A customs union is an area where there are no tariffs between countries and members impose a common external tariff on all goods entering from non-members. In the context of the EU this means that goods can trade relatively freely within the EU because the same tariff rules have been applied regardless of the country of entry. In order to be members of the customs union the UK would need to adopt the same tariffs and standards on goods as the rest of the EU, and would not be able to enter into trade deals other than as part of the EU bloc. In a customs union the UK could continue to enjoy trade which is frictionless, both in terms of non-tariff barriers and tariffs. Being in a customs union would mean that the UK must keep most EU regulation the scrapping of which was one of the significant drivers of brexit, however it would also avoid creating additional red tape associated with ‘rules of origin’ checks.
The key disadvantage of a customs union is that it is not possible for the UK to have its own trade deals: it can’t be simultaneously offering a UK tariff regime and the EU regime. It is also not necessarily or automatically possible for the UK to take advantage of the reciprocal export opportunities offered by full EU membership. Perhaps the most commonly cited example of an existing customs union is that between Turkey and the EU, and which is not without difficulty for Turkey – namely that Turkey is required to allow imports at whatever tariff rate the EU have set whilst not benefitting from the reciprocal rights enjoyed by EU members. However the UK is a more developed and attractive economy than Turkey so it’s unreasonable to assume that UK could not secure a better deal.
A customs union is not the same as a ‘single market’. A customs union deals with duties and excise but in order to have truly frictionless trade it is also necessary to align quality and safety standards too, and this involves remaining in a single market.
Currently around the world there are a number of customs unions, of varying scale. In continental Europe there has been a customs union between Switzerland and Liechtenstein since 1924, whilst the Southern Common Market (or Mercosur) was established in the 1990’s and currently comprises Argentina, Brazil, Paraguay and Uruguay (Venezuela is also a member but is currently suspended because of a number of reasons including human rights violations).
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