Frictionless trade needs both – but it’s the “freedom” in freedom of movement that really counts
The latest round of indicative votes showed substantial support for adding a permanent customs union to the deal and for Common Market 2.0 (aka Norway Plus), but no majority for either.
London4Europe Committee Member and former HM Treasury senior civil servant Michael Romberg argues that getting close to frictionless trade requires membership of both the single market and a customs union.
Closer union between peoples and the promotion of individual freedom requires freedom of movement. We would have that with single market membership, but not from a customs union which is why that is not a “soft” Brexit.
In a customs union and not in the Single Market (eg Turkey)
There would still be trouble at the border because traders would have to show that their products met the standards of the EU single market. That effect can be reduced by agreeing to regulatory alignment as part of the agreement – but then we would have to follow rules without having a say over them.
In general, customs unions are good for manufactured goods (and the people who make them) but do nothing or little for services, which are hugely important to the UK economy. Nor is the difference that simple: repairing and servicing an aero-engine say will be half the value of the sales contract.
For services delivered locally providers would still have to show that they as individuals had permission to enter and work. That includes for example lorry drivers and their lorries – just one of the reasons for delays at the Turkish border.
Cross border services delivered electronically (eg sales of insurance) would either be banned or would need to show separately that domestic regulation was equivalent to the regulation of the importing country.
Customs unions are also problematic because if the EU negotiates a new deal with another country the UK would be obliged to offer that country the lower tariffs agreed by the EU but the other country would not be obliged to reciprocate.
In the single market and not in the Customs Union (eg Norway)
Technical barriers to trade rather than tariffs are the biggest hindrances to modern trade between advanced economies and societies. That reflects the great increase in state regulation. That is why the single market – which eliminates or reduces regulatory differences – is so much more important to the economy than the customs union. That is especially the case for the UK economy which is more services-oriented than many.
There will still be trouble at the border: tariffs, checks on content to comply with rules of origin and anything else that would otherwise be covered by a customs union. Even the Norway/ Sweden border has checks.
In both (Norway Plus)
But how frictionless it is will depend on the exact arrangements. If the UK is outside the Common Agricultural and Fisheries Policies then those products would probably face border checks of some sort or the UK would have negotiated restrictions on the extent of regulatory divergence.
Norway plus would go a long way to avoid a hard border in Ireland though there would still be further areas to cover. The UK Government’s project to map cross-border co-operation found 156 areas.
Conclusion – Frictionless Trade
Being in one of the Single Market or the Customs Union would offer free-er trade than nothing. To maintain the bulk of the trade advantages we have currently we would have to join both.
In a sense that is obvious. Those who claim that administrative practices (trusted trader schemes &c) or technology can give the same benefits are saying that all those customs unions and similar arrangements that countries have built up are a waste of time.
But to have wholly frictionless trade as now, and to solve the problem of the Irish border, means staying in the EU.
But it’s not actually about trade
Freedom of movement of people is not about moving surplus labour to areas of labour shortage – though it does do that. It is about increasing the freedom of individuals, helping to bring about a European identity in addition to national identities and promoting harmony across peoples. That is why we support it. A customs union does not help.
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