Fifty years on from the customs union’s completion, May should study its historyby Paul Wallace / May 27, 2018 / Leave a comment
When Britain voted narrowly to leave the European Union few could have imagined the extraordinary impasse almost two years later at the heart of government about what this would mean for new customs arrangements. Last week Britain’s most influential business lobby called time on the absurdist drama as Theresa May and her ministers continue to debate a choice between two unworkable options. Paul Drechsler, the outgoing president of the CBI, said on Tuesday that “the Brexit negotiation has been held up at customs” and backed staying in a customs union with the EU “unless and until a better alternative can be found.”
Why has the customs relationship become so crucial in defining Brexit? As so often historical perspective provides a guide. The bedrock of the common market launched at the Treaty of Rome in 1957 was the creation of a customs union, completed ahead of time almost 50 years ago, in July 1968. When Britain hitched itself to the European Economic Community in 1973, it was essentially joining a customs union since the broader aim of a common market in services, capital and labour as well as goods remained largely aspirational.
Customs unions are more ambitious than free-trade areas such as the one between Canada, Mexico and the United States. Free-trade agreements get rid of mutual tariffs but members still set their own against other countries. This limits the gains from the free-trade agreement because traders have to show that they are complying with rules of origin. These local content rules prevent the subversion of higher tariffs in any one member through imports routed through a partner with lower tariffs. By contrast a customs union not only eliminates mutual tariffs but also imposes a common set of tariffs on imports from countries outside the trading bloc. Since the charge on imports is the same wherever they enter the union it does away with burdensome rules of origin.