Joining a common (or single) market is perhaps the most significant step a national economy can take towards integrating with its neighbors.
A single market may be defined as a formal arrangement between sovereign nations to allow members free access to each other's markets. Free access relates to the unrestricted movement of goods and services, as well as the free movement of labour and real and intellectual capital.
The European single market, also called the ‘internal market’, is the most well-known and significant of the world's existing single markets. Other examples of single markets include the 12 Caribbean nations that make up CARICOM, and the 10 members of the ASEAN Economic Community (AEC). (ASEAN stands for the Association of South East Asian Nations, and was founded in 1967).
The AEC, which is now called the "AEC 2015" comprises the original 6 major nations - Indonesia, Thailand, the Philippines, Malaysia, Singapore and Vietnam - along with Brunei, Laos, Myanmar, and Cambodia.
While no two single markets are the same, the common denominator is the desire to create a market in which members can trade freely with each other by having tariff-free and open access to each other’s national markets. This means, in theory, gaining the benefits of free trade, such as lower prices, higher quality products, increased competition, and factor mobility.
Single markets typically evolve slowly, often involving just a few countries, and then enlarging as neighbouring countries see the benefits of joining and the costs of not joining.
The formation and enlargement of a single market usually involves highly complex negotiations, the degree of complexity depending upon the number of members and their level of development. Less developed economies may have a smaller range of goods and services as well as under-developed capital and credit markets, compared with, for example, the European single market. In Europe, the single market for goods was largely completed by 1992, whereas the single market for services still does not exist.
For a common market to be successful it is recognised that there must also be a significant level of harmonisation of micro-economic policies, and common rules regarding product standards, monopoly power and other anti-competitive practices. There may also be common policies affecting key industries, such as the European Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP).
It is possible for a member of a single market to agree to the free movement of economic resources between itself and other members, while not sharing common customs duties on imported goods from outside. This is the case with Norway, which is a member of the single market but not the European customs union. However, this imposes significant constraints on Norway.
Firstly, Norwegian producers who export to other single market members must prove that the goods originated in Norway, through the ‘rules of origin’ requirements. In other words, Norway cannot be a bridgehead for non-EU producers looking to avoid EU tariffs. Secondly, access to the single market means allowing the free movement of people, which may create issues of integration as well a suppress Norwegian wages. Finally, Norway must contribute to various programmes and schemes, and make grants to various organisations, as a result of its open access to the single market.
Joining a single market enables members to gain the benefits of free trade between themselves, including: