Rejoining customs union would not fix damage caused by Brexit, research finds | Brexit
Research shared with the Guardian shows Brexit has cut UK exports to the EU by 12% and rejoining the customs union would only offset a small part of the damage.
As the UK’s future relationship with the bloc is likely to feature prominently in a possible Labor Party leadership contest, economists John Springford and Anton Spisak of the Center for European Reform say provide new evidence of damage It is due to exit.
They found that ten years after the referendum, service sector exports to the EU were 7% lower than they would have been if the UK had remained in the EU, while goods exports were 16% lower.
Using detailed trade data and economic modelling, they show that the “overwhelming majority” of the impact (10% of the total 12% decline in exports) was due to leaving the single market.
“Brexit-related regulatory costs, such as new certification procedures and checks for compliance with EU standards, have had a far more significant impact on UK-EU trade than customs-related barriers,” they say.
The most affected sectors were travel, finance and insurance, chemicals and pharmaceuticals, and agri-food.
The estimate of lost services exports is larger than previous research suggests because the authors take into account a significant increase in services trade within the EU since the Covid outbreak, which the UK missed.
Keir Starmer and Rachel Reeves have increasingly stressed the importance of building a closer trading relationship with the EU, with a summit due next month.
But the government has said it will stick to Labour’s manifesto not to rejoin the single market or customs union or agree to free movement of people.
More recently, potential leadership candidates Andy Burnham and Wes Streeting have suggested they would like the UK to rejoin the EU at some point in the future.
The Liberal Democrats have previously advocated rejoining the customs union as the first step in reversing Brexit, but their leader Ed Davey announced this week that the party will now campaign for the UK to re-enter the single market.
CER research suggests that the individual upside of rejoining the customs union would be modest. This would eliminate the need for UK firms to comply with complex “rules of origin” on where the contents of exports come from to qualify for duty-free trade.
But the customs union will do no good for the hard-hit services sector, and Springford and Spisak analyze which goods exports do not currently comply with the rules, suggesting the impact on overall trade will be small.
Meanwhile, the UK will lose the opportunity to strike trade deals with non-EU countries because members of the customs union will have to impose EU tariffs.
But Springford and Spisak caution that the more radical move to rejoin the single market would require risky political concessions, including signing up for free movement of people, paying into the EU budget and complying with European rules that the UK has no say in setting.
“The vast majority of predicted trade impacts arise from leaving the single market. Compensating for these losses will require reintegration into the EU economy, either through a single market for goods or in full, through special regulation or eventual EU membership,” they say.
“Both paths involve difficult political choices: agreeing to free movement, contributing to the budget and complying with EU rules without a vote. The more privileged the access to the single market the UK seeks, the greater the obligations it will be expected to accept.”
Reeves suggested “dynamic adjustment” in some sectors, with the UK agreeing to comply with EU rules in exchange for increased market access. But Brussels observers are skeptical about how far the EU would be willing to go down this path without insisting that Britain accept free movement and budget contributions.
Brexit advocates argued before the 2016 referendum that increased trade with non-EU countries would offset any hit to EU trade as Britain was freed from Brussels-imposed restrictions. But Springford and Spisak find little evidence that this has happened so far.
They say their findings are consistent with several studies suggesting Brexit reduced UK GDP by between 4 per cent and 8 per cent.
