My Lords, the Eugene O’Neill play “Long Day’s Journey Into Night” is very good, but it does go on a bit. We have already had 13 long days and 372 amendments, which at least enables us to be quite brisk and brusque at this stage. The arguments have all been advanced already, and it falls to me to speak to Amendment 1, in my name and those of the noble Lord, Lord Patten of Barnes, and the noble Baronesses, Lady Hayter and Lady Ludford. The amendment is a call to the Government to explore a customs union.
I intend to distil simply five points out of our previous debate—five arguments for a customs union. The first argument is that made by manufacturing industry, and it does not need repeating: it has been made very clearly in our debates and in public debate, and has been supported strongly by the CBI and the TUC. We know what Airbus Industrie thinks and we know of its worries. We know about the motor industry’s
worries. We know that 60% of a UK-built motor car consists of components that come into our country. The motor industry believes that, if those components came across a customs frontier, its costs would rise by between 5% and 10%, which is serious. We know from the Government’s economic analysis that the hit on manufacturing would represent, over time, 1% of GDP. That case does not need to be explained any more.
Secondly, the case for export to the European Union explains itself too. Fifty per cent of our exports go to the European Union—indeed, 70% of our agricultural exports. The Government are rightly concerned not to introduce new frictions in this trade, but a customs frontier is an inevitable friction; the delay, not just at the Irish frontier but at Dover and elsewhere, would be considerable and would have considerable costs. The Government are right to minimise frictions, not just for that reason but because to replace trade with the European Union with trade further afield will not be an easy task. A further 20% of our exports go to countries which have preferential arrangements with the EU or are negotiating them, including 60 free trade agreements, 32 of which are with Commonwealth countries. To simply replicate such preferential arrangements when we are out on our own, representing a smaller market—offering the concession of access to a smaller market—will not be child’s play, as the Australians and New Zealanders have already demonstrated to us through their demands on agricultural quotas. If we look at America—which accounts for 15% of our exports today—and the TPP, TTIP and NAFTA sagas, or listen to the inaugural speech with its paean for protectionism, we can see that that will not be easy.
The further afield you go, the more difficult it gets. The population of Canada is three times the population of Switzerland but we sell twice as much to the Swiss because they are closer. The ineluctable rule is that as distance doubles, trade halves. I am talking about trade in goods, but it is a fairly standard rule. So it is well worth looking further afield, but it will be hard not to see a fall in overall exports if our trade with the European Union is made more complicated, and it will be much more complicated if we do not have a customs union. We must try to limit the damage of leaving our largest, because closest, market.
My third point is about the nature of customs union, and here I will admit the downside of customs union. It is about goods, not services, and it would prevent us abolishing our tariffs on imports into this country. It would prevent us doing what Professor Minford wants to do, and that is, for some, a serious downside. I do not believe that the Government intend to follow Professor Minford’s prescription. I do not think the Government’s intend to take us to a tariff-free, low-welfare, low-tax, low-regulation, low-standard sweatshop economy. The Prime Minister has been pretty clear that she is not planning to do that.
More importantly, as I said, the customs union is only about goods—it is not about services. It would leave us entirely free to go on doing our trade promotion, as we do now, but also to negotiate new arrangements for trade in services, investment protection, remittance of profits, intellectual property, data protection, access
to government procurement—all the new ideas and new issues which are now much more important in trade negotiation than tariffs. Therefore, there is very little economic downside to customs union. It would stop us doing what no sane Government would want to do and would in no way inhibit us from doing what every Government would want to do.
The fourth issue is the Irish border. Even if cross-border trade is tariff free, as I hope and believe it will be, rules of origin, phytosanitary and other checks will require a hard border. They will make that inevitable unless we have a customs union. A customs union is not in itself a sufficient condition for an open or soft border—there will still have to be a degree of regulatory alignment, particularly in the agricultural sector—but it is a necessary condition for an open border.
3.45 pm
The EU’s alternative of a customs frontier in the Irish Sea is unacceptable to us. We have offered two alternatives. One is blue-sky thinking—the idea that when the great container ship arrives at Hamburg or Rotterdam from an Asian port, the port authorities should be required to unload it and separate out from inside the containers the goods that are coming to the UK, which will be charged UK duties, and those going to the rest of the European Union, which will be charged EU duties. Maybe that will happen one day, but even if blue-sky thinking were a good term, I do not see the European Union buying that.
As for our other alternative, which is a digital frontier with verification at a distance, committees of this House and the other place have examined it. I quote only from the report published exactly a month ago by the relevant committee of the other place, which said that,
“we cannot see how it will be possible to maintain an open border with no checks and no infrastructure if the UK leaves the Customs Union”.
I believe that that is right. So the workable solution to the Irish border conundrum is a customs union.
My last point concerns the current negotiations in Brussels and what might happen if the Government accept this amendment. We know, because they have said so, that the 27 regret that we plan to break from the customs union. We know, because their guidelines of 23 March say so, that they are envisaging a bare-bones free trade agreement with something on services to be determined. However, that is because of our decisions on the single market and the customs union. They say at paragraph 4 of their guidelines—