This is a significant move, arguably much more important than the flash of unity displayed by the Conservative government around a position of “managed divergence” last week. The concrete meaning of that, if any, will only be clear, perhaps, after Prime Minister Theresa May’s promised speech later this week. But so far all signs are that it will fall flat in negotiations with the EU. If the UK can pick and choose which single market rules it abides by, it will not be allowed by the EU to trade on the same terms in the single market as members.
Labour’s expected proposal, in contrast, is both realistic and smart.
It is smart because being in a customs union is a necessary (but not sufficient) condition for avoiding border infrastructure on the island of Ireland, and indeed for avoiding border checks on trade between Great Britain and the continent. Ireland aside, UK industry relies on a customs union: without one, deeply integrated cross-border supply chains will become costlier and slower, which puts the participation of British manufacturing in them at risk.
But what about “taking back control” of trade policy? It is true that within a customs union, the UK could not strike free trade agreements on its own, as least for goods. (It could still strike services deals — customs unions simply align external goods tariffs, and are therefore irrelevant for services trade.) But as Labour is now cottoning on to, being in a customs union lets the UK strike trade deals jointly with the EU — with the sevenfold economic clout of the whole continent.
In addition, it would make it much easier to keep the benefits of the existing FTAs between the EU and third countries, including the recent ones with Canada and Japan, two of the world’s seven largest rich economies. (A legal argument has been made that the UK could continue to be treated as part of the EU customs territory for the purposes of international law, including existing FTAs, even after Brexit.) While many point out that less than half of the UK’s trade is with the EU, the share of trade with the EU and EU trade deal partners is significantly bigger.
That does not end the fruitful thinking that has clearly been taking place inside the Labour party. Several Labour leaders have emphasised that they want a better customs union than the one between Turkey and the EU, and Corbyn made this demand clear in the speech. They are right. Turkey has little, if any, influence over EU trade policy, and it needs to grant market access to any FTA partners without being guaranteed reciprocal access in turn. That would be hard to accept for as large an economy as the UK.
If Britain did request a customs union with the EU, it is unrealistic to expect a formal say over the bloc’s trade negotiation mandates — but meaningful input and consultation, even representation in trade talks, is something the EU may be willing to give. And a more symmetric position than Turkey — so that the UK automatically gets the same market access in third countries as EU member states — is even more realistic. That is because the UK brings much more significant market access (than Turkey) to the table, which adds substantially to what the EU can offer potential FTA partners. (And all existing FTAs, of course, were premised on including the UK.) Charles Grant of the Centre for European Reform believes the EU would look kindly on such a request.
A customs union is not, however, enough to fulfil the UK’s promises on the Irish border or to safeguard its manufacturing supply chain participation. For that, it would also have to accept the single market acquis of rules — but only insofar as it concerned goods trade. As I have argued before, there is a good case to be made for such a goods-only Brexit model.
The British political class may not be ready to embrace it, but going for a customs union is a step on the way and useful in its own right. Last summer, Labour’s policy of staying in all EU structures during a transition period quickly forced the government to follow suit. The same may well happen again.