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Does a Single Market in services exist?

Since no one in the UK has measured the Single Market in services, no one can say whether it has been deepened or extended or by how much. In fact, no one say for sure that it exists


Successive British prime ministers have placed great hopes in the extension, deepening or completion of the Single Market in services. Since, however, they have never asked anyone in HMT or any other government department to measure it, it is difficult to see how they will ever know whether any of these desirable things are happening. More importantly, how would they know it even exists? In this chapter we will review some of the evidence.

Although the data on services is available only for recent years, enough is available to throw doubt on the existence of the EU Single Market in services. For instance, the proportion of UK exports to OECD countries, over the years 1999-2011 going to 14 major EU countries was virtually stable, though with a marginal decline from 48.9% to 47.7%. UK services exporters over these years do not therefore show any signs of having benefited in any way from this Single Market.

Chapter 30 - graph

However, the proportion of UK exports going to the three independent countries who participate in the Single Market but are not members of it, has trebled in this relatively short period, from 6.1% to 20.2%. In real terms, US(1993)$, UK services exports to them grew by 145%, while those to fellow members of the Single Market grew by only 68%, which is slightly less than the 72% growth of UK exports to all 33 OECD countries. Membership of this Single Market, far from increasing exports to other members, may have increased it to non-members and especially to Switzerland which has no bilateral services agreement with the EU. This is disconcerting, and not what one would expect if the Single Market in services was having a beneficial impact on UK services exports.

Other datasets only reinforce the doubts. For instance, as shown in Chapter 28, data on the fastest growing markets for UK services exports showed that those to 12 non-member countries, though much lower in value than those to the EU14, were growing more rapidly over the years 1999-2010. That is also disconcerting since the primary goal of the Single Market is to increase the growth of exports.

The European Commission’s preferred measure

The European Commission is seldom slow to congratulate itself on its successes but on the Single Market in services it is unusually diffident. A European Commission staff report in 2007 found that ‘there is little difference between trade (in services) between EU25 member states and trade between the EU and third countries.’ They illustrated this finding with a histogram which showed that, in 2004, intra-EU exports were about six or seven per cent of EU GDP, while extra-EU exports were roughly nine per cent, which suggested to them, as they tactfully put it, ‘that the internal market does not yet fully play its role in the services sectors’.[1]

In the January 2015 update of their online Statistical Yearbook they again refer to the ratio between intra and extra-EU exports as a proportion of GDP, noting that intra-EU trade in goods is ‘two thirds higher than exports to non-member countries’, from which they infer that the Single Market in goods is highly integrated. In the later section on services they observe that, by contrast, intra-EU trade is only 55.2 per cent of all exports, and imply that there had been little change over the intervening eight years.[2]

Although the ratio of intra- and extra-EU exports as a percentage of GDP is the European Commission’s preferred measure of the integration of the Single Market in both goods and services, Eurostat does not provide a continuous, accessible series of these ratios.[3] However, OECD databases, allow us to construct a substitute, albeit with a good number of missing data entries. Most of these are marked ‘non-publishable and confidential value’, though they were, as the OECD confirmed in writing, nonetheless included in the world tables used to calculate the extra-EU exports, so that part of the calculation below is unaffected. However that leaves a good number of missing entries for particular countries, and they have been filled in the table below by giving the import figures reported by the recipient country as detailed in the note below Table 30.1.[4]

Chapter 30 - table 1

I would much prefer not to have to do this. However, it seems better than any other option such as estimating the missing entries from the given ones. And one must remember what is at issue. This is an attempt to give voters for the first time an impartial measure of something that their government has never bothered to measure, at the same time as telling them that it is one of the most important reasons for remaining a member of the EU.

The table shows intra-EU and extra-EU exports of the 12 founder members of the Single Market as proportion of their GDP over the years from 2002 to 2012. Intra-EU exports are to the other 11 founder members plus the eight other members for whom there is a fairly continuous set of figures over these years.[1]

The European Commission’s preferred index of the degree of integration of the Single Market in services is the difference between the first two shaded columns, which is given in the third. As may be seen, the difference is a very small percentage of GDP. While intra-EU exports have always been a slightly larger percentage of GDP over these 11 years, they only climb to more than one per cent larger in the years 2004 and 2006-8. Having peeped over the horizon, so to speak, the Single Market in services thereafter trailed away, so that it was, by this index, rather less integrated in 2012 than it was in 2002.

Chapter 30 - table 2

In the light of these figures, one may reasonably doubt whether a Single Market in services can be said to exist, least of all for the UK. A doubt remains of course because the import figures we have been obliged to use may systematically depress the intra-EU export figures, in which case the intra-EU exports would be higher than those given and hence the difference in the final column would also be higher. However, most of these substitutions refer to the earlier years, so it is unlikely that it would be far from the truth about the later years.

One suspected that without any measure to guide them, Prime Ministers might get it wrong. And so it has proved. The Single Market in services has not been widening or deepening over these years in which they have been urging it to do so, and citing it as a good reason for remaining a member of the EU. It has been shrinking and subsiding, or perhaps evaporating.

The UK’s extra-EU exports are not only growing at a faster pace than its inter-exports, (that is also true for every member country except France), but it is the only member country whose intra-EU exports are of much lower value than its extra-EU exports, as Table 30.2 shows.

Obviously, 19 near-neighbours collectively constitute a large and important market for the UK services, but they are not a market that has provided distinctively better opportunities for UK exporters than other world markets. The EU’s Single Market differs from other world markets in that the UK has helped to write its rules, requires a hefty annual contribution and is growing much more slowly. Nothing more. France alone has found it provided slightly greater opportunities than the rest of the world. No other member country has done so.

There are questions therefore that will not go away:

  • Why would the UK or anyone else bother to sit around the table, help to make the rules, and pay a hefty fee for something that it is shrinking and evaporating, and can hardly be said to exist at all?
  • Why would anyone try to persuade voters that it would be a terrible fate if the UK were no longer to engage in these activities?
  • Still more puzzling perhaps, why would the UK accept the rule which forbids them helping their exporters by negotiating services trade agreements around the world?

Notes 

[1] Ilzkovitz, op.cit., p.32.

[2] Europe in Figures’, Eurostat yearbook, section on international trade in goods: http://ec.europa.eu/eurostat/statistics-explained/index.php/Eurostat_yearbook.

[3] After its recent lengthy investigations of the services market, European Court of Auditors the noted that it was widely recognised that the services market had not ‘achieved its full potential’, and criticised the Commission for its reluctance to take legal proceedings against infringements. However, it also suggested no means of measuring this market, and therefore no means knowing whether it had achieved full, half or none of its potential.

European Court of Auditors, Has the Commission ensured effective implementation of the Services Directive? Special report No 5/2016:

http://www.eca.europa.eu/Lists/ECADocuments/INSR16_05/INSR_SERVICES_EN.pdf

[4] Substitutions of this kind were necessary in more than a third of all cells, 892 out of 2,508. They are far from ideal substitutes since import and since import and export figures are collected by different agencies, no doubt using different methodologies. And exports are usually measured FOB and imports CIF (FOB means ‘free on board’, separated from insurance and freight; ‘CIF’ means ‘cost, insurance and freight’ so is a different measurement.) However, they are probably better than any reconstructed estimate.

[5] Three of the eight joined in 1995 (Austria, Finland and Sweden), and five in 2004 (Czech Republic, Hungary, Poland, Slovakia and Slovenia).


 

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