Broadly speaking, there are three options on the table for the UK's future customs relationship with Europe, which businesses now need to consider.
The UK’s customs relationship with the European Union has risen to the top of the Government’s Brexit agenda, and has been the subject of a recent House of Commons debate and ongoing Cabinet discussions.
Questioning the UK’s position within the Customs Union has far reaching implications for UK businesses, including the impact of movement of goods between the UK and the EU, the UK’s ability to negotiate its own trade deals and the potential threat to the open border between Northern Ireland and the Republic of Ireland.
What options are available to the UK?
There are currently three proposals on the table: remaining inside the Customs Union, negotiating a new customs union which retains some aspects of the current Customs Union, or withdrawing from the Customs Union entirely.
Remaining inside the EU Customs Union will be the least disruptive. UK businesses would avoid having to adjust to any new customs rules, and cross-border trade would be unaffected. Ireland would continue to operate an open border between Northern Ireland and the Republic. However, this option has been ruled out by government, with critics arguing that it would prevent the UK from striking its own international trade deals.
The second option is to negotiate a new customs arrangement with the EU. The Cabinet is currently deliberating over whether this would take the form of a customs partnership or a ‘highly streamlined’ customs arrangement.
A customs partnership, the model currently favoured by the Prime Minister, would involve the UK passing on tariffs collected on the EU’s behalf, on goods destined for Europe that come into the UK from the rest of the world. New systems, possibly aided by technology, would need to be established. It would mean that customs checks at UK-EU borders would not be necessary; resulting in no material change on customs for businesses, and no requirement for physical checks on the Irish border.
A ‘highly streamlined’ customs arrangement would seek to minimise customs checks, without removing them completely. Proponents believe that this could be achieved by using technology, like trusted trader schemes, simplifying customs duty payments for some businesses. Here the UK would retain a degree of customs alignment with the EU, whilst allowing it to strike its own international trade deals.
This would be a significant change for businesses, which would inevitably increase costs for cross-border traders. It would also probably mean a physical border in Northern Ireland.
Finally, the UK could withdraw from the Customs Union entirely. In this scenario, the UK would default to World Trade Organisation customs and tariff rules, which would have a highly disruptive effect on business and trade and necessitate a physical border in Northern Ireland. If an alternative deal cannot be reached on Brexit day, this option could become a reality.