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Paradox in goods exports: non-members have been its major beneficiaries

It is a puzzling paradox that the exporters from non-member countries who do not sit at the table, and help to make the rules of the Single Market, and pay nothing for access to it, have been its main beneficiaries in terms of the growth of their goods exports


One of the most familiar arguments for remaining a member of the EU is that the Single Market is vital to the British economy. Leaving the EU would therefore be a disaster since the UK would be obliged to negotiate access to it in order to survive, and the price our former partners would require us to pay would be a high one and would entail costs and obligations very similar to those we currently pay as members. There is therefore little point in leaving the EU.

The argument rests on an imagined black and white, day and night contrast between membership, which has facilitated trade with other members enabling exporters within the market to thrive and prosper, and those outside which have faced formidable tariff and other barriers. Non-members therefore, have been engaged in an uphill struggle to make modest gains against their privileged competitors within the Single Market.

This contrast is entirely imaginary because no one who makes use of it to advance the cause of EU membership has ever bothered to measure the disadvantages of non-membership. Some empirical evidence in Chapters 17-21 showed that this contrast did not square with some known facts: the exports to the EU of both goods and services of a great many non-members have grown faster than those of the UK.

However, the evidence deserves more consideration since it is central to the entire debate. If the Single Market has not been particularly beneficial to UK exporters, there is no reason to pay the political and economic costs of membership, no reason to be especially alarmed about leaving it, and no sense at all in making great sacrifices after leaving to negotiate access to it.

Table 27.1 lists countries in order of the real compound annual growth rate of their goods exports to the first 15 members of the EU (EU-15) from 1993, the first year of the Single Market, to 2013, the most recent year for which data is available. Fourteen of the 29 are long-term members of the Single Market that had joined the EU by 1995. Luxembourg had to be omitted from the list since the OECD did not have adequate data for exports in many of these years. The other 15 countries are G20 members who are not members of the EU. The CAGR refers to each countries effective annual growth in exports to EU-15 members from 1993 to 2013.

The figures speak largely for themselves. The important conclusion is summarized in the difference in export growth between non-EU and EU countries. Non-members’ CAGR has been almost twice that of EU members.

Chapter 27 - table

In terms of export growth, therefore, non-members have been significantly greater beneficiaries of exporting to the Single Market than its own members, with only Japan and Indonesia recording growth rates noticeably lower than the EU mean. Export growth is also the crucial measure, since it is what the Single Market was meant to deliver to its members, and that is what the Prime Minister and many others think has been the main benefit of EU membership and is the most important reason for continued membership.

The performance of all the EU members is especially worth noting. The earlier data might have left room for the all-too-common response that the poor performance of UK goods exporters had something to do with Mrs Thatcher. The poor UK performance, over these years, is in fact the same as the poor EU average.

The low rate of German growth is perhaps the most surprising. The value of German exports is significantly higher than those of every other country, despite having benefited since 1999 from the extremely low rate of exchange of the euro, its exports to fellow members have still failed to grow as fast as those of 16 other members of the G20.

This evidence kills the idea that the Single Market has put non-members at a serious disadvantage. It manifestly hasn’t. Most of them have prospered mightily. This is useful to know since much, most and sometimes all, of the argument for continued membership rests on the notion that there is only a very grim future for UK exports outside the Single Market. It has not been grim for many non-members.

Many of the non-EU G20 countries have different export markets to the UK. As a result, we cannot assume that the UK would be able to equal the average performance of the other members of the G20 after Brexit. Still, there can hardly be much doubt which group it would be better to belong to.

Since the aim of the analysis was to identify the disadvantages of non-membership, similar comparisons were made with  other OECD countries, and with other countries whose exports to the EU in 2013 exceeded $2 billion, an arbitrary ceiling intended to exclude many small, and often fast-growing, exporters who have entered global trading networks only recently.

Chapter 27 - graph

The growth of the goods exports of all three groups to the EU-15 is compared with the growth of the goods exports of the long-term EU-15 members of the Single Market in the graph below (Luxembourg is excluded). There were a fair number of missing years, which are listed below the graph, and all of them were estimated from the proportion of exports to the same country in the missing years.

The three groups – the G20, other OECD countries, and exporters of goods over the value of $2 billion in 2013 – are rather similar to one another, perhaps not surprisingly since there is a fair measure of overlap between them. However, the main result is that, though the composition of the comparator groups’ changes, their growth in exports to the EU-15 is always significantly higher than that of the exports of the EU.[1]

They thus demonstrate that the familiar contrast, on which so much rests, between thriving secure members who have made the rules of the Single Market and non-members struggling against daunting barriers has been a figment of EU enthusiasts’ imaginations, and absurdly wide of the mark.

Questions arising

Why this should be so? Why should those who sit around the table, make the rules and pay the fees not be the main beneficiaries of their own deliberations and rules? This question is examined, but alas, not answered in Chapter 29.

Why did successive UK governments not notice what was happening? Why did the leaders of these governments, Messrs Major, Blair, Brown and Cameron continue to present a quite different, ill-informed picture to the British people? Why, for that matter do they continue to do so?

These figures are taken straight from OECD databases which are available to everyone. They do not rest on clever models of what might, could or should happen in the Single Market. They are the straight record of what has actually happened. How is it possible that four UK prime ministers in succession could be so misinformed?

How, come to think of it, is it possible that specialist economic papers like the Financial Times or The Economist who routinely report OECD data, never once over all these years thought that they should point out what was happening in the Single Market, so that their readers might fairly assess the advantages and disadvantages of membership and non-membership? These comparisons should have long since been familiar to them. Instead, they look like a scoop, a startling revelation from some hitherto inaccessible source.

Notes

[1]A two-sample t-test, assuming unequal variances, shows that there is a significant difference in the 1993-2013 CAGR in exports to the EU-15 between the non-EU G20 countries and the EU-15 (exc Luxembourg). A two-tailed test gave p=0.002 and a one-tail test confirmed that the non-EU G20 growth was significantly higher giving p=0.001, well clear of the p=0.05 confidence level. The difference remained significant after removing China (p=0.0013) and all the BRIC countries (p=0.012).


 

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