New Cus­toms Part­ner­ship is ‘un­work­able’

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

Last week, af­ter a marathon ses­sion, the “Brexit war cab­i­net” re­jected the so-called New Cus­toms Part­ner­ship. Good. The NCP is ill con­ceived, con­vo­luted and un­work­able. It is ridicu­lous the Gov­ern­ment ever pro­posed it.

Un­der NCP, Bri­tain re­mains part of the EU’S cus­toms ter­ri­tory, col­lect­ing tar­iffs for Brus­sels and ap­ply­ing EU rules at its ports. The scheme re­lies on an untested “track-and-trace” tech­nol­ogy to de­ter­mine if goods are ul­ti­mately des­tined for UK or EU mar­kets.

This re­quires, in turn, en­force­ment and re­pay­ment mech­a­nisms, with dif­fer­ences be­tween UK and EU tar­iffs set­tled at a later date. There is no prece­dent of one coun­try col­lect­ing an­other’s rev­enues, while main­tain­ing its own tariff pol­icy, any­where in the world. Even the EU has dis­missed NCP as “mag­i­cal think­ing”.

NCP means ac­cept­ing many EU sin­gle mar­ket rules and Euro­pean Court of Jus­tice ju­ris­dic­tion. The Byzan­tine com­plex­ity, and need to pay higher EU tar­iffs then hope­fully get a re­fund, would dis­cour­age non-eu na­tions from sign­ing post-brexit UK trade deals – jeop­ar­dis­ing a ma­jor ben­e­fit of leav­ing.

So why was NCP cham­pi­oned by arch-re­mainer civil ser­vants sur­round­ing Theresa May? Be­cause, to them, Brexit is a dis­as­ter not an op­por­tu­nity. They want to drown the process fudge so we get BRINO – “Brexit in name only”.

Co­cooned in the public sec­tor, os­cil­lat­ing be­tween White­hall and Brus­sels, what do th­ese “gifted am­a­teurs” re­ally know about global com­merce and the shift­ing shape of the world econ­omy? What they do know about is cre­at­ing a huge mess, in the hope Bri­tain loses its nerve and aban­dons Brexit.

Min­is­ters need to pro­mote, loudly and of­ten, the case for leav­ing the cus­toms union. It puts a tariff wall around the en­tire bloc, im­pos­ing charges on exports from the rest of the world. So UK shop­pers pay more – par­tic­u­larly on food, cloth­ing and footwear, goods mak­ing up a high share of poorer house­holds’ in­comes – of­ten to pro­tect in­ef­fi­cient EU pro­duc­ers else­where.

Some 80pc of th­ese tariff rev­enues then go di­rectly to Brus­sels – a fact I’m yet to hear on a main­stream UK news bul­letin. And be­cause Bri­tain does much more non-eu trade than other mem­bers, we get a uniquely bad deal.

The sums are large – which is why the EU is fight­ing so hard to main­tain the sta­tus quo. Over the last seven years, Bri­tain has sent Brus­sels £15.7bn in cus­toms union tar­iffs, that money com­ing, dis­pro­por­tion­ately, from poor UK house­holds over-pay­ing for im­ports from out­side the EU.

The cus­toms union re­moves tar­iffs on goods within the EU – help­ing com­plex sup­ply chains, par­tic­u­larly in man­u­fac­tur­ing. But such tar­iffs gen­er­ally ap­ply only to fin­ished goods, not com­po­nents. And out­side the cus­toms union, “fric­tion­less” trade is largely doable un­der a UK-EU free-trade agree­ment (FTA) – what the Gov­ern­ment should have been dis­cussing with Brus­sels in re­cent months, not this NCP mad­ness.

But the cus­toms union means we ben­e­fit from the EU’S “60-plus” FTAS with other na­tions? Er, no. Only around 30 of those deals are in force. Some are with size­able economies – like South Korea, Mex­ico and South Africa. But

th­ese na­tions all now want be­spoke bi­lat­eral UK FTAS.

Most EU FTAS are ac­tu­ally with min­nows and mi­crostates. All EU deals com­bined cover less than 10pc of the global econ­omy. The EU is bad at ne­go­ti­at­ing trade deals as mem­ber states’ in­ter­ests of­ten con­flict. That’s why, af­ter years of try­ing, there is no EU FTA with the US, China, In­dia or any re­ally large econ­omy.

Bri­tain has a bet­ter chance of se­cur­ing FTAS ne­go­ti­at­ing alone – as Switzer­land did with China in 2014. Lon­don can cut deals favour­ing sec­tors where we’re strong, like ser­vices, not skewed towards French and German in­ter­ests as EU deals of­ten are.

When the UK joined the EEC in the early 1970s, the bloc com­prised 30pc of global GDP. Once Bri­tain has left, it will be just 15pc – de­spite now hav­ing over four times more mem­ber states. It makes no sense for a di­verse, com­pet­i­tive econ­omy like Bri­tain to hide be­hind a tariff wall harm­ing our con­sumers and dis­crim­i­nat­ing against 85pc of the world econ­omy.

The Con­fed­er­a­tion of Bri­tish In­dus­try says we can stay in the cus­toms union while “re­spect­ing the vote to leave the EU”. Non­sense. The cus­toms union is en­shrined in the 1957 Treaty of Rome – the EU’S le­gal essence. The CBI ex­ists to pro­mote the in­ter­ests of large in­cum­bent cor­po­ra­tions, “striv­ing to pro­tect in­ef­fi­cient and sub­sidised Euro­pean play­ers,” said Si­mon Boyd last week, a mem­ber of the CBI’S Man­u­fac­tur­ing Coun­cil, in a rare dis­play of dis­sent.

Leav­ing the EU en­tirely helps dy­namic smaller firms, Boyd ar­gued, with be­spoke UK FTAS help­ing them ex­port to a broader range of mar­kets. “The EU is wor­ried Bri­tain will suc­ceed when free from the con­straints of the sin­gle mar­ket, the ECJ and the cus­toms union,” he said. “We’ll thrive and they know it.”

Stay­ing in “the” or even “a” cus­toms union obliges Bri­tain to im­pose EU tar­iffs with­out be­ing able to in­flu­ence them – the worst of all worlds. We’d keep send­ing bil­lions to Brus­sels each year – how is that tak­ing back con­trol of our money, laws and trade?

And the idea only cus­toms union mem­ber­ship can save North­ern Ire­land from re­newed con­flict is in­cen­di­ary rot. The Gov­ern­ment es­tab­lished, in a de­tailed Au­gust 2017 pa­per, there is no need for post-brexit phys­i­cal bor­der checks that might in­flame sec­tar­ian sen­si­tiv­i­ties. The head of the HMRC has con­firmed this, as has his Ir­ish equiv­a­lent. So, too, has a Novem­ber 2017 Euro­pean Com­mis­sion pa­per.

The EU’S cus­toms union is a protectionist racket – which the UK needs to ditch in its en­tirety. And of all the un­truths ped­dled about on­go­ing mem­ber­ship, those re­lat­ing to Ire­land are the most danger­ous and un­for­giv­able.

‘It makes no sense for a di­verse, com­pet­i­tive econ­omy like Bri­tain to hide be­hind a tariff wall harm­ing our con­sumers’

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