My vote for Europe

'The optimum deal for the United Kingdom is surely to be in a European free trade area but not in a customs union' - Daniel Hannan, Daily Telegraph 

True or False?

The UK should leave the EU and instead join a free trading area such as EFTA, the 'European Free Trade Area'.  That's the view of Conservative MEP and prominent Euro-sceptic, Daniel Hannan, in his Telegraph blog.  

Switzerland and Norway, for example, are members of EFTA, allowing them to ‘freely’ trade with the European Union but without the apparent burden of being members of the European Union.   

These arguments will strongly appeal to those who believe that the UK could leave the EU, and still enjoy all the benefits of trading with the rest of Europe, but without having our national policies “dictated by Brussels”.  Many also argue that membership of EFTA would relieve us of having to contribute to the EU budget.

But before anyone signs up to this seemingly ideal scenario, the fuller picture needs to be carefully considered.

The founding members of EFTA, back in 1960, were Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the UK.  Later Finland, Iceland and Liechtenstein joined EFTA too. So there were ten members of EFTA enjoying the benefits of ‘free trade’ in Europe. You’d think that this wonderful, cosy arrangement would not only be maintained, but that more countries would be queuing up to join EFTA.  Actually the opposite is true.

From 10 to 4

Of the ten members of EFTA, only four remain: Liechtenstein, Iceland, Norway and Switzerland.  The six other countries – Austria, Denmark, Portugal, Sweden, Finland and the UK – all decided to leave EFTA in favour of the EU.  Furthermore, membership of EFTA is likely soon to dwindle further.  Iceland wants to leave EFTA and instead join the EU; their application is currently being negotiated.  That would leave only Norway and Switzerland as members, together with Lichtenstein, a country closely integrated with the Swiss economy.

There are perhaps unique reasons for Norway and Switzerland, with Lichtenstein, to remain members of the EFTA ‘free-trade club’ when all the others decided to quit their membership in favour of the EU ‘customs-union.’   For one, Norway has huge reserves of oil and gas, and Switzerland and Lichtenstein are tax havens.  Furthermore, all three countries have much smaller populations than the UK - even smaller than the population of Greater London.  This accounts for their much higher GDPs per capita and their relative prosperity.  Their circumstances are not at all comparable to Britain; we cannot become Norway, Switzerland or Lichtenstein.

Free trade?

But there’s something else many may not realise about being a member of the ‘free trade’ club EFTA – membership is not free.  For the privilege of EFTA countries being able to ‘freely trade’ with the EU, the EU charges them a price.  A huge price.  Despite not being full members of the EU, with all the membership privileges and voting power that would give them, the EFTA countries still have to contribute to the EU budget proportionate to their economies.

So, for example, Norway pays about €340 million a year to the EU budget as the cost of ‘free’ trading in the European Economic Area (EEA) through EFTA.  That is more than many EU members states have to pay, yet EFTA members are not entitled to any rebate from the EU, as is the UK, and they have no say in EU policies, as does the UK.

There is more.  For the benefit of ‘free’ trading in the EU market, members of EFTA have to adopt almost 90% of EU directives into their domestic policies.  It’s true that, unlike for most EU countries, members of EFTA can choose to opt out of EU directives – but they don’t, because they don’t want to lose the hugely lucrative EU market. 

So as a price of belonging to EFTA, Norway and the other EFTA countries must still implement the EU single market legislation, including the social policies often disliked in the UK.  Yet despite having to pay towards the EU budget and having to adopt EU law, EFTA countries have no vote, and only marginal influence, in the policies, vision, direction, rules and laws of the EU.

Dismembered

If Britain withdrew from the EU and instead joined EFTA, we would still have to sign all the single market legislation into law, including social and employment policies.  We could opt out of the common agricultural and fisheries policies, but this would only save a modest £1.1 billion a year.  As members of EFTA, we would still have to pay billions towards the EU budget, but without any chance of a rebate, without any say in EU policies, and without any realistic prospect of an EU rescue if the country got into serious trouble.  

Is it any wonder that eight more countries want to join the EU, and not EFTA; in fact no new countries want to join EFTA, their membership is stagnant.  

Norway and Switzerland also wanted to leave EFTA and join the EU, but in referendums their people voted against; in Norway only marginally.  In future this may change as these countries increasingly realise that, as members of EFTA, they pay a high price for ‘free trade’ with Europe, but without any of the enormous range of benefits that full EU membership would offer.  

As members of EFTA, Norway, Switzerland, Lichtenstein and Iceland, still have to adopt most EU law, and pay sizeable contributions to the EU budget, but without any voting rights. Is that really what we want for the UK?

Economic crisis

It’s true that the EU is currently going through economic crisis, with some countries threatened with bankruptcy.  But the entire world, not just Europe, is going through severe economic crisis.  On the other hand, just think what might have happened to Greece, or Portugal, Spain or Italy, if they were not members of a club prepared to assist in their dark hour of need.


And as we contemplate our future membership of the EU, also just think what might happen to the UK if we leave the EU, and find ourselves alone in our own hour of need. Who will rescue us then?  Maybe more pertinently; imagine that when the world recovers from economic crisis, as it will, and we’re outside of the EU, the planet’s largest economy.  How will we feel if we abandoned what we thought was a sinking ship, only to look on with nostalgic eyes to see the ship bounce back, buoyed by the treasures of economic success, and realise we’re no longer on board, but out at sea.

Also read:

 'The EU: Should we stay or go?'    'The Brotherhood of Europe'

© Copyright Jon Danzig 2012