The European Economic Area (EEA) is an international agreement that enables the extension of the European Union (EU) single market to non-EU member parties.
We recently visited the EEA Secretariat in Brussels to obtain a thorough, first-hand understanding of the agreement and how it integrates Iceland, Liechtenstein and Norway into the EU’s Internal Market.
A deep understanding of the functioning of the EEA Agreement and the European Free Trade Area (EFTA) is fundamental for the success of trade relations across Europe.
Here are the key takeaways from the presentations by the EFTA Secretariat, the EEA and Norway Grants, the EFTA Surveillance Authority and the EFTA Court on the day-to-day operation and management of the EEA Agreement, including recent developments and challenges.
Global Businesses Enjoy Trade Blocks
In general, global companies like trade blocks; one rule book, harmonized processes and procedure. Sweet, simple and smooth? Well, not so much. The perfect example of this trade block is the European Union (EU). The Internal or Single Market of at least 27 Member States (who knows what will happen to the UK?) reads like a massive success story:
Easier to travel and shop
More opportunities to live, work and study abroad
More extensive choice of products and services
Less red tape
But it is primarily the enormous potential market access and the ease of conducting trade for any global business that is so attractive. The absence of border bureaucracy has cut delivery times and reduced costs.
Before the frontiers came down, the tax system alone required 60 million customs clearance documents annually: these are no longer needed. And once a global business completed the rather complex import and export requirements, a company has automatically close to 500 million potential customers on its doorstep. This allows larger businesses to benefit from enormous economies of scale, while new markets have been opened to small and medium-sized companies that previously would have been dissuaded from exporting by the cost and hassle.
But what about the EU’s close neighbors? While they are smaller in size and don’t get mentioned very often, Iceland, Lichtenstein and Norway are still economically essential. Did you know that the benefits of this Single Market also extend to these three non-EU members? They are part, together with the EU Member States, of the so-called European Economic Area (EEA). The EEA unites the EU Member States and the three EEA EFTA states into an Internal Market governed by the same basic rules. The agreement that manages this relationship is, appropriately called, the EEA Agreement. Its objective is to create a homogenous European Economic Area. As such, all relevant EU legislation in the field of the Single Market is integrated into the EEA Agreement so that it applies throughout the whole of the EEA, ensuring uniform application of laws relating to the Single Market.
What is Included in the EEA Agreement?
The EEA Agreement provides for the inclusion of EU legislation in all policy areas of the Single Market. This covers the four freedoms, i.e. the free movement of goods, services, persons and capital, as well as competition and state aid rules. It also includes the following horizontal policies of matter for businesses like consumer protection, company law, environment, research and technological development, education, training, enterprise, entrepreneurship and small and medium-sized enterprises, etc.
But the EEA Agreement excludes the Customs Union, the common trade policy, the common foreign and security policy or direct and indirect taxation, just to name a few. Tariff rates, trade agreements, export controls, VAT & excise rates are not part of the deal and are set separately by Iceland, Liechtenstein and Norway. Switzerland, the 4th EFTA Member State, does not participate in the EEA and has its own bilateral agreements with the EU.
How is the EEA Agreement Set Up?
The agreement is based on the primary legislation of the EU (Treaty of Rome) at the time of the EEA Agreement’s entry into force, and on secondary legislation (EEA-relevant regulations, directives, decisions and certain non-binding instruments). The legal texts of the EEA Agreement consist of 129 articles, 22 annexes, 49 protocols and a final act. The annexes list the EU acts applicable to the EEA, including adaptations.
Does All EU legislation Become Legislation for Liechtenstein, Norway and Iceland?
No, this is not an automatic process, instead, it requires scrutiny and acceptance by the three countries, in discussion with the EU. First, the new EU legislation published is analyzed for “EEA relevance”. Only regulations related to the EU Single Market would be in the scope of adoption under the EEA agreement. Customs & Trade regulations are usually excluded as the three countries do not participate in this and have their own policies. Once “relevance” is established, it is decided if any changes would need to be made. These can be technical or substantial. If only technical, new “EEA law” an be adopted quickly. Then, the ratification process in the capitals of the three EEA countries can commence.
How is New EU Legislation Incorporated Into the EEA Agreement?
In order to be applicable in the EEA, EU acts must be incorporated into the EEA Agreement, more concretely into one of its Annexes or Protocols. These amendments to the EEA Agreement are done through Joint Committee Decisions (JCD). These decisions constitute international agreements and are adopted according to the simplified procedures foreseen in the EEA Agreement.
Do the Three Countries Have Any Say in the Formulation of the Laws or Are They Just “Vassal States”?
Liechtenstein, Iceland and Norway maintain their independence and institutional integrity through the EEA Agreement. This is the only agreement known today which allows you to reap the benefits of the EU Single Market without being part of the EU political institutions.
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