There is little doubt that the EU is an important market for UK exporters, albeit one that is declining in significance. Last year the EU share of Britain’s exports of goods was just over 50 per cent (compared with nearly 60 per cent in 2003). The share of exports of goods and services, taken together, was a shade under 45 per cent (more than 52 per cent in 2003).
There are many British jobs that are associated with this trade. Though when account is taken of the “jobs lost”, reflecting Britain’s healthy appetite for EU imports and large trade deficit with the EU, it is, arguably, a net job loser. That aside, many British businesses benefit from their EU trade and few would wish to see it disrupted in the event of Britain’s departure from the EU.
Britain’s goods exports with the EU would face the EU’s Common External Tariff (CET), if there was a Brexit, unless a free trade deal was agreed with the EU. According to the House of Commons library the average weighted tariff is only about 1 per cent, which could, arguably, be ignored. However, tariffs could be an issue for the car industry, for example, where the CET is nearly 10 per cent. (Services, more than 43 per cent of the UK’s total exports of goods and services, are not, of course, subject to tariffs.) It would be in Britain’s interests to negotiate a free trade agreement for goods, in which there would be no internal tariffs. The key issue would then be whether such a deal would be in our EU trading partners’ interests.
Given the importance of the UK market for many EU exporters, the answer would surely be a resounding yes. We frequently hear about the importance of the EU market for British exporters. However, we should hear much more about the importance of the British market for EU exporters. As the chart shows, about 17 per cent of Ireland’s exports are destined for the UK market and about 8 per cent to 9 per cent of Danish, Dutch and Belgian (though the data for the latter two are probably distorted upwards by the entrepôt trade of Rotterdam and Amsterdam). A very substantial 7.5 per cent of German exports find their market here. If Anglo-EU trade were to be disrupted after Brexit, there would be some very unhappy continental exporters.
Interestingly, the UK has assumed greater significance for most major EU countries since the financial crisis, not least for Germany, which accounts for more than a quarter of all EU goods exports to the UK. Between 2008 and 2013 German exports to the UK have grown overall, while the French market has weakened and the Italian market has fallen quite sharply. Given the UK’s more favourable growth prospects, it can be expected that these trends will continue.
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Another way of looking at the significance of the British market is to consider our ranking in our ten major EU partners’ trade. The UK was the second largest export market for Germany, Ireland and Poland in 2013, the third largest for Denmark, fourth largest for the Netherlands, France and Belgium and fifth largest for Italy, Spain and Sweden. Exports to the UK matter.
Moreover, exports to Britain contribute to EU countries’ GDP and many jobs are dependent on the British consumer. In Germany, exports to the UK comprise more than 2.5 per cent of GDP, not to be sniffed at when growth is so modest. Granted these countries import from Britain, although, with the exception of Ireland, they run trade surpluses. For Germany this amounts to more than 1 per cent of their GDP. Estimating the number of jobs dependent on trade is difficult, but there could be up to three million such jobs in our ten major EU trading partners, including one million in Germany.
In any trade negotiations we would not be supplicants begging for favours. We would be holding a very strong hand of cards.
Ruth Lea is economic adviser to Arbuthnot Banking Group