Anna
I did a long post in the other thread about what the single market is, how it works, and why leaving the EU will not get us a better deal than we have now. I'm reposting it here in case you're interested. Sorry in advance for the length.
What is the single market?
The single market is the foundation on which the EU is built. The idea is that there should be no barriers to trade between member states. If I want to sell goods or services to customers in Italy, I can do so under the same trading conditions as my Italian competitors. If I want to buy something, I can buy it just as easily from a German company as I can from a British company, giving me much greater choice. This opens up the entire market to much greater competition, resulting in better products and services and lower prices.
The fundamental rule of the single market is that there should be no barriers to the free movement of goods, services, people or capital. At the most basic level, this means no tariffs or customs duties when something crosses an internal border. It also means member states have to agree the terms on which they trade with countries which are not in the single market. If France has better trading terms with Venezuela than Denmark does, a French company who wants to import goods from Venezuela and sell them in the EU will have a competitive advantage over a Danish company wanting to do the same thing. This is why individual member states cannot negotiate their own free trade agreements with other countries independently of the EU.
Why do we have so much EU law?
Tariffs and customs duties are not the only barriers to trade. If Swedish businesses are subject to stricter environmental protection regulations than Polish businesses, the Polish businesses have a competitive advantage because their operating costs are lower, allowing them to undercut their Swedish competitors. This is why we have EU directives and regulations to harmonise laws relating to environmental protection, health and safety, consumer protection, employment rights and so on. By setting minimum standards which everyone has to comply with, we maintain a level playing field for businesses wanting to compete with each other without creating a “race to the bottom” in terms of standards. This is where all the “Brussels bureaucracy” and “red tape” comes from.
EU law also covers competition law. Broadly, this means it is illegal for companies to engage in collusive behaviour (such as price fixing), or for big companies to abuse their dominant position by behaving in a way which could force their smaller competitors out of business (such as selling at a loss). It also means that governments have to advertise opportunities for public contracts and give all interested suppliers an opportunity to bid for them (rather than favouring suppliers in their own country), and that they cannot prop up failing businesses or make their own national industries artificially competitive by giving them large subsidies. (This is very topical at the moment due to the steel crisis.)
Can we leave the EU and still have access to the single market?
Probably. Several European countries are not in the EU but have agreements with the EU which give them access to the single market without being full EU members.
What would that mean for us?
No one knows exactly what sort of deal we would get, but the most helpful example to look at is probably Norway. Norway is a prosperous, successful country which is not in the EU, but has access to the single market. It is, if you like, an “associate member” of the EU.
Norway contributes roughly the same amount to the EU budget per person as we do. They have to accept free movement of people, because this is one of the fundamental principles of the single market. They also comply with the majority of EU laws because these are all designed to eliminate barriers to trade, which is fundamental to the internal market. The rules which apply to Norway are a little more fluid than the rules which apply to full EU member states, but they are broadly subject to the same rules as everyone else.
How is that different to being a full member of the EU?
The main difference is that they do not have MEPs, they do not have a position on the Council and they are not really represented in the European Commission. They work closely with the EU on many issues, but when the EU is passing new legislation or negotiating on major issues like treaty change, Norway is essentially excluded from that process.
What is the point of that?
Damned if I know.
So what sort of deal could the UK get?
The likes of Nigel Farage and Boris Johnson believe that we can negotiate a special deal, under which we will still have full access to the single market but we will be able to control our borders and have full sovereignty over our own laws.
Do you believe that?
Nope.
Why not?
Because it would require the remaining 27 member states to unanimously agree to completely re-write the rules of the single market, just for the UK.
Please believe me when I say that if we want to leave the EU but retain full access to the single market, the very best we could hope for would be the deal that Norway currently has. And that would not address any of the issues that people who want to leave the EU are unhappy about.
That sounds a bit pointless.
Yup.
OK, so what can we do to regain full control over our borders and full sovereignty over our own laws?
We have to leave the single market. Completely.
In my view, this is the only coherent position for someone who thinks we should leave the EU, for the reasons I have outlined above.
What would leaving the single market mean?
The short answer is, no one knows.
Most economists seem to agree that it would have a negative effect on our economy in the short to medium term, and after that, it’s anyone’s guess. We might be more successful in the long run. We might not.
What free trade agreements could we have?
Initially, none. We would lose the benefit of free trade with the EU, and also all the other free trade agreements that the EU currently has with other countries. We would have to start again from scratch.
We can do that, right?
Yes, of course we can.
So what’s the problem?
Well, most of the countries we are very keen to trade with are much bigger, richer and more powerful than we are. (Yes, OK, we’re the 5th largest economy in the world. At the moment. As members of the EU.)
Countries such as the USA are not very good at negotiating. They are used to wielding all the bargaining power, which is why smaller countries trade with the USA on the USA’s terms. The reason why TTIP is such a massive ballache is because the EU is an equally powerful negotiating partner, and the USA isn’t used to that.
Another thing to bear in mind is that none of these other countries will be in a hurry to negotiate a free trade agreement with us, as they will still be able to trade freely with the remaining 27 member states under the terms of their existing agreements with the EU. Can you think of anything people need to buy from the UK which they cannot get from any other country in the EU?
OK, what are the other issues?
We need to think about the effect Brexit would have on the value of our currency. The pound has already fallen sharply against all other major currencies since the referendum was announced.
In November 2015, £1 was worth just under €1.43, making one euro worth just under 70p. Yesterday, £1 was worth just under €1.24, making one euro worth just over 80p. This means the pound has fallen more than 13% against the euro in that period. Most of that fall took place in the days following the announcement of the referendum date.
If the announcement of a referendum everybody already knew was happening caused the pound to fall so sharply in such a short space of time, what do you think the impact of an actual Brexit vote would be?
So what happens if the pound falls even more?
Everything we import will be more expensive, regardless of where it comes from or whether there are any tariffs, and the effects of this would be felt very quickly. (Long before we actually left the EU.)
On the plus side, it could make our exports cheaper and therefore more competitive. However, we import more than we export, so the net effect would be negative. The benefits of a weaker pound would be felt by UK exporters. The disadvantages would be felt by anyone wanting to buy anything which is not produced in the UK, i.e. the rest of us.
Can’t we just buy things which are produced in the UK?
Not really.
Take cars, for example. We manufacture cars in Britain. Really expensive cars like Aston Martins and Rolls Royces. The kind of cars people like you and I drive are generally imported. But most people don’t buy cars very often, and when we do, we tend to buy used cars, so the effects of this would not be felt straight away.
What about food? Well, the last time the UK had to rely on domestically produced food to support our entire population was during the second world war, when ships bringing food in from abroad were liable to be torpedoed by German submarines. I expect your granny remembers what rationing was like, why don’t you ask her how much fun that was?
You’re just being silly now.
Yes. Sorry.
We can’t produce all our food domestically, so we would still have to import a lot of food, and it would probably be more expensive.
What about jobs?
Some people say that freedom from EU regulations would encourage businesses to invest in the UK. Other people say that being positioned outside the single market would discourage investment in the UK. Nobody really knows what the impact would be in the longer term. What is pretty certain is that companies which currently have their EU headquarters in the UK would need to relocate the EU part of its business to a country which is, well, still in the EU.
What about sovereignty?
Well, since we would no longer have to comply with any EU law, in theory the government could repeal all of our laws which are based on EU law and re-write the rule book. They might choose to maintain or even improve upon the employment rights we currently enjoy. They might not. They might choose to maintain or improve upon existing standards of environmental protection and health and safety. They might not. No one knows.
What about immigration?
We could control our borders. Sort of.
We could make up our own rules about who is allowed to come and live here, and who is not. We probably couldn’t stop France from sticking all the Calais migrants on boats and sending them here. So we could make our own rules, but we couldn’t rely on anybody else to help us enforce them.
Anything else?
Yes. We’re not actually being asked to vote on whether to stay in the single market or not. David Cameron hasn’t given us that option on the ballot paper, because he doesn’t have the power to make that offer. So if we do leave the EU, the end result will probably be something along the lines of one of the above scenarios, but we won’t get to choose which one.
If you’re planning on voting for Brexit, you should really have an opinion on whether we should leave the single market or not. But you should also be aware of the risk that what we end up with will not be what you are hoping for.