Customs union, single market or free trade agreement: what’s the solution for Brexit?

Customs union, single market or free trade agreement: what’s the solution for Brexit?

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What’s the solution for Brexit?

By Etienne Mulders

Now that prime minister May is negotiating a Brexit solution with Labor leader Corbyn, we see confusion rising again about the different concepts that are on the table: free trade agreement, customs union, single market. Here’s a brief explanation. Spoiler: the promises of Brexit cannot be kept with a customs union or membership of the single market.

European Single Market

The European Single Market (ESM) covers all EU countries and Switzerland, Norway, Iceland and Liechtenstein. It is characterized by free movement of goods, capital, services and labor, no import duties, and harmonized legislation. But it also includes, the right to work in any of the states that are part of the ESM. This is the biggest issue the UK (or at least, the pro-Brexit faction) has with the ESM. The EU has made it clear that there cannot be any cherry picking with regards to the four freedoms.

Customs union

A customs union is a group of countries that forms a free trade area with a common external tariff policy. All members of the customs union apply the same import duties to imports from third countries. The EU and Turkey form a customs union. This means that the EU and Turkey do not charge import duties on goods that are traded between them. And it means that it doesn’t matter whether you import Chinese televisions in Belgium, Poland or Turkey; you will always pay the same import duties. Being in a customs union means you cannot have free trade agreements unilaterally, which is exactly what the Brexiteers see as critical to the UK’s economic success post Brexit.

Common misunderstanding

A common misunderstanding is that being outside the EU, but inside the single market or the customs union, means that there will be no customs declarations. This is incorrect. Every shipment to and from Turkey, Switzerland or Norway must be declared to customs, even if there are no import duties to be paid.

Free trade agreement

A free trade agreement is the least far-reaching form of cooperation. An FTA does not require the UK to be in a customs union or in the single market. The UK could have unilateral trade agreements with third countries and it could restrict labor migration into the UK. Under an FTA, all import duties could still be removed. The EU currently has FTA’s with many countries, such as Canada, Japan, South-Korea and South-Africa.