Hjörtur J. Guðmundsson is a historian and MA in international studies. He lives in Reykjavik, Iceland.

Free to negotiate free trade

Two European countries have since the beginning of July had free trade relations with China. Neither of them, however, is a member of the European Union. In fact, if the countries in question – Iceland and Switzerland – would have been part of the EU these free trade agreements would, quite simply, not have been possible. After all, by joining the EU one of the things sacrificed is the freedom to negotiate trade with other countries, which is transferred to the bloc under the Common Commercial Policy.

This means it’s entirely in the hands of the EU whether its member states enjoy free trade with other countries or not. This is one of the differences between a customs union such as the EU and a genuine free trade area such as the European Free Trade Association (EFTA), which both Iceland and Switzerland belong to. The members of EFTA, which also include Norway and Liechtenstein, can negotiate joint FTAs but also go it alone if they think their interests are better secured that way.

The primary purpose, and in fact the only purpose, of EFTA is to promote more and more free trade. The primary purpose of the EU is, however, to promote more and more integration. Free trade, apart from the single market, is at best a side issue for Brussels. Although one can naturally wonder how free a market drowning in regulations really is. But, unlike the EU, EFTA has not changed fundamentally since it was founded more than 50 years ago. It is, as before, simply about free trade.

The freedom to negotiate trade retained

The EFTA countries generally regard making a joint approach as the first choice when it comes to negotiating free trade agreements. But if that doesn’t turn out to be successful, they always have the possibility, as mentioned before, to try to negotiate their very own accord. For example, if the interests of one or more EFTA countries, which have nothing to do with the rest of the members or are not seen by them as an obstacle to an FTA, somehow prevent successful results.

This is exactly what happened in the case of China. Joint approach turned out not to be possible. So, first Iceland and then Switzerland started separate negotiations with the Chinese government. Norway also intended to negotiate its own FTA with China, but the talks were put on ice after the Norwegian Nobel Committee, appointed by Norway’s parliament, decided in 2010 to give the Nobel Peace Prize to the Chinese dissident Liu Xiaobo. The talks have not been resumed since.

Formal free trade talks between Iceland and China began in 2006, but in 2009 the Chinese unilaterally put them into the freezer. The main reason given was the decision by Iceland’s then left-wing government to apply for EU membership. After all, the proposed FTA would have ceased to exist had Iceland joined the EU. The talks were resumed in 2012, when the EU accession talks were running into trouble because of unacceptable demands from Brussels regarding the fisheries.

EFTA was originally founded by Britain

EFTA, which was originally founded by Britain in 1960 as a free trade alternative to the EU’s predecessor the European Economic Community, today has 25 joint FTAs covering 35 countries around the world plus the EU member states and the EFTA members themselves. Among them: Canada, Singapore and Hong Kong. Negotiations with a further 11 countries are ongoing and include, for example, India, Malaysia and Vietnam. More are on the drawing board.

Had EFTA had a centralised trade policy like the EU, both Iceland’s EU application and Norway’s worsening relations with Beijing would have prevented Switzerland from getting an FTA with China or, at best, caused it to be seriously delayed. Fortunately for the Swiss, they were not tied down by what had nothing to do with them and were able to approach the Chinese on their own. And then Iceland too, when its EU application was not considered by Beijing to be in the way anymore.

However, due to the EU’s core nature as a customs union, EU members such as Britain have not been able to negotiate free trade agreements with her Commonwealth partners such as Canada, Australia, New Zealand and India. The EU has generally not been very concerned with facilitating access to foreign markets through free trade and as a consequence EFTA has in recent years gone ahead of Brussels when it comes to concluding free trade agreements with the world.

More free trade deals and better

There are a number of examples of when trade talks involving the EU have stalled or been seriously delayed due to interests which would not have prevented one or more individual member states from negotiating had they had the freedom to do so. The most recent example may be the EU-Canada free trade deal, as news reports claim that the German government is not ready to sign the accord, which could also have serious implications for the EU-US talks. Another example is the EU-India free trade talks which are currently at a standstill.

If it wasn’t for the membership of the EU, Britain would probably have many more free trade deals with other countries than it currently has access to – not least the members of the Commonwealth of Nations. And, what’s more, FTAs which would be better tailored to her own interests and needs. The think tank Civitas published a report earlier this year claiming that smaller countries could get better FTAs, better suited to their interests, than Britain could get through the EU; referring mainly to Switzerland but also Iceland.

In fact, the Civitas findings match the EU’s very own conclusions. In an analysis report on Iceland for the European Parliament in March this year, the Directorate-General for external policies rightly claimed that it was easier for smaller economies than the EU to conclude FTAs with bigger trading partners due to less complicated and defensive interests. Britain should be in a very good position in this regard if she reclaimed her freedom to negotiate independent FTAs, being both one of the world’s largest economy and with consolidated and clear interests.