Forget the Single Market myth – we have little to lose from being outside it

Forget the Single Market myth – we have little to lose from being outside it

We hear a lot about the Single Market in the Brexit debate. We are told that doing trade deals with the rest of the world – something we certainly want – cannot substitute for the Single Market. Of course, it cannot substitute directly for the Single Market, but we are not planning that trade deals with the rest of the world should substitute the Single Market.

The whole point – and this exposes one of the myths about Europe in the Single Market – is that we will continue to trade with Europe from outside the EU; it crystallises the myth that you have to be a member of the Single Market in order to trade with Europe.

The top three trading partners with the EU have no special trade agreement with the EU; indeed six out of the top ten trading partners of the EU have no special trade arrangements with the EU. Switzerland is not a member of the EU, but it exports four to five times per capita as much as we do, while America sell more in goods to the EU than we do, and probably the same amount in services as well.

So there is nothing unusual about selling to the European Union from outside the European Union. That is what most countries in the world do, and yet we heard in the recent debate in the House of Lords about people ‘falling into the clutches of the WTO’ as though this was some monster organisation rather than actually being the body that lays down the rules for how most trade in the world is actually conducted.

Opponents of Brexit like to tease Leavers like myself about how the Single Market was a great British achievement – Mrs Thatcher’s achievement as well, they say. But what they ignore is that in later life, Mrs Thatcher came to regret the fact that she acquiesced in qualified majority voting to the Single Market. She felt as though she made a mistake and that the Single Market became an excuse for intrusive law making and unnecessary harmonisation.

Perhaps in its early years, the EEC – the European Economic Community, the Common Market as it was originally called – originally had a dynamic trade generative effect because when it came into existence, tariffs in the world were much higher than they were. It was just before the period when President Kennedy started liberalising world trade and I believe that in those early years it did have an effect in increasing trade, but in later years and in the recent past, it is very difficult to see that it has had that effect.

It is worth considering the findings of a fascinating study carried out by an academic called Michael Burrage, published by the think-tank Civitas under the title The Myth and Paradox of the Single Market.

He found that exports from the UK to the EU in the period that the Single Market existed had grown less quickly than those of non-EU countries – countries like Australia, Japan and the US (which I have already said exports more to the EU than we do).

And what happens when we look at trade in services – an area where the British economy is particularly strong and where the greatest growth in world trade in future years is expected to happen? As a proportion of GDP, the favoured method of the European Commission is to look at what is happening in services – and when you look at those statistics, they strongly suggest that trade in services is stagnant or falling.

Within the EU, intra-trade in services between the 28 countries is growing less quickly than extra-trade in services, that is between the 28 and the world outside. That again indicates that we have very little to lose from being outside the Single Market – and it is questionable whether there is a Single Market in services at all.

So, as highlighted by a recent Leave Means Leave report, the debates and the negotiations should not concentrate so much on tariffs, as on customs documentation and bureaucracy that surrounds trade – visas, and indeed a package of enterprise measures, which can only be crystallised outside the EU.

It used to be argued that the UK benefited hugely in trade negotiations by being in the EU because it was part of a large bloc, and it was argued that the combined collective economic muscle of the EU meant that we could negotiate much better trade agreements in the world than we ever could on our own. Alas, I think experience shows that that is a myth.

Again, if we turn to the research of Michael Burrage, what do we find? He presents these statistics up to 2014: –

The EU has trade agreements with 55 countries – many of them small countries – with a total aggregate GDP of $7.7 trillion. He then looked at how a lot of smaller countries had done with trade agreements, and what was the aggregate value of the GDP of the countries with which smaller countries had done trade negotiations.

For Switzerland, it was $39.8 trillion, for Singapore it was $38.7 trillion, for Chile it was $58.3 trillion and for South Korea it was $40.8 trillion. Those figures don’t include the recent agreement with Canada, but I don’t think that would make much difference.

Again, this shows that outside the Single Market, we have a tremendous opportunity to negotiate trade agreements around the world. Many countries throughout the world, as we all have read in recent weeks, have expressed an interest in beginning to talk – at least in broad terms, and then eventually to enter serious negotiations.

This ought to be something that is extremely welcome, because in recent years there has been something of a move worldwide towards protectionism. One of the few things on which most economists agree is that freer trade increases welfare and living standards, and I very much applaud the fact that the Prime Minister has said that Britain wants to be a force for free trade in the world.

Brexit should be, and could be, a campaign to give back the impetus to freer trade in the world.

I profoundly believe in what Cobden said in that ‘free trade is God’s diplomacy’ and that free trade promoted peace and prosperity. But free trade is also profoundly in our economic interest and we have a great opportunity now.

This is an exclusive edited extract from a speech delivered by Lord Lamont to Leave Means Leave on Monday 6th March 2017