Sunday, 17 June 2012

The Rotterdam Effect


The Rotterdam Effect. What is it? Why does it occur? Why does it matter?

From my own experience, many people have never even heard of the Rotterdam Effect, however, it is an argument often used by Eurosceptics. It wouldn’t be an issue if the Eurosceptics didn’t present the Rotterdam Effect (or the Antwerp Effect as it is sometimes referred to) in such a convincing manner. There are some large flaws in what they say it though, hence this article.

To get a clear picture I’ll start with the reason this is an issue at all. Many pro-EU personalities quote 60% as the amount of our trade that is with the EU. This of course demonstrates how reliant we are on trade with the EU and so places great importance on staying part of that trade-bloc, it accounts for more than half our trade after all. This is not entirely accurate though. The Eurosceptics will often jump on this, saying that, due to the Rotterdam Effect, this figure of 60% is actually inflated and that the real amount is not that high. In this respect they are entirely correct.

The reason for this discrepancy is that lots of trade actually stops at an EU port (often Rotterdam or Antwerp) before going to its final destination. This trade is then recorded as trade with the EU and so does indeed artificially inflate the figure for how much we trade with the EU.

Looks pretty bad right?

Well no, not when you start asking questions.

Questions like, ‘why is it recorded as trade with the EU if this is not actually the case?’ Well, after a lot of looking around the only reason I could find was this: it is simply international convention to record the trade partner as the country (or bloc) that owns the first port of unloading (of the goods) for exports and the last port of loading for imports. Why this is convention I do not know, you would have to ask someone in the trade for the answer to that. It is not tied to any EU regulation though which is what some Eurosceptics like to say so let us be clear on that score.

I can even go further in my proof that it’s nothing to do with EU regulation.  The fact is that the same thing happens whoever we trade with. Therefore in the same way that UK-EU trade is inflated, so is UK-US trade. When we export oil to Canada and that oil stops at a US port before then going on to Canada, can you guess who we say we’ve traded with? Yep, the US.  This is particularly important as the US is our next biggest trading partner and so it is good to ensure the Eurosceptics don’t also use inflated figures when talking about how much we trade with other countries such as the US ;).

To completely dispel any idea that this is an EU conspiracy (or a conspiracy from any other source) it is worth saying that both the EU and our own trade reports are quite open about the Rotterdam Effect and its issues. This is why there is a 2005 report, from HM Revenue & Customs, specifically about the Rotterdam Effect freely available on the internet for anyone to read. This is also why nearly all trade reports give revised figures that take into account the Rotterdam Effect.

It is these revised figures that really deal the blow to the Eurosceptic argument as far as I see it. The revised figure for the EU is 40%, while the revised figure for the US is only 14%. This means that even with the inflation taken into account we still trade vastly more with the EU than any other equivalent size economy.

I won’t excuse people for quoting the figure of 60% as it is misleading and is not true, but the general point still stands. We trade most with the EU. Even if you break it down on a country by country basis, the EU is strongly prominent. Our top 10 import countries last year – 8 in the EU, same for our top 10 export countries last year. The only other two countries being the US and China; economies so much bigger than any individual EU country that it’s hardly a fair comparison anyway. Anyway I’m starting to drift into different discussions and new questions so I’ll stop here. As always if you have any thoughts or comments feel free to tell me.

- Pascal 

5 comments:

  1. Where are the country by country breakdown figures if you have them id be amused to see them

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    1. Country by country break down of our trade do you mean? http://www.guardian.co.uk/news/datablog/2010/feb/24/uk-trade-exports-imports

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  2. Spot on Pascal.If you were to believe the ukip brexit appologists using the Rotterdam Antwerp effect, you would expect that at least with The Netherlands and Belgium the UK trade balance with those two countries should show a healthy positive trade balance correct? In fact it doesn't! I read somewhere that nearly half the trade deficit the EU has with the EU is down to just two countries. One is the Netherlands and no prizes for guessing who the other country is. I read in the annual report of the port of Rotterdam that what they get from the UK is mainly 'empty' return containers going back to China etc, while a lot more full ones are shipped onwards to Felixstowe. Hope that puts that excuse to rest. Nice analysis. I hope you don't mind linkinkin to it in my own blog
    https://identityspace.wordpress.com/2015/01/24/ukip-economics-and-brexit/

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    1. Sure no problem. It's funny how these arguments keep getting recycled, I wrote this when 'brexit' wasn't even a commonly used term..

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  3. @lasancmt I think you've nailed it. The reverse Rotterdam effect is stronger meaning that the argument should be one against the Eurosceptics.

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