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		Why the EU isn't working Lincolnshire Echo - January 4 2005 The EU's economic model is failing. On almost any measure, and especially in terms of growth and jobs, the EU is significantly underperforming other advanced economies, especially those of North America and Asia. Is this just boring old economics, or does it really matter? It matters, because it means that you and I and the British people are poorer than we should be. And it means that the closer we tie ourselves into the EU's failing economic model (for example if we accept the EU Constitution), the worse things will get. There are several reasons for this failure. Peter Mandelson says that the cost of EU regulation amounts to 4% of GDP (that's double the estimated benefits of membership). The EU Commission has suggested the cost could be as high as 12% -- a massive drag on wealth and competitiveness. Certainly the EU's passion for regulation is a major part of the problem. Then there's the very high level of taxation and government spending in the EU. Evidence from dozens of countries around the world shows that low-tax countries grow faster and get richer than high-tax countries, yet the EU maintains higher tax levels than almost any other advanced economy. Then there's the euro, which distorts monetary policy, denying EU businesses the right environment for growth. But there's another reason, and we don't hear enough about it. Most people think that the EU is a free trade area (FTA). Those who voted for the Common Market in 1975 often say they were voting for free trade. But the EU is not a free trade area. It's a Customs Union. Unlike free trade areas, the EU has a "Common External Tariff" applied to EU imports. And Customs Unions are a rather old-fashioned idea. They were the device used by Bismarck in the nineteenth century to build a nation from the patchwork of dukedoms and principalities that previously existed in what we now call Germany. Indeed many people think that the EU's founding fathers chose the Customs Union model precisely because they sought to build a country called Europe, just as Bismarck sought to build a country called Germany. Around the world, no other groups of advanced nations use the Customs Union model. They prefer regional or bilateral FTAs. All regional trade associations (RTAs) register with the World Trade Organisation (WTO). Of 243 RTAs registered with the WTO, 175 (72%) are FTAs, while only 22 (9%) are Customs Unions, and most of those are between less developed countries (the rest are hybrids). If you want more evidence that FTAs work better than Customs Unions, consider this: the EU itself, although a Customs Union, is enthusiastically negotiating FTAs, both with other Customs Unions (like Mercusor), and bilaterally with individual countries, like Mexico. Now Mexico is a member of the North American Free Trade Area, NAFTA. So how come Mexico, as a member of NAFTA, can have an FTA with the EU, while Britain, which is a member of the EU, cannot have an FTA with NAFTA? Simple. If you're a member of an FTA, there is nothing to stop you doing a free trade deal with a third party. But if, like us, you're a member of a Customs Union, you have to respect that common external tariff. There's no way you can cut through it and have a free trade deal with a third country. This clearly shows why the Customs Union model works against our interests. A new paper from the Centre for Policy Studies (www.cps.org.uk) called "Backing the Wrong Horse", by my friend Ian Milne of Global Britain, sets out this case in considerable detail. So what solution does it propose? Milne suggests that Britain should renegotiate its trading relationship with the EU countries (who account for a mere 7% of the world's population) by means of sectoral agreements, rather as Switzerland does - although as a much larger economy than Switzerland, we would expect much better terms. Meantime for our trade and investment with the other 93% of the world, we should set up a multi-country free trade agreement, alongside NAFTA. This is surely a much better approach than remaining stuck in the EU's cul-de-sac. William Hague once said that the EU was a 1970s solution to a 1950s problem. But when we look at the EU's Customs Union, we see it's worse than that. We're trying to use a 19th century trade solution in the 21st century. And it just isn't working.