Dominic Walsh

Would adding a customs union to the Brexit deal really be so bad?

Would adding a customs union to the Brexit deal really be so bad?
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It has been nearly a month since cross-party talks between the government and Labour began, and there is still no sign of white smoke. If the two sides do reach a deal, it is likely to involve movement from the government towards Labour’s key demand – negotiating a 'permanent' customs union with the EU after Brexit. Both the Telegraph and the Mail report this morning that the Prime Minister is inching towards a customs union, which she increasingly sees as the only way to get a version of her deal through parliament.

There has already been a pre-emptive backlash against the idea. Foreign Secretary Jeremy Hunt has warned that 'there is a risk that you would lose more Conservative MPs than you would gain Labour MPs.' He may have a point – Maria Caulfield, a Tory MP who voted against the deal the first time, but for it on the second and third occasions, tweeted yesterday, 'I will not be voting for a customs union... A customs union is not leaving the EU.' The second point, of course, is demonstrably untrue, but more on this later.

On closer examination though, it is hard to sustain the argument that formally adding a customs union would make May's deal exponentially worse. For starters, the existing deal contains a 'single customs territory' as part of the backstop. Indeed, Labour’s absurd refusal to vote for a deal that effectively contains a customs union, because they want a 'permanent' customs union instead, has been a significant contributor to the ongoing impasse.

Of course, the backstop is designed to be replaced by something else, whereas Labour call for any customs union to be 'permanent.' However, the truth is that a customs union-style future relationship cannot be made 'permanent' at this stage. For starters, it hasn’t even been negotiated with the EU yet, and can’t be until we actually leave – the EU takes the view that pre-exit negotiations cannot be the basis for the future relationship. The Political Declaration could certainly be rewritten to include a customs union, but the Political Declaration is a non-binding document. Even writing a commitment to negotiate a customs union into domestic law would not make it 'permanent' – a fundamental cornerstone of British democracy is that no parliament can bind its successors. A deal reached between Corbyn and May in 2019 would be powerless in the face of a parliamentary majority for leaving the customs union in 2023. The real constraint on leaving a customs union will not be any May-Corbyn deal, but whether the UK can find a workable alternative to the Irish backstop.

With that in mind, it makes little sense for Conservative MPs who have voted for the backstop once, twice, or three times to see a non-binding commitment to a more long-term customs union as a deal breaker – particularly when it may end up being the only form of Brexit that this parliament will vote for. And yes, it is a form of Brexit. The argument that 'a customs union is not leaving the EU' will come as news to Turkey, which has never been in the EU but is in a customs union with it. (Whether or not you think Turkey is a good model for the UK to follow is beside the point.)

The best argument for leaving the customs union is political – as Ivan Rogers has argued, it won't be sustainable long-term for a post-Brexit UK not to have greater autonomy over its trade policy. The short-term economic case for leaving the customs union, on the other hand, is marginal.

Much is made of the constraints a customs union would place on the UK signing new trade deals. Firstly, these constraints are exaggerated – yes, we would not be able to independently vary our tariffs in order to implement comprehensive trade deals covering goods, but we would be free to sign deals covering services, investment, data and so on. And in any case, while trade deals can be an important diplomatic tool, their economic benefits are often overstated. The government’s own analysis found that new trade deals with countries including the USA, China, India, Australia and New Zealand would only provide a long-term increase of 0.2 per cent to 0.7 per cent of GDP. Furthermore, the EU itself has recently signed trade deals with Canada, Japan and South Korea, and deals with Australia and New Zealand are likely to follow in the next few years. In general, EU average tariffs are low, and it also operates preferential and zero-tariff regimes for trade with many developing countries. With all that in mind, the only real potential prizes from an independent UK trade policy are the USA, China and India, all of which would be very difficult deals to do in practice.

With this in mind, it seems that the customs union refuseniks are missing the wood for the trees. The prospect of signing new trade deals was not the main driver of the 2016 Leave vote – most polling showed that while voters liked the idea of trade deals, immigration and sovereignty were much more important to them. The Prime Minister’s deal addresses those two key concerns - we would be out of the EU’s political project, regain control of immigration, and take back control of most of our laws within the next 2 to 3 years. Fundamentally, Brexit is a process, not an event, and Conservative MPs need to decide where their priorities lie. Set against the risk of no Brexit at all, is waiting a little longer to do trade deals really so bad?

Dominic Walsh is a Policy Analyst at the think-tank Open Europe.