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Reinventing the Wheel?

Writing in The Spectator following the breakdown in treaty negotiations between Switzerland and the EU, the financial journalist Matthew Lynn makes an interesting suggestion — namely that Britain should seek “to form a common market” with Switzerland. We at EFTA4UK would be very happy to see that and in fact, we have suggested it ourselves.  Unfortunately the article over-simplifies its proposal and contains one fundamental misconception over the UK’s position in relation to the single market.  Moreover it misses the (very obvious) solution to the proposal it makes.

FIRST, the misconception:

Not seeking to continue to participate in the European Single Market was a decision taken by the UK government alone. 

The article states that Switzerland and the UK “have both been frozen out of the European Union’s single market.”  Well, semantics aside, the phrase “single market” is generally taken to mean the European Economic Area and the European Economic Area is not “the European Union’s Single Market.”   The EEA includes Norway, Iceland and Liechtenstein.  Moreover, for practical purposes, it includes Switzerland too by virtue of the multiplicity of bilateral trade arrangements it has with the EU. The UK is outside of this by the government’s own choice.  Even though the Framework Agreement has fallen away, Switzerland is not.

Lynn rightly predicts an “inevitable loss of trade with the EU as checks and tariffs are imposed”.  But for the Swiss this will be a scale lower than the impact of the UK’s unilateral action.  Unlike the Swiss bilaterals the UK’s Trade and Cooperation Agreement with the EU does not do enough to eliminate non-tariff barriers, of which “checks” are one example. The loss of trade is only inevitable if you put up barriers to trade. Lynn’s hope is that a UK-Swiss single market would “at least partially” compensate for this loss of trade. However, according to the 2019 ONS Pink Book, total UK trade with the EU was worth almost £615 billion while UK trade with Switzerland was worth around £30 billion. Even if UK-Swiss trade doubled, it would represent only a tenth of trade with the EU, which sounds like a very “partial” compensation indeed.

SECOND, the proposal for how a UK-Switzerland Common Market would operate is oversimplified:

The article suggests that the UK-Switzerland common market would operate by simple “mutual recognition of each other’s standards and regulations.”  But what if they conflict? As Roland Smith asks,  “Who shall act as the final arbiter of rules in this common market? I’ve no doubt the author will say No One – we just trust each other. The ‘good chaps’ theory of trade relations.” The suggestion is that somehow mutual regulation would be unnecessary as the UK and Switzerland would simply accept one another’s standards, yet in the next sentence he says, “regulation of the two financial markets would be completely harmonised.” In other words, the two countries would have shared rules. To repeat Smith’s question, who decides whether those rules have been broken? The issue of arbitration was, after all, one of the primary issues upon which EU-Swiss talks floundered, as Carl Baudenbacher has explained.

This does not mean that closer cooperation and certain mutual recognition arrangements by sector would not be mutually beneficial.  Quite the opposite.   But a wholesale common market between our countries demands a more robust model than that which the article proposes.

THIRD – The unspoken solution

The biggest problem with Lynn’s article is failing to see the solution staring him in the face.

EFTA — currently a club of four European countries which, like the UK, are “in favour of a common market” but have rejected membership of the EU. Regulatory changes to the market between them require the consent of each of their legislatures and although alignment within the EEA is more dynamic, the current Swiss model is not (which was one of the main motivations for the EU wanting the Framework Agreement in place).

Lynn is right — with the Swiss we could perhaps create a secondary model which would combine the framework of our own TCA with the better trading conditions of their bilateral arrangements within an overarching European Common Market.  This may attract other countries on the EU’s periphery.

Alternatively there is the model which the Swiss arguably should have adopted at the beginning which was joining the EEA and using the EFTA Court mechanism.  We would argue that given that this model works the UK should adopt it too – making the EFTA pillar of the EEA a far stronger one and better able to withstand EU encroachment.

Either way, Lynn correctly concludes:

“The UK was always in favour of a Common Market in Europe. It just didn’t like the EU’s drift towards a single state. With the Swiss, it could finally get one.”

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