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Brexit: The EEA Option
Tacking into the Wind: Looking for Ports in the Brexit Storm.
The referendum result presents parliament and the civil service with their most formidable challenge since the second world war. It also presents one of the greatest challenges to the UK’s place in the world since the Suez Crisis. Renegotiating and redefining the UK/ EU relationship will likely take longer than the two years allocated under Article 50 of the Lisbon Treaty. Before such negotiations begin both sides will maneuver to work out their end game and negotiating strategy. The question before the UK government and Theresa May is: What does ‘Brexit means Brexit’, really mean?
In the initial years following the end of Article 50 negotiations, which do not make provision for future relations, HMS Great Britain will need a safe harbour to weather the political and economic storm which will likely come. In those intervening years the UK will need both political and economic safe harbour. There are two obvious ‘harbours’ for the the UK ship to steer towards, membership of the European Economic Area (EEA) or the European Free Trade Area, (EFTA).
These options are more commonly known as the Norway or Switzerland models respectively. Both have political and economic benefits as well as drawbacks, though we will look at the Lichtenstein variant later which does solve many of these.
Supranational European Bodies
The EEA, Taking the Rough with the Smooth
What is the EEA?
The EEA was established in 1994 as a holding pen or set of transitional agreements for several European nations, including Norway, who were on a path to joining the European Economic Community, one of several precursor organisations to what became the EU after 1992. It was designed to be a short-term and transitional relationship and a way to unite two organisations, the European Community/ EU on one hand and the EFTA on the other. Due to Switzerland’s rejection of membership, the EEA was created to bridge the EC/ EFTA gap. Since 1995 Norway, Iceland and Liechtenstein have remained in this transitional state due to various referenda on full EC/ EU membership.
How does it differ from the EU?
The EEA and EU share some of the same frameworks, rights and organisations. The EEA is similar to the EU prior to ratification of the Maastricht Treaty. It is primarily concerned with economic and market access issues over social policy. EEA states do have to (largely) abide by the EU’s four freedoms of goods, capital, labour and services but there are possible opt outs from this. EEA states also need to adopt relevant legislation covering the regulation of certain markets, but again there are provisions for opt-outs. Whilst it might not be politically convenient or even possible, Article 102 of the EEA agreement allows a members tate to block or refuse to enact a piece of legislation. In short the EEA is much more limited in scope, allowing member states to have much greater control of their internal markets, third country trading relations, foreign policy and social policies.
The Benefits of EEA Membership
Benefits of EEA membership are viewed in contrast to becoming a ‘third country’ with the EU or staying in the EU. The most significant benefit is the repatriation of powers to the UK government. Two keys areas highlighted in the campaign were the common agricultural policy and common fisheries policy. We would be able to adapt policy to meet local needs. The UK would also be able to negotiate its own external trading relationships and retake a seat at the WTO. Doing so would give back to Britain a voice at the top-table of global trade. We would also return power over taxation. The EU is working to harmonise taxation. A UK in the EEA would, for instance, be able to remove VAT from tampons without consultation with 27 other states. Finally and perhaps even more crucially, we would repatriate the ability to set our own foreign, security and defense policies, speaking with a national voice at bodies such as the UN and NATO, rather than as a proxy for the EU. Materially, the UK has handed a degree of control in these areas to the EU:
“The Lisbon Treaty gave the European Union a single legal personality. It also provided for the EU to replace and succeed the European Community, taking over all its rights and obligations, including with regard to its status within the UN. As a result, the EU can sign contracts, be part of an international convention or be an observer (most cases) or member of an international organisation – where the statutes allow this, such as the FAO in Rome”.
“Two EU Member States, France and the UK, are permanent members of the Security Council. In addition, EU countries also serve as non-permanent members. They keep the EU institutions and other Member States fully informed of the work of the Council and, as appropriate, reflect EU positions”.
In addition to this, members of the EEA are not under obligation to either join the Schengen area (though all current members have) or the European Monetary Union/ Euro currency union. At this time being firmly out of these two bodies is politically desirable for a UK government.
At this time, membership of the EEA could resolve many of the problems Brexit supporters have with the UK’s membership of the EU. Obviously full sovereignty would not be possible, but no nation or state in the international system can ever be.
Keeping the Single Market
As discussed inside the EEA but out of the EU, Britain could negotiate its own external trade treaties. The UK would lose out on current EU trade deals, but could renegotiate these over a period of time. Whilst this would be disruptive, it is unlikely that an independent UK would take as long to negotiate bilateral deals as a 28 member bloc has done. If we were also part of the EFTA we would still benefit from this set of existing free trade deals.
Can we still be part of the single internal market? First we need to define that market. The single market, formerly the common market, means EU members allow the free flow of goods, services, capital and people across borders. Barriers to trade such as tariffs, taxes on imports and different regulations are removed or harmonised. The EEA extends the single marketplace to Iceland, Norway and Liechtenstein. Members have to abide by the rules, directives and regulations when selling into marketplace, in much the same way that a food manufacturer exporting to Japan has to comply with their internal regulations.
Hurdles to Overcome
Membership of the EEA would be politically difficult due to payments made to the EU budget via EEA membership, the continuation of freedom of movement and a lack of a seat at the table where market rules are made. The EEA agreement does make provisions covering all of these aspects. As they are complicated I will be covering them in a dedicated article.
Membership of the EEA (and resulting single market access) would also mean accepting flanking policies covering areas such as transport, competition, social policy, consumer protection, environment, statistics and company law. As means to retain market access whilst a more politically acceptable long term solution this would be beneficial to both the UK and the EU by preserving EU-UK trading relationships.
Summing Things Up.
Whether membership of the EEA would be palatable to Brexiteers, remainers, the government or wider public remains to be seen. There will understandably need to be a lot of discussion on this in the public arena to establish whether a consensus could be formed behind it.
The EEA is a compromise which might be in enough to satisfy the 48% who voted in and just out enough to placate the 52% who voted out. Brexit would mean Brexit in a political sense, and maybe a social one but not in an economic way. In this context Brexit could be seen as an evolution rather than a revolution in EU-UK relations.
Share your thoughts on the EEA or Norway option as a model for the future EU-UK relationship.