Submitted by Taps Coogan on the 19th of January 2018 to The Sounding Line.
If there is a novelty in the ‘European Project’ it is in the idea of using free trade as a means to exert direct governance over other countries. Until now, the degree of market access that the EU provided European countries was proportional to the degree of sovereignty that a country surrendered to the EU. In order to get full access to the EU’s 511 million person market, a country either had to join the EU or adopt a deal that meant joining the EU in all but name. In order to get full access to the EU’s market, Norway, Iceland, and Lichtenstein (which are not in the EU) granted jurisdiction to the EU’s European Court of Justice (ECJ). They joined the common EU immigration zone (the Schengen Area). They make significant contributions to the EU’s budget and they adopt EU regulations. Norway pays more per capita to the EU than the UK. The only difference between Norway and a country in the EU is that Norway doesn’t have any meaningful representation in the EU. It isn’t much different in Switzerland. The Swiss have accepted all but the ECJ’s jurisdiction. As a result of this modest assertion of judicial independence, they have curtailed access to the EU’s market, particularly for their banking sector.
Access to the EU’s market is the glue that holds the EU together. Every European country has its own central government, police force, education system, healthcare system, social system, military, and most are in NATO. The EU offers access to the common market and in some cases development money. For that a country must give up much of its sovereignty to the EU.
This dynamic has made it particularly difficult for the EU to established free trade deals outside Europe. Countries like Canada, South Korea, or the US would never accept the subjugation that the EU imposes on European countries in return for market access. Yet the EU has now granted access to its markets to Canada and South Korea via two new trade deals. While the access is more limited than the access granted to Norway or Switzerland, it will eliminate 98% of tariffs on Canadian-EU trade. Are Switzerland and Norway really getting that much more for all of the concessions that they make to the EU?
Switzerland is asking itself exactly those questions and is now pushing for a referendum on even less integration with the EU. Another effort is underway in Switzerland to end its participation in the EU common immigration area. Norway may follow suit.
Given all of this, non-EU European countries such as Norway and Switzerland are watching the EU’s negotiations with the UK over Brexit very closely. As Statista’s Niall McCarthy recently notes:
“The following infographic is based on that, and it shows how Theresa May’s demands are incompatible with the current relationship Norway enjoys, along with Iceland and Liechtenstein. The UK is demanding to be free of European courts, trade rules, migration, regulation and financial contributions. That would also mean it couldn’t possibly use Switzerland as a future template, along with Ukraine and Turkey. That means it would be forced to seek a deal with the same type of relationship as that agreed upon with Canada and South Korea. If there is no deal, the UK will be forced to turn to the WTO.”
You will find more statistics at Statista
The problem with the UK adopting the Canadian or South Korea trade deal approach is that it wouldn’t grant the UK’s economically vital financial industry sufficient access to the EU. On the other hand, the EU simply won’t strike a deal that grants the UK the level of market access enjoyed by Switzerland and Norway without all of the strings attached.
Two outcomes that remain are the UK leaving in name only and adopting a bad deal like Norway or Switzerland, or the UK leaving with a trade deal that doesn’t cover its financial industry. Neither option is likely to thrill the British but exports to the EU only represent about 10% of the UK’s financial and insurance service industry revenues. The UK exports nearly as much in financial services to the US as the entire EU. When push comes to shove it is hard to imagine 10% of financial services revenues taking priority over the country’s sovereignty.
From the looks of it, the UK is headed for a Canadian style free trade deal with the EU.
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