After 1992, the EFTA countries face a choice between a permanent accord on a European Economic Area (EEA) and seeking membership of the European Community. In Discussion Paper No. 524, Research Fellow Carl Hamilton considers the choice facing the Nordic EFTA countries, and Sweden in particular. He maintains that harmonizing their national tariffs with the Community's common external tariff would be almost painless, although EC non-tariff measures on imports from Japan and under the Multifibre Arrangement would burden Swedish consumers. Nordic countries now have much higher indirect tax rates than most EC members; the abolition of border controls will require the harmonization of neighbouring countries' consumer prices of products such as petrol, tobacco, wine and spirits to avoid wasteful border trade; and Nordic countries' adjustment to Community tax levels will constrain both tax bases and tax rates.

Full integration into the economic institutions of the Community will entail some welfare losses to the Nordic countries, but they are certainly more open and probably better able to cope with structural change than most EC members. Deeper integration will also bring important economic benefits. The international deregulation of sectors such as transport, banking, financial services and information is in effect a political precondition for their domestic deregulation; Nordic producers will compete on equal terms in the Community market; and the complete abolition of border controls against the Nordic countries will credibly remove expectations of EC protectionism, which will influence the choice of location of investment in the EFTA members' favour.

Hamilton argues that present non-members of the Community can only achieve a guarantee of economic non-discrimination by `sharing' sovereignty through full membership because of credibility problems. For example, the abolition of EFTA-EC trade barriers would require their external trade policies to be all but identical for the Community to be able to disregard the origin of goods imported from the Nordic countries. This in turn would require the Community to believe that every Nordic country will slavishly follow its external trade policy, over which they will have no influence. But even if the Nordic parliaments give such assurances, they will not be credible since they operate in democratic settings with fierce competition among political parties and pressures from special interest groups.

Hamilton then assesses the influence of the EFTA countries on Community policy if they do become members by identifying the present EC and EFTA member countries' positions on major policy issues and assessing the effects of such an enlargement on the votes in the Council of Ministers. He finds that countries that are sceptical of supranational authority should gain decisively, and the pro-environment lobby will be strengthened, but there will be little effect on EC external trade policy.

The Nordic EFTA Countries' Options: Seeking Community Membership or a Permanent EEA-Accord
Carl B Hamilton

Discussion Paper No. 524, April 1991 (IT)