7 April 2021

The chance for smoother trade with the EU is still available, if Britain can seize it

By Carl Baudenbacher

A little over three months ago, the UK not only exited the EU, but also the single market. 

The bad blood over vaccine rollout means there is little love lost between the two sides at the moment. At the same time, however, the faltering movement of goods to and from the continent, along with the lack of a European passport or seemingly even equivalence for the City of London, mean there have been calls for a rethink of Britain’s commercial relationship with the bloc.

How might that revised relationship take shape?

A partial return to the single market could be achieved through a rapprochement with the European Free Trade Association (EFTA) and the European Economic Area (EEA). The focus here is on ‘docking’: Britain would place itself under the auspices of the institutions of the EFTA pillar of the EEA – the EFTA Surveillance Authority and the EFTA Court – and would have the right to nominate at least one member to each of these institutions in UK-related cases. It would not have to take over the entire single market acquis but would be linked to the EU on a sectoral basis. The EU’s former chief negotiator Michel Barnier offered this to the UK in early 2018 and if the EU is interested in a friendly future relationship, it should keep that offer open.

Instead of seriously assessing this docking option, Theresa May’s government accepted the non-neutral European Court of Justice in July 2018 as part of the so-called “Ukraine mechanism” for both the Withdrawal Agreement (“WA”) and a future trade deal. The Ukraine mechanism was developed by the EU for its so-called ‘neighbourhood states’ to the east and south. In the event of a conflict, an arbitration panel is set up. The problem is that panel lacks clout since it must ask the ECJ for a binding decision whenever EU law or treaty law with the same content as EU law is involved. It would not be stretching things too far to describe it as ‘fake arbitration’.

Boris Johnson agreed to the Ukraine model in the Withdrawal Agreement, but avoided it in the Trade and Cooperation Agreement, despite considerable pressure from the EU. Docking had fallen out of favour at No 10 and thus the UK departed from the single market. In my view, this was not an informed decision.

The Swiss experience

Switzerland’s experience is instructive in assessing the best way forward for the UK now.

Switzerland was the first country to be recommended docking by Brussels in 2013. In 1992, the Swiss people and the cantons had rejected accession to the EEA in the EFTA pillar. In 1995, EFTA states Austria, Finland and Sweden joined the EU. Since Iceland, Liechtenstein, and Norway were members of the EEA, EFTA was divided into an EFTA of three and an EFTA of four, including Switzerland. 

Absurdly, the Swiss Federal Council interpreted the “No” vote on the EEA as a mandate to prepare for EU accession. Two packages of bilateral treaties were concluded. Switzerland has thus participated in the single market on a sectoral basis since the 2000s. However, as it became increasingly clear that the country would not join the EU, Brussels demanded a supranational monitoring and judicial mechanism from 2008 onward. The Foreign Department in Berne sensed an opportunity to set a “point of no return” on the path to the longed-for EU accession and opted for the Commission as a de facto watchdog and the ECJ as a tie-breaker.

In order to sell the other party’s institutions to the Swiss people, the Foreign Department launched a shameful campaign. The most duplicitous nonsense uttered was that the ECJ “could not condemn” Switzerland, but would only give “expert opinions”, and that the EFTA Court was an undesirable institution as its judgments would have no effect in the EU.

Since 2014, Switzerland has been negotiating with the EU on this flawed basis regarding the conclusion of an institutional agreement (“InstA”). From 2014 to 2017, the negotiations were conducted on the basis of the “pure” Commission/ECJ model, until it became clear that this arrangement would stand no chance in a referendum.

Undeterred, the EU then put forward the ‘Ukraine model’. Once more, Switzerland’s Federal Council agreed and Foreign Department launched a misleading campaign to rally support for the plan. They essentially claimed that the “arbitration panel” had great powers of its own, mainly because Switzerland had negotiated more successfully than the British. By the end of 2018, the EU declared the negotiations over. The Federal Council started to have second thoughts and put the deal on the back-burner. Considerable resistance formed in business and society, not least against the Ukraine mechanism. The Federal Council nevertheless tried to save face by merely asking the EU for “clarifications” on three side issues: wage protection when working across the border; whether the EU’s Citizenship Directive is part of the InstA; and the scope of the state aid prohibition.

In recent weeks it has become clear that the InstA is dead in the water because of the Ukraine mechanism. Switzerland is, therefore, faced with the question of whether it should continue to be part of the single market or strive for a pure free trade agreement. If it goes for the former option, Switzerland will have to recognise a supranational monitoring and judicial mechanism. 

An opportunity for Britain?

The end of Switzerland’s InstA aspirations is, however, a chance for the UK. A proposal by the Brussels thinktank Bruegel back in August 2016 offers a possible way forward. Under their plan, the five free trade orientated non-EU states – the UK, Switzerland, Iceland, Liechtenstein, and Norway – would form a strong second structure in Europe alongside the EU: an organisation with only economic goals.

But it needs someone to take the initiative, and that can only be the British and the Swiss. If the UK takes a clear position, Norway and Liechtenstein will not oppose the idea, while the Icelanders have been positive so far.

In Switzerland, those who claim that the country must remain in the single market but who have so far backed the wrong horse with the ECJ should seek solidarity with the British and with the partners who form the current EFTA pillar of the EEA. The five countries mentioned above should aim at negotiating a new European Partnership Agreement. Putting in place that second European economic structure would go some way to solving one of the most common criticisms of the EEA – the lack of a proper co-decision right for non-EU countries in lawmaking.

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Professor Carl Baudenbacher is former President of the EFTA Court.