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EU Referendum ReportBack

EuropeanLast week we saw and analysed possible arguments that are likely to be raised by those who support an EU membership and those who think that Brexit will benefit the UK.

Those in favour of the EU say the UK would be left behind and forgotten, whilst those in favour of Brexit, say the UK would have complete control over its trade agreements, ensuring better deals on our terms.

Looking at the facts, about half of all British goods exports goes to the European Union. The UK also benefits from trade agreements that have been made between the EU and outside nations. Including the EU agreements with non-members, 63% of the UK’s exports are linked to EU membership.

Having said that, to ensure such high level of trade can be maintained, there are currently three plausible trade agreement options that the UK could try to form if the UK votes Brexit.

These are:

  • The Norway model
  • The bilateral model
  • The WTO (World Trade Organisation)

The Norway model

Norway (along with Iceland and Liechtenstein) is not a EU country, but is part of the European Economic Area (EEA) and has the largest access to the EU’s single market of any other country outside of EU membership.

According to this model, Norway has to adopt most EU rules. The country has the same access to services as members of the EU and only partial access to the Single Market.  The country is also outside the Customs Union, meaning that trade in goods between EU and Norway is subject to customs checks and Rules of Origin. However, Norway is able to sign free trade accords with non-EU states and bound to free movement of people.

Norway does not take part in the negotiation and votes on EU legislation and rules and has neither representation in any of the EU institutions, nor right to participate in its decisions (except regarding the Schengen border-free area, of which Norway is a signatory). Nevertheless, the country had to implement about three-quarters of all EU legislation, including the working time directive and takes part in some non-economic co-operation such as counter terrorism.

Norway’s financial contributions to the EU

As stated on the EU-Norway website, it is not possible to compare net payments between those of an EU Member State and those of a Non-Member state, however we will list below Norway’s financial contributions to the EU related to their cooperation, as explained on the website aforementioned.

The EEA (European Economic Area) Agreement includes a common goal to reduce social and economic disparities in the European Economic Area.  The EEA EFTA (European Free Trade Association) states (Iceland, Liechtenstein and Norway) have contributed to European cohesion efforts through various financial mechanisms since 1994.

Over the period 2014-2021, Norway’s annual contribution to 15 beneficiary states through the current EEA and Norway Grants scheme will be 388 million euro, pending ratification of the agreement.

Norway participates also in a number of EU programmes through provisions in the EEA Agreement or on the basis of bilateral agreements with the EU.  For the period 2014-2020, Norway’s average annual commitment is 447 million euro

Norway contributes also in the fields of justice and home affairs through various agreements, including its participation in the Schengen cooperation.

Finally, for the period 2014-2020, Norway contributes annually about 25 million euro to programmes under the European Territorial Cooperation INTERREG.

The EEA EFTA states normally fund their participation in EU programmes and agencies by an amount corresponding to the size of their GDP compared to the GDP of the whole EEA (proportionality factor). Therefore, the EEA EFTA states participation is on equal footing with EU member states.’

The Bilateral Model

Besides the Norway model, the second possible trade agreement that the UK could try to form in case the country votes Brexit is the Bilateral Model, which is the same agreement that the EU holds with countries such as Switzerland, Turkey or Canada.

Under this accord, Switzerland has currently over 100 agreements with the EU and is member of the European Free Trade Association and of Schengen. Switzerland has partial access to the Single Market and it is able to sign free trade agreements with non-EU states.  However, Swiss exporters must meet EU standards when selling to the EU. Switzerland has also to respect specific barriers for agriculture, services and technical trade.  Finally, the agreement confers Switzerland the right of free movement of people and industrial products.

The EU holds the same kind of agreement with Canada. After seven years of negotiation, EU and Canada have finalised the Comprehensive Economic and Trade Agreement (CETA), which, however, has not been approved by the European Parliament yet.  The treaty would represent the most extensive bilateral agreement the EU has ever made.

The agreement will remove customs duties and nearly 92% of EU agriculture and food products will be exported to Canada duty-free.  Canadian manufacturers, however, will only have tariff-free access if they meet EU ‘rules of origin’ and products such as cars, with complex international supply chains, may still face tariffs.  A conformity assessment body in the EU will be able to test EU products for export to the Canadian market according to Canadian rules and vice versa.  On the other hand, Canadian financial services providers cannot supply directly to the EU market. They have to set up subsidiaries inside EU member states operating under EU regulations.

World Trade Organisation (WTO)

The World Trade Organisation (WTO) is the option available to the UK if, in case of Brexit, an EU deal will not be reached. A large proportion of EU trade with external nations is currently done under these rules.

The EU imposes a ‘common external tariff’ on goods and services imported from countries outside the EU that do not have any trade deals agreed. These tariffs are: 10% on cars, 30% on confectionery, 36% on dairy products.

Under WTO rules, all countries have to apply the same regulations. For instance, if the UK decided to allow goods from a certain country to enter the UK tariff-free, this would have to be applied to all 160 countries in the WTO.


Next week we will examine what costs the UK could face depending on the two possible outcomes of the referendum.

Posted by Sue Robinson on 06/05/2016