This Q&A looks at how the EEA Agreement might work as a model for the UK's post-Brexit relationship with the EU.
Brexit resources | 11 Jul 2017
Brexit: EEA Q&A
- What is the EEA and the EEA Agreement?
- Is the EEA Agreement a realistic model for the UK's post-Brexit relationship with the EU?
- Which countries are members of the EEA?
- Which EU policy areas are not covered by the EEA Agreement?
- Do EEA-EFTA States still have to make contributions towards the EU/EEA budget?
- What influence do EEA-EFTA States have over EU legislation?
- Are EEA-EFTA States free to make their own trade agreements with third countries?
- Is trade in goods between EEA-EFTA States and the EU "frictionless" and tariff-free?
- What is the position as regards free movement of people in the EEA-EFTA States?
- How do EEA institutions differ from those of the EU?
- How does new EU legislation get adopted by the EEA/EFTA States - and what is the "slow implementation problem"?
- How does the relationship between the EFTA Court and EEA-EFTA States differ from the relationship between the CJEU and EU Member States?
- What is the status of CJEU rulings in EEA-EFTA States?
- Can EEA-EFTA States intervene in cases before the CJEU?
- Is it possible for the UK to leave the EU but remain in the EEA?
- What would need to happen for the UK to become a fully-fledged EEA-EFTA State?
- A "mirror" or "parallel" EEA Agreement: what is it and how would it help?
What is the EEA and the EEA Agreement?
The EEA is an internal market covering the EU Member States and EEA-EFTA States (Iceland, Liechtenstein and Norway - see Q3 below) focusing on the free movement of goods, services, capital and people. The EEA Agreement is narrower in scope than the EU Treaties (see Q4) and is arguably more focussed on economic rather than political objectives; in particular, unlike the EU Treaties, it does not contain the objective of an "ever closer union" between its members. In discussions of Brexit, the EEA Agreement is sometimes referred to as "the Norway option" or, more recently, by a cross party group of MPs as "Common Market 2.0" (see Q2).
From a business perspective, EEA membership would enable the UK to continue to participate in the Single Market. Trade in most goods would continue to be tariff free, although the UK would be outside the Customs Union, which could increase border red tape (see Brexit: Customs Arrangements). The UK would, however, be free to conclude its own trade agreements (subject to certain constraints – see Q7). "Norway plus" is commonly used to refer to the EEA option in combination with a UK-EU customs union. The Common Market 2.0 proposal also envisages a customs union with the EU.
The UK would also lose the formal voting rights over EU legislation which it currently possesses as an EU Member State; this would probably make it more difficult to influence the development of Single Market rules (see Q6).
Is the EEA Agreement a realistic model for the UK's post-Brexit relationship with the EU?
As noted at Q1 above, the EEA model would involve the UK remaining a participant in the Single Market. At the time of writing, however, the UK government's stated position was that it intends to leave the Single Market. On the face of it, this would suggest that the EEA model should be wholly discounted. However, there are a number of ways in which it could still be relevant to the Brexit negotiations:
- Support for a "softer" Brexit: The general election in June 2017 left the government without a majority and arguably did not provide a clear endorsement of its proposals for the UK's post-Brexit relationship with the EU. On the contrary, many commentators have interpreted the vote as favouring a "softer" Brexit which could, potentially, involve membership of the Single Market, based on the EEA model. As an "off the shelf" model which has already been agreed by the EU with several other Member States, such an option should also be easier to negotiate than a more "bespoke" EU-UK relationship (although it would not be without its difficulties – see below). Several continental think tanks (e.g. the Robert Schuman Foundation and Bruegel) have suggested that Brexit could provide a catalyst for a reorganisation of the EU and the EEA, potentially giving the EEA-EFTA States a greater say in Single Market legislation whilst enabling EU member states to pursue greater integration, should they wish to do so. Such reform would take time but it would address a key concern about the EEA model, which is that, compared with EU membership, the UK would stand to lose influence (see Q6 below).
- Use of parts of the EEA framework: Even if there is no change to the UK's stance on the Single Market, elements of the EEA Agreement may provide a useful template for aspects of the UK's post-Brexit relationship for the EU. For example, it has been suggested that the institutions of the EEA Agreement could be used by Switzerland as a mechanism to supervise and enforce its complex relationship with the EU (see this paper at page 5 under the heading "Docking to the EEA/EFTA Institutions"). In addition, the EEA Agreement (or aspects of it) could also provide a useful template for transitional arrangements between the UK and the EU, pending the conclusion of negotiations over the longer term relationship.
More recently, the EEA option has come to the fore because it is being promoted as a possible compromise Brexit outcome by a cross-party group of MPs under the banner "Common Market 2.0".
That said, for reasons explained at Q16, it may be difficult for the UK to make a quick and "seamless" transition from EU membership to becoming a fully fledged EEA-EFTA State, alongside Iceland, Liechtenstein and Norway. However, a potential solution to this problem would be for the UK to ask the EU for a "mirror" EEA Agreement i.e. a separate agreement on the same terms as the EEA Agreement (see Q17). In view of this possibility, it seems to us that the EEA model should not be ruled out as "too difficult" – although clearly, there will need to be political willingness from all relevant parties to make this work.
Which countries are members of the EEA?
The EEA as a territory covers Iceland, Liechtenstein and Norway (the "EEA-EFTA States") together with all the EU Member States.
Iceland, Liechtenstein and Norway are also members of the European Free Trade Association (EFTA), membership of which is a pre-condition of joining the EEA (see Q16). The fourth EFTA member is Switzerland, but it does not participate in the EEA. In this Q&A, "EEA-EFTA States" refers to Iceland, Liechtenstein and Norway (not Switzerland).
Which EU policy areas are not covered by the EEA Agreement?
The following areas which are covered by the EU Treaties are not covered by the EEA Agreement; EEA-EFTA States are thus free to pursue their own independent policies in these fields of activity:
- Common agricultural and fisheries policies – to the extent that the UK wished to continue to subsidise farming and fishing, it would need to establish its own mechanisms for doing so funded from its own resources. In addition, whereas UK agricultural products and fish can currently be sold tariff free throughout the EU, EEA-EFTA States are subject to some tariffs (see Q8 below). In practice, it is likely that transitional arrangements would need to be negotiated so that both government and UK producers have sufficient time to prepare for the introduction of a new regime in these areas.
- Trade policy – the UK would be free to conclude its own trade agreements (subject to certain constraints – see Q7) and set its own tariffs for goods from outside the EEA. However, it would stand to lose the benefit of existing trade agreements negotiated on its behalf by the EU.
- Customs union – EEA-EFTA States are not part of the Customs Union and the UK would also need to re-establish customs controls on trade with EU Member States. See Q8 and Brexit: Customs Arrangements. However the so-called "Norway plus" option and the cross party proposal known as Common Market 2.0 both envisage a customs union with the EU alongside membership of the EEA Agreement.
- VAT – the UK would be free to set its own rates of VAT (the EEA Agreement does not cover direct or indirect taxation).
- Monetary union - unlike the EU Treaties, there is no commitment to joining the euro (whilst the UK and Denmark have opt-outs, these are more in the nature of exceptions to the general rule).
- Freedom and security - the UK would need to find a way to replace the current mechanisms for cooperation and exchange of information on matters of national security.
More generally, as noted at Q1 above, the EEA Agreement does not include the objective of an "ever closer union" between its members and is arguably more focussed on economic rather than political objectives. Two further differences (compared with EU membership) which are of particular relevance to businesses are as follows:
- current rules on jurisdiction and enforcement of judgments would not apply (as EEA-EFTA States are not parties to the Brussels Regulation – although their membership of the Lugano Convention preserves some of the benefits of the Brussels regime); and
- the EEA-EFTA States have not chosen to sign up to legislation on EU-wide intellectual property rights, such as the Community Trade Mark or the Community Design Right (although they are bound by e.g. EU legislation designed to harmonise national IP rights).
That said, as an EEA-EFTA State, the UK would (as a general rule) continue to be subject to most of the key EU legislation on employment, competition law, state aid, public procurement, pensions, company law, financial services, data protection, intellectual property and consumer protection.
Do EEA-EFTA States still have to make contributions towards the EU/EEA budget?
EEA-EFTA States are still required to make contributions towards the EU/EEA budget, although these are not as high as those required from full EU Member States. If the UK were to contribute on the same per capita basis as Norway, it is estimated that the UK's contributions could fall by 25% per person (House of Commons Library Briefing Paper, 28 July 2016, page 32). However, estimates differ and some commentators have suggested that if the UK were to lose its rebate, it could end up paying almost as much as it does now.
On the other hand, the higher the UK's contribution, the less money the EU will need to seek from remaining Member States after Brexit to balance its budget; as such, a higher level of contribution could make the EU more willing to make concessions to the UK on other aspects of the Brexit negotiations (such as the size of the "divorce bill").
What influence do EEA-EFTA States have over EU legislation?
EEA-EFTA States have no formal voting rights over EU legislation and no formal representation in key EU decision-making institutions (notably the EU Council of Ministers and the European Parliament); they only have the opportunity to influence the shape of a legislative proposal from the European Commission during the early consultation and drafting stages. Compared with the current position, many commentators consider that this would substantially reduce the UK's ability to shape such legislation, particularly once the European Commission's proposal has been finalised – and particularly in relation to fields where the UK has historically played an influential role, such as financial services.
In practice, countries such as Norway have attempted to address this "influence deficit" by maintaining a significant diplomatic presence in Brussels. Some of the deficit could arguably be made up by the UK taking up the opportunity to represent itself on international standard setting bodies, where it is currently represented by the European Commission acting on behalf of the EU as a whole (the ability to influence international standards is significant because they are often incorporated into Single Market legislation on standards for goods etc). However, such measures would in our view be unlikely to compensate fully for the loss of influence over the EU's own legislative process that comes from being a full EU Member State.
That said, taking a broader perspective, it is arguable that the probable loss of influence over EU legislation relevant to the EEA Agreement should be weighed against the greater freedom of action which the UK would stand to gain in relation to matters which are not covered by the EEA Agreeement, such as trade, agriculture, fisheries and so on. A number of think tanks have also suggested that in the longer term, it may be possible for EEA-EFTA States to secure a stronger role in the legislative process for Single Market legislation (see Q2).
Finally, if it is accepted that the UK is going to leave the EU, the appropriate comparator is not EU membership but other models for UK-EU relations. For example, even where the UK made a complete break with the EU, this apparent return of sovereignty would arguably be illusory in many areas, because businesses would want the government to align itself with EU rules (over which the UK would probably have less influence than it would as an EEA-EFTA State).
Are EEA-EFTA States free to make their own trade agreements with third countries?
Unlike EU Member States (where competence over trade policy is given to the European Commission), EEA-EFTA States are free to conclude their own trade agreements with other countries. Some of these are negotiated collectively through EFTA, which currently has 27 free trade agreements covering 38 countries. But EEA-EFTA States are also free to negotiate bilateral agreements without going through EFTA; for example, Iceland has negotiated a free trade agreement with China which took effect on 1 July 2014.
This freedom would have some advantages for the UK. Although it would lose bargaining power as compared with its current position as a member of the world's largest trading bloc (the EU), it would be able to tailor its negotiating position to the interests of UK businesses and consumers. That said, continued participation in the Single Market would impose certain constraints on the UK's freedom to conclude free trade agreements. For example, in relation to services, the UK might ideally wish to offer generous access to third countries, in the hope of securing better access for its own service providers. However, there would always be the risk that the EU would impose new Single Market rules in that area, which (as an EEA-EFTA State) the UK would be obliged to accept. This in turn would make it difficult for the UK to offer a firm commitment that it would not impose any new restrictions in relation to services of that particular type.
If the UK entered into a customs union will the EU alongside EEA membership, as envisaged by the "Norway plus" or "Common Market 2.0" options, then its ability to conduct an independent trade policy would be much more heavily constrained.
Is trade in goods between EEA-EFTA States and the EU "frictionless" and tariff-free?
Not entirely. Trade in most goods – with the notable exception of agricultural products and fish – is tariff-free, but the EEA-EFTA States are outside the Customs Union, which means that a certain amount of border red tape is inevitable. In particular, in order to benefit from tariff-free treatment on entry into the EU, businesses in EEA-EFTA States must be able to prove that their goods originated in the EEA – and that they are not, for example, cheap Chinese imports which have been "rebadged" to look as if they come from say, Norway. Such "rules of origin" necessitate additional paperwork to accompany the goods when they pass through customs posts in the EU. For more detail, see Brexit: Customs Arrangements.
In addition, although most EEA-produced goods benefit from zero tariffs, this does not apply to all food and drink products (see Protocols 3 and 9 of the EEA Agreement). For example, Norwegian salmon sold as whole fish face a tariff of 2% (which is low enough not to make that much difference), but Norwegian smoked salmon faces a much more significant tariff of 13%. As a result, the bulk of Norwegian salmon (whole fish) is shipped to an EU country (usually Poland) for smoking; following that processing, it can be treated as goods of EU origin and sold tariff free (within the EU).
However, if the UK entered into a customs union with the EU alongside EEA membership, as envisaged by the "Norway plus" or "Common Market 2.0" options, it is likely that current arrangements allowing for tariff free and largely frictionless trade could be preserved in relation to the majority of goods.
What is the position as regards free movement of people in the EEA-EFTA States?
Free movement of people is a key principle of the EEA Agreement, just as it is a key principle of the EU Treaties. However, Article 112 of the EEA Agreement contains "safeguard" provisions which potentially allow EEA-EFTA States to impose restrictions on free movement of people (among other things) where there are "serious economic, societal or environmental difficulties of a sectorial or regional nature liable to persist." There is no equivalent of Article 112 for EU Member States under the EU Treaties. Significantly, Article 112 allows an EEA-EFTA State to act unilaterally without seeking prior consent from other parties to the EEA Agreement, including the EU. As such, the protection would appear to be stronger than the "emergency brake" negotiated by the UK government prior to the referendum (which required the UK to seek approval from the European Commission before any restrictions could be implemented).
Using Article 112, Liechtenstein has been able to maintain the imposition of quotas on immigrants which were originally agreed on its accession to the EEA Agreement (and were envisaged as temporary). Although Liechtenstein is a much smaller country than the UK, it appears that the same measures were provisionally agreed in relation to Switzerland when the latter was seeking to join the EEA Agreement (but these plans were abandoned when a Swiss referendum resulted in a "no" vote for EEA membership (see page 6 of this paper). Notwithstanding the disparity in size between the UK and Liechtenstein, there are also some striking parallels when it comes to immigration:
- Population density: the UK's population density (of 269 people per square kilometre) is higher than that of Liechtenstein (235) or Switzerland (210) - and in England, the figure is over 400 per square kilometre; and
- Local impact: as Conservative MP (and former MEP) Vicky Ford has pointed out, Liechtenstein's population of 37,000 is about the same as that of the town of Wisbech in Cambridgeshire, which has had over 1000 immigrants in recent years, putting significant pressure on local services (whereas Liechtenstein only gives residency permits to about 90 people per year).
The grounds for the UK invoking Article 112 might be similar to those accepted by the European Commission in relation to the "emergency brake" negotiated by the UK in the run-up to EU referendum. In particular, the Commission accepted that the UK would be justified in invoking the emergency brake because it has experienced an "exceptional inflow of workers from elsewhere in the European Union" and "has not made full use of the transitional periods on free movement of workers which were provided for in recent Accession Acts." It considered this to be "the type of exceptional situation that the proposed safeguard mechanism is intended to cover."
If the UK sought to make use of Article 112, it is likely that it would want to go further than the measures envisaged under the emergency brake, which only related to in-work benefits. However, the referendum vote and its aftermath could be used to support an argument that the "exceptional inflow of workers" is causing serious "societal difficulties" (e.g. a substantial rise in reported hate crime relating to immigrants generally and pressure on local services in areas which have received high numbers of immigrants) - and that consequently further measures to restrict free movement are justified, at least for a temporary period. It is also worth noting that Liechtenstein's measures were always intended to be temporary, but in practice it has been allowed to maintain controls ever since it joined the EEA in 1994.
That said, it is unclear whether such a stance would be acceptable to the other EEA-EFTA States and/or the EU, particularly given the latter's emphasis on the principle of free movement of people as being "indivisible" from the other key principles of Single Market membership. In practice, the best option for the UK would be to seek prior agreement with the EU and the other EEA-EFTA States on any measures designed to restrict free movement.
How do EEA institutions differ from those of the EU?
The EEA has its own institutions which (broadly) parallel those of the EU, although as noted below there are some differences. In particular, several EEA institutions, notably those involved with deciding which legislation is incorporated into the EEA Agreement, are operated jointly with the EU, to facilitate coordination with the latter. The key EEA institutions are as follows:
- EEA-EFTA States are represented on the EEA Council, which is broadly the EEA equivalent of the EU Council of Ministers, although the European Commission and the Presidency of the EU Council of Ministers are also represented on it (so it is not exclusively controlled by EEA-EFTA States).
- EEA-EFTA States are also represented (by ambassadors) on the EFTA Standing Committee. This Committee reaches common positions (as regards the views of the EEA-EFTA States) on which EU measures to incorporate into the EEA Agreement. It is assisted in doing so by the EFTA Secretariat. Those common positions are then discussed with representatives of the European Commission in the EEA Joint Committee and a decision is reached on which legislation to incorporate into the EEA Agreement and whether any amendments are necessary (also assisted by the EFTA Secretariat). It is important to note that the EEA-EFTA States are not free to pick and choose which EU measures to sign up to; where new EU legislation is within the scope of the EEA Agreement, it must be incorporated (but there may sometimes be debate as to whether certain legislation is "EEA-relevant" – see Q11).
- Monitoring and enforcement of the EEA Agreement is carried out by the EFTA Surveillance Authority (ESA), which is the EEA equivalent of the European Commission. However, unlike the European Commission, the ESA cannot propose legislation and the administrative work related to adoption of EU legislation is carried out by the EFTA Secretariat, rather than the ESA.
- Rulings on the interpretation of EEA law (following referrals from national courts of EEA-EFTA States), appeals against ESA decisions and infringement proceedings brought by the ESA against EEA-EFTA States are dealt with by the EFTA Court – the EEA equivalent of the Court of Justice of the European Union. See Qs 12-14 below.
- Parliamentarians from EEA-EFTA Member States are represented on a Committee of MPs, which is the nearest equivalent in the EEA to the European Parliament (although, unlike the European Parliament, the Committee has no formal decision-making power).
How does new EU legislation get adopted by the EEA/EFTA States - and what is the "slow implementation problem"?
Once relevant EU legislation has been passed, the EEA-EFTA States must then agree to incorporate the relevant EU act into the EEA agreement. There are 2 key points to note here:
- EEA relevant or not? Not all acts marked by the EU as "Text with EEA relevance" are subsequently adopted by the EEA. For example, EEA-EFTA States do not participate in arrangements relating to the Community Trade Mark (although the relevant legislation is marked as "EEA-relevant"). However, as noted at Q10 above, EEA-EFTA States cannot generally pick and choose which EU measures they sign up to; if the relevant legislation falls within the scope of the EEA Agreement, it must be incorporated.
- The slow implementation problem: The process for incorporating EU legislation into the EEA Agreement is somewhat bureaucratic and typically results in a time lag of 6-24 months in the implementation of measures, as compared with the EU. In addition, EEA-EFTA Member States cannot benefit from new rights under an EU Directive until all of them have implemented it in their national law, so the time lag can in some circumstances be even worse. For example, there have been significant delays in Norway and Iceland over the implementation of recent EU financial services legislation (in part due to constitutional concerns); as a result, financial services providers based in Liechtenstein have been unable to take advantage of new rights under that legislation.
In practice, this means that some businesses in EEA-EFTA Member States may find themselves at a commercial disadvantage vis-à-vis their competitors in EU Member States. On the other hand, there may occasionally be advantages in having a time lag, particularly where the main effect of a measure is not so much to facilitate market access but to impose stricter or more burdensome rules on business (in which case the time lag will allow for a longer "grace period" before full compliance is required). That said, the "slow implementation problem" could be avoided altogether if the UK pursued the option of a "mirror" or "parallel" EEA, as outlined at Q17.
How does the relationship between the EFTA Court and EEA-EFTA States differ from the relationship between the CJEU and EU Member States?
There are a number of differences between the EFTA Court and the Court of Justice of the European Union (CJEU) which may be significant in the context of Brexit:
- Advisory, not binding: Whereas CJEU preliminary rulings on the interpretation of EU law are binding on EU Member States, EFTA Court opinions on the interpretation of EEA law are only advisory. From a national sovereignty perspective, this could make the EFTA Court a better "fit" for the UK. That said, if a national court refused to follow an EFTA Court opinion without clear grounds for distinguishing it, the EFTA Surveillance Authority may initiate infringement proceedings (on the grounds that failure to follow EFTA Court rulings breaches the overriding principle of homogeneity in the EEA Agreement). Indeed, in practice, it appears that EFTA Court opinions are almost always followed.
- No obligation to refer: Whereas the national courts of full EU Member States are obliged to refer questions of EU law to the CJEU unless they are "acte claire", no comparable obligation is imposed on the national courts of EEA-EFTA States with regard to referring questions of EEA law to the EFTA Court. It follows that national courts have more scope for resolving questions themselves. This may result in fewer referrals to the EFTA Court - and in practice, this appears to have been the effect in the existing EEA-EFTA States. It is possible that the UK might see this as an advantage of EEA membership, since it arguably restores a degree of sovereignty to UK courts. EEA-EFTA States are also free to provide that references may only be made from courts of last resort, e.g. the equivalent of our own Supreme Court. That said, it would not prevent the EFTA Court or the CJEU dealing with the same issue on a reference from another EEA-EFTA State or a full EU Member State – possibly leading to conclusions at odds with those arrived at by the UK courts.
- Closer to common-law approach: Carl Baudenbacher, President of the EFTA Court, suggested in a recent speech that the EFTA Court could be a "better fit" for the UK because in his view it often takes a more pragmatic, evidence-based approach to legal questions (closer to the approach adopted by common law courts) than the CJEU (see this paper under the heading "EFTA values in EFTA court caselaw"). That said, where the CJEU has already ruled on a matter, there is limited scope for the EFTA Court to diverge from it in a signficant manner (see Q13).
What is the status of CJEU rulings in EEA-EFTA States?
The EEA Agreement states that the EFTA Court and EEA-EFTA States must be uniform in their approach with any case law before the date of the EEA Agreement i.e. 1 January 1994 (see Article 6 of the EEA Agreement); after that date, the EFTA Court is only under an obligation to take due account of decisions made by the CJEU (see Article 6 of the EEA Agreement and Article 3(2) of the ESA/EFTA Court Agreement). It follows that, strictly speaking, CJEU case law after 1 January 1994 is not binding on the EFTA Court or EEA-EFTA States.
However, in practice, the EFTA Court has effectively treated CJEU decisions post-dating the EEA Agreement as if they were binding. It has even gone as far as reversing EFTA Court case law when the CJEU interpretation in a later ruling was different (e.g. see L'Oreal E-9/07 and E-10/07  EFTA Ct. Rep. 258). For its part, the CJEU has also taken EFTA Court rulings into account, even though there is no formal agreement or requirement for this. Both courts recognise the need to interpret EU law in a uniform manner to preserve the integrity of the EEA as an internal market. In case of conflict, the EEA Agreement provides for the following:
- The Joint Committee keeps case law of both courts under constant review to ensure uniformity;
- If the Joint Committee cannot resolve a difference between CJEU and EFTA Court case law, the "Contracting Parties to the dispute may agree to request the CJEU to give a ruling on the interpretation" (Article 111 of the EEA Agreement); and
- Article 107 of the EEA Agreement also gives EEA-EFTA national courts the power to refer interpretation questions to the CJEU, although to date, we are not aware that any of them have done this.
Can EEA-EFTA States intervene in cases before the CJEU?
The right of EEA-EFTA States to intervene in cases before the CJEU is limited to non-institutional cases i.e. they cannot intervene in cases where one of the parties is an EU institution (e.g. the European Commission). The thinking behind this limitation is unclear, since many such actions concern infringement proceedings brought by the European Commission and turn on the interpretation of Single Market legislation - matters in which EEA-EFTA States clearly have an interest, just as EU Member States do. This limitation does not apply in reverse i.e. EU Member States may intervene in any case before the EFTA Court, even those where an institution established under the EEA Agreement is a party (see Protocol 3, Article 40 of the EU Treaty).
Is it possible for the UK to leave the EU but remain in the EEA?
Most commentators take the view that upon leaving the EU, the UK will also cease to be a party to the EEA Agreement and would therefore have to apply to rejoin (see Q16).
However, others argue that leaving the EU does not necessarily mean leaving the EEA – and that unless and until the UK gives notice to terminate its participation in the EEA Agreement, it will remain party to it (although proceedings initiated in the Irish High Court which might have resolved this question have been dropped).
The Brexit negotiations appear to be proceeding on the basis that the UK will not be able to remain in the EEA. The lack of clarity on this point is unfortunate because, if the UK could be certain about remaining within the EEA, the dynamics of the negotiation with the EU could change quite substantially; instead of facing a substantial "cliff-edge" risk under Article 50 (with its 2 year negotiating deadline), the UK would at the very least be able to use the EEA Agreement as a "fallback position", allowing it more time to negotiate the best possible longer term deal with the EU.
What would need to happen for the UK to become a fully-fledged EEA-EFTA State?
Some commentators consider that unless the UK gives notice to leave the EEA Agreement, it can remain a party to it (but that adjustments would obviously have to be made to reflect the fact that the UK was no longer an EU member state) – see Q15. However, most commentators take the view that on exiting the EU, the UK will also leave the EEA and would therefore need to reapply to join the EEA Agreement. If this is correct, the UK would face a number of obstacles, which are explained in more detail below. Given sufficient time, these obstacles may well be capable of being overcome, but it is probably unrealistic to expect them to be resolved by the time the UK is due to leave the EU in 2019. In the short term, a possible solution for the UK would be to seek a "mirror" or "parallel" EEA Agreement – that is, a deal with the EU on the same terms as the EEA Agreement, but which would be legally separate from it. The UK would then remain in that relationship until it had managed to resolve any outstanding issues with becoming an EEA-EFTA State – see Q17.
The problems with the UK becoming a fully-fledged EEA-EFTA State in the short term are as follows:
- EFTA membership: the UK would need to become a member of the European Free Trade Association (EFTA). This would require unanimous consent of the three EEA-EFTA States and Switzerland (as the only non-EEA member of EFTA). It is possible that an EFTA state could veto the UK's membership. For example, Norway vetoed Slovakia's potential membership over concerns regarding the latter's ability to implement EU legislation adopted under the EEA Agreement in a timely manner. Other concerns may relate to the UK being a much larger country which would potentially upset the existing balance of power within the EEA-EFTA States, where Norway is currently the main player and/or the UK's membership complicating the process for negotiating future EFTA trade agreements (because the UK's interests in some areas would be different from those of the current members). It is also possible that the UK's EFTA membership application could be derailed by a popular vote e.g. in Switzerland, certain issues can be made the subject of a referendum where there is sufficient public support for a vote.
- Ratification: the UK's accession to the EEA Agreement as an EEA-EFTA State would require ratification not just from the EU in its own right, but also from the 27 remaining EU Member States and the 3 existing EEA-EFTA States i.e. 30 countries in all. A number of those countries have legislative provisions which could (with sufficient public support) result in ratification becoming the subject of a popular vote (e.g. the Netherlands). In other countries, a Parliamentary vote would be required. This could be a protracted process which carries the risk of the UK's accession being effectively blocked - although the same issues are likely to arise in relation to most other models for the UK's post-Brexit relationship with the EU (e.g. it is quite likely that a free trade agreement or association agreement with the UK would need to go through a ratification process).
A "mirror" or "parallel" EEA Agreement: what is it and how would it help?
The idea of a "mirror" or "parallel" EEA Agreement is intended primarily to overcome the problems outlined at Q16 above, which could make it difficult for the UK to effect a quick and seamless transition from EU membership to being an EEA-EFTA State. Instead of re-joining the EEA Agreement on Brexit, the UK would enter into a legally separate agreement with the EU on the same terms as the EEA Agreement. As such, the agreement would give the UK continued membership of the Single Market, whilst avoiding the timing and political obstacles of becoming a fully-fledged EEA-EFTA State (see Q16). Such an arrangement would also enable the UK to circumvent the "slow implementation" problem described at Q11.
For this solution to work effectively, the UK would probably need to "borrow" the institutions of the EEA Agreement – for example, the other EEA-EFTA States would need to agree that the EFTA Surveillance Authority would have responsibility for monitoring the UK's compliance and that questions from UK courts on the interpretation of relevant law would be referred to the EFTA Court. Although this might appear a somewhat cumbersome arrangement, the EU has already made a similar proposal for Switzerland to "dock" with the institutions of the EEA Agreement as a way of supervising its complex network of bilateral arrangements with the EU (see this paper at page 5 under the heading "Docking to the EEA/EFTA Institutions").
There could of course be political objections from the EEA-EFTA States. However, since decisions of the EEA-EFTA institutions concerning the UK would only relate to the UK's "mirror" or "parallel" EEA agreement, they would not directly affect the existing EEA-EFTA States. Similarly, whilst it could be argued that the UK's use of the EEA-EFTA institutions would impose additional burdens on staff and resources, such concerns could be met by the UK agreeing to pay for the costs of its use of the relevant institutions and to fund any additional resources required.