Brexit: Far from frictionless – Deutsche Bank

Recently, the UK government released a position paper on customs arrangements after Brexit and despite indications to the contrary in an article by the Chancellor and Trade Secretary at the weekend, the document clarifies the UK intends to remain part of the EU customs union in all but name after March 2019 for a time-limited transitional period, notes the analysis team at Deutsche Bank.

Key Quotes

“The document also sets out two potential options for the UK’s future customs relationship with the EU27, one involving a hard border and the other a proposing a new and untested customs partnership arrangement.”

“Clarification that the UK intends to seek a transitional deal maintaining existing customs arrangements is a positive, although not surprising, development. More problematic is the paper fails to address future trade in services, or the apparent contradiction between desire for unchanged customs arrangements during a transitional deal and PM May’s stated red line on ECJ jurisdiction after March ’19. The absence of any mention of legal enforceability and product standards is particularly puzzling as non-tariff barriers are typically a larger obstacle to trade than tariffs and the need to ensure harmonized regulatory standards during a transitional deal and afterwards will be one of the key challenges for policymaking.”

“Regarding customs relations after the transitional period, the position paper is long on ambition but short on detail. The EU does not currently share a frictionless customs border with any country outside the Single Market and customs union and such as proposal runs counter to the principles of the Single Market. The technological challenge in designing one would also be substantial. A positive interpretation is that the UK is pursuing an approach of constructive ambiguity, but it seems more likely that the tension between the UK’s government’s desire to reassert control over trade policy and the economic need to maintain close links with the EU27 has yet to be resolved. Until it is, there is little prospect of reducing market and business uncertainty on the outcome of Brexit talks.”