A customs union is not a sustainable answer for Brexit Britain

Photo: Andrew Matthews/PA Archive/PA Images Recent events have once again raised the possibility of the UK agreeing a customs union with the European Union after its withdrawal. A customs union is a legal framework under which countries remove tariffs and custom procedures on each other’s goods, and agree to impose the same tariffs on goods coming in from third countries. The UK is required to exit the EU Customs Union when it leaves the bloc, but the prime minister last year also ruled out striking a new customs union with the EU. Yet, despite reaffirming her position again this week, the possibility of a climb-down or defeat is growing. Last week, the House of Lords voted by 348 to 225 in favour of a cross-party amendment to the EU (Withdrawal) Bill that demands the government explain what steps it has taken to pursue a customs union with the EU. The wording of this amendment does not necessarily force a U-turn in the government's strategy, but the overwhelming support in the Lords to keep the option of a customs union open creates new hurdles for the government (this is also only one of three heavy Brexit defeats the government has suffered in the Lords recently). The amendment will have to be put to MPs for a debate and a vote before this key piece of legislation can be passed. The outcome of a vote is hard to call, but the Conservatives’ weak position in the House of Commons could signal another significant defeat for the government. Even if the PM manages to secure a victory on the Lords' amendment, MPs will have another opportunity to alter the current negotiating strategy. Rebel Conservative MPs have tabled amendments to the Trade and Customs Bills that will make seeking a customs union with the EU a legal government objective. There are already signs that the government is concerned it could lose a vote on this issue—it has sought to delay the bills’ entry into the House of Commons, but it cannot postpone key Brexit legislation forever. In order to force the issue, some chairs of the Commons' select committees have secured a debate and a non-binding vote on the customs union issue on Thursday. Conservatives have dismissed the debate as a “piece of theatre,” while the government has made this a one-line whip—meaning MPs aren’t required to participate. But this could be a useful exercise for the government to find out how many Conservative MPs are considering rebelling on this issue. The tone of the customs union debate has become heated. Rumours started circling this weekend that pro-Brexit cabinet ministers could storm out if the PM changed her mind on this issue. Suggestions that May’s team might be willing to live with a climb-down was met with Housing Secretary Sajid Javid and Environment Secretary Michael Gove restating the "need to take back control of trade." This is also taking place against a background of high-pressure negotiations with the EU. On Friday, reports emerged that the EU has comprehensively rejected Britain’s proposals to avoid a hard Irish border—raising the prospect that the UK could be forced to accept a customs union to uphold its December promises. The EU's chief Brexit negotiator, Michel Barnier, has also recently suggested the UK could change its position on the single market and the customs union during the transition period, raising the stakes for upcoming parliamentary votes. As Open Europe has highlighted before, there are long-term political constraints to entering a customs union with the EU as a non-EU country. Existing models of customs unions between the EU and non-EU countries signal the asymmetry of this form of economic relationship. Turkey has entered into a customs union with the EU. Under this arrangement, Turkey agrees to align with EU tariff structures, pursue a substantially similar trade policy to the EU, and adopt EU rules and regulations in relevant goods areas. If the UK accepted a similar deal, its ability independently to strike new trade deals would be significantly limited, even in areas not covered by the customs union such as services—easing access to Britain's goods market is a strong tool to persuade other countries to open up related services markets. Most importantly, each time the EU strikes a new trade deal with a third country, Turkey is required unilaterally to open up its goods market to this new trade partner. Turkish businesses do not automatically gain reciprocal access to this partner’s market. It can take a long time to conclude a similar deal, because the third countries have little incentive to do so—they can already access Turkey’s market through the EU. UK businesses would be particularly concerned about this one-way street arrangement, given it risks significantly eroding their domestic and global competitiveness over the long-term. Suggestions have been made for reducing these obstacles—for instance, Labour leader Jeremy Corbyn has proposed negotiating a “meaningful” consultative role in future EU trade policy to ensure UK interests are taken into account. As a point of reference, Turkey has no decision-making power over who the EU strikes trade deals with, nor can it formally represent its interests in EU negotiations. It is true that the EU is currently considering expanding Turkey’s level of “consultation/involvement” in EU commercial policy to try to achieve harmonised entry into force of agreements and limit the current asymmetry Turkey experiences. But it still falls short of having a decisive voice in negotiations. While this may be appropriate for a country (nominally) on the path to EU accession, it is unconvincing as an effective or sustainable political solution for a country that has just negotiated its exit. It is doubtful a consultative role would translate into real influence in practice—why would the EU rigorously pursue UK interests in trade deals with third countries after Brexit, especially in situations where they clashed with the positions of a member state? And what happens if the UK is opposed to a trade deal the EU wanted to strike? Outside the bloc, it is highly improbable that the UK would be able to secure a formal veto over future EU FTAs—why would the EU give Brexit Britain that power? A crunch point would surely come in the UK-EU arrangement as soon as prospects emerged for a deal with a major economy like China, India or the United States. There is a strong argument for agreeing a framework to maintain and recognise UK-EU alignment on customs, tariffs and regulations in the short term—indeed, parliament’s upcoming customs votes will likely push the government to remain in step with the EU on trade and customs after Brexit. This will be necessary to allow the UK and member states time to introduce new customs systems, as well as giving UK and EU businesses time to adjust their processes and prepare for new administrative procedures. It would also provide breathing space to agree and implement a political and technical compromise that avoids introducing physical infrastructure at the Irish border. Interestingly, former Irish Taoiseach Bertie Ahern this week called for Ireland to focus on detailing what UK-EU “regulatory alignment” will look like, adding, “There is no point in beating the drum on the customs union.” But formally binding itself to shadow EU trade policy is unlikely to be a suitable long-term solution for the UK. As the vote to leave itself demonstrated, divergence is likely to win out in the long term. If the UK bases its future relationship with the EU on a new customs union, it risks undoing the whole partnership when it starts to go its own way.