PM must tell UK what cus­toms union costs

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

The Prime Min­is­ter needs to go on the rhetor­i­cal of­fen­sive. With the Lords sab­o­tag­ing Brexit, and Re­mainer min­is­ters scent­ing blood, Theresa May must look to the pub­lic, de­liv­er­ing a pow­er­ful speech to break the dead­lock and re­ject the pro­tec­tion­ist cus­toms union for good.

Be­ing in­side the cus­toms union costs Bri­tain bil­lions of pounds each year. UK shop­pers over­pay for non-euro­pean im­ports, due to com­mon ex­ter­nal tar­iffs pro­tect­ing in­ef­fi­cient pro­duc­ers else­where in the EU. Four fifths of these rev­enues go to Brus­sels. They’re par­tic­u­larly steep on cloth­ing, food and footwear, hit­ting poorer UK shop­pers hard­est – which is un­fair. To di­vert “money we send the EU to the NHS in­stead”, we must be out­side the cus­toms union. Stick that on the side of a bus.

Stay­ing in the cus­toms union after Brexit means charg­ing EU tar­iffs with no say in set­ting them – the “vas­sal state” ar­gu­ment. This is the ghastly deal foisted on Turkey – an un­proven part­ner state try­ing to join the EU. Bri­tain is not Turkey – Brus­sels is try­ing to keep us and our money in.

Cus­toms union mem­ber­ship also means im­plic­itly ac­cept­ing EU reg­u­la­tions, de facto sin­gle mar­ket mem­ber­ship. That makes it dou­bly im­pos­si­ble for Bri­tain to cut trade deals with other na­tions, one of the main Brexit ben­e­fits. Dim Par­lia­men­tar­i­ans say the cus­toms union is an el­e­gant com­pro­mise, but it’s the worst of both worlds. A com­pro­mise like leap­ing half­way over a chasm. And it makes a mock­ery of the June 2016 vote to take back con­trol of our laws, bor­ders and money.

The EU’S trade agree­ments are any­way unim­pres­sive in range and not par­tic­u­larly help­ful. Brus­sels strug­gles to cut such deals as mem­ber states’ in­ter­ests of­ten con­flict. That’s why, after 60 years of try­ing, the EU has no free trade agree­ments with ma­jor play­ers like the US and China. EU deals in force cover un­der 10pc of the global econ­omy and are gen­er­ally skewed to­wards French and Ger­man, not British, in­ter­ests. Size­able economies with EU deals – like South Korea and Mex­ico – now want be­spoke bi-lat­eral UK agree­ments.

Fi­nally, the cus­toms union is un­fair, in­su­lar and back­ward look­ing. It harms some of the world’s poor­est na­tions, hin­der­ing their ex­ports of pro­cessed agri­cul­tural prod­ucts – you got that Labour MPS? In the early Sev­en­ties, when Bri­tain joined, the EU bloc com­prised over 30pc of the global econ­omy. As global com­merce has shifted east, that share has fallen – to un­der 15pc once Bri­tain leaves. It is mad for a com­pet­i­tive econ­omy like Bri­tain to hide be­hind a tar­iff wall harm­ing our con­sumers and dis­crim­i­nat­ing against 85pc of the world econ­omy.

A UK-US trade deal looks doable. Switzer­land struck a Chi­nese deal and so can we. Se­cure these and the UK will be in a free-trade zone cov­er­ing 40pc of the world econ­omy – blow­ing the EU’S deals away. An EU-UK trade deal on top – ul­ti­mately in their in­ter­ests – would put that share well over 50pc, with Bri­tain help­ing to usher in a new age of global free trade.

These ar­gu­ments are cred­i­ble, eas­ily ex­plained and will ap­peal to a broad au­di­ence. May should have been mak­ing them since tak­ing of­fice, pre­par­ing the world for Brexit, and must do so now.

The Prime Min­is­ter also needs to ig­nore the doom-mon­gers around her. Their Project Fear warn­ings about the eco­nomic fall­out from a Brexit vote are proven non­sense. The same is true of pleas we need the cus­toms union to pro­tect UK man­u­fac­tur­ing sup­ply chains. Tar­iffs gen­er­ally don’t ap­ply to com­po­nents – and Brexit any­way means we con­trol im­port re­stric­tions. That’s the point.

The idea that only the cus­toms union can pre­vent re­newed con­flict in Ul­ster is also alarmist. Prac­ti­cal so­lu­tions ex­ist – as the head of the UK’S bor­der au­thor­i­ties and his Ir­ish equiv­a­lent have said. Of course, the EU says “non” – it’s a ne­go­ti­a­tion. So pre­pare for “no deal”, tell Brus­sels pub­licly our multi-bil­lion pound tran­si­tion pay­ment is off the ta­ble and watch Barnier change his mind.

Hav­ing let Project Fear dom­i­nate the nar­ra­tive, Brex­i­teers should do some pub­lic crys­tal ball gaz­ing of their own. For the EU is fac­ing an ex­is­ten­tial cri­sis. Eu­ro­zone in­dus­trial out­put has con­tracted for three suc­ces­sive months. The much-vaunted re­cov­ery is fal­ter­ing – and was any­way driven by printed money. For years, the Euro­pean Cen­tral Bank has cre­ated bil­lions of eu­ros a month, prop­ping up the bonds of over-in­debted mem­bers strug­gling in the high-cur­rency strait­jacket that is mon­e­tary union.

With Ger­man pa­tience spent, the euro-qe endgame is sched­uled for this au­tumn. That’s why this sum­mer could see an­other eu­ro­zone cri­sis.

For a long time, my­self and Am­brose Evans-pritchard have high­lighted the sys­temic dan­gers of “Tar­get2”, the ECB’S ob­scure in­tra-eu­ro­zone pay­ments sys­tem. Within this, cred­i­tor mem­bers make mas­sive covert pay­ments to weaker states, par­tic­u­larly Italy, to avoid the sin­gle cur­rency’s sys­temic col­lapse.

Aca­demics are now fi­nally weigh­ing in. Pro­fes­sor David Blake of City Uni­ver­sity just pub­lished a study, “Tar­get2 – the Silent Bailout Sys­tem That Keeps the Euro Afloat”. Ger­many is owed a jaw-drop­ping €871bn within this sys­tem, Blake re­ports, al­most 30pc of an­nual GDP.

No one knows what will hap­pen to the eu­ro­zone, and these vast li­a­bil­i­ties once the QE mu­sic stops. What’s clear is that wealthy EU mem­bers will pay to fix the mess, even if they’re out­side the eu­ro­zone – just as Bri­tain did after the last sin­gle cur­rency cri­sis in 2011-12.

If the cus­toms union is so vi­tal to Bri­tain, Prime Min­is­ter, why are we run­ning a mas­sive trade deficit in­side it, but a large sur­plus with the na­tions out­side? And if the EU is so won­der­ful, why is its en­tire ex­is­tence now de­pen­dent on end­less printed money?

‘To di­vert “money we send the EU to the NHS” we must be out­side the cus­toms union – stick that on the side of a bus’

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