After the Prime Minister’s Lancaster House speech in early 2017, it seemed that the idea of the UK staying in the EU’s Customs Union after we leave was dead and buried. But like Frankenstein’s monster, it seems that the mad scientists in the basement of the Treasury have been running 50,000 volts through the dead body of this idea and are attempting to resurrect a deformed version of it, variously described as forming “a” customs union with the EU (not, apparently, “the” Customs Union), or “shadowing” or “aligning with” the EU Common External Tariff.

But all these formulae come to the same thing. They all involve us giving up our right to set and decide the tariffs which are applied to goods entering the UK from the rest of the world. But it is not just about tariffs. Customs also operate a vast range of non-tariff controls on goods, all the way from health and other standards on food to, for example, permissible chemicals and safety of children’s toys.

The idea of all these various schemes is that if the UK continues to operate EU-conforming controls on goods which enter the UK from the rest of the world, then it will be unnecessary to operate customs controls on goods which flow from the UK into the EU27. But the price of any such arrangement, however it is dressed up, would be – necessarily and inevitably – that the UK would also have to continue to operate the vast panoply of non-tariff controls which the EU applies to goods which enter its external borders from the rest of the world.

This in turn means that the UK could not depart from these rules and regulations in relation to goods which are domestically produced and placed on the UK market. This is for two reasons. First, the EU would not accept it since such goods would circulate freely into the EU27 in the absence of customs controls. Secondly, it would be illegal under WTO rules for the UK to impose different and more disadvantageous standards on goods imported from the rest of the world compared with the standards applied to goods from domestic producers.

So “alignment” with EU external customs controls inevitably means that a vast swathe of rules and regulations governing the production of goods within the UK would have to be kept the same as the EU rules. And in addition, we would be required to change them to keep them in line whenever the EU changed their own rules. We would be unable to change them in order to benefit British industry or consumers, and would have to change them to match the EU’s rules however damaging the EU’s rule change might be to our interests. And, not being a Member State, we would have no vote on the rule changes.

The same of course would apply to tariffs, where the EU’s tariff schedules are set to protect the interests of continental producer interests and are extremely damaging to British consumers who have to pay well above world prices for food, clothing and footwear where the highest tariffs are concentrated. Not only would we have to continue to match the EU’s damaging tariff schedule, but we would also have to match their so-called trade protection measures (anti-dumping duties etc) without having a say in them. So, for example, we would be required to impose anti-dumping duties if the EU Commission decides to do so to protect a continental producer interest from competition from cheaper suppliers in the world outside; and we would not be allowed to impose anti-dumping duties of our own if our own domestic industries are threatened by genuinely unfair trade practices, regardless of our own wishes.

The economic arguments against staying in the EU Customs Union are important, but the political and constitutional consequences are even more profound, and seem to be completely ignored those who argue for negotiating to stay inside “the” or “a” Customs Union. Remaining in the EU Customs Union, or remaining aligned in our external customs rules, would cripple the ability of the UK to govern ourselves as an independent nation and to decide our own laws over very wide fields of domestic policy extending far beyond customs controls themselves.

It would also prevent the UK from exercising an independent trade policy or concluding its own trade agreements with states outside the EU, and would inevitably result in the UK being subject to the continuing jurisdiction of the European Court of Justice (ECJ) over the interpretation and application of the common rules which regulate the customs union.

The inevitable consequences of customs alignment

The reasons why these are the inevitable consequences of remaining in the Customs Union will now be explained. For a fuller and more in depth explanation of the technicalities, see the Lawyers for Britain website.

The EU Customs Union is a system under which all the Member States follow a set of common rules in exercising customs controls over goods entering the EU from the outside. The core of this system of controls is the levying of tariffs and the imposition of trade quotas under the EU’s Common Customs Tariff; but the controls exercised by customs extend far beyond tariffs to a huge range of other matters, such as checking food for compliance with health standards and checking that consumer goods comply with safety rules (such as the rules limiting lead in children’s toys).

The very nature of the EU Customs Union requires that the common rules be interpreted and applied in a uniform manner by all Member States. If this were not done, it would result in goods entering the EU via the ports of a Member State with laxer controls and then circulating freely inside the EU into the markets of other Member States. Obviously, this cannot be tolerated under a system where no systematic customs controls are exercised on the flow of goods inside the EU between Member States, especially since importers might be tempted to “game the system” by diverting their imports into the EU to flow through the ports of a Member State where they had found a weakness.

The European Commission makes no bones about the nature of the Customs Union on its website:

“The Customs Union is a foundation of the European Union and an essential element in the functioning of the single market. The single market can only function properly when there is a common application of common rules at its external borders. To achieve that, the 28 national customs administrations of the EU act as though they were one.

“These common rules go beyond the Customs Union as such with its common tariff and extend to all aspects of trade policy, such as preferential trade, health and environmental controls, the common agricultural and fisheries policies, the protection of our economic interests by non tariff instruments and external relations policy measures.

“Today, in an era where terrorism and other serious crimes operate on a cross border and trans national basis, customs authorities are increasingly called upon to carry out non fiscal tasks aimed at improving internal EU security. The customs are thus facing new challenges: they must ensure the smooth flow of trade while applying necessary controls on the one hand, and also guarantee the protection of the safety and security of the Community’s citizens on the other hand.”

The requirement that each Customs Union member must have the same external tariffs causes a further problem. That is that individual members of a customs union cannot negotiate trade deals with non-member countries which involve reductions or waiving of tariffs. The reason is that goods could then flow in from the non-member state with which the deal had been done without paying the external tariffs, and then circulate inside the customs union into countries who are not parties to the trade deal. Therefore only the customs union as a whole, and not any individual member state, can enter into any form of trade agreement involving tariff concessions with non member countries.

A further consequence of operating a customs union under the EU system is that it leads to collection of the tariff revenue into a common central pot (less 20% retained by the Members States to cover collection costs). This is because when tariffs are collected at a port of entry, it is unknown where the goods will end up inside the EU and therefore which consumers in which country will ultimately bear the tariffs. This system of sharing of tariff revenue is particularly disadvantageous to the UK because it has the highest percentage of its trade outside the EU of any Member State.

It should be appreciated that these restrictions on the rights of the individual members of a customs union are intrinsic in the very nature of a customs union. They cannot be negotiated away, or it ceases to be a working customs union.

Free trade areas are different

Despite the fact that many people do not understand the difference between a customs union and a free trade area and tend to lump them together, they operate differently. A free trade area also achieves reduced or zero tariffs on trade in goods between its members. But it operates in a different way, which allows its individual members to operate their own differing external tariffs and non-tariff controls on imports from non-members, or indeed to conclude trade deals with non members which provide for zero or reduced tariffs.

Free trade area agreements typically apply zero tariffs to goods which originate within a member, but not to goods from outside which are simply imported into and pass through another member of the FTA. This means that a country’s own tariffs are not subverted by goods from outside the FTA which pass through the ports of another FTA member. There is however an administrative cost, in that customs controls between the FTA members are needed to check whether or not the goods originate within the other FTA member according to “rules of origin”, and levy tariffs if they do not originate within the FTA. Such rules of origin controls are not needed inside a customs union.

The EU is itself a customs union, but it has free trade area relations with almost all European states outside the EU. The non-EU EEA States – Norway, Iceland and Liechtenstein – have a free trade area relationship with the EU, not a customs union. This means that despite being inside the single market, they have autonomy on external tariffs and therefore are able to operate an independent trade policy from that of the EU. And the administrative costs can be greatly reduced by standard modern customs procedures such as electronic pre-clearance of goods and “trusted trader” arrangements.

So, whether to enter into a customs union or an FTA agreement involves a trade-off between the administrative costs of operating “rules of origin” controls within an FTA, and the economic and vast political costs of being forced to operate inappropriate tariffs, not to have autonomy over domestic rules on goods, and not being able to conclude international trade agreements with non-member countries.

In the case of the UK leaving the EU, it is also obvious that the disadvantages of being in a customs union with the EU increase markedly once we cease to be an EU member. While we are an EU member, at least we have a vote in setting the common tariffs and in the EU’s attempts at negotiating and concluding external trade agreements. Once we cease to be an EU member, if we remained a customs union member, we would simply have to take and follow the EU’s policies on tariffs and external trade without having any effective means of securing that these would reflect our own interests.

Customs union the control mechanisms

It is inherent in the nature of a customs union that there must be very tight harmonisation of the interpretation of the common rules. This is because a weakness in interpretation of the rules by one customs union member compared with others may well result in goods of the kind in question flooding in through the ports of the member which applies the weaker treatment and then fanning out throughout the customs union because of the lack of internal controls between customs union members.

This issue applies most obviously to tariffs, where even seemingly small differences in treatment (e.g. categorising certain goods within a lower tariff category) can have this kind of effect. If the customs union also applies to non-tariff customs controls such as technical standards or, for example, health checks on imported foodstuffs, then those controls will also have to be harmonised in detail.

Within the EU, the harmonisation of the rules and of their interpretation is carried out at the first level by the European Commission which operates the common tariff (and special variations to the tariffs such as anti-dumping duties), and gives legal and administrative guidance to national customs authorities. At the next level, the interpretation of the common rules is carried out by the European Court of Justice on preliminary references from courts and tribunals of Member States.

One example is Case C 338/95 Wiener SI GmbH [1997] ECR I 6495 where the ECJ was asked by the Bundesfinanzhof (German Federal Tax Court):

“Is the term ‘nightdresses’ within the meaning of tariff heading 60.04 of the 1985 Common Customs Tariff, specifically tariff subheading 60.04 B IV b 2 bb, to be interpreted as covering exclusively ‘other’ under garments which, in view of their characteristics, are clearly intended only to be worn as nightwear, or does it also cover products which, on the basis of their appearance, are intended mainly, but not exclusively, to be worn in bed?”

Despite a suggestion by the ECJ’s Advocate General, Sir Francis Jacobs, that the Court might decline to rule on this question because it was so detailed and trivial, the Court did rule, apparently because it was essential for the ECJ to give this kind of detailed ruling for the proper functioning of the Common Customs Tariff across all Member States. In a 23-paragraph judgment, which included reference back to a previous case in which it had ruled that ‘pyjamas’ covered clothes mainly worn in bed as well as clothes only worn in bed, the ECJ ruled that the term ‘nightdresses’ in the Common Customs Tariff “must be construed as covering under garments which, by reason of their objective characteristics, are intended to be worn exclusively or essentially in bed.”

This apparently somewhat comic example illustrates how detailed needs to be the system of interpretation of the common rules of the EU’s customs union.

Being a member of the EU customs union outside the EU

The only major state which is not an EU member but is in customs union with the EU is Turkey. (There are also some micro-states, such as the Vatican and Andorra, in customs union with the EU). In fact, the customs union with Turkey is not complete since it does not extend to most agricultural goods.

The agreement between the EC (as it then was) and Turkey under which the EU-Turkey customs union operates is set out in a 1995 Decision of the EC Turkey Association Council. Its provisions are extremely one sided, as can be seen from its final Article (66) on interpretation:

“The provisions of this Decision, in so far as they are identical in substance to the corresponding provisions of the Treaty establishing the European Community shall be interpreted for the purposes of their implementation and application to products covered by the Customs Union, in conformity with the relevant decisions of the Court of Justice of the European Communities.”

Turkey is required to “align itself with Common Customs Tariff” (Article 13(1)) and also to “adjust its customs tariff whenever necessary to take account of changes in the Common Customs Tariff” (Article 13(2)). Turkey has no right to be involved in the EC’s decisions on changing its Tariff, but under Article 14(1) is to be “informed” of such decisions “in sufficient time for it simultaneously to align the Turkish customs tariff on the Common Customs Tariff.”

More generally, Article 56(1) says:

“Where it adopts legislation in an area of direct relevance to the functioning of the Customs Union as defined in Article 54 (2), the Community shall immediately inform Turkey thereof within the Customs Union Joint Committee to allow Turkey to adopt corresponding legislation which will ensure the proper functioning of the Customs Union.”

Similar provisions require Turkey to adopt EU Regulations and ECJ case law in the area of competition law (Article 39(1)(a)).

Turkey of course has no vote on such legislation, merely a right to have Turkish experts “informally consulted” on occasions when Member State experts are consulted (Article 55(1)).

Regarding trade with non-Member countries, Turkey is required by Article 16 to harmonise its commercial policy (i.e. trade deals with non-EU countries) with that of the EC. Thus Turkey is obliged to grant tariff-free access to goods from a country with which the EU has negotiated a free trade agreement, without having a vote or a say in the negotiations.

However, this does not mean that Turkey will then necessarily get tariff-free access for its goods into the market of that non-Member state. That is dependent (Article 16(1)) on Turkey being able to negotiate a parallel trade agreement with that non-Member state.

Nor can Turkey negotiate its own free trade agreements with non-Member states. Doing so would breach the requirement to align its tariffs with the Common Customs Tariff.

For these reasons, the Turkey/EU customs union agreement has been compared by critics to the Capitulations of the Ottoman Empire, under which traders from Western countries entering the Ottoman Empire were exempted from local prosecution, local taxation, local conscription, and the searching of their domicile.

These provisions are not just a result of a weak negotiating position of Turkey. The problem is, that for the reasons already explained, it is just not possible to operate a customs union in which the individual members are allowed to diverge in tariffs or in the myriad of other matters subject to customs controls. Such divergence is simply not something which the EU is in a position to negotiate or agree to.

This leads on to two further very serious problems.

One is the issue of future changes to the rules of the common customs union. If the EU in future modifies or adds to those rules, a mechanism has to exist to maintain the application of harmonised rules at the frontiers of the customs union. That then entails an explicit one way obligation to follow the EU (like Turkey) or a disguised compulsion to follow (like under the EEA Agreement where EEA members are effectively forced to follow changes made by the EU to internal market rules without being allowed a vote on them).

The second very serious problem is the impact of the customs union on the ability of the non-EU member of the customs union to conclude trade agreements with third countries. It would not be able to agree FTAs involving zero tariffs on goods from a non-Member country because those goods would then enter and circulate round the customs union and avoid the tariffs which would be applicable if they had been sent direct from the third country to an EU state. Turkey has been deterred by this consideration from entering into any FTAs, other than FTAs which parallel the EU’s FTAs. To add insult to injury, Turkey is obliged to permit the import of goods from the EU which enter the EU tariff free under an EU FTA with a third country, even where Turkey is unable to obtain an FTA with that country to permit the tariff free export of its own goods there.

Since the EU customs union extends beyond tariffs and applies to many other matters, the need to follow future changes in EU rules applies equally to non-tariff controls. For example, it would not be possible for the UK to enter into an agreement with a third state under which that third state’s technical standards or, for example, food health controls would be recognised as compliant for imports to the UK, if those differed in any significant way from the common EU standards and controls.

Nor could the UK then diverge from these standards in its internal law if we were to wish to do so.

Given that in third country trade talks the Department for International Trade would be unable to offer either concessions on tariffs, or concessions on a wide range on non-tariff measures embodied in common EU customs rules, it is very difficult to see what it would have to offer our prospective trading partners in return for enhanced access for our goods and services to their market and therefore how any meaningful trade agreements could be concluded.

Harmonisation and sovereignty

The fundamental problem is that a system where all countries must closely follow a set of common rules (including future changes to them) and must interpret and apply them in a uniform manner necessarily severely curtails the internal and external sovereignty of customs union members. While we are EU members it can be argued that this is an area where sovereignty has been shared, in that we have a vote on these matters and have representation on the ECJ. This would cease on exit, and the argument that sovereignty had been “shared” would no longer apply.

It seems unlikely that the EU would be willing to agree anything other than a system under which the EU gives and the UK takes, if the UK wishes to remain inside “the” or “a” customs union.

Staying inside the EU Customs Union after ceasing to be a Member State would necessarily entail a severe and continuing curtailment of the UK’s powers to govern itself as an independent state and would subject it to the continuing effective jurisdiction of the ECJ.

Overall, the UK would be significantly worse off than it is at present as an EU Member because it would be bound by the common rules of the EU customs union over wide areas of policy, be unable to operate an international trade policy independently of the EU, but have no vote on these matters. It is a formula for inevitably making us worse off than if we had stayed in the EU, leading to political and economic disaster.