A simple guide to the customs union and its impact on Brexit

James Rothwell
Demonstrators dressed as custom officials set up a mock customs checkpoint at the border crossing in Killeen, near Dundalk  - AFP

We all know Brexit means Brexit - but it also means restoring Britain’s ability to pursue an independent trade policy.

This requires the UK to leave the customs union, which currrently prevents it from negotiating trade deals.

Eurosceptics say the benefits of this would be immense, leaving the UK free to sign lucrative, tailor-made deals with booming economies such as America and China.

But how the UK goes about leaving the customs union is becoming a tangled and murky affair.

There has been talk in Whitehall of the UK leaving “the” customs union, only to join “a” customs union that would eliminate tariffs in the sectors covered.

There is also Theresa May’s proposal to forge a new “customs partnership” with the EU, which appears to contradict the government’s policy of leaving the EU’s customs framework.

And to confuse matters further, Jeremy Corbyn has said a Labour government would create a “new and comprehensive” customs union with the EU after Brexit.

On the surface, there doesn’t seem to be much of a difference between “a” customs union and “the” customs union.

In fact, one of them keeps the UK shackled to trade policies set in Brussels in perpetuity, while the other grants a modicum of independence that might just satisfy MPs and voters.

Here we look at the key differences between these two deceptively similar approaches to a post-Brexit customs policy.

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“The customs union”

When a group of states agree to stop charging tariffs - a levy on imported goods - amongst themselves and set the same tariffs for external countries, they are in a customs union.

This is precisely what the EU’s customs union involves. The advantage of this is that goods can move around the trading bloc with no customs delays or checks.

This is particularly helpful for “just-in-time” manufacturing in the car industry, where car part shipments follow extremely tight schedules.

Campaigners for a "soft Brexit" support staying in the customs union as they view frictionless trade with our closest neighbours as being more important than deals with far-flung countries such as China and Japan.

They also point out that the success of the British car industry hinges on being able to quickly move and assemble car parts, which has so far been facilitated by EU membership.  

A lorry passes beneath a 'check-in' sign as it leaves the Port of Dover Ltd. in Dover, U.K Credit: Chris Ratcliffe

Thirdly, members of the EU’s customs union do not have to worry about expensive and complicated “rules of origin."

However, the adoption of the EU’s common external tariff means that the UK cannot decide to lower tariffs on imports from non-EU member states. Eurosceptics say this is one of the reasons the customs union would tie the UK’s hands post-Brexit.

Members of the EU’s customs union also follow the Common Commercial Policy, whereby Brussels sets trade policy on behalf of member states. This makes it impossible for the UK to adopt a trade policy which is tailor-made to British interests, a major bugbear for Brexiteers.

Of course, there are several non-EU member states in Europe who cooperate deeply with the EU on customs, but are not members of the customs union.

Customs union vs single market 

The customs union is often confused with the single market as both are EU institutions that facilitate free trade.

Whereas the customs union abolishes tariffs and quotas, the single market removes "non-tariff barriers" on goods  such as rules on packaging, food standards and safety. 

Some of those rules have drawn the ire of British politicians, such as an EU ban on vacuum cleaners with a motor more powerful than 900W. 

But the single market is more ambitious than the customs union, which only applies to goods. In addition to the free movement of goods, it permits free movement of services, capital and people.

These are known as the single market's "four freedoms" and they are indivisible. A member state cannot, for example, allow free movement of goods but not of people.

This is viewed as a key flaw by those in Europe who are concerned about rising levels of immigration, and is arguably one of the main reasons British voters oped to leave the EU.

There is a precedent for being part of the single market but not the customs union, which is illustrated by Iceland, Norway and Lichtenstein.

These countries are part of the European Economic Area; they benefit from free trade with the single market and in return follow EU rules such as free movement. 

“A customs union”

This brings us to the talk in Westminster of joining “a” customs union with the EU along the lines of Turkey, rather than full membership of “the” EU customs union.

Signing up to a customs union with the EU is essentially agreeing to a partial customs union, where controls on trade policy and tariffs only apply in certain areas.

For example, Turkey is in a partial customs union with the EU whereby it charges EU-approved tariffs on most industrial goods - unprocessed agricultural products are exempt, for example . 

This is useful for Turkey as it reduces a great deal of friction with the EU, though the major trade off is allowing Brussels to control their trade policies to a significant degree.

The partial customs union is also asymmetrical in that it forces Turkey to open its market to third countries which have signed free trade deals with the EU, while reciprocal benefits are not guaranteed.

A partial customs union has been backed by the Institute of Directors (Iod), which has called for the UK to build on the Turkish model.

This is because a Turkish-style customs union would allow the UK to pursue its own deals in certain sectors, while smoothing the path for UK-EU trade in goods thanks to the lowering of tariffs. 

British officials are also watching a Turkish bid to reform their customs union with great interest. Under those plans, Ankara - and potentially London if it adopted a similar model - could be able to remove the asymmetry from the relationship.

Allie Renison, the author of an IoD report on the Turkish model, said this was a compelling reason not to dismiss a partial customs union out of hand.

“It is essential when discussing the feasibility of a continued customs union of some form between the UK and EU to note that the challenges facing Turkey...are already on the way to being addressed,” she said.

Does this break the Brexit impasse?

The key benefit of a partial customs union, therefore, is that it establishes a narrow stretch of common ground on the Leave-Remain spectrum which would be palatable to many MPs, who will vote on the Brexit deal.

But a halfway house will not be enough to satisfy the Brexiteers. It would be anathema to Jacob Rees-Mogg, the increasingly influential Tory backbencher, who wants the UK to be able to set its own tariffs after Brexit and use tariff liberalization as a bargaining chip in negotiations.

That makes a partial customs union politically unworkable for Mrs May’s wafer-thin majority, which can only push a Brexit deal through parliament if it satisfies the Eurosceptic wing of the party.

Jacob Rees-Mogg in Parliament Credit: Paul Grover for the Telegraph

This appears to have set her government on a third path, which is mulling over an entirely new arrangement on customs which would keep most of the benefits of the EU framework and none of its drawbacks.

This is known variably in London as a “highly streamlined arrangement,” and a “deep and special partnership” while in Brussels it is dismissed as the “unicorn option.”

It remains unclear how exactly the partnership would work, though its aims are very bold: the UK would regain power over its own trade policies, while still enjoying tariff-free trade with the EU and no customs checks.

For EU officials, this is fantasy “unicorn” territory as it would grant the UK an unprecedented degree of control over the bloc without being forced to abide by its rules.

...where does all this leave the Irish border?

Neither option, on its own, solves the Irish border conundrum, which is the greatest obstacle to a pro-free trade Brexit.

If the UK adopts a partial customs union, the state of the border between Turkey and EU member Bulgaria suggests there would still be some checks and delays, as on that crossing queues can stretch as long as four miles.

Full-on customs union membership doesn’t square the circle, either. It would spare the UK from  costly rules of origin requirements, but checks to ensure goods meet EU regulatory standards would still have to be carried out.

This means physical infrastructure would appear on the border to police the new regime, which is a red line in the negotiations.

"You would still have an issue with the Irish border, but it's less existential. Even a full customs union won't solve this," added Ms Renison. 

"That said, most borders exist due to an absence of a customs union, so it is at least an important part of the puzzle."

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