The customs union (CU) is a common external policy in respect of non-Member States (MS). It requires MS to apply the EU’s common external tariff (CET), quotas, and customs processes to goods moving between the EU and non-EU countries, though MS have operational discretional on how to implement CET.
Importantly, the CU means that goods moving between the UK and other MS are not subject to customs duty, quotas, or customs processes.
Of the UK’s top 10 export destinations, seven of them are in the customs union.
Remain in the Customs Union
Customs duties and charges having equivalent effect (CEEs) are prohibited, making trade with EU cheaper.
VAT treatment becomes more complex
Individual issues: travel and post
Protection of UK goods from discriminatory MS-internal taxation.
UK can act as a conduit to the EU market.
EU trade protection measures benefit UK
The Northern Ireland border would be threatened.
The Government Position
The official UK government position is found in two documents: the ‘Customs Bill White Paper’ (‘the white paper’) and ‘Future customs arrangements: a future partnership paper’ (‘the future partnership paper’).
The Customs Bill White Paper (‘the white paper’) correctly recognises that “cliff-edge changes are in the interests of no-one”.
As such, the Government has determined that it will seek whatever settlement delivers the greatest economic advantage to the UK (a position that first appeared in the future partnership paper).
However, because customs are currently within the EU’s competency the overwhelming majority of legislation on customs is EU-driven. Therefore, on leaving, a significant legislative exercise will have to be undertaken to fill this whole.
The Government has accepted at powers to impose or increase taxation (which customs duties are caught under), excise, or VAT must be done via primary legislation. This means that the (still broad) Henry VIII powers contained in the Withdrawal bill will be insufficient. The consequence is that the Withdrawal bill must work in harmony with any future customs bill. However, none has been drafted. Therefore, any legislative protection must be included in the legislation currently before Parliament.
There are three main contentions open to the Government. Maximum Facilitation (‘Maxfac’) vs. ‘A’ Customs Union vs. ‘Customs Partnership.
A customs union
We have avoided citing (many) economic forecasts, which surround leaving the CU, although there are plenty of figures. Claims that continued membership of the CU would reduce the cost of Brexit by 0.5% of gross domestic product. Clifford Chance and Oliver Wyman estimate that tariffs and non-tariff barriers in event of WTO trading rules would add a bill of £27 billion to UK exporters. This translates to an extra cost of exporting of 1.5%. For the EU the effect would be an increase to export cost of only 0.4%.
Instead, we have chosen to raise seven real, tangible benefits to remaining in the CU.
If the government’s commitment is to ensure that they safeguards the interests of the British economy during the Brexit process, these benefits must be replicated before the Government and the Prime Minister, Theresa May, can be said to have held to their promise.
None of this touches on the Irish settlement, which cannot be safeguarded except from inside the CU. This should concern a Conservative government. Lest they forget, it was Labour who secured the Good Friday agreement.
We conclude by noting that the debate surrounding the customs union debate has exemplified the growing jingoism of political debate in the UK. Parties and politicians who build their brand promoting and pursuing shock politics will not be rewarded as more young people are enfranchised. It is telling the only praise Jeremy Corbyn has received from the business lobby, is when he came out in support of remaining in the customs union. The government has now backed remaining in the CU as a backstop to deal with the Northern Ireland border. This is a sign of the way the wind is blowing.
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