Extract from the House of Commons Library, Research Paper No. 13/42
It is often suggested that independence over trade policy would allow the UK to join other free trade areas, such as NAFTA and forge its own bilateral free trade agreements that are tailored to its particular economic circumstances; as part of the EU, this is legally impossible. This freedom, it is argued, would allow the UK to refocus its trade on economies with brighter prospects and rectify its persistent trade deficit.
It is open to debate whether the UK’s capacity to export to the rest of the world, and particularly to high growth emerging economies, is significantly held back by EU membership. Trade between the UK on the one hand, and China and India on the other, has more than doubled since 2006, while the share of exports going to the EU has declined from 54% to 46%. Germany, meanwhile, exported four times more to China than the UK does by value, and came close to a current account balance with it in 2012. Even outside the EU, the structure and orientation of the UK economy are likely to place important constraints on its capacity to re-orientate its trade in the medium-term.
From a British perspective, the EU’s trade policy does not appear to be wholly misguided in geographical terms; most of the countries with which the EU is currently negotiating an FTA are among the UK’s top trading partners. Some have noted that the EU has less interest in pursuing free trade agreements with Commonwealth countries than the UK: at 9.5%, the UK’s export share to the Commonwealth is greater than, for instance, France’s (5.7%) or Germany’s (5.0%). The EU already has preferential trading arrangements with 16 of the 53 other Commonwealth members, covering around a third of the UK’s total Commonwealth exports, and is in negotiations with a further 26, covering an additional 45%; notable exceptions include Australia and Pakistan.
The EU has thus far failed to secure any preferential trade agreements with Brazil, India or China, but whether the UK’s trade negotiating strength and efficiency would be greater outside the EU is uncertain. On the one hand, concluding deals might be easier for the UK alone, given the greater diversity of interests involved when the EU negotiates as a group; on the other, the smaller size of its market may mean deals with the EU, like the Transatlantic Trade and Investment Partnership (the proposed FTA with the United States) are afforded greater priority by non-EU countries than deals with the UK alone. Typically, the EFTA countries follow in the EU’s path when it comes to FTA negotiation (i.e. agreements are reached with the EEA and EFTA shortly after those with the EU), although in the case of the recent South Korea FTA, EFTA led the way.
A particular area where UK interests may be poorly represented in EU trade negotiations is services market access. Language, time zone and structural features of the UK economy give it a comparative advantage in cross-border services trade, but, according to Open Europe, “the EU’s lack of domestic liberalisation in services trade limits the enthusiasm of member states to push and prioritise these issues with third countries”.
The recent exclusion of audiovisual services from the US free-trade negotiations, following pressure from France, is an example of the sensitivities attached to this area of trade liberalisation and the compromises that must be struck when 28 countries negotiate as a group.