16 July 2018

The Norway option can save Brexit


David Cameron started it. Prior to the EU referendum he repeatedly warned that “the Norway option isn’t right for Britain”, claiming that as a member of the European Economic Area (EEA) and its related European Free Trade Agreement (EFTA), Norway had to accept free movement, all the rules of the single market, pay into the EU budget and still have no say in Brussels.

Eurosceptics rose to the bait and despite most of them previously supporting the Norway option, they suddenly said they agreed with him.

So began a long campaign of disinformation against the EEA and EFTA which has had the effect of removing a vital safe harbour from the Brexit coastline. Like millions of others, I plead guilty to being an unwilling accomplice by going uncritically along with it. I am sure they know what they are talking about, I thought. Wrong. Our political leaders have made a total hash of Brexit.

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.

This is absolutely fundamental. The reason the Brexit negotiations have been such a fiasco is that, having given away too much too early, we have no “Best Alternative to a Negotiated Agreement” or BATNA. Without a majority in Parliament for it, the threat of relying on WTO rules rules for our trade is just an empty bluff.

We are already a member of the EEA and have not given notice we are leaving, so we can safely abandon the whole May strategy and start again, from a much stronger position, knowing we have a safe fallback.

Falling back on the EEA would also have numerous other advantages.

First and foremost, it would take all the divorce bill money, some £40bn, off the table. We would have to pay no contributions on day one (except prior budgetary commitments). Norway’s contributions are by agreement, not obligation, in return for being part of various EU programmes. They are further swollen by voluntary Norway grants to subsidise the former Communist states. In fact, the nature and structure of Norway’s payments was the first piece of propaganda spread in the EU referendum.

We would no longer be members of the Common Agricultural Policy or the Customs Union, so we could strike our own trade deals.

On immigration, the idea that we would be compelled to accept free movement as now is simply untrue. Norway has signed up to freedom of movement, but what is not widely understood is that S.112-113 of the agreement allows safeguarding measures, or an emergency break to opt out of it. This is what Lichtenstein has done, limiting immigration to 2.25 per cent of the current population since 1997.

EEA membership wouldn’t mean surrendering control of our laws. While Norway and the other EEA states sign up to single market directives, they have a right of veto, via the reservation or applicability rules, under S.102 of the agreement. We would have probably two out of five judges on the EFTA court, which oversees the arrangement. Although the EFTA court works alongside the ECJ to produce an homogenous set of laws, it has on numerous occasions disagreed with the ECJ.

The key question of the Irish border could be solved in much the same way as between Norway and Sweden or Norway and Denmark, within the scope of the agreement and using bilateral institutions. This would take away the terrible S.49 Irish backstop, which effectively flips us back into the EU.

The objections to the EEA option seem to be threefold. The first is inertia, the fear that it is cosy but unsatisfactory and will just leave us in a perpetual half-Brexit. This, one has to accept, is a risk and would have to be offset by a clear commitment to it being temporary and subject to periodic review.

The second is that EEA covers services, and so, in contrast to the Chequers paper, would leave the City under the heel of the EU. This, one also has to concede, is true. In the long term, this would clearly be unacceptable. But in the short term, I suspect it would be greeted by relief or indifference in most of the country.

The third is that the Swiss model, of only being members of EFTA and instead relying on bespoke sector agreements for trade with the EU, is much better. I agree with this, but the trouble is that it will take years to negotiate these sector deals and to wrap them into an overarching free trade agreement. As we currently have no credible fallback position, it is in the EU’s interest and it has the power to draw things out and mess us around.

This leads me to the ultimate offset to the risks of falling back on the EEA. Only a Leaver can sell the strategy. Only somebody trusted by the 17.4m who voted to leave the EU would be believed if they said we are going to fall back on the Norway option and then start again and negotiate properly. That, in turn, would require a Conservative leadership election. What are we waiting for? It is time for some statecraft.

For those who wish to read further about the EEA free from political spin, I recommend the following:

  1. Brexit and the single market revisited, by Prof. George Yarrow, Regulatory Policy Institute 
  2. The Norwegian Way, by Jonathan Lindsell, Civitas
  3. After Brexit, is the EEA an option for the UK? Lecture by Dr Carl Baudenbacher, President of the EFTA Court

George Trefgarne is founder and CEO of Boscobel & Partners consultancy.