Brexit and the Customs Union: A glimpse of the Government’s end-state?
By Paul McGrade, Lexington’s Senior Counsel on Brexit
The former joint chief of staff to Theresa May, Nick Timothy has written an article in today’s Daily Telegraph arguing that the UK faces a range of policy risks unless it leaves the EU Customs Union. He argues instead for a close customs partnership with the EU, technology, and business-led administrative streamlining to lighten the burden of customs friction after the UK leaves.
The article is perhaps the clearest description yet of what many will assume, given Nick Timothy’s closeness to the Prime Minister, to be the emerging government policy on customs arrangements post-Brexit. It is consistent with what Theresa May has said before – ruling out any comprehensive customs union with the EU and prioritising the freedom to negotiate the UK’s own trade deals – but goes further than current government policy. In particular, and without naming the Treasury, Timothy attacks the view that the UK should stay in a ‘customs union for goods’ to maintain frictionless trade in goods with the EU.
The article rules out membership of the EU Customs Union in any form on the grounds of control, rather than economics. Timothy argues that, inside the Customs Union, the UK would be bound by EU-negotiated trade deals which might not prioritise services (the bulk of the UK’s economy) adequately, or cause problems for distinctive UK policies such as the NHS. Timothy suggests – against the views of almost all trade economists – that the UK will be able to negotiate better access to services in fast-growing markets such as China than the EU would.
Timothy tackles head-on the fundamental trade question for a post-Brexit UK: how to increase trade with fast-growing economies without disrupting our pan-European trade and supply chains. In fact, Timothy implicitly accepts that customs friction – and therefore costs for business – will increase. His answer to minimise friction is:
- a close customs partnership including cooperation on some customs procedures to reduce border friction;
- a hope that EU, out of economic self-interest, won’t significantly increase customs barriers once the UK leaves (he does not address the EU’s enforcement concerns on the UK leaving ECJ jurisdiction, and potentially diverging from EU rules);
- an emphasis on technology to reduce customs friction; and
- business ‘pre-clearing’ new customs checks e.g. trusted trader schemes.
Significantly, Timothy appears to recognise that there is no way to prevent a UK-Ireland border if the UK is outside the Customs Union. He suggests that devolving more decision-making to Northern Ireland (whose Assembly and Executive are currently suspended) is the way forward.
Overall, Timothy prioritises political control over frictionless trade. This proposal would almost certainly create somewhat greater customs friction for British business than the Norwegians, for example, currently experience. A survey of Swedish businesses recently identified customs checks as the biggest single barrier to trade with Norway.
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