Part of the explanation for the British vote to exit the EU is a reaction to the uncertainty and fast pace of change brought about by globalisation. The calls to ‘take back control’ and for the UK to be fully sovereign are a rhetorical expression of this malaise.
Yet, how many countries are truly sovereign in this idealistic way?
Once the government of any territory wants to interact—even in a purely transactional way—with other jurisdictions, there must be some level of co-operation, if not compromise, which represents pooled sovereignty.
Of course, either party can disengage at any moment, but the mutual benefit of trade and other forms of interaction tend to outweigh the costs. And so, while control over many areas of domestic policy is always held internally, the notion of pure “sovereignty” can only be expressed negatively, by the act of disengaging and going it alone.
As many others have observed, the UK is seeking to square a circle if it really seeks to retain pure, disengaged sovereignty alongside fairly open trade and other interaction with the EU. The continued push to ‘take back control’ seems to be informing the view that the UK can—once and for all—make a deal with the EU.
There are precedents for this kind of deal of course, in the form of TTIP and CETA, but opposition to these deals has exposed a fundamental contradiction at their heart: the attempt to create a ‘once and for all’ type trading deal is inflexible and undemocratic.
Such deals must inevitably collapse if major changes occur that make one side a net loser from participation or that make the deal unacceptable to an electorate. (These treaties assume that a fixed deal represents a win:win scenario for both sides due to the mutual benefit of increased trade).
The likelihood of an electorate withdrawing consent to such a deal is strongly linked to an evaluation of whether or not the deal continues to represent a ‘win’.
The quest for certainty in a rapidly changing global world is fuelling the drive for this kind of deal. Yet, the rigidity and democratic deficit inherent in such deals represents a poor quality option for an open trading economy like the UK.
It also represents a weak option when it comes to rapid co-operation on issues like security or refugees. And it may exclude mature co-operation on tackling global problems like climate change.
The UK must change on foot of the deep social divisions that have been exposed by the referendum. The EU must change as similar social and economic divisions are rife across Europe and are fuelling nationalist political projects that threaten the union’s future. Both must change over time for countless reasons, such as their ageing populations and climate change.
How can there be a stable agreement between the UK and EU when both sides are moving targets? Even if such a mammoth document could be negotiated—and it would take years—future changes could put that agreement under pressure if one side wanted to change its policies in a way that imposed major changes on the trade agreement.
The head-wrecking complexity inherent in any such UK-EU agreement—and the knowledge that a comprehensive new agreement would take years and still be vulnerable to future changes—is at the heart of the economic uncertainty surrounding the UK’s referendum result.
Rather than trying to imagine a “perfect” agreement for the UK to enjoy a stable, friendly and mutually beneficial trading relationship with the EU, a better solution would be to envisage this future relationship as a flexible ongoing process rather than a final compact.
The best candidate for this process would be a new relationship between the European Free Trade Association (EFTA) and the EU, based on respectful ongoing dialogue on the best way to organise trade with the EU’s neighbourhood.
This would involve strengthening the EFTA into something more than it is today. If done right, such a process could provide the EU with a valuable mechanism for trading and co-operating with its close neighbours.
Today, the UK is still in the EU, and in a number of future scenarios the UK will continue to have a close and amicable working relationship with the EU. But hard Brexit and seeking a ‘once and for all’ trade deal will not favour flexible co-operation.
The proposed Great Reform Bill actually provides a basis for good co-operation with the EU, as all existing EU regulations would become UK law. But once a single major regulation is repealed unilaterally in the UK, the equivalence between UK and EU regulations will be lost.
Another way to achieve regulatory equivalence would be via a revised EFTA. This would be something different from the current arrangements used by Norway and Switzerland, although it is proposed that all existing members of EFTA—and maybe others like Turkey—might well join the UK in a new dispensation.
The European Free Trade Association (EFTA) is perfectly placed to be the vehicle for a new mode of engagement between the EU and its close neighbours.
The solution is to focus on establishing a good, ongoing mechanism for dialogue as opposed to trying to thrash out all the details of trade and co-operation in one go. The EU will always have neighbours, and now is a good opportunity to build a stable process for respectful and constructive dialogue with them.
The central benefit of an “EFTA Plus” arrangement would be the permanent institutionalisation of flexibility in the UK-EU (EFTA-EU) relationship. This flexibility is worth striving for, as it represents the capacity to co-operation in “real time” on security, migration, climate and other pressing issues.
The EFTA would have to change. Indeed, it will have to be seriously upgraded to cope if the UK rejoins it. There are many British public servants working in Brussels who might be a valuable addition to EFTA in this context.
It is currently unfair and undemocratic that Norway, Switzerland, Iceland and Lichtenstein do not have a formal seat at the table for EU policymaking that affects them. The EU gets away with it because it is large (population 508 million, combined GDP 16.8 trillion USD PPP) and the four EFTA members are small (population 12.7 million, combined GDP 893 billion USD PPP).
In other words, the EU population is 40 times larger and the EU’s economic output is 18.8 times larger.
But when the UK is taken out of the EU and moved across to EFTA, the numbers change significantly. The EU (-UK) will have a population of 444 million and GDP of 14.1 trillion USD PPP, and EFTA (+UK) would have a population of 76.8 million and combined GDP of 3.6 trillion USD PPP.
In this new context, the EU population would be less than six (5.8) times larger than EFTA-Plus and the EU’s economic output would be less than four (3.9) times larger. The difference between the two sides would be far less asymmetric than the current EU-EFTA relationship. (Add Turkey to EFTA and the balance is even more even.)
It’s a big difference. The question is whether the EFTA could be transformed by UK membership into something more than an antechamber to EU membership. Is there a possibility of EFTA becoming more political—albeit not integrationist—so that the EU would be willing to sit down and negotiate trade policy on an ongoing basis with such an entity?
A political EFTA could have more democratic legitimacy, and the UK is likely to find common cause with the Norwegians and Swiss, who surely do not enjoy being handed EU Directives to implement without a seat at the negotiating table. (Although they won’t want to be bullied by a large UK rejoining EFTA either, so some diplomacy and compromise would be needed to build a better UK relationship and common cause with those other countries on the borders of the EU).
Another advantage of this approach is that it is not just about the UK’s relationship with the EU, but it is an investment in building institutions that will involve and benefit all of the EU’s close neighbours. If EU expansion is to be halted for a while, a strengthened EFTA could provide a destination for countries in the Balkans or for Turkey and other countries that want a closer relationship with the EU. That’s a genuine win:win scenario for the EU too.
Such a free trade club surrounding the EU could even spread benefits to North Africa and the Middle East, providing a useful salve for the root causes of economic migration.
Agreement to a establish a stable process of ongoing EFTA-EU dialogue could be agreed much more simply and quickly than attempting to negotiate an enormous trade agreement that will be out of date as soon as the ink dries.
Like the proposed Great Reform Bill, the starting point would be for EFTA-Plus members to retain all EU regulations. But over time, EFTA-Plus members could well operate according to a lighter set of regulations than EU members, if the latter are moving towards closer co-operation on taxation and other issues that do not affect EFTA-Plus members.
Shifting the focus to a stable process of dialogue would mean that the UK (and other EFTA states) keep their current agreements with the EU, with changes agreed on an issue by issue basis over time, rather than trying to solve everything in one go. Any temptation to use the all-or-nothing negotiating tactic—that nothing is agreed until everything is agreed—should be ruled out by both sides as unworkable and not constructive.
An EFTA-Plus model would be preferable to the UK retreating from international engagement on issues like climate change and human rights. It could preserve a large amount of free movement across Europe, but the EU might actually be quite happy to limit the movement of people between the EU and an expanded EFTA-Plus that included Turkey and other states.
And, of course, such a solution permits the remaining EU to press ahead with further integration.
When the UK leaves, the EU will be dominated by social market economies and social democratic market economies, which makes cohesion and integration easier to do. This poses challenges to the liberal market system in Ireland and in some of the more recent accession states too, but that’s nothing new as they are already embarked on the journey of European integration as EU members.
Crucially, sooner or later the sovereignty purists will be faced with the obligation to pool sovereignty and compromise with others—including Australia, the USA and other possible trading partners—in order to secure good trading conditions and other co-operation. At that point, sovereignty has to be put back in the “disengagement” box.
The notional option of splendid isolation is always there as a comfort for those for whom the global pace of change is too fast. But for those who want to embrace trade, co-operation and the positives of heightened global interaction, an EFTA-Plus arrangement offers a flexible vehicle for the UK to play a more significant, constructive role in world affairs.