How 'dependent' is the UK
on exports to 'Europe'?
The British think they're in the EU for trade. That's what they were told in 1972 and 1975 and that's what they're still being told today. But in all likelihood 90 per cent of the British economy is NOT involved in exports to the EU.
25 years after the UK joined the then EEC, how "dependent" is she, economically, on the other 14 member states of the EU?
"Dependency" depends on how much and what the UK produces and how much and what she sells overseas.
First, what she produces. The British economy (like those of other developed industrial countries) is now, broadly, an "Eighty/Twenty" economy: 80 per cent services and 20 per cent manufacturing. This is true whether measured by GDP or by numbers of people employed.
Within the 80 per cent of British output accounted for by services, some are non-tradeable and not open to international competition, or not much: health, education, hairdressing, dry-cleaning and so on. Other services are tradeable internationally: films, music, literature, engineering consultancy, financial services, air transport.
The 20 per cent of British output which is classified as "manufacturing" produces goods or merchandise - most of it internationally tradeable.
When it comes to exports, the UK sells abroad more "invisibles" - services and financial receipts - than "visibles" or goods. Thus, to discuss British exports only in terms of goods is literally to ignore more than half of British exports, including the export earnings of the City of London and the music business, to mention just two of the UK's world-beating industries.
Thus, the proper definition of "exports" is exports of goods plus exports of commercial services plus "income" - the latter being shorthand for fees, royalties, dividends and interest received from overseas.
In 1998, the UK's worldwide exports as defined above amounted to £335 billion. In that same year the output of the British economy (its GDP or Gross Domestic Product) was £844 billion. The conventional way of measuring a country's export dependency worldwide is to divide exports by GDP, which, for the UK in 1998, gives a percentage of 40 per cent.
The other 14 EU countries bought 48 per cent of our worldwide exports in 1998 - less than half. Expressed as a percentage of UK GDP, exports to EU '14' worked out at 19 per cent.
However, recorded British exports to EU '14' are overstated, because of two quite separate effects.
The first, the Rotterdam-Antwerp Effect, relates to exports of goods and commercial services to Holland and Belgium. About two thirds of these pass through the two biggest ports in Europe, Rotterdam in Holland and Antwerp in Belgium, on their way somewhere else - some to other EU countries, the rest outside the EU.
The second, the Netherlands Distortion, relates to Income.
This often flows through Dutch "brass-plate" holding companies which offer tax advantages. As a result, much of the investment and income flows recorded in the British statistics as going to or coming from Holland in fact go to
or come from somewhere else, very often outside the EU altogether.
The magnitudes of these two separate distortions can only be guessed at, but they are substantial. Once they are taken into account, a reasonable estimate of the real proportion of British EU-bound exports to GDP would be around 15 per cent.
And that, of course, means that the proportion of the British economy not involved in exports to the EU '14' is 85 per cent.
But even this 15/85 split probably exaggerates the real net "dependency" of the British economy on exports to the EU. This is because Britain imports approximately as much as she exports; and much of those imports are re-exported. Much of British exports to the EU consist of re-exports of imports from the EU. So, if the EU were ever to threaten to discriminate against British exports to the EU (which, incidentally, would be illegal under WTO rules), it would be cutting off its own nose to spite its face: a drop in UK exports to the EU would boomerang and cause a drop in EU exports to the UK.
Once account is taken of the import content of exports it is likely that the net "dependency" of the UK on exports to the EU ‘14’ is even less than 15 per cent – say 10 per cent. That, in turn, means that the proportion of the British economy NOT "dependent" on the EU is no less than 90 per cent.
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on exports to 'Europe'?
The British think they're in the EU for trade. That's what they were told in 1972 and 1975 and that's what they're still being told today. But in all likelihood 90 per cent of the British economy is NOT involved in exports to the EU.
25 years after the UK joined the then EEC, how "dependent" is she, economically, on the other 14 member states of the EU?
"Dependency" depends on how much and what the UK produces and how much and what she sells overseas.
First, what she produces. The British economy (like those of other developed industrial countries) is now, broadly, an "Eighty/Twenty" economy: 80 per cent services and 20 per cent manufacturing. This is true whether measured by GDP or by numbers of people employed.
Within the 80 per cent of British output accounted for by services, some are non-tradeable and not open to international competition, or not much: health, education, hairdressing, dry-cleaning and so on. Other services are tradeable internationally: films, music, literature, engineering consultancy, financial services, air transport.
The 20 per cent of British output which is classified as "manufacturing" produces goods or merchandise - most of it internationally tradeable.
When it comes to exports, the UK sells abroad more "invisibles" - services and financial receipts - than "visibles" or goods. Thus, to discuss British exports only in terms of goods is literally to ignore more than half of British exports, including the export earnings of the City of London and the music business, to mention just two of the UK's world-beating industries.
Thus, the proper definition of "exports" is exports of goods plus exports of commercial services plus "income" - the latter being shorthand for fees, royalties, dividends and interest received from overseas.
In 1998, the UK's worldwide exports as defined above amounted to £335 billion. In that same year the output of the British economy (its GDP or Gross Domestic Product) was £844 billion. The conventional way of measuring a country's export dependency worldwide is to divide exports by GDP, which, for the UK in 1998, gives a percentage of 40 per cent.
The other 14 EU countries bought 48 per cent of our worldwide exports in 1998 - less than half. Expressed as a percentage of UK GDP, exports to EU '14' worked out at 19 per cent.
However, recorded British exports to EU '14' are overstated, because of two quite separate effects.
The first, the Rotterdam-Antwerp Effect, relates to exports of goods and commercial services to Holland and Belgium. About two thirds of these pass through the two biggest ports in Europe, Rotterdam in Holland and Antwerp in Belgium, on their way somewhere else - some to other EU countries, the rest outside the EU.
The second, the Netherlands Distortion, relates to Income.
This often flows through Dutch "brass-plate" holding companies which offer tax advantages. As a result, much of the investment and income flows recorded in the British statistics as going to or coming from Holland in fact go to
or come from somewhere else, very often outside the EU altogether.
The magnitudes of these two separate distortions can only be guessed at, but they are substantial. Once they are taken into account, a reasonable estimate of the real proportion of British EU-bound exports to GDP would be around 15 per cent.
And that, of course, means that the proportion of the British economy not involved in exports to the EU '14' is 85 per cent.
But even this 15/85 split probably exaggerates the real net "dependency" of the British economy on exports to the EU. This is because Britain imports approximately as much as she exports; and much of those imports are re-exported. Much of British exports to the EU consist of re-exports of imports from the EU. So, if the EU were ever to threaten to discriminate against British exports to the EU (which, incidentally, would be illegal under WTO rules), it would be cutting off its own nose to spite its face: a drop in UK exports to the EU would boomerang and cause a drop in EU exports to the UK.
Once account is taken of the import content of exports it is likely that the net "dependency" of the UK on exports to the EU ‘14’ is even less than 15 per cent – say 10 per cent. That, in turn, means that the proportion of the British economy NOT "dependent" on the EU is no less than 90 per cent.
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