As Brexit looms, UK exports to EU getting more important

The City of London is one of the world’s largest financial centres (Photo by kloniwotski – Flickr, CC BY-SA 2.0)

LONDON — The European Union’s importance to British exporting firms appears to be growing, official figures showed Tuesday, a development that could focus the minds of those negotiating the country’s exit from the bloc.

Figures published by the Office for National Statistics show that exports to the EU rose by 4.1 per cent in the three months to August from the previous-three-month period, largely through sales of machinery and transport equipment, compared with an 8.8 per cent fall with countries from outside the EU, almost half of which was due to lower fuel exports.

That divergence contrasts with one of the main arguments put forward by those backing Brexit in last year’s referendum campaign: that the EU market is diminishing in importance and the country’s long-term interests would be better served by promoting links with the rest of the world, particularly the fast-growing economies such as China and India.

“These figures indicate how important it is for the U.K. to make progress with Brexit negotiations as leaving the EU without a deal could have far-reaching negative consequences for exporters,” said Oliver Kolodseike, senior economist at the Centre for Economics and Business Research in London.

Brexit discussions have made little headway since Prime Minister Theresa May formally launched the two-year countdown in March. Representatives from both the British government and the EU are in the midst of their latest round of talks in Brussels.

On Monday, May, who is struggling to get her Conservative Party united on a Brexit approach, raised the prospect of a ‘no-deal’ scenario, whereby Britain crashes out of the EU in March 2019 without a new set of trade arrangements with the bloc. That could see tariffs slapped on British goods — and vice versa — a development that would likely weigh on both sides’ economies, at least in the near-term.

The figures from the statistics agency also highlighted Britain’s importance to the EU. Britain imported 22.7 billion pounds of goods ($30 billion) from the EU in August and exported 14.3 billion pounds to the bloc. May has consistently said that getting a trade deal would be beneficial for both sides. From non-EU countries, Britain imports goods worth 19.7 billion pounds, 6 billion more than it exports to those markets.

“The EU’s dependence on the U.K. as an export market may help the prime minister to reach a good trade agreement with the EU,” said Kolodseike.

The likelihood of no deal being reached has ratcheted higher during the summer as the Brexit discussions failed to make much headway. The EU insists that enough progress be made on a series of issues before trade talks can commence. In particular, it wants progress on the rights of EU citizens living in Britain, the future of the Irish border with Northern Ireland, and clarity on Britain’s financial obligations.

May has raised the prospect of a transition deal, whereby Britain would retain close links with the EU after Brexit for around two years, but discussions on that cannot begin until the EU has deemed progress to have been made on those issues. The hope, at least in London, was that the EU would accept to start talking about trade at this month’s summit of EU leaders in Brussels, but that appears unlikely. December would then be the most likely next EU summit at which trade talks could be launched. That would leave Britain with roughly under a year to agree on the outlines of a trade deal.

Being a member of the EU means Britain cannot conclude trade deals with other countries. Brexit-backers hope that trade deals with fast-growing economies will help improve the country’s trade deficit for goods and services, which widened in the three months to August by 2.9 billion pounds to 10.8 billion pounds.

With the deficit growing, a lobby group representing small businesses urged the government to keep exporters in mind during upcoming trade discussions.

“As we prepare to leave the European Union it’s important both current exporters and those thinking about trading overseas continue to do so,” said Mike Cherry, National Chairman at the Federation of Small Businesses.