Iain Macwhirter: Why customs union may be the UK’s first step back into the EU

“Fantasy” was the initial verdict of Guy Verhofstadt, the EU Parliament’s chief Brexit negotiator. But at least it means that Hard Brexit is now officially abandoned. The new realism has important implications for Scotland and the other devolved parliaments who could find themselves in an increasingly influential bargaining position now that the cracks have emerged in the brickwork of Brexit fundamentalism. But first of all, what exactly is the customs union and why are we remaining in it?

The customs union is a kind of preliminary step to the European single market. It locks all the 27 member states into devil’s bargain on trade. There shall be no trade tariffs on goods crossing the borders within the customs union and there shall be common tariffs, set by Brussels, on all non-EU goods coming into the zone from abroad. Right away we can see the problem here for hard-line Brexiteers.

Britain will not be able to negotiate all those trade deals Boris Johnson talks about with America, India, Canada and so on, because the EU will still be setting common tariffs, unless the EU agrees to let Britain break the rules, which it won’t because it would undermine the union. The customs union is the worst of all worlds, and the only other country that has anything like this arrangement is Turkey. Other non-EU countries, like Norway, have stuck with the European Free Trade Area (the zone created by the UK in 1960) which is now called the European Economic Area. (EEA) Why? Because it doesn’t involve membership of the Common Fisheries Policy, but most importantly because under the EEA, Norway can negotiate its own trade deals with non-EU countries.

You might have thought that this would have been preferable for the Brexiters, but no. The problem with the EEA is that it is it involves freedom of movement. Once again we come down to the unspoken objective of Brexit, which is not really about trade but about keeping foreigners out. The customs union is in many ways the most restrictive trading relationship with Europe, but it is the best the Brexiters can come up with to placate their business friends, who are in a panic about the looming cliff edge and the sight of thousands trucks being held up every day at Dover while they undergo customs checks.

But the main problem with the customs union is that it only really applies to physical goods like cars. Eighty per cent of the British economy is services – everything from banking and accountancy to film-making and production design. The European single market which, as as the former Tory Minister, Ken Clarke, likes to remind colleagues was largely devised by one Margaret Thatcher, was created to extend the customs union beyond mere merchandise. The idea was to remove all the non-tariff barriers to trade in the growing are of services. This requires free movement of capital, common standards for things like accountancy and mutual recognition of professional qualifications like law degrees.

Free movement of services, as opposed to free movement of things, implies free movement of the people providing those services. If a country is allowed, arbitrarily to block the entry of someone who has appropriate professional qualifications, say, as a chemist, then it is creating just the same barrier to trade as slapping a restrictive tariff on chemical goods. In the US, free trade in services isn’t as advanced as in the EU. Professional qualifications in hairdressing, for example, in Texas aren’t recognised in Rhode Island. In the European Single Market, if you are an established hairdresser in Britain you can work anywhere in the EU. If you have professional qualifications as an architect then you should be able to work anywhere. This is what free movement means. It doesn’t mean you have an absolute right to move to an EU country, for longer than three months, if you have no job to go to.

So, under the customs union, British hairdressers, architects and nurses will not have the right to work anywhere in the union. And nor will financial services, which is why firms like RBS and Standard Life are all setting up shop in cities like Dublin so they can remain within the single market. (These are the self same companies that threatened to “leave” Scotland after a Yes vote, but let’s not go there). But the first problem here for the Brexit Government is that the EU may not accept Britain remaining in the Customs Union without accepting the European Court of Justice and the rights of residence of EU nationals. And even if it does, all that has happened is that the cliff edge is delayed for two years. It seems highly likely that the customs union arrangement will be extended beyond that date, perhaps indefinitely.

However, this transition period allows more time for the devolved administrations to get their legal oar in. The UK is going to remain partially in the EU for at least four years – and probably very much longer. Holyrood and Cardiff will quite rightly argue that there must be guarantees that Scottish, Welsh and Northern Ireland’s interests will be seen as just as important as those of the City of London. What about a bit of constructive ambiguity about Scotland’s future, perhaps retaining free movement?

The Customs Union compromise is daft, and will increasingly be seen as such, but it has now opened the way to all manner of Brexit improvisation. All is flux, and no one knows where this will lead. But my own view is that the UK has just taken its first, tentative steps back into the European Union.