Daily Telegraph: Our PM must show leadership and ditch any form of customs union

EU uncertainties again. The case for remaining in the EU in some shape or form increasingly reminds me of one of those creatures from Greek mythology that can grow umpteen heads. As soon as you have chopped one off, another appears.

Theresa May is still interested in the plan for a new customs partnership (NCP) which we thought had been killed off by a vote against it in the Brexit inner Cabinet.

But apparently not. Many good judges think that this plan would effectively lock the UK into the EU‘s customs union. I readily understand that many readers must be heartily sick of the continuing shenanigans about Brexit. And I also understand that matters such as the customs union and the single market may appear to be mere details.

But they aren’t. They go right to the heart of what the EU is about. The customs union dates back to the signing of the Treaty of Rome in 1957. It also goes right to the heart of the EU‘s budget. For about 12pc of its total income comes from the tariffs that we, and other members, are bound by the customs union to levy on imports from outside.

There is a widespread presumption throughout the British establishment that membership of the customs union, or something very much like it, is essential to Britain’s economic self-interest. I don’t know where they get this idea from. Although customs unions boost trade between their members, they tend to diminish it between their members and the outside world. Free trade is much better. This is what we must be working towards.

The economist Christopher Smallwood provides an interesting perspective on our EU membership. He has drawn my attention to how the UK’s bilateral trade balances have developed over recent years. Now you can get too worked up by bilateral trade balances. President Trump frequently does. Nevertheless, they tell an interesting story.

In 2016, the last year for which we have full data, the UK ran an overall trade deficit of about £40bn. Our deficit with China was £26bn but our deficit with the EU was £80bn. By contrast, we ran surpluses of £33bn with the US, £1bn with Japan and £30bn with the rest of the world.

The movements over time are interesting too. Since 1999, our balances with the US, Japan and the rest of the world have improved markedly. Our balance with China has moved more into deficit to the tune of about £26bn. But the increase in our deficit with the EU has been a whopping £68bn.

Smallwood’s explanation is that we have entered a lop-sided trading arrangement with the EU. The single market works well for goods but it is very patchy indeed for services. Our comparative advantage lies mainly in services, whereas the rest of the EU‘s lies mainly in goods. So under the single market we have opened up our markets to the things where they have a comparative advantage, but they have done very little to open up theirs in the areas where we have a comparative advantage.

Still, as the civil servants say, it is vital that we remain in this arrangement, or in something very close to it. Vital for whom, I wonder? We are told that at the recent Brexit inner Cabinet meeting which discussed the NCP, a Treasury document was presented which made clear the dire consequences of the UK excluding itself from the customs union.

To read Roger Bootle’s piece for the Daily Telegraph in full, click here.

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