Labour MPs face some agonising decisions on Brexit votes right now. Notwithstanding the manifesto pledge to implement the outcome of the EU referendum, many MPs are keen to exploit the Tories’ manifest weakness and divisions by inflicting parliamentary defeats on the Government. Understandable as this may be, that the chosen ground for this battle appears to be committing the UK to stay in a customs union with the EU is deeply regrettable.
The argument for such an approach is often couched in terms of keeping trade tariff-free and frictionless, thus protecting jobs. That the CBI, the arch-lobbyists for the interests of big business, are at the forefront of the campaign to keep the UK in the Customs Union should rightly give Labour supporters pause for thought.
A customs union would indeed mean tariff-free trade continuing between the EU and the UK. But this outcome is already available from a trade agreement such as that between Canada and the EU, something the EU has already put on the table.
It is the other key feature of a customs union where the problems begin: all countries have to charge a common external tariff external on goods coming in from other countries.
As a result, the UK would be unable to negotiate independent trade deals with fast-growing economies around the world such as the US, Australia and China. But it’s not just about formal trade deals: we would also have no ability to decide what tariffs we charge on imports from non-EU countries. At the moment we are forced to charge high tariffs on food, clothing and footwear imports from non-EU countries, mainly to protect industries in continental Europe.
EU tariffs on imported goods hit the poorest families the hardest by increasing prices of essential goods. They make it harder for poorer countries to export their goods. They do, however, protect the profits of big corporations (no wonder big multinationals like the protectionist customs union so much). This protectionism also reduces incentive to invest contributing to low productivity and long-run wage stagnation.
There are sometimes good reasons to erect tariffs on imports, for example to protect against ‘dumping’ of goods at below cost price or as a temporary measure to protect fragile industries or regions. But staying out of a customs union does not mean we have to reduce tariffs on imports, only that we can decide what is in the best interest of our industries, workers and consumers. Why, for example, would we want to continue to charge 17% tariffs on imported trainers once we leave the EU when all it does is to push up prices for hard-pressed UK consumers?
To read the piece Professor David Paton has written alongside John Mills for BrexitCentral in full, click here.