Brussels: The House of Commons international trade committee has called on the government to evaluate rejoining the European Free Trade Association (EFTA). It wants Liam Fox to publish a white paper on EFTA membership before the summer, so negotiations can commence by the end of the year.

If we have to quit the EU, hitching our wagon to EFTA wouldn’t be a bad idea.

Britain was a founding member of EFTA until it joined the European Economic Community, the EU’s forerunner, in 1973. The current members are Switzerland, Norway, Iceland and Liechtenstein. 

Rejoining the group would not only mean that we would have access to these four European markets (which we now gain access to via our EU membership), but also be in a good position to piggyback on EFTA’s trade deals with 38 other countries. In total, these markets account for 19% of our exports, according to the international trade committee.

Accession to EFTA would not prejudge the UK’s future trading relationship with the EU. EFTA per se only regulates relations among its member states as well as the free trade agreements (FTAs) the organisation has with other countries. EFTA has no such agreement with the EU. Instead Norway, Iceland and Liechtenstein share the European Economic Area with the EU, while Switzerland has negotiated its own arrangements with the EU.

In acceding to EFTA, the UK would have to join in EFTA’s existing trade deals with other countries. The legal text says that new EFTA members “shall apply to become a party to the FTAs between the [EFTA] member states on the one hand and third states, unions of states or international organisations on the other”. The 38 partner states would have to agree to this individually.

Where EFTA has no trade deal itself, its member states are free to negotiate their own, as is already the case with China (Switzerland, Iceland), and Japan (Switzerland). This flexibility could suit the UK since several countries high on the government’s list of free trade targets – the US, Australia and New Zealand – don’t have deals with EFTA.

Another advantage of acceding to EFTA is that piggybacking on the group’s existing deals could reduce greatly the amount of bilateral negotiation with third countries. These agreements are simpler and less deep than the EU’s 50 or so FTAs in most cases. This means it would be quicker to join the EFTA deals than seeking to re-negotiate the EU’s deals, unless the latter can be “grandfathered” – essentially copying and pasting them with minimal technical and legal adjustments.

So rejoining EFTA seems like a good damage limitation exercise. But we shouldn’t take it for granted that we will be able to do so. After all, each of the other members would have to approveour application. EFTA today is a compact group of small states with a high level of common interest and mutual trust. Whether the insertion of a qualitatively bigger and more complicated member state would be welcome has not been tested.

A passage on “grandfathering” was added to the penultimate paragraph soon after publication

by Michael Emerson | 08.03.2017

Michael Emerson is Associate Senior Research Fellow at the Centre for European Policy Studies (CEPS).

Edited by Hugo Dixon

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