18
Examination of witnesses
HE Tore Hattrem, HE Dominque Paravicini and Alberto Groff.
Q14 The Chair: Good morning, and welcome to this evidence-taking session of the House of Lords Select Committee on European Affairs. This is our second evidence session on the issue of dynamic alignment, and we are delighted and privileged this morning to welcome as our witnesses His Excellency Tore Hattrem, who is the Norwegian ambassador to the United Kingdom; His Excellency Dominique Paravicini, the Swiss ambassador to the United Kingdom; and Alberto Groff, who is the deputy head of mission for the Swiss embassy in the UK. We are very grateful to you for sparing us the time this morning on this important inquiry.
We will be taking evidence in public. This session is broadcast and a transcript of it will be produced in due course. We aim to finish after about 60 minutes. I understand that you do not have a hard stop, but that is certainly our intention at the moment. To achieve that, I ask everybody to make their questions and answers reasonably succinct, while still giving all the necessary information—so I start off by setting you an impossible task.
I will start the session by asking both of the ambassadors how your countries came to agree to dynamic alignment with areas of EU law. If I expand that a little, in the case of Switzerland in particular, my understanding is that Switzerland’s current arrangement with the EU does not involve dynamic alignment or any decision-shaping rights, but the new package of the Swiss-EU agreement does. Could you explain within your answer how it is that Switzerland participates essentially in areas of the single market now, without dynamic alignment, but is giving up those arrangements for new ones that do require dynamic alignment?
While I give the Swiss ambassador time to think about that, perhaps, Your Excellency, you could start on behalf of Norway.
HE Tore Hattrem: Thank you very much, Chair, and my Lords. I am grateful for the opportunity to give evidence today and to this committee. I am the ambassador of Norway to the United Kingdom, and I am not an EU expert and not an expert on EEA issues, but having worked in the ministry for over 30 years I have certain knowledge. Of course, I have read a lot to prepare myself for this committee hearing. That is my starting point.
Let me go back to your question, Chair, about how Norway came to have a dynamic alignment commitment towards the EU. The background is that we have had, historically, two referendums on joining the European Union—one in 1972 and one in 1994—and there was a small majority against that. The Government at that time, led by Gro Harlem Brundtland, decided not to resign but tried to find a compromise solution within the context of what later became the EEA, which then entered into force in 1994.
One can say that, as background, our relationship with the EU through this agreement has been a national compromise—a second-best option for those who would prefer membership, and a second-best option for those who ideally would not have had an EEA agreement but realise that this is probably the best way forward. We fully take part in the single market, and basically the EEA mirrored the legal provisions of the EU treaties on the single market.
The second most important feature of this is the word “dynamic”. It is dynamic alignment, which means that all new EU legislation that is relevant to the single market must be incorporated into the European Economic Area agreement. This is to achieve legal consistency to make sure that all actors in Norway, in the EEA or in the EFTA countries that are part of this are similar—to make sure that the rights and obligations basically are the same within the context of the single market.
The third characteristic of this agreement is the way it is incorporated into the EEA and, in our case, Norwegian law. This is what we call the two-pillar structure. The incorporation of new EU single market rules into the EEA is decided by a joint committee, which is called the EEA Joint Committee, where the EU meets on one side and the EEA EFTA countries on the other side. They make the decisions on basically what will we take from the EU system into the EEA agreement, which was pending on agreement of the EFTA member states, which are part of the EEA.
There are two other institutions that are important. One is the EFTA Surveillance Agency—ESA. The other one is the EFTA Court. You can say that ESA is mirroring the Commission on the EU side, and the EFTA Court is mirroring the EU court. The EFTA Court is about enforcement and ESA is about surveillance, making sure that we adhere to the agreement. That is the short story.
HE Dominique Paravicini: It is a privilege to be here in front of this committee. Let me start by saying that the two countries represented here are not part of the EU, but we are part of Europe, and it is important that we find good solutions. This continent needs to be strengthened, and for this there is not only the EU; it is our countries that have to make a commitment as well.
That said, let me also make the pitch that it is important that between ourselves we have very good relations and we are working hard on it. We have the Berne Financial Services Agreement, which has entered into force this year. We are negotiating a modernised free trade agreement, and this is the path we should also pursue in order to be strong. If we are strong, Europe will become stronger too, and that is also to the benefit of the EU.
If you look at the map and you see where Switzerland is located, it is quite obvious that good relations with the EU is a geostrategic necessity for our country. Because we want to safeguard our system and institutions, which is a federal state and has a strong direct democracy, our policy agreement within our country was always that we wanted to be as close as possible to Europe, but not become members. That is the main thrust of our politics: to be as closely integrated as possible in Europe without becoming EU members.
From a historic overview, the free trade agreement of 1972 is the basic safety net we have with the EU; if everything else breaks down we still have the free trade agreement. This is something to remember. To have something like that in your bilateral system is good because you can always build on it, but sometimes things do not develop and you need something which you can fall back on in the end.
Our common history with Norway split in 1992 with the EEA, which we had negotiated together with the EU. Our voters and cantons said No to this agreement. This brought us on a separate path, which we call the bilateral path, which is still, today, the most suitable way for Switzerland. There was the first package of bilateral agreements in 1999, where we had the free movement of persons, the mutual recognition agreement and other important agreements. The second package was 2004, which notably included Schengen/Dublin, research and others. We have more than 120 agreements, but these two packages are the most important packages and they allowed us to have a sectoral approach to our relations with the EU—with the common market of the EU. It is, for us, very important that we can decide in which sectors we want to work together closer with the EU, and we have maintained this to this day.
We have a third package coming, which has been signed this year and which is now sent to Parliament by our Government and will be deliberated in Parliament. We hope that it enters into force—no, let us not go so far. Let us say we hope that there will be a vote in June 2027, but it will depend on the duration of the deliberation in Parliament. I can dwell on that package, but I can do it later if you are interested.
On your question on dynamic alignment, we have two approaches. One is static, which is part of the agreements to the common market, but I would like to highlight that we have been associated members of Schengen/Dublin since it entered into force in 2004, and we do have dynamic alignment there. Let me bring in here the definition of “dynamic alignment” and what we understand by this.
For us, the difference between automatic and dynamic alignment is that, within the dynamic alignment system, we are always masters of what we take into our country. We decide what has to be taken into our own law by our institutions and by our system. That is the main thrust and what we understand as dynamic alignment, which also means that we can say no to a new alignment—to a new development of the relevant EU acquis—and this is part of package III. We have done this with Schengen/Dublin, so we have some experience of that and I can discuss this.
Package III, which we now have in front of us, is to bring the five agreements that allow us to participate in the common market in line with our dynamic alignment process, which means that—the same system as Norway has in the EEA—we have a joint committee where normally we get informed of what the new developments are and we have to take them over. This will be speeded up with the dynamic alignment.
To finish these introductory remarks, let me also state that dynamic alignment per se is not a bad thing. It is the economy that wants this dynamic alignment. It is the economy that always requested us to pursue a closer integration with the EU because, for the economy, it is easier to have a non-fragmented economic space. In the interest of the economy, we are trying to make a trade-off between an alignment and political sovereignty. That is, I think, the question you have here in front of you. Thank you, Chair.
The Chair: Thank you very much. May I ask for a very brief point of clarification? You said that Switzerland can decide under dynamic alignment not to take a piece of EU law on board, but that then calls into question whether you have access to that particular part of the market, surely.
HE Dominique Paravicini: The system, as it is now in the static approach, is that we have a joint committee. Mostly it is the area of free movement of persons that is the most complicated for everybody, I suppose. With air traffic or air transport, we take everything because it is obviously useful that we have the same regulations in Heathrow, in Brussels or in Geneva. However, it happened in the Free Movement Agreement that we said no to the free movement of persons—that we will not to national legislation a particular development. I specifically think of the citizen’s directive which was the most complicated for us because, in our agreement, the free movement of persons is based on a labour contract. It is not a citizen right; it is a labour contract, so we have a different kind of free movement of persons. This is an important differentiation for us.
In that system, which is still in place, sometimes we said no, and there was no reason—nobody decided that it could be overruled. With the new package III, the idea will be that the joint committee will have an exchange. If they do not agree to take in something or to adapt it correctly, there will be a procedure that involves arbitration and the role of the European Court of Justice, but the decision will be taken in the joint committee, and if it suggests that Switzerland has to take it on, we will go back to our institutions, our Parliament and direct democracy. If one of these elements or the Government says, “No, we cannot take it over” for whatever reasons, this new package foresees that we can say no, and then the EU would be allowed to take countermeasures, but the countermeasures must be proportionate, which then can also be looked into by another arbitration system.
Both sides have managed—I say “we” because it is in the interest of both parties—to find a system to allow Switzerland to say no, and the response of the other party is proportionate. This means that, for example, what happened recently where we were excluded from research will not be possible any more.
We think we have found the perfect solution for a system that wants to have close relations with the EU but keeps a certain sovereignty of decision-making.
Q15 Baroness Ashton of Upholland: It is nice to see you, Excellencies, and I send my greetings to both countries. I have had the privilege of negotiating with you on some of these issues in the past, and more importantly of collaborating with you on many issues. I want to pay tribute to that collaboration.
Such a lot of interesting elements in what you have said raise a question about the basis upon which you decide which areas are right for dynamic alignment. Economic issues are at the fore but because there is this possibility, if we take the interpretation of dynamic that says there might be something that is inappropriate from a national perspective, that plays into the question of certainty, which for business and on the economic side is so critical. Could you give us a sense of the basis upon which you decide that this is an area where dynamic alignment is going to be in your best interest?
HE Tore Hattrem: That is a very relevant question in the case of Norway. As a starting point, Norway is fully part of the single market, but the agreement as such did not include agriculture and fisheries. Of course agriculture in Norway, you might imagine, further up north is not very effective agriculture—Danish or British. It is close to Arctic agriculture but at the same time, with enormous sentimental value within the Norwegian population, it cannot exist without using tariffs and subsidies. Having agriculture outside the agreement makes it possible to continue having national agriculture, which gives that important security for our own country.
It is the same with fishery. Fishery is also excluded and not part of the common agricultural policy or common fisheries policy. The fishery sector is quite competitive and it is a very important export earning sector. That raises the question: why could you not include fisheries. At that time, there was also a strong resistance to being a member of the EU among the fishermen and the community. I think that was less to do with competitiveness, but probably more to do with resource management. Given the enormous fishery resources that we have outside our coast in Norway, we felt at that time, perhaps, that the way that the common fishery policies have been conducted had not been good enough in safeguarding the fishery stocks, and there might have been concerns there, going back in time.
At the same time, it is also fair to say that when it comes to food safety rules for fisheries, we follow those rules but we have to pay tariffs when we export fish into the EU market. However, still we feel that the compromise is worth it, in a sense, given the decision that we are taking. I think that is it.
HE Dominique Paravicini: Again, basically, we think that dynamic alignment is in our interest for the homogeneity of the law, as they say in Brussels bureaucratic language. It is just to have the same rules applying for everybody, so it is a good thing.
For us, it is mostly a political discussion that we need this safety net in order to make it understandable for the Swiss population. Normally—and here we go directly into how it will work in the dynamic alignment—there are two things. There is one part of dynamic alignment that is happening in Brussels, where you have a diplomatic Mission and you need an alert system and people reading what is happening there in their dialogue or trialogue between Parliament, Commission and Council.
Where we have taken part in the comitology—and you will be aware of this because you were members for more than 40 years—this is where the work is being done, and if you can sit in there you can make changes, even if you are not a member. If you have good arguments, you can bring them in there, but you need an alert system in Brussels.
The second part is what is happening in your own country. In the case of Switzerland, we have a consultation system, which is quite refined. On the one hand, there is legislation coming already now from Europe that belongs to the sovereignty or to the responsibility of the cantons. We have a system of consultation for the cantons.
Then we also have a system, which has nothing to do with the agreement, but that we have to implement, of how we will involve the Parliament. The question of dynamic alignment is 99% technicalities and nobody is interested in that part. It is just annexes that you have to rebook and copy into your legislation, but there might be points that are politically relevant. You need to have a system where you can alert all institutions involved to make sure that they are aware of what is happening. That is a little bit of the challenge of dynamic alignment.
My Government have now prepared a draft amendment to the Parliament Act, which will include this enhanced role of the Parliament. In the agreement itself, it is also co-operation between Parliaments that will be imposed, and it will introduce committees of the Parliaments working together so that they are aware of what is coming and what could be of interest for them.
At the end of the day, if understood well, some MPs from my country also want to send their own administration people to the mission in Brussels to be able to alert them directly in order to have a separation of power now also in Brussels. These are ideas that are being floated but could be of interest to you. That is the question—we pretend that dynamic alignment is a good thing. You need to have a mechanism in place in Brussels, and you need a mechanism in place at home to be sure that all institutions are taken on board.
Baroness Smith of Newnham: I have a very quick supplementary question. Your Excellency, you mentioned participatory democracy in Switzerland. Is there any scope for citizens to raise concerns about particular moves in terms of dynamic alignment, and could that impede the process?
HE Dominique Paravicini: Yes, in Switzerland people can vote on every law that is implemented because for every law decided by Parliament there is a prerogative of the people to take a referendum. Secondly, whatever you want, through an initiative with 100,000 signatures, you can change the constitution. We are always open to changing the constitution, which could contradict whatever comes from Brussels. That is why we need the safeguard that we can say No, and that this is then channelled through a proper process. That is the important political discussion we have, and it can happen. I could also give you the positive aspect.
The Chair: I think we need to make some progress. We cannot keep you here all day, much though we would love to. Perhaps we can move on to Lord Elliott’s question.
Q16 Lord Elliott of Mickle Fell: Thank you for coming to give evidence today. As you know, the EU is seeking a UK contribution to its cohesion policy in return for the electricity agreement, and the UK Government say that the proposal “goes beyond the outcome of the exploratory talks”. I would be interested to know how your countries came to agree to make a financial contribution to the EU cohesion policy. How does the mechanism work? How is the size of your contribution calculated and what is your current annual contribution to the cohesion policy?
HE Tore Hattrem: I can start by just going back to the negotiation outcome of the negotiations of setting up the agreement. There are certain provisions in that agreement that contribute to reducing the social and economic disparities within the common market. The reason for that is probably that all the three countries exceed the EU average in GDP—Liechtenstein, Iceland and Norway—and have an average GDP higher than the average EU GDP, but also the intention was to strengthen bilateral relationships because it gave us the access also to a very tight relationship with those who were served by this arrangement.
To start with the accumulative figure over the 30-year period, the three countries have paid €9.2 billion in grants to the countries that are eligible. The time has been separate in the various co-operative periods, and the last period covers 2021 until 2028. The total expense there is €3.3 billion. Of that total sum, and the last sum, Norway pays 97%, given the size of the Norwegian economy compared to the Icelandic and Liechtenstein economy. It is also in the agreement that at the end of each period—and we are getting close to the period end in 2028—we will discuss whether there is a need to continue. As long as there are disparities of substantial character within the European Union, that might have to continue, but that is open to negotiations. I will leave it at that.
Then you might ask what are the criteria that we would use. We basically use the same criteria as the EU Cohesion Fund. Those are the criteria that are used. We will see where this goes in the future. Thank you.
HE Dominique Paravicini: We always got the message, since the beginning of our negotiations of closer integration and access to the common market, that this integration goes together with solidarity; solidarity meaning paying cohesion funds—that is the message we have got. If you get a different message, please tell us how you did it. Otherwise, I would think that if you want to have access to the common market, you will need to pay some cohesion money.
On the figures, until now, in this format we have, we have paid around £120 million a year. With the package III , this will be increased in due course to 350 million Swiss francs a year. The way we did it is that we agreed on the sum with the EU, but we never paid it to Brussels. We always made agreements directly with the recipient countries. We now have very good relations with different countries in eastern Europe and southern Europe because of these solidarity funds. From our point of view, it is not just a payment. It is a tool we use to have good relations within Europe, and supporting the aim, which we share, to have a better-balanced social distribution of wealth within the EU, which is also important for our economic interest.
Lord Elliott of Mickle Fell: It is difficult to do the calculations on the fly, but if this was scaled up to the UK economy, I am guessing it would be between €1 billion and €2 billion a year. Do these figures cause any controversy with taxpayers and voters in your countries?
HE Tore Hattrem: There are always discussions about the figures, and that is part of negotiations, because they have increased gradually, but that has not really been the most controversial issue in the relationship with the EU. So no, we have been able to move forward, but the negotiations are always painful, which is understandable. I think I will leave it at that.
HE Dominique Paravicini: Taxpayers’ money is always a hot topic in our country, and it is never easy, but it has always been part of the package. Let me just state that the Swiss Government has won all votes on EU affairs since 1992. There is a reasoning that this package and these relations with the EU are important for the people, so they are willing to pay the price.
Q17 Lord Grantchester: Good morning and welcome, ambassadors. In the material differences and shades of relationships, three countries or groups of countries have committed to undertake dynamic alignment with EU law—namely, the EEA EFTA states, Switzerland and now the UK. In your experience, does the EU’s experience with policies towards one affect its policies towards the others? In this, are there material differences in decision-shaping and interactions you feel within the group of countries with the EU?
HE Tore Hattrem: That is not an easy question to respond to. Our model is different from the Swiss model. There are certain idiosyncrasies and specialities with the EEA model that go back to 1994. There are limited tools within trade policy tools, and I would assume that the EU will gain experiences from one model to another. It cannot exclude that but it is very difficult to pinpoint that there are distinct readovers here.
Our model functions for us and we are quite happy with it. An overwhelming majority supports the European Economic Area agreement in Norway. I think that is a sign of success and acceptance and that the elements of the agreement functions well within a Norwegian context.
HE Dominique Paravicini: Being outside of the EU is a painful process most of the time because you will be consumed every day by how you want to manage your relations with the EU. That is our experience.
If you know what you want and what you really need, it is possible to negotiate it, but it takes time. Again, it takes time and a clear idea of what you want. Obviously in Brussels they are working to find compromise among members, and if you are a third country you cannot come and change all the rules they just painfully agreed amongst themselves. You really must have good reasons or good arguments. It depends also on what you bring to the table. The UK has its defence, military and the security situation as it is, which are certainly good arguments.
Otherwise, I would say there are some principles that the EU apply. Like I said before, for example, if you want to have access, you will have to have an aspect of solidarity. Rules have to apply to everybody. There must be a dispute settlement. There are certain facts where they apply to each of us, but then there is flexibility of how you want to deal with it, depending also on the geostrategic situation of the moment.
Sometimes we saw it when we were negotiating the package, and then UK voted for Brexit and this changed completely overnight our situation, because the EU was not willing to make any compromises with us any more, because it wanted to sort out what the role was going to be with the UK. So this happens too.
Q18 The Duke of Wellington: Thank you very much, ambassadors, for being here today. Could I move to some of the difficult political implications of so-called dynamic alignment? As you will have read, there is much commentary in this country that if we agree to dynamic alignment we become rule takers rather than rule makers; that is the common expression. In practice, we are all trying to understand what this will mean. That is to say, if in a certain sector the EU changes the guidelines, the regulations, or whatever it is, presumably it will be in the interest of our businesses in that sector to be able to sell into the EU market, and therefore we will have to align with what the EU requires. In practice, that may arouse some resistance, particularly in Parliament, in both Houses.
I am trying to understand how that works in practice, or how you think it works in practice, so that we can overcome the feeling that we may be taking on a rule decided in Brussels, which we have to accept. Equally, I imagine that our industrialists and our businessmen will wish to have access to that market and therefore will wish to align, and we are trying to work out how that works in practice.
HE Tore Hattrem: Thank you for the question, and of course this is a very fundamental question. If the Chair permits, I can go through the various steps of alignment. What does it entail in practice? I will do this in plain English, as far as I can.
There are basically 10 steps. Of course, we will provide you with more detailed information. This is to basically give a feeling of how it happens, and where the influence points are, to put it that way, seen from a Norwegian perspective. Basically, it always starts with an initiative on the part of, normally, the Commission to come up with legislation or amend legislation pertaining to the single market, which is relevant for the market.
This is a very preparatory stage and Norway, together with the other EEA partners, is invited to participate in working groups, when one was developing that legislation. Expert groups, committees and agencies, depending on which groups are involved, can participate in that consultation process, come up with comments and submit technical inputs and stuff like that. We also have national experts into the Commission, particularly in priority areas, who will be involved in developing legislation. This is probably the most important part of where we can influence the alignment process.
The second phase is the adoption of the legal act within the EU. That is negotiated between the member states, the European Parliament and the Council, which eventually will make a decision, and Norway is not involved in that. We have no formal role or voting right.
Then the third phase is the assessment of EEA relevance. The question is: is this new legislation coming from the Commission relevant for the single market? Once the Act is adopted, the EFTA secretariat and the three member countries on the other side will then look at it and say, “Is it relevant or is it not?”
If it is relevant, we will then move forward, but we can also argue that this is not EEA relevant with the necessary arguments. All the three EFTA states must agree that the legal Act should be incorporated and that we see it as relevant.
Then it moves to the fourth phase, which is basically negotiations of the adaption and how this will happen. Norway then negotiates with the EU on EEA-specific adaptions. They can be very technical. It can be terms and it can be vocabulary to make sure that this is a common property of the EEA, not only the EU, but it can also be somewhat more substantial issues. Adaptions must be mutually agreed in the EEA, and of course Norway has a de facto veto here because incorporation requires consensus.
Then it moves to the fifth phase, which is basically decision in the EEA joint committee, where you have the EFTA countries on one side, EU countries on the other side, and even at this stage we can withhold consent and request postponement and also that certain constitutional requirements apply.
Then we move on to the sixth phase, which is the constitutional requirements and the role of the Parliament. Because the Norwegian system is a dualistic legal system, EEA law does not apply until it is incorporated into Norwegian law by the Parliament. It does not automatically domestically become a law; it must be a specific decision.
To take this law into our law might require that we have to adopt other laws or make a budgetary decision so the Parliament will be involved in this phase. This usually takes place in the form of a proposition to the Parliament, committee concentration, and even a vote.
Then you come to the seventh phase, which covers what we call Article 102, and that is if Norway basically refuses. If Norway does not agree to incorporation of the law, then the article is triggered. Then, according to that article, we need to negotiate for six months to try to come to an agreement. If there is no agreement in the six months, that part of the agreement—that particular specific part—will be temporarily suspended, but so far this has never happened in practice.
Then the last two issues are that you have the national implementation in Norway and, once the joint committee decision is in force and you have parliamentary consent, the legal Act will be implemented into Norwegian law. Norwegian authorities are responsible for the enforcement but with the support of ESA, the supervisory body, and the EFTA law. They will follow up and make sure that they are doing this stuff.
Then we have the ninth phase, which is ongoing oversight and political control. The ultimate responsibility here is for the parliament—Storting of Norway—which continues to play a role in scrutinising EEA policy, basically receiving various notifications and debating the whole model and our relationship and co-operation within the EEA framework.
These are the major phases in that process, detailed and described, of actually implementing aligning. It is a quite structured process, and it has worked well over the last 30 years.
The Chair: Ambassador Hattrem, as we are getting very short of time, would it be possible for you or one of your staff to give us a piece of paper with the steps the Norwegians take?
HE Ambassador Hattrem: I will make sure that is done later today or tomorrow and I will send it over.
The Chair: I think we have almost covered all the detail for the next question, but you mentioned Norway declining to accept some particular parts of EU law—we have already heard from Ambassador Paravicini, very interestingly, that if that happens in Switzerland then the EU can retaliate but it has to be proportionate and that both steps are subject to arbitration. Is that the same for Norway? It is? Thank you very much.
Q19 The Duke of Wellington: The Norwegian ambassador explained that there has always been agreement in the end, and I am trying to understand what would happen if there was no agreement. The Swiss ambassador said then that the EU has the right to take countermeasures. I am trying to understand what could happen in the context of EFTA and Norway if there was disagreement—which apparently there has never been, which is wonderful—assuming that there could be disagreement in the future.
HE Tore Hattrem: When I talk about retaliation, I mean it is actually suspended, if you could call it that—that is in the agreement. So it is suspended, and it is not relevant anymore.
This post-directive was indicated in another question—that was not suspended, but there was a continuous disagreement. The reason why it was not formally suspended was because of the decreasing importance of the post-directive. So it was put on the back burner until the Norwegian Parliament in 2013 actually implemented it. The issue was sorted out with time. The EU did not really suspend that particular agreement; it was sorted out.
HE Dominique Paravicini: There are some specifics that are different in our case. You mentioned the one about what happens if we say no, but also, at the beginning, everything happens in the joint committee for us. It is the joint committee as a political body that decides how we deal with a specific question, and this is very important for us. We will take advice from the tribunal or whatever, but it is a joint committee decision that will then take it further.
Let me also state that we do not have an ESA—a supervising authority. Switzerland supervises itself and is responsible for responding to questions within the joint committee. For us, that was an important point.
Q20 Lord Barrow: Welcome again, colleagues. I want to go back to the question of decision-shaping, and you already spoke a little about the Brussels alarm system, as I think you described it as. Could you say some more about what your countries do, or indeed plan to do, in exercising the formal rights to decision-shaping, and how that is different from what missions and Governments do normally in lobbying and talking to other parties? Then I will have a supplementary but let us start there.
HE Tore Hattrem: To specify your question, what do you mean by formal decision-making?
Lord Barrow: From my time in Brussels, I know you had the right to come and give opinions to the Council, and you obviously also discuss with the Commission, but when we look at this issue one of the things that we hear will be part of the negotiation will be an ability to have appropriate participation in decision-making—obviously not as a member state. You do have some formal rights, so how do you exercise them?
HE Tore Hattrem: The rights we have within the alignment system are basically what I explained in the eighth and ninth phases. When the EU makes this sort of formal decision, we do not have a voting right; we do not have a formal right there. You can say that the rights are of a more informal character, but the fact that we can say no is also a formal right.
Generally it has perhaps been to do with the difference between Norway being 6 million people and the common market representing 450 million. There has always been an issue in Norway with the fact that we do not have the formal rights, to put it that way, in exercising influence, but these are the compromises and the model that we eventually accepted, given the circumstances and the need that we felt in Norway to have access to the single market, being an open small economy. Your situation might be different, representing 60 million people, but still there might be useful elements in the model that we practice.
HE Dominique Paravicini: Just to clarify again, at the moment the access to the common market is a static alignment, but even there we have possibilities to enter into this comitology so that we can give opinions and can increase. We have also experience with a dynamic alignment, which is within the Schengen/Dublin area, which is another agreement, other than the bilateral three. This should bring the static to a further dynamic one, where this mechanism, as I explained to you before, will then enter into force.
I do have an example of Schengen/Dublin, which is quite interesting. In 2015, there were these terrible terrorist attacks in Paris, and the Commission, together with the member states, proposed to tighten firearms control within the Schengen area, which meant that we suddenly had a problem because you might know that our soldiers are allowed and have to keep their automatic rifles. This would not have been possible any more with this directive from the EU, which we supposed to take over.
We managed to change the text through this comitology within Schengen to have an opt-out clause, which showed to us that the system is actually working in an essential question where we would not have gone through Parliament without a referendum. If we had a vote which our Government could have lost we would have had a huge problem with our Schengen co-operation.
Through these pressure points that we had to tell Brussels about, they made this opt-out clause. So it is possible, without a formal vote, to influence the decision-making process in Brussels in our experience when it is really necessary.
Lord Barrow: That was going to be my supplementary, asking for tangible examples of what made the difference and how upstream one needs to be. Do you have any tangible examples of where there has been something of concern to Norway where, by engaging maybe really quite early on—or even with different institutions, Parliament or whatever—you have seen changes where people have understood and reflected?
HE Tore Hattrem: I will respond on two levels. That is the daily work with the Commission working groups. Of course, at the end of the day, it is difficult to see the Norwegian flag on the final decision, but it is also important to remember that there are a number of like-minded countries—all the Nordic and Baltic countries that are part of the EU—where our concern might be similar to their concern. To see the imprint of that interest is not always important. Overall there is a general feeling in Norway that where we have ultimate, extremely important, national interests at stake, the EU will listen to us—a little bit as my Swiss friend, Dominique, pointed out—because no one would like to rock a boat that has been functioning well for over 30 years. So it works, at least for us.
The Chair: We have three further questions I want to get to, if that is all right with you. With your permission, we will just run a few minutes over.
HE Tore Hattrem: That is okay.
The Chair: Thank you very much indeed. First we have Baroness Suttie.
Q21 Baroness Suttie: I would like to ask some practical things about how your missions in Brussels actually function. How do they, in practical terms, influence day-to-day decision-making and decision-influencing in Brussels? How many staff do you have? I remember, when we were on a previous visit to Brussels, meeting a couple of young women from the Norwegian mission in Brussels, and they said that they had spent an awful lot of time having cups of coffee in the European Parliament. Could you just say a little bit about how it works in practice?
HE Tore Hattrem: You mentioned size, so, just to give you an indication, it is actually our largest embassy, or delegation or foreign posting. There are about 40 experts there covering all the major line ministries, which means that everybody—all our ministries in Oslo—has people in the mission to make sure that they follow the relevant policies quite closely.
The ambassador’s role is, in this particular case, a very formal role in the joint committee, but his role in Brussels is an informal role. It is relatively important. That is roaming around and trying to safeguard the interests of Norway in all various possible ways, speaking to his colleagues who are members of the EU and speaking with various people in the Commission, endlessly trying to influence the decision process, which is relevant and important for us in the daily work. It is, in many ways, the way that an embassy normally works, using to a large extent very formal channels.
HE Dominique Paravicini: It is similar for us. We have around 50 staff, which for the Swiss system makes it one of the big embassies. In London, we have 60, so it is really in this category. We have representatives of all ministries, and we have also representatives of the cantons to make sure that this flow of information goes directly to the different ministries.
Let me also mention that you need then to have a system in place in capital, which co-ordinates these efforts, because it is good if all the ministries have the information. And you need a body which is able to impose the strategic view of the Government in EU affairs. You need to have mechanisms in place there.
I will give you one hint. All new legislation in Switzerland must be checked for compatibility with EU law. That does not mean it cannot be against EU law, but you must then explain why you need it. Just to have some instruments in place in the Civil Service is very useful for us.
Then it is twofold to work in Brussels. One is the Schengen/Dublin area, where we are an associated state. We also sit in the Council of Ministers and the Council of Ambassadors. We do not vote, but normally it is a body where it is important to be there and to make your point heard. Then, as you said, Tore, you have like-minded groups. You are never alone in the EU. You can always find somebody who has the same point of view as you. That is the important thing.
On the more practical side, where we still do not formally have this dynamic alignment, it is classic diplomatic work. You have to find information. You have to speak to people, and that is what we do all our lives. It is not different in Brussels.
Q22 Baroness Smith of Newnham: Picking up on a point that His Excellency the Swiss ambassador made, you said that dynamic alignment was important because that is what the economy needs. Is it possible to specify to some extent what impact you think your countries have gained from participation in the single market and how it is impacting economic growth?
HE Tore Hattrem: That is a very important question, obviously. We had a White Paper presented to the Parliament some years ago—in 2024, so only two years ago—looking back at 30 years of experience with the EEA agreement, and also making references to research that has been done on the positive effects of being part of the single market. There is an endless amount of research that has been done. It varies from an accumulative positive effect of 2% to much more. It depends on where you choose. I think there is an overwhelming consensus in Norway that this has been very good for us. It has led to increased competition and better use of resources, and it has increased our potential GDP significantly over the years. To give you one percentage point is very difficult, but there is, if the committee would like to look into it, an endless amount of research.
I also think that being a small, open economy, which is the case with both Switzerland and Norway, there is a relatively positive effect, even bigger than for larger economies, simply because we are more export-import dependent. Our economies are more specialised. The share of export and import is higher in the economy so the positive effect of being part of a single market will be even bigger. Overall, there is not only a feeling but a proven strong positive effect for economic growth, productivity and welfare.
HE Dominique Paravicini: It is a little bit the same for Switzerland. There are studies, and the most recent study is from an institute called Ecoplan. They say that if the bilateral I, where the free movement of persons is included, would be abolished, accumulative GDP losses overall would reach 520 billion Swiss francs over the period of 2028 to 2045. However, these figures are disputed depending on where you stand. Maybe if we take a step back and look at how Switzerland is doing, Switzerland has been doing very nicely for these last 20 years. It is the Government’s opinion that this is due to the bilateral path. We always have the possibility, thanks to the free movement of persons, of having the right workforce that the economy needs. That was the most efficient way for us to manage immigration in our country.
Taken together and due to the fact that we have, with these bilateral agreements, a stabilised relationship with the EU but are completely independent to continue free trade agreements with third countries, we think that we have a good balance for our economic policy.
Q23 Lord Moynihan of Chelsea: Thank you both, your Excellencies, for coming to talk with us this morning. I would like to turn to your trade relationships with the rest of the world. The UK has, in recent years, made some very significant treaties, such as the CPTPP, and extending all the way through to tariff concessions from the United States relative to what the EU receives. Obviously, our trade with the rest of the world is larger than with the EU.
Has dynamic alignment with the EU affected your countries’ trade relations, either in trade deals that you have—we face a situation where we probably will be taken to court because the two are incompatible—or with your need to or your desire to have greater trade, better trade relationships, and better trade treaties with the rest of the world? If so, how has it affected them, and what are you going to be doing about it?
HE Tore Hattrem: In our case, just to give you the figures, in 2024 about 65% of our export went to the EU. I should also mention that a considerable part of our export goes to the United Kingdom—a little bit less than 20%—so you are actually one of our biggest trading partners. That is indicated in economics. One speaks about the Jan Tinbergen theorem, which says that you mostly trade with your neighbours.
Of course, Europe has always been there and historically we have been trading more with Europe than Latin America and Asia. I think that it is fair to say that the single market and the alignment have ensured that a substantial part of our trade goes in that direction. Of course, it is a fact that when you are part of the single market you have certain limitations when it comes to third party or free trade agreements with other partners. As you know, Norway is not part of the customs union. We are not part of the common trade policy, which means that we, the EFTA countries, need to negotiate our own free trade agreements with third parties.
In those agreements, there are certain limitations when it comes to the way we have harmonised our law with the EU. This sounds like an enormous challenge, but for Norway, for all practical purposes, it is not a big challenge because normally the EFTA countries will negotiate a free trade agreement with a third party after the EU has done the same. This means that we can copy the concessions that the EU has given.
Even if that is not the case, if we are the first, like with India, most free trade agreements are not that advanced. They operate more on the traditional World Trade Organization rules and regulations, which does not really make it a problem.
Has this limited our possibility to move forward and expand our trade potential with third parties? I would say no. I think that is fair to say.
HE Dominique Paravicini: Yes, I have a similar view from Switzerland. We do free trade agreements, often within the EFTA group. This agreement you mentioned with India was part of Norway, Switzerland and the other two countries together with India.
However, for us the EU is the biggest trading partner. It is 60% and Switzerland is a highly specialised economy, which has components for almost every production line in Europe. It is really very integrated and we have to protect this. This is one of the priorities our country has but we are also the fourth biggest partner for the EU so it is quite important for them as well. There is a balance there. Actually, the EU has a surplus every year with us.
On the question of whether this interferes with other free trade agreements, I say: no, not really. It is a little bit of competition we are having with the EU, I would say, in the sense that we try to open up countries with free trade agreements and they sometimes follow. Sometimes the EU Commission is quicker with a free trade agreement, and then we will have to follow very quickly, because it is a comparative question. If EU enterprises get a better deal with one new trading bloc, it is very important for us to make a similar level playing field. There is a levelling out at free trade agreements; otherwise, with rules of origin you can manage a lot of things when you make free trade agreements with different partners. You just must make the rules in such a way that they are compatible with your different free trade agreements or access to the EU.
Lord Moynihan of Chelsea: Just to follow up on that, I am taking that we do not have a lot to learn from your countries, both because your relationship in terms of size of trade is much greater than ours—60% versus 40%—but also because you do not have things like the pharmaceutical industry’s 10% tariff concession with the US, which if removed could devastate our industry. You do not have that problem. You do not have the problems that we have, whereby the treaties we have done already are likely to be incompatible with dynamic alignment, which means that we will be forced into WTO court. You do not have those problems.
HE Tore Hattrem: At least we do not see that we have those problems. Dominique, having a financial industry, you might want to comment on that.
HE Dominique Paravicini: I cannot comment on what you said, obviously, but for us this is not an issue because we make sure that they are compatible. Regarding financial services, they are excluded. We do not have a sectoral agreement with the EU regarding financial services. That is one of the big differences to the EEA.
The Chair: Your Excellencies, thank you very much indeed for being with us this morning, and in particular for allowing us to run over a little. It is clearly crucial to our inquiry to hear something of the experience of those who have first-hand knowledge of dynamic alignment and its workings, and you have given us much food for thought this morning. We are enormously grateful to you. With that, I bring this public session to a close.
