Never have we seen such a massive gulf between business leaders and the top brass of the Tory party. The director of the Confederation of British Industry (CBI), Carolyn Fairbairn’s warning that the government approach towards Brexit shows “too much ideology, too little urgency” and that business interests will be best served by remaining in the customs union, prompted an immediate retort from Boris Johnson. He said the CBI was talking “nonsense” and that such an approach would effectively mean Britain staying in the EU, and prevent the UK from signing new free trade deals with the rest of the world.
So, who’s right?
The CBI is certainly right to be concerned about the UK leaving the customs union. The customs union and single market are often talked of in the same breath, but they actually play very different roles as part of the system of economic cooperation within the EU. Hence the impacts of leaving one or the other will be very different for different sectors of our economy.
You could argue that the customs union is the heart of the EU. The establishment of the Coal and Steel Community in 1952 was a system of cooperation over industrial regulation and was followed by the treaty of Rome, which established the European Economic Community, in 1957. This included a commitment to a customs union by the six founding members and was finally established in 1968, long before the single market was conceived.
The purpose of a customs union is to remove tariffs between countries and so cut administrative burdens as goods move across borders. Conversely, members of a customs union impose a uniform system of tariffs on goods coming into the union as a whole. So, while there are no taxes on goods travelling between members of the union, there is uniformity of external taxation.
Honda, whose EU assembly plant is in Swindon, has made clear that membership of the customs union is essential to its business. For it, and many similar assembly plants, time-consuming checks and paperwork, as components were forced to pass across currently open borders, would cut its margins and potentially make them unviable.
Honda’s consideration of whether to make electric vehicles in Turkey or Swindon underlines the point. Because Turkey is in a customs union with the EU, if the UK were outside this union it would be far more efficient for the company to assemble its vehicles in Turkey. The money already invested in its hi-tech Swindon plant would be an incentive for the company to stay put in the medium term, but when it comes to new investment, the lure of Gebze in Turkey would beckon.
The example of Turkey also makes clear that Johnson is wrong to say that being in the customs union means being in the European Union. The CBI is right to demand continued membership, but without the political power of being EU members we could end up with the worst of all worlds. Turkey has to stick to the EU’s external tariff regime but has no control over it. Neither can it make bilateral trade deals itself because it has signed up to EU tariff rules.
Turkey accepted this because it was trying to find its way into Europe, though despite alarmist fears generated by leave campaigners in the referendum campaign, it is nowhere near meeting the criteria for EU membership. For the UK, which has all the benefits of the single market, belonging to the customs union without being members of the EU might, as Johnson says, seem nonsensical.
As a country that relies heavily on services to pay our way in the world it is understandable that much of the focus in discussions around the future trade relationship between the UK and the EU have been on the single market and especially the need for equivalence on rules on financial services.
But manufacturing still accounts for 45% of UK exports and directly employs 2.7 million people, and the sector is heavily supported by the customs union. While we might be able to switch production of some products so that they are entirely domestic, the global corporations that dominate our manufacturing sector will not be tempted by a market of a mere 65 million people. Many would choose to move their production facilities inside the customs union.
This is why both the TUC and CBI are united in their belief that the UK must remain in the customs union after Brexit. We have now come to accept that the Tory party is no longer the party of or for business; it is being led by Brextremist ideologues who are driving us towards the economic cliff edge.
So it is over to Labour. With 56% of potential Labour voters wanting the party to remain in the single market and customs union, and just 13% opposed, it is time for the party to change tack. Not only would such a policy shift be politically expedient, it might be the only way for a future Labour government to meet its commitments to jobs and investment in public services in post-Brexit Britain.
• Molly Scott Cato is Green MEP for the South West. She is her party’s speaker on finance and economics issues, and on Brexit
