Scotland & the EU Westminster Mismanagement

A May/Corbyn customs union Brexit deal would be devastating for Scotland

Theresa May and Jeremy Corbyn are said to be close to a deal to allow Brexit to happen.  May desperately wants her EU withdrawal bill to be passed by parliament as her last act as PM. Corbyn, a life-long EU sceptic, wants out of the EU but needs to claim some sort of political victory and so is trying to force the Conservatives to accept a EU withdrawal deal but with a customs union.

If the two can agree, then Brexit will happen as it will have the votes to pass. A customs union Brexit similar to the one proposed by Kenneth Clarke in the last set of indicative votes lost by only one vote, 273 to 274.

Let’s be clear – neither main UK party leader wants to stop Brexit. Both see the damage their inability to manage the Brexit process is doing to their credibility.  They are also desperate not to open the door to Nigel Farage and his Brexit Party who are set to dominate the EU elections (in England) and then  fight the next General Election with the key theme of British nationalism that will take votes from both left and right. 

Although they might agree to a compromise – a customs union Brexit is actually the worst of all worlds, a hugely terrible idea.  If it happens it will be sold as a softer Brexit than no deal but there is nothing soft about it. This has been largely missed by the mainstream media because the analysis done on the economic impact of Brexit covers scenarios ranging from no deal, to a comprehensive trade deal, to single market membership with a customs union. Before this week no one thought to do an economic impact analysis of a sole customs union Brexit because no one thought it was a likely scenario.  

Let me put that another way, no one thought MPs would be daft enough to vote for a customs union Brexit, as it has none of the advantages, real or imagined, of the other options. So our research team at Business for Scotland has been wading through the available data to build a picture of the economic damage and trading policy restrictions that a customs union Brexit would bring to Scotland.  With the caveat that until we know the exact detail of any customs union agreement we can only estimate the economic impact using the available data. But even using conservative estimates a customs union would be deeply damaging for Scotland’s economy.

Here are ten reasons why a May/Corbyn customs union Brexit deal would be devastating for Scotland.

  1. Eastern Scotland will be the most adversely affected region in the UK by a customs union deal – by 2029 the region will have lost 3.7% of GDP. This is 1% higher than in outer London.
  2. By 2029 a customs union Brexit will have cost Scotland £5.9bn.
  3. Scotland’s unemployment rate will increase by about 1.3% under a customs union arrangement, which as a percentage of Scotland’s working age population in 2018 is equivalent to 47,000 jobs.
  4. The cost of non-tariff barriers, such as regulations, rules of origin and quotas, will outweigh the benefits of being in a customs union: costing the UK 5.1% of GDP in the long run.
  5. A customs union without being a part of the single market will increase border friction and the costs of trade.
  6. A customs union will reduce investment by around 18% UK-wide compared with staying in the EU. Given that Scotland is the second highest winner of FDI projects in the UK, it can be expected to have a higher than average impact on Scotland.
  7. A customs union exacerbates demographic challenges. No EU immigration after Brexit would mean a 3% fall in Scotland’s working age population by 2041 and a 7% decline in the number of children.
  8. Scotland is receiving over £5.3bn in EU funding between 2014-2020, with Brexit Scotland would lose the next round of funding with no guaranteed replacement by the UK government.
  9. A customs union deal means UK average real wages will fall by 6% over the long run.
  10. As part of the customs union, the UK will be obliged to follow EU rule changes while not having a vote on those changes or lose the benefits of a customs union.

But would the EU agree to such a deal? Yes and no.  The Withdrawal Agreement is legally binding and that includes the problematic Northern Ireland backstop. The EU have made it clear that is not open for negotiation.   No matter what the UK Parliament agrees to, such as a four-year customs union taking us up to the next general election, the Withdrawal Agreement is not negotiable and the backstop lock-in stays until a trade deal is done.

The joint Political Declaration (also to be passed by Parliament) includes text about a customs arrangement and could easily be amended to say intention to agree “a” customs union.  The EU would agree to this as long as the deal is passed. So the UK would have the legally binding Withdrawal Agreement enforcing a backstop but a non-binding political agreement with the EU that states a willingness to replace that with a negotiated customs union.  One leading EU policy analyst described this to me as “smoke and mirrors,” another as “dancing on the head of a pin” or as I would put it: a pretend compromise to allow some form of Brexit to happen. 

MPs might back it but they may also force a second referendum and then the battle becomes one to define the referendum options – the Customs Union Deal or No Deal, or would a third option of cancelling Brexit be allowed?

So what are the major problems with a customs union Brexit?

The UK is currently in “the” Customs Union but the benefits of that are indivisible from the rest of the EU membership benefits; freedom of movement of goods, people and finance and indeed Single Market membership. So the UK would have to leave “the” Customs Union and negotiate “a” customs union that would be bespoke to the UK but also much less beneficial than “the” Customs Union.  

Turkey’s relationship with the EU is closest to a customs union Brexit. Turkey is not in the EU so they tag along on the back of EU trade deals.  They have to offer the same Turkish market access to nations (Japan for example) as the EU does and in return ask for the same access to Japan’s market as the EU has negotiated.  Some nations have refused and crucially Turkey can’t make trade deals of their own without applying the common EU tarrifs on imports.  They also have to be compliment with EU regulations, so have none of the advantages (actually imaginary advantages) of having different regulations that Brexit supporters claim.  

This demonstrates why a customs union on its own can’t really work, you need regulatory alignment or you need customs checks, country of origin paperwork and lots more customs staff.  In other words, you only have free movement of goods if regulations, standards such as veterinary practices, safety and contamination are all aligned. Otherwise, the checks and tests slow the movement of goods down to pretty much the same as a no deal Brexit. So what’s the point?

Trade deals are an aggregation of national trade priorities – the UK and Scotland’s priorities are different. EU trade deals after Brexit will no longer protect Scotch whisky and several nations would love to call their inferior products Scotch.  So even tagging along with EU deals would mean accepting that it will be the UK negotiating Scottish whisky’s protected status and they will have several other trade priorities to negotiate that are not as important to the UK as they would be to Scotland and the EU if Scotland remained a member. 

Scotch whisky is such a huge export, the UK might seek to protect it, unless it was a straight choice between that and access to markets for London’s finance sector. But would they protect Scottish fishing rights? Would they fight to protect Scotch beef and lamb or Scottish salmon, Harris Tweed? 

The UK might be about to be sold a pig in a poke, a no deal Brexit with a red white and blue ribbon on, one that Scotland didn’t vote for and that will cost tens of thousands of Scottish people’s livelihoods and devastate our economy.

When Westminster legislates to enact any form of Brexit then Scotland’s status in the Union will have reached the end of its generational journey from being a partner in the Union to being a victim of it.

Sources used in the research for this article

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About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland he ran a small social media and sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and The Huffington Post.

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