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A British free-trade deal outside the EU? History shows that's easier said than done

By Greg Rosen
03 March 2016
Public Affairs
Written for and first published by the Telegraph

Breaking up is hard to do – and never harder than when splitting the assets. If the Brexiteers get their way and we find ourselves divorced from the EU on 24 June, what would Britain’s trading relationship with its 27 former EU partners be like? Who gets the house, how often do we get to see the kids? Outside the family: would it be in their interest to trade with us, as well as for us to trade with them?

Yes, say the Brexiteers. But it is the terms of that trade which matter. Advocates of an exit say Britain could negotiate a free trade area, benefiting our export industries, without the EU responsibilities they don’t like. Their opponents have challenged them to show how this would work. But the crystal ball is cloudy and the Delphic Oracle is unavailable. Given how few political commentators could have predicted during the 2015 election that were Labour to lose it would find itself with Jeremy Corbyn as leader, it is perhaps fair to let commentators off the hook. But there is a better way. As Aneurin Bevan advised Winston Churchill, why look in the crystal ball when we can read the book?

The obvious book to read is the ‘Book of Countries Which Have Left the EU’. It is, alas, both short and written in Inuit. With no country other than Greenland ever having left the EU, there is little precedent to go on. Greenland has many differences with the UK which render meaningful comparison impossible – that it has a population of some 50,000, and no roads between its cities being two. The fact that while Greenland left the EU, its monarch (it shares one with Denmark) is still in it may also prove to be different than what would happen in the event of Brexit, though if Scotland secedes from the UK to remain in the EU, perhaps it might not be so different after all.

But there is a second book. To some MPs it might look like a dusty Pelican special – perhaps that’s why they don’t seem to have read it. It is the ‘Book of What Happened Last Time the UK tried to negotiate a Free Trade Area with Europe from outside the EU’.

During the 1950s, the six European countries who were creating the European Union - or European Coal and Steel Community as it was then called (France, West Germany, Italy, and the three Benelux countries) - had invited the UK to join them. But there was no willingness to abolish tariffs facing British goods as part of a free trade deal if that meant facing British industrial competition supported by cheap Commonwealth food imports. Since then the UK’s relations with the Commonwealth have changed. Commonwealth countries, who until the 1970s relied on ready demand from the UK for their produce, have found other markets. But the principle at issue remains the same. The EU members had then and have now no need to allow Britain to have its cake and eat it at their expense.

In the 1950s, neither Britain’s Conservative government nor its Labour Opposition expected it to be so difficult to shape the European Community and Britain’s relations with it, from outside. They didn’t think the nascent EU would happen, and sought to create an alternative rival model of a free trade area instead, which lacked the political dimension that was always at the heart of the Common Market/EU system. When the Common Market of the Six happened, Britain didn’t think it would last and set up its own rival free-trade only arrangement with the “Outer Seven” countries (UK; Switzerland: Austria; Portugal; Denmark; Norway; Sweden) who joined the UK in creating the European Free Trade Association (EFTA).

When it lasted they thought that the USA and some of the EU member countries would back Britain’s call for either the EU to change to be more like the free trade area Britain wanted, or to concede a free trade agreement with EFTA on Britain’s terms.

It didn’t happen.

During talks in Paris during 1958, British Prime Minister Harold Macmillan warned the French government: “if France were traditionally protectionist, Great Britain was traditionally isolationist… If we were to be threatened by a trade war by the Six (founding EU members) we would be driven back on ourselves and would have to seek friends elsewhere.” It proved an empty threat.

To the perplexity of British politicians, President Eisenhower’s Republican administration backed France’s de Gaulle over Britain’s Conservative PM. The Anglo-American special relationship proved about as enduring as Conservative cabinet minister Jack Profumo’s with Christine Keeler. US Secretary of State John Foster Dulles wrote to Britain’s Conservative Chancellor of the Exchequer Selwyn Lloyd refusing any help in preventing the introduction of the new discriminatory tariff measures by the European Community on 1st January 1959.

For the USA, the priority was ensuring the political unity and strength of Western Europe against the Soviet threat. The success of Franco-German political and economic collaboration was integral to this strategy. If Britain were to play a constructive role in that, then so much the better; but if Britain were to push for a different, less politically unified European Community, then the view of the US Republican President and of his successors was that however special America’s relationship with Britain, it was not that special. It had not proved that special during the Suez crisis either, when America had pulled the plug on Britain’s economy to bring to heel a foreign adventure of which it had not approved.

During his visit to London in December 1959 US Under-Secretary of State Douglas Dillon firmly turned down the idea of a North Atlantic Free trade area – a plan which had support from leading figures in the City of London and in Canada – and told Britain’s Conservative government that America’s desire was for the UK to join the European Community.

A 1960 report to Harold Macmillan’s Cabinet from Whitehall’s senior civil servants warned: “The conclusion is inescapable – that even if we leave the political factors on one side, from an economic standpoint we must maintain our broad objective of having the UK form part of a single European market unless a still wider grouping – say, an Atlantic Free Trade Area – becomes a possibility.” But it never did.

The French were never prepared to allow Britain to “jouer gagnant sur deux tables” (to win at both tables). Why would Britain, following a Brexit vote, find it any easier today? Indeed, with the EU now comprising a full 28 countries, as compared to the mere six of the Treaty of Rome in 1958, it is difficult to see how the UK would have anything other than less leverage now in its negotiations with the EU.

Back then, the UK was seen as a country to which others in Europe owed, at least in part, their freedom. Most political leaders had fought alongside each other in the war. Macmillan had personal relationships with both US President Eisenhower and with French President de Gaulle from wartime service together. Whoever is leading a post-Brexit negotiation for UK access to European free trade will lack those relationships.

And they will lack the clout that Britain still enjoyed in the 1950s and 1960s from its Commonwealth support and trading links too. We would be playing with fewer allies. The EFTA of Seven that the UK built as a counterweight to the EC and as both an alternative free trade area and as a source of extra leverage for the UK in its negotiations with the European Community is obviously no more. Britain would stand alone.

As Churchill proved, it is not an impossible position, but it entails sweat, tears and toil, a struggle rather greater then many Brexiteers are publicly admitting.