Post Brexit can we now ditch the “little Europeans”?

Post Brexit can we now ditch the “little Europeans”?

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When the term “little Englander” was coined in the 19th century it referred to those not willing to embark on imperialist ventures across the globe, those happy to look inward to Europe. It’s funny that by this definition, it is the Remain camp who are the “little” ones. In truth, it is the EU that is inward looking and protectionist. Now we have decided to Brexit, we can rediscover our true selves, the global seafaring trading powerhouse of old. This isn’t bluster, this is economic reality, obvious to anyone willing to look.

Of all the ironies of the EU referendum the most puzzling to me was the belief that the Leave campaign amounted to the case for a “little England”. Apparently all those voting to leave the EU were about to pull the drawbridge up, break all cultural and trade links with the continent and would physically move the nation into the ocean wilderness if they could.

Out poured the pro-European luvvies, fearful of being dragged into the barbaric, isolated abyss reserved for “runt nation” – as the Independent gloomily prophesised. David Cameron himself said voters prepared to back Brexit are “quitters”, “little Englanders” and do not love Britain.

This may make for good copy in Guardian and Independent offices, but it’s not true. If you were to actually listen to Boris Johnson, you’d think the country were about to set sail on a second imperial age, driving out traders and merchants in no way since the days of Robert Clive and the East India company.

This weekend, he exalted us as a nation to:

“think of ourselves once again as a truly global Britain using our unique voice – humane, compassionate, principled – to do good around the world, and to exploit growth markets to the full”

Channeling his best Churchill he’s wants us to choose the open sea over Europe – for the betterment of our economic prospects.

This isn’t bluster, this is exactly how he sees it – and it is actually possible.

In fact, analysis of the trade history of the EU would show that we are very likely to be better off out.

We are actually better off out

In the new age of “post factual” politics, it is actually very hard to discern what’s true and what isn’t. Some things weren’t even discussed during the campaign. It is an indictment of the Leave campaign that they did not defend the economic argument for Brexit more forcefully.

It may surprise you to hear that such an argument can be made, but it certainly can be.

The tariff illusion

Let’s start with a simple point about EU tariffs outside the single market. Bearing in mind that whatever tariffs were to be applied would only be on goods – approximately 22% of our economy.

The tariffs on most goods from outside the EU is between 3-4%, excluding agriculture (more on that later). Talk of 10% tariffs is either a lie or ignorant of trade rules. Any punitive tariff would break WTO rules on preferential treatment. This was a Remain campaign lie unrefuted by Leave – although admitted in the small print of the Treasury analysis.

Working through the calculations, our contributions to the EU are £9bn per year once we take out all the rebates and funding of EU projects. This equates to a tariff of 7% on exports of £128bn per year in 2015.

So, we actually pay a higher tariff by being inside the EU than we would outside the single market.

Furthermore, given we import more than we export, we’d receive more in tariffs than we’d pay out in any case.

Result – we’re better off out even if we never regain membership of the EU single market or any associate status.

The uncommon market

Secondly, our economy is roughly 78% service based and there is no single market in services. Our relation to the EU or EEA is therefore irrelevant. This was stated over and over by Nigel Farage and Daniel Hannan among others but ignored by a campaign more interested in lazily labelling people liars or xenophobes.

The EU economy is 70% services but only 3% of this is intra-EU trade. The single market in services doesn’t exist.

What does this actually mean? As it turns out, very little. When you look at the data, non-EU countries have grown service exports into the EU at more or less exactly the same rate as we have. China, India and even that powerhouse of service industries Chile have done better in growing their service exports to the EU than we have in the last 10 years.

This is even admitted by the EU itself. Open Europe lament that the lack of an open market in services costs the EU €300bn per year. Wolfgang Munchau, Director of think tank EuroIntelligence went so far as to call the Single Market in services

“A macroeconomic non-event”

So once again, to say the UK – a predominantly service economy – benefits from a single market without services included is factually incorrect, to put it politely.

The EU as a trade body

Moving onto the counter-factual position, the UK outside the common market. Many commentators say that the UK would not be able to negotiate effective trade deals without the clout of the EU behind it. This is a commonsensical position. Lord Mandelson, former negotiator on the ill-fated WTO Doha Round, put it this way.

‘it made no sense to exit a market on Britain’s doorstop and a move in that direction would erode the country’s ability to trade with others… India would laugh in our faces if Britain tried to negotiate a free trade agreement outside Europe… They would walk away and leave us whistling in the wind.’

Powerful stuff.

But again, not true. India in fact was a poor choice of comparison it turns out.

Not only does the EU not have a trade deal with India – the 10th largest global economy no less – but many smaller nations do. India did not leave Singapore, Korea, Switzerland or even lowly Chile whistling in the wind.

The result? Chilean exports to India have grown 10% faster than before signing its trade agreement whereas ours has stagnated.

The overall picture is no better.

EU's trade agreements

cumulative GDP of trade deals by nation. Right hand EU chart shows the EU trade with itself – a better measure Source: Civitas

 

Since 1970, the European Community has signed 37 free trade agreements. Not too shabby you might think.

Except they are with such economic powerhouses as Papua New Guinea, Albania, Lebanon and Tunisia. The aggregate GDP of the 55 countries with an EU agreement in force is $7.7tn. The aggregate GDP of the countries with a free trade agreement with Chile is $58.3tn.

Switzerland? $39.8tn. South Korea? $40.8tn.

Not only have smaller nations done a better job, they’ve managed to open service markets too. While the EU can’t organise a free market in services among themselves the Swiss have opened $35tn of markets to their service sector – more than the entire EU trade agreements for goods and services since 1970.

To say we will lose our position and clout in the world makes the flawed assumption we have clout today.

Again, better off out.

This is an incomplete analysis of the EU as a trading organisation. For more, you can read the excellent analysis by Michael Burrage – an LSE economics professor at Civitas – here. I urge you to read it as it the fullest examination of the trading results of the EU to date.

The EU as a protectionist state.

You would be forgiven for wondering how the EU has been allowed to stagnate and move away from its trade based origin. An excellent question.

The answer is that the EU has gone from a mechanism for broadening European horizons into a Europe wide free trade body and has morphed into an inward looking, protectionist body putting up walls to the outside world. Up to 1993, the cumulative effect of the increased intra-EC trade was highly positive, once it became about preparing for the common currency and political union, the change was marked. The data bears this out.

Between 1972 and 1992 under the common market, UK exports to the EU grew by 172%, since by only 82%. This has coincided with the move the Euro, the harmonisation of regulation and the reduction in non-EU trade negotiations. The rest of the world has grown faster. Europe is now the slowest growing region on Earth.

GDP growth
GDP growth by country grouping. For country list see source: World Bank

Far from being the Brexiteers who are looking inward, it is the EU that has shut itself off. It is now focused on integrating further into a single nation state and has lost its interest in the outside world.

It is now made up of “little Europeans”, and the Remain campaign fell into this trap.

To illustrate this phenomenon, a few key points need to be made clear.

The first is the aforementioned lack of external trade deals with non-EU nations. With this, the “little Europeans” have stopped looking outward and have closed themselves away. Instead of focusing on getting deals done they have protected internal interests – textiles manufacturers in Italy, tomato growers in Spain. TTIP looks to be blocked by France.

Before leaving the trade point, we should analyse the deals struck by the EU, some of which can only be described a reprehensible.

When negotiating with the East African Community (EAC), a five country alliance including former UK colony, Kenya, the EU demanded influence over tax, current account decisions and regulation in the area, for tariff free trade in flowers – only. In return, the EU demanded free access for all trade goods and preferential treatment over all other nations.

Faced with tariffs of 16% (the standard for agricultural goods thanks the common agricultural policy) wiping out an industry worth 500,000 jobs in the region, the EAC is faced with economic blackmail that would make the gunboat diplomats of the 19th century blush.

Agreement, unsurprisingly, has stalled for 12 years.

The trade policy of the EU puts internal protection above trade potential – to the detriment of all – including us. The deals struck by the EU have not resulting in increased exports. The figure below shows that for the comparable deals, the EU has performed the worst in helping drive exports – at least for the UK.

FTA agreement comparison
Effectiveness of trade deals Source: Civitas

As an aside, as a former colony we have a historical responsibility towards. In the EU we can do nothing. The luvvies should examine their conscience when thinking about this abdication of responsibility.

A second point of interest is the attitude to non-EU economic migrants. To balance the change brought about by massive internal migration, nations have had to impose external migration controls. The UK has done this by suicidally curbing skilled migrants and students from non-EU countries.

The UK now has 300,000 EU immigrants coming the UK, 75% of which would not pass the visa requirements of non-EU citizens. We are actually choosing unskilled Europeans (mostly white Christian) over skilled Indians or Australians. People who speak English, understand our customs and are better able to integrate.

Again, the EU is forcing us to turn our backs on the world and look inwards.

On the outside however we can arrest this and go back to attracting the best to the UK – wherever they’re from.

Leaving the “little Europeans” behind

This is but a short analysis of what is a very complicated topic. Trade agreements are complex and take time and skill to develop and sign.

They are not impossible however. Economic clout does not matter if you never get a deal signed.

The EU has a long history of failure when it comes to trade. It may be the largest free trade area, but it is the only one shrinking.

The British have always had different horizons. Europe may be broad and open to a continental but is woefully insufficient for us. We have ties all around the world and we are missing out on huge possibilities.

We now have a once in a lifetime opportunity to raise our eyes, broaden our horizons once again and reach out to the world. Far from being “little Englanders” we should return to our true nature and set sail to the world we’ve been closed off to for 40 years.

In doing so we must leave behind the nay-sayers, the wets and the fearful. Those more interested in labeling people than understanding what the EU has become, an inward looking protectionist vehicle.

We must never become “little Europeans”.

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