A customs union is held up by two main pillars. The first is the absence of customs tariff and non-tariff barriers between its members. The second is the presence of those barriers between its members and non-members (unless trade deals apply).
In the case of the EU, the barriers are called the Common External Tariff, and they are a consequence of the Common Commerical Policy, which in turn is a part of the Customs Union. If you won’t take our word for it, we call the Prime Minister in aid. Her Lancaster House speech of last year described the set-up lucidly, and implied a choice for the future. Her Government can seek either to stay in the Customs Union, thus ensuring that the absence of tariff and non-barriers continues, insofar as leaving the Single Market allows, or else regain control of its trade policy. One cannot have both.
This is the dilemma that Theresa May wrestled with, and it is evident, from re-reading the speech, that it is one she did not want to confront. On the one hand, she said that “a Global Britain must be free to strike trade agreements with countries from outside the European Union too”. So that’s that. But on the other, she somehow hankered after detaching the Customs Union from the Common External Tariff and the Common Commercial Policy – or, you might say, having her cake and eating it.
It is true, she said, “that full Customs Union membership prevents us from negotiating our own comprehensive trade deals…I want Britain to be able to negotiate its own trade agreements. But I also want tariff-free trade with Europe and cross-border trade there to be as frictionless as possible…Whether that means we must reach a completely new customs agreement, become an associate member of the Customs Union in some way, or remain a signatory to some elements of it, I hold no preconceived position. I have an open mind on how we do it. It is not the means that matter, but the ends.”
Hence the shadow-boxing over Britain leaving the Customs Union but not necessarily a customs union, which caused so much confusion until Downing Street apparently ruled the latter out yesterday. We seek a customs arrangement – to pick up the language of the Government’s paper on the matter published a few months after May’s speech.
Its core is two main proposals: “a highly streamlined customs arrangement” (which would try to reduce those tariff and non-tariff barriers to a bare minimum) or else a “a new customs partnership with the EU” (“one potential approach would involve the UK mirroring the EU’s requirements for imports from the rest of the world where their final destination is the EU). Our columnist Henry Newman, who writes today on this site about the civil service, has described the latter as “too clever by half…fiendishly difficult to negotiate with the EU, potentially legally challengeable, and nightmarish to administrate, burdening both business and Government, as well as enforcement agencies with a huge potential for abuse.”
The most likely approach is to seek to eliminate as many of those barriers as possible – in other words, to have and eat as much of one’s cake as is possible, even if one cannot have all of it. This would make sense from the EU’s point of view. It cannot be seen to compromise on the “four freedoms”.
But, as Emmanuel Macron suggested when he came to Britain, it might accept Canada plus, or plus plus, if not David Davis’s “plus plus plus”. “It’s something perhaps between this full access and a trade agreement,” he said. This points one towards future negotiation bust-ups about payments into the EU Budget and the role of the European Court of Justice in return for access for services as well as manufacturing. The EU likes the familiar – hence its desire for any free trade deal with the UK will resemble either “Norway” or “Canada” in its basic shape. It clearly now expecting the latter.
Which is what the Cabinet committee that meets this week – very late – to discuss the future options should settle on. One can understand why the Prime Minister prevaricated over the Customs Union at Lancaster House while ruling out Single Market membership. The reason was not only Treasury resistance to leaving the former. It was that Customs Union membership, unlike its Single Market equivalent, allows for proper immigration control, which she is set on regaining.
But leaving the EU while staying in the Customs Union would be the worst of all worlds. It makes no sense to abandon the power to shape our trade policy while simultaneously handing it over to the EU. Turkey has never been a EU member, but its own customs union with the latter would not be an encouraging model for us to follow. Turkey must follow ECJ jurisdiction over its domestic economy and is bound by any trade deal that the EU strikes. Following the Turkish way would fire debate about whether Britain had really left.
In any event, debate is academic, at least as far as the Government is concerned. Regaining control over trade was a feature not only of the Lancaster House speech but last June’s manifesto. Without it, the option of slashing tariffs on goods from non-EU countries vanishes, and with it the virtuous double of higher exports for developing countries into the UK and lower prices for British consumers. What’s not to like? (For non-producers, at any rate.)
There is a lingering possibility that the Cabinet committee will be asked to postpone leaving the Customs Union until after the end of transition. But the same consideration applies here as to transition: easier in than out.
Which takes this site to where it has been so often before. The Government must be ready for all outcomes. In the event of a deal, its customs and border systems must be ready to go by the end of transition. And voters should know when that will be.