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Have European Commission trade agreements in goods helped UK exports? A scorecard versus Chile, Korea, Singapore and Switzerland

A post-agreement export growth league table comparing Chile, Korea, Singapore & Switzerland with the UK, finds the UK at the bottom with only four wins and 10 losses


Numerous UK political and business leaders, trade federations and businesses argue that the UK has benefited from surrendering the right to negotiate its own trade agreements to the European Commission. Not one of them, however, has ever initiated any studies to determine exactly what the impact on UK exports the agreements negotiated by the European Commission might have been, even though as prime ministers, ministers, and CEOs of large companies, they have had ample opportunity to do so.

The European Commission has only conducted one such study: on the agreement with Chile.[1] It used a variety of methodologies, came to no clear conclusion, and had no interest in determining what the impact of the agreement on the UK might have been.

In the absence of any evidence, I decided to conduct an elementary, pilot study. It compared the growth rate of UK exports before and after the 15 EU agreements for which there was adequate data came into force, with the growth rate of Swiss exports before and after 14 agreements Switzerland had negotiated on its own behalf.[2] Partly it was an attempt to discover whether there was any truth in the oft-repeated claim that the European Commission, with all its clout, had negotiated more effective agreements than those of small independent countries like Switzerland. Also, of course, it might indicate whether European Commission agreements were bound to be more effective than any agreements the UK was likely to negotiate on its own.

The results did not support the oft-repeated claim about EU clout. The real growth rate of UK exports rose after five EU agreements came into force, but fell in the remaining 10. The real growth rate of Swiss exports increased after nine of its agreements, and fell in the remaining five. Moreover, there were striking differences in the amounts of post-agreement growth. The rate of growth more than doubled after seven of the Swiss agreements, whereas UK exports only managed this in two cases, both in the minor export markets of Syria and Lebanon.

Rules of comparison

The investigation reported in this chapter is an attempt to see whether the results of the exploratory Anglo-Swiss comparison using OECD import data could be replicated by

making use of the UN Comtrade database, to extend the comparison to other small independent countries. Singapore, Korea and Chile were chosen, simply because they had an active trade negotiation policy, and the data for all three is good.

The tables below enable us to compare pre- and post-agreement export growth of Switzerland, the UK, Chile, Korea and Singapore. The rules of comparison are exactly the same as those of the pilot Anglo-Swiss study.

All agreements of all five countries for which there is adequate data are included. Adequate means that it has to show at least five post-agreement years of trade, since agreements take time to have an impact and CAGR growth rates over shorter periods can be highly erratic and misleading. Partner countries that failed to qualify are listed at the bottom of each table. In the main they are omitted because Chapter 35 - Swiss exportsagreements with them have only recently come into force, but in some cases it is because there is no data for pre-agreement years.

Export growth is measured and compared over as many years as possible, but always with an equal number of years before and after. All the growth rates are calculated in 1993 US dollars. Unshaded cells in the final post-agreement column indicate an increase in the CAGR compared with the pre-agreement rate.

Switzerland

The results for Switzerland are consistent with the earlier study, though the countries included are not exactly the same. In the earlier study, exports to Israel showed a marginal post-agreement decline, but here they show an increase. The final score in the earlier study was a post-agreement increase in 9 of the 14 countries, while here it is 10 out of 14.


UK

The overall UK score is broadly consistent with the earlier study. The post-agreement rate of growth of UK exports increased in four of the fourteen countries, and declined in the other 10.

The four ‘winners’ were not, however, the same in the two studies. Syria and Macedonia, two winners in the first study, could not be included because the UN Comtrade database did not have sufficient data. Two more of the original winners, Tunisia and Israel, who had registered slight post-agreement increases of two and one per cent respectively in the first study, became losers in this study. Only one country, Lebanon, registered a post-agreement increase in growth in both studies.

The three new winners were Chile, Papua New Guinea and Korea. Chile was the striking discrepancy with the earlier study, probably because UK imports reported to the OECD by Chile in the tenth post-agreement year, 2012, were exceptionally low. By contrast, the UN Comtrade data shows substantial post-agreement growth of UK exports to Chile. Indeed, the difference of nearly 20 per cent, between pre- and post-agreement growth rates is the largest of the four countries. However, the post-agreement increase in exports to Korea is also striking and Papua new Guinea is also a considerable turnaround, given that prior to the agreement UK exports had been in a steady and steep decline.

Chapter 35 - UK exportsMany British trade associations, large companies and the CBI came together to praise the EC trade agreements in the Balance of Competences Review in 2013, and urged HMG not to consider negotiating its own trade agreements. They did not present any evidence about any EU FTAs at all. When they next make this argument, they may want to refer to the real world, in which case they might mention Lebanon, Chile, Papua New Guinea and Korea.[3] These four countries are the only EU prima facie ‘success stories’ from a UK point of view, where UK exports may be seen to have grown faster after the EU agreement came into force than they had done before.[4]

Collectively, however, these four countries accounted for 1.83 per cent of UK goods exports in 2015. This suggests that the EU’s heft and clout has not been particularly effective over more than forty years of negotiating. Maybe the countries listed at the bottom of the UK table, which had to be omitted, will add to this percentage when adequate evidence become available.[5]

One noticeable difference from the earlier comparison is that the Swiss post-agreement growth rates are not markedly higher than the British in this study. The unweighted average gain in UK exports, following its four gains, was 8.6%. Switzerland has more post-agreement gains, but the unweighted mean gain following the 10 Swiss agreements was 7.9%.


ChileChapter 35 - Chile exports

At first sight, Chile appears to follow the UK in having more post-agreement declines than increases. Only six of its 18 agreements have been followed by an increase in the growth rate of its exports to the new partner countries.

However, it should be noted that Chile has registered post-agreement gains in export growth to Canada, Korea, Switzerland, and the EU. These are rather more significant markets than the five in which the UK has recorded post-agreement gains: Lebanon, Chile, Papua New Guinea and Korea.

Moreover, many of the falls in the post-agreement growth rate in Chilean exports follow quite remarkable growth over the pre-agreement years, such as the CAGR of 27.47% of their exports to Mexico, 32.69% to China, 41.60% to India, and 28.34% to Australia. Many of these growth rates were destined to fall, whatever the merits or demerits of their trade agreements. One cannot say the same of the falling post-agreement growth of UK exports. The two countries may have similar post-agreement success rates, but they are hardly in the same boat.


Korea and Singapore

Following their agreements both Korea and Singapore have levels of increased growth comparable to those of Switzerland. In all three a clear majority of agreements have been followed by a higher rate of real growth of exports to each partner country.

Since we have only reported raw data, and said nothing of the other factors that might affect trade in these countries before and after their trade agreements, we cannot say what the impact of the trade agreements may have been in any of these cases.

However, since this is the best data currently available it throws serious doubt on the claim that the European Commission has, by virtue of its heft and clout, been able to negotiate beneficial trade agreements for UK exports. Three of the small independent countries register clear post-agreement gains. Bearing in mind the countries with which Chile has concluded agreements, and its post-agreement export CAGRs, it can hardly be considered a failure. This evidence therefore strongly suggests that independent countries can negotiate very effectively on their own behalf.

By contrast, the post-agreement growth record of the UK seems to be distinctively bad. Chapter 35 - Singapore exportsNeither the European Commission nor HMG seem in any hurry to find out why. Indeed, it is doubtful if they are even aware of just how bad it is.

For the UK political and business leaders who have for many years been telling the British people that the European Commission is negotiating trade agreements effectively on Britain’s behalf, these results raise serious questions, questions that they should have addressed years ago. Whatever the result of the referendum, it is to their discredit that they failed to do so.

Chapter 35 - Korea exports


Table 35.6: Final post-agreement scores of the five countries

Since we have only reported raw data, and said nothing of the other factors that might affect trade in these countries before and after their trade agreements, we cannot say what the impact of the trade agreements may have been in any of these cases.

Chapter 35 - Final tally

However, since this is the best data currently available it throws serious doubt on the claim that the European Commission has, by virtue of its heft and clout, been able to negotiate beneficial trade agreements for UK exports. Three of the small independent countries register clear post-agreement gains. Bearing in mind the countries with which Chile has concluded agreements, and its post-agreement export CAGRs, it can hardly be considered a failure. This evidence therefore strongly suggests that independent countries can negotiate very effectively on their own behalf.

By contrast, the post-agreement growth record of the UK seems to be distinctively bad. Neither the European Commission nor HMG seem in any hurry to find out why. Indeed, it is doubtful if they are even aware of just how bad it is.

For the UK political and business leaders who have for many years been telling the British people that the European Commission is negotiating trade agreements effectively on Britain’s behalf, these results raise serious questions, questions that they should have addressed years ago. Whatever the result of the referendum, it is to their discredit that they failed to do so.

Notes 

[1] Itaqa Sarl, Evaluation of the economic impact of the Trade Pillar of the EU-Chile Association Agreement, Final report, for the European Commission, Directorate General for Trade, March 2012. http://trade.ec.europa.eu/doclib/docs/2012/august/tradoc_149881.pdf There was, however, an earlier study Copenhagen Economics, Ex-Post Assessment of Six EU Free Trade Agreements, An econometric assessment of their impact on trade, prepared for the European Commission, DG Trade, by, February 2011 http://trade.ec.europa.eu/doclib/docs/2011/may/tradoc_147905.pdf The European Commission may have considered this earlier six-nation assessment a pilot, since the Chile study refers to itself, and is referred to elsewhere by the European Commission, as ‘the first wide-ranging, ex-post assessment of a specific bilateral trade agreement carried out at the request of the European Commission.’ p.29, op.cit.

[2] This investigation is described in full pp.45-52, Michael Burrage, Where’s the Insider Advantage? Civitas, London 2015

[3] If they found the pilot study relying on OECD import data credible, they might add Syria and Macedonia.

[4] Since we have not attempted to isolate the impact of the trade agreement from other variables that might have contributed to post-agreement growth, we should perhaps call them apparent success stories. There may be other hidden success stories, countries where the growth rate of UK exports might have fallen still more than it did but for the EU trade agreement.

[5] To discover whether the minimum five year before and after comparison rule might have hidden other EU and UK success stories, comparisons were conducted for some of the larger partner countries that fell foul of it and had to be omitted. South Africa UN Comtrade data only begins in 2000, the date of the agreement, but there was data for three years prior to the FTA with Turkey in 1996, and it showed a pre-agreement CAGR of 8.06% and a post-agreement CAGR of 8.36% i.e. little change. In Columbia the pre-agreement CAGR 2010-2012 was 10.6 % and post-agreement 0.8% , and Peru over the same pre-agreement years 10.2% and post-agreement 0.8%. From which one might best conclude there was some sense in the five year rule.


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