2 August 2018

The ‘Norway Option’ is a realistic, quickly achievable Brexit solution


The European Economic Area Agreement (EEAA), the framework agreement for what is colloquially known as the ‘Norway Option’, has been something of an orphan in Brexit arguments. Thrown out of the Downing Street house at the outset, it has remained unadopted by other Westminster parties and has been starved of attention for long periods.

That is a pity, because this orphan will play a key role in Britain’s future, however things develop over the next months.

The EEAA is a multilateral international Treaty, signed by the UK in Porto on 2 May 1992 and subsequently ratified. The commitments made then remain binding until (preferably lawful) steps are taken to end the UK’s contracting party status. No such steps have been taken and no such steps are in prospect.

For the UK to withdraw from the EEAA on 29 March 2019 it would have been necessary for the Government to give EEAA Article 127 notice not later than 29 March 2018. That didn’t happen. It is conceivable that, under the EU’s shared competence arrangements, the EU might have staked a claim that it could give the requisite notice in lieu of the UK, but it didn’t. There is no consensus among the contracting parties that the UK should withdraw from the EEA. Why should there be?

Why would any of the other parties, most of all Iceland and Norway for whom the EEAA is an FTA with a very important trading partner (the UK), want to see an existing, enhanced free trade agreement reduced in scope and value?

So, whether a Withdrawal Agreement is signed or not, the UK will carry forward the Treaty commitments made in Porto in 1992. It will still be a party to the EEAA, and any other of the contracting parties can insist that the agreed terms be observed. The UK would be in breach of international law if it failed to do so. In the event of a no deal outcome, it might be expected that one of the other parties insist that the agreement is honoured.

However, the EEAA is a flexible framework and there are alternative ways in which the UK can potentially comply. There are therefore choices to be made, but so far their nature and significance has been under-explored as a result of the general neglect of the EEAA orphan.

The most important of these compliance alternatives concerns which ‘governance pillar’ the UK would belong to. The Agreement provides for two such pillars, one for the EU and its Member States, the other for the non-EU States, collectively known as the ‘EFTA States’.

The institutions of the EU pillar are familiar: the European Commission, the European Court of Justice, the Council of Ministers, and the European Parliament. The EFTA pillar was developed precisely because the non-EU countries were unwilling to accept the supranational authority of the Brussels institutions.

The EFTA pillar rests instead on inter-governmental agreement. Its artfully constructed structure mirrors that of the EU pillar — the EEA functions of the European Commission are performed by the EFTA Surveillance Authority (ESA), the functions of the ECJ by the EFTA Court, and so on.

But organisational similarities mask the underlying differences between inter-governmental and supranational approaches. For example, the EFTA Court cannot over-ride national courts in the way that the ECJ does.

Crucially, the governance pillars differ in their allocation of sovereignty. In the EFTA pillar sovereignty lies with nation states and their parliaments, in the EU pillar it lies somewhere in a shifting matrix of ‘shared competences’. Accession to the EFTA pillar by the UK would see an instantaneous transfer of all existing EU competences to the UK, which would sound pretty good to most Leave voters.

This is a general point about decision-making, but its realities can be easily illustrated by a concrete example concerning free movement of workers and he EEAA’s Safeguard Measures provisions (colloquially referred to as the ‘emergency brake’). Article 112 of the Agreement says that a contracting party may “unilaterally” take Safeguard Measures, but this is then qualified for EU member states whose Safeguard Measures “shall be taken by the EC Commission”. This is a key point — in the EU pillar, sovereignty lies with the Commission; in the EFTA pillar it lies with individual states.

A particular unilateral action by an EFTA State might, of course, be challenged on the grounds that it violates the EEAA. But that challenge could only come via the EFTA authorities — that would mean the ESA bringing a case to the EFTA Court.

The relatively recent Svalbard Snow Crab case provides a good illustration of the procedures. The European Commission licensed Baltic trawlers to fish for Snow Crab in waters around the Norwegian island of Svalbard. The Norwegian authorities seized the trawlers and levied fines. EU interests asked ESA to take the case to the EFTA Court, but ESA declined (in a very definite way), illustrating that it does not slavishly follow the Commission.

The significance of these points right now is that existing, agreed text in the Withdrawal Agreement contemplates continued UK membership of the EEA, but in the EU governance pillar and for what likely will turn out to be an extended period. Given the post-Brexit exclusion of the UK from participation in the relevant EU institutions, this implies an immediate loss of British sovereignty on 29 March next year, the exact opposite of what Leave voters could reasonably have anticipated.

That things might well come to this is largely a consequence of a failure to examine in any detail the opportunities that the EEAA affords. It doesn’t need to be like this — the Porto Agreement placed obligations on the UK which it likely will have to continue to bear post Brexit, but it also affords Treaty rights that the UK could assert to seek a place in the EFTA pillar, where national sovereignty would be increased (via the transfer of existing EU competences), not diminished.

It is not the EU that is preventing this. In a multilateral Treaty all that the EU can unilaterally offer is a place in the EU pillar. In effect, it has done that in the draft Withdrawal Agreement. The consent of Norway, Iceland and Liechtenstein is required for EFTA pillar participation, and there is no indication that the UK has even discussed seeking that consent.

In summary, the UK appears to be heading, willy nilly, for continued membership of the EEA in one form or other. Given that, it is better that it should take the form that maximises UK sovereignty. In practical terms this means the Government should adopt the orphan and focus on EFTA-pillar participation as a realistic, quickly achievable Brexit solution that would satisfy Leave voters’ demands.

George Yarrow is Chair of the Regulatory Policy Institute, and Emeritus Fellow at Hertford College, Oxford.