After
months of vague and ambiguous statements about what Brexit actually means
(apart, of course, from Brexit), Prime Minister Theresa May laid out plans
for negotiations in a speech on Tuesday.
The Prime Minister confirmed
Britain will leave the EU single market and not remain a full member of the
customs union after Brexit, saying that she wanted the UK to be free
to set its own trade tariffs with other states.
This
will have several major implications. It will mean the country will no
longer benefit from the EU's trade deals with other nations. It could also mean
UK businesses face steep tariffs when exporting goods to the EU.
But
what is the customs union and what exactly will leaving it mean for people in
the UK?
What is the customs union?
The
customs union facilitates free trade between EU states by ensuring that they
all charge the same import duties to countries outside the union. The countries
also agree not to impose tariffs on goods travelling between countries in the
union.
Jeremy
Corbyn says Theresa May risks 'trade war' with Europe over Brexit strategy
The
agreement reduces administrative and financial trade barriers such as customs
checks and charges.
This
is different from a free trade area, which means no tariffs, taxes or quotas
are charged on goods and services moving within the area but allows its
participants to negotiate their own external trade deals.
It
is also not the same as the single market, which is broader, encompassing the
free movement of goods, services, capital and people.
The
European customs union is the largest in the world by economic output, which
gives it considerable negotiating power.
In
practice, it is possible to be outside the customs union but still have access
to the single market, as Norway is. This means it can negotiate its own trade
deals but has to accept free movement of people and must comply with EU
legislation - an option that would anger many UK Brexit voters.
Conversely,
Turkey, Andorra and San Marino have customs union agreements with the EU but
are not part of the single market. These agreements only cover certain goods.
Turkey's agreement with the EU for example, excludes agricultural products,
services and public procurement.
Brexit Concerns
What would leaving the customs union mean?
The
clearest effect of leaving the customs union is likely to be increased tariffs
leading to rising prices. EU officials have said that they will not give the UK
an easy ride, and the country cannot pick and choose which elements of the
union it wants to keep and which it does not.
In
practice, this means that if the UK restricts the free movement of people with
immigration controls it cannot have completely tariff-free access to the single
market. The cost of doing business will therefore rise, with those costs
ultimately being passed on to consumers.
Countries
Such as Switzerland and Norway do enjoy tariff-free access without being part
of the customs union but both accept free movement and make contributions to
the EU budget.
The
UK could negotiate a free trade deal with the EU, as Canada has recently done,
for example. This means the UK would have access to the single
market to sell its products but would not be part of it - ie, it would not have
to sign up to free movement of people. Agreeing such a deal could
take many years. The EU-Canada trade pact signed in October took seven years to
negotiate.
How big could the impact be?
A
huge 44 per cent of Britain’s exports go to the EU - £220bn out of £510bn -
according to the Office of National Statistics. They would be subject to import
tariffs as well as extra administrative costs.
If
the UK did not negotiate a more favourable trade deal with the EU, it would
have to trade on standard tariffs under World Trade Organisation rules.
An
analysis by The Independent found that the cost to Britain’s exporters
-- in extra tariffs alone -- would be at least
£4.5bn per year. This conservative estimate does not include the
difficult-to-measure costs of non-tariff barriers, such as the enforcement of
different market standards and regulations.
As
an example of how damaging a WTO scenario could be, the Nissan plant in
Sunderland, which has a workforce of 6,700, exported around 250,000
cars to the EU in 2015, around half of its output. Those exports would face a
tariff of up to 10 per cent outside the customs union unless a free trade deal
could be negotiated.
The
extra costs on companies could force them to relocate UK operations within the
EU after Brexit, potentially leading to job cuts.
In
Tuesday's speech, Ms May said she would pursue a free trade deal as an
alternative to membership of the customs union. Such a deal could significantly
lower tariffs though it may not match what the UK currently enjoys inside the
customs union.
What will the positive impacts be?
The
main positive put forward by hard-liners, such as Secretary of State for
International Trade Liam Fox,
is that Britain would be free to negotiate its own trade deals with non-EU
countries. This could allow the lowering of barriers elsewhere to help to make
up for any loss of trade with the EU.
However,
trade deals take a notoriously long time to negotiate - far longer than the two
years the Government has between triggering Article 50 and leaving the bloc.
The UK would also be in a far less advantageous negotiating position.
Being
the world’s largest economic trading bloc with 500 million relatively wealthy
consumers gives the EU hefty clout which the UK alone cannot match.
The
second positive put forward is that the country would not have to pay the £13bn
it paid to the EU for membership in 2015, though there would be other,
potentially huge, costs to businesses.
European
officials have also mooted charging an annual fee if the UK wants access to EU
markets to buy and sell its products but remains outside the customs union. The
Prime Minister warned on Tuesday that this would a be a "calamitous act of
self-harm" on the part of EU member states and threatened to ditch a deal
if it was seen as punitive.
Norway
is set to pay £140 per head for its access to the single market between 2015
and 2020. The UK currently pays £220, according to analysis by factchecking
organisation, Full Fact.
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