Frictionless trade is different to free trade

Jon Danzig |

▪ 27 EU members are in its Single Market enjoying frictionless trade. Other countries, such as Norway and Switzerland, are not in the EU but are in the Single Market. Most European countries are in the Single Market or want to be.

Many people, including politicians and journalists, don’t understand the difference between ‘free trade’ and ‘frictionless trade’. This has caused a huge misunderstanding across the country, leading to the mess we are now in.

In summary, ‘free trade’ means that goods (sometimes only some goods) can be exported and imported between countries without tariffs – hence the phrase, ‘free trade’ or ‘tariff free’.

But those goods, even though tariff free, must still go through customs and are subject to checks, often causing many delays.

And even though it’s called ‘free trade’ there are other barriers as well as customs – such as regulations, restrictions, strict compliances and complicated documentation, which hold things up. (See the graphic for some examples).

‘Frictionless trade’ means that goods, as well as being tariff free, go through customs without any checks. In fact, it means that for trade between those countries, there aren’t any customs or borders.

Furthermore, with ‘frictionless trade’ there is a ‘level playing field’ between countries for the movement of goods – removing many of the barriers that exist with ‘free trade’ only.

That makes exports and imports between those countries super-efficient, leading to streamlined delivery of products, and of course, increased profits and more successful national economies.

But frictionless trade, although making international trade simpler and easier, is more difficult to establish than just free trade.

Frictionless trade can’t just be based on trust. If countries agree to flatten their borders, then those countries need to agree rules, terms and conditions. And they need to agree on a mutually acceptable court to intervene if those rules are breached.

That’s so the process of sending goods between each other is not abused, for example, to export substandard or dangerous goods, or exporting goods that are banned, to another country within the customs union.

Agreeing those rules is fiendishly complicated. But there’s more.

For frictionless trade to function most fully and most successfully, it needs what are called the ‘four freedoms’ – free movement of goods, services, capital and people.

These ‘four freedoms’ represent the cornerstones of the EU’s Single Market, helping the EU to become the world’s largest and most successful frictionless trading bloc.

Studies show that the EU’s gross domestic product (GDP) has grown by several percentage points thanks to the Single Market and its four freedoms. This is hardly surprising, when one considers that two-thirds of all goods produced in the EU are exported to another EU country.

To try and understand how the EU couldn’t fully function without all four freedoms, imagine how our own union of the United Kingdom also couldn’t fully function without these four freedoms.

Free movement of people, goods, services and capital between the three nations of England, Scotland, Wales and the province of Northern Ireland form the basis of our union of the United Kingdom.

It’s our single market. Just like the EU’s Single Market, it’s the glue that keeps us together.

Free movement of people, goods, services and capital work together. They cannot be separated without causing discord and disorder across our nation.

It’s the same with the EU. The EU functions as a cohesive single market of 27 countries – 31 if you include non-EU members Norway, Switzerland, Iceland and Liechtenstein that are also in the Single Market – just as the UK functions as a cohesive single market of four ‘nations’.

The EU Single Market is the glue that keeps European nations together. It has helped to maintain Europe as one of the world’s richest and most successful continents, with common standards, values and history.

The UK’s Single Market, and the EU’s Single Market, both represent significant achievements. They work.

But here’s one vital difference.

Frictionless trade between the four members of the UK is vital to our smooth functioning as a nation. But doing business with each other doesn’t make the UK significantly richer.

To do that, we need the UK to export our goods and services (and we export far more services than goods).

Doing frictionless trade with other EU countries made Britain richer. Easy exports and imports with the EU brought us prosperity.

Losing borderless, lowest-cost trade with our most important customers and suppliers right on our doorstop, makes Britain – and Britons – poorer.

Our frictionless exports to the rest of Europe brought us wealth. Yes, exports to countries outside the EU also bring us wealth. But we need BOTH. And ONLY in the EU did we have both.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  • Watch this 1-minute video – What the UK has lost:

  • Watch 1-minute video: Rishi Sunak supports the Single Market – but only for Northern Ireland

  • Watch this 3-minute video: 1988 When Britain LOVED the Single Market

  • Watch 4-minute video: Why Brexit is a colossal mistake, by Sir John Major, former British Prime Minister

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