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 the offer of free trade as the means to exert direct governance over other countries.
Until now, the degree of market access that the EU provided European countries has been proportional to the degree of sovereignty that countries surrendered to the EU. In order to get full access to the EU’s 511 million person market, European countries have either had to join the EU or adopt a deal that meant complying with EU rules, regulations, immigration policies, submitting to EU courts, and making financial contributions to the EU’s budget.
Countries not in the EU such as Norway, Iceland, and Lichtenstein have acquiesced to all these demands in order to get access to the EU market. In fact, Norway pays more per capita to the EU than the UK. Effectively, 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, their access to the EU’s market has been somewhat curtailed, particularly for their banking sector.
Access to the EU’s market isn’t just the glue that holds the EU together, it is the very essence of the EU. Every European country has its own central government, police force, education system, healthcare system, social system, military, and most are in NATO. The EU only offers access to the common market and in some cases development money. For that, a country must give up its sovereignty. That is the fundamental EU bargain.
This dynamic has made it particularly difficult for the EU to established free trade deals outside Europe and will make a so-called ‘Hard Brexit’ virtually inevitable. Countries like Canada, South Korea, or the US would never accept such terms in return for market access. Yet after a decade of negotiations and under great pressure to prove that it could establish a trade deal, the EU has now granted access to its markets to Canada and South Korea via two new trade deals. In doing so, it raises the question of why European nations have to give up so much to get similar access. While the access Canada and South Korea enjoy is more limited than the access granted to Norway or Switzerland, in the case of Canada it still eliminates 98% of tariffs on Canadian-EU trade. Are Switzerland and Norway really getting that much more in return 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 important financial industry free access to the EU. On the other hand, the EU simply cannot and 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.
The only two outcomes that are possible are the UK leaving in name only by adopting a bad deal like Norway or Switzerland, or the UK leaving without a trade deal or with a minimal Canada style trade deal that doesn’t cover its services and financial industries. 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, the opportunity to free itself from anti-competitive EU regulations, and the chance to establish independent trade deals around the world.
It seems unlikely that a Norway style Brexit-in-name-only deal would be politically sustainable in the UK, and thus a Brexit that doesn’t include full market access, a so-called Hard Brexit, is the most likely outcome.
If you would like to be updated via email when we post a new article, please click here. It’s free and we won’t send any promotional materials.