Nosemonkey's EUtopia

In search of a European identity

UK-EU trade, services and regulatory costs

Just found an interesting response to my UK-EU trade post from a couple of months back, from what is a new blog to me, Brittopic.

It’s worth reading in full to see a few objections and some issues raised – notably about the British balance of trade and the nature of the UK’s service-driven economy.

Below the fold is what started out as a comment reply on that site, but which got too lengthy to post there. It ends with my (little bit) tongue-in-cheek advocation of Britain joining the Eurozone – something I don’t believe I’ve ever done before – simply because the Eurozone is a bit like the Gold Standard.

(And yes, before you ask I *have* read a newspaper in the last year. I’m off to Greece on Sunday, in fact, and spend a good 30% of my day job focused on Ireland…)

First, agreed on the misuse of the “60% of UK trade is with the EU” claim as fact by pro-EU types. But no matter which way you look at it, our next biggest trading partner after the EU is the US, with the figures normally given as around 10-20% of our total trade. The various EU member states certainly amount to a lot more than 20% of our trade.

I also think that 60% is likely to be in approximately the right ballpark, (I tend to suggest “more than half” as a sensible alternative) – it makes logical sense for us to be trading most with one of the easiest blocs of developed countries it’s possible for us to trade with, especially when (as you note) we’re so reliant on exporting services. Trading with non EU/EEA countries is simply a lot more expensive – multiple different regulations/standards/exchange rates, plus greater transportation costs due to the greater distances involved, and many more logistical issues due to timezone differences (something I deal with daily, working in London but needing to communicate regularly with colleagues all over the world).

As an aside, the 60% trade claim is also certainly a lot less heinous a figure than the standard “75%-84% of laws come from the EU” claims coming from the other side… But enough of that…

On the two points you say I ignored, a quick reply:

1) Services and UK-EU trade

You have a point there when you say that “Given that the UK economy is largely service-based and that it is, at last count, the sixth most visited country in the world (tourism is an export and, yes, the report does exclude airport transfers), it is not sensible to rely only on goods trading as a measure of the UK’s economic relationships with other markets.”

However, as you brought it up, specifically on tourism there have been a number of reports from within the industry that tourists are increasingly avoiding visiting Britain thanks to it being outside the Eurozone (easier to use one currency on your holiday, after all). This has been partially offset in the last couple of years thanks to the weak pound, but it does sound plausible.

Regarding service industries more widely (and I stress, this is entirely off the top of my head – I’ve done no research into this at all), again the EU is a sensible place for most of our trade to take place. Similar timezone, for starters – you can run your service industry during normal office hours if you’re operating within the EU, while to deal with most English-speaking countries (the other logical customers for British service industries) you’re having to vary from GMT+12 for New Zealand to GMT-9 for Alaska. Of English-speaking countries, only Ireland and (the western part of) South Africa are in the same timezone, so it’s not overly practical.

2) The EU and regulatory costs

You also note that my earlier trade post “also ignores the cost of the regulatory burden on UK business of EU law (both in terms of money spent on compliance and profit foregone), which was estimated by the think-tank Civitas in 2004 at being between £17bn and £40bn a year.”

The reason I didn’t mention it is because I don’t see it as directly relevant, but also because I covered it here – note in particular the mention of the British Chambers of Commerce report, specifically the quote: “By value, EU legislation was only responsible for about 0.1% (£1.9m) of regulatory net costs in 2007/8”

The estimated cost of EU regulations varies wildly, depending on who you choose to believe. Eurosceptic-leaning people tend to believe the higher estimates, which often come from eurosceptic-leaning sources (like Civitas’ figures that you give, or Open Europe’s claims that the EU was responsible for £124bn of regulatory costs 1998-2009), while more pro-EU people incline towards the lower estimates (as I did in that quote above).

The truth is that, as with the trade figures, no one really knows how much of the regulatory burden can be attributed to the EU – and with estimates varying between c.15% and c.75% it’s not even clear whether it’s significant or not (not least because we have no way of telling what percentage of EU regulations would have been introduced even if we were not members). At least with the trade figures the estimates only vary between c.45% and c.65%.

A quick note on the balance of trade

Britain imports more manufactured goods than we export because Britain is no longer a manufacturing nation. So it makes sense to get the best prices we can on those imports.

Staying outside the Eurozone means that fluctuating exchange rates can work to our advantage (we can get cheaper imports if the pound is strong). However, part of the reason the UK’s trade surplus in services dropped from 2008 to 2009 is due to the weakening of sterling vs. the euro. If the pound is strong, Britain’s exports (services as well as goods) bring us less – but we get our imports cheaper.

But we have little real ability to influence exchange rates (short of drastic measures which would instantly set alarm bells ringing with any sensible investors and trading partners, and which could threaten major economic collapse). Which means the balance of trade is constantly shifting thanks to forces beyond our control.

You call on the government to rebalance our reliance on the EU to get a better trade balance. One of the easiest ways of doing this would be to standardise exchange rates with a bunch of our biggest trading partners in one go, thus allowing far better forward-planning. How to do this? Join the Eurozone.

Think of it as a modern-day equivalent of the Gold Standard. (Assuming the Eurozone survives, that is…)