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Paradox in services: non-members have been its major beneficiaries

Another paradox. The services exports to the EU of non-members who have not been ‘sitting at the table, helping to make the rules’, have grown as fast as those who have

When we ask the same question of services we run into the usual problem of inadequate data. The best way around it is abandon export data altogether, and rely entirely on the import figures that have sometimes been used as a substitute for missing export figures. This means that instead of using, say the reported figures of China’s exports to the EU, we use the imports from China reported by EU members. For a variety of reasons these two figures are not the same, but as long as we do not mix the two kinds of figures, we will not be confused or misled. For some curious reason, import figures are often more complete than export data, and have no omissions on grounds of ‘confidentiality’ or anything else. There is therefore little choice, unless we wish to keep making estimates of missing data entries.

There are, however, losses as well as gains in doing this. Figures of services imports begin at a later date, but from 2004 they provide a complete return for the 35 OECD countries, and 28 non-members, and from 2006 for more than 150 countries. In the present context, the file on the EU27 is particularly useful since it includes the 27 EU countries themselves as countries from which the EU27 has imported services alongside other OECD members and non-members. It thus provides a simple means of comparing the performance of EU members and non-members as exporters to the EU 27, which cannot be done with the real export data. The only flaw in the comparison is that EU countries cannot import from themselves, hence their exports are to the other 27 EU countries, while non-members’ exports are to all 28. Unfortunately, there appears to be no way of circumventing or measuring how this might bias the outcome, so we will have to live with it.

All the countries from which the EU imported services, and whose file gave full details of their imports to the EU27 from 2004 to 2012 were eligible for inclusion in this comparison, but to keep a manageable number they were subject to one filter: their imports were required to have a recorded total value of at least $1bn in the year 2012. In total 47 countries qualified, 23 of them EU members and 23 non-members. Table 28.1 presents the results, ranking the 47 countries according to the CAGR of their exports, in 2004 US dollars, to the EU over the nine years to 2012. The value of their exports in 2012 is also given. EU member countries are shaded.

Chapter 28 - table

If it were true that the Single Market had benefited the services exports of its members to each other, we would expect the member countries to figure disproportionately among the high growth exporters at the top of the ranking, and therefore to be disproportionately on the left hand side of the table. A slight tendency in that direction is visible, in that the top left quadrant of the table is more shaded than the top right quadrant, though it is also worth noting that countries in the top left quadrant are mainly 2004 EU entrants. Six of the 13 Single Market members on the left hand side are 2004 entrants and two are 2007 entrants, whereas nine of the 10 on the right hand side are founder members, and include all the larger EU economies – Germany, the UK, Italy, France and Spain – while the tenth, Austria, entered in 1995.

If we use the CAGR as a score of so many points, the EU member countries outscore the non-member countries. Their mean score is 4.5 versus non-members’ 3.9, though it should be remembered that the EU countries enjoy an advantage over non-members that is known to be a decisive determinant of trade growth, and has absolutely nothing to do with the EU: geographical propinquity.

A two-sample, two-tailed t test shows that there is no significant difference between the mean growth rates (p=0.473). A Mann-Whitney non-parametric test on the rankings (unpaired, with two samples) agrees. There is only a 55 per cent probability that export growth from a random EU country will exceed that from a random non-EU country. The fact that even with their in-built geographical advantage, the growth of EU members’ exports to each other cannot be distinguished from that of non-members is an important finding, leading one to wonder whether a Single Market in services actually exists.

If one sets the initial admission filter higher, and compares only those economies with exports of at least $10bn in 2012, we are left to compare 16 member countries with 10 non-member countries. The mean CAGR of the members was 3.6 per cent and that of the non-members was 5.3 per cent. Amongst high value exporters therefore, it is the non-members that have appear to have grown faster. However, this difference is not significant either. The two-tailed t test has a p-value of 0.24, and the non-parametric test gives only a 66 per cent probability that the growth of the exports of a random non-EU member will exceed a random EU member. This suggests that there are many more important determinants of the rate of growth of services exports to the EU than the advantages or disadvantages of membership. In all probability, we will only discover what they may be with much more detailed studies of disaggregated services sectors.

For the moment, we may simply note that the growth of non-members’ services exports to the EU has not actually outpaced that of members, and so they are not, by this statistical measure, quite as much of a paradox as goods exports. We may fairly conclude that sitting at the table, helping to make the rules, and paying, have not helped UK services exports in the least. It is strange that anyone would think it worth paying to do so, or be terrified by the prospect of not being able to do so.

Once however, we remember that member countries enjoy the massive, inherent, and oft-demonstrated advantage of geographical propinquity, and since some of them, including the UK, must pay considerable sums to remain members of the Single Market, and that they also accept free movement of people, and other limitations of their sovereignty, there cannot be much doubt that, in value-for-money terms, they have been far outperformed by non-members. Services are therefore another example of the paradox: non-members out-perform members. They have, once again, been the main beneficiaries of the Single Market.


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