With all the discussion around Brexit and Customs unions, do you know difference between a free trade area, single market and a customs union?
Norway, Iceland and Liechtenstein are in the EU’s Single Market, but not the EU.
The European Union’s single market eliminates tariffs, quotas or taxes on trade, but it also includes the free movement of goods, services, capital and people.
This is why there is no limit on the number of French people who can come to the UK, or the number of British people who can live in Spain, but there are limits on those moving from non-EU countries such as Turkey or Russia, for example.
Additionally a single market strives to remove so-called “non-tariff barriers” and harmonise different rules on packaging, safety and standards to ensure the same rules and regulations apply across the area.
There are EU-wide regulations covering many industries and products on everything from food standards, to working hours and health and safety. It is an attempt to create a level playing field and a single market; this does not happen in a free trade zone.
For goods, the single market was largely completed in 1992, but the market for services still remains a work in progress. The EU has promised to introduce it many times, but there have been delays form several EU countries and it is much more complicated than creating a single market for a product.
The EU is therefore not just a free trade area – it is a single market.
But in order to be in the single market, countries must allow the free movement of goods, services, capital and people. That last one means immigration is difficult if not impossible to control – which was a key area of control the UK wanted returned from the EU.
Membership of the single market also normally involves making annual payments towards the EU’s budget and accepting the jurisdiction of the European Court of Justice, which are key areas many Brexiters have concerns over.
Turkey is part of a customs union with the EU but is not in the single market. The deal does not cover food or agriculture, services or government procurement.
With a customs union, the countries club together and agree to apply the same tariffs to goods from outside the union.
Once goods have cleared customs in one country, they can be shipped to others in the union without further tariffs being imposed.
If the UK left the Customs Union but stayed in the Single market, our exporters would have to contend with what are called ‘rules of origin’. These rules are designed to demonstrate that goods that legally originated in the UK – and did not contain more than the maximum permitted level of parts and components from elsewhere – qualify for duty-free entry into the EU. That could be complicated for many companies that import components from around the world to put into finished products made in the UK.
Also as services makes up around 78% of the British economy they are not totally covered by a customs union because they tend to face “non tariff” barriers.
The UK could opt to leave the single market but stay in the customs union, but this would mean it couldn’t negotiate free trade deals with other countries as the EU would do this.
Other areas in discussion might also mean paying money to the EU and accepting ECJ judgements when they relate to trade.
A customs union does however have one big advantage, it means the Ireland/Northern Ireland border would remain open and easy to cross.
Free Trade Area
If the UK left both the single market and the customs union, theoretically the UK could negotiate its own free trade deal with the EU. A free trade area is one where there are no tariffs or taxes or quotas on goods and/or services from one country entering another.
The negotiations to establish a Free Trade deal can take years and there are normally exceptions.
Services like banking and education also pose a problem in many free trade deals, as the barriers to trading services are not normally tariffs, but so called non-tariff barriers like different rules, standards and qualifications.
There is a free trade zone in Europe and the UK was instrumental in helping to create it: EFTA, the European Free Trade Association. It counts Norway, Iceland, Switzerland and Liechtenstein as members, however all members all now have a very close relationship with the EU; all but Switzerland, have now become part of the single market.
The EU also has free trade arrangements with many other countries around the world. The EU is not against negotiating one with the UK in principle, but it must preserve the single market as the benefit of being within the EU and politically it has to be seen to show that leaving is hard to deter any other countries that may want to leave.