Monday, 23 April 2018

A customs union doesn't soften Brexit


Blogging has been quiet over the last week as we are now in a state of trench warfare - where all the relevant positions have been explored and churned over time and again, awaiting some kind of decision from the UK government. Instead we are back to square one and fighting over the basics again - made worse by The Times and The Guardian distorting the debate with their ignorance.

The Sunday Times saw fit to tell us that a Swiss solution would work for the Northern Irish border despite a cursory glance at Google Streetview dispelling this notion. Then we've had the amendment on the Customs Union where again we go through all the tiresome bickering over what it actually solves. 

The fact of the matter is that we are leaving the customs union because it is an integral part of the EU treaties. Whether or not we negotiate a new one is an open question but that does not arise until we have formerly left the EU. There is, by law, no remaining in bits of the EU. This is one of those debates that will keep droning on simply because our quarter-wit MPs do not understand the issue. 

Our MPs think a customs union would soften Brexit - but it doesn't. We would still be subject to third country controls. The only way to keep the trucks rolling is to remain in the EEA agreement. Were we to do so we would only need a rudimentary accord on rules of origin.

Further to this I am of the view that a customs union would in due course be redundant anyway. Telling is the new outline of the EU-Mexico modernised agreement released yesterday.
"The EU and Mexico will issue, upon request, binding preliminary information to traders on the tariff classification of goods and origin (advance rulings), which will provide them with legal certainty and stability in the customs treatment of their international trade. In addition, the EU and Mexico will provide for an impartial and transparent system for addressing complaints by operators about customs rulings and decisions. With a view to expediting procedures, they will adopt and maintain risk management systems for high-risk goods and post-clearance audits to ensure compliance with customs and other related laws or regulations".
The devil is in the detail but the mood music here is toward greater behind the border customs cooperation, moving toward electronic transactions - and though it will take time to mature, this is the EU getting down to business with trade facilitation. We can therefore expect that without a customs union agreement, and as a modern technology led economy we would arrive at our own equilibrium with the EU. Then, customs issues aside, what we also see in the agreement is yet more boilerplate references to the WTO TBT agreement. 
"The Parties reiterate their commitment to base their technical regulations on international standards, and furthermore agree on an open list of international standards setting organisations. On conformity assessment, the Chapter recognises the different approaches of the Parties to conformity assessment and their relevant trade facilitation measures: for the EU the use of supplier's declaration of conformity and for Mexico the recognition of product certification carried out in the EU".
This, of course, is yet more of the Geneva Effect, where the centre of the regulatory universe is shifting away from Brussels - even on conformity assessment. This is in keeping with the overall trend where we see the EU agreements with Japan, Singapore, Canada, Korea and Mexico bearing striking similarities. The EU has established a formula so we can expect to see them churning out new evolutions of it all the time, and with MFN clauses throughout the improvements will be replicated system wide. 

Being that we are leaving the EU and regaining our right of initiative, the opportunity lies in a multilateral approach. Though the EU racking up the notches on the bed post, the reality is somewhat different. On the face of it the EU has abolished tariffs with the named countries but that does not necessarily mean the EU is going to admit all goods and will use many of its non-tariff barriers to exclude competition. 

What that means is there will in the near future be growing ranks of smaller nations with ever more gripes against the EU despite having an FTA with it. That is a groundbase of support for UK initiatives and moves inside the standards bodies which will pressure the EU. It will depend on intelligent trade diplomacy but we do have soft power assets like the Commonwealth and means by which we can win favour. 

First on the list of measures to address will be rules of origin where there are already a number of working groups within the WTO and UNCTAD dedicated to untangling the web and simplifying the processes. 

The mistake both sides of the Brexit negotiations are making is seeking a finalised resolution to a complex problem. Whatever happens we still need to make major modifications to customs IT and much is already in urgent need of modernisation. Brexit presents an opportunity for both sides to trial new approaches which can then be replicated elsewhere. Given the direction of travel we are as well opting for an interim customs accord involving unilateral tariff alignment until such a time where the technology and the systems therein can cope with divergence. 

What we see generally though, especially in Westminster, is a total absence of imagination and creativity. They have been told by an inadequate media that customs is the problem therefore a customs union is the solution and that is as much as they can cope with - not least since most are remainers and are not actually interested in new or alternative ideas. We have an administration which sees Brexit as an albatross. That is why this process is cursed. Without ideas driving the process we are coasting toward all of the defaults whether they actually work or not. 

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