Brexiteers fear ‘Swiss Trap’ trade deal

LONDON — In their search for a model for trade relations with the EU after Brexit, British Euroskeptics have a new watchword: Beware the “Swiss Trap.”

While Brexit negotiators in Brussels try to break the “deadlock” in the hope of convincing EU leaders that enough progress has been made to move discussions on to future trade relations, at home the British government is in furious debate with itself about what the optimal outcome of such talks would be.

For some in the British government, the Swiss model — and the high level of access to the European single market it offers — looks attractive, were it not for a catch which troubles even the mildest of Euroskeptics: If the Swiss break a single clause in any of the numerous bilateral agreements that make up their trade deal with Brussels, their whole economic relationship comes tumbling down.

This all-or-nothing “guillotine clause” forces the Swiss into accepting a large and evolving share of EU law, including free movement of people, with little practical power to break away without risking enormous economic damage.

British negotiators and leading Cabinet Euroskeptics are now striving to find a way to avoid this so-called trap while simultaneously maintaining the same level of access to the European single market enjoyed by the Swiss, said senior Cabinet ministers and U.K. government officials who asked not to be identified by name.

Switzerland’s relationship with the EU is a lightly watered-down version of single market membership.

“It’s one of the potential routes being discussed,” one U.K. official said.

To Brussels’ ears, this may sound like the king of the much-mocked have-cake-and-eat-it solutions, a scenario they are desperate to avoid, in which Britain picks and chooses which parts of EU membership it wants to preserve.

But British negotiators are taking the model seriously. At its core it is a free-trade deal like the agreement recently signed by the EU and Canada, but one which starts with regulation on both sides being exactly aligned, something U.K. officials believe makes Swiss-style access politically possible.

Crucially, it would be negotiated “chapter by chapter,” like all modern free-trade deals, covering different sectors of the economy, without the fear that if the U.K. or EU broke away from one of these chapters at any point down the line, it would mean the entire agreement collapsing.

This is the model now being discussed at the highest levels of of the U.K. negotiating team, according to senior officials.

In search of a model

Switzerland’s relationship with the EU is a lightly watered-down version of single market membership, which Swiss voters rejected in a referendum on joining the European Economic Area in 1992.

It is the closest model to the one laid out by U.K. Prime Minister Theresa May in her Florence speech last month, where she rejected Norwegian-style EEA membership as too restrictive, while also insisting a Canada-plus free-trade model did not offer enough access for Britain’s economy.

Switzerland without the trap is the third-way through the dilemma, according to officials and ministers who favor the model.

Switzerland’s relationship with the EU is governed by around 100 bilateral agreements, covering everything from transport to agriculture and public procurement. Under the terms of its agreement, it is obliged to “take over relevant Community legislation” in all the sectors of its economy covered by these agreements, including, most controversially, free movement, without any say over the formulation of those rules.

These agreements are overseen by “more than 15 joint committees,” rather than the European Court of Justice — but if they break any deal, the whole arrangement collapses. The severity of this penalty — and its impact on the Swiss economy — means that in practice the country must go along with whatever is decided in Brussels, if it is related to any of the sectors of its economy where is has a deal with the EU.

The Swiss also contribute to the EU’s finances — though at around €12 per head per year, considerably less than the British who pay €79 each a year for full EU membership, according to the latest figures.

Canada’s relationship with the EU is governed by CETA, the comprehensive free-trade deal it signed with Brussels. It does not contribute to the EU’s budget, accept free movement or recognize the ECJ. However its access to the European single market is far more restricted than Switzerland’s, which has virtually complete open access.

Not such a bind

Some in the Treasury do not see the “Swiss Trap” as something to avoid, according to one senior former No. 10 aide. A Swiss-style arrangement would give legal sovereignty but in reality would ensure Britain never really diverges from European regulation, according to the Tory with close connections to the U.K. negotiating team.

“It’s Brexit but it locks Britain into the system forever because the costs of diverging are so enormous we would never do it,” said the aide, who maintains close contact with leading officials in government.

The prime minister told MPs last week that comprehensive Swiss-style access to the European single market is possible because, unlike Canada, after more than 40 years of being bound together British regulation is fully aligned to the rest of EU. The problem, as May and the EU’s chief Brexit negotiator Michel Barnier have publicly admitted, is how to manage what happens when either side wants to drift apart, an inevitable consequence of Britain “taking back control.”

“There will be areas where we want to achieve the same goals in the same ways because it makes sense for our economies,” Theresa May told MPs | Jeff J Mitchell/Getty Images

Unlike Switzerland’s set of agreements that form the basis of its relationship with Brussels, any trade deal between the U.K. and EU would come with built in red lines, British officials suggested, setting out how far each side could diverge from the other. As with the EU’s deal with Canada, the agreement would also include a court of arbitration, which would intervene if either side broke the rules, according to the plan envisaged by Euroskeptic Cabinet ministers and British negotiators.

How far each other’s regulatory systems can diverge without breaking the agreement will be a matter for the negotiation, U.K. ministers and officials said.

“When you enter into trade agreements with another country, both sides agree the set of rules and regulations that will pertain to that agreement, but they also agree how any disputes about that will be resolved and what will happen if either side chooses to diverge from the rules and regulations in these trade agreements,” May told MPs last week. “That is the position that we will be [taking] with the European Union.”

Crucially, any penalty for diverging from the agreement would only affect one chapter of the trade deal, according to British officials who have studied the Canadian model. This would mean the penalty for British divergence would be far less severe than that which hangs over the Swiss, giving the U.K. far more control over its future direction than enjoyed by Bern.

In Brussels, the risk is that any Swiss-plus model will be seen as the ultimate have-cake-and-eat-it threat to the integrity of the single market.

It would mean, for instance, that the British manufacturing sector could, in theory, continue to abide by the rules and regulations required to access the single market unimpeded even if the U.K. agricultural sector decided to rip up its regulations agreed with Brussels having weighed up the cost of doing so and decided the penalty was worth it.

“There will be areas where we want to achieve the same goals in the same ways because it makes sense for our economies,” May told MPs on Wednesday. The decisions Britain takes after Brexit — whether to align or whether to diverge — “will have consequences for the U.K.’s access to the EU market and the EU’s access to our market” she said.


In Brussels, the risk is that any Swiss-plus model will be seen as the ultimate have-cake-and-eat-it threat to the integrity of the single market.

The European Council’s negotiating guidelines that give chief negotiator Michel Barnier and his team a mandate for the talks explicitly rule out an agreement that deals with each sector independently.

“Preserving the integrity of the single market excludes participation based on a sector-by-sector approach,” the guidelines say.

Barnier also has warned against any such future scenario.

“Naturally, if the United Kingdom wanted to go further than the type of free-trade agreement we have just signed with Canada, there are other models on the table,” Barnier said in September. “For example, Norway and Iceland have chosen to be in the single market, to accept the rules, and to contribute financially to cohesion policy.

“But one thing is sure: It is not — and will not — be possible for a third country to have the same benefits as the Norwegian model but the limited obligations of the Canadian model. And naturally, any agreement must respect the regulatory autonomy of the EU, as well as the integrity of its legal order.”

Jakob Hanke contributed reporting.

Original Article

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