What was wrong with that last blog post? Well, I really wasn't clear enough about the difference between the customs union and the single market and might have left the impression that these terms are inter-changeable. This simply can't be tolerated because even in this low state of indignity I am still better than Liam Fox. You've guessed it right, this post is going to be about the customs union and why it is suddenly all over the news.
A customs union allows goods to flow tariff-free within its geographic limits. The important point is that goods from outside the union can pay a tariff to enter the union and then move anywhere within the union without any further tariff or non-tariff barriers. For that to work all nations in the union need to agree a system of Common External Tariffs (CET). If they don't do that there will be pressure to import goods to low tariff areas in the union and then redistribute them to high tariff areas. Obviously, that would undermine the power of governments to set tariffs so they would respond with systems of certification at their national border to make sure that the correct tariffs are paid on goods sourced from outside the union.
A customs union can be thought of as a deeper level of economic integration than a free trade area because free trade agreements alone don't impose the extra condition of CET. Canada and the US, for example, independently negotiate their own trade deals and WTO tariffs even though they are both members of NAFTA. As a consequence, they need to have further agreements to manage the distribution of goods sourced from outside North America. The European customs union, on the other hand, applies a system of common tariffs and has no need of further "country of origin" certification checks at national borders. This freedom leads straight to the complex supply chain that feeds the Nissan car plant: components can whizz around the European customs union without any delays or costs at national borders because there are never delays or costs at national borders.
|The modern world is very complex.|
|Car boots, bric-a-brac and jumble sales. A new department for Liam Fox.|
What else could the government have promised Nissan instead of ongoing membership of the customs union? They might have promised a tariff-free deal with the EEA. I don't think that is enough on its own because it still adds friction to the supply chain in the form of country of origin certification. Besides, it is not in the government's power to guarantee a tariff-free deal with the EU because it requires 28 countries to agree. Any agreement along those lines would likely stretch in to the next Parliament. Anything else? There's not really much else they can do except for giving them hard cash in the form of technology research grants or infrastructure improvements or employee training schemes. The government absolutely cannot guarantee to underwrite the losses that accumulate from customs tariffs and delays because that is against WTO rules. Such a system of payments would be considered as a clear case of discriminatory subsidy by the WTO. It would also make Liam Fox very sad because it would mark the end of his ultra-libertarian fantasy. And that makes me sad because his own sense of identity will be threatened just as mine was by all the mistakes I've been making.
It looks like the UK is going to leave the customs union and the single market and, of course, the EU. A foreign-owned factory has kicked up a stink and the government have offered them a deal in secret. We're going to see a lot more of this in the next few months and years. There are other car factories that need their own deal, there are businesses that need EU workers, and there are banks that need passporting rights. Are they all to get their own secret deal? Is this taking back control? Is this free and open trade? Is this even open government?
Anyway, I hope I cleared up the confusion of my last post. My personal sense of worth is on the up already but that deeply unattractive STEM mindset is not showing any signs of abating. Swings and roundabouts. A bit like EU membership, really.
Over and out,
PS I won't really feel sad if it all goes wrong for Liam Fox.