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Free trade area or single market?

BBC News BBC News 19/04/2016 By Jonty Bloom

The UK economy could thrive outside the European Union, but may not form part of the single market, Leave campaign leader Michael Gove has said.

We would have a relationship of "free trade and friendly co-operation" with the EU, the Justice Secretary insisted on the Today Programme.

He said that after Brexit the UK would be part of a European "free trade zone", one that already exists from "Iceland to the Russian Border" but not part of the single market as we are at the moment.

But what is the difference between a free trade area and a single market?

Free trade area

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 them can take years and there are normally exceptions. So agriculture and fisheries might be exempted, certain industries protected and some goods may not be covered.

Also imported goods would have to comply with the law of the country they are being sold in. So, for example, you could have a free trade agreement with the USA but still a ban on the import of GM foods or different safety standards for electrical goods.

There is a free trade zone in Europe and we helped to create it - it is called EFTA, the European Free Trade Area and consists of Norway, Iceland, Switzerland and Liechtenstein.

The EU has free trade arrangements with many other countries in Europe and beyond, including Turkey (a customs union) and Ukraine and countries that are applying to join the EU.

Single market

A single market is like a free trade area in that there are no tariffs quotas or taxes on trade but also where there is free movement of goods, services, capital and people.

That 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 limits on Turks or Ukrainians.

Also a single market strives to remove so called "non-tariff barriers"; different rules on packaging, safety and standards and many others, are abolished and the same rules and regulations apply across the area.

This is why there are EU-wide regulations covering a whole host of industries and products on everything from food standards and the use of chemicals, to working hours and health and safety. It is an attempt to create a level playing field and a single market; this doesn't happen in a free trade zone.

For goods the single market was pretty much completed in 1992, but the one for services is still a work in progress. The EU has promised to introduce it many times, but several countries have dragged their feet. Even so, the City of London dominates financial services in the EU.

The EU is therefore not a free trade area, it is a single market.

Other options

Three members of EFTA are also pretty much part of the single market - Liechtenstein, Iceland and Norway have negotiated access to the single market (excluding agriculture and fish). They have to implement EU single market rules and regulations in their own countries, with little say on what they are and they pay in to EU coffers.

Switzerland has negotiated a series of bilateral deals which gives it access to the single market for most industries, although it also has to apply EU rules and pay the EU money. This deal is under threat of re-negotiation after a Swiss referendum on limiting immigration. The EU insists on free access for EU citizens to EFTA countries.

So there is a quite a large difference between a free trade area and a single market, and for many companies that could matter.

If, for instance, a business is based here because it has complete access to the single market with subsidiaries and component plants across the EU, a free trade deal might not give it the same complete freedom to move money, people and products around the EU.

Other companies might prefer a free trade area, where they don't have to implement EU regulations and laws, saving them money in red tape and administration; although they might have trouble selling in the EU if they don't agree to its rules.

The Leave campaign argues that Britain, as the fifth largest economy in the world, could negotiate a very favourable free trade deal with the EU, which insures access to the single market but without having to implement EU laws.

The Remain camp point out no one else has ever managed to do this and that this is still not the same as being part of the single market, with a say in how the rules are written.

But not only has nobody ever managed to get the deal the Leave campaign wants, nobody has tried either.

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