In the aftermath of Brexit, the United Kingdom is faced with the challenge of negotiating a relationship with the EU that balances Single Market access with national control over the movement of goods and workers. This article is the second of a four-part series examining the three models for a future U.K.-EU relationship.
Previously, we have provided an overview of the three models. Here, we analyze the “Norway Model.” We identify the main features, benefits and drawbacks. Future articles in this series will address the “Swiss Model” and the “Bilateral Trade Agreement Model.”
What is the Norway Model?
The Norway Model could also be called the “EEA Model,” since the country’s relationship with the European Union is defined through its membership in the European Economic Area (EEA). The EEA Agreement became effective on January 1, 1994. It joins together the 28 EU member states1, Norway, Iceland and Liechtenstein in the Single Market. It implements the four fundamental freedoms—free movement of goods, services, workers and capital—throughout the participating states.
What are the benefits for the United Kingdom?
As an EEA Agreement signatory, the United Kingdom would maintain access to the Single Market, allowing internal trade without customs fees on most goods and services.
Working from the preexisting EEA Agreement would also prevent the United Kingdom from having to start from scratch in trade negotiations with the EU.
What are the drawbacks for the United Kingdom?
Membership in the EEA would still require the United Kingdom to implement the majority of EU law and regulations, including all policy areas affecting the Single Market, such as financial services, product standards, social and employment laws, energy and climate change. Under this model, the think tank Open Europe estimates that 93 of the 100 costliest EU regulations would remain in place in the United Kingdom, at a cost of £33.3 billion annually.2
Despite obligations to implement most EU policies, the United Kingdom would have virtually no representation in Brussels. The United Kingdom would have no members on the European Council, Commission or Parliament; no nationals working in any of those bodies; and no judges on the European Court of Justice. While Norway has negotiated participation rights in a few EU bodies, including the European Defence Agency, Frontex and Europol, its influence remains limited. The United Kingdom could refuse to implement EU regulations; however, it would then be unable to export any noncompliant products and services to the Single Market.
EEA members are also required to contribute to the EU budget. According to InFacts, Norway and the United Kingdom gave approximately the same per-capita net contribution to the European Union last year, valued at £96. The annual cost to the United Kingdom is not likely to diminish significantly.3
EEA members must also allow the free movement of workers consistent with all EU policies. Currently, all three EEA states that are not members of the European Union4 are members of the passport-free Schengen Area, enabling even freer entry by EU citizens than currently exists in the United Kingdom.
The features of the Norway Model do little to address the public concerns that animated the Brexit vote. Indeed, the United Kingdom would be required to make significant contributions to the EU budget, but would receive no meaningful power or influence in Brussels in return. The United Kingdom would also be required to implement a majority of EU policy, but the policy and regulatory interests of the United Kingdom would not be represented during the decision-making process.
Norway and Iceland negotiated several concessions relating to fisheries, a critical industry in those countries. The United Kingdom would need to achieve similar assurances for financial services and other core areas for the Norway Model to be worth the cost. However, success will be difficult without material bargaining chips in the hands of U.K. leaders at the negotiating table. The United Kingdom could point to the Liechtenstein emergency break-in order to obtain leverage on free movement. Possible reduction of the U.K. corporation tax could be another starting point, particularly as the EU member states push for harmonized, higher rates. Ultimately, U.K. leaders should assess the relative importance of unfettered Single Market access in the medium- to long-term, while preparing for protracted negotiations over the coming years.
1 The remaining EU member states after a formal U.K. exit are Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.
4 These states are Norway, Iceland and Liechtenstein.