Trading opportunities outside the customs union could create 400,000 new UK jobs

New research by Change Britain shows:

  • Leaving the EU’s customs union and striking trade agreements with just eight economic partners could result in the creation of up to 400,000 new UK jobs, according to the European Commission’s own figures.
  • Over 100,000 of these would be in manufacturing (including car, ships and aircraft production) and over 170,000 of these would be in services.
  • This would create jobs across the country including 36,000 in the North West, nearly 30,000 in Scotland and over 87,000 in London.
  • Were the UK to just strike deals with the economic partners that have publicly expressed an interest in signing a free trade agreement with the UK, it would result in the creation of over 240,000 new UK jobs.

Change Britain founding supporter Michael Gove said:

‘The UK has a prosperous future ahead of us if we leave the EU’s customs union and become a beacon of global free trade.

‘As we strike new trade deals with the growing economies of the 21st century, it will create hundreds of thousands of jobs right across the country, strengthening communities throughout the UK and ensuring that everyone feels the benefits of economic growth.

‘But in order to achieve this we must take back control of our trade policy. Only then can we realise the full potential of this great trading nation.’

Commenting, Change Britain founding supporter Lord Digby Jones said:

‘The UK has a rich history as a great trading nation. It is therefore no surprise that a number of major economies have already expressed an interest in striking free trade agreements with us.

‘The only way we can make the most of these huge opportunities is to leave the EU’s customs union and take back control of our trade policy. This will create hundreds of thousands of new jobs in a range of industries right across the UK.

‘We can then take our place as one of the global champions of free trade.’

 

Britain can secure new trade deals if it leaves the EU’s customs union

As a member of the EU’s customs union, the UK is not allowed to make its own free trade agreements with non-EU countries. Instead, it has to rely on the European Commission (TFEU, art. 207, link). If, after it leaves the EU, Britain decides to remain in the customs union it will continue to be subject to this regime and will be unable to expand its trading opportunities.

These new trade deals will result in the creation of hundreds of thousands of new jobs

If the UK decides to leave the EU’s customs union and strike its own trade agreements it would result in the creation of hundreds of thousands of new jobs. It is possible to work out how many jobs would be created via these new deals by using the European Commission’s own calculations.

In July 2012 the European Commission produced research which estimated how much exports would increase if eight trade deals were struck (European Commission, July 2012, link). In this research the Commission also claimed that 16,700 jobs would be created for each € billion of extra-EU exports (a figure from an earlier academic study, link).

This means that the number of UK jobs that will be created from trade deals with these countries can be calculated by simply dividing 16,700 by the UK’s proportion of extra-EU exports – 14.99% in 2015 (European Commission, 2016, link). This process produces a new figure of 2,503 new UK jobs for each €-billion of extra-EU exports:

USA Japan ASEAN India Mercosur China Canada Korea TOTAL
         EU figures
Predicted impact on exports (€bn) 29.4 25.2 33.7 11.6 13.7 1.4 14.6 25.2 154.8
New jobs 490,980 420,840 562,790 193,720 228,790 23,380 243,820 420,840 2,585,160
         UK figures
Predicted impact on exports (€bn) 4.4 3.8 5.1 1.7 2.1 0.2 2.2 3.8 23
New Jobs 73,610 63,094 84,376 29,043 34,301 3,505 36,555 63,094 387,580

Of these, several countries/economic blocs have already expressed an interest in striking deals with the UK, including the United States (Daily Telegraph, November 2016, link) India (Financial Times, June 2016, link), Mercosur (Financial Times, July 2016, link), China (BBC News, July 2016, link), Canada (Daily Mail, July 2016, link) and South Korea (Reuters, June 2016, link).

Therefore, striking deals with just the countries that have already expressed an interest in negotiating with the UK would create 240,108 new jobs.

Japan and ASEAN have, for the moment, not stated that they want a trade deal with the UK. However, ASEAN have made clear that it may be an option in the future (EurActiv, November 2016, link) while Japan has stated that ‘Japan will continue to share with the UK and the EU the responsibility to lead the free trade system’ (Japanese Government, September 2016, link) implying that, at some point, a FTA could be agreed. It is therefore reasonable to assume that – at some point in the future – the UK will strike free trade deals with these two economic powers as well. Striking a trade deal with all the countries in this list would result in the creation of nearly 400,000 (387,580) new jobs.

USA Japan ASEAN India Mercosur China Canada Korea TOTAL
All countries 73,610 63,094 84,376 29,043 34,301 3,505 36,555 63,094 387,580
Countries that have aninterest in a FTA with

the UK

73,610 29,043 34,301 3,505 36,555 63,094 240,108

It is extremely likely that the UK will secure trade deals with the major economies like China and India. Both Iceland (which has a population of less than half a million) and Switzerland have negotiated free trade agreements with China (Icelandic Ministry for Foreign Affairs, 15 April 2013, link; Swiss State Secretariat for Economic Affairs, 2014, link).

Please note that while the EU has struck a free trade deal with both Canada and South Korea, these are both in very early stages and it is unlikely that these EU free trade deals have had a significant impact on the UK economy. The EU and Canada approved and signed CETA on 30 October 2016, but it is not scheduled to come into force until Spring 2017 (House of Commons, December 2016, link). The EU-Korea trade formally came into force on 13 December 2015 following the ratification by EU Member States (European Commission, July 2016, link). The final duties were still in force for the first half of July 2016 (European Commission, link). The European Commission itself states that it may take up to 10 years before the effects can be observed (European Commission, June 2012, link).

We also assume that free trade will continue with the EU because it is overwhelmingly in the EU’s interest for this to occur. Today, the UK has an extremely large trade deficit with the EU (i.e. we buy far more from them than we sell to them). In 2015 we sold £222.4bn worth of goods and services to the EU, but bought £290.9bn. Britain is also the EU’s largest export market. The EU needs a trade deal more than we do.

During the referendum many advocates of Britain remaining in the EU had to admit that Britain would get a free trade deal. The UK’s former Ambassador to the EU, Lord Kerr of Kinlochard, has said ‘there is no doubt that the UK could secure a free trade agreement with the EU. That is not an issue’ (Lord Hansard, 2 November 2015, col. 1492, link). The CBI has also conceded that ‘the UK is highly likely to secure a Free Trade Agreement with the EU, and such an agreement would be likely to be negotiated at an extremely high level of ambition relative to other FTAs’ (CBI Our Global Future, November 2013, link). The idea that the EU wouldn’t want to strike a free trade deal with the UK is simply not credible.

Creating manufacturing jobs

The impact of striking trade deals with these countries on different sectors is calculated by adjusting the European Commission figure for the percentage that each sector accounted for in the UK’s exports in 2015.

Sector % of UK exports in 2015 Total number of jobs (400,000 scenario) Total number of jobs (240,000 scenario)
GOODS
Non-manufactured goods 24.9% 96,509 59,788
  • Food, beverages and tobacco
3.5% 13,742 8,514
  • Basic materials
1.2% 4,622 2,863
  • Total oil
4.1% 16,012 9,920
  • Coal, gas and electricity
0.6% 2,352 1,457
  • Chemicals
10.1% 39,208 24,289
  • Precious stones and silver
0.6% 2,462 1,525
  • Other
4.7% 18,111 11,220
Manufactured goods 29.4% 114,003 70,535
  • Motor cars
5.0% 19,447 12,048
  • Other consumer goods
5.6% 21,524 13,334
  • Intermediate goods
8.9% 34,677 21,483
  • Capital goods
7.2% 27,864 17,262
  • Ships and aircraft
2.7% 10,343 6,408
Commodities and transactions not classified according to kind 1.5% 5,969 3,698
TOTAL GOODS 55.8% 216,334 134,021
SERVICES
Manufacturing on physical inputs owned by others 0.4% 1,664 1,031
Maintenance and repair 0.2% 884 548
Transport 4.7% 18,303 11,339
Travel 5.8% 22,600 14,001
Construction 0.3% 1,195 741
Insurance and pension services 2.5% 9,802 6,073
Financial 9.9% 38,557 23,886
Intellectual property 2.2% 8,719 5,401
Telecommunication, computer and information services 3.1% 12,070 7,477
Other business 13.8% 53,562 33,182
Personal, cultural and recreational services 0.5% 1,902 1,179
Government 0.5% 1,987 1,231
TOTAL SERVICES 44.2% 171,246 106,088

Source: Pink book 2016, link. NB that figures are rounded.

Creating jobs across the country

The regional figures for the number of jobs created are calculated by adjusting the European Commission’s figure to each region’s contribution to UK GVA:

Impact of striking trade deals on job creation in different regions/home countries

Region % share UK GVA (2014) Total number of jobs (400,000 scenario) Total number of jobs (240,000 scenario)
North East 3.0% 11,627 7,203
North West 9.3% 36,045 22,330
Yorks and The Humber 6.6% 25,580 15,847
East Midlands 5.9% 22,867 14,166
West Midlands 7.1% 27,518 17,048
East of England 8.6% 33,332 20,649
London 22.6% 87,593 54,265
South East 14.9% 57,749 35,776
South West 7.5% 29,069 18,008
Wales 3.4% 13,178 8,164
Scotland 7.7% 29,844 18,488
Northern Ireland 2.1% 8,139 5,042

Source: ONS, link (extra regional jobs not included in this table)

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