WARNING – LONG BUT VITAL TO BREXIT DEBATE
Earlier today, a Brexit supporter who supports the UK rejoining EFTA (as we also do) proposed that the UK should try to gain access to EFTA’s trade deal portfolio (by rejoining EFTA and applying to take part in those deals) once the UK leaves the EU.
His proposal was rejected by anonymous American Tweeter Steve Analyst who was critical of EFTA’s trade deals. In this blog post we will examine these issues in some detail.
- Bosnia and Herzegovina
- Central American States (Costa Rica, Guatemala and Panama)
- Gulf Cooperation Council (GCC)
- Hong Kong, China
- Korea, Republic of
- Palestinian Authority
- Southern African Customs Union (SACU)
While it is easy to find this list online, it is more difficult to get a comparable list for the EU.
A figure of EU agreements with 50 countries is often-repeated, but as this article from the Fullfact website outlines, the figure of 50 is an exaggeration (for example it counts deals in the pipeline and special deals with poorer states), and the ‘real’ figure is actually lower than 50.
While the likely number is lower than 50, we concede that the EU probably does have a greater overall number of FTAs than the EFTA currently has.
It is worth noting however that unlike the EU, EFTA allows member states to negotiate their own separate FTAs.
[Two examples of this are Switzerland’s FTA with Japan and Iceland’s FTA with China.]
Getting back to Mr Analyst’s points on twitter; he was generally dismissive of EFTAs trade portfolio but more specifically:
- Mr Analyst’s first point is that we should prioritize retaining access to the 3rd country FTAs that the UK currently is party to as part of the EU.
- His second point is that EU FTAs are of higher quality in his view than EFTA FTAs.
Our response is as follows:
Upon leaving the EU, it is possible that the UK will have no reciprocal trade agreements with any country anywhere in the world.
As such, the UK government should be exploring all alternatives, including rejoining EFTA and applying to take part in it’s FTA network.
Rejoining EFTA would be equivalent to signing four FTAs at once – since membership would provide tariff free access for goods and services to Norway, Iceland Liechtenstein and Switzerland.
As EFTA accounts for 8.5% of UK exports, this would help the UK with its trade continuity issues at a stroke.
As we have outlined, EFTA has FTAs all around the world. Upon rejoining the EFTA (if we were to be accepted) we would need to apply to take part in these FTAs under article 56 (3) of the EFTA convention.
What would facilitate this process is that several of the EFTA-third country FTAs have built-in accession systems.
Take for example the EFTA-Hong Kong Kong agreement, which states:
“ARTICLE 11.6 – Accession
1. Any State becoming a Member of the European Free Trade Association may accede to this Agreement, provided that the Joint Committee approves its accession on terms and conditions to be agreed upon by the Parties. The instrument of accession shall be deposited with the Depositary.
2. In relation to an acceding State, this Agreement shall enter into force on the first day of the third month following the deposit of its instrument of accession, or the approval of the terms of accession by the existing Parties, whichever is later.”
We agree with Mr Analyst that the UK should seek to maintain EU-3rd country FTAs upon Brexit.
But additionally, the UK should seek to take part in EFTA agreements with 3rd countries if there is no corresponding EU FTA – for example it is our understanding that while EFTA has a FTA with Hong Kong, the EU does not have one anywhere close to completion.
Where we differ is that we don’t believe that the EFTA’s deals are fundamentally flawed and we should start from scratch.
It is true that EFTA FTAs and EU FTAs are different. As a European Parliament study states:
“Compared to the EU, EFTA’s PTA policy has always been focused more on commercial considerations and less on broader geopolitical, geo-economic or foreign policy interests.
There are substantial differences between EU and EFTA PTAs in terms of scope and ambition.
EFTA agreements still focus on traditional areas of market access, while the post-1990 EU agreements are more elaborate, values-driven, political and comprehensive. EFTA’s small size nonetheless has some benefits. Since EFTA states are not so constrained by — often diverging — interests they can be more flexible in their negotiations. In some cases EFTA has concluded trade deals relatively quickly compared to the EU, but this has been at the expense of relatively shallow trade agreements.
However, this study suggests that the cost of EFTA’s apparent ability to conclude some agreements quickly is that the agreements are relatively shallow.
One major difference between the EU and EFTA concerns the binding nature of references to human rights and labour standards as well as environmental and sustainability issues. While the EU regards these norms as ‘essential elements of the agreements’, EFTA has developed a separate template to negotiate with PTA partners. Here the relative ability of EFTA to negotiate PTAs more quickly could pose a challenge to the EU’s own PTA policy. For example, Switzerland’s and Iceland’s PTAs with China do not include any of the human rights or labour rights commitments that the EU has sought to include as key conditions for any agreement.“
The study is here if you wish to read it.
The general thesis is that while the EU FTAs are often wider and deeper in scope than EFTA FTAs (especially in regard to Sanitary and Phytosanitary Measures (SPS) and Technical Barriers to Trade (TBT)) they are arguably slower to conclude because of the input of 28 member states and the EU’s desire to involve greater references to environmental, human rights and labour standards in their FTAs.
[It should be noted however that EFTA FTAs do contain references to the parties commitments to the principles and objectives set out in the United Nations Charter & the Universal Declaration of Human Rights.]
Conversely while EFTA can strike deals faster, they can be shallower than EU deals.
[Compare the speed with which EFTA-Canada FTA (which was signed in 2008) to the EU-Canada CETA agreement (only entered into force provisionally on 21 September 2017).]
What Mr Analyst is not taking into consideration is that EFTA’s FTAs are not static – indeed they are often revisited to modernize and expand their scope, or include more references to trade in services and investment.
If the UK rejoined EFTA, it would provide even greater incentive for EFTA’s trade partners to expand the scope of their agreements since they would have 65 million new potential customers on the EFTA side.
The UK should attempt to ‘grandfather’ or carry over FTAs with third countries signed by the EU.
Where no relevant EU FTA exists but a EFTA FTA does exist, the UK should attempt to accede to it.
There may be cases where the third country has a FTA with both the EU and EFTA. In that case, things get more complicated but could work in the UK’s favour – if we can’t retain the one arrangement, we could possibly accede to the other.
If the UK were to retain the majority of the EU’s and EFTA’s FTAs (and with the ability to strike new FTAs either as part of the EFTA bloc or independently) the UK could become an envied global free-trade nexus after Brexit.