A ghost of Brexit past returns to haunt Labour

Hello from Brussels where the ghost of Brexit past reappeared this week with frenzied reports that a UK Labour government — which is the likely result of elections expected this year — could revisit plans to form a customs union with the EU.

The idea would be to eliminate much of the paperwork obstructing trade across the Channel and boost economic growth. 

To do so, the UK would need to match most domestic rules on goods and food with EU ones as part of a customs arrangement — which is why Nick Thomas-Symonds, the shadow Cabinet Office minister who is expected to be put in charge of Labour’s EU policy, immediately dismissed the idea. “We have set out clear red lines on the future of our relationship with the European Union: no return to the single market, the customs union or return to freedom of movement,” he told Peter Foster, your usual newsletter author.

The paper from the Eurasia Group political consultancy quoted unnamed “senior Labour insiders” saying the party would pursue a “de facto customs union” as part of a reset of relations.

The sparse details sounded like an echo of the rattling chains of the Chequers plan drawn up by Theresa May, when she was prime minister in 2018.

The plan, killed by parliament, appears to have been exhumed by some Labour figures along with its author, Sir Olly Robbins. The former civil servant was May’s negotiator and is now reportedly being lined up for a senior position by the party if it returns to power.

The plan was unveiled at the PM’s country retreat and prompted an instant walk out by David Davis, the Brexit secretary, followed the next day by Boris Johnson, the then foreign secretary. 

The idea of them and Conservative colleagues telling pro-Brexit voters that Labour would betray their 2016 referendum victory by surrendering sovereignty to Brussels explains why the party immediately squashed the idea.

Nevertheless the episode confirms that there is a lively debate within the Labour party about closer ties, however much leader Sir Keir Starmer tries to crush it.

The reasons are twofold. Polls show a majority of voters now regret Brexit — and Labour has promised to create economic growth, which is tough when you are putting up barriers with your biggest market.

Brussels is used to watching fierce debates within the UK about how to change the relationship — which was set in the zero-tariff, zero-quota Trade and Cooperation Agreement. So once diplomats and officials had stopped rolling their eyes, I tried to find out what the commission and 27 member states think.

First, there is interest in pursuing closer ties. One official said a customs union was possible “if conditions are met”.

But there is an innate suspicion of UK motives. Even friendly member states say the UK often pursues deals that are in its own interests with little upside for the 27. The only solid proposal Labour has made publicly is a security pact. 

Georgina Wright, deputy director for international studies at the Institut Montaigne in Paris, warned that the bloc is not prepared to breach its own red lines for UK co-operation elsewhere.  

“You don’t want to fall back into the trap of 2017 when Theresa May thought, ‘if we do something on security you will give us something else on checks at the border or access to the single market’. That is just not how the EU works. 

“I do think Labour overestimates slightly how the EU would fundamentally change its position once they are in power. Sometimes I get the sense they think just because they are not the Conservatives the EU will be nice to them,” she added.

“The EU will be in wait-and-see mode.”

No special deals

Second, there will be no special deals. 

“If you don’t want checks at the border you are going to have to have more regulatory alignment,” Wright stressed. “It is about setting a precedent. If the EU is lenient on the UK why wouldn’t it be lenient to other third countries that want access to the market?”

Third, the war in Ukraine has brought the UK and EU closer together already. 

Paul Adamson, chair of the EU-UK Forum, said many capitals are looking at the “big picture”.

“There is an appetite. There is a recognition that Brussels has to talk to the UK. Some member state capitals are keener than some of the institutions.

“Against this geopolitical backdrop the EU and UK would be mad not to talk to each other. Many member states are saying we need to find a strategy now, ways to engage.”

The UK has a strong defence and cyber security capability particularly prized in countries close to Russia. 

Fourth, don’t underestimate the chance to improve the TCA. 

The commission has dismissed a review of the deal in 2026 as a technical exercise. But Anna Jerzewska, of the consultancy Trade & Borders, points out that there are areas that could be improved. 

One would be security declarations, which have to be attached to customs forms on goods travelling between the UK and EU. Norway and Switzerland have an agreement with Brussels to drop them, something rejected by the UK during Brexit. 

“We can also work on better implementation of the TCA across the member states,” she said.

Jerzewska questions the value of a customs union. “We are no longer in 2018. That ship has sailed.

“We can’t pretend the last five years haven’t happened. Businesses have adjusted. Business models that used to exist have disappeared. UK hubs for the EU have gone.”

Labour is keen to strike a veterinary deal that would commit it to follow EU standards. That would end import rules for animal and plant products, which were introduced in January. The has caused a headache for sectors from the flower industry to horseracing.

Exemption for life sciences

My colleague Ian Johnston in London tells me this is a particular problem for life sciences businesses. They have earned an exemption from tighter controls expected this month for laboratory reagents and other key products for pharmaceutical businesses, which use many plant and animal-derived ingredients.

The extra paperwork on thousands of products would have caused delays and possible shortages for lab supplies, said Steve Bates, head of the UK’s BioIndustry Association. “Everybody in the life sciences ecosystem would be affected if those supplies don’t turn up.” 

So how far would a customs union help? Over to Sam Lowe, of consultancy Flint Global.

“The exclusive benefit for UK exporters to the EU would be the removal of rules of origin requirements,” he said.

“In simple terms, this means that tariff-free trade would be unconditional and exporters would not be required to demonstrate their products have sufficient UK/EU content.

“This could be supplemented by more EU/UK regulatory integration, which could remove additional trade barriers. For example, Swiss-style alignment on food safety could remove the need for border checks on food.”

However there are painful parts too — unpicking trade agreements recently signed with Australia and membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, comprising 11 countries. “A customs union would require the UK to match the EU’s applied external tariff,” Lowe says.

“This means that the FTAs the UK has where the EU also has one [such as New Zealand] would need to be tweaked to match what the EU has agreed. And it is difficult to see how the new FTAs with countries the EU does not have deals with could remain. 

As Jerzewska says: “It would be a huge U-turn. We would lose our credibility as a serious international player.” 

However hard Labour tries, the Brexit clock cannot be turned back.

Brexit in numbers

One programme Brussels is eager for the UK to rejoin is Erasmus, the centrepiece of which is higher education students and staff swapping institutions to broaden their experience of Europe (including Turkey and other partners).

It is not hard to see why. Recent figures from the European commission look remarkably like tourism statistics. Mediterranean countries are net gainers as students head south for sun, sea, and, er, scholarship.

Spain received nearly 143,000 students in 2022, Italy 101,816, France 60,983 and even Portugal 55,810. Germany with more than 75,000 was the only northern member state in the top five, and it is the biggest by population.

By contrast, in 2018, the UK accepted 32,000 students while only 17,000 moved abroad.

Instead, the UK government set up after Brexit the global Turing scheme providing £110mn in 2023-4 to partly fund 40,000 students.

The European Economic and Social Committee, an EU institution, recently recommended the UK rejoin Erasmus. 

But at a hearing this month, first reported by Politico, British officials said it simply wasn’t value for money.

Nick Leake, from the UK mission to the EU, said the terms on offer during Brexit would have required the UK to pay €2bn more than it would receive over a seven-year programme.

“I appreciate that’s not necessarily the only measure of success, but it makes it quite difficult,” he said. “The interests of the UK taxpayer is why we decided not to participate in Erasmus+.”

But there are non-financial returns. Brussels is full of policymakers and diplomats who wistfully recall their younger days enjoying student nights in the clubs of Manchester or London, building a (beer-filled) reservoir of goodwill.

Will Labour decide there should be a different measure of success?

Britain after Brexit is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.

Source: Economy - ft.com