Whilst the recent agreement on phase 1 of the exit negotiations is to be welcomed, as noted in our earlier article "Keep the champagne on ice for now", now comes the difficult part: there remains much to be negotiated before we have any clarity on the likely scope of any transitional arrangement which is the most pressing concern for the business community. As to the longer term UK/EU relationship, the Cabinet appears still to be divided on its vision and strategy for the next phase of the negotiations, so there is still ample scope for a breakdown.
Sensing a gradual softening in the UK government's position, some proponents of a soft Brexit have become more vocal in pushing for continued membership of the Single Market, for which the obvious model is participation in EFTA/the EEA. Indeed, some commentators have seized on the phrase "regulatory alignment" in the phase 1 agreement as pointing in that direction. Such a model has been repeatedly dismissed by the UK government, either as a transition arrangement or as basis for a longer term EU/UK trading relationship, although the EU negotiators have made it clear that the "Norwegian model" remains on offer. This would preserve the advantages of the UK's membership of the Single Market whilst allowing it greater freedom to make trade deals with third countries – but it would require compromises from the UK on free movement of people and sovereignty, together with continued budgetary contributions. It seems unlikely that the EU would be prepared to accept a "Norway minus" deal (i.e. EFTA/EEA minus freedom of movement).
An oft-cited alternative is the Canadian model – Canada recently concluded a free trade agreement (CETA) with the EU after 7 long years of negotiation – but CETA has limited coverage of services. The UK might look to achieve "CETA plus", where "plus" essentially means a comprehensive agreement on services as well as goods, but the EU has made it clear that the UK cannot expect to retain all the benefits of the EU Single Market and EU Customs Union by means of a "looser" free trade agreement of this type.
Clearly, the negotiations still have a long way to go, and the clock is ticking towards exit day in March 2019. If a CETA – style relationship with the EU begins to look problematic, the "Norwegian model" (or aspects of it) may come back into play.
We discussed the viability of the EEA option with Lars Eirik Gåseide Røsås, the London Managing Partner of leading Norwegian firm, Thommessen, at a recent roundtable event hosted by Travers Smith for a group of our clients.
EEA – an "off-the-shelf" solution?
Lars questioned EEA membership as an "off-the-shelf" solution because it would not necessarily be a straightforward process to incorporate the UK into existing EFTA/EEA structures. In particular, he doubted that full EFTA/EEA membership would be viable as an interim solution, since this would first of all require the UK to rejoin EFTA (alongside Norway, Iceland, Liechtenstein and Switzerland); there would then probably need to be a renegotiation with other EEA/EFTA states (i.e. Norway, Iceland and Liechtenstein). The UK would also require agreement from the EU to treat the UK as an EEA member. All this would be very difficult to achieve in the limited time available between now and March 2019.
He also pointed out that the EEA Agreement in practice was designed as a transition towards EU membership, rather than as a route out of the EU – although he accepted that in the case of Norway, it has effectively become a long term "compromise" solution, as there was not (and is not) enough public support for full EU membership.
A valuable precedent?
There are undoubtedly significant practical and political obstacles in the way of a wholesale adoption of the "Norwegian model" for the UK's post-Brexit relationship with the EU. However, parts of the EEA Agreement may still provide a valuable precedent for possible compromises between the UK and the EU on highly contentious issues, such as the role of the ECJ. For example, it is understood that the EU has proposed to the Swiss government that it could "dock" with the institutions of the EEA Agreement, including the use of the EFTA Court as a dispute resolution mechanism. Advocates of the EFTA/EEA model maintain that the EFTA court meets the UK's requirement of independence from the ECJ (as argued by the President of the EFTA court, Carl Baudenbacher, in a recent talk hosted by the Institute for Government).
In this context, it is worth noting that the compromise arrived at in the phase 1 exit talks on involvement of the ECJ in citizens' rights after Brexit has strong echoes of the relationship between the EEA/EFTA States and the EFTA Courts. For example, unlike ECJ rulings, EFTA Court opinions are advisory, not binding and courts in EEA/EFTA States are not obliged to refer matters to the EFTA Court. Similarly, whilst the citizens' rights settlement agreed last week provides that UK courts should "have due regard" to relevant ECJ rulings issued after Brexit, they will not be bound by them and they will also be free to decide whether to seek an opinion from the ECJ (whereas at present they are under a legal obligation to do so on matters of EU law, unless the position is already clear).