UK proposes interim customs union post-Brexit

In a Brexit policy paper released Tuesday, the U.K. government is proposing an interim customs union with the European Union for a “time-limited” period following its divorce from the bloc to prevent a cliff edge for businesses. The paper also proposes two models of a future customs arrangement with the EU.

An interim period is intended to allow for a “smooth and orderly transition” for business moving goods between the U.K. and the EU – trade that totaled £553 billion in 2016. The U.K. proposes an interim customs union closely similar to the current EU customs union so that businesses would only need to adjust once to a new regime.

The current EU customs union eliminates tariffs on goods moving among EU member states and sets a common policy on customs and tariffs at the EU’s external borders. If the U.K. does not reach a new trade deal with the EU before it officially exits the bloc, trading rules will revert by default to World Trade Organization rules. This would include a customs and tariffs regime and other trade barriers between the U.K. and the EU and would create a customs border between Ireland and Northern Ireland.

The U.K. proposal would essentially continue the current customs union beyond March 2019 for a temporary transition period, but allow the U.K. to negotiate bilateral trade deals with individual countries, including non-EU countries, to be implemented only after the end of the transition period.

As for a future EU-U.K. customs relationship, the U.K. proposes two options:

• A highly streamlined customs arrangement that would aim to continue some of the existing agreements between the U.K. and EU, and new agreements to reduce trade barriers and technology-based solutions to make it easier to comply with customs procedures.
• A new customs partnership with the EU that “removes the need for a UK-EU customs border,” by aligning the U.K.’s customs regime with the EU’s customs border, i.e., applying the same tariffs as the EU for imports to the U.K. that are destined for the EU.

Read the U.K. government’s full policy proposal here.

BAL Analysis: The proposal is the U.K.’s opening offer and will need to be negotiated with the EU. An interim period that maintains the U.K.’s participation in the EU customs union would give businesses potentially an additional two years beyond 2019 to plan for changes to the U.K.’s trade relationship with the EU and non-EU countries. This ties in with the U.K.’s proposed transitional period during which free movement of people would be maintained.

Additionally, the proposal indicates that the government is seeking feedback from businesses on whether the proposals address their concerns and whether the government should propose additional alternatives or technological solutions. BAL encourages businesses to provide feedback, for example as part of the MAC request for evidence.

This alert has been provided by the BAL Global Practice group in the United Kingdom. For additional information, please contact uk@bal.com.

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