Theresa May's government is botching Brexit. We face two deeply unpalatable options. One is a deal on the EU's terms as initiated at Chequers in June, unacceptable to Remainers and Leavers alike. The other is a "no deal" scenario. But there is apparently no parliamentary majority for either plan.
The economic benefits of certainty
It is a mess and an expensive one. Our floundering approach to Brexit has incurred a major economic cost as uncertain investors, companies and households hold back on major investment decisions. If the political and economic backdrop became clear and predictable, however, people would recover their confidence and a tidal wave of delayed or deferred investment in the UK economy would follow.
Fortunately, there is a solution offering the certainty the economy desperately needs and better yet, it's a straightforward, off-the-shelf Plan B that we already know can work perfectly well.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Call it "Norway for now": we fall back on membership of the European Economic Area (EEA) and the related European Free Trade Association (EFTA). This is known as the "Norway option". We can then use EEA membership as a platform to negotiate a new, bespoke relationship with the EU, such as a Canada-plus free-trade arrangement.
Why Plan B suits us so well
The EEA was signed in Porto in May 1992 by the EU, individual member states in their own right (including the UK), and members of EFTA. It is a commercial treaty which, according to Article 1, is intended to "promote a continuing and balanced strengthening of trade and economic relations between the contracting parties". The EEA has numerous advantages. Firstly, we are already a contracting party in our own right, which limits the EU's ability to object to our joining.
It is already a functioning free-trade agreement with the EU. There are low or zero tariffs on most items traded with the bloc, although agricultural and food products are exceptions. It enables participation in the single market, but is outside the jurisdiction of the European Court of Justice, the Common Agricultural Policy and Common Fisheries Policy, reducing political interference in our affairs.
Finally, it would be far cheaper than our current tentative arrangement. That envisages an up-front payment of £40bn when we leave. At least half the money would be paid into the EU budget for access to the single market during the two-year transition period. The rest would cover the cost of various EU scientific research or education programmes, such as the Galileo satellite project, that we could choose to participate in.
With the EEA option, there would be no obligation to pay the £40bn exit charge on day one, as the EEA would replace the transition period envisaged in the draft withdrawal agreement. The EEA, of course, means we are already in the single market, so there is no need to pay for access to it.The final bill would depend on which EU programmes we chose to participate in, but the key point is that the £40bn exit bill comes off the table. So much for the advantages meanwhile, the supposed disadvantages of the EEA are mythical.
1. We would have to accept freedom of movement
Wrong. While freedom of movement of workers is part of the EEA Treaty, there are two opt-outs. The first is under Article 112, permitting members to take "safeguard measures" to address any "societal or environmental difficulties of a sectorial or regional nature". It is under this section that Liechtenstein has introduced strict limits to immigration since 1997. The second is Article 28 (3), which allows for freedom of movement "subject to limitations justified on grounds of public policy, public security or public health".
2. We would have to carry on paying into the EU budget
Wrong. The EEA requires no payments into the EU budget. Instead, members pay agreed contributions for discretionary participation in specific EU agencies and programmes. These shouldn't add up to much. Economist George Yarrow estimates the total UK contribution would be around £1.5bn, down from a net £9.4bn which the UK paid the EU in 2016.
3. We would have to follow all the EU's rules without any say over them
Wrong. We would have to follow the rules, by and large, of the single market. But it has been calculated that this amounts to only 28% of total EU laws. And under the EEA agreement, EFTA members have the right to be consulted on new single-market legislation.
Critically, Article 102 of the agreement allows something called "reservation", or a right of veto over rules which a member does not agree with. This is, admittedly, a nuclear option. But flowing from it is a whole system of co-operation between Norway and the European Commission in rule-making. The Norwegian snow crab case shows how the system can work. Norway has refused to recognise the right of EU-licensed Baltic vessels to fish for these crustaceans in its waters and has even seized vessels and levied fines. The EU has asked EFTA to take action, but it has refused. So Norway effectively has a veto over EU fishermen pinching its crabs.
4. The EFTA court just does as it is told by the ECJ
Wrong. While it is true that the EFTA court and the ECJ work to create a homogenous approach, the EFTA court is autonomous. The former president of the EFTA court, Dr Carl Baudenbacher, has made it clear that the EFTA court is not bound to follow the ECJ. He has cited 11 cases where the EFTA court has deviated from the ECJ.
5. We won't be able to negotiate trade deals
Wrong. The EEA is outside the EU customs union. The EFTA states jointly negotiate free-trade deals: they have 27 deals with 43 other countries. However, they can negotiate their own bilateral deals, too, as Switzerland has done with Japan and China. Norway also has its own trade deal with China. The UK would have recovered control over its trade policy and could sign additional deals around the world.
6. Rules of Origin would create major costs and paperwork for UK firms
Wrong. In the EEA, without a customs union, UK businesses would have to apply Rules of Origin, which require exporting companies to produce a certificate demonstrating that their goods were mostly made where they apparently come from. However, exporters already have to follow these rules when selling goods outside the EU and for the most part already have relevant systems in place.
7. It does not deal with the Irish border issue
Wrong. The EEA removes the necessity for the so-called Irish backstop. To remind you, that promises that "in the absence of agreed solutions [on the Irish border], the United Kingdom will maintain full alignment with those rules of the internal market and the customs union". The EEA removes the necessity for this backstop because we would be in broad alignment on single-market rules. We would be outside the customs union, but Sweden's border with Norway and the EU's with Switzerland shows this is perfectly manageable. Neither the EU nor the Republic of Ireland (also a contracting party to the EEA) would have legal grounds to object.
8. We will get stuck in the EEA and never leave
This, one has to concede, is a potential outcome. One option would be to time-limit our participation in the EEA and EFTA, writing into both the withdrawal treaty and an act of parliament a commitment to review it by, say, 2021.
What next?
In the EEA, contracting parties are members of one of two governance pillars: the European Union (currently the case for the UK), or EFTA. The UK must switch pillars by applying to join EFTA. Doing so will require the agreement of the members of EFTA on the one hand and the EU and its members on the other, along with a minor treaty amendment. The other contracting parties are under a "good faith" obligation to make it work, and if the EU became difficult the UK could ultimately appeal to the International Court of Justice (ICJ) in the Hague, which arbitrates the Vienna Law of Treaties.
The UK should now negotiate a revised withdrawal agreement based on asserting its rights as a contracting party of the EEA as soon as possible. The decision enabling us to rejoin EFTA would be taken unanimously by the EFTA Council on which the four members, Norway, Switzerland, Iceland and Liechtenstein, sit. Norway is the most important voice, and UK diplomats need to head to Oslo to cement ties and build support. New UK legislation may be required for the EEA under domestic law, and to ensure parliament has approved the application to join EFTA. Finally, the rights of EU citizens and British citizens in Europe should be reaffirmed.
Falling back on the EEA is not perfect. It still carries a risk that the EU will press for hostile anti-City regulation, or that the limits to freedom of movement prove too flimsy. However, it is a practical way to achieve Brexit quickly without risking political and economic disaster. Will any Brexiteers have the courage to step forward to seize the opportunity?
George Trefgarne is founder of the Boscobel & Partners consultancy and author ofNorway, Then Canada: A New Strategy to Avoid a Brexit Smash, published on Amazon
