Brexit: not fit for purpose

14/06/2017

Through the noise, we are getting occasional hints that "business" - as a generic – is coming out of hiding and is beginning to be more assertive in making its views known about Brexit, with articles such as this and this emerging in the legacy media.

Another important source of information (and influence) is the flow of briefing notes generated from private institutions, and especially investment banks and the like, which have enormous influence on their powerful clients, politicians and the media – even if they are sometimes a slow burn.

A good example of such is a note from JP Morgan Europe Economic Research unit on Brexit and the UK's membership of the EU's customs union. It is written by Malcom Barr, a staff economist whom we have met before.

Basically, his message is simple and straightforward. We cannot stay in the current customs union and, should we want such an arrangement, we would have to attempt to form a new customs agreement between the UK and the EU.

"This is not just a semantic point", Barr says. "The characteristics of a 'new' customs union would likely be bespoke and require detailed negotiation between the UK and the EU, even if in many instances they sought to replicate aspects of existing arrangements".

I am not unhappy to say that the briefing note goes on to advise its readers that an "excellent overview" of the issue is provided by Dr Richard North in his Monograph 16, which somewhat brightened an otherwise lacklustre day.

Interestingly, the contrast between the JP Morgan work and a piece on the BBC website by Jonty Bloom, is extreme. This purports to tell us the difference between a free trade area, the Single Market and a customs union. But the kindest thing we could say of it is that it is muddled.

In Monograph 16, we use the WTO definition of a customs union, as the "substitution of a single customs territory for two or more customs territories, so that duties and other restrictive regulations of commerce (with certain exceptions) are eliminated with respect to substantially all the trade between the constituent territories of the union".

We also note that the definition goes on to state that substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union. These common duties are known technically as a "common external tariff" (CET). And, to that extent, the customs union is a limited form of free trade agreement.

The modern version of the FTA, we state, goes much further, specifically identifying and abolishing qualitative and quantitative (non-tariff) barriers to trade between members, with particular emphasis on eliminating regulatory barriers.

However, we get nothing of this from Jonty Bloom. All we get from him is that "the EU is not just a single market it is also a customs union". As such, "the countries club together and agree to apply the same tariffs to goods from outside the union". Then we are told that, "once goods have cleared customs in one country they can be shipped to others in the union without further tariffs being imposed".

Bizarrely, nothing is said of the main characteristic of a customs union – that all internal tariffs and quantitative restrictions are abolished between members. Instead, Bloom rattles on about exporters have to contend with "rules of origin" – an entirely inappropriate reference in the context.

Then we get the ultimate in misinformation, where unfortunate readers are told that: "the UK could opt to leave the single market but stay in the customs union". We can't, of course but, in the event that we did, all the duties that we collected (less the administration costs) would be payable to the EU as part of its own resource.

Needless to say, within the EU's customs union, we would also have to accept the acquis pertaining to its function which would necessarily put us under the jurisdiction of the ECJ. All Jonty Bloom will say, though, is that: it "might" mean paying money to the EU and accepting ECJ judgements.

Finally, we get the typical confusion about the border controls – which are not removed by the customs union. But Jonty Bloom knows different. "A customs union", he says, "does however have one big advantage, it means the Ireland/Northern Ireland border would remain open and easy to cross".

This sort of misinformation simply isn't good enough, especially as Bloom evidently doesn't read his own copy, where he writes that the Single Market includes the "free movement of goods, people, services and capital". Despite that, he confers free movement of goods to the customs union, while failing completely to appreciate the difference between a customs union and an agreement on customs cooperation.

Yet the errors pouring out of the BBC are no better or worse than coming from the rest of the media and even (or especially) from politicians at all levels. Thus we have in The Times a front page report telling us that the newly re-appointed Chancellor, Philip Hammond, "is preparing to lead a battle within the government to soften Brexit by keeping Britain inside the EU customs union".

As we know - we the untertanen, but now joined by JP Morgan – this is not possible, but it is also unnecessary. We can very easily agree to trade with EU Member States on a tariff-free basis, without having to be part of a customs union, and without the common external tariff or the common commercial policy, which requires us to hand authority to make our trade deals to the Commission. It is there, though, that we would have to deal with rules of origin.

But there again, we get further confusion, as between the customs union and the common commercial policy, with The Times retailing the Chancellor's "belief" that ministers must rethink their decision to pursue an entirely independent trade policy" (on the basis that we stay in the customs union).

This is repeated uncritically by the Independent, while the august and self-important Financial Times has David Cameron calling on Theresa May to embrace a "softer" Brexit, while telling us that, "ideas circulating over how to soften Brexit include the UK remaining in the customs union".

These are yet more examples of the phenomenal level of ignorance about the EU and Brexit which prevails, reflecting the inability of the politicians to negotiate a suitable deal, and the almost complete inability of the media to report the issues properly. If neither know what they are talking about, how can we even begin to have meaningful negotiations?

The situation, though, is far worse than it appears. These issues have been part of the discourse for years, and the customs union "debate" can be traced back to last July when the issue was raised in the Financial Times. Not only do the players know nothing, in the space of nearly a year, they have learned nothing and shown no capability to learn. Their learning curve is almost completely flat.

With a situation such as this, there can be no room for optimism. If people cannot even grasp the basics and have no capacity to learn, when it comes to negotiating Brexit, they are simply not fit for purpose.