15.5 UK trade: reasons to think globally

(I) UK imports: no significant benefits from EU political membership

EU24, as a source of imports into the UK, offers UK importers & consumers no significant advantage or benefit compared with imports from elsewhere

Under the terms of the EU Customs Union, of which the UK has been a member since 1973, UK importers of goods are obliged to pay customs duties, and suffer the consequences of EU anti-dumping restrictions, on the goods they import from OUTSIDE the EU. There are no such duties or restrictions (officially anyway) when UK importers import goods from EU countries.

Other things being equal, one would expect UK importers to favour imports originating INSIDE the EU over imports originating OUTSIDE the EU.

However, the 1999-2005 growth rates indicate that, for British importers and consumers of goods, EU-originating imports appear to be no more attractive than imports originating outside the EU. The rates of growth of UK imports of GOODS from EU24 and from OUTSIDE the EU were similar over the period 1999-2005 (6.13% and 6.07% respectively), suggesting that, despite the handicaps - customs duties, non-tariff barriers etc - associated with imports from OUTSIDE the EU, the EU24, as a source of imports into the UK, offers UK importers and consumers no significant advantage or benefit compared with imports from elsewhere.

The same goes for services, where the rates of growth of UK imports from EU24 and the world outside the EU are also very similar (6.75% and 6.46% respectively). Imports of services into the UK from other EU countries are not subject to customs duties or anti-dumping measures, though, as the fuss over the "Bolkestein Directive" showed last year, trade in services within the EU is still hampered by national protectionism.

(II)   EU Takes Declining Share of UK Exports

UK exports to non-EU countries are growing over 40% faster than UK exports to the EU and the UK's export share to the EU is falling.

Table 1: Share of UK worldwide exports* going to EU24: unadjusted data

* Goods, Services, Income, Transfers.

Source: Pink Book 2006¹, Page 125, Table 9.2.

EU24 is taking a declining share of the UK's worldwide exports (Table 1); an increasing proportion of the UK's worldwide exports is going outside the EU. The trend set in in 2002 and continues.

The UK's official export statistics (Table 1) over-state exports going to the EU, and under-state exports going to the world outside the EU. When the official figures are corrected for these distortions², the real share of the UK's worldwide exports absorbed by EU24 is significantly lower. Absolute precision is impossible, but a plausible estimate for 2005 would be well below 45%, most likely nearer 40% than 45%.

The corresponding adjusted real proportion of the UK's worldwide exports going to non-EU countries in 2005 would be somewhere between 55% and 60%, with 60% more likely than 55%. The decline in the share of worldwide UK exports going to EU24 is the consequent result of UK exports to non-EU countries growing faster than UK exports to the EU.

Over the period 1999-2005 UK exports to the world outside the EU grew at almost 8% a year, forty-five per cent faster than British exports to the EU, which grew at only 5.5% per year. If we look at Continental EU only (i.e. EU24 less Ireland) the disparities in growth rates become even more striking: UK exports to the world (including Ireland) outside Continental EU grew sixty-seven per cent faster than British exports to Continental EU.

Outside the EU, British exports grew at a healthy pace to wealthy developed nations like the USA, Australia and Singapore (Canada and Japan being notable exceptions). They also grew at a good pace to countries including Russia, Turkey, China/Hong Kong, the Gulf Sheikdoms and South Africa.

Notes & References

1. United Kingdom Balance of Payments: The Pink Book 2006: Office for National Statistics, July 2006. ISSN: 0950-7558. Free download: http://www.statistics.gov.uk/ > Browse by Theme > Select Theme > Economy > Go > More detailed topics for Economy > Balance of Payments > United Kingdom Balance of Payments: The Pink Book > Pink Book 2006

2. There are two separate distortions: the Rotterdam-Antwerp Effect, concerning exports of goods and services (described on page 188 of the new Pink Book); and the Netherlands Distortion, which affects flows of "Income". For a discussion of these distortions, see Appendix IV and Appendix V of A Cost Too Far?, by Ian Milne, Civitas 2004, http://www.civitas.org.uk/. See also Global Britain Briefing Notes Nos 32 & 22, http://www.globalbritain.org/.

IM, February 2007.