Trade relations between the United Kingdom and the Visegrad Group

By Balázs Gyimesi | 4 May 2016

To quote this document: Balázs Gyimesi, “Trade relations between the United Kingdom and the Visegrad Group”, Nouvelle Europe [en ligne], Wednesday 4 May 2016, http://www.nouvelle-europe.eu/node/1940, displayed on 15 August 2018

Trade relations are a fundamental dimension of international economic ties, furthermore they have been widely regarded as a cornerstone of peaceful and prosperous interstate relations by thinkers like Mill or Schumpeter. The following article scrutinises the development of trade relations between Great Britain and the Visegrad Group in the light of the recent “Brexit” debate.

Bridge between the Cliffs of Dover and Visegrad

“Dover's cliffs call to mind the Roman invasion; the Battle of Britain; our proximity to, yet difference from, mainland Europe; and international trade and exploration, both fair and exploitative” - Julian Baggini

One of the major stakes of a possible “Brexit” is the effect it could have on the economic ties between the EU Member States and the United Kingdom. The Visegrad countries’ trade policies have clearly benefited from their accession to the EU, as the integration to the common market of the EU has opened the door to countless new opportunities, not only bringing them closer to the EU-15 countries, but also strengthening the trade relations among each other. The development of the United Kingdom’s trade with the rest of the EU has taken a different course, as the findings presented in this article will demonstrate, however the UK has established a remarkable trade policy towards Central Europe. The fundamental question raised by the article concerns the nature of the trade relations between Britain and the Visegrad countries. By examining this crucial aspect of the ties between these states, we can gain insight into the scope of the economic consequences of a possible withdrawal of the United Kingdom from the European Union. The article will analyse the aforementioned questions from several perspectives – starting with the general importance of intra-EU trade for the countries in question, through the UK’s approach to Central Europe to the specific case study of the trade relations between Hungary and Great Britain.

Trading matters – the weight of intra-EU trade for the UK and the V4

In order to assess the general importance of economic relations with EU Member States, the weight of intra-EU trade, meaning the trade conducted with other Member States, will be analysed based on the data provided by Eurostat. The significance of intra-EU trade demonstrates the strength of trade ties between a Member States and the rest of the EU; gaining insight into this question will help us to put the economic relations between the Visegrad countries and the UK into a broader perspective.  Another interesting dimension that can be observed in the framework of such an analysis is the development of the trade volume of the V4 since their accession to the European Union in 2004. Has the EU-accession had a significant effect on the four Visegrad countries’ overall relation with the rest of the Union? How have the UK’s trade relations with the other Member States have changed during the same period?

The data on exports to other Member States give a first account on the changes in trade volumes that have occurred between 2002 and 2013. The results we get for the Visegrad countries are not surprising; as expected, their accession to the EU and their integration into the common market of the EU had a significant multiplicator effect on their intra-EU exports, in Poland it even led to a trebling of the export volume. During the same period, the United Kingdom has not increased the volume of its intra-EU exports, on the contrary, it slightly fell back compared to 2002. This development raises important questions; whereas the “new” member states could clearly expand their volume of intra-EU exports, showing that by accessing the common market, new opportunities arose for them, the UK has seemingly not benefited to the same extent from the enlargement in terms of intra-EU exports. This could possibly imply that the Central European countries are not a major destination for British exports, however it does not imply that Britain would be a major exports destination for the V4 either. We have to dig deeper to find answers to our initial questions.

 

The trade balances with other Member States show us how the proportion between intra-EU imports and intra-EU exports have developed between 2002 and 2013. It is clear from the data that all Visegrad countries could increase their trade balance vis-à-vis the rest of the EU, however, the United Kingdom’s balance developed in the opposite direction, increasing its initial 2002 trade deficit further until 2013, almost doubling it. These figures strengthen the hypothesis that the Central European countries enjoyed an obvious benefit from the accession in terms of trade, whereas Great Britain continued to increase its imports from EU member states compared to its exports to the EU.

Putting the intra-EU trade in relation with extra-EU trade replicates the trend that we have seen in the two previous graphs. The weight of intra-EU exports, relatively to that of extra-EU exports, has decreased in all five countries in question, however the extent of this decrease differs dramatically between the V4 and the United Kingdom. Whereas in the Visegrad countries intra-EU exports still account for more than 75% of the total volume of exports, in the UK this number decreased from 62% to 44%, consequently the majority of the UK’s exports are now going to non-EU states. According to this analysis, intra-EU exports play a significantly less important role for Great Britain than for the Visegrad countries. However, these figures only reflect the general importance of intra-EU trade for the scrutinised states – in order to get a clearer picture of the significance of the Visegrad group for the British economic policy we’ll look at the UK’s strategy for investing in Central Europe.

Investing in “Emerging Europe” – the UK’s approach to Central Europe

The United Kingdom Trade and Investment (UKTI), a non-ministerial department of the UK Government whose responsibilities involve “helping UK companies achieve their potential overseas through exporting and encouraging investment in the UK by overseas businesses”, formulated its approach to Central Europe under the slogan “Develop your exports in Emerging Europe”. The strategy, which is aimed at helping British companies to establish themselves in Central Europe, was presented in 2014. UKTI employs the term “Emerging Europe” to describe a remarkably heterogeneous group of eleven states, including all four Visegrad countries, however also listing Austria, Bosnia and Herzegovina or Bulgaria. According to UKTI this region is characterised e.g. by “increasingly affluent consumers and economic growth at double the rate of western Europe”.

It is important to note that the countries listed under the label “Emerging Europe” are at different stages of economic development and not all of them are EU member states. The UK has consequently no standalone V4-strategy concerning trade, but considers the four Visegrad countries as part of a larger Central Eastern European group. Nevertheless, UKTI provides customised information on investment opportunities and trade relations with each individual country belonging to the “Emerging Europe” category. In the following, the trade and investment information published by UKTI on the different V4 countries will be scrutinised to gain a more meaningful insight into their trade relations.

Concerning the overall significance of the region Tom Salusbury, Regional Director of UKTI for Central & Eastern Europe, stated that “UK exports of goods and services are currently worth about £ 16 billion and have doubled over the past ten years. […] The region’s economic fundamentals are strong and moving firmly in the right direction” (UKTI 2015). This underlines the predominantly positive attitude of UKTI on Central Europe, which is also demonstrated by other documents published by the department.

The most important trade relations are entertained with Poland, for whom the UK represents the 2nd largest trading partner (Cameron 2015); for the UK on the other hand, Poland constitutes the 19th largest export market. Prime Minister Cameron also outlined in his speech in Warsaw in December 2015 that Poland and the UK shared similar ideas on the European trade policy, namely the conclusion of trade deals with “fast growing parts of the world” (Cameron 2015).

Prague is home to several Central European head offices of British companies, such as Rolls Royce or Marks and Spencer, highlighting the city’s importance as an economic centre of the V4. The UK is the 12th largest exporter to the Czech Republic, whereas the Czech Republic constitutes the UK’s 27th largest export market. British companies also have a prominent role in Slovakia, were Tesco is the country’s top retailer and one of the main employers. Hungary’s trade relations with the UK will be analysed in the next segment of the article.

There is a recurring pattern in all Visegrad countries regarding the composition of the British exports to these states, as the main groups of goods tend to be related to engineering, the chemical and the energy sectors.

In the shadow of Germany – UK & Hungary’s trade relations

In order to gain even closer insights into the V4-UK trade relations, the ties between the UK and Hungary will be scrutinised with more attention. It is important to note that Germany is the most important trade partner of Hungary – and for that matter, of the entire Visegrad Group – outshining all other states (Gross 2013). The graphs presented below demonstrate the evolution of imports and exports from and to Hungary between 2002 and 2013. The figures clearly show the benefits of EU accession, however it is also remarkable that the share of imports from Britain to Hungary have not increased significantly, the Hungarian exports to Britain have seen only a slightly more important increase. Nevertheless, the importance of Hungarian trade relations with Great Britain does not surpass that of with other Visegrad countries.

Conclusion

Trade has a great influence on the nature of interstate relations, therefore it is crucial to assess the strength of trade relations in order to obtain a more precise picture on the interactions between the Visegrad countries and the United Kingdom. The findings presented in this article have demonstrated that quantitatively speaking, intra-EU exports are of significantly greater concern to the Visegrad countries than to the UK, furthermore the UK does not belong to the V4’s most important trading partners, with the exception of Poland, for which the United Kingdom is the second largest trading partner. The weight of Germany as trading partner and historically influential neighbour of the V4 states is still overshadowing the British-Visegradian relations, as the case study of Hungary has demonstrated. Nevertheless, we can observe that the UK is working on the improvement of trade relations through actions of the UKTI, which is however employing a rather heterogonous classification of Central Eastern Europe with the term “Emerging Europe”. In order to foster trade between the V4 and the UK, a more coherent Visegrad strategy might be desirable, in order to get a clearer view on Central Europe from the Cliffs of Dover.

 

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