Explainer: What is the single market and why does it matter to Britain?

Source: AAP

For the first time in more than 40 years, leaders of the European Union met without British representation on Wednesday. They agreed the country must accept the free movement of people and services if it wanted single market access. But, what does this all mean, particularly once Britain leaves the EU?

Britain's decision to leave the European Union last week was the catalyst for the country's no-show at a meeting of the 27 remaining countries, in Brussels, on Wednesday.

The bloc who attended the meeting agreed that Britain must accept the free movement of people and services if it wanted single market access.

We explain what that means.

What is the single market?

Single market access is the free movement of goods and services, and of capital and labour within the European Union (EU).

Putting it simply, the aim of the EU is to make it easy for trade between EU member states.

The creation of this single market, also known as the internal market, lies at the heart of the EU project.

Professor of Economics at the University of Newcastle, Bill Mitchell, explains.

"It's an agreement between all of the EU countries, the member states, to not have any tariffs between each other in terms of trade," he told SBS.

"Whereas the European Union has tariffs against Australia and America, it has no tariffs [on member countries], France and Germany don't have tariffs between each other.

"In other words, goods that are sold from France, for example, into Germany are sold at whatever the cost of production is, rather than any additional price hikes to discourage German consumers buying French products, and vice versa."

Director of the International Economy Program at the Lowy Institute, Leon Berkelmans, said financial freedom was also crucial.

"Once a financial institution is set up in London that gives them all sorts of freedoms to operate in other countries, freedoms that our financial institutions don't have," he said.

"This is really important for the city of London - banks and financial institutions are a big, important part of the city of London, and it's important for them to be able to operate in the EU."

What does it mean for Britain leaving the EU?

It should be explained that the single market also includes the free movement of people within EU member states.

Mr Mitchell said the freedom of movement into Britain was critical in the country's decision to leave the EU.

"Britain is a very attractive country for poorer European residents to go to," he said.

"They can learn English, [have access to] good welfare systems and good hospital systems. So for Britain, what it means ostensibly is they can now block free movement of people.

"But more over, they can block trade of goods and services coming into Britain. But equally now the remaining European states can then impose tariffs or import controls on British goods and services."

What it also means is that Britain will now have to negotiate bilaterally, country by country, trade agreements to work out what will be the extent of the freedoms they might enjoy in the future.

Mr Berkelmans told SBS the repercussions of Britain leaving the EU, in terms of single market access, was dependent on the alternative.

He said the impact upon Britain would be significant and the country would lose its say on agreements.

"If we're talking about the EU and the US, at the moment, [it's] negotiating basically a free trade agreement," he said.

"But, it's much broader than that, those rules that are in that free trade agreement will serve as a template for further free trade agreements, there will be precedents set. These are a very important set of rules that will be set and the UK if they step outside the of EU will have absolutely no say."

What happens next for Britain?

European Union leaders have agreed Britain must accept freedom of movement if it wants single market access following its exit from the EU.

The 27 leaders agreed that there would be no negotiations on future trade relations until the UK officially triggered the EU treaty's exit clause.

Mr Mitchell said the priority for Britain now was to reduce the uncertainty about the future.

"They make it very clear that they are going to ratify the referendum and they're going to trigger the process by calling on the EU to trigger Article 50," he said.

"And I think that is in their interests to do that absolutely as soon as possible, to at least give people the road map that 'we're starting, and this is where we're heading'," he said.

Source SBS News

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