The EEA option: Saving Britain from hard Brexit (Part 2)

"The EEA is often spoken of as an 'off-the-shelf' model"
"The EEA is often spoken of as an 'off-the-shelf' model"
Ian Dunt By

This is the second part of a three-part series of articles. To read the first part, click here

Entry requirements

The EEA is often spoken of as an 'off-the-shelf' model. There's some truth in that – it allows us to slide into a system which has worked out all the mistakes of an arm's-length relationship with the EU over decades rather than making them all over again ourselves. But it is not quite as simple as that either.

For a start, the EEA does not include membership of the customs union. We'd need to sort all that out separately. And it is not at all clear how easy it would be. Britain must leave the customs union and convince the EU to create a special arrangement with us allowing us to rejoin.

There are a few people - some of them very experienced - who think that Brussels would be either unable or unwilling to do that. But the majority view is that it could be done if the British team showed some pragmatism and a more clear-sighted approach to what they actually want.

Ultimately, this is a legal, not a practical problem. It would be time consuming, but it is about reorganising things on paper to keep them as they are in the real world.

Secondly, EU rules from after the financial crisis are still being slowly transposed into the EEA agreement, following a controversial debate between Efta and the EU. They should be done in time for March 2019, which is the earliest point at which Britain would join, but there are no guarantees. If this isn't done in time, City firms won't be able to continue passporting, the maintenance of which is one of the chief advantages of this kind of soft Brexit. At the moment, things look positive. But this is one of those sensitive policy areas where things can potentially break down.

And then there's the political problem. Britain may have created Efta, but it can't just swan in whenever it likes. It has to apply. Under Article 56 of the Efta convention, we would need to be accepted by the four existing countries for membership. Once that was secured, we would need to be accepted into the EEA agreement. That would involve the three Efta states who are signed up to it and the 27 remaining EU states – so 30 countries in total. That's a lot of potential vetoes.



In reality, this is less difficult than it sounds. The EU regularly offers coded statements suggesting they'd be happy with this arrangement. It would minimise uncertainty around Brexit and allow them to maintain easy access to Britain's markets.

The bigger question is whether the Efta countries would agree to it. There is a sense of wary bemusement in the Efta secretariat about the possibility of a British application - a combination of concern and excitement. British involvement in Efta would turn a little out-of-the-way trade arrangement into a serious global player, arguably making it the default outer circle of European cooperation. For Switzerland, having another country with big banking and insurance sectors in the club would open up interesting possibilities. But the key player is Norway, which acts as de-facto leader – often much to the annoyance of Iceland and Liechtenstein.

On the one hand, Norway is sceptical. Its leadership role would be lost if Britain joined. The UK's military, political and economic heft is big enough that it would be instantly overshadowed. And it's not like the UK is very predictable or collegiate either - not anymore anyway. It would be likely to start rocking the boat as soon as it joined. Once it started to do so, the effects could be disastrous. If one Efta member refuses to adopt new legislation coming down from Brussels, all of them lose access to that part of the agreement. It's an all-for-one-and-one-for-all type of thing. British intransigence over some new financial services directive, for instance, could freeze Norwegian and Icelandic banks out of the single market.

But despite all this, Norway is unlikely to veto British membership. The UK is its biggest export partner. It is concerned about the prospect of it suddenly and chaotically falling out the single market. This scenario is worsened by the fact that there are somewhere between 15,000 and 20,000 Norwegians currently residing here. It has a vested interest in a smooth, single market Brexit. It would also be very unlike Norway to be obstructive in foreign affairs. That's typically not the way they do things. And any scenario in which Britain was applying to join would presumably have the support of the rest of the EU. The pressure on Efta countries to comply would be immense.

Controlling free movement


The biggest obstacle to Britain getting into Efta would be more likely to be domestic, rather than foreign. After all, complying with all the rules of the single market means you have to comply with freedom of movement. And that, of course, is considered politically toxic.

But there is a section of the EEA agreement which appears to offer some wriggle room on free movement: Articles 112 and 113.

This is a safeguard clause which allows a country to limit an aspect of the agreement if it is having a significant social or economic impact on the host country. Some people mistakenly think this is what Liechtenstein - a tiny 25 kilometre long microstate with a population of 37,000 - uses to block free movement, but in actual fact they have a separate treaty provision which they negotiated at the time of their ascension to the EEA and which is anyway mostly about refugees.

It looks appealing and many defenders of single market membership have sung the praises of Article 112-113, but it isn't quite what it's cracked up to be. For a start, it’s hard to show that there has been a significant social or economic shock to the UK from free movement. In actual fact, European immigration has been a massive advantage to the UK economy and its public services. David Cameron tried to make the case that we satisfied this criteria during his ill-fated renegotiation in early 2016 and it was not well received. And anyway, if one member state does this, it applies to them all. There would be a lot of pressure from other Efta states for us not to pursue this. They might even demand assurances that we would avoid it as a condition of granting us entry.

Even if you got past all that, there are consequences to using the power. Other EEA states are allowed to adopt "rebalancing measures" in response. In other words: they can do to you what you have done to them.

However, it's possible that a canny and careful British approach might be able to make some limited use of this power, as long as it was proportionate. If you could somehow convince the EU to play ball – perhaps by making it part of the Article 50 talks – you could conceivably use it to reform, rather than abolish, free movement. Westminster might be able to authorise the Home Office to vet job offers to EU immigrants with salaries below £18,600, for instance. You might even at a stretch be able to limit free movement to those with job offers. You could, in other words, use it as a scalpel rather than a sledgehammer. If that was the approach, it might have more of a chance of succeeding.

The reason this is unclear is because it's not obvious whether we can turn legal issues into political ones. The EU is typically highly legalistic in its approach - look at the way it has treated transition, for instance. But some believe that a canny British team which was providing something decent in return could get them to treat this requirement in a rather less strict manner so that a more mutually beneficial package could be sold back home. In other words: They'd know there was no real emergency, but they'd offer the brake anyway. Still, it's a long shot.

The weird truth is that there are plenty of things Britain could have already done about free movement within the current system. EU migrants heading into many EU states must register with police or immigration authorities within three months. If they have not found a job within six months and have no means to sustain themselves, they can be deported. Many other countries use this system to its fullest. In Germany you must register within two months. Britain has never enforced these rules.



Some say that's because this kind of system requires ID cards. This is false. Norway doesn't have ID cards (although it is planning to introduce them) and it has managed it just fine, with a three month deadline for registration. The reality is that Britain has long prized barren public relations exercises about immigration - such as Theresa May's unpleasant 'Go Home' vans - over actually putting in place the systems which could alleviate public concerns.

But there is one very substantial loss of control that soft Brexit entails. You become a rule taker instead of a rule maker. Or, as some critics of soft Brexit put it, you are 'governed by fax'. In the EEA, you have to accept EU laws but you do not have the chance to formulate them.

Sneaky little bits of control

It wasn't always thus. Back in 1989, Commission president Jacques Delors envisaged the EU and Efta enjoying "common decision-making" procedures, but the idea withered away. Some believe that with a major player like Britain in the club - one with the biggest military and banking strength in Europe - that idea could be salvaged from the past. But there are no guarantees. It would be, at best, a long term project.

It's important to remember here that Britain would be completely outside of foreign influence in those areas not covered by the EEA agreement, like agriculture and fisheries. It would also have the freedom to represent itself independently at the WTO and in the setting of global standards – standards which typically drift down to the EU level.

And where it did come under the EEA agreement, it would have a fair amount of control about how law are implemented. As mentioned earlier, you can send technical experts to help interpret new rules for your home country.

More dramatically, Efta states can also veto EU laws.

This is called Article 102 - the 'right of reservation'. It's the nuclear option. It's never been done, although Norway came pretty close once when it objected to the Postal Services Directive. In the end, though, they backed down.

Why? If countries can veto EU laws, why don't they stand their ground and do it more often? Because the EU makes the consequences of a veto so severe that it brings the whole house crashing down. Vetoing a law doesn't just stop that specific rule coming into force. It wipes out that whole section of the agreement.

To which the natural question is: What do you mean by 'section'. And the answer is: God knows. The text just says "the affected part" is suspended, which could mean a lot or very little, depending on your mood. In financial services, for instance, you might just lose a couple of laws. Or perhaps you'd lose access to the whole of the new Markets in Financial Instruments Directive (Mifid 2), so any British firm dealing with shares, bonds or derivatives in Europe would lose access to the market. We just don't know, because no-one has ever tried it. And the reason they don't try it is because no-one knows.

You would need to be seriously pissed off about something to do this. Throughout the EEA agreement you see this same approach: there are safeguards but the consequences of their use are so severe that it's hard to imagine someone doing so.

In tomorrow's piece, we'll look at the Efta court, which is one of the weirdest courts in the world and see if we can really join it without breaking Theresa May's red line on the European Court of Justice.

Ian Dunt is the editor of Politics.co.uk. His book - Brexit: What The Hell Happens Now? - is available now.

The opinions in politics.co.uk's Comment and Analysis section are those of the author and are no reflection of the views of the website or its owners.

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