Could there be a new temporary customs union after Brexit?

In the first of a series of position papers on what the UK wants from the EU during its Brexit negotiations, the Department for Exiting the EU has set out the government’s hopes for the UK’s future customs arrangements.

A “customs union” is a free trade area whose members apply the same taxes and quotas on imports from countries outside it.

The UK is set to formally leave the EU in March 2019, and with it the EU customs union. When that happens, the rules on international trade will change, but we don’t yet know what the new rules will be.

The Government believes that there are two possible approaches to its future customs arrangements with the EU that will “facilitate the freest and most frictionless trade possible”, “encourage growth in trade”, and “mitigate to the greatest extent possible against any additional administrative burdens or delays”.

The first option, a “highly streamlined customs arrangement”, aims to improve customs processes at the border. The second option is a “new customs partnership with the EU” such that the need for a UK-EU customs border is removed completely.

It’s too early to say exactly what these options might mean in practice and how feasible a new form of partnership would be. In fact, as David Davis acknowledges, the lack of clarity in these proposals is intentional “constructive ambiguity”.

A transitional deal

In order to explore and negotiate these options, the government has said they want a “time-limited period” of “continued close association with the EU Customs Union” after exiting the EU.

Why? While still a member of the EU, the UK can’t enact any independent international trade deals with other countries. Trade deals aren’t agreed in a day, and without any replacement trade deals secured after Brexit the government is concerned about disruption to cross-border commerce – the so-called ‘cliff-edge’.

The government’s position is that a ‘temporary customs union’ can get around this issue, which is aimed at mimicking the existing trade arrangements as closely as possible after the UK leaves the EU.

In practice, it’s not clear how exactly a temporary plan will be implemented. Any arrangement would also need to be negotiated and agreed with the EU, which has insisted that “frictionless trade is not possible outside the single market and customs union”. Separately, the European Parliament’s lead negotiator on Brexit has said “to be in & out of the customs union & ‘invisible borders’ is a fantasy”.

It’s also not clear how long this arrangement might last. According to Brexit Secretary David Davis, new trade deals with the EU and other countries have to be done by the end of the current government, and the transition period should last “something like two years, maybe a bit shorter”.