Philippe Herlin is an economist and entrepreneur.
Should Britain remain in the Single Market at any cost – even accepting freedom movement of people - in order to guarantee free trade? This matters, because free trade and membership of the Single Market are regularly, but mistakenly, held up to be one and the same. Free trade offers free movement of goods and services, with no or minimal tariffs between countries, which occurs between members of the Single Market. But that’s where the similarity ends. For beyond its borders, the Single Market produces the very opposite of free trade: it is a protectionist zone, raising high customs duties that act as punitive barriers against access into it.
This fact provides a divide in European approaches to the negotiating potential terms of continued Single Market access for Britain. The central issue is not – as we regularly hear – whether UK can continue to accept freedom of movement of people as a condition of membership. Rather, the unspoken challenge is customs duties – and here the European Commission and EU member states are at complete odds.
When Cecilia Malmstrom, the EU Commissioner for Trade, in recent weeks said to the UK: “First you exit, then you negotiate”, she was confirming the Commission wants the UK out, before it can then come back in. The consequences of this position are straightforward: new customs barriers would be imposed on the UK after Brexit: these might only be lifted after a subsequent deal is done.
What would the EU gain from such a move? You won’t find many economists arguing new customs barriers would boost trade between EU member states. But for the European Commission, customs tariffs are a godsend: their central budget makes roughly €20 billion every year from customs duties imposed on non-EU members. Perverse though this sounds, what harms European businesses by creating barriers to trade is financially beneficial for the Commission.
Put simply, the European Commission is an obstacle to free trade. Their role – indeed their legal duty – is in fact to facilitate free trade only within the Single Market, and act as an obstacle to everywhere else. As the Commission openly proclaims their customs duties exist so “Domestic producers [are] able to compete fairly and equally on the internal market with manufacturers exporting from other countries”. Put simply: free trade between us – but not for anyone else.
Any reform of these arrangements is unlikely while the Commission is part-financed by customs tariffs. When they were first handed customs revenues in 1975, this must have seemed smart: instead of EU member states’ taxpayer monies entirely funding the Commission’s bureaucracy, they could be self-financing. But what might once have been a good idea now ensures that the Single Market’s sole regulator has the strongest possible financial incentive to halt and stall free trade with anyone else but between EU and other Single Market members.
On paper the Commission uses customs tariffs to help fight unfair competition, protect jobs and safeguard the competiveness of industries within the EU. But in practice, this amounts to nothing more than old-fashioned protectionism. These tariffs have the effect of protecting some EU-based businesses that without them would fail. In some cases, it diverts EU consumers towards substandard products they would be unlikely to purchase if the Single Market did not make alternatives from elsewhere in the world exorbitantly expensive. One such example is aluminium. Faced with increased competition from outside the Single Market, and in an attempt to protect producers in the EU, Brussels introduced tariffs on imports, in turn causing prices to rise. Who foots the bill? It’s businesses that use the metal, of course. But – ultimately – it’s you and I.
Beyond the EU, the effects of this policy are even more egregious. Discriminatory tariff levels force millions into poverty – particularly in Africa – stifling innovation, hampering growth and fundamentally harming the world economy. Take agricultural products. Because of discriminatory EU tariffs, African countries are forced to export only raw materials, thus suppressing innovation and development. According to the Overseas Development Institute (ODI), lifting agricultural tariffs on emerging market countries would increase world GDP by up to €33 billion. But few in the Commission care when others’ pain is their gain.
It’s crucial that a deal is done before the UK formerly leaves the European Union. To achieve this, it’s critical the UK makes common-cause with national EU member governments, since it is not in their interests to see tariffs imposed on their countries’ exports to Britain.
But if Commission gets its way the UK will have to pack bags and leave the European bloc first before negotiating any new arrangement. If that happens, it’s not likely the customs duties it would trigger would be quickly lifted – to the detriment of us all.