Daniel Han­nan

I was one of the few Leavers to back the Prime Min­is­ter’s Che­quers pro­posal, but this lat­est plan is a step too far

The Sunday Telegraph - - Front page - DANIEL HAN­NAN FOL­LOW Daniel Han­nan on Twit­ter @DanielJHan­nan; READ MORE at tele­graph.co.uk/opin­ion

We are head­ing for the worst pos­si­ble out­come on Brexit – an out­come more painful and hu­mil­i­at­ing than ei­ther stay­ing or leav­ing. Un­der the pro­posed with­drawal terms, the United King­dom would re­main in the EU’s cus­toms union. The ar­range­ment would sup­pos­edly be tem­po­rary, but both sides pri­vately recog­nise that it is so favourable to the EU, and so in­ju­ri­ous to Bri­tain, that Brus­sels would promptly lose any in­ter­est in fur­ther dis­cus­sions.

A deal sold in this coun­try as a con­tin­gent back­stop would be treated by Euro­crats as a de­fin­i­tive set­tle­ment. There would be no more talks.

It’s hardly as though EU of­fi­cials are hid­ing their views. On Wed­nes­day, I lis­tened to Michel Barnier, the chief ne­go­tia­tor, ex­plain­ing why Bri­tain re­ally ought to drop all this non­sense about strik­ing its own trade deals and keep the ex­ist­ing tar­iff ar­range­ments. From a Brus­sels per­spec­tive, you can see his point.

A new cus­toms union would mean that Con­ti­nen­tal com­pa­nies con­tin­ued to en­joy pref­er­en­tial ac­cess to Bri­tain without in­creased com­pe­ti­tion from the rest of the world. It would turn the UK mar­ket – the sec­ond largest in the EU – into a bauble to be dan­gled by Com­mis­sion trade ne­go­tia­tors in talks with their Amer­i­can or Ja­panese coun­ter­parts.

Such a ca­pit­u­la­tion would ut­terly change the bal­ance of ad­van­tage. Un­til now, I have – with reser­va­tions – backed some­thing along the lines of the pro­posed deal. As long as we were re­cov­er­ing our sovereignty, I was happy to make com­pro­mises in other ar­eas. It had, af­ter all, been a nar­row vote: a man­date, as I kept ar­gu­ing, for a phased and par­tial re­cov­ery of power, not a to­tal rup­ture.

To the ev­i­dent bewil­der­ment of some Re­main­ers, who had me down as the hard­est of hard Brex­i­teers, I pushed for strong in­sti­tu­tional links with our Eu­ro­pean al­lies.

I wanted to keep many of our ex­ist­ing ar­range­ments, in­clud­ing the rule that pro­hibits dis­crim­i­nat­ing against prod­ucts from an­other mem­ber state – the true ba­sis of the sin­gle mar­ket.

I never bought the idea, loudly if air­ily voiced by some Euroscep­tics, that we didn’t need a trade deal with the EU be­cause WTO rules were enough. If WTO rules were enough, why were we seek­ing trade deals with Aus­tralia, Amer­ica and the rest? As for the no­tion that a no-deal out­come was de­sir­able, how could an ex­pen­sive and ac­ri­mo­nious split with our clos­est neigh­bours be in any­one’s in­ter­ests?

Still, as Theresa May has said all along, no deal is bet­ter than a bad deal. And it is hard to con­ceive of a worse deal than one that leaves us with the costs and obli­ga­tions of EU mem­ber­ship but with no veto.

Al­low me 60 sec­onds to ex­plain why stay­ing in­side the EU’s cus­toms union would be cat­a­strophic for a

‘A deal sold in this coun­try as a con­tin­gent back­stop would be treated as a de­fin­i­tive set­tle­ment’

trad­ing na­tion like Bri­tain. It’s not just that the cus­toms union uniquely pe­nalises us as the only EU state that trades more out­side than within the bloc. Nor is it that just that the cus­toms union would give Brus­sels 100 per cent con­trol of our trade pol­icy with zero per cent in­put from us. No, it’s some­thing worse than that.

Un­der in­ter­na­tional trade rules, if Bri­tain joined a cus­toms union with the EU, it would be obliged to match any con­ces­sions made by the EU in trade agree­ments with third coun­tries. But, crit­i­cally, those third coun­tries would not be obliged to re­cip­ro­cate vis-à-vis Bri­tain. Sup­pose, for ex­am­ple, that the EU struck a trade deal with In­dia. Bri­tain would have to copy ev­ery con­se­quent change that the EU made in its pro­cure­ment rules, tech­ni­cal stan­dards and so on. But In­dia’s equiv­a­lent con­ces­sions would ap­ply only to the EU 27, not to Bri­tain. The UK’s home mar­ket – the fifth largest in the world – would be­come a bar­gain­ing counter for Brus­sels ne­go­tia­tors to ex­change for ben­e­fits to their own coun­tries.

If you voted Leave and now ob­ject that stay­ing in the cus­toms union “would be Brexit in name only,” then I have bad news for you: the re­al­ity is far worse than that. Stay­ing in the cus­toms union as a non-mem­ber would place us in a new and uniquely pow­er­less po­si­tion.

Labour spokes­men used to op­pose such an out­come pre­cisely be­cause of the asym­met­ric po­si­tion in which it would place Bri­tain, obliged to do what­ever the Brus­sels de­cided, but ex­cluded from the EU’s trad­ing part­ners’ match­ing con­ces­sions. Labour’s sud­den volte-face in Fe­bru­ary was the most cyn­i­cal thing I have seen in my 20 years in pol­i­tics.

I’m all for find­ing com­pro­mises on Brexit. But keep­ing the supremacy of Eu­ro­pean law, the com­mon ex­ter­nal tar­iff and the EU’s so­cial and en­vi­ron­men­tal rules, while giv­ing up any say over what these things should be, is not any kind of mid­dle way. It is an act of na­tional self-mu­ti­la­tion that nei­ther Re­main­ers nor Leavers should ac­cept. I keep be­ing asked by Swiss and Nor­we­gian MPs what the devil we think we’re do­ing. They are as close to the EU as it is pos­si­ble to be without be­com­ing full mem­bers. Yet no one in their coun­tries se­ri­ously wants to join the cus­toms union and for­feit their trade deals with China and the rest. In Brus­sels, mean­while, they look on with in­cred­u­lous joy. Never in their wildest dreams did they imag­ine that Bri­tain might agree to, in ef­fect, non-vot­ing mem­ber­ship. One of the few ar­gu­ments that can be made for the new pro­posal is that it kills off any prospect of a sec­ond ref­er­en­dum. Why? Be­cause the EU would much rather keep us in per­ma­nent thral­dom than have us back at the ta­ble as a full mem­ber.

Are there any ar­gu­ments, from a UK point of view, for keep­ing the cus­toms union? Only the generic ar­gu­ments against change from those who have learned how to make a liv­ing out of any ex­ist­ing sys­tem. Busi­nesses that have grown com­fort­able un­der the cur­rent rules don’t want dis­rup­tion or new mar­ket en­trants. But it is the job of politi­cians to think, too, of the busi­nesses that don’t yet ex­ist, to con­sider the op­por­tu­ni­ties that could come to Bri­tain as a global trader, to weigh the ad­van­tages that would ac­crue to our econ­omy if food, tex­tiles and other ba­sic goods fell in price, leav­ing con­sumers with more to spend on ev­ery­thing else.

When the Govern­ment’s pro­pos­als were re­vealed three months ago, I was one of a small num­ber of Leavers to give them a fair wind. I could see

‘Even the risk of ex­tend­ing Ar­ti­cle 50 and a sec­ond ref­er­en­dum is bet­ter than be­com­ing a Euro colony’

that they were flawed. We had weak­ened our po­si­tion through a se­ries of ear­lier ne­go­ti­at­ing blun­ders: trig­ger­ing Ar­ti­cle 50 be­fore pre­par­ing our con­tin­gency plans, agree­ing to the EU’s ab­surd se­quenc­ing, con­ced­ing the Ir­ish back­stop in De­cem­ber – so putting our­selves in the im­pos­si­ble po­si­tion of be­ing re­spon­si­ble for what hap­pened on the other side of the bor­der. Our no-deal plan­ning has been miserly and per­func­tory, and the EU knew it. The ques­tion was not whether the Che­quers scheme was ideal, but whether it was prefer­able to the other al­ter­na­tives, namely no deal or no Brexit. I took the view that it was – just. I also thought it over­whelm­ingly likely that the EU would re­ject it, as it had ev­ery other Bri­tish pro­posal, and as­sumed that the PM would then have no op­tion but to of­fer some­thing looser. Af­ter all, she had gone as far as any Bri­tish leader could go to ac­com­mo­date the EU – ar­guably fur­ther. It now looks as if I was wrong. The EU did in­deed re­ject the pro­pos­als, and in cal­cu­lat­edly mock­ing lan­guage. But in­stead of tak­ing things off the ta­ble, Bri­tain ap­pears to be rush­ing for­ward with more con­ces­sions. Was this the plan all along? I heard from sources on the EU side that Bri­tish of­fi­cials were propos­ing an all-UK cus­toms union back­stop at least eight months ago. My hunch is that the EU’s call for the ju­ris­dic­tional an­nex­a­tion of North­ern Ire­land was only ever a stalk­ing horse. Re­mov­ing that pro­posal would al­low the UK-wide cus­toms ar­range­ment to be pre­sented as some sort of Bri­tish win, a way to pre­serve the Union. In re­al­ity, the EU would get what it wanted all along: com­mer­cial con­trol over our econ­omy.

How can we get out of this mess? One op­tion is to for­get about a trade deal with the EU and con­cen­trate only on the ba­sic ar­range­ments that all coun­tries have with their neigh­bours – ex­change of in­for­ma­tion, land­ing slots, bor­der co-op­er­a­tion. There would be a short-term cost, no ques­tion; but it would be prefer­able to ac­cept­ing the Carthaginian terms now on the ta­ble; and the cost would be mit­i­gated if, like Sin­ga­pore fol­low­ing its split with a larger neigh­bour, we cut taxes, stream­lined reg­u­la­tions and opened our mar­kets to the world.

A sec­ond op­tion is to of­fer an am­bi­tious trade deal ac­com­pa­nied by tech­no­log­i­cal ways to “de-drama­tise” (to use the EU’s favourite word) the Ir­ish fron­tier. Lo­gis­ti­cally, it’s fea­si­ble. Po­lit­i­cally, it would re­quire a som­er­sault from the EU. We would be gam­bling on the EU putting eco­nom­ics be­fore pol­i­tics – quite a gam­ble.

A third op­tion is to join the Eu­ro­pean Free Trade As­so­ci­a­tion (EFTA) and keep, at least for now, our Eu­ro­pean Eco­nomic Area (EEA) obli­ga­tions. I can’t help notic­ing that Nor­way is man­ag­ing pretty well with such a deal: it is the world’s wealth­i­est na­tion and, ac­cord­ing to the UN, has the high­est qual­ity of life. Its near­est ri­val in the hap­pi­ness league, Switzer­land, has an even bet­ter deal, in EFTA but out­side the EEA. I favoured that model from the be­gin­ning, though we may have left pure EFTA mem­ber­ship, à la Suisse, too late.

All three op­tions, though, are prefer­able to a cus­toms union. Even the risk of an ex­ten­sion of Ar­ti­cle 50 and a sec­ond ref­er­en­dum – which would pre­sum­ably be boy­cotted by Leavers on grounds that it vi­o­lated the prom­ises given in the first – would be prefer­able to be­com­ing a Euro­colony. We are the world’s fifth econ­omy and fourth mil­i­tary power, for Heaven’s sake.

Let’s start act­ing the part.

Theresa May, the Prime Min­is­ter, at a round-ta­ble dis­cus­sion on the Race at Work char­ter in Lon­don

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