Swiss model is the Third way for UK-EU relationship

7 years ago - Published in Finance, Fundamental Analysis

British Euroskeptics now have a new watchword: Beware the “Swiss Trap.” Theresa May's government is reportedly heading towards a Swiss-style model for its relationship with the European Union after Brexit. To the frustration of hardline Brexiteers within the Conservative Party, the deal Switzerland has with the EU is now being seriously considered within Whitehall and has not been ruled out by the prime minister, according to Politico.

For some in the British government, the Swiss model — and the high level of access to the European single market it offers — looks attractive, were it not for a catch which troubles even the mildest of Euroskeptics: If the Swiss break a single clause in any of the numerous bilateral agreements that make up their trade deal with Brussels, their whole economic relationship comes tumbling down.

This all-or-nothing “guillotine clause” forces the Swiss into accepting a large and evolving share of EU law, including free movement of people, with little practical power to break away without risking enormous economic damage.

British negotiators and leading Cabinet Euroskeptics are now striving to find a way to avoid this so-called trap while simultaneously maintaining the same level of access to the European single market enjoyed by the Swiss, said senior Cabinet ministers and U.K. government officials who asked not to be identified by name.

The Swiss model without the dangerous break clauses is a third way to a future relationship between the EU and UK, according to ministers and officials who back this option, cited by Politico.

The government is determined to have a trade deal with the EU that has red lines over how far each side could diverge from each other, and would also create a court of arbitration for if either side broke trading rules.

The EU's chief negotiator Michel Barnier said in September: "Naturally, if the United Kingdom wanted to go further than the type of free-trade agreement we have just signed with Canada, there are other models on the table.

"But one thing is sure: It is not — and will not — be possible for a third country to have the same benefits as the Norwegian model but the limited obligations of the Canadian model."