Britain might want to consider rejoining EFTA – but should stay clear of the EEA

Britain might want to consider rejoining EFTA – but should stay clear of the EEA

The possibility of rejoining the European Free Trade Association (EFTA) after leaving the European Union might be something Britain ought to consider as Iceland’s Foreign Minister Guðlaugur Þór Þórðarson suggested last year. While membership of EFTA would grant Britain access to dozens of free trade agreements EFTA has already concluded with countries around the world it would not, however, mean an obligation to rejoin the European Economic Area (EEA).

The topic of this article is among the issues I discuss in my research paper, “The EEA is not the way: Why Britain should refrain from membership of the European Economic Area and similar arrangements after Brexitpublished by the Red Cell think tank, where I explain why it would not be in the interests of Britain to pursue the so-called Norway option after Brexit or any similar arrangements that would involve transferring authority to EU institutions.

Here, it is important to stress that countries can only be members of the EEA either through EFTA or the EU. This is quite clear in the EEA Agreement, especially in Article 126 where it is stressed that the agreement only applies to territories covered by the EU treaties as well as of the EFTA/EEA countries. This has also been confirmed by experts such as Jean-Claude Piris, former head of the EU’s legal service, and that consequently leaving the EU means leaving the EEA.

While countries that join EFTA must sign up to all free trade deals the club has concluded jointly, as stated in article 56 of the EFTA Convention, only three of EFTA’s current four members, Norway, Iceland and Liechtenstein, are part of the EEA Agreement, which means unilaterally accepting a large number of EU laws, giving certain jurisdiction to the European Court of Justice (ECJ) through the EFTA Court and allowing free movement of people from the EU as explained in the paper.

The EEA Agreement, or more precisely Article 128, states that that while any European country that becomes member of the EU shall join the EEA, any new EFTA member, or Switzerland which is in EFTA but not in the EEA, may apply to become part of it. In other words, for EFTA countries, membership of the EEA is entirely optional while it is, on the contrary, an obligation in case of countries that join the EU. After all EFTA and the EEA are two very different beasts.

EFTA was founded in 1960 at Britain’s initiative as a free trade alternative to the European Economic Community (EEC), the EU’s predecessor. The main purpose of EFTA is to negotiate free trade agreements worldwide and to maintain a free trade area among its members. While quite voluminous and as such putting growing pressure on the EFTA/EEA countries’ sovereignty, the EEA Agreement is nevertheless just one of the trade deals EFTA countries have concluded.

Rejoining EFTA would not prevent Britain from building stronger links with countries around the world, such as other members of the Commonwealth, and Britain would be free to negotiate independent free trade agreements with other countries, including the EU since the EFTA countries do not have a joint trade arrangement with the bloc. In other words, rejoining EFTA would not interfere with Britain’s ongoing attempt to strike a trade deal with Brussels.

However, while rejoining the EEA (and thus the Single Market) through EFTA would not either prevent Britain from negotiating free trade agreements it would nevertheless make trade with other countries more difficult, and quite possibly even impossible in the case of for example the United States (which is the experience of many Icelandic firms), as it would mean an obligation to follow EU rules and standards which often clash with those of other countries.

Membership of EFTA (without the EEA) would mean free trade with countries such as Canada, South Korea, Singapore, the Philippines, Turkey, South Africa, Mexico and Chile as well as Hong Kong. EFTA is moreover in formal free trade talks with e.g. India, Indonesia, Malaysia, Thailand, Vietnam and the MERCOSUR countries (Brazil, Uruguay, Paraguay and Argentina). In addition, two EFTA members, Iceland and Switzerland, enjoy free trade with China and the Swiss with Japan.

This means that should the British government decide to aim for EFTA membership after leaving the EU its ongoing informal trade talks with other countries alongside the Brexit negotiations with the EU could be mainly focused on free trade with prominent markets where EFTA does not already have a joint free trade approach, either already negotiated and active free trade agreements or ongoing trade talks, such as the United States, China, Japan, Australia and New Zealand.

The main problem with the EU when it comes to free trade is that Brussels isn’t really that interested in that. After all the EU is fundamentally an old-fashioned customs union (that wants to become a single state) with the main aim of protecting domestic production from outside competition and thus pretty much the opposite of free trade. Also problematic is the fact that EU members often have very conflicting interests which means it can be difficult to find a common position.

For many years Britain has been trying to get the EU to put more emphasis on negotiating free trade deals with countries worldwide. Especially the other Commonwealth members. However, it wasn’t until the EU was hit by the international financial crisis almost a decade ago that free trade was given some more thought in Brussels. But EU leaders have nevertheless been very explicit that the reason is certainly not love for free trade but rather what they consider a bad necessity.

Meanwhile EFTA is simply all about free trade and while the EEA Agreement mirrors and follows the EU integration process in the areas it covers (which are constantly expanding), EFTA as such has remained pretty much the same for decades. What is also important to keep in mind here is that while membership of the EEA is a subject to EU approval, Brussels has absolutely no say when it comes to the question who joins EFTA. After all it’s a completely different club.

With Britain onboard, EFTA would arguably be in an even better position to negotiate free trade with countries around the world. Not the least as Britain would fit quite well into the club. Britain has for example a strong financial sector as does Switzerland and is an oil exporter like Norway. After leaving the EU Britain will moreover be able to build up a strong fishing industry as Norway and Iceland enjoy. Given of course that Britain’s fishing sector won’t be sacrificed again.

While being an option worth considering, rejoining EFTA is certainly not necessary for Brexit to succeed. Britain can also simply keep the current course of unilaterally negotiating all of its free trade deals. Dozens of countries around the world have naturally already expressed great interest in free trade with Britain. However, rejoining EFTA, while staying clear of the EEA, might possibly simplify the task ahead without ceding sovereignty to supranational institutions.