EU Customs Union

Richard Fuller Excerpts

Wednesday 2nd November 2016 Commons Chamber

[Helen Goodman (Bishop Auckland) (Lab)]

I am pleased to have the opportunity to have a short debate on the UK’s membership of the customs union.

My constituents voted to leave the European Union, largely because of what they see as uncontrolled immigration, but also because of the slightly bossy tendency of some of the EU institutions, which I think can be taken as a rejection of the European Court of Justice. However, they did not foresee all the consequences of the vote, partly because a number of false promises were made—most notably that there would be £350 million extra every week for the NHS, and also that no jobs would be at risk.

In the circumstances, it is reasonable of the Prime Minister to work on the assumption that part of her mandate is to end the free movement of citizens from the EU to the UK. That, in itself, does not amount to a negotiating strategy. The problem is that we are hearing wildly different things from different members of the Government. The Secretary of State for Business, Energy and Industrial Strategy has just reassured Nissan and it is going ahead with significant inward investment. I welcome that. Meanwhile, the Foreign Secretary still seems to believe that it will be easy and straightforward to do free trade deals “very rapidly indeed”.

The Government continue to say that they will not provide a running commentary on the negotiations. I know they claim that that is because they want to maintain confidentiality, but it appears from the outside as if it is because they are finding it difficult to agree among themselves on what should be done.

What I find alarming is the Government’s refusal to answer parliamentary questions. I asked the Minister a written parliamentary question about the Government’s policy on the customs union. He gave a rather opaque answer. I can live with that, but I have also put down a large number of written questions that ask factual things, such as how much we export, what the value of it is and what would be covered by the rules of origin were we to leave the customs union. On those questions, I also received the answer, “We will not give a running commentary.” That is why I felt it necessary to have a debate and explore these issues in more detail. I am alarmed by this situation, because the risk is that decisions will be taken on the basis of rhetoric not facts and on the basis of ideology not analysis.

An intelligent negotiating strategy needs to meet the public’s expectations, to be based on a hard-headed assessment of the national interest and to be deliverable. With that in mind, the Treasury Committee visited Berlin and Rome in September to find out what some of our counterparts might think. I am sorry to say that Brexit is not at the top of the in-tray for the other EU member states. They all see it in the context of their domestic political worries. Angela Merkel is looking over her shoulder at Alternative für Deutschland; Hollande is worried about Le Pen; Matteo Renzi is worried about Movimento 5 Stelle. Probably only the Irish take Brexit as seriously as we do. Over and over again we heard the same word: precedent. There should be no reward for exiting the EU, and no precedents must be set.

I conclude from that that if controlling immigration is going to be part of the British position and we are to move to a more skills-based approach for managing migration, our EU partners are going to say that we cannot remain members of the single market. However, there has not been so much attention paid to our membership of the customs union, which I am beginning to think may be more important, especially if we want manufacturing industry to thrive in this country.

It is worth recalling the history. The customs unions was established in 1968. It is what we joined in 1973, and what the public affirmed with the referendum in 1975. It is what most people call the Common Market. Unlike high levels of immigration or the ECJ, it is rather popular with the British public.

The shadow Chancellor has rather pejoratively described the Government’s approach as a “bankers’ Brexit”. I know why he has done that. We must base what we are doing on some facts. I remind the House that we export more goods—some £285 billion-worth—than we do services, the figure for which is £226 billion. That is a ratio of 56:44. This is important. At the moment, we have a common external tariff, goods move freely within the EU and the Commission has competence for external trade negotiations. The customs union is not the same thing as the single market. Norway is in the single market but outside the customs union, whereas Turkey is in the customs union and outside the single market.

It is also worth recalling that the export of goods into the European Union comprises 48% of our exports. The EU is our biggest partner. Exports to Europe bring 3.3 million jobs. The next most significant partner is America, with 17% of our exports, and way down the numbers is China, our third biggest trading partner, with just 4%, or one 10th of the significance of our European exports. So what would happen if we were to leave the customs union?

[Richard Fuller (Bedford) (Con)]

I am extremely grateful to the hon. Lady for calling this debate. She is precisely correct that this is what most of the debate in the House will be about. She said a little earlier that we joined the customs union when, effectively, we joined the European Union, as was reaffirmed in the referendum of 1975. Is that correct? If so, that sets the basis for what the Government have to argue, namely that in the referendum that we held this year we voted to leave the European Union and the directive is therefore to leave the customs union; we have to argue back from there. Will she clarify that point?

[Helen Goodman]

We joined the Common Market, which is the customs union, in 1973. Now we have voted to leave the European Union. People want to leave the EU, because of their concern about migration and perhaps about the ECJ. In my opinion, the move is not driven by concerns about the customs union, which in fact is very popular. That is what I am arguing.

[Richard Fuller]

We come from different points of view, I suspect, about the referendum—I supported our leaving the European Union—but there are very positive reasons for both sides regarding the customs union. We have to understand where we are coming from after the referendum result. The presumption from that result is that we will leave the customs union. It is therefore beholden on people who may want us to stay in the customs union to argue what strong reasons there are for staying in—and there are strong reasons.

[Helen Goodman]

Let me come on to give some of those strong reasons. If we were to leave, we would face tariffs ranging generally between 5% and 10% on our exports. Even more significantly, our exporters would have to comply with the rules of origin. I think this is the biggest problem. I have the last television manufacturer in Britain, Cello Electronics, in my constituency. It imports a lot of components from China, puts the televisions together and sells them into the European market. The OECD estimates that the cost of filling in all the forms and complying with the rules of origin would add 24% to the export costs of selling into the European market. That would wipe out firms such as Cello, which, as I say, is in my constituency.

In Norway, which is outside the customs union, we know that some exporters find the bureaucracy of the rules of origin so burdensome that they prefer to pay the tariffs. This is really what the Nissan problem was. Belonging to the customs union was the first thing the Japanese Government listed in their hopes for what our deal would be, but the Government cannot take a factory-by-factory approach. Let us look at some of the big industries that would be affected: the automotive industry employs 450,000 people; aerospace 110,000 people; pharmaceuticals, such as Glaxo in my constituency, 93,000 people. All those industries have the same complex integrated international supply chains and would be badly hit were we to leave the customs union.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Exiting the European Union (Mr Robin Walker)]

I congratulate the hon. Member for Bishop Auckland (Helen Goodman) on securing this debate. My constituents, like hers, voted to leave the European Union, so I welcome her comments about listening to that vote. It is also important that we all work together to make this process a success, so I welcome her analysis.

Last week, she posed a question along similar lines to the Prime Minister about the EU customs union and Nissan. I am delighted that since that question was posed, Nissan has announced that it will produce the Qashqai and a new model at its plant in Sunderland. The hon. Lady welcomed that, and so will I. I want to join the chorus of approval that we heard in this place for that decision. It is a vote of confidence, which shows that Britain is open for business and that we remain an outward-looking, world-leading nation. The plant in Sunderland will be expanded through new investment to be a super-plant, manufacturing more than 600,000 cars a year. Some 80% of the plant’s output is exported to more than 130 international markets. The decision is a massive win for the 7,000 direct employees and 35,000 total British employees in the plant and the supply chain.

Turning to the core subject of this debate, the issue of the customs union is an important one. As with all facets of our exit negotiations, we recognise the need for a careful—what the hon. Lady called a “hard-headed”—analysis for a smooth transition that will minimise disruption to our trading relationships and seize the opportunities presented. This is an area in which there is excellent cross-Government co-operation, and I am pleased to be joined on the Treasury Bench this evening by the Financial Secretary to the Treasury, my hon. Friend the Member for Battersea (Jane Ellison). That shows how the Department for Exiting the European Union and the Treasury are working hand in hand on these issues.

I would like to be clear from the outset that—as, I think, we are all aware—no final decision has been taken on our broader future economic relationship with the EU, which includes our approach to the customs union. As with our decision not to trigger article 50 immediately, it is right that we take the time, as the hon. Lady said, to analyse our options carefully and seek to secure the best deal for the whole of the UK.

[Richard Fuller]

Can the Minister help me with the question I posed to the hon. Member for Bishop Auckland (Helen Goodman)? The ballot paper said that we are either leaving the European Union or remaining in it, and we voted to leave. We joined the customs union in 1973. Is not the presumption and the starting position for the Government the fact that we will leave the customs union, so arguments have to be made why we should not do that rather than accepting that that should be regarded as the opening position?

[Mr Walker]

I think it important to engage with arguments on both sides of this debate. The key thing is to secure the UK national interest, so before we take a decision, we will want to listen very carefully to the arguments for leaving the customs union and the arguments for staying in it.

I think we can all agree that the issue has numerous aspects. The hon. Lady speaks with considerable experience of complex economic issues, having been a Treasury fast-streamer serving on the Public Accounts Committee and the Treasury Committee, and a former Minister. She will appreciate that, as the Prime Minister said in her reply the other day, making a full assessment of the options of a customs union is more complex than it might seem when first described to the public.

First, it is important to understand exactly what a customs union is and is not. It is an arrangement that relates to trade in goods; it does not cover trade in services or free movement of capital or people. To facilitate trade, a customs union removes tariffs and customs controls on goods moving between its members. While services are not directly included— they are not subject to either tariffs or customs controls—they have become increasingly embedded in goods production, so a customs union could indirectly affect trade in services industries. For example, in parallel to exporting an aircraft engine, an engineering firm might also provide maintenance services; or in parallel to exporting cars, an automotive firm might provide financial services.

To function properly, a customs union must have a common external tariff, applied equally by all members of the union. That supports the free circulation of goods within the customs union, preventing trade diversion by ensuring that no one trading with the members of the union can be given preferential access to any individual members relative to the others. In the case of the European Union, in practice, we have chosen to make a reality of the common external tariff through the common commercial policy under which the European Commission negotiates on trade on the United Kingdom’s behalf, and in that way sets the common external tariff. In the case of members of the EU and the EU’s customs union, 80% of the tariffs that are collected by member states on imports from non-EU countries are paid into the EU budget, with member states retaining just the remaining 20% to cover collection costs. The UK collected £3.1 billion in tariffs on non-EU imports in the financial year 2015-16.

However, a customs union is only one of the many ways in which countries have sought to minimise the impact of customs procedures and support the free flow of goods. There are numerous examples around the world in which co-operation between customs authorities has helped to reduce the costs of customs processes at the border, short of a customs union. Even in the case of the European Union, the customs union is only part of an approach that also focuses on strengthening systems and processes on the ground. For example, the vast majority of customs declarations in the UK are submitted electronically and cleared rapidly, with only a small proportion experiencing delays—for example, when risk assessment indicates that compliance or enforcement checks are required at the border.

Norway has been involved in customs co-operation with Sweden and Finland, both of which are EU member states and are therefore in the EU customs union, as they have been since the 1960s. Norway has an agreement with the EU to mutually recognise each other’s schemes to impose less onerous checks on exporting firms with secure supply chains. It sits, as an observer, on some of the EU’s committees that discuss customs issues. Notwithstanding the issues raised by the hon. Lady, and although our Prime Minister has made it clear that we are seeking not an off-the-shelf solution but a UK solution, it is important to note the collaborative agreements that exist in other countries. Switzerland and the EU have an agreement that recognises the equivalence of security checks at their external borders, and waives the need to make pre-departure and pre-arrival declarations. If we look more widely, we see that the United States and Canada also co-operate closely on customs issues, including schemes to expedite customs procedures for firms with secure supply chains and collaborative arrangements for operations at the border.