The future of the single market in the UK

, by Barbarie, Sophie Illegems, Translated by Rhiannon Erdal

The future of the single market in the UK
Banksy Brexit mural in Dover, Kent, England. CC Flickr

Over a year has passed since the referendum on Britain’s membership to the European Union. On the 23rd of June 2016, the ‘Leave’ camp, favourable to the exit of the UK from the European Union, won with 51.9% of the vote. The UK will therefore leave the European Union on March 29th 2019.

The exit will not be without consequences. Indeed, what will become of the UK single market? The Treaty of Rome of 1957, and then the Single European Act of 1986, established a single market, with no internal borders, which today allows the free movement of goods, capitals, services and persons within the European Union, and thus constitutes its principal economic driver.

Theresa May and the “Hard Brexit”

The Prime Minister is categorical, and does not wish that the UK remains a member of the single market: “we are pursuing an audacious and ambitious free trade agreement with the European Union (…) But I want to be clear. What I am proposing is not a membership to the single market.”, she declared. Her priority is currently the control of immigration and borders, which is incompatible with the free movement of goods. She insists however, on her wish to obtain “a good, ambitious commercial agreement between Great Britain and the European Union”.

Downing Street has thought out some compensations for certain key sectors of the economy. Such compensations shall consist of a privileged access to the single market for finance or automobile, a derogatory visa policy which shall allow them to hire in Europe according to their needs, as well as subventions via tax exemptions. All this will evidently depend on the good will of the European negotiators.

Keir Starmer and Nicola Sturgeon’s oppositions

The Labour, the opposition party, would keep the UK in the European single market during a transition period after Brexit, if they were in power, announced Keir Starmer, Labour’s Shadow Secretary of State for Exiting the European Union. “Labour has been looking for a transitional agreement which would maintain the same basic conditions which we currently enjoy, within the European Union” wrote Keir Starmer in an opinion column in The Observer,

The Scottish First Minister Nicola Sturgeon opposes Brexit and does not wish for the UK to leave the single market. She is therefore currently planning on calling for a referendum on Scottish independence. According to her, 80,000 Scottish jobs depend on the single market. The single market not only allows the commerce of goods and services, but also demands common environmental norms and rights for workers and consumers, she stated.

The consequences on the free movement of persons

The free movement of persons is a fundamental principle of the single market. Whilst the UK is in the EU, the rules concerning the free movement of persons will remain unchanged. As the UK is not a country belonging to the Schengen area, an identity document will always be necessary to prove ones belonging to a EU member state, in order to travel across the Channel and work there. Things shall change when Brexit will be in motion.

According to the modalities negotiated between the UK and the EU member states, a visa may be needed in order to travel in the country. If the UK manages to negotiate an agreement allowing it to remain a member of the single market, it is very likely that the free movement of people will need to be recognised. However, it is also possible that the British government will demand restrictions concerning work permits, and as the EU acts reciprocally, this will mean that Britons will need a visa in order to work within the EU and vice-versa.

Consequences on the free movement of goods

Brexit could mean more requirements concerning customs proceedings and controls. Let’s take the example of Northern Ireland and the Republic of Ireland. Over 200 roads connect the two Irelands, and Brexit risks the creation of checkpoints between them. These controls would devastate the Good Friday Agreement, a peace agreement signed on the 10th of April 1998 between the four fighting parties in Northern Ireland, which established cooperation between the Republic of Ireland and Northern Ireland.

Moreover, controls on goods entering the European single market would be re-established. However, the British government does not seem to have found a solution to this conundrum.

Economic impacts

Right now, 45% of UK exports are to the EU, its biggest commercial partner. Putting custom tariffs in place, exports could reduce by 8,8% and imports by 9.4% in comparison to a situation where the UK would remain in the European Union. Renegotiating commercial agreements will take time and it is unsure that Brussels will be as lenient with the UK as they have been in the past. However, maintaining preferential commercial relations with the EU, despite its norms that are often judged too restrictive, is vital according to an Oxford Economics study.

Indeed, the impact of a possible restriction of the movement of goods, services and persons (by the reestablishment of customs tariffs for example) on the attractiveness of British firms could be important, and may result in a large lowering of investments. Most studies that have been carried out on the economic consequences of Brexit show a negative impact on British GDP. For instance, Open Europe (a traditionally Eurosceptic think tank) estimates a total loss of GDP between 0.5% and 1.5% in the period 2015-2030.

What are the solutions for the UK?

Britain could follow a Norwegian or Swiss model. Norway is part of the European Economic Area (EEA), which allows a complete access to the single market. On the other hand, however, EEA countries have to obey most of EU rules, including the free movement of goods and persons, as well as contribute to the EU budget. As a member of the European Free Trade Association (EFTA), like all EEA member states, Norway can negotiate its own commercial agreements. Switzerland is also a member of EFTA, but unlike Norway, negotiated bilateral agreements with the EU. The country also contributes to the EU budget and conforms to the free movement of goods and services. Some of their industries, such as the banking industry, have restricted access to the EU.

UK’s future membership to the European single market is an important question, probably the most important for both Britain and for the other European member states. The choice to leave the EU could be the choice of a more closed economy, restricting workflows through reinforced migratory and capital controls. The attractiveness of the UK would be reduced, as the country would no longer belong to the single market.

Many uncertainties remain today. On 19th October 19th 2017, during a meeting of the European Council gathering the 28 EU heads of state and government, little advancement was made concerning Brexit. Finally, Donald Tusk, the president of the European Council, announced that European leaders had given the green light to prepare the negotiations for a trade agreement.

This article was first published in French in Barbarie, webzine of the Master in European Affairs of Paris-Sorbonne University. The original article is available here.

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