Given the confusion and unhappiness over the EU ‘deal’, rumours and Brexit alternatives swirl. One particular alternative which seems to be gaining traction is for post-Brexit Britain to continue membership of the European Economic Area (EEA). Technically the UK would have to reapply, as our EEA membership would lapse on leaving the EU. We are a member of the EEA by virtue of our membership of the EU.

I do not believe the EEA route is the way forward for this country.

The EEA comprises, of course, the current EU28 countries plus three non-EU countries: Norway, Liechtenstein and Iceland. (Switzerland is not a member, but has extensive bilateral arrangements with the EU.) As Norway is by far the largest of the non-EU EEA countries, the EEA option is frequently referred to as the ‘Norway’ option.

The EEA was established by the EEA Agreement, which came into force in 1994. At that time it comprised the EU12, plus Austria, Finland, Sweden, Norway and Iceland. Switzerland had signed the EEA Treaty in 1992 but its independently minded electorate voted against it in a referendum the same year. (The Swiss rejection of the EEA delayed Liechtenstein’s membership until 1995.) Austria, Finland, Sweden and Norway subsequently pursued EU membership and referenda were held in all these countries. The Norwegian electorate rejected EEC/EU membership for a second time, as it had rejected EEC membership in 1972. Austria, Sweden and Finland became members of the EU in January 1995.

As an EEA member, Norway is bound by EU legislation in a number of policy areas. First and foremost, there are the wide-ranging rules directly relating to the Single Market, with its ‘four freedoms’. These cover goods (including energy, competition and state aid policies), services (including financial services), capital and, crucially, labour. If the UK were to go down the Norway route, there would undoubtedly be restricted scope to control EEA migration into the UK.

In addition, the EEA Agreement includes a large number of measures which are intended to improve the functioning of the Single (Internal) Market. ‘Horizontal provisions’ are deemed to be relevant to the ‘four freedoms’, whilst ‘flanking areas’ are ‘provisions concerning co-operation outside the four freedoms’. Taking horizontal provisions and flanking areas together, the measures include budgetary matters, civil protection, company law, consumer protection, cultural affairs, education, training and youth, employment and social policy, environment, gender equality, anti-discrimination and family policy, health and safety at work and labour law, public health, and research and innovation. By any standards, this is an extensive list of restrictions on a country’s regulatory freedom.

There is little doubt that the UK as a non-EU EEA member would be expected to implement the Single Market’s rules rigorously. Our close compliance would be required in order to prevent ‘unfair competition’ and maintain the legendary ‘level playing field’ across the EEA, which are recurring concepts in EU documentation.

Digressing for a moment, let us note that these concepts figure large in the Political Declaration, which would be the starting point for any free trade negotiations by post-Brexit Britain and the EU. The Declaration states that ‘competition must be open and fair’ and ‘provisions to ensure this should cover state aid, competition, social and employment standards, environmental standards, climate change and relevant tax matters, building on the “level playing field arrangements” provided for in the Withdrawal Agreement’. Regulatory alignment with the EU would still be required.

UK membership of the EEA would, therefore, severely restrict scope for regulatory reform. It would also restrict the freedom to negotiate free trade agreements, which today are usually about far more than tariffs, dealing with the removal or reduction of non-tariff barriers (NTBs) which arise from differing regulatory laws or systems. And the Single Market’s ‘freedom of movement of labour’ would restrict the UK Government’s ability to implement an immigration policy in tune with economic and social needs of the country. At a stroke, Brexit’s ‘freedom dividends’ of regulatory reform, trade deals and a bespoke immigration policy would be severely curtailed.

Finally, there are two more crucial points. Norway is essentially a law-taker not a law-maker, being obliged to adopt the EU’s legislation with precious little influence on it, and Norway also contributes to the EU’s Budget. The UK as a non-EU EEA member would, of course, be in the same disadvantageous position.

Granted, Norway is outside the agricultural, fisheries, regional, external trade, Customs Union and foreign policies. But, if we chose to go down the EEA route post-Brexit, our institutions would undoubtedly be restricted in determining and controlling the laws that govern the land. It would not really be Brexit at all.

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Ruth Lea
Ruth Lea CBE is economic adviser at the Arbuthnot Banking Group