Thursday, 14 March 2019

Strange thought - maybe Jeremy Corbyn was right all along (on this particular issue)...

I've pretty much ignored Labour's wafflings about Brexit because they are woefully unclear and contradictory, all they do is trot out some gibberish and repeat the mantra "avoiding a damaging Tory Brexit".

In among the waffle however, Jeremy Corbyn himself has been consistent on two matters - he refuses to say how he voted in the Referendum and has always said that he thinks the UK should leave the EU but remain in the Customs Union. This always seemed like a daft idea to me, and I automatically assumed it was wrong because he said it.

This is a perfectly plausible outcome - Turkey is in the Customs Union (actually, it's in a customs union with the Customs Union as this lengthy but informative article explains) but not in the EU.

The (a typical) CU only applies to goods, not services; Turkey is not in CAP or CFP; there's no free movement between EU and Turkey; a lot of EU rules simply don't apply there; Turkey doesn't have to impose VAT; and so on.

At our last YPP meet-up, Mombers (a moderate Remain voter) asked me what was so bad about staying in the Customs Union, given that the average tariffs are only 1.5% (a drop in the ocean compared to the current UK domestic tariff of 20% on most goods and services).

And to be honest, I struggled to think of anything really bad. Even the hard Leaver present (see comments!) couldn't think of any fatal flaws. Which got me thinking. Clearly, it's not a one way bet and there are downsides, but it would fix a lot of actual problems (car manufacturer supply chains) and perceived problems (chlorinated chicken, Irish border).

So not much changes, nothing changes for the better (but those who would gain don't know it so aren't protesting) but nothing changes for the worse either and everybody knows what they are doing. A price worth paying to get out of the EU.

The Week has a nice short article on the pro's and con's of leaving it (so the con's are pro-CU etc).

The advantages (actual or perceived) of staying in the CU make sense to me.

What are the disadvantages of staying in the CU, do they outweigh the advantages?

The first linked article lists some downsides for Turkey of the EU-Turkey deal, but these are individually negotiated and we should be able to do better. Turkey made a lot of concessions being a much weaker partner and seeing this as a first step to full EU membership. The UK is going in the other direction. I've read other articles and all the disadvantages, while real, are fairly minor.

The second article lists the following:

Hard Brexiteers warn that staying in a customs deal with the EU will prevent the UK from negotiating future trade deals.

That is true, but we've not done very well so far, in two-and-a-half years, we've managed an FTA with Switzerland and that's it (which we'd have in the CU anyway). I'd rather have free trade with Europe than with America anyway.

May herself has been vehement in her desire for Brexit Britain to be a “global leader in free trade”, arguing in her Mansion House speech that it would be a “betrayal of the British people” to stymie its potential by joining a customs union.

Ignore the grandstanding crap about "global leader in free trade". What does that even mean? We should be doing things for our own benefit, not to impress or influence other people. The deal which May (a Remain fifth columnist) is pushing really is a "betrayal of the British people", so she can shut up.

Environment Secretary Michael Gove has tweeted that “the referendum vote was clear - we need to take back control of trade - that means leaving the protectionist customs union”.

The vote was to leave the EU, full stop. Everybody had their own reason why they voted Leave. I doubt that many Leave voters put "take back control of trade" right at the top of their list of reasons.

Arch Brexiteer and chair of the European Research Group Jacob Rees-Mogg has argued that staying within a customs union would leave the UK paying Brussels huge sums each year while having no say on rules and regulations imposed on business and commerce.

He can f--- right off. The first part is either a lie or evidence that he knows nothing about it. If we were in the Customs Union, we would have to impose EU mandated tariffs (about £3 - £4 billion a year) but would not need to hand them over to the EU any more, pretty much the opposite of what he said.

True, the EU will no doubt stiff us for an 'access fee', but such is life, it depends on the numbers. As long as it's less than £10 billion a year (or whatever our net payments are now), that's a win.

It is also true that the UK would have no say over the rules, but:
a) EU rules on quality of food and goods seem fair enough to me
b) the UK is a fairly typical European country. Measures that 'protect' French farmers would also 'protect' UK farmers; measures that harm UK potteries would also harm German potteries etc. The EU would have to pretty devious to think up things which only harm UK producers or consumers while benefiting them in EU Member States.
c) UK services would be entirely outside the system anyway.

Rees-Mogg believes that, after leaving the union, the UK should phase out all tariffs in order to reduce consumer prices and stimulate competition.

Oh does he now? The average EU tariff is only 1.5% for crying out loud, that is the least of our worries. I bet he loves VAT though.


mombers said...

Nice post MW. Much bigger fish to fry than the customs union:
-there must be other TLAs (Three Letter Acronyms)
The potential upside of leaving the customs union is probably tens of pence per household at best. The downside risk is huge though. Not worth it.

ThomasBHall said...

Was I the hard Leaver? ;)
I've been thinking about this too- and actually, I think I agree. Customs are small fry really, and the long term trend is probably down still.
My worry is that as well as the Customs Union, we'd get stitched up with a lot of other things that are not customs related. VAT for example. Oh, and I'd be amazed if the handing over of the duties raised didn't continue to get sent to Brussels...

Lola said...

"That is true, but we've not done very well so far, in two-and-a-half years, we've managed an FTA with Switzerland and that's it. I'd rather have free trade with Europe than with the Americans anyway. That's because May and Co haven't been trying.
In principle I agree. However you cannot trust the EU bureaucrats. Look at the way they got us to comply with the Working Time Directive by later invoking 'elf 'n safety to get it applied to us.
In any event had May and Co any bloody clue / not been devious lying bastards done their negotiating properly it is highly likely that we'd have had a trade agreement structured around some sort of CU membership or co-membership.
And CU membership does stop us doing things like declaring unilateral free trade.
Lastly the CU is one of the EU's control mechanisms. Look at how they are using it on the fake difficulties with the EU / UK border in NI.

ontheotherhand said...

The huge downside if part of the CU but not in the EU is that any trade deals with, for example, China, give China free access to the UK market, but we do not get free access to China. The EU could dangle one-way access to the fifth biggest economy of the UK as a chip to gain the EU (not us remember) access to China. As the article says, Turkey is stuck in this position and hates it.

As to what The Week believes is Rees Moggs position, they seem to make something up and then link to a video where he says something completely different.

I can only guess that Labour likes the Custom Union because it says "union" and doesn't like the Single Market because it says "market"!!

Can we do better than Turkey on a CU? This crowd of hopeless negotiators who gave up when told "no cherry picking"?

Mark Wadsworth said...

M, thanks. Credit to you for asking the question.

TBH, yes, is that incorrect?

L, C, that depends on precise details. I just mean as a general principle, it's worth considering.

tolkein said...

A customs union, not the Norway option? Maybe, but it would be bespoke and not take 5 minutes. Norway, as I've said before, is membership of EEA (technically EFTA). Get access to Single Market, Customs Union, BUT, like Norway, doesn't get a vote on Directives. For goods OK, but Financial Services, where UK is twice the size of the rest of the EU put together? Which generates 14% of GDP, employs c 2 million people. the behaviour of EU Commission over recognition of the UK data protection regime under GDPR (we fully implemented it, and with over 10% of world data flows going through UK, we are far better advanced than EU. We have recognised the EU after 29 March but Commission is refusing to recognise UK as adequate before 29th March. If no recognition, no data flows re personal data ex EU to UK. Pure spite.)They write the rules for us, without us getting any say? We aren't subject to ECJ (EFTA Court instead, which is on Common Law principles) but still have free movement - hello our share of Germany's 1.2 million Syrian refugees - and still pay £10bn a year to Brussels. The City will fight this tooth and nail. BoE opposes it, so does FCA and PRA.

Andrew Carey said...

I beg to differ, and massively so. He's discussed the EU tangentially but without mentioning its primary fiscal purpose which is to subsidise the owners of qualifying agricultural land. If you disagree with that comment then you have to show that the EU budget is an accident. You would have all your work ahead of you, I'm afraid.
The next thing overlooked by Mark ( middle ranking fan as I am ) is the structure of the Customs Union. The average tariff is a few %, but the highest tariffs are for agricultural products.
Yes, the EU Customs Union's primary activity is to protect the recipients of the hand outs of the Common Agricultural Policy from competition. There is further regulation forbidding GMOs which prevents the recipients of the hand outs and the protectionism from being more productive which means the opportunity to take land out of agriculture and use it for something else has been foregone.
Finally, another word not mentioned by Mark is quotas. These are actually more damaging for an economy than tariffs ( paper available if asked for nicely ) in part because they give a value to the people that have a piece of the quota which encourages corruption, and a tariff without a quota system means more productive people still have market access.
Does the EU Customs Union like quotas? Yes, your bet that it does is a winner.

Lola said...

Excellent and informed comments.

L fairfax said...

Here is an article about why leaving the custom union is a good idea
It is worth reading in ful

ThomasBHall said...

@MW- I suppose I am quite a "hard" leaver. I think the last two years have hardened me anyway.
I still recognise we can do a lot in or out- but the CAPP + VAT is the opposite of my economic ideal, so the EU get's a no from me.

@Andrew Carey- forgive my ignorance, but how to the quotas work in practice? It's not the first X tons in are duty free, so who get's the quota?

Andrew Carey said...

This is an interesting article ( to me ) that shows that quotas impose far more downsides to tariffs
You've called me out on my ignorance Thomas because I guess,but don't know, that once a bloc's quota is set it's up to the bloc e.g. Mercosur to allocate it to their exporters. But any quota wouldn't exist at all unless the demand exceeded it, so having a piece of it means you have something of higher value due to government intervention in your favour than if it were left to a price system. This can only lead to graft.

Andrew Carey said...

Here's another example
Suppose the EU is right ( which it isn't , but let's follow the logic of free trade and price mechanisms ) that soy is less damaging than palm. Then slap a tariff on palm to compensate for the damage and let market forces do the rest. Malaysia and Indonesia will do something else with the land which gets a price for whatever else happens there ( tourism, coppicing, whatever, I don't know the myriad alternate uses ). But the really productive palm using the smallest land area would still get through and be sold in the EU.
Which takes me back to the tariffs not being the bête, but the quotas, bans and percentages being decreed.

Mark Wadsworth said...

T, what's your preference? Remain, May's Deal, EFTA or CU?

AC, yes, import quotas. That's something that will have to be agreed.

LF, that article is about how great it would be if we had as many FTAs as possible. Well of course, but we are where we are and the closest thing the EU will offer us is a CU.

Sobers said...

There's also the issue that in any future free trade deal the EU signed with a third party, they would have a vested interest in excluding financial services, just to spite the UK. And we could never then deal separately with that country. So the EU could negotiate free access to the EU customs area for country A's agricultural produce say, in return for manufacture access to their market (good for Germany) but exclude any financial services from the deal, and country A won't mind, it hasn't got any anyway. Uk stitched up. They'd do it too.

Mark Wadsworth said...

S, yes of course they will try and keep UK banks out. Given their appalling reputation, who can blame them?

Robin Smith said...

What you might be missing is a bit of lateral thinking.

Leaving may help the public see how feckless any kind of protection is. What's more, once the tariffs and customs are seen for what they are - taxes - there's an opportunity for the people to recognise taxes in and of themselves are inherently bad, all being damagingly protectionist. What door locked for a century might we expect to see open then? Open your minds folks.

This was exactly the purpose of George's 'Protection or Free Trade'.

Many dismiss me as a foolish dreamer. Think outside the box, to see what will come of it. Sometimes an astonishing incite that before was hidden by a selfish worldview, religion or ideology.

It's all in the collective psyche, ripe for the picking.