The Future of the European Union: UK Government Policy

FEU 01

Written evidence from Dr. Johanna Jonsdottir, Policy Officer,

European Free Trade Association Secretariat

Author background

I am currently a policy officer at the European Free Trade Association (EFTA) Secretariat in Brussels, which is responsible for the management of the European Economic Area (EEA) Agreement.

In 2010 I was awarded a PhD in European Studies from the University of Cambridge. My dissertation focused on Iceland’s relations with the EU through the EEA Agreement.

My PhD dissertation was awarded the Sir Walter Bagehot Prize by the Political Studies Association for best dissertation in the field of government and public administration.

A revised and updated version of my dissertation is due to be published this year by Routledge.

Foreword

I understand the Committee is starting from the assumption that the UK should and will remain a member of the EU. Nonetheless, as the Committee has expressed a particular interest in submissions from non-member states and in light of increasingly frequent suggestions that the UK should withdraw from the EU, I will reflect on the suitability of an EEA type solution for the UK. This is related mainly to the first two questions posed by the Committee:

- To what extent should the December 2011 European Council and its outcome be seen as a watershed in the UK’s EU policy and place in the Union?

- Between now and 2020, what institutional architecture and membership should the UK seek for the EU? Should the UK embrace a formalised two (or more)-tier EU and start to develop ideas for multiple forms of EU membership?

Please note that my submission does not in any way represent the official views of EFTA or its member states, but is based on my research and personal observations, which I hope may be of use to the Committee in its inquiry.

Summary of key points

· The EEA Agreement allows Iceland, Liechtenstein and Norway to participate in the EU’s internal market while excluding potentially less attractive areas such as the common fisheries policy.

· The EFTA states adopt all EU legislation in relevant areas without participating in the EU’s decision-making institutions.

· Although the EEA contains various clauses to formally protect the EFTA states against loss of sovereignty, there are indications that it functions as a supranational agreement in practice.

· It is unlikely that the UK would find the EEA model in its current form to be a suitable alternative to EU membership.

· The EEA could perhaps provide some lessons for the potential development of a "multi-tier Europe".

Introduction

1. The members of EFTA have a long history of EU rule adoption and close institutional contact with the EU. The current members of EFTA are Iceland, Liechtenstein, Norway and Switzerland. With the exception of Switzerland, the EFTA states are parties to the EEA Agreement and thus participants in the EU’s internal market. Indeed, it could be argued that the EEA Agreement entails a form of ‘quasi-membership’ of the EU. Having been in force since 1994, the EEA Agreement has proved considerably more resilient than was expected at the time of its inception. Furthermore, it appears to have functioned relatively well over the years and in many respects it has benefited its signatory states. Although it is not without its challenges, it is an institutional framework which deserves attention, particularly in light of increasingly louder calls for a multi-tier Europe.

2. In recent years, proposals have been made to expand EEA membership, for example to Western European micro-states such as Andorra, San Marino and Monaco and Eastern giants like the Ukraine. In particular, following the UK’s decision in December 2011 to veto the new "fiscal compact" Treaty, suggestions have also been made as to whether the UK might better belong in the EFTA family rather than the EU. In order to evaluate the viability of this course of action, it is necessary to examine how the EEA Agreement works in practice, including its main challenges. In this submission I will explain the content and functioning of the EEA Agreement, before moving on to the recommendations section where I evaluate whether it potentially provides a realistic or suitable alternative to EU membership for the UK or whether it provides any lessons for the development of a multi-tier Europe.

What is the EEA Agreement and how does it work?

3. The history of the EEA Agreement goes hand in hand with the EU’s plans to develop an internal market, which gained momentum in the 1980s. At the time, Western Europe was split into two blocks: the EEC and EFTA. The UK was the original driving force behind the establishment of EFTA as a non-supranational counterbalance to the European Economic Community (EEC), as it was called at the time. However, by the time the EEA was being negotiated, the UK had long since left EFTA for the EEC. Nonetheless, EFTA’s membership still included some of the Community’s most important trading partiers, i.e. Austria, Finland, Sweden, Switzerland, Iceland, Norway and Liechtenstein. [1] The aim of the EEA was to allow them to participate in the internal market.

4. The EEA Agreement was signed in May 1992 and came into effect on 1 January 1994. However, Switzerland rejected membership of the EEA in a referendum on 6 December 1992. On the other hand, Austria, Finland and Sweden decided to join the EU, becoming full members in 1995, thereby leading to speculation that the EEA Agreement’s primary role would be to ease the EFTA states’ transition to EU membership. Currently, Iceland, Norway and Liechtenstein are thus the three remaining EFTA parties to the Agreement and there is potential for further dwindling on the EFTA side as Iceland has applied for EU membership.

5. In return for access to the internal market, the EEA Agreement requires a high degree of integration of EU acquis into the national legal systems of the participating states. The EFTA states must adopt nearly all provisions relevant to the free movement of goods, services, capital and persons. In addition, the Agreement provides for the adoption of EU legislation in a variety of horizontal areas such as labour law, consumer protection, environmental policy, statistics and company law. As the EU’s legal framework is in a state of continuous development, this includes not only legislation that was in place at the time the EEA Agreement came into effect but also all new legal acts that are passed in the relevant areas, which constitutes a large bulk of EU legislation. A number of substantial areas do fall outside the scope of the EEA Agreement (although the EFTA states participate to a certain extent in some of these policy areas through other agreements) including:

(1) Common Agricultural and Fisheries Policies,

(2) Economic and Monetary Union,

(3) Customs Union,

(4) Common Trade Policy,

(5) Taxation,

(6) Common Foreign and Security Policy and

(7) Freedom, Security and Justice.

6. The exact proportion of the EU legal framework which is covered by the EEA Agreement is difficult to measure. In 2010, the Norwegian Government commissioned a comprehensive review of Norway’s agreements with the EU, the EEA Agreement being by far the most extensive. The results of this review, totalling 900 pages, were published in January 2012. [2] The report estimates that through its agreements with the EU, Norway has incorporated approximately three-quarters of all EU legislative acts into Norwegian legislation. Iceland’s membership talks with the EU are also sometimes cited as an indicator of the scope of the EEA Agreement. The Commission stated that, prior to commencing negotiations, Iceland had already fully implemented 10 and partially implemented a further 11 chapters out of a total of 33 policy chapters through the EEA Agreement. Figures from the EFTA Secretariat show that at the end of 2010 approximately 8,300 legal acts had been incorporated into the EEA Agreement.

7. Despite the exclusion of certain fields, it is clear that the EEA Agreement is quite extensive. It has enabled Iceland, Norway and Liechtenstein to participate in the internal market while remaining outside of some potentially less attractive areas. However, there is a price to pay for ‘à la carte’ relations with the EU, as the EEA Agreement grants the EFTA states very limited access to EU decision-making institutions, while requiring them to adopt all EU legislation in the relevant areas. The EEA Agreement does allow some access to the Commission´s expert groups and comitology committees (Articles 99 and 100 of the Agreement) but no formal access to either the Parliament or the Council. As the EFTA states adopt the majority of EU legislation, they have a clear incentive to make their voices heard and research suggests that they are increasingly making use of more informal lobbying tactics to do so. These may in some cases yield results, though this is difficult to measure. Nonetheless, the fact remains that the EFTA states do not have a seat at the table and their impact is undoubtedly limited. This inherent ‘democratic deficit’ is indeed one of the main criticisms of the EEA.

8. Unlike the EU member states, the EFTA states have not formally ceded sovereignty to supranational institutions. In order to counter their lack of access to EU decision-making institutions, the EEA Agreement contains various clauses to formally protect them against loss of sovereignty. In the first place, EU acts do not automatically become part of the EFTA states’ legal orders. Rather, an agreement has to be reached between the European External Action Service and the EFTA states in the EEA Joint Committee [3] as to their incorporation into the EEA Agreement. All decisions of the Joint Committee are taken by unanimity and, if approved, the acts are listed in the relevant Annexes to the EEA Agreement.

9. If the EFTA states find a piece of EEA relevant legislation unacceptable they have the right to refuse its incorporation into the Agreement. This was considered extremely important when the EEA Agreement was being negotiated. However, it could be argued that in practice it is a mere formality. In fact, it can be said that the EFTA states do not have any ‘real veto power’ as they do not have the right to refuse without considerable consequences, i.e. the provisional suspension of the relevant part of the EEA Agreement according to Article 102 of the Agreement. As internal market issues are all interlinked, there is also fear that the entire EEA Agreement could be called into question if Article 102 were put into force. Therefore, due to their dependence on access to the internal market, this clause makes it difficult, if not impossible, for the EFTA states to say ‘no’. Perhaps not surprisingly, they have never yet refused the incorporation of an act into the EEA Agreement, although the Norwegian  government has recently indicated that it intends to veto the incorporation of the third Postal Services Directive, which would mark a historic development in the EEA.

10. In some cases, the EFTA states have been able to negotiate certain exemptions or adaptations prior to incorporating acts into the EEA Agreement. However, they must be able to demonstrate the necessity of such adaptations for example because domestic conditions are entirely different from those in the EU member states. Granting exemptions or adaptations is at the discretion of the EU and they are generally not given because something is ‘inconvenient’.

11. Another feature of the EEA Agreement which is aimed at retaining the sovereignty of the EFTA states is that they have not formally transferred binding legislative powers to the EEA Joint Committee. In this way, although an act has been incorporated into the EEA Agreement, one or more EFTA state may have so-called constitutional requirements which means that their respective national parliaments must ratify the act before it can take effect. Thus, unlike in the EU, regulations are not directly applicable and directives do not have direct effect. However, the national parliaments of the EFTA states have never yet rejected an act which has been incorporated into the EEA Agreement. This is perhaps not surprising as refusing to transpose EEA relevant legislation at the national level would have the same effect as refusing to incorporate the act into the EEA Agreement, i.e. the suspension of the relevant part of the Agreement.

12. Once acts have entered into force in the EFTA states, they are not subject to monitoring and surveillance by EU institutions but have their own Surveillance Authority and Court which monitor compliance with EEA law. EFTA infringement procedures are fairly similar to the mechanisms for monitoring compliance in EU member states. The EFTA Court does not, however, have the same authority as the CJEU as it does not have the power to issue binding decisions, only recommendations and advisory opinions. This, coupled with the fact that the EFTA states monitor themselves, means that these mechanisms may appear rather weak at first glance. Nonetheless, research suggests that they function fairly well. This can partly be explained by the fact that having their own institutions increases the legitimacy of the EEA Agreement. Furthermore, each EFTA state is subject to control from its partners, not just its own officials. Finally, the EFTA bodies are in close contact with the EU throughout the monitoring process and so the EFTA states are aware of the potential danger in allowing the EU to perceive that the EEA Agreement is not functioning well. Therefore, in practice, the EFTA states appear to feel strong pressure to adapt to EU requirements.

13. If domestic opposition is very fervent significant delays may be experienced throughout the process of incorporating acts into the EEA Agreement and putting them into practice at the national level. Nonetheless, on the whole the EEA framework appears to be fairly conducive to domestic adaptation to EU requirements due in large part to the asymmetrical nature of the relationship between the EFTA states and the EU and their dependence on participation in the internal market. Taking into consideration lack of access to EU decision-making bodies, it could therefore perhaps be argued that in practice the EEA Agreement involves a greater loss of autonomy than EU membership and there are indications that the EEA Agreement functions as a supranational agreement in practice.

14. In this context it is important to note that the EFTA states have generally found participation in the EEA Agreement to be beneficial. In most cases, EU legislation corresponds relatively well with pre-existing domestic arrangements in the EFTA states and does not require much change to the national legal framework. State actors may also often feel that EU policy poses an effective solution to domestic needs and challenges. Therefore, the EFTA states willingly adopt the majority of the EU legislation which they are required to take on board through the EEA Agreement. Yet, as in all states adopting EU rules, situations do arise where EU requirements effectively clash with domestic policies or preferences. In these cases, the EFTA states have not had the opportunity to express themselves within EU decision-making institutions and they are not generally able to prevent their incorporation into the EEA Agreement or their implementation at national level.

15. Given that the EFTA states incorporate a large bulk of EU legislation into the Agreement without access to the EU’s decision-making institutions, they have been likened to colonies of the EU. This situation has also been described as a ‘fax democracy’, although perhaps a more apt description today would be an ‘email democracy’. The democratic deficit has been a well-known aspect of the EEA Agreement from the start. It is the price which the EFTA states agreed to pay for enjoying many of the benefits of European integration without being full members of the club and without being bound to participate in some of the areas they considered less attractive.

16. In this context it should be noted that the EEA has been slowly extending into new areas. The EU’s methods of legislating have evolved over time with more comprehensive acts being adopted which can span over different policy areas. In many cases some elements of an act may be EEA relevant while others are not. As a result, the question of EEA relevance has become increasingly ambiguous. Cases where EEA relevance is controversial can potentially lead to an expansion of the scope of the EEA Agreement into new areas which were not foreseen when it first came into effect, at least when the EU attaches importance to their adoption by the EFTA states. Furthermore, the Parliament and the Council have gained more say in the EU legislative process over the past two decades at the expense of the Commission. Therefore, it could perhaps be argued that the democratic deficit in the EEA has been increasing over time.

Recommendations

17. Having considered the functioning of the EEA Agreement, a question arises as to whether it is, in fact, a viable long-term alternative to EU membership. To date, this has not been a model that has been replicated elsewhere; the closest exception might be Puerto Rico’s relations with the United States. As noted by the authors of the Norwegian review, the EEA Agreement has often been considered a second best solution both by those who favour EU membership and those who would prefer looser ties with the EU. By and large other states have not found this to be an attractive model and no other state has so far seriously made an effort to join EFTA and the EEA. Yet the possibility of developments in the membership of EFTA have often been suggested.

18. As a founding member of EFTA, the UK has been frequently named as an EU outsider. Indeed , as previously noted, the UK was instrumental in setting up EFTA as a counterbalance to the supranational EEC. Although the UK later decided that membership of the Economic Community better served its interests, it has never been a very enthusiastic member of the European project preferring to remain outside of areas of cooperation such as Schengen and the Eurozone. Indeed, some would argue that Euroscepticism and a general distrust of the EU are inherently British.

19. David Cameron’s veto of the EU fiscal treaty in December 2011 reopened the debate on the UK’s relationship with the EU, with a return to EFTA frequently being named as a potential alternative to EU membership. In the British media a number of reports suggested that the UK might have something to learn from Norway and Switzerland. [4] One article argued that ‘switching from the costly and undemocratic European Union and joining the European Free Trade Association would bring many benefits and job creation is one of them’. Slightly ironically, the article further explained that such a move would mean regaining control over democratic law-making processes and being able to choose the best policies in a host of important areas. [5] Another report stated that if Britain were to withdraw from the Union, but remain in the EEA ‘it would neither participate in the much maligned Common Agricultural Policy - nor the equally criticized Common Fisheries Policy. It would also fall outside of the common foreign and defense policies so detested by some Eurosceptics’. [6]

20. Many would, however, argue that a return to EFTA would not work for the UK. Not least because the EFTA states are bound by EU rules but lack access to its decision making processes. As noted in one article, in comparison to the EFTA states ‘semi-detached status for a larger and more assertive country might well be harder to achieve. And being in with the outs while trading freely in Europe comes at a price. It means paying to administer and police the single market while the in-crowd makes the important decisions about how it works. For a noisy nation accustomed to a place at the table and having its voice heard, that could feel like a very un-splendid isolation’. [7]

21. It is true that the EFTA states have so far been willing to pay the price of non-participation in EU decision-making institutions. However, this would arguably be a much larger price to pay for the UK, particularly due to its size and general international standing. If Iceland and Liechtenstein joined the EU they would be the smallest members of the Union in terms of population. Therefore, even if they did join the Union, they would not receive a large portion of the vote in the Council or a large number of seats in the Parliament. It is also likely that lack of resources would pose a problem for them in terms of active participation. Indeed, questions have even been raised as to whether membership of the EU is possible for a state as small as Liechtenstein. Norway is by far the largest of the EFTA states and therefore membership of the EU might make the biggest difference with respect to increasing influence within the institutions. However, although Norway is large in the EFTA context, it would still be a relatively small member state within a growing EU.

22. The UK on the other hand is one of the EU’s largest member states. It generally has the resources to participate actively in all policy areas and it is an important actor when it comes to coalition building and Qualified Majority Voting. Losing access to the decision-making institutions would therefore be a substantial blow. Furthermore, the incorporation of EU acquis into the EEA Agreement is an inherently asymmetrical process whereby the EFTA states adopt legislation which has been decided without their participation. In the view of the author, taking such a subordinate role would not sit well with the UK’s self image. True, the UK´s accession to EFTA would potentially make the relationship between the EU and EFTA pillars slightly less asymmetrical. Nonetheless, the EEA in its current form, is very much a one-way street whereby the EFTA states follow the EU’s lead. Therefore, a return to EFTA for the UK might not be such a plausible scenario.

23. Although the EEA Agreement in its current form is not a viable option for the UK, a future scenario of a two or multi-tier Europe in which structure, content and membership of the EEA was substantially revised could potentially be explored further. Forecasts predicting a widening gap between an outer core and an inner core within Europe abound. In his book, The Future of Europe: Towards a Two-Speed EU?, Jean-Claude Piris reaches the conclusion that the solution to the current economic and political climate is to permit 'two-speed' development: allowing an inner core to move towards closer economic and political Union. Michael van Hulten, a former Dutch MEP, has detailed what a two-layer Europe might look like. ‘The outer layer would be an overarching, less intrusive and more inclusive framework for European cooperation: a European Area of Freedom, Security and Prosperity (EFSP). This would comprise all EU and EFTA member states, as well as all existing EU candidate countries including Turkey. It could be expanded eastward to all European countries, including Russia, if and when the Copenhagen accession criteria (or similar) were met’. [8]

24. Any such plans could potentially in some ways build on the experience of the EEA, albeit with substantial revisions. For example, changes in the EU’s policy making process and recent Treaty revisions should be taken into account. Furthermore, according to the EEA Agreement, Iceland, Norway and Liechtenstein are meant to harmonize their positions internally and then speak with one voice towards the EU. A greater number of diverse states would make this system of unanimity quite difficult and cumbersome. Changes might therefore imply a more supranational structure. However, in return, the members of the outer tier should be allowed further participation in decision-making processes.

25. The economic climate within the EU has perhaps served to decrease the attractiveness of EU membership. The future of the EEA is of course largely dependent on developments within the EU. Whether the EEA Agreement’s content, structure and membership are revised or whether it ceases to exist at all are questions which will only be answered in the fullness of time. In general, the EEA in its current form, probably does not provide a viable solution for countries such as the UK. However, this does not mean that the EEA can provide no lessons for the future of Europe. Rather, given that it has generally been found to function well, any deliberations on a multi-tier Europe should take the experience of the EEA into account.

25 April 2012


[1] Liechtenstein became a full member of EFTA in 1991 having previously been linked to EFTA through a special protocol.

[2] See link to the English translation of the introductory chapter of the review: http://www.regjeringen.no/pages/36798821/PDFS/NOU201220120002000EN_PDFS.pdf

[3] The EEA Joint Committee provides the forum in which views are exchanged and decisions are taken to incorporate EU legislation into the EEA Agreement. The Joint Committee generally meets about eight times per year and is made up of ambassadors of the EEA EFTA states and representatives from the European External Action Service. Prior to the Lisbon Treaty, the Commission ( DG RELEX ) was the EFTA states’ counterpart in the Joint Committee.

[4] For example http://www.economist.com/node/21541863

[5] http://www.publicserviceeurope.com/article/1139/time-to-leave-the-eu-and-stop-exporting-british-jobs-abroad

[6] http://www.publicserviceeurope.com/article/1090/what-exactly-would-the-uk-gain-from-leaving-the-eu

[7] http://www.economist.com/node/21541863

[8] http://www.spectator.co.uk/coffeehouse/7421503/what-kind-of-europe.thtml

Prepared 18th June 2012