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The Chequers Summit on a Future Customs Union

EU Membership on Barriers to Trade
Written by Graham Gudgin

The UK urgently needs to clarify what exactly it will ask for in terms of customs arrangements. The Government’s continuing preference for some type of customs union with the EU is unnecessary. A future outside a customs union but with a free trade agreement is a better alternative.

At Chequers tomorrow (July 5th) the Cabinet will make the latest, and hopefully final, attempt to decide what sort of customs arrangements the UK seeks with the EU.  The decision will determine much about Britain’s economic future including whether we will be able to strike new trade deals with the rest of the world. The Government wants a free-trade deal but has been unable to agree on what type of customs arrangements would operate alongside a tariff-free agreement.

Two proposals have on the table each with a working-group that, over recent weeks, has been examining their feasibility. The Customs Partnership would keep us in a customs union with the EU, and despite official denials would probably preclude future trade deals. It is also likely to tie the UK to EU regulations on products markets.    The alternative maximum facilitation or Max-Fac proposal would take the UK out of any customs union with the EU and instead deal with customs issues through a range of administrative reforms including electronic borders.

The Government is now has an, as yet undisclosed, third option. This will almost certainly be some version of its customs partnership perhaps applying only to good and not services. Once again this is an idea likely to preclude future trade deals despite Government denials and tie us into EU regulations. In any case the EU have already rejected the proposal.

The Max-Fac option is nearer to Theresa May’s promise to leave the Single Market and Customs Union but it faces two main problems which have up until now led her to favour the Customs Partnership scheme.

The first problem comes from the just-in-time manufacturers. Vehicle, aircraft and other manufacturers fear that their continuous flow of components will be disrupted by new and ponderous customs regulations. There is no problem at the majority of UK ports. The real issue is at the RoRo ports, and especially Dover, where there is little space to detain trucks for new customs checks. In principle, it is difficult to see why this difficulty cannot be easily resolved.

The UK has two proposals for doing so. One is to extend the existing trusted trader scheme under which consignments of frequent traders would rarely be checked. The other is to extend electronic customs surveillance including the well-established vehicle number-plate recognition technology, alongside the by now normal electronic customs clearance arrangements. Lack of space at Dover is not important.  A checking facility a few miles away will surely suffice for the one or two percent of lorries which are likely to undergo checks. As few as 100 lorries a day may require checks at Dover, and it is surely not beyond possibility that this can be facilitated. The real problem, as always, is whether the EU will reciprocate, in this case at French and Belgian ports.

The recent threat by Airbus to reduce investment at UK factories only partly reflects the customs issue. After all, its wings are flown out and one imagines that many components are flown in. The real issue is the safety certificates that all components require to be included in any aircraft. Certificates are currently issued by an EU agency and the threat is that new certificates would not be signed and existing ones rescinded. This would end UK aircraft production until an equivalent UK certification system was accepted across the world. One wonders why the Airbus complaint was not addressed to Brussels rather than London.

The second and less tractable problem is the Northern Ireland border where the Government has promised no infrastructure. The EU demands that Northern Ireland remains fully in the Customs Union and ignores its own agreement in last December’s Joint Progress Report that there can be no border between Northern Ireland and GB. The loose drafting of that Report leaves a wake of hostages to fortune. In paragraph 42 for instance the UK ‘recalls ‘it’s commitment’ not only to avoiding any infrastructure but also to avoiding ‘related checks or controls’. This is absurd drafting.  It appears to suggest that existing cameras and actions by customs officials to deter smuggling be discontinued. It also quite unnecessarily suggests that checks away from the border will not be permitted.

As luck will have it the EU has already moved decisively away from the December Agreement it signed by insisting on the Irish sea border explicitly ruled out in that document. This leaves the door open for the UK to also modify the language of the document.

It is possible to envisage a way forward on the Irish border without the UK remaining, at least temporarily, in a customs union as was suggested in the UK Government’s latest ‘Technical Note’. Three elements are involved. One is that the mobile phone technology, as advocated by the EU Parliament’s own expert, Lars Karlsson, be used to monitor border crossings by commercial enterprises. All commercial drivers already own phones which track their location and can locate borders (or indeed speed cameras or anything else). All that may be necessary is downloading a customs app and setting up the sort of control rooms that Network Rail, Uber and others already use. Scare stories that nationalist drivers will not comply are not plausible. Some evasion will occur, as it does at present, but an ability to track trucks strengthens the hand of the customs authorities.

Second is an undertaking by the Northern Ireland authorities to retain regulatory equivalence with the EU for a range of products including on animal health and food safety. This should not be difficult. Northern Ireland already claims higher than EU standards in much of its food industry and will need to maintain equivalence to continue exporting to the EU.

Thirdly, some controls at the Irish Sea will be necessary to control imports of animals, food etc.  into Northern Ireland. The DUP are not necessarily opposed to a ‘cordon sanitaire’ for the whole island as long as there is no possibility of creeping additions towards a full border and as long as its introduction does involve what can be seen as a constitutional change in the status of Northern Ireland. Lorries necessarily spend hours on the ferry crossings, giving a good opportunity for checks, as senior NI civil servants have suggested. Indeed, some such checks already exist.

These measures provide a good basis for a Max Fac solution to the Irish border issue. Remaining issues , including regular border crossings by local small traders and farmers, can be dealt within a free trade agreement. The UK is willing to provide customs exemptions in these cases, but even with ‘rules are the rules’ EU authorities there is wide latitude for what goes into an FTA.

 

Dr Graham Gudgin Judge Business School, University of Cambridge and Special Advisor to the First Minister, Northern Ireland, 1998-2002

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Graham Gudgin