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Exit option: Norway and Iceland

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Overview

Norway and Iceland, along with the micro-state Liechtenstein, have a close relationship with the EU through a body called the European Economic Area (EEA). The EEA gives those countries access to the EU’s single market through the four freedoms (movement of people, capital, goods and services) but fisheries and agriculture are exempt, so Norway and Iceland manage their own waters and fishing policy. To keep this access, EEA countries have to follow most of the single market’s rules.

Both are also voluntary members of the Schengen area, and participate in some EU schemes such as science cooperation.

The EEA was originally designed in the 1990s as a stepping stone towards full EU membership. Austria, Finland and Sweden were all briefly members. In 2015 Iceland formally ended its EU accession process after it had voted in an anti-EU government, which indicates that Icelanders are happy with their EEA situation. Likewise Norway has twice rejected applying for full EU membership at referendums.

Strengths

  • The EEA option maintains almost full access to the EU single market, other than for food products. If Britain joined the EEA after exit, this would mean trade disruption was less compared to other exit options, since Britain already applies all the rules it would need in order to keep free trade going.
  • The EEA countries are outside the EU’s customs union and common external tariff, so they can represent themselves when negotiating free trade deals with other countries. Iceland, for example, has a free trade deal with China. Both Norway and Iceland have free trade agreements in force with Singapore (2003) and Canada (2009), neither of which EU countries yet enjoy. Many think Britain could do as well or better.
  • The EEA states, especially Norway, are active in promoting their own interests in global standards setting bodies like the World Trade Organisation and parts of the United Nations. This allows them to influence the shaping of product rules that all countries apply. In many standards bodies the EU members are represented jointly so Britain’s interests may be compromised.
  • The EEA agreement does include the provision of a kind of veto, which EEA states can use against new EU rules. However this would suspend single market access in that product area, and has not yet been used.
  • Norway and the other non-EU EEA states contribute far less to the EU’s running costs. Estimates vary, but using House of Commons figures, adopting Norway’s pay obligations would save about £1 billion.
  • Another strength of the EEA option is that it is ready-made, so would be simpler to adopt than negotiating a brand new comprehensive free trade treaty. Some eurosceptics argue that the EEA option could be used as a stepping stone to a more desirable arrangement, a way to leave the EU without disrupting the economy while more time is taken on the end result.

Weaknesses

  • Critics say the amount of EU single market law that EEA states must follow is a problem. It means the EEA countries follow a lot of EU law without being able to contribute to it, although this is a topic of debate. The way the EEA system works does allow Norway and Iceland to contribute to rules drafting at the early committee stages, and to push for exemptions or opt outs if the rules would be unfair to them. Still, the last Norwegian Prime Minister Jens Stoltenberg criticised the system as ‘fax democracy’ and some intellectuals argue Norway has less sovereignty in some areas than EU members.
  • EEA members have to implement the free movement of people like EU members do. Norway actually has a higher proportion of European immigrants than Britain does, so for voters who want to leave the EU to control Britain’s borders, Norway may not be the best option. In the EEA rules there is an emergency brake power on immigration but it has never been used.
  • EEA members apply a lot of EU social law like the Working Time Directive or environmental targets. Such laws are often the ones eurosceptics would most like to be free of, so this may not be an ideal option.
  • While EEA countries have single market access, their exporters have to produce paperwork to prove their goods come from their own country, not somewhere else. Some people argue this is an extra regulatory burden on EEA companies.

See Civitas’ research on the EEA option, ‘The Norwegian Way’, here.