Proposals for some kind of EFTA Brexit have been in circulation, including among Brexit supporters, for some time predating the 2016 referendum. The proposition was adopted and promoted by some MPs after the referendum and has gone through a number of iterations and rebrands, most recently on these pages by Ben Ramanauskas.
It is a seductive proposition: leaving the more overtly political aspects of EU membership like the common foreign policy and the worst trade features like the customs union while preserving the trade benefits of single market membership.
But as I have argued in my briefing Pining For Norway – the EEA Models, the legal mechanisms are not well understood, and far from being a compromise, EEA membership even without a customs union attachment is even more restrictive for the UK than the draft withdrawal agreement as it stands.
On practical and political grounds, the case for EFTA has not been made – here’s why.
First, a point of clarification. Although the acronyms EEA and EFTA sometimes seem to be used interchangeably, EFTA membership (currently comprising Norway, Iceland, Switzerland, and Liechtenstein) does not (contra Ramanauskas) by itself give continued preferential single market access.
EFTA is a free trade agreement between its parties. A link with the EU for EFTA countries requires signing the European economic area (EEA) agreement, as Norway, Iceland and Liechtenstein have, or negotiating separate bilateral deals as Switzerland has.
It is also incorrect to refer to the EFTA Court as having a role in EFTA: it does not. Rather, it is an institution of the EEA and has jurisdiction in respect of the EFTA/EEA members under the EEA agreement only.
I will assume membership of the EEA as an EFTA member is what Ramanauskas actually envisages for the UK.
With regard to the politics, the EEA (as defined in the EEA agreement) is an association formed to “promote a continuous and balanced strengthening of trade and economic relations between the contracting parties with equal conditions of competition, and the respect of the same rules, with a view to creating a homogeneous European economic area”.
The EEA agreement flows EU laws into EFTA/EEA countries. This is not optional: there is no veto and EFTA members have no vote in the European council or parliament.
Indeed, Norway’s prime minister has said: “We do accept that decisions on the four freedoms are done in Brussels.” It’s true that this does not include the common agricultural policy, defence, or foreign policy, but this does not mean that the rules the EEA imposes have no political element.
They do not just concern arcane matters of technical regulations of goods. Fundamental issues are in play, from the use of gene-editing technology to freedom of expression on the internet.
As an EFTA/EEA member, all of these matters would effectively be determined without British voters and businesses having representation.
EU financial services regulations are EEA relevant so EFTA/EAA members are obliged to implement them.
It is well known that the stated aim of many EU member states is to win business away from the UK, and that the direction of travel of EU rules in financial services has been towards greater levels of intervention and integration, often in ways that have been detrimental to the UK even while it was a member.
There would be a significant risk of regulation being passed that would undermine the UK’s competitiveness in this area. This is why firms and industry bodies in the city have moved on from prioritising passporting rights in the single market.
Former financial services commissioner Lord Hill has said from his ongoing discussions with regulators, politicians, and financial services businesses in the EU: “I haven’t met one who thinks that being in the EEA could work for London and Britain’s financial services industry”.
Although the EEA agreement provides for consultation and communication at the early stages of formulating single market legislation, in practice, as described by the European parliament, EFTA countries: “have little influence on the final decision on the legislation on the EU side”.
The EFTA secretariat agrees: “EEA EFTA States have little influence on the decision-making phase on the EU side”.
Lord Hill described his experience of the relationship between the EU and the EFTA/EEA members as: “not a relationship of equals or anything remotely approximating it. My recollection is that EEA ministers were extremely grateful just for a meeting and even pleasantly surprised to get a reply to their correspondence. No EEA country had any material ‘rule-shaping’ effect on financial services.”
There is also a widespread assumption among EFTA enthusiasts that it is an off-the-shelf solution. But the EEA Agreement is specifically stated to apply only to the territories of the EU and the EFTA parties.
Even if the UK government were to claim that the UK’s membership of the EEA Agreement continues regardless of having left the EU, if the other parties don’t agree, there would be protracted negotiation and potentially litigation.
Given the current state of negotiations, such a change of course would be unlikely to be resolved by 31 October, or even, if the transition period under the withdrawal agreement comes into effect, by December 2020.
So why not join EFTA and then accede to the EEA Agreement in the normal course? Again this is not an off-the-shelf model.
It would require new negotiation guidelines to be agreed by the EU27 and ratification by the UK, all the EFTA states, and all EU member states.
Schedules and governance arrangements would all have to be renegotiated if the UK wished to have any special arrangements to reflect its circumstances, for Gibraltar, for example, or for the needs of financial services or other sectors.
No doubt the EU would wish to negotiate arrangements on fishing rights.
The EU’s position is that it cannot negotiate such agreements with an existing member state, as article 50 does not give sufficient competence and the other relevant provisions of the EU treaties do not cover negotiations with current EU members.
Many commentators consider that the boundaries of article 50 have already been strained to their limits by the future relationship set out in the backstop.
It would be very difficult for the EU to stretch this further and renegotiate the EEA agreement under article 50 and doing so would almost inevitably be subject to legal challenge, making it risky and uncertain.
This means that to join the EEA as an alternative to the withdrawal agreement, the UK would have to leave the EU with no deal in October 2019, and then continue negotiations for the future relationship.
This would negate a large part of the claimed benefits of the EFTA/EEA model, as the disruption from leaving with no deal would already have happened and it would be more sensible at that point to focus on bilateral negotiations with the EU and wider trade policy.
The impact of EEA membership on financial services alone should rule it out for the UK post-Brexit – even if the basic argument for democracy and accountability in who makes the UK’s laws, and how, are not considered sufficiently persuasive.
The alternative is not cutting ourselves off from the EU, or even losing access to the single market. All WTO members have access to the single market, and trade will continue.
Even the most pessimistic forecasts do not predict catastrophic consequences from leaving the single market, rather they forecast slower growth than might otherwise have been the case.
By adopting policies that are different from the assumptions in those models (such as a 100 per cent reduction in immigration), even that can be averted: from outside of EFTA and the EEA.