by John Brian Shannon | August 26 2016
As the UK government gears up to deal with the will of voters, four paths to trade in Europe appear that merit consideration
- EEA membership
- EFTA membership
- WTO rule-based membership, sans EEA or EFTA
- Negotiated trade deals that are none of the above
EEA membership would qualify Britain to trade with other EEA member nations, all of which are located in Europe, but not all are members of the European Union.
From the EEA website:
The EEA Agreement provides for the inclusion of EU legislation covering the four freedoms — the free movement of goods, services, persons and capital — throughout the 31 EEA States. In addition, the Agreement covers cooperation in other important areas such as research and development, education, social policy, the environment, consumer protection, tourism and culture, collectively known as “flanking and horizontal” policies. The Agreement guarantees equal rights and obligations within the Internal Market for citizens and economic operators in the EEA.
What is the EEA Not?
The EEA Agreement does not cover the following EU policies:
- Common Agriculture and Fisheries Policies (although the Agreement contains provisions on various aspects of trade in agricultural and fish products);
- Customs Union;
- Common Trade Policy;
- Common Foreign and Security Policy;
- Justice and Home Affairs (even though the EFTA countries are part of the Schengen area); or
- Monetary Union (EMU).
The Agreement on the European Economic Area, which entered into force on 1 January 1994, brings together the EU Member States and the three EEA EFTA States — Iceland, Liechtenstein and Norway — in a single market, referred to as the “Internal Market”.
Switzerland is not part of the EEA Agreement, but has a bilateral agreement with the EU. You can read more about this agreement on the European Commission website, and on the Swiss Federal Administration website.
EFTA membership governs free trade relations between EFTA States, which in 2016 are Iceland, Liechtenstein, Norway and Switzerland. Britain was a founding member of the EFTA in 1960 until 1973 when it joined the EC. It would need to apply to the EFTA in order to become a member.
From the EFTA website:
The European Free Trade Association (EFTA) is an intergovernmental organisation set up for the promotion of free trade and economic integration to the benefit of its four Member States.
The Association is responsible for the management of:
- The EFTA Convention, which forms the legal basis of the organisation and governs free trade relations between the EFTA States;
- EFTA’s worldwide network of free trade and partnership agreements; and
- The European Economic Area (EEA) Agreement, which enables three of the four EFTA Member States (Iceland, Liechtenstein and Norway) to participate in the EU’s Internal Market.
EFTA was founded in 1960 on the premise of free trade as a means of achieving growth and prosperity amongst its Member States as well as promoting closer economic cooperation between the Western European countries. Furthermore, the EFTA countries wished to contribute to the expansion of trade globally.
Based on these overall goals, EFTA today maintains the management of the EFTA Convention (intra-EFTA trade), the EEA Agreement (EFTA-EU relations), and the EFTA Free Trade Agreements (third country relations). The EFTA Convention and EFTA free trade agreements are managed by the Geneva office, and the EEA Agreement by the Brussels office.
EFTA was founded by the Stockholm Convention in 1960. The immediate aim of the Association was to provide a framework for the liberalisation of trade in goods amongst its Member States. At the same time, EFTA was established as an economic counterbalance to the more politically driven European Economic Community (EEC). Relations with the EEC, later the European Community (EC) and the European Union (EU), have been at the core of EFTA activities from the beginning. In the 1970s, the EFTA States concluded free trade agreements with the EC; in 1994 the EEA Agreement entered into force. Since the beginning of the 1990s, EFTA has actively pursued trade relations with third countries in and beyond Europe. The first partners were the Central and Eastern European countries, followed by the countries in the Mediterranean area. In recent years, EFTA’s network of free trade agreements has reached across the Atlantic as well as into Asia.
EFTA was founded by the following seven countries: Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the United Kingdom. Finland joined in 1961, Iceland in 1970 and Liechtenstein in 1991. In 1973, the United Kingdom and Denmark left EFTA to join the EC. They were followed by Portugal in 1986 and by Austria, Finland and Sweden in 1995. Today the EFTA Member States are Iceland, Liechtenstein, Norway and Switzerland.
World Trade Organization (WTO) membership is perhaps the easiest way forward as Britain (and virtually all nations) are already members and the WTO is merely a standardized set of rules that govern trade between nations.
The present ruleset governing UK trade is the EU ruleset, meaning that who the UK trades with, tariff rates, and other rules and conditions have been decided by 28 EU nations — and not always in the interests of the UK — but in the combined interest of 504 million EU citizens.
The main thrust of this means that WTO rules would continue and that the UK would not be allowed to charge higher tariffs on EU-sourced imports, than what the EU charges on UK imports into the EU. Although the UK could certainly decide to charge lower tariffs than the EU charges. That could be a significant benefit for some UK industries.
There are other benefits to WTO membership. And as most nations are WTO members anyway, the ruleset is well-understood around the world.
In February 2014, the Swiss voted in a referendum to no longer pursue EU membership and left the bloc. The government of Switzerland has therefore negotiated a series of bilateral trade agreements with the European Union AND is a member of the EFTA, but not the EEA.
Of course, WTO rules still apply — unless both parties agree to abrogate or change some of the WTO rulesets.
Keep in mind that both the EFTA and EEA are European trading area agreements and don’t apply anywhere else in the world, while the WTO applies everywhere.
Therefore, non-EU trade will be largely governed by WTO rules (as is the case with most countries) while Britain’s trade with the EU could take several different paths.
Any combination of WTO, EFTA, or EEA, or bilateral agreements that supercede WTO rulesets could be negotiated between Britain and the EU.
At the end of it all, why did 17 million+ voters choose to Brexit?
Two main themes appeared to gain considerable traction during the campaign.
One, the democratic deficit in Brussels, and two, the wholly unregulated movement of people from eastern Europe and the Middle East/Levant and a complete breakdown of the Schengen Area border control system.
Brexit effectively solves the democratic deficit problem in Brussels by returning governance to the House of Commons and the House of Lords. While the mass migration problem is solved as Brexit returns sovereignty of Britain’s borders to the UK government.
The revised EFTA convention (the Vaduz Convention) extends beyond free trade in goods, and includes provisions on free trade in services and the free movement of capital and of persons. None of these should be problematical to the UK given that the Vaduz Convention only applies between its members and so would not act as a gateway for the free movement of persons from the r-EU or elsewhere. All four EFTA states have standards of living comparable to or even higher than the UK so do not present any mass migration risk. — Brexit and International Trade Treaties, The European Free Trade Association (EFTA)
Recommended Read Brexit and International Trade Treaties by Lawyers for Britain
None of this can occur until Article 50 is triggered and a 24 month clock begins ticking to end Britain’s membership in the European Union.
It would be quite wonderful if Prime Minister Theresa May would hold a press conference every six months to inform Britons of the various areas of progress and ongoing obstructions until the Brexit process is complete — a process that could take as long as 5-10 years from the June 23, 2016 start date.
We are in uncharted waters and Britons are excited to be getting their country back. They know it’s going to take time, resolve, and they know full well that there will be difficulties along the path to restoring Britain’s full sovereignty. But the payoff in 5-10 years will be brilliant.
Whatever Britain is now, it’s only going to get better.
Global Britain has an article that suggests as a template the Mexican/EU trade deal.
The Mexico-EU FTA and Single Market Membership Compared
Thank you for that link.
It would be great if the UK government applied to become a member-nation of NAFTA, and according to the article you suggested it would serve to streamline trade with North America without much in the way of cost or regulation.
The U.S. is the UK’s biggest non-EU trading partner (by far) so anything that can improve that relationship is valuable.
I’m not in favour of Britain copying the Mexico-EU FTA example. The NAFTA method seems simpler and as an added benefit, keeps the EU out of Britain’s trade links with North America.
Always great to hear from you!
Call it the Mexican Option.
Thank you 🙂
Here is a web site that discusses the case for NAFTA membership.
A potential disadvantage is that Britain had no involvement in the formation of NAFTA.
On the other hand, NAFTA would give Britain immediate access to a large market. Which may mesh well with proposals to revitalize British manufacturing. There is a concept to rebuild the British Brand based on British products that are/have been famous. The British Brand would be based on high quality items.
There may be other benefits for Britain. With the fuel supply from the North Sea dwindling, Britain has begun to import liquefied natural gas (LNG). The United States is poised to become a significant exporter of LNG. (I came across a proposal for a cartel similar to OPEC, for exporters of natural gas).
As a member of NAFTA, Britain would be free to make trade deals with other parties.
BTW, there is a concept for a minister of manufacturing.
Your comments are brilliant and I’m wondering if you’d like to write a post about the pros and cons of NAFTA membership for Britain, and publish it here at Letter to Britain? Your article will be warmly received.
If you agree, I will authourize WordPress to email you the log-in information and an initial password, so you could post Brexit articles, op/eds, or graphics/charts, anytime you like. Please advise.
On your above points, I couldn’t agree more!
Best regards, JBS
I will consider it. Thanks for your confidence! 🙂
I think that NAFTA should be Plan B.
Plan A should be a new agreement, negotiated by the British. An important consideration is that much of Britain’s exports are actually exported services. The NAFTA material does mention cross-border financial services, but Britain also exports legal services, services related to Information Technology, etc. I understand that barriers to the trade of services tend to be regulatory barriers, rather than tariffs, so trade in services should be specifically addressed.
Another consideration is that the enhanced Commonwealth concept is not addressed by NAFTA.
In terms of Pros, the most important aspect of NAFTA is that it already exists. It would not require years of negotiation to set up a new trade agreement, which seems to be the usual pattern. I can imagine Britain officially signing on to NAFTA two years after Article 50 is invoked.
Instead of being out in the cold, the British would definitely have somewhere to go.
In one respect NAFTA is relevant to discussion of Europe and the Single Market. During the CETA negotiations the Canadians were in a fairly comfortable position. The Canadians weren’t in a position of being needy or desperate, they were simply diversifying their trade.
If it is perceived that the British are desperate for trade agreements, it will seem that they are negotiating from a position of weakness. As perceived by the governments of candidate trade partners, and by Brussels.
How to mitigate this perception? The announcement that (informal) talks have begun regarding Plan A, with Plan B being stated as the back up plan.
I like the Plan A and Plan B scenario.
Although my view here might be non-mainstream, it’s my opinion that the supposedly dreadful after-effects of the June 23rd referendum — at least as described by the Bremainer’s ‘Project Fear’ campaign — continue to not occur. (The sky did not fall!)
Therefore, I do believe those concerns will taper as time rolls forward. Britain simply has too much going for it, it simply has too much momentum, it has too many countries offering good wishes, and there are hundreds of non-EU countries that will want to trade with the UK — which will, within five years fully displace any trade lost as a result of EU penalties or EU-centric lost opportunity.
Yes, the Sterling has fallen significantly, but that fall from 21st century highs was already underway and I contend that it’s nothing that wouldn’t have occurred anyway. Whether I’m correct in that assumption or not, the fall in the Sterling has led to a noticeable uptick in British exports. And that’s always a good thing.
I like the CETA template. I also like the EFTA template. Having NAFTA as a backup plan is wonderful — especially if it applies to not only the UK, but to all of The Commonwealth nations.
I think if NAFTA was implemented between North America, the British Isles and The Commonwealth nations, every one of those nations would see economic renewal and diversification, an uptick in trade, and dramatically stronger trade and tourism links.
As always, best regards, JBS
One implication is having two premier financial centers-London and New York-in the same trading group. I would imagine that might make possible new opportunities or synergisms. Perhaps this could be analyzed by someone who knows more about banking/investment/economics than I do.
Another consideration is the Information Revolution. One web site indicated an interest in Britain in promoting cryptocurrencies such as bitcoin (rename it “Britcoin”). I understand that the main use so far is retail over the Internet. And what about services delivered online? With a global reach? But these speculations seem too free wheeling for the EU.
London and New York in the same trading group; “…new opportunities or synergisms.”
Especially with regards to the U.S.A. economy which is a huge market that could swallow every product and service Britain could produce every day for the next 50 years, and still be hungry for more.
I like your Britcoin idea for services delivered online, and products delivered via internet shopping.
Some people appear to be dreading Brexit, but I think of it as windows of opportunity as big as the sky!
As always, best regards, JBS
JBS, I think you have an interesting idea regarding the potential scope for a trade grouping. Imagine an initial membership that includes the UK, Australia, Canada, New Zealand, and the USA. I would invite the Republic of Ireland, as well, should the Irish choose to Leave.
Imagine a loose, free-wheeling trade grouping. In an atmosphere in which innovation is prized and encouraged.
I highly value your comments and your enthusiasm for a better Britain.
The ideas you’ve shared with us should be made into policy within 6 months at the latest, IMHO.
Thank you, JBS
I wish I could reassure people in Britain that they have friends and allies outside of the EU. Including the American public. (Despite Obama’s rude/appalling comments about Brexit). Poll results have been posted online-Americans have a very favorable view of Britain.
I can give you a more subjective view-that Americans will be willing to help the British during difficult times.
I have started to notice articles advocating NAFTA membership for Brexit Britain.
(And at least one article advocating a separate UK/US trade deal instead).
I too have begun to see the odd article referring to NAFTA membership for post-Brexit Britain.
Many comments in The Guardian also urge bilateral trade agreements be negotiated now, as opposed to waiting until the day after official Brexit occurs. The reason they want the process to begin now seems to be the recent CETA agreement, which took 8-years to negotiate a free trade agreement between Canada and the EU. (Unbelievable, that it would take 8 years!)
Thanks for your comment! JBS
If the U.S. government were to walk away from NAFTA at this late date, the result would be a big mess.
What if, instead of breaking up NAFTA, the U.S. government was to propose some form of associate membership for other countries? This might be comparable to the trade deals that EFTA makes with non-EFTA countries.
Perhaps Mexico and Canada would agree to an amendment? Those countries would need to see some benefit to themselves.
One candidate that comes to mind is Cuba. I can see a deal where the United States loses it sugar industry, but Cuba adopts neutrality instead of allowing other powers to set up military bases on Cuban soil. (Consider the Cuban missile crisis).
An amendment should be written so that Commonwealth countries can be accommodated. In the mean time, Cuba as the first candidate could be something that EU officials could ignore, having no obvious tie to Brexit.
Speaking from the Canadian perspective, anytime the UK wants to join NAFTA, consider it done!
And I highly doubt that the U.S. or Mexico would have any problems with the UK joining the NAFTA family. On the contrary, the more in that family, the better. (It’s so much better to have the UK in NAFTA, as opposed to the UK joining the SCC, or any other organization, for example, from the American point-of-view)
Would you see Cuba as a potential Commonwealth member, or would you see it as a NAFTA member?
Alternatively, in the absence of either of those options, would you see a place for a bilateral trade agreement between Britain and Cuba?
I’m sure each option has it’s pros and cons.
For me, all trade is good trade! The various mechanisms employed to achieve more international trade are of less importance to me — as long as tariffs and safety regulations are standardized between the members of that trading organization (whatever form those tariffs or regulations take, is fine with me, as long as all parties agree and abide)
It would be great to read your comments on these points.
Best regards, JBS
Well, John, I understand that in 2015 the British had a mission to Cuba, and signed agreements regarding education, energy, and financial services. So…. Bilateral agreements between Britain and Cuba.
Hard to say if Cuba would be interested in joining NAFTA or the Commonwealth, but apparently the Cubans will consider bilateral agreements.
That is excellent!
To me, that is an excellent start. Something to build on.
I would hope that in a few years, with careful diplomacy exercised by the UK government, that Cuba would grow closer, even going so far as to sign onto NAFTA at the same time as the UK, or, alternatively, accept a warm offer to join The Commonwealth.
Really appreciate your information!
I have to say that I’m uneasy about Trump’s hostility to NAFTA. Not that I was ever enthusiastic about it, but I suspect that scrapping NAFTA now would cause a big mess.
And, of course, remove a possible option for Britain.
At least Trump seems willing to do a bilateral deal with Britain.
And in reference to CETA, I have across the idea of a UK/Canadian bilateral deal.
Our thoughts are aligned on this.
Many people say that NAFTA cost the U.S. 1 million jobs, however, those same people fail to note that the increased economic activity as a direct result of NAFTA created +- 2 million jobs, for a net gain of 1 million jobs stateside.
Also, GDP rose dramatically as a result of NAFTA and approximately 20 million Mexicans DID NOT migrate to the U.S. on account of U.S. automakers and others relocating some of their operations to Mexico, since NAFTA was signed.
All-in-all, NAFTA was a huge bonus for Canada, the U.S., and Mexico — with each party to the agreement getting things that were important to them via that agreement.
There are those who claim that many high-paying jobs left the U.S. for Mexico, however, it was better to lose those high-paying jobs to Mexico, than to lose them to Asia. In that way, the wealth stays on this continent, instead of transferring to a competitor continent to be used against us.
And while some won’t admit it, but there is a certain synergy that has occurred between the three NAFTA nations — where American industry and fast-food chains are the owners of such businesses in Mexico, allowing more business to be done and more profits to be made by American corporations than would otherwise have been the case.
Best regards, JBS
Good points about NAFTA, John.
At least one Brit has discussed NAFTA as a Plan B.
Is NAFTA A Plan B For UK Brexit? (FinancialAdvice.net)
That’s a great video! Thanks for the link.
Too bad it isn’t a YouTube video, I’d copy the link and paste it into my sidebar widget area on the HomePage and the Blog page (on the right-hand side) as a brief explainer of the present Brexit moment.
Just looking at the news this morning, it looks like Trump wants out of NAFTA, but wants a bilateral trade agreement with Canada.
Canada would then be free to negotiate its own bilateral trade agreement with Mexico.
President Trump has even said that he would agree a bilateral trade agreement with Mexico, but it wouldn’t be the same agreement as the U.S. would have with Canada.
As for the UK joining such an arrangement I think it’s a given that both Canada and the U.S. would warmly invite the UK to join as a full member.
Only that the UK is presently stuck in the EU prevents it from joining the negotiations now.
It just shows us again how being in the European Union is holding the UK back from reaching its full potential.
Obviously, the very best thing for the UK would be a swift WTO-style Brexit so that it can get on with not missing opportunities to become charter members of such trade agreements, instead of being late-joiners.
And just as obviously, it isn’t in the EU’s best interests for that to happen soon, as the UK is subsidizing the EU by £8 billion per year.
Therefore, a strong UK Prime Minister should be using that lever every day of the year, in order to get the Brexit deal that she wants — and not allow the EU to dictate the terms, nor own the ongoing narrative.
Thanks for posting your informative link and for your excellent comments here at Letter to Britain!
Peter Zeihan (zeihan.com) has warned in his online newsletter that simply tearing up NAFTA would result in a big mess.
One conceivable advantage of a bilateral deal is a tailor made relationship between two countries. A Mexican/Canadian deal would be tailor made for Mexican/Canadian trade. A U.S./Mexican deal would be tailor made for U.S./Mexican trade.
On the other hand, considering the Bombadier/Boeing conflict, a multi-lateral Anglosphere grouping may be advisable. Such a trade group would need some mechanism to resolve disputes.
Initial membership? UK, Canada, USA, Australia, New Zealand.
And I agree.
One of the great things about NAFTA is that it has a solid dispute resolution mechanism so that smaller partners don’t get forced into unfair conditions by the larger partner(s).
Trump wants to do away with the dispute resolution mechanism, which is of course, in America’s best short-term interests — but over time, would cause fewer nations to want trade agreements with the U.S.A.
“Who wants an unfair trade agreement with the U.S.?”
Thanks again for your comments! JBS
I’ve noticed online references to the Ukraine/EU Association Agreement in relation to Brexit.
Thank you for these links, Tim!
I’ll take a read of them.
As always, best regards, JBS