Salutary lessons for Brexit
There has been an active debate in the UK about its customs relationship with the European Union after Brexit. This has become particularly acute given the commitments made by the UK and EU to avoid a hard border in Ireland, the UK government’s insistence on avoiding any trade barriers within the UK, and the ambitious hopes for an independent UK trade policy in the future. The draft withdrawal agreement reached between UK and EU negotiators maintains the UK’s position inside the EU customs union during transition, and, in the Northern Ireland backstop protocol (the arrangements which will come into effect at the expiry of the transition period if a further agreement has not been reached), commits the UK to maintaining a single customs territory with the EU indefinitely, until an alternative arrangement is found. To square this circle, the UK has proposed a complex ‘facilitated customs partnership’ in which the UK would collect EU tariffs on goods that pass through the UK but are intended for the EU, while potentially operating different tariff rates on goods destined for the UK market, with any difference claimed back by UK importers – although the EU has rejected this proposal. The UK Labour Party, meanwhile, supports a new CU between the UK and the EU.
Turkey’s experience with the CU and its stalled modernization provides some important lessons for the UK’s departure from the EU
Turkey’s experience with the CU and its stalled modernization provides some important lessons for the UK’s departure from the EU.
First, the Turkish experience has demonstrated how the EU actively guards its institutional and legislative sovereignty, as well as its decision-making autonomy. Turkey has had to endure asymmetries regarding the non-application of some EU FTAs. The UK could face similar difficulties.
The Turkish government is frustrated by its limited influence over the EU’s trade policy. The perception in Ankara is that, in spite of the CU, Turkish economic interests are ignored when the EU negotiates FTAs with third countries. The European Commission is concerned with promoting advantages for the member states. If Britain remains in a CU after Brexit, it would fall into the same category as Turkey: an ‘associated state’. There may be space for creating new consultative mechanisms to give the UK a greater voice, but its direct influence will remain limited. The EU Commission will recognize that privileges or concessions made to the UK in any future relationship would create a demand for comparative treatment of Turkey in any upgraded CU. Furthermore, this makes it less likely that the EU will offer the UK mechanisms to influence the direction of EU trade policy as a non-member.
Second, the benefits of a CU alone in resolving border challenges are sometimes overstated. The EU–Turkey CU does not eliminate all requirements for border checks and non-tariff barriers, and a UK–EU CU would similarly not obviate the need for border checks on the island of Ireland. While the CU eliminates the need for rules of origin, regulatory barriers would remain. Turkish hauliers, as noted above, face long queues and onerous procedures at the Greek and Bulgarian borders. By comparison, the current UK rail and port crossings to France and Belgium are seamless for people and goods, a situation that could not be maintained if the UK exits the EU single market while remaining within the EU’s CU.
Third, Turkey’s experience illustrates that the UK government’s rejection of any form of CJEU jurisdiction may be a mistake. Turkey has found that the European Court has been an ally in knocking down barriers to trade, as shown by the Hungarian case described above: by interpreting the CU objective as seeking free movement of goods, it essentially treated Turkey as an EU member state for the purpose of trade in goods and struck down the motor vehicle tax levied by Hungary.
Fourth, this Hungarian case, although a positive development for Turkey, also indicates the limitation of relying on the CJEU to knock down trade barriers erected by the EU and/or member states. It is a piecemeal approach requiring legal action in a domestic court of the relevant member state; litigation could take several years while not preventing any member state from imposing similar obstacles to trade in the future. For example, an EU member state could, foreseeably, impose a tax on Turkish trucks crossing its territory on the grounds of environmental protection. Any attempt to challenge this measure would necessitate launching legal action in that member state’s courts, which will be expensive and time-consuming.
Fifth, if the UK government negotiates a simple FTA with the EU, or the limited UK–EU CU stipulated by the Irish backstop in the Withdrawal Agreement takes effect, the Hungarian case demonstrates that EU member states will be at liberty to impose all kinds of restrictions on UK road haulage services transporting UK exports to the EU. Given that neither free trade nor the limited UK–EU CU in the Withdrawal Agreement mean the free circulation of goods, the CJEU will likely view motor vehicle taxes, transit permits and any other pecuniary charge or quantitative measure imposed by an EU member state on UK lorries and trucks as lawful under the FTA and limited CU.
Sixth, politics and bureaucracy can get in the way of reform. The Turkish government is frustrated at the slow pace of the process to upgrade the CU and the ability of any EU member state to block the process. The UK is discovering, like Turkey, that the EU bureaucratic machinery moves methodically and laboriously and is rarely insulated from politics and diplomatic pressures.
The UK would be well-advised to avoid replicating the Turkey model, and if it is to pursue a CU in some form, to aim for a closer and more intimate economic relationship with the EU than that offered by even an upgraded Turkey-style CU.