Customs union is a thoroughly bad idea – here’s why

How about this for a clever wheeze to solve the Brexit crisis? Keep the notorious Irish backstop, gum up trade in manufactured goods, thwack our world-beating services industries and turn us into a trade eunuch? Oh, and set up a process that guarantees that the political infighting will go on and on for years?

Sounds good? Well, that’s what a customs union – the focus of talks between the government and Labour – would mean.

The chances of such a scheme emerging from the political sausage factory isn’t high. It would split the Tories and Labour simultaneously – and might not get through Parliament. However, it is the idea of the day. So it’s worth understanding why a customs union would be a thoroughly bad idea.

Backstop still there

First, the EU would still insist on the Irish backstop which is designed to keep the Irish land border open. A customs union would mean there was no need for customs checks between the UK and the EU. But there would still need to be checks to ensure that goods and agricultural products entering the EU conformed to its standards.

The backstop avoids the need for such regulatory controls on the Irish land border because Northern Ireland would follow the EU’s rules on goods and agriculture. But to prevent stuff from Great Britain being shipped to Northern Ireland and getting into the EU by the back door, the EU would insist on regulatory checks in the Irish Sea.

It might be thought we could avoid this problem if the whole of the UK signed up to EU rules on goods and agriculture. But the EU won’t have it. It says we can’t have free movement in goods unless we also sign up to free movement in people and services. It has made an exception for Northern Ireland because it doesn’t want border controls to undermine the peace process, but won’t agree the same deal for the rest of the UK.

The snag is that regulatory checks on exports from Great Britain to Northern Ireland could undermine the United Kingdom.

Gum up manufacturing

But won’t a customs union at least protect industries that rely on a cat’s cradle of supply chains across Europe such as cars and aerospace? Surely, components will be able to criss-cross the English Channel without any tariffs and their factories will keep humming?

Not so fast. There would be regulatory checks on exports across the Channel as well as the Irish Sea. So trade would no longer be frictionless. The finely tuned just-in-time supply chains that support many well-paid job would get grit in them. We’d no longer be such an attractive destination for manufacturers such as Nissan that have already said they will scale down their investment because of Brexit.

Nothing on services

The prospects are even bleaker for services – industries such as finance, advertising, media and consulting – where we have a huge edge. These account for 80% of our economy. We also have a £28 billion trade surplus with the EU in services, compared with a trade deficit of £95 billion.

A customs union does nothing to ensure the free flow of services. And if we do a deal that covers just goods, where the EU has an edge, it is hard to see how we would ever persuade them to add services. We would be hobbling most of the industries that pay good salaries, offer the best opportunities for our young people and pay the lion’s share of the taxes that fund our public services such as the NHS.

Trade eunuchs

If we are in a customs union, we will effectively lose the ability to make our own trade policy. The exact position will depend on what type of deal we do with the EU.

One option would be to be automatically enrolled in the bloc’s trade agreements with other countries. At least, we wouldn’t lose the benefits of the deals the EU already has with nearly 70 countries, including Japan and Canada, as well as any such as China and America it does in future years.

The snag is we wouldn’t have any vote on those deals. The EU could sell access to our market – say, opening up the NHS to US healthcare companies or cutting a deal with China that puts our aerospace industry at a disadvantage. As Liam Fox, the pro-Brexit trade secretary rightly said last month: “If you are not at the table, you are on the menu.”

Sadly, the other option, going solo on trade deals, is even worse because we wouldn’t have the clout to cut good ones with other countries. Any that already have agreements with the EU could get backdoor access to the UK by exporting their goods to the bloc and then shipping them across the Channel. So they’d only bother to cut a deal with us if we gave them really good terms.

Brexternity

The Tories have been fighting like ferrets in a sack over Brexit for the last three years. If we agree a customs union, the infighting won’t stop. This is because any deal will not be written into the legally binding withdrawal agreement with the EU. It will just be contained in the non-binding political declaration – and it will take years to nail down the details.

In the meantime, there will be a new Tory leader. There will probably be at least one general election which could bring in a different party. The key leaders in the rest of the EU, such as Germany’s Angela Merkel, will also go and that may change its negotiating goals. In other words, we would be signing up to a blindfold Brexit.

Sounds familiar? That’s because a customs union isn’t very different from the prime minister’s deal, which contains a bare-bones customs union buried in the backstop. This deal has already been rejected three times by MPs. Rather than wasting more time on this terrible idea, Parliament should instead ask the people whether they still want Brexit.

Published and promoted by Hugo Dixon on behalf of Referendum Facts Ltd., Millbank Tower, 21-24 Millbank, London SW1P 4QP