We would be substantially better off not being in the EU because the opportunity cost of us not being able to make our own trade deals with the emerging economies of the world is holding back British business. In terms of trade, the EU is now a millstone around our neck.
*Nigel Farage, UKIP leader, on the BBC Radio 4’s World at One on May 4. *
Nigel Farage’s statement about UK trade repeats arguments regularly made by UKIP. As an EU member, the UK does not negotiate trade deals independently. Rather, the European Commission negotiates to a mandate set by the member states. His reference to “emerging economies” is because several of these countries are growing faster than, for example, most EU countries, offering growing export opportunities. Beyond this, the statement involves points presented as fact, but which are opinion – and questionable opinion at that.
Does the EU hold back UK trade? Referring to data freely available from the Eurostat website, total UK merchandise exports to non-EU countries grew in value by about 130% between 2000 and 2013. This is less than exports with Germany grew (168%) but considerably more than France (68%). So trade is growing, and different EU countries show different performances – there is no single “EU factor”.
It is amazing to think that the UK exports more to Ireland than to China – twice as much in 2011, 60% more in 2013. It’s no wonder Ireland is concerned over a possible Brexit.
So, is EU membership holding us back with countries like China? No. German merchandise exports to the BRICS (Brazil, China, India, Russia and South Africa), are four times the value of UK exports. Germany is a bigger economy than the UK – but German exports to the BRICS are also a higher share of total German exports than the equivalent UK exports to the BRICS. And it is not just Germany. France exports more to the BRICS than the UK. So, EU membership cannot be to blame.
How else might EU membership hinder the UK? The World Bank ranks the UK 15th in the world for ease and cost of trading across borders. Seven of the 14 countries ranked higher than the UK are also EU countries – so EU membership is not a problem here. The World Economic Forum ranks the UK 9th in the world for Global Competitiveness – with four other EU countries in the top 10. Again, EU membership is not a problem.
But what would happen if the UK negotiated its own trade agreements outside the EU? The truth is we cannot be sure. What we can do is to look at trade and trade negotiations, and try to ascertain how the talks might go. But the starting point should be the principal conclusions from above: EU membership has not obviously hindered UK exports to non-EU countries.
In a document co-published by UKIP, which UKIP directed The Conversation to, the author, UKIP MEP William Dartmouth, confirms that the UK is already running a trade surplus with non-EU countries. Despite this, other EU countries are able to export even more to those fast-growing non-EU countries. Also, Dartmouth argues that because we run a trade deficit with the EU overall, they need us more than we need them. This is a total misrepresentation of such data. UK trade with the other EU countries is much more significant to us than other EU countries’ trade with the UK is to them.
The map below from the European Commission shows the extent of EU trade agreements with the rest of the world in June 2012.
EU trade agreements are being negotiated with China, with several members of the Association of South East Asian Nations, and separately with Malaysia, Vietnam and Thailand. Were we to exit the EU and try to replace these negotiations with our own, or to adapt agreements in place, there would be considerable costs to the UK undertaking all of these negotiations unilaterally – in money and time. In any negotiation, the UK on its own cannot offer as much as the EU of 28 countries can in total. This provides a much larger bargaining chip and the opportunity to obtain a better deal from the other countries.
The economic concept of opportunity cost puts a value on one thing by comparing it with the next best alternative. Nigel Farage claims that EU membership harms UK trade. Yet our trade with non-EU countries continues to grow strongly, and the World Bank and World Economic Forum rate our and other EU countries’ economies very favourably. Despite this, we are under-performing on exports to fast-growing emerging countries – when compared with other EU countries. Farage favours the UK taking on board the entire costs of trade negotiations, for uncertain outcomes – but outcomes which are arguably likely to be less beneficial than doing so collectively in the EU.
In general terms the fact checking piece is well balanced and accurate in the data it deploys and the arguments it makes. I would make a few minor comments. First the title is a bit general since it deals with only the external trade policy aspect of British Exit rather than a complete impact assessment. It’s also worth pointing out that the EU is negotiating with India, Brazil and Japan and has signed agreements recently with Korea and Canada.
I also think that the piece is restrictive in its approach by dealing with only trade in goods. Services are a major element in our trade performance with rest of the world – though note that 50% of our services exports went to the EU in 2011. This is relevant to the type of trade agreements that suit the UK best, since they need to include services and that means covering regulatory issues. This would mean engaging in the type of deep integration worldwide that Nigel Farage and UKIP seem to abhor the most in relations with the EU. The EU in its approach to trade agreements is already paying close attention to these issues notably in negotiations with the US but also more widely. – Jim Rollo
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