Brexit: the future of customs

As you will no doubt be aware, one of the crucial negotiations in the Brexit process relates to the issue of customs and borders, import and export tariffs between the UK, the EU and the rest of the world.

In January 2017, Theresa May announced in a speech that the Government was not looking to retain membership of the European Union’s Single Market or the customs union.

As the House of Commons Library helpfully set outs here.

On 17 January 2017, the Prime Minister, Theresa May, made a speech at Lancaster House outlining the Government’s position on the UK’s future once it leaves the European Union:

The European Union is the most comprehensive functioning customs union in the global economy. This extends into the single market, which provides further harmonisation of standards to facilitate the four freedoms: freedom of movement of goods, capital, services and people. However, a number of other customs unions operate outside of the EU, examples include the Caribbean Community (CARICOM).’

Politicians and members of the public are divided on their views on the future of the customs union. There are those who want us to stay in as we are now and there are those who want absolutely nothing to do with it. 

However, in the complexities of the Brexit negotiations, a solution needs to be found and two options are coming to the forefront - the ‘Hybrid or Partnership Option’ and ‘Maximum Facilitation or Max-Fac’.
Earlier this week I attended a briefing in Number 10 with the Prime Minister where she set out the two options, filling in more of the technical details of each one. The key requirements of whichever option we take is that we: 

  1. maintain a soft border between Northern and Southern Ireland,  
  2. experience as frictionless trade with the EU as possible and,  
  3. enable businesses in the UK to strike trade deals independently with countries around the world and also with EU countries. 

Hybrid Option

In this option we leave the EU’s customs union but put in place an alternative arrangement for partnership with the EU.

Where goods arrive in the UK on their way to the EU, the UK would collect the EU’s tariff on their behalf. A variation on this theme is that businesses would pay either the EU or UK tariff (whichever is higher) and then claim a refund of the difference. This would require significant new IT systems to be developed and implemented and it is unknown as to how this would affect goods coming into the UK from the EU.

Maximum Facilitation or Max-Fac Option

Under this proposal, we would maintain some level of customs border but it would be as frictionless as possible in its operation. Ultimately, it would harness technology to remove the need for physical customs checks on borders, essentially collecting the tariffs away from the border therefore enabling easier trade. 

Neither solution is seen to be perfect and as recently reported in the media, there is Cabinet division over which solution to pick. As a result, Mrs May has recently set up two Working Groups to look at each option from within the Cabinet.

Where we stand now

Unsurprising the EU has said it is not keen on either option. The Government knows that is has to solve the problem and reach a unanimous decision before the next EU summit at the end of June where our leaders need to be able to demonstrate significant progress on the issues.

If for some reason the Government is unable to reach a decision, Parliament may have to vote on whether or not we remain in the customs union. If the result was a vote to emain in the customs union, we would therefore be undermining one of the main perceived benefits of Brexit. No a positive position to find ourselves in.

Whilst I appreciate is all sounds very muddled, we must remember that whatever the outcome, we are breaking new ground and trying to create a new customs model - something which has never been done anywhere else in the world. It is hardly surprising it’s taking a while to work out the right route.

I remain optimistic that we can find a workable solution which hits all the requirements we’re looking for whilst also staying within the main timescale - namely leaving the EU on 29th March 2019 with the transitional period taking place up until 31st December 2020.

IF you'd like to read more, this BBC Reality Check article is helpful.