Why should Pakistan trust us?

Distrust lies at the heart of the west’s relationship with Afghanistan and Pakistan -- but this is n

For western governments to lecture the likes of Pakistan about democracy and stability, as David Cameron did this morning, must seem a cruel joke to many in that country. Our part of the world has a long history of generously lending money to fuel violence, prop up undemocratic, often brutal regimes and exacerbate poverty.

Pakistan is a country with only 54 per cent literacy, and where 38 per cent of small children are underweight, yet it spends nearly $3bn a year servicing debts -- almost three times what the government spends on health.

Loans have flowed freely into Pakistan in order to keep favoured military governments in power, most recently that General Pervez Musharraf, when Pakistan's debt increased from $32bn to $49bn.

A recent $7.6bn International Monetary Fund loan, needed so that the country can keep paying off its old debts, is conditioned on reducing budget deficits, eliminating electricity subsidies and increasing indirect taxation. As usual, ordinary people will pay for the west's "largesse" that kept in power governments subservient to western interests.

Such injustice doesn't stop at Pakistan. Consider Indonesia, where 61 per cent of the population live on less than $2 a day. Like with India, as David Cameron reminded us this morning, fighting poverty in Indonesia will be central to the success of the Millennium Development Goals. But just like India, this seems a second-order priority compared to selling scores of Hawk fighter jets to the country.

Indonesia still owes the UK over $500m for Hawk jets and other military equipment sold to the brutal General Suharto. Suharto was guilty of crimes against humanity by any standard, killing up to a million political activists in his first year in office.

Today, Indonesia pays over $2.5m every hour to service its $150bn debts -- much run up by Suharto. Is it surprising if Indonesians think their lives matter less than the financial and strategic interests of the west?

Afghanistan has been rushed through the debt cancellation process to prevent any embarrassing examination of past lending, but has been forced to privatise its banks and will doubtless return to the same state of heavy indebtedness in years to come -- it serves the government, which needs the finances to hold on to power, and it serves the west, which needs the debts to keep control after the soldiers leave.

Control of these countries can be maintained through this same, deeply unjust economic system, through playing one faction off against another, through fighting when everything else fails to work. Democracy, stability and trust, however, require something far bolder, but not impossible.

It is possible to stop lending in such deeply unjust ways. It is possible to cancel debts based on loans that should never have been lent. It is possible to stop forcing countries to pay what they are unable to afford, or to force them to make their economies work in our interests simply because we can.

As repayments on deeply toxic debts continue to drain Muslim countries of their wealth, we need to realise that the debts, or reparations, if you prefer, that our governments owe the Muslim world are vast and rising. Trust will not be possible until they are paid.

The Jubilee Debt Campaign's "Fuelling Injustice: the Impact of Third World Debt on Muslim Countries" is available at jubileedebtcampaign.org.uk.

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What is the EU customs union and will Brexit make us leave?

International trade secretary Liam Fox's job makes more sense if we leave the customs union. 

Brexiteers and Remoaners alike have spent the winter months talking of leaving the "customs union", and how this should be weighed up against the benefits of controlling immigration. But what does it actually mean, and how is it different from the EU single market?

Imagine a medieval town, with a busy marketplace where traders are buying and selling wares. Now imagine that the town is also protected by a city wall, with guards ready to slap charges on any outside traders who want to come in. That's how the customs union works.  

In essence, a customs union is an agreement between countries not to impose tariffs on imports from within the club, and at the same time impose common tariffs on goods coming in from outsiders. In other words, the countries decide to trade collectively with each other, and bargain collectively with everyone else. 

The EU isn't the only customs union, or even the first in Europe. In the 19th century, German-speaking states organised the Zollverein, or German Customs Union, which in turn paved the way for the unification of Germany. Other customs unions today include the Eurasian Economic Union of central Asian states and Russia. The EU also has a customs union with Turkey.

What is special about the EU customs union is the level of co-operation, with member states sharing commercial policies, and the size. So how would leaving it affect the UK post-Brexit?

The EU customs union in practice

The EU, acting on behalf of the UK and other member states, has negotiated trade deals with countries around the world which take years to complete. The EU is still mired in talks to try to pull off the controversial Transatlantic Trade and Investment Partnership (TTIP) with the US, and a similar EU-Japan trade deal. These two deals alone would cover a third of all EU trade.

The point of these deals is to make it easier for the EU's exporters to sell abroad, keep imports relatively cheap and at the same time protect the member states' own businesses and consumers as much as possible. 

The rules of the customs union require member states to let the EU negotiate on their behalf, rather than trying to cut their own deals. In theory, if the UK walks away from the customs union, we walk away from all these trade deals, but we also get a chance to strike our own. 

What are the UK's options?

The UK could perhaps come to an agreement with the EU where it continues to remain inside the customs union. But some analysts believe that door has already shut. 

One of Theresa May’s first acts as Prime Minister was to appoint Liam Fox, the Brexiteer, as the secretary of state for international trade. Why would she appoint him, so the logic goes, if there were no international trade deals to talk about? And Fox can only do this if the UK is outside the customs union. 

(Conversely, former Lib Dem leader Nick Clegg argues May will realise the customs union is too valuable and Fox will be gone within two years).

Fox has himself said the UK should leave the customs union but later seemed to backtrack, saying it is "important to have continuity in trade".

If the UK does leave the customs union, it will have the freedom to negotiate, but will it fare better or worse than the EU bloc?

On the one hand, the UK, as a single voice, can make speedy decisions, whereas the EU has a lengthy consultative process (the Belgian region of Wallonia recently blocked the entire EU-Canada trade deal). Incoming US President Donald Trump has already said he will try to come to a deal quickly

On the other, the UK economy is far smaller, and trade negotiators may discover they have far less leverage acting alone. 

Unintended consequences

There is also the question of the UK’s membership of the World Trade Organisation, which is currently governed by its membership of the customs union. According to the Institute for Government: “Many countries will want to be clear about the UK’s membership of the WTO before they open negotiations.”

And then there is the question of policing trade outside of the customs union. For example, if it was significantly cheaper to import goods from China into Ireland, a customs union member, than Northern Ireland, a smuggling network might emerge.

 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.