Customs union: The facts

Author (Corporate)
Publication Date 26/04/2018
Content Type


A further series of EU-UK Article 50 Negotiations took place between officials in Brussels, 6-9 February 2018, preceded on the 5 February 2018 by a working meeting in London between Michel Barnier, the EU’s chief Brexit negotiator and Brexit secretary, David Davis.

During the same week the UK Prime Minister Theresa May held meetings of senior Cabinet Ministers within the Brexit Sub-Committee on the 7 and 8 February 2018 to attempt to try and agree on a UK proposal for of a final deal with the EU that could keep a divided Conservative Party together. News sources quoted on the 5 February 2018 said that a Downing Street spokesman had made clear that the UK would leave the EU customs union after Brexit. However, commentators noted that this might not preclude an agreement on some form of special customs arrangements.

Michel Barnier said in London on the 5 February 2018 in this context: 'our future partnership between the UK and the EU. On that point we need also clarity about the UK's proposals for the future partnership. The only thing I can say now is that without a customs union - and being outside the Single Market - barriers to trade and goods and services are unavoidable. The time has come to make a choice'.

Brexit and UK business

While there were those in the UK business and economic world who strongly supported the UK leaving the European Union (see for example the campaigning group Economists for Free Trade), the majority of the representative business organisations in the UK would have preferred the UK to stay in as a full member of the EU.

However, in accepting the outcome of the June 2016 referendum, business organisations such as the Confederation of British Industry, British Chambers of Commerce and the The Manufacturers' Organisation (EEF) all urged for a carefully negotiated future very close trading and regulatory arrangement with the EU after the UK left the EU.

Following the inconclusive results of the United Kingdom General Election on the 8 June 2017 there were calls by UK business representative organisations the Confederation of British Industry (CBI) and The Manufacturers' Organisation (EEF)for a resetting of the UK Government's Brexit negotiating strategy.

Terry Scuoler, Chief Executive of EEF, the manufacturers’ organisation, said: 'The Brexit negotiating strategy requires a careful rethink. Industry should be at the table, alongside whatever administration is formed, to help ensure we have the right negotiating position, which is something that's been sadly lacking until now'.

CBI Director-General Carolyn Fairbairn wrote in an FT article 'For the sake of our economy and the prosperity of our regions, it is time to change tack. This election has shown that forward-looking and positive positioning is welcome. We now have the opportunity to reset — a reset that prioritises prosperity and will be appreciated by voters and businesses across Europe, because it will result in a better deal'.

David Davis, the Secretary of State for Exiting the European Union, held a Brexit Taskforce meeting with representatives of the major UK business organisations at Chevening on the 7 July 2017 to hear the concerns of the business community.

Prior to that on the 6 July 2017 the CBI presented a Briefing called Staying in the EU single market and a customs union until a new deal is in force.

In the Briefing the CBI said 'The complexity of the task of negotiating a free trade deal between the UK and the EU cannot be underestimated. The UK and the EU have a deep relationship, built on 40 years of economic integration. Reflecting that will require both parties to commit to seeking the most ambitious free trade deal ever signed. There is a real possibility that – with the best political will in the world – that deal will not be agreed, ratified and in force by the deadline provided by Article 50.

To provide the certainty that businesses need, transitional arrangements will be required. As far as possible, those transitional arrangements should replicate as much of the economic relationship that is in place between the UK and the EU at the moment. The simplest way of achieving that would be for negotiators to agree that the UK should remain in the single market and a customs union until a new deal is in force. Agreement of this would secure continuity for business operations, protect ease of trade between the UK and the EU, and give negotiators the time they need to make Brexit a success for both sides'.

Also attending the Chevening meeting on the 7 July 2017 the British Chambers of Commerce called 'on the UK government to put British business and economic considerations first in the on-going Brexit negotiations'.

The Institute of Directors (IoD) in August 2017 issued a report called Transitioning from Brexit – not just semantics.

The report revealed what steps the government should take in a transitional period after leaving the EU and the implications for British business.

PM meeting with European Business Organisations, November 2017

United Kingdom Prime Minister Theresa May chaired a roundtable with leaders of Europe’s key business organisations at Downing Street on the 13 November 2017.

The Prime Minister reassured the group that Brexit meant the UK was leaving the EU, not Europe and reiterated her ambition for free and frictionless trade with the EU27 once the UK departs. She also expressed her commitment to giving businesses the certainty they needby agreeing a time-limited implementation period as soon as possible.

In their joint statement issued after the meeting BusinessEurope (the representative organisation for business in Europe) and the Confederation of British Industry (CBI) said that they had discussed the importance of positive progress in the UK-EU negotiations; the need for urgent agreement on a ‘status quo’ transition; and beginning discussions on a future economic relationship that drew on existing close economic ties.

Commenting after the meeting, Carolyn Fairbairn, CBI Director-General, said: 'With UK-EU trade worth more than €600bn each year, business groups from across Europe used today’s meeting with the Prime Minister as a welcome opportunity to highlight the mutual importance of seeing real progress before Christmas. All business organisations present reiterated the damage a ‘no-deal’ scenario would do to trade. 'A transition period reflecting the current arrangements remains the priority on both sides of the Channel'.

Business organisations represented at the meeting on the 13 November 2017 were:

+ CBI (UK)
+ Institute of Directors (UK)
+ BusinessEurope (EU)
+ European Services Forum (EU)
+ BDI (Germany)
+ BDA (Germany)
+ MEDEF (France)
+ Confindustria (Italy)
+ CEOE (Spain)
+ VNO-NCW (Netherlands)
+ Ibec (Ireland)
+ Confederation of Swedish Enterprise (Sweden)
+ Polish Confederation of Private Employers (Lewiatan)
+ Confederation of Industry of the Czech Republic, SPCR (Czech Republic)
+ VBO/FEB (Belgium)

Open letter to business on Implementation Period, January 2018

The United Kingdom Secretary of State for Exiting the EU, David Davis, Chancellor Philip Hammond, and Business Secretary Greg Clark wrote to businesses on the 26 January 2018 setting out the UK’s ambitions for an implementation period following Brexit.

In the joint letter, the three Cabinet Ministers outlined the Government’s commitment to providing businesses with the certainty and clarity they needed to plan ahead.

The speech followed a speech given by David Davis on the 26 January 2018 in which he had said that to smooth the path to a new relationship with the European Union after Brexit there would need to be a strictly time limited implementation period (transition phase).

Conservative Party divisions over Brexit had resurfaced during the previous week following reported comments by Chancellor of the Exchequer Philip Hammond to British business leaders at the CBI's lunch in Davos on the 25 January 2018 when he had said 'We are taking two completely interconnected and aligned economies with high levels of trade between them, and selectively, moving them, hopefully very modestly, apart'.

Brexiteers in the Conservative Party disagreed with this interpretation - Jacob Rees-Mogg, chairman of the European Research Group of Tory MPs, said that 'close alignment' with the EU after Brexit would be unacceptable. He said that the approach suggested by the ministers in the joint letter would lead to 'Brexit in name only'.

The difficulty for the divided Conservative Government in reaching an agreement on the detail of a future trading relationship with the EU continued during February 2018. On the 7 February 2018 Francis Martin, President of the British Chambers of Commerce (BCC) and Adam Marshall, the BCC’s Director General, wrote an open letter to Prime Minister Theresa May, making an urgent appeal for clarity on the government’s objectives.

The BCC’s leaders urged the government to make key choices and deliver a clear statement of intent – so that businesses of all sizes and sectors could make decisions for the future.

Subsequent developments

During the Report Stage in the House of Lords of the European Union (Withdrawal) Bill, the government was defeated on the 18 April 2018 on a proposed amendment introduced by Lord Kerr to keep the UK in a customs union when it left the EU.

Those backing it were concerned that leaving the customs union would mean a fall in UK exports and argued it would be difficult for the UK on its own to make trade agreements with super powers.

Members against the amendment responded saying that being inside the EU customs union puts the UK at a disadvantage and supporters of staying in it were making a political point rather than one based on trade. Members for the change said they were trying to get the best Brexit deal for the UK and its future relationship with the EU, not undo Brexit.

The government said it would not accept the change, arguing that staying in the customs union would make the UK bound by the EU’s tariffs and in a worse trade position.

A group of senior anti-Brexit MPs from various political parties from the Liaison Committee of MPs brought forward a non-binding Motion to the House of Commons on the 26 April 2018:

That this House notes that the EU is the UK’s largest export market for goods, accounting for a total of £145bn of exports and £241bn of imports in 2016; further notes the Government’s expressed aim to secure the freest and most frictionless possible trade in goods between the UK and the EU after 29 March 2019; notes the importance of frictionless trade without tariffs, customs or border checks for manufacturers and businesses across the country who trade with the EU; further notes that the free circulation of goods on the island of Ireland is a consequence of the UK’s and Republic of Ireland’s membership of the EU Customs Union; in addition notes the Government’s commitment to (i) in the UK-EU joint report on progress during phase 1 of the Article 50 negotiations, the maintenance of North-South cooperation and the all-island economy on the island of Ireland, (ii) the Belfast Agreement implemented in the Northern Ireland Act 1998 remaining a fundamental principle of public policy and (iii) the continuation of unfettered access for Northern Ireland’s businesses to the whole of the UK internal market; and therefore calls on the Government to include as an objective in negotiations on the future relationship between the UK and the EU the establishment of an effective customs union between the two territories.

However, to forestall this a Downing Street spokesperson on the 23 April 2018 made clear that 'We will not be staying in the customs union or joining a customs union'.

Ministers within the Brexit sub-group of the Cabinet were due to clarify what the UK would seek on the 2 May 2018. UK Prime Minister Theresa May had said that the UK would seek a 'customs partnership' with the EU.

The Confederation of British Industry (CBI) published a report called Customs union: The facts in February 2018 as the United Kingdom government attempted to come to an agreement amongst the cabinet as to the nature of the UK position in the ongoing negotiations with the EU as to the detail of future trading relationships with the EU during both the implementation phase of Brexit (after March 2019 - December 2020) and after.

The CBI said that as the UK left the EU, the Government would need to make a number of tough choices. What happened with a customs union was just one of them. Policy makers would make better decisions if guided by evidence, not ideology.

Key points for UK business were:

+ Frictionless trade with the EU was businesses’ number one priority
+ Hardening of the Irish border was not an option for business
+ Trade was about far more than trade deals
+ Proposals put forward by the Government so far would not deliver frictionless trade and/or would harden the Irish border
+ Alongside a deep relationship with the single market, a customs union must be on the negotiating table

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Related Links
Blog: LSE EuroppBlog, 26.01.18: The UK needs to clarify what ‘full regulatory alignment’ means before the next phase of the Brexit talks
ESO: In Focus: Brexit - The United Kingdom and the European Union
European Commission: Taxation and Customs Union: Business: Calculation of customs duties: Rules of Origin: Customs unions
The Guardian, 06.02.18: [Opinion]: The EU customs union works. But clearly, the government does not
BBC News, 05.02.18: Trade barriers 'unavoidable' outside customs union, says EU's Barnier
Institute for Government: Comment, 28.07.16: Leaving the EU Customs Union: what is involved?
Politico, 05.02.18: UK rules out customs union after Brexit
Lawyers for Britain: Staying in the EU Customs Union after exit (nd)
The Spectator, 07.02.18 [Blog]: What the papers say: A customs union is the least worst Brexit option
ESO: Find further information on Brexit and Customs Union
BBC News, 07.02.18: Customs union and Brexit: The, a, or c?
UK: GOV.UK: HM Treasury: Speech, 22.05.18: Chancellor speech: CBI Annual Dinner 2018
The Telegraph, 25.04.18: A simple guide to the customs union and its impact on Brexit
ESO: Key source: Customs Union
The Conversation, 26.04.18: A customs union would free the UK to strike trade deals – but it doesn’t solve every Brexit problem
Senior European Experts: Papers, February 2017: The UK and the EU Customs Union: Issues & Questions

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