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The EU provides often-overlooked economic benefits for the UK

By Viara Bojkova, Head of Geo-Economics Programme & Senior Research Fellow at the Global Policy Institute.

The big campaigns for the UK to stay in or leave the EU paint pictures of alternative futures with a large brush. ‘We must have the enormous market and the regulatory protection afforded by a bloc of 500m affluent citizens’. Or else, ‘The virile UK must not be hampered by a hapless band of failing bureaucrats, but should find its fortunes among the thrusting emerging markets’. Our mainstream, Eurosceptic press love such caricatures but overlooks niche areas that have important economic significance for the UK. Three of these are: UK Universities and their R&D activities; the involvement of the UK space industry with the European Space Agency and pan-European companies, and the dynamic emerging market represented by the east European countries of the EU.

High quality university education and the work of the associated university research departments are areas where the UK is truly world class. UK universities fulfil a strategic role in attracting, training and retaining high quality researchers. Furthermore they work with commercial companies on research and the development of such research into commercial products. This involves many pan-European companies and the exchange of knowledge, skills, and innovative ideas under various EU-funded research and development initiatives such as the current EU Framework Programme, Horizon 2020. In addition, EU programmes offer opportunities for UK students to attend other European universities as exchange students. About 20,000 students participate in the Erasmus scheme every year. The University of Lincoln School of Engineering opened the first new engineering school in 2010 with a specific focus of developing local graduates for the industry. The school is co-located with the German company, Siemens, in an Engineering Hub, which further supports their industrial partnership. These European relationships help the UK universities to grow new business partnerships and lead to new jobs in the local communities of England, Wales, Scotland and Northern Ireland. These relationships are assisted by physical proximity that provides adjacent time zones and short travel times.  Current close collaboration has taken decades to build and would be in danger of declining if the UK were to leave the EU.

The UK space industry is fast growing and achieved turnover of £11.6bn for 2012/2013. It works in close partnership with European companies such as Airbus Defence and Space, and with the European Space Agency (ESA) in a market in which US competition that has become more formidable since the emergence of new companies such as SpaceX and Blue Origin. Over four decades, ESA has expanded globally and employs world-class technology to link scientists and mission controllers with spacecraft orbiting Earth and voyaging deep into the Solar System. The UK is tightly linked to these activities via investments, work cooperation, knowledge-transfer and trade.

In December 2015, the European Space Agency and Airbus Defence and Space signed a €350 million contract to develop and build ESA’s JUICE (Jupiter ICY Moon’s Explorer) spacecraft. This project will build on the expertise developed in Toulouse (France), Friedrichshafen (Germany), Stevenage (UK) and Madrid (Spain). The selection of subcontractors will be completed by 2017 and the project work will represent a consortium of 60 European companies[1]. If the UK were to leave the EU, it is likely that this European consortium would suffer negative consequences in terms of trade barriers, legal restrictions, work-force transfers and knowledge spillovers. Moreover, this could damage the UK world leadership in the production of small satellites by SSTL, since SSTL is now owned by Airbus[2]. Even with the UK government support provided through Satellite Applications Catapult to the SMEs in Scotland, North East and East Midlands, the British organisations could suffer in terms of funds as they, currently, still rely on a mixture of EU and national funds[3].

One possibility for the UK might be to deepen relationships with the Chinese and Indian space agencies in order to replace the EU-funding, but the strategies of these two large countries seem to focus on self-sufficiency. They intend to develop their own domestic capabilities including building rockets. Thus it may prove difficult for UK small space companies to fit into the Chinese or Indian space industry clusters. It is also unrealistic to expect major space trade benefits from new relationships in the short-term; such benefits tend to accrue over long periods of cooperation and the development of common standards and technical partnerships.

The new EU members of Central and Eastern Europe have increased their economic growth and experienced increased prosperity over the last few years. In 2014,  annual industrial production increased by 7.1% in Hungary, by 6.3% in Romania, by 5.0% in the Czech Republic, by 3.7% in Slovakia, by 3.4% in Poland and 1.7% in Bulgaria[4]. This growth, comparable to some fast-growing Asian countries, has increased the size of these markets and provides opportunities for manufacturing companies of the advanced EU economies to locate facilities in relatively low cost areas. Furthermore, significant direct investments in the Czech Republic, Poland and Romania maintained relatively high levels of investment during the global financial crisis. Together with major shifts of industrial production to the Eastern European bloc, these factors have helped the real labour productivity to increase hugely in countries such as  Bulgaria, Latvia, Lithuania and Romania.

While China is becoming a significant trading partner of the UK, the Eastern European economies are re-emerging as a strong economic bloc equally providing trading opportunities for UK companies. British Business Centres were opened in Poland (2013), Slovakia and Hungary (2014). Centres in Slovenia, the Czech Republic and Romania are also operational now. The UK Trade and Investment’s target is to double trade with Central and Eastern Europe by £30 billion by 2020. This bloc of countries represents more than 100 million of population with expected EU funding of £124 billion between 2014-2020.

In contrast, the trade deals negotiated between China and the UK in October 2015 are worth less than £20 billion according to a Financial Times estimate. Current deals add up to £11.7 billion with a likely additional £6.5 billion over the course of 20 years from BP’s agreement to sell gas to the China Huadian Corporation. UK exports to India vary between £4 billion and £6 billion per year.

In summary, remaining in the EU would enable the UK to build on existing, high growth opportunities from which we are already benefiting. These are based upon research and advanced manufacturing, and can offer the sort of high value-added jobs that the UK needs to remain competitive with the United States and China. Leaving the EU would require the UK to work intensively to establish new trading partnerships with the non-EU world, and to help UK industries adjust to the new global circumstances. Whatever the long-term success of such a move, the immediate impact would provide a severe jolt to current promising areas of UK economic activity within the EU, without clear, compensating benefits. It might just be worth remembering the old British proverb: ‘A bird in the hand is worth two in the bush’.

[1] More info at: https://airbusdefenceandspace.com

[2] More info at: www.sstl.co.uk

[3] https://sa.catapult.org.uk

[4] Eurostat data, August 2015

By Viara Bojkova, Head of Geo-Economics Programme & Senior Research Fellow at the Global Policy Institute.