Blog Post

Single market access from outside the EU: three key prerequisites

In relative terms, Norway’s current net financial contribution to the EU is similar to the UK’s. Switzerland and Liechtenstein pay surprisingly little, while Iceland is a net beneficiary. Relative to their population, Switzerland, Norway, Iceland and Liechtenstein received about twice as large an inflow of EU immigrants as the UK. These countries also have to adopt the vast majority of EU regulation to gain access to the single market.

By: Date: July 19, 2016 Topic: European Macroeconomics & Governance

The new government of the United Kingdom has not yet indicated the kind of new relationship it wishes to achieve with the European Union. However, a crucial element of any new relationship will regard access to the EU’s single market.

Four non-EU countries (Iceland, Liechtenstein and Norway through the European Economic Area; Switzerland through bilateral agreements) have wide-ranging access to the single market. A comparison could be useful, so we look at three indicators which may be indicative about the conditions which the UK would have to fulfil if it wishes to get similar access to the single market:

  • Net financial contribution to the EU;
  • Net inflow of EU immigrants;
  • Adoption of EU law.

The main contribution of this blog post is a precise comparison of the four non-EU countries (partly based on novel data not available elsewhere) with the UK and some other larger EU countries along the above factors.

Financial contribution to the EU

Social and economic cohesion in the European Union and the European Economic Area is a goal stipulated in the European Economic Area (EEA) Agreement. Thereby, the three non-EU EEA members contribute financially to this goal through various financial mechanisms. Switzerland also contributes to various projects designed to reduce economic and social disparities.

Upon my request, the Directorate-General for Budget of the European Commission kindly provided information about the gross and net financial contributions of the four non-EU countries to the EU (see annex), which allows a proper comparison to EU countries. The table below shows that Iceland was a net beneficiary of EU payments, while the net contributions of Switzerland and Liechtenstein were very small. On the other hand, Norway’s net contribution was similar to the contribution of the United Kingdom: it was somewhat smaller when expressed as a % of GDP, and somewhat larger when expressed in per capita terms.

It is also noteworthy that both relative to GDP and relative to population, the UK pays less than Germany, France and the Netherlands. The UK even pays less than Italy relative to GDP, despite the fact that Italy is a less developed country than the UK. The reason for the UK’s low financial contribution is primarily related to the UK rebate on the EU budget, which was introduced in 1985 in order to reduce the UK’s contribution.

The net inflow of EU immigrants

Both the European Economic Area agreement and the bilateral agreement with Switzerland ensure the free movement of labour, although Switzerland wishes to renegotiate this. The chart below shows that relative to population, Switzerland, Norway, Iceland and Lichtenstein received about twice as much inflow of EU immigrants as the United Kingdom in 2013-14. Germany also received more EU immigrants than the UK as a percentage of its population, and even more so in terms of the number of people.

It is noteworthy that immigration from outside the EU was also sizeable in all nine countries included in the chart (note that the data refer to 2013-14, before the recent wave of large inflow of refugees to Europe). In the United Kingdom, more than half of immigrants were non-EU citizens: an inflow which was fully under the control of the UK government. It was therefore a UK decision to let non-EU nationals come to work in the UK, probably because immigrants brought major benefits to the UK economy, as I argued here.

Adoption of EU laws and regulations

Access to the single market requires the adoption of all relevant single market legislation. Furthermore, fullfact.org quotes a Norway government report which says “Norway has incorporated approximately three-quarters of all EU legislative acts into Norwegian legislation” (page 6). And while in principle Norway, as well as other EEA members, may raise reservations, the study concludes (page 8): “Of the more than 6 000 new EU legislative acts that have been incorporated into the EEA Agreement, the use of our right to enter a reservation has only been proposed in connection with 17, and so far we have not entered a reservation in practice, although the first case may be on the horizon.

Switzerland is also obliged “to take over relevant Community legislation” in the sectors covered by the approximately 100 bilateral agreements that currently exist between the EU and Switzerland.

Summary

While the UK’s strategy toward access of the EU single market after Brexit is unclear, the experience of the four non-EU countries having access to it suggests that the conditions of access may involve:

  • Sizeable net financial contribution to the EU budget (Norway pays similar amounts to current UK payments in relative terms, though Switzerland and Liechtenstein pay surprisingly small amounts.);
  • Sizeable net inflow of EU workers and their families (relative to population, all four non-EU countries received about twice as many EU immigrants as the UK);
  • The adoption of a very large share of EU regulations – without a voice in influencing them.

None of these elements may look attractive to those who campaigned for Brexit.

 

Annex

  1. Net financial contribution to the EU by the four non-EU countries

The Directorate-General for Budget of the European Commission kindly provided the following table upon my request:

  1. GDP of Liechtenstein

Eurostat does not include EAS2010 GDP data for Liechtenstein, while ESA95 data is available only up to 2012. United Nations report GDP data in US dollars in 2010 and 2013: we converted the USD figures to euros, calculated the average annual nominal GDP growth in 2010-13 (which is 3.5% per year), and projected nominal GDP in euros in 2014-15 by assuming the same annual growth rate.


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