Norway offers much to envy. The food is tasty, public services are great and the people are impossibly good-looking.
Its trade policy looks equally desirable. Though it trades heavily with the European Union, Norway also can strike trade deals all over the world, either on its own or operating in concert with the three other members of the European Free Trade Association—Iceland, Liechtenstein and Switzerland. Members of EFTA have dozens of deals, including two with China, with which the EU hasn’t managed even to start negotiations.
After it leaves the EU, Britain will look much like an EFTA country: a rich economy with close links to Europe, but also seeking trade deals elsewhere. It is superficially an attractive prospect. Nonetheless EFTA’s half-in/half-out relationship with the EU hinders its trade as much as it helps.
EFTA’s flexibility in trade stems from its odd relationship with the EU. Switzerland has a series of bilateral agreements, whereas Iceland, Liechtenstein and Norway are part of the single market through the European Economic Area, albeit with opt-outs for agriculture and fisheries. Crucially, however, all are outside the EU’s customs union, an agreement which regulates tariffs charged to third countries. This allows them to strike other trade deals.
EFTA has made the most of this power. The group has 27 free-trade agreements in all corners of the world. They give its exporters access to around 900 million consumers—impressive for a club which includes only 14 million citizens. In addition, individual states have bilateral deals: Norway struggled to make a deal with China after the 2010 Nobel Peace Prize was awarded to a jailed Chinese dissident, but that did not stop Iceland from striking one.
A recent paper from the European Parliament found that EFTA tends to make trade deals faster than the EU. South Korea’s talks with EFTA, for instance, took half as long as those with the EU EFTA is speedy because it can agree on a common strategy faster than the EU, which has more countries to accommodate.
Once outside the EU customs union, Britain too may be able to reach faster deals. President Donald Trump has said that America wants a trade agreement with Britain “very quickly.”
However, EFTA’s experience offers cautionary lessons. Striking a trade deal quickly is a bonus, but what really matters is how good a deal it is. The parliament paper also notes that EFTA’s agreements have been “shallow” compared with those of the EU.
Analysis of the Design of Trade Agreements Database, a project led by the World Trade Institute in Bern, backs this claim. EFTA is not a big market: Its partners are happy to make deals, but they are loth to spend too much time on the finer details. Nor will they make large concessions. The relatively low quality of the deals helps explain why EFTA’s free-trade agreements still account for only about a tenth of its members’ trade.
Britain is a much bigger market than EFTA, but it still will be in a far weaker negotiating position outside the EU than as part of the single market.
© 2017 Economist Newspaper Ltd., London (April 15). All rights reserved. Reprinted with permission.
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