Advertisement
Editor's letter

The trouble with a customs union

A customs union sounds like a nice idea in theory, says Merryn Somerset Webb. But in reality, it's a terrible one.

Back in 2016 almost no one knew anything about single markets or customs unions. Voters didn't, and as it turns out, MPs didn't either. You'd think they would by now.

Not so. If they did, Parliament wouldn't be so keen for the UK to enter a permanent customs union (where we agree to charge the same tariffs as the European Union on all imports) with the EU (it was one of the closest calls in this week's otherwise pointless round of indicative votes, and apparently a favoured option of Jeremy Corbyn's).

Advertisement - Article continues below

A customs union sounds like a nice idea (less disruption for the many UK firms that export into the EU) and you might think that the UK not being able to have an independent post-EU trade deal isn't much of an issue, all things considered. But the devil, as ever, is in the detail.

The EU is a relatively protectionist organisation the customs union forms a tariff shield around us all and without the UK to make the free-trade case within it, it is more likely to become more so than less so. That could mean more tariffs and higher prices not ideal.But there is a much bigger problem the lack of reciprocity inherent in a customs union.

Advertisement
Advertisement - Article continues below

A letter to the Financial Times from Vernon Bogdanor, a professor of government at King's College London, sums things up. Inside a customs union, "we would have to open up our markets to the third countries with which the EU had trade agreements, but the markets of such third countries would not be open to our exports since we would be outside the EU. And such third countries would have few incentives to sign trade agreements with us since their goods would already enjoy free access".

Advertisement - Article continues below

You can see the problem. All sorts of soft Brexits make some sense May's deal and EEA/EFTA both make some sense but anything involving a customs union like this just doesn't. Some of its advocates say that our customs union with the EU will be different to others because the EU, in recognition of the size of our economy, will have to take our views into account (I have some sympathy for this view).

But these are usually the same people who keep telling us that the EU has "all the cards", so who knows how any negotiation could end up, my worry being that a customs union could end up looking so bad for the UK that it wouldn't hold, leaving us back at our rather trying square one again. Either way, given how very important they are to our exporters, wouldn't it be nice if these points were part of this week's conversation?

Reciprocity matters. For the market, however, the nitty gritty of the customs union doesn't (in the short term, at least) matter so much as a deal, any deal. In preparation for that, we look at the possible "Brexit bargains". As soon as we have clarity (it doesn't matter on what, just clarity) they will bounce, says David Stevenson.

If you aren't a long-term enough investor for that (only half a joke). Max King looks at gold mining stocks a rising gold price makes them more interesting than usual and Andy Headley picks a few stocks that he reckons can transcend politics.

Finally, do read our analysis. It's about the enormous life-saving potential of immunotherapy and should, I think, act as a nice reminder to all of us that beyond the UK's three-year Brexit bicker, an awful lot of really good things are happening.

Advertisement
Advertisement

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Beyond the Brexit talk, the British economy isn’t doing too badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Five ways to boost the economy
UK Economy

Five ways to boost the economy

Boris Johnson is making a bonfire of planning red tape. Here Matthew Lynn proposes some more rules for the flames.
9 Aug 2020
UK house prices hit a new record high – can it last?
House prices

UK house prices hit a new record high – can it last?

Despite the pandemic, UK house prices have hit a new high. John Stepek looks at what’s driving the surge in prices, and what it means for house prices…
7 Aug 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Gold and silver have taken a vicious beating – is the bull market over already?
Gold

Gold and silver have taken a vicious beating – is the bull market over already?

The gold price has tumbled recently, leaving traders nursing losses – just a nasty correction or has the gold bull market run out of steam? Dominic Fr…
12 Aug 2020
Should you take advantage of the UK’s new breed of domestic holidaymakers?
Buy to let

Should you take advantage of the UK’s new breed of domestic holidaymakers?

With Britons choosing to holiday in the UK this year, the owners of the country’s holiday cottages are cleaning up. Should you buy in, too? Merryn? So…
10 Aug 2020