Why we must leave the Customs Union

Why we must leave the Customs Union

Post-Brexit, some people are calling for the UK to remain a member of the customs union that comprises the EU member states and Turkey. There are several reasons why this is a bad idea.

One of the strongest arguments for leaving the EU was restoring the ability of the UK to set its own trade policy. This would give us the ability to reduce import duties both to lower the prices of goods for consumers and as part of free trade agreements (“FTAs”) with other countries who would reduce tariffs on our exports in return.

The common external tariff (which sets out the duties and quotas that apply to imports into the customs union) imposes duties on products that the UK does not produce so has no domestic interests to protect. Often these form stumbling blocks in the EU’s negotiations with third countries, for example the FTA negotiations with Japan stalled on discussions around products like wine and tinned tomatoes, delaying a deal that would have reduced tariffs on auto parts and opened up services access in Japan.

The UK’s biggest export sector is services. In order to be able to agree liberalisation of access to services markets with other countries, the UK will need to be able to offer improved access to our markets for goods in return. The EU’s inability to make concessions on access to and subsidisation of agriculture markets has meant that the UK has not been able to obtain concessions for our key interests in financial, legal and education services, for example.

If the UK had an arrangement like Turkey has with the EU, it would have no say in the levels of tariffs to be applied or the common commercial policy generally. This is self-evidently giving up control to an even greater extent than being a member of the EU.

By definition, as part of a customs union, Turkey must have the same external tariff as the EU, and is also required to harmonise its law and regulation to EU law in respect of relevant products, without having a say in such laws. If the UK were to agree to this, it would not be able to agree bilateral FTAs with third countries unless the EU had already agreed the same terms, as it would not be possible to agree tariff reduction or elimination.

It has also been suggested that a partial customs union to cover particular vulnerable sectors, such as automotive, could be established on the basis that this would enable the UK to pursue FTAs to cover all other sectors. A partial customs union would contravene Article XXIV of the WTO’s General Agreement on Tariffs and Trade (“GATT”), which requires FTAs and customs unions to be in respect of substantially all trade between the parties, so both the EU-UK sectoral customs union and any UK-third country FTA that excluded such sector would likely be in breach of the GATT.

In practical terms, taking whole sectors of trade off the table in a negotiation with another country will not improve the negotiation strength of the UK. Rather than retaining the common external tariff on automotive parts and vehicles for fear of being subject to it, would it not be better for the UK to exercise control of its own tariff schedules and reduce the duties payable on parts from countries like Japan, Taiwan and China? This would alleviate the impact of the depreciation of sterling and be a pro-trade measure that would be more beneficial to manufacturers in longer term than maintaining the protectionist policies of the customs union.

Of course there is a cost to leaving the customs union. Even if a zero tariff arrangement is agreed in the Article 50 process, the reintroduction of customs procedures for trade between the UK and the EU will give rise to some disruption but the likely extent of this has been overstated. The UK and the other 27 EU member states have some of the fastest and cheapest customs clearance in the world. In France, for example, according to official figures the average merchandise dwell time at customs is less than 5 minutes. This is because most of the process is carried out online, before a consignment of goods is shipped, and physical checks at the border only happen where a risk has been identified.

The EU has mutual recognition agreements in place facilitating the logistics of trade with many countries, allowing conformity assessment for compliance with product rules to be carried out in the exporting country and self-certification of origin by exporters. As the UK is a trusted partner, with product standards and customs regulations that are fully compliant with all EU regulations, and in view of the substantial trade deficit in the EU’s favour, efficient, streamlined trade can continue. After all, the USA, China and Switzerland all export more to the EU than the UK does, despite not being members of the customs union.