IEA Brexit Prize runner-up

One of the priorities for our Leave campaign is to develop coherence in our analysis of Brexit options. Once we are clearer about the options, I think there is still a possibility that something like a dominant majority position could emerge in favour of the Free Trade Agreement option. This is my own position, clearly, and I recognise of course that there is a strongly held alternative view that the EFTA-EEA option is preferable. But we cannot hope to resolve this issue until we have a good understanding of it.

Today, I want to address an element of confusion that seems to exist about the relationship between EFTA and the EEA. I discussed this before in my series on Iain Mansfield’s winning IEA Brexit Prize entry, and now want to look at Murray and Broomfield’s Brexit plan, which gained the runner-up’s position, and in which there is further evidence of incomplete understanding of EFTA and the EEA.

Take, first, this paragraph from their introduction (p. 6):

This submission will first examine the most important question relating to the Article 50 negotiations: whether the UK should attempt to enter into a relationship with the EU like that of Norway or Switzerland (“The Norway option”) within the European Economic Area or a less stringent version of that relationship (“EEA-lite.”)

First of all, it is strange to classify Switzerland’s unique relationship with the EU under ‘the Norway option’. Secondly, Switzerland is not in the European Economic Area (EEA). Third, since Switzerland’s relationship with the EU is very different from Norway’s, it is not possible to know what the authors mean by EEA-lite, which is described as ‘a less stringent version of that relationship’. Do they mean of Norway’s relationship, or of Switzerland’s?

More evidence of a misunderstanding comes on p. 8:

The first question HMG will have to answer for itself is whether the UK should use as its negotiating position a proposal to re-enter the European Free Trade Area (EFTA) alongside Norway, Iceland, and Liechtenstein, or negotiate a similar deal within the European Economic Area (EEA) to that of Switzerland (also a member of EFTA, but with different arrangements discussed below), or leave the EEA entirely and negotiate with the EU as a sovereign entity outside of the EEA.

Again, the authors appear to believe that Switzerland is in the EEA. Second, the A in EFTA stands for Association not Area. Third, it seems to be implied that entering EFTA would of itself bring us into the EEA.

On this last point, consider this, a few lines down on the same page (8):

This [that ‘decisions are taken … by a clique of unelected technocrats’] would remain true if Britain were to enter EFTA, but made slightly worse. The laws that govern the functioning of the EEA would still be taken by the same “clique” in Brussels, only without British input at the Parliamentary, Commission, or Ministerial level.

Or this on page 10:

EFTA membership incorporates the principle of free movement of labour within the EEA.

This last quotation seems quite definitely to imply that EFTA membership involves participation in the EEA. Since this is inaccurate, I think it is worth reviewing what EFTA is, what the EEA is, and how they fit together.

EFTA and the EEA

The European Free Trade Association (EFTA) was established by a Convention signed in Stockholm in 1960 by Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the United Kingdom. Its purpose was to promote closer economic cooperation and free trade in Europe. Iceland joined in 1970, and the UK and Denmark left in 1973 to join the EEC. Austria, Iceland, Portugal, Sweden and Switzerland each signed an almost identical bilateral FTA with the EEC on 22 July 1972. All of these except that of Iceland came into force on 1 January 1973, the same day that the UK, Ireland and Denmark acceded to the EEC. 1 The timing was not coincidental. Norberg and Johansson observe that Denmark and the UK could not be accepted into the EEC without them being allowed to continue the liberalised trade relations they had with their former EFTA partners through EFTA. 2

By July 1972, when the other EFTA states signed their FTAs with the EU, Norway had completed negotiations and obtained parliamentary approval to join the EEC, but its accession was prevented by the referendum in September 1972. Thereupon Norway concluded an FTA in March 1973 of the same type as that of the others. 3 Every EFTA country, therefore, had an FTA with the EU.

By early 1984, ‘the last remaining tariff barriers and quantitative restrictions affecting their bilateral trade [ie between the EC and the EFTA countries] and industrial products’ had been abolished. In April the same year, at a Ministerial meeting in Luxembourg between EFTA countries and the EC and its Member States, the Ministers, among other things, agreed:

to consolidate and strengthen cooperation, with the aim of creating a dynamic European economic space of benefit to their countries [Section 2]

and

to pursue their efforts towards improving the free circulation of the industrial products of their countries, in particular in the following areas: harmonisation of standards, elimination of technical barriers, simplification of border facilities and rules of origin, elimination of unfair trading practices, State aid contrary to the Free Trade Agreements and access to government procurement. In this regard the Community’s efforts to strengthen its internal market are of particular relevance. Ministers are confident that, as in the past, it will prove possible to find well-balanced solutions based on reciprocity, in the spirit of the Free Trade Agreements. [Section 3]

Thus began the process which was to lead to an agreement between EFTA and the European Community (rather than the series of bilateral FTAs which preceded it), and the creation of the European Economic Area, which was the European economic space (EES) re-named.

Of particular importance, according to Norberg and Johansson, was the adoption in 1985 of the European Commission’s White Paper on the completion of the internal market, and the adoption of the Single European Act in December that year. The EFTA countries realised, it is said, that they were running the risk ‘of being discriminated against in the EC internal market after 1992, if they did not succeed in creating closer integration and parallel development between the EC and EFTA countries through the creation of the EES.’ 4

On 17 January 1989, in an address to the European Parliament, Jacques Delors presented a choice for future EFTA-EU relations between continuing with the present mainly bilateral road and a new more institutional form of association with common organs for decisions and administration. 5 In March, the EFTA Heads of Government gave a positive response to Delors’ proposal for a new relationship. They envisaged, according to Norberg and Johansson, that negotiations would lead to ‘the fullest possible realisation of free movement of goods, services, capital and persons’, with the aim of creating a ‘dynamic and homogenous’ EES. 6

Exploratory talks began that year. It soon became clear, and it was a surprise to the EFTA countries that, as the European Commission saw it, they would have to take on all the relevant acquis communautaire. 7 Despite this, negotiations commenced in June 1990 between the seven EFTA states (including Finland since 1986) and the EC. They were concluded in October 1991, sixteen months later. However, before the agreement was signed, the ECJ delivered an opinion that the legal framework was incompatible with the EEC Treaty. As a result, a new legal framework had to be devised, with an EFTA Court instead of an EEA Court. This time the ECJ accepted the proposals, and the EEA Agreement was signed at Ministerial level at Oporto on 2 May 1992, by representatives of all Contracting Parties. 8 All the Member States of the EC were party to it, as were the seven EFTA nations (Austria, Finland, Iceland, Liechtenstein, Norway, Sweden, Switzerland).

The Agreement was intended to come into force on 1 January 1993, but on 6 December 1972 in a referendum, a majority of both the people and the cantons of Switzerland rejected ratification. After the necessary adjustments were made to the Agreement, it finally came into force on 1 January 1994, with the accession of Liechtenstein delayed until 1 May 1995, to enable that small state’s relationship with Switzerland, now outside the EEA, to be sorted out. 9 In 1995 also, on 1 January, Austria, Finland and Sweden left EFTA and joined the EU, remaining parties to the EEA Agreement, but now as parties to its EU pillar. By May 1995, therefore, there were four EFTA nations remaining (Norway, Switzerland, Iceland, Liechtenstein), of which three were in the EEA, the situation which applies still today.

Two treaties

If Britain were to join EFTA it would become party to the EFTA Convention. Accession would require the agreement of all four member states (see my previous discussion of this point).

Accession to the EEA is covered in Article 128 of the EEA Agreement. It reads:

1. Any European State becoming a member of the Community shall, or becoming a member of EFTA may, apply to become a Party to this Agreement. It shall address its application to the EEA Council.

2. The terms and conditions for such participation shall be the subject of an agreement between the Contracting Parties and the applicant State. That agreement shall be submitted for ratification or approval by all Contracting Parties in accordance with their own procedures.

Article 128(1) demonstrates that while all states newly acceding to the EU have to apply to become party to the EEA Agreement, the same is not true of EFTA. A new member of EFTA ‘may’ apply to join the EEA, but is not required to.

Article 128(2) shows that accession to the EEA requires the agreement of all parties to it. So if Britain were to join EFTA and apply to join the EEA also, we would need the unanimous approval of all 30 states.

Conclusions

  1. Switzerland is not in the EEA.
  2. At least as far as the treaties are concerned, it would be possible for the UK to join EFTA, but not join the EEA. Conceivably, one or more of the EFTA nations could make the UK’s accession to EFTA conditional upon an application to join the EEA, but I somehow think that would be difficult to do, given that rather specific provision is made in Article 128(1) of the EEA Agreement for a country to join EFTA but not apply to the EEA.
  3. An application to the EEA would not necessarily be successful. Given that the UK had just left the EU, or was in the process of doing so, it would certainly occur to all the other states that we might end up leaving the EEA also, or be in a constant quandary as to whether to stay in it or not. Perhaps they would encourage us to follow our hearts and be ourselves, an island nation, with a view to the wider seas, as well as to Europe.

Andrew

 

 

 

Notes:

  1. Sven Norberg and Martin Johansson, The History of the EEA Agreement and the First Twenty Years of Its Existence, in Carl Baudenbacher, The Handbook of EEA Law (Springer 2016) p. 14-15 Currently available on Google Books
  2. Ibid. p. 15
  3. Ibid.
  4. Norberg and Johannson, p. 17
  5. Norberg and Johansson, p. 21
  6. ibid. p. 22
  7. ibid. p. 23
  8. ibid. pp. 26-30
  9. ibid. p. 31

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