Brexit and the EU single market: what are Britain’s trade options?

Brexit has raised key questions about how we can retain access to the EU single market.

Britain has voted to leave the European Union and now has the task of striking a trade deal; but what could this deal look like?

The next Conservative leader – whoever they may be – will no doubt have European trade agreements at the top of their to-do list when they enter Number 10.

European leaders have said they will not allow Britain to call the shots on trade and the future prime minister will have to work hard to negotiate the best deal that provides the best access to the European single market.

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What is the single market?

The single market is an area of free trade (in other words, countries within the European Union) where trade is not hampered by tariffs, quotas or taxes.

The single market not only allows the free movement of goods, services and capital but also people.

Single markets don’t like tariffs and barriers, so aim to remove them as well as creating overarching regulation on things packaging, chemical use and safety standards.

Can we stay in the single market?

Despite voting to leave the EU, Britain could remain in the European single market – but there will be strict stipulations for doing so.

European Council president Donald Tusk has said that Britain will not be allowed to pick and choose the parts of the EU it wants and if it wants to remain in the single market it must allow the ‘four freedoms’ of goods, services, capital and people.

With the free movement of people playing a key role in the Brexit vote, there is concern that remaining in the single market will be seen as a ‘betrayal’ of voters who voted Leave.

Conservative MP Liam Fox, who had thrown his hat in the ring for leadership but has since withdrawn, said: “If the price of the relationship with the single market is free movement of people, it’s a price I’m not willing to pay.

“I believe the British people have made their view very clear.”

However, it is unclear whether any Conservative leader will be able to renegotiate the four freedoms in Britain’s favour.

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How do other non-EU countries trade with the EU?

Not all countries within Europe are part of the EU of course, and some have drawn up separate agreements with the EU in order to do business.

There are two countries that trade in distinct ways, which Britain could emulate in order to retain the benefits of a single market without being fully part of it.

Norway

Norway has access to the single market but it has no votes on EU rules.

It has created a deal based on its membership of the European Economic Area (EEA), which provides it with access to the single market and trade without incurring customers fees.

Both Iceland and Liechtenstein are part of the EEA.

To be part of the EEA and benefit from access to the market, Norway implements EU laws that relate to the internal market, which means it has implemented around three-quarters of EU legislation.

The country also pays into the EU budget and is currently the 10th largest contributor, paying a 2012 levy of £245 million.

However, as we said Norway has no voting rights when it comes to European rule-making and has no representatives in EU institutions.

Switzerland

If we aren’t keen on the Norwegian deal, then maybe Switzerland’s more detached deal would suit us better?

It has 120 bilateral agreements with the EU on trade, which were put together after it declined membership to the EEA in 1992.

Under these agreements, Switzerland has to toe the line on EU law in areas that give it access to EU markets.

Like the Norwegians, the Swiss pay a levy to the EU and have no voting rights or say on law-making.

The one big difference between the Swiss and Norwegian deals that could affect Britain most is around services.

The Swiss deal does not cover the movement of services but the EEA deal does, which means that Britain’s large financial services would be unlikely to have access to the EU market should Britain choose a Swiss-style deal.

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How might we trade outside of the EU?

The EU’s single market allows trade between 28 countries, 500 million people and 20 million businesses – and movement of goods, services, capital and people.

The ‘passporting’ right also allow businesses, such as financial services companies with headquarters in London, to do business across all of the countries in the EU.

For financial services, it is important to keep the passporting rights intact and allow bankers to do business across Europe (some financial services companies have already said they are moving their headquarters out of London to Dublin, Ireland, which is still in the EU).

Trade unions and more liberal Brexiteers have called for Britain to join the EEA, like Norway, as this would ensure jobs are not lost.

The think-tank Adam Smith Institute has claimed joining the EEA would be the safest way in terms of trade to negotiate out of the EU.

However, the EEA option is not favoured by all. The Economists for Brexit group has said the EEA is a ‘one-size-fits-all regulatory regime’ that is not appropriate for Britain.

Instead, it wants to trade under World Trade Organisation rules and have a unilateral ban on import tariffs.

Economist Patrick Minford, who is part of the group, said it would bring down the cost of goods in Britain as the country could trade more cheaply across the entire world.

Joining the EEA would also hamper Britain’s ability to do its own trade deals outside of Europe as the country would still be entwined with EU regulation .