Would a customs union with the EU really be so terrible?

On both sides of the Brexit divide there are fundamental misunderstandings about what a customs union would actually entail

May 16, 2019
Photo: Robin Utrecht/SIPA USA/PA Images
Photo: Robin Utrecht/SIPA USA/PA Images

There is little the UK’s increasingly polarised Leave and Remain tribes agree on, but the horror of a UK-EU customs union “compromise” seems to be one such rare beast. It feels like every day there is an article on how bad this will be, how the UK will be economically and politically damaged, possibly irrecoverably, if it signs up to one. Visions of EU bureaucrats carving up UK industry are summoned, in which UK officials wait meekly to be given our ghastly instructions. The final humiliation.

Though one can be forgiven sometimes for wondering why if customs unions are so bad there are so many of them around the world, and indeed why Turkey, not known as a country which likes to depend on others, has one with the EU.

So what exactly is a customs union? How do existing models work? And crucially, would it really be so terrible if Britain signed up to one? The debate is riddled with confusion. Even the Labour Party, whose Brexit policy is officially a customs union, seem hazy on the details. But they are right that while a customs union is not a panacea, economically there are worse end states for Brexit Britain.

One problem with the scare stories is that they don’t quite agree on what a customs union will actually entail. In some accounts the EU will be negotiating trade deals on our behalf, in others we have to negotiate but follow the EU’s lead. Some say a customs union will be just about a shared external tariff, thus failing to solve the Northern Ireland border issue, others that it includes alignment in regulations.

There is good reason for the confusion, which is that a customs union is not actually something you buy from a supermarket but an international agreement you reach through negotiation. Some of the choices to be made are those above. Rejecting out of hand a customs union without acknowledging this is simply propaganda.

At base a customs union is a supercharged free trade agreement in goods, with the parties agreeing not just to reduce tariffs between them, but to actually eliminate them by having a common external tariff. It does not have to cover all goods, just most. The EU-Turkey customs union does not for example include primary agricultural produce. However, Turkey does align with EU regulations on industrial goods.

Now any UK-EU arrangement is not likely to exactly follow the Turkey precedent, particularly given the Turkey-EU border and the need to avoid one of the island of Ireland. It will probably therefore be a deeper arrangement than the EU and Turkey have.

It is true that Turkey does not have full freedom to make its own trade agreements, and does not have full control of its tariffs. So, to the nub of most objections, would this for the UK be an affront to democracy and a drain on the economy? The last is easy to answer, all reputable economic models say that the value of maintaining low barriers to trade with our largest trading partners will be worth more than the cost of not concluding new trade deals with other countries.

In any case of the individual countries identified as priorities by the UK for trade agreements, the EU is currently negotiating with all of them. It should also be noted that the UK would also have the opportunity to push forward on services mindful that these are often liberalised outside of free trade agreements. Indeed it could be to the UK’s benefit to focus on our strength, services, without being distracted by long arguments over agricultural tariffs.

The question of democracy is ultimately the harder one to answer, in particular if a specific sector could be damaged by EU trade policy, and we would have little say. It should not be beyond our capability though to identify these problems and seek to design a solution. Only then can we say for certain whether the democratic cost is unacceptable.

It should be noted that all trade agreements involve acceptance of obligations, such as the requirement for a deal with the US to accept their food standards. So if and when we finally leave the EU we’re going to need to consider the details of all of our potential options, and what prices we are prepared to pay. In that debate the simple dismissal of options like a customs union won’t serve us well.