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The European Economic Area – a real heartbreaker

The democratic deficit in The European Economic Area (EEA) is more evident than ever. No to the EU is working for a thorough public study of both consequences and alternatives to the EEA.

 

Morten Harper, Head of research, No to the EU (morten.harper(at)neitileu.no )

The European Economic Area (EEA), which was established on the 1st of January 1994, has proved to have a far broader scope and more serious consequences than described by the government when the agreement was approved by the national assembly. EEA rules have in the agreement's 14 years even affected issues particularly close to heart for all the main political parties, such as the Christian People Party's alcohol policy, the Farmer Party's regional policy, the Socialist Left's environmental policy, the Liberal's civil liberties and The Labour Party's industrial policy. This makes the EEA a troublesome «heartbreaker».

What the EEA is – and is not

The EEA is an agreement between the EU and three of the EFTA-countries – Norway, Iceland and Liechtenstein. The EEA integrates Norway into EU's single market, whereas we remain independent from most of the union. EEA is founded on the same market principles as the EU: The free movement of goods, services, investments and labour. EU legislation applies to all areas covered by the agreement, including competition and public funding. Legally, regulations implemented according to the EEA override Norwegian legislation. The EEA also includes some less controversial issues, including research, education, environment, culture and tourism.

Through the EEA Norwegian experts are represented in the committees of the EU preparing new legislation. New legislation is only implemented in the EEA after approval of both EU and the EFTA-countries. All the three EFTA-countries must agree. This means that Norway can demand an exemption from the rules, according to the clause of reservation or veto embodied in the Agreement.

The decisions of the EEA Committee – where EU and Norway, Iceland and Liechtenstein meet – are not formally binding for Norwegian citizens until the rules have been implemented in national legislation. Regulations, which in the EU are applied directly in the member states, must be transferred literally. The implementation of directives does not demand exactly the same text, but the aims and substance must be respected. The recommendations and communications of the EU Commission are generally non-binding, but Norwegian authorities are in some instances obliged to follow these as well.

The single market is not only founded on the same set of rules. The enactment shall also be as identical as possible across the area. The EFTA Surveillance Authority (ESA) looks after the implementation and enactment of EEA legislation in the three EFTA-countries. ESA may, either on its own initiative or based on a complaint, request the countries to alter their legislation and/or practices. If a country does not comply with ESA's demand, the case can be brought to the EFTA Court for a final decision. National governments also have the opportunity to appeal ESA's decision to the Court. The same applies to private individuals and companies affected by the decision.

To summarize, the EEA consists of:

  • Free trade of goods (exemptions apply for agriculture and fisheries) and free movement of investments, services and labour.
  • Common competition policy (affecting commercial cooperation, public funding and public monopolies) and harmonizing of company legislation.
  • Close cooperation on transport policies.
  • A common veterinary legislation (but agricultural tariffs still apply as the EU Customs Union and Common Agricultural Policy are not part of the EEA).
  • Cooperation on the environment, research, consumer and social issues.
  • A consultation procedure in which the EFTA countries are questioned on future EU legislation concerning the EEA.
  • A common decision-making procedure in which new EEA rules are approved unanimously by the EFTA states and the EU.
  • Separate institutions (a surveillance authority and court).
  • A financial mechanism – loans and grants – to support economical development in the EU.
  • Norway pays annually about 300 million euro to participate in the EEA.

Still, the EEA is considerably more limited than EU membership. The EEA does, amongst other things, not include:

  • EU's external trade policy.
  • The common agricultural policy (CAP).
  • The EU fishery policies.
  • The economical and monetary union (EMU), including the euro.
  • The joint foreign and security policy.

Statistics of the EU annual reports and from the EFTA secretariat shows that EU in the period 1997-2003 adopted a total of 11 511 regulations and directives. Only 2 129 where implemented in the EEA during the same period – about 20 %. It is also possible to withdraw from the EEA with only one year notification.

In addition to the EEA, Norway is through the Schengen-agreement associated with the EU police and justice cooperation. Norway is not part of the EU safety and defense policy (ESDP), but has committed to contribute resources and people to one of the EU battle groups.

Prosperity outside the EU

There was a lot of scare-mongering ahead of the Norwegian EU referendum in 1994, and one of the main arguments of the yes-side was economical: Outside the EU companies would flee the country, we would loose jobs and the general income would decrease. These threats were, of course, totally off-target. Today Norwegian economy is more healthy than ever and the unemployment rate is only 2,5 %, according to official statistics. The opposition to Norway joining the Union has also increased quite a lot since the referendum. Monthly polls show that for the last three years there has been a clear majority against membership, 8-9 % normally separates the no- and yes-sayers.

Some claim this prosperity is due to the EEA. No to the EU does not share this point of view, even though our opposition to the EEA is more based on issues such as democracy, the environment, consumer interests, labour conditions and welfare. A study conducted by the official Statistics Bureau (SSB) states that the total revenue from the trade rules of EEA and WTO are 0,77 %. That equals only three months average economical growth in Norway.

It is also quite possible that even strictly economically speaking, the EEA is a bad deal. Counting coins, the disadvantages of the EEA are most evident in the exploitation of oil and gas resources. Combined with compulsory tenders the licence directive means that Norwegian contractors and operators gradually loose market shares and that conditions ensuring development of national know-how and research when granting permits are not allowed. The gas market directive has as its aim to strengthen the purchasers to push the prices down. This results in a loss of income for the Norwegian state.

Through the EEA the Norwegian export of processed fish products to the EU is subject to preferential tariffs. This benefit is, however, rather modest. In the EEA, tariffs imposed on our export of fish products to the EU amount to 2-3 % of the total sales value. Without the EEA, the tariffs would – in worst case – double to about 5 %. This is still an increase of less than 120 million euro, and could – by the government – easily be compensated through lower labour taxes for those areas affected. Also, to benefit from these preferential tariffs, Norway had to grant the EU new fishing quotas within our economic fishery zone.

The lack of democracy

Other positive effects of the EEA are few and limited: We get a formalized influence in the EU development of new legislation and we are more quickly and easily involved when the EU launches new programmes for culture, education and research. We do, of course, have to pay for our participation. We were also involved in similar programmes prior to the entry into force of the EEA and would most probably be more than welcome to participate in these programmes in the future, even without the EEA.

No to the EU believes – all things considered – that Norway would be better off without the EEA. We are, in particular, concerned about the lack of democracy surrounding the agreement. The EEA legislation and its enactment supervised by the ever-eager ESA in Brussels is interfering with and limiting the public policies of national, regional and local authorities. We see three major democratic deficits of the agreement:

  • The EEA so called dynamic character, which means that the substance of the agreement is constantly evolving.
  • The EEA is very one-sided. It is changed through decisions and legislation in the EU, while similar new decisions in Norway or any other EFTA-state do not affect the agreement.
  • The EFTA Court does apparently not value in any significant way the considerations and premises of the EFTA-parties. In the recent Norwegian case of the reversion of waterfalls, both Norway and Iceland had the same understanding that the issue was outside the scope of the agreement. This did not impress the Court, which decided in favour of ESA's complaint. The case shows clearly that the EEA has transferred political power from national authorities to ESA and the Court.

It's not only No to the EU who criticizes this democratic deficit. The pro-EU European Movement describes EEA as «fax democracy» and «obligations without influence». Their answer is – predictably – that we should join the EU instead. But: What sane person would propose marriage if one badly dislikes the person one is living with? EU would be even more of what we are already getting plentiful through the EEA.

No reservation?

When the EEA was negotiated back in 1992, it was by the political establishment meant as a temporary arrangement before a future EU membership. After the «no»-vote of the referendum in 1994, the EEA has still by every government since been taken for granted as a more permanent agreement. This has made the democratic problems even more visible. A great deal of the analysis and premises that the national assembly based their decision on when approving the agreement in the autumn of 1992 has since proved to be either premature or faulty.

The clause of reservation has not been applied. The government back in 1992 – lead by prime minister Gro Harlem Brundtland – emphasized that this clause guaranteed the political freedom of Norwegian authorities concerning future EU legislation. However, this emergency break has never been used, even though this has been demanded on several occasions from various parties and interest groups, e.g. in the cases of the food additives directives, bio-patents and the gas market directive.

The same government also guaranteed that the EEA should not affect the reversion of waterfalls system. This was explicitly stated in the proposal to the National Assembly (St.prp. nr. 100 (1991-92)). However, the EFTA Court decided in June 2007 that the Norwegian system of reversion is in breach of the EEA rules on free establishment (article 31) and investment (article 40). The consequences may be a loss of billions of euro for Norwegian municipalities and counties. The reversion is a century-old principle in Norway and has guaranteed public ownership of the important hydro-electric energy resources, estimated to be worth incredible 120 billion euro – and still rising as the demand for CO2-free energy increases. The rule says that private power stations must be returned back to the state free of charge after 60 years. Publicly owned, both regional and local, waterfalls are however exempt from this rule. About 87 % of the waterfalls are today public property. The reversion makes it less interesting for private firms to purchase hydro-electric power plants, leading to a gradual nationalisation of the energy production.

The Norwegian government adopted in the autumn of 2007 a slightly modified system – keeping the main principles – which they claim meets the Court's demands. This system is now being considered by ESA.

Hot topics

The National Assembly was also promised that the EEA would not have any consequences on the alcohol policy. There has been a wide support in Norway for a rather restrictive policy to regulate the consumption. This issue was – and is – essential to one of the main parties ensuring the adoption of the EEA, The Christian People Party. They are against EU membership, but in favour of the EEA. Through the EEA, the public monopoly on the import of alcohol has however been abolished and the prohibition against advertisements for alcoholic beverages is under attack.

Also, the National Assembly was told that the EEA would not include issues relating to taxes. ESA has however several times complained and also forced Norway to change tax regulations related to labour and the environment. ESA is now investigating an environmentally motivated tax on non-reusable cans / bottles. If this tax is removed, not only the amount of waste will increase. Also this tax has ensured sound business conditions for smaller, regional breweries. Without the tax there will be fewer breweries, meaning more transport across the country from the few big ones left and employees losing their jobs.

The government claimed in 1992 that most of the public funding schemes would not be affected by the EEA. All experience since has shown that the EEA rules do to a great extent limit the public funding opportunities. An important issue now is the energy prices of the industry. At present, energy-intensive industry benefits from – and is based on – subsidized energy. There is a considerable political majority in Norway in favour of the continuation of these regimes. However, ESA considers the agreements to be potential breaches of the EEA rules. The discussion between ESA and the government today is continuing and has not reached any conclusion yet.

Back in 1992 the proposition to the national assembly also promised that most public services were outside the scope of the EEA. A large part of the public services has since proved to be affected by the EEA competition rules. A major issue now is the services directive, which has not yet been implemented in the EEA – mainly due to the heated debate in Norway. No to the EU, along with several trade unions, political parties and other organizations, have initiated a campaign against the directive. We fear the directive leads to worse working conditions, exploitation of foreign workers and less quality for the users of services, and would transfer more political power to the Court. The Norwegian federation of the trade unions – LO – has demanded a comprehensive study and public hearing before a decision is being made. Some trade unions have even already demanded that the clause of reservation should be applied. The coalition government is divided, with The Labour Party mainly in favour of the directive – while The Socialist Left and The Farmer Party are opposed.

New alternatives

To some extent the problems of the EEA are related to the strict and free market-driven enactment by ESA. No to the EU is urging both national and local authorities to challenge ESA's analysis and – if necessary – take important issues to the EFTA Court. ESA has in two cases against Norway been dismissed by the Court, most recently this spring when the monopoly on gambling machines was approved in the interest of limiting this activity.

At the same time, we believe there are several other kinds of agreements or cooperation with the EU that would suit Norway far better than the EEA. Naturally, we are not in position to describe in detail specific alternatives as they would result from negotiations with the EU. But we have indicated three possible alternatives that may reduce the democratic deficit and increases the national sovereignty. These are:

  • A re-negotiation of the EEA.
  • A termination of the EEA and trade relations based on the bilateral free trade agreement of 1973.
  • A revised and upgraded trade agreement, possibly with more limited agreements on issues of common interest (education, research, etc.). No separate surveillance institution or court would be established. This alternative does of course also imply a termination of the EEA. The WTO Agreements entering into force in 1995 would in all three cases be a basis for our bilateral relations.

No to the EU is demanding a thorough public study of both consequences and alternatives to the EEA. The study must be conducted by a broad – both politically and academically – group of experts and discussed in an extensive public hearing. If the present government does not respond to this initiative, we will make our efforts to get the issue on the agenda in the upcoming election of 2009.

 

No to the EU – Nei til EU – is the main organization working against Norwegian EU membership, and is still 13 years after the referendum one of the country's largest political organizations.

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