Saturday 25 June 2011

"But we signed up to a free trade area!"

More and more I see the argument that the EU should be turned into a free trade area, and I thought I should try to create a short reply.

"But we signed up to a free trade area!"

This is also argued with "common market", with it clear that a free trade area (like NAFTA, for example) is meant. But there's a big difference between a free trade area and a common market (a.k.a "single/internal market").

A free trade area simply reduces tariffs and import quotas between countries - this was the aim of the European Free Trade Area,* which the UK helped found in opposition to the EEC, and then left to join the EEC. FTAs don't cover the free movement of goods, people and services that a common market consists of.

The issue with free trade areas that they only reduce tariffs between members, so members can have different tariffs with third countries. This means that some goods might try to get into the free trade area via FTA country A (which has lower external tariffs) before moving on to country B (which has high external tariffs). This lack of control means that some countries prefer a customs union, which is like a FTA but with common external tariffs.

A common market is much more than a FTA because it not only deals with tariffs and import quotas, but also deals with the free movement of goods, services, establishment (freedom to set up businesses throughout the common market), capital and people. This requires some restrictions on the law-making of member states (they can't legislate for import quotas, discriminate against goods from outside the country with different tax rates, etc.), and requires common law making so goods, etc., can move freely without being blocked by different technical standards. This common law making and standards means that there would need to be a common court and law-making institutions in any case. That's why the EU needs to have institutions, but NAFTA doesn't.

Leaving a common market means that a country and its citizens would loose free movement rights. While it's true that there will still be trade between the EU and ex-members (the EU has FTA agreements with Chile, Mexico, South Africa, etc., so I don't see why an ex-member wouldn't get one as well), without common laws, the ex-member would move away from the common standards of the common market, and more and more non-tariff barriers would block trade. Citizens of the ex-member country would also loose their free movement rights.

Having a common market also means that there needs to be a common trade policy with third countries, and the free movement of persons creates pressure for there to beco-operation and common rules on cross-border crime, but foreign affairs and justice and home affairs are other debates.

Since the EEC was aimed at creating an common market, joining countries never signed up for a free trade area.

*Confusingly, the EFTA is now a single market because its member countries are linked up to the EU's single market via the European Economic Area (or via 120 bilateral agreements in the case of Switzerland).


  1. This is all very well but misses the fundamental point that the electorate had no say in these developments; that have got to the stage where most of our laws come from the EU and are rubber stamped by our parliament. When people in Arab countries are fighting to the death to have democracy, and we are supporting them, it is iroic that our democracy is being eroded constantly.

  2. First of all, most laws do not come from Brussels. I assume you're refering to the 75% myth that UKIP has spread. The 75% figure came from the last European Parliament president (Has-Gert Poettering) saying that the Parliament co-decided 75% of all laws that the EU makes. Nosemonkey has a good post on this.

    My point was that a common market requires common law-making institutions - and that this was in the EEC from the very start, and that the true free trade that the people who talk about a FTA Europe cannot take place without it.

    The EU is actually procedurally very democratic, but it has big weaknesses in its substance because the Europarties don't campaign on common platforms with candidates for the Commission (though the PES might do it for the 2014 election). On the other hand, a lot of the laws passed in Brussels are regulatory and would not actually be passed by national parliaments (an executive regulation [or a statutory instrument in the UK] would do the job instead), so in some aspects there is more democratic oversight. However, in general I agree that the EU could do much, much better on the democracy front.

  3. @gfkw47

    As Eurocentric said, Iceland, Liechtenstein and Norway have all seen the need for closer integration regarding the internal (single) market through the European Economic Area (EEA), as well as in other policy areas.

    Even if the EEC had not completed the customs union and common market when it started more than 50 years ago, these aims were part and parcel of the Treaty of Rome.

    Having one set of red tape beats having 30 different ones, I would suggest.

    The aim of "ever closer union" was enshrined in all the treaties, conspicuously enough to be noticed at a most cursory glance.

    It took a while before the USA got around to directly elected Senators, but I hope that Europe could institute a real parliamentary system of democracy sooner rather than later.

  4. "It took a while before the USA got around to directly elected Senators"

    Yes indeed and it was a calamitous decision, which upset the balance between the states and the central government, aiding the central government to encroach ever more into matters that were the responsibility of the state governments, and thus subvert the Constitution.

  5. I came to this blog after hearing an argument that even if the UK left the EU it would still have not be able to limit immigration while remaining in the free trade area. So I was trying to find out whether that's true, and what benefits are conferred by membership of the European Free Trade area.

    (At first - cards on the table - my own position supports unlimited EU immigration and UK's membership of the EU... just trying to find out.)

    On the benefits of being in a European Free Trade Area, I'm not clear after reading this article what benefits are derived from the EFTA which aren't in any case derived from GATT. The article talks about reducing tariffs and quotas... isn't that actually what GATT has done?

    About free movement, I'd appreciate opinion/gudance about what Members' options reality are. It did seem like a requirement until Switzerland held a referendum which opted-out of that part; and "the Club" apparently said "ah, okay". But I remember that Brits have always needed a work visa to take a position n Switzerland, and my understanding was that we had to have a relevant degree qualification.

    So apologies if my questions are a little off-topic, but I do feel like contributors to this page would have useful knowledge to impart. Thanks in advance for that.