Richard North, 17/02/2018  
 


Sadly, we have become used to the incompetence of government in the handling of Brexit and the inadequacies of the legacy media are plain for all to see. We see similar failings in the halls of academe and most of the think tanks in the field are proving to be a waste of oxygen.

To that extent, Brexit is proving to be the fault line, showing up the inability of society to deal with change. But, at the very least, one might have thought that the economic aspects would attract a considered response from business.

So far, though, the results have been erratic. The banking and the pharmaceutical sectors are on the ball (or relatively so), but others are less so. Necessarily, many sectors have relied on their trade bodies and these have been all over the place. More recently, as we have seen, the food and farming bodies have been making a poor fist of it.

As for the more general bodies, one such is the CBI. But it is so far from covering itself in glory that it has written itself out of the script. And that leaves the Institute of Directors (IoD), its nearest competitor, putting in its bid for pole position.

Its latest offering in this respect is a report entitled: "Customising Brexit - a hybrid option for a UK-EU trade framework", written by Allie Renison, Head of Europe and Trade Policy. Published yesterday with an accompanying press release, the kindest thing I can say is that the IoD has made as much a mess of its pitch as anything the CBI has ever produced.

Fortunately, Renison has only written only ten pages, lessening the analytical burden. And then, making life even easier, she has managed to destroy her own case within the first paragraph of her 1000-word introduction, by employing a startlingly egregious non-sequitur.

In that paragraph, we are told that the UK is leaving the European Union, and with it the EU's customs union. Says Renison, the latter is arguably less a matter of choice but one of necessity, just as many of the fundamental tenets of the EU's Treaties must fall away from the UK with EU exit.

But with this as a baseline, in the very next sentence she makes the most extraordinary leap of faith, telling us: "While a transition or implementation period may temporarily prolong its operational effects, any long-term continuity would ostensibly have to take the form of a new customs union".

For sure, "a new customs union" is an option, but there is considerable discussion as to whether it is attractive – or even a practical proposition. The one thing for sure is that "any long-term continuity" would not necessarily (or at all) have to take this form. There are several other options.

However, this sentence shapes the entire report. Renison is on a mission to sell us a partial customs union as the IoD's unique contribution to the debate. Furthermore, she is not just presenting this as part of a transitional process. We are enjoined to consider this for the "end-state".

According to Renison, the arrangement would be similar in scope to Turkey's agreement with the EU, used as a base upon which to build a broader free trade agreement. It would cover all industrial goods and processed agricultural products, aimed at facilitating the flow of goods across UK-EU borders – or so says the press release, even though the evidence indicates that the customs union in Turkey does nothing to speed the flow of goods.

That aside, Ms Renison's main concern, she says, is to remove the need for UK manufacturing to face costly "rules of origin" (ROO). These, she believes, could render a straightforward tariff-free deal – as in a free trade agreement - meaningless for many companies. And on that basis, we see a complete switch from the idea of an FTAs to an obsession with agreeing a customs union.

In this context, "obsession" is exactly the right word. Renison, to judge from her Twitter traffic, has got herself tied up with a number of pundits who have convinced themselves that rules of origin present a serious obstacle to our post-Brexit trading arrangements with the EU.

This is an issue about which I have written very little, precisely because – in my view – it is of such little importance. Renison herself cites an EU report which suggests that unmitigated ROO, in the Turkey situation, would add two percent to the cost of trading. This must be compared with the cost of regulatory non-tariff barriers, which can add as much as 20 percent to the price of imported goods.

In absolute and comparative terms, therefore, ROO are the least of our problems. If the UK wanted to avoid these marginal costs, it is not necessary to resort to a customs union. Should we do so, it would not facilitate the flow of goods across borders – not even the Irish border, despite Ms Renison's assertion to that effect.

As for dealing with ROO, there are better ways of avoiding the problem. For instance, when we leave the EU, the government is planning to apply the EU's schedules of tariffs to our trade with the rest of the world. This is an application of what is called coordinated unilateralism which, if a degree of formality is needed, can be cemented into place with a political declaration.

Such an arrangement makes the idea of a customs union an irrelevance. We will need, of course, to agree tariff-free trade with the EEA but, short of an acrimonious "no deal" walk-out, I don't see any situation where that will not be part of the final exit deal with the EU.

As long as we continue to harmonise our external tariffs with the EU, this will have the same effect as adopting the EU's common external tariff – with no customs union in sight.

Since there would be no disparity between tariff rates, as between imports into the EU and the UK, there would be no occasion when tariffs would arise from application of rules of origin, either in respect of direct exports to the EU or re-exports. Thus, in the automotive industry, parts imported from the EU (or the RoW, on which tariffs had been paid) and then fitted to a finished car and exported would not attract EU tariffs.

Thus, so marginal is the problem that one gets the impression that it is being talked-up by people who want to make a name for themselves in "discovering" something no one else had thought of. For want of being able to address real problems, they are inventing their own.

The really puzzling thing about Renison's report, therefore, is why the IoD has chosen to expend its energy and political capital on an issue of such limited importance.

This is at a time when David Dingle, chairman of the trade body Maritime UK, is complaining that lobbying the government over Brexit is like "banging your head against a brick wall".

He is concerned that the UK infrastructure is not "up to the task" of dealing with Brexit and warns that just a doubling of the time it takes lorries to get through the port of Dover, from two minutes to four minutes, could see permanent 20-mile-long motorway queues in Kent.

Dingle adds: "It seems equally improbable, in the current climate, that there will be a political solution, that there will be an output of a 'deep and special relationship', which will mean that those lorries can continue to flow in an unimpeded fashion".

Keeping the trucks flowing through the ports is going to tax all the resources of the government and, with the growing list of barriers that traders are having to confront, it will be nothing short of a miracle if huge delays can be avoided once any transition period is over.

Therefore, one would have thought that the IoD, along with other trade bodies, would be focusing their attention on the real priorities – which must be the elimination and reduction of non-tariff barriers. Anything else, at this point, must be considered a dangerous distraction.

Renison goes halfway to acknowledging this when she admits that her option "would not remove all the potential disruption for business", an assertion so weak that it's rather like saying that the BEF in 1940 would not stop the entire German Army.

Her next statement also verges on the fatuous, the one in which she says that "the regulatory relationship is a much wider piece of the negotiations" – as if it was actually open to negotiation. We either have a regulatory relationship, or we don't. And not content with that, she adds that her partial customs union will not "remove every current constraint on the UK's economic sovereignty" – as if it possibly could.

For all that, Renison has it that this irrelevant option of hers is a "compromise". Somehow, though, this label seems less than exact. There must be a better way to describe this waste of time and effort that should be way down the list of priorities.

In a sense, though, her report typifies the post-referendum treatment of Brexit – endless energy expended on just about everything except that which is relevant and necessary to deal with our withdrawal the EU. One of these days it might be different but, when it is, I have a feeling that it won't be the IoD leading the way.






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