Continued membership of the EU internal market would have a deleterious effect on the UK’s ability to trade with non-EU countries and on our ability to forge trade agreements with them. It is true that the effect would not be as damaging as customs union membership, which would kill off trade agreements and an independent trade policy altogether. Nonetheless, the effect would be wide-ranging and damaging.
As has already been explained, the EU Single Market is an “internal market” whose rules are intended to regulate the sale of all goods and services on the domestic markets of the states who are parties to it, not just trade between the Member States.
This means that, as a general rule, states are not allowed to exempt goods imported from outside the Single Market from the Single Market rules. A graphic illustration of this principle was provided in Case C-l00/96 R v. Ministry of Agriculture, Fisheries and Food, ex parte British Agrochemicals Association Ltd  ECR I-1521. The Ministry of Agriculture (MAFF) had a policy of granting licences to permit the importation of pesticides into the UK from non-member states which were identical to, and made by the same companies as, pesticides placed on the market and licensed in the UK under the EC Directive on Plant Protection Products.
However, the ECJ ruled that MAFF’s permissive policy regarding international trade was not allowed. It ruled that the Directive, as a Single Market rule, did not allow a Member State to permit anything to be put on its market which had not been authorised within the EC under the Directive. The fact that these pesticides were actually identical to those licensed under the Directive and there was no objective reason whatsoever to keep them off the UK market did not sway the ECJ, which brushed aside an objection by the UK government that banning the importation of such pesticides from non-Member countries would breach the WTO Agreement on Technical Barriers to Trade.
This principle applies equally in other areas of single market rules: e.g. medicines, which the ECJ specifically mentioned in its BAA judgment. If the UK were to stay in the Single Market, we would still be subject to these restrictions. We would be prohibited from importing goods which did not comply with EU rules, not merely as regards requirements of substance but (as illustrated in the above case) requirements as regards form and procedures. In the BAA case, the pesticides in substance complied with the rules but had not received a stamp of approval from the right internal EU body. It would not be an option, therefore, for the UK to negotiate a trade agreement with a non-member state under which we agreed to accept their regulatory standards as sufficient for access to our market: we would be compelled to insist on the continued application with its full rigour and inflexibility of all the EU rules (and future rules as well, as pointed out in 5.3).
The application of this principle would be even more wide-ranging and damaging in the services sector. For example, we could not enter into a mutual recognition agreement with a non-Member State under which we agreed that its rules on insurance companies were sufficient to protect customers in the UK, in return for UK insurers getting corresponding access to their market. We would still be compelled to apply the EU Single Market rules and would be completely unable to allow any departure, however sensible, in aid of our international trading interests.
We would also continue to be bound by the EU Single Market rules on the use of trade marks and other intellectual property rights to prevent entry of genuine goods from outside the Single Market area. (See 5.2 above) One of the major benefits of exiting from the EU is to gain access to goods at world market prices rather than at inflated prices within the EU’s protected single market, and we would be denied this huge benefit.
- Can we stay in the EEA without agreement?
A number of commentators and some politicians have suggested that the UK has a choice about whether or not we remain within the EEA after we leave the EU on 29 March 2019: in other words, we can choose to stay in the EEA if we like without needing the EU to agree to it. This suggestion is based on the idea that the UK is a party to the EEA Agreement and by simply not giving notice to terminate our membership of it, we would automatically remain within the EEA (and therefore within the Single Market) from 30 March 2019 onwards.