Our current membership of the EU is stifling British dreams of free trade

Dominic Raab is the Conservative MP for Esher and Walton. His report Ease the Squeeze – Tax Cutting Priorities in Austerity is published by the Centre for Policy Studies today.

CHAMPIONING transatlantic free trade at last week’s G8 summit, David Cameron saw off a rearguard action from European governments desperate to cocoon Mediterranean farmers and French film-makers from competition.

Tory veteran Ken Clarke claims British dreams of free trade can only be realised through the EU. In reality, the EU’s ebbing value as a free trade area risks being eclipsed by dwindling competitiveness and stubborn protectionism.

Take cars. Last year, Britain was a net exporter for the first time since 1976. To understand why, compare the recent performance of Honda and Jaguar Land Rover (JLR). Honda’s Swindon plant is the Japanese firm’s regional hub, manufacturing 90 per cent of its cars sold to Europe. Yet, falling demand has led to scaled back production. In January, Honda announced 800 job losses in Swindon. In contrast, Jaguar Land Rover (JLR) produces all its cars in Britain, selling 59 per cent of them outside Europe (and just 22 per cent on the continent).

One of Britain’s biggest exporters, the firm has its eyes firmly fixed on the global market. Buoyed by rising Asian demand, JLR notched up record annual sales last year. What lessons can be drawn from these contrasting fortunes?

One of the strongest arguments for British membership of the EU has been its strategic location as a base for export across Europe. But in the last ten years, UK car exports to Europe rose by around a third, whereas those to the rest of the world almost trebled. Last year, British car firms offset a 9 per cent fall in European sales with a 19 per cent increase in global sales beyond the EU.

As well as a surge in Chinese demand, British car firms are enjoying a boom in exports to places like Brazil, South Korea and Mexico. While the European market remains important, emerging markets are driving long-term UK growth.

Ideally, Britain will re-negotiate better terms of EU membership to reduce the bureaucratic burden from Brussels, while taking advantage of these global opportunities. But if that failed, could a Brexit damage the renaissance of British car exports? It seems unlikely. If Britain left the EU, it would negotiate a trade deal and could expect at least as favourable terms as Switzerland, which is not subject to any car tariffs.

Beyond the automotive sector, the value of total UK exports in goods and services to non-European markets has doubled in ten years. This year, for the first time in history, emerging economies produced more than half the world’s goods and services. Little wonder, according the British Chambers of Commerce, that UK exporters see the greatest opportunities for growth for the next five years in the BRICs (Brazil, Russia, India, China), Saudi Arabia and the UAE. Britain must ride this wave of the future. But could European histrionics over free trade stifle such global ambitions?

It is received wisdom that the EU is a better negotiator of free trade deals than Britain would be on its own. Big blocs, it is argued, have more clout. But this is contradicted by the EU’s own experience. It has successfully negotiated free trade deals with medium-sized countries including Chile, Mexico and Ukraine, but found it tougher with larger nations like Japan and the US.

According to Ken Clarke, the EU “amplifies our influence in the world”. In reality, the EU commitment to free trade is diluted by having to reconcile so many continental special interests. On top of stifling European farm subsidies and cultural quotas, the EU-US deal is blighted by EU efforts to harmonise regulatory standards. This could easily kill the deal. Yet, imposing national regulatory standards is the opposite of dismantling barriers to free trade.

Such EU foot-dragging hurts us the most. According to a report by the Ifo institute, the UK would gain more than any other European country from a US-EU free trade area – with global GDP per head leaping by 10 per cent. Similarly, the EU is prone to knee-jerk protectionist reaction to trade disputes. Rather than courting China for her exponential export opportunities, for example, the EU imposed over 100 protectionist counter-measures in response to a spat over Chinese solar panels.

Unless the EU liberalises at home, lifts horizons abroad, and renegotiates UK terms of membership, the economic case for Britain going it alone will only get stronger.

Dominic Raab is the Conservative MP for Esher & Walton.

City A.M.'s Opinion pages are a place for thought-provoking opinions and views. These are not necessarily shared by City A.M.

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