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Brexit: Custom’s Union debate and China

Brexit: Custom’s Union debate and China

February 26, 2018

Following the announcement by the leader of the opposition Jeremy Corbyn in the UK that the Labour party would favour the creation of a customs union with the EU. We look at the impact on UK-China relations on such a policy and without, what would happen.

Currently the UK is part of the EU wide Custom Union. So basically goods entering the EU from China will have a set tariff depending on the goods provided across all 28 members of the EU. This applies no matter what country it enters through. So for example if Italy imports leather from China to make handbags and then sells these in France, the only place a tariff would be applied would be when the leather entered Italy. The idea is to allow goods to move freely within the customs union without internal tariffs within the union.

The announcement today by Jeremy Corbyn looks to try and simulate this current stance. If this is the case China will have one body some sort of UK-EU organisation to settle the tariff with, if the EU and UK can agree that is.

So what would a UK outside the Customs Union mean for UK-China trade?

The UK’s policy towards China is a friendly one which seeks to promote increased trade. If the UK was not in the Customs Union, its simple. The UK could set its own tariffs on Chinese goods entering the country. This would allow the UK to set priorities for which goods they want most, instead of being in a union that has 28 members competing for the best tariff for the goods they see best helps their economy.

One of the major problems for the UK that has been pointed out is, who is the most dominate partner will always get the best deal. So in this case China is seen as the stronger partner, so a situation could occurs whereby the UK is forced to reduce its tariff for Chinese televisions for example, but UK services and good to China still apply for any tariffs when entering China. This would put the UK at a direct disadvantage. However when China has to deal with 28 countries as part of the EU, there is a stronger argument for China to reduce tariffs for EU goods and for the EU to follow suit as well. That is provided EU standards are maintained.

So if the UK was in this position would this occur? Would the UK also allow Chinese goods to enter the UK with lower standards than would be in the EU, it is all possible.

From a Chinese point of view, the UK being outside the EU would be easier to get a better tariff for Chinese goods and with the current close relationship and the UK’s current “global Britain” policy the fear could be that the UK would reduce standards and tariffs to allow anyone to trade with it other than the EU.

However like anything to do with Brexit, it’s all a guessing game until the final agreement between the EU and UK is finalised.