Norway to go
European Economic Area offers hope for a businessfriendly Brexit
The general election result has reopened discussion about what sort of relationship with the European Union the UK should be aiming for in the forthcoming Brexit negotiations. Before the election, many in the business community were concerned about the prospect of not being in the single market or the customs union. And that we could walk away from the EU totally with “no deal”.
I believe there is now an opportunity to find a way forward that is more business friendly and carries less economic risk. We have not yet started the Article 50 negotiations. So it is not too late for a serious rethink before the discussions with the rest of the EU get under way.
One option referred to in the EU referendum campaign was the UK having a relationship with Europe similar to Norway and Iceland. These countries are outside the EU politically, but still very integrated with the key elements of the European economy. Formally, Norway and Iceland are members of the European Economic Area (EEA). EEA members have to follow the way the EU operates in terms of their access to the single market, and do not have any direct influence on its policies. But they operate more independently in other policy areas. It is a kind of associate membership of the EU – something that many people have argued might also suit the UK.
Before the referendum, I was not keen on this option and argued against it in this column just over a year ago. Compared with being a full member of the EU, we would lose influence over key policies – though that is true of any Brexit option. In addition, Iceland and Norway are members of the Schengen Area, which offers even greater freedom of movement for people than currently exists between the UK and the rest of the EU. So on the key issue of immigration, the current model for the EEA does not meet the UK’S requirements.
But the EEA model is not set in stone and could be made more flexible. There could also be advantages to the EU from making it more adaptable for other countries. A more flexible approach to immigration within the EEA could be helpful for integrating other countries – like Turkey – into the European economy. The impact of the free movement of people is not just a sensitive issue here in the UK but also in many other European countries.
Before the election, the EEA option was taken off the table by the Government’s stance that we should leave the single market and leave the European customs union. However, both of these elements sit uncomfortably with the election outcome.
Leaving both the single market and the customs union makes the idea of a “hard border” between Northern Ireland and the Republic of Ireland much more likely. The DUP – who are expected to support the Conservatives as a minority government – are opposed to a hard border as it could hold back the growth of the Northern Ireland economy. So there is now a stronger political imperative to remain in the single market and the customs union to meet these concerns in Northern Ireland.
With the Conservatives in a minority in the House of Commons, the views of other parties also become more important. The SNP has consistently argued that it wants Scotland to remain part of the single market. The Liberal Democrats and the Green Party also want to keep the UK in the single market. The Labour Party is arguing for a Brexit deal that prioritises jobs, which points towards keeping a strong and stable economic relationship with our key European partners. So it appears that there is both a political and economic case for bringing the EEA option – an associate relationship with the EU – back on to the table. But the EEA would need to be made more flexible to achieve this.
In my view, two key conditions would need to be met to make this a possible option for the UK. First, there would need to be more flexibility for EEA members to control immigration flows and the right of residency in their country, which is a key undercurrent of the support for Brexit. One idea could be to go back to the idea of an “emergency brake” – which was discussed in David Cameron’s renegotiation – and strengthening it. Or alternative proposals can be developed to allow EEA members outside the EU greater control over the flow of immigration from other EU countries.
The second key issue would be how a major economy, which is not an EU member, would interact with non-eu members in terms of trade relationships. Norway is an example of a country that is inside the EEA, but has its own independent trade policy. Turkey is partially inside the customs union, but also has its own trade policy. The UK, however, is a much larger economy than Norway and Turkey – the second largest in Europe and the fifth largest in the world. If we remain inside the single market and the customs union, we would need to have a significant say when the EU was negotiating trade agreements with third countries.
In my view, membership of the EEA appears a much better starting point for our Article 50 negotiations than the idea of the UK severing its ties with the single market and the customs union.
It would allow us to keep most existing trade relationships in place and would help to avoid a hard border with the Republic of Ireland – which will now be very important to the political stability of a government dependent on an arrangement with the DUP.
Even if we remain within the EEA, there will still be some very significant issues to be discussed and agreed in the Article 50 negotiations. The most important and difficult would be how we establish a suitable immigration system that meets the requirements of both the other 27 members of the EU and the UK.
The other two key issues would be the financial settlement and establishing satisfactory transitional arrangements for the UK’S future outside the European Union. But the Article 50 discussions would be greatly simplified – and the prospects for a successful outcome greatly increased – if the option of the UK remaining a member of the European Economic Area can be brought back on to the negotiating table.
‘Norway is outside the EU politically, but still very integrated with key parts of the European economy’