IEA Brexit Prize winning entry (part 1)

In July 2013, the Institute of Economic Affairs announced a competition to

compose a Blueprint for Britain outside the EU, covering the process of withdrawal from the EU and the post-exit repositioning of the UK in the global trading and governance systems, covering, inter alia:

  • The legal and constitutional process necessary for the UK to leave the EU and set up, if desired, alternative international relationships. This would include not just the process within the EU itself but the changes to UK law and regulation that would be desirable or necessary.
  • Negotiation of the UK’s post-EU-exit position to settle the UK’s relationships with the remaining EU and other interested parties and, crucially, with the rest of the world, in respect of trade, supranational governance, immigration, the environment, financial regulation, defence etc. 1

The winning entry, by Iain Mansfield, and entitled ‘A Blueprint for Britain: Openness not Isolation‘ was announced in April 2014. I am taking a look at it today, not to pass judgement on it as a whole, for which I am hardly qualified, but to make a few observations.

‘Between Turkey and Switzerland’ (!)

Mansfield proposes that in the event of Brexit we join EFTA, but do not join the EEA. Not surprisingly, perhaps, he has been reported as saying that ‘Britain would need to maintain Swiss-style trade ties to the EU’, the point being that Switzerland is the only country in EFTA that is not in the EEA. I don’t think Mansfield himself ever says anything like this. Indeed in a note on page 62, he states that he is proposing ‘a considerably looser partnership with the EU than Switzerland’s’. Indeed, he favours ending the free movement of people, whereas Switzerland’s relationship with the EU includes it, at least up to the present time.

Rather strangely, Mansfield writes (p. 9) that ‘The position sought should be somewhere between that of Turkey’s and Switzerland’s: membership of EFTA but not of the European Economic Area (EEA) and without application of significant portions of EU law.’ This is taken up by the IEA in their press release on Mansfield’s paper:

The precise degree of closeness should be somewhere between the positions of Switzerland and Turkey. [their highlighting]

This is strange to me because Turkey is in the European Union Customs Union, and so does not have the freedom to make its own trade relationships, a freedom which is at the heart of Mansfield’s proposal for the UK. I suppose his point may be that Turkey is not subject to ‘significant portions of EU law’. But then if his proposal is to be in EFTA, not in the EEA, but with looser ties than Switzerland, it would simpler just to say so, rather than create potential confusion by naming a country with a very different relationship with the EU and the outside world.

EFTA and the EEA

Mansfield’s paper appears to contain a confusion concerning EFTA and the EEA. EFTA is an intergovernmental free trade association consisting of only four countries. The European Economic Area came into being in 1994 through the EEA Agreement between the European Community nations and three of the EFTA nations. Those three EFTA nations adopt, on a continual basis, that part of the EU acquis which is relevant to the  Single Market, but can not vote on the legislation either in the Council or in the European Parliament.

On page 24, Mansfield correctly says that ‘membership of EFTA … would … need to be agreed by a unanimity of EFTA states.’ But what is one to make of the immediately following sentence?

Whether Qualified Majority or unanimity is required for a current EU (and therefore EFTA) member seeking to ‘downgrade’ its membership from EU to EFTA status is a matter of legal debate.

First of all, if a nation is in the EU, then it is not in EFTA, so the parenthesis is not intelligible, at least to me. Perhaps ‘EFTA’ should read ‘EEA’ here. Second, I do not understand how leaving the EU and joining EFTA can be described as a downgrading of membership. We would no longer be a member of EU and we would then be a member of EFTA. Could Mansfield mean ‘membership’ of the EEA, and that participation in the EEA through EFTA is at a lower level, so to speak, than participation through the EU? But the EEA is an area, not a membership organisation.

There is further evidence of confusion. On page 9, Mansfield says that:

zero tariffs … on bilateral trade between the UK and the EU in all areas other than agriculture…. would ideally be achieved by joining … EFTA, similar [sic] to Norway, Iceland or Switzerland

It is hard to see how joining EFTA but not joining the EEA could be said to bring about zero tariffs on non-agricultural goods. Switzerland has I think achieved an equivalent tariff regime to Norway and the other EEA countries, 2 but this has been through bilateral agreements, and it is not obvious to me that its membership of EFTA is directly relevant to those.

Again, on page 25, Mansfield says that one of the UK’s two highest priorities:

must be to secure EFTA access to the European market

Likewise, on page 45, describing his ‘Best Case’ and ‘Most Probable’ scenario, Mansfield refers twice to ‘securing EFTA access’. What is this ‘EFTA access’? The only access to the European market that can legitimately be described as ‘EFTA access’, so far as I can see, is through becoming a party to the EEA Agreement, but this Mansfield rejects.

On page 47, Mansfield refers to the EU permitting ‘continued preferential trading arrangements … through membership of EFTA’. Once more, on page 49, he suggests that joining EFTA would bring about ‘at least some degree of reduced access to the Single Market’.

I don’t understand any of this. Joining EFTA would give us free trade with Norway, Switzerland, Iceland and Lichtenstein, and could enable us to participate in the free trade arrangements between EFTA and certain (non-EU) nations and trading blocs, but it would not in itself give us free trade with the EU unless we joined the EEA. The only thing I can think of is that Switzerland’s membership with EFTA, and association with three EFTA countries in the EEA, somehow enabled her to join the Single Market in the way she did. But I have never heard this suggested, nor can I immediately see why this should be.

Continued in Part 2

Update 12 April 2016

I have found a reference to an existent FTA between the EU and EFTA, in a paper called ‘If the UK votes to leave’ (January 2016) by Jean-Claude Piris, a former Director General of the Legal Service of the Council of the European Union. He writes (p. 8):

If the UK were merely to rejoin EFTA, it would achieve very few economic benefits. Given the development both of the EEA and of bilateral relations between Switzerland and the EU, the FTA between the EU and EFTA has become almost an empty shell, containing little of substance. The FTA covers only trade for some fish and agricultural products, and no services at all. It is not linked to either the EEA, or to the 1972 trade agreement (modified several times) between Switzerland and the EU. EFTA membership would not give the UK access to the many FTAs concluded between the EFTA states and third countries; the EFTA itself does not broker FTAs.

Thus, joining EFTA would do very little to provide British firms with preferential access to key European or other export markets.

It’s a bit odd that he talks about an FTA between the EU and EFTA, and then say that ‘EFTA itself does not broker FTAs’. It’s also odd that it is not listed among EFTA’s current FTAs at http://www.efta.int/free-trade/free-trade-agreements. If Piris is right that it does exist, it would seem to cover only fish and agricultural products, and would do ‘very little’ to provide ‘to provide British firms with preferential access to key European … markets.’

 

Notes:

  1. ‘Iain Mansfield named winner of €100,000 IEA Brexit Prize’. Link.
  2. Ronald Stewart-Brown, Switzerland, Norway and the European Union (Global Britain Briefing Note, April 2001) Table B. Link.

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