The EU Customs Union: What Would ‘No Deal’ Mean For Fleet Management?

There are 18 months left to go until Britain formally leaves the European Union. The exact implications of Britain’s departure from the trading bloc – and how the UK’s post-Brexit relationship might look – remain unclear, with negotiations so far producing little of substance. The precise nature of Britain’s final settlement with the remaining members of the EU are, however, inevitably going to have serious implications for businesses, especially those trading within the European single market.

But a lot of the terms being thrown around in this debate might look pretty obscure to most people. Much of the media coverage has focused on the issue of whether Britain will remain in the single market – and whether this is even possible without being a full member of the EU – but there’s also the risk that the negotiations fail to produce any mutually acceptable deal at all, and Britain finds itself ejected from both the single market and the EU customs union.

The repercussions of leaving the single market have been discussed at much length, so it’s the customs union which we will focus on here. Just what is it, and what does it mean for fleet management if the UK ends up outside of it?

What is the EU customs union?

In a nutshell, the EU’s customs union is a free trade area where all of its constituent member states agree not to impose tariffs on goods from other member states, and impose identical tariffs and taxes on imports from countries outside of that union. Britain is currently a member of the customs union as well as the single market. The aim is to harmonise regulatory standards, allow for frictionless trade within the customs union and ward off the threat of tit-for-tat trade wars among national governments inside the EU.

It remains uncertain whether or not Britain will remain in the customs union after Brexit. David Davis, the government’s Brexit secretary and who is therefore leading the negotiations on behalf of the UK, has floated the possibility of a transitional arrangement whereby the British government pays the EU to remain in the customs union after Brexit, which he claimed would be of mutual benefit.

However, Davis also suggested that Britain would look to continue working on bilateral trade deals with other countries (a process which is itself likely to take several years) while part of this transitional, temporary customs union arrangement – something which full customs union members are prevented from doing. It seems fairly unlikely, therefore, that this proposal offers much of a route forward from the current impasse on the issue.

It isn’t yet beyond the realms of possibility that Britain could remain inside both the single market and the customs union, but although it is likely to be the preferred option of most businesses, this may incur a backlash from some sections of the public hostile towards a ‘Brexit in name only’. It would also mean that while Britain would remain subject to EU regulations, it would have no real say in making them and it would still lose its MEPs in the European Parliament. This may prove politically unsustainable.

What are the likely implications of leaving the customs union?

One obvious risk following departure from the EU’s customs union is the potential repositioning of a ‘hard border’ in Ireland – reintroducing checkpoints on the border between the Republic and Northern Ireland, unseen since the mid-2000s when the last border posts were finally removed after the end of ‘the Troubles’. The UK government has insisted it wants “as frictionless and as seamless a border as possible” but was accused of “magical thinking” in this regard by one EU official. Even leaving the possible political implications to one side, in 2015 cross-border trade in Ireland totalled just under £2.5bn, so this is a huge issue for people and businesses on both sides of the divide.

Were Britain to leave the customs union without an adequate transitional arrangement, exporting to countries within the EU may become a more bureaucratic and complex process from March 2019. With new tariffs imposed, exporters – and fleet operators – may find that the paperwork associated with cross-border trade becomes considerably more onerous and time-consuming than it is at present, thereby adding to the already-substantial compliance burden they are already shouldering.

Another fear which has been raised is the possibility of lengthy tailbacks at ports and at the Channel Tunnel – on both sides of the water – as authorities try to get to grips with the increased amount of customs declarations. However, as the Financial Times has noted, it is possible this may have been somewhat overblown. Both Norway and Switzerland are outside the customs union and freight passes between both countries and the EU with minimal fuss. But as the FT also points out, both of those countries have accepted the free movement of people from EU member states – a key sticking point for British negotiators.

Ultimately, we won’t know for sure what the exact repercussions of leaving the customs union will be until it happens (which is still only an ‘if’ at this stage). But it is important for fleet operators to familiarise themselves with what might happen now, and take the appropriate precautions. The longer this apparent stalemate in the negotiations persists, the more the risk of a disorderly Brexit grows.