What’s the difference between “a” customs union and “the” customs union? And between that and a “free trade area”?
The EU Customs Union is a simple thing. The EU member states all agree to abolish tariffs and quotas on free movement of goods around the EU. In return, they agree to a uniform set of external trade barriers – tariffs, quotas, and other rules – for counties outside the Customs Union. So, obviously, the members can’t then go off and do their own deals with other countries.
If Britain is outside the customs union (even if it is in a free trade zone with the EU, so the UK can export tariff-free) then the EU has to be sure that imports are genuinely British. That means agreed “rules of origin” and some checks or controls around that: a given percentage of the value of something has to be certified and audited as British – usually 40 to 60 per cent plus. That does mean some sort of “friction”, and possibly a “hard border”, including in Ireland.
So, to give a topical example, if the UK decides to allow Chinese steel into the UK freely, say to Belfast, and then tries to re-export it to Ireland, flooding the EU market. The Irish and the EU are entitled to say that the steel is not really British, and thus tariff-free, and they are allowed to add a tax to it – and to stop it at the border. A hard border they need to control.
Similarly, the EU could argue that a “British” car made with Chinese steel and American and Korean parts, for example, may not qualify as “British”. That too needs to be checked out. That’s how the customs union works.
In order to keep some of those benefits but also allow the UK to agree its own external tariffs with third countries, the only proven way to do so is a partial customs union – one that covers some goods, say cars, but not others, say agricultural produce. This is how the EU’s agreement with Turkey works.
To use a concrete example, the green diesel engines made at the Ford works at Dagenham in Essex go right across the EU and then out of the EU into Turkey without tariffs being imposed. The engines are then fitted into Ford Transit vans made in Golcuk, Turkey, and the vans are exported from Turkey to the EU, including the UK, with no tariffs of customs restrictions imposed on them. It is all done “friction-free” across the EU’s external frontiers. On the other hand, Turkish beef, say, is subject to EU regulations.
So “a” customs union can be a partial Customs Union – more like eating half of your cake (manufacturing) but not the other half (agricultural produce). It is a bespoke arrangement, though in Turkey’s case aimed generously at promoting an emerging nation’s economic development. For that reason, it may not be regarded as suitable for the UK.
However, Jeremy Corbyn wants “Turkey Plus”: he says that Labour wants a “comprehensive” customs union with the EU, so covering, one assumes, all sectors – but also a role in negotiating trade deals with other countries. Cake and eat it?
Labour’s policy is that the UK would buddy up with the EU when it comes to negotiating trade deals with other countries or trading blocs. This would work well when the UK and the EU have interests that are perfectly aligned; but in areas such as, for example importing cheap food from the US, Australia or Canada, national interests might well diverge.
Will the UK in fact have a veto on new third party trade deals – the same veto as it enjoys now as a full EU member? Can Britain stop 27 other countries in the EU enjoying a deal they’ve fought hard for?
Would the EU Trade Commissioners even agree to have (presumably) the British International Trade Secretary Berry Gardiner tagging along when they go to Canberra, Delhi, Beijing or Seoul? Even when the German or French or Polish ministers aren’t invited? (Or Turkish ones). It does feel improbable.
Overlaid with a bespoke single market arrangement, such as enjoyed by Switzerland – again a sector-by-sector negotiated bespoke deal – then the UK would indeed have a very unusual and special economic relationship with its biggest trading partner, but whether such an extremely complex asymmetrical (ie messy) arrangement would be practical, let alone politically acceptable to the EU27 is far from clear.
Labour also say they wish to leave the EU single market so that they can get on with state subsidies for investment in British industry and following our own public procurement policy (which might, for example, mandate Whitehall, nationalised enterprises and local authorities to buy British supplied goods and services).
Corbyn believes that Labour will not be allowed to “invest, upgrade and transform” our economy if we stay inside the EU single market.
True, but then the EU might also argue that UK taxpayers subsidising British products and services constitutes a violation of the customs union and unfair competition too. Why should, for example, a renationalised Royal Mail be allowed to compete with the privatised Deutsche Post or the Dutch postal service that have to face stiff competition? Or why should Spanish or German Opels compete with identical UK-made Vauxhalls that rely on UK investment grants to stay price-competitive?
The customs union and the UK-EU trade deal probably couldn’t cope with such strains. Corbyn’s policy, like Theresa May’s, looks and feels very much like cherry-picking, but just a different set of fruit in the basket. That’s because it is.