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