Why Labour should embrace free trade and campaign to stay out of the EU Customs Union

Why Labour should embrace free trade and campaign to stay out of the EU Customs Union

Labour Party policy on Brexit is precariously balanced. Many party members and MPs would love nothing less than to reverse Brexit completely. At the same time, the party knows it is unlikely to regain power without winning back the many working-class voters who voted to leave the EU.

As a result, and perhaps understandably, the leadership strategy has been one of studied ambiguity – pledging to their Brexiteer voters that they will respect the referendum result, whilst hinting to their Remainer activists at the possibility of staying in the Customs Union and Single Market.

At some point, the party will have to take some firmer decisions and there is currently an ongoing and very loud campaign to persuade the leadership to commit to remaining part of a customs union with the EU.

It would be an odd tactic for a progressive party. The point of the Customs Union is that every country is forced to impose the same tariffs on imports from countries outside the EU, supposedly with the intention of protecting domestic companies.

An obvious downside of remaining in the Customs Union would be to prevent the UK developing better trade deals with non-EU countries, many of whom are in the fastest growing parts of the world. But at least as important for Labour should be that it is consumers who, quite literally, pay the price through high-tariff items such as food, clothing and footwear being made expensive.

Unsurprisingly, big business tend to like an approach which forces prices up for their competitors and protects them from new entrants. Protectionism also reduces the incentives for firms to invest in productivity improvements, meaning wages can all too easily stagnate. Prospective Labour voters have surely noted that the CBI, that arch-lobbyist for the interests of big corporates, is leading the charge for the UK to stay in the Customs Union.

It is natural to worry about the effect of imports on domestic industries, but leaving the Customs Union would not mean the UK has to remove all tariffs, only that we can decide what is in the best interest of our industry, workers and consumers. For example, imported trainers currently attract a tariff of 17%, despite it being a product for which there is only a tiny UK manufacturing industry. The main effect is to push up prices of trainers for hard-working families. Similarly, the sight of Spanish orange producers lobbying for continued punishing tariffs on African oranges and lemons leaves a sour taste in the mouth.

The debate over the Customs Union is a good opportunity for the left to reconsider its approach to trade more generally. As I argue in The Left Wing Case for Free Trade, a pamphlet published today by the Institute for Free Trade, free trade should really be a left wing cause, just as it was in the past. In a foreword to the pamphlet, Labour MP Graham Stringer reminds us of the radical roots of the Corn Law reform led by Richard Cobden and John Bright, who argued that “import tariffs on corn kept the price of bread high and the landed gentry rich”. It’s a lesson which is still relevant today.

In the pamphlet, I set out in some detail the case that free trade generally benefits ordinary consumers and workers. That doesn’t mean that we just leave our economy and workers to the mercy of big business. There are strong grounds for robust interventions when countries ‘dump’ goods below cost and when there is evidence of anti-competitive practices. Further, easier trade does not have to come at the expense of labour rights or environmental standards. Indeed, openness to trade, especially when backed up strong consumer and political campaigns, can be a very effective tool for helping countries to eliminate practices such as child labour.

We need also to remember that restrictions on trade are all too easily captured by big business to the benefit of themselves. Nowhere is this more evident than within the EU. EU trade policy encourages cheap imports of primary goods such as coffee and tuna but heavily penalises imports of processed versions of the same good. This benefits European producers whilst making it more difficult for developing countries to trade their way out of poverty. The late Calestous Juma famously noted that Germany makes more money from coffee processing than every country in Africa, the home of coffee, put together.

We must hope that Jeremy Corbyn and John McDonnell continue to resist the misguided calls to campaign for the UK to stay in the Customs Union. Otherwise the Labour Party may find itself on the wrong side of history.

People on the left made many good and heartfelt arguments on both sides of the referendum debate in 2016. Nearly two years later, it is time to stop thinking about Brexit as some kind of damage limitation exercise. Rather, we should be working hard to make sure that our new-found freedom to decide on our own economic and trade policy can be used to the benefit of consumers and workers in the UK as well as poorer countries around the world. Taking seriously the left wing case for free trade will be a good start in that process.