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The failure of the Single Market 1993-2012

In terms of the growth of UK exports to other members, the Single Market has been an era of decline, though not for those of non-members. This contrast has attracted little attention from politicians or analysts


We may begin to compare the Common Market with the Single Market decades by again taking UK exports to the other 11 founder members, and compare the growth of these exports with that of 34 non-member countries. The results are presented, as we have previously, in a rank of the top 35 fastest-growing exporters.

Chapter 19 - table

Over these decades, a number of smaller countries had entered export markets for the first time. Often they have tiny starting figures and therefore record high growth rates. Simply to keep the list manageable, a minimum requirement of exports to the EU11 of at least $500m per month in 2012 was set for inclusion in the comparison. As in the Common Market ranking, the exports of these 34 countries to the UK were subtracted from their totals, since the UK cannot, of course, export to itself.

Twelve of the countries in the table are starred (*) to indicate that they enjoy trading advantages with the EU by virtue of Free Trade Agreements (FTAs) they have negotiated with the EU. These came into force either before or during these decades of the Single Market.[1]

The UK, it may be seen, has fallen from 15th position under the Common Market years to 31st under the Single Market years. This is fractionally below the rate of growth of the rest of the exports of other founding members of the Single Market to each other. 30 non-member countries, many of whom have had to face tariff and non-tariff barriers, have therefore been able to increase their exports to 11 founder members of the Single Market at a faster rate than the UK. In addition, these non-member countries have not been sitting at the table and helping to make the rules.

To some degree, this fall is not unexpected, since even after excluding some 19 mini-exporters, the ranking still includes a number of what UNCTAD calls ‘emerging’, ‘transitional’, ‘middle-income developing countries’ as well as ‘petroleum and gas producing countries’. In many cases, the value of their exports was extremely low at the start of the period and they therefore show high rates of growth during it.

In many contexts, one would not want to consider these smaller newly-emerging exporters alongside ‘major exporters of manufacture goods’, long-established in world trade, like the UK. In the present context, however, it is of some interest to observe how they coped with exporting to the Single Market. They are, compared with the UK, doubly disadvantaged in the sense that they not only face the tariff and non-tariff barriers of the Single Market, but also the obstacles of opening new markets. It is not unusual for UK exporters to complain about the latter. Plainly, many have coped, and even prospered, despite their double disadvantage.

The fall in the UK’s rank order position is certainly not due simply to the inclusion of these newly-emerging exporters. The real growth of UK exports over these exporters was only 72 per cent, whereas over the Common Market decades it was 192 per cent. That decline is real. More importantly, over the Common Market decades we observed that UK exports had grown more than those of Australia, Argentina, Canada, Switzerland, Norway and South Africa, all of which were already established exporters of the day. In contrast, during the Single Market decades UK exports grew less than all of them except Argentina. That is a second indication of a real decline.

Another take on this decline may again be presented by a graph, similar to that for the Common Market decades, comparing the growth in value of UK exports to the other 11 EU members over the 20 years of the Single Market with that of the same seven OECD, non-EU countries.

Over the first six years, from 1993 to 1999, it may be seen that the value of UK exports still grew at a faster rate than the seven OECD countries, though with nothing like the same lead it enjoyed during the Common Market years. From 2000 to 2004 the differences are slight, but from that year on, the UK slipped behind their rate of growth, and from 2009 more markedly behind, so that by the end of 20 years in 2012, the exports of the seven OECD countries recorded real growth of 124 per cent whereas the UK’s was only 72 per cent.

Chapter 19 - graph

The American comparison

The comparison with the United States is again especially telling. We have seen how the UK, in total value, overtook US exports in 1973 at the moment of entering the Common Market. The UK then pulled steadily ahead over the next twenty years so that exports were 50 per cent higher in value in the final year of the Common Market. Uncannily, 1992 was to be their high point. Ever since, the differential between the value of UK and US exports has been declining. The US real growth to 2012 was 128 per cent, slightly above the OECD 7 mean, and as a result they had, at $23.2b per month, almost equalled the value of UK exports ($23.6b), though still not overtaken them.

These changes in the relative position of the two countries gives reason to question the familiar, rather lazy defence of low UK growth, that since the value of UK exports is high relative to non-members, one must expect its growth to be low. The high value of UK exports in 1973 did not prevent them growing more than those of the US over the next twenty years, and the relatively high value of US exports in 1992 did not prevent them subsequently all but catching up with the UK.

Contrast with the Common Market

The graph of the Common Market years gave grounds for thinking that UK exports had benefited from membership, that there was some kind of insider advantage. We were not altogether sure what it was, and still have to wait on research that takes account of all the many factors that may affect export performance to identify it.

In the case of the Single Market, it is difficult to believe that there are any benefits from membership, or any kind of insider advantage. Even if there were in the early years, it has been disappearing the longer it continued to harmonize, regulate and level the playing field of its members.

It might perhaps be argued that there was and is an insider advantage, which for the moment we cannot identify, and that without it, the growth of UK exports would have fallen below 31st place, registered still less than 72 per cent real growth, and fallen still further behind these other six OECD countries. However, that is only worth considering if we have grounds for thinking that UK exports would have fallen dramatically if the UK had not joined European Single Market.

Improbable claims

One of the more improbable claims about these opportunities was made by Ed Davey, when Minister of State at the Department of Business, Innovation & Skills. He told the House of Lords Select Committee in 2010 that ‘EU countries trade twice as much with each other as they would do in the absence of the Single Market programme.’[2] Another was made by the Centre for European Reform. It constructed an economic model which showed that Britain’s EU membership ‘has boosted its trade in goods with other member states by 55 per cent’.[3]

These claims refer to trade (i.e. imports plus exports) rather than exports alone, so one must assume they would claim slightly less for the growth of exports, but both have been examined in some detail elsewhere and shown to be far beyond the credible.[4] Applying them roughly to the present evidence, Davey’s would mean that, had it not been for the Single Market programme, the real growth rate of UK exports to its members would have been somewhere around 36 per cent over the 20 years of the Single Market. When looking at the CER’s claim, had it not been for EU membership, the real growth of UK exports to these countries would have been around 50 per cent. If the former were true, the UK would not have made these rankings at all, and would have had one of the world’s lowest rates of export growth. If the latter were true, it would have been in 34th position. But neither need be taken seriously. They have merely succumbed to the Single Market myth.

In 2005, an HM Treasury team estimated that EU membership had increased UK trade with other members by 7 per cent.[5] This has at least the merit of being within the bounds of the possible.

Possible explanations

This evidence only reports what has happened. It does not explain why the exports of UK goods should have performed rather poorly by comparison with the Common Market decades, and confounded all reasonable expectations, extravagant promises and confident claims about the benefits of the Single Market programme.

Among the plausible explanations are the contemporaneous fall in the level of EU tariff protection and in the trade costs of non-members,[6] as well as the adoption of the euro. From non-members’ point of view, the euro is after all a public good. Whatever its disadvantages for member countries, it has been extremely convenient for non-member exporters to have just one unit of account and one rate of exchange for all transactions for all 11 of these countries, given that the Danish kronor is pegged to the euro.

Enthusiastic British supporters of the Single Market continually claim that there are invaluable advantages for the UK and other members from sitting at the table and helping to make the rules. This evidence suggests that sitting at the table makes no difference whatever, and that if invited to do so, non-members would be well advised to decline, which they would probably do anyway, when told what their country’s taxpayers would have to pay for the privilege.

Notes

[1] The agreements with Norway and Switzerland came into force in 1973, Turkey in 1996, Tunisia in 1998, Mexico and South Africa in 2000, Egypt in 2004, Algeria in 2005, Korea in 2011, Columbia in 2013 and the agreement concluded with Ukraine in 2014, which came into force on January 1st 2016.

[2] House of Lords Select Committee on the European Union (Sub-Committee B), Inquiry into Re-launching the Single Market, Oral and associated written evidence, Department for Business, Innovation and Skills, written evidence (EUSM 7), 14 October 2010, p.110, Available from: https://www.parliament.uk/documents/lords-committees/eu-sub-com-b/singlemarketinquiry/singlemarketwo.pdf Oral evidence was given on 24 January 2011, pp.119-137.

[3] Centre for European Reform, The Economic Consequences of Leaving the EU, London, June 2014, p.10, Available from: https://www.cer.org.uk/sites/default/files/smc_final_report_june2014.pdf

[4] M. Burrage, The Myth and Paradox of the Single Market, London, Berforts Group Ltd, 2016, pp.8-88, pp. 161-167, Available from: http://www.civitas.org.uk/content/files/mythandparadox.pdf

[5] HM Treasury, EU Membership and Trade, 2005, p. 7, Available from: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/220968/foi_eumembership_trade.pdf

[6] Examples include comprehensive containerisation, more efficient customs procedures, and lower transport and cargo handling charges.


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