In the long learning curve of Brexit a handful of countries outside the European Union have become shorthand for Britain’s options. Norway offers a continuing place in the single market for those who want the softest form of leaving the EU. Canada stands for the free-trade agreement broadly on offer from the union. Now it’s Turkey’s turn to enter the Brexit lexicon – thanks to its customs union with the bloc.
Until now the Turkey option has barely surfaced. But that is set to change as Tory rebels who oppose a hard Brexit ally themselves with the opposition Labour Party in parliamentary votes. An early test will be on Thursday, when members of Parliament vote on a motion calling upon the government to make one of its negotiating objectives “an effective customs union” between Britain and the EU. Though the outcome will not bind the government, it will reveal whether there is a majority in the House of Commons for crucial votes likely in May or June on amendments to Brexit-related legislation that will require the government to pursue this goal.
Left to their own devices Prime Minister Theresa May and her cabinet would shun the Turkey option. Rather, the British government is seeking an enhanced version of the EU’s arrangement with Ottawa, what David Davis, the minister negotiating with Brussels, has called “Canada plus plus plus.” The British government insists that when Britain leaves the EU it will leave the customs union, which it joined in 1973. Britain will no longer outsource its trade policy to Brussels, setting the same tariffs on goods from outside the EU while allowing free access to those from within the bloc. Instead it will be able to strike its own trade deals with fast-growing countries outside Europe, breathing life into the rhetorical ambition of “global Britain.” May expressly ruled out any continuing customs-union link such as Turkey’s when setting out her Brexit strategy in early March.
Although a parliamentary defeat in a binding vote on the Turkey option would rock the government, it could actually be a blessing in disguise for May. First, it offers a politically more acceptable means of reducing the economic damage from Brexit than the Norway model, which would require Britain to accept continuing free movement of people from within the EU. This would be a concession too far given the opposition to immigration that motivated many Leave voters. Second, it offers a possible way out of the impasse in the Brexit negotiations over how to avoid a hard border between Northern Ireland and the Irish Republic.
When May dismissed the Turkey option she said it would not be compatible with “a meaningful independent trade policy.” But this vaunted prize for Brexiters won’t be that meaningful anyway. The government’s own economic analysis of life outside the EU revealed scanty economic benefits from new trade deals with economies outside Europe. Projections in the document leaked in January showed that an agreement with the United States would eventually raise GDP by just 0.2 percent. An “ambitious” pursuit of free-trade agreements with several other countries including China and India would boost the economy by between 0.1 percent and 0.4 percent. Such paltry gains barely dent the long-term 5 percent loss in GDP from a Canada-style free trade agreement.
The same modeling also highlighted the acute vulnerability of manufacturing if Britain starts trading with the EU on similar terms to Canada. The two sectors worst affected were chemicals and car-making; food and drink also took a big hit. Their prospective losses in output exceeded those in financial services, generally regarded as especially vulnerable since firms based in Britain will lose their “passporting rights” to provide cross-border services to the EU.
The blow to manufacturing will occur even though a free-trade deal such as Canada’s should avoid tariffs with the EU. What will hurt industrial firms is the imposition of non-tariff barriers, which now generally matter more than tariffs. The most significant of these are “rules of origin” that will apply to trade with the EU once Britain leaves the customs union. British exporters will have to show that they are complying with these local-content rules and are not acting as conduits for goods from countries that are subject to EU tariffs. Customs checks to ensure compliance will then cause delays at the border.
Manufacturers are particularly vulnerable to such non-tariff barriers precisely because Britain has become so deeply integrated into the EU after 45 years of membership. Plants in Britain form part of European supply chains in which firms such as vehicle manufacturers spread production processes across countries to maximize overall efficiency. Quite simply, the national trading model that Brexiters have in mind is past its sell-by date.
The Turkey option – a new customs union with the EU – would solve many of these problems. Critics point out that that Turkey lacks a say in the EU’s trade policy. Moreover, when the EU reaches a trade agreement Turkey must accept the terms for its own market even though the country in question does not have to do the same for Turkey. But Britain’s economic clout should make it possible to negotiate an arrangement in which it could wield more influence while enjoying reciprocal rights as well as obligations from any new EU trade deal with other countries.
An added dividend is that a customs union would greatly ease the way towards avoiding a hard Irish land border though it would have to be buttressed by commitments to align regulations. The EU has rejected both of Britain’s suggested solutions to this vexing question. Without a breakthrough the summit in June, which is supposed to find an answer, could end in rancor. That would in turn jeopardize the chances of hammering out a framework for Britain’s future trading arrangements with the EU by the deadline of October.
The Turkey option is inferior to staying in the customs union as a full member of the EU. It is by no means a cure-all for the woes that Britain’s withdrawal will cause. But as things stand it is the most feasible way of mitigating at least some of the economic self-harm caused by Brexit.
Paul Wallace is a London-based writer. A former European economics editor of The Economist, he is author of “The Euro Experiment,” published by Cambridge University Press.
The views expressed in this article are not those of Reuters News.