Access to the single market requires acceptance of free movement of goods, capital, services and people © FT montage
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Theresa May promised last year to take the UK out of the EU’s single market and customs union, shake off the jurisdiction of the European Court of Justice, regain control of immigration and free her government to forge its own trade policy.

As Brexit talks near a crunch point, things no longer look so simple. The British prime minister is fighting to overcome Eurosceptic opposition to a plan that would keep the UK closely aligned with the EU on customs and single market regulations.

Here the Financial Times explains what is at stake, and why making a clean break with the EU could prove easier said than done.

The status quo

Participation in the single market requires acceptance of all four EU freedoms: free movement of goods, capital, services and people. The single market is predicated on the belief that these four freedoms drive prosperity.

Companies operating inside the bloc can, in theory, sell their products and services freely anywhere in the EU. In practice, the single market is still far more developed for goods than it is for services, where languages, face to face contact and trust remain important.

To create a fair internal market, the EU is committed to a common regulatory framework to prevent one company — or country — from gaining a competitive advantage by undercutting regulations.

Countries must promise to implement common rules and to recognise each other’s standards. The ECJ is there to interpret EU law and serve as arbiter of any dispute.

The EU is also a customs union. Its members impose common tariffs on imports from non-EU countries and can trade freely with each other without border checks. EU countries automatically benefit from trade deals that the EU strikes with other states but cannot set their own tariffs.

What is at stake

The UK has been negotiating with Brussels for more than a year and there are less than nine months to go before Brexit. Other big issues are not yet resolved but the two sides have reached a provisional deal over a 21-month transition.

Under this agreement, which would be part of the formal exit treaty, Britain would remain in the single market and the customs union until December 31 2020.

This is far from certain — the country could still drop out of the EU and all its workings without a deal on Brexit day, March 29 2019 — but the bigger question is what the UK’s long-term relationship with the customs union and the single market will be. This will be the focus of Mrs May’s gathering of cabinet ministers at Chequers, her country residence, on July 6.

Why the single market matters

The EU has said it would be open to a free trade deal to ensure tariff-free trade for most goods. Despite her opening position, Mrs May also looks increasingly likely to advocate a form of “customs partnership” that would keep the UK closely aligned with the customs union, while leaving some scope for the UK to strike its own trade deals on tariffs.

It would be a stretch to persuade the EU to accept this, but it would solve some problems. It would eliminate the need for companies to make customs declarations and comply with rules of origin (checks to make sure goods originating outside the free trade area do not enter without paying duty, which can be extremely complex).

This would lessen the disruption to supply chains that rely on frictionless, just-in time delivery. It would also go some way to avoiding the creation of a hard Irish border.

But regulatory barriers are often more important than tariffs. At present, the UK implements EU rules. If it has own regulatory system after Brexit, the EU will still insist on border checks to make sure that goods entering the single market meet its standards — even if Britain is part of a customs union.

A typical trade deal would also exclude services, which are crucial to the UK economy.


Could the UK negotiate access to the single market for goods only?

Perhaps.

A deal along these lines would meet the pledges both sides have made to prevent a hard border in the island of Ireland. It would also avoid disruption at borders more generally and could dissuade big manufacturers from moving elsewhere in the EU.

But the EU denounces any such arrangement as cherry-picking — attempting to retain the advantages of single market membership without accepting the corresponding obligations on free movement.

Brussels also argues that trade in goods cannot practically be separated from services: the example of truck drivers shifting freight from one country to another is a case in point.

Indeed, Jean-Claude Piris, former head of the EU legal service, has described the idea of a single market for goods only as “delusionary”.

However, it could be a good deal for the EU, which sells more goods to the UK than vice versa and could continue to do so, while restricting access for the UK’s services providers.

For the proposal to be taken seriously, though, Mrs May would have to make substantial concessions on money and sovereignty.

The UK would have to abide by EU product regulation, and guarantee not to undercut EU rules on competition, social policy and the environment. It would probably also need to make a budget contribution and either accept ECJ oversight, or agree on a new extraterritorial mechanism to resolve legal disputes.

Copyright The Financial Times Limited 2018. All rights reserved.