Trade deals and the Single Market

With all of the talk of trade deals in and out of Europe in recent weeks I have not seen a article that clarifies the difference between a single market and a trade deal.  Comparing the two as if they were similar confuses the issue.  The difference is vast – not so much comparing apples and pears but apples and a combine harvester.

Trade Deal
A trade deal is an agreement between two countries where they lower their import and export duties and other tariff barriers to trade.  These negotiations can take many years to conclude and on occasion they can be agreed very swiftly.  They can cover one industry or a range of industries but they are rarely comprehensive.  There are gains to both parties to the trade deal but usually the bigger partner gains most as they can bargain harder.  Britain would be at a disadvantage because three quarters of the world’s trade is undertaken by countries that are bigger than Britain – and in some cases much bigger. Those deals would be worst for us than if the much larger Europe negotiated on our behalf.

Free Trade Area
This is where a number of countries reduce or (rarely) eliminate their customs and tariffs between themselves.  Their tariffs on trade with other countries is not aligned – each country trades with third parties as they like.  There are a number of these across the world some more successful than others.  Britain was once a member of EFTA – the European Free Trade Area.  The tariffs between the members were agreed but the tariffs to other countries was set by each member state.  A television imported into Britain from Japan could have a different tariff from that imported from Japan into Austria.

Customs Union
This an extension to a free trade area in that both the internal tariffs and external tariffs are aligned.  This was the basis of the of the European Common Market.  A television imported into Britain from Japan would have the same tariff as that imported from Japan into Austria.  A customs union was only considered a foundation position for Europe as it was always intended that we would have a single market eventually.  Although it was Margaret Thatcher that campaigned to push  it though.

Single Market
A single market is not only where the internal and external customs, controls and tariffs are the same across the area but also all the rules governing trade are the same.  Unlike the other arrangements, a single market provides dramatically greater benefits because the others only provide the reduction – usually only partial  – of tariff barriers.  So that exporters will still need to provide differently specified goods and services for each individual market. In the single market what can be sold at home can be sold throughout the single market without any change.  In our case, it give us access to the world’s biggest free market.

Size of Economy-01The chart shows the top ten economies in the world. They are ranked in purchasing power parity order: China, Europe, America, India, Japan, Russia, Brazil, Indonesia, Mexico and Korea.  If Britain was not part of the single market then it would be the ninth largest market in the world (one hundred years ago we were top). Still impressive being ninth but it does not matter how many trade deals we agree or how many free trade areas we join we would still be in ninth position.

When Scotland joined England in 1707 it entered the largest single market in the world – only to be overtaken by America between the wars. If Britain leaves the single market Scotland might choose to leave Britain and remain in Europe along with Northern Ireland and Wales.  England would still be the ninth largest market in the world but the rest of Britain and Ireland would be in the largest single market.

2 thoughts on “Trade deals and the Single Market

  1. You have a twisted view on the size of the UK in the economic world. We are the 5th largest trading nation in the world including services. Only one of the other 27 nations in the EU (Germany) is larger than our economy. Our level of trade with the EU is in decline and we can easily survive by focusing our trade with the emerging economies of the world once we leave the EU. Our ability to trade independently with the emerging nations of Asia, Latin America and Africa are hugely constrained by us having to adhere to the position of the EU with regard to trade regulations.

    • You may say that Britain is the fifth largest economy in the world – and we are in nominal terms but in real terms (using purchasing power parity) we are ninth. You are correct in saying that only Germany (for the present) has a larger economy within Europe. You are correct in saying that we can agree trade deals across he world. Where we differ is that I think that Britain would get a better trade deal out of China, India or America if Europe bats on Britain’s behalf. In trade negotiations it is the bigger economy that calls the shots. That is one of the reasons that California stays in the American Union. California is bigger than Britain, has a smaller population and has a little smaller GDP but it knows which side its bread is buttered.

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