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Customs union: Listen to changing mood and avoid train crash

Border Control at London's Heathrow Airport - Credit: PA Wire/PA Images

The idea that we can become an exporting power house simply by leaving the customs union is yet another Brexit delusion

The words ‘customs union’ were not on the referendum ballot paper a year ago and barely featured in the general election which hugely qualified the referendum result, as Theresa May lost her majority for the Hard Brexit she had outlined.

It is possible to be outside the EU customs union like Norway and Switzerland but still accept all or most EU rules, including free movement of EU citizens and pay equivalent contributions as if a member state.

On the other hand, it is possible to be fully outside of the EU, but still be a member of the customs union, as Turkey is, with its citizens required to apply for visas to visit Europe.

Customs unions cover goods and food but rarely services, which constitute 80% of the UK economy. All they mean is that there are no customs clearing controls for a leg of lamb, a jar of Marmite or a Nissan made in Sunderland.

But being in or out of a customs union does not in itself guarantee enhanced trade. That depends on the quality of goods, the energy of exporters, the provision of export credit guarantees, language skills, and how much support there is from government.

The differences between EU countries in terms of trade and exports is striking. Britain lies 15th in the league table of exports per capita of EU member states. The Netherlands, for example, exports four times more per head than the UK. Germany in March exported 110 billion euros worth of goods and services in one month. Slovakia exports twice as much as UK per capita. Last year German exports to China were 85.4 billion dollars while UK exports to China were 18.4 billion dollars

Nothing stops Britain from trading around the world other than the quality and price of its exports and, perhaps more important, the ability of our exporters. This point was made most cruelly by none other than the International Trade Secretary Liam Fox in September 2016. Speaking to the Conservative Way Forward pro-Brexit group he said British firms failed on the trade front because winning export orders ‘might be too difficult or too time-consuming or because they can’t play golf on a Friday afternoon… What is the point of us reshaping global trade, what is the point of us going out and looking for new markets for the United Kingdom, if we don’t have the exporters to fill those markets?’

On leaving the EU’s customs union the UK will have to re-negotiate 295 trade-related agreements with non-EU countries, 202 regulatory cooperation agreements, 69 fisheries agreements, 65 international agreements for airlines, 49 agreements on customs, 45 agreements on nuclear imports and exports including medical isotope, and 34 food and agriculture deals.

The Duke of York has now declared this isn’t much of a problem. On the BBC he said: ‘There’s an external market that’s a lot bigger (than the EU) and many businesses hadn’t looked over that garden fence to some extent. And actually, getting over the fence, there might be some fresh grass out there.’

The Royal Family has – so far – wisely kept out of Brexit politics and the Prince Andrew’s inane foray into Brexitology shows the wisdom of that policy. The prince might look at India, where the UK has been trying for years to get the Indians to lift their 150% tariff on Scotch Whisky. The Indians are happy to do so but in exchange want the UK to allow Indian students to study in the UK and work here after leaving university. This is unacceptable to the anti-immigrant hardliners in the Tory Party.

Go to the FCO website on doing business in Canada and the warning appears that there are ‘difficulties for law firms to do business due to heavy regulation’. In fact most services are not covered by Free Trade Agreements and do not fall under WTO rules.

In the EU all public sector contracts above a certain value are open to competition in which any UK firm can take part. US Buy America Acts are highly protectionist. Despite NAFTA – the North American Free Trade Agreement – Mexican lorries have to off-load their pallets of Corona beer onto American trucks when they arrive at the US border.

It has always been the oddest aspect of the Brexit campaign – the claim that leaving the customs union was the sine qua non of turning the UK into an exporting power house.

The UK runs a trade surplus with the EU in services, but not in goods. The WTO covers trade in products, not services and most FTA agreements like, for example, NAFTA between the US, Mexico and Canada, do not cover services. Far from the grass being greener outside the EU as Prince Andrew appears to suggest, Britain would be cut off from the one trading region where its high performing services sector has an open export market.

The prince’s grass is perfectly green for all those EU nations that have much better export performance records than the UK. Leaving the customs union and single market is perfectly possible but the costs will be high and the advantages unproven.

The public are now ahead of the politicians. A Survation survey for the Mail on Sunday last weekend showed a whopping 69% opposed to leaving the customs union, but on the same day’s morning political shows both Tory and Labour spokesmen were in lock-step in parroting we would be leaving the customs union, which is train-crash territory.

Far better and a good start to the negotiations now under way would be to accept that leaving the customs union is not a priority. This has the advantage of keeping the border between Northern Ireland and Ireland as it is today, which is an early EU negotiating priority. There would some squealing from hardline Brexiters but business would heave a sigh of relief and Britain would earn good will in the EU27.

Denis MacShane is the former Minister of Europe. He is a Senior Advisor at Avisa Partners, Brussels. His book Brexit No Exit. Why (in the end) Britain Won’t Leave Europe will be published by IB Tauris later this month

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