EU Customs Union

Robin Walker Excerpts

Wednesday 2nd November 2016 Commons Chamber

[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.

[Helen Goodman]

I am listening with interest to what the Minister is saying, but according to my constituents, who do a great deal of exporting, exporting to Switzerland is a nightmare by comparison with exporting to the EU, because of all the bureaucracy. Does the Minister not agree that the UK is in a different position from Norway? Its major export is oil, and exporting oil is incredibly simple, but, as I said earlier, most of the goods that we export are manufactured goods, which have complex supply chains.

[Mr Walker]

That is a fair point. I shall say something about our engagement with some of those industries and the importance of supply chains later in my speech. It is worth noting, however, that many countries also have authorised economic operator schemes, which means that exporters with supply chains that are demonstrably secure are subject to fewer and less stringent checks. The EU has such arrangements with China, Japan, Norway, Switzerland and the United States, through which both sides recognise each other’s authorised economic operators for customs purposes.

Turkey, which the hon. Lady mentioned, is one country outside the EU that has a customs union arrangement with it. That arrangement covers most but not all goods. Raw agricultural produce, for instance, is excluded. The EU and Turkey have been preparing to update the terms of their current customs union arrangements, which were always meant to be transitional, given that Turkey has applied to be a full member of the EU. I could go on, as there is a multiplicity of examples, but the point is that any decision about membership or otherwise is complex, and must take account of the full spectrum of options.

During last week’s debate, the Prime Minister also said that the way in which one dealt with the customs union did not involve a binary choice. There are different aspects to a customs union, which is precisely why it is important to look at the detail, to carry out the hard analysis that the hon. Lady called for, and to get the answer right. We have made it clear that we will pursue what works for the unique circumstances of the United Kingdom, and we continue to analyse thoroughly what it might look like in order to ensure that we make the best choice for the UK. That includes the broad-based analysis of more than 50 sectors that my Department is undertaking in relation to the impact of the UK’s leaving the EU.

As with the broader UK-EU negotiations, we recognise the need for a smooth transition that minimises disruption to our trading relationships and seizes the opportunities that are presented. The issue of a customs union has also been part of the Government’s programme of stakeholder engagement. We have been discussing this matter with numerous companies, organisations and trade bodies, including the chemicals sector, car manufacturers, and the agriculture and food and drink sector. We want to ensure that their views are reflected in our approach. The Prime Minister has been very clear that the intention of the Government is to ensure a competitive market so that people are able to prosper here in the United Kingdom and add to our economic growth.

We are also aware of the specific circumstances faced by businesses in Northern Ireland, which I know the hon. Lady could have touched on if she had not taken the interventions. We had a common travel area between the UK and the Republic of Ireland many years before either country was a member of the European Union. Nobody wants to return to the borders of the past. I underline the will and commitment of ourselves, the Irish Government and the Northern Ireland Executive to support the common travel area and to ensure that there are no hard borders. We must now work closely together to ensure that as the UK leaves the EU we find shared solutions to the challenges and maximise the opportunities for both the UK and the Republic of Ireland, which I expect will continue to be a close friend of the UK in years to come.

[Helen Goodman]

I am slightly nervous that the Minister might sit down before I ask him another question. He said his Department is looking at 50 sectors. My basic request tonight is that we should have more information and facts from the Department, so will he make a start by telling us which 50 sectors and how large they are, how much they export and how many people are employed in them?

[Mr Walker]

In the six minutes I have left, it would be a challenge to run through each of those 50 sectors, but we will certainly disclose that information in due course. It is important to emphasise this is a whole-Government effort. Our Department is engaging with those sectors and conducting the analysis and drawing it all together, but we are also working closely with colleagues at the Treasury, the Department for Business, Energy and Industrial Strategy, the Department for Environment, Food and Rural Affairs and all the other relevant Departments to each sector of the economy, because it is important we get this right and there is a role for every part of Government in informing that process.

[Jonathan Edwards]

I am slightly confused about one point. I welcome the announcement about the common travel area between the Republic of Ireland and the UK, but will that not mean there is an open border between the EU and the British state?

[Mr Walker]

I think both the Republic of Ireland in its communications with the EU and we in ours are very clear about the value we place on that common travel area, which existed long before the membership of the two countries to the EU. We have been clear in saying this is not necessarily a completely easy issue; it is an issue that will require some work, but we are determined to do that work and make sure we can make this work. I hope that answers the hon. Gentleman’s question.

We must also consider carefully the position of the Crown dependencies and the UK’s overseas territories. Just today, I have met in a joint ministerial council with the overseas territories and the chief Ministers of the Crown dependencies to hear their views. There are some interesting examples. Gibraltar, for instance, has benefited from the UK’s membership of the EU but has not been part of the customs union to date.

I welcome this debate as part of the scrutiny of the Government’s position by this House. That is an important process and the information the hon. Lady and others have brought forward can certainly be taken into account as part of our analysis. I also look forward to Monday’s debate on exiting the EU and workers’ rights. That is an important aspect of our policy, and the Secretary of State for Exiting the European Union has been very clear about our determination to protect workers’ rights. That debate will be another opportunity for the House to discuss the important issues in relation to our exit from the European Union.

In summary, the Government fully recognise the importance of the question of a customs union with the EU in the context of our future relationship. It is a complex, multi-faceted issue, and we are analysing carefully all the options available to us with the aim of securing the best outcome for the UK as a whole.

Question put and agreed to.