The EU Customs Union, Put Simply

By Campaign Agent Euan Stone

As the Brexit process enters yet another phase of seemingly never-ending uncertainty, one key issue that has risen back to the top of agenda in recent weeks has been the debate concerning Britain’s membership of the Customs Union. 

Whilst the Customs Union itself is no doubt one of the vast number of EU-related terms that most of us knew very little about just two years ago, the Government’s latest announcement that the UK will leave the Union post-Brexit has shed light on the important role that it plays in the everyday lives of millions of Britons. 

The Customs Union was first established in 1958 as one of the initial principle measures of the European Economic Community (EEC), the forbearer of the EU in the European integration project. Broadly speaking, the purpose of the Customs Union is to ensure the quick passage of goods across European Union member states in a way that allows the full enjoyment of the benefits of the Single Market. The agreement ensures there are no customs duties at the borders between EU countries, allowing states to trade freely with each other without difficulty. It also has important implications regarding trade with states from outside of the EU, given all EU countries have signed up to a uniform system of custom duties on such imports, which ensures that all EU states apply the same tariffs on imports from outside of the bloc. 

The Government’s decision has been justified by the need for the UK to leave the Customs Union in order for it to sign independent free trade deals with countries outside of the EU, which would otherwise be prohibited with continued membership. Whilst we are all fully aware that “signing free trade deals with non-EU countries” was not on the ballot paper on June 23rd, the importance of increasing trade with countries other than those in the EU has become a major tenant of the Government’s Brexit policy. 

Against this backdrop, Theresa May continues to promote their intention to seek a post-Brexit deal with the EU for “frictionless” trade. It is with this aspiration, however, that the Government’s position on the Customs Union appears to be most questionable. The ability for the UK to both leave the Single Market and the Customs Union, yet maintain “frictionless” trade with the EU is not just without precedence, but a desire that runs profoundly in contradiction to the mechanisms and functioning of the EU. Out of the Customs Union, the UK will face customs checks on goods entering the EU Customs Area, which will create new and demanding bureaucracy within the trade process. UK businesses will face “rules of origin” checks, which will require importers to evidence where a product and its parts were produced to ensure that the correct customs duty is levied. 

One option available to the UK would be to seek an agreement with the European Union like Turkey’s, where despite not being a member of the EU, it has its own customs relationship via a separate agreement. Such an arrangement would require Britain to adopt the EU’s standards and regulations for all goods included in any deal. However, a House of Lords report into this option stated that this would “severely curtail the UK’s leverage in future trade negotiations with third countries.” Moreover, the economic implications of the customs procedures and the associated red tape and delays has been estimated as costing the UK up to €3bn in lost trade.

At the beginning of March, Theresa May made her third key speech on Brexit at Mansion House, which provided in greater detail the options favoured by the Government outside of the European Union, including on arrangements concerning the Customs Union. The Prime Minister put forward two alternative options, one which would see the UK enter into a new customs partnership with the EU, while the other proposed a “highly streamlined customs arrangement” to minimise friction to trade. The speech was regarded in many quarters as a step in the right direction regarding further clarification by the UK on hopes for life outside the EU. Yet, as has been discussed above, the likelihood that such arrangements will be able to fulfil UK hopes of frictionless trade and avoid an economic hit are seriously in doubt. It remains very difficult to envision a system where the UK does not face substantial bureaucratic impediments to trade in a way that significantly impacts the country financially.

The contradiction in the UK’s position of hoping to achieve frictionless trade whilst in reality increasing bureaucratic checks has been seized upon by the EU’s negotiating team, with Donald Tusk recently confirming that “Friction is an inevitable side-effect of Brexit.” The likelihood of increased bureaucratic red tape runs completely counter to the selling point of the Vote Leave campaign and their relentless indictment of the EU and its supposed unnecessary bureaucratic burdens. 

Another vitally important aspect of leaving the Customs Union is the implications that it will have for the Irish border and it is here that the debate surrounding UK membership has been articulated most viscerally. A full appreciation of the complexities surrounding Brexit and the Irish border would need to be addressed separately but, put simply, the presence of customs checks on the Irish border would create a “hard border” between the two countries. This risks the undermining the Good Friday Agreement and the positive role that European integration has played in the peace process. Both physically and psychologically, the creation of a hard border between the Northern Ireland and the Republic not only has the potential to severely impact trade, but also to irrevocably inflame historical tensions between the two nations. 

In an attempt to address the Irish border issue, in February, the EU put forward their own proposal for how a future agreement could work. The proposal published by the EU effectively stated that the territory of Northern Ireland could be considered part of the EU’s customs territory, which in effect would see Northern Ireland maintain membership of the Single Market and Customs Union. This of course led to immediate accusations that the EU was attempting to “annex” Northern Ireland and was quickly rejected by the Government who stressed that the UK would not agree to “anything that threatens the constitutional integrity of the UK.” Rather, the Government have continually talked up the virtues of new technological tools to streamline the customs process. Such suggestions, however, have been criticised by both the EU and by Parliament as lacking serious credibility as a solution.

On the domestic front, last month Labour’s Shadow Brexit Secretary Keir Starmer used his latest appearance on the Andrew Marr Show to confirm that the Labour Party now officially backed continued UK membership of the Customs Union. This move followed months of pressure by the Labour support base, which is strongly pro-European. As we have seen on a number of occasions, the Labour Party’s position on Brexit has been deliberately unspecific on the key issues, appearing to shift policy according to public opinion. Whether or not this is judged to be a cynical approach, it has arguably been effective politically, and on a number of occasions has allowed the Party to appear one step ahead of the Government on the fundamental issues of the debate. Labour’s move also raises the possibility that Theresa May could face another high-profile parliamentary defeat on Brexit legislation if Tory rebels and Labour MPs unite on a future amendment to the Government’s trade legislation. 

Outside of the formal negotiations with the EU itself, the need to balance the multitude of interests within the Conservative Party has been a considerable challenge for Theresa May. It has been suggested that the Prime Minister’s decision on the Customs Union was forced upon her in order to placate her “Hard Brexit” MPs and to quash a potential leadership challenge. For many of us who have long known the Tories as the Party that resolutely champions the virtues of business and free trade, the decision to turn their back on a mechanism which so clearly aids the free trade process must be recognised as a substantial point of departure for many within the Party. The difficulty for the Tories, considering their historic internal divide on the issue of Europe, is that what is politically convenient for a substantial number of anti-EU MPs, also has the potential to be significantly economically damaging for the country as whole. Whether or not this in fact turns out to be the case will of course play out in due course. However, this is the reality of the debate that is being continually thrashed out behind closed doors between the different internal factions. 

The decision to end Customs Union membership will be fundamental in determining the nature of Britain’s relationship with both Europe and the rest of the international community following our eventual departure from the European Union. The British Government, in particular Theresa May, now faces a momentous task in the upcoming negotiations to both protect British interests and maintain consistency with their strong rhetoric on the issue.

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Image: Theophilos Papadopoulos @Flickr

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