European Union: What Is The Customs Union?

As we continue to navigate the uncertainty that Brexit brings to trade, it's essential to understand what the Customs Union is and how the current landscape could change if and when the UK departs from the EU.

A unique global convention, the European Union (EU) Customs Union is an alliance between the 28 member states of the EU that ensures the tariff free movement of goods across the territory. It also applies a uniform system of customs duties on goods imported from outside the union. In practice, this means duty on goods from outside the EU is generally paid when they first enter, but there are subsequently no further fees or checks and all goods are able to move freely within the EU thereafter.

The EU is also part of three other customs unions with Andorra, San Marino and Turkey through separate bilateral agreements.

Difference between a customs union and free trade area

What distinguishes a customs union from a free trade area, is the ability to set common external tariffs. A free trade area allows member states to trade feely with each other while still being able to set their own tariffs on goods from the rest of the world.

The EU is one of the largest traders in the world, with a 15% share of the global trade market according to latest figures from the European Commission. In 2016, the value of EU trade with other countries amounted to EUR 3.5 trillion (1.71 trillion for imports and 1.75 trillion for exports).

Advantages and disadvantages of a customs union

British advocates of remaining in the EU Customs Union contend that if the UK were to leave, there would be much more paperwork for UK businesses to complete, and it could make border issues involving Northern Ireland and the Irish Republic much more complicated. Conversely, those who want to leave the convention say it would make it possible to negotiate big-ticket trade deals with countries that fall outside the union.

Under a no-deal exit, the UK would leave the customs union and single market overnight to begin trading with the EU due to World Trade Organisation rules.

As things currently stand, this is now the default legal outcome to the Brexit process unless the UK signs up to Theresa May's existing withdrawal agreement, the EU grants the UK another extension to the Brexit process or the UK withdraws its notice of intention to leave in advance of 31 October this year.

Brexit and business

While the circumstances of the UK's departure from the EU remain unclear, it is vital that businesses consider the potential outcomes and take action to prepare.

Our dedicated Brexit Unit helps our clients to navigate this period of uncertainty and plan for the future, providing advice in areas such as strategic planning, contingency risk management and managing transactions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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