In a major policy speech this week, Jeremy Corbyn committed the Opposition to seeking a customs union with the EU after Brexit. Dr Andreas Kokkinis from the School of Law explores the possible consequences of this for UK trade.

He said: "The change of policy of the Labour Party regarding membership of the Customs Union is very significant, as it is the first time that the Opposition is differentiating its policies clearly from the hard Brexit policy of the incumbent Government.

"From a technical perspective, this would mean that the UK would still have access to smooth and tariff-free trade in most types of goods with the rest of the EU Member States and with the countries that have concluded free trade agreements with the EU. At the same time, this would effectively mean that the UK would not be able to enter into bilateral free trade agreements with non-EU countries, and on this ground this option has been rejected by the International Trade Secretary, Dr Liam Fox.

"However, it has to be borne in mind that the EU currently benefits from an extensive network of free trade agreements with third countries from which the UK will continue to benefit if it retains access to the Customs Union. The Comprehensive Economic and Trade Agreement with Canada, which came into force in September 2017, is the one that comes first to mind. However, the Economic Partnership Agreement with Japan which was concluded in December 2017 and will be ratified over the course of 2018 is even more important in terms of the size of the Japanese economy. Similar agreements, pending signature or ratification, have been reached with Singapore and Vietnam. In addition, the EU is currently negotiating a free trade agreement with Mercosur which comprises Brazil, Argentina, Paraguay and Uruguay.

"In view of this, it is questionable whether the UK on its own would be able to replicate the extensive network of free trade agreements that the EU will have in place in the foreseeable future let alone exceed it by reaching additional agreements. On its own the UK, being an economy of $ 2.5 trillion, has much less leverage than the EU with a combined GDP of more than $ 17 trillion.

"A further benefit of maintaining membership of the Customs Union after Brexit is that it is the only way to prevent the creation of a border both between Northern Ireland and the Republic of Ireland and between Northern Ireland and the rest of the UK (Great Britain). If the UK leaves the Customs Union the only way to avoid setting a border between Northern Ireland and the Republic, as agreed in December 2017 between the UK and EU, would be effectively to set up customs controls between Northern Ireland and Great Britain, which would jeopardise peace in Northern Ireland.

"That being said, membership of the Customs Union alone, as proposed by the Labour Party, without membership of the Single Market would resolve only a few of the challenges that Brexit pose for the economy. It would not do much for the financial services sector and services more generally (accounting for 80% of the UK’s GDP), as non-tariff barriers to the flow of services can only be avoided by membership of the Single Market."

27 February 2018

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