Is there a referendum compromise?

The one thing that everybody involved or interested in the current EU Referendum debate can agree on is that the result is going to be close.  Like the referendum over Scottish independence in September 2014, this a is a matter that divides the electorate down the middle, and as with that situation and referenda in general, it provides for none of the compromise or negotiation that it is inherent in the general democratic process.

The reaction to such a close vote in the Scottish referendum was the provision of greater devolution, i.e. a compromise.  With a similar situation existing in relation to continued EU membership, perhaps it is time to look for a similar compromise; while theoretical democracy is about getting 50% plus one vote, a democratic society must aim for harmony among as wide an element of its population as possible.  Unless either side is able to gain 60% or greater of the votes this Thursday, then I would suggest that a compromise is needed to avoid disharmony, one where neither side can claim either victory or defeat.

So what might a compromise look like as regards EU membership where the numbers of parties involved are greater than those involved in the Scottish referendum?  Well luckily the structures already exist, making it considerably easier to implement; it is what has become to be known as the “Norway Option”.

First, a short history lesson……

When the original six members (Belgium, France, Italy, Luxembourg, Netherlands and West Germany) formed the European Coal and Steel Community in 1950, leading in turn in 1957 to the European Economic Community (“EEC”), the forerunner of the current European Union (“EU”), the UK stood back for a variety of reasons.  Instead, the UK sought to develop stronger trading links with the other developed European economies that were outside the Soviet Bloc.  In 1960 the European Free Trade Association (“EFTA”) was formed, with Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the UK as the initial members, joined by Iceland in 1970.  EFTA was implemented on a rather loser basis that the EEC, focused on industrial trade, and excluding agriculture and fisheries.  Over time, EFTA faded in to the background as its members joined first the EEC, Denmark and the UK in 1973 (and Ireland, which although not a member of EFTA, had its own free trade agreement with the UK), and later the EU, Austria, Finland (which had become an EFTA member in 1986) and Sweden in 1995.   The two remaining major members of EFTA, Norway and Switzerland, had also been expected to join the EU in 1995, but their electorates rejected membership in referendums; in Norway’s case, this was the second rejection, having previously sort entry to the EEC in 1973 alongside Denmark, Ireland and the UK.

Prior to the 1995 enlargement of the EU, the EU had agreed with EFTA the European Economic Area (“EEA”), which offered access to the then new European Single Market for EFTA members, and was implemented in 1994 after a 5 year period of negotiation.  The EEA has been seen as a “waiting room” for EU membership, and indeed was rejected in a referendum by Swiss voters in 1992 for exactly that reason, so Switzerland remained outside both the EEA and the EU.  However, with Norway’s rejection of EU membership in 1994, but remaining in the EEA and Iceland’s withdrawal of its EU application in 2013 but continuing with EEA membership, the EEA has now had 2 non-EU, EFTA members operating within it for over 20 years.

So what exactly would leaving the EU, remaining in the EEA and re-joining EFTA, the “Norway Option”, mean?  Well looking first at the EEA elements what is involved?  The following is taken from the EFTA website regarding the EEA:

What is included in the EEA Agreement?

The EEA Agreement provides for the inclusion of EU legislation in all policy areas of the Single Market. This covers the four freedoms, i.e. the free movement of goods, services, persons and capital, as well as competition and state aid rules, but also the following horizontal policies: consumer protection, company law, environment, social policy, statistics. In addition, the EEA Agreement provides for cooperation in several flanking policies such as research and technological development, education, training and youth, employment, tourism, culture, civil protection, enterprise, entrepreneurship and small and medium-sized enterprises. The EEA Agreement guarantees equal rights and obligations within the Single Market for citizens and economic operators in the EEA. Through Article 6 of the EEA Agreement, the case law of the Court of Justice of the European Union is also of relevance to the EEA Agreement, as the provisions of the EEA Agreement shall be interpreted in conformity with the relevant rulings of the Court given prior to the date of signature (i.e. 2 May 1992).

What is not covered by the EEA Agreement?

The EEA Agreement does not cover the following EU policies: common agriculture and fisheries policies (although the EEA Agreement contains provisions on trade in agricultural and fish products); customs union; common trade policy; common foreign and security policy; justice and home affairs (the EEA EFTA States are however part of the Schengen area); direct and indirect taxation; or economic and monetary union.”

In terms of the non-EEA aspects of EFTA, it also brings a series of free trade agreements with 24 countries, including major non-EU markets such as Canada, Mexico, South Korea and Turkey.

Winners and Losers?

So from a “Remain” perspective, access to the Single Market, the key element in their economic argument is retained, with the downside that any future changes in Single Market Rules will be made with the UK having only an ability to influence, but not vote on them.  It also should negate the primary issues around a second Scottish independence referendum and tensions in Northern Ireland that would likely occur on a full EU and EEA exit.

From a “Leave” perspective it returns sovereignty, bar for those matters around the Single Market, including the ability  for the UK to make its own international trade agreements and develop increased links with the Commonwealth.  However, this would come at the expense of retaining  free movement of labour, albeit with the ability to impose “emergency brakes”, similar to those negotiated by David Cameron in February.  It also means a continued (but reduced) contribution to the EU budget (involving development funds for poorer members), but would remove any contingent liabilities to the European Central Bank or other EU bodies in the event of default.

Just a Compromise, or Maybe More?

While EFTA/EEA membership is at this time primarily a compromise, longer them it opens up new possibilities.  Firstly, the EU is changing, with the Eurozone countries necessarily integrating further around the Franco-German axis.  For those countries not in the Euro, this poses questions of a direction that they may not be comfortable with; former EFTA members Denmark and Sweden spring immediately to mind in this context.  A revitalised EFTA, with Britain back at its helm, combined with continued access to the Single Market may become attractive for the future.

Secondly, Britain has long acted as a connecting point between Europe, the Commonwealth and the USA.  While the complete exit from both the EU and EEA proposed by “Leave” would put this role at risk, a return to EFTA and retention of EEA membership will change but likely not impair this role.  In fact, with some countries it may even enhance the position, e.g . countries such as Australia and New Zealand with significant agricultural exports.

I will be voting “Remain” on Thursday, and I continue to hope that “Remain” wins by a convincing margin, in which case we continue with the modestly renegotiated EU arrangements agreed in February.  Similarly, a comprehensive victory for “Leave” and I will accept with a heavy heart that the people of Britain wish to head in a different direction.  If however the vote is close (definitely less than 5% victory margin, but I would suggest less than 10%), then EFTA/EEA membership may well provide a middle ground that the large majority of the country can coalesce around.

 

Nick

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