EUROPE: Too much pain for little gain

Our annual nett contribution to the EU budget fluctuates, but is put by most commentators at around £8.6billion. That is about 0.5 per cent of the UK’s GDP, only about seven per cent of our spending on the NHS.

On the other hand, the CBI puts the direct nett economic benefits to the UK of membership of the EU at between £62billion and £78billion.

The EU is the UK’s major trading partner, accounting for 45 per cent of exports and 53 per cent of imports of goods and services in 2014. Accordingly, we shall certainly want to go on trading with Europe.

According to Jonathan Pates, of the National Institute for Economic and Social Research, the EU’s export to the UK amounts to about three per cent of EU GDP. In pure economic terms the EU is more important to us than we are to the EU.

Under the Lisbon Treaty we have two years to negotiate the terms of withdrawal. The first thing we will have to do upon leaving and slamming the door is turn around, knock on the door and arrange to get some way back into the EU so that we continue to have access to the single market.

We would also want to secure protection for UK workers and pensioners living or working in Europe. We are always talking about the number of EU workers in the UK, but we mustn’t forget the two million or so UK citizens living in other EU states. There are many other bits of co-operation we shall want to continue, such as cross-border policing and security.

Insofar as trading contracts are concerned, why should our trading partners agree to let English law and terms of trade prevail over EU law and terms? Would not the EU nations demand adherence to EU product standards?

If Britain withdrew from full membership, there would be a number of potential options for trading relationships – membership of the European Economic Area (the Norway option); a customs union (like Turkey); a basket of bilateral agreements (as with Switzerland); a ‘vanilla’ free trade agreement (such as South Korea and South Africa); or trade under World Trade Organisation (WTO) rules.

According to analysis by John Springford and Simon Tilford, of the Centre for European Reform (The Great British Trade-off), none would be straightforward. All except the last would take us back into subjection to EU rules without us being at the table where those rules are made. That seems a foolish step to take.

Following the Norwegian or Swiss models, relations with the EU would involve a financial contribution – Norway is the 10th largest contributor to the EU budget.

Opting for WTO rules would mean working with the EU’s Common External Tariff. This could be an expensive choice. Food imports are subject to an average EU tariff of 15 per cent, while car imports face a 10 per cent tariff, and car components, five per cent. UK exports could be hit hard. The EU is easily the biggest market for British car-makers, and the car components industry is fully integrated into pan-EU supply chains.

Confidence in being able to strike more favourable free trade agreements with non-EU nations is surely misplaced. Such country by country negotiations would be immensely time-consuming and would seriously stretch our administrative resources. Trade negotiations with Britain are not going to be high on the agenda of other countries. But more important, good deals depend on having leverage. What would be ours compared with the EU bloc with its 500 million customers?

Leverage is about reciprocity, the concessions a country can make. A comparatively small economy such as the UK’s would enjoy little leverage. China’s trade with the EU is seven times its trade with the UK. The EU is in a strong position when it comes to trade: the bigger the domestic market, the greater an economy’s negotiating power. Why would we wish to ignore this and strike out on our own, and do so in very unfavourable circumstances?

European leaders fear a domino effect of Brexit. In any negotiations, the EU would surely wish to impose punitive terms to dissuade other members from going down the Brexit path.

While in the long term our economic position may not end up too differently whether we remain or leave, in the short, and perhaps medium term, the degree of uncertainty in business, industry and financial services will have damaging effects. For so little gain, why put ourselves through so much pain?

John Rear,

Rothbury