The Remain campaign’s case for remaining in the European Union is based on the single market.
They argue that while the EU has its faults, and while we would like lower immigration, these things are the price we have to pay because the EU gives us the priceless asset of the single market. I am sure that the Prime Minister and lots of people across the country sincerely believe this. But is it correct?
The impression given is that the EU single market is a walled garden and that we and the other members have some special silver key that gives us privileged access to its delights that others cannot access.
But this is wrong. Every developed country has access to the single market. The EU has a relatively low external tariff with the exception of certain goods such as agriculture. The inconvenient truth is that non-members of the EU have often exploited the single market far more successfully than we have.
A fascinating book on this subject has been written by Michael Burrage, a former academic at the LSE and Harvard and a visiting professor at several Japanese universities. He is not, in short the sort of person, that even the Chancellor could call “economically illiterate”. The Myth and Paradox of the Single Market is packed full of statistics and graphs. While the OECD, the IMF, the Treasury and others have tried on the basis of various economic models and assumptions to predict the future – always impossible – Burrage looks at the past, what has actually happened and the known facts.
These statistics refer to goods. What about services? It is services that, after all, are the UK’s strength, and many authorities consider that the future in trade belongs to services. The EU likes to measure the degree of integration in services within the single market by looking at services trade as a percentage of GDP. Unfortunately, that preferred measure shows that the degree of integration within the EU is extremely low and has been falling, despite all the calls from British prime ministers for “the completion of the single market in services”.
Revealingly, from 2002 to 2012, the EU’s exports of services – that is from the EU to outside the EU – have grown faster than their exports to each other within the EU. These surprising conclusions call into question whether there is any such thing as a single market in services. When one looks at the growth rate of services exports of 20 EU member countries to other EU members, with the exports of 19 non-member countries to the EU, there is no significant difference.
Of course, these agreements included the EU, which has a GDP of $16.7 trillion but, even so, the scale of trade agreements negotiated by these countries vastly exceeds those of the EU. There is a very simple reason for this. The EU is a cumbersome, slow negotiator because it has to take into account the interests of 28 different countries. Moreover, most of the agreements of these independent countries cover services, whereas only two thirds of the EU’s trade agreements do so. The EU has opened services markets of nearly $5 trillion to UK exporters, whereas the Swiss have opened services markets worth $35 trillion.
The importance of trade deals can be exaggerated. Countries primarily succeed with or without trade deals if they produce goods of high quality and services that other countries want to purchase. In the modern world, tariffs between developed countries are low and are small compared with movements in exchange rates. The flawed myth of the single market is that is that it is seriously advantageous to its members. The paradox is that non-members have managed to benefit from it more than members.
There may be arguments for remaining in the EU but they do not revolve around the single market. On trade we have nothing to fear but fear itself. Which is exactly what the Remain campaign has been attempting to stir up.
Lord Lamont of Lerwick was Chancellor of the Exchequer 1990-93
http://www.telegraph.co.uk/news/2016/06/13/not-only-can-britain-can-leave-the-eu-and-have-access-to-the-sin/
They argue that while the EU has its faults, and while we would like lower immigration, these things are the price we have to pay because the EU gives us the priceless asset of the single market. I am sure that the Prime Minister and lots of people across the country sincerely believe this. But is it correct?
The impression given is that the EU single market is a walled garden and that we and the other members have some special silver key that gives us privileged access to its delights that others cannot access.
But this is wrong. Every developed country has access to the single market. The EU has a relatively low external tariff with the exception of certain goods such as agriculture. The inconvenient truth is that non-members of the EU have often exploited the single market far more successfully than we have.
A fascinating book on this subject has been written by Michael Burrage, a former academic at the LSE and Harvard and a visiting professor at several Japanese universities. He is not, in short the sort of person, that even the Chancellor could call “economically illiterate”. The Myth and Paradox of the Single Market is packed full of statistics and graphs. While the OECD, the IMF, the Treasury and others have tried on the basis of various economic models and assumptions to predict the future – always impossible – Burrage looks at the past, what has actually happened and the known facts.
His conclusions are counter-intuitive. First, the UK’s exports have grown least during the period of the single market while those of non-EU countries have benefited the most. The US exports more to the EU than we do and its exports have increased at a much faster rate than ours recently. Switzerland exports per capita five times more to the EU than we do. Even more surprisingly, the non-EU members that have no particular trade agreements with the EU such as Australia, Japan and the US, have benefited from the single market more than those like Switzerland, Norway and Iceland, who have negotiated special trade agreements.
Why might this be? One reason is that the single market is open to all advanced economies, in exchange for paying a relatively modest tariff of 3 to 4 per cent, something that evidently does not stop non-EU countries from selling within it. The EU also has the power to determine “standards and rules” within the single market, something sometimes said to amount to a “hidden protection” for the EU’s domestic industries, but which has not, in fact, been much of a deterrent to those selling from outside the EU.
Why might this be? One reason is that the single market is open to all advanced economies, in exchange for paying a relatively modest tariff of 3 to 4 per cent, something that evidently does not stop non-EU countries from selling within it. The EU also has the power to determine “standards and rules” within the single market, something sometimes said to amount to a “hidden protection” for the EU’s domestic industries, but which has not, in fact, been much of a deterrent to those selling from outside the EU.
These statistics refer to goods. What about services? It is services that, after all, are the UK’s strength, and many authorities consider that the future in trade belongs to services. The EU likes to measure the degree of integration in services within the single market by looking at services trade as a percentage of GDP. Unfortunately, that preferred measure shows that the degree of integration within the EU is extremely low and has been falling, despite all the calls from British prime ministers for “the completion of the single market in services”.
Revealingly, from 2002 to 2012, the EU’s exports of services – that is from the EU to outside the EU – have grown faster than their exports to each other within the EU. These surprising conclusions call into question whether there is any such thing as a single market in services. When one looks at the growth rate of services exports of 20 EU member countries to other EU members, with the exports of 19 non-member countries to the EU, there is no significant difference.
The CBI claims that giving responsibility for negotiating trade agreements to the EU has benefited UK exports. This, too, is doubtful. In January 2014, the EU had trade agreements in force with 55 countries whose aggregate GDP was $7.7 trillion. By way of comparison, the aggregate GDP of all the countries with which Switzerland had agreements in force was $39.8 trillion; Singapore had agreements of $38.7 trillion, Chile agreements of $58.3 trillion and Korea $40.8 trillion.
Of course, these agreements included the EU, which has a GDP of $16.7 trillion but, even so, the scale of trade agreements negotiated by these countries vastly exceeds those of the EU. There is a very simple reason for this. The EU is a cumbersome, slow negotiator because it has to take into account the interests of 28 different countries. Moreover, most of the agreements of these independent countries cover services, whereas only two thirds of the EU’s trade agreements do so. The EU has opened services markets of nearly $5 trillion to UK exporters, whereas the Swiss have opened services markets worth $35 trillion.
The importance of trade deals can be exaggerated. Countries primarily succeed with or without trade deals if they produce goods of high quality and services that other countries want to purchase. In the modern world, tariffs between developed countries are low and are small compared with movements in exchange rates. The flawed myth of the single market is that is that it is seriously advantageous to its members. The paradox is that non-members have managed to benefit from it more than members.
There may be arguments for remaining in the EU but they do not revolve around the single market. On trade we have nothing to fear but fear itself. Which is exactly what the Remain campaign has been attempting to stir up.
Lord Lamont of Lerwick was Chancellor of the Exchequer 1990-93
http://www.telegraph.co.uk/news/2016/06/13/not-only-can-britain-can-leave-the-eu-and-have-access-to-the-sin/
