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The UK’s lost years of freer trade

Switzerland and Singapore show what UK might have done had it been able to negotiate its own trade agreements. They suggest that part of the price of EU membership for the UK has been many lost years of freer trade


In preceding chapters we have recorded the inclination of the European Commission to prefer trade agreements with small economies, which in about one third of cases do not include services. They have also been disinclined to negotiate with Commonwealth countries, which may be the most promising markets for UK goods and services.

In all these respects, the European Commission has been consistently outpaced by several small independent countries, but its failure has not attracted much interest or concern in the UK. In over forty years, the UK government has never, it seems, found fault with the European Commission’s negotiating strategy. The CBI, numerous trade associations and multinationals seem never to have noticed what was happening. When asked by the Balance of Competences Review, they expressed complete satisfaction with the European Commission’s performance, and were confident that by itself the UK could not have negotiated as effectively. The promise of TTIP may perhaps have distracted them.

The failings of the European Commission in trade negotiations have therefore passed without notice, but they nonetheless have costs, paid in lost opportunities, not by established multinationals, but by SMEs, start-ups and entrepreneurs who might have benefited from the additional opportunities that trade agreements can provide.

This chapter gives an initial rough estimate of the scale of the lost opportunities for UK firms, in terms of lost years of freer trade, by comparing the dates the trade agreements of Switzerland and Singapore came in to force with those negotiated by the EU which UK firms have had to live with. It assumes that an independent UK negotiating its own agreements might have kept pace with one or both of these countries. There are, of course, many differences between them, but there are also some resemblances. All three have large service sectors, within which financial services are especially prominent, all of them have very high proportions of FDI, none are self-sufficient agriculturally, and all depend heavily on foreign trade. All have high incomes, the UK being the poorest of the three.

A comparison between them is not, therefore, a total mismatch and it is not wholly unrealistic to suppose that an independent UK would have been able to keep up with them in negotiating agreements. Indeed, Switzerland provides a kind of experiment of what might have happened if the UK had remained a member of EFTA instead of joining the EU, since a number of Switzerland’s FTAs were negotiated under EFTA auspices. If anything, the UK might well have run ahead of the Swiss, since UK agricultural interests are less numerous, less powerful and less protectionist than the Swiss.

Keeping pace with Singapore would no doubt have been considerably more difficult. The limited size and range of its industries means that it is likely to have fewer vested interests to negotiate over partner counties. It also has an all-powerful executive branch of government which is wholly dedicated to economic development, and can conclude agreements quickly. However, the two countries offer rather different versions of what might have happened if the UK had been free to negotiate trade agreements for itself. The table presents the result of this exercise:

Chapter 36 - table

Table 36.1 shows when goods and services agreements of Switzerland and Singapore came into force and the date in which the EU equivalent agreement came into force. Nil means there is, as yet, no EU equivalent. Most importantly the table shows the years of freer trade that the UK has lost by being a party to the European Commission agreements, compared with what it might have enjoyed if it had negotiated its own at the same pace as Switzerland or Singapore. In three cases, Egypt, Mexico, and Central America, EU agreements preceded the Swiss. Hence they are years of freer trade gained rather than lost.

In one respect the table is unfair to the EU. This count started from Swiss and Singaporean agreements to see whether the EU had managed to keep up with them. But the EU has concluded a good number of agreements before or during these years for which there are neither Swiss nor Singaporean counterparts. There are 13 goods, and 6 service agreements which have no Swiss counterparts and 28 goods and 6 service agreements without Singaporean ones.[1] So the UK has benefited rather more by EU membership than this table indicates. But not that much more, since the EU agreements tend to be with small countries. The combined GDP in 2014 of all the EU’s trading partners was, as we saw in Chapter 32, only $6.5tn, whereas that of Switzerland’s partners was $23.2tn, and of Singapore’s was $39.6tn.

The six EU service agreements which neither Switzerland nor Singapore have matched, are with the Cariforum states, Serbia, Moldova, Montenegro, FYR Macedonia, and Georgia. Their combined GDP in 2014 was $0.22tn, which is a little more than that of Peru. But then Switzerland has had five more years of freer services trade covered by its agreement with Korea (GDP $1.41bn)  and Singapore has had, so far, fourteen years of freer services trade with Japan (GDP $4.61bn).

A final comprehensive balance sheet would not therefore be quite so depressing for the EU, or the UK. The main point of this exercise, however, is to show that there is a case for a balance sheet, preferably annual, and preferably to include assessments of the contribution of agreements to the growth of exports. Thus far there has never been one. Instead we have been told by Messrs Blair, Cameron, the CBI and others that by itself the UK could not possibly match the heft and negotiating leverage of the EU in concluding trade agreements. They somehow know this without making any attempt to examine the record of the European Commission and compare it with that of any independent countries.

Switzerland’s and Singapore’s negotiators have not only matched but far surpassed those of the European Commission. The price has been paid by UK businesses that have lost many years of freer trade.

Notes

[1] The 13 are Syria, Andorra, Jordan, South Africa, San Marino, Algeria, Cariforum, Côte d’Ivoire, Papua New Guinea, Fiji, East and South African states, Moldova and Georgia. The 28 are the 13 mentioned plus Lebanon, Egypt, SACU, Canada, Serbia, Albania, Columbia, Ukraine, Montenegro, Central America, Bosnia & Herzegovina, Morocco, Israel, Mexico, FYR Macedonia.


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