Brexit Britain doesn't need to rely on trade with the EU, claims Open Europe think tank

‘There is enough untapped UK trade potential to offset the effects of Brexit on exports to the EU,’ Open Europe says

Ben Chapman
Wednesday 26 April 2017 08:24
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A man holds an EU flag during a small pro-EU demonstration near Parliament
A man holds an EU flag during a small pro-EU demonstration near Parliament

Britain can make up for all of the exports that it will lose as a result of Brexit by building on underdeveloped links with countries such as India, Canada and Israel, according to a think tank.

Open Europe, which has previously produced research focusing on the negative impacts of leaving the EU single market, now says the UK can “seize the opportunity of Brexit” to boost trade. Some economists have expressed doubt over the conclusions however.

“There is enough untapped UK trade potential to offset the effects of Brexit on exports to the EU," the group's latest paper states.

“In this scenario, an ambitious, outward looking UK trade strategy could complement a deep and comprehensive deal with the EU and contribute to delivering increased UK prosperity.”

The research takes into account the distance between the UK and its various trading partners, as well as the relative size of their economies and other factors such as their openness to trade to assess which markets are most important for post-Brexit Britain.

According to the model, UK exports to certain countries including India, Pakistan and Nigeria are consistently less than should be expected, while those to the US, China and others outperform expectations.

The top 10 “underperforming” UK export markets have untapped potential of more than £41bn in 2030, the report claims.

The services sector, which accounts for most of the UK economy, has been poorly served by the EU, according to the report “because of the limitations of the Single Market, and because of linguistic and legal differences”.

Open Europe called on the Government to “seize the opportunity of Brexit to draw fully on our comparative advantages, the English language, the common law system, the status of the UK judiciary and legal system, the UK’s security, development and defence reach, our world-class universities, our innovation and science”.

Dr Monique Ebell of the National Institue for Economic and Social Research said Open Europe’s conclusions were “misleading” for several reasons. First, they did not take into account the fact that much of Britain’s existing trade with external partners such as the US is dependent on Britain being within the EU.

This is particularly the case with high value-added sectors such as financial and professional services, where global companies will often use the UK as their European base to export services from. This is threatened outside the EU.

Open Europe makes the assumption that the UK has a comparative advantage in services that can be used to increase exports to high-growth countries such as India. But it is far from clear that this is the case, Ms Ebell said.

“Many of the financial services that UK companies offer are specific and are designed for the needs of advanced economies. It’s not clear that they would be suitable for a country like India,” Ms Ebell said.

While Canada and Israel are both advanced economies, their combined populations are less than one tenth that of the EU, so will do little to make up for any drop off in exports, the economist said.

Ms Ebell's recent research found that the EU single market is more effective at generating additional services business than the average of other free trade agreements around the world.

Open Europe also says that Theresa May’s Government should not have an “all-or-nothing” approach to free trade agreements, because exports can be adequately facilitated without them, the report states, citing the UK’s current relationships with China and the US as examples.

The UK should also exploit its soft power more effectively, including the reach of its universities as well as its deep historical connections with many countries, the think tank said.

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