Apologies for my recent silence, it is exam marking season so I have been otherwise engaged. However I did participate in a very interesting debate on the EU Referendum at the University of Warwick earlier this week, which is available to listen to online here, if you are interested.
Anyway, back to the referendum, and closely linked with my previous post on the economy is the issue of trade. How much trade actually takes place between the UK and the EU? What implications does this trade relationship have on aspects of life in the UK? And what might the situation be if the UK leaves the EU?
First, how much does the UK trade with the EU?
The UK government‘s statistics show that approximately 44% of the UK’s trade in goods and services went to the EU in 2014, compared with 21% with America (the continent), 19% to Asia, and 11% to European countries outside of the EU. Trade in goods refers to tangible products that are traded across borders, like food and manufactured products, whereas trade in services refers to non-physical things that are traded across borders, for example banking and IT services.
The UK is (if considered as if outside of the EU) the EU’s largest single export market, accounting for around 16% of EU exports in goods, according to the Office of National Statistics. This is compared with 15% to the US, 8% to China and 6% to Russia. This does not include exports of services, for which there is no clear figure.
What are the broader implications of the UK and EU trade relationship?
A lot has been said about how trade with the EU is linked with jobs in the UK. The most accurate analysis of how many jobs in the UK are linked with exports to the EU, by the Centre for Economics and Business Research, estimated the figure in 2011 to be 4.2million (3.1million directly, and 1.1million indirectly – through the spending income generated by exports). It is not clear how many of these jobs could be lost if the UK votes to leave the EU.
What will the situation be if we leave the EU?
It is very difficult to know what the situation would be if the UK votes to leave the EU.
The UK could negotiate membership of the European Economic Area, joining Norway, Liechtenstein and Iceland as countries within the EEA yet outside the EU. This would bring access to the single market for free trade in goods and services throughout the EU, but also comes with the free movement of people, as discussed in my post on immigration. However, as also noted in my post on the economy, Norway makes a significant financial contribution to the EU to be part of the EEA (€816million in 2015), and importantly is not afforded any influence in trade negotiations that it has to adhere to.
The UK could enter into a bilateral trade agreement with the EU, securing access to the same markets with which we trade currently. An agreement on the UK’s trade in services would be particularly important to secure as it makes up such a significant percentage of our GDP. However agreements on trade in services are quite complicated to negotiate, because they inevitably include things such as deciding equivalence of professional qualifications, overcoming differences in how services are regulated in different countries, etc.
Any trade agreements the UK makes if it leaves the EU will be governed by the rules of the World Trade Organisation, whereby members cannot give preferential trade treatment to any other member; the maximum tariff the UK could apply to the EU and vice versa would be the same as it applies to trade with any other WTO member. This would initially mean, for example (as pointed out by the House of Commons Library) a 32% tariff being levied on wine imports to the UK from the EU, and a 9.8% tariff on cars. At least initially, this situation means imports of goods from the EU being significantly more expensive than they are at present, and the Centre for Economic Performance at the London School of Economics has found that there will most likely be a drop in trade with the EU if the UK votes to leave. The impact of this on the UK economy could be a loss of between 2.2 and 9.5% of GDP.
What about TTIP and trade with the US?
If the UK stays in the EU it will be part of the ongoing negotiations around TTIP, the controversial trade agreement with the US that the EU is currently working towards. The UK would also have to abide by this agreement. The negotiations are particularly controversial because they are being held behind closed doors and the content of the proposals is contrary to widely voiced public opinion in Europe. It involves reducing trade barriers between the US and EU for big businesses, changes to environmental legislation and banking regulation, and not necessarily for the better.
So some people argue that in order to avoid this agreement, we should leave the EU. However, any bilateral trade agreement that a UK outside of the EU might try to negotiate with the US could possibly be based on similar basic features, though US President Barack Obama has stated that “the UK is going to be in the back of the queue” in looking to negotiate a trade agreement with the US.
One key argument regarding TTIP is that it would risk the forced privatisation of the NHS. However, the European Commissioner has confirmed to governments that health services will remain under the control of national governments regardless of the outcome of the negotiations.
It is expected that if a TTIP deal is agreed upon, the EU member states will each individually have to ratify it before it comes into force. In the UK, this means that the Parliament will have to vote to agree to it. Each member state therefore has an opportunity to resist the deal if they do not think it in their best interests. Other EU countries have also stressed their opposition to the deal, such as French President Francois Hollande saying that he will not support TTIP in its current form. Therefore there are many hurdles that must be overcome before a deal of this kind will be agreed upon.