The Government should make its case for leaving a customs union – or change its mind

Mounting pressure

It is still the Government’s position that the UK will not be part of a customs union with the EU after Brexit. But pressure is rising. A heavy defeat in the Lords last week on an amendment to the EU Withdrawal Bill is not binding on the Government. Nor is a Commons vote on Thursday urging ministers to stay within a customs union. But more bills (on customs and trade) returning to the Commons this summer provide a real chance for Tory rebels to join with Labour in trying to force a U-turn on a central element of the UK’s future relations with the EU. While government whips are anxiously checking the numbers, some reckon there would be a majority in the Commons for staying in.

Meanwhile, supporters of a customs union argue it would help solve – if not completely – the problem of the Irish border, which will dominate negotiations ahead of the European Council in June. EU negotiators may use the Irish question to increase pressure of their own on the Government to reconsider a customs union.

The Government needs to make its case

If the Government is going to hold fast to its position, it now needs to make the case for leaving the Customs Union far better than it has yet done.

Its best argument is that being in a customs union but outside the EU would bring serious disadvantages. The UK might have much less freedom to strike trade deals of its own, one of the main justifications given for Brexit. It could mean, too, that the UK became a “rule taker” – being obliged to follow the terms of deals the EU struck, but not able to influence them. Worse, it might be forced to accept the form of customs union that Turkey has, one that doesn’t cover agriculture and as the EU does new trade deals with other countries, gives those countries access to Turkey’s market without giving Turkey access to theirs. Turkey is very unhappy with these terms. Those who argue for staying in a customs union, such as Labour, say that it should be possible to strike much better terms than Turkey enjoys with the EU.

The Government has spent much effort trying to rebut arguments where it is on weaker ground. Three challenges have given it particular trouble. The first is that a customs union is the best way of minimising a hit to growth because it would protect frictionless trade in goods (though not services). Ministers have asserted that new trade deals would more than compensate for reduced trade with the EU – but their own officials’ estimates, leaked in February, pointed to the opposite conclusion. That is not surprising. Most trade models hold that proximity matters, and (even less controversially) that if trade is made more difficult or expensive, there will be less of it.  

The second is that a customs union would help solve the Irish border question. It could avoid the need for checks on duties and proof of origin, although regulatory issues, such as agriculture and food, would still need to be addressed.  

The third challenge is that the Government’s proposed alternatives to a customs union are not workable. One proposal is for a “customs partnership”, supposed to deliver frictionless trade while giving the UK freedom to set tariffs. UK customs authorities would charge the higher of UK or EU tariffs on imports, then track goods to their destination and enable the importer to claim a rebate if warranted. The EU and businesses have retorted that the tracking technology does not exist and the process is fearsomely complicated. A second, “highly streamlined” or “maximum facilitation” model (“max fac”, in the jargon), would name businesses as “trusted operators” and collect duties at regular intervals. But this would require the EU to show more flexibility than it has been willing to in the past and, critically, doesn’t remove the need for a customs border so it wouldn’t solve Ireland. The Government cannot get its case for leaving the Customs Union off the ground until it shows that it has a workable alternative.

U-turn?

So far, 10 Conservative MPs have said openly that they would back staying in a customs union. That is also the official Labour position – although Labour has its own handful of rebels who suggest that they would support the Government. If the Government appeared likely to lose a Commons vote, it might use that as a reason to change course. Brexit supporters including leading Tory MPs would be furious; it is a finely balanced calculation for the Prime Minister whether they could and would trigger a leadership challenge.

At this point, it appears that the Government can’t be sure of getting a deal involving leaving a customs union through Parliament. It needs to make its case in far more detail than it has yet done – and provide Parliament with the material to debate this properly, including economic assessments which have been notable by their absence.

Parliament has not yet had a chance to debate these questions properly. If the Government can win that argument with MPs, its way ahead is clear. If it can’t, it should consider whether to respect Parliament’s view and refashion its notion of the future relations with the EU.