08 February 2018

Financial Times: Where Brexit hits hard, a customs union will help

[...]Leaving the EU and the single market, while staying in a customs union for goods, would give Brexiters much of what they want, on freedom of movement in particular. At the same time it could help to minimise the economic pain of leaving the EU, especially for areas at the most risk of harm.

The need for compromise has been put in sharp focus by the government’s leaked Brexit impact assessment. It projects that the effect of different forms of Brexit would vary widely across regions — with London suffering the least and the north-east and the West Midlands hit hardest. The key reason, presumably — only MPs have seen the full assessment — is varying industrial mix. The exporters of cars, food, and other goods stand to lose most if tariffs and other trade barriers rise with Europe. Service industries based in London do not, at least, have to worry about customs checks.

Local councils and business groups in Brexit-voting regions are aware of the danger they are in. The representatives of food processors in Grimsby, farmers in Cornwall, and potters in Stoke-on-Trent are keen for barrier-free trade with the EU, and for keeping the protection of the EU’s external tariffs. But the UK government cannot hand out special deals for particular regions. It needs a deal for the country.

No bilateral deal with a partner smaller or more distant than the EU will make up for the damage a hard Brexit will do

Remaining outside of the single market but within a customs union for goods would stop tariff and rules-of-origin checks at EU borders. It would give certainty to global companies that produce in Britain — as Japan’s ambassadoremphasised after Thursday’s meeting with Prime Minister Theresa May and Japanese auto executives. It would give the UK government control of immigration, significantly limit the authority of the European Court of Justice over British affairs, and give Britain freedom to try for bilateral service trade deals with non-EU countries. Finally, it would make it easier to avoid a hard border between Northern Ireland and the Republic of Ireland.

Of course, staying in a customs union would mean hewing quite closely to European regulations on goods. This undercuts the Brexiters’ dream of an entrepreneurial state free to strike any trade deal with any partner. But no bilateral deal with a partner smaller or more distant than the EU will make up for the damage a hard Brexit will do. Many companies based as far away as Asia conform to EU regulations for their global operations because it is efficient to do so; non-EU countries’ regulatory regimes often echo the EU’s for the same reason. The idea that there is prosperity to be found in rejecting the globally respected standards of an enormous neighbour is fantastical.

It is not a foregone conclusion that the UK and the EU will be able to strike an agreement on a customs union that satisfies both sides. But it is an economically sensible target for the government to aim at — and one a domestic political argument can be built around. The same cannot be said for more hardline options.

Full article on Financial Times (subscription required)

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