If only we were Switzerland, eh? That’s the dream of the Better Off Out brigade, who long for its freedom as part of the European Free Trade Association (EFTA). And it’s a tempting offer: all the benefits of free trade with EU member states, and (if you believe Nigel Farage, Dan Hannan et al) none of the risks.
Except it’s not quite that easy, as The Economist highlighted when it investigated Britain’s options.
Here are 5 reasons to be sceptical of the Sceptics’ alpine panacea…
Britain would be a smaller, more isolated country.
“Britain would have less diplomatic and military clout, too. For the Americans, a Britain that is disengaged from the rest of Europe would be a much less useful and influential ally. For NATO, a Britain that is semi-detached from Europe would weaken the ties that bind the continent and its defence to the United States at a time when those ties are already under strain because of slashed defence budgets and America’s strategic “rebalancing” towards Asia. Another likely casualty would be the budding Anglo-French defence treaty, seen by both countries as a way to help themselves continue to punch above their weight.”
This, of course, suits the isolationist Ukip very well. But for those of us who are internationalists becoming an irrelevance on the world-stage isn’t an attractive option.
It took the Swiss a decade to negotiate the trade treaties we already enjoy.
“The British would doubtless try to negotiate a special deal with their former partners, using the argument that trade benefits both sides and that Britain is itself a large market for many. But the process could take many years (it took a decade for the much smaller Switzerland).”
Sure, it would probably take the much larger Britain less time. But that’s a long period of instability tied-up doing little else but try to get back to where we were.
And those deals Switzerland does negotiate tend to be less good – say the Swiss.
“The EFTA countries tend to rush in behind the EU, though in some cases—South Korea, for example—they go first. But the bigger club can win slightly better terms. “The EU is more powerful than we are,” says Didier Chambovey of Switzerland’s state secretariat for foreign affairs.”
Hardly surprising: if you’re part of the world’s biggest economy, as the UK within the EU is, then you get a better deal.
The British would get less generous treatment than the Swiss.
“There is little chance that Britain, a far bigger country with a history of being difficult, would be allowed to squeeze in alongside Switzerland. … The halfway options of Norway and Switzerland were offered largely in hopes of tempting both to become full members one day. Britain would be travelling in the opposite direction, without a map. In this, as in so many other ways, leaving the EU would be a colossal gamble.”
There’s every incentive for the EU to woo a country it hopes will become a member. There’s very little incentive to treat a country well that has walked out on it.
The Swiss have less power outside the EU than the British have in the EU.
“[Switzerland] is not beyond the reach of Brussels. The Swiss are currently exercised over several European directives, including those covering finance, chemical factories and the movement of labour. Switzerland is hampered by the lack of an accord with the EU on financial services and by its lack of representation in Brussels. In the broader fight against protectionism and financial over-regulation in Europe, it relies on an informal alliance with another country that also has a big financial-services industry, as well as a valuable seat at the negotiating table: Britain.”
If Britain leaves the EU, paradoxically the Swiss option becomes far less attractive.
* Stephen was Editor (and Co-Editor) of Liberal Democrat Voice from 2007 to 2015, and writes at The Collected Stephen Tall.
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19 Comments
Switzerland has a rather odd status in that it is not (officially) in the EEA and its recent referendum has further muddied the waters. In practice I have little doubt that following an OUT vote, the UK (or whatever is left of it – surely the Scots would vote IN!) would quickly sign up to the EEA and agree to pay into the EU development fund.
In this way apart from having minimalised influence in the EU, there would be little change, though we could actually find that overall we would be paying in more, however against that we would still benefit from the single market.
I would be much less certain about the financial sector: I just cannot see the Euro using countries allowing a huge volume of Euro traffic to continue to revolve around a centre that is no longer in the EU.
all well and true to talk about the costs, as listed above.
the other side of the equation is the value of being a member of the EU.
the more the EU federalises the less its value is judged to be in Britain, and thus more of the costs people are willing to shoulder in order to retain essential sovereignty.
the answer is clear; ensure that britain can remain within the EU as an essentially sovereign nation when you plan the political and economic convergence necessary for the eurozone to survive.
europhiles in this country ought to cheer every act that forces or grants further accommodation of british interests, for it helps maintain the value that makes the cost of leaving look unattractive.
the article itself recognises this:
“Passed by the coalition, this dictates that a referendum must be held on any new EU treaty that shifts power from Westminster to Brussels. The EU is acutely aware of this obstacle, so where treaty change is envisaged, it is trying to focus it as narrowly as possible on the euro zone, of which Britain is not a member.”
A possible problem with all these arguments is that they all seem to start from the premise that Britain is weak. It may be true, but I suspect that this is not something many people will find attractive. It’s also something that can be turned around – the reason we’re weak is because we’ve been in Europe, so let’s get out.
A free trade agreement probably always involves what some would call a loss of “sovereignty”. For example, it wouldn’t be fair free trade if the French government subsidized French strawberry growers to an extent that UK strawberry growers were driven out of the market; there’d need to be a political agreement that limited the freedom of one party in the agreement to subsidize one of its industries. Free trade must surely involve a lot of things like this, to do with equality of competition, a level playing field as regards wages and social provisions that add to costs such as HSE in the workplace, and agreements about quality and technical standards.
I’m no expert, maybe this is wrong, but if it’s even halfway right, then the alternative offered by Nigel is an illusion. Out really does mean Out. It means no free trade agreement without some form of political harmonization as well.
Almost identical to the same old exhausted points that were raised at the launch of the Euro and we know how well that worked out,the only one missing is the loss of 3 million jobs.
Britain is already not part of the Eurozone.
So, how exactly do you come to the conclusion that we would have less sway with the US? What would stop Europe working with Britain on areas of common interest?
Voter, because the USA has already said so.
Another problem here is that far too many people discount practical issues. The Swiss have much leverage in European discussions because so many businesses have to transport goods through their boarders. The UK is an island, so much easier to bypass.
Liberal Al
Your first point is good. Your second is not. Look at a map. Switzerland is extremely mountainous, which — to trade as to invasion — is as big an obstacle as the sea, if not more so. Its prosperity is largely based on financial services, which don’t take any notice of physical borders or contiguity.
I’m very pro-EU and love the freedom of movement it gives us all, but all the people saying that our trade with the EU would suffer dreadfully if we leave are really egging it up a little too much. Without trying to sound like Nigel Farage does anyone seriously think Germany and France would risk not being allowed to sell their cars in the UK? Does anyone buy more French wine – at far higher prices – than the UK? The Spanish, Greek, Cyprus etc. tourist and building industries would be half the size they are now without us. This seems to be the main argument the pro- EU supporters are using and the majority of voters don’t believe it.
If Britain aligns with other European countries on individual issues as desired, then the group could have influence.
If France and Germany do not see eye-to-eye with the Brtitish, then we cannot force them to adopt our position.
malc, of course everybody would still want to trade. The question is who has the upper hand in negotiations over the terms of that trade. Bluntly, the larger economy has the upper hand by a long way, and so the terms of trade will end up less favourable to us if we leave. Frankly I can’t see the EU conceding one dot or comma from the single market rules that exist, and going forward we would have no further influence in setting them.
Joe:
The UK is a massive export market for Germany and France, they also own many major UK based companies and many of their companies have won massive contracts for work to be carried out in the UK. How they will bend the rules I don’t know, but they will, because they need us as much as we need them and frankly we ain’t Switzerland! My point of view may be simplistic, but that doesn’t mean it’s wrong and I’m pretty sure it’s what most voters think.
malc, the Farage argument is ‘they want to trade with us more than we want to trade with them’ and is “substantiated” with some handwaving about how good German cars are compared to British ones, or something.
There’s a hidden false premise in there that trade is good for the exporter and bad for the importer. Not true, but, as you say, common perception. (If you think about it, the country that only exported and never imported, would be doing a lot of work to support foreign standards of living, and getting nothing in return – a cash balance that is left unused)
But even that false premise is not really the problem. Whatever your view of the role of imports and exports, if you understand the benefits of trade, and the problems of non-tariff barriers etc, you will understand the importance of international agreements to remove barriers and free up trade in both directions.
The European Single Market is such an agreement par excellence. It has become so comprehensive because EU members agreed on a qualified majority voting procedure to accelerate the process of reaching agreement on product standards (i.e. removing non-tariff barriers). Sure, Norway or Switzerland could go to the EU and say “we’ll join your single market and obey most of your product standards, but in return we have a list of product standards that apply in Switzerland that we want you to adopt…” Do you really think they would get very far? The single market is a huge accomplishment, adding greatly to European prosperity, including our own, and to start picking it apart like this would be bonkers. Far better to have a seat at the table, and a vote, and work constructively with allies, and influence it that way.
Farage’s next idea, then is that British manufacturers could obey all the EU product rules in respect of the products they wanted to sell in the EU, but not bother with them for all other products. (That we would have a different British set of product standards, doubling the regulatory burden on our manufacturers?) What’s wrong with that? Well it is the path back to non-tariff barriers. “We want access to your marketplace, but you can’t have access to ours on the same terms.” – this is not a credible demand for a trade negotiation.
Globally, movement is towards more consistency of product standards, to remove non-tariff barriers, and the EU is major driving force in this and has a strong influence on those standards. Whether we are in or out, EU-influenced product standards are going to be the norm in global trade. If we are in, we will have access to dozens of free trade agreements the EU has negotiated with major and emerging economies. Out, we would have to renegotiate all these from a position of weakness, but the product standards would end up very similar.
UK interests are served by maximising trade opportunities and maximising British influence over international trade rules. Both these are served by staying in.
I’m as pro-EU as anyone, but on the trade point of view we will have to differ. My opinion is that the larger EU countries benefit greatly from trade with the UK and would adjust their rules accordingly, because it’s in their interests to do so. We may lose some jobs and trade, but I doubt it will be anything like as bad as Nick Clegg implied.
I agree completely with Joe Otten. But a problem is that Joe has used 500 words to explain these things well. We probably need to find ways to do it effectively in sound bytes of less than 10, and ways to face the emotion that Farage rides on, rather than necessarily the dry facts.
@Malc – “The UK is a massive export market for Germany and France, ”
Actually the UK is a lot less important to them then they are to us. (From memory) both export 7% or 8% of their exports to the UK. For many other EU member states – particularly the eastern ones – it doesn’t even hit the 5% mark.
So if they lost access to the UK market it would be unpleasant whereas for the UK – which exports circa 50% of its products to the EU plus much of the remainder using EU-Rest of World Free Trade Agreements – it would be catastrophic.
In addition remember a lot of UK products could probably be replaced by intra-EU trade (French companies buy from German ones rather than UK ones) whereas the UK would need to massively increase its market share in far-away countries to compensate.
A free trade agreement probably always involves what some would call a loss of “sovereignty”. For example, it wouldn’t be fair free trade if the French government subsidized French strawberry growers to an extent that UK strawberry growers were driven out of the market; there’d need to be a political agreement that limited the freedom of one party in the agreement to subsidize one of its industries.
That’s why ideally you want to sign a free trade agreement with a partner you are not in competition with. For instance, there wouldn’t be a problem if we signed a free trade agreement for bananas with a country that subsidised its banana growers, because there are no UK banana growers to be harmed, and indeed it would be quite nice to get cheap bananas because some other government was subsidising them, wouldn’t it?
It’s a form of comparative advantage, which is good for everyone.
But one of the problems of being in the EU is that we are no longer as free to sign such deals, because we have to worry about whether French banana-growers are going to be harmed by the terms of the deal. Even though we don’t care about banana subsidies, we are held to ransom by the protectionist demands of French banana-growers who say we can’t be in the EU and sign a free trade deal that would allow some other country to sell their bananas to us at a price that undercuts French bananas. So the British consumer is stuck having to pay a higher price for bananas than they could have done if we had been free to negotiate a trade deal directly with (say) Jamaica that would let it undercut French bananas, instead of having to negotiate through the EU where the French banana lobby gets a say and so blocks it, forcing us to impose tariffs on Jamaican bananas so that they are uncompetitive against the more expensive French ones.
(That’s before we even get to the fact that the EU does massively subsidise certain industries too, of course).
7 or 8% of the German and French export market is massively important to those two countries and I doubt they would like to see the UK as a VW or a French wine free zone. If EU trade regulations needed to be amended to carry on this trade I’m fairly sure they would look into it very carefully. However, I’m very much a pro-european and would hate to see us leave the EU. My main worry is that like the pro-unionist in the Scotish debate, the pro- EU campaign seems to be based on putting the “fear of god” into those that want a change and the polls show it’s not working. Instead of explaining all the benefits of staying in it seems to be more of a scare campaign. There are a lot of people in the UK- perhaps the majority – who have had a very hard time of it in recent years. Many others know that when interest rates start to rise – increasing their morgage payments – they too will struggle. They want a change and people like Farage offer them a different path and maybe some hope, which at the moment is far more than the leaders of the main political parties offer. A lot of posters on this board seem to think that UKIP will do well in the Euro Elections and then disappear nicely before the General Election, I don’t agree. Many people want a change, in the past they would have looked at the LibDems, but they are now to closely associated with the Tories. I think many in despair will just not bother to vote, but a fair few just might be tempted UKIP’s way. The problem is that there are no “leaders” in the main political parties to explain what a dreadful mistake that would be. I hate to say it , but the only two people showing any leadership at the moment are Alex Salmon and Nigel Farage.
Worth considering the background behind Switzerland building the Alps Transit network. Nothing to do with what Switzerland needed per se, borne out of the trade negotiations with the EU. As Joe correctly said – as the bigger partner in the negotiation, we the EU, get to require such things of our EFTA/EEA neighbours .
As even Open Europe put it: “The Commission’s desire for EU goods transporters to be able to transit through Switzerland, led to the Swiss’ decision to build the transalpine railway network (NEAT). The project required €15bn of public investment with little direct benefit to Switzerland other than to satisfy EU demands for access through its territory.”
Malcolm, Danny’s comment explains it much better than mine.