Bigger than Japan. Bigger than the United States. On your doorstep.
It’s not a dream. It’s not a vision. It’s not some bureaucrat’s plan. It’s for real.”
Margaret Thatcher, introducing the Single Market
I wonder what Sir Arthur Cockfield would have thought of this Brexit business? Perhaps more than any other single individual, Cockfield can lay claim to having created the EU single market. It almost certainly wouldn’t have happened without him.
When Theresa May tells us that we will probably leave the single market, I think we all need to understand what it is we are giving up. We need to know what it does, what it doesn’t do, and why.
The single market isn’t just a trade deal, and it isn’t just about tariffs. It’s a big, bold attempt to set out a relationship based on fair treatment and an equal chance to succeed.
And, in very large part, it’s British.
There are far more detailed explanations of the single market out there. You’ll probably be relieved to hear that this will be only a quick skim over the major points.
This is the area that gets most discussion, but in many ways it’s the least important part of the single market.
When companies in different countries trade, there will generally be tariffs paid when goods cross a border. So when New Zealand sends us some lamb, they get charged a percentage on top, a tax on imports. Those tariffs can be quite complicated, so different goods get charged at different rates. Or the first few hundred tonnes of a product may get charged at one rate, and the rest at a higher rate. The starting point for the setting of tariffs is the World Trade Organisation (WTO).
What the single market does is to remove all tariffs on goods traded within the EU. We can buy from or sell to any other country without any extra charges. This is good for businesses and consumers, because we can buy goods more cheaply and we can sell more competitively. As we’ll shortly see, there are also important protections against unfair competition within the EU.
Normally, imported cars would have a 10% tariff, adding £1,500–£2,000 to the cost of a typical car. But if a foreign car company builds a factory in an EU country, then the cars that factory turns out will be treated as having come from that country, and will be charged no tariff across the whole of the EU. This is why Nissan and Honda build cars in the UK — it’s a springboard for the whole European market.
This is all very well, but tariffs are only a small part of the challenge when trading between nations. The real difficulty is in rules differences between one country and another.
When your company, Associated Widgets UK, builds widgets, it follows the laws of the UK. These tell you what your product has to have in order to be called a widget, what safety rules it has to comply with, and so on. So fruit jam has to contain fruit and go easy on the arsenic, for example.
All countries have their own rules, and for complex products those rules can get pretty complex too. If you wanted to start exporting your widgets to other countries, you’d have to make your widgets comply with their rules on widgets.
For all 28 EU countries, that’s a lot of sets of rules, some of which may conflict with each other, and a very high hurdle to get over if you want to expand beyond the UK. In practice, many businesses would never bother. Only the largest would have the resources to even try.
The EU single market approach to solving this problem is simple, fair and effective.
First, the nations agree on a common set of basic rules for widgets. This is just a limited set of rules, not the full thing, but every widget in every country has to be made to this minimum set of guidelines. Now, initially, there may be some hassle in meeting these minimum standards, but for the UK most of this work is long behind us.
Now comes the really clever bit…
Now the nations agree that a widget made in any country, which meets that country’s laws for making widgets, can be sold in any country in the market.
This is brilliant in its simplicity. As long as you meet the minimum standard, which you have to already be doing to sell in your own country, you can sell in any country. There are no additional rules to meet to be able to expand your customer base to the other 27 countries. Small businesses, who could previously not have afforded to go through the rigmarole of compliance in other countries, now can sell products to customers in the other EU nations pretty much as easily as they can to domestic ones.
And all the complaints about small businesses having to comply with EU rules even when they don’t trade in Europe fall away. They’re trading under UK law, just as they would have been outside the single market.
The final part of the jigsaw is the need for a shared court.
There will inevitably be disagreements over the use of the shared regulations, and the possibility that businesses in one country may take unfair advantage of the rules. So with a shared set of rules, there needs to be a shared method of enforcing those rules. This is where courts such as the European Court of Justice (ECJ) come in.
This is a contentious point for some people, going to the heart of feelings of sovereignty, but it really shouldn’t be. The contention perhaps comes from a feeling that we are joining a group of countries who are then foisting their laws upon us. It’s really not quite like that. It’s more that we have to agree on a common sense of right and wrong and then have a common means of enforcing it.
You don’t set up a football league without also setting up rules, and referees to enforce them. And you can’t very well say that just because some of the ref’s decisions have not gone your way, you’re going to ignore the referee from now on. Playing in the league means abiding by the rules.
It’s particularly important for the single market, based as it is on the idea that countries in large part decide for themselves how to make their own products comply with the rules. It means that one country could gain an unfair advantage by relaxing environmental, consumer or worker protections. This means their widgets are cheaper to make, but at the cost of those safety protections. So the EU rules also defend such protections, and the ECJ helps enforce that too.
However you feel about the idea of the single market having its own court to settle disputes, you need to know that pretty much any trade deal the UK now signs will include such courts, to a greater or lesser extent.
So what is likely to happen to the UK if we drop out of the single market?