16 August 2017

Institute for Government: A customs deal is necessary but not sufficient for frictionless trade

A deal on customs is important to reducing post-Brexit trade friction, but a new paper from the IfG argues that leaving the EU will disrupt country’s important integrated supply chains in areas like automobile manufacturing. It will create friction in cross-border trade in goods.

The paper examines five potential options for future trade:

• A deep and comprehensive free trade deal, including customs cooperation
• A new customs union agreement
• Staying in the Single Market
• Combining staying in the Single Market with a new customs union arrangement
• Leaving with no deal and trading with the EU on WTO terms

The authors find that while “off-the-shelf” options – staying in the Single Market (the Norway model) or a new customs union (the EU-Turkey model) – could remove some disruption, none eliminate friction entirely.

Leaving with no deal would put the UK in a worse place than any other major trading partner and will maximise disruption, evidenced by the fact that no major country trades with the EU on WTO terms alone.

However, the authors say the Government is right to argue that friction at the border could be reduced by a deep and comprehensive free trade agreement including customs cooperation. But the options that might be easiest to negotiate are those that most likely cross current UK negotiating red lines.

Brexit inevitably introduces friction to supply chains. There is no model of a future or interim relationship after Brexit that can offer traders ‘the exact same benefits’ as the current relationship, other than simply maintaining all existing policies and relationships, including ECJ jurisdiction, without membership of the political institutions. [...]

Full paper

© Institute for Government