As Labour’s annual conference approaches, much attention is rightly focused on Labour’s position on long-term membership of the single market. Less discussed is Labour’s current policy towards the customs union. Yet this is an issue around which most wings of the party could unite.
Committing decisively to remaining in the customs union for the long-term, which would mean retaining frictionless trade in goods with our largest market and protecting peace and stability in Northern Ireland, is not only the right thing to do, but would more effectively differentiate Labour’s position from that of the government.
A transitional period inside the customs union and the single market, as Labour is now proposing, would delay some of the worst effects of Brexit. But that is all it would do.
The costs of leaving the customs union are clear. Around 180,000 UK exporters will face new red tape and costly country-of-origin rules, meaning industries with integrated supply chains, such as automotive and aerospace, will be particularly hard hit. GDP will be hit by up to £25bn a year, on top of the costs of leaving the single market. And, perhaps most significantly of all, customs controls will be reintroduced on the Ireland-Northern Ireland border.
So why is Labour not backing customs union membership? As the party has wrestled with this issue, three main arguments have been put forward.
First, there are some who buy the idea that quitting the customs union will boost the UK’s trade by freeing us to do trade deals with countries outside Europe. The shadow international trade secretary, Barry Gardiner, has argued that remaining in the customs union with the EU would be “deeply unattractive” as it would “preclude us from making our own independent trade agreements.”
But, as his colleague Keir Starmer rightly said recently, the idea that new deals will compensate for any loss of trade with the EU is “an untested proposition.” As things stand, around 60 per cent of UK exports go to either the EU or the nearly 60 countries with whom the EU has a trade deal, and negotiations are underway with nearly 70 others.
It is often pointed out that the EU hasn’t reached comprehensive deals with the US, India or China, but the reasons for this will not evaporate when Britain leaves. The EU’s deal with the US stalled because of concerns across Europe about regulatory convergence – concerns that are strongly held within the Labour party. The EU-India foundered because of the UK’s objection to granting more visas to Indian workers.
Even if Labour could unite around a vision of turbo-charged free trade, it is clear that deals with new markets would take many years to negotiate, and would involve major trade-offs for minimal reward. Analysis by NIESR suggests the estimated increases in trade from FTAs with Australia, Brazil, Canada, China, India, Indonesia, New Zealand and the US would be less than 5 per cent. By contrast, leaving the single market will be associated with a long-term reduction in total UK trade of between 22 per cent and 30 per cent.
A second argument centres around the view that EU-negotiated trade deals are intrinsically malign and anti-democratic. Unshackled from the EU’s trade policy, so this argument goes, Britain will be free to strike more progressive deals than the EU does. This may be what Jeremy Corbyn was getting at when he called in June for a Brexit “that protects living standards and promotes human rights through new trade deals throughout the world”.
But this argument is flawed as well. Gardiner has listed “the US, China, Japan, Australia and the Gulf states” as countries the UK would need to strike deals with to try to compensate for the costs of leaving the EU. But nearly all of these would pose profound challenges for Labour. The terms on offer from US trade negotiators will be more no more favourable than those Labour rightly rejects today. China will extract a high price for any opening of its services sector. And it hardly needs saying that any agreement with Saudi Arabia or the other Gulf states would be deeply contentious within the party. Labour risks leaving the customs union only to find it rightly opposes the trade deals on offer.
Finally, there is an argument that remaining in the customs union would mean Britain losing influence, accepting the terms of trade that are negotiated by the EU with third countries, like Turkey does, but without any input. But it is wrong to jeopardise investment, jobs, prosperity and the settlement in Northern Ireland for an illusion of greater control.
And this argument also assumes there is no way that Britain could secure a better status than Turkey. Just as Norway is able to have a say on the rules of the single market, despite being outside the EU, Britain should seek a relationship with the EU on customs and trade that allows us to help shape the terms and priorities of future negotiations.
Labour is right to argue for a “jobs-first Brexit” and for a deal that secures “the exact same benefits” as we currently enjoy. And it is right to insist that Brexit mustn’t risk in any way altering the settlement in Northern Ireland. But it must now wake up to the fact that these objectives cannot be achieved by leaving the single market and customs union.