Business leaders have put forward a compromise proposal for future trade with the European Union that would significantly reduce barriers to trade with the bloc while still allowing the UK to pursue trade deals with other countries.
In a new report, the Institute of Directors puts forward a partial customs union covering industrial goods and processed agricultural products that would help maintain the competitiveness of some of the UK’s key industries, while also allowing future governments to fulfil the referendum promise of an independent trade policy, including in areas such as tariffs on agricultural products like beef, oranges and sugar from developing nations.
Given the UK’s unique starting position of full integration with the EU, the IoD begins by agreeing with the Prime Minister that the Government should not be bound by existing precedents and must look to establish a bespoke deal with European counterparts. The business organisation suggests that an overall bilateral preferential trade framework could use a customs union similar in scope to Turkey’s agreement with the EU as a base upon which to build a broader free trade agreement. Turkey and the EU are currently seeking to improve their agreement, and the IoD argues the UK should take some of the proposed changes on board when negotiating its own customs arrangements with the bloc.
In the paper, Customising Brexit: A hybrid option for a UK-EU trade framework, the IoD argues that a customs union covering all industrial goods and processed agricultural products would:
- facilitate the flow of goods across UK-EU borders;
- remove the need for UK manufacturing to face costly ‘rules of origin’ that could render a tariff-free deal meaningless for many companies;
- in its partial scope, combined with the UK’s inevitable exit from the EU’s Customs Union and its Common Commercial Policy, allow the UK to forge its own trade agreements – both alongside EU negotiations and with those countries the EU has not yet pursued;
- significantly help with transitioning existing EU trade agreements to apply to the UK after the implementation period has ended;
- allow the UK to maintain full control over agricultural tariffs, meaning it could either reduce these unilaterally or through negotiated trade agreements with third countries – duties on agricultural goods act as an important lever in negotiations due to how high they usually are;
- allow the UK to maintain a broadly distinct trade remedies policy from the EU - it would not be expected to automatically apply all EU anti-dumping or safeguard measures.
The IoD points out that the EU is already taking steps to give Turkey more of a say in EU trade policy in those areas directly covered by its customs union deal, as well as inserting clauses in its trade agreements to ensure third countries negotiate reciprocal arrangements on tariff preferences directly with Turkey. The UK could reasonably expect the same treatment, and is in fact in a stronger position, with many of those third countries already wanting to pursue deals with it after Brexit.
Stephen Martin, Director General of the Institute of Directors, said:
“As a fundamental principle of European Union membership, the UK’s decision to leave means that leaving the Customs Union is less a matter of choice but rather one of necessity.
“For the welfare of Britain’s businesses, prolonging its operational effects during the transitional period is no doubt crucial. In the long-term, the UK should consider remaining in a narrowed customs union to mitigate the disruptive effects for business and ensure manufacturing remains competitive and attractive for inward investment. In the interest of our members and the wider business community, while respecting the decision taken by the people in June 2016, we feel this is the best way forward.
“It’s as simple as this — there was no Canada deal before there was a Canada deal, and no Turkey deal before there was a Turkey deal. We must be ambitious in undertaking the most important negotiations this country has embarked on for decades and push for a bespoke solution.”
Allie Renison, author of the paper and Head of Europe and Trade Policy at the Institute of Directors, said:
“There are some important choices to be made about our future economic relationship with the EU, but sadly this debate has not fully come to fruition. Even now, 20 months on from the referendum, there is still much talk and much less action.
“It is crucial that this debate be focused on outcomes – something that both the Government and the EU would do well to remember. Inevitably every negotiation rests on a series of compromises, and our proposal could provide the foundation for one that would minimise disruption while ensuring the UK’s ability to pursue new opportunities.”
Customising Brexit - full report