The future of the European Union: UK Government policy - Foreign Affairs Committee Contents

5  The Single Market and the EU: Norwegian and Swiss options

154.  In his January 2013 speech, the Prime Minister explicitly rejected the idea that, if it were to leave the EU, the UK should "turn itself into Norway or Switzerland—with access to the Single Market but outside the EU".[319]

155.  It is worth remembering that the Single Market is much more than a traditional free trade area. Traditional free trade areas concern only goods, and the removal of tariff and quota barriers to their trade. The then-EEC had achieved an internal free trade area of this sort by 1968, and had signed a free trade agreement of this type with the European Free Trade Association (EFTA) by 1972 (as the UK left the latter for the former). From the original Treaty of Rome in 1957, the Single Market was always intended to encompass the freedom of movement of not only goods but also services, capital and people; and to be a 'single market' in the sense also of eliminating non-tariff barriers. This involves the EU in far-reaching regulatory harmonisation and—owing especially to the free movement of people—in politically sensitive fields. In legal terms, the Single Market comprises the body of relevant legislation and ECJ case-law in force at any time. The Single Market is thus a constantly developing rather than a fixed entity, and remains a project rather than a completed regime. As well as a Single Market, the EU is also a Customs Union: it operates a common external tariff and a common external trade policy. It is possible for a country to be inside the EU Customs Union but outside the EU and the full Single Market: this is the position of Turkey. In this case, broadly, the non-EU country has access to the Single Market for some goods but must adopt the EU's external trade policy. It is also possible to be in the Single Market but outside the Customs Union: this is the position of Norway, Liechtenstein and Iceland as the non-EU members of the European Economic Area (EEA). In this case, the non-EU states operate their own external trade policy, but face rules-of-origin rules for exports into the EU.[320] We summarise this variety as part of Annex 3.

156.  Of the two countries mentioned by the Prime Minister in his January 2013 speech, our inquiry highlighted for us the differences between the positions of Norway and Switzerland with respect to the EU:

Norway is a member of the European Economic Area (EEA). The EEA was established in 1992 via an agreement, the EEA Agreement, between the EU on the one hand, and three members of the European Free Trade Association (EFTA) on the other. Apart from Norway, the EFTA members of the EEA are Liechtenstein and Iceland. As non-EU members of the EEA, Norway, Liechtenstein and Iceland are part of the EU Single Market, encompassing all 'four freedoms' of goods, people, services and capital. As such, these states must adopt all the EU's Single Market legislation as it develops. The compliance of the non-EU EEA members with the EEA Agreement is subject to an EFTA Surveillance Authority and Court, which play a role for these states analogous to that played by the European Commission and ECJ for EU Member States.

Switzerland is not a member of the EEA and is thus also not automatically part of the Single Market as it develops. Switzerland participates in specific parts of the Single Market on the basis of bilateral agreements with the EU; Switzerland gains access to the relevant part of the Single Market in return for accepting the relevant part of the Single Market acquis. There is no automaticity or dynamic element in the Swiss-EU bilateral agreements: when the EU amends or adds to Single Market legislation in an area covered by a bilateral agreement with Switzerland, the bilateral agreement continues to cover only the previous legislation. There is no overarching authority or institutional framework to police the bilateral agreements.[321]

157.  Our witnesses and interlocutors also brought home to us the essential similarity between the positions of Norway and Switzerland: namely, that both are in practice obliged to adopt EU legislation over which they have had no effective say. In 2010, the Norwegian Government commissioned an independent review of Norway's agreements with the EU which reported in 2012 that "the most problematic aspect of Norway's form of association with the EU is the fact that Norway is in practice bound to adopt EU policies and rules [...] without being a member and without voting rights".[322] Authors of the report have said that the 'Norwegian model' effectively involves "integration without representation".[323] Dr Jó hanna Jó nsdó ttir of the EFTA Secretariat, providing evidence in a personal capacity, argued that the provisions of the EEA Agreement which were intended to maintain its non-EU members' formal sovereignty were ineffective, and that the EEA "function[ed] as a supranational agreement in practice".[324] Professor René Schwok of the University of Geneva similarly called the ability of the EEA's non-EU states to opt out of EU legislation "politically unusable" in practice.[325] Switzerland has greater autonomy than the non-EU EEA states, but Professor Clive Church and colleagues from the University of Kent still said that "an arrangement meant to protect Switzerland's autonomy is actually eroding it", because Berne "finds itself directly or indirectly compelled to adopt much of EU law without having any say in the process of making such law".[326] On our visits to Oslo and Berne, we gained the impression that both Norway and Switzerland were prepared to accept what they acknowledge to be a 'democratic deficit', as the price for remaining outside some aspects of the EU, such as the Common Agricultural Policy or Common Fisheries Policy. Non-EU states also do not make general contributions to the EU budget, although—as the 'price' for their continued access to (parts of) the Single Market—the EU effectively obliges the non-EU EEA states and Switzerland to contribute to some EU funds, and Norway contributes towards the cost of EU programmes in which it participates.[327] However, our interlocutors in both Berne and Oslo largely advised the UK to remain inside the EU, as a way of retaining influence over the legislation that it would be obliged to adopt if it remained part of the Single Market. Our Swiss and Norwegian interlocutors also often told us that they wanted the UK to remain in the EU because they regarded the country as something of a voice for the EFTA states within the Union.

158.  Professor Minford contended that it was "odd" to argue that the Norwegian and Swiss models were unsatisfactory because they involved a lack of influence over Single Market regulations. He argued that:

for any country you export to you have no influence over their regulations or the particular things that they want you to embody in your product if you sell it to them. That would be true of any market we sold to. If we left the European Union, we would have to sell to them on their terms, but it would be something that we routinely do.[328]

However, having little influence over an export market's regulations might be normal, but it can also be undesirable and costly. UK companies seeking to export outside the EU often face significant restrictions, involving, for example, technical regulations, burdensome customs procedures and weak enforcement of intellectual property rights. The 26 (soon to be 27) other countries that comprise the EU make it a larger market than any individual country to which the UK might export, raising the premium on the UK being able to shape Single Market regulations. Furthermore, as we noted in paragraph 155, the Single Market involves the free movement of people, as well as goods, capital and services, where the relevant legal regime can be highly politically and socially sensitive.

159.  We learned on our visits to Berne and Oslo that, even if it were attracted to the Swiss or EEA arrangements, the UK could not assume that either would be available to it if it were to leave the EU:

It was stressed to us in Berne that the EU did not wish to continue with the current system of EU-Swiss bilateral agreements. For the EU, they are too complex and time-consuming to administer. More importantly, the EU considers that, without any provision for Switzerland's automatic adoption of new legislation in areas covered by its bilateral agreements, and without any dispute settlement mechanism, the current system creates "legal uncertainty".[329] In December 2012, the EU said that "the approach taken by Switzerland to participate in EU policies and programmes through sectoral agreements in more and more areas [...] has reached its limits and needs to be reconsidered. Any further development of the complex system of agreements would put at stake the homogeneity of the Internal Market".[330] Since December 2010 the EU has been refusing to move forward on any further bilateral agreements that Switzerland might seek until the Swiss Government agrees to establish an overarching institutional framework that would ensure the homogenous interpretation and application between the EU and Switzerland of the relevant Single Market rules. Professor Schwok suggested that the "Swiss model no longer exists because the EU wants its relationship with Switzerland to move closer to the EEA benchmark".[331]

Access to the EEA is via the EEA Agreement. The EEA Agreement specifies that it is between the EU on the one hand, and members of EFTA on the other. To become a non-EU member of the EEA, therefore, the UK would appear to have two options: i) accede to EFTA and then the EEA; or ii) see the EEA Agreement amended so that a state which was a member of neither the EU nor EFTA could accede to it.[332] The micro-states of Andorra, Monaco and San Marino would like greater access to the Single Market, and the European Commission has recently suggested that they could only join the EEA by first becoming members of EFTA.[333] However, accession to EFTA requires the unanimous agreement of all the current EFTA states (Iceland, Liechtenstein, Norway and Switzerland). Our impressions in Norway tended to confirm the suggestion made to us by Professor Schwok, namely that the accession to EFTA of a state of the UK's size might be regarded by the EFTA countries as a disruptive and not wholly welcome prospect.[334]

160.  The shortcomings involved in both the Norwegian and Swiss 'models' lay behind the Prime Minister's rejection of both as possibilities for the UK. The Prime Minister argued that, if the UK wished to continue to participate in the Single Market, it should remain a member of the EU. Indeed, Mr Cameron argued that the UK's "participation in the Single Market, and [...] ability to help set its rules is the principal reason for [its] membership of the EU" (emphasis added).

161.  We did not examine fully the arguments for and against the UK's participation in the Single Market. These engage complex economic, social and regulatory issues, outside the scope of our inquiry. We look forward to the findings of the Balance of Competences Review, which is conducting an overall examination of the Single Market as part of its first semester of work before covering each of the 'four freedoms'—free movement of goods, people, services and capital—in separate reviews later in the process. Overall, the evidence that we received—from Sir Howard Davies, Charles Grant, Dr Niblett, Business for New Europe, TheCityUK and the Scotch Whisky Association—supported the Government's position that it is better for the UK to be in the Single Market than not.[335] Sir Patrick Minford favoured withdrawal from the Single Market—and, partly as a consequence, from the EU.[336]

'Two-tier' models

162.  A number of policy-makers and observers have recently made proposals for formalised 'two-tier' arrangements in Europe. These would keep the UK in the Single Market but would be alternatives to the Prime Minister's preference for continued full EU membership. Compared to the types of 'two-tier' structures that might arise within the EU as a result of closer Eurozone integration (that we considered in Chapter 3), these types of 'two-tier' proposals might not only allow the Eurozone to engage in more integration than at present but also allow non-Eurozone EU Member States to engage in less. These kinds of models thus respond to the Prime Minister's wish to reduce the UK's level of integration (for example through the repatriation of powers), and to the view that a "new settlement" along those lines will be unavailable to the UK within the current EU:

In November 2011, Michiel van Hulten proposed the creation of an outer European Area of Freedom, Security and Prosperity, and an inner European Political and Economic Union. The outer tier would be based on the Single Market but would also involve a common foreign and security policy, and would come to incorporate or take over from the Council of Europe and the Organisation for Security and Cooperation in Europe (OSCE). Decision-making would be by unanimity. Democratic control would be exercised by national parliaments, not the European Parliament. The inner tier would involve full political and fiscal union and would take all decisions by qualified majority.[337]

In June 2012, Lord Owen, the former Foreign Secretary, proposed the establishment of an outer European Community and an inner European Union. The European Community would comprise the Single Market operating under qualified majority decision-making, with coordinated foreign and security policies. The inner European Union, based on the Eurozone, would involve common fiscal and monetary policies.[338]

The Liberal Democrat MEP Andrew Duff has proposed the creation of an EU associate membership status, as part of the EU Treaty amendment process that he expects after 2014. Associate member states would participate in the Single Market but would not sign up to all the EU's political objectives and would not have all the representation and decision-making rights of full EU members.[339]

The French scholars Thierry Chopin and Jean-Franç ois Jamet have proposed a two-tier model in which the EU effectively becomes the Eurozone and the states wishing to join it, and the EEA Agreement is revised to give the EEA's non-EU Member States voting rights over the Single Market and other relevant common policies.[340]

In all four proposals, the 'outer tier' might include countries which are not current EU Member States—not only the EFTA countries, but also potential EU members such as Turkey.

163.  In Europe's current institutional architecture, any decision as to whether the UK should remain in the EU would to a significant extent be a decision about whether the UK should remain in the Single Market—that is, a common area of free movement for goods, services, capital and people. This engages profound questions of economic, social and regulatory policy that were beyond the scope of our inquiry.

164.  We agree with the Government that the current arrangements for relations with the EU which are maintained by Norway, as a member of the European Economic Area, or Switzerland, would not be appropriate for the UK if it were to leave the EU. In both cases, the non-EU country is obliged to adopt some or all of the body of EU Single Market law with no effective power to shape it. If it is in the UK's interest to remain in the Single Market, the UK should either remain in the EU, or launch an effort for radical institutional change in Europe to give decision-making rights in the Single Market to all its participating states.


319   David Cameron, EU speech at Bloomberg HQ, London, 23 January 2013, Unless otherwise stated, all references in this chapter to the Prime Minister's views or policy are based on the Bloomberg speech. Back

320   See Open Europe, "Trading places: Is EU membership still the best option for UK trade?", June 2012. For a summary of the Single Market, see Department for Business, Innovation and Skills, Review of the Balance of Competences between the UK and the EU, Call for Evidence on the Internal Market: Synoptic Review, November 2012. Back

321   On the Norwegian and Swiss 'models', see Ev 51-55 [Dr Jónsdóttir ], 70-74 [Professor Church, Dr Dardanelli and Sean Mueller], 128-135 [Professor Schwok and Cenni Najy]; Graham Avery, "The European Economic Area revisited", European Policy Centre Policy Brief, 19 March 2012; David Buchan, "Outsiders on the inside: Swiss and Norwegian lessons for the UK", Centre for European Reform, September 2012; Open Europe, "Trading places: Is EU membership still the best option for UK trade?", June 2012; House of Commons Library, "Switzerland's relationship with the EU", Standard Note SN06090, last updated 20 October 2011, and "Norway's relationship with the EU", Standard Note 6522, last updated 14 January 2013 Back

322   Outside and Inside: Norway's agreements with the European Union, Official Norwegian Reports NOU 2012:2, p 7 Back

323   Fredrik Sejersted and Ulf Sverdrup, "Eurosceptics be warned - the 'half in, half out' EU integration model option is best left to Norway",, 5 October 2012 Back

324   Ev 51 Back

325   Ev 131 Back

326   Ev 72 Back

327   For Norway's contributions, see the unofficial translation of the Outside and Inside report provided on the website of the Norwegian Parliament,, pp 8-9. Back

328   Q 117 Back

329   Council conclusions on EU relations with EFTA countries, 14 December 2010, para 6 Back

330   Council conclusions on EU relations with EFTA countries, 20 December 2012, para 31 Back

331   René Schwok, "'Brexit': the Swiss model as a blueprint?",, 7 January 2013 Back

332   An EFTA legal official confirmed to us that the EEA Agreement contains no provisions for its own amendment beyond the procedure for incorporating new Single Market law; Ev 185 Back

333   Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - EU Relations with the Principality of Andorra, the Principality of Monaco and the Republic of San Marino - Options for Closer Integration with the EU, COM(2012) 680 final, 22 November 2012, p 17 Back

334   Ev 135 Back

335   Q 1 [Sir Howard Davies], 41 [Charles Grant], Ev 104-105 [Scotch Whisky Association], 123-124 [TheCityUK], 152-153 [Dr Niblett], 174-175 [Business for New Europe] Back

336   Qq 112, 116, 120 Back

337   Michiel van Hulten, "To get out of this crisis we need to rebuild Europe from scratch", European Council on Foreign Relations, 22 November 2011, and Qq 90-106 Back

338   Lord Owen, "My vision for a new Europe", The Times, 7 June 2012; Europe Restructured: The Euro Zone Crisis and Its Aftermath (Methuen, 2012); "Lord Owen: We must start to prepare now for an EU referendum", Evening Standard, 20 May 2013 Back

339   Andrew Duff MEP, On Governing Europe (Policy Network, 2012), pp 63-70 Back

340   Thierry Chopin and Jean-François Jamet, "David Cameron's European Dilemma", Project Syndicate, 18 January 2013; see also Thierry Chopin, "Two Europes?", in Europe in search of a new settlement (Policy Network, 2013). Back

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Prepared 11 June 2013