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Internal Market

2. Barriers to trade

In economic theory, a “free-trade area” is when two or more member countries remove tariffs and quotas, allowing goods to be bought and sold freely between them. Extending a free-trade area to a customs union means that all members of the area apply the same tariffs and common quotas to imports and exports involving countries outside the area.

A common market builds on these two stages by allowing free movement of goods, services, people and capital between all members. But while it is a relatively simple process to remove tariffs and quotas in respect to commodities and basic goods, there are a host of non-tariff barriers which make it harder to trade manufactured products, and even more difficult to sell services across borders.

For example, safety regulations, testing requirements and differing standard sizes may make it difficult for a manufacturer of washing machines in Italy to sell its goods in, say, Germany, Scandinavia and Spain.

Some barriers are the result of convention, such as the need for car-makers to supply right-hand drive vehicles for the UK and Ireland and left-hand drive cars for the rest of the EU. Some barriers remain in place more for protectionist reasons: governments are pressured by industry interest groups or labour unions not to remove barriers for fear that opening the market to competition will disadvantage them.

Efforts to achieve the EU’s single market have been varied across the four freedoms. Progress has perhaps been most visible in respect to movement of goods, with the huge harmonisation programme, between 1986 and 1992, aimed at completing the market.

The Single European Act (of 1986) introduced the widespread use of qualified majority voting in decision-making. It was enacted to speed up progress and avoid one or two member states blocking progress in harmonisation. Whilst this program had notable success, there are still some barriers blocking movement of goods and many more hindering trade in other areas.

With the Lisbon strategy – to make the EU the world’s most competitive economy – struggling, influential commentators have stressed the need to complete the internal market in order to give the Union’s economy a boost. But the political will to introduce the necessary changes has been weak because of the perceived negative impact on employment. Indeed, the likely results of further ‘liberalisation’ were one of the main arguments employed by the ‘no’ campaigns in the 2005 French and Dutch referendums on the EU Constitutional Treaty.