The Value of the Customs Union

Letter to The Guardian

Larry Elliott (The value of a customs union is overrated, 4 April) fails to explain why Britain appears to underperform in trade within the EU. To argue that the customs union is somehow biased in favour of countries such as Germany and France at the expense of British companies is without merit.


Many so-called “British companies” are British only in the sense that they are incorporated in Britain. They otherwise do not reflect any sense of British “ownership”. This situation is very different in Germany and France. VW the German auto manufacturer is an example. The German government holds a golden share in VW that prevents it from being bought by non-German parties. In France, Renault benefits from state participation in ownership. Little wonder that they perform better in terms of inter-EU trade and further afield. They are strong, well-established, leading-edge businesses. They have subsidiary networks throughout the EU and elsewhere.


The British auto industry is very different. When the national industry collapsed in the 1980s – a consequence of long-standing neglect – auto manufacturers such as Nissan, Honda and Toyota migrated to Britain. They did so because it promised tariff-free access into EU markets. Their ownership, however, lies outside Britain.


Strategic decisions are not taken in Britain. Britain is but a small bit in a much bigger picture for them. For these reasons the British auto industry will be less strong both within the EU and internationally. To blame this on the customs union is a cop-out. It is wishful thinking to imagine that Britain will secure a more favourable customs union deal with the EU or negotiate more favourable trade deals outside the EU. If we want to export more goods, the UK needs, as Larry Elliott makes clear, to be better at manufacturing things customers want to buy and stop blaming the EU for our own shortcomings.


Richard Tudway

Principal

The Centre for International Economics

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