The costs and benefits of the UK’s membership of the single market were widely debated before the referendum. However, the customs union was hardly mentioned. Yet it is the customs union that permits goods to circulate freely within the EU (and beyond, to a few other countries including, for the most part, Turkey) and which means the EU negotiates trade agreements with non-EU countries as a single entity.
So does Brexit mean leaving the customs union? It seems obvious that it would – what’s the point of leaving the EU if we leave the EU in charge of UK trade policy? On the other hand, the Treasury is now taking a good hard look at the costs and logistical implications of having to reinstate at least some border checks for goods flowing between Dover and Calais, or Felixstowe and the continent (not to mention the thorny issue of the Republic of Ireland-Northern Ireland border).
What is the customs union?
The European Union is a customs union. It allows free trade between countries inside it and allows imports in to the area by setting common tariffs. The area does not just include EU members. For instance, Turkey is part of the customs union for manufactured goods but not services or agriculture. The single market involves deeper integration of free movement of people, goods, services and money. This means laws need to be aligned. Some countries have access to the single market without being members of the EU’s customs union.
There are no simple answers here – while there are undoubtedly short-term costs to leaving, it is perfectly reasonable to argue that if the UK is to make a success of Brexit over the longer term we need the flexibility to formulate our own, independent trade policy. To make an objective assessment of the costs and benefits, you might even want to ask some experts …
What you definitely don’t want to do is to listen to anyone who claims that leaving the customs union has no costs, only benefits. But that’s precisely what Change Britain did when it claimed on Tuesday that leaving the customs union – and concluding new free trade deals with countries ranging from India to Korea – could “create 400,000 new jobs”, because of the projected increase in UK exports.
Let’s leave aside the fact that India has made it abundantly clear that it’s not interested in a trade deal with the UK as long as we continue to go out of our way to make skilled workers and students from India unwelcome. Let’s even brush over the fact that the EU already has a free trade deal with Korea. Since this has been broadly in force since 2011 – and would not necessarily continue post-Brexit, although it may well do so – this is a potential cost of leaving the customs union, not a benefit. Even more fundamental is the obvious point that the impact of free trade deals – if they are successful – is to increase both exports and imports.
Claiming that free trade deals would create British jobs because our exports would go up, but ignoring the fact that our imports would also increase, is either deeply ignorant or deliberately misleading. In fact, almost any economist – regardless of their views of the economics of Brexit – would tell you that over time the impact of trade deals on overall employment in the UK is likely to be negligible or zero. As with its report last week, Change Britain seems to be doing its best to crowd out serious debate on the costs and benefits of leaving the customs union.
Meanwhile, back in reality, the Financial Times’ annual survey found that the vast majority of economists remain of the view that Brexit will be a drag on UK growth over the medium to long term. Of course, economists, like others, should not just be asked what they think will happen next, but be held to account for what they predicted in the past. Last year I said that Brexit would have relatively little impact on the economy in the short term (that is, in 2016) but that it would be significant medium-term costs; we will see how that turns out.
Less definitively, I also said that the UK could survive and indeed prosper outside of the EU, but there are obvious and serious risks. The current framing of the Brexit debate, across the political spectrum – that we are somehow “trading off” the economic benefits of the single market against the downsides of free movement – illustrates those risks. Restricting trade, capital flows and immigration – reducing the openness of the UK economy – all have negative economic impacts.
It is these big choices about the UK’s economic future – not fictional numbers made up for a cheap headline or to support the political agenda of one faction or another – that we should be focusing on as we approach the start of the Brexit process.
