Here are the options Britain faces in terms of an exit strategy. A brief overview of each strategy and the perceived pros and cons has been given below. There are many acronyms and specific terms here, so refer to our glossary if needed.
The Norway Option The Norway option is predicated on Britain remaining within European Economic Area (EEA) agreement, which outside the EU requires joining the European Free Trade Association (EFTA). This option has the advantage of simplicity: the required legal framework has existed since 1994.
This arrangement gives full access to the single market and its four pillars – the free movement of goods, services, people and capital - in exchange for cooperation and implementation into national law of EU legislation within areas such as research and development, social policy, education, the environment, consumer protection, culture and tourism. In other words, in all these areas (known as “horizontal and flanking” policies) Norway must accept EU law and cooperate with the EU as Britain does now. It would be business as usual. Other policy areas however, are not part of the EEA. These include the Common Agricultural and Fisheries policies, regional policy and external trade policy. Control over foreign policy, and justice and home affairs is a voluntary part of the agreement. Norway has opted-in to and receives funding from a number of other initiatives that are routinely and wrongly perceived as membership conditional, such as the Erasmus programme that allows students to study abroad or the Horizon 2020 research initiative set up to secure Europe’s global competitiveness. In theory, Norway has the ability to put an “emergency brake” on immigration in extreme circumstances, similar to the proposal in Cameron’s deal, although this has never been tested.
Supporters of this option argue that it would allow continued exports and imports to the EU, but would free us from being bound by particular pieces of legislation deemed to be costly, unnecessary or unfair such as the Common Agricultural Policy or Common Fisheries Policy. It would reduce the power of the European Court, Commission and Parliament over the Britain’s security, foreign policy, justice and home affairs. It would allow the UK to explore and develop bilateral free-trade agreements with any country of its choosing. Supporters also like that it would reduce our funding commitments to the EU, although by how much is debateable as estimates vary wildly. A House of Commons report from 2011 found that Norway pays £524million per year for its privileges - £106 per person per year compared to the UK’s £243. Pro-EU think tank Open Europe on the other hand, estimate the cost of Norway’s arrangement to be £31.4bn a year, or 94% of our current bill.
Critics of this option argue that it is not a preferable because it does not address the main issues many have with Britain’s relationship with the EU, it would not give us any more power over immigration policy for example. It is also argued that under this option Britain would still have to accept a large portion of EU laws but would no longer have any influence over them.
Again, almost nothing here is agreed upon by both sides. Whilst it is true that Norway has no seat in Brussels during EU negotiations, Eurosceptics argue firstly that the EU is a law-taker rather than a law-maker, mostly packaging together rules and standards stemming from a number of other organisations that increasingly adhere to global standards and convention. They argue secondly that Norway has its own seat at these international bodies such as the World Trade Organisation (WTO), whereas the Britain is represented by the EU, meaning Norway has more of a say during the initial stages of the process. Claims relating to the percentage of EU law that Norway accepts are dubious at best, and whilst Norway does have full veto rights within the EU and the UK does not, they are yet to exercise this privilege. Finally, although Norwegian Prime Minister Erna Solberg has said she would prefer EU membership over the current arrangement, the Norwegian public strongly disagree. Across every one of the 37 public polls conducted since 2003 the public have voted against EU membership, winning with 38% of the vote in the first and steadily increasing to 70.4% in 2014.
Below is a chart illustrating the differences between EU and EEA membership, courtesy of the Adam Smith Institute:
The Swiss Option Switzerland is a member of EFTA but not of the EEA. It has access to the single market through around 120 bespoke bilateral trade agreements with the EU. Referred to as “Bilaterals I”, the majority of these deals were agreed in 1999. They cover free movement of goods, people and capital, although free movement of services (including financial) has not been agreed.
Switzerland made further agreements with the EU in 2004, known as “Bilaterals II”. This covered new arrangements which enhanced cooperation with the EU in areas the Swiss deemed to provide mutual benefit. Switzerland aligns much of its domestic legislation with that of the EU and adopts many of the rules of the single market, which gives it tariff-free access to EU goods. This cooperation covers areas ranging from agriculture, air transport, the “Dublin Regulation” on rights for asylum seekers; pensions, taxation of savings; fraud, and the EU’s media activities among many others. Switzerland also falls under the umbrella of the EU’s Environment Agency; Europol and Eurojust – encouraging police and judicial cooperation; and takes part in the EU’s youth, educational and training funding schemes. Switzerland adopts fewer EU laws and regulations than EEA members such as Norway, but as EEA non-members the Swiss also have less influence over EU rules than EEA/EFTA members. Switzerland does have a seat on fifteen joint committees alongside European Commission representatives that discuss issues around trade, but the commission has the advantage in negotiations. Despite allowing for more say over adoption of EU rules, in terms of trade the Swiss option looks increasingly like the Norway option but without access to the formal decision making processes available to EEA members.
Similar to the Norway option, in this scenario Britain would be unrestricted in being able to pursue its own trade agenda with countries outside the EU. That being said, most of Switzerland’s trade agreements with the EU have taken up to seven years to negotiate. Furthermore, many of these were built upon existing FTAs. Outside of EEA membership, there is no such existing framework Britain could work from.
The Swiss are happy with their arrangement, the EU is less so. The EU would much prefer an arrangement under which Swiss national law and regulation conforms automatically to that of the EU, rather than allowing the Swiss to pick and choose. For example, whilst the Swiss cannot currently limit the free movement of people, following a popular vote in 2014 against mass immigration the Swiss-EU relationship has come into question. As a result Switzerland has been suspended from the Erasmus Programme and some other EU funding indefinitely. The EU’s contempt for this arrangement and the potential time scales involved with developing FTAs are the biggest issues with this option.
The Turkish Option Turkey are not members of EFTA or the EEA, but are part of the EU customs union. Within the customs union, internal tariffs (trading within the union) are eliminated whilst participating countries must agree on common external tariffs (trading outside the union). This means that Britain would not be free to set its own tariffs, as it would have to follow the decisions of the EU. This arrangement would not guarantee Britain full access to the single market, as Turkey, like Switzerland, has no agreement on the free movement of services or access to the EU’s public procurement. Turkey also has no say on the FTAs the EU develops with other countries, and sees little benefit from them. Turkey has had to adopt some EU rules, particularly around industrial standards, but has little effective input into the development of any EU rules it has to accept. Furthermore, the EU actually has some control over Turkish national law, and must conform to the decisions of the European Court of Justice in which it has no representation.
Under such an agreement, the EU would effectively control British trade policy and Britain would be prevented from pursuing its own trade agreements outside the union without consent. Britain is already a member of the EEA and could keep this status with little difficulty if it leaves the EU, so the Turkish option is difficult to justify. Turkish Economy minister Nihat Zeybecki described the current arrangement as one “to which no sovereign independent state should agree.” The WTO Option The World Trade Organisation (WTO) option would be the most definitive break with the Union. The WTO – of which Britain and other EU countries are members in their own right, provides a global framework for trade relations between countries. This means that in the absence of any arrangements between Britain and other EU countries, or if the two year negotiation period under Article 50 expired (without extension) before alternative arrangements could be agreed, the UK would be forced to revert to WTO membership as a basis for trade relations. This option would end British access to the single market, meaning it could limit the free movement of goods, people, services and capital If this happened, we would no longer be party to any of the FTA’s negotiated by the EU with non-EU nations, having to renegotiate all of them again.
Under this arrangement British exports would be subjected to the EU’s common external tariff. The level of the tariff varies between products, with a tariff of 10% on car exports for example, or upwards of 30% for particular agricultural goods. Without a preferential trade deal, Britain would have no option to vary these tariffs, as the EU is required to apply a common external tariff in line with the WTO’s “Most Favoured Nation” rules, meaning a WTO member must offer the same terms as the other 161 members. Furthermore, the WTO option would see increases in non-tariff barriers to trade. One example: British exporters would have to ensure products comply with EU rules, but would also have to provide evidence of doing so, which requires putting goods through a recognised system known as “conformity assessment”. Mutual recognition of standards would stop, meaning new testing, inspections and paperwork would be required. Countries such as China and the US trade under WTO rules, but have negotiated additional arrangements that forego some of these issues. alex.davies@gmchamber.co.uk
