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16 June 2016

Can the UK have a deal with the EU like Switzerland or Norway?

Stephen Bush explores the options for a European trade deal if Britain left the EU. 

By Stephen Bush

What happens if we vote Out? That question is harder to answer than Whitehall would like. Vote Leave, the official campaign for Brexit, has claimed it would negotiate a bespoke deal for Britain. This is based on a political calculation that none of the existing models looks particularly appealing.

For instance, Vote Leave has rejected the “Norway model”, under which we would copy the Scandinavian country by staying within the European Economic Area.

Crucially, as a member of the EEA, Norway has to accept the European Union’s “four freedoms”, including the free movement of people (the others are goods, services and capital). And it must pay the EU for the privilege – about £688m every year. Espen Barth Eide, a former Norwegian cabinet minister who is now a UN adviser, has described his country as being “influenced by but not influencing Brussels”. Jens Stoltenberg, in his first term as prime minister, coined the term “fax democracy” to describe how Norway’s politicians would wait for faxes to arrive with diktats from Brussels that they had no power to negotiate.

In return, Norwegian citizens enjoy the protections of European law when they are travelling within the EU, as well as (slightly) faster movement through passport control. But their country has higher immigration per head than the United Kingdom.

If not Norway, perhaps Switzerland? Its relationship with the EU is the fruit of six years of negotiation in the early 1990s. Like Norway, it has accepted the free movement of people – and with it, loss of control over immigration. It also follows European regulation in a number of areas, but retains control over workplace and financial regulation.

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For successive governments, those opt-outs are prizes to cherish. The financial sector in Switzerland constitutes a larger part of the national economy than its equivalent in the UK, making freedom from European regulation a boon for Swiss policymakers, most of whom hail from the right and centre right.

The option sketched out by Michael Gove – that Britain seek to be part of the same free-trade area as Albania and other Balkan states – is superficially the most attractive. These countries have access to the single market for trade but do not have freedom of movement. That, however, is because politicians within the EU are loath to grant them the visa-free travel they crave. No politician in any of the 27 other member states has a pressing political need to prevent British workers from moving to their shores.

One other option is what the Conservative MP Christopher Chope calls “the WTO alternative”: leaving the single market and doing deals with individual nations around the world on a bespoke model. Boris Johnson describes this as the “Canada” approach.

In practice, that would mean British holidaymakers would need visas, that expatriates in Spain would no longer have the automatic protection of European law, and that British banks would no longer be able to trade and lend freely in Europe. This would be a significant and painful hit to the British economy – but it would come closest to honouring the promises made by Vote Leave, the official Brexit campaign. Yet the economic consequences, far from unlocking further money for the National Health Service, would pave the way for further spending cuts.

The question of what Leave would look like is already causing consternation among civil servants. What one might call the “Whitehall arrangement” is the most likely choice: Britain still in the EEA, at least in the short term, still subject to European regulation of financial services, corporate law, consumer and workplace rights, environmental regulation and transport, but no longer able to set that regulation separately.