Progress | Centre-left Labour politics

It’s still proximity, stupid

Trade flows within regions are far greater than trade flows between regions, writes Emma Reynolds

Brexiteers claim that the United Kingdom would be better off if setting its own trade policy outside of the European Union’s customs union. They speak with great fervour about striking free trade deals with countries around the world. They cite a projection from the International Monetary Fund that 90 per cent of the world’s future global economic growth will occur outside of the EU.

They maintain that any loss of trade with the EU caused by leaving the single market and the customs union would be offset by signing new trade deals with emerging economies. They also argue that the UK could more easily sign free trade agreements with developed countries such as the United States or New Zealand.

However, the evidence does not support their case. Most countries trade more with their nearest neighbours than they do with nations further afield. Although free trade agreements do lead to a small increase in the overall level of trade between countries, geographical proximity is a much more influential factor in determining trade flows. According to numerous economic analyses, the trade referred to as ‘globalisation’ – the increase in cross-border movements of goods, services, money and people – would be better described as ‘regionalisation’. World Trade Organisation data supports this by showing that trade flows within regions are far greater than trade flows between regions.

This is borne out by the UK’s own trade statistics. The EU is our main export market. We sell more goods and services to Ireland than China and India combined. Despite our longstanding Commonwealth ties and shared language, we export over three times as much to Belgium than Canada and more than twice as much to Spain as Australia.

Free trade agreements cannot obviate this distance effect. Ceta, the pioneering EU-Canada free trade agreement is only predicted to boost European gross domestic product by 0.03 per cent and this is one of the deepest and most comprehensive FTAs in history which took seven years to negotiate.

The government’s own economic analysis, leaked in January, estimated that post-Brexit trade deals with the United States, China, India, Australia, the Gulf states and Asean (the Association of South East Asian Nations) would add between 0.3 and 0.6 per cent to GDP. This leak makes clear that the loss of trade from leaving the EU and the single market will not be compensated for by gains from other free trade deals.

It was with these figures in mind, that the former permanent secretary of the international trade department, Martin Donnelly, memorably described an approach that prioritised leaving the customs union to sign new trade deals as giving up ‘a three-course meal … for the promise of a packet of crisps in the future’.

Populism and protectionism are on the rise and do not create favourable conditions for trade negotiations. Our partners beyond the EU are tough and experienced negotiators and these deals could take many years to agree. US president Donald Trump frequently uses protectionist rhetoric. India is demanding visa liberalisation. Japan has said that concluding a trade deal with the EU is a greater priority than negotiating one from scratch with the UK.

Geography matters in trade. The EU is on our doorstep. Our economies are deeply integrated. We do more trade with the EU than any other country around the world. Even with the most comprehensive free trade deals, our trade with far flung countries will not make up for the loss of trade with the EU, if the government proceeds with a hard Brexit, leaving the single market and customs union. The UK must remain in the customs union to protect jobs in manufacturing, to avoid a visible border on the island of Ireland and to secure the prosperity of generations to come.


Emma Reynolds is member of parliament for Wolverhampton North East. She tweets @EmmaReynoldsMP


Photo: licensed under CC01.0

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Emma Reynolds MP

is a former member of the shadow cabinet

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