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Analysis

Confused about customs unions? Here’s why it’s important

by Nick Kent | 24.04.2018

In recent days John Redwood on the Today programme, Dominic Lawson in the Sunday Times and even The Times newspaper all failed to explain a customs union correctly. This matters because it is a central issue to what kind of relationship we want with the EU after Brexit.

The basics

Customs unions are a well-established mechanism for freeing up trade in goods between countries and by doing so raising everyone’s prosperity. They have three main benefits: no tariffs on goods traded between the members; a common tariff for third countries exporting to you; and joint negotiation of trade agreements with third countries, which can increase your leverage. Customs unions operate under the rules of the World Trade Organisation and must cover “substantially all the trade” in goods between their members.

The EU is a customs union which has important additional benefits to the three mentioned above: common rules of origin; common product standards; preferential trade agreements with over 50 countries; and no customs checks at the border.

British businesses have developed complex supply chains that go back and forth across the UK’s borders with the EU as there are few transaction costs inside the customs union.

With support from the CBI and the Institute of Directors, many MPs and peers argue that the UK should stay in a customs union with the EU to avoid having to reintroduce complex and expensive customs checks at the border, which would increase prices and make our exports less competitive.

Essential for Ireland

In the UK context, the EU’s customs union has the additional benefit of making trade with Ireland far easier. The border between the two parts of Ireland meanders for 224 miles and has 254 crossing points. In some places the border runs through the middle of people’s houses.

The abolition of customs checks inside the EU in 1993 was before the Good Friday/Belfast Agreement, but their withdrawal assisted greatly. Customs checks had been a constant source of complaint since partition and customs posted were attacked by the IRA on several occasions.

Since many people have to cross the border every day, the stopping and searching of vehicles was a major interference in ordinary life and an additional cost to business. Both communities in Northern Ireland would be loathe to see such checks reintroduced.

Being in a customs union with the EU is the only realistic way that border checks can be minimised on the Northern Ireland/Ireland border.

Brexiter argument full of holes

Some supporters of Brexit argue that a customs facilitation agreement, of the kind the EU has with Switzerland, would be just the same as being in the customs union. That is not so; Switzerland still has checks at the border, which mean additional costs to business and delays, and which occasionally involve armed officers challenging members of the public.

Switzerland’s borders with the EU do operate smoothly for ordinary people, with searches being rare, but that is because Switzerland is a member of the Schengen passport-free area in Europe and not because of its customs agreement with the EU.

Brexiteers oppose the UK staying in a customs union with the EU after Brexit because we would lose the chance to negotiate free trade agreements (FTAs) with other countries. That isn’t quite right. We would be free to negotiate FTAs covering any goods not included in the customs union (for example agriculture, which is excluded from the EU-Turkey customs union), plus the services sector and allow us to reach agreement with countries that have an FTA with the EU.

But a customs union with the EU is not as good as EU membership. Customs unions do not cover services, the largest sector of the UK economy. And being in the EU means that we have a vote on the rules of both the customs union and the single market – if we left we would lose that. Being in a customs union with the EU would make for a softer Brexit but we would still lose the majority of the benefits of membership.

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Edited by Luke Lythgoe

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