Peter Foster @pmdfoster Europe Editor of the Daily Telegraph. Formerly based in Washington DC, Beijing and New Delhi. Opinions my own. Jan. 10, 2019 4 min read

The problem at the heart of the #Brexit impasse is still whether the UK remain in a Customs Union with the EU.

Solve this and you largely solve Brexit. 1/Thread

Both the problem, and the failure to address it, is writ large in May's deal.

Officially UK is NOT joining a customs union....but in the absence of unicorns we clearly are.

Either via the Backstop or when its clear 'other arrangements' dont exist to fix the Irish border /2

Unfortunately May never had the courage to confront her Brexiteers over this fact. She fudged in Lancaster House, and kept fudging.

Recall this time last year, as the Irish reality dawned, senior peeps like @DLidington were flying kites on this.
 https://www.telegraph.co.uk/politics/2018/01/19/david-lidington-interview-britain-could-join-customs-union-eu/ 

But over that Spring all were shot down.

May retreated, choosing instead to put an 'all UK customs union' in the June 2018 backstop paper.

David Davis nearly quit, but was bought off with an aspirational time limit that we'd have a unicorn in place by 2021 /4

But the time is now approaching where the logic of remaining in a customs union becomes overwhelming.

Let's take a step back and ask 'why leave?'

The answer is to repatriate independent trade policy so we can negotiate trade deal around the world.

But the economic rationale for this is pitifully weak - yet it has become a political talisman for Brexiteers /6

Government estimates and those of think-tanks like NIESR show that trade deal with BRIICS and US etc would increase GDP by 0.2%

Compare this with the loss to UK GDP by 2030 if the UK did a Canada trade deal, or standard FTA and it is clear that this relatively late addition to Eurosceptic cannon is economically nonsensical. /8

It is extraordinary to think that Philip Hammond @philiphammondUK (a Tory I used to refer to in copy as Eurosceptic) is now a lily-livered surrender monkey for being clear that UK economic interests lie in remaining in a customs union. /9

The unchallenged narrative that comes from likes of @bernardjenkin is that "we've increased our exports to the EU by 18% since 1993 but we've increased our exports to the rest of the world by 71.7%. So our opportunities are in the rest of the world..."

But think about it../10

1. Before the UK can negotiate these new trade deals it must first bilaterally rengotiate all existing EU deals - from a weaker position, since our market is only 50m people. The EU is a trade superpower; it uses its heft to cut deals. The UK will have to run to go backwards./11

2. Some 48% of UK exports go to this single market. Same legal umbrella, common tariff, and cumulated rules of origin across the Continent.

Those 'other opportunities' are divided across many faraway countries.

So it is true, for example that UK exports to Japan rose 15% last year...but 15% of a relatively small amount is a relatively small amount. /12

The fact is that the EU is the UK's biggest market in almost all major categories (apart from organic chemicals) and our supply chains are heavily reliant on the EU.

As noted above, trade deals won't change that gravitational reality. /13

The US (who by the way we do NOT trade with on 'WTO terms' since there are a multitude of co-operation agreements) is our largest single trade partner...but it is currently run by a mercantilist president who measures success by cutting trade deficits. /14

Embedded in all this is the notion that it is EU membership that holds the UK back from being a tradeing superpower. Well, it hasn't stopped Germany.

The issue is the services-orientated nature of our economy - which makes it hard to export to emerging marketst. /15

I spent nearly a decade in India and China watching us do it badly.

The UK has a new 'export promotion strategy' pretty much annually, to moderate effect.

The problem is not the EU. Leaving the customs union will not make Britain Great Again /16

If #Brexit is about immigration and sovereignty then those issues can be addressed via May's deal.

Essentially a 'trade off' between single market and financial services access and curbing Free Movement. /17

Brexit is not all about economics, but if an irrational attachment to leaving the Customs Union is the reason for a 'no deal' which would be hugely costly, there must come a moment when that is confronted.

Indeed, in a round about fashion, that is what is happening now. /18

Mrs May has danced around the issue too long, getting herself into ever more ludicrous contortions - like that dual-tariff customs place the FCA - but ultimately the strategy was overtaken by gravity, and a customs union looks inevitable. /19

Because let's not forget, we're only doing divorce.

When it's done, and trade talks begin, that question will still be there: does the UK want to stay in a (better than Turkey's) customs union with the EU?

If the answer is 'no', we're still stuck.
/20 ENDS


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