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The success of the Common Market 1973-1992

Before measuring the advantages of membership of the European Single Market, it will be useful to look back to the Common Market, which many older voters will say is the market they voted for 1975.


Setting up a fair comparison

So that we can make fair comparisons of an equal number of 11 member countries, we have to assume that Greece, Spain and Portugal became members along with the UK, Ireland and Denmark in 1973, instead of 1981 and 1984 respectively. We also have to draw a dividing line in 1992 as marking the end of the Common Market, and 1993 as the start of the Single Market, so that we can compare two decades of both. In fact, the Single Market reforms were agreed in the Single European Act of 1986, and phased in gradually over subsequent years. 1 January 1993 was merely the formal inaugural date.

The illuminating metric

We will take export growth relative to non-member exporters as the critical index of success or failure. This is a more illuminating measure than either the absolute value of exports to the EU, or the proportion of exports going to the EU, since the value and proportion of UK exports to its near neighbours were both higher than many non-member countries long before the UK entered the common market. Nor is growth of trade as a whole particularly illuminating. Nine years out of every ten trade grows in most countries of the world that are not at war. The volume of trade is the sum of imports and exports so an increase in trade alone might simply mean a large increase in imports and no increase in exports. The UK might be said to have joined the European Community to increase its Chapter 18 - tabletrade with other members but, more specifically, it hoped to increase its exports to them. Since we wish to know if any observed increase is out of the ordinary, the most important single measure is the increase in the rate of UK exports compared to non-member exports to the same 11 EU members.

Table 18.1 presents a list of the 35 fastest-growing exporters to the 11 members of the EU who were to be the founding members of the single market[1] over the two Common Market decades.

It shows that growth of UK exports over the 20 Common Market years increased by 192%, putting it in 15th place overall. However, most of those above the UK on the list were either emerging exporting countries or oil producers. If these were eliminated, the UK would have been very near the top of the list, with Japan ahead, and only Singapore, China and Hong Kong, and possibly Turkey, as contenders for second place, depending on which of them we wish to exclude as start-up exporters.

Moreover, the growth of UK exports in these decades exceeded that of the United States and several other countries that were well-established in the global trading networks at the time: Australia, Argentina, Canada, Switzerland, Norway, Switzerland and South Africa.

The comparison with the United States is especially telling. In 1973, the average monthly value of UK exports of $994m per month was slightly lower than the $1,006m of U.S exports. In 1974, it surpassed them, and then continued to grow at a faster pace until 1992 when, at $9,170m, their value was nearly 50% higher than the $6,108m value of U.S exports. Demonstrating that the country with the highest monthly average value need not invariably have a low rate of growth.

There are, therefore, grounds for thinking that the UK enjoyed certain advantages in exporting to fellow EU members over these years.

The figures vindicate those who voted to remain in the common market because they thought free trade would mean an increase in exports to fellow members.

Here is another take on exports over the same common market decades. Figure 18.1 compares the growth in the total value of UK exports of goods to the EU11 with the mean of seven founder or long-standing members of the OECD: Australia, Canada, Iceland, Japan, Norway, Switzerland and the United States, whose trade with EU countries was well-established, and well-documented at the time. Over all the Common Market years, as may be clearly seen, UK exports to the EU grew at a decidedly more rapid rate than those of these seven OECD countries, and by the end of the two decades had grown almost twice as much. This result is still more remarkable when one remembers that the seven OECD countries include Japan, which over this period was at the height of its export-led rapid growth years.

Chapter 18 - graph

Over these years, therefore, it is plausible to argue that the UK enjoyed some kind of insider advantage because of membership of the European Common Market.

But what kind of advantage was it? The directives and regulations which have ‘harmonised’ the member countries under the single market were barely under way, and indeed the entire EU institutional apparatus, surrounded by lobbyists/stakeholders and its culture of comitology, were still rudimentary. Apart from the bracing effects of competition within the common market, there are three possibilities that first come to mind. First, the strong economic growth in France, Germany and Italy, which may or may not have been a consequence of the Common Market. Second, the one distinctive characteristic of the Common Market over all those years, the rather high common external tariff. Perhaps this tariff restricted the growth of the exports of the seven OECD members, to the advantage of the UK which, as an EU member, was not subject to it.

The third possibility is that other trade costs, and in particular transport costs, were still high. As a result, the UK enjoyed the advantage of being the near neighbour of its customers, whereas the four largest of the other OECD exporters were geographically distant. That, as the popular gravity theory of trade insists, can make a difference. The rule of thumb derived from this theory is ‘other things being equal, doubling the geographic distance between countries halves the trade between them.’[2]

Our task here, however, is not to find an explanation of the remarkable growth of UK exports over these years, but the much simpler one of documenting it and providing a marker, helping us to see how well exports have performed later under the Single Market.

Notes

[1] This is taken from the discussion and documentation of the evidence to support this theory in Pankaj Ghemawat with Steven A. Altman DHL Global Connectedness Index of 2011

[2] 12 members founded the Single Market however the UK has been excluded.


 

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