Government defeated in Lords over customs union 'exploration'

The amendment was tabled by crossbench peer Lord Kerr of Kinlochard, a former Foreign Office Permanent Secretary, along with former EU Commissioner Lord Patten of Barnes (Conservative), Baroness Hayter (Labour) and Baroness Ludford (Lib Dem). It passed by 348 votes to 225, a majority of 123.

Moving the amendment, Lord Kerr made five arguments for a customs union. “The first argument is that made by manufacturing industry… it has been made very clearly in our debates and in public debate, and has been supported strongly by the CBI and the TUC… Secondly, the case for export to the European Union… The Government are rightly concerned not to introduce new frictions in this trade, but a customs frontier is an inevitable friction; the delay, not just at the Irish frontier but at Dover and elsewhere, would be considerable and would have considerable costs. My third point is about the nature of customs union… It is about goods, not services… It would leave us entirely free to go on doing our trade promotion, as we do now, but also to negotiate new arrangements for trade in services, investment protection, remittance of profits, intellectual property, data protection, access ​to government procurement—all the new ideas and new issues which are now much more important in trade negotiation than tariffs. Therefore, there is very little economic downside to customs union…” His fourth issue was the need to have an open Irish border and his fifth was that the EU 27 say that, “if the UK’s positions on the customs union and the single market, “were to evolve, the Union will be prepared to reconsider its offer”: in other words, to improve its offer. We do not know how far-reaching such improvements would be but, if we go on refusing to allow our negotiators to explore the idea of a customs union, we will never find out”.

Lord Patten emphasised the importance of securing the UK’s market in the European Union and in the countries with which the European Union has negotiated deals already. He said the EU-South Korea trade deal runs to 1,400 pages, 900 of which just list tariffs. “The idea that you can simply Snopake the words “European Union” and insert “United Kingdom” and grandfather that trade agreement in nanoseconds—even nanoyears—is absurd.” We would be in a position of relative weakness as ‘the demandeur’, he said, and there would be significant issues around rules of origin. “Under rules of origin, each party is able to do without tariffs provided that up to 55% of what it is exporting is made in its own back yard. That is fine within the European Union, but the car industry in this country makes only 41% of the cars that we export in Britain. So straightaway, cars—and you can go down the list of tariffs—would not be able to go tariff free into the South Korean market.” He also discussed potential issues around trade deals with other countries, before concluding: “I think very strongly that we will not do any better than we are doing within the customs union, given that we start from a position in which we export to the European Union three and a half times as much as we do to the United States, five times as much as we do to the Commonwealth and six times as much as we do to all the BRICs combined.” He therefore supported the amendment ‘with some enthusiasm’.

Lord Wigley (Plaid Cymru) also backed the amendment, speaking to two further amendments of a similar nature in his own name, which were not pressed to the vote. He said: “I accept—reluctantly—that we are leaving the European Union. That is not the issue in this debate. The question is how we leave without weakening or severing our vital trade links. By passing either of these amendments, we give MPs an opportunity to return to this central issue. Without such an amendment, they will be unable to do so.”

Lord Lamont of Lerwick (Con), the former Chancellor, was not a fan of a customs union. He said the only country in the situation being advocated by Lord Kerr was Turkey, which “has absolutely no say on tariffs, the definition of products and the internal rules that apply in the internal market… As regards trade with non-members, Turkey is obliged to harmonise its commercial policy with that of the EU, and to grant tariff-free access to goods from any country with which the EU has negotiated a free trade agreement, without having had any say or representation in the negotiations. Nor does that mean that Turkey gets tariff-free access into the result of the negotiations with the new agreements that the EU has signed; that does not follow either. Given where we are, I do not think that the model put forward by the noble Lord, Lord Kerr, is at all satisfactory.”

Lord Howarth of Newport (Lab) was also sceptical, saying that those who support the amendment should explain how the alternative customs union that they envisage would differ from the existing customs union. “It is not appropriate that we should write into statute vague amendments and tactical devices,” he said.

Lord Bilimoria (Crossbencher) said when people voted to leave, they did not vote to leave on any basis. They did not vote, saying, “Please leave the customs union”. The red lines of leaving the single market and leaving the customs union were put down by the Prime Minister, not by the people who voted to leave: they did not say on what basis to leave. Our job as Parliament, what we are trying to do here, is damage limitation. This amendment is about damage limitation, because the best thing by far is to remain within the customs union—for our economy, for our businesses, for our citizens and for our country.

Viscount Ridley (Con) made similar points to Lord Lamont. He characterised supporters of a customs union as relying “on a wall of protective tariffs to keep the world at bay”. He claimed they wanted “to discriminate against Africa, with an average agricultural product tariff of 14.8%, 25% on sugar refining, 20% on animal products and 31.7% on dairy products.” Former diplomat Lord Hannay of Chiswick (Crossbencher) challenged this claim, saying the EU has zero tariffs on all African countries. Ridley replied the EU has an external tariff applying to a considerable number of African products. “There is a 20% tariff, for example, on tomatoes.”

Lord Adonis (Lab) spoke in support of the amendment.

Viscount Trenchard (Con) thought the amendment would be unhelpful to the UK’s negotiators. “Even if remaining in a customs union were one of the Government’s possible objectives, which it is not, the amendment does not even set a condition that such negotiations must be successful.”

Lord Lawson of Blaby (Con), another former Chancellor, and chairman at one stage of Vote Leave, challenged the claim that nobody said during the campaign that leaving the European Union meant leaving the customs union. “This is really a political debate. I can see that there are political reasons for wanting to remain in the EU. I accept that. I think the political reasons for leaving the European Union are very much stronger, but it is absolute nonsense to suggest that there is an economic case for what is being put forward in this amendment… [W]hat is being proposed is that we should not be in the European Union but should be within the customs union. In other words, we should have a quasi-colonial status. That is not something that I or, I think, the British people as a whole will give houseroom to.”

Baroness Ludford (Lib Dem), a former MEP, identified issues for manufacturing industries “to do with supply chains, border checks and rules of origin. That all sounds like very dry stuff but it boils down to costs, delays and red tape affecting investment decisions and jobs. Staying in the customs union is an economic and industrial issue. The Freight Transport Association estimates that an even an extra two minutes checking every truck during peak hours could result in queues of almost 30 miles at border points.” People did not vote to lose their jobs, she said, concluding: “We should protect those jobs by pressing for Britain to stay in a customs union.”

Lord Forsyth of Drumlean (Con) claimed the amendment was simply an “attempt to create division and confusion in the House of Commons with a view to preventing Brexit going ahead”. He said it was “outrageous that people are trying to use this House to overturn the wishes of the British people.”

Baroness Hayter of Kentish Town (Lab) said it was the Government spreading disarray over Brexit. She said their adoption of the red line of leaving the customs union “was taken without any impact assessment, without any consultation with business, investors, farmers, exporters or importers, and when the Prime Minister had a Commons majority. Come election night in 2017, soon after 2 am, David Davis admitted on air that the Government might have lost their mandate to exit the customs union. As he said, “that’s what we put in front of the people, we’ll see tomorrow whether they’ve accepted that or not”. They did not. There was no majority for that red line. There was no mandate for a hard Brexit. This amendment is good for the governance of this country. It reflects the rejection of that part of the Government’s manifesto.”

For the Government, Lord Callanan, Minister of State at the Department for Exiting the European Union, said that the Government “have already tabled many amendments on key aspects of the Bill. Further amendments will follow, relating to the provisions on delegated powers and on devolution. It is our firm and consistent desire to find consensus in this House on the contents of the Bill wherever possible, and I hope that our debates can proceed on a reasonably collaborative basis.” That said, the amendments on a customs union were unacceptable to the Government.

“The nub of the issue is this,” said Callanan. “If the UK were to remain in the customs union and be bound by the EU's common external tariff, it would mean providing preferential access to the UK market for countries that the EU agrees trade deals with, without necessarily gaining preferential access for UK exports to such countries. Alternatively, we would need the EU to negotiate with third countries on the UK’s behalf. This would leave us with less influence over our international trade policy than we have now, and would not, in our humble assertion, be in the best interests of UK businesses.” He reiterated the options the Government have previously set out for the UK’s future customs relationship with the EU: a new customs partnership between the UK and the EU, and a “highly streamlined customs arrangement under which, while introducing customs processes between the UK and the EU, we would jointly agree to implement a range of measures to minimise frictions to trade, together of course with specific provisions for Northern Ireland”.

Winding up the debate, Lord Kerr thanked peers who had taken part in the debate. To Lord Lawson he said: “I am sure that he explained to the country at large the truth about the customs union and that he did it every day, morning, noon and night, but I am not sure that the country was listening. What I remember is the man who is now the Foreign Secretary telling the country, “Nobody is even talking about leaving the single market”. He published that the day after the referendum, having said it throughout the referendum campaign.” He concluded: “It is the job of the House of Lords to give the House of Commons the ​opportunity to debate whether we should seek a customs union. There are plenty of customs unions of various kinds between various countries around the world, and they are all sui generis. I do not know what terms we could get but we will never know unless we find out.”

Amendments 1 and 4 (linked) were passed

Later a government spokesperson said: “We are disappointed that parliament has voted for this amendment. The fundamental purpose of this bill is to prepare our statute book for exit day, it is not about the terms of our exit. This amendment does not commit the UK to remaining in a customs union with the EU, it requires us to make a statement in parliament explaining the steps we’ve taken.”

In later debate the same day a further amendment was passed by a majority of 97 limiting the ability of ministers to use secondary legislation to water down existing EU rights when those rights get transferred to UK law.

Five further days of report stage debate in the House of Lords are scheduled and further government defeats are anticipated.

By George Crozier