Post-Brexit trade deals: the Norway and Canada options explained
It has been reported this week that government ministers are broadly being asked to choose between a “Norway-style” and “Canada-style” trade deal with the EU after Brexit.
At the moment, the UK is still a member of the European Union, and therefore a member of the customs union and single market. This means we have tariff-free trade with the EU, and there is free movement of goods, services, people and capital between the UK and rest of the EU. As a member of the EU, we also make a financial contribution to its budget, and follow EU laws and regulations in numerous areas.
The Norway and Canada options have been broadly framed as a choice between having a high level of access to EU markets and a high degree of EU regulation (Norway), or a lower level of access and regulation (Canada).
There is of course a lot more complexity to both of these options, as we explain below. Both UK and EU leaders have said that the UK’s deal will be a unique one. So, while it won’t be exactly the same as the Norway and Canada models, they give a sense of two contrasting structures and sets of priorities which are being considered for future UK-EU trade.
This piece doesn’t look at wider agreements which either country has with the EU. It focuses on their respective free trade agreements, and the rules and regulations which follow from this.
Norway is not a member of the EU but it is part of the European Economic Area (EEA), and therefore the EU’s single market. Having a deal like Norway’s means joining the EEA and having almost the same level of tariff- and barrier-free trade with EU countries as we have now, plus the ability to strike our own trade deals with non-EU countries. It also means accepting a significant proportion of EU law, including the “four freedoms”— the free movement of goods, services, people and capital.
Trade with Europe:
Being in the single market provides tariff-free trade with the EU and other EEA members, with no customs checks and very limited barriers to trade. There are a couple of exceptions to this, which Norway has negotiated.
As Norway is also not part of the Customs Union, there is some additional administration required in trading with the EU. Before it can export goods into the EU, it needs to provide proof that they were made predominantly in the EEA. This is managed through “streamlined” technology, and does not amount to regulatory checks.
Norway also has to make financial contributions to the EU as a member of the single market—these are typically smaller than the payments made by EU member states.
Trade with the rest of the world:
Norway can strike trade deals with non-EU countries—something EU member states cannot do. The Institute for Government says that, “trade deals signed by EFTA countries tend to be shallower than the EU’s, which reflect its close alignment to the EU’s regulatory model”.
Norway’s highly integrated trade relationship with the EU relies upon its membership of the single market. This, in turn, means following the rules of the single market.
The key rules which Norway must accept are the “four freedoms”— the free movement of goods, services, persons and capital to and from EU and EEA member states. This also means there are no caps on the immigration of citizens of other EU and EEA countries.
It also involves accepting common EU standards on things like health and safety, environmental and social protection. Norway must accept the rulings of the bodies like the European Commission and European Court of Justice, when it resolves disputes in these areas.
Norway’s position has often been referred to as that of a “rule-taker”. While EEA states may be consulted on new single market rules, they have no vote in deciding whether or not they are implemented. There are a “limited number” of cases where EEA states have collectively negotiated exemptions, according to the Institute for Government.
Canada’s free trade deal with the EU is known as CETA. It took seven years to negotiate and came into force in 2017 (though it’s not quite fully in force yet). Unlike Norway’s deal, it is not structured around the pre-existing model of the single market.
Canada has almost completely tariff-free trade in goods with the EU, but it faces more regulatory barriers to trade. The movement of services is also much more limited than within the single market. Canada is not subject to EU law or institutions, and doesn’t pay the EU any money as part of the trade agreement.
Trade with Europe:
CETA removes tariffs on trade in industrial goods between Canada and the EU. Most have already been removed, and all will be within seven years. Tariffs on most agricultural products have also been removed. It also removes all barriers to investment for EU investors in Canada, and allows EU companies to bid for public procurement contracts in Canada.
But as Canada does not follow single market rules, it does face other barriers in trading with the EU. Checks take place at the border to make sure Canadian goods meet EU regulatory standards, and there is a higher degree of paperwork involved. The EU could also choose to introduce future barriers to Canadian goods if it wished (and vice versa).
Canada has access to the EU services market, except where sectors have been explicitly excluded. Canadian companies that aren’t excluded can set up subsidiaries to operate their services in the EU, but hundreds of sectors are excluded to some degree, according to the Institute for Government. For example, Canadian financial services do not have full access to the European market.
Trade with the rest of the world:
“Canada’s ability to negotiate its own deals is not constrained by its deal with the EU”, according to the Institute for Government.
CETA is governed by a joint committee of EU and Canadian representatives, specialist sub-committees, and a specialist body that allows regulators to share information. Disputes are resolved through arbitrators on an ad hoc basis.
Canada also does not have to align its laws with the EU. There are a few areas of “mutual recognition” in assessing goods and accepting professional qualifications, but there is no requirement for Canada to observe most European rules, such as the principle of free movement.