Industry warns PM to rethink customs union exit

The surprise result of last month’s general election was swiftly followed by calls from the transport industry for the government to reconsider its approach to Brexit – specifically, its intention to depart from the EU’s customs union.

On the day the prime minister Theresa May saw her number of MPs cut to below the threshold required for a parliamentary majority, the Freight Transport Association (FTA) called for the new minority government to review its decision to leave the customs union, citing “confusion” as a result of the hung Parliament, and what it called “a lack of clear mandate from British voters”.

The customs union applies to all EU member states, and ensures that no customs duties or administrative controls are applied to goods travelling within its bounds – while a common external tariff is imposed on all goods entering the EU from elsewhere.

Mrs May had confirmed her government’s intention to leave the EU customs union earlier in the year, as a key tenet of her vision for Brexit – while both FTA and the Road Haulage Association (RHA) had stressed the importance of prioritising post-Brexit customs agreements in order to avoid hauliers having to face new bureaucracy and potential logjams at the border.

“This morning, UK exporters and importers are waking thinking, ‘What does the election result mean for Brexit, and the potential impact on my supply chains?’” said FTA deputy CEO James Hookham on 9 June.

“Exiting the customs union threatens the imposition of tariffs, border checks, customs declarations and huge amounts of bureaucracy for the significant number of UK businesses that trade in the EU, and the logistics organisations that deliver it for them.

“Negotiating a replacement trade deal that avoids these would require a strong and convincing mandate, which the election has now put into doubt.

“The importance of frictionless arrangements for UK trade with the EU, particularly with Ireland, means that the decision to leave the customs union should be reviewed as a matter of urgency, and other ways of achieving a positive outcome for Brexit should now be considered.”

He continued: “The delivery of a seamless trading process between Northern Ireland and the Republic of Ireland in particular has confounded even the best trade and legal experts, and needs to be an urgent priority for government.”

Meanwhile John Bruton, the former Irish Taoiseach, warned that if Britain was not in the customs union, tariffs would have to be collected on every HGV consignment crossing the Irish border.

“You would have to know exactly what’s inside the lorry,” he told BBC Radio 4’s World at One programme in June.

“And there will have to be checks somewhere, which means stopping and opening the lorries… For anybody who is doing business… that is going to make the business much less competitive. It is going to adversely affect jobs.”

While Northern Ireland’s Democratic Unionist Party (DUP) has pledged its support for the government over Brexit as part of its so-called confidence and supply agreement, the tight arithmetic of the new Parliament means that Mrs May could face pressure from elements of a strengthened Labour Party for concessions over the customs union – as well as from smaller parties such as the Liberal Democrats and Scottish National Party, and her own pro-EU backbenchers.

It had also been suggested that senior cabinet ministers, including the chancellor Philip Hammond, favour a ‘softer’ Brexit, including in the area of customs.

Mr Hammond later told the BBC that leaving the customs union was an inevitable consequence of Brexit, but added: “The question is what do we put in its place in order to [avoid] a hard land border in Ireland and [enable] British goods to flow freely backwards and forwards across the border with the European Union.”

There are precedents for non-EU jurisdictions benefiting from the customs union. The principality of Monaco, and some of the UK’s own dependencies – namely, the Channel Islands, the Isle of Man, and the British sovereign base areas on Cyprus – are integral parts of the EU’s customs territory, but not part of the EU proper.

But these are all micro-jurisdictions with close ties to member states, and it is not yet clear whether Europe would welcome a scenario whereby the metropolitan UK would depart the both the EU and single market, but remain within the customs union.

Such an arrangement would very likely come with strings attached – such as a fee, restrictions on free trade agreements with other nations, and/or continued jurisdiction of the European courts on trade matters.

A further option would be a separate bilateral customs agreement between the EU and the UK, such as the arrangement which currently exists between Turkey and the EU. But this may not result in comprehensive freedom from customs regulations for all types of goods.

Meanwhile calls for a transitional customs arrangement post-Brexit are also gaining traction –  including from the RHA, which raised concerns about the risks Brexit could pose at ports when it appeared before the Welsh Assembly external affairs committee in June.

The RHA warned of a “serious risk to supply chains if customs processes fail to meet the needs of the ro-ro based haulage sector”.

“If we get this wrong, supply chains will be paralysed at our ro-ro ports,” said Duncan Buchanan, RHA deputy policy director.

“People will notice the lorry queues and will see empty spaces in the supermarket, unless we get this right.”

He continued: “We do not believe that customs and business will be ready by 30 March 2019.

“We are therefore calling on the government to negotiate for a period after Brexit where goods will still be able to move between the EU and the UK without customs control – this period is needed to set up the systems that will allow goods to move without delay through our ro-ro ports, the Channel Tunnel and over the Irish land border.”