Brexit: leaving Customs Union and/or Single Market -- what do these things really mean?

Question

I recently got quite a long and detailed reply from my local MP, Rachael Maskell, who recently resigned as Shadow Environment Secretary due to her opposition to Brexit. The reply was to an email I wrote a few weeks ago, originally about the Alisa Shevchenko election hacking story, but which related some aspects of the case to the likelihood of ending up reliant on Russia and the United States post-Brexit, and how the UK's stance on Ms Shevchenko might end up relating to that.

I was very political in my youth, but of late have been less so, and it seems that my younger self perhaps did not fully appreciate a lot of the depth and complexity of real politics. I don't want to rely on the methodology of understanding I had then: comparing the views of different commentators and working out which 'side' seemed to make most sense from there. Largely because this seems now to be quite a superficial method of arriving at conclusions. In this regard, I found that I was not able to understand all parts of the letter quite as fully as I might otherwise have.

One of the things I found most interesting was this passage (as the email was not marked with the usual admonitions not to disclose I feel I'm ok to reproduce? I hope it's ok anyway... it doesn't seem too personal or anything):

While the Referendum asked people if they wanted to leave the European Union last June, it did not ask if people wanted to leave the Single Market and Customs Union. Some people wanted to, some people didn’t know exactly what the Single Market or Customs Union were, while others were very clear that while they wanted to leave the European Union, they wanted to stay in the Single Market and Customs Union. When I was the Shadow Environment Secretary, there were many in the farming sector, for example, who wanted out of the Common Agricultural Policy, but most definitely wanted to stay in the Single Market, because 72% of the sector’s exports go to the European Union.

Now, while in theory I know what the Single Market and Customs Union are I am finding that in practice I'm not entirely certain. What would be useful to me would be situational, perhaps even anecdotal accounts of things that might or might not happen as a result.

For example, as a freelance web developer am I likely to see any changes when trading with other people over the internet? If there were a contractual dispute, for example, would I be in any different sort of situation? How about as regards taxes? Is it likely to change, say, the amount of paperwork I'm supposed to fill out and the difficulties and complexities of it, which I often find end up distracting me from the nitty gritty of finding clients and actually completing the contracts themselves.

How about if I started to trade on Ebay and was looking to import, say, dresses from a European country and sell them in England? Might I have to pay more customs duty on the items? Or less? Are there likely to be restrictions on what I can and cannot sell? Would not being part of a Single Market or Customs Union make any difference to any of these sorts of things?

Obviously it's not a good idea to consider things only from your own point of view, but these are possibilities that come to mind because they are my most direct experiences. Other plausible scenarios would be interesting to hear as well, though of course it always takes a little more brain-work to understand outside of your own immediate frames of reference.

In any case, the basic question is this: what are the practical implications of a Brexit that results in us leaving the Customs Union and/or Single Market? Can people explain these to me simply, in ways I am able to visualise, and which will aid me in understanding what the most likely implications would be for the people of the United Kingdom?

Answer 1

This has resulted in a number of explanatory articles: ukandeu.ac.uk, BBC, Economist.

Basically, a customs union allows for free movement of goods. A single market also allows for easy cross-border sales of services, as well as capital and (in the EU) people. The singleness of the single market is still an ongoing project - not all services can be sold cross-border, and some parts of this harmonisation are controversial (e.g. health services).

But the important thing for the UK is financial services, especially clearing of Euro-denominated financial instruments. The UK is undoubtedly going to lose some of this, although it's not yet clear how much.

Another important thing is what's called non-tariff barriers; basically differing product standards between markets. In theory a product that's legal to sell in one part of the EU ought to be saleable anywhere in the EU without re-design or re-certification.

Answer 2

A Free-Trade Area (FTA) is comprised of countries who have agreed to a set of rules and taxes in relation to trade and import/export. The participating countries are free to write their own rules for import/export partners who aren't signatories to the FTA.

Business Dictionary

A Customs Union is a FTA with a centralized import/export tax, that is applied to imports/exports from/to all countries regardless of whether they are signatories to the FTA - import/export taxes may be abolished for intra-fta trading.

Business Dictionary

A Common Market is the Customs Union and FTA, with the addition of having freedom-of-movement and freedom-of-capital, allowing companies and people to compete with each other regardless of which country their registered office/hq is (i.e. where your residence or citizenship is).

I need more reputation points to post links, but it's from the Business Dictionary

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In basic terms, all EU-UK trade relations will be similar to the UK's relation with any average country on earth such as Russia, unless new trade agreements are signed

A

If you wanted to buy a dress from someone outside the United Kingdom, you would need to look up the customs taxes that are required to import the dress, since the originating country will almost certainly require a separate FTA to be in place post-Brexit for abolition of custom fees.

B

If you had a dispute with someone based in another country, you can sue them in any country, but it's always up to the other country to decide whether to obey any ruling that's issued by a foriegn country.

A legal agreement would need to be in place for supranational interests to overrule national law. The most your country can do is impose domestic sanctions on foreign entities operating with your country.

The European Court of Human Rights, along with other supranational bodies and courts, will still be available to help protect your rights and legal protections - remember that Western Europe is still a friendly group of countries.

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My Opinion?

The United Kingdom will probably sign two strong free-trade agreements, with North America and European Union respectively. This will abolish the majority of trade taxes, making importing/exporting virtually similar.

Answer 3

It depends on Europe. It could range anywhere from treating the UK like the Vatican or Andorra, essentially ignoring the fact that it is another country and freely admitting UK citizens and goods without any difficulty. Or the Eu could treat the UK like the US treats Cuba.

It all depends on the deep feelings toward the UK of the Eu nation politicians, voters and media.

Answer 4

I think all the answers here are of very poor quality because they do not cite sources, ok some treaties without interpretation, and are mainly opinion based.

With regards to the referendum, it was advisory, however, parliament have voted, Mrs May has triggered article 50, there is not backstepping regardless of how legal one may consider the referendum. 51.9% of the voters voted leave, ~30% did not cast a vote on an important issue like that. The referendum has been held, it was not legally binding, parliament's vote was, as was May's triggering article 50.

The UK is no longer special, it used to be, while it was a member state, but it gave up all its special arrangements the day it called for article 50, economic strength post Brexit is arguably debatable, the UK is to lose its passporting rights (banks in Britain can trade on EU stock exchanges today, not once Brexit kicks in, the financial sector exports to EU weigh ~£35bn) and without clear trade deals, which look ever more unlikely given the simple solutions like customs union and single market do not seem to be feasible. Trade between UK and EU will not be frictionless.

The UK cannot remain in the single market without accepting the four freedoms (movement of goods, people, capital, services); this has been pointed out multiple times by Mr Barnier*, the negotiator, and other eminent European politicians such as Guy Verhofstadt and Martin Schultz among many others.

• Banier's speech
• Barnier in The Parliament Magazine
• Guy Verhofstadt
• Martin Schultz

The customs union is possible (no customs on goods), like what Turkey has, but then the UK would have no say, or very, very little say in trade policy, so no special deal with the US, India, Australia or whatever for the UK.

“We can’t change our rules; our rules will remain the same,” Barnier told a business conference in Sofia on Thursday. “When you’re in a customs union for goods, like Turkey for example, you become part of a common trade policy -- you don’t have autonomy anymore.”

Barnier on customs union

Also, a speech by Mr Barnier where he talks about the Irish backstop.

I want to explain how we propose maintaining these cross-border exchanges on the island of Ireland after Brexit, given the UK's decision to leave the EU, to leave the Single Market and to leave the Customs Union.

In clear, no special treatment for the UK, except Northern Ireland (people free to move in greater "rugby" Ireland ;-), EU stands in defense of Ireland, a respected member of the EU.

The EU has repeatedly called for the UK government to stop being delusional. There are many, many, many more sources for this, some dating back to 2016, and yet still, the UK does not acknowledge this.

The British Government is living in a “fantasy land” if it believes it can leave on good terms with the European Union in the event of Brexit, EU officials and diplomats have said.

Now to your other question regarding working for EU companies:

For example, as a freelance web developer am I likely to see any changes when trading with other people over the internet? If there were a contractual dispute, for example, would I be in any different sort of situation? How about as regards taxes? Is it likely to change, say, the amount of paperwork I'm supposed to fill out and the difficulties and complexities of it, which I often find end up distracting me from the nitty gritty of finding clients and actually completing the contracts themselves.

Unless the UK stay in the single market (the only option that allows unhindered services with other EU states), very unlikely, you will have to rely on what arrangements are made, once they are reached. I do not know what paperwork you have to fill out to work for a company in the US or India, but it seems likely you will have to fill out similar paperwork for EU countries unless a deal is struck. I doubt a deal on this will be feasible (cherry-picking freedoms is out of the question, see quotes from EU MEP's). You might end up paying taxes in both the EU country and the UK.

As for ebay:

How about if I started to trade on Ebay and was looking to import, say, dresses from a European country and sell them in England? Might I have to pay more customs duty on the items? Or less? Are there likely to be restrictions on what I can and cannot sell? Would not being part of a Single Market or Customs Union make any difference to any of these sorts of things?

This is where you would need at least a customs union. Without a customs union, your EU customers would have to pay customs for goods coming from the UK, just like when you buy on ebay from a Chinese reseller.

Answer 5

Brexit has triggered many things which a lot of people are unaware of.

The single market is one of these things: being part of Europe gave all members free trade, free passage of goods. This means a flat fee(if at all!) to simplify trade movements and contributing to globalisation.

Since the UK is effectively out of the EU, new rules have to come in place. New rates of import and export.

There will no longer be any free trades between the UK and European countries. What is likely to be negotiated is these future rates, import and export.

It will take a long time because after Brexit, we will go back to international laws of trading. This means that all goods are classified with codes for import and export. Quotas are likely to come into place as well.

As an example, if you export to China, you must show these commodity codes for all exported products clearly. You also need a custom declaration. In time, you also have to pay export taxes and so on... that works the other way as well with imports. If you sell services on the internet, I don't believe those rules yet apply... but might in the future. It's only for the movement of goods.

However....

That is the theory. We have been the 3rd strongest European economy in Europe for a long time and the theory will not necessarily apply. Europe which is already fragile needs the U.K. To trade with.. that is the reason it will take so long... and I expect we might be treated as some sort of "honorary member".

A last thought: every type of products manufactured have a commodity code, sub code and tariff... think of how many goods are currently traded in Europe and the world.... now think how long it'll take to re negotiate all of them?

Years!!

Answer 6

In EU Customs Union means that all trade between EU members and other countries are subject to a trade treaty between EUROPEAN UNION AND THAT COUNTRY. Contrary to what gayhindu alleges in his answer EU member states are not free to negotiate trade agreements with non-EU members. Single Market is a free flow of goods, services and people, not subject to any fees or barriers. While they're not the same they are part of the EU as a whole.

Brexit means that UK-EU relations need to be regulated by either negotiated treaty between EU and UK or, in case of failure of the negotiations, a default WTO rules.

It all depends on what the negotiations will be. Switzerland or Norway are not part of EU, but thanks to treaties they have somewhat limited access to EU Single Market (for which they pay). Norway, for example, does not impose any duties on import (technically it does, but it's 0%), which while not exactly eliminating paperwork, definitely limits it.

If negotiations fail then WTO rules would apply and that would mean all the bells and whistles of international trade. It is possible - buying in China or US for UK citizens is easy and cheap (even with duties), so while there will be more paperwork it may not exactly be difficult. Computers and software is a beautiful thing in business...