Do we really need the EU single market?

Twenty years ago, the single market benefited British companies in their overseas trade. The Common Market, as the EU then was, had no internal tariffs but a common external tariff of around 6%. We could sell our goods to France and Germany without paying any duty while competitors from outside Europe, like Japan and China, had to pay duty on goods they sold here. The single market made sound financial sense and joining the Common Market was a smart move.  It protected us from overseas competitors and it encouraged other countries to invest in the UK in order to get access to the tariff-free trade of the EU – the example most often mentioned is the Nissan car plant in Sunderland.

A lot has happened in the past two decades to change this situation and most of the developments have been global in scope rather than local to the UK and Europe.

The biggest change is that practically every nation in the world, including all EU countries, has signed the international trade treaty of the World Trade Organisation (WTO). The WTO, in turn, has been working hard to bring down barriers to trade, especially tariffs. In this it has been very successful, and thanks to pressure from the WTO, the EU has reduced its common external tariff to around 1% – as have many other trading nations and groups around the world.

The WTO has also introduced a measure to stop any backsliding by signatories. WTO members are obliged by law not to play favourites: whatever is the best rate they give their most favoured trading partner is the rate they have to give everyone else, whether they like it or not.

These measures have opened up international trade considerably and helped cut protectionist trade barriers – like the EU’s – to a minimum. The level of the common external tariff is now so low that it is almost negligible in comparison with regular fluctuations in currency exchange rates.

The effect of these global changes is that Britain no longer needs to shelter behind the EU’s trade barrier, but can stand on its own feet, trading openly on a global rather than merely regional basis.

But surely we still need our position in the single market in order to continue to be a gateway into the EU for overseas companies? Won’t car makers like Nissan and Honda pack up and move to France or Germany? This oft-quoted fear is quite groundless. Nissan’s cars are actually cheaper and selling better as a result of Brexit while Honda announced that it is to invest £200 million making UK the global production centre for its best-selling Civic.  Other major multinationals have made similar post-Brexit commitments including Boeing.

Indeed, according to Leave campaigner Richard Patient, London Chairman of Business for Britain, some businesses voted leave in order to get away from the single market. Says Patient, “Dyson volubly complained when single market regulations imposed a power output for vacuum cleaners that helped his German competitors and didn’t do anything to help consumers. The tech firm Ghost voted with their feet, and moved to Singapore, as a direct result of the new single market VATMOSS regulation. And all the SMEs who waded through (or more than likely just ignored and got caught later) the 2,500 single market regulations every year will tell you that the single market is neither ‘highly desirable’ nor ‘utterly vital’.

But what about the crucial “passport” status that the financial companies in in the City of London enjoy because of our EU membership? If the City loses passport status won’t our financial services industry will be crippled and won’t Hamburg will take our place as the financial centre of Europe.  Apparently not, according to Moody’s, the leading credit rating and risk analyst firm.

Moody’s analysts agree that while leaving the European Economic Area is likely to result in the forfeit of passports, they argue that the EU’s forthcoming Mifid 2 directive on financial services regulation, which comes into force in 2018, will make up for much of the loss. Under Mifid 2, the UK will have to adopt an equivalent regulatory regime to the EU, potentially giving firms an alternative access point to the single market.

“We consider that the equivalence provisions within Mifid 2, the complexity of quickly unwinding the status quo and the desire to minimise the initial impact on European-domiciled banks will lead to the preservation of most cross-border rights to undertake business,” the Moody’s analysts say.

 

It is ungenerous and counter-productive to keep repeating “They need us more than we need them”, because France, Germany and Benelux are our friends and neighbours – despite what some people in Brussels say. But the fact is that by every measure that matters, our EU partners would do worse by trying to freeze us out than they will do by continuing to embrace us as partners.

And the anti-British, Federalist extremists in Brussels who are relying on membership of the single market as the draw card  to ultimately bring Britain to heel are not only placing their faith in a myth, they are running a serious risk of ending up standing by, watching helplessly as Britain walks away from the conference table if they refuse to compromise. The fact is, we don’t need the European single market. We have the world market.

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