Stay­ing in cus­toms union is not an op­tion

The Sunday Telegraph - Money & Business - - Business - LIAM HALLIGAN Fol­low Liam on Twit­ter @liamhal­li­gan

With the UK’S Brexit ne­go­ti­a­tions at boil­ing point, I’d like to make two ob­ser­va­tions. Amid the po­lit­i­cal ma­noeu­vring and rhetor­i­cal con­flict, the un­der­ly­ing re­al­ity of the var­i­ous op­tions as­sumed to be avail­able is of­ten lost.

My first point is that stay­ing in­side the EU’S pro­tec­tion­ist cus­toms union in­def­i­nitely – the Prime Min­is­ter’s lat­est pro­posal – has se­ri­ous eco­nomic down­sides.

As a cus­toms union mem­ber, the UK must charge rather high tar­iffs, at rates set by Brus­sels, on var­i­ous ex­ports from out­side the EU. So Bri­tish shop­pers will keep pay­ing more for im­ports from around the world, par­tic­u­larly food, cloth­ing and shoes – given that prices in­clude tar­iffs de­signed to pro­tect un­com­pet­i­tive pro­duc­ers in other EU states.

Un­der cus­toms-union rules, 80pc of these tar­iff rev­enues go to Brus­sels – bil­lions of pounds each year. And be­cause the UK trades more with non-eu coun­tries than other large EU mem­bers do, we pay an un­fairly high share of the com­bined tar­iff rev­enues.

The cus­toms union pro­tects many large Eu-based cor­po­ra­tions from global com­pe­ti­tion – which is why large busi­ness lobby groups like it. But it’s bad for con­sumers. And the EU’S tar­iff bur­den is dis­pro­por­tion­ately shoul­dered by the UK – par­tic­u­larly our poorer house­holds, given the high in­come share they spend on the sub­sis­tence goods the cus­toms union is de­lib­er­ately de­signed to re­strict.

The cus­toms union also stops Bri­tain strik­ing trade deals with non-eu coun­tries – that is, over four fifths of the world econ­omy. This is a big dis­ad­van­tage, given our cul­tural and his­toric links with a wide va­ri­ety of na­tions. With the global cen­tre of eco­nomic grav­ity shift­ing in­ex­orably east, it’s vi­tal for our fu­ture pros­per­ity that Bri­tain en­gages more with the world’s most pop­u­lous mar­kets.

Yes, out­side the cus­toms union we’re no longer part of the EU’S trade deals – of­ten pre­sented as a huge sac­ri­fice. Over the 60 years since the EU was founded, though, Brus­sels has failed to agree and rat­ify a free-trade agree­ment with any of the world’s top economies. The EU has no deals with the US, China or In­dia. Only about half of the 50-odd deals of­ten re­ferred to are op­er­a­tional – and they cover just 10pc of the global econ­omy, be­ing mostly with tiny coun­tries.

De­spite its large, tax­payer-funded per­ma­nent trade sec­re­tariat, the EU is bad at trade agree­ments as the nu­mer­ous mem­ber states of­ten have con­flict­ing ob­jec­tives. And its deals have favoured French agri­cul­tural and Ger­man man­u­fac­tur­ing ex­ports, not UK ser­vices.

Na­tions act­ing along – such as Switzer­land, Sin­ga­pore and South Korea – have se­cured trade deals cov­er­ing a much big­ger share of the global econ­omy than has the EU. In 2013, Switzer­land struck a deal with China af­ter 18 months of ne­go­ti­a­tions – Bri­tain can do the same. Far from be­ing “at the back of the queue”, we are well placed to make his­toric deals with the US, In­dia, In­done­sia and a host of oth­ers – but only if we’re out­side the cus­toms union.

And the size­able na­tions that have signed EU trade agree­ments – in­clud­ing Mex­ico, South Africa and South Korea – have also in­di­cated they want Uk-equiv­a­lent deals, pro­vid­ing an op­por­tu­nity for Bri­tain to mod­ify ex­ist­ing agree­ments to our ad­van­tage.

Will leav­ing the cus­toms union re­ally wreck Eu-wide sup­ply chains? UK man­u­fac­tur­ers im­port count­less “just in time” com­po­nents from the US and else­where ev­ery day. And most Eu-sourced com­po­nents are likely to re­main “zero-rated” for tar­iff pur­poses (even if goods at­tract a tar­iff on the fi­nal sale). Man­u­fac­tur­ing sup­ply chains also op­er­ate ef­fec­tively across the Us-canada bor­der, where there is no cus­toms union.

I’d also say this pro­tec­tion­ist

cus­toms union is neo­colo­nial and even im­moral – given the EU’S high tar­iff wall, par­tic­u­larly on pro­cessed agri­cul­tural goods, se­verely hin­ders the de­vel­op­ment of many of the world’s poor­est coun­tries.

When the UK joined the EEC in the early Seven­ties, the bloc ac­counted for around a third of global GDP. Once we’ve left, it will be just 15pc – de­spite the EU now com­pris­ing many more mem­ber states. It makes no sense for a di­verse, com­pet­i­tive econ­omy like Bri­tain to be in a con­struct that harms our con­sumers and dis­crim­i­nates against 85pc of the world econ­omy, while leav­ing us un­able to cut be­spoke deals with the fastest-grow­ing mar­kets.

Over the last two years, Theresa May has re­peat­edly stated that stay­ing in the cus­toms union would “be­tray the Brexit ref­er­en­dum re­sult”. Just a few weeks ago, in Salzburg, she said on­go­ing mem­ber­ship “would mean we’d still have to abide by all the EU rules … but couldn’t do the trade deals we want with other coun­tries”.

Yet now the Prime Min­is­ter is try­ing to se­cure a deal that keeps Bri­tain in­side the cus­toms union in­def­i­nitely. One rea­son is that her clos­est ad­vis­ers are far too heav­ily in­flu­enced by cor­po­rate vested in­ter­ests. An­other is that she “wants to main­tain the in­tegrity of the United King­dom” – and Down­ing Street has been duped into think­ing leav­ing the cus­toms union means im­pos­ing a “hard Ir­ish bor­der”.

As some­one whose fam­ily hails from part of the Ir­ish Repub­lic very close to North­ern Ire­land, I know the im­por­tance of peace on the is­land of Ire­land. Yet the idea that the Ir­ish bor­der is an ob­sta­cle to leav­ing the cus­toms union, and strik­ing a UK-EU free trade agree­ment, is non­sense.

The Ir­ish land bor­der al­ready copes with dif­fer­ing cur­ren­cies, ex­cise du­ties and other tax rates. There is no need for phys­i­cal bor­der in­fra­struc­ture or checks that could in­flame sec­tar­ian sen­si­tiv­i­ties.

The is­sue only flared up af­ter June 2017 when the Tories be­came de­pen­dent on the DUP, af­ter a dis­ap­point­ing election, and when a new Taoiseach emerged in the Repub­lic. Since then, Brus­sels and Dublin, keen to gain ne­go­ti­at­ing lever­age over Bri­tain, have taken a max­i­mal­ist, ul­tra-le­gal­is­tic ap­proach.

The re­al­ity is – and this is the sec­ond of my two points – that with good will and com­mon sense, a com­bi­na­tion of dero­ga­tions, trust­ed­trader schemes and ex­ist­ing tech­nol­ogy can “solve” the Ir­ish bor­der. Even Michel Barnier ac­knowl­edged this, as part of his re­cent “de-drama­ti­sa­tion” of this is­sue. And just last week, Brus­sels con­firmed a UK-EU free-trade agree­ment is still on the ta­ble.

For the sake of the Bri­tish econ­omy and her own Premier­ship – to say noth­ing of democ­racy – it’s an of­fer May must now grab.

‘It makes no sense for a di­verse, com­pet­i­tive econ­omy like Bri­tain to be in a con­struct that harms our con­sumers’

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