Free Trade Agreement or Single Market and Customs Union? What the parties say and what it means

Martin Howe is a leading barrister in the fields of intellectual property and EU law. He was called to the bar in 1978 and became a QC in 1996. He is Chairman of Lawyers for Britain.

Brexit is happening, but the big question now is: “What kind of Brexit?” In the election campaign, the biggest differences between the political parties on Brexit are their ideas about what sort of relationship the UK should seek with the EU after Brexit.  Should we seek to stay in the EU’s Customs Union and/or its Single Market, as Labour and other parties propose, or instead seek a wide and deep Free Trade Agreement as the Conservatives propose?

There are clear and very important differences between these kinds of arrangements, which profoundly affect the future of the country.  But these differences are not well understood by the public, by parts of the media – and indeed, we suspect, by a number of politicians who are expressing views on the subject. So I hope that this guide will help public understanding of the pros and cons of the different arrangements and allow voters to make an informed choice.

The EU Customs Union – staying in after exit

The choice offered by the manifestos is between seeking to stay in the EU Customs Union or, on the other hand, seeking a Free Trade Agreement with the EU. Either alternative would result in there being no tariffs levied on goods exported from the UK into the EU or on EU goods exported to the UK. So, understandably, many people are not able to say what the difference is between these alternatives and therefore what the pros and cons of these alternatives are.

In fact, although both solutions lead to the end result of zero tariffs on trade between the UK and EU, they achieve this by different mechanisms. The Customs Union approach dispenses with customs controls at the internal borders within the customs union, but can only achieve this by requiring every member of the customs union rigidly to apply the identical tariffs and the identical non-tariff customs controls on imports from outside the customs union. This means that the UK would not be free to set its own tariffs at levels which suit our own economy and trading interests, but would have to implement across the board a tariff schedule set for the benefit of EU industries: for example, we would be required to impose a 16% tariff on oranges in order to protect the interests of Spanish orange growers. Further and even more importantly, continued membership of the EU customs union would prevent the UK from entering into its own trade agreements after Brexit, because we would be prohibited from offering the tariff reductions or zero tariffs which are an essential part of any trade deal.

On the other hand, a Free Trade Agreement operates by granting zero tariffs to goods which originate within the parties to the FTA. But to do so it is necessary to operate customs controls at the internal borders between the members of the FTA in order to check that the goods do originate within the FTA member and so are entitled to the zero-tariff concession. Otherwise an importer could channel goods from the rest of the world via the FTA member with the lowest external tariffs and then circulate them across internal borders within the FTA. It can be seen that customs controls at the internal borders of an FTA are a necessary consequence of the freedom which an FTA gives to its members to operate independent trade policies with regard to external countries.

So the basic choice offered is between customs union membership, which prevents trade agreements with outside states and would require the UK to follow and apply EU tariffs upon which it would have no vote and which would not be set in the UK’s interests, and a Free Trade Agreement which would involve some form of customs controls between the UK and the EU. However, customs controls do not necessarily require old-fashioned physical customs posts staffed by customs officers in peaked caps rummaging through consignments of imported goods. There are a number of ideas for “frictionless” and “virtual” borders involving electronic clearance of goods which have been developed for example at the Sweden-Norway and USA-Canada land borders – both instances where the parties are in an FTA but not in a customs union. These ideas are particularly relevant to the strong desire on all sides to avoid physical customs controls on the Northern Ireland-Irish Republic land border.

Quite apart from economic questions, continued membership of the EU Customs Union would have impose serious legal and constitutional restrictions on the UK as compared with an FTA. These are:

  1. As a member of the EU Customs Union, the UK would be obliged to operate a system of external tariffs according to the Common Customs Tariff decided by the EU, and would be obliged to follow all future changes made to the Common Tariff, while not having a vote on those changes.
  1. The UK would not be allowed to enter in to trade agreements involving reduced or zero tariffs with non-Member countries, which would make it impossible to conclude meaningful trade agreements. The UK would also be effectively obliged to follow the terms of trade agreements reached by the EU with non-Member countries or blocs, without having a vote on those agreements or on how they are negotiated. It is hard to see
    1. what useful purpose would be served by having a Department of International Trade.
    1. The UK would be obliged, either directly or via an indirect mechanism similar to that of the EFTA Court under the EEA Agreement, to continue to be bound by past and future decisions of the ECJ on the interpretation of the common rules of the customs union.
    1. If the continuing customs union with the EU extends to non-tariff customs controls (such as certification of compliance with technical or safety standards, health requirements for food, etc.) the UK would be obliged to follow the EU’s future rule changes on all these matters as well as interpretations of the rules by the ECJ.
    1. Having to follow the EU’s common rules on such non-tariff customs controls would (1) mean that the UK would be unable to negotiate changes to such controls with non-Member countries in order to facilitate trade with them and (2) make it in practice very difficult indeed for the UK to change its own rules for goods in its domestic market to differ from those applicable to imported goods under the Customs union common rules.
    1. Trading with the EU after exit under a Free Trade Agreement (FTA) would not entail tariffs
        1. what useful purpose would be served by having a Department of International Trade.
        1. The UK would be obliged, either directly or via an indirect mechanism similar to that of the EFTA Court under the EEA Agreement, to continue to be bound by past and future decisions of the ECJ on the interpretation of the common rules of the customs union.
      1. If the continuing customs union with the EU extends to non-tariff customs controls (such as certification of compliance with technical or safety standards, health requirements for food, etc.) the UK would be obliged to follow the EU’s future rule changes on all these matters as well as interpretations of the rules by the ECJ.
    1. Having to follow the EU’s common rules on such non-tariff customs controls would (1) mean that the UK would be unable to negotiate changes to such controls with non-Member countries in order to facilitate trade with them and (2) make it in practice very difficult indeed for the UK to change its own rules for goods in its domestic market to differ from those applicable to imported goods under the Customs union common rules.
    2.  Trading with the EU after exit under a Free Trade Agreement (FTA) would not entail tariffs

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