The customs union conundrum

The UK government has today published a paper setting out its plans for the future customs union relationship it envisages with the EU. It throws up more questions than answers.

As a primer, earlier this week, the UK Trade Policy Observatory at the University of Sussex released an excellent three-minute video explaining what a customs union is, and why a customs union alone does not imply frictionless trade.

In a nutshell, a customs union merely represents a couple of bricks in the wall of frictionless goods trade: tariff free trade and no rules of origin checks. The former holds because a customs union mandates that all members have tariff free trade between themselves, while the latter holds because all members impose the same tariff arrangements on all countries outside the union. But there are other building blocks to consider. Membership of a customs union still entails documentation checks and some physical inspections in order to comply with standards. With close UK-EU cooperation, it is possible that many customs checks could be done away from the border at factories and shared electronically. It may also be possible to take VAT payments inside borders, and a very strong agreement may see the UK and EU agreeing to apply the same regulatory standards, relying on inspections at the place of production. But all these things are over and above what a customs union entails.

For further but very digestible discussion, see the Institute for Government’s Five things to know about a customs union, and Sam Lowe’s rules of origin explainers here and here. Ti has also recently examined how the UK’s departure from the EU and customs union may affect emerging markets in the Agility Mid-Year Emerging Markets Review 2017.

So what have we learnt from the government’s new paper? For the so-called ‘transition’ period, as Ian Dunt states in a scathing critique, “The British plan is to leave the customs union and then create a new customs union which does exactly the same thing as the one it just left.”

This new customs union will take effect on Brexit day in March 2019, and will then expire after a “time limited period”, according to the paper. The idea is that this will enable the UK to negotiate trade deals with third parties, although the government admits the UK will not be able to implement any new trade deal while in this new customs union and it is unclear whether it could sign them. If they are merely just talking to third parties, then this is something they are doing already.

Another issue is why the EU would agree to such a plan: it appears to gain nothing.

After the transition period, two scenarios for the future are presented: a streamlined customs arrangement or a new customs partnership. Dunt suggests that the streamline scenario would be “a magnet for the black market and smugglers”, while the customs partnership option would be “an open invitation to fraudsters”.

The report also lacks clarity on how much such visions would cost, what new buildings or infrastructure are required, if new training is necessary, whether plans can make use of existing systems or if they need to be completely overhauled.

Overall, the news that the UK government is looking to secure some sort of customs union with the EU in the transition period of Brexit may provide a degree of relief for supply chain managers. This is particularly the case given that an article written by the Chancellor and the International Trade Secretary over the weekend suggested that the UK would leave both the customs union and the single market when it leaves the EU in March 2019. There was no mention that a temporary customs union would be set up in the transition period. Quite how logistics providers are reacting to the latest customs plans is unclear; perhaps they are rubbing their hands together as the added complexity may entail more business?

The government is publishing a paper on its plans to deal with the Irish border on Wednesday. Those involved in relevant supply chains should monitor that will equal interest.

Source: Transport Intelligence, August 15, 2017

Author: David Buckby


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