Be careful what you wish for on customs union

by Hugo Dixon | 11.01.2018

Labour, and even the Tories, could eventually decide it’s best to stay in the EU’s customs union. Pro-Europeans may see this as a reason to cheer. But it will only be good if we also stay in the single market and keep a seat at the table where decisions over the EU’s trade policies are taken.

Jeremy Corbyn is on a long and meandering path towards a somewhat more sensible Brexit policy. The easiest next step would be to say we should stay in the customs union. Labour will apparently take precisely such a step by the spring, according to an unsourced article in The Times.

Staying in the customs union might appeal to the leader of the opposition because our manufacturing industry, which has a special place in the affections of the Labour party, would be shielded from the worst consequences of Brexit. There would be no tariffs and supply chains wouldn’t be gummed up by border checks.

What’s more, we could stay in the customs union without accepting free movement of people. That’s still problematic with some Labour voters despite the fact that net migration of EU citizens to the UK has virtually ground to a halt and we’re suffering from the lack of nurses and other trained workers.

Even Theresa May might come to the conclusion that we should stay in the customs union. After all, as part of her deal with the EU just before Christmas, she promised “full alignment” of a vast swathe of our rules with those of the EU – unless she can find some other wheeze to avoid a hard border in Ireland. If we are aligning rules and presumably tariffs, we won’t have to do much more to stay in the customs union.

There are, though, two main problems with a policy that consists merely of customs union membership.

No vassal state

First, it would turn us into what Boris Johnson calls a “vassal state”. We would have to copy the EU’s trade policy with the rest of the world but without any say over what that was.

Tory Brexiters don’t like this because they believe we will roam the world cutting deals like Elizabethan buccaneers once freed of Brussels’ supposed shackles. This is nonsense. We’ll have to race merely to replicate the EU’s existing deals with 60-odd countries which we currently benefit from as a member. When we finally turn to big new opportunities such as the US and China, we’ll lack the EU’s clout to get good deals and so risk being bullied into accepting bad ones.

Even though the Tory argument about becoming a vassal state is misplaced, there is a parallel Labour concern that is more serious. The EU may cut future trade deals that are in its interests but not ours.

For example, if talks between Brussels and Washington are revived, the EU will make sure Donald Trump doesn’t dictate terms to its 27 members. But why would it take care to ensure that the NHS is protected from competition from American companies? In the last round of talks, we were able to put a stop to this because we were part of the decision-making.

Labour is planning to ask for a seat at the table as well as staying in the customs union, according to The Times. If we could get that, all well and good. But what chance is there of the EU letting us do that if we are quitting the club?

Nothing for services

The other big problem with saying we want to stay in the customs union is that it would do nothing for our world-beating services industries, which account for 80% of our economy. There is a real risk that the EU would bite our hand off, as their comparative advantage is in manufacturing.

Germany would get to sell us all those BMWs and Italy all those bottles of prosecco – without any problems at all. But we wouldn’t be free to sell financial services and consulting while providing digital services, media and all the things where we have a comparative advantage. Their trade surplus in goods would be protected; ours in services would vanish.

What’s more, if we did a bad deal like this, we could be stuck with it for years or even decades. If we went back to the EU after a few years and asked to include services in the mix, it’s not clear why they would agree to open up their markets.

If embracing customs union membership is seen as just a step on a journey by either Labour or the Tories, it could still be good. But it would need to be accompanied by two more steps: staying in the single market, something that would protect our services; and having a seat at the table for both the single market and customs union. There is, of course, one simple way of achieving all this: stay in the EU.

Want more InFacts?

Click here to get the newsletter

    Your first name (required)

    Your last name (required)

    Your email (required)

    Choose which newsletters you want to subscribe to (required)
    Daily InFacts NewsletterWeekly InFacts NewsletterBoth the daily and the weekly Newsletter

    By clicking 'Sign up to InFacts' I consent to InFacts's privacy policy and being contacted by InFacts. You can unsubscribe at any time by emailing [email protected]

    Edited by Luke Lythgoe

    One Response to “Be careful what you wish for on customs union”

    • If you |(or JC) think that being in CU without being in the SM will mean that supply chains will not be gummed up by border checks, you’ve got it wrong. The border checks will need to be there because it is only because there is an SM that there is free movement on the basis of an assumption that all the UK’s exports to the EU meet the EU’s standards and vice versa. The CU is only about external borders and all it does is create equivalent relationships with extra-EU countries for all dealings with the EU.