How to combine a customs union and bilateral trade deals?

A question widely discussed a few years back in the context of Brexit but one that's much bigger than that.

A couple of thoughts on that based on @_AnabelG's superb blog for @PIIE.

In principle CU members are not meant to sign their own FTAs but as @_AnabelG points out few of the existing CUs are perfect.

Many CUs are partial and some are a hybrid between a CU and an FTA – e.g. include rules of origin.

As a reminder: CU members have a common external tariff applied to all 3rd parties.

As a result, they can eliminate tariffs and other quantitative restrictions amongst themselves. Customs formalities and checks are still in place.

While we have examples of CUs with rules of origin, in principle a movement certificate is enough for goods to move within a CU – once a product is in a CU (gains CU status) it can be imported without further tariffs.

The main problem is – if you have an unrestricted, tariff-free flow of goods within a CU how do you prevent FTA partner's goods from entering the markets of other CU members?

Using the FTA to enter the markets of other CU members and avoiding the common tariff.

How to prevent this without introducing new barriers and checks between CU member states?

If you have an imperfect CU that already has RoOs it's easier. But the more “perfect” the CU, the more difficult it would be.

As such signing FTAs with third parties seems not compatible with facilitating trade between CU members.

The more there is that you need to control, the more controls you have to have.

And yet, as Anabel points out, there are advantages to such solutions.

FTAs focus on so much more than just customs, they can be leveraged for the benefit of other members and can provide an incentive for further regional integration.

Third-party cumulation would definitely help to make this possible. Especially now that the UK has opened the doors to using it across the board (WTO compatibility status still pending).

But that would require the FTA partner to agree.

Anabel's two first suggestions - greater transparency and reducing CET - would certainly help to mitigate the impact.

But some sort of practical customs mechanism to prevent transhipment would still need to be introduced.

Various ways to do it depending on the availability of resources and how much additional burden the traders would be willing to absorb.

This would be worth exploring further.

I reckon these questions are only going to become more important as various types of economic blocks continue to interact.

They will also probably become relevant again in the never-ending Brexit discussion sooner or later.

Worth exploring practical solutions.


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More from @AnnaJerzewska

24 Mar
At the heart of this entire mess is one thing and one thing only:

How do you communicate the scale of the new barriers to trade that are going to be introduced when for political reasons you are obliged to spin it as liberalisation?

It's not that the UK Gov didn't realise what was coming.

HMRC, DEFRA and other departments know these 3rd country rules inside out. They've got experts of their own in customs, SPS and everything else.

These Departments were well aware of requirements such as RoOs or health certificates.

But for some reason, whether it was lack of communication, deliberate decision or something else, that knowledge did not translate into a clear message from the UK Gov.

Read 11 tweets
22 Mar
Keep getting asked what are the chances HMRC will find out if you use an incorrect commodity code or declare preferential origin when you can't substantiate it.

And it usually makes me think of this TikTok


More importantly, though, I'm not entirely sure companies understand how important a "good compliance record" is in the long run.

If you look at the UK Trader Scheme, or other simplification etc a good compliance record is always a requirement.

Read 5 tweets
22 Mar
If you don't work in trade and have not been speaking to companies - read this🧵

Couple of really important points here:

1⃣ Companies will experience the consequences of the new formalities differently: for some things are working well(ish), others are no longer able to trade and their entire business model has collapsed.

It's a spectrum - where you are on that spectrum depends on your supply chain, industry etc.

Read 8 tweets
11 Mar
🚨🛃On today’s announcement regarding extending customs and SPS easements for imports into the UK.

A (longish)🧵: What’s happening? Which simplifications are being extended? And, more importantly, why?

2/ The story broke over the weekend following requests from the industry (I will come back to this).

See threads from @Joe_Mayes and @adampayne26

So what's changing?

3/ On customs (in blue):

The option to defer customs declarations for 6 months has been extended until 2022.

IMPORTANT - for goods imported until now declarations will still be due in July. But e.g. declarations for goods imported in July can be submitted in Jan 2022
Read 18 tweets
28 Feb
Was tempted to ignore this. First of all not sure how I feel about Gov posting "ad features". I come from a country where we had a lot of that under the previous regime (and the current one) and not sure I would recommend it.

(h/t @bakerstherald)
I love how one of the examples talks about how easy it was to import into the UK (all you need is an EORI and changes to invoices) when UK controls have not yet been introduced. Yes, of course, there were not delays!

Let's touch base in July

Also, the article, like the Gov Brexit campaign, fails to mention rules of origin. And if these companies are not affected by rules of origin (solely import EU made goods for the UK market - excluding NI) these are exceptions.

That's not the norm.

Read 8 tweets
14 Feb
It's not "EU's regulatory requirements".

It's normal export, import procedures. We have them too. So do other countries. When we export to these other markets where growth comes from (SIC) they will still need to be met. Paperwork will still be needed.

Every international cross-border transaction involves a tone of paperwork as you need to make sure you meet all of the requirements at the country of import (as well as some in your own country).

It's not the EU being unreasonable. It's like expecting the US to drop all of their regulatory requirements for us cause you know, we have that special relationship... Not going to happen.

Read 4 tweets

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