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A UK-EU customs union?

Published Wednesday, April 25, 2018

This note has been prepared for the debate on the customs union in the House of Commons on 26 April 2018.

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This briefing paper has been prepared in advance of the debate on customs and borders to be held in the House of Commons on Thursday 26 April 2018. This follows a defeat for the Government on the customs union in the House of Lords on the European Union (Withdrawal) Bill.

A customs union is a type of trade agreement where its members agree:

  • Not to impose tariffs (border taxes) or quotas (limits on quantities of goods which may be imported) on trade between themselves
  • a common set of tariffs on imports from third countries

A customs union differs from a free trade agreement in having a common external tariff. Free trade agreements do not have a common external tariff. Members of free trade areas can negotiate their own trade agreements with third countries. Membership of a customs union places limits on its members’ ability to do this.

The EU Member States form a customs union. The EU imposes a common set of tariffs on imports from outside the bloc. The EU’s trade agreements are negotiated centrally by the EU, not the individual Member States. The EU has a partial customs union agreement with Turkey. The EFTA members (Iceland, Liechtenstein, Norway and Switzerland) which have close economic links to the EU, are not in the EU customs union.

The Government’s position is that the UK will leave the customs union after Brexit. The BBC reported a Downing Street source as saying “We will not be staying in the customs union or joining a customs union”.[1] This is in line with the Prime Minister’s Mansion House speech where she said that being in a customs union with the EU “would not be compatible with a meaningful independent trade policy.”[2] The Government has put forward two proposals for future customs arrangements with the EU: a highly streamlined customs arrangement and a new customs partnership with the EU.

Labour has said that it “would seek to negotiate a new comprehensive UK-EU customs union to ensure that there are no tariffs with Europe and to help avoid any need for a hard border in Northern Ireland.”[3] This would be subject to certain conditions including that the UK have a say in EU trade deals and assurances on, for example, EU state aid and public procurement policies.

The main arguments put forward in favour of the customs union are that it would make trade with the EU easier, giving economic benefits, and that it would help resolve the Irish border issue. The main argument against is that it would limit the UK’s ability to have an independent trade policy.

The EU has a customs union agreement with Turkey.[4] This is a partial agreement covering all industrial goods but not agriculture (except processed agricultural products). According to the European Commission, “the Customs Union foresees that Turkey is to align to the acquis communautaire in several essential internal market areas, notably with regard to industrial standards.”[5] There is an asymmetric relationship between Turkey and the EU in the operation of the customs union. Turkey has no seat in EU free trade negotiations with third countries.[1] Furthermore, Turkey must open up its market to those countries with which the EU has negotiated a free trade agreement, but does not automatically gain reciprocal access to those markets.[2] The EU-Turkey border is not frictionless, in part due to the partial nature of the EU-Turkey customs union (but also other issues, such as transport permits).[3] Checks still occur and there are delays at the border.

 

[1]     World Bank, Evaluation of the EU-Turkey Customs Union, 28 March 2014, para 6

[2]     Exiting the EU Committee, The future UK-EU relationship, 4th report of 2017-19, HC 935, 4 April 2018, para 129

[3]     Turkey border gridlock hints at pain to come for Brexit Britain, Financial Times, 16 February 2017

 

[1]     BBC website, Brexit: Government insists UK will leave customs union, 23 April 2018

[2]     PM speech on our future economic partnership with the European Union, 2 March 2018, Mansion House

[3]     Jeremy Corbyn, Speech on Britain after Brexit, 26 February 2018

[4]     The other countries which have a customs union with the EU are Andorra and San Marino.

[5]     European Commission, Trade: Turkey

Commons Briefing papers CBP-8290

Author: Dominic Webb

Topic: International trade

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