The ‘what’s what’ of the EU single market, Brexit and global trade
Single Market. The UK joined the Common Market in 1973. Since then that market has gone through a number of changes not least the adoption of the Single European Act (SEA) in 1992, which sought to remove barriers and to increase harmonisation and competitiveness between the member states. As a result, the EU is one territory without internal borders or other regulatory barriers to the free movement of people, capital, goods and services (the ‘four freedoms’, see below). Under the Single Market, common laws and technical standards are applied to the goods and services produced within the EU or imported into the EU.Breach of this freedom are dealt with by the European Court of Justice (the EU’s supreme court).
The Single Market is still not complete, with work progressing on the digital economy and restrictions to recognition of professional qualifications.
Membership of the Single Market. All EU states are members of the Single Market. Membership rights are extended to a limited number of nations contiguous to the EU: Norway, Iceland and Lichtenstein (Members of the European Economic Area, see below) and to Switzerland via bilateral treaties. A company in Scotland can export a product to Bulgaria (or any of the EU27 + 4 contiguous nations)) without tariff, customs checks, compliance assessment, or any other non regulatory examination which could interfere with the free movement of the goods.
Access to the Single Market. All states of the world can trade with the EU, or in the jargon, access the Single Market. To do so, the trading state must meet all EU standards, and thereafter be subject to customs control and various state level verification of compliance. The same procedure applies when any states exports into a foreign jurisdiction. For example, all Scottish companies trade with the US must be fully compliant with US law and be able to prove it, and the goods will be subject to various tests at point of entry.
The ‘four freedoms’. The freedoms are enshrined in the Treaty on the Functioning of the European Union (TFEU) and aim to facilitate economic development and trade:
Free Movement of Goods (Art 34 & 35). ‘Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States’; ‘Quantitative restrictions on exports, and all measures having equivalent effect, shall be prohibited between Member States.’
Freedom of movement for workers (Art 20 & 45). Citizens of the EU will have ‘the right to move and reside freely within the territory of the Member States’; ‘Such freedom of movement shall entail the abolition of any discrimination based on nationality between workers of the Member States as regards employment, remuneration and other conditions of work and employment.’
Freedom to provide services (Art 49).‘Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited.’
Freedom of movement of capital (Art 63). ‘Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.’
Customs Union. The EU is a customs union. Its members impose a common tariff on imports from non-member countries while trading freely with each other. The EU Custom Union (EUCU) includes Monaco, the Channel Islands, the Isle of Man and other small territories. The EU also has customs unions with Andorra, San Marino and Turkey (although there are specific exceptions). Importantly, membership of the EUCU restricts the rights of the members to broker free trade agreements (FTAs, see below) with third countries.
World Trade Organisation (WTO). The WTO, with 164 states in membership, is the body responsible for both encouraging (and where agreed) enforcing free trade arrangements. It also provides a forum for negotiating trade agreements. Where agreement has been reached, WTO members operate a non-discriminatory trading system, where each country receives guarantees that its exports will be treated fairly and equitably in other markets of other countries.
The WTO has been only partially successful in encouraging global trade. Tariffs remain in a number of areas. A tariff is in effect an import tax. If you wish to trade with a nation where there is no WTO or bilateral agreement you must pay the money and subject the product to various customs checks. For example, there is presently a tariff of 150% on all whisky imported into India. It is hardly surprising that little scotch is drunk on the sub continent.
In the absence of a UK-EU trade agreement all trade will be subject to the various import restrictions in operation between the two entities.
European Economic Area (EEA). The EEA is a trade agreement between the EU and Iceland, Liechtenstein and Norway. It is founded upon the four EU freedoms (see above). Importantly the non-EU members of the EEA have no status before the EU Institutions, and therefore are without say in the determination of any EU law which affects the broad trade arrangement. However, the non EU states have agreed to mirror the legislation adopted by the EU.
European Free Trade Association (EFTA). EFTA is an intergovernmental organisation which promotes free trade and economic integration. In membership is Iceland, Liechtenstein, Norway and Switzerland. The UK was a founder member, primarily as a result of its exclusion from the European Economic Community (EEC, as the EU was then known). The UK resigned its membership upon accession to the EEC.
Free Trade Agreement (FTA). An FTA is an agreement between two (bilateral) or more (multilateral) countries which removes the impediments to trade, but facilitates no free movement of capital or people (in contrast to the freedoms of the EU). Member of the EU, are reliant upon the European Commission to negotiate all free trade deals. Member states themselves are forbidden by treaty from negotiating any free trade agreements.
TTIP and CETA. The two most important FTAs currently being explored by the EU are TTIP (Transatlantic Trade and Investment Partnership) and CETA (Comprehensive Economic and Trade Agreement). Each FTA would remove tariffs, cut red tape and reduce restrictions on investment. CETA is approaching conclusion, and despite the objections of the Walloons is likely to be passed in the next few months. When enacted, the agreement will eliminate 98% of the tariffs between Canada and the EU. TTIP on the other hand, mostly but not exclusively thanks to President-Elect Donald Trump, is dead.
Barriers to trade. A tariff is a tax on imports or exports, levied by one country upon another. Non-tariff barriers are far less clear. They can include quota restrictions, embargo limitations, sanctions, ‘levies’, non compliance tests or a myriad of other tests and restrictions. Whisky exporters are constantly frustrated by labelling issues, which whilst seemingly small, can hold up exports fro months. And all of this assumes that the country operates a non corrupt customs system.