* Norway model includes Brussels' rules, migrants, money
* Swiss deals under threat over migration battle
* Pure trade deal has no migration, money, but can take
years
By Philip Blenkinsop
BRUSSELS, June 28 (Reuters) - With no suitable ready-made
deal, the European Union and Britain could face years of
negotiations to find a settlement that balances London's wish to
maximise access to EU markets with its demand to regain
sovereignty and limit migration.
The EU's off-the-shelf model, the European Economic Area,
extending EU markets to Norway, Iceland and Liechtenstein, ticks
the box of securing market access, although excludes agriculture
and fisheries.
The City of London, the country's financial hub, is in talks
with government officials to secure a trade deal similar to
Norway's that would allow it to sell financial services across
the EU single market of 27 countries.
"Clearly, one of the options is the Norway model, but
whether that is acceptable to people who wanted Britain to leave
is another matter," said Mark Boleat, City of London head of
policy, adding trade bodies and others have been in "non-stop
meetings" since late last week when Britain voted in a
referendum to leave the EU.
However, the model gets a sizeable cross because it would
mean accepting rules set by Brussels, free movement of people
and payment. Many backers of the campaign to leave the bloc
complained the EU had eroded Britain's sovereignty and allowed
uncontrolled numbers of migrants to arrive from eastern Europe.
Liechtenstein has some control on migration, its tiny size
limiting the right to reside there, although around half of its
workforce still commute from neighbouring countries.
Norway pays an annual 400 million euros ($443 million)
mainly to support eastern EU members and another 400 million
euros into EU programmes, such as the Galileo satellite
navigation project, some of which it gets back.
Norway's Prime Minister Erna Solberg has said she doubts a
Norway-style relationship with the EU would work for a much
larger country such as Britain, with its history.
"We accept a lot of the rules and regulations that are part
of the internal market decided by roundtables that we don't
participate in," Solberg said.
"Norway is a small country with a different history. We can
accept it because it gives market access, job security, it makes
it possible to secure economic growth," she said.
The EU-Swiss approach has been a patchwork of agreements,
but the two have stopped short of an agreement covering
financial services. Swiss banks are not allowed to directly
sell products in the bloc.
The deals include free movement of people, although the
parties are wrestling with a 2014 referendum at which the Swiss
expressed their desire to curb migration.
The Swiss also have to pay for access, although at around
half the rate related to gross domestic product as Norway.
FAILURE NOT AN OPTION
A failure to reach an agreement is not an option for either
side. Britain is in the top six world economies and a trade war
would damage both sides, with threats to German car sales or
Belgian ports if tariffs curbed trade.
"If you look at it rationally, there is good case to be made
for the EU to become more flexible," Pieter Cleppe of think tank
Open Europe said. "At the end of the day, reason will prevail
though there will be a lot of screaming and shouting before
then."
A number of Brexit supporters - including former London
mayor Boris Johnson, a likely contender for prime minister -
have pointed to the free trade deal (CETA) struck between the
European Union and Canada as a way forward. Agreed in 2014, it
has yet to enter force.
Under such a system, Britain would avoid having to accept
migrants from elsewhere in the bloc or contributing to the
budget, but would only secure partial access to the EU's
internal market, particularly for services, which make up nearly
80 percent of Britain's economy.
For banks, in particular, Canadian companies have to
establish a presence in the EU and comply with EU regulations.
Under this model, UK-based financial services firms could find
it more difficult to sell into the EU.
New EU rules set to enter force in 2018 may allow firms
outside the EU to sell investment services inside the bloc.
However, it does not apply to all financial services and relies
on the European Commission recognising the third countries'
rules.
Hosuk Lee-Makiyama, director of think tank European Centre
for International Political Economy (ECIPE), says that a planned
EU-U.S. trade deal (TTIP), the most ambitious each side has
undertaken, could serve as a template for future EU-UK ties.
"CETA is basically a tariff agreement, which makes sense
because Canada and the EU are mainly trading goods. The UK and
EU are much more integrated so it would need to cover services
and investment," Lee-Makiyama said.
CETA is the EU's most ambitious trade deal to date. TTIP,
still being negotiated by the European Union and the United
States, is designed to go beyond traditional tariff reduction,
including cooperation over regulation.
"If you take the European stance in TTIP, Britain has
already agreed to this and it covers regulatory cooperation,
there's already a template, but no money or migration,"
Lee-Makiyama said.
Still, TTIP talks have lasted almost three years, CETA has
yet to enter force nearly seven years after negotiations began.
Under EU law, a nation would leave the EU within two years
of its request to go unless the other member states agree to an
extension.
"It's unlikely any country would veto such an extension,"
said Cleppe. "It's conceivable that it could take seven to 10
years."
($1 = 0.9020 euros)
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