The Norway option

The Norway option: ‘One step removed’ – the Norway option of leaving the EU but remaining in the European Economic Area would remove any UK influence over shaping the rules it would still have to follow

The only way to continue to have full access to the Single Market without staying in the EU would be to join Norway, Iceland and Lichtenstein in the European Free Trade Association (EFTA), an intergovernmental organisation promoting free trade, and signing the European Economic Area (EEA) Agreement.

The agreement gives full access to the Single Market in return for implementation in national law of EU legislation covering goods, services and capital, as well as the free movement of people. It also covers cooperation in other areas such as research and development, education, social policy, the environment, consumer protection, tourism and culture, collectively known as ‘flanking and horizontal’ policies. Policies relating to trade policy, customs union, the monetary union and agriculture and fisheries, however, are outside the agreement.

In the areas covered, all new EU rules must be implemented into national law. The governance of the EEA Agreement is conducted through separate EEA institutions mirroring the EU’s institutions, such as the EFTA Court and the European Surveillance Authority, which monitors the implementation and enforcement of the agreement.

Supporters of the ‘Norway option’ believe that the agreement would secure exports of goods and services to the EU through full access to the Single Market without having to be bound by areas of legislation perceived by some as costly or unnecessary, such as the Common Agricultural Policy, the Common Fisheries Policy, the European Court, Commission or Parliament, justice and home affairs and the Common Foreign and Security Policy. By leaving the EU and joining the EEA, the UK would also reduce its funding burden to the EU and regain the power to explore signing free trade agreements bilaterally with any country it chooses.

However, leaving the EU and opting for the Norway model of membership of the EEA would not solve many of the challenges some see with the UK’s current relationship with the EU. It would mean that businesses would still have to follow EU rules, but it would remove the UK’s ability to influence those rules by relinquishing its seat at the table in Brussels. In addition, this option does not in any way accommodate those who want to see a reduction in Brussels’ influence on the UK and its regulatory development.

The EEA would give British business almost complete access to the Single Market, but customs controls would impede UK goods exports and practical obstacles to trade are likely to surface

Having access to the Single Market has been invaluable for Norway, Iceland and Lichtenstein, the three EEA EFTA countries. A comprehensive Norwegian analysis found that access has substantially benefitted the Norwegian economy and businesses, with more than two-thirds of Norwegian exports and imports going to the EU.[10]

Although access for goods and services is theoretically guaranteed, the practical realities can create challenges. Not being part of the customs union, EEA EFTA exporters and foreign companies exporting to them have to go through customs procedures such as import/export declarations, including rules of origin for all goods exports and payments of VAT.[11] A report published this year by the Swedish Chamber of Commerce on trade between Norway and its closest neighbour Sweden concluded that businesses see trading between the two countries as cumbersome despite the theory that it should be straightforward within the EEA.[12] Moreover, the lack of knowledge about the EEA across the EU means that trade barriers exist in practice. At a CBI roundtable event in Oslo, Norwegian businesses shared experiences of difficulties with custom officials at border crossings across Europe causing severe delays and lost profits.

For the UK, the major benefit of the agreement would be that, in theory, British companies could continue to operate within the EU in largely the same way as before. However, as seen above, practical obstacles are likely to surface which would be particularly damaging to UK goods exports.

To get full access to the Single Market the UK would have to implement all the EU rules in the areas covered in the agreement

The regulatory impact for EEA EFTA countries is less than that of an EU member state. For example, the agreement excludes the Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP), so the countries have the opportunity to protect their primary industries by adjusting policies to meet national priorities on fish-stock preservation and regional policy. However, this also means losing on market access in these areas. In the Norwegian case, this has led to most of Norway’s fish-processing industry relocating within the EU, principally to Scotland, to continue to benefit from full market access.

In addition, membership of the EEA still involves a considerable obligation in terms of EU regulation. Norway has implemented around 6,000 EU legal acts,[13] and the EEA countries must implement regulations such as the Working Time Directive, the Capital Requirements Directives for banks and directives covering public procurement.

Were it in the EEA,the UK would therefore be free of some areas of regulation but, in order to retain market access, it would have to continue to apply all pieces of legislation relating to the Single Market, including employment and social rules. Moreover, it is worth noting that Norway’s review of the EEA Agreement found that the EFTA Court is stricter than its EU equivalent, the European Court of Justice (ECJ).[14]

The UK would be able to negotiate access to global markets through the 24 Free Trade Agreements signed by EFTA, but would risk a period of dislocation

The EEA-EFTA countries do most of their free trade agreements through EFTA as the countries have not signed up to the EU’s common trade policy. The 26 FTAs have secured companies preferential access to markets of around 440 million consumers beyond the 500 million consumers of the European Union, and approximately 80% of EFTA's total merchandise trade is today covered by preferential trade arrangements.[15] However, the UK could not join these agreements en bloc; it would need to renegotiate each one separately.

Being part of EFTA could provide more flexibility in signing trade agreements for the UK, given that there are fewer countries in EFTA than in the EU and therefore agreements are likely to be reached faster.  For a long time this was not the case, with EFTA signing agreements alongside the EU. However, after 1998, EFTA began a more independent FTA strategy and concluded FTAs with Canada and Singapore ten years ahead of the EU and with South Korea five years before the EU. Although EFTA’s agreements are in some cases as good as or better than those of the EU, they can often be weaker. This seems to reflect the characteristics of the countries within EFTA. Sometimes they get better deals because their economies are not seen as a threat to the third country’s industry; at other times EFTA has less to offer than the EU, particularly when it comes to market size, an important factor for many developing economies.


If you want to run the EU, stay in the EU. If you want to be run by the EU, feel free to join us in the EEA. Nikolai Astrup MP, spokesperson on European Affairs for the Norwegian Conservative Party

The countries are also free to conclude their own free trade agreements, with Iceland recently concluding an FTA with China. This flexibility can be exaggerated as most trade negotiations concluded by EFTA follow in the EU’s footsteps and major countries have been unwilling to negotiate with EFTA before they get an agreement with the EU. For the UK, the EEA Agreement would mean the UK could set its own trade agenda and sign FTAs independently. This would, however, be dependent on the interest of other countries in the UK market and, as described in the section on the WTO option, the UK’s clout would be reduced, risking lower quality in UK FTAs compared with those of the EU. Moreover, given the differences between the small and fairly specialised EFTA states and the UK, a much more complex and diverse economy, each negotiation is likely to take around 3–5 years, depending on the depth of the agreement.

Free movements of people and capital would be unaffected under the ‘Norway option’, but perceptions of lower market access and a lack of influence over rules may reduce investment in the medium term

Free movement of labour with the EU is a condition of EEA membership and has helped fill skills shortage in the three small EEA EFTA states. Norway’s evaluation of the agreement concluded that its economy has substantially benefitted from labour migration from the EU because it has contributed to increased efficiency. For the UK, the ‘Norway option’ would mean a continuation of the current arrangements for free movement of people. This would represent a positive for business but not for those people who argue that control over labour movements in the EU is a reason for withdrawal.


The number of EU legal acts Norway has implemented

The EEA also allows the free movement of capital, which has been important for the EEA countries. Most Norwegian investment abroad is in the EU, with EU-owned businesses accounting for 24% of the country’s GDP and employing close to 20% of the workforce. Lichtenstein’s government also concluded that 15 years’ EEA membership had improved its location attractiveness for foreign investors and companies.

On the other hand, Norwegian companies argue that the ‘outsider’ status and its limitations mean that they lose out on investment as EU countries are seen as better locations for operations, even though the EU and EEA offer identical market access in theory.

The examples from the current EEA suggest a risk that investments could shift from the UK to EU member states simply because it is perceived to be better to be formally within the EU.

The UK would continue to pay a membership fee to Europe

The EEA countries do not pay directly into the EU’s budget. However, they do contribute to a separate EEA Grant, amounting to €988.5 million for the 2009–14 period, while Norway in addition finances the Norway Grants of €800 million. Norway is thus the tenth highest contributor to the EU, despite not being a member, with per capita contributions of €100, well over half of the UK’s contributions (€180).

In addition, the countries pay directly for participation in EU programmes, and EEA EFTA contributions to EU Programmes in 2013 are estimated to be €284 million. Taking part in these programmes is seen as vital in all EEA EFTA countries to bring both capital and knowledge, in particular boosting turnover in the area of research. Becoming a member of EFTA would also mean budgetary contributions to the funding of the Secretariat, which in 2013 had a budget of approximately £15 million.

Although the UK would likely see its absolute contributions to ‘European’ budgets fall were it to leave, the relative contributions it would have to make if it pursued the ‘Norway option’ would still be significant.

The EEA option would dramatically reduce the UK’s influence over rules it has to follow

Although they have to follow all the rules, the EEA EFTA states have no formal sway over decisions made in Brussels: they have no Commissioner, no members in the European Parliament, no votes in the Council or participation in most expert groups and agencies. Their governments are often left out of the information loop and risk missing out on early-stage discussions when EU member states begin new initiatites or are formally consulted by the Commission.

This lack of formal involvement has led to a knowledge gap and low prioritisation of EU issues among politicians and civil servants in the EEA EFTA countries and working on EU issues is not considered a useful career route, which has led to a lack of experience of the EU among civil servants. Being outside the EU with no formal channels for influence is particularly harmful to SMEs who, unlike the larger companies, cannot afford to lobby in Brussels and are therefore left unrepresented.


For the UK, the lack of influence would be a major weakness of the 'Norway option'

Accesibility Info

The countries are allowed to participate as observers in some bodies. For instance in 2005 Iceland had access to 418 committees and specialists’ advisory bodies, although they participated in only 184 of them.[17] This access has, however, been reduced over time and there has been a gradual shift towards a much narrower interpretation on the EU side resulting in the exclusion of Iceland, Norway and Liechtenstein from many committees and advisory bodies in which they had participated previously.[18]

Added to that, the EEA is becoming increasingly less important to the EU. EU foreign ministers, for example, rarely show up for meetings in the EEA Council as was expected in the beginning. And increasingly the European Commission ‘forgets’ to involve specialists from the EFTA EEA states when new legislation is being prepared.[19]

For the UK, the lack of influence would be a major weakness of the ‘Norway option’. The UK cannot be a passive ‘standards-taker’ if it wishes to maximise its opportunities for global trade; it has to be able to set the rules to support business and should seek active involvement in standards-setting as an opportunity to influence EU and global standards to open markets for UK firms.


[10] Official Norwegian Reports, NOU 2012: 2, Outside and Inside Norway’s agreements with the European Union, 7 January 2012

[11] Innovasjon Norge, Fritt varebytte, webpage accessed on 18 October 2013

[12] Kommerskollegium, Swedish National Board of Trade, Sveriges handel med Norge – grannhandel med förhinder, March 2013

[13] Official Norwegian Reports, NOU 2012: 2, Outside and Inside Norway’s agreements with the European Union, 7 January 2012

[14] Official Norwegian Reports, NOU 2012: 2, Outside and Inside Norway’s agreements with the European Union, 7 January 2012

[15] EFTA webpage, ‘Free Trade Agreements’, available at:

[16] Utenriks Departementet [Norway Minsitry of Foreign Affairs], Utenfor og innenfor [Inside or Outside]?, 2012

[17] Forsætisráðherra [Iceland Prime Minister’s Office], ‘Tengsl Íslands og Evrópusambandsins [Relations with the European Union]’, 2007

[18] Eiríkur Bergmann, ‘Iceland and the EEA, 1994-2011’, 2011

[19] Eiríkur Bergmann, ‘Iceland and the EEA, 1994-2011’, 2011