There has been a great deal of discussion about the EU's single market. The following is an extract from Chapter 2 of my recent book Brexit: the road to freedom, which I hope throws some light on the subject.
Neither the British state nor the EU had ever published an assessment of the single market's effects. No trade association or business had ever presented evidence that EU membership had enabled member companies to outperform their non-member competitors in trading with the single market. Nick Clegg wrote of the single market's 'untold benefits', which he declined to tell us about, and of its 'immeasurable benefits', which he declined to measure.
By comparison with the Common Market years from 1973 to 1992, the single market years from 1993 to 2015 were an era of falling UK export growth to the EU. We were 36th out of the 40 fastest-growing exporters to the other founder members of the single market. We had been overtaken by many of the countries that traded with the EU under WTO rules. In general, countries that exported to the EU under WTO rules were the fastest growing exporters to it, faster than countries which traded with the EU as fellow EU members, or under bilateral treaties, or as European Economic Area (EEA) members. China, the USA, Japan, Australia and many other countries had increased their exports to customers in countries in the single market faster from outside than we did from inside.
Most of our trade was conducted under WTO rules. Our biggest single-country trading partner and biggest export destination was the USA, where we sold around 17 per cent of our exports, under WTO rules. We did not have to be part of the USA to trade with it. Our trade under WTO rules was growing and was in surplus. Our EU trade was shrinking and in deficit. £111 billion of the total £115 billion foreign payments deficit we had in 2016 was with the EU27 and only £4 billion with the rest of the world. If membership of the single market and customs union worked for us, this would be the other way around.
Moreover, our exports to the 111 countries with which we had traded under WTO rules since 1993 grew four times more than our exports to the EU.[i] Our exports to the EU grew by only 10 per cent between 2010 and 2017, while our sales to the USA were up 41 per cent, to China 60 per cent, New Zealand 40 per cent, Japan 60 per cent and South Korea 100 per cent.
The Cameron government's pro-EU leaflet said, "No other country has managed to secure significant access to the Single Market, without having to … pay into the EU; accept EU citizens living and working in their country." But the EU was not a hermit kingdom, where you had to beg its permission before you could trade with it. Access to the single market meant being able to trade with businesses in single market countries. Membership of the single market meant being bound by single market rules. Access was consistent with the vote to leave the EU. Membership was not. Access did not require membership. Michael Wohlgemuth, Founding Director of the pro-EU body Open Europe Berlin, acknowledged that "one does not have to be a member of the single market in order to have access to it."[ii] By being a member of the EU, we were paying for access to a market that other countries got for free.
Access to the single market was not granted or withheld by the EU but was available to all nations. Businesses traded across borders not because politicians signed trade deals but because it made good business sense. We did not need trade agreements to trade. As Lord Bamford of JCB often said, to trade, you just trade.
The USA and China both sold more goods to the EU's single market than we did. Imports and exports worth $686 billion flowed between the USA and the EU in 2016, under WTO rules. The USA and China had $649 billion of trade, the EU and China $613 billion – all under WTO rules.
Some 160 or more countries all not in the EU still somehow sold to EU members - so we could too. We did not have to be a member to sell goods and services to customers in EU member countries. China was not in the single market yet exported 374 billion euros' worth of goods to the EU in 2017. The USA was not in the single market yet exported 256 billion euros' worth of goods to the EU in 2017. Russia was not in the single market yet exported 145 billion euros' worth of goods to the EU in 2017. Japan was not in the single market yet exported 68.8 billion euros' worth of goods to the EU in 2017. They all accessed the single market without being in the single market. None had a trade deal with the EU. All traded quite happily with the EU, under WTO rules.
Trade in services also flourished between EU members and non-EU members. EU financial regulations allowed non-members to access EU financial markets, as companies from the USA, Singapore, Hong Kong and others all did. Countries outside the EU sold service-sector exports into the EU worth more than 600 billion euros in 2015. From 2004 to 2012 the services exports of 27 non-members to the EU grew faster under WTO rules than the intra-EU services exports of EU members. Since a single market in services barely existed, there was little to be lost by leaving it.[iii]
The OECD said that EU nations had 'ample room' to keep trading in financial services after we left. It pointed out that "Erecting new barriers to financial services in the post-Brexit environment will not be in the collective interest of the global economy, where London plays such a key role in international banking, bonds and foreign exchange."[iv]
On 30 October 2017, the Bank of England claimed that up to 75,000 jobs could be lost in financial services after we left the EU. But the Bank was contradicting what businesses were saying. A Reuters poll of more than 100 finance firms suggested that the number of job losses would be just below 10,000 in the 'few years' after we leave. London was still the world's leading financial centre and after the referendum it even extended its lead.[v]
Trading with the EU under WTO rules was 'perfectly manageable', said Roberto Azevedo, the WTO's director general. 98 per cent of world trade was conducted under WTO rules, including trade in services and intellectual property through the WTO's roughly 30 constituent agreements. Tariffs under WTO rules were relatively low and falling. If talks broke down and the UK had to rely on WTO rules (average tariffs 1.5 per cent), the impact would be small. Worldwide the average tariff had declined from about 40 per cent in the early 1940s to 13 per cent in 1947, when the General Agreement on Tariffs and Trade was signed, to 6 per cent in 1994 when the WTO was signed, to its current record low. So, we were better off paying tariffs that were getting smaller all the time, rather than an EU membership fee that was getting bigger all the time.
Rules set by global bodies like the WTO increasingly governed world and EU trade. After leaving the EU, we will have our own seat at the WTO, instead of being represented (or misrepresented) there by the EU. Even if we were challenged in the WTO, our trade would continue. The WTO only accepted the EU's 2004 schedules in late 2016. Trade continued during that twelve-year gap.
EU members wanted to trade with Britain. We bought far more from them than we sold to them. The EU's GDP growth has lagged every other region for a generation. The eurozone economy was stagnant, hardly bigger than in 2003. The 85 per cent of the world economy outside the EU was growing far faster, offering us all kinds of trading opportunities. In 1999, 61 per cent of our trade was with the EU; by 2015 it was 43 per cent.
The rest of the EU sold us around £291 billion in goods and services a year but bought only £223 billion in goods and services a year in return. It had a trade surplus with us of £68 billion. They did not want to harm trade with us. We should be able to use our position as the EU's major buyer of export goods to negotiate trade in goods and access to financial services. Any attempt to make access to the EU market dependent upon mirroring EU regulatory regimes should be firmly rejected. The rest of the EU had a simple choice. Did they want to retain tariff-free access to our market or not? If not, then their access and our access would be under Most Favoured Nation WTO rules.
The WTO has Agreements whereby countries recognise each other's product standards - Technical Barriers to Trade (TBTs) and Sanitary and Phytosanitary (SPS) measures in the case of foods. Since the UK already had regulatory convergence with the EU, the EU would not be allowed to discriminate against UK goods entering the EU on grounds such as health and safety, because any discrimination would violate the Agreements. Under the TBT, product safety testing procedures were not allowed to be more onerous or be applied more strictly than necessary to give importers confidence that products conformed to the relevant technical standards. So, the EU was not allowed to impose regulatory barriers on UK goods without justification, if product and safety standards remained aligned. New EU barriers would be illegal under WTO rules, even with no deal.
Companies in EU member countries would want to stay tariff-free. If the EU imposed a vindictive policy (against the interests of member states and of business), then we would enjoy tariff-free trade on what we were good at like aerospace and services, whilst French agriculture would face quite high tariffs and German cars would face a 10 per cent tariff.
Obviously, every exporter must comply with the standards of the country to which it was exporting. For example, Jaguar Land Rover's auto exports to the USA differed from those to the EU regarding emission standards; in fact, even their exports to California must meet emission standards that differ from those in other US states. Companies sold to customers in the EU by meeting EU regulatory standards on specific goods and, where necessary, paying the low tariffs. These companies' home countries did not have to accept EU rules and laws, pay annual fees and embrace the EU's four freedoms of capital, labour, goods and services. The EU uncompromisingly always treated these four freedoms as indivisible.
Leaving the EU meant leaving the European Economic Area (EEA). Being in the EEA meant being subject to the single market. The EU briefing on its Agreement with the EEA and the European Free Trade Association (EFTA) said, "The Agreement guarantees equal rights and obligations within the Internal Market for citizens and economic operators in the EEA. … Whenever an EEA-relevant legal act is amended or a new one adopted by the EU, a corresponding amendment should be made to the relevant Annex of the EEA Agreement." It acknowledged that the EEA and EFTA had 'little influence on the final decision on the legislation on the EU side', while 'all the EEA countries are subject to the Internal Market legal framework.' Additionally, "Efta countries are part of the Schengen area." One of the components of the EEA Agreement is the EFTA Court, which resolves disputes. The Agreement requires this Court to follow the rulings of the ECJ.
Switzerland has single market access through a series of agreements where they agree to adopt elements of the EU rulebook. They have also committed to the four freedoms and Schengen membership. This also means that Switzerland pays to support 'economic and social cohesion' in the new EU member states. The model does not grant Swiss companies unrestricted access to the single market for services. Any agreement that we made with the EU must mean no membership of a customs union, the EEA or EFTA, and freedom to make our own deals with third countries.
The EU was all about free trade. Free trade was aggressive economic competition. The German employing class waged trade war in and through the EU, against its fellow EU members and against other countries too. Capital was accumulated through free trade. Some wanted worldwide free trade. When the EU said free trade, it meant treaties against national sovereignty like the North American Free Trade Agreement, the Trans-Pacific Partnership and TTIP. These were not free trade agreements, not even trade agreements, but investor-protection agreements. We needed to escape TTIP, the Trade in Services Agreement and the EU-Canada Comprehensive Economic and Trade Agreement, which all privileged foreign investors and multinational companies. They were forms of economic aggression and political interference which the EU tried to impose on us. But with the EU there was no such thing as free trade. EU members either paid a membership fee and no tariffs or paid tariffs and no membership fee.
Economist Michael Burrage summed up, "Overall, the evidence shows that the disadvantages of non-membership of the EU and Single Market have been vastly exaggerated and that the supposed benefits of membership, whether for exports of goods and services, for productivity, for world-wide trade, or for employment, are largely imaginary. … The benefits of EU and Single Market membership have been illusory, while its costs are real, onerous, and unacceptable to a majority of the British people."[vi]
Ameet Gill, Cameron's former director of strategy, said, "I remember in the campaign, the most significant moment of the campaign that we saw on the Remain side was in mid-April when Michael [Gove] made that speech saying we're going to leave the single market. Now, we spent the next three months trying to hang that round Leave's neck. We went round saying, 'Look, a vote to leave is a vote to leave the single market.' So I do find it a bit weird with some politicians coming now saying that was never on the ballot paper." Cameron said on 13 June 2016, "What the British public will be voting for is to leave the EU and leave the single market." Nick Clegg acknowledged during the referendum campaign that a vote for Brexit meant leaving the single market. On the Daily Politics show, presenter Andrew Neil showed Clegg the video of this, yet Clegg stuck to his claim that there was no mandate for leaving the single market.
On 8 January 2017, on BBC1, Andrew Marr said to Nicola Sturgeon, "you have made it very clear that what you mean by a 'soft' Brexit or an 'acceptable' Brexit involves staying inside the single market and the customs union. The problem is that people were told all the way through the referendum that leaving the EU meant leaving those things." Sturgeon said, "I'm not sure … I don't think that's the case." Marr replied, "It is the case, if I may say so. I interviewed David Cameron, George Osborne, Michael Gove, Boris Johnson and I asked all of them, and they all said yes, it means leaving the single market."
After the referendum, the RMT's Mick Cash pointed out that membership of the single market meant de facto membership of the EU. He said, "The trade union movement needs to be extremely careful if it is not to be accused of seeking to undermine the democratic decision of the British people on leaving the EU. It was the millions of votes of working people across the country that swung the vote to leave and that must not be ignored. The constant flagging up of continued membership of the Single Market sends out all the wrong signals and is a diversion from the opportunities that leaving the EU presents for a strong and ambitious trade union movement in the fields of jobs, workers' rights and public services. As a movement we need to make it clear that there is no back door open to continued EU membership and we need to be promoting a strong, alternative vision for the future that unites our communities."
Being outside the single market gave us control over our laws and borders and freed us from EU regulations and from its external tariff. Leaving the single market was the only way to take back control of our borders and of our laws. We would get the same free access to the same market without having to pay the £350,000,000 weekly membership fee.
[i] See Michael Burrage, It's quite OK to walk away: a review of the UK's Brexit options with the help of seven international databases, Civitas, April 2017, pp. x-xi.
[ii] Gerry Hassan and Russell Gunson, editors, Scotland, the UK and Brexit: a guide to the future, Luath Press, 2017, p. 176.
[iii] See Michael Burrage, It's quite OK to walk away: a review of the UK's Brexit options with the help of seven international databases, Civitas, April 2017, p. xiii.
[iv] Cited pp. 108-9, Liam Halligan and Gerard Lyons, Clean Brexit: why leaving the European Union still makes sense – building a post-Brexit economy for all, Biteback, 2017.
[v] Courtney Goldsmith, London won't lose its status as leading finance and legal centre after Brexit, professionals say, City A.M., 21 December 2016; Simeon Djankov, Why London won't lose its crown as Europe's financial capital, CAPX, 1 September 2016;
http://capx.co/why-london-wont-lose-its-crown-as-europes-financial-capital/; Simon English, Bankers heading off to Frankfurt? It's just a fantasy, Evening Standard, 11 October 2016; Joshua Chaffin, London's allure for European expats survives Brexit vote, Financial Times, 30 November 2016, and Bernard Goyder, The big casualties of Brexit: Economic doomsayers, Financial News, 24 August 2016.
[vi] Michael Burrage, It's quite OK to walk away: a review of the UK's Brexit options with the help of seven international databases, Civitas, April 2017, p. xiv.
