Brexit: three customs arrangement options after Britain leaves the EU
If the present agreement remains unchanged, Great Britain will leave the European Union upon the lapse of the transition period, on 1 January 2021. At that time, it will most likely have to give up one of the greatest economic advantages of EU membership: the single free market, and the related customs union. Leaving the customs union will have far-reaching effects on cross-border trade chains that have been built over decades. Below, we have outlined three possible options of the new arrangement.
The customs union was created in 1958 as a part of the European Economic Community (EEC), later becoming the present European Union. All member states of the EU are thus at the same time also members of the customs union. Generally speaking, a customs union is an agreement of several countries by which they undertake to apply common trade policy to non-member countries mainly in terms of tariff and non-tariff measures. The customs union has lifted customs duties, quotas, and other barriers to free trade within the EU, and applies a single customs tariff vis-à-vis third countries.
In the context of Brexit, the customs union remains one of the issues yet to be resolved. The following scenarios are possible:
Britain remaining in the customs union
This scenario would mean for Britain to adopt the same tariffs vis-à-vis third countries that are currently applied by the EU and, at the same time, not to introduce customs checks at borders when trading with EU states. This solutions seems the least probable from the British government’s perspective, as Britain, being still a member of the EU customs union, cannot yet conclude other bilateral trade agreements.
Full exit and new agreements
The second scenario would mean Britain leaving the customs union, which would necessitate concluding new treaties not just with the EU, but also with other countries of the world. Even the rules regulating trade between members of the World Trade Organisation (WTO) view the EU as a single unit, meaning that once Britain ceases to be its member, it will have to negotiate its own deal with the WTO. Finally but importantly, this scenario touches on the very sensitive issue of creating a controlled border between Ireland and Northern Ireland, which both refuse.
Closer partnership
Britain may be inspired by other countries that are not EU members but have a partnership agreement with the EU, such as the European Free Trade Association or the customs union with Turkey.
No matter which way Britain chooses, one thing remains sure – without negotiating trade agreements, importers and exporters will suffer most, as they will carry the costs of the newly applied tariff and non-tariff measures. What this may look like in practice we can now see with the USA imposing customs duties on steel and aluminium from July 2018.