Happily ever EFTA: the case for a smart Brexit

Ben Ramanauskas

June 5, 2019

The resurgence of the Liberal Democrats and the ascendancy of the Brexit party in last month’s European Union election revealed something which should come as a surprise to nobody: the UK is still bitterly divided over Brexit.

Nigel Farage’s latest electoral vehicle, which calls for a hard Brexit, came out on top. The Liberal Democrats and the Green party, who were unambiguous in wanting to reverse Brexit, also did incredibly well.

The Conservatives and Labour, with their muddled positions on Brexit, leadership wranglings, and various scandals, were both punished by the electorate. As for Change UK (or whatever they’re now calling themselves), the less said about them the better.

As the UK will soon be getting a new prime minister, what should they do to solve the Brexit question? Well, they could simply try to stop Brexit. Such a move would mean that their premiership would be over before it began.

They could call for a second referendum, but that would be problematic for a number of reasons. Even if they managed to get this through parliament, what would the question be?

If Remain won, that would lead to a great deal of anger and frustration on the part of those who voted to leave. If the outcome was the same as last time then you’d still have a large number of MPs determined to prevent Brexit, calling for a third referendum.

There are those who would argue that the UK should simply walk away from the EU without a deal, but this would be a terrible course of action.

To cut ourselves off from our largest and closest trading partner would be incredibly disruptive and could pave the way for a government led by Jeremy Corbyn and John McDonnell, which would have devastating consequences for the economy.

This is not “project fear” or “talking down Britain”: the UK is a great country, but it shouldn’t ignore reality. As such, we need a solution that will deliver Brexit and the benefits it can bring, while also ensuring that the economy is not placed in jeopardy and our position on the world stage is maintained.

A solution is offered in the form of the UK rejoining the European Free Trade Association (EFTA). Re-joining EFTA would allow the UK to keep many of the benefits of EU membership while also jettisoning the very worst aspects.

For example, as a member of EFTA, the UK would no longer be part of the common agricultural or fisheries policies. This would mean that taxpayers would no longer be paying subsidies to EU agricultural sectors, allowing British farmers to become more competitive. This would result in lower taxes and lower prices as well as a thriving agricultural industry in the UK.

It would also mean that the UK leaves the jurisdiction of the European court of justice (ECJ). This was one of the key issues throughout the 2016 referendum as the ECJ is often seen as being overbearing and committed to enforcing an ever closer union between member states.

Instead, disputes would be settled by the EFTA Court. The EFTA court is generally considered to be greatly more objective than the ECJ, as it lacks the ideological considerations common in ECJ rulings.

Such an arrangement would allow the UK to retain access to the single market in both goods and services.

This would massively reduce the disruption of Brexit, as UK businesses would be able to continue trading freely with the largest trading bloc in the world, allowing them to continue to sell their goods and services to 500 million consumers.

Rejoining EFTA would also make the UK a partner to the many free trade agreements that have already been signed by EFTA members. The UK would also be outside of the customs union and therefore free to pursue trade deals with other countries around the world. Indeed, the potential to strike free trade deals with the rest of the world is possibly the best thing about Brexit, and so it should be seen as a priority.

EFTA membership would also allow the UK to keep freedom of movement, which is as essential as the free movement of goods and services for enabling economic growth.

EFTA can also help economic liberals in other ways. When industries or businesses get into difficulties, for example, national governments are often pressured into bailing them out or taking them into public ownership.

This involves squandering taxpayers’ money on propping up failing industries and higher prices for consumers due to tariffs. It also means that economies don’t benefit from creative destruction and therefore growth remains stagnant.

Thankfully, the EU’s strict state aid rules make it difficult for national governments to do this. Alarmingly, the Labour party and the Brexit party have both said that they would pursue protectionist policies if they were in power. Rejoining EFTA would make it very difficult for them to do so.

EFTA is not for one minute a perfect solution. There would still be some difficulties. And what’s more, it will never win over the hardcore Remainers and Brexiteers.

It also might not be appropriate to remain a member of EFTA in five, 10, or 20 years from now. Regardless, EFTA would offer many benefits to the UK and would allow us to leave the EU without causing too much disruption to either side of the Channel.


Written by Ben Ramanauskas

Ben Ramanauskas is a research economist at Oxford University and a former adviser to the International Trade Secretary.


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