Boards    Business    Chile    Current Affairs    Education    Environment    Foreign Affairs    Future    Health    History    In Memoriam    Innovation    Languages & Culture    Law    Leadership & Management    Marketing    Networking    Pedantics    Pedantry    People    Philanthropy    Politics & Economics    Politics and Economics    Sport    Sustainability    Technology    Worshipful Company of Marketors   

Home Biography Advice / Mentoring Public Speaking Recommendations / Endorsements Honours Contact David Blog Books

26 May 2018

The Customs Union

Tag(s): Foreign Affairs, Politics & Economics
The great Telegraph cartoonist Matt recently showed two eskimoes in the snow outside their igloo. One says to the other ‘Apparently, the British Government has 33 different words for a customs union.’ As with so much of Matt’s humour it’s hilarious but painful at the same time. And it’s not just the British Government, if we take into account all the other political parties, the House of Lords and those who seem to be trying to create new movements we could add another 33. There is only one customs union and it is basically a protectionist racket.

Being inside the customs union costs the UK billions of pounds each year.  The customs union imposes tariffs on goods imported from outside. If they land first in the UK then the UK collects those tariffs and sends 80% of what it collects to Brussels who do with it what they will. UK consumers pay much more than they should for non-European imports. The customs union is designed to protect European producers, especially of agriculture and fisheries at the expense of the rest of the world, particularly third world farmers and fishermen.  Common external tariffs protect these European producers however inefficient they are. As well as food they significantly hit clothing and footwear so it is the poorest shoppers who are hit hardest.

I am old enough to remember what happened to food prices when we joined the Common Market. We were used to cheap lamb, cheese and butter, for example, from New Zealand. They shot up in price and we found ourselves buying inferior expensive continental food stuffs. Food inflation remains particularly high.

If we left the customs union we would be in charge of our borders and what happens to the tariffs we collect, not send them to Brussels to prop up French farmers and build shiny new infrastructure in former Warsaw pact countries.

If we stay in the customs union through some contrived arrangement this would mean continuing to charge EU tariffs with no say in setting them and continuing to send the money to Brussels. Some call this a vassal state and I think they would be right. We would not be free to set our own tariffs. We would not be free to collect our own money. We would not be free to negotiate free trade deals with non-EU states. We would be worse off than we are now.

The only country that does have this kind of arrangement is Turkey. Turkey has been desperately trying to join the EU for years believing it would somehow legitimise them as a ‘European’ nation. In this desperation they have agreed to a form of customs union with the EU that only involves manufactured goods. It means that Turkey accepts the tariffs that Brussels sets and all the regulation that goes with it without any say whatsoever in them. Now that Turkey is heading for a truly non-democratic dictatorship under President Erdogan it has no chance of being accepted as a full member state in the EU and so has taken on this burden for no long term reward.

As a member of the customs union we would have to accept EU regulations, effectively remaining a member of the single market. The problem with this is they apply to all goods sold in the UK whether or not they are offered to the rest of the EU for export. Only 5% of British businesses actually trade with the EU. 95% don’t. But all British businesses are subject to the heavy burden of EU regulation and enforcement by the European Court of Justice.

This means we could not negotiate independent deals with other non-EU nations, a major reason for Brexit. After six decades of trying the EU still has no trade deals with the USA, China and many other important trading nations. As it has expanded to an unwieldy 28 nations each one with full veto powers it seems increasingly unlikely that such deals will ever be completed. There are too many vested interests to be appeased. Meanwhile the EU’s share of world trade is declining fast. Much is made of the fact that 44% of Britain’s international trade is with the EU. But not so long ago this was 57%. Further our balance of trade with the EU in goods is severely negative. But our balance of trade in goods and services with the rest of the world is positive.

Hiding behind these protectionist barriers EU producers have steadily lost share of world trade. In 1973 when Britain joined the European Economic Community the EU, then just nine nations, held 30% of the global economy. After steady growth it’s about to be 27 nations, after Britain leaves their share will be just 15%. So those proposing a customs union for the UK are saying we should forget 85% of the world’s economy and just concentrate on the unfair protectionist racket that is the EU.

I do accept that negotiations will be tough. But we have a huge advantage in these negotiations. If we don’t get a sensible and fair deal which protects those of our common interests that are worth protecting then we should just say that the transition deal of paying some vast exit bill is off the table. The EU is terrified of the financial consequences of Brexit. In trade they will lose more than us. And in net payments they will lose the second largest contributions after Germany.

The EU recently saw some signs of economic growth but that has swiftly disappeared. Eurozone industrial output has shrunk for the first quarter of this year. If there was any recovery it was financed by the uncontrolled printing of money. For several years the European Central Bank has shaken billions of euros per month off the magic money tree, supporting the bonds of member states bankrupted by the high-currency strait jacket of monetary union.

There is a little known intra-Eurozone payments system by which creditor members transfer massive payments to weaker states, especially Italy, to prevent the collapse of the single currency. Within this system Germany is now owed €871bn, almost 30% of annual GDP.[i] When the next crisis occurs, and it’s just a question of when, the wealthy EU members including Britain will have to pay up to keep the rotten system afloat just as we did in the last single currency crisis in 2011-12.

But many of those involved in this moribund debate say there is another way. We can leave the customs union but join the European Economic Area (EEA), the so-called Norway solution, or the European Free Trade Association (Efta), the so-called Switzerland solution,  and keep most of the so-called benefits of being in the Single Market. These people should read the EU briefing on its Agreement with them which treats them as one and the same.

It says: ‘The Agreement guarantees equal rights and obligations within the Internal Market for citizens and economic operators in the EEA.’

It goes on: ‘Whenever an EEA-relevant legal act is amended or a new one adopted by the EU, corresponding amendments should be made to the relevant Annex of the EEA Agreement.’ But it admits, the EEA and Efta have ‘little influence on the final decision on the EU side’, while ‘all the EEA countries are subject to the Internal Market legal framework.’ The briefing also makes it clear that, formally. ‘Efta countries are part of the Schengen area’.[ii]

The outstanding economic journalist Liam Halligan closes a fine article on this subject with the following: ‘If the customs union is so vital, Prime Minister, why are we running a massive trade deficit inside it, but a large surplus with the nations outside? And if the EU is so wonderful, why is its entire existence now dependent on endless printed money?’[iii]

[i] ‘Target 2 – The Silent Bailout System That Keeps the Euro Afloat.’ Professor David Bale. City University.
[ii] Source: Letter to The Sunday Telegraph Rob White 13 May 2018
[iii] ‘PM must tell UK what customs union costs’ Liam Halligan The Sunday Telegraph 13 May, 2018

Blog Archive

    Boards    Business    Chile    Current Affairs    Education    Environment    Foreign Affairs    Future    Health    History    In Memoriam    Innovation    Languages & Culture    Law    Leadership & Management    Marketing    Networking    Pedantics    Pedantry    People    Philanthropy    Politics & Economics    Politics and Economics    Sport    Sustainability    Technology    Worshipful Company of Marketors   

David's Blog

4 September 2021

Footballers with Dementia
21 August 2021

The Non-Olympics (2)
7 August 2021

The Non-Olympics
31 July 2021

Working From Home
24 July 2021

Bad Buying
29 May 2021

Charles de Gaulle
15 May 2021

The Uncivil Service
1 May 2021

17 April 2021

The Huguenots
10 April 2021

Public Speaking
27 February 2021

20 February 2021

Global Risks
13 February 2021

The Number Bias (2)
6 February 2021

The Number Bias
30 January 2021

Cowboys and Indians
23 January 2021

9 January 2021

© David C Pearson 2021 (All rights reserved)