Alternative Trade Options for the United Kingdom and the European Union Following Brexit: the Norwegian Model and the Swiss Model

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Photo by Kevin Grieve.

The United Kingdom’s (“UK”) divorce from the European Union (“EU”) has created several complications in international law. Because this is the first withdrawal of a member state from the EU, there was no legal precedent explaining how to seamlessly exit the EU. Despite the fact that the British people voted to leave the EU in June of 2016, the two parties were unable to figure out an exit plan by the March 29, 2019 deadline, instead extending the deadline for the UK’s departure until October 31, 2019.[1] Like many contested divorces, the ongoing negotiations between the UK and the EU come down to money, in this case trade. Although the UK wants to remove itself from the political obligations associated with EU membership, such as the acceptance of free movement of capital and people (2 of the 4 basic freedoms of the single market), the UK still wants to maintain the advantages of the internal free movement of goods and services (the other 2 basic freedoms of the single market). Prime Minister Theresa May herself said that “the Government will prioritise securing the freest and most frictionless trade possible in goods and services between the UK and the EU.”[2] Yet, the EU Guidelines for Brexit Negotiations under Article 50 of the TEU explicitly state that “a non-member of the Union, that does not live up to the same obligations as a member, cannot have the same rights and enjoy the same benefits as a member.”[3] At the same time, however, the EU cannot rationally sever ties with UK, one of its most powerful members and its single largest importer (45% of UK exports go to the EU).[4] Given the clear contradictions in the UK and EU’s trade objectives, it is no wonder that the negotiations have made little progress over the past 2 years.

The UK has made it clear that it does not intend to remain in the single market nor become part of the customs union. Unlike non-members Iceland, Norway, and Lichtenstein, the UK refuses to accept the four basic freedoms of the single market, and with the overwhelming British hostility towards immigrants, and particularly unskilled migrant workers, the UK objects especially to free movement of people. The UK refuses to become part of a customs union with the EU, as non-member Turkey has, because that would limit its ability to freely trade with WTO members.[5]  To make matters worse, it has also stated that it does “not seek to adopt a model already enjoyed by other countries.”[6] Until the UK can present an adequate plan, however, looking to trade agreement models in other countries will at least present options.

The first model to consider is what is deemed the Norway model. Norway, as part of the European Economic Area (alongside Iceland and Lichtenstein, the “EEA”) benefits from the free movement of goods, services, people, and capital, and is protected from discrimination against non-EU member. Even though it’s not an EU member and does have limited power, the EEA has the right to oppose and veto EU law if they feel it operates against their interests.  Additionally, unlike EU members, the EEA has no requirement to participate in the monetary union, the Common Agricultural Policy, or the Exchange Rate Mechanism. As such, the EEA’s relationship with the EU is relatively inexpensive. In order to enjoy these benefits without having to sustain EU membership costs, the UK would have to join the EEA upon withdrawal from the EU. As an EEA member, the UK’s fiscal contribution to the EU would be around 0.2% of its GDP, which is around 40% of the UK’s current net contributions to the EU budget.[7] However, given that the UK has already ruled out this model, and would still have to accept free movement of capital and people, as well as EU regulation, it is unlikely that the UK will adopt the Norway model.

The Swiss model, on the other hand, would require the UK to replace its full EU membership with a bilateral agreement between the EU and the UK. Following its rejection of both EU membership and EEA membership, Switzerland negotiated a free trade agreement with the EU that covers industrial goods. Though its trade agreement is limited to trading industrial and financial goods, Switzerland has the liberty to trade with the outside world, being the 14th trading nation in the world[8] and having strong economic development. Switzerland does not contribute to the EU budget, and is not required to participate in the Common Agricultural Policy and the Common Fisheries Policy. The EU can, however, discriminate against Switzerland’s goods. The UK could benefit from a Swiss model agreement with the EU, which would allow it to re-orientate its economic policy. The limitations on trading with the EU would be offset by the increasing proportion of international trade being conducted in Asia and the USA. However, the Swiss model does involve acceptance of the free movement of people, and because the UK’s priority is to regain control over its immigration, this may likely be a deal-breaker as well.

 

Yesenia Rascon is a second-year law student at Columbia Law School. She holds a B.A. from Columbia University in History and French & Francophone Studies, and looks forward to learning more about Brexit next year, when she receives a Master’s in Economic Law from Sciences Po in Paris, France.

[1] https://www.nytimes.com/2019/04/11/business/brexit-business.html

[2]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/589191/The_United_Kingdoms_exit_from_and_partnership_with_the_EU_Web.pdf

[3] https://www.consilium.europa.eu/en/press/press-releases/2017/04/29/euco-brexit-guidelines/

[4] https://www.bbc.com/news/business-45633592

[5] https://www.santannapisa.it/sites/default/files/2_2017.pdf

[6]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/589191/The_United_Kingdoms_exit_from_and_partnership_with_the_EU_Web.pdf

[7] https://bradscholars.brad.ac.uk/handle/10454/13820

[8] https://bradscholars.brad.ac.uk/handle/10454/13820