Given the uncertainty that often clouds the Brexit debate, one thing the government has made clear is that in leaving the European Union, the UK will also leave the EU’s Customs Union.
In her Lancaster House speech, the Prime Minister said “Whether that means we must reach a completely new customs agreement [or] become an associate member of the Customs Union in some way [...] I have an open mind on how we do it.”
That speech was delivered over a year ago. Interesting then, that in recent weeks the political and press debate about trade and customs arrangements appears to have ramped up considerably.
In many respects, the solution to the customs union debate will be the essence of what our future trading relationship with the bloc will be. The topic is therefore of vital importance to businesses – especially those trading in goods.
And there is much debate to be had. When it comes to the Single Market there are clear dividing lines. EU chief negotiator Michel Barnier has suggested the indivisibility of the four freedoms means we’re either in or out of the Single Market – but the comparative flexibility around customs arrangements affords the British side a degree of wiggle room.
Yet, just because there is some flexibility doesn’t mean this will be an easy predicament to solve. The UK is seeking to unravel some of its economic integration with the EU, but at the same time its business community wants continuity with existing practices as far as possible. It’s a careful balancing act, but we at the IoD have put forward a proposal for a hybrid solution.
This month saw the release of the IoD’s latest policy report, Customising Brexit – A hybrid option for a UK-EU trade framework. We argue that the UK should pursue a new and bespoke partial customs union with the EU covering all industrial goods and some limited processed agricultural products. A hybrid arrangement of a customs union with a free trade agreement encapsulating other areas, such as trade in services and agriculture, would ensure the UK remains competitive in some of its key industries, while also allowing the UK to have an independent trading policy.
Importantly, a major differentiator between a customs arrangement and a free trade agreement is the former would remove the need to introduce rules of origin. The difficulty associated with dealing with rules of origin is cited as a key reason why many businesses elect not to use free trade agreements. The certificates and compliance processes involved in proving rules of origin can often be burdensome for businesses.
The release of our report gained substantial press coverage with national media hits including The Times, Guardian and Telegraph. I gave a number of interviews about the proposals in the report, including on BBC’s Radio 4’s Today programme.
Recent weeks have seen a number of senior Cabinet ministers meeting to hold talks with the aim of thrashing out the Government’s approach to future trade with the EU. It is our hope that phase two of the negotiations will bring clarity about end-state objectives – of which, of course, future customs arrangements with the EU is one. Time constraints mean the UK should not have to wait for the EU to put forward its own objectives.
It is in this regard that the IoD has welcomed a speech from the Brexit Secretary which laid out the government’s vision for post-Brexit standards and competitiveness. We are pleased that he emphasised the importance of maintaining a level playing field on state aid and competition policy, as well as his admission that this goes hand in hand with minimising trade barriers in a future deal with the EU. However, business leaders would like more detail from the government on future regulatory cooperation and how this would work in practice.
As ever, I would encourage you to get in touch with your local IoD branch to inquire about regional Brexit activities and events. Our next Brexit webinar on 29 March will focus on risk mitigation and currency volatility. You can find the registration link on our Navigating Brexit hub.
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