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.
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.
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.
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.
The 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.