Customs union: Expert explains everything Liam Fox got wrong about post-Brexit trade deals in his letter Mr Fox wrote a four-page letter describing how a customs union deal would see the UK ‘stuck in the worst of both worlds’

A customs and trade expert has torn into Liam Fox’s letter criticising a customs union-style Brexit deal in a Twitter thread pointing out inaccuracies.

The Institute for Government’s Alex Stojanovic accused the International Trade Secretary of oversimplifying “the real trade-offs”, and conflating “a trade policy with tariff policy”.

Mr Fox wrote a four-page letter to the 1922 committee of backbench Tories describing how a customs union deal would see the UK “stuck in the worst of both worlds” without any control.

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The contents of the letter also suggested Dr Fox may quit the Cabinet if Theresa May pursues a customs union agreement during ongoing talks with Labour.

Letter

He warned such an arrangement would leave the UK unable to set its own trade policy, but forced to open its markets to any country with which the EU struck a free trade agreement.

Liam Fox letter to Tory MPs pulverises Labour’s customs union: “we would be stuck in the worst of all worlds” pic.twitter.com/srad5gpou8 — Tamara Cohen (@tamcohen) April 9, 2019

“In such a scenario the UK would have a new role in the global trading system – we ourselves would be traded,” he told the committee’s chair, Sir Graham Brady. “As the famous saying in Brussels goes, if you are not at the table, you are on the menu.”

Mr Stojanovic, however, argued that trade offs and a “loss of influence over EU trade policy” were the default outcome of any Brexit deal.

“Liam Fox’s letter on the drawbacks of a customs union oversimplifies the real trade offs and continually conflates ‘a trade policy’ with ‘tariff policy’. It begins by evoking economic prosperity when it is really an argument about autonomy – and a very partial one at that,” he tweeted.

Access to UK market

Dr Fox said a customs union “would allow the EU to negotiate access to UK markets […] without the need to balance this access by negotiating on key UK offensive interests”.

He said this would mean the UK would have a “new role in the global system – we ourselves would be traded” and argued that it would prevent other countries from negotiating further trade agreements.

He questioned whether a trading partner who already had access to the UK for no cost would be interested in negotiating a further bilateral agreement.

Mr Stojanovic said this “whole premise is wrong” and argued that partners would now have automatic access to the UK’s market.

He said the UK, although unable to lower tariffs below the EU’s, could still maintain higher tariffs until a permanent deal is negotiated with a trade partner to act as an incentive.

Liam Fox's letter on the drawbacks of a customs union oversimplifies the real trade offs and continually conflates "a trade policy" with "tariff policy." It begins by evoking economic prosperity when it is really an argument about autonomy – and a very partial one at that 1/ pic.twitter.com/gwTTPxfZ6o — Alex Stojanovic (@awstojanovic) April 9, 2019

Bilateral deals

Dr Fox also said that the “only way” the UK is able to negotiate access to other services markets is through access to its own goods markets, arguing that restrictions of setting tariffs would hinder this.

Mr Stojanovic responded that the theory was “fairly unimaginative”, pointing out “there are other things the UK has other things to offer, such as visas”.

He argued that there was yet to be evidence indicating how easy it would be for the UK to using bilateral deals to open up services markets in other countries, saying: “Most countries don’t want to open up their services markets.”

“It is by no means clear the UK would be better off trying to strike FTAs (free trade agreements) than taking the benefits of a CU (customs union),” he wrote, pointing out that figures in the Government’s own whitepaper on the long-term impact of Brexit found a predicted just 0.2 per cent increase in GDP from new trade deals over 15 years.

“FTAs have made little success outside the single market,” he added. “Is the UK’s best strategy for opening services markets trying to negotiate big bilateral deals over multiple years?”

Third, it is fairly unimaginative to say that the only way the UK could negotiate access to other countries' services markets is by trading access for goods. For sure this autonomy would make it easier but there are other things the UK has other things to offer such as visas 7/ pic.twitter.com/7tqGgZyr22 — Alex Stojanovic (@awstojanovic) April 9, 2019

Developing countries

In the letter Dr Fox discussed the Government’s plan to use trade as a means of working closer with developing countries.

He suggests using the “new found tariff freedom” post-Brexit to “stimulate trade with countries who currently day tariff when they add value to their primary product”.

“A combination of outward direct investment and judicious tariff reduction would go a long way to securing our aim of helping countries to trade their way out of poverty.

Mr Stojanovic acknowledged that the loss of autonomy over setting tariffs “does matter” but said that Dr Fox failed to mention “around 50 developing countries already receive preferential treatment as part of the EU’s everything but arms deals that the UK will replicate”.

He added that, if the UK decided to loosen regulations for goods from LDC (least developed countries) it would “come with consequence to [the UK’s] EU markets access”

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