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Position Statement
Global Vision: Summary of arguments The world has changed since Britain first joined the European Communities (“Common Market”) in 1973. At that time Britain’s economic performance compared unfavourably with more dynamic economies in Europe. With high trade barriers across the world, participation in Europe offered a larger domestic market to help stimulate the UK’s growth and competitiveness. The situation is now very different. While the British economy has been transformed, the other major EU economies have been weighed down by high social costs and inflexible labour markets. With the rapid development of new growth economies, the EU’s share of the global economy is inexorably shrinking. Britain’s future prosperity increasingly depends on capturing our share of the new opportunities outside Europe. At the same time the EU has changed, with successive treaties continuing the momentum towards more political and economic integration across Europe. One consequence has been increasing regulations and costs for British business, which are now an impediment to creating the dynamic, flexible economy we need to succeed in the 21st century. There is little sign that the EU is prepared to reform by reducing the regulatory burden. If Britain is not to be held back, our only option now is to negotiate a new, looser arrangement with the EU. That relationship should preserve the benefits of free trade and cooperation between governments in areas which are mutually beneficial, while allowing Britain to opt out of political and economic integration and the mandatory EU-wide legislation that goes with it. While, for the UK, trade with the EU will remain important (though declining as a proportion of the UK's worldwide trade) the other member states of the EU have a large overall trade surplus with the UK, their biggest market anywhere in the world. So it will be very much in their interests to be part of an arrangement that maintains free trade with the UK. A new relationship of this kind is not only desirable for the future, but is entirely feasible. The other member states need a settlement with the UK in order to proceed with the EU's economic and political integration, and would rather proceed on their own than have the UK slow their progress. Global Vision believes that it is important for Britain’s future to grasp these realities now. We should set about negotiating a different relationship with Europe that allows us to embrace the opportunities of the 21st Century as a prosperous global trading nation. Global Vision: The new global economy In the 1960s and early 1970s the UK economy significantly underperformed the economies of the European Communities (“Common Market”). Trade barriers across the world were high, and a regional European economic block offered a larger domestic market to help stimulate growth and competitiveness in the British economy. This was clearly one of the major drivers behind the UK’s decision to join the European Communities in 1973. The 1971 European Communities White Paper1 clearly stated: “HM Government are convinced that our country will be more secure, our ability to maintain peace & promote development in the world greater, our economy stronger, and our industries and people more prosperous, if we join the European Communities than if we remain outside them.” The economic situation in the 21st century is very different. Since the economic reforms initiated in the 1980’s, the British economy out-performed the major economies of the EU which have retained high social costs and less flexible labour markets. As a result the UK economy grew at an average annual rate of nearly 3% between 1993 and 2005, compared with 2% in France and 1% in Germany and Italy. Average annual growth in GDP
From one of the poorest of the major EU economies, we now have GDP per capita above that of France, Germany and Italy.2 At the same time trade barriers across the world have fallen and the global economy is changing fundamentally with the integration of new fast-growing developing economies into world markets. The relative importance of Europe compared to other markets is diminishing. According to the Chancellor of the Exchequer3, the EU’s share of global output fell from 26% in 1980 to 22% in 2003. It is expected to fall from 22% to 17% between 2003 and 2015.The comparable data for China and India (together) are 6% (1980), 19% (2003) and 27% (2015). Other economic analyses project that the EU’s share will inexorably shrink as the 21st century progresses. The UK, as the world’s third largest trading nation in 2004 in terms of current account transactions,4 remains heavily dependent on current account trade for our future prosperity. Many businesses now have operations and suppliers that stretch across the globe. It is evident, therefore, that the UK will increasingly have to look to non-EU markets, including China and India, if it is to fully exploit the business opportunities offered by the changing global economy. Trade with our closest European neighbours remains important of course, but trade outside the EU – currently around 50%5 of our exports of goods and services – will be the most important source of growth, and business relationships in these markets will play a vital part in enabling UK companies to remain competitive. Global Vision: The impact of European integration At the same time the EU has changed, with successive treaties continuing the momentum towards more political and economic integration across Europe. One consequence has been increasing regulations and costs for British business arising through common application of single market, social policy and labour market legislation. Our opt-outs of some aspects of regulation – such as the working time directive – are being continuously eroded. Rather than helping the British economy, these are now restricting our freedom to create the free and flexible economy we need to succeed in the 21st century. Continuing participation in the political and economic integration of Europe – with the requirement to accept all new EU legislation – will now impede Britain’s freedom to exploit global opportunities unless there is fundamental reform within the EU. For example:
• The cost of EU regulations introduced through the Single Market legislation is now damaging competitiveness throughout the EU including the UK. According to the European Commission EU legislation costs European business €600bn whilst the benefit of the Single Market is around €160bn. These costs are set to rise as the EU continues to legislate for increasing social market protection. At the same time existing UK opt-outs – for example on full application of the working time directive – are being progressively eroded.
• The first way is to press for fundamental reform within the EU. This is, in any case, essential if the EU is going to regain competitiveness and optimally cope with the challenges of the changing world economy. Such reform, at the minimum, would require the repeal of many of the Single Market’s costly regulations. With the failure of the Lisbon agenda to deliver substantive progress, it is now clear that there is little public support or political will to pursue reform in much of Europe. On the contrary, the Commission continues to seek to tighten and extend social market legislation and to initiate new regulations that will damage the EU’s competitiveness and prosperity. While we should not give up on our attempts to persuade Europe as a whole to reform, a new relationship for the UK is now the only realistic way forward to safeguard our future.
Britain is a European country. But it is, and historically has been, a country with unique global connections. Our history, as reflected in the Commonwealth, gives us strong cultural connections and a shared language with a third of the world’s population. This results in a country with an unrivalled global vision. The City of London is testament to this. Britain is uniquely placed to prosper in rapidly changing global markets, provided it has the freedom to respond flexibly to rapidly changing circumstances. Given the absence of major reform in the EU, the only way to secure this is to negotiate a new relationship with the EU that preserves the benefits of free trade, and allows continued cooperation between governments in areas which are mutually beneficial – for example environmental protection and transport links – while allowing Britain to opt out of the project of political and economic union and the mandatory EU wide legislation that goes with it. The European countries of Switzerland and Norway have their own, similar cooperative relationships with the EU and prosper. There is absolutely no reason why Britain should not negotiate its own similar position without damage to trade and the associated jobs. We have already opted out of the biggest element of EU economic integration – the Euro – without any damage to our ability to attract foreign investment. The freedom to retain our flexible labour markets will further add to our attraction. While trade with the EU will remain important, the other member states of the EU, in aggregate, have a large trade surplus with the UK and have nothing to gain from responding with aggressively protectionist policies. Discriminatory tariffs would in any case be against WTO rules. Such a negotiation will inevitably require changes to existing treaties, including Maastricht and Nice, and major revision, or repeal or replacement, of the 1972 European Communities Act. However given the expressed desire of the EU to make further amendments to those treaties or to replace them with a new EU Constitution – all of which currently require the UK’s consent – the UK is well placed to negotiate its preferred arrangement as part of agreeing to treaty changes that the other member states need to continue their integration. The other member states who wish to continue with economic and political integration might prefer to include the UK, but they would rather proceed on their own than have the UK slow their progress. Given that the EU treaties seem unlikely to be amended over a reasonable period of time, then the UK should initiate negotiations to shape a new relationship. Fundamental renegotiation of the UK’s relationship to one primarily of free trade and opting out of political union would mean we would no longer be a member of the EU as it is currently structured. But there is a good prospect that the EU itself will have to change its monolithic structure to accommodate two fundamental challenges in the not too distant future. The first relates to the conflicts between those member states, including France and Germany (as already mentioned), wishing to push ahead with further political integration and those which do not, principally the UK. The second challenge is the increasingly thorny issue of further enlargement. It is increasingly clear that some of the new candidate countries, actual and aspirant, will be disappointed in their wish to be full EU members. Turkey is likely to be one. If the UK were to open negotiations for a fundamentally changed relationship with the EU, it is quite likely that some other member states would follow the UK's lead. As a result the EU, specifically, and Europe, more generally, would inevitably change. An "à la carte Europe" would develop, with different countries having different relationships with the EU. A core group of Eurozone countries could continue their path towards closer economic and political integration. However the candidate countries, notably Turkey, that are unlikely to become full members of the EU (as it is currently structured) would then be easier to accommodate in Europe's newer, looser structure. We do not believe Britain should turn its back on Europe. However in the 21st Century we must develop and prosper as a global nation. We cannot afford to allow our relationship with Europe to be determined by the way other countries want the EU to evolve, with economic and social policies that damage our future prospects. We need to set out and negotiate a relationship with Europe that better reflects our own objectives and global vision.
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