Leaving the Customs Union would result in a £12.7bn a year bill for British businesses, according to new figures calculated by researchers at the Open Britain campaign. Additional red tape from the complex Rules of Origin regulations could add almost ten per cent to the cost of goods sold. The research comes after the Foreign Secretary said this week that ‘probably we will need to leave the Customs Union.’
Outside of the Customs Union, UK exporters would face additional costs from Rules of Origin regulations, which compel exporters to determine where a product originated. The common external tariff that operates in the EU means goods entering from outside can travel freely within the Union once that tariff has been paid. For example, a mobile phone currently imported into the UK from China can be re-exported to the rest of the EU without having to pay any more tariffs. This is not true for goods that enter the EU via the EEA or via other countries with which the EU has a free or preferential trading relationship, because they do not share the EU’s common external tariff.
Rules of Origin impose two costs on exporters. Firstly, exporters may face increased costs as they need to change their supply chains to ensure they meet the requirements of Rules of Origin. Secondly, exporters face the administrative burden of actually proving the Rules of Origin.
An assessment of those costs has been made previously in work commissioned by the Government by the Centre for Economic and Policy Research, who calculated that the exposure to a combination of administrative and compliance costs linked to Rules of Origin ranged from 4% to 15% of the cost of goods sold. The midpoint of this range (9.5%) would mean the cost for exporting businesses would be £12.7bn.
Anna Soubry MP, leading supporter of the Open Britain campaign, said:
“Brexit is supposed to herald a bonfire of bureaucracy but leaving the Customs Union would leave British firms mired in expensive additional red tape.
“The Government’s own figures suggest a multi-billion-pound bombshell for British businesses. Before slapping them with that kind of bill, we need concrete evidence that leaving the Customs Union will make Britain better off.
Joe Carberry, co-Executive Director of Open Britain, added:
“Leaving the Customs Union would add cost to businesses’ bottom lines and disrupt supply chains. The Government may be able to mitigate some costs, but not all.
“Ministers should commit to a full, public cost-benefit analysis of the consequences of leaving the Customs Union, rather than have this major decision hinted at in Czech newspapers.”
The House of Commons Library explains Rules of Origin and their role in the Customs Union:
“Because the EU operates with a common external tariff, goods entering from outside can travel freely within the Union once that tariff has been paid (e.g. a mobile phone imported into the UK from China can be re-exported to the rest of the EU tariff free). The same is not true of goods that enter the EU via the EEA (e.g. a mobile phone from China re-exported to the EU from Norway) or via other countries with which the EU has a free or preferential trading relationship, because they do not share the EU’s common external tariff.
“Determining where a good originated, and hence whether it should attract tariffs, is done through
the EU’s Rules of Origin. Given the complexity of some global supply chains and the range of preferential trading relationships the EU operates, this can be a difficult, time-consuming and often subjective process. Some of this burden, according to the Trade Policy Research Centre, would fall on UK firms in the form of administrative and compliance costs; they note that “the process of adapting to rules of origin-based duty-free trade under a new UK-EU free trade agreement would be tedious, costly and disruptive to trade.”
House of Commons Library: The economic impact of EU membership on the UK, September 2013,
Analysis undertaken for the Government by the Centre for Economic and Policy Research concluded:
“With the UK instead taking direct control over its external trade policies, and so operating outside the Customs Union, Rules of Origin would become necessary under free trade with the Customs Union. This means British firms would be exposed to a combination of administrative and compliance costs linked to Rules of Origin, ranging (based on existing estimates) from 4 percent to perhaps 15 percent of the cost of goods sold.”
The midpoint of 4% and 15% is 9.5%. In 2015, UK goods exported to the EU were valued at £134bn. 9.5% of that total is equivalent to £12.7bn of goods trade.
Boris Johnson gave an interview this week to a Czech newspaper in which he said that the UK was probably leaving the Customs Union: