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Factbox - Does a customs union make sense for post-Brexit Britain?
June 14, 2017 / 2:02 PM / 3 months ago

Factbox - Does a customs union make sense for post-Brexit Britain?

BRUSSELS (Reuters) - The European Union’s customs union has emerged as a key subject of the Brexit debate since the election, with environment minister and Brexit campaigner Michael Gove saying Britain will leave it and The Times reporting that Finance Minister Philip Hammond will argue for Britain to stay in.

What is a customs union and what are its advantages and disadvantages?

THE CUSTOMS UNION AND BORDERS

A customs union means that its members apply the same tariff to goods imported into their territory from elsewhere in the world and apply no tariffs to goods from other members. They must ensure goods meet consumer protection and other safety standards. Mercosur, in South America, is another example of a customs union.

Unlike membership of the EU single market, it does not involve the so-called four freedoms, including movement of people.

The customs union has also proven an effective money-drawing exercise, raising about 10 percent of the EU budget.

Non-EU states Monaco, Andorra and San Marino also have customs arrangements with the EU. The EU-Turkey customs union entered force in 1995, but like that of Andorra, it is limited to industrial goods and processed agricultural products.

A customs union does not preclude border checks and long queues of trucks, such as are seen at the Turkey/EU border.

The EU customs union came into being in 1968, but it took until 1993 for internal customs controls to be abolished.

For the Irish-UK border, neither Britain nor the EU want to see a return of such checks. A customs union would make this easier to achieve, but is not a guarantee.

BREXIT MEANS EXIT FROM CUSTOMS UNION

Each new member of the European Union also joins the customs union, reconciling their national laws with the Community Customs Code.

Brexit is obviously new ground, but leaving the European Union would appear to entail also exiting the customs union.

So rather than “staying in” the customs union, Britain would have to forge a new “customs arrangement”, a phrase used by Theresa May in January, after it has left.

CUSTOMS UNION VS SINGLE MARKET

Unlike the single market, the customs union does not entail paying into the EU budget, being broadly subject to European Court of Justice (ECJ) or accepting free movement of people.

However, the customs union itself could be subject to the authority of the ECJ and customs duties raised might need to be shared.

There are countries, such as Norway or Switzerland, which have access to the single market and are part of the Schengen passport-free travel zone, but are not in the customs union. Individuals can normally cross their borders unchallenged, but commercial vehicles can be stopped and their goods checked.

CUSTOMS UNION VS FREE TRADE DEAL

A free trade deal could abolish duties between Britain and the EU, but would not need to apply the same duty rates on goods coming from other countries.

A free trade deal would also includes rules to require that, for example, a product coming from Britain is truly British. In the case of a car, for example, proving this could incur a sizeable cost. The rules could also prevent the import of a good if it does not have sufficient local content/value added. This might limit, for example, the ability of Britain to ship cars made by Japanese producers to the EU without paying duties.

An attraction of a free trade agreement with the European Union is that post-Brexit Britain would be allowed to enter similar free trade deals with other countries totally unfettered.

If it struck some form of customs union deal with the EU, Britain’s ability to do so would be limited. It would still be able to negotiate deals with others in areas such as services, investments, regulations and goods not part of the customs union, which might include agricultural products or steel.

While Britain could technically also include products that are part of the customs union, in practice it would complicate the customs union. It would then have to distinguish between British products, which could freely travel within the customs union, and those coming via a trade deal from elsewhere, which might be subject to duties.

Like Turkey, it might feel forced to let Brussels take the lead in forging deals and then just mirror those agreements with the new EU partners.

Reporting by Philip Blenkinsop; Editing by Tom Heneghan

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