No. 10 has ruled out the UK remaining in the customs union after Brexit, but confusion remains about what exactly the UK will sign up to, since a “customs arrangement” remains on the table and Theresa May refused to rule out involvement in a customs union just days earlier.
Yet in August 2017, Brexit secretary David Davis suggested the UK might pay to participate in a temporary customs union after we leave the EU, and before Christmas, Scottish Tory leader Ruth Davidson pushed hard for a softer Brexit for the whole of the UK.
But what does being in the customs union actually mean, and how is it different from the EU single market?
Brexiteers and Remoaners alike have spent much of the time since 24 June 2016 talking of leaving the “customs union”, and how this should be weighed up against the benefits of controlling immigration.
Imagine a medieval town, with a busy marketplace where traders are buying and selling wares. Now imagine that the town is also protected by a city wall, with guards ready to slap charges on any outside traders who want to come in. That’s how the customs union works.
In essence, a customs union is an agreement between countries not to impose tariffs on imports from within the club, and at the same time impose common tariffs on goods coming in from outsiders. In other words, the countries decide to trade collectively with each other, and bargain collectively with everyone else.
The EU isn’t the only customs union, or even the first in Europe. In the 19th century, German-speaking states organised the Zollverein, or German Customs Union, which in turn paved the way for the unification of Germany. Other customs unions today include the Eurasian Economic Union of central Asian states and Russia. The EU also has a customs union with Turkey.
What is special about the EU customs union is the level of co-operation, with member states sharing commercial policies, and the size. So how would leaving it affect the UK post-Brexit?
The EU customs union in practice
The EU, acting on behalf of the UK and other member states, has negotiated trade deals with countries around the world which take years to complete. The EU is still mired in talks to try to pull off the controversial Transatlantic Trade and Investment Partnership (TTIP) with the US, and a similar EU-Japan trade deal. These two deals alone would cover a third of all EU trade.
The point of these deals is to make it easier for the EU’s exporters to sell abroad, keep imports relatively cheap and at the same time protect the member states’ own businesses and consumers as much as possible.
The rules of the customs union require member states to let the EU negotiate on their behalf, rather than trying to cut their own deals. In theory, if the UK walks away from the customs union, we walk away from all these trade deals, but we also get a chance to strike our own.
What are the UK’s options?
The UK could perhaps come to an agreement with the EU where it continues to remain inside the customs union. But some analysts believe that door has already shut.
One of Theresa May’s first acts as Prime Minister was to appoint Liam Fox, the Brexiteer, as the secretary of state for international trade. Why would she appoint him, so the logic goes, if there were no international trade deals to talk about? And Fox can only do this if the UK is outside the customs union.
(Conversely, former Lib Dem leader Nick Clegg argues May will realise the customs union is too valuable and Fox will be gone within two years).
Fox has himself said the UK should leave the customs union, but later seemed to backtrack, saying it is “important to have continuity in trade”.
Brexiteer-in-chief Davis’s intervention suggests that any departure will be more of a transition, at least if the UK gets its way.
If the UK does leave the customs union, it will have the freedom to negotiate, but will it fare better or worse than the EU bloc?
On the one hand, the UK, as a single voice, can make speedy decisions, whereas the EU has a lengthy consultative process (the Belgian region of Wallonia recently blocked the entire EU-Canada trade deal). Incoming US President Donald Trump has already said he will try to come to a deal quickly.
On the other, the UK economy is far smaller, and trade negotiators may discover they have far less leverage acting alone.
Critics of the government (and some within the Tory party) have long warned that leaving the customs union could jeopardise the Good Friday Agreement, the foundation of peace in Northern Ireland, because of the need to reinforce the border between the Republic and Northern Ireland if different tariffs applied.
There is also the question of the UK’s membership of the World Trade Organisation, which is currently governed by its membership of the customs union. According to the Institute for Government: “Many countries will want to be clear about the UK’s membership of the WTO before they open negotiations.”
And then there is the question of policing trade outside of the customs union. For example, if it was significantly cheaper to import goods from China into Ireland, a customs union member, than Northern Ireland, a smuggling network might emerge.