Border Mentality. Why the exit from the EU Customs Union is proving so difficult in Cabinet

Until 1992 when John Major chose to acknowledge their form and membership, Cabinet committees were technically a state secret. Now they are subject, or at least in the case of the most significant Brexit Committee, to not merely a blow-by-blow analysis from the media but something close to a running commentary from those who serve on them.
It is common knowledge that the principal Brexit Committee is more or less deadlocked on the question as to what the official position of the UK Government should be on just how the UK should disentangle itself from the Customs Union, which has historically been the very spine of the EEC/EC/EU ever since the Treaty of Rome in 1957. At least three members of the Cabinet (and said sub-committee), namely Boris Johnson, Greg Clark and Michael Gove, have conducted media interviews to stake out their own positions on the merits of either the ‘Max Fac’ or ‘Customs Partnership’ options with which ministers are today wrestling.
What is going on? On the face of it, this appears to be an argument about nothing. The Cabinet has an agreed stance on what it wants to achieve after the transition period ends in December 2020. This is (a) as close to frictionless trade as possible, (b) the full right of the UK to negotiate free trade deals of its own henceforth, and (c) no ‘hard border’, either between Northern Ireland and the Republic of Ireland or between Northern Ireland and the rest of the United Kingdom.
To realise that ambition, two proposals are circulating. The first (supported by the Leave camp plus much of the Remain-turned-Leave team) is known as ‘Max Fac’ (Maximum Facilitation). It means a highly streamlined customs arrangement which would minimise (but not necessarily completely eliminate) customs checks, be powered by the use of new technologies to operate, and rely on ‘trusted trader solutions’ so that businesses affected by tariffs paid them in periodic charges and not on a trade-by-trade basis.
The alternative (backed by Theresa May and her senior civil servants) is the so-called ‘Customs Partnership’. This asserts that if implemented there would be no need for any new customs checks at borders because the UK would continue to collect tariffs on behalf of the EU (as it does at the moment) but would refund UK firms if they were liable for lower rates. The concerns raised by this notion (which would not prevent, in principle, the UK striking its own free trade agreements) is that it is an entirely new and untested idea. It would take an unpredictable amount of time to render effective and oblige the UK to stay inside the existing Customs Union (and hence lose the right to pursue unilateral free trade accords) until the details of this new partnership had been sorted out, always assuming that the EU wanted them settled, while it negotiated (possibly endlessly) as to what the terms of a deal may be.
Thus, it is not an argument about nothing. It is a dispute about whether the UK should settle on a stance that makes absolutely sure that it is out of the Customs Union by January 1 2021 or not. But why, other than that, has it become public and brutal and is likely to be so for some time forward?
The Customs Union debate is the first trial of strength about the ‘end state’
Mrs May has, rather skillfully in fairness, avoided any in-depth discussion as to what the UK wants the ‘end state’ relationship with the EU to be for almost two years as Prime Minister. Unfortunately for her, eternal deferral of all the hard questions was impossible. For reasons to be outlined below, the Customs Union matter has to be looked at before the Single Market question. It has become the first trial of strength between what might crudely (because it is crude) be described as the ‘softer Brexit’ versus ‘harder Brexit’ factions in the Cabinet, parliamentary Conservative Party and wider Conservative Party membership.
The division is more subtle than portrayed in the press but it comes down to a disagreement about the amount of short-term ‘pain’ that the UK should endure as it bids farewell to the EU versus the degree of active ‘freedom’ it should then exercise once exit occurs. As in so much of life, the first trial of strength is deemed particularly important because if one or other side is seen to have ‘won’, it will be well-positioned for the rest of the confrontations to come.
The Customs Union issue has become intimately conflated with the Irish border controversy
The Customs Union matter has to be addressed before the Single Market issue because while the latter is really entirely to do with the future free trade agreement between the UK and the EU, the former has to be settled early as part of the legal text of the withdrawal agreement. This is because of the existence of the Irish Republic, and hence the border between Northern Ireland, and from there the need – accepted more or less universally – not to imperil one of the most important accomplishments of the peace process in the island of Ireland over the past 20 years, namely the elimination of the old ‘hard border’ between the Republic of Ireland and Northern Ireland.
This, above all else, explains why the PM has gravitated towards the ‘Customs Partnership’ idea. It is, in theory anyway, something close to a ‘get out of jail free card’ on the Irish border dilemma. In truth, the UK Government assumed that once the initial political deal on the withdrawal process was done back in December, the EU in general and Michel Barnier especially, would soften their line on what the ‘backstop’ option for the UK and EU on the Irish border would be if all attempts to find a better solution failed.
What Downing Street had not accounted for was that M. Barnier would be positioning himself to become the centre-right ‘Spitzenkandidat’ to be the next President of the European Commission after the 2019 European Parliament elections, and so have every incentive to be tough to the point of obdurate on the Irish border, more so than the Irish Government itself is. The Leave contingent in the Cabinet is disinclined to adjust policy in account of this development.
The numbers in the House of Commons are more difficult on the Customs Union argument
A further complication here is the arithmetic in the House of Commons. While there is huge media interest in the Conservative ‘Remain Rebels’, far less attention is offered to what is arguably a more politically relevant section of MPs, the 10 or so staunchly anti-EU Labour MPs and a similar number who were for Remain but represent massively pro-Leave constituencies and have to handle Brexit with some care. There is a critical difference in their attitudes towards the Customs Union and the Single Market, and that is also true for the Jeremy Corbyn/John McDonnell inner circle privately as well.
Take one example among the pro-Leave Labour MPs, namely Dennis Skinner MP. Is the ‘Beast of Bolsover’ an opponent of the EU because it inhibits our ability to conclude a free trade pact with Donald Trump? No. He is against it (as are the core Corbyn/McDonnell fraternity) because its rules surrounding limitations on State Aid are a real obstacle to socialism in one country in the UK.
This slither of the Labour Party may well be willing to vote tactically with the rest of the PLP over the Customs Union if it meant massively destabilising a Tory Government and Prime Minister in a way that they would not do over any angle on Single Market membership, which they deem to be the true litmus test as to whether or not the UK was seriously, or only symbolically, quitting the EU.
Mrs May can rely on less than a handful of Labour MPs to back her on a Customs Union vote. That means she is exposed to defeat by a relatively small number of Conservative MPs and hence dangling the compromise of a ‘Customs Partnership’ is an attractive strategy for her personally.
The risk (which in the end will probably kill off the whole concept) is that in appeasing the relatively small ultra-remain segment of Conservative MPs, she drives the far larger ultra-leave section to decide that they should dispose of her and then trigger an internal election where the most likely outcome is that the Conservative Party membership would embrace a figure who wanted a ‘harder Brexit’. Most ultra-remain Conservative MPs appreciate this would be the outcome too. That is their fatal weakness.
Tim Hames
Director General, BVCA