Friday, June 5, 2009

Benefits and Costs from the UK's EU membership

No matter what will be the results of the June 4-7 European Parliament elections in the UK, the "Euro-scepticism" and "anti-EU" side is bound to remain very vocal.

Whereas the EU Treaty in force now does not provide a framework for the exit of a member state of the EU while the infamous Lisbon "candidate" treaty does (and that would mean that the "UK out of the EU" side should support the new Treaty), there are some data that point out that the UK's membership of the EU and its single market is quite "beneficial", to the UK, in terms of finances and in terms of jobs.

1) Exports to the rest of the EU:

60% of the UK's exports are to the rest of the EU (26 countries), in other words inside the famous/infamous "EU Single Market". If the UK was to leave the EU, then its products would not enjoy the benefits of a zero tariff - zero quota access to the French, German, and 24 other "national" markets.

2) Foreign Investments that bring in money and create jobs:

According to the 7th annual Ernst & Young Country Attractiveness Survey that was published yesterday (June 4, see
the official press release), whereas inward investment into Europe in 2008 was flat ("... demonstrating the global recession’s toll on investment projects into the region ..") " .. the UK retained its position as the most attractive destination for inward investment (FDI) in Europe in 2008 .

Note that the UK attracted 686 investment projects in 2008 which while 4% less than in 2007, created 20, 000 jobs (16% fewer than 2007), but ranking the UK as the number one location for FDI job creation in Europe!

How is that related to the "in or out of the EU" dilemma? Well, the data contained in another part of the press release indicate that " .. the largest investor in the UK remained the US (263 projects), followed by India (49), France (46), Germany (42) and Japan (30). Indian investment surged ahead of traditional investors, France and Germany, for only the second time in the last 12 years".

How much FDI a UK that was not part of the EU's Single Market would attract? That is the question, IMO! How many American projects instead of the 263 in 2008? Of the 30 Japanese? Let's assume that for India's investments in the UK are not EU related and leave the French and German investments in the UK out of the equation.

It is also noteworthy, IMO, that according to the survey, "France, Germany and Spain, which have been the most important countries for the attraction of foreign investment since 1997, remained top four countries."

The UK has more "flexible" labour laws which is attractive to foreign companies willing to do business in the EU. That was actually even more so until 1998:
In the Maastricht EU Treaty, the UK was allowed to opt out of a program for further social reform which was thus attached to the treaty as a "Social Protocol" and applied only to the rest of the member states. In 1997, the incoming Labour government announced that it would opt-in to social protocol and by April 1998 all measures containing a special UK 'opt out' had been revised to bring the UK labour law in line.Thus the way was opened, and the Amsterdam Treaty that came into effect on April 1st 1999 incorporated the 'Social Protocol' into the main body of the treaty.

But the issue remains: The UK via its more "free market" approach to labour relations, employment law etc markets itself to third country (non-EU) investors better than other EU member states. In other words, the UK benefits from its EU membership by being the No. 1 choice was foreign investors in the EU. Those benefits, which contribute to making London and the rest of the UK so "global" may be lost if the UK decides to leave the EU and thus location of a non-EU company's European HQs and manufacturing activities in the UK will not provide access to the EU's Single Market anymore.

Other parameters to consider:

a) Does WTO membership render the need to be part of EU's Single Market obsolete? IMO, no, because WTO based trade is not actually "free" of quotas and tariffs and thus a non-EU UK would not have the same access for its exports to the EU as it does now as a member of the EU.

b) Imports from the rest of the EU

c) The UK's contributions and receipts from the EU budget and their "externalities"

d) "Sovereignty" (in 2009 global terms and conditions) - aka "the directives from Brussels"

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