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Wednesday, 13 February 2013

Five Inconvenient Truths of the UK's Trade with the EU


Guest Blog


The UK's trade with the EU, which was in surplus before we joined in 1973, has been in deficit in all subsequent years but one. (Over the last six years, the UK's cumulative trade deficit with the EU was £190 billion, but it ran a £21 billion surplus with the rest of the world during the same period). It is also worth noting that over the period of UK membership in the EU as a whole, we have maintained a cumulative trade surplus with every continent in the world except Europe. 

Our membership of the EU ties our hands when we want to form coherent trade policy.  Far from advancing the UK's clout in the world economy, EU membership has eroded it. For example, when David Cameron proposed emergency trade preferences for Pakistan in September 2010 at an EU summit following catastrophic flooding, he ran into stiff opposition from France, Portugal and Italy. All of those countries were concerned that the proposal would threaten their textile manufacturing – not a concern of the UK. As a result, the trade preferences for Pakistan - which Cameron explicitly intended to be emergency trade preferences - took a full two years to get through the EU legislative process.

What follows are five of the most glaring reasons why belonging to the EU is contrary to the UK's interest as a global trading nation. I have called these the inconvenient truths.

1. The UK's trade with the outside world is already more important than its trade with the EU.
  • The UK's trade with non-EU countries is greater than 60% of its total trade and is increasing. This figure - unlike figures commonly circulated by the EU - takes into account the distortion of the Rotterdam effect, whereby UK exports sent on to non-EU countries via Continental ports are erroneously counted as exports to the EU.
  • A decade ago, the EU's share of global GDP was 25%, but by 2050 it is expected to fall to 15%. 
  • The US and Canada together account for nearly a third of the foreign direct investment (FDI) in the UK, while the UK is the largest foreign investor in the US.

2. The UK's financial payments to the EU are enormous.
  • In 2011, the net transfer from the UK to EU institutions was approximately £10 billion, with the gross transfer nearly £16 billion.
  • While only 13% of the UK's GDP is dependent on exports to companies and individuals in the EU, 100% of our GDP is subject to EU regulation.
  • It is estimated that cancelling the UK's membership of the EU but keeping its membership of the European Economic Area (EEA) will lead to a 70% reduction in regulations coming from outside the UK.
  • EU membership is now costing us roughly 10% of our GDP - £150 billion - each year.
3. The UK has no meaningful influence in the EU. The UK’s membership in the EU reduces our influence in the world.
  • Despite having the world's seventh-largest economy and over 60% of the EU's financial-services industry, the UK will have just 8.3% of the votes in the Council of Ministers when Croatia joins the EU next July.
  • Should the Conservatives, Lib Dems, Labour and the Greens have their way and Serbia, Macedonia, Montenegro, Iceland and Turkey become full members of the EU, the UK's vote will be diminished, the more so given the change to population-based voting in 2014.
  • Britain has influence in the world deriving from its membership of over 125 international organisations – for example the UK is a permanent member of the UN Security Council. The UK’s membership of the EU places at risk our position at the UN and elsewhere.
  • Upon joining the EU, we lost our seat at the World Trade Organization (WTO), whereas the former British colony of Hong Kong has its own seat at the WTO.
  • If the UK left the EU, we would regain our seat at the WTO and our ability to negotiate bilateral trade agreements.
4. EU legislation harms British trading interests.
  • The UK cannot negotiate trade treaties on its own behalf. Since 1975, the EU Trade Commissioner has negotiated all trade treaties involving the UK.
  • As an EU member, we are bound by the Common External Tariff and are often prevented from adopting more liberal positions on trade by the interests of subsidized producers elsewhere in the EU.
  • The Common Fisheries Policy has the effect that vessels from other EU member states are subsidised to comb UK waters and take our fish. 
  • The Common Agricultural Policy has inhibited Britain's ability to take advantage of the numerous opportunities in the emerging markets of developing nations.
5. The proposition that the UK’s exit from the EU would cause the UK’s trade with companies and individuals in EU member states to cease is ludicrous.
  • Tariffs are declining globally, and in 2010 the only goods entering the EU which carried rates higher than 5% were footwear and clothing. It is reasonable to assume that leaving the EU would not saddle the UK with heavy tariff barriers to the EU or any other world market.
  • The fact is that the UK is running a trade deficit with the EU countries amounting to £420 billion since 1973. Since the EU countries benefit from this trade, it will continue if we leave.
  • Norway and Switzerland - two countries that are not part of the EU - annually export 2.5 and 4.5 times as much per capita to the EU, respectively, as does the UK. 
With an exit from the EU, the UK would once again be able to negotiate bilateral free trade agreements on its own behalf with the dynamic economies outside the EU – a right it forfeited in 1973. While the EU's share of global GDP is declining from 20% now to a projected 15% in 2050, the rest of the world is growing economically: since 2010, UK exports to Brazil, Russia, and China have risen substantially, while the economies of the Commonwealth are expected to grow at an annual rate of 7.3% for the next five years.  In contrast, the UK’s membership in the EU has shackled it to a bureaucratic morass that is stifling our global economic competitiveness.

To take advantage of what is happening in the world outside the EU, especially in terms of economic growth, the UK must repatriate trade policy, as well as our national sovereignty, from EU control. Switzerland, which is outside the EU, has had a Trade Agreement with Japan since September 2009. The EU – which means the UK - has no such agreement. 

William (Lord) Dartmouth
South East Region MEP

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