Today is the day we start trade talks with the EU. According to some commentators our team are going to be taken to the cleaners by the EU’s crack negotiators under Michel Barnier. We are going to lose Gibraltar, The Falklands, our fishing rights and will still have to bow before the European Court of Justice in trade matters.
The reasoning sounds scary enough. The EU is far bigger and stronger than Britain economically and in trade. Britain on its own is now weak and vulnerable – a “small country” as Leo Varadkar memorably described us before his recent defenestration by Irish voters.
Persuasive evidence is presented to support this view. That the EU is the biggest trading bloc in the world, with its 500 million citizens and its €172 billion annual exports. That the EU has unlimited patience and time on its side, while, for Britain the clock is ticking. That, in the end, Brussels always gets what it wants through a combination of hard-hearted ruthlessness, finely-honed negotiating skills, and the ability to steamroller over all opposition. Just look what happened to the Greeks.
What makes these threats notable is that they are the reverse of the real facts.
The EU used to be the biggest trading bloc in the world. But that was because it had Britain as a member, bringing the world’s sixth largest economy and 65 million people to the table. Now that we’ve left, the EU is the third largest market, behind the United States and China. In the immediate future it is likely to sink still further to fourth or fifth position as the remaining BRICS economies emerge fully – and it is there that growth is currently happening, not in Europe.
There is, too, the future status of the British Commonwealth as a trading bloc, once we have signed Free Trade Agreements with the countries keen to welcome us with open arms – Australia, New Zealand, Canada, India and the other 50 countries, with their 2.4 billion citizens, five times the size of the EU population.
On the EU’s own estimate it has just 15% of world trade. The other 85% is conducted by the UK’s main trading partners – the United States, China and others. But that 15% figure included the UK and it also includes the so-called “Rotterdam effect” – goods counted as EU imports because they have been sent to European ports like Rotterdam for onward shipment to customers outside Europe. The UK government estimates the Rotterdam effect to be somewhere between 8% and 18% of the exports of us and other countries.
The EU’s real share of world trade, taking into account the loss of the UK’s contribution, may well be as little as 10%. Far from being the world’s “largest trading bloc”, the EU is of little moment compared to the oceans of the world where the other 90% of trade is being conducted.
Even more important, the EU’s share of world trade has declined sharply in recent decades: from 30% in 1980 to less than 15% today. At the same time, Britain’s exports to the EU have also declined. Not so long ago, we exported 55% of our good to Europe. Currently it’s down to about 44%. When you take into account the Rotterdam effect, estimated conservatively at 8%, we are already down to 36% and falling, while our exports elsewhere continue to grow.
The bottom line here is that America, China and the Commonwealth are important to us. EU not so important any longer. And America and China don’t want our fish, don’t want to impose their courts on us, hold us back as competitors, or demand our territories as Danegeld.
But what about the time factor? Isn’t the clock ticking against us?
While the BBC has been wringing its hands and depicting the government as idle, the UK has already signed 20 new trade agreements covering more than 50 countries. Preliminary negotiations have already taken place with the USA, Israel, Australia and Switzerland – which can now be signed. Discussions are already progressing with China, Japan and Singapore. These, together with the Commonwealth country negotiations will all be completed sooner rather than later. The EU, in the words of President Barack Obama, is at “the back of the queue.”
But can we afford to adopt such a cavalier attitude when we are more dependent on EU markets than they are dependent on us? In 2018, we exported £219 billion of goods to the EU while they sold £357 billion worth to us. On the face of it, despite the huge balance of trade deficit, we need them more than they need us.
Remainers point out that if you look at Europe country by country, few of them need us as individuals. It’s true that Germany, our biggest EU partner, will be concerned about the £24 billion trade surplus it has with us, but for most other countries losing their trade surplus will not be insurmountable. France, for example, makes “only” £5 billion on trade with us. Countries like Austria, Denmark and Hungary would scarcely notice the loss of UK sales. It’s only if you add up the trade bills for all 27 countries, say Remainers, that you come to what appears to be a one big bill.
This might be a valid point if it were not for one important factor. The EU is responsible for negotiating trade on behalf of all 27 members. The team in Brussels cannot deal with its member states on an individual basis. As far as they are concerned, they are legally bound to negotiate about the trade deficit with the UK in total, not piecemeal. Their prime negotiating aim will be to hang on to the whole trade surplus. To achieve that, they have tread very carefully.
The idea that EU members individually care little for Britain as an export market was exploded by David Davies, former Brexit minister, when he pointed out that, in his time in Brussels, other EU members referred to us as “Treasure Island.”
But what about the EU’s fearsome trade negotiators under the formidable Michel Barnier? Didn’t they practically dictate terms to Theresa May’s team?
If you look at the EU’s own press releases on this subject you would think that it has exceeded all expectations on this count. Through tough and knowledgeable talks, the press handouts say, the team from Brussels have negotiated a long string of trade deals – Wikipedia lists 37 trade agreements, with another 28 provisional agreements. An impressive achievement. That is, until you learn that in reality the EU has not signed any true Free Trade Agreements, except with Japan.
The other countries named in Wikipedia are simply the kind of product-by-product side-deals that all nations routinely sign and either go by on the nod because they attract zero tariff the world over, or have been easy wins on non-contentious products.
The EU negotiators tried and failed to conclude full Free Trade Agreements with United States, India, China, Russia, Brazil, Australia and most of the other big trading nations. They failed in every case. The reason they failed was explained recently by David Davis. It is because of their intractable negotiating tactics and their erroneous belief that in the end everyone will give in to them. The reality is that the Americans, the Chinese and everyone else gave up and walked away precisely because of the EU’s intransigence.
The irony of this failure is that the EU’s chief negotiating aim is to get us to sign up to a “level playing field” in trade. What this really means is, “We the EU failed to negotiate any Free Trade Agreements with the big players like America and China. If you Britain succeed where we failed by being flexible and accommodating, we’ll be left behind while you grab all the lucrative foreign sales.”
There is one final irony is all this. It is that because the EU has not succeeded in signing a Free Trade Deal with the world’s biggest trading nations, then its members – including Britain until January – have been trading for the past twenty odd years with the US, China and most other countries under World Trade Organisation rules.
So what the BBC chooses to call a “No Deal” scenario in reality means that Britain will continue to deal with the world under exactly the same WTO rules as it – and the rest of the EU – has done for the past twenty years.
The warnings of how vulnerable Britain finds itself is reminiscent of the warning of General Weygand, the commander-in-chief of the French armies who prophesied in 1940, “Britain will have its neck wrung like a chicken.”
As Churchill said at the time, “Some chicken. Some neck.”