January 11, 2017

Drawbacks to single market membership

Drawbacks to single market membership

John Redwood sets out the shortcomings to Britain’s continued membership of the single market.

I have long argued that we are unlikely to trade less with the EU after we have left than we do today, whether we have a special deal or not. Clearly the rest of the EU will want to keep on selling their goods to us, so they will not be able to impose big barriers on trade. Nor can they under WTO rules. Both the rest of the EU and the UK will remain under WTO rules on our departure.

The good news about offering the rest of the EU the choice between confirming current tariff free arrangements and registering it as a Free Trade Agreement at the WTO, or accepting most favoured nation status with low average WTO tariffs is that either outcome will be fine from the UK point of view.

This obvious common sense does not prevent some “experts” claiming we might lose trade and therefore they think lose some output. Indeed, one or two extreme Remain enthusiasts have suggested all trade with the continent will cease if we leave without an agreement, an absurd proposition. Trade will continue. Germany will not stop selling us cars nor France her dairy products.

It is interesting, however, to ask what happened to the UK economy when the extreme outcome did occur. In 1939-40 when war broke out with Germany, Germany soon took over much of the continent by conquest. It was also in alliance with the Axis powers, which included Italy, Hungary and Romania. The Axis countries and the conquered lands did not trade with the UK, so for a period there was no trade between the UK and most of the continent.

What happened to the UK economy? It leapt ahead, growing by 32% in real output and income between 1939 and the peak in 1943. Much of the growth in output was of course production of military transport and weapons. By 1943 the UK was producing a staggering 26,000 planes a year from widely dispersed component and assembly factories around the country. By the end of the war the UK had also developed the first jet engine fighter, and had produced 250 Gloster Meteors. Output of military vehicles, ammunition, military clothing and much else was massively increased.

The UK was also turning out large quantities of commercial shipping. There were strong advances in coal and steel output to fuel and supply the industrial activity. Much of this was paid for by public spending and public borrowing. It would have been equally possible to expand civilian production with private sector spending and lending if there had been no military imperative.

What 1939-45 demonstrated was the potential in the UK to have a much larger energy and industrial sector if the demand was available and if imports from the continent were closed off. The country also converted much more land to agriculture to produce much more of its own food.

Fortunately, we will not be revisiting those extreme times. We can, however, learn from them that the UK is very adaptable, and could also adapt in more benign conditions where it would be good if we produced more of what we want and import less from the rest of the EU. I doubt they will want to impose tariffs on their exports to us to encourage us to produce more of our own goods and farm products.

4.37 avg. rating (87% score) - 19 votes
John Redwood MP
John Redwood MP
John Redwood is the Member of Parliament for Wokingham in Berkshire. He was formerly Secretary of State for Wales in Prime Minister John Major's Cabinet. He is currently Co-Chairman of the Conservative Party's Policy Review Group on Economic Competitiveness.
  • Grope_of_Big_Horn

    He’s not really a people person, this Mr Redwood. He likes top write about trade in goods, and even his holy grail which is unilateral free trade. But what about honest UK workers who want free movement to 27 other countries + the EEA ones? What about the free movement we’ve had with Ireland for centuries, which we can only keep by agreeing free movement with the whole EEA because that is their red line issue, right?
    Mr Redwood doesn’t seem to want to talk about these difficult negotiating areas and why should that be?
    Inside the Single Market we can still cap new child tax credit claims at 2 children, stop bunging foreign development aid which drives migration by making recipient governments worse ( Besley&Reynal-Querol 2008, and Nobel Laureate Angus Deaton ). We could have more effective deportation. As an EEA member we could still stop bunging £4bn of subsidies to foreign farmland owners who use the money to mechanise and shed jobs in the new EU members at a rate faster than if left to the free market risking its own money to improve productivity. Ditto convergence funding which means factories in Romania produce more with fewer employees. Convergence funding also props up the crony capitalist system, so fewer businesses go bust compared to a free market system. Which means fewer opportunities for young entrepreneurs to buy land and plant at fire sales and auctions at low cost and start building jobs and business organically. No wonder their young want to come here.
    In return for a contribution to social and environmental programmes ( but not the above mentioned programmes that shed jobs and drive migration ) we could probably negotiate not letting convicted criminals in as well.
    I just think Redwood is unaware of some of the drivers of people moving around the continent in search of a better life, and which are good, and which not so good. And all can be controlled within or without being in the EEA.

  • PLB

    It is refreshing to hear a politician with some common sense on how trade will work in due course. It is highly likely that in time a northern FTA group with USA Canada and UK will come together as an anglo saxon trading powerhouse, trading with Europe with minimal tarrifs but free of the increasing legal and fiscal entrenchment which will enevitably destabalise the region.

  • James Wood

    Good to hear someone else call the EU what it is. Corporatist. Why don’t we hear this more often? That has been my objection to it for the last 15 years plus, broadly since the introduction of the Euro…

  • Otto von Bismarck

    The point I’m afraid is that there will be a recession if Mr Redwood gets his way.

  • Andy

    I agree. EFTA could become the counter weight to the EU which is increasingly authoritarian and borderline Fascist. Quite a number of EU States would be much happier in a loose free trade association like EFTA. But to do this EFTA needs to be untangled from the EU tentacles. It could become a real powerful block. But I also believe that the UK free of the EU could be a real force for change in the global economy and teamed up with the USA there could be huge opportunities. It could turn out that the one frozen out is not the UK as the EU hopes and is seeking to do, but the EU itself.

  • ethanedwards2002

    We voted out. All the way out. We don’t want a fluffy Brexit or a purple with pink spots Brexit. Just tell Sharia May – Get on with it.

  • David Marchesi

    A timely reminder of our ability to be much more self reliant than we have been in recent decades ( since we joined the “common market” ). I spent my working life which began in 1957 , working on the land . At that time we were encouraged to produce as much food as possible and indeed output from our farming industry increased to the point that we were almost self-sufficient in the so-called temperate foodstuffs . These were and probably still are , the mainstay of our food requirements . I am sure most people simply don’t realise what we gave away to other countries when we joined the EEC . We made ourselves vulnerable to overseas suppliers of our food which they were happy to let us have at inflated prices ( common agricultural policy ) . Fortunately we have not had to face any restrictions in supply but of course , that might not always be the case . A country that can’t feed itself , defend itself , and meet it’s own energy needs is not completely sovereign . We do not need to be such a country .

  • springmellon

    I am glad you see the potential of Britain re-joining and reinvigorating EFTA.

    EFTA already has an excellent complement of trade deals that we could benefit from. More importantly it could easily become the new home for a number of EU member states that want free trade but reject the political monstrosity the EU has become.

    It could become a powerful bloc.

  • Dougie

    Employment is at a record high. There’s never been a better time to find a new job. Doesn’t mean I’m unsympathetic to anyone who loses their job but would you rather be made unemployed during a recession or when the economy is growing strongly?

  • Leicesterfan

    City and occasionally the Tigers too, although rugby isn’t my favourite game.

  • Peter Grimes

    Fan of Tigers, City or Red?

  • Leicesterfan

    When the UK can remove the tariffs to non EU members we’re bound to buy more of our produce from there rather than EU countries. The levels of trade are bound to decline.

  • Andy

    I agree with you. I actually think that for all the years we have been members it has been to our disadvantage. This is because we made huge mistakes after the Second World War (the Attlee Government was a disaster) which badly impacted on our economy. The other EU members in 1972 and subsequently have used us as a cash cow. To me WTO relationship would be better than what we have now and we would save a huge amount of cash !

    The thing is the EU is actually a bully and it has constructed a very inward looking block which is failing economically. We should have the self confidence to strike out on our own course and become what the EU really fears – the Singapore of the west, a low tax high tech economy. We should also become an alternative to the EU block perhaps revitalising EFTA.

  • Otto von Bismarck

    Righto then, I’ll pass that message on to the workers when I hand them their P45s.

  • Dougie

    The single market in goods has been pretty effective. The single market in services, despite being worked on for over 20 years, is still not officially in place and still not operating effectively. There’s little to lose by leaving it.

  • Otto von Bismarck

    While I’ve not been a British ski instructor in France, I have been a small/medium sized business owner in the UK food and drinks industry, and I can tell you from my own personal experience that the Single Market removed the vast majority of NTBs that we used to face when exporting to the Continent. I’m not quite sure where you get that assertion from but in my industry it has been a fantastic success. It’s not perfect but it remains the most liberal single market on the planet, and if we leave it my son (who now runs the company since I retired) will probably have to make a number of people unemployed because we’ll face increased costs and our products won’t be as competitive on the shop shelves, both here and in the rest of Europe.

    I voted ‘Leave’, but staying within the EEA is a necessity if Brexit is to be a success.

  • springmellon

    The failure of the Single Market from Britain’s perspective is that we find ourselves in a free market that is heavily biased towards goods, when 80% of our economy is based on services.

    The EU has consistently prioritised trade liberation in goods to the detriment of services.

    The myth of a Single Market is services is just that – a myth. There are a few areas where liberalisation has taken place but vast swathes of services remain untouched. Even those areas open to liberalisation have member states implementing informal blocking tactics.

    That is why we constantly run deficits with the EU. Whilst we completely open up our economy to their goods they maintain protectionism against services.
    The matter has been brought up by our representative countless times but ignored.

    The EU took away our power to forge our own trade deals. Its record on securing new free trade agreements with our major non-EU export market has been pathetic
    But to add insult to injury, when they have signed trade agreements the majority do not contain and substantial provisions for opening up new markets for our service based economy.

    Inside the EU we will always be the loser. Fortunately we will now be able to forge our own trade deals and prioritise opening opening up markets for our services with the new emerging industrial economies.

  • Tom Burroughes

    This article starts well but the point about WW2 seems misleading. During the war, the UK received vital economic aid from the USA in the form of Lend-Lease, and following the end of hostilities, Marshall Aid, along with other European nations. Had the UK economy been as strong as Mr Redwood claims, why was Marshall Aid necessary for the UK? In truth, the cost of paying for the war bankrupted the UK and hastened the demise of the British Empire (admittedly, it was going to end anyway, but the timetable was accelerated).

    A more apposite example, in my opinion, is how the UK managed, despite Napoleon Bonaparte’s Continental System designed to squeeze Britain, to push ahead. The UK’s ascent as an industrial nation was never seriously affected by Bonaparte, and France, because of its hubris, suffered.

    The UK is likely to suffer some volatility, but as Mr Redwood said, the Continental countries are unlikely to stop exporting to the UK, and some of the dire warnings about Brexit are likely to prove as baseless as the idea, presented in the 1990s, that the UK will suffer outside the eurozone.

    In my view, the most sensible course for the UK is to forge ahead and adopt free trade, unilaterally, as it did in the 19th Century, to massively positive effect. The stance of Richard Cobden, Robert Peel and Gladstone should be the guide, and we should not become entangled in hoping to get lots of specific deals.


  • Dougie

    Unfortunately, the single market has not succeeded in removing non-tariff barriers. Just try being a British ski instructor in France.

  • Otto von Bismarck

    This really is a lightweight article and I expected better from Mr Redwood. You can’t possibly compare 1943 to 2017, global trade has become far more complicated and bureaucratic. You also have a bizarre fixation on tariffs when the biggest barriers to trade have moved over into the realm of Non-Tariff Barriers (which ‘WTO rules’ or even a simple FTA will do little to overcome). You seriously believe all of this can be settled under your proposals? https://uploads.disquscdn.com/images/041c316378e32cd5fdffa2dcfd8fd70bb286478400571fa136b0dbe4ddeb43c5.jpg

  • Stuart Fairney

    Continental threats to UK trade are nothing new. Napoleon tried it, yet even during a state of war, merchants continued trading. An interesting footnote from Napoleon’s attempt to impose the continental system, from wiki….

    “The embargo encouraged British merchants to seek out new markets aggressively and to engage in smuggling with continental Europe. Napoleon’s exclusively land-based customs enforcers could not stop British smugglers, especially as these operated with the connivance of Napoleon’s chosen rulers of Spain, Westphalia and other German states. The System had mixed effects on British trade, with British exports to the Continent falling between 25% to 55% compared to pre-1806 levels. However, trade sharply increased with the rest of the world, covering much of the decline”

  • misomiso

    And the fact that it is an utterly corrupt corporatist institution, ran by people who think the Euro is a good idea.

    Lets go for a South Korean / Israel model for the country instead.

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