On Monday, Jeremy Corbyn set out the Labour Party’s revised position on Brexit. He announced a significant shift in Labour’s position, coming out in favour of negotiating a ‘new comprehensive UK-EU customs union’. The Government has been criticised for wanting to ‘have its cake and eat it’. Labour seems to be pursuing a similar cake-based strategy, although they want to bake the cake with a different recipe. So where would this new approach leave UK tech businesses and how does it differ from the Government’s own negotiating priorities?
The customs issue is an important one for the UK tech sector. The techUK commissioned report by Frontier Economics, on The UK Digital Sectors After Brexit found that around half of imports of digital goods are from the EU and a similar percentage of exports flow the other way. The UK’s thriving ecommerce industry and our status as a leading ‘just in time’ economy are both dependent on the quick and low friction exchange of goods across borders. While David Davis, Secretary of State for Exiting the European Union, said last week that the aim was for a future partnership with the EU ‘ensures trade remains as open and frictionless as possible’, there remains real concern that even small delays at the border will have a big economic impact.
The challenge facing the Government in the Brexit negotiations is that, if we were to remain in the Customs Union, then the UK would be prevented from doing any unilateral trade deals with non-EU countries. A major benefit of leaving the EU is the ability to sign new FTAs, which could create new benefits for the UK tech industry by opening-up access to markets such as the US or India.
That is why the Government’s position, as set out in their Customs White Paper, is to seek to create something as close as possible to a customs union but not to go as far as a customs union (as legally defined) itself. Their aim in doing so it to enable the UK to be able to pursue trade deals. Essentially, the Government is prioritising complete freedom to do trade deals over the desire to have a fully-fledged customs process.
Labour’s new policy essentially flips the government’s approach, prioritising the customs union over latitude on trade deals.
If you take the view that the bird in the hand is worth two in the bush then this approach does have some benefits. It would ensure that goods crossing the UK/EU border would be able to move freely in much the same way as they currently do (though there may be some further restrictions given that neither Labour nor the Government support remaining in the Single Market). The proposal also offers a clear solution to the Northern Ireland/ Ireland border problem.
However, Labour’s policy remains predicated on securing concessions that may not be available in practice. It seems highly unlikely that the EU would accept a customs union deal that allows for future trade deals. That is clearly a decision Labour are content to live with but does mean the opportunities from Brexit would be severely restricted.
Meanwhile, Labour also remain keen to secure exemptions for state aid, procurement and the posted workers directive. The European Commission has repeatedly and consistently ruled out any ‘cherry-picking’ and is determined to maintain a level playing field between the EU and the UK.
Finally, it’s worth remembering in these discussions that, for tech, even a customs union agreement only goes so far. The immediate risks of reverting to WTO terms for digital goods are not as high as they are for other sectors, the significant impact on ecommerce aside. Tariffs for digital products are very low and are bounded by WTO commitments, in particular the Information Technology Agreement.
The real risk from Brexit for tech comes from the impact on services, an area a customs union, however comprehensive, does nothing to address. 81 per cent of digital sector exports are in services, which represents 46 per cent of total UK services exports. These could be faced with a range of non-tariff barriers with audio-visual and media services, financial services and data flows the most vulnerable digital sectors. Here Corbyn’s call to remain part of EU agencies, when it is in the UK interest, is a positive position and reflects what techUK has called for in terms of regulatory involvement such as OFCOM’s participation in BEREC. However, the proposal Labour has set out in reality matches the direction of travel from the Government who also recognise the value in UK regulators continuing to have a seat at the table on EU regulations affecting the UK.
What impact Jeremy Corbyn’s intervention will have is unclear, but one thing certainly is – the time for final decisions is swiftly approaching and it will soon become evident where the real red lines are. The sooner the UK’s future customs relationship is agreed with the EU, in whatever form it will be, the sooner businesses will be able to understand the full potential impact of Brexit.