We are told that one of the big attractions of the European Single Market (SM) is that all goods and services produced are required to satisfy a common set of regulatory standards. This ought to make it easier to export to other member states of the European Union. The reality is that the trend growth in traded goods declined, while the trend growth in traded services barely changed after the SM was introduced.
Trend growth in traded goods declined
Table 1 provides some surprising evidence. It compares export growth in the 20 years before the introduction of the SM and in the 20 years after. The first row shows that the real growth rate in trade between EU member states actually fell from an average annual rate of 4.71% to 3.05% (or by 35%) after the introduction of the SM. Export growth to the rest of the world (ROW) fell by even more – by 73% from 1.20% to 0.32%. This contrasts dramatically with the growth rate in trade between ROW countries which increased over the same periods from 3.66% to 4.22%. ROW export growth to the EU also increased after the introduction of the SM from 3.29% to 4.11% – so was growing between 1993 and 2012 at a faster rate than trade between EU members. And much of this trade is conducted under World Trade Organization (WTO) rules, while facing the EU’s Common External Tariff (CET) – in other words, under what is disparagingly called ‘no deal’ arrangements. The CET covers more than 13,000 imported goods, with an average tariff of 3-4%, but with much higher tariffs on food, clothing, footwear and cars.
|Table1: Export growth 1973-2012|
|Intra-EU export growth (1)||4.71||3.05|
|Extra-EU export growth (2)||1.20||0.32|
|World export growth (3)||3.66||4.22|
|World export growth to EU (4)||3.29||4.11|
|UK intra-EU export growth (5)||5.38||3.09|
|UK extra-EU export growth (6)||3.70||3.11|
|Notes: (1) Exports of EU11 founder members of the EU Single Market to each other, (2) Exports of EU11 to 8 OECD countries (Australia, Canada, Iceland, Japan, Norway, Switzerland, Turkey, and the United States – Iceland, Norway, Switzerland and Turkey have negotiated substantial access to the Single Market), (3) World exports of all developed countries, (4) Exports of eight OECD countries to the EU12, (5) Exports of UK to EU10, (6) Exports of UK to 8 OECD countries. CAGR – cumulative annual growth rate.|
|Source: Figures 2, 3, 4, 5 and 6 and Table 4 of Michael Burrage (2016) Myth and Paradox of the Single Market: How the trade benefits of EU membership have been mis-sold, Civitas, London; https://www.civitas.org.uk/content/files/mythandparadox.pdf|
Even more striking is the decline in the growth rate of UK exports to the EU from 5.38% to 3.09% following the introduction of the SM. UK export growth to the rest of the world also fell, but was still at a marginally higher rate between 1993 and 2012 than for exports to the rest of the EU (3.11% v 3.09%). This helps to explain why UK exports to the EU have fallen from 55% of the total to 46% since the SM was introduced. Further, only 6% of UK companies export to the EU – accounting for around 13% of Gross Domestic Product (GDP) – yet all regulations on product and service standards – including for the 94% of UK companies that do not trade with the EU – are determined in Brussels.
Table 2 shows the growth rate of exports of the top exporting countries to the EU between 1973 and 2012. Although the UK had higher total exports in 2012 than fifteen countries – except the US – they all enjoyed higher average export growth over the period, including China, Russia, Brazil – even Hong Kong. By 2018, China’s exports to the EU at $472bn (€400bn) significantly exceeded the UK’s at $384bn (£289bn).
|Table 2: Growth of exports of selected countries to the EU 1973-2012 compared in 1973US$|
|% real growth||CAGR%||Total value in 2012 $bn|
|Source: Table 6 of Michael Burrage (2016) Myth and Paradox of the Single Market: How the trade benefits of EU membership have been mis-sold, Civitas, London; https://www.civitas.org.uk/content/files/mythandparadox.pdf|
The result is a £93bn goods deficit with the EU in 2018. The overall trade deficit was £64bn, which is lower due to a £29bn services surplus. The EU is keen for the UK to remain as a captive market in the SM and Customs Union, since we are one of the biggest buyers of its goods. But, as Michael Burrage points out, this could lead to a balance of payments crisis in a few years’ time. He estimates if the trend growth rates continue as in Table 1, then by 2030, there will be a goods deficit of £246bn, a services surplus of £58bn, and an overall trade deficit with the EU of £188bn.
Trend growth in traded services barely changed
The situation is even worse when it comes to services. There is little evidence that the SM has so far helped to develop an integrated EU-wide market in services. In 2015, intra-EU and extra-EU service exports to the EU were 6.9% and 5.9% of EU GDP, respectively, a difference of just 1%. Further, exports of services to the EU by countries outside the EU have grown at a faster rate (0.5% p.a.) than those of EU members to each other. So the 3.05% p.a. increase in intra-EU trade reported in Table 1 must have been mainly in the form of goods. Indeed, over the period 2002-2012, the extra-EU exports of services of 11 of the 12 founder members of the SM, and in particular those of the UK, grew faster than their intra-EU exports. France is the only exception.
Overall, the UK’s benefit from the SM in terms of goods and services trade has been negligible. In 2005, an internal Treasury report – which later emerged because of a Freedom of Information request – found that the SM had only a marginal impact on UK trade. UK goods exports to the EU are 49% of total exports, amounting to 8% of GDP. Services account for 80% of the UK economy, but only 40% of the UK’s service exports go to the EU, amounting to just 5% of GDP.
The Single Market is a giant economic non-event
Even strong supporters of the EU, like the Financial Times’ Wolfgang Münchau, concede that the Single Market is ‘not visible in the macro statistics…. the data are telling us a different story – that the Single Market is a giant economic non-event, for both the EU and the UK’.
This makes it all the more curious why so many businesses and politicians in this country insist we have to have unfettered ‘access’ to the Single Market after we leave the EU. Don’t they make any effort to find out the facts? The ignorance in this country about the failings of the Single Market is woeful. The price of that ignorance will turn out to be very high – not only over here, but also over there.