Can Britain rejoin EFTA after Brexit?

April 11, 2018 10:21
Britain is looking at various options available to the country after it leaves the European Union. Photo: Reuters

Since the United Kingdom reached a preliminary agreement with the European Union over the terms of Brexit, people have looked closer at the various options regarding the way forward for the country.

Among these options is the prospect of Britain’s re-entry into the European Free Trade Association (EFTA).

Co-founded by Britain, Switzerland, Norway, Denmark, Sweden, Portugal and Austria in 1960, the EFTA was initially intended as an alternative to the former European Economic Community (EEC) spearheaded by France and the then West Germany.

However, as the EEC continued to expand and finally became the European Union in subsequent years, the loosely organized EFTA has become increasingly overshadowed by the bigger alliance, and most of its founding members, including Britain itself, eventually left and switched to the EU.

At present, only four member-states remain in the EFTA, namely Norway, Switzerland, Iceland and Liechtenstein, with Norway being the de facto leader.

For decades, the two European trade blocs have been co-existing and over the years the four EFTA member-states have concluded numerous trade and economic agreements with Brussels, under which they are entitled to almost the same degree of rights as other formal EU members.

So would the four of them welcome Britain into the EFTA again? So far it appears that Iceland is pretty keen on the idea, and one reason is that the country has been plagued by economic problems in recent years.

By re-accepting Britain as EFTA member, Iceland believes it can draw more countries to establish trade relations with the organization, and the nation’s own economy would be revived as a consequence.

However, as far as the other three member-countries are concerned, they are rather lukewarm to the idea as their own economies have remained strong.

As far back as 2016, Norway has maintained that the UK’s return to the EFTA is tantamount to “hijacking” the trade association since Britain's population is larger than the four of them combined.

And once Britain becomes an EFTA member again, the four existing members, whose GDPs are far smaller than that of Britain, would become London’s pawns in world politics, the Norwegians fear.

Besides, since the EFTA has already concluded trade agreements with not only the EU but also 38 other economies (e.g., Canada, Mexico and South Korea), there is a grave concern among the Norwegians that they might have to renegotiate those deals since Britain's re-entry would fundamentally change the EFTA's existing structure and balance.

As far as Switzerland is concerned, it also doesn’t want Britain to rejoin the EFTA for fear that its status as the banking and financial hub of the association would be replaced by London.

As for Liechtenstein, it is also apprehensive about Britain becoming a member of the EFTA again. Liechtenstein, despite its tiny size and population, currently has one of the world’s highest GDPs per capita, thanks to its status as a global tax haven.

As such, the tiny country is worried that once Britain is allowed to rejoin the EFTA, British overseas territories such as Guernsey and Jersey in the Channel Islands may threaten its thriving business.

So for most of the existing EFTA members, allowing Britain to become a member again would hardly bring them any benefit.

Moreover, even if the UK eventually managed to gain the green light from the governments of the four countries to rejoin the association, London would still face an uphill battle trying to secure the seal of approval from the citizens of the four member-states.

In theory, there are still several other options for Britain on the table.

For example, it could consider revamping the British Commonwealth. However, that is easier said than done.

The Commonwealth is too loosely organized, and the levels of economic development of its 53 member-states vary too much. Besides, India has already replaced Britain as the de facto leader of the Commonwealth in recent years.

There is also talk of Britain taking the lead in forming an economic alliance among Commonwealth countries that are predominantly white such as Canada, Australia and New Zealand.

However, this proposal is unlikely to materialize. First, any form of economic alliance formed between Britain and the three “white” countries within the Commonwealth may violate the terms of the trade deals they have already concluded separately with other nations.

Second, both Australia and New Zealand have been working aggressively to pursue the creation of the Trans-Pacific Partnership (TPP) in the absence of the United States.

Therefore, there is simply not much incentive for the two countries to commit themselves to further economic integration with Britain.

This article appeared in the Hong Kong Economic Journal on March 22

Translation by Alan Lee

[Chinese version 中文版]

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Associate professor and director of Global Studies Programme, Faculty of Social Science, at the Chinese University of Hong Kong; Lead Writer (Global) at the Hong Kong Economic Journal