New figures show leaving the EU Customs Union could hit UK trade and FDI

Leaving the EU Customs Union could reduce Foreign Direct Investment into Britain by as much as £9bn, while British trade could fall by 15.6%, new research by the Open Britain campaign has found.

According to a report in the Guardian today, a leaked cabinet committee paper suggests that leaving the Customs Union could cause a fall in British GDP of 4.5%.

Using the same methodology, Open Britain has found that leaving the Customs Union and negotiating a free trade agreement could cause a fall in UK trade of 15.6%, and a fall in Foreign Direct Investment of 20.6%. Leaving the Customs Union but remaining in the Single Market would cause trade to fall by 11.6% and foreign direct investment by 10%.

Commenting, Joe Carberry, Co-Executive Director of Open Britain, said:

“The Government’s own figures show that even under the best case scenario there would be a hit to GDP, trade and investment.

“If pre-referendum analysis is going to be dismissed, post-referendum analysis should be conducted and published for scrutiny.”

Notes

The Customs Union is the EU’s free trade area, which includes all EU member states as well as Turkey, Andorra and San Marino. It allows for free trade of goods within the area, and has a common external tariff on goods sold into the Union.

Methodology 

The HM Treasury paper covered in the Guardian today got the figure that leaving the EU Customs Union would knock 4.5% off GDP from taking the central estimates of GDP fall under an EEA scenario from the NIESR, HMT and LSE papers.

Following this methodology, we have taken the central estimates for FDI and trade falls under EEA and FTA scenarios.

The NIESR/HMT/LSE research can be seen in this paper: http://www.niesr.ac.uk/sites/default/files/publications/National%20Institute%20Economic%20Review-2016-Ebell-121-38.pdf.

Statistics

Fall in trade 

  • EEA (outside customs union but in single market)

Taking the central estimates from HMT, NIESR and LSE, the fall in trade would be -11.6%

  • FTA (outside customs union and the single market)

Taking the central estimates from HMT, NIESR and OECD, the fall in trade would be -15.6%

Fall in FDI

  • EEA (outside customs union but in single market)

Taking the central estimates from HMT, NIESR, the fall in FDI would be -10%

  • FTA (outside customs union and the single market)

Taking the central estimates from HMT, NIESR and OECD, the fall in FDI would be -20.6%

Using a government source, Foreign Direct Investment flows to the UK in 2014 (the last year for which figures are available) totaled £44bn. Therefore, a fall in foreign direct investment of 10% would total £4.4bn. A fall of 20.6% would total £9.1bn.

 The FDI figures are here: https://www.gov.uk/government/publications/ukti-inward-investment-report-2014-to-2015/ukti-inward-investment-report-2014-to-2015-online-viewing.



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