UK wants 'something for nothing' from Europe
by John Springford
11 July 2012
British Eurosceptics will not get what they want - access to the single market without having to respect the common rules that make it work or the policing of those rules by the European Commission and the European Court of Justice – says think-tank
British Eurosceptics want to renegotiate the United Kingdom's relationship with the European Union. They divide into two camps. There are those who want Britain to stay in the EU, but win opt-outs from social and employment legislation and from justice and home affairs policy. This includes most Conservative Party government ministers. A second group, which includes many Tory backbenchers, wants a looser relationship still. This camp seeks a British withdrawal from the EU.
The second group is suitably vague about the terms on which the UK would carry on its trade with continental Europe, after withdrawal. Some speak of a Norwegian arrangement, which would involve the UK joining the European Economic Area. Alternatively, Britain could sign a bilateral free trade agreement under which the country would be free to regulate its own markets as it sees fit.
For most people in this camp, EU membership burdens the UK with too many regulations. If the country left the union, British products would still be in high demand and the UK could carry on trading - but free of the EU's supposedly constraining rules. And without those rules, the UK could concentrate on chasing growing demand in Brazil, China and the rest. The UK could become Norway or Switzerland - that is, in Europe but not in the EU and more free and prosperous as a result.
There are flaws in this analysis which arise from confusion about the nature of the single market, a failure to be hard-headed about its costs and benefits and a lazy assumption that the UK can become Norway or Switzerland. To take the last point first: Norway and Switzerland have a semi-detached relationship with the EU. But they are more attached than some Eurosceptics imagine. As a member of the EEA, Norway - along with Iceland and Liechtenstein - has access to the EU's single market.
And Norwegian citizens have the right to travel and work in the EU. Norway, moreover, has opt-outs from EU policies it does not like – like the Common Fisheries Policy. But Norway's special arrangements come at a price. The country must implement the EU's single market legislation, including the social policies so disliked in Britain, but is excluded from decision-making on the rules. Norway must also contribute to the EU budget for structural funds and regional development.
If Britain withdrew from the union and joined the EEA, it would be able to opt out of the common agricultural and fisheries policies. This would save a modest amount - around £1.1bn a year, or 0.07 per cent of gross domestic product - because Britain pays more into these programmes than it gets out. But Westminster would still have to sign all single market legislation into law, including social and employment policies.
What about Switzerland's arrangements with the EU? Switzerland is not in the EEA, but has negotiated a series of bilateral agreements to get access to some areas of the single market. Switzerland must largely accept EU legislation pertaining to the markets it wants access to. But is this not precisely the relationship the Eurosceptics want? Could Britain, like Switzerland, have its fondue - the ability to sell to the rest of Europe - and eat it, avoiding those Brussels directives it dislikes)? Unfortunately, the answer is 'no'.
Switzerland signed up to the EU's customs union in 1972, which abolished subsidy and tariff barriers. Since then, it has also decided to sign up to the majority of the single market. It is a full member of the single market for goods, a signatory to the Schengen agreement and it has signed up to most of the single market for capital. In many areas, therefore, Switzerland is effectively a member of the single market. But like Norway, it does not have the ability to affect the rules that govern it.
Swiss firms are asking for further integration, too. The country decided not to sign up to a range of financial services legislation in the 2000s, and was frozen out of some EU markets as a result. Swiss fund managers were prevented from offering asset management across the EU. Swiss banks are now starting to put pressure on the government to sign up to the union's post-crash financial rules.
All of which brings us to what the single market is, and why the UK needs it. Among developed countries, the biggest remaining obstacles to trade are non-tariff barriers like different national regulatory regimes. Eliminating tariffs and subsidies will only get you so far. If drugs have not been licensed for sale in another country, they cannot be exported. The single market aims to eliminate non-tariff barriers to trade by establishing common minimum standards - then forcing member-states to open their markets to foreign firms.
Yes, Europe's approach to this has created some economic costs in the form of regulation - partly to soothe workers' fears of competition run amok. But it is hard to argue that they are particularly large. Under the Working Time Directive, people have the right not to work more than 48 hours and if they want to work more they are allowed to do so. Meanwhile, the benefits of single market membership are enormous. In principle, British firms have access to a huge market for their products, without 27 different sets of national barriers getting in the way. And foreign firms can enter our markets, forcing domestic companies to improve their performance.
It is difficult to imagine that the rest of the union would cheerily say goodbye to Britain, but then let it have access to the single market without keeping the rules it has already signed up to - and agreeing to sign future rules into national law. And unlike Norway, the UK is a big and diverse trader. It does not specialise in oil. The UK is a big trader in many services including telecoms, business consultancy, software and computing, law, financial services, publishing, design and much else. It also exports many high-technology goods - especially pharmaceuticals, chemicals and photographic equipment.
Common regulations in each of these sectors allow British firms to export without adapting their products and services to meet the rules of every country. This is not to suggest that foreign imports are not also good for the UK economy. British firms that cater for domestic markets are challenged by other European firms, forcing them to be more productive and innovative. Therefore, if it left the EU, it would still be in the UK's interest to sign up to many of the union's rules.
In any event, it is almost certain that Britain's Eurosceptics will not get what they want: access to the single market without having to respect the common rules that make it work, or the policing of those rules by the European Commission and the European Court of Justice. The UK's partners do accept its opting out of the single currency and some justice and home affairs policy. But they will not let Britain have something for nothing.
John Springford is a research fellow at the Centre for European Reform think-tank, which first published this article here
British Eurosceptics want to renegotiate the United Kingdom's relationship with the European Union. They divide into two camps. There are those who want Britain to stay in the EU, but win opt-outs from social and employment legislation and from justice and home affairs policy. This includes most Conservative Party government ministers. A second group, which includes many Tory backbenchers, wants a looser relationship still. This camp seeks a British withdrawal from the EU.
The second group is suitably vague about the terms on which the UK would carry on its trade with continental Europe, after withdrawal. Some speak of a Norwegian arrangement, which would involve the UK joining the European Economic Area. Alternatively, Britain could sign a bilateral free trade agreement under which the country would be free to regulate its own markets as it sees fit.
For most people in this camp, EU membership burdens the UK with too many regulations. If the country left the union, British products would still be in high demand and the UK could carry on trading - but free of the EU's supposedly constraining rules. And without those rules, the UK could concentrate on chasing growing demand in Brazil, China and the rest. The UK could become Norway or Switzerland - that is, in Europe but not in the EU and more free and prosperous as a result.
There are flaws in this analysis which arise from confusion about the nature of the single market, a failure to be hard-headed about its costs and benefits and a lazy assumption that the UK can become Norway or Switzerland. To take the last point first: Norway and Switzerland have a semi-detached relationship with the EU. But they are more attached than some Eurosceptics imagine. As a member of the EEA, Norway - along with Iceland and Liechtenstein - has access to the EU's single market.
And Norwegian citizens have the right to travel and work in the EU. Norway, moreover, has opt-outs from EU policies it does not like – like the Common Fisheries Policy. But Norway's special arrangements come at a price. The country must implement the EU's single market legislation, including the social policies so disliked in Britain, but is excluded from decision-making on the rules. Norway must also contribute to the EU budget for structural funds and regional development.
If Britain withdrew from the union and joined the EEA, it would be able to opt out of the common agricultural and fisheries policies. This would save a modest amount - around £1.1bn a year, or 0.07 per cent of gross domestic product - because Britain pays more into these programmes than it gets out. But Westminster would still have to sign all single market legislation into law, including social and employment policies.
What about Switzerland's arrangements with the EU? Switzerland is not in the EEA, but has negotiated a series of bilateral agreements to get access to some areas of the single market. Switzerland must largely accept EU legislation pertaining to the markets it wants access to. But is this not precisely the relationship the Eurosceptics want? Could Britain, like Switzerland, have its fondue - the ability to sell to the rest of Europe - and eat it, avoiding those Brussels directives it dislikes)? Unfortunately, the answer is 'no'.
Switzerland signed up to the EU's customs union in 1972, which abolished subsidy and tariff barriers. Since then, it has also decided to sign up to the majority of the single market. It is a full member of the single market for goods, a signatory to the Schengen agreement and it has signed up to most of the single market for capital. In many areas, therefore, Switzerland is effectively a member of the single market. But like Norway, it does not have the ability to affect the rules that govern it.
Swiss firms are asking for further integration, too. The country decided not to sign up to a range of financial services legislation in the 2000s, and was frozen out of some EU markets as a result. Swiss fund managers were prevented from offering asset management across the EU. Swiss banks are now starting to put pressure on the government to sign up to the union's post-crash financial rules.
All of which brings us to what the single market is, and why the UK needs it. Among developed countries, the biggest remaining obstacles to trade are non-tariff barriers like different national regulatory regimes. Eliminating tariffs and subsidies will only get you so far. If drugs have not been licensed for sale in another country, they cannot be exported. The single market aims to eliminate non-tariff barriers to trade by establishing common minimum standards - then forcing member-states to open their markets to foreign firms.
Yes, Europe's approach to this has created some economic costs in the form of regulation - partly to soothe workers' fears of competition run amok. But it is hard to argue that they are particularly large. Under the Working Time Directive, people have the right not to work more than 48 hours and if they want to work more they are allowed to do so. Meanwhile, the benefits of single market membership are enormous. In principle, British firms have access to a huge market for their products, without 27 different sets of national barriers getting in the way. And foreign firms can enter our markets, forcing domestic companies to improve their performance.
It is difficult to imagine that the rest of the union would cheerily say goodbye to Britain, but then let it have access to the single market without keeping the rules it has already signed up to - and agreeing to sign future rules into national law. And unlike Norway, the UK is a big and diverse trader. It does not specialise in oil. The UK is a big trader in many services including telecoms, business consultancy, software and computing, law, financial services, publishing, design and much else. It also exports many high-technology goods - especially pharmaceuticals, chemicals and photographic equipment.
Common regulations in each of these sectors allow British firms to export without adapting their products and services to meet the rules of every country. This is not to suggest that foreign imports are not also good for the UK economy. British firms that cater for domestic markets are challenged by other European firms, forcing them to be more productive and innovative. Therefore, if it left the EU, it would still be in the UK's interest to sign up to many of the union's rules.
In any event, it is almost certain that Britain's Eurosceptics will not get what they want: access to the single market without having to respect the common rules that make it work, or the policing of those rules by the European Commission and the European Court of Justice. The UK's partners do accept its opting out of the single currency and some justice and home affairs policy. But they will not let Britain have something for nothing.
John Springford is a research fellow at the Centre for European Reform think-tank, which first published this article here
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COMMENTS
Of course, under the treaty, Britain would not have to join the EEA - it would be in it by default. We would have to specifically leave it, as well as leave the EU itself. However, you are right that the idea of renegotiating Britain's position within the EU is probably a non-starter. Therefore, the Conservative/Labour/Lib Dem position about some form of claw back of powers is risible.
This, of course, leaves us with an in/out option as the only serious referendum question. And this something for nothing. So the UK's trade deficit with the EU is nothing? I think that a number of continental corporates might disagree with you there.
Gawain Towler - UKIP/EFD Group London
