Following the Easter break, Parliament may soon once again debate our future relationship with the EU. Despite numerous votes against the idea of the UK being in a or the Customs Union with the EU, it appears many still believe that some form of customs union is necessary to break the Brexit deadlock. This seems to be because of the perception that, in a customs union, there are no tariffs or non-tariff barriers to trade between its members. Unlike a free trade area, members of the Customs Union impose a common external tariff on all goods entering the union.
However, a customs union does not, by itself, lead to frictionless trade (only rules of origin checks would be avoided, and in the case of a partial customs union, some checks in the form of movement certificates would still be required) because the bulk of the checks come from other rules to be found in the EU’s Single Market. In the case of Turkey – the non-EU country that does have a partial customs union with the EU – not only are movement certificates required, but Turkey has committed to the EU acquis. The Turkish arrangements were intended as a way-station en route to full EU membership.
But there are strong reasons not to be in a customs union with EU.
Firstly, it is a myth that the UK would have any significant say in the operation of the EU Customs Union if we are not a fee-paying member of the EU. Those who believe we would have a say seem to assume that we would have more of a say than we currently have as one of 28. Since it is unlikely that the Commission has fallen asleep, there is no reason why a departing member state would be rewarded in this manner.
Secondly, the EU would set the common external tariff and the trade policy to suit them, not the UK. They would prioritise protecting French and German agricultural goods, and put in no effort to open up markets outside of Europe to UK financial services or even Scotch whisky.
The UK would also not be able to have its own meaningful and independent trade policy, and this would lead to a huge loss in British influence around the world. Trade is a big part of foreign policy, and the UK frequently uses its ability to change EU trade policy with various asks we might have in security cooperation when talking with other countries. Trade is a vital instrument of diplomacy.
Furthermore, the EU would run our trade remedies (or trade defences) against dumping of goods, most frequently from China. It is very doubtful that the EU would give much priority to defending our industries – those who pay the bills would be the priority.
Finally, and most importantly, in new trade agreements the EU would be able to offer – via the Customs Union – access to Britain’s 65 million consumers, without any equivalent access for UK goods and services. The US and the EU have announced their intention to re-start trade talks with each other. Even though the US is our largest single trading partner, we wouldn’t have a seat at the table. Worse still, if the EU lowered tariffs for US goods, or changed its regulations to allow in particular US goods which were previously not allowed, the UK would have to follow and seek to negotiate for ourselves what we need with no leverage.
Many say that we could agree a customs union with the EU and have a greater say than we have now. This is pure fantasy. The EU would not give the UK a greater say outside the EU than the member states have themselves. We will not be able to defend our interests better in a customs union than we could as members of the European Union. If we are also to align our regulations closely to the EU’s in a number of areas, we will certainly not have a say in how those regulations are made.
Currently, in the European Economic Area, members must accept the EU’s acquis in the relevant areas and do not have the ability to veto or change those regulations. Norway discovered this to their cost when they refused to implement the third postal directive and found themselves punished in unrelated areas like fishing. Even the Swiss, who are not even EEA members but have a series of agreements with the EU, have found themselves at the short end of EU negotiations. It would be this way for the UK in these types of arrangements – and the UK would be powerless to resist.
The real solution to the Brexit impasse is this: to find alternative arrangements on the Irish border; and to negotiate a deep and comprehensive Free Trade Agreement between the UK and the EU as equals. The UK and the EU can remain friends, while the UK also has its own independent free trade policy going forward, to take advantage of growing markets in Asia and around the world.
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It’s time to get on and leave the EU. Great efforts have been made to be prepared. Britain stands ready. In the 2016 referendum, 17.4 million people – including two-thirds of my constituents in Dover and Deal – voted to Leave. Action has been taken to make sure we are as ready as we can be – deal or no deal. The Article 50 extension the Prime Minister is planning to seek at the European Council today is not merely a mistake. For decades to come, it will be seen as a tragic failure of leadership.
The voters knew that leaving the EU would not be easy and that there would be challenges and risks of disruption. They knew that because, during the 2016 EU referendum, that was all the Remain campaign talked about. We were warned of gridlock on the roads to the Channel ports. We were told the Calais Jungle would be moved to Dover. We were even warned of a terrible economic calamity in which millions would lose their jobs and house prices would collapse. Yet despite all these dire warnings, the people still voted to Leave.
Now, two years after notice was served under Article 50, we are as ready to leave as we will ever be. So we should get on with it – not raise a white flag and beg for an Article 50 extension.
Because we are ready at the Dover frontline. Of course, the merchants of Project Fear seek to frighten people with visions of gridlock in Kent and months of disruption if we leave without a deal. Indeed the warnings become ever more fearsome. We will run out of medicines. Aeroplanes won’t not take off. Pets will die in quarantine. Food will run out. We are even told even our water will become poisonous and undrinkable.
With warnings like this, one is left wondering, how on earth did we ever manage these past thousand years? Of course they are nonsense too. First, aircraft flights are subject to global conventions, not an EU one. Second, the poisoned water story has been debunked by Environment Secretary Michael Gove. The medicine panic has been rubbished by the Health Secretary Matt Hancock.
It’s the same at the Channel ports too. They account for around a third of the UK’s entire trade in goods. There are around 60 sailings to the port of Dover from Dunkirk and Calais every day. The cross-Channel trading route is a huge success story. More than £120 billion of trade moves through Dover’s docks alone.
So will there be gridlock on the roads to our ports? The truth is that it is in everyone’s interests – France’s as well as ours – that traffic continues to flow. The EU sells us £95 billion more in goods than we sell to them. And, despite all the Brexit uncertainty, our economy is growing faster than France’s and Germany’s. Small wonder that Xavier Bertrand, the boss of the Calais region, says they have no intention of holding things up there. As does the chief of the Port of Calais itself. Moreover, Brussels has decreed that the EU Transit Convention will continue to apply. This means that there is no need for any queues at Dover or Calais as few searches or hold-ups would take place. Under the Transit Convention, checks would be undertaken at the place of destination.
Indeed, even if the Transit Convention turned out not to be enough, extra steps have been taken beyond that to make sure we stand ready. A plan has been put to the Department for Transport to ensure that the town of Dover is free of gridlock and that both of Kent’s motorways can be kept open and free-flowing. Strategies for lorry parking on- and off-road have been developed. Extra funds have been agreed for the police so they can devote whatever resources may be required in the event of difficulties.
The Government does not need to seek an Article 50 extension. It can be seen that great efforts have been made to ensure we are ready to leave without a deal. There might be bumps in the road – some of those bumps could even be pretty jarring. Yet we would get through it.
We could have been in a far stronger position of course. Imagine how much better things would be if the Cabinet had put as much effort into preparing for no deal as they have in preparing for talks with the Labour Party to agree a customs union deal, that breaches the 2017 Conservative election manifesto. Imagine they had put as much effort into taking early action as has been put into warning about the possible consequences of inaction. The choice faced by our country would be between no deal and a much better deal – with both options looking more favourable than they do today.
It’s also important to remember that if we leave without a deal we would have extra cash available to help us – some £39 billion – because there is no legal duty to pay more than a fraction of this money to the EU in the absence of an agreement. £39 billion would go a long way to smooth the path of any challenges we may meet.
Britain stood ready in 2016 to make the call for our nation’s independent future. Britain stands ready now. It’s time our Government matched the political courage of the British people. We have discussed Europe for long enough. Today we should not be seeking an Article 50 extension. We should be leaving, deal or no deal.
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There is no doubt that Theresa May’s Withdrawal Agreement is a terrible deal. It gives the EU pretty much all they could have ever hoped for, and achieves absolutely nothing for the UK. That was cruelly illustrated by the Prime Minister’s doomed attempt to sell the deal directly to the electorate in December. Claiming that she had “negotiated” all sorts of things that we would have got simply by doing nothing for two years was sadly typical of our bumbling Prime Minister.
So yes, the Withdrawal Agreement is truly awful. But it looks increasingly as if it is all Brexiteers will get. So is it worse than Remaining, as some claim? No, it is not. There is hope, and we should carefully consider whether we accept the tiny sliver of Brexit being offered. That is not to say that if May’s deal passes, achieving a proper Brexit will be easy. The backstop looms over any negotiation, and there are many other obstacles. But it is still possible, and the backstop might just be the reason why.
Let’s start with the (very) limited good news. If May’s deal passes, we will legally have left the EU. That seems a small thing, but it is not. Leaving will kill off both the second referendum and revoke Article 50 campaigns. From 30th June, if we have left by then, the attitude amongst the general public will range from apathetic to ‘couldn’t care less’. The UK will breathe a huge sigh of relief and hope they never have to think about the EU again.
Those Remainers who want to fight on will have to rename themselves and become Rejoiners. And rejoining is a much harder task than remaining. The status quo is always powerful and the status quo will be out. Describing how wonderful it will be to hand over £9 billion (or more) each year to have more expensive food and to pay for a pointless parliament will not be easy. Nor will making the case for freedom of movement. And Rejoiners will have to set out where the EU will go. That means facing up to the claims about a federal Europe, the euro, an EU army and all of the other things that are deeply unpopular amongst the electorate.
As important, the EU is likely to be mired in its own problems for the next few years. The Eurozone economy is looking very fragile, populist parties are on the rise across the continent and the hole caused by the loss of the UK’s net contribution will need to be filled. The EU is unlikely to look a very attractive place to be part of, however hard Rejoiners try.
There will be therefore a breathing space for Leave MPs and supporters to regroup and recharge. Leavers have spent so much time and energy fighting on all fronts against all sorts of lies, disinformation, politically-motivated legal challenges and all the rest that there has been no time for the real arguments. Accepting May’s deal offers a chance to go back to the whole point of Brexit, rather than – at best – another year of the same old chaos.
Once the dust settles, it should then become apparent that the deal with the EU is largely something everyone in the UK can agree on: sensible rights for EU and UK citizens, ease of travel and flights, but the UK determining its own immigration policy, co-operation on security, crime, defence and terrorism. Most of us will want the UK to retain control over our fish and we will not want to pay over billions each year without some clear, defined benefit. Whether all of that can be achieved obviously depends on the EU, but also on how we negotiate.
That leaves the one area that will be contentious: the trade relationship. For most Leavers, (and many soft Remainers) the obvious stating point is to make an offer to the EU of a full and comprehensive free trade deal – Canada++ say, or something similar. That will put both the EU and those MPs who still demand a customs union in a difficult position. To say that it is not enough will be unconvincing: the differences between a proper FTA and a customs union are relatively small, and, crucially, smaller than between WTO terms and a customs union. More importantly, MPs and others will be able to approach the debate more sensibly. This will no longer be about Remain versus Leave, but about the benefits and costs of the different ways of trading with Europe.
Claims of economic disaster from going the FTA route will simply not be credible and the dense fog of Common Market 2.0, EFTA, Norway Plus and all the other options floated will have lifted. A clear choice can be presented: a deep and comprehensive FTA with no rule taking and our own trade policy or a customs union with rule-taking and no independent trade policy.
To back up that argument, the UK could show progress in negotiating FTAs with other countries. Conservative MPs, even those who today are fervent believers in a customs union, will struggle to turn down a coherent and liberal free trade policy and continue to claim that the customs union is vital to our prosperity.
Of course, this all presumes that the backstop does not drive the negotiations straight to a customs union. But that depends crucially on how the UK chooses to negotiate. We need to ditch our usual tactic of clichéd and pointless red lines. All that happens is that these get negotiated to within a whisker of being breached. Instead we must set a small number of clear goals that must be achieved. That makes the negotiation offensive rather than defensive.
Setting the two fundamental goals is crucial to the negotiating strategy: first, a comprehensive free trade agreement and second a non-trade based solution to the hard border issue. Crucially, these two objectives must be kept completely separate.
There is no doubt that will be very difficult. The EU – rightly – fears the UK becoming highly competitive outside its control. It will try and negotiate the two as a single issue to keep the UK in a customs union. But how could it refuse to negotiate an FTA with the world’s fifth biggest economy? Only by saying it doesn’t solve the border issue. That is why the border and the trade relationship must be considered separately from the outset. Have two teams, have two reporting lines, keep saying that trade and the border are different issues and, most importantly, that the two can conclude independently, at different times. In other words, the UK will sign an FTA even if it means going into the backstop for a while and putting the FTA on the shelf. Once we are out of the backstop, the FTA comes into force. Again, how could the EU refuse that approach?
This approach has numerous other benefits. It allows the trade deal to have a typical exit clause. It allows the UK to negotiate FTAs with other countries, knowing that we will have no restrictions once we solve the border problem. At the same time we can set out our tariff schedule and how we will help developing nations to trade with us. We can start to think about deregulation and tax and investment incentives, ready to implement what we want as soon as we can.
Pushing the EU on both fronts separately makes sure it uses “reasonable endeavours” on both issues. It also ensures that the EU has to properly consider every option for the border rather than relying on the customs union as the solution. So how would the EU react? If it cannot refuse to negotiate an FTA with us, would it simply dump us in the backstop and forget about us? That will be hard to do.
The EU says the backstop is not meant to be used and can be avoided. The EU may say that because it views it as a nuclear weapon, the ultimate deterrent. But if it does, it has miscalculated, because nuclear weapons are not deterrents in anything but massive, global conflicts. The backstop is simply too dreadful to be used except in absolutely exceptional circumstances. Mervyn King pointed this out, predicting that the terms are so bad the UK would eventually be forced to abrogate the treaty.
Nobody in the UK will demand that we enter – let alone stay in – the backstop, provided we can show that we have a reasonable answer to the hard border issue. Whereas now saying we have no solution to the hard border can be used by Remainers as a stick to try and keep us in the EU, once we have left it would be a stick to force us into or keep us in the backstop. Who is going to make that argument, even if they see it as part of a long-term plan to get us to rejoin the EU?
There has already been movement on the Irish border problem as the EU worries about No Deal. Over the next two years, there will inevitably be further progress because the technology that could be used there is beneficial everywhere. The EU could not implement or allow technological solutions at other borders and deny they could be used in Ireland. Hopefully Ireland will come to its senses once we have left, and drop its inflammatory rhetoric. It can then make a rational choice between forcing the UK into an unnecessary and hated backstop or accepting an FTA and technological solutions. It is difficult to see Ireland’s advantage in pursuing the former course once we have left.
Crucially, saying we will sign an FTA without agreement on the border dares the EU to drop the bomb. And that will give it pause because the nuclear option is the EU’s only weapon. Would the other EU members see it as appropriate and proportionate when there is an FTA waiting to be used? I suspect not, because it sets a terrible precedent for them too.
And this is the other aspect of the deterrent Leavers and the EU have not properly considered. We can call the bluff because otherwise the UK might as well not bother turning up to the negotiations at all. We might as well just wait for the EU to send us the deal and sign it. Leavers are right to point this out but we are being too defeatist to say we can do nothing to stop it. We can. All we need to believe is that there will be solutions to the hard border issue, and that if we hold our nerve, the EU will have to admit that. Is the Withdrawal Agreement something the UK should agree? No, absolutely not. Is there a chance to make it into something acceptable? Yes, if we are smart.
How vital is it for the UK to maintain the absolute right to exit the Customs Union? As pro-Brexit MPs have their political will tested to destruction, this question has become the fulcrum of the UK’s attempt to exit the EU.
The answer lies in a painstaking assessment of the UK’s trading performance within the EU. Using Office of National Statistics Data, Part 1 of my analysis showed how the Customs Union accounts for easily the worst-performing element of UK trade. Part 2 analysed the cost — in particular to the UK’s car producers and food consumers. Here I put the UK’s performance inside the Customs Union into global perspective. With multiple, 20-year comparisons — in US–EU trade, intra-EU trade, UK productivity and EU growth — this analysis reveals that the UK’s track record inside the Customs Union has been uniquely poor, by every reasonable measure or comparison. (All data used here is presented and sourced in: UK Trade: Goods & Services and UK’s Top 10 Sectors. Readers are invited to peruse both.)
The UK’s stagnant exports: What’s not to blame
The UK’s poor EU goods-export performance – a growth rate of just 0.22% per year since 1998 – is often attributed to the EU’s own flaccid economic growth. As a root cause, however, this is easy to eliminate by making two comparisons: first by measuring the UK’s performance inside the Customs Union against the exporting prowess of multiple non-EU countries; and second, by analysing how our EU partners have fared with each other over a similar period.
First, the track record of non-EU countries. In April 2017, Michael Burrage compared the growth rate of the UK’s goods exports into the EU with the growth rates achieved by multiple non-EU countries in It’s Quite OK to Walk Away. Using seven international trade databases, Burrage calculated that the growth rate of UK goods exports traded tariff-free into the EU’s Single Market from 1993–2015 was lower than for 35 other countries, many trading under Word Trade Organisation (WTO) terms. In no particular order, the countries that outperformed the UK included: Canada, the United States, Singapore, Brazil, Switzerland, India, Bangladesh, and – just– Australia.
Of the major global economies, only Japan has performed worse.
Second, the record of the UK’s own partners within the EU. What should deeply worry Customs Union supporters is that the UK’s performance inside the Customs Union is uniquely poor even by European standards. According to Eurostat data, the UK’s goods export/import ratio (expressed as a percentage) within the EU has plummeted from 80% in 2003 to just 63% in 2017, far below Germany (now at 124%), France (86%), Italy (112%), Netherlands (113%), and Spain (91%). Incidentally, Ireland’s export–import ration with the EU stands at an impressive 155%.
As shown in Part 1, the UK’s services exports to the EU do not and cannot redress the UK’s resulting trade-in-goods deficit, so long as the UK stays in the Customs Union.
What these comparisons reveal is that the UK’s goods-export performance with the EU since 1998 is uniquely poor, even though the UK’s EU-bound goods exports is precisely the sector the Customs Union is supposed to promote. The UK’s failure cannot be attributed to the EU’s own poor economic performance, since virtually every other major economy in the world has performed better over the past 20 years whether they happen to have been a member of the Customs Union or not. Suppose, then, the UK has just been uniquely unlucky in the range of goods it exports to the EU? Suppose the types of goods the UK makes are flukishly unsuited to the terms of the Customs Union and the tastes of Europe’s consumers?
Uncle Sam thrashes the UK in Europe
Fortunately, we can test this assertion too, because the United States’ own trade with the EU presents an almost heaven-sent comparison. The reason is the near equivalence in the value of the UK’s and US’s goods exports to EU back in 1998, and a startlingly similar range of export products – from aerospace goods and motorbikes to construction-site diggers and whisky.
Back in 1998, US goods exports to the EU were fractionally lower than the UK’s: £91.7 bn to the UK’s £99.9 bn at the prevailing exchange rate (UK Trade: Goods & Services, Tab 3, Section 10). But since then – more precisely, since 2008 – US goods exports have grown far more quickly. Over the entire, two-decade period, US goods exports to the EU have grown at a compound annual growth rate (CAGR) of 2.11% per year — as opposed to the UK’s 0.22% per year (Section 9).
Analysts can never say how the UK’s EU trade would have evolved from 1998 to 2017 if the UK had been outside the Customs Union. But a few deft comparisons – with non-EU countries’ trade, with intra-EU trade, with US trade growth, with the UK’s productivity growth, and with the EU’s own growth rate – reveal that by any reasonable comparison, the Customs Union has failed to deliver value to UK exporters since 1998 (For calculations and sources see UK Trade: Goods & Services).
The result: after 20 years of not being in the Customs Union, nor having a bilateral trade agreement with the EU, nor participating in Single Market rules, the US has comprehensively outstripped the UK as a goods exporter to the EU, with exports worth £219.8 bn in 2017 as opposed to the UK’s £164 bn. From near parity in 1998, US goods exports to the EU have grown almost 2% faster per year than the UK’s and are now 35% more valuable. As far as any analysis ever can, this dramatic divergence in export performance proves that seamless, tariff-free trade with the EU is absolutely not vital to exporters.
So, what is going on? Economists may one day discover that the Customs Union has been positively deleterious to UK producers as opposed to plain unhelpful. For what it’s worth, this author observes that Customs Union confers no commercial advantage in sectors where the UK is highly competitive (aerospace, defence jet engines, pharmaceuticals), and gives EU companies preferential access where the UK typically isn’t (mass-market cars, food, agriculture, machinery). And where the Customs Union provides no advantage, EU customers often procure US goods: EU airlines’ general preference for US-made turbo-jet engines would be a good example (UK’s Top 10 Sectors, Tab 2 (Transport), Section 5).
Nevertheless, the immediate issue is practical: Is the UK’s experience inside the Customs Union sufficiently bad that the absolute right to exit is worth the risks of a unilateral exit from negotiations and trading with the EU on WTO terms? In the global scale of poor trade relationships, does the end result of the UK’s experience in the Customs Union – a steadily deteriorating £95 trade deficit – really matter?
The £95 billion warning sign
The most logical comparison is, again, with the United States. That country, too, runs huge trade deficits in goods, which are partly redressed by surpluses in services. It’s biggest is the (2017) US$337 billion trade deficit with China. Highlighting this deficit formed a major element in Mr Trump’s campaign for the White House. US trade policy aims to reduce it.
So how does the scale of the UK’s deficit with the EU stack up with the US deficit with China? Are they of equal import? Or, to fashion the question more bluntly: should MPs worry that at some point, the UK’s £95 bn deficit with the EU will become an incendiary political issue all of its own?
If you convert the UK’s overall 2017 EU deficit into US dollars (goods plus services) at an exchange rate of $1.35 to £1, the resulting UK–EU deficit is $78.7 billion. But then the US economy is approximately 6‒7 times larger than the UK economy. Taking that into account, the UK has a deficit in comparative terms approximately 47% bigger than the US’s (Tab 3, Section 8).
More generously, you can translate the dollar trade deficit into a deficit per head of population, which gives a UK‒EU deficit of $1,216 per head, as opposed to a US‒China deficit of $1,050 per head. Calculated this way, the UK has a headache that is 16% more painful than the one that helped get Mr Trump elected.
Regardless of how adeptly the UK uses this deficit in future trade negotiations, it will, since it is deteriorating, eventually transmute into a political debate about the impact the Customs Union has on jobs. At that point, proponents of a new UK‒EU customs union – or indeed, any form of apparently seamless trade – are likely to hit extremely choppy political waters.
No, the Customs Union doesn’t create jobs
The reason for caution is the glaring discrepancy between the growth rates of exports and the UK’s own productivity growth rate (UK Trade: Goods & Services, Tab 3, Section 9). Observing that hundreds of thousands of jobs currently depend on trade with the EU is a quite different proposition to saying that membership of the Customs Union and Single Market has created jobs that otherwise wouldn’t exist — or that it isn’t steadily removing them.
The difficulty here is that the UK’s annual goods-export growth rate to EU (0.22%) is far lower than those other metrics which economists would normally expect it to exceed. It is just one-tenth of the UK’s average 1998–2017 GDP growth rate (2%, according to ONS). It is also slower that the Eurozone’s own growth rate, of 1.56% per year (calculated from 1995 – 2018, Section 5).
But the UK’s goods-export growth to EU is also far slower than the UK’s productivity growth rate over the same period ‒ 1.19%, according to ONS ‒ which is the rate at which UK companies and organisations become more efficient each year. This means it is statistically impossible for there to be more people engaged in EU goods-export activities in 2017 than in 1998. Which means, in turn, that the Customs Union cannot – net – have added a single job to the UK economy since 1998. Statistically, there have to be fewer jobs (as measured in value) involved in exporting goods to the EU in 2017 as compared to 1998 — despite the Customs Union.
In contrast, the growth in the UK’s EU trade deficit from -£5.6 bn in 1998 to -£95 in 2017 denotes the creation of hundreds of thousands of jobs in other EU countries, to supply goods to UK markets. This author roughly estimates the number created in EU to supply the UK’s motor market alone since 1998 at just over 40,000 (see Part 2). It is clear that continental Europe benefits greatly from keeping the UK in the Customs Union. What the UK gets out of it is – statistically – a mystery.
Summary – The Customs Union fails to deliver
So: if the Customs Union and Single Market have gently throttled UK export growth over 20 years; if they deliver crushing deficits that the UK’s non-EU trade then has to pay for; if their quality of seamlessness lies principally in helping investment slide overseas; if they force-feed UK households on the most expensive food on earth while offering no reciprocal advantage to any sector of UK trade except financial services, and then only in a limited way; if the reason for stagnant exports can’t easily be attributed to anything other than the Customs Union and Single Market themselves; and if the end result is a deficit 16% worse than the one that helped gain the Presidency for Mr Trump, then the UK’s strategic interest should be crystal clear.
Whatever its theoretical benefits, it has proven to be the wrong customs union for the UK since 1998. It delivers no commercial benefit to the UK’s fastest-growing manufacturing sectors (pharmaceuticals and aerospace); and leaves all the UK’s other major goods-export sectors in a state of either stagnant growth, huge deficits, or both. By any reasonable comparative measure the UK’s performance inside the Customs Union since 1998 is the picture of a failed trading relationship. And yet clinging to that failed relationship may now prevent the UK from liberalising trade with export markets that have grown quickly during the past 20 years – markets that are receptive to UK goods; markets that actually create jobs.
If the price of the UK’s exit from the EU is remaining in the Customs Union, then the cost will be paid by the UK’s manufacturing industry. That’s the lesson of the past 20 years.
In the recent Commons indicative votes on alternative Brexit options, the idea of remaining in the EU’s Customs Union emerged as the most popular future relationship with the EU even though, like every other option, it failed to get a majority. This is of course because it is Labour’s preferred option although Labour, fantastically, supports the idea only if the EU gives the UK a say in determining future EU trade policy (which it won’t).
Labour supporters of the Customs Union rarely say anything much in detail about why they support this option beyond a vague intention to preserve jobs, though what these jobs might be is rarely made clear. In fact, there is little evidence that a customs union would be a good idea for the UK.
The main arguments for a customs union are that it will guarantee tariff- and quota-free access for UK exports to EU markets and that it will avoid UK firms having to bear customs and ‘rules of origin’ costs that they would face in a free trade agreement (the latter involve the costs of ensuring product has enough ‘local’ content to qualify for zero tariffs). On top of this, it is claimed that a customs union solves the problem of the Irish border.
In our view, the purely economic arguments in favour of UK customs union membership with the EU are weak:
- There is not much evidence that a customs union would be more beneficial for UK-EU trade than a standard free trade agreement (FTA). A large-scale academic study from 2006 finds no evidence that customs unions outperform FTAs, while a more recent study even suggests the EU customs union has a smaller trade creating effect than FTAs such as NAFTA (which covers North America).
- Rules of origin costs are often hugely overstated. Claims that rules of origin costs for UK businesses in case of a UK-EU FTA could be as high as 7-8% of trade values are far too high. A careful study by the WTO suggests such costs are less than 1% of trade values, and often negligible.
- Costs of customs processing are also massively exaggerated. Claims by HMRC last year that customs costs could total 1% of UK GDP or 6% of trade values are anything from five to twenty times too high; they are based on dubious calculations and are totally at odds with on-the-ground industry experience.
- A ‘new’ UK-EU customs union would not even remove customs-related costs. Formal customs checks within the EU customs union only ended in the early 1990s due to the Single Market Programme, and still exist in Turkey’s customs union with the EU. Moreover, the documentary requirements associated with trading in a customs union can actually be greater than for trading on WTO rules!
- The UK’s foreign trade structure is not suited to a customs union. Customs union arrangements have some logic where one economy does a very large share of its trade with another. But the EU now represents only around 45% of UK goods exports and this share has been dropping rapidly. Twenty years from now it is likely that the EU will take only around a third of UK goods exports.
- The UK would remain locked into the EU’s highly protectionist agricultural trade system. High EU tariffs on agricultural products represent a heavy ‘tax’ on UK consumers. UK consumers are denied the choice of cheap food from outside the EU and pushed towards consuming expensive products from within it. This cost is high at 0.5-1% of GDP.
Moreover, the strategic/political arguments in favour of a customs union are even less compelling:
- Entering a customs union would make meaningful trade deals with other economies impossible. There could be deals on trade facilitation or deals on services but their scope would be very limited. Why would India or the US be interested in a deal on services (potentially benefitting the UK) when the UK had nothing to offer on the goods side?
- The EU would be able to ‘sell’ access to UK markets with no reciprocal benefits for the UK. Britain would be in the same boat as Turkey: when the EU does trade deals with third parties, these countries gain tariff-free access to Turkish markets but Turkish exporters do not gain automatic reciprocal access to these third countries.
- Britain would have no voice at future WTO discussions about global tariffs. It would simply have to accept whatever the EU agreed.
- The EU would be able to damage UK business using anti-dumping actions. Under a new UK-EU customs union the EU would be in charge of the UK’s ‘trade defence’ measures such as ‘anti-dumping’ actions. The EU could force the UK to impose steep tariffs on goods from third countries, hurting UK businesses and consumers. Worse still, the EU might insist on being able to impose anti-dumping duties on the UK as well – as is the case with Turkey.
- A customs union would not simply cover tariffs and quotas. The EU would also require the UK to follow EU rules in a broad swathe of policy areas including competition policy, environmental policy and social and labour standards – without any say. This would not only be a huge loss of UK sovereignty but also dramatically narrow the UK government’s freedom of action in key economic policy areas.
- A customs union does not solve the Irish border ‘problem’. Customs checks only represent a small element of potential border checks at EU borders today. A bigger issue is product conformity and other single market rules. This is another reason why any customs union would require either effective UK single market membership or border checks between Britain and Northern Ireland and/or Britain and the rest of the EU.
In summary, a customs union arrangement whereby the UK contracted out huge areas of trade and economic policy-making to the EU would be totally unsuitable for an economy like Britain’s.
Customs union arrangements may work well for small economies that do an overwhelming share of their trade with a large neighbour. But the UK is the world’s fifth largest economy, with a diverse pattern of foreign trade and with business and consumer interests that will often diverge from those of the EU.
It is no accident that Canada and Mexico are not interested in joining a customs union with the US, despite their strong trade orientation towards the US. They know that the loss of economic independence involved would be far too great to justify a modest reduction in border frictions. The calculation should be the same for the UK.
Supporters of a customs union have suggested the UK could somehow retain some influence over decision making in such a new UK-EU arrangement. But this looks like a fantasy. It would be legally and politically difficult for the EU to grant any significant decision-making power to the UK. The best the UK could hope for would be some kind of observer status. But the arrangement would remain a thoroughly one-sided one where the UK would have no power either to veto potentially damaging agreements or to push for deals that benefited it.
Entering a new customs union with the EU would be a backward-looking step for the UK, with a massive loss of policy independence and flexibility while leaving businesses and consumers at risk of having damaging decisions imposed on them with no say in how those decisions were taken. It would also give the UK minimal additional policy freedom in the trade and economic policy area. Overall, it is hard to imagine a more sub-optimal policy.
The post A dozen reasons why a UK-EU Customs Union remains a terrible idea appeared first on BrexitCentral.
As we approach either 12th April or 22nd May 2019, it is worth recalling the chain of events which has led to where we are now.
The 2016 referendum produced a 52% to 48% majority in favour of Leave which the Prime Minister’s Lancaster House speech in January 2017 proposed should be implemented by the UK leaving the EU’s Single Market and the Customs Union and negotiating a free trade deal along the lines of the CETA negotiations between Canada and the EU.
With over two years to go between January 2017 and March 2019 and a model agreement between the EU and Canada on which to draw, a starting point of 100% alignment and indications from the EU that they thought that this was a viable way forward, the omens for a reasonable outcome being achieved looked relatively promising. The result of the 2017 general election, however, fatally undermined this relatively benign potential outcome.
This election was called by the Prime Minister with the intention of strengthening her majority in the House of Commons, to achieve the best chance of a smooth passage through the House of the necessary legislation to implement her Lancaster House proposals. Unfortunately, from her point of view, the outcome was the opposite to what she planned. The Conservative majority in Parliament disappeared, leaving the Tory Party dependent on DUP votes to provide it with a working majority.
Although all the Labour and Conservative Members of Parliament elected in 2017– over 80% of the total numbers of MPs returned – had stood on manifesto promises that they would implement the referendum result, there was a large majority – between 75% and 80% of MPs elected – who were of a Remain persuasion. They were not prepared to contemplate proposals along the Lancaster House lines. They were determined to keep the UK much more closely involved with the EU. Specifically, they wanted to remain at least partly in both the Single Market and the Customs Union.
It was trying to maintain free movement of goods within the Single Market framework and attempting to stay within the Customs Union, particularly to avoid a border problem between Northern and Southern Ireland, which led to the Withdrawal Agreement which Parliament rejected in January and again early in March. The EU were always uncomfortable with the UK being partial members of the Single Market and the Customs Union for understandable reasons. Maintaining the four freedoms – the movement of goods, services, capital and people – was a prime EU objective.
Understandably, the new UK aspirations were regarded by the EU as a serious threat to their security and integrity. The situation was further muddied by the UK agreeing to discuss citizenship, the Irish border and money before trade. This led to the Government getting desperate by late 2017 to get the trade negotiations going, leading to the UK conceding the Irish backstop arrangements in December 2017 which eventually got into the Withdrawal Agreement. The overall result was an Agreement so unsatisfactory to the UK that when a vote was held on it in January 2019, it was voted down by an unprecedented majority of 230, with a lesser but still large majority of 149 against it in early March 2019.
The problem is that rejection of the Withdrawal Agreement has left the House of Commons with no majority for any of the various possible ways ahead – as we saw confirmed last night – and a very short amount of time to get anything settled. Support for the so-called Norwegian option – with the UK in the EEA and EFTA – seems to have melted away. No majority in Parliament exists for a second referendum, which has recently been voted down by a majority of 249. A large majority exists for avoiding “No Deal”, but this eventuality can only be stopped if there is some concrete alternative in place, and it is far from clear what this might be.
It is obviously far from an ideal outcome for the UK to be drifting towards “No Deal” – the default outcome if nothing else is agreed before 12th April 2019 – with far too little preparation for it having been arranged and with no longer-term plans for this type of outcome as a favoured option having been made. Much then turns on a realistic assessment as to how disruptive and difficult “No Deal” would be.
Among some people – including evidently a substantial number of MPs – there appears to be an assumption that “No Deal” would be so damaging that it is not worth even trying to make a detailed assessment as to how difficult the situation might be and whether “No Deal” might be better as an outcome than the Withdrawal Agreement. There is little doubt that there would be disruption at least for a while, with some sectors of the economy much more adversely affected than others. Overall, however, especially if mitigated by a significant number of mini-deals on such key issues as flows of traffic at Dover and Calais, aircraft rights of movement, supplies of medicines etc, it seems likely that the challenges to the economy would be manageable.
There are also a number of significant upsides to “No Deal”. We would not be committed to paying the EU £39bn with no clarity as to what we would receive in return. The Irish border problem would have to be resolved by allowing trade to take place electronically for large companies and with exemptions for small ones, assuming that no-one wants a physical border. There would be no restrictions on the UK negotiating free trade deals. The huge trade deficit we have with the EU should put us in a reasonably strong position to negotiate a free trade deal with the EU on satisfactory terms. At the moment, however, Parliament has voted by a large majority against “No Deal” as an option that it is prepared to accept, although it remains the default outcome if nothing else is agreed. Whether it was wise to relinquish at this stage such a vital negotiating card with the EU remains to be seen.
If there is not going to be a “No Deal” exit from the EU by the UK on 12th April 2019, a further extension of Article 50 now seems inevitable. Unlike repealing Article 50, which could be done unilaterally by the UK, extensions require the unanimous assent of all 27 EU Member States and the European Parliament, whose last sitting date before its forthcoming elections is 18th April 2019. If there is any kind of deal agreed before 12th April 2019, a short extension would be necessary to provide time for passing the necessary legislation to make the deal effective. If the Withdrawal Agreement is not agreed, however, the EU is likely to insist on a much longer extension, possibly for as long as two years or more. They are also likely to try to make any such a delay conditional on the UK either holding a general election or a second referendum, although it is difficult to see how Parliament could be bound to follow through on any such undertakings if it was minded not to do so. During this period, the UK would remain in the EU and we would very probably be obliged to take part in the European Elections taking place in May 2019.
Postponement of any final decision on the UK’s fundamental relationship with the EU for a period of years would deal with the immediate problems faced by companies trading between the UK and the EU. It would maintain the status quo on the wide range of arrangements we have in place with our European neighbours, but it would also have heavy downsides.
It would inevitably prolong the uncertainty hanging over our relationships with the EU. A further long period of potentially acrimonious negotiations would be in prospect, providing a continuing major distraction from other pressing priorities. It is not clear that a general election would produce a parliament any less split than the one we have already, and therefore in a better position to negotiate a deal more generally acceptable than the one enshrined in the Withdrawal Agreement.
Another referendum would also be fraught with all the problems which caused it to be voted down as a way ahead in March 2019. Apart from concerns about its democratic legitimacy, it looks like being foisted on a government which would not want a referendum, with all the difficulties that this would entail in terms of getting the necessary primary legislation onto the statute book. There are also obvious problems around delay, uncertainty, cost, what the choices to be put to the electorate would be, let alone the impact on the country which a highly contentious referendum would entail – and with no certainty about what the result might be.
Faced with all these difficulties, what should the country – and particularly the Labour Party do? There are essentially four options ahead of us, whatever processes and procedures we may have to go through to get there. We either:
- accept the Withdrawal Agreement or some close variant to it
- rescind Article 50 and remain in the EU
- leave the EU without an agreed way ahead
- accept a much longer extension to provide time for a new approach
The vast majority of Labour MPs would undoubtedly like to see the second of these options as the eventual outcome. So would most Labour Party members. Traditional Labour voters, however, would be much more evenly split and a lot of these people live in marginal seats in Wales, the Midlands and the North.
Few Labour MPs, party members or voters are happy with the Withdrawal Agreement. While the electorate as a whole now seems much more inclined to go for “No Deal” than they did before, this is not an outcome favoured by either the Labour Party leadership or by the majority of Labour MPs.
What do Labour sceptics grouped round Labour Leave think should be done? We think that accepting the Withdrawal Agreement is an even worse option than staying in the EU and that there is less to fear from “No Deal” than most people in Parliament seem to think. At the very least, therefore, we think that “No Deal” is an option which should be kept in play. We still believe, however, as we always have done, that as comprehensive as possible a Canada+++-style free-trade deal between the UK and the EU, with the UK out of the Single Market and the Customs Union and the Common Agricultural and Common Fisheries Policies, would be the best outcome. This is why we think that extending Article 50 to give us time to negotiate a comprehensive free-trade deal is now the best long-term way ahead, providing both Leavers and Remainers enough of what they want to lead to an acceptable and permanent settlement.
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The ‘Better Brexit’ website provides a clear explanation of the proposal known as ‘Common Market 2.0’, or ‘Norway Plus’, which is being pushed hard as a solution to the current impasse in parliament. However, it also exposes the fundamental weaknesses of this plan. Rather than being a reasonable compromise, my fear is that it would simply end up as a capitulation to those who never wanted the UK to leave the EU in the first place. In summary, the proposal is that the UK should join the European Free Trade Association (EFTA), comprising Iceland, Liechtenstein, Norway and Switzerland, as a stepping stone to membership of the European Economic Area (EEA), which extends the EU’s Single Market to non-EU states.
At the same time, the UK would negotiate some form of ‘comprehensive customs arrangement’ – in effect a new customs union – with the EU. Some supporters of Common Market 2.0 anticipate that this customs union would only be temporary until something else can be agreed that prevents the need for a ‘hard border’ in Ireland. Others clearly hope that the arrangement would be permanent. Either way, this is the ‘Plus’ in ‘Norway Plus’, as Norway itself is outside the EU Customs Union.
So what’s not to like? First, and most obviously, Common Market 2.0 would be Brexit in name only. Its supporters are seeking a deal that includes full participation in the Single Market, plus a customs union. That would surely be inconsistent with the vote to leave the EU. We can of course debate exactly what people wanted in 2016 until the cows come home. However, as the Prime Minister and the government have repeated said, “the agreement we reach with the EU must respect the referendum. It was a vote to take control of our borders, laws and money”.
Common Market 2.0 surely fails all these tests. On borders, even supporters acknowledge that the continued membership of the Single Market would require freedom of movement. In principle, the UK might gain some additional powers to take ‘safeguarding measures’ to control immigration and the rights to work and claim benefits, but only in an emergency and even then still limited in both scope and duration. These powers would add very little, if anything, to those that the UK already has as a member of the EU.
On laws, the UK would still be subject to the bulk of EU rules and regulations, with even less influence than it has today. EFTA members are required to adopt any measure related to the Single Market into their own domestic law, without any seats on the European Council or Parliament, and only limited participation in the activities of the Commission.
Admittedly, the UK would regain control in some important policy areas, including justice and home affairs, foreign and security affairs, and taxation. If following the Norway model, the UK could also quit the Common Agricultural and Fisheries Policies. But these potential gains have to be set against the loss of influence in many other fields. In particular, the UK would effectively become a rule-taker on services, and especially financial services. This would, in the words of Bank of England Governor Mark Carney, be ‘highly undesirable’.
Supporters of Common Market 2.0 like to emphasise that the UK would no longer be subject to the direct jurisdiction of the ECJ and would be overseen by the EFTA court instead. But this would only be a symbolic change. In practice, the EFTA court follows the ECJ closely and interprets the EU rules and regulations in the same way. And while EFTA rulings are not legally binding on member states, there would be significant political costs if the UK tried to ignore them.
On money, the UK would be expected to continue to make large contributions to the EU budget. The sums would be smaller than as a full EU member, but still substantial. Supporters of Common Market 2.0 note that the UK’s per capita contributions would probably be lower than those of Norway. However, this would only be because Norway’s per capita GDP is much higher. What’s more, Norwegian officials have emphasised that the UK cannot expect a better deal than Norway itself on any of the key points, whether borders, laws, or money.
This is all before considering the ‘Plus’ in ‘Norway Plus’, namely some form of customs union with the EU. As it happens it is hard to see how this could be compatible with joining EFTA, whose existing members do not participate in the EU Customs Union. Indeed, it is surely significant that two large economies, Norway and Switzerland, have chosen to remain outside the Customs Union, despite the alleged benefits of joining.
Even if the technical problems can be overcome, membership of a customs union with the EU, combined with the loss of regulatory independence from remaining in the Single Market, would all but eliminate the UK’s ability to do its own trade deals with the rest of the world. The UK would also have no real influence over the trade deals that the EU might do with other countries, who would then gain preferential access to our markets with no guarantee that the UK would get anything in return.
That should certainly be a red line for Tory MPs elected on the basis of the 2017 Conservative Party manifesto, which stated that “we will no longer be members of the single market or customs union…” and “leaving the European Union also means we will be free to strike our own trade agreements with countries outside the EU”. There is also a significant risk that the EU would make continued participation in a customs union conditional on the UK remaining part of the Common Agricultural and Fisheries Policies too.
To be fair, many supporters of Common Market 2.0 recognise these problems, and some have suggested it might just be a temporary arrangement (‘Norway then Canada’, or ‘Norway for now’), until the UK can negotiate a better deal. But there is an obvious danger that it becomes permanent, given the coalition of forces still trying to overturn the 2016 referendum, or only pay lip service to the result. It may also be harder to convince existing EFTA members to commit a lot of effort to new arrangements that might only be temporary.
In short, rather than Common Market 2.0 being ‘a Brexit deal everyone can support’, it is hard to imagine anything worse.
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Over recent weeks, there have been renewed efforts to claim that the UK leaving the EU on WTO terms will result in economic catastrophe. The general approach has been to claim huge downsides while ignoring or minimising possible upsides. We and colleagues at Briefings for Brexit have argued repeatedly that claims that UK trade and GDP will collapse in case of a move to trading with the EU on WTO terms are hugely exaggerated, being based on wildly unrealistic assumptions about productivity shifts and other factors.
Trade barriers will rise and bilateral trade volumes between the UK and EU will decline, to some extent, in a WTO scenario. But some of what will also happen is that UK exports will be diverted to the home market and other destinations, and EU imports will be displaced by UK production and imports from third countries (weaker sterling will also help this shift). Because of these offsetting shifts in sales patterns, the net effect on UK GDP of a WTO Brexit will be a small fraction of the effect on UK-EU trade. Nobel laureate Paul Krugman estimates for the US that even a 70% fall in trade would only cut GDP by 2%. Using the same approach, we estimate the likely effect on UK GDP from rising UK-EU trade barriers at just 0.5% of UK GDP. Distinguished economist Ashoka Mody suggests a similar figure, which would amount to £10.5bn. This is ten to fifteen times smaller than the effects the Treasury and Bank of England are claiming.
Meanwhile, there are a range of potential positives from a WTO-based Brexit that could outweigh these losses:
The UK fishing industry could potentially double in size after Brexit, as the UK takes full control of a natural resource which currently is mostly harvested by EU boats. Estimates by Napier (2018) and others suggest a rise in catch of up to £700m-800m per year which with positive supply chain effects could see a total boost to output of around £3bn per year – already offsetting a third of the possible trade losses.
Ending budgetary payments to the EU
Over the last three years net contributions to the EU have totalled £10 billion per year, or around 0.5% of UK GDP. Ending these payments alone essentially cancels out the possible trade-related losses.
Abolishing the Common Agricultural Policy (CAP)
The CAP costs British taxpayers twice over – once through subsidies paid to farmers and twice by keeping food prices artificially high. OECD data suggests EU farm prices are around 5% above world prices and our estimates based on this data suggest UK consumers pay around £2billion per year in higher prices due to the CAP.
Cutting EU tariffs
The EU imposes high tariffs on foodstuffs and also some other areas including clothing and textiles, where applied tariffs on third-country imports are 6%-8%. UK tariff revenue from these items totals about £1bn per year but gains to consumers from the abolition of tariffs on these items could be much larger than that as domestic prices for clothing and textile products generally (not just the imported items) would likely fall. With textile and clothing spending at £82bn per year even a 3% price fall would boost consumer incomes (and potentially spending) by £2.5bn.
More broadly, the IFS has estimated that the abolition of all EU tariffs would cut consumer prices by up to 1.2%. With UK consumer spending at £1.3tn in 2017, this implies gains for consumers of up to £15bn (note tariff cuts discussed here would reduce budgetary gains by £1-3.5bn depending on how broad they were).
Reducing benefit payments to EU immigrants
A targeted immigration policy could keep the fiscal benefits accruing to the UK from high-skilled immigrants while cutting the burden associated with the lower-skilled. The Migration Advisory Committee suggests the fiscal ‘break-even’ point for EEA immigrants is a salary of around £30,000 per year while government figures suggest benefit payments to EEA nationals of around £1.6bn per year. This latter figure could be reduced to near-zero by appropriate immigration rules.
Striking trade deals with third countries
An EU assessment of the benefits of striking free trade deals with a range of third countries including the US and Asian economies suggested these could boost EU GDP by 1.2% and by up to 2% if productivity effects are allowed. For the UK alone this would represent an annual gain in GDP of £25-£40bn. But the figures could easily be higher for the UK due to the UK’s bigger trade with non-EU countries.
Increased restrictions on trade with the EU could lead to some negative effects on UK productivity, though these tend to be greatly exaggerated. But the net productivity effect if the UK opened up trade with the rest of the world would be likely to be positive given the rest of the world’s greater dynamism and higher productivity levels in e.g. North America. A recent study by the Minnesota Fed suggested reducing trade and investment barriers with the rest of the world by 5% would raise UK welfare by £25-30 billion per year even with increased restrictions on trade and investment with the EU.
Reducing regulatory burdens
The cost of EU regulations is hard to calculate but the EU’s own estimates suggest the cost to business is large, as much as 4%-6% of GDP. Removing all of this is unrealistic, but even reducing the burden by 25% would potentially yield savings of 1%-1.5% of UK GDP or £20-£30bn per year in business costs. And the positive impact on GDP could be bigger than this: The UK better regulation taskforce in 2005 reported a Danish government estimate implying that for every £1 decline in the administrative burden of regulation, GDP could rise by £2.70. Importantly, we are not talking about a regulatory ‘race to the bottom’ here – just smarter regulation better targeted at the interests of the UK economy.
Adding all these upsides together (with appropriate netting on the budgetary side), we can easily come to a figure for net gains of around £80bn or nearly 4% of GDP, far outweighing the potential trade costs mentioned earlier of £10.6bn or 0.5% of GDP.
Now it is quite likely that not all the upsides would materialise, and also that trade costs might be higher. But even more pessimistic – but still realistic – takes on trade costs such as in the German IFO study of 2017, CEP (2017), Gudgin, Coutts et al (2017) or Ciuriak et al (2018) suggest costs of only around 1.5%-2.5% of GDP. The midpoint of these estimates is still only half of the potential upsides we have identified.
A smart WTO Brexit with well-designed trade, immigration, agricultural, fishing and regulatory policies would, far from being a ‘disaster’, have an excellent chance of delivering substantial long-term net benefits.
The post Let’s recall the benefits of ‘No Deal’ – a WTO-based Brexit could yield the UK £80 billion per year appeared first on BrexitCentral.
As the dust settles after another hugely important couple of nights in Westminster, there are some who have sadly sought to issue recriminations about those Brexit-supporting MPs – most of 75 Conservatives and the 10 DUP MPs – who did not support the Withdrawal Agreement on Tuesday.
I am one of those MPs, and I think it’s really important to make something clear. The proposed Withdrawal Agreement that has twice been put before Parliament (and twice rejected by historic margins) is not merely a ‘bad deal’, it is simply not Brexit.
I don’t think many in Westminster are more passionate about delivering Brexit than I am. But Brexit meant one thing above all others: taking back control. The deal that was on offer to us on Tuesday – with its wholly unnecessary ‘Backstop’ – was not, even on the most generous reading, ‘taking back control’.
It would have handed Brussels 100% control of our trade and customs policy and precluded the UK’s right to sign trade deals with the rest of the world. Worse, when the EU signed a trade agreement with another country (for example, China), we would have been compelled to make all the concessions agreed to by the EU, but China would only have needed to offer its concessions to the EU 27, not to the UK. In other words, we would have become the EU’s expendable bargaining chip in negotiations.
Meanwhile, the Agreement would have stripped Northern Ireland of the ability to control and decide its own constitutional status – a right enshrined in the Good Friday Agreement. Northern Ireland would have been treated separately to the rest of the UK, and become a rule-taker in areas such as goods, agricultural products and VAT. As confirmed by HMRC, this regulatory divergence would have required the introduction of paperwork for those who wanted to trade between Northern Ireland and the rest of the UK. This went against express promises made by the Government that such a thing would never happen.
To top it all, the UK would have been unable to leave this humiliating state of affairs without the EU’s permission – a situation completely unprecedented in international law. Far from taking back control, the Agreement would have diminished our country to a state of unending ‘vassalage’. This was the bottom line of the Attorney General’s damning legal advice – an opinion echoed by many prominent international lawyers, including Professor Phillipe Sands, Martin Howe QC, and Lord Anderson QC.
It was surprising, therefore, to hear the accusation that those of us repudiating such an agreement were ‘risking losing Brexit altogether’, and will somehow be held responsible if the Government, Parliament and EU subsequently conspired to keep us in the EU.
We need to be crystal clear: the only people who would be responsible for ‘no Brexit’ would be those who vote to take no deal off the table, or to extend – for no good reason – Article 50. The vast majority of Parliament voted to trigger Article 50 in full knowledge of its significance: that we would – in both domestic and international law – be leaving the EU on 29 March 2019 with or without a deal. They also stood of manifestos reiterating the same promise.
If some individuals now regret those decisions, so be it – but they ought to look the electorate in the eye and admit that, rather than hunting around for Brexiteers onto whom to deflect the blame. As the final acts of this drama unfold, I will vote for a good deal, if one can be secured, for the Malthouse Compromise, if this can be delivered, and if needs be for leaving without a deal. But I will not let down my conscience, my constituents or my country by voting for a deal that doesn’t deliver Brexit at all.
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It is undeniable that the EU has been in the driving seat for Brexit negotiations to date.
The Withdrawal Agreement is specified under EU law – Article 50 of the Lisbon Treaty – and has never worked for us. Without one, all the EU treaties stop applying as of 29th March.
However, should the UK leave the EU under what is wrongly referred to as a ‘No Deal’, trade deals would then be carried out under the international trade rules of the World Trade Organisation (WTO) that the UK helped establish.
The 164 member WTO offers Britain a remarkable opportunity to leave the EU cleanly, avoiding all of the apocalyptic predictions set out by the likes of the CBI, Bank of England or Chancellor.
Because through GATT Article 24, the EU and UK are able to agree a very basic Free Trade Agreement that would keep tariffs at zero for the duration of the period the two sides negotiate a comprehensive Free Trade Agreement.
Article 24 is by no means a final destination, it is simply a stop gap that would allow Britain to leave the EU on 29th March 2019 – as promised time and again by the Prime Minister – while at the same time, avoiding any uncertainty that could negatively impact our economy or that of the EU.
Some have been dismissive of Article 24, arguing that with tensions between the UK and the EU at an all-time high, it would be impossible to agree to a Free Trade Agreement. However, they are missing the point that such an agreement does not have to be comprehensive. All that is needed is a one-page agreement signed by both sides. Cambridge law expert Dr Lorand Bartels has written a bare bones agreement that would suffice in order to instigate Article 24.
By doing so, the UK would be protected from discrimination claims by other WTO members. In the event that other WTO members did make legal challenges against the UK, they take a number of years to be heard and a comprehensive Free Trade Agreement would be the ideal remedy anyway.
One of the greatest benefits of implementing Article 24 would be that businesses would avoid having to calculate 20,000 tariffs, many of which are complex with very slight variants for many products. Granted, customs declaration forms would need to be completed, just as they are for suppliers from the rest of the world. But the removal of tariffs would make this process extremely straightforward. HMRC have introduced Transitional Simplified Procedures (TSP) for the 145,000 VAT-registered businesses which trade with the EU (meaning only 7% of UK businesses and 12% of the UK economy) removing the need for full customs declarations at our borders and import duty payments.
It is absurd to be voting on No Deal today as the option really does not exist. There should be a meaningful vote on GATT Article 24 as a safe, alternative Brexit deal that would get Britain out of the EU with minimal drama. The British people expect their politicians to deliver on the result of the referendum without causing chaos, and Article 24 ensures that can happen.
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