THE dilemma is acute. In an unexpected referendum result, voters decide by the narrow but decisive margin of 52-48% against European Union membership. The government promises to honour the outcome. But the EU is the country’s most important market, and most businesses are keen to have unimpeded access to it. How to square the circle?

This question faces Theresa May as she prepares to make a speech on Britain’s desired post-Brexit trade relationship with the EU. But it also describes Norway in November 1994, when its voters rejected a plan to join the club. Unlike Britain, however, Norway had a fallback: the European Economic Area (EEA). It then included seven countries that were in the European Free Trade Association (EFTA) and not the EU, but still wanted to participate in the EU’s single market.

That group shrank when Austria, Finland and Sweden chose to join the EU instead, and Swiss voters also rejected the EEA. It now comprises only Norway, Iceland and Liechtenstein—“a minnow and two tadpoles”, one Eurocrat says. Yet almost 25 years on, Norwegians seem happy with the deal. Business is content. Polls find strong support for staying in the EEA against only 20% for joining the EU. Successive governments have agreed not to reopen the European issue. To borrow a phrase from David Cameron, Mrs May’s predecessor, the Norwegians have given up “banging on about Europe”.

Many British Brexiteers were once also keen on the EEA option. It keeps the economic benefits of single-market membership, but dumps the political baggage of ever-closer union and a would-be superstate. Moreover, the EEA model for Britain is one the EU would be happy with. As far as Brussels is concerned, it works. Norway is treated as a friend—unlike Switzerland, which in place of the EEA has a laborious set of bilateral deals. The EU hates the Swiss set-up, because it is not dynamically updated to changed single-market rules and there is no agreed dispute-settlement mechanism. Diplomats in Brussels are clear that the Swiss model is not on offer to the British (many say it would not now be given to the Swiss). Besides, it excludes most financial services.

But most Brexiteers now agree with Mrs May in rejecting the EEA model. Although the government’s own analysis shows that it would be the least costly form of Brexit, it crosses many “red lines” drawn by Mrs May. EEA members are rule-takers, not rule-makers, say Brexiteers; Norway is a “fax democracy”, which receives its orders from Brussels. EEA membership, they say, would be Brexit in name only, making Britain a vassal state. They argue that only a clean Brexit that abandons the single market, the customs union and the ECJ would be consistent with the June 2016 referendum result, which demands that Britain take back control of its laws, its borders and its money. Most Remainers are also against the EEA, as they prefer full EU membership (though Stephen Kinnock, a Labour MP, and Stephen Hammond, a Tory one, are actively promoting the Norwegian option). It is a compromise that by its nature is nobody’s first choice.

In from the cold

Yet there is something odd about this. Norway is a thriving democracy; indeed, the Economist Intelligence Unit, our sister company, ranks it as the world’s most democratic country. It is competitive and rich (a huge sovereign-wealth fund helps). If EEA membership were so awful, why would the country embrace it? That question suggests it is worth looking more closely at how the EEA works.

The concept of the EEA goes back to the European Commission presidency of Jacques Delors in the late 1980s (see timeline). This was the moment when, under British inspiration, Europe’s barrier-free single market was being created. Mr Delors and his advisers quickly saw the advantage of extending the project to the club’s biggest external market, the seven EFTA members. A former trade negotiator, Paal Frisvold, describes in a new book* the negotiations that then took place. As he explains, there was even a plan that the EFTA countries should be given a common decision-making role for single-market regulations, as well as the right to appoint judges to a new EEA court that would police the system.

In the event this last idea was quashed, because the ECJ vetoed the creation of a rival court. In Brussels the EEA soon came to be seen as a transitional arrangement, a waiting room for countries that had yet to persuade their voters to support EU membership. As the old adage has it, nothing endures so long as the provisional.

Critics say the EEA is a replica of the EU minus voting rights. Yet this misunderstands its institutional structure, which is more akin to a mirror. In place of the European Commission and the ECJ, the EEA has the EFTA surveillance authority and the EFTA court. There is a joint committee of EU and EEA countries, accompanied by regular summits and parliamentary meetings. Unlike the EU, though, the EEA is purely intergovernmental, not supranational. Decisions are taken unanimously, not by majority vote, giving the three non-EU members a theoretical right of veto over draft laws.

The EFTA court is not the same as the ECJ, either, even though it too is based in Luxembourg. It has three judges, one for each EEA member. It is heavily influenced by ECJ judgments, but it is not obliged to follow them to the letter. It operates mainly in English, not French. Its rulings are advisory, not mandatory, they do not have direct effect and the court does not have the ECJ’s powers to fine governments that do not comply. This is why the British government has talked favourably of the model of the EFTA court as a dispute-settlement mechanism after Brexit. Indeed, its outgoing (Swiss) president, Carl Baudenbacher, has openly pushed the idea that Britain should sign up to his court.

EEA members are obliged to accept the four freedoms of movement of the EU’s single market, including the free movement of people. They are, however, outside the EU’s much-criticised common agricultural policy (in fact they subsidise their farmers even more egregiously than the EU does), as well as its common fisheries policy. Nor are they bound by the EU’s justice and home-affairs structure, though they largely choose to participate.

The EEA treaty also has a number of safeguards for members. Besides their theoretical veto rights, Articles 112 and 113 spell out that any EEA country may take emergency measures in response to serious economic, social or environmental difficulties. Liechtenstein has exercised this right to put in place controls on migration from EU countries, which the EU has accepted because it is a microstate. Yet Norway and Iceland have never tried to invoke these articles, seeing them as a nuclear option that would invite retaliation.

As for the charge that Norway is a rule-taker, in 2012 a report by an official committee chaired by Fredrik Sejersted, then an academic and now Norway’s attorney-general, concluded that although the EEA worked well, it did raise concerns over the democratic control of its laws. But since most single-market decisions are taken by majority vote the same could be said of the EU, as Brexiteers have long argued.

Moreover, the real question is how much informal influence countries have. Ulf Sverdrup, director of the Norwegian Institute of International Affairs, a think-tank, says the EEA has created a “platform of trust” that gives Norway more say than many people realise and has served as a route to fuller co-operation in many non-economic areas.

Its diplomatic mission to the EU in Brussels is by far Norway’s largest. Its site is the closest of all to the European Commission’s Berlaymont headquarters. Norwegian diplomats say they are fully involved in the early stages of drafting regulations in fields like energy, the environment or veterinary standards (veterinary and phytosanitary rules make up 40% of the single-market rules Norway adopts). This influence is more useful than the formal right to vote, which seldom happens on such technical matters. The commission even employs a few Norwegian officials. And Norway keeps tabs on laws passing through the Council of Ministers and the European Parliament, where it is not represented, by relying in part on Nordic solidarity.

This is not to say that Norway has no problems with the EU. Not being in the room when single-market laws are adopted can catch it out. It was forced to modify its rules for central-heating boilers because it was not consulted over an EU law. Its initial opposition to an EU directive to liberalise postal services almost led to a bust-up. There was even an argument over Norway’s public ownership of the waterfalls that produce hydropower, but the Norwegians managed to keep that tradition.

Fish, which are increasingly important to Norway as its oil starts to run out, are another big problem. Norway and Iceland have been much better than the EU at managing fish stocks. But both must sell into the EU market. Brussels has at times blocked imports of Norwegian salmon on anti-dumping grounds, though Norway has then referred the dispute to the World Trade Organisation. In another case, Norwegian salmon was barred from using the EU’s eco-labelling system, despite observing its standards, because the relevant directive had not been fully incorporated into EEA law. More significant for an industry that today relies mainly on fish farms is the EU’s high tariff on processed fish, which means that much Norwegian fish is exported raw to Poland, which gains from the value added in processing.

Some Norwegian firms also fret because the country is not in a customs union with the EU. This means their exports must comply with the EU’s rules of origin. It also requires Norway’s border with the EU to be policed (see article). Being outside the customs union does, however, allow Norway and other EEA members to strike their own free-trade deals; EFTA has often proved nimbler at this than the EU. Individual countries can do the same. Iceland has a free-trade deal with China, as does non-EEA Switzerland.

Then there is the issue of paying into the EU budget. Norway hands over around three-quarters of Britain’s net contribution per person. Yet few payments go via the general EU budget. Some cash is tied to research or educational programmes like Horizon 2020 or Erasmus student exchanges. The rest goes to poorer countries in eastern Europe as “Norway grants”, controlled from Oslo, not Brussels. In a rich and generous country, such payments are largely uncontroversial.

This bird hasn’t flown

Could Britain join the EEA? Even more important, could it seek to modify it to satisfy some of the Brexiteers’ goals?

These questions are tackled in a forthcoming book by two academics at Arena, a European institute at Oslo University.** Among Norwegian officials, however, the notion of Britain in the EEA is not popular, even if they would be reluctant to veto it. Norway worries about being pushed aside as top dog and about the risk of Britain upsetting the balance of the system.

A different option might be to construct a British version of the EEA. Given Britain’s size and the broader nature of its economy, this might make sense. Any deal between Britain and the EU is likely to have bespoke elements of its own. And if there were a British version of EEA membership, it would be easier for both sides to tweak it.

One obvious tweak would add a deeper system of co-operation on foreign and security policies. As an active member of NATO that also has a border with Russia, Norway works closely with the EU on such issues as sanctions. But Britain is far more central to European security. Mrs May was surely right to call in her recent speech at the Munich security conference for a comprehensive treaty that preserves as much as possible of Britain’s present relationship with the EU in foreign policy and domestic security, and to demand institutional flexibility from Brussels to allow this.

A trickier option would be to try to return to the original Delors vision by giving Britain a more formal say in single-market laws. It would be hard to offer this to the British but deny it to other EEA members. But the relative weight of the British economy and its clout in such areas as financial services would make it odd to legislate without at least some prior consultation. Yet in areas ranging from chemicals and pharmaceuticals to food safety and agriculture, EU rules have become global ones that most businesses will wish to follow in any case.

Another idea might be to graft a customs union on to a British EEA deal. This has been called for by the biggest British business lobbies. It would make it easier to avoid a hard border in Ireland. But it would make it impossible for Britain to do free-trade deals in goods with third countries. The freedom to strike deals in services, however, would remain.

The most difficult issue of all is free movement of people. Some advocates of the Norway option argue that Articles 112 and 113 could be used to create an emergency brake that ends free movement, citing the example of Liechtenstein. Yet it is fanciful to expect the EU to let Britain stay in the single market but reject the principle of one of its four freedoms, not least because some other countries would surely ask for the same deal.

Britain in an EEA-type arrangement could, however, adopt various migration policies that others already have. These range from a registration system for EU nationals to restrictions on property sales to a policy of expelling those who cannot find jobs within six months. And in any event, the number of EU migrants into Britain, especially from central and eastern Europe, is already falling sharply.

A bespoke EEA deal for Britain should also be seen in the context of the changing nature of the EU. As the euro-zone core pursues deeper integration, even as some countries stand aside, the entire European project is evolving into a multi-speed, multi-tier creation. The three EEA members will no doubt stay in an outer tier that suits them. Had Britain voted to leave in its first referendum on Europe in 1975, it would surely have followed its fellow EFTA members into the EEA. It seems perverse now to reject the option out of hand.

* “Towards Europe: the Story of a Reluctant Norway”. By Paal Frisvold. Peter Lang, December 2017

** “Squaring the Circle on Brexit: Could the Norway Model Work?” By John Erik Fossum and Hans Peter Graver. Policy Press, forthcoming