EFTA Membership?
The UK is examining a potential shortcut to secure a raft of critical free trade deals after it leaves the EU, so giving Britain potential breathing space to negotiate its own agreements. The proposal, involving an associate membership of the European Free Trade Association, could allow ministers to sign up to Efta’s existing free trade deals outside the EU, rather than negotiate them from scratch, or fall back on bare World Trade Organisation (WTO) terms. Efta, set up in 1960, consists of Switzer-land, Norway, Liechtenstein and Iceland. A report by the Swiss thinktank Foraus argues that by joining Efta as an associate member, the UK would have access to its valuable free trade deals, but be able to avoid the EU’s rules on free movement. “It would allow the UK to preserve a status quo in non-EU trade, instead of starting from scratch” said Cenni Najy, a research fellow with Foraus. “The natural house of Britain is Efta.” Some employers’ groups, such as the Institute of Directors, have also suggested the UK look at the merits of applying to join Efta, so gaining swift access to its 27 free trade deals covering 38 countries and 900 million consumers. Foraus argues that post-Brexit, the UK will lose access to the EU’s 45 current preferential trade agreements with countries around the world. The EU has made it clear the UK must not prepare or negotiate third party trade agreements in any meaningful detail until after it has left the EU. Foraus argues UK membership of Efta would at least give the UK swift access to the free trade deals that Efta has signed. Efta has, for instance, signed deals with countries that the EU has not, such as with the Gulf Cooperation Council and Hong Kong. Efta’s four member states are also free to negotiate bespoke trade deals. Efta as a block, for instance, has a trade deal with Hong Kong, but Switzerland, an Efta member, has an additional deal with China. Foraus argues that the UK could seek associate membership of Efta, a status enjoyed by Finland from the 1960s to the 1980s. This could secure Efta trade benefits while not necessarily involving the same level of political commitment, especially in relation to free movement of workers within the block.
Customs union still possibility after Brexit?
Signing Britain up to a customs union with the EU need not prevent it from striking important trade deals elsewhere, according to influential new thinking in Whitehall. Officials and business leaders are anxious to puncture what they see as myths about a customs union that have deterred ministers from considering it as an economic option after Brexit. While Brexit means leaving the existing EU customs union, civil servants believe agreeing a new customs union with the EU is not only possible but still compatible with the key aims of Liam Fox’s Department for International Trade. “There is a crucial difference between the EU customs union and a customs union, and [the chancellor, Philip] Hammond understands this now because the Treasury have taken him through it;’ said an official familiar with the process. “The simplistic analysis by those who want to paint it in the worst way is that it’s totally unacceptable because we would still be bound by EU trade deals. That is true of membership of [the] EU customs union, but you can have customs unions with the European Union customs union?”
Such a deal would allow, physical products to trade freely across borders without export duties or delay, as long as the EU and UK shared a common external tariff with other countries. But most experts agree that such a deal need not prevent Britain from seeking arrangements with countries outside the EU to liberalise trade in the crucial services sector. “Customs unions are about trade in goods by definition because you only pay tariffs on goods,” explained the anonymous official. “They are nothing to do with the trade in services, which is the majority of what the UK does, so why should signing up to a customs union to facilitate what you do in trade in goods constrain what you do in services? We could go off and see if we can do better than the EU in trade in services.” Importantly from a British perspective, Turkey; which has such a customs union with the EU, is not obliged to follow EU single market rules on allowing freedom of movement. The official, who believes an immigration agreement would still be needed, said: “You can’t get anywhere on trade in services without discussing the terms on which the people providing the services can move back and forth.” This Brexit option could be more palatable than full single market membership to many in Westminster and business. Charles Grant of the Centre for European Reform said: “According to the Treasury’s unpublished analysis, the economic benefits of future [free trade deals] would be significantly less than the economic cost of leaving the customs union.”