The CBI’s suggestion that such an approach would help business is mistakenby Aarti Shankar / January 26, 2018 / Leave a comment
The Confederation of British Industry (CBI), the UK’s largest business lobby, this week formally called for a comprehensive new UK-EU customs union post-Brexit. This would go a lot further than the government’s official position—to leave the EU Customs Union and either negotiate a customs facilitation agreement with the EU, or voluntarily mirror the EU’s customs approach. The CBI’s announcement not only demonstrates a striking gap between the business lobby and the government in this important area of UK trade strategy, it has also fuelled speculation that the government may alter its established position on the leaving the EU Customs Union. It should not do so.
There is an important difference to note between the EU Customs Union and “a customs union with the EU.” All members of the EU Customs Union have agreed to scrap import tariffs on each other’s goods, and to impose a common external tariff on goods coming from the rest of the world. Only EU member states are part of the EU Customs Union, meaning that the UK would be highly unlikely to remain in this after its withdrawal (Monaco is in the EU Customs Union despite not being an EU member, but this is due to a historical agreement with France). But the CBI’s announcement this week raises the question of whether the UK should establish a new customs union with the EU after it leaves.
A post-Brexit customs union would resemble the current arrangement in important respects. Support for this option is primarily about minimising disruption to existing UK-EU trade. It is true that leaving the EU customs union will entail economic costs—arguably this is a point that the government should be prepared to discuss more honestly. These stem more from time and administrative costs to trade, rather than potential new tariff barriers—which the CBI rightly suggests could be reduced or removed through a free trade agreement. If the UK does strike a trade deal with the EU, the bulk of new admin costs would result from the need to comply with “rules of origin.” These very technical requirements could be particularly problematic in sectors where UK businesses are heavily integrated in European supply chains.
Of course, the government’s proposals for a future UK-EU trade relationship must address business’ legitimate concerns about the potential for disruption to trade. But…