Slaying the Customs Myths
By: William Bain
Tags: Northern Ireland, UK Politics, Trade, Europe, Brexit

After the Article 50 extension decision taken by the European Council on Wednesday evening, focus has shifted back to the impasse at Westminster. Cross-party talks are underway on attempting to find a signpost at least on the final relationship which could be negotiated between the UK and the EU. This could find its place in proposed revisions to the Political Declaration on the Future Framework negotiated by the UK and the European Commission, alongside the Withdrawal Agreement which deals with the separation issues.

There are 16 customs union in operation globally, of varying sorts. Some have a strong level of integration and flanking provisions, whereas others such as the Andean customs union provide for more autonomy on tariff policy. There is a specific legal definition of what a customs union is in Article XXIV of the GATT, the legal agreement at WTO level underpinning global trade in goods. Whatever name would be given to any such arrangement with a common external tariff and no rules of origin which could be negotiated for trade between the UK and the EU, it would have to satisfy that definition to provide maximum worth to supply chains.

It was not until the operation of the Single Market in 1993 however that border checks on some goods were entirely eliminated in all EU member states with common rules, enforcement, monitoring and judicial oversight on harmonised goods, allowing for mutual recognition and an absence of regulatory checks on non-harmonised goods as well. In that sense the customs union can be seen as the delivery mechanism for the Single Market. For food, chemicals or toy manufacturers and retailers and many other supply chains the Single Market is the more significant of the two in terms of non-tariff barriers and regulatory checks eliminated, as well as on business compliance costs and GDP growth.

What checks are removed with a customs union? Even within a customs union, trade is not frictionless. Typically, checks for tariffs and origin of goods are eliminated if a common set of tariffs exists between the contracting countries. There can still be trade remedies applied between the parties, as is the case in the EU-Turkey customs union agreement. In terms of UK-EU27 trade, there are 63 potential regulatory, taxation and customs checks applicable to goods moving across any new trade frontier (other than continued membership, no off-the-shelf solution deals with them all for the UK but the backstop does for NI). Only two of them are removed by a customs union.

Furthermore, as in the Single Customs Territory envisaged by the Irish Protocol or backstop, a UK movement certificate would be required to accompany any customs movement between the EU and the UK. For trade in products of animal origin, it is sanitary and phytosanitary checks which would be the biggest barrier to just-in-time supply chains and the largest source of delays in goods movements between GB and the EU27. In the UK Government’s preferred format of an Association Agreement for the future UK-EU relationship, a customs union could be added to by EU-UK agreement on regulatory supervision, subject to the red lines of each side. The Turkey-EU customs union agreement has provisions on competition law and state aid within it. This would have to be supplemented with far more extensive flanking provisions in any UK-EU agreement.

Politically, the value of a customs union or an arrangement with similar component parts is that it represents a potential minimum point of agreement between Government and Opposition on the future relationship. In the absence of any extraordinary technological leaps on customs facilitations in the years ahead, it is also an essential part of the solution in ensuring no hard border on the island of Ireland. Any agreement could ease ratification of the Withdrawal Agreement which has stalled at Westminster, which even a UK General Election in the near future may not resolve, given the 25-strong ERG hold-out group on the Withdrawal Agreement plus the DUP. The Commission has indicated it is prepared to alter the Political Declaration to directly refer to the negotiation of a customs union or similar arrangement as an outcome of the negotiations on the final relationship to occur when the Withdrawal Agreement is implemented and the transition period begins.

A customs union does not rule out UK trade deals with third countries, particularly in services and investment, but it would represent in tariffs at least a reduction in the complete trade policy autonomy sought by many Brexit supporters at Westminster. Most contemporary trade deals focus on trade-offs over the lowering or elimination of non-tariff barriers. The UK’s trade policy, even as part of any EU-UK customs union, would be no different. Common tariffs would be just one factor — common regulatory standards and enforcement would have a much larger effect on the practical autonomy on trade negotiations the UK would have outside of the EU.

The writer was formerly Labour MP for Glasgow North East (2009–15), and an EU and constitutional law academic in the UK. He now works in Brexit and trade policy.