25 September 2015

Osborne’s pointless China trip


“We export more to Belgium than we do to the whole of China!” Denis MacShane once told me during a debate on leaving the EU, with the air of a man slamming four aces onto the table.

“Yes, and that’s precisely our problem,” I replied. “Which has the greater long-term potential?”

We’ve been hearing a lot recently about China slowing down, but let’s put that deceleration into context. According to the IMF, China will grow at 6.8 per cent in 2015 and 6.3 per cent in 2016. The Eurozone, by contrast, having recently been in recession, will grow at 1.5 per cent this year and 1.7 per cent next. In an age when geographical proximity has never mattered less, Britain’s focus on the EU is beginning to look downright archaic.

On one level, ministers seem to understand this. The Prime Minister and the Chancellor regularly visit China, telling audiences there that they want Anglo-Chinese (or Sino-British) trade to grow. And yet no one points out the absurdity: these supposed “trade delegations” cannot negotiate trade deals.

It may simply be that this fact is not understood. A few weeks ago, when I mentioned on Channel 4 News that we had no power to sign our own trade agreements, Jon Snow interrupted incredulously to say that of course we had: what did Prince Andrew spend his time flying around the world for? I don’t think the veteran news-reader was being biased. It’s just that, like most people, he hadn’t realised that we handed 100 per cent of our trade policy to Brussels on 1 January 1973. The European Commission speaks and votes for us in the WTO. You might even conclude, if you were cynical, that hectic missions by British ministers and princelings were partly intended to gloss over this uncomfortable fact.

Why “uncomfortable”? Because the EU is collapsing as a share of world GDP. In 1980, the then nine members accounted for 30 per cent of the global economy; now, all 28 members make up just 17 per cent, and falling. The Common External Tariff is no longer an irritation; it is a serious barrier to growth.

The United Kingdom is especially badly hit by the EU’s tariff regime, because it is the only European country that trades more outside the customs union than within it. Prior to 1973, Britain was part of an integrated global market, buying its meat from Australia and New Zealand, its textiles from the Indian subcontinent and so on. It never made much sense to replace that diverse market, containing agrarian, commodity, industrial and service-based states, with a customs union made up of similar economies. The whole point of a market, after all, is to swap on the back of differences.

Today, as the rest of the world surges ahead, the opportunity costs to Britain are rising commensurately. Of the UK’s top ten non-EU export destinations, Brussels has trade agreements in place with only two: Switzerland and South Korea. Even our oldest friends, countries like Australia and India, have no special deal with the EU.

Iceland and Switzerland, two EFTA countries that are covered by the EU’s single market, but wisely stayed outside the Common External Tariff, signed comprehensive free trade agreements with China in 2013. But Britain, represented by a Swedish sociology professor at the WTO, can’t do the same.

While in China, George Osborne told the BBC that he wanted that vast country to become Britain’s second-largest trading partner, behind only the United States. It’s a worthwhile ambition. While we might have well-founded objections to China’s human rights record, trade is a separate matter. Attempts to mix the two things don’t work: sanctions didn’t bring an end to the Castro regime in Cuba or stay Putin’s hand in Ukraine. Absence of trade simply strengthens the position of local elites while hurting the masses. The Chancellor is quite right to see China as an opportunity.

But I have a rather more basic question. If China does indeed become our second trading partner after the United States, what precisely is the point of our remaining in the EU?

Daniel Hannan is a Conservative Member of the European Parliament and blogs at www.hannan.co.uk.