Brexit: Customs and Regulatory Arrangements
This paper considers the proposals the UK Government has made to satisfy the simultaneous objectives to leave the EU Customs Union, but have a cooperative ‘customs arrangement’ following Brexit; and to leave the Single Market, but maintain trade that is ‘as frictionless as possible’ following Brexit. These proposals have to navigate the EU’s ‘red lines’, primarily the ones that preclude sectoral agreements (or ‘cherry-picking’), and that guarantee an invisible land border between Northern Ireland and Ireland.
Update 13 July 2018: The Government published a White Paper on Brexit on 12 July 2018. This is summarised in Box 2 of this note. Please note that the rest of the paper has not yet been updated to take account of the White Paper.
Customs Arrangements
The Government’s position is that the UK will leave the EU’s Customs Union after Brexit. The BBC reported a Downing Street source as saying "We will not be staying in the customs union or joining a customs union". This is in line with the Prime Minister’s Mansion House speech where she said that being in a customs union with the EU "would not be compatible with a meaningful independent trade policy."
Labour has said that it "would seek to negotiate a new comprehensive UK-EU customs union to ensure that there are no tariffs with Europe and to help avoid any need for a hard border in Northern Ireland." This would be subject to certain conditions including that the UK have a say in EU trade deals and assurances on, for example, EU state aid and public procurement policies.
The UK government has put forward three options for post-Brexit 'customs arrangements', all of which are intended to preclude border controls for customs purposes. The first of these is known as the 'maximum facilitation' ('Max Fac') solution and involves the use of technology to avoid delays, checks, and infrastructure at UK-EU borders. The second is known as the Customs Partnership, and would require the UK applying the EU's tariffs at its own external borders and refunding those traders whose goods do not progress beyond the UK into the EU in cases where the UK's own future tariffs are lower than the EU's. The most recent proposal, sent to the EU on 7 June 2018, suggests the entire UK remaining in the EU’s customs union until an alternative solution can be found to keeping the Irish land border open. One final option, rejected by the UK government to date, is to set up a separate Customs Union with the EU following Brexit (as opposed to being members of the EU Customs Union).
Regulatory Arrangements
Border checks will also arise when the UK exits the EU's Single Market, to ensure that products crossing the UK-EU border meet EU regulatory standards. Instead of staying in the Single Market, the UK proposes that the EU and the UK in future recognise each other's regulations, as long as those regulations achieve the same outcomes.
Progress in the NegotiationsAt the time of writing, the EU has explicitly rejected ‘Max Fac’ and the current draft of the ‘Customs Partnership’ idea, and initial EU reactions to the ‘UK-wide customs union’ proposal have also flagged up a number of problems. The EU’s response to ‘outcome alignment’ has been less direct, but the proposal clashes with a number of ‘red lines’ that the EU has maintained throughout the negotiations, such as integrity of the Single Market and protecting the role of the Court of Justice of the EU (CJEU).
An agreed position on customs and regulatory arrangements is not only desirable for the future partnership, but is needed for the conclusion of a Withdrawal Agreement: without agreed customs and regulatory arrangements, it will not be possible to meet the commitments made in the December Joint Report concluding Phase 1 of the negotiations – particularly vis-à-vis avoiding a hard border between Northern Ireland and Ireland.