The EU single market in services barely exists, and has been slowly disappearing since 2010

The EU single market in services barely exists, and has been slowly disappearing since 2010

Remainers rested their economic argument against Brexit almost entirely on predictions. Leavers made much more of the historical record, which both HMG and the European Commission long declined to analyse in any depth.

Leavers were therefore able to surprise, and even shock, many of those who had come to accept the conventional wisdom, by reproducing evidence from authoritative international databases which showed that membership of the Single Market had been of no particular benefit to the growth of UK goods exports, had not, as was initially hoped, stimulated any improvement in UK productivity, and had been accompanied, across the EU, by previously unimaginable rates of unemployment, double or treble those of other OECD countries. They could also show, with the corroboration of the Commission and of the OECD, that the Single Market has not been a magnet for global investment flows.

Leavers’ arguments about services could, however, never be quite so convincing and compelling due to the nature of the data available. The available data was limited in time, uneven in national coverage, and had to cope with broken data series, as some countries, along with the OECD and other data sources, shifted from the Extended Balance of Payments Services classification (EBOPS) of 2002 and started reporting according to the revised EBOPS 2010.

A Civitas comparison (p.155) of the services exports to the EU of 27 members and 27 non-members over the years 2004-2012, (which showed that those of non-members had grown faster than those of members) could not be extended beyond those eight years as much of the OECD data was then reported in EBOPS 2010 or 2012.

UN Comtrade and other sources such as ITC, IMF and Eurostat decided, however, to continue to publish data standardized on EBOPS 2002 classification, and hence provide a continuous historical record, though given the slower rate of reporting and verifying services data, this still only reaches (as of 24th March 2018) to 2016, with data for that year still in the form of provisional estimates. This does, however, allow us to update and check on earlier arguments, and in particular to decide whether or not a single market in services (SMinS) exists, and if so, to see whether it has been of any benefit for the UK or its other members.

The European Commission’s preferred measure of market integration is the difference between intra- and extra-EU exports as a proportion of EU GDP. Hence if the single market in services exists, the intra will be far higher than the extra, just as trade in goods where intra-EU trade has been found (p.168) to be up to 66% larger than extra-EU trade.

The Commission’s own earlier use of this measure, in its 2007 review of the Single Market, admitted that there was ‘ little difference’ between the intra and extra export of services exports, which it illustrated by a rather imprecise histogram from 2004. This suggested that intra-EU exports were then about 6% or 7% of GDP while extra were about 9%, a difference therefore of 2 to 2.5%.

Over subsequent years it has declined to publish these figures on a regular basis, so the oft-promised widening and deepening of the SMinS could never be tracked. Eurostat declined my requests for these figures, but rather more importantly ignored the scathing observation of the EU Court of Auditors in 2016 that since there was no means of measuring this market, no one could know whether it had achieved full or half of its potential or none at all.

David Cameron thought that one of the achievements of his pre-Brexit negotiations was that other member countries had agreed to ‘deepen‘ the SMinS. George Osborne and HMT evidently felt that this entitled them to add two per cent to their predictions of UK GDP in 2030 if the UK remained a member.

My first attempt to measure the progress of this market used OECD data to compare intra- and extra-EU exports of the 12 founder members of the Single Market as a percentage of EU GDP from 2002-2012. The data had a considerable number of missing entries that had to be made good by so-called ‘mirror data’, that is, import data from recipient countries. It found that the intra/extra difference had never reached 2%. In 2002, it was found to be 0.65%, and to have grown fitfully thereafter to peak at 1.12% in 2007, and then to have declined steadily to 0.46% in 2012. OECD export figures for the EU 28 in 2015 found the difference to be 1.10% though given the different number of countries, and different EBOPS classification, it was not possible to say whether this is an increase or decrease on the earlier figures.

Other current sources such as UN Comtrade, IMF and ITC trade maps, cover exports of the twelve founder and long-term members of the Single Market from 2010 to 2016, but must exclude Spain and Portugal whose data is inadequate. In 2010 the difference between intra- and extra-EU exports was 0.78%, which is virtually the same as the original OECD-based measure for that year of 0.79%.

Over the seven years to 2016, the difference declined to 0.63%. Far from widening and deepening therefore, it is fair to conclude, by the Commission’s preferred measure, that the SMinS has been shrinking and subsiding. If present trends continue, it will disappear altogether in a few years’ time. One wonders, however, whether anyone at the Commission or anywhere else will care or even notice its formal demise. This is, after all, a supposed single market that has survived, flourished and excited people over many years, without anyone ascertaining what its relationship to empirical reality might be.

The UK is distinguished from other members in these recent figures by the small proportion of its total exports, just over a third (36%), that go to the EU whereas the proportions of the other members’ exports range from around half, (Germany 51%, Sweden 52% and France 55%,) to two thirds or more, (Belgium 69%, Luxembourg 72% and Austria 77%.) As with its goods exports, the UK is therefore already more out of the Single Market than in.

The UK’s exports to the rest of the world have also grown much faster, nearly three times faster, than its exports to the EU, at a CAGR of 4.41%, while exports to the EU have crawled at a CAGR of 1.58%. The extra-EU exports of six of the other eleven founder or long-term members of the Single Market with comparable data over these seven years – Austria, France, Germany, Ireland, Italy and Sweden – also grew faster than their intra-EU exports, though the intra/extra growth differential in France is the only one that matches that of the UK.

Service exporters in these countries evidently realised that the best opportunities over these years were to be found outside the Single Market. In the remaining five smaller EU economies, Netherlands, Luxembourg, Denmark, Belgium and Greece, extra-EU exports have grown more slowly. For them, therefore, membership of the Single Market in services might appear to have been of some benefit.

The larger seven outweighed the smaller five of course in the aggregate EU measure, so extra-EU exports of this EU12 have grown faster, at a CAGR of 3.55% than the growth of intra EU exports at 2.46%.

The SMinS is, one must conclude, more impressive in politicians’ imaginations and rhetoric than in reality, and will remain so as long as no one cares to measure it.

Mrs Sturgeon, to take one example of many who haven’t bothered to do so, thinks that one of the main reasons why Scotland should be allowed to remain in Single Market, is that ‘no trading arrangement in the world offers the degree of access to providers of services that is in any way comparable to that available to members of the European Single Market.’

The figures say otherwise. Many other countries in the world have offered a higher degree of access to EU services exporters, and over these years, many of them, including a large number from the UK, have been taking advantage of the greater access these other countries have offered.