Customs union Q&A: what is it and can the UK manage without it?

As the Brexit countdown clock ticks ever louder, Westminster’s gaze has once again swung around to the issue of whether or not Britain should remain in a customs union. But the political focus can easily obscure rather than illuminate more fundamental issues at stake.

What is a customs union?

This is an agreement by a group of countries, such as the EU, to all apply the same tariffs on imported goods from the rest of the world and, typically, eliminate them entirely for trade within the group. By doing this, they can help avoid the need for costly and time-consuming customs checks during trade between members of the union. Asian shipping containers arriving at Felixstowe or Rotterdam, for example, need only pass through customs once before their contents head to markets all over Europe. Lorries passing between Dover and Calais avoid delay entirely.

What does it matter?

Customs are not the only checks that count – imports are also scrutinised for conformity with trading standards regulations, security and immigration purposes – but they do play an important role in determining how much friction there is at the border. A strict customs regime at Dover or between Northern Ireland and the Republic of Ireland would lead to delays which will be costly for business and disruptive for travellers. Just-in-time supply chains in industries such as carmaking could suffer. An Irish peace process built around the principle of entirely unfettered travel between north and south could be jeopardised.

Could the UK stay in a customs union?

Britain will necessarily leave the existing EU customs union as a direct legal consequence of Brexit, but it could strike a new customs union deal that would replicate many of the advantages. Much like the deal Turkey has negotiated, this would, however, limit the freedom Britain would have to negotiate other trade deals independently of the EU. A future UK government could, in theory, diverge from the common external tariff, but foreign importers would know that they could always fall back on EU ports of entry to access our market. At best, therefore, it would require close collaboration between the EU and UK when negotiating third-party trade deals. At worst, Britain would lose any new negotiating clout.

What does the government propose instead?

Whitehall civil servants have outlined two alternatives to preserve the freedom of life outside a customs union while limiting the disruption from leaving. The first, called “a highly streamlined customs arrangement”, relies on technology and goodwill to limit the impact of new checks. A “trusted trader” scheme and exemptions for small firms in Northern Ireland are intended to put the onus on European business to police itself but would do little to help with other international trade. The second proposal, a “new customs partnership with the EU”, is more ambitious and would see the UK continue to act as if it were in a customs union when dealing with imports from elsewhere. If they are bound for EU markets, the appropriate tariffs would be collected and passed on.

What’s the problem?

The snag with both of Theresa May’s plans is that no one else believes they are workable. The Irish government and UK business leaders fear that the “customs arrangement” could never be streamlined enough to make a difference. A full-blown “customs partnership” is viewed with even more scepticism in Brussels, where EU officials and MEPs are united in describing it as “magical thinking”. Now even some Brexit-supporting Tories have turned on the plan, fearing it is a “con trick” that could still end up shackling the UK to European rules.

Is there a plan B?

Without a convincing proposal for avoiding a hard border in Northern Ireland, the UK risks seeing wider Brexit talks grind to a halt and giving business even more to fret about. Instead, the only other option would be to accept proposals by the Labour party and the CBI for the UK to enter into a limited customs union deal like Turkey. This would infuriate Brexiters like the international trade secretary, Liam Fox, who might resign in protest. For now, Downing Street has been forced to quash rumours it is willing to take this risk and is ploughing ahead with plan A.

When does it all come to a head?

Since a vote in the House of Lords supporting a customs union option last week, opposition has been growing in Westminster. MPs are scheduled to debate the issue again on Thursday, and will probably have a chance to vote on their own amendment after local government elections in May. A key cabinet subcommittee is to discuss how to handle the potential rebellion on Wednesday amid rumours it could become an issue of confidence in the whole government. Either way, with the EU demanding answers to the Irish question by the time of its next summit in June and preparatory legislation backing up in Westminster, the time for kicking the can down the road is fast running out.