EU trade – what the CBI doesn't tell us.

EU trade – what the CBI doesn't tell us.

by Bill Jamieson
article from Tuesday 11, November, 2014

ANOTHER CBI annual conference, and another set of signals, direct and covert: ‘don’t rock the boat on the EU’; ‘Britain benefits from the EU single market’; ‘EU trade would be hit if we left the EU’. Indeed, it is the Single Market argument that is constantly advanced as the main, if not the exclusive benefit, of our continued EU membership.  

No-one doubts the value of trade.  And everyone wants to see British companies sell more into the EU. But there is much that the CBI isn’t telling us in these admonitions: two items in particular. And these we need to know and understand: our current trade balance with the EU; and the hidden costs and taxes on UK trade with the EU. 

Let’s start with a striking feature of our trading relationship with the EU. It is so large and so permanent that it has long since ceased to be a “story” but a permanent part of our global trade furniture: Britain’s colossal and persistent trade deficit with ‘Europe’

The latest data are a case in point. Figures released last week showed the UK’s trade deficit in goods and services totalled £2.8 billion, sharply up on the £1.8 billion deficit in August. Within this total, the UK recorded goods deficits with EU and non-EU countries of £5.8bn and £4.0bn respectively. Put another way, the geographic region to which the CBI accords greatest importance is the one where we have the largest deficit. 

Now it is certainly true that weak demand in the Euro-zone has hit UK exports this year. Our goods exports to the Eurozone showed an 11.1 per cent year-on-year contraction in the third quarter. But we have been running a chronically large deficit in goods trade with the EU for years. And it has been rising steadily. In 2011 our goods trade deficit for that year was £40.4 billion. In 2012 it totalled £56.4 billion. In 2013 it hit £66.4 billion. By contrast our trade deficit with non-EU countries has been falling – from £56 billion in 2011 to £43 billion last year. 

It’s worth bearing this basic point in mind when the CBI warns of the hugely damaging disruption caused to our EU trade were the UK to leave. The fact is that other EU members would be more anxious to maintain UK/EU trade as they would have considerably more to lose. Companies based in the rest of the EU would lose no time in retaining the UK as an export market pafter any EU exit because it is so evidently in their interest to do so.

And of course, the UK would become one of well over a hundred non-EU countries that have always exported to the EU.  As the think tank Global Britain points out, “The United States – not in the EU, with zero MEPs, zero Commissioners and zero votes in the Council of Ministers – exports almost as much to the Eurozone as the UK does”.

Now consider the second item the CBI rarely mentions: the hidden cost of exporting to the EU market. Here I am indebted to Global Britain and its veteran researcher Ian Milne who has been keeping vigilant watch over these statistics for many years.

Supporters of EU membership assert that the UK needs to be in the EU to “get access” to the Single Market.  But this access, he points out, comes at a cost – one not borne by non-EU countries such as the USA, China, Japan and South Korea. And it is a cost that handicaps British exporters.

Global Britain has kept tabs on numerous cost-benefit analyses (CBAs) between 2000 and 2013 of the net cost to the UK economy of EU membership. A conservative estimate from these indicates a net cost to the UK economy arising from EU membership of around ten per cent of UK GDP every year. With UK GDP at £1,562 billion in 2012, that gives a cost figure of £156 billion for EU membership in that year alone.    

Now compare this to the value of UK goods exports to the EU in that year. This came to £150 billion. Writes Ian Milne, “Following through the inexorable logic of the assertion that the UK is in the EU to ‘get access to the Single Market,  one pound sterling’s worth of UK goods exports to the EU involves a cost (borne by the UK economy as a whole) of £1.04. In effect, every pound sterling’s worth of goods exports to the EU bears a hidden ad valorem ‘export tariff’ of one hundred and four per cent.” 

Even if exports of services and receipts of income are added, taking the overall export figure to £269 billion, the £156 billion access cost set against this would give an ad valorem  ‘export tariff’  of fifty-eight per cent.

When the totals are added up over the years, the figures are mind-boggling. In just the thirteen years  1997–2009  inclusive, the cumulated UK current account deficit with EU-26  (trade  deficit  plus  the  net  budgetary  contribution  to  ‘Brussels’) was £218 billion.  

Since 2000 at least eight authoritative Cost-Benefit Analyses of EU membership have been undertaken – in the UK, France, Switzerland & the USA.  None has concluded that the benefits of EU membership outweigh the costs.  Most conclude that the net costs of EU membership are significant, ranging  from  a  “rock bottom”  four per cent  of  GDP to more than 10 per cent. 

In October 2005 former chancellor Gordon Brown published a Treasury paper under his own signature, titled Global Europe, Full Employment Europe.  His estimates of the costs of EU membership were as follows:

EU Protectionism     7% of GDP 

Competition gap with US  12% of GDP 

EU Over-regulation    6% of GDP 

Transatlantic barriers to trade    3% of GDP  

Together, these add up to 28 per cent of GDP.  Writes Milne, “Brown did not say whether there might be some degree of overlap in those four categories.  But even if the total of 28 per cent were to be divided by, say, four,  to eliminate the effects – if any – of overlap, that still puts the annual cost of EU membership at seven per cent of GDP, or £98 billion at 2009 prices. 

“These Cost-Benefit Analyses suggest not only that EU membership imposes annual net costs of upwards of 4 per cent of GDP on the economies of EU member countries, but that percentages in double figures are perfectly plausible.”

Full details of Milne’s research are available at www.globalbritain.gov.uk on the home page and in archives. They merit particular attention as Brussels and the pro-EU lobbies go into overdrive in the approach to the election next May. 

  

 

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