Research and Discussion Papers

The Trade Policy Research Centre is concerned with realistic solutions to the UK's trading relationships with other entities, especially the European Union.

UK Trade Statistics Discussion Paper

This new paper analyses the available statistics by sector on UK trade with the rest of the EU and the rest of the world. It uses both the familiar “Pink Book” on the UK Balance of Payments and the less familiar HM Revenue & Customs UK Trade Information website which enables the UK’s trade in goods to be analysed by category in greater detail than is given in the Pink Book. It is based on available statistics up to 2012 and will be updated for 2013 in due course.

The paper shows that the proportion of total UK exports of goods and services going to the rest of the EU declined from 48 per cent in 2000 to 42 per cent in 2012. On current trends this proportion will decline further to 39 per cent by 2015 (the General Election year) and 37 per cent by 2017 (the proposed referendum year). These figures allow for exports eventually destined for the rest of the world being shipped via EU ports like Rotterdam and Antwerp. The paper also shows that over the period 2007-12 UK goods exports to the rest of the world grew very much faster than UK goods exports to the rest of the EU for most categories of goods exports and much faster for most categories of UK service exports.

In addition the paper shows how 39 per cent of UK-EU trade in goods is in sectors such as chemicals, food and beverages and motor cars where EU markets are protected against imports from the rest of the world by relatively high EU tariffs. The effect of this protection is shown by contrasting the UK’s £32 billion deficit on trade in these sectors with the rest of the EU in 2012 with its £15 billion surplus on trade in the same sectors with the rest of the world.

Lastly the paper shows that 9 per cent of UK goods exports and 11 per cent of UK service exports are to countries with which the EU has free trade agreements (or, in the case of Turkey, a customs union arrangement) either in force or awaiting ratification. A further 22 per cent of UK goods exports and 31 per cent of UK service exports are to countries with which the EU is currently trying to negotiate FTAs. These FTAs bring or would bring some economic benefit to the UK economy but less than is generally supposed. If the UK were to leave the EU it could only remain party to them if it negotiated to stay in customs union with the EU on a new inter-governmental basis. It would also be necessary for the EU and its FTA partners to agree to “novate” these FTAs to enable the UK to become a party to them in its own right, which it should be in their strong economic interest to do in order to achieve seamless transitions

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The EU, Energy and Climate Change

This new TPRC paper examines the consequences for the UK of EU energy and climate change policy in the context of domestic legislation such as the Climate Change Act and the forthcoming Energy Bill. It looks at the impact of EU energy targets and policies such as the Emissions Trading Scheme and the Large Combustion Plant Directive.

The paper also examines the UK's current and projected overall energy resources and the critical situation currently facing its nuclear power industry. It notes the UK's growing dependence on imported natural gas, in particular from Qatar which may become vulnerable to political instability in the Gulf region. It also considers the potential implications of "fracking" technology for the UK.

In addition it looks at the Stern Review of the "Economics of Climate Change" (2006), whose conclusions have become deeply engrained in Whitehall and Westminster culture, and goes on to discuss the recent critiques of green thinking by authors such as Lord Lawson and Peter Lilley MP.

The paper concludes with an assessment of the energy policy options open to the UK inside and outside its EU treaty obligations. It leaves no room for doubt that the UK government would be much freer to develop policies in the best interests of the UK if it were not subject to the constraints of EU legislation and regulation.

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Defence Policy and Procurement

This paper by the TPRC explores the UK's policy on defence and defence procurement. It looks at the recent history of UK defence procurement, the institutional problems faced by the MoD, and the problems of further European defence integration.

It concludes that leaving the EU would of itself have little impact on the UK’s defence procurement policy. However, it would enable the UK to take a more objective approach to future large pan-European defence projects, free from the pressure of European defence integration. And the UK would become freer to pursue a strong Atlanticist approach, with NATO remaining at the heart of the UK’s defence strategy.

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EU Agricultural Protection: Tariffs and the CAP

This paper by the TPRC explores the EU's Common Agricultural Policy (CAP) and EU agricultural tariffs. It looks at how the CAP has been reformed and how it operates in the UK today. It also reviews EU tariffs across a range of agricultural produce and looks at the potential for future reform in both areas.

This paper makes two particularly important points:

1) The EU has been much more successful in its agricultural reforms than it is generally given credit for:

- Overall trade distorting subsidies have fallen by two thirds between 2004 and 2007

- Agricultural tariffs have fallen by over a half, from an average of 23 per cent in 2004 to 11 per cent now.

2) If the UK left the EU by negotiating a new bilateral customs union agreement with it, as the TPRC argues would be the best route for the UK to go:

- It would have to retain EU tariffs for most categories of agricultural import

- It should retain the existing EU Pillar 1 (Single Farm Payment) and Pillar 2 subsidy schemes but would be free to reform them in the medium term.

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Rules of origin in free trade agreements

When two or more countries form a free-trade area (FTA), they agree to eliminate duties on substantially all merchandise trade “originating” in that area but retain complete control of their trade relationships with other countries. FTA agreements are commonly known as free trade agreements. Many are “comprehensive” in the sense that they also cover trade in services, trade-related aspects of intellectual property and other aspects of trade relationships between countries.

“Rules of origin” are required to determine whether an individual product has originated in a free-trade area. They specify the minimum level of processing or manufacture that every merchandise category that would otherwise be subject to tariffs must have undergone to qualify for duty-free trade. The need for rules of origin in free trade agreements was first recognised in 1958 when the UK and other countries which would eventually form the European Free Trade Association (EFTA) were in talks about an FTA with the nascent European Economic Community (now the EU). Carefully negotiated rules of origin lay at the heart of the EFTA agreement when it was finally signed in 1960.

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