The ‘goods-only’ model of Single Market membership should be a non-starter

The ‘goods-only’ model of Single Market membership should be a non-starter

What’s wrong with staying in the EU’s Single Market? For proponents of continued membership of it, the Government’s position – stated explicitly since October 2016 that the UK would not pursue it – has been the source of much frustration.

For unreconciled Remainers, it would keep the UK integrated enough with the EU to maintain hope of an early re-accession (Brentry?); and for businesses which have invested heavily in compliance with EU rules and optimised their processes, it would lock in a status quo that benefits them, at least in the short term.  

There are also Leave supporters who support this kind of model: they see it as a way of managing the process of leaving the EU in a low-impact way, either by eventually graduating out of the European Economic Area (EEA) after we have re-built systems and capacity, or reforming the way it works from within.

But these approaches rest on highly-flawed assumptions, including that free movement of people could be controlled from within the EEA by deploying safeguard mechanisms that Liechtenstein is allowed to operate; that EFTA EEA states can opt out of Single Market regulations they don’t like (they can’t, unless they want to lose their market access, which would defeat the object of being in the EEA); and that most Single Market regulation and standard setting is agreed at a global level anyway so we would be involved in developing it in global fora and not a rule-taker at all (which, if that were the case, begs the question as to why we would need to be in the EEA); and that the EU, and the other EFTA EEA, states will be happy to re-balance and renegotiate the deal to accommodate us.

A variant on the Single Market proposition that seems to be gaining popularity is a ‘goods only’ model. This is positioned as striking a balance that would allow the UK’s manufacturers to maintain frictionless access to the EU market, while giving more freedom in services regulation. Its supporters accept that it would mean we would not be able to do meaningful free trade deals on goods (especially if joined to a customs union). They argue that as over 70% of our GDP is in services, we should continue Single Market goods regulations, even without a democratic voice in their production and no matter how burdensome they are to business and UK consumers, and try to do trade deals on services.

But this neglects two important points. The most obvious is that no country will grant meaningful concessions in respect of its services market – which is the hardest area of trade to progress – without gaining something in return on goods. Secondly, services form the majority of the economies of all developed countries, but that doesn’t mean that they are not highly interested in goods trade. The UK is the fourth biggest importer of goods in the world and in the top 10 goods exporters: to suggest we have no significant interest in liberalising trade in goods is absurd.

At the root of these proposals (putting aside the political angle of staying as close to the EU as possible) lies a fear of losing trade and market access due to barriers that would emerge between the UK and the EU. These barriers are partly border barriers, like sanitary and standards checks at border crossings (which leads the argument from the perspective for the Irish border), and partly regulatory matters that could keep goods out of the EU market altogether, like authorisations for pharmaceuticals and chemicals.

In all cases, mitigations are available, through technology and facilitations at the border (widely used at all customs borders including between EU member states and the rest of the world), and regulatory recognition and cooperation agreements. But fundamentally, the argument for leaving the Single Market comes down to this: the costs that could result from border barriers and regulatory differences are outweighed significantly by the gains to be made, not just by opening up global trade outside of the Customs Union, but from reforming our own laws and regulations.

In any event, it’s not clear why the EU would agree to this cherry-picking – the indivisibility of the four freedoms has been expressed in the EU’s negotiating documents from the outset. It is possible that the EU might be persuaded that the benefits for their businesses in having continued frictionless trade with the EU – and of heading off the possibility of the UK becoming more competitive – will outweigh the strategic consideration of Single Market integrity; but that in itself should tell us exactly why this model is, potentially, the worst of all for the UK.