Complexity threats loom as PM seeks ‘smooth’ Brexit

Theresa May, her officials briefed as she travelled to Brussels for her first EU summit as prime minister, wants her Brexit to be not hard, soft or dog’s, but “smooth”.

If she wants it to be smooth for business as well as government, let us hope she paid close attention to a paper presented earlier this week to her cabinet’s Brexit committee that, according to the Guardian, outlined the distinctly un-smooth consequences if Britain decides to leave the EU’s customs union.

One of the main arguments presented for leaving the EU has been the desire to cut red tape – the urge to have fewer, simpler regulations on business of all kinds, domestic and international.

Liam Fox, the international trade secretary, is reported  to favour an early British departure from the customs union so as to free his hands to negotiate new trade deals with non-EU countries such as Australia, China and India.

Be careful what you wish for, is the message of the studies presented to the Cabinet by the Treasury, the National Institute for Economic and Social Research, and the London School of Economics.

In place of the simplicity of sharing a trading system with 27 other countries would come complexity, which will be costly for business and thus the British economy. Leaving the customs union would also bring uncertainty – any future government, of whatever ideological stripe, could then change the country’s trading rules, following the political winds of the time.

It was the study’s reported prediction of a fall in GDP of 4.5% by 2030 if Britain pulls out of the customs union which made the headlines. But it is the complexity that would come with leaving the customs union that was arguably its more significant conclusion.

Any economic forecast spanning 13 years can be taken with a huge pinch of salt. Moreover, the consequences for the patterns of Britain’s trade – how much with the EU, how much with other countries – will depend chiefly on what new trade regime the country adopts after Brexit.

The study’s claim that trade with non-EU countries would have to rise by 37% to substitute for potential declines in EU trade should therefore be taken just as an indication of the orders of magnitude of what is at stake.

But what can be said with certainty is that leaving the customs union will create new forms of complexity for business, adding to red tape rather than cutting it.

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This is becoming a constant Brexit theme, encompassing immigration controls as well as new trade arrangements: mooted ideas such as regional visas for immigrants would also add to the need for paperwork and inspectors. Taking back control is becoming redefined as reinventing complexity.

Sharing the same tariffs, standards and other rules with our principal trading partners, the EU, is a force for simplicity, just as is freedom of movement.

It means that goods passing through British seaports and airports, or crossing the Northern Irish border, do not need their own customs inspections, paperwork or tax filings.

Leaving the customs union will mean that all goods entering or leaving Britain will need special documentation and special customs checks.

This is much more complex than simply a matter of tariffs on cars or beef. Trade agreements with other countries, whether by the EU now or Britain in the future, are intricate affairs, providing preferential access that has to be accompanied with detailed rules of origin to avoid such preferential access being exploited by companies from other countries.

Every new trade deal that Mr Fox negotiates for Britain will add to that complexity. The EU will rightly insist on clear rules and enforcement to ensure that Australian companies, say, cannot route their exports through Britain so as to get into the EU preferentially, or vice versa. Britain will have to insist on the same.

So red tape is destined to increase if Britain leaves the customs union, as will the length of the queues of lorries at Calais, Folkestone and other ports waiting for clearance.

Moreover, the case for customs checks on the Northern Irish border, with their potential of acting as flashpoints for new sectarian conflict, will be much harder to avoid.

One thing it won’t be, for business at least, is smooth.

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Edited by Geert Linnebank