UK is leaving EU, what about the Single Market?

What do we mean by European Single Market?

March 25th, 1957, when France, Germany, Italy and Benelux countries signed the Treaty of Rome, can be identified as the official starting date of the European Common Market even if the idea was born far earlier. After the Second War World, the only way to reach ambitious political ends was through economic cooperation and integration, reason why these six states founded the European Economic Community (EEC). The aim was to establish a Common Market for all forms of economic activities, except the aspects covered by the other two institutions also born after the War with the aim of creating a common economic and political frame: The European Coal and Steel Community and the so-called Euratom.

The EEC was more than a simple cooperation between the founding members; in fact, its tasks were also to promote a harmonious development of the economic activity, a continuous expansion, an increase in stability, a rising of the living standards and a closer relationship between the states belonging to it. The community was and is, nowadays, based on the free movement of goods, persons, services and capital. These Four Freedoms, the basis of the European Economic Area, are guaranteed by the Internal Market which is aimed to increase competition and specializations, improving the efficiency of the allocation of resources and drive economics integration within a single European wide economy. A further development and a step towards harmonization was the adoption of the single currency, the euro, that entered into circulation from January 1st, 2002 and it’s now the official currency of 19 out of 28 EU member countries, collectively known as the Eurozone.

It is important to stress that the creation of the Internal Market it is still an ongoing process and its future depends on how it can adjust to the new challenges.

Talking about challenges, the EU is now facing a big one, something that has no precedents!
Since the general elections, the path for a hard Brexit cannot be followed anymore so Britain needs to find alternative and softener ways to leave.

For what it concerns the Single Market, it’s not clear what form the departure will take.
Currently, the 28 states of the EU, the UK included, are full members and also four countries of the European Free Trade Association (EFTA) – Norway, Ireland, Liechtenstein and Switzerland – participate in the Single Market and enjoy its Four Freedoms even if they are non-member of the Union.
Several options are available to be adopted by the UK, let’s have a look at some of them, considering that, even before the referendum of last year, UK was already less integrated into the EU than most of its countries: it was not part of the Eurozone neither of the Schengen Area.

Some solutions can be found following the examples of the EFTA members.

Like Norway, Ireland and Liechtenstein, UK could remain only in the EU Single Market while leaving EU.
Being a member of the Common Market reduces the cost of trade with EU such as transports, border taxes, customs checks and, most importantly for services trade, non-tariff barriers. It would also mean making annual payments towards EU’s budget and accepting the jurisdiction of the ECJ which were two of the main points Brexiteers were standing for.

Let’s also remember that concerns about immigration were a big delivery of support for the ‘leave’ campaign but membership of the Single Market requires accepting all the Four Freedoms, comprehending the free movement of persons, meaning that immigration would become difficult, if not impossible, for the British government to control. UK might get a personal deal, maybe similar to the one that grants a special status to Lichtenstein under Protocol 15 in the EEA, on transitional periods on the free movement of persons, which limit the number of new residents for a period of four years by subjecting them to “prior authorization entry, residence and employment”.

Another potential approach, without being part of the Single Market, like Switzerland, could be seeking a type of ‘free trade agreement’ (FTA) with the EU. No tariff or quota would be imposed on the goods and/or services but this would be the ‘hardest’ form of Brexit, including also, almost certainly border controls including between Ireland and Northern Ireland.

The worst outcome would be non-finding any agreement between the British government and the EU Commission on future trading arrangement. As results, the British exporters will pay EU tariff on their goods, leading to an increase of the exported goods’ prices in the EU countries and subsequently, to a failure of exportation. Employment would wave between a fall, due to what previously said, or a rise thanks to the reduction of the EU exports (tariffs applied to them) that will be replaced by UK production which would increase the domestic hiring. The result of such a decision would be a nonstable situation that could throw up barriers to investments and border inspections suffocating trade and sabotage the economy of both sides.

By Francesca Pugliese