The Norwegian model – joining the European Economic Area
The European Economic Area (EEA) was established in 1994 to give European countries that are not part of the EU a way to become members of the Single Market. The EEA comprises all members of the EU together with three non-EU countries: Iceland, Liechtenstein and Norway. Members of the EEA are part of the European Single Market and there is free movement of goods, services, people and capital within the EEA. Since EEA members are part of the Single Market, they must implement EU rules concerning the Single Market, including legislation regarding employment, consumer protection, environmental and competition policy.
EEA membership does not oblige countries to participate in monetary union, the EU’s common foreign and security policy or the EU’s justice and home affairs policies. EEA
members also do not participate in the CAP. While there is free trade within the EEA, EEA members are not part of the EU’s customs union, which means that they can set their own external tariff and conduct their own trade negotiations with countries outside the EU.
EEA members effectively pay a fee to be part of the Single Market. They do this by contributing to the EU’s regional development funds and contributing to the costs of the EU programmes in which they participate. In 2011, Norway’s contribution to the EU budget was £106 per capita, only 17% lower than the UK’s net contribution of £128 per capita (House of Commons, 2013). Becoming part of the EEA would not generate substantial fiscal savings for the UK government.
Joining the EEA would allow the UK to remain part of the Single Market while not participating in other forms of European integration. An important finding of research on the economic consequences of leaving the EU is that although Brexit would harm the UK’s economy through reduced trade, the cost is smaller when the UK remains more economically integrated with the EU (Ottaviano et al, 2014). Consequently, EEA membership is an 5 appealing option for those attracted by the economic benefits of the EU, but who are not in favour of ‘ever closer union’.
There are other downsides to joining the EEA in addition to the membership fee and the need to follow EU regulations. While EEA members belong to the Single Market, they are not part of the deeper integration that occurs within the EU. For example, as an EEA member Norway does not belong to the EU’s customs union. This means Norwegian exports must satisfy ‘rules of origin’ requirements to enter the EU duty-free.2
With the growing complexity of global supply chains, verifying a product’s origin has become increasingly costly. If the UK joined the EEA, part of this cost would be borne by
UK firms. Exporters would have to limit their use of inputs imported from outside the EU to meet the EU’s rules of origin (Stewart-Brown and Bungay, 2012). The EU can also use antidumping measures to restrict imports from EEA countries, as occurred in 2006 when the EU imposed a 16% tariff on imports of Norwegian salmon. Campos et al (2015) find that Norway’s failure to undertake the deeper integration pursued by EU countries has lowered Norway’s productivity.
While these consequences of EEA membership would increase the cost of doing business with the EU, the more important drawbacks of adopting the Norwegian model would be political. Non-EU members of the EEA must accept and implement EU legislation governing the Single Market without having any part in deciding the legislation. The rules of the Single Market are set by the EU not the EEA. By leaving the EU to join the EEA, the UK would give up its influence over all EU decisionmaking, including how to govern the Single Market. In this sense joining the EEA entails giving up even more sovereignty than being part of the EU. EEA members must agree to implement legislation that they have no say in deciding.
For a relatively large country such as the UK, which is accustomed to having a prominent voice in European and world affairs, this is likely to be a difficult position to accept. For
example, the government would have no opportunity to block proposals that it believed harmed the UK’s national interest or to drive forward policies it generally supports, such as further liberalisation of trade in services. If a vote to leave the EU is interpreted as a vote against giving up UK sovereignty to the EU, then joining the EEA could easily be construed as a betrayal of the spirit of the outcome of the referendum.
