Customs deal not enough for post-Brexit trade

LONDON • Britain’s exit from the European Union (EU) will result in a worse customs deal than it has now, an independent think tank warned yesterday.

The only way for the UK to avoid customs checks and extra costs would be to stay in the single market and customs union, the London- based Institute for Government said in a report. Other options include staying in the customs union while leaving the single market or negotiating a free-trade agreement, but these would cause disruption to supply chains and would require trade-offs with the EU, the institute said.

“The government’s position papers show it grasps the potential for disruption to trade when we leave the EU,” Jill Rutter, the institute’s Brexit programme director, said in an email. “Until we see plans for the future relationship with the single market, particularly for agriculture and fisheries, we will not know the scale of likely border checks and additional compliance costs.”

The analysis comes just days after the UK published a paper laying out its strategy for customs after Brexit, which was criticised by Guy Verhofstadt, the European Parliament’s Brexit coordinator, as “fantasy.

The UK detailed two proposals to manage the border with the EU in the long run, through either a “highly streamlined customs arrangement” or a new customs partnership under which each side would enforce the other’s customs rules. It also said it hopes to stay in the customs union during a transition phase while beginning the process of trade talks with new partners.

The customs union approach would be likely to come at the cost of an impaired trade policy and the inability to set tariffs, the report said. Copying existing EU free-trade agreements, like the one with Canada, “would not come close to achieving the breadth and depth required to avoid barriers to trade,” it said.

While a conventional free-trade agreement would get rid of most tariffs, it would not solve the problem of customs checks. The UK government has suggested it could get around this by using technology to establish which country a product comes from or make importers pay the higher of the EU or UK tariffs and claim a refund as necessary.

The only option that would allow Britain to keep the same trade freedoms it has now is maintaining the status quo, the report said. The UK government has ruled this out as it would mean continuing to comply with the EU’s four freedoms, which allow for the free movement of goods, capital, services and labor throughout the bloc.

The report also said the sectors most dependent on the EU for supplies, including auto manufacturing, rubber and plastics, will be at risk. — Bloomberg