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Blue Bitesize #003: The Customs Union

Updated: Jun 18, 2019

Blue Bitesize is a weekly article written by our members, for our members, and looks to explain complex political concepts from both the left and right wings of our party. This week's bitesize has been written by one of our very own PMO analysts, Patrick O'Connor.

According to Hansard, the word “Customs Union” has been uttered by Members of Parliament 3,657 times in the House of Commons since December 2018. Having previously been a rather obscure aspect of our trade relations, the issue of the Customs union has become central in the Brexit impasse, but what exactly is the Customs Union?

The Customs Union is one of the cornerstones of the European Union’s (EU) Single Market. Membership of the Customs Union means that as it currently stands, the United Kingdom is part of a trade bloc with other European nations, operating under a set of common external tariffs, customs barriers and benefitting from trade deals negotiated on behalf of the other nations operating within the Customs Union. The advantage of such a Customs Union is clear: it avoids the need for border checks that involve controlling tariffs. Why does this matter in terms of Brexit?

During the EU referendum campaign, it was often stated by those campaigning to ‘Leave’ that post-Brexit we would be able to have an independent trade policy. With the United Kingdom currently a member of the Customs Union, this means that the UK is unable to negotiate other bilateral trade deals. This is why Theresa May lay down leaving the Customs Union as one of her ‘red lines’, in the pursuit of that much sought-after Independent Trade Policy post-Brexit. So, what are the implications of the UK leaving the Customs Union?

Those in favour of remaining in the customs union argue that cutting our trading ties with the rest of Europe, would significantly damage the UK economy. The future implications of our exit from the Customs Union are not merely theoretical, instead they take a more practical shape in terms of the ease of trade between the UK and EU. It has been argued that leaving the customs union would mean mandatory customs checks for lorries operating between the UK and EU until a free trade deal is struck, potentially causing major delays. There is one area in particular of the Brexit debate, where the issue of customs is of paramount importance. That is the Irish border, and it is here that we find the issue of customs and the Irish Backstop inextricably linked. This begs the question, why is the Customs Union so important to the issue of Northern Ireland?

What has moved the issue of the Customs Union to centre stage in the Brexit debate has been the desire of the Irish government to avoid a ‘hard’ border on the island of Ireland, and the historical issues relating to the 1998 Good Friday Agreement. It is not the case that a customs union on its own would end the need for controls on the Irish border, instead it takes an important step in limiting them. Throughout the Brexit debate, different solutions to the issue of the Northern Ireland border surrounding customs have been put forward; these included notions of a customs partnership, alternative technologies at the border, a Facilitated Customs Arrangement (FCA) and a UK-wide temporary customs union (something that prevented Northern Ireland being governed by a different set of customs arrangements to the rest of the UK). While it is stated in the Conservative 2017 manifesto that it is our objective to leave the Customs Union, that view is not shared by the Labour party. With the current impasse in Parliament, it is questionable as to whether there is a clear majority for our exit from the Customs Union. So if leaving the Customs Union is unacceptable to Parliament, what are the other possibilities?

The United Kingdom could leave the Customs Union and still negotiate some form of access to the internal market. For example, Turkey is not a member of the EU, yet is part of the Customs Union for industrial goods. The United Kingdom could potentially follow suit in sectors of the economy where high levels of regulatory alignment are required with the EU. However, such ‘cherry picking’ from the UK has been rejected by the EU previously. While this arrangement on the face of things sounds beneficial to the UK, there would be implications on our ability to act as an independent trading nation. It would result in the UK having to accept the EU tariffs whilst having limited say in trade negotiations. More troubling however for people who campaigned to Leave would be the notion that when the EU strikes a future new trade deal with another country, the UK would be bound to accept zero tariffs on imports from that country, with no obligation on them to drop tariffs on UK exports. Of course, this could be subject to negotiation. Another possibility that has been discussed is the idea of an FCA. This was the government’s plan for post-Brexit customs arrangements as set out in the ‘Chequers plan’. An FCA would see goods coming into Britain which were destined for the EU, to be charged an EU tariff. With regards to goods that were to remain in Britain they would be charged a UK tariff which would be different to that of the EU’s. Such a plan was hoped to avoid customs checks on the island of Ireland, yet was roundly rejected by Brexiters who claimed it to be unworkable and the vessel by which the UK would be pushed into a customs union against its will. So, what next?

The issue of the Customs Union is one of deep contention, and one of the most important issues in the Brexit debate. If our politicians are able to compromise and understand the trade offs required to find a solution to strike a deal which is beneficial to the UK, it has the potential to unlock the Brexit impasse. It requires building a bridge between those who see the solution as remaining in the EU and those who believe a WTO Brexit is the answer. The integrity of the Northern Ireland border and our future prosperity as a country rely on it being solved.

- Patrick O'Connor