UK Edition
Brexit: what if the UK left the EU and could be more like Norway?
BEYOND THE EU SERIES: As the debate about the UK’s membership of the European Union heats up and ahead of the June referendum, we examine four non-EU economies to see if they could provide a model for Britain’s post-Brexit future.
Part One: Norway
Norway’s foreign minister was ready to do a deal. Bjørn Tore Godal had all but agreed terms with Brussels in 1994 for the country to join the European Union.
The talks had been tough. Norway’s spat with Spain over fishing quotas saw old tensions resurface that March evening.
In the end, the countries compromised, and as ministers arrived for the final plenary session, an agreement was within sight.
But Brussels had one more surprise in store for Godal, this time from the UK.
The British delegation, led by former foreign minister Douglas Hurd, suddenly backed the Irish demand to fish for mackerel in Norwegian waters.
Godal’s government had pledged not to give away “a single fish” before negotiations began. But, in the end, it did.
“The Irish wanted the mackerel and we gave in,” he recalls. “We gave in to get a result.”
Today, he describes the quota as tiny but “symbolic” for a country scarred by previous unions with Denmark and Sweden.
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Fishing communities near west Norway’s mackerel rich waters wanted free trade but were suspicious of Brussels’ intentions.
When the government yielded, their minds were made up.
In the end, the “No” campaign in the country’s 1994 EU referendum won by a margin of 52.2pc to 47.8pc. The result was closer than Norway’s first vote in 1972.
However, politicians have not dared to float the idea of another.
For Godal, Britain’s intervention highlighted its influence inside the EU.
“I was told it tipped the balance for fishermen in western Norway,” he explains from his office in Oslo, where Godal now heads a committee at the ministry of defence.
“Nobody remembers anymore, but that was part of the story of why Norway didn’t join the EU.”
With hindsight, it may have been a blessing in disguise.
Norway’s resource-rich economy has become stronger over the past two decades. Oil prices have plunged, but the country’s huge rainy day fund from past revenues means it is well equipped to weather the storm.
Unemployment is well below the EU average, while Norway’s social safety net is broad.
The country is near the top of the OECD’s rankings on work-life balance, education and equality.
But could the Norwegian model provide a template for Britain if it votes to leave the EU on June 23?
And would the UK have as much influence as it did 20 years ago if it no longer had a seat at the table?
Fax democracy?
Elisabeth Aspaker is preparing for her third trip to Brussels this year.
Life as Norway’s Europe minister is a lot tougher for her than many of her EU colleagues. At times, she feels exasperated.
“There’s no doubt that we get much less say than others because we are not at the formal meetings where the decisions are taken,” she says.
“Certainly, you find out sometimes that the train has already left the station.”
While not a member of the EU, Norway is part of the European Economic Area (EEA) and the European Free Trade Association (EFTA). As an EEA member, Norway has adopted a chunk of EU rules.
Agriculture, fishing, customs, justice and home affairs are excluded, but access to the single market requires the country to abide by the bloc’s four freedoms of goods, services, labour and capital.
An independent report published by the Norwegian government in 2012 estimated that Norway had adopted around three-quarters of all EU directives.
It also contributes indirectly to the EU budget. Norway coughed up €306m (£237m) in 2014, while its average annual commitment over the following six years is €447m, according to the foreign ministry.
Norway also gives grants to several EU countries through the EEA and Norway grants scheme, which amount to about €388m a year.
But how does this compare with the UK? Research by the House of Commons library estimates that Norway’s net contribution to the EU budget is around £106 per head, compared with £128 per person in Britain.
David Cameron has used these figures to suggest that the Norwegian model is a non-starter. “While they pay, they don’t have a say,” the UK prime minister said last October.
But a closer look at the Norwegians’ 900 page document suggests the country has been more successful at keeping Brussels at arms length.
While Norway follows around three-quarters of EU directives, this is not the same as saying that Norway obeys three-quarters of EU laws.
According to the report, Norway has adopted 1,369 out of 1,965 EU directives, or goals. However, there were also 7,720 EU regulations in force in 2008, just 1,349 – or around 17.5pc – of which were incorporated into the EEA agreement.
This means that combined directives and regulations in force in Norway constitute about 28pc of the total EU “acquis”- the body of common rights and obligations that is binding on all member states.
Norway has also played a key role in shaping directives. It influenced amendments to the Consumer Rights Directive in 2008 by lobbying the European Commission.
It has also fought off challenges from the British bookmaker, Ladbrokes, over state control of gaming machines.
“Experience shows that a broad-based national approach at an early stage involving relevant stakeholders, combined with a clear standpoint, is crucial if Norway is to exert an influence on legislative process,” a government white paper declared in 2012.
“For Norway, this means that we have to make very clear what our positions we have to to try to intervene very early where the processes are established,” says Aspaker, suggesting that Britain may have to engage more with Brussels if it wants to get its way.
Fighting back
Myre’s postmen headed out for their final Saturday delivery of letters and parcels last week. This sleepy fishing village, located 900 miles north of Oslo, is now deemed too remote to reach on weekends – and it’s all because of the EU.
It started in 2008, with the launch of the EU’s Third Postal Directive.
Posten Norge, the country’s state-owned postal service, had enjoyed a monopoly over the delivery of letters weighing under 50 grams within Norway.
The new rules opened the market to competition. Opponents believed that the rules would drive down wages for Norwegian postal workers. In order for Posten to compete, the heavily- subsidised service would no longer be able to fulfil a commitment to deliver letters six days a week, they claimed.
Norway’s rural communities, a group that MPs have fought hard to protect, would suffer.
People in Myre and the county of Nordland are highly suspicious of the EU. More than 70pc voted to stay out of the bloc in 1994, compared with just 33pc in Oslo.
Many here associate Brussels with bureaucracy and power grabs. Norway has adopted most EU directives with little fuss, but the postal directive was a step too far.
After much deliberation, Jonas Gahr Støre, then foreign minister, announced in May 2011 that he would use the country’s “right of reservation” to stop the rules being implemented in Norway.
Under Article 102 of the EEA agreement, countries can block EU legislation. In other words, Norway has a veto. However, its stance was met by hostility.
One Danish MEP called for Norway to be kicked out of the EEA, while others said it could not pick the laws it wished to follow like a “smorgasboard”.
The threats were enough to scare Norway into submission, and in November 2013, the newly-elected government announced that it would implement the directive from Brussels.
For Aspaker, the consequences of using the veto were too great. “We should think twice before we use this veto opportunity because at the end of the day this could cause us more trouble that would be good for Norway,” she says.
The treaty itself states that sanctions can be applied only to the “affected part” of the legislation, though the government’s late compliance means it’s hard to predict how the stand-off might have played out.
Annie Golden Bersagel, a lawyer at KLP who has written in detail about the spat, says Britain may have fared better if it faced a similar situation following Brexit. “I think the UK would have more leverage in that kind of discussion,” she says.
“When it comes to the size of economy, the population - Norway is a more peripheral player in the European context than the UK would be. Britain should be able to throw its weight around to a much greater degree.”
Trading up
Norway depends on the EU for 60pc of the goods it imports and 80pc of exports.
By comparison, 54pc of the UK’s imports came from the single market bloc in 2014, while the UK shipped around 50pc of exports to the EU.
In 2015, the proportion of UK exports to the EU fell to 47pc.
But while Britain sells a greater proportion of its goods further afield, it’s simpler for countries like Norway to negotiate free trade deals.
It secured agreements with countries such as Singapore and Canada long before the EU, and was on the verge of signing a deal with China, the world’s second largest economy.
However, the Norwegian Nobel Prize committee’s decision to award the Peace Prize to the Chinese dissident Liu Xiaobo stopped the deal in its tracks. Politics really does trump economics sometimes.
Nordlaks, Norway’s biggest privately-owned salmon producer, was one of the companies hit by this decision. It supplied fish to China during the Beijing Olympic games in 2008.
But life goes on. Kristian Eilertsen, the company’s factory manager, says strong demand from other markets means it is able to sell its fish elsewhere.
Eilertsen has no desire for Norway to join the EU. For him, being outside is not a problem. The bloc is the “easiest market we export to”, he says.
Most of Nordlaks’ fish goes to France and Spain. Free movement of goods is the rule within the EEA, but only certain Norwegian farm products and species of fish are included.
However, it benefits from reduced duties that it has negotiated with the EU, some of which are close to zero. Being outside the bloc has led some bigger companies to move their factories abroad.
Marine Harvest, one of Norway’s biggest listed fish producers, has moved one of its sites to Poland, where trade really is free. Companies have found creative ways to circumvent some rules. For example, smoked salmon is subject to higher export tariffs in Norway.
As a result, some companies send their fish across the border to Sweden to be smoked before exporting it on to other markets – including Norway.
The communities here are also getting uneasy about immigration. Inside Sommarøy Produksjonslag in Myre, which is located on Norway’s biggest cod-landing harbour, a sign is stuck on the wall for those seeking employment.
“STOP! We have no jobs”, it says.
Geir Rognan, the company’s general manager, says Norway has become stuck in a situation where it has to accept unlimited immigration, but can’t adapt to the competition because of the country’s antiquated fishing rules.
As a result, Polish businessmen can buy local factories and pay Polish workers less than the going rate in order to undercut rivals.
Part of Rognan wants to join the EU to open up the market, which he says is the ultimate driver of the economy.
Two of the EU’s biggest members, France and Germany, have already warned Britain that it would be denied access to the single market if it did not accept free movement of labour.
The EEA agreement does allow members to restrict movement on the grounds of “public policy, public security or public health”, but only on a temporary basis.
A new chapter?
Of course, if London were to follow Oslo and apply to rejoin EFTA, it would require Norway, Iceland and Liechtenstein’s permission.
Aspaker offers no clues as to whether Norway would welcome a bigger member into the trading bloc, where one country’s veto affects the others.
She prefers the status quo. “It would be a pity if the EU split up and such an important country like the UK left,” she says.
Others brand that argument as “just wrong”. Willfred Nordlund, transport executive at Norland county council, says Britain could thrive outside the bloc, while giving Brussels the shake-up it needs.
“If a big member state leaves the EU, it may force Brussels to change the way it works and say: 'Maybe we are going too far’.
“But those who look at Norway and say: 'Let’s not do it like that’, it’s the wrong conclusion. Norway is doing fine and it’s not just to do with the oil.
"It has to do with employment, labour participation and local government policies. We have one of the highest female participation rates in Europe. That has lifted growth.”
For Norway, the idea of a formal union with Europe is as politically toxic now as it was in 1994.
It’s one of the reasons why Gro Harlem Bruntland, Norway’s former prime minister, avoided using the word “union” during her campaign to join.
Godal sums it up, while hinting at the bloc’s steely determination to have things its way.
“I remember I spoke to Jacques Delors [the former head of the European Commission] about it – I said 'community’ is much better than 'union’. And you know what he said? 'Trop tard’ – too late.”
BEYOND THE EU SERIES: You can read the rest of our profiles on the economies of Iceland, Switzerland, and New Zealand.