Doing Things by Halves? Alternatives to UK EU Membership
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Doing things by halves? Alternatives to UK EU membership Lessons from Switzerland and Norway Doing things by halves? Alternatives to UK EU membership 2 Introduction Any objective assessment of the UK’s membership of the European Union requires consideration of potential alternative relationships. Options include relationships based on those Norway and Switzerland have with the EU – neither are members but they both enjoy varying degrees of access to the single market. CBI analysis, drawing on interviews with a wide range of Norwegian and Swiss stakeholders, clearly shows that such forms of associate membership are not easy options that simply allow a country to gain the advantages of membership while removing the disadvantages. Rather these models offer different combinations of costs and benefits. The CBI rejects the premise that these models would be better options for the UK. The debate about the UK’s relationship with the European Union could emulate as they provide greater access to EU markets than The CBI rejects the notion that these models would be better for (EU) has dramatically risen up the political agenda following the a simple free trade agreement. Both are closely integrated with the UK, arguing that British businesses don’t want to find prime minister’s speech in January which set out that a future the EU, but have chosen different routes to political, economic themselves at the margins of the world’s largest trading bloc Conservative government would ask the British people if they and legal integration: operating under market rules over which they have no influence. wished to remain in the EU on the basis of a renegotiated The Norwegian solution – where Norway is part of the EU’s Leaving the EU and opting for the Norway model of membership relationship. single market without being a member of the EU through the of the EEA would not solve any of the challenges of the UK’s An important element of this discussion has been consideration European Economic Area (EEA) Agreement current relationship with the EU. It would mean that businesses of alternative options for Britain were it to leave the EU. The UK would still have to follow EU rules, while at the same time it would The Swiss option – where Switzerland has negotiated some will always need a relationship with the EU. Whether it is a remove the UK’s ability to protect our national interests by access to EU markets through a free trade agreement and member or not, a substantial part of our imports and exports go, relinquishing our seat at the table in Brussels. more than 120 bilateral agreements with the EU. and will continue to go, to our closest neighbouring market. Neither is the Swiss model an attractive option, as in practice But the question remains which legal and political framework The analysis draws on a review of the literature as well as it would potentially mean a long period of uncertainty during for UK-EU relations can best support the UK’s global trading role. interviews with a wide range of Norwegian and Swiss businesses, negotiations over market access, with no guarantee of the UK business federations, senior politicians, diplomats and other Proposed options have ranged from a continued close getting what it wants, before ultimately becoming a standards stakeholders during visits to Norway and Brussels. relationship with the EU but without formal membership, such as taker with limited influence. through remaining members of the single market or customs The conclusion from our analysis of the ‘half-way house’ options This brief provides some background information on the two union, to a completely detached model based on a possible is clear: some form of associate membership for the UK is not an ‘models’ of relationship with the EU, including their historical free trade agreement with the EU or even based on just UK easy option that combines the benefits of membership but development, key characteristics, economic and business membership of the World Trade Organisation. removes the disadvantages. It is clear that neither the Norwegians benefits and challenges, as well as lessons learnt for the UK. nor Swiss have developed an associate membership that is Analysing all alternative options for Britain and how they would satisfactory to both Brussels and the country in question. impact on the UK’s ability to play our global role forms an important part of the CBI’s headline project this year, Creating a global role for Britain in a new Europe. This document highlights our research and conclusions on two ‘half-way house’ models, which some advocates of withdrawal from the EU believe the UK DoingDoingg thingsthihingsn s byb halves?halves? AlternativesAlAltA ernatiat vess to UK EUU membershipmembebershipi 3 The UK, Norway and Switzerland: some key facts The UK is a large country with a more complex economy than Norway and Switzerland Norway and Switzerland are heavily dependent on EU trade, and significant clout in the EU decision-making process which partly explains their preparedness to accept rules and standards over which they have limited influence. GDP in 2012 (% of EU27) Trade with EU – exports & imports (% of GDP 2002-12) 14.7 3.0 3.8 31.4 UKNorway Switzerland Population in 2012 (% of EU27) 52.2 12.51.0 1.6 57.9 UKNorway Switzerland Doing things by halves? Alternatives to UK EU membership 4 The UK, Norway and Switzerland: some key facts UK Norway Switzerland UK Norway Switzerland % of GDP 2002-12 GDP (€bn) 2012 1901 389 492 Agriculture, forestry, fishing 0.7 1.4 1.0 Population (m) 2012 63.0 5.0 8.0 Manufacturing 11.4 8.6 19.5 GDP per capita 2012 (current international dollar based on PPP)* 36,941 55,009 45,417 Mining, oil & gas, energy & utilities 5.1 27.5 2.5 Construction 7.1 5.3 5.6 % growth pa, 2002-12 Wholesale & retail 19.4 14.8 19.2 Real GDP Growth 1.4 1.6 1.9 Information & communication services 6.0 3.8 4.3 % of GDP 2002-12 Financial & insurance services 8.4 4.0 12.2 Private consumption 64.3 42 58.6 Professional services 19.7 13.6 9.1 Government consumption 21.8 20.8 11.3 Other services (incl. government & cultural) 22.3 20.9 26.7 Gross investment 16.2 23.1 21.2 Exports 29 42.6 49.3 Unemployment rate (% ) 2002-12 6.3 3.5 3.2 Imports 31.2 28.4 40.4 Gross government debt (% of GDP) 2011 85.3 28.7 40 Memo: trade 60.2 71 89.7 Current account -2.1 14.2 10.9 Souce: Haver Analytics (EUDATA & G10 database) Trade stats 2002-12 *Source: IMF (World Economic Outlook April 2013) Goods exports as % of total exports** 69.9 78.2 71.8 ** Source: OECD (ITCS & MSIT databases Services exports as % of total exports** 30.1 21.8 28.2 ✝ Data for Swiss services trade by destination is available. These estimates assume the share of exports and imports Trade with EU as % of total** 52.2 73.5 64.5 to/from the EU is the same as for goods. Goods trade with EU as % of total** 54.3 75.2 65.3 Services trade with EU as % of total** 45.4 67.2 61.8✝ Doing things by halves? Alternatives to UK EU membership 5 The European Free Trade Association (EFTA) Norway and Switzerland are both part of EFTA, which negotiates trade deals on behalf of its members A common feature of the relationship Norway and Switzerland EFTA has a few key characteristics The pattern seems to reflect the characteristics of the have with the EU is that neither are members of the EU’s common countries within EFTA. Sometimes they get better deals The EFTA secretariat maintains the management of the EFTA trade policy. Instead, they have chosen to remain members of the because their economies are not seen as a threat to the third Convention (intra-EFTA trade) and the EFTA free trade European Free Trade Association (EFTA), which the UK left in country’s industry, but at other times EFTA has less to offer agreements (third country relations). Although Switzerland is favour of EU membership in 1973. than the EU, particularly when it comes to market size not a member of the EEA, EFTA also manages the EEA – an important factor for many developing economies. EFTA is an intergovernmental organisation set up for the Agreement (EFTA-EU relations). promotion of free trade and economic integration to the benefit of All EFTA states are free to sign bilateral agreements with other its four member states – currently comprising Iceland, If the UK joined EFTA… countries separately from EFTA. The general pattern is that Liechtenstein, Norway and Switzerland.1 Relations with the EU countries have preferred to negotiate as part of EFTA, but It would have to apply to become a member of the have been at the core of EFTA’s activities, and an important basis Switzerland has signed FTAs with Japan while China has association, an application likely to be met with positive for all EFTA countries’ relationship with the EU are the free trade signed FTAs with Switzerland and Iceland. reactions from the EFTA member states in general, although agreements (FTAs) concluded between the EFTA countries and the they are likely to see their internal power balance altered and EC in 1972-73. These FTAs remain a base for all further agreements All EFTA agreements are bilateral – they are negotiated by the may have certain reservations. between each EFTA country and the EU. EFTA secretariat but in the end signed separately between the EFTA member states, sometimes with certain differences Becoming a member of EFTA would also mean budgetary Since the beginning of the 1990s, EFTA has actively pursued trade between the agreements.