WHEN discussing a “hard” or a “soft” Brexit, commentators regularly
talk of the European Union’s “customs union” and “single market”.
Currently Britain is a member of both. It is possible to be a member of
just the customs union but not the single market (look at Turkey,
Andorra or the Isle of Man). Conversely, it is possible to be a member
of just the single market but not the customs union (take Norway or
Iceland). Often the two terms are elided, which has the effect of
concealing important differences.
What are they?
A customs union
is a type of free-trade area. Two or more countries agree to abolish
restrictions on mutual trade, and to set up a common system of tariffs
and import quotas that apply to non-members. In the jargon, they have a
“common external tariff” (CET). The EU, for instance, has a common 10%
tariff on cars imported into it. The main advantage of a customs union
is understood when you consider what happens when there is no CET. If
France had zero tariffs on Japanese whisky, but Britain had a 10%
tariff, then it would be a profitable wheeze to export Japanese whisky
to France, and thence (freely) to Britain. So Britain would have to
carefully monitor whisky imports from France, and slap a tariff on any
Japanese stuff sneaking in (so-called “rules of origin” regulations).
With a CET, however, such monitoring is no longer necessary (because the
possibility of such arbitrage is eliminated). One disadvantage of a
customs union, however, is that its members are not allowed to negotiate
their own trade deals with third countries.
What of the EU’s
single market?
It is sometimes called the “internal market” and was once
called the “common market”. This is another type of enhanced free-trade
area, though for a different reason. Not only do goods move freely, but
so do services, investment and people. To achieve this much more
ambitious goal, the EU needs to get involved in harmonising regulations
across the single market. This is why there are much-maligned rules on,
for instance, the efficiency of vacuum cleaners across the EU. In the
absence of such regulations there would be a regulatory
race-to-the-bottom: countries would compete to produce the
cheapest-possible vacuum cleaner across the EU, sacrificing safety in
the process. It also explains why there is free movement of people: this
allows for the exchange of typically non-tradable goods, such as
plumbing.
With all this in mind, what should Britain do?
It is
possible to be a member of the single market without being an EU member.
The European Economic Area (EEA) agreement leaves three countries
(Norway, Iceland and Liechtenstein) in such a position. They are not
part of EU customs union and thus free to strike their own deals (but,
remember, they need to abide by complicated “rules of origin”
regulations). If Britain however decides to quit the single market,
there is no point in being part of the customs union; quitting it would
allow the British to strike their own trade deals. The best option from
an economic perspective, of course, is for Britain to quit neither the
single market or the customs union. But then that wouldn’t be Brexit,
would it?
Read more...
Showing posts with label Single Market. Show all posts
Showing posts with label Single Market. Show all posts
UK Membership of the European Union
The case for British exit from the European Union
- Free trade
- Britain could have the opportunity to negotiate new free trade agreements with major EU trade partners and fast-growing emerging countries such as the BRICs, MINTs and Sub Saharan Africa
- Britain would benefit from freeing itself from many of the EU's complex and expensive laws & regulations
- Budget savings
- Leaving the EU would cut our contributions to the EU budget - a UK fiscal windfall
- Food prices would possibly be lower if we left the Common Agricultural Policy (CAP)
- Exports
- The UK is Europe's biggest export market. So Europe needs the UK as a trade partner for both to be successful in the long term
- Economic policy autonomy
- The UK would retain greater control over fiscal and monetary policy and also gain more freedom over labour market, competition and environmental policies
The financial services industry contributes a fifth of the UK’s annual economic output and had a £19.1bn trade surplus with the EU in 2013
Financial Times
Some counter-arguments – the case for staying within the EU single market
- Free trade
- Risk of losing trade benefits of being inside single market, lower per capita GDP
- Attractiveness of the UK as a destination for FDI would be diminished
- Adopting a position similar to Norway (which is outside of the EU) would mean the UK accepting many EU rules without having a say in their formulation
- Market Access
- UK will lose tariff-free access to its largest export market
- London would no longer be the EU's financial hub
- No guarantee that the UK could negotiate an arrangement to Norway or Switzerland
- Extra costs
- Extra costs for businesses as they ajust to new legal frameworks outside of the EU
- Europe might decide to retaliate and prevent favourable trade deals with UK
- UK's net annual spending on the EU budget is tiny – less than 1% of GDP (about the same as UK overseas aid) - for small budget savings, the long-run economic cost of leaving the EU will be high
- EU students can apply to study at any university in the bloc and pay the same fees as nationals - this might change in the event of a UK exit
- Over 1.8 million UK people live in the EU, it might become harder and more costly for them to live and work in EU countries because the EU single market allows free movement. Some EU countries might introduce an investment visa requirement
(Source: Tutor2u)
Economics of the Single Market
Economics of the Single Market
1. Free Trade in Goods: Businesses can sell their products anywhere in the EU’s member states and consumers can buy where they want with no penalty.
2. Mobility of Labour: Citizens of EU member states can live and work in any other country. The aim is to improve the mobility of labour.
3. Free Movement of Capital: Currencies and capital can flow freely between member states and EU citizens can use financial services in any member state.
4. Free Trade in Services: Professional services such as pensions, architecture, telecommunications and advertising can be offered in any member state.
Single market and economic concepts
1. EU Single Market is a “positive sum game” for member states if trade and competition enhances productivity and reduces costs and prices
2. Lower prices should boost consumers’ real living standards and an increase in competition will lead to improved allocative efficiency / less X inefficiency
3. The size of EU single market allows businesses to exploit economies of scale and scope leading to improvements in productive efficiency.
4. Economic and social costs and benefits from a freer movement of labour
5. Competition should lead to a degree of price convergence between countries – but there will always be price variations within EU for the same products!
6. Encourages cross-border technological alliances – a boost to dynamic efficiency?
7. Strong internal EU economy may be less vulnerable to global external shocks?
Foreign direct investment (FDI) – both within the EU and into/out of EU
Consider the main motivations for foreign direct investment
• Resource seeking – where a business seeks specific resources which are unavailable in the home country
• Efficiency seeking – e.g. businesses seeking to benefit from a more productive workforce, lower wages or from the external economies of scale available in a region.
• Market seeking – e.g. investment to take commercial advantage of growing demand in faster-growing emerging market countries
Vertical FDI is where a company separates / outsources production across a number of locations depending on where unit costs are lowest. For example, Nokia produces mobile phone components and batteries in Hungary and assembles phones in Germany and Finland, where it also has research and development facilities.
Horizontal FDI is where a company locates the same production process in a number of different locations, for example car manufacturers which invest in several European countries.
(Source: Tutor2u)
1. Free Trade in Goods: Businesses can sell their products anywhere in the EU’s member states and consumers can buy where they want with no penalty.
2. Mobility of Labour: Citizens of EU member states can live and work in any other country. The aim is to improve the mobility of labour.
3. Free Movement of Capital: Currencies and capital can flow freely between member states and EU citizens can use financial services in any member state.
4. Free Trade in Services: Professional services such as pensions, architecture, telecommunications and advertising can be offered in any member state.
Single market and economic concepts
1. EU Single Market is a “positive sum game” for member states if trade and competition enhances productivity and reduces costs and prices
2. Lower prices should boost consumers’ real living standards and an increase in competition will lead to improved allocative efficiency / less X inefficiency
3. The size of EU single market allows businesses to exploit economies of scale and scope leading to improvements in productive efficiency.
4. Economic and social costs and benefits from a freer movement of labour
5. Competition should lead to a degree of price convergence between countries – but there will always be price variations within EU for the same products!
6. Encourages cross-border technological alliances – a boost to dynamic efficiency?
7. Strong internal EU economy may be less vulnerable to global external shocks?
Foreign direct investment (FDI) – both within the EU and into/out of EU
Consider the main motivations for foreign direct investment
• Resource seeking – where a business seeks specific resources which are unavailable in the home country
• Efficiency seeking – e.g. businesses seeking to benefit from a more productive workforce, lower wages or from the external economies of scale available in a region.
• Market seeking – e.g. investment to take commercial advantage of growing demand in faster-growing emerging market countries
Vertical FDI is where a company separates / outsources production across a number of locations depending on where unit costs are lowest. For example, Nokia produces mobile phone components and batteries in Hungary and assembles phones in Germany and Finland, where it also has research and development facilities.
Horizontal FDI is where a company locates the same production process in a number of different locations, for example car manufacturers which invest in several European countries.
(Source: Tutor2u)
The Single Market - How it works and what it offers
The Single Market
1. Increased prosperity: over the last 15 years the Single Market has increased the EU's prosperity by 2.15% of GDP. In 2006 alone this meant an overall increase of EUR 240 billion - or EUR 518 for every EU citizen - compared to a situation without the Single Market.
2. More jobs: 2.75 million extra jobs have been created over the period 1992-2006 as a result of the Single Market.
3. Easier to travel and shop: EU citizens can travel across most of the EU without carrying a passport and without being stopped for checks at borders. Shoppers have full consumer rights when shopping outside their country and there are no limits on what they can buy and take with them for personal use.
4. More opportunities to live, work and study abroad: more than 15 million EU citizens have moved to other EU countries to work or to enjoy their retirement, benefiting from the transferability of social benefit, while 1.5 million young people have completed part of their studies in another Member State with the help of the Erasmus programme.
5. Wider choice of products and services: 73% of EU citizens think the Single Market has contributed positively to the range of products on offer, while the establishment of common standards has led to safer and environmentally friendlier products, such as food, cars and medicines.
6. Lower prices: the opening up of national markets and the resultant increase in competition has driven down prices of, for example, internet access, air travel and telephone calls (the latter having been reduced on average by 40% over the period 2000-2006).
7. Less red tape: rather than adding to red tape, Single Market rules often replace a large number of complex and different national laws with a single framework, reducing bureaucracy for citizens, and compliance costs for businesses, who pass those savings on to consumers. It has also become easier to start or buy a business: the average cost for setting up a new company in the former EU-15 has fallen from EUR 813 in 2002 to EUR 554 in 2007, and the time needed to register a company administratively was reduced from 24 days in 2002 to about 12 days today. But more progress is needed.
8. Huge potential market: any business in the EU automatically has close to 500 million potential customers on its doorstep. This allows larger businesses to benefit from enormous economies of scale, while new markets have been opened up to small- and medium-sized businesses which previously would have been dissuaded from exporting by the cost and hassle.
9. Much easier to do business: trade within the EU has risen by 30% since 1992. The absence of border bureaucracy has cut delivery times and reduced costs. Before the frontiers came down, the tax system alone required 60 million customs clearance documents annually: these are no longer needed.
10. Better value for taxpayers: as a result of more open and competitive public procurement rules, governments have more money to spend on priorities such as health and education. For example, the price of railway rolling stock has dropped, with studies pointing at savings from 10% to 30%.
1. Increased prosperity: over the last 15 years the Single Market has increased the EU's prosperity by 2.15% of GDP. In 2006 alone this meant an overall increase of EUR 240 billion - or EUR 518 for every EU citizen - compared to a situation without the Single Market.
2. More jobs: 2.75 million extra jobs have been created over the period 1992-2006 as a result of the Single Market.
3. Easier to travel and shop: EU citizens can travel across most of the EU without carrying a passport and without being stopped for checks at borders. Shoppers have full consumer rights when shopping outside their country and there are no limits on what they can buy and take with them for personal use.
4. More opportunities to live, work and study abroad: more than 15 million EU citizens have moved to other EU countries to work or to enjoy their retirement, benefiting from the transferability of social benefit, while 1.5 million young people have completed part of their studies in another Member State with the help of the Erasmus programme.
5. Wider choice of products and services: 73% of EU citizens think the Single Market has contributed positively to the range of products on offer, while the establishment of common standards has led to safer and environmentally friendlier products, such as food, cars and medicines.
6. Lower prices: the opening up of national markets and the resultant increase in competition has driven down prices of, for example, internet access, air travel and telephone calls (the latter having been reduced on average by 40% over the period 2000-2006).
7. Less red tape: rather than adding to red tape, Single Market rules often replace a large number of complex and different national laws with a single framework, reducing bureaucracy for citizens, and compliance costs for businesses, who pass those savings on to consumers. It has also become easier to start or buy a business: the average cost for setting up a new company in the former EU-15 has fallen from EUR 813 in 2002 to EUR 554 in 2007, and the time needed to register a company administratively was reduced from 24 days in 2002 to about 12 days today. But more progress is needed.
8. Huge potential market: any business in the EU automatically has close to 500 million potential customers on its doorstep. This allows larger businesses to benefit from enormous economies of scale, while new markets have been opened up to small- and medium-sized businesses which previously would have been dissuaded from exporting by the cost and hassle.
9. Much easier to do business: trade within the EU has risen by 30% since 1992. The absence of border bureaucracy has cut delivery times and reduced costs. Before the frontiers came down, the tax system alone required 60 million customs clearance documents annually: these are no longer needed.
10. Better value for taxpayers: as a result of more open and competitive public procurement rules, governments have more money to spend on priorities such as health and education. For example, the price of railway rolling stock has dropped, with studies pointing at savings from 10% to 30%.
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