The EU should be anxious about retaining access to the UK market – not the other way round

The EU should be anxious about retaining access to the UK market – not the other way round

Most Brexit commentaries focus on imagined negative impacts of the UK leaving the EU, missing the bigger picture. There are overwhelming positive reasons to leave, but the real negative impact could be borne by the remaining 27 countries.

In 2015, the UK provided £9 billion to the EU budget (after the UK rebate and monies returned to the UK as ‘grants’and ‘subsidies’). This represents around 14% of the net EU budget, needed to subsidise the regulated protectionist market. Only seven EU countries contribute more than they receive from the EU budget, the UK being second highest, after Germany.

The EU will find it hard to fill this gap in its funding.

The UK contributes to EU country finances, having a negative trade balance with the EU of £50 billion annually in goods, compared to Germany’s surplus of £60 billion. The EU receives a membership fee from the UK to enjoy a substantial trading surplus – surely the definition of ‘having one’s cake and eating it’.

The EU needs to preserve and increase this favourable trade balance to offset the loss in EU budget contributions when the UK stops paying in its £9 billion net per annum.

So, rather than the UK fearing reduced access to the single market, the EU should be anxious to retain access to the UK – its largest export market. There is no need to accept freedom of movement of people, or to pay into a system which benefits the EU more than the UK. The UK must ignore this rhetoric and dogma. We do not need to be in the single market to trade with it.

The EU has created an inward-looking protectionist market based on tariffs, quotas and regulations to disadvantage developing nations, including farmers in Africa and many parts of the Commonwealth. It is a myth that the EU helps UK exports. 40 non-member countries exported goods to the EU worth in excess of $1 billion in 2015. The exports of 36 of these grew more rapidly than those of the UK from 1993 to 2015.

Most non-member countries not only have access to the single market, but have been more successful exporting to it under WTO rules than the UK, and the 165 non-EU countries account for almost all the world’s economic growth.

The UK can therefore be confident that ‘no deal’ is better than the current deal. Peter Lilley has estimated that, if we left the EU with no trade deal, our exports would face EU tariffs averaging just 2.4%. But our net contribution to the EU budget is equivalent to a 7% tariff.

Commentators also fail to point out that in that scenario the UK Government would be receiving tariffs from imported goods (including German cars and French agricultural products), which would far outweigh export tariff costs.

Are German car manufacturers and French farmers likely to support the suspension of trade with the UK, when it is so heavily weighted in their favour?

Bilateral agreements negotiated by Switzerland, South Korea, Singapore and Chile boost trade far more than the EU’s deals. And, although services are particularly important to the UK, a third of EU deals exclude services. The UK will benefit hugely from new trade deals with growing global economies including India, China, Australasia, South America and others – including services, unfettered by multiple EU constraints.

The EU and UK negotiations should start from a position of zero tariffs, since introducing tariffs is in no-one’s interest. EU national leaders will not want a trade war with a UK that, on departure, will be their biggest customer. The UK currently accounts for around 17% of EU exports – money which is needed to support the failing euro.

If the EU decided to punish the UK for leaving the club – including the single market and customs union – the worst case is that there would be no deal two years after triggering Article 50, and the UK should prepare for that.

But if they did go down that route, the EU would only be harming itself and hastening the demise of the federal dream while being catastrophic for the euro. The UK Government, on the other hand, could be reassured that the freedom to trade with a growing global market, in goods and services, will ensure a bright future, while saving billions every year of contributions to the EU budget.