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Not a bigger Switzerland

Daniel Hannan’s argument that Britain should leave the European Union and seek to emulate Switzerland in its relations with the EU (read it here) relies on two assumptions, neither of which I think is true. The first assumption is about the EU, the second is about Britain.

The EU assumption is that it would be willing to see Britain emulate the position of Switzerland. The Swiss advantage, as Daniel Hannan sees it, is that it has access to the European single market, the largest and richest consumer market in the world, without having to comply with all the regulations that apply there. The British economy is being harmed by the excessive scope of EU regulation, say the eurosceptics, and the Swiss option is a way to reduce it.

But this strategy relies on the EU agreeing, and there are good reasons to doubt that it will.

Switzerland has a much smaller economy than Britain, and is highly integrated with the EU. As much as 70 per cent of its foreign trade is with the European Union – when you look at a map, you can see why. (What happens to the other 30 per cent – is there a tunnel?)

It also follows much of the EU approach to regulation of its own volition: it does not seek to evade EU regulations in order to obtain a competitive advantage over the EU. It is not a low wage economy undercutting EU manufacturers. But this is what Daniel Hannan would have Britain do. If this was the British intention, why should the rest of the EU facilitate it? An economic deal of some sort would be struck, certainly, as there would be a strong mutual interest in doing so, but the British cannot assume that the EU would offer them the same deal that is offered to the Swiss.

Could we force the EU to offer better terms? Britain currently imports more from the rest of the EU than it exports to it: Daniel Hannan supposes that this economic weakness could turn into a political strength. Simply phrasing the position like this shows how hollow it is as a hope. What gives an economic negotiating position strength is not the balance of trade – it is out-dated mercantilist economic thinking to treat exports as “good” and imports as “bad” – but how important that trade is to the economy. Trade between Britain and the EU represents half of Britain’s trade and 30 per cent of its GDP, whereas that same trade represents one tenth of the EU’s trade and only 3 per cent of its GDP. Making that trade relationship weaker would harm the UK much more than it would the EU: Britain is in no position to dictate terms.

But not only does Daniel Hannan make a false assumption about the EU – that it would offer the UK the same terms as it offers Switzerland, when it probably wouldn’t – he also makes a false assumption that the UK would welcome those terms. Look at them closely, and see how unacceptable they would be.

Swiss companies have access to the European single market, as long as they comply with its rules. But who makes the rules? The European Commission – representing EU members only – makes the proposals, which are then approved by the Council of Ministers – representing EU member states only – and the European Parliament, elected by citizens of the EU only. Switzerland and the Swiss people have no say in the matter. Their only involvement is to be bound by the rules.

Now maybe this is acceptable to Switzerland because it has a small population – less than 2 per cent of that of the EU – and expects little influence on the world around us. It has grown used to bobbing up and down on the surface of world affairs: it only joined the United Nations as recently as 2002, for example, and its banks collaborated with the Nazis during world war two while the rest of the world was fighting them.

Britain, on the other hand, is one of the largest member states in the European Union and, when it comes to the regulation of the single market, is one of the most influential. While the Swiss might think that their ability to shape the rules would be small, this is not at all the case for the British, for whom influence over rules changes is paramount.

And those rules will continue to change. Developments in technology and in society will affect the balance to be struck between the role of the market and the role of the state, and when it comes to the role of the state, the balance between the role of the member states and the role of the European Union as a whole. The Swiss might be content to be spectators in this process, standing outside with their noses pressed against the glass, but that isn’t necessarily in the British interest.

Not only does Daniel Hannan misjudge the European Union, he also misjudges Britain. The British can and expect to have influence in the world in a manner that the Swiss deliberately avoid.

No matter how lovely the lakes and how splendid the mountains, Switzerland is not a model for Britain in its relationship with the European Union. Britain is a proud and, when it chooses to be, influential member of the EU, and should stay that way.

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Comments

  1. Dear frieds,
    Happy 2012
    I listen excellency Cameron in Parliament and seemed convinced that he had no way around it with the decision of Great Britain
    Your interesting article wrote
    Switzerland has a much smaller economy than Britain, and is highly integrated with the EU. As much as 70 per cent of its foreign trade is with the European Union – when you look at a map, you can see why. (What happens to the other 30 per cent – is there a tunnel?)
    I do not think that is just an economic issue, there are other reasons, I think
    Kind regards
    Anna

  2. Britain has already de facto left the EU. It only remains for the people to ratify the decision in a referendum. I expect the pressure for the referendum will become overwhelming in the run up to the next election, especially if the UK economy improves whilst the Eurozone remains in recession.

    The debate held by the Economist is interesting, but as clearly pointed out there, the result would have been different if only UK-based votes had been counted.

  3. I was involved oin the debates in Malta before it joined the EU> The Labour Party had a slogan that Malta should be ‘A switzerland in the Mediterannean!’. The Maltese people had the good sense to see that for waht it was -nonesense.
    They knew they wanted, even as a very small country to be part of a community.

  4. Excellent article and a much-needed riposte to the Hannan-style argumen. Here are some further thoughts.
    1. Is it safe to assume that UK would be given a ‘Swiss’ Agreement if we leave ? There will be some in Brussels and other capitals who will oppose concessionary terms as a matter of principle to a country that sets a precedent in leaving EU.
    2 The argument that EU will give us a ‘Swiss’ Agreement in their own interests, because they export more to us than they import, is fallacious. Such agreements do not cover agricultural products and foodstuffs. If the value of such imports from the Continent (fruit, vegetables, wine etc) is removed from the balance, the picture is likely to be different. (I have not yet succeeded in obtaining the exact figures).
    3. Even if the principle of an Agreement for the UK is accepted by the Commission and other Member States, will the terms be acceptable ? Such Agreements are subject to unanimity, and there will be losers on the EU side. Spain, in particular, would lose its preference on citrus in the UK market and access to UK fishing waters. The Spaniards are amongst the toughest negotiators in Brussels, and it is foreseeable that they would insist on a Fisheries Agreement maintaining access for their large fleet as the price of any Agreement. That would remove one of the strongest arguments for leaving EU.
    4. The standard terms of any ‘Swiss’ Agreement is that the EU’s ‘partner’ has to adopt all and every single market measure agreed in Brussels. The ‘partner’ is not present at the negotiating table, and the most it can normally expect to get is a transitional period before unpalatable measures are implemented in full, Since banking and financial services form an integral part of the single market, it is inconceivable that the City would like such an arrangement, once it realised what was at stake.
    5.There is a fee payable by partners towards the administration of the single market. Hannan appears to believe that this will be minimal. All experience indicates otherwise for a country of the size of UK.
    6 Origin rules are a standard feature of preferential agreements between countries applying different external tariffs towards third countries. At present such rules do not apply to our exports to EU since we are all in a customs union applying the same external tariff. If, however, we opted for a ‘Swiss’ Agreement, all UK exports to the EU would become subject to such rules, and the exporter would have to calculate, for each product, whether the content from third countries, such as Japan or US, did not exceed the limit to qualify for duty-free entry into EU. This would constitute an additional bureaucratic burden on UK business.

  5. Why do the opponents of EU membership give Switzerland as the example to follow? It just shows the level of understansing of the Swiss position is lacking. The Confederation implements practically all EU rules in full and is open to Schengen movement. All the agreements are submitted to referendum which the Swiss have been asked to support with over 60% of the electorate have supported. The Swiss position does rely on EU approval AND the Swiss have no say in what the EU agrees on the whole range of policiees. So we are asked by these euroskeptics to make our Government impotent!

    What a state of affairs to be advocating for a declining world power to be further diminished!

  6. With the ratification of the second round of bilateral treaties, the Swiss Federal Council downgraded their characterisation of a full EU membership of Switzerland from a “strategic goal” to an “option” in 2006.

    The decisively positive result of the referendum on extending the freedom of movement for workers to Bulgaria and Romania, who joined the EU on 1 January 2007 caused the left-wing Green Party and the Social Democratic Party to state that they would renew their push for EU membership for Switzerland.[5] The above mentioned Guillotine Clause was generally held as the reason this referendum result was positive despite the previously generally negative polls.[6] The EU (through its ambassador Reiterer) did threaten to use this clause

    By 2010 Switzerland has amassed around 210 trade treaties with the EU. Following the institutional changes in the EU (particularly regarding foreign policy and the increased role of the European Parliament) European Council President Herman Van Rompuy and Swiss President Doris Leuthard expressed a desire to “reset” EU-Swiss relations with an easier and cleaner way of applying EU law in Switzerland]

    On 6 September 2011, the Swiss Franc effectively switched to a euro peg: the Franc had always floated independently until its currency appreciation became unsustainable during the Eurozone debt crisis. The peg involves a minimum exchange rate of 1.20 francs to the euro, currently there is no upper bound in place. It is important to note that Switzerland is not officially a member of Exchange Rate Mechanism (ERM II) as it is not an EU member and expresses no ambitions to become an EU member. However ERM II is the only existing mechanism for Euro pegging therefore Switzerland is said to be an unofficial member. The Swiss National Bank (SNB) has committed to maintaining the exchange rate to ensure stability.

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