Time for the UK to Face the Rising Sun

Kate Hoey MP challenges the Treasury’s economic case for remaining within the European Union, identifying gains that could be made through alternative partnerships.

For anyone age under 60, the Referendum on June 23 provides their first chance to assert the UK’s independence from the European Union (EU). It may well be their only chance, and can reasonably be described as a once in a lifetime opportunity to direct our nation’s future. For someone like myself, who deeply admires the UK’s culture and institutions, and recognises the uniqueness of its history and geography, the chance to vote to leave the EU cannot be missed. My fellow Brexiteers also recognise that others may value national independence less than I do, or at least wish to be assured that there is not a large cost to leaving.

Fortunately, the economic case for leaving is much stronger than might be assumed from the Government’s propaganda, or from much of the media coverage of the Referendum debate. Whilst it is true that just over 40 per cent of UK exports go to the rest of the EU, this should be viewed as a liability rather than as asset. The reason is simple: the EU market is shrinking. The volume of UK exports to the EU is 16 per cent lower than 10 years ago. In contrast, the volume of exports going to non-EU markets is 25 per cent greater.

‘Face the rising sun’ is good advice. The UK’s economic interests clearly lie in selling to the faster-growing parts of the world. It is a little known fact that our traditional Commonwealth markets have grown faster than EU markets since we joined in 1973. India is now the fastest growing economy in the world, and on current trends will be as large a market as the EU within 30 years. Pro-EU advocates will protest that there is no need to risk the loss of existing EU markets in order to grow markets elsewhere. After all, they argue, there is little to prevent British firms from expanding their exports to India or anywhere else while remaining within the EU. Not so, Leavers will reply.

Several of the EU’s larger external tariffs are aimed at limiting imports from Asian and developing countries. The 11 per cent tariff on clothing mainly protects Italian clothing manufacturers from cheaper Asian imports. A tariff of similar size on cars was imposed to save EU car manufacturers from being wiped out by Japanese firms. High tariffs on many foods and tobacco protect high cost European producers from low-cost farmers in developing countries. In each of these cases, the UK would have greater flexibility outside the EU to negotiate beneficial trade agreements. Contrary to Remainers’ arguments, as the UK becomes free to source its imports from the cheapest producers, new trade arrangements could also lead to cheaper imports of food, clothing and cars.

Even so, the Remainers will argue, the EU will retaliate by imposing higher tariffs on UK goods! This argument assumes a high degree of political petulance and underplays the economic self-interest of the EU. Even if EU politicians were sore about the UK leaving, their car producers, wine-makers and clothing firms, amongst many others, would soon be persuading them to see sense.

One of the many sleights of hand in the recent Treasury report on Brexit was to argue that the UK provided a market for only eight per cent of EU exports. This figure, however, includes the exports of EU members to each other. If we take the external trade of the continental EU, then the UK constitutes 22 per cent of their market and is their largest customer. With the UK purchasing £290 billion of goods and services from the EU each year, worth almost £3000 to each European family, this can hardly be a matter of little concern to EU governments. Even if some individual governments wished to play rough, the interests of major exporters to the UK, like Germany are bound to dominate.

For many UK exporters, it will in any case matter relatively little what trade arrangements emerge from post-Brexit negotiations. For most products, the ‘fall-back’ WTO tariffs are only a few percent and lie within the normal range of currency fluctuations that exporters have to continually manage. This is why engineering firms like JCB, Dyson and Northern Ireland’s Wrightbus (which makes London’s Routemaster buses) are all in favour of Brexit.

The biggest issues are likely to arise in agriculture and finance. Potentially high tariffs on food exports from the UK are unlikely because of the importance of EU food exports to the UK. France, The Netherlands and Denmark will all be wary of tariff barriers for food, and Ireland will be a staunch supporter of free trade with the UK. Finance may also face difficulties, but has weathered storms before, and because we import much more to the EU than we export, the UK has bargaining chips to protect London’s interests.

If all of this sounds much more favourable to a Brexit than did the Treasury report, consider this: the Treasury went to great lengths to estimate how much trade might be lost if the UK were outside the EU. The media appeared most impressed that the report contained equations, simple though they were when expressed in words. What most commentators missed was the Treasury’s assumption that any firm losing markets in the EU would make no offsetting gains elsewhere. Like much in the report, this is the most pessimistic assumption possible.

Looking back, it seems obvious that the UK joined the then EEC for unsound reasons, and it has never been comfortable with membership. We joined to gain access to what had been fast growing continental markets, only to find that these economies slowed their growth almost as soon as we joined in 1973. Growth has slowed even more over the years and has virtually ground to a halt in the last decade. Indeed, Italy has not grown at all since it joined the Euro in 1999, and we all know what has happened to poor Greece.

Whilst I respect the optimism of those who argue that we should stay and argue for reform in the EU, the malaise is now too deep, and there is little we can do from outside the eurozone and Schengen. Barack Obama’s case seemed to be that the USA could not trust the continental EU to act sensibly and needed the UK to keep them on the straight and narrow. While we might accept this as a compliment, regretfully we must make sure that we do not go down with a sinking ship. Our interests are clear: we are better off out.