A Comparison of the Alternative Trade-Models that Could Shape the Post-Brexit Trade Deal
With sufficient progress had been made in the first phase of negotiations, the UK moves on to the second phase of negotiations on the road to Brexit; negotiating its future trade-deal with the European Union (EU).
Assuming the unlikely scenario that the UK falls back on World Trade Organization for trade-rules, it becomes important to highlight the many options of trade models that are available to the UK upon exiting the Union. Any trade agreements, however, needs to be considered in light of the compromises that have to be made.
A ‘bespoke’ trade deal is not inconceivable; it is a trade deal that responds to most UK’s concerns without any disproportional compromises. The models of Norway, Switzerland, and ‘Canada plus plus plus’ will be compared, without prejudice to other models that seem incongruous with the current political reality - like the Turkey, US-EU, and Japan and Hong kong agreement.
Norway, Iceland and Liechtenstein
Norway is not a member of the EU, but it has access to the single market by virtue of its membership in the European Economic Area (EEA).
From a financial standpoint, the Norwegian trade-model seems inviting to the UK. According to full facts organization, the cost of an EEA membership is less than that of an EU membership. Norway contributed around £115 per head in 2014, while the UK paid around £220 per head into the EU budget in the same year. Yet, considering that an EU membership offers considerably more benefits than an EEA membership, the Norwegian model seems an expensive model to adopt, even if the UK will not be contributing the same per head as Norway due to its lower gross domestic product per person. On the whole, Norway provided more than £1 billion for the EEA in a period of five years. It is doubted whether the UK is ready to engage in such a model, save that the divorce bill is still on the table.
In terms of the EU jurisdiction, Norway, unlike the mainstream view, is informally consulted on any proposal for a new EU law. It also participates in drafting those proposals the same way as any other EU member state, but it does not have any voting power as to the adoption of such proposals. It is estimated that the country is subject to roughly 21% of EU laws. However, Norway has a ‘right of reservation,’ which allows them to discard the implementation of an EU measure that would otherwise be required from member states. Nonetheless, according to a report for the Norwegian government, policy and legislation are ‘downloaded’ from Brussels nowadays, and movement of persons is exercised freely in accordance with the Treaty (by virtue of the EEA). That means that, while the model considerably narrows the influence of a Court of Justice jurisdiction on UK domestic law, it does not largely change the status quo for the UK - or at least not as hoped after the recent referendum.
In terms of the right of movement, Norway accepts the free movement of person according the Treaty. However, Prime Minister Thersea May have been constantly reminding the European Commission that Brexit must ultimately lead to changes in UK’s immigration policy. It goes without saying that adopting the Norwegian Model, irrespective of the extent to which it is adopted, will be a step backward in terms of political accountability; the model only serves to undermine the recent referendum vote in this respect.
Switzerland
Briefly, Switzerland is a member of the European Free Trade Association (EFTA), but not a member of the EEA.
Switzerland’s access to the single market is governed by hundreds of bilateral agreements rather than by virtue of an EEA membership, like Norway. Similar to an EEA membership, this access to the market sets an obligation on Switzerland to implement all the EU measures adopted to regulate trade and the free movement of persons. A recent study of laws passed by the Swiss Parliament between 1990 and 2010 found that only a quarter of the laws legislated were passed to meet Switzerland-EU treaty obligations, which means that the EU’s jurisdiction in relation to the internal market may not be particularly invasive or overwhelming on the UK if such model is adopted. Such access also comes at a relatively lower cost per head than that of what is currently paid by Norway or the UK in their financial contributions to the different organs of the EU.
Switzerland may be a desirable model for the UK to follow, but it is certainly downplays the potential of the UK to obtain an economically-superior deal, having engaged in the single market under the maximum harmonization possible to date. It is also unnecessary for the UK to engage in a multitude of new agreements, with the need to re-open trade negotiations every time it wishes to add something to the deal. Such deals are very limited in scope, which do not correspond with the high level of economic integration of the UK’s market with the EU’s internal market. Indeed, Switzerland’s model is unattractive to the UK, not least if the UK has the option to stay in the maintain access to the single market by limiting its participation in it.
Canada Plus Plus Plus
The CETA is a new trade agreement that cuts about 90% of tariffs between Canada and the EU, along with other incentives aimed at boosting trade and investments. It is a more limited version of the above agreements that attempts to govern all matters of mutual interest within a single agreement.
Unlike Canada, Britain’s high level of integration in the EU should be a significant determining factor in any future trade deal with the EU. Adopting a similar agreement to that of Canada’s assumes almost no previous trade relationships between the UK and the EU, save by WTO trade-rules. Canada’s model will offer much greater - but not complete - sovereignty to the UK, as the EU maintains the power to regulate some aspects of the trade. A similar deal is also estimated to add a further £60 billion debt between the UK and the EU, which is simply uncalled for at this time.
Despite the forgoing, this model gained much attention with some government officials in favour of a similar model with much added benefits. However, before we commit to how much added-value the UK could achieve, the value that could be lost in adopting a similar model should not be taken lightly - the value from the 40 years of gradual outsourcing of policy-making, supporting, and sharing competences over a wide range of policy areas. If we overlook the reality of the economic and legal integration of the UK in support of adding many plus(s) in services or otherwise, the UK will only go so far in its trade relationship with the EU.
There is no doubt this stage of negotiation calls for difficult decisions. The recent efforts by the European Union Committee should be commended for clearly outlining all options for trade available to the UK. Nonetheless, it is imperative that the government draws a clear plan going forward, not least in relation to any interim arrangements.