UK Government’s interim custom unions proposals: A temporary but worthwhile fix?

London

The Financial Times (FT) reported that the entire UK will remain tied to the customs union with the EU after 2021 until an alternative to having a hard border with Ireland can be found. The UK prime minister will present this proposal to a European Council meeting next month. The FT says that Mrs May’s allies believe a free-trade agreement (FTA) will be made with the EU during this time, however, 'Brexiteers' continue to question whether it means the UK will leave the EU or whether it remains a ‘rule-taker’.

Instead of moving immediately to the eventual post-Brexit customs scheme at the end of the transition period on January 1, 2021, the U.K. could agree to temporarily remain inside the EU’s common external tariff until a future customs arrangement is ready.

Such a temporary fix would, it is hoped, avoid a bombshell for business and a hard border in Northern Ireland, while allowing ministers to say they have formally left the EU customs union.

With no substantial movement in the Brexit negotiations for weeks because of Cabinet indecision, U.K. officials hope the proposal might be acceptable to the EU as an alternative to the disputed “backstop” proposal of keeping Northern Ireland within the EU’s customs union.

There remain serious question marks over whether 'Brexiteers' would accept a delay to Britain’s full exit from the EU customs union beyond the end of the transition period.

In Theresa May’s inner Brexit war Cabinet, ministers appear to be edging toward the so-called “maximum facilitation” option favored by 'Brexiteers'.

That arrangement would create a customs border between the EU and the U.K. but seek to offset its effects with technology and other special measures, so avoiding the need for a significant hardening of the border between Northern Ireland and the Republic.

Brexit Partners' opinion

The Prime Minister’s interim proposal are likely to temporarily give the UK access to key parts of the single market, including manufactured goods, agricultural products and possibly financial services. It potentially buys much needed time to enable government and business to prepare for Brexit if agreement can be achieved between the UK and the EU.  Whilst time and indeed capacity are in short supply, it does not obviate the need for firms to accesses and respond to the full strategic implicates of Brexit.

To date, too many large firms are well behind where they need to be in preparing for Brexit. This includes capitalising on the opportunities presented. 

The vast majority of SMEs have done little or nothing on Brexit. They don’t know where to start, are confused and awaiting political clarification. The sector already suffers from high degrees of financial exclusion and will be highly exposed to the impacts of any eventual trade deal.  The potential for a Brexit induced financial crisis resulting from the impact on SMEs still looms large. Addressing timing issues helps but does not fundamentally alter the negative impacts Brexit may have for the sector including costs, revenues, cash flows, supply chain disruption, market volatility, resourcing and so on.

 

 

Dr. Ray NultyComment