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Customs Union versus Single Market

With the EU-UK exit negotiations set to begin next week (19 June), the UK position on their future relationship with the EU remains very unclear.

The outcome of the snap General Election last week signalled a need to rethink the “hard Brexit” stance pushed by the UK’s Conservative party and there appears to be a glimmer of hope that the UK will instead choose to remain part of the Customs Union or indeed the Single Market. This begs the question what exactly is the Single Market and the Customs Union and what trade-offs would the UK need to make in order to retain their membership.

Single Market

The EU Single Market is the central project of the European Union and ensures the free movement of goods, services, investment and people. It has removed all barriers to trade across the 500 million-person area, through the elimination of tariffs, quotas and taxes. In order to achieve this, participating countries must follow harmonised regulation (for example on safety and standards), which also reduce administrative costs and prevent member countries from discriminating against goods or services from outside their country. However membership of the single market also requires unrestricted movement of people, allowing them to live and work in any single market country, meaning a country cannot restrict immigration from another EU Member State.

Customs Union

The Customs Union on the other hand is a less integrated free trade area. There are no restrictions on trade within the customs union, in terms of tariffs and quotas, but also there are no requirements on the free movement of labour nor is it necessary to follow harmonised rules on standards and quality for example. However, members of the customs union must apply a common system of tariffs and import quotas to goods and services from third countries and therefore a country cannot make bilateral trade deals with third countries, one of the UK Conservative Party’s key objectives in post-Brexit UK.

It is possible to be a member of just the customs union but not the single market, as is the case for Turkey, Andorra and the Isle of Man. And equally it is possible to be part of the single market but not the customs union, as Norway, Iceland and Lichtenstein have done.

These three countries have instead created the European Economic Area, whereby they agree to apply the same tariff to goods from third countries outside the EU. Once goods have cleared customs in one country they can be shipped to others in the union without further tariffs being imposed. However these non-customs union countries must implement strict “rules of origin”, to demonstrate which goods originate from their country and are therefore eligible for tariff-free entry to EU countries.

Therefore in order to move forward with one of these options, the UK Government will need to make a compromise on one of their key promises: Staying in the customs union means it cannot negotiate bilateral trade deals with countries like the U.S. and China, while staying in the single market means it cannot limit free movement of EU citizens.

By Alison Graham

European Affairs Executive

Tags: Brexit, Customs Union, Single Market, UK ele