The UK-EFTA Trade Agreement — A Sign of Hope?

On Friday 4 June we were delighted to hear that the UK had concluded a Free Trade Agreement with the three EFTA Countries that participate in the European Economic Area (Norway, Iceland and Liechtenstein).

So what did the parties have to say about it?

In a somewhat terse tweet, the UK Trade Secretary Liz Truss undersold it by saying,

We have a new trade deal with Norway, Iceland & Liechtenstein covering £21bn of trade It’s their most advanced digital deal. It gives farmers more access. It supports 18,000 fish processing jobs in Scotland & Northern England.

Guðlaugur Þór Þórðarson, Iceland’s Minister for Foreign Affairs and International Trade was rightly more enthusiastic saying:

A free trade agreement with the UK has been a priority during my term in office and it will be crucial for both businesses and consumers. I have stressed the importance of ensuring a strong future relationship with the UK following its departure from the EU and I am convinced that this agreement will strengthen the economic relations and the bonds of friendship between Iceland and the UK for years to come.

Dominique Hasler, Liechtenstein’s Minister of Foreign Affairs was commendably even handed, commenting:

We are pleased about this further milestone in the Liechtenstein-UK relations. The agreement creates legal certainty for Liechtenstein companies and prevents discrimination against EU companies.

While Erna Solberg, Norway’s Prime Minister said:

This agreement secures Norwegian jobs and facilitates economic growth, and it marks an important step forward in our relationship with the UK after Brexit. This is a long-term agreement, which also contributes to accelerat[ing] the Norwegian economy.

What was the domestic response?

Domestically coverage has been generally positive although a number of the usual suspects on social media have been typically sneering about the UK reaching a deal with European countries that have the temerity to not be in the EU.  While with predictable lack of imagination, The New European headlined their coverage by suggesting that the aim of the agreement was “to drive down post-Brexit cheese tariffs,” alluding to Truss’s now-infamous speech at the 2015 Conservative Party Conference in which she observed that the UK imports ⅔ of its cheese before commenting, “That. Is. A. Disgrace.” It really is time to move on, guys.

It is undoubtedly true that this agreement falls far short of the trading relationship we enjoyed with the “EFTA-EEA 3” before our departure from the EU (under the EEA Agreement), but this does not mean that it is insignificant. Far from it. As the Norwegian Government reminds us in its press release, apart from the EEA Agreement it “is the most comprehensive free trade agreement Norway has ever negotiated,” and it “is more comprehensive than other free trade agreements under EFTA.”

Quite so. On the UK side, it is the first trade agreement that is significantly new, rather than a roll-over of agreements we benefitted from as an EU member.

What does the deal say?

The deal includes chapters on technical barriers to trade (TBTs). This perhaps indicates the knowledge on both sides of the importance of TBTs and other non-tariff barriers (NTBs) in gumming up global trade. Tariffs, eliminated by this FTA are — even when they exist — a relative sideshow compared to NTBs. However, the asymmetry in the two sides’ relationship with the EU limits the scope of the agreement on TBTs. There is a commitment to provide justification whenever one side’s technical regulations go beyond international standards. However, the text of the agreement also recognises that the EFTA-EEA nations align their technical regulations with the EU’s through the EEA agreement. “Because this is the EEA standard” will hence suffice as an explanation whenever the EFTA-EEA nations’ technical regulations go beyond international standards. Indeed, the agreement notes that the EFTA-EEA members will have discharged their obligations as long as the EU has stuck to the Trade & Cooperation Agreement (TCA). What this all underscores, in the end, is that even a deep trading relationship with the EFTA-EEA nations depends on fixing the TCA.

We are pleased to see provisions on mutual recognition of qualifications and the ability for the legal sector to operate freely (elements that are notably missing from the UK-EU TCPA, much to the UK’s detriment). There also seem to be decent arrangements for business travellers setting up businesses who can bring families with them.  And the arrangements for musicians and support crews are much better than those which the UK negotiated with the EU under the TCPA. The cap on roaming charges is also good news although, again would have been unnecessary had the UK stayed in the EEA.

Does it deal with fishing quotas? No. But nor would we expect it to.  This isn’t the correct vehicle for that.  In any event, hard negotiations over fixing quotas happened when the UK was in EFTA, again while the UK was in the EU and will continue ever more thereafter, irrespective of what the future holds.  Fishing is a fundamental industry to Norway and Iceland in a way that it is not the the UK.  Quota negotiations will therefore always be problematic and it is pointless to think otherwise. 

If we judge by its press release, the Norwegian government is keen to highlight the commitment to environmental and labour standards. This underscores once again that free trade in the 2020s is about much more than simply the absence of tariffs. Progressively more nations are now interested in ensuring that free trade means trade that is undistorted: undistorted not only by tariffs but also by material differences in the costs imposed on producers in different nations by wildly varying regulatory standards. They aim to ensure that tariff-free trade does not become a tool for some countries to undercut others through lax regulatory standards. Tariff-free trade is hence a carrot used as a reward for high standards. In such a way, they aim to use free trade as a means to promote sustainability and inclusion.

Although there has been hard negotiation behind the scenes, we would also point to the general appearance of a “can-do” attitude between the parties. This is a refreshing change to the atmosphere of mutual suspicion and rancour that seems to dominate UK-EU relations at the moment.

IN SUM?

Erna Solberg went on to say that the UK-EFTA 3 Agreement is

…not as comprehensive as the EEA Agreement. Prior to the UK’s withdrawal from the EU, the EEA Agreement provided for free movement of goods, services, capital and people between Norway and the UK. No free trade agreement will provide the same access to the UK market. Nor will it dismantle all the trade barriers that have been removed under the EEA Agreement. The free trade agreement does not set out a common set of rules and principles of mutual recognition that facilitate free movement, which is a cornerstone of the EEA Agreement.

While in a similar vein, the Norwegian Minister of Foreign Affairs Ine Eriksen Søreide added:

The agreement establishes an important framework for supporting and developing economic cooperation between Norway and the UK, but it does not replace the comprehensive arrangements we enjoyed under the EEA Agreement.

It is an election year in Norway, and much as we admire PM Solberg, she has a domestic argument to win in relation to the Norway-EU relationship and so consequently does not want to sell this deal too strongly. However, her assessment is probably the correct one.

Given the relative size of the EFTA 3 against the UK there seems to be no reason to us why the agreement cannot be strengthened.   We see no reason why there should not be freedom of movement of workers between us and the EFTA states, for example.  Nor why trade between the UK and the EFTA countries  needs to be on a different basis to that which the EFTA countries have between themselves.

There seems to be only one reason and it is the haunting echo of “red lines” to which, inexplicably, the UK is currently wedded.  To that extent this agreement, although probably best-in-class in FTA terms, is one that is in place purely to manage the ghost of Theresa May’s Lancaster House speech.

When we consider what could be achieved between the UK and the EFTA states if that dogma were dropped, this begins to look like an agreement which is yet another missed opportunity. We hope it can be built upon.


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