MPs pass pro-customs union motion but government unmoved

The House of Commons has passed a motion calling on the Government to include the establishment of an effective UK-EU customs union as an objective in Brexit negotiations. The motion was passed without a vote after the Government instructed its MPs to abstain and most opponents of such a customs union stayed away. (The full motion appears at the bottom of this report.)

 

The motion was tabled by the Liaison Committee of 12 select committee chairs, and moved by Labour MP and Home Affairs Committee chair Yvette Cooper. This is the first time such a motion has been passed. While the motion is not binding on the Government it is being seen as indicative of the challenge facing the Government when the Trade Bill and the Taxation (Cross-Border Trade) Bill return to the Commons, expected to be in the next few weeks.

Labour wants an arrangement with the EU that includes no tariffs, but has frictionless borders and, crucially, a common external tariff. The Government have put forward two alternatives: a customs partnership and ‘max mac’, which is a streamlined arrangement described as “maximum facilitation”. Much of the session was about Northern Ireland but many topics were covered in a bit of a scattergun debate.

Labour contributions

Yvette Cooper opened the debate by calling on the Government to include as an objective in negotiations on the future relationship between the UK and the EU the establishment of an effective customs union. Britain does more than £230 billion of export trade with European countries every year. Those businesses do not get stopped at the border, do not pay tariffs or submit extra forms, said Cooper. She is concerned about the bureaucracy, all the paperwork, and all the additional burdens and costs that UK companies could face outside a customs union. “James Hookham, the deputy chief executive of Britain’s Freight Transport Association, has warned that an average delay of two minutes as a result of new Brexit spot checks at Dover would create a tailback of 17 miles. In a world of just-in-time production and retailing, when companies hold less stock, when supply chains run across borders and back again, it makes even small delays costly.” On the common external tariff, many businesses are particularly concerned about the rules of origin checks, because that means that they have to account for where different ingredients come from, for example. In an intervention, Geraint Davies pointed out that third countries represent some 12 per cent of UK exports via the EU.

What is proposed for the border should not be compared to the congestion charge because the cameras identify only the cars, not what was in them, Cooper said. The UK would have to rely on the willingness of France, Belgium, Ireland and other countries to provide the same level of investment in the technology at the same pace. She also spoke about the suggestion that in Northern Ireland 80 per cent of trade—the micro, small and medium-sized businesses—could be exempt from all checks. That level of exemption would require agreement with other countries, she said. There is also the question of how enforcement would take place to ensure that there was no systematic evasion of tariffs, she said. “It is significant that the Northern Ireland Affairs Committee concluded last month that there were no technical solutions anywhere in the world ‘beyond the aspirational’ that would remove the need for physical infrastructure at the border.” Even if all that technology were possible – even if it were possible to solve all those problems at the border—it would not remove the need for rules of origin checks if we were not party to the common external tariff. Research by the National Institute of Economic and Social Research shows that the overall trade increase from possible future agreements with the USA, Canada, Australia and New Zealand would amount to less than three per cent of our current trade, Cooper added.

Shadow Chief Secretary to the Treasury Peter Dowd said by entering a new customs arrangement with the EU, the UK would ensure that hard-won workers’ rights, standards and protections are maintained and protected, ‘blocking attempts by the more ardent Brexiteers to create a bonfire of such rights and the weakening of environmental protections’.

Stephen Doughty wanted to know if there will be a maritime border between Wales and Scotland and the Republic of Ireland. Adrian Bailey pointed out that there has been a 14 per cent drop in the output of cars manufactured in this country over the past year, possibly because of Brexit concerns. Ruth George met more than 20 businesses in her High peak constituency who are very concerned that they are already seeing European competitors coming in and taking contracts from under their noses. “They cannot compete because they do not have the certainty that the UK will be in a customs union this time next year.” Doughty said stewards who came to visit him from Rolls-Royce explained the real damage that could be done by this to the aerospace industry in particular and the long and detailed supply chains that stretch across not just the whole of the UK, but the whole of the EU.

Seema Malhotra said any stark dividing line between goods and services is false. Rachel Reeves said her BEIS Committee heard time and again that any border delays would undermine just-in-time delivery systems; force companies to expand warehousing facilities massively, at a significant cost, and put at risk time-sensitive imports and exports, particularly of food, medical radioisotopes and many pharmaceutical products. Peter Kyle said Norway’s lead negotiator with the EU explained that, being outside the customs union, Norway is in a permanent state of negotiation with the EU regarding trade and customs. Public Accounts Committee Chair Meg Hillier pointed out that we have seen Border Force advertising to recruit 550 staff—in addition to staff it has already had to recruit and will have to recruit again in the future. Her committee wants to see the ‘full bill’ for leaving the EU – beyond the financial settlement – and have it analysed by the National Audit Office.

Malhotra said any stark dividing line between goods and services is false. Reeves said her BEIS Committee heard time and again that any border delays would undermine just-in-time delivery systems; force companies to expand warehousing facilities massively, at a significant cost, and put at risk time-sensitive imports and exports, particularly of food, medical radioisotopes and many pharmaceutical products. Peter Kyle said Norway’s lead negotiator with the EU explained that, being outside the customs union, Norway is in a permanent state of negotiation with the EU regarding trade and customs. Public Accounts Committee Chair Meg Hillier pointed out that we have seen Border Force advertising to recruit 550 staff—in addition to staff it has already had to recruit and will have to recruit again in the future. Her committee wants to see the ‘full bill’ for leaving the EU – beyond the financial settlement – and have it analysed by the National Audit Office.

However Kate Hoey struck a different note, saying: “If we were to stay in the customs union that would be seen as a transition before going back in again. For a start, staying in a customs union is not taking back control of our trade.” The protectionist external tariff around the entire EU prevents poor developing countries from accessing our markets on equal terms. Outside the customs union, the UK could immediately reduce or remove these tariffs, becoming a great friend to the world’s poor, she added. Many businesses in this country do not trade with the EU at all, but are bound by all the rules, regulations and paraphernalia that go with EU membership, she added.  The EU accounts for 40 per cent of our trade because the arrangements imposed on us by our EU membership concentrate trade within this protectionist block. Being outside the EU and the customs union will be almost a catalyst by ensuring that our businesses have that opportunity and freedom to do better. There is already a legal border in Northern Ireland for excise, alcohol, tobacco, fuel duty, VAT, immigration, visas, vehicles, dangerous goods and security. DEFRA has already given evidence to Parliament that sanitary and phytosanitary-related risks would not be altered by Brexit from what the authorities are already managing across the border pre-Brexit, and that additional infra- structure at the border would not be needed.

Conservative contributions

Former Chancellor Kenneth Clarke said if people insist on having a new free trade agreement, it should include, and as far as possible replicate, the arrangements that the customs union and the single market give us now. On issues of the economy, on liberal economic policy and on trading policy, the UK has been the leading influential member in Europe.

Treasury Committee Chair Nicky Morgan said there is probably not enough time to get new free trade agreements and renegotiate existing ones before the UK leaves the EU. We have less than 12 months to go to March 2019 and not that much longer to December 2020, and no port inventory systems are in place, she said.

Anna Soubry said it seemed rather perverse that, at a time when we want to increase free trade, we are going to put up a whole load of barriers to stop access, in the best existing free trade area in the world. Dominic Grieve said any agreement has obligations attached to it, as well as enforcement mechanisms; any trade treaty involves signing away some sovereignty.

However some speakers were supportive of the Government’s position. Kevin Hollinrake said if the UK were still in the customs union but not the single market, checks would still be needed for product standards. Matt Warman said: “The more we pursue the line that we can remain in the customs union but also do our own trade deals, the more we not only undermine faith in the referendum result overall but undermine faith in democracy as a whole, and we have to preserve that above all else.”

Recent data from the World Bank show that the EU27’s share of world GDP has fallen from 25 per cent to 18 per cent in the last 10 years alone. Sir Hugo Swire could not understand why some colleagues would prefer to remain within a customs union with a bloc that is declining in its share of global trade. Sheryll Murray said all those who hoped for the end of taxation on women’s sanitary products, and thought that Brexit could finally make that happen, might be very disappointed because Michel Barnier thought that staying in a customs union means staying in the EU.

Contributions from others

SNP economy spokesperson Kirsty Blackman said: “A customs union means a shared external tariff. It generally means that countries lower the tariff barriers between them. It is not anything else. It is not anything that anyone else says it is.” The Government have talked about how great it is that our trade with South Korea has increased, but that is since the EU signed a free trade agreement with South Korea—that is the only reason why it has happened, she said. Angus MacNeil struggled to think of a trading partner that the UK has, outside of the single market and customs union, that it has a ‘ro-ro’ arrangement with.

Lib Dem Tom Brake said there is a cost of roughly £30 for every small business that exports to the EU to process electronic paperwork that it does not have to process at the moment. As for the highly streamlined customs arrangement, no one has been able to identify the technology for it, he said. Brake added that the UK has recently been threatened with a nearly £2 billion fine for failing to handle imports at its ports effectively, leading to significant VAT losses in other EU countries

Plaid Cymru’s Hywel Williams cannot see how we can have two competing customs regimes between two countries or two economic blocs. He could not name a pair of countries that have competing customs arrangements between them.

Green Party co-leader Caroline Lucas said five former Northern Ireland Secretaries have said a hard border threatens the very existence of the Good Friday agreement.

Government response

Financial Secretary to the Treasury Mel Stride closed the debate. He said clause 31 of the Taxation (Cross-border Trade) Bill, which will permit the UK to enter into a customs union with another customs union or territory. That is something the Government will almost certainly wish to do with the Crown dependencies, therefore not be relevant to the European Union after our departure. Stride then set the Government’s two options:

  • The UK would mirror the EU’s requirements at our border for imports from the rest of the world with a final destination in the EU (This would mean applying the same tariffs and rules of origin as the EU for those goods).
  • Highly streamlined customs arrangement. This approach would involve the introduction of formal customs processes between the UK and the EU, driven by technology, to streamline and enable this model.

The motion was successful but is not binding on the Government.

In full, the motion reads:

That this House notes that the EU is the UK’s largest export market for goods, accounting for a total of £145bn of exports and £241bn of imports in 2016; further notes the Government’s expressed aim to secure the freest and most frictionless possible trade in goods between the UK and the EU after 29 March 2019; notes the importance of frictionless trade without tariffs, customs or border checks for manufacturers and businesses across the country who trade with the EU; further notes that the free circulation of goods on the island of Ireland is a consequence of the UK’s and Republic of Ireland’s membership of the EU Customs Union; in addition notes the Government’s commitment to (i), in the UK-EU joint report on progress during phase 1 of the Article 50 negotiations, the maintenance of North-South cooperation and the all-island economy on the island of Ireland, (ii) the Belfast Agreement implemented in the Northern Ireland Act 1998 remaining a fundamental principle of public policy and (iii) the continuation of unfettered access for Northern Ireland's businesses to the whole of the UK internal market; and therefore calls on the Government to include as an objective in negotiations on the future relationship between the UK and the EU the establishment of an effective customs union between the two territories.

The full 26 April 2018 debate can be read here.

 

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