Submitted by Taps Coogan on the 2nd of April 2019 to The Sounding Line.
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As the UK continues to debate remaining in a permanent customs union with the EU, it is worth taking a moment to reflect on the UK’s already lengthy experience inside a customs union with the EU.
From the UK’s perspective, the primary selling point of being in a customs union is to secure tariff free access for its goods exports to the EU. As a general rule, the EU customs union does not apply to services. If the UK were outside the customs union, its service exports to the EU would not be significantly impacted.
The following charts and statistics are based on data from the UK Office of National Statistics (ONS) and cover 20 years from 1998 through 2017. The figures are adjusted for inflation using the ONS trade deflator data series.
1.) Since 1998, the UK’s exports outside the EU have grown faster than its exports inside the EU. This is true for both goods and services. In fact, the UK’s exports of goods to the EU customs union have grown by only 0.2% per year.
6.) Goods exports to the EU customs union are basically the only part of the UK’s trade complexion that have almost entirely stagnated since 1998. These goods exports are also the only part governed by the EU customs union.
1.) As a result, most of the UK’s exports are now sent outside the EU and the EU customs union. This is true for both goods and services.
2.) The UK’s trade deficit in goods with the EU customs union is -£ 95 billion a year, over twice the size of its goods trade deficit with the rest of the world, +£ 42 billion. Its trade surplus in services with the EU (+£ 36 billion ) is less than half as large as with the rest of the world, +£ 78 billion. As a result, the UK runs a +£ 35.6 billion goods and services trade surplus outside the EU and a -£ 58.3 billion trade deficit with the EU.
5.) While the UK’s exports to the EU customs union have grown at a very low 0.2% annual rate since 1998, its goods imports from the EU customs union have grown at a robust 3.2% per year.
3.) The vast majority of the UK’s fast growing and large trade outside the EU is governed by WTO trade rules (85.1% for services and 72.9% for goods).
4.) Motor vehicle exports to the EU customs union have fallen from 73.5% of the UK’s auto exports in 1998 to just 44.7% in 2017. Meanwhile, imports from the EU have stayed nearly constant at over 80%. The UK runs an auto-sector trade surplus outside the EU customs union yet a large deficit with the EU customs union.
5.) In not a single one of the UK’s largest goods sectors have exports to the EU customs union grown relative to exports outside the EU customs union since 1998.
In theory, the selling point of an EU customs union is in helping the UK export more goods to the EU. In reality, the last 20 years have seen the UK’s goods exports to the EU customs union almost completely stagnate while its imports from the EU customs union have surged. Meanwhile, its goods and services exports outside the EU customs union have grown rapidly. There is simply no case to make that the EU customs union is helping the UK grow its exports. To the contrary, it appears that the EU customs union is simply allowing for higher levels of imports of the very goods that the UK is trying to export.
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