Britain and the EU: are there alternatives to membership?
Background
Britain has been a member of the European Economic Community and its successor body the European Union for 32 years. Thirty years ago, the question of whether Britain should stay a member was decided by a two-to-one majority in a national referendum, yet the debate about Britain’s membership continues.
For many years “Eurosceptics” argued that they did believe in Britain’s membership of the EU, they just wanted different terms. Now, such has been the shift in the political debate in the UK, many are less shy of advocating withdrawal. They argue that there are perfectly acceptable alternatives to membership that would bring both political and economic benefits to the UK. This paper examines those alternatives and shows why they are either not as desirable or would not offer Britain the same advantages that membership of the EU does.
The European Free Trade Area & the European Economic Area The current members of EFTA are:
population
Iceland 296,737
Liechtenstein 33,717
Norway 4,593,041
Switzerland 7,489,370
It is sometimes suggested that Britain should leave the EU and rejoin the European Free Trade Area. The UK was the initiator of EFTA, was a founder member in 1960 and chose to leave it in 1973 to join the EEC/EU a decision that was supported at the time by all the main political parties. The majority of the original EFTA members have now left and also joined the EU. While EFTA does serve as a free trade area, it has neither the political nor the economic clout of the EU. Unlike the EU, it is not a single market and it has only a limited capacity for joint action.
When the EU began the creation of the world’s largest Single European Market in the 1980s, the remaining EFTA countries began to be concerned that they would be left out. As a result, it was decided to establish the European Economic Area from 1 May 1992 (EEA). All EU states and the EFTA members Iceland, Liechtenstein and Norway are members. Switzerland remains in EFTA but has not joined the EEA.
The purpose of the EEA is to allow the free movement of goods, services and people between the member countries. The EEA-EFTA members are consulted about proposed EU Single Market legislation but they cannot participate in the EU’s legislative process. EU legislation relating to the Single Market automatically applies in the EEA-EFTA countries (including decisions of the European Court of Justice). Certain other EU legislation, for example relating to the environment or consumers, also applies to EEA-EFTA countries.
Although there are a number of small states in the EU (eg. Cyprus, Estonia, Luxembourg and Malta), none has a population as small as that of Iceland or Liechtenstein.
It is important to understand how special a case Norway is. Norway was the third largest exporter of oil in the world after Russia and Saudi Arabia in 2003. Norway derives so much income from energy that the Norwegian government has established a fund – now valued at $179 billion – to invest the proceeds abroad in order not to distort the Norwegian economy and so as to be prepared for the exhaustion of the energy reserves.
Approximately 70 per cent of Norway’s exports go to the EU and just under 70 per cent of her imports come from those countries. One-third of Norway’s exports is in the form of energy; the United Kingdom takes 34 per cent of Norway’s oil exports.
Norway has implemented the EU Single Market legislation and continues to incorporate EU decisions into its domestic law. This has led to criticism in Norway that the country has become – as its former Prime Minister Jens Stoltenberg described it in February 2001 – a “fax democracy”, where Norwegian legislators await their instructions by fax from Brussels. Norway pays an annual fee of €240 million to the EU budget but it receives no EU expenditure. Norway now contributes more per capita to the new EU Member States than any of the original EU 15. Twice Norwegian governments have concluded that Norway would be better of in the EU and terms of accession have been negotiated. But on both occasions a referendum resulted in a negative outcome.
Although the EEA largely excludes agriculture and fisheries, in practice these industries cannot ignore the EU and its rules. Norway negotiates annually a bilateral fisheries agreement with the EU, not least because many of its traditional fishing grounds are off the coast of EU member states (such as Britain). As the EEA is not a customs union, goods going to or from EU countries are subject to customs controls, with all the delay and expense that means for importers and exporters.
Switzerland’s position is even more special and even more complex. Its government lost a referendum on joining the EEA but Switzerland still has an application for membership of the EU on the table. At present, Switzerland negotiates bilateral agreements with the EU on areas of common concern; seven have been ratified by the Swiss Parliament. Switzerland, like Norway and Iceland, participates in the EU’s Schengen Agreement on border controls. The negotiation of the bilateral agreements has not always been easy. Switzerland, for example, wanted to benefit from the EU’s internal market in financial services but found that in order to do so it had to abandon some of its traditional banking secrecy before the EU would agree. Switzerland also provides a high level of subsidy to its farmer; direct payments to farmers are enshrined in the Swiss constitution and the total agricultural subsidy amounts to 8 per cent of the Swiss federal budget.
The EFTA-EEA countries are now in a curious, half-in, half-out situation; not members of the EU but with much of their domestic law being made by the EU. These countries contribute to the EU’s budget and have to incorporate as much as 89 per cent of all EU directives into their domestic law whilst having little or no influence in Brussels. Without Ministers, MEPs and officials to represent them in the decision-making bodies of the EU, the EEA-EFTA states have to run an extensive and by no means always effective lobbying exercise in all 25 Member States as well as in Brussels. As the Confederation of Norwegian Business and Industry puts it:
“The EEA secures market access legally, but the EU decides the policy and Norway has to implement it without having participated in the policy-making process”.
Although the EFTA-EEA states benefit from being part of the Single Market, their influence in Europe is marginal. Jens Stoltenberg has sarcastically described Norway as a “superpower in EFTA” to make the point that the country has little influence. It is instructive that Norway was once a world leader in the debate about environmental protection but now finds that it is the EU that makes the running on this as so many other issues. It is not surprising that Norwegian membership of the EU is now back on the agenda in Norway, with opinion polls showing a consistently high level of support for this.
The Swiss government has recently decided not to withdraw their application for EU membership, first made in 1992 and on hold since a referendum rejected Swiss membership of the EEA two years later. The Swiss Foreign Minister, Micheline Calmy-Rey said after the recent decision to maintain the application that Switzerland could not have, “a purely defensive, fearful approach to Europe, always saying no and wanting to keep the status quo”.
With the majority of the former EFTA states now in the EU and others considering joining, for the UK to leave the EU to rejoin EFTA would be a bizarre and retrograde step. Given that over half our trade is with other EU countries, why would we want to put ourselves in the position of having no control over the regulations governing our largest trading markets? We would be walking away from our ability to influence EU decisions and placing ourselves on the margins of Europe, outside the largest centre of power in Europe. Our influence in the wider world would diminish and our economy would be further threatened by our being outside a powerful trading bloc capable of negotiating with the United States, Japan and China in the World Trade Organisation.
North American Free Trade Area
The North American Free Trade Area (NAFTA) is a free trade organisation established in January 1994 and to which the USA, Mexico and Canada belong. The NAFTA members intend to eliminate tariff barriers between them over a period of time; agricultural tariffs are due to be phased out by 2008.
The US Government regards NAFTA as a success because trade between the three nations has doubled since 1993. But NAFTA has been criticised by many in the US agricultural sector who believe that they have lost markets to lower-cost competitors from the other countries.
The idea of the UK joining a north Atlantic trading area has been around for longer than NAFTA itself. The British Government considered the idea of establishing a free trade area with the US and Canada as an alternative to joining the EEC in the early 1970s. The idea was rejected then because the US would be the dominant partner in any such body and because successive US Presidents preferred Britain to join the EEC.
Although Britain (like every EU member) does do substantial trade with the United States, at around 15 per cent of our total trade it is far less than we do with other EU Member States. It would be economically dangerous to turn our back on our major trading partners in order to concentrate on markets where our position is far weaker. Although the NAFTA is a market covering 400 million people, it has only three members and each of them shares at least one land border with another member state. Britain would be an offshore member, thousands of miles from the other members. In any case, it is not certain that the other NAFTA members would want us to join.
The EU: The Best Option for Britain
The decision to apply for membership of the EEC/EU was not taken lightly. It was done because successive British governments saw that to join the EU was better for the UK; a decision that was endorsed by the public in a referendum in 1975. Britain is a major trading nation, whose economic survival depends on her maintaining her European markets. It is better for Britain to be part of the decision-making structure of the EU, not just participating in the debates about regulation but often leading them. We would be a big fish in a small EFTA pond and joining NAFTA would have marginal economic benefits because so much of our trade with those countries is already tariff free.
Even if Britain was to decide to go for one of the alternatives, negotiating for withdrawal and for a new relationship with the EU would be a formidable and frustrating task which might well result in an outcome which did not serve our main interests. The argument that the EU would have to give us what we wanted because they export more to us than we do to them, does not hold water since they would know that we could only disadvantage their exports at a considerable cost to our economy and to British consumers.
Being part of the EU has always been about more than trade. The EU does have a political purpose; not the creation of a single Europe superstate but the sharing of some of our national power in order to have greater influence in the world. Britain, for example, is not part of the Middle East Peace Process as a nation but we are as part of the EU. No one can say that what happens in Israel and Palestine is of no concern to us; it is and we are helping to influence change through the EU in a way we never could on our own.
The global debates of the 21st century will be about issues such as energy, climate change, the environment, security and our relationship with the developing world, issues which are larger than any nation state and which require common endeavour to find solutions. The European Union is the most powerful body in Europe and one of the most powerful in the world in dealing with these cross-border issues. It cannot make sense for us to leave an organisation to which most other European nations wish to belong and which provides us with a greater share of power and influence in the world than we could hope to have on our own.
December 2005
