The principle behind the establishment in 1957 of the European Economic Community, as the European Union (EU) was then known, was to remove barriers to the free movement of goods, persons, services and capital, the so-called “Four Freedoms” enshrined in law under Article 26(3) of the Treaty on the Functioning of the European Union.
The Single Market
A Common Market was therefore created, now known as the Single Market or the Internal Market. Much of the discussion after the UK’s decision to leave the EU has focussed on this Market and whether or not, post‑Brexit, the UK might continue to have access to it.
According to the European Commission’s (EC) own estimates, the Market now accounts for 500,000,000 consumers and 21,000,000 small and medium size enterprises. Members not only include the EU’s 28 current member states, but also Norway, Lichtenstein and Iceland, in their capacities as members of the European Economic Area, and Switzerland under a separate agreement.
Treaty on the Functioning of the European Union
The Treaty on the Functioning of the European Union refers to the EU as one territory “without internal frontiers”, and the aim of the Market, according to the EC itself, is to create within that territory a functioning single market which “stimulates competition and trade, improves efficiency, raises quality, and helps cut prices”.
The work behind the creation of the Market was not, of course, straightforward and it required, and continues to require, trade barriers to be removed and rules to be harmonised. The EC monitors the application of EU law and can launch infringement proceedings against EU member states which do not comply with Single Market rules; it also monitors the functioning of the Market, producing evaluations and economic reports, as well as examining the state of it through the Single Market Forum.
The EU ensures that the free movement of goods is possible through various rules which attempt to harmonise and control the movement of goods within the Market, such as the so called “conformity assessment” which ensures that all legislative requirements are met in terms of goods, includes testing inspection and certification and requires demonstration that a product being placed on the market complies with all legislative requirements. An example of the result of such rules is the well-known “CE” mark on goods, which means that they have met the Market’s safety standards before they are sold. A customs union exists to facilitate the free movement of goods, meaning that goods are not, within the Market, subject to tariffs when they cross borders from member state to member state.
The aim of the freedom of movement of capital is, according to the EC, to enable “integrated, open, competitive and efficient European financial markets and services”. For people, this means the ability to open bank accounts, buy shares in non-domestic companies and purchase real estate in other EU member states. For companies, it means being able to invest in and own other European companies and take an active part in their management.
Services are also crucial to the Market, which according to the EC account for over 70% of all economic activity in the EU. The Market allows EU companies to freely establish themselves in other EU countries and the freedom to provide services in countries other than the one in which they are established.
The free movement of persons is a component of membership of the Market under the EU treaties, but it is not a necessary condition of access to the Market. Freedom of movement of persons guarantees every EU citizen the right to move freely, to stay and to work in another EU member state, with some exceptions for those working in the public sector. This freedom also applies to citizens of the three European Free Trade Area states – Iceland, Liechtenstein and Norway.
New Trade Deals
Whilst the Market arguably provides its members with positive opportunities, allowing them to trade with one another more easily than they might otherwise, it is not without its negative aspects. Tariff-free movement of goods is of course beneficial to exporters and consumers within the Market who sell or buy products from other EU Member States. Member states must, however, comply with the EU common customs tariffs which can drive up prices of goods from non-EU states; they are also unable to negotiate trade agreements separately from the EU, which has exclusive competence over what is known as the “Common Commercial Policy”.
There have, since the UK voted to leave the EU in June, been arguments made for and against continued membership of or access to the Market. In a report published in August, the Institute for Fiscal Studies (IFS) made the careful distinction between membership and access. The authors make the point that “whilst any country has access to the EU as an export destination, membership of the Market reduces ‘non-tariff’ barriers in a way that no existing trade deal, customs union or free trade area does”. They add that if the UK was able to join the European Economic Area, it would enjoy near-full membership of the Market but would likely need to accept EU regulations and free movement of people and make a budgetary contribution, and that “Obtaining membership of the Single Market without meeting these conditions would be unprecedented”. Pro-Leave campaigners have, however, taken issue with the conclusions reached by the IFS: current Chair of the Conservative Economic Affairs Committee Dr John Redwood has asserted that there is “no evidence that joining the EEC or completing the single market boosted our growth, so it is difficult to believe we will lose growth when we leave”.
It is now for the UK Government to decide whether “Brexit” means the UK’s departure from the Market and the establishment of new trade deals in its place, or whether some agreement is reached to remain part of it, and accept whatever conditions as may be agreed with the EU for doing so.