Trading the truth

By D. J. Webb

I would like to briefly set out some facts on UK trade with the EU. First of all, members of the World Trade Organisation have access to the EU market for goods and face trade-weighted tariffs of around 3%. This means that individual tariff lines could be subject to higher tariffs, but allowing for the small proportion of such trade in the total trade, the average tariff would be 3%.

David Cameron’s claim today that UK farmers face 70% tariffs after Brexit is clear spin. There are certain individual tariff lines that could be subject to a maximum tariff of 70%. This includes beef. Lamb could be subject to 40% and salmon 13%. But agricultural exports in general would not be subject to 70%, and agricultural exports are a small proportion of the whole. More importantly, the UK would also be entitled to put a tariff of 70% on EU beef exports to Britain. UK exports as a whole would face a maximum average tariff of 3%.

Let’s look at official UK figures for goods trade, which I have spent a couple of hours compiling from the HMRC. In 2015, our total goods exports amounted to £304.9bn, with goods imports of £410.9bn, leaving a merchandise trade deficit of £106bn. Exports to the EU were down by 0.7% compared with the previous year to £133.4bn. But exports to non-EU economies were up by 5% to £171.5bn. Imports from the EU were up by 2.5% to £218.7bn, whereas imports from non-EU economies were up by 1.1% to £192.3bn.

In 2015 our trade deficit with the EU was £85.3bn. Not only did our exports to the EU fall by 0.7% last year, but they are also down by 5.5% compared with 2008. This export market is going nowhere. At the same time, we are importing more and more from them, not only up by 2.5% last year, but up by 22.3% compared with 2008. The trade deficit with the EU is exploding.

By contrast, our trade deficit with non-EU economies was £20.7bn last year. Not only were exports to non-EU countries up by 5% last year, they were up by 48.1% compared with 2008. Imports from the non-EU countries, up by 1.1% last year, were up by 8.9% compared with 2008. Our exports outside the EU are growing rapidly, and our trade deficit with them going down quickly. Among our top 10 export destinations, exports to China are growing the fastest, and were up by 270.5% in 2015 compared with 2008 to £18.1bn, with a further £6.6bn in exports to Hong Kong, up by 65.6% compared with 2008.

Whatever way you look at it, the non-EU markets are our future. Nearly all of our exports would attract very low WTO tariffs. The occasional tariff lines that attracted higher tariffs do not change that fact.

Look at agricultural trade. Our agricultural and food exports totalled £16.7bn, of which £11.6bn to the EU. But our imports of these totalled £41.9bn, of which £29.7bn from the EU. Agricultural and food exports to the EU are less than 4% of our total goods exports to all economies. We cannot hang our membership on what is good for the farmers. More importantly, the EU exports so much more food and agricultural goods to us that it is inconceivable that it would be in their interests to start imposing 70% tariffs on those tariff lines that permit that lest we retaliated.

Taking meat and offal exports separately, our exports of these were £1.26bn in 2015, against imports of £3.83bn. We run a large meat trade deficit. In fact, meat exports to the EU were £1.04bn, with such imports from the EU at £3.17bn. The weight of such trade is not significant enough to determine our overall policy, and the fact that we import so much more meat from them means that Cameron’s claims are certainly false.

As the National Institute of Economic and Social Research has shown, claims that the UK accounts for only 10% of EU exports are false. Using 2014 data, Jonathan Portes shows that Britain is the destination for 16% of EU goods exports, a larger share than the 15% of exports of EU nations other than the UK destined for the US. We would be the EU’s largest goods export market post-Brexit.

Detailed data on services exports are harder to find. I haven’t been able to find a 2015 number. However, UK figures show that exports of services to the EU were £58.7bn in 2014. Access to services markets is not covered by the WTO. We should bear in mind that we currently pay a net £10bn a year into the EU budget. As goods trade would be largely unaffected by Brexit, it is argued that we should carry on paying £10bn a year to support a services export flow that is only £58.7bn. I note that Open Europe has suggested that post-Brexit the five single costliest EU laws in force would apply to Britain if it got a Norway-style deal. These are the the renewable energy strategy (£4.7bn a year), the CRD IV package (£4.6bn), the working time directive (£4.2bn), the climate and energy package (£3.4bn) and the temporary agency workers directive (£2.1bn).

There is much more to EU regulation than just these five things but these five alone amount to £19bn (according to Open Europe, which wants us to stay in the EU), in addition to the £10bn net contribution to the EU budget. As a strategy to protect services trade worth £58.7bn, incurring these huge sums is absurd. Leave the EU, refuse to sign a Norway-style deal, rely on our WTO membership, and our trade-weighted goods export tariffs would be a maximum of 3%, and maybe not even that, as the EU would have no reason to scupper trade with its largest export market with which it runs a large surplus. The services trade is not covered by the WTO, and our services exports to the EU may grow more slowly, or stagnate — but even if they fell sharply the large sums saved by deleting these five regulation packages and by not contributing to the EU budget already amount to half the value of our services exports to the EU. Even if services exports to the EU fell by 50%, we would still be no worse off, and the whole of the rest of our economy (including businesses that don’t export) would be subject to lighter regulation. We could afford to subsidise our farmers lavishly in fact with the £29bn in savings I’ve identified.

The economic argument for staying in the EU is threadbare. In the end it comes down to short-term uncertainy as trade deals with all economies are renogotiated.