Parliament is still in recess, but the recent flurry of papers from David Davis’s department has kept the Brexit debate front and centre this summer. Heated arguments have raged over all aspects of our future relationship with the European Union: European Court of Justice jurisdiction, the infamous Brexit “divorce bill”—and the customs union, which the government has committed to leaving. This latter subject has hefty implications for our future trade with Europe.
The customs union is an agreement between EU member states not to impose tariffs on imports from one another, while imposing a common tariff on all imports from outside the trading bloc. The arrangement is designed to boost European bargaining power, but is highly controversial. The sticking point for some Brexiteers is that members of the customs union cannot negotiate their own trade deals with countries outside the EU, as they are tied to these tariff arrangements. British membership has therefore been the subject of intense scrutiny over recent months.
Last week David Davis said that a temporary UK-EU customs union, mirroring the current arrangements, could work post-Brexit. Is he onto something, or should Brexit Britain still look to leave straight away? Alternatively, perhaps continued membership is the only way forward. I spoke to experts and politicians to canvas opinion.
Sam Bowman, executive director of free market think tank the Adam Smith Institute, told me that unpicking the relationship between Britain and the customs union would be “very complex,” but that “nobody has a strong interest in changing the current tariff relationship between the UK and EU.”
The thinking seems to be that we could leave while retaining some of the benefits. But other challenges would be sure to come up—with any interim deal potentially just delaying the inevitable. “What is difficult about the customs union are ‘rules of origin’ checks,” Bowman told me. These are used to ensure that goods from outside are not imported through EU countries to avoid paying the higher tariff on goods from outside the bloc.
"Customs procedures are almost entirely virtual these days"“These customs checks can be disruptive and that is not good for companies in a competitive market. The EU has less to lose than the UK does, and I think that the UK is probably going to have to be the one that steps up in terms of talking about what we can do to minimise that.”
This is a view mirrored by Joe Owen, a senior researcher at the Institute for Government. He told me that if businesses have to adjust their models to a new arrangement for goods post-Brexit, the public could see prices rise.
“What we have now is a European factory floor with supply chains that operate across borders and rely on the flow of goods between countries. Manufacturers rely on a steady flow of goods; if that is disrupted, business models would need to adjust. If you add costs into your supply chain for individual parts, it multiplies as the chain develops and costs can be passed on to the consumer.”
Rules of origin, Owen said, are not the only problem with leaving the customs union. Whether Britain has the manpower to facilitate a change in customs agreements could dash the hopes of some Brexiteers, such as hero of the “Moggmentum” movement Jacob Rees-Mogg and Iain Duncan Smith who want to split from the customs union entirely.
“Much has been said about capacity in Whitehall in preparing for Brexit, but up to this point we have been in the analysis phase,” Owen explained, “1 per cent of trade passing through Dover and the Channel Tunnel requires checks at the moment, if that becomes 100 per cent you are looking at a hundred fold increase in capacity required to facilitate that at the border.
“When the future relationship becomes clearer we may need to have much more significant discussions about resourcing for operational and frontline work at the border.”
"The only option that sees the status quo maintained for businesses is membership of the EU"However, not all economists are as concerned about an impending capacity issue. Patrick Minford, co-chair of Economists for Free Trade (previously Economists for Brexit) and author of a highly controversial recent study on Brexit’s economic impact, advocates for a complete withdrawal from the customs union which he says operates in a “highly protectionist way.” This is “against the interests of EU citizens” because it has the effect of “raising the prices of food and manufactured goods.”
Minford told me: “What a lot of the people arguing for a capacity issue haven’t caught up with is that customs procedures are almost entirely virtual these days. Basically, goods go through borders on the basis of computerised pre-submission. There is no capacity problem, that we can identify, for HMRC to deal with goods from the EU that would come through our border from within the EU’s customs union.”
While Minford is confident that a full withdrawal would pose few issues, his research has come under fire from economists and activists who argue that he is in the minority in predicting a smooth departure.
Samuel Lowe, campaign lead for Brexit and trade policy at Friends of the Earth, said that Minford reminded him of a “crank.”
Lowe continued: “It’s important to remember that the only option that sees the status quo maintained for business and people is to remain a member of the EU. Anything else, even membership of the single market and an EU-UK customs union, results in divergence and costs for business and government."
“It is left to government to find a version of Brexit that meets the criteria of a majority of people at as low a price as possible. This won’t be easy, there is no evidence to date that the government is close to finding it, and there is a much overlooked question of what kind of relationship is acceptable to the 27 EU member states.” Many experts made this latter point in the aftermath of Davis's customs announcement last week: the EU may simply reject the UK proposals.
It was not just Lowe who sounded a warning. Mollie Scott Cato, Green Party Brexit spokesperson and economist, told me that the idea of having a relationship with the EU Customs Union outside of EU membership is simply impossible.
Scott Cato told me: “I don't think you can have a relationship with the customs union, the EU will maintain the line that the UK will be in or out. If we were allowed to be half in and half out, it would undermine the customs union for everybody else.”
She continued to ruffle feathers: “The full complexity was not understood by those who argued for Brexit in the hope that they would just lose and use the small margin of support for the EU as leverage to bring about reform.”
What Britain’s future relationship with the customs union will look like remains to be seen. Brexit negotiations resume next week, and as they unfold the reality of our trading future will become clearer. In the meantime one thing is undeniable: unpicking our relationship with the customs union will be complicated indeed.
