After the Brexit referendum, anxious Brits started frantically Googling the term ‘Norway model’. This wasn’t because they were desperately looking for the latest fashion photoshoot from their favourite Scandinavian supermodel. It was because the economic future of their country is going to depend, to a large extent, on the type of future trading relationship Britain follows with the European Union.
The “Norway model” means having access to the EU Single Market via an organisation called the European Free Trade Association (EFTA). This is a regional trade organisation consisting of four European states: Iceland, Liechtenstein, Norway, and Switzerland.
EFTA countries can trade and do business with EU countries, mostly free (though not entirely free) of tariff and non-tariff barriers. They do this through an international treaty called the Agreement on the European Economic Area (EEA). Well, except for Switzerland, of course, which instead has access to the Single Market via a series of bilateral trade agreements.
Confusing? No wonder people had to Google it. To complicate things even further, Britain was originally one of the founding members of EFTA, which had been set up in 1960 as an alternative to the European Economic Community (an organisation that would later become the EU). Britain left EFTA in 1973 when it joined the EEC.
What do our readers think of this alphabet soup of acronyms? We had a comment sent in from Monique, arguing that the only “economically viable” solution for Britain (whose whole economy has developed within the EEC / EU for over 40 years) is membership of the Single Market via the EEA and EFTA. In other words: the famous ‘Norway model’. Is she right?
To get a response, we put Monique’s comment to David Phinnemore, Professor of European Politics at Queen’s University Belfast. What would he say to Monique?
I think, yes, there’s a very strong argument to say that the best possible outcome for the UK, if it does leave the EU, is to remain in the European Economic Area, and probably to secure that through EFTA. The question is whether that’s something that is politically acceptable within the current British debate. At the moment, the clear indications are that the UK government is intent on leaving the Single Market, and therefore seems to have ruled out the EEA option. Whether one can say it’s the only ‘economically viable’ option is open to question, because I think there are a lot of options there and they are probably all equally viable. But I think most people would argue that the UK’s economic interests, if they’re not going to be served by staying in the EU, are best served if the UK stays in the Single Market through the European Economic Area.
For another perspective, we also put Monique’s comment to Sieglinde Gstöhl, Professor of International Relations and Director of the Department of EU International Relations and Diplomacy Studies at the College of Europe in Bruges. How would she respond to Monique’s comment?
Well, that’s a very interesting question. Should the UK ‘re-join’ the EEA? Because [Britain] was actually a founding member of EFTA in 1960, and joining the EEA requires EFTA membership because it’s one of the two pillars of the EEA, with the EU being the other pillar. So, it would be a ‘re-joining’.
It would certainly be economically interesting, but the problem I see is a political one on the UK side, because it would not fit the red lines the [British] government has put forward. It would come with the free movement of persons in the EEA, and also there would be another court taking decisions, similar to the Court of Justice of the European Union, namely the EFTA Court of Justice…
Next up, we had a comment from Odtaa, who lists all of the drawbacks of EFTA membership for Britain. He argues that the UK will have to obey all EU regulations without a say over their creation, will still be part of freedom of movement within the EU, and will still have to pay cash to the EU. Is Odtaa correct about all that?
What would Professor David Phinnemore say in response?
I think, in essence, yes, a lot of what he’s suggested is correct. Politically, it’s very difficult for the UK to stay in the Single Market because of the free movement of labour that that entails. Obviously, if we go back to the referendum, a lot of opposition to continued membership to the EU was based on immigration… The EU has made it perfectly clear that if you want to be in the Single Market or EEA, you have to accept all four freedoms. That position has remained solid since the beginning of the Brexit progress.
I think we do have to be careful about how much regulation the UK would have to take on board. It would not not have to take on all EU regulation, only that related to the functioning of the Single Market. Now, admittedly, that is quite extensive. So, there would be a lot of direct taking of legislation from the EU, as we see in the Norwegian case.
Yes, it would not have a formal role in decision making. It would have to accept decisions of the EU regarding the development of the Single Market acquis. But, on the other hand, it would have a decision shaping role. It would be involved in mechanisms that would allow it to contribute to the formulation of decisions. That said, it would not have a formal say on their adoption, but would nevertheless have to be implementing them. That would give it more influence than if it’s in a Free Trade Area or a Deep and Comprehensive Agreement such as the likes of Ukraine or Canada have or will have. So, one could argue that the EEA gives it more influence than if it were just another outsider or third country.
How would Professor Sieglinde Gstöhl respond to the same comment?
If the UK would (re-)join the EEA as an EFTA member, it would indeed have significant access to the Single Market, including the free movement of persons, as it is now, the free movement of goods, capital, and services. It would not have to make direct contributions to the EU budget, but there is a financial mechanism to improve economic cohesion in the European Union, for example, that all the EFTA countries contribute to.
So, there is a difference and it would not involve entirely the same acquis communautaire or EU rules as EU membership, because some areas like the common agricultural or fisheries policies, the monetary policy, and the Common Foreign & Security Policy, are excluded from the EEA. However, regarding decision making, there are quite some shortcomings, because EFTA members are not EU members; they are not sitting at the EU table, not represented in the European Parliament, the Council of Ministers, or the European Council.
However, there is a mechanism in place which is called the ‘decision shaping’ process… So, whenever the European Commission comes up with a new legislative proposal, which is relevant for the EEA and falls within its remit, the EFTA countries will be consulted at an expert level. So, they can give input, sit in on some of the comitology committees, and they will take a decision on their own side, within EFTA. Now, of course, they would need to speak with one voice, and if the EFTA countries would say ‘no’ to a relevant new legal act, then the European Union could suspend the related parts of the EEA agreement, which would have negative consequences. So, [EFTA saying ‘no’ to relevant new EU legislation] normally never happens.
Next up, we had a comment from Tarquin, arguing that Liechtenstein has access to the Single Market via EFTA but is still allowed to cap the number of EU migrants settling in the country. Is that true? If so, could something similar be arranged for Britain? We asked Professor Sieglinde Gstöhl to respond:
Tarquin is actually correct, Liechtenstein is an EFTA country and therefore has access to the Single Market through the EEA, and when it comes to the free movement of persons, there is a special solution in place, which is very much linked to the fact that it’s a tiny territory, it has 37,000 inhabitants, of which about one-third are foreigners in the resident population, and when it comes to the work force it’s an even bigger share, as 60% of people working in the country are foreigners. So, that was one of the reasons to allow for quantitative restrictions regarding the free movement of persons in the EEA for Liechtenstein.
No other country has this special solution, and it’s also not really an opt-out because Liechtenstein participates; people can move there if they get a residence permit, and half of them are attributed by a ballot, so basically it’s a bit like the Green Card lottery in the United States, and the other half are distributed by the authorities as such. The arrangement does not concern work permits, it only concerns residence permits. Liechtenstein is located between Austria and Switzerland, so a lot of people [work in Liechtenstein] and commute [from Austria or Switzerland], or even from Germany, and there are no restrictions on family reunion. So, if you have a work permit, you can also bring your family members…
I think the UK is just too big, and while this could be a model for countries like Andorra, it certainly cannot be for the UK…
After Brexit, should Britain have a deal with the EU like Norway? Is access to the Single Market via the EEA and EFTA the only economically viable solution for Britain after Brexit? Or are the drawbacks too significant? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!