Happily ever EFTA?
This genuine trade bloc is a chance for Britain to show international leadership
Fierce discussions between EU and UK negotiators have continued, despite a Brexit deal and a deal on a new relationship having been agreed between the two sides. Apart from differences on the extent of Irish Sea border checks and fisheries access, a more profound challenge has made it into the limelight: whether the European Court of Justice (ECJ) should be responsible to settle disputes related to the Northern Ireland protocol.
The UK did agree to this. However, it managed to restrict its scope to the Protocol. In her fateful Brexit deal, Theresa May had agreed to submit the UK to the ECJ — indirectly — for all issues related to the Brexit deal. This was rejected three times by Parliament, however, causing May to be replaced by Boris Johnson.
The EU has so far only managed to impose that same model with its own top court as the arbiter on countries like Ukraine — desperately dependent on EU single market access — but for years, it also tried to impose it on Switzerland. Earlier this year, this caused a failure of negotiations between the EU and the Swiss on deepening market access.
It should not surprise that both the Swiss and the UK are less than happy to have the EU’s top court being named as the arbiter to settle differences with the EU. So far, the EU has only managed to impose this arrangement on Ukraine, Moldova, Armenia and Georgia. There is no arbiter foreseen in EU-Swiss relations, and apart from the Northern Irish protocol, a pretty standard arbitration arrangement is foreseen for EU-UK disputes.
Norway’s former Prime Minister once called his own country a “fax democracy”
In Norway, a new leftwing, more Eurosceptic government has entered power. Two influential political parties, which Norway’s new prime minister tried to include in the government, want to renegotiate their country’s EU deal. Norway’s former Prime Minister, Jens Stoltenberg, once called his own country a “fax democracy”, given how its deal with the EU entails that it does enjoy full access to the EU’s single market or “European Economic Area” (EEA) — unlike the UK or Switzerland — but is obliged to copy paste all relevant EU regulations in return, without a say over them.
Iceland and Liechtenstein have the same deal, as non-EU members of the “European Economic Area” (EEA). The arrangement is pretty light on sovereignty, even if those three countries can be happy that when conflicts arise, it’s not the ECJ but the “EFTA Court” which is responsible to resolve them.
Surprisingly, the EFTA Court only counts representatives of those three EEA states that are a member of EFTA, the European Free Trade Association, and no EU representative. Because the EFTA Court is the only Court trusted by the ECJ to resolve matters of EU law.
For example, in the Icesave dispute the EFTA Court had to rule on whether Iceland had violated its EU duty to have sufficient cash in its deposit guarantee fund, after the likes of Oxford University witnessed their savings lost in the 2008 financial crisis. The EFTA Court ruled that Iceland was compliant and left UK and Dutch taxpayers to foot the bill if they wanted to bail out a risk-taking University. Rightly so.
The Western Balkans
On the other side of the EU’s periphery, there are the so-called “Balkan six”, six countries that aren’t a member of the EU yet: Albania, Bosnia-Herzegovina, Serbia, Montenegro, North Macedonia and Kosovo. Also here, the institutional relationship with the European Union is a matter of great importance.
Not much progress is visible when it comes to their EU membership bid, not just because of the lack of economic and democratic progress made by some of them (like Serbia) but also because of a simple lack of democratic support in EU member states to allow them to enter, forcing the likes of Emmanuel Macron to put on the brakes.
Concerns about rampant smuggling are another reason for hesitation, and not only about drug trafficking, recently lamented by a leading Member of European Parliament. There is also concern about illegal tobacco trade, which according to the NY Times, has “with the covert blessing of the United States, [been] a major industry for Montenegro since the Balkan wars of the 1990s”, leading to the murder of investigators and journalists that were exposing the shady business.
Only in July of this year, following a critical EU progress report, which considered the 1.7 million cigarettes seized by the government in the previous year to be “insufficient”, Montenegro’s government announced a ban on storing cigarettes in the “free zone” of the Adriatic port of Bar. Balkan Insight describes Montenegro as “the hub of a global tobacco smuggling scam”. The Covid pandemic only increased the illegal tobacco trade, which amounts to an estimated annual $40 to $50 billion globally.
This caused more smokers to switch to — cheaper, untaxed — illegal products. Higher taxes in some places made smuggling even more attractive. This is because illegal trade is estimated to grow by seven per cent when tobacco becomes ten per cent more expensive relative to incomes.
It is in Europe’s interest to try to stabilize the Western Balkans
Apart from lost tax revenue and empowering organized crime, all that smuggling also causes health risks, due to the fact that illicit products lack proper quality controls. It goes to show how even when they aren’t likely to enter the EU anytime soon, it is in the interest of the rest of Europe to try to stabilize the Western Balkans, not least to avoid them falling in the sphere of influence of Russia, Turkey or into a Chinese debt trap, which seems to be the case with NATO member state Montenegro already.
The Balkan six aren’t sitting still. One initiative is the so-called “Open Balkan Initiative”, under which three of the six — Albania, North Macedonia and Serbia — are already taking practical steps to open up trade and simplify travel among each other.
In a comment piece, Albania’s Prime Minister just urged the EU to support this and offer technical support. The EU has been dragging its feet to provide its backing, given how Kosovo and Montenegro are skeptical about it, as they seem to fear it amounts to a push for a “Greater Serbia”.
However, a more structural solution, which could also address the concerns of the UK, Switzerland and Norway, could be to look at the opportunities presented by the European Free Trade Association (EFTA).
EFTA currently is merely a loose platform to open up trade. Because three of the four EFTA members — Norway, Iceland and Liechtenstein — have “fax democracy” status, and because also Switzerland takes over a lot of EU regulations, EFTA is often seen as a drag on sovereignty.
However, as said, the constraints on sovereignty for the three “EFTA-EEA” countries stem from their EEA membership and for Switzerland it is due to its myriad of bilateral deals. EFTA itself really is merely a platform to open up trade. As it explains on its website:
“EFTA does not envisage political integration. It does not issue legislation, nor does it establish a customs union. (…) Currently, the EFTA States together have 29 FTAs in force or awaiting ratification covering 40 partner countries worldwide (outside Europe).”
Given how the UK, Switzerland, and Norway are troubled with the deal they currently have with the EU, EFTA could be a great platform for them to conduct negotiations with the European Union jointly. Of course, a lot of topics, like for example fisheries access, can only be dealt with in a bilateral manner, but debates on the role of the European Court of Justice involve very similar arguments for all three countries.
Joining would strengthen Britain’s position as an economic player in Europe
The UK could join the non-EEA department of EFTA and it could even emerge as the leader of EFTA, thereby reinvigorating the organization. This would strengthen Britain’s position as an economic player in mainland Europe and an alternative form of international economic cooperation to the EU’s top-down regulatory approach could emerge. After all, this was always the idea of EFTA, from when the UK helped to found it in 1960.
The Western Balkans could join it — and would surely be more keen with the UK as a geopolitical heavyweight on board. This would address some of the disillusion about Western Europe among the population there, and it would help stabilize these countries.
Surely, some aspects of EFTA would need to be adapted, but Norway, Liechtenstein, and Iceland shouldn’t be afraid that this upsets their market access to the EU, which is ultimately, as said, not a consequence of EFTA in itself but of their membership of the European Economic Area — even if non-EU states need to join EFTA before being able to become an EEA member.
For years, The UK tried to reform the EU. Now, it should consider joining the EU’s forgotten twin brother, EFTA, in a bid to reshape it into the ideal image of the EU which the UK always had in mind.
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