U.K. Prime Minister Theresa May used to say she wanted a customized, "bespoke" trading relationship for Britain once it leaves the European Union. That was before she, and her negotiating hand, were weakened by the results of a snap election that backfired. Now May might have to soften her approach to Brexit by agreeing to maintain more ties to the EU’s trading bloc than she previously anticipated. If a bespoke deal is now a stretch, Norway’s relationship with the EU might be back on the table as a model.
1. What is the Norway model?
Norway, like Iceland and Liechtenstein, isn’t in the EU, but is part of the European Economic Area, which also encompasses the 28 EU nations.
2. How does this benefit Norway?
Members of the EEA have access to the lucrative single market for goods and services to which the U.K. sends more than 40 percent of its exports. Banks based in EEA member nations have "passporting" rights, which means they can access the EU without having to have offices there. Because Norway and the other non-EU members of the EEA aren’t in the EU’s customs union, they are free to line up their own trade deals with non-EU countries. They also don’t take part in the EU fisheries or agriculture policies.
3. Does the Norway model have a downside?
Of course. Members have to accept the EU principle of free movement of labor (i.e. people), which directly conflicts with what many interpret as a main goal of Brexit, namely to control immigration to the U.K. from the bloc. However EEA members like Norway can make a case to enact "safeguard measures" to suspend free movement for people. Britain would still be expected to accept many of the EU’s rules in areas such as employment rights, without enjoying a say in crafting them. (Norway has adopted 75 percent of the bloc’s laws in return for accessing the market.) EEA-only members can’t veto a nation joining the EU. The U.K. would also have to tolerate some continued oversight by the European Court of Justice and also send money to Brussels.
4. How would the U.K. go about joining the EEA?
It would first have to join the European Free Trade Association, which it helped to establish almost six decades ago. (Only members of the EU or the EFTA can join the EEA.) Re-joining it would allow the U.K. to take advantage of the 27 free-trade agreements the group already has with countries worldwide. But the U.K. may run into resistance from EFTA members -- Switzerland, plus EEA members Norway, Iceland and Lichtenstein -- on the grounds that its sheer size would throw the group’s balance out of whack. If the U.K. were a member, future trade deals might become more complex.
5. What other models are out there for a post-Brexit U.K.?
Turkey is inside the EU’s customs market, so it can’t line up its own trade deals, but it sits outside the single market. Switzerland struck a free-trade agreement and scores of subject-specific accords with the EU, although that was a drawn-out process. The Canadians have their own trade deal with the EU that eliminated most tariffs.
6. How likely is it that Britain will seek to copy Norway?
Brexit Secretary David Davis said a Norway strategy is still "not a route" the U.K. plans to pursue, and reiterated that Britain will leave the single market. Plus, British voters who triggered Brexit might not believe that joining the EEA carries out their mandate. On the other hand, many who campaigned for Brexit ahead of last year’s referendum identified Norway and its prosperity as an attractive alternative to EU membership. "I think we’re probably headed towards a Norway-type situation," former U.K. Independence leader Nigel Farage said following the latest U.K. election. Former Chancellor George Osborne, who now edits the Evening Standard newspaper, suggested to the BBC that joining the EEA could be “a sort of holding position for a very long period of time, while Britain tries to work out what it wants out of the vote last year to leave the EU.”
The Reference Shelf
- Bloomberg View’s Leonid Bershidsky on May’s new Brexit mandate.
- QuickTake Q&As on Europe’s customs union and how Ireland’s border is now a bigger Brexit issue.
- A QuickTake explainer on Brexit.
- More on the differences between the EEA and the EFTA.
- The European Free Trade Association would look a lot different with the U.K. in it.