14 July 2017

OMFIF: Folly of leaving EU customs union

Of the many claims about Britain’s exit from the EU, the most odd is that leaving the EU customs union opens the door to a massive expansion of exports and will allow the UK to create new trading alliances around the globe.

Suggestions that leaving the customs union will benefit poorer countries is wrong too. No fewer than 49 of the world’s least economically developed nations already have tariff-free access to the EU.

Being in or out of a customs union does not in itself guarantee enhanced trade. Of EU member states, Britain lies 15th in terms of exports per capita according to latest estimates. The Netherlands, in first place, exports four times more per head than the UK. Slovakia twice as much, putting it ninth. Last year German exports to China were worth $85.4bn while the UK managed $18.4bn.

On leaving the customs union, the UK will have to renegotiate hundreds of trade and regulatory agreements with non-EU countries. This is achievable but will take a long time and require a massive new bureaucracy funded by taxpayers. [...]

The UK runs a trade surplus with the EU in services, but not in goods. Yet free trade agreements tend not to cover services such as air transport or finance – two areas where the UK profits handsomely from trade with the EU27. If UK firms are willing to set up subsidiaries in another EU nation they will be within the customs union but this is a costly option given that, for now, they can trade unfettered in the EU market.

A poll last month for the Mail on Sunday newspaper, by the market research agency Survation, showed that 69% of Britons questioned were opposed to leaving the customs union. As Article 50 negotiations proceed, Britain should signal acceptance that such a move is not a priority. This would have the advantage of keeping the border between Northern Ireland and Ireland as it is, which is one of the EU’s prime concerns. [...]

Full article on OMFIF

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