Next stop: Norway

As MP Nigel Evans said this morning, British politics is starting to make the House of Cards look like Teletubbies.

First came the shock referendum result on Friday morning, followed by David Cameron’s resignation a few hours later.

Then came the (ongoing) bid to oust the ineffectual Jeremy Corbyn from the Labour leadership, culminating in a massive majority of Labour MPs voting in favour of a motion of no confidence (which Corbyn continues to ignore).

Then this morning came the news that Michael Gove, adopted son of an Aberdeen fisherman and one of the brightest minds in Westminster, had decided to stab fellow Leave campaigner and Tory heir-apparent Boris Johnson in the back and declare his candidacy for the Conservative Party leadership, causing Johnson to drop out of the contest before it even started.

Johnson is politically popular and would have been a far better standard-bearer for the Tories in a general election than either Gove or May.  But he has not performed well since the result was announced last Friday: his speech, delayed until mid-morning, was lacklustre, his Telegraph column over the weekend was a disaster, raising concerns that he had never really intended for Britain to leave the EU, and by all accounts his abortive leadership campaign was disorganised and shambolic. Gove may have twisted the knife, but Boris’s spectacular fall from grace was largely his own fault.

If the contest for Prime Minister comes down to Gove and Home Secretary Teresa May as it now appears, at least the UK will have a capable leader going into negotiations for withdrawal from the EU.  Gove is a principled Brexiter, while May declared for Remain but was largely absent from the campaign and in her excellent speech clearly declared “Brexit means Brexit”.  May also indicated that she does not expect to call an early election, which is eminently sensible – given that the leadership of all of the major parties supported Remain the last thing Britain needs right now is another divisive election which would inevitably raise more questions that it answered.

I think we can rule out the possibility of another referendum on EU membership, or the idea that last Friday’s result can be ignored.  Whatever the wisdom of calling the referendum in the first place, the fact is that more people voted for Britain to leave the EU than have ever voted for anything in a British election, and the consensus seems to be forming across both of the main parties that whatever happens in the negotiations there can be no return to the status quo ante.

The consensus also seems to be that Britain should hold off triggering Article 50 (the official leaving process) until negotiations are already well advanced (May has ruled out giving notice before the end of the year).  Despite initial reactions from Brussels and the increasingly inebriated Juncker that no discussions could take place prior to notification, resolve on that point (and others) is beginning to weaken.

I think we can also ignore the prospect of Scottish independence for the time being. There is enough opposition to a breakaway Scotland in the EU to keep it from being a serious possibility (except maybe as a bargaining chip against the rest of the UK), and it’s far from clear that the Scots would like what they would be offered – their share of the UK’s contribution without rebate, the Euro, border controls with England and loss of fiscal transfers from London for a start.

So where do we go from here? Britain has three main bargaining chips in any negotiations:

  1. There are currently over 3 million citizens of other EU countries living in the UK, and London is now the sixth largest French city (with over 400,000 French citizens). While I doubt anyone wants to begin mass deportations, in theory the rights of those people to live and work in the UK would end once the UK left the EU. There are many other ways that the lives of EU expatriates could become more difficult following Brexit, including the imposition of customs duties and restrictions on remittances to family members in other EU states, and EU countries will want to minimise these effects.
  2. Exports of goods and services to the UK accounts for roughly 3% of the EU-27’s GDP.  Although exports from the UK to the EU-27 account for a significantly higher percentage of the UK’s GDP (roughly 16%), trade with the UK still represents an important part of the rest of the EU’s economy, and it will be important for the EU to preserve access to UK markets.
  3. The negotiations with Britain, if they become toxic, have the potential to cause huge problems for the rest of the EU, both financial and political. Until the UK finally exits the EU it remains a full member, with the right to appoint a Commissioner and to vote on legislation. It also controls the timing of making the Article 50 notification which, until activated, leaves the timetable for withdrawal uncertain. Markets in Europe have generally reacted to Brexit more negatively than those in the UK, suggesting that Brexit actually poses a greater financial risk to the rest of the EU than it does to Britain. Likewise, Morgan Stanley’s report on the impact of a highly-stressed negotiation process indicates that the effects on the EU would be as bad, if not worse, than those on the UK.  As Ambrose Evans-Pritchard wrote in the Telegraph this morning, the EU is beginning to realise that it has as much to lose from a messy divorce as the UK.

For all of those reasons, the EU can’t afford to stonewall.  Equally, the UK can’t afford a long period of uncertainty, or the prospect of losing half of its export markets overnight (total exports account for 28% of UK GDP, meaning that exports to the EU account for roughly 13%). It’s worth noting as well that although both the EU and the UK are members of the WTO, WTO limits on tariffs are only part of the problem: the big barriers to exports are the delays and costs incurred as a result of customs inspections. And of course the WTO doesn’t apply to services.

So, an immediate unilateral withdrawal is not an option.  The Leave campaign promised to repatriate legislative and judicial powers to the UK and regain control over EU immigration. They also promised, as far as possible, to preserve access to EU markets for UK goods and services (including financial services).  My preference would be for something along the lines of the Canadian free trade deal, with an equivalency regime for regulating cross-border services that allows UK financial institutions to continue providing services to EU residents.  But, I suspect that such a deal would be a hard sell politically given the need for Brussels to deter other defections.

So how can we achieve our aims in a reasonable timeframe while minimising the political fallout?  I think the much-derided “Norway option” – remaining a member of the EEA outside of the EU – deserves another look.  In case you need to brush up your knowledge of European supranational acronyms, the EEA is the European Economic Area and comprises members of the EU and three of the four members of the European Free Trade Association (the EFTA): Iceland, Lichtenstein and Norway (Switzerland is in the EFTA but not the EEA).  Although the UK is currently a member of the EEA (as a member of the EU), following Brexit it would need to first become a member of the EFTA (to which the other EFTA members would have to consent) and then rejoin the EEA (to which the consent of the EU would be required).

There are a number of advantages to EEA membership:

  • The UK could continue to access the EU’s single market in goods and services.
  • The UK could negotiate separate trade agreements with other countries, making any future transition out of the EEA entirely much less disruptive.
  • Members of the EEA are not subject to the EU’s common agriculture or fisheries policies, or required to cooperate in the areas of taxation, foreign policy or justice and home affairs.
  • Unlike the European Court of Justice (the ECJ), the EFTA Court would not have supremacy over the UK’s domestic courts, and UK courts would be under no obligation to refer matters to the EFTA Court for advice or to apply any EFTA Court judgment.
  • Although the UK would be obliged to implement EU legislation which has “EEA relevance”, historically this has only amounted to about 10% of all EU legislation (and, as a bonus for Remainers, this does include most EU employment and environmental legislation, as well as EU competition law).

The UK would still have to contribute towards the EU’s budget, but at a somewhat reduced level (the savings would be at most around €2 billion a year).

A major downside to EEA membership, repeatedly discussed in the campaign, is that the UK would not have the right to vote on EU legislation and would have to seek to influence the legislative process indirectly.  However, since the introduction of qualified majority voting in the EU, and given the UK’s increased marginalisation on contested Council votes, that might not result in such a difference in practice.  In any event, as an EEA member the UK would have the option, which Norway has exercised on more than one occasion, to refuse to implement legislation which it finds objectionable (and in that scenario, the dispute would be resolved through diplomatic negotiation rather than judicially by a supranational court).

The continuing sticking point is free movement of people, which is a condition of EEA membership.  However, under the EEA Agreement this right is limited to those with an offer of employment or other means to support themselves.  32% of EU nationals currently in the UK arrived looking for work and without a job, suggesting that joining the EEA would provide a significant brake on EU migration to the UK.  There is also an option under the EEA Agreement, currently employed by Lichtenstein, to exercise an emergency brake on immigration.  Given that precedent it would seem possible to reach an agreement where EU immigration was limited to workers and capped at a certain level, particularly if the UK largely accepted the rest of the existing EEA structure without comment.

For all of those reasons, joining the EEA, although it requires compromises, is probably our best option, whether it ends up being a halfway house or a permanent home. It returns vast areas of legislation directly to Parliament, and by requiring national implementation of EU legislation with EEA relevance involves Parliament more directly in the legislative process (with disputes resolved diplomatically rather than judicially). It frees UK courts from the jurisdiction of the ECJ and removes the conflict between civil and common law jurisprudence (a geeky point but legally and culturally quite important). It preserves access to the single market for goods and services, allows the UK to negotiate its own trade agreements with other countries, and suggests a way to resolve issues surrounding the free movement of people.

It would also, by preserving many of the elements those who supported Remain value most about the EU, help to reunite the country and dampen calls for Scottish independence or Irish unification, acknowledging that although a clear majority favoured ‘leave’, a significant minority were strongly opposed.

So let’s get those negotiators over from New Zealand and get to work!

Updated to refer to UK-EU-27 trade as percentage of GDP (Source: ONS Pink Book 2015).

5 Responses to “Next stop: Norway”

  1. Chris Cook says:

    Sounds like a good plan…… We were members of EFTA before we were members of the EU. Does leaving the EU necessarily mean leaving EFTA? Can we not leave the EU but retain membership of EFTA?

    • James Jirtle says:

      We left the EFTA when we joined the EU, so we would have to reapply for EFTA membership. We are currently in the EEA, but the EEA Agreement was only designed to accommodate members who also members of either the EU or the EFTA (although some have suggested trying to have a ‘shadow’ membership in the EEA without joining the EFTA). Iceland has already indicated that it is open the the UK joining the EFTA, but it is possible Norway would have concerns over effectively ceding leadership to the UK. So, there are certainly questions to be ironed out. But the EEA option does at least provide a precedent that should allow negotiations to focus on the key political points (like immigration) rather than on questions of structure or implementation.

  2. James Menzies says:

    Super article. Probably worth pointing out though- technical point- something about the Leave campaign’s mandate. Despite all the promises Leave made about capping immigration etc., leaving the EU only makes them a theoretical possibility, not a certainty. Irrespective of the motivations of individual voters, the referendum was only about our membership of the EU. Given that Leave was a coalition of people with diverse politics, a vote for the outcome they desired doesn’t produce any kind of political mandate other than to leave the EU. I know this probably sounds obvious, but I think it is something that often gets ignored

    • James Jirtle says:

      That’s true, and why I think the compromise posed by the EEA option should be taken seriously, rather than insisting that a vote to leave necessarily meant ‘full Brexit’. I agree, too, that the referendum wasn’t, despite the confusion of many voters and those in the media, a vote for a government with a platform, but a vote on the specific question of whether we should leave the EU. So, we have to leave the EU, but the next steps are flexible. That said, what the referendum did expose is deep concerns over the level of immigration and politically I think it would be unwise and disingenuous to ignore them. That’s why I’ve suggested employment offer + quota might be a reasonable compromise, and acceptable to the EU: it reduces competition for unskilled labour (one of the big concerns of working-class ‘leave’ voters) and helps ensure that people won’t feel overwhelmed by the overall level of immigration, while still permitting a reasonable free movement across the EEA. But we’ll see…

  3. […] In relation to Brexit, Project Fear Mark III clearly backfired – if negotiations are going to be that difficult and acrimonious, why has May been so gung-ho about pushing for the cleanest break possible? To some extent Brexit was always going to be a poisoned chalice. Last June no one, including ‘Brexit means Brexit’ May, really knew what Brexit meant. In deciding to take a hardline approach, May gave voters the chance to say that they would prefer something a bit less antagonistic, a chance they have taken up with gusto. Already we’ve heard Boris Johnson, perennial Tory leadership candidate, saying that he was listening to voters’ concerns – is that a coded indication that as PM Johnson would pursue a less strident form of separation (perhaps the Norway option)? […]

Leave a Reply to James Jirtle