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Despite having had the debate decided more than two years ago we still hear claims of the overwhelming importance of the Single Market to British business. It’s a particular favourite of broadcasters as it is considered a self-evident truth. But the truth is quite the reverse.
The myth of the Single Market is now being used to justify the Prime Minister’s Chequers Plan to adopt a Common Rule Book that will supposedly save us from economic self-harm, but this will only compound the damage the Single Market causes.
In a new paper by Brexit think-tank Global Britain, Chequers – the Single Market by another name – the official statistics of the ONS and Eurostat are used as irrefutable evidence to demonstrate unequivocally how the Single Market has held back the UK’s economic performance.
The UK trades with the world and is the fifth largest economy as a result. Despite being a member of the Single Market and Customs Union it suffers a massive £96bn trade deficit with the EU. By contrast it achieves a broadly neutral position with the rest of the world and enjoys a surplus with the US, arguably the world’s most competitive market, despite having no trade deal.
Why is it that the UK can be successful in trading with the US – where we trade under WTO rules – yet have such a consistently large deficit with the EU where we have the equivalent of a trade deal through membership of the Single Market and the Customs Union?
The answer is that the Single Market is skewed against the UK’s strengths in services in favour of trade in goods, but worse, in goods its bureaucratic approach suppresses market innovation to the benefit of large corporations. This holds back the innovation of our entrepreneurs such as James Dyson and is a threat to new industries such as AI, Fintech and biotech where future growth will be. This is the reason why vested interests – who usually control the boardrooms of business organisations such as the CBI – support regulation as an anti-competitive tool to the detriment of small and medium sized companies and the consumer.
By adopting the Common Rule Book contained in the Chequers Plan we risk locking the UK into the regulations of the world’s slowest growing, most regulatory burdensome and underperforming bloc. The lock is likely to be permanent, because such an agreement will be set in a treaty and the only way to change any clauses that do not work for us will require the agreement of all other parties. That would require us to trade a concession on other issues to achieve change. Maybe not impossible, but certainly difficult and more than likely inimical to our interests.
The clear underperformance of the Eurozone economically has resulted in UK business voting with its feet away by divesting out of the EU into faster growth areas – notably Asia and Australasia. The stats for this cannot be denied.
It is also without doubt that the major trading opportunity for the UK is increasingly in fast-growing services markets that are often high margin, more immune to developed market under-cutting and enjoying structural growth. The EU Commission knows this but it is unable to re-orientate its regulatory approach to respond to those markets.
The answer then is to be outside the Single Market but trading into it. This does not require a trade deal, after all, that’s how economies such as the US, China, India and Australia conduct their affairs, but a trade deal could be advantageous by removing non-tariff barriers as well as setting zero tariffs that come via the Customs Union and its common commercial policy.
To achieve this outcome requires the UK to be willing to work under WTO rules while continuing to push its willingness to adopt a Canada-style agreement as a basis for a new trading partnership.
There is an incentive for the EU in that the UK is currently it’s largest tariff-free export market, but under WTO rules that could all change. With the abolition of EU tariffs and quotas we currently have to apply –goods from the rest of the world could become more attractive. Likewise any new tariffs could make existing EU goods less attractive, depending on what tariffs the UK decides to list.
Chequers, with its application of a Common Rule Book for goods and most foods, is the wrong direction to go. It will bind us into a system of trade that holds the country back. It will mean we have to adopt rules we have no say in. Alternatively trading under WTO rules, or a Canada-style trade agreement – will set us free to trade to our strengths in services and new developing markets. It will also mean we have jurisdiction over our own laws, taxes and borders.
We need to accept the Single Market is a problem, not a solution. After that, choosing the right course of action is not difficult.