Paul Clarke examines the business case for the UK to remain in the EU.
If you watched the first ever episode of Last of the Summer Wine, and can remember when David Bowie was kept from number one by Little Jimmy Osmond, then you were around in January 1973 when the UK joined the European Economic Community (EEC). Millions of people have never known a time without "Brussels" in the background as those who had experience of doing business with the rest of Europe before we all became part of the same bloc are now at least in their 50s. As the chance to vote on whether membership is still good for the UK draws closer, it is an opportune moment to consider the pros and cons of "Brexit" (a British exit from the EU). David Cameron is committed to offering an "in or out" referendum by the end of 2017 and is coming under pressure to bring that date forward. Before the vote, he has promised to seek "reform" of the EU which has, incidentally, never previously lost a member.
Why did the UK join?
There were undoubtedly political reasons behind Edward Heath's decision to seek membership in the 1970s (having previously been rebuffed by a French veto). Ultimately, however, the decision was economic: would the UK prosper within the growing trade bloc? The first response to having been denied membership in the 1960s had been to help form the European Free Trade Area (EFTA) but that group of countries failed by a wide margin to match the EEC's performance. Academics have since argued that Britain joined the EEC too late, at a bad moment in time, and at an avoidably larger cost — but that it was still worthwhile. As Brunel University's Economics Professor, Nauro Campos, said: "The UK’s per capita GDP relative to the EU founding members’ declined steadily from 1945 to 1972. However, it was relatively stable between 1973 and 2010. This suggests substantial benefits from EU membership."
What was on offer?
The EEC was founded on Treaties which encapsulated the free movement of people, goods, services and capital. From a trading point of view, the advantages were massive. Previously, a manufacturer in Manchester wanting to sell to a customer in Munich or Madrid had to ensure that national (and even regional) quality and safety standards were met (and that could take many months). Goods were also subject to import duties and/or taxes. Once within the EEC, however, a product manufactured to the agreed European standards anywhere within the Community could be sold without further testing or certification anywhere else within the bloc.
To this new level of openness, the European Commission added the idea in the 1970s of publishing information on contracts issued by public authorities across the Member States.
Worth billions of pounds every year, the contracts opened up to tender by the various public procurement directives made expanding into other markets a reality for many companies who had previously relied only on domestic sales. In the event of a Brexit, most of the tenders would be barred to UK companies who would have access only to the limited number issued to non-EU countries under the Agreement on Government Procurement (GPA).
No to EU: yes to free trade
UKIP's position on the EU is simple: the UK leaves but continues to have a trading relationship with its former partners. In addition, free trade agreements are being signed all round the world and the UK would soon be getting at least its fair share. Unfortunately, both these propositions have been seriously undermined by detailed analysis. For example, the Centre for European Reform has shown that it would be cheaper for the likes of China, India, Russia, Brazil and Indonesia to trade with the EU than with an independent UK. Furthermore, by doing so they would access a potential market of over 450 million people, rather than one of 60 million.
A similar argument applies to investment by non-EU countries in factories and headquarters in the Union. Why would a Chinese company want to invest in a go-it-alone UK when it could set up shop in Berlin or Prague and be able to move its goods or services freely around 20-plus countries? It is also worth remembering that Britain exports more to Ireland than to China, India and Brazil combined, but the boundary between Northern Ireland and the Republic would become an international frontier in the event of a Brexit with all the delays and restrictions that implies.
Reform means we can still access the Single Market…
Mr Cameron's view is that he will be able to persuade the other Member States to allow further opt-outs for the UK so that British firms can still trade within the Single Market but without applying irritating red tape affecting (perhaps) working time and health and safety. And with the EU still accounting for 50% of the destinations for the UK's goods and services, this would be vital. Again, however, a serious examination of this position reveals some worrying flaws. For example, every statement from the EU has made it clear that the four freedoms are non-negotiable. The dilemma is clear: Mr Cameron cannot reduce EU migration unless he changes the rules on free movement of workers; Poland and Hungary (to name only two) are extremely unlikely to agree.
…or we could join the EEA
Those countries that enjoy a special trading relationship with the EU through the European Economic Area (EEA) Agreement (Iceland, Liechtenstein and Norway) do so by accepting all the EU legislation that applies to the internal market. So Norway, for example, promoted by UKIP as a role model for an independent UK, actually implements every directive and regulation sent its way by Brussels. This is the price for being allowed access to EU markets and it has been described as "independence at a price": the price being that neither the EEA members nor Switzerland (through a slightly different arrangement) have any right to influence the legislation which they are being told to implement. It is difficult to see a scenario where the UK would be offered a better deal. Trading with the EU after a Brexit could therefore mean still applying all the legislation which Eurosceptics currently see as unacceptable.
Equally of course, the UK could opt to refuse an EEA solution and simply trade as an independent country. If that was the case, however, our hypothetical Manchester manufacturer trying to sell to Germany or France would find sales likely to depend on meeting standards equivalent to those imposed on companies within the Union. Would German companies allow their politicians to agree a deal whereby UK companies could cut costs by ignoring standards and legislation with which they must comply? The FT recently summarised the position: "Mr Cameron should not allow his fellow citizens to indulge in fantasy. It makes no sense for the UK to seek a status akin to that of Norway or Switzerland. Both countries have to accept the rules of the club, while exercising no voice in making them. For the UK, this position would be intolerable."
The business view
The chairman of construction equipment firm JCB, Lord Bamford, has said the UK should not fear Brexit as "we could exist on our own — peacefully and sensibly". CBI President Sir Mike Rake has warned that there are "no credible alternatives to EU membership". We may soon have to decide who is right.
Last reviewed 25 May 2015