Could EFTA membership be a viable solution for a post-Brexit UK?

Industry News | | MIC Customs Solutions |

With the UK's strategy for exiting the European Union remaining unclear, membership of the European Free Trade Association is emerging as a possible solution.

The UK's historic referendum on continued membership of the European Union on June 23rd may have delivered a decisive victory in favor of quitting the bloc, but several months later, the path forward for Britain remains as murkily-defined as ever before.

British prime minister Theresa May - who assumed power following predecessor David Cameron's resignation in the immediate wake of the vote - has repeatedly stated that "Brexit means Brexit" and that there will be no U-turn on the decision to leave the EU, confirming that she aims to trigger Article 50 of the Treaty on European Union and begin the two-year departure process by the end of March 2017 at the latest.

However, a firm strategy for how a post-Brexit UK will operate has not yet been outlined, with British businesses expressing particular concern about the potential impact that severing ties with the European single market will have on their international trade prospects.

With the central government yet to provide clarity on this issue, suggestions have been raised that membership of the European Free Trade Association (EFTA) could provide the UK, or at least some of its constituent countries, with a solution that would allow them to maintain strong trade links with Europe even after Brexit has been initiated.

The UK's history with EFTA

The UK has a long history with EFTA, which was formed in 1960 as an alternative trade bloc for European countries that sought to achieve a liberalization of trade in goods, without needing to buy into the integrationist political aims of the European Economic Community (EEC), the predecessor to the modern EU.

Britain was one of seven founding members of EFTA, alongside Austria, Denmark, Norway, Portugal, Sweden and Switzerland, all of which initially declined to join the fledgling EEC project. However, most of these countries eventually departed EFTA to becoming part of the growing European Community, with the UK taking this step in 1973.

Today, only Iceland, Liechtenstein, Norway and Switzerland remain as EFTA members, but the bloc is still one of the world's largest networks of preferential trade relations. EFTA currently has 27 FTAs covering trade relations with 38 partners, not including the separate framework for trade relations with the EU. Between them, these deals offer access to markets with a combined population of more than 870 million. 

Tentative suggestions

No firm overtures have been made by either the UK or the EFTA states towards a possible return for Britain to the bloc, but recent reports have indicated that this option is under consideration.

Speaking at the London School of Economics in October, Icelandic foreign minister Lilja Alfredsdottir noted that the UK is Iceland's largest trading partner and said: "The EFTA countries might make an agreement with the UK. We are chairing the EFTA right now, and I put it as a priority to analyse the possibilities that EFTA had on this front."

Meanwhile, Sky News reported last month that the Scottish government is considering EFTA membership as a possible solution for the country to remain a participant of the European single market post-Brexit, while Leanne Wood, leader of Wales' Plaid Cymru party, has also cited EFTA membership as a viable option.

The possible benefits

Membership of EFTA could offer a number of possible benefits for the UK as it seeks to maintain its importance as a centre of international trade even after it leaves the EU.

Perhaps most importantly, it would provide an established route through which Britain could remain a member of the European single market, a status afforded to Iceland, Liechtenstein and Norway through EFTA's European Economic Area Agreement - although this would involve the UK agreeing to stick to the EU's rules on free movement of people, which proved a contentious issue during the Brexit campaigning.

Moreover, EFTA membership would potentially allow the UK to pursue a more flexible international trade approach, as it would retain full rights to enter into bilateral third-country trade arrangements, while at the same time benefiting from being able to negotiate as part of a collective bloc with established links and FTAs with many key partners, including the EU.

Such possibilities are likely to make a return to EFTA one of the key options Mrs May will consider as she continues to look for the best way to to fulfil her pledge of negotiating "the best deal for the British people".