The EU single market is the richest market in the world with some 440 million customers (500 million or more if the UK is included). Its wealth stems from efforts to create common rules that standardise technical regulations across 30+ countries. A product made in one country is then automatically acceptable in another - without needing to modify it or submit it to lengthy and expensive approvals processes. UK companies can easily reach more customers - but this standardisation process requires international agreement and international courts to protect it from abuse, which some see as "laws not made in this country" and "foreign courts being able to over-rule British judges". A consequence of globalisation (as well as the fact that the UK exports services which needs pre-agreed standards as well as the ability for providers and customers to meet up) is that any replacement deals with non-EU countries we might strike if we left the EU, are likely to be very similar in nature - because modern trade agreements are about harmonising standards and encouraging investment from multi-national companies. No other trade deal can possibly come close to the benefits of the EU single market.
Why the EU single market?
In trade terms we often talk about tariffs as an obstacle to international trade. Tariffs are effectively taxes charged when goods are imported - the idea being to prevent cheap imports undercutting home produced goods. However tariffs are actually a relatively minor problem in international trade - they can be negotiated away fairly easily between countries during international trade talks.
Far more important as restrictors on international trade are what is termed "non-tariff barriers". These are usually caused by differing standards between countries. Let's take an example: suppose I have a company that makes toys for the UK market. My company's products comply fully with all UK national standards such as their mechanical strength (how easy would it be for a child to pull them apart), toxicity of the materials used to make them (what happens if a child puts the toy in their mouth: are there any known health concerns with the plastics and paints I use in my company's toys?) and flammability. In the case of outdoor toys such as trampolines, my company's products meet UK national safety requirements such as side nets that are high enough to prevent a child jumping over them and harming themselves.
All in all, I'm a very successful UK manufacturer of toys and now I want to grow my business by selling into European export markets. However now I encounter problems: the French standards (which I need to comply with in order to sell my toys in the French market) are different. The Dutch and Belgian standards are also slightly different both to the French standards and to each other. German standards are also different.
If I'm going to sell my toys into these potentially lucrative export markets and create more jobs in my company's UK factory, I need to set up a number of different production lines in order to make what are effectively several different versions of my products. It's going to be a nightmare to keep track of all these different variations of the toys I make and then I have other decisions to make: how much stock of the different versions do I keep and what happens if one of my target markets changes their standards? Then I have to submit samples of my products for testing and approval by various different national authorities at my expense. All told, the chances are that I will decide that the cost and effort of breaking into these export markets exceeds the benefits and I simply won't bother. I won't invest in my company and I won't create more jobs that help the both the local and UK economies.
We can extend the same principles to other product areas such as cars. Leaving aside historical choices such as left hand versus right hand drive, what exhaust emissions are acceptable? What noise levels are acceptable? What occupant and pedestrian safety requirements are there? What proportion of the windscreen should the windscreen wipers clear? It's easy to see how complex manufacturing would be if each of these standards requirements differed from country to country.
How does the EU single market work?
The UK recognised these problems in the late 1980s and early 1990s and lobbied at European level to do something about it - the UK felt that the problem of non-tariff barriers was holding back the then-European Common Market from achieving its full potential. The result was the European Single Market where efforts are made to eliminate non-tariff barriers. This is done by means of two basic principles: limited harmonisation and mutual recognition.
Limited harmonisation means that, instead of being decided by different countries at national levels, product standards are now agreed by member countries of the EU at European level. The standards are the same for all countries: they are harmonised. Limited harmonisation just means that only certain product (or service) areas are subjected to this process.
Mutual recognition, as the second step, means that all EU member countries agree to recognise these new standards as being valid, even if they didn't originally propose a standard themselves.
The end result benefits me enormously - I no longer have to manufacture different variations of my toys for different European markets. As long as I can prove that my products meet UK standards then those same products are automatically valid for sale in all 27 other member states of the EU, in addition to the UK. I save time and effort on laboriously filling out paperwork and submitting my products for approval by standards bodies and I can easily reach customers in other markets. It can be thought of as just scaling up across a continent the ideas that work across a union of four countries (England, Scotland, Wales and Northern Ireland) since obviously what is valid for sale in England is also valid in Scotland, Wales and Northern Ireland.
Making it work - shared international rules require international referees
For all this to work there has to be a level playing field. International agreements such as the EU single market obviously need international bodies to oversee them. There also have to be minimum standards in other areas - for example in terms of indirect taxes such as VAT the EU sets minimum levels and similarly in terms of employment rights. If one country could get away with fleecing its workers on 70 hour working weeks and charging very low levels of indirect taxation then the result would be distortion of the single market and unfair advantages.
The same applies to state aid for failing industries - left wing politicians in the UK often implicitly dislike the EU because of the restrictions it imposes on Government subsidies, for example to the steel industry. But if we can subsidise our steel industry why can't Italy then assist its car industry or France its farmers? The country or countries with the deepest pockets would win out and the level playing field for competition would be destroyed.
This is where the European Court of Justice comes in - it is ultimately responsible for enforcing EU law, including single market standards and competition laws, across the member states and being a member of the EU or the single market means being bound by its decisions, much as playing football means being bound by the decisions of the referee.
Membership versus access - a fine distinction
There is also a distinction between membership of the single market (as we currently enjoy) and access to it. Politicians, especially those advocating leaving the EU, often deliberately confuse membership with access. Any country in the world has access to the single market as long as it either signs a trade deal with the EU or pays the tariffs required by World Trade Organisation rules if it doesn't have an agreement. As members of the single market we have no tariffs to pay on trade with other members but non-tariff barriers are also eliminated as much as possible, which isn't the case with simple "access" to the single market. [B][I]No other free trade deal can come close to the advantages of the single market or the prosperity it offers.
Who makes the rules? We do!
The important point is that the UK, as an EU member until/unless we leave, has a fair say in the making of all EU laws and standards including those relating to the single market. It is possible to be a member of the single market without being a member of the EU (Norway, for example is) but this means accepting Single Market regulations, laws and standards without having any say in making them. It may seem to some people that having the EU legislate over matters such as toys or, to pick another random example, lawnmowers, is unnecessary interference. But the results speak for themselves - the EU single market is the most lucrative in the world and we benefit massively from being members. The local example of Stirling Lloyd Polychem
is just one way in which a company can reap the benefits of harmonised technical regulations as offered by the single market, in order to grow their business and create more jobs in the Manchester area.
The single market and trading in services
So far we've been talking only about trading goods - but the UK economy is 75-80% services and services make up about 40% of our exports - an unusually high proportion compared to other countries. If we are going to trade services then we need many of the aspects of the single market anyway. To trade services such as education, financial or even creative services such as architecture or construction we need to have pre-agreed standards, at least between customer and supplier - but it would be more helpful if these standards could be mutually agreed between countries to provide a universal framework. In other words, the limited harmonisation and mutual recognition principles that underlie the single market. In addition we need a means for the suppliers and customers of services to meet up (some financial services can be provided remotely but services such as education and creative services cannot). This is effectively what freedom of movement provides.
Other benefits of being members of the single market
There are hidden, related benefits to being in the EU single market. One is air travel (see our article about Manchester Airport
and how it benefits from EU membership) - the single market can be extended to a "single market for the skies", greatly improving the number of air travel services on offer and the range of destinations on offer. Another enormous benefit is the speed by which new medicines can be brought to market - the single market works in conjunction with other EU legislation such as the Clinical Trials Regulation (which the UK had a very large role in writing) to ensure that the same principles are followed: a medicine or course of treatment validated in one EU country is automatically allowed to be used in any other EU country, thanks to harmonised laws at European level. The UK has also hosted the European Medicines Agency which oversees the validation and registration of medical treatments on behalf of the EU. This agency will be relocated elsewhere in the EU if we leave
because it would be inconceivable to have an EU regulatory body headquartered in a non-EU country. Should this happen then many highly-skilled and well paid jobs and workers would also leave the UK - to our economic detriment, because these workers would now pay their taxes into a different EU country's coffers and they would spend their disposable income in other EU countries as well. It would deny the UK both the direct and indirect tax revenue from these jobs as well as a knock on effect to the economy as a whole because money not spent in the UK decreases demand for goods and services in the UK (hence denying us the taxation revenue from the goods and services revenue that EU agency workers relocating out of the UK would have purchased with their disposable income had they remained UK residents). The single market also harmonises rules such as health and safety, consumer protection and food safety: unless we stick to its rules we would have to employ extra people to certify that our food and fish exports to the EU (which are a big portion of our agricultural output) are compliant with EU rules and possibly employing on-site vets at great expense to sign off every consignment bound for the EU.
Conditions of being single market members
We have to be aware that there are conditions attached to being full members of the single market. Freedom of movement of goods, people, capital (i.e. money) and services are conditions which have to be accepted and are non-negotiable. Why? One reason is the ideals upon which the EU and its predecessors were founded - preventing war between European nations. To achieve this, the aim was to completely integrate the economies of European countries so as to make war impossible and this is why money, goods and services must be allowed to flow freely within the EU and its single market. Freedom of movement of people also has an economic purpose - it prevents distortion of the single market by preventing employers in one country from, say, holding down wages (because employees are free to find better paid jobs in other EU countries). But it also has a cultural benefit by allowing citizens of one EU country to live and work in another country - once you've lived in a different culture, your appreciation for other people and their chosen way of life should grow to the extent of greatly reducing your desire to wage war on them! It's also a requirement to pay into the EU budget to be a full member of the single market but the sums involved are small compared to both our national budget as a whole and the trade benefits we obtain from being members of the single market. Paying in to the budget and accepting freedom of movement are non-negotiable conditions for being members of the single market - the other EU member countries have been quite clear that the UK will not receive any special deals. If the UK was given a special deal eliminating the requirement for accepting free movement then other EU countries (which also have domestic political concerns over immigration) would start asking for the same deal.
The nature of modern trade agreements - trending towards single market-style deals
One final point is to be aware that all modern trade deals are going along these lines. Tariffs have largely been eliminated and the future of global trade is aligning regulatory regimes, harmonising standards and diverting global value and supply chains to benefit our country. Other prospective trading partners such as India and Australia also want freedom of movement for their citizens as part of the deal. Any trade deal that is as beneficial as the EU single market will also come with the same perceived drawbacks (such as "laws not made in this country" or "loss of sovereignty") because these kinds of deals require a high level of international agreement and compromise. The results are worth it, indeed some argue that our influence on the world stage such as being in the "G7" elite group of industrialised nations
is down to our membership of the single market.
The single market was the UK's creation and we have benefitted enormously from it. There may be a price to pay in the form of immigration but as we will discuss in another article on this site, even that is a problem we could address within the existing framework of EU laws and we don't need to leave the highly lucrative single market to control immigration despite what some might think.