THE EU

 

The government, on behalf of the Remain campaign in the EU referendum, has recently published a document, drawn up with civil service assistance, entitled: 'Alternatives to membership: possible models for the United Kingdom outside the European Union'. This document supposedly, very helpfully, sets out the alternatives to the wonders of continued EU membership.

 

The main Leave 'campaign' organizations – there are three of them (no less) – have not made a written response to this document. Consequently, The English Rights Campaign will, humbly, offer its own independent response.

 

To begin, certain assumptions and traps need to be identified. Firstly, there will be trade between Britain and the EU. The issue is to establish the manner of that trade. Pure free trade is a theory and the EU does not have free trade in agricultural produce, for example, even within the EU itself. In practice, therefore, the issue is the extent to which there is a need to vary the existing arrangements.

 

Secondly, there is much talk of the EU Single Market, and there is an assumption that we must agree certain things, especially uncontrolled and unlimited mass immigration, to be a member of it. This is a trap. The document defines the Single Market thus: 'A single market is a common trade area that extends beyond the deepest and most comprehensive Free Trade Agreements. It works to remove all regulatory obstacles to the free movement of capital, people, goods and services. It stimulates competition and trade, improves economic efficiency and helps to lower prices. The EU’s Single Market is the largest in the world.' By definition therefore, membership of the Single Market involves 'free movement' of people ('the obligation to treat the citizens of other EU States the same as nationals and remove unjustified obstacles to their movement within the EU') – i.e. uncontrolled and unlimited mass immigration. Membership of the Single Market is akin to membership of the EU and is not the same as free trade; it involves an attempt to pretend that there is a single market in the EU. There is not. For example, there are major differences in the costs of housing across the EU. For example, the labour markets across the EU are different with different wage rates reflecting different national histories. It is wilful stupidity to pretend that there is a Single Market when, for example, countries such as Poland have average wages only 28% of those in Britain; with Spain the figure is only 64%, Latvia only 22%, Hungary only 21%, and Greece only 37%.

 

Since Britain does not want continued mass immigration, then it does not want to be in the Single Market area. It is, however, a nonsense to say that we would have to agree to free movement of people to join the Single Market, as if this is an add on. It is a part of the definition of the Single Market and all those who want Britain to remain in the Single Market want to see uncontrolled and unlimited mass immigration.

 

Thirdly, the document repeatedly lauds Britain's service sector, pointing out that it accounts for 80% of the economy. The argument is put that Britain is a service sector success story and that we need to be in the Single Market to export our services. This mantra is seriously flawed. The British manufacturing sector has performed very badly, and spent 2015 in recession, in large part due to its inability to compete with foreign producers. The service sector, due to its very nature, does not face the same level of foreign competition. Many services simply cannot be traded internationally. It is not the case that Britain is good at services, it is the case that the service sector has not been decimated by overseas competition. Such evidence that there is, for example the financial sector, shows that Britain's banks and building societies were mostly taken over by foreign competitors. Even the City of London stock exchange is currently subject to two foreign takeover bids, with Germany look set to take over. Call centres have been transferred abroad. In the absence of a successful strategy to reverse Britain's continuing economic decline, opening up the service sector to foreign competition will simply mean that it will suffer the same fate as British manufacturing. That fate has been one of long-term decline.

 

Britain's share of world exports of manufactures fell from 40.7% in 1890 to 29.9% in 1913. In the half century to 1914, imports grew faster than exports both in value and volume.

 

West Germany experienced a two and a half times increase in industrial production in the 1950s with only a 1.2% unemployment rate. West German share of steel exports rose from 11% to 20% in the 1950s, while Britain's share fell from 15.1% to 7.9%.

 

 In Britain, manufacturing output fell by 3% between 1970 and 1980; in the same period it increased by 23% in West Germany, 37% in the USA, 35% in France, 38% in Italy and 56% in Japan. British GDP increased by 20% between 1970 and 1980; in the same period it increased by 32% in West Germany, 32% in the USA, 44% in France, 48% in Italy and 68% in Japan. Between 1973 and 1980, world industrial output rose by 13%, in Britain it fell by 10%. In the years 1979-81, Britain lost 1.6million jobs. By 1979 there were 6.16million employed in manufacturing – half the numbers employed in 1952; the number of apprenticeships had almost halved.

 

The election of the Thatcher government in 1979 heralded a recession. There was a fall in output of 2.5% in 1980 and another 1.5% in 1981. By 1983, output had recovered and was 3.5% higher than it had been in 1979, although much of this was accounted for by the advent of North Sea oil. In 1984 manufacturing output was still 10% less than it had been in 1979. In 1984, gross fixed investment was just 3% higher than it had been in 1979, after falls in both 1980 and 1981. Manufacturing investment in 1984 was 30% less than it had been in 1979 and was less than necessary to match the depreciation of manufacturing capital plant and equipment. Throughout the 1980s British manufacturing firms prioritised dividend payments in preference to R&D; with profits rising 6% a year, dividends rising by 12% a year, while investment was rising by 2% a year. Unemployment increased from 1.3million (5%) in 1979 to around 3.2million in 1985 (13%), even after the method of counting had been changed (thus lowering it further).

               

In 1952 Britain's share of world's manufactured exports was 25%. By 1961, Britain's share of world trade in manufactures had fallen to 16.2%. By 1966 the share had fallen to 12.1%. In 2009, Britain's share of world trade in manufactured goods had fallen to 2.9% and it was less than 3% in 2013. Germany's share of world trade rose from 8.9% to 9.3% in the first decade of the 21^st century; Britain's share fell from 5.3% to 4.1%, including financial services. Britain's share of world goods exports, at around 3%, is down from 4.4% in 2000. Britain is a net importer of industrial goods, food and energy.

 

Manufacturing accounted for only 12% of GDP in 2012.  Between 1997 and 2010, the number of people employed in manufacturing fell from 4,278,000 to 2,494,000. There had been 1.6million new jobs created between 2000 and 2010, 80% of which were taken by immigrants.

 

In 2012, of Britain's 20 largest companies by market capitalisation, only five are manufacturers and only eight have a British-born chairman. The consequences of the scale of foreign takeovers of British firms are profound. In 2007, investment in research and development increased among British-owned firms while it declined in foreign-owned ones. In 2008, according to the ONS, only £3.4billion of the £25.6billion invested in research and development was funded by overseas businesses. Foreign-owned businesses control 39% of British patents; for the rest of the EU the figure is 13.7%, in the USA the figure is 11.8% and in Japan 3.7%.

               

In 1950, Britain had a trade surplus in manufactured goods amounting to 10% of GDP, and Britain was also a net exporter of energy due to coal production. Despite an overvalued currency, from 1947 to 1971 the current account of the balance of payments was either in balance or in surplus in 17 of the 25 years.  Britain has had a consistent annual deficit on the current account of the balance of payments since 1983.

 

Small businesses paid almost three times as much tax in 2012 as they were in 2000, despite the lending squeeze enforced by the banks. Meanwhile, large companies, whose profits had increased by 65%, paid 20% less tax. Had the tax revenues from large companies almost trebled as with small companies, then the tax revenues would have been £50billion a year higher.

 

With economic decline, crippled tax revenues, combined with mass immigration, the strain on public services is as inevitable as it is predictable. It is the direct and inevitable consequence of government policy - including the policy to remain in the EU. It is against this background of economic decline that the EU referendum is being held.

 

The document criticizes the Leave campaign for not setting out the alternatives to EU membership and so advances its own different options saying:

 

'1.2 These models offer different balances in terms of advantages, obligations and influence. If the result of the referendum were a vote to leave, we would seek the best possible balance of advantage for the UK. However, regardless of the preferred outcome that the UK seeks, the precedents clearly indicate that we would need to make a number of trade-offs:

 

• in return for full access to the EU’s free-trade Single Market in key UK industries, we would have to accept the free movement of people;

• access to the Single Market would require us to implement its rules. But from outside, the UK would no longer have a vote on these rules. And there is no guarantee that we could fully replicate our existing cooperation in other areas, such as cross-border action against criminals;

• full access to the Single Market would require us to continue to contribute to the EU’s programmes and budget;

• an approach based on a Free Trade Agreement would not come with the same level of obligations, but would mean UK companies had reduced access to the Single Market in key sectors such as services (almost 80 per cent of the UK economy), and would face higher costs;

• we would lose our preferential access to 53 markets outside the EU with which the EU has Free Trade Agreements. This would take years to renegotiate, with no guarantee that the UK would obtain terms as good as those we enjoy today; and

• in order to maintain the rights of UK citizens living, working and travelling in other EU countries, we would almost certainly have to accept reciprocal arrangements for their citizens in the UK.'

 

The first four of the above bullet points relate to the Single Market, which Britain would, as a part of its exiting from EU membership, would likewise be exiting. The arguments raised are misplaced. We would, with competent negotiators, quickly be able to roll over the existing agreements with non-EU countries. This should be simple as it would not be necessary to delve into the possible problems caused by a new trade agreement, for example extending free trade to a new sector, between countries as the consequences of existing arrangements are already known. Other countries will be keen to maintain their trade with Britain.

 

Regarding the final bullet point, Britain has citizens living in a variety of countries across the world and has been able to enter into arrangements with those countries without difficulty.

 

The document continues:

 

1.3 It would take up to a decade or more to negotiate a new agreement with the EU and to replace our existing trade deals with other countries. Moreover, each of the alternative models would come with significant obligations and costs for the UK:

 

• the Norway model has considerable access to the Single Market but not in agriculture and fisheries. It does not give access to the EU’s trade deals with countries outside the EU and still requires customs checks on goods crossing into the EU. It also involves making a significant contribution to EU spending, accepting free movement of people, and taking on EU rules without having a vote on them;

• bilateral agreements vary, but none provide full access to services, which constitute almost 80 per cent of the UK economy. Higher levels of access to the Single Market involve implementing EU rules in domestic legislation, accepting free movement (as in the case of Switzerland), and in some cases making contributions to EU spending. The EU-Canada Trade Agreement provides reduced access to the Single Market for example in services and agriculture; and

• if we could not reach agreement with the EU on a new arrangement, our trading arrangements would revert to WTO rules. This would provide the most complete break with the EU. It does not entail accepting free movement, budgetary contributions or implementing EU rules. But it would cause a major economic shock to the UK. WTO rules mean that the EU, and all countries with which we currently have trade deals, would have no choice but to apply WTO tariffs on exports from the UK – putting our companies at a competitive disadvantage. Meanwhile, the UK would face a difficult choice between either raising tariffs on imports from the EU or lowering tariffs on imports from all countries. Raising tariffs would have knock-on effects on UK jobs and incomes, as well as on the attractiveness of the UK as a destination for international investment. Lowering tariffs would deny the UK revenue, and undermine our negotiating position in future trade deals.

 

 

The document then states that there would be 'non-economic' costs, such as 'security and strength'. The European Arrest Warrant and security is cited, as is Britain's purported 'influence in the world'; the imposition by the EU of sanctions against Iran and Russia is given as an example. This is a sideshow. The first line of security is a country's border control and attention seeking on the world stage is of minor importance. Britain will be free to cooperate with other countries on such matters.

 

Regarding the economic options cited, the Norway model, bilateral agreements or relying on the WTO rules, then this is less contentious. It should be noted that membership of the European Economic Area (EEA), of which Norway is a member, is intended to be a stepping stone to full EU membership. That is why members are expected to adhere to EU regulations. Since Britain is leaving the EU and has no intention of re-joining there is no reason the join the EEA and hence be saddled with EU rules or make payments to the EU.

 

Bilateral agreements will have to be negotiated just as they are with other countries. Britain did this in 1932, following its exit from the Gold Standard and its abandonment of its then policy of unilateral free trade. There is no reason to believe that Britain will be unable to conclude such agreements.

 

However, in the event that bilateral agreements cannot be concluded within a two year timespan under the Article 50 process (which can be extended if the other 27 EU member states agree), then to say that we will be reliant on WTO rules is fair comment. This is the default position. If all else fails, then the WTO will be the basis of trade, although in practice the WTO rules will vary according to implementation – there will be bilateral trade arrangements even if they are not willingly agreed.

 

The document states that Britain would have to make 'difficult choices' and consider 'the obligations required for [continuing] access which would almost certainly include the need to adopt EU rules, make financial contributions, and accept the free movement of people'. This is untrue and only applies if Britain is to remain in the Single Market or joins the EEA. Britain might have to abide by rules of other countries to sell in their home markets, as they have to abide by ours; there is nothing unusual about this.

 

The document expands on the options by examining different models: the Norway model, the Swiss model, the Turkey model, the Canada model, and 'a WTO-only model'. In fact we would be able to amend the WTO model with a bilateral agreement. Norway is in the EEA and so this model is unattractive as Britain will have just left the EU and so will not be seeking membership of it. Both Switzerland and Turkey likewise have had aspirations to join the EU (although Switzerland's parliament recently voted to withdraw its 24-year-old membership application) and so their relations with the EU are geared towards membership. Turkey is also in the Middle East and as the document acknowledges it's 'relationship with the EU is founded on its status as an emerging market and its aspiration to become an EU Member State'. Once again these two models are therefore not attractive for Britain and are not fair examples.

 

The document takes issue particularly with the Canada model, on the basis that it does not 'come near the level of access for services that we have inside the EU'. It further highlights certain sectors where free trade will not be allowed, such as agriculture. Due to its commitment to the Common Agricultural Policy (CAP), the EU has never allowed free trade, or even a free market, in agricultural produce. Since Britain already has arrangements for these sectors then it is far easier to conclude an agreement to cover these sectors, if the will is there.

 

Finally, the document turns to the default position – relying upon the WTO: 'WTO rules represent a minimum threshold', and the WTO model offers the 'most definitive break with the EU', involving leaving the Single Market and hence an end to mass immigration. The document presents this model in apocalyptic terms as it 'would cause a major shock to the UK, with serious consequences for companies, consumers, jobs and prices'. The document points out 'The EU imposes a common external tariff on countries outside, except those that have negotiated preferential trade agreements with it'. The document sets out a table of tariffs that the EU applies, which can be summarized as:

 

Less than 5%:

 

Non-electrical machinery

Minerals & metals

Petroleum

Electrical machinery

Leather, footwear, etc.

Transport equipment

Other agricultural products

Chemicals

 

Less than 7%:

 

Oilseeds, fats & oils

Coffee & tea

Textiles

 

10-12%

 

Fruit, vegetables & plants

Clothing

Fish & fish products

 

17%

 

Cereals & preparations

 

20-21%

 

Animal products

Beverages & tobacco

 

29%

 

Sugars & confectionery

 

 

Of the categories and tariff rates, it will be seen that many of the categories are items of goods which Britain imports rather than exports (e.g. textiles, tea, tobacco, and most of the clothing is now imported). The majority of the categories of items are subject to low tariffs of 12% or less, with many being subject to less than a 5% tariff. Confectionery might be attracting a high tariff, but Britain has gradually sold off much of its confectionery firms (e.g. Cadbury) with production being transferred abroad.

 

The document does highlight the importance of the car industry, and states 'Inside the EU, the UK makes and sells cars without tariffs or regulatory barriers. By contrast, car imports from countries outside the EU without preferential trade arrangements are subject to a 10 per cent tariff. Although under the EU-Canada deal, the current tariff on cars would fall from an average of 11.2 per cent over a transition period'. It further asserts:

 

'If the UK withdrew from the EU, unless preferential access was agreed as part of the exit negotiations, UK car manufacturers would face a 10 per cent tariff on exports to the EU. In 2015 UK exports of cars to the EU were worth £10.2 billion. A 10 per cent tariff would imply a surcharge of over £1 billion. Moreover, if the UK was forced to raise tariffs under WTO rules, components sourced from the EU would become more expensive for UK vehicle manufacturers. As over 40 per cent of components purchased by these manufacturers come from the EU, this could place such exporters at further disadvantage.'

 

Of course we could agree a preferential trade agreement, and in the absence of such then manufacturers could always source their components from British firms rather than foreign ones. British consumers have the choice of buying British built cars or else paying more for their foreign ones, should Britain likewise impose tariffs.  The document ignores that the EU would itself potentially be disadvantaged by the lack of a preferential trade agreement with Britain. All those BMWs would attract a tariff – unless Britain adopted a policy of unilateral free trade.

 

The document does not address the scale of the sell-off of British industry, the de-industrialization that Britain has experienced or the reasons for that. It does not delve into the very significant balance of trade deficit that Britain has with the EU or the damage that that deficit is doing to the British economy and the adverse effects on ordinary people. All of this is ignored.

 

The document states that: 'Without a preferential trade deal, there would be no scope to vary these [tariff] rates for the UK. Under WTO rules, the EU is required to apply a “common external tariff” in line with the “Most Favoured Nation” principle, which means that WTO members must offer the same terms to all 161 other WTO members'. In a footnote, the document accepts that 'Under the WTO generalised system of preferences, the UK could choose to continue to grant preferential tariffs to imports from developing countries'. This is as close as the document comes to acknowledging that Britain would be free to set its own trading arrangements and tariffs, rather than simply grovelling to the EU to be allowed free access to the Single Market.

 

The document flounders about at length trying to debunk the WTO model. At times it is perverse, at times untruthful and at times barmy. It has the brass neck to allege:

 

'The EU, for example, has used its collective weight to impose tariffs against the dumping of Chinese steel imports. If the UK attempted to take similar measures on its own, they would carry less weight (the UK economy is about a sixth of the total EU economy in size, so such measures would have correspondingly less impact).'

 

In fact the EU has failed the British steel industry, which has had one plant permanently closed and jobs across the remaining sites under threat due to Chinese dumping of steel, which is being sold at below the cost of production. The other EU countries are less affected by this as they quietly favour their own industries for local contracts, whereas Britain enforces the rules as simplistically and as stupidly as possible. Britain is fully committed to unilateral free trade.

 

The document alleges that 'If reciprocal tariffs were introduced on imports from the EU, these goods would become more expensive'. This might be true, but there is no obligation to buy those EU imports. For example, we could import sugar far cheaper from the Caribbean. Britain is unable to feed itself and we would greatly benefit from being able to import cheaper foodstuffs from non-EU countries and this would help push down on the cost of living. (Due to its strategic importance and the limits as to how dependent Britain should become on food imports, British agriculture would need to receive effective support.)

 

Crucially, the report refers to Britain's fish exports, ignores Britain's fish imports, and makes no mention at all of Britain being able to recover control of its fishing grounds. This is a major omission. Re-establishing our own territorial waters, in the same way as all other sovereign countries, will create jobs in Britain's fishing and fishing-related industries. This is a major benefit of leaving. Norway refused to join the Common Fisheries Policy in order to maintain control of its own territorial waters and to protect its fishing industry.

 

Most important of all, the document does not consider British interests and confines itself to a passive, reactive indecisiveness regarding the use of tariffs:

 

'Lowering tariffs would make imports cheaper, but there is no guarantee that this would be reciprocated. If we chose to go down this route, the UK would need to lower tariffs on all imports, for the EU and the rest of the world alike. If we had already lowered tariffs, giving duty-free access to the UK market, other countries would have no incentive to give preferential access to their own markets for UK companies. We would have lost a significant lever in trade negotiations. The UK would face a stark choice: lower tariffs for all countries in the world, or raise tariffs with respect to the EU. The first option would undermine our position in future trade negotiations. The second option would raise costs for businesses and consumers.'

 

It is this wishy-washy 'analysis' that lies at the heart of Britain's long term economic decline. Nowhere in the document does it compare the advantages of regaining the freedom to establish our own trade policy with the consequences of continued EU membership. Britain has a substantial balance of trade deficit with the EU, and Britain has continuously had a balance of payments deficit since 1983. This is a serious problem. Britain has been funding this deficit by selling assets and by borrowing. Between 1997 and 2007, according to the Treasury, foreign ownership of quoted British companies rose from 30% to 50%. In the 10 years to 2015 British companies worth £440billion were sold to foreigners. In 1991, 50% of British shares were held long-term by British pension funds and insurance companies; by 2015 that figure had fallen to less than 15%, with 41% of British shares held overseas. Figures from HM Revenue and Customs show that those sectors most affected by takeovers are paying either lower or broadly the same tax revenues – and thus a declining share of the overall total. The takeover culture is reducing tax revenues and so is impacting on government services and forcing up taxes from other sources such as VAT, personal tax and national insurance. For example, when Boots was taken over, it transferred its headquarters to Zug in Switzerland to dodge British taxes. The document does not explain what how the trade deficit will be funded when the assets run out and when further borrowing is not possible.

 

By comparison, the USA imposed large tariffs on Chinese steel imports, while British ministers sat doing nothing other than to claim that the plight of the British steel industry was in the hands of the EU. The EU did nothing. The US steel plants have been saved, British steel plants are closing. By comparison, the US presidential candidate, Donald Trump, has openly stated that he will use tariffs to protect US industries from hostile competition from countries that are not abiding by free trade rules, such as China, Japan and Mexico. Indeed, Donald Trump has even averred that he will use tariffs and duties regarding Mexico to pay for his much publicized Wall (with Mexico to stop illegal immigration). He has openly stated that Mexico will pay for this Wall and has challenged his opponents to just watch him achieve this.

 

(Donald Trump's determined 'can do' attitude needs to be contrasted with the 'Singapore Spirit' ethos of the Tory party.)

 

Britain faces the problem of massive trade deficits with China and the EU, both of which have artificially manipulated their currency values. China manipulates its currency for trade advantage, whereas the one-size-fits-all euro is too high in value for the southern EU states and too low in value for the northern EU states. This means that the markets for British goods in southern Europe are in recession, while the northern EU states enjoy artificially low export prices and also benefit from British goods being artificially highly priced in the EU due to the euro.

 

On leaving the EU, Britain will once again be able to address its trade problems and can use tariffs, if necessary, to redress those problems. The policy should be one of not free trade, but balanced trade. By definition this will create a boost in the demand for British goods, create jobs, higher wages, higher tax revenues, increase productivity (especially due to the increase in jobs in manufacturing), and create a higher growth rate.

 

(Even Lord Rose, the chairman of the Britain Stronger in Europe organization, has admitted to a Treasury select committee that leaving the EU would increase wages: 'If you are short of labour, the price will go up ... That's not necessarily a good thing'. It should be noted that he has stated that he does not regard higher living standards for ordinary people as 'necessarily a good thing'.)

 

There is a precedent. In February 1932, after crashing out of the Gold Standard and in the face of tariffs being used by all other developed countries (with Britain clinging to its policy of unilateral free trade), Britain introduced the Import Duties Act which imposed a 10% tariff on all imported goods apart from those specifically exempted (such as raw materials). By April 1932, the tariff rate was doubled. The positive effect of this new policy was dramatic. Britain's output had fallen by 5.6% in 1931. Between 1931 and 1937, industrial production increased by 70%.  Britain's per capita incomes increased by 0.2% in 1932, by 2.5% in 1933, and by 6.3% in 1934.

 

The model for Britain after leaving the EU is one of a policy of balanced trade. We should offer the EU a bilateral trade agreement that is fair, but one that will bring the trade back into balance. In the absence of an agreement, then we should impose tariffs at a level and on items that suit us. It should not be a question of whether we can obtain access to the EU Single Market, it should be a question of what terms we are prepared to allow them access to our market.