Putting the Cart before the Horse: what’s missing from the UK’s Customs Paper

The UK Government has published its anticipated ‘partnership paper’ on a future customs arrangement with the European Union. Much of the paper is a statement of generalities about the Government’s commitment to, and aspirations for, free trade notwithstanding the UK’s decision to detach itself from its principal trading party, its Single Market and its Customs Union. Indeed, the first line of the paper’s ‘executive summary’ states in clear terms that when the UK withdraws from the EU it will leave the Customs Union. To underline the point, the paper repeatedly states that whatever future customs arrangement the UK agrees with the EU, ‘the UK would seek to pursue its independent trade policy objectives’. Given that membership of a Customs Union means that member countries align their trade policies and apply a common external tariff, this would be incompatible with what appears to be the prime directive of government policy, namely the pursuit of an independent trade policy.

At the core of the paper are two principal options for future customs arrangements.

The first option would be to adapt existing procedures for handling the movement of non-EU goods within the EU (and also EFTA states) to now include good originating in the UK or imported into or transiting through the UK. Sensibly, the paper reflects the significant improvements which have been made over the years to streamline formalities and to use technologies like the New Computerised Transit System (NCTS) to avoid the need physically to present goods at customs offices for customs clearance. Significantly it also points to membership of the Common Transit Convention which manages the procedure for the transit of goods (EU and non-EU)  not just through the EU but also other countries that are parties to the Convention (Article 15a would allow the UK to accede to that Convention). What is vital about this model is that it tells us virtually nothing about the underlying regimes that would apply to goods in the UK and the EU in respect of (1) applicable tariffs (2) taxes (3) other charges including any relevant anti-dumping measures and (4) regulatory standards including health and safety requirements. This is all about trade facilitation between the EU and the UK as a new non-EU state at an administrative level rather than at a regulatory level (see para 38 of the paper).

The second option is some sort of new customs partnership that fall shorts of the existing Customs Union. This could see the UK effectively acting as the agent of the EU in applying the EU’s external trade policy (including ensuring that applicable EU tariffs were paid) for goods entering the EU via the UK. For goods destined for the UK, the UK would apply its own trade policy including applicable tariffs. But what remains unclear is what tariffs would be applicable for goods that are placed on the UK market but then sold onto the EU market. All of which depends on whether there is a trade agreement between the UK and the EU and, if not, what limitations WTO rules might impose. In other words, this puts the cart before the horse: we don’t know what the customs side should look like until we see what the trade (and other regulatory) terms will be.

The UK has also set out its proposals for a time-limited ‘interim arrangement’ pending agreement on a future customs and trade deal. It envisages a ‘new’ customs union with a shared external tariff. There would need to be a mechanism for apportioning how this tariff would be paid to the UK and EU respectively. But the major difficulty would be how to reconcile this new customs union with the Government’s ambitious trade policy agenda. The paper attempts to square the circle by stating that while it would ‘pursue new trade negotiations’ it would not bring into effect any new arrangements that were not consistent with the interim deal with the EU. However, in practice, the UK will need to settle its future trade relationship with the EU before it can realistically hope to come to arrangements with other non-EU states. The result would be that the UK would have left the Customs Union only to replicate it but with all the uncertainty over whether any future trade deal with the EU – and on what terms – could be agreed.

Meanwhile the issue of the border with Northern Ireland depends not just on smoothing the formalities of customs administration but also, again, on knowing what the future trading relationship between the UK and the EU will be. And as long as Government policy is overshadowed by a focus on trade deals outside the EU and insufficiently attentive to how the UK will trade with the EU, these key issues will remain unresolved, heightening economic uncertainty.

Much more flesh needs to be put on the bones of Government policy on future customs and trade policies. But whether or not we get to that point still depends on UK-EU negotiations making sufficient progress on other issues including citizens’ rights and settlement of the UK’s financial obligations to the EU: a point made clear in a tweet from Michel Barnier within hours of the publication of the UK’s paper.