What does the EU do for us? The benefits of free trade

Aldi and Lidl have taken the UK by storm in the last few years, and they now account for around 10% of supermarket sales in the UK.[i] Aldi and Lidl shoppers can be an amusing bunch, with some of them acting as if their discovery of these supermarkets is a very clever secret. There are two types of Aldi/Lidl shopper that amuse me the most:

  1. The proud feeder – this breed of shopper will feed you something and then ask what what you think of it. Upon you expressing your approval of said foodstuff (come on, we’re British, of course we’re going to say we like it!), they will proudly inform you that it came from Aldi or Lidl. Great, to be honest I was just pleased you cooked for me!
  1. The presenter of food – this shopper will proudly present items of their shopping to you, and ask you to guess how much it cost. It’s as if you are participating in the worst game show ever. Upon you ultimately guessing the wrong price, they will proudly tell you how much it cost, and knowingly tell you that this came from their discovery of Aldi or Lidl. All hail the cheap tomato sauce!

You might be wondering what on earth this has to do with the EU. Aldi and Lidl are great examples of companies based elsewhere within the EU setting up business in the UK. This is made far easier by the EU ensuring free trade between Member States. In this post I will argue that this is a significant reason to stay in the EU.

The EU’s internal market

 The EU’s single biggest objective is the creation of an internal market. The idea is simple – to ensure the free movement of goods, services, people and capital throughout all 28 Member States. To achieve this, the EU works to abolish trade barriers between all Member States – things such as taxes on imports and exports.

[Note: This post focuses mainly on the free movement of goods and services. I will deal with the controversial issue of free movement of people in another post.]

What are the benefits of this?

The benefits for businesses of all sizes cannot be understated – it means that businesses in the UK have the opportunity to access 27 other markets and similarly businesses throughout the EU have the opportunity to sell their goods and services into the UK. The potential market is huge in terms of population: some 500 million consumers. The government has identified that around 44% of our exports go to countries within the EU, and around 8% of exports from EU countries come to the UK.[ii]

The second benefit to mention is the creation of jobs. It is now estimated that 3.3 million jobs in the UK are linked to trade with the EU.[iii]

Third, free trade with the EU brings investment into the UK and into UK companies. In 2014, investment into the UK from EU countries was calculated to be £14 million per day.[iv] I fully acknowledge the Leave campaign’s claim that this figure is down on recent years, but it does not change the fact that it is a significant amount of investment into the UK.

Fourth, trade with the EU benefits us as consumers. Increased competition within a market results in lower prices and/or an increase in the choice of products. Aldi and Lidl are good examples of this, but I’m sure you can think of plenty of others.

External trade and agreements

Our membership of the EU has also brought us benefits in terms of trade outside the EU. To date, the EU has negotiated preferential trade deals with over 50 countries, and continues to negotiate further deals on our behalf (here is a map of what is ongoing)[v] Most recently, it has made significant progress in negotiating a comprehensive trade deal with Canada.[vi]

Rather strikingly, Open Europe has calculated that 58% of our exports are in some way connected with these trade agreements and our membership of the EU.[vii]

What happens to all of this if we leave the EU? 

The Leave campaign’s response to all of this is quite simple – if we leave, we can negotiate all of this ourselves. That overlooks the following:

  1. This will not happen overnight. To replicate the benefits of EU membership, we would need to negotiate trade deals with the EU and over 50 other countries. This is likely to be an extremely time-consuming process. It could take years to negotiate these agreements. The shortest time in which any trade agreement has been concluded with the EU is four years, and negotiations with Switzerland (often suggested as a potential model that we could follow if we were to leave the EU) took ten years.[viii] To take another example, it has also been argued that we could follow the EU-Canada model, but concluding this agreement has also been a lengthy process. Negotiations on this started in 2009 and the agreement is not yet concluded.
  1. Negotiating these deals is likely to be expensive. This means that at least some of the money that the Leave campaign argue we would save if the UK were to leave the EU would have to be spent on this instead. This weakens their argument that this money could be spent on (for example) the NHS, because instead some of it will have to go on negotiating numerous trade deals.
  1. There is no guarantee that these countries would be interested in a trade agreement with the UK. I suspect that a number of them will be interested, however…
  1. Even if they are interested, are we really likely to get the same deal as the EU negotiating on our behalf? The EU’s strength lies in its negotiating position. It is offering other countries the prospect of trading not just with one country, but 28 – it offers access not just to one country’s population, but over 500 million consumers. I fail to see how other countries would be willing to take the same approach negotiating with the UK alone. Just consider the strength of our negotiating position with the EU – 44% of our exports go to EU countries, and 8% of the EU’s exports comes to the UK.
  2. Any relationship that we negotiate with the EU will result in us having less control over the EU. I will write a full post on this in due course – but the reality is that all countries that have negotiated trade agreements with the EU have no control over EU Law. As it stands, as a member of the EU, we do. Leaving would involve losing that control and means we would be forced to accept EU rules as part of any trade deal.

Is it really worth the risk?

My fundamental issue with the Leave campaign’s arguments on trade is that they cannot prove what they are arguing. They argue that we could replicate our current arrangements if we were to leave the EU, but they have produced no evidence in support of this. They have not provided an estimate for how long negotiations would take, they haven’t identified which countries would be interested in a trade agreement with the UK, nor have they estimated what the cost would be of such negotiations and how it compares to the current cost of our membership. There is simply not enough discussion of how their claims would actually work in practice, and the evidence as it stands points to the fact that even if it is possible to negotiate all of these trade agreements if we left the EU, it is going to be a costly and lengthy process.

By contrast, we can currently quantify at least some of the benefits of EU membership.

Therefore, I cannot see the rationale for placing at risk some, or all, of the 3.3 million jobs, £14 million per day in investment, and all the other benefits for our businesses and consumers, in order to find out whether the Leave campaign’s claims are right.


Footnotes (aka things for the super keen)

[i] http://www.kantarworldpanel.com/en/grocery-market-share/great-britain

[ii] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/517415/treasury_analysis_economic_impact_of_eu_membership_web.pdf. Checked by: https://fullfact.org/europe/eu-facts-behind-claims-exports/.

[iii] https://fullfact.org/europe/uk-jobs-and-eu/

[iv] https://fullfact.org/europe/stronger-facts-leaflet-investment/

[v] http://trade.ec.europa.eu/doclib/docs/2012/november/tradoc_150129.pdf

[vi] http://ec.europa.eu/trade/policy/in-focus/ceta/

[vii] http://openeurope.org.uk/today/blog/would-brexit-lead-to-decade-or-more-of-uncertainty/

[viii] http://openeurope.org.uk/today/blog/would-brexit-lead-to-decade-or-more-of-uncertainty/

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