Based on the rhetoric coming out of Number 10, it looks increasingly likely that the UK is going to leave the Single Market and the EU Customs Union.
Whilst the arguments for and against leaving the Customs Union are both strong (assuming we leave the Single Market), here are some ways we can leave the Customs Union and not be overwhelmed with red tape, bureaucracy and cost:
Rules of Origin 1: Waive Rules under a certain value (perhaps linked to transportation costs)
Rules of Origin force businesses with international supply chains to prove that the majority of the value add (or other means) comes from the exporting country in question (think of the automotive supply chain, with a UK plant building the final product). This can be very cumbersome and expensive, especially for complicated supply chains. One offset would be to waive these Rules of Origin for low-value items, where transportation costs from the UK to mainland EU are greater than any value of gaming the system by importing first into the UK, and then on-trading to the EU.Another idea would be to remove RoO laws for goods that have very low WTO tariffs
Rules of Origin 2: Derogation of Rules of Origin on certain sectors
This is essentially another way of ‘waiving’ the Rules of Origin documentation for certain industries. In the recent Canada-EU trade deal, there was ‘derogation’ in various sectors (such as apparel and the automotive sector). Given the trade imbalance (the UK imports more goods than it exports), it might even be in the EU’s interest to do this.
Technology has a huge role to play
We discuss this in more detail here (link), but the main areas are across documentation, pre-screening and rules of origin.
Rules of Origin 3: Agree to a liberal Cumulation definition with the EU
This would benefit both the UK, the EU and Third Countries that both the UK and EU have FTA’s with.
Mutual Recognition Agreement
We could agree to a mutual recognition agreement (MRA) on product standards and conformity assessments, similar to one already negotiated by the EU with Switzerland, Japan and Canada.
Authorised Economic Operators (AEO)
In the negotiations, the UK and the EU should agree to having Authorised Economic Operators (AEO), like the EU already has for VAT for EU imports. This will allow for trusted importers to pay all monies (customs, VAT, etc) in arrears, rather than shipment by shipment (which causes red tape and cost).
We should grandfather existing EU FTA’s.
Through the EU, the UK is subject to over 30 FTA’s (with over 60 countries). The UK should endeavour to grandfather those FTAs – by engaging both with those Third countries and the EU.
Full Customs cooperation between the UK and the EU
The UK should conform to the Union Customs Code and have close customs cooperation with the EU.
A long transition period
For the sake of business, trade and our customs systems, we need a healthy transition period.
The UK should adopt, retain or replicate certain EU Conventions & laws
Conventions ranging from haulier permits to Customs Informations Systems can help reduce friction costs and maintain cooperation.
A sectoral Customs Union?
The idea that for certain industries with complex supply chains, we create a ‘sector’ customs union. The Automotive industry could be a good example. However, whilst this sounds interesting, there are significant technical, political and legal challenges to this.
Parallel tariffs (for a period of time)
It might make sense for the UK to mirror all EU tariffs for a period of time. This would make the EU confident that goods aren’t being backdoored via the UK.The UK can still negotiate FTA’s, with an additional extra/rebate if goods are then on-traded to Europe. However, this would likely be hard to administer, hard to negotiate and riddled with problems.