-A new idea; temporary customs union
There is no doubt that full access to the European market is of key importance to the U.K. after leaving the European Union. For some observers, the U.K has two options, retain access to the EU or trade on the tariffs and duties of the World Trade Organization (WTO). However, it is not so easy for the U.K to secure the current advantages it holds as an EU member of the single zone.
Ultimately, the WTO option is not one that the U.K. would want to follow. According to an analysis by The Economist published in January, “Britain is already a member of the WTO. However, when negotiating trade deals and the like, it operates through the EU. To become a fully independent member, Britain would need to have its own ‘schedules’ - WTO-speak for the list of tariffs and quotas that it would apply to other countries. In theory, it would not be too difficult for Britain to acquire its own schedules. Under a so-called ‘rectification,’ the British government would simply cross out ‘EU’ at the top of the page and write ‘United Kingdom’ instead. But doing more than this would be difficult. Imagine that Britain decided that it wanted to boost support for its farmers by raising tariffs on farm products (perhaps they had lost out from reduced EU funding).”
Nonetheless, important news was released last night reporting that the U.K. has set out “ambitious new customs arrangement” which could include “temporary customs union” after Brexit. Although the final document setting out the details of the plan has not been published yet, this is a new approach for the U.K. and could help in giving more clarity to U.K. businesses that have been experiencing uncertainty.
According to The Guardian newspaper, in a round of broadcast interviews, the Brexit Secretary David Davis confirmed the government would use a position paper published on Tuesday to propose a “shortish” period for a deal allowing the transit of goods across borders to continue under a temporary customs union. He said that such an arrangement would be in the common interests of the U.K. and Europe.
“We sell them about €230 billion of goods and services a year. They sell us €290 billion,” Davis told ITV’s Good Morning Britain.
In response to whether the U.K. would have to pay to stay in the customs union, Davis said, “What happens in that sort of interim period you will have to leave me to negotiate, I’m afraid. But the aim is to bring to an end these £10 billion-a-year payments.”
In this regard, the U.K wants to develop a plan that would lure Brussels to the table in which negotiations would mainly focus on the price of remaining in the customs union for a while. However, reactions from Germany and France would carry great weight to understand whether this could be a temporary deal. There is no doubt that France, in particular, over the past year has been inviting London-based financial corporations to move to Paris. Consequently, the desire to set up a global financial center there to replace London might cause France to block negotiations on this matter. It will be important to see the details of the “temporary custom union plan” and to also gauge the reactions of European leaders. Nonetheless, the U.K.’s more constructive approach will be welcomed by the City of London and businesses in the U.K.