Master Thesis - The Institutionalisation of Financial Arrangements in The EEA Agreement

Student Name: Tom Oddgeir Johnsen Student Registration Number: 0850242 Supervisor: Ulf Sverdrup
BI Norwegian School of Management GRA 1903 Master Thesis
The institutionalisation of financial arrangements in the EEA agreement
Exam code and name: GRA 1903 Hand in date: 01.12.10
Campus: BI Oslo
Program: Master of Science in Political Economy
This thesis is a part of the MSc program at BI Norwegian School of Management. The school takes no responsibility for the methods used, results found and conclusions drawn.
TABLE OF CONTENTS
1.0 Introduction ....................................................................................... 1

1.1 Methodology ..................................................................................................... 4 1.2 Structure ........................................................................................................... 7
2.0 Theories .............................................................................................. 8

2.1 Realism / Rationality ....................................................................................... 8 2.2 Normative ....................................................................................................... 16 2.3 Path Dependence............................................................................................ 17
3.0 Financial Arrangement from the EFTA/EEA to the EU/EEA ... 20

3.1 The trend over the years ............................................................................... 20 3.2 The Creation of the Financial Mechanism .................................................. 24 3.2.1 The Formalities ...................................................................................... 24 3.2.2 The Swiss Say No to the EEA Agreement ............................................ 26 3.2.3 EXPLANATION ................................................................................... 26 3.2.3.1 Asymmetry and Power ................................................................ 26 3.2.3.2 Strategy and Tactics .................................................................... 28 3.2.3.3 Domestic Factors in Norway ....................................................... 28 3.2.3.4 Solidarity ..................................................................................... 30 3.3 The Financial Instrument 1999-2003 - The Continuation of the Financial Arrangement ........................................................................................................ 31 3.3.1 EXPLANATION ................................................................................... 34 3.3.1.1 Asymmetry and Power ................................................................ 34 3.3.1.2 Strategy and Tactics .................................................................... 35 3.3.1.3 Domestic Factors in Norway ....................................................... 36 3.2.1.4 Solidarity ..................................................................................... 37 3.3.1.5 EU Politics ................................................................................... 38 3.3.1.6 Path Dependency ......................................................................... 39 3.4 The EEA and Norwegian Financial Mechanisms 2004-2009 ..................... 42 3.4.1 EXPLANATION ................................................................................... 46 3.4.1.1 Asymmetry and Power ................................................................ 46 3.4.1.2 Strategy and Tactics .................................................................... 47 ii
3.4.1.3 Domestic Factors in Norway ....................................................... 49 3.4.1.4 Solidarity ..................................................................................... 52 3.4.1.5 Norway as a Free Rider ............................................................... 54 3.4.1.6 Bilateral Relation and Soft Power ............................................... 56 3.4.1.7 EU Politics ................................................................................... 57 3.4.3.8 Path Dependence ......................................................................... 58 3.5 The EEA Financial Mechanism and Norway Grants 2007-2009 .............. 60 3.5.1 EXPLANATION ................................................................................... 63 3.5.1.1 Asymmetry and Power ................................................................ 63 3.5.1.2 Strategy and Tactics .................................................................... 64 3.5.1.3 Domestic Factors in Norway ....................................................... 65 3.5.1.4 Solidarity ..................................................................................... 66 3.5.1.5 Bilateral Relation and Soft Power ............................................... 67 3.5.1.6 EU Politics ................................................................................... 68 3.5.1.7 Path Dependence ......................................................................... 68 3.6 The EEA and Norwegian Financial Mechanisms (2009-2014) .................. 69 3.6.1 EXPLANATION ................................................................................... 73 3.6.1.1 Asymmetry and Power ................................................................ 73 3.6.1.2 Strategy and Tactics .................................................................... 74 3.6.1.3 Domestic Factors in Norway ....................................................... 75 3.6.1.4 Norway as a Free Rider ............................................................... 76 3.6.1.5 Bilateral Relation and Soft Power ............................................... 77 3.6.1.6 EU Politics ................................................................................... 79 3.6.1.7 Path Dependence ......................................................................... 80 3.7 The Long-Term Perspective ......................................................................... 83 3.7.1 Asymmetry and Power .......................................................................... 83 3.7.2 Strategy and Tactics .............................................................................. 84 3.7.3 Domestic Factors in Norway ................................................................. 85 3.7.3.1 Political ........................................................................................ 85 3.7.3.2 Collective Action ......................................................................... 88 3.7.4 Solidarity ............................................................................................... 89 3.7.5 Norway as a Free Rider ......................................................................... 90 3.7.6 Bilateral Relation and Soft Power ......................................................... 93 3.7.7 EU Politics ............................................................................................. 94 3.7.8 Path Dependence ................................................................................... 95
4.0 Conclusion........................................................................................ 98 5.0 References ...................................................................................... 100

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6.0 Appendices ..................................................................................... 110 7.0 End Notes ....................................................................................... 113
Summary
In relation to the signing of the EEA agreement in 1992 one decided to establish a financial mechanism which implied that the EFTA/EEA states contributed to the poorer regions of the European Economic Area. In this thesis it will be described how this arrangement was continued and how the Norwegian expenditure has increased almost 1500 per cent from 1992 to 2010. Today, Norway is responsible for 97 per cent of the contributions which means annual expenditures of 349 million EUR for the period 2009-2014.
Since the establishment of the EEA agreement, the EFTA/EEA states have become dramatically fewer and less populous. The opposite is true for the EU which has experienced three enlargements since the signing of the EEA agreement. With this in mind it is easy to conclude that asymmetric relations must have been the reason for the continuation and the increase of financial commitments from the EFTA/EEA states to the EU. However, if one looks at each of the negotiation rounds for the new periods of support one finds that there are too many puzzles for the conclusion of asymmetric relations to be justified.
This thesis illustrates that there are several possible explanations for the emergence, the continuation and the growth of contributions from the EFTA/EEA states to the EU. The most convincing approach is that of path dependence. The Norwegian political actors were surprised when demands for a continuation of the first financial arrangement were revealed by the EU in 1998. Today, the Norwegian political arena sees the financial arrangement as an integral part of Norways relationship to the EU. This illustrates that it is possible to speak of an institutionalisation of the financial arrangements in the EEA agreement. iv
GRA 1903 Master Thesis
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1.0 Introduction
In the Norwegian parliament, the Storting, there was no discussion when Proposition 160 S (2010-2011) was up for debate the 28th of October 2010. This proposition confirms the agreement that the EFTA/EEA states will provide 1788.5 million EUR, of which Norway is responsible for 97 per cent, to 15 EU member states from 2009-2014. The Norwegian Minister of Foreign Affairs, Mr Jonas Gahr Stre from the Labour Party (Ap) and the Chairman of the issue, Mr Petter N. Myhre from the Progress Party (FrP) both held their compulsory short speeches. A Representative from the Ap, Mrs Eva Kristin Hansen (2010), was the only one that took the opportunity to speak. However, she told the (empty) Storting that the only controversial part of the Standing Committee of Foreign Affair and Defences (SCFAD) Recommendation No. 22 S to the Storting (20102011) (2010) on the proposition was caused by an editorial mistake. The session lasted for five minutes. This thesis will put forward some of the reasons for this recent scenario in the Storting.
One might understand this as a consequence of the increasing asymmetry between the EFTA/EEA as it has become smaller and the EU as it has become larger. The EFTA countries at the time of the negotiations of the EEA agreement in the beginning of the 1990s consisted of seven countries representing 34 million inhabitants. At the same time, the EU consisted of 12 countries which represented 348 million people. Thus, the relationship was one of 1: 10. The asymmetry of todays relationship has increased tenfold from 1: 10 to 1: 100. If one believes that international relations are led by law-like determinism then one can explain the negotiation results by only looking at the asymmetric relations. The size of the first five year financial arrangement was about 120 million EUR compared to todays five year contribution of 1788.5 million EUR from EFTA/EEA to the EU. This represents an increase of nearly 1500 per cent. It is tempting to put forward an argument based on asymmetric relations for explaining the situation in Norways Storting the 28th of September 2010. However, it ignores several puzzles that one only can be aware of if one looks at the history of the financial arrangements.
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The asymmetric relationship between the EFTA/EEA and the EU serves as a structural factor in the negotiations. Still, the pattern one observes is one of path dependence. It starts with the expectations and patterns that are created as a marginal part of the EEA agreement through the initial establishment of the Financial Mechanism (FM) (1994-1998) in accordance with Protocol 38 (see Appendix 1). The legal basis was established through Article 115 of the EEA agreement on which the right to contributions have been based. No one on the EFTA/EEA side expected the arrangement to continue after 1998 but it did. In 1994 it would be unthinkable to imagine contributions on the current scale. It would be unacceptable to tell Norways population in 1994 that they would have to contribute at the same level of EU members ten years later.
The negotiations on the financial contributions from the EFTA/EEA states to the EU for the period 2009-2014 lasted from September 2009 to the 18th of December 2009. This is the shortest duration of a series of several negotiations between the EFTA/EEA and the EU on financial contributions stretching from negotiations connected to the EEA agreement itself till today (see Appendix 2). This is not a perfect proxy for the complexity of the negotiations. However, it indicates that the financial contributions have become an institutionalised part of Norways relationship to the EU. Norwegian politicians do no longer lament the fact that Norway has to contribute. Rather, Norwegian politicians instead argue that Norway should be expected to contribute at a reasonable level and the Norwegian interests must be reflected in the channelling of the support. The principle of contributions is accepted. The principle has become institutionalised.
There are several ways of trying to explain the development. Broadly one can argue that the developments can be seen from an institutional, normative or rational perspective. There are good reasons to be sceptical to all the answers based on these perspectives as they cannot easily be falsified. Yet, the normative explanation is the least convincing even though the financial arrangements are often profiled as acts of solidarity. A great puzzle for the normative explanation is the fact that the EFTA/EEA states in most of the negotiations have been reluctant to contribute. Yet, one should be careful with this type of counterargument as it can be stretched to the absurd. If the EFTA/EEA states were driven by solidarity
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why not contribute 90 per cent of GDP? Clearly, this cannot only be considered an action based on solidarity but also insanity. However, there are convincing reasons to believe that the EFTA/EEA states were not primarily concerned with the normative aspect of these contributions. Still, normative rhetoric is a great way to legitimise the contributions.
The rational perspective is convincing in many ways. One can interpret every negotiation based on asymmetrical relation as a venue for power politics or rational adaptation by the weaker part. There are also indications that certain actors within the EU took advantage of this asymmetry. However, there are many that have pointed to the limitations of rationality. Some even argue that human beings are predictably irrational (Ariely 2008). There are those that argue in favour of a view implying that actors have bounded rationality as a mean for explaining behaviour. A main weakness of any type of explanations is that watering down or tweaking the rationality conditions also means reducing their explanatory value as the explanations cannot be falsified. A puzzle for the strict rationality model is that the EFTA/EEA states did not increase their contribution in 1999 as the asymmetry to the EU had increased drastically. Nevertheless, the EFTA/EEA states, especially Norway, had important rational incentives for accommodating the EU.
The path dependence perspective is convincing and plausible. However, it is difficult to prove. The argument here is that the creation and continuation of the FMs created expectations and precedence for new FMs which no actors expected with the start of the EEA agreement. Still, path dependent theories do not explain the institutions occurrences in the first place. Path dependent theories can end up in infinite regresses. A challenge for this type of argument is to show that the path chosen in the previous turn has a causal independent effect on the availability of other paths. Yet, an explanation model based on a path dependent argument provides one with a valuable alternative explanation which to a greater degree takes into account the full time frame from 1992 to 2014 instead of just looking at the beginning and the end.
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1.1 Methodology
It is common in social sciences to make a distinction between qualitative and quantitative research. This masters thesis will be a qualitative research paper. There are many drawbacks and strengths connected to the qualitative method. The social sciences have at times been inspired to become more scientific or formal through introducing quantitative methods. Qualitative research is often contextual and particular. Thus, one often cannot generalise findings from such research. This means that a weakness with qualitative research is its perceived irrelevance. What is the use of research if one cannot generalise from it? There are also weaknesses connected to quantitative studies. It is not without reason that the former British Prime Minister, Benjamin Disraeli (1804-1881), reportedly once said that there are three kinds of lies: lies, damned lies, and statistics. Neither is it a coincidence that the scholar Ed Leamer wrote an essay called Lets take the con out of econometrics in 1983. A strength of qualitative studies is one of the weaknesses of quantitative studies. This is the context of the variables. In other words, scholars that believe in the qualitative methods have a tendency to have serious doubt about quantitative researchs conclusions. Scholars that believe in quantitative methods doubt the significance of qualitative research. Others argue in favour of mixing qualitative and quantitative methods. Why not mix the strengths of the two methods? This is an exciting approach but one is also left with the weaknesses of both methods
There is an article called Small N and Big Conclusions by Lieberson (in Andersen 1997: 60). This problem is something that should be kept in mind when its tempting to draw large conclusions from qualitative research. However, big conclusions is something that is a general challenge for science. For instance, Ernst Haas (1958) presented a Grand Theory of integration with his neofunctionalism. His work does have the problem of the Small N and the weakness of the Big Conclusion. Nevertheless, the research of Haas has inspired new approaches to integration and also has the scientific quality of being falsifiable.
Andersen (1997: 128) has a broad concept of generalisation. He argues that the question of generalisation is not a dichotomy, but rather about degrees. This is a
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wise formulation. Limited generalisation is perhaps the modest aim of this masters thesis. It would be brilliant if this thesis can illustrate something generally about Norwegian foreign policy.
Andersen (1997) advices that one should let the phenomenon that one studies decide the methods one uses in order to study it. The existing data for the purpose of this study is a combination of primary and secondary sources. The primary sources are official documents, articles and speeches written by the actors themselves. The secondary sources are books, news articles and reports that can shed light on the case I have chosen. The third source of data is based on an interview I conducted with the EUs Chief Negotiator in the negotiations on the Eastern enlargement Mr Percy Westerlund. I have therefore used three types of data. This method is called triangulation1. The concept is defined by Denzin (2009: 297) as the combination of methodologies in the study of the same phenomenon. As Yin (2003: 98) argues, any finding or conclusion in a case study is likely to be much more convincing and accurate if it is based on several different sources of information. The broad range of sources at my disposal means that the validity of the masters thesis will improve.
Unfortunately, mainly Norwegian sources are available. An important reason for this is that the negotiations between EFTA/EEA states and the EU are not exactly breaking news internationally. Furthermore, some official information (minutes from the Stortings EEA Committee) about the latest negotiation round might be classified when this master thesis is due. Finally, it should be declared that not a lot of scholarly attention has been given to the subject. Exceptions can be found. Arnesen et al. (2001) wrote about the disagreement between Norway and Spain in 1998/1999. Gjessing Vrnes (2006) and Sverdrup (2004) covered the negotiations caused by the first Eastern enlargement of the EU. The most recent negotiations were finalised six months ago. In other words, it is still new and little attention has been given to the continuation and increase of Norwegian contributions through the FMs 2009-2014.
The notion of triangulation comes from navigators method of combining data in order to find an object position (Smith 1975 in Jick 1979: 602). 5
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Many of the sources in this masters thesis will be first-hand accounts from the actors themselves. A problem with analyses of as if situations is that they are subjective. The author cannot enter the mind of the person expressing his or her opinion. The author cannot know whether what is said is sincere. Sometimes, just like the rhetorical action insight implies, normative discourse can be used strategically. Elster (1991: 4) has also shown that arguments can be made that are not sincere but part of a self-interested motivation. The problem is exacerbated by what Elster (1998) has called the civilising effect of hypocrisy. It is natural for a Norwegian negotiator or politician to hold that it is because of heartfelt solidarity that Norway provides a large amount of financial contributions to the poor member states in the EU. It will be favourable to hold that it is because of altruism that Norway has increased its effort after each negotiation that has taken place on the question of EFTA/EEA contribution. The opposite motivation is not flattering for the people in question or their political entity. However, it is in order to analyse the rhetoric of the actors and not in order to present a psychoanalytic interpretation that one studies discourses.
I have translated the quotes and gathered the Norwegian versions in the end notes. The translated quotes are denoted as My Translation (m.t.). The reason that the originals are included is threefold. Firstly, a Norwegian audience will know whether the quotes are misinterpreted or wrongly translated. Secondly, it is done because I find it necessary for the transparency of the research. Thirdly, as a reader I would have personally appreciated it. It is considerable amounts of text and a substantial part of the sources to this text.
As far as sources are concerned the descriptive element of this paper relies heavily on news paper articles. For past occurrences it is invaluable to have access to news articles. A plus of this type of sources is that they provide a chronological overview of the time period. It is hard work to find the proper information but it would be considerably harder if the author did not have access to the Atekst search engine. The web page has been a great help.
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The referred to sums of the financial arrangements are theoretical. This means that the disbursement of support can be lower or higher in any given year than the average of the period. It would be chaotic and confusing if the real numbers were used.
The focus of this paper is primarily on Norway and the EU. Thus, several issues are ignored. For instance, this thesis will not go into depth with regard to domestic politics in Iceland or Liechtenstein. The author could perhaps have given more attention to Switzerland. However, the country is included in certain sections of the paper.
Some explanations shed light on some of the negotiation rounds. These explanations are included in the parts of the discussion in which they are relevant. The fact that all explanations do not fit in with regard to all the negotiation outcomes adds to the fact that an eclectic approach is preferable if one wants to explore an issue.
In this thesis it will consistently be referred to Euros (EUR) instead of ECU and the EU instead of the EC. The exchange rate from 2004 is 1 EUR = 8.0 Norwegian Kroner (NOK). However, this is not very relevant in the text. The part in which the conversion has been made is largely where only numbers in NOK were available. This is more or less confined to the section about the comparison of EEA and Norwegian FMs with other policy areas.
1.2 Structure
The first part will be about the theoretical underpinnings of this thesis. The second part will describe and provide explanations for the emergence, the preservation and the increase of the size of the EFTA/EEA contribution to the EU. The third and last part of the thesis will be concerned with looking at the developments of part 2 in a long term perspective.
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2.0 Theories
In this paper the idea is not to explicitly describe each negotiation round and analyse the outcomes based on an approach of negotiation logics. For instance, I will not elaborate on game theoretical insights in order to understand each negotiation round. The objective of this thesis is not to test specific theories or contribute to the formal understanding of negotiations. Instead it is based on the assumption that no single theory can provide the precise answer to our questions.
2.1 Realism / Rationality

Thucydides (1972) is famous for having written the basic realist tenet the strong do what they can and the weak suffer what they must. This reflects the view that relations between states is built upon power. This is the approach in which one nearly can count numbers of soldiers in order to illustrate a states strength. Furthermore, from this perspective institutions only exist if they serve the states purpose.
It is proven that small states can achieve their objectives in encounters with larger actors. A well known example of one of the EFTA/EEA states is the so-called Cod Wars between Iceland and Great Britain in the 1950s and 1970s. The conflicts were about coastal zones and fish. Iceland was dwarfed by the British naval force and their resources. Yet, Iceland did not back down in these conflicts. The resoluteness of the Icelandic position was so that the British had to withdraw from the conflicts or use violence. The latter option would have large consequences for the British as Iceland was a NATO ally and that Iceland had important NATO bases on their soil. Great Britain chose to accept Icelandic demands and withdrew from the conflicts (Habeeb 1988). This and many other examples point to the fact that small countries can have bargaining power greater than their economic or military power would imply.
Realism has changed and become more complex in later years. This is especially true after the Cold War ended and a new structure of world politics emerged. In the realist perspective it is important that the state system will always strive for a
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balance of power. This balance represents equilibrium. The term equilibrium is derived from economics which is the social science that has moved the furthest toward formal mathematics2. The equilibrium is not a physical entity but merely a result of several assumptions. These assumptions are unrealistic but models are there to be used and not to be believed. This crude realism will be assumed when the paper revolves around questions of sheer asymmetry and power.
A less strict model is presented as an alternative by Allison and Zelikow (1999). A simplified rational model assumes that a) X is the action of the state; b) The state is a unified actor; c) The state has a coherent utility function; d) The state acts in relation to threats and opportunities and e) The states action is value maximising (or at least is assumed to be) (Allison and Zelikow 1999: 27). The last point is important. An excellent description of bounded rationality is presented by Allison and Zelikow (1999: 20) who state that it
recognizes inescapable limitations of knowledge and computational ability of the agent[...]rather than labelling actors who misperceive a situation as irrational, the model accepts the values, beliefs, and stereotypes of the decision maker, irrespective of the accuracy of his views.
Thus, one can assume that the state acts rationally despite it not always achieving its desired outcomes. An action is not irrational simply because the outcome is not optimal. When one is showing that an action is rational one speculates on the goal that the government is pursuing when it chooses a certain policy. One presents an explanation of an action and how this action was a plausible choice with regard to the governments objective (Allison and Zelikow 1999: 15).
One can assume that different states have different characteristics and that their identity lays out the foundations of their actions (Dunne 2008: 110). Lundestad (1985) argues that there has always been a considerable tension in Norwegian foreign policy between enthusiasm for international cooperation and scepticism toward concrete international cooperation. It is difficult not to agree when it comes to the EU. Mr Lundestad refers to this as national internationalismi.
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There are strands of economics that are not part of the formalisation of economics (See for instance the Austrian School and specifically the short but brilliant paper by Hayek (1945) called The Use of Knowledge in Society. 9
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However, there might also be some truth to the argument that certain areas of Norway and especially the strongholds of aid and missionary work, there is a sense that Africa is closer than Brussels or Paris. A Norwegian tradition is to be more positively inclined to cooperation with faraway places than places close to home (Gullestad 2004). It has been argued that Norwegian foreign policy is not different to other states foreign policy. It is a rational adaptation to the external environment given Norways attributes (Nyhamar 2001: 187).
It is true that the rationalist explanation can be stretched far. However, there are many reasons that the simplified rational model does not hold in the real world. First of all, it is presumably so that the state is not a unitary actor. State interest is one that is made up of many different interests and the weighting of these. According to Allison and Zelikow (1999: 257), to understand a government decision from what the authors see as a government model, one has to identify the games and players, to display the coalitions, bargains and compromises, and to convey some feel for the confusion (Allison & Zelikow, 1999: 257). Putnam (1988: 432) describes how state centric approaches are implausible. Executives, legislatures and central decision makers are often in disagreement about what the national interest is and what the external context demands. This disagreement can be just as prevalent between these actors as among them. In Norwegian politics, it seemed legitimate for the most prolific anti-EU parties (the Centre Party and the Socialist Left) to argue against the Proposition No. 3 to the Storting (2003-2004) (2003) on the first Eastern enlargement of the EU when the parties were in the opposition. However, these two parties did not question the Proposition No. 72 to the Storting (2006-2007) (2007) on the second Eastern enlargement of the EU or Proposition No. 160 S (2009-2010) (2010) to the Storting on the FMs 2009-2014 when they were in government.
Putnam (1988: 434) describes the two level games as consisting of a national and an international level. At the former level, domestic pressure groups seek to influence the government which in turn is reliant on coalitions of these groups for power. At the latter level, the government seeks to come to agreements which will maximise its ability to benefit its domestic pressure groups. The other side of the coin is that the government seeks to make sure adverse consequences for these
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domestic pressure groups of international events are minimised. In such a view it becomes the objective for the Norwegian government to please key actors. To quote Putnam (1988: 445):
when the costs and/or benefits of a proposed agreement are relatively concentrated, it is reasonable to expect that those constituents whose interests are most affected will exert special influence on the ratification process.
The phenomenon is more general feature of politics instead of only negotiations. For instance, Adam Smith (1987: 286) wrote that the regulations of Commerce are commonly dictated by those who are most interested to deceive and impose upon the public. The approach is based on a notion that general politics, not only negotiations, is about power struggles between different interests. It is difficult to write about interest groups without mentioning Mancur Olsons seminal book called The Logic of Collective Action from 1965. One of the insights of the book is that some groups in society might be politically stronger than their economic power would imply (Olson 1965). Typically, small groups with greater incentives to participate and concentrated interests can be more effective than large groups with diffuse interests. This is why one observes that consumer groups typically have less influence and profile than a business interest segment. This effect might be somewhat undemocratic as the minority can have more power than the majority. However, the logic of collective action does not always dominate and there are ways for larger groups to overcome their collective action problems. However, narrow groups often have more power than their economic might justifies.
The theories about two level games and the logic of collective action are important for the understanding of this thesis. The Norwegian connection to the EU can be seen as a national compromise. Some basic truths about Norwegian foreign policy were clear before the time any EEA agreement was established. Bondeforliket of 1930 was a compromise made between the Ap and the Farmers Party (former name of the Centre Party (Sp)). Really, it was a compromise between the centre and the periphery. The compromise between industry and agriculture in corporative Norway is not the subject of this paper. However, along with societal fault lines between the Norwegian centre and the periphery, Bondeforliket is central for understanding agricultures strong
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position in Norwegian politics. Not only does the compromise have consequences for Norwegian domestic politics. In Norwegian World Trade Organisation (WTO) policy, one sees that it is grouped with other countries that heavily protect their domestic farmers. In the negotiation leading up to the EEA agreement, agriculture was kept outside of the agreements framework. Seafood was also left out of the agreement. This has a lot to do with the Norwegian political goal of controlling its national resources but also has something to do with arguably the most important fault line in Norway of the centre vs. the periphery (Rokkan 1987).
This compromise is not to be stirred too much. It is important for the economic and the political scene in Norway not to compromise the fragile status quo in which business and seafood industry gets market access to Europe, the agriculture sector and natural resources are protected from European actors and the political scene keeps the peace through not talking about the EU question.
A less state-centric approach is the basis of the assumptions of a heterogeneous state. Most importantly with the more liberal approach one sees a plethora of interests inside a state and the influence of these for the states actions. It should be noted that multi-level governance or activism by interest groups toward other authorities than the state has been kept out of this paper. An important reason for this is simply not to complicate matters. It can be shown that organisations in Norway have influenced member states. For instance, the Director of the Norwegian Seafood Federation3, Mr Geir Andreassen, held that his organisation had lobbied substantially toward the governments of the Baltic states and Poland. He argued that Polish dissent proved that some of the accession countries had finally come to the conclusion that they were interested in larger fish tariff quotas (Pedersen 2003). However, the coupling between domestic organisations in Norway and member states in the EU or the EU itself was not decisive. There is a tradition in Norway toward corporative solutions. Thus, the ties between the Norwegian state and the organisations within it are strong. This means that connections that are directed away from the national government and directly with other governments or the EU level plays a lesser part in Norway.
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The general message from Joseph Nyes concept of soft power is that states can no longer rely only on carrots and sticks in order to reach ones foreign policy goals. In todays international environment, countries can as well achieve their goals and exert influence without tangible threats or payoffs (Nye 2004: 5). Ham (2002: 252) argues that we have in fact moved in to a post-modern world where geopolitics and power has been substituted with images and influence. The value-agenda has become central in Western international politics. This development has turned many countries foreign policy focus towards public diplomacy as a way of achieving soft power through a positive and credible image and reputation. Today the international political debate is to a greater degree than before about peace, democracy and human rights. The political discourse revolves around values such as justice, human rights and democracy and not explicitly about national interests. The increased transparency in international politics and the increased influence of the media creates pressure on states to play positive parts in the international community even if they initially lack motivation for this. Value-promoting diplomacy has become more important than ever before (Matlary 2002).
The benefits of possessing soft power should not be underestimated. It is ultimately not just a question of image, public relations, and ephemeral popularity[]it is a form of power a means of obtaining desired outcomes (Nye 2004: 129). Soft power creates political capital which at a later stage can be used in the international community. One thing that can be bought through this political capital can be important positions in international organisations, or a personal talk with the President of the United States. According to Nye (2004: 112), Norway has developed a voice and presence out of proportion to its modest size and resources. This attention and representation is priceless for a country that I have illustrated face the danger of being totally overlooked.
Leonard and Small (2003: 1) argue that public diplomacy for Norway is about overcoming the countrys invisibility. Considering the fact that Norway has half the population of Paris this is obviously very challenging. As Nye (2004: 106) argues the international situation today is characterised by a paradox of
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plenty. There are so many channels of information that it is very hard to get ones message out and thus it is very hard to gain attention and visibility. This leads to what Keohane and Nye (2001: 223) call a poverty of attention. Today countries need to work on their images in order to get access and publicity. This is especially true for small countries. Thune and Larsen (2000: 81) posit that small states on an international market have to promote themselves through other means than military force. They have to pursue a positive image in order to get access to positions in international organisations and international assignments. In other words, soft power is a mean in order to obtain access.
The influential American Robert Kagan (2009) recently published the book The return of history and the end of dreams. The message of the book is that a diplomat from the 19th century Europe would recognise the world today. The international scene is anarchic and states seek power. One can argue that this book and its ideas are more about large revisionist empires and the decline of the US. However, one witnessed that Denmarks Fogh Rassmussen was awarded the top job in NATO after a period in which Denmark not exactly appeared as the globes best citizens4. The country was a part of the coalition of the willing though. Further, the Economist recently wrote about how in 2003 Bono, the singer of the rock band U2 and central figure in development debates, wanted more countries to be like Canada. Years later the Canadians were not elected to have a seat in the Security Council in the UN although they fought hard for it (The Economist 2010). As Robert Kagan puts it, maybe the hope of a different international order after the Cold War was a mirage and that the world has not been transformed? Matlary (2002) argues that access to the EU has become one of the most important interests of Norwegian realpolitik.
The paper will not explicitly be about the timing and the technicalities of the negotiations. Still, the agenda have been described as one of the most important structural aspects of any negotiation as well as a significant determinant of negotiating power and influence (Pendergast 1990: 135). In other words, the agenda-setting power is important. For instance, it is described as the main source
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Denmark supported the US led invasion of Iraq and received much blame from Muslim countries in relation to the Mohammed drawings. 14
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of power for the EU presidency (Tallberg 2004). Agenda-shaping power consists of three elements: agenda-setting, agenda-structuring and agenda-exclusion. Agenda-setting power is the ability to introduce issues of concern on the agenda. Agenda-structuring power refers to what aspects of the agenda one wants to emphasise. Finally, agenda-exclusion power revolves around the ability to prevent issues from being on the agenda (Tallberg 2003). This is an important aspect of EU power, especially in 2004.
Every negotiation that is not one-off in the wide sense that the parties will never meet again is affected by the shadow of the future. Iterated games can make negotiation parties employ a tit-for-tat strategy which in turn promotes cooperation (Axelrod 1984: 13). This is important for internal EU politics and could have just as easily be included in an institutional view. However, in this thesis the EU politics will be treated in its own section as a determinant of the negotiations. On the one hand, the EU countries should appear more united and socialised as time goes by. On the other hand, as the EU consists of more members the interests of these members is more likely to clash. This will be an element of the thesis.
The relationship between the EFTA/EEA and the EU is based on the fact that the two actors meet continuously and therefore has every incentive to cooperate when negotiating. Norway is crucially dependent on the EU as it seeks access to its decision and its many cooperation programs not envisioned in the EEA agreement and Norwegian membership therefore reliant on goodwill from the EU. Putnam (1988: 455) argues that the more dependent one is on the other the greater the effect of the shadow of the future. Hopmann (1996: 114) argues that the player who stands to lose the most from the non-agreement will gain the least in an eventual agreement. Put differently, the actor with the worst BATNA (Best Alternative to a Negotiated Agreement) stands to gain the least in negotiations. In Norways case its BATNA is non-existent at the time being. It is also important to remember that the EU is a coalition and as Hopmann (1996: 252) argues the coalition member with the most restrictive position tends to define the position of the coalition. This is not the case in the EFTA/EEA because Norway decided to
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shoulder the expenses by establishing a separate arrangement when its the increase in EU demands were substantial in 2004 and later.
2.2 Normative
The notion that norms matter is a possible explanatory element for the paper. In 2002, the Norwegian Ministry of Foreign Affairs (NMFA) released a report on the history of Norwegian foreign aid. This report argued that Norwegian foreign aid has to a greater degree than for many other countries, been founded on idealistic motivesii (NMFA 2002 m.t). Most countries in the world consider themselves unique and morally good. However, what makes the Norwegian tradition special is the sense of duty when it comes to altruistically spreading good throughout the world. To some degree this is a thought that Norway shares with its Scandinavian neighbours. Scandinavian exceptionalism is a term that has been used when referring to the values of the Scandinavian countries. Some authors argue that this ideal has been more prominent in Norway than in the other Scandinavian countries. Characterisations such as humanitarian great poweriii (m.t.) have appeared in discussions about Norways role in the world (Leira et al. 2007: 10f).
Norwegian self-images are maintained and strengthened through rhetoric and actions. This self-image has a historical heritage. Knut Frydenlund, former minister of foreign affairs, explains in his book from 1982 that the Norwegian ideals have something to do with Wergeland and Bjrnson they have something to do with [Norwegian] history, tradition and the wish to live up to the recognition that Fridtjof Nansen achieved for Norway through his work for refugees after the first world wariv (Leira et al. 2007: 11 m.t). One of the conclusions of the Norwegian Report on power and democracy of 2003 was that the self-image as a moral and humanitarian great power has become a national symbol and a part of Norwegians identity. One can imagine that identity is something that is created through repeated actions (Wendt in Ross 2006: 207). This process is selfreinforcing as Norwegian actors construct an image of Norway as a country that honours its expressions of solidarity and feel obliged to act in accordance with their identity. Norway becomes an actor that sees what it ought to do as affected
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by what Norway is. This self-image is primarily maintained for the Norwegians themselves5, but it is also for the rest of the world to see (Leira et al. 2007: 9). Furthermore, there should be no doubt that the discourse in the debates on the issue of the enlargement to a great extent evolved around normative considerations. However, this can be an example of the civilising effects of hypocrisy.
Since the end of the Cold War, Norways external image has become increasingly important. This image is built on certain characteristics of Norway as a nation. The special traits that are presented are that Norway is a small country promoting peace, and that it is a country that is generous and therefore gladly shares its economic surplus with other countries through aid and peace efforts. There is in fact also a broad domestic support for the general perception that Norway is an altruistic and selfless actor (Leira et al. 2007: 9). A survey conducted in 2005 showed that 92 per cent of the Norwegian respondents strongly agreed to the statement Norway is a rich country that shares its resources with others through humanitarian aid and promoting peace (m.tv). The same survey showed that 36 per cent strongly agreed with the statement Norway is a nation that does not contribute enough to development and peace (Leira et al. 2007: 11 m.tvi). In other words the Norwegians see their own country as a fair, generous and peaceful nation. Furthermore they are in favour of an even more active and generous foreign policy. This does not have to imply a great deal as voters are notoriously in favour of wanting more of something and being against any cuts in the public service. However, in the Norwegian political scene it is potentially poisonous to be opposed to international commitments and aid.
2.3 Path Dependence

The idea of path dependence has existed for a while. Tolstoy (quoted in David 1985: 333) once wrote that every action of theirs, that seems to them an act of their own free will, is in a historical sense not free at all, but in bondage to the
5
I must acknowledge that as a Norwegian I see Norway through Norwegian lenses. This might make me biased in some respects. I try to be as objective as possible, and I hope my awareness of the potential bias can to some degree remedy the bias itself. At the same time it is a strength of the author that he is Norwegian and can be more intimate with the Norwegian discourse. 17
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whole course of previous history. The theory has its roots in economics and represents a critique to the neoclassical premise in which efficient equilibriums take care of anything. The essence of path dependence is that there are certain feedback and lock-in effects that can lead to inefficient long-term solutions. Paul David (1985) is famous for having shown that the QWERTY keyboard was an example how the market could end up preferring inferior solutions. The efficient solution would be if everyone started using a keyboard design was called the Dvorak Simplified Keyboard (DSK). Historical accidents causes the path taken in certain areas to condition possible paths in other areas or historical actions can limit the options of future actions. In Davids words, one damn thing leads to another (David 1985: 332). Liebowits and Margolis (1990) show in their essay Fable of the Keys6 that that the story of the QWERTY is suspect. Nevertheless, the theory is still around in many shapes and forms. Further, the insight is valid and important although one of the most well known examples might be wrong7
Paul Pierson (2000) illustrates why path dependence is more prevalent in politics than economics. The political world does not have the same strong incentives for efficient solutions and learning as economics. There exists a status quo bias that makes political institutions particularly prone to path dependence. As Pierson (2000: 251) writes particular courses of action, once introduced, can be almost impossible to reverse. With a lack of such resources as time, knowledge and information, it would be very costly and cumbersome to propose fundamental changes.
A student of comparative politics will recognise that Rokkan (1987) presents path dependent arguments. The understanding of European party systems is based on understanding the historical fault lines of countries societies. In Norways case most fault line revolve around the centre-periphery dimension. Questions of the Norwegian approach to the EU have a tendency of causing the types of conflicts. Path dependence is also about the economic term increasing returns. This means that actors tie their expectations to a certain reality and make choices and
6 7
A funny pun on Mandevilles influential Fable of the Bees from 1714. Ronald Coase (1974) shows how lighthouses did not represent a good example of a public good but it is still widely used in order to exemplify public goods. 18
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investment based on this. One should consider the EEA agreement as a reality that creates increasing returns both for Norwegian political and economic actors.
The path dependence concept of this paper is related to the signing of the EEA agreement and the establishment of the first FM from the EFTA/EEA states to the poorer regions of the EEA. However, the main focus will be on the fact that the arrangement continued in 1999. Pierson (2000: 52) writes that explanations based on path dependence provide an important caution against a too easy conclusion of inevitability, naturalness, or functionality of observed outcomes. Nevertheless, one should be careful as one might be tempted to commit the fallacy of seeing things too much in a causal chain. One must be careful by providing the explanation that post hoc, ergo propter hoc (A happened before B, therefore A caused B). In hindsight, a given outcome can sometimes seem inevitable. However, path dependency theory reminds us that the options available at later stages of negotiations are limited by decisions made at earlier stages.
There is a view among realists that institutions only appear because they are in the interests of the actors. In the view of the theory of path dependence this might be true. However, path dependency implies that some institutions emerged because some actors thought that it was the most effective. Later actions and possible utilities are shaped by these prior actions. The institutions and organisations that were created are hard to get rid of or change when they have first been established. It is for instance possible to argue that the NATO is a remnant from the Cold War which has redefined itself to a situation in which it is obsolete.
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3.0 Financial Arrangement from the EFTA/EEA to the EU/EEA

There have been established several financial arrangements. We can distinguish between five programmes: 1) The Financial Mechanism 1994-1998 2) The Financial Instrument 1999-2003 3) The EEA and the Norwegian Financial Mechanisms 2004-2009 4) The EEA Financial Mechanism and Norway Grants 2007-2009 5) The EEA and the Norwegian Financial Mechanisms 2009-2014 The magnitude and timeline of the different arrangements is shortly described in table 1.
Table 1.
1994-1998 Norway Contribution Tot. Contribution Beneficiary States 112.25 EFTA 119.25 1999-2003 Norway 113.6 119.6 4 EFTA 119.6 2004-2009 Norway 1134 1167 13 EFTA 600 2007-2009 Norway 136 140 2
8 9 10 11 12
2009-2014 Norway 1745 EFTA 988.5
EFTA 72
119.25 5
1788.5 15
, , , , Million EUR
3.1 The trend over the years

One sees that the sum involved have increased dramatically. In 1994, Norway was only committed to pay approximately 22.5 million EUR per year. In the period 2009-2014, the yearly support is about 349 million EUR. Evidently, the extent of the contributions has exploded. The greatest increase occurred in relation to the first Eastern enlargement of the EU and the EEA. Bulgaria and Romania
8 9
EFTA is the EFTA/EEA states. According to Report No. 1 to the Storting (2005-2006), Norway was reimbursed 8 million EUR as projects were not finalised. 10 Sources for the period 1994-2003: EFTA (2002: 47), 2004-2009: Proposition No. 3 to the Storting (2003-2004) (2004: 10-11), 2007-2009: Proposition No. 72 to the Storting (2006-2007) (2007: 6), 2009-2014: Proposition 160 S (2009-2010) (2010: 3-4). 11 A separate Norwegian Financial mechanism for the periods 2004-2009 and 2009-2014. A separate Norway Grants for the period 2007-2009. 12 Beneficiary States 1994-1998: Great Britain (only Northern Ireland), Greece, Ireland, Spain and Portugal. Beneficiary States 1999-2003: Greece, Ireland, Spain and Portugal Beneficiary States 2004-2009: Cyprus, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Slovakia, Slovenia and Spain. Beneficiary States 2007-2009: Bulgaria and Romania. Beneficiary States 2009-2014: Bulgaria, Cyprus, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia, Slovenia and Spain. 20
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received support at the same level in the period 2007-2009. With the drastic increase in 2004 (about 1000 per cent) it is easy to overlook the increase agreed to in the period 2009-2014. From contributing yearly about 285 million EUR, Norway would in the period 2009-2014 contribute with about 349 million EUR. This represents a yearly increase of 64 million EUR or 22 per cent.
The expectation was that seven states would contribute to the first FM. Because of the results of several referenda this shortly became three states. At the same time the number of beneficiary states has increased. From going to 5 of 15 countries in 1994, the contributions for the period 2009-2014 go to 15 of 27 countries. This means that a third of the EU states were covered by this support in 1994. The current corresponding number is about 56 per cent.
Today, Norwegians are among the largest contributors to EU redistribution per capita (see Appendix 3). Again, it must be made clear that the contributions from the FMs do not in any way go through the EU budget. One should also note that the sums referred to do not include administration costs of the EU (which represents around 5 per cent of EU expenditures) or lost revenue because of EUs own resources13. However, it does not include Norwegian administration costs with regard to the EFTA. In 2000, before the first Eastern enlargement, Norwegians contributed with about 5 EUR per head per year. This increased to about 47 EUR per capita with the first Eastern enlargement. After Bulgaria and Romania joined the EU and the EEA this figure had increased to about 59.3 EUR. Through the period 2009-2014, Norwegians will be paying about 72.7 EUR per capita in order to finance the EEA and Norwegian FMs 2009-2014. This is under half of what the Swedes had to pay per capita in 2008. This is also less than the average Dane, Dutch and German. However, the Norwegian contribution is greater per capita than in the rest of the EU members. Further, the Norwegian contribution per capita and as a per cent per capita is about twice as large as the Swiss contribution.
13
This is a marginal sum derived from import duties but it especially has an impact for the Netherlands as the port of Rotterdam serves as a hub for sea transport. 21
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The picture is less surprising of one looks at the nominal net contribution to the EU in 2008 (see Appendix 4). Seen from this perspective, Germany is by far the greatest net contributor to the EU budget. If one looks at the sum that Norway pays through the FMs one finds that Norway is a small contributor. This is not astonishing as Norway is a small country. Norway made available 284.8 million Euro through the FMs in 2008.
If one looks at the contribution in 2008 as a share of GDP one gets a different perspective again (see Appendix 5). This type of overview shows that the Netherlands was the largest net contributor to the EU budget with 0.45 per cent of GDP. More relevant in comparison to the EFTA/EEA states is that Sweden was the second largest contributor to the EU budget in 2008 if one look at the share of the GDP. The Swedish net expenditure represented 0.44 per cent of its GDP. In 2008, Norways contribution represented 0.10 per cent of GDP. In 2010, the corresponding number will be 0.13 per cent of GDP.
This kind of support is vulnerable to criticism as the beneficiary states are perceived as middle-income countries. Thus, one of the largest news papers in Norway, Verdens Gang14, can publish stories about Norwegian money going to renovation of old castles in the Baltic states in order to use these as educational facilities. At the same time it is reported that public Norwegian educational facilities face underinvestment (Haugan and Brugrand 2008). The EEA beneficiary states receive support in areas which are not part of what one sees as traditional for bilateral aid. In Vrt Land15 one could read that Norwegian money go toward renovating churches in EU countries all the while a number of Norwegian churches were not fully renovated (Hoel 2007). The yearly contribution toward conservation of European cultural heritage in the period 2004-2009 was about 51 million EUR. In comparison, the Norwegian Ministries of Culture and the Environment planned to spend about 169 million EUR in 2010 for the purpose of conserving cultural heritage. This is one of the largest priority sectors and was awarded 22 per cent of the grants of the FMs 2004-2009.
14 15
One of the largest news papers in Norway. A Norwegian news paper with a Christian profile. 22
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Another Norwegian policy sector that has received some media coverage in the wake of the FMs is the High North. Comparisons have been made between the sums paid to eligible EU states and the sums directed toward policies in the High North (Bjrnbakk 2008). The total sum of money in order to support initiatives in the High North in 2010 is 125 million EUR. Included in this sum is the Ministry of Foreign Affairs which in 2010 will spend 37.5 million EUR in this area. In comparison, Romania, a country which is of little strategic importance for Norway, will receive 61.2 million EUR in 2010. The corresponding number for Poland is 115.6 million EUR.
When it comes to bilateral aid, many of the EU countries are placed high in an overview of the largest recipients. Poland has become the largest recipient of Norwegian bilateral aid. This is a paradox as the country is much richer than the second largest recipient, Tanzania. The bilateral aid directed toward the eligible EU states represents approximately the same sum provided in bilateral aid to Africa. The bilateral aid through the FMs represent more than the combined Norwegian bilateral aid to Asia, Latin America and the Middle East.
Table 2. Beneficiary States Poland Tanzania Afghanistan Palestinian Authority Sudan Mozambique Romania Uganda Malawi Zambia Pakistan Nepal Hungary Sri Lanka Czech Republic Bulgaria Financial Mechanisms Bilateral aid 2009 UN 2009 World Bank Group 2009 Annual Financial Mechanisms 2009-2014/Bilateral aid 2009 115,620,000 91,367,125 90,980,250 78,593,625 72,272,125 63,102,625 61,190,000 52,835,000 49,933,375 49,202,375 36,549,125 35,558,375 30,660,000 27,672,625 26,360,000 25,320,000 357,700,000 573,328,250 900,000,000 184,000,000 Proposition 1 S (2010-2011) (NMFA 2010a) and NMFA (2010b) 23
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3.2 The Creation of the Financial Mechanism

The main negotiations at the time of the establishment of the FM 1994-1998 evolved around the EEA agreement itself. The reason an instrument such as the FM was included in the EEA agreement is not something that has received much scholarly interest. The aim of a more active regional policy became increasingly important for the EU in the 1980s as Greece, Portugal and Spain became members. Reducing economic and social disparities was already a goal of the Community when the EEA agreement was negotiated on. The EU Structural Funds reportedly assisted poorer regions with approximately 108.5 billion EUR in the period 1989-1993 (Helle 1993). It was in the backdrop of this that the EEA agreement was negotiated on. As the aim of reducing regional disparities became an EU goal it made sense that a similar objective was to be included in the EEA agreement.
3.2.1 The Formalities The negotiated EEA agreement included Article 115 which corresponded to the EUs goals of reducing disparities. In Article 115 it was agreed that:
With a view to promoting a continuous and balanced strengthening of trade and economic relations between the Contracting parties, as provided for in Article 1, the Contracting Parties agree on the need to reduce the economic and social disparities between their regions. They note in this regard the relevant provisions set out elsewhere in this Agreement and its related Protocols, including certain of the arrangements regarding agriculture and fisheries.
The FM 1994-1998 was included in Protocol 38 of the EEA agreement. It did not refer to Article 115 of the EEA agreement. The aim of the FM was to assist the eligible regions in order to further their development and structural adjustment (Protocol 38 Article 1). This is more moderate than Article 115 which spells out the general goal of reducing the disparities between the regions of the EEA.
The FM 1994-1998 consisted of 500 million EUR in grants and 1500 million EUR in loans with interest rebates of two per cent16. The FM officially began in January 1994 and lasted until 31st of December 1998. It was set up by Austria,
16
It is complicated to precisely establish the value of the entire Financial Mechanism. According to EFTA (2002), the value of the entire arrangement was 660 million EUR. If one is to believe the calculations of the Norwegian government, the value was 650 million EUR (Proposition No.3 to the Storting (2003-04) 2003: 21). 24
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Finland, Iceland, Liechtenstein, Norway, Sweden and Switzerland. However, Austria, Finland and Sweden became EU members before the EEA agreement came into effect. The Swiss voted no to the EEA agreement altogether17. The target countries/regions were Greece, Ireland, Northern Ireland, Portugal and nine regions of Spain (Protocol 38).
The funding states decided to set up a Financial Mechanism Committee (FMC) that was responsible for the funds management and allocation. The European Investment Bank (EIB) was responsible for the administration of the FM 19941998 (Proposition No. 100 to the Storting (1991-1992) 1992: 355). EIB charged 0.5 per cent of each disbursement as payment (Court of Auditors 2003: 318 footnote 16). The FMC was established consisting of representatives from the EFTA/EEA states. The FMCs objectives were to appraise the use of the resources provided by the FM. The FMC was assisted by the Financial Mechanism Secretariat (FIS). This agency was formally part of the EFTA apparatus (EFTA 2002: 45).
Internally in the EFTA/EEA it was agreed that the distribution of payment obligations would be decided on the basis of the Gross National Income (GNI) the last three years (Srskilt vedlegg 1992: 443). The EU would decide on the distribution of the support among the eligible region (Protocol 38 Article 4 (1)). Beneficiary states and their share (table 3):
Beneficiary States Spain Greece Portugal Ireland UK (NI) TOTAL Financial Mechanism 1994-1998 Grants 227.0 mill. 121.5 mill. 105.0 mill. 35.5 mill. 11.0 mill. 500.0 mill. Financial Mechanism 1994-1998 Loans 681.0 mill. 364.5 mill. 315.0 mill. 106.5 mill. 33.0 mill. 1500.0 mill. % of total support 45.4 % 24.3 % 21.0 % 7.1 % 2.2 % 100.0 %
(EFTA 2002: 47)
17
This meant that updates of the EEA Agreement had to be made. 25
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The main goal of the FM (1994-1998) was limited compared to future arrangements. It is simply stated that the Financial Mechanism shall provide financial assistance to the development and structural adjustment of the eligible regions (Protocol 38 Article 1). The contributions were directed toward projects which put an emphasis the environment (including urban development), on transport (including transport infrastructure) or on education and training. Among projects submitted by private undertakings, special consideration shall be given to small and medium-sized enterprises (Protocol 38 Article 4 (2)).
3.2.2 The Swiss Say No to the EEA Agreement The story about the FM 1994-1998 could end here. However, only the final result has just been described. In December 1992, the Swiss rejected the EEA agreement in a referendum. As a consequence of the result in Switzerland the agreement formally had to be renegotiated. The EU member Spain wanted more favourable terms in a new EEA agreement now that the Swiss were no longer a part of it. At least the Spanish wanted the size of the Financial Mechanism to remain untouched despite of the Swiss No. An agreement was reached. The outcome implied that the EFTA/EEA states had to make up for 2/3 of the total Swiss contributions (NTB 1993). Specifically, Norway had to increase its annual contribution to the Financial Mechanism by 4.2 million EUR annually (Ramberg 1993).
3.2.3 EXPLANATION 3.2.3.1 Asymmetry and Power The EFTA countries at the time of the negotiations of the EEA agreement consisted of seven countries representing 34 million inhabitants. At the same time, the EU consisted of 12 countries which represented 348 million people (Emerson et al. 2002: 39). However, on the 6th of December 1992 the voters of Switzerland rejected the EEA agreement. This was a heavy blow for the EFTA/EEA as an organisation. It lost its most powerful member in economic terms. In 1992, when the EEA agreement was negotiated on, the relationship of the original EFTA and the EU was 1: 10. In this regard there was a clear power asymmetry. After the
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Swiss rejection of the EEA agreement, this asymmetry increased to about 1: 13. The remaining EFTA/EEA states agreed to compensate for the Swiss share. No further changes occurred when Austria, Finland and Sweden became EU members as it was agreed that a situation like the one after the Swiss EEA exit would not happen again. Most importantly, the Spanish would receive more from Austria, Finland and Sweden as they became EU members with the financial obligation that followed.
In the first negotiations it was Spain and Portugal that created the most problems for the EFTA/EEA when it came to the negotiations. This might have an explanation in the EUs history. According to Moravcsik and Vachudova (2003: 43), the rural countries of the first enlargements of the EU were forced to accept agricultural arrangements not particularly well suited to their particular comparative advantages, and often involving lengthy transition periods. Such arrangements have a tendency to create grudges, and Greece did not hesitate to threaten with vetoing the Iberian enlargement. Greece was bought off with regional funds. This taught Spain a lesson that made it emulate Greece with regard to the future EFTA enlargement when it became an insider (Preston 1997). It should not come as a surprise that it was Spain that caused challenges to the EFTA/EEA states. It should be noted that the Portuguese and the Spanish have a reputation for using pressure in order to get their way (Bal 2004).
Further, from an asymmetric driven view one would expect Sweden to be the toughest negotiator of the EFTA states in the talks on adjustment of the EEA agreement. However, one observed that Norway and Sweden were the most forthcoming when it came to renegotiating the FM 1994-1998. Instead, it was Finland that appeared to be the toughest negotiator in the EFTA. This indicated that it was something more than asymmetric relations in play in the negotiations. Further, one can pose the question of whether the level of contributions represents the asymmetric relationship between EFTA/EEA and the EU.
The EFTA/EEAs key for calculating the level of contributions is based on the countries GDP. This is fundamentally a fair way of deciding the contributions.
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This means that the richer countries in the EFTA/EEA pay more than the poorer. It is strange if size only matters between the EFTA/EEA and the EU if it does not also apply internally in the EFTA/EEA.
3.2.3.2 Strategy and Tactics If one looks behind the deterministic explanation of asymmetric relations one finds a more complex story. After the Swiss rejection of the EEA agreement, the Spanish demanded that the remaining EFTA/EEA states compensated for the lost Swiss share of the FM 1994-1998. If this was not compensated Spain threatened not to ratify the EEA agreement (NTB 1992). The Finnish chief negotiator, Mr Veli Sundbck, stated that Spanish calls for increased contributions from the remaining EFTA/EEA states were unreasonable and illogicalvii (Haugli 1993 m.t.). In the end, the compensation was agreed to. If it was not for Spanish threats, the Swiss share of the FM would likely have disappeared from the EEA agreement. Although it was not a discussion of large sums of money, the Spanish were hard bargainers. However, the Swiss were responsible for 28 per cent of the grants and loans of the FM 1994-1998 (Rnningsbakk 1993). Seen in this light, the Swiss share was considerable. The remaining EFTA/EEA states settled on compensating 2/3 of the Swiss share. The outcome shows that Spain used power in order to get its demands fulfilled but also that this result was not inevitable.
3.2.3.3 Domestic Factors in Norway 3.2.3.3.1 Political On the 4th of February 1993, the leader of the Norwegian FrP, Mr Carl I. Hagen, shrugged at the projected increases in the Norwegian contributions18(Salvesen 1993). He commented that the Norwegian government gambled with the EEA agreement because of calls for what Mr Hagen considered insignificant extra funding. The leader of the Conservative Party of Norway (Hyre), Mrs Kaci Kullmann Five, held that Mr Hagen had completely submitted to EU demands (Salvesen 1993). However, only two days later, the Norwegian Minister of Foreign Affairs, Mr Bjrn Tore Godal from the Ap explained that even though
18
Actually, he said that Mr Godal should get his finger out. Norwegian: Carl I. Hagen[...]ber i en pressemelding om at handelsminister Bjrn Tore Godal 'fr ut fingeren'. 28
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Norway was principally against the increase, it was ready to raise its contributions to the FM in order to save the EEA agreement. The Swedes were not pleased with the Norwegian comment as it worsened the negotiation position of the EFTA states (Fyhn 1993). Days later, it was the Finns who were annoyed by Norwegian and Swedish indications, by Mr Godal and Swedish Prime Minister Mr Carl Bildt, that they were willing to increase their contributions to the EU (Haugli 1993).
Although this reportedly was a matter of principles, it seems that the pragmatism of keeping the status quo of the EEA agreement was the main objective of Norway. The EEA agreement was a compromise at the Norwegian domestic political scene. It was the first of the EFTA states to accept the principle of compensation. It is not hard to see how this was seen as a small price for keeping the national peace in Norway and not having to go through a costly new negotiation with an uncertain end. The Spanish demands appeared to be nothing else but a call for a couple of million EUR more to the poorer regions of the EU for five years. This was seen as a small price to pay in order to preserve the precious status quo. In the negotiations in the early 1990s, the agreement on a FM drowned in the focus on the EEA agreement itself. The accusation from the No to EU19 side was that the Norwegian government paid in order to prevent a renegotiation of the EEA agreement or a new ratification in the Storting (Ramberg 1993). It has been argued that the outcome can be seen as a way for the EFTA/EEA states to prevent opening of new negotiations with regard to agricultural agreements (Vogt 1993). In any case, a dreaded scenario of renegotiation of the EEA agreement was in the EFTA/EEA states calculations. Equally important, the EU issue was highly contentious in Norway. Thus, many politicians wanted to avoid such a debate at that moment in time. As the EFTA/EEA states came to an agreement with Spain, this scenario did not materialise.
3.2.3.3.2 Collective Action It is argued that the FM 1994-1998 was established in the EEA agreement as a consequence of the EFTA/EEA states refusing to liberalise their agricultural
19
Nei til EU - the Norwegian organisation against Norwegian EU membership. 29
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market (Laursen 1991: 552). A similar explanation is that the EEA agreement would merely stimulate trade in industrialised goods, thus the EU member states that profited on trade in agricultural goods sought something in the EEA agreement for them as well (Norberg et al. 1993). The result was the inclusion of the FM in the EEA agreement. At the same time agriculture and fish were excluded from the agreements framework. In this manner, the fishermen and farmers interests were adhered to. At the same time, Norwegian businesses and industry were provided the opportunity to take part in the internal market. The financial burden was put on the tax payer which in contrast to the other key actors is not particularly organised and has little individual incentive to do so (Olson 1965). This sum was not great and represented only about 5 EUR per capita per year. The same was true for the tax payers in Iceland (3.5 EUR) and Liechtenstein (about 5 EUR). The Norwegian farmers, fishermen and businesses/industry
received acceptable solutions while the burden of the tax payer was limited.
3.2.3.4 Solidarity There was an element of solidarity with the beneficiary states with regard to democratic reform and a path to democratic rule after long periods of dictatorship. This was especially true in the case of Portugal and Spain. However, there were little indications that solidarity played a great part in the first financial arrangements. The FM 1994-1998 was not even intended to reduce disparities in the EEA. Rather, it was about ensuring the functioning of the internal market and the structural adjustment of the beneficiary states. It is also argued that the communities traditionally most inclined to support traditional aid have an aversion against Catholicism (Gullestad 2004). This adds to the argument that the financial contributions from the EFTA/EEA should not be seen as aid.
3.2.3.5 Path Dependence This is a story seldom told but in many ways it was a signal to the EFTA/EEA states what waited them in future negotiations with the EU. Norway was principally against increasing their contributions to the EU. However, the concern for a pragmatic relationship to the EU was pressing. It was an indication to Spain that one was ready to accept contributions in return for the EEA agreement. In this
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sense it was a very important round of negotiations because the later rounds would be structured similarly. The arguments and the foundations of the disagreements would be different but in essence later negotiations would remind of the first round. Also, it was only later that one started to refer to this arrangement as the FM 1994-1998.
The Referenda in 1994 Only Norway rejects EU membership The EFTA/EEA was perhaps seen as a waiting room for EU applicants. However, shortly after the finalisation of the negotiations on the EEA agreement most of the signatory states became EU members. Austria held a referendum on the issue of EU membership on the 12th of June 1994 in which 66.4 per cent said yes to EU membership. On the 16th of October 1994, result from a referendum showed that 54.6 per cent of Finns voted for EU membership. Sweden decided to join the EU after a referendum on the 13th of November 1994 which gave a majority of 52.2 per cent in favour of EU membership. The 28th of November 1994, Norway voted not to join the EU by 52.2 per cent (Tvedt 2009). The Commission ended up representing Austria, Sweden and Finland in the FMC. One can say that the EFTA/EEA that signed the EEA agreement was a very different organisation than the one that existed as a result of the EEA agreement. Not only had the EFTA/EEA become fundamentally smaller with regard to inhabitants. It had also become less important as a market and a partner for the EU
3.3 The Financial Instrument 1999-2003 - The Continuation of the Financial Arrangement
At the end of the agreement on the FM (1994-1998) it was seemingly expected by the politicians in the EFTA/EEA states that the financial arrangement would end. However, this was not the view of the former arrangements largest benefactor. Spain demanded that the EFTA/EEA countries continued their support. The EU
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formally demanded further contributions on the 25th of September 1998. There were calls from the recipient countries to make a similar arrangement as the FM for the period 1994 to 1998 a permanent feature of the EEA agreement. The 5 th of October 1998, the EU invited the EFTA/EEA countries to discuss future contributions toward poorer regions in the EEA. State Secretary Roman de Miguel, from the Spanish Ministry of Foreign Affairs, held that Spain saw this as a continuation of the existing FM. However, the Norwegian position was that it was not obliged to continue its contributions (Bjellaanes 1998b).
The negotiations lasted from the 6th of October 1998 to the 20th of April 1999. The formal agreement was made the 22nd of May 2000. It was finally decided that the EFTA/EEA was to finance a new mechanism. Iceland, Liechtenstein and Norway agreed to establish a new financial mechanism called the Financial Instrument which was to last from 1999 to 2003. This was done through Article 19 in Protocol 31 of the EEA agreement. The detailed regulation is found in Appendix 4 to Protocol 31. The final sum of contributions ended at 119.6 million EUR20 which was to be disbursed to Ireland, Greece, Portugal and Spain 21. Norway was responsible for approximately 95 per cent of the total sum. This means that Norway contributed with 113.6 million EUR. This represents a marginal net increase from the previous arrangement. There were still long lasting processes ahead which meant that it was not until 1st of January 2001 that the mechanism was launched (Proposition No. 3 to the Storting (2003-2004) 2003: 21).
It was on the account of the countries GNI that the internal commitments among the EFTA/EEA states were decided upon. This was the same method as in the mechanism from 1994-1998 (Proposition No. 6 to the Storting (2000-2001) 2000). In Appendix 4 (11) to Protocol 31, one can read that if not mentioned otherwise, the new arrangement will be conducted along the same lines as those followed in the administration of the outgoing Financial Mechanism. Thus, it is assumed that the distribution key of the resources is based on an internal EU method in this period as was the case for the previous arrangement.
20
The support took form exclusively as grants and not as grants and loans as the previous mechanism. 21 Northern Ireland in 1999. 32
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The beneficiary states and their share (table 4):

Beneficiary States Spain Greece Portugal Ireland U.K (N.I) TOTAL
22
Financial Instrument 1999-2003 70.2 mill. 22.1 mill. 21.3 mill. 5.5 mill. 0.5 mill. 119.6 mill.
% of total 58,70 % 18,48 % 17,81 % 4,60 % 0,42 % 100,1 % (because of rounding)
(EFTA 2002: 50)
The main goal of the agreement can be read in Protocol 31 Article 19 (1). The aim was to reduce the economic and social disparities in the EEA through a financial contribution by the EEA EFTA states. The support was to be directed to the areas of environment, including urban renewal, reduction of urban pollution and securing the European cultural heritage, transport, including infrastructure, and education and training, including academic research. It was also agreed that the goal was to allocate at least 2/3 of the resources to projects to the environment (as widely defined as above) (Appendix 4 (4) to Protocol 31). As one can observe, the aims of the new arrangement was more in line with the goal in Article 115 of the EEA agreement. The phrase was that one was to provide assistance in the FM 94-98. In the arrangement from 1999 to 2003 one was to reduce disparities. This can be interpreted as a significant change. The aim of the Financial Instrument was more in line with article 115 of the EEA agreement and geared toward the goal of reducing social and economic disparities. Furthermore, the goals were broadened so that now, at least formally, it was easier for actors in the beneficiary states to qualify for support.
The EFTA/EEA states wanted a larger role in the new arrangement. The Financial Instrument Committee (FIC) was established in order to steer the financial arrangement for the period 1999-2003 (Appendix 4 to Protocol 31 Article 7). The FIC was responsible for deciding on which projects were to be supported. The
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Financial Instrument Secretariat (FIS) was set up in order to assist the FIC and to administer the arrangement. The FIS was formally part of the larger EFTA secretariat (EFTA 2002: 50). The FIS reviewed applications for the FIC. The EIB would merely assist the beneficiary states with identification and appraisal of project applications23 (Proposition No. 6 to the Storting (2000-2001) 2000). One agreed that 0.5 per cent of each payment was to be provided to the EIB in order to cover its costs for project appraisal and monitoring. The FIS calculated that it would have to commit 1 per cent of the mechanisms resources to administration (Proposition No. 6 (2000-2001) 2000). The complexity of the application procedure seems greater compared to the arrangement in 1994-1998. At least the Norwegian description and ownership of the mechanism was greater than before as the EIB played a smaller role (Proposition No. 6 (2000-2001) 2000).
3.3.1 EXPLANATION 3.3.1.1 Asymmetry and Power In 1998/1999, the EFTA/EEA side represented about 5 million people and the EU side represented roughly 375 million people. The asymmetry of the relationship had risen dramatically to about 1: 75. This is compared to 1: 10 when the FM 1994-1998 was created and 1: 13 when it was adjusted because of the Swiss rejection of the EEA agreement in 1992. Thus, it is a puzzle that the EU side did not increase its demands now that the asymmetry had increased drastically. It is a weak argument to point to the fact that the EU did not demand an increase in the negotiations.
Many countries, and especially the Nordic ones who had negotiated the FM 19941998, initially supported the Norwegian view that the financial arrangement was intended to be temporary. This implies that there is more than mere asymmetry that conditions different countries approach to one another. There is basis for questioning the explanatory clout of the power asymmetry thesis for the negotiations leading up to the Financial Instrument 1999-2003. It appears that the
23
The EIB was reluctant to continue the task. According to a diplomat, the reason was that the Norwegians paid too close attention to how the sums were being spent by the EIB. However, Spanish pressure made the EIB turn in the question (Johnsen 1999). 34
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negotiation in 1998/1999 is close to the Black Swan (see Popper 1963) of the asymmetry theorys explanatory power with regard to the EFTA/EEA-EEA/EU relation. However, the explanations are not dichotomous. It would be wrong not to assume that the asymmetric relationship between EFTA/EEA and the EU served as important context.
3.3.1.2 Strategy and Tactics The argument about asymmetric relation is ill-suited to explain the outcome of the negotiations in 1998/1999. This does not mean that national interests and the will to pursue them were irrelevant. The negotiations leading up to the creation of the Financial Instrument 1999-2003 show that some countries are willing to exert considerable pressure to get their way. The Spanish wanted the financial arrangement from the period 1994 to 1998 to continue. Spains ambassador to the EU, Mr Javier Elorza Cavengt, argued that this was a matter of principles. Mr Cavengt argued that Spain would cancel the EEA agreement if its principle of the permanence of the financial arrangement was not adhered to (Otterdal 1998b). The atmosphere was not helped by the fact that the Spanish later on blocked Norwegian initiatives for taking part in several programs 24(NTB 1999; Otterdal 1999; Vollebk 1999). Schengen and the Fifth Framework were the most notable programs that Norway wanted to be part of but the membership was complicated by Spain.
A diplomat from a Nordic EU country was surprised by the speed and strength that the Spanish chose to pursue the issue. The Spanish demanded that the Council of Ministers declared that a permanent aim of the EEA agreement is to reduce the economic and social disparities in the EEA (Otterdal 1998c). The Icelandic Prime Minister, Mr David Oddson, held that the demands and behaviour from Spain could be considered extortion. The Norwegian Prime Minister, Mr Kjell Magne Bondevik from the Christian Democratic Party (KrF), commented that he did not disagree with Mr Oddsons comments (Bjellaanes 1998c).
24
The programs in question were three cultural exchange agreements, one employment program, one establishment of a common European office for the evaluation and supervision of medicines, the EU Fifth Framework program and the Schengen agreement. 35
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The Spanish did not want less contribution than in the previous arrangement and they wanted it to be permanent. Norway did not want to continue paying the Swiss share of the arrangement and according to the article by Bjellaanes (1998d); the Icelanders were even less ready than the Norwegians to contribute to a new financial arrangement. In the end the principle of the permanence of financial arrangements based on Article 115 in the EEA agreement was not accepted by the EFTA/EEA states. This can be interpreted that there were limits to what could be achieved through threats as a strategy. However, it is not self-evident that the Spanish were sincere when they claimed that a continuation of financial arrangements was a matter of principle. There are tactical reasons to represent ones interest as one of principle. The party claiming that its demand is a matter of principles can demand more in turn for backing down from its demands compared to demands merely based on interest (Elster 2007: 423). Spain did not receive much of an increase in the new arrangement. Apparently, such an increase was not called for either. One can argue that the reason the Spanish received a satisfactory result was that they argued on the basis of principles. The principle was not accepted but the Spanish received what they wanted a continuation of redistribution in the EEA. It is fair to assume that the arrangement would not be continued if there were no demands for it.
Mr. Blankenborg (2003) argued that in retrospect the smart thing to do in 1999 was probably to pay more in the period 1999-2003 as this would take away the argument that Norway had contributed little until then.
3.3.1.3 Domestic Factors in Norway 3.3.1.3.1 Political The Spanish blockade of Norwegian membership in different programs was a challenge for the political scene in Norway. Apart from the hectic negotiations in the wake of the Swiss rejection of the EEA agreement, this was the first Norwegian encounter with an EU logic of supporting the member state with the most aggressive stance. This appeared to be a surprise for the Norwegian political actors. It also became apparent how tightly integrated Norway was to Europe. Complications in Norwegian part taking in European cooperation programs
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revealed that Norway was reliant on a good relationship with the EU members. Still, the sum involved was limited and therefore not very controversial. For the political sphere one might assume that the contribution to the EU was seen as a marginal sum in order for cooperation with the EU to run smoothly and in order to prevent any disruptions.
3.3.1.3.2 Collective Action One can interpret the negotiations leading to the Financial Instrument 1999-2003 in line with the insights of collective action. The main interests in these negotiations were farmers, fishermen, businesses/industry and tax payers. In no fundamental way did this agreement touch upon anything but the Norwegian tax payers wallets. The limitation of access for agricultural products in the EFTA/EEA states was preserved. Iceland and Norway kept the tariff quotas for fish into the EU market that they were given after the EU enlargement of the former EFTA states. The Norwegian businesses and industries access to the European market was also preserved. One can argue that the status quo was maintained.
3.2.1.4 Solidarity Solidarity was not mentioned when the continuation of the financial arrangements was negotiated on in 1998/1999. Mr Bondevik from the KrF was the Norwegian Prime Minister during these negotiations. In many ways Mr Bondevik, being the leader of the KrF represents a Norwegian movement with a tradition of Christian missionary work. As Matlary (2002) points out, long before soft power was even invented, religious communities and organisations from Norway have worked abroad promoting Christian values. However, one can question to what extent Greece, Ireland, Portugal and Spain were seen as poor countries. Further, according to Gullestad (2004) the Catholic countries of Europe have long been looked at with suspicion by many of the pious Protestant Christian communities of the Bible Belt of Norway and stronghold for the Norwegian KrF.
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3.3.1.5 EU Politics It can be argued that the lack of serious conflictual stances in the EU increased Spanish willingness to be tough bargainers in the two first negotiation rounds. The Portuguese, who obviously had sympathies with the Spanish position, is also known for its willingness to use power in negotiations (Bal 2004: 136). It has been pointed to in this thesis that some of this aggressiveness comes from Iberian experiences with regard to its own accession negotiation with the EU (Preston 1997). Also one ought to remember that there is a general shadow of the future inside the EU. This means that member states that do not share the interest of other member states might end up supporting a view not shared. This is because the member states meet all the time, and support for a member state in one instance might ensure the support for ones own view in the next instance. As an EU member it does not make sense to have a tough stance of something that is not in the states interest. Right or wrong does not always matter as much as national interests. The Norwegian political scene learnt an important lesson from the time leading up to the agreement on the Financial Instrument 1999-2003. In the Report No. 27 to the Storting (2001-2002) (2002: 10 m.t.) it was written that other EU countries support the demands from other EU membersviii in clashes of interests with the EFTA/EEA countries. This was also evident from the fact that Finland and Sweden, original signatories of the EEA agreement and thus the FM 19941998, changed their stance from supporting Norways interpretation of the issue to backing down.
The negotiations between the EFTA/EEA and the EU have a tendency to be coupled with EU budgetary issues. Mr Berg commented that he saw a clear connection between the Spanish demands in 1998 and the conflicts inside of the EU regarding the Structural Funds (Johnsen 1998c). Arnesen et al. (2001) explain that some of the context was that the EU at the time was launching its own negotiations on the budget through the Agenda 2000. The German Minister of Foreign Affairs, Mr Joschka Fischer, stated that Agenda 2000 is an enormous task for the German Presidency, and we would like to see the EFTA contributions in the light of thisix (Johnsen 1998d m.t.). This was a contentious issue internally in the EU. In other words, the EFTA/EEA states negotiations are coupled with the EUs internal distribution. One should also have in mind the shadow cast by
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the future Eastern enlargement. There is much evidence that the older beneficiary states, at least Spain, have been very concerned with future contributions. The Prime Minister of Norway, Mr Bondevik, commented that it would be much easier to discuss future contribution to the accession states in Central and Eastern Europe if the EU accepted the Norwegian view of no legal commitment for such support in the EEA agreement (Bjellaanes 1998c). In 1998, when the Norwegians linked the contributions to future eastern enlargements, the Spanish were furious (Bjellaanes 1998e). Mr Cavengt made clear that our [Spains] money is not going to the countries in the east. They are not even EU members yetx (Bjellaanes 1998e m.t.). Reportedly, other member states of the EU also found the Norwegian comments to be unhelpful (Bjellaanes 1998a). Not only are there indications that these negotiations are coupled with internal budgetary debates in the EU but the EU appears to be concerned about external actors seemingly contributing to disrupting compromises made between the EU member states.
3.3.1.6 Path Dependency Mr Eivinn Berg, Norwegian ambassador to the EU from 1986 to 1996 and central person in the negotiation team on the original EEA agreement, stated that:
the Financial Mechanism was never seen as a lasting arrangement[]there was no doubt about it. We even had a working group on the issue. Its opinion was clear. I cannot understand that it can be interpreted differentlyxi (Johnsen 1998c m.t.).
This quote is derived from a central person in the negotiation on the establishment of the original EEA agreement and it points to the Norwegian officials surprise by the Spanish demands for a continuation of financial arrangements in 1998. It appears that the EFTA/EEA side was genuinely surprised by the EU demands for future financial arrangements. Reportedly, the Norwegian Minister of Foreign Affairs, Mr Vollebk from the KrF, was puzzled by the Spanish demand. He claimed that such a claim must be in breach of the EEA agreement. But we will of course look at the issue and study in what way the demand has emergedxii (Johnsen 1998a m.t.).
The Norwegians assumed that the arrangement would be a temporary part of the EEA agreement. Also, the Swedes and Finns, who were part of the designing of
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the EEA agreement on the EFTA side, argued that the original FM was a temporary instrument. The Spokesperson for the Finnish EU delegation, Mr Rergo Kemppinen, held that the Finns wanted to ensure the consensus in the Union. However, he was also of the opinion that the EU had to respect its obligations in the EEA agreement. Finland, an original signatory of the EEA agreement, supported the Norwegian view the FM was temporary (Johnsen 1998b). As time passed, even the Finns and Swedes had to concede that EU loyalty was more important than the interpretation of articles in the EEA agreement. A Nordic diplomat argued there is a limit to what extent we can support Norway which is not part of the Unionxiii (Bjellaanes 1998d m.t.).According to an EU diplomat, France, Greece and Portugal favoured Spanish calls for permanent financial support from the EFTA/EEA states. The three Nordic countries plus Germany and Great Britain initially supported the Norwegian position. On the one hand, legal experts in the EU Commission and the EUs civil service tended to have sympathy with the Norwegian position. On the other hand, the legal office of the EU Council of Ministers tended to interpret the EEA agreement more in line with the Spanish demands (Bjellaanes 1998a). The latter is arguably the most important in unanimous decisions on negotiation mandates.
From Spains view, article 115 made clear that the arrangements for reduction of disparities in Europe had to be an integral part of the EEA agreement. Spains ambassador to the EU, Mr Javier Elorza Cavengt, argued that this was a matter of principles. He said:
If one wants to wage war for 200 million NOK annually, go ahead. For us it is about an important principle that is founded both in the Treaty of the EU and in the EEA agreement. The money is of lesser importancexiv (Otterdal 1998b m.t.).
He continued by claiming that the legal team of the Council of Ministers supported the Spanish position. Mr Cavengt argued that Spain would cancel the EEA agreement if its principle of the permanence of the financial arrangement was not accepted (Otterdal 1998b). There are reasons to believe that the roots of this demand is to be found in the EEA agreement and the interpretation and expectation created by the establishment of the FM 1994-1998. Whether the Spanish demand was legally right or wrong is of lesser importance.
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The Norwegian EU ambassador, Mr Einar Bull, was quick to hold that there was no legal basis in the EEA agreement that justified Spanish claims. Mr Bull argued that a continuation of the present arrangement was not possible. It was instead argued that if such support were to continue, one had to set up a new arrangement which had to be based on new negotiations and ratifications (Otterdal 1998a).
It seems that the Spanish became more pragmatic as time passed. After a bilateral meeting in Madrid between Norway and Spain at the at the 15th of December 1998, the Spanish Minsters of Foreign Affairs, Mr Abel Matutes, said that he was willing to reach a compromise deal with Norwegians. This was interpreted to mean a Spanish divergence from previous legal arguments (Thoresen 1998). Still, the Norwegian side was annoyed by continuous Spanish threats despite the fact that Norway showed good intentions in the negotiations (Johnsen 1998e).
The 21st of April 1999 Mr Bull could report that the EFTA/EEA and the EU had reached an agreement on a new financial arrangement. Mr Bull stated that we agree that this is a new arrangement and not a continuation of Protocol 38 in the EEA agreementxv (Nordrum 1999). The EFTA/EEA states did not have to pay for the Swiss share. However, the sum was adjusted for inflation (Bjellaanes 1999 m.t.). This increase compensated for the Swiss share.
It appears that the solution with regard to article 115 of the EEA agreement served as precedence. Although there is no explicit legal obligation for the EFTA/EEA to continue their support there is still demand for them to do so. The creation of the FM 1994-1998 created expectations that this was a permanent, or at least a permanent temporary feature, of the EEA agreement. With the continuation of a similar arrangement the expectations became greater and it can be interpret as Norwegian admission of its obligation to contribute with a financial arrangement for the EEA. The aim of the Financial Instrument was in line with the wording of the article 115 of the EEA agreement. This indicates that the financial contribution had become a de facto part of the EEA agreement. Finally, in 1999, Mr Bull made it clear that Norway follows the EUs own policy for reducing disparitiesxvi (Bjellaanes 1999b). This implies that Norway is willing to increase
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its support when the EU increases its support. One can interpret the outcome of the negotiation round leading up to the establishment of the Financial Instrument as a defining moment with regard to the financial arrangements.
3.4 The EEA and Norwegian Financial Mechanisms 2004-2009

In mid-2001 there were, with the pending enlargement of the EU and the end of the period for the Financial Instrument 1999-2003, calls for continued contributions from the EFTA/EEA states. The enlargement of the EU also means an enlargement of the EEA. This is regulated by Article 128 of the EEA agreement. Thus, the EEA agreement had to be extended with the accession of new EU member states. Not surprisingly it was the Spanish that were first in revealing a heightened EU ambition for the EFTA/EEA contributions. The Spanish Prime Minister, Mr Jos Mara Aznar, said that it was inevitable that Norway had to contribute to the eastern enlargement (Lund 2001). The Norwegian official, Mrs Oda Sletnes, who would play a key role in the negotiations, argued that the statement by Mr Aznar had to be seen as an important signal for Norway (Anda 2001).
The negotiations leading up to the EEA and Norwegian FMs 2004-2009 started the 9th of January in 2003 and were finalised the 6th of June the same year. The formal agreement was made the 3rd of July 2003 (Proposition No. 3 to the Storting (2003-2004) 2003: 9). The final agreement made sure that the EFTA/EEA states were to contribute with 600 million EUR to reductions of social and economic disparities in accordance to the newly made Protocol 38 A. Iceland and
Liechtenstein were responsible for about five per cent of the contribution in the EEA FM. In addition, a Norwegian FM was established which implied that Norway was to contribute with 567 million EUR. This meant that Norway was responsible for about 97 per cent of the total EFTA/EEA contributions of 1167 million EUR. The Norwegian mechanism came about as a result of the drastically increased demands from the EU negotiators coupled with a little willingness from the other two EFTA/EEA states to increase their contributions. Norways total
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contributions amounted to approximately 226.8 million EUR per year, or 1134 million EUR for the entire period (Proposition No. 3 to the Storting (2003-2004) 2003: 22-23). This represented an increase of about 1000 per cent in the Norwegian contributions in the period 2004-2009 compared to 1994-1998 and 1999-2003.
The EFTA/EEA states also received compensation for worsened terms of trade as a consequence of the loss of Free Trade Agreements (FTAs) with the Central and Eastern European countries (CEECs). Tariff quotas for fish were provided to Iceland and Norway. The Norwegian tariff quota for 2004-2009 is valued at approximately 90 million EUR or 18 million EUR per year (NMFCA 2010). This represents about 7.9 per cent of the value of the Norwegian contribution. Tariff quotas for agricultural products were provided to the EU but the magnitude of these was negligible (Proposition No. 3 to the Storting (2003-2004) 2003).
The distribution of the share of the beneficiary states was decided by an EU method used for internal redistribution. Thus, it was decided that Ireland and Northern Ireland were to receive no more funds from the EFTA/EEA FMs. However, Greece, Spain and Portugal would continue to receive support but only from the EFTA/EEA mechanism. The Norwegian mechanism was reserved for the new member states. The EFTA/EEA states ended up using a method based on Gross Domestic Product (GDP) instead of GNI when it came to deciding the distribution of payment obligations (Proposition No. 3 to the Storting (20032004) 2003: 23). The beneficiary states and their share (table 5):
Beneficiary States Poland Hungary Czech Rep Slovakia Lithuania Latvia Spain Financial Mechanisms 2004-2009 558,630,000 135,057,000 110,910,000 70,329,000 67,257,000 53,760,000 45,840,000 % total grants 47,97 % 11,57 % 9,50 % 6,03 % 5,76 % 4,61 % 3,93 % 43
GRA 1903 Master Thesis Greece Estonia Portugal Slovenia Cyprus Malta Total 34,260,000 32,760,000 31,320,000 18,594,000 4,662,000 3,621,000 1167,000,000
01.12.10 2,94 % 2,81 % 2,69% 1,59 % 0,40 % 0,31 % 100,11% (rounding)
The emphasis of the arrangements depends on what sort of mechanism one is considering. The main aim of the EEA FM is to reduce economic and social disparities in the European Economic Area (Protocol 38 A Article 1). The grants from the mechanism would be channelled toward
(a) protection of the environment, including the human environment, through, inter alia, reduction of pollution and promotion of renewable energy; (b) promotion of sustainable development through improved resource use and management; (c) conservation of European cultural heritage, including public transport, and urban renewal; (d) human resource development through, inter alia, promotion of education and training, strengthening of administrative or public service capacities of local government or its institutions as well as the democratic processes, which support it; (e) health and childcare.
Furthermore, academic research that targeted one or more of the mentioned priority sectors was eligible for support (Protocol 38 A Article 3 (1-2)).
The main aim of the Norwegian mechanism is broader than what is the case for the EEA FM. It shares the aim of the EEA FM in the sense that it is established in order to reduce social and economic disparities in the European Economic Area. Additionally, the Norwegian mechanism aims to contribute to the consolidation of the capacity of the new member states to take fully part in an enlarged European Economic Area internal market (Agreement Article 1 2003).
The Norwegian FM is channelled to projects in the same areas as the EEA FM. However, these areas would be given priority:
Implementation of Schengen acquis, support of National Schengen Action plans as well as strengthening the judiciary, Environment, i. a. with emphasis on strengthening the administrative capacity to implement relevant acquis and investments in infrastructure and technology with priority given to municipal waste management, 44
GRA 1903 Master Thesis Regional policy and cross-border activities, Technical assistance relation to implementation of acquis communautaire
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(Agreement Article 3 2003) The bilateral aspect of the support appears to be an important element. However, it is not mentioned in Protocol 38 A or in the Agreement on the Norwegian mechanism. The bilateral element is emphasised if one looks at the Memoranda of Understanding (MoUs) and the Recommendation No. 103 (2003-2004) (2003: 4). For instance, at page 2 in the Memorandum of Understanding (MoU) (both on the EEA and Norwegian mechanisms) of Poland, it is written:
WHEREAS the EEA Enlargement Agreement and the EEA Financial Mechanism/Norwegian Financial Mechanism will strengthen relations between the EFTA States and the Republic of Poland to the mutual benefit of their peoples
Furthermore, in the Recommendation 103 (2003-2004) (2003: 4 m.t.) one can read that Norwegian contributions must also promote Norwegian interests in the EU and strengthen our connections with the new member statesxvii. In addition to the bilateral element, the MoU have described cross-cutting aims that are not mentioned in Protocol 38 A or the Agreement (2003). At page 2 from both of Polands MoUs it is written that:
WHEREAS the enhanced co-operation between Norway and the Republic of Poland will contribute to securing a stable, peaceful and prosperous Europe, based on good governance, democratic institutions, the rule of law, respect for human rights and sustainable development.
In the agreement made in 2004, the Parties included a formal reference to the arrangements continuation. It was settled that one was to evaluate the need for continued future support in light of economic and social disparities in the EEAxviii (Proposition No. 3 to the Storting (2003-2004) 2003: 11 m.t.).
Furthermore, it was written in Protocol 38 A Article 9 that:

at the end of the five-year period and without prejudice to the rights and obligations under the agreement, the Contracting Parties will in the light of Article 115 of the agreement review the need to address economic and social disparities within the European Economic Area.
This is the first occurrence of both parties concluding that there is some automaticity in the EFTA/EEA contributions to reduction of disparities within the
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EEA. It is difficult to interpret this as anything else than a conditional acceptance from the EFTA/EEA side that one is committed to contribute to the economic and social cohesion in the EEA.
3.4.1 EXPLANATION 3.4.1.1 Asymmetry and Power In 2001, the former Norwegian Ambassador to the EU, Mr Bull, stated that Norway and the EU are David and Goliath in negotiations (Johnsen 2003)25. The Norwegian chief negotiator, Mr Bjrn Grydeland, pointed to the difficulties with regard to the great asymmetry of the negotiation parties:
We [Norway] must realise that these negotiations will be demanding. An EU with ten new member states will be 100 times the combined size of the EFTA/EEA states with regard to xix inhabitants .
Mr Grydeland also stated that the EU had become more powerful than before compared with the EFTA/EEA states (Skard and Ellingsen 2003a m.t.). The relationship post-accession would increase to 1: 100 as Mr Grydeland stated. Based on this one would expect an increase in the contributions. The final sum of the FM was ten times higher than in the previous round. This does resonate perfectly with a focus on power asymmetry if one only looks at snapshots of the realities in the negotiations on the EEA agreement in the early 1990s and the negotiation on financial contributions from the EFTA/EEA in relation to the Eastern enlargement. Such a perspective does seemingly provide a good answer to why the increase was precisely tenfold. However, the relation between the EFTA/EEA and the EU at the time of the negotiations in 1998/1999 was 1: 75. Thus, there is no perfect fit between the tenfold increase in the EFTA/EEA contributions and increase in the asymmetry from the agreement of the Financial Instrument in 1999 and the negotiations of the financial mechanisms in 2003/2004. The power asymmetry had increased drastically in the round of 1998/1999 without an increase in the sum of contributions.
25
Commenting on the final result, Rossavik (2003e) argued that the negotiations were like David, without a sling and stones, against Goliath. 46
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There are indications that the Poles did not feel that their interests were emphasised in the negotiations. Poland even brought the negotiations to a halt when everyone expected the agreement to be made. This indicates that more than the EUs size changed with the new countries entrance into the EU. The EU was not a united block which the approach of asymmetry implicitly is based on. One observes that the argument based on an increased power asymmetry has weaknesses in explaining the outcome of the agreements of the period 2004-2009. However, it should not be underestimated as a structural factor. The fact remains that there is a 1: 100 relationship in the size of the EFTA/EEA and the EU/EEA regardless of whether one thinks it is crucial or not. An argument of this thesis is that there is a lack of reasons to believe the law-like determinism of seeing the outcome as direct effect of the asymmetric relationship.
3.4.1.2 Strategy and Tactics A more convincing explanation can be found if one concentrates on the tactics and strategies of the EU in these negotiations. In past negotiations one observed that certain countries made unilateral threats and statements. In the negotiations in 2003/2004 it was the EU as an entity that made it clear that the EFTA/EEA states had to contribute. According to the Proposition No. 3 to the Storting (2003-2004) (2003: 22 m.t.) it became apparent that the EU side would raise questions of the continuation of the EEA agreementxx if the EFTA/EEA side was not willing to agree to a substantial increase of the contributions. From the Norwegian side it was emphasised that the future survival of the EEA agreement was the reality of the negotiationsxxi (Proposition No. 3 to the Storting (2003-2004) (2003: 13 m.t.)). There was no explicit threat against Norway in the negotiations as forwarded by Spain in 1998. Nevertheless, the signal was clear: pay more money or something bad will happen. It appears that the situation was seen as dramatic among Norwegian negotiators. In a proposition to the Storting, the Norwegian government claimed that there was no realistic alternative to the EEA agreement for us [Norway] to promote our [Norwegian] interests vis--vis the EUxxii (Proposition No. 3 to the Storting (2003-2004) 2003: 12 m.t). Seen from this perspective it should not be surprising that the EFTA/EEA satisfied EU demands.
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One can argue that the EU demands came as a surprise for the Norwegian negotiators who came to be compensated for loss of FTAs with the CEECs. At the same time, a future EU enlargement to the CEECs was a very likely development that the respective authorities had prepared themselves for. What was one to expect? If the EU demanded the same amount of money to the accession states as Spain received in annually from 1999-2003 one would end up at a demand of 182 million EUR per year, or 910 million EUR for the entire period. One had probably drawn out such scenarios in the Norwegian Ministry of Foreign Affairs. Thus, to hold that the Norwegian negotiators were completely surprised by the magnitude of the EUs demands does not seem plausible.
A crucial goal for the Norwegian negotiators was parallelism of the EU and EEA enlargements. This is argued for by the Norwegian government in Proposition No. 3 to the Storting (2003-2004) 2003: 14 m.t.): in order to maintain a coherent common market it is very important that the two agreements enter into effect simultaneouslyxxiii. An important element of the negotiations was therefore that the EU and the accession states finished their negotiations before they met EFTA/EEA states to discuss the criteria for EEA accession of the new states (Proposition No. 3 to the Storting (2003-2004) 2003: 25). This had at least three important consequences. First of all, the EFTA/EEA states met an EU part consisting of 25 states. This considerably reduced the win-set of the EU (Hopmann 1996). The compromises had already been made and this makes the mandate given to the negotiation team by the Council inflexible. Secondly, it also increased the number of veto players on the EU side (Tsebelis1995). Thirdly, time became an issue. Rossavik (2002a) reported in late October 2002 that the Norwegian authorities several times had called for negotiations on an extended EEA agreement. The EU had indicated that Norway had to wait for several months for the negotiations to start. Mr Jan Petersen (2002c) told the Stortings EEA Committee that the negotiations would start when the EU was done with negotiating its enlargement. In Proposition No. 3 to the Storting (2003-2004) (2003: 14 m.t.) one can read that the review [of the extended EEA agreement] had to be carried out in a short amount of time from the relevant texts from the EU enlargement was made available for the EFTA side at the end of the year [2002] and until the end of the negotiations of the EEA enlargement [June
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2003]xxiv. This clearly illustrates the time strain of the relevant Norwegian authorities. Threats are more powerful and credible if the party making it has a long time horizon as the EU had in the negotiation with the EFTA/EEA. The party with a shorter time-horizon might be willing to admit material concessions in return for speeding up the process (Elster 2007: 421). It is plausible that the EFTA/EEA side was vulnerable to anything resembling threats in these negotiations. The fact that this is an impression that one gets from reading Proposition No. 3 strengthens the explanatory power of this perspective.
3.4.1.3 Domestic Factors in Norway 3.4.1.3.1 Political An indication that Norwegian politics with regard to Europe is an important element in any understanding of the development of the financial arrangements can be observed by the fact that central political actors in Iceland were more outspoken than those in Norway. The Icelandic Chief Negotiator, Mr Johannsson, remarked that the support for Icelandic EU membership had dwindled from 60 to 20 per cent because of the EU demands. He continued by stating that the EU had to come back to earth in order for the negotiations to go anywhere (Anda 2003a). Stronger language was used in Dagbladet where Johannsson argued that the EUs demand was based on an absurd method of calculation which provides absurd figuresxxv (Skard and Moe 2003b m.t.). According to the Secretary General of the Icelandic Ministry of Foreign Affairs, Mr Gunnar Gunnarsson, based on the initial demands the Icelanders for a long time thought that the EU wanted to get rid of the EEA agreement. Mr Gunnarsson also stated that he was disappointed by the EUs conflictual behaviour (Nielsen 2003b).
There was little political opposition in the Storting to the outcome of the negotiation. SV and the Sp were not pleased with the outcomes. The Sp made calls to rely on the WTO rules for compensation in 2004. There have also been consistent calls for a study of alternatives to the EEA agreement. Mr Bjrn Jacobsen (2004 m.t.) from the SV characterised the outcome of the negotiations as poorxxvi and reasoned that this was because the government had put the Norwegian negotiators in a tough position by emphasising the lack of alternatives
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to the EEA. According to Mrs slaug Haga (2004), the leader of the Sp, she saw no reason to suspect the Norwegian negotiators for not doing their job. However, she argued that the result was worse than one could expect with regard to fish. According to Mrs Haga, Norway only received compensatory tariff quotas for three out of the 30 products that the Norwegian side demanded. She contrasted this to the outcome of similar negotiations with the EU membership of Austria, Finland, Portugal, Spain and Sweden in which Norway received compensation for all the quotas we [Norway] asked forxxvii.
The Norwegian authorities were criticised for being very secretive about the agreement. The 21st of May 2003, Anda (2003d) wrote in Dagens Nringsliv that the media had known every detail of the agreement for six weeks. The Norwegian authorities had decided not to comment on the deal. It was commented that this prevented a public debate about the result, and that this was embarrassing for a country that cherishes transparency. According to Mr Grydeland, this was a conscious information strategy which was blessed by the Office of the Prime Minister of Norway, Mr Bondevik (Anda 2003d). The agreement was confirmed by Norwegian authorities the 11th of June 2003 (Anda 2003e).
In the negotiations one observed a tendency toward a 50/50 solution. This might be a conscious strategy by the EU negotiators. In any case, it is a clever way of making life easier for Norwegian politicians. It is much easier to accept an outcome that one has bargained down 50 per cent than to accept the same outcome outright. As a politician one can hold that there was a lot of give and take, and finally one managed to end up at an outcome half of what was demanded. The sense of compromise is also something that creates more of a constructive negotiation. In the political debate in the Storting, most politicians were pleased with the Norwegian negotiators. Mr Inge Lnning (2004) from Hyre even went so far as saying that he felt some admiration for the result that the Norwegian negotiators had managed to achieve in the negotiations. However, it appears that the EFTA/EEA side was puzzled by the magnitude of the demand from the EU when the negotiations on the period 2004-2009 started. It is likely that one in later negotiations was more expectant of a steep increase.
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3.4.1.3.2 Collective Action A vital introduction to the negotiations on the period after 1999-2003 was tariff quotas for fish. In the past these had not been part of the negotiations on financial arrangements. Formally, these negotiations were still separate from the negotiations on financial arrangements. However, these negotiations were de facto intertwined. Thomas Schelling (1980: 32) shows that compensation is possible when two negotiations take place simultaneously. One can interpret that this is an important element of what happened when fish quotas became entangled in the negotiations from 2004.
Already in 2000, the EU ambassador to Norway, Mr Gerhard Sabathil, made clear that the EU was under no obligation to offer Norway compensation for losses of FTAs in the case of Eastern enlargement of the EU (Aftenposten 2000). Mr Jan Petersen (2002b) told the Stortings EEA Committee in September 2002 that the EU would not accept claims for compensation for existing trade in fish to the CEECs through FTAs. However, the Commission opened for negotiations on market access for fish already in the first meeting of the negotiations (Petersen 2003). The concession might be a way for the EU to throw Norway a fishbone as Frank Rossavik (2002b) called it. A source in the EU Commission confirmed that the Commission could provide quotas if the EFTA/EEA party paid (Rossavik 2003a). This means that the fisheries sector could be provided tariff quotas if Norway decided to substantially increase the countrys financial contributions. Mr Blankenborg (2002) told Mr Petersen from Hyre that the Ap would support the use of financial mechanisms as bargaining chips. The EU side demanded some compensation for historical levels of free trade between the EFTA/EEA and the CEECs. The outcome was marginal tariff quotas on certain specific agricultural products. This did not in any way threaten the Norwegian agricultural sector.
The outcome of the negotiations leading up to the FMs in the period 2004-2009 can be interpreted through sticking to the four basic interests in Norway. The farmers continued to be protected, the fishermen received tariff quotas and reassurance that foreign investment in the Norwegian fishing fleet was not an
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issue, the business/industry received continuation of access to a European market which now was substantially enlarged. The ones that bore the financial costs were the tax payers. The Norwegian people went from providing about 5 EUR per capita per year to the EU to providing about 47 EUR per capita per annum. This represented a tenfold increase compared to past periods. The extra financial burdens put on the Icelandic and Liectensteinian tax payer were smaller but substantial. The corresponding numbers were about 17 EUR and 21 EUR per year respectively.
3.4.1.4 Solidarity There are reasons to believe that the values and norms of the government headed by Mr Bondevik at the time of the negotiations in 2003/2004 had significance for the Norwegian views, if not the results, on the question of financial contributions to the CEECs. Mr Bondevik (2004) wrote an article in Aftenposten, one of the largest newspapers in Norway, where he called for an even more value-oriented foreign policy than in the past. He argued that the Norwegian foreign policy ought to develop into an ever stronger tool for promoting overarching goals as peace, freedom, reconciliation, democracy, human rights, poverty reduction and environmental sustainabilityxxviii (m.t). In the Prime Ministers traditional speech on New Years Eve he claimed that Norway ought to be a nation of solidarity (Nordlys 2005). Mr Petersen of Hyre, has argued that Norways international contributions demonstrate a set of Norwegian values implying that Norway has an obligation of helping other human beings to achieve a safer and a more worthy life (Harbo 2005). It is fair to assume that Mr Bondevik and Mr Petersen were important actors in drafting Norwegian positions prior to and during the negotiations.
It is plausible that both Mr Bondevik and Mr Petersen put considerable emphasis on the moral dimension of increased Norwegian contributions with the first Eastern enlargement of the EU. In the Storting there was some critique of the Norwegian negotiation strategy, but very few questioned the purpose itself or the virtue of the contributions. Norwegian foreign policy has traditionally emphasised values, and as we have seen this can also be said about the Bondevik government.
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The broad picture is that there exists a Norwegian foreign policy tradition of promoting values instead of pursuing narrow self interest. And from studying the Norwegian parliamentary debate it is clear that both political camps in the Norwegian party system generally considered an increase in Norwegian contributions to the CEECs as a moral obligation.
Despite all this, there are reasons to be sceptical to the significance of Norwegian altruistic values for the Norwegian position in the negotiations. Many of the Norwegian officials comments based on solidarity and values were made after the negotiations with the EU were over. During the parliamentary treatment of the outcome, slaug Haga (2004), the leader of the Sp, questioned the Norwegian governments arguments that the financial contribution was an expression of solidarity. She pointed to the fact that Poland was to become the largest receiver of Norwegian bilateral aid and that Poland was not exactly poor in comparison with other countries receiving aid from Norway. Mr Bjrn Jacobsen (2004 m.t.) from the SV argued that the need for contributions is greater in the countries that do not become part of the EU and therefore is not eligible for EU support in the same magnitude as the accession countriesxxix. Furthermore, if both the Norwegian Prime Minister and Minister of Foreign Affairs felt very strongly about Norways moral obligations, then why did they not accept the EUs initial demands of 500 million EUR per year? And why did the negotiations have to reach a standstill before the Norwegian delegation decided to substantially increase its offer through a separate Norwegian FM? Also, Norway had provided 375 million EUR to the Baltic states, of which half went to Russia, from 1989 to 2000 (Sverdrup 2004: 7). In comparison with todays sums this appears to be marginal. The original offer from the Norwegians in the negotiations in 2004 was to increase the countrys contributions from 25 million EUR to approximately 38 million EUR per year. Although this represented a 50 per cent increase, it is questionable that this could be seen as a great manifestation of Norwegian solidarity.
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3.4.1.5 Norway as a Free Rider The sense of Norway being a free rider was prevalent in the public debate both domestically and from the EU and its members. Percy Westerlund (Interview 2008 m.t.) admits that behind the EUs rational and logical arguments, although not explicitly expressed there was perhaps an impression of free riding if these countries [Norway, Iceland and Liechtenstein] did not contribute morexxx . There were actors in Norway that believed compensation for loss of FTAs with the CEECs was something that should be brought to the WTO. This was the message from the leader of the Sp, Mrs Haga, in the Stortings debate on Proposition No. 3 to the Storting (2003-2004) (2004). Parliamentarian from the Ap and Member of the Norwegian Stortings SCFAD, Mr Haakon Blankenborg, did not doubt that Norway was in the right when it came to the question of compensation. However, he was of the opinion that Norway should be cooperative with regard to the enlargement. One of Mr Blankenborgs (2002) main concerns was the impression the EU states would get of Norway if the country only presented one-sided demands. Mr Blankenborg (2003) presumably echoed the prevailing conception of the Norwegian WTO right to compensation for loss of trade in fish. He was very pragmatic and argued that it was the result that counted and not the principle. Norway did not have the time to clear this up. This sentiment was shared by Inge Lnning (2003) from Hyre.
The Swedish Minister of Commerce at the time of the negotiations on the period 2004-2009, Mr Leif Pagrotsky, emphasised that it was completely fair that Norway should contribute substantially to the Eastern enlargement of the EU. Mr Pagrotsky emphasised this by highlighting the considerable difference between the Swedish annual contributions to the EU of 2500 million EUR and Norways contributions of 25 million EUR (NTB 2003b). However, Mr Pagrotsky presented the gross number for Swedish contribution. The net balance for Sweden was about 1500 million EUR in 2008 (Folketinget 2010). The Swedish Prime Minister, Mr Gran Persson claimed that it was reasonable that Norway, the richest country in Europe, should pay more than it did at the time. He commented that it would be very odd if Europes richest country, that wants access to the market, was not to pay as much as Sweden with our weak economy and Denmark and Finland with their weak economiesxxxi (NTB 2003a m.t). However, Mr Jan Petersen, found that
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Mr Gran Persson had presented the costs for Sweden of the enlargement as around 90 million EUR. Mr Petersen commented that Norway with half the population of Sweden should be expected to pay half the calculated Swedish expenses about 45 million EUR (Eltvik 2003). Mr Gerhard Sabathil argued in a similar manner as Mr Pagrotsky and Mr Persson. He emphasised that Norway would become twice as rich as the EU after the enlargement. On the question of whether Norway should have to pay as much as EU members, he answered that every member of the common market should contribute equally. He continued by emphasising that we now have the chance to make the arrangements fairxxxii (Johnsen 2002 m.t). Behind this argument one can assume that he considered the old arrangements unfair.
It is difficult to interpret Pagrotsky, Persson and Sabathils comments in any other way than implying that Norway had been a free rider. Mr Westerlund argued, based on the fact that considerably poorer EU countries contributed, that he had difficulties understanding why the EFTA states should not contributexxxiii. He also shared the views of Sabathil that the former arrangements were unreasonablexxxiv. Mr. Westerlund stated that the EU cannot afford to let its wealthiest friends participate on equal terms in the common market without contributing with a sum corresponding to their economic strengthxxxv (Ids 2003 m.t.). Mr Gerhard Sabathil stated that he was not impressed by prior Norwegian contributions to the Eastern accession countries. It was noted that it should be considered that since 1990, the EU had provided 25 billion EUR to the 12 accession countries (Johnsen 2002).
Mr Jan Petersen (2002d m.t.), from Hyre stated that he was of the opinion that it was important that one is not left with the impression that Norway is a country that merely seeks benefits[...]Norway is a country that contributes to the common goodxxxvi. In the Storting Fridtjof Frank Gundersen from the FrP already in 2000 (m.t.) commented that
many Europeans are increasingly displeased with the fact that we despite possessing considerable wealth, refuse to show solidarity and contribute to Europes development. We should try to do something to reverse this image[...]There should be no doubt about our solidarity with the xxxvii European states[...]No one should get the impression that we only care about ourselves .
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One sees that even FrP which has a moderate profile when it comes to foreign aid is concerned with how the surroundings see Norway.
The EU side has often stressed that the EFTA/EEA states are treated as members apart from agriculture and fish which the EFTA/EEA states decided to keep out of the EEA agreement. However, this view has been challenged by representatives from the EFTA/EEA. Mr Johannsson reminded about the steel conflict in which the EFTA/EEA states were hurt by a trade war in which they played no part other than being a non-member of the EU (Hellstrm 2003). This point was also emphasised by the Norwegians. In addition, the political debate has also evolved around the so-called Salmon case in which anti-dumping measures were implemented by the EU against imported salmon from Norway. The dispute ended up in the WTO. The EUs anti-dumping measures were ruled to be in conflict with WTO regulations. After this the EU lifted trade sanctions on Norwegian salmon. However, this illustrates the uncertainty Norwegian businesses face through the EEA agreement. This is an element that is pointed to by Norwegian politicians when the EU side argues that Norway has a privileged market access and is treated as EU members.
3.4.1.6 Bilateral Relation and Soft Power It is argued that the separate arrangement was set-up in order to increase the visibility of this contribution (PWC 2008: 16). One wanted to strengthen the visibility of the EEA agreement and Norway through the arrangements made in relation to the EU enlargements. This was increasingly important as attention became harder to achieve in an enlarged EU. The State Secretary of the Norwegian Ministry of Foreign Affairs, Mr Kim Traavik, argued in early 2002 that the EU Commission had lost much of its institutional memory. This makes the Commission more rigid and legalistic in its approach to Norway (Hellstrm 2002a). Mr Jan Petersen from Hyre, (2002a m.t.), made it clear that the
knowledge about the EEA agreement is something that Norway must fight for every dayxxxviii. Norway is very interested in taking part of several EU projects and programs that it does not have formal rights to participate in. In other words, Norwegians rely on goodwill from the EU in order to be accepted as a participant
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in initiatives such as EUs battle groups and R&D programmes. This goodwill is increasingly difficult to receive in a pre-occupied EU. Thus, one could hold that the contributions partly were agreed to in order for Norway to be welcomed to participate in EU programs and generally heighten the countrys attention. The focus on bilateral relations were emphasised in the MoUs of the period from 2004-2009, but not in the Agreement (2003) or in Protocol 38 A.
One might pose questions of how visible these grants are. It should be noted that the EFTA/EEA states contribution in the period 2004-2009 represents 0.01 to 0.05 per cent of the beneficiary states GDP. The corresponding numbers for the EU support is 2.1 to 4.9 per cent (PWC 2008: 17). Yet it is fair to argue that the resources are given attention in the beneficiary states through the negotiations of the MoUs and among the actors that apply for the grants. Also it is elites that provide Norway with access and arguably they are perhaps the main audience for the Norwegian contributions. Thus, Norwegian officials can hold that Norway contributes at comparable scale as the other richer EU countries which might be a valuable fact in other dealings with the EU. However, the point that Norway decided to contribute in order to promote Norways access and soft power is weakened by the fact that Norway initially was unwilling to substantially increase its contributions. Many politicians also raised their eyebrows because of the steep increase in the EU demands. According to former Norwegian Prime Minister and Minister of the NMFA, and then leader of the SCFAD, Mr Thorbjrn Jagland, the negotiated outcome for the period 2004-2009 should make people pen their eyes (Moe 2004). It is questionable whether to achieve access and soft power was an intended strategy from the Norwegian government. However, the arrangements are justified and rationalised on this basis.
3.4.1.7 EU Politics Since 2003/2004 the negotiations on tariff quotas for fish have become connected to the negotiations on the financial arrangements. Some countries have common interest with Norway when it comes to fish. This is true especially for the Baltic states and Poland. In the negotiations in 2003/2004, it was easy to see that there were conflicts inside of the EU. Poland was reportedly more than content with the
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negotiated financial arrangements for the period 2004-2009. For instance, the Polish Chief Negotiator, Mr Truszczynski, stated that Poland was very happy with the financial contributions from the EFTA/EEA states (Rossavik 2003b). Yet, the parallel negotiation on fish was a huge disappointment for these countries. Poland accused the Commission of ignoring the countrys interests which had been known for quite a while. Reportedly, Polands views were supported by the Baltic states (Anda 2003b). This culminated in a stand still caused by Polish rejection of the negotiated agreement after one thought that the terms had been agreed to by the EFTA/EEA states and the EU. The Polish State Secretary of the Ministry of Foreign Affairs, Mrs Danuta Hbner, remarked that Polands rejection should not come as a surprise. According to her, Polands position was well known for the EU Commission (Anda 2003c). The 15th of June 2003, the EFTA group of the EU Council of Ministers convened. Poland met with officials from Spain and Portugal in the hope that this meeting would create dynamism (Rossavik 2003c).
There was also an element of frustration among the accession states with being treated as outsiders. This was not acceptable to the Poles who at the same time used the opportunity to show their new intentions as an EU member. The Director of the Polish Ministry of Foreign Affairs EU department, Mr Pawel Swieboda, confirmed that there were political reasons for the Polish rejection of the agreement on the extended EEA. Mr Swieboda stated that Poland had to demonstrate that it would not let its interests go unnoticed. He commented that we [Poland] were not in yet; therefore we were expected to be content with anythingxxxix (Rossavik 2003d m.t.). After some time, and marginal technical changes to the agreement, the negotiations ended.
3.4.3.8 Path Dependence The EU did not even justify its calls for the continuation of the arrangement for the period 2004-2009. Rather, it was taken for granted that the EFTA/EEA states were to contribute. This reminds a lot of the discussion on Norway being a free rider. However, a great difference is that this explanation is based on article 115 of the EEA agreement and that the establishment of the EEA and Norwegian FMs
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for the period 2004-2009 has its roots in the establishment of the FM 1994-1998 and the continuation of this support in 1999. Further, the EFTA/EEA states committed themselves in the light of article 115 to review the need for continuation of the contribution. This is the first time the EFTA/EEA states commit themselves to future support. Based on the fact that no one expected the CEECs to not be eligible for further support, this was in essence the same as stating that one would contribute in the future.
The EFTA/EEA states established a bureaucracy, the Financial Mechanism Office (FMO), in order to administer the arrangements. This might be an indication that the FMs were seen as a permanent feature of the EEA agreement. The establishment of the FMO created new stakeholders and increased the institutionalisation of the arrangements.
The new arrangement was again based on the old Protocol 38. This can just be a coincidence. Yet, one can hold that the emphasis from the Norwegian side that the Financial Instrument 1999-2003 was based on Protocol 31 means that the new arrangement being based on Protocol 38 is was an important aspect.
It seems that a notion of the Norwegian government was that this type of contribution was a one-time payment in connection with enlargements of the EU. Such a view is expressed in Proposition No. 3 to the Storting (2003-2004) (2003: 12 m.t.) in which one can read that one sees the Norwegian contributions to the FMs as a direct cost of the EEA enlargementxl. This runs contrary to the experience of the negotiations for the period 1999-2003 in which the number of recipients actually decreased. The EFTA/EEA states did not decrease their support to the beneficiary states in the period 1999-2003.
The fact that Greece, Portugal and Spain remained in the EFTA/EEA FM, which to a great degree can be seen as the specific continuation of the Financial Instrument, illustrates that this arrangement has become support that the old beneficiary states see themselves as rightful receivers of. This exemplifies how expectations can be tied to existing arrangements. If Norway had the wish to
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channel resources away from the old beneficiary states it had to establish a new mechanism. The exclusion from the Norwegian FM was clearly not seen as a great problem by the old beneficiary states. One can argue that the reason for this is that it is a new arrangement which the Mediterranean beneficiary states have never been a part of and therefore tied no expectations to.
Switzerland first began contributing through an agreed substantial financial mechanism to poorer regions of the EU in 2007. Until that it did not contribute and thus adds to the explanatory power of path dependence. No part of the Swiss support was channeled to Greece, Portugal or Spain when Switzerland started contributing. Norway contributes to these countries to this day.
3.5 The EEA Financial Mechanism and Norway Grants 2007-2009

Based on Article 128 of the EEA agreement an extension of the agreement was needed with the pending EU membership of Bulgaria and Romania. Thus, an EU enlargement meant that the EEA agreement also had to be modified. According to Mr Olli Rehn in late April 2006, the then EU Commissioner for Enlargement, stated that the EUs demands with regard to the accession of Bulgaria and Romania would not surprise Norwegians. The same logic would be used in the EEA enlargement of Bulgaria and Romania as in the negotiations of the first Eastern enlargement. According to centrally placed sources this meant that the EFTA/EEA states had to contribute yearly with 70 million EUR extra (Skjvesland 2006a). An official document from the Norwegian EU delegation showed that the Norwegian negotiators were mandated to increase Norways contributions with maximum 31.25 million EUR per year to Bulgaria and Romania. Thus, the distance between the Parties was substantial (Ask 2006).
The State Secretary of the Norwegian Ministry of Foreign Affairs, Mrs Liv Monica Stubholt, reportedly in a meeting the 27th of October 2006 rejected initial demands from the EU implying that the EFTA/EEA states were to contribute with
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72 million EUR per year to Bulgaria and Romania (Skjvesland 2006b). Mrs Stubholt confirmed that there was no expectation of reaching an agreement before the end of 2006. She also stated that a clear Norwegian starting point was that its contribution should be channelled through a common EFTA/EEA financial arrangement and not through the EU budget (Vermes 2006).
The negotiations on the conditions of the EEA enlargement of Bulgaria and Romania lasted from 5th of July 2006 to 29th of March 2007. In late January 2007, the Norwegian Minister of Foreign Affairs, Mr Jonas Gahr Stre, indicated that a solution to the disagreement between the EFTA/EEA and the EU could be solved with a more bilateral structure of the Norwegian support (Aftenposten 2007). The agreements were signed July 2007. It was agreed that Iceland, Liechtenstein and Norway were to contribute with 72 million EUR through the period lasting from 1st of January 2007 to 30th of April 200926 (Proposition No. 72 to the Storting (2006-2007) 2007: 31)). The EFTA/EEA was to contribute with 140 million EUR according to Addendum to Protocol 38 A and the Agreements between Norway and the beneficiary states (2007a+b). Of this sum, Norway was responsible for 136 out of 140 million EUR. As in the agreement of the 2004-2009 negotiations, a separate Norwegian channel, Norway Grants, was established. However, this arrangement was administered by Innovation Norway rather than the FMO. Norway was to contribute with 68 million EUR through this mechanism. Norway received some tariff quotas as compensation and some technical barriers for Norwegian tariff quotas were struck down (Proposition No. 72 (2006-2007) 2007: 7). The value of the negotiated tariff quotas was calculated as being about 9 million EUR or 3.6 million EUR annually. This represents about 6.6 per cent of the value of the Norwegian contribution.
As in the previous financial arrangements the distribution of the share of the beneficiary states was decided by an EU method used for internal redistribution (Proposition No. 72 to the Storting (2006-2007) 2007: 15). The EFTA/EEA states used a method based on GDP instead of GNI when it came to deciding the
26
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distribution of payment obligations (Proposition No. 72 to the Storting (20062007) 2007: 15 see footnote 2). Beneficiary states and their share (table 6):
Beneficiary States Bulgaria Romania Total Financial Mechanisms 2007-2009 41,500,000 98,500,000 140,000,000 % of total 29,64 % 70,36 % 100,00 %
Million EUR. FMO 2010 The main aim of the EEA FM 2007-2009 was the same as for the EEA FM 2009. The goal was to contribute to the reduction of economic and social disparities in the European Economic Area through the financing of grants to investment and development projects (Addendum to Protocol 38 A). The sectors covered by this mechanism were the same as for the EEA FM 2004-2009. One also established a new Norwegian bilateral channel for contributions. This was independent of the existing Norwegian FM. The main aim of the new Norwegian FM was to promote social and economic development [in Bulgaria and Romania] through bilateral cooperation projects between the Parties (Agreements 2007a+b). The Norwegian arrangement was meant to offer more flexibility and a greater focus on partnerships. The sectors covered by this arrangement were:
reduction of greenhouse gas emissions, including Joint Implementation projects under the Kyoto Protocol, and other emissions in air and water, energy efficiency and renewable energy, facilitating sustainable production, including certification and verification.
(Agreement Article4 2007a + b) Furthermore, in Bulgarias case a fourth priority sector was implementation of Schengen acquis, support of National Schengen Plans as well as strengthening the judiciary. For Romania a fourth priority sectors was health. Activities eligible for support were, among other things, innovation, human resource-development, networking, capacity-building, technology transfer and research and development (Agreement Article7 2007a + b). Moreover, the Norwegian side emphasised that the social partners were free to participate in these projects (Proposition No. 72 to the Storting (2006-2007) 2007: 6).
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The bilateral element of the new arrangement is not reflected in Addendum to Protocol 38 A. However, it was alluded to in the article 1 in the agreements between Norway and the Beneficiary states. It was stated in clearer terms in the MoUs for the EEA Grants of Bulgaria and Romania. In their foreword at page 2 it is written that:
WHEREAS the Agreement of 25 July 2007 on the Participation of the Republic of Bulgaria and Romania in the European Economic Area and the EEA Financial Mechanism will strengthen relations between the EFTA States and the Beneficiary State to the mutual benefit of their peoples;
Additionally, the MoU states some underlying goals that were not mentioned in the Addendum to Protocol 38 A. This is from page 2 of the foreword in the MoU for the EEA Grants for Romania:
WHEREAS the enhanced co-operation between the EFTA States and the Beneficiary State will contribute to securing a stable, peaceful and prosperous Europe, based on good governance, democratic institutions, the rule of law, respect for human rights and sustainable development.
One did not negotiate MoUs for the Norwegian mechanism. Formally, Innovation Norway is responsible for the administration of the contributions to two countries in the period 2007-2009. However, the Norwegian Ministry of Foreign Affairs have the overarching responsibility for the implementation of both the Norwegian arrangements (Proposition No. 72 to the Storting (2006-2007) (2007: 31)).
Article 9 of Protocol 38 A about the conditional continuation of support also applied to the arrangements lasting from 2007 to 2009 for Bulgaria and Romania. The need for further contributions would thus be reviewed after the end of the arrangement.
3.5.1 EXPLANATION 3.5.1.1 Asymmetry and Power The asymmetric relationship between the EFTA/EEA and the EU increased with the EU accession of Bulgaria and Romania. Yet it seems that these negotiations did not have the same attention of the EU member states as the one leading up to the FMs 2004-2009. Only contributions to the two accession states were to be negotiated on. This means that the EFTA/EEA side did not meet the entire EU at
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the negotiation table. Thus, one can perhaps argue that the asymmetry did not play such an important part in the negotiations. However, one can argue that the structural asymmetry of power continued to play its part. There are indications that neither Iceland nor Norway was interested in negotiating further contributions until 2009. Nevertheless, they had to. Thus, one can argue that the reason for the negotiation to take place altogether was power asymmetry.
3.5.1.2 Strategy and Tactics This round actually saw the member states of the EU deciding in early February 2007 that new legislative acts would not be implemented in the EEA until one agreed on an extended EEA agreement. This did not create immediate concerns among the Norwegian negotiators. This is a different situation to the previous round in which vague threats were emphasised in the Proposition No. 3. One might argue that the parallelism of the EU and the EEA agreements were not as crucial for the Norwegian as was the parallelism of the former enlargements. However, it is clear that a long-term freeze of the dynamism of the EEA agreement would be damaging for Norway.
It was argued from the Norwegian side that one needed to take into account the absorption capacity of Bulgaria and Romania with regard to the size of the grants (Proposition No. 72 to the Storting (2006-2007) 2007: 14). At the following page one can read that one must take into account the risks that is associated with project work in Bulgaria and Romania. In the same proposition it is written that even though the administrative apparatus is continuously developing and strengthening, both countries still have many challenges with regard to good governance of the public administration. The Norwegian side therefore deemed it necessary to have in place good routines with clear demands for control and auditing (Proposition No. 72 to the Storting (2006-2007) 2007: 15). Norwegian negotiators pointed to the fact that the EU had decreased its planned support to the two accession countries because of the lack of capacity in the two countries to absorb the funds. These countries were to receive 28 per cent of the EUs Cohesion Fund for the EUs budget period 2007-2013. However, they ended up being allocated 12 per cent. As a consequence, Norway called for a corresponding
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reduction in the EUs demands for contribution from the EFTA/EEA states (Ask 2006a). Norwegian remarks that the EU planned on cutting significant amounts of support to Bulgaria and Romania did not lead to cuts in the demanded EFTA/EEA contributions. It appears that the EU has an opinion that the EFTA/EEA states should follow what the EU says and not what it does.
3.5.1.3 Domestic Factors in Norway 3.5.1.3.1 Political In 2006/2007, the sitting government was a majority government that consisted of the three parties Ap, SV and the Sp. The Sp and the SV are the most ardent EU sceptics in the Norwegian party system. As one saw in the previous negotiation round, SV and the SP were the only parties in the Storting that were outspokenly negative to the deal. The Ap is in favour of European integration, despite the EU issue being a divisive one for the party. It should also be noted that the Ap is by far the greatest party in the majority coalition. The government in power during the negotiations in 2006/2007 is the same government that was in power during the latest negotiations.
Mrs Liv Monica Stubholt had already indicated that this negotiation would be a testing ground for the new governments active European policy. Mrs Haga, the leader of the Sp and staunch critic of the negotiated agreement in 2003, became a member of the majority coalition red/green government of Norway. She warned that the new government was prepared to stand up against the EU (Mellvang-Berg 2005). Thus, there was some prestige among some politicians to achieve a better deal than the previous government.
The 2nd of February, the EU decided to freeze the EEA agreement. However, this was not seen as very dramatic by the Norwegian negotiation team (Skjvesland and Ask 2007). According to former Secretary of the EEA Joint Committee and future leader of the Europabevegelsen27, Mr Paal Frisvold, the Norwegian Government had known about the EU sanction in 14 days and kept it secret for
27
The equivalent of the pro-EU membership organisation in Norway. 65
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the Norwegian public (Egede-Nissen et al. 2007). This might confirm the sense that these negotiations take place away from the public eye and therefore imply little expectations from the Norwegian political scene.
3.5.1.3.2 Collective Action The trade between the accession countries and the EFTA/EEA side had not been substantial. Thus, there were no calls from the EU to create tariff quotas for agricultural products. Neither were there genuine calls for compensation of lost FTAs with the accession countries. However, a link had been established between market access for seafood on the one hand and the financial arrangements on the other. In this regard, one can argue that compensation for lost free trade became an important issue also in the negotiations on the period 2007-2009. Norway wanted permanent tariff quotas but the EU negotiators did not accommodate this wish. Norway received some tariff quotas as compensation and some technical barriers for Norwegian tariff quotas were struck down (Proposition No. 72 (20062007) 2007: 7). The estimated value of the quotas was 9 million EUR or 3.6 million per year. The value of the compensatory quotas for fish was one per cent smaller than what was achieved in the previous negotiation. However, the Norwegian authorities were generally pleased with the outcome. Norway both received larger tariff quotas and importantly got rid of some technical barriers (Proposition No. 72 (2006-2007) 2007: 18). The status quo was preserved with some additional costs to the tax payer.
3.5.1.4 Solidarity There are reasons to believe that solidarity did not play a considerable part in the decision of the EFTA/EEA to increase their contributions through including Bulgaria and Romania in the financial arrangements. The accession countries were poorer than those that had joined in the former round and therefore were more deserving of support from a normative point of view. However, signals from Iceland and Norway were not forthcoming to the demands from the EU. Mr Jonas Gahr Stre from the Ap stated that there was no legal obligation on the EFTA/EEA states to increase their contributions. Mr Gahr Stre was of the opinion that the EU had no basis in their demands for more contributions. The
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Icelandic Minister of Foreign Affairs, Mrs Valgerur Sverrissn, stated that there was no reason to establish new mechanisms as the existing EFTA/EEA financial arrangements were not to be renegotiated until 2009 (Christensen 2006). Contrary to the past round, there had been no clear expression that Norway would assist these countries through EFTA/EEA contributions. If one believes that this support is provided out of solidarity this is perhaps particularly surprising, given that Bulgaria and Romania are clearly among the poorer of the latest EU member states. If the rationale for providing more contributions had been solidarity, the EFTA/EEA side would not be so hesitant to provide support to these countries.
3.5.1.5 Bilateral Relation and Soft Power The Norway Grants 2007-2009 (the Norwegian arrangement that was set-up) was seen as a great way for Norwegian actors to get involved in Bulgaria and Romania. All approved projects of the Norway Grants 2007-2009 had to have a Norwegian partner. The priority sectors were also channelled to areas in which Norwegian actors had competencies. (Proposition No. 72 to the Storting (20062007) 2007: 14). In this sense, it was the arrangement that had the most Norwegian and bilateral component yet. This was also a development that was welcomed by the SCFAD (see Recommendation No. 257 to the Storting) and the Storting (2007). The priorities and design of the Norwegian arrangement for the period was much more in line with Norwegian interests than the existing EEA and Norwegian FMs. In this regard, one can argue that the Norwegian government managed to obtain a better agreement than the previous government. However, one should keep in mind the short time horizon of the deal. It would only be in place for two years and four months. This might have tempted the EU to a greater degree than before to let Norway take care of the arrangement. For instance, the projects supported by the Norway Grants 2007-2009 did not have to be screened by the Commission, which is normal practice for the other arrangements. This is an indication that the EU was lenient with regard to demands toward the set-up of the arrangements. It is also worth remembering that half the money would be channelled to the existing EEA FM. However, one observed that Norway was very hesitant with regard to increasing their contribution. It seems that arguments about bilateral relations or soft power to a large extent were used only in order to rationalise or legitimise the contribution after the fact.
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3.5.1.6 EU Politics It appears that the negotiation for the period 2007-2009 was straightforward to with regard to EU politics. An important principle for the Commission, Bulgaria and Romania in the negotiations on the period 2007-2009 was non-discrimination compared to the ten new EU and EEA members when it came to the contributions (Proposition No. 72 to the Storting (2006-2007) 2007: 13). Seemingly, there was no zero-sum game apart from between Bulgaria and Romania. The short timehorizon of the agreement also made the negotiation parts more pragmatic in this round. As explained in the section about EU strategy and tactics, the EU went to the drastic step of freezing the EEA agreement. However, this did not have anything to do with internal politics in the EU.
3.5.1.7 Path Dependence Norwegian authorities argued that one was committed at the end of the current period to review the need for continued aid in order to reduce economic and social disparities within the EEAxli. This indicates that the financial arrangements are regarded as a long-term measure. At the same time all signatories agreed that the different financial mechanisms that have been negotiated shall not create precedence for the time after they end on the 30th of April 2009xlii (Proposition No. 72 to the Storting (2006-2007) 2007: 15 m.t.). This can either mean that the Norwegian government genuinely believed that there was a possibility that the arrangements were to end after April 2009. More likely, the reason that one felt the need to specify this was that one knew that the precedence in reality had been established and confirmed with the agreement in 2007.
The Commission initially presented calculations showing that the EFTA/EEA countries ought to contribute 165.9 million EUR in the period 2007-2009. This calculation was merely a technical operation in which the Commission based their numbers on the previous arrangements for the period 2004-2009. Norway did not agree that this was proper as these were technically a new set of negotiation of the adjustments to an extended EEA agreement. (Proposition No. 72 to the Storting (2006-2007) 2007: 14).
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Liechtenstein (2007) officially made clear the principle that EFTA/EEA states should receive a reduction of contributions in the case that not all countries qualify for contributions the next period. Liechtenstein (2007) declared that:
at the review foreseen in Article 9 of Protocol 38a any possibly agreed further financial arrangement will take into account the already achieved reductions of economic and social disparities so as to reduce contributions by the three EFTA States proportionately, if one or more of the current Beneficiary States does not further qualify for funding under such an arrangement.
Norway or Iceland did not put forward such a statement. This can mean that the quietly acquiesced or that they were concerned with potential consequences. The Liectensteinian statement about the application of objective rules can be interpreted as confirming the view that this arrangement was seen as a permanent feature of the EEA agreement.
3.6 The EEA and Norwegian Financial Mechanisms (2009-2014)

In late March 2008, a spokesperson for the EU Commission, Mrs Christiane Hohman, revealed that a negotiation mandate was being prepared for a negotiation on another period with financial arrangements. No precise figures were being presented. However, it was expected that the contribution demanded by the EU would represent a considerable increase. According to centrally placed source, the demand from the EU would be around a 50 per cent increase in the next period (Mellvang-Berg 2008a). A spokesperson in the NMFA, Mr Bjrn Johansen, commented that Norways position was that there was no legal obligation for Norway to continue its support (Ask 2008).
The EU Commissions Chief Negotiator and former EU ambassador to Norway, Mr Alan Seatter, called for EFTA/EEA solidarity when the negotiations started the 26th of September 2008. He remarked that the challenges of many of the new member states had increased, therefore an increase of the contributions was called for. The Norwegian Chief Negotiator, Mrs Oda Sletnes, argued that the EU had presented no good arguments that would warrant calls for an increase in the
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contributions. Mrs Sletnes also strongly hinted that Norway would demand that Spain would not be included in future arrangement (Mellvang-Berg 2008c). She signalled that the Norwegian view was that no increases in the contributions should occur (Eltvik 2008b).
The negotiations on the new mechanisms started in September 2008. The outcome of the negotiations was revealed right before Christmas 2009. The negotiations were formally ended on the 18th of December 2009, but the final agreement was not signed until the 28th of July 2010. The new agreement implies that the EFTA/EEA states shall make available 1788.5 million EUR in the period 1st of May 2009 the 30th of April 2014 (Proposition 160 (2009-2010) 2010: 1). As in the previous arrangements one is to channel the funds through two separate mechanisms. The EFTA/EEA countries will provide 988.5 million EUR toward the EEA FM 2009-2014. Norway will make available 800 million EUR through the separate Norwegian FM. Norway is responsible for 97 per cent for the total expenditure. This represents about 1740 million EUR which means that Norway is committed to contribute about 349 million EUR annually. This represented an increase of the Norwegian contributions of 22 per cent compared to the period 2004-2009 (including the contributions to Bulgaria and Romania). Mrs Sletnes commented that 10 per cent represented inflation adjustment, so the real increase was only 12 per cent (Mellvang-Berg 2009e). In addition, Norway received tariff quotas for fish which the NMFCA (2010) value at about 130 million EUR, or about 26 million EUR per year. This represents approximately 7.5 per cent of the total contribution from Norway.
The financial crisis served as a context for the negotiations. At the EFTA/EEA side it was agreed that Iceland would not have to face increases in their contribution compared to the last two years. This meant that Iceland were at most responsible for annual contributions of 6.795 million EUR (Proposition 160 S (2009-2010) 2010: 4). Apart from this the distribution of expenditures is decided by the states GDP. The internal distribution key for the contributions is decided by the EU (Proposition 160 S (2009-2010) 2010: 4). An important example is Spain which does not anymore qualify for support by the EUs own calculations. However, a transitional arrangement is in place in the EU for the budget period
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2007-2013. This has meant that transitional arrangements have been established also in the EFTA/EEA support. This implies that Spain will be given 45.85 million EUR in the period 1st of May 2009 31st of December 2013 (Proposition 160 S (2009-2010) 2010: 4).
Beneficiary states and their share (table 7):

Beneficiary States Poland Romania Hungary Czech Rep Bulgaria Lithuania Slovakia Latvia Greece Portugal Estonia Spain Slovenia Cyprus Malta Total Financial Mechanisms 2009-2014 578,100,000 305,950,000 153,300,000 131,800,000 126,600,000 84,000,000 80,750,000 72,950,000 63,400,000 57,950,000 48,600,000 45,850,000 26,900,000 7,850,000 4,500,000 1788,500,000 % of total 32,32 % 17,11 % 8,57 % 7,37 % 7,08 % 4,70 % 4,51 % 4,08 % 3,55 % 3,24 % 2,72 % 2,56 % 1,50 % 0,44 % 0,25 % 100 %
Million EUR. Proposition 160 S (2009-2010) 2010: 5)
The main aim as described in Protocol 38 B Article 1 is still to contribute to the reduction of economic and social disparities in the European Economic Area. Moreover, the new Protocols article 1 has a bilateral element as well. One can read that the agreement is intended to contribute to the strengthening of their [the EFTA/EEA states] relations with the Beneficiary States (Protocol 38 B Article 1). The Article 1 of the Norwegian Agreement is similar. However, it is emphasised that the agreement lasts for five years. The aim mentioned in article 1 is that Norway undertakes to contribute for a five year period to the reduction of
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economic and social disparities in the European Economic Area, and to the strengthening of its relations with the Beneficiary States. One can observe how the bilateral emphasis has gone from the MoUs of the different beneficiary states to becoming one of the main emphases of the arrangements. The priority sectors of the EEA FM are: Environmental protection and management Climate change and renewable energy Civil society Human and social development Protecting cultural heritage
Support will also be provided to academic research granted that it is targeted toward any of the abovementioned sectors. A new feature of the support is that the priority of some of the priority sectors is quantified. It is made clear that the two environmental priority sectors together are indicatively allocated 30 per cent of the grants. Further, the civil society sector is indicatively allocated 10 per cent of the EEA Grants (Protocol 38 B Article 3). The priorities of the Norwegian FM are: Carbon Capture and Storage Green Industry Innovation Research and Scholarship Human and Social Development Justice and Home Affairs Promotion of Decent Work and Tripartite Dialogue
The support of the priority sector called Carbon Capture and Storage is targeted to amount to 20 per cent of the Norwegian FM. In addition, the Norwegian FM will set up funds for the Promotion of Decent Work and Tripartite Dialogue which one per cent of the arrangements allocation to the beneficiary states will be distributed (Agreement Article 3 2009). This fund will likely be managed by Innovation Norway.
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It was written in Protocol 38 B Article 9 that:

at the end of the five-year period and without prejudice to the rights and obligations under the agreement, the Contracting Parties will in the light of Article 115 of the agreement review the need to address economic and social disparities within the European Economic Area.
This is exactly the wording of Article 9 of Protocol 38 A which was set-up for the period 2004 to 2009.
3.6.1 EXPLANATION 3.6.1.1 Asymmetry and Power The EU now consisted of 27 member states. 15 of these had a direct stake in these negotiations. The beneficiary states consisted of over 170 million people. Further, the most difficult negotiation partner of the EFTA/EEA side, Iceland, did not take part in the negotiations. The Icelandic stance was that the country wanted to continue its contribution to the financial arrangement but not at a higher level than in the previous periods. Thus, the contribution of Iceland was frozen at a maximum of 33.975 million EUR for the next five years or 6.975 million EUR per year (Proposition 160 S (2009-2010) 2010: 4). This means that Norway and Liechtenstein, totalling about 4.9 million people was up against an EU that was 100 times the size of the EFTA/EEA. The beneficiary states consisted of populations 35 times the size of the EFTA/EEA states. The asymmetry was obvious and arguably greater than before.
A document written by Mrs Oda Sletnes, in relation to the 15th anniversary for the establishment of the EEA agreement, pointed out that Norway had few allies in these negotiations. In previous negotiations one might have gotten the impression that the question was somewhat a divisive issue between the EU members that are net contributors and those that are net beneficiaries of the EU budget. However, Mrs Oda Sletnes wrote that the Nordic countries and the UK do not particularly mind that the EEA membership include some costs. This is because the states do not want the EEA agreements seem like an attractive alternative to EU membership. Based on a different reasoning, France and Italy are especially inclined to support tough demands on Norway (Sletnes 2009). One sees that at
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least 20 EU member states (the ones mentioned by Mrs Oda Sletnes and the beneficiary states) want Norway to contribute at a substantial level.
One sees that the asymmetry has become greater and Norway is faced with a situation in which support within the EU for their decision is hard to maintain. However, it does not appear that asymmetric relations increases our understanding much with regard to the direct causes for the result in 2009/2010 and the future round. It had already been decided that the arrangements were to continue. Still, one should be aware of the structural condition of the relationship between the EFTA/EEA and the EU.
3.6.1.2 Strategy and Tactics The financial crisis represents the context of these negotiations. Mr Jonas Gahr Stre from the Ap was the Norwegian Minister of Foreign Affairs in this negotiation as well. He stated that the financial crisis has not weakened the focus on how much Norway, which is rich, can contribute withxliii (Gahr Stre 2010a). The initial reaction of the leader of the KrF, Mr Dagfinn Hybrten, was that the EU demand of 50 per cent would be extortion without an objective foundationxliv (Aalborg and Vermes 2008 m.t.). Mr Gahr Stre called the EU demands indecent and exorbitantxlv. He continued by stating that the sky cannot be the limit every time financial arrangements from the EFTA/EEA states are negotiatedxlvi (NTB 2009a). However, this round was the shortest one with regard to time. This can shed light on the fact that there was little real conflict between the negotiation parties.
In the latest negotiations there were no time limits to hold. If anything, it was the EU that spent more time than one could expect. Mr Jonas Gahr Stre (2009b) expressed some concern about the situation despite promises from the Commission that there was nothing to worry about. One of the reasons that this is important is based on certainty and continuity. This is also the reason that a
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parallelism of enlargements of the EU and the EEA is so important and that a dynamic agreement is crucial for Norway28.
3.6.1.3 Domestic Factors in Norway 3.6.1.3.1 Political The same coalition government was in place for the most recent negotiations as those in 2007. One will not find the Sp and the SV arguing against the negotiated outcome that they participated in reaching. The silent reception of the agreements might mean at least three things. Either, the Sp and the SV have begun to accept the financial arrangements or the parties loyalty to the coalition government they are part of is more important to them than signalling dissatisfaction with the Norwegian relationship to the EU. It might also indicate that that the government was holding back as it was vulnerable to further disagreements29. Perhaps the Ap has signalled to the Sp and the SV that public disagreement within the government coalition is deemed too costly. The matter of fact is that the political system in Norway is in favour of the EEA agreement as a status quo. Therefore, objections from the Sp and the SV are only symbolic.
The Norwegian delegations to the negotiations have been criticised for being too secretive. Among other things, it has created some irritation that the Norwegian government did not reveal the substance of the agreement which was accepted in December 2009. It was revealed first in June 2010. Furthermore, Norwegian actors have kept silent in negotiations when it comes to explicit issues.
It appears that the understanding for the considerable problems in Europe is prevalent among the Norwegian political parties. The challenges for Europe served as an important context for most arguments in the yearly debate in the Storting following the MFAs biannual address to the Storting on important EU and EEA matters (Storting 2010).
28
This alludes to Bobbitts (2002: 229) arguments that the rationale for the present market state is to maximise its subjects' possibilities rather than utility /welfare as before. 29 There have been some already for instance on environmental issues and the fact that the SV formally is against the NATO. 75
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3.6.1.3.2 Collective Action One can interpret the results that Norway is ready to use money in order to directly promote export interests and indirectly defend the Norwegian agricultural sector. The vital interest is the EEA agreement in which the Norwegian business/industry interests are maintained through their access to the European market. There were reasons in the past negotiations that Norway should receive compensatory market access in return for the loss of FTAs with the CEECs. This was also provided when Austria, Finland and Sweden joined the EU. In the latest round there were no objective reasons that Norway should get a compensation for loss of FTAs as there was no enlargement and no further loss of trade through FTAs. However, the Norwegian government made clear that it was vital to make use of the negotiations in order to improve the fishery sectors access to the EU marketxlvii. It was also stated that a satisfactory agreement on the market access of seafood was necessary in order for Norway to continue its financial support to EU members (Proposition 160 S (2009-2010) 2010: 3 m.t.). The negotiation on market access for seafood did have as central a position as in the negotiations leading up to the 2004-2009 agreements. The existing tariff quotas were continued. In addition, Norway received increased tariff quotas on frozen, peeled shrimps and herring (Proposition 160 S (2009-2010) 2010: 5). However, the EU did not accommodate Norwegian proposals for extending the number of included products in the tariff quotas. Furthermore, the Commission rejected Norwegian proposals for more permanence of the tariff quotas. Still, the Commission insisted on keeping a connection between the periodisation of the fish negotiation and the financial negotiations (Proposition 160 S (2009-2010) 2010: 6).
3.6.1.4 Norway as a Free Rider Mr Gahr Stre (2008a) revealed that the support is thin for the Norwegian view that a non-member should not contribute on the level of EU members. The fact that Norway was not hit the hardest by the current Financial Crisis means that even less sympathy exists for the Norwegian stance that it is not legally committed to contribute. Further, Norway becomes more integrated to the EU as time passes. The tolerance for a country that is seen as cherry-picking European integration programs is low in todays EU. This has a lot to do with other
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European state leaders lack of flexibility and that the EU is working on stricter rule adherence with regard to the Euro cooperation.
3.6.1.5 Bilateral Relation and Soft Power Norway has ambition of using the funds in order to strengthen the countrys general reputation and profiling in the beneficiary statesxlviii (Proposition 160 S (2009-2010) 2010: 3 m.t.). Mr Gahr Stre (2010b m.t.) sees the FMs for the new period as an historic opportunityxlix for Norway. In the same vein, Mr Gahr Stre (2009a m.t.) argued that the greatest challenge for Norway is to draw out political capital on the investmentl in the form of the FMs. The bilateral profile of this support has increased. In the agreement on the FMs for the period 20092014 it has been agreed that bilateral relations is a goal of the funding on equal footing to the reduction of disparities.
Mr Roar Flthen, the leader of Norways largest labour union, the LO, was quoted saying that he wanted more social dialogue and less insulation of public buildings in Polandli (Mellvang-Berg 2008b m.t.). This was adhered to by the Norwegian negotiators. The idea of a fund for tripartite cooperation and decent work was launched at a negotiation meeting the 30th of January 2009 (Nilsen 2009). Mrs Oda Sletnes commented that Norway was willing to increase its contribution. However, this was dependent on other elements in the negotiations (Mellvang-Berg 2009a). On the 29th of May 2009, Mrs Oda Sletnes could reveal that Norway had increased its proposed contributions and channelled this increase to climate and environmental measures (Mellvang-Berg 2009c).
Still, there are limits to how much Norwegian priorities can diverge from the priorities of the beneficiary states. For instance, the proposal of focusing Norwegian support on Carbon Capture and Storage (CCS) was well received by the Commission. However, the reception was mixed in the beneficiary states (Gahr Stre 2009a). According to Bellona, many member states were not content with having to earmark contribution to CCS (NTB 2009b). Yet 20 per cent of the Norwegian FM 2009-2014 is channelled to projects which involve CSS. One can argue that 20 per cent is modest sum but it represents a lot as it is 20 per cent of
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800 million EUR. Arguably Norway has been effective in steering the support to its own priority areas. Green industry, decent work and the fight against genderbased violence is includes as priority sectors. It is clear that Norwegian negotiators have considerable influence on what the EFTA/EEA support is channelled toward. According to Mrs Ingrid Schulerud in the NMFA, Norway received 100 per cent acceptance for the sectors in which the money is to be usedlii. She continued by arguing that Norway has taken George Soros place in many countries (Bondevik 2010).
An important recommendation from the mid-term review of the FMs 2004-2009 made by PWC (2008) was that one should direct resources through a program method rather than supporting individual projects. This recommendation was an important element of the new mechanisms. The Norwegian authorities argue that this change was made in order to strengthen the focus on strategic interestsliii (Proposition 160 S (2009-2010) 2010: 3 m.t.). By interpreting the Commission it appears that the programme method of the EEA and Norway Grants coordinates these arrangements with the EUs own structural funds. The Commission (2010: 3) writes that the key element is that the funds will be spent using the same program method as used in the EU structural funds. The fact that one co-opts the EU method is interesting by itself. However, it is not mentioned as anything else than a way of Norway to better achieve its goals in Proposition 160 S (20092010).
The period 2009-2014 is the first period of the financial arrangements in which strengthening of bilateral relation have become a main aim at equal footing to the reduction of disparities. This development is in line with political signals in Norway. It might be that this element of the new arrangement is result of the fact that one now sees the support as an integral part of EFTA/EEA relations to the EU and therefore to a greater degree try to influence the funds direction rather than their size. However, the fact that the new program method for disbursement implies more autonomy for actors in the beneficiary states might mean that the bilateral contact between the authorities in the two sets of countries do not increase as intended. On the other hand, there was much frustration with the slow processes of the past EEA and Norwegian FMs (Nordrum 2006). Increasing the
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effectiveness of the funds might mean greater goodwill. Nevertheless, it seems that the inbuilt slowness of the application and the disbursement is an intended feature by Norwegian authorities. One should take into account that many of the beneficiary states reportedly have large challenges with regard to corruption (see Appendix 6). Mr Gahr Stre (2008b) stated his general attitude was that Norway should be thorough and aware instead of the opposite with regard to the evaluation of projects before the disbursementliv and the he believed that this was the former governments approach as well. The new program method means that Norway will have less control of the arrangements than before. Thus it is difficult to believe the argument that one from the Norwegian side wanted a program method in order to increase the effectiveness of the new arrangement. This would constitute a new approach from the Norwegian side which it will be interesting to see evaluated in the coming years.
The EEA and Norwegian FMs 2009-2014 intend for the first time to cover the administration costs of the beneficiary states. This can have at least two effects. The governments in the beneficiary states might be more positive and appreciative toward the mechanisms as they put no extra burden on their administrative capacity. Contrarily, it might be that the governments of the beneficiary states lose a sense of ownership to the funds and that they therefore will not contribute to strengthening bilateral relations. There is a tension between the possible outcomes and which effects will be stronger is too early to predict.
3.6.1.6 EU Politics There are indications that the negotiations in 2009/2010 were complicated on the EU side. The negotiations between EFTA/EEA and the EU had been finalised already in December 2009. Norway and the other EFTA/EEA states had to wait to July 2010 before the EU achieved an internal consensus on the distribution of the funds. Without this agreement among the EU states, this agreement could not be signed.
The element of future internal EU distribution has spilled over to the negotiations on the EFTA/EEA arrangements. The internal distribution of the EFTA/EEA
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contributions is something to be decided upon by the EU members. Mr Gahr Stre (2008a) mentioned that the Norwegians have views on the distribution of support. However, he did not think that the Norwegian view was going to be emphasised. Mrs Brinkmann in the EUs negotiation team commented that the EFTA/EEA states had to accept the EUs distribution key. Mrs Oda Sletnes remarked that she saw no connection between these negotiations and the EUs internal decisions on the distribution of EU fundslv (Mellvang-Berg 2009c m.t.). Mr Jonas Gahr Stre (2009b m.t.) told the Stortings EEA Committee that vehement conflicts between the countries as this is seen in connection to their distribution of benefits in other EU channelled programslvi. Already at a meeting in the Stortings EEA Committee at the 21st of October 2009, Mr Gahr Stre (2009b m.t.) expressed concern of the fact that the EU countries had yet to agree to the negotiated outcome. He said that the fact that it has lasted until now is not goodlvii. The negotiated outcome was not agreed upon by the EU until the end of July 2010. Reportedly, Hungary and Poland was in a less beneficial position with regard to the internal distribution key than in 2004. This was the main reason that the member states took considerable time with accepting the agreement. This disagreement should be seen as positioning in the context of the long-term EU Budget from 2014 (Mellvang-Berg 2009d). The EUs budget negotiations for 2014 and later are something that every member state of the EU is apprehensive about.
3.6.1.7 Path Dependence There were conditional indications that the EFTA/EEA support would continue in both the agreements with regard to the first Eastern enlargement and the enlargement of the EU of Bulgaria and Romania. Mr Gahr Stre (2007) stated that he would be surprised if there were no calls for future contributions after April 2009. Mr Per Olaf Lundteigen from the Sp stated that the Norwegians should pay, smile and try to look happylviii the day Norway would be faced with increased demands from EU with regard to the financial arrangements (Eltvik 2008a). Thus, there are clear indications that one expected increased demands from the EU side. One did not come across anyone who expected the arrangements to end when the 2004-2009 period was done. However, there seems to be an understanding in the Norwegian side that increases are related to
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enlargements. Mrs Oda Sletnes argued that we [Norway] are of the opinion that the Commissions initial demands are unreasonable[...]contrary to the last negotiation round, there is currently no enlargement of the EEAlix (Hegtun 2009 m.t.). This points to the fact that Norwegian expectation was that the level of contributions would remain the same apart for some technical adjustments. Nevertheless, it appears that Norwegian authorities at least expected a continuation of financial arrangements.
A partial explanation for the increase of sums in the period 2009-2014 was adjustment to inflation. This indicated that the financial arrangements have become an institutionalised part of the EEA agreement. It resonates well with Spanish arguments that this part of the EEA agreement has to be dynamic if one wants to take part in increasing numbers of EU led programs. Furthermore, when the EEA agreement was signed, the EU (or EC as it was called), were providing support for the poorer regions of the common market through their Structural and Cohesion funds. In retrospect, it seems natural that this would be an objective of the EEA agreement as well. Article 115 seems to imply that this was an aim from the beginning.
It was central for the Norwegian government that the size of the grants had to be based on an assessment of what constitutes a reasonable Norwegian contributionlx. It is noted that the EU increases its support of the 12 new member states (Proposition 160 S (2009-2010) 2010: 2). The increase in the Norwegian contributions mirrored this. This is consistent with statements from 1999 that Norway would follow the EUs policy with regard to reduction of disparities. Further, it was emphasised from the Norwegian side that new resources should be channelled to the states that are most in needlxi (Proposition 160 S (20092010) 2010: 3 m.t.).
The EEA and Norwegian FMs 2004-2009 are seen as a success. This means that there are no good arguments for ending the contributions. One tried to bring the EU demand downwards in the negotiations on the period 2007-2009 by pointing to the lacking absorption capacity of Bulgaria and Romania. And in the EU there
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was some worry about this as one could observe that the EU countries limited the size of their support to Bulgaria and Romania. Nevertheless, the reviews of the sums administered by the FMO in the period 2004-2009 indicated that there were some problems but the absorption capacity was not one of them. In certain areas, such as health in Poland, the national focal point, received application for over twenty times the value of the available resources (PWC 2008: 28). Of course one can hold that this has many reasons. For instance, many of the project applications were faulty and did not qualify. It might also be that the priorities have not been described concretely enough. However, there are hints that the EU has used the size of the local demand as an argument in the negotiations with the EFTA/EEA.
It is not mentioned in the Proposition No. 160 to the Storting (2010-2011) but the program method is an adaption of the EU method for providing support. The EU Commission (2010) emphasises that it is pleased that the EFTA/EEA contributions take form of a program rather method rather than a project approach. This adds to the sense that the financial arrangements have become an institutional element of the relationship between the EFTA/EEA and the EU. The change of approach of the financial arrangements might indicate that an Europeanization of the support has occurred.
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3.7 The Long-Term Perspective
3.7.1 Asymmetry and Power One should describe the asymmetric relations between the EFTA/EEA and the EU. This serves as a structural context of the negotiations. If one believes that international relations are led by law-like determinism then one can explain the negotiation results by only looking at the asymmetric relations. One might argue that there is a certain equilibrium that was established with the start-up of the FMs. In this scenario, the Great Narrative is that the equilibrium was established with the set-up of the FM 1994-1998. With the adjustment through the Swiss rejection of the EEA agreement, the EU did not receive less contribution from the EFTA/EEA as one perhaps would have formally expected. In 1999, the contributions did not end but did not increase either. The reason for this was that the EU did not call for the contributions to increase. A new equilibrium was established in relation to the enlargement of the EU with ten new member states in 2004. The enlargement meant that the asymmetric relationship had increased and therefore the contributions were increased as well. The same pattern is observed with the EU enlargement of Bulgaria and Romania. The deal agreed to in 2009 implied an increase of the contributions from the EFTA/EEA states to the EU for the period 2009-2014. This agreement involved some calls from the EU for more contributions from the EFTA/EEA side. The current level of contributions represents the new equilibrium based on the power relations of the two parties.
If one looks at two snapshots from 1994 and 2010 it would not be complicated based on explanations of asymmetry to argue convincingly about the existence of the financial arrangements and their increase. The asymmetry of the EFTA/EEA and the EU is clear to see. From the inception of the EEA agreement until today the relationship has gone from being 1: 10 to 1: 100. The contribution has increased about 1500 per cent from 1994 until today. However, there are too many puzzles to such an explanation.
Perhaps the main challenge for this explanation is the result in 1998/1999. Why did not the contributions increase? Why were the negotiations in 2006/2007 so
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lengthy and why did the EU have to freeze the EEA agreement in 2007 if merely asymmetric relations were at play? If it was true that only power asymmetry was at play then one would expect that this negotiation would be shorter than the previous one. A possible explanation is the EFTA/EEA states only met Bulgaria, Romania and the Commission in the negotiations. However, then the question becomes why these countries received as much as they would receive in the more asymmetric previous round of negotiation. A small puzzle internally in the EFTA/EEA for the asymmetry thesis is that Iceland has always contributed with less than its size would imply in these negotiations. In this regard, Iceland also received more tariff quotas for fish than Norway.
There are convincing reasons to believe that the asymmetry of power conditioned the negotiations. There are less indications that power asymmetry can explain the outcome of the negotiations. The explanation based on a law-like view on the level of contributions is not satisfying. It does not tell us why the equilibrium is at the level it is.
3.7.2 Strategy and Tactics One can interpret the negotiations line with a perspective in which the EU or actors within it have used explicit or implicit threats in order for the EFTA/EEA side to give in to their demands. Explicit threats were made in relation to the adjustment of the EEA agreement in 1993 and the calls for the continuation of the financial arrangement in 1998/1999. The Norwegian government felt that the future of the EEA agreement was at stake in 2003. The EU froze the EEA agreement in 2007. At the same time one notices how Norwegian government actors tend to signal before the negotiation rounds that Norway is ready to increase its contributions. This has annoyed Finns, Icelanders, Swedes, Swiss and likely some Norwegians in the past. Mr. Blankenborg even commented that Norway should have been more generous in 1998/1999 in order to prevent the EU arguing that Norway had been providing marginally in the past.
The view that these arrangements come in place because of power play from the EU is plausible. However, the last negotiation round did not prove to be
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controversial at all. It seems that no explicit or implicit threats were furthered by the EU. Nor was any sanction against the EFTA/EEA states carried out. If one looks at Appendix 1 one finds that the latest round of negotiations were the shortes of all the rounds. It can mean that the EU has got its point across and that it therefore does not need to sanction or threaten the EFTA/EEA states. Nevertheless, one should have met more resistance from the political scene in the EFTA/EEA states if this was the case. Further, a puzzle is that the same governement was in place as in 2007 which was a lengthy and at times conflictual negotiation. The narrative based on strategy and tactics is convincing but it has some explanatory weaknesses. It is difficult to apply the theoretical approach in the latest negotiation round as it is nearly impossible to falsify. It seems rather that there was no substantial resistance from the EFTA/EEA side in the latest negotiation. The countries of the EFTA/EEA had already accepted a conditional commitment to continue the support in 2004 and 2007 with Protocol 38 B (9). That this acceptance was motivated by EU threats is possible.
3.7.3 Domestic Factors in Norway 3.7.3.1 Political Roger de Rabutin (1618-1693) once wrote that we must like what we have when we don't have what we like. To some extent this phrase sums up the sentiments among Norwegian political parties. It is important to keep in mind that the EEA agreement is a cross cutting compromise in Norwegian politics. The side that is against Norwegian EU membership remains relatively quiet as Norway stays formally outside the EU and has exceptions in the EEA agreement for fish and agriculture. The side in favour of Norwegian EU membership stays silent as Norway is as integrated as it can be as a non-member. Several commentators see the increased contributions as a way for Norwegian politicians to pay for silence. This is also why the Sp and the SV in Norway accepted the continuation of the EEA agreement in 2004 and has not come up with an alternative to it in all the years of the problematic EEA agreements existence despite the fact that the parties are committed based on their party programs to end the EEA agreement.
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In fact, there is an article in the EEA agreement that seeks to remedy any conflicts of interpretation. Article 111 describes how disputes like this can be settled. However, no politicians from either side have argued in favour of this path. There can be many reasons for this. One is simply ignorance, however this is very unlikely. Especially since the main discussion of the permanence of the arrangement was only years after the signing of the EEA agreement. Another reason is that neither side wanted to settle the dispute as none could be sure about the outcome. Further, it would not be a good idea for any side to test article 111 on this issue as it would look bad. Norway does not want to be seen as a free rider or a greedy nation. Furthermore, Norway is heavily dependent on goodwill in the EU in order to take part in European cooperation, for instance when it comes to research, Schengen and security policy. On the other hand, such a dispute would damage the legitimacy of the EU and especially its soft power. If the EU was to win, a scenario in which the EU legally forces a neighbour to contribute would almost be unthinkable. If it lost, the EFTA/EEA states could not expect to take part EU programmes in the future. There are many reasons that this scenario is unthinkable and some parallels can be drawn to article 126 and the question of what the EEA agreement means by the word territory. The result is that neither side clears it up but Norway harmonises the EEA rules and the rules on its oil platforms on its continental shelf.
A term that is used several times in this thesis is that the negotiations have been kept under the radar. The EU question in Norway is conflictual and a highly divisive issue that is intimately coupled with the Norwegian fault line between the centre and the periphery. Every government that has been in power during the negotiations has been divided on the question of EU membership. There has been an informal suicide clause in the different governments programs. Mr Bondevik, who has been Prime Minister during two of the negotiations, has commented that the EU question is political dynamite which will disintegrate any thinkable Norwegian governmentlxii (NTB 2007 m.t.). The politicisation of the negotiations threatens with opening up for the more conflictual issue of Norwegian EU membership. Further, one can argue that the EU debate in Norway and the demand for objective facts is limited. This means that it is uncomplicated to depoliticise the negotiations on the financial arrangements.
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There seems to be a Norwegian consensus that one can use financial arrangements to keep controversial issues off the table in its meetings with the EU. With the Swiss No to the EEA in 1992 it was provided more money in order not to again open up a debate about the EEA which would create challenges to the Norwegian party system. In 1998/1999 one continued to pay in order not to compromise the EEA agreement and the ability to take part in European cooperation. In 2004 it was about not compromising the future of the EEA agreement and to keep the EU question off the table as the coalition government would disintegrate if the issue emerged. The same can be said about the negotiations in 2007 and 2009. A new issue was brought up in the negotiations leading up to the FMs 2004-2009, 2007-2009 and 2009-2014. Without increased financial contributions, the EU would demand a liberalisation of the regime for foreign investments in the Norwegian fishing fleet. This is a controversial issue in Norwegian politics stretching back to when the EEA agreement was negotiated on. It is part of the Norwegian objective to keep control of its natural resources. With regard to another controversial issue, Norway managed to limit calls for quotas on agricultural products from the EU to Norway. Most parties are split on their views on Norwegian EU membership. However, in general the Norwegian party system has stabilised around the EEA agreement as a solution to the EU question.
Apart from debates about the Eastern enlargement in 2004 there has been little debate in the Storting with regard to the financial arrangements from the EFTA/EEA to the EU/EEA. In recent rounds it seems that the agreements were ratified more as a formality than a contentious agreement with the most important organisation in Norways foreign policy. From their political treatment, it seems that these contributions have gained political acceptance. They have been institutionalised. In past negotiations one argued against the legality and fairness of the EUs demands. However, now it is more about the arrangements objectives and to what aims they are directed.
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3.7.3.2 Collective Action One sees from the latest round that there is a clear willingness for the Norwegian government to pay for increased market access for the fishing industry in Norway regardless of rights of compensation for lost FTAs. However, one can also interpret this as the EU throwing Norway a fish bone to use Rossaviks words. This can be used by Norwegian politicians to argue that one pays for market access. This can provide some insight to the fact that the Norwegian government do not mention the financial value of these quotas in their description of the arrangement s and the negotiations on these. The only thing that is stated is that the tariff quotas are at an acceptable level. In reality the value of these tariff quotas on fish represent less than eight per cent of the value of the Norwegian financial contribution. In this light, the argument that one is genuinely paying for market access appears weak. Another explanation is that Norway is given tariff quotas because industries in some member states want fish in order to process it. One of the reasons that Poland blocked an agreement in 2004 was that Polish (and Baltic) officials were of the opinion that not enough quotas were provided in order to supply the Polish (and Baltic) processing industries. Further, the Polish wanted some assurances that substantial amounts of the Norwegian fish were directed to Poland for processing. This was a potential problem for Poland because the tariff quotas were not country specific. The tariff quotas are valid in the entire EU area.
One should contextualise the values of the quotas. If one follow Melchiors (2007) calculations, one finds that existing tariffs for seafood after the value of the tariff quotas are considered are valued at about 25 million EUR. This means that the numerical tariff barriers for Norwegian seafood are limited. One must
remember that what appears a little value in the big picture is considerable for small sectors. There is considerable value in the tariff quotas for fish. According to NMFCA (2010), the negotiated quotas for 2004-2009 were estimated to have a value of approximately 18.1 million EUR annually. For the EU enlargement of Bulgaria and Romania, the estimated value was about 3.6 million EUR per year. The negotiated tariff quotas for fish for the period 2009-2014 are estimated to have a value of about 25.8 million EUR per year. The increase of the value of tariff quotas from 2004-2009 to 2009-2014 was 4.1 million EUR. This was about a 19 per cent increase. The value of the quotas is not far from the increase in the
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annual financial contributions of 22 per cent. The value of the Norwegian fish quotas represents about 7.5 per cent of the total Norwegian contribution.
No connections have been made between improved market access for EU agricultural products in return for improved market access for Norwegian seafood. This observation holds true regardless of the ideology of the Norwegian governments. The connection is something that the FrP has proposed at several occasions. However, the solution of pitting industries against one another has not been an attractive option for Norwegian politics. The Norwegian tradition is to protect agricultural interests. Nevertheless, there appears to be some movement in current Norwegian politics. The SCFAD wrote it was of the opinion that in future negotiation roundslxiii, the Norwegian side should make use of all relevant measures in order to achieve better market access for fish. This includes providing market access in Norway for agricultural products from the EU. In the Stortings treatment of Proposition 160 S (2009-2010) and Recommendation No. 22 S (2010-2011), Mrs Eva Kristin Hansen (2010) from the Ap, made clear that the parties in government did not support any such connection between agricultural products and fish. A mistake had been made in the document that made up the Recommendation No. 22 S (2010-2011). As no further corrections were made, one can perhaps assume that the other parties in the Committee supported such a future connection. These parties were the KrF, Hyre and the FrP. The latter party has argued in favour of this at least since 2000 (See Hagen (2000) and Hglund (2004, 2008)). Disregarding this connection is understandable if an objective of the ruling government is to protect the Norwegian agriculture. This means that the status quo is preserved. The Norwegian farmer is protected, the fishermen have more tariff quotas for fish, the businesses and industry keeps their access to the European market.
3.7.4 Solidarity There are reasons to argue that solidarity Norwegian identity as an altruistic country might partly explain the developments. The evidence is that Norway appears to be forthcoming in these negotiations. In 1993, the Finns reacted because of Norwegian willingness to accede to EU demands that the remaining
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EFTA/EEA states should take on the Swiss commitment despite the Swiss No to the EU and the EEA (Haugli 1993). In the negotiations leading to the Financial Instrument 1999-2003, the Icelanders were less ready than the Norwegians to contribute to a new financial arrangement (Bjellaanes 1998d). This indicated that the Icelandic were more open than Norwegians in their hostility to the Spanish claims. In the negotiations leading up to the FMs for 2004-2009 had the same features. It was reported that Iceland was annoyed by Norwegian indications of an increase in the EFTA/EEA contributions (Hellstrm 2002b). It was rumoured that the result of the negotiations on the period 2004-2009 annoyed the Swiss who were next in line with regard to contributions toward the new EU members. Mr Gahr Stre (2007a) said that he would surprised if not demands for further contribution after April 30th 2009. This can also be interpreted as readiness to continue the contributions after 2009.
One sees that solidarity has only been a central issue in the negotiation round for the period 2004 to 2009. However, as stated in the Theory chapter: where does one draw the line? Would it be evidence of solidarity if Norway made available 1000 million EUR per year instead of 350 million EUR per year. Solidarity should not be understood as dichotomous to rationality. At least one can establish that Norwegian solidarity has never been the main aim of the contributions to the poorer EU member states. At the same time, Norway is known for being an altruistic actor in foreign aid. Yet there are reason to believe that the support to the EU is different because these countries are middle income and the nongovernmental organisations that administer much of Norwegian traditional aid has never been involved in the areas in which EFTA/EEA support goes to. In other words, it seems that solidarity has never been the primary logic of this contribution. The negotiations and the behaviour of Norway in these negotiations have primarily been about something else than solidarity. However, one should treat solidarity as a contextual element.
3.7.5 Norway as a Free Rider One can hold that European integration has created a vast amount of public good for Norway. A public good is characterised by being non-excludable and non90
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rivalrous. In that regard, one can argue that membership of the EU for the EFTA/EEA states does not really matter as peace and stability, among other things, are non-excludable. In this light one can see the contribution as a way for the European Union to make EFTA/EEA to some extent internalise the positive externalities they enjoy. There is a normative element in the fact that countries on the outside of the EU system receive the benefits of the cooperation inside the Union.
The EU negotiators can point to the Cecchini report showing that the finalisation of the single market would add two per cent to the countries annual GDP. Not even EU members contribute at this level but it might serve as a concrete reminder for the EFTA/EEA countries that they have benefited not only intangibly from European integration. With further liberalisations, for instance the Service Directive, the EFTA/EEA states will profit even more and provide EU demands with a strong justification. There is proof that actors to a great extent have used this type of argument against Norway before. It seems that this was especially prevalent in the negotiations in 2003/2004. There is no plausible
reason that they will quit to tell Norway again how much it benefits from European integration and therefore that it should internalise more of the positive externalities.
Many of the areas in which EFTA/EEA states take part are club goods. A club good is characterised by the trait that it is excludable but non-rivalrous. Norway takes part in cooperation programs of this kind and thus contributes with a contingent based on clear and objective calculations. One can imagine the financial arrangement as a more general contingent for European cooperation.
No state can readily afford to be shamed. A loss of reputation and goodwill can have dire consequences both for a states economy (through a loss of investments and tourism) and its credibility (Matlary 2002). The process leading up to the Financial Instrument 1999-2003 shows that it is problematic for a country to be seen as a free rider. It is complicated to argue that one only wants to cooperate in areas that are seen as beneficial and not bear any costs (Arnesen et al. 2001). It is
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possible to understand the perceived double standards of Norway cherry picking the areas in which it wanted to take part. The reduction of social and economic disparities in the EU was one of the areas in which Norway did not want or saw itself as legally committed to take part of. At the same time membership in the Schengen agreement and the research cooperation through the Fifth Framework was pursued by the Norwegian government. In 2003 not only did EU actors claim that an increase would be just and fair, it was also emphasised that the former arrangement was unfair. Percy Westerlund commented that the EU cannot any longer afford to let its richest friends take part in the common market with contributions that are not corresponding with their economic strengthlxiv (NTB 2003c m.t.). This indicates that Norwegian actors see solidarity going hand in hand with strengthening bilateral relations and soft power
In each negotiation the view that Norway in some way has to contribute has been part of the rhetoric both on the domestic arena in Norway and in the EU. This serves as a shadow of the future. Some see the EUs demands on the EFTA/EEA states as power play and extortion. Still it is simple to understand the logic of the EUs arguments. To put it in Mr Westerlunds words, one cannot eat ones cake and have it toolxv (Nielsen 2003a m.t). This argument was especially strong with regard to the Eastern enlargement of the EEA and the EU. Norway has not become less integrated to the EU nor has the need in the EU decreased since 2004. Therefore, it makes sense to see this as a contingent for the general European cooperation just as is paid with regard to specific EU programs that outsiders want to take part of. This arrangement is very convincing. Nevertheless, there are some puzzles to such a view.
If the EU was so concerned with no country being a free rider then a puzzle in this regard is the smaller demands to Switzerland compared to Norway. Why did not Switzerland contribute to the EU until 2007? Why do the Swiss pay almost half per capita toward reducing disparities than the Norwegians? Further, one can argue that Switzerland is more closely integrated to Greece, Portugal and Spain. In that regard, it appears peculiar that Switzerland did not contribute to these regions of the EU in the period 1994-2007. Why were no financial obligations to Greece, Ireland, Portugal and Spain imposed on Switzerland? The case of
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Switzerland indicates that there are more issues involved than making external actors pay their fair share.
3.7.6 Bilateral Relation and Soft Power There has always been an idea of adding to the EFTA/EEAs profile in the beneficiary states through the financial arrangements. Ever since the first arrangement from 1994 to 1998, the projects funded have received a brass plaque from the donor countries. This is very symbolic and a sign that goodwill and strengthening of the bilateral relationships between the donor countries and the beneficiary states is. Yet it is questionable whether one has had any plans on the use of political capital created by the financial arrangement either in the period 1994-1998 or 1999-2003. It must also be noted that the arrangement first established in relation to the EEA agreement was seen a temporary by the contributors.
One sees that the emphasis on strengthening the bilateral relations is something that has formally become more important over the years. The Storting began to stress this element in 2004 when it was made clear that the sums involved would increase drastically. Still, the only official goal of the arrangements was to reduce disparities. One clearly sees Norwegian intentions with the establishment of Norway Grants in 2007. For the period 2009-2014, the strengthening of bilateral relations became a main aim of the arrangements together with the reduction of disparities. At the same time there are signs that the arrangements have become more user-controlled in the new period. Still, it appears that the sectors to which the funds are channelled have become a focus area for the Norwegian government to influence. This might indicate that the goal of Norwegian negotiators in 2009 was to influence the areas in which Norwegian support was channelled instead of caring too much about the size of the sums. One should look at Norwegian idealistic aspirations in a wider context. In the political debate it was often emphasised that Norwegian foreign policy could be both idealistic and a result of rational considerations at the same time. Mr Petersen (2004 m.t.), has argued that acting idealistic ultimately is a good way for Norway to pursue its national interests. He claimed that Norwegian foreign policy is designed in order to
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secure direct and indirect interests, but also in order to honour our political and moral commitments. The former does not exclude the latterlxvi. There is a clear tension between the aim of reducing social and economic disparities on the one hand and strengthening bilateral relation on the other.
3.7.7 EU Politics Some scholars have indicated that the states in the EU tend to be more wellbehaved with time in foreign affairs (Smith 2004). For instance, Tonra (2003: 740) writes that the members states of the EU tend to internalize the views of their colleagues in order to see that their own positions are at least complementary in the common and shared endeavour of CFSP. There are indications that there is more conflict on the contribution of the money than before.
One sees that the EUs own budgetary quarrels spill over into the EFTA/EEA negotiations with the EU. The reason for this is that the distribution of the EFTA/EEA funds is decided on by the EU. This EU distribution key is the same as for the EUs Cohesion and Structural funds. However, the financial arrangements from the EFTA/EEA states is not synchronised with the EU budgetary time frames. This means there is some uncertainty surrounding the distribution of these funds. The effect is also that an agreement has to be made between the EFTA/EEA states and the EU but also internally in the EU. As more states have become members and are eligible for support the process on the EU side have become more complicated. For instance, the Baltic states and the Iberian states have different interests with regard to tariff quotas for fish. The Iberian states would like to limit the size of the quotas while the opposite is true for the Baltic states. This difference of interests indicated that there is more conflict internally in the EU with regard to the distribution of the EFTA/EEA contribution after the EU enlargement. However, there are limitations to how far Norway can go in exploiting these disagreements. As one saw, it did not go down well to link the negotiations in 1998/1999 to the future accession of the CEECs. Further, the concern for the shadow of the future and a good working relation to the EU prevents Norway from taking advantage of splits inside the EU.
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3.7.8 Path Dependence It has been hinted to the fact that one can make much realist sense of the development of the financial arrangement of the EEA agreement from its signing until today if one merely sees snapshots of the two periods. At the signing of the EEA agreement, the EFTA/EEA states consisted of seven countries and 38 million people and the EU consisted of 12 countries representing about 350 million people. Today the EFTA/EEA consists of three countries consisting of five million people while the EU consists of 27 countries and 500 million people. However, if one looks at the entire period instead of snapshots of it there are some puzzles that imply that a relist or strictly rational explanation is insufficient for understanding the persistence and development of financial arrangements from the EFTA/EEA to poorer regions in the EEA. The path dependence perspective is more aimed at looking at the phenomenon as a moving picture.
Despite Norwegian authorities not stating it the financial support to poorer areas of the EEA has become intimately interlinked with the EEA agreement. Clearly, neither the Norwegians nor the other original EFTA/EEA signatories of the EEA agreement expected the FM 1994-1998 to become permanent or to continue. Evidently, in hindsight it is difficult to imagine that when the parties established article 115 of the EEA agreement one did not at the EFTA/EEA side understand that reduction of disparities in the EEA would be a long-term feature of it. The arrangement agreed to for the period 1999-2003 did not refer to article 115 thought it literally shared the same goal. Not until the agreement in 2004 did the connection between the FMs and the EEA agreements article 115 become explicit. It is difficult not to interpret this as an institutionalisation of the FMs the EEA agreement. Mr. Blankenborg (2004) from the Ap, argued that no matter how one saw it, Norway had to contribute as the EEA agreement states that one of its purposes is to reduce economic and social disparities. There was no question of the continuation of these contributions. The EU side did never try to convince the EFTA/EEA side of the continuation of support. It was taken for granted. From the Norwegian side one only called for a reasonable increase.
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Also the distribution of both contribution and benefits has not been a discussion point in the negotiations. The EFTA/EEA side has from day one understood that the EUs internal distribution key has not been anything for the EFTA/EEA countries to meddle with. On the EFTA/EEA side it has been the GDP or GNI that has been used. The exception is the Norwegian mechanisms which of course are fully funded by Norway. An interesting aspect is that the arrangement of a separate Norwegian FM was kept. The separate Norwegian FM applied to the two latest negotiations and it does not seem that alternatives to a two-tiered solution were discussed in the negotiations.
In each negotiation round, the EFTA/EEA and the EU have presented calculations of what they see as a reasonable contribution. However, the objective calculation on each side has always been far from one another (Gahr Stre 2008a). There has been some frustration in the EU about a lack of explicit numerical figures from the EFTA/EEA side in the negotiations. There has been some annoyance with the blue sky bargaining from the EU side. However, the Norwegian government has accepted the principle that it is to contribute. Thus, the distance has been great but there has always been an understanding that the EFTA/EEA side must contribute to the reduction of disparities in the EEA.
The contribution increased substantially in 2009-2014. However, according to Mrs. Sletnes, 10 per cent of this rise was because of inflation adjustment (Mellvang-Berg 2009e). This was also part of the explanation for the untouched level of support in 1998/1999. The routine of inflation adjustment of the contribution is a strong indicator that this is something that has become an integral part of the EEA agreement.
It appears that prior actions by Norway create expectations about the future actions. Rossavik (2008) points to the fact that Mr Jonas Gahr Stre, in his biannual address to the Storting on important EU and EEA matters implicitly stated that Norway was ready to continue its contributions to the poorer regions of the EU. This was more or less the same message that had come from Mr Kjell Magne Bondevik, in the wake of the negotiations in 2003. It should be added that
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the willingness to contribute to the CEECs was already officially signalled in the negotiations in 1998-1999. The statements from Norway create expectations. In 2007 one saw that Bulgaria and Romania expected an equal treatment to the other accession countries with regard to EFTA/EEA support. The outcome of the negotiations was in line with this demand.
The Swiss do not contribute to Greece, Portugal and Spain. This adds to the explanatory power of a more path dependent perspective. Norway faces tough demands from these countries because they were used to receiving the support. Switzerland did not face the same demands because the Swiss had not entered the role as donor state for the Mediterranean states. However, Switzerland has more bargaining chips in its encounters with the EU. Further, their ratification requirement of a referendum of financial arrangements mean that power asymmetry and imbalances in bargaining strength is watered down. This can help explain that they contribute about half per capita to their financial arrangements compared to Norway. Norway has contributed for 13 years longer than Switzerland and Norwegian contributions are to a greater extent taken for granted than the Swiss contributions. One can only speculate on how the round in 1998/1999 would have been if Switzerland had become part of the EFTA/EEA. It is plausible that it would continue and the level of contributions would remain the same for the EFTA/EEA side today. However, it is also plausible that the arrangement would have ended in 1998 and that the support to Greece, Portugal and Spain would have ended. It might also be that the EUs internal distribution of EFTA/EEA support would have been different. This is counterfactual and therefore not something one can know for certain. plausible that the outcome would be different. Nevertheless, it is very
Norwegian politicians are prepared to continue their support also after 2014. A telling comment is that the SCFAD in its Recommendation No. 22 S (2010-2011) (2010) referred to future negotiation rounds. This can be interpreted as a confirmation from the parties in the Storting that the financial arrangements are seen as a lasting arrangement, if not permanent. Importantly, the Norwegian Government emphasises that it was not legally obliged to continue the financial arrangements after their expiration the 30th of April 2009 (Proposition 160 S
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(2009-2010) 2010: 2). At the same time the opinion of the Norwegian Government is that Norway should contribute to economic and social cohesion in the EEA as it furthers fundamental Norwegian interests (Proposition 160 S (20092010) 2010: 2).
4.0 Conclusion
This thesis aimed at explaining the emergence, continuation and development of the financial arrangement channelling money from the EFTA/EEA states to poorer EU states. Obviously, the EU has become larger and poorer from 1992 to 2010. At the same time as the EFTA/EEA has become smaller and relatively richer. The recent developments in Iceland, which might end up as the 28th EU member in the near future, show that the picture is perhaps more nuanced. The general attention given to Norway by the EU has become marginal since the relationships became clear with the EEA agreement and the second rejection of Norwegian EU membership through the referendum in 1994. Fears of further marginalisation have been expressed by the Norwegian Minister of Foreign Affairs, Mr Gahr Stre, with regard to the development of the European External Action Service (EEAS). These development condition the relationship between Norway and the European Union.
It does not seem that normative considerations have much explanatory power. It should instead be looked at in the context of the power asymmetry of the parties. Thus, it becomes a way in which the EFTA/EEA states can stay relevant for the EU. It seems that the fear of appearing as a free rider is greater than the possibility of appearing as a country which does not show solidarity with its neighbours. One should also remember that Norway has international credentials for having a foreign policy inspired by altruism. It is one of the largest contributors to the UN considering its size.
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Each negotiation round and their outcomes have been described and analysed. The different negotiations happened at different times with different contextual factors. These factors are too many to mention but a plausible narrative is that the establishment of the Financial Mechanisms in 1992 with the signing of the EEA agreement was seen by EFTA and EU negotiators as an insignificant decision. The demand for continuation of financial arrangements was perhaps seen by the Norwegian government as principally wrong but a small price to pay in order to be able to take part EU projects and preventing political conflicts. One ought to take into account that this was shortly after a very divisive domestic debate on Norwegian EU membership. It is possible that one in Norway underestimated the magnitude of the Eastern enlargement in 2004. It might be that the Norwegian government understood after some consideration that it had to take part in the challenge of reuniting Europe and that the modest sums previously provided were not enough. The principle of reducing poverty was already de facto accepted in 1999 through the continuation of the financial arrangement. It was arguably de jure accepted in 2004 through the introduction of Article 9 of Protocol 38 A which called for a review of the need for continued support at the end of the agreement. This is where one is now. Many factors have played their part in the process until today. One should remember the contextual factors of fundamental asymmetric relations between the EFTA/EEA and the EU. However, the evidence indicates that asymmetric relations did not play a significant role in the negotiations in 1998/1999. This was a vital negotiation round for the explanation based on path dependence. What appears to be clear is that Norway and the other EFTA/EEA states have accepted that the FMs have become a permanent temporary feature of the EEA agreement. This indicates that the financial arrangements have become an institutionalised part of the EEA agreement.
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5.0 References
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6.0 Appendices
Contains 7 appendices: 1) Protocols of the EEA Financial Mechanism (FM) 2) Duration of the negotiations 3) EUR per Capita 4) Net Balance 5) Net income/expenditure as % of GDP 2008 6) CPI Score from the 2010 report on corruption from Transparency International
Appendix 1. Protocols of the EEA Financial Mechanism (FM)

1994-1998 Protocol 38 1999-2003 Protocol 31 2004-2009 Protocol 38 A 2007-2009 Addendum to Protocol 38 A 2009-2014 Protocol 38 B
Protocols of the EEA FM
Appendix 2. Duration of the negotiations Started 1999-2003 2004-2009 2007-2009 2009-2014 6th of October 1998 9th of January 2003 5th of July 2006 September 2009 Ended 20th of April 2000 6th of June 2003 29th of March 2007 18th of December 2009 Duration 1 year year year year
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Appendix 3. EUR per Capita (Marcu 2009; Folketinget 2010)
EUR Per Capita 2008

600,00 550,00 500,00 450,00 400,00 350,00 300,00 250,00 200,00 150,00 100,00 50,00 0,00 -50,00 -100,00 -150,00 -200,00 Denmark France Spain Hungary Germany Belgium Finland
Ireland
Portugal
Malta
Bulgaria
Sweden
Norway
Slovenia
Netherlands
Romania
Slovakia
Estonia
Iceland
Luxembourg
Liechtenstein
Switzerland
Appendix 4. Net Balance (Folketinget 2010)

Net Balance 2008
6500,00 6000,00 5500,00 5000,00 4500,00 4000,00 3500,00 3000,00 2500,00 2000,00 1500,00 1000,00 500,00 0,00 -500,00 -1000,00 -1500,00 -2000,00 -2500,00 -3000,00 -3500,00 -4000,00 -4500,00 -5000,00 -5500,00 -6000,00 -6500,00 -7000,00 -7500,00 -8000,00 -8500,00 -9000,00 Germany Hungary Portugal Sweden Norway Cyprus
Czech Republic
Great Britain
Luxembourg
Denmark
Romania
Iceland
Finland
Switzerland
Lithuania
Poland
France
Latvia
Italy
Spain
Belgium
Slovenia
Bulgaria
Netherlands
Great Britain
Liechtenstein
Slovakia
Estonia
Czech Republic
Greece
Austria
Ireland
Malta
Lithuania
111
Greece
Austria
Cyprus
Poland
Latvia
Italia
01.12.10
Appendix 5. Net income/expenditure as % of GDP 2008 (Eurostat 2010; Folketinget 2010)
Net income/expenditure as % of GDP 2008
2,70 2,60 2,50 2,40 2,30 2,20 2,10 2,00 1,90 1,80 1,70 1,60 1,50 1,40 1,30 1,20 1,10 1,00 0,90 0,80 0,70 0,60 0,50 0,40 0,30 0,20 0,10 0,00 -0,10 -0,20 -0,30 -0,40 -0,50 Cyprus France Lithuania Belgium Latvia Slovakia Bulgaria
Czech Republic
Netherlands
Great Britain
Denmark
Luxembourg
Liechtenstein
Germany
Appendix 6. CPI score from the 2010 report on corruption from Transparency International (2010) Country Rank 8 10 11 14 26 27 28 30 32 37 41 46 50 53 57 57 68 73 78 Name Switzerland Norway Iceland Ireland Estonia Slovenia Cyprus Spain Portugal Malta Poland Lithuania Hungary Czech Republic Latvia Slovakia Romania Bulgaria Greece Corruption Perception Index (score) 8.7 8.6 8.5 8.0 6.5 6.4 6.3 6.1 6.0 5.6 5.3 5.0 4.7 4.6 4.3 4.3 3.7 3.6 3.5
http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results
112
Switzerland
Romania
Portugal
Hungary
Sweden
Norway
Slovenia
Estonia
Finland
Iceland
Austria
Greece
Spain
Ireland
Poland
Italy
Malta
01.12.10
7.0 End Notes

i
Nasjonal internasjonalisme. Norsk bistand har i hyere grad enn for mange andre land vrt preget av ideelle motiver. iii The Norwegian expression is humanitr stormakt. iv Dette har noe med Wergeland og Bjrnson gjre med historie og tradisjon og nsket om leve opp til den anseelse som Fridtjof Nansen skaffet Norge gjennom sin innsats for flyktninger etter den frste verdenskrig. v Norge er en rik nasjon som deler sine ressurser med andre gjennom humanitr aktivitet og fredsarbeid. vi Norge er en nasjon som ikke gjr nok for utvikling og fred. vii Kravene om at vi skal betale for at Sveits ikke vil vre med i ES, er urimelige og ulogiske. viii andre EU-land sttter kravet fra sine egne medlemmer. ix Agenda 2000 utgjr en enorm oppgave for det tyske formannskapet, og vi nsker se EFTAbidragene i lys av dette. x Vre penger skal ikke g til landene i st. De er jo ikke medlem av EU enn. xi Lne- og tilskuddsordningen ble aldri oppfattet som en varig ordning[]Det var ingen tvil om dette. Vi hadde til og med en arbeidsgruppe som arbeidet med saken. Dens innstilling var klar. Jeg kan ikke forst at det kan oppfattes p noen annen mte. xii Umiddelbart stiller jeg meg undrende. Et slik krav m sies vre i strid med ES-avtalen, men vi vil naturligvis se p saken og studere p hvilken mte kravet er kommet opp. xiii Men det er en grense for hvor langt vi kan g i sttte Norge, et land utenfor Unionen. xiv Vil man g til krig for et belp p 200 millioner kroner i ret, s vr s god. For oss er det snakk om et viktig prinsipp som er nedfelt bde i EUs unionstraktat og i ES-avtalen. Pengene er av mindre betydning. xv Vi er enige om at dette er en ny ordning, og ikke en fortsettelse av protokoll 38 i ES-avtalen. xvi Vi flger EUs egen utjevningspolitikk. xvii norske bidrag m ogs bidra til fremme norske interesser i EU og styrke vre forbindelser med de nye medlemslandene. xviii i lys av konomiske og sosiale forskjeller innenfor ES. xix - Vi m bare innse at dette blir krevende. Et EU med ti nye medlemsland vil i antall innbyggere vre 100 ganger strre enn ES-landene til sammen. xx EU-siden ville reise sprsml om viderefring av ES-avtalen. xxi ES-avtalens framtidige vre eller ikke vre var den reelle situasjonen vi sto overfor i forhandlingene. xxii Det er idag ikke noe reelt alternativ til ES-avtalen for ivareta vre interesser vis--vis EU. xxiii for opprettholde et enhetlig indre marked er det svrt viktig at de to avtalene trer i kraft p samme tidspunkt. xxiv gjennomgangen [av utvidelsesavtalen til EU] mtte utfres p meget kort tid, fra de relevante tekstene fra EU-utvidelsen ble gjort tilgjengelige for EFTA-siden ved rsskiftet [2002], og fram til forhandlingene om ES-utvidelsen ble avsluttet [juni 2003]. xxv basert p en absurd regnemetode som gir absurde tall. xxvi Kvifor gjekk forhandlingane drleg? Ein viktig grunn til eit s uheldig
ii
forhandlingsresultat er at Regjeringa har gjeve dei norske forhandlarane ein usedvanleg svak forhandlingsposisjon.
xxvii
alle produkter vi [Norge]ba om. Mitt nske er gjre utenrikspolitikken enda mer verdibasert. Den skal utvikles til et stadig sterkere redskap for fremme overordnede ml som fred og frihet, forsoning, demokrati og menneskerettigheter, fattigdomsbekjempelse og kologisk brekraft. xxix behovet for slik hjelp langt strre i dei europeiske landa som ikkje blir medlemmer av EU, og som derfor heller ikkje fr EU-sttte i det omfanget som dei nye medlemsstatane vil f. xxx Under detta lg det kanske et resonemang att om man inte bidrar mer s blir det en slags freerider. Det gr inte att komma frn.
xxviii
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Det er ytterst merkelig om Europas rikeste land, som vil ha tilgang til markedet, ikke skal betale like mye som Sverige med vr drlige konomi og Danmark og Finland med deres drlige konomi. xxxii N har vi mulighet til gjre dette [finansieringsordningene] rettferdig. xxxiii Om betydeligt fattigare EU-lnder bidrar s var det svrt att frst varfr inte de hr lnderna skulle bidra. xxxiv Jag tyckte allts att den tidigare situationen var orimlig. xxxv EU har ikke lenger rd til la sin rikeste venner delta p like vilkr i det indre marked med et bidrag som ikke er i samsvar med deres konomiske styrke. xxxvi Jeg tror det er viktig at man ikke sitter igjen med inntrykket av at Norge er et land som bare skal ha fordeler, men at det ogs er sprsml om bidra[]Norge er et land som ogs bidrar til det felles beste. xxxvii P den annen side er det mange i Europa i dag som ser med kende uvilje p at vi sitter p vr store pengebinge og vre olje- og gassreserver, men nekter ta solidarisk del i utviklingen og oppbyggingen av et Europa. Denne ulempen br vi gjre noe for kompensere[...]Vr solidaritet med de Europeiske stater og USA br ikke trekkes i tvil[]Man br ikke f det inntrykk at vi til de grader er oss selv nok. xxxviii S bevisstheten om ES-avtalen er noe Norge m kjempe om hver eneste dag, for srge for at den er p plass. xxxix Vi var enn ikke med og skulle liksom vre glade for det vi fikk. xl som en direkte kostnad av ES-utvidelsen. xli vurdere behovet for fortsatt bistand for utjevne konomiske og sosiale forskjeller innenfor ES. xlii enige om at de forskjellige finansielle bidragsordingene som er avtalt i forbindelse med utvidelsen, ikke skal utgjre noen presedens for tiden etter at de utlper 30. april 2009. xliii Finanskrise som rammet flere av mottakerlandene, og som jo ikke akkurat minsket fokuset p at rike Norge kunne bidra. xliv -hvis det er realiteter i dette, er dette utpressingen uten saklig grunnlag fra EUs side. xlv uanstendige og ublu. xlvi Det kan ikke vre slik at himmelen er mlet hver gang vi skal forhandle om finansieringsordningene i ES. xlvii viktig bruke forhandlingene til sikre fiskerinringen bedre markedsadgang i EU. xlviii Norges generelle omdmme og profilering i mottakerstatene vil bli styrket gjennom at Norge bidrar til statenes sosiale og konomiske utvikling innen viktige omrder. xlix Historisk mulighet. l Hente ut politisk kapital av investeringen. li isolering av offentlige bygninger i Polen. lii - Vi fikk 100 prosent gjennomslag for omrdene vi nsket bruke penger p. liii sikrer sterkere fokus p strategiske interesser. liv Min generelle holdning har vrt jeg tror det ogs var den forrige regjeringens holdning at vi heller har vrt grundige og varsomme enn det motsatte nr det gjelder vurderinger av prosjekter fr det kommer til utbetaling. lv mellom disse forhandlingene og EUs interne vedtak om fordeling av EU-midler. lvi det er enn ikke enighet innad i EU om fordelingen av pengene[]det er en ganske heftig kamp mellom landene, fordi det ses i sammenheng med deres vrige fordeling p rene EUprogrammer. lvii Det at det har vart helt til n, er ikke bra. lviii betale, smile og prve vre glade lix vi mener at Kommisjonens opprinnelige krav er urimelige og minner ogs om at det denne gang, i motsetning til forrige forhandlingsrunde, ikke skjer en utvidelse av ES med flere medlemsland. lx p en vurdering av hva som er et rimelig norsk bidrag. lxi skal g til de statene som trenger det mest. lxii - EU-saken sprenger enhver tenkelig regjeringskonstellasjon. Det vil bli en regjeringsendring hvis den saken blir tatt opp. lxiii I fremtige forhandlingsunder. lxiv Hittil har det norske bidraget vrt svrt begrenset. EU har ikke lenger rd til la sine rikeste venner delta p like vilkr i det indre marked med et bidrag som ikke er i samsvar med deres konomiske styrke. lxv man kan inte ta kakor och samtidig ha dom kvar. 114

lxvi
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Norsk utenrikspolitikk utformes alts bde for kunne ivareta direkte og indirekte nasjonale interesser, og ikke minst vre politiske og moralske fellesforpliktelser. Det ene utelukker ikke det andre.
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Master Thesis - The Institutionalisation of Financial Arrangements in The EEA Agreement

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Student Name: Tom Oddgeir Johnsen Student Registration Number: 0850242 Supervisor: Ulf Sverdrup

BI Norwegian School of Management GRA 1903 Master Thesis

The institutionalisation of financial arrangements in the EEA agreement

Exam code and name: GRA 1903 Hand in date: 01.12.10

Program: Master of Science in Political Economy

1.0 Introduction ....................................................................................... 1

2.0 Theories .............................................................................................. 8

3.0 Financial Arrangement from the EFTA/EEA to the EU/EEA ... 20

4.0 Conclusion........................................................................................ 98 5.0 References ...................................................................................... 100

6.0 Appendices ..................................................................................... 110 7.0 End Notes ....................................................................................... 113

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

2.1 Realism / Rationality

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

Fiskeri- og havbruksnringens landsforening 12

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

2.3 Path Dependence

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

3.0 Financial Arrangement from the EFTA/EEA to the EU/EEA

2009-2014 Norway 1745 EFTA 988.5

3.1 The trend over the years

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

3.2 The Creation of the Financial Mechanism

GRA 1903 Master Thesis

(EFTA 2002: 47)

This meant that updates of the EEA Agreement had to be made. 25

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

Nei til EU - the Norwegian organisation against Norwegian EU membership. 29

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

The beneficiary states and their share (table 4):

% of total 58,70 % 18,48 % 17,81 % 4,60 % 0,42 % 100,1 % (because of rounding)

(EFTA 2002: 50)

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis

GRA 1903 Master Thesis