David Green is the Chief Executive Officer of Civitas.
The best way to get a good trade deal with the EU is to be willing not to have one at all. As it happens, we are in a very strong bargaining position. The EU can give us very little, but we can offer much. If we end up trading purely as WTO members we will be better off.
A new Civitas study shows that, if we leave the EU without a trade agreement, it will cost the remaining EU members £12.9 billion in tariffs whereas it will cost us only £5.2 billion. Some say that non-tariff barriers are important, but increasingly the regulations that govern trade are made by international organisations whose membership extends far beyond that of the EU. In many sectors, the EU is no longer the primary regulator.
For years, we were warned that over three million jobs were linked to exports to the EU. There are indeed 3.6 million such jobs, but far more jobs in the EU are dependent on exports to the UK – some 5.8 million. Any reduction in exports resulting from tariffs would hurt them more than it hurts us. Germany alone has 1.3 million jobs linked to exports to the UK, France has 0.6 million, and Italy 0.4 million. The Germans are going to continue wanting to sell us their cars, the Italians their Prosecco, and the French their wine and cheese.
The Single Market was a trap from the beginning. When it was being discussed in the late 1980s, we already had free trade in goods and the UK was sucked into giving up its veto powers by the promise of a free market in services and capital.
Since establishment of the single market in 1993, the EU itself accepts that the Single Market in services has still not been completed, and the prospect of a free market in capital was ended in 2004 by the takeover directive. Many EU members did not want an Anglo-Saxon style market in mergers and acquisitions. Germany, in particular, did not want its largely family-owned Mittelstand to be taken over by anonymous hedge funds and private equity partnerships. The Single Market was devised to persuade Mrs Thatcher to allow majority voting. She thought she would be forcing other EU members to remove trade barriers; instead, the UK was forced to accept countless dysfunctional laws, including mass immigration. In her book, Statecraft, Mrs Thatcher admitted her mistake, but by then it was too late.
The Single Market has failed economically: it suffers from low economic growth, low productivity, and high unemployment, which is often long-term. The Single Market is not the name of a location where goods and services can be sold, but rather a system of political control. All markets for the voluntary exchange of goods have rules, but the rules of the Single Market go much further than is necessary to uphold a market economy.
World Bank figures for GDP per head from 1993 to 2013 show that the original 12 members of the single market grew far more slowly than a selection of OECD members, including the USA and Japan. It is not easy to separate the impact of the Single Market from the effects of being in the eurozone. But despite its membership of the Single Market, Italy, one of the largest economies, has suffered almost continuous stagnation. Real GDP in 2015 was the same as in 2000, a year after the euro was launched. And today, it is about nine per cent below the pre-crisis level of 2008.
A study of productivity between 1993 and 2013 by Michael Burrage, using the OECD database, shows that GDP per hour worked compared with the US varied from country to country. In Ireland, it increased by 23.3 per cent compared with America and in Portugal by 5.2 per cent; but in Germany it fell by 1.2 per cent, in Italy by 11.1 per cent, in France by 0.4 per cent, and in the UK by 6.0 per cent. The founding document of the Single Market, the Cecchini report, predicted in 1988 that productivity would increase by 6-7 per cent within five or six years. The widely varying results between 1993 and 2013 suggest that productivity does not derive from membership of the single market but from the unique characteristics of each nation.
One of the most striking characteristics of the Single Market is its high rate of unemployment, especially among young people. Moreover, there is a distinctively high level of long-term unemployment. The weighted average unemployment in the twelve original members of the single market was 11.2 per cent in 2013, compared with ten independent nations, where it was 6.1 per cent. Long term unemployment (lasting a year or more) was ma45.6 per cent among the twelve EU members and 25.8 per cent in eight similar independent nations, including the USA and Japan.
If we examine the impact of the Single Market on exports, we continue to search in vain for distinctive advantages. Some companies are frightened of being outside the single market, but membership has not increased our exports. Numerous non-member countries have achieved faster export growth since 1993 despite paying the tariffs. There are 40 countries trading with the EU under WTO rules, the value of whose exports to the EU exceeded $1 billion in 2015. 36 of them had a higher rate of export growth over these years than the UK, despite trading under the alleged worst possible option. Was this because our exporters have lost their touch? Apparently not, because UK exports to the rest of the world grew rapidly over the same period.
Exports of services show a similar pattern. The OECD database shows that the services exports of 16 non-member countries to the EU have grown faster than those of the UK over the years 2004-2012. These countries did not help to make any of the EU’s rules, but were more successful. One advantage non-members have is that they do not pay the membership fee. In 2015, we paid £8.5 billion, but we avoided tariffs of only £5.2 billion. We were over-charged.
The IMF Direction of Trade Statistics for 2015 show that the real growth of UK exports of goods to other EU member states since the founding of the single market in 1993 was weak. The average per year was only 0.98 per cent, whereas that of the Australia, Canada the United States and Japan, trading under WTO rules – said to be the worst possible option – grew by an average of 1.16 per cent.
Wherever you look, the Single Market has failed. An economic arrangement that can show no relative advantage for economic growth, exports, productivity or employment is unworthy of retention. We will prosper as non-members even if we have to pay the tariffs. But more important, we will be able to set an example of how a free people can flourish outside an outmoded regional trading bloc. Others are sure to follow, which is the real reason the European Commission is so hostile.