Does Membership of the EEA Offer a Viable 'Middle Way' for Brexit?

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The European Economic Area (EEA) is a free trade organisation made up of most of the countries in Europe.

It is a mercantile version of the EU, which encompasses less of the political and judicial aspects of membership of the latter, including its implied 'federalism', and focuses instead on the right to trade across borders.

It is for this reason that it has been touted by some analysts as a possible candidate for a Brexit template.

In a recent research note from HSBC, the bank's senior trade economist, Douglas Lippoldt, advocates UK membership of EEA as a possible 'middle way' Brexit option - if not for a final solution, then, at least, as an interim 'off the shelf' alternative which can be easily implemented whilst negotiators iron out the details of the final deal.

What is the EEA?

The European Economic Area (EEA) is a free trade organisation made up of 31 countries in Europe, which was founded on the principles of the free movement of persons, goods, services and capital within its borders.

Note the first principle of "free movement of persons," and how that clashes with the principle of some Brexiteers, to control immigration.

Although this is likely to be a major sticking point between the two sides, Lippoldt does try to offer some ways round it:

"The UK might be able to discourage EU inward migration by tightening access to social benefits or instituting other administrative requirements. But the UK would not be able to directly control EU inflows. Many Brexit proponents would consider the failure to hit such a key goal as unacceptable."

From the EU's perspective the right to free movement of people is "invioble", says Lippoldt:

"Similarly, migration is one of the four freedoms of the single market (the others being free movement of goods, services, and capital), which the EU considers inviolable."

If the UK became a member of the EEA it would join the other 'anomalous' non-EU members who include Norway, Iceland and Lichtenstien.

Switzerland is also not in the EU, but it is also not strictly a member of the EEA either, rather it has bilateral agreements which amount to a de facto 'EEA membership' by other name.

The EEA is also not the same as the European Customs Union, so members of the EEA can in theory agree their own individual trade agreements with other countries outside of the EU, however, there are controls over extent to which members of the EEA can trade individually, as seperate entities of the EU.

For example, if an EEA country has a trade agreement with a country outside of Europe which the EU does not have an agreement it cannot be used as a 'stepping stone' for those goods into the wider EU.

There are also regulatory controls which sometimes require EEA countries to harmonize regulations in line with the rest of the EU and not import good or services which undermine those regulations.

What Would UK Membership of the EEA Look Like?

If the UK were to join the EEA there would be very little change from the current relationship - the lack of upheaval being one of the main arguments in favour of the option.

The UK would be able to trade freely with the rest of Europe and, importantly, it would be able to keep its financial services passporting rights to trade across borders - maintaining the status and standing of the city as the largest financial centre in the world.

Trading would involve minimal extra paperwork due to the Uk's changed non-EU status.

The UK would probably pay about 15% less into the EU budget.

The European Court of Justice would be limited in its inteference in UK courts to only those issues relating to free trade and the EEA.

EU citizens would still have a right to come and live here, although their entitlements to services and benfits might be curtailed - although this might be a sticking point in negotiations.

The UK would be able to negotiate free trade deals with other countries outside of Europe without having to get all 28 members of the EU to agree.

The UK would not be subject of the Common Agricultural Policy or the EU's Fisheries Policies, allowing for greater felxibility in trade.

"In addition, being outside of the EU's Common Agricultural Policy the UK could offer better access for certain agricultural products (say, citrus or grains) in exchange for improved access for UK industrial or service sector products of interest (say automobiles, malt beverages, and financial services)," said Lippoldt, adding a spefic advantage for the UK;

"As the UK is a food deficit country, improved access to agricultural imports could be broadly beneficial for the UK."

EEA or Bust?

In the final analysis, Europe, with its 510million odd inhabitants is a huge market for the UK - not to be ignored or underestimated.

It is not just via absolute exports that the UK is relient on the continent, a complex skien of interrelated supply chains also link the two, in which goods are made, moved and the used to make new products, which are then sold elswhere.

Without an alternative in place by March 2019 the UK's relationship with Europe will default to WTO rules, which include substantial tariffs and paperwork, increasing costs for exporters, and impacting on the economy.

HSBC's Lippoldt suggests that membership of the EEA offers a 'hassle-free' 'off the shelf' alternative which could be used either as a temporary fix, or as the basis of a longer-term solution.