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What is the EU Internal Market?

The term ‘internal market’ (or 'single market') is used widely in discussions about the European Union - and now about the United Kingdom after Brexit. It does not have a precise meaning and can be interpreted in different ways.

Essentially, it is about eliminating obstacles to the free movement of goods, services and people across a given territory, whether that be a single country or a free trade area like the European Union. Eliminating tariffs and quotas (restrictions on the amount of trade) is relatively straightforward. What is more difficult is removing ‘non-tariff barriers’. These include regulations on matters such as food standards or safety standards for goods. They may also include rules about the environment or working conditions. So, for example, if one country imposes strict environmental standards on its own producers, competitors elsewhere might be able to produce more cheaply and so gain an advantage. 

This might be dealt with in two ways. The first is by imposing common standards and regulations across the whole free trade area, so that nobody is at a disadvantage. The second is by mutual recognition, so that, if a product meets the standards of one country, it is automatically allowed to be sold in the others. The European Union uses both approaches.

The greatest difficulty lies in deciding which goods and services should be subject to internal market rules. Some matters are considered to be ‘public services’, which should not be subject to market competition. These could include education and, in European countries, health. Differing rules to protect working conditions might also be allowed, even if they do raise the cost of production. Environmental rules similarly might be considered to beyond the market. This is not a technical matter but a matter of political judgement. The European Internal Market permits numerous exceptions, allowing national governments to protect public services, the environment, public health and cultural heritage among other matters.

So there is a balance between ‘harmonization’ of regulations in the interests of free competition and the right of governments to impose regulations to protect health, the environment, working conditions or other public policy objectives. In the European Union, the balance is maintained using two principles. The first is that of ‘subsidiarity’, that rules must be set at the lowest possible level and only at the European level if strictly necessary. The second is proportionality, that they must be more detailed than is strictly necessary. Even with these safeguards, however, internal market rules have sometimes been politically contentious.