Saturday, September 27, 2014

Fog in Channel

The Heritage Foundation has opinions on quite a few things, and one issue that is getting another run around the block is whether the UK should join the North American Free Trade Agreement (NAFTA). In the old days of the 1990s, this was seen as a stalking horse for getting the UK out of the EU, but with the latter issue now out in the open, it has returned as the solution to what a post-EU UK would do in terms of trade relations. Theodore Bromund and Nile "Churchill bust outrage" Gardiner provide a discussion of the options, and come down in favour of a UK-UK free trade agreement instead of NAFTA membership.

There are various debatable points in the discussion. For example, they note the much higher number of trade agreements that the small European countries outside the EU have been able to negotiate relative to the EU. But that's because small country free trade agreements are relatively easy to negotiate: there's a standard template and not too many vested interests. The world wasn't rocked by the recent Iceland-China free trade agreement -- and neither were Iceland or China.

Perhaps a deeper problem is lurking in one curious omission from the Bromund-Gardiner paper. It never mentions the European Economic Area (EEA). The EEA is an agreement that those aforementioned small European countries, except Switzerland, have signed with the EU. Essentially they agree to take on all of the EU regulations and standards, but without any associated political process. By doing so, they can tap into the free movement principles of the EU.

One major question for a post-EU UK is whether it would join the EEA. Given that the UK is, er, in Europe and is highly integrated with it, it would almost certainly have to. Once it does that, the path to a US-UK free trade agreement is much less obvious: the EEA is fairly intrusive, but at the same time not much of a problem for the UK in terms of adjustment, since it currently complies with all EEA requirements by being in the EU. So which of those intrusive EEA elements would have to go to meet the obligations of a US-UK trade agreement? That's messy, difficult -- and a major part of the reason why the EU decided a long time to handle trade policy at the EU level. Any gains from a US-UK agreement would have to be offset against losses from EEA unwinding -- something that those aforementioned small European nations have not been willing to contemplate.