Reports this week suggest that some UK ministers persist in advancing the imagined attractions of a Customs Partnership as the basis of future EU-UK trade. But do they understand the dangers?
The referendum campaign involved two opposed visions for Britain’s future. Under the first, favoured by the Remainers, the UK would stay in the European Union, participate in its councils, and – to the extent possible – seek to shape its future development in line with the UK’s interests. Under the second vision, favoured by the Leavers, the UK would leave the European Union and take back control of its laws, borders and money, and would trade with the world outside the restrictive constraints of the EU’s customs union and common commercial policy.
Each of these visions is internally consistent, and has its pros and cons. The British people however voted narrowly but decisively against the first and in favour of the second vision.
But where we stand today, we are in grave danger that neither vision will be achieved. Instead, we are in peril that a third scenario will come about, one not favoured by either side. That is for the UK to cease its formal membership of the EU, thereby losing its vote on EU laws, and its ability to influence – or if necessary veto – future Treaty changes. But at the same time we would remain subject to continued EU control of our tariffs and external trade policy, and continued EU control of a huge range of market-related internal laws. Our compliance with these requirements would continue to be overseen by the EU Commission and the European Court of Justice, bodies on which we would no longer have any nationals.
We would have changed our relationship with the European Union from being a Member State into being a Vassal State: a mere rule taker who must comply with laws devised, interpreted and enforced by foreigners and by foreign institutions. This would have the gravest economic and political consequences.
The economic consequence is that it would make it impossible for us to benefit from the freedoms which we will enjoy as a result of leaving the European Union. We would be unable to reduce the very high duties which the EU’s Common External Tariff obliges us to impose on basics such a food and clothing. Reducing or eliminating these tariffs unilaterally – particularly on goods which this country does not even produce and where the sole purpose of the current high tariffs is to benefit Continental producer interests – should be a no-brainer “first day of Brexit” action which would give an immediate and tangible Brexit dividend to lower income families in whose budgets these items form a disproportionate share.
We would be unable to pursue opportunities for free trade agreements all over the world. This is because we would be unable to offer to reduce or eliminate tariffs, and we would be unable to depart from the EU’s rigid rules on standards for goods or services in our domestic market in order to offer mutual recognition of standards to our trading partners.
We would be unable to reform the way our economy is regulated, or to escape the compulsory imposition of new EU laws on us, with their economic costs and their continuing political damage to our right to self-government.
Such a vassal-state Brexit would inevitably lead to Brexit being dubbed a failure, when the truth would be that Brexit had never been tried.
But the political consequences would be even more dire. Such an outcome would be – and would be seen to be – a clear betrayal of the promise made to all who voted in the referendum that their decision would be implemented. There could be nothing more corrosive to the already strained trust of millions of people in our political system.
If the UK stays in “the” or “a” customs union with the EU, it would be obliged to match the EU’s tariff on imports from non-EU countries. Households would lose out on the lower food costs which a real Brexit would bring after March 2019. New trade deals with non-EU countries would be prevented, and the EU and ECJ would continue to rule much of UK trade and internal regulation.
The customs partnership is billed as a magic solution which would give us the benefits of having an independent trade policy and also avoid the admin costs of customs controls between us and the EU which would exist under a Free Trade Agreement. Its idea is to collect whichever is the higher of the EU level tariff and the UK tariff on all goods arriving in the UK from the rest of the world, and for the EU to collect the higher of the UK or EU tariff on goods arriving into the EU.
This apparent solution is a mirage. Such a system would create nightmarish costs and administrative problems, not least because when goods are imported it is often not clear until later whether they will end up being consumed in the UK or the EU. Other countries would be not willing to enter into free trade agreements with us, because their exporters would not get the benefit of tariff free access to the UK market without having to try to get rebates under a burdensome system.
Instead, the government should make a constructive offer of ‘maximum facilitation’ of customs controls under a free trade agreement with the EU. At the same time it should get on with preparing for customs controls at its ports.
Meanwhile the UK proposals for a frictionless Irish land border with technological solutions and ‘trusted trader schemes’ should be back on the table and made ready. They are consistent with the assumptions on which the Good Friday Agreement was reached.