City A.M.: The EU “customs partnership” is one of the most half-baked ideas in economic history

Over the past week, the Prime Minister has confirmed that the UK will definitely leave the EU customs union, while a Downing Street spokesperson has reiterated that this is indeed government policy.

This naturally leads to the question of what leaving the customs union will mean in practice.

Last August, the government set out two options for the UK outside of the customs union. Neither received intense scrutiny at the time, but thankfully that has now changed.

The first option was a highly streamlined arrangement based around technology, cooperation, and indeed reality (the fact that almost 98 per cent of container traffic is not physically inspected and is pre-cleared): it entailed removing any need for a hard border with the EU.

The second option was the proposed “customs partnership” with the EU, and it is this arrangement which is now under the spotlight, up for discussion at this week’s meeting of the cabinet’s Brexit sub-committee.

However, any discussion is a waste of time. It is one of the most half-baked ideas in economic history. It should never have seen the light of day. It should have been strangled at birth.

The idea behind the customs partnership is that British exports to the EU would be tariff-free, and that the UK would not be part of the EU’s Common External Tariff (CET). Being outside the customs union would then permit the UK to negotiate and sign trade agreements with other countries across the globe.

So far so good, you might say, but dig deeper, and the partnership proposal justifies Jacob Rees-Mogg’s description of it as “completely cretinous”. The proposal bears all the hallmarks of an EU-leaning Whitehall bureaucracy intent on trying to hoodwink ministers and the general public.

Essentially, the UK would mirror the EU’s requirements for imports from the rest of the world when their final destination was the EU.

Britain would be a border agent for the EU, collecting the CET on EU-destined goods at a UK border entry point, but operating its own post-Brexit WTO tariff schedule for goods destined for here. These goods would ultimately pay a UK tariff, while those destined onwards for the EU would pay the EU’s CET at the UK border.

You only need to think about this for a moment to realise that it is completely impractical. There would need to be a tracking mechanism to check that those goods with the UK as the stated destination weren’t being forwarded on to the EU without paying the CET. As yet, no such tracking technology exists. It is yet to be designed, built, and tested.

And the problems get worse.

EU customs procedures require all countries to operate all tariff and non-tariff procedures in the same way. Under the partnership proposal, the UK would not only be collecting the EU’s CET and enforcing its tariff rate quotas, alongside its own tariff schedule. It would also have to enforce the EU’s non-tariff rules as well.

UK officials would have to police both regimes. This is completely bonkers.

One suggested way around some of these problems is that UK-destined goods could also pay the CET on arrival, with exporters then claiming back the difference between the higher EU and lower UK tariffs.

But this is hardly evidence of the UK taking back control. Imagine Liam Fox telling an American or Australian trade negotiator that they would have to pay the CET and then claim back a refund.

The fact that Whitehall came up with such a plan is deeply disturbing and makes one fear what the officials might do next.

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