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Tuesday, January 22, 2019

Customs union outside the EU is second best says former WTO boss

The Guardian contains a wake-up call for those MPs who believe that a customs union is a viable alternative to remaining a member of the EU. Pascal Lamy, who is a former head of the World Trade Organisation told the paper he did not see the UK having a decision-making role if it were in a customs union with the EU.

Lamy compared the preference of many MPs, including the leader of the Labour Party to the current arrangements between the EU and Turkey:

While a customs union would help solve the impasse over the Irish border, the EU would still require additional regulatory checks. One EU official said: “If [the British] want a customs union like Turkey, we can negotiate that; the problem is it will not solve friction. That is simply an illusion.”

If the UK were to seek a customs union, EU member states would look to bind the UK to some single market rules to avoid unfair competition.

Lamy described the customs union as a political construct based on compromise. “It is not that France and Germany and Italy always have the same preference for opening or less opening [of their markets], for cheese or cars, it is that they find a compromise between them, but they converge because they are part of a system that is about convergence.”

The EU created a customs union with Turkey in 1995, which Lamy said was a precedent to study, noting that the EU had never allowed Ankara a seat at the table. The customs union with Turkey covers industrial goods but not agriculture, services or public procurement. Turkey follows EU rules on industrial standards and is obliged to apply the EU’s external tariff to imports from non-EU countries.

This leaves Turkey with lopsided trading arrangements with the rest of the world. Countries that have a trade agreement with the EU, such as Canada, have preferential access to the Turkish market if their goods enter the EU, but Turkey does not have reciprocal access.

“There are always problems,” Lamy said. “The Turks are permanently frustrated that whatever trade agreement the European Union negotiates with a third party, they are onboard while they have no say.”

The former trade official described Brexit as “a mess that was to be expected”, and he compared the preference of leading Brexiters for trading on WTO terms to playing football in the fourth division. “It is not that you cannot play soccer in the fourth division, but it is not the way you play in first division.”

Under his football analogy, the EU’s internal market is league number one, customs union counts as the second division, a bilateral trade agreement is the third division, while North Korea plays alone in the fifth division.

The fact is that politically and economically the UK already has the best possible deal. Those thinking that we can thrive on WTO terms are deluding themselves. I suspect that their enthusiasm for that arrangement will last only up to the point when they realise that the WTO is not as accountable as the EU, and they cannot stand for election to change the rules as they can with the EU.
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