies during the first half of the calendar year. The EU chairs the meetings of the joint bodies in the second half of the calendar year and prepares the meeting agendas and minutes. However, this is always a collaborative effort between representatives of the EU’s EEAS and the EFTA Secretariat. The EFTA Secretariat also plays a key role in the preparation of the EEA Council meetings, the preparation of the agenda, minutes and conclusions in collaboration with the EU Council Secretariat. Furthermore, the Secretariat plays a pivotal role in the daily management of 3 the EEA Agreement, including monitoring new EU initiatives and proposals which could lead to the adoption of EEA relevant acts as well as EU acquis processing and the incorporation of new acts into the EEA Agreement.3 The comprehensive role of the EFTA Secretariat is well demonstrated by the Standing Committee’s Decision No 1/2014/SC of 8 May 2014 on procedures for the incorporation of EU acts into the EEA Agreement, which were updated in October 2016.4 These procedures impose upon the Secretariat the responsibility of identifying EEA-relevant Commission proposals for new EU legislation, carrying out a preliminary analysis of any such and indicating to the relevant Working 1 A good overview over the EFTA Secretariat’s history and current role is provided by Árnason, ‘The EFTA Secretariat: Steward of the EEA’, in: EFTA Court (ed), The EEA and the EFTA Court, pp. 507-513. 2 The Headquarters in Geneva deals with the management and negotiation of free trade agreements with non-EU countries, and provide support to the EFTA Council. 3 The role of the EFTA Secretariat is highlighted by the Norwegian EEA Review Committee in its final report, NOU 2012:2 Utenfor og Innenfor. Norges avtaler med EU, see e.g. chapter 6.4.2 (the Secretariat’s job with regard to identify EU legislation of EEA relevance); chapter 13.2.1 (the EU’s trust in the EFTA Secretariat) and chapter 27.4.7 (overall assessment of the Secretariat). 4 To be found at http://www.efta.int/publications/bulletins/handbook-eea-efta-procedures-3191.

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Groups or Expert Groups any possible EEA horizontal challenges. The Secretariat also has the task of identifying all new EU acts which could be EEA relevant, analysing them, identifying any possible horizontal challenges and initiating and overseeing the relevant procedure for the incorporation of such acts into the EEA Agreement. This includes drafting the EEA Joint Committee Decisions (JCDs) which are adopted by the EEA Joint Committee.5 The Secretariat also assists the EFTA States in the elaboration of input to EU decision making including in the formulation and distribution of EEA EFTA Comments. 4 The work done by the EFTA Secretariat is one of the reasons why the EU generally appears quite satisfied with the way the EEA Agreement functions – the EFTA States pay for most of the administrative work related to their own participation in the internal market.6 5 It is generally a requirement that officials at the EFTA Secretariat should be nationals of one of the EFTA States (including Switzerland). Importantly, they serve each of the EFTA States and not only their home country. As Norway is by far the largest of the three EEA EFTA States, it has more resources to contribute to decision-shaping and be involved in informal cooperation with the EU related to its participation in the EEA. Therefore, the Secretariat often plays a key role in ensuring that the smaller states are also involved in this work to the greatest extent possible. 6 Another challenge is that all staff at the EFTA Secretariat are recruited on fixed term three-year contracts, renewable only once. This leads to a very high turnover of staff which can in turn result in gaps in institutional memory which is important to fill through detailed documentation.

Article 9 [EEA Joint Parliamentary Committee, EFTA Consultative Committee] The Standing Committee may seek the advice of a committee consisting of the members of Parliament of the EFTA States who are members of the EEA Joint Parliamentary Committee and the advice of the EFTA Consultative Committee. Each of these Committees may furthermore express its views to the Standing Committee on any matter of relevance for the functioning and development of the EEA. 1

The EFTA Parliamentary Committee is made up of parliamentarians from each of the four EFTA States while the Consultative Committee is made up of representatives from trade unions and employers’ organisations. These advisory bodies also have a joint forum of cooperation with the EU. In the case of the Joint Parliamentary Committee, the EU representatives are Members of the

5 To be found at http://www.efta.int/eea/eea-institutions/standing-committee. 6 See also the comments by Fredriksen and Arnesen to the fourteenth recital to Preamble of the EEA Agreement.

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Article 10 Protocols and Annexes as integral part of the Agreement

European Parliament while in in the Joint Consultative Committee, the EU is represented by members of the European Economic and Social Committee. The advisory bodies meet with EEA EFTA Ministers in Brussels once a year 2 in connection with the autumn EEA Council which provides an opportunity for the two advisory bodies to discuss current issues in the EEA with the Ministers. The EFTA Consultative Committee also meets with the Standing Committee at ambassador level to discuss major developments with regard to the EEA Agreement once a year. This is a useful platform for dialogue and consultation between the EFTA social partners and parliamentarians and the EFTA authorities. Although it is not specifically mentioned in the Agreement on the Standing 3 Committee, the EEA EFTA Forum was set up in 2009 by a decision of the Standing Committee as an informal body to involve elected representatives from local and regional authorities in EEA matters. Each of these bodies adopt opinions and resolutions which are brought to the attention of the Standing Committee.

Article 10 [Protocols and Annexes as integral part of the Agreement] The Protocols and the Annex to this Agreement shall form an integral part thereof.

Protocol 1 is the legal basis for the allocation to the Standing Committee of 1 certain functions and powers entrusted to the Commission in the context of EU law to the extent that this is allowed by the horizontal adaptations found in No. 4 letter (d) of Protocol 1 EEA (read in light of the principle of loyalty enshrined in Art. 3 EEA).1 2 Protocol 2 implements Protocol 18 EEA into the EFTA pillar.2 The Annex to the Agreement list the situations where the Standing Commit- 3 tee shall take decisions and make recommendations by majority vote, see the comments on Art. 6(2) above.

Article 11 [Amendments of the Agreement on a Standing Committee] An amendment to this Agreement shall be submitted to the EFTA States for acceptance if it is approved by decision of the Standing Committee and it shall enter into force provided it is accepted by all EFTA States. Instruments of acceptance shall be deposited with the Government of Sweden which shall notify all other EFTA States.

Art. 11 mirrors Art. 49 SCA, but without the obligation contained in the latter 1 provision to hear ESA before making any amendments to the SCA. In any event, 1 See further the comments on Art. 3 above. 2 See further the comments by Bull on Art. 44 EEA in Part II of this book.

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as noted in the comments on the Preamble, the absence of the EU from the list of Contracting Parties to the Standing Committee Agreement does not leave the EFTA States completely free to decide on the legal framework for the Standing Committee: In certain cases, functions and voting arrangements of the Standing Committee are laid out by the EEA Agreement as such.1 Thus, the principle of loyalty enshrined in Art. 3 EEA clearly suggests that the EFTA States inform the EU in advance of any amendments to the Standing Committee Agreement which could impact negatively on the EFTA States’ fulfilment of their EEA law obligations.

Article 12 [Withdrawal from the Agreement on a Standing Committee] 1. Any EFTA State which withdraws from the EEA Agreement shall ipso facto cease to be a Party to the present Agreement on the same day as that withdrawal takes effect. 2. Any EFTA State which accedes to the European Community shall ipso facto cease to be a Party to the present Agreement on the same day as that accession takes effect. 3. The Governments of the remaining EFTA States shall, by common accord, decide on the necessary amendments to be made to the present Agreement.

Art. 12 mirrors Art. 50 SCA. It reflects the intrinsic link between the Standing Committee Agreement and the status as an EEA EFTA State. An EFTA State which either withdraws from the EEA Agreement (No. 1) or switches side to the EU-pillar (No. 2) will no longer have a legitimate interest to take part in the internal discussions and decision-making in the EFTA-pillar. 2 With the current composition of an EFTA pillar with only three members, any further reduction will naturally be challenging. Still, faced with the Icelandic application for EU membership in the wake of the 2008 financial crisis, the official Norwegian view was that the EEA Agreement would continue of function with its current institutional set-up even with only Norway and Liechtenstein left in the EFTA-pillar.1 The political sustainability of such an arrangement may well be questioned, but it is true that the EEA Agreement functioned for four months from the date of departure of Austria, Finland and Sweden on 1 January 1995 until the Agreement entered into force for Liechtenstein on 1 May that year. The transitional arrangements then agreed by Iceland and Norway suggest that an EFTA-pillar of only two may be feasible from a legal perspective,2 even though the development towards majority-voting in the Standing Committee on matters related to the EFTA States’ affiliation to a number of EU agencies3 will pose an additional challenge. 1

1 See the comments on Arts. 3 and 6 above. 1 See, e.g., the statements by the Norwegian foreign minister Jonas Gahr Støre referred to by Aftenposten, ‘EØS-avtalens mange liv’, 11 May 2009.

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Article 13 Accession to the Agreement on a Standing Committee

Article 13 [Accession to the Agreement on a Standing Committee] Any EFTA State acceding to the EEA Agreement shall accede to the present Agreement on such terms and conditions as may be laid down by common accord by the EFTA States. The instrument of accession shall be deposited with the Government of Sweden which shall notify the other EFTA States.

Art. 13 mirrors Art. 51 SCA. The obligation on any EFTA State acceding to 1 the EEA Agreement to accede also to the Standing Committee Agreement reflects how intrinsically linked these two agreements are: It is impossible for an EFTA State (or any other third country for that matter) to accede to the EEA Agreement without at the same time becoming a full member of the EFTA-pillar of the EEA. After Sweden’s accession to the EU in 1995, Norway functions as the Deposi- 2 tary State.

Article 14 [Authentic languages, ratification, deposit and entry into force] 1. This Agreement, drawn up in a single copy and authentic in the English language, shall be ratified by the Contracting Parties in accordance with their respective constitutional requirements. Before the entry into force of this Agreement, it shall also be drawn up and authenticated in Finnish, French, German, Icelandic, Italian, Norwegian and Swedish. 2. This Agreement shall be deposited with the Government of Sweden which shall transmit a certified copy to each EFTA State. The instruments of ratification shall be deposited with the Government of Sweden which shall notify all other EFTA States. 3. This Agreement shall enter into force on the date and under the conditions provided for in the Protocol Adjusting the Agreement on a Standing Committee of the EFTA States.

Art. 14 mirrors Art. 53 SCA. In practice, the English version of the Agree- 1 ment is the only one in use. English is the working language of the Standing Committee and the EFTA-pillar of the EEA in general. After Sweden’s accession to the EU in 1995, Norway functions as the Deposi- 2 tary State.

2 See the Agreement between Iceland and Norway of 29 December 1994 adjusting certain agreements between the EFTA States. A third college member of ESA wad appointed by common accord by the governments of Iceland and Norway whereas a third judge of the EFTA Court was to be elected by the two regular judges on a case by case basis from a list established by common accord by the two governments or, if they could not agree, by lot. A third judge was never needed, however, as the EFTA Court did not receive any new cases until the Liechtenstein judge took up his position. 3 See the comments on Art. 6 above.

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Convention establishing the European Free Trade Association (Consolidated version, last amended on 1 July 2013) The Republic of Iceland, the Principality of Liechtenstein, the Kingdom of Norway and the Swiss Confederation (hereinafter referred to as the “Member States”); Having regard to the conclusion on 4 January 1960, between the Republic of Austria, the Kingdom of Denmark, the Kingdom of Norway, the Portuguese Republic, the Kingdom of Sweden, the Swiss Confederation and the United Kingdom of Great Britain and Northern Ireland, of the Convention establishing the European Free Trade Association (hereinafter referred to as the “Convention”); Having regard to the association with the Republic of Finland and its subsequent accession on 1 January 1986, and to the accessions by the Republic of Iceland on 1 March 1970 and by the Principality of Liechtenstein on 1 September 1991; Having regard to the successive withdrawals from the Convention by the Kingdom of Denmark and the United Kingdom on 1 January 1973; the Republic of Portugal on 1 January 1986; the Republic of Austria, the Republic of Finland and the Kingdom of Sweden on 1 January 1995; Having regard to the free trade agreements between the Member States on the one hand and third parties on the other; Reaffirming the high priority they attach to the privileged relationship between the Member States and to the facilitation of continuity in their respective good relations with the European Union, which are based on proximity, long-standing common values and European identity; Resolved to deepen the co-operation instituted within the European Free Trade Association, further facilitating the free movement of goods, aiming at the progressive attainment of free movement of persons and the progressive liberalisation of trade in services and investment, further opening up the public procurement markets in the EFTA States, and providing for the appropriate protection of intellectual property rights, under fair conditions of competition; Building on their respective rights and obligations under the Agreement establishing the World Trade Organization and other multilateral and bilateral instruments of co-operation; Recognising the need for mutually supportive trade and environmental policies in order to achieve the objective of sustainable development; Affirming their commitment to the observance of recognised core labour standards, noting their endeavours to promote such standards in the appropriate multilateral fora and expressing their belief that economic growth and development fostered by increased trade and further trade liberalisation contribute to the promotion of these standards; Have agreed as follows:

CHAPTER I: OBJECTIVES

Article 1 The Association An international organisation to be known as the European Free Trade Association, hereinafter referred to as “the Association”, is hereby established.

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Article 2 Objectives The objectives of the Association shall be (a) to promote a continued and balanced strengthening of trade and economic relations between the Member States with fair conditions of competition, and the respect of equivalent rules, within the area of the Association; (b) the free trade in goods; (c) to progressively liberalise the free movement of persons; (d) the progressive liberalisation of trade in services and of investment; (e) to provide fair conditions of competition affecting trade between the Member States; (f) to open the public procurement markets of the Member States; (g) to provide appropriate protection of intellectual property rights, in accordance with the highest international standards.

CHAPTER II: FREE MOVEMENT OF GOODS1

Article 3 Customs duties on imports and exports, and charges having equivalent effect Customs duties on imports and exports, and any charges having equivalent effect, shall be prohibited between the Member States. This shall also apply to customs duties of a fiscal nature.

Article 4 Internal taxation 1. No Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products. 2. Furthermore, no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products. 3. Where products are exported to the territory of any Member State, any repayment of internal taxation shall not exceed the internal taxation imposed on them whether directly or indirectly.

Article 5 Rules of origin and administrative cooperation2 1. With respect to the rights and obligations of the Member States concerning rules of origin and administrative cooperation between the customs authorities of the Mem-

1 As a result of the customs union established by the Treaty of 29 March 1923 between Switzerland and the Principality of Liechtenstein, Switzerland shall represent the Principality of Liechtenstein in matters covered thereby. (Footnote added by Council Decision No 2/2012 of 21 June 2012, e.i.f 1 July 2013). 2 Amended by Council Decision No 2/2012 of 21 June 2012, e.i.f 1 July 2013.

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Article 6 Mutual assistance in customs matters 1. Member States shall assist each other in customs matters in general in accordance with the provisions of Annex B in order to ensure that their customs legislation is correctly applied. 2. Annex B shall apply to all products whether or not covered by the provisions of this Convention.

Article 7 Quantitative restrictions on imports and exports, and measures having equivalent effect Quantitative restrictions on imports and exports, and all measures having equivalent effect, shall be prohibited between the Member States.

Article 8 Agricultural goods3 In view of the special considerations affecting agriculture, Articles 2, 3, 4 and 7 as well as Chapter IV on state aid, Chapter VI on competition and Chapter XII on public procurement shall not apply to agricultural goods classified under chapters 1-24 of the Harmonized Commodity Description and Coding System (HS) or specified in Annex X, except as provided for in: (a) Annex V, in relation to basic agricultural products, or (b) Annex W, in relation to processed agricultural products.

3 Amended by Council Decision No 2/2012 of 21 June 2012, e.i.f 1 July 2013.

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Article 94 Article 10 Fish and other marine products The provisions of this Convention shall apply in relation to fish and other marine products.

Article 11 Seeds and Organic Agriculture 1. Specific rules on seeds are set out in Annex E. 2. Specific rules on organic agriculture are set out in Annex F.

Article 12 Sanitary and phytosanitary measures The rights and obligations of the Member States in respect of sanitary and phytosanitary measures shall be governed by Annex G.

Article 13 Exceptions The provisions of Article 7 shall not preclude prohibitions or restrictions 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 and of the environment; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between the Member States.

CHAPTER III: TECHNICAL BARRIERS TO TRADE

Article 14 Notification of draft technical regulations 1. Member States shall notify to the Council at the earliest practicable stage all draft technical regulations or amendments thereto. 2. The provisions on the notification procedure are set out in Annex H.

Article 15 Mutual recognition of conformity assessment Without prejudice to Article 7, Switzerland, on the one hand, and Iceland, Liechtenstein and Norway, on the other, grant mutual acceptance of reports, certificates, authorisations, conformity marks and manufacturer’s declarations of conformity in accordance with Annex I.

4 Repealed by Council Decision No 2/2012 of 21 June 2012, e.i.f 1 July 2013.

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CHAPTER IV: STATE AID

Article 16 State aid 1. The rights and obligations of the Member States relating to State aid shall be based on Article XVI of the GATT 1994 and the WTO Agreement on Subsidies and Countervailing Measures, which are incorporated and made part of the Convention, except as otherwise provided for in Annex Q. 2. Member States shall not apply countervailing measures as provided for under Part V of the WTO Agreement on Subsidies and Countervailing Measures in relation to any other Member State in accordance with Article 36. 3. The Member States shall review the scope of application of this Chapter with a view to extending the disciplines with respect to State aid to the field of services, taking into account international developments in the sector. The reviews shall take place at yearly intervals.

CHAPTER V: PUBLIC UNDERTAKINGS AND MONOPOLIES

Article 17 Public undertakings and monopolies 1. Member States shall ensure that public undertakings refrain from applying (a) measures the effect of which is to afford protection to domestic production which would be inconsistent with this Convention if achieved by means of a duty or charge with equivalent effect, quantitative restriction or government aid, or (b) trade discrimination on grounds of nationality in so far as it frustrates the benefits expected from the removal or absence of duties and quantitative restrictions on trade between Member States. 2. For the purposes of this Article, “public undertakings” means central, regional, or local government authorities, public enterprises and any other organisation by means of which a Member State, by law or in practice, controls or appreciably influences imports from, or exports to, the territory of a Member State. 3. The provisions of paragraph 1 of Article 18 shall also apply to the activities of public undertakings, and undertakings for which the Member States grant special or exclusive rights, in so far as the application of these provisions does not obstruct the performance, in law or in fact, of the particular public tasks assigned to them. 4. Paragraph 3 shall apply to Annex Q. The Member States shall review the scope of application of this Chapter with a view to extending the disciplines to other services, taking into account international developments in the sector. The reviews shall take place at yearly intervals. 5. Member States shall ensure that new practices of the kind described in paragraph 1 of this Article are not introduced. 6. Where Member States do not have the necessary legal powers to control the activities of regional or local government authorities or enterprises under their control in these matters, they shall nevertheless endeavour to ensure that those authorities or enterprises comply with the provisions of this Article.

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CHAPTER VI: RULES OF COMPETITION

Article 18 Competition 1. Member States recognise that the following practices are incompatible with this Convention in so far as they frustrate the benefits arising from this Convention: (a) agreements between enterprises, decisions by associations of enterprises and concerted practices between enterprises which have as their object or result the prevention, restriction or distortion of competition; (b) abuse by one or more undertakings of a dominant position in the territories of the Member States as a whole or in a substantial part thereof. 2. Should a Member State consider that a given practice is incompatible with this Article, it may ask for consultations in accordance with the procedures set out in Article 47 and take appropriate measures under the conditions set out in paragraph 2 of Article 40 to deal with the difficulties resulting from the practice in question.

CHAPTER VII: PROTECTION OF INTELLECTUAL PROPERTY

Article 19 1. Member States shall grant and ensure adequate and effective protection of intellectual property rights, and provide for measures for the enforcement of such rights against infringement thereof, counterfeiting and piracy, in accordance with the provisions of this Article, Annex J and the international agreements referred to therein. 2. Member States shall accord to each other’s nationals treatment no less favourable than that they accord to their own nationals. Exemptions from this obligation must be in accordance with the substantive provisions of Article 3 of the TRIPS Agreement. 3. Member States shall grant to each other’s nationals treatment no less favourable than that accorded to nationals of any other State. Exemptions from this obligation must be in accordance with the substantive provisions of the TRIPS Agreement, in particular Articles 4 and 5 thereof. 4. Member States agree, upon request of any Member State, to review the provisions on the protection of intellectual property rights contained in the present Article and in Annex J, with a view to further improve levels of protection and to avoid or remedy trade distortions caused by actual levels of protection of intellectual property rights.

CHAPTER VIII: FREE MOVEMENT OF PERSONS

Article 20 Movement of persons 1. Freedom of movement of persons shall be secured among Member States in accordance with the provisions set out in Annex K and in the Protocol to Annex K on the free movement of persons between Liechtenstein and Switzerland. 2. The objective of this Article for the benefit of the nationals of the Member States shall be:

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to accord a right of entry, residence, access to work as employed persons, establishment on a self-employed basis and the right to stay in the territory of the Member States; (b) to facilitate the provision of services in the territory of the Member States, and in particular to liberalise the provision of services of brief duration; (c) to accord a right of entry into, and residence in, the territory of the Member States to persons without an economic activity in the host State; (d) to accord the same living, employment and working conditions as those accorded to nationals.

Article 21 Coordination of social security systems In order to provide freedom of movement of persons, the Member States shall make provision, in accordance with Appendix 2 of Annex K and with the Protocol to Annex K on the free movement of persons between Liechtenstein and Switzerland, for the coordination of social security systems with the aim in particular of: (a) securing equality of treatment; (b) determining the legislation applicable; (c) aggregating, for the purpose of acquiring and retaining the right to benefit and of calculating the amount of benefit, of all periods taken into consideration by the national legislation of the States concerned; (d) paying benefits to persons resident in the territories of the Member States; (e) fostering mutual administrative assistance and cooperation between authorities and institutions.

Article 22 Mutual recognition of professional qualifications In order to make it easier for nationals of the Member States to take up and pursue activities as workers and self-employed persons, the Member States shall take the necessary measures, as contained in Appendix 3 to Annex K and in the Protocol to Annex K on the free movement of persons between Liechtenstein and Switzerland, concerning the mutual recognition of diplomas, certificates and other evidence of formal qualifications, and the coordination of the provisions laid down by law, regulation or administrative action in the Member States concerning the taking up and pursuit of activities by workers and self-employed persons.

CHAPTER IX: INVESTMENT Section I: Establishment

Article 23 Principles and scope 1. Within the framework of, and subject to, the provisions of this Convention, there shall be no restrictions on the right of establishment of companies or firms, formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business in the territory of the Member

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2.

3.

4.

5.

6.

7.

States. This shall also apply to the setting up of agencies, branches or subsidiaries by companies or firms of any Member State established in the territory of any other Member State. The right of establishment shall include the right to set up, acquire and manage undertakings, in particular companies or firms within the meaning of paragraph 2, under the conditions laid down for its own undertakings by the law of the Member State where such establishment is effected, subject to the provisions set out hereafter. For the purposes of this Chapter: (a) “subsidiary” of a company shall mean a company which is effectively controlled by the first company; (b) “companies or firms” shall mean companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are non-profit-making; in order to be considered as a company or firm of a Member State, the company or firm shall have a real and continuous link with the economy in that Member State. Annexes L to O contain specific provisions and exemptions regarding the right of establishment. The Member States shall endeavour to eliminate gradually remaining discriminations, which they may maintain in accordance with Annexes L to O. The Member States agree to review the present provision, including its Annexes, within two years after the entry into force of the Agreement amending the Convention establishing the European Free Trade Association of 21 June 2001 with a view to reducing, and ultimately eliminating, the remaining restrictions. From the date of entry into force of the Agreement amending the Convention establishing the European Free Trade Association of 21 June 2001, neither Member State shall adopt new, or more, discriminatory measures as regards the establishment and operation of companies or firms of another Member State, in comparison with the treatment accorded to its own companies or firms. In sectors covered by an exemption as contained in Annexes L to O, each Member State shall accord to companies or firms of another Member State treatment no less favourable than that accorded to companies or firms of third parties other than the European Community. As regards any new agreements concluded between any Member State and the European Community, the Member States further undertake to extend to each other, on the basis of reciprocity, the benefits of such agreements, subject to a decision by the Council. The right of establishment in the field of road, rail and air transport shall be governed by the provisions of Article 35 and Annexes P and Q, subject to the specific provisions and exemptions set out in Annexes L and M. The right of establishment of natural persons shall be governed by the provisions of Article 20, Annexes K and the Protocol to Annex K on movement of persons between Liechtenstein and Switzerland.

Article 24 National treatment 1. Within the scope of application of this Chapter, and without prejudice to any special provisions contained herein:

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Member States shall grant treatment no less favourable than that accorded to their own companies or firms; (b) each Member State may regulate the establishment and operation of companies or firms on its territory, in so far as these regulations do not discriminate against companies or firms of the other Member States in comparison to its own companies or firms. 2. The provisions of this Article do not preclude the application by a Member State of particular rules concerning the establishment and operation in its territory of branches and agencies of companies of another Member State not incorporated in the territory of the first Member State, which are justified by legal or technical differences between such branches and agencies as compared to branches and agencies of companies incorporated in its territory. The difference in treatment shall not go beyond what is strictly necessary as a result of such legal or technical differences.

Article 25 Financial market regulation 1. In respect of financial services, this Chapter does not prejudice the right of the Member States to adopt measures necessary for prudential grounds in order to ensure the protection of investors, depositors, policy holders, or persons to whom a fiduciary duty is owed, or to ensure the integrity and stability of the financial system. These measures shall not discriminate against companies or firms of the other Member States in comparison to its own companies or firms. 2. Nothing in this Chapter shall be construed to require a Member State to disclose information relating to the affairs and accounts of individual customers or any confidential or proprietary information in the possession of public entities.

Article 26 Recognition 1. A Member State may enter into an agreement or arrangement with a particular State providing for the recognition of standards, criteria for authorization, licensing or certification of service suppliers, in which case it shall offer adequate opportunity for any other Member State to negotiate its accession to such an agreement or arrangement or to negotiate comparable ones with it. 2. Where a Member State accords recognition as provided for in paragraph 1 autonomously, it shall afford adequate opportunity for any other Member State to demonstrate that experience, licences or certifications obtained or requirements met in that other Member State’s territory should be recognised. 3. A Member State shall not accord recognition in a manner which would constitute a means of discrimination between countries in the application of its standards or criteria for the authorisation, licensing or certification of service suppliers, or a disguised restriction to establishment in the services sector.

Article 27 Exceptions 1. The provisions of this Chapter shall not apply, so far as any given Member State is concerned, to activities which in that Member State are connected, even occasionally, with the exercise of official authority. 1111

EFTA Convention 2. The provisions of this Chapter and measures taken in pursuance thereof shall not prejudice the applicability of provisions laid down by law, regulation or administrative action providing for special treatment for foreign companies or firms on grounds of public policy, public security, public health or the environment. 3. Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between States where like conditions prevail, or a disguised restriction on trade in services, nothing in this Convention shall be construed to prevent the adoption or enforcement by any Member State of measures: (a) inconsistent with Article 24, provided that the difference in treatment is aimed at ensuring the equitable or effective1 imposition or collection of direct taxes in respect of services or service suppliers of other Member States; (b) inconsistent with paragraph 5 of Article 23, provided that the difference in treatment is the result of an agreement on the avoidance of double taxation or provisions on the avoidance of double taxation in any other international agreement or arrangement by which the Member State is bound.

Section II: Capital movement

Article 28 1. Within the framework of this Chapter, there shall be no restrictions between the Member States on the movement of capital relating to the establishment in another Member State’s territory of a company or firm of that Member State. 2. The movement of capital not relating to establishment between the Member States shall be ensured in accordance with the international agreements to which they are parties. 3. The Member States agree to review the present provision within two years after the entry into force of the Agreement amending the Convention establishing the Euro-

1 Measures that are aimed at ensuring the equitable or effective imposition or collection of direct taxes include measures taken by a Member under its taxation system which: (i) apply to non-resident service suppliers in recognition of the fact that the tax obligation of non-residents is determined with respect to taxable items sourced or located in the Member State’s territory; or (ii) apply to non-residents in order to ensure the imposition or collection of taxes in the Member State’s territory; or (iii) apply to non-residents or residents in order to prevent the avoidance or evasion of taxes, including compliance measures; or (iv) apply to consumers of services supplied in or from the territory of another Member State in order to ensure the imposition or collection of taxes of such consumers derived from sources in the Member State’s territory; or (v) distinguish service suppliers subject to tax on worldwide taxable items from other service suppliers, in recognition of the difference in the nature of the tax base between them; or (vi) determine, allocate or apportion income, profit, gain, loss, deduction or credit of resident persons or branches, or between related persons or branches of the same person, in order to safeguard the Member State’s tax base. Tax terms or concepts in paragraph 3(a) of Article 27 and in this footnote are determined according to tax definitions and concepts, or equivalent or similar definitions and concepts, under the domestic law of the Member State taking the measure.

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EFTA Convention pean Free Trade Association of 21 June 2001 in order to broaden the scope of, and ultimately eliminate the remaining restrictions to, the movement of capital.

CHAPTER X: TRADE IN SERVICES

Article 29 Principles and scope 1. Within the framework of, and subject to, the provisions of this Convention, there shall be no restrictions on the right to supply services within the territory of the Member States in respect of natural persons, companies or firms of Member States who are established in a Member State other than that of the natural person, company or firm for whom the services are intended. 2. For the purposes of this Chapter, services shall be considered to be “services” within the meaning of this Convention where they are normally supplied for remuneration (a) from the territory of one Member State into the territory of another Member State; (b) in the territory of a Member State to the service consumer of another Member State in accordance with paragraph 7 below; (c) by service supplier of a Member State, through presence of natural persons of that Member State in the territory of another Member State in accordance with paragraph 7 below. 3. Annexes L to O contain specific provisions and exemptions regarding the right to supply services. The Member States shall endeavour to eliminate gradually remaining discriminations, which they may maintain in accordance with Annexes L to O. The Member States agree to review the present provision, including its Annexes, within two years after the entry into force of the Agreement amending the Convention establishing the European Free Trade Association of 21 June 2001 with a view to reducing, and ultimately eliminating, the remaining restrictions. 4. From the date of entry into force of the Agreement amending the Convention establishing the European Free Trade Association of 21 June 2001, neither Member State shall adopt new, or more, discriminatory measures as regards services or service suppliers of another Member State, in comparison with the treatment accorded to its own like services or service suppliers. 5. In sectors covered by an exemption as contained in Annexes L to O, each Member State shall accord to services or service suppliers of another Member State treatment no less favourable than that accorded to like services or service suppliers of third parties other than the European Community. As regards any new agreements concluded between any Member State and the European Community, the Member States further undertake to extend to each other, on the basis of reciprocity, the benefits of such agreements, subject to a decision by the Council. 6. The right to supply services in the field of road, rail and air transport shall be governed by the provisions of Article 35 and Annexes P and Q, subject to the specific provisions and exemptions set out in Annex M. 7. The supply or consumption of services by natural persons as provided for in paragraphs 2(b) and (c) shall be governed by the relevant provisions of Article 20, Annex K and the Protocol to Annex K on movement of persons between Liechtenstein and Switzerland, in accordance with the principles set out hereinafter.

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Article 30 National treatment Within the scope of application of this Chapter, and without prejudice to any special provisions contained herein: (a) Member States shall grant treatment no less favourable than that accorded to their own natural persons, companies or firms providing services; (b) each Member State may regulate services activities within its territory in so far as these regulations do not discriminate against natural persons, companies or firms of the other Member States in comparison to its own natural persons, companies or firms.

Article 31 Financial market regulation 1. In respect of financial services, this Chapter does not prejudice the right of the Member States to adopt measures necessary for prudential grounds in order to ensure the protection of investors, depositors, policy holders, or persons to whom a fiduciary duty is owed, or to ensure the integrity and stability of the financial system. These measures shall not discriminate against natural persons, companies or firms of the other Member States in comparison to its own natural persons, companies or firms. 2. Nothing in this Chapter shall be construed to require a Member State to disclose information relating to the affairs and accounts of individual customers or any confidential or proprietary information in the possession of public entities.

Article 32 Recognition 1. The mutual recognition between the Member States of diplomas, certificates and other evidence of formal qualifications, and the coordination of the provisions laid down by law, regulation or administrative action in the Member States concerning the taking up and pursuit of activities by natural persons, shall be governed by the relevant provisions of Article 22, Annex K and Appendix 3 thereto and the Protocol to Annex K on movement of persons between Liechtenstein and Switzerland. 2. A Member State may enter into an agreement or arrangement with a particular State providing for the recognition of standards, criteria for authorization, licensing or certification of service suppliers, in which case it shall offer adequate opportunity for any other Member State to negotiate its accession to such an agreement or arrangement or to negotiate comparable ones with it. 3. Where a Member State accords recognition as provided for in paragraph 2 autonomously, it shall afford adequate opportunity for any other Member State to demonstrate that experience, licences or certifications obtained or requirements met in that other Member State’s territory should be recognised. 4. A Member State shall not accord recognition in a manner which would constitute a means of discrimination between countries in the application of its standards or criteria for the authorisation, licensing or certification of service suppliers, or a disguised restriction to trade in services.

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Article 33 Exceptions 1. The provisions of this Chapter shall not apply, so far as any given Member State is concerned, to activities which in that Member State are connected, even occasionally, with the exercise of official authority. 2. The provisions of this Chapter and measures taken in pursuance thereof shall not prejudice the applicability of provisions laid down by law, regulation or administrative action providing for special treatment of foreign service suppliers on grounds of public policy, public security, public health or the environment. 3. Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between States where like conditions prevail, or a disguised restriction on trade in services, nothing in this Convention shall be construed to prevent the adoption or enforcement by any Member State of measures: (a) inconsistent with Article 30, provided that the difference in treatment is aimed at ensuring the equitable or effective1 imposition or collection of direct taxes in respect of services or service suppliers of other Member States; (b) inconsistent with paragraph 5 of Article 29, provided that the difference in treatment is the result of an agreement on the avoidance of double taxation or provisions on the avoidance of double taxation in any other international agreement or arrangement by which the Member State is bound.

Article 34 Public procurement Nothing in this Chapter shall be construed to impose any obligations with respect to public procurement.

1 Measures that are aimed at ensuring the equitable or effective imposition or collection of direct taxes include measures taken by a Member under its taxation system which: (i) apply to non-resident service suppliers in recognition of the fact that the tax obligation of non-residents is determined with respect to taxable items sourced or located in the Member State’s territory; or (ii) apply to non-residents in order to ensure the imposition or collection of taxes in the Member State’s territory; or (iii) apply to non-residents or residents in order to prevent the avoidance or evasion of taxes, including compliance measures; or (iv) apply to consumers of services supplied in or from the territory of another Member State in order to ensure the imposition or collection of taxes of such consumers derived from sources in the Member State’s territory; or (v) distinguish service suppliers subject to tax on worldwide taxable items from other service suppliers, in recognition of the difference in the nature of the tax base between them; or (vi) determine, allocate or apportion income, profit, gain, loss, deduction or credit of resident persons or branches, or between related persons or branches of the same person, in order to safeguard the Member State’s tax base. Tax terms or concepts in paragraph 3(a) of Article 27 and in this footnote are determined according to tax definitions and concepts, or equivalent or similar definitions and concepts, under the domestic law of the Member State taking the measure.

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Article 35 Transport The Member States shall liberalise the access to each other’s transport markets for the carriage of passengers and goods by road, rail and air in accordance with the provisions set out in Annex P and Annex Q respectively.

CHAPTER XI: DUMPING

Article 36 Anti-dumping measures, countervailing duties and measures against illicit commercial practices attributable to third countries shall not be applied in relations between the Member States.

CHAPTER XII: PUBLIC PROCUREMENT

Article 37 1. The Member States reaffirm their rights and obligations under the WTO Agreement on Government Procurement (GPA). Under this Convention, the Member States broaden the scope of their commitments under the WTO Government Procurement Agreement with an aim to pursue liberalisation in public procurement markets in accordance with Annex R. 2. To this effect, the Member States shall secure non-discriminative, transparent and reciprocal access to their respective public procurement markets and shall ensure open and effective competition based on equal treatment.

CHAPTER XIII: CURRENT PAYMENTS

Article 38 Current payments connected with the movement of goods, persons, services or capital as defined in Article 28 between Member States within the framework of the provisions of this Convention shall be free of all restrictions.

CHAPTER XIV: EXCEPTIONS AND SAFEGUARDS

Article 39 Security exceptions Nothing in this Convention shall prevent a Member State from taking any measures: (a) which it considers necessary to prevent the disclosure of information contrary to its essential security interests; (b) which relate to the production of, or trade in, arms, munitions and war materials or other products or services indispensable for defence purposes or to research, development or production indispensable for defence purposes, provided that such mea-

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Article 40 Safeguard measures 1. If serious economic, societal or environmental difficulties of a sectorial or regional nature liable to persist are arising, a Member State may unilaterally take appropriate measures under the conditions and procedures set out in Article 41. 2. Such safeguard measures shall be restricted with regard to their scope and duration to what is strictly necessary in order to remedy the situation. Priority shall be given to such measures as will least disturb the functioning of this Convention. 3. The safeguard measures shall apply with regard to all Member States. 4. This Article is without prejudice to the application of specific safeguard provisions set out in the Annexes to this Convention or of special safeguard measures in accordance with Article 5 of the WTO Agreement on Agriculture.

Article 41 1. A Member State which is considering taking safeguard measures under Article 40, shall, without delay, notify the other Member States through the Council and shall provide all relevant information. 2. The Member States shall immediately enter into consultations in the Council with a view to finding a commonly acceptable solution. 3. The Member State concerned may not take safeguard measures until one month has elapsed after the date of notification under paragraph 1, unless the consultation procedure under paragraph 2 has been concluded before the expiration of the stated time limit. When exceptional circumstances requiring immediate action exclude prior examination, the Member State concerned may apply forthwith the protective measures strictly necessary to remedy the situation. 4. The Member State concerned shall, without delay, notify the measures taken to the Council and shall provide all relevant information. 5. The safeguard measures taken shall be the subject of consultations in the Council every three months from the date of their adoption with a view to their abolition before the date of expiry envisaged, or to the limitation of their scope of application. Each Member State may at any time request the Council to review such measures.

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CHAPTER XV: ECONOMIC AND MONETARY POLICY CO-OPERATION

Article 42 The Member States shall exchange views and information concerning the implementation of this Convention and the impact of the integration on economic activities and on the conduct of economic and monetary policies. Furthermore, they may discuss macroeconomic situations, policies and prospects. This exchange of views and information shall take place on a non-binding basis.

CHAPTER XVI: INSTITUTIONAL PROVISIONS

Article 43 The Council 1. It shall be the responsibility of the Council (a) to exercise such powers and functions as are conferred upon it by this Convention; (b) to decide on amendments to this Convention in accordance with the provisions herein; (c) to supervise the application of this Convention and keep its operation under review; (d) to consider whether further action should be taken by Member States in order to promote the attainment of the objectives of the Association; (e) to facilitate the establishment of closer links with other States and unions of States; (f) to seek to establish such relationships with other international organisations as may facilitate the attainment of the objectives of the Association; (g) to negotiate trade and co-operation agreements between the Member States and any other State, union of States or international organisation; (h) to endeavour to resolve disputes that may arise regarding the interpretation or application of this Convention; and (i) to consider any other matter that may affect the operation of this Convention. 2. Each Member State shall be represented in the Council and shall have one vote. 3. The Council may decide to set up such organs, committees and other bodies, as it considers necessary to assist it in accomplishing its tasks. These organs, committees and other bodies are listed in Annex S. 4. In exercising its responsibility under this Article, the Council may take decisions, which shall be binding on all Member States, and may make recommendations to Member States. 5. Decisions and recommendations of the Council shall be made by unanimous vote, except in so far as this Convention provides otherwise. Decisions or recommendations shall be regarded as unanimous unless any Member State casts a negative vote. Decisions and recommendations which are to be made by majority vote, require the affirmative vote of three Member States. 6. If the number of the Member States changes, the Council may decide to amend the number of votes required for decisions and recommendations which are to be made by majority vote.

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Article 44 Administrative arrangements of the Association The Council shall take decisions for the following purposes: (a) to lay down the Rules of Procedure of the Council and of any other bodies of the Association, which may include provision that procedural questions may be decided by majority vote; (b) to make arrangements for the secretariat services required by the Association; (c) to establish the financial arrangements necessary for the administrative expenses of the Association, the procedure for establishing a budget and the apportionment of those expenses between the Member States.

Article 45 Legal capacity, privileges and immunities 1. The legal capacity, privileges and immunities to be recognised and granted by the Member States in connection with the Association shall be laid down in a Protocol to this Convention. 2. The Council, acting on behalf of the Association, may conclude with the Government of the State in whose territory the headquarters will be situated an agreement relating to the legal capacity and the privileges and immunities to be recognised and granted in connection with the Association.

CHAPTER XVII: CONSULTATIONS AND DISPUTE SETTLEMENT

Article 46 Scope The provisions of this Chapter shall apply to any matter arising from this Convention, unless otherwise specified in this Convention.

Article 47 Consultations 1. The Member States shall at all times endeavour to agree on the interpretation and application of this Convention, and shall make every attempt through cooperation and consultations to arrive at a mutually satisfactory resolution of any matter that might affect its operation. 2. Any Member State may bring any matter, which concerns the interpretation or application of this Convention before the Council. The Council shall be provided with all information, which might be of use in making possible an in-depth examination of the situation, with a view to finding an acceptable solution. To this end, the Council shall examine all possibilities to maintain the good functioning of the Convention. 3. A meeting of the Council shall be held within 30 days from the receipt of the request for consultations.

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Article 48 Arbitration 1. In case a Member State considers that a measure applied by another Member State violates the Convention and the matter has not been resolved within 45 days after consultations have been held pursuant to Article 47, such matter may be referred to arbitration by one or more Member States parties to the dispute by means of a written notification addressed to the Member State complained against. A copy of this notification shall be communicated to all Member States so that each may determine whether it has a substantial interest in the matter. Where more than one Member State requests the submission to an arbitration tribunal of a dispute with the same Member State relating to the same question a single arbitration tribunal should be established to consider such disputes whenever feasible. 2. A Member State which is not a party to the dispute, on delivery of a written notice to the disputing Member States, shall be entitled to make written submissions to the arbitration tribunal, receive written submissions of the disputing Member States, attend all hearings and make oral submissions. 3. The award of the arbitration tribunal shall be final and binding upon the Member States parties to the dispute and shall be complied with promptly. 4. The establishment and functioning of the arbitration tribunal and the implementation of arbitral awards are governed by the rules set out in Annex T.

CHAPTER XVIII: GENERAL PROVISIONS

Article 49 Obligations under other international agreements 1. Nothing in this Convention shall be regarded as exempting any Member State from obligations which it has undertaken by virtue of agreements with third States or multilateral agreements to which they are parties. 2. This Convention shall be without prejudice to the rules applicable to Member States governed by the Agreement on the European Economic Area, the Nordic cooperation and the regional union between Switzerland and Liechtenstein.

Article 50 Rights and obligations of the Member States The Member States shall take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of this Convention. They shall abstain from any measure which could jeopardize the attainment of the objectives of this Convention.

Article 51 Transparency 1. The Member States shall publish their laws, or otherwise make publicly available their laws, regulations, procedures and administrative rulings and judicial decisions of general application as well as the international agreements which may affect the operation of this Convention. 2. The Member States shall promptly respond to specific questions and provide, upon request, information to each other on matters referred to in paragraph 1. 1120

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Article 52 Confidentiality The representatives, delegates and experts of the Member States, as well as officials and other servants acting under this Convention shall be required, even after their duties have ceased, not to disclose information of the kind covered by the obligation of professional secrecy, in particular information about undertakings, their business relations or their cost components.

Article 53 Annexes 1. The Annexes, Appendices and Protocols to this Convention shall form an integral part of it. 2. The Annexes to this Convention are the following: – Annex A on Rules of Origin – Annex B on mutual administrative assistance in customs matters – Annex C List of agricultural goods and goods processed from agricultural raw materials referred to in paragraph 1 of Article 8 – Annex D List of tariff concessions to agricultural products – Annex E Seeds – Annex F Organic agriculture – Annex G Sanitary and phytosanitary measures – Annex H Procedure for the provision of information in the field of technical regulations and of rules on Information Society services – Annex I Mutual recognition in relation to conformity assessment – Annex J Intellectual property rights – Annex K Movement of persons – Annex L Reservations by Iceland on investment and services – Annex M Reservations by Liechtenstein on investment and services – Annex N Reservations by Norway on investment and services – Annex O Reservations by Switzerland on investment and services – Annex P Land transport – Annex Q Air transport – Annex R Public procurement – Annex S Organs, committees and other bodies set up by the Council – Annex T Arbitration. – Annex U Territorial application. The Council may decide to amend the provisions to this paragraph. 3. The Council may decide to amend Annexes A, C, H, S and T, as well as the Appendices to Annexes E, F, K, P, Q and R, unless otherwise provided in the Annexes. 4. The Committee established under Annex I may decide to amend Article 3 of that Annex as well as the Appendix thereto. It shall inform the Council of its decisionmaking.1

1 As amended by Decision of the Council No. 2 of 2009 (16 June 2009).

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Article 54 Ratification 1. This Convention shall be ratified by the signatory States. The instruments of ratification shall be deposited with the Government of Sweden, which shall notify all other signatory States. 2. The Government of Norway shall act as Depositary as of 17 November 1995. 3. The Council may decide to amend the provisions of this Article.

Article 55 Entry into force This Convention shall enter into force on the deposit of instruments of ratification by all signatory States.

Article 56 Accession and association 1. Any State may accede to this Convention, provided that the Council decides to approve its accession, on such terms and conditions as may be set out in that decision. The instrument of accession shall be deposited with the Depositary, which shall notify all other Member States. This Convention shall enter into force in relation to an acceding State on the date indicated in that decision. 2. The Council may negotiate an agreement between the Member States and any other State, union of States or international organisation, creating an association embodying such reciprocal rights and obligations, common actions and special procedures as may be appropriate. Such an agreement shall be submitted to the Member States for acceptance and shall enter into force provided that it is accepted by all Member States. Instruments of acceptance shall be deposited with the Depositary, which shall notify all other Member States. 3. Any State acceding to this Convention shall apply to become a party to the free trade agreements between the Member States on the one hand and third states, unions of states or international organisations on the other.

Article 57 Withdrawal 1. Any Member State may withdraw from this Convention provided that it gives twelve months’ notice in writing to the Depositary, which shall notify all other Member States. 2. Before the withdrawal takes effect, the Member States shall agree on appropriate arrangements and equitable cost-sharing relating to the withdrawal.

Article 58 Territorial application This Convention shall apply to the territories of the Member States except as provided for in Annex U.

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Article 59 Amendment Except as otherwise provided for in this Convention, an amendment to the provisions of this Convention shall be subject to a decision of the Council which shall be submitted to the Member States for acceptance in accordance with their internal legal requirements. It shall enter into force, unless otherwise provided, on the first day of the second month following the deposit of the instruments of acceptance by all Member States with the Depositary, which shall notify all other Member States.

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Index Italic roman numbers refer to the main parts, bold numers refer to articles, normal ones to margin numbers. Abuse II 54 7 – discrimination II 54 18 – exclusivity II 54 11 – justification II 54 24 Accelerated procedure III 31 18, 34 25 Access to justice – Kiev Protocol II 74 19 Accession II 128 1 Accession clause II 128 2 Accession negotiation – terms and conditions II 128 12 Account separation II 63 6 Act No. 2/1993 – adopted the EEA Treaty I ISL 7 – legal force in Iceland I ISL 49 Action for annulment III 36 1 – directly concerned III 36 19 – grounds for review III 36 4 – individual concern III 36 10 – procedure III 36 2 – standing III 36 3, 8 ff. – time limit III 36 3, 20 Ad hoc aid II 62 20 Ad hoc judges III 30 11, 18 – obligations III 30 20 – requirements III 30 20 – rights III 30 20 Adaptations II 93 5, 102 10 – two-pillar issues II 102 26 – underlying reasons II 102 24 Adjustment II 128 13 Advantage II 61 26 ff. Advertising of public contracts II 65(1) 19 Advisory body II 95 6, 96 4 Advisory opinion I FL 33, 50, 51, 53; III 34 2 – admissibility III 34 16, 17 – assessment of competence of EEA Joint Committee III 34 8 – content of request III 34 27 – “court or tribunal“ III 34 9 ff. – effect III 34 28 – format of request III 34 26 – language of the case III 34 23 – limitations on right to refer III 34 18 – necessity of request III 34 14 – number of requests III 34 20 – obligation to refer III 34 19 – oral hearing III 34 22

– purpose III 34 3 – reference from arbitration tribunal III 34 12 – relevance of request III 34 15 – rulings on validity of act III 34 6, 7, 8 – scope of jurisdiction III 34 4, 5, 6 – subject of review III 36 6 Affirmative action II 69 1 AFSJ I EU 21 Age discrimination II 70 14 Agreement on air transport I CH 15 Agreement on the free movement of persons I CH 15, 16 Agreements II 53 3 – EU-Norway I NOR 9 – legal effects I EU 68 Agriculture I FL 26, 62; II 74 5, 115 2, 116 3 – and fish III 5 5 Aid scheme II 62 19 Air pollution II 74 27 Air quality – norms II 74 29 – plans II 74 29 Air transport services II 47 40 Alcohol policy II 14 6 Altmark II 61 33 ff., 63 12 Amendment – Art. 48 TEU II 118 3 – of public contracts II 65(1) 33 Amendment procedures II 98 3 – amending annexes II 102 2 – Amending the EEA agreement II 102 1 ff. – annexes II 98 3, 5 – competence of the EEA Joint Committee II 98 5, 7 – EEA adaptations II 98 5 – fields outside the four freedoms II 98 8 – general treaty amendments II 98 2, 6 – protocols II 98 3, 7, 8, 9 – simplified procedure in veterinary and food area II 98 4 – specialised form of agreement II 98 3 – transformation method II 98 1 – transposition II 98 5 – urgency II 98 4 – Veterinary and food area II 98 4

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Index Amendment proceures – annexes II 98 6 Annex I – sectorial adaptions II 17 5 Annex XVII II 65(2) 1, 4, 10, 14 Annexes – adaptations II 119 14 – declarations II 119 14, 17 ff. – derogations II 119 14 ff., 16 – to the EEA Agreement: overview I EEA law 44 ff. – to the SCA III 42 13 Anti-dumping measures II 26 1 Appeals II 108 27 Application III 31 14 Appropriate measures – state aid II 62 25, 26 Aquaculture II 74 23 Arbitration I EU 39; II 111 36 ff. Association agreement I EU 26, 27, Intr. 1 Association Council I EU 36 Association law I EU 46 Attribution II 59 9 Autonomy EU legal order I EU 45 ‘Average consumer’ II 72 8 Aviation safety rules II 47 40 Award of public contracts II 65(1) 30, 65 Backlog II 102 33 Beer II 14 6 Bilateral agreements I CH 1, 13, 14, 17, 18, 19, 20, 21, 24, 25, 27, 28, 31, 32, 33, 34, 35, 36, 37, 38, 41, 45, 46 – between Norway, Sweden and Finland II 21 11 Bilateral path I CH 13, 19, 20 Bilateral relationship – compromise I NOR 8 Bilateral trade agreements – unilateral adaptions I NOR 5 Biodiversity loss II 6 Block exemptions II 53 51, 55 8 Border collection of VAT II 21 2 Brexit I NOR 52; II 80 8 – EEA-Brexit Agreement II 18 – free-standing membership of the EEA II 20 – modifications to the EEA Agreement II 19 Brussels Convention I CH 9 Cabotage II 47 27 Candidate states II 128 19

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Capital – free movement of II 40 1 ff. – movement II 40 36 Carbon – Emissions Trading Scheme II 74 31 – tax II 74 36 Carbon dioxide – geological storage II 74 9 Case law – Collective agreements I NOR 21 – competition law I NOR 23 – four freedoms I NOR 21 – from the European Court of Justice I NOR 24 – Holship-case I NOR 22 – labour law I NOR 23 – natural resources I NOR 21 – public procurement I NOR 23 – state monopolies I NOR 21 – tax I NOR 21 – workers’ rights I NOR 21 CESL II 72 80 CETA I EU 48, 49 CFSP I EU 21 Character of EEA Agreement I EEA law 18 „Cheese war“ II 19 3 Chemical hazardous substances II 74 40 Cider and “mjød” II 14 5 CISG impact on Norwegian Contract law II 72 11 Citizenship Directive I CH 32 – Joint Declaration No.158/2007 II 28 11 Clauder case II 28 17 Climate change II 6; 73 5 Coach and bus services II 47 27 Coastal zone planning II 74 20 Coherent and comparable statistical information II 76 1 Collective agreement II 47 36 Collective rights management Directive II 65(2) 3 College – President, election III 12 1 College meetings – agenda III 13 4 College members – independence III 7 2, 8 1 – term of appointment III 9 1 Comitology I EEA law 34 ff. – changes to the EU system II 100 2, 7 ff. – EFTA participation rights II 100 1 ff.

Index – equal participation of EU and EFTA experts II 100 3, 6 – limitations to participation rights II 100 4, 5 – organisation of EFTA participation II 100 5 Commission – surveillance III 4 2 Common assessment principles II 61 56 Common commercial policy I EU 60 Common energy policy II 73 12 Common transport policy II 47 4, 6, 11 – EU II 47 13 Companies – access restrictions II 34 31 – connection with the EEA II 34 9, 12, 14 – definition II 34 7 – departure restrictions II 34 28, 29 ff. – establishment II 34 23 – exercise of official authority II 34 20 ff. – formation II 34 10, 11 – loss of legal personality II 34 30 – primary establishment II 34 24 – prohibition of restrictions on establishment II 34 17, 19 – recommendations II 77 25 – refusal of registration II 34 33, 38 – right of establishment II 34 15 – same treatment principle II 34 16 – secondary establishment II 34 35, 36, 37 – territorial connection II 34 13 Company law II 77 1, 3 – accounting II 77 15 ff. – commercial registers II 77 20 – European types of companies II 77 21 – formation II 77 11 – harmonisation of national company law II 77 10 – ongoing operations II 77 14 – organisation II 77 12 – primary law II 77 2 – secondary law II 77 4, 5, 6, 7, 8, 9 – single-member private limited liability companies II 77 13 – structural changes II 77 18 ff. – termination II 77 19 Competence – of EFTA Court II 108 24 – of the EEA Joint Committee II 92 3 – social dialogue II 71 1 Competing products II 14 26 Competition II 108 10, 109 24, 27 – advisory committee III 25 14 – market organisation for fish II 20 14 – uniform decisions III 25 16 Competition law II 1

Competition proceedings III 1 – access to file III 3 – fines III 25 21 – hearings III 25 22 – procedural language III 20 4 – professional secrecy III 25 22 – settlements III 2 – statement of objections III 2 Complaints II 108 8 Complex cartels II 53 27 Compliance with Court judgment II 108 26 – assessment III 33 4 – necessary measures III 33 1, 38 1 – proceedings for failure to comply III 33 5, 7, 8, 9 – relevant time period III 33 10 – sanctions for non-compliance III 33 6 – time limit III 33 3, 4 ff., 8 Comply with its international obligations – Protocol 35 I ISL 74 Concerted practices II 53 16 – vertical relations II 53 22 ff. Conflict of interests doctrine II 59 19 Consensus II 93 4 Consistent interpretation II 6 44 Constitution of Iceland – joining the EEA I ISL 3 – proposed amendments I ISL 13 – transfer of state powers I ISL 4 Constitution of Liechtenstein I FL 28, 38 Constitutional complications I ISL 40 Constitutional implementation requirements – application in the courts I NOR 18 – dualism I NOR 18 – legislative implementation I NOR 18 Constitutional issues II 7 35 Constitutional reasons II 108 12 Constitutional requirements I FL 36, 40; II 103 1 ff. – absence of notification II 103 7 – agencies I NOR 32 – budgetary matters I NOR 34 – constitional thresholds II 103 4 – constitutional debate I NOR 33, 34 – de minimis rule I NOR 32 – delayed notification II 103 9 – entry into force of JCDs II 103 5 ff. – EU criticism of increased number of delays II 103 13 – incorporative acts I NOR 30 – legal and formal sovereignty I NOR 34 – ministerial regulations I NOR 30 – parliamentary acts I NOR 30 – parliamentary approval II 103 3

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Index – procedures in the EEA EFTA States II 103 3 – provisional application II 103 10 – substantial power shift I NOR 33 – supermajority I NOR 32 Consumer complaints II 72 31, 32 Consumer contract law II 72 17 Consumer credit agreements II 72 20 Consumer protection – cross-cutting task II 72 1 – ECJ practice II 72 39 – hidden topic II 72 3 Consumer rights directive II 72 21 Continental shelf II 74 8 Contract performance conditions II 65(1) 71 Contracting parties I EU 52; II 93 1, 127 3 Cooperation between national authorities II 72 36, 78 Corporate taxation II 34 25 Costs of procedure – division of costs III 31 19 Creative homogeneity II 6 58 Credits II 40 21 Cross-border element II 36 10 Cross-border healthcare II 36 37 Cross-border interest II 65(1) 10 Cross-border passenger transport services II 47 27 Cultural aid II 61 64 Culture II 61 20 Customary constitutional law I ISL 8 Customs matters I FL 26 Customs Treaty I FL 1, 29, 62, 66 Damages Directive II 56 9 Dassonville formula II 65(2) 30 De minimis – state aid II 63 8, 9 ff., 16 ff. Decision adressed to individuals II 109 6 Decision making autonomy II 97 1 – EU decision-making II 97 4 – exceptions II 97 3 – functioning of the Agreement II 97 3 – information duty II 97 2 – international law agreement II 97 3 – non-discrimination II 97 2 – requirements II 97 2, 3 Decision making procedure – amendments II 1 – constitutional requirements II 1 – entry into force II 1 – participatory rights II 1

1128

Decision-making II 90 5, 93 3 – EFTA participation II 99 1 ff. – in the EEA II 102 1 ff. Decisions – by associations of undertakings II 53 23 – implementation requirements II 7 6 Decisions Joint Committee I EU 44; II 92 1 Decision-shaping II 79 2, 99 1, 5 ff. Declaration of competences I EU 51 Defence and security III 31 14 – civil and military operations I NOR 12 – European Defence Agency I NOR 12 – Nordic Battle Group I NOR 12 – political dialogue I NOR 12 Delays in incorporation II 93 4, 94 6 Delimitation clause I EU 54 Delors Initiative I EU 14, Intr. 6 Demand limitation doctrine II 59 23 Demirel judgement I EU 34, 58 Democratic expectations – mixed Committee I NOR 55 – Schengen model I NOR 55 Democratic participation II 95 6 Departing state II 127 26 Dependance – SCA III 2 Derogation II 73 3, 74 43 – armaments, munitions and war materials II 123 14 – defence contracts II 123 1 – defence procurement II 123 1, 14 – essential security interest II 123 1 – extraordinary and extreme circumstances II 123 25 – free movement of persons II 31 30 – hard defence materials II 123 14 – information of essential security interests II 123 10 – international security II 123 25 – protocols II 119 8 ff. – war II 123 25 Design Directive II 65(2) 4 Destination principle II 15 1 Dialogue II 6 30 Differentiation II 118 23 Digital Single Market II 72 82 Direct action III 31 13, 34 2 – procedural stages III 31 14 Direct and individual concern II 108 28 Direct discrimination II 36 6

Index Direct effect I EU 44, 76, 77, 84, FL 30, 45, EEA law 24; II 10 4, 34 2, 3, 69 3 – direct applicability II 7 11, 13, 54 – EU legal order II 31 – in the EEA II 7 55, 56, 57 – in the EFTA states II 19 – in the EU II 7 53, 54, 58 – in the EU legal order II 19 – monism in Liechtenstein II 7 59 – Protocol 35 II 7 55, 58 Directives – (active and passive) transformation I NOR 39 – administrative discretionary powers I NOR 41 – implementation in the EU II 7 33 – specificity I NOR 41 – traveaux preparatoires I NOR 41 Discrimination II 6 68, 14 9, 36 4, 48 1, 50 1 – based on nationality II 40 37 Discriminatory internal tax measures – direct II 14 16 Discriminatory internal taxation II 14 1 Dispute resolution II 72 27 – alternative dispute resolution II 72 28, 33 – online dispute resolution II 72 28 Dispute settlement I 39; II 108 29, 109 36 ff., 111 1 ff. Disputes between EFTA States – jurisdiction III 32 1 – procedural requirements III 32 2 – procedure before the Court III 32 4 – special procedure for state aid III 32 3 Distance contracting II 72 21 Division of competence II 108 9, 109 2, 18, 32 f.; III 4 8 Dominant position II 54 3 Droit d’évocation II 5 1, 89 2, 92 6 Dualism II 7 12, 21, 36, 37 – Iceland I ISL 19 – Norway I NOR 18 Dublin I EU 21 Dublin convention I FL 24 Duration of procedure III 31 18, 34 25 Duty of cooperation I EU 56, 67; II 109 21, 22, 127 7 Dynamic II 6 2 – interpretation II 7, 16 – nature II 16 – reasoning II 6 17 EAEC I EU 20 Earmarking of positions II 70 5

ECHR II 120 7 ECJ I EU 16, 34, 60, 68 ECOFIN II 46 2 Economic aims II 33 12 Economic and social cohesion II 1; 115 2 Economic considerations II 54 26 Economic development II 47 9 Economic integration II 47 1 Economic policy II 46 1, 4, 8 Economically inactive persons II 28 3 Ecosystem services II 73 9 Ecosystem-based management II 6 ECSC I EU 20 Education II 61 18 EEA Agreement I EU 65 – adaptations, agencies III 25a 2 – cooperation ESA, the Commission III 26 1 – decentralised application, competition III 25 5 – directives III 22 9 – division of competence III 25 4 – effect in Norway I NOR 17 ff. – geographical scope II 126 1 28 – horizontal adaptations III 5 14 – impact on Icelandic Law I ISL 18 – legal acts III 22 5 – objective II 1; III 4 1 – regulations III 22 8 EEA conform interpretation II 7 60, 61, 62, 63 EEA Consultative Committee II 96 1 EEA Coordination Unit I FL 17, 37 EEA Council I EU 37, FL 56; II 89 1, 2, 90 1 EEA Council decisions II 90 6 EEA Council meetings II 91 3 EEA Court I EU 16; II 108 17 EEA EFTA Comments II 92 5, 99 7 EEA enlargement agreements II 127 26 EEA environmental law – geographical scope II 74 2 – level of protection II 73 15 – substantive scope II 74 2 EEA financial mechanism II 128 14 EEA grants II 116 4, 117 13, 14 EEA Joint Committee I EU 37; II 21 13, 92 1, 98 3, 5, 99 7 – amendment competence II 102 2 – incorporate EU Acts I ISL 27 – meeting frequency II 102 32

1129

Index EEA Joint Committee Decisions II 98 6 – adoption procedure II 102 8 ff. – binding force II 104 1 – draft and explanatory note II 102 30 – entry into force II 103 5 ff. – implementation requirement II 104 1 EEA Joint Parliamentary Committee II 95 1 EEA law – effect in the legal orders of EEA contracting parties II 19 EEA legal system II 118 12 EEA relevance I ISL 39; II 7 48, 93 6, 99 2, 102 12 ff., 30 – adaptations II 102 10 ff. – assessment criteria in Liechtenstein II 102 18 ff. – assessment criteria in Norway II 102 14 f. – challenges following the Lisbon Treaty II 102 11 – criminal sanctions, criminal or civil procedure II 102 19 – EEA Joint Committee I NOR 42 – fields not covered II 118 5 – finding the affected annexes and parts thereof II 102 22 – geographical scope I NOR 44 – partial relevance II 102 11 – relevance factors I NOR 47 – scope of the agreement II 102 11 – structural weakness I NOR 48 – substantial scope I NOR 46 EEA’s position in EU law – effectivity I NOR 15 – stability I NOR 15 EESC II 96 1 Effect on trade II 53 29, 61 41 ff., 109 34 Effect restrictions II 53 39 Effectiveness – principle of II 28 Efficiency defence II 53 43 – benefitting consumers II 53 52 ff. – eliminating competition II 53 57 – indispensability II 53 55 ff. – relevant benefits II 53 45 EFTA I EU 3, 7, 22, FL 6; II 128 5 EFTA acquis II 128 6 EFTA candidate II 128 6 EFTA Consultative Committee II 96 1 EFTA Convention I CH 2, 24, 25, 26, 28, 30, 32, 33, 34, 41, 46; II 21 22 – arbitration II 111 7 – EFTA Secretariat I Intr. 26 – safeguard measures II 113 1 ff.

1130

– Stockholm Convention I CH 5, 6, 25 – Vaduz Convention I CH 25 EFTA Council I CH 27, 30 EFTA Court I EU 43, FL 52; II 108 17 – deliberations III 29 3 – dissenting opinions III 29 3 – jurisdiction in competition cases III 25 23 – languages III 43 24 – right to intervene III 43 12 – Rules of Procedure of the EFTA Court III 43 3 – screening panel for candidate judges III 28 3 – Statute of the EFTA Court III 43 1 EFTA Court’s practice – EEA conform interpretation I NOR 25 – weight of case law I NOR 25 EFTA ECOFIN II 46 2, 6, 8 EFTA Secretariat II 99 8 – procedures II 94 7 – role in incorporation process II 102 29 – role of II 94 2, 5 EFTA Standing Committee II 99 7 EFTA States – notification obligations III 22 6 EFTA Statistical Office (ESO) II 76 5 EFTA Surveillance Authority see ESA Emissions Trading Scheme II 74 34 – cap and trade system II 74 37 Energy II 24 1 ff. Energy efficiency II 74 31 Energy security II 24 3 Enforcement II 15; 55 1, 110 2, 8, 10 – competence II 55 3 – cooperation II 58 1 – division of competence II 56 1 ff. Enlargement agreement – approval II 128 15 – ratification II 128 15 Enlargement of the EEA – necessary modifications II 118 8 Entrustment II 59 46 Environment – competition II 1 – cost allocation II 74 50 – cost of pollution control II 74 50 – full harmonisation II 75 4 – horizontal provisions II 3 – integrating environmental requirements II 73 18 – level of protection II 73 18, 75 5 – minimum harmonisation II 75 4 – objectives II 2, 5

Index – principles II 2, 5 – protective measures II 75 3 – trade II 1 Environmental impact assessment II 74 5 Environmental quality standards II 74 17 Equal pay II 69 1 ff. Equal protection – presumption of II 28 Equal treatment II 65(1) 16 – gender II 70 1 – in general II 70 13 Equality II 15, 17 Equivalence – principle of II 28 ESA I EU 43, FL 64; II 90 4, 108 3, 4 – amicus curie III 25 15 – annual report III 21 1 – best practice guidelines III 25 3 – budget III 4 11 – college members III 7 1 – commitment decisions III 25 13 – competence II 59 50 – competences III 5 1 – competition III 25 3 – competition enforcement III 25 1 – complaints III 22 11 – contractual and non-contractual liability III 46 1 – cooperation III 4 9 – cooperation in competition cases III 25 6 – cooperation national courts III 25 15 – cooperation with EFTA States III 6 4 – decisions III 5 10, 13 3 – establishment of III 4 5 – fines III 25 20 – functions and powers, competition III 25 8 – general surveillance III 5 4, 22 1 – guidelines III 5 11 – independence III 4 12 – infringement proceedings III 22 13 – interim measures III 25 12 – language III 20 1 – legal capacity, privileges and immunities III 4 6 – letter of formal notice III 22 13 – own initiative cases III 22 12 – powers in the field of competition III 25 2 – powers of inspection III 25 18 – powers of inspection, IT systems III 25 19 – pre-article 31 letter III 22 12 – President, rotation III 12 3 – professional secrecy III 14 6 – public access rules III 13 7

– public procurement III 23 1 – reasoned opinion III 22 13 – recommendations III 5 11 – recruitment III 14 2 – remedies III 25 11 – request for information III 6 1, 22 7 – rules of procedure III 13 1 – scoreboard III 22 10 – sector inquiries III 25 18 – simple majority III 13 3 – staff III 14 1 – staff contracts III 14 3 – state aid III 24 1 – state aid, cooperation III 24 6 – state aid guidelines III 24 9 – tasks III 5 1 ESA College II 108 4 ESA College Members – appointment III 3 – independence III 3 – suitability assessment III 3 ESA decisions – enforceability III 19 1 – judicial review III 23 12 – publication III 18 1 – reasoning III 16 1 ESA/Court Committee II 108 21 Establishment II 31 4 EU agency I FL 20; II 108 12, 109 5 EU Charter of Fundamental Rights – Article 17 II 65(2) 24 – EEA II 12 EU competence – exclusive competence II 118 12 – shared competence II 118 12 EU conform interpretation II 7 60 EU environmental law – coherent II 74 3 – consistency II 74 11 – integrated II 74 3 EU external agreements II 118 1 EU internal market law II 47 22 EU legislation I EU 73 EU Member States I EU 38 EU Supervisory Authorities II 108 13 EU transport sector II 47 15 EU-Norway cooperation – additional agreements I NOR 10 – bilateral agreements I NOR 10 – EEA relevance I NOR 10 – Schengen cooperation I NOR 10 EU-only agreement I EU 61 Eurojust I EU 21, FL 24 European Commission I EU 43

1131

Index European Community I EU 25 European Company (SE) II 77 23 European consumer centres II 72 37 European consumer network II 72 37 European Convention on Human Rights II 120 7 European Cooperative Society (SCE) II 77 24 European Economic Interest Grouping (EEIG) II 77 22 European External Action Service – approval of draft JCDs II 102 31 – need for Council approval II 102 31 European Financial Supervisory Authorities (ESAs) I FL 47 European Integration II 116 3 European Investment Bank II 116 2 European Parliament I EU 48 European Patent Convention (EPC) II 65(2) 20 European Professional Card II 30 12 European states II 128 3 European Statistical System (ESS) II 76 4 European Supervisory Authority – ESAs role III 25a 1 Europol I EU 21, FL 24 Eurostat II 76 4 Evolutionary clause – extension II 118 1 Ex officio appliance of EU consumer law II 72 54 Exchange of information II 92 4 Exclusion of tenderers II 65(1) 28 Exclusive competence I EU 62 Exclusive Economic Zone II 74 8 Exclusive right II 59 8 Exclusive treaty-making power I EU 49 Exercise of official authority II 32 1, 5 Exhaustion of IP rights II 65(2) 14 ff. – accessory exhaustion II 65(2) 31 – international exhaustion II 65(2) 9, 28 – regional exhaustion II 65(2) 9, 11, 23, 28 Existing agreements II 120 1 Existing aid II 62 21 Exit clause II 127 1 Exit EEA – EEA/EFTA solution I NOR 54 Exit negotiations I NOR 53 Expedited procedure III 31 18, 34 25 Explanatory note II 102 30 Export monopolies II 16 8

1132

Exporters II 15 1 Extension of the dominant position doctrine II 59 16 Failure to act III 37 1 ff. – procedure III 37 7 – standing III 37 6 – time limit III 37 4 Feeding stuffs II 17 1 Financial contributions II 4; 117 12 – access fee II 116 3 – allocation II 117 16, 20, 21, 22 – beneficiary states II 117 21 – regional cooperation II 117 21 – relation to EU budgetary contributions II 116 4 Financial mechanism II 4; 116 1 – beneficiary states II 117 3, 5, 7, 15, 19 – budgetary allocations II 117 5 – co-financing II 117 25 – direct grants II 117 2, 7 – distribution key II 117 4 – enlargement II 117 8, 9 – Financial Mechanism Committee II 117 30, 40 – Financial Mechanism Office II 117 32 – grant application procedure II 117 31 – Hungary conflict II 117 28, 36 – interest rate rebates II 117 3, 7 – jurisdiction II 117 39 – legal framework II 117 33 – Memoranda of Understanding II 117 33, 34, 35 – National Focal Point II 117 32, 35, 37 – organisation II 117 29, 34, 35 – Protocol 31 EEA II 117 6 – Protocol 38 EEA II 117 2 – Protocol 38a EEA II 117 10, 13 – Protocol 38b EEA II 117 14 – Protocol 38c EEA II 117 17, 18 – sanctions II 117 26, 27, 28, 35 – subsidised loans II 117 2 Financial Mechanism Office II 61 23 Financial solidarity II 28 10 Financial supervision II 46 7, 102 26; III 35 2, 36 7, 37 2 Fines II 109 10; III 35 1, 2, 4 – Court’s jurisdiction III 35 3 Fisheries II 26 9, 74 5, 115 2, 116 3 Flood risk management II 74 4 Food safety – additives II 17 1 Foreign policy I FL 17; II 73 5 Formal investigation procedure II 62 36, 37, 39 – state aid II 62 30, 31

Index Fragmentation II 127 5 Free movement of goods II 14 3 Free movement of persons I FL 52, 56 Free movement rules II 65(1) 2 Free Trade – GATT II 14 – mutual recognition Agreements II 14 – OECD II 14 Free trade agreement I FL 6; II 120 2 Freight service II 47 31 Full harmonization II 72 24, 77, 85 Fundamental principles – reserved contracts II 65(1) 55 Fundamental rights I EEA law 23; II 6 46, 33 16, 65(2) 24, 120 7 – ECHR II 12 – EU Charter of Fundamental Rights II 12 – homogeneity II 11 – human Rights II 11 Fundamental social rights II 68 5 – ECHR and labour law II 68 7 – principle of homogeneity II 66 2 Gaming II 36 25 GBER – state aid II 63 20 ff. GDP I FL 13 Gender discrimination II 69 4 Gender pay gap II 69 16 General clause of contract law – high treshould for setting an agreement aside II 72 13 – sec 36 in the Nordic Contracts Act II 72 12 General principles II 5 2, 108 30 – of EEA law I EEA law 15 ff.; II 65(1) 18 – of EU law I EEA law 15 ff. General surveillance II 108 7 Genetically modified organisms II 74 41 Geographical scope II 127 13, 18 – EEA Agreement II 23; 47 41, 126 1 ff. – homogeneity II 23 – reciprocity II 23 – Svalbard II 126 3 GMO – cultivation II 74 45 – dispute settlement II 112 6 – geographical scope II 74 45 – international trade law II 74 45 Good administration II 21 GPA II 65(1) 38 Greenhouse gas II 74 7, 30

Greenhouse gas emissions – forestry II 74 39 – land use II 74 39 Guardians of the EEA Agrement II 6 70 Guidelines II 55 10 – state aid II 61 3, 62 ff. Hegemony II 6 31 Helicopter offshore operations II 47 41 Hierarchy of legal acts II 119 4 – protocols II 119 7 Hierarchy of norms II 28 7 – primary EEA law II 119 21 ff. Historical background – EFTA I NOR 4 – membership negotiations I NOR 4 – NATO I NOR 4 – Referendums I NOR 4 Homogeneity I FL 67, ISL 52; II 15, 23, 1 11, 6 1, 7 35, 36, 44, 57, 31 27, 102 4, 105 1 ff., 108 1, 19 – conflict of norms II 119 21 ff. – differences in wording II 126 7 ff. – dynamic II 38 – effect-related II 28 – effect-related conception II 38 – effect-related understanding II 19 – external II 34 5 – independence of courts II 41 – internal II 34 5 – interpretation II 108 31 – lacking implementation II 7 60 – limit II 123 6 – limitation II 108 32 – limits to homogeneity II 123 6 – multilingualism II 129 3 – principle of II 62 42, 64 1 – procedural II 28, 39 – result-oriented understanding II 22, 39, 40 Homogeneity principle II 47 18 – derogation II 73 4 Homogeneous interpretation I CH 18 Homogeniety – comitology II 100 1 Homogenous application of EEA law II 108 14 Horizontal adaptations I EEA law 31 Horizontal challenges II 102 9 ff. Human health II 73 8 Human rights – homogeneity II 11 – Relationship between the EEA Agreement and the ECHR II 120 7 Hydroelectricity production II 74 17

1133

Index Identical in substance II 6 10 Impact assessment II 74 16 Impact of EU consumer law II 72 75 Implementation I FL 19, 35, 43, ISL 50 ff. – binding force of the implemented act II 7 27 – decisions II 7 6 – directives II 7 25 ff. – duty to implement in the EEA II 7 11 ff. – EEA adapted version of act II 7 14, 25 – effect of non-implemented acts II 7 52 ff. – flawed implementation II 7 52, 60 – harmonisation level II 7 26 – implementation of regulations „as such“ II 7 18 ff. – in dualist states II 7 4 – in monist states II 7 4 – in the EU Member States II 7 5, 33 – incorporation method II 7 22 ff. – lacking implementation II 7 52 – monist and dualistic legal order II 7 12 – necessary measures II 7 28 – nordic legal tradition II 7 28, 29 – obligation to implement secondary legislation II 7 1 – options II 7 7 – passive transformation of directive II 7 32 – penalities II 7 49, 50 – Protocol 35 II 7 36 – recommendations II 7 7 – regulations II 7 11 ff. – sanctions II 7 49, 50, 51 – sufficiently precise and clear implementation II 7 28, 30 – transformation method II 7 26 – use of preparatory works II 7 29 Implementation deficit I FL 48 – Iceland places at the bottom I ISL 44 Implementation of Main Part – EEA act I NOR 20 – incorporation I NOR 20 – legal effect I NOR 20 Implementation period – of Regulations, Decisions, Directives II 102 6 Implementation requirements I NOR 36 – loyalty principle I NOR 19 – pacta sunt servanda I NOR 19 Implementing regulation – state aid II 62 8, 9 ff. Implied treaty-making power I EU 64, 65 Import – quantative restrictions II 75 3 Import monopolies II 16 7

1134

Imputability II 61 25 Incorporation – adoption of decision following consultation procedure II 102 36 – challenge of inherent delay in the EEA II 102 6 ff. – comparison with Schengen system II 102 38 – consultation procedure in case of disagreement II 102 3 – decision-making autonomy II 102 9 – delays in approval II 102 31 – duty for the EU to inform of new EEA relevant legislation II 102 8 – EEA relevance II 102 10 ff. – final stage II 102 32 – horizontal challenges II 102 9 ff. – long-list II 102 32 – need for Council approval of substantial adaptations II 102 31 – procedure in practice II 102 29 – process on the EU side II 102 31 – simplified decision making procedure II 102 1 – simultaneous application in the whole of EEA II 102 5 – timely incorporation II 102 4 Incorporation by reference II 7 22 ff. Incorporation problems – contributing factors I ISL 30 Increased backlog I ISL 29 Increased parliamentary consultation I ISL 32 Independence – EFTA College Members III 2 – EFTA Court II 108 22; III 2 – EFTA Surveillance Authority III 2 – judges III 2 Indirect aid II 61 49 Indirect discrimination II 14 23, 31 6 Individual aid II 62 20 Informal consultations II 109 23 Infosoc Directive II 65(2) 18, 22 Infringement procedure III 31 1 – admissibility III 31 11 – basis for proceedings III 31 2 – competence to bring proceedings III 31 3 – decision to bring proceedings III 31 8 – scope of dispute III 31 8 – stages of process III 31 4 – state aid III 31 12 – time limit III 31 8 Infringement proceedings II 108 8, 25 – against Iceland I ISL 75

Index Inspections II 108 11 Institutional framework I NOR 7 Insurance – gender discrimination II 70 12 Integrated pollution prevention and control II 74 19 Integration II 47 2 – principle II 3 Intellectual Property II 65(2) 1 ff. Interim measures III 41 1, 2, 3, 4 Internal market II 47 1 Internal market competence – energy law II 4 – free movement of goods II 4 Internal tax discrimination – direct II 14 8, 15 – indirect II 14 8, 15, 19 Internal waters II 74 8 International agreements II 33 28 International company law II 34 27 ff., 32, 39 International Maritime Organization (IMO) II 47 33 Internationalisation of Law – Iceland I ISL 20 Inter-Nordic sales II 72 10 Interpretation – EEA conform II 28 Interpretive guideline II 73 2 Intervention III 31 14 Intra-EFTA-pillar Agreements I EEA law 47 ff. Invalidity – legal acts II 119 27 ff. IPRED Directive II 65(2) 8 JCD I FL 36 Joint Committee decision I EU 38 Joint EEA bodies II 92 2 Joint EEA Committee – ultra vires II 119 24 ff. Judges III 3 – activity and occupation restrictions III 30 12 – age III 30 8 – appointment procedure III 30 3, 5 – decision to recuse III 30 17 – disqualified from acting III 30 11, 13, 14, 15, 17, 18 – impartiality III 30 14, 15, 16 – independence III 29 3, 30 6, 7, 14 – nationality III 30 5, 15 – number of judges III 28 1, 2

– oath III 30 6 – professional requirements III 30 3, 4 – reappointment III 30 8 – resignation III 30 7 – retirement age III 30 7 – term duration III 30 7 – valid absence III 30 19 Jurisdiction I FL 50; II 109 34 Justice and home affairs – Dublin cooperation I NOR 14 – Eurojust I NOR 14 – Europol I NOR 14 – Frontex I NOR 14 – Schengen I NOR 14 – Schengen Information System I NOR 14 – Visa Information System I NOR 14 Justification II 33 11 – discriminatory measures II 33 4 – economic nature II 59 32 – Services Directive II 36 46, 48 Knowledge-based management II 74 18 Kyoto Protocol II 74 33 Labour law II 68 1 – collective agreements and competition law II 68 4 – employment contract II 68 14 – EU Charter of fundamental rights II 68 20, 22 – freedom of association II 68 5 – industrial action II 68 3 – posting of workers II 68 15 – transfer of undertakings II 68 18 – working time, on-call duty II 68 30 Labour protection II 47 36 Land use planning II 74 20 Landtag I FL 29, 37, 39, 44 Language II 94 3 – of the Court III 31 16, 34 23 Legal aid III 31 17, 34 24 Legal certainty – legal acts in the Icelandic language II 129 9 Legal guarantee II 72 83 Legal order I EEA law 16 Legislative power – lack of transfer of legislative power in the EEA II 7 12, 36, 56, 103 2 Legitimate objectives II 36 28 Letter of formal notice III 31 5 Level of protection II 36 31 Liberalising effect II 47 22

1135

Index Liberalization II 47 9, 21, 31, 49 3 – of energy market II 24 10 Life insurance II 72 43 Long-list II 102 32 Loyalty II 59 10 – principle II 97 5, 99 9 Lugano Convention I CH 9; II 33 27 Luxembourg Declaration I EU 13, Intr. 4 Luxembourg process I FL 6; II 21 18 Maastricht Treaty I 12 “Mandatory” requirements II 14 28 Margin of appreciation II 74 42 Margin of discretion II 74 17 Marine resources II 74 8 Maritime spatial planning II 74 8, 20 Maritime transport II 47 33 – service II 47 34 Market Economy Investor Principle II 125 12 Market opening II 47 12 Member of EFTA II 127 4 Member of the EU II 127 5 Members of Parliament II 95 2 Members of Parliament of the EFTA States II 95 4 Membership II 127 5 MEO principle II 61 28 f. – ex ante assessment II 61 31 Merger control II 57 1 – competence II 57 4 Method of interpretation I EEA law 27 Methodology II 6 13 Microstates I Intr. 10 Minimum harmonisation II 72 14, 19, 24, 85 Mining II 74 24 Misuse of aid II 62 39 Mixed agreement I EU 33, 34, 47, 48, 85; II 89 4, 118 18, 127 7 Mixed economies II 125 12 Monetary policy II 46 1, 4, 8 Monism I FL 20, 29; II 7 12, 37 – direct effect of EEA law II 7 59 Monitoring II 62 40 Monopolies in goods II 59 39 Morality II 65(2) 38 Multiannual Financial Framework II 80 4 Multilingualism II 129 1 ff. – delays in translation II 129 9 – homogeneity II 129 3

1136

– Icelandic II 129 2, 8 – legal acts in the Norwegian language II 129 9 – legal certainty II 129 9 – Norwegian II 129 2, 8 – preferred starting point II 129 4 ff. Mutal recognition of professional qualifications II 35 1 Mutual recognition II 30 3 – automatic recognition II 30 16 – general system II 30 9 – legal profession II 30 19 National agricultural policy II 14 6 National competition authorities – application of EEA competition rules III 25 10 National courts – proceedings, stay III 25 17 National enforcement II 56 6 National judicial review and enforcement – of contracts falling outside the Procurement Directives II 65(1) 77 – of the Public Procurement Directives II 65(1) 75 National requirements II 47 6, 18 NATO I EU 21 Natural resources II 73 9, 13 – energy resources II 73 12 Nature conservation II 61 20, 74 3 Nature of EEA Agreement I EEA law 18 Needs of consumers II 14 12 Negative externalities II 49 3 Negotiation II 118 17 Neutrality I EU 8 New aid – concept of II 62 28 Noise II 74 49 Non-compliance with decisions and judgments II 62 41 Non-contractual liability of ESA – burden of proof III 39 2, 4 – Court’s jurisdiction III 39 1 – limitation period III 39 6 – procedure before the Court III 39 7 ff. Non-direct effect clause I EU 77 Non-discrimination II 65(1) 14 – principle of II 51 1, 61 50 Non-implemented acts – effect in EEA II 7 52 ff. Nordic consumer protection II 72 9 Nordic Passport Union I Intr. 21

Index Norway Grants II 116 4, 117 9, 12, 13, 14, 18, 30 – dispute resolution II 117 39, 40 – Financial Mechanism Committee II 117 29 – Hungary conflict II 117 27 – jurisdiction II 117 40 – National Focal Point II 117 40 Norway-EU: overall relationship – EEA and Norway Grants I NOR 1 – Norwegian Government Pension Fund Global I NOR 1 – posting of workers I NOR 1 – trade I NOR 1 Notice II 127 2 Notification II 127 23 Notification obligation II 62 1, 29, 63 8, 12, 16 f., 20 Notified aid II 62 29 Object restrictions II 53 34 – non-compete clauses II 53 38 Observer II 90 4 ODR II 72 33 OEEC I EU 5, 6 Offshore safety II 74 8 Opening hours II 21 9 Opinion II 6 25 – implementation requirements II 7 7 Opinion 1/91 I CH 10 Opt-out I FL 56; II 118 23 Oral hearing III 31 15 Ordinary legislative procedure II 47 4 Organisation for European Economic Cooperation I CH 5 Own initiative cases II 108 8 Package Travel Directive II 72 18 Parallel imports II 65(2) 28, 30, 31 – co-branding II 65(2) 32 – repackaging II 65(2) 32 Parallel marketability I FL 60 Pari passu II 61 30 Partial withdrawal II 127 7 Participation rights in EU decision-making procedure II 100 1, 101 1 – consultations with EFTA experts II 99 2 ff. – equal treatment of experts II 99 3 – exchange of views on new proposals II 99 5 ff. – no right to vote II 100 5 – non-comitology committees (protocol 37) II 101 1 ff.

– organisation of consultation (subcommittees, working groups) II 99 7 – preparatory stage, decision-shaping II 99 1 ff. – trilogue procedure II 100 7 ff. Passenger service II 47 31 Pecuniary obligation II 110 4 Penalties II 7 49; III 35 2 – burden of proof III 35 3 – Court’s jurisdiction III 35 1, 4 – obligation to ensure qual sanctions II 7 50 Pesticides II 74 5 Petroleum extraction II 74 9 Phytosanitary matters II 17 1 Plant Protection Regulation II 65(2) 4 Policy packages I NOR 11 Political decisions II 89 1, 2 Political dialogue II 91 4 Political negotiations II 5 2, 89 3 Polluter pays II 47 28 Polydor principle I CH 39 Popular initiative on mass immigration I CH 22, 23 Powers of ESA II 108 10 Preambles to EU legal acts – EEA relevance I EEA law 32 f. Precautionary approach II 6; 73 14, 17, 74 42 Precedence I FL 30; II 6 27 Preliminary observations III 31 4 Preliminary references II 6 59 Preliminary references to the ECJ II 107 1 ff. Preliminary rulings III 34 28 Pre-notification II 62 2 President of the EFTA Court III 30 17 – election procedure III 30 9 – tasks III 30 10 Price regulation II 51 4 Primacy I EU 84, EEA law 24; II 34 2, 3 – in the EFTA States II 19 – in the EU legal order II 19 Primacy of EEA law I EEA law 8; II 7 35 ff., 119 21 ff. – in the EFTA States II 7 39 ff. – in the EU Member States II 7 38 – non-implemented acts II 7 63 – Protocol 35 II 7 36, 37, 63 – scope II 7 42 Primacy of EU law I EU 70 Principle of cooperation II 118 9

1137

Index Principle of effectiveness II 7 43, 46 ff., 49, 60 – application II 7 47 Principle of equality II 7 43 ff., 48, 50 Principle of equivalence II 7 50 Principle of homogenity II 7; 73 10, 74 11 Principle of loyalty II 7 46, 49, 50, 61, 73 5 Private international law II 72 63, 79 Procedural homogeneity II 6 6, 108 20 Procedural regulation – state aid II 62 7, 9 ff. Procedural rules II 7 48 Procurement Directives – application II 65(1) 47, 49, 52 – economic operator II 65(1) 52 – public contract II 65(1) 49 – public subsidies II 65(1) 49 Product coverage II 14 4, 23 5 Product liability II 23 17 Professional secrecy II 122 1 – liability II 122 6 Prohibition of discrimination II 7 45 Proportionality II 36 29, 33 – advisory opinions II 33 23 Protectionist effect II 14 25, 27 Protocol 1 EEA I EEA law 31; II 109 3, 14 ff. Protocol 10 EEA II 21 6 Protocol 2 SCA III 42 2 Protocol 24 EEA II 58 5 Protocol 28 EEA II 65(2) 1, 6, 10, 11, 12, 14, 19, 21 Protocol 3 SCA III 42 3 Protocol 31 EEA II 98 8 Protocol 35 EEA I ISL 58, 59; II 7 36, 37, 63 Protocol 37 EEA II 101 2, 3 Protocol 4 SCA III 42 7 Protocol 42 EEA II 115 2 Protocol 48 EEA II 105 17 ff., 111 14 Protocol 5 SCA III 42 8 Protocol 8 SCA III 42 10 Protocols 6 and 7 SCA III 42 9 Protocols to the EEA Agreement III 42 1 – overview I EEA law 30 ff. Provisional application of JCDs II 103 10 ff. Public access III 13 9 – general presumption III 13 19 – limitations III 13 14

1138

– time limits III 13 11 Public access to environmental information – Aarhus Convention II 74 19 Public administration I FL 13, 15 Public contracts – application II 65(1) 50 – concession contracts II 65(1) 50 Public interest – general requirement II 16 39 Public international law – same subject matter II 120 4 Public participation – Espoo Convention II 74 19 Public policy II 33 7, 65(2) 39 ff. Public policy defence II 53 58 Public procurement – conciliation procedure III 23 10 – enforcement III 23 4 – special enforcement III 23 6 Public service II 59 36 Public service obligations II 47 39 Public undertaking II 59 7 Qualification of tenderers – exclusion of tenderers II 65(1) 61 Quasi-primacy II 34 4 Railway markets II 47 30 Railway sector II 47 31 Ratification II 118 18 Reasoned opinion III 31 4, 6 – failure to comply III 31 7, 9 – time limit for compliance III 31 10, 11 Rebalancing measures II 114 1 ff. – erga omnes effect II 114 3 – proportionality II 114 2 Reciprocity II 15, 18, 20, 22, 23; 6 69, 7 44 Recommendations – implementation requirements II 7 7 Recovery – state aid II 62 3, 26, 38 Recovery injunction II 62 35 Referendum I 17; FL 9, 11, CH 10 Regional aid map II 61 57 Regional cooperation II 121 1 Regulated profession II 30 6 Regulated watercources II 74 23 Regulation – command and control II 74 11 – functional approach II 74 11 Regulations – absolute implementation requirement II 7 19

Index – fragmented implementation II 7 21 – implementation in the EU II 7 15 ff. – implementation required by regulation itself II 7 17 – implementation requirements II 7 11 – in the EU II 7 15 – incorporation I NOR 37 – ministerial orders I NOR 38 – most common form of secondary law I ISL 37 – nature of regulations II 7 15 – partial implementation II 7 20 ff. Rejoinder III 31 14 Renegotiation I NOR 49 Renegotiation debate I NOR 57 Renewable energy II 74 31 Repayment of internal taxation II 15 1 Research programmes – net contributor II 116 4 Residents – of capital movements II 40 33 Resource – non-renewable II 73 11 – renewable II 73 11 Restriction – tax II 31 7 Restriction of competition II 53 32 Restriction test II 31 5, 8, 21, 36 8 Restrictions – justification II 34 21 Right of establishment I FL 52 Right to leave II 127 2 Road charges II 47 28 Road haulage II 47 27 Road tunnels II 47 29 Rotating presidency II 91 1, 94 1 Rules of procedure II 89 5, 90 3 Russia I 11 Safeguard clause I FL 57 Safeguard measures II 25 1, 31 32, 40 7, 112 1 ff. – duration II 112 17 – erga omnes effect II 112 19 – in the event of an unresolved dispute II 111 24 ff. – procedure II 113 1 – scope II 112 17 Safety valve II 97 6 Sanctions II 7 48, 49, 50 – nature of sanctions II 7 51 Schengen I EU 21, FL 24, 25; II 47 23, 102 38

Scope of EEA law II 33 24 Scope of harmonisation II 36 41 Scope of the EEA Agreement II 36 19 Sea – areas II 74 8 – marine regions II 73 7 Secondary EEA law I EU 68, EEA law 8 Secondary EU law I EU 72 – interpretation II 73 4 Secondary law I EU 44 Secondary legislation II 65(1) 35 – effect in the EEA II 7 34 Sectoral adaptation I FL 57, 61 Security measures II 21 15 Selection criteria II 65(1) 64 Selection of tenderers II 65(1) 29 Selectivity II 61 36, 37, 38 – regional II 61 39 Semiconductor products II 65(2) 4, 21 Services Directive II 32 10 Services in the field of transport II 47 20, 21 Services of general economic interest II 59 2 Services vs establishment II 36 9 Settlement of disputes II 92 1 SGEI II 61 32, 63 12, 13, 16 ff. Simplification – of inspections and formalities II 21 8 Simplified procedure II 98 4 Single Digital Market II 72 26 Single European Act I EU 11 Single European Railway Area II 47 30 Small states I FL 5, 15, 56, 62, 65, 66 Social and economic cohesion II 117 8, 20 – beneficiary states II 117 9 Social dialogue – Dialogue between employers and employees II 71 3 – social partners II 71 2 Social policy – working conditions II 66 1 Social security coordination II 29 12 Solidarity – principle of II 61 16 ff. Sovereignty I FL 5, 14; II 7 13 – constitutional debate I NOR 31 Speaking with one voice II 90 5, 93 4 Special or exclusive rights II 14 23 Special rights II 59 8 Spirit drinks II 23 8

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Index Sporting events – protection of II 65(2) 7 Standard sheet II 102 29 Standing committee – divisions of tasks III 5 16 Standstill obligation II 62 1, 29; III 42 4 State – sub-states entities II 128 4 State aid II 49 1, 65(1) 34, 108 10, 109 28 – coal and steel III 24 3 – fisheries II 20 12 f. – guidelines III 42 6 – procedures III 24 8 – special procedure III 31 12, 32 3 – transport III 24 2 State Court I FL 30, 38, 47, 51 State liability II 28; 6 39, 7 62, 108 30; III 46 11 – conditions for III 46 13 – conditions identical in all situations? III 46 19 – for judicial wrongdoing? III 46 17 – scope ratione personae III 46 18 State monopolies II 59 38 – agricultural products II 16 14 – export II 16 8 – import II 16 7 – organization II 16 21 ff. – retail II 16 10 – services II 16 11 – specific function II 16 3 – structural requirements II 16 29 – wholesale distribution II 16 9 – wines II 16 15 State resources II 61 21, 22 Strategic environemntal assessment II 74 9 Structural funds II 2; 116 2 Structure of the EEA Agreement I EEA law 4 ff. Structured partnership – Gro Harlem Brundtland I NOR 6 – Jacques Delors I NOR 6 Subcommittees II 94 4, 99 7, 102 30 Substantive homogeneity II 108 20 Substantive scope II 118 2 – of the EEA Agreement II 76 2 Substitutability II 14 26 Succession I EU 65, 85 Sui generis I EEA law 16; II 108 30 Supplementary Protection Certificate (SPC) II 65(2) 4, 34, 35 Supranationality II 7 35 Supremacy rule I ISL 57

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Supreme Court – advisory opinions I NOR 27 – independent interpretation I NOR 27 – jurisprudential method I NOR 26 – relationship to the EFTA Court I NOR 27 Surveillance – competition III 5 6 – one stop shop III 5 6 Surveillance and Court Agreement II 108 3, 18 Surveillance authority II 108 2 Surveillance mechanism II 108 1 Surveillance procedures II 108 6 Suspension injunction II 62 35 Suspension mechanism II 102 43 ff., 103 13 – comparison with Schengen guillotine II 102 38 – consequences of provisional suspension II 102 40 – date of effect II 102 40 – decision not to let suspension take effect II 102 39 – no suspension of acquired rights II 102 40 Suspensions II 111 32 Suspensory effect III 40 1 – contested act III 40 5 – procedure for application III 40 2 ff. Sustainable development II 6; 74 42 – precautionary principle II 32 – prudent and rational utilization II 73 13 Svalbard I EEA law 42; II 126 3 Switzerland I 17 Switzerland Referendum I EU 19 System of property ownership II 31 16 Tailor-made arrangements I FL 19, 25, 55 Tariffs – fixed to meet competition II 51 4 Tax II 31 24 Tax matters I FL 23, 52 Tax measures II 61 37 Taxation of heavy goods vehicles – for the use of infrastructure II 47 28 Technical barriers – to trade II 23 1 Technical specifications II 65(1) 57 Teleological reasoning II 108 20 Territorial waters II 74 8 Third country relations II 65(2) 9 Third gender II 69 5

Index Total number of incorporated acts I NOR 29 Trade Mark Directive II 65(2) 3, 9, 28 Trade Secrets Directive II 65(2) 7 Trademark Directive II 65(2) 36, 37, 38, 39 ff. Transfer of powers II 108 2 Transfer of state powers – Iceland I ISL 6, 9 Transfer of undertakings II 68 18 Transformation of directives II 7 26 Transitional arrangement II 127 19, 128 13 Transparency II 21 – obligation II 65(1) 17 – principle of II 63 7 Transparency Directive – state aid II 63 5 Transparent aid II 63 9 Transposition I FL 43 Transposition period – States’ right to adopt measures II 7 9 f. Treaty of Lisbon I EU 24 Treaty-making power I FL 7, 27 Trilogue procedure – lack of EFTA participation II 100 7 ff. TRIPS Agreement II 65(2) 22 Tunnel Safety Directive II 47 29 Twelve-months notice II 127 21 Two pillar challenges II 108 16 Two pillar structure I EEA law 12 ff.; II 36 51, 102 26 – challenges to III 4 10 Two pillar surveillance III 4 3 Two pillar system II 108 2, 17, 109 1, 11 ff., 19 ff. Two-pillar system II 109 8 UK I EU 4, 8, 26, 56 – withdrawal II 127 16 Ultra vires – Joint EEA Committee II 119 24 ff. Undertaking – notion of II 61 8, 9 ff., 14 ff., 18 Unfair commercial practices II 72 25 Unfair contract terms directive II 72 23 Uniform interpretation – different outcome II 22

Union citizenship II 6 15 – EU law II 28 5 Unitary patent II 65(2) 8, 19 United Kingdom – UK government II 127 17 – UK parliament II 127 17 Universal service II 59 32 Unlawful aid II 62 33 Unwritten general principles I NOR 28 User pays II 47 28 Vaduz Convention I EU 22 Vertical Agreements II 53 9 Veterinary issues – controls II 17 1 Veto – “late veto“ II 103 13 – suspension mechanism II 103 13 Vienna Convention on the Law of Treaties I EEA law 27, CH 37 Waste II 74 46 Water – good environmental status II 73 7 – management plans II 73 7 Waterfalls case II 125 4 Widening gap I NOR 50; II 16 Windmill farms II 74 9 Wine II 14 5, 23 13 WIPO II 65(2) 22 Withdrawal from the EU II 127 8 Withdrawal negotiations II 127 24 Worker – Definition II 28 1 Working conditions – effective implementation II 67 9 – health and safety of workers II 67 1 – precarious workers II 67 6 Working Groups II 94 5, 99 7, 102 30 Workload of the Court – number of cases III 31 19 World Trade Organization I FL 7 Written observations III 31 14, 34 21 Written procedure II 94 1 WTO II 65(2) 22 – dispute settlement II 111 44 ff.

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