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Factsheet 1

Britain doesn’t face an either/or choice between trade with the EU and trade with the rest of the World

Emerging markets are increasingly driving global growth.

  • Since 1999, emerging economies have expanded 118% while developed economies have grown by just 26% - this year will be the first in which the developed world takes a minority share of global GDP (49.1%).
  • By the middle of this century, China, India, Brazil, Russia, Mexico and Indonesia are all forecast to have larger economies than any individual EU country.

Most of Britain’s trade is with slow-growing developed economies

  • In 2012, the US accounted for the single largest share of UK exports, (17.1%), followed by Germany (8.8%), the Netherlands (7.0%), France (6.1%) and Ireland (5.5%). The EU27 overall accounted for 45.1% of exports – much more than any other single market.
  • Similarly, 50.6% of our imports came from the EU27, and 89.1% of all net inward FDI into the UK over 2002 to 2011 came from other OECD countries, with the EU25 accounting for 41.5% and the United States 24.6%.

Switching to high-grow markets will take time

  • Our exports to the BRICs and other emerging economies are expanding rapidly – in value terms by 20.1% per annum over 2002-12 to China; 17.2% to Russia; 11.3% to India; 13.4% to Brazil; 5.9% to Mexico and 8.1% to Indonesia – but from a very low base.   Today, UK exports to China account for just 3% of total exports. Exports to India (1.4%) and Brazil (0.8%) are even lower.
  • British business faces barriers to entry into emerging markets. For example, issues around the security of intellectual property, preferential treatment for domestic firms, conflicting standards and worries about the security of investments have been cited as major barriers.

So Britain’s established markets, including Europe, are likely to be important for some time to come

  • With challenges to expanding British firms’ presence in emerging markets, the UK cannot afford to ignore the 79% of exports currently going to the EU, US and other developed markets.
  1. The EU and US are still expected to be in the world’s top four economies in 2050
  2. Britain specialises in goods and services that are more in demand from high-income countries than emerging countries. UN trade complementarity data show that all the ten countries with import demands best matching UK exports are high-income – seven are in Europe.

And simple economics will continue to make regional trade with Europe important

  • A number of simple factors make trade higher within regions
  1. Transport costs drive trade closer to home
  2. Regions have lower barriers to entry for new exporters
  3. Integrated supply chains are concentrated in regions
  • Forty years in a customs union with Europe and a quarter of a century in a single market means that the UK and EU economies are greatly integrated. This goes beyond the headline statistics about shares of exports and imports. UK firms are embedded in pan-European supply chains and vice versa.