The Centrist

By Devin Hindry

The economic repercussions of Brexit have become increasingly evident, with the United Kingdom (UK) grappling with challenges in trade, investment, and labour mobility. The Office for Budget Responsibility has projected a long-term reduction of 4% in the UK’s potential gross domestic product  due to Brexit, equating to approximately £100 billion annually, or around £1,500 per person. This downturn is attributed to decreased trade volumes, reduced foreign direct investment, and diminished labour mobility. In 2023, the UK’s economy was nearly £140 billion smaller than it would have been had the country remained within the Customs Union and Single Market, translating to an average loss of nearly £2,000 per Briton and nearly £3,400 per Londoner.

Considering these challenges, it is imperative to explore strategies that can mitigate the economic impact of Brexit while respecting the referendum’s mandate for greater autonomy. One viable approach is to pursue a relationship with the European Union similar to that of Switzerland. Switzerland, while not an EU member, has established a series of bilateral agreements that grant it access to significant portions of the EU’s internal market. This model allows Switzerland to participate in the free movement of goods, services, people, and capital—the core freedoms of the EU—without full EU membership. The Swiss-EU relationship is governed by over 100 bilateral agreements, managed by more than 20 joint committees, covering areas such as technical trade barriers, public procurement, agriculture, air and land transport, and research.

Adopting a Switzerland-style arrangement could offer the UK several advantages. Firstly, it would facilitate smoother trade flows by reducing tariffs and non-tariff barriers, thereby enhancing the competitiveness of UK businesses in European markets. The EU is the UK’s largest trading partner, accounting for 42% of UK exports and 50% of imports in 2020. By aligning more closely with EU regulations, UK exporters would face fewer obstacles, potentially reversing the decline in the variety of goods exported to the EU, which saw 1,645 fewer types of British products exported to every EU country post-Brexit.

Secondly, a bilateral agreement would provide a framework for regulatory cooperation, ensuring that UK products and services meet EU standards, thus preventing technical barriers to trade. This is particularly important for industries such as pharmaceuticals and chemicals, where regulatory divergence can lead to significant trade disruptions. Switzerland’s mutual recognition agreement with the EU in relation to conformity assessment allows Swiss products to be assessed for compliance with EU requirements within Switzerland, facilitating smoother access to the EU market.

Thirdly, such an arrangement would allow for the mobility of skilled labour, addressing shortages in key sectors such as healthcare, engineering, and information technology. The UK’s departure from the EU has led to a significant decrease in EU nationals working in the UK, exacerbating labour shortages. Switzerland’s agreement on the free movement of persons with the EU allows for Swiss and EU citizens to live and work in each other’s territories, providing Swiss businesses with access to a broad talent pool.

Critics may argue that such an arrangement could compromise the UK’s sovereignty, a core issue in the Brexit debate. However, it’s important to note that Switzerland retains significant autonomy and is not subject to the jurisdiction of the European Court of Justice. While Switzerland aligns with certain EU regulations to facilitate market access, it maintains the right to negotiate its own trade agreements and set policies in areas not covered by the bilateral agreements. This balance between integration and sovereignty could serve as a model for the UK, allowing it to reap the economic benefits of close ties with the EU while honouring the referendum’s mandate for greater autonomy.

Recent developments indicate a potential pathway for the UK to enhance its trade relationship with the EU. The EU’s trade commissioner, Maroš Šefčovič, has suggested that the UK could consider joining the Pan-Euro-Mediterranean (PEM) convention. Established in 2012, the PEM convention facilitates trade among its 25 member countries, including the EU, Norway, Switzerland, Turkey, and several North African and Balkan states. It does so by expanding the definition of “domestic” products to include materials sourced from member countries, thereby simplifying rules of origin and promoting regional supply chains.

Membership in the PEM convention could be particularly beneficial for UK businesses with complex supply chains, such as those in the automotive and aerospace industries. By simplifying the rules of origin, it would allow these businesses to source components from a wider range of countries without losing preferential access to European markets. This would enhance the competitiveness of UK products and could stimulate investment in high-value manufacturing sectors.

Joining the PEM convention would not entail entering a customs union or the single market, thus respecting the UK’s red lines post-Brexit. The UK government has expressed openness to considering the benefits of PEM membership, recognising its potential to support economic growth and improve EU-UK relations.

Switzerland’s experience demonstrates that it is possible to maintain a high degree of economic integration with the EU while preserving political sovereignty. Switzerland contributes financially to economic and social cohesion in the EU Member States that joined after 2004, reflecting its partial integration into the EU’s single market. However, it retains control over key policy areas and is not bound by the EU’s political structures. This model of selective engagement allows Switzerland to benefit from access to the EU

Pursuing a Switzerland-style arrangement with the EU offers a pragmatic pathway for the UK to heal the economic wounds inflicted by Brexit. Such an approach would enable the UK to enhance trade relations, stimulate economic growth, and maintain regulatory autonomy, thereby honouring the principles of sovereignty and self-determination that underpinned the Brexit decision.