UK trade policy has failed but a Customs Union with the EU is not the answer
By David Henig
Ten years on from the Brexit referendum there is no obvious permanence in UK-EU relations. Although the Government has made great progress towards improving UK-EU relations with the EU, UK politics has failed to fully come to terms with the trade-off between control and closeness. There are only small signs of development in new discussions in and around UK political parties.
Fundamentally UK politicians must acknowledge the reality that a distant trade relationship inevitably means barriers, frustrations and economic costs, while closeness requires compromise with sometimes difficult asks.
UK politics is stuck until there is long-term consensus on a solution acceptable to Brussels. Instead, this core question is avoided.
Failed Brexit visions
“Global Britain” was the first evasion, simply trading more with the rest of the world. Yet deals with Australia, New Zealand, and joining the multi-country CPTPP have done little for our trade figures.
Problematically, global companies see the UK first in terms of European trade. That means wanting to be in regional supply chains following EU rules, particularly for goods.
Then there was “make Brexit work”, a more pragmatic variant which saw the UK making trade deals even of marginal benefit, including tweaks with the EU, a shallow deal with India, digital trade agreements, and other niches.
However, in both cases there remains a large US-sized hole. The UK’s largest single trade partner has proved resistant to a genuine trade agreement - other than Trump’s tariff blackmail - whether because of our food safety laws or their protectionism. Bipartisan US rejection of WTO rules, meanwhile, casts a shadow over global trade.
Look closely and there is a clear pattern. UK trade activity mostly focuses on tariff reduction, while services and non-tariff barriers - central to UK exporters - are an afterthought.
Customs Union is the wrong answer
Fixating on a Customs Union falls into the exact two traps upon which Brexit has foundered. Avoiding answering difficult questions by focusing on a tariff arrangement would do very little for the UK’s economy or political debate.
Worse, there is little understanding that a customs union means only limited reduction in bureaucracy around rules of origin, with accordingly modest benefit. In return the UK will have to implement the inbound part of EU trade policy with little influence and uncertainty for our existing trade deals.
Then there is the other side of the story so often ignored in Westminster. Ten years of negotiations show the EU shapes allowable options for partners. Theresa May was offered a customs union which Parliament rejected, but, with circumstances very different to the desperate effort to find a divorce arrangement, this is not on offer again.
UK governments like to engage with EU Member States, but when it comes to third country trade relationships, the action is almost entirely in Brussels. That city’s institutions, insofar as they have a singular view, believe a Customs Union debate shows the UK continues to only want the trade benefits of access to a large single market - without matching responsibilities.
UK politicians must engage publicly in Brussels
Put simply, the EU view on UK relations is that goods cannot flow more easily than people. That this doesn’t apply to Türkiye is down to specifics. Closeness must also mean meaningful financial contribution and widespread, if not necessarily complete, regulatory alignment. Attitudes to perceived UK cherry-picking remain firm.
Furthermore, UK leaders wanting this closer relationship are expected to make a proper public case in Brussels. The days of outward EU-bashing while privately asking for the benefits are over, not least as this provides no basis for political stability.
Nick Thomas-Symonds’ never-ending tour of capitals, including Brussels, earns respect. But being in the midst of a technical negotiation means he isn’t simultaneously making a strong case for something altogether different.
This UK government has shown preparedness to walk-the-walk on EU relations. Gaining further economic benefits now requires it, or successors, to talk-the-talk.
Breaking the cycle
Two developments in the EU may help the UK. Successful negotiations to update their Swiss relationship allows this kind of deep partnership formally outside of single market and customs union to be considered. Discussions around Ukrainian membership may also consider new neighbourhood models.
But there are also issues: the EU’s own protectionist turn, a possible far-right French President from 2027, and evidence of negotiating intransigence in contrast now to a constructive UK approach. The UK’s EU devotees and opponents alike always struggled with the messy realities of its institutions.
Progress won’t be easy. Politicians must make the public case, on the basis of a very good idea of the art of the possible.
Compromises - openly discussed - on sovereignty, rules, trade, financial contribution, people movement and more are required. This is the pathway to a stronger, more predictable UK and Europe, and the basis for sorely-needed economic growth.
David is the UK Director at the European Centre for International Political Economy (ECIPE) and adviser to the UK Trade and Business Commission, writing about Brexit negotiations and the trade policy issues arising from Brexit. He also writes extensively about EU and global trade developments with a regular column for the online trade news service Borderlex.