With customs union membership still on the table as a way to break the Brexit deadlock, a new IEA briefing outlines how any short-term benefits of customs union membership – such as securing supply chains – would be significantly outweighed in the long-run by the loss of trade opportunities and higher prices for UK consumers.
Author Shanker Singham, Director of the IEA’s trade unit, highlights how a customs union would come with significant risk to UK consumers, who would lack representation in new EU trade agreements; UK consumers could also face price rises that protect EU manufacturers, and find their interests ranked secondary to those of EU producers. It would also reduce the UK’s influence with historic partners across the developing world.
On top of these drawbacks, membership of a customs union does not achieve ‘frictionless’ trade – one of the supposed benefits championed by those in support of staying in a customs union.
Consequences of remaining in a customs union
- UK would be unable to raise or lower tariffs according to its interests, ruling out the opportunity of an independent UK trade policy.
- UK would not be able to offer improved market access for goods and the UK’s persuasiveness in trade negotiations would be materially diminished.
- It is unlikely the EU would allow the UK to reclaim control of policy areas such as state aid and agriculture.
- Under the single customs territory in the backstop, trade defences would be run by the EU; as a DIT consultation revealed, even as members, EU trade remedies do not aid the UK.
- UK consumers could be harmed by EU trade defence measures aimed at protecting EU producers.
- UK would be forced to follow the EU’s trade policy towards the developing world, resulting in the loss of significant foreign policy influence with certain countries.
- Many of these downsides will be acutely felt by small and medium enterprises that are less dependent on UK-EU supply chains and don’t have lobbying power in Brussels.
- There will still be significant regulatory checks on UK-EU trade without Single Market alignment.
Commenting on the report, author and Director of the IEA’s International Trade and Competition Unit, Shanker Singham said:
“A customs union with the EU would come with significant costs to the UK’s economic, trade and foreign policies.
“Any short-term benefits of securing supply chains and reducing disruption would be heavily outweighed by the loss of trade opportunities, asymmetric agreements, higher prices for consumers and the inability to defend UK producers from unfair trade practices and the loss of foreign policy influence.”
Notes to editors:
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To download the IEA’s briefing “The consequences of a permanent customs union” please click here.
For more research from the IEA on the downsides of remaining in a customs union, please click here.
For more from the IEA in favour of a remaining in a customs union (EEA option) please click here.
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.
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