29 November 2018

Is ‘Norway for now’ really a nonstarter?


For some time now, CapX has been happy to offer space on the site to those who think that, amidst the costly Brexit uncertainty, the Government was wrong to rule out an off-the-shelf option for Britain’s first steps outside the European Union.

As that uncertainty deepens, the so-called Norway Option continues to gain traction, with reports in the Sun earlier this week that the Remain-Leave Cabinet duo of Amber Rudd and Michael Gove will push for membership of the European Free Trade Association (EFTA) if the House of Commons votes down May’s plan on December 11. The Guardian has reported that almost half the Cabinet are entertaining the idea. Arlene Foster and Nicola Sturgeon are also tempted. In other words, the Norway option is gathering momentum.

The appeal

There are some CapX contributors who have always like the sound of Norway, the shorthand for continued participation in the European Economic Area (EEA) and membership of the European Free Trade Association (EFTA). Long before the referendum, Daniel Hannan outlined the perks of being inside the Single Market without signing up to Brussels’s political institutions. Last summer, Andrew Stuttaford argued that not only did this plan offer the best route out of the EU, but shouldn’t be dismissed as a long-term option.

Fast-forward a year and the Brexit knot was looking even more difficult for Theresa May to untangle. George Trefgarne therefore mooted Norway as a much-needed escape route: “Falling back on the EEA as a temporary safe harbour is the only realistic policy now for the UK. First, the other options – the May Brexit purgatory plan, the DEXEU alternative, World Trade Organisation rules, staying in the EU – all have significant flaws and cannot command a majority in Parliament. Second, EEA membership would enable us to recover leverage in the negotiations.”

The more time that passes, the more prescient George’s Norway-for-now argument appears.

The backstop looks worryingly like the means by which the EU has secured all the bargaining power in the next round of negotiations. Meanwhile, the parliamentary prospects of the Prime Minister’s deal could hardly be worse. Her lieutenants are briefing that a defeat by fewer than 100 MPs on the most important Bill the Commons has voted on in decades means the Prime Minister is “still in the game” and has a chance of winning a second vote before Christmas – a Herculean act of expectation management.

When the agreement was unveiled to a frosty reception of Cabinet resignations and no-confidence letters two weeks ago, George Freeman MP remade the case for Norway on CapX, arguing that Norway was the “one option that allows me to look my constituents squarely in the eye and say I have delivered for them”.

The problem

But for all that the Norway option has going for it – certainty, an end to ever closer union, out of the contentious common agricultural and fisheries policies, regaining leverage in the negotiations with the EU, freedom from the ECJ, a ready-and-waiting trade deal with the EU, the freedom to strike trade deals with the rest of the world – it is not without downsides.

The biggest political problem is the prospect of continued free movement: a clear transgression of one of the Prime Minister’s red lines and a failure to deliver on one of the promises that sealed victory for the Leave campaign in the referendum.

That said, free movement under the Norway option is not quite the same as the status quo. Several opt-outs exist. Free movement is subject to limitations on “public policy, public security or public health” grounds. EFTA states can also introduce “safeguard measures” to address “societal or environmental difficulties of a sectoral or regional nature”. This is certainly not the break from free movement that is undeniably a priority for plenty of voters. But it is perhaps enough, alongside other immigration reforms, to restore something approaching a sense of control – especially if it is only “Norway for now”.

But would it be for now? Or more permanent? Brexiteers worry that after the wheels hit the ground on this landing strip, there won’t be the appetite to take off again and fully capitalise on the opportunities presented by having left the EU.

Given Britain’s Brexit fatigue, it is not an unreasonable concern. And existing EFTA countries have made clear that the UK’s membership would have to be indefinite. Of course, joining on such terms now does not preclude departure in the future – but it is notable that the idea’s leading advocate, Nick Boles MP, now proposes “Norway Plus” instead of “Norway for Now”, on the grounds that existing members refuse to let us use their institution as a pit stop rather than a permanent garage. It is, however, worth pointing out that the exit arrangements for the EEA are more permissive than for the EU and, in fact, the backstop, with just one year’s notice needed.

Still, sceptics are making a circular argument when they complain that there would be outrage at the continuation of free movement and that the momentum behind Brexit would fizzle out and leave us trapped in what was intended as a staging post to a clean break. It is hard to see how both those things can be true: either there is frustration at continued free movement and momentum behind departure from the EEA; or there is an acceptance of free movement, and Britain ends up as an EFTA state for longer than many would have liked.

The more immediate problem is Ireland. According to the logic of the backstop contained in the Withdrawal Agreement – a logic which Britain has regrettably allowed the EU to turn into an immutable political truth – the UK cannot leave the customs union (as it would under the Norway option) until it finds another way to ensure there is no hard border between Northern Ireland and Ireland.

That is presumably why Boles’s latest iteration of his plan, outlined in the Financial Times, involves “accepting Mrs May’s withdrawal agreement in full – but renegotiating the political declaration to specify that, after the transition, the UK will join EFTA and move into the EFTA pillar of the EEA. We would also remain in a customs union until new arrangements have been agreed. Britain would need to swallow the Irish border backstop as drafted, but should ask for an explicit commitment from the EU to support the UK’s accession to EFTA and facilitate our transfer into the EFTA pillar of the EEA by December 2020 so that it never needs to be activated.”

This arguably obviates much of the upside of EEA membership: so long as the backstop is part of the deal, the UK will struggle to regain negotiating leverage from the EEA safe haven. That said, the certainty of a deadline to move into the EFTA pillar of the EEA might allay some of those fears.

Taken together, do these drawbacks mean that Norway — and, in particular, Norway for now — is a non-starter?

The reality

In the House of Commons on Monday, the Prime Minister said that “there’s no deal that comes without a backstop”. Sadly, at this late stage, she might be right.

But it is also true that there is no deal that comes without the approval of Parliament.

As it stands, the Prime Minister’s deal will not get that approval, at least at the first attempt. And the route to a victory second time round looks difficult. As Matt Singh has explained on CapX, the momentarily popular “TARP” theory – according to which plunging markets in the wake of the first vote bring MPs on board – doesn’t stack up. That leaves it up to Brussels to come to May’s rescue with further concessions that might appease some rebels. Yet everything that EU negotiators have said and done in recent weeks suggests that meaningful changes to the deal are not on the table.

The majority of MPs can agree that a disorderly, WTO-terms No Deal would be bad news. But it cannot be stated often enough that existing legislation means No Deal is the default setting should Parliament fail to agree on anything else.

Yet while Britain has triggered Article 50 and set in motion its departure from the European Union, it has not taken the formal steps towards withdrawal from the EEA Agreement (EEAA). There is nothing in the EEAA or the Treaty of Lisbon that suggests withdrawal from the latter means withdrawal from the former.

In this light, the Norway option can be seen less as an alternative deal to consider alongside May’s agreement, and more a backstop in itself – a version of “No Deal” which, while flawed, gives Britain more control, negotiating power and certainty in managing its relationship with its closest trading partners (and certainly an improvement on permanent membership of the customs union – the “vassalage” to which many on the Labour benches, and even on the Tory ones, seem willing to condemn us).

If the alternative is a calamitous, disorderly No Deal outcome, objections to the Norway option on the grounds that it wouldn’t solve the Irish border problem are patently absurd: the alternative is the worst possible scenario from the point of view of peace in Northern Ireland.

According to three experts in the area, Sir Richard Aitkens, Professor George Yarrow and Professor Guglielmo Verdirame, “given that the UK has not given notice of withdrawal from the EEAA and the fact that a forced termination of the UK’s membership of the EEAA is very unlikely for both legal and political reasons, the UK’s position of strength should be recognised”.

In their opinion, outlined at some length here, “the UK currently enjoys a considerable degree of control over the post-Brexit outcome stemming from its current Treaty rights under the EEAA”.

The main outstanding issue would be Britain’s transition from one of the EEAA’s governance pillars – the EU – into the other – EFTA. Aitkens, Yarrow and Verdirame claim that “for non-EU members of the EEA the minor inconveniences of adjusting the existing surveillance and court arrangements to accommodate the UK would likely weigh lightly by comparison with the prospect of the loss of an enhanced Free Trade Agreement with the UK, which for them is a very major trading partner”.

Of course, politics is about more than the legal technicalities. As the list of names interested in the Norway option reveals, there is no good reason why it couldn’t win a broad coalition of supporters. Especially given that we have reached a point in the Brexit negotiations – arguably, we reached it quite a while ago – where there are no good options.

The Prime Minister is devoting the coming weeks to pushing through her deal. She may yet do so. But if it is a choice between Remain, semi-Remain, a second referendum, a disorderly No Deal exit and a version of the Norway option, then the political arithmetic suggests that many within Parliament may find themselves pining for the fjords.

Oliver Wiseman is Editor of CapX.