08 September 2016

Open Britain: Stronger with Europe

Why the Single Market matters 

In independent analyses of the economic consequences of Britain leaving the EU Single Market membership has been shown to be the trading arrangement that is the least damaging and which offers the greatest opportunities for future growth.

Uniquely, the Single Market removes tariffs, customs duties and quotas on all goods traded within the EU; it removes non-tariff regulatory barriers by harmonising rules and standards of products and having the principle of mutual recognition of laws so that these are accepted across the bloc. The Single Market also provides a guaranteed right to deliver services within the EU without national impediments. These conditions offer the best deal for Britain for services and manufacturing alike, in particular allowing British-based companies to be part of integrated European supply chains and incentivising overseas businesses to invest in the UK as a launch pad for export to the Continent. [...]

Why Single Market membership is necessary

During the referendum campaign the country was blatantly misled by Leave campaigners. We were told we could leave the Single Market while retaining all its barrier-free benefits. [...]

Leaving would erect trade barriers between the UK and EU since even under a comprehensive Free Trade Agreement (FTA) total tariff elimination cannot be guaranteed and, without the full, unfettered market access and policy-making influence that comes with membership longer term regulatory divergence would make UK-EU trade costlier for UK businesses. New barriers would reduce trade and deter investment, which is a price we cannot afford to pay given the EU is and will remain by far our largest trading partner.

The only realistic path to retaining the economic benefits of being in the Single Market is, therefore, to seek membership of it and argue for reform from within.

A new, bespoke UK-EU arrangement

Retaining Single Market membership of course raises the question of how and on what terms, and it is difficult to see an existing trade ‘model’ which suits the UK’s needs.

Membership of the European Economic Area (EEA), as Norway has, would provide Single Market membership but may prove too inflexible in the conditions it imposes. An FTA, as Switzerland has and if modelled on existing agreements, might provide more flexibility but would offer insufficient market access, in particular in service sectors. Defaulting on to the World Trade Organisation would be the worst outcome of all and would see the UK facing stringent tariffs on 90% of the UK’s goods exports to the EU by value including 10% on cars.

This points, therefore, to the UK Government attempting to pursue a new, bespoke UK-EU arrangement. In determining the precise configuration of this arrangement, there are two principles against which it must be judged.

• Single Market Membership. The UK requires an arrangement which goes beyond tariff-free market access alone and prioritises the continued elimination of non-tariff, regulatory barriers. This is particularly vital in service sectors, especially as the Single Market expands, and, at present, this can only be achieved through participation within the Single Market. 

• A ‘rule maker’ not a ‘rule taker’. Adopting EU rules and regulations with no say, as other non-EU countries do, would be inappropriate for an economy of our size and would create difficulties, for example in our financial service sector. The UK should therefore seek to negotiate continued influence over regulatory decision-making. Without such an arrangement we would have no way of shaping EU regulations which UK businesses exporting to the EU, our largest trading partner, would have to adhere to whether we remain within the Single Market or not.

Such a bespoke arrangement would of course depend on reform to free movement and limitations over EU budget contributions, but there are a number of wider issues that must also be considered.

Customs Union

In establishing the Department for International Trade the UK Government appears to have stated its intention to leave the EU’s Customs Union come what may to pursue bilateral trade deals internationally, which would be compatible with Single Market membership.

This raises a number of challenges. The UK was promised by Leave campaigners that we would be able to secure all the equivalent international agreements to those previously negotiated by the EU. Again, the Leave campaigners must be held to account on this. This is especially important as the Secretary of State for Exiting the EU has stated that he expects many new trade deals to have been concluded within two years. It is vital for Ministers to provide evidence that this timetable is achievable with clear evidence that they would be as valuable to Britain as the existing EU agreements. [...]

Full paper

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