Alexander Bowen: Why I asked for a Customs Union for Christmas

Alexander Bowen is a trainee economist based in Belgium, specialising in public policy assessment, and a policy fellow at a British think tank.

Every year the European Parliament or some other EU institution makes some slightly bizarre post about Santa, always of a roughly similar theme – how thanks to the Customs Union or Schengen, Santa is able to sans-paperwork deliver his presents in mere minutes – and every year it is met with a roughly similar reaction.

Denialism.

Thankfully the denialists do not question the existence of Santa, only the benefits of a customs union. Those benefits though are undeniable and though it’s not an opinion that will be very popular here, the benefits of my Christmas wish ought be heard not least when 39 per cent of Conservative voters at the last election support a customs union.

To start with there’s the fairly immediate 1.5 per cent boost to GDP.

Now you may have read some attempts at debunking the paper – attached are some of the better ones – and what each attempt broadly has in common is a misunderstanding of the difference between a customs union in academic theory and a customs union with the EU in practice.

They all broadly fall under the mistaken but theoretically true enough belief, as perfectly demonstrated by Tom Harwood, that “customs union: tariffs, single market: regulations” and therefore the 1.5 per cent paper based on regulatory alignment of goods doesn’t measure a customs union’s impact. It’s wrong and wrong for a simple reason – customs unions with the EU as provided for in the text of the EU-Turkey deal and as described by the European Commission explicitly include the aligned regulation of goods. 

Then there are the more general arguments – arguments against economic research in general.

That given the rest of Europe hasn’t done amazingly, though outside of Germany it clearly has done much better, that these papers must be wrong. Aside from the fact that the counterfactual for Britain in a customs union isn’t France, not least because France was negatively impacted too, they fall into roughly the same category. That a figure feels wrong and is therefore wrong, that Britain wouldn’t have boomed inside a customs union.

But of course none of the papers actually argue that the UK economy would have boomed – only that the economy would be a bit better and that ‘bit better’ would compound. What they argue is frankly beyond doubt – that needlessly erecting barriers to your most significant market, that destabilising your country’s investment environment, that unleashing a decade of political instability, and replacing free movement with a high-skilled labour force with Boris’ open borders, has a cost. 

Just the five-week cyber attack on Jaguar Land Rover was worth 0.2 per cent of GDP, only 0.07pp less (about one and a half Taylor Swift tours) than the growth hit needed to get to the 4 per cent GDP loss by 2030 that is the OBR estimate of Brexit’s cost. It is not some outlandish exaggeration to believe that a decade of Brexit-induced instability would have about the same kind of impact as a cyberattack on just one company. 

Even the 6-8 per cent figure which has emerged recently keeps being the subject of a critique based on feeling not thought – that it overweights the extreme outlier of the US! Aside from the weighting being the algorithmically perfect match for the ten years pre-Brexit, the paper in fact uses five different measures to arrive at it only one of which is the US heavy basket. Even in the gravity-based basket which weights Northern Europe disproportionately, the negative economic outcome is still clear and overwhelming.

The other customs union critiques are similar in their flaws. That there would be no CPTPP! No Australia! No India! Deals that, according to the UK government’s own impact assessments, are collectively worth about 0.25pp of GDP by the mid 2040s, and we needn’t hire a mathematician to calculate that 1.5 is greater than 0.25. Of course it’s very easy to repeat Dan Hannan’s fallacy that more growth happens outside the EU than in, but at this point 10-years on from a Brexit it simply isn’t very compelling to pretend, like trade, gravity doesn’t and hasn’t always existed. Never mind that Turkey, in a customs union, has negotiated 24 trade agreements of its own. 

Yet above all that what stands out most fundamentally – other than seeing people who apparently care about the Union being happy with permanently maintaining a border in the Irish Sea and inside of the UK – is how out of date each rebuttal against a customs union is.

 The howling about protectionism and youth unemployment getting ‘dumped’ onto the UK is frankly not very compelling anymore, talking points do in fact need to be updated more than once every two-decades. EU youth unemployment at 15.2 per cent is now below UK levels at 16 per cent, and as for the ‘protectionist fortress’ the WTO lists the EU’s trade weighted average tariff as being 2.4 per cent v the UK’s 2.5 per cent with the EU’s 8.7 per cent trade weighted agricultural tariff being noticeably lower than UK’s 12.9 per cent. Far from raising prices then, a customs union so clearly brings them down it frankly is beyond contestation and any revenues raised from the remaining tariffs (all of which would remain with the UK) could be used to offset if needed.

As for the greatest argument, the national sovereignty argument, any sincere reading of the situation ten years on can but yield a simple conclusion. That far from ‘bureaucrats in Brussels’ it is the man in the White House, the American Caesar, who far from bailing Britain out as intended, has become an existential threat to the sovereignty of Britain and our neighbours, for it has become quite clear that the only state he considers sovereign is the United States. 

I had been hesitant for some time to describe the current US government as an oligarchic empire yet what we have seen in the last week is just that – the appointment of a special envoy to seize Danish territory, the sanctioning of European officials for daring to regulate his tech donors, NGO’s as ‘subversive threats to the homeland’, and the publication of a dozen statements outlining the explicit goal of the Trump Regime to meddle in purely domestic British law and interfere in European politics. 

So yes whilst a deal with the EU might mean Brussels setting tariff rates, what we are seeing right now is the alternative to that. That any deal with America means a far deeper vassalage, it means Washington setting questions far more fundamental, questions of who we are. What has become clear is that without subservience the fantasy of the “US-UK AI and Tech investment deal” will be lost, regardless of customs union status.

Then there is China, where the most notable post-Brexit China-win amounts to one fighter jet’s worth of investment and liberalisation of made-in-Britain porcine semen. What we have succeeded in doing then is vastly complicating trade with one of the world’s three nodes without making it any better with either of the two others – sure the Australia & India deals are nice, but regardless of how good those deals are, it doesn’t stop the basic reality of gravity, that they will forever be 4 not 40 per cent of our trade.

A customs union offers then two simple things – a solution to Britain’s disentangling Union (and it really is disentangling) and a quick and noticeable boost to growth, and it does so whilst leaving Britain’s practicable sovereignty no worse off and preserving the core promises of Brexit on farmers, fisheries, foreigners & funding. So yes whilst Santa might not have brought a customs union for this Christmas, hopefully he will next year (and should he be feeling extra generous I’ll take Frontex as a stocking stuffer).