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It’s time to end the discussion on the customs union

7 May 2018

12:41 PM

7 May 2018

12:41 PM

This never-ending circular discussion on customs unions is painful, particularly because the question should have been settled during the referendum. It’s now nearly two years since the vote to Leave the EU in June 2016. But we’ve spent months and months rehashing endlessly the exact same points. That’s profoundly damaging.

Rewind back to this time two years ago. The leaders of the Leave campaign were talking about the possibility of the UK signing new trade deals after Brexit with the US, Japan, China, Australia and New Zealand – they were talking of life outside a Customs Union. The other side said we would have more negotiating weight as a big bloc of countries.

Watch back Michael Gove’s iconic interview with Faisal Islam from before the referendum and he talks of ‘taking back control’ of trade policy and having someone decide our trade with Britain’s interests in mind and not the EU28’s. No one can credibly watch that and think the plan was to stay in a customs union.

During the referendum, we endlessly discussed whether leaving the EU could allow the UK to boost trade with rest of world, or to reduce tariffs to help consumers, and so on. Or not. The assumption was clearly that we were out of a customs union. It was so obvious it wasn’t stated. And when the Turkish model – a (partial) customs union between the EU and a non-member – was presented as an option it was explicitly rejected.

You may look back at the referendum and think people misunderstood the arguments made then. But that is fundamentally a critique of the democratic process. For what it’s worth, I don’t recall any other political event in my life which got so many people arguing about policy.


Leaving the customs union will come with economic costs (and some potential opportunities). These costs are on the one hand dependent on the nature of our future relationship with the EU, and on the other hand concomitant with the costs of leaving the EU itself. Again this was all discussed for months during the referendum. And the decision at the end, although relatively close, was decisive.

Unfortunately, we seem stuck in a circular discussion. Part of the fault for that lies with the Government for delaying crucial decisions on its preferred outcome for Brexit and not arguing its case clearly enough. We need to hear more from key ministers about their plans for trade after Brexit. Part of the fault lies with those in Parliament and beyond who pay lip service to delivering the referendum result, but in private are seeking to reverse it. Believe me, I’ve heard it all when it’s behind closed doors and off the record. And the EU27 and Brussels are listening too.

Then there’s Brussels which is treating these negotiations in a more political than principled manner. The EU’s Brexit lead, Michel Barnier, seeks to maintain that not being in a customs union is the last step pushing us towards a thin Canada-style trade deal. But this is very misleading. Even those countries closest to the EU in the European Free Trade Area, such as Norway or Switzerland, are not in ‘the’ or ‘a’ customs union. Close trading countries like the United States and Canada or Australia and New Zealand have not formed customs unions. Instead they have sought to reduce friction on their border.

So why are we here? There’s the Irish border. Back in December both the UK and EU agreed that there was to be no hard border between the republic and the province, but also that UK was leaving the Customs Union. Now the EU seems to be saying that’s not possible. If there is a contradiction why did EU agree it in December?

No one wants to see a hard border in Northern Ireland and both sides have rightly made a political commitment to avoid one. Therefore a political solution will have to be found. There are no perfect precedents for this precisely because the decision not to have a hard border is political and not replicated on any other frontier.

Last week the Brexit Strategy and Negotiation inner cabinet rejected the Government’s Customs Partnership option. Brussels had already called this ‘magical thinking’. Jacob Rees-Mogg told me at an Open Europe event that it was ‘cretinous’. At the weekend our former man in Brussels, Lord Kerr, said it was a ‘dead parrot’. Even the Government admits that it’s untested and unproven.

Yet Downing Street is, I read and hear, determined to resurrect the corpse and introduce a modified version of the Partnership option to cabinet. This is surely misguided. If they pursue the Partnership they will be putting all their eggs in a broken basket. Dead parrots don’t fly.

We can see the way that this will go, if No. 10 pushes for a Customs Partnership Version 2. Inevitably the EU will string the UK along in the talks, before later saying ‘sorry, no’. At which point the only alternative will be a Customs Union.

Some Brexiteers need to accept that leaving the EU is complex and demands just to walk away are impractical and unhelpful. When Open Europe looked at the question of customs, we suggested that the UK may need a longer transition period in a customs union with the EU, beyond the standstill period ending in 2020, not least because we have made too little progress on our own customs systems.

But we also argued that a long-term customs union with the EU is not suitable for the UK. And even if Parliament forces the Government into asking Brussels for one, I personally can’t see it being sustainable – it won’t last long-term.

One of the biggest emerging risks for both sides is that these negotiations don’t settle relations for the longer-term. That they remain in flux, to be reopened in just a few years creating yet more uncertainty for the economy.

So to my mind it’s better to accept some friction on trade and allow business the clarity to prepare for that, while the Government pursues and delivers a Maximum Facilitation option which minimises those frictions. The alternative is to slip via the Customs Partnership cul-de-sac into a customs union relationship which will unwind in due course necessitating further changes for business in the future.


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