12 June 2018

Why the EEA isn’t the answer to the Brexit conundrum


No matter how many times the Government rejects it, the idea that the UK will remain a Single Market member after leaving the European Union refuses to wither and die.

Those against Brexit, or for reducing its risks, argue that the Referendum did not instruct the government to end Single Market participation. Their opponents, however, view that program as part and parcel of the European project.

Battle still rages over what was promised by whom during the campaign, with both sides making valid claims. While the official Vote Leave campaign said the UK would leave the Single Market, there were also prominent Leave campaigners who referred to Norway and Switzerland as models for an independent UK. But Norway has a version of Single Market membership and Switzerland is closely integrated, including participating in Schengen.

The debate comes to the fore again today in the House of Commons, where MPs will vote on Lords amendments to the EU Withdrawal Bill, including one that would make remaining in the European Economic Area (EEA) a negotiating aim.

Although there are good reasons for that, the nature and deficiencies of the EEA arrangement demonstrate why the Government is pursuing an alternative path.

As is now well known, the EEA is an extension of the EU Internal Market to Norway, Iceland and Liechtenstein, and is described as Single Market participation. That means being part of the EU’s evolving system of harmonised laws and regulations that facilitate the cross-border movement of goods, services, capital and people. In areas where there are not yet shared rules, national ones normally suffice because all members adhere to similar standards and are part of a uniform apparatus of surveillance and enforcement.

The three non-EU EEA nations are in the European Free Trade Association (EFTA) and its secretariat manages the agreement with its EU counterparts and member states.

While it abolishes tariffs on EU trade—except on agricultural products—the EEA is not a customs union, so EFTA nations set their own tariffs. To help create a level-playing field, wealthier parties fund programs to boost the competitiveness of poorer regions. Additionally, the highly regulated market has administrative costs, and members pay those.

The EEA operates through a Joint Committee deciding which new EU rules to incorporate into the accord according to a principle known as “dynamic homogeneity”; while the treaty’s annexes are regularly updated, the aim is always to ensure parity with the Union.

There appear to be two main drivers of the Conservative policy to terminate Single Market membership by eschewing the EEA. The first is ideological. The party’s Eurosceptic wing abhors the one-size-fits-all philosophy that it claims stifles enterprise and eliminates healthy regulatory competition.

In 2015, Open Europe argued that the 100 most burdensome EU-derived regulations cost the UK £33 billion a year to comply with, and 93 of those applied to the EEA.

The second is immigration, which academics have shown was a major factor in the Leave vote. Remaining in the EEA means respecting the freedom of movement of persons, and therefore possibly triggering a resurgent threat from the right.

Remainers, of course, see things differently. The prospect of interrupted supply chains and extra bureaucracy for exporters has also left much of the business community in a cold sweat. The result of this opposition and alarm is that many observers assume that the Government will eventually buckle and stay in the EEA.

As well as economic security, EEA advocates claim that the agreement provides a flexible version of the Internal Market that can be adapted to each party’s interest, and they reject the suggestion that EFTA states have little influence on EU law making.

But while the EEA would protect trade, such claims seem to rely on an optimistic interpretation of the agreement and the EU’s positioning on UK withdrawal. Although there are some ops-outs for special circumstances, like Liechtenstein’s partnership with Switzerland, appeals to be exempt from EEA laws are routinely rejected, according to an official from EFTA Secretariat. “The whole idea is to have a level playing field and have the same rules apply across the whole area. And if you start going down that road then you will fragment and it will not work,” they said.

In the case of Brexit, as has been apparent since Article 50 was triggered, the stance from Brussels is that the process must not threaten the autonomy of its decision-making and the UK must endure the consequences of withdrawal. This brings into serious doubt the UK’s ability to extract concessions.

“The Agreement as such is highly adaptive and can be tailored to reflect UK preferences, but it all depends on the UK being able to get the EU to agree to these,” said Halvard Haukeland Fredriksen, a lawyer who specializes in the EEA at the University of Bergen in Norway.

A vital area for the UK is the cornerstone Single Market principle of the freedom of movement of persons, which was also a critical challenge for “dynamic homogeneity” when the EU Citizenship Directive came into force in 2004. The new measures in the directive included, for example, residency rights after five years in a host state.

After three years of haggling with the EU, EFTA states had to accept the directive, but they were explicit that the concept of EU citizenship had no equivalent in EEA law, partly as they saw free movement rights as relating to economically active individuals only.

However, this was subsequently tested in EFTA Court cases and the judges generally ruled that the EEA agreement confers similar movement rights as the EU treaties, according to a 2017 paper by Christian N K Franklin, also from the University of Bergen.

“For those who might contend that the lack of Citizenship entails differences under EU and EEA law with regard to rights of movement and residence, it is difficult to see what the differences really are in practice,” he concluded in the Cambridge Yearbook of European Legal Studies.

The EEA treaty’s Safeguard Measures and the precedent of Liechtenstein’s special exemption are said to offer opportunities for the UK to modify its freedom of movement obligations. But because of its vastly different circumstances, there is no chance that the EU would treat the UK like minuscule Liechtenstein, especially given the political imperative to not afford the British special treatment.

Meanwhile, Safeguard Measures have to be “strictly necessary” procedures to deal with “serious” difficulties, meaning that any UK attempt to use them to constrain routine migration would be met with EU counter-measures including significant restrictions on market access. Furthermore, “given the fact that this matter has now gotten some attention in the Brexit debate, I would expect the EU side to ask for a legally binding declaration from the UK that Safeguard Measures will not be used in this way, as a prerequisite for accepting UK membership of the EEA,” Fredriksen said.

Rather than accepting that the UK will become a “rule taker”, EEA proponents claim the arrangement provides for influence on the EU legislative process, as EFTA parties are consulted when the Commission is formulating legislative proposals.

But the trend of the European project has been for a greater role for the Council of the EU, comprising member state ministers, and the European Parliament. As the main body of the EEA agreement has not been updated since it was adopted in 1994, this creates a defect. “What we see a lot more is Council and Parliament are actively changing a lot of legislation and it’s happening in fora where we don’t have any access and where we don’t have the channels like we do with the Commission. So that is a fundamental shift in the system and it is quite a challenge.” said the EFTA official.

The EEA could be revised to reflect the EU’s evolution, which would also mean a greater say for EFTA nations in the EU’s powerful regulatory agencies, but that would mean renegotiating a functional and delicately balanced agreement.

“When we look at it it’s a bit of a Pandora’s Box. The changes you could make, are they worth risking the whole enterprise? The answer is always and everywhere that it’s not worth it,” they said.

Despite the possibility of disruption, few experts seem to think that the UK would be barred entry to the EFTA pillar of the EEA if that won support, and there is little doubt that it would mean economic continuity. But given Brussels’ firm stance towards its departing member, there also seems to be little doubt that the UK would be unsuccessful at trying to tailor this version of Single Market membership to its interests.

Partly because of this, a more distant relationship than offered by the EEA is likely. Still, parliamentary opposition, the Irish conundrum, and the trade-off between sovereignty and market access mean the UK is set to remain closer to the EU than the Government envisaged.

Although commentators are dancing on the grave of May’s aspirations for a novel deep partnership that rebalances the UK’s rights and obligations—an aspiration supported by a House of Lords committee report last week — a 1994 description by EFTA officials of the volatile EEA negotiations may offer a more instructive perspective on current difficulties.

“Several times ‘historical breakthroughs’ were proudly announced, followed by inevitable ‘crisis’. The EFTA countries, although a bit puzzled in the beginning, were very quick in learning the sinusoidal curves EC negotiations usually follow, where noisy celebrations alternated with deep dramas, in a tragediente comediente atmosphere. The partners, including the different EC institutions, conscientiously fulfilled their role in the play,” they wrote.

William Davison is a freelance journalist.